TaxTMI Updates e-Newsletter
Jun 18,2019

Eligibility for input tax credit - plant and machinery - pipelines laid outside the factory premises (exclusion) - factory (definition and applicability to FSRU) - strict construction of taxing statutes

Factory (definition and applicability to FSRU) - eligibility for input tax credit - Whether the Floating Storage Regasification Unit (FSRU) qualifies as a 'factory' for the purposes of the exclusion in the explanation to Section 17(5) - HELD THAT: - The Authority examined whether the manufacturing/production activity carried out on the FSRU (regasification of LNG) brings the FSRU within the concept of a 'factory' despite being a floating structure. Relying on the purposive understanding that a factory is an establishment devoted to manufacture and noting that production need not be confined to a land-based building, the Authority held that where a manufacturing process is carried on in a place (here the FSRU) with workers and production activity, that place can be treated as a factory. The Authority rejected the applicant's narrow contention that a 'factory' requires a land-based building, observing that definitions from other statutes and commercial usage (including recognized concept of 'factory ship') may be considered in absence of a definition in the GST enactment, and that law evolves with technology.

FSRU is to be treated as a 'factory' for the purposes of the explanation to Section 17(5).

Pipelines laid outside the factory premises (exclusion) - plant and machinery - Whether the tie-in pipeline is a 'pipeline laid outside the factory premises' and thus excluded from 'plant and machinery' under the explanation to Section 17(5) - HELD THAT: - Having held that the FSRU qualifies as a factory, the Authority considered whether the tie-in pipeline laid from the FSRU to the national grid falls within the exclusion clause 'pipelines laid outside the factory premises'. The Authority observed that the phrase contemplates pipelines that transport product from the manufacturing premises to users and that a pipeline connecting the factory (FSRU) to the national grid is precisely such a pipeline outside the factory. The Authority rejected the applicant's submission that the pipeline should be treated as 'plant and machinery' merely because it comprises equipment and instruments, noting that calling a structure a 'pipeline' should not be circumvented by selective dictionary meanings to convert every pipeline into 'apparatus' or 'machinery'.

The tie-in pipeline is a 'pipeline laid outside the factory premises' and thus falls within the exclusion in the explanation to Section 17(5).

Eligibility for input tax credit - strict construction of taxing statutes - Whether input tax credit (ITC) is available on goods and services used for construction of the tie-in pipeline - HELD THAT: - The Authority applied Sections 16 and 17(5) and the explanation thereto. Because the FSRU was held to be a factory and the tie-in pipeline was held to be a pipeline laid outside the factory premises, the pipeline does not qualify as 'plant and machinery' for the purposes of Sections 17(5)(c) and 17(5)(d). The Authority further observed that the restriction on ITC in a taxing statute must be given effect and that the applicant's attempts to expand 'plant and machinery' to include the pipeline were not tenable in light of the exclusion. Consequently, the statutory bar on ITC for construction of immovable property (other than plant and machinery) applies.

ITC is not available on goods and services used for construction of the tie-in pipeline.

Final Conclusion: The Authority rules that the FSRU constitutes a 'factory', the tie-in pipeline is a 'pipeline laid outside the factory premises' (and not 'plant and machinery'), and therefore the applicants are not eligible to claim input tax credit on goods and services used for construction of the tie-in pipeline.

Attachment of immovable property - certificate to Tax Recovery Officer - Rule 11 investigation - attachment under Rule 48 of the Second Schedule - Article 226 supervisory jurisdiction - alternative remedy - bona fide purchaser for value - voidness of transfer under Section 281

Article 226 supervisory jurisdiction - alternative remedy - Rule 11 investigation - Maintainability of writ petitions under Article 226 when the Second Schedule provides a specific remedy by way of claim and investigation under Rule 11. - HELD THAT: - The Court held that the statutory procedure under the Second Schedule, specifically Rule 11, provides the appropriate remedy where a person objects to attachment or sale of property as not liable to such attachment. Notices of attachment issued under Rule 48 are preliminary and invite objection; final orders follow Rule 11 inquiry. Given this alternative statutory mechanism, the High Court's jurisdiction under Article 226 is supervisory and not to be used to pre-empt the Rule 11 process unless there is a total absence of jurisdiction. Relying on authority and the scheme of Sections 221-222 and the Second Schedule, the Court concluded the writs were premature and not maintainable, and the petitioners must first invoke the claim procedure under Rule 11 so that the Tax Recovery Officer can investigate the asserted title and possession issues. [Paras 25, 26, 27, 28, 29]

Writ petitions are not maintainable; petitioners must avail the remedy under Rule 11 of the Second Schedule before approaching the High Court.

Rule 11 investigation - attachment of immovable property - attachment under Rule 48 of the Second Schedule - Procedural direction to file claim and for the Tax Recovery Officer to investigate the claim under Rule 11. - HELD THAT: - Although the petitions were held not maintainable, the Court granted the petitioners a limited, procedural relief by directing them to file claims under Rule 11(1) within four weeks. On filing such claim, the Tax Recovery Officer is directed to investigate the objection in accordance with the statutory procedure and decide whether the property was, on the relevant date, in the possession of the defaulter or of a person in trust for him, or otherwise liable to attachment. The Court observed that interlocutory notices under Rule 48 do not preclude a Rule 11 inquiry and that the statutory scheme contemplates such investigation before final enforcement steps. [Paras 28, 30]

Petitioners to file claims under Rule 11 within four weeks; Tax Recovery Officer to investigate and decide the claims in accordance with law.

Final Conclusion: Writ petitions dismissed as not maintainable for being premature; petitioners directed to invoke Rule 11 of the Second Schedule within four weeks and the Tax Recovery Officer directed to investigate the claims in accordance with statutory procedure; earlier interim relief vacated and no order as to costs.

Disallowance of employees' contributions under the Income-tax Act (section 36(1)(va)) - time-limit for deposit of employees' provident fund and ESI contributions - interpretation of 'within fifteen days of the close of every month' in Section 38 of the Employees' Provident Funds Act, 1952 - liability to deduct employee's contribution arises before payment of wages - effect of delayed deposit on tax deductibility of employees' contributions

Disallowance of employees' contributions under the Income-tax Act (section 36(1)(va)) - effect of delayed deposit on tax deductibility of employees' contributions - Late deposit of employees' contributions to PF/ESI results in disallowance of the deducted amount under section 36(1)(va) of the Income-tax Act. - HELD THAT: - The Tribunal's disallowance was upheld as governed by precedent of the Division Bench in Commissioner of Income Tax v. Gujarat State Road Transport Corporation. Section 36(1)(va) permits deduction only where the employee's contribution, though deducted by the employer, is credited to the relevant fund on or before the due date. The Assessing Officer applied the statutory time-limit (as understood, including any statutory grace) and disallowed amounts where deposits were made after that date. The High Court in the coordinate decision has treated delayed deposits beyond the prescribed due date as disentitling the assessee from deduction under section 36(1)(va). The present appeal is covered by that authority and the disallowance stands upheld.

The disallowance of late-deposited PF/ESI contributions under section 36(1)(va) is sustained.

Interpretation of 'within fifteen days of the close of every month' in Section 38 of the Employees' Provident Funds Act, 1952 - liability to deduct employee's contribution arises before payment of wages - The due date for deposit under Section 38 is tied to the month in which wages are payable; the employer's liability to deduct and deposit arises with the wage period and does not get deferred merely because wages are paid in the subsequent month. - HELD THAT: - Section 38 requires that the employer, before paying wages, deduct the employee's contribution and shall pay the amount to the fund within fifteen days of the close of every month. The expression 'within fifteen days of the close of every month' refers to the month for which wages are payable (i.e., the month during which the duty to deduct arises), not to a later month merely because salary is actually disbursed thereafter. Consequently, paying wages in the following month does not extend the statutory time-limit for depositing employees' contributions. The coordinate Bench so held and the present appeal is bound by that reasoning.

The employer cannot treat payment of wages in the subsequent month as shifting the due date for depositing employees' contributions; the statutory time-limit remains tied to the wage-period.

Final Conclusion: Both substantial questions were found to be covered by the coordinate bench decision in M/s Checkmate Facility and Electronic Solutions Pvt. Ltd.; the appeal is dismissed and the Tribunal's and CIT(A)'s orders are affirmed.

Section 281 - Certain transfers to be void - proviso (i) to Section 281 - attachment under rule 48 of the Second Schedule - notice under rule 2 of the Second Schedule - bonafide purchaser for value without notice - stay on coercive steps pending adjudication

Section 281 - Certain transfers to be void - proviso (i) to Section 281 - notice under rule 2 of the Second Schedule - bonafide purchaser for value without notice - Whether the purchase by the writ applicant of the attached immovable property is protected by proviso (i) to Section 281 and therefore not void as against the Department's claim - HELD THAT: - The Court recorded that reliance on proviso (i) requires the writ applicant to demonstrate that the transfer was for adequate consideration and was made without notice of the pendency of proceedings or of the tax demand, and that the transfer occurred before service of notice under rule 2 of the Second Schedule. The Court did not adjudicate these factual and evidentiary questions on merits; instead the Court directed the writ applicant to appear before the Tax Recovery Officer, adduce necessary evidence, and make good his case for discharging the notice/communication dated 27.03.2019. The authority was directed to hear the writ applicant and pass appropriate order in accordance with law. [Paras 6, 7]

Remitted to the Tax Recovery Officer for fresh consideration: the writ applicant to prove applicability of proviso (i) to Section 281 by adducing evidence; authority to hear and decide in accordance with law.

