TaxTMI Updates e-Newsletter
Aug 31,2016

Arm's length price - Comparable Uncontrolled Price (CUP) method - Transactional Net Margin Method (TNMM) - reasons for selection of transfer pricing method - remand for fresh assessment - determination of depreciation claim - allowability of sales tool expenses

Comparable Uncontrolled Price (CUP) method - Transactional Net Margin Method (TNMM) - reasons for selection of transfer pricing method - arm's length price - Whether the Tribunal was correct in remitting the transfer pricing issues to the TPO on the ground that the TPO failed to give reasons for discarding the CUP method in favour of TNMM for the appellant's international transactions. - HELD THAT: - The TPO's assessment addressed 12 international transactions for which the assessee had applied CUP and/or TNMM. For nine of the transactions the TPO's order contains no discussion explaining why the CUP method was discarded; for the remaining three transactions the reasons are vague and non-specific. Section 92-C requires determination of arm's length price by applying prescribed methods; where more than one permissible method has been applied by the assessee, the TPO must give reasons for preferring one method over others because such choice may prejudice the assessee. The absence of transaction-specific reasons rendered the TPO's order inadequate. The Tribunal therefore correctly remitted the matter to the TPO for fresh assessment to decide, with reasons, whether CUP or another method is applicable for each distinct international transaction.

Tribunal's remand to the TPO upheld; matter remitted for fresh assessment with directions to record transaction-specific reasons for accepting or discarding the CUP method and to determine arm's length price in accordance with law.

Transactional Net Margin Method (TNMM) - arm's length price - remand for fresh assessment - Whether abnormal operating expenses should be adjusted while determining net operating margins under TNMM. - HELD THAT: - The High Court declined to express an opinion on this question because it has upheld the Tribunal's remand directing the TPO to reconsider the choice of method and determine arm's length prices afresh. Any determination on adjustment of abnormal operating expenses is to follow the fresh assessment; the appellant remains free to raise the issue again after the fresh order is passed.

No opinion at this stage; issue to be decided in the fresh assessment and shall stand determined in that order.

Determination of depreciation claim - remand for fresh assessment - Allowability of depreciation on moulds. - HELD THAT: - The Tribunal remitted the matter to the TPO, observing that the TPO had reduced the rate of depreciation following views taken in preceding years; the appellate fate of those prior views was not before the Tribunal. The appellant informed the Court that the TPO's earlier views were subsequently reversed in appeal. Given the Tribunal's remand and the stated appellate reversal of prior views, the High Court declined to interfere with the Tribunal's course of remitting the issue to the TPO for fresh consideration.

Issue remitted to the TPO for fresh consideration in accordance with law; High Court does not interfere.

Allowability of sales tool expenses - remand for fresh assessment - Allowability of sales tool expenses. - HELD THAT: - The Tribunal remitted this matter to the TPO because the TPO disallowed sales tool expenses following views taken in preceding years and the parties could not point to the appellate outcome of those views. The appellant stated that the TPO's earlier position was reversed on appeal. In these circumstances the Tribunal's remand was not faulted and the High Court declined to intervene, leaving the matter to be reconsidered by the TPO in the fresh assessment.

Issue remitted to the TPO for fresh consideration in accordance with law; High Court does not interfere.

Final Conclusion: The appeal is dismissed. The Tribunal's remand to the TPO for fresh assessment to record transaction-specific reasons for accepting or discarding the CUP method and to determine arm's length prices is upheld; consequential and related issues (including adjustment of abnormal operating expenses, depreciation on moulds and sales tool expenses) are left to be decided in the fresh assessment.

Short-term capital gain vs Long-term capital gain - Date of acquisition/right of ownership for capital gains - Effect of occupation certificate and completion of payment on period of holding - Deduction under section 54EC

Short-term capital gain vs Long-term capital gain - Date of acquisition/right of ownership for capital gains - Effect of occupation certificate and completion of payment on period of holding - Sale of the industrial gala is to be treated as a long-term capital asset and the gain assessed as long-term capital gain. - HELD THAT: - The assessee acquired rights under a registered sale agreement dated 27.03.1994 and complied with the payment schedule, completing all payments by financial year 1998-99. An occupation certificate was issued on 10.03.1998. Merely that the builder retained physical keys for maintenance until 01.01.2005 did not defeat the assessee's ownership or extend the period of holding. The Tribunal held that the relevant date for determining period of holding is the date on which the assessee's ownership/right crystallised-fortified by the registered agreement, completion of contractual payments and issuance of occupation certificate-not the later handing over of keys. On these facts the assessee held the asset for more than three years prior to sale in FY 2005-06; consequently the gain is long-term and the computation of long-term capital gain shown by the assessee is accepted, with consequent entitlement to deductions such as under section 54EC. [Paras 7, 9]

Assessee's ground allowed; sale treated as long-term capital asset and LTCG accepted, with consequential deduction(s).

Final Conclusion: Both appeals are allowed: the sale is held to give rise to long-term capital gain (sale in FY 2005-06), the assessee's computation of LTCG is accepted and consequent deductions (including under section 54EC) follow.

Deduction under section 10AA - deduction under section 10B - exclusion of freight and insurance from export and total turnover - product development expenditure - revenue or capital nature - disallowance under section 14A read with Rule 8D - provision for leave encashment - deductibility - expenditure under section 37(1) - corporate social responsibility benefiting employees - capitalisation of licensed software - revenue treatment - foreign travel expenses - revenue v. capital in relation to acquisition of machinery - PMS (Portfolio Management Service) fees - deduction while computing capital gains - classification of fixtures/stainless-steel items as plant and machinery - functional test

Deduction under section 10AA - Receipts from Akorn Inc. for development/exclusive marketing rights are not 'profits and gains derived from the export' and are not eligible for deduction under section 10AA. - HELD THAT: - A conjoint reading of the MOU, Development and Exclusive Distribution Agreement and Development Funding Agreement shows the payments were for exclusive marketing rights and milestone-based development funding, not direct proceeds of export sales. The Tribunal applied the distinction between amounts 'derived from' export and amounts merely 'attributable to' export, relying on authoritative precedents that 'derived from' has a narrower meaning and requires a direct nexus with export sales. Since the receipts do not constitute profit directly arising from export of articles but are consideration for marketing rights/development, they fall outside the ambit of section 10AA. [Paras 9]

Claim for deduction under section 10AA on the receipts from M/s. Akorn Inc. denied.

Deduction under section 10B - Delayed realisation of export proceeds for which extension was sought must be allowed for computing export turnover for deduction under section 10B where facts are similar to the coordinate bench decision previously in assessee's case. - HELD THAT: - The assessee had applied for extension and subsequent realisation of export proceeds occurred. The Tribunal followed its coordinate-bench precedent (relying on the Bombay High Court decision in Morgan Stanley Advantage Services Pvt. Ltd.) where delayed receipts, for which extension applications remained neither rejected nor declined and inward remittances were recorded by RBI, were held to be includible for 10B. No distinguishing facts were placed on record for the year under appeal. [Paras 13]

Assessing Officer directed to allow deduction under section 10B in respect of the delayed export realisation.

Disallowance under section 14A read with Rule 8D - Issue remanded to the Assessing Officer for verification whether interest-bearing funds were diverted for making investments; remand limited to factual verification under law and relevant precedents. - HELD THAT: - The assessee contended investments were made from own interest-free funds and that borrowings were not diverted for investments. The Tribunal found the matter required fresh factual verification of the linkage between borrowings and investments in light of the decision of the Bombay High Court in Reliance Utilities and Power Ltd., and accordingly directed the AO to verify and decide afresh in accordance with law. [Paras 16]

Matter remanded to the Assessing Officer for limited verification and fresh decision on disallowance under section 14A r.w. Rule 8D.

Provision for leave encashment - deductibility - Disallowance of provision for leave encashment upheld in view of earlier coordinate-bench and High Court authority; assessee conceded follow-on position. - HELD THAT: - The Tribunal noted that the issue had been decided against the assessee in an earlier Tribunal order and that relevant High Court authorities (Exide Industries Ltd. and Universal Medicare) were adverse to the assessee. The assessee did not press the ground and conceded that the matter be decided in line with earlier orders. [Paras 18]

Ground dismissed; disallowance of provision for leave encashment maintained.

Expenditure under section 37(1) - corporate social responsibility benefiting employees - Contribution to village water supply project was allowable under section 37(1) where it benefitted the assessee's employees/workers; addition deleted. - HELD THAT: - The assessee demonstrated that several employees/workers resided in the village benefiting from the water project and that the contribution discharged corporate social responsibility without diversion of funds. The Tribunal followed its coordinate-bench precedent where contributions for schools benefiting employees were allowed under section 37(1), and held that benefit to employees suffices even if the public at large also benefits. [Paras 22]

Addition of the contribution deleted; expenditure allowed under section 37(1).

Capitalisation of licensed software - revenue treatment - Expenditure on acquisition of Microsoft XP and MS Office licensed software is revenue in nature and not capital, therefore allowable as revenue expenditure. - HELD THAT: - The software purchased were off-the-shelf licensed products requiring frequent upgrades and not enduring assets. Relying on the Delhi High Court precedent (G.E. Capital Services Ltd.), the Tribunal held that such software are not enduring capital assets and the accounting treatment of capitalisation is not determinative; the expenditure is revenue in nature. [Paras 25]

Expenditure on licensed software treated as revenue expenditure.

Foreign travel expenses - revenue v. capital in relation to acquisition of machinery - Foreign travel expenses incurred in connection with finalising purchase of machinery are capital in nature where the assessee itself treated them as part of cost of machinery and purchase was completed subsequently; ground dismissed following coordinate-bench precedent. - HELD THAT: - The assessee had alternatively sought capitalization and the AO had allowed depreciation; later a rectification disallowed the amount. The Tribunal observed that assessee's own correspondence indicated the foreign tours were undertaken for purchase of machinery and that such expenditure should form part of the cost of machinery when capitalised; earlier Tribunal decisions in the assessee's own case supported treating the expenditure as capital. [Paras 29]

Disallowance upheld; foreign travel expenses treated as capital (not allowable as revenue expenditure).

PMS (Portfolio Management Service) fees - deduction while computing capital gains - PMS fees paid for management of investments are allowable deduction against capital gains in computing capital gains in the facts of assessee's case. - HELD THAT: - The Tribunal followed its coordinate-bench precedent in the assessee's own case (and KRA Holding & Trading) where portfolio management fees were held to be cost associated with investment and allowed as deduction for computing capital gains, observing that where two views are possible the view favourable to the assessee and tribunal precedent in the assessee's favour should be followed until reversed by a higher court. [Paras 32]

PMS fees allowed as deduction while computing capital gains; addition deleted.

Classification of fixtures/stainless-steel items as plant and machinery - functional test - Stainless-steel tables, stools, racks and similar items used in laboratory/manufacturing were properly classified as plant and machinery applying the functional test. - HELD THAT: - The Tribunal applied the functional test: if items are necessary for production or processing in the laboratory and are used in that function, they fall in the block of plant & machinery. The coordinate-bench decision in the assessee's earlier year applied the functional test and found revenue had not shown contrary facts; the Tribunal followed that precedent and accepted the assessee's classification. [Paras 36]

Reclassification in favour of the assessee - items treated as plant and machinery.

Exclusion of freight and insurance from export and total turnover - Freight and insurance charges are to be excluded from both export turnover and total turnover for computation of deduction under sections 10B and 10AA. - HELD THAT: - The CIT(A) followed the Special Bench decision in ITO v. Sak Soft Ltd. and the Bombay High Court decision in Gem Plus Jewellery India Ltd., concluding that freight and insurance should be excluded symmetrically from numerator and denominator when computing the percentage-based deduction, and the Tribunal found no infirmity in that approach. [Paras 50]

Assessing Officer directed to exclude freight and insurance from both export turnover and total turnover for section 10B/10AA computations.

Final Conclusion: The Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal: receipts from Akorn Inc. are not eligible for section 10AA; delayed export realisations allowed for section 10B; product development expenditure held revenue in nature; section 14A disallowance remanded for limited verification; provision for leave encashment disallowance sustained; contribution to village water project allowed under section 37(1); licensed software expenditure treated as revenue; foreign travel in relation to machinery purchase treated as capital; PMS fees allowed against capital gains; certain laboratory stainless-steel items upheld as plant and machinery; and freight and insurance excluded from both export and total turnover for section 10B/10AA computations.

Tax deduction at source under section 194C - Disallowance under section 40(a)(ia) - Verbal or temporary hiring arrangements and existence of contract - Evidence of contract or creditworthiness in relation to trade creditors - Use of section 133(6) notices and consequences of non-response

Tax deduction at source under section 194C - Disallowance under section 40(a)(ia) - Verbal or temporary hiring arrangements and existence of contract - Whether payments made to dumper/driver owners procured from market through brokers, under temporary hiring arrangements, attracted liability to deduct tax at source under section 194C and thereby warranted disallowance under section 40(a)(ia). - HELD THAT: - The Tribunal examined the factual matrix and found that, while the assessee had regular contracts and deducted TDS in respect of certain hire payments, the payments totaling the disputed amount related to purely temporary market procurements arranged through brokers without any written or verbal contract evidencing that those parties undertook to perform part of the assessee's contracted work or to bear risk or responsibility under the principal contracts. The Tribunal held that in the absence of material showing that these dumper owners/drivers entered into contracts (verbal or written) with the assessee for carriage as part of the assessee's contractual obligations, section 194C(2) could not be invoked and disallowance under section 40(a)(ia) was not justified. The Tribunal followed the decision of the jurisdictional High Court in CIT v. Stumm India and concluded that the AO had not established contractual obligations giving rise to TDS liability in respect of the disputed payments. [Paras 2]

Disallowance under section 40(a)(ia) in respect of the disputed vehicle hire payments deleted; no TDS liability under section 194C on those temporary market procurements.

