TaxTMI Updates e-Newsletter
Jun 20,2013

Penalty for concealment or furnishing of inaccurate particulars of income - application of section 271(1)(c) - disallowance under section 14A read with Rule 8D - requirement of contumacious or dishonest conduct for imposition of penalty - CBDT monetary threshold for filing appeal

Penalty for concealment or furnishing of inaccurate particulars of income - application of section 271(1)(c) - disallowance under section 14A read with Rule 8D - requirement of contumacious or dishonest conduct for imposition of penalty - Whether penalty under section 271(1)(c) was rightly levied on the assessee in respect of disallowances including that computed under Rule 8D. - HELD THAT: - The Tribunal upheld the view of the Commissioner (Appeals) that the Assessing Officer had not found any concealment of income or furnishing of inaccurate particulars in the return or books. The disallowance under section 14A read with Rule 8D was computed from amounts disclosed in the return and accounts; there was no finding of deliberate, contumacious or dishonest conduct by the assessee. Relying on precedent emphasising that penalty is quasi criminal in nature and ordinarily requires conduct that is deliberate or contumacious, and on the law that mere unsuccessful or unsustainable claims do not constitute furnishing of inaccurate particulars, the Tribunal found no infirmity in deletion of penalty by the Commissioner (Appeals) and held the penalty improperly imposed. [Paras 6, 9, 10, 11, 12]

Penalty under section 271(1)(c) deleted; order of the Commissioner (Appeals) upheld.

CBDT monetary threshold for filing appeal - Whether the Revenue's appeal to the Tribunal was maintainable in view of the monetary limit prescribed by the CBDT for filing appeals. - HELD THAT: - The Tribunal noted that the Assessing Officer had mentioned penalty in relation to a specific disallowance but had levied penalty on a larger total disallowance; when computed correctly the tax effect of the deletion by the Commissioner (Appeals) fell below the sum of Rs. 3 lakhs as fixed by the CBDT for filing an appeal to the Tribunal. Consequently, the Revenue could not properly agitate the matter before the Tribunal in view of the circular limiting appeals beneath that monetary threshold. [Paras 8]

Revenue's appeal was not maintainable before the Tribunal in light of the CBDT monetary limit; appeal dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and the assessee's cross objection, upholding the Commissioner (Appeals)' deletion of penalty under section 271(1)(c) and finding the appeal in any event not maintainable under the CBDT monetary threshold.

Deeming provision of section 50C and its inapplicability to the purchaser - Addition under section 69B requires evidence of consideration received over and above recorded sale consideration (on money) - Reliance on stamp/Jantri valuation as indicator of market value vis a vis evidentiary burden - Rectification under section 154 - limited to apparent mistake and not permissible to reopen debatable issues - Doctrine of merger in appellate proceedings

Addition under section 69B requires evidence of consideration received over and above recorded sale consideration (on money) - Reliance on stamp/Jantri valuation as indicator of market value vis a vis evidentiary burden - Whether addition under section 69B could be sustained on the basis of Jantri/stamp valuation and AO's estimate in absence of evidence of any payment over and above the sale consideration recorded in the deed. - HELD THAT: - The Tribunal examined the material on record and noted that the Assessing Officer had estimated fair market value at Rs.800 per sq. mtr. and the CIT(A) had accepted Rs.400 per sq. mtr. The authorities had not produced any material to show receipt by the assessee of consideration over and above the sale deed amount. In the absence of evidence of 'on money' or undisclosed consideration, the Tribunal applied the principle that addition under section 69B cannot be made merely on the basis of higher Jantri or stamp duty valuation; there must be evidence of payment in excess of the recorded consideration. The Tribunal followed coordinate decisions of the Bench and concluded that, lacking such evidence, the addition could not be sustained and therefore allowed the assessee's appeal. [Paras 5, 6]

Addition under section 69B deleted for want of evidence of any amount paid over and above the recorded sale consideration; assessee's appeal allowed.

Addition under section 69B requires evidence of consideration received over and above recorded sale consideration (on money) - Revenue's challenge to the CIT(A)'s reduction/confirmation of valuation (as reflected in ITA No.613/Ahd/2010) was considered having regard to the findings in the assessee's appeal. - HELD THAT: - The Tribunal applied the reasoning adopted in the assessee's appeal (ITA No.229/Ahd/2010) and observed that the Revenue's challenge to the valuation fixed at Rs.400 per sq. mtr. failed for the same reason - absence of evidence of undisclosed consideration. The Revenue's appeal accordingly was dismissed following the findings in the assessee's appeal. [Paras 7, 8]

Revenue's appeal dismissed.

Rectification under section 154 - limited to apparent mistake and not permissible to reopen debatable issues - Doctrine of merger in appellate proceedings - Whether the CIT(A) was justified in rectifying its earlier order under section 154 to delete the addition when there was no apparent mistake and the issue was debatable (ITA No.3390/Ahd/2010). - HELD THAT: - The Tribunal observed that the CIT(A)'s order dated 30.11.2009 did not suffer from an apparent mistake; the matter was debatable and both parties had filed appeals before the ITAT, invoking the doctrine of merger. Rectification under section 154 is confined to correction of apparent mistakes and cannot be used to review or re adjudge debatable matters. Accordingly, the Tribunal held that the CIT(A) exceeded jurisdiction in allowing the rectification and set aside the CIT(A)'s rectification order. [Paras 9, 11, 12]

CIT(A)'s rectification under section 154 was not justified; Revenue's appeal allowed to the extent of setting aside the rectification order.

Final Conclusion: For A.Y. 2006-07 the Tribunal deleted the addition under section 69B in the assessee's appeal for lack of evidence of any payment over and above the recorded sale consideration (assessee's appeal allowed; Revenue's appeal in ITA No.613 dismissed). Separately, the Tribunal held that the CIT(A) erred in invoking section 154 to rectify a debatable order and allowed the Revenue's appeal in ITA No.3390 to set aside that rectification.

Deduction under section 80IB(10) for housing projects - one acre plot size requirement as eligibility test - standalone residential part test for mixed residential commercial projects - apportionment of plot area between commercial and residential components - prospective operation of statutory amendment

Deduction under section 80IB(10) for housing projects - one acre plot size requirement as eligibility test - standalone residential part test for mixed residential commercial projects - apportionment of plot area between commercial and residential components - Entitlement of the assessee to deduction under section 80IB(10) for the assessed years despite presence of commercial built up area and prior apportionment by the Assessing Officer and CIT(A). - HELD THAT: - The Tribunal examined the factual matrix and the conditions of section 80IB(10) as they applied to the assessee's projects and concluded that the assessee had fulfilled the requirements of the provision. The lower authorities had denied the deduction by treating the commercial portion as causing the residential part to fail the one acre plot size test after apportioning land in proportion to sanctioned built up areas. The Tribunal accepted the view, following the decision of the Gujarat High Court cited by the assessee, that the assessee met the statutory conditions and was therefore entitled to the deduction. On that basis the orders of the CIT(A) and Assessing Officer insofar as they denied the deduction were reversed. [Paras 5, 6]

Assessee's claim for deduction under section 80IB(10) allowed for A.Y. 2004-05, 2005-06 and 2008-09; the orders rejecting the claim are set aside.

