TaxTMI Updates e-Newsletter
Jun 20,2020

Works contract - composite supply - immovable property - principal supply - original works - HSN classification - exemption under Notification No.12/2017

Works contract - composite supply - immovable property - principal supply - Whether the supply under the AFC project is a "works contract" or a "composite supply". - HELD THAT: - The Authority examined the statutory definition of "works contract" and noted that under GST it is restricted to contracts in relation to an immovable property; consequently a determination whether the AFC system results in an immovable property is determinative. The AFC hardware (POS, ETMs, validators, station servers, flap gates, etc.) were held to be movable in nature, capable of being dismantled and relocated without damage, and the system as a whole does not result in emergence of an immovable property. On the other hand, the contract provides a consolidated supply of multiple goods and services that are supplied as a package, perceived by the local authority as a single bundled requirement, and where the AFC system as a whole is the principal supply with other elements incidental to it. Applying the composite-supply tests (multiple supplies, natural bundling, existence of a principal supply), the Authority concluded that the contract qualifies as a composite supply and not as a works contract. [Paras 25, 26, 27, 30, 31]

The supply under the AFC project qualifies as a composite supply and does not qualify as a works contract under the CGST Act, 2017.

Original works - principal supply - Whether the supply qualifies as "original works" attracting concessional rate under the specified Notification. - HELD THAT: - The Authority examined the definition of "original works" which covers erection, commissioning or installation of plant, machinery or equipment but noted that the present contract is for supply of the AFC system comprising goods and services where the principal supply is the goods (the AFC system as a whole). Commissioning and installation are integrated and not separately priced; they form part of the bundled supply rather than constituting the principal supply of erection/installation services contemplated by the concessional entry. Consequently the supply does not qualify as "original works" meant predominantly for non-commercial use and the concessional rate is not applicable. [Paras 34, 35, 36]

The supply under the AFC project does not qualify as "original works" for the concessional rate and the concessional rate under the Notification is not applicable.

HSN classification - works contract - composite supply - Whether the HSN classification of the supply is '8470' or '9954'. - HELD THAT: - Having held that the transaction is not a works contract but a composite supply with goods as the principal supply, the Authority addressed classification. HSN '9954' relates to composite supply of works contracts and is therefore inapplicable. Given the nature and purpose of the AFC system-ticketing and fare computation machines and similar devices-the Authority concluded that classification under HSN '8470' is appropriate and the rate applicable to that classification applies. [Paras 37, 38, 39]

The appropriate HSN classification is '8470' (and not '9954').

Composite supply - exemption under Notification No.12/2017 - principal supply - Whether the post-implementation maintenance and management services qualify as composite supply and whether such composite supply is eligible for exemption under Notification No.12/2017 where value of goods does not exceed 25%. - HELD THAT: - The Authority found that maintenance and management obligations, including supply of spares, are part of the consolidated contract for the AFC system and satisfy the composite-supply criteria with the AFC system as the principal supply. The exemption under Notification No.12/2017 (as amended) applies only where the value of goods in the composite does not exceed 25% and where the recipient is a specified government/local authority. The contract shows that the value of goods (hardware and spares) exceeds 25% of the composite supply. Further, one of the contracting entities, M/s SSCDL, is a company incorporated under the Companies Act and therefore does not qualify as a local authority or Governmental authority for the purpose of the Notification. On these two independent grounds the composite supply is not eligible for the exemption. [Paras 41, 42]

Maintenance and management post-implementation qualify as a composite supply (with the AFC system as principal supply), but the composite supply is not eligible for exemption under Notification No.12/2017 since (i) the value of goods exceeds 25% and (ii) a contracting party (SSCDL) is not within the statutory definition of local authority/Governmental authority.

Final Conclusion: The Authority ruled that the AFC contract is a composite supply (not a works contract); it does not qualify as "original works" for the concessional rate; the HSN classification is '8470' (applicable rate 18%); and the post-implementation maintenance/management forms part of the composite supply but is not eligible for exemption under Notification No.12/2017 because the value of goods exceeds 25% and one recipient is not a covered local/governmental authority.

Supply in the course or furtherance of business - inclusive definition of business - taxable supply - consideration - Schedule-III exclusion - GST registration threshold

Inclusive definition of business - supply in the course or furtherance of business - GST registration threshold - Requirement of GST registration for the medical store run by the charitable trust - HELD THAT: - The Authority found that the applicant, though a charitable trust falling within the statutory definition of "person", carries out the activity of selling medicines from its medical store. The CGST Act's definition of "business" is inclusive and covers any trade or commerce "whether or not it is for a pecuniary benefit"; accordingly, the sale of medicines, even at lower rates and with limited pecuniary benefit, constitutes a business activity under the Act. Since such sale is a taxable supply of goods, registration is required once the aggregate turnover exceeds the threshold specified in Section 22(1) of the CGST Act, 2017. [Paras 7, 8, 9]

The applicant is required to obtain GST registration for the medical store run by the charitable trust when the aggregate turnover exceeds the statutory threshold.

Taxable supply - consideration - Schedule-III exclusion - Whether providing medicines at a lower rate amounts to a supply of goods under GST - HELD THAT: - The Authority held that medicines are "goods" under the Act and sales of medicines are covered by the definition of "taxable supply." The amounts paid by customers for medicines, even if lower than market rates, constitute "consideration" as defined in the Act. Moreover, the activity does not fall within the transactions listed in Schedule-III that are to be treated neither as supply of goods nor services. Therefore, the sale of medicines from the applicant's medical store qualifies as a taxable supply of goods. [Paras 8, 9]

The medical store providing medicines at a lower rate amounts to a supply of goods liable to GST.

Final Conclusion: The Authority ruled that sale of medicines by the charitable trust constitutes a taxable supply of goods and, subject to the aggregate turnover threshold in Section 22(1), the trust must obtain GST registration; supplying medicines at lower rates does not remove the activity from the scope of taxable supply or from the requirement of registration.

Aggregate turnover - supply - in the course or furtherance of business - exempt supply - services by way of extending deposits, loans or advances (consideration represented by way of interest) - threshold for registration

Aggregate turnover - supply - exempt supply - services by way of extending deposits, loans or advances (consideration represented by way of interest) - threshold for registration - Interest income from PPF, personal loans and advances to family/friends, and savings bank accounts must be included in aggregate turnover for determining the Rs. 20 lakh registration threshold under the GST law. - HELD THAT: - The Authority examined whether interest receipts from PPF, personal loans/advances and savings bank deposits fall to be considered while computing the threshold for mandatory registration. "Aggregate turnover" is defined to include the aggregate value of all taxable supplies, supplies at nil rate, exempt supplies and exports, computed on an all India PAN basis. "Supply" requires consideration and a connection with business, but the definition of aggregate turnover expressly includes exempt supplies. The notifications exempting services by way of extending deposits, loans or advances (where consideration is interest) relieve such interest income from GST liability; however, being "exempt supplies" they nonetheless form part of the aggregate turnover. Applying these principles, the Authority held that interest income earned by the applicant-though exempt from GST liability-must be aggregated with taxable receipts (for example, rent) to determine whether the aggregate turnover exceeds the registration threshold of Rs. 20 lakh. The conclusion applies to interest from PPF, interest on personal loans/advances to family or friends, and interest on savings bank accounts, each being interest based receipts characterised as exempt supplies but includible in aggregate turnover for threshold computation. [Paras 11, 12, 13, 14, 15]

Interest from PPF, personal loans/advances to family/friends and savings bank accounts is includible in "aggregate turnover" for calculating the Rs. 20 lakh registration threshold under the GST Act, notwithstanding that such interest income is exempt from GST.

Final Conclusion: The Authority ruled that interest income from PPF, personal loans/advances and savings bank deposits, although exempt from GST by notification, must be aggregated with taxable supplies to determine whether the Rs. 20 lakh registration threshold is crossed; all three questions were answered in the affirmative.

Sale of land - Sale of developed plots / plotted development - Construction of a complex intended for sale (Schedule II clause 5(b)) - Supply of service versus supply of goods - Schedule III exclusion - sale of land - Intrinsic part of plot - proportionate cost of common amenities - Taxable supply under GST

Sale of developed plots / plotted development - Schedule III exclusion - sale of land - Construction of a complex intended for sale (Schedule II clause 5(b)) - Intrinsic part of plot - proportionate cost of common amenities - Taxable supply under GST - GST applicability on sale of plots developed with primary amenities mandated by the plan approving authority. - HELD THAT: - Schedule III excludes from GST the transaction which is exclusively a transfer of title or ownership of land. Where the substance of the transaction is only sale of immoveable land, GST does not apply. Plotted development, however, involves forming land into a layout and providing infrastructure and common amenities (for example, levelling, roads, water and sewer lines, electricity, drainage, tanks and other infrastructure) so that the allottee receives a developed site. Sellers ordinarily charge on a super built up or proportionate basis, thereby collecting for both land and the common infrastructure which becomes an intrinsic part of the allotted plot. Sale of such developed plots is therefore not equivalent to mere sale of land but amounts to rendering of service. The activity falls within the scope of "construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer" as set out in Schedule II (clause 5(b)) and is taxable as construction services under the GST laws. The Authority noted that this view is consistent with earlier judicial treatment of plotted development, including the decision in M/s Narne Construction P Ltd.. [Paras 11, 12, 13, 14, 15]

GST is applicable on the sale of plots developed with the primary amenities required by the plan approving authority; such sales constitute taxable construction services under Schedule II and are not excluded as mere sale of land under Schedule III.

