TaxTMI Updates e-Newsletter
Aug 22,2013

Discretionary imposition of penalty under section 272-B - reasonable cause under section 273-B - obligation to intimate PAN under section 139A(5A) - obligation to quote PAN by deductor under section 139A(5B) - application of Hindustan Steels principle on penalties

Obligation to intimate PAN under section 139A(5A) - obligation to quote PAN by deductor under section 139A(5B) - reasonable cause under section 273-B - Whether the assessee was liable to penalty under section 272-B for non-mentioning of PAN in Form 16A where certain deductees had not intimated their PAN to the deductor - HELD THAT: - Section 139A(5A) places the duty on the person receiving payment (the deductee) to intimate his PAN to the person responsible for deducting tax, while section 139A(5B) obliges the deductor to quote the PAN in specified documents. The record in this case shows that certain contractors did not intimate their PAN to the respondent-assessee and, therefore, the deductor could not quote PAN in Form 16A. Section 272B imposes a penalty for failure to comply with section 139A but must be read with section 273B which relieves liability where reasonable cause is shown. The Tribunal found (and this Court agrees) that the defaults were technical, not contumacious or fraudulent, there was no loss of revenue, and the assessee had otherwise complied with TDS obligations (deduction, deposit, returns and issuance of certificates). On these facts the assessee established reasonable cause under section 273B and the discretionary penalty under section 272B was not warranted.

Penalty under section 272-B deleted as reasonable cause under section 273-B was established for non-mentioning of PAN where deductees had not intimated their PAN.

Discretionary imposition of penalty under section 272-B - application of Hindustan Steels principle on penalties - Whether the principle laid down in Hindustan Steels Ltd. concerning imposition of penalties is applicable to penalty under section 272-B - HELD THAT: - Penalty for failure to perform a statutory obligation is a discretionary, quasi-criminal measure and will not ordinarily be imposed unless the party acted deliberately in defiance of law or was guilty of contumacious, dishonest or conscious disregard of obligation. Section 272B uses the word 'may' and must be construed with section 273B's requirement of reasonable cause; thus the Hindustan Steels principle that technical or venial breaches or breaches flowing from bona fide belief do not ordinarily attract penalty is applicable. Applying that principle to the facts-technical breach, absence of intention, and no revenue loss-the Tribunal correctly relied on Hindustan Steels to set aside the penalty.

Hindustan Steels principle is applicable; discretionary penalty under section 272-B should not be imposed for a technical, non-fraudulent breach where reasonable cause is shown.

Final Conclusion: The order of the Income Tax Appellate Tribunal deleting the penalty imposed under section 272-B for assessment year 2003-04 is upheld; both substantial questions are answered in favour of the assessee and the revenue's appeal is dismissed.

Lease premium v. rent - Deduction of tax at source under section 194-I - Capital receipt versus revenue receipt - Acquisition of leasehold rights as transfer of a capital asset - Advance rent (refundability test)

Lease premium v. rent - Deduction of tax at source under section 194-I - Capital receipt versus revenue receipt - Acquisition of leasehold rights as transfer of a capital asset - Advance rent (refundability test) - Whether the lump-sum lease premium paid to CIDCO for acquisition of 60-year leasehold rights is 'rent' within the meaning of section 194-I and therefore subject to TDS, or is a capital payment not exigible to TDS. - HELD THAT: - The Tribunal affirmed the view of the ld. CIT(A) that the payments were consideration for acquiring leasehold rights - a bundle of enduring rights to develop, exploit, market and sub-lease the land - and not merely payments for the use of land. The Transfer of Property Act, 1882 (section 105) distinguishes between premium (price for transfer of right to enjoy property) and rent (periodical payment for use). The absence of any contractual provision for refund of the lump-sum premium on premature termination and the character of rights conferred (including long-term development and disposal rights) indicate a transfer of substantive interest akin to a capital asset. The Tribunal applied the substance-over-form test and relied on authoritative precedents recognising that lump-sum premiums/salami paid for long-term leases are capital in nature. Cases cited by the Revenue where the word 'rent' was given extended meaning were examined and distinguished on facts. The Tribunal held that an expansive definition in section 194-I does not automatically convert every lump-sum payment under a lease into 'rent' where the transaction, on its true construction, transfers leasehold rights of enduring nature; therefore the payments did not fall within explanation (i) to section 194-I as payments 'for the use of' land but were capital in nature. [Paras 21, 22, 23]

The lump-sum lease premiums paid to CIDCO for acquisition of 60-year leasehold rights are capital payments and not 'rent' under section 194-I; the demand under sections 201(1) and 201(1A) is deleted.

Final Conclusion: The Tribunal dismissed the Department's appeals for A.Ys. 2006-07 to 2009-10, upholding the ld. CIT(A)'s finding that the lease premiums were capital payments for acquisition of leasehold rights and not rent liable to TDS under section 194-I; the consequential demands under sections 201(1) and 201(1A) were deleted.

Disallowance under section 14A - method of determination under rule 8D - onus on the assessee to substantiate claim under section 14A with reference to accounts - objective satisfaction of the Assessing Officer before invoking rule 8D - verification of utilisation of borrowed funds for specified purposes - remand for factual verification by Assessing Officer - penalty under section 271(1)(c) not attracted where full disclosure and bona fide estimate

Disallowance of clearing expenses - Validity of confirmation of disallowance of clearing expenses restricted to 50% of claim - HELD THAT: - The Tribunal upheld the CIT(A)'s direction to restrict the disallowance to 50% of the claimed clearing expenses, noting that the assessee had not improved its case before the Tribunal and that the CIT(A)'s view was consistent with treatment in preceding assessment years. No infirmity was shown in the appellate decision to warrant interference. [Paras 2, 3]

Assessee's ground against the disallowance confirmed at 50% dismissed.

Disallowance under section 14A - method of determination under rule 8D - onus on the assessee to substantiate claim under section 14A with reference to accounts - objective satisfaction of the Assessing Officer before invoking rule 8D - verification of utilisation of borrowed funds for specified purposes - Whether the Assessing Officer validly invoked rule 8D to determine disallowance under section 14A and whether the assessee's suo motu estimate (10% of dividend) sufficed to preclude application of rule 8D - HELD THAT: - The Tribunal held that section 14A places the initial onus on the assessee to make a claim regarding expenditure incurred in relation to exempt income with reference to its accounts. The AO must examine such a claim and, if not satisfied objectively, determine the disallowance by the prescribed method (rule 8D). Recording reasons for dissatisfaction is part of the fairness of the procedure though not strictly jurisdictional; the AO's action cannot be assailed where dissatisfaction is apparent from the factual matrix and the claim is incapable of verification. The assessee's ad hoc claim of disallowance at 10% of dividend income, unsupported by a break-up or account-based evidence and excluding interest components, did not discharge the onus. However, the Tribunal observed prima facie evidence in the balance-sheet indicating substantial term loans and working capital borrowings apparently applied to specified assets, which, if established, would exclude those borrowings from apportionment under rule 8D. Consequently the matter was restored to the AO to verify utilisation of borrowed funds and to apply the proportionate formula as appropriate, issuing definite findings of fact. [Paras 6, 7]

Assessee's challenge to the rule 8D disallowance rejected on merits, but matter remanded to AO to verify utilisation of borrowed funds and re-compute disallowance consistent with findings.

Claim of credit for TDS - remand for production and verification of evidence - Allowability of claim for balance TDS where assessee could not furnish certificates during assessment and first appeal - HELD THAT: - The Tribunal noted the assessee's inability to produce TDS certificates before the AO and CIT(A) but accepted the assessee's request for an opportunity to furnish them. The claim for TDS credit must be substantiated with necessary evidence and is allowable only in respect of income brought to tax for the relevant year. Accordingly the matter was remitted to the AO for examination and adjudication in accordance with law. [Paras 8]

Claim for TDS remitted to AO for verification on production of requisite certificates and law-based adjudication.

Penalty under section 271(1)(c) not attracted where full disclosure and bona fide estimate - Sustainability of penalty under section 271(1)(c) in respect of disallowance under section 14A determined by rule 8D - HELD THAT: - The Tribunal found that the assessee had made a suo motu disallowance (10% of dividend) in the return and had fully disclosed relevant facts in earlier years; no concealment or furnishing of inaccurate particulars was established. Given that the quantum issue was remitted for factual verification and that there was disclosure and a bona fide estimate, the Tribunal held that penalty under section 271(1)(c) was not warranted, applying the principle in Reliance Petroproducts (as cited by the Bench). [Paras 9, 10, 11]

Revenue's appeal against levy of penalty dismissed.

Final Conclusion: The Tribunal dismissed the assessee's ground on clearing expenses (disallowance restricted to 50%). The section 14A disallowance determined under rule 8D was sustained in principle because the assessee failed to substantiate its ad hoc 10% claim, but the matter was remanded to the Assessing Officer to verify utilisation of borrowed funds and to recompute the disallowance with explicit factual findings. The assessee's TDS claim was remitted to the AO for verification on production of certificates. The penalty under section 271(1)(c) was dismissed in view of disclosure and the remand on quantum.

Housing project - deduction under section 80IB(10) - segregation of commercial development from residential project - approval/commencement and occupation certificate as indicia of project

Housing project - deduction under section 80IB(10) - segregation of commercial development from residential project - approval/commencement and occupation certificate as indicia of project - Whether the assessee's residential development 'Eden Garden' qualified for deduction under section 80IB(10) for A.Y. 2009-10 notwithstanding a separately sanctioned commercial building on the same plot whose development rights were sold - HELD THAT: - The Tribunal examined whether the commercial portion sanctioned by CIDCO formed part of the assessee's 'housing project' for the purposes of section 80IB(10). Having regard to the absence of a statutory definition of 'housing project', the Tribunal applied the settled principle that separate approvals, separate commencement/occupation certificates and separate physical plans point to independent projects. The residential block 'Eden Garden' had its commencement certificate dated 20.02.2006 and occupation certificate dated 16.10.2008 and was completed prior to the commercial block which had separate approval (18.10.2006) and a much later occupation certificate (04.08.2010). The development rights in respect of the commercial building were sold by the assessee to a third party by registered agreement in March 2009 and the consideration received was offered to tax in an earlier year. In these circumstances, and following the reasoning in Vandana Properties and other co-ordinate decisions cited, the Tribunal held that the commercial building was a distinct project and its area could be segregated from the residential project. Consequently the residential project satisfied the conditions of section 80IB(10) and the disallowance by the AO and confirmation by the CIT(A) (that the commercial area formed part of the housing project and breached the permissible limit) was incorrect. The Tribunal further noted that the AO had allowed the deduction in earlier assessments on the same project, reinforcing that the residential project met the statutory conditions. [Paras 4, 8]

Deduction under section 80IB(10) is allowable to the assessee for the residential project 'Eden Garden' for A.Y. 2009-10; the commercial building is a separate project and the AO is directed to allow the deduction.

Final Conclusion: The appeal is allowed: the Tribunal held that the residential project 'Eden Garden' qualifies for deduction under section 80IB(10) for A.Y. 2009-10 because the commercial portion sanctioned on the same plot was a separate project (development rights sold and developed separately), and directed the assessing officer to grant the deduction.

Agricultural land - capital asset - long term capital gains - question of fact - revenue records - distance from municipal limits (8 kms rule)

Agricultural land - capital asset - long term capital gains - question of fact - Nature of the land sold by the assessee - whether it is agricultural land or a capital asset attracting long term capital gains tax - HELD THAT: - The Tribunal treated the classification of the land as a question of fact and applied established factors including revenue records, actual cultivation, receipt of agricultural income, payment of kist, and proximity to municipal limits (the 8 kms criterion). The Co-ordinate Bench's earlier decision in ITA No. 1581/Mds/2010 (assessee's husband) on identical facts was examined and followed. The authorities had recorded that the land fell beyond 8 kms of notified municipal limits, was recorded as agricultural in revenue records, had been shown as yielding agricultural receipts historically, and was cultivated by a local caretaker. The Department's contentions (late kist payments, certain records being old, and certification of non-cultivation for some years) were considered insufficient to distinguish the present case from the husband's case or to displace the factual conclusion reached by the Tribunal. The delay in kist payment and the Tahsildar's remarks about large-scale cultivation were held not to be decisive against the assessee where other relevant factors supported agricultural character. Applying these determinative factual findings, the Tribunal's conclusion that the land is agricultural and not a capital asset was upheld. [Paras 8, 9]

The land is agricultural in nature; no long term capital gains arise from its sale.