Prospective operation of statutory amendment - deduction under section 80IB(10) for housing projects - Whether the amendment by clause (d) in section 80IB(10) w.e.f. 01.04.2005 could be applied to projects approved before that date. - HELD THAT: - The Tribunal accepted the assessee's contention, supported by the Gujarat High Court decision relied upon, that the rider introduced by clause (d) with effect from 01.04.2005 operates prospectively and could not be applied to projects which had been approved by the competent authority prior to that date. Since the assessee's project had been approved before 01.04.2005, the additional condition imposed by the amendment did not apply and therefore could not be used to deny the deduction. [Paras 5]

Amendment in clause (d) of section 80IB(10) held prospective; not applicable to the assessee's projects approved before 01.04.2005.

Final Conclusion: The Tribunal allowed the appeals for A.Y. 2004-05, 2005-06 and 2008-09, holding that the assessee satisfied the conditions of section 80IB(10) and that the amendment introduced w.e.f. 01.04.2005 did not apply to projects approved prior to that date; the orders of the CIT(A) and Assessing Officer refusing the deduction were set aside.

Revision under section 263 - erroneous and prejudicial to the interests of the revenue - doctrine of merger - application of mind by the Assessing Officer - two-stage computation of capital gains in development-agreement exchanges - cost of construction as cost of acquisition in exchange transactions - prejudice to revenue - Malabar test

Revision under section 263 - erroneous and prejudicial to the interests of the revenue - application of mind by the Assessing Officer - prejudice to revenue - Malabar test - Validity of the Commissioner s exercise of jurisdiction under section 263 to set aside the assessment order. - HELD THAT: - The Tribunal held that power under section 263 can be exercised only where the assessing officer's order is both erroneous and prejudicial to the interests of the revenue. The assessing officer had scrutinised the development agreement, applied his mind and determined capital gains in the assessment order; merely because the Commissioner disagreed with the view taken does not make the order erroneous and prejudicial. Reliance placed on the principle in Malabar that loss of revenue resulting from a view permissible in law is not enough to invoke revision unless the view is unsustainable. Consequently, the formation of opinion by the Commissioner to revise the assessment was unsustainable where the AO had applied his mind and taken one of the possible views. [Paras 10, 11]

The exercise of jurisdiction under section 263 was invalid and the order passed thereunder was set aside on the ground that the AO had applied his mind and the conditions for revision under section 263 were not satisfied.

Doctrine of merger - revision under section 263 - Whether the issue of capital gains was merged in the appellate order such as to preclude revision under section 263. - HELD THAT: - The Tribunal found that the capital-gains issue was considered by the Assessing Officer and was the subject-matter of appeal before the Commissioner (Appeals), who had directed that the total sale consideration of Rs.1,79,00,000 be considered for determining long-term capital gain. Following the principle in Arbuda Mills (as applied in later decisions), matters that were considered and decided in appeal merge with the assessment order; only aspects not touched in appeal remain open to revision. Because the appellate order had adjudicated the capital-gains question, the Commissioner could not validly reopen the same matter under section 263. [Paras 11]

The doctrine of merger operates; the Capital Gains issue having been subject of and decided in appeal is not open to revision under section 263.

Two-stage computation of capital gains in development-agreement exchanges - cost of construction as cost of acquisition in exchange transactions - Correct approach to computation of capital gains arising from a development agreement where land is exchanged for constructed flats, and the correctness of the Commissioner's two-stage computation adopted in the show-cause order. - HELD THAT: - The Tribunal recorded the established approach that such transactions involve two stages: (i) exchange of land for built-up area (first-stage long-term capital gain, consideration being the cost of construction of built-up area received in exchange), and (ii) subsequent sale of flats (second-stage short-term or long-term gain based on holding period, with cost of acquisition of flats being the cost of construction). While the Commissioner invoked that two-stage method to hold the AO's approach erroneous, the Tribunal found that on the facts the issue had been examined earlier; moreover, on merits the Commissioner was incorrect in treating the entire sale receipts as only consideration for flats without reducing the element attributable to the assessee's undivided share in land. Thus, even on merits the Commissioner s computation was unsustainable insofar as he failed to reduce the land component while computing short-term gain. [Paras 11, 12]

Although the two-stage judicial approach is recognised, the Commissioner s order was unsustainable on merit for failing to reduce the land component from the sale proceeds when computing short-term gains; however, that defect did not validate exercise of section 263 for reasons of jurisdiction and merger.

Final Conclusion: The appeal is allowed: the order passed by the Commissioner under section 263 is set aside because the Assessing Officer had applied his mind and the capital-gains issue had been the subject of and merged with the appellate order; additionally, the Commissioner s two-stage recomputation was unsustainable on merit in treating the entire sale consideration as consideration for flats without reducing the land component.

Disallowance under section 40(a)(ia) for failure to deduct tax at source - scope of disallowance where tax is short deducted (deducted at lower rate) - treatment of payments as fees for professional and technical services requiring deduction under section 194J - admission of additional evidence and remand for verification

Scope of disallowance where tax is short deducted (deducted at lower rate) - disallowance under section 40(a)(ia) for shortfall in TDS - Whether disallowance under section 40(a)(ia) is attracted where the assessee made a short deduction (deducted tax at a lower rate) instead of non deduction. - HELD THAT: - The Tribunal examined instances where tax was deducted but at rates lower than those applied by the AO (resulting in a shortfall). Relying on earlier Tribunal precedents and an affirmed High Court decision, the Tribunal held that the mischief of section 40(a)(ia) is non deduction of tax at source and that mere short deduction does not attract the disallowance. The Court noted that no contrary binding precedent was placed before it and respectfully followed the cited authorities in holding that disallowance cannot be sustained for payments on which tax was deducted albeit at a lower rate. [Paras 5]

Disallowances sustained by the authorities in respect of payments where tax was short deducted are deleted; ground no.1 of the assessee's appeal allowed.

Treatment of payments as fees for professional and technical services requiring deduction under section 194J - disallowance under section 40(a)(ia) for non deduction of TDS - Whether disallowance under section 40(a)(ia) is justified for payments made without any deduction of tax where such payments are in the nature of professional and technical fees. - HELD THAT: - The Tribunal found that payments to three persons lacked sufficient identification and, on their nature, fell within fees for professional and technical services requiring deduction under section 194J. The assessee did not place material to show these were temporary small time employees nor furnished complete details before the authorities. Given that no TDS was deducted, the transactions fell squarely within the mischief of section 40(a)(ia), and the disallowance was correctly sustained by the authorities. [Paras 6, 7]

Disallowance under section 40(a)(ia) for the three specified payments is sustained; the assessee's ground is rejected.

Disallowance where tax was deducted at lower than eligible rate - application of ratio on short deduction - Whether deletions of additions made by the CIT(A) in respect of location, property hire and studio hire payments (where tax was deducted but at lower rates) were correct. - HELD THAT: - The Tribunal applied its conclusion on short deduction (see the issue on scope of disallowance) to the Revenue's challenge, observing that the payments in question had tax deducted albeit at lower rates. In view of the legal principle that short deduction does not attract section 40(a)(ia), the Tribunal upheld the CIT(A)'s deletions in respect of these grounds of the Revenue's appeal. [Paras 8]

Revenue's challenge to deletion of those additions is dismissed; findings of the CIT(A) in respect of these payments are upheld.

