TaxTMI Updates e-Newsletter
Jun 29,2017

Levy of interest under sections 234B and 234C - Minimum Alternate Tax as a special/self-contained code (section 115J/115JA/115JB) - obligation to pay advance tax in respect of tax computed under MAT - definition and application of assessed tax for levy of interest

Levy of interest under sections 234B and 234C - Minimum Alternate Tax as a special/self-contained code (section 115J/115JA/115JB) - obligation to pay advance tax in respect of tax computed under MAT - Interest under sections 234B and 234C is leviable where a company is liable to pay tax under the MAT provisions (section 115J/115JA/115JB) and defaults in payment of advance tax. - HELD THAT: - The Court held that the reference is governed by the Apex Court's decision in Joint Commissioner of Income Tax v. Rolta India Ltd., which concluded that sections 115J/115JA/115JB constitute a special, self-contained code for MAT and that companies liable under those provisions are obliged to pay advance tax under the scheme of sections 207-219. The expression "assessed tax" embraces tax determined in regular assessment after application of the MAT provisions; consequently, failure to pay advance tax attributable to MAT liability attracts interest under sections 234B and 234C. The Apex Court rejected the contention that MAT liability could not be estimated before year end so as to avoid advance tax liability, and held that Circular No.13/2001 does not detract from the applicability of interest under sections 234B and 234C to MAT companies. [Paras 2, 3]

Reference answered by applying the Apex Court's decision in Joint Commissioner of Income Tax v. Rolta India Ltd.; interest under sections 234B and 234C is payable in cases of default in advance tax by companies liable under MAT.

Final Conclusion: The reference is answered in favour of the Revenue in terms of the Supreme Court's decision in Joint Commissioner of Income Tax v. Rolta India Ltd.; no separate order is required.

Arm's Length Price - LIBOR as benchmark for foreign currency loans - commercial principle in international transactions - LIBOR plus mark-up - monthly closing balance methodology

LIBOR as benchmark for foreign currency loans - Arm's Length Price - monthly closing balance methodology - LIBOR plus mark-up - commercial principle in international transactions - The Tribunal was justified in directing the Assessing Officer to determine the Arm's Length interest by applying LIBOR plus 2% on the monthly closing balance of advances made to a foreign associated enterprise. - HELD THAT: - The Court observed that the advances were made to a company situated abroad and therefore commercial principles applicable to international transactions require adoption of the interest rate prevailing in the currency in which the loan is received/consumed. The Court relied on and approved the approach of the Tribunal in earlier decisions, including the reasoning in Dy. Commissioner of Income Tax v. Tech Mahindra Ltd. and the discussion in Commissioner of Income Tax v. Tata Autocomp Systems Ltd., which accepted that for foreign currency denominated transactions LIBOR is the appropriate benchmark rather than domestic lending rates. Applying those precedents, the Court held that use of LIBOR (with an appropriate mark-up) to determine ALP in such cases is reasonable and proper, and found no error in the Tribunal's direction reducing the mark-up to LIBOR plus 2% (from LIBOR plus 3% applied by the TPO). [Paras 5, 6, 7, 8]

No substantial question of law arises; the revenue's appeal is dismissed and the Tribunal's direction to adopt LIBOR plus 2% on the monthly closing balance is upheld.

Final Conclusion: The appeal is dismissed; the Tribunal correctly applied commercial principles for international transactions in fixing the ALP by reference to LIBOR with a 2% mark-up on the monthly closing balance for Assessment Year 2007-2008.

Treatment of loss on cancellation of foreign exchange forward contract as business loss - notional loss - speculative loss - application of proviso (d) to Section 43(5) treating forward contract losses as speculative loss - reliance on binding Division Bench precedent

Treatment of loss on cancellation of foreign exchange forward contract as business loss - notional loss - speculative loss - application of proviso (d) to Section 43(5) treating forward contract losses as speculative loss - reliance on binding Division Bench precedent - Validity of the Tribunal's deletion of the Assessing Officer's addition disallowing loss on foreign exchange forward contract and the characterisation of that loss as a business loss rather than a notional or speculative loss. - HELD THAT: - The Court recorded that the appellant conceded the issue was covered by the Division Bench decision in Commissioner of Income Tax v. D. Chetan & Co. The loss recorded in the profit and loss account arose from the actual cancellation of the forward contract during the year under consideration. In view of the binding precedent relied upon by the parties, the Tribunal correctly deleted the addition made by the Assessing Officer. The Court did not find any substantial question of law warranting interference, including no need to treat the loss as merely notional or as falling within the proviso (d) to Section 43(5) so as to render it speculative for the purpose of disallowance. [Paras 3, 4]

Tribunal's deletion of the addition upheld; loss on actual cancellation of forward contract treated as business loss and appeal dismissed.

Final Conclusion: The appeal is dismissed as bereft of any substantial question of law; reliance on the Division Bench precedent and the fact of actual cancellation of the forward contract dispose of the controversy. No costs.

Treatment of write off of investments/stock as bad debts or business loss - distinction between write off and provision for doubtful debts under income tax law - valuation of closing stock at lower of cost or market - concurrent appreciation of accounting treatment by appellate authorities - precedential recognition of lower of cost or market valuation in income tax returns

Treatment of write off of investments/stock as bad debts or business loss - distinction between write off and provision for doubtful debts under income tax law - valuation of closing stock at lower of cost or market - concurrent appreciation of accounting treatment by appellate authorities - precedential recognition of lower of cost or market valuation in income tax returns - Whether the write off of investments/stock by the assessee, which were shown at nil market value in the books under the lower of cost or market principle, could be disallowed as merely a non deductible provision or had to be accepted as irrecoverable and treated as bad debt/business loss. - HELD THAT: - The CIT(A) and the Tribunal concurrently examined the assessee's accounting system and noted that the Assessing Officer had accepted that the assessee valued closing stock at the lower of cost or market. The record showed the investment had no market or intangible value and was accordingly taken at nil in the books. The appellate authorities treated the write off as reflecting an irrecoverable debt/business loss rather than an inadmissible provision. The High Court relied on the precedent that valuation in the income tax return by the method lower of cost or market is a valid and accepted method, and found no substantial question of law in the revenue's contention that the write off was merely a provision not allowable under the statutory provision relied upon by the Department. Given the concurrent appreciation of facts and accounting treatment by the lower authorities and the accepted valuation principle, the Court found no error warranting interference. [Paras 7, 8, 9]

The contention that the write offs were merely disallowable provisions was rejected; no substantial question of law arises and the appellate orders deleting the disallowance are sustained.

Final Conclusion: Appeal dismissed; no substantial question of law arises in respect of the write off of investments/stock for Assessment Year 2007 08, and the orders of the CIT(A) and Tribunal deleting the disallowance are upheld, with no order as to costs.

Arm's length price - transfer pricing - scope of the Second Proviso to Section 92C(2) of the Income tax Act - Explanation (2A) to Section 92C(2) - most appropriate method - transactional net margin method - substantial question of law - appellate review limited to grounds raised below

Arm's length price - transactional net margin method - most appropriate method - The concurrent findings of the Commissioner (Appeals) and the Tribunal that the price charged in the international transactions for the trading segment is within the permissible arm's length range. - HELD THAT: - The Tribunal and the Commissioner (Appeals) evaluated the comparable selected by the assessee (Avery India Ltd.) using TNMM as the most appropriate method and considered profit level indicators. Even if the transfer pricing officer's operating margin of 9.60% is taken, that margin falls within the arm's length parameters applied by the authorities below. The High Court found the reasoning of the lower authorities to be plausible and did not disturb their concurrent factual and evaluative conclusions.

The Court upheld the concurrent conclusion that the international transaction price is within the arm's length range.

Scope of the Second Proviso to Section 92C(2) of the Income tax Act - Explanation (2A) to Section 92C(2) - Whether the arm's length determination falls outside the operation of the Second Proviso to Section 92C(2) and whether Explanation (2A) precludes allowance of a +/-5% benefit. - HELD THAT: - The appellant urged that a mathematical comparison showed the TPO's arm's length price to fall outside the +/-5% range and relied on Explanation (2A) to contend that a 5% deduction could not be allowed. The Court observed that these contentions either involved factual/mathematical computation or were not the grounds that had been consistently agitated before the lower authorities. Given that the Commissioner (Appeals) and the Tribunal addressed the transfer pricing comparability and margins plausibly, the High Court declined to entertain the fresh/statutory interpretation attack in the present appeal.

The Court did not accept the appellant's contention and refused to overturn the lower authorities on this statutory argument in the present petition.

Substantial question of law - appellate review limited to grounds raised below - Whether grounds or factual/contention not raised before the Commissioner (Appeals) or the Tribunal can be agitated in this High Court appeal. - HELD THAT: - The Court emphasised that appeals in the High Court are confined to substantial questions of law and that grounds which were not agitated before the authorities below, or which are purely factual, cannot be entertained for the first time in this appeal. The appellant sought to raise new computations and comparables that were not pressed below; the Court held that such fresh grounds are not permissible on the substantial question of law exercise.

The Court refused to admit or decide fresh grounds not canvassed before the Commissioner (Appeals) or the Tribunal.

Final Conclusion: The appeal is dismissed as lacking a substantial question of law; the concurrent findings of the Commissioner (Appeals) and the Tribunal that the international transaction price was within arm's length parameters are sustained, and fresh grounds not urged below are not permitted to be raised in this appeal. No costs.

Deletion of additions on merits - Factual appreciation by Tribunal - Burden of proof in assessment proceedings - Cash payments and deduction of tax at source as corroboration - Limitation of disallowance to proved quantum - Remand for fresh consideration/verification

Deletion of additions on merits - Factual appreciation by Tribunal - Cash payments and deduction of tax at source as corroboration - Tribunal's acceptance of the assessee's explanation and deletion of the addition of Rs. 50.00 lacs was justified on factual appreciation. - HELD THAT: - The High Court held that the Tribunal's conclusion was a factual finding. The Tribunal noted that total subcontract payments were largely by cheque, with records showing 95% payments by cheque and that cash payments recorded had TDS deducted. The Tribunal further found that the disputed Rs. 50.00 lacs did not represent subcontractor payments but constituted remittances to the assessee's branch office at Chennai for site work, supported by details in the paper book. In that factual matrix the Court found no perversity in the Tribunal accepting the assessee's explanation and deleting the addition. [Paras 4]

Tribunal's deletion of the Rs. 50.00 lacs addition upheld as a factual conclusion; no interference.

Limitation of disallowance to proved quantum - Factual appreciation by Tribunal - Burden of proof in assessment proceedings - Tribunal's confirmation of the Commissioner (Appeals)'s decision to restrict disallowance of unproved purchases to Rs. 2.00 lacs was sustained. - HELD THAT: - The High Court treated the question as one of fact and found that the Tribunal's restriction of disallowance to Rs. 2.00 lacs was based on its factual scrutiny of the materials placed before it. Given the Tribunal's factual conclusion and absence of perversity in the reasoning, the Court declined to interfere with the Tribunal's determination limiting the disallowance. [Paras 4]

Tribunal's confirmation of the limited disallowance of unproved purchases to Rs. 2.00 lacs upheld.

