TaxTMI Updates e-Newsletter
Jun 25,2016

Reassessment notice under section 148 - change of opinion - valuation of opening and closing stock inclusive/exclusive of CENVAT and VAT - revenue neutrality of stock valuation

Reassessment notice under section 148 - change of opinion - Validity of the notice dated 27.2.2015 reopening the assessment for A.Y.2010-11 - HELD THAT: - The Assessing Officer recorded reasons alleging that CENVAT and VAT balances were excluded from stock valuation, leading to escapement of income. The record, however, shows that the method of accounting-exclusive treatment of excise duty and treatment of CENVAT as recoverable-was specifically disclosed and examined during the original scrutiny assessment, and no addition was made. The Court held that, in these circumstances, re-opening the assessment amounted to a mere change of opinion by the revenue and therefore was not permissible. Consequently the reassessment notice was held to be invalid and was quashed. [Paras 6, 7]

Notice dated 27.2.2015 reopening assessment for A.Y.2010-11 quashed; reassessment held to be impermissible as a change of opinion.

Valuation of opening and closing stock inclusive/exclusive of CENVAT and VAT - revenue neutrality of stock valuation - Effect of excluding CENVAT/VAT from opening and closing stock on the assessee's tax liability - HELD THAT: - The Court observed that whether stocks were valued inclusive or exclusive of CENVAT and VAT, given the concurrent exclusion in both opening and closing stocks, the position would be revenue neutral and would not alter the tax liability of the assessee. While this observation supported the finding that reassessment was unnecessary, the primary basis for quashing the notice was that the matter had already been examined in the original scrutiny assessment. [Paras 7]

Exclusion of CENVAT/VAT from both opening and closing stock was noted to be revenue neutral and did not affect the assessee's tax liability.

Final Conclusion: The reassessment notice issued on 27.2.2015 under section 148 in respect of A.Y.2010-11 is quashed and the petition is allowed.

Re-opening of assessment under Section 147/148 - reason to believe - escaped assessment - survey under Section 133A - change of opinion - genuineness and creditworthiness of shareholders/share application monies - taxability of bogus share capital routed through allotment of shares

Re-opening of assessment under Section 147/148 - reason to believe - survey under Section 133A - genuineness and creditworthiness of shareholders/share application monies - Validity of the notice initiating re-opening of assessment for A.Y. 2009-10 on the basis of reasons recorded after survey and related material - HELD THAT: - The Assessing Officer recorded reasons that during survey proceedings under Section 133A the assessee failed to produce share application forms, details of allotment, proof of attendance at the AGM, and that the director's verification indicated the so-called shareholders/companies did not exist at the addresses on record; further, the assessee had forfeited the share capital/premium but furnished no details of the forfeiture. Having regard to the law that where the original return was accepted without scrutiny the Assessing Officer still must have "reason to believe" and this requires relevant material on which a reasonable person could form such belief, the Court found the recorded reasons had a live link with the material on record and were not vitiated. The Court held that at the initiation stage the Assessing Officer is not required to conclusively prove escapement but must have cause or justification to suppose income has escaped assessment. The Court rejected the submission that the reopening was impermissible as a mere change of opinion because no scrutiny assessment had earlier been framed, and applied the test that the materials from survey and related inquiries were sufficient for formation of belief. The Court also observed that although ordinarily unaccounted investments by third party investors may be taxed in the hands of those investors, where the entire transaction is shown to be a device to route the assessee's own unaccounted income through large scale allotment to bogus entities, taxing the company might become permissible; whether that eventuality arises is a matter for the reopened proceedings and depends on facts to be examined later. The Court relied on and applied the principles laid down in authorities including Rajesh Jhaveri Stock Brokers P. Ltd. , Inductotherm (India) P. Ltd. , and other High Court decisions distinguishing Lovely Exports and analyzing Section 68 burdens, to conclude the AO's reasons were adequate to initiate reassessment. [Paras 7, 8, 9, 10]

Assessing Officer had sufficient material and justification to form "reason to believe" and to issue notice re-opening assessment for A.Y. 2009-10; objection to reopening is rejected.

Final Conclusion: Both petitions are dismissed; typographical correction made to the date of the impugned notice in the earlier order.

Power of an appellate authority to enhance assessment - principle that a benefit granted by the Assessing Officer cannot be taken away by enhancement on appeal - requirement of giving a reasonable opportunity of being heard before enhancing assessment - jurisdiction to adjudicate grounds not raised by the revenue

Power of an appellate authority to enhance assessment - principle that a benefit granted by the Assessing Officer cannot be taken away by enhancement on appeal - requirement of giving a reasonable opportunity of being heard before enhancing assessment - Whether the Tribunal had power to enhance the assessment in appeal and make an order adverse to the assessee in absence of any ground of appeal taken by the revenue and without hearing the assessee on such proposed result - HELD THAT: - The Court accepted the appellant's contention, relying on the ratio that an appellate authority is not competent to take away a benefit already granted by the Assessing Officer by enhancing assessment in appeal. Applying the principle in the cited precedent, the Court held that the Tribunal has no power under the Income Tax Act to enhance assessment in appeal. The Tribunal therefore could not lawfully pass an order resulting in a higher total income than assessed by the Assessing Officer where such enhancement was not properly within the grounds before it and was made without giving the assessee a reasonable opportunity to be heard on the proposed enhancement.

Answered in favour of the assessee and against the department; the Tribunal had no power to enhance the assessment in the manner made.

Final Conclusion: The appeal is allowed on the ground that the Tribunal lacked jurisdiction under the Income Tax Act to enhance the assessment and thereby take away the benefit granted by the Assessing Officer; the order of the Tribunal insofar as it enhanced the assessee's income is set aside.

Valuation of inventories - Account Standard-2 (AS-2) - market value of closing stock - allowability of loss on damaged inventories - treatment of opening and closing stock valuation

Valuation of inventories - Account Standard-2 (AS-2) - market value of closing stock - allowability of loss on damaged inventories - Whether the Tribunal erred in applying paragraph 21 of AS-2 in valuing damaged closing stock and in holding that the entire loss or difference in valuation was not allowable in the year under consideration. - HELD THAT: - The Court considered the appellant's contention that, upon physical inventory necessitated by the MAOCARO disclosures, substandard and damaged portions of closing stock were discovered and valued at market price, and that there was no legal justification for valuing the stock other than at that market value. The appellant relied on principles of AS-2 as interpreted in prior authority to support inclusion of appropriate costs and exclusion of items not attributable to bringing inventories to present condition. The respondent relied on the factual position that the company had gone into liquidation. Having heard counsel and perused records, the Court accepted the appellant's contention on the question framed and found that the Tribunal's application of paragraph 21 of AS-2 and consequent denial of the entire loss/difference in valuation in the year under consideration was in error. The Court, therefore, answered the question in favour of the assessee and against the Department.

The Tribunal's conclusion under paragraph 21 of AS-2 was set aside and the issue was decided in favour of the assessee.

Final Conclusion: Both appeals were allowed on the question framed: the tribunal's application of paragraph 21 of AS-2 in denying the valuation/deduction for damaged closing stock was held to be erroneous and the matter was decided in favour of the assessee.

Definition of export turnover under Explanation 2(iv) to Section 10A - exclusion applicable only to charges attributable to delivery outside India and incurred in foreign exchange - Section 10A exemption for software exports - concurrent finding of fact and perversity standard - retrospectivity of Rule 8D

Definition of export turnover under Explanation 2(iv) to Section 10A - exclusion applicable only to charges attributable to delivery outside India and incurred in foreign exchange - Section 10A exemption for software exports - concurrent finding of fact and perversity standard - Telecommunication and insurance expenses need not be reduced from export turnover where they were incurred in local currency in India and not attributable to delivery of software outside India; therefore Explanation 2(iv) exclusion does not apply and no substantial question of law arises. - HELD THAT: - Explanation 2(iv) excludes from 'export turnover' freight, telecommunication charges or insurance attributable to delivery outside India or expenses incurred in foreign exchange for providing technical services outside India. The Assessing Officer made no finding on the assessee's contention that the telecommunication and insurance expenses were incurred only in India and in local currency. Both the Commissioner (Appeals) and the Tribunal concurrently found as a fact that these expenses were incurred in local currency in India and were not in respect of software exported outside India. Those concurrent findings have not been shown to be perverse. On that factual basis the exclusion in Explanation 2(iv) is inapplicable and there is no substantial question of law arising from the contention that such expenses should be deducted from export turnover for claiming Section 10A benefit. [Paras 7]

Question relating to reduction of telecommunication and insurance expenditure from export turnover not entertained and resolved against the revenue on facts; Tribunal's order affirmed on this point.

Retrospectivity of Rule 8D - precedential conclusion - The contention that Rule 8D is retrospective and that disallowance should be restricted to 2% of dividend received does not give rise to a substantial question of law in view of this Court's prior decision. - HELD THAT: - Learned counsel for the revenue conceded that the issue is concluded against the revenue by this Court's earlier decision in Assistant Commissioner of Income Tax v. Godrej and Boyce Mfg. Co. Ltd. The Court recorded that concession and held that the question does not raise a substantial question of law requiring interference. [Paras 9]

Question on retrospectivity of Rule 8D not entertained as covered by existing precedent.

Final Conclusion: All three appeals arising from the Tribunal's order for Assessment Years 2005-06, 2006-07 and 2007-08 are dismissed; no order as to costs.

Accrual basis of accounting - matching concept - recognition of income on receipt versus accrual - books of account as evidence of accrual - change in method of accounting

Accrual basis of accounting - recognition of income on receipt versus accrual - books of account as evidence of accrual - Whether escalation payments due under the contract were taxable in the years to which they pertained as accrued income despite being received later. - HELD THAT: - The court accepted the legal principle that, under the mercantile system, a liability or income which has definitely accrued in an accounting year may be recognised for tax purposes even if quantified or received later. However, on the facts the assessee did not record the entitlement or any outstanding bill in its books of account for the relevant years; the escalation was only credited when claims were sanctioned and payments received. The court held that the legal principle of accrual cannot be invoked where the books do not reflect the accrued income or an outstanding receivable. Consequently the Tribunal was justified in treating the amounts as taxable when credited/received, since the assessee had not shown the amounts as income or outstanding in the earlier years. [Paras 15]

The Tribunal's view that the escalation claims were correctly taxed in the year they were credited/received is affirmed; the appeals are dismissed.

Change in method of accounting - matching concept - Whether the appellant could, by change or revision of return, treat escalation claims as income of earlier years so as to attract accrual treatment. - HELD THAT: - Although the appellant relied on authorities supporting accrual or matching treatment and relied on revisions of returns for earlier years, the contention that the method of accounting had been changed or that revised returns correctly reflected accrued escalation claims was raised late and was not reflected in the books. The Tribunal correctly noted that the change/claim was first urged before it and could not be accepted in the absence of books showing the claimed accrual. The principles permitting spreading or matching (and acceptance of bona fide accounting changes) do not assist where the assessee has not shown the outstanding entitlement in its accounts for the relevant year. [Paras 14, 15]

The Tribunal rightly rejected the appellant's late contention of changed accounting treatment; the escalation receipts were taxable when credited/received.

