TaxTMI Updates e-Newsletter
Jul 20,2023

Exemption under Notification No. 9/2017 - services by an entity registered under section 12AA/12AB by way of charitable activities - Advancement of religion, spirituality or yoga - scope of 'charitable activities' - Educational institution - definition for exemption (pre-school to higher secondary; recognised qualification; approved vocational course) - Exemption under Notification No. 9/2017 - entry for services provided by an educational institution to its students, faculty and staff

Educational institution - definition for exemption (pre-school to higher secondary; recognised qualification; approved vocational course) - Exemption under Notification No. 9/2017 - entry for services provided by an educational institution to its students, faculty and staff - Education provided by the applicant is exempt under Entry No. 69 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017 - HELD THAT: - Entry No. 69 grants nil rate to services provided by an "educational institution" to its students, faculty and staff. For the purposes of the notification, an "educational institution" is confined to (i) pre-school education and education up to higher secondary school or equivalent, (ii) education as part of a curriculum for obtaining a qualification recognised by law, or (iii) education as part of an approved vocational education course. The applicant's proposal for ISHA Samskriti is a residential gurukul with its own bespoke curriculum, not confined to pre-school or higher secondary education and not shown to form part of a curriculum leading to a recognised qualification or an approved vocational course. Therefore ISHA Samskriti does not fall within the notified definition of "educational institution" and cannot claim exemption under Entry No. 69. [Paras 14]

Not exempt under Entry No. 69 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017.

Exemption under Notification No. 9/2017 - services by an entity registered under section 12AA/12AB by way of charitable activities - Advancement of religion, spirituality or yoga - scope of 'charitable activities' - Services provided by the applicant through ISHA Samskriti are exempt under Entry No. 1 (chapter 99) of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017 as charitable activities relating to advancement of religion, spirituality or yoga - HELD THAT: - Entry No. 1 requires (i) the providing entity to be registered under section 12AA/12AB of the Income-tax Act and (ii) the services to be by way of "charitable activities" as defined in the notification, which expressly includes "advancement of religion, spirituality or yoga." The applicant has established registration under section 12AB. However, the trust deed and the material about ISHA Samskriti show teaching of subjects such as Sanskrit, classical music and dance, Kalaripayattu, yoga and basic arithmetic, and that students may pursue professional careers in arts or teaching. The authority examined whether these activities constitute services relating to advancement of religion or spirituality or yoga. On the facts presented, the activities are taught as educational subjects and the applicant did not demonstrate that the services provided are primarily or inherently for advancement of religion or spirituality. Consequently, the services through ISHA Samskriti do not qualify as "charitable activities" under the notification and the applicant is not entitled to exemption under Entry No. 1. [Paras 11, 12, 13]

Not exempt under Entry No. 1 (chapter 99) of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017; service does not qualify as advancement of religion, spirituality or yoga for the purposes of the notification.

Final Conclusion: The Authority rules that the education/services provided by ISHA Samskriti are neither covered by Entry No. 69 (educational institution) nor by Entry No. 1 (charitable activities relating to advancement of religion, spirituality or yoga) of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017; accordingly no exemption under the said entries is available.

Exemption under Notification No. 12/2017-Central Tax (Rate) - entry 69 - Services by training partner approved by National Skill Development Corporation - Applicability of nil rate of GST to services in relation to a scheme implemented by NSDC

Services by training partner approved by National Skill Development Corporation - Exemption under Notification No. 12/2017-Central Tax (Rate) - entry 69 - The applicant's eligibility for exemption under entry 69 of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 - HELD THAT: - Entry 69 confers exemption for services provided by a training partner approved by NSDC in relation to a scheme implemented by NSDC. The Authority examined whether the applicant satisfied the two conditions prescribed by the entry: (i) approval as a training partner by NSDC and (ii) provision of services in relation to an NSDC-implemented scheme. The applicant produced an NSDC certificate of approval and an agreement evidencing engagement to execute the "Market led Fee-based Services" scheme introduced and implemented by NSDC. On these facts, the Authority held that both conditions in Entry 69 are fulfilled and hence the applicant's services fall within the exemption prescribed by the Notification. [Paras 11, 12]

The applicant is eligible for exemption under entry 69 of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017.

Applicability of nil rate of GST to services in relation to a scheme implemented by NSDC - Exemption under Notification No. 12/2017-Central Tax (Rate) - entry 69 - The applicable rate of GST on services provided by the applicant under the "Market led Fee-based Services" scheme - HELD THAT: - Having held that the applicant qualifies as an NSDC-approved training partner and that the services are provided in relation to an NSDC-implemented scheme, the Authority applied the rate consequence of Entry 69 which prescribes a nil rate for such services. There being no contrary factual or legal impediment on the record, the Authority concluded that the nil rate applies to the services rendered under the specified scheme. [Paras 12, 13]

The applicable GST on the services provided under the "Market led Fee-based Services" scheme is Nil.

Final Conclusion: The Authority rules that the applicant qualifies as an NSDC-approved training partner for the specified scheme and, accordingly, the services provided under the "Market led Fee-based Services" scheme are exempted under Entry 69 of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017, with GST applicability being nil.

Parts of vessels attract concessional rate when supplied for use as parts of goods of Headings 8901-8907 by virtue of entry at Sl. No. 252 of Schedule I - classification of goods by their Customs Tariff Headings determining standard GST rate - warranty replacement without consideration is not a taxable supply - eligibility to claim input tax credit where output supplies are taxable (not exempt) - Cutlass Rubber Bush classifiable as an article of vulcanised rubber under Heading 4016 99 60

Parts of vessels attract concessional rate when supplied for use as parts of goods of Headings 8901-8907 by virtue of entry at Sl. No. 252 of Schedule I - classification of goods by their Customs Tariff Headings determining standard GST rate - Whether marine propellers, stem tube set, rudder set, SS propeller shaft and MS shaft are taxable at 5% when supplied for use as parts of vessels falling under Headings 8901, 8902, 8904, 8905, 8906 or 8907, and the applicable rate if supplied otherwise. - HELD THAT: - The Authority found that although the goods are classifiable under their respective Customs Tariff Headings (for example, propellers under 8487; rudders under 7325; tubes under 7304; stainless and other shafts under 7222/7215) and attract GST at the standard rates specified in Schedule III, the concessional entry at Sl. No. 252 of Schedule I applies to parts of goods of Headings 8901, 8902, 8904, 8905, 8906 and 8907 irrespective of the chapter under which those parts are classified. The CBIC clarification in Circular No. 52/26/2018 confirms that marine engines and other parts falling under any chapter, when supplied as parts of fishing or other vessels covered by those headings, attract GST at 5% by virtue of Sl. No. 252. Consequently, when the listed goods are supplied for use as parts of vessels of Headings 8901-8907 they attract the concessional rate; if supplied for other uses, the GST rate applicable to their respective tariff classification applies. [Paras 7]

Marine propellers, stem tube set, rudder set, SS propeller shaft and MS shaft supplied for use as parts of goods of Headings 8901, 8902, 8904, 8905, 8906 or 8907 attract GST at 5%; otherwise, they attract the rate applicable to the Customs Tariff Heading in which they are classified.

Parts of vessels attract concessional rate when supplied for use as parts of goods of Headings 8901-8907 by virtue of entry at Sl. No. 252 of Schedule I - Whether all parts of fishing/floating vessels (HSN 8902) fall under Sl. No. 252 of Schedule I or Sl. No. 371 of Schedule III. - HELD THAT: - The Authority reiterated that goods falling under any chapter, when supplied for use as parts of fishing or floating vessels classifiable under HSN 8902, are taxable at 5% as per Sl. No. 252 of Schedule I. Thus, such parts do not fall under the standard Schedule III entries (such as Sl. No. 371) when they are supplied as parts of vessels covered by the relevant Chapter 89 headings; the concessional entry in Schedule I takes precedence for parts supplied for that use. [Paras 7]

Goods when supplied for use as parts of fishing/floating vessels under HSN 8902 attract GST at 5% under Sl. No. 252 of Schedule I, not under Sl. No. 371 of Schedule III.

Warranty replacement without consideration is not a taxable supply - Whether replacement of parts without consideration during the warranty period constitutes a supply taxable under GST. - HELD THAT: - The Authority explained that a warranty is an obligation forming part of the original supply and the consideration for the original supply includes the promise to repair or replace during the warranty period. Replacement made without separate consideration in fulfilment of the warranty obligation is incidental to the original supply and therefore not a taxable supply. If any additional consideration is received for such replacement, that receipt would be taxable at the applicable rate for the goods. [Paras 7]

Replacement of parts without consideration under warranty is not liable to GST; additional consideration for such replacement, if received, is taxable.

Eligibility to claim input tax credit where output supplies are taxable (not exempt) - Whether the applicant is eligible to avail input tax credit on purchases of raw materials when the manufactured products are taxable at the concessional rate of 5%. - HELD THAT: - The Authority held that because the applicant's output supplies are taxable supplies (albeit at a lower rate) and not exempt supplies, the applicant is entitled to claim input tax credit on inputs, input services and capital goods subject to the conditions and restrictions in Sections 16, 17 and 18 of the CGST Act and the relevant rules. The concessional nature of the output rate does not by itself disqualify ITC entitlement. [Paras 7]

The applicant is eligible to avail input tax credit on purchases subject to the conditions and limitations of the CGST Act and rules.

Cutlass Rubber Bush classifiable as an article of vulcanised rubber under Heading 4016 99 60 - parts of vessels attract concessional rate when supplied for use as parts of goods of Headings 8901-8907 by virtue of entry at Sl. No. 252 of Schedule I - The Customs Tariff classification and applicable GST rate for Cutlass Rubber Bush. - HELD THAT: - The Authority found that Cutlass Rubber Bush is an article of vulcanised rubber and is classifiable under Heading 4016 of the Customs Tariff; specifically 4016 99 60 pertains to rubber bushes. Under its general classification the item attracts the standard rate set out in Schedule III (18%). However, consistent with Sl. No. 252 of Schedule I, if the Cutlass Rubber Bush is supplied for use as a part of goods of Heading 8901, 8902, 8904, 8905, 8906 or 8907 it will attract the concessional rate of 5%. [Paras 7]

Cutlass Rubber Bush is classifiable under Heading 4016 99 60 and is taxable at the standard rate (18%) unless supplied as a part of vessels under Headings 8901-8907, in which case it attracts 5% under Sl. No. 252 of Schedule I.

Final Conclusion: The Authority ruled that the listed marine parts attract GST at 5% when supplied for use as parts of vessels of Headings 8901-8907 by virtue of Sl. No. 252 of Schedule I; warranty replacements without consideration are not taxable; the applicant may claim input tax credit as its outputs are taxable supplies; and Cutlass Rubber Bush is classifiable under Heading 4016 99 60, taxable at 18% unless supplied as a vessel part attracting 5%.

Deduction under Section 80IA(4)(iii) - Eligibility of an industrial park based on Central Government/Empowered Committee approval - Limited role of the Assessing Officer where Central Ministry approval exists - Admissibility of additional evidence by appellate authority under sub section (4) of Section 250

Deduction under Section 80IA(4)(iii) - Eligibility of an industrial park based on Central Government/Empowered Committee approval - Limited role of the Assessing Officer where Central Ministry approval exists - Claim for deduction under Section 80IA(4)(iii) was allowable to the assessee for the impugned assessment years. - HELD THAT: - The Court found that the assessee satisfied the conditions of Section 80IA(4)(iii) - development and operation of an industrial park notified by the Central Government in accordance with the notified scheme. The Industrial Park Scheme and the Central Ministry's approval process constitute a self contained code; once the competent Central authority (the Empowered Committee) granted approval (effective from the date of the original application), the Assessing Officer's role is limited and he is bound to allow the deduction subject to routine verification (such as audit report, single source of eligible business, and reworking of connected party transactions). The earlier rejection based on an erroneous State Government report and the impounded letter discovered during survey were superseded by the Empowered Committee's reconsideration and approval dated 11th June 2012, which the Tribunal and this Court accepted as validating the assessee's entitlement to deduction. [Paras 12, 13, 14, 16, 17]

The claim for deduction under Section 80IA(4)(iii) is allowable as the assessee fulfilled statutory conditions and obtained the Central authority's approval; the Assessing Officer was not justified in disallowing the deduction based on the earlier impugned letter and survey statement.

Admissibility of additional evidence by appellate authority under sub section (4) of Section 250 - The CIT(A) was entitled to admit the letter of approval dated 11th June 2012 as additional evidence and to forward it to the AO for rebuttal. - HELD THAT: - The Court held that sub section (4) of Section 250 conferred power on the Commissioner (Appeals) to accept additional evidence which was not available to the Assessing Officer at the time of the assessment order. The Empowered Committee's approval, produced before the CIT(A) and not in existence at the assessment stage, was therefore admissible and material to decide the assessee's entitlement to deduction under the scheme; admission of that evidence and consequent consideration was proper and justified the appellate authority's decision. [Paras 15]

The CIT(A) properly admitted and considered the additional evidence (the Empowered Committee's approval) under Section 250(4), a course upheld by the Tribunal and this Court.