Evidence of contract or creditworthiness in relation to trade creditors - Use of section 133(6) notices and consequences of non-response - Whether the closing balances outstanding to three sundry vehicle-hire creditors should be treated as taxable additions because the creditors did not respond to notices under section 133(6). - HELD THAT: - The Tribunal accepted the CIT(A)'s reasoning that the AO had allowed payments made during the year to the three creditors as genuine and had not disputed their identity or the genuineness of transactions, yet added back only the outstanding closing balances without conducting further enquiries into creditworthiness. The Tribunal found this approach illogical and noted that if the AO had doubts about creditworthiness he could and should have made further enquiries; mere non-response to section 133(6) notices, in the circumstances, did not warrant treating the outstanding trade creditors as inadmissible. The Tribunal relied on relevant precedent and the CIT(A)'s considered findings that the addition was not justified. [Paras 3]

Addition of closing balances of the three sundry creditors deleted; ground raised by revenue dismissed.

Final Conclusion: Revenue's appeal dismissed: (i) disallowance under section 40(a)(ia) for the disputed temporary vehicle-hire payments deleted as no contractual obligation attracting section 194C was established; and (ii) addition of closing balances of three trade creditors deleted for lack of sufficient enquiry and justification.

Validity of notice under section 148 / reassessment - Escapement of income - reason to believe - Limitation for completion of reassessment - Set-off of business loss against capital gains - Existence of business activity and evidentiary onus - Bifurcation of sale consideration between land and building

Validity of notice under section 148 / reassessment - Escapement of income - reason to believe - Reassessment notice issued under section 148 was validly issued and reassessment proceedings were maintainable. - HELD THAT: - The Tribunal upheld the AO's action in issuing notice under section 148. It found that notice was issued on 21/12/2009 when no original proceedings under section 143(2) were pending and therefore reassessment was not initiated during pendency of original assessment. The recorded reasons relied on information that returns were not filed for several years, which could reasonably lead the AO to form a belief that income had escaped assessment; the AO is not required to conclusively prove escapement at the notice stage. Reliance was placed on precedent recognising that the AO need only have a reason to believe supported by information collected in the course of official duties. The Tribunal rejected the assessee's reliance on Kelvinator as misplaced in the facts of the case. [Paras 6]

Reassessment proceedings and the notice under section 148 are valid; grounds challenging initiation of reassessment are dismissed.

Limitation for completion of reassessment - The plea that the assessment order is barred by limitation was rejected for want of demonstration. - HELD THAT: - The assessee raised a bald contention that the assessment was time-barred but failed to demonstrate facts showing how limitation applied. The Tribunal recorded that no substantiation was provided to establish that the order was barred by time and therefore the contention was rejected. [Paras 6]

Claim that assessment is barred by limitation is dismissed.

Set-off of business loss against capital gains - Existence of business activity and evidentiary onus - Business loss claimed by the assessee cannot be allowed or set off against capital gains for AY 2007-08 for lack of evidence of business activity and stock valuation. - HELD THAT: - On merits the Tribunal agreed with the AO and CIT(A) that the assessee failed to produce independent evidence to prove existence and valuation of alleged stock or other materials of business activity during the relevant previous year. The absence of sales tax invoices, transport details and particulars of valuers or valuation method led to the conclusion that the assessee did not discharge the onus of proof. Consequently, the returned business loss could not be accepted or set off against capital gains. [Paras 7]

The claim for set-off of the business loss is rejected for want of evidentiary proof of business activity and stock valuation.

Bifurcation of sale consideration between land and building - The Tribunal declined to interfere with the AO's bifurcation of sale consideration between land and building. - HELD THAT: - The assessee did not demonstrate before the Tribunal any error in the AO's computation or working in bifurcating the consideration between land and building. In the absence of any substantiation showing the AO's treatment to be incorrect, the Tribunal found no reason to disturb the CIT(A)'s confirmation of the AO's approach. [Paras 7]

The bifurcation made by the AO stands; no interference with the order of the CIT(A).

Final Conclusion: All grounds of appeal raised by the assessee are dismissed and the appeal is dismissed.

Limitation bar to levy of penalty - Penalty under Section 271D and 271E of the Income Tax Act - Invocation of penalty after six months - Setting aside penalty on limitation ground

Penalty under Section 271D and 271E of the Income Tax Act - Limitation bar to levy of penalty - Invocation of penalty after six months - Penalty imposed on the respondent under Section 271-D and 271-E was invalid because the provisions were invoked after the six-month limitation period. - HELD THAT: - The High Court set aside the penalty on the ground that the provisions of Section 271-D and 271-E were invoked after six months of limitation and therefore the penalty could not be imposed. The Supreme Court upheld that conclusion and sustained the High Court's decision on this ground alone, observing that it was unnecessary to decide other contested questions of law. Consequently, the penalty was held not to be maintainable due to the limitation bar.

Penalty set aside as invoked after six months; appeal dismissed on this ground, other legal questions left open.

Final Conclusion: The appeal is dismissed on the ground that the penalty under Sections 271-D and 271-E was invoked after the six month limitation period and therefore could not be imposed; other questions are left open. No order as to costs.

Deduction under section 80-HHC - inflated purchases - standard input-output norms - addition on account of unexplained investment - statement of production manager as evidentiary basis - penalty under section 271(1)(c) - transfer pricing / arm's length price adjustment - followed precedent of ITAT in M/s. Gujarat Woolen Felt Mills

Inflated purchases - standard input-output norms - addition on account of unexplained investment - statement of production manager as evidentiary basis - followed precedent of ITAT in M/s. Gujarat Woolen Felt Mills - Validity of additions made by the Assessing Officer and confirmed by the CIT(A) on account of alleged excess/deficit in raw material consumption vis a vis prescribed input output norms - HELD THAT: - The Tribunal had deleted the additions after applying the principle in the ITAT decision in M/s. Gujarat Woolen Felt Mills, where differences in consumption within permissible wastage and absence of specific material showing false claim were held insufficient for additions. The High Court examined the assessment and appellate orders and found that the Assessing Officer and CIT(A) had relied on documents and the statement of the production manager in ways that could not sustain the additions: whether the assessee followed prescribed manufacturing norms was not a matter for the Income tax authority to reappraise beyond the evidentiary record. Applying the Tribunal's precedent and on the undisputed factual matrix that the assessee claimed adherence to input output norms and production incharge affirmed consumption, the Court held the Tribunal's deletion of the additions was justified. [Paras 7, 42]

Addition on account of alleged inflated purchases and unexplained investment arising from variation with input output norms deleted; issue answered for the assessee and against the revenue.

Deduction under section 80-HHC - inclusion of interest in business profit - inclusion of income from sale of advance licence - Quantification of business profit for computing deduction under section 80 HHC, including treatment of interest received from profit of business and inclusion of 90% of income from sale of advance licence - HELD THAT: - Relying on this Court's earlier decision in Tax Appeal No. 2030 of 2009 and the Apex Court authority in Topman Exports (as applied by the Court), the High Court accepted the Tribunal's approach. The Court answered the contested questions in favour of the assessee: the disallowance of 90% of interest received was reversed as covered by precedent, and the claim to include 90% of income from sale of advance licence for computing business profit under section 80 HHC was allowed in accordance with applicable higher authority. [Paras 7]

Questions on computation of business profit for section 80 HHC (interest and sale of advance licence) answered in favour of the assessee and against the revenue.

Penalty under section 271(1)(c) - consequential penalty arising from additions - Maintainability and correctness of penalties imposed under section 271(1)(c) that were consequential to the additions which were deleted - HELD THAT: - Several penalty appeals arose as consequential to the substantive additions which the Tribunal deleted and which this Court upheld. Having accepted the deletion of the underlying additions, the Court held that penalties founded on those additions could not be sustained. The Court accordingly answered the penalty questions in favour of the assessee. [Paras 7]

Penalties under section 271(1)(c) consequential to the deleted additions are set aside; appeals dismissed by answering in favour of the assessee.

Transfer pricing / arm's length price adjustment - Matter relating to recalculation of transfer price / arm's length price (adjourned for further preparation by the revenue) - HELD THAT: - The Court recorded that the revenue's counsel had not been prepared to argue the second question in Tax Appeal No. 1182 of 2008 concerning the recalculation of transfer price/arm's length price and therefore reserved that issue for subsequent hearing. The appeal arising from the consequential penalty in Tax Appeal No. 1816 of 2008 was kept pending for the same date. [Paras 7]

Issue adjourned for further consideration on 31.8.2016; remitted for further hearing.

Final Conclusion: The High Court upheld the Tribunal's deletion of additions based on alleged variation from input output norms and consequent penalties, answered multiple related questions in favour of the assessee (including points on computation under section 80 HHC), dismissed consequential appeals as infructuous where appropriate, and adjourned the transfer pricing question for further hearing.

Penalty under section 271(1)(c) - concealment of income - furnishing inaccurate particulars of income - absence of mens rea / bona fide mistake - overriding effect of Reserve Bank of India directions under section 45Q

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - Whether penalty under section 271(1)(c) was rightly upheld by the Tribunal for the contested disallowances. - HELD THAT: - The High Court examined the assessment, appellate and Tribunal records and found that the assessment orders did not record any satisfaction of concealment or of inaccurate particulars and the initiating notices did not clearly invoke jurisdiction for concealment or inaccurate particulars. The authorities below were inconsistent and divided in characterising the claims as concealment or inaccurate particulars. Reliance on established precedents led the Court to conclude that mere disallowance of claims on merits, or the existence of a debatable view, does not ipso facto attract penalty. Where claims were made on the basis of legal provisions or prudential norms (including the assessee's reliance on Reserve Bank directions) or arose from bona fide mistakes or arguable positions, the Revenue failed to demonstrate the necessary circumstances to infer mens rea or deliberate concealment required to sustain the penalty. In those circumstances jurisdiction to levy penalty under section 271(1)(c) could not be assumed and the impugned penalty could not be sustained. [Paras 6, 7, 9]

Penalty under section 271(1)(c) as upheld by the Tribunal is quashed and set aside.

Overriding effect of Reserve Bank of India directions under section 45Q - treatment of claims made pursuant to RBI prudential norms - Whether claims made by the assessee pursuant to RBI prudential directions (by virtue of section 45Q) could be treated as a wrongful concealment attracting penalty. - HELD THAT: - The Court noted the assessee's reliance on the overriding effect of Chapter IIIB of the RBI Act as reflected in section 45Q and observed that this Court in a prior decision (Tax Appeal No. 531 of 2015) had held that RBI directions bind the assessing authority for income recognition to the extent of their overriding operation. On the facts, the claims were disclosed in the computation and supported by audit documentation and were made in the belief they followed RBI norms. Given these circumstances and settled authorities that a disclosed claim based on a plausible legal position does not constitute furnishing inaccurate particulars, the Court held that the Revenue did not establish that reliance on RBI directions amounted to concealment or inaccurate particulars warranting penalty. [Paras 6, 7]

Claims made pursuant to RBI prudential norms (section 45Q) cannot be treated as concealment or furnishing of inaccurate particulars so as to sustain penalty in these cases.

Absence of mens rea / bona fide mistake - debatable claim and burden of proof under Explanation to section 271(1)(c) - Whether the Revenue proved mens rea or failure to disclose material facts to attract Explanation (1) to section 271(1)(c). - HELD THAT: - Applying precedents which require more than a mere unsuccessful claim to impose penalty, the Court held that disallowance on merit or a bona fide or inadvertent mistake does not establish the requisite intention to conceal or furnish inaccurate particulars. The Revenue was unable to point to evidence or circumstances showing that the omissions or claims were intended to avoid tax; concurrent findings below were inconsistent and insufficient to discharge the onus of proving that explanations were not bona fide. Consequently the condition precedent for exercise of jurisdiction under section 271(1)(c) was not satisfied. [Paras 7, 8]

Absence of mens rea or proof of non bona fide explanations precludes invocation of penalty under section 271(1)(c).

Final Conclusion: The questions are answered in favour of the assessees and against the revenue; the impugned orders of the Tribunal and the CIT(A) upholding penalty under section 271(1)(c) are quashed and set aside and the appeals are allowed.

Allowability of foreign exchange fluctuation loss under Section 37 - distinction between foreign exchange losses on trade payables/receivables and losses on derivatives - applicability of CBDT Instruction No.3 of 2010 - precedent: Woodward Governor India (P) Ltd.

Allowability of foreign exchange fluctuation loss under Section 37 - distinction between foreign exchange losses on trade payables/receivables and losses on derivatives - applicability of CBDT Instruction No.3 of 2010 - precedent: Woodward Governor India (P) Ltd. - Claimed foreign exchange fluctuation loss relating to outstanding purchases and sales is allowable under Section 37 and CBDT Instruction No.3 of 2010 does not apply. - HELD THAT: - The Tribunal allowed the assessee's claim of foreign exchange loss on outstanding purchase and sales transactions as on the balance-sheet date, applying the principle in Woodward Governor India (P) Ltd. that exchange loss on such trade payables/receivables is allowable under Section 37(1). The Revenue relied upon CBDT Instruction No.3 of 2010, but the Court found that the Instruction concerns losses on foreign exchange derivatives and was therefore inapplicable to losses arising from creditors and debtors outstanding on the balance-sheet date. As the loss in question arose from purchase/sales outstanding (and not from derivative contracts), the Tribunal correctly followed the Apex Court precedent and the CBDT instruction did not govern the present facts. [Paras 5, 6, 7]

Tribunal's allowance of the foreign exchange fluctuation loss under Section 37 sustained; CBDT Instruction No.3 of 2010 held inapplicable to the facts.

Final Conclusion: The appeal is dismissed: the Tribunal correctly allowed the foreign exchange loss on outstanding trade transactions under Section 37 following the Apex Court precedent; the subsequent CBDT instruction on derivatives does not apply to the facts, and no substantial question of law is entertained.

