TaxTMI Updates e-Newsletter
Jul 19,2016

Taxability of guarantee commission - place of accrual of income - application of DTAA cap on tax rate for royalties - treatment of surcharge and education cess under DTAA - consequential interest under sections 234B and 234C

Taxability of guarantee commission - place of accrual of income - Guarantee commission of Rs. 33,40,347 received by the foreign resident assessee was not taxable in India. - HELD THAT: - The Tribunal applied its earlier decision in the assessee's own case for AY 2009-10 and found that the guarantee was given by the French resident assessee to a French bank in France; accordingly the guarantee commission did not accrue or arise in India. Since income did not arise in India, it could not be taxed in India under domestic law or the India-France DTAA. Following that precedent and the identical factual matrix, the addition made by the Assessing Officer and sustained by the DRP was set aside. [Paras 6]

The addition of guarantee commission as taxable income in India is deleted and the assessee succeeds on this point.

Application of DTAA cap on tax rate for royalties - treatment of surcharge and education cess under DTAA - Surcharge and education cess cannot be levied over and above the 10% tax rate prescribed by Article 13 of the India-France DTAA on royalty income; tax liability on royalty is capped at 10%. - HELD THAT: - Article 2 of the India-France DTAA defines 'income tax' to include any surcharge thereon and extends the treaty to substantially similar taxes introduced thereafter. The Tribunal held that education cess is akin to a surcharge and therefore falls within the treaty's scope. Reading Article 13 (which caps the tax on royalties at 10%) together with Article 2, the treaty rate prevails over domestic law; consequently surcharge and education cess cannot be imposed in addition to the 10% treaty rate. The Assessing Officer was directed to recompute tax on royalties accordingly. [Paras 11]

Tax on royalty income shall be computed at the 10% rate prescribed by the DTAA without levy of surcharge and education cess; reassessment to be made accordingly.

Consequential interest under sections 234B and 234C - Interest under sections 234B and 234C were treated as consequential and no specific adjudication was undertaken in the appeal. - HELD THAT: - The Tribunal recorded that interest charged under sections 234B and 234C arose as consequential matters flowing from the tax computation and did not require independent adjudication in the appeal. The order therefore does not adjudicate these interest demands on merits but leaves them as consequential to the recomputation of tax. [Paras 12]

Interest under sections 234B and 234C to be dealt with consequentially upon recomputation; no separate adjudication in this order.

Final Conclusion: Appeal partly allowed: the guarantee commission is not taxable in India; royalty income tax liability is capped at 10% under the India-France DTAA (surcharge and education cess cannot be levied over and above this cap); Assessing Officer directed to recompute tax accordingly; interest under sections 234B and 234C remain consequential to recomputation.

Writ of mandamus to direct transfer of assessment - power to transfer assessments under Section 127 - requirement of prior application to Commissioner for transfer - transfer not appropriate after completion of assessment and filing of appeals - allegations of malafide and harassment in assessment proceedings - appellate forum to decide evidentiary disputes - inadmissibility of collateral adjudication where appellate remedy exists

Requirement of prior application to Commissioner for transfer - Writ of mandamus to direct transfer of assessment - Petitioners were not entitled to a writ of mandamus directing transfer of their assessment files in the absence of an application to the Commissioner under the statutory power of transfer. - HELD THAT: - The Court applied the settled scheme under the statutory power to transfer assessments and the jurisprudence permitting an assessee to seek transfer by application to the Commissioner. The petitioners had not invoked the statutory remedy under Section 127 by making any request to the Commissioner. In these circumstances, issuing a writ of mandamus to compel transfer without the petitioner first seeking exercise of the statutory power was not warranted. [Paras 4]

Writ relief for transfer refused for want of prior application to the Commissioner.

Transfer not appropriate after completion of assessment and filing of appeals - inadmissibility of collateral adjudication where appellate remedy exists - Transfer of the assessment proceedings could not be ordered where the Assessing Officer had concluded proceedings, assessment orders had been communicated and appeals against those orders were filed. - HELD THAT: - The Court found that the first respondent had completed the assessment proceedings and assessment orders had been dispatched to the petitioners, who thereafter filed appeals before the Commissioner (Appeals). Once assessment orders are passed and appeals are instituted, the Court declined to direct transfer of the case as the assessment proceedings were no longer pending in the manner necessary for the relief sought. [Paras 9, 10, 11]

Request for transfer rejected as assessments were concluded and appeals were filed.

Allegations of malafide and harassment in assessment proceedings - Allegations that the officers acted with malafide intent or subjected the petitioners to unreasonable harassment were not established. - HELD THAT: - On consideration of the affidavits, counter-affidavits and the attendance record, the Court found no substantial proof of malafide or improper conduct by the respondents. The petitioners had repeatedly appeared and cooperated in the assessment proceedings over several dates; complaints were raised for the first time by filing the writ petitions shortly before disposal, suggesting an attempt to frustrate the assessment process. [Paras 11, 14]

Allegations of malafide/harassment rejected as frivolous and unsubstantiated.

Appellate forum to decide evidentiary disputes - The question whether the letter/fax relied upon by the Assessing Officer was a fabricated document was not decided by the Court and was left to be examined by the appellate authority as a ground raised in appeal. - HELD THAT: - The petitioners had challenged in their grounds of appeal that the Assessing Officer relied on a bogus fax/letter lacking evidentiary value. Given that this contention formed a ground of challenge before the Commissioner (Appeals), the Court refrained from determining the genuineness of the document in the writ proceedings and directed that the matter be considered by the appellate authority in the appeal. [Paras 10]

Issue of genuineness of the document left for decision by the appellate authority; not adjudicated in the writ petitions.

Final Conclusion: Writ petitions dismissed for failure to seek statutory transfer prior to approaching the Court, absence of merit on allegations of malafide, and because assessments had been concluded with appeals filed; the challenge to the alleged fabricated document to be decided by the appellate authority.

Depreciation under Section 11 - application of income by charitable trusts - double deduction - prospective operation of amendment - Section 11(6) of the Income tax Act

Depreciation under Section 11 - application of income by charitable trusts - double deduction - Allowability of depreciation in computing income of a charitable trust where the cost of the capital asset was claimed as application of income in the year of acquisition. - HELD THAT: - The Court held that the question is settled by the Division Bench decision in Society of the Sisters of St. Anne and subsequent consistent authorities: a charitable trust computing income under Section 11 is entitled to provide for normal depreciation in subsequent years even though the income out of which the asset was acquired was treated as applied in the year of acquisition. Allowing depreciation in subsequent years is not a 'double deduction' because the exemption in the year of acquisition represents the application of income to acquire the asset, whereas depreciation represents the periodic allocation for wear and tear in later years to compute real income and to preserve the corpus. The decision in Escorts Ltd. was found distinguishable as it dealt with a different statutory context and cannot be applied to Section 11 exemptions of charitable trusts. On this basis the Tribunal's allowance of depreciation was upheld and the Revenue's contention rejected.

Question answered in favour of the assessee; depreciation allowable for charitable trusts when computing income under Section 11 and not a prohibited double deduction.

Section 11(6) of the Income tax Act - prospective operation of amendment - Effect and temporal operation of the amendment by insertion of Section 11(6) denying deduction by way of depreciation where acquisition of the asset has been claimed as application of income. - HELD THAT: - The Court recorded that Section 11(6), inserted by the Finance (No.2) Act, 2014, provides that income shall be determined without any deduction or allowance by way of depreciation in respect of any asset acquisition claimed as application of income; however, the plain language of the amendment, the legislative memorandum, and CBDT circulars establish that the amendment takes effect from 1.4.2015. Applying the principles on retrospective operation, the Court held the amendment to be prospective and operative from 1.4.2015 (assessment year 2015-16 and subsequent years), and therefore it does not affect earlier assessment years.

Section 11(6) operates prospectively from 1.4.2015 and applies to assessment year 2015-16 and subsequent years; it does not retrospectively negate prior allowance of depreciation.

Final Conclusion: Revenue's appeal dismissed: the Tribunal was correct to allow depreciation under Section 11 for the years prior to the amendment, and the statutory amendment (Section 11(6)) denying such depreciation operates prospectively from 1.4.2015 (AY 2015-16 onwards).

Registration of trust under Section 12AA(a)(ii) - directory requirement of audited accounts with application for registration - relating-back of registration date on curing defects

Registration of trust under Section 12AA(a)(ii) - directory requirement of audited accounts with application for registration - relating-back of registration date on curing defects - Effective date of registration where audited accounts were not filed with the application and were submitted later. - HELD THAT: - The court held that filing audited accounts along with the application for registration under Section 12AA(a)(ii) is directory and not a mandatory condition precedent to treating the application as complete. The sole defect pointed out by the revenue was omission of audited accounts; in view of binding decisions of other High Courts relied upon by the Tribunal, that requirement cannot render the application defective ab initio. Reference was made to earlier High Court decisions supporting the view that audited accounts need not be filed with the application, including HeeraLal Bhagwati Vs. Commissioner of Income Tax , Commissioner of Income Tax Vs. Devradhan Madhavlal Genda Trust , CIT Vs. Shahzedanand Charity Trust , Commissioner of Income Tax Vs. Hardeodas Agarwalla Trust and CIT Vs. Sri Baldeoji Maharaj Trust . Because the omission was not a jurisdictional or mandatory defect, the registration must be treated as effective from the date the application was submitted rather than from the date when the audited accounts were later furnished; the Tribunal therefore did not err in allowing registration from the date of application.

