TaxTMI Updates e-Newsletter
Jun 10,2023

Summary order. Special Leave Petition dismissed; no interference with the impugned judgment and order of the High Court; pending applications disposed of.

Investigation, inspection and search or seizure in a Special Economic Zone - authorisation of officers as proper officers for carrying out proceedings in SEZ - treatment of supplies to or by SEZ unit as inter state supply - territorial fiction of SEZ and limits of its exclusion from domestic laws - due process safeguards under Section 67 of the GST statutes - abuse of process and imposition of costs for frivolous or delaying litigation

Investigation, inspection and search or seizure in a Special Economic Zone - authorisation of officers as proper officers for carrying out proceedings in SEZ - treatment of supplies to or by SEZ unit as inter state supply - due process safeguards under Section 67 of the GST statutes - Whether respondent Nos.4, 5 and 6 acted without jurisdiction or authority in initiating search, seizure and related proceedings at the petitioners' SEZ unit and residential/business premises under the GST/SEZ statutes. - HELD THAT: - The Court examined Section 22 of the SEZ Act (investigation, inspection, search or seizure), Section 6 of the GGST Act (authorisation of officers as proper officers) and the IGST provisions treating supplies to or by SEZ units as inter state supplies. The statutory scheme permits an officer or agency authorised by the Central Government to carry out search, seizure or investigation in an SEZ and, where so authorised, such measures may be undertaken without prior approval of the Development Commissioner. The Central Government had issued requisite authorisations (notification dated 5.8.2016) and the functions of proper officers under CGST have been defined by circulars referred to by respondents. The IGST regime treats supply to or by SEZ units as inter state trade and does not render SEZ units outside the reach of GST/inspection measures. The factual material placed by respondents (analytics, intel inputs, spot verifications and alleged large scale bogus transactions) furnished prima facie reasons to believe and justified initiation of coordinated multi state search and related proceedings under Section 67 and summons under Section 70. In the circumstances, there was no legal inconsistency between the SEZ Act and GST enactments that would bar the respondents from acting, and the petitioners failed to establish lack of authority or jurisdiction of respondent Nos.4, 5 and 6 to proceed. [Paras 17, 18, 19, 20, 21]

Petitions dismissed on the ground that respondent Nos.4, 5 and 6 were acting within their statutory authority and not without jurisdiction; extraordinary equitable jurisdiction was not exercised to interfere with the investigations.

Abuse of process and imposition of costs for frivolous or delaying litigation - Whether the petitions constituted an abuse of process warranting refusal of relief and imposition of costs. - HELD THAT: - The Court found that the petitions were filed in circumstances where significant prima facie material had been placed before the authorities and that the petitioners' conduct after issuance of notices-indicating non cooperation and seeking to await court orders-suggested an attempt to frustrate or delay the statutory process. Having regard to the nature and volume of the alleged irregularities and the public interest in effective enforcement, the exercise of extraordinary equitable jurisdiction was not justified. The filing was treated as an abusive litigation tactic meriting a deterrent response. [Paras 22, 23, 24, 25]

Petitions dismissed as an abuse of process; costs of Rs.10,000 for each petition ordered to be paid to the Gujarat State Legal Services Authority within ten days, non payment to be recoverable as arrears of land revenue.

Final Conclusion: The petitions were dismissed on merits and for being an abuse of process: the State authorities were held to have had jurisdiction and prima facie cause to initiate coordinated search, seizure and related proceedings in respect of the SEZ units, and costs were imposed on the petitioners.

Provisional attachment under Section 83 of the CGST Act - protection of Government revenue as a legitimate object of provisional measures - subjective satisfaction of the tax authority for initiating protective action - exercise of extraordinary jurisdiction under Article 226 and non-interference with statutory discretion - power to summon and investigate under Section 70 of the CGST Act - show-cause proceedings under Section 74 of the CGST Act - amendment of Section 83 by the Finance Act, 2021 and its retrospective application to pending proceedings - claim of ineligible input tax credit arising from bogus/fictitious suppliers

Provisional attachment under Section 83 of the CGST Act - subjective satisfaction of the tax authority for initiating protective action - protection of Government revenue as a legitimate object of provisional measures - claim of ineligible input tax credit arising from bogus/fictitious suppliers - show-cause proceedings under Section 74 of the CGST Act - amendment of Section 83 by the Finance Act, 2021 and its retrospective application to pending proceedings - exercise of extraordinary jurisdiction under Article 226 and non-interference with statutory discretion - The provisional attachment of the petitioner's bank accounts under Section 83 was lawful and did not warrant interference by the High Court under Article 226. - HELD THAT: - The Court found that the revenue authority had prima facie material, supplied inter alia by the petitioner, indicating large purchases from numerous firms which appeared to be bogus and a claimed ineligible input tax credit. The authority recorded a satisfactory note and, in view of pending proceedings under Chapter XII/Chapter XIV (summons under Section 70 and subsequent investigatory steps), provisionally attached bank accounts to protect revenue. A formal show-cause notice under Section 74 in prescribed form was later issued. The Court applied the settled principle that it will not usurp or substitute a statutory authority's discretion in the absence of mala fide or patent illegality; where a subjective satisfaction is reached on available material and proceedings are on foot, interlocutory protective measures are permissible. The amendment to Section 83 by the Finance Act, 2021 (substituting sub section (1)) was held to cover proceedings under Section 70 and to support the authority's power to attach property, including bank accounts, during ongoing proceedings. The petition did not controvert the material in the authority's affidavit, nor allege mala fides, and a part of the attachment had already been lifted earlier, reducing any prejudice. On these grounds, interference under extraordinary writ jurisdiction was declined. [Paras 6, 8, 9, 14, 16]

Petition dismissed; attachment upheld and not interfered with by the High Court.

Final Conclusion: In the factual matrix where the revenue authority had recorded prima facie material of alleged bogus suppliers and had initiated statutory proceedings (with a show-cause notice issued), the High Court declined to exercise extraordinary writ jurisdiction to disturb the provisional attachment under Section 83 and dismissed the petition.

Refund of unutilized input tax credit in zero-rated supplies - Section 16(3)(a) and Section 16(3)(b) of the IGST Act - Rule 96(10) of the CGST Rules - re-credit to Electronic Credit Ledger under Rule 86(4B) of the CGST Rules - refund procedure under Section 54 of the CGST Act and Rule 89/92 of the CGST Rules - claim for interest under Section 54(7) and proviso to Section 56 of the CGST Act

Refund of unutilized input tax credit in zero-rated supplies - Section 16(3)(a) and Section 16(3)(b) of the IGST Act - Rule 96(10) of the CGST Rules - Validity of the impugned rejection orders (Annexure-K series) which denied consideration of the petitioner's refund applications for April 2021 to September 2021 - HELD THAT: - The Court found that the third respondent rejected the petitioner's refund applications solely on the ground of contravention of Rule 96(10) of the CGST Rules, without considering that the petitioner had repatriated the refund received and thereafter filed applications under Section 16(3)(a) of the IGST Act. The Court observed that Section 16(3)(a) enabled a supplier making zero-rated supplies to seek refund without payment of integrated tax and that the facts-receipt of refund, subsequent voluntary repayment with interest, and filing of fresh applications-required fresh consideration under the provisions applicable to refund without payment of IGST. For these reasons the impugned orders could not be sustained and were quashed to permit reconsideration of the petitioner's applications by the proper officer after personal hearing. [Paras 6, 7, 12, 13]

Impugned Annexure-K series dated 22.04.2022 quashed and the petitioner's application dated 15.03.2022 restored for reconsideration by the Deputy Commissioner with liberty to file submissions and to be afforded personal hearing.

Re-credit to Electronic Credit Ledger under Rule 86(4B) of the CGST Rules - voluntary repayment of erroneously received refund - Whether the petitioner is entitled to re-credit of the amount repaid to the Electronic Credit Ledger in view of the insertion of Rule 86(4B) - HELD THAT: - The Court noted the subsequent insertion of sub-rule 4B into Rule 86 which contemplates re-credit where an amount has been debited from the Electronic Cash Ledger following repayment of an erroneously received refund. In the light of this change, the Court directed that the Deputy Commissioner be called upon to re-credit the sum to the petitioner's Electronic Credit Ledger, but made such direction subject to the outcome of the reconsideration of the petitioner's restored refund application. The matter of re-credit therefore requires fresh operative consideration by the proper officer under the amended rule and the petitioner is permitted to place before the officer all relevant documents and this order. [Paras 8, 9, 10, 13]

Deputy Commissioner directed to re-credit Rs.52,44,57,242/- to the petitioner's Electronic Credit Ledger as contemplated under Rule 86(4B), subject to decision on the restored application after due consideration and personal hearing.

Refund procedure under Section 54 of the CGST Act and Rule 89/92 of the CGST Rules - claim for interest under Section 54(7) and proviso to Section 56 of the CGST Act - Admissibility of interest claimed by the petitioner on the refunded amount - HELD THAT: - The Court held that entitlement to interest is contingent upon the success of the petitioner's refund application and must be examined by the Deputy Commissioner when reconsidering the application. While the petitioner relied on Section 54(7) for interest from the expiry of 60 days of the refund application, the respondents relied on the proviso to Section 56. The Court therefore left the question of interest open for determination by the proper officer concurrently with the reconsideration of the refund claim, allowing the petitioner to place submissions and records on this point. [Paras 14, 15]

Question of interest left open for the Deputy Commissioner to decide while reconsidering the petitioner's refund application in accordance with law.

Final Conclusion: The petition is allowed in part: the orders rejecting the refund applications (Annexure K series) and related Annexures L and N are quashed; the petitioner's refund applications for April 2021 to September 2021 are restored for fresh consideration with personal hearing; the Deputy Commissioner is directed to consider re credit under Rule 86(4B) and to decide the claim for interest concurrently, all in accordance with law and after affording the petitioner an opportunity to file submissions.