Final Conclusion: The Authority ruled in the affirmative that GST applies to the sale of plots developed with mandated primary amenities, treating such transactions as taxable construction services rather than as mere sale of land.

Classification of goods under Customs Tariff - Interpretation of 'rice bran' - Residual classification under Chapter 38 - Application of the First Schedule to the Customs Tariff Act - GST rate applicability under Schedule III of Notification No.1/2017-Central Tax (Rate)

Interpretation of 'rice bran' - Classification of goods under Customs Tariff - Residual classification under Chapter 38 - GST rate applicability under Schedule III of Notification No.1/2017-Central Tax (Rate) - Classification of the product described as Rice Bran (22+oil) and the rate of GST applicable on its supply. - HELD THAT: - The Authority examined the material on record including the applicant's description of inputs (rice husk of poha and mamra and sludge/wax oil), laboratory test report showing elevated oil content, and the applicant's failure to specify the precise processes undertaken. The Authority noted the ordinary meaning of 'rice bran' as a product obtained by milling rice (seed coat, germ, broken grains) and held that the applicant's product is not obtained by milling rice but rather results from combining rice husk and sludge/wax oil. Given the absence of a demonstrated milling origin or detailed processing steps to establish a distinct product class, the product could not be treated as 'rice bran' in the conventional sense. Applying Explanation (iii) to Notification No. 1/2017 CT (Rate) and the First Schedule to the Customs Tariff Act, the Authority placed the product in the residual heading for miscellaneous chemical products, namely sub-heading 3825 as the residual entry for products of the chemical or allied industries not elsewhere specified. Having so classified the product under heading 38259000, the Authority observed that Chapter 3825 falls under Sr. No. 98 of Schedule III of Notification No.1/2017-Central Tax (Rate), and accordingly determined the applicable central and state GST rates.

The product Rice Bran (22+oil) is classified under heading 38259000 and attracts 9% CGST and 9% SGST as per Sr. No. 98 of Schedule III to Notification No.1/2017-Central Tax (Rate).

Final Conclusion: The Advance Ruling finds that the product marketed as Rice Bran (22+oil) is not rice bran obtained by milling, classifies it under the residual chemical products heading 38259000, and rules that it attracts 9% CGST and 9% SGST under the cited notification.

Advance ruling jurisdiction - matters under Section 97(2) - scope of advance ruling - place of supply of services - export of services - advance ruling maintainability - precedents of the Appellate Authority for Advance Ruling

Advance ruling jurisdiction - place of supply of services - matters under Section 97(2) - scope of advance ruling - advance ruling maintainability - precedents of the Appellate Authority for Advance Ruling - Whether the Advance Ruling Authority has jurisdiction to rule on the applicant's question concerning online or telephonic IT coaching supplied from India to recipients outside India (which requires determination of place of supply) and whether the application is maintainable. - HELD THAT: - The Authority examined the scope of questions permissible under Section 97(2) of the CGST Act and observed that determination of the "place of supply of services" is not included in the enumerated matters on which an advance ruling may be given. The Authority noted that answering the applicant's question necessarily requires determining the place of supply under the IGST provisions and that such a determination falls outside the statutory ambit of Section 97(2). Reliance was placed on prior orders of the Appellate Authority for Advance Ruling which held that the determination of place of supply is beyond the jurisdiction of the Advance Ruling Authority. The applicant's authorised representative conceded that answering the question would involve discussion of place of supply. In view of these legal constraints and the consistent appellate authority decisions, the Authority concluded that it lacked jurisdiction to decide the question and that the application was therefore not maintainable. [Paras 5]

Application for advance ruling rejected as not maintainable because the question involves determination of place of supply, which is outside the scope of matters on which the Advance Ruling Authority may pronounce.

Final Conclusion: The Advance Ruling Authority dismissed the application and refused to answer the question, holding that the matter involves determination of place of supply and therefore falls outside the jurisdiction and scope of advance rulings under the CGST Act; the application is rejected as not maintainable.

Classification of goods for GST - tariff heading determination - self-adhesive plastic film - application of Section VII Note 2 - advance ruling on HSN code

Classification of goods for GST - self-adhesive plastic film - tariff heading determination - application of Section VII Note 2 - Whether 'Heat Activated Ultra-Violet (HAUV) Polyester Film with Adhesive Coating and U.V. Printing' is classifiable under Chapter 3919 or Chapter 49 of the GST Tariff - HELD THAT: - The Authority found from the applicant's description that the product is a polyester film uniformly coated on one side with a heat-activated adhesive and printed with UV inks, and that it is capable of permanently adhering to paper. The description of Heading 3919 - covering self-adhesive plates, sheets, film, foil, tape, strip and other flat shapes, of plastics - corresponds to the subject product. The applicant itself imports the goods under Heading 3919 and pays customs duty accordingly. Note 2 to Section VII of the GST Tariff excludes goods of Heading 3918 or 3919 from Chapter 49 even where plastics are printed with motifs or pictorial representations which are not merely incidental to primary use. Applying that provision, goods falling under Heading 3919 cannot be classified under Chapter 49. In view of the description, the import classification adopted by the applicant, and the express exclusion in Section VII Note 2, the Authority held that the product is properly classifiable under Chapter 3919 and that a reclassification to Chapter 49 is not permissible on the facts presented. [Paras 5, 6]

The product is classifiable under Chapter 3919 of the GST Tariff and not under Chapter 49.

Final Conclusion: The advance ruling answers that the Heat Activated Ultra-Violet (HAUV) Polyester Film with Adhesive Coating and U.V. Printing is classifiable under Chapter 3919 of the GST Tariff; the applicant's request to treat the goods under Chapter 49 (Heading 4911) is rejected.

Classification of services as On-line information and database access or retrieval (OIDAR) services - consulting engineer services - advance ruling: admissibility - application not admitted under Section 98(2) of the CGST Act, 2017 because matter pending before department - voluntary withdrawal of question in an advance ruling application

Voluntary withdrawal of question in an advance ruling application - advance ruling: admissibility - Applicant's request to withdraw the first question on whether the design and development services amount to export of services was permitted. - HELD THAT: - The applicant, by letter dated 23.01.2020, sought to withdraw the first question which related to the place of supply and export of services. The Authority accepted the voluntary and unconditional withdrawal and allowed the request without adjudicating the merits of that question. The Authority expressly recorded that it would not go into the merits or detailed facts in respect of the withdrawn question. [Paras 5]

Withdrawal of the first question is allowed.

Classification of services as On-line information and database access or retrieval (OIDAR) services - consulting engineer services - application not admitted under Section 98(2) of the CGST Act, 2017 because matter pending before department - advance ruling: admissibility - Whether the question on classification of the applicant's design and development services as OIDAR services is admissible for advance ruling. - HELD THAT: - The Authority examined the applicant's submissions and the department's position that a show cause notice dated 27.08.2018 was pending which alleged classification of the services as on-line database access (OIDAR) services. Relying on the procedure in Section 98(2) of the CGST Act, 2017, the Authority held that it could not admit the application on a question already pending before the department. In view of the pending departmental proceedings (SCN), the Authority declined to admit the second question for determination and did not decide the classification issue on merits. [Paras 5]

Second question not admitted for advance ruling under Section 98(2) of the CGST Act, 2017 as the issue is pending before the department.

Final Conclusion: The application was partly allowed insofar as the applicant voluntarily withdrew the first question; the second question on whether the services constitute OIDAR was not admitted for advance ruling because the matter was already pending before the department (SCN dated 27.08.2018), and therefore the Authority declined to determine the classification.

Place of supply - export of services - intermediary services - advance ruling jurisdiction of the AAR - non-maintainability under Section 97(2) of the CGST Act

Place of supply - export of services - intermediary services - non-maintainability under Section 97(2) of the CGST Act - advance ruling jurisdiction of the AAR - Application seeking advance ruling on whether commission for intermediary services rendered to overseas clients qualifies as export of services or is an intra-state supply is not maintainable before the Authority for Advance Ruling. - HELD THAT: - The Authority examined whether the question raised necessarily required determination of the place of supply and therefore whether it fell within the list of matters on which an advance ruling may be given under Section 97(2). The Authority found that determination of whether the services amounted to export of services under the IGST provisions would require deciding the place of supply. As the subject matter - determination of place of supply of goods or services - is not included in the enumerated matters in Section 97(2), the Authority held it lacks jurisdiction to adjudicate the question. The Authority relied on earlier decisions of the Appellate Authority for Advance Ruling which took the same view that questions involving place of supply are beyond the AAR's remit and concluded that the present application is thus non-maintainable before the AAR. [Paras 5]

Application for advance ruling rejected as non-maintainable for want of jurisdiction to decide place of supply issues.

Final Conclusion: The Authority dismissed the application and rejected the request for advance ruling as non-maintainable because the questions raised concern the determination of the place of supply (and hence export status) which is not a matter on which an advance ruling can be given under Section 97(2) of the CGST Act.

