TaxTMI Updates e-Newsletter
Jul 22,2024

Refund of tax with interest - compensation for wrongful withholding of money by the revenue - liability of revenue for delay caused by technical glitch - interest as compensation and fixation of rate - direction for enhanced interest for non-compliance

Liability of revenue for delay caused by technical glitch - compensation for wrongful withholding of money by the revenue - Respondents' delay in granting IGST refund was attributable to a technical glitch on their portal and petitioner was entitled to compensation in the form of interest for wrongful withholding of funds. - HELD THAT: - The Court found that the petitioner had inadvertently not shown the correct refund amount in Form GSTR-3B and later corrected details in Form GSTR-1, but the refund was not processed due to a technical glitch on the department's portal. The refund was ultimately granted only after this Court directed respondents to consider the representation, which demonstrates that the delay in grant of refund arose from the respondents' side. Relying on established principles that money wrongfully withheld by the revenue ought to attract compensation, the Court held that the petitioner could not be deprived of its justifiable money and was entitled to interest as compensation for the period of wrongful retention. [Paras 3, 6, 7]

Delay in granting refund was the respondents' responsibility due to a portal technical glitch; petitioner entitled to interest as compensation for wrongful withholding.

Refund of tax with interest - interest as compensation and fixation of rate - direction for enhanced interest for non-compliance - Rate, period and manner of payment of interest on the refunds were determined and directions were issued for payment and consequences of non-compliance. - HELD THAT: - Applying the principle that the revenue must reimburse unlawfully retained monies with interest, the Court fixed interest at 6% per annum from 1st July 2018 up to 18th September 2023 on the sum paid on that date and up to 16th October 2023 on the subsequently paid sum. The Court directed payment within four weeks of upload of the order and ordered that, if not paid within that period, interest on the outstanding amount would run at 9% per annum from the expiry of the four weeks until date of actual credit. The Court further directed that the amounts be credited directly to the petitioner's bank account without any application by the petitioner and that respondents' counsel facilitate communication to concerned authorities for compliance. [Paras 9, 10]

Respondents ordered to pay interest at 6% p.a. from 1st July 2018 to the respective payment dates; failure to pay within four weeks attracts interest at 9% p.a. thereafter; payment to be credited to petitioner's bank account without application.

Final Conclusion: Writ petition disposed: refund previously sanctioned to petitioner is upheld to attract interest as compensation; respondents directed to pay interest at 6% p.a. from 1st July 2018 to the respective payment dates and to pay enhanced interest at 9% p.a. for any delay beyond four weeks, with payment to be made directly to the petitioner's bank account.

Cancellation of GST registration with retrospective effect - Requirement of reasoned order for retrospective cancellation - Power to cancel GST registration with retrospective effect under Section 29(2) of the CGST Act - Failure to file returns timely as ground for cancellation of registration - Opportunity of personal hearing before cancellation - Suspension of registration upon issuance of show cause notice - Modification of retrospective cancellation to operative date of show cause notice

Cancellation of GST registration with retrospective effect - Requirement of reasoned order for retrospective cancellation - Failure to file returns timely as ground for cancellation of registration - Validity of retrospective cancellation of the petitioner's GST registration from 02.07.2017 - HELD THAT: - The Court found that the impugned order cancelling the petitioner's registration retrospectively did not set out any reasons supporting cancellation from the date of grant of registration and merely referred to the show cause notice. While the Proper Officer has power under Section 29(2) of the CGST Act to cancel registration from such date as deemed fit, that power cannot be exercised arbitrarily and a decision to cancel with retrospective effect must be informed by reasons. The impugned show cause notice and order do not propose or justify retrospective cancellation, and the record shows no determination of tax payable for the earlier period. On these grounds the Court held that retrospective cancellation from 02.07.2017 was not supported by reasoned findings. [Paras 5, 7, 10, 11]

Retrospective cancellation from 02.07.2017 is not upheld for lack of reasoned findings.

Opportunity of personal hearing before cancellation - Suspension of registration upon issuance of show cause notice - Whether the petitioner was afforded a personal hearing before cancellation and the significance of suspension from the date of the show cause notice - HELD THAT: - The show cause notice warned the petitioner that failure to appear would result in an ex parte decision, but did not fix an appointed date and time for personal hearing; accordingly no opportunity of personal hearing was granted. The record also shows that the petitioner's registration was suspended from the date of the show cause notice, which the respondents accepted could be the operative date for cancellation. The parties' counsels concurred with making the cancellation effective from the date of suspension/SCN. [Paras 4, 6, 12]

No personal hearing was granted; cancellation may be made operative from the date of suspension/SCN.

Modification of retrospective cancellation to operative date of show cause notice - Power to cancel GST registration with retrospective effect under Section 29(2) of the CGST Act - Appropriate corrective order in view of the defect in retrospective cancellation - HELD THAT: - The respondents, through their counsel, conceded that the impugned order could be made operative from the date of the show cause notice, namely 09.03.2021, and the petitioner did not press for setting aside the order entirely. Given the absence of reasons for cancellation from the date of grant and the concession, the Court considered it appropriate to modify the impugned order so that cancellation operates from 09.03.2021. The Court clarified that this modification does not preclude the respondent from initiating other steps for any statutory non-compliance and reserved all other rights and contentions. [Paras 12, 13, 14]

Impugned order modified so that cancellation is effective from 09.03.2021 instead of 02.07.2017.

Final Conclusion: The petition is disposed by modifying the impugned order: the petitioner's GST registration is cancelled with effect from 09.03.2021 (date of the show cause notice) and not retrospectively from 02.07.2017; other rights and remedies of the parties are preserved.

Exclusion of time under Section 14 of the Limitation Act - condonation of delay - abuse of the process of the court (relitigation) - finality of writ court order affirmed by the Supreme Court - maintainability of writ petition notwithstanding alternative statutory remedy

Exclusion of time under Section 14 of the Limitation Act - condonation of delay - finality of writ court order affirmed by the Supreme Court - Entitlement to exclude time spent in writ proceedings or to seek condonation of delay for filing statutory appeal after writ proceedings that were entertained and resulted in setting aside the assessment order with conditions - HELD THAT: - The Court examined whether the period consumed in the petitioner's writ proceedings could be excluded under Section 14 of the Limitation Act or otherwise furnish sufficient ground for condonation of delay in filing the appeal. Reliance was considered on the decision in M/s. Laxmi Srinivasa R and P Boiled Rice Mill where exclusion was permitted because the writ petition was not entertained and dismissal was on the ground of alternative remedy. Distinguishing that precedent, the Court observed that here the writ petition was entertained and disposed of by setting aside the assessment order subject to a condition (deposit of 50% of specified tax component), and these orders were subsequently left undisturbed by the Supreme Court. In those circumstances the petitioner could not claim exclusion of time or condonation on account of having pursued writ remedies; the principle allowing exclusion where a writ was merely not entertained does not apply. The Court thus held that neither exclusion of the writ period nor condonation of delay was available to the petitioner in the facts of this case. [Paras 32, 34]

The petitioner is not entitled to exclusion of time for the writ proceedings nor to condonation of delay for filing the appeal.

Abuse of the process of the court (relitigation) - maintainability of writ petition notwithstanding alternative statutory remedy - finality of writ court order affirmed by the Supreme Court - Whether filing the statutory appeal after litigating and obtaining a writ order (which attained finality) constitutes an abuse of the process of the court - HELD THAT: - The Court applied established authorities on abuse of process and relitigation, noting that where a party, having elected to litigate in writ jurisdiction and obtained an order that attained finality (including affirmation by the Supreme Court), thereafter seeks to reopen the same controversy by filing a statutory appeal to avoid complying with the writ court's directions, such conduct amounts to abuse of process. The Court referred to principles in K. K. Modi and Neelima Srivastava concerning relitigation and the impermissibility of reopening concluded judgments. Having found no positive intent by the petitioner to comply with the writ court's condition and observing that allowing the appeal would permit circumvention of the writ court's order, the Court held that the present attempt to file the appeal is an abuse of process and must be rejected. The Court therefore exercised its discretion to stop the proceedings and to penalise the petitioner by imposing costs. [Paras 30, 35]

Filing of the appeal and re-approach in writ jurisdiction after final writ proceedings is an abuse of process of the court; the writ petition is dismissed and costs are imposed.

Final Conclusion: Writ petition dismissed; petitioner not entitled to exclusion of writ period or to condonation of delay for filing appeal, the attempt to relitigate the same assessment after final writ orders is held to be an abuse of process, and costs are imposed on the petitioner.