Final Conclusion: The Revenue's appeal is dismissed and the order of the Commissioner of Income Tax (Appeals) holding the land to be agricultural for AY 2007-08 is affirmed.

Determination of arm's length price of royalty under transfer pricing - Characterisation and bifurcation of a composite license agreement - Application and selection of most appropriate method (CUP v. TNMM) - Transfer pricing adjustment on advertisement, marketing and promotion (AMP) expenses - Power of the TPO to re-characterise or split contractual payments - Remand to TPO for re-adjudication in light of Special Bench directions

Determination of arm's length price of royalty under transfer pricing - Characterisation and bifurcation of a composite license agreement - Power of the TPO to re-characterise or split contractual payments - Validity of TPO's bifurcation of lump-sum/running royalty into separate components for technology and brand and the consequent disallowance of the royalty attributable to brand - HELD THAT: - Tribunal found that the licence agreements constituted an indivisible package granting exclusive rights to manufacture and sell specified models and that royalty was consideration for a composite transfer of licensed information, technology and related rights. The Tribunal agreed with the assessee that technology transfer is the dominant object of the licence in the factual matrix and that the authorities were not entitled to rewrite the agreement by artificially splitting the royalty where parties had treated it as a single inseverable consideration. Reliance was placed upon judicial precedents (including the principle in Vodafone) that revenue cannot split an agreement which the parties have treated as a package except in exceptional circumstances. On the facts (longstanding third party terms, Government/RBI approvals, prior acceptance of similar royalties for earlier models and the absence of material justifying the split), the Tribunal held TPO's conclusion that a portion of royalty attributable to brand was unnecessary unsustainable and set aside the adjustment. [Paras 9, 11, 12, 13, 17]

TPO's adjustment of royalty attributable to use of brand (disallowance) is set aside; no disallowance is required in respect of the royalty paid to SMC.

Transfer pricing adjustment on advertisement, marketing and promotion (AMP) expenses - Application and selection of most appropriate method (CUP v. TNMM) - Remand to TPO for re-adjudication in light of Special Bench directions - Whether the AMP-related TP adjustment should be upheld or re-examined and the procedural direction for further adjudication - HELD THAT: - The Tribunal followed the Special Bench's analysis that benchmarking of AMP expenses can fall within transfer pricing scrutiny but that sales-related expenses must be excluded from AMP for benchmarking. Having regard to the Special Bench directions and precedents, and noting that certain sales-related items were on record without adverse comment from lower authorities, the Tribunal directed that the AMP issue be remitted to the TPO/AO for fresh determination. The remand requires the TPO to apply proper comparables, exclude non-AMP selling expenses where appropriate, and reconsider ALP after giving the assessee opportunity to be heard and considering the additional grounds/evidence admitted by the Tribunal. [Paras 21, 22, 27]

TP adjustment in respect of AMP expenses is remitted to the TPO/AO for fresh adjudication in accordance with Special Bench guidance; matter not finally decided and restored for re-determination.

Final Conclusion: The Tribunal allowed the appeal insofar as it set aside the TPO/DRP adjustment disallowing the portion of royalty attributed to brand (royalty payment to SMC upheld). The transfer pricing adjustment relating to AMP expenses was remitted to the TPO/AO for fresh determinative adjudication in accordance with the Special Bench directions; appeal is partly allowed for statistical purposes.

Penalty under section 271AAA - Immunity on payment of tax and interest under section 271AAA(2)(iii) - Adjustment of seized cash in P.D. account against advance tax / existing liability - Interpretation of temporal requirement for payment under section 271AAA - Introduction of section 271AAB prescribing specified date for payment

Adjustment of seized cash in P.D. account against advance tax / existing liability - Penalty under section 271AAA - Whether the amount lying in P.D. account could be treated/adjusted as payment of advance tax and whether non-adjustment justified imposition of penalty under section 271AAA. - HELD THAT: - The Tribunal accepted the assessee's contention that the seized cash of Rs.89,30,000 lying in P.D. account was not adjusted by the AO against the advance tax demand despite the assessee's request and that the AO's refusal to treat the amount as adjustment was erroneous. The CIT(A) directed adjustment of the P.D. account amount as advance tax, and the ITAT (Amritsar Bench) dismissed the Revenue's appeal against that direction. Because the AO's action in not adjusting the seized cash led to interest being charged (which was subsequently deleted), the factual basis for imposing penalty under section 271AAA - non-payment of tax together with interest - collapsed. The Tribunal therefore upheld the CIT(A)'s cancellation of the penalty as the AO had incorrectly refused adjustment of the P.D. account amount. [Paras 11, 14]

The order of the CIT(A) directing adjustment of the P.D. account amount as advance tax and cancelling the penalty was upheld; Revenue's grounds on this point are dismissed.

Immunity on payment of tax and interest under section 271AAA(2)(iii) - Interpretation of temporal requirement for payment under section 271AAA - Introduction of section 271AAB prescribing specified date for payment - Whether section 271AAA(2)(iii) requires payment of tax together with interest within any specific time (for example before filing return) as a condition for immunity from penalty. - HELD THAT: - The Tribunal analysed section 271AAA(2)(iii) and agreed with the assessee that the provision does not prescribe any specific time-limit for payment of tax along with interest as a condition for immunity. The Bench relied on and followed the decision of the coordinate Bench in DCIT vs. Pioneer Online Ltd. , which held that absence of a statutory time-limit precludes the AO from reading such a limit into section 271AAA. The Tribunal further observed that the legislative omission of time-limit in 271AAA and subsequent enactment of section 271AAB (w.e.f. 01.07.2012) - which explicitly prescribes a "specified date" - confirms that Parliament intended no temporal restriction under the earlier section. As the tax and applicable interest were paid/adjusted (and the interest under section 234B deleted), the condition for immunity under section 271AAA(2)(iii) was satisfied and penalty could not be sustained. [Paras 11, 12, 13]

No temporal requirement is to be read into section 271AAA(2)(iii); since tax together with interest was ultimately paid/adjusted, immunity under section 271AAA(2) applied and the penalty was rightly deleted.

Final Conclusion: The CIT(A)'s order cancelling the penalty imposed under section 271AAA was affirmed: the seized amount in the P.D. account was to be adjusted as advance tax and, in the absence of any statutory time-limit in section 271AAA for payment of tax with interest, the assessee's payment/adjustment satisfied the immunity condition; Revenue's appeal dismissed.

Genuineness of transactions - bogus sale and bogus purchase - onus on the assessee to prove genuineness of purchases and sales - surrounding circumstances and veracity of books of account - concealed/secret bank accounts and accommodation entries - undisclosed cash and cheque deposits treated as income from other sources - peak bank balance as limiting basis for addition - penal provisions under section 271(1)(c) of the Income Tax Act

Genuineness of transactions - bogus sale and bogus purchase - onus on the assessee to prove genuineness of purchases and sales - Confirmation of addition of Rs.20,58,255 as income on account of alleged bogus sale of brass scrap. - HELD THAT: - The Tribunal upheld the authorities below in concluding that the assessee failed to establish the genuineness of cash sales of 18,970 kgs of brass scrap alleged to have been sold on specific dates. The Court relied on surrounding circumstances: purchases from Times International remained unpaid for long, the proprietor of Times International failed to produce corroborative books or evidence of delivery, the assessee did not furnish details (names/addresses) of purported cash buyers, the shop premises lacked storage capacity and requisite manpower, cartage and other related expenses were not credibly recorded, and there were mismatches in bill dates. Taken together these circumstances rendered the claimed transactions unverifiable and cast doubt on the veracity of the books; accordingly the addition was rightly sustained. The Tribunal agreed with CIT(A)'s factual findings and reasoning and dismissed the grounds challenging that addition. [Paras 8]

Addition of Rs.20,58,255 on account of bogus sale is confirmed and the relevant grounds are dismissed.

Bogus sale and bogus purchase - surrounding circumstances and veracity of books of account - concealed/secret bank accounts and accommodation entries - onus on the assessee to prove genuineness of purchases and sales - Confirmation of addition of Rs.7,51,946 on account of purchases shown from M/s Shiva Sanitary, Jamnagar treated as bogus. - HELD THAT: - The Tribunal upheld the finding that purchases from M/s Shiva Sanitary were not substantiated. Notices issued under investigation procedures returned unserved, inquiries by ADIT(Inv), Rajkot established that the purported party did not exist and the sales-tax number on the bills was fake. The assessee failed to produce evidence to discharge the onus of proving the purchases; moreover, discovery of undisclosed/secret bank accounts and admissions regarding accommodation entries reinforced the conclusion that the debited purchases were bogus. Given the unreliable books and surrounding circumstances, the Tribunal agreed with CIT(A) that the addition was justified without undertaking a re-evaluation of gross profit rates. [Paras 12]

Addition of Rs.7,51,946 on account of bogus purchases is confirmed and the related grounds are dismissed.

Concealed/secret bank accounts and accommodation entries - undisclosed cash and cheque deposits treated as income from other sources - peak bank balance as limiting basis for addition - penal provisions under section 271(1)(c) of the Income Tax Act - Whether additions made in respect of cash and cheque deposits in the assessee's IndusInd Bank accounts should be restricted to the peak balance or treated in full as undisclosed income. - HELD THAT: - The Assessing Officer had treated entire cash and cheque deposits in the concealed IndusInd Bank accounts as undisclosed income and proposed penalties. CIT(A) accepted that the assessee failed to substantiate the claim of third party cheques and 1% commission because no identities or corroborative particulars were furnished, thereby justifying treatment of deposits as undisclosed. However, in view of the possibility that the same funds may have been deposited and subsequently withdrawn, CIT(A) directed computation of addition limited to the peak balance of the concealed accounts and verification of bank entries for the relevant year. The Tribunal found this approach to be justified on the facts and upheld the CIT(A)'s direction to restrict additions to the peak balance while leaving verification to the Assessing Officer. [Paras 15]

Additions in respect of cash and cheque deposits are to be restricted to the peak balance of the concealed IndusInd Bank accounts; CIT(A)'s direction is upheld.

Final Conclusion: The Tribunal dismissed the appeal. Additions on account of the alleged bogus sale and bogus purchases are confirmed; additions relating to undisclosed cash and cheque deposits in concealed bank accounts are sustained subject to restriction to the peak bank balance as directed by CIT(A), and the Assessing Officer is to verify bank entries accordingly.

Bogus purchases - unexplained creditors / unexplained transactions - reconciliation of creditors' accounts - admissibility and consideration of evidence produced at remand / subsequent stage - onus of proving genuineness of transactions - banking channel payments as corroborative evidence - confirmation under rule 46A of the IT Rules

Bogus purchases - admissibility and consideration of evidence produced at remand / subsequent stage - banking channel payments as corroborative evidence - confirmation under rule 46A of the IT Rules - onus of proving genuineness of transactions - Deletion of substantial addition on account of alleged bogus purchases, excepting a limited addition in respect of M/s Shiva Sarees - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the AO's addition on account of bogus purchases could not be sustained except in relation to transactions with M/s Shiva Sarees. The CIT(A.) examined the assessment record, remand report and submissions and found that (i) the assessee's books were audited and accepted; (ii) purchases were recorded in the books and supported by purchase bills and payments through banking channels which the AO did not disbelieve; (iii) sales were accepted by both the AO and the Sales Tax authorities and the declared gross profit was consistent with earlier years; and (iv) many undelivered service reports arose from letters being sent to old addresses because the enquiries were years after the transactions. On these facts the CIT(A) concluded that no adverse inference of fictitiousness could be drawn except in respect of M/s Shiva Sarees where the address was incomplete and the assessee failed to furnish satisfactory confirmation. The Tribunal found no infirmity in this analysis and affirmed deletion of the bulk of the addition while confirming the limited addition relating to M/s Shiva Sarees for which no confirmation was produced even in the paper book. [Paras 2, 5]

CIT(A)'s deletion of Rs.76,84,864/- of the AO's addition upheld; addition of Rs.6,59,454/- in respect of M/s Shiva Sarees confirmed.