Summary order. Notice issued returnable in twelve weeks; operation of the impugned judgment and order of the High Court for the State of Telangana dated 4 March 2020 in WP No 2161 of 2020 stayed pending further orders; petitioners to deposit the court fee within eight weeks.

Regular bail - custodial detention and COVID-19 risk - trial delay as ground for grant of bail - security by bank guarantee or immovable property - conditional release to satisfaction of Chief Judicial Magistrate/Duty Magistrate - no expression of opinion on merits

Regular bail - custodial detention and COVID-19 risk - trial delay as ground for grant of bail - security by bank guarantee or immovable property - conditional release to satisfaction of Chief Judicial Magistrate/Duty Magistrate - no expression of opinion on merits - Grant of regular bail to the petitioner in complaint No.2355/2019 under the Punjab GST Act, 2017, subject to conditions. - HELD THAT: - The Court recorded that the petitioner, a 29-year-old who claims to be an income-tax payer and who faces a show cause notice under Section 74 of the Punjab GST Act, had only one of twenty-nine prosecution witnesses examined and that the trial was likely to take time. Having regard to the existing COVID-19 pandemic and the risk to the petitioner's health from continued detention, the Court exercised its discretion to release the petitioner on regular bail. The order conditions release on the petitioner furnishing bail bonds/surety bonds to the satisfaction of the Chief Judicial Magistrate/Duty Magistrate and on furnishing security in the form of a bank guarantee or original title papers of immovable property of specified value within a stipulated period. The Court expressly clarified that its observations do not constitute any expression on the merits of the criminal allegations.

Petitioner released on regular bail subject to furnishing bail/surety bonds to the satisfaction of the concerned Magistrate and providing security by bank guarantee or original immovable property papers within 15 days; observations not an opinion on merits.

Final Conclusion: The petition is disposed of by directing grant of regular bail to the petitioner on the stated conditions (bail/surety to the satisfaction of the Chief Judicial Magistrate/Duty Magistrate and security by bank guarantee or immovable property within 15 days), with the Court refraining from any expression on the merits of the case.

Claim of CENVAT tax credit - Form GST Trans-1 - time limit in Rule 117 directory not mandatory - compliance with judicial directions - obligation to publicise judicial orders - reopening of portal to enable filing

Claim of CENVAT tax credit - Form GST Trans-1 - compliance with judicial directions - reopening of portal to enable filing - obligation to publicise judicial orders - Respondents directed to publicise the co-ordinate Bench's decision and open the common portal to enable filing of claims in Form GST Trans-1 in accordance with that decision. - HELD THAT: - The petition sought directions to enable the petitioner to file its claim of CENVAT credit in Form Trans-1 and for declaration of Rule 117 as ultra vires. This Court noted the Division Bench decision in Brand Equity Treaties Limited holding that the 90-day time limit under Rule 117 is directory and that respondents should publicise that decision and permit affected assessees to upload Form GST Trans-1 by 30.06.2020. As that decision has not been stayed, the respondents are under a judicial obligation to comply. The Court therefore directed respondents to ensure adequate publicity, upload the decision on their website and open the common portal to enable the petitioner and similarly placed assessees to upload Form GST Trans-1, with compliance to be completed by 19.06.2020 so as to permit filing by the 30.06.2020 cut-off fixed in the co-ordinate Bench's order. The petition was disposed with these directions and without adjudication on the broader constitutional challenge to Rule 117. [Paras 3, 7, 8]

Respondents directed to publicise the Brand Equity Treaties Limited decision, upload it on their website and open the portal to enable upload of Form GST Trans-1; compliance to be ensured by 19.06.2020 to permit filings by 30.06.2020.

Time limit in Rule 117 directory not mandatory - The challenge to declare Rule 117 of the CGST Rules, 2017 ultra vires was not adjudicated by this Court in the present petition. - HELD THAT: - Although the petitioner sought a declaration that Rule 117 is ultra vires, the Court disposed of the petition by directing compliance with the co-ordinate Bench's ruling in Brand Equity Treaties Limited and did not pronounce on the vires of Rule 117. The respondents' obligation to comply with the existing Division Bench order was enforced without deciding the constitutional or vires challenge to Rule 117; the respondents indicated their intention to challenge the Brand Equity decision before the Supreme Court, but that appeal had not stayed the Division Bench order.

Prayer for declaration of Rule 117 as ultra vires was not decided and remains unadjudicated in this petition.

Final Conclusion: The petition was disposed of by directing the respondents to publicise the Division Bench judgment in Brand Equity Treaties Limited, upload it on their website and reopen the common portal to permit filing of claims in Form GST Trans-1; compliance was ordered by 19.06.2020 to enable filings by 30.06.2020. The question of the vires of Rule 117 was not adjudicated.

Leasehold improvements - revenue expenditure v. capital expenditure - enduring benefit test for capitalisation - classification of ATMs as computers for depreciation - Appendix I to the Income Tax Rules - computer as plant and machinery - change in method of accounting - burden on revenue to prove distortion of profits - non pari materia of tax and sales tax statutes

Leasehold improvements - revenue expenditure v. capital expenditure - enduring benefit test for capitalisation - Expenditure on leasehold improvements amounting to Rs. 89,23,817/- is revenue expenditure and not capital expenditure. - HELD THAT: - Applying the tests laid down in Assam Bengal Cement Co. Ltd. and subsequent authorities, the Court examined whether the outlay brought into existence a capital asset or an enduring advantage for the assessee. The premises were leased for three years and did not belong to the assessee; the expenditure related to setting up workstations, interiors, electrical work, architect fees and cabling to conduct business more profitably. The payment did not create an owned capital asset for the assessee but yielded a business advantage during the lease; accordingly the Tribunal correctly characterised the expenditure as revenue expenditure under Section 37. [Paras 7]

The addition disallowing the leasehold improvement as revenue expense is reversed; the expenditure is revenue in nature.

Classification of ATMs as computers for depreciation - Appendix I to the Income Tax Rules - computer as plant and machinery - non pari materia of tax and sales tax statutes - ATMs are to be treated as computers and are eligible for depreciation at the higher rate (60%). - HELD THAT: - The Court rejected reliance on a sales tax decision (Diebold) because the Karnataka Sales Tax Act and the Income Tax Act are not pari materia. Having regard to Appendix I to the Income Tax Rules which treats computers as plant and machinery, and on the Tribunal's factual finding (endorsed by reliance on the Bombay High Court) that the computer functions within an ATM are integral to its operation (information processed by the computer enables mechanical cash dispensation), the Court held that ATMs qualify as computers for the purposes of income tax depreciation and are entitled to the higher rate. [Paras 8]

The Tribunal's conclusion that ATMs are computers and eligible for 60% depreciation is affirmed.

Change in method of accounting - burden on revenue to prove distortion of profits - The change in the assessee's method of accounting was permissible because the revenue failed to prove that the change distorted the true and correct profits. - HELD THAT: - Following the Supreme Court's decision in Bilahari Investments, the Court observed that when an assessee substitutes one accounting method for another the burden lies on the department to demonstrate that the new method is incorrect and distorts profits of the relevant year. The assessing officer and the Commissioner (Appeals) did not discharge that burden in the present case; consequently the Tribunal correctly permitted the change of method. [Paras 9]

The Tribunal's acceptance of the change in method of accounting is upheld.

Final Conclusion: All substantial questions of law framed on admission are answered against the revenue and in favour of the assessee; the revenue's appeal is dismissed.

Liability of directors of private company in liquidation u/s 179 - Recovery proceedings - argument is that instead of recovering the aforesaid amount in tune with the provisions of Section 179 the Department proceeded to put the immovable properties to auction

Extension of time for deposit - deposit of entire amount as condition precedent - conditional dismissal for non-deposit - HELD THAT: - The Court granted the application for extension of time and fixed a final date of 31.07.2020 for compliance. The grant of extension was made subject to a clear conditional mandate: if the entire amount is not deposited by that date for any reason, the Special Leave Petition will be dismissed without further reference to the Court. The order thus permits a time-limited opportunity to comply while prescribing an automatic consequence for non-compliance, obviating further adjudication if the condition is not met.

Extension of time allowed till 31.07.2020; failure to deposit the entire amount by that date will result in dismissal of the Special Leave Petition without further reference to the Court.

Final Conclusion: The application for extension of time is allowed until 31.07.2020 on the condition that the entire amount is deposited by that date; non-deposit will cause the Special Leave Petition to be dismissed forthwith.

Exemption u/s 11 - Registration u/s 12AA denied - Tribunal was right OR not in overlooking the fact that in the absence of “Dissolution Clause” in the Trust Deed, the net assets of the Trust on its dissolution would be transferred to any entity / distributed among the trustees - as per HC [2019 (8) TMI 1497 - BOMBAY HIGH COURT] partial expenditure which is not authorized by the Trust would not be itself lead to the Trust becoming nongenuine - HELD THAT:- SLP dismissed.

Reopening of assessment - Change of opinion -Notice under Section 148 - Finality of assessment order - Quashing of reopening notice

Validity of the notice issued u/s 148 to reopen the assessment where the AO had raised the same query during assessment proceedings and the assessee had responded before the assessment order was passed - HELD THAT: - The High Court [2019 (8) TMI 1337 - BOMBAY HIGH COURT] found that the reasons relied upon for issuing the impugned notice u/s 148 related to the very issue on which the AO had raised a query during the assessment proceedings and to which the assessee had furnished responses before completion of assessment.