Admission of additional evidence and remand for verification - verification of purchase bills for set construction - Whether deletion of disallowance for payment to Saroj Traders (claimed as purchases for set construction) should be sustained despite the purchase bills not having been produced before the AO and admitted by the CIT(A) as fresh evidence. - HELD THAT: - The Tribunal observed that the purchase bills relied upon before the CIT(A) were not produced to the AO and that the CIT(A) admitted the fresh evidence without calling for a remand report. In the interests of justice the Tribunal set aside the CIT(A)'s order on this issue and directed restoration to the file of the AO for fresh verification of the documentary evidence and adjudication, permitting the assessee to produce any further evidence during such proceedings. [Paras 9]

Impugned deletion is set aside and the matter remanded to the AO for verification and fresh decision.

Final Conclusion: The assessee's appeal is partly allowed: disallowances sustained on account of short deduction are deleted, while disallowance for specified non deducted professional/technical fees is sustained; the Revenue's appeal is partly allowed in that deletions relating to payments where tax was short deducted are upheld. The issue concerning payment to Saroj Traders is remanded to the AO for verification.

Deduction under section 80-IB(10) - Interest on delayed payment as component of sales consideration - Interest forming part of business receipts for eligibility of deduction

Deduction under section 80-IB(10) - Interest on delayed payment as component of sales consideration - Allowability of deduction under section 80-IB(10) in respect of interest received on delayed payments of sale proceeds of flats. - HELD THAT: - The Tribunal found as an incontrovertible fact that the interest arose from delay in payment of the sale price of flats by the purchasers and was paid by the purchasers in respect of those sales. Applying the principle in the Bombay High Court decisions relied upon by the CIT(A), the interest so received constitutes a component of the sale consideration and therefore partakes of the same character as the sale proceeds of the eligible business. The Tribunal held that such interest cannot be treated as income from other sources severable from the business receipts for the purpose of section 80-IB(10), and that the Supreme Court decision in Liberty India did not adversely affect the applicability of the cited High Court view to the facts of this case. On this basis the Tribunal sustained the CIT(A)'s allowance of the deduction under section 80-IB(10) in respect of the impugned interest. [Paras 7, 8, 9]

Deduction under section 80-IB(10) is allowable on the interest received on delayed payment of sale proceeds of flats as it forms part of the sale consideration; Revenue's appeal dismissed.

Final Conclusion: The Tribunal upheld the CIT(A)'s decision allowing deduction under section 80-IB(10) in respect of interest received on belated payment of sale consideration for flats, concluding that such interest is a component of the sales proceeds and dismissing the Revenue's appeal.

International transaction - brand building / marketing intangible - Bright Line Test (BLT) - Transfer Pricing Officer's suo motu jurisdiction - Cost Plus method - Transaction Net Margin Method (TNMM) - comparability and exclusion of selling expenses from AMP - product development expenditure-allocation of benefit - remand for fresh determination of ALP

International transaction - brand building / marketing intangible - Existence of an international transaction by way of brand development in India for the foreign parent - HELD THAT: - On the facts the Tribunal found that the assessee, a wholly owned subsidiary, marketed and sold vehicles bearing the "Ford" logo prefixed to model names and that, in substance and by conduct, there was a tacit understanding that the logo would appear on the cars. Considering the agreements, the corporate control exercised by the parent, and the simultaneous promotion of models together with the Ford logo, the Tribunal held that the activities created marketing intangibles (brand/logo) for the non resident parent and therefore constituted an international transaction (provision of service) within Chapter X. The Special Bench precedent in L.G. Electronics was treated as applicable and persuasive on this point and no material distinction was found sufficient to displace that view. [Paras 36, 39, 41, 44]

There was an international transaction in the form of brand building for FMC; finding for the Revenue.

Transfer Pricing Officer's suo motu jurisdiction - Power of the TPO to take suo motu cognizance of an international transaction not reported or not referred by the Assessing Officer - HELD THAT: - Relying upon the reasoning in the Special Bench decision, the Tribunal held that the TPO may consider transactions that come to his notice during proceedings even if not specifically reported by the assessee or referred by the AO under Section 92CA(1). The Tribunal noted legislative clarification (addition of clause (2B) to Section 92CA) confirming the TPO's power and therefore upheld the TPO's jurisdiction to examine and determine the ALP of such transactions. [Paras 45]

TPO could take suo motu cognizance; finding for the Revenue.

Brand building / marketing intangible - comparability and exclusion of selling expenses from AMP - Whether the two separate additions made by revenue (a 1% of sales 'brand development fee' and a separate addition for excess AMP) were both permissible or whether only excess AMP should be allowed - HELD THAT: - The Tribunal found the Revenue's conceptual split into (a) an add on brand value on normal sales (1% of turnover) and (b) an add on brand value due to excess AMP spending to be unsupported by empirical data and inherently hazy. The Tribunal accepted that AMP related brand promotion could give rise to an adjustment, but held that the objective and supportable measure was the excess AMP expenditure over an appropriate benchmark. The first addition of 1% of sales, derived from royalty data that related to payments by a user of a brand to the owner (not payments by an owner to a promoter), was held to be an unjustified duplication. Accordingly the Tribunal disallowed the 1% turnover addition but accepted that excess AMP (over a proper comparability benchmark) could constitute the ALP of the international transaction. [Paras 46, 47, 48]

The 1% of sales addition was not justified; only the excess AMP expenditure (over appropriate comparables) could be the basis for ALP adjustment.

Bright Line Test (BLT) - Cost Plus method - Transaction Net Margin Method (TNMM) - Whether the Bright Line Test applied by the TPO is a permissible method under the Transfer Pricing provisions - HELD THAT: - Following the Special Bench, the Tribunal held that the Bright Line Test, as applied, falls within the ambit of methods recognised by Section 92C and Rule 10B: in substance it represented an application akin to Cost Plus (identifying the cost/value of services and determining the international transaction value) even though certain procedural steps (such as computing and applying a normal gross profit mark up) were not strictly followed. The Tribunal treated the BLT as not void ab initio, while recognising lacunae in the manner of application which amounted to procedural deficiencies rather than fatal jurisdictional errors. [Paras 48, 49]

BLT is within the scheme of permitted methods (essence akin to Cost Plus); procedural lacunae noted but method not invalidated.

Comparability and exclusion of selling expenses from AMP - Whether selling expenses (such as sales consultant remuneration, discounts and similar sales linked costs) must be excluded from AMP for comparability purposes - HELD THAT: - The Tribunal adopted the Special Bench view that AMP refers to advertisement, marketing and publicity, and a clear divider must be drawn between expenditure that promotes brand and expenditure that is directly in connection with making sales. Expenditures that are not in the nature of advertisement/marketing/promotion (i.e., pure selling costs) must be excluded from AMP when performing the comparable analysis. Applying that principle, the Tribunal held the assessee's claim to exclude specified items from the AMP pool to be justified. [Paras 50]

Selling expenses not in the nature of AMP must be excluded from AMP when making comparability studies; finding for the assessee.

