TaxTMI Updates e-Newsletter
Jun 13,2016

Amalgamation - transfer of liabilities on amalgamation - nullity of assessment order - effect of court sanctioned amalgamation

Amalgamation - transfer of liabilities on amalgamation - nullity of assessment order - effect of court sanctioned amalgamation - Whether the assessment order dated 31 March 2005 for assessment year 2002-03 is a nullity by reason of the amalgamation of the assessee with another company and whether the liability under the assessment survives as liability of the amalgamated company. - HELD THAT: - The Court examined the statutory definition of amalgamation and held that, as a matter of law, where an amalgamation takes place the liabilities of the amalgamating company immediately before amalgamation become the liabilities of the amalgamated company. The facts show the relevant financial year ended 31 March 2002 and the sanctioned amalgamation took effect later in November 2002 (sanctioned by the High Court on 26 March 2003). Even though the assessee did not bring the scheme of amalgamation to the notice of the assessing officer and continued to file returns and pursue assessment proceedings as an independent entity, that omission does not render the assessment order a nullity. The Court relied on the principle applied in the cited precedent to the effect that a court sanctioned transfer of assets and liabilities under an amalgamation does not wipe out obligations enforceable under the Income tax law and that the obligation becomes that of the amalgamated company. The Tribunal and CIT(A) were held to have failed to apply this legal position correctly. Applying that principle, the liability arising from the assessment order became the liability of the amalgamated company and the assessment order cannot be treated as a nullity.

The assessment order is not a nullity; the liability under the assessment passed to the amalgamated company and the appeal by the revenue succeeds.

Final Conclusion: Appeal allowed in favour of the revenue; the assessment order for Assessment year 2002-03 is not a nullity and the liability passed to the amalgamated company; parties to bear their own costs.

Tax Deduction at Source - Exemption of religious congregations - Overriding title/beneficial ownership of salary - Affidavit-based certification for non-deduction of TDS

Tax Deduction at Source - Exemption of religious congregations - Overriding title/beneficial ownership of salary - Whether TDS is required to be deducted from salaries paid by Government to Priests and Nuns who remit those salaries to their Congregation/Diocese which is exempt from income tax. - HELD THAT: - The Court reviewed historical administrative rulings and communications (dating from 1944, decisions of Commissioners and the Central Board of Direct Taxes up to 1977) recognising that where amounts received by missionaries or religious are subject to an overriding title and are to be made over to the congregation (whose income is exempt), such amounts are not taxable in the hands of the individual. Section 192 imposes a general obligation to deduct tax at source from salary; however, where the ultimate beneficial owner is an exempt congregation and the salary received by the individual is not enjoyed by them but is passed on to the exempt body, deduction of TDS from the individual would be unnecessary. The Court therefore held that the benefit of non-deduction of TDS may be permitted only in respect of those Congregations/Dioceses which have already obtained exemption from the Income Tax Department, and subject to procedural safeguards prescribed by the Court. [Paras 11, 12, 13, 14]

Where salary paid to Priests/Nuns is subject to an overriding title and is to be paid over to a Congregation/Diocese already exempt from income tax, TDS need not be deducted from the individuals, subject to compliance with the Court's directed safeguards.

Affidavit-based certification for non-deduction of TDS - Exemption of religious congregations - Procedural mechanism for permitting non-deduction of TDS and verification by authorities. - HELD THAT: - To operationalise the principle that exempt congregations should not attract TDS on salaries ultimately belonging to them, the Court directed specific procedural steps: (i) every individual Priest/Nun must execute an affidavit undertaking that their entire salary is to be paid by the Government directly to the Congregation/Diocese which has income-tax exemption; (ii) a corresponding affidavit is to be filed before the Government of Tamil Nadu and specified departmental authorities (Joint Director of Collegiate Education, District Education Officer, District Elementary Education Officer, Pay and Accounts Officer); (iii) the affidavits must state that payments made directly to the Congregation/Diocese shall be in full satisfaction of the salary claims and that the individuals will have no further claim; (iv) upon receipt of such affidavits and being satisfied, the Income Tax Department will issue a certificate/letter to the Government that TDS need not be deducted in respect of such Priests/Nuns. The benefit is confined to Congregations/Dioceses already exempted by the Income Tax Department; affidavits are to be filed within the period ordered by the Court. [Paras 13, 14, 15]

Affidavit-based undertakings by individuals and certificates from the Income Tax Department are required before the Government will be directed not to deduct TDS; only congregations/dioceses already holding income-tax exemption are entitled to the benefit.

Final Conclusion: Writ petitions allowed subject to the Court-directed procedure: individuals and congregations to file affidavits undertaking that salaries will be paid to exempt Congregations/Dioceses, and upon satisfaction the Income Tax Department shall issue the requisite certificate to the Government to permit non-deduction of TDS; relief confined to Congregations/Dioceses already exempted from income tax.

Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Burden of proof and initial onus on the assessee - Estimation scheme under section 44AF and exemption from maintenance of books - Addition by reason of unexplained bank deposits under section 69 - Effect of substantial time-lag on verification of documents and traceability of parties

Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars - Burden of proof and initial onus on the assessee - Estimation scheme under section 44AF and exemption from maintenance of books - Effect of substantial time-lag on verification of documents and traceability of parties - Whether penalty under section 271(1)(c) was leviable in respect of short-term bank deposits treated as unexplained by the AO. - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the penalty. It accepted that the assessee, a small trader in bamboo, filed return under the presumptive scheme of section 44AF and therefore was not obliged to maintain books of account; the income was offered on estimate basis. The assessee produced agreements, payment vouchers and other particulars to explain short-term deposits, and the AO's verification through forensic examination did not impugn the genuineness of the documents. Subsequent attempts to locate the alleged counterparties were made after a lapse of about five years during reassessment proceedings and the relevant officers could not trace those persons; the Tribunal treated this substantial time-lag as a material factor diminishing the AO's ability to verify witnesses and documents. Applying the principle that penalty under section 271(1)(c) cannot be sustained where particulars furnished are not proved to be false and where the assessee has discharged the initial onus, the Tribunal found that the AO's additions and disbelief, based largely on inability to trace parties after long delay, did not establish deliberate concealment or furnishing of inaccurate particulars warranting penalty. The Tribunal therefore concluded that the case was not fit for imposition of penalty under section 271(1)(c). [Paras 4, 8, 9]

Penalty under section 271(1)(c) deleted; additions or disbelief by the AO based on post-facto inability to trace parties after substantial lapse did not justify levy of penalty.

Final Conclusion: Both appeals of the Revenue are dismissed and the penalty imposed under section 271(1)(c) is deleted for the assessee for AY 2003-04.

Penalty under Section 271(1)(c) - limitation under Section 275(1)(a) - initiation of penalty by notice under Section 274 read with Section 271(1)(c) - requirement to specify limb of penalty - concealment of income or furnishing inaccurate particulars

Penalty under Section 271(1)(c) - limitation under Section 275(1)(a) - Whether the penalty order dated 27/09/2013 is barred by limitation and hence liable to be cancelled. - HELD THAT: - The Tribunal upheld the conclusion that, in the facts of the case, the penalty had to be passed within one year from the end of the financial year in which the Commissioner (Appeals)' order was received by the Department. The CIT(A)'s order of 08/02/2011 was to be treated for computing limitation and therefore the proviso to Section 275(1)(a) required the penalty to be passed on or before 31/03/2012. The Assessing Officer's penalty order of 27/09/2013 was passed after that period. Further, the original assessed quantum of income (as accepted in the set-aside proceedings) was final and the penalty proceedings which were initially dropped and later re-initiated could not validly extend the limitation period. Applying Section 275(1)(a) to these facts, the Tribunal found the penalty order time barred and cancelled it. [Paras 5]

Penalty order is barred by limitation and is cancelled.

Notice under Section 274 read with Section 271(1)(c) - requirement to specify limb of penalty - concealment of income or furnishing inaccurate particulars - Whether initiation of penalty by a notice which did not specify whether it was for concealment of income or for furnishing inaccurate particulars is valid. - HELD THAT: - The Tribunal agreed with the view that a notice initiating penalty must enable the assessee to know the specific charge to be met. In the set aside assessment the Assessing Officer issued notice under Section 274 read with Section 271(1)(c) without specifying whether the proceeding was for concealment or for furnishing inaccurate particulars. Having regard to the principles of fair notice and the settled position that the assessee must be apprised of the specific limb under Section 271(1)(c) to be met, the Tribunal found this defect material. Coupled with the limitation bar established above, the Tribunal held that no penalty could be sustained on the basis of the vague initiation of proceedings. [Paras 5]

Penalty cannot be sustained where initiation notice failed to specify the limb of Section 271(1)(c); the defect reinforces cancellation.

Final Conclusion: The Tribunal dismissed the Revenue's appeal; the penalty under Section 271(1)(c) was held to be barred by limitation under Section 275(1)(a) and unsustainable where the initiation notice did not specify the particular limb of offence, and accordingly the penalty was cancelled.