Violation of principles of natural justice - right to be heard - challenge to demand order under GST for non-declaration of additional place of business - setting aside non-speaking administrative order issued without notice - liberty to issue fresh notice and opportunity to explain

Violation of principles of natural justice - right to be heard - challenge to demand order under GST for non-declaration of additional place of business - Whether the demand order dated 09.03.2021 could be sustained when it was passed without affording notice and an opportunity of hearing to the petitioner. - HELD THAT: - The Court found that the impugned demand order was not issued after affording the petitioner the opportunity to be heard and accordingly amounted to a breach of the principles of natural justice. In consequence the order could not be sustained. The Court set aside the impugned order on that ground but clarified that the State-respondents remain free to initiate fresh proceedings by issuing a proper notice. Upon receipt of such notice the petitioner is to submit his explanation in accordance with law, thereby preserving the respondents' right to proceed on merits after observing statutory procedural safeguards. [Paras 5]

Impugned order dated 09.03.2021 set aside for failure to afford notice; respondents permitted to issue fresh notice and petitioner granted opportunity to explain.

Final Conclusion: Writ petition allowed; the demand order is quashed for breach of natural justice, subject to the respondents being at liberty to issue a fresh notice and decide the matter after giving the petitioner an opportunity to be heard.

Validity of reassessment proceedings initiated by issuance of notice under section 148 - Effect of incorrect/abandoned PAN on service of notice and assessability - Duty of Assessing Officer to verify e-filing registration, last return filed and contact details before proceeding - Quashing of assessment/reassessment orders for failure to consider bona fide submissions before time-bar - Direction to cancel erroneous PAN and reassess under correct PAN after considering submissions

Validity of reassessment proceedings initiated by issuance of notice under section 148 - Quashing of assessment/reassessment orders for failure to consider bona fide submissions before time-bar - Impugned orders dated 30th March 2022 for AY 2015-16 and 2016-17 are quashed and set aside. - HELD THAT: - The Court found that Respondent No.1 proceeded to pass reassessment orders on 30th March 2022 without considering the submissions which the petitioner contends were attempted to be delivered on that date and without adequately verifying material facts that could have avoided the exercise. The record shows that the Assessing Officer did not follow up after the expiry of the 30-day period nor take earlier available steps (in May 2021 or after the notice u/s 142(1) dated 27th November 2021) to check whether the wrong PAN was registered on the e-filing portal, when the last return under the wrong PAN was filed, or the contact details associated with that PAN. The Court held that, having failed to consider the petitioner's submissions and having proceeded because of the looming time-bar, the impugned orders cannot stand and therefore are quashed and set aside. [Paras 8, 9, 11]

Impugned orders dated 30th March 2022 for AY 2015-16 and 2016-17 quashed and set aside.

Effect of incorrect/abandoned PAN on service of notice and assessability - Duty of Assessing Officer to verify e-filing registration, last return filed and contact details before proceeding - Demand notices dated 30th and 31st March 2022 (under provisions invoked in the orders) are stayed. - HELD THAT: - The Court observed that the notices had been issued under the wrong (abandoned) PAN and that the department had not recorded or answered material questions about the status and use of that PAN in its replies. Given the procedural deficiencies in issuing and pursuing notices under the erroneous PAN and the likelihood that the petitioner had been deprived of the opportunity to have its submissions considered, the Court directed a stay of the demand notices issued on and around 30th-31st March 2022, pending further proceedings in accordance with law. [Paras 8, 9, 11]

Demand notices dated 30th March 2022 and 31st March 2022 stayed.

Direction to cancel erroneous PAN and reassess under correct PAN after considering submissions - Effect of incorrect/abandoned PAN on service of notice and assessability - Respondent No.1 directed to cancel the wrong PAN and to assess/reassess the petitioner, if required, under the correct PAN after considering the petitioner's submissions and documents called for by the notice dated 27th November 2021 u/s 142(1). - HELD THAT: - Recognising that both parties bore fault-the petitioner for not surrendering/cancelling the earlier wrong PAN and the department for not verifying records and contact details-the Court directed that the erroneous PAN (AAACB2043F) be cancelled in accordance with law. Thereafter the Assessing Officer is to assess or reassess the petitioner for AY 2015-16 and 2016-17, as necessary, under the correct PAN (AAEFB9418R) after giving due consideration to the submissions and documents sought by the earlier notice u/s 142(1). This remedy preserves the right to adjudicate merits while remedying procedural defects in issuance and service of notices. [Paras 10, 11]

Wrong PAN to be cancelled and assessment/reassessment to be made under the correct PAN after considering the petitioner's submissions.

Final Conclusion: The writ petitions are allowed: the reassessment orders dated 30th March 2022 for AY 2015-16 and 2016-17 are quashed; related demand notices are stayed; the Assessing Officer is directed to cancel the erroneous PAN and, after considering the petitioner's submissions called for by the earlier notice, assess or reassess the petitioner under the correct PAN in accordance with law. No costs.

Disallowance under section 14A and Rule 8D - Objective satisfaction before applying Rule 8D - Speculative transactions versus non-speculative treatment (Section 73 and Section 43(5)) - Arbitrage/jobbing as normal business transactions - Set-off of delivery-based loss against F&O arbitrage income

Disallowance under section 14A and Rule 8D - Objective satisfaction before applying Rule 8D - Additional disallowance computed by AO under Rule 8D could not be sustained because AO did not record objective satisfaction rejecting the assessee's suo-motu computation. - HELD THAT: - The assessee had offered a suo-motu disallowance under section 14A in the return. The Assessing Officer applied Rule 8D(2)(iii) to compute an additional disallowance without recording any objective satisfaction as to why the assessee's computation was unacceptable. The Tribunal held that Rule 8D could not be applied straightaway; the AO was obliged first to record objective satisfaction rejecting the assessee's computation and only thereafter proceed to apply the formula in Rule 8D. In the absence of such satisfaction the additional disallowance could not be sustained and was therefore set aside. [Paras 2]

Additional disallowance under Rule 8D set aside; ground allowed.

Speculative transactions versus non-speculative treatment (Section 73 and Section 43(5)) - Arbitrage/jobbing as normal business transactions - Set-off of delivery-based loss against F&O arbitrage income - Delivery-based share trading loss arising in arbitrage/jobbing transactions is not to be treated as speculative loss under Section 73 and may be set off against F&O arbitrage income because such arbitrage/jobbing transactions fall outside the ambit of speculative transactions under Section 43(5). - HELD THAT: - The assessee carried on jobbing/arbitrage business where loss in one market segment (cash delivery) and profit in another (F&O) are two sides of the same arbitrage transaction. Section 43(5) excludes certain transactions, including eligible derivative trading, from being treated as speculative. The Explanation to Section 73 applies to deem certain share-trading activities of companies as speculation, but cannot be invoked to separate and deny set-off where the assessee's overall jobbing/arbitrage business yielded net positive results. The Tribunal held that Section 73 is applicable only if there is an overall loss in the speculative business segment sought to be set off; here there was no overall loss and, in any event, arbitrage/jobbing falls within the exclusion under Section 43(5). Consequently, the delivery-based loss must be allowed to be set off against the F&O arbitrage income and the AO was directed to recompute income. [Paras 4]

Loss in delivery-based arbitrage held not to be speculative; set-off against F&O arbitrage income allowed; AO directed to recompute.

Final Conclusion: Appeal allowed: additional section 14A disallowance under Rule 8D set aside for want of AO's objective satisfaction; delivery-based arbitrage loss held non-speculative and allowed to be set off against F&O arbitrage income-income to be recomputed by AO.

Limited scrutiny - revisionary jurisdiction under section 263 - scope of assessment - conversion of limited scrutiny to full fledged scrutiny - erroneous and prejudicial to the interest of revenue

Limited scrutiny - revisionary jurisdiction under section 263 - conversion of limited scrutiny to full fledged scrutiny - Whether the Principal Commissioner of Income Tax could invoke revisionary jurisdiction under section 263 to examine and set aside the assessment on issues which were not within the scope of limited scrutiny selected under CASS. - HELD THAT: - The Tribunal examined the scope of selection under CASS which in the present case confined the AO's enquiry to three specific points: (i) unsecured loans from persons who have not filed returns, (ii) large increase in unsecured loans during the year, and (iii) large squared up loans during the year. The PCIT's show cause notice and order under section 263 proceeded to re-open and test matters concerning high sea sales, speculative loss adjustments and adjustment of speculative business expenses against interest income-issues that were not part of the limited scrutiny mandate. The Board's circular prescribing conditions for converting limited scrutiny into full fledged scrutiny was considered; those conditions were not satisfied and no administrative approval to expand the scope was shown. On these facts, and following coordinate bench decisions (including Paradise Rubber Industries and Naveen Bajaj Jal) dealing with identical factual circumstances, the Tribunal held that the AO was required only to decide the issues for which the case was selected and had applied his mind to those limited issues. Consequently, the PCIT could not validly invoke section 263 to examine unrelated matters or remit the case for fresh assessment where the prescribed procedure to expand scrutiny had not been followed. The Tribunal therefore concluded that the revisionary order was bad in law and liable to be quashed. [Paras 6, 7, 10]

The impugned order passed by the Pr. CIT under section 263 is quashed as the PCIT impermissibly went beyond the scope of limited scrutiny without satisfying the conditions for conversion to full scrutiny.

Final Conclusion: Appeal allowed; the revisionary order under section 263 was quashed because the Pr. CIT examined matters outside the limited scrutiny selection without fulfilling the procedure to expand scrutiny.

Prior period expenditure - fair market price fixation - seasonal agricultural produce pricing controlled by the Government - advances to members not debited to profit and loss account - disallowance in assessment proceedings

Prior period expenditure - fair market price fixation - seasonal agricultural produce pricing controlled by the Government - Deletion of addition of Rs. 15,57,41,617/- treated as prior period expenses by the Assessing Officer. - HELD THAT: - CIT(A) found that the assessee, being in the agriculture sector dealing in a seasonal crop whose price is fixed by the Government, made final payments only after the Government fixed the Fair Market Price (FMP) for the sugar season; the FMP for the relevant season was determined on 05.12.2007 which was after completion of the sugar season 2006-07, and the payments made thereafter could not be treated as prior period expenses. The genuineness of payments to the farmers was not impugned by the Revenue. The Tribunal, on review, noted that Revenue did not point out any flaw in the factual findings of the CIT(A) and, applying those findings, found no reason to disturb the deletion of the addition made by the CIT(A). [Paras 4]

Order of the CIT(A) deleting the addition treated as prior period expenditure is upheld and the ground of appeal is dismissed.