The non-rejection of the assessee's explanation in the assessment order itself amounted to the AO having accepted the assessee's view and thus having formed an opinion during the assessment.

Reopening in such circumstances amounted to a mere change of opinion, which the High Court held to be without jurisdiction. The Supreme Court, on hearing counsel, declined to interfere with the High Court's conclusion and dismissed the special leave petition, thereby leaving undisturbed the quashing of the notice to reopen the assessment.

The notice dated 27.03.2019 under Section 148 was quashed as proceeding from a mere change of opinion; the Supreme Court dismissed the special leave petition and declined to interfere with the High Court's order.

Final Conclusion: The Supreme Court dismissed the petition and declined to disturb the High Court's quashing of the reopening notice for Assessment Year 2014-15 on the ground that it amounted to a change of opinion after the assessment order, and consequently the notice under Section 148 was set aside.

Approval u/s 80(G)(5) -Power of appellate forum to remand for fresh consideration - judicial review of remand orders - subjective satisfaction of taxing authority for grant of exemption - evaluation of documentary evidence supporting charitable purpose - duty to pass a speaking order after fresh consideration

As per HC [2019 (6) TMI 254 - ALLAHABAD HIGH COURT] appeal is dismissed; the Tribunal's remand to the Commissioner of Income Tax (Exemptions) for fresh consideration of the evidence and formation of statutory satisfaction for grant of Section 80G approval is upheld, and the Commissioner is directed to decide the application after hearing the assessee and passing a speaking order expeditiously (within the period specified by the Court).

HELD THAT:- The Special Leave Petition is dismissed.

However, the observations made in para 21 of the impugned judgment stand expunged.

Reopening of assessment under Section 147 - Reason to believe - Escapement of income - Long term capital gains exempt under Section 10(38) - Computation of book profit for MAT under Section 115JB - Scope of reassessment where return accepted under Section 143(1) - Change of opinion doctrine - Fishing and roving enquiries - HELD THAT:- Delay condoned. The Special Leave Petition is dismissed. HC order confirmed [2019 (6) TMI 1185 - BOMBAY HIGH COURT]

Pending application stands disposed of.

Conversion of stock in trade into capital asset and consequent tax treatment - characterisation of income as capital gains versus business income on sale after conversion - taxability of conversion transactions in the absence of explicit statutory provision - strict construction of taxing statute - fictional sale/self-dealing principle - amendment to Section 45 to address conversion of stock in trade into capital asset

Conversion of stock in trade into capital asset and consequent tax treatment - characterisation of income as capital gains versus business income on sale after conversion - fictional sale/self-dealing principle - Income arising on sale of shares held as capital asset after conversion from stock in trade is to be treated as capital gains and not as business income. - HELD THAT: - The Court found that where an assessee converts stock in trade into investments and thereafter sells those shares, the profit on such sale is taxable as capital gain. Reliance was placed on the established principle that one cannot treat a notional sale between a person and himself to create taxable business profit; the fictional sale/self-dealing principle disallows artificial attribution of business income on conversion. The Court noted that prior to the 2018 Finance Bill amendment there was no provision rendering such conversions taxable as business income, and that several High Courts had held similarly. Applying the principle that taxing statutes must be strictly construed, the tribunal's treatment of the sale proceeds as business income was held to be erroneous. [Paras 6, 9, 10]

The income is capital gains and not business income; the tribunal's order is quashed on this point.

Taxability of conversion transactions in the absence of explicit statutory provision - strict construction of taxing statute - amendment to Section 45 to address conversion of stock in trade into capital asset - In the absence of an explicit statutory provision prior to the 2018 amendment, conversion of stock in trade into capital asset could not be taxed as business income. - HELD THAT: - The Court examined the memorandum to the Finance Bill, 2018 and observed that prior to the amendment (effective 01.04.2019) the Income Tax Act did not provide for taxing cases where stock in trade was converted into or treated as a capital asset. Applying the canon that taxing enactments must be clearly worded to impose liability, the Court held that, before the statutory amendment, such conversion did not attract taxation as business income. The legislative amendment was noted as supplying the lacuna prospectively; it did not operate retrospectively to validate the tribunal's earlier decision. [Paras 7, 8, 9]

Absent a pre-amendment statutory provision, the conversion could not be taxed as business income; the tribunal erred in doing so.

Final Conclusion: Appeals allowed. The substantial question of law is answered in favour of the assessee: where stock in trade of shares was converted into investments and subsequently sold prior to the 2018 amendment, the resulting income is chargeable as capital gains and not as business income; the tribunal's order is quashed.

Characterisation as "salary" and "profits in lieu of salary" - applicability of Double Taxation Avoidance Agreement - Article 16 (salaries taxable only in State of residence) - obligation to deduct tax at source and assessee in default under Section 201 - levy of interest under Section 201(1A) - standard of appellate interference - perversity of tribunal's findings of fact

Characterisation as "salary" and "profits in lieu of salary" - profits in lieu of salary received before or after employment - Payment made under the Employee Non Compete Agreements is in the nature of salary / profits in lieu of salary in the hands of the recipients - HELD THAT: - The Tribunal found on facts that the two recipients had accepted employment with the assessee before receiving the lump sum payment, that the Non Compete Agreement is distinct from the Non Disclosure Agreement and operates to restrain post-termination employment, and that the persons held key positions possessing confidential information critical to the employer's business. Those factual findings led the Tribunal to conclude that the payments constituted salary / profits in lieu of salary. The High Court recorded that these findings of fact were not shown to be perverse and, applying the settled principle that appellate interference under Section 260A requires perversity, declined to disturb the Tribunal's factual conclusions. [Paras 16, 18]

Payment under the Non Compete Agreements is to be treated as salary / profits in lieu of salary.

Applicability of Double Taxation Avoidance Agreement - Article 16 (salaries taxable only in State of residence) - source of employment exercise - services rendered outside India - Such salary / profits in lieu of salary are not taxable in India because Article 16 of the DTAA (India-USA) applies, the employment was exercised outside India and the recipients are residents of the United States - HELD THAT: - The Tribunal concluded on the material that the services were rendered outside India and payments were made in the U.S., bringing the payments within Article 16(1) of the DTAA which allocates taxation of salary to the State of residence unless the employment is exercised in the other State. The High Court observed that this conclusion was founded on unchallenged findings of fact and therefore not open to reversal absent perversity. The court rejected the revenue's reliance on decisions where income accrued in India because those cases involved broadcasts or events occurring in India and are factually distinguishable. [Paras 17, 19]

Article 16 of the DTAA applies and the amounts are taxable only in the United States, not in India.

Obligation to deduct tax at source and assessee in default under Section 201 - levy of interest under Section 201(1A) - Because the payments are salary taxable only in the United States under the DTAA, the payer was not obliged to deduct tax at source in India and therefore cannot be treated as an assessee in default or be liable to interest under Section 201(1A) - HELD THAT: - The Tribunal held that where the payment is of the nature of salary not taxable in India by reason of the DTAA, the payer need not seek prior clearance under Section 195(2) and is not liable to be treated as an assessee in default under Section 201(1). The High Court accepted that conclusion on the unchallenged factual findings, and held that the revenue had not pleaded or proved any perversity to justify interference. Consequently, the consequential levy of interest under Section 201(1A) also did not survive. [Paras 17, 18]

No obligation to deduct tax at source; assessee not in default and interest under Section 201(1A) not leviable.

Final Conclusion: The Tribunal's factual findings that the payments constituted salary/profits in lieu of salary and, on that basis, were taxable only in the United States under Article 16 of the DTAA were not shown to be perverse; accordingly, the revenue's appeal is dismissed and the Assessing Officer's orders treating the assessee as an assessee in default and levying interest are set aside.

Reopening of assessment under Section 148/147 - reason to believe - change of opinion - reliance on audit party report - full and true disclosure

Reopening of assessment under Section 148/147 - change of opinion - reliance on audit party report - full and true disclosure - reason to believe - Validity of the notice dated 28.03.2018 reopening assessment for A.Y.2011-12 - HELD THAT: - The Court examined whether the reassessment notice was founded on a genuine reason to believe that income had escaped assessment or amounted merely to a change of opinion. It observed that reliance on a report or point raised by the audit party is not in itself fatal provided the Assessing Officer applies his mind; however, relevance turns on whether the material relied upon arose for the first time or was already before the AO during original scrutiny. Here the very sample sale document and the tax-audit material (Form No.3CD, profit & loss and balance sheet, and the site supervisor valuation) were on record at the time of the original assessment. The sole basis for reopening - alleged undervaluation of closing stock by reference to the same materials - did not disclose any new material which the AO could not have discovered with due diligence. Applying settled principle that reassessment cannot be sustained where it is only a reappraisal of the same materials amounting to a change of opinion (as explained in CIT v. Kelvinator of India Ltd.), the Court concluded that the AO's reasons did not establish a fresh bona fide belief of escapement of income but merely a difference of view on valuation and disclosure, notwithstanding that one of the grounds had been highlighted by the audit party. [Paras 6, 7, 8, 9]

Impugned notice for reassessment quashed as the reopening amounted to a mere change of opinion and was not supported by fresh material establishing a bona fide reason to believe escapement of income.

