TaxTMI Updates e-Newsletter
Sep 05,2023

Rule 5A(2) of the Service Tax Rules held to be ultra vires the Finance Act, 1994 by earlier Division Benches - saving of pending proceedings upon repeal by Section 174 of the Central Goods and Services Tax Act, 2017 - legislative amendment by insertion of clause (k) in Section 94 to validate rule-making concerning verification and records - power to conduct special audit under Section 72A remains distinct from Rule 5A(2)

Rule 5A(2) of the Service Tax Rules held to be ultra vires the Finance Act, 1994 by earlier Division Benches - saving of pending proceedings upon repeal by Section 174 of the Central Goods and Services Tax Act, 2017 - Whether proceedings under Rule 5A(2) survive repeal of the Finance Act, 1994 in view of Section 174 of the CGST Act and whether earlier declarations of invalidity are effaced - HELD THAT: - The Court recorded that Division Benches of this Court had earlier held Rule 5A(2) to be ultra vires the Finance Act, 1994 (Travelite and Mega Cabs). It noted that the statute was thereafter amended by inserting clause (k) in Section 94 to empower rule-making about verification and records, while the separate power to order special audits under Section 72A was untouched. The Court observed that some subsequent Division Bench decisions accepted the respondents' contention that proceedings initiated under Rule 5A(2) would be saved by Section 174 of the CGST Act; those decisions, however, did not advert to the earlier Travelite and Mega Cabs judgments. Having regard to the pendency and the stay of appeals from Travelite and Mega Cabs before the Supreme Court, the Court declined to finally resolve the controversy but recorded a prima facie view that the earlier declarations of invalidity would not thereby be rendered ineffective. The matter was adjourned for further hearing to enable consideration of the competing outcomes and the impact of the statutory repeal and saving provision in light of the stay of appellate proceedings.

Proceedings adjourned for further consideration; Court records prima facie opinion that earlier declarations of invalidity are not effaced but no final adjudication made.

Final Conclusion: The writ petitions were listed for further hearing; the Court recorded a prima facie view that earlier Division Bench declarations invalidating Rule 5A(2) would not be effaced by repeal and the saving provision, but deferred final decision and posted the matters for hearing on 05.10.2023.

Input tax credit - blocked credit under section 17(5)(d) - lease or license to occupy land as supply of services - assignment/transfer of leasehold rights as supply - construction for the purposes of section 17(5) - definition of immovable property (General Clauses Act)

Input tax credit - blocked credit under section 17(5)(d) - assignment/transfer of leasehold rights as supply - construction for the purposes of section 17(5) - Whether ITC of CGST and SGST paid on consideration for transfer/assignment of leasehold rights in GIDC land is admissible to the applicant - HELD THAT: - The Authority held that the transaction of acquiring leasehold/assignment of leasehold rights from the original allottee amounts to a 'supply' of services (lease/license/assignment) and therefore falls within the ambit of taxable supply (paras 19, 21). The Authority relied on the inclusive definition of 'services' and the treatment of lease/license of land as supply under the statute, and noted that land is immovable property as defined in the General Clauses Act (para 16). A conjoint reading of sections 16 and 17 shows that while ITC is generally available for inputs used or intended to be used in the course or furtherance of business, clause 17(5)(d) expressly blocks ITC in respect of goods or services received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account (paras 17-18). The Authority found that the applicant itself stated an intention to use the acquired leasehold rights to set up/expand manufacturing facilities adjacent to its existing plant, which makes the leasehold acquisition a precursor to construction on the land (paras 23-24). Consequently, the services received are for the purpose of construction of immovable property on the applicant's own account and are therefore excluded from ITC under section 17(5)(d). The applicant's arguments that pre-construction or transfer/lease/right-assignment services are outside the scope of clause (d), or that accounting treatment/leasehold categorisation should permit ITC, were rejected as not tenable in law when clause 17(5)(d) and its explanation are applied to the admitted facts (paras 26-27). The Authority also relied on earlier advance rulings with identical facts to reinforce the legal position that GST borne on leasing/lease-assignment for construction is blocked from credit (paras 28-29). [Paras 23, 24, 26, 27, 28]

ITC on CGST and SGST paid to Vapi Enterprise Ltd. for transfer of leasehold rights in GIDC land is not admissible to the applicant as it is blocked under section 17(5)(d) of the CGST Act, 2017.

Final Conclusion: Advance ruling: the applicant is not entitled to avail input tax credit of CGST and SGST paid on the transfer/assignment of leasehold rights in the GIDC industrial plot, the credit being blocked under section 17(5)(d) as the services were for construction of immovable property on the applicant's own account.

Supply - Consideration - Perquisites - Input tax credit - Section 17(5)(b) proviso - Section 46 of the Factories Act, 1948 - Employer-employee relationship - Contract labour

Supply - Perquisites - Section 46 of the Factories Act, 1948 - Subsidised amount recovered from permanent employees for canteen services constitutes a supply under GST - HELD THAT: - The Authority examined whether the subsidised deduction from employees for canteen food is a 'supply' under section 7. Applying the scheme in circular No.172/04/2022-GST and having regard to the employer-employee contractual arrangement (as reflected in the HR policy), the Authority found that perquisites provided by an employer to an employee in terms of the employment contract are not subject to GST when provided in terms of that contract. Factually the canteen is provided pursuant to Section 46 and the HR policy evidences that the facility and subsidisation are part of employment terms. On that basis the subsidised deduction made from permanent employees was held not to constitute a supply by the applicant under section 7. [Paras 16, 17]

No GST is leviable on the amount representing the employees' portion of canteen charges collected by the applicant and paid to the CSP.

Supply - Consideration - Contract labour - Employer-employee relationship - Composite supply - Amount recovered from contract workers (via contractor) for canteen services constitutes a taxable supply by the applicant - HELD THAT: - The Authority analysed status of contractual workers and the statutory framework (Factories Act definition of 'worker', CLRA provisions and contractual arrangements). It held that contractual workers are not in an employer-employee relationship with the applicant (contractor pays wages and supplies the workers). The applicant's recovery from contractual workers (collected as deferred payment) amounts to 'consideration' within section 2(31). Further, supply of food for consideration falls within Schedule II(6)(b) as a supply of service. The applicant's role in collecting and paying the CSP, even without profit margin, results in an 'outward supply' in the course or furtherance of business and is taxable. [Paras 25, 26, 27, 28, 29]

GST is leviable on the amount representing the contractual workers' portion of canteen charges collected by the applicant and paid to the CSP.

Input tax credit - Section 17(5)(b) proviso - Section 46 of the Factories Act, 1948 - Perquisites - Eligibility to claim ITC on GST paid to CSP for canteen services provided to direct employees - HELD THAT: - Considering the amendment to section 17(5)(b) effective 01.02.2019 and CBIC Circular No.172/04/2022-GST, the Authority held that where an inward supply (food/beverages) is obligatory for an employer to provide to employees under any law (here Section 46 and applicable rules), the proviso permits ITC. On the facts (canteen mandated under Section 46 and reflected in HR policy) ITC is therefore admissible to the applicant in respect of canteen services for direct/permanent employees. The ITC is, however, restricted to the extent of cost actually borne by the applicant and disallowed proportionately to the extent embedded in amounts recovered from employees. [Paras 31, 32]

ITC is available for GST charged by the CSP in respect of canteen facility provided to direct employees, limited to the cost borne by the applicant and excluding the proportion attributable to amounts recovered from employees.

Input tax credit - Section 17(5)(b) proviso - Contract labour - Eligibility to claim ITC on GST paid to CSP for canteen services provided to contractual workers - HELD THAT: - The Authority considered CLRA Chapter V and Rule 42 and concluded that the statutory obligation to provide canteen facilities to contract labour lies primarily on the contractor; the principal employer's liability arises only in case of the contractor's failure. On the facts there was no failure shown and contractual workers are not in employer-employee relationship with the applicant. Since section 17(5)(b) proviso extends ITC only where the supply is obligatory for the employer under law, the applicant cannot claim ITC for food supplied to contractual workers. Therefore such ITC is blocked under section 17(5)(b). [Paras 33, 34]

ITC on GST paid for canteen services supplied to contractual workers is not admissible to the applicant under section 17(5)(b).

Final Conclusion: The Authority ruled that (i) no GST is leviable on amounts recovered from direct employees for subsidised canteen services; (ii) GST is leviable on amounts recovered for contractual workers; (iii) ITC is available for canteen services to direct employees subject to limitation to the cost borne by the applicant (excluding recovered amounts); and (iv) ITC is not available in respect of canteen services provided to contractual workers under section 17(5)(b).

Input tax credit - blocked credits under clause (b) of sub section (5) of section 17 - availability of input tax credit where supply is obligatory under law - mandatory employer obligation under the Factories Act to provide canteens - interpretation of the proviso to clause (b) of sub section (5) of section 17 - pass through of tax burden to employees

Input tax credit - blocked credits under clause (b) of sub section (5) of section 17 - availability of input tax credit where supply is obligatory under law - mandatory employer obligation under the Factories Act to provide canteens - interpretation of the proviso to clause (b) of sub section (5) of section 17 - pass through of tax burden to employees - Eligibility to claim input tax credit on GST charged by vendors for food supplied in factory canteen - HELD THAT: - The Authority examined whether ITC is available on vendor invoices for food supplied in the applicant's factory canteen which is maintained pursuant to statutory obligation under the Factories Act and Andhra Pradesh Factory Rules where more than 250 workers are employed. Section 17(5)(b) ordinarily blocks credit for food and beverages, but the proviso provides that ITC shall be available where it is obligatory for an employer to provide the same to employees under any law. The Board circular (No.172/04/2022 GST) clarifies that this proviso applies to the whole of clause (b) of sub section (5). Applying these principles, the Authority found that the applicant is compulsorily required by law to provide a canteen and food to its workers, and therefore ITC on GST charged by the canteen vendors is allowable. The Authority imposed the condition that the ITC claim is permissible only where the GST burden has not been passed on to employees. Further, the allowance of proportionate ITC is restricted to food supplied to permanent employees and does not extend to contractual workers.

ITC on GST charged by canteen vendors is admissible because provision of canteen is obligatory under law; admissibility is subject to (a) non passing of GST burden to employees and (b) proportionate claim confined to permanent employees, not contractual workers.

Final Conclusion: Advance ruling: Applicant entitled to claim input tax credit on GST paid to canteen vendors because provision of canteen is mandatory under the Factories Act and allied rules; claim is subject to the condition that the tax burden has not been passed on to employees and is confined proportionately to permanent employees only.