Advances to members not debited to profit and loss account - disallowance in assessment proceedings - Deletion of addition of Rs. 9,01,21,084/- representing sugarcane advances shown in the balance sheet as on 31.03.2007. - HELD THAT: - CIT(A) recorded that the amount represented advances given to members which had never been debited to the Profit & Loss account as a charge against profit in earlier years and had never been claimed as a deduction; on that basis the amount could not be treated as income and added. The Tribunal observed that Revenue did not demonstrate any error in the CIT(A)'s factual and legal conclusion and accordingly found no justification to interfere with the deletion of the addition by the CIT(A). [Paras 5]

Order of the CIT(A) deleting the addition of advances is upheld and the ground of appeal is dismissed.

Final Conclusion: The appeal by the Revenue is dismissed; the orders of the Commissioner of Income Tax (Appeals) deleting the impugned additions are affirmed.

Applicability of section 44AB to commission agents / Kuchha Arahtias - penalty under section 271B for failure to get accounts audited - treatment of principal's receipts vis-a -vis agent's turnover - CBDT Circular No.452 dated 17th March, 1986

Treatment of principal's receipts vis-a -vis agent's turnover - applicability of section 44AB to commission agents / Kuchha Arahtias - Whether the assessee was a commission agent whose sales/collections on behalf of the principal should not be treated as his turnover for the purpose of section 44AB - HELD THAT: - The Tribunal accepted the assessee's categorical plea and documentary evidence (Form 26AS showing commission receipts and the appointment letter dated 1.4.2016) that the assessee acted as a commission agent for M/s. Anika Bajaj and collected down payments on the principal's behalf. On that basis the receipts collected for onward remittance to the principal cannot be treated as the assessee's turnover. The Tribunal further observed that enquiries could have been made by the lower authorities from the principal to verify the agency relationship but, on the material produced, concluded the assessee was an agent and not the principal seller, so the gross receipts of vehicle sales do not constitute the assessee's turnover for audit threshold purposes. [Paras 8]

Assessee held to be a commission agent; collections on behalf of the principal are not the assessee's turnover.

Penalty under section 271B for failure to get accounts audited - CBDT Circular No.452 dated 17th March, 1986 - applicability of section 44AB to commission agents / Kuchha Arahtias - Whether penalty under section 271B was rightly imposed for failure to get accounts audited when the assessee's turnover, after excluding principal's receipts, was below the threshold under section 44AB - HELD THAT: - Having held that the amounts collected on behalf of the principal do not form the assessee's turnover, the Tribunal found the assessee's gross turnover for the year to be below the Rs.1 crore audit threshold. The Tribunal noted the assessee relied on CBDT Circular No.452 and trademarked authority as to Kuchha Arahtias-type arrangements and that the Assessing Officer and CIT(A) had not adequately considered the documentary proof. In view of the factual finding on agency and the turnover being below the threshold, the statutory precondition for levy of penalty under section 271B (failure to get accounts audited where section 44AB applies) was not satisfied. Consequently the penalty imposed by the lower authorities was held to be without basis and deleted. [Paras 8]

Penalty under section 271B deleted as section 44AB was not attracted after excluding principal's receipts; lower orders set aside.

Final Conclusion: Tribunal allowed the appeal, held the assessee to be a commission agent (supported by appointment letter and commission entries), concluded the turnover for A.Y.2017-18 was below the threshold for audit, and deleted the penalty under section 271B imposed by the lower authorities.

Deduction under section 80P(2)(a)(i) for cooperative societies - Interest income from deposits with nationalised banks - Qualification of interest on fixed deposits for section 80P relief - Following Tribunal precedent

Deduction under section 80P(2)(a)(i) for cooperative societies - Interest income from deposits with nationalised banks - Following Tribunal precedent - Deduction under section 80P(2)(a)(i) was allowable in respect of interest income earned by the assessee from deposits with a nationalised bank. - HELD THAT: - The assessee, a cooperative credit society, claimed deduction under section 80P(2) for interest received on fixed deposits with Bank of Baroda which the AO disallowed and the first appellate authority affirmed. The Tribunal noted that the same question had been decided in favour of the assessee in earlier Tribunal orders, including the assessee's own case for AY 2013-14 (order dated 27-12-2021) where paragraph 9 contains the relevant discussion granting deduction for interest received from fixed deposit. As that decision has not been modified or reversed, the Tribunal respectfully followed the precedent and held that the interest income from the bank deposits qualified for deduction under section 80P(2)(a)(i). [Paras 4, 5]

Appeal allowed and deduction under section 80P granted for the interest income from the Bank of Baroda fixed deposit.

Final Conclusion: The Tribunal allowed the appeal for AY 2014-15, granting deduction under section 80P(2)(a)(i) on interest earned from deposits with a nationalised bank, following earlier Tribunal precedent including the assessee's own preceding-year order.

Disallowance under section 14A and Rule 8D - Investments yielding exempt income to be included in Rule 8D computation - Strategic/group-company investments excluded where they yield no exempt income - Allocation of licence fee between capital and revenue - Amortisation under section 35ABB of capitalised licence fee - Adjustment of disallowed TDS credit and prohibition on double addition

Disallowance under section 14A and Rule 8D - Investments yielding exempt income to be included in Rule 8D computation - Strategic/group-company investments excluded where they yield no exempt income - Whether disallowance under section 14A read with Rule 8D(2)(iii) should include strategic investments which did not yield exempt dividend income during the year - HELD THAT: - The Tribunal found as a fact that the assessee's exempt income in the year arose only from dividends on mutual fund investments and that strategic investments in subsidiary/group companies did not yield any exempt income during the year. Relying on the settled principle that Rule 8D(2)(iii) is to be applied with reference only to investments yielding exempt income in the relevant year, the Tribunal held that investments which did not yield exempt income cannot form part of the average value of investments for computing disallowance under Rule 8D(2)(iii). Further, the financial statements showed no opening or closing balance of the mutual fund investments (they were acquired and sold within the year), making the average value at the opening and closing of the year nil and rendering the computation mechanism of Rule 8D(2)(iii) inapplicable in the absence of an average value. On these bases the Tribunal directed deletion of the disallowance made over and above the suo motu disallowance already made by the assessee. [Paras 7, 8]

Disallowance under section 14A/Rule 8D deleted except for the suo motu amount; strategic investments not included in computation as they yielded no exempt income.

Allocation of licence fee between capital and revenue - Amortisation under section 35ABB of capitalised licence fee - Whether the licence fee paid to the Department of Telecommunications should be treated as capital expenditure and amortised under section 35ABB or allowed as revenue expenditure - HELD THAT: - The Tribunal noted that the issue is a recurring dispute between the parties and is covered by the coordinate Bench's earlier decisions in the assessee's own case and by the jurisdictional High Court authority. Those decisions analyse the nature of licence fee under the pre- and post-1999 policy and conclude that licence fee upto 31-7-1999 is capital in nature while licence fee payable thereafter on a revenue-sharing basis is revenue in nature; capital portion qualifies for amortisation under section 35ABB. Following the consistent view of the Tribunal and the coordinate bench's reasoning, the Tribunal upheld the Commissioner (Appeals) in deleting the addition made by the Assessing Officer. [Paras 12, 13]

Revenue's appeal on licence fee capitalisation dismissed; the AO's addition deleted in accordance with earlier tribunal and High Court findings.

Adjustment of disallowed TDS credit and prohibition on double addition - Whether the Assessing Officer could disallow claimed TDS credit relating to deferred revenue and additionally add the corresponding amount to the assessee's income - HELD THAT: - The Tribunal observed that the Assessing Officer disallowed certain TDS credits on the ground that they pertained to future income but nevertheless made a further addition of the corresponding amount to the assessee's income. The Tribunal held that disallowance of a TDS credit reduces the assessee's claim of pre-paid tax to that extent and a separate addition of the same amount would amount to double addition. Consequently, the Tribunal directed factual verification by the Assessing Officer: if the assessee has not been given credit of the disputed TDS in the computation, the addition should be deleted. [Paras 18]

Assessee's ground allowed subject to factual verification; AO to verify whether TDS credit was given and delete the addition if not reflected in computation.

Final Conclusion: Revenue's appeal is dismissed; the disallowance under section 14A/Rule 8D is deleted except for the suo motu amount, the addition on licence fee capitalisation is deleted following consistent tribunal precedent, and the cross-objection on TDS credit is allowed subject to factual verification with directions to the Assessing Officer to delete the addition if the TDS credit was not given in the computation.

Penalty for non-compliance with notice issued under section 133(6) - Levy of penalty under section 272A(2)(c) - Service of notice via Income Tax e filing portal and email - Effect of portal login and updated email on service - Exclusion of the Covid period for limitation and proceedings - Recomputation of penalty on restricted period

Service of notice via Income Tax e filing portal and email - Effect of portal login and updated email on service - Whether the show-cause notice issued under section 133(6) was served on the assessee and whether non-compliance attracted penalty under section 272A(2)(c). - HELD THAT: - The Tribunal found on the material placed on record that the assessee had updated the e-mail on the Income Tax Portal on 29.03.2019 and a subsequent login on the updated e-mail address was recorded on 12.04.2023. From these facts the Tribunal concluded that communications uploaded by the Income Tax Authorities would be sent to the updated e-mail address and that the assessee had not communicated or responded to the proceedings initiated by the notice under section 133(6). Consequently the factual contention that the notice was not served was held to be incorrect and the finding of non-compliance sustaining a penalty was upheld in principle. [Paras 4]

Findings of service via the portal/email are factually established and non-compliance to the notice attracts penalty under section 272A(2)(c).

Exclusion of the Covid period for limitation and proceedings - Recomputation of penalty on restricted period - Levy of penalty under section 272A(2)(c) - Whether the period covered by the penalty should be restricted by excluding the Covid-affected period as extended by the Apex Court and whether the penalty should be recomputed accordingly. - HELD THAT: - The Tribunal accepted the assessee's submission that the Covid period, for which the Apex Court extended limitation, should be excluded in computing the period for which penalty under section 272A(2)(c) is levied. Relying on the Apex Court's order extending limitation from 15.03.2020 till 14.03.2021, the Tribunal directed that the penalty be restricted to the period beginning 30.07.2019 and ending 14.03.2020, and that the Assessing Officer recompute the penalty payable for that restricted period. The Tribunal thereby modified the quantum application of the penalty while leaving the finding of non-compliance intact. [Paras 5, 6]

Penalty sustained but confined to the period 30.07.2019 to 14.03.2020; AO to recompute the penalty for the restricted period.