Attachment under rule 48 of the Second Schedule - stay on coercive steps pending adjudication - Validity and immediate enforceability of the communication dated 27.03.2019 directing surrender of possession of the property pending adjudication - HELD THAT: - The Court noted the communication directing the writ applicant to vacate the property and observed that the writ applicant had not yet responded to that communication. While leaving the question of the communication's ultimate validity to the authority to decide after hearing, the Court directed that the authority should not take any coercive steps against the writ applicant until completion of the exercise of hearing and decision as directed. [Paras 4, 7]

Interim protection granted: respondents restrained from taking coercive steps against the writ applicant until the Tax Recovery Officer concludes the hearing and passes a decision.

Final Conclusion: Writ petition disposed of by directing the writ applicant to appear before the Tax Recovery Officer and adduce evidence to establish applicability of proviso (i) to Section 281; the Tax Recovery Officer to hear and decide in accordance with law; respondents restrained from taking coercive action against the petitioner pending completion of that process.

Deduction under section 80IB(10) as developer of a housing project - developer versus contractor distinction - eligibility for deduction where project approval or land title is not in assessee's name - precedential effect of coordinate-bench decisions and binding value of Judicial precedents

Deduction under section 80IB(10) as developer of a housing project - developer versus contractor distinction - eligibility for deduction where project approval or land title is not in assessee's name - precedential effect of coordinate-bench decisions and binding value of Judicial precedents - Assessee entitled to claim deduction under section 80IB(10) for the assessment years in question and the Assessing Officer's disallowance was erroneous. - HELD THAT: - The Tribunal and the Commissioner (Appeals) found that on the facts the assessee was carrying on housing development activity and fulfilled the requirements for claiming the deduction, notwithstanding that land title or project approval was not in the assessee's name or that parts of construction were executed by purchasers through separate contracts. The authorities relied on coordinate-bench decisions (including Narayan Reality Ltd. and earlier orders in assessee's own case) and the Division Bench authorities of this Court (including Radhe Developers) which held that undertaking development at one's risk and cost, and receiving consideration for development, suffices to treat the assessee as developer for section 80IB(10). Revenue failed to point out any distinguishing features to take the present case outside those precedents. Consequently the Assessing Officer's rejection of the claim was held unsustainable and the additions were deleted. [Paras 4, 6]

Appeal dismissed; deduction under section 80IB(10) allowed and additions deleted for AYs 2010-11, 2011-12 and 2012-13.

Final Conclusion: The Revenue's appeal is dismissed. The assessments for AYs 2010-11, 2011-12 and 2012-13 stand confirmed in favour of the assessee on the question of eligibility for deduction under section 80IB(10), the Assessing Officer's disallowance being held to be without merit.

Immunity from penalty under Section 271AAA where admission, specification of manner, substantiation and payment of tax and interest are satisfied - Admissibility and effect of statement recorded under Section 132(4) as admission of undisclosed income - Obligation on Assessing Officer to elicit manner of derivation and consequences of failure to do so - Payment of tax and interest before completion of assessment sufficient for clause (iii) of Section 271AAA(2) - Concurrent findings of fact by Tribunal and appellate authority entitled to finality where covered by binding precedent

Immunity from penalty under Section 271AAA where admission, specification of manner, substantiation and payment of tax and interest are satisfied - Admissibility and effect of statement recorded under Section 132(4) as admission of undisclosed income - The conditions in sub section (2) of Section 271AAA were fulfilled and therefore sub section (1) did not apply, justifying deletion of penalty. - HELD THAT: - The High Court noted that the CIT(A) and the Tribunal recorded concurrent findings that the undisclosed income was admitted in the statement recorded under Section 132(4), that the statement and seized diary identified the manner of earning (net taxable income from projects/receivables) and that the Assessing Officer accepted the undisclosed income in the assessment. On these concurrent findings, and applying the legal test in Mahendra C. Shah (as followed by the Tribunal), the three conditions of Section 271AAA(2) were held to be satisfied. Where the statutory conditions for immunity are found to be fulfilled on the material, the penalty under sub section (1) does not apply and the deletion by the CIT(A) and confirmation by the Tribunal were upheld. [Paras 3, 4]

The Court upheld the concurrent finding that the conditions of Section 271AAA(2) were fulfilled and thus the penalty was not leviable.

Payment of tax and interest before completion of assessment sufficient for clause (iii) of Section 271AAA(2) - Payment of tax together with interest, though made after filing the return but before completion of assessment, satisfied clause (iii) of Section 271AAA(2). - HELD THAT: - The Tribunal found, and the High Court accepted, that tax and interest in respect of the disclosed undisclosed income were paid prior to finalization of the assessment. Relying on binding precedent (including Mahendra C. Shah and authorities cited by the Tribunal), the Court recorded that payment made before completion of assessment falls within the outer limit contemplated by clause (iii) and qualifies the assessee for immunity from penalty under Section 271AAA(2). [Paras 3, 4]

Payment of tax and interest before assessment completion satisfied clause (iii) and supported deletion of the penalty.

Obligation on Assessing Officer to elicit manner of derivation and consequences of failure to do so - Where the Authorised Officer did not specifically ask the assessee to specify or substantiate the manner of derivation during recording of the Section 132(4) statement, the assessee could not be faulted for not providing further particulars and the failure did not defeat immunity under Section 271AAA(2). - HELD THAT: - The Tribunal recorded that the authorised officer did not elicit the manner of derivation or require substantiation at the time of recording the Section 132(4) statement; the assessee, however, in the statement and through seized diary explained that entries represented net taxable income from projects (receivables). The High Court accepted the view that where the authorised officer has not put specific questions about manner and substantiation, the assessee is not expected to volunteer additional specification beyond the statement and seized material, and on the material before the authorities the condition of specification and substantiation was treated as satisfied. [Paras 3, 4]

The Court held that absence of specific questioning by the Authorised Officer did not preclude satisfaction of the specification/substantiation requirement for immunity.

Final Conclusion: The High Court dismissed the Revenue's appeal, upholding the concurrent findings of the CIT(A) and the Tribunal that the requirements of Section 271AAA(2) were satisfied (admission in Section 132(4) statement, specification/substantiation of manner of derivation on the material, and payment of tax with interest before assessment completion) and accordingly affirmed deletion of the penalty.

Disallowance of depreciation under section 32(1) - Disallowance of foreign exchange fluctuation gain - Substantial question of law

Disallowance of depreciation under section 32(1) - Substantial question of law - Admission of the appeal and formulation of a substantial question of law concerning disallowance of depreciation on software - HELD THAT: - The Court admitted the appeal only insofar as it challenged the Appellate Tribunal's upholding of the CIT(A)'s disallowance of depreciation claimed on software. Having noted that the identical question is already pending in Tax Appeal No.1319 of 2018 involving the same assessee, the Court framed the following substantial question of law for consideration: whether the Tribunal erred in upholding the CIT(A)'s disallowance of depreciation under section 32(1) on addition of software. The appeal is directed to be heard along with Tax Appeal No.1319 of 2018 for final adjudication of this substantial question. [Paras 3, 4]

Appeal admitted and substantial question of law framed; matter to be heard with Tax Appeal No.1319 of 2018 for final adjudication.

Disallowance of foreign exchange fluctuation gain - Disposition of the challenge to disallowance of foreign exchange fluctuation gain - HELD THAT: - The Court examined the second question relating to the disallowance of foreign exchange fluctuation gain and found no substance in the challenge. The Court held that this question is squarely covered by the decision in Commissioner of Income Tax v. Priyanka Gems and, on that basis, dismissed the appeal insofar as it related to the disallowance of foreign exchange fluctuation gain. [Paras 3, 5]

Appeal dismissed qua the question on disallowance of foreign exchange fluctuation gain.

Final Conclusion: The appeal is admitted and a substantial question of law is framed for determination on the disallowance of depreciation on software; that issue will be heard together with Tax Appeal No.1319 of 2018. The challenge to disallowance of foreign exchange fluctuation gain is dismissed as covered by precedent.

Validity of reassessment under Section 147 (reopening of assessment) - Change of opinion - Reason to believe / escapement of income - Disallowance under Section 36(1)(iii) - diversion of loans for non business purposes - Concurrent findings of fact and appellate restraint

Validity of reassessment under Section 147 (reopening of assessment) - Change of opinion - Reason to believe / escapement of income - Concurrent findings of fact and appellate restraint - Reassessment proceedings under Section 147 were valid and the reopening was not a mere change of opinion; concurrent factual findings giving rise to reason to believe were sustainable. - HELD THAT: - The High Court reviewed the sequence of proceedings leading to issue of notice under Section 148 and the manner in which the assessing officer and the CIT(A) recorded reasons to believe escapement of income. The Court noted there was no completed assessment under Section 143(3), so the proviso to Section 147 protecting against change of opinion was not attracted. The Tribunal and CIT(A) conducted factual appraisal - including increases in investments, share application money, unsecured borrowings and the manner of deployment to group concerns - and reached concurrent findings that justified reopening. Having regard to the concurrent findings on the material placed before the authorities, the Court held that there was no legal infirmity in the reassessment and that appellate interference with concurrent factual conclusions was not warranted. [Paras 7, 8]

The reopening under Section 147 was valid and the reassessment was upheld; no substantial question of law arises from the challenge to reopening.

