TaxTMI Updates e-Newsletter
Aug 23,2018

Provisional release of seized goods under Rule 140(1) of the CGST Rules - Bank Guarantee for tax and penalty - Bond for value of goods in FORM GST INS-04 - Security requirement for release of detained goods

Bank Guarantee for tax and penalty - Provisional release of seized goods under Rule 140(1) of the CGST Rules - Requirement that the appellant furnish a Bank Guarantee for release of detained goods - HELD THAT: - The Court noted that Section 129 proceedings had been initiated and that the appellant had agreed before the Single Judge to furnish a Bank Guarantee. In view of that agreement and the statutory scheme for provisional release, the Court declined to interfere with the direction to furnish a Bank Guarantee. [Paras 2]

The direction to furnish a Bank Guarantee for release of the detained goods is sustained.

Bond for value of goods in FORM GST INS-04 - Provisional release of seized goods under Rule 140(1) of the CGST Rules - Security requirement for release of detained goods - Whether the Bank Guarantee need cover only tax and penalty while the value of goods may be secured by a bond in FORM GST INS-04 - HELD THAT: - Relying on Rule 140(1) of the Central Goods and Services Tax Rules, the Court observed that provisional release contemplates two distinct securities: a bond in FORM GST INS-04 to secure the value of the goods and a security in the form of a Bank Guarantee equivalent to applicable tax, interest and penalty. Applying that rule, the Court modified the Single Judge's order to direct release of the goods upon furnishing a Bank Guarantee for tax and penalty and a bond for the value of the goods as prescribed. [Paras 3, 4]

Goods are to be released provisionally on furnishing a Bank Guarantee for tax and penalty and a bond in FORM GST INS-04 for the value of the goods.

Final Conclusion: Appeal disposed by modifying the Single Judge's order to direct provisional release of the detained goods on the appellant furnishing a Bank Guarantee for the tax and penalty found due and a bond for the value of the goods in the form prescribed under Rule 140(1) of the CGST Rules.

Section 80-IC deduction scheme - deduction at 100% for five assessment years and reduced rate thereafter - substantial expansion - initial Assessment Year - ten assessment year cap on aggregate deduction

Section 80-IC deduction scheme - substantial expansion - initial Assessment Year - deduction at 100% for five assessment years and reduced rate thereafter - ten assessment year cap on aggregate deduction - Whether an assessee who availed 100% deduction under Section 80-IC for the first five assessment years can, by undertaking 'substantial expansion', claim 100% deduction again for the subsequent five assessment years instead of the reduced rate prescribed by the section - HELD THAT: - The Court construed Section 80-IC as providing a time bound graded deduction: 100% of profits and gains for the first five assessment years commencing with the initial Assessment Year and thereafter 25% (30% for companies) for the next five assessment years, subject to an overall cap of ten assessment years. Once an undertaking commences enjoying deduction under Section 80-IC from its initial Assessment Year, that initial Assessment Year cannot be treated as re-setting within the ten-year window so as to permit a fresh block of 100% deduction on the basis of subsequent 'substantial expansion'. Allowing repeated invocation of the 100% rate would contradict the clear statutory scheme of subsection (3) read with subsection (6) and amount to doing violence to the graded relief Parliament prescribed. The Court distinguished Mahabir Industries on the basis that in that case availment arose under different provisions (Sections 80-IA/80-IB) and Section 80-IC had not operated earlier; in the present cases Section 80-IC itself was the basis for the initial 100% deduction, hence no second initial Assessment Year can be recognised within the ten-year period. Consequently, after five years of 100% deduction an assessee is entitled only to the reduced rate for the remaining five years prescribed by Section 80-IC. [Paras 18, 19, 20, 21, 22]

After availing deduction at 100% for five assessment years under Section 80-IC an assessee can only claim the reduced rate for the remaining five assessment years and cannot claim 100% again by relying on subsequent substantial expansion; appeals allowed in favour of Revenue.

Final Conclusion: The appeals are allowed: assessees who availed 100% deduction under Section 80-IC for the first five years cannot re start 100% relief for the next five years on the ground of substantial expansion; they are entitled only to the reduced rate for the remaining period, subject to the ten year cap.

Full and true disclosure - power to reject application at Section 245D(4) - requirement of particulars/substantiation of undisclosed income for settlement - deduction claim under Section 80IB(10) - proceedings under Section 245D(2C) not preclusive of later rejection - assessment proceedings to proceed unaffected

Requirement of particulars/substantiation of undisclosed income for settlement - full and true disclosure - Whether the Commission was justified in rejecting the settlement application for failure to make a full and true disclosure of income declared in the seized diaries relating to facilitation receipts. - HELD THAT: - The Commission found that the petitioner could not give particulars of receipts and expenses recorded in seized diaries and had given inconsistent, vague explanations including claims of inability to remember transactions. The Court applied the statutory requirement that an application for settlement must contain full and true disclosure of undisclosed income and the manner in which it is derived, and accepted that where the Commission, on evidence before it, forms the view that particulars requested are not furnished and explanations are evasive, it may conclude non-disclosure. The Court held that the impugned order's finding - that particulars of receipts and expenses were not satisfactorily explained and that the applicant appeared to be concealing information - is a permissible view and not vitiated by jurisdictional error. In these circumstances the Commission was entitled to reject the application under Section 245D(4). [Paras 5, 7, 9]

The Commission's rejection of the application on account of failure to make full and true disclosure in respect of the facilitation receipts recorded in the seized diaries is sustainable.

Power to reject application at Section 245D(4) - proceedings under Section 245D(2C) not preclusive of later rejection - Whether permitting the application to proceed under Section 245D(2C) barred the Commission from rejecting it later under Section 245D(4) for non-disclosure. - HELD THAT: - The Court noted that satisfaction under Section 245D(2C) that an application is valid and should proceed does not absolve the applicant from the continuing obligation to make full and true disclosure. The Commission may at a later stage, including at the Stage under Section 245D(4), reject the application if it forms the view that the disclosure is not truly and fully made. Accordingly, allowing the application to proceed earlier did not amount to an impermissible review precluding later rejection. [Paras 6, 8]

Allowing the application to proceed under Section 245D(2C) did not preclude the Commission from subsequently rejecting it under Section 245D(4) for failure to make full and true disclosure.

Deduction claim under Section 80IB(10) - full and true disclosure - Whether the Commission was justified in rejecting the settlement application on the ground that the petitioner failed to make full and true disclosure because it claimed deduction under Section 80IB(10). - HELD THAT: - The impugned order proceeded on the basis that the income declared for settlement was after claiming benefit under Section 80IB(10) and that further details from the Pune Municipal Corporation were required to determine the claim's validity. The Court observed that a disputed claim to a statutory deduction, if ultimately found not justified, does not ipso facto establish that the applicant failed to make full and true disclosure; the matter requires further consideration. The Court recorded that rejection on this ground may not be sustainable and that the issue merits further consideration. [Paras 4, 9]

The question of the claim under Section 80IB(10) was not finally adjudicated against the petitioner and requires further consideration; the Commission's rejection on that ground may not be sustainable.

Final Conclusion: Writ petition dismissed. The High Court upheld the Commission's rejection of the settlement application for failure to make full and true disclosure in respect of facilitation receipts recorded in seized diaries and held that permitting the application to proceed earlier did not bar later rejection under Section 245D(4). However, the contention concerning the claim of deduction under Section 80IB(10) was left open for further consideration. Assessment proceedings remain unaffected.

Requirement of proving unexplained expenditure as a prerequisite for application of Section 69C - tax treatment of excess closing stock/work in progress as addition under Section 69A - consequence of concurrent findings of fact on questions of law

Requirement of proving unexplained expenditure as a prerequisite for application of Section 69C - consequence of concurrent findings of fact on questions of law - Whether, on the facts found by the authorities, Section 69C could be applied to the alleged difference between book value and the provisional valuation of work in progress discovered during search. - HELD THAT: - The Court recorded that both the CIT(A) and the Tribunal found that the closing work in progress as disclosed in the return for the year ending 31.3.2009 correctly reflected the closing WIP determined on physical verification and that the higher valuation by site engineers on 30.11.2008 was provisional and subsequently taken into account in the accounts. In these circumstances, unless Revenue first establishes unexplained expenditure, Section 69C cannot be invoked. The Revenue did not challenge the concurrent findings of fact that (i) the WIP disclosed as on 31.3.2009 was correct, and (ii) the November 2008 valuation was provisional and not a result of physical verification by the search party. Consequently the question framed by Revenue was held to be academic and not raising a substantial question of law requiring interference. [Paras 7, 8, 10]

On the facts and concurrent findings of the authorities, Section 69C was not attracted and the proposed question was academic and not entertained.

Tax treatment of excess closing stock/work in progress as addition under Section 69A - Whether, if excess closing stock/work in progress over book records is established, the correct statutory provision for addition is Section 69A rather than Section 69C. - HELD THAT: - The Court observed that even assuming, for argument's sake, that the closing work in progress exceeded that recorded in the books, the proper course would be to make an addition under Section 69A. The judgment relied on this Court's earlier decision in Dialust v. DCIT, which the Tribunal had applied, and noted that Revenue did not advance any submission why that precedent would not govern the present facts. [Paras 9]

If excess closing stock/WIP were to be treated as unexplained, the addition would fall under Section 69A and not Section 69C.

Final Conclusion: The appeal is dismissed: the Court declined to entertain the substantial question of law pressed by Revenue in view of concurrent findings of fact that the WIP declared as on 31.3.2009 was correct and the provisional November 2008 valuation had been accounted for; further, even hypothetically, any excess closing WIP would warrant addition under Section 69A and not under Section 69C.

Deduction under section 10A - export turnover and total turnover - comparability in transfer pricing - turnover filter for selection of comparables - maintainability under Section 260-A - substantial question of law

Deduction under section 10A - export turnover and total turnover - Whether deductions excluded from export turnover for computing relief under Section 10A must also be excluded from total turnover. - HELD THAT: - The Court applied the ratio of the Hon'ble Supreme Court in Commissioner of Income-tax, Central - III v. HCL Technologies Ltd. and held that amounts excluded from 'export turnover' for the purposes of computing relief under Section 10A must, in like manner, be excluded from 'total turnover' because export turnover is a component of total turnover. The Court accepted the reasoning that allowing such deductions only from export turnover but not from total turnover would lead to an illogical and unworkable result contrary to legislative intent, and that the Tribunal's direction to the Assessing Officer to re-calculate the deduction by reducing total turnover in the same proportion was in consonance with the Supreme Court's ruling. [Paras 3]

Tribunal's direction to reduce total turnover proportionately while allowing deductions excluded from export turnover upheld in view of HCL Technologies Ltd.; appeal on this point dismissed.

Comparability in transfer pricing - maintainability under Section 260-A - substantial question of law - Whether the Tribunal erred in excluding certain comparables (on ground of functional dissimilarity) and whether such factual disputes give rise to a substantial question of law maintainable before the High Court under Section 260-A. - HELD THAT: - The Court examined the Tribunal's findings excluding specified comparables after considering functional dissimilarity and prior coordinate-bench decisions. Relying on the High Court's precedent in Prl. Commissioner of Income Tax v. Softbrands India Pvt. Ltd., the Court held that challenges to the selection or exclusion of comparables and application of filters, being essentially factual/valuation determinations, do not ordinarily raise substantial questions of law for adjudication under Section 260-A unless ex facie perversity in the Tribunal's findings is shown. No such perversity was established; therefore the Revenue's appeal on these comparability issues was not maintainable and was dismissed. [Paras 4, 6, 7]

Appeal challenging exclusion of comparables on functional-dissimilarity grounds dismissed for lack of substantial question of law; Tribunal's factual findings left undisturbed.