Reconciliation of creditors' accounts - unexplained creditors / unexplained transactions - onus of proving genuineness of transactions - admissibility and consideration of evidence produced at remand / subsequent stage - Deletion of most additions made for discrepancies in creditors' accounts except a confirmed residual addition - HELD THAT: - The Tribunal endorsed the CIT(A)'s finding that the assessee had satisfactorily reconciled discrepancies in the accounts of the majority of creditors by furnishing reconciliation statements and supporting material, and that the AO had not undertaken verification from third parties where necessary. However, the CIT(A) (and the Tribunal) found that certain payments aggregating to the limited amount remained unexplained by the assessee despite being specifically identified in the reconciliation particulars. On that basis the limited addition was sustained while the remainder was deleted. [Paras 3, 9]

CIT(A)'s deletion of the bulk of the addition on account of creditors' discrepancies affirmed; addition of Rs.2,52,865/- confirmed.

Final Conclusion: The Tribunal dismissed the departmental appeal and the assessee's cross-objection, affirming the CIT(A)'s order which deleted the bulk of additions for alleged bogus purchases and creditors' discrepancies but confirmed limited additions in respect of M/s Shiva Sarees and unexplained creditor payments.

Power to cancel registration under section 12AA(3) of the Income-tax Act - requirement of a finding of non genuineness or non conformity with objects before cancellation - inapplicability of cancellation to registrations granted under section 12A prior to amendment effective 01.06.2010 - restoration of registration granted under section 12A/12AA

Power to cancel registration under section 12AA(3) of the Income-tax Act - inapplicability of cancellation to registrations granted under section 12A prior to amendment effective 01.06.2010 - restoration of registration granted under section 12A/12AA - Validity of CIT's cancellation of registration w.e.f. 2009-10 under section 12AA(3) in respect of registration granted earlier under section 12A. - HELD THAT: - The Tribunal examined the statutory scheme and explanatory circulars and held that, prior to the amendment effective 01.06.2010, section 12AA(3) authorized cancellation only where registration had been granted under section 12AA(1)(b) (or was obtained under section 12A in specified circumstances). The amendment conferring express power to cancel registrations granted under section 12A came into effect from 01.06.2010 and, as clarified by CBDT, applies from A.Y. 2011-12 onwards. In the present case the CIT cancelled registration w.e.f. 2009-10, a period prior to the said amendment, and therefore acted without jurisdiction to withdraw a registration previously granted under section 12A. The Tribunal accordingly found the cancellation to be not in accordance with law and set aside the CIT's order, restoring the registration with retrospective effect from 2009-10. [Paras 7, 8]

Order of the CIT cancelling registration w.e.f. 2009-10 set aside; registration under section 12A/12AA restored for 2009-10.

Requirement of a finding of non genuineness or non conformity with objects before cancellation - Whether the CIT recorded the requisite satisfaction that the assessee's activities were non genuine or not in accordance with its objects as a basis for cancellation. - HELD THAT: - The Tribunal noted that section 12AA(3) permits cancellation only upon satisfaction that the activities are non genuine or are not being carried out in accordance with the objects. On review of the record the Tribunal found no such finding by the CIT that the activities of the assessee were non genuine or divergent from its objects; the activities remained those for which registration was initially granted. Because this statutory condition for cancellation was not satisfied, the cancellation could not be upheld on that ground. [Paras 7, 8]

CIT's order lacks the requisite finding of non genuineness or non conformity and therefore cannot sustain cancellation.

Proviso to section 2(15) and charitable purpose - Merits of whether the assessee's activities fall within the proviso to section 2(15) or are otherwise not 'charitable' as held by the CIT. - HELD THAT: - The Tribunal explicitly refrained from expressing any opinion on the substantive merits raised in grounds challenging the CIT's conclusion that the assessee's activities are not charitable under the amended section 2(15). Those merit-based contentions were left undecided because the primary infirmities in the cancellation order related to jurisdictional and procedural grounds (timing of amendment and absence of requisite satisfaction). [Paras 8]

Merit issues regarding characterization of activities under section 2(15) not decided; no opinion expressed by the Tribunal.

Final Conclusion: The appeal is allowed: the CIT's cancellation of registration w.e.f. 2009-10 is set aside and the registration under section 12A/12AA is restored for 2009-10. The Tribunal did not adjudicate the substantive question whether the assessee's activities fall within the proviso to section 2(15).

Deductibility of fees for increase in authorized share capital - amortisation under section 35D of the Income-tax Act - allowability of depreciation on goodwill - depreciation on intangible assets (including 'business or commercial rights' under section 32(1)(ii)) - reasonableness test under section 40A(2)(b) of the Income-tax Act

Deductibility of fees for increase in authorized share capital - amortisation under section 35D of the Income-tax Act - Whether fee paid to Registrar of Companies for increase in authorised share capital was allowable as revenue expenditure or amortisable under section 35D. - HELD THAT: - The Tribunal examined the nature of the fee paid for increase in authorised share capital and the authorities relied upon by the lower authorities. Having regard to a catena of decisions, including precedent from the Apex Court relied upon by the Assessing Officer and the Commissioner (A), the Tribunal held that the payment is capital in nature and cannot be allowed as a revenue expense. The Tribunal further found that the payment does not fall within the ambit of amortisation under section 35D and affirmed the findings of the authorities below. [Paras 6]

Amount paid as fee for increase in authorised share capital is capital in nature; not allowable as revenue expenditure and not amortisable under section 35D; appeal on this point dismissed.

Allowability of depreciation on goodwill - depreciation on intangible assets (including 'business or commercial rights' under section 32(1)(ii)) - Whether the amount recorded as goodwill arising from transfer of business is eligible for depreciation under section 32(1)(ii) as 'any other business or commercial rights of similar nature'. - HELD THAT: - The Tribunal found that the goodwill arose on a business transfer where the transferee acquired, over and above book value of tangible net assets, a bundle of intangible business rights (contracts, permits, employees, business information etc.) as recorded in the transfer agreement and in the earlier balance sheet. Applying the rationale of the Hon'ble Delhi High Court in Areva T&D India Ltd. , the Tribunal held that such intangible rights fall within the genus of 'business or commercial rights of similar nature' specified in section 32(1)(ii) and are therefore eligible for depreciation. The Tribunal noted that the decision of the jurisdictional High Court prevails over contrary Tribunal decisions relied upon by the Revenue and found considerable cogency in the assessee's case. [Paras 10]

Goodwill recognised on acquisition of the running business qualifies as 'business or commercial rights of similar nature' under section 32(1)(ii) and depreciation thereon is allowable; appeal on this point allowed.

Reasonableness test under section 40A(2)(b) of the Income-tax Act - Whether professional charges paid to a sister concern were excessive or unreasonable within the meaning of section 40A(2)(b), and therefore disallowable. - HELD THAT: - The Tribunal reviewed the material and submissions and found that the assessee did not substantiate the payments (made @ 2% of sales) with particulars demonstrating services rendered, cost allocation methodology, market comparables or that the amounts charged were commensurate with market rates. The lower authorities had disallowed the claim for want of supporting details. Given the absence of necessary evidence and in the interest of proper examination, the Tribunal concluded that the question of excessiveness/unreasonableness required fresh inquiry. Accordingly the Tribunal directed that the matter be remitted to the Assessing Officer for examination after giving the assessee adequate opportunity to produce details and for the AO to determine whether the amounts are excessive or unreasonable having regard to fair market value. [Paras 18]

Matter remitted to the Assessing Officer for fresh consideration on whether the payments to the sister concern were excessive or unreasonable under section 40A(2)(b); parties to be given adequate opportunity.

Final Conclusion: The appeal is partly allowed: the disallowance of ROC fee is upheld (not allowable/recoverable under section 35D); depreciation on goodwill is allowed as falling within "business or commercial rights" under section 32(1)(ii); the disallowance under section 40A(2)(b) is remitted to the Assessing Officer for fresh examination on reasonableness/market comparability.

Intangible asset - depreciation under section 32(1)(ii) - license/right to collect toll - deduction under section 80-IA(4) - unabsorbed depreciation - treatment as building and depreciation at 10% - infructuous pleas

Intangible asset - depreciation under section 32(1)(ii) - license/right to collect toll - License/right to collect toll held to be an intangible asset eligible for depreciation under Section 32(1)(ii) for A.Y. 2007-08. - HELD THAT: - The assessee, a BOT contractor, capitalised expenditure incurred in construction, development and maintenance of the road as 'License to collect Toll' and claimed depreciation at 25% under Section 32(1)(ii). The Tribunal followed coordinate-bench precedents which held that the right to collect toll arises from costs incurred by the assessee to develop the infrastructure and is an intangible asset, wholly or partly owned and used for business purposes. The factual finding that the right accrued only after incurrence of expenditure and that the conditions of Section 32(1)(ii) (ownership and use for business) were satisfied was accepted. Reliance placed on a contrary High Court decision was noted to have been overtaken by the Supreme Court. For these reasons the claim for depreciation on the 'license/right to collect toll' was allowed. [Paras 6, 7, 8, 10, 11]

Depreciation on the 'license/right to collect toll' is allowable as an intangible asset under Section 32(1)(ii) for A.Y. 2007-08; Ground of Appeal No.1.1 allowed.

Infructuous pleas - deduction under section 80-IA(4) - plant classification and depreciation at 15% - Alternative contentions (first crediting toll receipts against construction cost; classification of asset as 'plant' for 15% depreciation; claim under Section 80-IA(4)) dismissed as infructuous on assessee's success on the principal contention. - HELD THAT: - The assessee's alternative pleas that toll receipts be first set off against construction cost, that the constructed infrastructure be treated as 'plant' for depreciation at 15%, and the separate claim for deduction under Section 80-IA(4) were not adjudicated on merits because the primary claim for depreciation on the license/right to collect toll succeeded. The counsel conceded that these grounds would be rendered infructuous, and the Tribunal dismissed them accordingly. [Paras 9, 10, 11, 12, 13]

Grounds 1.2, 1.3 and the Section 80-IA(4) claim dismissed as infructuous.

Unabsorbed depreciation - infructuous pleas - Revenue's contention regarding allowance of unabsorbed depreciation from A.Y. 2006-07 rejected as infructuous in view of assessee's successful claim for depreciation on the license. - HELD THAT: - The Revenue challenged the CIT(A)'s direction to allow adjustment of unabsorbed depreciation from an earlier year. The Tribunal observed that the issue would be rendered infructuous if the assessee's claim for depreciation on the license succeeded (which it did), and furthermore noted no material to contradict the factual finding of the CIT(A). Consequently, the Revenue's ground was dismissed. [Paras 15, 16]

Revenue's Ground on unabsorbed depreciation dismissed as infructuous.

Treatment as building and depreciation at 10% - infructuous pleas - Revenue's challenge to CIT(A)'s allowance of 10% depreciation treating the road as a building dismissed as infructuous in view of the primary finding allowing 25% depreciation on the license. - HELD THAT: - Revenue contended that the road should not attract building rate depreciation (10%) and that the Chennai ITAT ratio relied upon was misplaced. The Tribunal held that this ground became infructuous because the assessee's substantive claim for depreciation on the license/right to collect toll at 25% succeeded, making the alternate treatment unnecessary to decide. [Paras 17, 18]

Revenue's Ground on building treatment and 10% depreciation dismissed as infructuous.

Final Conclusion: For A.Y. 2007-08 the Tribunal allowed the assessee's claim that the 'license/right to collect toll' is an intangible asset eligible for depreciation under Section 32(1)(ii) at 25%; alternative pleas and Revenue's grounds were dismissed as infructuous, resulting in the assessee's appeal being partly allowed and the Revenue's appeal dismissed.

Manufacture as transformation into a new and distinct article - substantial manufacturing activity - deduction under Section 80IC - misuse of benevolent fiscal incentives for industrially backward areas

Manufacture as transformation into a new and distinct article - The activity of assembling components into a torch light constitutes manufacturing. - HELD THAT: - The Tribunal applied the statutory definition of 'manufacture' and the settled judicial test that manufacture is established when processes transform the original commodity into a new and distinct article recognised in trade as having a different name, character and use. The detailed process-steps for three assembly lines (barrel assembly and printing, PCB soldering and fitting, and final integration, testing and packing) show integration of various components into a distinct product 'torch light.' On this basis the Tribunal held that the processes result in a new and distinct article and therefore amount to manufacturing activity. [Paras 6]

Assessee's assembly of torch lights is manufacturing.