Final Conclusion: The court affirmed the Tribunal's order and dismissed the appeals: although accrual principles were recognised in law, on the facts the assessee had not shown the escalation entitlements or outstanding bills in its books for the relevant years, and therefore the amounts were properly taxed when credited/received.

Validity of proceedings under Section 158BD based on satisfaction note - satisfaction note as sine qua non for initiation under Section 158BD - timing of recording of satisfaction note - 'immediately after' assessment under Section 158BC - use of documents seized from searched premises to record satisfaction for other persons - remand to Tribunal for fact finding and reasoned recording on satisfaction

Validity of proceedings under Section 158BD based on satisfaction note - satisfaction note as sine qua non for initiation under Section 158BD - use of documents seized from searched premises to record satisfaction for other persons - Whether proceedings under Section 158BD were validly initiated in the assessee's case in the absence of a reasoned, timely recorded satisfaction note by the assessing officer of the searched person and where the satisfaction appears to be based on documents seized from the assessee's residence. - HELD THAT: - The High Court held that the Tribunal had not recorded any definitive finding on when the satisfaction note was recorded or whether the satisfaction note produced by the revenue was genuine or antedated. Applying the law laid down by the Apex Court in Calcutta Knitwears Ltd., a satisfaction note is a sine qua non for initiating proceedings under Section 158BD and may be recorded at or alongside assessment proceedings under Section 158BC or immediately thereafter; but the factual question of whether the satisfaction was recorded properly, timely and by the appropriate assessing officer must be examined and determined by the fact finding authority. In the present case the Tribunal, as the final fact finder below, did not make a reasoned finding on these crucial points (including the allegation of antedating and whether the satisfaction was recorded by the assessing officer of the searched person), and therefore the matter required fresh consideration. The High Court therefore remanded the matter to the Tribunal with liberty to the parties to raise all points and directed the Tribunal to record a reasoned finding expeditiously. [Paras 8]

Matter remanded to the Tribunal for fresh, reasoned fact finding on the genuineness, timing and propriety of the satisfaction note and validity of proceedings under Section 158BD; parties may raise all points before the Tribunal which shall decide the matter expeditiously.

Final Conclusion: The substantial questions of law are answered by remanding the matter to the Income Tax Appellate Tribunal for fresh adjudication on the recording, timing and genuineness of the satisfaction note and the consequent validity of initiation under Section 158BD; the appeal is disposed of.

Consistency and certainty in tax administration - uniform treatment by Revenue - binding effect of Tribunal precedents - obligation on Revenue to disclose status of earlier appeals - inference of acceptance where Revenue fails to challenge earlier order - dismissal of appeal for failure to furnish affidavit or explain departure

Obligation on Revenue to disclose status of earlier appeals - binding effect of Tribunal precedents - inference of acceptance where Revenue fails to challenge earlier order - Whether the Revenue's appeal should be dismissed where the impugned Tribunal order follows an earlier Tribunal order and the Revenue fails to show whether it has challenged that earlier order or to file an affidavit explaining why a different course is taken. - HELD THAT: - The Court found that the impugned order of the Tribunal followed its earlier decision in ACIT v. Bright Star Investment (P) Ltd. and that the Revenue had not placed on record whether an appeal was filed against that earlier order nor filed an affidavit explaining why it was pursuing the present appeal despite the earlier order being followed. The Court emphasised the rule of law principle of equal treatment and certainty, stating that where the Revenue accepts or does not challenge an earlier Tribunal ruling, similarly placed assessees must be treated alike unless the Revenue explains a reasoned departure. The Court further explained that where an impugned order merely follows an earlier order and the facts are stated to be identical, the memo of appeal should disclose the status of any earlier appeal or the Officer should file an affidavit before hearing; failure to do so permits the Court to draw an inference that the earlier order has been accepted by the Revenue. Applying these principles, and in the absence of any affidavit or explanation from the Revenue, the Court proceeded on the inference that the earlier Tribunal order had been accepted and declined to interfere with the impugned order. [Paras 7, 9, 10, 11, 12]

Appeal dismissed on the basis that the Revenue failed to demonstrate that the earlier Tribunal order had been challenged or to file an affidavit explaining departure; liberty granted to recall the order if an appeal against the earlier order has in fact been filed.

Final Conclusion: Revenue's appeal dismissed for failure to disclose the status of the earlier Tribunal order and to file an affidavit justifying departure from that order; dismissal subject to recall if Revenue proves an appeal exists against the earlier order (merits not considered).

Rejection of books of account - estimation of income by applying presumptive net profit rate - application of section 44AF (presumptive taxation for retail traders) - wholesale versus retail trade margin differential - judicial discretion to fix a just and equitable net profit rate

Rejection of books of account - Validity of the Assessing Officer's rejection of the assessee's books of account - HELD THAT: - The Tribunal upheld the Assessing Officer's rejection of the books of account. The AO had recorded multiple discrepancies including lack of vouchers, inflation of expenses, unusually high commission payments compared to the previous year and other defects recorded in the assessment order, which justified rejection under the Act. The CIT(A)'s confirmation of the rejection was sustained because the rejection was not based solely on non-maintenance of a stock register but on the cumulative discrepancies enumerated by the AO. [Paras 9]

The rejection of the books of account by the Assessing Officer was justified and is upheld.

Estimation of income by applying presumptive net profit rate - application of section 44AF (presumptive taxation for retail traders) - wholesale versus retail trade margin differential - judicial discretion to fix a just and equitable net profit rate - Appropriate net profit rate to be applied on turnover for estimating income after rejection of books - HELD THAT: - The Assessing Officer applied a net profit rate of 6.5% of turnover; the CIT(A) reduced it to 5% relying on section 44AF which prescribes a presumptive rate for retail traders. The Tribunal held that the assessee is engaged in wholesale trading, not retail, and therefore the presumption under section 44AF is inapplicable because wholesale margins are ordinarily lower than retail margins. Considering the record, including the subsequent closure of the business and losses, the Tribunal exercised its discretion to fix a lower rate in the interest of justice and equity and directed adoption of a net profit rate of 3% of total turnover for assessment purposes. [Paras 10]

Net profit for estimation purposes to be computed at 3% of total turnover; the CIT(A)'s adoption of 5% based on section 44AF is not sustained.

Final Conclusion: The appeal is partly allowed: the Tribunal upholds the rejection of books of account but directs recomputation of income by applying a net profit rate of 3% of total turnover for assessment year 2010-11.

Classification of payments as fees for technical/managerial/consultancy services - deduction of tax at source under section 194J as distinct from deduction under section 194C for contract payments - human element requirement for technical, managerial or consultancy services - mere use of technology not constituting technical services - application of noscitur a sociis to the word 'technical' - consequences of non-deduction / default under section 201

Classification of payments as fees for technical/managerial/consultancy services - deduction of tax at source under section 194J as distinct from deduction under section 194C for contract payments - mere use of technology not constituting technical services - human element requirement for technical, managerial or consultancy services - consequences of non-deduction / default under section 201 - Whether payments made by the assessee for enrollment, AMC and related services are taxable as fees for technical services attracting TDS under section 194J and whether the assessee was in default under section 201 for not deducting such tax - HELD THAT: - The Tribunal examined whether the services procured by the assessee amounted to "fees for technical services" so as to attract TDS under section 194J, or were payments for contract work taxable under section 194C. Reliance was placed on precedents holding that "fees for technical services" import managerial, technical or consultancy services involving a human element and that the term "technical" must be construed in the company of "managerial" and "consultancy" (rule of noscitur a sociis). The Tribunal observed that mere use of technological devices or software in rendering a service does not by itself convert a transaction into a technical/managerial/consultancy service. Applying this principle to the facts, the Tribunal agreed with the First Appellate Authority that the services of enrollment, biometric and demographic data capture and related activities were contractual in nature and did not amount to managerial/technical/consultancy services provided to the assessee. Consequently, the assessee's deduction of TDS under section 194C was appropriate and there was no justification to recharacterise the payments under section 194J. Since the payments were correctly treated as contract payments, the finding of default under section 201 against the assessee was not sustained. [Paras 6, 9]

Order of the First Appellate Authority deleting the demand was confirmed; the appeals filed by the Assessing Officer are dismissed and no default under section 201 is sustained.

Final Conclusion: The Tribunal upheld the FAA's conclusion that the enrollment/AMC and related payments were contractual in nature and not fees for technical/managerial/consultancy services; mere use of technology did not attract section 194J, the assessee's TDS treatment under section 194C was correct, and the Revenue's appeals are dismissed.

Characterisation of subsidy as capital or revenue receipt - deduction of capital subsidy from written down value for depreciation - treatment of subsidy in computation of book profit under section 115JB

Deduction of capital subsidy from written down value for depreciation - characterisation of subsidy as capital or revenue receipt - Capital subsidy received under the Bihar Incentive Package 2006 is not required to be deducted from the WDV of plant and machinery. - HELD THAT: - The Tribunal, following its earlier decisions in the assessee's own cases for preceding assessment years and relevant judicial authority, recorded that the Bihar scheme's object is to incentivise establishment and expansion of industry and that a subsidy quantified as a percentage of fixed capital cost is a measure to quantify the incentive and does not mean the payment represents a portion of actual cost of acquisition. The revenue did not demonstrate that the subsidy directly or indirectly resulted in acquisition of any asset. Applying the established principle that such subsidies are not to be deducted from actual cost for computation of depreciation, the Tribunal upheld the CIT(A)'s conclusion reversing the AO's reduction of WDV and disallowance of proportionate depreciation. [Paras 5]

Ground No.1 is dismissed and the capital subsidy need not be deducted from WDV of plant and machinery.

Characterisation of subsidy as capital or revenue receipt - reimbursement of indirect taxes as subsidy - Subsidy received by way of reimbursement of commercial tax (VAT) on molasses under the Bihar Incentive Package 2006 is a capital receipt and not exigible to tax. - HELD THAT: - The Tribunal observed that the Bihar incentive scheme aims to promote establishment of new units and expansion of existing units, and that the character of a subsidy must be determined by its purpose rather than timing or form. The reimbursement of commercial taxes granted to promote the distillery's establishment/expansion is analogous to the reimbursement of excise duty earlier held to be capital in nature. Given the scheme's object and consistency with prior Tribunal findings for earlier assessment years, the CIT(A)'s deletion of the addition treating the reimbursement as capital was upheld. [Paras 6]

The reimbursement of commercial tax (VAT) on molasses is a capital receipt and not taxable.