Input Tax Credit eligibility under Section 16 - Blocked credits for motor vehicles and exception for further supply under Section 17(5)(a) - Distinction between 'used in the furtherance of business' and 'held for further supply' - Reliance on accounting treatment to determine use of goods - Binding effect and limited applicability of an Advance Ruling

Input Tax Credit eligibility under Section 16 - Distinction between 'used in the furtherance of business' and 'held for further supply' - Whether the applicant is entitled to avail ITC on motor vehicles used as demo cars under Section 16 when those vehicles are capitalised in the books and used in the course or furtherance of business. - HELD THAT: - The authority accepted that demo cars are inherent and essential to the appellant's business and that the appellant satisfies the broad conditions of Section 16 for availment of input tax credit. However, entitlement under Section 16 is subject to the exceptions in Section 17(5). The AAAR distinguished between the concept of goods 'used in the furtherance of business' and goods 'held for further supply': the former denotes use in the business (e.g., capitalised assets used for demonstration), while the latter means goods held for sale or other forms of supply as defined in Section 7. The Authority found that the appellant's contractual and customary practice (OEM supplying demo cars at a discount and requiring capitalization and holding for a prescribed period) and the accounting treatment (capitalisation in audited books) indicate that demo cars are treated as assets used in the business rather than stock-in-trade held for further supply. On that basis, the exception in clause (A) of Section 17(5) (which permits ITC where such motor vehicles are used for 'further supply of such motor vehicles') does not apply. Consequently, ITC on the demo cars is blocked under Section 17(5)(a).

ITC on demo motor vehicles capitalised and used in the business is not allowable because such vehicles are not held for 'further supply' within the meaning of Section 17(5)(a).

Blocked credits for motor vehicles and exception for further supply under Section 17(5)(a) - Interpretation of 'for further supply' and 'such motor vehicles' - Whether the exception in Section 17(5)(a)(A) (availability of ITC where motor vehicles are used for further supply) covers demo cars sold after a period and therefore permits ITC. - HELD THAT: - The AAAR examined the phrase 'further supply' in light of the definition of 'supply' in Section 7 and concluded that 'further supply' denotes sale or other forms of supply (sale, transfer, barter, lease, etc.) as ordinarily understood. The word 'such' in 'such motor vehicles' was held to refer to the class of motor vehicles described in Section 17(5)(a) (i.e., motor vehicles for transportation of persons with seating up to 13). The appellant's contention that timing or subsequent sale (after depreciation or after one/two years) brings demo cars within the exception was rejected because the appellant's accounting and contractual treatment show the vehicles were not held as stock-in-trade for sale but as assets for use in business. The absence of any prescribed time-limit for 'further supply' in the statute does not alter the conclusion where the factual/material classification demonstrates use as business assets rather than as goods held for supply.

The exception in Section 17(5)(a)(A) does not apply to demo cars capitalised and held for demonstration; hence ITC cannot be allowed on that basis.

Reliance on accounting treatment to determine use of goods - Binding effect and limited applicability of an Advance Ruling - Whether the AAR was obliged to follow its earlier favourable ruling (M/s Chowgule Industries Pvt. Ltd.) and whether that precedent compelled allowing ITC in the present case. - HELD THAT: - The AAAR noted divergent rulings by various State AAR/AAAR benches on ITC for demo cars. It observed that an advance ruling under Section 103(1) is binding only on the applicant who sought it and therefore does not operate as a binding precedent de facto on other taxpayers. Given differences in facts and the AAR's reliance on the appellant's contractual terms and accounting treatment to classify demo cars as assets used in business, the earlier favourable ruling was not determinative. The AAAR found no deficiency in the AAR's reasoning and concluded that the earlier ruling does not mandate a contrary result in the present factual matrix.

The AAR was not bound to apply the earlier favourable ruling to this appellant; the prior ruling does not change the conclusion reached on the facts of this case.

Final Conclusion: The appeal is dismissed. The ruling of the AAR is upheld: the applicant is not entitled to avail Input Tax Credit on motor vehicles used for demonstration and capitalised in the appellant's books because such vehicles are treated as assets used in the furtherance of business and are not held for 'further supply' within the exception in Section 17(5)(a).

Valuation of supply - consideration not wholly in money - application of Section 15 valuation principles - works contract services supplied by third party contractor - supervision charges as sole taxable consideration

Valuation of supply - works contract services supplied by third party contractor - supervision charges as sole taxable consideration - Whether the value of materials and cost of execution of work for installation of electric lines, borne by the recipient, are includible in the taxable value of supply when the applicant charges only supervision charges. - HELD THAT: - The Authority found that under the facts the contract for execution of works is between the consumer and an independent third party contractor and UPPTCL is only engaged to supervise the work. UPPTCL does not supply the works contract services, does not receive payment for those services and has no obligation to pay the contractor; therefore the transaction between contractor and consumer is independent of UPPTCL. Given that UPPTCL receives only supervision (and related shutdown) charges, there is no additional consideration flowing to UPPTCL in respect of the materials or execution work. Consequently the situation does not attract the deeming or attribution under section 15(2)(b) (as applied in the ruling) and the valuation rules for consideration not wholly in money need not import the cost of materials and execution into UPPTCL's taxable value. Applying these principles, the Authority held that the taxable value of UPPTCL's supply is confined to the supervision charges (and related charges received by UPPTCL) and not the total cost of works borne by the recipient. [Paras 16, 18, 19]

Value of materials and cost of execution borne by the recipient are not includible in UPPTCL's taxable value; GST is payable only on the supervision charges.

Final Conclusion: Advance Ruling: GST liability limited to supervision charges charged by UPPTCL; the cost of materials and execution paid by the recipient are not included in UPPTCL's taxable value under the facts before the Authority.

Classification of goods - Harmonized System of Nomenclature - General Rules for the Interpretation of the Harmonized System - Essential character test - Mixtures and composite goods classification - Refund of accumulated input tax credit in inverted duty structure - Notification No. 09/2022 - denial of refund for specified goods

Classification of goods - Essential character test - General Rules for the Interpretation of the Harmonized System - Mixtures and composite goods classification - Harmonized System of Nomenclature - Non-edible chemically modified neem oil is classifiable under HSN chapter heading 1515 (specifically 15159020). - HELD THAT: - The Authority applied the General Rules for interpretation of the Harmonized System. Rule 1 requires classification to be determined by the terms of the headings and notes. The product as supplied is described and tendered as "Neem Kernel Oil/Depulped neem seed oil" and neem seed oil is specifically mentioned under sub-heading 1515 90 20. The addition of solvents to reduce Azadirachtin concentration does not amount to chemical modification that alters the essential character of the product; true chemical modification would involve changes in chemical constitution such as hydrogenation or esterification. Applying Rule 3(b), where mixed or composite goods are to be classified according to the material giving them their essential character, the product remains essentially neem oil despite dilution. Consequently, the product is classifiable under HSN 1515 (sub-heading 15159020) and not under Chapter 31 as a fertilizer. [Paras 15, 16, 20, 23]

Classified as HSN 1515 (15159020).

Refund of accumulated input tax credit in inverted duty structure - Notification No. 09/2022 - denial of refund for specified goods - Applicability of notifications - Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 applies to the applicant's product and thus no refund of unutilized input tax credit on account of inverted duty structure is allowable for that product. - HELD THAT: - Notification No. 09/2022, issued under the proviso to section 54(3) of the CGST Act, specifies certain goods falling under chapter 15 for which no refund of unutilized input tax credit shall be allowed where credit has accumulated because input tax rates exceed output tax rates. Having held that the applicant's product is classifiable under chapter 15 (HSN 1515), the product falls within the scope of the notification. Therefore the statutory bar contained in Notification No. 09/2022 applies and the applicant is not entitled to refund of accumulated ITC on that ground. [Paras 21, 22, 23]

Notification No. 09/2022 applies; refund of unutilized input tax credit on account of inverted duty structure is not allowable.

Final Conclusion: The Authority ruled that the applicant's non-edible neem oil is classifiable under HSN 1515 (sub-heading 15159020) and that Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 applies to this product, thereby precluding refund of accumulated input tax credit arising from an inverted duty structure.

Supply of goods - Vouchers as movable property - Voucher not money - Actionable claim - not applicable to vouchers in possession - Time of supply of vouchers - Valuation - transaction value - Taxability under residual entry

Vouchers as movable property - Voucher not money - Actionable claim - not applicable to vouchers in possession - Supply of goods - Characterisation of vouchers purchased and traded by the applicant and whether their sale constitutes supply taxable under GST. - HELD THAT: - The Authority examined definitions of 'goods', 'services', 'money' and 'actionable claim' under the CGST Act and the nature of the applicant's transactions. The vouchers purchased, held in stock and sold by the applicant are freely transferable, have value and ownership transferred on sale, and involve no element of service between issuer, applicant and purchaser. They are not used by the applicant to settle an obligation and hence are not 'money' in the applicant's hands. As the vouchers are in the applicant's possession at the time of sale, they are not 'actionable claims' within the Transfer of Property Act sense. On these bases and having distinguished prior decisions applicable to issuers or non-transferable vouchers, the Authority concluded that the vouchers qualify as movable property and their sale amounts to supply of goods within the meaning of Section 7(1)(a) and Schedule II (transfer of title) of the CGST Act. [Paras 18, 19, 20, 21, 22]

Vouchers traded by the applicant are goods and their sale constitutes supply of goods taxable under GST.