Turnover filter for selection of comparables - comparability in transfer pricing - maintainability under Section 260-A - substantial question of law - Whether exclusion of comparables on account of turnover (application of turnover filter) was impermissible and whether such exclusion raises a substantial question of law. - HELD THAT: - The Tribunal applied a 10-times turnover parameter to determine comparability and excluded certain companies as falling outside that range. The High Court noted that disputes about the correctness of filters applied to select comparables are essentially findings of fact and methodology that do not, in absence of patent perversity, constitute substantial questions of law under Section 260-A. Following the reasoning in Softbrands, the Court found no basis to interfere with the Tribunal's application of the turnover filter in the present appeal. [Paras 6, 7, 34]

Appeal against exclusion of comparables on turnover grounds dismissed; Tribunal's application of turnover filter not interfered with.

Comparability in transfer pricing - Remand for reconsideration of functional comparability of certain comparables by the TPO/AO. - HELD THAT: - The Tribunal set aside the question of functional comparability of two specified companies to the record of the TPO/AO for fresh consideration in light of a coordinate-bench decision. That aspect was left by the Tribunal for re-examination rather than finally adjudicated. The High Court noted the Tribunal's direction of reconsideration and, having found no substantial question of law warranting interference, dismissed the Revenue's appeal without disturbing the remand. [Paras 4, 8]

Issue remanded by the Tribunal to the TPO/AO for reconsideration of functional comparability; High Court did not disturb the remand.

Final Conclusion: The Revenue's appeal under Section 260-A is dismissed. The Tribunal's direction to proportionately reduce total turnover where deductions are excluded from export turnover is upheld (following HCL Technologies Ltd.); the Tribunal's factual determinations on exclusion or inclusion of comparables and application of turnover filters do not raise substantial questions of law warranting interference, and the Tribunal's remand to the TPO/AO for reconsideration of certain comparables is left undisturbed.

Depreciation adjustment in comparables - working capital adjustment - reimbursements as pass-through costs - notional interest on receivables - comparability analysis and exclusion/inclusion of comparables - disallowance under section 14A r/w Rule 8D - Transactional Net Margin Method (TNMM) and Profit Level Indicator (OP/OC)

Depreciation adjustment in comparables - Transactional Net Margin Method (TNMM) and Profit Level Indicator (OP/OC) - Allowance of depreciation adjustment to harmonise rates applied by comparables with those adopted by the assessee for computing operating margins under TNMM. - HELD THAT: - The Tribunal, following the Coordinate Bench in EXLservice.com and in the interest of consistency, held that where both the tested party and comparables apply the Straight Line Method but differ in depreciation rates, the operating profit margins of comparables should be recomputed adopting rates consistent with the assessee so as to make suitable adjustments to comparables' depreciation. The TPO is directed to examine facts and allow the depreciation adjustment in recomputing margins. [Paras 5]

Depreciation adjustment allowed and TPO directed to recompute margins accordingly.

Working capital adjustment - Permissibility of negative working capital adjustment granted by DRP/TPO when assessee did not seek such adjustment before DRP and assessee did not carry working capital risk. - HELD THAT: - The Tribunal found that the assessee had not raised any objection or sought working capital adjustment before the DRP; consequently DRP exceeded its jurisdiction in issuing directions on that issue. Relying on precedent (Adaptec (India) (P.) Ltd.), and on factual finding that the assessee did not carry working capital risk, the Tribunal directed recomputation of margins without any negative working capital adjustment. [Paras 5]

Negative working capital adjustment disallowed; TPO to recompute margins without such adjustment.

Reimbursements as pass-through costs - Treatment of reimbursements received from associated enterprises as part of operating revenue/costs and direction for verification by TPO. - HELD THAT: - The Tribunal noted that the assessee's reimbursements were pass-through third party costs and observed that a rectification under section 154 had already reduced the proposed adjustment. Accepting the assessee's contention that reimbursements should be excluded from both the assessee's and comparables' margins, the Tribunal restored the matter to the TPO/AO for examination of the assessee's evidence and required verification of the claim and recomputation as appropriate. [Paras 5]

Issue restored to TPO/AO for examination and recomputation of margins after verification of reimbursements; allowed for statistical purposes.

Notional interest on receivables - Sustainability of adjustment for notional interest on outstanding receivables in the case of a debt free assessee. - HELD THAT: - Relying on the Coordinate Bench's earlier decision in the assessee's own case for AY 2010 11 and related authorities, and applying the principle of consistency, the Tribunal held that an adjustment on account of interest on receivables is not sustainable where the taxpayer is undisputedly debt free. The Revenue offered no reason to depart from the co ordinate bench view. [Paras 5]

Adjustment on account of notional interest on receivables deleted.

Comparability analysis and exclusion/inclusion of comparables - Inclusion or exclusion of specific companies from the final set of comparables: exclusion of Eclerx Services Ltd., Accentia Technologies Ltd., TCS E Serve Ltd., Acropetal Technologies Ltd. (segment); inclusion of R Systems International Ltd. subject to verification of obtainable financial year data. - HELD THAT: - Applying established comparability principles and consistency with earlier DRP/Tribunal/High Court decisions, the Tribunal found Eclerx functionally dissimilar and directed its exclusion. Accentia and Acropetal were excluded due to differing business profiles and absence of segmental data; TCS E Serve was excluded as a giant, non comparable entity with different scale/intangible assets. Conversely, the Tribunal held that a different financial year ending does not ipso facto disqualify a comparable where requisite data for the relevant year can be compiled; accordingly R Systems International Ltd. is to be included after the TPO verifies that data for the year ending 31 March can be reasonably and satisfactorily compiled. [Paras 5]

Eclerx, Accentia, TCS E Serve and Acropetal excluded from comparables; R Systems to be included subject to verification of financial year data by TPO.

Disallowance under section 14A r/w Rule 8D - Validity of disallowance under section 14A read with Rule 8D where Assessing Officer did not record requisite satisfaction and assessee had no borrowings. - HELD THAT: - The Tribunal examined the AO's reasoning and the assessee's balance sheet which showed absence of borrowed funds for the year under consideration and preceding year. Finding no recorded satisfaction linking expenditure to exempt income and no evidence of borrowings used for investments, the Tribunal concluded that invocation of Rule 8D was unwarranted and directed deletion of the disallowance. [Paras 5]

Disallowance under section 14A r/w Rule 8D deleted.

Final Conclusion: The assessee's appeal is allowed: TPO/AO directed to allow depreciation adjustment, recompute margins without negative working capital adjustment, verify and recompute treatment of reimbursements, delete notional interest adjustment on receivables, exclude specified non comparable entities and include R Systems subject to data verification, and delete the section 14A disallowance; resultant assessment to be recomputed in accordance with these directions.

Penalty under section 271(1)(c) - Notice under section 274 read with section 271(1)(c) - Requirement to specify limb of section 271(1)(c) (concealment of income or furnishing inaccurate particulars) - Invalidity of penalty proceedings due to defective notice

Notice under section 274 read with section 271(1)(c) - Requirement to specify limb of section 271(1)(c) (concealment of income or furnishing inaccurate particulars) - Invalidity of penalty proceedings due to defective notice - Penalty under section 271(1)(c) - Whether penalty proceedings and the penalty levied under section 271(1)(c) are vitiated where the notice issued under section 274 read with section 271(1)(c) did not strike off inappropriate words and hence did not specify under which limb of section 271(1)(c) proceedings were initiated. - HELD THAT: - The Tribunal examined the penalty notice and found that the Assessing Officer had not struck off the inappropriate words in the notice issued under section 274 read with section 271(1)(c), so the notice failed to specify whether proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income. Relying on the Karnataka High Court decisions (including the Division Bench decision in Commissioner of Income Tax v. Manjunatha Cotton and Ginning Factory) and subsequent follow-up rulings where SLPs were dismissed, the Tribunal held that a defective notice which does not indicate the specific limb of section 271(1)(c) renders the penalty proceedings bad in law. Applying that principle to the present case (where the Assessing Officer proceeded after addition for accommodation entries and then issued the defective notice), the Tribunal concluded that the penalty levied could not be sustained and must be cancelled. [Paras 5, 6, 7]

Penalty proceedings and the penalty levied under section 271(1)(c) are invalidated for non striking of inappropriate words in the notice under section 274 read with section 271(1)(c); the order of the CIT(A) confirming the penalty is set aside and the Assessing Officer is directed to cancel the penalty.

Final Conclusion: The appeal is allowed; the penalty levied under section 271(1)(c) for Assessment Year 2001-02 is set aside because the notice under section 274 read with section 271(1)(c) failed to specify the limb of the provision and thereby vitiated the penalty proceedings.

Maintainability of departmental appeal - Monetary limit for filing departmental appeals under Board Circular - Retrospective application of CBDT instructions - Withdrawal/not pressing of appeal by the Department

Maintainability of departmental appeal - Monetary limit for filing departmental appeals under Board Circular - Retrospective application of CBDT instructions - Withdrawal/not pressing of appeal by the Department - Departmental appeal against deletion of addition held not maintainable and dismissed as withdrawn/not pressed where tax effect is below the monetary limit specified in the Board Circular. - HELD THAT: - The Tribunal noted that the tax effect in the Departmental appeal was less than Rs. 20 lakhs. Circular No. 3 of 2018 issued by the CBDT under section 268A directs that the Department shall not file appeals before the Tribunal where the tax effect does not exceed Rs. 20 lakhs and that this instruction applies retrospectively to pending appeals, permitting withdrawal or not pressing of pending appeals below the threshold. The learned CIT(DR) did not press the appeal in view of the Board Circular and the appeal did not fall within the exceptions to the Circular. Consequently, the Departmental appeal was treated as not maintainable and dismissed as withdrawn/not pressed.

Departmental appeal dismissed as withdrawn/not pressed because tax effect is below the Rs. 20 lakhs threshold under the CBDT Circular; appeal not maintainable.

Final Conclusion: The Revenue's appeal is dismissed as withdrawn/not pressed under CBDT Circular No. 3 of 2018 (retrospectively applicable) since the tax effect for Assessment Year 2010-11 was below the Rs. 20 lakhs monetary limit.

Arm's length price - comparability analysis - exclusion of comparables - transfer pricing - revision of grounds of appeal - period of limitation for filing appeal

Revision of grounds of appeal - period of limitation for filing appeal - Permissibility of allowing the Revenue to revise the grounds of appeal three years after filing - HELD THAT: - The Tribunal found that allowing the Revenue to file a new or revised ground after three years would effectively extend the period of limitation for filing the appeal and is impermissible except where the revision corrects a typographical mistake. Grounds may not be revised to change the entire subject-matter of the appeal. Accordingly the Revenue's stated grievance was held to be vague and not sustainable insofar as it sought to advance a different subject-matter in the appeal long after filing. [Paras 5]

Revision of grounds to change the entire subject-matter after three years is not permitted; grounds may be revised only for typographical mistakes, and the Revenue's vague grievance is rejected.