Substantial manufacturing activity - deduction under Section 80IC - misuse of benevolent fiscal incentives for industrially backward areas - The substantial manufacturing activity is not carried out at the Dehradun unit and the assessee is not entitled to deduction under Section 80IC for the Dehradun unit. - HELD THAT: - The Tribunal examined the break-up of sales, costs, asset values and expenditures for Chennai and Dehradun units and found stark and unexplained disparities: Dehradun showed far higher sales with negligible machinery, power consumption and repairs, while Chennai showed large machinery, higher running costs and lower sales. The assessee failed to provide plausible explanations for the anomalies (such as faulty meters or labour-intensity) or to demonstrate substantial manufacture at Dehradun. The pattern indicated that finished goods were invoiced from Dehradun though substantial production occurred at Chennai, amounting to a colourable device to claim benefits meant for specified backward areas under Section 80IC. Consequently, the Tribunal concluded that the assessee misused the statutory concession and is not entitled to the deduction. [Paras 7, 8]

Deduction under Section 80IC for the Dehradun unit is disallowed; CIT(A) orders allowing the deduction are set aside.

Final Conclusion: The Tribunal affirmed that the assessee's activities constitute manufacture but found that substantial manufacturing was not carried out at the Dehradun (80IC) unit; the assessee misused the concession and was held not entitled to deduction under Section 80IC for AY 2007-08, AY 2008-09 and AY 2009-10. The appeals by the Revenue are allowed and the CIT(A) orders are set aside.

Applicability of section 194H of the Income Tax Act to amounts retained by banks/credit-card companies - Commission or brokerage versus bank charges/discounts - Principal-agent relationship as predicate for TDS under section 194H - Validity and operative date of certificate issued under section 195(3) of the Income Tax Act - Rule 29B(5) - temporal validity of certificates under section 195(3)

Applicability of section 194H of the Income Tax Act to amounts retained by banks/credit-card companies - Commission or brokerage versus bank charges/discounts - Principal-agent relationship as predicate for TDS under section 194H - Whether tax is deductible under section 194H on fees/amounts retained by banks/credit-card companies from payments for tickets booked through credit cards. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that amounts retained by banks/credit-card companies on account of facilitation of credit-card payments are in the nature of bank charges/discounts and do not constitute commission or brokerage attracting section 194H. The court accepted the factual and legal position that the sale of tickets remains a transaction of the merchant (airline) and the banks merely make payment on behalf of their card-holders in the ordinary course of banking; there is no agency relationship where the bank acts on behalf of the airline in procuring business. The Tribunal relied on and followed coordinate-bench decisions which held that commission-retention by card-issuing banks is a fee deducted for providing electronic payment facilities and is not payment for acting as a commission agent. On that basis the AO's invocation of section 194H and consequent demands under section 201(1) were rejected and the CIT(A)'s deletion was upheld. [Paras 9, 10]

The amounts retained by banks/credit-card companies are bank charges/fees and not commission within the meaning of section 194H; no TDS under section 194H was required and the CIT(A)'s order is upheld.

Validity and operative date of certificate issued under section 195(3) of the Income Tax Act - Rule 29B(5) - temporal validity of certificates under section 195(3) - From which date a certificate issued under section 195(3) operates - whether from date of issuance or for the Financial Year specified in the certificate. - HELD THAT: - The Tribunal agreed with the CIT(A) that certificates issued under section 195(3) authorising receipt of payments without deduction of tax are applicable for the Financial Year specified therein and are not effective only from the date of issuance. The Tribunal noted Rule 29B(5) of the Income Tax Rules and examined the certificates on record which expressly authorised receipt of payments for the respective Financial Years. In view of the terms of the certificates and the rule, the AO was not justified in treating the certificates as operative only from the date of issue; they apply for the Financial Years mentioned unless cancelled. [Paras 15]

Certificates under section 195(3) operate for the Financial Year specified therein (in accordance with Rule 29B(5)) and are not confined to taking effect only from their date of issuance; the CIT(A)'s view is upheld.

Final Conclusion: All three departmental appeals for assessment years 2007-08 to 2009-10 are dismissed: the Tribunal upheld the CIT(A)'s findings that (i) amounts retained by banks/credit-card companies are bank charges/discounts not commission and hence not liable to TDS under section 194H, and (ii) certificates under section 195(3) operate for the Financial Year specified (per Rule 29B(5)).

DTAA applicability despite absence of actual taxation - liable to tax - residence for treaty purposes - distributive/assignment rule - Article 8 - shipping - slot hire - nature of income - remand for fresh adjudication

DTAA applicability despite absence of actual taxation - liable to tax - residence for treaty purposes - distributive/assignment rule - Assessee resident of UAE is eligible for benefit of India-UAE DTAA notwithstanding that it has not actually paid tax in UAE, where it is otherwise 'liable to tax' in UAE. - HELD THAT: - The Tribunal accepted the reasoning in the coordinate Bench decision in Green Emirate Shipping & Travels that treaty relief is governed by the distributive/assignment principle and applies where a person is 'liable to tax' in the Contracting State by reason of domicile, residence, place of management or similar criterion, regardless of whether that State actually levies tax. The revenue's contention that absence of actual tax payment in UAE defeats the DTAA was rejected because being 'otherwise liable to tax' brings the assessee within Article 4 and activates DTAA protections. The Tribunal therefore held that the assessment authority erred in denying treaty relief on the ground that the assessee had not paid tax in UAE, and that the ratio in Green Emirates correctly states the law on this point. [Paras 15]

DTAA benefit available to the assessee as resident of UAE despite non-payment of tax there; the AO's denial on that ground was unsustainable.

Article 8 - shipping - slot hire - nature of income - remand for fresh adjudication - Whether receipts from time charters/slot hire fall within Article 8 of the India-UAE Treaty (and thus are taxable only in UAE) was not finally determined and is remanded for fresh adjudication by the Assessing Officer in accordance with the Federal Express reasoning. - HELD THAT: - The Tribunal found that the wording of Article 8 in the India-UAE Treaty is materially similar to the India-US Treaty and differs from the India-UK wording relied on in Balaji Shipping. Because the revenue and the assessee had not had the issue of the exact nature of the receipts (time charter, slot hire or other) examined with detailed reasoning, the Tribunal considered it just to remit the matter to the AO for fresh consideration. The AO is directed to examine the precise nature of the income, determine applicability of Article 8 in light of the Federal Express reasoning, and afford the assessee reasonable opportunity to present its case. [Paras 16, 17, 18]

Issue remitted to the Assessing Officer for fresh adjudication on nature of income and availability of Article 8 relief, to be decided in accordance with the Federal Express approach with opportunity to the assessee.

Final Conclusion: The Tribunal held that the assessee, as resident of UAE, can claim India-UAE DTAA benefits notwithstanding absence of actual taxation in UAE, but remitted the question whether the receipts (time charters/slot hire) fall within Article 8 to the Assessing Officer for fresh adjudication in accordance with the Federal Express reasoning; both appeals by the department are allowed for statistical purposes to effect the remand.

Penalty under Section 116 for not accounting for goods - Liability of agent under Section 148 as person-in-charge's representative - Person-in-charge definition in relation to a vessel - Responsibility arising from filing Import General Manifest and affixing seals - No mens rea requirement for penalty under Section 116

Penalty under Section 116 for not accounting for goods - Liability of agent under Section 148 as person-in-charge's representative - Responsibility arising from filing Import General Manifest and affixing seals - No mens rea requirement for penalty under Section 116 - Whether the steamer agent (petitioner) is liable to penalty under Section 116 read with Section 148 of the Customs Act for containers manifested as containing cargo but found empty where the agent filed the Import General Manifest and affixed seals and took charge of sealed containers. - HELD THAT: - The court held that Sections 116, 2(31) and 148 read together render the person-in-charge of a conveyance liable for penalty for not accounting for goods, and an agent appointed by or representing the person-in-charge who is accepted by customs steps into the shoes of the person-in-charge for obligations and penal consequences. The authorities below found on facts that the petitioner filed the Import General Manifest, affixed the seals and took charge of the sealed containers; therefore the petitioner assumed the responsibilities contemplated by Section 148. The court relied on the Supreme Court's reasoning in British Airways Plc. that Section 116 attracts penalty without requiring proof of mens rea and that agents or persons representing the person-in-charge can be held liable. Distinctions drawn from earlier High Court authorities where seals were intact or different factual matrices were present were held inapplicable here because of the specific finding that the agent had manifesting and sealing responsibilities and had accepted dealing with the cargo. Consequently, the imposition and confirmation of penalty by the authorities were justified on the facts and law. [Paras 9, 11, 13, 16, 17]

The petitioner is liable to penalty under Section 116 read with Section 148 of the Customs Act; the orders imposing and confirming penalty are upheld.

Final Conclusion: Writ petitions dismissed; the orders imposing and confirming penalty on the steamer agent are upheld and no interference is warranted.

Eligibility for benefit of Notification No.1/2011-Cus - definition of 'importer' under Section 2(26) of the Customs Act, 1962 - confiscation of imported goods - waiver of pre-deposit and stay of recovery

Eligibility for benefit of Notification No.1/2011-Cus - Whether the imported goods prima facie qualified for exemption under Notification No.1/2011-Cus for items used in initial setting of a solar power generation project or facility. - HELD THAT: - The Tribunal recorded that it is undisputed the goods imported were claimed to be for a solar power generation project in Gujarat and that the Ministry of New and Renewable Energy entertained the application and issued a certificate acknowledging the goods as needed for the project. On that basis, and on the material before it, the Tribunal found that the benefit of Notification No.1/2011-Cus could not be denied to such goods prima facie. The Tribunal thus concluded that, at the prima facie stage, the conditions of the notification were fulfilled and the adjudicating authority's denial of the benefit was open to doubt. [Paras 4]

Primafacie entitlement to benefit under Notification No.1/2011-Cus established; denial by adjudicating authority questionable.

Definition of 'importer' under Section 2(26) of the Customs Act, 1962 - Whether M/s APCA Power Pvt. Ltd., having filed the Bill of Entry, can be regarded as an importer within the meaning of Section 2(26). - HELD THAT: - The Tribunal examined the statutory definition which includes any owner or any person holding himself out to be the importer during the period between importation and clearance. Applying that definition to the facts, the Tribunal concluded that the appellant could be considered a person holding himself out as the importer even if high-sea sale arrangements had been made, and therefore falls within the definition of 'importer' for the purposes of claiming the notification benefit. [Paras 5]

APCA Power Pvt. Ltd. can prima facie be regarded as an importer under Section 2(26).

Confiscation of imported goods - Whether the adjudicating authority's order of confiscation of the goods was prima facie sustainable. - HELD THAT: - Having held that the goods were prima facie eligible for the notification benefit and that the appellant could be treated as importer, the Tribunal found that the confiscation ordered by the adjudicating authority was, at the prima facie stage, erroneous. The Tribunal treated the confiscation as unsustainable until the appeal was finally adjudicated. [Paras 6]

Confiscation order is prima facie erroneous.

Waiver of pre-deposit and stay of recovery - Whether pre-deposit of the confirmed duty, interest and penalties should be waived and recovery stayed pending disposal of the appeal. - HELD THAT: - Balancing the prima facie findings on entitlement to notification benefit and on the question of importer status, and noting the apparent error in ordering confiscation, the Tribunal concluded that the appellants had made out a strong prima facie case. On that basis the Tribunal allowed the stay petitions, granted waiver of pre-deposit of the amounts specified and stayed recovery until disposal of the appeals. [Paras 6, 7]

Waiver of pre-deposit allowed and recovery stayed until disposal of the appeals.

Final Conclusion: The Tribunal found a strong prima facie case that the imported goods qualified for Notification No.1/2011-Cus and that the appellant could be considered an importer under Section 2(26); it held the confiscation to be prima facie erroneous and allowed waiver of pre-deposit and a stay of recovery until disposal of the appeals.