Remand for fresh consideration/verification - The Tribunal remitted the third aspect concerning outstanding cash purchases of Rs. 54,00,168 to the file of the Commissioner (Appeals) for further consideration. - HELD THAT: - The Court recorded that the Tribunal had expressly remitted the third aspect back to the Commissioner (Appeals). The High Court treated this remand as an outstanding procedural step left for fresh consideration and did not adjudicate the matter on merits. [Paras 5]

Issue remitted to the Commissioner (Appeals) by the Tribunal for further consideration.

Final Conclusion: The appeal raises no substantial question of law and is dismissed; the Tribunal's factual findings upholding deletion and limiting disallowance are not interfered with, and the third aspect has been remitted for fresh consideration.

Cessation of liability - income by way of waiver of loan - reversal/waiver of interest - application of section 43B - benefit arising from business - books of accounts reconciliation

Income by way of waiver of loan - cessation of liability - reversal/waiver of interest - books of accounts reconciliation - Whether the differential amount claimed by the bank and not recorded as liability in the assessee's books constitutes income to the assessee on waiver of loan and liable to be added under the head of income arising from cessation of liability or business benefit - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the assessee had accounted for interest in its own books at the sanctioned rate (9.5%) and had not debited or claimed the higher interest charged by the bank as expenditure. The one-time settlement resulted in a waiver reflected in the bank's books as a higher claim, but the assessee's books recorded reversal of interest in earlier years and a reduced loan liability; the assessed settlement therefore operated as waiver of amounts which were not admitted as liabilities in the assessee's accounts. Since the waived interest had never been claimed as an expenditure in the assessee's returns and the assessee had furnished reconciliation showing the differential arose from divergent interest computations, the waiver did not give rise to a benefit accumulating to the assessee constituting income by way of cessation of liability or business income. The Tribunal further noted the relevance of the assessee's prior accounting treatment (including the effect of the application of section 43B on claims) in concluding there was no taxable benefit to be added under the Act. On this factual and accounting foundation, the deletion of the addition was sustained. [Paras 4, 7]

Addition deleted; departmental appeal dismissed.

Final Conclusion: The Tribunal dismissed the departmental appeal and confirmed deletion of the addition made on account of alleged waiver, holding that the differential amount charged by the bank but not recognized as liability in the assessee's books did not constitute taxable income on waiver.

Addition based on report of Valuation Officer (DVO) - material discrepancy within 10% to be ignored - genuineness of investment accepted on facts - veracity of Form J - onus on Assessing Officer to investigate suspected documents

Addition based on report of Valuation Officer (DVO) - material discrepancy within 10% to be ignored - genuineness of investment accepted on facts - Deletion of addition of Rs. 5,15,578/- made on the basis of the DVO's valuation report relating to construction expenditure. - HELD THAT: - The DVO's report recorded that the assessee declared investment of Rs. 4,92,380/- for the relevant year against the DVO's estimate of Rs. 5,15,578/-, and the five year total declared by the assessee (Rs. 3,65,47,888/-) was less than 10% different from the DVO's overall estimate (Rs. 3,97,48,433/-). The Assessing Officer in a subsequent assessment expressly recorded that no addition was called for on this count, thereby accepting the genuineness of the investment. A difference upto 10% between the DVO's estimate and the amount shown by the assessee is to be ignored as indicated by earlier authority; accordingly the addition founded solely on the DVO's figures could not be sustained and was deleted. [Paras 3]

Addition of Rs. 5,15,578/- deleted.

Veracity of Form J - onus on Assessing Officer to investigate suspected documents - Deletion of addition of Rs. 4,40,865/- relating to investment in agricultural land which the Assessing Officer disallowed by rejecting claimed agricultural receipts. - HELD THAT: - The assessee produced Forms No. J to substantiate sale of agricultural produce and resultant agricultural income. The Assessing Officer rejected those forms and estimated a much lower agricultural income without undertaking any inquiry, such as examining the commission agents who issued the Forms No. J, or otherwise proving that the forms were fictitious. Where documentary evidence remains uncontroverted on the record, the Assessing Officer must make appropriate investigation before discarding it; absent any such exercise the reassessment and resultant addition could not be upheld. [Paras 4, 5]

Addition of Rs. 4,40,865/- deleted.

Final Conclusion: Both additions-one based on the DVO's valuation and the other rejecting claimed agricultural receipts-were deleted and the assessee's appeal allowed for Assessment Year 2008-09.

Long-term capital gain - completion of transfer / transfer of property - receipt of sale consideration - possession handed over - substantiation of cost of improvement - remand for verification of evidence

Long-term capital gain - completion of transfer / transfer of property - receipt of sale consideration - possession handed over - Taxability of long-term capital gain on sale of flat where purchaser default and litigation/arbitration followed - HELD THAT: - The Tribunal recorded that possession of the flat was handed over to the purchaser and the assessee received the full sale consideration during the year under consideration. The dispute raised by the assessee related only to entitlement to a society credit alleged to belong to the assessee and the assessee did not seek rescission of the transfer deed either before the High Court or in the arbitration; the High Court referred the dispute to arbitration by consent. The Tribunal found that the litigation related to description/entitlement of a sum and interest claims, and did not negate the execution of transfer or the receipt of consideration. On these facts the Tribunal upheld the findings of the authorities below that the sale was complete and the long-term capital gain was taxable in the year of transfer. [Paras 4]

Ground challenging computation of long-term capital gain is dismissed; the capital gain is taxable as assessed.

Substantiation of cost of improvement - remand for verification of evidence - Allowability of claimed cost of improvement for computation of long-term capital gain - HELD THAT: - The Assessing Officer disallowed the claimed improvement expenses for lack of satisfactory proof of payment; on appeal the Commissioner (Appeals) examined additional evidence, obtained a remand report and observed that mere ledger/balance-sheet entries do not conclusively prove payments but accepted that some renovation must have occurred between acquisition in 1985 and sale in 2007. The Commissioner (Appeals) allowed a part of the claim (Rs.1,00,000) as a reasonable estimate. The Tribunal found the Commissioner's estimate to be on the lower side and, considering the age of the property and the materials placed on record, increased the allowance to Rs.2,50,000 and directed the Assessing Officer to give effect accordingly. [Paras 7]

Ground relating to disallowance of cost of improvement is partly allowed; cost of improvement allowed at Rs.2,50,000.

Final Conclusion: Assessee's appeal is dismissed insofar as the claim that the sale was incomplete and not chargeable to long-term capital gains; the appeal is partly allowed to the extent that the Tribunal increased the allowance for cost of improvement to Rs.2,50,000 and directed the Assessing Officer to give effect.

Deemed rental income - disallowance under Section 14A read with Rule 8D - business expenditure wholly and exclusively for business - ad hoc disallowance and burden to identify personal element - Section 40A(3) - aggregate cash payments in a day - restoration to Assessing Officer for verification of tax paid by recipient - principle of consistency / precedent in assessee's own case

Deemed rental income - principle of consistency / precedent in assessee's own case - Addition of Rs. 5,77,953/- as deemed rental income was set aside. - HELD THAT: - The Tribunal examined the identical issue decided in the assessee's own appeal for Assessment Year 2009-10 where it was held that the assessee had produced repair and renovation bills and the AO had treated those as capital expenditure; the AO had not discharged the onus of proving that the flats were rented during the year. As the facts for AY 2010-11 were similar and no contrary material was produced, the principle of consistency was applied and the addition under house property head was allowed in favour of the assessee. [Paras 4, 5]

Addition deleted and ground allowed for the assessee.

Disallowance under Section 14A read with Rule 8D - Disallowance of Rs. 12,500/- under Section 14A read with Rule 8D was cancelled. - HELD THAT: - Relying on the Tribunal's finding in the assessee's own case for AY 2009-10 that no expenditure was incurred in relation to tax-free income and that both preconditions for making a Section 14A disallowance (earning tax-free income and incurring expenditure) were absent, the same view was applied to AY 2010-11 where facts were not materially different. Therefore no disallowance under Section 14A/Rule 8D was justified. [Paras 6, 7]

Disallowance set aside and ground allowed for the assessee.

Business expenditure wholly and exclusively for business - Addition of Rs. 17,500/- paid to traffic police for bandobast was sustained. - HELD THAT: - The assessee claimed payments to traffic police as business expenditure under section 37. The authorities found no receipts or convincing evidence that the payments were made exclusively for business exigencies or as statutory payments; the assessee's contentions were vague and unsubstantiated. The Tribunal applied the test of whether the expense was wholly and exclusively for business and, relying on authority that payments to police or rowdies to keep away persons are not allowable, found no infirmity in the lower authorities' disallowance. [Paras 8, 9]

Addition sustained and ground dismissed.

Restoration to Assessing Officer for verification of tax paid by recipient - Addition for non-deduction of TDS on interest paid on car loan was restored to the Assessing Officer for verification. - HELD THAT: - Following the Tribunal's earlier order in the assessee's own case for the preceding year, the issue was not finally adjudicated on merits but remitted to the Assessing Officer to verify whether the recipient of the interest had discharged tax liability; the assessee was directed to produce relevant documents before the AO for verification. [Paras 10, 11]

Issue restored to the Assessing Officer for fresh verification in accordance with earlier directions.

Section 40A(3) - aggregate cash payments in a day - Disallowance of Rs. 1,17,160/- under Section 40A(3) for aggregate cash purchases of diesel was sustained. - HELD THAT: - After amendment to Section 40A(3) w.e.f. 01.04.2009, aggregate cash payments to a person in a day in excess of Rs.20,000 are prohibited unless covered by exceptions under Rule 6DD. The Assessing Officer found aggregate cash purchases from the same supplier on certain dates exceeded Rs.20,000 in a day; receipts showed individual receipts below Rs.20,000 but aggregated beyond the statutory limit. The assessee did not plead or establish applicability of any exception under Rule 6DD. On that basis the Tribunal found the disallowance in accordance with Section 40A(3) and the relevant rule to be justified. [Paras 12, 13]

Disallowance sustained and ground dismissed.

Ad hoc disallowance and burden to identify personal element - Ad hoc disallowance of Rs. 1,23,517/- from business promotion expenses was deleted. - HELD THAT: - In the assessee's own case for AY 2009-10 the Tribunal held that for a corporate assessee an ad hoc disallowance on account of personal element cannot be sustained unless the AO identifies and pinpoints expenditure incurred for personal use of directors/employees and shows it had no relation to business. The AO had made a 20% ad hoc disallowance without such investigation. Applying that reasoning to AY 2010-11, the Tribunal found the ad hoc disallowance unjustified and deleted it. [Paras 14, 15, 16]

Ad hoc disallowance deleted and ground allowed for the assessee.

Final Conclusion: The appeal was partly allowed: additions/disallowances in respect of deemed rental income, Section 14A disallowance and the ad hoc business promotion disallowance were deleted; the traffic police payment and the Section 40A(3) cash-purchase disallowance were sustained; the TDS non-deduction issue was remitted to the Assessing Officer for verification.