Comparability analysis - exclusion of comparables - arm's length price - transfer pricing - Validity of exclusion of E-Infochips Bangalore Ltd. from the final set of comparables for IT/ITES services - HELD THAT: - The Tribunal accepted the DRP's conclusion that E-Infochips Bangalore Ltd. is primarily engaged in high-end technology-driven services and product development, including specialised engineering and board design, which does not match the business profile of the assessee providing sub-contracted software development and ITES. On that basis the DRP's exclusion of E-Infochips from the comparable set was held to be justified and required no interference. [Paras 16]

Exclusion of E-Infochips Bangalore Ltd. from the comparable set is upheld.

Comparability analysis - exclusion of comparables - arm's length price - transfer pricing - Validity of exclusion of Infinite Data Systems Pvt. Ltd. from the final set of comparables for IT/ITES services - HELD THAT: - The Tribunal agreed with the DRP's assessment that Infinite Data Systems Pvt. Ltd. (a wholly owned subsidiary involved in technical consulting, infrastructure management and related services) did not have a business profile matching the assessee's service offerings. The DRP's reliance on public-domain information and concerns regarding amalgamations and indistinct activity attribution supported exclusion. The Tribunal found no reason to interfere with the DRP's exclusion of this company. [Paras 17]

Exclusion of Infinite Data Systems Pvt. Ltd. from the comparable set is upheld.

Final Conclusion: The Tribunal dismissed the Revenue's appeal. The Revenue's attempt to revise the grounds of appeal after three years was rejected, and the DRP's exclusions of E-Infochips Bangalore Ltd. and Infinite Data Systems Pvt. Ltd. from the comparable sets for determining arm's length price were upheld, resulting in no interference with the DRP order.

Comparability analysis in transfer pricing - selection and exclusion of comparable uncontrolled transactions - functional dissimilarity as ground for exclusion of comparables - economic adjustments for risk and capacity in transfer pricing - working capital and receivables adjustment in international transactions - recomputation of profit level indicator (PLI) after adjustment of comparables

Comparability analysis in transfer pricing - functional dissimilarity as ground for exclusion of comparables - Exclusion of specified companies from the final comparable set for the EDS segment and inclusion of Accuspeed Engineering Services India Ltd as a comparable. - HELD THAT: - The Tribunal examined the profiles and earlier coordinate-bench findings relating to each challenged comparable for the engineering design and related services (EDS) segment. Companies whose activities were predominately government/PSU work, engaged in broader EPC/turnkey/project management activities, or otherwise materially functionally different from the assessee's captive engineering design services were held functionally dissimilar and excluded. The Tribunal followed and applied prior coordinate-bench conclusions (relating to the assessee's earlier years and other precedents) in excluding KITCO Ltd, TCE Consulting Engineers Ltd, Certification Engineers International Ltd, Global Procurement Consultants Ltd, IBI Chematur (Engineering & Consultancy) Ltd, Mitcon Consultancy & Engineering Services Ltd, REC Power Distribution Co. Ltd, RITES Ltd, and Usha Hydro Dynamics Ltd. Conversely, on review of the record and earlier Tribunal findings, Accuspeed Engineering Services India Ltd was held functionally similar and directed to be included in the final comparable set for the EDS segment. [Paras 32, 33, 35, 36, 40]

The named EDS comparables are excluded for functional dissimilarity and Accuspeed Engineering Services India Ltd is included in the final set of comparables.

Selection and exclusion of comparable uncontrolled transactions - functional dissimilarity as ground for exclusion of comparables - Exclusion of certain comparables from the final set for the Financial and Accounting Support (FAS) services segment. - HELD THAT: - The Tribunal analysed the functional profile of the assessee as a captive provider of routine accounting and payroll services and compared it with the business profiles of the contested comparables. Companies possessing significant product/IP, high-end KPO characteristics or other non-analogous activities were found functionally dissimilar. Accordingly, Accentia Technologies Ltd, Eclerx Services Ltd, and TCS E-Serve Ltd were directed to be excluded from the final comparable set for the FAS segment, the Tribunal relying on both the contemporaneous functional analysis and coordinate-bench precedents which had previously rejected these entities as comparables. [Paras 51, 53, 56]

Accentia Technologies Ltd, Eclerx Services Ltd and TCS E-Serve Ltd are excluded from the FAS final comparable set for being functionally dissimilar.

Selection and exclusion of comparable uncontrolled transactions - functional dissimilarity as ground for exclusion of comparables - Exclusion of specified comparables from the final set for the IT Infrastructure support services segment. - HELD THAT: - The Tribunal reviewed the operational profile of the IT Infra segment as performed by the assessee and compared it with the contested comparables. Entities with disproportionate scale, significant intangibles/brand/R&D or materially different service mixes were found unsuitable as comparables. Applying functional analysis and prior coordinate-bench authority, the Tribunal directed exclusion of Infosys Ltd, Wipro Technology Services Ltd, Acropetal Technologies Ltd, Sankhya Infotech Ltd, Sasken Communication Technologies Ltd, eInfochips India Pvt. Ltd, and E-Zest Solutions Ltd from the IT Infra final comparable set. [Paras 68, 69, 71, 72, 73]

The named IT Infra comparables are excluded from the final comparable set because they are functionally dissimilar to the assessee's IT infrastructure support services.

Economic adjustments for risk and capacity in transfer pricing - reasonable and accurate adjustments to enhance comparability - Allowance of economic (risk and capacity/utilization) adjustments in favour of the assessee. - HELD THAT: - The Tribunal observed that the assessee, being a captive service provider remunerated on a cost-plus basis, is insulated from key entrepreneurial risks borne by independent comparables. Noting earlier coordinate-bench findings in the assessee's own cases, the Tribunal held that appropriate adjustments for differences in risk profile and capacity utilization are warranted to enhance comparability. The Tribunal directed the TPO/AO to make such adjustments, emphasising that the data and methodology must be applied in accordance with the principles permitting reasonable and accurate adjustments under the transfer pricing rules. [Paras 76, 77, 78]

Economic adjustments for differences in risk and capacity/utilization are to be allowed; the matter is to be addressed by the TPO/AO consistent with the Tribunal's direction.

Working capital and receivables adjustment in international transactions - treatment of interest on inter-company receivables - Deletion of the TPO's adjustment on account of receivables (interest imputation) made in the assessment. - HELD THAT: - Relying on the Tribunal's earlier decision in the assessee's own case for A.Y. 2010-11 (upheld on further review), where findings established that the assessee was debt-free and there was no basis to impute borrowed funds as passed on to AEs, the Tribunal directed deletion of the receivables-related adjustment. The coordinate-bench precedent and subsequent judicial upholding were followed to conclude that the interest imputation on delayed receipts could not be sustained. [Paras 79, 80]

The adjustment made by the TPO on account of receivables is deleted.

Recomputation of profit level indicator (PLI) after adjustment of comparables - selection and exclusion of comparable uncontrolled transactions - Direction to the AO/TPO to recompute the applicable Profit Level Indicator (PLI) after implementing the Tribunal's directions on comparables and adjustments. - HELD THAT: - Having issued specific directions on inclusion/exclusion of comparables across the three segments and on economic adjustments, the Tribunal directed the Assessing Officer/Transfer Pricing Officer to recompute the PLI for the tested transactions in accordance with the revised comparable sets and allowed adjustments. This recomputation follows naturally from the remedial adjustments ordered and is necessary for quantification of arm's length margins. [Paras 74]

AO/TPO is directed to recompute the PLI consistent with the Tribunal's directions on comparables and adjustments.

Final Conclusion: The appeal is allowed: specified comparables in the EDS, FAS and IT Infra segments are excluded or included as directed; economic adjustments for risk and capacity utilization are to be allowed; the receivables-related adjustment is deleted; and the AO/TPO is directed to recompute the PLI and proceed in accordance with these directions.

Admissibility of statement recorded under section 133A of the Act - Addition to income on basis of survey statement - Determination of inventory value by reducing tag price to cost and deducting direct expenses - Presumption of sales outside the books and addition of profit margin - Addition as unexplained investment under section 69

Admissibility of statement recorded under section 133A of the Act - Addition to income on basis of survey statement - The addition of Rs. 40 lakhs could not be sustained solely on the basis of the statement recorded during survey under section 133A. - HELD THAT: - The Tribunal held that a statement recorded under section 133A de hors any incriminating material discovered at the time of survey cannot, by itself, form the basis for making an addition to income. There must be corroborative evidence found during the survey or by subsequent verification which leads to the conclusion of suppressed income. The AO's reliance exclusively on the survey statement without undertaking the requisite exercise of valuing stock at cost, allowing deductions for direct expenses and comparing with book stock was held to be contrary to the established procedure followed in survey cases. Consequently, the addition predicated solely on the assessee's survey statement was set aside. [Paras 7]

Addition of Rs. 40 lakhs annulled to the extent that it was based only on the section 133A statement; such lone admission cannot support the assessment.

Determination of inventory value by reducing tag price to cost and deducting direct expenses - Presumption of sales outside the books and addition of profit margin - Addition as unexplained investment under section 69 - The matter remitted to the AO for fresh consideration following the correct procedure to value stock and to decide any addition under relevant provisions. - HELD THAT: - The Tribunal directed that the AO must, on remand, compare the physical inventory with the stock as per books; determine the cost price of stock (by reducing tag/sale price appropriately), allow deduction for direct expenses, and then compare the resultant inventory value with book values. If inventory exceeds books, an addition under unexplained investment may be warranted; if inventory is less, a presumption of sales outside books may arise and an appropriate profit margin should be added. The Tribunal emphasised that such quantification and verification must be carried out before making any addition, rather than relying on survey statements alone. [Paras 7, 8]

Issue remitted to the AO for fresh consideration and quantification in accordance with the procedure stated; appeal treated as allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the orders of the authorities insofar as the Rs. 40 lakhs addition rested solely on the survey statement, and remitted the matter to the AO for fresh verification and quantification of stock/income following the procedure indicated; the appeal is treated as allowed for statistical purposes.

Reopening of assessment and formation of belief for escaped assessment - direct and live nexus between material and belief - requirement of tangible material for forming belief to invoke reassessment - inadmissibility of general or vague statements and third party admissions as sole foundation for reopening - quashing of reassessment where same material is later accepted by AO as establishing genuineness

Reopening of assessment and formation of belief for escaped assessment - direct and live nexus between material and belief - requirement of tangible material for forming belief to invoke reassessment - inadmissibility of general or vague statements and third party admissions as sole foundation for reopening - Validity of initiation of reassessment proceedings for AY 2009-10 - HELD THAT: - The Tribunal examined whether the material on record furnished a sufficient basis for the Assessing Officer to form a belief that income had escaped assessment. The AO's reasons relied on search record material relating to M/s. Murudeshwar Ceramics Ltd. and general references to documents of several concerns found at the company's premises, together with statements recorded in search proceedings. The Tribunal found that the very material relied upon showed production of attendance registers, PF/ESI and service tax records, bankings and other documentary evidence by the assessee's partners and that the AO, in framing the reassessment, accepted the genuineness of the assessee's business transactions except for an adhoc disallowance on cash expenditure. Where the AO effectively accepted the transactions as genuine on the same material, the reasons recorded for reopening lacked a direct and live nexus with any belief that the assessee's expenditures were bogus. The Court emphasised that although conclusive proof is not required at the formation stage, there must be tangible material giving rise to a reasonable belief; general, vague statements or admissions in third party statements, without pinpointing incriminating material against the assessee, are insufficient. Applying these principles to the facts, the Tribunal held that the reopening was not sustainable and quashed the proceedings. [Paras 6, 7, 9, 10, 11]

Reopening under section 148/147 for AY 2009-10 quashed; appeal allowed.

