TaxTMI Updates e-Newsletter
Sep 11,2021

Supply of service - Composite supply - Principal supply - Mixed supply - Value of taxable supply - Transaction value - Input tax credit

Supply of service - Composite supply - Whether the applicant's consolidated charge (coaching together with supply of study material, uniforms, bags and similar goods) is a supply of goods or a supply of services. - HELD THAT: - The applicant charges a lump sum consideration for coaching together with supply of ancillary goods. The Advance Ruling Authority applied the statutory definition of supply and Section 7(1) of the CGST Act to conclude that the transaction, where the predominant element is imparting of coaching and consideration is for the coaching activity, falls within the ambit of a 'supply of service'. The goods supplied as part of the package are treated as ancillary to the principal activity of coaching. [Paras 2]

Supply by the applicant will be treated as a supply of service.

Composite supply - Principal supply - Mixed supply - Whether the combined supply is a composite supply or a mixed supply, and if composite, which is the principal supply. - HELD THAT: - The Authority examined the definitions of 'composite supply' and 'principal supply', noting that a composite supply involves two or more taxable supplies that are naturally bundled with one being predominant. On the facts the coaching service constitutes the predominant element and the supplied goods are ancillary. Under Section 8, a composite supply is treated as a supply of its principal supply; hence the tax treatment follows the principal element. [Paras 3]

The supply is a composite supply and coaching service is the principal supply.

Supply of service - In the network-partner model, who is the supplier and who is the recipient of the respective services? - HELD THAT: - On the contractual and factual arrangement, the Authority observed that the applicant issues tax invoices to students and retains overall control of course content and schedules, while the network partner performs coaching at premises and invoices the applicant for services rendered. Therefore, for GST purposes the students are recipients of the applicant's supply (coaching plus goods), and the applicant is the recipient of services provided by the network partner, who is the supplier to the applicant. [Paras 4]

Applicant is the service provider to students; network partner is the service provider to the applicant.

Value of taxable supply - Transaction value - What is the taxable value of the services supplied by the applicant to students and by the network partner to the applicant? - HELD THAT: - Applying Section 15, the Authority held that the value of supply is the transaction value (price actually paid or payable) where parties are unrelated and price is sole consideration. As the applicant bears the cost of goods supplied to students and issues a consolidated tax invoice, the consolidated amount invoiced by the applicant constitutes the taxable value of its supply. The network partner's invoice to the applicant for coaching/ancillary services constitutes the value of the network partner's supply. [Paras 5]

The consolidated amount invoiced by the applicant is the taxable value of the applicant's supply; the tax invoice issued by the network partner is the value of the network partner's supply to the applicant.

Input tax credit - Whether the applicant and the network partner can avail eligible input tax credit for their respective supplies. - HELD THAT: - Relying on Section 16(1), the Authority observed that every registered person is entitled to take input tax credit subject to prescribed conditions where inputs/input services are used in the course or furtherance of business. Both the applicant and the network partner are registered persons carrying out taxable supplies and therefore may avail eligible ITC in accordance with the provisions and conditions of the GST law. [Paras 6]

Both the applicant and the network partner can avail eligible input tax credit subject to conditions under the GST Act.

Final Conclusion: The Authority ruled that the applicant's consolidated supply is a supply of service and a composite supply with coaching as the principal supply; students are recipients of the applicant's supply while the applicant is the recipient of the network partner's services; the consolidated invoice amount is the taxable value of the applicant's supply and the network partner's invoice is the value of its supply; both parties may avail eligible ITC subject to statutory conditions.

Exemption under Entry No.3 of Notification No.12/2017-C.T.(Rate) dated 28.06.2017 - Pure services versus composite supplies - Supply to State Government/Directorate as class of recipient - Activity "in relation to any function" entrusted under Articles 243G and 243W of the Constitution - Advance Ruling admissibility for proposed supplies

Exemption under Entry No.3 of Notification No.12/2017-C.T.(Rate) dated 28.06.2017 - Pure services versus composite supplies - Activity "in relation to any function" entrusted under Articles 243G and 243W of the Constitution - Supply to State Government/Directorate as class of recipient - Applicability of Entry No.3 of Notification No.12/2017 C.T.(Rate) to the scope of work in the TNMSC tender for comprehensive facility management services for hospitals under the Directorate of Medical & Rural Health Services (DM&RHS). - HELD THAT: - The tendered scope constitutes 'Comprehensive Facility Management Services' comprising housekeeping/cleaning (including biomedical waste management and pest control), security and ancillary maintenance services supplied for upkeep/running of hospital facilities. These services are 'pure services' (not works contracts or composite supplies involving predominant goods). The recipient of the supply, namely the Directorate of Medical & Rural Health Services (DM&RHS) (and DM&RHS (ESI)), is a State Government directorate and thus falls within the class of recipients envisaged by the notification. The services are rendered in relation to functions entrusted to local bodies under Article 243G (Eleventh Schedule: health and sanitation including hospitals) and Article 243W (Twelfth Schedule: public health/sanitation), so the activity is 'in relation to any function' entrusted to Panchayats/Municipalities. On these determinative factors the three limbs of Entry No.3 are satisfied and the exemption applies to the scope of work tendered by TNMSC for hospitals under DM&RHS. [Paras 8, 10]

The proposed supply under the TNMSC tender for 93 government hospitals under DM&RHS/DM&RHS(ESI) is exempt under Entry No.3 of Notification No.12/2017 C.T.(Rate) dated 28.06.2017 read with the notified amendment.