Final Conclusion: The Appeals are dismissed; the ITAT's decision upholding the allowance of deduction under Section 80IA(4)(iii) (and the CIT(A)'s admission of the Empowered Committee's approval as additional evidence) is affirmed.

Principles of natural justice - assessment under Section 153C read with Section 144 - notice under Section 142(1) - opportunity to file return and to furnish documents - consequential demand notice under Section 156 - remand for fresh exercise from stage of Section 142(1) notice

Principles of natural justice - assessment under Section 153C read with Section 144 - notice under Section 142(1) - opportunity to file return and to furnish documents - Impugned assessment orders dated 28.03.2023 annulled for breach of principles of natural justice by not affording adequate time/opportunity to the petitioner to file returns and furnish documents. - HELD THAT: - The petitioner was served notices under Section 153C granting 30 days to file returns but was thereafter served notices under Section 142(1) requiring production of documents within two days. The Assessing Officer did not grant the extension sought by the petitioner and proceeded to pass assessment orders dated 28.03.2023. The short two day timeframe to collate documents for six assessment years, despite the earlier 30 day period under Section 153C, was impractical and resulted in denial of a meaningful opportunity to be heard. For these reasons the assessments, being vitiated for breach of principles of natural justice, are set aside. [Paras 8, 9, 11, 13, 14]

Assessment orders dated 28.03.2023 set aside for failure to afford adequate opportunity; consequential demand notices collapse.

Remand for fresh exercise from stage of Section 142(1) notice - opportunity to file return and to furnish documents - personal hearing - Matter remitted to the Assessing Officer to proceed afresh from the stage at which the notices under Section 142(1) were issued, with directions to provide outstanding material and to afford personal hearing. - HELD THAT: - The Court declined to quash the Section 142(1) notices themselves and granted the AO liberty to recommence the assessment process from the point when those notices were issued. The petitioner is directed to respond and furnish the relevant information within three weeks. The AO is directed to supply to the petitioner any material in the AO's possession that had not been previously furnished, and to issue notice for and grant a personal hearing to the petitioner's authorised representative before proceeding further. [Paras 15, 16]

Proceedings remitted to the AO from the stage of the Section 142(1) notices with timelines: petitioner to respond within three weeks; AO to furnish outstanding material and grant personal hearing.

Final Conclusion: Writ petitions allowed in part: impugned assessment orders of 28.03.2023 set aside for breach of natural justice; consequential demands collapse; matter remitted to the Assessing Officer to proceed afresh from issuance of the Section 142(1) notices subject to directions to furnish outstanding material, afford personal hearing and for the petitioner to respond within three weeks.

Disallowance of related-party warehouse rent as excessive payment under 40A(2)(b) - genuineness of repairs and maintenance expenditure - disallowance of interest under section 36(1)(iii) - concurrent findings of fact by appellate authorities not to be interfered with

Disallowance of related-party warehouse rent as excessive payment under 40A(2)(b) - concurrent findings of fact by appellate authorities not to be interfered with - Deletion of the addition of Rs.2,86,59,222/- made by the Assessing Officer in respect of warehouse rent expenses was upheld. - HELD THAT: - The Tribunal and the Commissioner (Appeals) examined the documentary material including bills, invoices, payment details and bank cheques as well as evidence that the recipient had paid tax. The appellate authorities found that the assessee had furnished details of the payments and corresponding receipts which rebutted the AO's view of excessive related-party payment. Those conclusions were concurrent findings of fact based on appreciation of the record, and the High Court held that such findings did not warrant interference. [Paras 5, 6]

Addition in respect of warehouse rent deleted; the concurrent factual findings of the appellate authorities are sustained.

Genuineness of repairs and maintenance expenditure - concurrent findings of fact by appellate authorities not to be interfered with - Deletion of the addition of Rs.18,10,538/- made by the Assessing Officer on account of repairs and maintenance was upheld. - HELD THAT: - The CIT(A) accepted the assessee's explanation and examined the supplier's account, bills dated 01.03.2010 and 11.03.2010, evidence of payments after TDS deduction and confirmations obtained under section 133(6). The Tribunal concurred that the AO had ignored these materials. The High Court held that these are factual findings based on record appreciation and are not liable to interference. [Paras 5, 6]

Addition in respect of repairs and maintenance deleted; appellate findings on genuineness sustained.

Disallowance of interest under section 36(1)(iii) - concurrent findings of fact by appellate authorities not to be interfered with - Deletion of the addition of Rs.4,84,052/- made by the Assessing Officer under section 36(1)(iii) in respect of interest expenses was upheld. - HELD THAT: - The CIT(A) and the Tribunal found that the AO had not made out a case, on facts or law, to invoke disallowance under section 36(1)(iii). The appellate authorities relied on the material on record and relevant precedents in reaching their conclusion. The High Court treated these as concurrent factual and legal-applicative findings and declined to interfere. [Paras 5, 6]

Addition in respect of interest expenses deleted; appellate conclusions affirmed.

Final Conclusion: All three additions made by the Assessing Officer were deleted by the CIT(A) and confirmed by the Tribunal on appreciation of the record; the High Court finds no substantial question of law and dismisses the appeal, upholding the concurrent factual findings in favour of the assessee.

Base year for indexation - indexation benefit - date of acquisition for inherited property under settlement - capital gains computation - binding precedent of jurisdictional High Court

Base year for indexation - indexation benefit - date of acquisition for inherited property under settlement - binding precedent of jurisdictional High Court - Indexation of cost for computation of capital gains was to be allowed from the earlier base year relied upon by the assessee in accordance with binding decision of the Madras High Court, rather than only from the date of settlement as held by the Assessing Officer. - HELD THAT: - The Assessing Officer treated the date of acquisition as the date of the settlement deed and restricted indexation to financial year 2014-15. The assessee relied on the decision of the Hon'ble High Court of Madras in CIT vs Saroja Naidu to claim indexation from financial year 2001-02. The Commissioner (Appeals) accepted the assessee's claim in terms of that jurisdictional precedent. The Tribunal examined the impugned order and found that the adjudication followed a binding judicial precedent of the jurisdictional High Court and that the revenue did not controvert this position. On that basis the Tribunal upheld the view of the lower authority allowing indexation from the earlier base year relied upon by the assessee.

The impugned order allowing indexation from financial year 2001-02 in accordance with the Madras High Court precedent is upheld and the revenue's appeal is dismissed.

Final Conclusion: Revenue's appeal dismissed; the Tribunal upheld the lower authorities' allowance of indexation from the earlier base year relied upon by the assessee in conformity with the binding Madras High Court decision.

Bogus purchases - addition of profit element embedded in disputed purchases - accommodation entries - commission for arranging accommodation entries - reopening under reason to believe that income has escaped assessment

Bogus purchases - addition of profit element embedded in disputed purchases - Extent of addition where purchases recorded in books are held to be bogus - HELD THAT: - The Tribunal accepted that the impugned purchases formed part of the total sales accepted by the Assessing Officer. Applying the principle that, even if purchases are held to be accommodation or bogus, only the profit element attributable to such purchases can be added, the Tribunal followed the decision relied upon by the parties and the coordinate bench practice. The net profit rate shown by the assessee was 7.50%; accordingly the addition was restricted to 7.50% of the alleged bogus purchases and the balance amount held to be not exigible for taxation. [Paras 11]

Addition restricted to 7.50% of the alleged bogus purchases; remaining addition deleted.

Accommodation entries - commission for arranging accommodation entries - Validity of separate addition by applying presumed commission for accommodation entries - HELD THAT: - The AO made a further addition on the presumption that a commission was paid for obtaining accommodation entries. The Tribunal held that such presumed commission has been subsumed within the restricted addition representing the profit element of the alleged bogus purchases and therefore the separate commission addition is unnecessary and must be deleted. [Paras 12]

Addition by way of presumed commission deleted as subsumed in the profit-element addition.

Reopening under reason to believe that income has escaped assessment - Challenge to reopening of assessment under notice proceedings - HELD THAT: - The assessee did not press the grounds challenging the reopening before the Tribunal. The Tribunal recorded that those grounds were not pressed and dismissed them on that basis without deciding the reopening issue on merits. [Paras 13]

Grounds challenging reopening dismissed as not pressed.

Final Conclusion: The appeal is partly allowed: the addition is limited to the profit element at the net profit rate of 7.50% of the alleged bogus purchases and the separate commission addition is deleted; grounds challenging reopening were dismissed as not pressed.

Agricultural land exemption from capital gains - distance from municipal limits test for classification of land - reliance on revenue and municipal certificates to determine situs of land - remand for fresh verification and reconsideration

Distance from municipal limits test for classification of land - reliance on revenue and municipal certificates to determine situs of land - remand for fresh verification and reconsideration - Whether the disputed land in S.No.82/1 to 82/3, Dwarapudi Village falls within the municipal limits of Vizianagaram and therefore gives rise to capital gains liability, or is outside municipal limits qualifying as agricultural land for exemption - HELD THAT: - The Tribunal noted conflicting records: a Tehsildar certificate asserting the lands are agricultural and situated beyond 8 km of Vizianagaram municipal limits and an endorsement from the Commissioner, Vizianagaram Municipality indicating the village was not included during merger yet producing ambiguity as to the exact situs. The Assessing Officer treated the land as within municipal limits and brought long term capital gains to tax. Because the material on record produced inconsistent and ambiguous certificates from revenue and municipal authorities, the Tribunal did not decide the question on merits but directed that the Assessing Officer be required to re ascertain the true position on whether the land lies within 8 kilometres of the municipal limits and thereafter to pass appropriate orders, thereby remitting the matter for fresh verification and adjudication. [Paras 7]

Matter remitted to the Assessing Officer to re ascertain whether the land is within 8 kilometres of Vizianagaram municipal limits and to pass fresh orders accordingly.

Final Conclusion: The appeal is allowed for statistical purposes and the question whether the land is within 8 kilometres of Vizianagaram municipal limits (and hence liable to capital gains) is remitted to the Assessing Officer for fresh verification and appropriate orders.

Arm's Length Price - Transfer Pricing - Comparable selection - Functions, Assets and Risks (FAR) analysis - TNMM (Transactional Net Margin Method) - Methodology for computation of Arm's Length Price under Rule 10B - Export incentives as operating revenue - Consistency in selection of comparables

Comparable selection - Functions, Assets and Risks (FAR) analysis - Consistency in selection of comparables - Appropriateness of including Bommidala Ventures Pvt Ltd and Premier Tobacco Packers Pvt Ltd and exclusion of DTE Exports Pvt Ltd as comparables for benchmarking international transactions. - HELD THAT: - The Tribunal applied the FAR analysis and found Bommidala Ventures Pvt Ltd to be functionally dissimilar to the assessee because of the marked difference in assets employed (plant & machinery) - the assessee having substantially higher asset base than BVPL - and accordingly directed exclusion of BVPL from the final set of comparables. The Tribunal observed inconsistency in the TPO/DRP approach in relation to export-intensity filters: DTE Exports Pvt Ltd was excluded for having only an insignificant share of exports while Premier Tobacco Packers (which had no export turnover) was retained without application of a consistent export filter. Finding this to be contrary to Rule 10B(2)(d) and principles of consistency, the Tribunal directed exclusion of Premier Tobacco Packers Pvt Ltd. As DTE Exports had already been excluded by the DRP on the ground of insignificant export turnover, the Tribunal confirmed that exclusion in the interest of consistency. [Paras 12, 13]

BVPL excluded as comparable; Premier Tobacco Packers Pvt Ltd excluded as comparable; exclusion of DTE Exports Pvt Ltd confirmed.

Export incentives as operating revenue - Methodology for computation of Arm's Length Price under Rule 10B - TNMM (Transactional Net Margin Method) - Whether export incentives should be treated as operating income for computation of Profit Level Indicator (PLI) under TNMM and Rule 10B. - HELD THAT: - Applying Rule 10B and the TNMM adopted by the assessee, the Tribunal held that net profit margin computation must consider total income and expenditure of the business. The Tribunal noted the general principle that subsidies and export incentives are factored into exporters' pricing and relied on precedent treating export incentives as operating revenue while computing operating margins. The Goodyear decision relied on by Revenue was distinguished on facts (there incentives had been reduced from cost of goods sold and were not accrued at the time of sale). On these bases the Tribunal directed that export incentives be treated as operating income for computing the PLI and ALP. [Paras 14]

Export incentives to be treated as operating income while computing PLI/ALP; TPO/AO to recast computation accordingly.

Final Conclusion: Appeal partly allowed: the Tribunal directed exclusion of Bommidala Ventures Pvt Ltd and Premier Tobacco Packers Pvt Ltd from the comparable set, confirmed exclusion of DTE Exports Pvt Ltd, and held that export incentives are operating income for PLI computation; TPO/AO directed to recompute ALP accordingly.