Classification of rental income as income from house property or income from business - Nature of activity test - Systematic and regular provision of services amounting to business - Bifurcation of rental income between house property and business - Binding effect of Supreme Court precedent under Article 141

Classification of rental income as income from house property or income from business - Nature of activity test - Systematic and regular provision of services amounting to business - Bifurcation of rental income between house property and business - Binding effect of Supreme Court precedent under Article 141 - Classification of rental receipts for assessment year 2003-04 as to what portion is assessable under the head 'income from house property' and what portion as 'income from business'. - HELD THAT: - The Tribunal applied the legal principle laid down by the Supreme Court in Chennai Properties and Investments Ltd. (supra) that the decisive factor is the nature of the assessee's activities and operations, not mere ownership of land or leases. It found on the material that, apart from letting out the commercial complex, the assessee systematically and regularly provided services (maintenance of common areas and lift, security, maintenance of waiting/meeting/reading halls, etc.). Such systematic provision of services constitutes business activity and therefore a portion of the receipts attributable to those services must be treated as business income. The assessee itself had allocated 25% of the rental receipts to such services and 75% to house property for AY 2003-04; in view of the binding Supreme Court precedent and the factual finding of systematic services, the Tribunal upheld the CIT(Appeals) bifurcation of 75% as income from house property and 25% as income from business. [Paras 10]

For AY 2003-04, 75% of the rental receipts are to be assessed as income from house property and 25% as income from business.

Classification of rental income as income from house property or income from business - Bifurcation of rental income between house property and business - Binding effect of Supreme Court precedent under Article 141 - Disposition of appeals for assessment years 2010-11, 2006-07 and 2009-10 in light of the finding that part of receipts must be treated as business income. - HELD THAT: - The Tribunal held that the earlier decisions of the Madras High Court in the assessee's own case (which treated the entire rental income as house property) are not applicable after the Supreme Court's reversal in Chennai Properties and Investments Ltd. (supra). Applying that binding precedent, the Tribunal set aside the orders of the lower authorities which had treated the entire rental income as income from house property and directed the Assessing Officer to assess 75% of the rental receipts as income from house property and 25% as income from business, allowing all applicable expenditures as per law. The direction contemplates assessment/quantification by the Assessing Officer in accordance with the Tribunal's classification. [Paras 11]

The orders for AYs 2010-11, 2006-07 and 2009-10 are set aside and the Assessing Officer is directed to assess 75% of the rental income as income from house property and 25% as income from business after allowing applicable expenditure.

Final Conclusion: The Tribunal, applying the Supreme Court's ruling that the nature of activities governs classification, upheld the CIT(Appeals) bifurcation for AY 2003-04 (75% house property, 25% business) and set aside the lower authorities' orders for AYs 2010-11, 2006-07 and 2009-10, directing reassessment on the same 75/25 basis allowing permissible deductions.

Non-compete fee-allowability of depreciation - Genuineness and commercial necessity of related party transactions - Valuation of intangible assets-independent verification and revaluation - Treatment of production costs of television serials and programmes-revenue expenditure vs capitalisation - Film software library-characterisation as intangible asset and rate of depreciation - Remand for fresh consideration

Non-compete fee-allowability of depreciation - Genuineness and commercial necessity of related party transactions - Valuation of intangible assets-independent verification and revaluation - Remand for fresh consideration - Depreciation claimed by the assessee on the non compete fee distributed on demerger - HELD THAT: - The Tribunal declined to decide the allowability of depreciation on the non compete fee on merits for the A.Y. 2011 2012 and set the matter aside to the file of the Assessing Officer. The remand is ordered because earlier proceedings in respect of the parent and sister concerns revealed that (a) the role and investment of an independent purchaser acquiring 39% equity (Equator Trading Enterprises Pvt. Ltd.) was not examined by lower authorities, and (b) additional evidence bearing on the genuineness, necessity and valuation of the non compete payment was not considered. The Tribunal held that conclusions treating the transaction as a sham or a colourable device cannot rest on presumptions without adequate examination and independent valuation where required, and thus the Assessing Officer must re examine genuineness, necessity and valuation and then decide allowability of depreciation in accordance with statutory provisions and applicable precedents. [Paras 5]

Issue remanded to the Assessing Officer for fresh consideration of genuineness, necessity and valuation, and consequential determination of depreciation entitlement.

Treatment of production costs of television serials and programmes-revenue expenditure vs capitalisation - Film and serial broadcast rights-stock in trade and write off on first telecast - Whether cost of production of TV serials and programmes is revenue expenditure deductible under section 37 or capital expenditure attracting depreciation - HELD THAT: - Following the coordinate decisions of this Tribunal (including the Prism TV and Sun TV precedents), the Tribunal accepted that costs of acquiring or producing telecast rights in films and serials are to be treated as akin to stock in trade where the assessee holds only telecasting rights and derives primary revenue on first telecast; the value diminishes on repeat telecasts. On that basis the Tribunal treated the production/acquisition costs as allowable revenue expenditure (or amortisable in profit and loss) rather than capitalised intangible assets attracting depreciation, and accordingly allowed the assessee's alternate plea. [Paras 6, 8]

Alternate ground allowed-costs of production of TV serials and programmes treated as revenue expenditure (allowed) for the assessment year under appeal.

Film software library-characterisation as intangible asset and rate of depreciation - Valuation of intangible assets-independent verification and revaluation - Remand for fresh consideration - Characterisation of film software library for depreciation rate and the need for revaluation - HELD THAT: - The Tribunal agreed with earlier findings in the parent company's case that the film software library is an intangible asset and that depreciation should be allowed at the rate applicable to intangible assets rather than as general plant and machinery. However, the Tribunal observed that certain circumstances affecting the valuation of the film software library were not adequately considered by the authorities below; accordingly, the valuation aspect is set aside for re examination by the Assessing Officer while directing that depreciation be allowed at the intangible asset rate upon revaluation. [Paras 11]

Characterisation as an intangible asset affirmed and depreciation rate allowed accordingly; valuation remanded to the Assessing Officer for re valuation and fresh determination.

Final Conclusion: The appeal is allowed for statistical purposes: (a) the question of depreciation on the non compete fee is remitted to the Assessing Officer for fresh consideration of genuineness, necessity and valuation; (b) the alternate plea that production costs of TV serials/programmes are revenue expenditure is accepted and allowed; and (c) the film software library is held to be an intangible asset entitled to depreciation at the intangible asset rate, with its valuation remanded for re valuation by the Assessing Officer.

Exemption under section 10A - reconstruction or splitting up of business - Transfer of employees not amounting to reconstruction - Separate legal entity and independent plant & machinery as indicia against reconstruction - Interest disallowance under section 36(1)(iii) - interest-free advances and borrowed funds test - Characterisation of ledger debit balance as business transactions vs. advances

Exemption under section 10A - reconstruction or splitting up of business - Transfer of employees not amounting to reconstruction - Separate legal entity and independent plant & machinery as indicia against reconstruction - Deletion of addition denying deduction under section 10A on the ground that the assessee was formed by splitting up or reconstruction of an existing business is upheld. - HELD THAT: - The Tribunal accepted the finding that Axsys Technologies Pvt. Ltd. was a newly formed, separate legal entity with its own STP registration, distinct place of business, separate board of directors and substantial investment in plant & machinery. The mere transfer of some software personnel, common shareholders, or sharing of certain liabilities did not establish reconstruction or splitting up of VCIL such as to disentitle the new unit to the section 10A exemption. Reliance was placed on precedents holding that manufacture of the same articles or use of personnel does not, by itself, constitute reconstruction where the new undertaking is identifiable and distinct; accordingly the Assessing Officer's conclusion based on transfer of employees and commonality of shareholders was held to be insufficient to deny the exemption. [Paras 4]

Order of CIT(A) deleting the addition and allowing exemption under section 10A is affirmed and Revenue's ground is dismissed.

Interest disallowance under section 36(1)(iii) - interest-free advances and borrowed funds test - Characterisation of ledger debit balance as business transactions vs. advances - Availability of own interest-free funds to meet advances - Deletion of addition under section 36(1)(iii) on account of imputed interest in respect of an interest-free balance with VCIL is upheld. - HELD THAT: - The Tribunal found the Assessing Officer's disallowance to be based on surmise rather than on record. Ledger entries demonstrated a flux of receipts and payments between the parties and that the closing debit balance arose from business transactions (services rendered and amounts billed) rather than being advances out of borrowed funds. The assessee had shown availability of own interest-free funds sufficient to cover the debit balance. The CIT(A)'s review of the ledger and schedules, and the conclusion that the additions lacked evidential basis, was endorsed by the Tribunal. [Paras 6, 8]

Order of CIT(A) deleting the imputed interest addition under section 36(1)(iii) is affirmed and Revenue's ground is dismissed.

Final Conclusion: Both grounds of Revenue's appeal were dismissed: the Tribunal affirmed the CIT(A)'s deletion of the section 10A disallowance holding the assessee to be a separate undertaking not formed by reconstruction, and affirmed deletion of the imputed interest addition under section 36(1)(iii) on the facts and ledger evidence.

Addition under section 69 as undisclosed investment - English mortgage - Annual Information Report (AIR) as intelligence for inquiry - admission of additional evidence under Rule 46A

Addition under section 69 as undisclosed investment - English mortgage - Annual Information Report (AIR) as intelligence for inquiry - admission of additional evidence under Rule 46A - Whether the addition of Rs. 44,00,00,000 as undisclosed investment in immovable property could be sustained. - HELD THAT: - The AO made an addition based on AIR information that the assessee had purchased immovable property for Rs. 44 crores but no such investment appeared in the balance sheet. The assessee, unable to produce the Registrar's details before completion of assessment, later placed on record certified registered documents, Form No.8 evidencing creation of an English mortgage to secure a loan of Rs. 44 crores, and subsequent satisfaction of charge. CIT(A) admitted the additional evidence under Rule 46A, sought and considered the AO's remand report and rejoinder, and concluded that the transaction recorded in the Registrar's database was a mortgage and not a purchase, hence there was no unexplained investment. The Tribunal accepted the reasoning that AIR is only a basis to initiate inquiry and is not conclusive; in absence of any reliable evidence that the assessee purchased property, and having documentary proof of mortgage and satisfaction of charge, the addition under section 69 was rightly deleted.