Includability of royalties and technical know how in customs assessable value under Rule 9(1)(c) of the Customs Valuation Rules, 1988 - 'condition of sale' as determinant for adding royalties to transaction value - nexus between royalty/know how payments and the imported goods - distinction between lump sum and running royalty for purposes of valuation

Includability of royalties and technical know how in customs assessable value under Rule 9(1)(c) of the Customs Valuation Rules, 1988 - 'condition of sale' as determinant for adding royalties to transaction value - Whether the running royalty/technical know how payments payable to the foreign collaborator are includable in the assessable value of imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988. - HELD THAT: - The Tribunal examined Rule 9(1)(c) which permits inclusion of royalties and licence fees in the assessable value only where such payments are related to the imported goods and are required to be paid, directly or indirectly, as a condition of the sale of the goods being valued. The Court construed "condition of sale" as a stipulation on the fulfilment of which the sale depends and placed the burden on the Revenue to show that the royalty was a pre requisite of the sale and that the transaction value was not a true transaction value under Section 14(1)(a) of the Customs Act. The record did not establish that the running royalty payable for manufacture in India was a condition attached to the import transactions or that it had the requisite nexus with the imported goods. The Tribunal further noted and accepted the principle in Commissioner of Customs v. Ferodo India P. Ltd. that where the payment for technical know how or royalty has no nexus with the working or sale of the imported goods, it is not includable under Rule 9(1)(c). The Commissioner (Appeals) had rightly distinguished Collector v. Essar Gujarat Ltd. and the concurrent findings of the lower authorities that the royalty was not a condition of sale were upheld. [Paras 6]

Running royalty/technical know how payments were not proved to be a condition of sale or to have the requisite nexus with the imported goods and therefore were not includable in the assessable value under Rule 9(1)(c); the Commissioner (Appeals)'s order upholding the lower authority was affirmed and the departmental appeal dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the concurrent findings that the running royalty/technical know how payments payable to the foreign collaborator are not includable in the customs assessable value of the imported goods under Rule 9(1)(c), as they were not shown to be a condition of sale or to have the necessary nexus with the imported goods.

Absolute confiscation - notified goods - Chapter IVA dealing with notified goods - return of goods - refund of sale proceeds

Absolute confiscation - notified goods - Chapter IVA dealing with notified goods - Liability of the goods to absolute confiscation where goods are not notified and provisions relating to notified goods (Chapter IVA) have been deleted. - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) finding that absolute confiscation could not be sustained because the goods in question were not notified under the scheme for notified goods and the statutory machinery in Chapter IVA dealing with notified goods had been deleted from the Customs Act. On that legal basis the Customs department had no power to order absolute confiscation; consequently the confiscation order was set aside. Although the Revenue relied on markings and the absence of documentary proof of licit purchase, the determinative legal point was the absence of notification and the repeal/deletion of the dedicated statutory provisions for notified goods, which precluded absolute confiscation.

Confiscation set aside and direction to return the goods to the respondent.

Refund of sale proceeds - return of goods - Relief where goods have already been disposed of by Customs after setting aside confiscation. - HELD THAT: - The Tribunal noted that the goods had already been disposed of by the Customs authorities following the impugned appellate order. In such circumstances, the appropriate consequential relief was monetary - the Revenue was directed to refund the sale proceeds of the disposed goods to the respondent without further delay.

Revenue directed to refund the sale proceeds to the respondent.

Final Conclusion: The appeal is dismissed; the order of confiscation is set aside for lack of power to absolutely confiscate goods not notified under the now-deleted Chapter IVA, the goods are to be returned to the respondent (or, if already disposed, sale proceeds refunded) and the Revenue must refund the sale proceeds where disposal has occurred.

Inability to pay debts - admitted liability - unascertained debt - success fee - engagement fee creditable against success fee - contractual interpretation of fee clause - bona fide dispute - commercial solvency as not a standalone bar to winding up - winding up under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956 - appointment of Official Liquidator as Provisional Liquidator - conditional adjournment to permit payment

Success fee - engagement fee creditable against success fee - contractual interpretation of fee clause - Whether E&Y is entitled to claim Success fee under the LOE despite changes in the structure or nature of the transactions and despite contention that it only 'assisted' rather than 'arranged' finance - HELD THAT: - The LOE's clause 3.3.2 expressly provides that the Success fee "will not be prejudiced in the event that a transaction, once completed, has evolved away from that originally envisaged" and confirms entitlement to the Success fee in relation to any transaction on which E&Y advises. The Court found that the language of the LOE includes providing 'assistance' in obtaining finance within the services that attract the Success fee, and that the respondent's attempt to draw a narrow distinction between 'arranging' and 'assisting' is not borne out by the contract. The request by E&Y for an enhanced rate (from 0.9% to 1.15%) was a matter of correspondence but the LOE as framed supports E&Y's entitlement to the Success fee for the transactions advised upon. [Paras 3, 5, 19]

E&Y is entitled to the Success fee under the LOE as interpreted by the Court; the LOE covers transactions that evolved from the original envisaged structure and includes assistance in obtaining finance.

Admitted liability - estoppel by conduct - Whether there was an unequivocal admission of liability by JIL for the invoices raised by E&Y - HELD THAT: - The Court examined the correspondence, in particular JIL's letter dated 27th January 2011 acknowledging receipt of the invoice of Rs.4,90,04,429 and emails from JIL executives seeking further time. The Court found these communications to constitute an unequivocal admission of liability by JIL and rejected the submission that such admission lacked authority or was ambiguous. The Court also noted that JIL did not earlier repudiate liability when invoices were presented and only raised defences later in the proceedings. [Paras 17, 20]

There is an admitted liability of JIL towards E&Y based on the communications relied upon by the petitioner.

Unascertained debt - statutory demand - Whether the petition is barred because the debt claimed is unascertained or vague - HELD THAT: - The Court observed discrepancies in claimed figures but attributed them plausibly to fluctuating foreign exchange rates. The legal notice dated 31st August 2011 identifies an admitted debt of a definite amount (as pleaded in that notice) together with interest, and the Court treated that stated amount as the basis for the petition. The Court therefore rejected the contention that the claim was so unascertained as to bar the petition. [Paras 21]

The debt is not unascertained for the purposes of the petition; the legal notice sufficiently identifies an admitted debt.

Bona fide dispute - commercial solvency as not a standalone bar to winding up - Whether JIL's plea of commercial solvency and other defenses constitute a bona fide dispute preventing winding up under Sections 433(e) and 434(1)(a) - HELD THAT: - Relying on the principles in the cited Supreme Court authority, the Court held that if liability is undisputed, commercial solvency is not a standalone ground to refuse a statutory demand. The Court examined JIL's defences and correspondence and found the defences not bona fide. Given the admitted liability and lack of a genuine dispute on the existence of the debt, the deeming provision in Section 434(1)(a) is engaged and the petition could be admitted despite assertions of solvency. [Paras 22, 23]

JIL's plea of solvency and its defences do not constitute a bona fide dispute sufficient to defeat the petition; the petition can be admitted.

Appointment of Official Liquidator as Provisional Liquidator - conditional adjournment to permit payment - Relief to be granted upon admission of the petition - whether provisional liquidation should be ordered and whether the order should be stayed to permit payment - HELD THAT: - The Court was satisfied that the petitioner made out a case for admission and directed appointment of the Official Liquidator of the Court as Provisional Liquidator to take possession of assets, books and records and prepare inventory and valuation. However, recognising the respondent's last opportunity to avoid the consequences of the order, the Court kept the order in abeyance for eight weeks from the date of the order to enable JIL to make payment of the admitted liability to the satisfaction of E&Y. If payment is made within that period, the petition will be disposed of subject to E&Y's rights to pursue remaining claims; if not, the provisional liquidation directions become immediately operative and the OL will act accordingly. [Paras 23, 24, 27]

The petition is admitted; the Official Liquidator is appointed Provisional Liquidator, but the operative directions are kept in abeyance for eight weeks to allow JIL to pay the admitted debt, failing which the provisional liquidation will proceed.

Final Conclusion: The High Court admitted the winding up petition on the ground of JIL's inability to pay an admitted debt to E&Y, held that the LOE entitles E&Y to the Success fee (including for transactions that evolved from the original mandate and for assistance in obtaining finance), rejected the contentions that the debt was unascertained or bona fide disputed, appointed the Official Liquidator as Provisional Liquidator, and kept the provisional liquidation order in abeyance for eight weeks to permit payment of the admitted liability.

Right to cross-examine as part of principles of natural justice - scope of adjudicatory procedure under FEMA and the Rules of 2000 - permissible limits on cross-examination in regulatory/quasi-judicial proceedings - relevance of reliance on third-party statements for permitting cross-examination

Right to cross-examine as part of principles of natural justice - relevance of reliance on third-party statements for permitting cross-examination - Whether the appellants are entitled to cross-examine the three witnesses whose statements are relied upon in the complaint - HELD THAT: - The Court analysed Supreme Court authorities recognising that cross-examination is an integral component of a reasonable opportunity of defence where the evidence relied upon adversely affects the party and its veracity is in dispute. Applying those principles to the complaint and annexed documents, the Court noted that the respondent had relied extensively on statements of Shri Ahmad Shakir, Shri Pratap Ghose and Shri K. Vasudeva (statements listed in Annexure B) and that no particular prejudice to the respondent was shown if cross-examination were permitted. The Court distinguished instances where cross-examination may be denied (special statutes or circumstances justifying withholding of witnesses or where no lis exists regarding facts) and concluded that, on the facts before it, refusal to allow cross-examination would be an exception to the normal rule of natural justice. Consequently, the appellants were held entitled to cross-examine those three witnesses, subject to the usual limits on questions and to procedural safeguards directed by the adjudicating authority. [Paras 20, 34]

Appellants entitled to cross-examine Shri Ahmad Shakir, Shri Pratap Ghose and Shri K. Vasudeva; cross-examination to be permitted by the Adjudicating Authority.

Scope of adjudicatory procedure under FEMA and the Rules of 2000 - permissible limits on cross-examination in regulatory/quasi-judicial proceedings - Whether any other person, including the complainant (Assistant Director), should be ordered to be cross-examined - HELD THAT: - The Court examined the nature of the complaint and the material relied upon and held that permitting cross-examination of the complainant himself (Shri Rajeshwar Singh) would not serve any useful purpose, since the complaint is based on material gathered by the respondent and the complainant's examination would not advance the appellants' defence. The Court therefore declined the appellants' request to cross-examine the complainant and found no grounds to permit cross-examination of persons other than the three witnesses specifically relied upon in the complaint. [Paras 35]

Request to cross-examine the complainant (Assistant Director) and any other persons beyond the three named witnesses refused.

Permissible limits on cross-examination in regulatory/quasi-judicial proceedings - procedural directions to prevent abuse/delay - Procedural manner and timeline for conducting permitted cross-examination - HELD THAT: - While allowing cross-examination of the three specified witnesses, the Court was mindful of potential delay tactics and directed the Adjudicating Authority to fix dates within one month and to conduct the cross-examinations on a day-to-day basis, preferably to conclude within ten working days from commencement. The Court emphasised that cross-examination would be confined to questions permissible in law and designed the schedule and limits to prevent undue delay in the adjudication. [Paras 36]

Adjudicating Authority to fix dates within one month and conduct cross-examination expeditiously (preferably within ten working days), confined to lawful questions.

Final Conclusion: The appeals are allowed in part: the appellants are permitted to cross-examine the three witnesses whose statements the respondent has relied upon (Shri Ahmad Shakir, Shri Pratap Ghose and Shri K. Vasudeva) within the time-frame and limits directed; requests to cross-examine the complainant and other persons are refused; the matter is remitted to the Adjudicating Authority for expeditious completion of the directed cross-examination.

Reverse charge mechanism under Section 66A - Goods Transport Agency services - service recipient liability - waiver of pre-deposit and stay of recovery - prima facie case for grant of stay

Reverse charge mechanism under Section 66A - Goods Transport Agency services - service recipient liability - prima facie case for grant of stay - Waiver of pre-deposit and stay of recovery of the contested Service Tax demands - HELD THAT: - The appeals challenge confirmed Service Tax demands, interest and penalties on the ground that the appellant, as service recipient, failed to discharge tax under the reverse charge mechanism in respect of transportation of coal from port to factory. On the material placed before the Tribunal there was no evidence that M/s Shreeji Shipping/M/s Shreeji Roadways raised invoices on the appellant; the appellant consistently maintained that individual truck owners performed the transportation and were paid freight through M/s Shreeji Shipping. The Tribunal noted precedents holding that the Service Tax liability is on the Goods Transport Agency and not on individual truck owners and, applying a prima facie appraisal of the record, found that the appellant had made out a prima facie case against the demands. For these reasons the Tribunal exercised its discretion to waive the pre-deposit and stay recovery pending disposal of the appeals. [Paras 5, 6]

Applications for waiver of pre-deposit are allowed and recovery stayed till disposal of the appeals.

Final Conclusion: The Tribunal, on a prima facie assessment of the record and relevant precedents, allowed complete waiver of pre-deposit and stayed recovery of the Service Tax demands (with interest and penalties) in respect of the stated periods until the appeals are decided.