Classification of goods under GST - Sugar boiled confectionery - Sugar confectionery - Specific entry prevails over general entry - Industrial input versus product for direct consumption

Sugar boiled confectionery - Industrial input versus product for direct consumption - Classification of goods under GST - Classification of the product marketed as 'N.B.S. Crackle' as 'Sugar boiled confectionery' under Heading 1704 (serial number 32AA) of Notification No. 01/2017. - HELD THAT: - The Authority examined the composition and manufacturing process of 'N.B.S. Crackle' (sugar boiled/caramelised base with cashew, butter and glucose) and noted that Heading 1704 and its explanatory notes cover sugar preparations generally marketed in solid or semi-solid form and suitable for immediate consumption by end users. Although the product's ingredients and process resemble sugar boiled confectionery, the applicant sells the product exclusively as an industrial input to ice cream manufacturers for use as a topping and not for direct consumption by end users. Relying on the trade practice and HSN/explanatory notes which characterise 'sugar boiled confectionery' as articles bought and consumed by end users, the Authority held that a product marketed and supplied only as an industrial input for incorporation into another manufacturer's product cannot be classified as sugar boiled confectionery under Heading 1704 notwithstanding its composition.

Product 'N.B.S. Crackle' is not classifiable as 'Sugar boiled confectionery' under Heading 1704 (serial number 32AA) of Notification No. 01/2017.

Final Conclusion: Advance ruling answered in the negative: the product 'Crackle'/'N.B.S. Crackle', though sugar based, is an industrial input supplied only to ice cream manufacturers and therefore is not classifiable as 'Sugar boiled confectionery' under Heading 1704 (serial number 32AA) of Notification No. 01/2017.

Allowability of commission as business expenditure - evidence of services rendered and genuineness of payment - commercial expediency and reasonableness of business expenditure - assessment authority cannot re-determine quantum of payment between unrelated parties - reading of agency agreement as a whole; prohibition on bifurcation of agreed commission

Allowability of commission as business expenditure - evidence of services rendered and genuineness of payment - Part disallowance of commission payments was not justified where authorities had accepted that services were rendered and payments were genuine. - HELD THAT: - The Assessing Officer and the Tribunal had, while making disallowances, allowed one-third of the commission claimed, which itself indicates acceptance that services were rendered. The payments were made through banking channels and the commission agents confirmed receipt; there was no allegation of flow-back. On these facts the authorities' partial disallowance could not stand because the Tribunal and AO had effectively accepted the genuineness and that services were rendered, and there was no material to justify treating part of the agreed commission as non-business expenditure. The Court therefore set aside the part disallowances and answered the substantial question in favour of the assessee. [Paras 18, 19, 23]

The Tribunal's confirmation of part disallowance is reversed and the commission payments are allowable.

Reading of agency agreement as a whole; prohibition on bifurcation of agreed commission - It was impermissible for the authorities to bifurcate commission payments based on staged/tranche payment provisions in the agency agreements. - HELD THAT: - The agency agreements fixed a percentage commission payable in instalments tied to contractual events, and must be read as a whole. The Assessing Officer and Tribunal erred in segregating portions of the agreed commission as non-allowable merely because payments were deferred or structured in tranches; that would amount to re-writing the agency agreement. Consequently, part disallowance on the ground of staged payments was not justified. [Paras 20]

Disallowance based on purported bifurcation of the agreementually fixed commission is not sustainable.

Commercial expediency and reasonableness of business expenditure - assessment authority cannot re-determine quantum of payment between unrelated parties - The Revenue cannot, on facts showing a transaction between unrelated parties, re-fix the remuneration or substitute its own view of what payment should have been; reasonableness must be judged from the businessman's perspective. - HELD THAT: - Established principle permits the AO or Tribunal to disallow payments that are not real or not wholly and exclusively for business, but it is not their function to determine what remuneration should have been paid to an agent in a transaction between unrelated parties. Having allowed part of the commission as business expenditure, the authorities impermissibly ventured into quantifying or re-fixing the commission payable, contrary to settled law on commercial expediency and reasonableness. [Paras 18, 22]

The partial disallowance reflecting an impermissible judicial re-fixation of remuneration is unsustainable.

Final Conclusion: The appeals are allowed; the Tribunal's part disallowances of commission for assessment years 1986-87, 1987-88 and 1988-89 are set aside and the commissions are held allowable for the purposes of the assessments.

Proportionate disallowance under Accounting Standard AS-7 - project completion method of accounting - revenue expenditure versus capital/expenditure of enduring nature - nexus between expense and project

Proportionate disallowance under Accounting Standard AS-7 - project completion method of accounting - revenue expenditure versus capital/expenditure of enduring nature - nexus between expense and project - Whether the Sales Support Services and Management Expenses debited in the assessee's accounts were liable to proportionate disallowance because the assessee followed the Project Completion Method and the project was completed only upto 26.32%. - HELD THAT: - The appellate authorities (CIT(A) and ITAT) found on facts that the amounts debited related to salaries of 23 employees engaged in construction, sales and marketing and were recurring expenditures also incurred in subsequent assessment years. Those authorities concluded that the expenses were revenue in nature, incurred for day-to-day running of the business and for promotion/exhibition of the project, and did not confer any enduring benefit. On that factual basis they held there was no justification to restrict deduction to 26.32% and no direct nexus requiring proportionate disallowance under AS-7. The High Court recorded concurrence with these factual findings and reasoning and held that, given those findings, no substantial question of law arose for consideration. [Paras 6, 7, 8, 10]

The proportionate disallowance was not warranted; the expenses were revenue in nature and fully allowable.

Final Conclusion: Appeal dismissed; the factual finding that the impugned expenses were revenue in nature and not liable to proportionate disallowance under AS-7 was upheld and no substantial question of law arises.

Intimation under Section 143(1) as an order subject to revision under Section 264 - scope of revisionary power under Section 264 - duty of the Commissioner to apply mind and decide applications under Section 264 on merits - power to call for record and cause inquiry for disposal under Section 264 - remand for de novo consideration with obligation to pass a reasoned order and grant personal hearing

Intimation under Section 143(1) as an order subject to revision under Section 264 - scope of revisionary power under Section 264 - Whether an intimation issued under Section 143(1) is an 'order' which can be revised under Section 264 and the scope of the Commissioner's powers in such revision. - HELD THAT: - The Court accepted that intimation under Section 143(1) is capable of being treated as an order for the purposes of Section 264 and that the Commissioner's powers under Section 264 are wide. The Commissioner is required to apply his mind to an application under Section 264 and may correct errors whether committed by subordinate authorities or arising from mistakes by the assessee, including omissions or wrong claims first raised in an application under Section 264. Section 264 also permits the Commissioner to call for records of proceedings and to make or cause inquiries to be made where necessary before passing an order. The Court rejected the approach of declining jurisdiction on the ground that an intimation is not an order and held that substantive consideration on merits is mandated when jurisdiction is accepted. [Paras 5, 8]

Intimation under Section 143(1) is an order subject to revision under Section 264; the Commissioner must apply his mind and may call for records and cause inquiries before passing a reasoned order on an application under Section 264.

Duty of the Commissioner to apply mind and decide applications under Section 264 on merits - power to call for record and cause inquiry - remand for de novo consideration with obligation to pass a reasoned order and grant personal hearing - Whether the Commissioner erred in rejecting the petitioner's Section 264 application on merits and the appropriate remedial direction. - HELD THAT: - The impugned order rejecting the application was quashed because the Commissioner did not undertake the requisite merit-based exercise mandated by Section 264 and treated the intimation as non-revisable in substance. The Court observed that the petitioner's mistake in filling the return appeared inadvertent and not deliberate evasion, and that the Commissioner, having power to call for further inquiry, should have applied his mind and, if necessary, directed the Assessing Officer to inquire further. Consequently, the Court set aside the orders and remanded the matter for fresh consideration. The Commissioner is directed to give the petitioner personal hearing (with at least five working days' notice), consider all submissions, cause or undertake such inquiry as deemed necessary, pass a reasoned order dealing with every submission, and complete the exercise within the stipulated time. [Paras 10, 11]

Orders dated 27th March 2017 and 21st September 2021 and the intimation dated 17th October 2015 are quashed; the matter is remanded for de novo disposal of the Section 264 application with directions to conduct inquiries if required, afford personal hearing, pass a reasoned order addressing all submissions, and conclude the process by the date specified by the Court.

Final Conclusion: The impugned orders and the intimation are quashed and the matter is remitted to the Commissioner for fresh, merit-based disposal of the Section 264 application; the Commissioner shall afford personal hearing, may cause or make necessary inquiries, pass a reasoned order dealing with all submissions, and complete the exercise within the timeframe directed by the Court.

Provisional attachment under Section 281B - duration and extension of provisional attachment - proviso limiting total extension to two years or sixty days after assessment - efflux of time rendering writ petitions infructuous - liberty to challenge subsequent attachment orders

Provisional attachment under Section 281B - efflux of time rendering writ petitions infructuous - Validity and practical effect of the impugned provisional attachment orders dated 23.08.2022 in light of subsequent attachment orders and expiry of prescribed periods - HELD THAT: - The Court observed that an order of provisional attachment under Section 281B initially remains in force for six months. The respondents issued fresh/warrant attachment orders in respect of the same immovable properties dated 17.02.2023. Given that the initial attachment(s) dated 28.02.2022 would have expired on 27.08.2022 and the later 23.08.2022 order would have expired on 22.02.2023, and that fresh attachments were validly issued on 17.02.2023, the challenge to earlier attachment orders has been overtaken by events. Consequently, the writ petitions attacking the 23.08.2022 orders became infructuous and nothing substantive remained to be adjudicated in these petitions. [Paras 13, 14, 16, 17]

Writ petitions challenging the impugned attachment orders are closed as infructuous because subsequent attachment orders and the efflux of the statutory periods have rendered the relief sought academic.

Duration and extension of provisional attachment - proviso limiting total extension to two years or sixty days after assessment - liberty to challenge subsequent attachment orders - Scope of the proviso to sub-section (2) of Section 281B regarding extension of attachment and the remedy available to the petitioners - HELD THAT: - The Court set out the statutory scheme that the Principal Chief Commissioner/Chief Commissioner (or their delegated officers) may extend provisional attachment for reasons recorded in writing, but the total extension cannot exceed two years or sixty days after the date of assessment or reassessment, whichever is later. Applying the timeline in these cases - first attachments on 28.02.2022 (ending 27.08.2022), assessment orders dated 31.12.2022, and fresh attachment orders dated 17.02.2023 (which would have ended on 16.08.2023) - the Court concluded that the present petitions have been overtaken by time. The Court nevertheless afforded the petitioners liberty to challenge the subsequent attachment orders dated 17.02.2023 in accordance with law. [Paras 15, 16, 17]

The proviso to sub-section (2) of Section 281B permits extensions subject to the statutory cap; applying that scheme to the facts, the petitions lack present efficacy, and petitioners are granted liberty to contest the later orders dated 17.02.2023 by appropriate proceedings.

Final Conclusion: The writ petitions attacking the impugned attachment orders are closed as infructuous because the statutory periods and subsequent attachment orders have overtaken the challenge; petitioners retain liberty to challenge the later orders dated 17.02.2023 in accordance with law; no costs.