Treatment of subsidy in computation of book profit under section 115JB - characterisation of subsidy as capital or revenue receipt - The AO is not entitled to add the capital subsidy and reimbursements received under the Bihar Incentive Package 2006 to the book profit computed under section 115JB of the Act. - HELD THAT: - Relying on the principle that the AO's power when computing income under section 115JB is limited to making specified increases and reductions and cannot go behind the net profit as shown in the P&L account except as provided in the explanation, and having upheld that the subsidies/reimbursements are capital receipts not chargeable to tax, the Tribunal held that additions made by the AO to book profit were unsustainable. The Tribunal followed its consistent view in the assessee's own earlier appeals that such receipts should not be added to book profit. [Paras 7]

Ground No.3 is dismissed; the AO cannot add the capital subsidy and reimbursements to book profit under section 115JB.

Final Conclusion: The Revenue's appeal for assessment year 2011-12 is dismissed: the capital subsidy under the Bihar Incentive Package 2006 is not deductible from WDV, reimbursements of excise/VAT under the scheme are capital receipts not taxable, and such receipts cannot be added to book profit under section 115JB.

Nature of payment for purchase of software as not constituting Royalty - no obligation to deduct tax at source under section 195 where payment is not chargeable as Royalty - invocation of section 201(1) and section 201(1A) for failure to deduct tax - disallowance under section 40(a)(i) as a charging fiction affecting TDS proceedings - retrospective amendment to the charging provision in section 9(1)(vi) and impossibility of performance - application of DTAA in characterisation of payments

Nature of payment for purchase of software as not constituting Royalty - application of DTAA in characterisation of payments - Payments made by the assessee for procurement of software products from non-resident suppliers do not amount to Royalty. - HELD THAT: - The Tribunal examined the contractual and commercial features of the transactions and accepted the coordinated-bench finding that the assessee procured copyrighted articles (standard software products) for resale to Indian customers, did not acquire ownership of the copyright, had only limited technical/installation rights, and operated on a principal-to-principal distribution model. Reliance was placed on earlier decisions and on the tribunal's own detailed reasoning at paras 47-56 concluding that the payments were consideration for purchase of copyrighted articles and not for transfer of rights to use copyright. The Tribunal further observed that the post-facto clarification by Finance Act, 2012 to section 9(1)(vi) did not alter the fundamental concept of Royalty such as to change the characterisation of these particular transactions. [Paras 52, 53, 54, 55, 56]

Payments for purchase of the software products are not in the nature of Royalty.

No obligation to deduct tax at source under section 195 where payment is not chargeable as Royalty - invocation of section 201(1) and section 201(1A) for failure to deduct tax - disallowance under section 40(a)(i) as a charging fiction affecting TDS proceedings - retrospective amendment to the charging provision in section 9(1)(vi) and impossibility of performance - In absence of characterisation of the payments as Royalty, there was no requirement to deduct tax under section 195 and the assessing authority was not justified in treating the assessee as an assessee-in-default under section 201(1)/201(1A) or in levying interest thereunder; consequent disallowance under section 40(a)(i) is not maintainable. - HELD THAT: - The Tribunal held that the charging fiction under section 40(a)(i) and the TDS provisions (sections 195/201) operate in different realms but, on the facts, since the payments were not Royalty the statutory obligation to deduct TDS did not arise. The coordinated-bench reasoning (paras 47-60) was followed, including the view that a subsequent retrospective amendment (Finance Act, 2012 to section 9(1)(vi)) could not be imposed on past transactions where performance was impossible to foresee or effectuate; the principle of impossibilium nulla obligatio est was applied. Consequently, the assessing officer's invocation of section 201(1)/201(1A) and levy of interest were set aside as unsustainable. [Paras 7, 60]

Assessing officer was not justified in invoking section 201(1)/201(1A) or levying interest; disallowance under section 40(a)(i) and TDS demand deleted.

Final Conclusion: The Tribunal allowed the appeals for the assessment years in issue, holding that the payments for purchase of software from the non-resident suppliers were not Royalty, there was no obligation to deduct tax under section 195, and the orders invoking section 201(1)/201(1A), interest and related disallowances under section 40(a)(i) were set aside.

Penalty under section 271CA - Tax collection at source (TCS) - Reasonable cause for failure to collect TCS - Assessee not in default where purchasers have paid tax - Binding effect of ITAT precedent

Penalty under section 271CA - Tax collection at source (TCS) - Reasonable cause for failure to collect TCS - Assessee not in default where purchasers have paid tax - Binding effect of ITAT precedent - Whether penalty under section 271CA could be sustained where purchasers of scrap had paid income-tax and no demand was raised against the assessee for non-collection of TCS. - HELD THAT: - The Tribunal affirmed the CIT(A)'s finding that the assessee furnished details of sales to various traders along with copies of their income-tax returns evidencing payment of tax by purchasers. The assessing officer had not raised a demand against the assessee for non-collection of TCS but had only charged interest on tax until filing of ITR by the buyers, which demonstrated that the assessee was not treated as an assessee in default for TCS. Applying established decisions (including the ITAT decision relied upon and the principle that levy of penalty under section 271CA is not automatic and requires absence of reasonable cause), the Tribunal held that where purchasers have paid the tax, there existed a reasonable cause for the assessee's failure to collect TCS and no loss to revenue had occurred. The Tribunal further noted the binding effect of its similar recent decision on identical facts and declined to interfere with the deletion of penalty. [Paras 6, 7]

Penalty under section 271CA deleted; departmental appeals dismissed.

Final Conclusion: The appeals filed by the Revenue are dismissed and the assessee's cross objections are dismissed as withdrawn.

Liability for failure to deduct tax at source under section 195 - assessee in default under section 201(1) - interest under section 201(1A) - compensatory nature of interest under section 201(1A) - distinct operation of interest under sections 234A/234B/234C - obligation to deduct TDS is absolute

Liability for failure to deduct tax at source under section 195 - assessee in default under section 201(1) - interest under section 201(1A) - Assessee's liability to pay interest under section 201(1A) for failure to deduct tax at source when consideration was paid to non residents - HELD THAT: - On the facts recorded by the authorities below the appellants paid purchase consideration to non resident sellers without deducting tax required by Section 195. Applying the Supreme Court authorities (including Hindustan Coca Cola and Eli Lilly), the Tribunal held that failure to deduct creates vicarious liability such that the person becomes an assessee in default and interest under section 201(1A) is mandatorily chargeable. The period of default runs from the date tax was deductible to the date when the tax was actually paid by the deductee. The tribunal accepted the reasoning of the lower authorities that interest must be computed accordingly and recovered (reduced to the appellant's 50% share in the instant facts). [Paras 8, 9, 10, 11]

Assessee is liable to pay interest under section 201(1A) from the date tax was deductible to the date of actual payment by the deductee; appeal dismissed on this ground.

Interest under section 201(1A) - compensatory nature of interest under section 201(1A) - distinct operation of interest under sections 234A/234B/234C - obligation to deduct TDS is absolute - Effect of the deductee's subsequent payment of tax and payment of interest under sections 234A/234B/234C on the deductor's liability or enforceability of demand under section 201(1) - HELD THAT: - The Tribunal noted the lower authorities' findings and the Supreme Court's exposition that once the deductee has paid the tax the Collector may not enforce a demand under section 201(1) (as noted in Hindustan Coca Cola), but this does not relieve the deductor of liability to interest under section 201(1A) or of potential penalty under section 271C. The interest under section 201(1A) is compensatory for delayed payment to the exchequer and operates in a different field from interest under sections 234A/234B/234C which are applicable to the deductee; payment of those sums by the deductee does not eliminate the statutory obligation of the payer to deduct tax or the mandatory charge of interest on the payer for the period of default. [Paras 5, 8, 10]

Payment of tax and interest by the deductee does not absolve the deductor from liability to interest under section 201(1A); while a demand under section 201(1) may not be enforced after proof of payment by the deductee, interest under section 201(1A) remains payable.

Final Conclusion: Both appeals are dismissed; the Tribunal upheld the authorities below that interest under section 201(1A) is mandatorily chargeable on the deductor for the period of default notwithstanding subsequent payment of tax and interest by the deductee.

Explanation 5A to section 271(1)(c) - deemed concealment - law applicable at the time of filing of return - due date for filing return - penalty under section 271(1)(c)

Explanation 5A to section 271(1)(c) - deemed concealment - law applicable at the time of filing of return - Whether Explanation 5A to section 271(1)(c) applies to sustain penalty where the assessee had filed the original return before the date of search. - HELD THAT: - Explanation 5A, as originally introduced w.e.f. 1.6.2007, deemed certain income or assets found in a search to be concealed for purpose of penalty under section 271(1)(c) where the return for the relevant previous year had not been filed by the due date. The Tribunal relied on precedent of the Supreme Court that the law applicable for imposing penalty is the law in force at the time of filing of the original return; a subsequent amendment (even if retrospective) does not govern levy of penalty on a return filed earlier. On the facts for assessment years 2005-06 and 2006-07 the assessee had filed original returns under section 139(1) before the search; therefore, under Explanation 5A as it stood at the relevant time, additions made in consequence of the search could not be treated as deemed concealment attracting penalty. The substituted/amended Explanation 5A (Finance (No.2) Act, 2009) widened the scope to include cases where returns had been filed earlier, but that amendment could not be applied to govern the liability where the original return was filed prior to the amendment, having regard to the principle that penal enactments must be construed with reference to the law prevailing at the time of filing of the return. For assessment year 2007-08 the Tribunal further held that the due date for filing the return had not expired on the date of search (having regard to the extended due date under section 139(4)), and Explanation 5A's deeming fiction applies only where the due date had expired or the return had not been furnished before the date of search; consequently Explanation 5A could not be invoked in that year either. The Tribunal also noted absence of independent incriminating material recovered in search and that surrendered amounts were declared and accepted in assessment under section 153A, reinforcing that penalty for deemed concealment was not sustainable. [Paras 16, 19, 25]

Penalty under section 271(1)(c) read with Explanation 5A is not attracted in the assessee's case for the assessment years under appeal; the penalties are set aside.

Final Conclusion: All appeals are allowed; the penalty levied under section 271(1)(c) read with Explanation 5A is cancelled for assessment years 2005-06, 2006-07 and 2007-08.

Confiscation - smuggled goods - acceptance of documentary evidence to establish lawful import - release of seized goods on proof of lawful source - burden of proof to show goods are proceeds of smuggling - penalty under the Customs Act

Confiscation - smuggled goods - acceptance of documentary evidence to establish lawful import - release of seized goods on proof of lawful source - Whether the foreign marked gold biscuits, gold ornaments, gold cut pieces and seized cash were liable to confiscation as smuggled goods or proceeds of smuggled goods - HELD THAT: - The adjudicating authority confiscated the seized gold items and cash on the finding that they were smuggled goods or sale proceeds of smuggled goods and that the appellants had failed to prove otherwise. The Order-in-Original however recorded that airway bills for 14 FMG biscuits were perused and noted serial numbers matching bills of entry, but found deficiencies because the original importers had not stated that they sold the gold to M/s SVBC. In response the appellants produced letters from M/s SVBC to their customers, attested letters from the original importers evidencing import, a post-hearing letter from M/s SVBC, RTI confirmations including airway bills, bills of entry and payment challans, and tax returns (Central Sales Tax return and income-tax returns) supporting the source of the seized cash. The Tribunal held that the documentary material taken together established lawful import and the source of the cash; minor discrepancies in statements were not material. On that basis the Tribunal concluded that the goods and cash were not smuggled goods or proceeds thereof and that confiscation was not justified.