Service Tax - commercial or industrial construction service - nature of service decisive - extended period of limitation - pre-deposit and stay pending appeal - business auxiliary service

Commercial or industrial construction service - nature of service decisive - Whether the services rendered in the construction of the marketing complex fall within the category of commercial or industrial construction service attracting Service Tax - HELD THAT: - The Tribunal recorded that the marketing complex was constructed as a commercial/marketing complex and observed that no contrary evidence was placed to show that after construction the complex was used for purposes other than commercial or marketing activity, despite the project being under a Central Government sponsored scheme. The applicants claimed the project was for poverty alleviation and meant for unemployed youth and women vendors and therefore not commercial in nature; the claim was noted but not finally adjudicated. The Tribunal treated the characterisation of the service (its nature and end use) as the decisive factor for taxation and did not finally rule on liability, instead considering these contentions in the limited context of the stay application.

Final taxability was not adjudicated; the question of whether the construction amounts to a taxable commercial or industrial construction service remains to be decided in the appeals.

Service Tax - business auxiliary service - Whether M/s NBCC rendered the taxable construction service or merely acted as an executor without rendering construction service attracting Service Tax - HELD THAT: - The Tribunal found force in the submission that NBCC acted as an executor of the project and received only a ten percent amount, and that NBCC may not have rendered the construction service itself. This observation was made in the context of the stay application; the Tribunal did not finally decide NBCC's liability for Service Tax but accepted that their role as executor raised a plausible defence.

NBCC's liability for Service Tax was not finally determined; the execution-versus-service-provider issue is left to be adjudicated in the appeals.

Extended period of limitation - Whether the demands for the relevant period are time-barred and whether the adjudicating authority recorded a finding on limitation - HELD THAT: - The applicants had pleaded that the major portion of the demand was barred by limitation and the adjudicating authority had not recorded any finding on this plea. The Tribunal noted the absence of a recorded finding on limitation by the Commissioner. The limitation plea was therefore not decided on merits in the present order and remains an issue for fresh adjudication in the appeals.

The limitation point was not adjudicated and must be considered in the appeals; no finding was recorded by the adjudicating authority in the impugned order.

Pre-deposit and stay pending appeal - Whether pre-deposit should be waived or stayed and what interim measure should be ordered pending disposal of the appeals - HELD THAT: - Balancing the interests of revenue, the principles governing stay/condonation applications, and the applicants' pleaded financial hardship, the Tribunal accepted the offer made by M/s Simplex Projects Ltd. to make a part deposit. The Tribunal considered the fairness of the offer and the absence of adjudication on limitation alongside the applicants' contentions about the nature and use of the constructed complex. On this basis the Tribunal directed a specific interim measure to preserve the parties' positions until final disposal of the appeals.

M/s Simplex Projects Ltd. directed to deposit Rs.5.00 Lakhs within six weeks; on such deposit the balance of the dues adjudged against all applicants is waived and recovery stayed during the pendency of the appeals, with compliance to be reported on the specified date.

Final Conclusion: The Tribunal did not finally determine liability for Service Tax or the limitation plea; it granted interim relief by directing M/s Simplex Projects Ltd. to deposit Rs.5.00 Lakhs within six weeks, and on such deposit stayed recovery of the remaining adjudged dues during the pendency of the appeals while leaving the substantive issues for adjudication on merits.

Service of show-cause notice - principles of natural justice - mode of service under Section 37C of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 - remand for fresh adjudication - eligibility for CENVAT credit of service tax paid on construction services used for renting of immovable property

Service of show-cause notice - principles of natural justice - mode of service under Section 37C of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 - The show-cause notice dated 5.6.2009 was not validly served on the appellant and principles of natural justice were violated. - HELD THAT: - The Tribunal examined the record and found the notice sent by courier and a later copy returned undelivered. The statutory modes of service prescribed under Section 37C of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 require service by registered post with acknowledgement, by affixing at business premises, or by display on the issuing office's notice board. Sending the notice by courier does not conform to the prescribed modes and, therefore, cannot be treated as proper service. In consequence, the appellant was deprived of an opportunity to reply to the notice, resulting in a breach of natural justice which vitiates the proceedings based on that notice. [Paras 5]

The show-cause notice dated 5.6.2009 is held not to have been properly served; the matter is remanded for fresh service and opportunity to the appellant to reply.

Eligibility for CENVAT credit of service tax paid on construction services used for renting of immovable property - remand for fresh adjudication - The question whether the appellant was entitled to CENVAT credit of service tax paid on construction services for the rented commercial complex was not finally adjudicated and is remanded for fresh decision. - HELD THAT: - The Tribunal noted that competing decisions of the High Court and the Tribunal on the availment of credit where construction services relate to immovable property used for taxable renting activities were raised by the appellant. Rather than deciding the merit, the Tribunal directed the original adjudicating authority to consider afresh whether the appellant is eligible for the claimed CENVAT credit in the light of precedents cited (including Cadila Healthcare and the Tribunal decisions relied upon), to record clear findings, and to allow the appellant an opportunity to make submissions before passing any order confirming demand. [Paras 5, 6]

The issue of entitlement to CENVAT credit is kept open and remanded to the adjudicating authority for fresh consideration after hearing the appellant and recording clear findings.

Final Conclusion: Appeals allowed in part by way of remand: the show-cause notice dated 5.6.2009 was not validly served and must be served afresh with opportunity to the appellant; the question of entitlement to CENVAT credit is remitted to the original authority for fresh adjudication in accordance with law and relevant precedents.

Condonation of delay - principles of natural justice - service tax liability for manpower supply agency - exemption under Notification No. 08/2005-ST for job work - pre-deposit as condition for stay of recovery

Condonation of delay - Condonation of delay of 33 days in filing the appeal was sought. - HELD THAT: - The Tribunal examined the appellant's explanation that the delay arose from injuries sustained in an accidental fall from a motorbike. Finding the reasons satisfactory, the Tribunal exercise[d] its discretion to condone the delay and admit the appeal for adjudication on merits. [Paras 2, 8]

Delay of 33 days in filing the appeal condoned; COD application disposed of.

Principles of natural justice - service tax liability for manpower supply agency - exemption under Notification No. 08/2005-ST for job work - Whether the adjudicating authority violated principles of natural justice and whether the appellant was entitled to exemption under Notification No. 08/2005-ST. - HELD THAT: - The Tribunal found that the appellant was afforded multiple opportunities for personal hearing and failed to avail them; five hearings were granted and an additional slot after the appellant's fax, none attended. The appellant's own statement recorded in investigation admitted non-discharge of service tax; books and invoices provided a basis for computation of the demand. The claim of entitlement to Notification No. 08/2005-ST was rejected on the factual and legal ground that the appellant's activities (shifting of raw material and housekeeping) did not amount to 'job work' as envisaged by the notification, which contemplates processing of material supplied by clients. The Tribunal therefore concluded there was no denial of natural justice and the exemption claim lacked merit. [Paras 3, 4, 6]

Contention of violation of natural justice rejected; exemption under Notification No. 08/2005-ST not available; demand confirmed on merits.

Pre-deposit as condition for stay of recovery - Whether stay of recovery should be granted and on what terms. - HELD THAT: - Having found no merit in the appellant's defenses and noting absence of pleaded financial hardship, the Tribunal declined an unconditional stay. It directed the appellant to make a pre-deposit of the entire confirmed service tax amount within eight weeks; upon such compliance the balance of dues adjudged would be waived and recovery stayed during the pendency of the appeal. [Paras 7]

Pre-deposit of the entire confirmed service tax directed within eight weeks; on compliance balance waived and recovery stayed pending appeal.

Final Conclusion: Delay in filing the appeal condoned; the Tribunal rejected the appellant's natural justice and exemption claims, confirmed the service tax demand for 2007-08 to 2009-10, and directed pre-deposit of the confirmed amount as condition for stay of recovery; COD application disposed of.

Input service credit - nexus with manufacturing activity - credit for services used in business functions - consequential relief

Input service credit - nexus with manufacturing activity - credit for services used in business functions - Entitlement to input service credit on Mandap Keeper Service engaged for the appellant's Annual Day function - HELD THAT: - The Tribunal examined whether the Mandap Keeper Service utilised for the appellant's Annual Day function has the requisite nexus with the appellant's manufacturing activity to permit input service credit. The Tribunal found as a fact that the Annual Day function was organised by the appellant, attended by employees and their families and by employees of sister units, and observed that such an annual function forms an integral part of the appellant's business activity. The Tribunal rejected the Revenue's reliance on authorities concerning residential colony civil repairs and a non-final stay disposal as not comparable to the present facts. Relying on precedents favourable to credit where corporate events were held as part of business activity, the Tribunal held that the Mandap Keeper Service was connected to the business and manufacturing operations and therefore eligible for input service credit. [Paras 7, 8]

The impugned denial of input service credit is set aside; the appellant is entitled to credit on the Mandap Keeper Service and the appeal is allowed with consequential relief, if any.

Final Conclusion: The Tribunal allowed the appeal, holding that Mandap Keeper Service engaged for the appellant's Annual Day function has sufficient nexus with the appellant's manufacturing/business activity to permit input service credit, set aside the impugned order and granted consequential relief.

Definition of manufacture - packing and re-packing as manufacture - re-packing/multi-piece packaging - intermediary process in the course of manufacture - job-work exemption under Notification No. 8/2005-ST - movement under Rule 4(5)(a) of the CENVAT Credit Rules, 2004

Definition of manufacture - packing and re-packing as manufacture - re-packing/multi-piece packaging - intermediary process in the course of manufacture - movement under Rule 4(5)(a) of the CENVAT Credit Rules, 2004 - Whether the activities undertaken by the appellant (mixing of soap noodles and multi-piece packaging / re-packing) amount to "manufacture" under Section 2(f)(iii) of the Central Excise Act, 1944 - HELD THAT: - The Tribunal observed that Section 2(f)(iii) expressly includes packing or re-packing of goods specified in the III Schedule as part of "manufacture", and soaps are included in the III Schedule. Multi-piece packaging performed on already packed soaps thus falls within the scope of packing/re-packing and would prima facie constitute "manufacture". Similarly, mixing of soap noodles and subsequent packing/re-packing would amount to manufacture if the mixed product is sold as such; if the goods are moved under Rule 4(5)(a) of the CENVAT Credit Rules, 2004 as part of further manufacture at the supplier's end, the activity may be an intermediary process in the course of manufacture and not amenable to service tax. The adjudicating authority had not given any specific findings explaining why the appellant's multi-piece packaging or mixing and packing would not constitute "manufacture" and had rested its conclusion merely on the premise that soaps were already packed or on the appellant's supposed non-contestation of the demand. For these reasons the Tribunal found that the issue requires fresh consideration and specific findings by the adjudicating authority after hearing the parties. [Paras 6, 7]

Impugned findings on whether the appellant's activities are "manufacture" are set aside and the matter is remanded for fresh adjudication with specific findings after hearing the appellant.

Job-work exemption under Notification No. 8/2005-ST - movement under Rule 4(5)(a) of the CENVAT Credit Rules, 2004 - Whether the exemption under Notification No. 8/2005-ST (job-work on materials/semi-finished goods supplied by the service recipient) is available to the appellant - HELD THAT: - The Tribunal noted that even if the appellant's activity were characterized as a service ("Business Auxiliary Service"), Notification No. 8/2005-ST grants exemption where job-work is performed on materials/semi-finished goods supplied by the service recipient and the goods are returned to the supplier for further manufacture. The adjudicating authority did not address why this Notification would not apply to the facts. Given the absence of specific findings on applicability of the Notification, the Tribunal directed the adjudicating authority to examine and decide the question afresh, including consideration of the effect of movements permitted under Rule 4(5)(a) CENVAT Credit Rules, 2004. [Paras 6, 7]

Applicability of Notification No. 8/2005-ST is remanded to the adjudicating authority for fresh consideration and specific findings after hearing the appellant.

Final Conclusion: The impugned Order-in-Original is set aside and the matter is remitted to the adjudicating authority to decide afresh, after hearing the appellant, whether the activities amount to "manufacture" and, if not, whether Notification No. 8/2005-ST applies; the appeal is allowed by way of remand, the stay application is disposed of, and the appeal is disposed of without requiring any pre-deposit.