Time of supply of vouchers - Supply of goods - Applicable provision for determination of time of supply in respect of the applicant's sale of vouchers. - HELD THAT: - Although Section 12(4) specifically addresses time of supply in case of supply of vouchers, the Authority held that its language applies to issuers of vouchers where the supply is identifiable at issuance. The applicant is a trader (not an issuer), therefore the special provision is inapplicable. The time of supply for the applicant's transaction is to be determined under Section 12(2), i.e., earlier of issue of invoice or receipt of payment (with other fallback provisions available under Section 12(5) if required). [Paras 23]

Time of supply for the applicant's sale of vouchers shall be determined under Section 12(2) of the CGST Act.

Valuation - transaction value - Taxability under residual entry - Rate of tax and valuation methodology applicable to the applicant's sale of vouchers. - HELD THAT: - The Authority observed that valuation provisions specific to issuers (Rule 32(6)) are not applicable to the applicant as a trader. Accordingly, the value of the supply shall be determined under Section 15(1)-(3) of the CGST Act (transaction value where supplier and recipient are not related and price is sole consideration). For the rate, the Authority applied the residual entry (no. 453) in the Third Schedule to Notification No. 01/2017-Central Tax (Rate), concluding that the vouchers are taxable at the specified residual rate under the notification (with corresponding UPGST applicability). [Paras 24, 25]

Value to be determined as transaction value under Section 15(1)-(3); vouchers taxable under the residual entry at the prescribed rate (as specified in the Third Schedule to Notification No. 01/2017-Central Tax (Rate)).

Final Conclusion: The Authority ruled that the vouchers traded by the applicant are goods and their sale is taxable. Time of supply for the applicant's transactions is to be determined under Section 12(2) of the CGST Act; valuation shall follow Section 15(1)-(3) (transaction value); and the supplies are taxable under the residual entry in the Third Schedule to Notification No. 01/2017-at the rate specified therein with corresponding UPGST applicability.

Miscellaneous application for clarification - interpretation of Tribunal order - scope of section 254(2) of the Income Tax Act - remedial powers of the ITAT in miscellaneous applications - judicial interference with dismissal of procedural application

HELD THAT:- Special Leave Petition dismissed as withdrawn with liberty to file a writ petition for enforcement of the Income Tax Appellate Tribunal order [2013 (6) TMI 184 - ITAT DELHI]

Entitlement to deduction under Section 80IC - jurisdiction under Section 263 to revise orders prejudicial to revenue - doctrine of merger and finality of appellate orders - prohibition on revising orders already set aside by Appellate Tribunal - res judicata and judicial discipline in revenue proceedings

Prohibition on revising orders already set aside by Appellate Tribunal - doctrine of merger and finality of appellate orders - jurisdiction under Section 263 to revise orders prejudicial to revenue - Power of the Principal Commissioner under Section 263 to revise the assessment/order after the Assessing Officer's order had been set aside by the Appellate Tribunal - HELD THAT: - The Tribunal had set aside the Assessing Officer's re-assessment order and restored the assessee's claim of deduction, thereby merging the AO's order into the Tribunal's decision. Section 263 empowers the Principal Commissioner to revise an order of the Assessing Officer if it is erroneous and prejudicial to the revenue. However, where the AO's order has been adjudicated upon and set aside by the appellate authority, revision by the Principal Commissioner of the underlying AO order would amount to revising an order which has already merged in and been finally disposed of by the Appellate Tribunal. Allowing revision in such circumstances would defeat the finality of appellate adjudication, offend the doctrine of merger, and violate principles of judicial discipline and res judicata. The Principal Commissioner therefore had no jurisdiction to revise the Tribunal's order or to effect a revision that in substance sought to overturn the appellate decision. [Paras 6, 12, 14, 15]

Order passed by the Principal Commissioner under Section 263 in so far as it sought to revise the assessment after the Tribunal had set aside the Assessing Officer's order was without jurisdiction and unsustainable.

Entitlement to deduction under Section 80IC - Whether the assessee was entitled to claim 100% deduction under Section 80IC for the assessment year 2013-14 as held by the Tribunal - HELD THAT: - The Assessing Officer reduced the deduction claimed by the assessee from 100% to 30%. The First Appellate Authority confirmed that reduction. The Tribunal, relying on settled law concerning entitlement following substantial expansion of units, held that the assessee was entitled to claim 100% deduction and allowed the appeal. The High Court did not re-open the merits of that entitlement; rather, it accepted that the Tribunal had adjudicated and settled the question in favour of the assessee, rendering further revision by the Principal Commissioner impermissible. [Paras 10, 11, 14]

Tribunal's conclusion that the assessee was entitled to deduction at 100% stands and cannot be disturbed by the Principal Commissioner by invoking Section 263.

Final Conclusion: Appeals dismissed. The High Court held that the Principal Commissioner exceeded jurisdiction in attempting to revise the assessment after the Appellate Tribunal had set aside the Assessing Officer's order; the Tribunal's decision affirming the assessee's entitlement to 100% deduction under Section 80IC for AY 2013-14 was final for the purposes of these proceedings.

Validity of notice under Section 148 - Compliance with the faceless Scheme pursuant to Section 151A - Jurisdiction of the Jurisdictional Assessing Officer vis-a -vis the Faceless Assessing Officer - Mandatory nature of automated allocation under the Scheme - Quashing of action taken contrary to statutory scheme without requirement of proving prejudice

Validity of notice under Section 148 - Compliance with the faceless Scheme pursuant to Section 151A - Jurisdiction of the Jurisdictional Assessing Officer vis-a -vis the Faceless Assessing Officer - Mandatory nature of automated allocation under the Scheme - Quashing of action taken contrary to statutory scheme without requirement of proving prejudice - Impugned notice and underlying order issued by the JAO in respect of Assessment Year 2020-21 are invalid for non-compliance with the Scheme framed under Section 151A and are liable to be quashed. - HELD THAT: - The record shows the notice dated 31 March 2024 under Section 148 and the attendant order under Section 148A(d) were issued by the Jurisdictional Assessing Officer and not by a Faceless Assessing Officer as required by the Scheme notified pursuant to Section 151A. The Division Bench decision in Hexaware Technologies (as cited) holds that issuance of notice under Section 148 must comply with the Scheme's mandatory provision of automated allocation and that there is no concurrent jurisdiction between the JAO and the FAO for issuance of such notices. The Scheme, having been framed under Section 151A(2) and tabled in Parliament, governs issuance of notices under Section 148 and requires faceless issuance through automated allocation; non observance of this procedure renders the action contrary to the statutory scheme. When an authority acts contrary to law, the act is invalid and quashable without the assessee having to establish further prejudice. In the present case the parties conceded that the proceedings would not be sustainable in view of Hexaware and similar precedents, and the Court found the JAO had no jurisdiction to issue the impugned notice, thereby vitiating the reassessment proceedings initiated for Assessment Year 2020-21.

The impugned notice dated 31 March 2024 and the underlying order are quashed and set aside for non-compliance with the Scheme under Section 151A; other issues are left open.

Final Conclusion: Writ petition allowed; the reassessment notice and order issued by the JAO for Assessment Year 2020-21 are quashed for failure to comply with the faceless Scheme under Section 151A, and no costs were awarded.

Reliance on enforcement agency proceedings for income-tax additions - inadmissibility of tax demand founded solely on dropped proceedings - requirement of independent corroborative evidence for statements and seized documents - relevance of seized documents to the specific assessment year

Reliance on enforcement agency proceedings for income-tax additions - inadmissibility of tax demand founded solely on dropped proceedings - requirement of independent corroborative evidence for statements and seized documents - relevance of seized documents to the specific assessment year - Whether additions in assessment year 1988-89 could be sustained when they were founded solely on Enforcement Directorate search, show-cause notices and seized material which proceedings were subsequently dropped by the Special Director. - HELD THAT: - The Court found that the Income Tax Department made the additions for AY 1988-89 solely on the basis of searches, show-cause notices and documents gathered by the Enforcement Directorate. The Special Director, Directorate of Enforcement had dropped the proceedings on merits holding that statements recorded during search were uncorroborated and the seized documents were insufficient to establish mis-declaration of export value; the revision before the Appellate Tribunal for Foreign Exchange was dismissed. The Appellate Tribunal also recorded that the Income Tax Department had not conducted an independent investigation and that many of the documents seized related to subsequent assessment years and were not relevant to the year under consideration. In these circumstances the foundation for reassessment under the Income-tax Act stood removed; additions which rest solely on dropped enforcement proceedings and on uncorroborated material cannot be sustained, and documents unrelated to the assessment year cannot be used to make additions for that year. [Paras 9, 10]

Additions for AY 1988-89 based solely on Enforcement Directorate proceedings and seized material which were dropped are unsustainable; the Appellate Tribunal's order allowing the assessee's appeal is upheld and the departmental appeals are dismissed.

Final Conclusion: The appeals are dismissed. The High Court upheld the Appellate Tribunal's finding that additions grounded solely on enforcement proceedings (which were dropped for lack of corroboration) and on documents not relating to the assessment year could not sustain a demand under the Income-tax Act; pending applications stand disposed of.