Confiscation set aside; goods and cash to be released to the appellants forthwith; appeal allowed with consequential reliefs.

Penalty under the Customs Act - release of seized goods on proof of lawful source - Whether penalties and the order of absolute confiscation should stand where appellants have established lawful import and source of cash - HELD THAT: - The Tribunal, having accepted the appellants' documentary proof that the FMG biscuits were legally imported and that the seized cash represented sale proceeds properly accounted for, found the foundational premise for confiscation and for imposition of penalties to be unsustainable. Since the confiscation was unjustified, the consequential penalties imposed under the Customs Act could not be sustained in the absence of smuggling or proceeds of smuggling.

Penalties and orders of absolute confiscation set aside as consequential to the finding that confiscation was unjustified; consequential reliefs to follow.

Final Conclusion: The appeal is allowed: the Tribunal found that the appellants furnished sufficient documentary evidence (airway bills, bills of entry, letters from importers, RTI confirmations and tax returns) to establish lawful import and the source of the seized cash; the confiscation and consequential penalties were held unjustified and the seized goods and cash are to be released to the appellants forthwith.

Misuse of CHA license - handing over signed blank Shipping Bills and Bills of Entry - violation of Regulation 13 of CHALR, 2004 (duties of CHA and prohibition on misuse) - failure to exercise supervision under Regulation 19(8) of CHALR, 2004 - proof of receipt of consideration for subletting a CHA licence - remand for de novo adjudication

Handing over signed blank Shipping Bills and Bills of Entry - misuse of CHA license - violation of Regulation 13 of CHALR, 2004 (duties of CHA and prohibition on misuse) - failure to exercise supervision under Regulation 19(8) of CHALR, 2004 - proof of receipt of consideration for subletting a CHA licence - Whether the allegations that the CHA licence was misused by handing over signed blank customs documents to third parties and that the licence-holder failed in supervisory duties are established, and whether renewal should be refused on that basis or the matter requires fresh adjudication. - HELD THAT: - The Tribunal examined statements recorded during investigation which indicate that the proprietor signed blank Shipping Bills and Bills of Entry that were later used by another person (a G card holder) to attend customs business. The Commissioner treated those statements as reliable and concluded contravention of Regulation 13 (including clause (b) and (k)) and failure of supervision under Regulation 19(8). However, the appellant department's case that the handing over of signed blank documents was for monetary consideration (a monthly payment) rests only on such statements and lacks documentary or corroborative evidence of payment or a sub letting arrangement. The Tribunal noted precedents holding that absent evidence of receipt of consideration for subletting, the allegation has no basis. On the facts before it, the Tribunal found insufficient evidence to finally conclude that the handing over of signed blank documents was done for consideration; accordingly the matter was not finally adjudicated on merits and requires fresh consideration. The Tribunal therefore remanded the case to the original adjudicating authority for de novo adjudication, directing that reasonable opportunity be afforded to the respondent to place any further evidence and that the authority decide the matter within three months. [Paras 9, 11, 12, 13, 14]

Matter remanded to the adjudicating authority for de novo adjudication; original authority to give opportunity for further evidence and dispose the case within three months; appeal allowed by way of remand.

Final Conclusion: The Tribunal declined to uphold final rejection of the renewal application on the record before it, finding insufficient evidence of payment/consideration for alleged subletting despite statements indicating handing over of signed blank documents; the matter is remanded for de novo adjudication with a direction to decide within three months.

Rectification of mistake - miscellaneous application for early hearing - restoration and rehearing of appeal - opportunity to file reply - alternative bench arrangement for expeditious hearing - custody of live consignment

Miscellaneous application for early hearing - custody of live consignment - Miscellaneous application for early hearing (E/EH/40366/2016) was considered and directions issued for expeditious listing in view of goods lying in customs custody for an extended period. - HELD THAT: - The Tribunal noted the appellant's grievance that the goods have been in customs custody for about five years and that the appellant's contentions in the earlier appeal may not have been dealt with. While detailed adjudication on alleged judicial mistakes raised in the ROM application is reserved for hearing of that MA, the Tribunal found that procedural fairness and urgency required early listing of the ROM application so that the live consignment does not remain indefinitely in custody. The bench therefore disposed of the early-hearing application by directing steps for expeditious listing and hearing of the ROM application without pre-judging merits. [Paras 2, 3, 4, 9]

The miscellaneous application for early hearing is disposed with directions for expeditious listing and hearing in view of the goods lying in customs custody.

Opportunity to file reply - rectification of mistake - Revenue was granted a limited opportunity to file its reply to the ROM application within a specified short period. - HELD THAT: - Respondent objected that restoration or rehearing sought by way of rectification may not be permissible and sought time to file a reply. The Tribunal balanced the interest of both parties and allowed the Revenue a short period to file its reply so that the Registry can proceed to make arrangements for early hearing. The Tribunal made clear it did not intend to deprive the Revenue of the opportunity to be heard and fixed a timeline to avoid undue delay given the urgency arising from the custody of the goods. [Paras 5, 6, 7]

Revenue is permitted to file and serve its reply within 15 days (with an earlier direction suggesting two weeks for filing), failing which the Registry may proceed to arrange for listing.

Alternative bench arrangement for expeditious hearing - Registry was directed to forward the order to the Head of Department to make alternative bench arrangements so the ROM application can be heard expeditiously despite bench changes. - HELD THAT: - The Tribunal observed that the Technical Member who authored the earlier order had retired and that the normal practice of constituting a Division Bench might preclude hearing by the same members. To avoid prejudice and to secure an early hearing, the Registry was instructed to immediately forward the order to the HOD to consider alternative arrangements for constituting a bench and listing the ROM application at the earliest convenient rostered sitting. [Paras 4, 8]

Registry to immediately forward a copy of the order to the Head of Department to enable alternative bench arrangements and early hearing.

Final Conclusion: The application for early hearing (E/EH/40366/2016) is disposed; the Revenue is granted a short period to file its reply and the Registry/HOD directed to make alternative arrangements to list and hear the ROM application expeditiously in view of the consignment remaining in customs custody.

Second hand capital goods - Free import of second hand capital goods - Import policy for second hand goods under FTP para 2.17 - Definition of capital goods - Applicability of HBP para 2.33 to second hand capital goods - Confiscation of imported goods

Second hand capital goods - Definition of capital goods - Import policy for second hand goods under FTP para 2.17 - Applicability of HBP para 2.33 to second hand capital goods - Imported used video cameras fall within the category of second hand capital goods and are therefore freely importable under the FTP/HBP regime. - HELD THAT: - The Tribunal examined para 2.17 of the Foreign Trade Policy (2009-14) which distinguishes between second hand capital goods and all other second hand goods and identifies a free category for "all other second hand capital goods." The definition of "capital goods" in para 9.12 was considered, including goods used in the services sector. Para 2.33 of the Handbook of Procedure allowing free import of second hand capital goods (except specified restricted items) was held applicable. The reasoning followed the High Court of Madras decision interpreting these provisions to permit free import of second hand capital goods other than specifically restricted items. The respondent's conclusion that the cameras did not qualify as capital goods because the proposed use would not earn foreign exchange was rejected as having no basis; the record showed the appellant intended to use the cameras as infrastructure for rendering services (rental to film/TV producers), bringing them within the definition of capital goods. Applying these provisions and precedent, the Tribunal held the imported cameras are second hand capital goods and covered by the free-import classification under the FTP/HBP. [Paras 9, 10]

The confiscation of the imported video cameras is not legal; the goods qualify as second hand capital goods and are freely importable under the FTP/HBP, and the appeal is allowed.

Confiscation of imported goods - Free import of second hand capital goods - The confiscation order impugned was set aside as contrary to the FTP/HBP classification of the goods. - HELD THAT: - Having concluded that the goods fall within the free category of second hand capital goods, the Tribunal found no legal basis for the confiscation imposed by the original authority. The order below that confiscated the two cameras was therefore held unlawful and was set aside, with consequential reliefs granted to the appellant. [Paras 10]

Impugned order of confiscation is set aside and the appeal is allowed.

Final Conclusion: The Tribunal held that the imported used video cameras qualify as second hand capital goods and are freely importable under the FTP/HBP; the confiscation was therefore unlawful and the appeal is allowed, setting aside the impugned confiscation order.

Scheme of Arrangement - Demerger - Sanction of scheme - Interests of shareholders and creditors - Public interest - Compliance with regulatory observations of the Regional Director - Dispensation of meetings by written consent - Consent of secured creditor - Filing of order with the Registrar of Companies - Dispensation of drawn up order - Costs payable to Central Government Standing Counsel

Scheme of Arrangement - Demerger - Sanction of scheme - Interests of shareholders and creditors - Public interest - Sanction of the proposed scheme of arrangement demerging and transferring the Investment Business from the Demerged Company to the Resulting Company - HELD THAT: - Having considered the affidavits, the additional affidavit filed by the petitioner in response to observations, the absence of any objections following publication, and the submissions of counsel, the Court concluded on the material on record that the proposed scheme is in the interests of the shareholders and creditors of both companies and is not contrary to public interest. The court found no impediment to sanctioning the scheme and accordingly granted prayers in terms of the petition. [Paras 8, 9]

The scheme is sanctioned as being in the interest of shareholders, creditors and the public; prayers in paragraph 22(a) of the petition are granted.

Compliance with regulatory observations of the Regional Director - Response to observations made by the Regional Director, Ministry of Corporate Affairs - HELD THAT: - The petitioner's additional affidavit supplied the details and explanations sought by the Regional Director (including particulars of assets and liabilities of the demerged undertaking and confirmation regarding consultations with the Income Tax Department). On consideration of those filings and the statutory process, the Court held that the observations of the Regional Director do not survive and that no further directions are required to be issued to the petitioner. [Paras 7, 8]

Regional Director's observations are addressed by the petitioner and do not survive; no directions required.

Dispensation of meetings by written consent - Consent of secured creditor - Validity of dispensation of meetings of equity shareholders and unsecured creditors, and placement of secured creditor's consent on record - HELD THAT: - The Court noted that meetings of equity shareholders and unsecured creditors had been dispensed with on the basis of written consent and that the petitioner undertook to place on record the secured creditor's consent in accordance with contractual terms. The petitioner subsequently placed the approval of its sole secured creditor on record. The process for dispensation and the secured creditor's consent were treated as complied with for purposes of sanctioning the scheme. [Paras 4, 5]

Dispensation of meetings on the basis of written consents accepted; secured creditor's approval placed on record and treated as satisfied.

