TaxTMI Updates e-Newsletter
Jun 04,2016

Royalty - payments for use of industrial, commercial or scientific equipment - fees for technical services - ancillary and subsidiary services under Article 12(4) - dominion or control as determinative of 'use' - permanent establishment and business profits attributable to a PE - composite/indivisible contract versus divisible contract - construction/installation contract excluded from FTS as 'construction, assembly or like project'

Dominion or control as determinative of 'use' - royalty - payments for use of industrial, commercial or scientific equipment - Whether mobilisation and demobilisation charges paid under the IOCL contract constitute 'royalty' under Article 12(3)(b) of the DTAA and Section 9(1)(vi) of the Act - HELD THAT: - The Court found that for a payment to qualify as royalty for 'use' of equipment, the equipment must in fact be used by the payer in a manner amounting to dominion or control. On the facts of the IOCL contract the Court held that control over the marine spread and equipment remained with the Petitioner throughout; the equipment was used by the Petitioner to render services for IOCL and was not placed at IOCL's disposal. The Revenue did not contest before the AAR that royalty was not argued earlier, and the Court noted that earlier characterization in withholding certificates did not bind the AAR. Reliance on precedents concerning divisibility of contracts was inapposite because the contractual scheme and performance showed an integrated installation/service contract where mobilisation was integral to execution rather than a separate grant of use. Applying the dominion-or-control test (as developed in Asia Satellite Telecommunications and other authorities), the Court concluded that mobilisation/demobilisation payments could not be recharacterised as royalty payable for use of equipment. [Paras 24, 29, 34, 36]

Mobilisation and demobilisation charges do not constitute 'royalty' and cannot be taxed as such.

Fees for technical services - ancillary and subsidiary services under Article 12(4) - construction/installation contract excluded from FTS as 'construction, assembly or like project' - Whether the installation charges under the IOCL contract are taxable as 'fees for technical services' (FTS) under Article 12(4) of the DTAA and Explanation 2 to Section 9(1)(vii) of the Act - HELD THAT: - The Court examined Article 12(4)'s requirement that FTS be ancillary and subsidiary to the application or enjoyment of rights for which royalty is paid, or make available technical knowledge/know-how enabling the recipient to apply the technology. Having determined that mobilisation/demobilisation payments did not amount to royalty, the premise for treating installation as ancillary to a royalty-bearing use collapsed. Independently, the Court held that the services rendered by the Petitioner were construction and installation works forming part of an integrated project, falling within the exclusion in Explanation 2 which excludes 'consideration for any construction, assembly, mining or like project undertaken by the recipient' from FTS. The contract did not transfer technology, skill or know how enabling IOCL to undertake such activities on its own. Accordingly, the AAR's characterisation of installation charges as FTS was unsustainable. [Paras 39, 40, 44, 45]

Installation charges are not FTS; they fall within the construction/installation exclusion and are not taxable as FTS.

Composite/indivisible contract versus divisible contract - royalty - payments for use of industrial, commercial or scientific equipment - Whether the IOCL contract could be recharacterised as a divisible contract whereby mobilisation/demobilisation constituted a separable supply of use of equipment (hire) and installation was ancillary - HELD THAT: - The Court analysed the contractual documents and scope of work and found that, although the contract price was itemised, the Petitioner was engaged for a composite scope of installation, testing and commissioning using its marine spread and specialised manpower. The break-up in the price schedule did not convert the integrated construction and installation contract into a contract of hire of equipment or into separable components such that mobilisation was the main work and installation ancillary. The Revenue's reliance on divisibility and on Ishikawajima-Harima was rejected on the facts, because the documents showed the Petitioner retained control over equipment and performed an indivisible project. [Paras 41, 42, 43]

The contract is an integrated construction/installation contract and cannot be recharacterised as a divisible hire-of-equipment contract for taxing mobilisation as royalty.

Permanent establishment and business profits attributable to a PE - Whether the Petitioner had a permanent establishment (PE) in India in relation to the IOCL contract such that business profits could be taxed in India under Article 5 and Article 7 of the DTAA - HELD THAT: - The Court recorded that the AAR did not decide PE for the IOCL contract and the Revenue had not contended before the AAR that the Petitioner had a PE vis-a -vis IOCL. On the facts, the Petitioner had no fixed place of business in India and the personnel were present in India only for 41 days during 2008-09; there was no project office. Under Article 5(3) of the DTAA an installation/ construction activity leads to a PE only if it exceeds 183 days in a fiscal year. The Revenue did not establish presence meeting that threshold, so Article 7 (taxation of business profits attributable to PE) did not apply to bring the IOCL contract profits to tax in India. [Paras 25, 26, 27]

The Petitioner did not have a PE in India in respect of the IOCL contract; business profits from that contract are not taxable in India under the DTAA.

Final Conclusion: The AAR's order is set aside: mobilisation/demobilisation charges are not royalty; installation charges are not FTS; the contract is an integrated construction/installation contract and not a hire of equipment; and the Petitioner had no PE in India in relation to the IOCL contract. The writ petition is allowed.

Reopening of assessment under Section 147/148 - Protective assessment versus substantive assessment - Reason to believe - Income escaped assessment - Accommodation entries (bogus) and attribution of commission

Reopening of assessment under Section 147/148 - Reason to believe - Income escaped assessment - Accommodation entries (bogus) and attribution of commission - Protective assessment versus substantive assessment - Validity of reopening the assessment of the assessee for AY 2004-05 under Section 147/148 - HELD THAT: - The Assessing Officer reopened the assessment relying on a statement recorded during a survey of the assessee's director, Mr Subodh Gupta, which described a mechanism of providing accommodation entries and referred to a commission (premium) charged. The AO treated the commission as income of the assessee and made protective additions on that basis. The Court examined the statement and the illustration therein and concluded that the statement indicated the commission accrued to Mr Gupta personally and not to the assessee company. Any substantive assessment in respect of the commission ought to have been made in the hands of the person shown to have earned it, and investments ought to be examined as income in the hands of the beneficiaries. Further, the Tribunal's reasoning that a protective assessment cannot be made without an existing substantive assessment was noted. On these facts the reasons recorded did not establish the requisite formation of opinion under Section 147(1) that the assessee's income had escaped assessment, and therefore assumption of jurisdiction to reopen the assessee's assessment was unjustified. [Paras 7, 8]

Reopening under Section 147/148 was not justified; the reopening and protective additions were unwarranted and the assessment could not be reopened on the recorded reasons.

Final Conclusion: The appeal is dismissed; the ITAT was correct in holding that the reopening of the assessment for AY 2004-05 under Section 147/148 was unjustified, and the reopening/protective additions are set aside (order dismissing appeal in favour of the assessee).

Reopening of assessment under Section 147 - Reason to believe - Relevant material for reopening - Statements recorded during search - Assumption of jurisdiction - Concurrent proceedings and abeyance pending appellate decision

Reopening of assessment under Section 147 - Reason to believe - Relevant material for reopening - Statements recorded during search - Assumption of jurisdiction - Validity of notices issued under Section 147 for the assessment years 2009-10, 2010-11 and 2011-12 on the basis of information gathered by the Excise Department - HELD THAT: - The Court held that the Assessing Officer's reasons to believe were founded on material collected by the Central Excise Department, namely statements of the partners recorded during search and material obtained in further investigation. At the notice stage the test is whether there was relevant material on which a reasonable person could form the requisite belief that income had escaped assessment. The statements and the Excise Department's computation of year-wise gross receipts constituted relevant material enabling the AO to assume jurisdiction under Section 147. Reliance upon the settled principle that existence of relevant material suffices at the stage of forming belief was accepted.

Not interfered with; reopening on the basis of the Excise Department's material was held to be valid.

Concurrent proceedings and abeyance pending appellate decision - Assumption of jurisdiction - Whether proceedings under Section 147 should be kept in abeyance pending disposal of the appeal before the Customs, Excise and Service Tax Appellate Tribunal - HELD THAT: - The Court rejected the contention that the existence of an appeal before the appellate tribunal required the AO to defer action under Section 147. The petitioner was required to furnish requisite information in the reassessment proceedings and mere pendency of the appeal did not preclude the AO from assuming jurisdiction when relevant material existed.

Proceedings need not be kept in abeyance; contention dismissed.

Final Conclusion: Writ petition dismissed; the reassessment proceedings initiated under Section 147 for assessment years 2009-10, 2010-11 and 2011-12 were upheld as founded on relevant material gathered during search and investigation, and the plea for abeyance pending the excise appeal was rejected.

Deduction for irrecoverable advance written off - allowability in the year of crystallisation - mercantile system of accounting - Real Income Theory - bad debt deduction under section 36(1)(vii) of the Income Tax Act - prohibition on recovery from a sick industrial unit - protection against double allowance

Deduction for irrecoverable advance written off - allowability in the year of crystallisation - mercantile system of accounting - Real Income Theory - bad debt deduction under section 36(1)(vii) of the Income Tax Act - prohibition on recovery from a sick industrial unit - Assessee entitled to deduction in assessment year 2002-03 for advances written off as irrecoverable though the advances related to April 1998 to March 1999 and were not earlier written off or offered to tax by the assessee - HELD THAT: - The Tribunal found, on the material before it, that the dispute regarding liability was finally crystallized in the period under consideration by a letter from the debtor and by a report of the chartered accountant appointed by the assessee; additionally the debtor had been declared a sick industry by BIFR and recovery was prohibited under the relevant law. Applying mercantile accounting principles and the Real Income Theory, the assessee legitimately wrote off the advance as irrecoverable in its profit and loss account in the year when the right to claim was finally extinguished. The Court accepted that the deduction claimed in 2002-03 was not a claim under the specific bad debt head under section 36(1)(vii), and therefore the departmental contention that the amount should have been routed through earlier years as a bad debt was inapplicable. The Tribunal's conclusion that the claim crystallized in the assessment year 2002-03 and was allowable on that basis was held sustainable; the departmental view of disallowance was held unsupportable in law.

Tribunal's allowance of the write off in assessment year 2002-03 is upheld and the departmental disallowance is rejected.

Final Conclusion: The appeal is dismissed; the High Court affirms the Tribunal's decision allowing the assessee's claim to write off the advance as irrecoverable in AY 2002-03 on the ground that the liability was finally crystallized in that year and the deduction was properly claimed under mercantile accounting principles, without reliance on section 36(1)(vii).

Application of income for charitable or religious purposes - set-off of prior year deficit against subsequent year surplus - interpretation of Section 11(1)(a) of the Income-tax Act - treatment of repayment of loan as application of income - effect of CBDT circular dated 24.01.1973

Application of income for charitable or religious purposes - set-off of prior year deficit against subsequent year surplus - interpretation of Section 11(1)(a) of the Income-tax Act - effect of CBDT circular dated 24.01.1973 - Whether a deficit (excess of application over income) of an earlier year can be set off against the surplus of a subsequent year for the purpose of computing exemption under Section 11(1)(a). - HELD THAT: - The High Court agreed with the Tribunal and earlier High Court decisions that Sections 11(2) and 11(3) and the language of Section 11(1)(a) contain no requirement that income must be applied in the same year in which it arises. The CBDT circular dated 24.01.1973 treats repayment of a loan (taken to meet charitable expenditure in an earlier year) out of subsequent year income as application of income for charitable purposes. Money applied for charitable purposes beyond current year income may be met by loan or by corpus; where repayment or meeting of earlier-year excess expenditure is effected from subsequent year income, such utilization qualifies as application of income under Section 11(1)(a). In the absence of any statutory prohibition and in view of the circular and the cited High Court precedents, the Tribunal was justified in directing verification and, if the earlier-year deficit is established, in directing that the surplus for the later year be computed after setting off that deficit.

The Tribunal's conclusion that the earlier-year deficit may be set off against the subsequent-year surplus for computing exemption under Section 11(1)(a) is upheld; the matter was remitted to the assessing officer for verification and adjustment as directed.

Final Conclusion: The appeal is dismissed; the Tribunal's order directing verification and, if established, set-off of the earlier-year deficit against the 2005-06 surplus is affirmed.