Revisional jurisdiction under Explanation 2 to section 263 - order passed without making inquiries or verification - Validity of reassessment initiation under section 147 based on information from Investigation Wing - Summarily accepting assessee's explanation renders assessment erroneous and prejudicial to revenue - Requirement to verify genuineness and creditworthiness of investor/paper company - Principles of natural justice in revisional proceedings

Revisional jurisdiction under Explanation 2 to section 263 - order passed without making inquiries or verification - Summarily accepting assessee's explanation renders assessment erroneous and prejudicial to revenue - Requirement to verify genuineness and creditworthiness of investor/paper company - Sustainability of the Principal Commissioner's exercise of jurisdiction under section 263 in setting aside the reassessment for A.Y.2010-11 on the ground that the AO failed to make requisite verifications regarding receipt of share capital of Rs.21.20 lac from M/s Cherry Vintrade Pvt. Ltd. - HELD THAT: - The Tribunal examined the assessment record and the reasons for reopening and agreed with the Pr. CIT that the AO, despite specific information from the Investigation Wing identifying the investor as a paper/shell company and indicating that the credited funds were for layering, did not carry out basic enquiries to verify the existence, creditworthiness or genuineness of the transaction. The AO accepted the assessee's assertion of sale of investments without obtaining contract notes, details of shares, confirmations or other supporting documents, and did not probe large bank deposits and withdrawals in the assessee's account. Failure by the AO to make adequate and comprehensive enquiries on the very issue which formed the basis for reopening rendered the assessment order erroneous in so far as it was prejudicial to the revenue within the ambit of Explanation 2 to section 263. The Tribunal relied on the principle that summary acceptance of accommodation entries from identified paper concerns without verification warrants exercise of revisional jurisdiction. [Paras 10, 13]

Concur with Pr. CIT; the assessment order for A.Y.2010-11 is erroneous and prejudicial for want of required verification and is set aside for fresh adjudication after affording the assessee a reasonable opportunity of being heard.

Validity of reassessment initiation under section 147 based on information from Investigation Wing - Revisional jurisdiction under Explanation 2 to section 263 - order passed without making inquiries or verification - Whether reopening of assessment under section 147 was invalid because it was based on non-descript information; and whether a reassessment founded on such information precludes subsequent proceedings under section 263. - HELD THAT: - The Tribunal reviewed the 'reasons to believe' relied upon by the AO, which included specific information from the Dy. DIT (Investigation Wing) that the investor company was an identified paper/bogus/shell company with dummy directors and that the funds credited had no business rationale and were for layering. The Tribunal found that the AO had sufficient material to form a bona fide belief that income chargeable to tax had escaped assessment. Consequently, the contention that reopening under section 147 was founded on non-descript information was rejected. Given the validity of the reopening, the reassessment order could properly be examined under section 263 for adequacy of inquiries. [Paras 11, 12]

Reopening under section 147 was valid; the challenge to reassessment as based on non-descript information is rejected.

Revisional jurisdiction under Explanation 2 to section 263 - order passed without making inquiries or verification - Summarily accepting assessee's explanation renders assessment erroneous and prejudicial to revenue - Applicability of the findings in respect of A.Y.2010-11 to A.Y.2011-12 where a similar failure to verify genuineness of receipt of investment (Rs.25 lac) was alleged. - HELD THAT: - The factual matrix for A.Y.2011-12 mirrored that of A.Y.2010-11: reopening on the basis of information from the Investigation Wing, and the AO's alleged failure to verify the genuineness and creditworthiness of the investor and the investment. The Tribunal applied the reasoning adopted for A.Y.2010-11 mutatis mutandis, holding that non-application of mind by the AO on issues forming the basis for reopening rendered the assessment order amenable to revision under section 263. [Paras 15, 16]

Order of the Pr. CIT under section 263 in respect of A.Y.2011-12 upheld; appeal dismissed.

Final Conclusion: Both appeals for A.Y.2010-11 and A.Y.2011-12 are dismissed; the Tribunal upholds the Principal Commissioner's exercise of revisional jurisdiction under Explanation 2 to section 263 and affirms setting aside of the respective assessment orders for fresh adjudication after affording the assessee opportunity of being heard.

Reopening of assessment and 'reasons to believe' requirement under section 147 - validity of prior approval for reassessment under section 151(1) - bonafide belief based on departmental material (Individual Transaction Statement) for initiating reassessment - treatment of bank cash deposits as unexplained cash credit under section 68

Reopening of assessment and 'reasons to believe' requirement under section 147 - bonafide belief based on departmental material (Individual Transaction Statement) for initiating reassessment - Validity of reopening the assessment proceedings initiated under section 147/148 on the basis of information about cash deposits in the assessee's bank account. - HELD THAT: - The Tribunal held that the Assessing Officer acted upon the Individual Transaction Statement (ITS) showing cash deposits of Rs. 20.03 lakhs and thereby had sufficient material to form a bonafide belief that income chargeable to tax had escaped assessment. Reliance on the principle that at the stage of reopening the sufficiency or correctness of the material cannot be gone into (as explained in Raymond) led to the conclusion that the A.O.'s reliance on ITS satisfied the statutory threshold for issuing notice under section 148 and proceeding under section 147. The assessee's contention that the ITS figure was factually incorrect (claimed actual deposits lower) did not vitiate the reopening since the A.O. had documentary material before him to form the requisite belief. [Paras 11, 12, 13]

Reopening under section 147/148 was valid and the challenge to the reopening on the basis of alleged incorrect factual foundation was dismissed.

Validity of prior approval for reassessment under section 151(1) - reopening of assessment and 'reasons to believe' requirement under section 147 - Validity of the approval granted by the Principal CIT under section 151(1) for assuming jurisdiction to reopen the assessment. - HELD THAT: - The Tribunal rejected the assessee's submission that the Principal CIT's approval was granted mechanically and without application of mind because the Assessing Officer had acted on the ITS and had material to form a bonafide belief. In consequence, the approval under section 151(1) was treated as sustaining the reopening since the underlying 'reasons to believe' were founded on available material. The Tribunal thereby found no infirmity in the approval given the limited scope of review at the reopening stage. [Paras 11, 12, 13]

Approval under section 151(1) was not vitiated and the challenge thereto was dismissed.

Treatment of bank cash deposits as unexplained cash credit under section 68 - Whether cash deposits in the assessee's bank account could be treated as unexplained cash credit under section 68 and added to income. - HELD THAT: - On the merits, the Tribunal examined the assessee's claim that cash deposits were sourced from 'Meher' received at marriage, withdrawals and past savings. The Tribunal observed that the assessee had not satisfactorily established a direct nexus showing that specific cash withdrawals were redeposited; however, it accepted that the assessee would have had some cash in hand from withdrawals and past savings. Concluding that part of the deposits could reasonably be accounted for from available cash, the Tribunal allowed reduction of the addition to the extent of Rs. 1,00,000 as representing cash availability from past savings and withdrawals. The balance of the addition remained unexplained and sustained by the assessing authority. [Paras 14]

Addition under section 68 partly vacated to the extent of Rs. 1,00,000; the remaining addition upheld.

Final Conclusion: The appeal is partly allowed: the reassessment under section 147/148 and the approval under section 151(1) are upheld; on merits the unexplained cash-credit addition is reduced by Rs. 1,00,000 and the remainder of the addition is sustained.

Principles of natural justice - cross-examination of third-party witnesses - reliance on third-party statements and investigation reports - preponderance of probabilities - burden of proof under section 68 - weight of SEBI final order - allowance of exemption under section 10(38)

Principles of natural justice - cross-examination of third-party witnesses - reliance on third-party statements and investigation reports - Assessing Officer's failure to supply statements of third parties and to afford opportunity for cross-examination rendered the assessment vitiated. - HELD THAT: - Tribunal found that the Assessing Officer relied heavily on statements and an investigation report gathered behind the assessee's back but did not supply those materials nor allow cross-examination, contrary to the duty under the procedure and settled jurisprudence. The Tribunal reviewed authority that cross-examination is necessary where additions rest on incriminating third party statements and held that adverse material gathered through investigation cannot be used against the assessee unless confronted and a reasonable opportunity to rebut or cross-examine is given. Applying these principles to the facts, the Tribunal concluded there was a violation of natural justice in all four appeals. [Paras 19, 20, 21, 23, 34]

Assessments vitiated for failure to provide statements and opportunity of cross-examination; additions set aside on this legal ground.

Preponderance of probabilities - burden of proof under section 68 - reliance on third-party statements and investigation reports - Whether additions treating claimed STCL/LTCG as bogus were sustainable on merits where they were based primarily on preponderance of probabilities and third party statements. - HELD THAT: - The Tribunal examined the factual matrix of each case. For Gateway Financial Services Ltd. (claiming STCL) the Tribunal found purchases and sales on recognised exchanges, settlement through banking channels and no direct evidence tying the assessee to promoters or entry operators; in those circumstances and having regard to earlier Tribunal precedent on similar facts, the claimed loss was held to be a genuine business loss. For the three trusts/individuals claiming LTCG exemption, the Tribunal found that where the Revenue's case rested largely on circumstantial inferences and third party statements, the absence of direct evidence and the other considerations noted (including procedural defects and later findings) undermined the additions. Overall, additions based on mere preponderance of probability without direct corroborative material were unsustainable in the present appeals. [Paras 36, 38, 42, 44, 45]

Impugned additions treating STCL/LTCG as bogus deleted; appeals allowed on merits or in view of infirmities in the material relied upon.

Weight of SEBI final order - reliance on third-party statements and investigation reports - preponderance of probabilities - Extent to which SEBI's final order exonerating certain entities in the Radford Global investigation affected the validity of Income tax additions. - HELD THAT: - The Tribunal noted that SEBI conducted a detailed investigation into Radford Global Ltd. and, by its final order, revoked interim directions against a batch of entities (including the assessees before the Tribunal) after concluding the charges were not established on a preponderance of probabilities. The Tribunal held that where SEBI-being the market regulator-after full inquiry found no established manipulation as against these noticees, that finding significantly undercuts the Revenue's case which relied chiefly on investigation reports and third party statements. On the facts, the SEBI final order materially weakened the preponderance based inference of manipulation and contributed to the deletion of additions. [Paras 22, 40, 41, 42]

SEBI's final order exonerating the listed entities was a material factor; it diminished the probative value of the Revenue's investigation-based case and supported deletion of the additions.

Final Conclusion: All four appeals for AY 2014-2015 are allowed: the Tribunal held that Assessing Officers relied on third party statements and investigation material without supplying them or permitting cross examination (breach of natural justice), and that additions treating claimed STCL/LTCG as bogus were unsustainable on the facts-particularly in light of absence of direct evidence and the SEBI final order exonerating the entities involved; accordingly the impugned additions are deleted.

Unexplained cash credits - Section 68 - burden of proof on assessee to explain nature and source of credits - Requirement of PAN/KYC for high value cash sales - Specified Bank Notes/Demonetisation not determinative of genuineness of transactions

Unexplained cash credits - Section 68 - burden of proof on assessee to explain nature and source of credits - Requirement of PAN/KYC for high value cash sales - Deletion of addition of Rs. 1,76,35,114/- treated as unexplained cash credit was upheld. - HELD THAT: - The Tribunal found that the assessee produced cash memos, stock registers and cash books showing sales from 01.11.2016 to 08.11.2016; bills contained complete addresses and PANs and copies of PAN cards were placed on record. The reduction in stock was recorded on the dates of sale and the gross profit was not shown to be abnormal. On these facts the assessee discharged the evidential onus required to explain the nature and source of the cash credits, and therefore the additions could not be sustained. The Tribunal further observed that the fact of transactions occurring around demonetisation or the lapse of specified bank notes does not, by itself, render sales bogus where documentary evidence and KYC are produced and no independent inquiry by the AO (for example summons under section 131 or inquiry under section 133(6)) was made to test the customers' veracity. Reliance on coordinate bench decisions dealing with similar facts reinforced the conclusion that the AO's action in treating these sales as bogus was not justified. [Paras 8, 13]

Order of the CIT(A) deleting the addition of Rs. 1,76,35,114/- is confirmed.

Unexplained cash credits - Section 68 - burden of proof on assessee to explain nature and source of credits - Specified Bank Notes/Demonetisation not determinative of genuineness of transactions - Addition of Rs. 33,29,886/- held as unexplained cash credit was deleted (assessees' appeal on that addition allowed). - HELD THAT: - Although the AO sustained this portion of addition by treating certain transactions as implausible (including instances of purchases recorded at both Surat and Mumbai on the same day), the Tribunal recorded that only three of seven instances involved same day purchases at both branches and that it was not improbable given the travel time between cities. The assessee had furnished PANs, addresses and supporting bills for these transactions; the AO did not pursue inquiries from the customers. In absence of inquiries or demonstration of abnormality in profit or books, the documentary evidence and matching stock entries were held sufficient to discharge the assessee's burden under section 68. Consequently the Tribunal reversed the CIT(A)'s confirmation and directed deletion of the addition. [Paras 8, 13]

Addition of Rs. 33,29,886/- confirmed by the CIT(A) is set aside and the amount is deleted.

Final Conclusion: The cross appeals are disposed of by confirming deletion of the larger addition and directing deletion of the remaining addition; the revenue's appeal is dismissed and the assessee's appeal is partly allowed, following documentary evidence, stock records, PAN/KYC production and absence of independent inquiries by the AO.