The addition of Rs. 44,00,00,000 as undisclosed investment was deleted; the CIT(A) order is sustained and the revenue's appeal is dismissed.

Final Conclusion: The Tribunal confirms the CIT(A)'s deletion of the addition, holding that AIR information only warranted inquiry and that documentary evidence of an English mortgage and satisfaction of charge establishes absence of a purchase; revenue's appeal is dismissed.

Short Term Capital Gains - deeming fiction under section 50C - scope of remand / limited-purpose remand - claim of deduction not made in the return of income - admission of additional evidence after remand - application of Valuation Officer's report

Deeming fiction under section 50C - application of Valuation Officer's report - Short Term Capital Gains - Whether the FMV determined by the Valuation Officer should be adopted for computing Short Term Capital Gains in place of stamp duty valuation and deed consideration. - HELD THAT: - The Tribunal noted that the matter was earlier set aside to the Assessing Officer for the specific purpose of obtaining a reference to the Valuation Officer to determine the fair market value (FMV) of the property. Pursuant to that mandate the DVO reported FMV at Rs. 6,35,794 as against the stamp duty valuation of Rs. 8,77,500 and the deed consideration of Rs. 6,00,000. The Tribunal found that the assessment in the second round fell within the limited scope of the Tribunal's directions and that the AO acted in accordance with the remand by adopting the DVO's valuation for computation of Short Term Capital Gains under the deeming provision in question. The marginal difference between the DVO value and the deed consideration did not warrant reopening the scope of the reference or rejecting the DVO report. [Paras 4]

FMV as determined by the Valuation Officer was properly adopted for computing Short Term Capital Gains; the AO complied with the Tribunal's remand.

Scope of remand / limited-purpose remand - claim of deduction not made in the return of income - admission of additional evidence after remand - Whether the assessee's belated claim for deduction of transfer fees (not raised in the return or original assessment and first raised after receipt of the DVO report) could be admitted in the remand proceedings. - HELD THAT: - The Tribunal agreed with the CIT(A) that the remand was for a limited purpose and the assessment proceedings on remand must be confined to the Tribunal's mandate. The assessee's claim for deduction of transfer fees was not made in the return, not advanced during original assessment or before the Tribunal in the earlier round, and was first sought to be introduced after the DVO report. The AO had objected to the additional evidence on grounds that the claim was not part of the original proceedings and that the assessee followed cash system of accounting so the expense did not arise in the relevant year. The Tribunal held that a fresh claim which does not arise out of the mandate of the remand cannot be permitted to be raked up in the second round of proceedings and accordingly affirmed the rejection of the belated claim. [Paras 4]

Belated claim for deduction of transfer fees not raised in the return or original proceedings was rightly rejected as being outside the limited scope of the Tribunal's remand and inadmissible in the remand proceedings.

Final Conclusion: The Tribunal dismissed the appeal: the Assessing Officer properly adopted the DVO's FMV for computing Short Term Capital Gains in pursuance of the Tribunal's remand, and the assessee's belated claim for deduction of transfer fees was correctly rejected as outside the limited purpose of the remand and not raised in the return or earlier proceedings.

Penalty under section 271(1)(c) - Explanation 5A to section 271(1)(c) - search under section 132 - surrender of income under section 132(4) - deemed concealment of income - requirement of incriminating documents for invoking Explanation 5A

Penalty under section 271(1)(c) - Explanation 5A to section 271(1)(c) - search under section 132 - surrender of income under section 132(4) - requirement of incriminating documents for invoking Explanation 5A - Whether penalty under section 271(1)(c) invoking Explanation 5A is payable where, following a search under section 132, the assessee voluntarily surrendered additional income but no incriminating documents or assets were found or seized during the search. - HELD THAT: - The Tribunal found as an undisputed fact that no incriminating documents or assets were found or seized during the search conducted under section 132. Explanation 5A treats an assessee as deemed to have concealed particulars of income where, in the course of a search, assets or entries are found and the assessee claims such assets or entries represent earlier undisclosed income; the legislative scheme contemplates application of Explanation 5A where material is found in the search that evidences undisclosed income. In the present case the assessee made a voluntary suo moto disclosure under section 132(4) and filed a revised return declaring additional income of Rs. 15 lakhs, and the assessment under section 153A did not record any additions based on seized incriminating material. The Tribunal held that, absent any incriminating documents or materials found during the search to which Explanation 5A could attach, the Assessing Officer was not justified in invoking Explanation 5A to sustain penalty under section 271(1)(c). Coordinate decisions and authorities dealing with similar facts were found to be squarely applicable and support deletion of penalty where no material was found in search operations. Applying this reasoning, the Tribunal concluded that Explanation 5A did not apply on the facts and that the levy of penalty was not warranted.

Penalty under section 271(1)(c) imposed by invoking Explanation 5A deleted; appeal allowed.

Final Conclusion: The penalty of Rs. 5,04,900/- under section 271(1)(c) confirmed by the lower authorities is deleted because Explanation 5A to section 271(1)(c) is not attracted in the absence of incriminating documents or assets found during the search; the assessee's appeal is allowed.

Penalty under section 271C - Assessee in default under section 201(1) - Order under section 201(1A) - Effect of declaration of income by payee on liability to deduct - Consequential nature of penalty

Penalty under section 271C - Assessee in default under section 201(1) - Effect of declaration of income by payee on liability to deduct - Order under section 201(1A) - Whether penalty under section 271C can be sustained where no order under section 201(1) has been passed and the recipients had declared the income in their returns - HELD THAT: - The Tribunal found as an undisputed fact that only an order under section 201(1A) was passed (order dated 07.03.2011) and no order under section 201(1) exists. The amended provision of section 201 (w.e.f. 1.7.2012) and the established position that where the recipient has disclosed the income and paid tax, the payer is not an assessee in default under section 201(1), leads to the consequence that penalty under section 271C, being consequential upon an assessee being in default, cannot be levied. The authorities below did not dispute that the payees had declared the payments in their returns and thus the Assessing Officer did not treat the assessee as an assessee in default; accordingly the essential precondition for invoking section 271C was absent. The Tribunal followed the precedent of co ordinate Benches (including the cited Chandigarh Bench decision) which deleted penalty where no section 201(1) order was passed and the recipient had paid tax on the amounts. [Paras 9, 10]

Penalty under section 271C deleted as no order under section 201(1) was passed and recipients had declared the income, hence the assessee was not an assessee in default.

Final Conclusion: The appeals are allowed and the penalties under section 271C confirmed by the Commissioner (Appeals) are deleted.

Allowability of interest expense - nexus between borrowed funds and application of funds - disallowance under section 57 of the Income tax Act - admissibility of additional evidence under Rule 46A of the Income tax Rules - remand for fresh adjudication after opportunity to be heard

Allowability of interest expense - nexus between borrowed funds and application of funds - disallowance under section 57 of the Income tax Act - admissibility of additional evidence under Rule 46A of the Income tax Rules - remand for fresh adjudication after opportunity to be heard - Whether the interest of Rs. 70,19,178/- paid on inter corporate deposit should be disallowed or the matter should be remanded for verification of nexus between funds borrowed and funds lent and the connection between interest expense and interest income - HELD THAT: - The Assessing Officer disallowed the interest on the view that the assessee had substantial interest free funds and had not used the inter corporate deposit for its own business, and invoked disallowance under section 57. The CIT(A) rejected additional bank evidence produced before him under Rule 46A as not admissible and upheld the AO. The Tribunal noted that the assessee asserts a direct nexus - funds of Rs. 5 crores taken from one concern were routed to another and reflected in bank records, and that interest income from the party to whom funds were advanced was shown in the return. However, the nexus was not properly explained before the AO and the CIT(A) declined to admit the additional evidence. Given these facts and that the question of nexus and admissibility of evidence remains unresolved on the record before the AO, the Tribunal did not decide the allowability on merits but restored the matter to the AO. The AO is directed to give the assessee another opportunity to substantiate the claimed nexus between the borrowing, the advances made and the corresponding interest income/expenditure and to decide the issue afresh in accordance with law after affording a hearing. [Paras 11]

Matter restored to the file of the Assessing Officer for fresh adjudication on the question of nexus between borrowed funds and application of funds and between interest income and interest expenditure after giving the assessee an opportunity of being heard; appeal allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the appellate finding and remitted the issue of disallowance of interest to the Assessing Officer for fresh consideration and decision on the nexus and supporting evidence, after affording the assessee an opportunity to be heard; the appeal is allowed for statistical purposes.