Unexplained cash credit under section 68 - onus on assessee to prove identity, source and genuineness - exemption of long-term capital gains on sale of listed equity shares under section 10(38) - arranged/back-dated penny-stock transactions - requirement of proper inquiry before drawing adverse inference - distinguishing precedent on facts where sale not reflected on exchange

Unexplained cash credit under section 68 - onus on assessee to prove identity, source and genuineness - exemption of long-term capital gains on sale of listed equity shares under section 10(38) - arranged/back-dated penny-stock transactions - requirement of proper inquiry before drawing adverse inference - Addition of Rs. 32,94,982 as unexplained cash credit under section 68 was unsustainable and the long-term capital gain claimed under section 10(38) was accepted. - HELD THAT: - The Tribunal found that the assessee had placed before the AO documentary evidence-brokers' contract notes for purchase and sale, physical share certificates and transfer forms, D-MAT statement confirming shares in the assessee's name prior to sale, broker confirmation of sale on the Bombay Stock Exchange, receipt of sale proceeds through regular banking channels and disclosure in audited financial statements and earlier return-submitted well before completion of assessment. The AO made the addition based on presumption of back-dated/arranged transactions without conducting adequate inquiry to controvert these documents; there was no material on record of any adverse action or enquiry by SEBI/BSE. The facts were distinguishable from precedents relied on by the AO where sale was not reflected on the exchange and receipts were irregular. Applying the principle that adverse inference in penny-stock cases cannot be drawn merely from suspicion without investigation and direct contrary evidence, the Tribunal held that the assessee discharged the onus required under section 68 by establishing identity of the payer, source of funds and genuineness of the transaction, and therefore directed deletion of the addition and acceptance of the LTCG exemption under section 10(38). [Paras 3]

Addition under section 68 deleted and LTCG of Rs. 31,96,507 accepted as exempt under section 10(38).

Final Conclusion: The Tribunal allowed the appeal for A.Y. 2005-06, deleted the addition made under section 68 as based on presumptions without adequate inquiry, and accepted the claim of exempt long-term capital gain under section 10(38).

Classification of receipts as business income v. income from other sources - partnership of societies under section 20 of the Maharashtra Cooperative Societies Act - set-off of brought forward depreciation under section 32(2) - admission of additional evidence by the Commissioner (Appeals) - nomenclature or TDS treatment not determinative of tax character

Classification of receipts as business income v. income from other sources - partnership of societies under section 20 of the Maharashtra Cooperative Societies Act - nomenclature or TDS treatment not determinative of tax character - Whether lease/compensation received from Shriram Jawahar Shetakari Sahakari Sakhar Udyog is assessable as income from business or as income from other sources - HELD THAT: - The Tribunal held that the deed executed on 09.10.2006 constituted a statutory partnership of societies under section 20 of the Maharashtra Cooperative Societies Act and not a mere lease. The assessee contributed the sugar plant, licences, workforce and the canal of cane supply of its members; the other society brought finance, expertise and day-to-day management. The partnership deed provided for joint management (three partner-directors with participation of the assessee), specific allocation of rights and obligations, prior approval of members and a special formula for compensation. Although the deed provided that the working partner would take most profits and that the assessee would receive fixed compensation per MT, the Tribunal found that the assessee had taken business risks (supply of cane, provision and control of workforce, participation in management) and that the arrangement involved exploitation of the asset in a commercial enterprise rather than a simple letting out. The Tribunal further held that the payer's treatment (deduction of TDS as rent) or the nomenclature used by the parties is not decisive; the characterisation must follow substance over form (relying on the principle in Shambhu Investment). On these findings the receipts were held to be the assessee's business income and not income from other sources. [Paras 21, 22, 23, 24]

Lease/compensation from Jawahar to be assessed as income from business

Classification of receipts as business income v. income from other sources - partnership of societies under section 20 of the Maharashtra Cooperative Societies Act - Whether lease rent received from M/s Deccan Bottling & Distilling Industries Ltd. is assessable as business income or as income from other sources - HELD THAT: - Applying the reasoning adopted in respect of the Jawahar partnership - namely that the assessee's distillery formed part of the commercial operation and the arrangement was in substance an exploitation of assets within the business activity - the Tribunal held that the distillery receipts are business income rather than income from other sources. [Paras 25]

Lease rent from Deccan Bottling & Distilling Industries Ltd. to be assessed as income from business

Set-off of brought forward depreciation under section 32(2) - Whether unabsorbed brought forward depreciation is to be treated as current depreciation and allowed to be set off against income of the year - HELD THAT: - Having held the receipts to be business income, the Tribunal held that brought forward depreciation must be treated as part of current year depreciation in terms of section 32(2) and adjusted against the current year business income; any unabsorbed portion is to be carried forward. The Tribunal allowed the assessee's claim for set-off of unabsorbed depreciation for earlier years. [Paras 24, 26]

Allow set-off of unabsorbed brought forward depreciation as part of current depreciation and carry forward any balance

Admission of additional evidence by the Commissioner (Appeals) - Whether the partnership deed filed before the Commissioner (Appeals) as additional evidence should be admitted and regarded as genuine - HELD THAT: - Although the partnership deed was not filed before the Assessing Officer, the Commissioner (Appeals) considered and discussed its clauses. The Tribunal held that the Commissioner (Appeals) could admit and rely on the deed in the interests of justice, noting that the powers of the Commissioner (Appeals) are co-terminus with the Assessing Officer. On examination of the deed's terms and the statutory scheme under section 20, the Tribunal found the deed genuine and admitted it for deciding the issue. [Paras 24, 27, 28]

Partnership deed admitted as additional evidence and held to be genuine

Classification of receipts as business income v. income from other sources - applicability of section 43B disallowance - Whether disallowance under section 43B applies in view of the receipts being business income - HELD THAT: - The assessee contended that section 43B disallowance would not apply if the receipts were income from other sources; having held the receipts to be business income, the Tribunal observed that the provisions of section 43B are attracted. The matter was left to the Assessing Officer to verify and decide the applicability and extent of disallowance under section 43B in accordance with law. [Paras 29]

Issue remitted to the Assessing Officer for verification and decision on applicability of section 43B

Final Conclusion: The Tribunal partly allowed the appeal for AY 2008-09: lease/compensation receipts from Jawahar and from Deccan Bottling & Distilling Industries Ltd. were held to be income from business (not income from other sources); the partnership deed filed before the CIT(A) was admitted and held genuine; set-off of unabsorbed depreciation was allowed as part of current depreciation and carried forward if unabsorbed; the applicability of section 43B was remitted to the Assessing Officer for verification. The assessee's stay application was dismissed.

Presumptive taxation under Section 44BB - computation of gross receipts - Service tax as non-income and collection agent - exclusion from gross receipts - Self-contained code doctrine of Section 44BB - Inclusion of statutory levies in trading receipts - contextual application of Chowringhee and Lakshmi Machine Works - Remand for determination of interest under Sections 234B and 234C

Presumptive taxation under Section 44BB - computation of gross receipts - Service tax as non-income and collection agent - exclusion from gross receipts - Inclusion of statutory levies in trading receipts - contextual application of Chowringhee and Lakshmi Machine Works - Service tax collected by the assessee is not includible in the aggregate amount for computing presumptive income under Section 44BB. - HELD THAT: - The Tribunal held that the question is governed by the decision of the Delhi High Court in Mitchell Drilling, which construed Section 44BB as introducing presumptive income limited to amounts paid or payable for services or facilities provided by the assessee. Only amounts which are paid for services rendered by the assessee can form part of gross receipts under Section 44BB(2). The Tribunal accepted the High Court's reasoning that service tax is a statutory levy collected as agent for the Government and does not constitute income of the assessee. The decision distinguished earlier authorities (such as Chowringhee) as context specific and followed the Supreme Court's approach in Lakshmi Machine Works that statutory levies may or may not form part of turnover depending on the legislative purpose and context. The Tribunal also noted CBDT circulars treating service tax as not forming part of income for certain TDS purposes, reinforcing that service tax lacks the element of income and therefore must be excluded from receipts taxable under Section 44BB. [Paras 10, 11]

Grounds 1, 1.1, 1.2 and 1.3 dismissed; service tax not includible in gross receipts for computation under Section 44BB.

Remand for determination of interest under Sections 234B and 234C - Self-contained code doctrine of Section 44BB - Liability to interest under Sections 234B and 234C was not finally adjudicated and is remanded to the Assessing Officer for examination after giving effect to the exclusion of service tax from receipts. - HELD THAT: - Although the Tribunal allowed the assessee on the service tax issue, it did not finally determine the assessee's liability for interest under Sections 234B and 234C. The matter was restored to the file of the Assessing Officer to examine and compute interest consequences in light of the corrected aggregate receipts under Section 44BB. The remand is for fresh consideration and computation by the Assessing Officer rather than final adjudication on merits by the Tribunal. [Paras 12]

Grounds 2, 2.1 and 2.2 allowed for statistical purposes and the question of interest under Sections 234B/234C remanded to the Assessing Officer.

Final Conclusion: The departmental appeal is partly allowed for statistical purposes: the Tribunal upholds that service tax collected is not includible in gross receipts under Section 44BB for AY 2010-11, and restores the question of interest under Sections 234B/234C to the Assessing Officer for fresh examination after giving effect to this conclusion.

Registration under section 12AA - deemed grant of registration for failure to decide within six months - scope of inquiry under section 12AA - objects and genuineness of activities - effect of insufficiency of initial corpus on existence of trust - relevance of Indian Trusts Act provisions to creation of trust - curability of procedural defects and Rule 17A requirements

Deemed grant of registration for failure to decide within six months - registration under section 12AA - Whether failure by the Commissioner to pass an order within six months from the end of the month in which the application under section 12AA was filed results in deemed grant of registration. - HELD THAT: - The Tribunal held that non-decision within the statutory six-month period prescribed by section 12AA(2) leads to deemed grant of registration. The view is supported by precedents and is consistent with purposive construction: treating lapse as deemed registration protects the applicant from being left remediless and permits later cancellation under section 12AA(3) if justified. The factual timeline showed the original order refusing registration was passed beyond the six-month limit and the assessee had brought this to the notice of the Commissioner without remedy being provided. Administrative instructions stressing adherence to the six-month limit were also noted. [Paras 5]

Non-decision within the six-month period resulted in deemed grant of registration; the order refusing registration passed beyond that period could not deny the benefit of registration.

Scope of inquiry under section 12AA - objects and genuineness of activities - Whether the Commissioner was entitled to refuse registration by examining matters beyond the statutory scope, such as detailed sufficiency of corpus or the manner of application of funds, at the stage of section 12AA registration. - HELD THAT: - The Tribunal affirmed that the statutory inquiry under section 12AA is confined to satisfying whether the objects are charitable and the activities genuine. Detailed examination of modus operandi of application of funds, sufficiency of the initial corpus or ethical background of settlors is not a condition precedent for registration; such matters are relevant at assessment under sections 11 and 12. The Tribunal relied on judicial authorities holding that the Commissioner cannot refuse registration on extraneous grounds unrelated to genuineness of objects or activities. [Paras 5]

The Commissioner erred in treating sufficiency of initial corpus and detailed application of funds as grounds to refuse registration; the proper scope is limited to objects and genuineness of activities.

Effect of insufficiency of initial corpus on existence of trust - relevance of Indian Trusts Act provisions to creation of trust - Whether partial contribution of the stated initial corpus by settlors or alleged non-availability of the full corpus at execution precludes the trust from having come into existence and justifies refusal of registration. - HELD THAT: - The Tribunal found that the settlors had brought in part of the corpus and undertook to bring the balance later; such partial contribution did not vitiate creation of the trust. The provisions of the Indian Trusts Act (sections 5 and 6) were considered and held not to have been contravened so as to negate the trust's existence. The Tribunal observed that a trust comes into existence where the essential indicia are present and there was no allegation of diversion of funds or sham character. [Paras 5]

Insufficiency or promised future contribution of part of the initial corpus did not render the trust non-existent and was not a valid ground to refuse registration.

Curability of procedural defects and Rule 17A requirements - Whether non-submission of original documents and defects in Form 10A or Rule 17A requirements justified rejection of the application for registration. - HELD THAT: - The Tribunal held that certain defects noted by the Commissioner (such as absence of date on the Form 10A and non-production of some original documents) were curable and did not go to the root of the trust's existence or to the charitable nature of its objects. It further observed that the Rule 17A requirement for prior years' accounts has limited relevance after amendment of the law making registration effective from date of application, and therefore procedural lapses which are rectifiable should not defeat registration when objects and genuineness are established. [Paras 2, 5]

Procedural defects and non-submission of some documents under Rule 17A were curable and not a ground for refusing registration where objects and genuineness were satisfied.

Final Conclusion: The Tribunal allowed the appeal: the Commissioner had erred in refusing registration. The deficiencies relied upon did not negate the existence or charitable character of the trust, and because the refusal was passed beyond the six-month period prescribed, the assessee could not be denied registration under section 12AA.

