TaxTMI Updates e-Newsletter
Jun 17,2013

Reassessment under Section 11(a) for omission or failure to disclose material facts - limitation in cases falling under Section 11(b) (four years) - completion of assessment by acceptance of return - consequences of concurrent findings of fact by authorities - effect of pendency of higher court proceedings on disclosure obligation

Reassessment under Section 11(a) for omission or failure to disclose material facts - limitation in cases falling under Section 11(b) (four years) - Reassessment notices issued for assessment years 1994-95 to 1996-97 were not barred by limitation where the case fell under clause (a) of Section 11. - HELD THAT: - The Court held that Section 11 distinguishes two situations: clause (a) (omission or failure to make return or to disclose wholly and truly material facts) permits reassessment at any time, whereas clause (b) is subject to a four-year limitation. The three authorities concurrently found as a question of fact that the assessee had omitted or failed to disclose material facts for the relevant years. On that finding the case squarely fell under clause (a) and therefore the reassessment served on 18 February 2002 could not be said to be time-barred. The Court refused to re-appreciate the concurrent fact finding recorded by the lower authorities and answered the limitation question against the appellant. [Paras 4, 5, 6, 7, 9]

The reassessment notices are not barred by limitation because the case falls under Section 11(a).

Completion of assessment by acceptance of return - reassessment under Section 11(a) for omission or failure to disclose material facts - A completed assessment by acceptance of the return (order-sheet entry dated 30.3.1998) permits reassessment under Section 11 where omission or failure to disclose material facts is subsequently found. - HELD THAT: - The appellant's contention that no regular assessment had been made was rejected on the material before the Court: the Assessing Officer had accepted the returns and contemporaneously recorded the acceptance in the order sheet entry dated 30.3.1998, which the Court treated as completion of assessment. Notice under Section 9(1) is required only when the Assessing Officer disagrees with the return; acceptance obviates that notice requirement. Once assessment is found completed, the Assessing Officer may invoke Section 11 if the facts justify reassessment. The Court therefore held that the assumption underlying the second substantial question did not apply in the facts of this case. [Paras 10, 11]

The assessments were completed by acceptance of returns and reassessment under Section 11 was permissible.

Consequences of concurrent findings of fact by authorities - effect of pendency of higher court proceedings on disclosure obligation - Pendency of the Department's SLP did not excuse the assessee from disclosing taxable items; concurrent findings that the assessee failed to disclose material facts stand. - HELD THAT: - The Court observed that the third substantial question assumed absence of failure to disclose, which could not be entertained in view of concurrent factual findings by three authorities that the assessee had omitted or failed to disclose material facts. The pendency of an SLP filed by the Department before the Supreme Court did not operate to stay the assessee's duty to disclose taxable items, nor did it interdict the operation of the Act. Accordingly, the Court answered this question against the appellant. [Paras 4, 12]

The pendency of higher court proceedings did not relieve the assessee of the disclosure obligation; the finding of failure to disclose is upheld.

Reassessment under Section 11(a) for omission or failure to disclose material facts - Section 11(a) is attracted on the concurrent finding of omission or failure to disclose, and Sections 11(a) or 11(b) accordingly govern the case (Section 11(a) applies here). - HELD THAT: - The fourth substantial question hypothesised absence of failure or omission; given the established concurrent factual finding of non-disclosure, the Court concluded that Section 11(a) was attracted and the Assessing Officer was justified in reopening assessments. The question whether Section 11(b) or none applied did not arise on the facts because clause (a) governs where omission or failure is proved. [Paras 13]

Section 11(a) applies on the facts; the Assessing Officer was justified in invoking reassessment powers.

Final Conclusion: The appeals are dismissed. The court affirmed the concurrent factual findings that the assessee omitted or failed to disclose material facts for AYs 1994-95 to 1996-97, held that such facts bring the matter within Section 11(a) (thereby excluding limitation under Section 11(b)), upheld completion of assessment by acceptance of returns, and found reassessment to be valid; the appeals thus fail.

Deduction under section 35D (amortisation of preliminary expenses) - Deduction under section 80IA for undertakings providing telecommunication and internet services - Crystallisation of prior period expenses for allowability - Depreciation on indefeasible right to use (IRU) / undersea cable system as a depreciable asset - Consistency of treatment across assessment years and follow-the-earlier-decision principle

Deduction under section 35D (amortisation of preliminary expenses) - Allowability of the claim of Rs.17,95,493/- under section 35D for the year under appeal. - HELD THAT: - The Tribunal noted that the identical issue had been considered and dealt with by the Tribunal in the assessee's appeal for AY.1998-99 (order dated 05.12.2012) in which the Revenue had allowed the claim for the first year of eligibility (AY.2000-01) and the assessee's counsel did not press the ground. Applying that precedent, the Tribunal held the ground otiose and dismissed the assessee's challenge to the disallowance for AY.1999-2000. [Paras 3]

Ground dismissed; no change to disallowance for the year under appeal in view of the earlier Tribunal order.

Deduction under section 80IA for undertakings providing telecommunication and internet services - Claim of deduction under section 80IA of Rs.4,12,37,88,812/- in respect of earth stations, internet and Inmarsat M&B services; admissibility of deduction for internet services under amended provisions. - HELD THAT: - The Tribunal found that neither the Assessing Officer nor the First Appellate Authority had considered the allowability of deduction for internet services having regard to the amended provisions of section 80IA. The assessee conceded that earth station claims had been decided against it but contended that internet services should be examined under the amended law. In the interest of justice, the Tribunal restored the matter to the file of the First Appellate Authority for fresh adjudication, directing the FAA to consider the claim afresh in the light of the amended section and to afford the assessee a reasonable opportunity of hearing. [Paras 4]

Partly decided in favour of the assessee: matter remanded to the First Appellate Authority for fresh consideration of internet-service claims under amended section 80IA.

Crystallisation of prior period expenses for allowability - Allowability of prior period expenses disallowed by the Assessing Officer (total disallowance Rs.2.22 Crores), specifically part allowance of Rs.69.20 lakhs and treatment of amounts where invoices were received during the year. - HELD THAT: - Applying established taxation principles and the Tribunal's earlier findings in the assessee's AY.1997-98 order, the Tribunal reiterated that prior period expenses are allowable in the year under consideration if the liability crystallised in that year (for example, where invoices were received before the balance-sheet approval). On the facts, bills totaling Rs.69.20 lakhs were received before the due date of approval of accounts and therefore the liability had crystallised in AY.1999-2000; those amounts were allowed. The FAA's confirmation of disallowance for the remaining amount was upheld to the extent not shown to have crystallised. [Paras 5]

Ground partly allowed: prior period expenses of Rs.69.20 lakhs allowed; balance disallowance upheld.

Depreciation on indefeasible right to use (IRU) / undersea cable system as a depreciable asset - Consistency of treatment across assessment years and follow-the-earlier-decision principle - Allowability of depreciation of Rs.17.36 Crores on the undersea 'FLAG' cable system for the year under appeal. - HELD THAT: - The Tribunal examined the orders for earlier years (AY.1997-98 and AY.1998-99) and the reasoning that beneficial ownership principles govern eligibility to claim depreciation under section 32 even in absence of legal title. The earlier appellate and Tribunal orders had recognised the assessee's membership in the international consortium, its part ownership rights, and entitlement to share proceeds; the FAA had been directed to allow depreciation in those years. Respectfully following the Tribunal's earlier decisions and the consistency principle, the Tribunal decided the ground against the Assessing Officer and allowed depreciation for AY.1999-2000. [Paras 6]

Ground decided against the Assessing Officer: depreciation on the FLAG cable system allowed following prior-year decisions.

Crystallisation of prior period expenses for allowability - Revenue's ground contesting allowance of prior period expenses of Rs.3.37 lakhs that had been allowed by the First Appellate Authority. - HELD THAT: - The Tribunal observed that although the expenses related to an earlier period, the invoices were received during the year under appeal and the liability therefore crystallised in AY.1999-2000. On that factual basis, and consistent with the FAA's finding, the Tribunal rejected the Assessing Officer's challenge and sustained the allowance. [Paras 7]

Ground rejected; allowance of prior period expenses of Rs.3.37 lakhs sustained.