Final Conclusion: Reassessment proceedings initiated for AY 2009-10 were quashed for want of a direct and tangible nexus between the material available to the AO and the belief that income had escaped assessment; appeal allowed and merits of additions not adjudicated.

Valuation of unquoted shares - discounted cash flow method - net asset value method - chargeability under section 56(2)(viib) of the Income Tax Act - remand for fresh consideration - opportunity of hearing and filing further submissions

Discounted cash flow method - net asset value method - valuation of unquoted shares - chargeability under section 56(2)(viib) of the Income Tax Act - Whether the valuation adopted by the assessee using the DCF method was appropriately rejected by the authorities and the addition under section 56(2)(viib) sustained - HELD THAT: - The Tribunal found that the CIT(A) confirmed the Assessing Officer's addition without considering the written submissions filed by the assessee explaining the appropriateness of the DCF method for valuing the assessee's unquoted shares. The Assessing Officer had preferred the NAV method and computed a lower per share value, disallowing the premium received and invoking section 56(2)(viib). The Tribunal did not itself decide the correctness of DCF versus NAV on merits. Instead, it noted that the matter required examination of the reasons and material on which the assessee relied to justify the DCF approach in the context of the company's nature of business and industry. For these reasons the Tribunal set aside the CIT(A)'s order and restored the issue to the file of the CIT(A) for fresh adjudication, directing that the assessee be afforded an opportunity of being heard and liberty to file further written submissions. [Paras 11, 12]

Order of the CIT(A) set aside and the valuation issue under section 56(2)(viib) restored to the file of the CIT(A) for fresh consideration with opportunity to the assessee to be heard and to file further submissions.

Final Conclusion: The appeal is treated as allowed for statistical purposes; the CIT(A)'s confirmation of the addition under section 56(2)(viib) is set aside and the matter remanded to the CIT(A) to decide afresh on the appropriateness of the DCF valuation for assessment year 2014-15 after affording the assessee a hearing and permitting further written submissions.

Registration under section 12AA - charitable purpose - genuineness of objects and activities - limited scope of enquiry by Commissioner while processing registration application - remand for reconsideration

Registration under section 12AA - genuineness of objects and activities - limited scope of enquiry by Commissioner while processing registration application - remand for reconsideration - Whether the Commissioner was justified in rejecting the assessee's application for registration under section 12AA by observing absence of permanent arrangements and lack of activity, or whether the matter required fresh consideration. - HELD THAT: - The Tribunal held that while the Commissioner may examine whether the objects of an applicant are charitable and may test the genuineness of activities, the scope of the Commissioner's enquiry at the stage of processing an application for registration under section 12AA is limited and does not extend to detailed scrutiny of activities. The Tribunal noted that the Commissioner recorded that the main objects were to run an educational institute but nevertheless rejected the application on the basis that no permanent arrangements had been made and that there had been no activity. The Tribunal found that the Commissioner did not adequately examine the genuineness of the objects or follow the due procedure mandated by law before rejecting the application. In view of these deficiencies, the Tribunal concluded that the rejection could not be sustained and that the matter should be reconsidered by the Commissioner in accordance with law. [Paras 7]

Rejection of registration set aside and matter remanded to the Commissioner for reconsideration of the application for registration under section 12AA in accordance with law; appeal allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the Commissioner's order rejecting registration and remitted the application to the Commissioner for fresh consideration in accordance with law; the appeal is allowed for statistical purposes.

Sale of intangible assets - arm's length price - profit split method - adjustment towards profit attributable - international transaction - transfer of intellectual property rights - transfer pricing

Sale of intangible assets - arm's length price - international transaction - adjustment towards profit attributable - profit split method - Whether the adjustment made under the profit split method in respect of profit attributable to the assessee arising from sale of intangible assets to its AE can be sustained for the relevant AY where those intangible assets had been sold to the AE in earlier years at arm's length and the ALP and transfer had been accepted in earlier assessments. - HELD THAT: - The Tribunal found that the assessee had earlier transferred the intellectual property rights to its AE and that the arm's length price of that sale had been determined and accepted in the earlier assessment cycle. Following the coordinate-bench decisions in the assessee's own cases for earlier AYs, the Tribunal held that once there is an outright sale of the IP and ALP is determined, the IP becomes the property of the AE and there is no continuing international transaction between the assessee and the AE in subsequent years with respect to that IP. Consequently, the TPO/AO/TPO cannot, by applying the profit split method, recharacterise or again attribute profit to the Indian entity for revenue generated by the AE after the completed sale. Applying that reasoning to the facts of AY 2013-14, and respectfully following the Tribunal's orders for AYs 2010-11 to 2012-13, the addition made on account of profit attributable to the assessee was held unsustainable and deleted. [Paras 4, 5]

The adjustment of Rs. 2,20,99,958 made under the profit split method is deleted; Grounds Nos. 2 and 3 are allowed.

Final Conclusion: Appeal partly allowed: TP adjustment in respect of profit attributable to the assessee from sale of intangible assets to its AE for AY 2013-14 set aside, following Tribunal's earlier decisions that the prior ALP sale extinguished any subsequent international transaction in respect of that IP.

Dismissal for non-prosecution - appeal requires effective prosecution - non-appearance at hearing - restoration of appeal - adjournment and repeated non-compliance - treatment of appeal as unadmitted under Rule 19 of the Income-tax (Appellate Tribunal) Rules, 1963 - inherent powers of the Tribunal

Dismissal for non-prosecution - appeal requires effective prosecution - non-appearance at hearing - adjournment and repeated non-compliance - Whether the appeal should be dismissed for non-prosecution for failure of the assessee to appear and prosecute the appeal despite notices and earlier adjournments. - HELD THAT: - The Tribunal found that the assessee did not appear when the matter was called and did not file any adjournment application; the hearing notice was served. The appeal had earlier been dismissed in limine for non-appearance and subsequently restored on a Miscellaneous Application; thereafter the matter was adjourned on several occasions including at the assessee's request. In these circumstances the Tribunal concluded that the assessee was not interested in prosecuting the appeal. The Tribunal relied on authorities establishing that filing an appeal requires effective pursuit and that a court/tribunal is not obliged to proceed where the party at whose instance the reference is made fails to appear or take necessary steps. The Tribunal also noted jurisprudence where absence without communication justified treating an appeal as unadmitted. Applying these principles, the Tribunal exercised its power to dismiss the appeal for non-prosecution.

Appeal dismissed for non-prosecution.

Final Conclusion: The Tribunal dismissed the assessee's appeal relating to Assessment Year 2007-08 for non-prosecution due to repeated non-appearance and failure to pursue the appeal despite service of notice and earlier adjournments; reliance was placed on established principles that an appeal must be effectively prosecuted and that the forum may dismiss or treat an appeal as unadmitted where the appellant fails to appear or take steps to prosecute it.

Summary order. Appeal dismissed; question of law left open.

Reverse Charge Mechanism - recipient of service - services provided by foreign bank to the Indian bank - Service Tax liability under Section 66A of the Finance Act (reverse charge) - Board Circular clarifying recipient of service in bank-to-bank foreign charges - remand for verification of quantification

Reverse Charge Mechanism - recipient of service - services provided by foreign bank to the Indian bank - Service Tax liability under Section 66A of the Finance Act (reverse charge) - Whether the appellant is the recipient of services provided by foreign banks and therefore liable to pay service tax under reverse charge. - HELD THAT: - The Tribunal applied the Board Circular dated 10.02.2014 and earlier decisions to the facts. The Circular, on a combined reading of the relevant provisions of URC 522/UCP 600, records that where foreign banks recover charges in relation to import/export documents the foreign bank recognises and deals with the Indian bank and informs only the Indian bank of the charges; the exporter/importer does not have an agreement with or knowledge of the foreign bank or the quantum of charges. Consequently, services are provided by the foreign bank to the Indian bank, and the Indian bank - not the exporter/importer - is the recipient required to discharge service tax under the reverse charge mechanism. The Tribunal also relied on this Division Bench's earlier decision in Greenply Industries Ltd. which reached the same conclusion where the foreign bank charged the Indian bank and the appellant merely had those charges recovered via the Indian bank. Applying these authorities, the Tribunal held that where the appellant did not directly receive services from or make payments to the foreign bank, it cannot be treated as the recipient of the foreign bank's services and thus is not liable to service tax under the reverse charge mechanism.

Appellant is not liable to pay service tax under the reverse charge mechanism for foreign bank charges which were services provided to the Indian bank and not directly to the appellant; the demand insofar as founded on the converse proposition is not sustainable.

Remand for verification of quantification - Whether the adjudicating authority must re-examine quantification of demand and ascertain if any service tax liability arises from payments made directly by the appellant to foreign banks. - HELD THAT: - The Tribunal limited its decision to the legal question of liability under the reverse charge when the foreign bank's services are to the Indian bank. It did not undertake calculation of service tax or determine amounts payable. The Tribunal explicitly left open the factual/quantitative question and remitted the matter to the adjudicating authority to verify the quantification, and to determine whether any service charges were paid directly by the appellant to foreign banks (in which event service tax liability may arise). The remand is confined to verification and quantification and not to re-deciding the legal principle already settled by the Tribunal.

Matter remanded to the adjudicating authority to verify quantification and to determine, on factual inquiry, whether any service tax liability arises from payments made directly by the appellant to foreign banks; appeal allowed by way of remand.

Final Conclusion: The Tribunal held that foreign-bank charges collected via Indian banks are services provided to Indian banks and not to the exporter; therefore the appellant is not liable under the reverse charge mechanism for such charges. The matter is remitted to the adjudicating authority for limited verification and quantification to ascertain whether any service tax liability arises from payments made directly by the appellant to foreign banks.

Service tax on sale of goods - exemption for computer training institutes under exemption notifications - exemption under Notification exempting training forming part of an institute's course/curriculum - Business Auxiliary Services - incentives/discounts as taxable consideration - inclusion of amounts received by independent entities in taxable value - realisation basis v. accrual basis - verification for quantification - penalty relief where issues are interpretational

Service tax on sale of goods - Demand of service tax on caution deposit under Franchise Service and payment status - HELD THAT: - The appellant produced challans (appeal paper book pp.187-188) showing payment of the service tax claimed on the caution deposit. The Tribunal examined the production and recorded that the appellant has discharged the liability asserted in the show cause notice in respect of the caution deposit. [Paras 5]

Appellant has discharged the service tax liability in respect of the caution deposit; demand on this count is treated as discharged.

Realisation basis v. accrual basis - verification for quantification - Difference between figures in ST-3 returns and Profit & Loss account - need for verification - HELD THAT: - The appellant contended that the discrepancies arise because service tax is payable on realisation whereas the P&L is on accrual; however no such plea was taken before the adjudicating authority. The Tribunal held that the cause of the difference requires examination and quantification by the adjudicating authority and therefore the matter must be remanded for fresh consideration. [Paras 5]

Issue remanded to the adjudicating authority for verification and fresh consideration.

Service tax on sale of goods - Demand of service tax on administrative and promotion materials sold to franchisees under Franchise Service - HELD THAT: - The record and the show cause notice itself treated the amounts as collected for sale of materials to franchisees. Where the Department admits collection is for sale of materials, such transaction is one of sale and cannot sustain service tax. The Tribunal also noted these were books/study materials not liable to VAT and therefore not includible in taxable service value. [Paras 5]

Demand in respect of administrative and promotion materials sold to franchisees is set aside.