Protective assessment - capital gains - diversion at source - reassessment consequent to appellate or civil court direction under section 150 - service of notice under section 143(2) - interest under sections 234A, 234B and 234C

Protective assessment - capital gains - diversion at source - reassessment consequent to appellate or civil court direction under section 150 - Whether the balance sale consideration of Rs. 45,30,000/- should be taxed in the hands of the assessee on protective basis or otherwise and whether direction for consequential action under section 150 is permissible. - HELD THAT: - The Tribunal upheld the view of the CIT(A) that the assessee had validly executed an irrevocable GPA and agreement of sale on 05.06.2004 and that the registered sale to the Municipal Council was effected through the GPA holder. The CIT(A) accepted the assessee's re-revised return declaring sale consideration at Rs. 7,50,000/- and treated the remaining consideration as received by the GPA holder. Because the assessee has a pending civil suit for recovery of the consideration and might receive amounts in future, the CIT(A) directed that any sum recovered later would be taxable in the hands of the assessee and that necessary action under section 150 should be taken. The Tribunal found no error in this approach, observing that the Act permits reassessment or recomputation consequent to directions or findings in other proceedings and that notice under section 148/section 150 procedure may be invoked to give effect to future receipts. Accordingly the protective treatment and direction for consequential action under the Act were held to be lawful. [Paras 8]

The CIT(A)'s direction to treat Rs. 45,30,000/- as held by the GPA holder and to tax any amount recovered by the assessee in future (by invoking procedure under section 150) is upheld; grounds 1 to 3 are dismissed.

Service of notice under section 143(2) - Whether the assessment is vitiated for want of service of notice under section 143(2). - HELD THAT: - The assessment order records that notice under section 143(2) was issued on 16.10.2006 and served on the assessee on 20.10.2006. The assessee attended proceedings personally and through authorised representative on multiple dates thereafter but failed to substantiate claims. The Tribunal, on the basis of the assessment record as noted by the Assessing Officer and relied upon by the Departmental Representative, found no merit in the contention that the assessment was illegal for want of notice. [Paras 10]

The ground challenging the assessment for non-issuance/non-service of notice under section 143(2) is rejected.

Interest under sections 234A, 234B and 234C - Whether the interest charged under sections 234A, 234B and 234C should be deleted. - HELD THAT: - The claim against interest liability was treated as consequential to the determination of income. Having upheld the assessment on merits (as to taxable consideration and protective treatment), the Tribunal found that the assessee's challenge to interest was consequential and not maintainable independently in the circumstances. Therefore the claim for deletion of interest was rejected. [Paras 11]

The plea for deletion of interest under sections 234A, 234B and 234C is rejected.

Final Conclusion: All grounds of appeal are dismissed and the order of the CIT(A) is upheld; the appeal is dismissed.

Assessment under Section 153A - Effect of search on completed assessments - Return processed under section 143(1) not pending - Requirement of incriminating material to disturb completed assessment

Assessment under Section 153A - Return processed under section 143(1) not pending - Effect of search on completed assessments - Scope of the assessing officer's powers under section 153A to reassess or interfere with assessments already completed by virtue of return processed under section 143(1). - HELD THAT: - The Tribunal held that section 153A empowers the AO to assess or reassess the total income of the six assessment years for which notice is mandatorily required after a search; however, the second proviso confines the abatement only to assessments that were pending on the date of initiation of search. A return processed under section 143(1) does not render the assessment 'pending' because the AO is not statutorily required to take further action; consequently such completed assessments do not abate. The power to make assessments under section 153A must be confined to undisclosed income unearthed during the search (or other post-search material with nexus to seized material), and cannot be used to make a de novo assessment in respect of items already disclosed and accepted in the original proceedings absent incriminating material discovered in the search. The Tribunal relied on and reproduced the legal exposition in paragraph 37 of the Delhi High Court's decision in CIT Central-III v. Kabul Chawla, which explains that completed assessments can be interfered with under section 153A only on the basis of incriminating material unearthed during the search or related post-search material. [Paras 5, 6]

Section 153A does not authorise reopening or making a de novo assessment of items already disclosed and accepted under a return processed u/s 143(1) in the absence of incriminating material found in the search.

Requirement of incriminating material to disturb completed assessment - Effect of search on completed assessments - Validity of the addition of Rs. 4,00,000 to the assessee's income where the gifts were disclosed in the original return processed u/s 143(1) and no incriminating material was found in the search. - HELD THAT: - On the facts, the return for AY 2004-05 had been processed under section 143(1) and no proceedings were pending on the date of the search; furthermore, the Department did not produce any incriminating material from the search to displace the genuineness of the gifts. Applying the principle that completed assessments cannot be interfered with under section 153A except on the basis of incriminating material unearthed in the search or related post-search material, the Tribunal found that the addition lacked any nexus to seized material and therefore was not tenable. [Paras 7]

The addition of Rs. 4,00,000 was wrongly made and is set aside.

Final Conclusion: Following the legal principle that completed assessments processed under section 143(1) are not 'pending' for purposes of abatement under section 153A and can be disturbed under section 153A only upon incriminating material found in the search, the Tribunal allowed the appeal and set aside the addition of Rs. 4,00,000.

Deeming fiction under section 50C in relation to valuation for capital gains (application to seller, not buyer) - application and retrospective non applicability of section 56(2)(vii) to inadequate consideration for immovable property - treatment of loan as unexplained cash credit under section 68 and evidentiary burden - addition as unexplained investment under section 69B where no positive material of excess investment exists - prospective operation of statutory amendment bringing under hand consideration to tax

Deeming fiction under section 50C in relation to valuation for capital gains (application to seller, not buyer) - burden of proof in purchases and bookings - Deletion of addition under section 50C in respect of alleged under valuation of purchase consideration by the buyer. - HELD THAT: - The Tribunal, following the reasoning of the CIT(A) and the jurisdictional High Court, held that the deeming fiction created by section 50C operates for computing capital gains of a seller and cannot be legitimately extended to treat a buyer's disclosed purchase consideration as understated merely because stamp valuation authority adopted a higher value. The assessee produced contemporaneous booking evidence, developer's ledger and bank payment for 2006 which supported that the unit was booked at the declared price and that the higher stamp valuation in 2008 reflected an increase in circle rates; on this basis the Assessing Officer's invocation of section 50C against the buyer was rejected and the addition deleted. [Paras 4]

Addition made invoking section 50C deleted; section 50C not applicable to the buyer on the facts.

Application and retrospective non applicability of section 56(2)(vii) to inadequate consideration for immovable property - prospective operation of statutory amendment bringing under hand consideration to tax - Assessing Officer's reliance on section 56(2)(vii) to tax difference between stamp duty value and declared consideration was rejected. - HELD THAT: - The CIT(A) found, and the Tribunal accepted, that the specific sub clause invoked by the Assessing Officer had a limited statutory history and was effectively withdrawn with retrospective effect to its date of insertion; consequently its application in the assessment year under consideration was incorrect. Further, the statutory provision that later addressed under hand payments was introduced prospectively (with effect from A.Y. 2014 15) and therefore could not be invoked for the year before the authorities. [Paras 4]

Reliance on section 56(2)(vii) rejected; no taxability under that provision in the facts and period under consideration.

Treatment of loan as unexplained cash credit under section 68 and evidentiary burden - Deletion of addition treating an alleged loan from the assessee's father as unexplained cash credit under section 68. - HELD THAT: - The assessee furnished during appellate proceedings the lender's bank statements, return of income for the relevant year, sale deed evidencing the lender's receipt of sale proceeds and a confirmation of loan and partial repayment. The CIT(A) held these documents satisfactorily explained the source of the loan and rebutted the Assessing Officer's suspicion; the Tribunal, on review of the records, affirmed that the loan of Rs. 10,00,000 was explained and the addition under section 68 was deleted. [Paras 5]

Loan treated as explained; addition under section 68 deleted.

Addition as unexplained investment under section 69B where no positive material of excess investment exists - No addition under section 69B for alleged unexplained investment where there was no positive material to show investment over and above declared consideration. - HELD THAT: - The Tribunal noted that the Assessing Officer made additions by equating stamp valuation (or DVO estimate) with actual investment without independent verification from the seller or other positive evidence that the assessee had in fact invested sums beyond the declared purchase price. In the absence of such material, and with the prospective statutory mechanism for taxing undervalued consideration not being applicable to the year in issue, the authorities were not justified in making additions as unexplained investment under section 69B. [Paras 4, 5]

Addition as unexplained investment under section 69B not sustainable and deleted.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s deletions: the addition under section 50C was not applicable to the buyer and was deleted; reliance on section 56(2)(vii) was incorrect for the period; the alleged loan was held explained and section 68 addition deleted; no addition under section 69B could be sustained in absence of positive material of excess investment.

Transfer pricing adjustment - exclusion of non operating income and corresponding costs - disallowance of business expenditure for lack of supporting details - characterisation of guarantee fees - interest versus business profits - permanent establishment and enforceability of foreign guarantee in India - remand to Dispute Resolution Panel under Section 144C(13)

Transfer pricing adjustment - exclusion of non operating income and corresponding costs - remand to Dispute Resolution Panel under Section 144C(13) - Whether the expenditure corresponding to excluded annual maintenance service (AMC) income was excluded from operating cost and the matter requires verification by the Assessing Officer and reference to the DRP. - HELD THAT: - The Transfer Pricing Officer proposed exclusion of miscellaneous income from annual maintenance charges when computing profit from manufacture and sale. The Tribunal held that justice requires that the corresponding expenditure incurred to earn that miscellaneous income must also be excluded. As it is not clear from the TPO's or AO's orders whether such expenditure was actually excluded and the DRP did not consider this aspect, the Tribunal set aside the lower orders and directed the Assessing Officer to refer the issue to the DRP for examination. The AO is to pass an order in conformity with the DRP's directions as per the statutory procedure. [Paras 4]

Matter remitted to the Assessing Officer to refer the question of exclusion of expenditure related to AMC income to the DRP; AO to act thereafter under Section 144C(13).

Disallowance of business expenditure for lack of supporting details - Whether the claim of sales commission of Rs. 10,50,000 was allowable in absence of details of agents, addresses and particulars of services rendered. - HELD THAT: - The assessee produced invoices but failed to furnish names and addresses of commission agents, details of services rendered or particulars of commission paid. The DRP and TPO recorded absence of such material and noted a similar disallowance for the earlier year on identical facts. The Tribunal, on perusal of record and submissions, found no sufficient evidence to establish the expenditure and therefore upheld the disallowance. [Paras 8]

Disallowance of the claimed sales commission is confirmed.

Characterisation of guarantee fees - interest versus business profits - permanent establishment and enforceability of foreign guarantee in India - remand to Dispute Resolution Panel under Section 144C(13) - Whether the corporate performance guarantee fee paid to the parent company (Denmark) is to be treated as interest subject to withholding under domestic law or, alternatively, as business profits and whether it is taxable in India; and whether questions of enforceability and PE require fresh examination. - HELD THAT: - The Tribunal found that the payment did not have the character of interest under the India Denmark DTAA and is prima facie a payment for a performance guarantee that would ordinarily constitute business profits of the parent. However, critical questions remained open: the nature and location of services rendered by the parent, whether the guarantee is enforceable in India, and whether the parent had a permanent establishment in India in respect of such income. These aspects were not considered by the TPO or the DRP. Accordingly, the Tribunal set aside the lower orders and remitted the matter to the Assessing Officer with a direction to refer the issue to the DRP for examination (with opportunity to the assessee) and to proceed under Section 144C(13). [Paras 12]

Issue of performance guarantee fee remitted to the Assessing Officer for reference to the DRP and fresh decision in accordance with Section 144C(13).

Final Conclusion: The Tribunal upheld the disallowance of the sales commission claim and remitted two issues - (i) exclusion of expenditure corresponding to excluded AMC income and (ii) characterisation and taxability of the performance guarantee fee paid to the parent - to the Assessing Officer for reference to the DRP and fresh consideration; appeal allowed for statistical purposes.