Advance Ruling admissibility for proposed supplies - Admissibility of the applicant's request for ruling in respect of services purportedly provided to the Directorate of Medical Education (DME) pursuant to an earlier contract or tender. - HELD THAT: - Section 95(a) permits rulings on supplies being undertaken or proposed to be undertaken by the applicant. The applicant had not established a present proposal to supply services to DME nor furnished documentary proof showing the proposed activity to DME as being presently undertaken or assured in future tenders. Consequently, the Authority declined to admit the question relating to supplies to DME/DME tender for consideration on merits for advance ruling. [Paras 3, 6, 10]

The question on supplies tendered for Medical Hospitals, Medical Colleges and Nursing Colleges under Directorate of Medical Education (DME) is not admitted for ruling under sub section (2) of Section 98 read with Section 95(a).

Final Conclusion: Ruling granted: the TNMSC tendered comprehensive facility management services for hospitals under DM&RHS/DM&RHS(ESI) qualify for exemption under Entry No.3 of Notification No.12/2017 C.T.(Rate). The applicant's separate query in respect of supplies to DME is not admitted for determination by this Authority.

Maintainability of writ under Article 226 - alternative statutory remedy under Section 107 of the CGST Act - exceptions permitting writ despite alternative remedy: breach of fundamental rights, violation of principles of natural justice, excess of jurisdiction, challenge to vires - scope for judicial interference where factual assessment required

Maintainability of writ under Article 226 - alternative statutory remedy under Section 107 of the CGST Act - exceptions permitting writ despite alternative remedy: breach of fundamental rights, violation of principles of natural justice, excess of jurisdiction, challenge to vires - Whether the High Court ought to have entertained the writ petition under Article 226 instead of relegating the respondent to the remedy under Section 107 of the CGST Act. - HELD THAT: - The Supreme Court held that the respondent had a statutory remedy under Section 107 and, having not invoked it, the High Court should not have entertained the writ petition. While the existence of an alternative remedy is not an absolute bar to a writ under Article 226, such jurisdiction is permissible only in exceptional circumstances - namely a breach of fundamental rights, violation of natural justice, excess of jurisdiction, or a challenge to the vires of the statute or delegated legislation. The Court found that none of these exceptions was established on the record: a notice was served on the person in charge of the conveyance and there was no demonstrated infringement of natural justice or other exceptional circumstance. Further, the Court observed that the High Court had engaged in an assessment of facts and proceeded on surmises, a task more appropriately performed by the appellate authority under the statutory scheme. Consequently, the High Court's exercise of writ jurisdiction was inappropriate and the matter should be pursued through the appellate mechanism provided by Section 107. [Paras 11, 12, 13]

The High Court order was set aside; the writ petition is dismissed and the respondent is relegated to pursue remedies under Section 107 of the CGST Act.

Final Conclusion: Appeal allowed. The High Court's order setting aside the collection of tax and penalty is set aside and the writ petition dismissed; respondent may pursue statutory remedies under Section 107 of the CGST Act.

Quashing of seizure and penalty under Section 129(3) of U.P. GST Act - effect of Supreme Court common order disposing identical writ petitions - liberty to institute or pursue statutory remedy of appeal

Quashing of seizure and penalty under Section 129(3) of U.P. GST Act - effect of Supreme Court common order disposing identical writ petitions - liberty to institute or pursue statutory remedy of appeal - Whether the writ petition challenging the seizure order dated 16.11.2017 and the penalty notice dated 28.11.2017 could be entertained in view of the Supreme Court's common order in the Special Leave Petition covering identical seizures, and whether petitioners should be permitted to pursue statutory appeal. - HELD THAT: - The Court recorded that the identical issue had been taken to the Supreme Court in Special Leave Petition No.25291 of 2019, where a common order was passed declaring that all writ petitions pending before the High Court listed in the State's affidavit were to be deemed disposed of in terms of that order, so as to avoid inconsistency and multiplicity of appeals. In consequence, the present petition was held to be concluded by that Supreme Court order. The petitioners sought permission to institute and/or pursue the statutory remedy of appeal against the impugned order; the Revenue raised no objection provided such remedy is availed in accordance with law. The High Court therefore dismissed the writ petition as terminated by the Supreme Court order, while expressly granting liberty to the petitioners to pursue the statutory appellate remedy subject to compliance with legal requirements. [Paras 3, 4, 7, 8]

Writ petition dismissed as concluded by the Supreme Court's common order, with liberty to institute and/or pursue the statutory appeal in accordance with law.