Allowability of depreciation on non-compete fee - genuineness of related party transaction / sham transaction - remand for examination of genuineness and valuation - revenue expenditure under section 37 - intangible asset under section 32(1)(ii) - remand for verification and revaluation of film software library

Allowability of depreciation on non-compete fee - genuineness of related party transaction / sham transaction - remand for examination of genuineness and valuation - Depreciation claimed on non compete fee remitted to AO for fresh examination and consequential decision. - HELD THAT: - The Tribunal held that on demerger the assessee succeeded to the claim of depreciation on the non compete fee and that the earlier Tribunal's directions in the parent company's proceedings (paras 25-28 quoted) are consequentially applicable. The assessment order and CIT(A)'s order had rejected the claim primarily on grounds of alleged non genuineness, lack of necessity (related party control) and that the amount did not constitute an intangible asset; however the Tribunal found those conclusions to be reached without proper consideration of the role of the independent investor (39% acquisition by Equator Trading Enterprises Pvt. Ltd.), the additional evidence before the Tribunal and the valuation evidence filed by the assessee. In view of lacunae in the AO's and CIT(A)'s fact finding and the prior Tribunal direction to verify genuineness and valuation, the matter was remitted to the AO for fresh adjudication to examine genuineness, necessity and valuation and to give consequential effect to the parent company's decision. [Paras 5]

Ground remitted to the AO for fresh consideration; allowed for statistical purposes.

Revenue expenditure under section 37 - intangible asset under section 32(1)(ii) - Expenditure on cost of production of TV serials and programmes to be treated as revenue expenditure and allowable under section 37. - HELD THAT: - The Tribunal followed co ordinate and High Court precedents (including Sun TV Network and Television Eighteen India Ltd. as applied by other benches) holding that costs of production of television programmes/serials and news items lack enduring benefit akin to capital assets and are treated as revenue expenditure. The Tribunal observed that the nature of such productions (diminished value after telecast, repeat telecast generating marginal revenue), consistent accounting practice and prior acceptance by Revenue support treating the production costs as revenue expenses. Applying those authorities and reasoning, the AO's invocation of section 32(1)(ii) to treat such costs as intangible depreciable assets was rejected and the expenditure was directed to be allowed as revenue expenditure. [Paras 6, 9]

Ground allowed; production costs to be treated as revenue expenditure.

Remand for verification and revaluation of film software library - Depreciation claim on film software library remitted to the AO for verification and revaluation consequential to parent company's proceedings. - HELD THAT: - The Tribunal noted that the issue arose originally in the parent company's assessment and had been remitted by the Tribunal in that case for limited verification of facts and re valuation of the 'Film Software Library'. Since the present ground is consequential to that decision, the Tribunal directed that the matter be remitted to the AO to give effect to the outcome in the parent company's proceedings and to carry out such verification and revaluation as required by law. [Paras 10]

Ground remitted to the AO for consequential action; allowed for statistical purposes.

Final Conclusion: Both appeals are partly allowed: (1) claim of depreciation on non compete fee remitted to the AO for fresh examination and consequential action; (2) cost of production of TV serials/programmes held revenue expenditure and allowed; (3) claim of depreciation on film software library remitted to the AO for verification and revaluation and consequential action.

Overriding effect of a finding or direction to give effect to an appellate order - limitation for reopening assessments and the bar in Section 149 - Section 150(1) exception to limitation for reassessment consequent to appellate finding - Section 150(2) embargo where reassessment would have been time barred at the time of the appellate order - requirement of a finding or direction by the appellate authority to invoke Section 150

Requirement of a finding or direction by the appellate authority to invoke Section 150 - overriding effect of a finding or direction to give effect to an appellate order - Whether the ITAT's order in I.T.A. Nos.327 & 328/Mds/2010 contained any finding or direction to assess capital gains in assessment year 2001-02 such as would enable reopening under Section 150(1). - HELD THAT: - The majority found that the ITAT's statement - that the transfer had taken place in the year 2000 and therefore capital gains could not be taxed in AYs 2003-04 and 2004-05 - was at most an observation related to the appeals before it and did not amount to a specific finding or direction to assess the income in AY 2001-02. The Third Member agreed that there was no specific finding/direction in the ITAT order which, in itself, would authorise reopening of AY 2001-02. Consequently the Tribunal held that the notice under section 148 read with section 150(1) could not be treated as being founded on a definite appellate finding directing assessment for AY 2001-02. [Paras 6, 17, 18]

The ITAT order did not contain a finding or direction to assess capital gains in AY 2001-02 that would, by itself, justify reopening under Section 150(1).

Section 150(2) embargo on reopening assessments barred by limitation - limitation for reopening assessments and the bar in Section 149 - Section 150(1) exception to limitation for reassessment consequent to appellate finding - Whether the notice under section 148 dated 10.06.2011 read with section 150(1) was barred by limitation for AY 2001-02. - HELD THAT: - The Judicial Member, following the Apex Court in K.M. Sharma and the Madras High Court, held that Section 150(2) places an embargo where reassessment for an assessment year would already have been barred by limitation at the time the appellate order was passed; sub section (1) does not enable reopening in such cases. On the facts, the limitation period for AY 2001-02 (maximum six years where applicable) had expired by 31.03.2008, so when the ITAT order was passed in 2010 the assessment for AY 2001-02 was already final by reason of limitation. The Third Member (majority) accepted that the notice dated 10.06.2011 was issued after the expiry of the limitation period and therefore the reopening was barred. The Accountant Member took a contrary view on temporal reckoning of limitation but was outvoted. [Paras 10, 11, 19, 20]

The notice under section 148 r.w.s. 150(1) issued on 10.06.2011 for AY 2001-02 was barred by limitation and the reassessment could not stand.

Appellate remand of computational or procedural points - Computation issues raised for the first time before the Tribunal (grounds 9 & 10 relating to computation and applicability of Section 50C) were not finally decided and were remitted to the Commissioner of Income-tax (Appeals) for fresh consideration. - HELD THAT: - The Accountant Member observed that grounds 9 and 10 were not considered by the CIT(Appeals) and therefore, in the interest of justice, these issues were directed to be remitted to the CIT(A) for fresh adjudication. The Tribunal did not decide the merits of the computation or applicability of Section 50C and confined itself to remitting those matters for consideration by the lower appellate authority. [Paras 9, 10, 11]

Grounds 9 & 10 are remitted to the Commissioner (Appeals) for fresh consideration.

Final Conclusion: The Tribunal, by majority, held that the ITAT order for AYs 2003-04 and 2004-05 did not furnish a specific finding or direction to assess capital gains in AY 2001-02 and, in any event, the notice under section 148 r.w.s. 150(1) dated 10.06.2011 to reopen AY 2001-02 was barred by limitation; accordingly the reassessment was quashed and the appeal allowed, while computational issues raised for the first time were remitted to the CIT(A) for fresh consideration.

Applicability of section 40A(3) to payments made to State instrumentalities - Definition of "State" under Article 12 - instrumentality/agency test (control, share capital, public function) - Rule 6DD exception for payments to Government - Disallowance under section 40A(3) where genuineness of payment is not doubted

Applicability of section 40A(3) to payments made to State instrumentalities - Definition of "State" under Article 12 - instrumentality/agency test (control, share capital, public function) - Rule 6DD exception for payments to Government - Disallowance under section 40A(3) where genuineness of payment is not doubted - Cash payments made by the assessees to MSRTC for purchase of scrap do not attract disallowance under section 40A(3) of the Income-tax Act. - HELD THAT: - The Tribunal applied the tests derived from authoritative precedent (including the criteria in Som Prakash Rekhi) - focusing on degree of State control, equity participation, statutory incorporation and public function - and held that MSRTC is an instrumentality/agency of the State falling within the meaning of "State" in Article 12. Once MSRTC is so characterised, payments to it fall within the scope of Rule 6DD(b) (the exception for payments to Government), and cannot be disallowed under section 40A(3). The Department did not dispute the genuineness of the cash payments, and the assessee explained that immediate cash payment on auction was commercially expedient to prevent pilferage. Applying precedent that where genuineness is not doubted disallowance under section 40A(3) should not follow, the Tribunal concluded that the CIT(A) erred in upholding the disallowance and directed deletion of the addition. [Paras 11, 12, 14, 15, 18]

The disallowance made under section 40A(3) in respect of cash payments to MSRTC is set aside and the assessing officer is directed to delete the disallowance.

Argument-acceptance / non-pressing of grounds - Grounds challenging disallowance of interest under section 36(1)(iii) were not pressed by the assessees and stand dismissed as not pressed. - HELD THAT: - The authorised representative expressly relinquished prosecution of grounds 6 to 8, which related to disallowance of interest under section 36(1)(iii). The Tribunal recorded that those grounds are dismissed as not pressed, leaving them out of adjudication on merits. [Paras 2]

Grounds 6 to 8 dismissed as not pressed.

Final Conclusion: The appeals are partly allowed: disallowance under section 40A(3) in respect of cash payments to MSRTC is deleted; grounds on disallowance of interest under section 36(1)(iii) are dismissed as not pressed.

Customs duty on packing materials cleared to DTA - Repeated use principle for packing materials - Notification No.53/2003-Cus situational interpretation - Penalty under Section 114A of the Customs Act - 25% penalty option under judicial precedent

Customs duty on packing materials cleared to DTA - Repeated use principle for packing materials - Notification No.53/2003-Cus situational interpretation - Whether customs duty was payable on MS Barrels cleared to Domestic Tariff Area after import under Notification No.53/2003-Cus - HELD THAT: - The Tribunal found that the appellants imported inputs duty free packed in MS Barrels availing Notification No.53/2003-Cus but subsequently cleared the MS Barrels to the Domestic Tariff Area without payment of appropriate customs duty. The appellants failed to produce sufficient evidence to establish that the MS Barrels were not capable of repeated use. Applying the settled principle that packing materials capable of repeated use are exigible to duty when cleared to DTA, and following the Tribunal's earlier reasoning relied upon by the Revenue, the Tribunal held that appropriate customs duty was recoverable on the clearances of the MS Barrels. The appellant's contention, drawing analogy from a Supreme Court decision on reversal of credit when packing materials are received with cenvatable inputs, was not accepted as displacing the specific requirement to pay duty on reusable packing cleared to DTA under the notification and applicable law. [Paras 5]

Customs duty was payable on the MS Barrels cleared to DTA as the appellants failed to establish that the barrels were not capable of repeated use.