Reopening of assessment beyond four years - first proviso to section 147 - requirement of failure to disclose fully and truly all material facts - reasonable belief of escapement of income - genuine share transactions executed through registered brokers and banking channels - onus on revenue to prove complicity of assessee in stock manipulation - where two constructions are possible, construction favourable to the assessee

Reopening of assessment beyond four years - first proviso to section 147 - requirement of failure to disclose fully and truly all material facts - Validity of reopening assessment for Assessment Year 2015-16 issued by notice dated 31/03/2021. - HELD THAT: - The assessment for AY 2015-16 had been concluded under section 143(3) and the reassessment notice was issued beyond four years from the end of the relevant assessment year. The Tribunal applied the proviso to section 147 and held that where a reassessment is initiated after the four-year period, the Assessing Officer must, in the reasons recorded prior to issuing notice, demonstrate that the escapement of income was due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. The recorded reasons in the notice did not state or demonstrate any such failure by the assessee. Absent any reference in the reasons to non-disclosure, the essential condition precedent in the first proviso to section 147 was not satisfied and the Assessing Officer lacked jurisdiction to reopen the assessment. Consequently the reassessment order under section 147 read with section 144 is rendered null and void; merits were not adjudicated as moot. [Paras 7, 8, 11]

Reopening for AY 2015-16 quashed for non-compliance with the first proviso to section 147; reassessment order set aside and appeal allowed.

Genuine share transactions executed through registered brokers and banking channels - onus on revenue to prove complicity of assessee in stock manipulation - where two constructions are possible, construction favourable to the assessee - Validity of disallowance of loss claimed from share transactions in Assessment Year 2014-15. - HELD THAT: - The Assessing Officer disallowed the loss on the basis of investigation reports alleging accommodation entries and manipulation in penny stocks. The assessee, however, produced contract notes, demat statements and bank payment evidence showing purchases and sales executed through registered brokers and routed through banking channels. The Tribunal examined precedent authorities and concluded that where transactions are documented and payments effected through banking channels, the mere existence of an investigation report or statements about organised manipulation is not sufficient to treat the transactions as bogus unless the assessee's complicity in manipulation is established. Applying the principle that, where two constructions are possible, the one favourable to the assessee should be adopted, the Tribunal set aside the disallowance and directed the Assessing Officer to allow the loss/set-off. [Paras 14, 18, 20]

Disallowance of share loss for AY 2014-15 set aside; appeal allowed and AO directed to allow the loss/set-off.

Genuine share transactions executed through registered brokers and banking channels - Applicability of the Tribunal's decision on share-loss issue to the assessee's appeal for Assessment Year 2015-16 (ITA No. 68/GTY/2023). - HELD THAT: - The appeal for AY 2015-16 raised the identical issue as decided for AY 2014-15. The Tribunal applied its reasoning mutatis mutandis to the appeal for AY 2015-16 and allowed the appeal on the same grounds as in ITA No. 67/GTY/2023. [Paras 22]

Appeal for AY 2015-16 allowed on same reasoning as in AY 2014-15.

Final Conclusion: All three appeals by the assessee are allowed: the reassessment for AY 2015-16 (ITA No. 69/GTY/2023) is quashed for failure to comply with the first proviso to section 147; the disallowance of share-loss for AY 2014-15 (ITA No. 67/GTY/2023) is set aside and the loss directed to be allowed; the identical appeal for AY 2015-16 (ITA No. 68/GTY/2023) is allowed mutatis mutandis.

Treatment of Joint Venture as Association of Persons (AOP) - contractor-subcontractor relationship - liability to deduct tax u/s. 194C - liability to deduct tax u/s. 194H - assessee in default under section 201(1) and interest under section 201(1A) - definition of "commission" for the purposes of section 194H - CBDT Circular on consortium/JV arrangements (2016) as administrative guidance

Treatment of Joint Venture as Association of Persons (AOP) - contractor-subcontractor relationship - liability to deduct tax u/s. 194C - CBDT Circular on consortium/JV arrangements (2016) as administrative guidance - Whether the assessee JV was required to deduct tax under section 194C in respect of payments made to its constituent ECI for execution of the contract. - HELD THAT: - The Tribunal found on the material and the internal agreement that the JV was formed only to procure the contract and that ECI executed the entirety of the project work on its own risk, supplying men, machinery and statutory compliances, while RAMKY's role was limited to project management and entitlement to a fixed 2.25% compensation from gross bills. These facts fulfil the attributes listed in the CBDT circular (2016) for not treating such consortium/JV arrangements as an AOP. There is no finding that RAMKY exercised authority or control over execution by ECI; the relationship between the JV and its constituent ECI is not that of contractor and subcontractor within the meaning of section 194C. Consequently, there was no legal obligation on the JV to deduct tax under section 194C on payments to ECI, and the AO's conclusion treating the JV as an assessee in default under section 201(1) on that basis was not sustainable. [Paras 7, 8]

Payments made by the JV to its constituent ECI were not subject to TDS under section 194C; the JV was not an AOP for this purpose and cannot be held as assessee in default under section 201(1) on that ground.

Definition of "commission" for the purposes of section 194H - liability to deduct tax u/s. 194H - Whether the 2.25% compensation paid by the JV to RAMKY constituted "commission" attracting deduction of tax at source under section 194H. - HELD THAT: - The Tribunal examined the Explanation to section 194H which defines 'commission or brokerage' as payment received for acting on behalf of another for services rendered or for services in the course of buying or selling goods or in relation to transactions in assets. The 2.25% payment to RAMKY was found to be a contractual compensation for project management/overhead services agreed inter se and not a payment for acting on behalf of the JV in the sense contemplated by the definition, nor a payment in the course of buying or selling goods or in relation to an asset transaction. Therefore the payment does not fall within the definition of commission under section 194H and no TDS under section 194H was attracted; accordingly, the JV cannot be treated as assessee in default on that basis. [Paras 8]

The 2.25% compensation paid to RAMKY is not commission within the meaning of section 194H and is not liable to deduction of tax at source under that provision; consequential treatment as assessee in default is not tenable.

Final Conclusion: The Tribunal allowed both appeals, holding that (i) the JV is not liable to deduct tax under section 194C on payments to its constituent ECI as no contractor-subcontractor relationship existed and the JV is not to be treated as an AOP for that purpose, and (ii) the 2.25% payment to RAMKY is not commission within the meaning of section 194H; consequently, the assessments treating the JV as assessee in default under section 201(1) and levying interest under section 201(1A) were set aside.

Deduction under section 54F - Completion of construction within three years - Acquisition of new residential house within due date for filing return - Claim of exemption for flats received under Joint Development Agreement - Multiple acquisitions and section 54F

Deduction under section 54F - Completion of construction within three years - Claim of exemption for flats received under Joint Development Agreement - Multiple acquisitions and section 54F - Whether deduction under section 54F can be allowed in respect of flats to be received pursuant to the Joint Development Agreement - HELD THAT: - The Tribunal accepted that the assessee and the Assessing Officer agreed there was a transfer pursuant to the JDA and that the assessee claimed deduction under section 54F in respect of flats to be received. The Tribunal noted that the claim for multiple flats cannot be faulted in view of binding High Court precedents relied upon by the assessee. However, the Assessing Officer's second reason for denial - that construction of the new residential property was not completed within three years from the date of transfer - was admitted by the assessee and found to be correct. Because completion within three years is a mandatory condition for allowance of section 54F relief in respect of constructed property, the denial of deduction insofar as the flats to be received under the JDA was concerned was upheld. [Paras 7]

Deduction under section 54F in respect of flats to be received under the JDA is not allowable because construction was not completed within three years from the date of transfer.

Deduction under section 54F - Acquisition of new residential house within due date for filing return - Whether the alternate claim for deduction under section 54F in respect of a residential flat purchased on 25.04.2012 is allowable - HELD THAT: - The Tribunal found that the assessee had advanced an alternative claim before the CIT(A) for deduction under section 54F in respect of a residential house purchased on 25.04.2012. The CIT(A) rejected that alternate plea without discussing why it could not be admitted. The Tribunal observed that the purchase on 25.04.2012 was within two years of the date of transfer and that the acquisition was completed on or before the due date for filing the return under section 139(1), thereby satisfying the temporal and procedural conditions of section 54F (including obviating the need to deposit sale consideration under the deposit scheme). In view of these facts, the Tribunal held that the alternate claim met the conditions of section 54F and directed the Assessing Officer to allow the deduction. [Paras 8]

Alternate claim for deduction under section 54F in respect of the residential flat purchased on 25.04.2012 is allowable; the CIT(A) order is set aside and the Assessing Officer is directed to allow the deduction.

Final Conclusion: The appeal is allowed: deduction under section 54F is denied for flats to be received under the JDA because construction was not completed within three years, but the alternate claim for deduction in respect of the residential flat purchased on 25.04.2012 is allowed and the Assessing Officer is directed to give effect to that relief.

Disallowance under section 14A read with Rule 8D - Absence of exempt income and applicability of section 14A - Prospective operation of tax amendment - Clarificatory versus substantive amendment - Explanatory Memorandum as indicium of legislative intent

Disallowance under section 14A read with Rule 8D - Absence of exempt income and applicability of section 14A - Prospective operation of tax amendment - Explanatory Memorandum as indicium of legislative intent - Whether disallowance under section 14A read with Rule 8D can be made when no exempt income was earned in the relevant year, and whether the 2022 amendment to section 14A applies to AY 2012-13. - HELD THAT: - The Tribunal noted as an uncontroverted fact that the assessee did not earn any exempt income in the year under appeal and that the CIT(A) had recorded the same. It relied on the Tribunal's own earlier decision in the assessee's case and on High Court authorities holding that section 14A is not attracted where no exempt income is received or receivable in the relevant year. The Revenue's contention that the Finance Act, 2022 amendment (including an Explanation and a non-obstante clause) renders section 14A applicable even where exempt income is absent was considered against the Explanatory Memorandum to the Finance Bill, 2022 which expressly states that the amendment takes effect from 1 April 2022. The Tribunal observed that the Delhi High Court and the Mumbai ITAT have held the amendment to be prospective. Applying those conclusions, the Tribunal held that the 2022 amendment could not be applied to AY 2012-13 and therefore the disallowance under section 14A in the present assessment could not be sustained. [Paras 3, 4, 5, 6, 9]

Disallowance under section 14A read with Rule 8D deleted; appeal allowed.

Final Conclusion: The Tribunal held that where no exempt income was earned in AY 2012-13, section 14A disallowance is not maintainable; further, the Finance Act, 2022 amendment to section 14A is prospective (effective from 01.04.2022) and does not apply to AY 2012-13, accordingly the disallowance was deleted and the appeal allowed.

Reopening of assessment under Section 147 - notice under Section 148 - admission of additional ground of appeal - principle of finality where identical issue previously examined - void ab initio of reassessment founded on identical reasons

Admission of additional ground of appeal - Additional ground challenging validity of reopening was admitted. - HELD THAT: - The Tribunal examined whether the additional ground raised by the assessee (challenging reopening under Section 147/notice under Section 148) could be admitted at the hearing stage. The facts necessary to decide that ground flowed from the orders of the lower authorities and no new evidence was required; the assessee had already objected to reopening before the Assessing Officer and raised similar grounds before the CIT(A). On that basis the Tribunal held the additional ground to be admissible and proceeded to decide it on merits. [Paras 12]

Additional ground of appeal admitted.