Deduction under section 80IB - manufacturing activity - plant and machinery - classification of storage tank - new industrial undertaking - use of brand new machinery - computation of old and new machinery proportion - workers employed through labour contractors treated as "workers" - use of power in manufacturing and attendant worker-threshold - remand for fresh adjudication

Manufacturing activity - Whether the assessee's activities of producing varnish, thinner and wood polish amount to "manufacturing activity" for the purpose of claiming deduction under section 80IB - HELD THAT: - The Tribunal noted that the Assessing Officer held the activities were not manufacturing while the CIT(A) accepted the assessee's claim without remand. The material on record did not satisfactorily establish the nature of the processes involved and the CIT(A) accepted documents (including PF evidence) without recalling the matter to the AO for verification. Given these lacunae, the Tribunal did not decide the question on merits but directed a fresh examination by the Assessing Officer to determine whether the processes amount to manufacturing in law after considering all relevant material and giving the assessee an opportunity of being heard. [Paras 6]

Question remitted to the Assessing Officer for fresh adjudication and factual verification.

Plant and machinery - classification of storage tank - new industrial undertaking - use of brand new machinery - computation of old and new machinery proportion - Whether the storage tank and other assets constitute "plant and machinery" and whether the proportion of old to new machinery complies with the eligibility requirement for deduction under section 80IB - HELD THAT: - The Assessing Officer compared opening written down value with additions and concluded old machinery exceeded permitted limits; the CIT(A) concluded the opening assets were new without addressing the nature of the additions (storage tank) or calling for verification. The Tribunal found that the factual basis for classifying the storage tank and for computing the ratio of old to new machinery was not adequately examined. Consequently, the Tribunal set aside the orders below and directed the Assessing Officer to examine and bring on record particulars of old machineries and new machinery acquisitions, and to decide the matter afresh in accordance with law after opportunity to the assessee. [Paras 6]

Matter remitted to the Assessing Officer for fresh factual and legal determination on classification of assets and computation of old vs new machinery.

Workers employed through labour contractors treated as "workers" - use of power in manufacturing and attendant worker-threshold - Whether contract labour engaged through labour contractors may be counted as "workers" for satisfying the employee-threshold for section 80IB and whether the manufacturing activity is with or without the aid of power (which fixes the numerical threshold) - HELD THAT: - The CIT(A) held that permanent employees and contract workers together satisfied the required number of workers, relying on precedents; the Assessing Officer had found fewer than the requisite number. The Tribunal observed that the CIT(A) reached conclusions on the workforce composition based on material not before the AO and without seeking verification. The Tribunal directed the AO to reexamine the composition of employees (permanent and contractual), to verify records relied upon (including PF records), and to determine whether the manufacturing is carried on with the aid of power, and thereafter to decide entitlement to deduction in accordance with law after giving the assessee a reasonable opportunity. [Paras 6]

Issue remitted to the Assessing Officer for verification of employee-strength (permanent and contractual) and for determination whether manufacturing is with the aid of power.

Final Conclusion: The Tribunal set aside the orders of the lower authorities for AYs 2006-07 and 2007-08 and remitted the entire claim of deduction under section 80IB to the Assessing Officer for fresh examination on the nature of activity (manufacturing), classification and valuation of plant and machinery, computation of old versus new machinery, and verification of employee-strength (permanent and contractual) and use of power, with a direction to decide in accordance with law after affording the assessee a reasonable opportunity.

Transfer pricing adjustment - Arm's Length Price (ALP) - Comparable Uncontrolled Price (CUP) method - Transactional Net Margin Method (TNMM) - Transaction-by-transaction approach - Section 37(1) deductibility - Role of TPO and AO under Transfer Pricing - Dispute Resolution Panel (DRP) directions

Role of TPO and AO under Transfer Pricing - Section 37(1) deductibility - Arm's Length Price (ALP) - Validity of addition made pursuant to TPO/DRP findings without AO's examination of deductibility under section 37(1) and whether the assessment should be set aside and remanded. - HELD THAT: - The TPO initially determined Nil ALP for the international transaction of payment of royalty on model 3DX, concluding no benefit accrued to the assessee; the AO gave effect to the TPO/DRP direction without independently examining the deductibility of the royalty under section 37(1). Reliance on the ratio in Cushman & Wakefield (Delhi High Court) shows that the TPO's function is limited to establishing ALP, while the AO must thereafter consider deductibility under section 37(1). Because the AO did not carry out that independent inquiry and the TPO had found Nil ALP, the tribunal found the AO/TPO action inconsistent with the cited precedent and with earlier tribunal orders in the assessee's own case for preceding years. Accordingly the impugned order was set aside and the matter remitted to the AO/TPO for proceedings consonant with Cushman & Wakefield and the tribunal precedents, requiring the TPO to determine ALP and the AO then to decide deductibility under section 37(1), with opportunity to be heard. [Paras 6]

Impugned assessment order set aside and remitted to AO/TPO for fresh adjudication: TPO to determine ALP and AO to examine deductibility under section 37(1) in conformity with Cushman & Wakefield and relevant tribunal orders.

Transactional Net Margin Method (TNMM) - Comparable Uncontrolled Price (CUP) method - Transaction-by-transaction approach - Appropriateness of applying TNMM on entity level vis-a -vis separate benchmarking of the royalty payment transaction for model 3DX under the CUP method. - HELD THAT: - The tribunal held that aggregation of all international transactions under TNMM on an entity level is not appropriate for the royalty payment on model 3DX. Analysis of judicial guidance (including distinctions drawn in Sony Ericsson and Knorr-Bremse) shows that where an international transaction is independent or where comparables performing similar functions are not available or adjustments are not possible, a transaction-by-transaction approach is required. In particular, for a manufacturer the manufacturing-related transactions cannot be indiscriminately aggregated with other transactions; therefore the royalty payment must be benchmarked separately. The assessee's chosen CUP comparables were rejected by the TPO on cogent grounds; nevertheless, where the assessee fails to provide appropriate comparables, it is for the TPO to search for relevant comparables and determine ALP. Following tribunal precedents in the assessee's earlier years, the tribunal affirmed that CUP is the most appropriate method for the royalty transaction on model 3DX and directed a fresh determination of ALP under CUP after affording a reasonable opportunity of being heard. [Paras 7, 8]

TNMM on entity level rejected for the royalty transaction; royalty for model 3DX to be benchmarked by CUP on a transaction-by-transaction basis and ALP to be redetermined by AO/TPO after hearing.

Final Conclusion: The impugned assessment order is set aside and the appeal is allowed for statistical purposes; the matter is remitted to the AO/TPO for fresh determination of the ALP of the royalty payment for model 3DX by applying the CUP method (with the TPO to determine ALP and the AO thereafter to examine deductibility under section 37(1)), in conformity with the Delhi High Court precedent and the tribunal's earlier orders, after affording the assessee a reasonable opportunity of being heard.

Refund of customs duty - treatment of DEPB scrips in discharge of duty - restitution following re adjudication - no statutory basis for pro rata adjustment between scrips and cash - interest on delayed refund

Refund of customs duty - treatment of DEPB scrips in discharge of duty - no statutory basis for pro rata adjustment between scrips and cash - Appellant entitled to refund of the portion of duty paid in cash following re adjudication where DEPB scrips had been used earlier and there is no legal formula permitting arbitrary reduction of refund by proportionately attributing payment to scrips. - HELD THAT: - The Tribunal found that on re adjudication the declared transaction value was accepted and the ultimate duty liability corresponded to that declared value, which had been discharged by available DEPB scrips. The Department's subsequent claim that the cash component of payment was only a small part (and that most of the payment was by DEPB scrips) and its arbitrary formula to limit refund lacked any basis in law. Having regard to the admitted fact that the appellant had taken Cenvat credit in respect of part of the earlier payment, the Tribunal concluded that a quantifiable refund of the cash element (Rs. 1,66,990 as stated in the order) arose and that there is no statutory provision to reduce that refund by apportioning payments between scrips and cash. [Paras 5]

Refund of Rs. 1,66,990 is due to the appellant; departmental formula for reducing refund by apportioning DEPB scrips and cash is without legal basis.

Restitution following re adjudication - interest on delayed refund - Matter remanded to the Adjudicating Authority to verify particulars, compute and grant the refund and any interest payable, and to conclude the limited refund proceeding by the specified timeline. - HELD THAT: - The Tribunal directed the Adjudicating Authority to verify the relevant payment particulars and, subject to law, grant the refund together with any applicable interest. The Tribunal emphasised that the Adjudicating Authority should not be guided by the findings of the Commissioner (Appeals) on this limited question and should exercise its powers in accordance with law confined to the refund claim. A time limit was imposed for conclusion of the proceedings. [Paras 6, 7]

Remand for fresh verification and conclusion of the refund proceeding (including interest) by the Adjudicating Authority by the end of June, 2016.

Final Conclusion: The Tribunal held that the appellant is entitled to a cash refund of the specified amount arising from re adjudication because there is no legal basis to reduce such refund by apportioning payments between DEPB scrips and cash; the matter is remanded to the Adjudicating Authority to verify particulars, compute and grant the refund (with interest, if any) and to conclude the limited proceedings by the end of June, 2016.

Rectification of mistake apparent from the record - limitation for rectification under Section 35C(2) of the Central Excise Act, 1944 - computation of limitation from the date of the order - maintainability of review/ROM applications filed beyond prescribed period

Rectification of mistake apparent from the record - limitation for rectification under Section 35C(2) of the Central Excise Act, 1944 - computation of limitation from the date of the order - maintainability of review/ROM applications filed beyond prescribed period - ROM application under Section 35C(2) filed after six months from the date of the Tribunal's order is not maintainable. - HELD THAT: - The Tribunal noted that Section 35C(2) permits amendment of its order to rectify a mistake apparent from the record only within six months from the date of the order. The impugned order was dated 18.08.2015, which made the six-month limitation expire on 17.02.2016. The ROM application was filed on 04.03.2016, after the prescribed period. The Tribunal applied the established principle that the statutory six-month period under Section 35C(2) is computed from the date of the order itself and not from the date of receipt, and followed the reasoning in earlier higher court decisions addressing identical contention. Since the application was filed beyond the statutory period, it was held to be not maintainable.

ROM application rejected as not maintainable for being filed after the six-month period computed from the date of the order.

Final Conclusion: The miscellaneous application for rectification under Section 35C(2) filed on 04.03.2016 was rejected as it was filed after the six-month limitation period counted from the date of the Tribunal's order dated 18.08.2015.

Mis-declaration - second-hand machinery versus scrap - requirement of DGFT licence for import of second hand machinery under EXIM Policy 2002-2007 - confiscation and redemption under the Customs Act, 1962 for mis-declaration - penalty for mis-declaration under the Customs Act, 1962 - re-export of imported goods on request of importer - relevance of inspection report by government-registered chartered engineers

Mis-declaration - second-hand machinery versus scrap - relevance of inspection report by government-registered chartered engineers - requirement of DGFT licence for import of second hand machinery under EXIM Policy 2002-2007 - Classification of the imported engines as scrap or as second-hand machinery requiring DGFT licence - HELD THAT: - The Tribunal found that the appellant's Bill of Entry declared the goods as old and used petrol engines and claimed the imports as scrap, with quantity stated in kilograms. An inspection report by Rane Engineers and Surveyors, government-registered chartered engineers, categorically stated the consignment was in damaged condition and that none of the engines could be used or reconditioned and had no residual life even if overhauled. On that basis the Tribunal concluded there was nothing on record to show the imported consignment was second hand machinery. The lower authorities' conclusion that the goods were second hand machinery (and hence subject to the DGFT licence requirement) was held to be incorrect because it ignored the expert inspection report and the appellant's scrap declaration. [Paras 5]

The consignment is to be treated as scrap, not as second hand machinery requiring DGFT licence.

Confiscation and redemption under the Customs Act, 1962 for mis-declaration - penalty for mis-declaration under the Customs Act, 1962 - re-export of imported goods on request of importer - Sustainability of confiscation and penalty imposed by lower authorities and validity of direction for re-export - HELD THAT: - Having held that the consignment was scrap, the Tribunal found the orders of confiscation and penalty predicated on a finding of importation of second hand machinery were unsustainable. Consequently, the Tribunal set aside the order of confiscation and the penalty imposed under the Customs Act. The Tribunal, however, upheld the order directing re export of the consignment because that direction had been made at the request of the importer and was permissible. [Paras 4, 6]

Order of confiscation and penalty set aside; direction for re export upheld.

Final Conclusion: The appeal is allowed in part: the consignment is held to be scrap, the confiscation and penalty imposed by the lower authorities are set aside, and the direction for re export (made at the importer's request) is upheld.