Penalty under Section 114A of the Customs Act - 25% penalty option under judicial precedent - Whether the penalty imposed under Section 114A of the Customs Act was sustainable and whether the appellants could avail the 25% penalty option - HELD THAT: - The Tribunal accepted that penal provisions under Section 114A were invoked due to failure to pay duty at the time of clearance. However, having regard to the principle in the Gujarat High Court decisions including G.P. Presstress Concrete Works, the Tribunal held that the appellants were entitled to the benefit of paying 25% of the penalty subject to fulfilment of the conditions prescribed under Section 114A. The Tribunal observed that such an option had not been extended to the appellants by the authorities below and accordingly modified the impugned order to grant that relief. [Paras 5, 6]

Penalty under Section 114A is sustained but the appellants are permitted to discharge 25% of the penalty subject to statutory conditions.

Final Conclusion: Appeal partly allowed: demand of customs duty on MS Barrels upheld; penalty sustained but reduced by permitting payment of 25% of the penalty subject to conditions under Section 114A.

Applicability of Customs exemption Notification No. 21/2002-Customs to imported vehicles - settlement by the Customs & Central Excise Settlement Commission - appropriation of deposited duty in settlement - assessment of customs duty on undervaluation - interest under the Customs Act on differential duty - confiscation under the Customs Act - immunity from prosecution upon settlement

Applicability of Customs exemption Notification No. 21/2002-Customs to imported vehicles - settlement by the Customs & Central Excise Settlement Commission - appropriation of deposited duty in settlement - Validity of the Settlement Commission's grant of benefit of Notification No. 21/2002-Customs and determination of differential customs duty to be appropriated from amount deposited by the respondent - HELD THAT: - The Court examined the factual findings recorded by the Settlement Commission concerning the manufacture, finishing, sale and export chronology of the imported vehicle and concluded that given the proximity of the date of manufacture and the date of import the vehicle could not be said to have ceased to be a new car prior to import. The Settlement Commission's conclusion that the Notification applied and that the differential duty to be appropriated from the deposited amount should be limited to the settled sum was not perverse. Earlier High Court precedent on similar facts and the reliance placed on the manufacturer and sale dates supported the Commission's view that the import retained the character of a new car, thereby justifying the grant of the Notification benefit and the appropriation ordered by the Commission. [Paras 11, 12, 13]

The Settlement Commission's grant of the Notification benefit and determination of the differential duty to be appropriated from the deposited amount is sustained and does not warrant interference.

Interest under the Customs Act on differential duty - confiscation under the Customs Act - immunity from prosecution upon settlement - Validity of the other directions of the Settlement Commission relating to interest, penalty, fine in lieu of confiscation and grant of immunity from prosecution - HELD THAT: - The Court reviewed the Settlement Commission's orders on interest, imposition of penalty and fine in lieu of confiscation, and the grant of immunity from prosecution. Finding no perversity or demonstrable error in the Commission's exercise of its settlement jurisdiction on these ancillary directions, the Court declined to interfere with those aspects of the order. [Paras 13]

The directions of the Settlement Commission on interest, penalties, fine in lieu of confiscation and grant of immunity from prosecution are upheld.

Final Conclusion: Writ petition dismissed; the Settlement Commission's order dated 31st August 2015 granting Notification benefit, appropriating the deposited amount towards settled differential duty and its ancillary directions as to interest, penalties, fine and immunity from prosecution are sustained.

Effect of rescission of notification on liability - Acquisition of liability under a rescinded notification - Section 159A - effect of amendments, etc., of notifications (preservation of rights, liabilities and proceedings) - Jurisdictional consequence of absence of statutory notification when liability is claimed

Effect of rescission of notification on liability - Acquisition of liability under a rescinded notification - Section 159A - effect of amendments, etc., of notifications (preservation of rights, liabilities and proceedings) - Liability under notification No.133/87 could not be enforced against the appellant because the notification had been rescinded before the appellant acquired and transferred the vessels for breaking up, and Section 159A(c) does not save a liability that was never acquired, accrued or incurred while the notification was in force. - HELD THAT: - Notification No.133/87 imposed a duty liability upon subsequent transfer of vessels for breaking up by requiring presentation of a fresh bill of entry and charging duty accordingly. Notification No.133/87 was rescinded by notification No.47/96 on 23.07.1996. The appellant acquired the vessels on 26.02.1998 and transferred them for breaking up thereafter. Clause (c) of Section 159A operates only where a right, privilege, obligation or liability "is acquired, accrued or incurred" under a notification that is later rescinded. Because the relevant events (acquisition and/or transfer for break-up) occurred after notification No.133/87 had ceased to be in force, no liability had been acquired, accrued or incurred under that notification as of those dates. Consequently, Section 159A(c) cannot be invoked to resurrect or validate a liability that never came into existence while the notification was operative. In the absence of any subsisting liability under notification No.133/87 at the relevant time, proceedings taken pursuant to that notification were without jurisdiction and unsustainable. [Paras 7, 8, 9, 10]

Proceedings under notification No.133/87 are without jurisdiction and cannot be sustained; the appeal is allowed and the impugned order is set aside.

Final Conclusion: The appeal is allowed: since notification No.133/87 had been rescinded before the appellant's acquisition and transfer for breaking up, no liability under that notification was ever acquired and Section 159A does not operate to create or preserve such non-existent liability; the impugned order is set aside.

Eligibility of CENVAT credit availed prior to registration - Refund under Rule 5 of the Cenvat Credit Rules, 2004 in relation to export of services - Scope of "activities relating to business" within the definition of input service - Interaction between Rule 5 notification and Section 11B of the Central Excise Act, 1944 - Limitation and relevant date for refund of unutilized input service credit

Eligibility of CENVAT credit availed prior to registration - Refund under Rule 5 of the Cenvat Credit Rules, 2004 in relation to export of services - Refund of unutilized CENVAT credit accumulated prior to date of registration is allowable. - HELD THAT: - The Tribunal accepted the appellant's contention and the Karnataka High Court precedent (mPortal) relied upon, holding there is no provision in the Cenvat Credit Rules which makes registration a condition precedent for claiming CENVAT credit or refund. The authorities below erred in rejecting claims merely because credit was availed prior to registration. Applying that precedent to the facts, the appellant is entitled to refund of unutilized credit accumulated prior to registration. [Paras 7, 11]

Allowed; appellant entitled to refund of unutilized cenvat credit accumulated prior to registration.

Scope of "activities relating to business" within the definition of input service - Refund under Rule 5 of the Cenvat Credit Rules, 2004 in relation to export of services - Input service credit on the disputed categories of services (maintenance and repair, consulting, courier, CHA/cargo handling, rent-a-cab, professional, insurance, freight, visa/air travel agent fees etc.) is eligible for refund for periods prior to 1.4.2011. - HELD THAT: - The Tribunal observed that the periods in dispute are prior to 1.4.2011 when many categories were later held ineligible. For the earlier period the inclusive phrase "activities relating to business" in the definition of input service covers services for which credit was denied. The Commissioner (Appeals)'s reliance on earlier adverse precedents was displaced by subsequent higher authority and rulings; consequently the credits in question were held to relate to the output service and to be in order for the pre 1.4.2011 period. [Paras 8, 9, 11]

Allowed; the challenged input service credits are eligible for refund for the periods before 1.4.2011.

Limitation and relevant date for refund of unutilized input service credit - Interaction between Rule 5 notification and Section 11B of the Central Excise Act, 1944 - Whether part of the refund claim was time-barred was not finally adjudicated and is remanded for reconsideration in light of Notification No.14/2016-CE (NT) dated 1.3.2016 and relevant evidence. - HELD THAT: - The Tribunal noted that Section 11B and its Explanation govern the concept of relevant date for refunds and that the notification under Rule 5 cannot go beyond Section 11B. Because an amendment by Notification No.14/2016 was brought in and the first appellate authority had not considered that amendment or certain evidence, the Tribunal remanded the limitation aspect to the Commissioner (Appeals) for fresh examination and allowed the appellant liberty to place documents and evidence before the first appellate authority. [Paras 10, 11]

Remanded to Commissioner (Appeals) for fresh consideration of the time bar/limitation issue in light of the 2016 amendment and additional evidence.

Final Conclusion: The appeals are allowed in part: refund of unutilized CENVAT credit accumulated prior to registration is granted; credits on the specified input services are held eligible for refund for periods prior to 1.4.2011; the limitation/time bar aspect is remanded to the first appellate authority for fresh consideration in light of Notification No.14/2016-CE (NT) dated 1.3.2016 and relevant evidence.