Peak credit theory - ownership of funds as precondition for peak credit - accommodation entries / name lending - addition on basis of commission income - telescoping / set off of assessed income - search and seizure based assessment

Proceedings under section 153C - Whether the grounds challenging the legal validity of proceedings initiated under section 153C are pressed and maintainable - HELD THAT: - The assessee's first three grounds attacking the legal validity of proceedings under section 153C were not pressed before the Tribunal. The Tribunal recorded that these grounds were not pursued and dismissed them as not pressed without entering into their merits. [Paras 3]

Grounds challenging the validity of proceedings under section 153C dismissed as not pressed.

Peak credit theory - ownership of funds as precondition for peak credit - search and seizure based assessment - Legitimacy of additions made by applying peak credit to bank accounts controlled by the assessee for AY 2008-09, 2009-10 and 2010-11 - HELD THAT: - The Tribunal held that the principle of peak credit presupposes ownership of the funds by the assessee; without a factual finding that the deposits belonged to the assessee, peak credit cannot be sustained. The record, including the assessee's statement and affidavits of purported name lenders, indicated that the assessee was operating numerous bank accounts as an accommodation entry provider (name lender). The AO himself had estimated only commission income from the deposits, and no finding was recorded that the deposits were owned by the assessee. Further, the Tribunal noted that neither the AO nor the CIT(A) made enquiries to verify or trace the true beneficiaries despite the material being in the department's custody. In these circumstances the additions based on peak credit for AY 2008 09, and the partial confirmations (telescoped set offs) for AY 2009 10 and 2010 11 were held unsustainable. [Paras 10]

Additions on account of peak credit for AY 2008-09, 2009-10 and 2010-11 deleted; the CIT(A)'s confirmations and partial set offs on peak credit set aside.

Accommodation entries / name lending - addition on basis of commission income - Whether the additions made by the AO as commission income for providing accommodation entries for the three assessment years are sustainable and whether CIT(A) was correct in deleting them - HELD THAT: - The AO assessed commission income by applying a rate (0.25%) on cash deposits, having regard to the assessee's own admissions about earning commission for providing accommodation entries. The Tribunal found that, on the admitted factual position that the assessee was a name lender providing accommodation entries, the AO's approach to assess commission income was correct. The CIT(A) had deleted the commission additions on the ground that peak credit had been applied, but since the Tribunal has held peak credit additions unsustainable, the commission additions represent the correct mode of taxation of the admitted activity and thus the CIT(A)'s deletion was erroneous. The Tribunal therefore restored the AO's additions relating to commission for the relevant years. [Paras 10]

AO's additions of commission income sustained; CIT(A)'s deletion of commission income reversed.

Final Conclusion: The Tribunal dismissed the unpressed challenges to the legality of proceedings under section 153C; deleted the additions made by applying peak credit for AY 2008-09, 2009-10 and 2010-11 for want of any finding of ownership of the deposited funds and failure to verify true beneficiaries; and upheld the AO's additions assessing commission income for the accommodation entry activity by restoring the commission additions deleted by the CIT(A).

Assumption of jurisdiction - selection for scrutiny - transfer of assessment proceedings - limitation for issuance of notice - deduction under section 80IB(11) - classification of asset as plant for depreciation - adjustment of capital investment subsidy against block value/WDV - late deposit of employee ESI contribution

Assumption of jurisdiction - selection for scrutiny - transfer of assessment proceedings - limitation for issuance of notice - Grounds challenging jurisdiction, selection for scrutiny, transfer of proceedings and limitation (grounds Nos.1-4) were not pressed and are dismissed as not pressed. - HELD THAT: - The authorised representative disclaimed reliance on grounds Nos.1 to 4 during hearing. The Tribunal records that these grounds were not pressed and accordingly dismisses them for that reason without further adjudication on merits.

Grounds Nos.1-4 dismissed as not pressed.

General grounds of appeal - General grounds (grounds Nos.11 and 12) raised before the first appellate authority were dismissed for want of specific argument. - HELD THAT: - The Tribunal observed that grounds Nos.11 and 12 were general in nature and no specific submissions were advanced in support of them before the Tribunal; accordingly these grounds are dismissed.

Grounds Nos.11 and 12 dismissed.

Late deposit of employee ESI contribution - Addition confirmed by the AO for alleged late deposit of employee ESI contribution was deleted in favour of the assessee. - HELD THAT: - The Tribunal applied the decision of the Hon'ble Rajasthan High Court in CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd., as covering the issue in question and in consequence allowed the ground challenging the addition relating to late deposit of employee ESI contribution.

Ground No.10 allowed in favour of the assessee.

Deduction under section 80IB(11) - Denial of deduction claimed under section 80IB(11) (grounds Nos.8 and 9) was allowed in favour of the assessee. - HELD THAT: - The Tribunal applied the decision of the Hon'ble Rajasthan High Court in the assessee's own case for AY 2005-06 as covering the claim for deduction under section 80IB(11), and accordingly sustained the assessee's entitlement to the deduction for the subject year.

Grounds Nos.8 and 9 allowed in favour of the assessee.

Adjustment of capital investment subsidy against block value/WDV - Challenge to deduction/adjustment of back-ended capital investment subsidy from the cost/WDV of assets (ground No.5) was dismissed following the decision of the Hon'ble Rajasthan High Court. - HELD THAT: - The Tribunal noted that a Coordinate Bench's view - subsequently affirmed by the Hon'ble Rajasthan High Court - held that the subsidy was not to be reduced from the block value from AY 1999-2000 but was properly adjusted in AY 2007-08 when treated as subsidy. The Tribunal respectfully followed the jurisdictional High Court's decision and rejected the assessee's ground on this point.

Ground No.5 dismissed; the AO's treatment reducing WDV in accordance with the High Court-backed view was upheld.

Excess claim of depreciation on plant and machinery - Addition on account of alleged excess claim of depreciation on plant and machinery (ground No.7) was dismissed. - HELD THAT: - The Tribunal applied the same reasoning and authoritative decisions relied upon for the subsidy adjustment issue and concluded that the assessee's ground No.7 does not succeed; the assessment addition on this point is accordingly sustained.

Ground No.7 dismissed.

Classification of asset as plant for depreciation - rate of depreciation - Classification of cold storage building as 'plant' for depreciation and allowance of depreciation at the rate claimed by the assessee was accepted. - HELD THAT: - Relying on the Coordinate Bench decision for AY 2005-06 which held that cold storage buildings constitute 'plant' for depreciation purposes, the Tribunal sustained the assessee's claim to depreciation at the applicable higher rate (15%) on the cold storage building. The Tribunal thereby allowed the ground challenging the AO's lower allowance on this classification point.

Ground No.6 allowed in favour of the assessee; depreciation at the claimed rate on cold storage building sustained.

Final Conclusion: The appeal is partly allowed: the Tribunal dismissed the unpressed and general grounds; allowed the assessee on the ESI contribution and section 80IB(11) deduction claims and on classification of the cold storage building as plant for depreciation; and, while following the jurisdictional High Court, rejected the assessee's challenge to the adjustment of the capital investment subsidy and the related depreciation addition on plant and machinery. The result is a partly favourable outcome for the assessee.

Long-term capital gain - date of acquisition determined by allotment/agreement - deeming provision under section 50C - remand for fresh adjudication to ascertain stamp valuation - cost of acquisition including interest under section 48

Long-term capital gain - date of acquisition determined by allotment/agreement - Capital gain on sale of the flat is to be treated as long-term capital gain by adopting the date of allotment as date of acquisition. - HELD THAT: - The Tribunal accepted the assessee's contention that the allotment letter dated 28.09.2000 conferred a right in the property and that consequential acts (payment of installments, identification of specific flat, delivery of possession, and registration) relate back to that allotment. Relying on precedents and the reasoning in Circular No.471/1986, the Tribunal held that the period of holding must be computed from the date of allotment/agreement and not from the date of registration or delivery of possession. The Tribunal further noted the principle that where two constructions are possible, the one favourable to the assessee should be adopted. Applying these principles to the facts, the Tribunal concluded that the holding period exceeds 36 months and the gain is long-term in nature. [Paras 6]

Adopted date of allotment (28.09.2000) as date of acquisition; capital gain treated as long-term capital gain.

Deeming provision under section 50C - remand for fresh adjudication to ascertain stamp valuation - Valuation under section 50C could not be finally determined on the record before the Tribunal and the matter is remanded to the Assessing Officer for fresh adjudication. - HELD THAT: - Section 50C is a deeming provision applicable where the consideration is less than the value adopted/assessed by the stamp valuation authority. Both lower authorities had taken differing deemed sale considerations but neither had sought confirmation from the stamp valuation authority under section 133(6) or otherwise as to the actual stamp valuation. In view of the absence of any confirmation from the stamp valuation authority and given the deeming character of section 50C, the Tribunal found it appropriate to remit the issue to the file of the AO for fresh adjudication in accordance with law. [Paras 11]

Remitted to the Assessing Officer for fresh adjudication on stamp valuation under section 50C.

Cost of acquisition including interest under section 48 - Interest paid on loan for purchase of the flat is allowable as part of the cost of acquisition for computing capital gains under section 48. - HELD THAT: - The Tribunal examined section 48 and observed that expenditure incurred wholly and exclusively in connection with acquisition of the asset can be deducted in computing capital gains. The interest paid on the loan for purchasing the property was held to be an expenditure in acquiring the asset. Consequently, the Tribunal upheld the CIT(A)'s direction to include the interest amount in the cost of acquisition and thereby delete the addition made by the AO. [Paras 13]

Interest forming part of acquisition cost allowed; order of CIT(A) upheld on this point.

Final Conclusion: The appeal is partly allowed: the Tribunal confirmed that the gain is long-term by adopting the allotment date as date of acquisition, upheld the inclusion of interest in cost of acquisition, and remitted the section 50C valuation issue to the Assessing Officer for fresh adjudication; otherwise Revenue's appeal is dismissed.

Transportation charges receivable - transport rebate reimbursement - treatment of receipts in profit and loss account - consistency of accounting method - reconciliation of closing balance - condonation of delay

Transportation charges receivable - transport rebate reimbursement - treatment of receipts in profit and loss account - reconciliation of closing balance - consistency of accounting method - Deletion of the addition of Rs. 4,14,247.60 treated as undisclosed receivable on account of transportation charges for A.Y.2010-2011. - HELD THAT: - The Tribunal found merit in the assessee's reconciliation showing that the Assessing Officer's computation of closing receivables as on 31.03.2010 was incorrect. First, transportation expenses of Rs. 3,76,174 had been actually incurred and debited to the profit and loss account and therefore could not be treated as receivable. Second, an arrear transport rebate for A.Y.2008-09 of Rs. 1,47,222 had already been shown as receipt in the profit and loss account and thus could not be added again as a receivable. Third, the AO omitted to include transport rebate reimbursable (calculated by the Food & Supply Department) of Rs. 1,09,148.40 in his reconciliation. Because the AO's reconciliation ignored these accounting events and was not based on correct accounting principles, the addition made by the AO and confirmed by the CIT(A) was unsustainable. The Tribunal accordingly held that the disputed addition should be deleted and the assessee's reconciliation accepted.

Addition of Rs. 4,14,247.60 deleted; appeal allowed.