Exclusionary clause of Section 65(105)(zzzn) (sponsorship of sports events) - sponsorship of sports events - definition of sponsorship - interpretation of "in relation to" - commercial element in sporting events does not negate exclusion - literal construction / golden rule of statutory interpretation

Exclusionary clause of Section 65(105)(zzzn) (sponsorship of sports events) - sponsorship of sports events - commercial element in sporting events does not negate exclusion - interpretation of "in relation to" - Sponsorship of IPL league matches by the appellants falls within the exclusionary clause and is not liable to service tax. - HELD THAT: - The Court examined the scope of the exclusion for "service in relation to sponsorship of sports events" and concluded that the phrase admits no ambiguity; the legislature conferred immunity on sponsorship in relation to sports events without limiting it on account of commercial purpose. The adjudicating authority's conclusions were rejected as founded on two fallacies: (a) treating commercially organised IPL league matches as outside the category of sports events because of their commercial element, and (b) dissecting the sponsorship agreement to characterise the payment as sponsorship of the BCCI/IPL (a registered society) rather than sponsorship in relation to the T 20 cricket league matches conducted under its auspices. The Court held that the sponsorship agreements confer participative and associative rights in relation to IPL events, that cricket and T 20 league matches are sporting events, and that payments made to BCCI/IPL were plainly in relation to those sporting events. Applying the literal or "golden" rule of construction, the Court found no legislative limitation excluding commercially organised sports events from the immunity and therefore quashed the impugned orders which had held otherwise. [Paras 10, 11, 15, 16, 17]

Impugned adjudication orders holding the sponsorship liable to service tax are quashed; the sponsorship of the IPL matches falls within the exclusion and is not taxable.

Final Conclusion: Appeals allowed; impugned adjudication orders quashed and the sponsorship of the IPL matches by the appellants held to be excluded from service tax under the proviso, without costs.

Provisional assessment and refund under Rule 9B of the Central Excise Rules - refund of duty following finalization of provisional assessment - non-applicability of Section 11A/11B to refunds consequent on Rule 9B(5) - doctrine of unjust enrichment - payment of duty under protest - Modvat credit entitlement on inputs

Provisional assessment and refund under Rule 9B of the Central Excise Rules - refund of duty following finalization of provisional assessment - non-applicability of Section 11A/11B to refunds consequent on Rule 9B(5) - Whether the petitioner was entitled to refund of excess duty paid on provisional assessment after finalisation under Rule 9B(5). - HELD THAT: - The Court held that where duty was paid provisionally and the assessment was finally determined under sub rule (5) of Rule 9B, any excess duty payable on finalisation is to be refunded without the assessee being required to invoke Sections 11A/11B. Reliance on the principles in Mafatlal and subsequent authorities was examined and the Court accepted that recoveries or refunds consequent to adjustment under Rule 9B(5) are not governed by Section 11A/11B, and that the petitioner, having paid provisional duty for the period in question, became entitled to refund on finalisation of assessment. [Paras 16, 18, 19]

Refund of excess duty paid on provisional assessment must be granted pursuant to Rule 9B(5) and is not to be governed by Sections 11A/11B.

Doctrine of unjust enrichment - payment of duty under protest - Whether the doctrine of unjust enrichment barred the petitioner's refund claim where duty was paid under protest and the Department alleged that the duty was passed on to the purchaser. - HELD THAT: - The Court examined the authorities relied upon by the revenue and concluded that the doctrine of unjust enrichment does not operate to deny refunds which arise on finalisation of provisional assessment under Rule 9B(5). Even where the revenue contended that the duty had been recovered from the purchaser, the base for denial-application of unjust enrichment and Section 11B-was not tenable in respect of refunds flowing from Rule 9B(5). The Court noted the petitioner had paid duty under protest and that the issue of unjust enrichment was therefore not a proper basis to decline the refund arising from the provisional assessment finalisation. [Paras 9, 18, 20]

Doctrine of unjust enrichment does not bar refund arising from finalisation of provisional assessment under Rule 9B(5); payment under protest precludes denial on that ground.

Modvat credit entitlement on inputs - doctrine of unjust enrichment - Whether the petitioner was entitled to Modvat credit/refund on input duties despite having participated in Kar Vivad Samadhav Scheme and later admissions as to real manufacturer. - HELD THAT: - The Court found that revenue did not dispute receipt of the input paperboard and that the petitioner had established payment of duty on inputs. The subsequent admission under the settlement scheme that ITC was the real manufacturer did not by itself defeat the petitioner's right to Modvat credit or refund where duties were properly paid and invoices existed. Procedural non compliance was not pressed by the revenue as a contested ground. Therefore denial of Modvat credit on the basis of unjust enrichment or the settlement admission was not upheld. [Paras 21]

Modvat credit/refund on inputs is allowable to the petitioner; denial on unjust enrichment/settlement admission is not sustained.

Final Conclusion: Writ petition allowed. The Court directed respondents to refund the admitted amounts (including duty differential and Modvat credit) within twelve weeks with interest at 9% per annum; rule made absolute to that extent.

Modvat credit on capital goods - components, spares and accessories - definition of 'capital goods' under Rule 57Q - clarificatory notification and retrospective effect - user test

Modvat credit on capital goods - components, spares and accessories - definition of 'capital goods' under Rule 57Q - clarificatory notification and retrospective effect - user test - Entitlement to avail Modvat credit in respect of goods falling under Heading 84.74 (and components/spares classifiable under other headings) for the period 23.7.1996 to 31.8.1996 under Rule 57Q. - HELD THAT: - Rule 57Q originally recognised components, spares and accessories of machines/appliances as capital goods eligible for Modvat credit. Subsequent amendments (from 16.3.1995 and 23.7.1996) specified eligible capital goods by tariff headings and for a limited period excluded goods under Heading 84.74. The Government circular dated 2.12.1996 clarified that clause (d) of the Explanation to Rule 57Q covers components, spares and accessories of the specified capital goods by description irrespective of their classification, and that scope was not intended to be restricted to components classifiable under Chapters 82, 84, 85 or 90. Applying the settled user test (as applied by the Apex Court and this Court in earlier decisions), items which are components, spares or accessories used with eligible capital goods fall within the definition of 'capital goods' for Rule 57Q. The court found Notification No.25/96-CE (NT) dated 31.8.1996 to be clarificatory and to be read so as to give retrospective effect to the availability of Modvat credit on the components/spares in question. On these grounds the Tribunal's denial of credit for the period 23.7.1996 to 31.8.1996 was set aside and the assessee's claim allowed. [Paras 13, 14]

The assessee is entitled to Modvat credit in respect of the disputed goods for the period 23.7.1996 to 31.8.1996; the Tribunal's order is set aside and the appeal is allowed.

Final Conclusion: The Civil Miscellaneous Appeal is allowed: the adjudicatory orders denying Modvat credit for the period 23.7.1996 to 31.8.1996 are set aside and the assessee granted the relief of Modvat credit on the disputed components/spares as held by the Court.

Rebate of duty on export under Rule 18 - Payment under Rule 6(3)(b) of the Cenvat Credit Rules - Voluntary deposit and re-credit of amounts paid - Condonation of procedural infractions in rebate claims

Rebate of duty on export under Rule 18 - Payment under Rule 6(3)(b) of the Cenvat Credit Rules - Whether amounts paid in terms of erstwhile Rule 6(3)(b) constitute excise duty eligible for rebate under Rule 18. - HELD THAT: - The Court accepted the view that Rule 6(3)(b) provided a procedural mechanism to facilitate tax computation where a manufacturer could not segregate inputs for dutiable and exempted goods, and that the goods in question were exempt. The amount paid under Rule 6(3)(b) is not a duty of excise in the sense contemplated by Rule 18 and therefore does not qualify for rebate under Rule 18. The government and appellate authority correctly treated the payment as not creating a substantive duty liability that would attract export rebate; instead the provision operates as a facilitation measure and does not change the non-dutiable character of the exempted goods. [Paras 2, 9]

Claim for rebate under Rule 18 based on amounts paid under erstwhile Rule 6(3)(b) is not allowable because such amounts do not amount to excise duty eligible for rebate.

Voluntary deposit and re-credit of amounts paid - Condonation of procedural infractions in rebate claims - Relief to be granted for amounts paid under Rule 6(3)(b) and treatment of procedural lapses in export rebate claims. - HELD THAT: - Although the payments do not qualify for rebate, the amounts were voluntary deposits made by the applicants and cannot be retained by the Government without authority of law. Consistent with precedent, the proper relief is to restore the amount in the manner it was paid; the administrative course permitted is re-credit to the applicants' Cenvat credit account. Separately, procedural infractions relating to notification compliance and inconsistency in invoice/shipping bill classification were condoned by the Commissioner (Appeals) after verification of actual export through ARE-1s and shipping bills, and those condonations were accepted. [Paras 10, 11]

Amounts paid under Rule 6(3)(b) to be returned to applicants by re-credit to their Cenvat credit accounts; procedural lapses condoned after verification of export.

Final Conclusion: The revision applications are allowed to the extent that the voluntary amounts deposited under erstwhile Rule 6(3)(b) are to be restored to the applicants by re-credit to their Cenvat accounts; however such amounts do not qualify as excise duty refundable under Rule 18 and therefore rebate claims on that basis are rejected, and procedural infractions were condoned after verification of export.

Cenvat credit - common input doctrine - denial of Cenvat credit for inputs exclusively used in manufacture of exempted goods - option under Rule 6(3) for payment in lieu of reversal - availability of Cenvat credit on inputs used in exported exempted goods - penalty under Section 11AC for suppression or mis-declaration - remand for determination of demand, interest and penalty

Common input doctrine - denial of Cenvat credit for inputs exclusively used in manufacture of exempted goods - Whether the inputs (modules and plastic cards) are common inputs for the manufacture of recorded (exempted) and unrecorded (dutiable) smart cards and hence eligible for Cenvat credit subject to Rule 6 adjustments. - HELD THAT: - The Tribunal examined the nature and use of the two principal inputs. It held that modules are common inputs for both recorded and unrecorded smart cards and cannot be treated as exclusively for exempted goods. As to plastic cards, the Tribunal accepted that where plastic bodies bear customer-specific printed matter (name, design, logo) they are user-specific and not common; however, the majority of plastic cards received without such personalization are common inputs usable for both categories. The finding of the Commissioner that both inputs were user specific was therefore not sustainable insofar as it treated modules and the majority of plastic cards as non-common inputs. [Paras 9]

Modules are common inputs; plastic cards are common inputs except where they are preprinted with customer-specific particulars, in which case they are exclusively for exempted (recorded) goods and not eligible for Cenvat credit.

Option under Rule 6(3) for payment in lieu of reversal - Whether the appellant could avail the option under Rule 6(3) by paying the prescribed percentage in lieu of reversal and whether any minimum percentage of dutiable production is required to invoke Rule 6. - HELD THAT: - The Tribunal noted that Rule 6 permits a manufacturer to opt to pay a specified percentage of the value of exempted goods instead of effecting detailed reversals. The appellants had availed the option (payment at the prescribed rate). The Tribunal observed that the Rules do not prescribe any minimum threshold of dutiable production below which a manufacturer is deemed exclusively an exempted goods manufacturer; consequently the Commissioner could not deny the benefit of Rule 6(3) for the relevant period on that basis. [Paras 10]

The appellants are entitled to the benefit of the option under Rule 6(3) and there is no prescribed minimum dutiable production percentage in the Rules which permits denial of that option.

Penalty under Section 11AC for suppression or mis-declaration - remand for determination of demand, interest and penalty - availability of Cenvat credit on inputs used in exported exempted goods - Whether extended limitation and penalty under Section 11AC could be imposed for intentional availing of ineligible credit, and what relief/remedy should follow. - HELD THAT: - The Tribunal rejected the Revenue's allegation of suppression or wilful mis-declaration in relation to modules and the majority of plastic cards, given the finding that those were common inputs; consequently penalty and extended time limit invocation were not sustainable for that portion. However, for the admitted quantity of plastic cards that were preprinted and exclusively used in recorded (exempted) cards, Cenvat credit is not admissible and demand, interest and penalty in respect of those inputs must be determined. The Tribunal also held that inputs used in manufacture of exempted goods exported by the appellants are eligible for Cenvat credit in light of precedent relied upon by the bench. The matter was remitted to the Commissioner to determine the quantification of demand, interest and penalty after hearing the appellant. [Paras 11, 12, 13, 14]

Penalty and extended limitation disallowed in respect of modules and majority of plastic cards; demand, interest and penalty to be confirmed only for those plastic cards admitted to be exclusively used for recorded (exempted) goods; matter remanded to Commissioner for quantification and adjudication after opportunity of hearing; Cenvat credit allowed for inputs consumed in exported exempted goods.