Final Conclusion: The assessee's appeal is partly allowed: (a) the section 35D claim issue is dismissed in view of earlier Tribunal treatment; (b) the section 80IA claim for internet services is remanded to the First Appellate Authority for fresh consideration under the amended provision; (c) prior period expenses of Rs.69.20 lakhs and Rs.3.37 lakhs are allowed as crystallised in AY.1999-2000 while the remaining disallowance is upheld; (d) depreciation on the undersea FLAG cable system is allowed following earlier Tribunal decisions. The Assessing Officer's cross-appeal is dismissed.

Liability to deduct tax at source under section 194J - Default under section 201(1) and interest under section 201(1A) - Effect of deductee having paid tax and entitlement to credit - Exemption certificates under section 197 and non-deduction - Verification of auditor's certificate as per Hindustan Coca Cola Beverages ruling and CBDT Circular No.8 of 2009

Liability to deduct tax at source under section 194J - Deference to High Court precedent - Payments made by the TPA to empanelled hospitals/nursing homes are exigible to deduction of tax at source under section 194J. - HELD THAT: - The Tribunal applied the ratio of the Bombay High Court in Dedicated Health Care Services TPA v. ACIT, holding that where medical services are rendered within the institutional framework of a hospital as an umbrella of services provided by qualified medical professionals, such payments fall within the scope of technical/professional services attractable under section 194J. On that basis the Commissioner (Appeals) was upheld in concluding that the assessee was required to deduct TDS on payments to hospitals. The contention of the assessee that section 194J did not apply was therefore rejected. [Paras 5, 6]

Issue decided against the assessee; section 194J applies to the payments to hospitals.

Effect of deductee having paid tax and entitlement to credit - Verification of auditor's certificate as per Hindustan Coca Cola Beverages ruling and CBDT Circular No.8 of 2009 - Where deductees (hospitals) have paid tax on receipts, recovery of demand from the deductor cannot be enforced subject to verification by the Assessing Officer; matter remitted for verification of auditor's certificates. - HELD THAT: - The Tribunal accepted the principle from Hindustan Coca Cola Beverages and the CBDT Circular that if the deductee has paid tax on the receipts, recovery of the TDS demand from the deductor should not be enforced. The assessee was permitted to produce auditor's certificates from the payees stating tax and interest have been paid for the relevant year; the AO was directed to verify such certificates and give due credit to the assessee. This aspect was not finally adjudicated on merits by the Tribunal but remitted to the AO for verification and consequential relief if the evidence is found satisfactory. [Paras 8, 11, 13]

Remitted to the Assessing Officer to examine and verify auditor's certificates; if tax paid by deductees is proved, recovery should not be enforced against the assessee.

Exemption certificates under section 197 and non-deduction - Default under section 201(1) and interest under section 201(1A) - Computation of TDS liability and interest to be recalculated by the Assessing Officer after allowing deductions for payments below the threshold and for valid section 197 exemption certificates; interest under section 201(1A) to be determined accordingly. - HELD THAT: - The assessee produced particulars showing cancelled cheques, payments below the threshold (aggregating to amounts not exigible for TDS), and production of section 197 certificates in respect of certain payees. The Tribunal held that where a valid nil/relief certificate under section 197 is produced the assessee has no obligation to deduct TDS, and payments below the statutory threshold need not attract TDS. The matter was restored to the AO with directions to examine the exemption certificates and details of sub-threshold payments, to compute the correct taxable base and to quantify interest under section 201(1A) after giving the assessee opportunity to produce evidence; the assessee conceded liability for TDS and interest on the remaining balance if not otherwise covered. [Paras 7, 9, 12, 13]

Grounds 3 and 5 allowed to the extent the AO is to recalculate TDS and section 201(1A) interest after considering section 197 certificates and sub-threshold payments; balance liability to be determined by the AO.

Final Conclusion: Appeal allowed in part: the Tribunal held that payments to hospitals are subject to deduction under section 194J; directed the Assessing Officer to verify auditor's certificates and section 197 exemption certificates and to recompute the TDS liability and interest under section 201(1A) after giving the assessee an opportunity to produce evidence; recovery from the assessee is not to be enforced to the extent the deductee has paid tax or valid certificates exempt deduction are produced.

Fees for professional or technical services (TDS under section 194J) - Work contract payments (TDS under section 194C) - Tax deduction at source: substance of agreement over nomenclature - Rendering services using technical skill versus making technical knowledge available

Work contract payments (TDS under section 194C) - Fees for professional or technical services (TDS under section 194J) - Tax deduction at source: substance of agreement over nomenclature - Rendering services using technical skill versus making technical knowledge available - Whether payments made for annual maintenance and repair of hospital equipment were taxable as fees for professional or technical services (subject to TDS under section 194J) or were payments for work contract (subject to TDS under section 194C). - HELD THAT: - The Tribunal concurred with the CIT(A)'s conclusion that the payments in question related to annual maintenance, repair and upkeep of sophisticated hospital equipment and, on their true nature and the contents of the agreements, constituted works contract payments rather than fees for professional or technical services. The Tribunal accepted the CIT(A)'s reasoning that mere use of technical knowledge or engagement of technically qualified persons to perform maintenance does not convert the payment into fees for technical services where the technical knowledge is not made available to the assessee so as to be usable by it. Reliance was placed on the principle in the appellate reasoning (as quoted by the CIT(A)) that substance of the agreement controls over nomenclature, and that where services only involve maintenance or repair by skilled personnel without vesting transferable technical knowledge in the recipient, the amounts are not fees for technical services within the meaning of section 194J. Applying that principle to the materials on record, the Tribunal held the assessee rightly deducted tax under section 194C and confirmed deletion of the demand raised under section 201(1) and cancellation of interest under section 201(1A). [Paras 3, 4, 7]

Payments were in the nature of work contracts within the meaning of section 194C and not fees for professional or technical services under section 194J; the CIT(A)'s order deleting the demand and cancelling interest is confirmed and the Revenue's appeal is dismissed.

Final Conclusion: The Tribunal confirmed the CIT(A)'s finding that the payments for maintenance of hospital equipment were work-contract payments (TDS under section 194C) and not fees for technical services (section 194J); the demand and interest raised by the Assessing Officer were set aside and the Revenue's appeal was dismissed.

Revenue expenditure versus capital expenditure - genuineness of expenditure - expenditure wholly and exclusively for the purpose of business - sham transaction / lack of nexus with income - precedential effect of earlier appellate order on same agreement

Revenue expenditure versus capital expenditure - expenditure wholly and exclusively for the purpose of business - precedential effect of earlier appellate order on same agreement - Deletion of addition of Rs.30,91,500/- claimed as software development and maintenance expenses paid to DERPOL - HELD THAT: - The Tribunal held that the issue was squarely covered in favour of the assessee by the earlier ITAT decision in the preceding year concerning the same agreement between the assessee and M/s Derpol Investment Ltd. That earlier order had examined the nature of services rendered from January 2006, found no acquisition of a capital asset or any enduring benefit, and held the expenditure for the period January-March 2006 to be revenue in nature and allowable even if no immediate revenue was generated. The Ld CIT(A) followed that ITAT view and deleted the addition; the Tribunal found no infirmity in that approach and agreed that the expenditure was incurred wholly and exclusively for the assessee's business of software development and deployment and thus was allowable as revenue expenditure. [Paras 12, 13]

Addition of Rs.30,91,500/- deleted; CIT(A)'s order upheld.

Genuineness of expenditure - expenditure wholly and exclusively for the purpose of business - sham transaction / lack of nexus with income - Confirmation of disallowance of Rs.16,39,833/- on account of legal and professional charges paid to M/s APC Securities (India) Pvt. Ltd. - HELD THAT: - The Tribunal noted that Ld CIT(A) had examined the consultancy agreement, observed the vagueness of the scope of work and terms of payment, and found absence of documentary particulars showing services rendered or the basis for the fee. The CIT(A) also took account of the assessee's investment profile and found it difficult to accept such high consultancy charges as reasonable for the investments disclosed. The assessee did not place any fresh material before the Tribunal to rebut those findings. On this basis the Tribunal found no infirmity in the CIT(A)'s conclusion that the genuineness and business nexus of the claimed legal and professional charges were not established and upheld the disallowance. [Paras 14]

Disallowance of Rs.16,39,833/- on account of legal and professional charges confirmed.

Final Conclusion: The revenue's appeal and the assessee's cross-objection are dismissed; addition of Rs.30,91,500/- is deleted, and the disallowance of Rs.16,39,833/- is sustained.