Validity of notice under Section 148 of the Income Tax Act, 1961 - Duty to disclose all material facts to Assessing Officer - Requirement to furnish reasons for reopening and right to object - Prematurity of writ where objection to reopening is pending

Validity of notice under Section 148 of the Income Tax Act, 1961 - Duty to disclose all material facts to Assessing Officer - Invocation of Section 148 for assessment year 1993-1994 was unwarranted - HELD THAT: - The Court examined whether the Assessing Officer was justified in reopening the assessment under Section 148 in respect of technical knowhow fees, excise duty, club and guest house expenses. The record shows that the petitioner had filed the return, the assessment under Section 143(3) was completed with those heads considered, and the relevant items were disclosed in the balance-sheet and return. There was no nondisclosure or suppression of material facts by the petitioner as would justify reopening. A mere error in quantification by the Assessing Officer in the original assessment does not confer jurisdiction to invoke Section 148. In view of earlier intervention in WP No. 1280 of 2001 on similar grounds and the full disclosure made, the Assessing Officer's proposal to reopen the assessment for the stated heads is legally unsustainable.

The invocation of Section 148 in respect of assessment year 1993-1994 is quashed; the impugned notice and the reasons in support thereof are set aside.

Requirement to furnish reasons for reopening and right to object - Prematurity of writ where objection to reopening is pending - Writ petition was not premature and the petitioner was not required to await the Assessing Officer's disposal of objections in the circumstances of this case - HELD THAT: - Authorities were considered which ordinarily require that an assessee be permitted to file objections to a reopening notice and that the Assessing Officer decide those objections; similarly, some decisions treat writs filed before disposal of such objections as premature. However, in this case the reasons for reopening were placed on record in the Department's affidavit and the writ had been pending for an extended period (in excess of 16 years). The Court had earlier dealt with similar issues in WP No. 1280 of 2001. Given the factual posture, delay and prior adjudication on related issues, the Court declined to direct the petitioner to follow the departmental objection procedure and proceeded to decide the matter on merits.

The petition is maintainable notwithstanding that objections were filed before the Assessing Officer; the Court declines to remit the matter to the Assessing Officer to decide objections in the circumstances of this case.

Final Conclusion: The writ petition is allowed; the notice under Section 148 and the supporting reasons for assessment year 1993-1994 are quashed and set aside, and no costs are awarded.

Indexation of cost of construction for computation of long term capital gains - Applicability of deeming provision under 50C to determine full value of consideration and scope for independent valuation - Admissibility of contemporaneous evidence (rental income, electricity bills) to establish existence of building demolished prior to registration - Use of PWD rates as a surrogate for estimating probable construction cost where documentary proof of expenditure is absent - Reduction for physical/structural deficiencies in valuation and judicial scrutiny of DVO adjustments - Levy of penalty under 271(1)(c) - requirement of concealment or furnishing inaccurate particulars

Indexation of cost of construction for computation of long term capital gains - Admissibility of contemporaneous evidence (rental income, electricity bills) to establish existence of building demolished prior to registration - The Commissioner (Appeals) was justified in directing the Assessing Officer to allow indexation of the cost of the building in computing long term capital gains. - HELD THAT: - The Tribunal accepted the Commissioner (Appeals)'s finding that the assessee had owned and let out a residential building prior to 01.04.1981, offered rental income to tax in earlier assessment years and produced supporting documents (Income-tax returns, electricity bill). The fact that the building was demolished at the buyer's request prior to registration did not negate the prior existence of the building or the assessee's entitlement to claim indexed cost of construction. Given the appellate authority's examination of evidence and consequent satisfaction regarding existence and earlier use of the building, the Tribunal declined to interfere with that factual conclusion and upheld allowance of indexation in the computation of capital gains. [Paras 4]

Uphold Commissioner (Appeals)'s direction to allow indexation of the building's cost; Revenue appeal dismissed on this issue.

Applicability of deeming provision under 50C to determine full value of consideration and scope for independent valuation - The District Valuation Officer's (DVO) valuation adopted by the Commissioner (Appeals) as against the Sub-Registrar guideline value under section 50C was sustainable. - HELD THAT: - The Assessing Officer had initially applied sub-registrar guideline value under the deeming provision, but the Commissioner (Appeals) referred the matter to the valuation cell and considered the DVO report. The Tribunal found no infirmity in the Commissioner (Appeals) adopting the DVO's estimate as the basis for computing capital gains, noting that the Commissioner (Appeals) made a considered decision to accept the DVO figure in place of the guideline value used by the Assessing Officer. [Paras 4, 5]

Confirm Commissioner (Appeals)'s adoption of the DVO value for computation of full value of consideration.

Reduction for physical/structural deficiencies in valuation and judicial scrutiny of DVO adjustments - The Commissioner (Appeals) was entitled to reject the assessee's claim for a 25% cost adjustment for deficiencies and to accept the DVO's 5% adjustment. - HELD THAT: - The assessee contended for a larger deduction on account of deficiencies, but failed to demonstrate how such deficiencies would justify the claimed 25% reduction. The Commissioner (Appeals) examined the DVO report and the explanations and found the 5% adjustment reasonable. The Tribunal found no error in this conclusion and dismissed the assessee's cross-objection on this point. [Paras 5]

Assessee's plea for 25% cost adjustment rejected; DVO's 5% adjustment and Commissioner (Appeals)'s acceptance upheld.

Use of PWD rates as a surrogate for estimating probable construction cost where documentary proof of expenditure is absent - The Commissioner (Appeals) permissibly relied on PWD rates to estimate probable cost of construction for various periods when the assessee did not produce detailed documentary proof of the expenditure. - HELD THAT: - The assessee failed to furnish particulars and documentary evidence of construction expenditure for the years claimed. The Commissioner (Appeals) therefore used state PWD rates as a standard benchmark to arrive at a probable value and applied a 50% factor for depreciated/old construction as on 01.04.1981. The Tribunal held that the Commissioner (Appeals) recorded reasons for this approach and the estimate was a reasonable method in absence of primary particulars, so interference was unwarranted. [Paras 4, 5]

Use of PWD rates and the methodology adopted by Commissioner (Appeals) for estimating construction cost affirmed.

Levy of penalty under 271(1)(c) - requirement of concealment or furnishing inaccurate particulars - Deeming additions under 50C do not automatically sustain penalty - The Commissioner (Appeals) correctly deleted the penalty under section 271(1)(c) as there was no concealment or furnishing of inaccurate particulars by the assessee. - HELD THAT: - The Tribunal agreed with the appellate authority that additions or adjustments arising from application of deeming provision under section 50C (and related assessment differences) do not per se establish concealment or inaccurate particulars for penalty purposes. The assessee had disclosed rental income from the property in earlier years, advanced bona fide explanations about demolition at buyer's request, and furnished supporting evidence; the Commissioner (Appeals) was satisfied there was no deliberate concealment. Reliance was placed on authoritative principles that penalty cannot be automatic where factual disputes and bona fide positions exist. In view of these considerations, the Tribunal found no reason to disturb deletion of penalty. [Paras 6]

Penalty order deleted; Revenue's appeal against deletion dismissed.

Final Conclusion: The Tribunal dismissed the Revenue appeals and the assessee's cross-objection. The Commissioner (Appeals)'s findings were upheld: the DVO valuation adopted for section 50C purposes, the allowance of indexed cost of construction based on accepted evidence and PWD-based estimation, rejection of the 25% deficiency adjustment in favour of the DVO's 5%, and deletion of penalty under section 271(1)(c) were all sustained.

Re-opening of assessment under section 147/148 - reason to believe that income has escaped assessment - change of opinion doctrine - adventure in the nature of trade versus capital gains - intention at time of purchase as relevant factor

Re-opening of assessment under section 147/148 - reason to believe that income has escaped assessment - change of opinion doctrine - Validity of reopening the assessment after four years on the basis that income had escaped assessment - HELD THAT: - The Tribunal held that, after the amendment to section 147 effective 01.04.1989, the Assessing Officer is vested with power to reopen an assessment if he has a reason to believe that income chargeable to tax has escaped assessment; such belief may be formed notwithstanding that the assessee had made full disclosure in the original proceedings. The AO recorded specific factual reasons relating to aggregation of purchases, short holding period, coordinated sale to a property developer and the assessee's non-disclosure of joint purchases; on that basis the AO had reason to believe that taxable income had escaped assessment. The Tribunal found no infirmity in the CIT(A)'s conclusion affirming the reassessment, and rejected the contention that the reopening was merely a change of opinion impermissible under law. [Paras 2, 3, 6]

Reopening of assessment was valid and the CIT(A) order confirming reassessment proceedings is upheld.

Adventure in the nature of trade versus capital gains - intention at time of purchase as relevant factor - pride of possession - Whether the income from sale of the land is assessable as business income (an adventure in the nature of trade) or as exempt capital gain arising from agricultural land - HELD THAT: - Applying established principles (including the tests set out in G. Venkataswami Naidu & Co. and subsequent decisions), the Tribunal examined the cumulative circumstances: joint aggregation of several purchases, very short holding period (about eight months), coordinated sale to a real estate company, absence of any agricultural activity or claimed agricultural income by the assessee, and the assessee's trading background. These factors, taken together, indicated that the purchases were made with the intention to sell at a profit and not to hold as investment or for pride of possession. The Tribunal concluded that, although the transaction was an isolated one, it bore the hallmarks of an adventure in the nature of trade and therefore the income is taxable as business income rather than exempt capital gain. [Paras 8, 9, 10, 11]

Sale proceeds are taxable as income from an adventure in the nature of trade (business income) and not as exempt capital gains.

Final Conclusion: The appeal is dismissed: the reassessment under section 147/148 was held valid and the income from the sale of land is held to be an adventure in the nature of trade (business income) rather than exempt agricultural capital gain.

Revision under section 263 - erroneous and prejudicial to the interests of revenue - allowability of business expenses of a partner - deduction under section 80C - power to modify assessment under section 263

Revision under section 263 - allowability of business expenses of a partner - erroneous and prejudicial to the interests of revenue - Validity of invoking revisionary jurisdiction under section 263 on the ground that the assessing officer erred in allowing business expenses claimed by the assessee as a partner. - HELD THAT: - The Tribunal examined the materials placed before the AO and the assessee's written explanations showing that the assessee was a partner in several longstanding partnership firms and had incurred expenses in relation to earning partnership income. Precedents cited by the assessee (including jurisdictional authority) establish that a partner, in earning his share of partnership income, is entitled to deductions for expenditures properly incurred in that course. On the record the AO considered the submissions and allowed the expenditure; having regard to binding precedents and the nature of the submissions and evidence, the Tribunal found that the AO's act of allowing the expenditures could not be characterised as an order which was erroneous and prejudicial to the revenue. Consequently the exercise of power under section 263 on this ground was not justified and the CIT's order was quashed insofar as it set aside the assessment on this basis.

Invocation of section 263 to revise the assessment on the ground of allowance of business expenditures of the assessee as a partner was unjustified; that part of the CIT's order is set aside and quashed.

Revision under section 263 - deduction under section 80C - power to modify assessment under section 263 - Validity of invoking section 263 on the ground that the AO allowed an excessive deduction under section 80C and the appropriate corrective direction. - HELD THAT: - The Tribunal accepted that the AO had allowed a deduction under section 80C in excess of the amount properly deductible because the AO took the gross amount paid to a school instead of restricting the claim to tuition fees alone. While this error justified intervention, the Tribunal held that the CIT should have exercised the corrective power vested in him under section 263 to modify the assessment by restricting the deduction to the allowable amount rather than setting aside the entire assessment. The Tribunal therefore modified the CIT's direction: the AO is directed to restrict the deduction to the extent found allowable (as recorded by the Tribunal), instead of re-framing the assessment de novo.

CIT's invocation of section 263 on this ground is sustainable only to the extent of correcting the excessive 80C claim; the CIT's order is modified to direct the AO to restrict the deduction to the allowable amount rather than to set aside the assessment.

Final Conclusion: The appeal is partly allowed: the CIT's revision under section 263 is quashed insofar as it sought to disturb the allowance of business expenses of the assessee as a partner; in respect of the excessive section 80C claim the CIT's setting aside of the assessment is modified and the AO is directed to restrict the deduction to the allowable amount. Appeal partly allowed.

Contract for supply of labour / works contract attracting tax deduction under section 194C - contract of agency / commission attracting tax deduction under section 194H - principal-to-principal contract - principal-agent relationship - assessee in default under sections 201(1) and 201(1A) - precedent of coordinate bench of the Tribunal

Contract for supply of labour / works contract attracting tax deduction under section 194C - contract of agency / commission attracting tax deduction under section 194H - principal-to-principal contract - assessee in default under sections 201(1) and 201(1A) - precedent of coordinate bench of the Tribunal - Characterisation of payments to toll-collection agencies for purposes of TDS-whether covered by section 194H as commission (agency) or by section 194C as works contract/supply of labour, and consequent liability as assessee in default under sections 201(1) and 201(1A). - HELD THAT: - The Tribunal examined the terms of the agreements and the nature of payments and held that the agencies were engaged to provide manpower and to perform toll-collection services under their own organisational control. Consideration was computed as remuneration/wages payable to deployed personnel plus a 14% service charge, rather than as a percentage of the value of transactions. The agreements did not create an obligation or relationship of principal-to-agent; the agencies operated under their own structure and deployed staff without the assessee being bound as employer. Following the coordinate-bench decision in the assessee's own case for the earlier year, these facts fit within the scope of a contract for supply of labour / works contract and not a contract of agency or commission. Consequently, TDS was correctly deducted under the provisions applicable to work contracts (section 194C) and the assessee could not be treated as an assessee in default under sections 201(1) and 201(1A). [Paras 8, 9]

Impugned payments are taxable as payments under section 194C (works contract / supply of labour), not as commission under section 194H; therefore the assessment additions and the notice of default under sections 201(1) and 201(1A) were not sustained.

Final Conclusion: The Tribunal upheld the CIT(A) and dismissed the revenue appeals and the assessee's cross-objections, holding that payments to the toll-collection agencies fall under section 194C and not section 194H.