Final Conclusion: Writ allowed; notice dated 28.03.2018 under Section 148 quashed and set aside for A.Y.2011-12 on the ground that reassessment amounted to a mere change of opinion rather than being founded on new material establishing escapement of income.

Revisional jurisdiction under section 263 - erroneous and prejudicial to the interest of the revenue - finality of completed assessment - scope of assessment under section 153A where no incriminating material is found - booking of flat - construction versus purchase - permissible view of Assessing Officer not vitiating order under section 263 unless unsustainable in law

Revisional jurisdiction under section 263 - erroneous and prejudicial to the interest of the revenue - permissible view of Assessing Officer not vitiating order under section 263 unless unsustainable in law - Validity of the Principal Commissioner of Income Tax's exercise of revisional jurisdiction under section 263 in setting aside the assessment as erroneous and prejudicial to revenue. - HELD THAT: - The Tribunal applied the twin condition test from Malabar Industries: for revision under section 263 the AO's order must be both erroneous and prejudicial to the revenue. It observed that the Assessing Officer had adopted a view-accepting the assessee's claim under sections 54/54F-which was one of the permissible courses in law. The Tribunal held that mere loss to revenue or disagreement by the Principal CIT does not render the AO's order erroneous and prejudicial unless the AO's view is unsustainable in law. On the facts, the Tribunal found no such unsustainability: the AO had examined the claim (limited to date/possession) and taken a view which could not be characterised as legally impermissible. Consequently the assumption of revisional jurisdiction by the Principal CIT was held to be null and the exercise of power under section 263 was quashed. [Paras 9, 13]

Principal CIT's invocation of revisional jurisdiction under section 263 was quashed and the order passed under section 263 set aside.

Scope of assessment under section 153A where no incriminating material is found - finality of completed assessment - booking of flat - construction versus purchase - Whether the Assessing Officer or the post search LD AO could revisit the completed assessment for A.Y. 2010-11 in absence of any incriminating material found in the search, specifically in relation to allowance of deductions under sections 54/54F where the nature of acquisition (construction v. purchase) was in issue. - HELD THAT: - The Tribunal analysed section 153A and relevant precedents (including the Delhi High Court decision cited) to conclude that completed assessments attain finality and can be reopened under the post search procedure only if incriminating material relatable to the concluded year is unearthed. In the present case the assessment for A.Y. 2010-11 was completed before the search and no incriminating material relating to the sections 54/54F claim was found during the search. Although the Principal CIT treated the booking of the flat as prima facie construction (invoking CBDT circulars and case law) and directed re examination, the Tribunal held that absent seized material linking to the concluded assessment year the AO (or LD AO) could not legitimately disturb the original findings. The Tribunal further noted that where the AO adopts one of the permissible legal views, that alone does not render the order erroneous for the purposes of section 263. [Paras 11, 12]

In the absence of incriminating material relating to A.Y. 2010-11, the findings in the completed assessment could not be disturbed; the Principal CIT's direction to re examine allowance of deduction under sections 54/54F was invalid.

Final Conclusion: The Tribunal allowed the assessee's appeal for A.Y. 2010-11, quashed the Principal CIT's order passed under section 263 and restored the assessment by holding that revisional jurisdiction was not lawfully exercisable because the AO's view was a permissible one and there was no incriminating material from the search to reopen the completed assessment.

Fair market value determination for capital gains - registered valuer's valuation - Reference to Valuation Officer under Section 55A - pre-amendment applicability of Section 55A(a) - condonation of delay

Condonation of delay - Admission of the appeal despite delay of 73 days. - HELD THAT: - The assessee's appeal for A.Y. 2012-13 was filed 73 days beyond limitation. The assessee explained the delay by reference to residence in a hilly area and communication gap with counsel. Having heard both parties and having regard to the reasons furnished, the Tribunal exercised its discretion to condone the delay and admitted the appeal for hearing. [Paras 2]

Delay of 73 days condoned and appeal admitted.

Fair market value determination for capital gains - registered valuer's valuation - Reference to Valuation Officer under Section 55A - pre-amendment applicability of Section 55A(a) - Whether the fair market value as on 01.04.1981 for computation of long-term capital gain should be taken as determined by the District Valuation Officer or the registered valuer of the assessee. - HELD THAT: - The Tribunal examined section 55A and noted that the provision was amended by the Finance Act, 2012 with effect from 01.07.2012. The amended wording of section 55A(a) applies from A.Y. 2013-14 onwards; therefore the pre-amendment wording governs A.Y. 2012-13. Under the pre-amendment provision, reference to the Valuation Officer is contemplated where the Assessing Officer is of the opinion that the value claimed by the assessee "is less than its fair market value." In the present case the assessee's registered valuer had assessed the fair market value as on 01.04.1981 at a figure higher than that determined by the District Valuation Officer. Since the registered valuer's value was not less than the fair market value determined by the DVO, the condition in the pre-amendment section 55A(a) for reference did not warrant displacing the assessee's valuation. Applying this legal position to the facts, the Tribunal directed the Assessing Officer to adopt the assessee's registered valuer's fair market value as on 01.04.1981 for computation of long-term capital gain. [Paras 7]

Adopt the assessee's registered valuer's fair market value as on 01.04.1981 for computing long-term capital gain; the assessing officer directed accordingly.

Final Conclusion: The Tribunal condoned the delay in filing the appeal and allowed the appeal on merits for A.Y. 2012-13, directing the Assessing Officer to adopt the fair market value determined by the assessee's registered valuer as on 01.04.1981 for computation of long-term capital gain.

Transfer pricing adjustment - comparability and turnover filter in selection of comparables - remand for fresh selection of comparables - opportunity to object to comparables - arm's length price computation under TNMM and operating margin computation - allocation of operating costs to relevant revenue period

Transfer pricing adjustment - comparability and turnover filter in selection of comparables - remand for fresh selection of comparables - TP adjustment in Software R & D segment for AY 2011-12 remitted for fresh determination - HELD THAT: - The TPO had selected nine comparables and computed an adjusted margin leading to a TP addition. The DRP applied a turnover filter (excluding companies below 1 crore and above 200 crores for a small-sized assessee with turnover of Rs.86.44 crores) and directed exclusion of certain companies. All nine comparables selected by the TPO are, on the Tribunal's examination and in light of co-ordinate bench decisions, excluded by the turnover filter, leaving no remaining comparables. Since the assessee's TNMM study was rejected by TPO and DRP and no valid comparable remains, the Tribunal found it appropriate to set aside the AO/TPO's determination on this issue and restore the matter to the file of the AO/TPO for selection of a fresh set of comparable companies and re-determination of ALP for the software R & D segment. [Paras 9]

Order of AO/TPO set aside and issue restored to AO/TPO for fresh selection of comparables and redetermination of ALP.

Transfer pricing adjustment - opportunity to object to comparables - remand for fresh consideration - TP adjustment in Marketing support services for AY 2011-12 set aside and remitted to AO/TPO - HELD THAT: - The assessee contended that it was not given sufficient opportunity to object to the comparable companies selected by the TPO in respect of marketing support services. The Tribunal found merit in this contention and, rather than adjudicating the comparability afresh on the record before it, set aside the AO's order on this issue and restored the matter to the file of the AO/TPO for fresh consideration after affording proper opportunity. [Paras 10]

AO/TPO order on marketing support services set aside and issue remitted to AO/TPO for fresh consideration with opportunity to the assessee.

Arm's length price computation under TNMM and operating margin computation - allocation of operating costs to relevant revenue period - remand for computation based on relevant period - Whether operating margin for AY 2013-14 under TNMM should be computed using only operating costs relatable to the period when revenue was generated - HELD THAT: - The assessee ceased operations in May of the year and generated revenue only in April and May. The assessee's PLI was operating profit by operating cost and it computed operating margin using costs relatable to the two months in which revenue was earned. The TPO had computed margins using the entire year's costs, which the Tribunal held would distort the operating margin because expenses incurred in months with no revenue would not be relatable to the international transactions. The Tribunal accepted that costs attributable to the revenue-generating months alone should be used; however, it directed that if any expense pertaining to those two months was accounted for in subsequent months, such expense must be included. The Tribunal observed that the assessee's two-month workings were not examined by AO/TPO and therefore restored the issue for fresh computation in accordance with these principles. [Paras 13, 14, 15]

TPO's computation set aside; matter remitted to AO/TPO to compute operating margin using operating revenue and operating costs of the revenue-generating months (April-May), including any relevant expenses accounted later.

Final Conclusion: Both appeals allowed for statistical purposes. For AY 2011-12 the TP determinations in the Software R & D and Marketing support services segments are set aside and remitted to the AO/TPO for fresh consideration (selection of comparables and/or reconsideration after opportunity). For AY 2013-14 the TNMM operating margin computation is set aside and remitted to the AO/TPO to determine arm's length margins using operating revenue and costs of the actual revenue-generating period, with consequential directions as recorded.