Doctrine of unjust enrichment - Refund of illegally collected cess - Retroactivity of statutory amendments - Burden of proof of unjust enrichment - Retention of amounts not due to State

Doctrine of unjust enrichment - Refund of illegally collected cess - Retroactivity of statutory amendments - Whether refund of cess collected at the time of adjudication, subsequently held not leviable by the Supreme Court, can be withheld on the ground of unjust enrichment when the statutory provision embodying the doctrine was introduced after the import. - HELD THAT: - The Tribunal applied settled principles that amounts not due to the State ought not to be retained. The Supreme Court's decisions were cited to the effect that what is not due to the State should not be collected. The statutory embedding of the doctrine of unjust enrichment into customs law occurred only with effect from 13.7.2006; therefore the law in force at the time of import did not include that remedial measure. Where levy and remedial law at the time of occurrence were known to the parties, and no contrary provision existed, the respondent fell outside the ambit of the later-introduced test of unjust enrichment. Following this legal position and judicial discipline, there was no justification for withholding the refund of cess that was not realizable from the respondent.

Refund of the cess cannot be withheld on the ground of unjust enrichment because the statutory provision embodying that doctrine was not in force at the time of import; the appeal is dismissed on this ground.

Burden of proof of unjust enrichment - Retention of amounts not due to State - Whether the respondent can be directed to discharge the burden of proving absence of unjust enrichment in the absence of a statutory presumption shifting that burden. - HELD THAT: - The Tribunal noted that the provision which creates a presumption as to the burden of proof on the assessee in respect of unjust enrichment was not incorporated into the law applicable at the time of import. In absence of such legislative presumption, the respondent could not be compelled to discharge the burden of proof of unjust enrichment as a condition for obtaining the refund of amounts not due to the State.

Respondent cannot be directed to discharge the burden of proof of unjust enrichment in the absence of a statutory presumption; the revenue's contention on this ground is rejected.

Final Conclusion: The revenue appeal is dismissed: the refund of cess held not leviable cannot be withheld by invoking the doctrine of unjust enrichment which was not in force at the time of import, and the respondent cannot be saddled with the burden of proving absence of unjust enrichment in the absence of a statutory presumption.

Right to inspect investigation file - non-RUDs (non-relied-upon documents) - fair procedure / audi alteram partem - reasoned refusal for inspection - adjudication on merits

Non-RUDs (non-relied-upon documents) - right to inspect investigation file - reasoned refusal for inspection - fair procedure / audi alteram partem - Validity of the Adjudicating Authority's refusal to permit inspection of the investigation file and to allow collection of non-RUDs. - HELD THAT: - The Court found that Para 24 of the SCN expressly permitted the petitioner to collect non-RUDs from the DRI office on prior appointment, and the subsequent letter of the Adjudicating Authority rejecting the petitioner's request effected an unexplained change of position. Refusal to permit inspection of the investigation file cannot stand as a blanket denial; where particular documents in the investigation file are asserted to be unsuitable for disclosure, the Adjudicating Authority must record reasons in writing for withholding those portions and supply a copy of those reasons to the petitioner. For these reasons the rejection communicated by the impugned letter dated 9th May, 2016 was held untenable and was set aside. The Court emphasised that fair procedure and the opportunity to reply are essential and that disclosure must be governed by reasoned decisions identifying documents withheld rather than unexplained refusal. [Paras 10, 11, 12]

The rejection of the petitioner's request for inspection of the non-RUDs and investigation file is set aside; the Adjudicating Authority must permit collection/inspection in accordance with Para 24 of the SCN and give written reasons for any portion withheld.

Adjudication on merits - fair procedure / audi alteram partem - Procedural directions as to further conduct of adjudication after permitting inspection. - HELD THAT: - The Court declined to quash the SCN and directed that adjudication proceed on merits. To secure expeditious and fair disposal, the Court ordered (i) return/availability of non-RUDs to the petitioner within two weeks, (ii) inspection of the investigation file within the same period with written reasons for any withheld portions, (iii) filing of replies by the petitioner and co-noticees within four weeks of inspection without seeking further time, and (iv) endeavour by the Adjudicating Authority to complete adjudication within six months thereafter. These directions are procedural mandates to ensure the petitioner has a fair opportunity to answer the SCN and that the matter is adjudicated without undue delay. [Paras 12, 13]

The Court issued specific timelines and procedural directions to facilitate inspection, reply and completion of adjudication, while leaving substantive adjudication of the SCN to the Adjudicating Authority.

Final Conclusion: The petition is disposed of by setting aside the Adjudicating Authority's unexplained refusal to permit inspection; directions are issued for return/inspection of non-RUDs and the investigation file with written reasons for any parts withheld, timelines for filing replies, and an endeavour to complete adjudication within six months, while the merits of the SCN are left to be adjudicated.

Findings of fact - appreciation of evidence - concurrent findings of fact - appellate interference with findings of fact - custom duty on damaged goods - goods rejected as waste - use of goods by manufacturer

Findings of fact - appreciation of evidence - custom duty on damaged goods - goods rejected as waste - use of goods by manufacturer - appellate interference with findings of fact - Whether the Tribunal and the High Court were justified in holding that goods unsuitable and rejected as waste but received and put to use by the manufacturer, and goods damaged in transit which could not be put to further use, were not chargeable to custom duty. - HELD THAT: - The Tribunal, on appreciation of the evidence on record, found as a matter of fact that the goods were totally unsuitable and rejected as waste yet were received by the manufacturer and some were put to use, and that goods damaged during transit could not be put to further use. The High Court declined to interfere with these findings, treating them as factual conclusions based on the record. The Supreme Court, after hearing counsel, found no error in the High Court's refusal to disturb the Tribunal's factual findings. Given that the question turned on concurrent findings of fact and their appreciation of evidence, appellate interference was not warranted and the conclusion that no custom duty was payable on goods that could not be put to any further use was upheld.

Appeal dismissed; High Court's refusal to interfere with Tribunal's factual findings affirmed and no custom duty held payable on the damaged goods that could not be put to further use.

Final Conclusion: The Supreme Court affirmed the High Court and Tribunal's factual finding that the goods were unsuitable/rejected and that damaged goods which could not be used were not exigible to custom duty, and dismissed the appeal.

Sanction of Composite Scheme of Arrangement under Sections 391-394 of the Companies Act, 1956 - Vesting of assets and liabilities by virtue of amalgamation and demerger - Dispensing with convening of meetings of shareholders and creditors - Reliance on reports of Regional Director and Official Liquidator for sanction - Compliance with Accounting Standard 14 (Accounting for Amalgamations) - Deposit in Official Liquidator's Common Pool Fund

Sanction of Composite Scheme of Arrangement under Sections 391-394 of the Companies Act, 1956 - Vesting of assets and liabilities by virtue of amalgamation and demerger - Composite Scheme of Arrangement among the petitioner companies is sanctioned and the specified vesting and demerger directions are ordered. - HELD THAT: - On consideration of the petition, supporting documents and statutory requirements under Sections 391-394, and having regard to the reports filed before the Court, the Composite Scheme is found fit to be sanctioned. Consequential to the sanction, the assets and liabilities of the Amalgamating Companies No.1 to 3 shall vest in Petitioner-Company No.4 (Amalgamated/Demerged Company) and Amalgamating Companies No.1 to 3 shall be dissolved without winding up. Further, the Investment Business Undertaking of Petitioner-Company No.4 shall demerge into Petitioner-Company No.5 (Resulting Company) and the assets and liabilities of that undertaking shall vest in Petitioner-Company No.5. The Scheme is declared binding on the petitioner companies, their shareholders, creditors and all concerned.

Scheme sanctioned; vesting and demerger directions ordered and scheme declared binding.

Reliance on reports of Regional Director and Official Liquidator for sanction - Objections and observations made by the Regional Director and the Official Liquidator have been considered and disposed of; no impediment to sanction remains. - HELD THAT: - The Official Liquidator reported no objection, stating that the affairs of the transferor companies were not conducted prejudicially to members, creditors or public interest. The Regional Director raised queries concerning absence of a valuation report, the classification of certain companies as core investment companies and accounting treatment. The petitioners filed a detailed reply attaching a fairness report on share exchange ratio, relied on RBI FAQs for registration exemption, and furnished auditor certification regarding accounting treatment. The Court found these explanations sufficient to meet the Regional Director's queries and proceeded with sanction.

Reports and representations considered; queries answered by petitioners and do not preclude sanction.

Compliance with Accounting Standard 14 (Accounting for Amalgamations) - Dispensing with convening of meetings of shareholders and creditors - Petitioners are required to comply with procedural and accounting requirements including Accounting Standard 14; earlier dispensation of convening meetings is upheld as part of the process. - HELD THAT: - The Scheme provides that amalgamation shall be accounted for in the books of the amalgamated entity according to the purchase method under Accounting Standard 14. The Court directed the petitioner companies to comply with procedural requirements relating to AS 14 and the Institute of Chartered Accountants of India. The Court also recorded that convening of meetings of shareholders of the petitioner companies and of preferential shareholders and unsecured creditors of certain petitioners had been dispensed with by order dated 18.01.2016 and treated procedural formalities (publication, notice to Regional Director and Official Liquidator) as fulfilled for purposes of sanction.

Compliance with AS 14 and procedural formalities required; dispensation of meetings upheld.

Deposit in Official Liquidator's Common Pool Fund - The petitioners' undertaking to deposit a sum in the Official Liquidator's Common Pool Fund is accepted by the Court. - HELD THAT: - Counsel for the petitioner companies stated an intention to deposit a specified sum into the Official Liquidator's Common Pool Fund within four weeks. The Court accepted this statement and recorded the undertaking as part of the order disposing of the petition.

Petitioners' voluntary deposit to the Common Pool Fund accepted.

Final Conclusion: The Composite Scheme of Arrangement is sanctioned; vesting and demerger as specified in the Scheme are ordered, procedural and accounting compliance (including AS 14) is directed, the petitioners' undertaking to deposit the stated sum in the Official Liquidator's Common Pool Fund is accepted, and directions are given for filing the certified copy of the order with the Registrar of Companies and for publication of the order.

Nullity of appointments and resolutions procured by coercion - oppression of majority/minority in company management - summary jurisdiction of Company Law Board - joint signatories for corporate bank accounts - limitation of bank operation to routine expenses - statutory auditor examination of alleged misappropriation - Registrar of Companies nomination of auditor

Nullity of appointments and resolutions procured by coercion - oppression of majority/minority in company management - summary jurisdiction of Company Law Board - Validity of CLB directions declaring certain appointments, resignations and amendments null and void and restoring directors - HELD THAT: - The Court upheld the CLB's conclusion that certain resignations, removals and appointments (including amendment of articles and conferment of permanent directorship and affirmative vote) were prima facie procured in circumstances amounting to oppression of the majority by the minority and therefore could be set aside in the CLB's summary jurisdiction. Applying reasonable prudence, the Court found the CLB's view that the impugned acts were not acceptable and its consequential directions (declaring the appointments and resolutions void and restoring the status of the directors) were neither beyond its powers nor perverse. The CLB's directions aimed at restoring corporate governance and were sustained except where specifically modified by this Court. [Paras 5, 6, 8]

Directions (a) to (d), (f) and (g) issued by the CLB declaring the impugned appointments/resolutions null and void and restoring directors are upheld.

Joint signatories for corporate bank accounts - limitation of bank operation to routine expenses - Modification of CLB direction permitting any two of three specified directors to operate company bank accounts - HELD THAT: - The Court found substance in the appellant's contention that the CLB's direction could result in exclusion of a significant shareholder-director from management by allowing the majority pair to operate accounts without involvement of the 33% shareholder. To balance protection of routine administration with minority participation, the Court modified the direction: for routine expenses (payment of staff salaries and statutory dues) any two of the three designated signatories may sign; for all other expenditures, signature of either petitioner No.1 or No.2 together with respondent No.3 is required, and absent respondent No.3's signature such other expenses cannot be incurred. [Paras 6, 8]

Direction (e) is modified as specified: routine expenses to be operable by any two signatories; non-routine expenses require signature of respondent No.3 alongside either petitioner No.1 or No.2.

Statutory auditor examination of alleged misappropriation - Registrar of Companies nomination of auditor - Mode of conducting audit inquiry into alleged misappropriation and nomination of auditor when parties disagree - HELD THAT: - The Court accepted that an audit examination into alleged misappropriation is appropriate but observed absence of material showing lack of bona fides by the existing statutory auditor. To ensure confidence in the inquiry, the Court directed that if the three parties agree on an auditor within two weeks, that auditor shall be assigned the examination; failing consensus, the Registrar of Companies shall nominate an auditor within a further two weeks to conduct the audit and report any findings in the auditor's report to the balance sheet. [Paras 7, 8, 9]

Direction (h) modified: auditor to be the agreed nominee of the parties or, in absence of consensus, to be nominated by the Registrar of Companies who shall examine the alleged misappropriation and report findings.