Disallowance under Section 36(1)(iii) - diversion of loans for non business purposes - Concurrent findings of fact and appellate restraint - Disallowance of claimed interest income deduction under Section 36(1)(iii) was sustainable as loans were found to be diverted as interest free advances for non business purposes. - HELD THAT: - On the facts examined by the assessing officer, the CIT(A) and the Tribunal, the pattern of transactions showed that fresh investments and share application monies were insufficient to account for the increase in investments, with unsecured loans being advanced and subsequently diverted to group companies as interest free loans. The authorities found the loans were not for the assessee's business and that the claimed interest deduction was not allowable. The High Court held that these concurrent factual conclusions, based on appraisal of financial statements and the management pattern, could not be disturbed in an appeal under Section 260A. [Paras 6, 7, 8]

Disallowance of the interest claim was upheld on the basis that loans were diverted for non business purposes; no substantial question of law arises from this challenge.

Final Conclusion: Concurrent factual findings recorded by the assessing officer, CIT(A) and Tribunal justified the reassessment and the disallowance of the interest claim; no substantial question of law arises and the appeal is dismissed.

Binding effect of a prior High Court decision in the same cause - entitlement to deduction under Section 80IB - deductibility under Section 43B contingent on actual payment - prejudice as prerequisite to establish violation of principles of natural justice

Binding effect of a prior High Court decision in the same cause - entitlement to deduction under Section 80IB - deductibility under Section 43B contingent on actual payment - prejudice as prerequisite to establish violation of principles of natural justice - Whether the Income Tax Appellate Tribunal was correct in following the High Court's earlier decision in the assessee's own case instead of re examining the merits while Special Leave Petitions were pending before the Supreme Court, in respect of the assessment year 2010-11. - HELD THAT: - The Division Bench observed that the Tribunal's decision to follow this Court's earlier judgment in the assessee's own appeals (deciding questions on claim under Section 80IB, claim under Section 43B and alleged violation of natural justice) covered the controversy in the present appeal. The earlier judgment had held that the assessee's activity amounted to manufacture for purposes of entitlement under Section 80IB, that the assessee had availed CENVAT credit and paid excise duty supporting the claim under Section 43B, and that absence of the former employee for cross examination had not caused prejudice so as to frustrate natural justice. Because those substantial questions were answered in favour of the assessee by this Court, the Tribunal was justified in following that binding decision in disposing of the Revenue's appeal for AY 2010 11. Consequently, the Revenue's substantial question of law raised in the present appeal was answered against the Revenue and the appeal was dismissed. [Paras 6]

Revenue's appeal is dismissed as covered by this Court's earlier decision; the substantial question of law is answered against the Revenue.

Final Conclusion: The Revenue's appeal under Section 260A for assessment year 2010-11 is dismissed because the Tribunal lawfully followed this Court's earlier decision in the assessee's own case, which had decided the determinative questions in favour of the assessee.

Reopening of assessment beyond four years under the first proviso to section 147 - failure to disclose fully and truly all material facts - escaped income - change of opinion - reasons recorded must correspond with material on record

Reopening of assessment beyond four years under the first proviso to section 147 - failure to disclose fully and truly all material facts - escaped income - reasons recorded must correspond with material on record - Reopening of assessment for assessment year 2011-12 by notice dated 28.3.2018 was valid only if there was a failure to disclose fully and truly all material facts; whether such failure existed in the present case. - HELD THAT: - The Assessing Officer relied on information of cash seizure by the Dhule Police and recorded a belief that Rs. 46,00,000 seized from the petitioner was not reflected in the books and thus income had escaped assessment. The record, however, shows the petitioner had disclosed the Rs. 46,00,000 in the schedule to the balance sheet (Loans & Advances/Deposits) and, during scrutiny, the Assessing Officer issued notices under section 142(1) calling for details which the petitioner furnished. The assessment order does not make any addition in respect of that amount. The reasons recorded therefore contradict the material on record; there was no failure by the petitioner to disclose fully and truly all material facts necessary for assessment. In the absence of such failure, reopening beyond four years is barred by the proviso and the assumption of jurisdiction is invalid. [Paras 8, 9, 10, 11]

Reopening the assessment beyond four years was invalid as the amount alleged to be undisclosed was in fact shown in the books and the reasons recorded are contrary to the record.

Change of opinion - reopening of assessment beyond four years under the first proviso to section 147 - Whether reopening the assessment amounted to a permissible exercise of jurisdiction or was impermissibly based on a mere change of opinion. - HELD THAT: - The Assessing Officer had considered the issue of the seized cash during the original scrutiny assessment, called for documents and explanations, and ultimately did not make any addition in respect of the Rs. 46,00,000. The subsequent notice to reopen the assessment therefore reflects a reassessment based on a different view of the same material rather than new material or a failure to disclose. Reopening an assessment on the basis of a mere change of opinion is impermissible; consequently the assumption of jurisdiction is bad in law. [Paras 12]

Reopening the assessment represented a mere change of opinion and is therefore invalid.

Final Conclusion: The petition is allowed; the notice dated 28.3.2018 under section 148 and all proceedings pursuant thereto are quashed and set aside.

Section 153C of the Income Tax Act - search under section 132 - trigger date for applicability of assessment provisions - machinery provision - prospective versus retrospective operation of legislation - maintainability of writ under Article 226 where proceedings are wholly without jurisdiction - time-limit for assessment under section 153B proviso - satisfaction note - timing and requirement (Calcutta Knitwears / CBDT guidance)

Maintainability of writ under Article 226 where proceedings are wholly without jurisdiction - Whether the batch of writ petitions challenging notices under section 153C are maintainable. - HELD THAT: - The court held the petitions are maintainable. Petitioners had replied to the notices, obtained satisfaction notes and had their objections rejected by Assessing Officers before approaching the High Court; the challenge therefore was not a premature collateral attack. Where proceedings are alleged to be wholly without jurisdiction the exception to the rule of alternative remedy applies and writ relief under Article 226 may be entertained. The court distinguished earlier authority relied on by the revenue where petitioners had not exhausted statutory remedies and concluded those precedents did not mandate non entertainment here. [Paras 18]

Petitions challenging notices under section 153C were held maintainable and entertained.

Section 153C of the Income Tax Act - search under section 132 - trigger date for applicability of assessment provisions - prospective versus retrospective operation of legislation - Whether the amendments to section 153C (effective 1.6.2015) apply to searches conducted before that date. - HELD THAT: - The court concluded that the trigger for operation of sections 153A/153C is the search under section 132 (or requisition under section 132A) and that the statutory provisions in force on the date of the search govern the rights and liabilities arising out of that search. Although sections 153A/153C are machinery provisions, the 2015 amendment widened the class of persons who could be subjected to proceedings (bringing within its sweep persons whose books/documents merely 'pertained to' or whose information 'related to' them) and thereby affected substantive rights. In that factual matrix the amendment, expressly made effective from 1.6.2015, could not be applied to searches carried out prior to 1.6.2015. Applying that principle to the facts, where searches were conducted before 1.6.2015 the Assessing Officer could not assume jurisdiction under the amended section 153C; consequently notices issued under the amended provision in respect of such searches were without jurisdiction. [Paras 19]

Amendment to section 153C effective 1.6.2015 does not apply to searches initiated before that date; notices issued under the amended section in respect of such searches were without jurisdiction.

Time-limit for assessment under section 153B proviso - satisfaction note - timing and requirement (Calcutta Knitwears / CBDT guidance) - machinery provision - Whether notices under section 153C were barred by limitation or vitiated by undue delay in recording satisfaction. - HELD THAT: - The court analysed limitation under section 153B(1) proviso and the jurisprudence on timing of the satisfaction note (Calcutta Knitwears and CBDT Circular No.24/2015). It observed the proviso to section 153B prescribes alternative computing periods (the clause (a)/(b) period or nine months from the end of the financial year in which seized material is handed over, whichever is later), so expiry of the first period alone does not automatically bar issuance. The court also noted the Supreme Court's guidance that a satisfaction note may be recorded at one of three stages, but found on the facts in HN Safal Group that the satisfaction by the searched person AO and by the other AO were not prepared 'immediately' after assessment as contemplated and involved long delays. However, because the court decided the petitions on the primary jurisdictional ground (inapplicability of the 2015 amendment to searches before 1.6.2015), it refrained from finally adjudicating the broader limitation/delay controversy and did not rest its order solely on limitation. [Paras 20]

Court declined to rest its decision on limitation or delay; having found lack of jurisdiction under the amended section 153C for pre-1.6.2015 searches, it did not finally determine or rely upon the limitation/delay objections.