Reopening of assessment under Section 147 - notice under Section 148 - principle of finality where identical issue previously examined - void ab initio of reassessment founded on identical reasons - Validity of reassessment for AY 2011-12 where reopening was founded on reasons identical to those examined and accepted in A.Y. 2009-10. - HELD THAT: - The Tribunal compared the reasons and factual matrix for reopening of AY 2011-12 with the earlier reopening and assessment for A.Y. 2009-10. For A.Y. 2009-10 the Department had reopened the assessment, the assessee had responded and the Assessing Officer ultimately accepted the position and made no adverse addition. The Tribunal found that the present reassessment was initiated on substantially the same basis (the same deposits ultimately traced to the trust and reinvested as term deposits) and no new material or fresh deposits were shown to exist for the year under consideration. In these circumstances the Tribunal applied the principle that reopening on identical reasons already examined and accepted in an earlier year is not justified, and held the reopening under Section 147 to be invalid. Consequentially the assessment framed pursuant to that reopening was held void ab initio and the additions sustained by the lower authorities were set aside. [Paras 17, 18]

Reopening under Section 147/notice under Section 148 for AY 2011-12 held invalid; assessment void ab initio and additions deleted.

Final Conclusion: The Tribunal admitted the additional ground challenging reopening and, on the merits, held that the reassessment for AY 2011-12-initiated on the same reasons already examined and accepted in A.Y. 2009-10-was unjustified; the reopening was invalid, the assessment was void ab initio and the assessee's appeal is allowed.

Disallowance of expenditure in relation to exempt income under Section 14A read with Rule 8D - Application of judicial precedent in assessing applicability of Section 14A disallowance - Deemed annual value of property and computation of deemed rental income under Section 23(4) - Allowance of standard deduction under Section 24(a) against deemed rent

Disallowance of expenditure in relation to exempt income under Section 14A read with Rule 8D - Application of judicial precedent in assessing applicability of Section 14A disallowance - Whether disallowance under Section 14A read with Rule 8D in respect of interest on LIC loan given to a partnership firm is sustainabl e - HELD THAT: - The assessee had borrowed against LIC policies and advanced those funds to a partnership firm from which he received share of profits, remuneration and interest. The AO applied Rule 8D read with Section 14A and disallowed interest expenses to the extent claimed. The CIT(A) upheld the disallowance relying on the Special Bench decision in Vishnu Anant Mahajan (Ahmedabad). No evidence or representations were placed before the Tribunal as the appeal proceeded ex parte. On that basis and having regard to the Special Bench precedent relied upon by the CIT(A), the Tribunal found no reason to interfere with the disallowance made by the AO and affirmed the CIT(A)'s order. [Paras 3, 5, 6]

Disallowance under Section 14A read with Rule 8D in respect of interest paid on LIC loan, as applied by the AO and affirmed by the CIT(A), is upheld and the ground of appeal is dismissed.

Deemed annual value of property and computation of deemed rental income under Section 23(4) - Allowance of standard deduction under Section 24(a) against deemed rent - Whether the addition of deemed rent under Section 23(4), computed at 7% of value and allowing 30% standard deduction under Section 24(a), was sustainable where supporting documents were not produced - HELD THAT: - The AO treated certain properties as deemed let out and computed annual rental value at 7% of the value shown in the assessee's balance sheet following the ratio in Smt. Radhadevi Dalmia, allowed the statutory 30% standard deduction under Section 24(a), and added the resulting taxable deemed rent to the assessee's income. The assessee's explanations before the AO and CIT(A) - that one flat was self-occupied and another was let out - were unsupported by documentary evidence. The CIT(A) accepted the AO's valuation methodology based on the cited High Court decision and noted that the statutory 30% deduction had already been allowed. In the absence of evidence to rebut the AO's computation and given the precedent relied upon, the Tribunal found no reason to interfere. [Paras 7, 9, 11]

Addition of deemed rental income under Section 23(4), computed at 7% of the property value with 30% standard deduction under Section 24(a) as done by the AO and affirmed by the CIT(A), is upheld and the ground of appeal is dismissed.

Final Conclusion: Both grounds of the assessee's appeal-(i) disallowance under Section 14A read with Rule 8D relating to interest on LIC loan, and (ii) addition of deemed rental income under Section 23(4) with application of 30% standard deduction under Section 24(a)-are dismissed and the orders of the AO as upheld by the CIT(A) are affirmed.

Allowability of current year losses - treatment of revised return - filing within extended due date - faceless appeal regime - award of costs in tax litigation

Allowability of current year losses - treatment of revised return - filing within extended due date - Denial of current year losses by CPC on account of return filed on 15.01.2020 being treated as original - HELD THAT: - The Tribunal found on the record that the assessee filed an original return on 30.10.2019 which was within the extended due date and subsequently filed a revised return on 15.01.2020. The intimation under challenge was issued on the basis that the return filed on 15.01.2020 was original, and therefore current year losses were disallowed. On scrutiny of the material available on record the Tribunal observed that the return of 15.01.2020 was a revised return and the original return was filed within the extended due date; consequently the denial of losses based on the system processing treating the revised return as original was incorrect. For these reasons the Tribunal allowed the grounds impugning the disallowance. [Paras 7]

Grounds challenging the disallowance of current year losses are allowed and the denial by CPC is held to be incorrect.

Faceless appeal regime - award of costs in tax litigation - Claim for award of costs against the Department for alleged negligence in not appreciating the facts - HELD THAT: - The assessee sought costs contending hardship and unnecessary litigation caused by the lower authorities' failure to appreciate that the return filed on 15.01.2020 was revised. The Tribunal noted that the proceedings before the first appellate authority were conducted under the faceless regime, which limits personal attribution to a particular officer, and that there was no material on record demonstrating mala fides or primafacie illegality by the Department. Reliance placed on Chiranji Lal Tak and other authorities was considered distinguishable on facts. In the absence of evidence of mala fide action or grave illegality warranting a deterrent award, the Tribunal declined to award costs. [Paras 11, 12, 13]

Claim for costs is rejected.

Final Conclusion: Appeal is partly allowed: the denial of current year losses is set aside as the return of 30.10.2019 was the original return filed within the extended due date, but the claim for costs against the Department is dismissed.

Deduction under section 80P(2)(d) for interest/dividend received from co-operative banks/co-operative societies - Distinction between income attributable to banking activity and income eligible for deduction under section 80P(2)(a) - Application of precedential High Court decisions in assessee's own case - Treatment of interest from commercial banks as income from other sources with deduction under section 57

Deduction under section 80P(2)(d) for interest/dividend received from co-operative banks/co-operative societies - Application of precedential High Court decisions in assessee's own case - Distinction between income attributable to banking activity and income eligible for deduction under section 80P(2)(a) - Assessee entitled to deduction under section 80P(2)(d) in respect of interest income earned on investments/deposits made with co-operative banks - HELD THAT: - The Tribunal examined competing authorities including the Hon'ble Supreme Court decision in the assessee's earlier case and later High Court decisions. The Supreme Court's decision was fact specific and confined to situations where interest arose on amounts retained as liabilities payable to members and invested short term, and therefore held not attributable to activities under section 80P(2)(a)(i)/(a)(iii). On the facts of the present assessment year, the amounts invested in co operative banks were not amounts due to members nor shown as liabilities; they were surplus funds invested because there were no takers for loans. Following the Karnataka High Court decision in the assessee's own case and the Gujarat High Court's view, the Tribunal held that interest/dividend earned by a co operative society on investments with co operative banks falls within the scope of deduction under section 80P(2)(d). The Tribunal distinguished the Supreme Court authority on its facts and applied the High Court precedents to allow the claim. The view for 2015 16 is applied mutatis mutandis to the assessment years 2016 17, 2017 18 and 2018 19. [Paras 9, 11, 12]

Grounds 2 and 3 partly allowed and deduction under section 80P(2)(d) allowed for the interest income from co operative banks; same view applied to AYs 2016 17, 2017 18 and 2018 19.

Treatment of interest from commercial banks as income from other sources with deduction under section 57 - Interest earned from commercial banks to be treated under the head 'income from other sources' with allowance for expenses as per section 57 - HELD THAT: - The Tribunal directed that interest earned by the assessee from commercial banks should be assessed as income from other sources and that relief in respect of the cost/expenses relating to such interest may be allowed in accordance with section 57 of the Act. [Paras 9]

Interest from commercial banks to be assessed under income from other sources and considered for deduction under section 57 as per law.

Distinction and alternative claims under section 80P(2)(a)(i) and section 80P(2)(a)(iii) - Alternative grounds relating to entitlement under section 80P(2)(a)(i) and 80P(2)(a)(iii) not adjudicated and left open for future argument - HELD THAT: - The Tribunal, having allowed the claim under section 80P(2)(d), observed that the alternative/contentious grounds (grounds 4-6) were advanced without prejudice and therefore did not require adjudication in the present proceedings. Those alternative contentions are left open for the assessee to pursue in appropriate circumstances. [Paras 10]

Grounds 4-6 left open and not decided; assessee free to argue these in appropriate proceedings.

Final Conclusion: The appeals are partly allowed for statistical purposes: deduction under section 80P(2)(d) is allowed in respect of interest/dividend from co operative banks for AY 2015 16 and the same view is applied to AYs 2016 17, 2017 18 and 2018 19; interest from commercial banks to be taxed as income from other sources with relief under section 57; alternative claims under sections 80P(2)(a)(i) and 80P(2)(a)(iii) remain undecided and are left open.

Addition on account of bogus purchases and accommodation entries - restriction of addition to the profit element embedded in alleged bogus purchases - requirement of opportunity to rebut and to cross examine third party witnesses (principle of natural justice) - proof of genuineness by bills and payments through banking channels - application of PCIT v. Tejua Rohitkumar Kapadia principle

Addition on account of bogus purchases and accommodation entries - proof of genuineness by bills and payments through banking channels - application of PCIT v. Tejua Rohitkumar Kapadia principle - restriction of addition to the profit element embedded in alleged bogus purchases - Sustainability of additions made by AO and confirmed by CIT(A) on account of alleged bogus purchases and related commission. - HELD THAT: - The Tribunal examined the materials placed by the assessee - invoices, bank payments, confirmations, stock and sales records - and the authorities' reliance on investigation reports and third party statements. It noted absence of any direct adverse material showing recycling of funds back to the assessee and observed that payments were routed through banking channels and purchases were reflected in books and audited financials. The Tribunal recorded and applied the principle from PCIT v. Tejua Rohitkumar that purchases supported by bills and account payee cheque payments, together with seller confirmation and no evidence of recycling, cannot be treated as bogus. While the Tribunal found procedural and evidentiary infirmities in the material relied upon by the AO/CIT(A), it followed authority permitting restriction of any addition to the profit element embedded in alleged accommodation purchases rather than treating full purchases as income. On facts and in exercise of discretion to protect revenue, the Tribunal substituted the additions upheld below by an addition computed at 8% of the total alleged purchases as sufficient to cover any leakage of revenue. [Paras 9, 10, 11, 12, 13]

Additions on account of alleged bogus purchases and commission were not sustained in full; they were restricted and substituted by an addition equal to 8% of the total alleged purchases.