Final Conclusion: The High Court dismissed the petition as covered and concluded by the Supreme Court's common order in the related Special Leave Petition, while granting the petitioners liberty to pursue the available statutory appellate remedy subject to compliance with law.

Refund of unutilized input tax credit under Section 54(3)(ii) - conflict between statutory provision and administrative circular - scope of powers under Section 168(1) to issue clarificatory circulars - principles of natural justice in show cause proceedings - remand for factual satisfaction on comparative tax rates of inputs and outputs

Refund of unutilized input tax credit under Section 54(3)(ii) - conflict between statutory provision and administrative circular - Whether paragraph 3.2 of Circular No.135/05/2020-GST can negate entitlement to refund under Section 54(3)(ii) where input tax credit accumulated because rate of tax on inputs is higher than on outputs - HELD THAT: - The court found that Section 54(3)(ii) unambiguously permits refund where credit has accumulated because the rate of tax on inputs exceeds the rate on output supplies (except nil or fully exempt supplies). Paragraph 3.2 of Circular No.135/05/2020-GST, which declares that refund would not be available where input and output supplies are the same even if rates differ, is inconsistent with the statutory provision. Where an administrative circular conflicts with an unambiguous statutory provision, the statute prevails and the conflicting portion of the circular must be ignored. Consequently, paragraph 3.2 cannot be applied to deny refund entitlement under Section 54(3)(ii). [Paras 15, 16, 17, 18, 28]

Paragraph 3.2 of Circular No.135/05/2020-GST is in conflict with Section 54(3)(ii) and must be ignored; entitlement under Section 54(3)(ii) depends on whether inputs attracted a higher rate than outputs.

Principles of natural justice in show cause proceedings - Whether the Assistant Commissioner travelled beyond the scope of the show cause notice and thereby violated principles of natural justice - HELD THAT: - The appellate tribunal (Joint Commissioner (Appeals)) recorded that the Assistant Commissioner based rejection on a ground not contained in the show cause notice, amounting to a breach of natural justice. The High Court accepted that the Assistant Commissioner did rely on the circular to reject the claim on a ground not proposed in the SCN, rendering that rejection unsustainable. However, the court also held that setting aside on natural justice grounds did not obviate the necessity for a factual determination of rate differential before directing refund. [Paras 9, 10, 29]

The Assistant Commissioner's rejection for relying on a ground outside the SCN was unsustainable; procedural unfairness vitiated the impugned order but did not entitle the assessee to an unconditional refund without factual determination.

Scope of powers under Section 168(1) to issue clarificatory circulars - Whether Circular No.135/05/2020-GST issued under Section 168(1) could be read so as to re interpret or override the clear statutory mandate of Section 54(3)(ii) - HELD THAT: - Section 168(1) empowers the Board to issue orders, instructions or directions to ensure uniformity in implementation; it does not empower the Board to alter or contradict clear statutory provisions by re writing their substantive effect. The court explained that issuing procedural directions and changing the substantive scope of a statutory provision are distinct acts; the Board's power under Section 168(1) cannot be used to negate an unambiguous legislative provision such as Section 54(3)(ii). [Paras 12, 13, 14, 33]

Circulars under Section 168(1) cannot be construed to override or contradict an unambiguous provision of the CGST Act; Circular No.135/05/2020-GST cannot be applied to displace the entitlement under Section 54(3)(ii).

Remand for factual satisfaction on comparative tax rates of inputs and outputs - Whether the matter should be remitted for fresh adjudication and what is to be determined on remand - HELD THAT: - The court set aside both the Assistant Commissioner's order rejecting the refund and the Joint Commissioner (Appeals)'s order directing refund. The High Court held that the proper course is remand to the Assistant Commissioner to make a reasoned factual determination whether the actual rate of tax on the assessee's input supplies was higher than the actual rate of tax on the output supplies (after applying the partial exemption under Notification No.45/2017). Depending on that factual satisfaction, the Assistant Commissioner must pass a reasoned order either allowing refund under Section 54(3)(ii) or rejecting it. The court directed that this be done within six weeks of receipt of certified copy and that the order's effect be given without further delay. [Paras 25, 31, 32, 34, 35]

The matter is remanded to the Assistant Commissioner to determine, on facts, whether the rate on inputs exceeds the rate on outputs and to pass a reasoned order within six weeks; both earlier orders are set aside.

Final Conclusion: Both the Assistant Commissioner's order rejecting the refund and the Joint Commissioner (Appeals)'s order allowing refund are set aside. Circular No.135/05/2020-GST cannot be applied to negate entitlement under Section 54(3)(ii); the claim is remitted to the Assistant Commissioner to determine, within six weeks, whether the actual input tax rate exceeded the actual output tax rate and to pass a reasoned order accordingly.