Inclusion of amounts received by independent entities in taxable value - service tax on sale of goods - Demand premised on study materials supplied by CSC Publications and Ramiah Publications - HELD THAT: - The Show Cause Notice and impugned order show that amounts for these study materials were collected and accounted by CSC Publications and Ramiah Publications, independent entities. Taxable value of the appellant cannot include amounts received by separate publishers; moreover study materials as sales are not subject to service tax. [Paras 5]

Demand based on amounts received by CSC Publications and Ramiah Publications for study materials is set aside.

Exemption for computer training institutes under exemption notifications - Exemption for training provided to government staff and private companies prior to 30.06.2004 - HELD THAT: - The appellant conceded that Notifications No.09/2003 and No.01/2004 exempted Computer Training Institutes until 30.06.2004. The Tribunal found this concession legally correct and held that demands for the period prior to 30.06.2004 cannot be sustained; liability remains for periods after that date. [Paras 5]

Demand prior to 30.06.2004 set aside; appellant liable for service tax after 30.06.2004 on this count.

Service tax on sale of goods - Demand on sale of course materials to students under Commercial Coaching or Training Service - HELD THAT: - The show cause notice and adjudicating authority records treat the amounts as proceeds of sale of study materials. It is settled that sale transactions for study materials are not subject to service tax and therefore cannot be included in taxable service value. [Paras 5]

Demand on sale of course materials to students is set aside.

Exemption for computer training institutes under exemption notifications - exemption under Notification exempting training forming part of an institute's course/curriculum - Whether computer training qualified as vocational training (Notification No.24/2004) and entitlement to exemption up to 16.06.2005 - HELD THAT: - Following precedent (Doon Institute and related High Court decisions), the Tribunal held that computer training fell within the concept of 'vocational training institute' under Notification No.24/2004 until Notification No.19/2005 came into force on 16.06.2005. Accordingly, exemption applies up to 16.06.2005; service tax liability arises thereafter. [Paras 5]

Demand for the period up to 16.06.2005 set aside; appellant liable for service tax from 16.06.2005 onwards.

Exemption under Notification exempting training forming part of an institute's course/curriculum - Applicability of Notification No.10/2003 to computer training provided under agreement with School Education Department (training as part of curriculum) - HELD THAT: - The contract with the Education Department required instruction according to the Government-approved syllabus and practical training as part of school curriculum. Notification No.10/2003 exempts taxable services by a commercial training centre where the training forms an essential part of another institute's course/curriculum leading to recognised certification, and the Tribunal found the facts before it satisfy this description so as to attract the exemption. [Paras 5]

Demand in respect of training provided under the school contract is set aside as exempt under Notification No.10/2003.

Business Auxiliary Services - incentives/discounts as taxable consideration - Taxability under Business Auxiliary Services of incentives received from software supplier (Tally) - HELD THAT: - Applying the Tribunal precedent relied upon by the adjudicator (D. Pauls Consumer Benefit Ltd. v. C.C.E.), the incentives/discounts received from the software supplier for use/promotion of the software were held to fall within the scope of Business Auxiliary Services and thus are taxable. [Paras 5]

Demand on incentives from M/s. Tally under Business Auxiliary Services is upheld.

Business Auxiliary Services - incentives/discounts as taxable consideration - Taxability under Business Auxiliary Services of sale of TNOU application forms by the appellant - HELD THAT: - The record shows appellant purchased and resold TNOU forms at the same price; there are no elements of promotion or marketing of TNOU's services attracting Business Auxiliary Services. TNOU is a government educational unit and the activity was treated as mere sale at cost. [Paras 5]

Demand on sale of TNOU forms under Business Auxiliary Services is set aside.

Realisation basis v. accrual basis - verification for quantification - Demand arising from short payment due to rounding off - HELD THAT: - The appellant did not contest this specific shortfall brought on account of rounding off and acknowledged payment. The Tribunal recorded the appellant's non-contestation and treated the demand accordingly. [Paras 5]

Demand for short paid tax due to rounding off upheld (appellant not contesting).

Penalty relief where issues are interpretational - Validity of penalties imposed in view of interpretational nature of issues - HELD THAT: - The Tribunal found the principal disputes to be interpretational (exemption clauses, classification and quantification). In such circumstances, penalties imposed on the demands upheld could not be sustained. The Tribunal therefore set aside the penalties in entirety. [Paras 6]

Penalties imposed under the impugned order are set aside in toto.

Final Conclusion: The appeal is partly allowed: demands based on sale of study/administrative materials, amounts charged by independent publishers, TNOU form sales, computer training under the school contract, and amounts up to specified exempt periods are set aside; incentives from the software supplier and the rounding-off short payment demand are upheld; issues relating to discrepancies between ST-3 returns and P&L accounts are remanded to the adjudicating authority for fresh consideration; all penalties are set aside. Miscellaneous application for change of respondent's cause title is allowed as prayed.

Change of cause title - scope of "Survey and Exploration of Mineral" service - remand for de novo adjudication - demand confirmed where service tax collected was not disputed - penalty to be determined after final tax liability

Change of cause title - Change in the respondent's name in the cause title consequent to GST introduction and jurisdictional realignment. - HELD THAT: - The application by the department for alteration of the cause title to reflect the successor authority following introduction of GST and resultant change in jurisdiction was allowed. The Tribunal ordered that the respondent's name in the cause title be changed to "The Commissioner of GST & Central Excise, Chennai South Commissionerate, MHU Complex, 692, Anna Salai Nandanam, Chennai 600 035" and recorded the change accordingly. [Paras 2]

Application for change of cause title allowed and respondent's name in cause title amended.

Scope of "Survey and Exploration of Mineral" service - remand for de novo adjudication - Whether services rendered under the contract dated 16.12.2004 fall within the "Survey and Exploration of Mineral" service. - HELD THAT: - The Tribunal found that the record before it was inadequate to determine the true nature of services performed under the said contract. The SCN and pleadings contained inconsistent descriptions and no copy of the contract was placed on record. The Tribunal referred to the statutory definition which requires specific geological, geophysical or prospecting activities or map-making to constitute "Survey and Exploration of Mineral" service and observed that such activities are a sine qua non for inclusion. In view of the absence of the contract and relevant evidence, the Tribunal remanded the matter to the original adjudicating authority for a fresh, de novo analysis of the contract and evidence to decide whether the services fall within the said service category, directing that submissions of both parties be considered. [Paras 7]

Matter remanded to the original adjudicating authority for de novo adjudication on whether the services under the 16.12.2004 contract constitute "Survey and Exploration of Mineral" service, with directions to examine the contract and evidence.

Demand confirmed where service tax collected was not disputed - Validity of the demand in respect of the invoice dated 31.03.2007 for which service tax was collected. - HELD THAT: - The Tribunal noted that it was undisputed that the appellants had collected service tax on the invoice dated 31.03.2007 under the Survey and Exploration Service, and that the appellants did not refute this allegation either during adjudication or before the Tribunal. On this basis, the Tribunal declined to interfere with the demand connected to that invoice. [Paras 7]

Demand in respect of the invoice dated 31.03.2007 (amount collected as service tax) upheld and not interfered with.

Penalty to be determined after final tax liability - remand for reconsideration of penalties - Whether penalties proposed under the show-cause notice should be confirmed and, if so, their quantum. - HELD THAT: - The Tribunal remanded the question of imposition and quantum of penalties back to the original adjudicating authority for a reasoned decision. It directed that any determination on penalties must be based on the final tax liability ascertained after the de novo adjudication, and that the adjudicating authority determine whether penalties are warranted and, if so, quantify them in accordance with its final findings on tax liability. [Paras 7]

Issue of penalties remanded to the original adjudicating authority for fresh consideration and determination in light of the final tax liability.

Final Conclusion: The departmental application to amend the cause title is allowed; the demand relating to the specific invoice dated 31.03.2007 where service tax was collected is upheld; the question whether the services under the 16.12.2004 contract fall within "Survey and Exploration of Mineral" service and the issue of penalties are remanded to the original adjudicating authority for de novo consideration.

Abatement and exemption notification - reversal of CENVAT credit with interest - eligibility for exemption despite prior credit availed - no mala fide intention - precedent of Chandrapur Magnet Wires

Reversal of CENVAT credit with interest - eligibility for exemption despite prior credit availed - abatement and exemption notification - precedent of Chandrapur Magnet Wires - Availing and subsequently reversing CENVAT credit (with interest) prior to issuance of show cause notice does not disentitle the assessee from claiming the benefit of the exemption/abatement notification. - HELD THAT: - The Tribunal found as an admitted fact that the appellant had reversed the CENVAT credit taken on input services and paid interest thereon before issuance of the show cause notice. Applying the ratio of the Supreme Court in Chandrapur Magnet Wires and consistent Tribunal decisions, the Court held that a debit/reversal in the credit account effected before removal or before initiation of adjudication operates to delete the earlier credit entry for purposes of claiming exemption. Where the reversal (with interest) is made prior to the show cause notice and there is no prima facie mala fide intention to evade tax, denial of the notification benefit is unwarranted. The Commissioner's view that mere reversal does not absolve the breach was rejected in light of the binding precedent and the factual position that the reversal was made proactively and interest paid.

Impugned order of the Commissioner set aside; order of the Joint Commissioner (Preventive) restored and the appeal allowed.

Final Conclusion: The appeal is allowed: since the CENVAT credit taken was reversed with interest before issuance of the show cause notice and there was no mala fide intent, the appellant is entitled to the benefit of the abatement/exemption notification; the Commissioner's order is set aside and the Joint Commissioner's order restored.

Interpretational doubt on service tax liability under reverse charge mechanism - penalty under Section 77(1)(a) and Section 78 of the Finance Act, 1994 - waiver of penalty under discretionary power - demand of service tax and interest retained

Interpretational doubt on service tax liability under reverse charge mechanism - penalty under Section 77(1)(a) and Section 78 of the Finance Act, 1994 - waiver of penalty under discretionary power - Penalties imposed under Sections 77 and 78 were set aside. - HELD THAT: - The Tribunal applied the reasoning of an earlier CESTAT Chennai decision in The Karur Vysya Bank Ltd. which treated the liability to pay service tax under reverse charge (in respect of Nostro/Vostro accounts and SWIFT charges) as an interpretational issue during the relevant period. Having regard to the litigation and uncertainty prevailing on the reverse charge question until authoritative decisions settled the law, and in the absence of any finding of deliberate suppression or intent to evade tax, the Tribunal held that imposition of penalties was unwarranted. Consequently, the portion of the impugned order imposing penalties under the cited provisions is set aside while leaving the substantive demand intact. [Paras 5, 6]

Penalties under Section 77(1)(a) and Section 78 are set aside on account of interpretational doubt and absence of deliberate suppression.

Demand of service tax and interest retained - The demand of service tax and interest was not interfered with. - HELD THAT: - The Tribunal expressly confined its relief to penalty remittance and clarified that the remaining portion of the impugned order - namely the demand for service tax and interest - is not disturbed by this decision. [Paras 6]

Demand of service tax and interest upheld; no interference.

Final Conclusion: Appeal allowed insofar as penalties under Sections 77 and 78 are set aside for the period 01.04.2006 to 30.09.2009 on account of interpretational doubt; the demand of service tax and interest remains undisturbed.