Section 153A of the Income Tax Act - which assessment years are covered - Which assessment years fall within the six year window under section 153A for the searches in these groups of petitions. - HELD THAT: - The court reiterated that the six assessment years are computed with reference to the assessment year relevant to the previous year in which the search was conducted. Applying that rule, for searches on 4.9.2013 (HN Safal Group) the six assessment years are 2013-14, 2012-13, 2011-12, 2010-11, 2009-10 and 2008-09. For searches on 4.12.2014 and 13.3.2015 (Barter and Venus Groups) the six assessment years are 2014-15, 2013-14, 2012-13, 2011-12, 2010-11 and 2009-10. Notices purportedly issued for assessment years outside those respective six year windows are beyond jurisdiction. [Paras 21]

The court fixed the six assessment years for each group as above and held that any notices for years beyond those are beyond jurisdiction.

Final Conclusion: Writ petitions were allowed. As searches in these matters occurred before 1.6.2015 the amendment to section 153C (effective 1.6.2015) could not be applied to bring persons within its expanded scope; consequently the impugned notices issued under section 153C (and assessment orders based thereon) were quashed and set aside. No order as to costs.

Penalty under section 271(1)(c) - Defective show cause notice issued under section 274 - Requirement to specify whether concealment of particulars of income or furnishing inaccurate particulars is alleged - Invalidity of penalty imposed pursuant to non specific notice

Defective show cause notice issued under section 274 - Requirement to specify whether concealment of particulars of income or furnishing inaccurate particulars is alleged - Penalty under section 271(1)(c) - Invalidity of penalty imposed pursuant to non specific notice - The penalty imposed under section 271(1)(c) was invalid because the show cause notice under section 274 did not specify which of the two contraventions was alleged against the assessee. - HELD THAT: - The Tribunal examined the show cause notice and found that the Assessing Officer had not struck off the inapplicable portion and therefore had failed to specify whether the charge was concealment of particulars of income or furnishing inaccurate particulars thereof. The learned counsel relied on the decision of the Hon'ble Calcutta High Court in Pr. CIT vs Bijoy Kr. Agarwal , which upheld the Tribunal's conclusion that a penalty notice lacking specification of the precise charge is defective. The Tribunal also relied on the principle in Amrit Foods and on the decision in PCIT vs Dr. Murari Mohan Koley to the effect that a non specific notice does not sustain a penalty. Applying these precedents, the Tribunal concluded that initiation and confirmation of penalty proceedings pursuant to such a defective notice could not be sustained and hence the penalty warranted cancellation. [Paras 3]

Penalty imposed under section 271(1)(c) cancelled as the show cause notice under section 274 was defective for not specifying the exact charge.

Final Conclusion: The appeal is allowed and the penalty of the assessing officer confirmed by the Commissioner (Appeals) is set aside because the show cause notice did not specify whether concealment or furnishing of inaccurate particulars was alleged, rendering the penalty proceedings defective.

Allocation of interest and administrative expenses in relation to exempt dividend income under Rule 8D - deductibility of employer's provident fund contribution paid before filing return - business deductibility of foreign travel expenses and the assessee's evidentiary burden

Allocation of interest and administrative expenses in relation to exempt dividend income under Rule 8D - Validity of additions made under Rule 8D(2)(ii) and Rule 8D(2)(iii) in respect of expenditure relating to exempt dividend income. - HELD THAT: - The Assessing Officer made additions under Rule 8D(2)(ii) and (iii). The assessee had itself disallowed a part of administrative expenses and contended that investments were from own funds. The CIT(A) examined accounts, followed precedents and deleted the interest disallowance under Rule 8D(2)(ii), while upholding administrative-expense disallowance under Rule 8D(2)(iii) subject to netting the voluntary disallowance, restricting the disallowance to an identified lesser amount. The Tribunal found no infirmity in the CIT(A)'s approach and reasoning and upheld the CIT(A)'s deletions and restriction of disallowance, thereby dismissing the Revenue's ground challenging those findings. [Paras 4]

CIT(A)'s deletion of interest disallowance and limited confirmation of administrative-expense disallowance (after accounting for voluntary disallowance) is upheld; Revenue's Ground No.1 dismissed.

Deductibility of employer's provident fund contribution paid before filing return - Whether employer's contribution to provident fund, though not deposited by due date under the relevant statutory provision, is deductible when deposited before the due date for filing the return of income. - HELD THAT: - The Assessing Officer disallowed employer's PF contribution for late deposit. The CIT(A), following the jurisdictional High Court precedent, held that where contributions were deposited within the due date for filing the return under section 139(1), disallowance was not maintainable and directed deletion. The Tribunal found the CIT(A)'s reliance on the precedent and its conclusion justified and declined to interfere. [Paras 7]

CIT(A)'s deletion of the disallowance in respect of employer's PF contribution is upheld; Revenue's Ground No.2 dismissed.

Business deductibility of foreign travel expenses and the assessee's evidentiary burden - Whether foreign tour allowance and foreign tour expenses qualify as business expenditure in the absence of particulars identifying persons, purpose and supporting evidence. - HELD THAT: - The Assessing Officer sought details and supporting evidence regarding foreign exchange utilization, identity of travellers and business purpose; the assessee failed to produce such evidence before the AO and the appellate authority. The CIT(A) deleted the disallowance without recordingspecific findings or verification of books of account. The Tribunal held that where there is no evidence before any authority to substantiate the business character of the foreign travel expenses, the AO's disallowance cannot be set aside; accordingly the CIT(A)'s order deleting the disallowance was not sustainable and was set aside, and the AO's disallowance in respect of foreign tour allowance and foreign tour expenses was restored. [Paras 9]

CIT(A)'s deletion of disallowance is set aside; Assessing Officer's disallowance of foreign tour allowance and foreign tour expenses restored; Revenue's Ground No.3 allowed.

Final Conclusion: The Tribunal partly allows the Revenue's appeal: it upholds the CIT(A)'s treatment of additions under Rule 8D and the deletion of the PF-related disallowance, but sets aside the CIT(A)'s deletion of disallowance for foreign tour expenses and restores the Assessing Officer's disallowance for those expenses.

Deemed dividend under section 2(22)(e) - direct nexus between borrowing and lending for allowability of interest - allowability of interest expense where interest income offsets interest outgo - clerical misclassification of deduction claimed under sections 80C and 80G

Deemed dividend under section 2(22)(e) - Whether the sum of Rs. 3,68,33,114 received from M/s Mahagun India Pvt Ltd is exigible to tax as deemed dividend under section 2(22)(e). - HELD THAT: - Assessing Officer treated the amount as deemed dividend on the premise that the assessee was a >10% shareholder and that funds were advanced by the company to the assessee. The assessee produced ledger extracts and confirmations showing that the assessee had an opening debit (loan given) to MIPL, advanced further loans during the year, and that MIPL repaid part of those loans, resulting in a closing debit balance. The CIT(A) examined the ledger and concluded the funds were advances made by the assessee to MIPL, not by MIPL to the assessee, and deleted the addition. The Tribunal examined the ledger account, noted the opening balance, subsequent advances by the assessee, repayments by MIPL and the closing debit balance, and found the ledger self-explanatory. As the AO had the ledger before him and examined it yet erred in treatment, there was no need for remand for verification. [Paras 10]

Addition under section 2(22)(e) is not sustainable; deletion by the CIT(A) is confirmed and Revenue's grounds are dismissed.

Direct nexus between borrowing and lending for allowability of interest - allowability of interest expense where interest income offsets interest outgo - Whether the Assessing Officer was justified in disallowing interest expenditure of Rs. 93,63,773 for want of nexus with interest income shown under 'Income from other sources', or whether the disallowance should be restricted or deleted. - HELD THAT: - AO disallowed the entire interest claim on the ground that interest income (approx. Rs. 55.92 lakhs) was lower than interest expenditure (approx. Rs. 93.63 lakhs) and nexus was not proved. The assessee produced evidence showing borrowings from specified lenders and contemporaneous transfers of those funds to MIPL as interest-bearing loans; ledger and bank statements demonstrated that amounts drawn were immediately advanced to MIPL, establishing a direct link between borrowings and lending. The CIT(A) restricted disallowance to the net excess of outgo over inflow; the Tribunal, on perusal of bank statement and ledger, found the direct nexus established, noted the interest rates charged to and paid by the assessee, and concluded there was no reason for disallowance. Consequently, the AO's disallowance was deleted in full. [Paras 19]

Assessing Officer's disallowance of interest is deleted; assessee's claim of interest expenditure is allowed in full.

Clerical misclassification of deduction claimed under sections 80C and 80G - Whether the addition of Rs. 1 lakh made by the Assessing Officer for alleged erroneous claim of deduction under section 80G is sustainable. - HELD THAT: - The AO made an addition on the basis that the assessee claimed a deduction under section 80G without documentary proof. The assessee and CIT(A) pointed out that the computation exhibited shows deduction in the inner column under section 80C and that no deduction was in fact claimed under section 80G; the AO appears to have misconstrued the computation. The Tribunal examined the exhibited computation and found that the facts support the assessee's position and that the addition resulted from the Assessing Officer's mistaken reading of the return/computation. [Paras 26]

Addition of Rs. 1 lakh is deleted; CIT(A)'s deletion is confirmed.

Final Conclusion: For Assessment Year 2011-12 the Tribunal dismisses the Revenue's appeal and allows the assessee's appeal: the deemed dividend addition under section 2(22)(e) is confirmed deleted, the entire disallowance of interest is deleted and allowed in favour of the assessee, and the Rs. 1 lakh addition for alleged 80G claim is deleted as a clerical misclassification.