Liability to deduct tax at source under Section 194-H - Commission or brokerage payable to distributor/franchisee - Agent-principal relationship - Binding effect of Supreme Court precedent

Liability to deduct tax at source under Section 194-H - Commission or brokerage payable to distributor/franchisee - Agent-principal relationship - Binding effect of Supreme Court precedent - Tax deduction at source under Section 194-H is not attracted on the amounts in dispute and the question of law is answered in favour of the assessee. - HELD THAT: - The Court observed that the Supreme Court in Bharti Cellular Limited (now Bharti Airtel Limited) v. Assistant Commissioner of Income Tax decided the same question of law and upheld the view favourable to the assessee regarding non-attraction of Section 194-H in the factual matrix. Having regard to that authoritative pronouncement, the admitted question of law before this Court was held to be squarely dealt with and answered in favour of the assessee, rendering further adjudication unnecessary. The Court also noted subsequent High Court orders following the Supreme Court's mandate which disposed similar appeals in favour of the assessee, reinforcing that the liability to deduct tax at source under Section 194-H does not arise on the amounts claimed by the revenue as commission/brokerage where the distributors/franchisees were not agents and amounts were not paid as commission. [Paras 3, 4, 5]

Appeals disposed by answering the admitted question of law in favour of the assessee and against the revenue.

Refund application and expeditious consideration - Process of law for refund - Assessee is entitled to pursue refund and any refund application filed shall be considered in accordance with law within three months. - HELD THAT: - The Court left open the statutory remedy for recovery by permitting the assessee to file a refund application. It directed that if such an application is made, the competent authority must consider it in accordance with law and conclude the process expeditiously, specifying a period of three months from the date of filing of the refund application for its consideration. [Paras 6]

Assessee at liberty to file refund application which shall be considered in accordance with law within three months.

Final Conclusion: Appeals disposed in favour of the assessee by answering the admitted question of law against the revenue in light of the Supreme Court's decision; liberty granted to the assessee to seek refund with a direction for expeditious consideration within three months.

Most Appropriate Method - Resale Price Method - Transactional Net Margin Method - Comparable Uncontrolled Price - Arm's Length Price - comparability (qualitative and quantitative) - working capital adjustment - associated enterprise transactions - transfer pricing comparables selection

Most Appropriate Method - Resale Price Method - Transactional Net Margin Method - Comparable Uncontrolled Price - Arm's Length Price - functional analysis - Appropriate transfer pricing method for determination of Arm's Length Price of purchases from Associated Enterprises - HELD THAT: - Having examined the assessee's business profile and functional analysis, the Tribunal found that the assessee in the buy sell model merely imports finished products from overseas AEs and resells them in the Indian market without substantial value addition. On that factual foundation the Tribunal agreed with the TPO that the Resale Price Method is the Most Appropriate Method for determining the Arm's Length Price. The Tribunal rejected the assessee's contention favouring Transactional Net Margin Method because the functional profile did not support TNMM as the MAM. While noting that application of any method (including Comparable Uncontrolled Price) depends on the tested party's functional profile and facts of the case, the Tribunal concluded that, on the material before it, RPM remains the appropriate method in the present case. [Paras 6, 12]

RPM adopted as the Most Appropriate Method; TNMM rejected as MAM; CUP not adopted and its applicability held to be fact dependent.

Transfer pricing comparables selection - comparability (qualitative and quantitative) - manufacturing versus trading profile - Treatment of ECMAS Resins Pvt. Ltd. and Arrow Technical Textile Pvt. Ltd. in the comparable set - HELD THAT: - The Tribunal considered the business activities and revenue composition of ECMAS and observed that although ECMAS engages in some trading, its operations are predominantly manufacturing driven and its trading component is minor and dominated by manufacturing activities. On that basis the Tribunal upheld the TPO's rejection of ECMAS as a comparable. Conversely, the Tribunal examined the business of Arrow Technical Textile Pvt. Ltd. and found its product mix and industrial application (advanced textile, carbon and specialty fibres) materially different from the assessee's basic glass fibre products, concluding that ATTPL is not a good comparable on qualitative grounds. Accordingly ATTPL was directed to be excluded from the final list of comparables. [Paras 9, 10]

Rejection of ECMAS upheld; ATTPL excluded from the comparable set.

Working capital adjustment - transfer pricing comparables selection - recomputation of Arm's Length Price - Claim for working capital adjustment and recomputation of ALP - HELD THAT: - The TPO had rejected working capital adjustments on the ground that the assessee did not demonstrate how such adjustments would materially affect the gross profit margins of comparables. The Tribunal observed that while the TPO's concern has some force, it could not be ruled out that working capital adjustments may improve comparability. The Tribunal therefore directed the assessee to demonstrate the impact of working capital adjustments and directed the TPO to examine the adjustments after affording the assessee reasonable opportunity of hearing. Following that exercise the TPO was directed to recompute the Arm's Length Price, if any, giving effect to any accepted working capital adjustments. [Paras 11, 12]

Claim for working capital adjustment remitted to the TPO for verification; TPO to recompute ALP after considering accepted adjustments.

Final Conclusion: Appeal partly allowed: RPM held to be the Most Appropriate Method for AY 2020-21; ECMAS rejected and ATTPL excluded from comparables; claim for working capital adjustment remanded to the TPO for verification and consequential recomputation of Arm's Length Price.

Exemption under section 11(1)(a) - statutory claim - accumulation or set apart up to 15% of receipts - error in Form No. 10B and consequential non claim in return - admission of claim by appellate authority - Goetze principle on bar to admission of new claim by Assessing Officer - remand for verification of revised Form No. 10B

Exemption under section 11(1)(a) - accumulation or set apart up to 15% of receipts - error in Form No. 10B and consequential non claim in return - Assessee entitled to second part exemption under section 11(1)(a) which was omitted in the return due to inadvertent error in Form No. 10B, subject to verification. - HELD THAT: - The Tribunal found that section 11(1)(a) contains two independent heads - exemption for actual application to charitable purposes and exemption for accumulation or set apart up to 15% of gross receipts. In the facts of the case the first part was allowed by the Assessing Officer, but the second part (upto 15%) was inadvertently not claimed in the return because auditors had recorded an incorrect entry in Form No. 10B. The auditors' mistake was subsequently rectified by filing a revised Form No. 10B. The Tribunal held that the entitlement to the second part exemption is a statutory claim of the assessee and cannot be defeated by a clerical error in the audit report. The Tribunal also noted the settled position that, although the Goetze principle restrains the Assessing Officer from admitting a new claim not in the return, it does not prevent an appellate authority from allowing a statutory claim. Applying these legal principles to the material facts, the Tribunal concluded that the assessee's claim for the second part exemption should be considered and allowed after verification of the revised Form No. 10B by the AO. [Paras 5]

Direct the AO to verify the revised Form No. 10B and allow the second part exemption under section 11(1)(a) if found in order.

Final Conclusion: Appeal allowed; assessee's statutory claim for exemption under the second part of section 11(1)(a) (accumulation/set apart upto 15%) is to be considered and allowed by the Assessing Officer after verification of the revised Form No. 10B.

Treaty benefits under Article 13(4) of the India-Mauritius Double Taxation Avoidance Agreement - tax residency certificate (TRC) as evidentiary basis for residence and beneficial ownership - beneficial ownership and substance over form - conduit/round tripping doctrine and commercial substance

Treaty benefits under Article 13(4) of the India-Mauritius Double Taxation Avoidance Agreement - tax residency certificate (TRC) as evidentiary basis for residence and beneficial ownership - beneficial ownership and substance over form - conduit/round tripping doctrine and commercial substance - Whether the assessee was entitled to exemption of long term capital gains under Article 13(4) of the India-Mauritius Treaty on the basis of Mauritius TRC and whether the Revenue could deny treaty benefits by treating the assessee as a conduit lacking commercial substance. - HELD THAT: - The Tribunal examined the factual matrix of the assessee - a Mauritius incorporated investment fund set up in 2006, funded through a feeder/master fund structure, which held the impugned Indian investments for periods exceeding five years and continued to hold other investments as at 31.12.2022. The Revenue's adverse conclusion rested on alleged absence of Mauritius substance (non resident directors, lack of operating expenditure, outsourced administration) and on material obtained from audited financials and bank flows suggesting involvement of JP Morgan entities. The Tribunal held that mere absence of operating expenditure or non resident directors, or the use of external service providers for day to day administration, does not, without positive evidence of sham or preordained tax avoidance device, rebut the statutory presumption of genuineness attaching to a TRC. The Tribunal analysed and distinguished the Vodafone line of authority relied upon by the AO, observing that those decisions address cases where a Mauritian entity is interposed solely at the time of disposal to avoid tax; by contrast, the assessee here was an established investment fund which legitimately pooled investor capital, held investments for lengthy periods and had commercial rationale for repatriation of proceeds by way of buybacks/dividends. On these facts, the Tribunal found no evidence to pierce the veil or to treat the assessee as a mere conduit and concluded that the TRC based entitlement to treaty protection could not be denied. Consequently, the denial of exemption under Article 13(4) was set aside. [Paras 11]

The Tribunal allowed the grounds challenging denial of treaty benefits and held that, on the material on record, the assessee was entitled to exemption under Article 13(4) of the India-Mauritius Treaty; the finding that the assessee was a conduit lacking commercial substance was not sustained.