Deduction under section 80C - payments made out of loan funds - requirement of payments being made "out of income chargeable to tax" - construction of Chapter VI A Part B - no addition of words to statutory text

Deduction under section 80C - payments made out of loan funds - requirement of payments being made "out of income chargeable to tax" - no addition of words to statutory text - construction of Chapter VI A Part B - Whether LIC premium payments made out of loan funds are eligible for deduction under section 80C for AY 2006-07 - HELD THAT: - The Tribunal found as a factual matter that the assessee did not maintain books and that the LIC premium payments, although reflected in the grandfather's proprietary concern's books, amounted to funds provided by the grandfather such that the assessee had in effect availed a loan for paying the premiums (recorded in findings). The Tribunal examined whether section 80C requires that payments be made "out of income chargeable to tax". It noted that the earlier statutory text (and earlier decisions) did impose that condition, but the section as applicable to the year under consideration omits those words. Section 80C is situated in Part B of Chapter VI A, which deals with deductions in respect of certain payments, and the plain language of sub sec.(1) requires only that the specified sums be "paid or deposited in the previous year". The Tribunal held that where Parliament has omitted the phrase "out of income chargeable to tax" from the current provision, a court may not supplement the statutory text; consequently the absence of that phrase must be given effect to. Applying these principles, the Tribunal concluded that payments of LIC premiums made out of loan funds qualify for deduction under section 80C and set aside the CIT(A)'s disallowance, directing the assessing officer to allow the claim. [Paras 9, 13, 15]

The payment of LIC premiums made during the previous year out of loan funds is eligible for deduction under section 80C; the order of the CIT(A) is set aside and the assessing officer is directed to allow the deduction.

Final Conclusion: Appeal allowed; deduction under section 80C for LIC premiums paid out of loan funds upheld for AY 2006-07 and matter remitted to assessing officer for giving effect to the order.

Exemption under Section 10(34) - computation of insurance business income under Section 44 and First Schedule - binding effect of actuarial valuation under the First Schedule - treatment of negative reserves in actuarial valuation - taxability of income credited to shareholders' account

Exemption under Section 10(34) - computation of insurance business income under Section 44 and First Schedule - Entitlement of the assessee to claim exemption under section 10(34) in respect of dividend income included in actuarial surplus - HELD THAT: - The Tribunal examined whether dividends received by a life insurer and reflected in actuarial valuation/surplus can be excluded from taxable income under section 10(34) notwithstanding section 44 and the First Schedule. The Bench held that rule applicable to life insurance (Rules 1-4 of the First Schedule; Rule 2 for life insurers) must be distinguished from Rule 5 (general insurance), and the AO and FAA erred in relying on Rule 5. Following the coordinate Bench decisions and the jurisdictional High Court authority, the Tribunal concluded that exemptions under section 10 are available to insurance companies where the conditions of the exemption clause are satisfied and that section 44/First Schedule does not ipso facto exclude section 10 benefits. On that basis the order of the FAA was reversed and the claim for exemption under section 10(34) was allowed.

Claim for exemption under section 10(34) in respect of dividend income allowed.

Treatment of negative reserves in actuarial valuation - binding effect of actuarial valuation under the First Schedule - Validity of addition of actuarial 'negative reserves' to taxable surplus - HELD THAT: - The Tribunal considered whether the Assessing Officer could disturb the actuarial treatment of negative reserves (mathematical reserves which may be negative where present value of future premiums exceeds liabilities) as reflected in Form I and the net valuation surplus. The Bench observed that negative reserves are a part of actuarial valuation methodology and, pursuant to the First Schedule and binding precedents, the AO has no general power to modify amounts determined by the appointed actuary. The Tribunal followed the coordinating Bench decision in ICICI Prudential and relevant Supreme Court/High Court authorities holding that actuarial valuation for insurers, including treatment required by IRDA regulations, cannot be altered by the AO merely by adding back negative reserves. Accordingly the addition was disallowed.

Addition of negative reserves to taxable surplus set aside; actuarial treatment upheld.

Taxability of income credited to shareholders' account - Whether income credited to the shareholders' (non-technical) account is taxable in the hands of the assessee - HELD THAT: - The Tribunal addressed whether amounts shown in the shareholders' account represented income of the Government of India or income of the assessee exempt as part of insurance business. Having examined the statutory origin of LIC, the allocation formula under the LIC Act, and the nature of the receipts, the Bench held that income earned by the corporation on investments attributable to shareholders' funds constituted income of the assessee and, insofar as it was not derived from the life insurance business for the purposes of section 44/First Schedule, was taxable under ordinary provisions (income from other sources). The fact that the Government had initially contributed capital did not make the receipts income of the sovereign; the amounts credited to the shareholders' account were assessable to tax in the hands of LIC.

Addition of income credited to shareholders' account upheld and taxed in the hands of the assessee.

Final Conclusion: Appeals partly allowed. For AY 2007-08, AY 2008-09 and AY 2009-10 the Tribunal allowed the assessee's claims in respect of exemption of dividend income under section 10(34) and disallowed the revenue's addition of actuarial negative reserves, but sustained the taxability of amounts credited to the shareholders' account; other general grounds were dismissed for statistical purposes.

Deduction under section 10A of the Act - Arm's Length Price - Transfer Pricing - Transaction Net Margin Method (TNMM) - Comparability - turnover filter and functional comparability - Segmental margin for comparability - Dispute Resolution Panel directions under section 144C of the Act - Interest under section 234B and section 234D of the Act - Initiation of penalty proceedings under section 271(1)(c) of the Act

Deduction under section 10A of the Act - Re-computation of deduction under section 10A by adjusting communication-related expenses in export turnover and parity with total turnover - HELD THAT: - The Assessing Officer reduced certain communication expenses from export turnover while computing deduction under section 10A. The assessee alternatively sought that the same amounts, if reduced from export turnover, should also be reduced from total turnover to maintain parity between numerator and denominator. The Bench followed the jurisdictional High Court precedent in CIT v. Tata Elxsi Ltd. and directed that the amounts be reduced from both export turnover and total turnover while computing deduction under section 10A. The alternate plea was accepted and accordingly recomputation was ordered. [Paras 5]

The Assessing Officer is directed to reduce the specified expenses from both export turnover and total turnover while computing deduction under section 10A; ground no.3 is allowed.

Transfer Pricing - Transaction Net Margin Method (TNMM) - Comparability - turnover filter and functional comparability - Validity of comparables selected by the TPO - exclusion of companies exceeding the upper turnover limit - HELD THAT: - The TPO had applied only a lower turnover filter (Rs.1 crore) and included very large entities (e.g., Infosys, Wipro) as comparables. The Tribunal followed earlier coordinate Bench decisions holding that size matters and that an appropriate turnover range (Rs.1 crore to Rs.200 crores) should be applied. Consequently eight companies with turnover exceeding Rs.200 crores selected by the TPO were excluded from the comparable set. The Bench adhered to precedents from this Registry and directed exclusion of those entities. [Paras 6]

Eight companies having turnover in excess of Rs.200 crores are to be eliminated from the TPO's list of comparables.

Comparability - turnover filter and functional comparability - Exclusion of functionally dissimilar comparables identified by the TPO - HELD THAT: - The Tribunal examined specific comparables which the TPO had retained but which earlier Benches had held to be functionally dissimilar for software development service providers. Following those coordinate Bench decisions (Trilogy, Telcordia and others), the Bench held that Accel Transmatic (Seg), Avani Cimcon Technologies Ltd., Celestial Labs Ltd., and Kals Information Systems Ltd. (Seg) are not comparable and directed their exclusion. Lucid Software Ltd. was also directed to be excluded following the Telcordia reasoning. The Tribunal applied the principle that comparables must be functionally similar and usable without leaving material unadjustable differences. [Paras 6]

The listed functionally dissimilar companies are excluded from the set of comparables; Lucid Software Ltd. is not to be included as a comparable.

Segmental margin for comparability - Use of segmental (software services) margin of Megasoft Limited for comparability - HELD THAT: - While Megasoft Limited was acceptable as a comparable, the Tribunal followed earlier findings that where an entity has both product and services segments, the software services segmental margin (23.11%) should be adopted for comparability rather than the entity-level margin. The Bench observed that differences arising from a product segment cannot be ignored unless reasonably accurate adjustments can be made, and therefore directed that the segmental margin be used. [Paras 6]

Megasoft Limited may be retained as a comparable but the segmental margin of 23.11% (software service segment) is to be used for comparability.