Tax deduction at source on interest payable to a corporation established by a State Act - Exemption from TDS by notification in respect of corporations established by a statute - TDS liability on lease premium versus characterization as rent - Timing of TDS deduction - credit or payment for interest - Service tax paid by tenant does not constitute income of landlord for TDS purposes

Tax deduction at source on interest payable to a corporation established by a State Act - Exemption from TDS by notification in respect of corporations established by a statute - Whether the assessee was obliged to deduct TDS on interest/amounts paid to NOIDA for A.Y. 2010-11 - HELD THAT: - The Tribunal, following the reasoning in the Hon'ble Allahabad High Court in CIT v. Canara Bank, held that NOIDA is a corporation constituted by the State Industrial Area Development Act and thereby falls within the category of a corporation established by a State Act which is covered by the notification under the TDS provision. Consequently, payments of the nature in dispute (interest/lease receipts) to NOIDA do not attract deduction of tax at source under the provision dealing with TDS on interest. The Tribunal rejected the Revenue's reliance on a narrower construction (distinguishing 'by' and 'under') as applied in Dalco Engineering, and accepted that the Industrial Area Development Act constitutes NOIDA such that the statutory notification exempts it from TDS; the Tribunal expressly followed the Allahabad High Court's analysis and applied it to the facts of the case. [Paras 8]

Assessee was not liable to deduct TDS on payments to NOIDA for A.Y. 2010-11; Revenue's ground dismissed.

TDS liability on lease premium versus characterization as rent - Timing of TDS deduction - credit or payment for interest - Whether payments shown related to lease premium/lease charges during A.Y. 2010-11 and therefore attract TDS under the provision dealing with rent - HELD THAT: - The Tribunal examined the payment records and financial statements and found that the bulk payment towards lease premium and stamp duty had been made in the previous year (A.Y. 2009-10) and were carried as opening work-in-progress for A.Y. 2010-11. On the material before it, no amount was shown as paid or credited as rent during A.Y. 2010-11. As there was no payment or credit of rent in the year under appeal, the TDS provision applicable to rent could not be invoked for A.Y. 2010-11. The Tribunal therefore held that Section dealing with TDS on rent was not applicable for the year in question. [Paras 10]

No TDS under the rent provision for A.Y. 2010-11 as the payments pertained to A.Y. 2009-10; Revenue's ground dismissed.

Service tax paid by tenant does not constitute income of landlord for TDS purposes - Whether service tax components payable by the tenant should be included for TDS deduction under the provision relating to fees for professional or technical services / service charges - HELD THAT: - The Tribunal accepted the CBDT clarification that service tax paid by the tenant on behalf of the landlord does not become the landlord's income and that the landlord merely acts as a collection agent for the Government. Applying that circular, the Tribunal held there was no obligation on the assessee to deduct TDS in respect of service tax components as contended by the Revenue. Consequently, the Revenue's ground seeking TDS on service-tax-related payments was rejected. [Paras 11]

No TDS obligation in respect of service tax component; Revenue's ground dismissed.

Final Conclusion: The Revenue's appeal is dismissed in respect of all grounds: (i) payments to NOIDA are not subject to TDS under the interest provision as NOIDA is a corporation established by a State Act; (ii) amounts in question were paid in A.Y. 2009-10 and do not constitute rent credit/payment in A.Y. 2010-11; and (iii) service tax paid by the tenant does not attract TDS-accordingly both the Revenue's appeal and the assessee's cross-objections are dismissed (cross-objections not pressed).

Broker liability for facilitation of import - aiding and abetting wrongful import - use of passport to obtain TR concession - retraction of statement and its credibility - penalty under Section 112B of the Customs Act - evasion of duty by undervaluation

Broker liability for facilitation of import - aiding and abetting wrongful import - use of passport to obtain TR concession - penalty under Section 112B of the Customs Act - evasion of duty by undervaluation - Appellant's liability for facilitating the wrongful import and imposition of penalty under Section 112B - HELD THAT: - The Tribunal accepted the narration given in the appellant's initial statement that he organised the import, used the passport of Shri Ashok Kumar Dhanak to clear the car under TR rules, identified the vehicle, arranged payment of customs duty and handed over the vehicle as collateral. The statement of Shri Ashok Kumar Dhanak corroborated that the appellant arranged the booking, paid expenses including duty and obtained TR concessions on the basis of the passport copy, receiving a commission. On the basis of these admissions and the corroboration, the Tribunal found a clear role of the appellant in the wrongful import and in the evasion/undervaluation that gave rise to duty demand. Consequently, the charge attracting penalty under Section 112B was held sustainable.

Appellant held liable for facilitating the wrongful import; penalty under Section 112B sustained.

Retraction of statement and its credibility - Validity and effect of the appellant's subsequent retraction of his initial statement - HELD THAT: - The appellant retracted his earlier statement by asserting a different, limited role and a transaction as broker. The Tribunal treated the retraction as an afterthought, noting that material parts of the initial statement were corroborated by the importer's statement. In view of the corroboration and the sequence of events narrated in the original statement, the Tribunal rejected the retraction and relied on the original admissions for its findings.

Retraction rejected as an afterthought and not accepted to negate the original admissions.

Final Conclusion: The appeal is dismissed: the Tribunal found the appellant played an active role in organising and facilitating the wrongful import (including use of another's passport to obtain TR concession), rejected his subsequent retraction as an afterthought, and sustained the penalty under Section 112B.

Authorized courier - revocation of registration - forfeiture of security deposit - definition clause - review of registration pursuant to Board guidelines - preemptive administrative action - re-verification and remand for fresh consideration

Forfeiture of security deposit - authorized courier - definition clause - Whether forfeiture of the appellant's security deposit was justified in the absence of any proved contravention of the Regulations. - HELD THAT: - The Tribunal found that the registration had been granted in 2009 after due process and that the show cause proceedings ultimately rested on contravention of the definition of "authorized courier". It was also an admitted fact that the appellant had not filed any courier bill or commenced operations under the registration. The Original Authority forfeited the security deposit though no contravention of the Regulations by the appellant was demonstrated. Forfeiture is a punitive measure which requires a demonstrable breach of law or regulation; absent such demonstration, the forfeiture is not justifiable. [Paras 4]

Forfeiture of the security deposit set aside as unjustified in the absence of demonstrated contravention.

Revocation of registration - review of registration pursuant to Board guidelines - preemptive administrative action - re-verification and remand for fresh consideration - Whether the revocation of the appellant's courier registration should be sustained or the matter remitted for fresh verification and decision. - HELD THAT: - The Tribunal treated the Commissioner's action as prompted by revised Board guidelines issued in 2010 and characterised the revocation as preemptive given the appellant's admitted financial difficulty and that they had not yet commenced operations. The appellant had undertaken to complete required infrastructure by December 2016. In view of these facts and the need to assess compliance with the revised requirements on evidence, the Tribunal directed re-verification of the appellant's facilities in December 2016 and ordered a fresh decision by the Original Authority on continuation of registration rather than sustaining the impugned revocation without such verification. [Paras 4, 5]

Impugned revocation set aside; matter remanded for re-verification in December 2016 and fresh consideration regarding continuation of registration.

Final Conclusion: Impugned order setting aside the registration and forfeiting the security deposit is set aside; forfeiture quashed and the matter remanded to the Original Authority for re-verification of facilities in December 2016 and fresh decision on continuation of registration.

Redemption fine - penalty - margin of profit - mis-declaration - import without special import licence - principle that the margin should be wiped out - binding effect of Supreme Court decision

Redemption fine - margin of profit - penalty - principle that the margin should be wiped out - Whether the redemption fine imposed by the adjudicating authority requires enhancement so as to equal the margin of profit claimed by the Revenue - HELD THAT: - The Tribunal noted that the respondents imported marble blocks without obtaining a Special Import Licence and mis-declared value. The Revenue sought enhancement of the redemption fine to match the margin of profit. The Tribunal observed that although the redemption fine alone was lower than the margin, the adjudicating authority had substantially enhanced the penalty. When redemption fine and penalty are aggregated, the total amount is approximately equal to the margin of profit. Applying the governing principle that the margin should be wiped out, the Tribunal held that this principle is satisfied by the combined monetary consequences already imposed, and therefore no further enhancement of the redemption fine was warranted.

No enhancement of the redemption fine; the combined penalty and fine satisfy the requirement to wipe out the margin.

Binding effect of Supreme Court decision - redemption fine - penalty - Whether the impugned orders require interference in view of this Tribunal's and the Supreme Court's earlier decisions in the Stonemann Marble Industries cases - HELD THAT: - The Tribunal referred to its earlier decision in Stonemann Marble Industries, where redemption fine and penalty were fixed at specified percentages of CIF value, and noted that the Supreme Court had upheld that decision. Applying the ratio of the Supreme Court judgment, the Tribunal found that the imposition of redemption fine and penalty in the present matters did not call for interference. The prior rulings were held to be directly applicable and supportive of maintaining the adjudicating authority's orders.

The impugned orders are upheld and do not require interference in view of the binding precedent.

Final Conclusion: The appeals filed by the Revenue are dismissed; the redemption fines and penalties imposed by the adjudicating authority are maintained since, together, they neutralise the margin of profit and are consistent with the precedent upheld by the Supreme Court.

Withdrawal of petition - Liberty to make representation - Mandated timeline for decision by administrative authority

Withdrawal of petition - Liberty to make representation - Mandated timeline for decision by administrative authority - Petition dismissed as withdrawn with liberty to file a detailed representation and directions to the respondent to decide the representation within a stipulated time and communicate the decision. - HELD THAT: - The petitioner, after making submissions regarding alleged promotional and seniority grievances, sought permission to withdraw the petition with liberty to make a detailed representation to the employer within one week. The respondent undertook to decide the representation on advance notice. The Court accepted the withdrawal and gave binding directions: the petitioner shall file a detailed representation within one week; the respondent shall decide the representation within three weeks from receipt; and the decision shall be communicated to the petitioner within one week thereafter. No adjudication on the merits of the promotional or seniority claims was undertaken by the Court. [Paras 6, 7, 8]

Petition dismissed as withdrawn; petitioner granted liberty to represent within one week; respondent directed to decide representation within three weeks and communicate the decision within one week thereafter.

Final Conclusion: The writ petition and pending application are dismissed as withdrawn; the petitioner may file a detailed representation within one week, which the respondent shall decide within three weeks of receipt and communicate within one further week.

Scheme of Arrangement in the nature of amalgamation - sanction of court - compliance with regulatory approvals - No Objection Certificate from Reserve Bank of India - FEMA compliance for non-resident shareholding - valuation and share exchange ratio - presumption of no-objection by statutory authority after lapse of period - filing and authentication of order and scheme

Scheme of Arrangement in the nature of amalgamation - sanction of court - Sanction of the Scheme of Amalgamation amongst the Petitioner/Transferee Company and the Transferor Companies and their respective shareholders and creditors. - HELD THAT: - The Court considered the Scheme filed under Sections 391 and 394 of the Companies Act, 1956, the convening of meetings and the unanimous approval by equity shareholders, secured and unsecured creditors, and the absence of any objections following statutory publication. The Regional Director's affidavit contained observations which were examined and addressed on the material placed before the Court. Having regard to the record, the Scheme was found to be fair and reasonable, not violative of law, and not contrary to public policy. There were no complaints and requisite statutory compliances were substantially fulfilled. On this basis the Court was satisfied that the Scheme deserved sanction.

The Scheme of Amalgamation is sanctioned and shall be binding on the equity shareholders, secured and unsecured creditors of the Petitioner Company and relevant authorities.

No Objection Certificate from Reserve Bank of India - FEMA compliance for non-resident shareholding - valuation and share exchange ratio - presumption of no-objection by statutory authority after lapse of period - compliance with applicable tax provisions - Sufficiency of regulatory compliances and replies to observations made by the Regional Director (RBI NOC, FEMA/NRIs, valuation reports, and Income Tax Department non-response). - HELD THAT: - The Court examined the Regional Director's observations. The Petitioner produced a copy of RBI's letter dated 16th October, 2015 granting approval subject to conditions; accordingly the Court required compliance with those terms. Regarding NRI shareholdings, the Petitioner averred that subscriptions were made on non-repatriation basis in accordance with Regulation 5 read with Schedule 4 of the FEMA (Transfer or Issue of Security by a Person Resident Outside India), 2000, and the Court found the Regional Director's concern substantially addressed. On valuation, the Petitioner explained that the management adopted the median of two valuation reports for arriving at the share price and that the shareholders approved the price; the Court found this explanation satisfactory. As to the Income Tax Department, absence of a response within the statutory period permitted the Court to presume no objection, while directing the Petitioner to comply with provisions of the Income Tax Act and Rules.

Observations of the Regional Director stand addressed; the Petitioner must comply with RBI's conditions and applicable FEMA and Income Tax Act requirements as directed.

Filing and authentication of order and scheme - lodging for stamp adjudication - electronic filing with Registrar of Companies - Ancillary procedural directions consequential to sanction (payment to Central Government counsel, lodging for stamp adjudication, authentication and filing with Registrar of Companies, and dispensation of drawn up order and certain schedules). - HELD THAT: - The Court directed payment of professional charges to the Assistant Solicitor General. It ordered lodging of the authenticated order and Scheme with the Superintendent of Stamps for adjudication, directed electronic filing of this Order and the Scheme with the Registrar of Companies using EForm INC-28, dispensed with drawing up and filing of the schedule of immovable properties for the Transferor Companies whose registered offices are in Maharashtra, and dispensed with issuance of a drawn up order while requiring authorities to act on the authenticated copy.

The Petitioner shall comply with the procedural directions: pay the prescribed professional charges, lodge the authenticated order and Scheme for stamp adjudication, file electronically with the Registrar of Companies, and follow the Court's dispensation regarding drawn up order and schedules.