Final Conclusion: The appeal is allowed; the impugned final assessment order for AY 2018 19 denying treaty benefits is set aside with consequential effects. Other grounds (including interest, penalty and time bar contentions) were not adjudicated as they became academic in view of the redress on merits.

Section 69A unexplained money - Section 115BBE special rate of tax - burden to prove genuineness of cash sales - maintainability of departmental appeal under CBDT circular threshold - double taxation of same receipts

Section 69A unexplained money - Section 115BBE special rate of tax - burden to prove genuineness of cash sales - double taxation of same receipts - Deletion of addition of Rs. 65,53,340/- made by AO under Section 69A read with Section 115BBE - HELD THAT: - The Tribunal reviewed the material on record including sales vouchers, VAT returns, audited books and import documents and found that the revenue had not placed any material to demonstrate that the cash sales shown by the assessee were fictitious. The purchases were shown to be imports accepted by customs and the books of account were not rejected. Revision of VAT returns was explained as clerical correction and did not affect turnover. The AO's reasoning based on timing of deposits and absence of cash prior to commencement of business was held to be of no legal consequence where business commencement (import in Sept. 2016) explains the pattern of cash sales. The Tribunal also noted that taxing the same receipts once as business income and again under Section 69A would amount to double taxation and rejected the AO's approach. Having found the factual position covered by a coordinate-bench decision in favour of the assessee, the Tribunal held the addition unwarranted and declined to interfere with the CIT(A)'s deletion of the addition. [Paras 6, 7]

Addition under Section 69A taxed under Section 115BBE deleted; CIT(A)'s order upheld and revenue appeal dismissed on merits.

Maintainability of departmental appeal under CBDT circular threshold - Verification of maintainability of the Revenue appeal under the CBDT circulars regarding tax-effect threshold - HELD THAT: - The Tribunal directed the PCIT to cross-check the tax effect claimed in the appeal for compliance with Circular No.3/2018 dated 11.07.2018 read with Circular No.17/2019 dated 08.08.2019. The Registry was to ascertain whether the tax effect exceeded the prescribed threshold; if found below the threshold (i.e., tax effect under the specified limit), the appeal would be non-maintainable and to be dismissed accordingly. The direction was procedural and limited to verification of maintainability; the Tribunal proceeded to decide the appeal on merits in any event. [Paras 6]

PCIT to verify tax-effect for maintainability under the specified CBDT circulars; if below threshold, appeal to be held non-maintainable and dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal on merits by upholding the deletion of the addition made under Section 69A (read with Section 115BBE). Independently, the PCIT was directed to verify the tax-effect for maintainability under the relevant CBDT circulars and, if below the prescribed threshold, the appeal is to be treated as non-maintainable and dismissed.

Modification of demand under section 156A - effect of NCLT approval on pre-CIRP proceedings - moratorium under insolvency resolution - Assessing Officer's duty to modify demand in conformity with adjudicating authority order

Effect of NCLT approval on pre-CIRP proceedings - moratorium under insolvency resolution - modification of demand under section 156A - Pre-CIRP demands/proceedings in respect of the Corporate Debtor are to be treated in light of the NCLT order dated 09.06.2020 and the Assessing Officer is required to modify any notice of demand in conformity therewith under section 156A. - HELD THAT: - The Tribunal noted that the NCLT order (para 9.1.16 read with paras 9.1.17-9.1.18) extinguishes or bars proceedings in respect of periods prior to the Approval/Effective Date insofar as they pertain to the Corporate Debtor under the approved Resolution Plan. With the introduction of section 156A (effective 1 April 2022) the legislature has provided a statutory mechanism obliging the Assessing Officer to modify any notice of demand issued under section 156 so as to give effect to an order of the adjudicating authority under the Insolvency and Bankruptcy Code, and to serve a revised notice of demand (and further revise it if appellate fora modify the adjudicating authority's order). Having considered the parties' submissions (the Departmental Representative did not dispute the applicability of section 156A), the Tribunal directed the Assessing Officer to take necessary action under section 156A and modify the demands in conformity with the NCLT order. [Paras 5, 8, 9]

Directing the Assessing Officer to modify the demand(s) under section 156A in conformity with the NCLT order dated 09.06.2020 and related adjudicating authority directions.

No adjudication on merits where statutory relief granted - Alternative grounds on merits were not adjudicated because the technical/ statutory ground concerning the effect of the NCLT order and section 156A was allowed. - HELD THAT: - The Tribunal recorded that since the primary contention based on the moratorium/NCLT order and the consequent statutory mechanism under section 156A succeeded, there was no need to decide the alternative merits-based grounds. The Tribunal therefore refrained from separately adjudicating those merits-based contentions. [Paras 9, 10]

Alternative grounds on merits left undecided; adjudication confined to directing modification of demand under section 156A.

Final Conclusion: All appeals are allowed; assessing officer directed to modify and, if necessary, reissue notices of demand under section 156A in conformity with the NCLT order dated 09.06.2020, and alternative merits grounds were not adjudicated.

Agricultural income exempt under Section 10(1) - basis of charge under Section 4(1) - estimation of agricultural expenditure by the Assessing Officer - treatment of excess estimated expenditure as income from other sources - requirement of material evidence before treating exempt income as taxable - AO cannot step into the shoes of the assessee

Estimation of agricultural expenditure by the Assessing Officer - treatment of excess estimated expenditure as income from other sources - requirement of material evidence before treating exempt income as taxable - agricultural income exempt under Section 10(1) - basis of charge under Section 4(1) - Whether the Assessing Officer and the CIT(A) were justified in estimating agricultural expenditure at 30% of gross agricultural receipts and treating the excess of that estimate over claimed expenditure as income from other sources. - HELD THAT: - The Tribunal held that agricultural income is exempt under Section 10(1) and the charge of tax under Section 4(1) is on total income; mere adjustment of agricultural expenditure and consequent reduction of exempt agricultural income does not by itself create taxable income under the head "income from other sources" unless the Revenue places material on record showing the existence of non-agricultural income or that the claimed agricultural expenses are not genuine. The AO adopted a 30% expenditure estimate based on comparative percentages in other years and crop data, but did so on surmise without bringing independent material to show that the claimed expenses were understated or that there was other income. The Tribunal emphasised that the AO cannot "step into the shoes of the assessee" and substitute assumptions for evidential proof; both lower authorities failed to discharge the onus of producing material to justify treating the estimated excess as taxable. Consequently, the addition based solely on estimation and conjecture could not be sustained. [Paras 10, 11]

The addition made by the AO and confirmed by the CIT(A) was unsustainable; the Tribunal set aside the addition and directed deletion of the impugned sum.

Final Conclusion: The appeal is allowed; the Tribunal deleted the addition made by the Assessing Officer (as confirmed by the CIT(A)) and directed that the excess estimated expenditure be not treated as income from other sources for AY 2017-18.

Tax deduction at source on demurrage charges - Tax deduction at source on reimbursement to seconded employees - Refund of excess Dividend Distribution Tax under Double Taxation Avoidance Agreement and Most Favoured Nation clause - Applicability of domestic Dividend Distribution Tax to treaty relief - Precedential effect of coordinate and special bench decisions

Tax deduction at source on demurrage charges - Precedential effect of coordinate bench decisions - Deletion of disallowance of demurrage charges made under section 40(a)(ia) for non-deduction of tax at source - HELD THAT: - The Tribunal examined earlier decisions of the Coordinate Bench in the assessee's own cases which followed the decision in CIT v. Dempo and Co. P. Ltd. . In view of that consistent precedent and absence of any reason to depart from it, the Bench respectfully followed the Coordinate Bench and upheld the CIT(A)'s deletion of the disallowance of demurrage charges. The Revenue's appeal against the deletion was therefore dismissed. [Paras 9]

Revenue appeal dismissed; disallowance of demurrage charges deleted.

Tax deduction at source on reimbursement to seconded employees - Precedential effect of coordinate bench decisions - Deletion of disallowance of reimbursement of salary paid to seconded employees for non-deduction of tax at source - HELD THAT: - The Tribunal noted that the Coordinate Bench in the assessee's earlier years dealt with identical facts and, relying on Burt Hill Design Pvt. Ltd. v. DDIT (IT) , held there was no income chargeable to tax in India on such reimbursements. The CIT(A) followed that line and deleted the disallowance; the Tribunal found no infirmity in that approach and affirmed the deletion. [Paras 10]

Revenue appeal dismissed; no tax required to be deducted on reimbursement to seconded employees and disallowance deleted.