Disallowance under proviso to section 36(1)(iii) - interest on capital borrowed for acquisition of asset - asset first put to use - pro-rata disallowance where mixed funds are used - onus on assessee to explain purpose of borrowing

Interest on capital borrowed for acquisition of asset - asset first put to use - disallowance under proviso to section 36(1)(iii) - Deductibility of interest paid on loan used (in whole or in part) to acquire office spaces which were not put to use during the year under assessment. - HELD THAT: - The proviso to section 36(1)(iii) excludes from deduction any interest paid in respect of capital borrowed for acquisition of an asset for the period from borrowing until the asset is first put to use. The assessee availed a loan and paid interest but did not clearly explain the purpose of the borrowing. Although investments were shown as bookings for office spaces (immovable assets) and claimed to be for business extension, possession was not taken and the assets were not put to use during the relevant year. In these circumstances the proviso is attracted and interest attributable to the period prior to the asset being put to use is not allowable. The Tribunal found no infirmity in the CIT(A)'s conclusion to disallow interest to the extent attributable to acquisition of such assets not put to use. [Paras 6, 9, 10]

Interest attributable to borrowed capital used for acquiring office spaces not put to use during 2013-14 is disallowed under the proviso to section 36(1)(iii).

Pro-rata disallowance where mixed funds are used - onus on assessee to explain purpose of borrowing - Whether, where borrowed funds were used along with own funds, a pro-rata disallowance of interest is warranted and whether the CIT(A)'s apportionment was maintainable. - HELD THAT: - The assessee asserted availability of larger interest-bearing and interest-free own funds and sought full deduction. The Tribunal accepted the CIT(A)'s approach of granting part relief by apportioning interest on a pro-rata basis between funds applied to business (put to use) and funds applied to acquisition of assets not put to use. Given the assessee's failure to satisfactorily establish the purpose and segregation of funds, the apportionment adopted by the CIT(A) was held to be a valid and legal method to determine the deductible portion of interest. Consequently the remaining portion of interest was disallowed as determined by the CIT(A). [Paras 11]

CIT(A)'s pro-rata apportionment of interest between usable business funds and investment in unutilised assets is upheld and the disallowance confirmed to the extent indicated by the CIT(A).

Final Conclusion: Appeal dismissed; the Tribunal upholds the CIT(A)'s disallowance under the proviso to section 36(1)(iii) for interest on borrowed capital used to acquire office spaces not put to use in AY 2013-14 and affirms the pro-rata apportionment adopted by the CIT(A).

Provision for doubtful debts - book profit under section 115JB - actual write off versus prudential write off - revisional power under section 263 - erroneous order prejudicial to the interests of the Revenue - binding precedent of the High Court

Provision for doubtful debts - book profit under section 115JB - actual write off versus prudential write off - binding precedent of the High Court - Whether the provision for doubtful debts of the assessee, which was reduced from sundry debtors in the balance sheet, required addition back to net profit for computing book profit under section 115JB or constituted an actual write off exempting it from addition. - HELD THAT: - The Tribunal held that the Assessing Officer's treatment - not adding the provision to net profit because the amount had been reduced from sundry debtors in the balance sheet and treated as an actual write off under the normal provisions - is supported by the binding decision of the Hon'ble Karnataka High Court in Kirloskar Systems Ltd. The scope of revision under section 263 requires that the AO's order be both erroneous and prejudicial to the revenue; where the AO has adopted one of the permissible views and that view is sustainable in law, revision cannot be sustained. Because the AO's approach was consistent with the binding High Court precedent, the view taken by the AO could not be characterised as unsustainable in law and therefore the Commissioner was not justified in invoking section 263 to set aside the assessment on this ground. The Tribunal accordingly set aside the revision order. [Paras 7, 8, 9]

The Assessing Officer's treatment is sustainable in law and the revision under section 263 is not maintainable; the revision order is set aside.

Final Conclusion: The appeal is allowed: the revision order under section 263 setting aside the assessment for not adding back the provision for doubtful debts to book profit under section 115JB is set aside, the Assessing Officer's view being supported by binding High Court precedent.

Natural Justice - personal hearing - refund of customs duty - writ jurisdiction

Personal hearing - Natural Justice - refund of customs duty - Impugned order rejecting the refund application was vitiated for failure to afford the petitioner the personal hearing indicated in the prescribed refund application form. - HELD THAT: - The refund application filed by the petitioner, in the prescribed form, expressly indicated that a personal hearing was required (column 12 answered in the affirmative). The impugned order rejecting the refund is silent about any personal hearing and there is nothing on record to show that the petitioner was afforded such an opportunity. The court treated the omission as a breach of the principles of natural justice and, in exercise of writ jurisdiction, set aside the impugned order. The matter was remitted to the first respondent to process the refund application afresh after affording the petitioner an opportunity of personal hearing and to dispose of the application in accordance with law within a specified time frame, with communications to the petitioner under due acknowledgement.

Impugned order dated 22.03.2019 set aside; refund application to be reprocessed after affording personal hearing and disposed of in accordance with law within four weeks, with decision communicated within seven working days of that decision.

Final Conclusion: The writ petition is allowed by setting aside the impugned order for breach of natural justice; the refund application is remitted for fresh consideration after granting personal hearing and to be disposed of within the timelines prescribed by the Court; no order as to costs.

Interest on delayed refunds under Section 27A of the Customs Act - Refund of duty following reclassification/exemption - Deeming of appellate order as original order for computation of interest - Exclusion of interest on fine and penalty

Refund of duty following reclassification/exemption - Refund of the omitted sum of Rs. 53,583/- which was not included in the earlier refund note - HELD THAT: - The petitioner successfully established that goods were properly classifiable under the tariff leading to exemption from CVD by virtue of the notification and that the Adjudicating Authority granted a refund of Rs. 4,13,114/-. Subsequent appellate proceedings affirmed that refund. A clerical omission resulted in one bill (Rs. 53,583/-) not being included in the refund note. The High Court found that the omission did not defeat the entitlement to refund and directed refund of the outstanding sum. The Court therefore quashed the impugned order rejecting the claim for the omitted amount and ordered payment of the omitted refund within a specified period.

The petitioner is entitled to refund of the omitted sum of Rs. 53,583/-; direction issued for its refund.

Interest on delayed refunds under Section 27A of the Customs Act - Deeming of appellate order as original order for computation of interest - Exclusion of interest on fine and penalty - Entitlement to interest on delayed refund under Section 27A and the rate and scope of such interest in the present case - HELD THAT: - Applying Section 27A and following binding and persuasive precedents, the Court held that delay in effecting refunds attracts interest. The Explanation to Section 27A treating appellate or tribunal orders as orders under the original provision was taken to be relevant for computation of interest. Reliance was placed on earlier decisions which hold that liability to pay interest runs from the expiry of three months from the date of receipt of a complete refund application until actual refund. The Court observed that interest is payable on the duty component (not on fines or penalties) and, on the facts before it, directed payment of interest at the rate of 24% on the total refundable amount of Rs. 4,13,115/-, together with refund of the omitted sum, within eight weeks.

Interest on the delayed refund is payable under Section 27A; directed payment of interest at 24% on Rs. 4,13,115/- and payment to be made within eight weeks.

Final Conclusion: Writ petition allowed; impugned order quashed. Respondent directed to refund the outstanding sum of Rs. 53,583/- and to pay interest at 24% on the refundable amount within eight weeks from receipt of the order.

Clearance of capital goods to DTA subject to customs procedures - validity of Development Commissioner's permission/NOC for DTA sale - assessment accepted by proper officer and finality under Section 129D of the Customs Act - applicability of concessional/ EPCG duty rate and duty on depreciated value - invocation of extended period of limitation

Validity of Development Commissioner's permission/NOC for DTA sale - clearance of capital goods to DTA subject to customs procedures - Whether the Development Commissioner had refused permission for clearance of the imported die casting machine to DTA and whether such finding justified denial of benefits under Notification No.53/1997-Cus. - HELD THAT: - The Tribunal examined the communication from the Assistant Development Commissioner, which stated that while the specific request to treat the case as conversion under EPCG could not be considered, the appellant was permitted to sell the capital goods in DTA after payment of applicable duties subject to compliance with Customs procedures. A plain reading shows no categorical refusal to permit DTA clearance; rather, permission to sell after compliance was indicated. Consequently the earlier appellate and original findings that the Development Commissioner had refused permission were erroneous. [Paras 5]

Finding that the Order-in-Original and Order-in-Appeal erred in holding that the Development Commissioner had refused permission for DTA clearance; the communication in fact permitted sale subject to payment of duties and compliance with customs procedures.