Final Conclusion: The petition is allowed to the extent of sanctioning the Scheme of Amalgamation; the Scheme is binding on the stakeholders and the Petitioner is directed to comply with the RBI conditions, FEMA and Income Tax Act requirements and to carry out the procedural filings and actions as ordered.

Sanction of Scheme of Demerger - binding on members and creditors - appointed date - transfer of assets and liabilities - compliance with Income Tax Act, FEMA and RBI guidelines - compliance with Accounting Standard AS-14 - sanction under Sections 391 to 394 of the Companies Act, 1956 - filing for registration with the Registrar of Companies - costs awarded

Sanction of Scheme of Demerger - binding on members and creditors - appointed date - sanction under Sections 391 to 394 of the Companies Act, 1956 - Scheme of demerger of the non-foundry undertaking of the petitioner-company to the transferee company was sanctioned and declared binding on the company, its members and creditors with effect from the appointed date 1st April 2016. - HELD THAT: - The Court found that meetings of equity shareholders, preference shareholders, secured and unsecured creditors were convened and the scheme was unanimously approved; the petition was admitted and the hearing advertised as directed, with no objections received. The Court observed that the concerns raised by the Regional Director did not preclude sanction because the petitioner filed an affidavit undertaking to address those observations and no other objections exist. Applying the provisions under Sections 391-394 framework, the scheme was held to be in the interest of the company and its members and not prejudicial to public interest, and therefore was sanctioned effective from the appointed date. [Paras 5, 6]

Scheme of demerger sanctioned and declared binding with effect from 1st April 2016.

Compliance with Income Tax Act, FEMA and RBI guidelines - compliance with Accounting Standard AS-14 - transfer of assets and liabilities - Observations of the Regional Director regarding statutory compliances, disclosure of assets and liabilities and adherence to AS-14 were addressed by the petitioner and do not preclude sanction of the scheme. - HELD THAT: - The Regional Director's affidavit recorded concerns that the petitioner should comply with the Income Tax Act, FEMA and RBI guidelines, that the entire list of assets and liabilities proposed to be demerged be clearly disclosed, and that AS-14 be complied with; it also suggested Clause 6 benefits be extended to all employees. The petitioner filed an affidavit undertaking compliance with the cited statutes and guidelines, confirming that clause 3 of the scheme transfers all assets and liabilities of the non foundry undertaking, undertaking to comply with AS 14, and clarifying that Clause 6 benefits would extend to all employees. On this basis the Court held that the Regional Director's observations were taken care of and did not bar sanction. [Paras 3, 4]

Petitioner's undertakings on statutory compliance, disclosure of assets/liabilities and AS-14 satisfied the Court; the observations do not prevent sanction.

Filing for registration with the Registrar of Companies - Petitioner to deliver a certified copy of the sanction order to the Registrar of Companies, Gujarat at Ahmedabad for registration within 30 days or such other time as permitted by the Court. - HELD THAT: - As part of the sanction, the Court ordered compliance with the procedural requirement of furnishing a certified copy of the order to the Registrar of Companies for registration under the Companies Act, within the timeframe specified, thereby completing the statutory formalities consequent to sanctioning of the scheme. [Paras 6]

Certified copy of the order to be delivered to the Registrar of Companies for registration within 30 days or such extended time as permitted.

Costs awarded - Costs of the petition awarded to the learned Additional Solicitor General of India. - HELD THAT: - The Court exercised its discretion to award costs in the petition and specified the amount to be paid as costs to the learned Additional Solicitor General of India as part of the order disposing of the petition. [Paras 6]

Costs awarded to the learned Additional Solicitor General of India.

Final Conclusion: The High Court sanctioned the Scheme of Demerger under the Companies Act framework, declaring it binding on the petitioner and its members and creditors with effect from 1st April 2016; statutory and accounting compliance undertakings filed by the petitioner were accepted, registration with the Registrar of Companies was directed, and costs were awarded.

Admissibility of input tax credit of service tax on inter-depot transportation - place of removal for sale from depot - remand for want of further particulars regarding admissibility of credit for gardening services

Admissibility of input tax credit of service tax on inter-depot transportation - place of removal for sale from depot - Credit of service tax paid on transportation of goods from one depot to another depot of the assessee is admissible. - HELD THAT: - The Tribunal found that when goods are ultimately sold from a particular depot, that depot constitutes the place of removal for the sale. Services availed prior to the sale at that depot, including transportation of goods between the assessee's depots, are in relation to the taxable output and therefore eligible for input credit. The Tribunal relied on the precedent cited by the appellant (Brakes India Ltd. ) and applied that principle to allow credit of service tax paid on inter-depot movement of goods.

Appeal allowed insofar as it relates to credit of service tax paid on transportation of goods from one depot to another.

Remand for want of further particulars regarding admissibility of credit for gardening services - Admissibility of credit for service tax paid on gardening/maintenance services was not finally adjudicated and was remanded. - HELD THAT: - The appellants were unable to furnish or clarify the specific nature and use of the gardening services when queried by the Commissioner (Appeals) and before the Tribunal. Because essential particulars as to how the services related to the assessee's output (the appellant contended they were for pollution control) were not established, the Tribunal upheld the Commissioner (Appeals)'s decision to remit the matter to the original adjudicating authority for further enquiry and verification of particulars.

Matter remanded to the original adjudicating authority for verification and fresh consideration of admissibility of credit for gardening services.

Final Conclusion: The appeal is partly allowed: service tax credit on inter-depot transportation is allowed; admissibility of credit on gardening services is remanded for further inquiry and decision by the original authority.

Service tax on freight charges - Goods Transport Agency Service - definition of Goods Transport Agency - extended period of limitation - suppression with intent to evade - penalty under Section 78 of the Finance Act, 1994

Service tax on freight charges - Goods Transport Agency Service - definition of Goods Transport Agency - Liability to service tax on freight charges where transportation was undertaken by trucks driven by the assessee's drivers/private trucks and the assessee was registered under Goods Transport Agency service. - HELD THAT: - The Tribunal held that the appellant's plea that private trucks driven by its drivers do not fall within the scope of Goods Transport Agency was not sustainable. Reliance was placed on the legal position that the expression 'any person' in the definition of Goods Transport Agency includes individuals and that transportation undertaken by owners/operators of lorries/trucks is liable to service tax where the activity falls within the statutory definition. Applying that principle, the Tribunal found that the freight element constituted a taxable GTA service and the appellant could not evade service tax liability by treating the trucks as private or by segregating freight in invoices without discharging the tax obligation. [Paras 5]

Appellant liable to service tax on the freight charges; plea that private trucks/drivers exclude GTA liability rejected.

Extended period of limitation - suppression with intent to evade - penalty under Section 78 of the Finance Act, 1994 - Whether the show cause notice dated 15-09-2009 for the period 20-05-2008 to 16-06-2008 was barred by limitation and whether invocation of extended period and imposition of penalty were justified. - HELD THAT: - The Tribunal examined the appellant's contention that freight charges were disclosed in invoices and returns and that there was no suppression or intention to evade tax. Noting that although freight was shown in invoices, the appellant failed to discharge the service tax liability on the freight collected, the Tribunal held that the department's invocation of the extended period of limitation was proper. On that basis the demand including interest and penalty was upheld. [Paras 6, 7]

Show cause notice not time-barred; invocation of extended period of limitation and confirmation of demand, interest and penalty sustained.

Final Conclusion: Appeal dismissed; demand of service tax on freight charges, with interest and penalty, upheld for the period 20-05-2008 to 16-06-2008.

Taxable service - statutory levy / compulsory extraction - consideration for service - nexus between levy and service - authority to levy and chargeability under the taxing statute - distinction between charge under section 22 and levy under section 22A of the Airport Authority Act, 1994

Taxable service - consideration for service - statutory levy / compulsory extraction - nexus between levy and service - Whether the 'development fee' collected under section 22A of the Airport Authority Act, 1994 is a taxable service within the scope of section 65(105)(zzm) of the Finance Act, 1994. - HELD THAT: - The Tribunal held that the 'development fee' is a statutory levy imposed under section 22A for future development and is a compulsory extraction that does not confer any additional or immediate benefit on individual passengers. The levy is independent of the ordinary facilities and services described in section 12 of the Airport Authority Act and is distinct in method and purpose from charges under section 22 which may be optional and akin to consideration for services. Following the reasoning in Consumer Online Foundation and consistent authorities, the 'development fee' lacks the requisite proximate relationship to any service rendered to the passenger and hence cannot be treated as consideration for a taxable service under the definition of airport services in section 65(105)(zzm). The Tribunal therefore concluded that the levy is not liable to service tax. [Paras 12, 13, 14, 15, 16]

The 'development fee' is not a taxable service under section 65(105)(zzm) and is not exigible to service tax for the periods under adjudication.

Authority to levy and chargeability under the taxing statute - nexus between levy and service - Whether the show cause notices and the demand sustain scrutiny for failure to articulate statutory authority and the requisite nexus between the 'development fee' and a taxable service. - HELD THAT: - The Tribunal found that the adjudicating authority and the show cause notices failed to articulate the legal foundation required by the taxing statute and did not establish the necessary nexus showing that the collections constituted consideration for a taxable service. The adjudicating authority neglected the Tribunal's remand directions to examine whether the statutory levy could be characterised as consideration for a service and proceeded without addressing the determinative legal questions; consequently the notices and demands were held untenable on this ground as well. [Paras 6, 7]

The show cause notices and consequential demand are unsustainable for want of proper articulation of statutory authority and absence of nexus between the levy and any taxable service.

Final Conclusion: The impugned adjudication is set aside; the Tribunal holds that the 'development fee' collected under section 22A of the Airport Authority Act, 1994 is not a taxable service under the Finance Act and that the show cause notices and demands fail for lack of statutory articulation and nexus. Appeals disposed with consequential relief.

Claim for refund of excise duty - Admissibility of post clearance trade/turnover discounts - Doctrine of unjust enrichment as bar to refund - Presumption under Section 12 B that incidence of duty has been passed on to the buyer - Refund payable to applicant or credit to the Consumer Welfare Fund under proviso to Section 11 B(2)

Admissibility of post clearance trade/turnover discounts - Claim for refund of excise duty - Turnover/trade discounts evidenced by post clearance credit notes can qualify as admissible deductions and support a refund claim where the scheme of discount is agreed prior to removal. - HELD THAT: - This Court affirmed that discounts given by normal commercial practice and known to the buyer at the time of purchase are not to be disallowed merely because credit notes are issued after clearance. Union of India v. Bombay Tyre (and this Court's earlier decision in Addison & Co. Ltd.) establish that trade discounts need not appear on the invoice at time of clearance to be deductible. Therefore the existence of credit notes raised post clearance does not, by itself, disentitle the claimant to seek refund if other conditions for refund are satisfied. [Paras 14]

Post clearance credit notes evidencing turnover/trade discounts may be the basis for a refund claim when the discount scheme was known at the time of removal.

Doctrine of unjust enrichment as bar to refund - Presumption under Section 12 B that incidence of duty has been passed on to the buyer - A refund of excise duty will be refused where the claimant has passed on the incidence of duty to another person, since allowing refund would result in unjust enrichment of the claimant; the statutory presumption under Section 12 B operates unless rebutted. - HELD THAT: - Section 11 B requires the claimant to establish that the amount of duty was paid by him and that the incidence of such duty had not been passed on. Section 12 B creates a rebuttable presumption that the incidence has been passed on to the buyer. Where the claimant admits or is shown to have passed the duty burden downstream, permitting refund to the claimant would permit collection of the same duty from both the buyer and the State, contrary to the doctrine of unjust enrichment as explained in Mafatlal Industries. If the person who actually bore the burden can be identified, that person is the proper claimant; if not, the amount can be credited to the Consumer Welfare Fund. [Paras 16, 17, 23]

Refund cannot be granted to a claimant who has passed on the incidence of duty; such a refund would cause unjust enrichment and is to be refused.

Refund payable to applicant or credit to the Consumer Welfare Fund under proviso to Section 11 B(2) - Scope of the term 'buyer' in proviso to Section 11 B(2) - The proviso to Section 11 B(2) contemplates refunds relatable to the manufacturer, the buyer (which may include downstream buyers/ultimate consumers), or any notified class; the buyer in clause (e) is not confined to the first buyer from the manufacturer. - HELD THAT: - A plain reading of clauses (d), (e) and (f) shows refunds under the proviso are payable where the amount is relatable to duty paid by the manufacturer, a buyer (not restricted to the first buyer), or a notified class. This Court, following the Larger Bench in Mafatlal Industries, held that the ultimate consumer can, in principle, be the person entitled to refund if he establishes he bore the burden, and that where the ultimate claimant cannot be identified the amount may remain in the Consumer Welfare Fund for consumer benefit. The Revenue's contention that enquiry need not extend beyond manufacturer and first buyer was rejected; verification to ascertain who bore the duty may be necessary. [Paras 17, 18, 19, 21]

Clause (e) of the proviso to Section 11 B(2) covers buyers downstream; verification to ascertain whether the duty burden was passed on may be required and, if the person who bore the burden cannot be identified, the refundable amount may be credited to the Consumer Welfare Fund.

Claim for refund of excise duty - Doctrine of unjust enrichment - On the facts of Civil Appeal No. 8488 of 2009, where the assessee produced evidence that it had borne the duty and returned the excess duty to buyers (certified and supported by credit notes), the assessee was entitled to refund. - HELD THAT: - The Court distinguished the factual matrix of this case from others where the duty had been passed on and remained with downstream purchasers. Here there was no dispute (apart from initial scepticism about documentary genuineness) that the assessee bore the incidence and had returned the excess duty; the appellate authorities and the Tribunal accepted the evidence. Where the claimant demonstrably bore the duty, refund is not barred by unjust enrichment. [Paras 35, 36]

Revenue's appeal dismissed and refund allowed on facts where assessee proved it bore and returned the excess duty.