Final Conclusion: The appeal is allowed: the addition treating certain transportation charges and related items as receivable for A.Y.2010-2011 is set aside as the AO's reconciliation was incorrect and contrary to accounting treatment; delay in filing the appeal was condoned.

Mandamus - renewal of licence - implementation of appellate tribunal order - direction to appear for endorsement - administrative action subject to pending appeal

Mandamus - implementation of appellate tribunal order - renewal of licence - Petition for mandamus to implement the Customs, Excise and Service Tax Appellate Tribunal order and to enable the petitioner to function as a Custom House Agent following renewal of licence. - HELD THAT: - The Tribunal had set aside the order cancelling the petitioner's CHA licence. Subsequent to filing the writ petition, the licence was renewed by proceedings dated 30.05.2017 but the petitioner was not permitted to operate as a Custom House Agent until requisite endorsement was made. The respondents explained that the petitioner must produce the original licence so that the endorsement can be made and further orders issued; additionally, the department has filed an appeal before this Court challenging the Tribunal's order. In these circumstances the Court declined to grant a mandamus for immediate implementation without the procedural step of endorsement and without prejudice to the appeal. The petition was therefore disposed by directing the petitioner to appear before the respondents so that the respondents may pass the consequential orders, subject to the outcome of the appeal pending before the Division Bench. [Paras 4, 5]

Petitioner directed to appear before the respondents on or before 15.06.2017 for endorsement and for the respondents to issue further orders; any such orders shall be subject to the result of the appeal pending before the Division Bench.

Final Conclusion: Writ petition disposed by directing the petitioner to appear for endorsement and enabling the authorities to pass consequential orders, with all such orders held subject to the pending appeal before the Division Bench; no costs.

Time limit under Regulation 22 of the Customs House Agents Licensing Regulations, 2004 - extension of statutory time by a court order - procedure for revocation of Customs House Agent licence - validity of revocation of licence where enquiry was completed after court-directed extension - scope of admission limited to a specific question of law

Time limit under Regulation 22 of the Customs House Agents Licensing Regulations, 2004 - extension of statutory time by a court order - validity of revocation of Customs House Agent licence - Whether the CESTAT erred in holding that the revocation of the appellant's CHA licence was not unsustainable on the ground that the time limits under Regulation 22 had been breached - HELD THAT: - The Court found that when Customs Appeal No.7/2015 was before this Court, an SCN for revocation under Regulation 22 had already been issued and the enquiry required completion. The order dated 25th February, 2015 of this Court, which directed completion of enquiry and passing of 'final orders', necessarily contemplated conclusion of the revocation enquiry and thereby operated to grant further time for completing the process envisaged by Regulation 22. The Court observed that it did not set aside the CESTAT order rejecting the stay of suspension and in effect permitted the suspension to continue; the direction in para 2 of the 25th February order must be read as authorising completion of the revocation enquiry. The appellant did not challenge that order of this Court granting time and therefore could not later contend before the CESTAT that Regulation 22 time-limits had been breached. For these reasons the CESTAT was correct in rejecting the appellant's contention that the revocation was unsustainable for exceeding the Regulation 22 time-limit. The Court declined to examine the substantive proportionality or merits of the revocation because the appeal had been admitted on, and limited to, the single question of law framed on 2nd September, 2016. [Paras 21, 22, 23, 25]

The CESTAT did not err in holding that the revocation was not vitiated by breach of the time-limits in Regulation 22 because the High Court's order of 25th February, 2015 extended the time for completion of the revocation enquiry and the appellant did not challenge that extension.

Final Conclusion: The question framed was answered against the appellant; the CESTAT did not err in rejecting the contention that revocation was unsustainable for breach of Regulation 22 time-limits. The appeal is dismissed.

Exemption under Section 38(1)(b) of the Insecticides Act, 1968 - Import permit from the Registration Committee of the Central Insecticide Board - Validity and application of DGFT Notification No.106/2014/2009-2014 dated 01.01.2015 - Application of other laws not barred (interaction between Insecticides Act and Foreign Trade (D&R) Act) - Burden of proof for establishing non-insecticidal use

Validity and application of DGFT Notification No.106/2014/2009-2014 dated 01.01.2015 - Import permit from the Registration Committee of the Central Insecticide Board - Application of other laws not barred (interaction between Insecticides Act and Foreign Trade (D&R) Act) - Whether the DGFT notification dated 01.01.2015 mandating an import permit from the Registration Committee applies to the appellant's import and whether the Tribunal was right in holding that import permit/registration was required even for non-insecticidal imports. - HELD THAT: - The Court upheld the Tribunal's conclusion that the DGFT Notification of 01.01.2015 validly notifies import policy conditions under ITC (HS) code 3808 and mandates that even where an 'insecticide' is imported for non-insecticidal purposes an import permit from the Registration Committee is necessary. The Division Bench of the Kerala High Court has treated such notifications issued under the Foreign Trade (Development and Regulation) Act as subordinate legislation and not mere executive instructions; consequently the DGFT policy condition has the force of law governing imports. Section 2 of the Insecticides Act confirms that its provisions are in addition to and not in derogation of other laws, so the Insecticides Act does not exclude application of foreign-trade controls. Given the policy objective to prevent illegal imports of insecticides under the guise of non-insecticidal use, the notification's requirement of permit/registration must be complied with and the Tribunal was correct in applying it to the appellant's consignment. [Paras 16, 17, 18, 19]

DGFT Notification No.106/2014 dated 01.01.2015 applies and the requirement of obtaining an import permit/registration from the Registration Committee is mandatory; the Tribunal's holding on this point is affirmed.

Exemption under Section 38(1)(b) of the Insecticides Act, 1968 - Burden of proof for establishing non-insecticidal use - Whether the appellant was entitled to exemption under Section 38(1)(b) of the Insecticides Act 1968 on the basis of its declaration that the imported Bronopol was for non-insecticidal use, without producing further evidence or Registration Committee permit. - HELD THAT: - The Court observed that Section 38(1)(b) exempts substances intended for non-insecticidal purposes, but that exemption does not operate automatically on the basis of a mere self-declaration. The appellant failed to produce evidence to demonstrate that the imported Bronopol was to be used exclusively for non-insecticidal purposes. In the absence of such proof and given the DGFT policy requiring an import permit even for non-insecticidal imports, the authorities were justified in refusing clearance until the requisite registration/permit was obtained. The Court accepted the Tribunal's conclusion that the exemption could not be invoked without satisfying the established regulatory procedure and burden of proof. [Paras 15, 18]

Exemption under Section 38(1)(b) cannot be claimed merely by declaration; the appellant's claim was rightly rejected for want of evidence and failure to obtain the required permit.

Final Conclusion: The High Court affirmed the Tribunal's order dismissing the appeal: the DGFT notification of 01.01.2015 is binding and requires import permit/registration for the subject consignment even if imported for non-insecticidal use, and the appellant's claim of exemption under Section 38(1)(b) was not available on the basis of a bare declaration; the civil miscellaneous appeal is dismissed.

Jurisdiction to issue show cause notice - competence of DRI/Additional Commissioner as proper officer - remand for fresh decision pending authoritative pronouncement - maintenance of status quo pending final adjudication

Jurisdiction to issue show cause notice - competence of DRI/Additional Commissioner as proper officer - remand for fresh decision pending authoritative pronouncement - maintenance of status quo pending final adjudication - Matter remanded to the original adjudicating authority to decide the jurisdictional question relating to the competence of the officer who issued the show cause notice and thereafter to decide the merits, with status quo maintained pending final adjudication. - HELD THAT: - Both parties agreed that the impugned show cause notice had been issued by the Additional Commissioner (SIIB). The Tribunal has noted divergent decisions of High Courts on whether officers of the Directorate of Revenue Intelligence (DRI) or similarly situated officers constitute 'proper officers' empowered to issue show cause notices, and that the issue was sub judice before the Hon'ble Supreme Court with an earlier stay of the Delhi High Court's adverse order. In light of these conflicting authorities and pending authoritative pronouncement, the Tribunal followed its earlier approach of remitting such matters to the original authority for a fresh decision on the preliminary jurisdictional question first, and then on the merits, after the legal position is clarified by the Supreme Court. The assessee must be afforded an opportunity of being heard and the existing status quo is to be preserved until final determination.

Appeal allowed by way of remand to the original adjudicating authority to decide jurisdiction first and thereafter the merits, with status quo maintained.

Final Conclusion: The appeal is allowed by remanding the matter to the original adjudicating authority to first decide the jurisdictional issue regarding the competence of the officer who issued the show cause notice and then decide the merits afresh, ensuring the assessee is heard; meanwhile status quo is to be maintained.

Jurisdiction of Directorate of Revenue Intelligence to issue show cause notices - assignment of functions of 'proper officer' for the purposes of Section 28 of the Customs Act - prospective and retrospective effect of statutory amendment and executive notification - conflicting High Court decisions and stay by the Supreme Court - remand for fresh adjudication on jurisdiction and merits with opportunity to be heard

Jurisdiction of Directorate of Revenue Intelligence to issue show cause notices - assignment of functions of 'proper officer' for the purposes of Section 28 of the Customs Act - conflicting High Court decisions and stay by the Supreme Court - Remand to original adjudicating authority to decide the question of jurisdiction of DRI officers to issue the show cause notice and thereafter decide the matter on merits, with status quo maintained and opportunity to the assessee to be heard. - HELD THAT: - The appeals raise a preliminary contention that the show cause notice was issued by DRI officers who, prior to certain statutory amendments and notifications, may not have been 'proper officers' under the Customs Act as interpreted by the Supreme Court in Commissioner of Customs v. Sayed Ali. Subsequent legislative amendment and CBEC Notification No. 44/2011-Cus (NT) assigned functions of the proper officer (prospectively from 06.07.2011) and later statutory provision sought to assign such functions with retrospective effect. High Courts have taken conflicting views on whether these provisions and notifications validate notices issued by DRI for periods prior to 08.04.2011. The Delhi High Court held adversely to the Revenue, but that judgment is stayed by the Supreme Court and the issue is sub judice. In light of these conflicting authorities and the pendency before the Supreme Court, the Tribunal, applying the approach adopted by the Delhi High Court in BSNL v. UOI and considering the totality of facts, set aside the impugned order and remanded the matter to the original adjudicating authority to first decide the jurisdictional question after availability of the Supreme Court decision in the Mangli Impex proceedings, and thereafter decide the merits giving the assessee an opportunity of hearing; status quo to be maintained till the final decision. [Paras 13, 14]

Appeals allowed by remand to the original adjudicating authority to decide jurisdiction post the Supreme Court decision, and thereafter on merits, with status quo maintained and opportunity to the assessee to be heard.

Final Conclusion: The Tribunal allowed the appeals by remanding the matter to the original adjudicating authority to first determine the jurisdictional validity of the show cause notice in light of the pending Supreme Court decision, and thereafter to decide the case on merits after affording the assessee a hearing; status quo to be maintained meanwhile.