Input tax credit - proceedings by multiple authorities on same transaction - representation to authority - speaking order - staying further action until representation decided

Representation to authority - speaking order - staying further action until representation decided - Direction to respondent no.3 to consider and decide the petitioner's representation by passing a speaking order before proceeding further in the matter. - HELD THAT: - The petitioner, a registered dealer under the State GST Act, received proceedings under the SGST Act alleging wrongful availing of input tax credit from a non existing firm and, subsequently, a summon under the Central GST Act concerning the same transactions. The petitioner had already submitted a representation (Annexure P 9) seeking adjudication of the grievance. The Court observed that continuation of action by the authorities without first deciding the representation would be inappropriate where the representation raises the same controversy and therefore directed respondent no.3 to consider and decide the representation in accordance with law by issuing a speaking order. The direction required that the representation be decided before any further action in the connected proceedings is taken.

The Court directed respondent no.3 to decide the petitioner's representation by a speaking order before proceeding further; the petition was disposed of accordingly.

Input tax credit - proceedings by multiple authorities on same transaction - Objection to simultaneous initiation of proceedings by different tax authorities on the same issue was noted and effectively restrained pending decision on the representation. - HELD THAT: - The petition challenged the legitimacy of parallel action by different authorities (SGST and CGST) on the same factual matrix concerning alleged wrongful input tax credit. Rather than adjudicating the broader question of competence or abuse, the Court curtailed further action by directing a prior decision on the representation, thereby addressing the immediate prejudice of simultaneous proceedings until the representation is disposed of.

Further action in the connected proceedings was restrained until respondent no.3 passed a speaking order on the petitioner's representation.

Final Conclusion: Petition disposed of by directing respondent no.3 to decide the representation filed by the petitioner by passing a speaking order in accordance with law before taking any further action; consequential proceedings are to await that decision.

Examination of the decision making process of the Income Tax Settlement Commission - deemed dividend liability under Section 2(22)(e) of the Income tax Act, 1961 - jurisdiction and maintainability of a settlement application including the year of search - charging of interest under Section 234A and Section 234B in light of Brij Lal - income for computation of interest as the income settled by the Settlement Commission

Examination of the decision making process of the Income Tax Settlement Commission - Truncated challenges to orders of the Income Tax Settlement Commission are not maintainable; courts review the decision making process and not substitute their own view on merits. - HELD THAT: - The Court held that when assailing an ITSC order the judicial role is confined to examining the decision making process adopted by the Commission and not to re decide the merits of the settlement. A truncated challenge raised by the Revenue to parts of the ITSC order cannot be maintained where the process, including reports and hearings before the ITSC, shows that the matters were considered. The Court therefore declined to entertain a selective re examination of the ITSC's merits based determinations and upheld the principle that the correctness of the decision itself is not subject to substitution by the Court absent procedural infirmity in the decision making process. [Paras 9]

Selective or truncated challenge to the ITSC's orders cannot be maintained; review is limited to the Commission's decision making process.

Jurisdiction and maintainability of a settlement application including the year of search - The ITSC validly considered and settled the assessment year 2012-13 (the year of search) and the Revenue's contention that that year could not be included was not sustained. - HELD THAT: - The Court noted that the assessee had furnished books, tax audit report and replies; the Revenue had filed reports under Rule 9 and further reports suggesting additions for 2012 13 and did not, at any stage before the ITSC, contend that the year of search should be excluded from settlement. The proviso to Section 245C(1) was considered in context and the Court observed that block assessment jurisdiction arising from search justified inclusion of the year of search. As the maintainability and inclusion of 2012 13 were matters considered by the ITSC on the merits and not objected to procedurally by the Revenue, the settlement in respect of 2012 13 was proper. [Paras 10, 11, 12, 13]

The ITSC properly included and settled assessment year 2012-13; the Revenue's challenge to inclusion was not upheld.

Deemed dividend liability under Section 2(22)(e) of the Income tax Act, 1961 - The Revenue's challenge to the ITSC's acceptance of the assessee's contention that an advance was not taxable as deemed dividend under Section 2(22)(e) was not accepted. - HELD THAT: - Although the Revenue contended that the ITSC misapplied precedents and should have taxed the advance as deemed dividend, the Single Judge had upheld the ITSC's view and granted no relief to the Revenue. The High Court, applying the principle that it reviews the ITSC's decision making process and noting no procedural or decision making infirmity, did not disturb the ITSC's conclusion on the deemed dividend contention. [Paras 6, 8, 9]

The ITSC's determination rejecting deemed dividend treatment was sustained; the Revenue's challenge was rejected.

Charging of interest under Section 234A and Section 234B in light of Brij Lal - income for computation of interest as the income settled by the Settlement Commission - Interest under Section 234A and 234B is to be computed in accordance with Brij Lal; Section 234B interest is to be charged on the income as settled by the ITSC and only up to the date of order under Section 245D(1). - HELD THAT: - The ITSC directed that interest be charged as per law and that the Assessing Officer should keep in view the Supreme Court's decision in Brij Lal. The High Court clarified that despite imprecision in wording (use of 'disclosed'), the proper approach is to compute interest on the income as determined by the ITSC (the income settled under Section 245D(4) being the relevant measure for settlement). Applying Brij Lal, interest under Section 234A is chargeable for delay in filing original returns on the total income determined under Section 245D(4); interest under Section 234B is chargeable from the first day of the assessment year until the date of the ITSC's order under Section 245D(1). The Court rejected the Revenue's objection that interest should be computed on a different basis and directed recomputation in accordance with these principles. [Paras 14, 15, 16, 17]

Interest to be computed in accordance with Brij Lal; Section 234B interest to be charged on the income settled by the ITSC up to the date of the ITSC's order under Section 245D(1).