Comparability - employee cost filter and outsourcing - Remand to Assessing Officer/TPO to re-examine inclusion of Ishir Infotech Ltd. as comparable with regard to employee cost/outsource payments - HELD THAT: - The assessee contended Ishir Infotech fails the employee cost filter because professional fees included by the TPO inflated employee-cost figures; similar facts were considered in Mercedes Benz Research Development India where the matter was restored for examination whether professional fees related to outsourced work. Given identical facts and assessment year, the Tribunal directed the AO/TPO to re-examine whether Ishir Infotech's professional fees represent outsourced work and, if so, whether it thereby fails the 25% employee-cost filter. This issue was not finally adjudicated on merits but remanded for fresh consideration. [Paras 6]

Issue restored to the Assessing Officer/TPO for fresh examination whether Ishir Infotech Ltd. qualifies as a comparable in light of outsourcing/professional-fee treatment.

Arm's Length Price - Transfer Pricing - Transaction Net Margin Method (TNMM) - Comparability - turnover filter and functional comparability - Direction to Assessing Officer/TPO to rework ALP applying the Tribunal's comparability directions and the 5% bandwidth proviso to section 92C(2) - HELD THAT: - After excluding specified comparables (by turnover and functional dissimilarity), retaining the identified comparables and adopting the Megasoft segmental margin and subject to re-examination of Ishir Infotech, the AO/TPO was directed to compute the Arm's Length Price in accordance with the Bench's directions. If, after applying these directions, the difference between assessee's margin and the comparable mean exceeds the permissible +/-5% bandwidth under the proviso to section 92C(2), an adjustment must be made. The Tribunal did not make a final quantification but remitted computation to the authorities in conformity with its rulings. [Paras 6, 7]

AO/TPO to rework ALP per Tribunal directions; if margin differential exceeds the +/-5% bandwidth recognised in the proviso to section 92C(2), make the appropriate transfer pricing adjustment.

Interest under section 234B and section 234D of the Act - Initiation of penalty proceedings under section 271(1)(c) of the Act - Liability for interest and challenge to initiation of penalty proceedings - HELD THAT: - The Tribunal observed that levy of interest under section 234B is mandatory and consequential; that part of the ground was dismissed. As to interest under section 234D, the Bench held the Assessing Officer was within his realm to charge interest in view of a precedent of the Delhi Special Bench (Ekta Promoters). The challenge to initiation of penalty proceedings under section 271(1)(c) was held to be premature and the ground was dismissed. [Paras 4]

Levy of interest under section 234B upheld as mandatory; charging of interest under section 234D sustained as within AO's power; challenge to initiation of penalty under section 271(1)(c) held premature.

Final Conclusion: The appeal is partly allowed: deduction under section 10A is to be recomputed by reducing the specified communication expenses from both export turnover and total turnover; several comparables selected by the TPO are excluded on turnover and functional-dissimilarity grounds and Megasoft's segmental margin is to be used; Ishir Infotech's inclusion is remanded for re-examination; the AO/TPO is directed to rework the ALP in accordance with these directions and apply the +/-5% bandwidth under proviso to section 92C(2); interest provisions and the premature challenge to penalty initiation were dealt with as indicated.

Speculation business - explanation to section 73 - deeming fiction - companies engaged in purchase and sale of shares deemed speculation - carry forward of speculation loss

Speculation business - explanation to section 73 - deeming fiction - companies engaged in purchase and sale of shares deemed speculation - Whether the assessee's purchase and sale of shares for its own account is to be treated as a speculation business under the explanation to section 73 for the stated assessment years - HELD THAT: - The Tribunal upheld the Assessing Officer's application of the explanation to section 73, holding that where part of a company's business consists in the purchase and sale of shares of other companies the company is to be deemed to be carrying on a speculation business to that extent. The Tribunal rejected the contention that delivery-based transactions precluded application of the deeming provision, observing that section 73 and its explanation apply to companies irrespective of the mode of transaction. The Tribunal distinguished the decisions relied upon by the assessee (CIT v. Lokmat Newspapers (P) Ltd. and CIT v. Gopal Purohit ), noting that the facts and issues in those cases were different and that in any event the explanation to section 73 is a specific statutory deeming provision intended to prevent manipulation by group companies. Applying that determinative legal principle, the Tribunal held that brokerage income is business income while income from share trading for the company's own account is to be treated as speculation income under section 73 and the explanation thereto. [Paras 2, 3, 5, 6]

Assessee's share trading for its own account is to be treated as speculation business under the explanation to section 73; the Assessing Officer and CIT(A)'s view in this regard is upheld.

Carry forward of speculation loss - opportunity of hearing - Direction to permit carry forward of speculation losses and remand for computation/allowance - HELD THAT: - The Tribunal noted that the CIT(A) had directed carry forward of losses if any, in accordance with law, but that the Assessing Officer had not given effect to that direction. The Tribunal therefore restored this limited issue to the Assessing Officer with a direction to allow carry forward of losses as per the provisions of the Act after giving the assessee an opportunity of hearing. This remand is for giving effect to the carry forward entitlement and for computation/verification in accordance with law. [Paras 6]

Limited issue remanded to the Assessing Officer to allow carry forward of speculation losses as directed by the CIT(A) after affording opportunity of hearing and in accordance with law.

Final Conclusion: Appeals allowed for statistical purposes: the deeming provision in the explanation to section 73 applies to the assessee's share-trading for its own account and such activity is to be treated as speculation business; the question of carry forward of speculation losses is remitted to the Assessing Officer for allowance after hearing the assessee.

Arm's length price - transfer pricing - selection and exclusion of comparables - comparability analysis - outsourcing and functional comparability - use of segmental results for comparables - computation of arithmetic mean of comparable margins - allowance of +/- 5% variation under section 92C(2) - remand for verification and fresh determination

Transfer pricing - selection and exclusion of comparables - comparability analysis - outsourcing and functional comparability - remand for verification and fresh determination - Whether Coral Hubs Ltd. (formerly Vishal Information Technologies Ltd.) should be excluded from the list of comparables on the ground that it outsourced a substantial part of its activity. - HELD THAT: - The Tribunal noted earlier authorities excluding Vishal Information Technologies Ltd. where that entity outsourced a substantial portion of its business and was therefore functionally incomparable with an assessee performing operations in-house. However, because the cited decisions related to earlier years and the AO/TPO had not independently verified whether Coral Hubs performed outsourced work in the year under consideration, the Tribunal declined to decide exclusion on the record before it. In the interest of justice the question is remitted to the AO/TPO for examination of contemporaneous evidence (accounts, seating/utilisation or vendor payments etc.), with an opportunity to the assessee to be heard; if verified that the company outsourced the relevant activity for the year under consideration, it is to be removed from the comparable set. [Paras 6]

Remitted to AO/TPO for verification of whether Coral Hubs Ltd. outsourced the ITES activity for the year under consideration; remove from comparables if verified.

Computation of arithmetic mean of comparable margins - transfer pricing - selection and exclusion of comparables - remand for verification and fresh determination - Whether the profit margin of Mold-Tek Technologies Ltd. was correctly computed by the TPO and, if not, the proper margin to be taken for calculating the arithmetic mean of comparables. - HELD THAT: - The assessee challenged the TPO's computation of Mold-Tek's operating margin (alleging a manifest arithmetic/characterisation error and providing the annual accounts and a recomputation). The Tribunal observed that the issue had been raised before the TPO and DRP but no specific findings were recorded. Consequently, the Tribunal directed that the matter be restored to the file of the AO/TPO to make specific findings after giving the assessee a reasonable opportunity, and to adopt the correct profit margin for Mold-Tek in computing the mean of comparables. [Paras 6]

Remitted to AO/TPO to verify and determine the correct profit margin of Mold-Tek Technologies Ltd., after affording the assessee an opportunity of hearing.

Use of segmental results for comparables - transfer pricing - selection and exclusion of comparables - remand for verification and fresh determination - Whether Datamatics Financial Services Ltd.'s segmental (ITES) results should be used instead of consolidated results for computing its margin as a comparable. - HELD THAT: - Relying on Tribunal precedent recognising that use of entity-level results which include non-ITES activities would distort comparability, the Tribunal directed that Datamatics' segmental results relating to the ITES division be taken for computing the comparable margin. The AO/TPO was directed to adopt the segmental figure for the purpose of arithmetic mean computation, after providing the assessee a reasonable opportunity to be heard. [Paras 6]

Directed AO/TPO to use Datamatics Financial Services Ltd.'s segmental (ITES) results for computing its margin as a comparable.