Final Conclusion: The appeals concerning refund claims based on post clearance trade/turnover discounts were governed by two principles: admissibility of such discounts as deductions if the discount scheme was known at removal, and the bar of unjust enrichment where the claimant has passed on the duty burden. The Court set aside the Madras High Court's contrary view, held that refund cannot be granted to a claimant who has passed on the incidence of duty (with amounts in such cases liable to be credited to the Consumer Welfare Fund unless the proper claimant is identified), and affirmed that where an assessee proves it bore and returned the excess duty, refund is admissible (resulting in dismissal of the Revenue's appeal in Civil Appeal No. 8488 of 2009 and allowance of the Revenue's appeals in the other matters in terms of the principal judgment).

Appellate authority cannot travel beyond the show cause notice or original order - Liability to pay interest cannot be imposed where the specific penal provision was not proposed in the show cause notice - Temporal applicability of penal interest provisions to clearances made after insertion of the provision - Binding effect of a Board circular in construing retrospective application of penal interest under Section 11AB of the Central Excise Act, 1944

Appellate authority cannot travel beyond the show cause notice or original order - Liability to pay interest cannot be imposed where the specific penal provision was not proposed in the show cause notice - Whether the Commissioner (Appeals) could reject the refund claim by invoking Section 11AB though that provision was not invoked in the show cause notice or in the Order in Original - HELD THAT: - The Tribunal held that throughout the adjudication the department's case was confined to levy of interest under Section 11AA and that Section 11AB was never an issue either in the show cause notice or in the original order. The Commissioner (Appeals) could not set up a new case on behalf of the Revenue by invoking a different penal provision not proposed earlier. Established principle requires that an appellate authority cannot travel beyond the scope of the show cause notice or make out a new case for the Revenue; doing so is impermissible. In the facts of the case the impugned order proceeded on a ground not pleaded or adjudicated earlier and is therefore unsustainable. [Paras 6]

Impugned order set aside insofar as it invoked Section 11AB to reject the refund claim; the Commissioner (Appeals) erred in travelling beyond the show cause notice and original order.

Temporal applicability of penal interest provisions to clearances made after insertion of the provision - Binding effect of a Board circular in construing retrospective application of penal interest under Section 11AB - Whether interest under Section 11AB could be levied in respect of clearances made during 1984 85 to 09.05.1989 - HELD THAT: - The Tribunal relied on the Board's circular dated 26.08.2002 which clarified that Section 11AB could be invoked only in respect of clearances made after 28.09.1996, irrespective of the date of passing of the adjudication order. The clearances in the present case were admitted to have taken place during 1984 85 to 09.05.1989, long prior to insertion of Section 11AB. Applying the principle that a penal provision is not to be applied retrospectively unless expressly made so, and having regard to the binding clarification by the Board and consistent judicial decisions, the Tribunal concluded that Section 11AB could not be applied to the admitted clearances and interest under that provision could not be demanded. [Paras 6]

Interest under Section 11AB cannot be imposed in respect of the clearances made during 1984 85 to 09.05.1989; the Board circular precludes application of Section 11AB to those clearances.

Final Conclusion: The appeal is allowed; the impugned order is set aside and the refund claim is upheld because the Commissioner (Appeals) unlawfully invoked Section 11AB beyond the scope of the proceedings and, in any event, Section 11AB does not apply to clearances made during 1984 85 to 09.05.1989 in view of the Board circular and settled law.

Extended period of limitation - invocation of extended period under Section 11A of the Central Excise Act - assessable value - inclusion of gunniting charges in assessable value - contract value versus transaction value - cost of construction method - audit report reliance - suppression or mis-declaration

Extended period of limitation - audit report reliance - suppression or mis-declaration - contract value versus transaction value - Whether the extended period of limitation could be invoked to demand duty based on the contract value and related allegations of incorrect valuation. - HELD THAT: - The Tribunal examined whether the documents and facts which formed the basis of the demand were available to Revenue at the time of the audit such that invocation of the extended period was justified. The audit report specifically referred to and examined the contract and recorded that gunniting charges ought to be included in the assessable value. The DGCEI's show-cause notice likewise relied primarily on the contract to compute duty. Given that the contract (the document on which the demand was founded) had been produced before and considered by the audit party, the Tribunal found no suppression or mis-declaration by the assessee that would warrant invoking the extended period. The decision in Tigrania Metal (supra) was considered distinguishable on facts; here the revenue had the contract before it during audit and therefore could not rely on extended limitation. Accordingly the Tribunal held that extended limitation was not invocable and ordered allowance of the appeal on limitation grounds, without adjudicating the merits of valuation. [Paras 5, 6]

Extended period of limitation cannot be invoked as the contract relied upon for demand was available to and examined by the audit; appeal allowed on limitation without deciding merits.

Final Conclusion: The appeal is allowed on the ground that the extended period of limitation could not be invoked because the contract relied upon for raising the demand was produced to and examined by the audit; the Tribunal did not decide the merits of valuation.

Revisional jurisdiction - Revision by officer of the same rank - Requirement of higher rank for revisional authority - Liberty to revenue to proceed afresh in accordance with law

Revisional jurisdiction - Revision by officer of the same rank - Requirement of higher rank for revisional authority - Validity of revisionary order passed by an officer of the same rank as the appellate authority - HELD THAT: - The Court held that a revision under the departmental scheme cannot be validly exercised by an officer of the same rank as the officer who passed the appellate order. Following the Division Bench decision in M/s NVR Forgings (and earlier precedents relied upon therein), the judgment explains that revisional powers are not permissibly exercised by an officer of equal rank and that the revisional authority must be of higher rank than the authority whose order is sought to be revised. The impugned revision dated 16.12.2015 was passed by an officer of the same rank as the Commissioner (Appeals) whose order was impugned; accordingly the revisional order is legally impermissible and must be set aside. The Court granted liberty to the revenue to initiate fresh proceedings in accordance with law.

Impugned revisionary order set aside; liberty granted to the revenue to proceed afresh in accordance with law.

Final Conclusion: The revisionary order dated 16.12.2015 is set aside as having been passed by an officer of the same rank as the appellate authority; the revenue is granted liberty to proceed afresh in accordance with law. The writ petition is disposed of.

Provisional release of seized goods - bond for full assessment value - bank guarantee as security for duty - payment of duty without prejudice to contentions - precedential orders governing security for release (Navshakti line) - auto-renewal clause and RBI guidelines for bank guarantees

Provisional release of seized goods - bond for full assessment value - bank guarantee as security for duty - payment of duty without prejudice to contentions - Permissible conditions for provisional release of goods seized by DGCEI. - HELD THAT: - The Court considered the conditions communicated by the DGCEI for provisional release, namely a bond for the full assessment value and a bank guarantee/cash security of 25% of the assessable value. Relying on the petitioners' offer to furnish a bond for 100% of the assessable value and to pay the full duty without prejudice to their contentions, and having regard to the line of decisions (the Navshakti orders as applied by this Court in Balaji Solutions), the Court held that the imposition of a separate bank guarantee of 25% of the assessable value was not required. Consistent with the precedent endorsed by the Court, provisional release was ordered on the furnishing of a bond for the full assessment value and on payment of the full duty, subject to the petitioners' rights in subsequent proceedings. The Court directed communication of the order to the Central Excise Department to avoid further delay and left open the petitioners' right to seek further directions in case of non-compliance. [Paras 3, 4, 5, 6]

Goods to be provisionally released on furnishing a bond for 100% of the full assessment value and on payment of the full duty, without prejudice to the petitioners' rights; the 25% bank guarantee requirement set by DGCEI is not to be insisted upon.

Final Conclusion: Writ petitions disposed by permitting provisional release of seized goods on a bond for the full assessment value and payment of full duty (without prejudice), with directions to communicate the order to the Central Excise Department; liberty to apply to the Court in case of non-compliance.

Cenvat credit admissibility - due diligence under Rule 9(3) of the Cenvat Credit Rules, 2004 - receipt of goods with duty paying documents and recording in statutory records - knowledge/mala fide of the recipient - extended period/time bar for recovery

Cenvat credit admissibility - receipt of goods with duty paying documents and recording in statutory records - Respondent was entitled to take Cenvat credit on capital goods received along with duty paying documents which were reflected in its statutory records. - HELD THAT: - The Tribunal found on the record that the capital goods and the duty paying documents were physically received by the Respondent and shown in its statutory records. The duty documents bore the supplier's central excise registration number (suspended only with effect from 12.08.2007), and there was no material to show that the Respondent knew the supplier did not exist or that the goods were not received. In the absence of evidence that the recipient had knowledge of any falsehood or that the recipient did not actually receive the goods and invoices, the credit claimed could not be disallowed merely because the supplier allegedly lacked manufacturing infrastructure. [Paras 5, 7]

Cenvat credit rightly taken and not liable to be disallowed on the facts; appeal dismissed on merits on this point.

Due diligence under Rule 9(3) of the Cenvat Credit Rules, 2004 - verification of supplier's infrastructure - Rule 9(3) CCR does not require the recipient to verify the supplier's manufacturing infrastructure; reasonable steps under the rule are satisfied by documents showing duty and registration and by verification of supplier's existence. - HELD THAT: - The Tribunal observed that Rule 9(3) prescribes that the recipient take reasonable steps in relation to appropriate duty paid as indicated in the documents and the existence of the supplier. There is no provision in Rule 9(3) imposing a duty on the recipient to ascertain the supplier's infrastructure for manufacture. The presence of duty details and a central excise registration number on the documents satisfied the requirements under Rule 9(3), and no material was produced to show the Respondent had knowledge that the supplier lacked manufacturing facility. [Paras 5]

No failure of due diligence under Rule 9(3) is made out; Rule 9(3) does not mandate verification of supplier's infrastructure.

Knowledge/mala fide of the recipient - extended period/time bar for recovery - There was no evidence of mala fide on the part of the Respondent; accordingly the extended period for recovery could not be invoked and the demand was time barred. - HELD THAT: - Relying on the absence of any material to show that the Respondent knew that the supplier had no manufacturing facility, the Tribunal held that mala fide could not be attributed to the Respondent. Precedent was noted that confessional statements alone, without corroboration, cannot establish knowledge of fraud. As the Respondent had no proven mala fide intent when taking credit in May, 2007 and the show cause notice was issued on 22.09.2009, the extended period of limitation was not invokable and the demand was time barred. [Paras 7]

Extended period not invokable; demand is time barred and unsustainable.

Final Conclusion: Appeals by the Revenue dismissed: Cenvat credit was properly taken where goods and duty paying documents (bearing supplier's registration) were received and recorded; Rule 9(3) CCR does not require verification of supplier's manufacturing infrastructure; no mala fide on part of Respondent and the demand is time barred.

Eligibility of Cenvat credit on outward transportation up to the place of removal - Place of removal as construed from Central Excise Act applied to Cenvat Credit Rules - Revenue-neutrality of intra-company transfers of inputs - Reversal obligation under Rule 3(5) of the Cenvat Credit Rules, 2004

Eligibility of Cenvat credit on outward transportation up to the place of removal - Place of removal as construed from Central Excise Act applied to Cenvat Credit Rules - Whether service tax paid on outward transportation (GTA) of inputs/semi-finished goods transferred by the appellant to its other manufacturing units is an eligible input service for availing Cenvat credit. - HELD THAT: - The Tribunal examined whether outward transportation up to the place of removal falls within the inclusive part of the definition of input service under Rule 2(1) of the Cenvat Credit Rules, 2004. It relied on the Board's clarification that the expression 'place of removal' in the Credit Rules is to be read with the meaning assigned under the Central Excise Act and that credit of service tax paid on transportation up to a depot/place of removal is eligible irrespective of the basis of valuation for excise. The Tribunal also followed its earlier decision in the assessee's own case holding that where service tax is legitimately paid under the reverse charge or otherwise, the recipient is entitled to take Cenvat credit and denial would defeat the scheme. Applying these principles, the Tribunal concluded that outward transportation of inputs/semi-finished goods to another unit, being transportation up to the place of removal, qualifies as an input service and the credit is admissible.

Credit of service tax paid on outward transportation to the receiving unit is eligible; the impugned orders holding such credit ineligible are set aside.

Revenue-neutrality of intra-company transfers of inputs - Reversal obligation under Rule 3(5) of the Cenvat Credit Rules, 2004 - Whether the portion of service tax attributable to transportation of inputs removed 'as such' and passed on to the receiving unit can be disallowed to the transferring unit and availed by the receiving unit, thereby rendering the overall outcome revenue-neutral. - HELD THAT: - The adjudicating authority had disallowed the entire credit claimed by the transferring unit, relying on Rule 3(5) which requires reversal for inputs removed as such. The Tribunal recognised that where transportation cost and attendant service tax are passed on to the receiving unit and accounted for in the receiving unit's books, the consequence is revenue-neutral. The Tribunal observed that a small portion of the disputed credit related specifically to inputs removed as such; that credit may be disallowed in the hands of the transferring unit but can be availed by the receiving unit which actually bears the cost. Accordingly, the Tribunal confirmed only that portion of the demand which represented service tax passed on to the recipient unit and set aside the remainder of the demands.

Demand set aside except insofar as it represents service tax on transportation costs passed on to the receiving unit, which was confirmed to be disallowable in the transferring unit and available to the recipient.

Final Conclusion: The appeal is partly allowed: the Tribunal set aside the impugned orders except insofar as they related to the service tax amount representing transportation of inputs passed on to the receiving unit; that portion was confirmed against the transferring unit while the remainder of the demands was deleted, preserving the revenue-neutral treatment whereby the receiving unit may avail the credit.