Refund of excess Dividend Distribution Tax under Double Taxation Avoidance Agreement and Most Favoured Nation clause - Applicability of domestic Dividend Distribution Tax to treaty relief - Precedential effect of special bench and Supreme Court decisions - Claim for refund/credit of excess Dividend Distribution Tax (DDT) paid by the assessee in respect of dividends to non-resident shareholders - HELD THAT: - For AY 2018-19 the Tribunal applied the Special Bench decision in the assessee's case and the Supreme Court's decision in Nestle SA , holding that a domestic company paying DDT under section 115-O cannot, as of right, invoke treaty relief unless the contracting states have intended to extend treaty protection to the domestic DDT payer. Earlier lower-court decisions relied upon by the assessee were set aside by the Supreme Court. Consequently the CIT(A)'s grant of grounds for statistical purposes was not sustained and the assessee's cross-objections for refund for AY 2018-19 were dismissed and the Revenue's appeal allowed. In relation to the assessment year where the CIT(A) directed verification and grant of credit (as recorded at the appellate stage), the Tribunal recorded that the CIT(A) had directed the AO to verify the claim and grant credit if available; that administrative direction was sustained subject to verification. [Paras 15, 17, 18]

Assessee's cross-objections for refund dismissed for AY 2018-19; Revenue appeal allowed. Where the CIT(A) had directed verification and grant of credit, the AO was to verify and act accordingly.

Final Conclusion: For AY 2017-18 the Tribunal upheld the deletion of disallowances relating to demurrage charges and reimbursement of seconded employees by following prior Coordinate Bench precedents; for AY 2018-19 the Tribunal rejected the assessee's claim for refund/credit of excess DDT, allowing the Revenue's appeal in light of the Special Bench and Supreme Court authority and directing that any entitlement be governed by verification as required.

Reopening of assessment under Section 147 - reason to believe for escapement of income - notice under Section 148 - approval under Section 151 - void ab initio - DRP's duty to decide objections on merits

Reopening of assessment under Section 147 - reason to believe for escapement of income - approval under Section 151 - notice under Section 148 - Validity of reopening of assessment for AY 2013-14 - HELD THAT: - The Assessing Officer's reasons for reopening were replete with factual inaccuracies, misstatements and irrelevant references (including incorrect assessment year and incorrect statements about TDS returns). The reasons lacked a live nexus with any tangible material on record to form a bona fide reason to believe that income chargeable to tax had escaped assessment. The higher authorities' approvals under Section 151 were given mechanically without verifying the material, although the approving authority must apply mind to the reasons recorded. The Dispute Resolution Panel also failed to deal with the factual position and accepted the mistaken premise that non-filing of TDS returns justified reopening. On overall consideration, formation of belief required for initiating proceedings under Section 147 was absent; accordingly the reopening and the consequent proceedings initiated by notice under Section 148 are invalid. [Paras 11, 12, 13, 14]

Reopening of assessment for AY 2013-14 is invalid; the assessment order is void ab initio and quashed.

DRP's duty to decide objections on merits - Status of other grounds raised by the assessee - HELD THAT: - Because the reopening under Section 147 was held invalid and the assessment quashed on that ground, all other grounds raised on merits (including additions) were not adjudicated. Those issues have become academic for the present appeal and were left undecided by the Tribunal. [Paras 15]

Other grounds are kept open and not decided as they have become academic in view of quashing of the assessment.

Final Conclusion: Appeal allowed; reopening of assessment under Section 147 for AY 2013-14 held invalid and the assessment order quashed; other grounds left open.

Partition does not constitute transfer for the purposes of capital gains - preliminary decree versus final decree in partition; partition is complete only on allotment and delivery of possession - devolution/succession of share by operation of law - acquisition by payment under compromise decree treated as adjustment of equities and not a purchase - entire capital gains to be treated as long term capital gains - transfer within the meaning of Section 45/47(i) of the Income-tax Act

Partition does not constitute transfer for the purposes of capital gains - preliminary decree versus final decree in partition; partition is complete only on allotment and delivery of possession - acquisition by payment under compromise decree treated as adjustment of equities and not a purchase - entire capital gains to be treated as long term capital gains - transfer within the meaning of Section 45/47(i) of the Income-tax Act - Whether the acquisition of 6/8th share by the assessee pursuant to the compromise decree and payment to co-sharers amounted to a transfer by those co-sharers (giving rise to short-term capital gains) or was a devolution by succession so that the entire capital gains are long term - HELD THAT: - The Tribunal held that the assessing authorities erred in treating the compromise decree and attendant payment as an acquisition from other co-parceners amounting to a transfer. A preliminary decree determining shares does not effectuate partition; final partition is only complete when specific properties are allotted and allottees put in possession. Until the final decree and delivery of possession, shares remain liable to variation. The compromise decree dated 21/04/2015 recorded adjustment of equities, obligations and rights inter se and was not a simple document recording payment for acquisition of the 6/8th share. On that basis, the Tribunal treated the assessee as having acquired the property by devolution under the family succession (in the shoes of the coparceners) rather than by purchase from them. Applying the legal principle in S. Sai Reddy v. S Narayana Reddy, the Tribunal concluded that the impugned sale of 21/01/2016 must be viewed as an alienation by the assessee who stood in the position of the predecessors by devolution, and therefore the capital gains arising are long term in character. [Paras 8, 9, 10, 11]

Assessee entitled to treat the entire capital gains as long term capital gains; appeal allowed

Final Conclusion: Appeal allowed. The Tribunal held that the compromise decree effected adjustment of equities and, as partition was complete only on allotment and possession, the acquisition was by devolution/succession; accordingly the entire capital gains for AY 2016-17 are to be treated as long term capital gains.

Includability of royalties and licence fees in assessable value - post-importation activities not constituting condition of sale - addability of payments as condition of sale under Rule 10(1)(c) and 10(1)(e) of the Customs Valuation Rules, 2007 - apportionment of charges where only a fraction of contracted machinery is imported - transaction value adjustment under the Customs Valuation Rules

Includability of royalties and licence fees in assessable value - post-importation activities not constituting condition of sale - addability of payments as condition of sale under Rule 10(1)(c) and 10(1)(e) of the Customs Valuation Rules, 2007 - apportionment of charges where only a fraction of contracted machinery is imported - Whether licence fee for process know how and supervision/commissioning charges can be added to the assessable value of imported machinery - HELD THAT: - The Tribunal examined the contract which separately identified supply of equipment, supervision of erection and commissioning, and grant of a licence for process know how. The licence and supervisory services were found to relate to manufacture and operation of the plant after importation. Reliance on Rule 10(1)(c) and 10(1)(e) (costs and services to be added to transaction value) was considered, but the determinative tests are whether the payment is a condition of sale of the imported goods and whether the payment relates to the imported goods rather than to post import activities. The Commissioner (Appeals) did not identify any term in the contract making procurement of the licence or supervision a condition of sale and declined to apply binding precedents which hold that technical know how/royalty or supervisory charges that are for post importation manufacture or services are not chargeable to the assessable value unless they are a condition of sale. The Tribunal followed the reasoning in the cited higher court and tribunal authorities that payments for technical know how or supervisory services that pertain to post import activities cannot be added to the value of the imported goods in the absence of a contractual condition of sale making them payable as part of the price. Accordingly, the licence fee and supervision/commissioning charges were not includable in the assessable value. The Commissioner (Appeals) had remanded for apportionment because only part of the machinery under the contract was imported, but since the Tribunal held the charges were not addable at all, no part of those charges could properly be included in the transaction value. [Paras 5, 8, 9, 10]

Licence fee for process know how and supervision/commissioning charges are not includable in the assessable value of the imported machinery as they are post importation activities and not shown to be a condition of sale; impugned order set aside and appeals allowed.

Final Conclusion: The Tribunal set aside the inclusion of the licence fee and supervision/commissioning charges in the assessable value, holding those payments to be post importation and not a condition of sale, and allowed the appeals.

Proceeds of crime - provisional attachment - requirement of a registered scheduled offence / FIR - reason to believe - urgent measures exception for provisional attachment - ECIR as an internal document - communication under Section 66(2) - jurisdiction to proceed under PMLA

Requirement of a registered scheduled offence / FIR - proceeds of crime - jurisdiction to proceed under PMLA - ECIR as an internal document - Whether the respondents could initiate and continue proceedings under the PMLA against the petitioners in the absence of a registered scheduled offence and a determination that the properties are proceeds of crime - HELD THAT: - The Court applied the principles laid down by the Hon'ble Supreme Court in Vijay Madhanlal Choudhary to hold that authorities under the PMLA can act only if there is material to show (i) a scheduled offence has been committed and is registered with the jurisdictional police or pending enquiry/complaint before a competent forum, and (ii) the property in question qualifies strictly as "proceeds of crime"-i.e., derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence. An ECIR is an internal document and does not substitute for a registered FIR or other competent forum determination. While the PMLA permits provisional attachment even in the absence of a preregistered criminal case in exceptional situations requiring urgent measures, that power is not to be exercised routinely or on mere assumption. On the facts, the Court found that the FIRs relied upon were not connected to the petitioners, the respondents had not ascertained or demonstrated the proceeds of crime attributable to the petitioners, and the delayed communication under Section 66(2) indicated lack of any genuine urgency. Consequently, the respondents lacked jurisdiction to continue PMLA action against the petitioners until the statutory prerequisites were satisfied. [Paras 12, 18, 26, 27]

Proceedings under the PMLA insofar as they relate to the petitioners cannot continue until a scheduled offence is registered or is pending in a competent forum and the properties are shown to be proceeds of crime; the ECIR alone is insufficient to found jurisdiction.