Filing of order with the Registrar of Companies - Dispensation of drawn up order - Post-sanction procedural directions concerning filing and authentication of the order and scheme - HELD THAT: - The Court directed the petitioner to file a copy of this order along with the scheme with the concerned Registrar of Companies electronically (along with INC28) and in physical form as required under the Act. The Court dispensed with the filing and issuance of a drawn up order and directed that all concerned authorities may act on an authenticated copy to be issued by the Registrar, High Court of Gujarat. [Paras 11, 12, 13]

Petitioner to file the order and scheme with the Registrar of Companies (including INC28); drawn up order dispensed with; Registrar to issue authenticated copies for authorities to act upon.

Costs payable to Central Government Standing Counsel - Quantification and payment of costs to the Central Government Standing Counsel - HELD THAT: - The Court assessed and fixed the costs to be paid to the Central Government Standing Counsel appearing for the Central Government in the petitions. [Paras 10]

Costs quantified at Rs. 10,000 per petition to be paid to the Central Government Standing Counsel.

Final Conclusion: The High Court sanctioned the demerger scheme as being in the interest of shareholders, creditors and the public; regulatory observations were addressed and found not to survive; statutory formalities regarding dispensation of meetings and secured creditor consent were accepted; the petitioner was directed to file the order and scheme with the Registrar of Companies (including INC28), the drawn up order was dispensed with, authenticated copies to be issued, and costs fixed to the Central Government Standing Counsel.

Stay of demand - pre-deposit waiver - taxability of government grants for in-house research - scientific and technical consultancy services - export of services - limitation in issuance of show cause notice - service tax exemption for public funded research institutions

Stay of demand - pre-deposit waiver - taxability of government grants for in-house research - limitation in issuance of show cause notice - service tax exemption for public funded research institutions - Application for stay of the impugned order and waiver of pre-deposit - HELD THAT: - The Tribunal granted unconditional stay of the impugned order and waived the requirement of pre-deposit until disposal of the appeal. In reaching this conclusion the Tribunal recorded that the appellant, a government organisation under CSIR undertaking R&D, raised substantial contentions: the disputed receipts comprised three categories of Grants-in-Aid Projects (PPP, foreign donations, academic grants) which, on the material before the Tribunal, bore characteristics of government grants for R&D rather than consideration for Scientific and Technical Consultancy Services; certain documents showed funds were for meeting R&D expenses; portions of the dispute were susceptible to limitation challenge because the show cause notice was issued on 29.02.2012 though the disputed period largely lay between 10/2006 and 10/2011; and reliance could be placed on Board Circular No. B.11/1/2001/TRU dated 09.07.2011 and earlier tribunal decisions cited by the appellant. Weighing these factors, including the appellant's status and the case law and circular relied upon, the Tribunal found the appellant to have a strong prima facie case on merits and limitation and therefore merited full waiver of pre-deposit.

Unconditional stay of the impugned order granted and entire pre-deposit requirement waived until final disposal of the appeal.

Final Conclusion: The Tribunal allowed the stay application and granted unconditional waiver of the pre-deposit, holding that the appellant has a strong prima facie case on merits and limitation and that the balance of convenience and other factors justify full waiver until the appeal is finally decided.

Waiver of pre-deposit - service tax on manpower recruitment and supply agency service - characterisation of contractual service (manpower supply v. contract for execution of jobs) - reimbursable expenses not includible in assessable value - extended period of limitation

Waiver of pre-deposit - stay of demand pending appeal - Extent of pre-deposit to be ordered with respect to the service tax demand in appeal - HELD THAT: - The Tribunal declined to grant a complete waiver of pre-deposit. Having considered the appellants' contentions and the record, the Bench directed a provisional pre-deposit of 25% of the assessed service tax demand to be paid within eight weeks. On receipt of that pre-deposit and compliance reported, the balance of the demand, interest and penalties would remain waived during the pendency of the appeal. This limited waiver was ordered as an interim measure while the appeal proceeds. [Paras 7]

Appellant to make pre-deposit of 25% of the demand within eight weeks; on compliance the balance of demand, interest and penalty waived during pendency of appeal.

Characterisation of contractual service (manpower supply v. contract for execution of jobs) - reimbursable expenses not includible in assessable value - Whether the appellant's service amounted to taxable 'manpower supply' and whether wages reimbursed are includible in assessable value - HELD THAT: - On examination of the agreement dated 25.5.2008, the Tribunal noted the scope of work comprised fabrication, painting, maintenance, plying of vehicles, loading/unloading, packing, shifting and stacking and that payment terms referred to service charges. The Bench concluded prima facie that the contract was for execution of jobs requiring the appellant to employ workers, and not a case of supply of manpower to the principal. In that factual backdrop the appellant failed to establish entitlement to a complete waiver based on non-inclusion of reimbursable wages under section 67, and therefore a full stay could not be granted at this stage. [Paras 3, 5, 6, 7]

Prima facie finding that the contract was for execution of jobs (not supply of manpower); appellant has not made out case for complete waiver based on non-inclusion of reimbursed wages in assessable value.

Extended period of limitation - Whether the extended period of limitation for demand could be invoked by the Revenue - HELD THAT: - The appellant had contested the invocation of the extended period. The Tribunal observed that the agreement was not produced before the adjudicating authority during the relevant period, and on that basis held that the Revenue could invoke the extended period. That conclusion supported the adjudication and the demand raised under the extended period. [Paras 7]

Extended period of limitation held invokable because the agreement was not produced before the authority below during the relevant time.

Final Conclusion: Limited interim relief granted: appellant directed to deposit 25% of the assessed service tax within eight weeks; on compliance the remaining demand, interest and penalties shall remain waived pending the appeal, while the merits including characterisation of the contract and the invocation of extended limitation will be examined in the appeal.

Jurisdiction of appellate bench - cause of action - forum competence - transfer of appeal to proper bench

Jurisdiction of appellate bench - cause of action - transfer of appeal to proper bench - Whether the appeals before CESTAT Chandigarh are within the jurisdiction of that bench or ought to be transferred to the Principal Bench at New Delhi. - HELD THAT: - The appellants are located in New Delhi and hold central registration at an address in New Delhi. Although the impugned adjudication order was passed by the Commissioner of Central Excise and Service Tax, Rohtak, the cause of action for demand of service tax arose in New Delhi where the appellant is situated. On this basis the appeals do not properly fall within the jurisdiction of the Chandigarh Bench and instead lie with the Principal Bench at CESTAT New Delhi. Having considered the record, the Tribunal directed transfer of the matters to the Principal Bench for consideration.

Registry directed to send the appeals to the Principal Bench at CESTAT New Delhi for consideration.

Final Conclusion: Appeals transferred from CESTAT Chandigarh to the Principal Bench at CESTAT New Delhi on the ground that the cause of action and appellant's location are in New Delhi, making the Principal Bench the proper forum for hearing these appeals.

Pre-deposit of demand - business auxiliary service - classification of taxable service - stay of demand on compliance with pre-deposit

Pre-deposit of demand - stay of demand on compliance with pre-deposit - Extent of waiver of pre-deposit of the confirmed service tax demand and conditions for grant of stay during pendency of appeal. - HELD THAT: - The appellant sought complete waiver of pre-deposit of the service tax demand confirmed for the period 1.4.2004 to 30.4.2006 on the ground that it was not liable under the category of business auxiliary service and that amounts received from customers did not constitute remuneration for services to APIL. The Tribunal examined the appellant's contention and observed that the appellant had not made out a prima facie case for total waiver. In exercise of its discretionary power to regulate pre-deposit and stay, the Tribunal directed a partial pre-deposit of the confirmed demand so as to protect revenue while permitting the appeal to proceed. The balance of the demand, including interest and penalty, was ordered to remain waived (i.e., stayed) during the pendency of the appeal upon compliance with the directed pre-deposit. [Paras 5]

Appellant directed to make a pre-deposit of Rs. 7.5 lakh within four weeks; on such compliance the balance demand, interest and penalty shall remain stayed during the pendency of the appeal.

Final Conclusion: Partial waiver of pre-deposit granted: pre-deposit of Rs. 7.5 lakh directed within four weeks; balance of demand, interest and penalties stayed during pendency of appeal upon compliance.

Appropriation of payment - double recovery - rectification of mistaken payment / adjustment of tax payment - closure of accounts not a bar to correction

Rectification of mistaken payment / adjustment of tax payment - appropriation of payment - double recovery - closure of accounts not a bar to correction - Direction to adjust an electronically made payment erroneously credited to service tax head against the assessee's excise liability for March 2014 and whether closure of accounts precludes such correction. - HELD THAT: - The facts are undisputed: the assessee had an excise liability for March 2014 and electronically paid the amount on 31.3.2014; due to a clerical error the payment was coded under service tax, a head under which no liability then existed. The department accepts the insertion of the service tax code was an error. The court held that a sum not due under a particular head cannot be lawfully appropriated by the department so as to leave the actual excise dues unpaid; allowing the department to retain the misapplied amount and also demand payment of the excise liability would amount to impermissible double recovery. The administrative contention that the error cannot be rectified after accounts are closed does not justify permitting appropriation where there was no liability. On these grounds the respondents were directed to adjust the payment so as to meet the petitioner's excise liability for March 2014.

Respondents directed to adjust the petitioner's payment credited to service tax against the excise liability for March 2014; petition disposed of.

Final Conclusion: The High Court directed correction of the misapplied electronic payment by directing adjustment of the amount to the petitioner's excise liability for March 2014, holding that appropriation to a head where no liability exists (and thereby causing double recovery) is not permissible and that closure of accounts does not justify refusal to correct the error.

Relevancy of statements under Section 9D - Admissibility of statements recorded under Section 14 - Duty recovery under Section 11A - Pre-deposit under Section 35F and availability of writ remedy - Right to cross-examination and principles of natural justice

Relevancy of statements under Section 9D - Admissibility of statements recorded under Section 14 - Right to cross-examination and principles of natural justice - Whether the adjudicating authority could rely on statements recorded under Section 14 as proof of the truth of their contents without admitting them in evidence in accordance with Section 9D. - HELD THAT: - Section 9D(1) prescribes the circumstances in which a statement made and signed before a gazetted Central Excise officer during inquiry is relevant for proving the truth of its contents. If clause (a) of Section 9D(1) does not apply, clause (b) mandates that the maker of the statement must be examined as a witness before the adjudicating authority and the authority must record reasons forming the opinion that the statement should be admitted in evidence in the interests of justice. The procedure is mandatory: absent compliance, the statements recorded during investigation lose their evidentiary value for proving truth of their contents and reliance upon them amounts to reliance on irrelevant material. The adjudicating authority in the present cases placed extensive reliance on Section 14 statements without invoking Section 9D(1)(a) or following the admission procedure under Section 9D(1)(b). That approach violated the statutory prescription and principles of evidence and natural justice, as an assessee must have the opportunity to test such evidence by cross-examination once it is admitted in evidence. [Paras 25, 28, 29, 30, 31]

Orders-in-Original premised on reliance upon Section 14 statements without following Section 9D were vitiated; the adjudicating authority could not lawfully rely on those statements as proof of their contents without complying with Section 9D and affording the assessee the opportunity to test the evidence.