Deemed manufacture - parts of automobiles - classification as automobiles for excise liability - invocation of extended period - cum-duty benefit based on transaction value - eligibility for cenvat credit of CVD on imported parts - personal penalty under Rule 26

Deemed manufacture - parts of automobiles - classification as automobiles for excise liability - Liability to central excise duty on imported parts which were repacked and sold, by virtue of deeming provision treating such activity as manufacture and the parts as parts of automobiles. - HELD THAT: - The Tribunal examined whether repacking and affixing of MRP to unit containers of imported parts amounted to 'manufacture' under the deeming fiction and whether the parts fell within the category of parts of automobiles attractable to duty. The earlier Tribunal decision in Larsen & Toubro Ltd. dealt with identical goods and activities and, after considering similar contentions, upheld excise liability. On facts and submissions in the present case the appeal on merits did not succeed; the adjudicating authority's finding that the activity amounted to manufacture and that the parts are excisable as parts of automobiles is affirmed. The appellate bench expressly followed the reasoning in the cited Tribunal decisions and found no distinguishing matter to warrant a different conclusion on liability. [Paras 8, 13]

Liability to central excise duty under the deeming provision is confirmed against the main appellant.

Invocation of extended period - Validity of invocation of the extended period of limitation for demand. - HELD THAT: - The Tribunal considered the contention that demands fell within the normal period because of earlier circulars and retrospective legislative amendment. Noting that identical arguments were rejected in Larsen & Toubro and given the appellant's position in the organised sector, the Bench held that invocation of the extended period was correct and that the extended period could be applied to the demands in this case. [Paras 8]

Invocation of the extended period is upheld.

Cum-duty benefit based on transaction value - Whether the benefit of 'cum-duty' (abatement/consideration of customs duty in valuation) should be extended when duty was demanded under Section 4A/Section 4 based on transaction value. - HELD THAT: - On examination of annexures and the valuation basis used by the lower authority, it was found that no abatement had been given and demands appeared to be raised on transaction value. Relying on settled high court practice and the approach adopted in Larsen & Toubro, the Tribunal held that if the value considered is the transaction value as per invoice, the benefit of cum-duty must be extended. Consequently, quantification of duty requires recomputation after extending the cum-duty benefit. [Paras 9]

Duty quantification must be redone after extending the cum-duty benefit where transaction value is the basis.

Eligibility for cenvat credit of CVD on imported parts - Whether the appellant is entitled to cenvat credit of CVD paid on imported parts that are subsequently treated as manufactured upon repacking. - HELD THAT: - The Tribunal held that where parts imported in bulk have suffered CVD and are thereafter deemed to be manufactured by repacking (and central excise becomes payable), the appellant cannot be denied cenvat credit of the CVD paid. The entitlement is, however, made subject to production and verification of duty-paying documents (bills of entry/duty payment evidence). For verification and adjustment of credit, the matter is remanded to the adjudicating authority for requantification after allowing eligible cenvat credit on production of requisite documents. [Paras 10, 11]

Appellant eligible for cenvat credit of CVD paid subject to production/verification of duty-paying documents; matter remanded for requantification.

Personal penalty under Rule 26 - Sustainability of personal penalty imposed on the individual officer (T. Laxmi Narayana) under Rule 26. - HELD THAT: - The adjudicating authority had summarily imposed personal penalty on the individual, recording that he was instrumental in suppression. The Tribunal found those findings to be bald and without adequate attribution of role; no specific misstatement or suppression by the officer was established and, moreover, the controversy principally involved interpretation of Central Excise provisions. Applying these considerations, the Tribunal held that personal penalty under Rule 26 was not imposable on the individual and set aside the penalty. [Paras 12]

Penalty imposed on the individual is set aside.

Requantification of duty, interest and penalty - Requirement to recompute duty liability, interest and to reconsider penalty on the main appellant after allowance of cum-duty benefit and eligible cenvat credit. - HELD THAT: - Because the Tribunal has directed extension of cum-duty benefit and allowed cenvat credit subject to verification, the quantum of duty and interest payable will change. The Tribunal therefore remanded the case to the adjudicating authority for limited proceedings to requantify duty after granting cum-duty benefit and eligible cenvat credit, to compute interest accordingly, and thereafter to determine the penalty on the main appellant in light of the revised duty liability. [Paras 9, 10, 11, 13]

Matter remanded for limited fresh adjudication on requantification of duty, interest and penalty after granting directed benefits.

Final Conclusion: On merits, excise liability under the deeming provision and classification as parts of automobiles is affirmed and invocation of extended limitation is upheld; however, quantification is set aside and remanded so that cum-duty benefit and eligible cenvat credit of CVD may be allowed upon verification, with consequent recomputation of duty, interest and penalty. The personal penalty on the individual is quashed; the main appellant's appeal is disposed of subject to the directed requantification.

Transfer of unutilized CENVAT credit on conversion from DTA unit to 100% EOU - CENVAT credit entitlement of a 100% EOU - Lapse of CENVAT credit on conversion - Effect of rescission of earlier rules and superseded circulars on transitional credit

Transfer of unutilized CENVAT credit on conversion from DTA unit to 100% EOU - CENVAT credit entitlement of a 100% EOU - Lapse of CENVAT credit on conversion - Whether on conversion of a DTA unit into a 100% EOU the unutilized CENVAT credit standing to the account of the unit at the time of conversion can be availed and utilized by the 100% EOU. - HELD THAT: - The Tribunal examined earlier decisions and contemporaneous regulatory position and concluded that there is no extant provision in the post-rescission CENVAT/Central Excise Rules which bars a 100% EOU from availing CENVAT credit accumulated while it was a DTA unit. The judgment notes that the earlier CBEC Circular which provided for lapse of unutilized Modvat/CENVAT credit on conversion was issued when the erstwhile Central Excise Rules (with Rule 100H) were in force and has lost effect after rescission and by reason of transitional provisions. The Tribunal relied on consistent precedents of this Tribunal and upholding by a High Court to hold that a 100% EOU is entitled to transfer/avail the unutilized CENVAT credit on conversion from DTA to EOU. Applying that settled position to the facts, the impugned order confirming demand was found unsustainable and set aside. [Paras 3, 5]

The appeal is allowed; the impugned order is set aside and the appellant is held entitled to transfer/avail the unutilized CENVAT credit on conversion to a 100% EOU, with consequential relief.

Final Conclusion: The Tribunal allowed the appeal, set aside the Commissioner(A)'s order, and held that a 100% EOU is entitled to the unutilized CENVAT credit standing to the account on conversion from a DTA unit, granting consequential relief.

Exemption under notification - brand name or trade name - descriptive word - connection in the course of trade - evidence of proprietary use

Brand name or trade name - descriptive word - connection in the course of trade - evidence of proprietary use - Whether the word 'Swadeshi' appearing on the packing/wrapper of the soap establishes that the goods bore the brand name/trade name of another person so as to disentitle the respondent from exemption under the notifications - HELD THAT: - The Tribunal accepted the first appellate authority's factual findings that the soaps bore the brand name 'Anuraah white' and that the wrappers expressly identified the manufacturer as G & Y Soap Works, Khopoli. The show cause notice did not demonstrate that the word 'Swadeshi' was used as a proprietary brand name of the marketing company or that the name and address of that marketing company appeared on the product. The first appellate authority held, applying the notification's definition of 'brand name or trade name', that a brand name must indicate a connection in the course of trade between the goods and some person using such name or mark, and that mere use of the descriptive word 'Swadeshi' (indicating indigenous origin) does not by itself establish such a connection. The Tribunal found no contradictory evidence on record to rebut those factual findings and observed that authorities relied upon by Revenue were distinguishable because in those cases the products or labels showed an actual link to the other party. In the circumstances the Tribunal concluded that the use of the word 'Swadeshi' on the wrapper did not convert it into the brand name of another person and therefore did not disentitle the respondent from the exemption under the notifications.

The word 'Swadeshi' on the wrapper is a descriptive term and not shown to be a brand name of the marketing company; consequently the demand cannot be sustained on that ground.

Final Conclusion: The impugned order of the first appellate authority setting aside the original demand is upheld; the appeal is rejected.

Cenvat credit on maintenance and repair services for residential staff quarters - nexus between input services and business activity - Cenvat credit on items used for making support structures of machinery - clarificatory amendment to Explanation-2 of Rule 2(k) by Notification No.16/2009-CE(NT) - penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944

Cenvat credit on maintenance and repair services for residential staff quarters - nexus between input services and business activity - Cenvat credit of services used in maintenance, repair and civil construction of the staff/residential quarters of the assessee is not admissible. - HELD THAT: - The Tribunal applied the principle that Cenvat credit of input services is permissible only where there is an established nexus between the services rendered and the business carried on by the assessee. Reliance was placed on the decision of the Hon'ble Bombay High Court in Commissioner of Central Excise, Nagpur v. Manikgarh Cement, which held that rendering taxable services at a residential colony for the benefit of employees is not an activity integrally connected with the business of the assessee and therefore does not qualify as an input service under Rule 2(l) of the Cenvat Credit Rules, 2004. On that basis the credit claimed for services in respect of staff quarters was held inadmissible. [Paras 6]

Credit denied for maintenance, repair and civil construction services relating to the residential staff quarters.

Cenvat credit on items used for making support structures of machinery - clarificatory amendment to Explanation-2 of Rule 2(k) by Notification No.16/2009-CE(NT) - Cenvat credit is not admissible on structural items used in making support structures for machines; such items fall outside inputs for manufacture of capital goods and the department is entitled to verify use but the assessee failed to establish use. - HELD THAT: - The Tribunal referred to the decision of the Hon'ble Allahabad High Court in Bajaj Hindusthan Ltd. v. UOI which observed that items specified by Notification dated 7-7-2009 (Notification No.16/2009-CE(NT)) are clarificatory and identify goods used for construction of factory sheds, buildings, laying of foundation or making of structures for support of capital goods, which were never includable as inputs for manufacture of capital goods. Further, the Tribunal noted that the appellant admitted absence of evidence to show that the structural items were used in maintenance or repair of capital goods and that on facts the department did not have material to verify the claimed use. On these grounds credit on such items was held inadmissible. [Paras 7, 8]

Credit denied for items used in making support structures for machinery; appellant failed to prove use as inputs for manufacture of capital goods.

Penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 - Penalty imposed for wrongful availment of Cenvat credit is not justified and is set aside where admissibility of credit remained a disputable question supported by contrary authorities. - HELD THAT: - Although the demand and interest confirmed by the lower authorities were sustained, the Tribunal observed that admissibility of the impugned inputs and services was a debatable issue with contrary case law available. In view of the disputable nature of the question of admissibility, the Tribunal held that the penalty imposed by the lower authorities was not warranted and therefore quashed the penalty. [Paras 9, 10]

Penalty set aside; demand and interest confirmed.

Final Conclusion: The appeal is dismissed insofar as confirmation of demand and interest is concerned; credits claimed for staff-quarter services and for items used in support structures of machinery are disallowed. However, penalty imposed under Rule 15 read with Section 11AC is quashed on account of the disputed nature of admissibility and contrary authorities.

Classification of food preparations as Homogenised composite food preparations - Classification as Food supplements under chapter heading 2106 - Interpretation and application of Note 3 to Chapter 21 - Explanatory Notes to HSN in relation to headings 21.04 and 21.06 - Invocation of extended period for recovery of duty on ground of suppression - Scope of extended period - requirement of deliberate suppression with intent to evade duty

Classification of food preparations as Homogenised composite food preparations - Classification as Food supplements under chapter heading 2106 - Interpretation and application of Note 3 to Chapter 21 - Explanatory Notes to HSN in relation to headings 21.04 and 21.06 - Whether the products 'Lever Ayush Poshak Rasayan' and 'Lever Rakshak Rasayan' are classifiable as homogenised composite food preparations under chapter 2104 or as food supplements under chapter 2106 90 99 - HELD THAT: - The Tribunal examined the wording of Note 3 to Chapter 21 and the Explanatory Notes to HSN for headings 21.04 and 21.06. Note 3 defines homogenised composite food preparations as finely homogenised mixtures of two or more basic ingredients put up for retail sale as infant food or for dietetic purposes, ordinarily in containers not exceeding 250g. The Explanatory Notes further describe such preparations as generally used as infant food or as single-meal pastes. The Tribunal found that the subject items are neither put up as infant food nor intended for dietetic purposes as required by Note 3. Conversely, the literature on the products on record indicated that they fall within the description of preparations often referred to as food supplements in the Explanatory Notes to heading 21.06 (i.e., based on plant extracts, fruit concentrates, with added vitamins and indications of maintaining general health). On these determinative features, the products do not meet the specific conditions for classification under chapter 2104 but do fall within the residual description under heading 2106 90 99. [Paras 3, 4, 6]

Products are classifiable under chapter heading 2106 90 99 and not under chapter 2104.

Invocation of extended period for recovery of duty on ground of suppression - Scope of extended period - requirement of deliberate suppression with intent to evade duty - Whether the extended period (five years) can be invoked on the ground of suppression to recover differential duty from the assessee - HELD THAT: - Revenue alleged suppression warranting invocation of the extended period. The Tribunal reviewed the record and found that Revenue did not produce specific evidence establishing deliberate suppression by the assessee with the intention to evade duty. The Tribunal accepted the finding of the Commissioner (Appeals) that there was no proof of deliberate suppression; any failure to furnish correct information amounted, at most, to an omission and not deliberate concealment. Consequently, the legal condition for applying the extended five-year period was not satisfied. The Tribunal held that differential duty can only be charged for the one-year period immediately preceding the relevant date and remanded the matter to the original adjudicating authority solely for quantification of the duty for that one-year period. [Paras 5, 6]

Extended period for five years is not invocable; differential duty can be recovered only for the one year preceding the relevant date; matter remanded for quantification for that one year.

Final Conclusion: The appeals are allowed in part: the two products are held classifiable under chapter heading 2106 90 99 (as food supplements) rather than as homogenised composite food preparations under chapter 2104, and Revenue's claim to invoke the five-year extended period for recovery is negatived for want of proof of deliberate suppression; assessment is limited to the one year preceding the relevant date and remitted to the original authority for quantification within four months.