Provisional assessment - Proceedings under Section 28 of the Customs Act - Non-levy or short-levy of duty - Requirement of final assessment before initiating recovery or penal proceedings - Precedential application of ITC Ltd. on initiation of penal/recovery proceedings prior to final assessment

Provisional assessment - Proceedings under Section 28 of the Customs Act - Non-levy or short-levy of duty - Initiation and continuation of proceedings under Section 28 before finalization of bills of entry provisionally assessed - HELD THAT: - The bills of entry in question were provisionally assessed under the Customs Code and their final assessment had not been completed when the Department initiated show cause proceedings under Section 28 for recovery of duties and imposition of penalties. Section 28 contemplates action where duty has not been levied or has been short-levied. As the provisional assessment meant that duty liability remained undetermined, there could be no finding of non-levy or short-levy at that stage. The Tribunal relied on the reasoning in ITC Ltd. (construing the analogous penal/recovery provision under Section 11A of the Central Excise Act) which holds that penal or recovery proceedings cannot be initiated without completing assessment proceedings. Applying that principle, proceedings under Section 28 initiated before finalization of the provisional assessments were held not maintainable; the Revenue remains free to proceed after final assessment. [Paras 6, 7, 8]

Proceedings under Section 28 initiated prior to finalization of the provisional assessments are not maintainable; impugned adjudication set aside and appeals allowed.

Final Conclusion: The Tribunal set aside the adjudication order confirming duty demand and penalties under Section 28 insofar as it was initiated before finalization of provisionally assessed bills of entry, permitting the Department to take appropriate action only after completion of final assessment.

Absolute confiscation of offending goods - confiscation of baggage of commercial nature - goods not eligible for clearance as baggage - confession statement and subsequent retraction-effect on seizure - restriction treated as prohibition enabling confiscation without option - imposition of penalty for attempted removal of dutiable goods

Confiscation of baggage of commercial nature - goods not eligible for clearance as baggage - Absolute confiscation of the seized memory cards was justified because the goods were of a commercial nature and not entitled to baggage clearance. - HELD THAT: - The Tribunal found that the memory cards were offending goods not eligible for baggage clearance and therefore liable to confiscation. It noted that even if the appellant had declared the goods at the counter, proceedings under the Customs Act would have been available; the offending character of the goods renders them liable to confiscation. The fact that the goods did not belong to the appellant and that confiscation would not put him to financial detriment further undermined the plea for relief from confiscation. [Paras 4, 5]

Confiscation upheld; goods liable to absolute confiscation.

Confession statement and subsequent retraction-effect on seizure - confiscation of offending goods - Retraction of the statement did not preclude confiscation of the offending goods. - HELD THAT: - Although the appellant admitted to a statement under section 108 and later retracted it, the Tribunal treated the offending character of the goods as determinative. Reliance was placed on precedent that a confession, even if retracted, does not necessarily require cross-examination of panch witnesses to sustain seizure-related facts; irrespective of the contest over the confession, the Tribunal concluded that the goods remained liable to confiscation. [Paras 2, 3, 4]

Retraction of confession did not prevent confiscation; seizure sustained.

Restriction treated as prohibition enabling confiscation without option - absolute confiscation of offending goods - Discretion to order absolute confiscation without granting option to redeem applies where goods are restricted/prohibited from baggage clearance. - HELD THAT: - The Tribunal relied on established authorities holding that a restriction amounts to a prohibition and that adjudicating authorities have discretion to confiscate offending goods absolutely without offering the option of redemption. Given the goods' status as offending and not entitled to baggage clearance, the appellant's plea for an option to redeem was rejected as untenable. [Paras 3, 5]

No option to redeem granted; discretion to confiscate exercised.

Imposition of penalty for attempted removal of dutiable goods - Penalty was rightly imposed on the appellant in respect of the attempted removal of dutiable goods and is not liable to be quashed. - HELD THAT: - Having held the goods liable for confiscation, the Tribunal concluded that the concomitant penalty under the Customs law was also properly imposed. The appellant did not advance any cogent reasons to show that the penalty was disproportionate or harsh, and therefore the plea for quashing the penalty was rejected. [Paras 6]

Penalty sustained; plea to quash refused.

Final Conclusion: Appeal dismissed; impugned order of absolute confiscation of the memory cards and imposition of penalty affirmed.

Jurisdiction of Customs authorities within Special Economic Zone - seizure within SEZ and applicability of the Customs Act - confiscation, redemption fine and penalty under the Customs Act - customs duty liability and interest upheld despite jurisdictional ruling - SEZ treated as deemed territory outside Customs Territory for purposes of enforcement

Jurisdiction of Customs authorities within Special Economic Zone - seizure within SEZ and applicability of the Customs Act - confiscation, redemption fine and penalty under the Customs Act - SEZ treated as deemed territory outside Customs Territory for purposes of enforcement - Jurisdiction of customs to seize goods within the SEZ and to initiate proceedings under the Customs Act, 1962 and the validity of consequent confiscation, redemption fine and penalties. - HELD THAT: - The Tribunal applied its earlier decision in Meenakshi International and authority relied upon therein to conclude that Customs authorities do not have jurisdiction within the territory of a Special Economic Zone established under the SEZ scheme to initiate proceedings under the Customs Act. The seized goods in the present case were intercepted and taken into possession at Gate No.1 within the NSEZ; accordingly the proceedings for confiscation of the gold bars and jewellery, confiscation of the vehicle, and imposition of redemption fines and penalties by the Customs authority were beyond its jurisdiction and without proper authority of law. For these reasons the impugned adjudication orders insofar as they confiscated the goods and vehicle and imposed redemption fines and penalties were set aside.

Impugned confiscation, redemption fines and penalties set aside for want of jurisdiction.

Customs duty liability and interest upheld despite jurisdictional ruling - confession or non-contestation of duty liability by the appellant - Treatment of confirmed customs duty and interest demand in view of appellants' non-contestation. - HELD THAT: - The appellant did not contest the customs duty and interest demand and had deposited duty with interest (and a portion of penalty) prior to initiation of show cause proceedings. The Tribunal accordingly did not disturb the adjudication insofar as it confirmed the customs duty and interest; only the confiscation, redemption fines and penalties were set aside while leaving the duty and interest conclusion intact.

Customs duty and interest confirmed by the adjudication order are left unaffected.

Final Conclusion: The appeals are allowed to the extent of setting aside confiscation of the gold bars, jewellery and vehicle and the redemption fines and penalties imposed for want of jurisdiction of the Customs authorities within the SEZ; the confirmed customs duty and interest liability remains undisturbed.

Operational debt - operational creditor - occurrence of default - demand notice under Section 8 of the Code - existence of dispute and pendency of suit or arbitration - confirmation of balance and limitation - effect of alleged settlement agreement not signed by claimant - reference to the Insolvency and Bankruptcy Board of India for recommendation of Interim Resolution Professional - moratorium on proceedings under Section 13/14 of the Code

Operational debt - The claim based on supplied goods and invoices constitutes an operational debt. - HELD THAT: - The notices and invoices establish that the petitioner supplied goods to the corporate debtor and claimed unpaid amounts arising from those invoices. On the material before the Adjudicating Authority, the debt asserted by the petitioner falls within the definition of operational debt. [Paras 8]

The claim is an operational debt.

Operational creditor - occurrence of default - The petitioner is an operational creditor and there has been an occurrence of default. - HELD THAT: - The petitioner, by virtue of being the party to whom the operational debt is owed, is an operational creditor. The invoices, transaction details, bank certificate, statement of account and the corporate debtor's reply admitting outstanding dues collectively establish that the corporate debtor defaulted in payment of the operational debt. [Paras 9, 18]

Petitioner is an operational creditor and default has occurred.

Confirmation of balance and limitation - Admission of liability and part payment by the corporate debtor brought the claim within the period of limitation. - HELD THAT: - Although the invoices date from 2013, the corporate debtor's communication dated 19th January, 2017 admitted a balance and made an RTGS payment, and issued cheques for the balance; such admission and part payment operate as confirmation of balance and render the operational debt within the limitation period for filing the petition. [Paras 11]

The operational debt is within limitation on account of confirmation and part payment by the corporate debtor.

Demand notice under Section 8 of the Code - existence of dispute and pendency of suit or arbitration - The demand notice requirement was complied with and the corporate debtor did not validly raise a pre-existing dispute or record of pending proceedings within the statutory 10 day period to defeat the petition. - HELD THAT: - The petitioner issued a demand notice in Form-4 on 18.2.2017 and proved service. The corporate debtor replied only on 23.3.2017, beyond the 10 day period prescribed by Section 8(2) of the Code. None of the corporate debtor's replies before or within that period referred to the pendency of any suit or arbitration that predated receipt of the demand notice. The corporate debtor raised a contention of a settlement agreement, but the copy produced was unsigned by the petitioner and the petitioner denied any such agreement; such a dispute, if relied upon, must have been the subject of pending proceedings before receipt of the demand notice. [Paras 12, 13, 14, 19]

Demand notice was validly served; no valid invocation of a pre-existing dispute or pending suit/arbitration defeated admission.

Effect of alleged settlement agreement not signed by claimant - An unsigned alleged settlement agreement which the operational creditor denies cannot be treated as a binding agreement to negate occurrence of default in the absence of prior suit or arbitration. - HELD THAT: - The corporate debtor relied on an alleged settlement dated 17th January, 2017 and pointed to part payments/cheque encashment as indicative of acceptance. However, the alleged settlement document is not signed on behalf of the petitioner and the petitioner expressly denied entering into such an agreement. The authority held that mere acceptance of payments, when followed by an express denial of any settlement, does not transform the unsigned instrument into a binding settlement capable of ousting the statutory finding of default; any serious contest about the existence or terms of such an agreement ought to have been raised in a suit or arbitration before receipt of the demand notice. [Paras 14, 17, 18]

The unsigned, denied settlement cannot be treated as a binding agreement to negate default.

Reference to the Insolvency and Bankruptcy Board of India for recommendation of Interim Resolution Professional - Failure of the operational creditor to propose an Interim Resolution Professional under Section 9(4) does not warrant rejection of the petition; the Adjudicating Authority must refer to the Board for recommendation under Section 16(3). - HELD THAT: - The petitioner did not propose a Resolution Professional as required by Section 9(4). The Adjudicating Authority applied Section 16(3) which mandates that where no proposal is made, the Authority shall refer to the Insolvency and Bankruptcy Board of India for recommendation of an insolvency professional to act as Interim Resolution Professional. Accordingly, the petition was not rejected for non-compliance but a reference to the Board for recommendation was directed. [Paras 20]

Petition admitted notwithstanding absence of a proposed Interim Resolution Professional; reference to IBBI ordered for recommendation.

Moratorium on proceedings under Section 13/14 of the Code - On admission of the petition, a moratorium was declared as prescribed by the Code, with appointment of the Interim Resolution Professional to follow recommendation by the Board. - HELD THAT: - Upon admission under Section 9(5), the Adjudicating Authority exercised its discretion under Section 13 to declare a moratorium under Section 14, prohibiting institution or continuation of suits, transfer or disposal of assets, enforcement of security, and recovery actions, subject to statutory exceptions. The Authority clarified that public announcement and appointment of the Interim Resolution Professional will occur after the Board's recommendation as per the statutory procedure. [Paras 21, 22, 23]

Petition admitted and moratorium declared; Interim Resolution Professional to be appointed after IBBI recommendation.