Deduction under section 80P(2)(d) for interest or dividend derived from investments with another co-operative society - Scope and effect of proviso in section 80P(4) excluding co-operative banks licensed by the Reserve Bank of India - Entitlement of a co-operative housing society to deduction under section 80P(2)(d)

Deduction under section 80P(2)(d) for interest or dividend derived from investments with another co-operative society - Scope and effect of proviso in section 80P(4) excluding co-operative banks licensed by the Reserve Bank of India - Entitlement of a co-operative housing society to deduction under section 80P(2)(d) - Deduction under section 80P(2)(d) is allowable to the assessee in respect of interest earned on deposits with co-operative banks. - HELD THAT: - The Tribunal observed that section 80P(2)(d) allows deduction where a co-operative society earns income by way of interest or dividend from investments with any other co-operative society; the assessee, a co-operative housing society, satisfied both conditions by earning interest on deposits with co-operative banks. The Assessing Officer denied the deduction relying on section 80P(4), but the Tribunal followed the Supreme Court's interpretation in Mavilayi Service Co-operative Bank Ltd. v. CIT that section 80P(4) operates as a limited proviso excluding only those co-operative banks which are co-operative societies carrying on banking business under an RBI licence (i.e., functioning at par with commercial banks) and is relevant when a co-operative bank itself claims deduction under section 80P. The Tribunal held that the proviso in section 80P(4) did not operate to deny a co-operative society (here, a housing society) the deduction for interest received from co-operative banks. The Tribunal further relied on consistent coordinate-bench decisions, including its own earlier orders in the assessee's cases, in support of allowing the deduction. Applying these principles to the facts, the Tribunal found no infirmity in the CIT(A)'s deletion of the addition and dismissed the Revenue's grounds. [Paras 8, 9, 10, 11, 12]

The disallowance of deduction under section 80P(2)(d) in respect of interest from deposits with co-operative banks is reversed and the deduction allowed.

Final Conclusion: The Revenue's appeal is dismissed; the Tribunal upholds the CIT(A)'s order allowing deduction under section 80P(2)(d) for interest income earned by the co-operative housing society from deposits with co-operative banks for assessment year 2018-19.

Corporate guarantee commission - arm's length price - benchmarking of guarantee fee in related party SBLC arrangements - specified domestic transaction under Section 40A(2)(b) - arm's length interest - Cost Plus Method for determining arm's length interest in intra group loans - use of domestic Prime Lending Rate (PLR) as benchmark for rupee denominated loans - condonation of delay due to COVID 19 - exclusion of limitation period

Corporate guarantee commission - arm's length price - benchmarking of guarantee fee in related party SBLC arrangements - Deletion of upward transfer pricing adjustment in respect of corporate guarantee commission charged by the assessee (aggregate 1.2% charged by holding company and assessee) in relation to SBLC issued by the holding company. - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the guarantee for the AE's loan was principally provided and secured by the holding company, which pledged assets and assumed the credit risk, while the assessee was only a signatory/shareholder and had not pledged assets or assumed substantive risk. The holding company charged 1% and the assessee 0.2%, aggregating 1.2% commission. On the facts the TPO's benchmarking - which ignored the holding company's 1% and conducted a separate benchmark for the assessee - was held to be flawed. The CIT(A)'s reliance on a series of coordinate decisions recognising an accepted arm's length range (around 0.2%-0.5%, commonly 0.5%) for corporate guarantee fees was found to be apt. Since the aggregate fee of 1.2% exceeded the accepted reasonable benchmark, no upward TP adjustment was warranted. For the subsequent assessment year the facts being mutatis mutandis, the same conclusion was applied. [Paras 7, 8, 9, 10, 16]

The upward transfer pricing adjustment in respect of corporate guarantee commission was deleted for AY 2014-15 and AY 2015-16; revenue's grounds relating to this adjustment were dismissed.

Specified domestic transaction under Section 40A(2)(b) - arm's length interest - Cost Plus Method for determining arm's length interest in intra group loans - use of domestic Prime Lending Rate (PLR) as benchmark for rupee denominated loans - Deletion of transfer pricing adjustment under Section 40A(2)(b) in respect of interest paid by the assessee to its holding company and director (13.5%) for AY 2014-15. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the TPO's selection of a third party rate of 11.5% (paid to Silver Cross) as ALP was not a reliable benchmark because the comparator loans differed materially in principal, timing and terms. The holding company had itself borrowed from SBI at 12.75% during the relevant period; applying the Cost Plus approach (taking lender's cost of funds into account) and noting the prevailing SBI PLR (around 14.55% for 2013), the interest of 13.5% charged to the assessee was found to be reasonable and at arm's length. The fact that the assessee earned interest at 16% from its overseas subsidiary, and prior tribunal and appellate findings on identical facts for the preceding year, reinforced that the TPO's benchmarking was untenable. Consequently the transfer pricing adjustment under Section 40A(2)(b) was correctly deleted. [Paras 11, 12, 13, 14, 15]

The transfer pricing adjustment in respect of interest paid to AEs for AY 2014-15 was deleted; revenue's grounds on this issue were dismissed.

Final Conclusion: Both appeals filed by the revenue were dismissed: the Tribunal upheld the deletion of the upward TP adjustment relating to corporate guarantee commission for AY 2014 15 and AY 2015 16, and upheld deletion of the TP/Section 40A(2)(b) adjustment in respect of interest paid to AEs for AY 2014 15; delay in filing the appeal was condoned in view of the COVID 19 exclusion of limitation.

Claim of exemption under section 11 subject to furnishing Form No.10 before completion of assessment - substantial compliance and directory character of procedural requirement to furnish audit statement/Form No.10 - discretion to condone delay in filing statutory/formal requirements where equities favour the assessee - requirement of deposit/investment of accumulated income within the time prescribed by section 11(5)

Claim of exemption under section 11 subject to furnishing Form No.10 before completion of assessment - substantial compliance and directory character of procedural requirement to furnish audit statement/Form No.10 - requirement of deposit/investment of accumulated income within the time prescribed by section 11(5) - Whether the assessee was entitled to exemption under section 11 for A.Y. 2019-20 despite filing Form No.10 belatedly with the revised return and whether the accumulated amount satisfied the investment/deposit requirement of section 11(5). - HELD THAT: - The Tribunal found that the assessee had claimed accumulation under section 11(2) in the original return and that Form No.10B, certifying the accumulation, was filed with the original return. Although a corrected/Form No.10 was uploaded belatedly with the revised return, the Tribunal followed the Supreme Court decision in Nagpur Hotel Owners Association that the particulars required for claiming the exemption must be furnished before completion of assessment but recognised judicial authority that procedural requirements may be treated in an equitable and directory manner where substantial compliance is shown. The Tribunal further noted that the accumulated amounts were deposited within the period prescribed by section 11(5) (reflected in the balance sheet for the year ended 31.03.2020 and by bank deposits dated 03-09-2019), and that the CIT(Exemption) erred by relying on the earlier year balance sheet to conclude non-compliance. Applying the principles of substantial compliance and the discretion to condone delay in appropriate cases, and having regard to the certification in Form No.10B and timely deposit/investment within the statutory period, the Tribunal concluded that denial of exemption was not correct in law and directed grant of the benefit under section 11. [Paras 6, 7]

Set aside the orders of lower authorities; directed the JAO to allow the claim of exemption under section 11 for A.Y. 2019-20 and allowed the appeal.

Final Conclusion: The Tribunal allowed the assessee's appeal for A.Y. 2019-20, holding that having regard to substantial compliance (including Form No.10B filed with the original return), deposit/investment within the statutory period, and precedents permitting equitable condonation, the exemption under section 11 should be granted and the case remitted to the JAO to allow the claim.

Allowability of employee contribution under section 36(1)(va) read with section 43B - Computation of time under the General Clauses Act - Effect of holiday/Sunday on statutory due dates - Bonafide deposit and condonation of delay - Scope of assessment processing under section 143(1) - Remand for fresh adjudication

Computation of time under the General Clauses Act - Effect of holiday/Sunday on statutory due dates - Allowability of employee contribution under section 36(1)(va) read with section 43B - Bonafide deposit and condonation of delay - Whether one day delayed payment of employee contributions to ESIC and EPF, when the statutory due date falls on a Sunday or gazetted holiday, is to be treated as timely under the General Clauses Act and therefore allowable for the purpose of section 36(1)(va) read with section 43B. - HELD THAT: - The Tribunal recorded that it was not in dispute that payments were made one day after the prescribed due dates and that those due dates fell on a Sunday or a gazetted holiday. Applying Section 10 of the General Clauses Act, the Tribunal held that when a statutorily prescribed act is directed to be done on a certain day but the office is closed on that day, the act shall be considered done in due time if done on the next day on which the office is open. The Tribunal also noted the assessee's bona fides - payments were made the next working day - and found no intention to delay. In view of these principles, the Tribunal concluded that the one day delay caused by the due date falling on a Sunday or gazetted holiday is condonable and the disallowance made in consequence was erroneous. The Tribunal therefore deleted the disallowance in respect of contributions delayed by one day for the months concerned. The Tribunal restricted its decision to the specific one day delays and observed that other grounds were not pressed by the assessee in view of relevant appellate authority. [Paras 11, 12]

The disallowance in respect of ESIC and EPF contributions delayed by one day due to the statutory due date falling on a Sunday or gazetted holiday is deleted; the one day delay is condoned under Section 10 of the General Clauses Act.

Remand for fresh adjudication - Profit on sale of fixed asset - adjudication - Whether the addition for profit on sale of fixed asset required fresh adjudication by the Assessing Officer. - HELD THAT: - The Tribunal recorded that the Commissioner of Income Tax (Appeals) had remanded the matter of profit on sale of fixed asset to the Assessing Officer for fresh adjudication. The ITAT did not decide the substantive merit of that addition but endorsed the need for the Assessing Officer to examine the issue afresh as ordered by the CIT(A). [Paras 3]

The issue of profit on sale of fixed asset is remanded to the Assessing Officer for fresh adjudication.

Final Conclusion: The appeal is partly allowed: the disallowance in respect of ESIC and EPF contributions delayed by one day due to the due date falling on a Sunday or gazetted holiday is deleted; the addition relating to profit on sale of fixed asset is remanded to the Assessing Officer for fresh consideration; other grounds were dismissed as not pressed.

Exemption under Notification No.14/2004-Cus - "plant" in the definition of Water Supply Project - project import - membrane system versus membrane element - eligibility for duty exemption of water treatment plants

Exemption under Notification No.14/2004-Cus - "plant" in the definition of Water Supply Project - membrane system versus membrane element - Imported Koch Membrane Systems qualify as a "plant" within the meaning of "Water Supply Project" in Notification No.14/2004-Cus and are eligible for exemption under that notification. - HELD THAT: - The Tribunal examined the product literature, performance specifications and the installation certificate which described the imported items as an effluent treatment unit with reverse osmosis to deliver water for re use. The technical literature and brochures indicated system-level features (system operating software references, system performance parameters), supporting the characterization as membrane systems rather than mere membrane elements. The Tribunal followed the prior decision in Rochem Separation Systems, where a Reverse Osmosis Membrane Filtration System was held to fall within the meaning of "plant" in the explanation to Notification No.14/2004-Cus. The departmental contention that the imports were only membrane elements was rejected on the facts and documentary evidence presented. The decision relied upon by the department relating to a different notification for water purification equipment was held not to be applicable to the scope of Notification No.14/2004-Cus. [Paras 6, 7, 8]

The imported membrane systems constitute a "plant" for purposes of the notification and are eligible for exemption; therefore the departmental appeal fails.

Final Conclusion: The departmental appeal is dismissed; the imported Koch Membrane Systems are held to be eligible for exemption under Notification No.14/2004-Cus as a "Water Supply Project" plant.

Amendment of documents under Section 149 of the Customs Act, 1962 - Time-bar and limitation for amendment - Board Circular No.36/2010 cannot override Section 149 - Requirement of documentary evidence in existence at the time of export - Reasonable time for seeking remedy where no statutory limitation is prescribed - Conversion of shipping bill into drawback shipping bill - Declaration requirement under Rule 12(1)(a) of the Drawback Rules, 1995 - Examination/opening of export consignments and its evidentiary role - Discretionary power of the proper officer to authorise amendments

Time-bar and limitation for amendment - Board Circular No.36/2010 cannot override Section 149 - Requirement of documentary evidence in existence at the time of export - Reasonable time for seeking remedy where no statutory limitation is prescribed - Rejection of conversion requests as time-barred by reference to Board Circular No.36/2010 - HELD THAT: - Section 149 does not prescribe any time limit for authorising amendment of a shipping bill and permits amendment after export subject only to production of documentary evidence which was in existence at the time of export. A Board circular prescribing a three month period cannot prevail over the statute and therefore conversion cannot be rejected merely as time barred by that circular. That said, in the absence of a statutory limitation, the remedy must be sought within a reasonable time; a long unexplained delay may, in appropriate facts, defeat the claim. The Tribunal relied on precedent holding that contemporaneous documents need not be already available with the department but must have been in existence at the relevant time and are open to examination by authorities. [Paras 11, 12, 27, 28]

Request for conversion cannot be denied solely on the ground of being beyond the three month period prescribed by Board Circular No.36/2010; conversion is governed by Section 149 and entitlement turns on contemporaneous documentary evidence and reasonableness of delay.