Renting of immovable property - service tax leviability on provision of space for use in business - characterisation of receipts as rent versus profit sharing/business services - extended period of limitation for suppression, fraud or wilful misstatement - penalty under Section 76 of the Finance Act, 1994 - penalty under Section 77 of the Finance Act, 1994 - penalty under Section 78 of the Finance Act, 1994 - interest as an absolute liability

Characterisation of receipts as rent versus profit sharing/business services - provision of space for conduct of business - Agreements with M/s Pantaloons and M/s Trent are for provision of space and the amounts received are rent, not mere profit sharing or consideration for business services. - HELD THAT: - On construing the agreements the Tribunal found appellants owned the premises and agreed to permit the companies to conduct retail business there while the companies remained exclusively in charge of management and running of the business. The contractual clauses describing payment as "fees" computed on net retail sales were held to be charges for provision of space; other obligations said to be services did not displace the dominant character of the arrangement as provision of space. Even if a partnership or joint venture were to be inferred, the appellants would remain a distinct legal entity providing space to that entity and the receipts would be rent. The Tribunal therefore concluded the amounts received under the agreements are in nature of rent for providing space to conduct retail business. [Paras 7]

Amounts received under the agreements are rent for provision of space and not payment for profit sharing services.

Renting of immovable property - service tax leviability on provision of space for use in business - definition of renting including similar arrangements - Service tax is leviable on the amounts as they fall within the definition of "renting of immovable property" w.e.f. 1.6.2007. - HELD THAT: - The Tribunal applied the statutory definition which includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business. The arrangements under consideration permitted use of space for retail business and thus fell squarely within the definition; consequently service tax under the entry for "renting of immovable property" was held leviable. [Paras 8]

The receipts are taxable under the "renting of immovable property" category with effect from 1.6.2007.

Extended period of limitation for suppression, fraud or wilful misstatement - suppression of material facts - Extended period of limitation was rightly invoked because the appellants suppressed material facts relating to the agreements and thereby evaded payment of service tax. - HELD THAT: - The Tribunal found appellants had not disclosed the agreements to the department and that vital facts were kept from the authorities. Relying on precedents cited in the order, the Tribunal held that suppression, fraud or wilful misstatement are questions of fact; on the facts before it, the ingredients for invoking the proviso to the limitation provision were satisfied and the extended limitation period could be invoked to demand tax for earlier years. [Paras 9]

Invocation of the extended period of limitation to confirm the tax demand is justified.

Interest as an absolute liability - Interest on the confirmed service tax demand is payable and cannot be set aside. - HELD THAT: - The Tribunal noted that tax was not paid when due and applied the settled principle that interest on delayed payment is an absolute liability. Consequently the claim to relieve the appellants from interest was rejected. [Paras 10]

Interest on the tax demand is payable and upheld.

Penalty under Section 78 - penalty under Section 76 - penalty under Section 77 - Penalties under Sections 78 and 76 are justificable and upheld; penalty under Section 77 for failure to file proper returns is also sustained. - HELD THAT: - Finding suppression and evasion of tax, the Tribunal held penalty under Section 78 (suppression of value of taxable service) and Section 76 (failure to pay service tax) were imposable; it noted these penalties cover distinct ingredients and may be imposed concurrently. For failure to file proper ST 3 returns the Tribunal found no reason to interfere with imposition of penalty under Section 77. [Paras 11, 12]

Penalties under Sections 78, 76 and 77 are sustained.

Final Conclusion: The appeal is dismissed; the Tribunal upheld the Commissioner's demand of service tax as rent for provision of space, sustained invocation of the extended limitation period, affirmed interest liability, and upheld penalties under Sections 76, 77 and 78.

Reverse charge mechanism - assessees in default - no double recovery where tax has been paid by the recipient - procedural lapse - interest and penalty not leviable where primary demand is set aside

Reverse charge mechanism - no double recovery where tax has been paid by the recipient - assessees in default - procedural lapse - Whether the service-tax demand confirmed against the appellant for failure to discharge liability under the reverse charge mechanism could be sustained when the tax had been paid by the service providers. - HELD THAT: - The Tribunal found on the material on record that, although the appellant was held to be an assessee in default for the period July, 2012 to September, 2012, the service tax had in fact been paid by the service providers. The appellant explained delay in implementation of the Notification No.30/2012-ST and pleaded a procedural lapse without intent to evade tax; subsequent compliance under the reverse charge mechanism was regular. Relying on the principle applied by the Hon'ble Supreme Court in M/s. Hindustan Coca Cola Beverage Pvt Ltd (as discussed in the judgment) and the circular principle that recovery should not be enforced where taxes have already been discharged by the recipient, the Tribunal held that tax cannot be demanded again from the appellant once it is established that the recipient has paid the tax. Applying that ratio, the primary demand could not be sustained. Because the demand was set aside on this basis, consequential interest and penalties also fell away. [Paras 6, 7, 8]

The demand of service tax confirmed against the appellant is set aside as the tax was paid by the service providers; consequential interest and penalties are also not leviable.

Final Conclusion: Appeal allowed; demand, interest and penalties set aside because the service tax was paid by the service providers and the shortfall arose from a procedural lapse in implementing the reverse charge mechanism.

Service tax on Intellectual Property Service (royalty) - Reverse charge liability effective from enactment of Section 66A w.e.f. 18.04.2006 - Penalties under Sections 76 and 78 - relief where no mala fide and availability of cenvat credit - Monetary limit for Revenue appeals under Board instruction dated 11.07.2018

Service tax on Intellectual Property Service (royalty) - Reverse charge liability effective from enactment of Section 66A w.e.f. 18.04.2006 - Liability to service tax on royalty payments received under the Know how Agreement is confined to amounts relating to transfers of right to use IPR on or after 18.04.2006 - HELD THAT: - The Agreement provided for annual royalty payments of 1.3% of net selling price, which were paid during the periods from September 2004 to December 2006 and January 2007 to December 2007. The Tribunal accepted the lower appellate authority's finding that transfer of know how under the agreement was not a one time event and royalty continued to be paid during the disputed period. Applying the ratio in Indian National Shipowners Association (Bombay High Court) - as affirmed by the Supreme Court - the Tribunal held that the reverse charge mechanism under Section 66A became effective only from 18.04.2006; accordingly, service tax with interest on the royalty payments is exigible only from that date. The impugned order confirming demand from 18.04.2006 was found to be legally correct. [Paras 5, 6]

Demand for service tax on royalty payments confirmed, but only with effect from 18.04.2006

Penalties under Sections 76 and 78 - relief where no mala fide and availability of cenvat credit - Penalties under Sections 76 and 78 imposed by the adjudicating authority were set aside by the lower appellate authority and the Tribunal upheld that relief - HELD THAT: - The Tribunal agreed with the Commissioner (Appeals) that, even if tax liability arose, the assessee was entitled to avail cenvat credit and the matter was revenue neutral; there was no attribution of mala fide conduct warranting imposition of penalties. On this basis the penalties under Sections 76 and 78 were set aside by the lower appellate authority and the Tribunal found no reason to interfere. [Paras 5, 6]

Penalties under Sections 76 and 78 set aside

Monetary limit for Revenue appeals under Board instruction dated 11.07.2018 - Revenue's appeal against non-confirmation of demand from 1.1.2005 was dismissed on the ground that the subject amount is below the monetary threshold for filing appeals by the Revenue - HELD THAT: - The Tribunal noted the Board's instruction dated 11.07.2018 fixing the monetary limit for Revenue appeals before the Tribunal at Rs. 20,00,000/-. As the amount involved in the Revenue's appeal was less than that threshold, the appeal was rejected on the monetary limit. The Tribunal therefore dismissed the Revenue's appeal on that ground. [Paras 7]

Revenue's appeal dismissed on monetary limit grounds

Final Conclusion: Assessee's appeal dismissed: service tax demand on royalties upheld only from 18.04.2006 and penalties under Sections 76 and 78 set aside; Revenue's appeal dismissed for being below the Board's monetary threshold for filing appeals (instruction dated 11.07.2018).

Agricultural Extension Services - negative list exemption under Section 66D - application of scientific research and knowledge to agriculture through farmer education and training - Business Auxiliary Service (marketing and promotion) - remuneration as mode of calculation not determinative of nature of service

Agricultural Extension Services - negative list exemption under Section 66D - Business Auxiliary Service (marketing and promotion) - remuneration as mode of calculation not determinative of nature of service - Services rendered by the appellant are Agricultural Extension Services and therefore fall within the negative list exemption; they are not taxable as Business Auxiliary Service. - HELD THAT: - The agreement and supporting material describe farmer education, training, field demonstrations, empirical trials, harvesting guidance and stewardship programs which amount to dissemination and application of scientific research and knowledge to agricultural practices through farmer education and training. The photographs and documentary evidence furnished by the appellant do not show that the appellant was engaged in marketing or promotion of the principal's products while rendering these services. The Revenue failed to produce evidence that the activities undertaken were promotional or sales-driven. Receipt of remuneration calculated with reference to sale/turnover is only a mode of computing the appellant's remuneration and does not convert the nature of the service into marketing or promotion; the appellant separately discharges service tax on commission where applicable. Having concluded on the merits that the services are Agricultural Extension Services, they are covered by the exclusion in the negative list in Section 66D and hence not exigible to service tax. Because the issue is decided on merits in favour of the appellant, penalty was not examined further. [Paras 9, 10, 11, 12, 13]

The demand and equivalent penalty confirmed by the adjudicating authority are set aside as the services rendered are Agricultural Extension Services covered by the negative list and not taxable as Business Auxiliary Service.

Final Conclusion: Impugned order set aside; appeal allowed and consequential relief granted.

Cenvat credit on imported goods - Bill of Entry as specified document for Cenvat credit - Requirement of endorsement on Bill of Entry - Rule 9(2) of the Cenvat Credit Rules, 2004 - proviso regarding documents not containing all particulars - Receipt and accounting in books as condition for grant of Cenvat credit

Cenvat credit on imported goods - Bill of Entry as specified document for Cenvat credit - Requirement of endorsement on Bill of Entry - Rule 9(2) of the Cenvat Credit Rules, 2004 - proviso regarding documents not containing all particulars - Receipt and accounting in books as condition for grant of Cenvat credit - Validity of taking Cenvat credit by the assessee on imported capital goods where the Bill of Entry in the name of the importer was endorsed to the assessee but did not bear endorsement by the proper office of Customs. - HELD THAT: - The Tribunal held that the Bill of Entry is a specified document under the Cenvat Credit Rules, 2004 and that there is no statutory requirement under those Rules for an endorsement by the proper office of Customs to validate the Bill of Entry for the purpose of taking Cenvat credit. Reliance was placed on the proviso to Rule 9(2), which permits allowance of credit where the document, though not containing all prescribed particulars, contains details of duty payable, description of goods and the receiver has received and accounted for the goods in its books. On the facts recorded below there was no dispute that the capital goods were duty-paid, received by the assessee and used in its business. Applying Rule 9(2) and its proviso, the Tribunal concluded that the absence of endorsement by the Customs office did not invalidate the Bill of Entry as a basis for Cenvat credit where the other conditions of the proviso were satisfied.

Cenvat credit rightly taken by the assessee on the basis of the Bill of Entry endorsed to it, notwithstanding absence of endorsement by the proper office of Customs; appeal allowed.