Application was not defective for want of audited accounts and registration stands from the date of filing of the application.

Final Conclusion: Appeal dismissed; the Tribunal's order allowing registration from the date of application is upheld because the requirement to file audited accounts with the application is directory and does not prevent the registration taking effect from the date of filing.

Admissibility of depreciation on windmill installations - rate of depreciation applicable to windmill and its components - civil foundation and electrical generator treated as part of plant and machinery - precedential effect of Supreme Court affirming High Court on identical issue

Admissibility of depreciation on windmill installations - precedential effect of Supreme Court affirming High Court on identical issue - Depreciation is admissible on the windmill installations including power-generation related items. - HELD THAT: - The Court accepted the view expressed by the Madras High Court in CIT v. Hi Tech Arai Ltd., which was affirmed by the Supreme Court on dismissal of the appeal, that depreciation on power-generation installations in a windmill is allowable where the facts correspond. The departmental objection to admissibility could not be sustained in view of the binding precedent. The Tribunal therefore correctly allowed depreciation which had earlier been allowed by the Assessing Officer.

Depreciation claimed on the windmill installations is admissible and the Tribunal was right to uphold allowance.

Rate of depreciation applicable to windmill and its components - civil foundation and electrical generator treated as part of plant and machinery - The rate of depreciation applicable to the windmill must apply to its civil foundation and electrical generator when these are components of the windmill. - HELD THAT: - The Court held that when civil work and the electrical generator are taken to be part of the windmill, the rate of depreciation applicable to the windmill governs the depreciation claim for those components. The Revenue's contention that the Tribunal failed to decide or incorrectly allowed the rate was rejected: no substantive dispute as to rate survived once components are treated as part of the windmill, and the Tribunal's conclusion was held to be legally sustainable.

Rate of depreciation applicable to the windmill governs the civil foundation and electrical generator; the Tribunal's decision on rate was correct.

Final Conclusion: The revenue's appeal is dismissed; the Tribunal's order allowing depreciation (including at the applicable rate for windmill components) is upheld in view of the binding precedent and correct treatment of the civil foundation and electrical generator as part of the windmill.

Application of income for charitable purposes - interpretation of Section 11(1)(a) - set-off of prior-year excess expenditure against subsequent year's income - excess expenditure met from accumulated/PD funds - precedential effect of earlier departmental acceptance of Tribunal decision

Application of income for charitable purposes - interpretation of Section 11(1)(a) - set-off of prior-year excess expenditure against subsequent year's income - excess expenditure met from accumulated/PD funds - Entitlement to exemption under Section 11(1)(a) for income of the previous year 2008-09 which was applied for charitable purposes although expenditure in that year exceeded income and the excess was met from accumulated/PD funds - HELD THAT: - The court held that where the income of the relevant previous year has been applied for charitable purposes, the assessee is entitled to exemption under Section 11(1)(a) even if the expenditure in that year exceeds the income and the excess expenditure is met out of accumulated/PD funds (corpus) from earlier years. Relying on the reasoning in Maharana of Mewar Charitable Foundation, the court explained that 'applied' means the income is put to use to meet charitable expenditure, and such application can occur in the year when the income is adjusted to meet earlier-incurred expenses. A contrary construction would produce an anomalous result whereby repayment of a loan (taken to meet charitable expenditure) out of subsequent-year income would be exempt, but reimbursement of corpus out of subsequent-year income would not; such anomaly must be avoided. The court rejected the contrary view in Shri Akhey Ram Ishwari Prasad Trust as not having considered Section 11(1)(a) and the earlier Maharana of Mewar decision. The court also noted that the Revenue had acquiesced to the Tribunal's earlier decision on related earlier assessment years and was therefore precluded from adopting a different stance. Applying these principles, the Tribunal's allowance of the claims as application of income under Section 11(1)(a) for the assessment year 2008-09 was upheld. [Paras 11, 14, 15, 16, 18]

The ITAT was justified in allowing the claims as application of income under Section 11(1)(a) for AY 2008-09; the appeals by the Revenue are dismissed.

Precedential effect of earlier departmental acceptance of Tribunal decision - Effect of Revenue's prior acceptance of the Tribunal's decision in earlier assessment years on the present controversy - HELD THAT: - The court observed that the Revenue had accepted the Tribunal's view in the earlier related matters, and such acceptance operates to preclude the Revenue from taking a different position in the present appeals. This estoppel-like effect reinforced the conclusion that the Tribunal's order need not be disturbed. [Paras 16]

The Revenue, having accepted the Tribunal's earlier decision, was precluded from challenging the same contention in the present appeals.

Final Conclusion: The High Court dismissed the appeals filed by the Revenue, upholding the ITAT's allowance of the assessees' claims for exemption under Section 11(1)(a) for AY 2008-09; the Court followed Maharana of Mewar Charitable Foundation and rejected the contrary view in Shri Akhey Ram Ishwari Prasad Trust, and noted the Revenue's prior acceptance of the Tribunal's earlier decision.

Reopening of assessment under section 148 read with section 147 - reason to believe as condition precedent for reassessment - prima facie sufficiency of material for initiation of reassessment - nexus or live-link between seized material and assessee - exercise of writ jurisdiction while assessment proceedings are pending - exhaustion of statutory remedies / alternate remedy under the Income tax Act

Reopening of assessment under section 148 read with section 147 - reason to believe as condition precedent for reassessment - prima facie sufficiency of material for initiation of reassessment - nexus or live-link between seized material and assessee - Validity of the notice under section 148/147 in view of the material relied upon by the Revenue - HELD THAT: - The Court applied established principles that initiation of proceedings under section 147/148 requires that the Assessing Officer have "reason to believe"-a condition precedent which must be based on relevant material showing a live link to the assessee, and not mere vague suspicion. However, when assessment is still in progress and only a notice has been issued, the proper test is whether there was relevant material on which a reasonable person could form the requisite belief; the Assessing Officer need not have ascertained escapement of income conclusively at that stage. On the record before the Court (notings/loose papers seized in a third party search, statements and other seized documents, and material suggesting payments and facilitation), the Court held that it was not open to the writ court at this interlocutory stage to reappraise the sufficiency or evidentiary weight of the material and quash the notice. The Court therefore declined to hold that the Assessing Officer lacked "reason to believe" and left the matter to the departmental enquiry and adjudication. [Paras 10, 11, 12, 13, 14]

Proceedings under section 148/147 will not be quashed at this stage; the Assessing Officer may proceed to inquire and decide on merits.

Exercise of writ jurisdiction while assessment proceedings are pending - exhaustion of statutory remedies / alternate remedy under the Income tax Act - Whether the High Court should exercise writ jurisdiction to interfere with reopening while assessment proceedings are ongoing - HELD THAT: - The Court reiterated that when statutory remedies under the Income tax Act are available and assessment proceedings have not been concluded, the High Court should ordinarily refrain from exercising its extraordinary writ jurisdiction to interfere with departmental action. Reliance on Rajesh Jhaveri Stock Brokers and other authorities supports the principle that interlocutory scrutiny of the adequacy of material for reopening is generally inappropriate; the assessee should first raise objections before the Assessing Officer, and, if aggrieved by the assessment order, avail remedies provided under the Act. Applying these principles to the facts, the Court held that the petitioner must appear before the Assessing Officer, press his objections and, after the departmental decision, pursue available statutory remedies if still aggrieved. [Paras 11, 16, 17]

Writ petition dismissed without quashing the reopening; petitioner to pursue objections before the Assessing Officer and exhaust statutory remedies.

Final Conclusion: The writ petition is dismissed. The Court declined to quash the notice issued under section 148/147 for Assessment Year 2009-10, holding that the material relied upon sufficed at the prima facie stage to permit departmental enquiry and that the petitioner must raise objections before the Assessing Officer and exhaust statutory remedies before seeking judicial relief.

Income from house property versus income from business - commercial exploitation of property - intention at the time of letting out - lease duration and renewal terms as determinative of character of receipts - distinguishing precedents on facts

Income from house property versus income from business - commercial exploitation of property - intention at the time of letting out - lease duration and renewal terms as determinative of character of receipts - Characterisation of rent received from letting out part of hotel premises to a restaurant operator as income from house property or as business income. - HELD THAT: - The Tribunal and this Court examined the tenor of the memorandum of understanding which granted use of the premises for 12 years with a further renewable term, and concluded that the assessee's intention at the time of letting was to enjoy rental income rather than to commercially exploit the asset as part of its business. While the assessee relied on Anand Rubber and Plastics P. Ltd., that decision was fact-specific where temporary leasing of surplus factory space to reduce losses amounted to commercial exploitation and thus business income. Distinguishing that precedent on facts, the Court held that a long-term lease with renewal rights did not demonstrate an intention to let out only temporarily or as commercial exploitation of the asset. The Tribunal's view that the Assessing Officer correctly taxed the receipts as income from house property was a plausible appreciation of the material and not shown to be illegal or perverse. [Paras 5, 6]

Rent from letting out the premises to Pizza Hut was rightly treated as income from house property and not as business income.