Final Conclusion: The appeal is allowed in part: the finding of non-compliance with the notice under section 133(6) is upheld, but the penalty under section 272A(2)(c) is confined to the period 30.07.2019 to 14.03.2020 in view of the Apex Court's exclusion of the Covid period, and the Assessing Officer is directed to recompute the penalty accordingly.

Benefit of DTAA - tax residency certificate - burden of proof of tax residency - restoration for verification of documentary evidence

Benefit of DTAA - tax residency certificate - burden of proof of tax residency - restoration for verification of documentary evidence - Whether the assessee was entitled to claim the concessional rate of tax on interest under the India-USA DTAA for Assessment Year 2016-17 and whether the matter should be remitted to permit production and verification of residency documentation. - HELD THAT: - The assessee, a U.S. citizen and NRI, had declared interest income claimed to be taxable at the DTAA rate but had not produced a Tax Residency Certificate (TRC). The CPC processed the return at the normal rate and the Assessing Officer, on rectification, levied tax at the maximum marginal rate. The CIT(A) upheld that in absence of TRC the assessee was not entitled to DTAA benefits and observed that a U.S. passport and copy of a U.S. return were inadequate to establish tax residency. The Tribunal noted that, as on the hearing date, no TRC was available and that passport entries alone do not suffice to demonstrate tax residency. In the interest of justice the Tribunal restored the matter to the file of the CIT(A) to afford the assessee an opportunity to furnish supporting documents (including, if obtained, the TRC) to validate U.S. tax residency for the year under consideration and thereby determine entitlement to the concessional DTAA rate. The Tribunal did not decide on the merits of the DTAA claim but directed fresh consideration after permitting production and verification of residency evidence. [Paras 6, 7]

Matter remitted to the CIT(A) to allow the assessee to furnish and have verified documents (including TRC if obtained) to determine entitlement to DTAA benefits for Assessment Year 2016-17; appeal allowed for statistical purposes.

Final Conclusion: The Tribunal restored the appeal to the file of the CIT(A) for fresh consideration and verification of documentary evidence of U.S. tax residency for AY 2016-17; no substantive determination on DTAA entitlement was made by the Tribunal.

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income - Non-compete fee: revenue expenditure versus capital expenditure - Consistency and recurrence of issue in successive assessment years - Deletion of penalty where material facts were disclosed and issue pending before High Court - Restoration/remand to Assessing Officer for verification of processing charges - Disallowance of provisions in absence of cogent evidence - Allowability of compounding/traffic challans as business expenditure under section 37(1) - Expenditure on ice-boxes/marketing articles treated as capital expenditure - TDS under section 40(a)(ia)/section 195: purchase of copyrighted article not taxable as royalty

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income - Deletion of penalty where material facts were disclosed and issue pending before High Court - Deletion of penalty imposed under section 271(1)(c) in AYs 2004-05 and 2005-06 upheld - HELD THAT: - The Tribunal noted that, after disposal of the quantum appeals, the only addition remaining in both assessment years was disallowance of non-compete fee, a recurring and debatable question on which the assessee consistently maintained its view and had pending substantial questions of law admitted by the Hon'ble High Court. The assessee had disclosed the material facts relating to the non-compete payments and the Assessing Officer was aware of the claim. In these circumstances, furnishing of inaccurate particulars was not established. Earlier deletion of penalty in AY 2002-03 in identical facts was noted and upheld. Applying these considerations, the Tribunal found no justification to interfere with the Commissioner (Appeals)' deletion of penalty and dismissed the Revenue's appeals. [Paras 5, 6, 7, 8]

Deletion of penalty under section 271(1)(c) in AYs 2004-05 and 2005-06 upheld; Revenue appeals dismissed.

Non-compete fee: revenue expenditure versus capital expenditure - Consistency and recurrence of issue in successive assessment years - Disallowance of non-compete fee upheld for AYs 2008-09 and 2009-10 following consistent Tribunal precedent - HELD THAT: - The Tribunal treated the dispute as the recurring question whether non-compete payments are revenue or capital in nature. Noting consistent decisions against the assessee from earlier years (1999-2000 onwards) and that identical issues in the assessee's own case were decided against it by coordinate Benches (and some appeals admitted by the High Court), the Tribunal declined to depart from its earlier view. Applying the rule of consistency and following its prior decisions, the Tribunal upheld the disallowance of non-compete fee in the impugned years. [Paras 12, 14, 16, 17, 40]

Disallowance of non-compete fee sustained; grounds dismissed.

Disallowance of provision in absence of cogent evidence - Disallowance of deductions claimed as provisions/reimbursements (sales tax, VRS etc.) upheld for AY 2008-09 - HELD THAT: - The Assessing Officer recorded that the assessee did not produce corroborative evidence to show that the alleged liabilities had actually accrued or were paid; some amounts were itself shown as 'provision' by the assessee. The Commissioner (Appeals) sustained the disallowance. The Tribunal found that furnishing the termination agreement or similar documents alone did not establish the incurrence of expense without supporting proof of claim/payment; therefore there was no basis to reverse the disallowance. [Paras 18, 19, 21, 22]

Disallowance of the claimed provisions upheld; ground dismissed.

Allowability of compounding/traffic challans as business expenditure under section 37(1) - Disallowance of payments towards traffic challans deleted for AYs 2008-09 and 2009-10 - HELD THAT: - The Tribunal examined the nature of payments made towards traffic violations and, following the coordinate-bench decision in DCIT v. Bharat C Gandhi, held that compounding fees/penalties under Motor Vehicles law in the factual context constitute allowable business expenditure under section 37(1). Applying that precedent, the Tribunal deleted the disallowance. [Paras 23, 24, 41]

Disallowance of traffic challan payments deleted; ground allowed.

Expenditure on ice-boxes/marketing articles treated as capital expenditure - Disallowance of deduction for expenditure on ice-boxes upheld (treated as capital) for AYs 2008-09 and 2009-10 - HELD THAT: - Relying on coordinate-bench reasoning in the assessee's own case (and relevant precedents cited therein), the Tribunal concluded that ice-boxes, dealer sign boards and similar articles created assets or brought into existence enduring benefit for the business and are therefore capital in nature. The Tribunal declined to depart from that consistent view and upheld the treatment as capital expenditure, allowing depreciation where applicable. [Paras 25, 26, 29, 30, 42]

Expenditure on ice-boxes treated as capital; disallowance sustained (appeal partly dismissed).

Restoration/remand to Assessing Officer for verification of processing charges - Issue of ad hoc disallowance of processing charges restored to Assessing Officer for verification (AY 2008-09 and remanded similarly for 2009-10) - HELD THAT: - The Tribunal noted prior decisions in the assessee's own case where the issue was restored to the AO with directions to examine evidence of genuineness and reconcile books with third-party accounts. Following those decisions, the Tribunal restored the issue to the AO with directions to examine the evidence produced by the assessee, while ensuring the assessee is given a reasonable opportunity of hearing. [Paras 33, 34, 36, 37, 44]

Ad hoc disallowance of processing charges restored/remanded to AO for fresh examination on evidence; appeal allowed for statistical purposes.

TDS under section 40(a)(ia)/section 195: purchase of copyrighted article not taxable as royalty - Deletion of disallowance under section 40(a)(ia) in respect of purchase of copyrighted software upheld (AY 2009-10) - HELD THAT: - The Commissioner (Appeals) found as a factual matter that payments were for purchase of copyrighted software (a copyrighted article) and not for grant of a copyright or license attracting royalty. That factual finding was unchallenged before the Tribunal. The Tribunal further observed that the issue is settled by the Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT, and accordingly sustained the Commissioner (Appeals) order deleting the disallowance under section 40(a)(ia). [Paras 45, 46, 47, 48, 49]

Disallowance under section 40(a)(ia) deleted; ground dismissed.

Final Conclusion: The Tribunal dismissed the Revenue appeals against deletion of penalty for AYs 2004-05 and 2005-06; for AYs 2008-09 and 2009-10 the Tribunal partly allowed the assessee's appeals - upholding disallowances of non-compete fees and ice-boxes, deleting traffic-challan disallowances, restoring processing-charge disputes to the Assessing Officer for verification, upholding disallowance outcomes on provisions due to lack of evidence, and confirming deletion of TDS-related disallowance on purchase of copyrighted software.

Deduction under section 80-IA - Filing of Form No.10CCB - Due date under section 139(1) - Audit report in Form 3CB-3CD and certification in Form 3CD - Technical glitches on e-filing and bona fide delay - Coordinate Bench precedent on non-filing of Form 10CCB

Deduction under section 80-IA - Filing of Form No.10CCB - Due date under section 139(1) - Audit report in Form 3CB-3CD and certification in Form 3CD - Technical glitches on e-filing and bona fide delay - Deduction under section 80-IA allowed despite delayed filing of Form No.10CCB where return was filed within the due date and the tax audit certified the deduction. - HELD THAT: - The assessee had established eligibility for deduction under section 80-IA and filed the return of income with the tax audit report (Form 3CB-3CD) within the due date specified by section 139(1). Although Form No.10CCB could not be uploaded due to technical glitches and was ultimately filed with an eleven-day delay, the delay arose from reasons beyond the assessee's control and the tax auditor had certified the deduction in the statutory audit. The Tribunal applied the reasoning of the coordinate Bangalore Bench in Jitendra Kumar Nahata v. JCIT (supra), holding that where the return is filed within the due date and the deduction is certified in Form 3CD, mere non-filing of Form No.10CCB within the due date is not fatal to the claim. On these facts the CIT(A)'s confirmation of the disallowance was not justified and the deduction was allowable. [Paras 8, 9]

Disallowance for non-filing of Form No.10CCB set aside; deduction under section 80-IA allowed.

Final Conclusion: Appeal allowed; deduction under section 80-IA granted for Assessment Year 2019-20 as the return and tax audit certificate were filed within the due date and the delay in uploading Form No.10CCB was due to technical glitches beyond the assessee's control.