Examination/opening of export consignments and its evidentiary role - Conversion of shipping bill into drawback shipping bill - Validity of rejection on the ground that export packages were not physically opened for examination - HELD THAT: - The exports under the Focus Product Scheme were not disputed and the appellant produced the applicable scheme norms showing selective package-opening criteria. The adjudicating authority produced no specific evidence of legal violation in respect of the exported goods. In these circumstances, refusal of conversion merely because the consignment was not physically opened for examination was not sustainable. [Paras 13]

Rejection of conversion requests on the sole ground of non opening of packages for physical examination is not justified.

Declaration requirement under Rule 12(1)(a) of the Drawback Rules, 1995 - Conversion of shipping bill into drawback shipping bill - Discretionary power of the proper officer to authorise amendments - Whether omission to declare drawback claim at time of export defeats conversion when explained as inadvertent and bonafide - HELD THAT: - Rule 12(1)(a) requires a declaration on the shipping bill when claiming drawback, but contains a proviso empowering the Commissioner to exempt an exporter who failed to comply for reasons beyond his control, after considering representations and recording reasons. The appellant offered a plausible, bonafide explanation for the inadvertent omission to mark the shipping bills as drawback claims. On the material before the Tribunal, the rejection for lack of such declaration could not be sustained. [Paras 14, 15]

The omission to make the drawback declaration, explained as inadvertent, did not justify refusal of conversion; the request for conversion should be allowed.

Final Conclusion: Impugned orders rejecting conversion of the shipping bills into drawback shipping bills are set aside; appeals allowed and conversion permitted subject to consequential relief as per law.

Principles of natural justice - licensing authority's duty to ensure natural justice in proceedings affecting livelihood - obligations under regulation 10 of the Customs Brokers Licensing Regulations, 2018 - revocation of licence and forfeiture of security under regulation 14 of the Customs Brokers Licensing Regulations, 2018 - penalty under regulation 18 of the Customs Brokers Licensing Regulations, 2018 - remand for fresh enquiry

Principles of natural justice - licensing authority's duty to ensure natural justice in proceedings affecting livelihood - Denial of cross-examination rendered the inquiry tainted for want of observance of principles of natural justice. - HELD THAT: - The Tribunal found that the enquiry materially relied upon statements of certain individuals whose cross-examination the appellant sought but was denied. Given the potentially livelihood-destroying consequences of the proceedings for the customs broker and its employees, the inquiry officer ought not to have refused cross-examination. As licensing authority, the Commissioner of Customs had an obligation to ensure full compliance with principles of natural justice; denial of a relevant opportunity to test evidence taints the enquiry and vitiates its findings. [Paras 2, 3, 4]

The inquiry was held to be tainted for breach of principles of natural justice by denial of cross-examination.

Remand for fresh enquiry - obligations under regulation 10 of the Customs Brokers Licensing Regulations, 2018 - revocation of licence and forfeiture of security under regulation 14 of the Customs Brokers Licensing Regulations, 2018 - penalty under regulation 18 of the Customs Brokers Licensing Regulations, 2018 - Whether the impugned order should be set aside and the matter remitted for a fresh enquiry complying with the regulations and natural justice. - HELD THAT: - The Tribunal held that although the incomplete or tainted enquiry did not constitute exoneration on merits of the charges alleging breaches of the obligations in regulation 10, the proper remedy was to set aside the impugned order and remit the matter. The original authority was directed to conduct a fresh enquiry in accordance with the Customs Brokers Licensing Regulations, 2018 and while scrupulously observing the principles of natural justice, and thereafter decide afresh on the charges and consequent penal consequences under the relevant regulations. [Paras 5]

Impugned order set aside and matter remanded to the original authority for a fresh enquiry and fresh decision in accordance with the regulations and principles of natural justice.

Final Conclusion: The appeal was allowed: the order revoking the customs broker's licence, forfeiting the security deposit and imposing penalty was set aside; the matter is remitted to the original authority for a fresh enquiry and fresh decision in accordance with the Customs Brokers Licensing Regulations, 2018 and the principles of natural justice.

Revocation of customs broker licence - Transfer/subletting of customs broker licence - Obligations under Regulation 10(d) of Customs Brokers Licensing Regulations, 2018 - Obligations under Regulation 10(n) of Customs Brokers Licensing Regulations, 2018 - Liability of customs broker for misuse of exporter IEC and fraudulent supply chain - Proportionality of penalty

Transfer/subletting of customs broker licence - Revocation of customs broker licence - Whether revocation of the appellant's customs broker licence was justified on the basis that the licence had been sold, transferred or effectively sub-let in breach of Regulation 1(4). - HELD THAT: - The Tribunal examined the licensing authority's conclusion that the licence was effectively transferred because the customs broker procured business through an intermediary, received payments from that intermediary, and admitted not having physically handled goods in the port area. Relying on precedent and the regulatory scheme, the Tribunal held that procurement of business through an intermediary and receipts from such intermediary do not, by themselves, establish sale, transfer or subletting of the licence. The Regulations do not require that a customs broker deal only directly with an exporter; an intermediary can be the broker's client. The authority's inference that lack of personal contact with the exporter negated the broker's obligations was rejected as not sustaining a finding of transfer. Consequently, the extreme step of revocation on that ground was not warranted.

Revocation set aside insofar as it rested on alleged sale, transfer or subletting of the licence under Regulation 1(4).

Obligations under Regulation 10(d) of Customs Brokers Licensing Regulations, 2018 - Liability of customs broker for misuse of exporter IEC and fraudulent supply chain - Whether the appellant breached Regulation 10(d) by failing to advise clients to comply with the Customs Act or to report non-compliance, thereby justifying revocation. - HELD THAT: - The Tribunal considered the licensing authority's reliance on the appellant's lack of direct contact with exporters to infer failure to advise or report under Regulation 10(d). It observed that the Regulations do not define 'client' and do not mandate exclusive direct dealing with exporters; intermediaries may lawfully act as clients. The appellant had obtained exporter documentation on record and there was no evidence that exporters were fictitious or that the client was not exhorted to comply. The fraudulent scheme related to an upstream bogus supply chain and misuse of IECs, matters beyond the ordinary remit of a customs broker's obligations under Regulation 10(d). On these facts, the finding of breach of Regulation 10(d) was not sustainable.

Finding of violation of Regulation 10(d) set aside; revocation not justified on this ground.

Obligations under Regulation 10(n) of Customs Brokers Licensing Regulations, 2018 - Liability of customs broker for misuse of exporter IEC and fraudulent supply chain - Whether the appellant violated Regulation 10(n) by failing to perform due diligence which enabled fraudulent export incentives and thereby warranted licence revocation. - HELD THAT: - The Tribunal reviewed authorities recognizing that the export incentive regime and IEC issuance involve systemic vulnerabilities and that Regulation 10(n) does not impose obligations requiring physical verification of an exporter's address or exhaustive verification of antecedent supply chains. The Tribunal found that the appellant had met obligations under Regulation 10(n) as understood in precedent, and that the misuse arose from a fraudulent chain of transactions before the filing of shipping bills - beyond the scope of the broker's regulatory duties. Therefore, attribution of responsibility to the broker for the wider fraud was unwarranted.

Finding of violation of Regulation 10(n) set aside; revocation not justified on this ground.

Final Conclusion: The appeal is allowed. The Tribunal set aside the order of revocation, finding no sustainable breach of Regulations 1(4), 10(d) or 10(n) by the appellant; the impugned order is set aside and the appeal is allowed.

Mis-declaration - exemption under General Exemption No. 69, Notification No. 52/2003-Cus - Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 - Rule 5(1)(a) - EOU/SEZ import authorisation and Condition 2A - confiscation and redemption - sample testing by authorised test agency - remand for fresh permission and verification

Mis-declaration - exemption under General Exemption No. 69, Notification No. 52/2003-Cus - Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 - Rule 5(1)(a) - EOU/SEZ import authorisation and Condition 2A - Whether the imported goods were mis-declared so as to forfeit the benefit of the exemption and justify confiscation and denial of Notification No. 52/2003-Cus. - HELD THAT: - The Tribunal noted that the importer obtained prior sanction for import of "Indonesia Robusta Coffee Beans" and the invoice and certificate of quality described the consignment as such, while Customs upon examination found the cargo to be coffee husk/bits and the importer, by letter dated 10.12.2022, admitted the cargo did not match the declared description and acknowledged it was coffee husk/bits (classifiable under CTH 09019010). Rule 5(1)(a) casts a duty on the importer to ensure imports conform to approved description and to seek amendment from the appropriate authority if classification/description changes. The Tribunal accepted that EOUs are permitted broad importations for export production subject to procedural compliance and fulfillment of Condition 2A under General Exemption No. 69. Applying these principles, the Tribunal held that procedural non-compliance cannot be equated in every case with unavoidable confiscation where statutory entitlement to import (subject to conditions) exists, and therefore set aside the adjudicating authority's order of confiscation and denial of exemption to permit corrective procedural steps. [Paras 6, 7, 8]

Impugned order confirming mis-declaration, denying exemption and confiscating goods set aside; entitlement to exemption retained subject to compliance with Rule 5(1)(a) and Condition 2A and corrective steps by the importer.

Remand for fresh permission and verification - sample testing by authorised test agency - confiscation and redemption - What remedial course should follow after noting the discrepancy between declared and examined goods. - HELD THAT: - The Tribunal directed that the importer may approach the concerned authority and submit a fresh application under Rule 5(1)(a) providing the accurate particulars found on examination; upon grant of amended/revised permission the Customs authorities are to release the goods and extend the benefit of Notification No. 52/2003-Cus. If the importer fails to procure revised permission, Customs is directed to draw samples in accordance with law and obtain test reports from the authorised test agency, after which the Adjudicating Authority shall pass appropriate orders following reasonable opportunity to the importer. These directions preserve the Customs' power to verify and adjudicate while allowing the importer an opportunity to regularise the import by following prescribed procedures. [Paras 8, 9]

Matter remanded for remedial compliance: importer to seek amended permission and, if obtained, goods to be released with exemption; failing which Customs to draw samples, obtain authorised test report and adjudicate afresh after hearing.

Final Conclusion: The Tribunal set aside the adjudicating order of confiscation and denial of exemption, permitted the importer to seek amended permission under Rule 5(1)(a) and Condition 2A for release of goods under Notification No. 52/2003-Cus, and remanded the matter for further verification and adjudication (including sample testing and fresh orders) if the importer does not obtain the revised permission.

Entitlement to exemption under General Exemption No. 69 of Notification No. 52/2003-Cus subject to Condition 2A - Duty-free import by 100% Export Oriented Undertaking (EOU) / Authorized Economic Operator for raw materials - Classification of imported coffee consignments as coffee husks and skins (CTH 09019010) vis-a -vis declared "Vietnam Robusta Coffee" - Allegation of mis-declaration and consequent confiscation of imported goods - Scope of verification by Customs and role of Special Economic Zone / EOU approvals in permitting imports

Entitlement to exemption under General Exemption No. 69 of Notification No. 52/2003-Cus subject to Condition 2A - Duty-free import by 100% Export Oriented Undertaking (EOU) / Authorized Economic Operator for raw materials - Classification of imported coffee consignments as coffee husks and skins (CTH 09019010) vis-a -vis declared "Vietnam Robusta Coffee" - Appellant entitled to benefit of the exemption notification and release of goods despite the Customs finding that the consignment consisted of coffee husk/bits. - HELD THAT: - The importer, a 100% EOU with requisite authorisations, had obtained procurement permission and executed the requisite bond under the Rules for import of "Vietnam Robusta Coffee". The permission and Bill of Entry did not stipulate percentages of constituent materials (beans, husks, bits). Chapter 9 of the Customs Tariff separately recognizes coffee husks and skins under the appropriate sub-heading, and the policy for EOUs adopts a liberal approach to permit import of raw materials subject to procedural compliance and Condition 2A. In these circumstances, and in absence of any condition in the import permission limiting constituent composition, the Tribunal held that an after the fact finding that the consignment predominantly comprised husks did not disentitle the appellant from the exemption. The power of Customs is limited to verification of conformity with import documents and approvals, and where those documents lawfully permitted import of the described goods, confiscation for alleged mis declaration was unwarranted.

Impugned order of denial of exemption and confiscation set aside; respondents directed to release the goods and extend benefit of Notification No. 52/2003-Cus (General Exemption No. 69) subject to applicable conditions.

Allegation of mis-declaration and consequent confiscation of imported goods - Scope of verification by Customs and role of Special Economic Zone / EOU approvals in permitting imports - Confiscation and denial of exemption on the ground of mis-declaration was not justified where import documentation and permissions described the goods as "Vietnam Robusta Coffee" and did not prescribe constituent percentages. - HELD THAT: - The adjudicating authority's conclusion of mis declaration rested on post arrival examination and testing; however, the Tribunal observed that the documents submitted at the time of procurement and import consistently described the consignment as Vietnam Robusta Coffee and the importer had followed the prescribed procedure under the Rules, including procurement approval and bond execution. The Tribunal emphasised that Customs' role is to verify conformity with approvals and declarations, and absent a stipulation in the permission or Bill of Entry regarding constituent proportions, an allegation of mis declaration could not sustain confiscation. The typographical reference to a different origin in the impugned order further indicated non application of mind in reaching the punitive conclusion.

Findings of mis-declaration and resulting confiscation set aside; goods to be released with the benefit of the exemption subject to fulfillment of applicable conditions.