Requirement of opportunity to rebut and to cross examine third party witnesses (principle of natural justice) - Validity of relying on third party statements and investigation material not confronted to the assessee or tested by cross examination. - HELD THAT: - The Tribunal found that statements of third parties relied upon by AO and certain investigation wing materials were not confronted to the assessee and the assessee was not given opportunity to cross examine the persons whose statements were used against it. This procedural lacuna undermined the basis for treating the purchases as bogus. Consequently, the Tribunal held that the conclusions drawn by the authorities on that material were legally infirm and could not support full additions. [Paras 11, 12]

Findings based on untested third party statements and investigation material violated principles of natural justice and could not sustain the full additions.

Final Conclusion: Appeal partly allowed: additions on account of alleged bogus purchases and commission upheld below were reduced; the Tribunal substituted the additions by an amount equal to 8% of the total alleged purchases for AY 2016-17, having regard to evidentiary defects and the need to restrict any taxation to the profit element.

Deductibility of loss due to embezzlement as revenue loss - application of income and exemption under section 11 - accumulation of funds and utilisation requirement under section 11(2) - validity of Form No.10 where objects are stated in general terms - effect of registration under section 12A on taxability/status as AOP - assessment year independence in taxation of income reflected in Form-26AS

Deductibility of loss due to embezzlement as revenue loss - application of income and exemption under section 11 - Allowance of claim for loss on account of embezzlement by employees and effect on assessment for AY 2015-16. - HELD THAT: - Both the Assessing Officer and the CIT(A) accepted that embezzlement had occurred and there were recoveries credited to the consolidated Income and Expenditure Account. The Tribunal examined the documentary evidence of manipulated bills and the fact of recovery by police, and applied the reasoning of precedents (including principles in Nainital Bank Ltd.) and Board Circular No.35D to hold that loss suffered from embezzlement arising in the course of carrying out the society's day-to-day charitable activities is a revenue loss incidental to those activities and therefore deductible. Having regard to admitted facts and recoveries already accounted for, the Tribunal concluded that the balance embezzlement loss of Rs. 49,09,290/- should be allowed as a deduction for the year under consideration. [Paras 9]

The addition of Rs. 49,09,290/- on account of embezzlement is deleted and the loss is allowed as a revenue deduction.

Assessment year independence in taxation of income reflected in Form-26AS - application of income and exemption under section 11 - Sustainment of addition for difference between interest income as per Form 26AS and declared in return for AY 2015-16, and consequential directions regarding earlier years. - HELD THAT: - The Tribunal noted that the discrepancy between interest as per Form 26AS and the return for AY 2015-16 was not disputed on quantum, and reiterated the principle that each assessment year is independent so income reflected in Form 26AS must be assessed in the year in which it accrued. The assessee's contention that higher interest declared in earlier years should be set off in the captioned year was rejected. However, the Tribunal observed that the assessee had filed applications under section 154 for AYs 2013-14 and 2014-15 and directed the Assessing Officer to consider those applications sympathetically and examine supporting evidence; that examination is administrative and does not alter the Tribunal's decision for AY 2015-16. [Paras 9]

Ground challenging addition of Rs. 65,94,957/- is dismissed for AY 2015-16; AO to sympathetically consider assessee's section 154 applications for AYs 2013-14 and 2014-15.

Accumulation of funds and utilisation requirement under section 11(2) - validity of Form No.10 where objects are stated in general terms - effect of registration under section 12A on taxability/status as AOP - Whether Rs. 2 crore accumulated in A.Y.2010-11 became taxable under section 11(2) for remaining unutilised after five years, given Form No.10 described objects generally, and whether purchase of adjoining land satisfied utilisation for educational object. - HELD THAT: - The Tribunal found it undisputed that adjoining land was purchased to extend the college and that the society runs educational institutions; purchase was therefore in furtherance of its educational objects. The Tribunal applied persuasive authority including the Punjab & Haryana High Court decision in Market Committee, Tohana and the Chandigarh Bench in Rogi Kalyan Samiti to hold that stating development or objects in general terms in Form No.10 does not ipso facto defeat the benefit under section 11(2) where the utilisation is for objects of the society as per its bye laws and registration. In view of these facts and authorities, the Tribunal upheld the CIT(A)'s deletion of the addition and rejected the Department's contention that lack of specificity in Form No.10 rendered the accumulation taxable; the assessee's registration under section 12A and the actual utilisation by purchase of land for educational purpose supported exemption rather than taxation as an AOP. [Paras 10]

Departmental grounds challenging deletion of the Rs. 2 crore addition are dismissed; the addition is not sustained and the exemption under section 11 stands respected on these facts.

Final Conclusion: The assessee's appeal is partly allowed (embezzlement loss allowed; addition for difference in interest income sustained for AY 2015-16 but AO to consider section 154 applications for earlier years; exemption under section 11 upheld against the Department's challenge to the accumulated funds), and the Department's appeal is dismissed.

Exemption for sum received from a relative under Section 56(2)(vii) - unexplained cash/credits to capital account - treatment of joint bank/FDR proceeds on death of joint-holder - notional income from house property and deemed let out value - treatment of ancestral property held by HUF - vacancy allowance and burden of proof for unsuccessfully letting property - estimation of fair rent at 15% of investment

Exemption for sum received from a relative under Section 56(2)(vii) - treatment of joint bank/FDR proceeds on death of joint-holder - unexplained cash/credits to capital account - Addition of Rs. 13,69,371 as unexplained credit to capital account challenged as being proceeds of matured FDRs of the assessee's aunt and exempt as amount received from a relative. - HELD THAT: - The Tribunal found on the materials that the FDRs in question were made by the deceased aunt during her lifetime with the assessee recorded as a joint-holder; the FDRs matured subsequently and the maturity value was credited to the assessee's account after her death. The assessee filed a family tree and other supporting evidence showing the relationship falling within the definition of "relative" under the statute and explained why the principal was not recorded in his books (because the FDRs were originally of the aunt). The Tribunal accepted that the assessee had cared for the aunt and that other relatives corroborated the position. Given that the amount represented proceeds of old FDRs in which the assessee was a joint-holder and that the relationship to the donor was established, the Tribunal concluded there was no basis to sustain the addition as unexplained income; the statutory exemption for sums received from specified relatives applied. [Paras 8]

Addition of Rs. 13,69,371 treated as unexplained credit deleted; amount held exempt as received from a relative.

Notional income from house property and deemed let out value - vacancy allowance and burden of proof for unsuccessfully letting property - treatment of ancestral property held by HUF - estimation of fair rent at 15% of investment - Addition of Rs. 6,67,492 on account of income from house property assessed on the basis that three of four properties were deemed let out and fair rent estimated at 15% of investment. - HELD THAT: - The Tribunal examined the nature and use of each property. The Baroda flat used as staff quarters for MRI staff was accepted as not attracting notional rent. The Baroda property purchased for the assessee's personal stay was treated as self-occupied and no notional income was called for. The ancestral house at the native village was held to belong to the assessee's HUF and, being old and uninhabitable, could not be treated as the assessee's residential house for individual assessment. The Ahmedabad property, purchased for medical facilities and claimed not let out, was not accepted as genuinely unlet because the assessee failed to demonstrate efforts to let it out or that vacancy allowance was warranted; accordingly that property may be treated as deemed let out. The Tribunal directed the assessing officer to estimate fair rent at 15% of the value of the Ahmedabad property and proceed to compute income from house property allowing the statutory deduction. [Paras 11, 14]

Ground partly allowed - additions held not sustainable in respect of staff quarter, self-occupied Baroda property and ancestral HUF house; Ahmedabad property to be treated as deemed let out and AO directed to estimate fair rent at 15% and compute tax accordingly.

Final Conclusion: The appeal is partly allowed: the addition of Rs. 13,69,371 as unexplained capital credit is deleted (held exempt as received from a relative), while the addition on account of house property is partly set aside - the AO is directed to treat the Ahmedabad property as deemed let out, estimate fair rent at 15% of its value and recompute income from house property; other impugned additions on house property are rejected.

Admissibility and binding effect of statement under Section 108 of the Customs Act - Retracted confession and voluntariness - Principles of natural justice and right to cross-examination in presence of confession - Prohibition on transfer/subletting of Customs Broker licence and related obligations under Customs Broker Licensing Regulations, 2018 - Obligations of Customs Broker: authorisation, KYC verification, due diligence and advising clients - Doctrine of proportionality in disciplinary action - suspension versus revocation of licence - Evidentiary basis for findings of mis-declaration and undervaluation - Compliance with procedural requirement of furnishing offence report under Regulation 17(1)

Admissibility and binding effect of statement under Section 108 of the Customs Act - Retracted confession and voluntariness - Statement recorded under Section 108, though later retracted, was voluntary and binding on the appellant. - HELD THAT: - The Tribunal found that the appellant had signed and attested the question-answer statement and affirmed it as his true, correct and voluntary statement. The subsequent retraction was held to be an afterthought based on legal tutoring and no contemporaneous medical evidence or plea of coercion was produced to challenge voluntariness. Reliance was placed on settled principles that a voluntary confession recorded under Section 108 is binding even if later retracted, and the burden lies on the accused to prove compulsion or inducement. [Paras 9, 16]

The Section 108 statement is admissible and binding; the retraction is rejected.

Principles of natural justice and right to cross-examination in presence of confession - Denial of opportunity to cross-examine co-accused witnesses did not violate principles of natural justice in view of the appellant's own voluntary confessional statement. - HELD THAT: - The Tribunal held that where a party has made a voluntary confessional statement, failure to grant cross-examination of witnesses whose confessions are relied upon does not amount to breach of natural justice that would vitiate the proceedings. Authorities were applied to the effect that a confession, if voluntary, binds the maker and obviates the necessity of cross-examining witnesses whose evidence would be cumulative. [Paras 10, 11, 16]

No violation of natural justice in denying cross-examination; reliance on confessional statement is permissible.

Prohibition on transfer/subletting of Customs Broker licence and related obligations under Customs Broker Licensing Regulations, 2018 - Obligations of Customs Broker: authorisation, KYC verification, due diligence and advising clients - Appellant violated Regulation 1(4) by subletting the Customs Broker licence and failed to discharge obligations under Regulations 10(a), 10(n), 10(d) and 10(e) of CBLR, 2018. - HELD THAT: - The appellant's own recorded statement admitted that he provided his licence to another person for monetary consideration and that that person filed bills of entry and maintained documents. The appellant also admitted lack of KYC collection, lack of physical verification of importer addresses, and ignorance about the importer firms and proprietors. On these admissions the Tribunal concluded that the appellant had sublet his licence and therefore could not have complied with duties to obtain authorisations, verify IEC/GSTIN/identity and exercise due diligence or advise clients, establishing contraventions of the cited Regulations. [Paras 17, 19, 21]

Violations of Regulation 1(4), 10(a), 10(n), 10(d) and 10(e) are established on the basis of the appellant's admissions.