Final Conclusion: The substantial question is answered against the assessee: the Tribunal rightly reversed the CIT(A) and upheld the Assessing Officer's classification of the receipts as income from house property; appeal dismissed.

Reopening of assessment under section 147 - Notice under section 148 - Meaning of "Assessing Officer" under clause (7A) of section 2 - Transfer of proceedings under section 127 - Sanction for reassessment under section 151 - Bar on challenging jurisdiction after expiry of time allowed by notice under section 124(3) - Furnishing reasons for issuance of notice-right to request and supply; not a mandatory pre-condition

Meaning of "Assessing Officer" under clause (7A) of section 2 - Reopening of assessment under section 147 - Notice under section 148 - Sanction for reassessment under section 151 - Transfer of proceedings under section 127 - Validity of notices under section 148 and reopening under section 147 issued by respondent No. 3 although earlier assessment for the same year had been made by the Joint Commissioner - HELD THAT: - The Court held that respondent No. 3 was the Assessing Officer for the assessee within the territorial and pecuniary jurisdiction so as to act under sections 147/148, having regard to the definition of "Assessing Officer" in clause (7A) of section 2 and the allocations made under section 120. Upon receipt of information suggesting escapement of income for assessment year 2010-11, respondent No. 3 recorded satisfaction and sought sanction under section 151(1); the Additional Commissioner granted sanction under section 151(2) and respondent No. 3 issued notice under section 148. When it emerged that the assessed income exceeded the pecuniary limits of respondent No. 3, the file was transferred in accordance with section 127 to the Deputy Commissioner who possesses appropriate pecuniary and territorial jurisdiction; the Deputy Commissioner thereafter considered and decided the preliminary objection. The Court rejected the submission that only an officer not below the rank of Joint Commissioner could make reassessment where earlier assessment had been made by a Joint Commissioner, observing that the transfer order under section 127 and the statutory definition of Assessing Officer govern competence. The impugned notices and the order disposing objections were therefore held intra vires and not vitiated by lack of jurisdiction. [Paras 6, 7, 8, 9, 12]

Notwithstanding that earlier assessment had been made by the Joint Commissioner, the notices under section 148 and the reopening under section 147 issued by respondent No. 3 (with sanction under section 151) and the subsequent transfer to the Deputy Commissioner under section 127 were valid; no jurisdictional infirmity is made out.

Bar on challenging jurisdiction after expiry of time allowed by notice under section 124(3) - Notice under section 148 - Whether the petitioner was precluded from challenging the jurisdiction of the Assessing Officer by raising the objection after the time allowed by the notice - HELD THAT: - The Court noted that the petitioner responded to the section 148 notice by filing the return and did not raise any jurisdictional objection within the statutory period. The preliminary objection to jurisdiction was raised for the first time by representation dated September 7, 2015, after the notices under section 148/section 142(1) had been acted upon. Reliance was placed on section 124(3) which prevents a person from calling in question the jurisdiction of an Assessing Officer after the expiry of the time allowed by the notice. Applying that provision to the facts, the Court held that the petitioner could not challenge jurisdiction belatedly and that the objection was, therefore, properly rejected by the assessing authority. [Paras 10, 11]

The petitioner was barred from raising the jurisdictional objection after the expiry of the time allowed by the notice; the belated objection was rightly rejected.

Furnishing reasons for issuance of notice-right to request and supply; not a mandatory pre-condition - Notice under section 148 - Whether failure to furnish reasons and the sanctioning order along with the section 148 notice vitiated the proceedings - HELD THAT: - The Court observed that law does not mandate furnishing the reasons recorded or the sanctioning order along with the initial section 148 notice. The appropriate course is that the noticee may file a return and, if desired, request reasons; the Assessing Officer must furnish reasons within a reasonable time and dispose of any objections by passing a speaking order before proceeding. In the present case the reasons recorded and the sanctioning order were furnished to the petitioner on request, and no prejudice was shown. Consequently, non-supply of those documents with the initial notice did not invalidate the reassessment proceedings. [Paras 13]

Failure to furnish reasons and sanction order with the initial section 148 notice did not vitiate the proceedings where the documents were subsequently supplied on request and objections were considered.

Final Conclusion: The writ petition challenging issuance of notices under section 148, the sanction under section 151 and the order rejecting preliminary objections was dismissed: the reassessment proceedings were held valid in law, the jurisdictional challenge was barred as belated, and non-furnishing of reasons with the initial notice did not vitiate the process.

Applicability of notice under section 143(2) to assessments under section 153A - Block assessment procedure under section 153A - Interpretation of the phrase 'so far as may be applicable' in procedural provisions - Condonation of delay

Condonation of delay - Delay of 164 days in filing the appeal was condoned under section 5 of the Limitation Act, 1963. - HELD THAT: - The application under section 5 of the Limitation Act, 1963 was considered on the grounds stated in the application and after hearing counsel for the parties. The court found the explanation satisfactory and exercised its discretion to condone the delay of 164 days in filing the appeal. [Paras 2]

Delay of 164 days in filing the appeal is condoned.

Applicability of notice under section 143(2) to assessments under section 153A - Block assessment procedure under section 153A - Interpretation of the phrase 'so far as may be applicable' in procedural provisions - Issuance of notice under section 143(2) within the prescribed period is not a mandatory prerequisite for assessment proceedings under section 153A. - HELD THAT: - The court examined whether the proviso requiring notice under section 143(2) (applicable to regular or certain reassessments) is mandatorily applicable to assessments made under section 153A following search or requisition. It relied on the reasoning in Ashok Chaddha v. ITO, holding that section 153A provides a distinct procedure for block assessments arising from search/requisition, begins with a non obstante clause and contains an express requirement for notice under section 153A(1)(a) calling for filing of a return. The words 'so far as may be applicable' cannot be stretched to import a mandatory requirement of a separate notice under section 143(2) where section 153A prescribes the specific notice and procedure; consequently, omission to issue a separate section 143(2) notice within the six month period does not invalidate or deprive the Assessing Officer of jurisdiction in proceedings under section 153A. The court found no error in the Tribunal's approach applying this principle and distinguished the authorities relied upon by the assessee as not being on point with respect to assessments under section 153A. [Paras 8, 9]

No substantial question of law arises on the mandatory applicability of notice under section 143(2) to assessments under section 153A; the requirement is not mandatory in that context and the Tribunal's order is not interfered with.

Final Conclusion: The court condoned the delay in filing the appeal and dismissed the appeal on the merits, holding that issuance of a separate notice under section 143(2) within the prescribed period is not a mandatory requirement for assessments under section 153A; no substantial question of law arises.

Deduction under section 36(1)(viii) - rectification procedure and electronic return adjustments - entertaining additional claims before appellate authority - procedure cannot defeat substance - remand for fresh adjudication

Deduction under section 36(1)(viii) - entertaining additional claims before appellate authority - Whether the First Appellate Authority correctly rejected the assessee's claim for deduction carried to special reserve on the ground that no revised return had been filed, and whether the matter required fresh adjudication. - HELD THAT: - The Tribunal found that the assessee had filed an electronic return and subsequently sought rectification to reflect the claim for deduction under section 36(1)(viii) which had not been separately shown in the original e-return columns. Noting that appellate authorities have jurisdiction to permit additional claims even if a revised return was not filed, and relying on the principle that procedural formalities should not defeat substantive claims, the Tribunal observed that in a subsequent year the Central Processing Centre had accepted a similar claim by the assessee. The Tribunal held that the FAA erred in adopting a rigid procedural approach and declining to entertain the claim solely because a revised return was not filed, and that the FAA ought to have considered the new claim on merits in the appeal.

FAA's rejection on the sole ground of absence of a revised return cannot be endorsed; the issue is remanded to the FAA for fresh adjudication on merits after considering the authorities and facts.

Final Conclusion: The appeal is partly allowed: the Tribunal set aside the FAA's shortcoming in refusing to entertain the deduction claim for lack of a revised return and remanded the matter to the FAA for fresh consideration of the deduction under section 36(1)(viii).

Penalty under section 271(1)(c) of the Act - penalty for furnishing inaccurate particulars of income - assessment findings not binding in penalty proceedings - onus on assessee to establish bona fide disclosure - rejection of explanation requires cogent reasons - disclosure of primary facts versus concealment - bona fide belief based on legal advice - independent consideration in penalty proceedings

Penalty under section 271(1)(c) of the Act - penalty for furnishing inaccurate particulars of income - disclosure of primary facts versus concealment - onus on assessee to establish bona fide disclosure - rejection of explanation requires cogent reasons - assessment findings not binding in penalty proceedings - Deletion of penalty levied under section 271(1)(c) for furnishing inaccurate particulars of income was justified and is to be upheld. - HELD THAT: - The Tribunal held that the assessee had disclosed the primary facts of the transaction in the return and had advanced a legally plausible claim founded on a bona fide belief supported by legal advice. The Assessing Officer, though recording that an explanation was filed, did not specify the explanation or furnish cogent reasons for rejecting it in the penalty order. Since assessment and penalty proceedings are distinct, confirmation of an addition in assessment does not automatically establish concealment or inaccurate particulars for the purpose of levy of penalty. Absent a clear finding that the assessee's explanation was wholly untenable and after independent consideration of the explanation, imposition of penalty under section 271(1)(c) was not warranted. Reliance on appellate conclusions disallowing the claim does not obviate the AO's obligation to record why the explanation in penalty proceedings is unacceptable.