Deduction under section 80P(2)(a)(i) - Proportionate deduction for income from members - Income attributable to non-members excluded from 80P(2)(a)(i) - Interpretation in Mavilayi Service Co-operative Bank Ltd. - Effect of associate/nominal membership limit under the Karnataka Co-operative Societies Act, 1959 - Interest income from banks not eligible under 80P(2)(a)(i) or 80P(2)(d) - Reliance on Totagars Co-operative Sale Society precedent

Deduction under section 80P(2)(a)(i) - Proportionate deduction for income from members - Income attributable to non-members excluded from 80P(2)(a)(i) - Interpretation in Mavilayi Service Co-operative Bank Ltd. - Effect of associate/nominal membership limit under the Karnataka Co-operative Societies Act, 1959 - Proportionate deduction under section 80P(2)(a)(i) in respect of income earned from regular members to be determined; income attributable to dealings with non-members is not deductible. - HELD THAT: - The Tribunal found that the assessee admits lending to and accepting deposits from associate/nominal members (non-members) and that the Karnataka Co-operative Societies Act, 1959 (as amended w.e.f. 01.06.2014) permits associate or nominal members only up to a prescribed limit; where dealings with non-members exceed permitted proportion, income attributable to such dealings cannot be allowed as deduction under section 80P(2)(a)(i). The Tribunal applied the ratio in Mavilayi Service Co-operative Bank Ltd., which holds that section 80P(2)(a)(i) must be read liberally in favour of the assessee and that profits attributable to non-members are excluded while income from regular members is eligible for deduction. In consequence, the Tribunal restored the matter to the Assessing Officer to quantify and allow the proportionate deduction under section 80P(2)(a)(i) attributable to business with the regular members of the society. [Paras 9, 10, 11]

Issue remanded to the Assessing Officer to determine and allow proportionate deduction under section 80P(2)(a)(i) in respect of income arising from dealings with regular members; income attributable to non-members is not deductible.

Interest income from banks not eligible under 80P(2)(a)(i) or 80P(2)(d) - Reliance on Totagars Co-operative Sale Society precedent - Interest income earned from scheduled banks is not eligible for deduction under section 80P(2)(a)(i) or section 80P(2)(d). - HELD THAT: - The Tribunal considered the claim for deduction in respect of interest income from scheduled/co-operative banks and, following the reasoning of the jurisdictional High Court in Totagars Co-operative Sale Society, held that such interest income does not qualify for deduction either under section 80P(2)(a)(i) or section 80P(2)(d) of the Act. No contrary facts were presented to distinguish that precedent, and the claim was therefore rejected. [Paras 12]

Claim for deduction in respect of interest income from scheduled banks refused; not allowable under section 80P(2)(a)(i) or 80P(2)(d).

Final Conclusion: Appeal partly allowed: remand to the Assessing Officer to compute and allow proportionate deduction under section 80P(2)(a)(i) for income attributable to regular members; deduction in respect of interest income from scheduled banks disallowed.

Addition made on estimate basis - penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - requirement of proof of deliberate concealment or inaccurate particulars for levy of penalty - imputed interest on interest-free loans treated as income from other sources

Addition made on estimate basis - penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - requirement of proof of deliberate concealment or inaccurate particulars for levy of penalty - Whether penalty under section 271(1)(c) could be sustained where the assessing officer made an addition by estimating income on interest-free loans - HELD THAT: - The assessing officer determined income by applying an imputed interest rate to aggregate interest-free loans and advances and made the addition on an estimate basis. For levy of penalty under section 271(1)(c), the revenue must establish that the assessee deliberately concealed particulars of income or furnished inaccurate particulars. Where the addition is purely estimate-based and there is no finding or proof of deliberate concealment or falsity of the explanation furnished by the assessee, the foundational requirement for imposing penalty is absent. The Tribunal applied this principle to the undisputed facts of the case and held that the AO was not justified in levying penalty which was founded on an estimate addition rather than on established concealment or inaccurate particulars.

Penalty under section 271(1)(c) deleted and the appeal allowed.

Final Conclusion: The Tribunal deleted the penalty imposed under section 271(1)(c) because the addition was made on an estimated basis and there was no proof of deliberate concealment or furnishing of inaccurate particulars; the assessee's appeal is allowed.

Allowability of interest deduction - proportionate disallowance under section 36(1)(iii) of the Act - diversion of borrowed funds for non-business purposes - business purpose of loans and advances - accrual and bona fides of waiver by board resolution - credit for interest income against interest expenditure - earmarking of term loan funds and exclusion from common funds

Proportionate disallowance under section 36(1)(iii) of the Act - diversion of borrowed funds for non-business purposes - Whether interest paid on borrowed funds could be disallowed proportionately under section 36(1)(iii) on account of advances given interest-free to certain parties - HELD THAT: - The Tribunal examined whether advances interest-free to various parties during the year amounted to diversion of borrowed funds for non-business purposes warranting proportionate disallowance of interest. It upheld the AO's disallowance in respect of four parties (Everest Construction, Pyx Laboratories, Shravan Construction and Akbarallys Ebrahimji) because those advances had already been treated as non-business and disallowed in assessment for A.Y.2001-02 and the assessee had not appealed against that earlier disallowance; accordingly the disallowance continues for A.Y.2002-03. Conversely, in respect of four other related-party borrowers (Fabliau Estate Development Pvt. Ltd., Tahseel Hire Purchase Co. Pvt. Ltd., Zeigler Investments Pvt. Ltd., Zaahid Holdings & Investments Pvt. Ltd.) the Tribunal found that the advances had been accepted as for business purposes in earlier years (interest charged and offered to tax up to A.Y.2001-02), the assessee had placed on record financial statements showing borrowers' poor financial condition and a bona fide Board Resolution waiving interest for the year, and subsequent merger and receipt of interest in later years corroborated commercial reality; applying precedent that opening balances accepted as for business purposes cannot be proportionately disallowed, the Tribunal set aside disallowance on opening balances and deleted proportionate disallowance in respect of those loans. For remaining small advances (parties listed at Sr.Nos.7,8,11,12,13,16,17,18), the Tribunal found the assessee's own funds sufficient to cover those interest-free advances and directed deletion of disallowance relying on authoritative decisions allowing such treatment. The Tribunal also noted and applied the conceded treatment (not appealed by Revenue) that interest income of the assessee (already offered to tax) be given credit while computing disallowance, and it accepted the assessee's submission (and the CIT(A)'s direction) that interest attributable to term loans (earmarked for specific purposes) could not have been diverted for making interest-free advances and therefore should be excluded from the common fund for disallowance.

Disallowance under section 36(1)(iii) upheld for advances to Everest Construction, Pyx Laboratories, Shravan Construction and Akbarallys Ebrahimji; disallowance deleted for opening balances and advances to Fabliau, Tahseel, Zeigler and Zaahid (Sr. Nos.3-6); disallowance deleted for advances to parties at Sr. Nos.7,8,11,12,13,16,17,18; credit for interest income and exclusion of term-loan interest to be given effect to as directed by CIT(A).

Final Conclusion: Appeal of the assessee partly allowed and appeal of the Revenue partly allowed: interest disallowance sustained in respect of four parties previously held to be non-business; disallowance deleted in respect of specified group companies whose advances were accepted as for business purposes in earlier years and for other small advances where own funds covered the advances; interest income credit and exclusion of term-loan interest to be given effect to.

Disallowance under section 43B - due date of filing return under section 139(1) - tax auditor reporting in Form 3CB - employees' contribution to Provident Fund - deduction under section 36(1)(va) - deemed income under section 2(24)(x)

Disallowance under section 43B - due date of filing return under section 139(1) - tax auditor reporting in Form 3CB - Whether disallowance under section 43B at Rs. 4,38,526/- is justified where liabilities for ESI, PF, CGST and SGST relating to March 2017 were paid before the due date of filing return under section 139(1). - HELD THAT: - The Tribunal examined bank statements and found payments relating to March 2017 (ESI, EPF, CGST and SGST) were made before the due date for furnishing return under section 139(1). The tax auditor had erroneously reported those amounts in column 26(i)(B)(b) of Form 3CB (intended for payments incurred during the year but not paid on or before the due date). Because the payments were in fact made prior to the due date of filing, the conditions for invoking section 43B did not exist and the disallowance could not be sustained. The Tribunal set aside the finding of the lower authority and deleted the addition made on this basis. [Paras 8, 9]

Addition of Rs. 4,38,526/- under section 43B deleted.

Employees' contribution to Provident Fund - deduction under section 36(1)(va) - deemed income under section 2(24)(x) - Whether employees' contribution to PF of Rs. 61,387/- is allowable where deposits were made after the statutory due dates for the months for which salary was payable. - HELD THAT: - The Tribunal noted that liability to deposit PF/ESI is determined by the month for which salary is payable; the due dates for the relevant months were 15/06/2017 and 15/07/2017 but payments were made on 18/05/2017 and 17/06/2017 (i.e., after the respective due dates). Applying the principle affirmed by the Supreme Court in Chekmate Services Pvt. Ltd. (as cited in the order), deduction under section 36(1)(va) cannot be claimed for delayed deposit and such amount is to be treated as income under section 2(24)(x). Accordingly the claim for deduction was rejected and the amount treated as deemed income. [Paras 10, 11]

Claim for deduction under section 36(1)(va) disallowed; employees' contribution treated as deemed income under section 2(24)(x).

Final Conclusion: For Assessment Year 2018-19 the Tribunal deleted the addition under section 43B of Rs. 4,38,526/-, but rejected the assessee's claim for deduction of employees' PF contribution (Rs. 61,387/-), treating it as deemed income; the appeal in ITA No. 278/Kol/2023 is dismissed and ITA No. 279/Kol/2023 is partly allowed as indicated above.

Reduction of redemption fine under Section 125(1) of the Customs Act, 1962 - reduction of penalty under Section 112(a)(i) of the Customs Act, 1962 - re-export of confiscated goods - confiscation under section 111(d) of the Customs Act, 1962 read with Foreign Trade (Development and Regulation) Act, 1992 - NOC refusal by FSSAI on grounds of substandard and unsafe food - absence of mala fides in import

Reduction of redemption fine under Section 125(1) of the Customs Act, 1962 - re-export of confiscated goods - NOC refusal by FSSAI on grounds of substandard and unsafe food - Validity of the Commissioner (Appeals)'s reduction of the redemption fine and allowance of re-export where goods were found substandard by FSSAI but there was no mis-declaration or malicious import. - HELD THAT: - The Tribunal found that the impugned consignment was freely importable and there was no allegation or evidence of mis-declaration or mala fide intention on the part of the importer; the goods tested as substandard and unfit for human consumption, and both original and appellate authorities permitted re-export. In this factual matrix the Commissioner (Appeals) applied precedents involving re-export of food items denied FSSAI NOC and took a lenient view in reducing the redemption fine to the quantum imposed by the Commissioner (Appeals). The Tribunal concluded there was no infirmity in that exercise of discretion, having regard to the lack of malafide, the nature of the goods, delay and deterioration at port, and authorities relied upon by the Commissioner (Appeals). [Paras 9, 13]

The reduction of the redemption fine to Rs. 1,00,000/- and allowance of re-export is sustained as not infirm.