Final Conclusion: The appeal is allowed: Cenvat credit on imported capital goods was validly availed on the Bill of Entry endorsed to the assessee despite absence of endorsement by the Customs office, since the goods were duty-paid and received and accounted for by the assessee in accordance with Rule 9(2) proviso.

Interpretation of Rule 5 of the Cenvat Credit Rules - availability of refund where adjustment is not possible - Refund of CENVAT Credit on closure of manufacturing unit - Indefeasibility of validly taken CENVAT credit - Binding effect of earlier tribunal and High Court decisions and estoppel against Revenue - Judicial discipline in following precedent

Interpretation of Rule 5 of the Cenvat Credit Rules - availability of refund where adjustment is not possible - Indefeasibility of validly taken CENVAT credit - Whether refund of accumulated CENVAT credit can be allowed under Rule 5 where adjustment is not possible - HELD THAT: - The Court held that Rule 5 does not expressly prohibit refund and contemplates refund where adjustment is not possible. Reliance was placed on Collector of Central Excise, Pune which recognises that credit validly taken accrues to the manufacturer and is available without temporal limitation and that such credit is "as good as paid" (Eicher Motors Ltd. cited in that decision). The Division Bench judgment of the Karnataka High Court in Union of India v. Slovak India Trading Co. Pvt. Ltd. and subsequent consistent tribunal and High Court decisions were treated as laying down the principle that a manufacturer who cannot adjust CENVAT credit (including on going out of the MODVAT/CENVAT scheme or on closure) is entitled to claim refund. Applying these authorities, the Court concluded Rule 5 permits refund where adjustment is not possible and the credit, once validly taken, is indefeasible. [Paras 10, 11]

Refund under Rule 5 can be allowed where adjustment is not possible and validly taken CENVAT credit is indefeasible.

Refund of CENVAT Credit on closure of manufacturing unit - Binding effect of earlier tribunal and High Court decisions and estoppel against Revenue - Judicial discipline in following precedent - Whether accumulated CENVAT credit is refundable on closure of the factory - HELD THAT: - The Court found that where a manufacturing unit is closed and the assessee cannot utilize the credit, established precedent permits cash refund of the accumulated CENVAT credit. The Court observed that several High Courts and Tribunals have allowed refund in such circumstances (including Union of India v. Slovak India Trading Co. Pvt. Ltd. ), and noted that some of those judgments were the subject of SLPs which were dismissed. Having regard to consistent judicial treatment and the principle that the department, having accepted similar tribunal views in other matters, cannot take a contrary position (estoppel), the Court emphasised the need for judicial discipline in following binding or consistently applied precedents and accordingly answered the question in favour of the assessee. [Paras 11, 12, 14, 15]

Accumulated CENVAT credit lying unutilised on closure of the manufacturing unit is refundable in cash; the appeal is allowed in favour of the assessee.

Final Conclusion: The appeal is allowed; the view permitting cash refund of accumulated CENVAT credit where adjustment is not possible (including on closure of the factory) is approved and the assessee's claim is upheld.

Cenvat credit - service tax non-deposit by service provider - invoice-based credit entitlement - obligation of recipient under Rule 4(7) and Rule 9 of Cenvat Credit Rules - remedy against service provider for short deposit - liability of recipient for supplier's default

Cenvat credit - service tax non-deposit by service provider - invoice-based credit entitlement - obligation of recipient under Rule 4(7) and Rule 9 of Cenvat Credit Rules - remedy against service provider for short deposit - Denial of Cenvat credit to the assessee on the ground that the service provider did not deposit the service tax shown in the invoices. - HELD THAT: - The appellant had procured construction services and taken Cenvat credit on the basis of invoices issued by the service provider which contained required particulars including the registration number and the service tax amount. The assessee paid the value and the service tax as reflected in those invoices. In terms of Rule 4(7) read with Rule 9 of the Cenvat Credit Rules, the recipient's liability is satisfied by payment of the invoice amount and the tax as assessed in the invoice; the recipient is not obligated to verify from the department whether the supplier actually deposited the tax. Consequently, default by the service provider in depositing tax does not disentitle the recipient to claim credit; the proper remedy for short deposit lies against the service provider. The Tribunal relied on earlier judicial authorities to the effect that a buyer/recipient cannot be expected to verify the supplier's deposit of duty and therefore cannot be denied credit for faults of the supplier. Applying these principles to the admitted facts, the denial of credit by the lower authorities on account of non-deposit by the service provider was unsustainable. [Paras 5, 6, 8]

Impugned order denying Cenvat credit set aside; appeal allowed with consequential relief to the appellant.

Final Conclusion: The Tribunal allowed the appeal and restored the Cenvat credit claimed for the period April 2007 to December 2009, holding that credit cannot be denied to the recipient merely because the service provider failed to deposit the service tax; the Revenue's remedy is against the service provider.

Excisability of by-products - waste/refuse arising during the course of manufacture - exemption under Notification No.89/95-CE - process of manufacture - conversion of a by-product into a new intended product - penalty under Section 11AC - interest on duty

Excisability of by-products - waste/refuse arising during the course of manufacture - exemption under Notification No.89/95-CE - process of manufacture - Whether Acid Oil and Soap Sludge derived from Soap Stock are exigible to Central Excise duty or are covered by the exemption as 'waste' under Notification No.89/95-CE. - HELD THAT: - The Tribunal applied the ratio of the Larger Bench decision in Ricela Health Foods Ltd. and earlier authorities that unintended incidental products arising during refining of edible oil (for example soap stock) are 'waste' and fall under the exemption. Soap stock, which arises unintentionally in the refining process, is non-excisable. However, where soap stock is consciously processed further and yields Acid Oil, that Acid Oil is an intended new product with a different name, character and use and therefore is exigible to excise duty. Conversely, the soap sludge produced during the manufacture of Acid Oil remains a waste arising in that further process and therefore is not exigible and continues to attract the benefit of Notification No.89/95-CE. [Paras 5]

Acid Oil is exigible to excise duty; Soap Sludge is 'waste' and non-excisable, eligible for exemption under Notification No.89/95-CE.

Conversion of a by-product into a new intended product - interest on duty - Quantification of duty liability and whether the demand should be reworked to restrict assessed liability to clearances of Acid Oil only. - HELD THAT: - The adjudicating authorities had computed duty on a combined value of Acid Oil and Soap Sludge. In view of the finding that Soap Sludge is non-excisable waste, the duty demand cannot be sustained on Soap Sludge. The Tribunal directed that the Annexure to the show cause notice be reworked so that duty (with interest as applicable) is assessed only on clearances of Acid Oil during the period in dispute. The matter is remanded to the original adjudicating authority for recomputation consistent with this finding. [Paras 5]

Demand to be reworked and recomputed by the original authority limiting duty liability (with interest) to Acid Oil clearances; matter remanded for that limited purpose.

Penalty under Section 11AC - Whether penalty under Section 11AC is leviable in the facts of the case. - HELD THAT: - Given the prolonged confusion and litigation over the excisability of by-products/waste (culminating in the Larger Bench decision), the Tribunal concluded that the ingredients of Section 11AC could not be sustained against the appellants who acted on a bona fide belief regarding availability of exemption. Accordingly, the imposition of penalty under Section 11AC was unjustified. [Paras 6]

Penalty imposed under Section 11AC is set aside.

Final Conclusion: The appeal is partly allowed: Acid Oil found exigible and duty liability is sustained only in respect of Acid Oil (with interest) but the demand must be recomputed by the original authority; Soap Sludge held to be non-excisable waste entitled to exemption under Notification No.89/95-CE; penalty under Section 11AC is set aside; matter remanded for limited recomputation.

Determination of Countervailing Duty (CVD) by reference to notional domestic excise duty - eligibility for exemption under Notification No.30/2004-CE - valuation by application of deductive value under Rule 7 of the Customs Valuation Rules and scope of show cause notice

Determination of Countervailing Duty (CVD) by reference to notional domestic excise duty - eligibility for exemption under Notification No.30/2004-CE - Whether CVD was payable on the imported input-equivalent for the goods in question or the respondents were eligible for nil CVD under Notification No.30/2004-CE. - HELD THAT: - The Tribunal applied the principle affirmed by the Supreme Court in SRF Ltd. v. CC (Import and General) following Thermax (1992) that for quantification of additional duty the article imported is to be imagined as manufactured in India and the excise duty leviable thereon determined. On that basis, and having regard to the exemption available under Notification No.30/2004-CE, the appellate authority correctly concluded that the respondents were entitled to nil CVD. The Tribunal noted consistent application of the same ratio by the CESTAT in earlier decisions and found no error in allowing the benefit of Notification No.30/2004-CE to the 100% EOU respondent. [Paras 5]

Benefit of Notification No.30/2004-CE upheld and no CVD payable; the Commissioner (Appeals) order on this point is affirmed.

Valuation by application of deductive value under Rule 7 of the Customs Valuation Rules and scope of show cause notice - Whether the adjudicating authority could confirm differential duty by applying Rule 7 (deductive value) when Rule 7 was not invoked in the show cause notice. - HELD THAT: - The Tribunal upheld the Commissioner (Appeals) finding that the original adjudicating authority travelled beyond the scope of the show cause notice by confirming differential duty on the basis of deductive value under Rule 7 when Rule 7 was not invoked in the notice. Since the basis for valuation adopted by the original authority was not pleaded in the SCN, confirming duty on that ground amounted to acting beyond the scope of the notice. [Paras 5]

Confirmation of differential duty on the basis of Rule 7 when Rule 7 was not invoked in the SCN is impermissible; the Commissioner (Appeals) order on this point is sustained.

Final Conclusion: The departmental appeal is dismissed; the Commissioner (Appeals) order allowing nil CVD under Notification No.30/2004-CE and setting aside the valuation-based confirmation for travelling beyond the SCN is affirmed.

Inclusion of cost of designs and drawings in assessable value - assessable value of final products manufactured to customer-supplied drawings - distinction between manufacture to customer dimensions and provision of design services - valuation based on unilateral percentage adoption from customer document

Inclusion of cost of designs and drawings in assessable value - distinction between manufacture to customer dimensions and provision of design services - Designs and drawings supplied by the appellant's customers are not includible in the assessable value of the final products manufactured by the appellant. - HELD THAT: - The Tribunal found on the materials placed on record, including a sample document and the commercial terms, that the drawings supplied by customers were merely dimensional transcriptions for components and did not contain technical details or constitute independent design services. The price schedule indicated that the design/drawing was not separately valued or charged by the supplier. The appellant's operations were limited to cutting, welding and forming sheet-metal parts strictly to the customers' dimensions and did not involve creating or supplying designs. Relying on this factual and legal distinction, the Tribunal held that where the assessee merely manufactures to customer-provided dimensions and does not perform design work, the cost of those customer-supplied drawings has no separate value to be included in the assessable value of the manufactured goods. The Tribunal also rejected the Revenue's unilateral approach of adopting a fixed percentage of the invoice as the value of drawings, observing that the record did not support inclusion of such a component. The Tribunal noted precedents to the same effect, including CCE, Pune Vs. Bharat Forge Ltd. and Berry Auto Ancillaries Pvt. Ltd. Vs. CCE , as supportive of the principle that designs made by others and merely followed by the manufacturer do not add to assessable value. [Paras 7, 8, 9]

The cost of designs and drawings supplied by customers is not includible in the assessable value of the final products; the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that customer-supplied drawings which merely specify dimensions for manufacture and do not embody separately chargeable design services cannot be included in the assessable value of the goods; quantification was not gone into.