Final Conclusion: Writ appeals allowed; the High Court set aside the common order in the writ petitions, upheld the ITSC's settlements for assessment years 2006-07 to 2012-13, rejected the Revenue's selective challenges (including on deemed dividend), and clarified the computation of interest under Sections 234A and 234B in conformity with Brij Lal; consequential directions for recomputation of interest were given.

Reopening of assessment under Section 147 of the Income Tax Act - change of opinion - suppression or non-disclosure of material facts - ratification by the Board of Approval - deduction under Section 10B - procedure under GKN Driveshafts (objections to reasons recorded)

Reopening of assessment under Section 147 of the Income Tax Act - change of opinion - ratification by the Board of Approval - deduction under Section 10B - suppression or non-disclosure of material facts - Validity of reopening assessment (notice under Section 148 and proceedings under Section 147) insofar as it was founded on absence of a ratification certificate for approval relied upon by the assessee for claiming deduction under Section 10B. - HELD THAT: - The Assessing Officer's recorded reason for reopening was limited to the assessee's non-production of a ratification certificate by the Board of Approval for an approval earlier granted by the Development Commissioner (Explanation 2(iv) to Section 10B) and notification of CBDT Instruction No.2/2009. There was no allegation or finding that the assessee failed to fully and truly disclose primary material facts necessary for assessment. Where primary facts were placed before the Assessing Officer and an approval from the competent delegated authority (STPI/Development Commissioner) was produced and accepted at the original assessment, the subsequent assertion that ratification by a higher authority had not been obtained does not, by itself, establish suppression or non-disclosure attributable to the assessee. Reopening on that ground equates to a mere change of opinion by the Assessing Officer or seeks to impute a defect not caused by the assessee. The court noted that questions about the necessity or availability of a ratification, or intra-departmental confusion about the requirement, are larger issues not properly amenable to summary reopening where no default by the assessee is shown. Although the GKN Driveshafts procedure for calling for objections to reasons recorded was not followed, the court declined to remit the matter for that procedural step in view of the long delay and the nature of the challenge, and proceeded to decide the legality of reopening. Applying these principles and approving the reasoning of the learned Single Judge in a factually similar decision, the court held that reopening the assessment beyond the original completion on the basis stated was without jurisdiction and impermissible. [Paras 13, 16, 17, 20, 21]

Reopening of assessment under Section 147/notice under Section 148 dated 28.3.2013 quashed as the reason recorded (non-production of a ratification certificate) did not demonstrate suppression or non-disclosure of material facts and amounted to change of opinion; reassessment proceedings set aside.

Final Conclusion: Writ appeal allowed; order dismissing W.P.No.6543 of 2014 set aside; reassessment proceedings initiated under Section 147/notice under Section 148 in respect of Assessment Year 2006-07 quashed.

Section 68 - onus on assessee to explain nature and source of credits - piercing the corporate veil to ascertain reality of transactions - genuineness and creditworthiness of investors (identity, source and capacity) - Assessing Officer's power to investigate and make enquiries into share capital

Section 68 - onus on assessee to explain nature and source of credits - genuineness and creditworthiness of investors (identity, source and capacity) - Assessing Officer's power to investigate and make enquiries into share capital - Validity of addition under Section 68 in respect of share application money and whether the Assessing Officer and CIT(A) were justified in treating the amounts as unexplained income. - HELD THAT: - The Court examined the material collected by the Assessing Officer and the concurrent findings of the CIT(A) and held that Section 68 places the initial burden on the assessee to prove the identity, genuineness and creditworthiness of persons who introduced share application money. Mere receipt by cheque and production of names or statutory company forms which do not disclose PAN or financial capacity do not, by themselves, discharge that onus. The Assessing Officer conducted summons, recorded statements, inspected seized documents and traced routing of funds through intermediary companies which were found to be paper entities and persons lacking financial capacity; the CIT(A) re appreciated these facts and concurred. Given that the assessee failed to establish the sources and creditworthiness to the satisfaction of the Assessing Officer, the provisions of Section 68 were attracted and the addition was sustainable. The Tribunal's cryptic reversal, without addressing the detailed enquiries and factual findings, was held to be perverse. [Paras 31, 32, 33, 34, 36]

Addition under Section 68 confirmed; the Assessing Officer's order dated 27.12.2007 as affirmed by the CIT(A) is restored.