Final Conclusion: The appeal is partly allowed for statistical purposes: three contested aspects of the comparable set (treatment of Coral Hubs Ltd., correct profit margin for Mold Tek, and use of Datamatics' segmental results) are remitted to the AO/TPO for verification and fresh determination after giving the assessee an opportunity of hearing; thereafter the mean margin is to be recomputed and if it falls within the permitted +/-5% band of the assessee's margin, no transfer pricing adjustment shall be made.

Tax deduction at source under section 194C - Assessee in default under section 201(1) - Interest liability under section 201(1A)

Tax deduction at source under section 194C - payments for air time charges to broadcasters - Payments made to TV channels/broadcasters as air time charges are taxable for deduction of tax at source under section 194C. - HELD THAT: - The Tribunal recorded that the assessee, a cable network operator, paid air time charges to various TV channels and did not deduct tax at source. The Assessing Officer treated such payments as liable to TDS under section 194C and issued notices; the CIT(A) examined the matter with reference to the material on record and prior judicial pronouncements, including the decision in Kurukshetra Darpans (P) Ltd v. CIT, and concluded that the payments fall within the ambit of section 194C. The Tribunal agreed with the CIT(A)'s application of those authorities and the conclusion that tax was deductible on the payments for air time charges. [Paras 4, 5, 6]

Assessee's contention rejected; payments for air time charges are subject to TDS under section 194C and the CIT(A)'s conclusion in that regard is upheld.

Assessee in default under section 201(1) - deemed liability for non-deduction of TDS - The assessee is to be treated as an assessee in default under section 201(1) for failure to deduct tax on the payments held taxable under section 194C. - HELD THAT: - After the Assessing Officer issued show-cause notices and considered the assessee's explanations, he held that non-deduction of tax as required by law renders the deductor a deemed assessee in default under section 201(1). The CIT(A) examined the factual material and legal submissions and concurred with that conclusion. The Tribunal found that the CIT(A) had correctly applied the statutory provision and relevant authorities in reaching the finding of default and saw no infirmity in that conclusion. [Paras 4, 5, 6]

Assessee held to be an assessee in default under section 201(1); the finding of the CIT(A) is sustained.

Interest liability under section 201(1A) - interest on deemed tax default - Levy of interest under section 201(1A) on the tax deemed payable by virtue of section 201(1) is justified. - HELD THAT: - The CIT(A) applied Supreme Court and other precedents, including Hindustan Coca Cola Beverages (P) Ltd and CIT v. Eli Lilly & Co.(India) P. Ltd, to conclude that interest as levied by the Assessing Officer under section 201(1A) is sustainable. The Tribunal noted that the CIT(A) had correctly relied on these authorities and the statutory scheme to uphold the levy of interest and found no ground to interfere. [Paras 5, 6]

Levy of interest under section 201(1A) upheld; the CIT(A)'s conclusion is affirmed.

Final Conclusion: The Tribunal upholds the CIT(A)'s determinations that payments for air time charges are subject to TDS under section 194C, that the assessee is a deemed assessee in default under section 201(1), and that interest under section 201(1A) is payable; both appeals are dismissed.

Condonation of delay - sufficient cause - time-bar / limitation - pre-deposit requirement for stay before Tribunal

Condonation of delay - sufficient cause - time-bar / limitation - Application for condonation of 850 days' delay in filing the appeal dismissed. - HELD THAT: - The assessee sought condonation of an inordinate delay of 850 days, explaining that the company was sick, closed and had only one director who was unable to file the appeal while attempting revival. The court examined the explanation and found it unsatisfactory, observing that the delay was colossal and that the pleaded circumstances did not meet the test of "sufficient cause" necessary to condone such a substantial delay. The Tribunal's earlier requirement of a pre-deposit (deposit of Rs. 50 lacs) and dismissal of the appeal for non-deposit are recited as background facts but the present order decides only the condonation plea on the stated explanation and delay. Having found no sufficient cause, the court dismissed the condonation application and concluded that the appeal is barred by limitation. [Paras 7]

Condonation application dismissed; appeal dismissed as barred by time.

Final Conclusion: The application for condonation of an 850-day delay is refused for want of sufficient cause; consequently the appeal is dismissed as time barred.

ATA Carnet System - temporary importation without payment of customs duties - liability of the guaranteeing association for failure to re-export - proof of re-exportation under Article 8 of the ATA Convention - judicial review for failure to consider relevant and material evidence

Proof of re-exportation under Article 8 of the ATA Convention - liability of the guaranteeing association for failure to re-export - judicial review for failure to consider relevant and material evidence - Whether the Certificate of Disposition and subsequent communication from USCIB constituted valid proof of re-exportation of the goods under ATA Carnet No. US 89/05-64919 and whether the revenue authorities erred in rejecting them, thereby sustaining demand against the petitioner guaranteeing association. - HELD THAT: - The authorities adjudicating the show-cause rejected the petitioner's claim on the ground that there was no material to prove re-exportation and, in particular, treated the Certificate of Disposition as relating to a different Carnet. The Court examined the record and noted that the Certificate of Disposition was on file, its authenticity was not impugned by the authorities, and there was no mention of any other Carnet on the Certificate. A subsequent Letter of Evidence dated 24-6-2009 from USCIB further clarified that the goods had been re-exported. The respondents therefore failed to take into account relevant and material documentary evidence establishing re-exportation and proceeded on an incorrect factual premise. Because the obligations of the guaranteeing association under the ATA regime (i.e., liability only if goods are not re-exported) depend on proof of non-re-exportation, the authorities' refusal to accept the available proof rendered their adjudications unreasonable and unsustainable. The Court accordingly quashed the impugned orders and the demand made thereunder. [Paras 6, 7, 8]

The Certificate of Disposition and the USCIB communication constituted valid proof of re-exportation; the respondents' orders refusing relief were unjustified and are quashed.

Final Conclusion: Writ petition allowed. The orders and demands of the customs authorities are quashed for failure to consider material evidence proving re-exportation; connected demands are set aside.

Definition of "importer" under section 2(26) of the Customs Act - legal fiction created by proviso to Notification No.163/65-Cus. (deemed import on breaking-up) - date for determination of rate of duty under section 15 of the Customs Act - requirement to present a bill of entry under section 46 for goods entered for home consumption

Definition of "importer" under section 2(26) of the Customs Act - requirement to present a bill of entry under section 46 for goods entered for home consumption - Whether the respondent who purchased the vessel before it was cleared for home consumption falls within the definition of "importer" under section 2(26) of the Customs Act and is liable to discharge customs duty. - HELD THAT: - The court held that importation is completed only upon presentation of a bill of entry for home consumption. Where ownership passes to a purchaser at any time between importation and clearance for home consumption, that purchaser falls within the statutory definition of "importer" under section 2(26). In the present case the respondent purchased the vessel prior to completion of the import process and thereafter presented the bill of entry; accordingly the respondent became the owner during the period between importation and clearance and thus was the importer liable to discharge the customs duty. The Commissioner (Appeals) erred in giving decisive weight to the seller's charging of sales tax and in treating the Shipping Corporation as the importer where the vessel had not been cleared for home consumption prior to sale. [Paras 16, 21, 22, 24]

The respondent-assessee is an "importer" within the meaning of section 2(26) and is liable to pay the customs duty when it presented the bill of entry for home consumption.

Legal fiction created by proviso to Notification No.163/65-Cus. (deemed import on breaking-up) - date for determination of rate of duty under section 15 of the Customs Act - Whether the proviso to Notification No.163/65-Cus. creates a legal fiction shifting the date of import to the date of breaking-up (or the date of permission for breaking) and the legal consequences thereof. - HELD THAT: - The court applied the Supreme Court's ruling in Union of India v. Jalyan Udyog and held that the proviso to Notification No.163/65-Cus. creates a fiction treating the vessel as imported for breaking-up on the date it is broken up. For certainty the date of permission for scrapping/breaking granted by the competent authority is to be treated as the relevant date for determining value and rate under section 15. The fiction must be given full effect, and once it operates, all concomitant import formalities and statutory consequences (including valuation and applicable rate) must follow with reference to that deemed date. [Paras 19, 20, 21]

The proviso to Notification No.163/65-Cus. creates a deemed import on the date of breaking-up (to be treated as the date of permission for scrapping) and that deemed date governs determination of value and rate of duty.