Refund of service tax - SEZ exemption/refund regime under Notifications 9/2009 and 15/2009 - condonation of delay in filing refund claim - TDS deducted as payment deposited on behalf of service provider

Refund of service tax - SEZ exemption/refund regime under Notifications 9/2009 and 15/2009 - Whether refund claim was rightly rejected for non-submission of approved list of specified services required for authorized operation in unit. - HELD THAT: - The Tribunal held that the objection based on non-submission of the approved list is answered by earlier CESTAT reasoning reproduced in the judgment, which construed Notifications 9/2009 and 15/2009 as procedural facilitations that do not defeat the substantive immunity/exemption under the SEZ provisions. On that harmonious construction, the notifications do not impose a disability on recipients in SEZs from seeking refund of service tax remitted by service providers; therefore rejection on this ground is not sustainable. [Paras 5]

Rejection of refund on account of non-submission of the approved list set aside; refund claim not to be denied on that ground.

Condonation of delay in filing refund claim - refund of service tax - Whether the refund claim should be held time-barred and rejected for delay in filing beyond six months where no extension application was placed on record. - HELD THAT: - The Tribunal noted that Notification No. 9/2009-ST permits filing within six months or such extended period as the Assistant Commissioner may allow. Although the Commissioner (Appeals) found no application for extension and held the claim barred, the Tribunal exercised discretion to condone the delay because the delay (ranging from five days to 2.5 months) was not shown to be unreasonable or deliberate, the amount involved was small, and there exists an express provision for condonation under the notification. The Tribunal therefore condoned the delay and allowed the claim. [Paras 6]

Delay in filing the refund claim condoned; claim not barred by limitation.

TDS deducted as payment deposited on behalf of service provider - refund of service tax - Whether refund should be proportionately reduced on account of TDS deducted from invoice where proof of deposit was not placed on record. - HELD THAT: - The Tribunal observed that TDS, when deducted, is deposited with the Government on behalf of the service provider and thus constitutes payment for the service. Although the lower authority disallowed the refund portion attributable to TDS due to absence of documentary proof of deposit, the Tribunal accepted the appellant's unchallenged assertion that TDS had been deposited and noted that the service tax sought to be refunded had actually been paid. Given these circumstances and the paltry amount involved, the Tribunal concluded that reduction of refund on account of TDS deduction was not sustainable and set aside that aspect of the order. [Paras 7]

Refund cannot be reduced on account of TDS deduction where TDS has been deposited on behalf of the service provider; reduction set aside.

Final Conclusion: The impugned order-in-appeal is set aside; the appellant's refund claim for the period 01.01.2010 to 31.03.2010 is allowed after condonation of delay, the objection for non-submission of approved list is rejected in view of CESTAT precedent, and refusal to refund the portion attributable to TDS is reversed.

Reconciliation of accounts - re-adjudication of tax liability - centralised accounts and delay in payment advice - penalty limited to unpaid tax - reasoned and speaking order - concessional penalty

Reconciliation of accounts - re-adjudication of tax liability - centralised accounts and delay in payment advice - Appellant to be granted opportunity for reconciliation of centrally maintained accounts and for re-adjudication of the service tax liability. - HELD THAT: - The Tribunal accepted the appellant's explanation that accounts were maintained centrally and that receipt of payment advices from various parts of the country could be delayed, producing differences in determination of liability for relevant taxing periods. In the interest of fairly determining the correct tax liability, the matter is remitted so that the appellant may apply within one month for a hearing before the adjudicating authority, who shall fix a hearing date; the appellant must participate without seeking adjournment and may place both factual and legal submissions. The adjudicating authority is directed to examine the reconciled figures and apply the law to determine the proper tax liability. [Paras 5]

Appeal remitted for reconciliation and re-adjudication of tax liability; appellant to apply within one month and adjudicating authority to hear and determine liability.

Penalty limited to unpaid tax - concessional penalty - reasoned and speaking order - Penalty to be re-considered in light of amounts already deposited and authority to pass a reasoned order and, if appropriate, extend concessional relief. - HELD THAT: - The Tribunal observed that where tax liability has been discharged partially by deposit, penalty, if imposable, should ordinarily be confined to the unpaid portion; accordingly the appellant must be heard on both facts and law. The Tribunal did not pre-empt the adjudicating authority's conclusion or create an estoppel against law, but directed that the authority pass a reasoned and speaking order and consider extending the concessional penalty already granted (25%) in accordance with the facts and circumstances. The authority is asked to decide the matter expeditiously, preferably within three months of receipt of this order. [Paras 6, 7]

Penalty remanded for re-consideration with regard to amounts deposited; adjudicating authority to pass a reasoned and speaking order and may, in fairness, consider extending concessional relief within three months.

Final Conclusion: The appeal is remitted to the adjudicating authority for re-adjudication of tax liability after reconciliation of centrally maintained accounts and for reconsideration of penalty in light of deposits and applicable concessions; the appellant to seek a hearing within one month and the authority to pass a reasoned and speaking order expeditiously, preferably within three months.

Liability for excise duty on destroyed goods - reversal of cenvat credit for inputs and capital goods lost in fire - remission under Rule 21 of the Central Excise Rules, 2002 - application of Rule 5A of the Cenvat Credit Rules, 2004 to damaged capital goods - duty arises on clearance and not merely on manufacture

Liability for excise duty on destroyed goods - reversal of cenvat credit for inputs lost in fire - remission under Rule 21 of the Central Excise Rules, 2002 - duty arises on clearance and not merely on manufacture - Whether excise duty or reversal of cenvat credit can be demanded in respect of finished goods and inputs destroyed in a fire merely because no remission application under Rule 21 was filed - HELD THAT: - The Tribunal affirmed the Commissioner (Appeals) finding that duty cannot be sustained where the finished goods and raw materials were admittedly not cleared from the assessee's premises and were destroyed. The authority relied on established precedents holding that excise liability crystallises on clearance and that absence of a formal remission application does not, by itself, create a duty liability where goods have been destroyed and there is no allegation of diversion. Accordingly, there is no basis to reverse input credit or demand duty solely for non-filing of a remission claim when the products/inputs were never cleared. [Paras 6, 7]

Demand and reversal of credit in respect of finished goods and inputs destroyed in the fire set aside; no duty liability solely for non-filing of remission.

Reversal of cenvat credit for capital goods lost in fire - application of Rule 5A of the Cenvat Credit Rules, 2004 to damaged capital goods - duty arises on clearance and not merely on manufacture - Whether duty or reversal of credit can be demanded in respect of capital goods damaged in the fire during the period in question - HELD THAT: - The Tribunal accepted the Commissioner (Appeals) conclusion that there was no provision during the material period to sustain a demand in respect of damaged capital goods prior to the introduction of Rule 5A w.e.f. 16.05.2005. For capital goods damaged after that date, the rule contemplates that liability, if any, would arise on clearance of such goods; as the goods remained within factory premises and were not cleared, no immediate demand could be sustained. Thus, the Revenue's demand in respect of the damaged capital goods could not be upheld. [Paras 6]

Demand and reversal of credit in respect of damaged capital goods not sustained; applicability of Rule 5A governs any liability on clearance.

Final Conclusion: The Revenue appeal is rejected and the Commissioner (Appeals) order allowing the respondent's appeals is upheld; the cross objection is disposed of.

Transaction value - exclusion of sales tax from transaction value under Section 4(3)(d) - eligibility of abatement where sales tax is collected but not paid to State - time-bar and invocation of extended period in absence of suppression or fraud - penalty for undervaluation where demand restricted to normal period

Transaction value - exclusion of sales tax from transaction value under Section 4(3)(d) - eligibility of abatement where sales tax is collected but not paid to State - Whether amounts collected as sales tax but retained by the assessee (and not paid to the State) are eligible for exclusion from transaction value for Central Excise under Section 4(3)(d). - HELD THAT: - The Tribunal applied the principle declared by the Hon'ble Supreme Court in CCE, Jaipur - II vs. Super Synotex (India) Ltd. and held that exclusion under Section 4(3)(d) is limited to the amount actually paid to the sales tax department. The appellant's contention that sales tax paid on inputs and adjusted against turnover tax on the final product amounts to discharge of sales tax on the final product is not legally admissible for excise valuation of the final product. Consequently, any portion of sales tax collected but retained by the assessee, irrespective of the nomenclature or consequential adjustment under State law, forms part of the transaction value and cannot be excluded unless it has been actually paid to the State.

Amount of sales tax collected but not paid to the State is includible in transaction value and not eligible for exclusion under Section 4(3)(d).

Time-bar and invocation of extended period in absence of suppression or fraud - Whether the demand can be sustained by invoking the extended period of limitation where there was no suppression, fraud or willful misstatement by the assessee. - HELD THAT: - The Tribunal observed that prior to the Supreme Court decision there was divergent precedent favouring assessees and that the correct quantum of abatement under incentive schemes was a matter of interpretation. The original orders relied on audit and scrutiny of sales tax returns but did not demonstrate suppression, fraud or willful misstatement. In these circumstances the invocation of the extended period was not legally sustainable and the demand must be restricted to the normal period.

Extended period cannot be invoked; demand is restricted to the normal period.

Penalty for undervaluation where demand restricted to normal period - cum-duty valuation - Whether penalty equal to the duty and the manner of valuation (cum-duty value) are sustainable where demand is limited to the normal period. - HELD THAT: - Having held that extended period is not invocable, the Tribunal found no basis to sustain penalty equal to the duty as imposed by the original authority. The Tribunal further directed that duty be calculated on a cum-duty basis because the excise duty on the retained sales tax amount had not been collected from buyers; thus the differential value must be treated as cum-duty value for computing liability.

Penalty set aside; duty to be computed on cum-duty valuation and limited to the normal period with applicable interest.