Final Conclusion: The Tribunal admitted the Section 9 petition: the claim was held to be an operational debt, the petitioner an operational creditor, and default established; the alleged unsigned settlement did not prevent admission; the petition was admitted despite no proposed Interim Resolution Professional and a reference was directed to the Insolvency and Bankruptcy Board of India to recommend an insolvency professional, and a moratorium under the Code was declared.

Admission of application under Section 10 of the Insolvency and Bankruptcy Code, 2016 - corporate applicant as corporate debtor - existence of default by the corporate debtor - appointment of Interim Resolution Professional - public announcement of initiation of corporate insolvency resolution process - moratorium under Sections 13 and 14 of the Insolvency and Bankruptcy Code, 2016

Corporate applicant as corporate debtor - existence of default by the corporate debtor - Petitioner is a corporate applicant who is also a corporate debtor and has committed default entitling it to initiate corporate insolvency resolution process under Section 10. - HELD THAT: - The Tribunal noted the statutory definitions of 'Corporate Applicant' and 'Corporate Debtor' and applied them to the facts: the petitioner is a corporate person owing debts to a secured creditor, operational creditors and statutory authorities, and admitted default. The record shows mortgages and action under SARFAESI by the bank, and no liquidation order has been passed. On these findings the Tribunal concluded that the petitioner, being the corporate applicant/corporate debtor, had committed default and was entitled to trigger the insolvency resolution process. [Paras 13, 14, 15, 18, 19]

Petition under Section 10 admitted on the ground that the corporate applicant is also a corporate debtor and has committed default.

Appointment of Interim Resolution Professional - public announcement of initiation of corporate insolvency resolution process - An Interim Insolvency Resolution Professional was validly appointed and the corporate applicant was directed to make the public announcement as required. - HELD THAT: - The Tribunal considered the petitioner's proposal of a resolution professional, the written communication in Form-2 and the professional's registration certificate. After hearing objections to an earlier proposed name and receiving an alternative proposal by the petitioner, the Tribunal appointed the proposed person who held a valid IBBI registration and directed the corporate applicant to make the public announcement in accordance with Section 13(2) and related provisions. The appointment and direction for public announcement followed from compliance with the procedural requirements recorded on the file. [Paras 16, 17, 21]

Shri Arun Kumar Malani appointed as Interim Insolvency Resolution Professional and corporate applicant directed to make the public announcement.

Moratorium under Sections 13 and 14 of the Insolvency and Bankruptcy Code, 2016 - A moratorium under Sections 13 and 14 was declared from the date of the order until completion of the corporate insolvency resolution process, with the statutory exceptions. - HELD THAT: - Relying on the statutory mandate that the adjudicating authority, upon admission and appointment of an interim resolution professional, exercise its discretion to declare a moratorium and cause public announcement, the Tribunal imposed the moratorium prohibiting institution or continuation of suits, transfer or encumbrance of assets by the corporate debtor, actions to enforce security interests including under SARFAESI, and recovery of leased property from the corporate debtor. The order preserved supply of goods and essential services and noted the moratorium is subject to the proviso to subsection (4) of Section 14 and transactions notified by the Central Government. [Paras 20, 22, 23]

Moratorium declared from the date of the order for the duration of the corporate insolvency resolution process, subject to statutory exceptions.

Final Conclusion: The Tribunal admitted the Section 10 petition as the corporate applicant (also the corporate debtor) had committed default, appointed an Interim Insolvency Resolution Professional who satisfied registration and procedural requirements, directed the public announcement of the initiation of the insolvency resolution process, and declared the statutory moratorium for the duration of the process.

Works Contract Service - Classification of service as repair and maintenance versus works contract - Retrospective effect of classification under Works Contract Service for periods prior to 1.6.2007 - Burden of department to demonstrate change in nature of service - Reliance on precedent ratio

Works Contract Service - Classification of service as repair and maintenance versus works contract - Burden of department to demonstrate change in nature of service - Reliance on precedent ratio - Whether the services rendered by the appellant prior to 1.6.2007 are to be treated as Works Contract Service and whether the demand for service tax as repair and maintenance for 2006-2007 is sustainable. - HELD THAT: - The Tribunal examined work orders and VAT records produced by the appellant showing that the maintenance activities involved both supply of replacement components and rendering of services. On that basis the activity falls within the ambit of Works Contract Service. The department produced no evidence to show that the nature of services rendered prior to 1.6.2007 was different from that for which service tax was paid under Works Contract Service after 1.6.2007. The Tribunal applied the ratio in Larsen & Turbo Ltd. that services which are covered by the description of Works Contract Service from 1.6.2007 cannot be reclassified and charged under a different category for the period prior to that date. Applying that precedent and the material on record, the demand for service tax for 2006-2007 as repair and maintenance cannot be sustained. [Paras 5, 6]

The demand for service tax for the period prior to 1.6.2007 (2006-2007) as repair and maintenance is set aside and the appeal is allowed.

Final Conclusion: On the material produced and by applying the precedent, activities involving supply of replacement parts together with maintenance services are Works Contract Service and the demand for service tax as repair and maintenance for 2006-2007 (period prior to 1.6.2007) is unsustainable; impugned order set aside and appeal allowed.

Renting of Immovable Property Service - residential premises outside scope of taxable service - deeming fiction in Explanation-2 to the definition of renting of immovable property - threshold exemption under Notification dated 01.03.2005 - computation of threshold exemption - inclusion of tax on GTA as recipient of service

Renting of Immovable Property Service - residential premises outside scope of taxable service - deeming fiction in Explanation-2 to the definition of renting of immovable property - Whether renting of housing quarters let out by the appellant to contractors for residence of their workers is taxable under the definition of renting of immovable property having regard to Explanation 2. - HELD THAT: - The Tribunal observed that ordinarily renting of premises for residential purposes is not within the taxable service since it is not in connection with business or commerce. However, Explanation 2 creates a deeming fiction treating immovable property used partly for business and partly for residential purposes as used in the course or furtherance of business. The Bench found that the authorities below confirmed demand by invoking Explanation 2 without considering the appellant's contention and documentary evidence that the housing quarters are located separately from its commercial premises. In view of the absence of a reasoned consideration of the place of use evidence, the Tribunal held that the matter requires fresh adjudication and factual examination by the original authority on the documents to be produced by the appellant.

Impugned confirmation of service tax demand on the housing quarters set aside and remitted to the original authority for fresh, reasoned adjudication after considering the appellant's evidence and the applicability of Explanation 2.

Threshold exemption under Notification dated 01.03.2005 - computation of threshold exemption - inclusion of tax on GTA as recipient of service - Whether the appellant was eligible for threshold exemption under the Notification dated 01.03.2005 and whether service tax paid on GTA services in the capacity of recipient should be included for computing the exemption limit. - HELD THAT: - The Tribunal noted that the appellant contended that it qualified for the threshold exemption and that tax paid on GTA services as recipient should not be included for computing the exemption limit. The authorities below did not consider these submissions. Given that these contentions affect the availability and computation of the exemption, the Tribunal directed that the original authority examine the entitlement to the notification and the proper basis of computation in a reasoned order on the basis of documents to be produced by the appellant.

The question of eligibility for the threshold exemption and the proper computation (including treatment of GTA related tax) was not decided on merits but remanded to the original authority for determination after fresh consideration of evidence.

Final Conclusion: The impugned order is set aside and the matter is remanded to the original adjudicating authority for fresh, reasoned determination on the applicability of Explanation 2 to the housing quarters and on entitlement and computation of the threshold exemption, having regard to documents to be produced by the appellant; appeal disposed accordingly.

Valuation of taxable service - transport of passengers embarking in India for international journey - includability of ancillary charges in taxable consideration - extended period of limitation - denovo adjudication / remand for re quantification - business establishment / permanent establishment - penalty under Section 76

Valuation of taxable service - includability of ancillary charges in taxable consideration - transport of passengers embarking in India for international journey - Whether various charges collected by the appellant are includible in the taxable value of the service 'transport of passengers embarking in India for international journey by air'. - HELD THAT: - The Tribunal's earlier examination of twenty components resulted in the conclusion that the charges numbered V to XX are not to be included in the taxable consideration. On scrutiny, the present Bench found no error apparent on record in that conclusion. The entry for international air travel taxes the service of passenger transport embarking in India for an international journey and, where a ticket is for a round/return journey, the service is continuous and the total value is relevant for taxation; nevertheless, the Tribunal had already applied binding precedent and legal principles to exclude the specified components (V-XX) from taxable value and that determination stands.

The Tribunal's finding that charges at serial Nos. V to XX are not includible in the taxable consideration is affirmed; no rectification required on this point.

Denovo adjudication / remand for re quantification - totaling mistake - re quantification based on supporting documents - Whether the quantification of taxable value requires fresh computation in view of totaling errors and other documentary data. - HELD THAT: - The Tribunal had noted a totaling mistake in Column 7 of Annexure A to the show cause notice. The Bench observed that re quantification must be carried out on the basis of supporting documents submitted by the appellant and not be limited merely to the acknowledged totaling error. Accordingly, the matter was remanded to the Original Adjudicating Authority to reassess and compute the taxable value afresh, taking into account the totaling mistake and all other data and documentary particulars furnished by the appellant (including refunds for cancelled tickets and related particulars).

Quantification of taxable value is left open and remanded for denovo adjudication to correct totaling mistakes and to verify all supporting data before computing differential service tax.

Extended period of limitation - denovo adjudication / remand for fresh examination - Whether the extended period for demand is invokable in the proceedings and whether that finding requires rectification. - HELD THAT: - The Tribunal's earlier conclusion that the extended period was invokable was based substantially on factual findings recorded by the Original Authority. The Bench found that the Original Authority had not considered a chronology of correspondence and events (including registration amendment, departmental letters, meetings and returns filed) which could affect the limitation question. That reliance on incompletely recorded facts renders the earlier finding an apparent error. Therefore the question of applicability of limitation is to be examined afresh by the Original Authority without restrictive directions and after considering the full chronology and submissions.

Finding on extended period is set aside for being based on incompletely recorded facts; applicability of limitation is remanded for fresh adjudication.

Business establishment / permanent establishment - place of taxation / liability of non resident service provider - Whether the appellant, having a registered company in Japan, is not liable to service tax in India because of a claimed permanent establishment abroad, and whether return fare is excludable from taxable value. - HELD THAT: - The claim that the appellant is not liable to service tax because it is a Japanese company with a permanent establishment abroad was rejected. In terms of the explanatory provision applied by the Bench, a person carrying on business through a branch or agency in any country is treated as having a business establishment in that country; the appellant has a business establishment (branch) in India and is therefore liable to service tax on taxable services rendered. As to return/part fare, the service of transport of passengers embarking in India for an international journey was held to be a continuous service commencing on embarkation; Board guidance (Circular) and statutory construct support treating the total value (including return journey where applicable) as relevant for taxation, and the plea to exclude a part of the ticket value was rejected.

Claim of non liability based on foreign permanent establishment is rejected; claim to exclude return fare from taxable value is rejected.