Assessment accepted by proper officer and finality under Section 129D of the Customs Act - applicability of concessional/ EPCG duty rate and duty on depreciated value - invocation of extended period of limitation - Whether the duty could be reassessed on depreciated value at full merit rate notwithstanding the prior assessment by the proper officer accepting transaction value and concessional EPCG rate, and whether extended period could be invoked. - HELD THAT: - The Tribunal noted that DGFT clarification supports that concessional EPCG rate is applicable, but that duty ought to have been computed on depreciated value. However, the Superintendent of Central Excise accepted the transaction value and permitted clearance after assessment; where the proper officer has accepted the valuation and allowed clearance, reassessment is impermissible except by review under the procedure contemplated in Section 129D. The Tribunal relied on precedents upholding finality of accepted assessments. In these facts there was no mis-declaration or suppression by the appellant to justify invoking the extended period of limitation. [Paras 6]

Reassessment and invocation of extended period were not sustainable where assessment by the proper officer had been accepted; therefore the demand based on reassessment to depreciated value and invocation of extended period could not be sustained.

Final Conclusion: Appeal allowed; the Order-in-Appeal dated 30.11.2009 is set aside, the findings that permission was refused and that reassessment/extended period were invokable have been held erroneous.

Maintainability of appeal - importation of goods through baggage - proviso to Section 129A(1) regarding appeals in baggage importation cases

Maintainability of appeal - importation of goods through baggage - proviso to Section 129A(1) regarding appeals in baggage importation cases - Appeal before the Appellate Tribunal is not maintainable in respect of goods imported through baggage in view of the proviso to Section 129A(1). - HELD THAT: - The Tribunal observed that the matter concerns importation of goods through baggage and therefore falls within the exclusion contained in the proviso to Section 129A(1). Applying that provision, the Tribunal held that such appeals cannot be entertained before it. The order records that the appeal is dismissed as not maintainable and that the appellant remains at liberty to pursue any alternate remedy provided by law.

Appeal dismissed as not maintainable; appellant may seek other remedies as provided by law.

Final Conclusion: The appeal was dismissed as not maintainable because the dispute relates to importation through baggage and is excluded from the Tribunal's jurisdiction by the proviso to Section 129A(1); the appellant is permitted to pursue other statutory remedies.

Exclusion of value of materials from taxable value - Threshold limit exemption for taxable services - Extended period of limitation for service tax demand - Mutual exclusivity of VAT and service tax

Exclusion of value of materials from taxable value - Application of precedent on valuation - Value of materials consumed in providing tyre retreading services cannot be included in the taxable value for service tax purposes. - HELD THAT: - The Tribunal applied the decision of the Hon'ble Supreme Court in M/s. Safety Retreading Co. (P) Ltd. and held that the value of materials on which VAT was discharged must be excluded when arriving at the total taxable value for service tax. Consequently, the demand raised by including the value of materials is unsustainable. The Tribunal directed exclusion of material consumed from the taxable value in reassessing liability. [Paras 5]

Demand premised on inclusion of material value set aside to the extent that materials are excluded from taxable value.

Threshold limit exemption for taxable services - Remand for verification and re-quantification - Whether, after excluding the value of materials, the appellant falls within the threshold limit for exemption required verification and was remanded for that limited purpose. - HELD THAT: - The learned counsel contended that exclusion of material value would bring the appellant within the threshold exemption. The Tribunal found that this factual/quantitative determination required fresh verification by the adjudicating authority. Accordingly, the matter was remanded for limited re-quantification to determine if the appellant qualifies for threshold exemption; if so, no liability would arise. [Paras 5, 7]

Matter remanded to adjudicating authority for verification and re-quantification to ascertain entitlement to threshold exemption.

Extended period of limitation for service tax demand - Taxability doubt and Board circulars - The contention that a Board circular created sufficient doubt to preclude invocation of extended period was rejected and the extended period was held invocable. - HELD THAT: - The Tribunal observed that the Board's circular merely clarified that tyre retreading is a service; it did not establish that the Board had entertained a doubt amounting to a bar on invoking the extended period. The appellant had not taken service tax or excise registration and the evasion was discovered by departmental action. On these findings, the Tribunal held that the appellant's plea against invocation of extended period could not be sustained. [Paras 6]

Argument against invocation of extended period rejected; extended period held invocable.

Final Conclusion: Appeal partly allowed: demand based on inclusion of material value is unsustainable and the matter is remanded for limited verification and re-quantification to determine entitlement to threshold exemption; contentions against invocation of the extended period are rejected and, if amounts have suffered VAT, no service tax liability shall arise on those amounts.

Value of taxable service - differential service tax - payment of service tax with interest - penalty for contravention of service tax provisions - waiver of penalty - inadvertent omission

Value of taxable service - differential service tax - payment of service tax with interest - Liability for differential service tax in respect of charges recovered for issue of air way bills - HELD THAT: - The appellant did not challenge the finding that certain charges for issue of air way bills were to be included in the value of taxable service. The Tribunal recorded that the differential service tax demand arising from that inclusion had been discharged by the appellant along with interest. In these circumstances the Tribunal declined to interfere with the demand or the payment already made. [Paras 4]

Differential service tax liability stands as recorded and the tax paid with interest is not interfered with.

Penalty for contravention of service tax provisions - waiver of penalty - inadvertent omission - Relief in respect of penalties imposed for the omission to include certain charges in taxable service value - HELD THAT: - The Tribunal noted that the differential tax arose from an inadvertent omission by the appellant and that the tax and interest had been paid. Having regard to these facts and the nature of the omission, the Tribunal exercised its discretion to relieve the appellant from the penalties imposed, observing that penal consequences may be waived where the default was inadvertent and the liability fully discharged. [Paras 4]

Penalties imposed are waived.

Final Conclusion: The appeal is disposed of by upholding the differential service tax liability as paid with interest and by waiving the penalties imposed in view of the inadvertent omission and payment of the tax and interest.

Refund claim treated as adjustment request - limitation/time-bar for refund - adjustment/availment of Cenvat credit - no time limit for Cenvat credit availment prior to 01.09.2014

Refund claim treated as adjustment request - limitation/time-bar for refund - Entitlement to refund of Rs. 81,533/- and whether the earlier letter seeking adjustment constituted a timely refund claim - HELD THAT: - The appellant had initially written to the department seeking adjustment of the amount before filing a formal refund application. That communication dated 22.10.2014 must be treated as a claim for refund for the purpose of limitation. The formal refund application filed later cannot be held time-barred where the earlier letter amounted to the refund claim and the period of limitation is to be reckoned from that letter. The matter of refund is therefore not to be rejected on the ground of limitation and the refund claim is to be re-processed taking the letter dated 22.10.2014 as the initiating claim. [Paras 4]

The letter dated 22.10.2014 is to be treated as the refund claim for limitation purposes and the refund claim of Rs. 81,533/- shall be re-processed.

Adjustment/availment of Cenvat credit - no time limit for Cenvat credit availment prior to 01.09.2014 - Entitlement to adjustment/allowance of Cenvat credit of Rs. 1,85,149/- which related to invoices issued prior to 01.09.2014 - HELD THAT: - The credit in question had already accrued to the appellant and related to invoices issued prior to 01.09.2014. For credits accruing before 01.09.2014 there was no prescribed time limit for availment. Consequently, the denial of Cenvat credit on the ground of time-bar is not sustainable. The demand based on disallowance of this credit cannot be sustained and must be set aside. [Paras 4]

The demand of Rs. 1,85,149/- arising from denial of Cenvat credit is set aside and the Cenvat credit shall be allowed.

Final Conclusion: The appeal is partly allowed: the demand based on denial of Cenvat credit of Rs. 1,85,149/- is set aside and the refund claim of Rs. 81,533/- is to be re-processed treating the earlier letter dated 22.10.2014 as a timely refund claim.

Dismissal for non-appearance - lack of vakalatnama / authorization - proxy counsel - adjournment in the interest of natural justice - restoration after dismissal for non-prosecution

Lack of vakalatnama / authorization - proxy counsel - dismissal for non-appearance - Whether the appeal could be permitted to proceed when the appearing advocate had no vakalatnama or authorization and whether the appeal should be dismissed for lack of proper appearance. - HELD THAT: - The Tribunal recorded that the advocate who appeared on behalf of the appellant had no vakalatnama and no written authorization or no-objection from the previously engaged counsel (paras 1-2). The matter had been repeatedly listed since 2014, was earlier dismissed for non-prosecution and later restored, and on the previous hearing the Bench had expressly warned that no further adjournment would be granted and that absence of the appellant's representative would result in dismissal (para 3). Despite that warning, the same advocate appeared again without any authorization, and the Bench held that his presence could not be recognised. In view of the repeated non-appearance of an authorised representative and the specific warning given, the Tribunal concluded that the appellant was not serious in pursuing the appeal and dismissed the appeal for lack of proper appearance (para 4). [Paras 1, 2, 3, 4]

Appeal dismissed for lack of proper appearance where no vakalatnama or authorization was filed and a prior warning against further adjournments had been given.

Final Conclusion: The appeal was dismissed for want of proper appearance because the advocate who appeared had no vakalatnama or authorization and the Bench, after earlier warnings and adjournments, declined to grant further indulgence.

Summary order. Matter adjourned to 31-1-2019 with direction that both sides be ready; Bench recorded objections to and adverse observations about the conduct of the Respondent's Authorised Representative and directed that a copy of this order be forwarded to the President, CESTAT Delhi, Chief Commissioner (AR), CESTAT Delhi and Principal Commissioner (AR), CESTAT Chennai.