Deduction under section 80IC-substantial expansion and initial assessment year - Interpretation of "initial Assessment Year" under section 80IC(8)(v) - Definition of "substantial expansion" under section 80IC(8)(ix) - Application of precedent in subsequent assessment years - binding effect of earlier ITAT order - Computation of book profit under section 115JC and set-off of tax credit under section 115JD

Deduction under section 80IC-substantial expansion and initial assessment year - Interpretation of "initial Assessment Year" under section 80IC(8)(v) - Definition of "substantial expansion" under section 80IC(8)(ix) - Application of precedent in subsequent assessment years - binding effect of earlier ITAT order - Entitlement to deduction under section 80IC @100% for Assessment Year 2015-16 on account of substantial expansion completed in the relevant earlier year - HELD THAT: - The Tribunal examined whether the proprietor (Electron Automats) was entitled to claim 100% deduction under section 80IC for AY 2015-16 by treating the assessment year relevant to the year of substantial expansion as the initial Assessment Year. The assessee's case was that substantial expansion of plant & machinery occurred in the period relevant to AY 2012-2013, making AY 2012-2013 the initial Assessment Year and thereby permitting 100% deduction for the subsequent five years. The Assessing Officer restricted the deduction to 25% relying on contrary precedents. The Tribunal found that the assessee had satisfied the statutory test of substantial expansion as defined in section 80IC(8)(ix) and that the matter was squarely covered in favour of the assessee by the Tribunal's earlier order in the assessee's own case for AY 2013-14 and AY 2014-15. Applying those precedents to the subsequent year, the Tribunal allowed grounds 1 to 3 and directed deletion of the addition made by the Assessing Officer. [Paras 11, 12]

Grounds 1 to 3 allowed; deduction under section 80IC for AY 2015-16 is to be treated in accordance with the assessee's entitlement on substantial expansion and the Tribunal's earlier orders.

Computation of book profit under section 115JC and set-off of tax credit under section 115JD - Computation of book profit under section 115JC and allowance of set-off of tax credit under section 115JD - HELD THAT: - The assessee submitted that taxes had been paid under the special provision for certain persons (section 115JC) and asked for computation of book profit and allowance of credit of taxes paid under section 115JD. The Tribunal, after considering submissions and the materials on record, directed the Assessing Officer to compute the book profit under section 115JC and to allow the set-off of tax credit under section 115JD in accordance with law. [Paras 15]

Assessing Officer directed to compute book profit under section 115JC and allow set-off of tax credit under section 115JD.

Final Conclusion: The appeal is partly allowed: the claim for deduction under section 80IC for AY 2015-16 is allowed in accordance with the assessee's entitlement on substantial expansion and the Tribunal's earlier orders; and the Assessing Officer is directed to compute book profit under section 115JC and grant set-off under section 115JD.

Principle of audi alteram partem / right to pre-decisional hearing - Consideration of documents filed by applicant before deciding registration under section 12AA - Registration of trust under section 12AA: entitlement to registration based on objects where activities may be proposed rather than already undertaken - Reconsideration and remand for fresh decision where procedural lapse is found

Principle of audi alteram partem / right to pre-decisional hearing - Consideration of documents filed by applicant before deciding registration under section 12AA - Reconsideration and remand for fresh decision where procedural lapse is found - Whether the order of the Commissioner (Exemptions) refusing registration under section 12AA was vitiated by failure to consider documents filed by the assessee and by denial of opportunity of hearing, and whether the matter required reconsideration. - HELD THAT: - The Tribunal found that the CIT(E) proceeded in the absence of the assessee and the record did not reflect consideration of documents which the assessee contends were filed. The Tribunal emphasised that the rule of fair hearing (audi alteram partem) entitles a party to notice and an opportunity to present its case and evidence before an adverse decision is taken. Because the order of the CIT(E) does not mention or appear to have considered the documents relied upon by the assessee and the assessee was not given an opportunity to be heard when the matter was decided, a procedural deficiency is established. In consequence, the Tribunal concluded that the appropriate course is to set aside the CIT(E)'s order and remit the matter for fresh consideration, directing the CIT(E) to consider all documents filed, grant the assessee an opportunity of hearing, and decide the registration application afresh in accordance with applicable judicial precedents and principles of natural justice. [Paras 6, 7]

Order of the CIT(E) set aside and matter remitted to CIT(E) for fresh decision after considering documents filed and after affording the assessee an opportunity of hearing.

Registration of trust under section 12AA: entitlement to registration based on objects where activities may be proposed rather than already undertaken - Whether a trust may seek registration under section 12AA on the basis of its objects even where activities have not yet been undertaken, and whether the CIT(E) should apply the principle in the cited precedents while deciding the application. - HELD THAT: - The Tribunal recorded the assessee's submission relying on authority that section 12AA is concerned with registration and that a newly formed trust need not have already undertaken activities; proposed activities in furtherance of genuine charitable objects are relevant to the satisfaction of the registering authority. The Tribunal did not decide the registration application on merits but directed the CIT(E) to consider the application afresh keeping in view the legal principles laid down in the cited judgments when adjudicating whether the objects and proposed activities are genuine and align with charitable purposes. [Paras 4, 7]

Question of entitlement to registration on the basis of objects (without prior activities) left open for fresh decision by the CIT(E), to be determined in accordance with the legal principles noted by the Tribunal.

Final Conclusion: The order of the Commissioner (Exemptions) dated 15/02/2018 is set aside and the matter is remitted to the CIT(E), Ahmedabad for fresh adjudication: the CIT(E) is directed to consider all documents filed by the assessee, afford the assessee an opportunity of hearing, and decide the application for registration under section 12AA afresh in accordance with the principles of natural justice and the legal precedents referred to by the Tribunal.

Rejection of transaction value under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - re-determination of value on the basis of contemporaneous import data (NIDB) - confiscation and redemption under Section 111(m) and Section 125 of the Customs Act, 1962 - differential duty and interest under Section 28 and Section 28AA - penalty for undervaluation under Section 114A of the Customs Act, 1962 - acceptance of declared transaction value where no evidence of relatedness or additional consideration is shown - weight of laboratory test report (CIPET) for description and nature of imported goods

Re-determination of value on the basis of contemporaneous import data (NIDB) - rejection of transaction value under Rule 12 of the Customs Valuation Rules - proportional adjustment ('just and fair approach') to contemporaneous data - Validity of re-determination of value for Synthetic Rubber PBR Non Oil off Grade Loose Lumps by reference to NIDB data and adjustment to 75% of that data - HELD THAT: - The Tribunal found that the Department's reliance on the cited NIDB contemporaneous import entry was unsustainable because the NIDB entry differed in both quantity and tariff classification/quality from the appellant's import. The adjudicating authority's adoption of a 'just and fair approach' by fixing the value at 75% of the NIDB figure was held to be arbitrary and unexplained. In the absence of contemporaneous evidence of higher price for identical or truly comparable goods, and without reasoned quantification for the 75% adjustment, the transaction value could not be rejected. The court therefore held that the undervaluation allegation in respect of this category of goods could not be sustained. [Paras 15]

Re-determination based on the NIDB entry and arbitrary 75% adjustment set aside; allegation of undervaluation in respect of Synthetic Rubber PBR Non Oil off Grade Loose Lumps not sustained.

Rejection of transaction value under Rule 12 of the Customs Valuation Rules - use of earlier loaded assessed values of the same importer for re-determination - acceptance of reassessment/order pursuant to remand - weight of laboratory test report (CIPET) for description and nature of imported goods - acceptance of declared transaction value where no evidence of relatedness or additional consideration is shown - Validity of re-determination of value and related confiscation/penalty in respect of Synthetic Rubber PBR BMB Non Oil off Grade Loose Lumps and whether the goods were mis-described - HELD THAT: - The Tribunal observed that the adjudicating authority had re-determined value by reference to the appellant's earlier imports whose values had been 'loaded' by the Department. Those earlier assessments were subsequently remanded, re-assessed and the declared values accepted by the assessing officer pursuant to the Commissioner (Appeals) order, and the Department had accepted that reassessment. Given that the prior 'loaded' values were set aside on remand and the declared value accepted, reliance on those earlier assessed figures to reject the transaction value in the present imports was impermissible. Further, the CIPET test report did not support a finding of mis-description; instead it supported the description in the bills of entry. There was no evidence of any additional financial consideration, nor of relatedness between importer and supplier, to justify rejection of the transaction value. Applying settled principles that transaction value is to be accepted in absence of cogent reasons to doubt it, the Tribunal concluded the undervaluation and mis-description findings could not be sustained. [Paras 15, 16]

Re-determination based on earlier 'loaded' assessments set aside; declared transaction value and description accepted for Synthetic Rubber PBR BMB Non Oil off Grade Loose Lumps; allegation of undervaluation and mis-description not sustained.

Final Conclusion: The impugned adjudication rejecting the declared values, confiscating the goods and imposing differential duty and penalty is set aside; the appeal is allowed and the declared transaction values and descriptions accepted with consequential relief to the appellant.