Final Conclusion: The appeal is disposed of by upholding the CLB's directions insofar as they annul the impugned appointments and resolutions and restore directors, with specified modifications to the bank-signatory regime and the procedure for auditor appointment; the parties may jointly nominate an auditor within two weeks, failing which the Registrar of Companies shall nominate one within a further two weeks.

Penalty under Section 78 for suppressing value of taxable service - Benefit of reduced penalty on payment within thirty days - Failure to remit tax collected from customers constitutes suppression/intent to evade

Penalty under Section 78 for suppressing value of taxable service - Failure to remit tax collected from customers constitutes suppression/intent to evade - Benefit of reduced penalty on payment within thirty days - Validity and quantum of penalty imposed under Section 78 for failure to pay service tax collected during 2008-09 - HELD THAT: - Audit revealed that the appellant collected service tax from clients for the period 2008-09 but neither filed ST-3 returns nor paid the tax; part payment was made before issuance of SCN and the balance was paid thereafter. The Tribunal found that non-remittance of tax collected is not an interpretative error but amounts to suppression/contravention attracting penalty under Section 78. The fact of industry recession was not a ground for leniency because the tax had been collected and deliberately not remitted. The adjudicating authority had originally imposed a higher penalty which was reduced by the Commissioner (Appeals) to an amount equivalent to the tax demand; the Tribunal upheld that reduction and affirmed the imposition of penalty in that reduced quantum. The statutory proviso providing for reduced penalty where tax and interest are paid within thirty days was noted, but the facts did not warrant further relief beyond the reduction already granted by the lower appellate authority.

The penalty imposed under Section 78 is justified; the reduction effected by the Commissioner (Appeals) to an amount equivalent to the tax demand is upheld and the appeal is dismissed.

Final Conclusion: The Tribunal upholds the adjudication that failure to remit service tax collected for 2008-09 attracted penalty under Section 78; the penalty reduced by the Commissioner (Appeals) to an amount equal to the tax demand is affirmed and the appeal is dismissed.

Service tax on commission received by dealer - Business Auxiliary Service - Business Support Service - Limitation / extended period of limitation - Audit (EA-2000) and estoppel by audit - Recording of receipts in balance sheet

Limitation / extended period of limitation - Audit (EA-2000) and estoppel by audit - Recording of receipts in balance sheet - Whether the service tax demand for the period July 2003 to March 2007 is barred by limitation in view of an earlier EA-2000 audit which did not raise the taxability of commissions - HELD THAT: - The Tribunal noted that the EA-2000 audit conducted by the service tax cell of Pune Commissionerate covered the period July 2001 to March 2006 and was carried out on 03/05/2007, 10th and 12th July 2006 and 09/08/2006. The audit report does not record any query on the taxability of the commission received by the appellant, and the appellant had disclosed the commission as income in its balance sheet. Having observed that the audit was extensive and no objection on the disputed issue was raised, the Tribunal relied on the principle reflected in MTR Foods (High Court of Karnataka) that where an audit of records takes place and no objection is taken on an issue, a demand invoking the extended period is unsustainable. Although the Tribunal accepted that the larger bench has settled the question of taxability against the appellant, the determinative finding in this appeal was that, on the facts and the authoritative judicial pronouncement, the Revenue's demand is time barred in consequence of the prior audit having not raised the issue.

Demand for service tax for July 2003 to March 2007 is barred by limitation and cannot be sustained.

Final Conclusion: The impugned order is set aside and the appeal is allowed on the sole ground that the service tax demand for the period July 2003 to March 2007 is time barred.

Definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004 - nexus between service and manufacturing activity - integrally connected to business for availment of cenvat credit - business auxiliary service and warehouse service as input services - cenvat credit allowable for services used in manufacture or clearance of goods

Definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004 - nexus between service and manufacturing activity - integrally connected to business for availment of cenvat credit - Entitlement to cenvat credit of service tax paid on various services listed in the adjudication order insofar as those services relate to the appellant's manufacturing activity. - HELD THAT: - The Tribunal examined each category of service recorded in the adjudication order and applied the test of whether the service falls within the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004 and whether it is integrally connected with or has a nexus to the appellant's manufacturing activity. Financial services (banking and other financial services) fall within Rule 2(l) and finance being a necessary input to manufacturing, credit cannot be denied. Clearing and Forwarding / Customs House Agent services are integral to procurement of inputs and clearance of finished goods and thus eligible. Insurance services protecting raw materials, finished goods and assets in transit are relevant inputs. Auction services used to remove scrap and unwanted goods are integrally connected to maintaining storage and manufacturing space and therefore fall within input services. Legal services engaged for statutory compliance relate to conduct of business and are relevant inputs. Courier and travel booking services facilitating movement of documents, goods and personnel are necessary for business operations and eligible. Information Technology services, including software maintenance, are inseparable from efficient business functioning and qualify as input services. Photography, rent-a-cab and designing services (including tools, logos and corporate identity related to manufacture and clearance) have nexus with manufacturing/clearance and are eligible. Construction services used for modernization, renovation, repairs of factory and temporary storage structures relate to manufacture and are admissible where record does not show otherwise. CHA services for import/export clearance are indispensable and eligible. Business Auxiliary Service (supply of labour) and warehouse services were found to pertain to manufacture (labour for manufacturing activities) and to storage of raw materials/finished goods respectively and are therefore input services admissible for cenvat credit. The Tribunal reversed the adjudicating authority's denial in respect of the services considered, holding that no evidence showed these services were unrelated to manufacture.

Cenvat credit of service tax paid is allowable in respect of the listed services because they qualify as input services under Rule 2(l) and are integrally connected with the appellant's manufacturing activity.

Final Conclusion: All four appeals are allowed; the adjudicating authority's denial of cenvat credit in respect of the services examined is reversed and the appellant is entitled to cenvat credit on those services.

Penalty under Section 78 of the Finance Act, 1994 - Requirement of specific allegations in the show cause notice to invoke penalty for fraud, collusion, wilful mis-statement or suppression of facts - Applicability of Section 73(3) where tax is paid before service of notice - Extended period of limitation and its exclusion where only departmental audit disclosure is pleaded

Penalty under Section 78 of the Finance Act, 1994 - Requirement of specific allegations in the show cause notice to invoke penalty for fraud, collusion, wilful mis-statement or suppression of facts - Whether the penalty under Section 78 of the Finance Act, 1994 is sustainable where the show cause notice does not allege fraud, collusion, wilful mis-statement or suppression of facts and the tax with interest was paid before issuance of the notice. - HELD THAT: - The Tribunal found that the show cause notice merely recorded that the non-payment came to light on departmental audit and did not allege any of the statutory ingredients-fraud, collusion, wilful mis-statement or suppression of facts-required to invoke Section 78. The adjudicating authority and first appellate authority failed to appreciate that penalty under Section 78 can be imposed only when one or more of those specific ingredients are pleaded and established. The Court reiterated the principle that the show cause notice is the foundation of proceedings and cannot be supplemented subsequently by allegations not made therein. Given that the tax and interest were paid before the service of the notice, the facts fell within the scope of Section 73(3) rather than cases governed by Section 73(4) which are excluded from the protection of subsection (3) only when the statutory ingredients (fraud, collusion, wilful mis-statement, suppression or intent to evade) are pleaded. In absence of such pleading or findings, imposition of penalty under Section 78 was unsustainable. [Paras 5, 6]

Penalty imposed under Section 78 is set aside as the show cause notice did not allege the statutory ingredients necessary for invoking Section 78 and the tax with interest had been paid prior to issuance of the notice.

Final Conclusion: The appeal is allowed insofar as the penalty under Section 78 of the Finance Act, 1994 is concerned; the penalty is set aside for lack of requisite allegations in the show cause notice and having regard to payment of tax and interest prior to issuance of the notice.

Payment under Section 73(3) - Penalty under Section 78 - Self-assessment - Extended period of limitation - Repetitive show cause notice - Fraud, collusion, wilful misstatement or suppression of facts

Payment under Section 73(3) - Penalty under Section 78 - Repetitive show cause notice - Fraud, collusion, wilful misstatement or suppression of facts - Sustainability of penalty under Section 78 where the assessee paid the disputed service tax and interest prior to issuance of the show cause notice invoking extended period. - HELD THAT: - The Tribunal applied the statutory scheme under Section 73(3) and held that where an assessee pays the service tax (either on self-ascertainment or on the basis of tax ascertained by an officer) before service of notice, no notice in respect of the amount so paid ought to be served. The subsequent SCN was therefore held to be repetitive. The Tribunal relied on the principle in Nizam Sugar Factory Vs CCE that where relevant facts were in the knowledge of authorities when the first SCN was issued, a later SCN cannot allege suppression of facts. Penalty under Section 78 can be imposed only upon proof of fraud, collusion, or wilful misstatement or suppression of facts; such elements were not established where the tax and interest had been discharged prior to service of the notice. Applying these principles to the factual matrix, the Tribunal concluded that initiation of proceedings and imposition of penalty was unsustainable.

Penalty under Section 78 set aside as unsustainable because the disputed tax and interest were paid prior to service of the show cause notice; the subsequent SCN was repetitive.

Final Conclusion: The appeal is allowed to the extent of quashing the penalty under Section 78, the Tribunal finding that payment of the disputed service tax with interest before issuance of the notice brings the case within Section 73(3) and negates the justification for penalty in the absence of fraud, collusion or wilful suppression.

Limitation for refund under Section 11B of the Central Excise Act, 1944 - refund paid under protest - prospective protest - construction service classification (Residential versus Industrial & Commercial) - unjust enrichment

Limitation for refund under Section 11B of the Central Excise Act, 1944 - refund paid under protest - prospective protest - Whether the letter dated 24/4/2007 constituted a refund application capable of attracting limitation protection for earlier deposits - HELD THAT: - The Tribunal held that the letter of 24/4/2007 was a protest against liability and an intimation that future deposits were being made under protest with a reservation to claim refund if decisions favoured the builder. The letter did not quantify past payments or specify the period for which refund was sought and thus could not be treated as a refund application for amounts paid prior to that date. Applying the limitation scheme embodied in Section 11B of the Central Excise Act, 1944 and the established principle that refund claims must comply with the statutory limitation unless properly brought under protest, the Tribunal concluded the protest of 24/4/2007 operated prospectively. Consequently only amounts paid on or after 24/4/2007 fall within the limitation period for refund claims; amounts paid prior to that date are time barred. [Paras 10, 11]

Refunds in respect of payments made prior to 24/4/2007 are barred by limitation; the letter dated 24/4/2007 is prospective and does not cure limitation for earlier deposits.

Construction service classification (Residential versus Industrial & Commercial) - unjust enrichment - Whether the refundable amount within limitation relates to tax paid for Construction of Residential Complex services and whether claim is barred by unjust enrichment - and the appropriate forum for factual examination - HELD THAT: - The Tribunal observed that for amounts falling within the limitation period (post 24/4/2007) it is necessary to examine whether the tax deposited related to Construction of Residential Complex services irrespective of the registration category, and to verify the applicability of the principle of unjust enrichment. These are factual determinations requiring documentary and evidentiary scrutiny which the Original Adjudicating Authority is better placed to undertake. The Tribunal therefore remanded the remaining refund claim to the Original Authority for determination of these factual issues and for application of the unjust enrichment principle. [Paras 12]

The refundable claim within limitation is remanded to the Original Adjudicating Authority for factual verification as to whether the payments related to Construction of Residential Complex services and for examination of unjust enrichment.

Final Conclusion: Revenue's appeal is partly allowed: refunds for amounts paid prior to 24/4/2007 are rejected as time barred; the claim for amounts on or after 24/4/2007 is remanded to the Original Adjudicating Authority for factual determination of service classification and unjust enrichment.