Piercing the corporate veil to ascertain reality of transactions - genuineness and creditworthiness of investors (identity, source and capacity) - application of precedents on discharge of onus by assessee - Whether the Tribunal correctly applied precedents such as Lovely Exports and whether those decisions entitled the assessee to succeed. - HELD THAT: - The Court observed that precedents on which the assessee relied (including Lovely Exports and Stellar Investments) are fact sensitive and operate where the assessee has discharged the primary onus by furnishing full and satisfactory information. In the present case the factual matrix showed the opposite: enquiries revealed paper/intermediary companies, persons without means, and routing of funds pointing to a single promoter. Thus those precedents did not assist the assessee. The Tribunal's reliance on Lovely Exports was misplaced because, on the facts, the assessee had not discharged the initial burden and therefore the Assessing Officer was justified in treating the amounts as unexplained. [Paras 35, 36, 39]

Tribunal's application of Lovely Exports and its conclusion that no positive material was brought by the Assessing Officer was erroneous; the precedents relied upon are distinguishable on facts.

Final Conclusion: The tax case appeal is allowed; the Tribunal's order is set aside and the assessment order dated 27.12.2007 as confirmed by the CIT(A) is restored; the substantial questions of law are answered in favour of the Revenue.

Allowability of depreciation on assets constructed under Build-Operate-Transfer (BOT) concession - amortization of written down value over the remaining period of toll concession agreement - retrospective applicability of administrative circulars

Allowability of depreciation on assets constructed under Build-Operate-Transfer (BOT) concession - amortization of written down value over the remaining period of toll concession agreement - Claimed depreciation on the toll road constructed and operated by the assessee under a concession agreement was allowable. - HELD THAT: - The Tribunal accepted the view recorded by the CIT(A) that depreciation is allowable to the appellant on the toll road either by way of regular depreciation or by amortization. The CIT(A) relied on precedent of the jurisdictional High Court and other authorities holding depreciation allowable on BOT-constructed roads/bridges at the prescribed rate, and observed that the Assessing Officer had already allowed depreciation by applying amortization over the balance concession period. The Tribunal found no reason to disturb the detailed factual and legal conclusion of the CIT(A) that the assessee was entitled to the depreciation claimed and that the disallowance made by the AO was incorrect. [Paras 7]

Disallowance of depreciation of Rs. 3,35,75,114/- made by the Assessing Officer was directed to be deleted and the assessee's claim sustained.

Retrospective applicability of administrative circulars - amortization of written down value over the remaining period of toll concession agreement - CBDT Circular No. 09/2014 could not be applied retrospectively to deny depreciation for assessment year 2012-13. - HELD THAT: - The CIT(A) examined the text of CBDT Circular No. 09/2014 and noted that it prescribes that amounts earlier deducted from initial cost may be reduced and the reduced cost amortized equally over the remaining period of the concession. The Tribunal agreed with the CIT(A)'s conclusion that nothing in the Circular indicated retrospective operation; rather the Circular operated from its date of issue and required amortization over the remaining period from that point. Because the return for AY 2012-13 was filed before the Circular was issued, the Assessing Officer's application of the Circular retrospectively was held to be impermissible. [Paras 7]

The Assessing Officer's retrospective application of CBDT Circular No. 09/2014 was disapproved; the circular was not applied to deny the assessee's depreciation for AY 2012-13.

Final Conclusion: The Revenue's appeal was dismissed: the tribunal upheld the CIT(A)'s allowance of the depreciation claimed by the assessee and held that CBDT Circular No. 09/2014 could not be applied retrospectively to deny depreciation for Assessment Year 2012-13.

Addition on account of unexplained credits under section 68 - reliance on statement recorded under search without corroboration - incriminating material requirement for reassessment under section 153A - retraction of statement and its evidentiary weight - need for corroboration of statements recorded u/s.132(4) - effect of completed assessments on reopening under section 153A

Reliance on statement recorded under search without corroboration - need for corroboration of statements recorded u/s.132(4) - retraction of statement and its evidentiary weight - Validity of additions based primarily on the statement of Mr. Brijesh Bhagat which was retracted and uncorroborated - HELD THAT: - The Tribunal held that the Assessing Officer placed heavy reliance on the statement of a director recorded on 16.03.2016 which was subsequently retracted by affidavit on 29.03.2016, and that no other material corroborating the alleged bogus investments was discovered during the search. Following the jurisdictional High Court precedents cited in the order, the Tribunal applied the principle that a statement recorded under search provisions (u/s.132(4)) has evidentiary value but cannot, on a standalone basis, sustain additions unless corroborated by material unearthed during the search or other independent evidence. The Assessing Officer's acceptance of the statement despite retraction and without independent supporting material was therefore insufficient to sustain the addition, and the Commissioner (Appeals) was right to delete the additions for want of corroboration. [Paras 9]

Addition based solely on the uncorroborated and retracted statement cannot be sustained; deletion confirmed.