Evidentiary basis for findings of mis-declaration and undervaluation - Findings that the appellant actively participated in mis-declaration and undervaluation of imports were unsustainable for lack of material. - HELD THAT: - Although the department alleged that the customs broker aided and abetted gross mis-declaration and undervaluation, the Tribunal noted absence of material demonstrating active or passive facilitation by the appellant beyond subletting the licence. The ongoing DRI investigation and absence of show-cause proceedings against importers or alleged facilitators were noted; the Tribunal held that the adjudicating authority's findings of mis-declaration and undervaluation against the appellant were without material and premature. [Paras 22]

Charge of mis-declaration and undervaluation against the appellant set aside for want of supporting material.

Doctrine of proportionality in disciplinary action - suspension versus revocation of licence - Compliance with procedural requirement of furnishing offence report under Regulation 17(1) - Revocation of the Customs Broker licence was disproportionate and unsustainable; however forfeiture of security deposit and imposition of penalty were warranted. Additionally, the department failed to furnish a proper offence report as mandated under Regulation 17(1). - HELD THAT: - Applying the proportionality test, the Tribunal balanced the gravity of proven infractions (subletting and regulatory lapses) against mitigating circumstances (no material of active facilitation, appellant's limited role, and ongoing investigation). Authorities were applied to hold that revocation is an extreme remedy requiring aggravating circumstances which were not present. The Tribunal further observed that the purported 'offence report' relied upon did not contain the requisite summary of investigation and framing of charges as required by the Regulation's Explanation, undermining the procedural foundation for revocation. Consequently, revocation was quashed while financial penalties were upheld as proportionate punishment. [Paras 23, 24, 27, 29, 30]

Order revoking licence set aside; forfeiture of security deposit and penalty affirmed; procedural non-compliance with Regulation 17(1) noted as further ground against revocation.

Final Conclusion: The Tribunal upheld that the appellant's Section 108 statement was voluntary and binding and that denial of cross-examination did not breach natural justice in those circumstances; it found proven regulatory breaches (subletting of licence and failures of authorisation, KYC, due diligence and advising clients) but held that findings of active involvement in mis-declaration and undervaluation were unsupported by material. Applying the doctrine of proportionality and noting procedural lapses regarding the offence report, the Tribunal set aside the revocation of the Customs Broker licence but confirmed forfeiture of the security deposit and affirmed the penalty imposed.

Confiscation of goods - duty drawback entitlement - finished leather criteria under Public Notice No. 3/ETC(PN) 1992/97 dated 27.05.1992 - reliance on expert report - violation of natural justice by non-supply of report

Confiscation of goods - duty drawback entitlement - finished leather criteria under Public Notice No. 3/ETC(PN) 1992/97 dated 27.05.1992 - reliance on expert report - violation of natural justice by non-supply of report - Whether the order of confiscation, demand of duty, redemption fine and penalty could be sustained where the departmental decision rested on an expert test report (CLRI) that was not placed on record or furnished to the exporter and where the order did not extract or explain the testing details relied upon to conclude that the goods were not finished leather. - HELD THAT: - The Tribunal found that the departmental case turned on the CLRI test report which allegedly concluded the goods lacked the protective coating and therefore did not meet the Public Notice criteria for finished leather. Neither the testing methodology nor the relevant portions of the report were extracted into the orders below, and the report was not supplied to the exporter despite directions and adjournments. As the CLRI report was a crucial document for determining whether the goods qualified as finished leather and for sustaining confiscation, duty demand, redemption fine and penalty, failure to place the report on record and to furnish it to the appellant amounted to a denial of the opportunity to test or meet the departmental conclusion. In those circumstances the Tribunal held that the impugned measures could not be sustained and required setting aside. The Tribunal therefore set aside the Order-in-Original and the Order-in-Appeal and allowed the appeal with consequential relief. [Paras 8, 9]

The confiscation, demand of duty, redemption fine and penalty were set aside for failure of the Department to place the CLRI report on record and to furnish it to the exporter; the appeal was allowed with consequential relief.

Final Conclusion: Impugned orders of confiscation, duty demand, redemption fine and penalty set aside for failure to supply and place the expert (CLRI) report on record; appeal allowed with consequential relief.

Reasonable belief - burden of proof under Section 123 - confiscation under Section 111(d) and 111(l) - confiscation of sale-proceeds under Section 121 - penalty under Section 112 - requirement to allow cross-examination of witnesses/assayers - assayer's certificate inadmissibility without disclosed methodology - town seizure vis-a -vis import seizure

Reasonable belief - burden of proof under Section 123 - confiscation under Section 111(d) and 111(l) - Whether the Revenue had a reasonable belief and proved that the seized gold/gold jewellery were of foreign (smuggled) origin so as to justify confiscation under Section 111(d) and 111(l) and to shift the burden under Section 123. - HELD THAT: - The Tribunal found no concrete evidence to show that the seized jewellery were of foreign/Singapore origin: the assayers' certificates did not identify any foreign markings nor disclose the methodology used to determine origin, and the primary inculpatory statements were retracted. In town/seizure situations, the initial onus rests on the Department to form a reasonable belief before Section 123 can shift the burden to the person in possession. Absent a reasonable belief at the threshold, the statutory burden under Section 123 did not shift to the appellants. Consequently, the Department failed to prove that the goods were smuggled or improperly imported and thus could not sustain confiscation under Section 111(d) or 111(l). [Paras 21, 22, 36]

Confiscation under Section 111(d) and 111(l) set aside for lack of reasonable belief and failure to prove foreign/smuggled origin; burden under Section 123 did not shift to the appellants.

Requirement to allow cross-examination of witnesses/assayers - assayer's certificate inadmissibility without disclosed methodology - Whether reliance on assayers' certificates and voluntary statements without permitting cross examination rendered those pieces of evidence inadmissible or insufficient to support confiscation. - HELD THAT: - The Tribunal held that the assayers' certificates, which did not state the basis or methodology for concluding foreign origin or purity distinctions, could not be accepted at face value where appellants were denied a reasoned opportunity to cross examine the assayers. Judicial precedents require that statements relied upon in quasi judicial adjudications be subject to cross examination save in exceptional circumstances; no such exceptional circumstances were shown. Because the Department declined to permit cross examination of crucial witnesses (including the assayers) and produced no other reliable corroborative evidence, the certificates and retracted statements could not furnish the necessary proof of smuggling. [Paras 24, 30, 31]

Assayers' certificates and relied upon statements could not be given weight in the absence of cross examination and explanation of methodology; reliance thereon is vitiated.

Confiscation of sale-proceeds under Section 121 - town seizure vis-a -vis import seizure - Whether the confiscation of gold bars and Indian made jewellery as sale proceeds of smuggled goods under Section 121 (and by application of Section 120) was sustainable. - HELD THAT: - The Tribunal examined the material relied upon to treat certain bullion and Indian made jewellery as sale proceeds of smuggled goods and found insufficiency. For some items (notably the three 1 kg bars), documentary records produced on record (Bullion Operations Delivery Order memos, Form JJ and vouchers matching serial numbers) showed legitimate purchase through banking channels; those seizures were therefore an abuse of process. For other seized jewellery and bullion, because the primary allegation of foreign origin of raw material was not proved, the statutory chain required to treat converted jewellery or cash/ bars as sale proceeds of smuggling (so as to invoke Sections 120/121) was not established. [Paras 25, 36, 37]

Confiscation of gold bars and Indian made jewellery as sale proceeds of smuggling set aside for lack of proof; specific seized bars shown to have valid documentary backing and could not be confiscated.

Penalty under Section 112 - Whether penalty under Section 112 could be imposed on the appellants when confiscation and improper importation were not proved. - HELD THAT: - Section 112 penalizes acts which render goods liable to confiscation. Having held that the Department failed to establish import or smuggling and that confiscation was not sustainable, the Tribunal concluded there was no foundation for imposition of penalty. Penalty is not automatic and cannot be imposed where the elemental facts necessary for confiscation or improper importation are not proved. [Paras 39]

Penalty under Section 112 is set aside as there was no lawful basis for alleging improper importation or confiscation.

Final Conclusion: The appeals are allowed: the Tribunal set aside the Order in Original dated 15.06.2022, quashing confiscation of the seized gold/gold jewellery and the penalties imposed, on the grounds that the Revenue failed to form a reasonable belief or prove foreign/smuggled origin, relied on uncorroborated assayer certificates and retracted statements without permitting cross examination, and that certain seized bars had documentary proof of legitimate purchase; consequential benefits to the appellants to follow as per law.

Exemption under a general customs exemption notification for prepared unrecorded media - procedural requirement under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 - distinction between finished product and inputs/raw material for eligibility under an exemption notification - obligation of authorities to consider entitlement under alternative notifications where conditions are fulfilled (Share Medical Care principle)

Exemption under a general customs exemption notification for prepared unrecorded media - distinction between finished product and inputs/raw material for eligibility under an exemption notification - procedural requirement under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 - obligation of authorities to consider entitlement under alternative notifications where conditions are fulfilled (Share Medical Care principle) - Denial of benefit of exemption under Notification No. 24/2005 (Sl. No. 15) in respect of imported DVM-60 camcorder tapes and related rejection of claim under Notification No. 1/2011. - HELD THAT: - The Tribunal found that the goods imported - DVM-60 camcorder tapes - are finished prepared unrecorded media and not raw materials for manufacture of the items listed in Sl. Nos.1-38 of Notification No.24/2005. The Commissioner (Appeals) erred by bypassing a consideration of the appellant's claim under Sl. No.15 and proceeding to Sl. No.39 (which subjects benefit to following the Rules,1996) without any record-based justification that the imported goods were mere inputs. The Commissioner (Appeals) also wrongly conflated the claim under Notification No.24/2005 with conditions under Notification No.1/2011 and rejected both claims. Reliance on the principle stated by the Apex Court in Share Medical Care establishes that where an applicant is otherwise entitled to benefit under a notification, authorities must consider and decide that claim on merits and cannot deny relief merely because another benefit was sought or withdrawn earlier. Applying these principles, the Tribunal held the denial unsustainable as the impugned order failed to examine entitlement to Sl. No.15 on the facts and applied incorrect reasoning in rejecting the claims. [Paras 5, 6, 7, 8]

Impugned order rejecting exemption under Notification No.24/2005 (and related rejection under Notification No.1/2011) set aside; appeal allowed and appellant entitled to consequential benefits if otherwise due.

Final Conclusion: The appellate order denying exemption under Notification No.24/2005 was held untenable for failing to consider the appellant's entitlement to Sl. No.15 and for misapplying procedural and comparative-notification reasoning; the impugned order is set aside and the appeal allowed with consequential benefits as per law.