Comparability and exclusion of selling expenses from AMP - Appropriateness of the comparables selected by the TPO and by the assessee - HELD THAT: - The Tribunal held that comparables must be uncontrolled entities not engaged in promoting a foreign brand; comparables used by TPO (and those proposed by the assessee) were flawed. The Tribunal rejected both sets of comparables as inappropriate: entities using foreign brands or having materially different functional profiles could not serve as valid benchmarks. The Tribunal directed the AO/TPO to identify a different set of comparables (or to adjust earlier comparables adequately) and to redo the comparable analysis in accordance with the guidance provided. [Paras 51, 52]

Comparables selected by both sides were inappropriate; matter remitted to AO/TPO to identify/adjust comparables afresh.

Product development expenditure-allocation of benefit - Whether the product development expenditure incurred by the assessee was wholly for the benefit of the parent or whether benefit was shared - HELD THAT: - The Tribunal found that although legal ownership of developed features rested with the parent under the collaboration agreements, the assessee derived an economic benefit from the product development (improved cars sold in India). There was no basis to lift the corporate veil. Consequently the Tribunal apportioned the benefit between assessee and parent on a 50:50 basis and directed that only 50% of the product development expenditure be recouped from the parent. [Paras 53]

Product development expenditure attributable to the parent is reduced to 50% (assessee retains 50% benefit).

Remand for fresh determination of ALP - Whether determination of ALP of brand building activity should be remitted for fresh consideration - HELD THAT: - Having identified that (a) only excess AMP should form the basis of ALP adjustment, (b) selling expenses must be excluded from AMP, (c) BLT in substance fits a recognised method though not perfectly applied, and (d) comparables selected were inappropriate, the Tribunal set aside the orders below and remitted the matter to the file of the AO/TPO. The AO/TPO was directed to reconsider valuation and quantification of the ALP of brand building in accordance with the directions and principles stated by the Tribunal, including allowing the assessee to be heard and considering the +/ 5% proviso in Section 92C(2) at that stage. [Paras 48, 52, 54, 55]

Order set aside and issue of determination of ALP of brand building remitted to AO/TPO for fresh consideration in accordance with Tribunal directions.

Final Conclusion: Appeal partly allowed. The Tribunal upheld that assessee's activities constituted an international transaction (brand building) and that the TPO could examine such transaction suo motu; however, it disallowed the additional 1% turnover 'brand fee' as duplicative, held that only excess AMP (excluding pure selling costs) could form the basis of ALP adjustment, found the comparables used by both parties unsuitable and remitted the ALP determination to AO/TPO with directions; product development expenditure was apportioned 50:50 between assessee and parent; several non TP grounds were decided as set out above.

Deduction under section 36(1)(viia) - co-operative bank - provision for bad and doubtful debts - provisions for leave salary and provision against standard assets - provision not allowable as deduction - RBI disclosure norms not determinative for computation of taxable income

Deduction under section 36(1)(viia) - co-operative bank - provision for bad and doubtful debts - Assessee entitled to deduction under section 36(1)(viia) as a co-operative bank for AY 2009-10. - HELD THAT: - Section 36(1)(viia) was amended w.e.f. 01.04.2007 to include "a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank." The Tribunal found that the Commissioner (Appeals) had applied an outdated understanding of the provision as originally introduced and had therefore erred in denying the assessee-an admitted co-operative bank engaged in banking-the benefit of the statutory deduction. On the statutory language as amended and the factual finding that the assessee is a co-operative bank doing banking business, the assessee is eligible for the deduction of 71/2% of total income as provided by section 36(1)(viia). The Assessing Officer is directed to grant the deduction accordingly. [Paras 6]

Ground allowed; direction to AO to grant deduction of 71/2% of total income under section 36(1)(viia).

Provisions for leave salary and provision against standard assets - provision not allowable as deduction - RBI disclosure norms not determinative for computation of taxable income - Claims for deduction of provisions for leave salary and provisions against standard assets were rejected. - HELD THAT: - The Tribunal affirmed the Commissioner (Appeals) relying on the principle in the decision of the Hon'ble Supreme Court (Southern Technologies Ltd.) that Reserve Bank of India disclosure or prudential norms do not alter the test for deductibility under the Income-tax Act. A mere provision created to meet RBI norms or internal/reserve requirements does not constitute an allowable expenditure for computing taxable income under the Act. Applying that principle, the Tribunal held that the contested provisions are not permissible deductions and confirmed the findings of the Commissioner (Appeals). [Paras 9]

Grounds dismissed; findings of Commissioner (Appeals) on leave salary and standard-asset provisions confirmed.

Final Conclusion: Appeal partly allowed: deduction under section 36(1)(viia) granted to the assessee (71/2% of total income) and directed to be given by the AO; claims for deduction of provisions for leave salary and against standard assets dismissed and Commissioner (Appeals) findings confirmed.

Eligibility for deduction under section 80IA(4)(iii) - classification of receipts as business income or income from other sources/house property - res judicata/merger of Assessing Officer's opinion with Tribunal finding - depreciation on electrical installations - substance over nomenclature and remand for fresh decision

Eligibility for deduction under section 80IA(4)(iii) - classification of lease receipts as business income - Assessee's lease receipts from modules are business income and eligible for deduction under section 80IA(4)(iii). - HELD THAT: - The assessee, an undertaking developing and operating an information technology park, leased out modules and similar facilities. The record shows the undertaking was approved under the relevant scheme and notified under section 80IA(4)(iii), subject to conditions which have not been withdrawn. Earlier scrutiny assessment and subsequent Tribunal decisions had accepted the assessee's entitlement to deduction for leasing of specialized facilities such as the software park. The Tribunal found that those coordinate decisions, which upheld the original AO's allowance and quashed re-opening, merged with the Tribunal's findings and precluded the Revenue's attempt to treat the receipts as not deriving from the eligible business. On this basis the CIT(A)'s allowance treating the lease receipts as business income for the purpose of section 80IA(4)(iii) was upheld. [Paras 8, 9]

Lease receipts from modules are business income and deduction under section 80IA(4)(iii) is allowable.

Classification of ancillary receipts as income from other sources - application of 'derived from' nexus test for section 80IA - Receipts such as car parking charges, communication and electrical charges, telecom room rent and similar ancillary receipts are not profits and gains 'derived from' the eligible business and are to be treated as income from other sources. - HELD THAT: - The Tribunal analysed earlier coordinate decisions and applied the established test that only profits and gains directly derived from the eligible business qualify for deduction. Miscellaneous and ancillary receipts (parking, communication charges, electrical room rent, usage of cable duct, etc.) were held to lack the requisite direct nexus with the undertaking's eligible business and were therefore excluded from profits and gains for computing the section 80IA deduction. The CIT(A)'s classification of these receipts as other income was confirmed in view of the Tribunal's prior reasoning. [Paras 13]

Ancillary receipts are to be treated as income from other sources and are not eligible for section 80IA deduction.