Reduction of penalty under Section 112(a)(i) of the Customs Act, 1962 - absence of mala fides in import - Appropriateness of reducing the penalty imposed under Section 112(a)(i) in absence of mala fide conduct. - HELD THAT: - The Commissioner (Appeals) reduced the penalty to a lesser amount after noting absence of malafide on the part of the importer and reliance on earlier Tribunal decisions; the Tribunal agreed that in the absence of culpable intent the appellate authority was justified in moderating the penalty and held there was no error in reducing the penalty to the amount directed by the Commissioner (Appeals). [Paras 11, 13]

Reduction of the penalty to Rs. 50,000/- is upheld.

Release of goods for re-export and refund of customs duty - administrative delay and dereliction of duty - Whether the goods should be released for re-export, duty refunded, and departmental action directed for delay in permitting re-export despite compliance with appellate order. - HELD THAT: - The Tribunal recorded that despite the Commissioner (Appeals) allowing re-export and reducing fine/penalty, the department filed appeal but did not obtain stay, and lower authorities failed to permit re-export causing prolonged detention, deterioration and financial loss to the importer. The importer had paid the reduced fine and penalty and the duty; consequently the Tribunal directed immediate release of the goods for re-export, refund of the duty as observed by the Commissioner (Appeals), issuance of a detention certificate to enable waiver of detention/demurrage, and directed the Chief Commissioner of Customs, Delhi to inquire into the delay and take appropriate action against errant officers. [Paras 15, 16, 17, 18, 19]

Immediate release of goods for re-export, refund of duty, issuance of detention certificate for claim of waiver of detention/demurrage, and inquiry by Chief Commissioner with appropriate action directed.

Final Conclusion: The appeal filed by the Revenue is dismissed. The Tribunal upholds the appellate authority's reduction of redemption fine and penalty, directs immediate release of the consignment for re-export with refund of duty and issuance of a detention certificate, and directs the Chief Commissioner of Customs, Delhi to hold an inquiry into the delay and take appropriate action against responsible officers.

Confiscation under Section 111(d) of the Customs Act, 1962 - invocation of Section 111(m) in the absence of a declaration/bill of entry - restricted import requiring specific licence under Foreign Trade Policy - redemption fine under Section 125 of the Customs Act, 1962 - use of market survey and disclosure of margin of profit in fixation of redemption fine

Confiscation under Section 111(d) of the Customs Act, 1962 - restricted import requiring specific licence under Foreign Trade Policy - Validity of confiscation of imported old and used garments for want of specific import licence - HELD THAT: - The Tribunal applied the principle in the cited earlier decision and recorded that import of goods classifiable as old and used garments was restricted and required a valid specific licence under the Foreign Trade Policy. The admitted failure to possess the requisite licence rendered the confiscation under Section 111(d) unsustainable to be set aside; accordingly the confiscation was upheld. The Tribunal relied upon the licensing requirement and the importers' agreement on the nature of the goods to sustain confiscation.

Confiscation of the goods under Section 111(d) is upheld.

Redemption fine under Section 125 of the Customs Act, 1962 - use of market survey and disclosure of margin of profit in fixation of redemption fine - invocation of Section 111(m) in the absence of a declaration/bill of entry - Appropriateness of the quantum of redemption fine and penalty imposed for the confiscated goods - HELD THAT: - Having regard to the Tribunal's earlier reasoning in Venus Traders (where it was held that Section 111(m) cannot be invoked in the absence of a declaration and that where original authority failed to disclose margin of profit remand or reduction of fine may be appropriate), the Tribunal found that the redemption fine and penalty already reduced by the Commissioner (Appeals) to 10% and 5% respectively of the assessed value are adequate to meet the ends of justice. The Tribunal noted the admitted lack of licence and the paucity of evidence/ scope for further ascertainment at this stage and, therefore, declined to remit the matter for fresh valuation or survey, while holding that the reduced rates are sufficient.

Redemption fine fixed at 10% and penalty at 5% of the assessed value are adequate and are upheld.

Final Conclusion: The appeals filed by the Revenue are dismissed; the confiscation under Section 111(d) is upheld and the redemption fine and penalty as fixed at 10% and 5% respectively are affirmed.

Inclusion of notional high-seas-sale commission in assessable value - transaction value principle under Section 14 - best judgment / Rule 9 adjustment where actual costs are not ascertainable - burden on importer to prove high-seas-sale constitutes international transfer

Inclusion of notional high-seas-sale commission in assessable value - transaction value principle under Section 14 - best judgment / Rule 9 adjustment where actual costs are not ascertainable - Addition of 2% notional high-seas-sale commission to declared assessable value - HELD THAT: - The Tribunal held that after the amendment to the valuation regime and the introduction of the transaction value concept under Section 14, inclusion of notional charges loses relevance where the actual transaction value is available. Reliance on prior practice of adding a notional 2% high-seas-sale commission cannot be sustained as a general rule. Where actual costs or service charges are ascertainable, they should determine the valuation; fictionalised additions are permissible only when actual costs are not ascertainable and valuation by best judgment under the rules is required. Applying these principles to the facts of the present appeal, the Tribunal found that the addition of 2% notional high-seas-sale commission was not sustainable and therefore not allowable in the assessable value. [Paras 5]

The addition of 2% notional high-seas-sale commission is not sustainable and is set aside.

Burden on importer to prove high-seas-sale constitutes international transfer - documentary proof of transaction value - Revenue's objection that the appellant failed to produce necessary documents to establish the correctness of the high-seas-sale price - HELD THAT: - The Tribunal examined the record and found that the appellant had produced the agreement with the public sector undertakings and that invoices (which are produced at the time of filing the bill of entry) were available. The Commissioner (Appeals) had the relevant agreement before him. Therefore, the claimed deficiency in documentary proof by the appellant was not substantiated, and the revenue's objection on this ground was rejected. [Paras 6]

The objection regarding failure to produce necessary documents is without merit and is rejected.

Final Conclusion: The appeals are allowed; the addition of 2% notional high-seas-sale commission is disallowed and the impugned orders are set aside.

Remand for fresh adjudication - non-speaking order - principles of natural justice - opportunity to be heard - adjudicating authority to decide on merits - order set aside - constitution of the Committee of Creditors

Remand for fresh adjudication - opportunity to be heard - adjudicating authority to decide on merits - Whether the impugned order in IA No. 693/2020 should be set aside and the matter remanded to the Adjudicating Authority for fresh adjudication on merits with an opportunity to the appellant to be heard. - HELD THAT: - The Tribunal concluded that, in the interest of justice and having regard to the appellant's complaint that the Impugned Order was non-speaking and alleged breach of principles of natural justice, the matter required a fresh hearing on merits. The Tribunal observed that it had not expressed any opinion on the merits and noted that respondents did not object to remand. Accordingly, the Tribunal set aside the Adjudicating Authority's order in IA No. 693/2020 and remitted the application for fresh adjudication, directing the Adjudicating Authority to decide the application within four weeks from the date of the order and to proceed uninfluenced by observations in the Tribunal's order. The Tribunal clarified that it had not adjudicated the substantive questions (including challenges relating to the constitution of the Committee of Creditors) and left those issues open for the Adjudicating Authority to determine on merits after hearing the parties. [Paras 4, 5]

Appeal allowed; the Impugned Order in IA No. 693/2020 is set aside and the matter is remanded to the Adjudicating Authority for fresh adjudication on merits within four weeks, with an opportunity to the appellant to be heard; no opinion expressed on merits.

Final Conclusion: The appeal is allowed; the Adjudicating Authority's order in IA No. 693/2020 is set aside and the matter remanded for fresh adjudication on merits within four weeks, with liberty to the Adjudicating Authority to hear the parties and decide uninfluenced by this Tribunal's observations; no costs.

Service tax liability for cleaning services - service of show cause notice - violation of principles of natural justice - ex parte adjudication - procedure under section 37C(b) (affixing/pasting) of the Central Excise Act - consequence of defective service on sustainment of demand

Service of show cause notice - procedure under section 37C(b) (affixing/pasting) of the Central Excise Act - violation of principles of natural justice - Whether the show cause notice was validly served and whether ex parte adjudication amounted to violation of principles of natural justice. - HELD THAT: - The Tribunal found that the Show Cause Notice was issued to an earlier/residential address in Trichy which the department knew was not the appellant's current address. The notice sent by post was returned as 'not claimed' and, instead of issuing the notice to the appellant's proper address, the department proceeded to paste/affix the notice at the Trichy premises under the procedure prescribed by section 37C(b). No personal hearing intimations reached the appellant and the adjudication order was passed ex parte. On these facts the Tribunal concluded that the appellant was not effectively served with the Show Cause Notice and was deprived of an opportunity to be heard. The defective service and consequent ex parte adjudication constituted a clear breach of the principles of natural justice. [Paras 6, 7, 8]

Findings of defective service and ex parte adjudication established; principles of natural justice violated and the adjudication cannot be sustained.

Final Conclusion: The appeal is allowed; the demand confirmed in the adjudication is set aside on account of defective service of the Show Cause Notice and consequent ex parte adjudication, with consequential reliefs, if any, as per law.

Extended period of limitation - suppression of facts - knowledge of authorities - third-party audit information / Form 26AS - abatement and reverse charge mechanism - reconciliation and appropriation of taxes paid

Extended period of limitation - suppression of facts - knowledge of authorities - third-party audit information / Form 26AS - Invocation of extended period of limitation for the Show Cause Notice issued for the period October 2011 to March 2016 - HELD THAT: - The Tribunal held that the subsequent Show Cause Notice for the impugned period was founded on the same third party IOCL audit data and the assessee's Form 26AS which had already put the Department on notice in respect of the identical subject matter for earlier periods (2010 11 and 2011 12) where proceedings had attained finality in favour of the assessee. Relying on the principle that once relevant facts are in the knowledge of the authorities earlier, identical facts for later periods cannot be treated as deliberate suppression by the assessee, the invocation of the extended period was unsustainable. The Tribunal expressly applied the ratio of the precedents referred to in the judgment and to conclude that the Department could not invoke extended limitation in the present facts and quashed the demand on this ground. The Tribunal further observed that the Department's reliance on the same IOCL records and 26AS for raising the later demand militates against a finding of concealment justifying extended limitation. [Paras 11, 12, 13, 16, 17]

Invocation of the extended period of limitation was unsustainable and the Order in Original based on extended limitation was quashed.