Final Conclusion: The Tribunal allowed the appeal, set aside the adjudicating authority's order denying exemption and confiscating the goods, and directed release of the consignment with the benefit of Notification No. 52/2003-Cus (General Exemption No. 69) subject to the applicable procedural conditions. The Tribunal did not decide disputed sampling or test report issues raised but found no basis for confiscation where import permission and declarations lawfully described the consignment.

Remand for verification of margin of profit - assessment value enhancement for import control - redemption fine - penalty under Section 112(a) of the Customs Act, 1962 - appellate review and modification of adjudicatory order

Remand for verification of margin of profit - assessment value enhancement for import control - Whether the original adjudicating authority complied with the Tribunal's remand direction to verify the margin of profit and take the appellant's calculations into consideration. - HELD THAT: - The Tribunal had remanded the matter to the original authority to verify the factual position of the margin of profit and to decide on redemption fine and penalty after taking into account the appellant's submissions and calculations. The impugned order records the appellant's written submissions and contains a calculation sheet (para 10.11) showing a loss. The appellate Tribunal observed that those calculations were not taken into consideration by the original authority. On that basis the Tribunal held that the original authority did not properly carry out the directions contained in the remand and proceeded to reconsider the quantum of penalty in light of the submissions and facts. [Paras 5]

Findings recorded that the original authority had not taken the appellant's margin-of-profit calculations into account; the matter was treated as requiring modification of the penalty in exercise of appellate powers.

Redemption fine - penalty under Section 112(a) of the Customs Act, 1962 - appellate review and modification of adjudicatory order - Whether the quantum of redemption fine and penalty as imposed by the original authority required interference. - HELD THAT: - The original authority had maintained a redemption fine and increased the penalty on remand. Having examined the facts, the submissions of the appellant (including request that fine not exceed the earlier amount and that penalty be restricted to 5% of assessable value) and the calculation sheet indicating no profit, the Tribunal exercised its appellate power to modify the penalty. The Tribunal left the redemption fine unchanged but reduced the penalty imposed under Section 112(a) to an amount reflecting the appellant's contentions and circumstances. The Tribunal also noted that the appellant had already paid the redemption fine and penalty at the time of clearance. [Paras 5, 6]

Redemption fine of Rs. 1,91,000/- upheld; penalty reduced from Rs. 3,10,000/- to Rs. 48,000/- and order otherwise modified accordingly.

Final Conclusion: Appeal partially allowed: impugned Order-in-Original modified to uphold the redemption fine and to reduce the penalty under Section 112(a) of the Customs Act, 1962; appellate findings record that the original authority had not taken the appellant's margin-of-profit calculations into account.

Final attachment under the Prevention of Money Laundering Act, 2002 - maintainability of writ jurisdiction in presence of statutory appellate remedy - alternate remedy before the appellate Tribunal under Section 26 of the PMLA - claim of depositors before liquidator

Final attachment under the Prevention of Money Laundering Act, 2002 - maintainability of writ jurisdiction in presence of statutory appellate remedy - Writ petition seeking reimbursement of deposits was not maintainable before the High Court in view of final attachment orders passed under the PMLA. - HELD THAT: - The Court accepted the respondents' submission that the assets of the cooperative society stood subject to a final attachment order passed under the PMLA and that the relief claimed by the depositors could not be granted by the High Court while such final attachment orders remained unchallenged. Relying on the reasoning in Dipesh Mishra & Ors. v. Union of India & Ors., the Court observed that where final attachment orders have been passed by the Authorities, writ petitions challenging the claim for reimbursement are not the correct remedy and cannot be allowed to proceed in the writ jurisdiction. [Paras 2, 3, 4]

Writ petition dismissed insofar as it sought relief without challenging the final attachment orders.

Alternate remedy before the appellate Tribunal under Section 26 of the PMLA - claim of depositors before liquidator - Petitioners were granted liberty to pursue remedies before the statutory appellate Tribunal under the PMLA and to present their claims to the liquidator; thereafter they may approach the High Court if any cause of action remains. - HELD THAT: - The Court held that an appropriate statutory remedy exists under the PMLA (Section 26) and depositors must agitate their grievances before the appellate forum and may also lodge claims with the liquidator. The Court recorded that proper appeals were pending and that depositors could join proceedings before the appellate Tribunal to seek adjudication of their claims; the liquidator is to act in accordance with law upon such adjudication. Only after exhaustion of these remedies, and if a cause of action remains, would recourse to this Court be open. [Paras 4, 5, 6]

Liberty granted to pursue appellate remedy under the PMLA and to make claims before the liquidator; petition disposed with leave to approach the High Court thereafter if required.

Final Conclusion: The writ petition was disposed of as not maintainable in view of final attachment orders under the PMLA; petitioners were directed to pursue their claims before the appellate Tribunal under Section 26 of the PMLA and before the liquidator, with liberty to approach the High Court thereafter if any cause of action subsists.

Offence of money laundering as an independent offence - continuing nature of proceeds of crime transactions - application of the scheduled offence value threshold to Part B offences only - relevance of maintenance of records rules to criminal liability under PMLA - discharge under Section 227 Cr.P.C.

Offence of money laundering as an independent offence - continuing nature of proceeds of crime transactions - discharge under Section 227 Cr.P.C. - Whether the trial court erred in refusing discharge under Section 227 Cr.P.C. where the complaint alleges possession, acquisition and use of proceeds of crime by the petitioners. - HELD THAT: - The Court held that offence under Section 3 of the PMLA is a distinct offence relating to processes or activities connected with proceeds of crime (concealment, possession, acquisition, use, projecting or claiming as untainted). Reliance on the Supreme Court's exposition that money laundering liability attaches to continuing dealings with proceeds of crime irrespective of the date of the predicate offence was accepted. The complaint, as per the court, alleges that the petitioners derived proceeds of crime and were involved in possession, acquisition and use of those proceeds; such allegations are sufficient to deny discharge at the stage under Section 227 Cr.P.C. The Court therefore found no infirmity in the trial court's rejection of the discharge applications. [Paras 23, 24, 25, 28]

Application for discharge rightly rejected; no interference warranted with the trial court's orders.

Application of the scheduled offence value threshold to Part B offences only - interpretation of Section 2(y) PMLA - Whether the monetary threshold condition in Section 2(y) of the PMLA applies to all scheduled offences or only to offences specified in Part B of the Schedule. - HELD THAT: - The Court examined the textual history and amendments of Section 2(y) and the Schedule. It held that the condition regarding the total value involved (as amended over time) applies only to offences specified in Part B of the Schedule. Since Part B now (as amended) contains only limited offences (e.g., Section 132 Customs Act) and the offences alleged against the petitioners are placed in Part A, the value threshold condition is not applicable to those offences. Hence the submission that the alleged loss falls below a monetary threshold for being a scheduled offence was without merit. [Paras 16, 17, 18, 19, 20]

The monetary threshold in Section 2(y) applies only to Part B offences; it does not exclude the alleged Part A offences in this case.

Relevance of maintenance of records rules to criminal liability under PMLA - discharge under Section 227 Cr.P.C. - Whether Rule 3 of the Prevention of Money laundering (Maintenance of Records) Rules, 2005 affects the maintainability of prosecution under Section 3 PMLA or the grant of discharge. - HELD THAT: - The Court observed that Rule 3 of the 2005 Rules governs maintenance of records by reporting entities (banks, financial institutions and intermediaries) and prescribes record keeping obligations for transactions above specified values. Those procedural/regulatory record keeping provisions do not determine whether a person is triable for an offence under Section 3 of the PMLA. Accordingly, reference to Rule 3 and its transaction value threshold is irrelevant to the question of discharge in criminal proceedings under the PMLA. [Paras 26, 27]

Rule 3 of the 2005 Rules is not relevant to deciding criminal liability under Section 3 PMLA; the ground based on it fails.

Final Conclusion: All six revisions are dismissed; the High Court finds no illegality in the trial court's orders rejecting the applications for discharge and declines to interfere with the proceedings under the PMLA.

Banking and other Financial Services - service tax liability on foreign bank charges - service recipient principle - precedential effect of earlier decision in assessee's own case

Banking and other Financial Services - service tax liability on foreign bank charges - service recipient principle - precedential effect of earlier decision in assessee's own case - Amount deducted by foreign banks as bank charges are not taxable under Banking and other Financial Services for the period 2011-12. - HELD THAT: - The Tribunal framed the sole issue as whether charges deducted by the foreign bank while remitting export proceeds attract service tax as 'Banking and other Financial Service' for 2011-12. The bench held that the appellant never dealt directly with the foreign banks; the export proceeds were routed through the appellant's bank (SBI), which engaged the foreign bank and bore the service relationship. Reliance was placed on earlier decisions of the Tribunal (including the appellant's own earlier order) and co-ordinate benches which established that where the foreign bank's service is rendered to the Indian bank and no direct contractual or recipient relationship exists between the foreign bank and the exporter, the exporter cannot be treated as the service recipient and service tax does not attach. As the issue was decided on merits following those precedents, the Tribunal did not consider extended period or penalties. Applying that reasoning, the impugned demand and penalty were set aside. [Paras 6, 7, 8, 9]

Impugned order set aside and the appeal allowed; appellant succeeds on the question of taxability of foreign bank charges for 2011-12.

Final Conclusion: The appeal is allowed; the demand and penalty relating to foreign bank charges for 2011-12 are set aside in conformity with earlier Tribunal decisions and the appellant's own preceding order, with consequential reliefs as per law.

Intermediary - Place of provision of services - Export of services - CENVAT credit refund - Business Auxiliary Services

Intermediary - Place of provision of services - Business Auxiliary Services - Whether the services rendered by the respondent to BlackBerry Singapore constituted services as an intermediary under Rule 2(f) of the Place of Provision of Services Rules, 2012. - HELD THAT: - The CESTAT's factual and legal conclusions were upheld. The Agreement showed BlackBerry India provided marketing, administrative and support services as an independent contractor on a principal-to-principal basis, had no authority to represent or bind BlackBerry Singapore, did not facilitate or arrange a main supply between two other parties, received cost-plus consideration independent of any sale to customers and invoiced directly to BlackBerry Singapore. The statutory definition of intermediary in Rule 2(f) requires arranging or facilitating a main supply between other parties (a minimum of three parties and two distinct supplies) and excludes a person who supplies the main service on his own account. On these findings and in light of the explanatory Circular, the services were not intermediary services but supplies made by BlackBerry India on its own account. [Paras 14, 20, 21, 22, 24]

BlackBerry India was not an intermediary within the meaning of Rule 2(f); the place of provision was not rendered intermediary-based and the services were supplied by BlackBerry India on its own account.

Export of services - CENVAT credit refund - Whether the services for the period prior to 01.07.2012 fell outside the scope of export of taxable services under Rule 3(1) of the Export of Services Rules, 2005 and whether the respondent was entitled to refund of unutilised CENVAT credit. - HELD THAT: - The Adjudicating Authority erred in holding that services covered under Section 65(105)(zzb) were excluded from Rule 3(1). The CESTAT correctly interpreted Rule 3(1) to include all services as export of taxable services except those specifically excluded by the rule. Having held that the respondent's services were not intermediary services and in view of the correct reading of Rule 3(1), the respondent's claim for refund of unutilised CENVAT credit could not be denied on the ground taken by the Adjudicating Authority. [Paras 15, 26]

The Adjudicating Authority's exclusion of the relevant services from the scope of export under Rule 3(1) was incorrect; the services fall within the scope of export of taxable services and the respondent's refund claim could not be rejected on that basis.

Final Conclusion: The Revenue's appeal raised no substantial question of law; the CESTAT's conclusions that BlackBerry India was not an intermediary and that the services were within the scope of export under Rule 3(1) were upheld. The appeal is dismissed and the impugned order is confirmed.

Extinguishment of statutory dues on resolution under the Insolvency and Bankruptcy Code - adjudication of departmental claims barred by completion of resolution process - effect of insolvency resolution on pending tax or statutory demands - Ghanashyam Mishra and Sons Private Limited v/s. Edelweiss Asset Reconstruction Company Limited

Extinguishment of statutory dues on resolution under the Insolvency and Bankruptcy Code - adjudication of departmental claims barred by completion of resolution process - Ghanashyam Mishra and Sons Private Limited v/s. Edelweiss Asset Reconstruction Company Limited - Whether the departmental appeals could be adjudicated on merits after the respondent had undergone resolution under the IBC and whether the statutory dues owed to the Department survived the resolution process. - HELD THAT: - The Court accepted the concession recorded at the Bar that the respondent has undergone the resolution process under the IBC and relied upon the principle laid down in Ghanashyam Mishra and Sons Private Limited v/s. Edelweiss Asset Reconstruction Company Limited that statutory dues owed by a corporate debtor are extinguished on completion of the resolution process to the extent held in that precedent. Having regard to that dictum, the appeals could not be considered on their merits because the subject statutory dues no longer remained viable claims for adjudication against the respondent post-resolution. The consequence drawn was that adjudication of those departmental demands was foreclosed by the resolution process as applied in the cited authority.

The Civil Appeals were disposed of on the basis that the statutory dues stood extinguished due to the respondent's resolution under the IBC and thus the appeals could not be decided on merits; pending applications were disposed of.