Refund of service tax - rebate under Export Services Rules, 2005 - cash refund versus adjustment to Cenvat account - discharge of tax liability by debit to Cenvat account

Rebate under Export Services Rules, 2005 - cash refund versus adjustment to Cenvat account - discharge of tax liability by debit to Cenvat account - Whether the rebate claim for exported consulting engineering services should be granted as a cash refund or by credit to the appellant's Cenvat account. - HELD THAT: - The Tribunal accepted the appellant's contention that the rebate claimed under the Export Services Rules, 2005 ought to be paid in cash rather than be sanctioned by credit to the Cenvat account. The reasoning rests on the settled principle that debit to a Cenvat account operates as discharge of tax liability; where the assessee cannot utilize the credit, the purpose of refund is defeated. The Tribunal relied on the ratio reproduced from the High Court of Uttarakhand in Apco Pharma Ltd., which upheld cash refund where credit could not be utilized, and noted consistent precedent recognizing entitlement to cash refund in such circumstances. Applying this principle to the facts, the Tribunal found the lower authority's sanction of rebate by way of Cenvat credit incorrect and remitted relief in the form of cash refund.

Impugned order set aside; appeal allowed and rebate to be granted as a cash refund with consequential relief.

Final Conclusion: The appeal is allowed; the order granting rebate by credit to Cenvat is set aside and the rebate claimed for exported services is to be paid in cash, with consequential relief.

Interpretation of Rule 25 of the Central Excise Rules - Effect of the opening words "Subject to the provisions of Section 11AC" in subordinate legislation - Requirement of ingredients of Section 11AC as condition precedent to invoking confiscation and penalty under Rule 25 - Construction of "subject to" as "conditional upon" - Confiscation and penalty under Rule 25 contingent on satisfaction of Section 11AC requirements

Interpretation of Rule 25 of the Central Excise Rules - Effect of the opening words "Subject to the provisions of Section 11AC" in subordinate legislation - Requirement of ingredients of Section 11AC as condition precedent to invoking confiscation and penalty under Rule 25 - Construction of "subject to" as "conditional upon" - Whether Rule 25 of the Central Excise Rules could be invoked for confiscation and levy of penalty without first satisfying the ingredients of Section 11AC of the Central Excise Act - HELD THAT: - The Court held that Rule 25 begins with the expression "Subject to the provisions of Section 11AC of the CE Act" and is not an overriding or non-obstante provision. As subordinate legislation, the rule must be construed consistently with the statute under which it is made; the opening words indicate that the exercise of power under Rule 25 is conditional upon the provisions of Section 11AC. Precedents of the Gujarat High Court were cited to the effect that "subject to" means "conditional upon" and therefore confiscation of goods and levy of penalty under the rule are limited by the requirements of Section 11AC. Where the show cause notice did not refer to Section 11AC and the ingredients of Section 11AC were not shown to be fulfilled, Rule 25 could not properly be invoked to impose penalties or confiscation. The Court noted that contrary decisions relied upon by the appellant either did not deal with the "subject to Section 11AC" formulation or were inapposite, and that the Full Bench decision of the CESTAT relied upon other precedent without addressing the Gujarat decisions or the Supreme Court authorities construing "subject to." Having considered the wording of Rule 25 and the applicable authorities, the Court found no infirmity in the CESTAT's conclusion that Rule 25 could not be invoked in the absence of satisfaction of Section 11AC's ingredients. [Paras 9, 10, 11, 12, 13]

Rule 25 could not be invoked for confiscation and penalty without considering and satisfying the conditions in Section 11AC; the CESTAT's view was upheld.

Final Conclusion: The High Court dismissed the appeal, upholding the CESTAT's decision that Rule 25 of the Central Excise Rules could not be invoked in the absence of the ingredients of Section 11AC being shown to be fulfilled.

De-freezing of bank account - continuation of freezing pending filing of appeal - success before appellate forum as basis for interim relief - right to seek interim orders in pending appeal

De-freezing of bank account - continuation of freezing pending filing of appeal - success before appellate forum as basis for interim relief - Petitioner's bank account must be de frozen after successful appeal before CESTAT where respondent has not filed an appeal or taken steps to keep the freeze in place. - HELD THAT: - The Petitioner succeeded in its appeal before the Customs, Excise & Service Tax Appellate Tribunal on 13th January, 2016 against an Order in Original which had given rise to freezing of the bank account since 2007. The Respondent had neither filed an appeal nor taken immediate steps to maintain the freeze, and a letter indicated that a decision on filing an appeal was still pending. The Court held that continuing to keep the account frozen for nearly five months after the favourable appellate order was not justified. Accordingly, the Court directed immediate de freezing of the account while leaving open the Respondent's statutory right to file an appeal and, if it does so, to seek appropriate interim relief in the forum where such appeal is filed. [Paras 8, 9]

Account no. 404700CA00019719 shall be de frozen forthwith; Petitioner may present certified copy of this order to the bank for immediate de freezing, without prejudice to Respondent's right to file an appeal and seek interim orders.

Final Conclusion: Writ petition disposed directing immediate de freezing of the petitioner's bank account following the CESTAT order in the petitioner's favour, while preserving the respondent's right to institute appellate proceedings and apply for interim relief.

Definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004 - nexus between input services and manufacture - refund of unutilised Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 - clearances to 100% EOU treated as export - deemed exports equivalent to physical exports - application for inclusion of additional grounds in appeal

Definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004 - nexus between input services and manufacture - Cenvat Credit Rules, 2004 - Input credit on various services falls within the definition of input service (as existed prior to 01.04.2011) and there is sufficient nexus between the input services and the manufacture/clearance of final products exported. - HELD THAT: - The Tribunal examined the pre-01.04.2011 definition of input service under Rule 2(l) and accepted the Commissioner (Appeals)'s detailed nexus analysis. The definition was held to have a wide scope and the Commissioner (Appeals) correctly found that the listed services (including business auxiliary services, chartered accountant services, clearing and forwarding, courier, insurance, GTA, maintenance/repair, rent of immovable property, security, online information and database access, technical inspection and certification, telephone, technical testing and analysis, rent-a-cab, manpower recruitment and transport of goods by air) qualify as input services for the purposes of Cenvat credit and refund under Rule 5. The Commissioner's reliance on relevant tribunal and court decisions and the specific connection between each service and manufacture/clearance was accepted. One service (membership of clubs) was specifically held not to be an essential input service and refund in respect thereof was disallowed. The Tribunal upheld the Commissioner (Appeals)'s findings as sustainable. [Paras 4, 6]

Findings of the Commissioner (Appeals) on qualification of the various services as input services and on nexus with manufacture are upheld; refund allowed for the services so found to qualify, except membership of clubs.

Refund of unutilised Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 - clearances to 100% EOU treated as export - deemed exports equivalent to physical exports - Clearances to other 100% EOUs on inter-unit transfer are to be treated as export for the purpose of refund of unutilised Cenvat credit under Rule 5, and the respondent is eligible for refund accordingly. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals)'s application of precedent holding that clearances to a 100% EOU (including transfers between EOUs) qualify as export for refund purposes. The decision relied upon (including the CESTAT and Gujarat High Court decisions in Shilpa Copper Wire Industries and subsequent affirmations and the Supreme Court's treatment of deemed exports as equivalent to physical exports) was held to be squarely applicable. The Tribunal observed that the Rule 5 formula must take into account credits in relation to deemed exports and accordingly allowed refund in respect of clearances to EOUs. The Revenue's contention that deemed exports are not export was rejected in view of binding precedents. The Tribunal also allowed the Revenue's application to add additional grounds to the already filed appeals, treating it as permissible. [Paras 5, 6, 7]

Clearances to 100% EOUs are to be treated as exports for refund under Rule 5; refund allowed accordingly; application for additional grounds allowed.

Final Conclusion: The departmental appeals are rejected and the Commissioner (Appeals)'s order is upheld: refunds of unutilised Cenvat credit were allowed as recorded (subject to the disallowance in respect of membership of clubs), clearances to 100% EOUs are treated as exports for refund purposes, the Revenue's application to add grounds is allowed, and the assessee's cross-objections are allowed with consequential relief.

Exemption for tin containers manufactured by hand - availability of small scale exemption where manufacture aided by power - reliance on electricity consumption as circumstantial evidence - proof by invoices and evidentiary burden to verify third party transactions - requirement of direct nexus between power consumption and use of manufacturing motors

Exemption for tin containers manufactured by hand - availability of small scale exemption where manufacture aided by power - reliance on electricity consumption as circumstantial evidence - proof by invoices and evidentiary burden to verify third party transactions - Whether demand of duty could be sustained on the basis of comparison of electricity consumption when the assessee produced invoices showing sale of electric motors and subsequent repurchase - HELD THAT: - The Tribunal found that the respondents manufactured tin containers both by hand and with power; handmade production is unconditionally exempt while production with aid of power can only avail small scale exemption. The respondents produced invoices showing sale of electric motors in May 2001 and purchase in December 2002 and asserted that no motors were used in the intervening period. Revenue relied on broadly similar electricity bills to infer continued use of motors. The Tribunal held that mere comparison of total units consumed, without evidence of electricity consumption per motor, number of motors in use, or a direct nexus between the units consumed and operation of manufacturing motors, is inadequate to prove use of motors. Further, Revenue did not test or verify the sale and purchase invoices by examining the other parties to those transactions. In the absence of attempts to controvert the invoices or to establish a clear connection between the electricity usage and motor operation, the findings of the Commissioner (Appeals) in favour of the assessee were sustainable. [Paras 9, 10]

Revenue's demand based on electricity consumption was not sustainable; the Commissioner (Appeals) order setting aside the adjudicating authority's demand was upheld and the Revenue's appeal rejected.

Final Conclusion: The appeal filed by Revenue is dismissed; the Commissioner (Appeals) order in favour of the assessee is upheld because electricity bill comparisons without probative nexus and without verification of sale/purchase invoices do not justify confirming duty demand.

Time-bar / limitation for refund claims - unjust enrichment as a bar to refund - interest on delayed refund under Section 11BB

Time-bar / limitation for refund claims - Refund claim filed on 29.07.2004 was within limitation as the amount debited to PLA on 22.03.2004 qualified as a deposit and the earlier filing could be reckoned for limitation. - HELD THAT: - The Tribunal accepted that the assessee made a debit entry in its PLA account on 22.03.2004 during the course of an ongoing valuation investigation and subsequently filed a refund claim on 29.07.2004. The debit entry was treated as a deposit made during investigation and not as a settled duty liability; the assessee had no legal obligation to deposit such amount while the investigation was pending. Accordingly, the initial application dated 29.07.2004 must be taken into account for purposes of limitation and is within the prescribed period. The Commissioner (Appeals) was therefore right in rejecting the Revenue's contention that the claim was time barred. [Paras 4]

Claim filed on 29.07.2004 is within limitation; Revenue cannot rely on subsequent return and refiling to defeat the claim.

Unjust enrichment as a bar to refund - Refund claim was not barred by unjust enrichment because no supplementary invoice was raised, the amount was a lumpsum PLA debit, and the sister unit did not avail credit. - HELD THAT: - The Tribunal noted the payment was made by a lumpsum debit entry in the assessee's PLA account without issuance of any supplementary invoice or document. Absent an invoice or evidence that the amount was recovered from the recipient, there is no basis to hold that any third party (the sister unit) was enriched. The Commissioner (Appeals) also recorded that the sister unit had not availed cenvat credit of the duty, which corroborates that no pass on occurred. Therefore, the bar of unjust enrichment does not apply to the refund claim. [Paras 5]

Refund not hit by unjust enrichment; Revenue's objection on this ground is rejected.

Interest on delayed refund under Section 11BB - Assessee is entitled to interest under Section 11BB from the date of the original refund claim (29.07.2004) as there was no intervening order making the refund consequential. - HELD THAT: - Revenue contended that interest, if any, should run only from three months after a consequential order. However, Revenue could not point to any such antecedent order giving rise to a consequential refund; the favourable resolution occurred during investigation and the assessee was under no legal obligation to deposit the amount. Having filed the refund application on 29.07.2004 and with no contrary order relied upon by Revenue, the Tribunal agreed with the Commissioner (Appeals) that interest under Section 11BB is payable with reference to the original claim date. [Paras 6]

Assessee entitled to interest under Section 11BB from the date of the original refund claim.

Final Conclusion: Revenue's appeal is dismissed; the Commissioner (Appeals) order allowing the refund claim (filed 29.07.2004), rejecting unjust enrichment objection, and directing payment of interest under Section 11BB is upheld.