Duty recovery under Section 11A - Pre-deposit under Section 35F and availability of writ remedy - Procedural remand for de novo adjudication - Disposition of the Orders-in-Original and the manner in which the pending Show Cause Notices must be re-adjudicated. - HELD THAT: - The Orders-in-Original dated 19/05/2016 and 01/06/2016 confirming duty and imposing penalties on Ambika and Jay Ambey were set aside because they were founded on inadmissible reliance on investigation statements without compliance with Section 9D. The Show Cause Notices are remanded for de novo adjudication. On re-adjudication, if the Revenue intends to rely on any statements recorded under Section 14, it must apply to summon the makers so they can be examined in chief before the adjudicating authority; a copy of such examination-in-chief must be supplied to the assessee; statements whose makers are not examined in chief must be eschewed from evidence and cannot be relied upon; once examination-in-chief is furnished the assessee may seek and, if requested, must be permitted cross-examination. The same procedure is to be followed by the adjudicating authority in the pending matters of Fine Aromatics and Shiva Mint Industries. [Paras 31, 32, 33, 34]

Orders-in-Original set aside; Show Cause Notices remanded for fresh adjudication in accordance with Section 9D, the cited judicial authorities and principles of natural justice, with specific directions on summons, examination-in-chief, provision of copies and opportunity for cross-examination.

Final Conclusion: The High Court set aside the Orders-in-Original impugned in the petitions of M/s Ambika International and M/s Jay Ambey Aromatics, remanded the corresponding Show Cause Notices for de novo adjudication strictly in accordance with Section 9D and principles of natural justice, and directed identical procedural compliance in the pending matters of M/s Fine Aromatics and M/s Shiva Mint Industries.

Application of Section 11A(2B) to payment of differential duty on supplementary invoices - levy of interest under Section 11AB for delayed payment of differential duty - interest chargeable from the date of removal/clearance where supplementary invoices reflect retrospective price differential - binding effect of existing Apex Court decisions pending Larger Bench reference

Application of Section 11A(2B) to payment of differential duty on supplementary invoices - levy of interest under Section 11AB for delayed payment of differential duty - interest chargeable from the date of removal/clearance where supplementary invoices reflect retrospective price differential - Assessee obliged to pay interest on differential duty paid after issuance of supplementary invoices and interest is leviable from the date of removal/clearance of goods. - HELD THAT: - The Court applied the reasoning of the Apex Court in SKF India Ltd. and International Auto Ltd., holding that payment of differential duty pursuant to supplementary invoices falls within Sub-section 2B of Section 11A and is not exempt from interest under Explanation 2 to Section 11A(2B) and Section 11AB. A retrospective price differential shown by a supplementary invoice is directly relatable to the value of goods on the date of removal; hence the enhanced duty represents short-payment/short-levy on the date of removal and attracts interest as compensation for loss of revenue. Although the question has been referred to a Larger Bench in the Steel Authority matter, those referrals do not displace the existing Apex Court decisions; therefore the Tribunal's order rejecting interest was set aside and the appeal allowed in favour of the Revenue, subject to the outcome of the pending Larger Bench reference.

Tribunal order set aside; interest on differential duty payable and to be computed from date of removal/clearance in accordance with the Apex Court precedents.

Binding effect of existing Apex Court decisions pending Larger Bench reference - Pending reference to a Larger Bench does not suspend the applicability of existing Apex Court decisions which currently govern the issue. - HELD THAT: - The Court noted that the Apex Court's decisions in SKF India Ltd. and International Auto Ltd. remain operative until the Larger Bench in the Steel Authority reference decides otherwise. Consequently, the appeal was decided in accordance with those precedents. The Court however clarified that if the Larger Bench ultimately rules in favour of the assessee, that decision would apply to the present case and the rights of both parties would be governed by that outcome. Meanwhile, the Revenue was restrained from taking coercive action until the Larger Bench determination; if the Larger Bench upholds the Revenue, recovery would be permitted thereafter.

Existing Apex Court precedents govern the dispute until the Larger Bench decides the reference; coercive action stayed until that decision.

Final Conclusion: Appeal allowed; the Tribunal's order is set aside and the issue is governed by the Apex Court decisions in SKF India Ltd. and International Auto Ltd.; coercive action is stayed until the Larger Bench decision in the Steel Authority reference, and, if that decision favours the Revenue, recovery may thereafter be effected.

Assessable value - bought out items - integral/essential part - classification under Chapter heading 8507 - HSN notes - cenvat credit

Assessable value - integral/essential part - HSN notes - bought out items - cenvat credit - Whether the value of electrolyte supplied separately is includible in the assessable value of dry charged batteries classified under Chapter 8507.00. - HELD THAT: - The Tribunal accepted the factual finding that the assessee supplied dry charged batteries without electrolyte at the specific request of its customer and supplied electrolyte separately as a bought out item. Technical literature produced showed dry charged batteries are marketable without electrolyte. HSN notes for Chapter 8507 were held to confirm that electric accumulators remain classifiable under that heading even when presented without electrolyte, indicating that electrolyte is not necessarily an integral part. It was also noted that no cenvat credit had been availed on the separately supplied electrolyte. Reliance on precedents where bought out accessories or optional components were held not to form part of the main commodity supported the conclusion. Applying these considerations, the selling price of electrolyte could not be included in the assessable value of the dry charged batteries. [Paras 5]

Value of electrolyte supplied separately is not includible in the assessable value of dry charged batteries.

Assessable value - bought out items - integral/essential part - cenvat credit - Whether the value of micro porous vent plug with float supplied additionally is includible in the assessable value of dry charged batteries. - HELD THAT: - The Tribunal found that vent plugs/floats were already fitted to the batteries for which duty had been paid and their value included in the battery price. The additional micro porous vent plug with float were supplied separately as bought out items and no cenvat credit was taken on them. On this basis the Tribunal treated the extra supplied vent plugs/floats as optional/additional components not forming part of the assessable value of the subject goods. Precedents where optional or market-purchased accessories were not included in assessable value were applied to reinforce the conclusion. [Paras 5]

Value of the additionally supplied micro porous vent plug with float is not includible in the assessable value of dry charged batteries.

Final Conclusion: Impugned order of the Commissioner dated 19.07.2002 dropping proceedings is sustained; Revenue's appeal is rejected.

Excise liability of an intermediate product - marketability as determinant of excisability - burden on revenue to produce positive evidence of marketability - proof of preservatives and shelf life for establishing commercial viability - application of Board circular regarding marketable sugar syrup - time bar/extended period and suppression

Excise liability of an intermediate product - marketability as determinant of excisability - burden on revenue to produce positive evidence of marketability - proof of preservatives and shelf life for establishing commercial viability - application of Board circular regarding marketable sugar syrup - Sugar syrup/solution produced captively during manufacture of fruit based beverages is not liable to central excise duty in the absence of evidence of marketability, preservative content or shelf life. - HELD THAT: - The Tribunal accepted the Commissioner (A)'s factual conclusion that the sugar syrup in question was an intermediate product not shown to be marketable. The Revenue failed to establish by evidence that the syrup contained preservatives, had demonstrable shelf life or was capable of being sold in the market. Reliance on the Board's circular that a marketable sugar syrup is excisable depends on a prior finding of marketability; the circular does not dispense with the requirement that marketability be proved with positive evidence. No analysis or testing was placed on record to show sugar concentration, presence of preservatives or duration of storage; the Revenue merely presumed marketability. Precedents were noted to the effect that excisability of intermediate products hinges on whether the product is known in the market and capable of being bought and sold, which must be shown affirmatively. On the material before it, the Tribunal found no reason to disturb the Commissioner (A)'s conclusion that the syrup was not a marketable final product and hence not exigible to excise duty. [Paras 5, 6, 7]

Findings of the Commissioner (A) that the sugar syrup is not excisable due to lack of marketability, absence of evidence of preservatives and shelf life are upheld; no duty is exigible on the intermediate sugar syrup.

Time bar/extended period and suppression - The demand raised was not sustainable as time barred in the absence of any evidence of suppression or concealment by the respondent. - HELD THAT: - The Commissioner (A) found, and the Tribunal agreed, that given the unsettled legal position reflected by Board circulars and various judicial decisions, the department could not establish deliberate suppression or concealment necessary to invoke extended limitation. The Revenue did not demonstrate that the respondent had withheld information about manufacture of the syrup or acted fraudulently; consequently the demand could not be sustained outside the normal limitation period. [Paras 7]

The appeal cannot be sustained on limitation grounds; the demand fails for want of proof of suppression and is time barred.

Final Conclusion: Both Revenue appeals are dismissed: the Tribunal affirms the Commissioner (A)'s conclusions that the captively produced sugar syrup is not excisable for want of demonstrated marketability, preservative content or shelf life, and that the demand is unsustainable as time barred in absence of evidence of suppression.

Rectification of mistake apparent on the face of record (Review/ROM) - benefit of exemption notification - captivity/captive consumption notification - academic questions - finality of Supreme Court decision

Rectification of mistake apparent on the face of record (Review/ROM) - finality of Supreme Court decision - Whether the ROM application seeking rectification of the Tribunal's order remains maintainable after the principal issue was finally decided by the Hon'ble Supreme Court in favour of the appellant. - HELD THAT: - The Tribunal recorded that the principal controversy - entitlement of the appellant's final product (gold bars) to the benefit of the exemption notifications - had been finally adjudicated by the Hon'ble Supreme Court in favour of the appellant. Given that the Supreme Court upheld the view favourable to the appellant, the Registry and Bench concluded that the pending ROM application became infructuous. The Tribunal therefore declined to exercise its power to rectify the earlier order because the determinative issue had been finally resolved by the higher forum, rendering further consideration of the ROM unnecessary. [Paras 6, 7]

ROM application is infructuous and disposed of in view of the Supreme Court's decision in favour of the appellant.

Academic questions - benefit of exemption notification - captivity/captive consumption notification - Whether alternative/contentious arguments (including entitlement to captive consumption notification or claims of revenue neutrality) require adjudication after the principal issue was decided by the Supreme Court. - HELD THAT: - The Tribunal noted that the appellant had advanced alternative contentions before the adjudicating authority and the Tribunal (e.g., availability of captive consumption benefit and revenue neutrality via credits). However, because the principal issue - entitlement to the exemption notifications for the final product - was finally decided in the appellant's favour by the Supreme Court, these ancillary or alternative questions were rendered academic. The Bench therefore declined to address them on merits. [Paras 4, 7]

Alternative arguments are academic in light of the Supreme Court's decision and need not be addressed.

Final Conclusion: The ROM application is disposed of as infructuous in view of the Supreme Court's decision upholding the appellant's entitlement to the exemption notifications; consequential alternative issues are treated as academic and are not adjudicated.