Final Conclusion: The appeals were disposed of on the admitted ground that the respondent had undergone IBC resolution and, applying the cited precedent, the statutory dues claimed by the Department stood extinguished; consequently the appeals could not be entertained on merits and pending applications were also disposed of.

Assessable value - bought-out items - input credit - show cause notice - consistency of departmental stand

Assessable value - bought-out items - input credit - show cause notice - Addition to assessable value of bought-out items which were not entered in the factory and in respect of which no credit was claimed by the assessee. - HELD THAT: - The Court noted that for a subsequent period the Department conceded that the bought-out items were not entered into the factory and the assessee had not claimed credit on them; on that basis the Department accepted there was no case for adding the value of such items to the assessable value or for issuing a show cause notice. The Court held that the Department could not adopt a contrary stance in relation to the earlier period which is the subject of this appeal. Applying that consistency, the Court found no merit in permitting an addition to the assessable value for the earlier period and declined to permit initiation of proceedings by way of a show cause notice in respect of those bought-out items.

Appeal dismissed; no addition to assessable value and no show cause notice to be issued in respect of the bought-out items which were not entered in the factory and on which no credit was claimed.

Final Conclusion: The appeal is dismissed on the basis that the Department's accepted position for a subsequent period - that bought-out items not entered in the factory and not claimed for credit cannot be added to assessable value - must apply to the earlier period, and therefore no addition or show cause proceedings are warranted.

Attribution and recovery of excise duty in composite price - Applicability of Section 11D of the Central Excise Act - Acceptability of laboratory test reports for BIS conformity - Entitlement to exemption under notifications for Ethanol Blended Petrol upon conformity with BIS standards

Applicability of Section 11D of the Central Excise Act - Attribution and recovery of excise duty in composite price - Section 11D was not attracted where duty attributable to ethanol was not shown and recovered separately in the invoice and the price charged was a composite inclusive of duty. - HELD THAT: - The Court examined the statutory scheme of Section 11D which mandates payment to the Government of any amount collected from the buyer as representing duty of excise. The determinative requirement is that an amount must have been collected as representing excise duty. In the present case the respondent blended duty-paid motor spirit and duty-paid ethanol at licensed premises and cleared EBP at a composite price inclusive of duty. The invoices did not show or recover duty separately attributable to ethanol, nor did the revenue demonstrate that any separate collection representing duty on ethanol was made and retained instead of being remitted. On these facts the crucial ingredient for invoking Section 11D-collection of an amount as representing excise duty which was not credited to the Government-was not satisfied. Consequently the demand under Section 11D could not be sustained. [Paras 13, 14, 18]

Demand under Section 11D could not be sustained since duty on ethanol was not separately shown or collected as duty in the invoices.

Acceptability of laboratory test reports for BIS conformity - Entitlement to exemption under notifications for Ethanol Blended Petrol upon conformity with BIS standards - Tribunal rightly accepted test reports showing conformity to BIS 2796:2000 and the benefit of exemption could not be denied where such tests were available and other terminals faced no objection. - HELD THAT: - The Court reviewed the facts that samples were routinely tested at the Vashi Terminal (albeit covering 9 of 15 tests) and, when those were disputed, samples were tested at the respondent's refinery which had facilities to test all parameters and produced certificates dated 1 and 5 June 2004 confirming conformity with BIS 2796:2000. The Commissioner rejected those refinery reports as an afterthought, but the Tribunal found and the Court agreed that the refinery tests were not a belated fabrication but were conducted when departmental tests were not accepted. The Court noted the licensed nature of blending operations, statutory and administrative controls under the Control Order, and the established practice of accepting tests from well-equipped non-governmental laboratories where government facilities were lacking. Further, sales of similar goods from other terminals without departmental objection supported the conclusion that exemption under the notifications could not be denied. Thus the Tribunal was correct in setting aside the demand premised on non-conformity. [Paras 7, 8, 9, 16, 17]

Test reports showing conformity to BIS 2796:2000 were rightly accepted and the exemption could not be denied on the ground of non-conformity.

Final Conclusion: The appeal is dismissed. The Tribunal correctly set aside the demand: Section 11D did not apply because duty attributable to ethanol was not separately shown or collected as excise duty, and the Tribunal rightly accepted the test reports establishing conformity to BIS 2796:2000, entitling the respondent to the exemption under the notifications.

Interest on delayed refund - Claim for refund under Section 11B(1) - Commencement of interest under Section 11BB - Pre-deposit under Section 35F and refund under Section 35FF - Requirement to declare that duty/interest was not passed on - Unjust enrichment

Interest on delayed refund - Claim for refund under Section 11B(1) - Commencement of interest under Section 11BB - Requirement to declare that duty/interest was not passed on - Date from which interest is leviable on delayed refund of duty (governed by Sections 11B and 11BB). - HELD THAT: - The Court held that Sections 11B and 11BB must be read conjointly and, on their plain language and binding precedents, interest on a delayed refund of duty is dependent on the making and receipt of a formal application under Section 11B(1). Section 11BB prescribes that interest becomes payable where the refund is not made within three months from the date of receipt of that application; the Explanation to Section 11BB does not postpone the starting point for interest to the date of an appellate order. The statutory requirement that the applicant declare and establish that the incidence of duty (and interest) has not been passed on to any other person is material and is not an empty formality; absent that declaration, a refund risks causing unjust enrichment. Reliance on Ranbaxy Laboratories Ltd. and Hamdard (Waqf) Laboratories was accepted for the proposition that the date for computing interest is the expiry of three months from receipt of the Section 11B(1) application rather than the appellate order. [Paras 25, 29, 33]

Interest on delayed refunds of duty is payable only where a formal application under Section 11B(1) has been made and received; interest under Section 11BB commences from the date immediately after the expiry of three months from receipt of that application.

Pre-deposit under Section 35F and refund under Section 35FF - Interest on delayed refund - Unjust enrichment - Whether refund/interest rules applicable to pre-deposits under Section 35F (and Section 35FF) are coterminous with refunds of duty under Sections 11B/11BB. - HELD THAT: - The Court distinguished pre-deposits made under Section 35F from refunds of duty under Section 11B. A pre-deposit made as a condition for entertaining an appeal is not treated as "duty" for purposes of refund and Section 35FF expressly provides for payment of interest on such pre-deposits without requiring a formal refund application; interest under Section 35FF runs from the date the amount deposited is required to be refunded consequent to the appellate order. The Board's circular addressing return of pre-deposits therefore applies to Section 35F/35FF situations and cannot be transplanted wholesale to govern refunds of duty under Sections 11B/11BB, which entail the additional statutory safeguard of the applicant's declaration regarding passing on of incidence. [Paras 26, 27, 28]

Pre-deposits under Section 35F/interest under Section 35FF operate differently from refunds of duty under Sections 11B/11BB; refunds of pre-deposits may not require a Section 11B application and interest under Section 35FF runs from the date the deposit is required to be refunded consequent to an appellate order.

Interest on delayed refund - Commencement of interest under Section 11BB - Procedure to be followed in the present petitions for determining entitlement to interest and its computation. - HELD THAT: - The Court reiterated that while interest must follow where revenue has unjustifiably retained amounts, the determinative question is the date from which such interest runs. Applying the statutory scheme, the Court directed respondents to revisit the question of payment of interest in light of the conclusions that interest under Section 11BB is measured from three months after receipt of a Section 11B(1) application. The respondents were therefore required to verify whether the refunds in the petitions were effected beyond that three-month period computed from the date of receipt of the respective applications and to compute and pay interest if so found. [Paras 30, 33]

Respondents to revisit and, if refunds were effected beyond three months from receipt of the Section 11B(1) application, compute and pay interest accordingly.

Final Conclusion: The Court held that refunds of duty under Section 11B/interest under Section 11BB are dependent on a formal application under Section 11B(1) and that interest begins to run after three months from receipt of that application; pre-deposits under Section 35F/interest under Section 35FF are distinct and may attract interest from the date the appellate order renders refund due. The respondents were directed to revisit the petitioners' claims and compute and pay interest if the refunds were made beyond the statutory three month period measured from receipt of the applications.

Admissibility of recorded statements without cross-examination - effect of non-participation/ex parte proceedings on right to cross-examine - confiscation of unaccounted goods under Rule 25 of the Central Excise Rules - penalty under Section 11AC for fraudulent availment of CENVAT credit - use of circumstantial evidence and surveillance to establish absence of manufacturing - fraud vitiates acts and precludes benefit from suppressed documents

Admissibility of recorded statements without cross-examination - effect of non-participation/ex parte proceedings on right to cross-examine - Recorded statements of proprietor and employees could be relied upon though not cross-examined where the appellant chose not to participate in proceedings and did not seek to cross-examine witnesses. - HELD THAT: - The Tribunal accepted the adjudicating authority's reliance on statements recorded by preventive officers because the appellant neither replied to the show cause notice nor attended multiple personal hearings and therefore proceeded ex parte. The court held that where the noticee elects not to participate, there is no scope to summon witnesses for cross-examination; the evidentiary value of statements of persons who are proprietor or paid employees is not lost merely because they were not cross-examined. The Tribunal invoked the principle in JK Cigarettes that, in exceptional circumstances, the right to cross-examination may be curtailed and found the test of cross-examination superfluous in the facts of this case. [Paras 7, 10]

The contention that statements could not be relied upon for want of cross-examination was rejected.

Use of circumstantial evidence and surveillance to establish absence of manufacturing - confiscation of unaccounted goods under Rule 25 of the Central Excise Rules - Unaccounted lead ingots found on premises, together with surveillance findings and absence of manufacturing activity, justified confiscation under Rule 25. - HELD THAT: - The Tribunal accepted the factual findings that the unit was non-functional, furnaces were unused, electricity consumption did not indicate manufacture, the DG set was recently installed, and lead ingots were physically found unaccounted for against statutory records. These concurrent findings established a deliberate scheme to camouflage manufacture and clandestine removal. On this preponderance of circumstantial evidence and surveillance, the Tribunal held the goods liable to confiscation under Rule 25 since they were unaccounted and stored without proper documents. [Paras 9, 11, 13, 16]

Confiscation of the seized goods was sustained.

Penalty under Section 11AC for fraudulent availment of CENVAT credit - fraud vitiates acts and precludes benefit from suppressed documents - Imposition of penalty and redemption fine under Section 11AC read with Rule 25 was justified on findings of fraudulent availment of CENVAT credit and suppression of manufacture. - HELD THAT: - Having found that manufacture was only on paper and that raw materials and finished goods were deliberately unaccounted to obtain undue CENVAT credit, the Tribunal endorsed the adjudicating authority's conclusion that penalty equal to duty and a redemption fine were exigible. The Tribunal relied on settled principles that fraud disentitles the wrongdoer from obtaining benefit and that where goods are unaccounted, liability to confiscation and penalty follows; the quantum of penalty lies within discretion of the authority and was not shown to be excessive in the facts of the case. [Paras 11, 13, 16]

Penalty under Section 11AC and the redemption fine were upheld as justified.

Rejection of afterthought plea of coercion in recorded statements - The plea that statements were recorded under threat or coercion was rejected as an afterthought not raised earlier. - HELD THAT: - The Tribunal observed that the allegation of coercion was not taken up during earlier proceedings and no retraction or complaint was made by the declarants at any earlier stage. In the absence of timely objection or retraction, the belated claim of coercion was treated as an afterthought and dismissed. [Paras 14]

The contention that statements were recorded under threat or coercion was rejected.

Status as manufacturer cannot be altered to avoid confiscation - The appellant cannot now claim dealer status to escape liability when it was registered as a manufacturer and when evidence demonstrates manufacture was simulated to avail credit. - HELD THAT: - The Tribunal held that the appellant, being registered as a manufacturer, could not on the basis of adverse findings re-characterise itself as a dealer to avoid confiscation. The findings from investigation and records indicated an attempt to portray manufacturing activity fraudulently; therefore, the argument of dealer status to negate confiscation was unsustainable. [Paras 15]

The plea that seized goods were not liable because the appellant was a dealer was rejected.

Final Conclusion: The Tribunal dismissed the appeal and affirmed the orders below: statements not cross-examined were admissible given appellant's non-participation; confiscation under Rule 25, redemption fine and penalty under Section 11AC were upheld on the facts showing simulated manufacture, unaccounted goods and fraudulent availment of CENVAT credit; other pleas including coercion and reclassification as a dealer were rejected.