Closure of appeal for statistical purposes - liberty to reopen proceedings - power of the Appellate Tribunal under Section 35G of the Central Excise Act - remand for fresh adjudication and await decision of a superior forum - reference to Larger Bench / pending judicial determination

Closure of appeal for statistical purposes - liberty to reopen proceedings - Validity of the Tribunal's order closing the appeal for statistical purposes while granting liberty to reopen the matter later. - HELD THAT: - The Tribunal closed the proceedings for statistical purposes and granted liberty to both parties to apply for reopening after the High Court's decision. The High Court, following its earlier decision in CMA Nos.1131 and 1132 of 2019, held that closing the file for statistics without deciding the merits or exercising appropriate procedural options is impermissible. The Court explained that where a related issue is pending before a Larger Bench, the Tribunal should either keep the appeal pending until the Larger Bench/appropriate court decides the question or remand the matter to the adjudicating authority with directions to await that decision. The Tribunal's course of merely closing the file, instead of remanding or keeping the matter pending, was therefore improper and warranted interference.

The Tribunal's order closing the appeal for statistical purposes with liberty to reopen was set aside and the matter remanded to the Tribunal for appropriate disposal (including awaiting the superior forum's decision or remanding for de novo consideration).

Power of the Appellate Tribunal under Section 35G of the Central Excise Act - remand for fresh adjudication and await decision of a superior forum - reference to Larger Bench / pending judicial determination - Whether the Tribunal's order was in consonance with its statutory powers under Section 35G of the Central Excise Act. - HELD THAT: - The Court considered the scope of the Tribunal's appellate powers and its duty under the statute to decide, modify, annul or remand the matter after affording an opportunity of hearing. In light of that statutory framework and the pendency of the issue before a Larger Bench/jurisdictional High Court, the Tribunal should have either retained the appeal pending the authoritative decision or remanded the case for fresh adjudication with directions to await that decision. The impugned order did not conform to these statutory options and was therefore held contrary to the proper exercise of powers under Section 35G.

The Tribunal's order was held not to be in consonance with the Tribunal's powers under Section 35G and was set aside; the matter was remanded to the Tribunal to act in accordance with statutory powers and the directions in the judgment.

Final Conclusion: The writ appeal is allowed; the Tribunal's order closing the file for statistical purposes and granting liberty to reopen is set aside and the matter is remanded to the Tribunal with directions to either await the decision pending before the appropriate High Court/Larger Bench or remand for fresh adjudication in accordance with the Tribunal's statutory powers; no costs.

Manufacture - works contract - mutually exclusive levies - service tax liability on job work - VAT on brought out items - Central Excise Act, 1944 vs Finance Act, 1994 - inclusion of cost of raw materials supplied free of cost for valuation

Manufacture - works contract - service tax liability on job work - VAT on brought out items - mutually exclusive levies - Central Excise Act, 1944 vs Finance Act, 1994 - Whether fabrication of structures on site from buyer supplied mild steel plates amounts to manufacture and is leviable to duty under the Central Excise Act, 1944, or is to be treated as works contract/services under the Finance Act, 1994 with service tax and VAT implications. - HELD THAT: - The Tribunal accepted the factual finding that the respondent performed on site fabrication (gas cutting, bending/pressing, welding and drilling) on buyer supplied mild steel plates and had discharged service tax on job work charges and VAT on the material component. Relying on the principle that concurrent or alternative tax levies under different fiscal statutes are mutually exclusive where one levy has been validly discharged, the Tribunal followed the reasoning in Osnar Chemical Pvt Ltd [as applied by the original authority] that invoking central excise merely to recover revenue where service tax and VAT have been discharged would be impermissible. On this basis the activity was characterised as works contract/contractual fabrication falling within the service/VAT regime, not as manufacture liable to central excise; the factual finding of taxation under the other statutes effectively eclipsed the applicability of central excise in the circumstances of the case.

Activity held to be works contract/services (levied under Finance Act, 1994 and VAT) and not manufacture leviable to duty under the Central Excise Act, 1944; Revenue's appeal dismissed.

Final Conclusion: The appeal by the Commissioner of Central Excise was dismissed: the on site fabrication activity was held to be works contract/services already subjected to service tax and VAT, and not manufacture liable to central excise.

Recovery of amounts collected as representing excise duty under Section 11D - scope of Section 11D prior to insertion of sub section (1A) in 2008 - requirement of a specific amount shown as representing excise duty - distinction between passing the incidence of duty and collection as representing duty - res judicata and effect of prior quashing of show cause notices - time bar and applicability of limitation to proceedings under Section 11D

Scope of Section 11D prior to insertion of sub section (1A) in 2008 - recovery of amounts collected as representing excise duty under Section 11D - Liability under Section 11D in respect of goods wholly exempt from excise prior to the 2008 amendment. - HELD THAT: - Section 11D, as applicable during the relevant period, required payment to Government of any amount collected as representing excise duty by a person liable to pay duty. The Tribunal held that the statutory lacuna - non coverage of wholly exempt or nil rated goods - was remedied only by insertion of sub section (1A) in 2008. The Budget speech and the statutory history show that the 2008 amendment was not made retrospective. Therefore Section 11D, in its pre 2008 form, did not apply to goods which were wholly exempted; consequently the appellants cannot be held liable under Section 11D for the exempt UT products manufactured and sold during February 1992 to December 1995. [Paras 3, 9]

Section 11D does not apply to the fully exempt products manufactured and sold during the relevant period; liability under Section 11D for such goods does not arise prior to the 2008 amendment.

Requirement of a specific amount shown as representing excise duty - recovery of amounts collected as representing excise duty under Section 11D - distinction between passing the incidence of duty and collection as representing duty - Whether charging a consolidated price described as 'inclusive of excise duty', without showing any specific duty amount, amounts to collection 'as representing excise duty' under Section 11D. - HELD THAT: - A plain reading of Section 11D requires that an amount be collected 'as representing duty of excise' to be liable for deposit. The Tribunal found no material showing that any specific amount was collected as representing excise duty: the invoices reflected an all inclusive consolidated price and did not disclose any component as excise duty. While the assessee enjoyed an exemption and did not reduce prices (thereby profiting), such profiteering is distinct from collection of a duty component; Section 11D is confined to cases where an amount has been collected as representing duty. The precedent concerning passing of incidence (direct or indirect) under customs/excise unjust enrichment provisions does not alter this statutory requirement for Section 11D. [Paras 9]

No demand under Section 11D can be sustained because there is no evidence that any specific amount was collected from customers as representing excise duty.

Res judicata and effect of prior quashing of show cause notices - Whether res judicata bars issuance and adjudication of a fresh show cause notice after an earlier SCN was quashed by the High Court when the law is subsequently amended. - HELD THAT: - The earlier show cause notices were quashed by the High Court as being issued when there was no mechanism for recovery under Section 11D. The High Court gave liberty to the revenue to proceed if the law was subsequently amended. In view of the subsequent amendment creating recovery provisions, the fresh SCN issued after amendment was not barred by res judicata. The Tribunal therefore found res judicata inapplicable to the renewed proceedings initiated pursuant to the changed statutory position. [Paras 1, 10]

Res judicata does not bar the issuance or adjudication of the fresh SCN issued after the statutory amendment; the prior quashing did not preclude future proceedings under a changed law.

Time bar and applicability of limitation to proceedings under Section 11D - Whether the demands under Section 11D are time barred because the show cause notice was issued well beyond five years of the relevant period. - HELD THAT: - The Tribunal noted arguments on limitation and reliance on other authorities, and recorded that Section 11D itself did not specify a time limit for issuance of show cause notices. While some authorities have considered applicability of limitation provisions by analogy, the Tribunal did not rest its decision on limitation. Instead, the appeal was disposed on the substantive grounds that Section 11D did not apply to wholly exempt goods for the relevant period and that no specific amount was collected as representing duty. Accordingly, the Tribunal did not uphold the contention that the demands were time barred as a determinative ground for setting aside the impugned order. [Paras 4, 8, 9]

The Tribunal did not decide limitation as the determinative issue; Section 11D contains no specific time limit and the appeal was allowed on substantive grounds.

Final Conclusion: The appeal is allowed. The impugned adjudication is set aside because (a) the products in question were wholly exempt and Section 11D did not cover such goods prior to the 2008 amendment, and (b) there is no material that any specific amount was collected as representing excise duty (the prices were all inclusive). Res judicata was held inapplicable to the fresh SCN issued after amendment. Consequential benefits, if any, shall follow as per law.

Time barred demand - limitation for recovery of excise/CENVAT demands - wrong availment of CENVAT credit on inputs and input services used in exempted goods - recovery under section 11D for amounts collected as excise duty - ingredients of willful suppression/evasion under section 11AC

Wrong availment of CENVAT credit on inputs and input services used in exempted goods - time barred demand - limitation for recovery of excise/CENVAT demands - ingredients of willful suppression/evasion under section 11AC - Whether the demand confirmed for wrongly availed CENVAT credit for the period June 2009 to December 2009 is sustainable. - HELD THAT: - The Tribunal examined the correspondence between the appellant and the department showing that the appellant had notified the department of incorporation of "Streptokinase" in its central excise registration (letter dated 1.6.2009) and that the department later issued a communication (7.1.2010) directing payment of a higher rate of duty. The appellant responded (22.1.2010) asserting entitlement to exemption under the relevant notifications and subsequently cleared the goods under the exempt classification. The Tribunal found no evidence of concealment or willful misstatement by the appellant, noting that the department was aware of the classification actually adopted and had itself queried the rate. In the absence of proof of the statutory ingredients required for invoking extended limitation for fraud or willful suppression under section 11AC, the Show Cause Notice issued on 18.7.2012 was held to be time barred. On this basis the confirmed demand and penalty in respect of wrongly availed CENVAT credit were set aside. [Paras 12, 13, 14, 15]

Demand and penalty confirmed for alleged wrong availment of CENVAT credit for June 2009 to December 2009 set aside on the ground of limitation; absence of evidence of willful suppression.