Depreciation on electrical installations - substance over nomenclature - remand for fresh decision by Assessing Officer - The question of claim for depreciation on electrical items was not finally adjudicated and is remitted to the Assessing Officer for fresh decision. - HELD THAT: - The CIT(A) directed grant of depreciation relying on earlier orders and the principle that substance should prevail over nomenclature. However, no material was placed before the Tribunal showing how the Assessing Officer had decided the matter. Given the absence of documentary determination on record, the Tribunal found it appropriate to remit the issue to the Assessing Officer to examine the claim afresh in accordance with law and facts, rather than enter a final adjudication itself. [Paras 10]

Issue of depreciation on electrical installations remitted to the Assessing Officer for fresh decision.

Final Conclusion: The Tribunal upheld the CIT(A)'s allowance treating the lease receipts from modules as business income eligible for deduction under section 80IA(4)(iii), confirmed that specified ancillary receipts are income from other sources (not eligible for the deduction), remitted the claim for depreciation on electrical installations to the Assessing Officer for fresh decision, and dismissed the Revenue's appeal; the assessee's cross-objections became infructuous.

Proportional disallowance of interest on advances to related concerns - characterisation of inter-company advances as trade advances - application of Rule 46A regarding admission of additional evidence in appeal proceedings - computation of book profit under section 115JB

Proportional disallowance of interest on advances to related concerns - characterisation of inter-company advances as trade advances - application of Rule 46A regarding admission of additional evidence in appeal proceedings - Sustainedness of Assessing Officer's disallowance of interest on the ground that borrowed funds were diverted as interest free advances to sister concerns (impugned assessment year). - HELD THAT: - The Tribunal examined ledger balances and inter-company transactions and found that the assessee not only advanced amounts to sister concerns but also received advances from them; in particular, one sister concern showed a net credit of Rs.3,28,02,809 in favour of the assessee. The facts indicated regular business dealings, supporting classification of the amounts as trade advances rather than loans taken out of interest bearing borrowings. The Assessing Officer's presumptive computation of interest @13.5% was therefore not supported by the record. The CIT(A) had invited the Assessing Officer's comments during the appeal but received no reply; the Tribunal held that the CIT(A)'s reliance on the material before him did not amount to improper admission of fresh evidence in breach of Rule 46A. On these bases the addition was deleted. [Paras 5, 8]

Addition disallowing interest deleted; departmental grounds dismissed.

Proportional disallowance of interest on advances to related concerns - characterisation of inter-company advances as trade advances - Validity of identical disallowance of interest in the assessment year 2005-06 appeal. - HELD THAT: - The Tribunal treated the issue as identical to the one decided earlier and, applying the same factual and legal conclusions that inter-company transactions evidenced receipts exceeding payments and were trade advances, dismissed the department's ground challenging deletion of the addition. [Paras 9]

Departmental ground dismissed; CIT(A) order upheld.

Computation of book profit under section 115JB - Whether disallowable interest and unexplained investment added by the Assessing Officer should be included for computing book profit under section 115JB (assessment year 2006-07). - HELD THAT: - The Tribunal analysed section 115JB as a self contained code: book profit is to be computed from net profit as per profit and loss account, adjusted only by the items expressly enumerated in the Explanation to section 115JB. The additions made by the Assessing Officer fell outside the specified items that may be added to or deducted from book profit. Reliance of the assessee on precedent authorities was accepted. Consequently, the Assessing Officer's inclusion of those additions in computing MAT was held legally unsustainable. [Paras 11, 13]

Order of CIT(A) directing not to add the disallowable amounts in computing MAT upheld; departmental appeal dismissed.

Proportional disallowance of interest on advances to related concerns - characterisation of inter-company advances as trade advances - Assessee's cross objection challenging confirmation of disallowance quantified by the CIT(A) at a reduced amount (AY 2005-06). - HELD THAT: - On examination of the accounts and the nature of transactions, the Tribunal found no material to show diversion of interest bearing funds by the assessee to sister concerns; the inter company dealings were of a trading nature and sister concerns had also advanced amounts to the assessee. The earlier quantification of disallowance could not be sustained on these facts and was accordingly deleted. [Paras 15, 17]

Cross objection allowed and the disallowance of interest quantified by the CIT(A) deleted.

Final Conclusion: All departmental appeals are dismissed and the assessee's cross objection is allowed: the additions disallowing interest on advances to sister concerns were deleted (being unsupported or representing trade advances), and disallowable amounts outside the items specified in the Explanation to section 115JB were held not to be includible in book profit for MAT computation.

Assessment at enhanced customs value - transaction value declared under contract - customs notification increasing floor price - provisional assessment - leave to clear goods subject to pending appeal - refund of excess amount by appellate authority

Assessment at enhanced customs value - transaction value declared under contract - provisional assessment - leave to clear goods subject to pending appeal - Petitioner permitted to clear the consignment at the enhanced rate specified in the Assessment Order dated 13th February, 2013, without prejudice to its appellate rights. - HELD THAT: - The writ petition challenged the Assistant Commissioner of Customs' provisional assessment of the consignment of Betelnuts at USD 1550 per metric tonne, contending that the contract price, agreed prior to the Notification of 14th August, 2012, should govern assessment. Having considered submissions, the Court granted leave to the petitioner to clear the consignment at the enhanced rate as per the impugned Assessment Order, while expressly preserving the petitioner's rights and contentions in the appeal pending before the Customs Excise & Service Tax Appellate Tribunal (CESTAT). The order is interlocutory in nature and does not decide the merits of the appellate challenge to the assessment; it confines itself to permitting clearance subject to the outcome of the appeal. [Paras 6]

Petitioner allowed to clear the consignment at the enhanced assessed rate per the Assessment Order dated 13th February, 2013, without prejudice to its rights in the pending appeal.

Refund of excess amount by appellate authority - leave to clear goods subject to pending appeal - Appellate Tribunal to consider and pass appropriate orders regarding refund, if any, of excess amount paid by the petitioner. - HELD THAT: - The Court directed that the Customs Excise & Service Tax Appellate Tribunal (CESTAT), which has the petitioner's appeal pending, shall adjudicate the question of refund of any excess amount that the petitioner may have paid consequent to clearance at the enhanced assessed rate. This places the determination of any refund squarely before the appellate authority for appropriate orders in accordance with law, without the Supreme Court adjudicating the entitlement to refund on the merits. [Paras 7]

Matter of refund remitted to the Appellate Tribunal to pass appropriate orders regarding any excess amount paid.

Final Conclusion: Writ petition disposed of by permitting clearance of the consignment at the enhanced assessed rate subject to the petitioner's appellate rights; questions of refund left to the Appellate Tribunal to decide and act upon as appropriate.