Incriminating material requirement for reassessment under section 153A - effect of completed assessments on reopening under section 153A - addition on account of unexplained credits under section 68 - Sustainability of reassessment and resulting additions where original assessments were completed prior to search and no incriminating material was unearthed during search - HELD THAT: - The Tribunal examined the fact that returns for the assessment years in question had been filed and processed under section 143(1) long before the search dated 07.03.2014, so that no assessments were pending or abated at the time of search. Relying on the jurisdictional High Court decision in CIT vs. Kabul Chawla as applied in the impugned orders, the Tribunal reaffirmed the settled principle that section 153A proceedings can only disturb completed assessments if there is some incriminating material discovered during the search which bears nexus to the alleged escapement. In the absence of any seized or discovered material connecting the alleged unexplained share capital/premium to undisclosed income, the additions made under section 68 were held unsustainable and the assessee's cross-objections were allowed. [Paras 10, 11]

In the absence of incriminating material unearthed during the search, reopening under section 153A and the consequent additions are unsustainable; cross-objections allowed.

Final Conclusion: Revenue's appeals dismissed; additions deleted and assessee's cross-objections allowed because the additions were based on uncorroborated/retracted statements and there was no incriminating material unearthed during the search to justify reopening and additions.

Disallowance under section 14A of the Income tax Act read with Rule 8D - no disallowance where no exempt income is received or receivable - transfer pricing adjustment on alleged interest free intra group funding (arm's length price) - recharacterisation and substance over form in transfer pricing - uniformity of conduct between Associated Enterprises and third parties as determinative for TP adjustments - precedential effect of Coordinate Bench decisions in assessee's own case

Disallowance under section 14A of the Income tax Act read with Rule 8D - no disallowance where no exempt income is received or receivable - precedential effect of Coordinate Bench decisions in assessee's own case - Validity of disallowance made under section 14A read with Rule 8D for the assessment year 2014-15. - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the section 14A disallowance because the assessee had not earned any exempt income in the relevant previous year. The CIT(A) relied on judicial precedents holding that section 14A applies only where exempt income is actually received or receivable during the relevant year. The Tribunal further observed that identical grounds had been decided in the assessee's own case by Coordinate Benches in earlier assessment years and that those decisions (and the High Court's treatment of identical issues) support the conclusion that no disallowance is warranted when no exempt income arose in the year. Consistent with those findings, the Tribunal found no merit in the Revenue's challenge and directed deletion of the addition under section 14A. [Paras 6, 8, 9]

Disallowance under section 14A read with Rule 8D deleted; Revenue's grounds on this issue dismissed.

Transfer pricing adjustment on alleged interest free intra group funding (arm's length price) - recharacterisation and substance over form in transfer pricing - uniformity of conduct between Associated Enterprises and third parties as determinative for TP adjustments - precedential effect of Coordinate Bench decisions in assessee's own case - Validity of transfer pricing adjustment treating amounts shown as capital surplus/paid in capital as interest free loans and charging notional interest for AY 2014-15. - HELD THAT: - The Tribunal confirmed the CIT(A)'s deletion of the transfer pricing adjustment. The TPO/Assessing Officer had treated the funds (claimed as capital surplus/paid in capital) as interest free loans and computed notional interest by reference to market benchmarks. The CIT(A) and the Tribunal, however, followed Coordinate Bench decisions in the assessee's own case and relevant High Court authorities which emphasise that where the assessee's commercial conduct shows uniformity (i.e., no interest charged to Associated Enterprises and non AEs alike) and the facts are identical to earlier years where the adjustment was deleted, the notional interest adjustment is not warranted. Applying those precedents and the uniformity of the assessee's practice, the Tribunal found the TPO's recharacterisation/adjustment unsustainable and dismissed the Revenue's grounds on this issue. [Paras 12, 14, 15]

Transfer pricing adjustment treating the claimed capital surplus as interest bearing loan deleted; Revenue's grounds on this issue dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal in full: the section 14A disallowance was deleted as no exempt income arose in the year, and the transfer pricing adjustment was deleted following Coordinate Bench precedent and findings of uniform commercial conduct; Revenue's appeal is dismissed.

Deduction under section 80IB(11A) - outsourcing/job-work and eligibility for tax deduction - beneficial/constructive ownership of plant and machinery - meaning of "employ" for worker threshold under section 80IB(2)(iv) - colourable device doctrine in tax deductions

Deduction under section 80IB(11A) - outsourcing/job-work and eligibility for tax deduction - beneficial/constructive ownership of plant and machinery - meaning of "employ" for worker threshold under section 80IB(2)(iv) - colourable device doctrine in tax deductions - Whether the assessee was entitled to deduction under section 80IB(11A) despite outsourcing processing, preservation and packaging activities and employing another entity to operate its plant and machinery. - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the assessee satisfied the statutory conditions for deduction under section 80IB(11A). The CIT(A) examined eligibility conditions and evidence, including certification of business activity, audited accounts showing commencement after 01.04.2009, fixed asset schedules and Form 10CCB confirming new plant and machinery, and employee records demonstrating compliance with the workforce threshold. On the workforce requirement, the Tribunal accepted the reasoning that the term 'worker' may include persons employed through an agency or contractor (following the Bombay High Court view and dismissal of the department's SLP), and therefore the requisite number of workers was satisfied. The Tribunal further accepted the contractual and factual matrix showing that the assessee funded and owned the plant and equipment and retained beneficial ownership of the factory building and machinery, even though operations were carried out by a related entity under contract; ownership and beneficial interest in assets and the fact that machines were put to use for manufacturing were held sufficient for entitlement. The Tribunal rejected the Assessing Officer's allegation of a colourable device based on Umang Dairy Ltd.'s BIFR history, noting that records for the relevant year showed Umang to be profitable and not precluded from utilising deductions. The Assessing Officer's inconsistent stance-having allowed depreciation on the machinery (a finding not challenged by Revenue) and later denying manufacturing activity-was held to be self-contradictory and untenable. The Tribunal also noted that the same claim was accepted in a subsequent assessment year, undermining the AO's stance for the earlier year. On these bases, the deletion of the disallowance was sustained. [Paras 3, 5]