Requirement to present a bill of entry under section 46 for goods entered for home consumption - legal fiction created by proviso to Notification No.163/65-Cus. (deemed import on breaking-up) - Whether absence of an express clause in Notification No.163/65 for filing a fresh bill of entry prevents giving effect to the deemed import created by the proviso, and whether the Tribunal's reading of Jalyan Udyog to deny import formalities was correct. - HELD THAT: - The court rejected the Tribunal's view that because Notification No.163/65 did not expressly prescribe filing a fresh bill of entry its fiction could not be given effect. The court held that the filing of a bill of entry and compliance with import formalities are implicit and necessary concomitants of any import (including a deemed import) and must be read into the notification; Notification No.16/2000 merely made explicit what was implicit earlier. The Supreme Court's decision in Jalyan Udyog was confined to fixing the relevant date for valuation and rate (permission date), and did not absolve the importer of statutory procedures or convert the grant of permission into automatic completion of importation by the original owner. Consequently the Tribunal erred in holding that no duty could be demanded because the notification lacked an express fresh bill requirement. [Paras 25]

Filing of a bill of entry and compliance with import procedures are required to give full effect to the fiction in Notification No.163/65; the Tribunal's contrary conclusion was unsustainable.

Final Conclusion: The appeal is allowed. The questions of law admitted are answered in favour of the revenue: the purchaser who acquired the vessel before clearance for home consumption is an "importer" within section 2(26) and liable to pay customs duty; the proviso to Notification No.163/65-Cus. creates a deemed import on the date of breaking-up (treated as the date of permission for scrapping) and must be given full effect including the obligation to comply with import formalities (such as presentation of a bill of entry). The Tribunal's order is quashed and set aside.

Refund of cenvat/service-tax credit on inputs used in export of services - claim of refund for tax paid prior to registration - entitlement to credit by unregistered or exempt manufacturer/service-provider - interest on delayed refund

Refund of cenvat/service-tax credit on inputs used in export of services - claim of refund for tax paid prior to registration - entitlement to credit by unregistered or exempt manufacturer/service-provider - Assessee entitled to refund of cenvat/service-tax credit in respect of input services utilised for providing export services, even though the tax was paid prior to the assessee's registration. - HELD THAT: - The Tribunal found that the services on which refund was claimed comprised service-tax paid by input service providers and were utilised for export of services; the documentary evidence was not disputed. Relying on the Tribunal's reasoning in the reproduced Well-known Polyester decision and consistent precedents (including J.R. Herbal Care and other judicial fora treating credit availability to manufacturers exempt from registration or where duty was later paid), the Tribunal held there is no absolute bar to granting credit or refund for tax paid prior to registration where conditions for refund are otherwise satisfied. The impugned orders were set aside to the extent they rejected refund solely because the refund related to tax paid before registration.

Refund claims allowed; rejection solely on ground that tax was paid prior to registration cannot be sustained.

Interest on delayed refund - Assessee not entitled to interest on delayed refunds where the assessee has, on instructions, waived claim to interest; refund to be sanctioned without interest. - HELD THAT: - The Tribunal noted that the lower authorities had not sanctioned the refunds in time. On the record, the assessee (through its authorised representative) stated that, on instruction, it was prepared to waive any claim to interest on delayed refunds. In view of that concession, the Tribunal allowed the refund claims but held that interest would not be payable in respect of those refunds.

Refund to be paid but no interest payable as assessee waived claim to interest.

Final Conclusion: All appeals allowed; impugned orders set aside insofar as they rejected the refund claims for being filed in respect of tax paid prior to registration. Respondent directed to refund the amounts (without interest, given the waiver) within sixty days of receipt of the order.

Eligibility of cenvat credit of service tax - commission agent services as input service - services relating to business - precedential effect of earlier judicial decisions

Eligibility of cenvat credit of service tax - commission agent services as input service - services relating to business - Cenvat credit of service tax paid on commission agent services is admissible where such services relate to the assessee's business and qualify as input services. - HELD THAT: - Revenue denied cenvat credit on the ground that commission agents are not input services under the Cenvat Credit Rules, 2004. The Tribunal accepted the assessee's contention that the services of the commission agent were availed for sale of final products and thus amounted to activities relating to business. The Tribunal applied the legal position laid down by the High Court of Karnataka in ABB Limited and followed earlier Tribunal decisions on identical facts (Mangalam Drugs & Organics Ltd and M.K. Industries), treating those authorities as determinative. On this basis the denial of credit was found unsustainable and the impugned orders were set aside.

The appeal is allowed and the order denying cenvat credit for commission agent services is set aside; the assessee is held entitled to the cenvat credit with consequential relief if any.

Final Conclusion: The Tribunal allowed the appeal, holding that commission agent services availed for sale of final products are services relating to business and qualify for cenvat credit; the impugned orders denying credit were set aside.

Condonation of delay in filing appeal - limitation bar - maintainability of appeal - dilatory conduct of a public authority does not justify delay

Condonation of delay in filing appeal - limitation bar - dilatory conduct of a public authority does not justify delay - Application for condonation of delay in filing the appeal rejected and appeal dismissed as barred by limitation. - HELD THAT: - The Tribunal examined the chronology and reasons advanced for the delay. The impugned order was dated 13.2.2007 and the appeal was filed on 17.8.2011. Although the appellant sought guidance from CBEC and various Ministries and repeatedly pursued nomination of Government counsel, CBEC had advised filing the appeal on 21.9.2007. A vetted draft existed by July 2008 and requisite annexures were supplied by 16.7.2008, yet the appeal was not filed until 2011. The Tribunal found the appellant repeatedly approached incorrect fora, awaited counsel nominations and lost time through administrative lapses and unexplained gaps (including signing of the appeal only on 20.7.2011). The course of events demonstrated a casual and dilatory approach by the Directorate; these internal delays and conveniences did not constitute sufficient or justified cause to excuse the long delay. On this appraisal the Tribunal found no justifiable reason to condone the substantial delay and rejected the condonation application. [Paras 4, 5, 6]

Application for condonation of delay rejected; appeal and pending stay petition dismissed as barred by limitation.

Final Conclusion: The Tribunal refused to condone the nearly three-and-a-half year delay in filing the appeal, holding that the appellant's casual and dilatory conduct did not justify extension of time; consequentially the appeal and the stay petition stand rejected on the ground of limitation.

Levy of service tax for normal period - Demand under extended period of limitation - Interest on confirmed tax demand - Waiver of penalty in view of bona fide belief and conflicting judicial pronouncements - Reliance on Tribunal precedent

Levy of service tax for normal period - Reliance on Tribunal precedent - Confirmation of service tax liability for the normal period subject to deposit by the appellant. - HELD THAT: - The parties agreed that the appellant would deposit the service tax for the normal period. The Tribunal recorded that the taxability of SIM card sale and related services remained a debatable question pending the apex court's decision in Idea Mobile Communication Ltd. Vs CCE Cochin, and that the appellant had a bona fide belief of no liability based on divergent judicial pronouncements. Having regard to the fair agreement between the parties and the Tribunal's reliance on an existing Tribunal decision cited by the appellant, the adjudication order was modified to confirm the levy of service tax for the normal period, conditional on deposit as agreed in court.

Service tax for the normal period is confirmed, subject to deposit by the appellant.

Demand under extended period of limitation - Annulment of the demand relating to the extended period of limitation. - HELD THAT: - Both sides consented to modify the adjudication order to annul the demand that related to the extended period of limitation. The Tribunal, in view of the agreement and the particular facts of the case, set aside the demand insofar as it arose from the extended limitation period.

The demand for the extended period of limitation is annulled.

Interest on confirmed tax demand - Waiver of penalty in view of bona fide belief and conflicting judicial pronouncements - Interest on the confirmed normal-period tax is payable; penalties are not exigible. - HELD THAT: - The Tribunal held that the confirmed tax liability for the normal period would be followed by interest. However, considering the appellant's bona fide belief arising from conflicting judicial pronouncements during different periods and the Tribunal's earlier decision relied upon by the appellant, the Tribunal accepted that imposition of penalty would cause extreme hardship and therefore waived penalties. The Revenue did not contest these propositions and agreed to the modification.

Interest shall follow the confirmed tax for the normal period; penalties shall not be exigible.

Final Conclusion: Appeal partly allowed: service tax for the normal period confirmed (deposit to be made) with interest; demands for the extended period of limitation annulled; penalties waived in view of the appellant's bona fide belief and agreed Tribunal precedent.