EPCG Scheme - concessional rate of customs duty - installation condition for capital goods imported under EPCG - actual user condition - Export Obligation Discharge Certificate (EODC) - redemption of EPCG authorization - confiscation and penalty under the Customs Act

Installation condition for capital goods imported under EPCG - actual user condition - concessional rate of customs duty - Whether the import of the Mercedes SL 500 car under the EPCG licence breached the EPCG licence conditions (installation at declared premises and actual user) so as to render the import invalid and attract recovery of differential duty, confiscation and penalties. - HELD THAT: - The Tribunal found as a matter of fact that the vehicle was validly imported under EPCG licence No. 0530137584 and that the EPCG licence and entitlement to Notification No. 97/2004 were not in doubt. The adjudicating findings that the vehicle was not installed at the stated premises did not establish diversion; a movable capital good such as a car being in the possession of the importing firm (or its director) and parked at the director's residence did not, on the materials before the authority, prove breach of the installation or actual user conditions. No evidence was produced to demonstrate that the car had been diverted from the importer or used otherwise than for purposes consistent with the EPCG authorization. On these factual and legal considerations the Tribunal concluded there was no sustainable violation of the EPCG conditions or the corresponding notification which would vitiate the concessional entry. [Paras 12]

Findings of violation of installation and actual user conditions are not sustained; the import is not rendered invalid on that basis.

Export Obligation Discharge Certificate (EODC) - redemption of EPCG authorization - confiscation and penalty under the Customs Act - Whether acceptance of export obligation fulfillment by the licensing authority (issuance of EODC/redemption) precludes the customs authorities from sustaining the adjudication that recovered duty, confiscation and penalties were payable. - HELD THAT: - The Tribunal noted that Additional Director General of Foreign Trade issued an EODC/redemption in favour of the appellants certifying discharge of the export obligation under the EPCG authorization. Given the accepted validity of the authorization at import and the subsequent acceptance by the licensing authority of discharge of export obligations, the Customs adjudication that sought recovery of differential duty, confiscation and imposition of penalties was rendered unsustainable. The Tribunal treated the EODC and the record of fulfillment of export obligation as decisive in the factual matrix and, coupled with the absence of evidence of diversion or misuse, concluded that the adjudicating authority's order could not be sustained. [Paras 13]

EODC/redemption and absence of proof of diversion preclude the recovery, confiscation and penalties upheld by the adjudicating authority.

Final Conclusion: The Tribunal allowed the appeals, set aside the order in original, and quashed the adjudication for recovery of differential duty, confiscation and imposed penalties in respect of the subject vehicle in view of the lack of proof of violation of EPCG conditions and the licensing authority's acceptance of export obligation discharge.

Date of receipt for limitation under Section 128 of the Customs Act, 1962 - proper service under Section 153 of the Customs Act, 1962 - registered post presumption of service - effect of change of address on service - remand for fresh consideration on merits

Date of receipt for limitation under Section 128 of the Customs Act, 1962 - proper service under Section 153 of the Customs Act, 1962 - registered post presumption of service - effect of change of address on service - Whether the Commissioner (Appeals) was justified in rejecting the appellant's appeal as time-barred under Section 128 where the department sent the order by registered post to the appellant's previous address but the appellant had changed its business address. - HELD THAT: - The Tribunal found that the appellant had changed its business premises during the pendency of finalization and did not receive notices of personal hearing; the final order dated 17 April 2015 was therefore not served on the appellant at the new address. The presumption of proper service by posting registered letter cannot prevail where the addressee was not available at that address and the requirements of proper service under the Act are not satisfied. Applying Section 153 principles as relevant to service, the Tribunal concluded that the operative date for computing the 60-day limitation under Section 128 is the actual date on which the order was received by the appellant, namely 25 July 2015. Since the appeal was filed within 60 days from that date, the Commissioner (Appeals) erred in treating the appeal as barred by limitation. The question of the merits of the assessment was not adjudicated and requires fresh consideration by the Commissioner (Appeals). [Paras 4]

The Commissioner (Appeals) order rejecting the appeal as time-barred is set aside; the appeal is remanded to the Commissioner (Appeals) to decide the matter on merits.

Final Conclusion: The appeal is allowed by setting aside the order rejecting the appeal as barred by limitation and remanding the matter to the Commissioner (Appeals) for hearing and decision on merits.

Initiation of liquidation - Committee of Creditors' decision to liquidate - liquidation order under Section 33(1)(a) - non-application of Section 33(2) where intimation not made during CIRP - appointment of liquidator by the Adjudicating Authority - replacement procedure for resolution professional under Section 34 - liquidation costs and obligation under Regulation 39B - assessment of sale as a going concern under Regulation 39C - public announcement and claims submission in liquidation - compliance with Chapter III of the Code and Liquidation Process Regulations

Committee of Creditors' decision to liquidate - non-application of Section 33(2) where intimation not made during CIRP - liquidation order under Section 33(1)(a) - Whether the corporate debtor should be ordered to be liquidated where no resolution plan was received before expiry of the CIRP and the conditions of Section 33(2) were not satisfied. - HELD THAT: - The Tribunal found that the minutes of the 7th CoC meeting (13-12-2019) recorded a unanimous CoC resolution to liquidate, but the application for liquidation was filed on 7-1-2020 after the CIRP end date. Consequently, the procedural precondition for Section 33(2) was not met. However, as no resolution plan under Section 30(6) was received before the expiry of the insolvency resolution process period, the conditions of Section 33(1)(a) were satisfied. Applying Section 33(1)(a), the Adjudicating Authority is required to pass an order for liquidation, issue a public announcement that the corporate debtor is in liquidation, and send the order to the authority with which the corporate debtor is registered. [Paras 8, 9, 10]

Order passed directing liquidation of M/s. Jai Bholenath Enterprises Private Limited under Section 33(1)(a); directions given for public announcement and for sending the liquidation order to the registrar.

Appointment of liquidator by the Adjudicating Authority - replacement procedure for resolution professional under Section 34 - Appointment of a liquidator where the Resolution Professional declined to act and the procedure to replace the RP and appoint a liquidator was to be followed. - HELD THAT: - The Tribunal noted Section 34(4)(c) and the replacement procedure under Section 34(5)-(7), whereby the Adjudicating Authority may direct the Board to propose a name and appoint an insolvency professional as liquidator on receipt of the Board's proposal and written consent. The Tribunal received the panel of insolvency professionals forwarded by the NCLT, New Delhi, and selected Mr. Vikas Rai Berry (appearing at Serial No. 29 of the panel). The Tribunal verified credentials and found nothing adverse, and accordingly appointed him as Liquidator. The Liquidator's fees are to be paid in accordance with Section 34(8)-(9) and applicable Liquidation Process Regulations. [Paras 13, 14, 15, 16, 17]

Mr. Vikas Rai Berry appointed as Liquidator; replacement and appointment effected in accordance with Section 34 and relevant regulations; fees to be paid as per statutory provisions.

Liquidation costs and obligation under Regulation 39B - assessment of sale as a going concern under Regulation 39C - Whether the Committee of Creditors complied with Regulation 39B and 39C obligations regarding estimation of liquidation costs, estimation of liquid assets, contribution plan, and assessment of sale as a going concern. - HELD THAT: - The Tribunal recorded that the CoC had estimated liquidation costs but failed to estimate the value of liquid assets as required by Regulation 39B(2) and did not approve a contribution plan to meet any shortfall under Regulation 39B(3)-(4). The CoC also did not make the assessment or recommendations contemplated by Regulation 39C concerning sale as a going concern. In consequence, the Tribunal directed that the Liquidator shall take necessary action under Regulation 2A of the Liquidation Process Regulations, 2016 and under Regulation 32A(3) of the Liquidation Process Regulations to address these deficiencies. [Paras 18, 19, 20]

CoC's non-compliance with Regulation 39B and 39C noted; Liquidator directed to take necessary steps under the Liquidation Process Regulations to address estimation of assets, liquidation costs, contribution plan and assessment of sale as a going concern.

Public announcement and claims submission in liquidation - compliance with Chapter III of the Code and Liquidation Process Regulations - Directions concerning procedural steps in liquidation, including public announcement, claims submission, reporting and the effect of liquidation on suits and corporate officers' powers. - HELD THAT: - The Tribunal directed strict compliance with Chapter III of the Code and the Liquidation Process Regulations. It ordered the Liquidator to publish the public announcement in accordance with Regulation 12 and Form B within five days of receipt of the order, calling stakeholders to submit claims within 30 days from liquidation commencement date; specified the modes and locations for publication; required the Liquidator to file a preliminary report within 75 days and fortnightly progress reports thereafter; and recorded the legal consequences of liquidation - suspension of suits against the corporate debtor except as permitted, deemed notice of discharge to employees, cessation of powers of directors and KMP, and the Liquidator's right to take possession of assets. Financial creditors were clarified to remain free to enforce personal guarantees. [Paras 22, 23, 24, 25, 26]

Procedural directions issued for public announcement, claims filing, reporting, vesting of powers in the Liquidator, preservation of creditors' rights to enforce guarantees, and taking possession of assets by the Liquidator.

Committee of Creditors' decision to liquidate - Disposition of pending challenge to rejection of a claim by a stakeholder once liquidation is ordered. - HELD THAT: - An application (CA No. 24 of 2020) challenging the RP's rejection of a claim on the ground of delay was rendered infructuous by the initiation of liquidation proceedings. The Tribunal disposed of that application but granted the claimant liberty to submit its claim before the Liquidator for consideration in the liquidation process. [Paras 27]

CA No. 24 of 2020 disposed of as infructuous; applicant granted liberty to furnish its claim before the Liquidator.