Penalty imposed under section 271(1)(c) set aside; appeal of the Assessing Officer dismissed.

Final Conclusion: The Tribunal affirms the First Appellate Authority's deletion of the penalty under section 271(1)(c), finding that the assessee had disclosed primary facts, had a bona fide legal belief supported by advice, and that the AO failed to record cogent reasons rejecting the explanation in penalty proceedings; the revenue's appeal is dismissed.

Search and seizure assessments under section 153A - Incriminating material requirement for additions in assessments made under search - Jurisdictional limitation on making fresh additions in proceedings under section 153A where no incriminating material is found - Depreciation on goodwill - allowability/deduction challenged in post-search assessment - Penalty under section 271(1)(c) - Survival of penalty upon deletion of the underlying addition

Search and seizure assessments under section 153A - Incriminating material requirement for additions in assessments made under search - Jurisdictional limitation on making fresh additions in proceedings under section 153A where no incriminating material is found - Depreciation on goodwill - allowability/deduction challenged in post-search assessment - Disallowance of depreciation on goodwill in assessment completed under section 153A was not sustainable where no incriminating material was found during the search, and such disallowance was set aside. - HELD THAT: - The Tribunal applied the principle that the special assessment power under section 153A, being founded on search, should not be exercised to make fresh disallowances or additions in respect of matters for which no incriminating material was found during the search. Following the jurisdictional High Court's ratio that absent incriminating material there is no warrant for making such orders in the second phase, the Tribunal held that the disallowance of depreciation on goodwill could not be sustained and quashed the impugned assessment orders. The Tribunal therefore allowed the effective grounds of appeal on jurisdictional basis and did not decide other grounds which became otiose. [Paras 7, 8]

Disallowance of depreciation on goodwill deleted and impugned assessments set aside for the relevant year; same conclusion applied to the two subsequent identical years.

Penalty under section 271(1)(c) - Survival of penalty upon deletion of the underlying addition - Penalty levied under section 271(1)(c) was not sustained once the addition which formed the basis of the penalty was deleted in the quantum appeal. - HELD THAT: - The Tribunal reasoned that a penalty for concealment or furnishing inaccurate particulars cannot survive where the underlying addition or disallowance has been deleted by the Tribunal in the quantum proceedings. Having set aside the assessment disallowing depreciation on goodwill, the Tribunal concluded that the penalty based on that disallowance could not subsist and hence allowed the appeals against the penalty.

Penalty under section 271(1)(c) set aside as the underlying addition was deleted.

Final Conclusion: Appeals allowed for AY 2002-03, AY 2003-04 and AY 2004-05: impugned disallowances (including depreciation on goodwill) deleted for lack of incriminating material in the search; consequential penalty under section 271(1)(c) held unsustainable and set aside.

Penalty for concealment under section 271(1)(c) - capital gains on transfer on retirement under section 45(4) - bonafide belief and difference of opinion as defence to penalty - disclosure of material facts - treatment of stock-in-trade vis-a -vis capital asset for computing capital gains

Penalty for concealment under section 271(1)(c) - bonafide belief and difference of opinion as defence to penalty - disclosure of material facts - capital gains on transfer on retirement under section 45(4) - treatment of stock-in-trade vis-a -vis capital asset for computing capital gains - Validity of penalty imposed under section 271(1)(c) for alleged concealment by not offering capital gains arising on retirement of partners - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the assessee had disclosed all material facts relevant to assessment and had a bona fide belief, supported by an existing Tribunal decision, that no capital gains arose on retirement or that stock-in-trade should be excluded in computing any net capital asset value. The Assessing Officer's reliance on an alternative concession made before the CIT(A) as evidence of mens rea was rejected: the alternative submission was without prejudice and did not amount to admission of concealment or misrepresentation. The AO failed to point to any fact withheld or any misrepresentation made to him. In view of true and correct disclosure of primary facts and the existence of a tenable contrary view on the applicability/quantification of section 45(4), imposition of penalty for concealment was not justified. The appellate Tribunal found no infirmity in the CIT(A)'s cancellation of the penalty. [Paras 6, 8, 9]

Penalty under section 271(1)(c) deleted; Revenue's appeal dismissed.

Final Conclusion: The order of the CIT(A) deleting the penalty imposed under section 271(1)(c) is upheld; Revenue's appeal is dismissed.

Permanent Establishment - Agency PE - Dependent agent - Independent agent - Attribution of profits to Permanent Establishment - Force of attraction rule - Arm's length remuneration - Interest under section 234B

Permanent Establishment - Agency PE - Dependent agent - Independent agent - Attribution of profits to Permanent Establishment - Force of attraction rule - Arm's length remuneration - Whether the assessee had a Permanent Establishment in India and whether profits were attributable to such PE and taxable in India. - HELD THAT: - The Tribunal examined the contractual terms between the assessee and Lubrizol India Pvt. Ltd. (LIPL), the commercial conduct and the revenue profile of LIPL, and prior identical findings in co ordinate benches' decisions in the assessee's own cases. The contracts established that customers placed orders directly with the assessee, invoices were raised by the assessee and LIPL lacked authority to conclude or bind the assessee; LIPL conducted substantial independent manufacturing and sales on its own account (commission income formed a small fraction of its turnover). The TPO had accepted arm's length remuneration for transactions between the parties. Applying the established test (functions performed, assets deployed and risks undertaken) and following the ITAT precedent cited (Daimler Chrysler), the Tribunal found no definite activity of a PE in India to which profits could be attributed and that LIPL functioned as an independent agent in the ordinary course of its business. Consequently the force of attraction under Article 7 did not apply in absence of a PE and the ad hoc attribution of a 5% profit margin to the assessee's sales in India was unsustainable. The Tribunal therefore affirmed the DRP directions deleting the addition made by the AO. [Paras 5, 9]

Assessee did not have a PE in India; the addition of profit attributed (ad hoc 5% on sales) is deleted and not taxable in India.

Interest under section 234B - Permanent Establishment - Whether interest under section 234B is leviable on the assessee in the facts of this case. - HELD THAT: - The Tribunal, following its earlier co ordinate bench decisions in the assessee's own cases on identical facts and taking into account that the assessee was a non resident whose income was not chargeable to tax in India in the absence of a PE, held that interest under section 234B was not leviable. The Tribunal noted binding and persuasive authorities to the effect that where a payer is under an obligation to deduct tax at source and the assessee (non resident) is not liable to tax in India on the facts, interest under section 234B cannot be imposed on the assessee. On these facts the DRP's direction deleting the interest was affirmed. [Paras 10]

Interest under section 234B is not leviable on the assessee in the facts of this case; the interest charged is deleted.

Final Conclusion: The Revenue's appeal is dismissed: the Tribunal affirms the DRP directions deleting the ad hoc attribution of profit (5% on sales) as taxable income in India and deleting interest under section 234B; the assessment order dated 10-01-2014 passed in accordance with DRP directions is upheld.

Provisional release of detained/imported consignment subject to final adjudication - safeguarding revenue by imposing conditions for provisional release - retention of amounts/collection as security for customs demand - final adjudication of show cause notice by adjudicating officer - detention certificate and waiver of demurrage/detention charges under the Handling of Cargo in Customs Areas Regulations, 2009

Provisional release of detained/imported consignment subject to final adjudication - retention of amounts/collection as security for customs demand - Provisional release of the consignment covered by Bill of Entry No.7198783 dated 28.10.2014 - HELD THAT: - The Court directed provisional release of the consignment declared as Blemished Rubber Slope Belts (heading 40103199) notwithstanding the earlier order under section 110-A, because substantial sums had already been collected from the petitioner and were retained by the Department. The release was ordered subject to the final adjudication of the show cause notice dated 29.01.2016 and its Addendum dated 10.02.2016; the petitioner was required to cooperate in the adjudication. The Court observed that although conditions to safeguard revenue are normally imposed when granting provisional release, the existing collection justified immediate provisional clearance of the goods with the protective qualification of pending adjudication. [Paras 4]

Consignment to be released provisionally within fifteen days from receipt of the order, subject to final adjudication of the show cause notice and the petitioner's cooperation.

Final adjudication of show cause notice by adjudicating officer - Adjudication of the show cause notice dated 29.01.2016 and Addendum dated 10.02.2016 - HELD THAT: - The Court did not decide the merits of the Department's contention that the goods should be re classified as used rubber conveyor belts or the allegation that the petitioner is part of a group operation; those contentions remain for determination by the adjudicating officer. The show cause notice and addendum, having been issued after investigation, must be adjudicated on merits by the competent officer in accordance with law. [Paras 4]

Matter of classification, liability and related allegations is left for final adjudication by the adjudicating officer; provisional release does not preclude such adjudication.