Penalty under Section 76 - rectification of errors apparent on record - Whether references in the Tribunal's final order to penalty under Section 76 and to 'Custom Department' are errors apparent on record requiring correction. - HELD THAT: - The proceedings before the Original Authority did not result in imposition of any penalty under Section 76; reference to such penalty in paragraph 9 of the Tribunal's final order is therefore irrelevant and an apparent error. Similarly, the reference to 'Custom Department' in paragraph 7 is erroneous and should read simply 'Department'. The Bench directed deletion of the irrelevant reference to Section 76 and correction of 'Custom' to 'Department' in the final order.

Paragraph 9 of the final order is to be deleted for erroneous reference to penalty under Section 76; 'Custom Department' in paragraph 7 is to be corrected to 'Department'.

Final Conclusion: The Tribunal's earlier determination excluding charges V-XX from taxable value is upheld; however, the matter is recalled and remanded to the Original Adjudicating Authority for denovo adjudication limited to (i) fresh examination of limitation/extended period on the full chronology, (ii) re quantification of taxable value correcting totaling mistakes and considering all supporting data, and (iii) giving the appellant adequate opportunity of hearing; clerical errors in the earlier final order (reference to Section 76 and to 'Custom Department') are rectified.

Eligibility of Cenvat credit for goods used in providing output services - definition of inputs under Cenvat Credit Rules - classification of dumpers/tippers as motor vehicles - proof of invoices for availing Cenvat credit - remand for de novo adjudication

Eligibility of Cenvat credit for goods used in providing output services - classification of dumpers/tippers as motor vehicles - definition of inputs under Cenvat Credit Rules - Cenvat credit on dumpers/tippers used by the service provider is eligible as "inputs" notwithstanding classification under Chapter 87, and such machines are not to be treated as motor vehicles for denial of credit. - HELD THAT: - The Tribunal held that earth moving equipment such as dumpers/tippers, being used by the appellant to render output services of site formation, excavation and related activities, fall within the definition of "input" for a service provider under Rule 2(k)(ii) of the Cenvat Credit Rules, 2004 which covers all goods used for providing any output service except specified exclusions. The Commissioner's view that goods classifiable under Chapter 87 are excluded as "motor vehicles" was rejected on the basis that dumpers/tippers are specially designed for earth moving within mining areas and, following the reasoning in the earlier Supreme Court decision reproduced in the record, are not to be regarded as motor vehicles for the purpose of denying credit. The Tribunal further noted that the position has been clarified prospectively by Notification No.25/2010 CE with effect from 22.6.2010 allowing credit where dumpers/tippers are registered in the name of the service provider for such taxable services. [Paras 6, 7]

Credit is admissible in principle on dumpers/tippers used for providing the output service; the classification as motor vehicles does not preclude their treatment as inputs for the appellant.

Proof of invoices for availing Cenvat credit - remand for de novo adjudication - Admissibility of the claimed Cenvat credit in respect of the impugned invoices requires re examination for adequacy and authenticity of invoices and supporting documents. - HELD THAT: - The Tribunal observed that the adjudicating authority recorded that credits were availed on deficient or improper invoices and that original/duplicate invoices were not produced. Rather than decide on the merits, the Tribunal directed remand for de novo adjudication: the appellant must produce the relevant documents and the authority is to verify whether the invoices and supporting particulars satisfy the requirements for availing Cenvat credit. Subject to satisfaction on such verification, the credit shall be allowed. The Tribunal therefore did not make a final factual finding on documentary sufficiency but entrusted the original authority to examine and decide after verification. [Paras 8, 9]

Matter remanded for de novo adjudication and verification of invoices; credit to be allowed by the adjudicating authority if documents satisfy the requirements.

Final Conclusion: Credit on dumpers/tippers used in rendering the appellant's output services is allowable in principle as "inputs"; the question of documentary sufficiency is remanded for de novo verification by the adjudicating authority, and the position has been prospectively clarified by notification effective 22.6.2010.

Extended period of limitation - suppression of facts - service tax on reverse charge basis - intellectual property right service

Extended period of limitation - suppression of facts - Show cause notice invoking the extended period of limitation is sustainable where the transaction was recorded in the books and there was no suppression or contumacious conduct. - HELD THAT: - The Tribunal examined the show cause notice which relied on audit observations that the appellant had paid for technology/patent/design and had not disclosed the transaction to the Department. The Court found that the transaction was duly recorded in the books of account maintained in the ordinary course of business and that there was no element of suppression or contumacious conduct by the appellant. In the absence of the necessary conditions precedent of suppression, the invocation of the extended period of limitation was held to be unsustainable. Accordingly the extended-period notice could not be sustained. [Paras 5, 6]

Show cause notice issued for the extended period set aside for lack of suppression; extended period invocation not sustainable.

Service tax on reverse charge basis - intellectual property right service - Liability to service tax on the alleged know-how/technology payment was not adjudicated on merits and remains open for consideration. - HELD THAT: - Although the show cause notice challenged the appellant's liability to pay service tax on a reverse charge basis in respect of payment for technology/patent/design (characterised as intellectual property right service), the Tribunal did not decide this substantive question. Having set aside the extended-period notice for lack of suppression, the Tribunal expressly left the question of merits open for determination. [Paras 6]

Substantive question of service tax liability on the alleged know-how payment left open for adjudication.

Final Conclusion: The appeal is allowed; the impugned order is set aside because the extended period could not be invoked in absence of suppression. The substantive question of service tax liability on the alleged know how/technology payment is left open for determination.

Penalty under Section 78 of the Finance Act, 1994 - reverse charge mechanism - service recipient's liability to pay service tax - deposit of tax and interest prior to initiation of show cause proceedings - absence of suppression, fraud or collusion - contentious question of law - availability of cenvat credit (revenue neutrality)

Penalty under Section 78 of the Finance Act, 1994 - deposit of tax and interest prior to initiation of show cause proceedings - service recipient's liability to pay service tax - absence of suppression, fraud or collusion - contentious question of law - Imposition of penalty under Section 78 where the assessee (service recipient) had deposited service tax and interest before initiation of show cause proceedings and the liability to pay tax was a contentious question of law. - HELD THAT: - The Tribunal found as a fact that the appellant had deposited the service tax and interest attributable to services received from the overseas service provider before the show cause notice was issued. The question whether the recipient was liable to pay service tax under the reverse charge was a contentious legal issue which had been finally addressed by the Hon'ble Bombay High Court in Indian National Shipowners Association. In these circumstances the appellant could not be said to have been guilty of fraud, collusion, suppression or any deliberate intent to evade tax. The Tribunal also noted that it has in similar factual matrices set aside penalties under Section 78. For these reasons the imposition of penalty under Section 78 was held to be unjustified and was set aside.

Imposition of penalty under Section 78 set aside; appeal allowed to the extent of the penalty confirmed by the lower authority.

Final Conclusion: The appeal is allowed insofar as the penalty under Section 78 is concerned; the penalty confirmed by the Commissioner (Appeals) is set aside.

Transaction value - assessable value - design and development charges - principal to principal transaction - inclusion of expenses in assessable value - independent unrelated buyers

Design and development charges - assessable value - transaction value - principal to principal transaction - independent unrelated buyers - Whether the design and development charges paid by the appellant to a sister concern are includible in the assessable value of welding machines cleared to independent buyers. - HELD THAT: - The Tribunal found that the appellant manufactured and sold welding machines to independent unrelated buyers on transaction value and received design and development services from a sister concern on a principal-to-principal basis for which payment was made. The payment constituted an expenditure of the appellant and was accounted for in its profit and loss account; it was not provided free by the customer nor separately recovered from the customers. Consequently, although such expenditure is part of the appellant's cost structure, it has no direct connection with the sale price charged to independent buyers. The Tribunal held that expenses incurred by the manufacturer, which are not recovered from the buyer and where the sale is at transaction value to unrelated purchasers, cannot be included separately in the assessable value of the goods. Applying these principles, the inclusion of the design and development charges in the assessable value was held to be incorrect. [Paras 4]

The demand of duty by including the design and development charges in the assessable value is incorrect; the impugned order is set aside and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, set aside the order demanding excise duty by inclusion of design and development charges in the assessable value of the welding machines for 1998-99, and held that such charges paid to a sister concern on a principal-to-principal basis and not recovered from independent buyers cannot be included in assessable value.

Cenvat credit - capital goods - inputs used in relation to manufacture - marketability of goods - Modvat credit principle - physical presence not prerequisite for credit

Cenvat credit - capital goods - inputs used in relation to manufacture - marketability of goods - Cenvat credit is admissible on imported Ring Rims used for technical testing of tyres manufactured by the appellant. - HELD THAT: - The Tribunal examined whether the imported items described as AST Car Tyre and SV Car Ring Rims, brought in as capital goods and used for inflated-dimension testing of tyres within the factory, fall within the scope of inputs or capital goods eligible for Cenvat credit. Applying the ratio of the Supreme Court in Flex Engineering Ltd. v. CCE, the Tribunal held that items used directly or indirectly in relation to manufacture are eligible for credit; physical incorporation in the final product is not a pre-requisite. The process of manufacture is complete only when the product is rendered marketable, and testing that is essential to certify quality and make the tyre saleable is inextricably connected with manufacture. The revenue failed to discharge the burden of proving that the products were marketable prior to such testing. Consequently, the Ring Rims, being essential tools/accessories for mandatory technical testing that renders the tyres marketable, qualify for Cenvat credit under the governing principle that inputs used in relation to manufacture are eligible for credit. [Paras 4, 5]

Impugned order denying Cenvat credit is set aside and the appeal is allowed; Cenvat credit is admissible on the Ring Rims.

Final Conclusion: The appeal is allowed: Cenvat credit on the imported Ring Rims used for essential testing of tyres is admissible and the impugned order denying credit is set aside.

Supplies to SEZ developer constitute export - Rule 6(3)(b) of the Cenvat Credit Rules - payment on clearance of exempted goods - exception under Rule 6(6) for clearances to SEZ units and SEZ developers - retrospective application of a substitutional amendment - non-applicability of extended period of limitation and penalties where interpretation issues are involved

Supplies to SEZ developer constitute export - Rule 6(3)(b) of the Cenvat Credit Rules - payment on clearance of exempted goods - exception under Rule 6(6) for clearances to SEZ units and SEZ developers - Supplies made to SEZ developers are to be treated as export and therefore the requirement to pay an amount equal to 10% of value under Rule 6(3)(b) does not arise for such clearances. - HELD THAT: - The Tribunal examined the scope of Rule 6 of the Cenvat Credit Rules (2002/2004) and the exceptions contained in sub-rule (5)/(6) which exclude clearances to SEZ units (and, after amendment, to SEZ developers) from the operation of the provisions requiring payment when separate accounts are not maintained. Consistent decisions of the Tribunal and High Courts were found to have held that supplies to SEZ developers/promoters constitute 'export' for these purposes; where such supplies are treated as export the provisions of Rule 6 for recovering amounts on exempted clearances are not attracted. Applying the settled position in the cited authorities, the demand under Rule 6(3)(b) for supplies to SEZ developers was held unsustainable and set aside.

Demand equal to 10% of value in respect of goods supplied to SEZ developers set aside; appeal allowed on this ground.