Financial debt - time value of money - acknowledgement of debt by entries in balance sheet - prerequisites for initiation of CIRP under Section 7 - commercial wisdom of the Committee of Creditors - limited judicial review of CoC business decisions - liquidation as a last resort - admissibility of claims and claim submission timelines

Financial debt - time value of money - acknowledgement of debt by entries in balance sheet - prerequisites for initiation of CIRP under Section 7 - Admission of the Corporate Debtor into CIRP by the Adjudicating Authority was sustainable. - HELD THAT: - There was undisputed disbursal of Rs.1.90 crore by the respondent to the corporate debtor and the corporate debtor's balance sheet recorded the amount as long term borrowings. The Tribunal applied settled precedent that acknowledgement in financial statements suffices to establish debt for the limited purpose of triggering CIRP. The court examined whether the transaction carried the commercial effect of borrowing or time value of money and, having regard to the surrounding communications and expectation of benefit from development, concluded the transaction possessed the requisite commercial character to qualify as financial debt. On these facts the prerequisites for filing under Section 7 were satisfied and the Adjudicating Authority did not err in admitting CIRP. [Paras 34, 35, 36, 37, 38]

First impugned order admitting the Corporate Debtor into CIRP is upheld.

Commercial wisdom of the Committee of Creditors - limited judicial review of CoC business decisions - liquidation as a last resort - Adjudicating Authority did not err in approving the CoC's proposal to liquidate the Corporate Debtor. - HELD THAT: - The Committee of Creditors, constituted on the basis of available claims, unanimously considered the corporate debtor's financial position, lack of operations and absence of likely resolution plans and, with 100% vote share, recommended liquidation. The Tribunal noted that judicial interference with the CoC's commercial decision is narrowly confined and the Adjudicating Authority may not re examine merits of a bona fide commercial decision of the CoC. On the material before it, the Adjudicating Authority acted within its limited review jurisdiction in approving liquidation; no material irregularity or fraud was shown to warrant setting aside the liquidation order. [Paras 43, 44, 45, 46]

Second impugned order approving liquidation is upheld.

Admissibility of claims and claim submission timelines - financial debt - liquidation as a last resort - SHPL is not entitled to be treated as a Financial Creditor and reconstitution of the CoC is not warranted; SHPL may file its claim before the liquidator. - HELD THAT: - The Tribunal distinguished the payments made by SHPL from the respondent's disbursal: the DA and related documents did not connect the respondent to the DA and the record showed SHPL's investment had characteristics of profit sharing/developer consideration rather than financial debt. The Resolution Professional had given public notice and communicated to potential claimants; SHPL failed to timely and properly submit its claim and initially filed as an Operational Creditor. The Adjudicating Authority had also allowed SHPL the benefit of excluded days but in any event proceeded to liquidation on the CoC recommendation. Given these findings, SHPL could not be placed on the same footing as the respondent and there was no basis to restart CIRP or reconstitute the CoC; SHPL was permitted to submit its claim to the liquidator. [Paras 49, 50, 51, 54, 55]

Prayer to treat SHPL as Financial Creditor and to reconstitute the CoC is rejected; SHPL may submit claim before the liquidator.

Final Conclusion: The appeals are dismissed. The Adjudicating Authority's orders admitting the corporate debtor into CIRP and approving liquidation are affirmed; the liquidator shall proceed with liquidation and SHPL is permitted to file its claim before the liquidator in accordance with the IBC and regulations.

Secured creditor in liquidation proceedings - relinquishment or realisation of security interest under Section 52 - presumption of security interest under Regulation 21A of the Liquidation Process Regulations - attachment order finality and limits of jurisdiction under Section 60(5) - assets forming part of the liquidation estate despite pre insolvency attachment

Assets forming part of the liquidation estate despite pre insolvency attachment - relinquishment or realisation of security interest under Section 52 - presumption of security interest under Regulation 21A of the Liquidation Process Regulations - Whether pre CIRP attachment by the Sales Tax Department prevented the properties from being part of the liquidation estate and justified refusal to release the attachment so as to permit liquidation sale. - HELD THAT: - The Tribunal held that a departmental attachment which has attained finality does not convert the attaching authority into owner of the assets so as to exclude the assets from the liquidation estate. The statutory scheme of the Code-specifically Section 52-permits a secured creditor either to relinquish its security interest to the liquidation estate or to realise the security interest, subject to verification by the liquidator. Regulation 21A creates a presumption that where a secured creditor does not intimate its decision within the prescribed time the asset shall be part of the liquidation estate. The record also showed that a prior charge (PNB) was registered as first charge holder. The Adjudicating Authority's reliance on the Apex Court's observations in M/s Embassy Property Development Pvt. Ltd. was held to be misplaced because that decision addresses the limited ambit of Section 60(5) and the ability of the NCLT to reopen final public law orders, whereas the present controversy concerned the consequence of a pre insolvency attachment on the status of assets in liquidation and the statutory mechanism for secured creditors to deal with security. Applying Section 52 and Regulation 21A, the Tribunal found substance in the liquidator's contention that the Sales Tax Department could not be treated as owner and that the assets continued to remain part of the liquidation estate; accordingly the Adjudicating Authority erred in refusing to direct release of the attachment to enable completion of liquidation sale. [Paras 11, 13, 14]

Impugned order rejecting the liquidator's application set aside; I.A. No.1300 of 2020 allowed and the Sales Tax Department directed to release the attachment to enable further steps in liquidation.

Final Conclusion: Both appeals allowed; the Adjudicating Authority's order dated 10.02.2023 is set aside and the attachment is ordered to be released so that the liquidation process and the declared sale can proceed.

Summary order. Application for condonation of delay of 402 days in filing the civil appeal dismissed; consequently the appeal is dismissed; questions of law left open.

Admissibility of CENVAT credit on construction services - Validity of documents for CENVAT credit: requirement of Service Tax registration number - Burden of proof on provider of output service for admissibility of CENVAT credit - Extended period of limitation for recovery under Section 73: wilful suppression - Admissibility of subsequently produced documents before the Tribunal and Rule 23 of the CESTAT (Procedure) Rules, 1982

Admissibility of CENVAT credit on construction services - Admissible input services for cargo handling, storage and warehousing - CENVAT credit availed on construction-related input services in relation to cargo handling, storage and warehousing services is admissible. - HELD THAT: - The Tribunal examined the Commissioner's reasoning and earlier decisions of higher fora (including Sai Samhita Storages and subsequent consistent authorities) which had treated construction-related input services as admissible where those inputs are used for providing warehousing/storage/port services. Applying that precedent and the Commissioner's findings, the Tribunal found no merit in the Departmental appeal challenging allowance of credits and accordingly confirmed the Commissioner's decision permitting the credits for the relevant period and purpose. [Paras 6]

Findings of the Commissioner allowing CENVAT credit on construction and related services for provision of cargo handling, storage and warehousing services are confirmed.

Validity of documents for CENVAT credit: requirement of Service Tax registration number - Burden of proof on provider of output service for admissibility of CENVAT credit - CENVAT credit taken on invoices missing the Service Tax registration number or otherwise defective is inadmissible where the provider of output service fails to establish bonafides and the requisite particulars are absent. - HELD THAT: - The Tribunal reproduced and relied upon sub rule (2), sub rule (5) and sub rule (6) of Rule 9 of the CENVAT Credit Rules, 2004, observing that while certain particulars may be excluded the rule insists on specified particulars including the Service Tax registration number and places the burden of proof on the provider of output service. The Tribunal noted the Commissioner's factual finding-supported by comparison of sample invoices-that some invoices conspicuously omitted registration numbers (while other invoices of the same supplier did show them), casting doubt on genuineness. On that basis the Tribunal declined to interfere with the Commissioner's conclusion disallowing credit on such defective or doubtful invoices. [Paras 6, 7]

Disallowance of CENVAT credit for invoices missing Service Tax registration number or otherwise invalid is upheld.

Extended period of limitation for recovery under Section 73: wilful suppression - Revenue failed to establish the requisite wilful suppression with intent to evade duty so as to invoke the extended period of limitation under Section 73; however, other grounds for denial (invalid or missing documents) sustained the disallowance. - HELD THAT: - The assessee contended that the show cause notice was issued beyond the normal limitation and that extended period could not be invoked since wilful suppression was not established. The Tribunal noted these submissions and the authorities relied upon by the assessee but, on the record, upheld the Commissioner's factual findings on invalid/missing documents which independently justified disallowance. The Tribunal did not find merit in the Revenue's appeal on the construction service point and, in effect, treated the extended period contention as not prevailing in light of the findings on document validity. [Paras 3, 6]

Extended period for recovery was not sustained as a separate ground overcoming the deficiencies in documents; the Commissioner's order stands on the document based findings.

Admissibility of subsequently produced documents before the Tribunal and Rule 23 of the CESTAT (Procedure) Rules, 1982 - Invoices produced before the Tribunal during hearing cannot be admitted as additional evidence in the absence of compliance with the procedure under Rule 23 of the CESTAT (Procedure) Rules, 1982. - HELD THAT: - Although certain invoices were produced with the appeal memo and at hearing, the Tribunal observed that the Commissioner had recorded that the assessee had earlier stated it had no further documents to produce. The Tribunal held that such subsequently produced documents could not be taken into account as additional evidence without following Rule 23 procedures, and therefore they could not remedy the defect relied upon by the Commissioner. [Paras 8]

Documents furnished before the Tribunal were not admitted in absence of compliance with the prescribed procedure; therefore they did not affect the Commissioner's disallowance.

Final Conclusion: Both appeals are dismissed and the Commissioner's Order in Original dated 15.03.2018 is confirmed: credits on construction and related services used for warehousing/storage services are allowed, while CENVAT credit claimed on invoices deficient in required particulars (notably missing Service Tax registration numbers) is disallowed; subsequently produced documents were not admitted without compliance with Rule 23.

Exemption from service tax for services used in authorised operations of SEZ units - overriding effect of the SEZ Act over inconsistent provisions of general tax statutes - redundancy of exemption notifications under the Finance Act where charging provisions are ousted - entitlement to refund of service tax paid for services for authorised SEZ operations - limited remand for documentary verification and natural justice

Exemption from service tax for services used in authorised operations of SEZ units - overriding effect of the SEZ Act over inconsistent provisions of general tax statutes - redundancy of exemption notifications under the Finance Act where charging provisions are ousted - Whether conditions including limitation prescribed in exemption notifications under the Finance Act can bar refund to a SEZ unit when exemption is provided by the SEZ Act and Rules - HELD THAT: - The Tribunal held that Section 26(1)(e) of the SEZ Act and Rule 31 of the SEZ Rules confer exemption from payment of service tax for services used in authorised SEZ operations and that Section 51 gives the SEZ Act overriding effect over inconsistent provisions of other laws. The notification relied upon by Revenue was issued under the Finance Act and its conditions (including the one year filing limitation) are inconsistent with the SEZ Act insofar as the SEZ Act itself creates the exemption. Consequently, where services are for authorised SEZ operations and no challenge is made to authorisation, the conditions in the exemption notification are redundant and cannot be used to deny refund of service tax paid; the need to file refund claims in the same quarter under such an exemption notification is irrelevant when the charging provisions are ousted by the SEZ Act. The Tribunal therefore set aside the rejection of refund claims on the ground of time bar or by reference to conditions of the Finance Act notification. [Paras 7, 8, 10]

The SEZ Act and Rules override and render redundant the conditions of the Finance Act exemption notification; refund entitlement cannot be denied on that basis.