Final Conclusion: Appeal dismissed on merits; differential duty sustained but restricted to the normal period and to be computed on cum-duty valuation with applicable interest; penalty imposed by the original authority is set aside.

Appropriation of rebate against disputed customs duty arrears - finality of demand for invoking appropriation/adjustment - recovery under Section 142 of the Customs Act

Appropriation of rebate against disputed customs duty arrears - finality of demand for invoking appropriation/adjustment - Appropriation of rebate sanctioned in cash against customs duty arrears pending adjudication is not sustainable where the demands have not attained finality. - HELD THAT: - The Tribunal examined whether a rebate granted to the appellants could be appropriated against customs duty arrears. All orders against which appropriation was made were under challenge before the Tribunal and some enjoyed interim stays, so the demands had not attained finality. Applying the settled principle that Section 11 (and by analogy provisions permitting appropriation) can be invoked only after demands reach finality, the Tribunal held that appropriation of a refund against disputed and non-final customs demands is not legal. Reliance was placed on earlier precedents to the effect that refunds or rebates should not be appropriated to meet demands which are yet to attain finality. Having found the demands non-final, the Tribunal set aside the impugned appropriations and allowed the appeals.

Impugned orders appropriating the rebate against disputed customs arrears set aside; appeals allowed with consequential relief if any.

Final Conclusion: The appropriation of the sanctioned rebate against customs duty demands which were pending and had not attained finality was held unlawful; the impugned orders were set aside and the appeals allowed with consequential relief if any.

Cenvat credit reversal - Removal of inputs as such - Export under bond under Rule 19 / ARE 1 export procedure - Non-imposition of duty on exported inputs - Entitlement to rebate of duty paid on export

Cenvat credit reversal - Export under bond under Rule 19 - Non-imposition of duty on exported inputs - Whether the appellant-assessee was required to reverse Cenvat credit under Rule 3(5) when inputs imported on which credit was taken were subsequently exported under bond under Rule 19 without payment of duty. - HELD THAT: - The Tribunal found it undisputed that the inputs were exported under bond under Rule 19 and that CBEC circulars dated 31.12.1996 and 29.8.2000, as well as paragraph 3.4 of the Central Excise Manual, permit manufacturers who have taken credit to remove inputs/capital goods for export under bond without payment of duty. The Tribunal accepted the appellant's submission that exported inputs do not suffer duty incidence when removed under bond and noted that an identical duty incidence would not be imposed on goods exported under ARE-1 (with payment and subsequent rebate) and on goods exported under bond without reversal of credit. Reliance was placed on earlier tribunal decisions holding that clearance of inputs/capital goods for export without reversal of credit is permissible. Applying these principles, the Tribunal concluded that Rule 3(5) cannot be read so as to require reversal of credit in circumstances where the goods are exported under bond and do not bear a duty incidence.

Appellant is not required to reverse Cenvat credit on inputs imported and subsequently exported under bond; appeal allowed and Revenue's appeal rejected with consequential relief.

Final Conclusion: The Tribunal allowed the appellant's appeals and dismissed the Revenue's appeal, holding that Cenvat credit need not be reversed where inputs on which credit was taken are exported under bond under Rule 19, consistent with CBEC circulars and prior tribunal decisions; consequential relief granted if any.

Inclusion of packing materials in assessable value - packing materials supplied by buyer not includible in valuation - transaction value and valuation of excisable goods - strict construction of charging provision concerning packing charges - interpretation of Section 4 of the Central Excise Act after amendment - precedential application of Supreme Court and Tribunal decisions

Packing materials supplied by buyer not includible in valuation - inclusion of packing materials in assessable value - precedential application of Supreme Court and Tribunal decisions - interpretation of Section 4 of the Central Excise Act after amendment - Whether the cost of plastic containers supplied by buyers is includible in the assessable value of Glycol for the period 2001-04. - HELD THAT: - The Tribunal accepted the reasoning of the Original Adjudicating Authority and longstanding precedents which hold that where packing containers are supplied by the buyer, their cost cannot be included in the assessable value. The Appellate Authority's reliance on the amendment to Section 4 w.e.f. 1.4.2000 as a reason to depart from those precedents was rejected. The Tribunal relied on its earlier decision in Commissioner of Central Excise v. Grasim Industries Ltd., which applied the Supreme Court's principle that provisions regarding inclusion of packing charges must be strictly construed and that cost of containers supplied by buyers (where the goods are marketable without such containers) is not includible. Consequently, the amendment to Section 4 was held to be irrelevant to displace the established ratio, and the Original Adjudicating Authority's order dropping the demand was restored.

Proceedings/demand for duty in respect of packing materials supplied by buyers for 2001-04 are to be dropped; the Original Adjudicating Authority's order is restored.

Final Conclusion: The Tribunal allowed the appeal, set aside the Commissioner (Appeals) order, and restored the order of the Original Adjudicating Authority holding that the cost of packing containers supplied by buyers is not includible in the assessable value for the period 2001-04.

Pre-deposit - stay of recovery - undue financial hardship - exercise of power under Section 35-F of the Central Excise Act, 1944 - dismissal for non-compliance of conditional stay order - restoration of stay on compliance

Dismissal for non-compliance of conditional stay order - undue financial hardship - exercise of power under Section 35-F of the Central Excise Act, 1944 - Whether the Tribunal's dismissal of the appeals for non-compliance with the conditional pre-deposit order was vitiated by its failure to consider existence or non-existence of undue financial hardship. - HELD THAT: - The Tribunal directed a conditional pre-deposit of Rs. 3 lakhs and dismissed the appeals for non-compliance of that order. The Court noted that while dismissal was for failure to comply with the time-bound condition, CESTAT did not record any finding on the existence or otherwise of "undue financial hardship", a relevant consideration when dispensing with or modifying pre-deposit conditions under the statutory power. In view of that omission and the appellant's pleaded financial constraint, the Court treated the absence of consideration of undue hardship as material and entitled the appellant to an opportunity to be heard and to comply with the condition within an extended timeline. [Paras 4, 11]

Tribunal's order was set aside insofar as it dismissed the appeals without considering undue financial hardship; appellant entitled to an opportunity to comply with the pre-deposit condition.

Pre-deposit - restoration of stay on compliance - stay of recovery - Whether the appeals should be restored and time extended for making the pre-deposit so that the stay of recovery can be revived. - HELD THAT: - Having found that CESTAT did not address undue hardship and taking into account the appellant's asserted financial constraint and the contested issues in the appeals, the Court exercised its supervisory jurisdiction to set aside the final orders dismissing the appeals and to grant a limited extension of time. The Court directed that the appellant be given three weeks from the date of the order to make the pre-deposit of Rs. 3 lakhs as originally ordered by the Tribunal; upon such deposit, the stay petitions would stand restored and the stay of recovery would operate during the pendency of the appeals. The Court observed that no serious prejudice would be caused to the respondent by this limited extension. [Paras 13]

Final orders dismissing the appeals are set aside; three weeks granted for pre-deposit, and on compliance the stay petitions are restored.

Final Conclusion: Final orders dismissing the appeals for non-compliance are set aside; the appellant is granted three weeks to make the pre-deposit of Rs. 3 lakhs as per the Tribunal's conditional order, and on such deposit the stay petitions and stay of recovery are restored; no costs.

Pre-deposit requirement before the CESTAT - amendment to Section 35F of the Central Excise Act - applicability of amended law to appeals filed after amendment despite earlier lis - jurisdiction of the High Court under Article 226 to dispense with pre-deposit - curtailment of judicial discretion by legislative amendment - continuing liability of a proprietary concern despite cessation of business - undue hardship as a ground for waiver of pre-deposit

Validity of amendment to Section 35F - pre-deposit requirement before the CESTAT - Whether the Court should re-open or reconsider the validity of the amendment to Section 35F and the circulars issued thereunder. - HELD THAT: - The Court declined to re-consider its prior decisions which followed the Allahabad High Court in Ganesh Yadav. It refused to reopen the question of the validity of Section 35F as amended with effect from 6th August, 2014 and the consequential circulars issued pursuant thereto. The Court therefore upheld the continued application of the amended statutory scheme and the related administrative directions as not a matter for re opening in the present petition. [Paras 4]

The petition to re-open the validity of the amended Section 35F and the related circulars is rejected.

Applicability of amended law to appeals filed after amendment despite earlier lis - pre-deposit requirement before the CESTAT - Whether the amended Section 35F governs an appeal filed after 6th August, 2014 even though the original adjudication proceedings commenced before that date. - HELD THAT: - The Court held that where an appeal to the CESTAT is filed after the amendment to Section 35F (effected from 6th August, 2014), the appeal is governed by the amended provision requiring the prescribed pre-deposit, notwithstanding that the original adjudication or earlier rounds of proceedings may have commenced prior to the amendment. The facts of the case showed that after remand and a fresh adjudication on 18th May, 2015, the subsequent appeal was filed post-amendment and accordingly the amended Section 35F applied. [Paras 5]

The amended Section 35F applies to the appeal filed after 6th August, 2014.

Continuing liability of a proprietary concern despite cessation of business - Whether cessation of business of the proprietary concern absolves it of statutory liability to pay Central Excise duty. - HELD THAT: - The Court found that although the proprietor may have ceased operations and a new entity carried on similar business, that circumstance did not extinguish the legal liability of the proprietary concern to pay arrears of statutory duties. Unlike corporate entities which may be dissolved by express procedure, a proprietary concern cannot unilaterally declare itself non-existent to evade statutory liabilities; no evidence was shown of formal transfer or takeover of liabilities. [Paras 8, 9]

Cessation of business does not relieve the proprietary concern of its liability under Central Excise law.