Final Conclusion: The Tribunal set aside the finding that all inputs were user specific, holding modules and most plastic cards to be common inputs and allowing Rule 6(3) relief; it rejected penalty/extended limitation insofar as based on suppression regarding those inputs, but directed remand to the Commissioner to determine demand, interest and penalty in respect of plastic cards admitted to be exclusively used for exempted (recorded) cards, and confirmed eligibility of Cenvat credit for inputs used in exported exempted goods.

CENVAT credit on packing material used in relation to manufacture of final products - use in or in relation to manufacture - place of removal including depot / C&F premises (effect of amendment w.e.f. 14.5.2003) - extended period of limitation for suppression or evasion - penalty and interest where no suppression or contumacious conduct

CENVAT credit on packing material used in relation to manufacture of final products - use in or in relation to manufacture - place of removal including depot / C&F premises (effect of amendment w.e.f. 14.5.2003) - Availability of CENVAT credit on packing material (extra/master/single cartons) cleared from factory and used for repacking at depot/C&F premises - HELD THAT: - The Tribunal applied the Apex Court decision in Vikram Cement and its own precedent in Clariant (India) to hold that the determinative test is whether inputs are used in or in relation to the manufacture of the final product. With effect from 13.5.2003 (following statutory amendment defining place of removal to include depot/C&F premises), goods sold from depot amount to removal where the packing used at depot is within the ambit of inputs used in relation to manufacture; accordingly credit cannot be denied for periods after that date. The Tribunal therefore accepted that, on the merits, the CENVAT credit on such packing material is allowable in the circumstances of the appellant's business practice and record-keeping. [Paras 10]

CENVAT credit on the packing material is allowable as used in relation to manufacture; credit after 13.5.2003 is not deniable on the ground that packing was done at depot.

Extended period of limitation for suppression or evasion - penalty and interest where no suppression or contumacious conduct - Whether extended period of limitation, interest and penalty could be imposed for availment of CENVAT credit for the period prior to 13.5.2003 on the ground of suppression, mis-declaration or deliberate availment - HELD THAT: - The Tribunal examined the factual matrix and found no evidence of suppression, mis-declaration, collusion or contumacious conduct by the appellant. Prior audits and the appellant's maintenance of RG-23 registers and returns demonstrated disclosure; no finding of deliberate intention to evade duty was established. Applying settled law on extended limitation and on imposition of penalty, the adjudicating authority's invocation of extended limitation and consequent demand, interest and penalty were not sustainable. Accordingly the demand for the earlier period was set aside and interest and penalty quashed. [Paras 10, 11]

Extended period of limitation, and the consequential interest and penalty, do not apply; the demand for the earlier period is set aside and penalty and interest are quashed.

Final Conclusion: Appeal allowed; on the merits CENVAT credit on packing material used in relation to manufacture is maintainable (post 13.5.2003) and, having found no suppression or contumacious conduct, the demand for the earlier period together with interest and penalty is set aside.

Penalty under Rule 15(4) of the CENVAT Credit Rules - Penalty under Rule 15(3) of the CENVAT Credit Rules - Requirement of specific allegation for imposing penalty (fraud, collusion, wilful mis statement, suppression of facts or contravention with intention to evade) - Natural justice - notice of the particular sub rule sought to be invoked - Extended period of limitation invoked by allegation of intention to evade

Penalty under Rule 15(4) of the CENVAT Credit Rules - Requirement of specific allegation for imposing penalty (fraud, collusion, wilful mis statement, suppression of facts or contravention with intention to evade) - Natural justice - notice of the particular sub rule sought to be invoked - Imposition of penalty under Rule 15(4) was not sustainable in the absence of specific allegations required by that provision in the show cause notice. - HELD THAT: - Rule 15(4) penalises wrongful taking or utilisation of CENVAT credit by reason of fraud, collusion, wilful mis statement, suppression of facts or contravention of provisions with intention to evade service tax; to invoke it the show cause notice must clearly allege those ingredients against the person sought to be penalised. The notice in this case did not contain any of those specific allegations; the averment alleging contravention with intention to evade was made only for invoking the extended period and did not substitute for the requisite allegations for Rule 15(4). Irregular availment of credit as alleged in the notice is properly the subject of Rule 15(3) and does not, without the specified ingredients, justify penalty under Rule 15(4). The Commissioner(Appeals) therefore erred in replacing the penalty under Rule 15(3) with one under Rule 15(4). [Paras 5]

Penalty imposed under Rule 15(4) set aside.

Penalty under Rule 15(3) of the CENVAT Credit Rules - Natural justice - notice of the particular sub rule sought to be invoked - Penalty under Rule 15(3) imposed by the adjudicating authority was valid and restored. - HELD THAT: - The adjudicating authority invoked Rule 15(3) to impose penalty for irregular availment of CENVAT credit; that sub rule corresponds to the facts alleged in the show cause notice. As the necessary grounds for Rule 15(3) were before the adjudicating authority and were the subject of adjudication, the original penalty under Rule 15(3) was proper. The Commissioner(Appeals) improperly set aside this penalty and imposed a higher penalty under Rule 15(4) without the requisite notice; accordingly the Tribunal restores the penalty imposed under Rule 15(3). [Paras 6]

Penalty imposed under Rule 15(3) restored.

Final Conclusion: The Commissioner(Appeals)'s imposition of penalty under Rule 15(4) is set aside for lack of requisite specific allegations in the show cause notice, and the penalty earlier imposed by the adjudicating authority under Rule 15(3) is restored; appeal disposed.

Exemption under Notification No.14/2002-CE (Sr. No.10 and Sr. No.12) - deemed duty paid by Explanation II (and Explanation VII) to Notification No.14/2002-CE - condition requiring that appropriate duty "has been paid" read with any notification for the time being in force - CENVAT credit and disqualification from exemption - inapplicability of Dhiren Chemical Industries ratio to Notification No.14/2002-CE

Exemption under Notification No.14/2002-CE (Sr. No.10 and Sr. No.12) - deemed duty paid by Explanation II (and Explanation VII) to Notification No.14/2002-CE - CENVAT credit and disqualification from exemption - Entitlement to concessional exemption under Sr. No.10 and Sr. No.12 of Notification No.14/2002-CE for goods cleared inter-unit where no CENVAT credit was availed. - HELD THAT: - The Tribunal examined the language of Notification No.14/2002-CE, including Explanation II (as amplified by Explanation VII) which deems textile yarns and fabrics to have been duty paid even without production of documentary evidence. Conditions attached to Sr. Nos.10 and 12 require that the goods be made from materials on which the appropriate duty has been paid and that no CENVAT credit on inputs or capital goods has been taken. On the facts, the Mahape unit cleared unprocessed knitted fabrics under Sr. No.10 without availing CENVAT credit and the Pawane unit received and processed those fabrics, also without availing CENVAT credit. The Tribunal accepted the effect of the Explanation and the Board's clarificatory circular (CBEC Circular No.680/71/2002-CX) and earlier Tribunal precedents (e.g., Simplex Mills) to hold that the goods are to be treated as duty paid for the purposes of the Notification and that the appellants satisfied the conditions for exemption. Consequently, the appellants were entitled to claim the exemptions at Sr. No.10 and Sr. No.12 and not liable to pay duty. [Paras 8, 14]

Exemption under Sr. No.10 and Sr. No.12 of Notification No.14/2002-CE allowed; impugned demand set aside.

Condition requiring that appropriate duty "has been paid" read with any notification for the time being in force - inapplicability of Dhiren Chemical Industries ratio to Notification No.14/2002-CE - Whether the ratio of Dhiren Chemical Industries precludes the benefit of Notification No.14/2002-CE in the present factual matrix. - HELD THAT: - The Tribunal considered the Apex Court's interpretation in Dhiren Chemical Industries concerning the phrase 'on which appropriate duty of excise has already been paid' and compared it with the wording of Notification No.14/2002-CE which incorporates the saving 'read with any notification for the time being in force' and contains Explanation II (and VII) deeming market-bought fibres, yarns and fabrics to be duty paid. Having regard to the different textual framework and the specific deeming provision and Board clarifications applicable to Notification No.14/2002-CE, the Tribunal held that the ratio in Dhiren Chemical Industries is not attracted to the facts of this case and does not bar the exemption. [Paras 11]

Dhiren Chemical Industries ratio held not applicable to deny exemption under Notification No.14/2002-CE in the present case.

Final Conclusion: The Tribunal allowed the appeal, holding that the appellants satisfied the conditions of Notification No.14/2002-CE (Sr. Nos.10 and 12) by not availing CENVAT credit and that Explanation II/Explanation VII and Board clarifications render the inputs/fabrics deemed duty paid; the Dhiren Chemical Industries ratio was held inapplicable and the demand was set aside with consequential relief.

Reversal of excess input tax credit when resale price lower than purchase price - Input Tax Credit - Tax invoice as basis for Input Tax Credit - Value Added Tax (VAT) set-off mechanism - Self-assessment and assessing authority powers to revoke provisional ITC - Retrospective taxation/retrospectivity of fiscal legislation - State legislative competence under Entry 54 of List II - Constitutional validity of fiscal legislation under Articles 14 and 19

Reversal of excess input tax credit when resale price lower than purchase price - Input Tax Credit - Tax invoice as basis for Input Tax Credit - Value Added Tax (VAT) set-off mechanism - Self-assessment and assessing authority powers to revoke provisional ITC - Validity of Section 19(20) of the Tamil Nadu VAT Act insofar as it reverses the amount of input tax credit in cases where a registered dealer sells goods at a price lesser than the price at which the goods were purchased. - HELD THAT: - The Court held that Input Tax Credit is a statutory concession that is to be claimed only in the manner prescribed by Section 19 and the Rules, and that the tax invoice is the pivotal document on which ITC is computed. Section 19(20)'s reference to "price" must be read as the price/value reflected in the original tax invoice. Where a dealer resells at a price lower than the purchase price shown in the tax invoice, the provision properly allows reversal of the input tax credit to the extent it exceeds the output tax on those goods. The provision operates within the VAT design of preventing excess set-off that defeats value-addition taxation. The Act already contemplates provisional ITC and empowers the assessing authority to revoke incorrect credits; hence there is mechanism for reversal and assessment. The Court also noted that analogous safeguards exist in other State VAT enactments and that the provision does not transgress Entry 54 of List II or otherwise amount to confiscation when applied in accordance with the Act and Rules. [Paras 68, 72, 75, 76, 77]

Section 19(20) is constitutionally and statutorily valid as a measure to reverse excess input tax credit where resale price is lower than purchase price shown in the original tax invoice.

Retrospective taxation/retrospectivity of fiscal legislation - Constitutional validity of fiscal legislation under Articles 14 and 19 - State legislative competence under Entry 54 of List II - Validity of the retrospective operation of the amendment giving Section 19(20) effect from 01.01.2007. - HELD THAT: - The Court applied established principles for testing retrospective fiscal legislation: the competence of the legislature, absence of discrimination, availability of procedural machinery, and whether the retrospective operation produces an unforeseen or unduly oppressive burden. Having regard to the department's factual showing of substantial revenue impact after introduction of VAT, the objective of protecting revenue without imposing fresh tax on vendors or consumers, and the existence of assessment and reversal mechanisms under the Act and Rules, the retrospective validation from 01.01.2007 was held not to be unreasonable, discriminatory, confiscatory or unduly oppressive. [Paras 90, 92, 94]

The retrospective operation of Section 19(20) from 01.01.2007 is valid and is not struck down as unreasonable, discriminatory or confiscatory.

Prematurity of writ petitions challenging assessment orders - Availability of statutory remedies under the Act - Maintainability of writ petitions challenging reassessment orders/show cause notices issued under Section 27 of the Act. - HELD THAT: - The Court held that writ petitions challenging assessment notices or reassessment orders were premature where constitutional challenge to the amendment had failed. Petitioners were directed to avail the statutory remedies under the Act; in cases where final assessment orders were challenged, statutory appeals are to be entertained if filed within 60 days from receipt of this order (subject to statutory conditions), and where show cause notices were challenged petitioners may submit explanations within 30 days for departmental consideration. [Paras 95, 96, 97]

Writ petitions against assessment/reassessment orders or show cause notices are premature; petitioners must pursue statutory remedies as indicated by the Court.

Final Conclusion: The writ petitions are dismissed. Section 19(20) of the Tamil Nadu VAT Act, as inserted by Amendment Act 22 of 2010 and retrospectively given effect from 01.01.2007 by Amendment Act 42 of 2010, is upheld as constitutionally and statutorily valid; petitioners challenging assessment actions are directed to pursue statutory remedies in accordance with the Court's directions.