Entitlement to refund of service tax paid for services for authorised SEZ operations - limited remand for documentary verification and natural justice - Whether the adjudicating authority must verify the genuineness and supporting documents of the refund claims and the appropriate remedy after holding entitlement in principle - HELD THAT: - Although the Tribunal found the appellant entitled to refund in principle because the services were for authorised SEZ operations and the SEZ Act overrides inconsistent notification conditions, it recognised that the factual verification of invoices and supporting documents (including bank evidence and approvals where relevant) remains necessary. Such verification, and any findings on genuineness, must be undertaken by the adjudicating authority after affording the appellant opportunity to produce documents and following the principles of natural justice. Accordingly, the Tribunal set aside the impugned order and remanded the matter for limited verification and consequent grant of refund if the documents and facts are found in order. [Paras 11]

Matter remanded to the Adjudicating Authority for limited verification of supporting documents and for disposal after complying with natural justice.

Final Conclusion: The impugned order rejecting refund claims is set aside: the SEZ Act and Rules override inconsistent conditions in the Finance Act exemption notification and the appellant is entitled to refund in principle for services used in authorised SEZ operations; the matter is remanded to the adjudicating authority for verification of supporting documents and disposal after complying with natural justice.

Utilisation of CENVAT credit for payment of service tax on import of services - Explanation to Rule 3(4)(e) of the Cenvat Credit Rules - non retrospective effect - Imported services treated as deemed output service where recipient is liable - Adjustment between service tax and Education/SHE Cess payments - Limitation under Section 73 of the Finance Act, 1994

Utilisation of CENVAT credit for payment of service tax on import of services - Explanation to Rule 3(4)(e) of the Cenvat Credit Rules - non retrospective effect - Imported services treated as deemed output service where recipient is liable - Whether CENVAT credit could be utilized to discharge service tax liability on import of services for the period prior to 01.07.2012 (March 2009). - HELD THAT: - The Explanation to Rule 3(4)(e) prohibiting use of CENVAT credit where the service recipient is liable was inserted w.e.f. 01.07.2012 and therefore did not apply to the period in dispute (2009). Prior to that insertion, the Cenvat Credit Rules did not bar utilization of credit for payment of service tax on imported services; Rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules deals with availing credit and does not expressly restrict utilization. Tribunal and higher court decisions treating a recipient liable importer as a deemed provider/output service provider were followed; the issue has attained finality in the appellant's favour by earlier Tribunal, High Court and Supreme Court consideration. Applying these principles, utilization of CENVAT credit for payment of service tax on imported services for the period under dispute was held legally tenable and the demand on this count unsustainable. [Paras 10, 11, 12, 13]

CENVAT credit could be lawfully used to pay service tax on import of services for the period March 2009; the demand on this count is set aside.

Adjustment between service tax and Education/SHE Cess payments - Principle of revenue neutrality where tax is paid albeit under wrong head - Whether excess payments under the service tax head could be adjusted against short payments of Education Cess/SHE Cess (Financial Year 2007-08). - HELD THAT: - The records showed aggregate tax for the disputed period was discharged and that excesses and shortfalls across heads largely offset each other; allowing cross adjustment would leave only a single shortfall in January 2008 which was subsequently paid. Precedents treating cess as duty permitting utilization of available credit or adjustment, and administrative guidance that mistaken accounting codes should not defeat recognition of amounts remitted, were applied by analogy to service tax and cesses. On that basis excess service tax paid could be adjusted against shortfalls in Education/SHE Cess, rendering the confirmed demand unsustainable. [Paras 14, 15, 16, 17]

Excess service tax payments may be adjusted against short payment of Education/SHE Cess for FY 2007-08; after adjustment the remaining shortfall had been paid and the demand on this count is set aside.

Final Conclusion: Both issues in the appeal are decided in favour of the appellant; the impugned order confirming demand and interest is set aside and, being unsustainable, the penalty is also not imposable. The appeal is allowed.

Franchise service - representational right - distinction between distributorship (marketing/sale) and franchise - refundable exclusivity fee as deposit and not franchise fee - requirement that franchisee lose independent identity to constitute franchise

Franchise service - representational right - distinction between distributorship (marketing/sale) and franchise - Whether the agreements between the appellant and its distributors constitute 'franchise' agreements attracting service tax as franchise service - HELD THAT: - The Tribunal examined the definition of 'franchise' as amended w.e.f. 16.06.2005 and the CBEC Circular explaining that mere conferral of a right to sell does not ipso facto make an agreement a franchise; what is required is a 'representational right' by which the franchisee, for practical purposes, loses its independent identity and represents the franchisor. On construction of the distributor agreements and relevant clauses, the Tribunal found the arrangements were for marketing, promotion, distribution and after sale services and did not confer representational rights on the distributors. The terms reserved significant control and ownership with the appellant (including asset ownership, training, controls, targets and obligations on distributors) and the distributors remained independent wholesale purchasers/distributors. The Tribunal relied on earlier authorities applying the 'representational right' test and concluded the agreements lacked the essential characteristic of a franchise relationship. Consequently the transaction could not be re characterised as a 'franchise' service. [Paras 10]

Agreements do not constitute franchise agreements and franchise service cannot be held to have been provided by the appellant

Refundable exclusivity fee as deposit and not franchise fee - franchise service - Whether the 'Exclusivity Fee' charged by the appellant from distributors is a franchise fee taxable as franchise service - HELD THAT: - On examining the financial terms, the Tribunal observed that the 'Exclusivity Fee' was payable in instalments, described in the agreement as covering the total period of the distributorship and expressly refundable on pro rata basis for unexpired period on early termination. The Tribunal treated this payment as a deposit or guarantee rather than a non refundable franchise consideration conferring representational rights. Given the absence of representational rights and the refundable nature of the fee, the payment could not be characterised as a franchise fee attracting service tax under the franchise service head. [Paras 10]

The Exclusivity Fee is a refundable deposit/guarantee and not a franchise fee taxable as franchise service

Final Conclusion: The impugned orders confirming demand and penalties under the franchise service classification are set aside; the appeals are allowed.

Test of manufacture and marketability - waste or by-product not being excisable - reversal of cenvat credit under sub-rule (3) of Rule 6 - incidence of manufacture - harmonious construction of cenvat credit rules

Test of manufacture and marketability - waste or by-product not being excisable - incidence of manufacture - Whether the waste sludge arising inevitably during manufacture of paper and paper board is an excisable good. - HELD THAT: - The Tribunal held that the sludge is an unintended residue arising incidentally in the process of manufacturing paper and paper board and does not satisfy the test of manufacture and marketability required for incidence of excise. The reasoning follows precedents including the Tribunal's earlier decision in the appellant's own case holding that where a product emerges as waste or residue and the manufacturer did not embark on the process with an intention to produce that product as a final article, it cannot be characterized as an excisable product. The Tribunal relied on the principle that excise duty is an incidence of manufacture and therefore the product must have gone through a manufacturing process in contemplation of producing that article. Earlier interim observations to the contrary were treated as prima facie and distinguished on authority, and subsequent higher court rulings affirming the non-excisability of such sludge were noted.

The sludge/waste arising during manufacture is not an excisable good and thus is not liable to excise as a final product.

Reversal of cenvat credit under sub-rule (3) of Rule 6 - harmonious construction of cenvat credit rules - Whether the appellant was required to reverse cenvat credit by applying sub-rule (3) of Rule 6 on the value of sludge/waste for the period in question. - HELD THAT: - Applying the legal conclusion that the sludge is not an excisable final product, the Tribunal held that provisions for reversing credit under sub-rule (3) of Rule 6 cannot be invoked. The Tribunal reasoned that where Rule 57D(1)-type provisions (as interpreted in the precedents relied upon) permit retention of credit in respect of waste/residue, resort to a recovery mechanism in another rule would create inconsistency; the rules must be read harmoniously. The Tribunal therefore followed its prior decisions and other judicial authorities rejecting a demand to levy an 8%/10% reversal on such sludge.

No reversal of cenvat credit under sub-rule (3) of Rule 6 was required in respect of the sludge for the period March 2011 to June 2011; the demand based on such reversal is unsustainable.

Final Conclusion: Appeal allowed; impugned demand set aside in view of the finding that the sludge is not an excisable product and no reversal under the cited provision was exigible, with consequential relief as per law.

Criminal breach of trust - mens rea - forgery for the purposes of cheating - cheating - counterblast/mala fide prosecution - quashing of criminal proceedings under inherent jurisdiction

Criminal breach of trust - mens rea - Whether the allegations and evidence before framing of charge prima facie disclosed an offence punishable under Section 406 IPC. - HELD THAT: - The Court examined the complaint and material collected before framing of charge and found that the factual matrix described a strained commercial relationship and alleged non supply of goods, but did not disclose entrustment of property with dishonest misappropriation or use in violation of directions or contract. The Court applied the settled principle that a mere civil breach of contract does not convert into criminal breach of trust unless the element of guilty mind (mens rea) and statutory ingredients of Section 405/406 IPC are shown. On the materials, criminal intention was absent and the essential ingredients of criminal breach of trust were not prima facie made out. [Paras 15, 16]

Offence punishable under Section 406 IPC is not prima facie made out and cannot support continuation of the criminal prosecution.

Forgery for the purposes of cheating - cheating - Whether the complaint and pre charge evidence prima facie established offences under Sections 468 and 420 IPC. - HELD THAT: - The Court found that allegations of forgery were vague and did not identify a document or electronic record constituting forgery within the scope of Section 468 IPC; witnesses failed to particularise any such offence. As to cheating under Section 420 IPC, the Court noted the continuous business relationship between the parties and that deception must exist from the inception of the transaction; here the complainant alleged discovery of deception only after relations soured. On these findings the ingredients of Sections 468 and 420 IPC were not prima facie established. [Paras 17, 18]

Offences under Sections 468 and 420 IPC are not prima facie made out on the materials before framing of charge.

Counterblast/mala fide prosecution - quashing of criminal proceedings under inherent jurisdiction - Whether the criminal complaint was a counterblast to an earlier prosecution and, being manifestly mala fide or instituted with ulterior motive, warranted quashing of the proceedings under the High Court's inherent jurisdiction. - HELD THAT: - The Court observed that the complaint was filed after initiation of a prosecution under Section 138 NI Act by the accused company and evaluated authorities condemning use of criminal process as a retaliatory device. Having regard to the absence of prima facie offences, the timing and context of the complaint as a pressure tactic, and principles in Bhajanlal and other precedents, the Court concluded that the proceedings amounted to a counterblast and were instituted with ulterior motive. In the exercise of its inherent jurisdiction, and because no prima facie case was shown, the Court found it appropriate to quash the criminal proceeding. [Paras 20, 21, 22, 23, 24]

Proceedings are a counterblast/mala fide prosecution and are quashed under the High Court's inherent jurisdiction.

Final Conclusion: Criminal revision allowed; impugned order of July 19, 2018 set aside and the criminal proceedings before the Learned Metropolitan Magistrate, 20th Court, Calcutta, are quashed. CRR allowed and connected applications disposed of.