Taxability of tinting/mixing as manufacture - Scope of manufacture under Section 2(f)(iii) in relation to goods in the Third Schedule - Packing or repacking in a unit container as constituting manufacture - Labeling or re-labelling including declaration or alteration of retail sale price - MRP-based assessment of goods specified in the Third Schedule

Taxability of tinting/mixing as manufacture - Scope of manufacture under Section 2(f)(iii) in relation to goods in the Third Schedule - Packing or repacking in a unit container as constituting manufacture - Labeling or re-labelling including declaration or alteration of retail sale price - MRP-based assessment of goods specified in the Third Schedule - Mixing of duty-paid base paint with tinters at depots and subsequent repacking and labeling is a process of manufacture and exigible to excise duty at the depot. - HELD THAT: - The Tribunal applied the definition of "manufacture" as set out in Section 2(f), noting that sub-clause (iii) expressly covers, in relation to goods specified in the Third Schedule, processes which involve packing or repacking in a unit container, labeling or re-labelling including declaration or alteration of retail sale price, or adoption of any other treatment to render the product marketable. Paint is a commodity specified in the Third Schedule and is assessed to duty on the MRP basis. The appellant undertakes mixing of base paint with tinters at depots, repacks the resultant paint into unit containers and labels them with MRP prior to sale. Those operations fall squarely within sub-section (iii) and therefore amount to manufacture. The fact that the base paint and tinters were earlier cleared on stock transfer after payment of duty on MRP does not negate that the depot operations result in a materially altered marketable product (with a higher MRP) and hence attract duty at the depot. Though a circular was cited for a contrary proposition, the Tribunal concluded on application of the statutory definition that the depot tinting, repacking and labeling are taxable manufacture and duty is exigible. [Paras 5, 6, 8]

The process of mixing base paint with tinter, followed by repacking and labeling at depots, amounts to manufacture and is liable to excise duty at the depot; the impugned order is upheld and the appeal is dismissed.

Final Conclusion: Appeal dismissed; depot-stage mixing, repacking and labeling of paint held to be manufacture under Section 2(f)(iii) in relation to Third Schedule goods and liable to excise duty, and the Commissioner (Appeals) order is upheld.

Cenvat credit on capital goods - allowability of credit where electricity generated is partly consumed in manufacture and partly sold - installation of capital goods within factory premises - denial of credit on ground of no need for additional capacity

Cenvat credit on capital goods - allowability of credit where electricity generated is partly consumed in manufacture and partly sold - installation of capital goods within factory premises - Cenvat credit availed on duty paid for Turbo Generator 3 installed in the factory premises is allowable despite part of the electricity generated being sold to the State grid. - HELD THAT: - The Tribunal found as undisputed facts that Turbo Generator 3 was purchased in 2001, installed within the factory premises and that electricity generated therefrom was consumed in the manufacture of dutiable goods; subsequently excess power was supplied to the State Government pursuant to a 2006 agreement. Applying settled authorities cited by the appellant, the Tribunal held that consumption of electricity within the factory for manufacture of dutiable goods, even if the generation is partly used for sale outside, does not disentitle the assessee from availing cenvat credit on the duty paid for the capital goods. The Revenue's contention that credit should be denied because the assessee had adequate captive capacity and therefore ought not to have acquired additional generating capacity was rejected as not governing the legal right to credit where the capital good was installed in the factory and used in producing dutiable goods. In view of the consistent judicial pronouncements relied upon, denial of credit was held to be contrary to law. [Paras 6, 7, 8]

Impugned order denying cenvat credit is unsustainable; the demand, interest and penalties confirmed below are set aside and the appeal is allowed with consequential relief.

Final Conclusion: The Tribunal allowed the appeal, set aside the adjudicating authority's order denying cenvat credit on Turbo Generator 3, and granted consequential relief to the appellant.

Determination of disputed questions - binding nature of an order of determination - finality of determination and prohibition on re agitation - revisional power of the Commissioner under subsection (2A) of section 80 - exemption notification not amounting to retrospective amendment - classification of goods and residuary clause

Determination of disputed questions - binding nature of an order of determination - finality of determination and prohibition on re agitation - Whether the Assistant Commissioner could disregard and reopen the Deputy Commissioner's earlier determination that prawn (aquatic) feed falls within the cattle feed exemption, for the assessment year 201112. - HELD THAT: - The Court held that the order of determination passed by the Deputy Commissioner under the predecessor provision (section 62 of the Sales Tax Act) continued to bind the Department after introduction of the VAT Act because section 80(3) of the VAT Act preserves that bar: questions arising from an order already passed under the earlier law cannot be re entertained under the determination provision but may be raised only by appeal or revision. Precedent of this Court establishes that a final determination on classification binds the assessing authorities and cannot be departed from in absence of a material change. The Assistant Commissioner, in holding aquatic feed taxable for AY 201112, proceeded against that binding determination and assumed jurisdiction not vested in him. The impugned order was therefore without jurisdiction and liable to be set aside. [Paras 16, 19, 21, 23]

The Assistant Commissioner's reopening of classification was impermissible; he was bound by the Deputy Commissioner's earlier determination and his order holding aquatic feed taxable for AY 201112 is without jurisdiction.

Exemption notification not amounting to retrospective amendment - classification of goods and residuary clause - revisional power of the Commissioner under subsection (2A) of section 80 - Whether the addition of a specific exemption for aquatic feed effective from 31.03.2012 constituted a material change permitting the Assessing Officer to reopen earlier determination for prior periods. - HELD THAT: - The Court found that the State's notification exempting aquatic feed from 31.03.2012 did not operate as a clarificatory or retrospective amendment to the First Schedule and did not indicate that the product was taxable prior to that date. The notification granted a specific exemption prospectively but did not alter the underlying Schedule entry or invalidate the prior determination that prawn feed fell within the cattle feed exemption. Subsection (2A) of section 80 confers limited revisional power on the Commissioner with prospective effect, but that statutory feature did not justify treating the exemption notification as a material change retroactively affecting prior classification. Consequently, the exemption notification did not relieve the Assistant Commissioner of the obligation to follow the earlier binding determination. [Paras 15, 23]

The exemption notification effective 31.03.2012 did not amount to a material change that could invalidate the earlier determination for prior periods; it did not permit reopening of classification for AY 201112.

Final Conclusion: Impugned order dated 30.03.2016 is set aside; writ petition allowed and the demand based on reclassification of aquatic (prawn) feed for assessment year 201112 is quashed as the Assistant Commissioner acted contrary to the binding determination of the Deputy Commissioner and without jurisdiction.

Payment versus deposit - deposit in lieu of attachment - remission/amnesty scheme - no refund clause - adjustment of pre-scheme payments under amnesty - refund with interest

Payment versus deposit - deposit in lieu of attachment - Characterisation of the sum of Rs. 50 lakhs deposited pursuant to the High Court order dated 24.3.2014 - HELD THAT: - The Court held that the direction in the order dated 24.3.2014 required the petitioner to deposit Rs. 50 lakhs towards possible tax and penalty liability in light of an admitted but not finally assessed liability. At the time of that order there was no completed assessment or crystallised tax liability; the amount was therefore a precautionary deposit to secure possible future liability and not a payment of tax. Consequently, until a liability was ascertained by self-assessment or by assessment order, the sum remained in the nature of a deposit held by the Government in trust rather than an accepted discharge of tax. [Paras 15, 16]

The sum of Rs. 50 lakhs deposited pursuant to the High Court order is a deposit and not a payment of tax.

Remission/amnesty scheme - no refund clause - adjustment of pre-scheme payments under amnesty - refund with interest - Whether the respondents could refuse refund/adjustment of the deposited Rs. 50 lakhs under para-13 of the remission scheme, and appropriate relief - HELD THAT: - The authorities relied upon para-13 of the remission scheme which disallows refund where tax, interest or penalty have already been paid for transactions covered by the scheme. The Court concluded that, because the sum deposited under the High Court order was not a payment of tax (it was a deposit made prior to any final assessment or the scheme), the respondents' contention that para-13 precluded refund or adjustment could not be accepted as a basis to withhold the deposit. The Court observed reservations about the wider interpretation of para-13 but found it unnecessary to resolve whether para-13 would bar adjustment of pre-scheme payments; on the facts, having granted remission and the petitioner satisfying the remaining liability, the respondents could not retain the deposit. In exercise of its supervisory jurisdiction the Court directed refund of the deposit with simple interest at 7% per annum from date of deposit until refund, to be effected by a specified date. [Paras 13, 16, 17, 18, 19]

Respondents cannot withhold the Rs. 50 lakhs deposit under para-13; the deposit is to be refunded with simple interest at 7% per annum by 30th September, 2016.

Final Conclusion: The petition is allowed: the Rs. 50 lakhs deposited pursuant to the High Court order is held to be a deposit (not payment of tax) and must be refunded by the respondents with simple interest at 7% per annum from the date of deposit until refund, to be paid by 30th September, 2016; petition disposed accordingly.

Definition of "purchase price" - inclusion of customs duty in purchase price under Explanation I - purchases in the course of import excluded by section 75 - application of Rule 41D to purchases within the State only - territorial scope of a State taxation enactment / extra-territoriality

Definition of "purchase price" - inclusion of customs duty in purchase price under Explanation I - Whether customs duty paid or payable on goods imported into India is part of the "purchase price" for the purposes of section 2(22) of the BST Act read with Explanation I - HELD THAT: - The Court examined section 2(22)'s definition of "purchase price" and Explanation I which states that duties under the Customs Act shall be deemed part of the purchase price. However, the Court construed the definition in the broader statutory framework, noting that "purchase" is defined with reference to "sale" as a sale "made within the State". Where a purchase occurs in the course of import into India it falls within the ambit of section 75, which declares that the Act and its rules shall not impose tax on sales or purchases taking place in the course of import and requires those matters to be governed by the principles in the Central Sales Tax Act. Applying these provisions together, the Court held that Explanation I cannot operate to include customs duty in the "purchase price" for purchases that are imports into the territory of India because such purchases are not "purchases" within the meaning of the BST Act. The MSTT's reasoning in paragraphs 10-11 was approved and adopted. [Paras 11, 15]

Customs duty on imported goods is not part of the "purchase price" for the purposes of section 2(22) of the BST Act insofar as the purchases take place in the course of import.

Purchases in the course of import excluded by section 75 - application of Rule 41D to purchases within the State only - territorial scope of a State taxation enactment / extra-territoriality - Whether the term "purchase price" and the reductions under Rule 41D apply to purchases made in the course of import or are confined to purchases made within the State - HELD THAT: - The Court referred to the definition of "sale" and "purchase" which confines those concepts to transactions "within the State" and to section 75 which excludes from levy sales or purchases in the course of import. The Court also noted the State character of the BST Act and its lack of extra-territorial jurisdiction. On a conjoint reading, the Court concluded that Rule 41D's mechanism for reduction/set-off, which depends on the statutory notion of "purchase price", applies only to purchases effected within the State and not to imports governed by section 75. Consequently customs duty on imports cannot be included for set-off computation under Rule 41D. [Paras 13, 16]

Rule 41D and the statutory notion of "purchase price" apply only to purchases made within the State; purchases in the course of import are excluded and Rule 41D does not permit inclusion of customs duty for such imports.

Final Conclusion: The Reference is answered in favour of the respondent: customs duty on imported goods is not part of the "purchase price" for purposes of the BST Act and Rule 41D, because purchases in the course of import are excluded from the Act's levy and its definitions are confined to transactions within the State; Reference disposed without order as to costs.

Commercial quantity - Offences to be cognizable and non-bailable - Section 37 of the NDPS Act - burden on accused to satisfy court of not being guilty and not likely to commit offence while on bail - reasonable grounds for believing accused is not guilty - cancellation of bail - necessity of cogent supervening circumstances - confessional statement under Section 67 of the NDPS Act

Section 37 of the NDPS Act - burden on accused to satisfy court of not being guilty and not likely to commit offence while on bail - reasonable grounds for believing accused is not guilty - confessional statement under Section 67 of the NDPS Act - Legality of the order granting bail when accused is alleged to be in possession of more than commercial quantity of a scheduled psychotropic drug without the court satisfying the conditions of Section 37 of the NDPS Act. - HELD THAT: - The Court found that where seizure involves more than commercial quantity, Section 37 operates to make offences cognizable and non bailable unless the Public Prosecutor is heard and the court is satisfied on reasonable grounds that the accused is not guilty and is not likely to commit an offence while on bail. The learned Additional District and Sessions Judge enlarged the respondent on bail without considering the materials on record, including the voluntary statement recorded under Section 67 and the quantity of contraband. The satisfaction contemplated by Section 37 requires something more than prima facie grounds and must be based on substantial probable causes. The lower court's sole reliance on the respondent's medical condition (diabetes) as ground for bail did not address the mandatory statutory conditions under Section 37 nor the gravity and prima facie nature of the allegations; hence the order could not stand. [Paras 13, 15, 16]

The bail granted without applying and recording satisfaction required by Section 37 was illegal; the grant of bail is set aside.

Commercial quantity - cancellation of bail - necessity of cogent supervening circumstances - Whether the material on record established that the contraband amounted to commercial quantity and justified cancellation of the bail already granted. - HELD THAT: - The Court examined the materials and noted that the contraband alleged to have been procured and transported amounted to more than commercial quantity as recorded in the investigation. Given that possession of commercial quantity without licence attracts severe punishment and engages the non bailable bar in Section 37, and that the lower court failed to consider these aspects before enlarging the respondent on bail, the petition for cancellation of bail was maintainable. While cancellation of bail ordinarily requires cogent supervening circumstances and is not to be done mechanically, an order granting bail that fails to consider mandatory statutory requirements and prima facie material can be set aside. Applying these principles, the Court allowed cancellation of the bail. [Paras 13, 15, 16]

Material on record showed possession exceeding commercial quantity and, because the lower court did not apply Section 37, the bail already granted was cancelled.

Final Conclusion: The criminal original petition is allowed; the bail granted to the respondent on 05.08.2016 is cancelled as the trial court failed to apply the requirements of Section 37 of the NDPS Act and did not consider the prima facie materials showing possession of commercial quantity.