Maintainability of appeal under Section 35B(2) of the Central Excise Act, 1944 - authorization by Committee of Commissioners for filing departmental appeal - temporal concurrence of signatures not required for committee authorization - government litigation policy permitting withdrawal/dismissal of departmental appeals below prescribed monetary threshold

Maintainability of appeal under Section 35B(2) of the Central Excise Act, 1944 - authorization by Committee of Commissioners for filing departmental appeal - temporal concurrence of signatures not required for committee authorization - The appeal filed by the Revenue was maintainable despite the Committee of Commissioners' signatures bearing different dates and absence of a single-date meeting. - HELD THAT: - The Tribunal considered whether the departmental appeal before it was invalid for want of proper authorization under Section 35B(2) because the two Commissioners did not sign the authorization on the same date. Relying on the Chhattisgarh High Court decision (Sidhi Vinayak Sponge Iron Pvt. Ltd.) and other High Court precedents, the Tribunal accepted that Section 35B(2) requires a recorded opinion of the Committee that the Commissioner (Appeals) order is not legal or proper and authorization to file an appeal. There is no mandate that both Commissioners must sign on the same day; what is material is that both Commissioners concurred in the opinion and authorized filing of the appeal. Applying that principle to the facts, the Tribunal found the requisite concurrence and authorization present and therefore held the appeal to be maintainable and not vitiated by the differing signature dates. [Paras 4]

Authorized opinion of the Committee existed and the Revenue's appeal was maintainable.

Government litigation policy permitting withdrawal/dismissal of departmental appeals below prescribed monetary threshold - The appeal was dismissed as covered by the amended government litigation policy applicable to pending Tribunal appeals where the monetary stake falls below the prescribed threshold. - HELD THAT: - After answering the maintainability question, the Tribunal applied the amended litigation policy of the Government issued on 17.12.2015, which had been made applicable to pending appeals. Considering that the amount involved in the appeal was below the monetary cutoff specified in that policy, the Tribunal exercised the policy to decline continuation of litigation and dismissed the Revenue's appeal on that ground. [Paras 5]

Appeal dismissed in view of the Government's amended litigation policy as the amount involved was below the prescribed threshold.

Final Conclusion: The Tribunal held the Revenue's appeal to be maintainable despite differing signature dates on the Committee authorization under Section 35B(2) and, applying the Government's amended litigation policy, dismissed the appeal as the monetary stake was below the prescribed threshold.

Unjust enrichment - refund of excise duty - passing on of duty to consumers - treating excise duty as expenditure - precedent of a coordinate bench

Unjust enrichment - refund of excise duty - passing on of duty to consumers - treating excise duty as expenditure - Validity of denial of refund on the ground of unjust enrichment where excise duty element is alleged to have been passed on to consumers - HELD THAT: - The Tribunal affirmed the finding that the excise duty element in relation to the goods (PCC poles) was treated as an expenditure by the appellant and that the tariff rate was loaded on consumption of electricity. On that basis, the incidence of duty was held to have been passed on to the consumers, bringing the case within the bar of unjust enrichment. Following the earlier decision of a coordinate bench in similar circumstances, the Tribunal concluded that the refund could not be allowed because the appellants had passed on the burden of duty to their customers. The facts of the present case were held to be identical to those considered earlier, and the precedent was applied to uphold the denial of refund.

The appeal is rejected and the impugned order denying the refund on the ground of unjust enrichment is upheld.

Final Conclusion: The Tribunal, applying its earlier coordinate-bench decision, upheld denial of the excise-duty refund on the ground that the duty element was treated as an expense and passed on to consumers, rendering refund barred by unjust enrichment.

Dutiability of samples drawn for testing - samples retained or tested within factory premises not liable to excise duty - duty liability arises on removal from the factory of production - distinction between drawal of samples and removal - accounting and invoicing requirements for samples - binding nature and scope of Central Board instructions on samples

Dutiability of samples drawn for testing - samples retained or tested within factory premises not liable to excise duty - duty liability arises on removal from the factory of production - distinction between drawal of samples and removal - accounting and invoicing requirements for samples - Levy of excise duty on samples drawn for quality-control testing carried out and retained within the factory premises. - HELD THAT: - The Tribunal held that the Supplementary Instructions of the Central Board of Excise & Customs categorize samples and prescribe accounting and invoicing procedures (see para 3.2.2) but do not convert every drawal of a sample into a deemed removal attracting duty. The Board's instruction itself admits absence of a specific rule declaring samples dutiable; it prescribes that appropriate duty is to be paid when samples are removed from the factory unless exempted. The court emphasised the legal and practical distinction between drawal of samples for in-house testing and removal from the factory for consumption outside it. Samples tested or retained within the factory are not, in effect, removed and therefore are not chargeable to excise at that stage; where samples are reintroduced into production their cost is absorbed in finished goods and duty, if any, is discharged when such goods are cleared. The Tribunal further relied on prior decisions of tribunals and the High Court (including Thermax Cullgian Water Technologies Ltd. , RPG Life Sciences Ltd. ) which support the proposition that in-house control samples consumed or destroyed during testing within factory do not attract duty absent evidence of removal. Consequently, the original adjudicating authority erred in treating drawal alone as sufficient to fasten excise liability and the demands were held to be without authority of law (paras 7, 10, 13). [Paras 7, 10, 13, 14]

Demands of excise duty on samples tested or retained within the factory set aside; appeals allowed.

Final Conclusion: The Tribunal allowed the appeals, holding that samples drawn and tested or retained within the factory do not attract excise duty absent removal from the factory; demands based solely on drawal were set aside.

Penalty for non-production of declaration form ST-18A - Requirement to carry declaration form ST-18A on goods entering the State - Distinction between inter state movement and direct import from foreign country - Appellate interference-illegality or perversity standard

Penalty for non-production of declaration form ST-18A - Distinction between inter state movement and direct import from foreign country - Deletion of penalty imposed for non-production of ST-18A where goods had been directly imported and cleared by customs was upheld. - HELD THAT: - The court accepted the factual finding that the goods were imported directly from Singapore and had been brought into India after customs clearance at New Delhi International Airport, a fact recorded by the assessing officer, the DC(A) and the Tax Board. Applying the distinction between movement from another Indian State and direct importation from a foreign country, the court held that the requirement to carry declaration form ST-18A does not occasion the same practical obligation on a foreign seller or consignor and that non production of ST-18A in such circumstances did not justify levying the penalty. The court therefore found no illegality or perversity in the concurrent conclusion of the lower authorities deleting the penalty, and refused to interfere with that outcome. [Paras 7]

Penalty deleted; order of the Tax Board upholding deletion is sustained.

Requirement to carry declaration form ST-18A on goods entering the State - Appellate interference-illegality or perversity standard - Effect of the Tax Board's reliance on its Larger Bench decision subsequently reversed by the Supreme Court did not vitiate the outcome in the present case. - HELD THAT: - Although the Tax Board relied upon its Larger Bench decision in Bajrang Timber-mart, which the court acknowledged has been reversed by the Supreme Court in Assistant Commercial Taxes Officer v. Bajaj Electricals Limited, the High Court held that the Tax Board's ultimate conclusion deleting the penalty was supportable on the separate and determinative factual and legal basis that the goods were direct imports cleared by customs. The court therefore reversed the Tax Board only insofar as it relied on the now-overruled Larger Bench decision, but left the deletion of penalty intact because the decision was sustainable on the grounds set out in the judgment. The court held that no substantial question of law arose from the impugned order warranting interference. [Paras 7]

Reversed the Tax Board's reliance on the earlier Larger Bench decision but affirmed the deletion of penalty; no substantial question of law found.

Final Conclusion: The petition is dismissed. The High Court affirmed the Tax Board's order deleting the penalty for non production of ST 18A in respect of goods directly imported and cleared by customs, while observing that the Tax Board's reliance on its earlier Larger Bench decision (now overruled by the Supreme Court) is not a ground to disturb the result.

Relegation to alternate forum - interference by appellate court in exercise of discretion - remand for fresh consideration by the Tribunal - certificate under Section 48 read with Rule 30 of the Uttarakhand VAT Rules, 2005 - requirement of declaration form / Form 16 for carriage of goods - detention of vehicle for non-availability of bills

Relegation to alternate forum - interference by appellate court in exercise of discretion - Whether the appellate court should interfere with the learned Single Judge's order relegating the petitioner to the Tribunal - HELD THAT: - The Court observed that the Single Judge had exercised discretion to relegate the petitioner to the alternate forum where disputed questions of fact exist. When such factual disputes are involved, appellate interference with the exercise of discretion is generally unwarranted. Further, since this Court's intervening orders had resulted in the appellate Tribunal becoming fully functional, there was no reason to disturb the Single Judge's exercise of discretion. The Court therefore declined to disturb the relegation and noted that the Tribunal is the appropriate forum to decide the matter on merits. [Paras 7, 8]

Appeal dismissed; no interference with the Single Judge's order relegating the petitioner to the Tribunal.

Certificate under Section 48 read with Rule 30 of the Uttarakhand VAT Rules, 2005 - requirement of declaration form / Form 16 for carriage of goods - detention of vehicle for non-availability of bills - remand for fresh consideration by the Tribunal - Treatment of the contention that Form 16/blank declaration form requirement under the Act and Rules does not apply to the petitioner (a carrier/not a registered dealer) and related factual disputes - HELD THAT: - The Court recorded the petitioner's contention that the proviso to Section 48 and the wording of Rule 30 (including sub-rules concerning issuance of blank declaration forms to registered dealers) mean the requirements relied upon by the authorities do not apply to the petitioner, who contends it is not a registered dealer doing intra-State sales. The State pointed to alleged non-availability of sale bills at interception. The Court declined to adjudicate these contested factual and legal contentions and expressly left all contentions open for decision by the Tribunal on merits, untrammelled by the present judgment. [Paras 4, 6, 7, 8]

Contentions regarding applicability of the statutory requirements and the factual question of non-availability of bills are left open and remitted to the Tribunal for fresh adjudication.

Final Conclusion: The appeal is dismissed; the petitioner's substantive contentions on applicability of the Form 16 / declaration form requirement and the factual disputes (including alleged non-availability of bills) are left open and the matter is remitted to the Tribunal for fresh decision on merits.

Input tax credit - Section 6(3)(d) of the UKVAT Act - denial of ITC on packing materials on branch transfer - validity of departmental Circular - proviso as exception to the main enactment / interpretation of proviso - legislative plenary power to levy taxes - availability of alternative statutory remedy and maintainability of writ

Availability of alternative statutory remedy and maintainability of writ - input tax credit - Whether the writ petition seeking quashing of the assessment order rejecting ITC can be entertained when an alternate statutory remedy before the Joint Commissioner (Appeals) is available - HELD THAT: - The Court observed that an alternate remedy by way of statutory appeal under the UKVAT Act is available to the petitioners in respect of the impugned assessment order rejecting input tax credit. Having regard to availability of that efficacious remedy, the Court declined to exercise writ jurisdiction to entertain the challenge to the assessment order. The Court therefore considered it inappropriate to proceed with the petition on merits in respect of relief seeking quashing of that assessment order and directed that the statutory remedy be availed. [Paras 16]

Petitions dismissed at admission in respect of challenge to the assessment order; petitioners directed to avail statutory appeal before the Joint Commissioner (Appeals).

Section 6(3)(d) of the UKVAT Act - denial of ITC on packing materials on branch transfer - validity of departmental Circular - proviso as exception to the main enactment / interpretation of proviso - legislative plenary power to levy taxes - Whether reliefs challenging the impugned Circular and the vires/interpretation of Section 6(3)(d) (and related proviso) require fresh consideration in the present petitions - HELD THAT: - The Court noted that the legal propositions raised in respect of the Circular and interpretation/validity of Section 6(3)(d) had already been examined by the learned Single Judge and affirmed by the Division Bench of this Court; special leave petitions against those decisions were dismissed by the Supreme Court. The Division Bench had held that the State, exercising its plenary legislative power, may limit grant of ITC and that Section 6 and its proviso must be read so as to confine the exception to the field of the main enactment. In view of those antecedent adjudications and the summary dismissal of SLPs, the Court found no useful purpose in re examining those issues and declined to reopen them in the present petitions. [Paras 4, 13, 14, 16]

Reliefs seeking to strike down or re interpret the Circular and Section 6(3)(d) (and related reliefs 2-6) are not entertained as the issues have been previously adjudicated and SLPs were dismissed; no interference is called for.

Final Conclusion: Writ petitions dismissed at the admission stage: challenge to the assessment order is to be pursued by statutory appeal before the Joint Commissioner (Appeals), and the other challenges to the Circular and to Section 6(3)(d) (and related proviso) are not reopened because they have already been judicially considered and subject matter of dismissed SLPs.