Liability to pay interest on differential excise duty - inter-unit transfers and revenue neutrality - compliance with prescribed valuation and payment method - self-assessment, provisional assessment and upward revision of value - interpretation and scope of levy of interest under Section 11AB

Liability to pay interest on differential excise duty - inter-unit transfers and revenue neutrality - compliance with prescribed valuation and payment method - interpretation and scope of levy of interest under Section 11AB - Whether interest is payable on the differential duty paid after obtaining a fresh cost certificate for the six month period in respect of inter unit transfers where duty was paid at the time of clearance in conformity with prescribed valuation/payment procedure. - HELD THAT: - The Tribunal found that the appellant had discharged duty at the time of clearance based on the cost certificate then available and that this method of payment and periodic obtaining of a fresh six monthly cost certificate were in accordance with the prescribed instructions. The appellant, on receiving the updated cost certificate showing higher cost, voluntarily paid the differential duty though there was no obligation to do so. The Tribunal held that there was no short payment of duty at any relevant time because the original duty was paid within the due date under the rules and in accordance with the prescribed method; consequently, the conditions that trigger interest under the statutory scheme do not arise. Further, the Tribunal noted that these clearances were inter unit transfers and any duty paid would be available as CENVAT credit to the recipient unit, rendering the transactions revenue neutral; interest being compensatory for revenue loss therefore does not arise in this factual matrix. The Tribunal distinguished decided authorities relied upon by the lower authorities as concerned with additional consideration in sale transactions or facts where provisional assessment/procedure under Rule 7 was available and not invoked. Applying these conclusions, the Tribunal allowed the appeal and set aside the impugned order insofar as it levied interest. [Paras 9, 21]

No interest is payable on the differential duty under the facts - duty was paid in accordance with prescribed method and timelines and the transactions were revenue neutral; appeal allowed and impugned order set aside.

Final Conclusion: The appeal is allowed: the Tribunal held that no case of short payment was made out and, given compliance with the prescribed valuation/payment method and the revenue neutral character of inter unit transfers, interest on the differential duty is not leviable; the impugned order is set aside and the appellant is entitled to consequential relief in accordance with law.

Input service - used by a manufacturer whether directly or indirectly in or in relation to the manufacture of final products - eligibility of CENVAT credit for services used in setting up a plant - exclusion of 'setting up of the plant' from the inclusive part of the definition of input service (w.e.f. 01.04.2011)

Input service - used by a manufacturer whether directly or indirectly in or in relation to the manufacture of final products - eligibility of CENVAT credit for services used in setting up a plant - Whether services availed for setting up the plant qualify as 'input service' and entitle the assessee to CENVAT credit despite omission of 'setting up of the plant' from the inclusive part of the definition w.e.f. 01.04.2011. - HELD THAT: - The Tribunal examined the post 2011 definition of 'input service' and applied the main ('means') clause which covers services "used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal." Relying on the wide statutory scope of 'manufacture' (including processes incidental or ancillary to manufacture) and on precedents that have construed activities required to establish manufacturing capacity as "activities directly in relation to manufacture," the Bench held that services used for setting up the plant have a direct nexus with manufacture. The fact that "setting up of the plant" was not retained in the inclusive part of the definition after 01.04.2011 does not oust the services from the ambit of the main clause; absent a specific exclusion, such services qualify as input services. Applying this legal principle to the facts, the Tribunal found that the impugned denial of credit, recovery and penalties could not be sustained and allowed the appeal. [Paras 11, 12, 13]

Services used in setting up the plant qualify as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004 and the appeal is allowed.

Final Conclusion: The Tribunal held that input services availed for setting up the plant directly relate to manufacture and qualify for CENVAT credit despite the omission of the express phrase 'setting up of the plant' from the inclusive part of the definition w.e.f. 01.04.2011; the impugned order denying credit, recovering amounts with interest and imposing penalties was set aside and the appeal allowed.

Genuineness of Input Tax Credit - onus of proof on the assessee to establish ITC - verification of ITC by the Assessing Authority - default assessment for non-production of documents - question of fact not amenable to judicial review in appeal - raising new grounds in higher forum when not urged below - allegation of mala fide requires specific pleading with particulars - condonation of delay - exemption from filing original/clear annexures

Default assessment for non-production of documents - genuineness of Input Tax Credit - verification of ITC by the Assessing Authority - Whether the default assessment and rejection of the appellant's ITC-based refund claim was justified for failure to produce documentary evidence. - HELD THAT: - The Assessing Authority framed a default assessment and rejected the refund claim because the appellant failed to produce purchase invoices, bank statements or other documentary material to establish payment of ITC. The OHA and the Tribunal upheld the assessment for the same reason, recording that verification of purchase and ITC is a question of fact best examined by documentary evidence such as tax invoices, DVAT-30/31 and bank records. There was no production of relevant records before the Assessing Authority, OHA or Tribunal, and therefore the impugned assessment was correctly issued in law. [Paras 6, 7, 8, 9, 11]

The default assessment and rejection of the ITC-based refund claim was justified due to failure to produce requisite documentary evidence.

Onus of proof on the assessee to establish ITC - question of fact not amenable to judicial review in appeal - Whether the Court should re-examine the factual question of genuineness of ITC in the present appeal. - HELD THAT: - The Court observed that the determinative issue-whether ITC was genuine-was a question of fact, resting on documentary verification, and that the assessee had not produced the necessary material at any stage. As the finding is one of fact and the appellant did not place evidence before the fora below, the matter is not amenable to review in these proceedings. The Assessing Authority is empowered to call for and verify records, and the onus to establish genuineness of ITC lies on the assessee. [Paras 11, 12, 14]

The Court will not re-examine the factual finding; the onus to prove genuineness of ITC was on the assessee and was not discharged.

Raising new grounds in higher forum when not urged below - Whether grounds not urged before the OHA or Tribunal (such as absence of signature or mala fide) can be entertained in this Court. - HELD THAT: - The Court noted that the appellant sought to advance for the first time before this Court contentions that were not raised before the OHA or the Tribunal, including alleged mala fide conduct and non-signature of the Assessing Authority's order. As these grounds were not urged below and do not arise from the impugned Tribunal order, they cannot be entertained at this stage. The appellant had proceeded on the basis that the order was valid and had assailed it on merits before the lower fora. [Paras 15, 16, 17, 18, 19]

New grounds not raised before the OHA or Tribunal are not entertainable in this appeal.

Allegation of mala fide requires specific pleading with particulars - Whether the order of the Assessing Authority should be set aside on the ground of mala fide. - HELD THAT: - The Court rejected the contention of mala fide, observing that allegations of mala fides must be specifically pleaded with full particulars. No such pleading or particulars were before the Court, and the scope of the appeal is confined to substantial questions of law arising from the record. Consequently, the mala fide plea was not sustained. [Paras 15, 20, 21]

The plea of mala fide, not specifically pleaded with particulars, cannot be accepted and does not warrant setting aside the assessment.

Condonation of delay - Whether the delay in filing the present appeal should be condoned. - HELD THAT: - For reasons stated in the condonation application, the Court allowed the application and condoned the delay of 38 days in filing the appeal. [Paras 1, 2]

Delay in filing the appeal is condoned.

Exemption from filing original/clear annexures - Whether exemption from filing original/certified annexures should be granted. - HELD THAT: - The Court allowed the application for exemption from filing the original/certified/true typed copies of annexures (being dim, single-spaced or hand-written), subject to all just exceptions, and disposed of the application accordingly. [Paras 3, 4]

Exemption from filing the original/certified annexures granted subject to exceptions.

Final Conclusion: The Court condoned the delay and allowed the exemption application but dismissed the appeal on merits: the default assessment rejecting the ITC-based refund was upheld because the assessee failed to produce documentary evidence to establish genuineness of ITC, the onus of proof being on the assessee; new pleas not raised before the lower fora and unpleaded allegations of mala fide were not entertained.

Compounding of offence under Section 138 of the Negotiable Instruments Act - power of court to permit compounding at appellate or later stages - overriding effect of Section 147 of the Negotiable Instruments Act on general compounding provisions - acquittal consequent to compounding - discretion to impose or adjust costs/compounding fee when allowing compounding

Compounding of offence under Section 138 of the Negotiable Instruments Act - power of court to permit compounding at appellate or later stages - acquittal consequent to compounding - Compounding of the offence under Section 138 was permitted after settlement reached before the Mediation Centre and the conviction and sentence were set aside with acquittal. - HELD THAT: - The Court noted that the parties, with assistance of the Mediator, executed a written settlement and the complainant received the agreed amount and had no objection to compounding. Relying on binding precedents of the Supreme Court (as cited in the judgment) which recognize that offences under Section 138 are primarily civil in nature, are made compoundable and may be compounded even at later stages including after appellate proceedings, the High Court held that compounding was permissible. In consequence of the accepted compromise and in exercise of power to permit compounding, the conviction and sentence recorded by the trial court and affirmed on appeal were set aside and the petitioner was acquitted. [Paras 10, 11, 12, 13, 14]

Compounding allowed; conviction and sentence set aside and petitioner acquitted upon acceptance of the settlement.

Discretion to impose or adjust costs/compounding fee when allowing compounding - mitigating circumstances in fixing costs - Prayer to waive the compounding fee was declined, but the compounding fee/costs were reduced in view of the petitioner's mitigating circumstances and directed to be deposited with the State Legal Services Authority. - HELD THAT: - The petitioner sought waiver of compounding fee on grounds of poverty, widowhood, ill-health and family responsibilities. The Court observed that while compounding is permissible, the power to waive or fix costs is discretionary. Having considered the mitigating circumstances, and guided by precedent permitting adjustment of costs in the interest of uniformity while allowing courts to deviate for reasons, the High Court refused total waiver but reduced the amount to be deposited as costs with the Haryana State Legal Services Authority. A timeline for deposit and a compliance report were directed. [Paras 6, 7, 14, 16]

Waiver of compounding fee refused; costs reduced and petitioner directed to deposit the specified amount with the Haryana State Legal Services Authority by the stipulated date.

Final Conclusion: Revision allowed; having recorded the settlement and permitted compounding, the conviction and sentence were set aside and the petitioner acquitted. The petitioner was directed to deposit reduced costs with the Haryana State Legal Services Authority within the time specified and a compliance report was ordered.

Presumption under Section 118 of the Negotiable Instruments Act - Material alteration of negotiable instrument - Authority to complete inchoate instruments under Section 20 of the Negotiable Instruments Act - Prohibition on cash receipt and applicability of Section 269SS of the Income Tax Act to receivers - Violation of tax law does not invalidate civil transaction; remedy lies with tax authorities - Proof of transaction by income tax returns and drawing adverse inference for non-production - Commercial loan interest and award of contractual/common law interest - Costs in successful civil recovery suits

Presumption under Section 118 of the Negotiable Instruments Act - Material alteration of negotiable instrument - Authority to complete inchoate instruments under Section 20 of the Negotiable Instruments Act - The suit promissory notes were executed for valid consideration and are binding on the defendants. - HELD THAT: - The signatures on the promissory notes were not genuinely disputed and the defendants' plea that the notes were handed over to a third party (Adeshwar Investment) and later colluded over is unsupported by independent evidence. The defendants failed to call the alleged broker or any independent witness and did not take steps to recover original documents after the alleged settlement, weakening their account. Once execution in favour of the plaintiff is established on a preponderance of probabilities, the statutory presumption under Section 118 applies. The mere use of different ink for certain particulars does not establish material alteration where no specific plea was taken and, in any event, an inchoate instrument completed by a holder is permissible under Section 20; accordingly no material alteration vitiating the instruments was proved. [Paras 11, 23]

Issue Nos.1 (valid consideration/execution) answered in favour of the plaintiff; promissory notes held valid and binding.

Proof of transaction by income tax returns and drawing adverse inference for non-production - Prohibition on cash receipt and applicability of Section 269SS of the Income Tax Act to receivers - Violation of tax law does not invalidate civil transaction; remedy lies with tax authorities - The plaintiff proved entitlement to the claimed amount with interest; alleged illegality of cash payment under Section 269SS does not defeat the civil claim. - HELD THAT: - The plaintiff produced income tax returns (notably Ex.P14 for AY 2016-2017) showing the suit transaction and sufficient cash inflow (sale proceeds and reduction in receivables) to fund the loan, meeting the evidentiary burden that the transaction was reflected in tax records. The Court distinguished precedents where returns were not produced and adverse inference was drawn. While Section 269SS prohibits receipt of specified sums in cash and the RBI circular extends norms to certain entities, the statutory prohibition is directed at the receiver and non-compliance attracts tax authority action; it does not automatically render the civil transaction invalid such that the payor cannot maintain a suit. Consequently, the plaintiff's proof of source and reflection of the transaction in income tax returns supports entitlement to recovery despite allegations of cash payment. [Paras 16, 18, 19, 21, 22]

Issue No.2 (entitlement to amount with interest) answered in favour of the plaintiff; plaintiff entitled to recover the claimed sum.

Commercial loan interest and award of contractual/common law interest - Costs in successful civil recovery suits - Reliefs: decree for recovery of principal, award of interest at 12% per annum from 19.06.2015 till realization, and costs to the plaintiff. - HELD THAT: - Having held the promissory notes valid and the plaintiff entitled to recover the loan, the Court awarded relief appropriate to a commercial transaction. Considering the commercial nature of the loan, the Court fixed interest at 12% per annum from the date of the transaction until actual realisation. The plaintiff was also awarded the costs of the suit. [Paras 25, 26]

Issue No.3 (reliefs) answered in favour of the plaintiff; decree for principal, interest at 12% p.a. from 19.06.2015 to realization, and costs awarded.

Final Conclusion: The plaintiff's suit succeeds: the promissory notes are held valid and the plaintiff is entitled to recovery of the principal sum, with interest at 12% per annum from 19.06.2015 until realization, together with costs of the suit; statutory contraventions under tax law, if any, are a matter for tax authorities and do not defeat the civil decree.