Detention certificate and waiver of demurrage/detention charges under the Handling of Cargo in Customs Areas Regulations, 2009 - Consideration of petitioner's request for issuance of a Detention Certificate and waiver of demurrage/detention charges under Regulation 6(1)(l) of the Handling of Cargo in Customs Areas Regulations, 2009 - HELD THAT: - The Court directed that the respondent authorities consider the petitioner's request for a Detention Certificate, which would permit consideration of waiver of demurrage/detention charges, in accordance with law and the relevant regulation. No substantive determination on waiver was made by the Court; the respondents are to decide the request following applicable legal standards. [Paras 5]

Respondents to consider the petitioner's request for a Detention Certificate and any consequential waiver of demurrage/detention charges in accordance with law.

Final Conclusion: Writ petition disposed: the specified consignment is directed to be provisionally released within fifteen days subject to final adjudication of the show cause notice and cooperation by the petitioner; the adjudicating officer shall determine the merits of the show cause notice; the respondents shall consider the detention certificate/waiver request in accordance with law.

Cancellation of bail for breach of conditions - revisional jurisdiction under section 401 CrPC - interpretation of cognizability and non-bailability under section 89(1)(d)(ii) of the Finance Act - ignorance of law not a ground

Cancellation of bail for breach of conditions - revisional jurisdiction under section 401 CrPC - Validity of the Sessions Court's order cancelling bail for non-compliance with conditions imposed when bail was granted. - HELD THAT: - The Sessions Court cancelled bail granted earlier because the accused failed to comply with the conditions imposed by the court granting bail, notably payment instalments and other obligations. The High Court examined the record of the bail order, subsequent modification applications and the prosecution's application for cancellation under section 439(2) CrPC, and found that the cancellation was founded on breach of express bail conditions. The Court observed that initial partial payment to obtain release does not constitute compliance with the continuing conditions imposed by the bail order, and that the applicant's conduct in failing to make the agreed payments and in prolonging the process militated against interference in revisional jurisdiction. In these circumstances the Sessions Court's exercise of power to cancel bail was proper and did not call for interference. [Paras 8]

Revision dismissed; order cancelling bail upheld and rule discharged.

Interpretation of cognizability and non-bailability under section 89(1)(d)(ii) of the Finance Act - ignorance of law not a ground - Permissibility of raising for the first time before the High Court the contention that the offence alleged was bailable because the departmental assessment for 2013-14 did not cross the statutory threshold. - HELD THAT: - The applicant argued that the offence under section 89(1)(d)(ii) of the Finance Act became cognizable and non-bailable only where amount exceeded the statutory threshold and that departmental assessment for 2013-14 did not reach that threshold, making the offence bailable. The Court noted that this legal position existed at the time the Sessions Court passed the bail order and at the time of cancellation, yet the point was not raised before the trial court. The High Court held that raising such a new ground for the first time in revision is impermissible; counsel's alleged concession or ignorance of law before the trial court cannot be a ground to allow the revision. Accordingly the contention was rejected as belated and inadequate to disturb the cancellation order. [Paras 8]

Contention rejected as belated; not a ground to interfere with the cancellation of bail.

Final Conclusion: The Criminal Revision is dismissed; the Sessions Court's order cancelling bail for non compliance with bail conditions is upheld, the rule is discharged, and the applicant's request for extension of the earlier order is refused.

Extended period of limitation - suppression and wilful evasion - adjustment of excess payment of service tax - limitation bar to demand under Section 73 - disclosure in ST-3 returns and knowledge of department - precedent/identical earlier order

Extended period of limitation - suppression and wilful evasion - limitation bar to demand under Section 73 - Whether the demand raised by invoking the extended period is sustainable in view of absence of suppression or wilful intention to evade tax and disclosure to the department. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals) finding that there was no documentary evidence to establish suppression or a wilful intention to evade payment of service tax; instead the facts showed an adjustment of excess payment. The appellants had disclosed details of the adjustments in their half-yearly ST-3 returns and the department had knowledge of the adjustments for more than one year, which negates the essential ingredient for invoking the extended period. Reliance placed by the lower authority on extended limitation was therefore held unsustainable and the demand was held to be hit by limitation. [Paras 3]

Demand based on extended period rejected; invocation of extended period unsustainable for want of suppression or wilful evasion.

Adjustment of excess payment of service tax - disclosure in ST-3 returns and knowledge of department - Whether the adjustments of excess tax paid by the assessee were properly discloseable and known to the department so as to preclude extended period action. - HELD THAT: - The Tribunal endorsed the finding that the respondents had adjusted excess payments made earlier and that such adjustments were disclosed in the half-yearly ST-3 returns filed with the department. Because the department knew of the adjustment details for a period exceeding one year, the prerequisites for treating the matter as suppressed were absent. Consequently, the adjustment could not form the basis for reopening beyond the normal limitation period. [Paras 3]

Adjustments disclosed in ST-3 returns and departmental knowledge preclude treating the matter as suppressed for limitation purposes.

Precedent/identical earlier order - Whether a prior final order in the respondents' own case on the identical issue affects the present appeal. - HELD THAT: - The Tribunal noted that in Final Order No.30094 dated 18-01-2016 (respondents' own case) an identical issue was decided against the revenue. Having regard to that earlier decision and the reasoning of the Commissioner (Appeals), the Tribunal found no infirmity in the impugned order and accordingly dismissed the revenue's appeal. [Paras 5]

Earlier identical final order relied upon; no infirmity found in impugned order.

Final Conclusion: Revenue's appeal dismissed; the Commissioner (Appeals) order setting aside the demand, interest and penalty on limitation grounds is upheld.

CENVAT credit refund under CENVAT Credit Rules, 2004 - nexus between input services and output service - renting of immovable property and common area maintenance as part of input service - training and manpower recruitment as eligible input services - club membership services falling within exclusion from input service - refund inadmissible for services lacking evidence of non-personal consumption or non-recovery

Renting of immovable property and common area maintenance as part of input service - nexus between input services and output service - Refund/credit of service tax paid on common area maintenance charges included in the rent agreement was allowed. - HELD THAT: - The rent agreement comprised both rent and common area maintenance charges as a single contractual obligation. The appellant was obliged to pay common area maintenance on taking the premises on rent and such maintenance charges are integral to obtaining the premises from which the output services are provided. On that basis, the disallowance of refund/credit in respect of common area maintenance was held not justified and refund/credit was allowed. [Paras 4, 6]

Appellant is eligible for refund/credit of service tax paid towards common area maintenance charges.

Training and manpower recruitment as eligible input services - nexus between input services and output service - Refund/credit of service tax paid for manpower recruitment and training services was allowed. - HELD THAT: - Manpower recruitment services and training services were received for the purpose of providing the appellant's output services and fall within the inclusive part of the definition of 'input service'. The invoices were found to be proper and there was no valid basis to reject them. Consequently, denial of refund/credit for these services was held to be illegal and improper, and refund/credit was allowed. [Paras 7]

Appellant is eligible for refund/credit of service tax paid for manpower recruitment and training services.

Club membership services falling within exclusion from input service - Refund/credit of service tax paid on club membership services was denied. - HELD THAT: - Club membership services were held to be expenses incurred towards employee welfare/personal consumption and fall within the exclusion part of the definition of 'input service'. The respondent's contention that such services are for personal consumption of employees was accepted as meritorious, and therefore refund/credit in respect of club membership services was disallowed. [Paras 8]

Refund/credit of service tax paid on club membership services is not admissible.

Refund inadmissible for services lacking evidence of non-personal consumption or non-recovery - Refund/credit of service tax paid on visa charges was denied. - HELD THAT: - The appellant did not produce evidence to show that the visa-related services were not for the personal consumption of employees or that the amounts were not recovered from the employees. In absence of documents demonstrating that the service was in furtherance of output services rather than personal consumption, the refund/credit in respect of visa charges was held not admissible. [Paras 9]

Refund/credit of service tax paid on visa charges is not admissible.

Final Conclusion: Appeals are partly allowed: refund/credit allowed for common area maintenance charges, manpower recruitment services and training services; refund/credit disallowed for club membership services and visa charges; consequential reliefs granted if any.

Validity of Rule 5 of the Hot Rerolling Steel Mills Annual Capacity Determination Rules, 1997 - Article 14 - classification and rational nexus - Section 3A of the Central Excise Act, 1944 - determination and redetermination of annual capacity - Ultra vires challenge to subordinate legislation

Validity of Rule 5 of the Hot Rerolling Steel Mills Annual Capacity Determination Rules, 1997 - Article 14 - classification and rational nexus - Section 3A of the Central Excise Act, 1944 - determination and redetermination of annual capacity - R.5 of the Rules,1997 is not violative of Article 14 of the Constitution and is not ultra vires Section 3A of the Central Excise Act, 1944. - HELD THAT: - The Court accepted the reasoning of the Karnataka High Court in Meenakshi Steel and correlated provisions of Section 3A with Rule 5. The classification created by Rule 5 was held to have a rational nexus with the object of the Act, since Section 3A and its provisos permit redetermination of actual production and refund where an assessee proves lower actual production. Rule 5, construed to adopt higher production in a prior year as annual capacity unless contrary evidence is adduced, was seen as a measure to prevent manufacturers from deliberately reducing reported production to gain unfair advantage; where material is shown, the statutory mechanism under Section 3A(4) and (5) enables corrective determination and refund. On that basis Rule 5 was held intra vires Article 14 and Section 3A, and the challenge to its validity was rejected.