Cause of action - territorial jurisdiction under Article 226 - part of cause of action - anticipatory event does not give cause of action - maintainability of writ petitions

Cause of action - territorial jurisdiction under Article 226 - part of cause of action - anticipatory event does not give cause of action - maintainability of writ petitions - No part of the cause of action arose within the territorial jurisdiction of this Court and the writ petitions are not maintainable under Article 226. - HELD THAT: - The Court analysed the concept of "cause of action" as a bundle of essential facts which must be pleaded and proved and relied on the principles in Kusum Ingots and Alloys Ltd. v. Union of India and Alchemist Ltd. v. State Bank of Sikkim to hold that only facts which are material, essential or integral can constitute a part of the cause of action. The petitioner relied on prospective consequences - assessment and payment of anti dumping duty upon clearance at Chennai - and contended that such consequences gave rise to cause of action within this State. The Court held that anticipatory or contingent events, such as future assessment or payment on clearance at a particular port, do not constitute a material, essential or integral part of the cause of action. The petitioner is a non resident company represented by a Power of Attorney holder in New Delhi, the investigating authority and appellate forum are located in New Delhi, and communications and submissions were made to the authority in New Delhi; these factors further indicated that no part of a substantive cause of action arose within this Court's territorial limits. Applying the cited Supreme Court authorities, the Court concluded that the facts pleaded by the petitioner did not constitute a part of the cause of action within Tamil Nadu and therefore the petitions were not maintainable under Article 226. [Paras 7, 8, 9, 10, 11]

Writ petitions dismissed as not maintainable for want of cause of action within the Court's territorial jurisdiction.

Final Conclusion: Writ petitions dismissed for want of territorial jurisdiction under Article 226; liberty granted to the petitioner to seek appropriate redressal before the competent forum.

Exclusion of value of transfer of property in goods from taxable value of works contract - Determination of taxable value under Rule 2A of the Service Tax (Determination of Value) Rules, 2006 - Works contract service - Waiver of pre-deposit and stay of recovery of service tax demands - Effect of prior payment of excise duty and VAT on valuation for service tax

Exclusion of value of transfer of property in goods from taxable value of works contract - Determination of taxable value under Rule 2A of the Service Tax (Determination of Value) Rules, 2006 - Effect of prior payment of excise duty and VAT on valuation for service tax - Whether the value of goods (manufactured and bought-out) forming part of the transaction must be excluded from the taxable value of 'Works Contract' service and, consequently, whether any service tax remains leviable on the transactions for April 2009 to March 2010. - HELD THAT: - The Tribunal found on the material before it that the appellant manufactured major parts of the electronic systems and sold those manufactured goods to customers (on which excise duty was paid), and also invoiced separately for bought-out components (on which VAT was paid). Rule 2A provides that the value of taxable service for execution of works contract is the gross charged minus the value attributable to transfer of property in goods involved in execution of the works contract. The department did not dispute that transfer of property in goods occurred. If the value of both manufactured and bought-out goods is excluded from the gross charged, no residual taxable value would remain for levy of service tax under 'Works Contract' service. Separately, the appellant has already paid service tax for installation of bought-out components under the appropriate head. On these facts the Tribunal concluded prima facie that the Rule 2A deduction applies and that the appellant has made out a sufficient case against the demand to justify relief by way of waiver and stay. [Paras 3, 4]

On the prima facie view that the value of goods transferred is excluded under Rule 2A and that excise/VAT/service tax have been paid where applicable, the appellant is entitled to waiver of pre-deposit and stay of recovery of the adjudged dues for April 2009 to March 2010.

Final Conclusion: Waiver of pre-deposit and stay of recovery granted in respect of the adjudged service tax dues for the period April, 2009 to March, 2010 on the prima facie finding that the value of goods transferred must be excluded from the taxable value of 'Works Contract' service under Rule 2A, with the additional fact that excise, VAT and applicable service tax on installation had been paid.

CENVAT credit - input service - packing expenses - allowability of input tax paid on services - fumigation services for export packing - CENVAT Credit Rules

Fumigation services for export packing - packing expenses - input service - CENVAT credit - CENVAT Credit Rules - CENVAT credit of service tax paid on fumigation services availed for fumigation of export containers at the time of packing in factory premises is allowable as input service being a packing expense. - HELD THAT: - The Tribunal accepted the appellant's submission that fumigation of containers for export arises from international phytosanitary requirements and is incurred as part of packing of finished goods. Packing expenses are recognised as admissible inputs under the CENVAT Credit Rules. Since the service tax paid on the fumigation services relates to an activity that is in the nature of packing, the tax paid qualifies as input tax and is therefore CENVATable. The respondent's contention that fumigation is not part of the final product was rejected on the ground that the service is a packing-related input service enabling export compliance and hence eligible for credit.

Credit of the service tax paid on fumigation services for export packing is admissible as CENVAT credit and directed to be allowed.

Final Conclusion: The appeal is allowed: CENVAT credit of the service tax paid on fumigation services for export packing is held admissible and the stay application is disposed of.

CENVAT credit - refund under Rule 5 of the CENVAT Credit Rules 2004 - export of services - nexus between input services and exported services - input service - Business Auxiliary Service

CENVAT credit - refund under Rule 5 of the CENVAT Credit Rules 2004 - nexus between input services and exported services - input service - Entitlement to refund of CENVAT credit claimed on various input services (other than food passes) for the period 01.01.2008 to 31.03.2008 - HELD THAT: - The respondent, a 100% EOU whose entire output service is exported, could not utilize CENVAT credit against domestic service tax and therefore claimed refund under Rule 5 read with the Notification. The Commissioner (Appeals) scrutinised the input services with reference to Circular No. 120/1/2010 ST and was satisfied that there existed sufficient nexus between the listed input services (including advertising for recruitment, housekeeping, network and connectivity, repairs and maintenance of computers, audit, recruitment services, rent, security services, etc.) and the exported service business which operates through computers and personnel. The Tribunal concurs that, except for the food pass item, the services were necessary for acquiring and utilising the respondent's business assets (people and computers) and thus bore the requisite nexus to the exported services, warranting allowance of the refunds which were earlier denied by the adjudicating authority. [Paras 3, 5, 6, 9]

Refunds allowed in respect of the input services listed, the appeal of Revenue rejected for those amounts.

CENVAT credit - nexus between input services and exported services - Business Auxiliary Service - Refund claim in respect of food passes - HELD THAT: - The Tribunal examined the nature and utilisation of food passes. Although food provided to employees can in some circumstances bear nexus to the business process, the manner of utilisation of these food passes in the present case could not be clearly established. The Revenue contended that food passes functioned like cash and were consumed by employees for personal use, making them indistinguishable from a perk. Given the absence of information demonstrating that the food passes were consumed as an integral part of the business process, the Tribunal found the nexus missing and treated the expenditure as essentially a perk to employees rather than an input service used in providing the exported service. On that basis the limited refund portion corresponding to food passes was not allowable. [Paras 7, 8, 10]

Refund in respect of food passes disallowed; appeal allowed to the limited extent of the food pass amount.

Final Conclusion: The Revenue appeal is dismissed except insofar as it concerns the amount claimed for food passes; refunds are allowed for the remaining input services for the period 01.01.2008 to 31.03.2008, while the food pass claim is disallowed.