Jurisdiction of the High Court under Article 226 to dispense with pre-deposit - undue hardship as a ground for waiver of pre-deposit - curtailment of judicial discretion by legislative amendment - Whether the High Court should exercise its Article 226 jurisdiction to waive the pre-deposit in the petitioner's case on grounds of financial hardship. - HELD THAT: - The Court acknowledged that the writ jurisdiction under Article 226 to dispense with pre-deposit remains available despite the legislative amendment, but emphasized that such power should be exercised only in rare and deserving cases where clear justification is shown. Having considered the submissions and the adjudication order, and noting the legislative intent to curtail discretion by mandating a pre-deposit, the Court was not persuaded that this case warranted a waiver of the pre-deposit. The petitioner's claim of cessation and financial hardship did not suffice to displace the statutory requirement in the circumstances presented. [Paras 10, 11]

The Court declined to exercise Article 226 jurisdiction to waive the pre-deposit in this case.

Final Conclusion: Writ petition dismissed. The amended Section 35F and related pre-deposit requirement govern the appeal filed after the amendment; the High Court's power under Article 226 to dispense with pre-deposit remains but was not exercised in these facts, and the proprietary concern's cessation of business did not extinguish its liability.

Cenvat credit on input service - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - transportation of final products by goods transport agencies (GTA services) - place of removal versus upto the place of removal - consumption-tax character of service tax and principle of input credit

Cenvat credit on input service - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - transportation of final products by goods transport agencies (GTA services) - place of removal versus upto the place of removal - Entitlement to Cenvat credit on GTA services used for transporting cement clinker from one manufacturing unit to another unit beyond the place of removal - HELD THAT: - The Tribunal examined the scope of the definition of input service in Rule 2(l) and the language distinguishing the earlier phraseology referring to "from the place of removal" and the later amendment "upto the place of removal". Having considered competing High Court decisions and Tribunal precedents, and the underlying principle that service tax is a consumption tax permitting credit so as not to convert service tax into a tax on business, the Tribunal followed the line of authorities which held that GTA services for transport of final products by the assessee unit (on facts similar to the present case) qualify as input services eligible for Cenvat credit. The Tribunal noted contrary authority but preferred the consistent view of several High Courts and Benches of the Tribunal which construe the Rule as allowing credit in such circumstances and applied that ratio to allow the appellant's claim. [Paras 5, 6]

Credit on the GTA services in dispute is admissible and the appeal is allowed with consequential relief, if any.

Final Conclusion: The Tribunal allowed the appeal, holding that GTA services employed for transporting clinker between the appellant's units qualify as input services under the relevant definition and therefore the Cenvat credit denied by lower authorities must be granted, with consequential relief as applicable.

Cenvat credit reversal on removal of inputs - Rule 3(4) of the Cenvat Credit Rules, 2001 as applicable at the relevant time - value determination under Section 4 of the Central Excises Act, 1944 - applicability of law on the date of removal - amendment of Rule 3(4) w.e.f. 01.03.2003 - recovery of differential duty on clearance of inputs

Cenvat credit reversal on removal of inputs - Rule 3(4) of the Cenvat Credit Rules, 2001 as applicable at the relevant time - value determination under Section 4 of the Central Excises Act, 1944 - applicability of law on the date of removal - Liability for duty when inputs on which CENVAT credit had been availed were cleared as such to sister units during June 2001 to February 2003 and whether reversal of credit sufficed or duty on value was leviable. - HELD THAT: - The Tribunal examined the text of Rule 3(4) of the Cenvat Credit Rules as it stood during the relevant period and found that removal of inputs on which CENVAT credit had been taken required payment of an amount equal to the duty leviable on such goods determined under the provisions of the Act (including value as determined under Section 4). The adjudicating authority had incorrectly applied the amended proviso to Rule 3(4) that came into force w.e.f. 01.03.2003, which substituted payment equal to credit availed; that amendment was not in force during June 2001 to February 2003. On this basis the Commissioner (Appeals) correctly upheld the demand for differential duty for removals made in the period in question. The Tribunal found no error in the Commissioner (Appeals)'s application of the law in force at the time of removal and accordingly sustained the demand. [Paras 4, 6, 7]

The demand confirmed by the Commissioner (Appeals) under Rule 3(4) as in force during June 2001 to February 2003 is upheld; reversal of credit alone was not sufficient and the appeal is dismissed.

Final Conclusion: The appeal is dismissed and the order of the Commissioner (Appeals) confirming the demand-applying Rule 3(4) as it existed during June 2001 to February 2003-is upheld, the Tribunal finding that the amended Rule 3(4) with effect from 01.03.2003 was not applicable to the period in dispute.

Classification of goods as incomplete boilers versus boiler parts - Rule 2(a) of the Rules of Interpretation to the Central Excise Tariff - Essential character test for classification - Remand for de novo consideration by adjudicating authority

Classification of goods as incomplete boilers versus boiler parts - Rule 2(a) of the Rules of Interpretation to the Central Excise Tariff - Essential character test for classification - Classification of the goods cleared by the appellant after 16/3/1995 is remanded for fresh adjudication to determine whether assemblies/sub assemblies are to be treated as complete steam generating boilers under sub heading 8402.10 or as parts. - HELD THAT: - The Tribunal found that the primary controversy concerns whether the goods supplied in knock down, assembly or sub assembly form possess the essential character of steam generating boilers and thus fall under sub heading 8402.10 by application of Rule 2(a) of the Rules of Interpretation to the Central Excise Tariff. The appellant relied on an earlier departmental order and a CESTAT decision (Thermax Babcock & Wilcox Ltd.) but had not placed those orders, contracts or any expert opinion before the adjudicating authority. Material factual matters - including production of contracts/purchase orders, the nature of supplies, reliance on prior orders and any expert opinion - require verification by the adjudicating authority. In the interest of justice the Tribunal directed that the matter be remanded for de novo consideration, with the appellant to produce all relied upon case laws, expert opinion and contracts, and be afforded an opportunity of personal hearing before the adjudicating authority decides the classification issue on merits. [Paras 4]

Appeal allowed by way of remand to the adjudicating authority for de novo consideration; adjudicating authority to permit production of relied materials and afford personal hearing before deciding classification.

Final Conclusion: The appeal is allowed by ordering remand for fresh adjudication on the classification issue; the adjudicating authority shall consider all relied upon documents and expert opinion and grant personal hearing before arriving at a decision.

Penalty for concealment under section 18(1)(c) of the Wealth Tax Act, 1957 - Explanation 3 to section 18(1)(c) - deeming concealment where return not furnished voluntarily - effect of filing a return in response to a notice under section 17 - reasonable cause for failure to file return

Explanation 3 to section 18(1)(c) - deeming concealment where return not furnished voluntarily - effect of filing a return in response to a notice under section 17 - Applicability of Explanation 3 to section 18(1)(c) where the assessee filed the wealth-tax return only after receipt of notice under section 17 - HELD THAT: - The Tribunal examined the statutory deeming provision in Explanation 3 and the authorities relied upon. It accepted that Explanation 3 applies where a person fails, without reasonable cause, to furnish a return voluntarily within the period specified and no notice has been issued under the specified sub sections, and where the assessing officer is satisfied that the person had assessable net wealth. The CIT(A) and AO had proceeded on the basis that because the return was filed in response to the notice under section 17 and would not have been filed otherwise, Explanation 3 was attracted and the entire assessed wealth could be treated as concealed for the purposes of clause (c). The Tribunal, however, read Explanation 3 with the requirement that the Assessing Officer must be satisfied that the person concealed particulars or furnished inaccurate particulars of assets or debts; mere non-filing per se is not automatically concealment unless Explanation 3's cumulative conditions are fulfilled and the requisite satisfaction recorded by the AO. [Paras 10, 11]

Explanation 3 does not render every belated filing (in response to a notice) an automatic concealment unless the cumulative conditions of Explanation 3 are satisfied and the Assessing Officer records satisfaction of concealment or inaccurate particulars.

Penalty for concealment under section 18(1)(c) of the Wealth Tax Act, 1957 - reasonable cause for failure to file return - Whether penalty under section 18(1)(c) was sustainable on the facts where the return was accepted without adverse findings and the assessee offered explanation of reasonable cause for delay - HELD THAT: - On the facts the Tribunal found that the AO accepted the return without recording any adverse finding of concealment or inaccurate particulars. The assessee had a history of timely filings, and documentary evidence (medical/discharge certificate of the authorised representative and the assessee's age and circumstances) established that the failure to file the wealth return timely was due to reasonable cause beyond the assessee's control. Applying the principle that mere non-furnishing of return is not equivalent to concealment, and having regard to the absence of any cogent reasons recorded by the AO to show concealment, the Tribunal concluded that the conditions for invoking clause (c) and imposing penalty were not satisfied in this case. [Paras 11, 13]

Penalty under section 18(1)(c) was not sustainable and was quashed on the facts; the appeal was allowed.

Final Conclusion: The Tribunal held that Explanation 3 cannot be mechanically invoked where the AO accepted the belated return without recording concealment or inaccurate particulars, and, on the facts (including reasonable cause for delay), the penalty under section 18(1)(c) was unsustainable and was quashed; the assessee's appeal was allowed.