Final Conclusion: The Tribunal directed liquidation of M/s. Jai Bholenath Enterprises Private Limited under Section 33(1)(a) for failure to receive a resolution plan within the CIRP period, appointed Mr. Vikas Rai Berry as Liquidator in accordance with Section 34 and the Board's panel, noted CoC deficiencies under Regulations 39B and 39C and directed the Liquidator to remedy them, and issued standard procedural directions for public announcement, claims submission, reporting, vesting of powers in the Liquidator and possession of assets; a pending challenge to a rejected claim was disposed of as infructuous with liberty to file the claim before the Liquidator.

Grant of bail - Prevention of Money Laundering Act, 2002 - predicate offence - cooperation with investigation - recording of statement under Section 50 of the Act - absence of provisional attachment order under Section 5 of the Act - complaint based primarily on accused statements without supporting witness statements - maximum punishment as a factor in bail consideration

Grant of bail - Prevention of Money Laundering Act, 2002 - cooperation with investigation - absence of provisional attachment order under Section 5 of the Act - recording of statement under Section 50 of the Act - complaint based primarily on accused statements without supporting witness statements - maximum punishment as a factor in bail consideration - Applicant entitled to be released on bail in case under the Prevention of Money Laundering Act, 2002. - HELD THAT: - The Court noted that the predicate offence was registered by CBI and the applicant cooperated throughout that investigation, was granted bail in the predicate trial and participated in the trial. The Enforcement Directorate registered ECIR subsequently but did not arrest the applicant under the Act, did not issue any provisional attachment order in relation to proceeds of crime, and recorded the applicant's statements under Section 50 of the Act on multiple occasions. The complaint under the Act was filed after a long interval and, as placed on record, is largely founded on statements of the accused with no witness statements annexed to the complaint in support of the averments in paragraph 4.5. Having regard to these facts, the limited maximum sentence for the offence under Section 4 of the Act, and without expressing any opinion on merits, the Court concluded that the applicant should be enlarged on bail subject to conditions to prevent tampering with evidence or influencing witnesses and to ensure cooperation in the trial. The Court directed expeditious disposal by the trial court and left any violation of bail conditions to be dealt with appropriately by the trial court.

Applicant Vinod Kumar Mishra granted bail on furnishing personal bond and sureties, subject to specified conditions; trial court directed to proceed expeditiously.

Final Conclusion: Bail granted to the applicant in the PMLA complaint on the grounds of his cooperation in investigation, absence of provisional attachment or arrest earlier, the complaint being primarily based on accused statements without supporting witness statements, and the limited maximum punishment; bail subject to conditions and direction for expeditious trial.

Summary order. Permission granted to withdraw the appeals; the appeals are dismissed as withdrawn and pending applications, if any, are disposed of.

Liability of sub-contractor to discharge service tax - availability of Cenvat credit in the chain of service providers - extended limitation proviso under Section 73(1) requiring fraud, collusion, willful mis-statement or suppression with intent to evade - restriction of demand to the normal period of limitation under Section 73(1)

Liability of sub-contractor to discharge service tax - availability of Cenvat credit in the chain of service providers - Service tax liability of the appellant as sub-contractor for services rendered to the principal contractor - HELD THAT: - The Tribunal, relying on its Larger Bench decision in Melange Developers Pvt. Ltd., held that under the scheme of service tax every individual service provider is required to discharge his own service tax liability. The Larger Bench reasoned that Cenvat credit is available along the chain of service providers, so the principal service provider can avail credit of service tax paid by the sub-contractor; this does not relieve the sub-contractor of the obligation to pay service tax. Applying that ratio, the appellant's claim that payment by the principal contractor absolved them was rejected and the demand confirmed on merits. [Paras 3]

Appeal dismissed on merits and service tax demand confirmed as the sub-contractor is liable to discharge service tax.

Extended limitation proviso under Section 73(1) requiring fraud, collusion, willful mis-statement or suppression with intent to evade - restriction of demand to the normal period of limitation under Section 73(1) - Whether the extended period of limitation under the proviso to Section 73(1) could be invoked against the appellant - HELD THAT: - The Tribunal found that although the appellant was liable on merits, the factual and legal matrix showed genuine dispute and conflicting judicial views on the taxability of sub-contractors where the principal had paid tax. There was no finding of fraud, collusion, willful mis-statement or suppression with intent to evade tax. Relying on precedents including the decisions of the High Court and Supreme Court cited in the order and Tribunal decisions dealing with similar controversies, the Tribunal held that the extended period proviso could not be invoked in these circumstances and the demand must be confined to the normal period prescribed by Section 73(1). [Paras 4, 6]

Extended period not invoked; demand limited to the normal limitation period under Section 73(1). Appeal accordingly partially allowed on limitation.

Final Conclusion: The appeal is dismissed on merits insofar as liability of the sub-contractor to pay service tax is concerned, but the imposition of demand is restricted to the normal period of limitation under Section 73(1); the appeal is therefore partially allowed.

Service tax on corporate guarantee - absence of consideration as decisive for taxability - Banking and Financial Institutions Services - revenue demand founded on presumption and assumption without evidence - non-initiation of proceedings where tax already paid under Section 73(3) - penalty not leviable where proceedings were unnecessary

Service tax on corporate guarantee - absence of consideration as decisive for taxability - revenue demand founded on presumption and assumption without evidence - Banking and Financial Institutions Services - Appellant not liable to pay service tax for providing corporate guarantees to banks/financial institutions on behalf of holding/associate enterprises/ joint ventures. - HELD THAT: - The Tribunal recorded that it is admitted the appellant did not receive any consideration from either the financial institutions or their associates for providing corporate guarantees. The Revenue's demand was premised on an assumed differential interest benefit to the associates, but no evidence was produced to substantiate such presumed consideration. In absence of consideration and lacking evidentiary support for the revenue's assumption, the activity cannot be held taxable under Banking and Financial Institutions Services; therefore no service tax is payable in respect of the corporate guarantees, whether occurring before or after 01.07.2012. [Paras 4]

Demand of service tax on corporate guarantee set aside; appellant not liable to pay service tax on such guarantees.

Non-initiation of proceedings where tax already paid under Section 73(3) - penalty not leviable where proceedings were unnecessary - Penalty imposed for non-payment of service tax on preferential/prime location charges set aside. - HELD THAT: - The Tribunal noted that the appellant had already paid the service tax along with interest for the prime location and related charges before issuance of the show cause notice. In view of Section 73(3) of the Act, proceedings were not required to be initiated where tax along with interest had already been discharged. Consequently, the imposition of penalty in respect of those charges was unwarranted and was set aside. [Paras 5]

Penalty set aside and related portion of the impugned order quashed.

Final Conclusion: Impugned order set aside insofar as it confirmed service tax demand on corporate guarantees and imposed penalty for preferential location charges; appeal allowed with consequential relief.

Summary order. Delay in filing condoned; appeal dismissed as devoid of any merit.

Reversal of Cenvat credit for clearance of exempted goods under Rule 6(3) of the Cenvat Credit Rules, 2004 - Classification of iron ore fines as unavoidable and inevitable by product (not manufacture / not excisable) - Inapplicability of Rule 6(3) where segregation of inputs/input services up to stage of by product emergence is impossible - Principle lex non cogit ad impossibilia applied to tax obligations

Classification of iron ore fines as unavoidable and inevitable by product (not manufacture / not excisable) - Reversal of Cenvat credit for clearance of exempted goods under Rule 6(3) of the Cenvat Credit Rules, 2004 - Inapplicability of Rule 6(3) where segregation of inputs/input services up to stage of by product emergence is impossible - Iron ore fines emerging during manufacture of sponge iron are unavoidable by products and not excisable; therefore Rule 6(3) of the Cenvat Credit Rules, 2004 does not require reversal of Cenvat credit on their clearance. - HELD THAT: - The Tribunal held that iron ore fines emerge at the crushing/screening stage as an unavoidable and inevitable by product and not by virtue of a separate manufacturing activity. Consequently such fines cannot be treated as excisable or as 'exempted goods' for the purpose of triggering reversal under Rule 6(3). The decision notes that the show cause notice and adjudication did not and could not identify which specific inputs or input services (for which Cenvat credit was availed) were consumed up to the stage when fines emerge, making compliance with sub rule (2) (segregation/maintaining separate accounts) impossible. Applying the settled legal principle lex non cogit ad impossibilia, the Tribunal concluded that Rule 6(2)/6(3) cannot be interpreted to impose an impossible obligation and then penalize for non compliance. The Tribunal relied on earlier precedents with identical facts to find the departmental demand unsustainable and set aside the impugned order allowing the appeal. [Paras 3, 5]

Impugned order confirming demand under Rule 6(3) is set aside; departmental appeal dismissed and appellant's appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, setting aside the Commissioner (Appeals) order and holding that iron ore fines produced during manufacture of sponge iron are unavoidable by products not exigible to central excise and therefore do not attract reversal of Cenvat credit under Rule 6(3); the demand for the period April 2015 to June 2016 was quashed.