Maintainability of Revenue appeal below monetary threshold - CBEC circular on limitation of filing appeals - Department bound by its own circulars

Maintainability of Revenue appeal below monetary threshold - CBEC circular on limitation of filing appeals - Department bound by its own circulars - Whether the Revenue's appeal should be dismissed where the amount involved is below the monetary limit set by the CBEC circular restricting filing of appeals. - HELD THAT: - The Tribunal examined the CBEC instructions first issued by circular dated 20.10.2010 (restricting filing of appeals before the CESTAT where the amount involved was less than Rs. Two lakhs) and reiterated and amended by circular dated 17.08.2011 (raising the monetary limit to Rs. Five lakhs). Although the present appeal was filed in January 2011, before issuance of the 17.08.2011 circular, the Tribunal found persuasive the decision of the Hon'ble High Court of Gujarat in Stovec Industries Limited which applied the later circular to appeals filed by the Department and held that the Department is bound by its own circulars. Applying that ratio, the Tribunal concluded that an appeal by the Revenue involving an amount below the prescribed threshold is not maintainable and, accordingly, the appeal must be dismissed. The Tribunal expressly followed the High Court's reasoning and dismissed the appeal while keeping the substantive legal question open for determination in an appropriate case. [Paras 5, 6]

Appeal dismissed for being not maintainable in view of CBEC circular on monetary threshold; legal question left open for an appropriate case.

Final Conclusion: Following the High Court's view that the Department is bound by its circulars limiting filing of appeals, the Tribunal dismissed the Revenue's appeal as not maintainable where the amount involved falls below the prescribed monetary threshold, while leaving substantive legal questions open for future adjudication.

CENVAT credit - Input service - Transportation of final products from place of removal as input service - Goods Transport Agency (GTA) service - Pre-amendment position prior to 01/04/2008 - Binding effect of High Court decision - Rule 2(l) of the CENVAT Credit Rules, 2004

CENVAT credit - GTA service - Input service - Transportation of final products from place of removal as input service - Pre-amendment position prior to 01/04/2008 - Binding effect of High Court decision - Allowability of CENVAT credit of service tax paid on GTA services used for outward transportation of finished goods for the period August, 2006 to March, 2007. - HELD THAT: - The Tribunal examined whether GTA services employed to transport finished goods from the place of removal to customers prior to 01/04/2008 qualified as input services under Rule 2(l) of the CENVAT Credit Rules, 2004. The assessee relied on the Tribunal's larger Bench decision in ABB Ltd. which accepted such GTA service as input service. Although the lower appellate authority declined to follow that larger Bench decision because an appeal was pending before the High Court, the High Court subsequently upheld the larger Bench view. The Court further noted that this conclusion applies notwithstanding the Board's Circular No.97/8/2007-ST, and that the position prior to the amendment effected on 01/04/2008 embraced transportation of final products from the place of removal as input service. In view of the High Court's decision and the pre-amendment statutory position, the assessee is entitled to the CENVAT credit for the disputed period and the impugned order denying credit cannot be sustained.

The impugned order is set aside; the appeal is allowed and CENVAT credit of service tax paid on GTA services for the period August, 2006 to March, 2007 is permitted.

Final Conclusion: Benefit of the High Court's decision upholding the Tribunal's larger Bench view is extended to the appellant for the pre-amendment period; the appeal is allowed and the order denying CENVAT credit on GTA services for August, 2006 to March, 2007 is set aside.

Exemption under Notification No.10/97-CE - supplies to Defence Research and Development Organization (DRDO) for weapon-related research - precedent value of an earlier final order - follow precedent - waiver of pre-deposit and disposal of stay applications - setting aside impugned orders

Exemption under Notification No.10/97-CE - supplies to Defence Research and Development Organization (DRDO) for weapon-related research - precedent value of an earlier final order - Entitlement to exemption under Notification No.10/97-CE for goods supplied to DRDO during the period November, 2008 to September, 2010. - HELD THAT: - The tribunal examined whether the assessee was entitled to the exemption claimed under Notification No.10/97-CE for goods supplied to the DRDO for weapon-related research in the stated period. The tribunal noted that an identical issue, arising from earlier supplies and identical facts, had been examined and decided in favour of the assessee by this Bench in Final Order Nos.476-477/2011 dated 28/07/2011 in appeals E/1151-1152/2010. The present appeals relate to the same substantive question and same character of goods supplied to DRDO for the said purpose. There was no indication that the Department had successfully challenged or displaced the earlier Final Order. In view of the binding precedent of the earlier decision of this Bench on the identical issue, the tribunal followed that precedent and allowed the appeals, setting aside the impugned orders. [Paras 2]

Appeals allowed; impugned orders set aside and the claimed exemption accepted as covered by the earlier Final Order.

Waiver of pre-deposit and disposal of stay applications - setting aside impugned orders - Applications for waiver/stay and pre-deposit dispensation in relation to the adjudged dues. - HELD THAT: - The tribunal considered the applications for waiver and stay of adjudged dues and, having disposed of the substantive appeals on merits by following the earlier Final Order, directed that pre-deposit be dispensed with and the stay applications be disposed. Since the substantive relief was granted, the ancillary applications for waiver and stay were accordingly disposed of. [Paras 1, 2]

Pre-deposit dispensed with; stay and waiver applications disposed of.

Final Conclusion: The tribunal, applying its earlier Final Order in favour of the assessee, allowed the appeals relating to supplies to DRDO for weapon-related research during November, 2008 to September, 2010, set aside the impugned orders, dispensed with pre-deposit and disposed of the stay/waiver applications.

Classification of goods for excise - waiver of pre-deposit and stay of recovery pending appeal - prima facie case for relief - scope of Chemical Examiner's opinion as to composition not tariff classification - distinction between flour preparations and ready-to-use food preparations

Waiver of pre-deposit and stay of recovery pending appeal - prima facie case for relief - classification of goods for excise - Grant of waiver of pre-deposit of duty and interest and stay of recovery during pendency of the appeal - HELD THAT: - The Tribunal examined the application for waiver of pre-deposit of the duty and interest confirmed after classification of 'Multigrain Bread Concentrate' under Chapter 19. Having considered the competing contentions - that the Chemical Examiner's report was limited to identifying ingredients and ought not to determine tariff classification, and that the product is a mixed cereal with additives produced in a usable condition for bakeries rather than a simple "food preparation" of the kind covered by Chapter 19 - the Tribunal found prima facie force in the appellant's contention that the goods may not properly be classifiable as a flour preparation under Chapter 19. On this basis only, and without finally adjudicating the classification on merits, the Tribunal concluded that the applicant had made out a prima facie case warranting relief from pre-deposit and interim protection from recovery. [Paras 2, 3, 4, 6, 7]

Waiver of pre-deposit of the dues adjudged is granted and recovery is stayed during the pendency of the appeal.

Final Conclusion: The application for waiver of pre-deposit and for stay of recovery is allowed on the basis of a prima facie view favouring the appellant's challenge to classification; the Tribunal did not decide the classification on merits and granted interim relief accordingly.