Voluntary deposit and entitlement to refund - benefit under Sections 11A(5), (6) & (7) of the Central Excise Act and Section 73(4A) of the Finance Act - non-issuance of show cause notice where statutory conditions for reduced penalty are satisfied - absence of coercion or mistake of law in admissions made to audit

Voluntary deposit and entitlement to refund - non-issuance of show cause notice where statutory conditions for reduced penalty are satisfied - absence of coercion or mistake of law in admissions made to audit - Whether the appellants were entitled to refund after voluntarily depositing duty, interest and reduced penalty under the statutory provisions despite not having received a show cause notice - HELD THAT: - The Tribunal found as undisputed that an audit for 2010-11 to 2012-13 was conducted, the appellants agreed with the audit objections in a letter signed by the authorised signatory and promptly deposited duty, interest and the applicable reduced penalty; APR No. 464/2013-14 recording the audit and payments was issued by the Department. The adjudicating authority granted the benefit under Sections 11A(5),(6)&(7) of the Central Excise Act and Section 73(4A) of the Finance Act on the basis that the assessee had furnished true and complete transaction figures, accepted the chargeable tax and paid it with interest and the applicable penalty. Those statutory provisions are intended to expedite closure of proceedings and to afford reduced penalty in return for admission and payment, obviating issuance of a show cause notice. The appellants' contention that the payment was made by lower staff or under coercion was unsupported by evidence; the contemporaneous letter and cooperative role in preparation of calculation sheets rebut any claim of mistake of law or coercion. Consequently, where the statutory conditions for availing reduced penalty were satisfied, non-issuance of a show cause notice and closure of proceedings was proper and the appellants were not entitled to the refund claimed. The authorities relied upon by the appellants were held inapplicable on the facts and statutory framework of this case. [Paras 6, 7]

Appeal dismissed; refund claim rejected and impugned order sustained.

Final Conclusion: The Tribunal upheld the adjudicating and appellate orders, holding that the appellants had voluntarily accepted audit objections, paid duty, interest and the reduced penalty under the statutory scheme, that the statutory conditions for closure without issuing a show cause notice were satisfied, and that no refund was payable.

Summary order. Special Leave Petitions dismissed; delay condoned.

Treatment as manufacturer - deductions under Section 3-F(2)(b)(iii) - connection of seized goods with works contract - remand for fresh consideration and evidence - perversity of factual conclusion - application of Rule 68(5) of the U.P. Trade Tax Rules, 1948 in allowance of deductions

Treatment as manufacturer - connection of seized goods with works contract - deductions under Section 3-F(2)(b)(iii) - remand for fresh consideration and evidence - whether the Tribunal and lower authorities were justified in treating the revisionist as a manufacturer and disallowing the claimed deductions under Section 3-F(2)(b)(iii) on the basis of interception and seizure of goods - HELD THAT: - The Court found that the question whether the seized items were finished goods manufactured by the revisionist or aluminium sheets/sections purchased from a registered dealer and merely cut for transportation was not appropriately considered by the First Appellate Authority or the Tribunal. The First Appellate Authority reached its conclusion by a cursory reading of the works contract, and the Tribunal relied on the driver's statement regarding loading from a factory without affording a proper opportunity to the revisionist to press the specific ground that the seized goods were unrelated trading purchases. The Court observed that the seizure at a location (Kanpur) different from the contract site (Lucknow) raised a factual issue which required detailed inquiry, including verification whether the revisionist could produce proof of purchase from M/s Sadi Ram and Sons or another registered dealer and whether tax had been paid on such purchases. The Court directed that the Tribunal should permit the revisionist to amend and specifically take the ground omitted in the second appeal, lead admissible evidence, and then decide whether the goods were in connection with the works contract and whether the claimed deductions under Section 3-F(2)(b)(iii) are permissible, keeping in mind earlier assessments where similar deductions were allowed and Rule 68(5) of the U.P. Trade Tax Rules, 1948.

The Tribunal's order is set aside and the matter is remitted to the Tribunal for fresh inquiry and decision on whether the seized goods were purchased aluminium sheets/sections unrelated to the works contract and whether the claimed deductions under Section 3-F(2)(b)(iii) are admissible, permitting amendment of the revision and reception of evidence.

Final Conclusion: The Tribunal's decision treating the revisionist as a manufacturer is set aside and the matter is remanded for fresh consideration on the factual questions identified; the revisionist may amend and lead evidence, and the Tribunal shall decide admissibility of deductions under Section 3-F(2)(b)(iii) in accordance with law and Rule 68(5).

Entry tax recovery - Interest on tax liability - Payment by instalments - Judicial review under Article 226 of the Constitution

Entry tax recovery - Payment by instalments - Judicial review under Article 226 of the Constitution - Interest on tax liability - Whether the petitioner may be permitted to discharge the entry tax liability with interest by instalments and the terms of such payment. - HELD THAT: - The Court observed that it cannot, in exercise of writ jurisdiction under Article 226, ordinarily interfere with the State's taxing power or its recovery mechanism unless the Government's action infringes established legal principles of judicial review. Having noted the petitioner's plea of financial hardship and that he is a driver, the Court exercised its discretion to moderate immediate enforcement by permitting payment in instalments. The petitioner's substantive liability to pay the entry tax with interest remains undisturbed; only the mode and schedule of recovery were regulated. The Court directed payment in 10 equal monthly instalments commencing from 05.9.2018 and made clear that two consecutive defaults would entitle the respondents to resume recovery proceedings without further reference to this order. [Paras 4]

Petitioner is directed to pay the entry tax with interest in 10 equal monthly instalments commencing 05.9.2018; on two consecutive months' default respondents may proceed without further reference to this judgment.

Final Conclusion: Writ petition disposed of by permitting the petitioner to pay the assessed entry tax with interest in 10 equal monthly instalments starting 05.9.2018, subject to the respondents resuming recovery on two consecutive defaults; the underlying tax liability is upheld.

Provisional release of goods pending departmental proceedings - bank guarantee for release of detained goods - alternative remedy under Section 107 of the Central Goods and Services Tax Act - compliance with Rule 140 of the CGST Rules

Provisional release of goods pending departmental proceedings - bank guarantee for release of detained goods - compliance with Rule 140 of the CGST Rules - Petitioner's detained goods shall be released on furnishing a bank guarantee for the value estimated in Ext.P4, with departmental proceedings to continue thereafter. - HELD THAT: - The Court noted that although the petitioner has an alternative statutory remedy under Section 107 of the Central Goods and Services Tax Act, the petitioner agreed to furnish the bank guarantee required by Rule 140 of the CGST Rules to secure release of the goods. The Government Pleader did not object to release on such security and indicated the department may continue and conclude proceedings initiated by Ext.P4 series. In these circumstances the Court directed release of the goods upon provision of a bank guarantee for the value as mentioned in Ext.P4 and permitted the authorities to proceed further in accordance with law. [Paras 5]

Goods to be released on petitioner's furnishing of a bank guarantee for the value stated in Ext.P4; departmental proceedings may continue thereafter.

Final Conclusion: Writ petition disposed directing provisional release of the goods on furnishing the specified bank guarantee; statutory/departmental proceedings under Ext.P4 to be carried forward in accordance with law.

Limitation for initiation of assessment proceedings - distinction between proceeding to determine and completion of assessment - proviso extending period for completion cannot revive lapsed assessments - validity and scope of power to extend limitation under Section 25B - requirement of natural justice (audi alteram partem) when extending limitation - retrospective effect of amendment by substitution

Limitation for initiation of assessment proceedings - distinction between proceeding to determine and completion of assessment - Whether the time-limit in Section 25(1) of the KVAT Act relates to initiation of proceedings (issuance of notice) or to completion of assessment, and whether subsequent provisos extending time for completion can revive assessments where no notice was issued within the statutory period. - HELD THAT: - The Court followed the Full Bench decision in Cholayil Enterprises and earlier precedents holding that the phrase 'proceed to determine...' in Section 25(1) denotes the initiation of assessment proceedings (i.e., issuance of notice). The proviso introduced later, which purports to extend the period for completion of assessment, does not extend or revive the statutory period for initiation of proceedings. Assessments where no notice was issued within the five year period under the pre amendment Section 25(1) cannot be revived merely by an amendment or proviso that only extends time for completion of assessment.

Notices issued after the expiry of the statutory period under Section 25(1) are unsustainable; the proviso extending time for completion does not revive lapsed assessments.

Validity and scope of power to extend limitation under Section 25B - proviso extending period for completion cannot revive lapsed assessments - Whether orders under Section 25B (power of Deputy Commissioner to extend period for completion of assessment) can validate notices or assessments initiated after the expiry of the limitation in Sections 24 and 25. - HELD THAT: - Section 25B confers power to extend the period for completion of assessment, but does not alter the character of the limitation in Sections 24 and 25, which is for initiation ('proceed to determine'). Where the period for initiation has expired, invoking Section 25B after the expiry cannot cure the defect. The reasoning in State of Kerala v. Abhilash T. Mathew supports the requirement that extension of limitation, insofar as it prejudices the assessee, cannot be effected without appropriate procedural safeguards. The Court found no valid basis to sustain notices or assessments predicated on post limitation extensions under Section 25B.

Permissions under Section 25B cannot be invoked to revive or validate notices/assessments where the statutory period for initiation had already expired; such extensions are hit by limitation.

Requirement of natural justice (audi alteram partem) when extending limitation - Whether the exercise of power to extend the period for assessment under Section 25B must satisfy principles of natural justice by affording the assessee an opportunity of hearing. - HELD THAT: - The Court held that where the departmental exercise of extending limitation has civil consequences for the assessee, the principles of natural justice must be read into the provision unless expressly excluded. Authorities (including Mohinder Singh Gill, Swadeshi Cotton Mills, and Sahara India decisions) establish that silence in the statute does not automatically exclude a hearing requirement where grave civil consequences flow. Therefore Section 25B must be construed to require that the assessee be informed of the reasons for extension and afforded an opportunity to be heard; a purely subjective, post decisional extension without notice would be vitiated.

Section 25B must be applied in a manner consistent with natural justice; extensions affecting assessee's rights require notice and an opportunity to be heard.

Retrospective effect of amendment by substitution - Whether the substitution increasing the limitation period from five to six years operates retrospectively to revive assessments for which the five year period had already expired. - HELD THAT: - After surveying Supreme Court authorities, the Court rejected the proposition that a substitution is invariably retrospective. Retrospectivity of an amendment by substitution depends on clear legislative intent or necessary implication. Absent express words, a validating clause, or an unmistakable intendment, the substituted limitation cannot be given retrospective effect to reopen assessments already barred by limitation. The amendment substituting five years with six years did not expressly or by necessary implication revive previously lapsed assessments, and no validation clause was enacted to cure prior lapses.

The substitution increasing limitation from five to six years does not apply retrospectively to revive assessments already time barred under the earlier five year period.

Final Conclusion: The appeals of the State are rejected. The High Court's common judgment (05.10.2016) and the individual writ petition judgments in Groups A, B and C are upheld: notices issued after the statutory period for initiation under Section 25(1) are unsustainable; Section 25B cannot be used to revive time barred initiation and must be applied consistent with natural justice; and the substitution extending limitation from five to six years does not retrospectively validate lapsed assessments. Parties shall bear their own costs.