Input service - place of removal - Rule 2(l) of the Cenvat Credit Rules, 2004 - custom house agent services

Input service - place of removal - custom house agent services - Rule 2(l) of the Cenvat Credit Rules, 2004 - Admissibility of cenvat credit of service tax paid on Custom House Agent services utilized in relation to export of goods. - HELD THAT: - The Tribunal applied the definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004, which allows credit for services used by a manufacturer in or in relation to the manufacture of final products and clearance of final products up to the place of removal. The Bench accepted the view that in the case of export the place of removal is the port of shipment, so that services availed and utilised before the goods are loaded onto the ship fall within the scope of services used in relation to manufacture and clearance up to the place of removal. On that basis, Custom House Agent services used prior to loading at the port were held to be eligible as input service and cenvat credit of service tax paid thereon was admissible. The Tribunal followed the reasoning in Commissioner v. Dynamic Industries Ltd. and related decisions, and rejected the Revenue's contention that the place of removal is the factory gate and that CHA services are post-manufacture and therefore ineligible.

Cenvat credit of service tax paid on Custom House Agent services utilized prior to loading for export is admissible; Revenue's appeal dismissed.

Final Conclusion: Following the Tribunal's precedent and the interpretation of Rule 2(l), the appeal by Revenue is dismissed and the order of the Commissioner (Appeals) upholding admissibility of cenvat credit on CHA services is affirmed.

Wrongful availment of Cenvat credit - burden on revenue to prove non-receipt of goods - corroboration of third party statements by independent evidence - inadmissibility of private records of third parties without cross examination - sanction of refund of amounts deposited during investigation

Wrongful availment of Cenvat credit - burden on revenue to prove non-receipt of goods - corroboration of third party statements by independent evidence - inadmissibility of private records of third parties without cross examination - The demand, interest and penalty raised on the allegation of wrongful availment of Cenvat credit without actual receipt of goods were not established by Revenue. - HELD THAT: - The Tribunal accepted the findings of the adjudicating authority and Commissioner (Appeals) that the prosecution case rested largely on statements and private records of a third party (Shri Prabhakar) and on correlated statements, without independent corroborative evidence. The authorities below and this Tribunal noted that statutory records such as stores inward registers, job work register and stock reconciliations did not disclose discrepancies or physical shortages, and that mere statements or private documents are insufficient to sustain an allegation of diversion or clandestine supply unless supported by independent evidence or cross examination of the maker of those records. The Tribunal relied on earlier decisions applying the principle that confessional or third party statements must be corroborated before upholding demands for wrongful availment of credit, and found no reason to take a view different from co noticee matters where identical evidence led to setting aside demands. [Paras 5, 6, 11, 12, 13]

Appeal E/258/2010 is dismissed; the demand, interest and penalty were set aside for lack of proof of non receipt of goods.

Sanction of refund of amounts deposited during investigation - finality of appeal and refund - The refund of the amount deposited by the respondent during investigation was correctly sanctioned and is not liable to be withheld. - HELD THAT: - The Revenue contended that the refund should not have been sanctioned while the main appeal had not attained finality. Having dismissed the main appeal (E/258/2010) for lack of merit, the Tribunal held that the appeal against sanction of refund (E/826/2010) was without merit and dismissed it, thereby upholding the return of the amount deposited during investigation. [Paras 2, 14]

Appeal E/826/2010 is dismissed; the sanctioned refund is upheld.

Final Conclusion: Both departmental appeals are dismissed: the demand, interest and penalty for alleged wrongful availment of Cenvat credit were not sustained for lack of corroborative evidence, and the refund of the amount deposited during investigation was rightly sanctioned and is upheld.

Fraudulent availment of Cenvat credit - reliance on private records and third party statements - requirement of cross examination of third parties - need for independent corroborative evidence for confessional statements - confiscation and penalty when goods are not available

Fraudulent availment of Cenvat credit - reliance on private records and third party statements - need for independent corroborative evidence for confessional statements - Sustainability of demand for Cenvat credit alleged to have been fraudulently availed on invoices issued without actual receipt of goods - HELD THAT: - The Tribunal held that the demand was founded primarily on private records seized from a third party (the manager of the dealer) and on his statements, without adequate independent corroboration. The adjudicatory material did not establish how the private records connected to the dealer or demonstrate short receipt/shortage in the appellants' inventory. Earlier orders in connected matters and tribunal precedent were relied upon to underscore that confessional statements or private records of a third party, standing alone and without opportunity for cross examination or corroboration, are inadequate to sustain a charge of clandestine supply or evasion of duty. Given the absence of evidence (for example, testimony of transporters/drivers, alternate procurement proof, or inventory discrepancies) to support the allegation that inputs were not actually received, the Tribunal found no basis to uphold the confirmed demand. [Paras 9, 13, 14]

The confirmed demand of Cenvat credit is not sustainable and is set aside; the appeals are allowed on this ground.

Confiscation and penalty when goods are not available - requirement of cross examination of third parties - Validity of confiscation and penalties imposed in consequence of the demand founded on the above material - HELD THAT: - The Tribunal noted that the Commissioner (Appeals) had already set aside confiscation of finished goods on the ground that the goods were not available for confiscation and had reduced certain penalties. Insofar as penalties and confiscation were founded on the same unsustainable evidentiary basis (private records and third party statements without corroboration or cross examination), those measures could not be maintained. The Tribunal relied on prior administrative orders and judicial authority holding that penalties and confiscation cannot be sustained where the underlying allegation of clandestine/non receipt is not proved by independent evidence. [Paras 5, 9, 11, 12]

Confiscation and penalties founded on the unsustained demand cannot be upheld; consequential reliefs follow and the appeals are allowed.

Final Conclusion: The appeals are allowed. The confirmed demand, and consequential measures founded solely on private records and third party statements without independent corroboration or cross examination, are not sustainable; impugned orders are set aside and consequential reliefs granted.

Propriety of coercive directions by a tribunal pending notice by a higher court - effect of issuance of notice by the Supreme Court on interlocutory relief and subordinate proceedings - quashing of tribunal order for acting despite pending higher forum proceedings - authority of a tribunal to summon personal presence of a government officer - contempt proceedings against government authorities pursuant to tribunal directions

Propriety of coercive directions by a tribunal pending notice by a higher court - effect of issuance of notice by the Supreme Court on interlocutory relief and subordinate proceedings - quashing of tribunal order for acting despite pending higher forum proceedings - Whether the Tribunal erred in directing release of refund and issuing coercive directions despite the Supreme Court having issued notice on the department's special leave petition and on prayer for interim relief. - HELD THAT: - The Court found that the Tribunal proceeded to press for release of the refund and to impose coercive consequences even after the Tribunal had been informed that the Supreme Court had issued notice on the department's application for condonation of delay, on the special leave petitions, and on prayer for interim relief. The issuance of notice by the Supreme Court, together with its cognizance of the stay application, was a clear signal that the matter was before a higher forum and that the Tribunal should not exert further coercion on the department. The Tribunal's insistence on release of refund or immediate payment of costs, and its continued directions after being apprised of the Supreme Court order, constituted serious impropriety. In light of these findings the High Court concluded that the Tribunal should have awaited further developments in the Supreme Court proceedings and not compelled the department to comply with the impugned directions. [Paras 4, 5, 7, 8]

Impugned order dated 01.03.2016 quashed; petition allowed and disposed of.

Authority of a tribunal to summon personal presence of a government officer - contempt proceedings against government authorities pursuant to tribunal directions - Whether the Tribunal could direct the Commissioner of Commercial Tax to remain personally present and justify why contempt proceedings should not be initiated. - HELD THAT: - The High Court recorded serious doubt about the Tribunal's power to summon the personal presence of a senior government authority and found that the question of directing the Commissioner to appear personally and face potential contempt proceedings was inappropriate in the circumstances, particularly when the Supreme Court had taken the matter on notice. The Court held that, given the pendency of the higher court proceedings and absence of an order from the Supreme Court, such a direction by the Tribunal was unwarranted and contributed to the impropriety of the impugned order. [Paras 6]

High Court disapproved the Tribunal's direction to summon the Commissioner personally and treated that direction as inappropriate in the given circumstances.

Final Conclusion: Because the Supreme Court had issued notice on the department's petitions and on the prayer for interim relief, the High Court held that the Tribunal acted improperly in issuing coercive directions (including summoning the Commissioner personally); the impugned Tribunal order dated 01.03.2016 was quashed and the petition was allowed.

Input tax credit - Genuineness of transactions - Jurisdiction of revisional authority - Reliance on extraneous material - Obligation to call upon assessee to establish transactions

Input tax credit - Genuineness of transactions - Reliance on extraneous material - Obligation to call upon assessee to establish transactions - Jurisdiction of revisional authority - Validity of disallowance of input tax credit and confirmation of additional tax and interest where the revisional authority and Tribunal relied on material not on record and did not call upon the petitioner to establish genuineness of purchases from M/s Om Incorporation. - HELD THAT: - The court held that the Tribunal erred in confirming the additional tax liability and interest because the revisional proceedings were initiated and decided on material extraneous to the record of the subordinate authority and without calling upon the petitioner to establish the genuineness of the purchase transactions. The Tribunal had relied upon material produced directly by the respondent and brushed aside documentary evidence produced by the petitioner by merely recording that such documents were subsequently created, without the subordinate authority having first required the petitioner to prove the transactions. The Division Bench in a co-ordinate matter had observed that input tax credit cannot be denied in the absence of establishment by the Department that transactions are not genuine, and that the Tribunal was bound to deal with and record a finding on the jurisdictional contention under the Act. Applying those conclusions, the court set aside the Tribunal's confirmation of tax and interest and held that the petitioner is entitled to input tax credit for the period in question. [Paras 3, 4]

The Tribunal's order confirming additional tax liability and interest is quashed insofar as it relates to the petitioner; the petitioner is entitled to the input tax credit and is not liable to pay the tax or interest for the year 2006-07 as per the revision order under the GVAT Act.

Final Conclusion: The petition is allowed; the Gujarat Value Added Tax Tribunal's order dated 15.07.2015 is set aside in respect of the petitioner, and the petitioner is held entitled to input tax credit and not liable for the tax or interest determined by the revisional authority for 2006-07.

Input tax credit - reversal of input tax credit - invisible loss - fact finding exercise by Assessing Authority - inspection of manufacturing process - inter-state sales without C forms - remand for fresh consideration

Invisible loss - input tax credit - fact finding exercise by Assessing Authority - remand for fresh consideration - Reversal of ITC on estimated invisible loss of inputs fixed by Assessing Officer at an adhoc percentage - HELD THAT: - The Assessing Officer again adopted an adhoc percentage (4%) to quantify invisible loss without undertaking the fact-finding exercise mandated by this Court's earlier order. The Assessing Officer failed to ascertain the quantum of loss of goods purchased vis-a -vis goods manufactured and did not inspect the manufacturing process or otherwise examine whether the dealer's representation was justified or hit by restrictions under Section 19 of the TNVAT Act. Consequently, the assessment finding fixing invisible loss at 4% is set aside and the matter is remitted to the respondent for fresh consideration. The respondent is directed to inspect the factory, acquaint himself with the manufacturing process, consider the petitioner's objections and then decide in accordance with law. [Paras 4, 10]

Finding fixing invisible loss at 4% set aside; issue remitted for fresh consideration with direction to conduct inspection and fact-finding.