Recovery under section 11D for amounts collected as excise duty - time barred demand - Whether recovery under section 11D of the Central Excise Act of amounts collected from buyers in respect of the exempted product was maintainable. - HELD THAT: - The adjudicating authority had earlier dropped the proposal for demand under section 11D regarding amounts collected from buyers for the exempted goods. The Tribunal recorded that the adjudicating authority had rightly set aside that demand. The factual and documentary record showed that the appellant had paid duty for the period in question and later claimed exemption on classification grounds; no basis was shown to sustain a recovery under section 11D. [Paras 4, 8, 15]

Demand under section 11D for amounts collected in respect of the exempted product is not sustained; the adjudicating authority's decision to drop that demand is upheld.

Final Conclusion: The impugned order confirming demand and penalty for wrongly availed CENVAT credit is set aside on the ground of limitation and for lack of evidence of willful suppression; the earlier decision to drop recovery under section 11D is affirmed. The appeal is allowed with consequential benefits, if any, as per law.

Ex parte order - Opportunity of hearing - Natural justice - Remand for fresh adjudication - Confirmation of demand of duty - Imposition of penalty - Reliance on evidence on record - Withholding proceedings pending judicial decision

Ex parte order - Opportunity of hearing - Reliance on evidence on record - Remand for fresh adjudication - Impugned adjudication order passed ex parte without considering evidence or affording hearing was set aside and remitted for fresh decision. - HELD THAT: - The adjudicating authority confirmed a demand of duty and imposed penalty after recording that the appellant was involved in clandestine manufacturing, but the order records that no reply was filed and no hearing was afforded. The adjudicating authority's conclusion proceeded without reference to evidence on record and was thus an ex parte determination. In view of the absence of hearing and lack of consideration of material evidence, the Tribunal found it appropriate to set aside the impugned order and remit the matter to the Commissioner for fresh adjudication. The appellant was directed to file written submissions within one month and the Adjudicating Authority is to grant an opportunity of hearing before deciding the issue afresh. [Paras 5, 6, 7]

Impugned ex parte order set aside; matter remanded to the Commissioner for fresh decision after the appellant files written submissions and is afforded hearing.

Final Conclusion: The ex parte adjudication confirming duty and imposing penalty is set aside and the matter is remitted to the Commissioner for fresh adjudication; the appellant to file written submissions within one month and be granted an opportunity of hearing before a fresh decision is rendered.

Marketability of intermediate product - excisability of non-marketable goods - captive consumption - binding precedent of the Tribunal

Marketability of intermediate product - excisability of non-marketable goods - captive consumption - Cream mix produced and used captively in the manufacture of exempted biscuits is not marketable and therefore not excisable. - HELD THAT: - The Tribunal applied its earlier decision in Final Order Nos.70838-70840/2018 dated 02.05.2018 in M/s Bhagwati Foods Private Limited v. Commissioner, which held that cream mix is not marketable. Following that binding precedent, the impugned order charging excise on the cream mix produced and consumed captively was set aside. The appellants' manufacture of edible biscuits and the use of the cream mix within the factory for exempted biscuits were treated as captive consumption of a non-marketable intermediate, removing the basis for excise liability. Consequential relief was directed in favour of the appellants as appropriate. [Paras 3]

Impugned order set aside; appeals allowed by following the Tribunal's earlier Final Order holding that cream mix is not marketable and hence not excisable, with consequential relief.

Final Conclusion: By following the Tribunal's earlier Final Order dated 02.05.2018, the appeals were allowed and the impugned order imposing excise on the cream mix produced and used captively was set aside, with consequential relief to the appellants.

Interest for delayed payment - no waiver of statutory interest - effect of judicial clarification on retrospective liability - classification of construction of flats as works contract

Interest for delayed payment - no waiver of statutory interest - Whether interest under Section 30(2) of the Maharashtra Value Added Tax Act, 2002 is payable on delayed tax notwithstanding a subsequent judicial clarification of the tax liability - HELD THAT: - The Court found that the assessee did not dispute the underlying tax liability nor the delay in payment. In these circumstances Section 30(2) becomes applicable ispo facto and the liability to pay interest follows from the statutory provision. No provision was shown to the Court that permits waiver of interest on account of the assessee's misunderstanding of the legal position. The Court further observed that a judicial decision clarifies what the law always was and does not, by itself, operate to absolve statutory interest for delay in payment where the tax was admittedly unpaid within time. [Paras 6, 7]

Interest under Section 30(2) is exigible on the delayed payment of tax; the appeal challenging levy of interest is not maintainable and is dismissed.

Classification of construction of flats as works contract - effect of judicial clarification on retrospective liability - Effect of the Supreme Court decision in L & T clarifying that construction agreements fall within 'works contract' and the relevance of that clarification to the assessee's contention for waiver of interest - HELD THAT: - The Court noted the assessee's submission that the scope and computation of tax became clear only after the Supreme Court's decision in L & T, and that Rule 58(1A) was read down thereby. The Tribunal and the first appellate authority accepted that the State waived penalties by circular but did not waive interest. The High Court held that such judicial clarification does not eliminate statutory interest for delayed payment where tax remained unpaid; the clarification may affect tax liability but does not convert admitted delay into an excuse for non-payment of interest absent statutory provision for waiver. [Paras 4, 5, 6]

The judicial clarification regarding works contracts does not negate liability for interest under Section 30(2); waiver of penalty does not imply waiver of interest.

Final Conclusion: The appeal against the Tribunal's order upholding interest under Section 30(2) is dismissed; the assessee remains liable to pay interest on the delayed tax for Financial Year 2007-08 and no substantial question of law was made out for interference.

Presumption under Section 139 of the Negotiable Instruments Act - presumption as to consideration under Section 118(a) of the Negotiable Instruments Act - rebuttable presumption - standard of proof as preponderance of probabilities - effect of statement recorded under Section 313 Cr.P.C. on evidentiary burden - remand for fresh consideration where statutory presumptions not properly applied

Presumption under Section 139 of the Negotiable Instruments Act - presumption as to consideration under Section 118(a) of the Negotiable Instruments Act - rebuttable presumption - standard of proof as preponderance of probabilities - Whether the trial Court properly applied the statutory presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act in arriving at acquittal. - HELD THAT: - The High Court found that the learned trial Magistrate quoted Sections 118(a) and 139 but failed to have regard to the statutory presumptions mandated by those provisions and the applicable standard for rebuttal. The Court reviewed binding authorities establishing that presumptions under Sections 118(a) and 139 are rebuttable and that the standard for rebuttal is preponderance of probabilities rather than proof beyond reasonable doubt. In view of the trial Court's omission to apply these presumptions and principles in its appraisal of the evidence, its conclusion of rebuttal was unsustainable. The High Court therefore set aside the order of acquittal and directed the trial Court to re-hear the matter afresh keeping in mind the statutory presumptions and the correct standard of proof. [Paras 10, 11, 14, 20, 21]

Order of acquittal set aside; matter remitted to the trial Court to be re-heard and decided afresh in accordance with law, with specific regard to Sections 118(a) and 139 and the correct standard for rebuttal.

Effect of statement recorded under Section 313 Cr.P.C. on evidentiary burden - requirement of adducing evidence to rebut statutory presumption - Whether the respondent's statement recorded under Section 313 Cr.P.C., without examination as a witness, sufficed to rebut the presumptions under Sections 118(a) and 139. - HELD THAT: - The High Court held that the trial Court erred in treating the respondent's statement under Section 313 Cr.P.C. - wherein he stated the cheque was given to another person - as a sufficient basis to conclude that the statutory presumptions were rebutted. The Court emphasised that the respondent did not give evidence by entering the witness box and being available for cross-examination; mere assertions in a Section 313 statement cannot displace the presumptions under the Act. The presumption may be rebutted only by adducing credible evidence making non-existence of debt or liability reasonably probable in the sense required by authorities, and a Section 313 statement alone was insufficient for that purpose. [Paras 4, 19, 20]

The trial Court's reliance on the Section 313 statement as amounting to rebuttal was held to be incorrect; the issue must be reconsidered on fresh evidence in the trial Court.

Final Conclusion: Appeal allowed in part. The judgment of acquittal dated 12.12.2018 is set aside and the matter is remitted to the trial Magistrate for fresh hearing and decision in accordance with law, giving due consideration to the presumptions under Sections 118(a) and 139 of the Negotiable Instruments Act and the requirement that rebuttal be established on the preponderance of probabilities; parties directed to appear before the trial Court on 17.06.2019.