Challenge to validity of R.5 dismissed; R.5 held not violative of Article 14 and not ultra vires Section 3A.

Effect of pending appeals before the Supreme Court - Finality of decision subject to higher court's determination - The present writ petition's outcome is to be governed by the final decision of the pending appeal(s) before the Supreme Court on the same challenge. - HELD THAT: - Relying on precedent of a Coordinate Bench, the Court directed that the present disposal follow the judgments of the Karnataka High Court and related decisions but remain subject to the ultimate determination by the Apex Court in the pending appeal(s). If the Apex Court allows the appeal(s), the writ will be treated as allowed; if the appeal(s) are dismissed, there will be no change in this judgment. The Court further clarified that issues other than the validity of Rule 5 are left open for adjudication before the statutory appellate fora (Commissioner (Appeals)/CESTAT) and the petitioner is at liberty to contest those matters there.

Disposition of the writ petition is made subject to the final outcome of the pending Supreme Court appeal(s); other contestable issues left open for statutory appeals.

Final Conclusion: The writ petition is disposed of: Rule 5 of the Rules,1997 is held intra vires Article 14 and Section 3A, but the effect of this disposition is made subject to the final decision of pending appeals before the Supreme Court; the petitioner remains free to contest other issues before the appropriate appellate authorities.

Pre-deposit condition for entertainability of appeal - restoration of appeal on compliance of pre-deposit despite delay - discretion to set aside dismissal for non-compliance in the interest of justice

Pre-deposit condition for entertainability of appeal - restoration of appeal on compliance of pre-deposit despite delay - Whether the appeal should be restored where the appellant, after dismissal for non-compliance with the Tribunal's pre-deposit direction, subsequently deposits the required pre-deposit amount. - HELD THAT: - The Tribunal had directed a pre-deposit which was not complied with by the stipulated date, leading to dismissal of the appeal. During the High Court proceedings the appellant tendered the entire pre-deposit amount. The Court exercised its discretion to set aside the impugned dismissal and restore the appeal because the condition of pre-deposit had been satisfied, albeit belatedly, and restoration was warranted in the interests of justice. The Court nevertheless clarified that if the pre-deposit had not in fact been made, the impugned order would remain undisturbed. Following restoration, the Tribunal was directed to hear and decide the appeal on merits.

Impugned dismissal set aside and appeal restored for hearing on merits if the pre-deposit has been deposited; otherwise no interference with the Tribunal's order.

Final Conclusion: The High Court set aside the Tribunal's dismissal and directed restoration of the appeal for adjudication on merits on the basis that the appellant has deposited the requisite pre-deposit (subject to the court's clarification that absence of such deposit will leave the impugned order intact).

Excisability of semi-finished goods - manufacture by drawing of wire - clandestine removal without payment of duty - penalty for officers in day-to-day management - Rule 56-B exemption for semi-finished goods - remand for refixation of penalty

Excisability of semi-finished goods - manufacture by drawing of wire - Rule 56-B exemption for semi-finished goods - Whether the goods removed by the appellant were excisable or non-excisable semi-finished products exempt under Rule 56-B - HELD THAT: - The Court accepted the factual findings recorded in the Order in Original dated 17th October, 2005 and the CESTAT order (paras. 35, 36, 40-42 of the Order in Original and paras. 10.1, 10.5-10.6 of the CESTAT order) and held that drawing of wires from solid aluminium amounts to manufacture. Even if further processes are required for the ultimate end use, each stage constitutes a manufacture attracting duty with CENVAT credit available at successive stages. The appellants did not place any Commissioner's order under Rule 56 B on record nor did they apply for exemption thereunder; Rule 56 B operates through an appropriate order by the Commissioner and is not self executing in the facts of this case. On the admitted facts that the goods removed were excisable and were removed without payment of duty, the contention that they were non excisable semi finished goods was rejected. [Paras 4, 5]

Goods were excisable; drawing of aluminium wire is manufacture; Rule 56 B exemption not attracted in the absence of a Commissioner's order or application.

Clandestine removal without payment of duty - penalty for officers in day-to-day management - Whether penalty of Rs.2 lakh each imposed on the directors is excessive or unlawful for clandestine removal of excisable goods without payment of duty - HELD THAT: - Having regard to the findings of clandestine removal through seven gate passes and other duplicate gate passes (paras. 10.5-10.6 of the CESTAT order) and the material before the Commissioner (Order in Original paras. 35, 36, 40-42), the High Court found that substantial removal of excisable goods without payment of duty had occurred and a sizable amount of duty was evaded. The Court reiterated that where a company removes excisable goods without payment of duty, persons in day to day management may be held liable to penalty. Considering the circumstances and the CESTAT's view that a preventive deterrent was rational, the Court held that the penalty imposed on each director was not unreasonably excessive or shockingly disproportionate. [Paras 6, 7]

Penalty of Rs.2 lakh each on the directors sustained as neither excessive nor unjustified.

Remand for refixation of penalty - Remand by CESTAT of the corporate penalty for refixation - HELD THAT: - The CESTAT had partly allowed the company's appeal but remanded the matter for refixation of the penalty of Rs.35 lakhs under Rule 173Q. The High Court recorded that the remand by the CESTAT stands and did not interfere with that direction; the corporate penalty quantum remains to be fixed on remand. [Paras 1, 7]

Matter remanded for refixation of the penalty payable by the company; High Court does not interfere with that remand.

Final Conclusion: All Tax Appeals are dismissed. The excisability finding and duty confirmation are upheld; penalties of Rs.2 lakh each on the directors are sustained as not excessive; the CESTAT's remand for refixation of the corporate penalty remains undisturbed.

Waiver of pre-deposit - requirements for interim relief: prima facie case, balance of convenience and irreparable loss - protection of public revenue - duty to assign reasons for exercise of discretionary relief - jurisdiction under Section 35G of the Central Excise Act - remand for fresh decision on stay or appeal

Waiver of pre-deposit - duty to assign reasons for exercise of discretionary relief - protection of public revenue - requirements for interim relief: prima facie case, balance of convenience and irreparable loss - Validity of the Tribunal's order waiving the requirement of pre-deposit without assigning reasons or addressing undue hardship and safeguarding revenue interests. - HELD THAT: - The Court held that the Tribunal, when dispensing with the requirement of pre-deposit, was bound to record reasons for doing so and to consider the twin concerns of undue hardship to the appellant and protection of public revenue. Reliance on precedents was permissible, but the Tribunal must still articulate why the pre-deposit should be waived in the particular case and impose conditions, if necessary, to protect revenue. Because the Tribunal's order simply noted coverage by a High Court judgment and waived pre-deposit without assigning the requisite reasons or demonstrating consideration of balance of convenience and potential prejudice to revenue, the order was legally infirm.

Tribunal's order waiving pre-deposit set aside for failure to assign reasons and to consider protection of revenue and the established criteria for interim relief.

Remand for fresh decision on stay or appeal - jurisdiction under Section 35G of the Central Excise Act - Direction to the Tribunal to reconsider the stay application or decide the main appeal within a limited time and the interim protection afforded pending fresh orders. - HELD THAT: - The High Court exercised its supervisory jurisdiction under Section 35G only where a substantial question of law arises and without rehearing factual matters. Rather than decide the merits, the Court directed the Tribunal to either hear the stay application afresh or decide the main appeal itself within four weeks from receipt of the order. Pending such fresh decision by the Tribunal, the Court restrained the revenue from taking coercive recovery steps in respect of the disputed duty.

Matter remitted to the Tribunal to decide either the stay application or the main appeal within four weeks; meanwhile the revenue shall not take coercive recovery steps.

Final Conclusion: The Tribunal's unconditional waiver of pre-deposit was set aside for want of reasons and inadequate consideration of revenue protection; the matter is remitted to the Tribunal to decide the stay application or the appeal within four weeks, with an interim restraint on coercive recovery until fresh orders are passed.

Proof of re-warehousing under erstwhile Rule 156B(2) and entitlement to refund under Rule 156A - Duty liability on non-submission of re-warehousing certificates within prescribed period - Requirement of countersignature/endorsement by receiving Central Excise officer on transport documents - Standard of proof and accounting of consignments for exemption from duty

Proof of re-warehousing under erstwhile Rule 156B(2) and entitlement to refund under Rule 156A - Requirement of countersignature/endorsement by receiving Central Excise officer on transport documents - Duty liability on non-submission of re-warehousing certificates within prescribed period - Whether the appellant had furnished the prescribed re-warehousing evidence with necessary endorsements so as to avoid duty liability, and whether the appellate order confirming duty was vitiated - HELD THAT: - Government and the adjudicating authorities examined the remanded records limited to cases where re-warehousing certificates were claimed. The Range verification report and adjudicating authority found that the relevant AR3A/DR-3 documents either were not produced with the required countersignatures by the receiving Central Excise officers or were otherwise not on record. The Additional Commissioner and Commissioner (Appeals) recorded that copies of D-3 submitted by the appellant were not countersigned and therefore could not be accepted as valid proof of re-warehousing; the appellate authority noted the statutory requirement that the re-warehousing certificate be procured and produced to the Central Excise officer, and that delayed production without proper endorsement only permits refund procedures under the Rules if produced in proper form. The applicant did not controvert these factual findings before the Central Government with supporting documentary evidence. In absence of acceptable, properly endorsed proof of receipt/re-warehousing and adequate accountal of the consignments, the authorities were justified in treating the consignments as not duly re-warehoused and in confirming duty. [Paras 9, 10, 11, 12]

Appellate order confirming duty is upheld; the appellant failed to produce the prescribed endorsed re-warehousing proof and is liable to duty as confirmed.