Reconciliation and appropriation of taxes paid - abatement and reverse charge mechanism - third-party audit information / Form 26AS - Whether the adjudicating authority rightly ignored the assessee's belatedly filed ST 3 returns, payments and claims of abatement and reverse charge - HELD THAT: - On merits the Tribunal found that the adjudicating authority had erred by not taking on record the ST 3 returns and the reconciliations (including a Chartered Accountant's certificate) filed by the assessee before the adjudication order. The returns, though filed belatedly, accounted for the taxable value and demonstrated that amounts shown in Form 26AS had already suffered service tax at the hands of the assessee, save for GTA supplies which were subject to reverse charge. The Department's representative conceded during hearing that there was no material difference between values in Form 26AS and the assessee's reconciliation and sought time to verify documents. The Tribunal further noted that the Department failed to rebut the claim of abatement or to show that the nature of services was different from that earlier adjudicated. In view of these uncontroverted reconciliations and the absence of appropriation of taxes paid by the adjudicating authority, the demand could not be sustained on merits. [Paras 18, 19]

The adjudicating authority's failure to consider payments, reconciliations, abatement and reverse charge claims was an error; the demand was unsustainable on merits and set aside.

Final Conclusion: The appeal succeeds: the Order in Original is set aside both on limitation (extended period wrongly invoked) and on merits (failure to account for payments, reconciliations, abatement and reverse charge). The assessee remains liable to pay any late fee for delayed filing of ST 3, if not already paid.

Adjustment of excess service tax under Rule 6(4A) and 6(4B) of the Service Tax Rules, 1994 - taxability of advances received for composite supply of goods and services - taxable event-rendition of service versus receipt of payment - scope of evidence required to reclassify advances between supply and service - prohibition on departmental retention of excess tax-principle under Article 265

Adjustment of excess service tax under Rule 6(4A) and 6(4B) of the Service Tax Rules, 1994 - prohibition on departmental retention of excess tax-principle under Article 265 - Validity of the demand of Rs. 1,87,93,063/- raised for alleged irregular adjustment of excess service tax and permissibility of the assessee's adjustment of earlier tax payments. - HELD THAT: - The Tribunal examined invoices, the subsequent finalisation of the contract into supply and service components, and the fact that the earlier payments remained with revenue until adjusted. It applied the Tribunal precedent holding that Rule 6(4A) allows adjustment of excess tax paid in a month against liabilities in subsequent months where excess arises from inability to correctly determine receipts (and is not due to interpretation of law, taxability, classification, valuation or exemption). The Tribunal found that even on the Revenue's contention the net tax position would not result in short payment, since the admittedly received advance would reduce the finally assessed taxable value and the appellant had discharged the tax on the differential amount. Reliance was placed on the principle that the Government cannot retain excess tax paid by an assessee in the absence of statutory authority (invoking the Article 265 rationale in the cited precedent). On these facts the demand of Rs. 1,87,93,063/- was unsustainable and was quashed. [Paras 5, 6, 7]

Demand of Rs. 1,87,93,063/- is quashed and relief granted to the appellant.

Taxability of advances received for composite supply of goods and services - scope of evidence required to reclassify advances between supply and service - taxable event-rendition of service versus receipt of payment - Whether the department could reclassify the advances as wholly towards services and demand service tax on the entire second installment. - HELD THAT: - The Tribunal observed that the original invoices for the advances did not apportion amounts between materials and services and there was no contemporaneous evidence that VISA had approved appropriation towards service portion at the time of receipt. When the parties subsequently finalised separate contracts allocating values to supply and service components, VISA informed the appellant that the earlier advances were to be appropriated towards supplies. The Tribunal held that the Revenue's retrospective presumption that the entire second instalment was for services lacked corroborative evidence and was therefore unsustainable. On the material before it the departmental contention that the whole of the second instalment should be taxed as service could not be upheld. [Paras 5, 8]

Department's contention that the entire second instalment was liable to service tax is rejected and the departmental appeal is dismissed.

Adjustment of excess service tax under Rule 6(4A) and 6(4B) of the Service Tax Rules, 1994 - taxable event-rendition of service versus receipt of payment - Whether the appellant's adjustment of earlier paid service tax beyond the immediate succeeding month/quarter was impermissible under Rule 6(4A). - HELD THAT: - The Tribunal analysed Rule 6(4), 6(4A) and 6(4B) and followed the coordinate decision that Rule 6(4A) permits adjustment of excess tax paid in a month/quarter against liabilities in subsequent periods where excess arises from estimation of receipts (not from disputes of law, classification, valuation or exemption). The Tribunal found no requirement that such adjustment be confined to the month immediately following the excess payment and held that the Commissioner's view-restricting adjustment to Nov 2010/Apr 2011 in the facts of this case-was not sustainable. Applying that principle to the facts, the appellant's adjustment was permissible. [Paras 6]

The adjustment under Rule 6(4A)/(4B) was permissible; the Commissioner's limitation on timing is unsustainable.

Final Conclusion: The Tribunal quashed the confirmed demand of Rs. 1,87,93,063/-, upheld the appellant's entitlement to adjust the earlier excess tax under Rule 6(4A)/(4B) on the facts, dismissed the department's appeal to tax the entire second instalment as services, and granted consequential relief to the appellant.

Service of club and association - mutuality of interest - principal-to-principal commercial transaction - service to self - taxability of consideration for effluent treatment and disposal services - payments by members not taxable (Calcutta Club principle)

Service of club and association - mutuality of interest - principal-to-principal commercial transaction - taxability of consideration for effluent treatment and disposal services - Whether the charges collected by the appellant for effluent treatment and disposal of industrial waste are taxable as service of club and association. - HELD THAT: - The Tribunal found on the material before it that the appellant is an independent commercial company which set up and operates its own effluent treatment unit with its sole capital investment and that the industrial customers have no legal role in the appellant's independent activity. The appellant raises invoices and collects charges from individual customers on the basis of the quantity of waste treated, and no subscription or member-based contribution exists. The commercial dealings are on a principal-to-principal basis and there is no element of mutuality of interest characteristic of a club or association. Consequently, the relationship between the appellant and its customers does not amount to a club or association and the demand framed under the category of service of club and association cannot be sustained. [Paras 4, 5]

Demand under club and association service held unsustainable and set aside.

Service to self - payments by members not taxable (Calcutta Club principle) - Whether, even if the appellant were treated as a club or association, the demand could be sustained in view of the Supreme Court's decision in State of West Bengal v. Calcutta Club Limited. - HELD THAT: - The Tribunal, without prejudice to its primary finding, applied the principle laid down by the Supreme Court in State of West Bengal v. Calcutta Club Limited that where mutuality of interest exists between a club or association and its members the concept of distinct service provider and service recipient is absent and payments received from members are not taxable as service. Accepting that reasoning, the Tribunal held that even on the Revenue's contention the demand could not be sustained because the payments in such a member-club relationship would not constitute taxable service. [Paras 4, 5]

On the alternative ground of the Calcutta Club principle, the demand is unsustainable.

Final Conclusion: The appeal is allowed; the adjudicating authority's demand and penalties under the head of club and association service are set aside as unsustainable on the facts and, alternatively, on the Calcutta Club principle that payments in a mutual club-member relationship are not taxable.

Right to rebate/refund accrued under a statutory notification - effect of repeal on accrued rights - transitional saving of vested rights on repeal - applicability of pre-GST refund scheme to claims filed after appointed day - compliance with procedural conditions of Notification No.41/2012 ST

Right to rebate/refund accrued under a statutory notification - effect of repeal on accrued rights - transitional saving of vested rights on repeal - Whether the appellant's refund claim filed under Notification No.41/2012 ST is maintainable despite introduction of GST and repeal of Chapter V of the Finance Act, 1994. - HELD THAT: - The Tribunal held that Notification No.41/2012 ST creates a self-contained code conferring a right to rebate on payment of service tax for specified input services used in export. That right accrues on payment of service tax and is not extinguished by subsequent repeal of the notification or by the introduction of the GST regime. The court relied on the saving provisions in section 174(2) of the CGST Act (and analogous Supreme Court authority) to the effect that repeal does not affect rights accrued under the earlier law. The Assistant Commissioner's finding that the right to rebate had accrued to the appellant on receipt/payment for the specified services was noted and remained unchallenged by the revenue before the Commissioner (Appeals); the Commissioner (Appeals) erred in basing rejection on transitional provisions without considering the accrued right and the non application of repeal to vested rights. [Paras 4, 5]

Refund claim under Notification No.41/2012 ST is maintainable; the right accrued prior to repeal and is protected by transitional saving, so the appellant's claim cannot be rejected on the sole ground of introduction of GST or repeal.

Compliance with procedural conditions of Notification No.41/2012 ST - Whether the refund claim complied with the procedural and documentary conditions of Notification No.41/2012 ST and was admissible on merits. - HELD THAT: - The Assistant Commissioner had found that the claims for the periods July 2017-September 2017 and October 2017-November 2017 were filed within the one year limitation prescribed by the notification, the linkage of the specified services to export was established by invoices and shipping documents, the certification requirements were satisfied, the rebate amount was arithmetically accurate and within the prescribed thresholds, and conditions such as non availment of CENVAT credit were complied with. Those findings of admissibility were not successfully controverted by the revenue on appeal. The Tribunal accepted these findings and concluded that the appellant was eligible for refund as determined by the original authority. [Paras 4, 6]

The refund claims met the procedural and documentary conditions of Notification No.41/2012 ST and were admissible on merits; the Assistant Commissioner's sanction of refund is sustainable.

Final Conclusion: The appeal is allowed: the tribunal set aside the Commissioner (Appeals) order and upheld the Assistant Commissioner's sanction of the refund under Notification No.41/2012 ST, holding that the appellant's accrued right to rebate survived the transition to GST and that the refund claims satisfied the notification's conditions.