Provisional attachment - reason to believe - urgent measures exception for provisional attachment - communication under Section 66(2) - Whether the Provisional Attachment Orders and the Original Applications for confirmation of attachment against the petitioners were validly passed - HELD THAT: - Applying the legal constraints on exercise of attachment powers under the PMLA, the Court found that the Provisional Attachment Orders were issued without establishing the necessary causal link between the petitioners' properties and proceeds of a scheduled offence, and without any contemporaneous justification of urgency that would permit attachment before registration of a scheduled offence. The respondents had not informed the jurisdictional police of any specific scheduled offence by the petitioners prior to attachment, and the belated letter said to be under Section 66(2) did not demonstrate that urgent measures were required. Given that attachment affects fundamental rights and property, it cannot rest on assumptions or on an ECIR unsupported by requisite statutory foundations. On this basis the Court held the provisional attachments and the attendant original applications for confirmation to be without jurisdiction. [Paras 20, 21, 22, 28]

The Provisional Attachment Orders and the Original Applications seeking confirmation of those attachments in respect of the petitioners are quashed.

Final Conclusion: The Court quashed the impugned actions: it restrained the respondents from continuing PMLA proceedings against the petitioners until the statutory prerequisites (registration/pending of a scheduled offence and determination of proceeds of crime) are satisfied; the provisional attachment orders and the original applications for confirmation, insofar as they concern the petitioners, are quashed; the writ petitions are allowed and connected miscellaneous petitions closed.

Remand on terms - personal hearing - deposit as condition precedent for adjournment/remand - limitation for filing appeal - construction services - service portion taxable - abatement and shared liability between service provider and recipient

Remand on terms - personal hearing - deposit as condition precedent for adjournment/remand - Impugned order in original set aside and matter remanded for fresh consideration on terms - HELD THAT: - The Court accepted the petitioner's medical evidence and COVID related difficulties as sufficient cause to permit reconsideration. Taking into account that the petitioner had earlier remitted 7.5% of the disputed tax demand when presenting the statutory appeal, the Court directed that the original order dated 20.06.2022 be set aside and the matter remitted to the second respondent for fresh consideration on the condition that the petitioner remit an additional 7.5% of the disputed tax demand within 15 days of receipt of the judgment and may file an additional reply with supporting documents within the same period. Upon receipt of the additional deposit and the petitioner's reply, the second respondent is to afford a reasonable opportunity, including a personal hearing, and thereafter pass a fresh order within three months from receipt of the reply. The direction balances procedural fairness (personal hearing and opportunity to file material) with a conditional deposit as a pre requisite for reconsideration. [Paras 5, 6]

Order dated 20.06.2022 set aside; case remanded for reconsideration on condition petitioner remits additional 7.5% within 15 days, files reply, and is given a personal hearing; fresh order within three months.

Construction services - service portion taxable - abatement and shared liability between service provider and recipient - limitation for filing appeal - Contentions on taxability of construction services, entitlement to abatement, and allocation of liability remitted for fresh consideration without adjudication on merits - HELD THAT: - The petitioner contended that only the service portion of construction services is taxable and that abatement applies, limiting liability to 50% with the balance borne by the recipient. The appellate authority had rejected the appeal on limitation, but the High Court did not decide these substantive contentions on merits. Instead, having placed the matter on terms (conditional deposit and opportunity to file additional reply), the Court directed the adjudicating authority to reconsider the taxability and abatement contentions afresh and to address limitation only insofar as it affects the appeal, after affording the petitioner the opportunity ordered. The merit of the petitioner's statutory contentions remains undetermined by this Court. [Paras 3, 6]

Substantive contentions regarding taxability of construction services, entitlement to abatement, and allocation of liability remitted to the authority for fresh consideration; no decision on merits by the Court.

Final Conclusion: The writ petition is disposed of by setting aside the original order and remanding the matter for fresh consideration on the petitioner's compliance with the conditional deposit and procedural opportunity; no costs awarded.

Service tax liability on refundable deposits - security deposit - management, maintenance and repair services - taxability of advance maintenance charges - extended period of limitation - burden of proof for invoking extended period

Service tax liability on refundable deposits - security deposit - management, maintenance and repair services - Whether amounts collected as Interest Free Maintenance Security (IFMS) were taxable as consideration for 'Management, Maintenance and Repair Services' or were refundable security deposits not exigible to service tax. - HELD THAT: - The Tribunal found that the IFMS collected from flat owners was stipulated in the agreement to be refundable within six months of termination of the agreement and therefore constituted a security deposit rather than consideration for services. The Adjudicating Authority's scepticism, based on absence of evidence of actual refunds, was rejected because refund is contingent on termination and non-refund to date does not negate the contractual refund obligation. The Tribunal also followed earlier decisions of the Tribunal which held that security deposits collected by builders for maintenance of immovable property are not taxable under 'Management, Maintenance or Repair Services', and on that precedent the demand and penalty on this count were set aside. [Paras 4, 5]

Demand and penalty insofar as they relate to IFMS were set aside; IFMS held to be refundable security deposits not exigible to service tax.

Taxability of advance maintenance charges - extended period of limitation - burden of proof for invoking extended period - Whether service tax could be demanded from the appellant for advance maintenance charges by invoking the extended period of limitation and whether the appellant was liable when actual services were rendered by a third party. - HELD THAT: - The Tribunal noted that the Department invoked the extended period by issuing a show cause notice for July 2010 to June 2012, but there was no positive evidence to justify invocation of the longer period. The appellant had undergone audits and there was ongoing correspondence on taxability; moreover it was not disputed that the actual services were provided by a third party and that the appellant merely collected and handed over amounts. Given the nascent and unclear state of service tax law during the relevant period, absence of positive evidence of suppression or mala fide conduct, and lack of justification for extended limitation, the Tribunal set aside the demand on limitation grounds and allowed the appeal on that basis. [Paras 6, 7]

Demand based on extended period of limitation set aside; appeal allowed on limitation and related grounds concerning advance maintenance charges.

Final Conclusion: The Tribunal allowed the appeal: demands and penalties relating to IFMS were set aside as refundable security deposits not taxable as management/maintenance services, and the demand for advance maintenance charges was set aside for lack of justification to invoke the extended period of limitation; consequential relief granted as per law.

Doctrine of unjust enrichment under Section 11B - refund of excess duty - effect of LME-based pricing on passing on of duty - onus on Revenue to prove passing on of duty - booking of duty as revenue expenditure not conclusive evidence of pass-on

Effect of LME-based pricing on passing on of duty - doctrine of unjust enrichment under Section 11B - Whether the refund claim is barred by unjust enrichment where the assessee sold the final product on the basis of the LME price index. - HELD THAT: - The Tribunal applied the principle in State of Rajasthan v. Hindustan Copper and subsequent decisions of this Tribunal to hold that where the final product's price is fixed on the basis of the London Metal Exchange (LME) and is beyond the seller's control, the excise duty element cannot be treated as passed on to buyers. In such circumstances there is no unjust enrichment and the bar under the doctrine of unjust enrichment does not operate to deny refund of duty paid. The Tribunal accepted the appellant's position that aluminium was sold on the LME price index and, relying on the cited authorities, concluded that the Revenue failed to establish any pas s on of duty to consumers. [Paras 9, 12]

Bar of unjust enrichment not applicable; refund claim cannot be denied on that ground.

Booking of duty as revenue expenditure not conclusive evidence of pass-on - onus on Revenue to prove passing on of duty - Whether mere accounting treatment (booking the duty as revenue expenditure or as recoverable) conclusively establishes that the incidence of duty was passed on to buyers. - HELD THAT: - The Tribunal reiterated the principle from its earlier decision in Commissioner of Customs v. U.T. Electronics that mere inclusion of excise duty in profit and loss account, or showing differential duty as recoverable, does not by itself prove that the burden was passed to consumers. The onus lies upon the Revenue to produce evidence demonstrating that the incidence of duty was actually passed on. In the absence of such evidence and in the presence of a Chartered Accountant's certificate and other material relied upon by the assessee, the Tribunal found the Revenue's allegation unproven. [Paras 13]

Accounting treatment alone is insufficient; Revenue failed to discharge onus to prove pass on, so the refund stands.

Final Conclusion: Impugned order rejecting the refund is set aside; the appellant is entitled to refund of the excess duty (as allowed by the adjudicating authority in its order dated 27.01.2010) and the appeal is allowed with consequential relief, if any.

Job work vs manufacture - clandestine removal - burden of proof on Department to prove clandestine removal - exemption for printing/job work - penalty not leviable if duty demand unsustainable

Clandestine removal - burden of proof on Department to prove clandestine removal - job work vs manufacture - The demand of duty based on Annexures D/1 to D/3 alleging clandestine removal of finished goods is unsustainable. - HELD THAT: - The Tribunal found that the impugned demand of Rs. 101.07 lakhs under Annexures D/1 to D/3 was based on the conclusion that the appellant had clandestinely cleared finished goods. The records (delivery challans) relied upon show clearance in units of 'sheets' and describe the activity undertaken by the appellant as 'printing', indicating supply of semi finished, customer specific sheets rather than finished goods measured in 'pieces'. The Department produced no affirmative, tangible evidence to establish that the processes carried out by the appellant amounted to 'manufacture' as defined in Section 2(f) of the Central Excise Act, nor did it verify recipients to negate the appellant's job work contention. Given that clandestine removal is a serious charge the burden to prove it rests on the Department and cannot be discharged by assumptions or inferences drawn from disputed documents; such burden was not met here. Consequently the demand based on Annexures D/1-D/3 cannot be sustained. [Paras 7]

Demand based on Annexures D/1 to D/3 set aside as unsustainable.