Final Conclusion: Revision application rejected; impugned Order-in-Appeal affirmed as there is no infirmity in the finding that the appellant did not submit prescribed and properly endorsed re-warehousing evidence, and the duty confirmed by the lower authorities is upheld.

Grant of rebate of duty on export - sanction of rebate claim - requirement of original ARE-I and Excise invoice - mandatory compliance of procedural conditions for rebate - conditional notification as part of statute - photocopies not admissible as secondary evidence

Sanction of rebate claim - requirement of original ARE-I and Excise invoice - photocopies not admissible as secondary evidence - mandatory compliance of procedural conditions for rebate - Admissibility of rebate claim where exporter submitted photocopies of ARE-I and Central Excise invoice instead of originals - HELD THAT: - The Central Government examined the statutory scheme under Rule 18 and Notification No. 19/2004-CE (NT) dated 06.09.2004 and the CBEC Basic Excise Manual (Ch.8.3-8.4) which require, inter alia, production and comparison of the original copy of ARE-I and the invoice for sanction of rebate. Non-submission of documents in the prescribed manner imparts invalidity to the rebate claim because, in the absence of original ARE-I duly endorsed by Customs and the triplicate endorsed by Excise, the export of the duty-paid goods cleared from the factory cannot be satisfactorily established. Reliance on judicial authority confirms that benefits under a conditional notification cannot be granted without compliance of the conditions attached thereto and that photocopies, admitted as secondary evidence, are not admissible where comparison with originals is essential. The applicant's reliance on decisions granting relief in cases of reconstructed ARE-Is or where originals were proven to have been lost was distinguished on facts; those decisions involved signed/reconstructed ARE-Is and certificates establishing payment of duty. Applying these legal principles to the record, the Government found no infirmity in the appellate authority's conclusion that photocopies were insufficient and that the rebate claim was rightly held inadmissible. [Paras 9, 10, 11, 13, 14]

Rebate claim based on photocopies of ARE-I and Excise invoice is inadmissible for want of the originals and procedural non-compliance; the order of the Commissioner (Appeals) is upheld.

Final Conclusion: Revision application dismissed; the appellate order upholding rejection of the rebate claim for want of original ARE-I and prescribed documents is affirmed.

Rebate of excise duty on exported goods - effective rate versus general tariff rate - assessee's option to choose beneficial notification - binding nature of CBEC circulars and instructions - assessment for export to mirror home-consumption assessment - satisfaction of rebate sanctioning authority under Notification No. 19/04-CE(NT) - requirement of matching descriptions in ARE-I, excise invoice and shipping bill

Rebate of excise duty on exported goods - effective rate versus general tariff rate - Rebate is admissible only to the extent of duty payable at the effective rate prescribed in the exemption notification and not on the higher general tariff rate actually paid. - HELD THAT: - The Government examined the interplay between Notification No. 2/08-CE (and its amending notifications prescribing the general tariff rate) and Notification No. 4/06-CE (and its amendments prescribing the effective concessional rates). Having regard to CBEC instructions and prior government revision orders on the point, it held that rebate under Rule 18 read with Notification No. 19/04-CE(NT) must be limited to the effective rate specified in the exemption notification. The sanctioning authority must determine rebate on the transaction value ascertained under section 4 and allow rebate only to the extent of duty payable at the effective concessional rate; excess duty paid at the general tariff rate cannot be allowed as rebate but may be dealt with in cenvat credit as appropriate. [Paras 8, 9]

Rebate claim admissible only to the extent of duty paid at the effective rate (4% or 5% as applicable) under Notification No. 4/06-CE as amended, and not on the higher general tariff rate.

Assessee's option to choose beneficial notification - binding nature of CBEC circulars and instructions - assessment for export to mirror home-consumption assessment - An assessee cannot simultaneously avail inconsistent positions under two notifications for different clearances; where CBEC instructions require uniform assessment, the assessee must adopt a consistent notification for all clearances and departmental authorities are bound by Board instructions. - HELD THAT: - The Government noted decisions cited by the applicant establishing that where two exemption notifications co-exist the assessee may choose the more beneficial one. However, it distinguished those precedents as not permitting an assessee to avail both notifications for different clearances in order to obtain an improper advantage. Relying on CBEC instructions (including the Excise Manual para reproduced at 4.1 of Part I, Chapter 8) and Board letters, the Government held that export assessment must be made in the same manner as home-consumption assessment and that departmental authorities must follow Board instructions. Thus an assessee cannot assess export clearances at a higher general tariff rate while assessing home-consumption clearances at a lower effective rate; the choice must be uniform. [Paras 8]

The assessee cannot adopt both notifications selectively; assessment for export must mirror assessment for home consumption and the assessee must choose a consistent position in conformity with CBEC instructions.

Satisfaction of rebate sanctioning authority under Notification No. 19/04-CE(NT) - requirement of matching descriptions in ARE-I, excise invoice and shipping bill - Rebate claim was rightly rejected because of discrepancy in chapter heading/description between ARE-I, excise invoice and shipping bill, and absence of any order effecting the claimed amendment. - HELD THAT: - The applicant admitted the discrepancy in chapter heading and stated an application for amendment was made to customs, but failed to produce any order effecting such amendment despite the passage of more than four years. Under Notification No. 19/04-CE(NT) the rebate sanctioning authority must be satisfied that the claim is in order before sanctioning rebate. Given the admitted mismatch in documents and lack of authoritative correction, the authority was entitled to conclude that the goods shown on the excise documents were not the same as those exported and to reject the rebate claim. [Paras 10]

Rebate rightly rejected on account of mismatch in descriptions in ARE-I/excise invoice and shipping bill and failure to produce amendment order.

Final Conclusion: Revision application dismissed. The claim for rebate is restricted to duty assessable at the effective concessional rate under the exemption notification; the assessee cannot selectively adopt different notifications for different clearances, and the rebate was properly denied due to admitted discrepancies in export documentation and absence of an amendment order.

Interim relief - stay of recovery of disputed tax - prima facie case - balance of convenience - irreparable injury - public interest - undue hardship - interest of Revenue - judicial discretion in grant of stay

Interim relief - prima facie case - balance of convenience - irreparable injury - public interest - judicial discretion in grant of stay - Validity of the interim orders passed by the First Appellate Authority and the Tribunal granting stay of recovery of disputed tax. - HELD THAT: - The Court found that both the First Appellate Authority and the Tribunal failed to apply the settled parameters for interim relief as laid down by the Supreme Court and this Court. The impugned orders contained cryptic recitals and mechanical conclusions (granting 60% stay by the First Appellate Authority and 85% by the Tribunal) without any reasoned application of the principles of prima facie case, balance of convenience, irreparable injury, or consideration of the public interest and interest of Revenue. The Court reiterated authorities (including Dunlop, Benara Valves, Shiv Kumar Chadha, Dalpat Kumar and related decisions) that interim relief affecting public revenue should be granted only after judicial application of mind to these factors, and that routine or cryptic orders granting large stays are objectionable. The Court emphasised that while discretion exists, it must be exercised judicially with disclosure of reasoning and relevant factual analysis (including financial condition, evidence relied upon and whether the demand has 'no legs to stand on' or has been previously adjudicated).

The impugned interim orders of the First Appellate Authority and the Tribunal are set aside for want of proper application of mind and inadequate reasons.

Stay of recovery of disputed tax - undue hardship - interest of Revenue - judicial discretion in grant of stay - Remedial course to be adopted after setting aside the impugned orders and direction for fresh consideration. - HELD THAT: - Having set aside the impugned orders and noting that the First Appellate Authority's orders (which were merged in the Tribunal's orders) suffer from the same defect, the Court declined to remit only to the Tribunal. Instead the Court remanded the matter to the First Appellate Authority to consider the applications for interim relief afresh in accordance with the observations and authorities reiterated in this judgment. The First Appellate Authority is directed to decide the interim applications within thirty days from receipt of certified copy; it is also permitted, as an alternative, to decide the appeals on merits within the same period. To facilitate reconsideration, the Court stayed coercive action against the revisionist for thirty days or until disposal of the interim relief applications.

The matters are remanded to the First Appellate Authority for fresh decision on interim relief within thirty days; no coercive action shall be taken for thirty days or until disposal of the interim applications.

Final Conclusion: The Tribunal's and First Appellate Authority's interim orders granting stays of recovery are set aside for lack of reasoned application of settled principles; the matters are remanded to the First Appellate Authority to decide the applications for interim relief afresh (or to decide the appeals on merits) within thirty days, with a limited bar on coercive action for thirty days or until disposal of those applications.