Retrospective application of a substitutional amendment - exception under Rule 6(6) for clearances to SEZ units and SEZ developers - The amendment by substitution to Rule 6(6) by Notification No.50/2008-C.E. (N.T.), dated 31-12-2008 is to be read as clarificatory and applicable retrospectively so as to make the exception available for supplies to SEZ developers. - HELD THAT: - The Tribunal applied established principles governing substitutional amendments, including precedents which permit retrospective effect where the amendment merely clarifies or gives explicit expression to an existing policy or intention. Considering the SEZ legislative scheme and consistent governmental policy of extending benefits to SEZ developers as well as units, the substitution was held to be clarificatory and to have retrospective operation so as to render Rule 6(6) exception applicable to supplies to SEZ developers from the date CCR, 2004 came into force. Consequently, the exception operates in favour of the assessees.

Amendment by Notification No.50/2008 held clarificatory and applicable retrospectively; exception under Rule 6(6) applies to SEZ developers.

Non-applicability of extended period of limitation and penalties where interpretation issues are involved - Extended period of limitation for recovery and imposition of penalties cannot be invoked where the dispute arises from interpretation of SEZ and Cenvat provisions and there is no charge of suppression. - HELD THAT: - The Tribunal found that the controversy turned on the interpretation of SEZ provisions under the Customs Act, the SEZ Act and the Cenvat Credit Rules. In the absence of any finding of suppression by the assessees and given that the issues involved questions of law and interpretation, invoking extended limitation or imposing penalties was not justified. Therefore, such measures were held not to arise in the facts of the case.

Invocation of extended limitation period and imposition of penalties refused.

Final Conclusion: Appeal allowed; demand under Rule 6(3)(b) in respect of supplies to SEZ developers set aside, amendment to Rule 6(6) treated as clarificatory and retrospectively applicable, and extended period/penalties held not sustainable.

Applicability of Rule 3(4) of the Cenvat Credit Rules, 2002 to removal of used/worn out parts or scrap - Removal of capital goods "as such" - Liability to pay an amount equal to CENVAT credit on removal of inputs or capital goods - Preclusive effect of prior tribunal decision in the same case (res integra)

Applicability of Rule 3(4) of the Cenvat Credit Rules, 2002 to removal of used/worn out parts or scrap - Removal of capital goods "as such" - Rule 3(4) of the Cenvat Credit Rules, 2002 is not attracted where worn out parts or used parts of capital goods are cleared as scrap; the provision applies only when capital goods are removed "as such". - HELD THAT: - The Tribunal applied the plain language of Rule 3(4), which imposes liability to pay an amount equal to the credit availed only when inputs or capital goods are removed "as such" from the factory. In the appellant's case it was undisputed that worn out parts of capital goods were cleared as scrap during the period in question; such removal does not constitute removal of capital goods "as such". The Tribunal further relied on its earlier order in the appellant's own case dated 4.11.2016, which reached the same conclusion and set aside the demand raised under Rule 3(4). The Revenue's reliance on other authorities was held not to be factually or legally germane to the present case.

The impugned demand under Rule 3(4) is set aside and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that Rule 3(4) Cenvat Credit Rules, 2002 does not apply to clearance of worn out or used parts as scrap and accordingly set aside the demand for payment of CENVAT credit for the period 1st April, 2004 to 8th July 2004.

CENVAT credit against supplementary invoices - restriction on availment where duty paid under recovery provisions - treatment of supplementary invoice as 'invoice' under Rule 9(1) - non-retrospective operation of amendment introducing restriction on input services

CENVAT credit against supplementary invoices - treatment of supplementary invoice as 'invoice' under Rule 9(1) - Availment of Cenvat credit on supplementary invoices issued after the date of service for service tax paid by the service-provider - HELD THAT: - The Tribunal held that supplementary invoices evidencing payment of additional service tax are not to be treated differently from original invoices where both are issued under the same legal provisions. The Service Tax Rules did not distinguish between invoice and supplementary invoice during the period in dispute, and the term 'invoice' in Rule 9(1) therefore includes supplementary invoices. Consequently, supplementary invoices issued by the service provider after discharge of the short-paid tax were valid documents for availment of credit. [Paras 3, 4]

Supplementary invoices issued for the relevant services are valid for availing Cenvat credit.

Restriction on availment where duty paid under recovery provisions - non-retrospective operation of amendment introducing restriction on input services - Applicability of the restriction barring Cenvat credit where duty is paid consequent to recovery proceedings to input services prior to the amendment effective 1-4-2011 - HELD THAT: - The Tribunal observed that the prohibition on availment of credit where tax is paid as a result of recovery proceedings, when introduced for input services, was by way of an amendment effective from 1-4-2011. That restriction did not exist in respect of input services for the period prior to 1-4-2011; the earlier Rule 9(1)(b) restriction related to supply of inputs and capital goods. Since the restrictive provision was not retrospective, it could not be applied to the periods in dispute. Prior decisions of the Tribunal were held to be consistent with this view. [Paras 4, 5]

The restriction on availment introduced w.e.f. 1-4-2011 cannot be applied retrospectively to deny credit for the periods in dispute.

Final Conclusion: The Revenue's appeal is dismissed; Cenvat credit availed on supplementary invoices for services rendered in the periods specified is upheld and the retrospective application of the later-introduced restriction is rejected.

Vagueness of show cause notice - absence of verification/inspection report - determination of annual capacity of production under Section 3A of the Central Excise Act - sealing of packing machines and effect on capacity determination - compounded levy scheme under Pan Masala Packaging Machines (Determination of capacity and collection of duty) Rules, 2008 - application of lenient approach where no wilful suppression or mis-statement

Vagueness of show cause notice - absence of verification/inspection report - compounded levy scheme under Pan Masala Packaging Machines (Determination of capacity and collection of duty) Rules, 2008 - application of lenient approach where no wilful suppression or mis-statement - Sustainability of the show cause notice and impugned adjudication demanding duty for 44 packing machines - HELD THAT: - The Tribunal found the show cause notice to be vague and internally contradictory and noted that the foundational allegation of a factory verification on 16/07/2008 was unsupported by any inspection report in the relied-upon documents. The sealing of 26 machines on 03/07/2008 (and four machines sealed prior to 01/07/2008) was an admitted fact not contested by the Department. The Commissioner himself recognised that the compounded levy scheme was nascent, that the assessee had promptly informed the Department and sought sealing of machines, and that there was no case of suppression or wilful mis-statement. In that factual matrix, the demand confirmed by the Commissioner for duty on 44 machines was held to be unsustainable because it proceeded on erroneous and unsubstantiated findings recorded in the show cause notice and adjudication.

Impugned Order-in-Original confirming demand for duty on 44 machines is set aside.

Determination of annual capacity of production under Section 3A of the Central Excise Act - sealing of packing machines and effect on capacity determination - absence of verification/inspection report - Validity of the order dated 17/07/2008 determining annual capacity of production - HELD THAT: - The Tribunal held that the order determining annual capacity dated 17/07/2008 suffered from factual errors and anomalies. Although the order purported to be based on inquiry and physical verification, no inspection report or supporting document was placed on record to justify rejection of the appellant's declaration that only 18 machines were intended to be operated after sealing. Given the admitted sealing of machines and the absence of documentary basis for the contrary finding, the annual capacity determination was not sustainable to the extent it disregarded the sealed machines.

Order dated 17/07/2008 determining annual capacity is set aside in part.

Final Conclusion: The Tribunal set aside the impugned adjudication dated 20.10.2010 and set aside in part the annual capacity determination dated 17.07.2008; the appellant is entitled to consequential benefits in accordance with law.

Composite contract - assessable value - includibility of installation/assembly charges - excludability of civil construction charges - supply of principal goods at site

Composite contract - supply of principal goods at site - Characterisation of the contract as a composite contract for supply of goods with ancillary services. - HELD THAT: - The Tribunal recorded the terms of the work order and observed that the appellant's obligation encompassed design, supply, fabrication, erection, testing and painting of the vessels and that the contract was not a mere split of supply and service but a composite contract where services are ancillary to the principal object of manufacture. The Tribunal noted its earlier view that the tanks come into existence at the point of assembly and treated the contract as one for supply of principal goods to be completed at site. On that basis the Tribunal directed further factual examination rather than deciding the valuation issue finally at this stage. [Paras 1, 2, 7]

The contract is treated as a composite contract; parties' agreement to a composite supply was accepted and the matter was not finally adjudicated on valuation.

Assessable value - includibility of installation/assembly charges - excludability of civil construction charges - Whether the various components of the consideration (particularly installation/assembly charges) are includible in the assessable value and the manner in which this is to be determined. - HELD THAT: - The Tribunal reiterated its earlier observation that charges incurred for assembly are ordinarily includible in the assessable value of the tanks except for the price attributable to civil construction. However, the Tribunal found that the adjudicating authority's readjudication had not tested the appellant's breakup in the necessary detail. Consequently, the Tribunal directed that the appellant supply the detailed breakup as earlier directed so that the adjudicating authority may objectively examine which parts of the consideration are includible or excludible and pass a reasoned, speaking order recording the pleadings and evidence. The Tribunal declined to grant substantive benefit based on decisions relied upon by the appellant without such factual and evidentiary scrutiny. [Paras 2, 3, 4, 9]

Issue of includibility/excludability of installation and other charges in assessable value is remanded for fresh consideration by the adjudicating authority after the appellant files the directed particulars; adjudicating authority to pass a reasoned and speaking order.

Final Conclusion: The appeal is remanded to the learned adjudicating authority with directions that the appellant shall, within one month, submit the detailed breakup of costs as earlier directed and participate in hearing; the adjudicating authority shall objectively examine includibility and excludability of components in the assessable value and pass a reasoned, speaking order.

Refund of excess tax payment - finality of assessment orders - obligation to refund under Section 42(5) of the Tamil Nadu Value Added Tax Act, 2006 - inadmissibility of requiring further evidence after conclusive assessment

Refund of excess tax payment - finality of assessment orders - obligation to refund under Section 42(5) of the Tamil Nadu Value Added Tax Act, 2006 - inadmissibility of requiring further evidence after conclusive assessment - Assessing Officer is bound to refund the excess tax payments found in final revision assessment orders for assessment years 2007-2008 to 2011-2012 and cannot insist on further evidence before refund. - HELD THAT: - The revision assessment orders for the stated assessment years recorded that excess tax had been paid and enclosed notice in Form P, constituting an assessment of refund which has become final and conclusive. Having arrived at a final finding that excess payment was made, the Assessing Officer could not postpone refund by demanding production of agreement copies or other further material. The court held that, pursuant to the obligation under Section 42(5) of the Tamil Nadu Value Added Tax Act, 2006, the Assessing Officer must effect the refund as recorded in the final assessment orders, and seeking additional evidence after such conclusive orders is not justified. [Paras 6, 7]

Writ petitions allowed; respondent directed to refund the excess payments for assessment years 2007-2008 to 2011-2012 within four weeks of receipt of the order.

Final Conclusion: The High Court allowed the petitions and directed the Commercial Tax Officer to refund the excess tax payments found in the final revision assessment orders for assessment years 2007-2008 to 2011-2012 within four weeks.