Input service - CENVAT credit - place of removal - GTA service - benefit of Notification No.4/2006-CE (Sl. No.1A) - prima facie case

Input service - CENVAT credit - place of removal - GTA service - prima facie case - Prima facie entitlement to CENVAT credit on GTA service used for outward transportation of final product from factory: allowed for period upto 31/03/2008; not allowed prima facie for period from 01/04/2008. - HELD THAT: - The Bench found a prima facie case in favour of the appellant for the period up to 31/03/2008 on the strength of the High Court's decision in CCE, Bangalore Vs. ABB Ltd. For the period beginning 01/04/2008 the amended definition of "input service" in Rule 2(1) of the CENVAT Credit Rules, 2004, which treats services used in relation to manufacture and clearance "upto the place of removal" as input services, operates against the appellant. Applying that amended definition (as interpreted by this Bench in Madras Cements Ltd. Vs. CCE, Bangalore), outward transportation by GTA beyond the place of removal does not fall within the amended definition and prima facie credit is not admissible for the period after 31/03/2008. The appellant's alternative submissions based on transaction value and FOR destination pricing were noted but the determinative question was the statutory definition in force from 01/04/2008. The plea of limitation was not found persuasive on the material before the Bench, and the claimed financial hardship was not substantiated by up-to-date records. [Paras 1, 2, 3]

Appellant to predeposit Rs.1 crore within six weeks and report compliance; subject to such compliance there will be waiver and stay in respect of the penalties and the balance CENVAT credit and interest; prima facie entitlement allowed upto 31/03/2008 and prima facie disallowed from 01/04/2008.

Benefit of Notification No.4/2006-CE (Sl. No.1A) - prima facie case - stay and waiver - Prima facie entitlement to benefit of Notification No.4/2006-CE (Sl. No.1A) on a similar factual matrix; stay and waiver granted in the appeal. - HELD THAT: - On the question whether the assessee was entitled to the benefit of Notification No.4/2006-CE (Sl. No.1A), the Bench found a prima facie case in favour of the appellant relying on this Tribunal's earlier decision in CCE, Hyderabad-III Vs. Sagar Cements Ltd. and noting that a civil appeal by the Department against that decision was dismissed by the apex court (CCE, Hyderabad Vs. Sagar Cements Ltd. ). In view of these precedents and on a prima facie assessment, the appellant's challenge to the demand and accompanying penalties succeeds for stay purposes. [Paras 4]

Waiver and stay granted in appeal No.E/2909/2012 in respect of the impugned demand and penalties.

Final Conclusion: Predeposit of Rs.1 crore directed in appeal No.E/2908/2012 with conditional waiver and stay of penalties and balance CENVAT credit/interest on compliance; prima facie CENVAT credit allowed upto 31/03/2008 but prima facie disallowed from 01/04/2008. In appeal No.E/2909/2012, waiver and stay granted on the basis of a prima facie entitlement to the benefit of Notification No.4/2006-CE (Sl. No.1A).

Pre-deposit requirement - stay and waiver of pre-deposit - remand for disposal on merits - extended period of limitation - suppression of facts - compliance with Section 35F

Pre-deposit requirement - stay and waiver of pre-deposit - compliance with Section 35F - Whether the appellant should be granted waiver of the pre-deposit and stay of recovery so that the appeal may be finally disposed of by remand to the lower appellate authority. - HELD THAT: - The Tribunal examined the appellant's plea for waiver of the pre-deposit and stay of recovery in respect of the demand and penalty arising from disallowance of CENVAT credit. The show-cause notice invoked the extended period of limitation on grounds of alleged suppression. The Tribunal recorded that it was not impressed with the appellant's limitation plea and noted that the lower appellate authority had dismissed the appeal for non-compliance with the deposit direction under Section 35F. Balancing the appellant's financial hardship plea and the departmental contention, the Tribunal dispensed with the usual pre-deposit formalities for admission, took the appeal on file and directed a limited pre-deposit of Rs. 2,00,000/-, to be made by the appellant within six weeks. On compliance, the Tribunal directed the Commissioner (Appeals) to take up and dispose of the appellant's appeal against the Order-in-Original on merits in accordance with law and principles of natural justice, without insisting on any further pre-deposit.

Pre-deposit dispensed for admission; appeal remanded to Commissioner (Appeals) for disposal on merits subject to a limited pre-deposit of Rs. 2,00,000/- by the appellant within six weeks, and on compliance the appellate authority to finally dispose the appeal without further pre-deposit.

Extended period of limitation - suppression of facts - remand for disposal on merits - Whether the merits of the denial of CENVAT credit (on the ground that inputs were used for structural support rather than fabrication of capital goods) are to be adjudicated by the Commissioner (Appeals). - HELD THAT: - The Tribunal did not decide the substantive question whether the MS Angles, Channels and H.R. Plates qualified for CENVAT credit. Noting that the demand was raised invoking extended limitation on alleged suppression and that the lower authority had not proceeded to decide the appeal on merits due to non-deposit, the Tribunal set aside the impugned order and remanded the matter to the Commissioner (Appeals) for final adjudication on merits. The remand was conditional upon the appellant making the specified pre-deposit; thereafter the Commissioner (Appeals) must proceed in accordance with law and principles of natural justice.

Substantive dispute on entitlement to CENVAT credit remanded to Commissioner (Appeals) for adjudication on merits, subject to the appellant's compliance with the limited pre-deposit direction.

Final Conclusion: The Tribunal set aside the impugned order, disposed of the stay application, admitted the appeal after dispensing with initial pre-deposit formalities, and remanded the matter to the Commissioner (Appeals) for final disposal on merits subject to the appellant depositing Rs. 2,00,000/- within six weeks; on compliance the Commissioner (Appeals) shall decide the appeal in accordance with law and principles of natural justice without insisting on any further pre-deposit.

Unjust enrichment - refund of excess duty paid - reversal of cenvat credit - effect of credit note/debit note on passing of burden - burden of duty having been passed on to purchaser or ultimate consumer - Special Additional Duty (SAD) on EOU clearances to DTA where VAT/CST is paid

Unjust enrichment - reversal of cenvat credit - refund of excess duty paid - effect of credit note/debit note on passing of burden - Whether the respondent's refund claim of excess SAD is barred by unjust enrichment - HELD THAT: - The Tribunal found that the respondent was not liable to pay 4% SAD on the DTA clearances where VAT/CST was charged. The respondent informed its purchaser, who reversed the cenvat credit wrongly availed by them and deposited the reversed amount with interest into their PLA, and the respondent issued a credit note reflecting reversal to its purchaser. There is no dispute that the purchaser has not paid the amount to the respondent. On these facts the Tribunal held that the respondent has not been unjustly enriched. The Revenue's contention that the purchaser may have passed the burden to its own buyers was treated as speculative: if the purchaser had not paid the respondent, it could not have treated the amount as charged in its profit and loss account. The Tribunal further relied on the principle sanctioned by the High Court in A.K. Spintex Ltd. that the mere possibility of passing on the burden cannot substitute for evidence; where an assessee establishes that the burden was not passed on or has been reversed, refund cannot be denied. The Tribunal observed that the Revenue retains the onus to rebut documentary or other evidence of reversal and that issuance of credit/debit notes is not to be disregarded as merely a paper transaction absent probative rebuttal by the Revenue. [Paras 6, 7, 8, 9, 10]

Findings of the first appellate authority that there is no unjust enrichment are upheld; the refund claim is maintainable and the Revenue's appeal is rejected.

Final Conclusion: The impugned order allowing the respondent's refund claim of excess SAD is affirmed on the ground that the purchaser reversed the wrongly availed cenvat credit (with interest) and did not pay the amount to the respondent, thereby negating unjust enrichment; Revenue's appeal dismissed.

Limitation period - extended period of limitation - small scale exemption / benefit of exemption notification - suppression or mis-statement - show cause notice

Limitation period - extended period of limitation - suppression or mis-statement - show cause notice - Whether the demand confirmed by denying benefit of the small scale exemption notification is barred by limitation. - HELD THAT: - The Tribunal found that the assessee had filed declarations for the financial year 2003-2004 (dated 14.4.2004) disclosing the total value of clearances of both dutiable and exempted final products, which together exceeded the Rs.3 crore threshold. Those disclosures rendered it clear that the assessee was not entitled to the exemption in the subsequent year. In view of this disclosure there was no suppression or mis-statement warranting invocation of the extended period of limitation. The show cause notice was issued on 5.4.2006, which is beyond the normal limitation period and, absent any suppression, the extended period could not be invoked. Consequently the demand confirmed by the Commissioner is time-barred. [Paras 3]

Demand is barred by limitation; impugned order set aside and appeals allowed on the ground of limitation.