Job work vs manufacture - burden of proof on Department to prove clandestine removal - The demand of duty based on Annexures D/4 to D/7, predicated on alleged non existence of three principal units and treatment of job work as sham, is unsustainable. - HELD THAT: - The Tribunal noted the appellant had given prior intimation (letter dated 02.04.2007) that it would undertake job work-including 'printing'-for named non excise/SSI units. The Department did not verify the contents of that intimation at the time and, when the anti evasion visit occurred years later, did not verify at the recipients' end whether the transactions were genuine, who manufactured the finished goods or to whom payments were made. The adjudicating authority concluded that the three units were non existent and treated the clearances as finished goods without adducing evidence to contradict the appellant's documentary record showing printing/job work. In absence of verification or affirmative evidence to displace the job work claims, the Department's presumption of non existence and resultant duty demand is not sustainable. [Paras 8]

Demand based on Annexures D/4 to D/7 set aside as unsustainable.

Exemption for printing/job work - proof to disprove claim absent - The demand of duty based on Annexure D/8 relating to printed covers returned to M/s. Future Educare (P) Ltd. is unsustainable. - HELD THAT: - The Tribunal observed that the delivery challans in Annexure D/8 relate to covers of exercise books printed by the appellant on job work basis and returned to the principal for further use in manufacture of exercise books/registers. The appellant also relied on notifications exempting such goods/printing activity during the relevant period. The adjudicating authority did not consider or rebut these submissions and the Department produced no evidence to disprove the appellant's claim that the goods were job worked covers (and thereby subject to exemption). Absent contradictory evidence, the demand confirmed on Annexure D/8 cannot be sustained. [Paras 9]

Demand based on Annexure D/8 set aside as unsustainable.

Penalty not leviable if duty demand unsustainable - Penalties imposed on the appellant company and its Director are set aside because the underlying duty demands are unsustainable. - HELD THAT: - The Tribunal held that where the central excise duty demands founded on allegations of clandestine clearance are not established, consequential claims for interest and penalties cannot be sustained. Applying that principle, the Tribunal set aside the penalty equivalent to duty imposed on the company under Section 11AC/read with Rule 15(2) and the penalty on the Director under Rules 26(1)&(2)(ii), since the foundational finding of clandestine removal was not proved. Specifically, the Director's alleged role as mastermind in floating fictitious units was not established and therefore no penalty was maintainable against him. [Paras 10, 11]

Penalties and interest relating to the set aside duty demands quashed; penalty on Director set aside.

Final Conclusion: The Tribunal allowed the appeals, set aside the impugned order in toto, held that the duty demands based on Annexures D/1-D/8 were not sustainable for want of affirmative evidence and verification, and accordingly quashed the consequential interest and penalties, granting consequential relief as per law.

Clandestine removal - undervaluation - admissibility of seized documents under Section 36A - relevance of statements recorded under Section 14 and procedure under Section 9D - onus on Revenue to produce corroborative evidence - penalty and confiscation consequent on unsustained duty demand

Admissibility of seized documents under Section 36A - Seized notebooks and loose sheets recovered from third party premises cannot be presumed to be appellants' records and cannot be relied upon under Section 36A in absence of identification of the author(s) or proof of custody/control. - HELD THAT: - Section 36A permits a presumption as to documents only where a document is produced by, or seized from the custody or control of, the person against whom it is tendered and, critically, where the author or handwriting is identified. The seized notebooks and loose sheets were recovered from the premises of a third party (DCPWB), their entries were mostly in pencil and made by unknown and unidentified person(s), and the Department did not ascertain or prove who wrote them or establish their relationship with the appellant. Consequently the statutory prerequisites for invoking the presumption under Section 36A were not satisfied and the seized papers could not be treated as admissible evidence against the appellant-company.

Seized notebooks and loose sheets were excluded as evidence for establishing clandestine clearances or undervaluation.

Relevance of statements recorded under Section 14 and procedure under Section 9D - Statements recorded under Section 14 relied upon by the adjudicating authority were not admissible evidence because the mandatory procedure under Section 9D was not followed and material statements were retracted. - HELD THAT: - Section 9D prescribes that a statement recorded under Section 14 is relevant only in specified circumstances or after the maker is examined as a witness before the adjudicating authority and the authority records reasons for admitting the statement in evidence. The adjudicating authority did not invoke clause (a) of Section 9D nor examine the makers as witnesses under clause (b) before admitting their statements. Further, the Managing Director's statements were retracted and were alleged to have been recorded under coercion. In these circumstances the statements lost their full evidentiary value and could not, by themselves, support the grave charge of clandestine removal or undervaluation.

Statements recorded during investigation were eschewed from reliance because Section 9D procedure was not complied with and the maker(s) had retracted.

Onus on Revenue to produce corroborative evidence - Demand for duty on account of clandestine removal and undervaluation could not be sustained in absence of independent corroborative evidence such as stock verification, transport/delivery evidence, bank receipts, or atypical power consumption. - HELD THAT: - Clandestine removal and undervaluation are serious allegations that must be established by tangible and corroborative evidence beyond disputed private records and retracted statements. The Department did not verify discrepancies between physical stock and statutory records, did not examine buyers or transporters, did not investigate realization in bank accounts, and did not produce evidence of excess raw material consumption or abnormal electricity usage. Absent such positive evidence, the demands confirmed by the Commissioner could not stand.

Demand for duty on account of clandestine removal and undervaluation set aside for lack of corroborative proof.

Penalty and confiscation consequent on unsustained duty demand - Penalties imposed on the company and its Managing Director and the order for confiscation/ redemption fine were set aside because the foundational duty demands were not sustained. - HELD THAT: - Penalties, personal liability and orders for confiscation flow from a sustained finding of duty evasion or clandestine clearance. Having held the duty demands unsustainable for want of admissible documents, compliant procedure under Section 9D and independent corroboration, the Tribunal concluded that the alleged role of the Managing Director was not established and that confiscation and redemption fine could not be justified.

Penalties on the company and Managing Director and the confiscation / redemption fine were quashed.

Final Conclusion: Impugned order confirmed demand, penalties and confiscation were set aside: seized third party notebooks and loose sheets were excluded for lack of identification and custody proof; investigation statements were not admitted in evidence due to non compliance with Section 9D and retraction; absence of corroborative material evidence rendered charges of clandestine removal and undervaluation unsustainable; consequential interest, penalties, confiscation and redemption fine were quashed and the appeals allowed.

Penalty for evasion of tax under Section 47(6) of the KVAT Act - production of statutory transport and declaration documents (Form 8F and Form 16) as proof against evasion - addition to declared turnover based on a penalty order - absence of intention to evade tax - assessment founded on penalty proceedings

Penalty for evasion of tax under Section 47(6) of the KVAT Act - production of statutory transport and declaration documents (Form 8F and Form 16) as proof against evasion - absence of intention to evade tax - Cancellation of the penalty imposed on the assessee under Section 47(6) of the KVAT Act - HELD THAT: - The Tribunal found on the material on record that the detained consignment was accompanied by the tax invoice and checkpost declarations in Form 8F and that the assessee produced Form 16 before the detaining authority to show the goods were for own use and not for resale. There was no material to establish an intent to evade tax. The High Court concurred, observing the documentary evidence and noting that the assessee had borne the higher CST rate applicable to unregistered dealers when procuring the goods, which undermines a finding of evasion. On these facts, the Tribunal's conclusion that the penalty could not be sustained was legally tenable and required no interference. [Paras 5, 6, 9, 10]

Penalty order under Section 47(6) set aside; Tribunal's cancellation of the penalty upheld.

Addition to declared turnover based on a penalty order - assessment founded on penalty proceedings - Validity of additions made in the assessment for 2012-2013 which were founded on the penalty order - HELD THAT: - The assessing authority had sustained additions to the assessee's declared turnover by relying on the Intelligence Officer's penalty order. Because the penalty order was found to be unsustainable on the documentary record and for want of any material showing evasion, the Appellate Tribunal set aside the assessment additions that were predicated on that penalty. The High Court agreed that once the foundational penalty order falls, the additions based solely on that order could not be sustained. [Paras 4, 6, 9, 10]

Additions in the assessment for 2012-2013 based on the penalty order set aside; Tribunal's order cancelling the additions upheld.

Final Conclusion: The revision petitions by the State are dismissed. The Tribunal's order cancelling the penalty and the consequent additions in the assessment for 2012-2013 is sustained; questions of law are answered against the revenue and in favour of the assessee.