Definition of inter-state sale under Section 3(a) of the Central Sales Tax Act, 1956 - occurrence of movement of goods as incident of contract determining inter-state character of sale - prohibition on levy of State VAT in respect of inter-state sale - effect of undertaking/promissory estoppel on levy of tax - maintainability of writ under Article 226 when statutory authority acts contrary to settled law

Definition of inter-state sale under Section 3(a) of the Central Sales Tax Act, 1956 - occurrence of movement of goods as incident of contract determining inter-state character of sale - Whether the sale of crude oil produced at Barmer to the Central Government's nominees is an inter-state sale despite the point of sale being in Rajasthan - HELD THAT: - The Court held that a sale is an inter-state sale if it occasions movement of goods from one State to another; such movement may be an express or implied incident of the contract. On the admitted facts the crude oil could not be processed in Rajasthan, the buyers' refineries were outside Rajasthan, the MOU/COSAs expressly prohibited consumption/resale in Rajasthan and mandated transport outside Rajasthan, and the delivery points were fixed by the Central Government outside Rajasthan. The movement of crude from Barmer to refineries in other States was therefore the proximate and inevitable incident of the contract of sale. Reliance on the settled principles laid down by the Apex Court was applied to conclude that the ingredients of an inter-state sale were satisfied notwithstanding that the point of sale or outlet flange at Barmer was referred to in the PSC.

Sale of Barmer crude to the nominees of the Central Government is an inter-state sale.

Prohibition on levy of State VAT in respect of inter-state sale - Whether the Commercial Taxes Department of Rajasthan could levy RVAT on the sales held to be inter-state - HELD THAT: - Because the transactions were inter-state sales, the RVAT Act, 2003 could not be invoked for levy of State VAT; the State, as the originating State, is entitled to levy Central Sales Tax at the applicable rate under the CST regime. The Court recorded that taxation cannot be based on an undertaking or consent contrary to law and Article 265, and therefore Rajasthan had no jurisdiction to levy RVAT on the inter-state sales determined to exist on the facts.

Rajasthan cannot levy RVAT on the Barmer crude sales; CST would be leviable as the originating State.

Effect of undertaking/promissory estoppel on levy of tax - Whether the petitioner's undertaking that the point of sale would be in Rajasthan estops it from claiming that the sales are inter-state and prevents the petitioner from contesting RVAT liability - HELD THAT: - The Court held that the petitioner's communications undertaking that the point of sale would be in Rajasthan did not amount to a waiver or create a basis for levying tax contrary to statute. An undertaking cannot confer power to tax where law prohibits such levy; established authority disallows taxation by consent. The undertaking was considered to be limited to appropriation/point of sale logistics and did not negate the legal character of the sale as occasioning inter-state movement.

The undertaking does not estop the petitioner from asserting that the transactions are inter-state sales and does not validate a levy of RVAT.

Maintainability of writ under Article 226 when statutory authority acts contrary to settled law - Whether the High Court should exercise writ jurisdiction despite availability of alternative statutory appeal under the RVAT Act, 2003 - HELD THAT: - The Court applied established principles that where (i) the challenge is to the jurisdiction of the statutory authority to proceed under a particular tax law, or (ii) the impugned order is alleged to be perverse or contrary to settled law, relief under Article 226 is maintainable notwithstanding an alternative statutory remedy. Given the prolonged pendency, complete pleadings, absence of disputed facts and that the challenge raised a pure legal question about the competence to levy RVAT on inter-state sales, the Court found the writ to be an efficacious and appropriate remedy and that remitting the matter to the statutory appeal would cause undue prolongation.

Writ petition maintainable; petitioner need not be relegated to statutory appeal under Section 83.

Territorial jurisdiction of High Court Bench to entertain challenge to orders passed within its seat - Whether the Jaipur Bench had territorial jurisdiction to entertain the writ petition - HELD THAT: - The impugned determination order was passed by the Additional Commissioner at Jaipur and the challenged departmental letters emanated from the Finance Department at Jaipur. On that basis the Court found the objection to territorial jurisdiction without merit.

Jaipur Bench has territorial jurisdiction to hear the writ petition.

Final Conclusion: The writ petitions were allowed: the Additional Commissioner's determination order, the show-cause notice and the challenged departmental letters were quashed and set aside; the sales of Barmer crude to the Central Government's nominees were held to be inter-state sales and thus not subject to Rajasthan VAT, with CST leviable as the originating State.

Validity of delayed declaration forms - power to allow further time under the proviso to Section 8(4) - proviso to Rule 12(7) inconsistent with proviso to Section 8(4) - power of State authorities under Section 9(2) of the CST Act to exercise functions under State law - remand for fresh consideration

Validity of delayed declaration forms - power to allow further time under the proviso to Section 8(4) - Refusal to accept Form I declarations solely on the ground that they were filed belatedly was unsustainable. - HELD THAT: - The Court followed the Full Bench decision in State of Tamil Nadu v. Arulmurugan, holding that the proviso to Section 8(4) of the Central Sales Tax Act confers on the prescribed authority the statutory discretion to allow further time for filing declaration forms on sufficient cause. The proviso in the statute is dominant over the more restrictive proviso in Rule 12(7), which cannot override the statutory power. Consequently, declarations filed beyond the stage of assessment cannot be rejected merely because they were not filed with the return if the authority, applying the statutory proviso, is satisfied about sufficient cause and accepts them. [Paras 4, 5, 8, 9]

Impugned finding refusing to accept Form I declarations as belated is set aside and the matter remitted for reconsideration.

Power of State authorities under Section 9(2) of the CST Act to exercise functions under State law - remand for fresh consideration - Respondent has authority to invoke Section 84 of the TNVAT Act and to revise assessment under Section 9(2) of the CST Act; matter remitted for fresh exercise of that power after accepting declarations. - HELD THAT: - The Court observed that Section 9(2) of the CST Act is exhaustive and empowers State authorities to exercise functions under the State law for purposes of assessment and recovery under the Central Act. Therefore, upon acceptance of the Form I declarations, the respondent is empowered to proceed to revise the assessment under Section 9(2) read with Section 84 of the TNVAT Act. The writ petition was allowed in part by setting aside the impugned order and remitting the matter for the respondent to accept the declarations and pass fresh revised orders in accordance with law. [Paras 7, 9]

Respondent directed to accept the Form I declarations and to pass revised assessment orders in exercise of powers under Section 9(2) CST Act read with Section 84 of the TNVAT Act; matter remitted for fresh consideration.

Final Conclusion: Writ petition partly allowed: impugned order dated 27.6.2016 set aside; respondent directed to accept Form I declarations produced by the petitioner for assessment year 2014-15 and to reconsider and pass fresh revised orders under Section 9(2) of the CST Act read with Section 84 of the TNVAT Act; matter remitted for fresh consideration; no costs.

Blocking of TIN to deny access for issuance of statutory C Declaration Forms/Way-bills - denial of way-bills as an improper or coercive method of tax recovery - administrative direction to consider representation and pass orders in accordance with law

Blocking of TIN to deny access for issuance of statutory C Declaration Forms/Way-bills - denial of way-bills as an improper or coercive method of tax recovery - Blocking the petitioner's TIN on the Department's website so as to prevent issuance of statutory C Declaration Forms/Way-bills is not a proper method of recovering tax dues. - HELD THAT: - The factual position that the petitioner's TIN was shown as "blocked" and sellers were consequently unable to obtain statutory C Declaration Forms/Way-bills is not disputed. Relying upon the Court's earlier decision in W.P. No. 39097 of 2013 and the principles extracted from the Supreme Court, the Court held that denial of way-bills or withholding statutory documents to compel payment of tax dues is not an appropriate or lawful mode of recovery. Even if tax is due, administrative refusal to supply way-bills by blocking access is not the proper mechanism to enforce payment. The Court therefore found the respondents' action of blocking the TIN to deny access to the online facility for issuing C Declarations/Way-bills to be improper.

The action of the respondents in blocking the petitioner's TIN to deny issuance of C Declaration Forms/Way-bills is not proper and cannot be sustained as a mode of tax recovery.

Administrative direction to consider representation and pass orders in accordance with law - The petitioner's representation dated 05.10.2015 must be considered and appropriate orders passed by the respondents in accordance with law. - HELD THAT: - Given the finding that denial of way-bills by blocking TIN is not the correct method of recovery, the Court directed the respondents to consider the pending representation of the petitioner and pass appropriate orders forthwith in accordance with law. The Court did not decide on the existence or quantum of tax liability or preclude recovery proceedings; it confined its order to requiring administrative consideration and decision on the representation and restoration of lawful access as may be warranted by law.

Respondents are directed to consider the petitioner's representation dated 05.10.2015 and pass appropriate orders thereon forthwith in accordance with law.

Final Conclusion: Writ petition partly allowed: respondents' act of blocking the petitioner's TIN to prevent issuance of statutory C Declaration Forms/Way-bills held improper; respondents directed to consider the petitioner's representation and pass orders in accordance with law; the decision does not preclude initiation or continuance of lawful recovery proceedings for tax dues.