Interest under Rule 14 of the Cenvat Credit Rules read with Section 11AB - reversal of CENVAT credit - no interest where credit was taken but not utilized - substitution of statutory provision - change from "taken or utilised" to "taken and utilised" - interest compensatory in character

Interest under Rule 14 of the Cenvat Credit Rules read with Section 11AB - reversal of CENVAT credit - no interest where credit was taken but not utilized - interest compensatory in character - Whether interest under Rule 14 CCR read with Section 11AB is payable where Cenvat credit was inadvertently taken as a book entry but reversed before utilization. - HELD THAT: - The Tribunal accepted the appellant's unchallenged plea and documentary statements that the excess CENVAT credit was a clerical/book entry which was reversed before being utilized and that sufficient credit balances existed during the intervening period. Relying on Supreme Court and High Court precedents, the Tribunal emphasised that interest under Section 11AB is compensatory and arises only when duty is withheld or not paid when due. Where a wrongly availed credit is reversed before utilization, there is no actual withholding of duty and no loss to the Revenue; consequently no interest is attracted. The Tribunal further noted the legislative amendment substituting Rule 14's phraseology from "taken or utilised" to "taken and utilised", which reflects the legislative intent that mere taking (as a book entry) without utilization should not attract interest. Earlier decisions to the contrary were held to be distinguishable on facts.

Interest charged under Rule 14 CCR read with Section 11AB cannot be sustained where the wrongly taken Cenvat credit was reversed before utilization; impugned orders imposing interest are set aside.

Final Conclusion: Appeals allowed; orders imposing interest set aside as the excess Cenvat credit was reversed prior to utilization and therefore did not attract interest under the applicable law and judicial precedents.

CENVAT credit on inputs used in goods exported under bond/LUT - treatment of inputs used in non-excisable (nil-duty) goods for export - interpretation of Rule 6(6) of the CENVAT Credit Rules, 2004 - meaning of "excisable goods" - prohibition on indirect double taxation / policy against export of taxes

CENVAT credit on inputs used in goods exported under bond/LUT - treatment of inputs used in non-excisable (nil-duty) goods for export - interpretation of Rule 6(6) of the CENVAT Credit Rules, 2004 - meaning of "excisable goods" - Whether the assessee was required to reverse CENVAT credit or pay an amount equal to 10% of value in respect of inputs used in manufacture of non-excisable/exempted goods exported under bond/LUT - HELD THAT: - The Tribunal accepted the respondents' contention that credit of inputs used in goods cleared for export under bond/LUT cannot be denied merely because such goods are non-excisable or exempted. It relied on the interpretation that Rule 6(6) of the CENVAT Credit Rules, 2004 employs the expression "excisable goods" in a wider sense to include both dutiable and exempted goods exported under bond, thereby covering situations where dutiable inputs are used to manufacture goods cleared for export without payment of duty. The Tribunal noted that this view has been consistently followed by High Courts and Tribunals, including decisions such as Repro India Ltd. and others relied upon by the respondent, and observed that the legislative scheme of the CENVAT Credit Rules aims to avoid indirect double taxation and not to export taxes. Applying that settled interpretation to the facts, the Tribunal held that the Department could not insist on reversal or payment of 10% in respect of inputs used in non-excisable/exempted goods exported under bond/LUT. [Paras 5, 7, 8]

The challenge to the adjudicating authority's order was rejected and the appeal by Revenue dismissed for being not maintainable on the stated legal ground.

Final Conclusion: The appeal filed by Revenue was dismissed; the Tribunal upheld that CENVAT credit on inputs used in exempted or non-excisable goods exported under bond/LUT cannot be denied and no reversal/payment under Rule 6(6) was required.

Exemption for goods supplied against International Competitive Bidding - entitlement of sub-contractors to customs/excise exemption where main contractor executes project under International Competitive Bidding - conditional exemption linked to goods required for setting up of a Mega Power Project (heading 98.01) - interpretation of condition requiring goods to be exempted under the Customs Tariff for import

Exemption for goods supplied against International Competitive Bidding - entitlement of sub-contractors to customs/excise exemption where main contractor executes project under International Competitive Bidding - conditional exemption linked to goods required for setting up of a Mega Power Project (heading 98.01) - Whether the appellant is entitled to benefit of the exemption notification for goods cleared without payment of duty as supplies to a Mega Power Project executed by BHEL under international competitive bidding. - HELD THAT: - The Tribunal found on the material that the goods were supplied for a Mega Power Project executed by BHEL and that the requisite certificate from an officer not below the rank of Joint Secretary, Ministry of Power, was on record (paragraph 6). Following earlier Tribunal decisions in which supplies by sub-contractors to a main contractor executing a Mega Power Project by international competitive bidding were held to satisfy the condition of supply "against International Competitive Bidding", the Bench held that there is no requirement that the sub-contractor itself be the bidder; supplies reaching the project through the main contractor satisfy the condition and the object of the notification (paragraphs 7 and 10). The Tribunal also examined the conditionality in the Customs notification (heading 98.01) and accepted that channels, beams and similar goods are "goods required for setting up" a Mega Power Project and thus fall within the exemption when the certificate and project linkage exist (paragraph 11). Applying this reasoning, the Tribunal concluded that the adjudicating authority erred in denying the exemption and that the impugned order was unsustainable (paragraph 12). [Paras 6, 10, 12]

The appellant is entitled to the benefit of the exemption notification; the impugned order is set aside and the appeal is allowed with consequential relief.

Final Conclusion: The Tribunal allowed the appeal, holding that supplies made by the appellant as a sub-contractor to BHEL for a certified Mega Power Project satisfy the condition of supply against international competitive bidding and are entitled to the exemption; the impugned demand is set aside with consequential relief.

Admission of documents produced but not exhibited at trial - exercise of appellate power under Section 391 Cr.P.C. to receive additional evidence - permissibility of cross-examination in appeal versus setting up a new defence - discretion to admit additional evidence sparingly in interest of justice - abuse of Section 391 Cr.P.C. to improve or change defence

Admission of documents produced but not exhibited at trial - exercise of appellate power under Section 391 Cr.P.C. to receive additional evidence - Documents produced during trial but inadvertently not exhibited, and sought to be exhibited on appeal, can be read into evidence where both parties admit them. - HELD THAT: - The Court observed that the documents in question were produced on record at trial and their non-exhibition was inadvertent. Both parties accepted that the documents are admitted. The learned Additional Sessions Judge had recorded that the documents, being admitted, could be exhibited during the appeal. Applying the principle that additional evidence may be permitted in appeal where it serves the interest of justice, the High Court held that no case was made out to withhold exhibition of documents which are admitted by both parties and which can therefore be read into evidence on appeal. [Paras 16]

Prayer to exhibit the documents already produced on record is accepted inasmuch as they are admitted by both parties and may be read into evidence on appeal.

Permissibility of cross-examination in appeal versus setting up a new defence - abuse of Section 391 Cr.P.C. to improve or change defence - discretion to admit additional evidence sparingly in interest of justice - Application to permit further cross-examination of the complainant on appeal to establish a new case of prior payment was rejected as an attempt to change or improve the defence and therefore an inappropriate exercise of Section 391 Cr.P.C. - HELD THAT: - The Court examined the nature of the defence taken at trial (that the cheques were stolen/misused and that the accused never issued the disputed cheque) and contrasted it with the contention advanced in the Section 391 application on appeal (that the cheque amount had already been paid). The High Court accepted the Sessions Judge's view that permitting the proposed cross-examination would amount to filling lacunae in the defence and setting up a new case at the appellate stage. Applying the settled principle that the power under Section 391 is discretionary and must be exercised sparingly to prevent abuse, the Court found no ground to allow further cross-examination which would serve to alter the defence and therefore declined to exercise its jurisdiction to permit it. [Paras 16, 17]

Prayer to conduct further cross-examination of the complainant on the ground that payment had been made is refused as an impermissible attempt to change the defence; petition dismissed.

Final Conclusion: The petition is dismissed. The Court permitted exhibition and reading into evidence of documents already produced and admitted, but declined to allow further cross-examination on appeal where it would amount to setting up a new defence; the rule is discharged and the petition lacks merit.

Sampling under Section 52A of the NDPS Act - Representative sample / defective sampling - Compliance with Standing Order 1/88 and Standing Order 1/89 - Directory nature of post seizure procedural provisions (Sections 52/57) - Prejudice requirement for vitiation of prosecution evidence - Section 37 twin conditions for grant of bail in NDPS cases

Sampling under Section 52A of the NDPS Act - Representative sample / defective sampling - Compliance with Standing Order 1/88 and Standing Order 1/89 - Prejudice requirement for vitiation of prosecution evidence - Section 37 twin conditions for grant of bail in NDPS cases - Whether the alleged defect in the sampling procedure vitiates the prosecution case or warrants grant of bail at the stage of Section 439 CrPC in an NDPS case involving commercial quantity. - HELD THAT: - The Court held that the sampling and post seizure procedure must be evaluated in the factual matrix of each case and that the standing orders relied upon (1/88 and 1/89) and the Rules notified later are procedural guides; where non compliance is pleaded it must be shown to have caused prejudice or failure of justice. Section 52A and Sections 52/57 procedures are essentially directory in nature as explained in Balbir Singh; mere non observance does not automatically render actions null and void. In the present case the contraband was recovered from checked in luggage, samples were drawn in the presence of the Magistrate and the composite sampling at the spot does not, at this stage, establish that the samples were not representative. The standing orders cannot exhaustively anticipate all factual scenarios (nature, quantity, place and mode of seizure) and whether sampling was truly non representative is a question for trial where the chemical analyst and other witnesses can be examined and the case property inspected. Given the requirement under Section 37 that the Court be satisfied on the twin conditions before granting bail in commercial quantity NDPS matters, and absent a demonstration of prejudice at this stage, it is premature to hold that the sampling defect vitiates the prosecution or to grant bail. [Paras 32, 33, 34]

The bail application is dismissed; the alleged sampling defect does not, at this stage, warrant grant of bail and the issue may be examined during trial.

Final Conclusion: Application for regular bail under Section 439 CrPC is dismissed; the question of propriety and effect of the sampling procedure is left open for determination at trial and no opinion is expressed on the merits of the prosecution case.