Assessable value - place of removal - deduction for transportation from place of removal to place of delivery - inclusion of return freight in assessable value - invoice disclosure and separate billing for freight

Assessable value - place of removal - deduction for transportation from place of removal to place of delivery - invoice disclosure and separate billing for freight - Whether amounts recovered as freight (and separately billed) for delivery from place of removal to place of delivery are includible in assessable value for central excise - HELD THAT: - The Tribunal found that the contracts between the appellants and the buyer showed the price of goods and the cost of transportation as separate items and that the amounts were billed separately; Revenue did not demonstrate that the freight charged was concealed, unknown, or excessive such that it formed part of the value of the goods. The Apex Court's decision in Escorts JCB Ltd. establishes that where goods are sold at factory gate or depot, the place of removal is the factory gate/depot and not the buyer's premises, and consequently transportation costs from place of removal to place of delivery do not form part of assessable value. The Tribunal also noted that this position has been accepted by the Board (by withdrawing the earlier contrary Circular dated 1-7-2002 and clarifying the position by Circular dated 19-5-2010). The fact that freight was omitted from the excise invoice and recovered through separate commercial invoices does not alter the legal position that such transportation charges (including return charges for specialised vehicles) are not includible in assessable value where they are separately shown and billed and not shown to be a disguised component of the price of goods. [Paras 8, 9]

Charges recovered as freight for delivery (and return charges for specialised vehicles), when separately contracted and billed, are not part of assessable value and need not be subjected to excise duty.

Final Conclusion: Appeals allowed; orders of the lower authorities setting aside and demanding duty on separately billed freight and return charges are set aside.

MRP-based assessment under Section 4A - assessment under Section 4 - wholesale package - multi-piece retail package - exemption under Rule 34(b) of the SWM (PC) Rules - Standards of Weights and Measures (Packaged Commodities) Rules - applicability of MRP provisions - binding precedent under Article 141

Wholesale package - multi-piece retail package - Standards of Weights and Measures (Packaged Commodities) Rules - applicability of MRP provisions - intention for retail sale - Whether the pet jars/polybags containing individually twist wrapped confectionery pieces are to be treated as wholesale packages or as multi piece retail packages attracting MRP provisions - HELD THAT: - The Tribunal examined the split Larger Bench decision and conflicting coordinate bench decisions, and applied binding Apex Court authority. The Bench noted that coordinate Bench decisions in Swan Sweets and Central Arecanut and Cocoa Marketing and Processing Cooperative Ltd. (dismissal of Revenue's appeals by the Supreme Court) involved facts similar to the present cases and are later and binding on this Tribunal. Consequently the view that the jumbo packs (pet jars/polybags) in these cases are wholesale packages - and not multi piece retail packages attracting MRP obligations - prevails. The Larger Bench's contrary majority view could not be followed in face of the Supreme Court's later rulings. The Tribunal therefore held for the assessees on the characterisation of the packages. [Paras 11, 12]

Findings in favour of the assessees that the impugned pet jars/polybags are to be regarded as wholesale packages (following the Apex Court precedents), and the impugned orders on this point are set aside.

Exemption under Rule 34(b) of the SWM (PC) Rules - MRP-based assessment under Section 4A - assessment under Section 4 - Whether the exemption under Rule 34(b) is available and, accordingly, whether assessment should be under Section 4 or under Section 4A - HELD THAT: - The Tribunal held that the exemption question must be resolved by applying the binding Supreme Court decisions in Swan Sweets and Central Arecanut and Cocoa Marketing and Processing Cooperative Ltd. Those decisions, on facts comparable to the present matters, precluded MRP based valuation under Section 4A and supported assessment under Section 4 because the jumbo packages were found to fall within the exemption (as wholesale packages or otherwise covered by Rule 34). The Larger Bench's majority conclusion - that multi piece packages whose total weight exceeded 20 grams were excluded from the exemption and thus liable to Section 4A assessment - could not be followed in view of the subsequent Supreme Court rulings which are binding under Article 141. [Paras 11, 12]

Exemption under Rule 34(b) applies on the facts here and assessment is to be under Section 4 rather than MRP based assessment under Section 4A; the differential duty demands are set aside.

Final Conclusion: The Tribunal, following the binding Supreme Court decisions cited, set aside the impugned orders and allowed the appeals, holding that the jumbo pet jars/polybags are to be treated as wholesale packages and that the exemption under Rule 34(b) applies so that assessment is to be made under Section 4 and not under MRP based Section 4A.

Permission for reassessment under the proviso to Section 21(2) of the U.P. Trade Tax Act - obligation to disclose reasons and to afford opportunity before authorising reassessment - requirement of rational, genuine and relevant reasons for reopening assessment - liability of manufacturer versus dealer under the Entry Tax regime - merger of assessment in first appellate order barring reassessment

Permission for reassessment under the proviso to Section 21(2) of the U.P. Trade Tax Act - obligation to disclose reasons and to afford opportunity before authorising reassessment - requirement of rational, genuine and relevant reasons for reopening assessment - Validity of the Commissioner's permission dated 25.03.2013 under Section 21(2) to reopen assessment for assessment year 2006-07 under the Trade Tax Act - HELD THAT: - The proviso to Section 21(2) permits the Commissioner to authorise reassessment after the normal limitation period if he is satisfied, on his own or on reasons recorded by the Assessing Officer, that it is just and expedient to reopen the assessment. Such satisfaction must be founded on rationale, genuine and relevant reasons. Principles of natural justice require that the reasons relied upon by the Assessing Officer or the Commissioner be made known to the assessee and that the assessee be given an opportunity to be heard before final authorisation is granted, because the authorisation itself creates civil consequences and affects the assessee's rights. Applying these principles to the facts, the Court found prima facie material (report arising from Central Excise survey indicating clandestine purchases of taxable raw material from unregistered suppliers) warranting further inquiry by the Assessing Officer. The Court noted that the assessee had an opportunity to submit a reply and directed that reassessment proceed so that the assessee can present its defence; accordingly the High Court declined to interfere with the Commissioner's grant of permission to reopen the Trade Tax assessment for AY 2006-07.

Permission for reassessment under Section 21(2) of the Trade Tax Act for assessment year 2006-07 is sustained and the writ petition challenging that permission is dismissed.

Liability of manufacturer versus dealer under the Entry Tax regime - merger of assessment in first appellate order barring reassessment - Legality of initiating reassessment proceedings under Section 21(2) in respect of Entry Tax for assessment year 2006-07 - HELD THAT: - Entry tax is leviable on the entry of scheduled goods into a local area for consumption, use or sale and is payable by the dealer who brings the goods into the local area; a manufacturer of the final product is not, by that fact alone, liable to pay entry tax but is obliged to collect it from a purchaser who is a dealer. The Court found on the material that the petitioner is a manufacturer of Gutkha and not a dealer within the meaning of the Entry Tax Act; further, the Entry Tax assessment had already been concluded and the first appellate order had merged the assessment. In those circumstances no prima facie case was made out to reopen the Entry Tax assessment under Section 21, and initiation of reassessment proceedings in respect of Entry Tax was not legally sustainable.

Impugned order dated 25.03.2013 insofar as it authorises reassessment under the Entry Tax Act is set aside and the writ petition seeking that relief is allowed.

Final Conclusion: The High Court upheld the Commissioner's permission to reopen the Trade Tax assessment for AY 2006-07 and dismissed the writ petition challenging it, while it set aside the impugned permission insofar as it authorised reassessment under the Entry Tax Act (on the grounds that the petitioner is a manufacturer not a dealer and the Entry Tax assessment had merged in the first appellate order) and allowed the corresponding writ petition.