Final Conclusion: The Tribunal allowed the appeals and set aside the impugned order as the demand confirmed by denying the small scale exemption is time-barred, there being no suppression or mis-statement to attract the extended period of limitation.

Reduced penalty under proviso to Section 11AC - payment of duty before issuance of show cause notice - option to pay reduced penalty within 30 days of adjudication - penalty under Rule 26 of the Central Excise Rules, 2002 - clandestine removal without payment of duty

Reduced penalty under proviso to Section 11AC - payment of duty before issuance of show cause notice - option to pay reduced penalty within 30 days of adjudication - entitlement of the appellant to the benefit of the proviso to Section 11AC where the duty was paid before issue of the show cause notice but the adjudication order did not offer the option to pay the reduced penalty within 30 days - HELD THAT: - The appellant had deposited the entire duty attributable to the cigarettes found short before issue of the show cause notice. The adjudication order confirmed the duty and imposed penalty under Section 11AC but did not give the appellant the statutory option to pay reduced penalty (25% of duty) within 30 days of the adjudication order. The Tribunal applied the principles in earlier High Court decisions relied upon by the appellant (K.P. Pouches Pvt. Ltd. , CCE, Rohtak v. J.R. Fabrics Pvt. Ltd. , CCE, Surat II v. Gopal Fibres Pvt. Ltd. and CCE, Ahmedabad II v. Prem Fabricators ) and held that where duty has been paid before issue of show cause notice and the adjudication order fails to offer the statutory option, the benefit of the proviso cannot be denied. Accordingly, the penalty originally imposed under Section 11AC was reduced to 25% of the duty confirmed. [Paras 6]

Penalty under Section 11AC on the appellant reduced to 25% of the duty amount confirmed.

Penalty under Rule 26 of the Central Excise Rules, 2002 - clandestine removal without payment of duty - admission on the spot - whether penalty under Rule 26 is attracted against the General Manager and, if so, the appropriate quantum of penalty - HELD THAT: - The General Manager, Shri V.P. Singh, in his recorded statement admitted that the cigarettes found short had been clandestinely removed. The Tribunal found that this admission brings the case within the scope of Rule 26, thereby attracting personal penalty on the officer. However, having regard to his status as a salaried employee and considering proportionality in imposing punishment, the Tribunal held that the amount of penalty originally imposed was excessive. The Tribunal therefore exercised its power to moderate the quantum and reduced the penalty leviable on the General Manager from the amount imposed by the adjudicating authority to a lesser sum. [Paras 7]

Penalty under Rule 26 is sustained against the General Manager but reduced to a moderated amount of Rs. 5,000.

Final Conclusion: The impugned adjudication order is modified: the penalty under Section 11AC on the appellant is reduced to 25% of the confirmed duty (appellant having paid duty before show cause notice and not being offered the 30 day option), and the penalty on the General Manager under Rule 26 is sustained but reduced to Rs. 5,000.

Validity of delegated subordinate legislation issued by the Commissioner - power of State Government to prescribe forms under rule making power - Delegatus non potest delegare - machinery provisions v. charging provisions in fiscal statutes - rebuttable presumption of sale in absence of prescribed transit documents - implied sub delegation - principle of liberal construction of machinery provisions to prevent frustration of tax charge

Validity of delegated subordinate legislation issued by the Commissioner - power of State Government to prescribe forms under rule making power - Delegatus non potest delegare - implied sub delegation - Validity of the Commissioner prescribing a transit declaration form under Rule 58 and whether such prescription amounts to unlawful sub delegation by the State Government. - HELD THAT: - The Court examined section 52 (as amended), section 79 and Rule 58, and the rules permitting the Commissioner to issue instructions and determine documents and procedure. Rule 58, made by the State Government, expressly envisages that documents and procedure may be determined by general or special order of the Commissioner; Rule 77 and Rule 78 show continuity and adaptation of pre existing forms and use of departmental forms. The maxim 'Delegatus non potest delegare' does not operate as an absolute prohibition; the Court applied authorities and recognised that sub delegation may be permissible where the statute, its purpose, or necessary implication allows it. Given the legislative history (abolition of check posts) and the character of the provision as a machinery provision aimed at preventing tax evasion, the Court held that the Commissioner's circular prescribing a downloadable transit form falls within the rule making power and the delegated authority to determine procedure and documents, and is not vitiated as unlawful delegation.

Rule 58 and the Commissioner's prescription of the transit declaration form are valid and do not amount to impermissible sub delegation.

Machinery provisions v. charging provisions in fiscal statutes - principle of liberal construction of machinery provisions to prevent frustration of tax charge - Whether the principle that an act required to be done in a particular manner must be done only in that manner applies to the prescription of forms in the present case. - HELD THAT: - The Court distinguished the decision relied upon by the petitioner where a different statutory scheme and absence of rule making power rendered a Commissioner's form ineffective. Here Rule 58 expressly empowers the Commissioner to determine documents and procedure; the impugned requirement is a machinery device enacted to prevent evasion and to facilitate proof that goods are merely in transit. The Court reiterated the established distinction that machinery provisions are to be construed liberally and with a view to effectuating the statute's purpose, and therefore the strict rule invoked by the petitioner was inapplicable.

The contention that the thing had to be done only in the particular manner urged by the petitioner is not attracted; the Commissioner's procedure under Rule 58 is permissible.

Rebuttable presumption of sale in absence of prescribed transit documents - validity of seizure and release conditions - Whether the seizure of the consignment and the requirement of security for release were sustainable on merits. - HELD THAT: - On the material before the authorities the only default found was absence of the downloadable transit pass; other documents were present and the consignor and consignee details and nature of goods did not indicate intent to evade tax. The statutory presumption of sale in absence of prescribed documents is rebuttable. The Tribunal and subordinate authorities had not recorded any finding of intention to evade tax. Applying the principle that a rebuttable presumption can be displaced by available documents and facts, the Court found the seizure order (and consequent directions fixing security) to be unsustainable. Consequently any security furnished was to be discharged and any cash deposited to be refunded.

Seizure order and consequential orders are quashed; security (bank guarantee) discharged and cash security, if any, to be refunded.

Final Conclusion: The writ petition is allowed. The Court upheld the validity of Rule 58 and the Commissioner's prescription of a downloadable transit declaration form, rejected the petitioner's contention based on absolute non delegation and on the requirement to perform acts only in a single prescribed manner, but set aside the seizure order and all consequential orders on merits because the statutory presumption was rebutted; securities furnished are to be discharged and deposited cash refunded. No order as to costs.

Zero rating and entitlement to input tax refund - Input tax credit refund to dealer who paid tax on purchases - Restriction or suo-motu adjustment of refund by Revenue where purchaser paid higher tax - Liability of seller for charging tax in excess and remedy against seller - Interpretation of Section 18(2) of the TNVAT Act regarding refund to dealer who paid input tax

Zero rating and entitlement to input tax refund - Input tax credit refund to dealer who paid tax on purchases - Interpretation of Section 18(2) of the TNVAT Act regarding refund to dealer who paid input tax - Whether the petitioner, a purchasing dealer making zero rated sales, is entitled to full refund of input tax paid at 12.5% on capital goods used in manufacture of exported goods despite the actual tax rate being 4% - HELD THAT: - The Court examined Section 18(1) and (2) of the TNVAT Act and held that a dealer who makes zero rated sales is entitled to refund of input tax paid or payable on purchases used in export. The choice of adjustment lies with the assessee and Revenue cannot suo-motu adjust or restrict a refund claim where the purchaser proves payment of tax at the higher rate. Where the purchaser shows it paid tax (here 12.5%) and the seller has reported collection, the proper course is to proceed against the seller for charging an unsustainable rate; this does not justify denying or reducing the purchaser's refund. The Court rejected the Department's contention that refund must be made only to the remitter to the Government, holding that Section 18(2) contemplates refund to the dealer who paid input tax on purchases used in export and must be given full effect. Applying these principles to the facts, the petitioner's claim for refund could not be restricted to 4% and had to be allowed in full. [Paras 6, 7, 8, 10, 11]

The petitioner's claim for refund of input tax paid on specified purchases for zero rated sales is allowable in full; the impugned orders restricting the refund to 4% are set aside.

Final Conclusion: Writ petitions allowed to the extent of setting aside the orders that restricted the petitioner's refund claim; the petitioner is entitled to refund of the input tax paid on purchases used in the manufacture of exported goods, and the impugned orders are quashed. No costs.