Input tax credit - reversal of input tax credit - inspection of manufacturing process - remand for fresh consideration - Reversal of ITC on purchase of Furnace Oil treated as fuel - HELD THAT: - The Assessing Officer relied on a decision of the Haryana Tax Tribunal to deny ITC on Furnace Oil. The Court observed material distinctions in the statutory entries and schedules relied upon and noted that an entry (Annexure 12 regarding inputs damaged during intermediary stage) was only introduced with effect from 29.01.2016 and was not available earlier. Given these differences and that Furnace Oil was pleaded to be an essential consumable/input in the petitioner's manufacturing process, the reliance on the Haryana tribunal decision was held to be misplaced. The assessment finding denying ITC on Furnace Oil is set aside and remitted to the respondent for fresh consideration; the respondent must inspect the manufacturing process and consider the petitioner's objections before deciding in accordance with law. [Paras 11, 12]

Finding denying ITC on Furnace Oil set aside; remitted for fresh consideration after inspection and evaluation of applicable statutory entries.

Inter-state sales without C forms - reversal of input tax credit - Reversal of ITC attributable to inter-state sales made without production of C forms - HELD THAT: - The petitioner had pursued the matter by way of revision (R.P.No.51/2015) before the Joint Commissioner (CT), Vellore Division, which was disposed of on 03.05.2016. The revisional authority directed the Assessing Officer to pass year-wise orders under Section 27(2) of the TNVAT Act. In view of that direction, the assessment determination of reversal of ITC towards inter-state sales without C forms (determined at a specified amount) is set aside and the Assessing Officer is directed to comply with the revisional authority's order dated 03.05.2016 in R.P.No.51/2015. [Paras 13]

Assessment on inter-state sales without C forms set aside; Assessing Officer directed to comply with revisional authority's order dated 03.05.2016.

Final Conclusion: Writ petition allowed. The assessment findings fixing invisible loss at an adhoc percentage and denying ITC on Furnace Oil are set aside and remitted to the respondent for fresh consideration after inspection of the factory and due fact-finding; the determination relating to inter-state sales without C forms is set aside and the Assessing Officer directed to act in accordance with the revisional order dated 03.05.2016.

Benefit of Circular (paragraph 14) - un-intentional act - Rule 131 apportionment formula - input tax credit restrictions under Sections 11(a)(5), 11(a)(6), 14 and 17 - levy of penalty and interest - scope of judicial review of findings of fact - precedent of a co-ordinate Bench

Benefit of Circular (paragraph 14) - un-intentional act - Rule 131 apportionment formula - input tax credit restrictions under Sections 11(a)(5), 11(a)(6), 14 and 17 - Benefit of paragraph (14) of the Commissioner's Circular is not available to the assessee on the facts of these appeals. - HELD THAT: - The Tribunal and the first appellate authority found, on re-appraisal of the material, that transactions necessitating partial rebating existed in every relevant tax period and that there was no confusion or ambiguity about applicability of the apportionment formula under Rule 131. The authorities recorded that the assessee had not maintained classification of petroleum purchases and had not applied the statutory restrictions while claiming input tax credit, and that claimed refunds arose from rectification orders rather than voluntary correct payment. Paragraph (14) of the Circular grants relief only where excess input tax was reversed and shown not to be the result of any deliberate failure to apply the apportionment formula; on the facts here the authorities found deliberate or non excusable non application of the formula, so paragraph (14) did not apply. The High Court declined to disturb these concurrent findings of fact and affirmed that the benefit of the Circular was not available to the assessee. [Paras 3, 4, 9]

Benefit of Circular para (14) denied to the assessee; Tribunal's factual conclusion that the case was not an "un-intentional" one is upheld.

Levy of penalty and interest - input tax credit restrictions under Sections 11(a)(5), 11(a)(6), 14 and 17 - The Tribunal correctly upheld the levy of penalty under the Act and interest, having found that excess input tax credit claims were not excused by the Circular or by any ambiguity in the applicable formula. - HELD THAT: - The Tribunal concurred with the first appellate authority that the assessee failed to apply the statutory restrictions and the prescribed apportionment, and that there was no basis to treat the short payment as un-intentional so as to negate liability for interest or penalty. Given these findings of fact and the absence of any legal error in applying the statutory scheme, the Court refused to interfere with the Tribunal's order upholding the levy. [Paras 1, 4, 10]

Tribunal's upholding of penalty and interest is sustained; no interference warranted.

Scope of judicial review of findings of fact - High Court will not re-appreciate or disturb concurrent findings of fact of the appellate authorities unless the view taken is impossible or a mixed question of law and fact. - HELD THAT: - The Court emphasised that the Tribunal is the ultimate fact-finding authority in such matters and that this petition raises, in substance, a challenge to concurrent factual findings. Interference is permissible only where the view of the Tribunal is not a possible view on the record or where a mixed question of law and fact arises. On the material before the Court, the Tribunal's factual conclusions were a possible view and therefore not open to being overturned in this writ jurisdiction. [Paras 5, 10]

The petitions challenge findings of fact and are therefore not maintainable as grounds for interference; they are dismissed.

Precedent of a co-ordinate Bench - The Tribunal was justified in declining to follow the co-ordinate Bench decision relied upon by the assessee where that decision was not factually comparable. - HELD THAT: - The Court examined the decision of the co-ordinate Bench (Sri Srinivas's case) and found that in that case the first appellate authority had recorded absence of mala fides and hence extended the benefit of the Circular. In the present litigation the first appellate authority had reached a contrary factual conclusion that the action was not unintentional. A co-ordinate Bench decision is not applicable where the facts differ materially; the Tribunal therefore did not err in treating that precedent as irrelevant to the facts before it. [Paras 6, 7, 8]

Tribunal properly rejected reliance on the co-ordinate Bench decision as factually inapposite.

Final Conclusion: The writ petitions are dismissed; the Tribunal's concurrent factual findings that the case is not an "un-intentional" instance and that the assessee is not entitled to the benefit of paragraph (14) of the Circular are upheld, as are the orders sustaining levy of penalty and interest, and no interference is warranted in this judicial review.

Exemption from tax - tax refund mechanism - ineligibility for exemption upon collection of tax - procedure under general sales tax law applicable to Central Sales Tax - liberal construction of fiscal exemptions

Ineligibility for exemption upon collection of tax - procedure under general sales tax law applicable to Central Sales Tax - tax refund mechanism - exemption from tax - liberal construction of fiscal exemptions - Whether the petitioner was entitled to collect CST and to the refund mechanism under the notification dated April 18, 2005 and whether collection of tax after April 1, 2005 rendered the unit ineligible for exemption under the CST - HELD THAT: - The Court held that the procedure for grant of exemption underwent a material change effective April 1, 2005. The earlier 1997 notification under the Karnataka Sales Tax Act contained an express condition that an information technology unit exercising the option for tax exemption would become ineligible if it collected any tax. The notification dated April 18, 2005 issued under the Karnataka Value Added Tax Act, 2003, however, prescribed a different procedure whereby the industrial unit was to charge and collect tax, pay net tax after deducting input tax and claim refund of the net tax paid. By virtue of section 9(2) of the Central Sales Tax Act the procedure under the general sales tax law of the State (now the KVAT Act) applies for assessment, collection and refund under the CST Act. Since the KVAT notification explicitly authorised collection of output tax and refund of net tax, the earlier bar on collection in the 1997 notification could not be held to continue beyond March 31, 2005. The Department itself accepted and allowed refunds for the period April 1, 2005 to March 31, 2007 under the same understanding. In these circumstances, the revision invoking revisional power to deny refunds and to treat the unit as ineligible under the CST solely because it collected tax after April 1, 2005 was unsustainable. The Court further noted that exemptionary provisions are to be given a liberal construction once applicability is established, and that technical denial on the ground of collection, where the statutory procedure post-April 1, 2005 permits collection and refund, would be contrary to that principle.

The Tribunal's conclusion that the petitioner was not entitled to collect CST and to the refund mechanism under the April 18, 2005 notification was set aside; the petitioner is entitled to the refund procedure under the KVAT notification as applicable to CST.

Final Conclusion: The petitions are allowed; the finding that collection of tax after April 1, 2005 rendered the petitioner ineligible for CST exemption is reversed and the assessing officer is directed to give effect to this order expeditiously.

Encumbrance - lease-hold title versus freehold title - public notice under the proviso to sub rule (6) of Rule 8 of the Security Interest (Enforcement) Rules, 2002 - "as is where is" basis of sale - purchaser's duty to ascertain title and encumbrances - mortgagee's right to enforce mortgage by sale - ex post facto permission

Encumbrance - lease-hold title versus freehold title - public notice under the proviso to sub rule (6) of Rule 8 of the Security Interest (Enforcement) Rules, 2002 - "as is where is" basis of sale - purchaser's duty to ascertain title and encumbrances - Whether non-disclosure in the public notice that the property was lease-hold and that lease dues/unearned increase were payable vitiated the auction under the proviso to sub rule (6) of Rule 8. - HELD THAT: - The court held that a lease hold title is not an "encumbrance" within the meaning of the proviso to sub rule (6) and therefore non naming of lease hold status in the public notice did not per se violate the proviso. The advertisement remained neutral as to freehold or leasehold, and bidders were expressly informed that the sale was on an "as is where is" basis and, by terms of the tender (clauses 8 and 14 and related provisions), that the purchaser would be liable to pay statutory/government/other dues. Drawing on the established principle that an intending purchaser buying on an "as is where is" basis must satisfy himself as to title and encumbrances, and having regard to the tender terms and the bidders' contemporaneous conduct (their recognition that government dues would be payable and their pricing expectations), the court found no ground to set aside the sale for non disclosure. [Paras 15, 17, 18]

No violation of the proviso to sub rule (6) of Rule 8 was made out; the auction is not vitiated on grounds of non disclosure of leasehold status or outstanding lease dues.

Mortgagee's right to enforce mortgage by sale - ex post facto permission - Whether the lessor's condition that the leasehold could not be sold without its prior permission vitiated the mortgagee's sale. - HELD THAT: - The court observed that permission by the lessor to mortgage the leasehold property necessarily carries with it an implicit consent that the mortgagee may enforce its security, including by sale, if the debt is not repaid; a condition inserted to prohibit sale without lessor's permission was an erroneous bureaucratic addition inconsistent with the legal nature of a mortgage. Moreover, an ex post facto permission is recognised in law and, in the present case, the lessor accepted the sale and raised a demand for unearned increase, thereby not impeding the sale's validity. [Paras 20]

The negative covenant purportedly prohibiting sale without lessor's prior permission did not vitiate the mortgagee's sale; the sale stands.

Final Conclusion: Writ petition dismissed; no order as to costs.