The deletion of the disallowance of deduction under section 80IB(11A) was upheld and the Revenue's grounds challenging that deletion were dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s deletion of the disallowance under section 80IB(11A), holding that the assessee met the statutory conditions for deduction despite contracting out operations, retained beneficial ownership of plant and machinery, satisfied the workforce requirement, and that the colourable device allegation was unfounded.

Characterisation of receipts as royalty or business profits under Article 12 and Article 7 of the DTAA - ownership of copyright versus grant of licence - prospective operation of Explanation 4 to section 9(1)(vi) of the Income-tax Act - Permanent Establishment requirement for taxation of business profits - reassessment under section 147/148 of the Income-tax Act

Characterisation of receipts as royalty or business profits under Article 12 and Article 7 of the DTAA - ownership of copyright versus grant of licence - prospective operation of Explanation 4 to section 9(1)(vi) of the Income-tax Act - Whether the receipts from sale of software licences and related support/maintenance/training are taxable as 'royalty' under the DTAA and the Act or are business profits not taxable in India. - HELD THAT: - The Tribunal found no dispute as to the nature of the receipts (sale of software licences and related services). Relying on the decision of the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd., the Tribunal held that where the transaction does not part with the copyright (i.e., only authorises the end-user to use licensed software without transfer of exclusive copyright), the receipts do not characterise as 'royalty' under Article 12. Explanation 4 to section 9(1)(vi), inserted by the Finance Act, 2012, was held by the Supreme Court to be prospective and therefore not applicable to assessment year 2010-11; consequently the Explanation does not bring the receipts within 'royalty' for the year under consideration. Once excluded from 'royalty', the receipts fall, if at all, within 'business profits' under Article 7; taxation under Article 7 requires a Permanent Establishment in India under Article 5. The authorities did not contend that the assessee had a PE in India. Applying these principles to the facts, the Tribunal concluded that the amounts are not taxable as 'royalty' and, in the absence of a PE, are not taxable as business profits in India for the assessment year 2010-11. [Paras 6, 7, 8]

Receipts are not 'royalty' and, lacking a Permanent Establishment, are not taxable as business profits in India for assessment year 2010-11.

Reassessment under section 147/148 of the Income-tax Act - characterisation of receipts as royalty or business profits under Article 12 and Article 7 of the DTAA - Whether initiation of reassessment proceedings (notice under section 148) was validly based on reasons recorded by the Assessing Officer. - HELD THAT: - The AO's reasons for reopening rested solely on reliance upon the Karnataka High Court decision in Samsung Electronics Ltd., which treated sale of software licences as 'royalty'. The Tribunal noted that the Supreme Court in Engineering Analysis overruled that line of authority, thereby removing the sole legal foundation relied upon by the AO when forming the reason to believe. Because the precedent on which the AO's belief was founded has been reversed, the recorded reasons ceased to be good and valid. The Tribunal observed that Courts declare the law and, with the Supreme Court's decision, the legal position from inception must be treated as not regarding such sales as 'royalty' for the year in question. Consequently, the reassessment initiated on those reasons was set aside. [Paras 9, 10]

Reassessment initiated under section 148/147 was set aside as the sole reason for reopening (reliance on Samsung) was rendered unfounded by subsequent Supreme Court authority.

Final Conclusion: The appeal is allowed: the receipts from sale of software licences and related services are not taxable as 'royalty' and, in the absence of any Permanent Establishment, are not taxable as business profits in India for assessment year 2010-11; consequentially the reassessment initiated on the overturned precedent is set aside.

Revisional jurisdiction under section 263 - limited scrutiny under CASS - conversion from limited to complete scrutiny - conditions for deduction under section 80IA read with Rule 18BBB and Rule 18BBE - ownership criterion for depreciation under section 32(1)(ii) - amortization of BOT road construction cost per CBDT Circular No. 9/2014

Revisional jurisdiction under section 263 - limited scrutiny under CASS - conversion from limited to complete scrutiny - conditions for deduction under section 80IA read with Rule 18BBB and Rule 18BBE - Validity of exercise of revisional jurisdiction under section 263 in relation to claim of deduction under section 80IA in a case selected for limited scrutiny. - HELD THAT: - The Tribunal held that where an assessment has been selected for limited scrutiny under CASS, the scope of enquiry is confined to the specific issues for which the case was selected and the AO is duty bound to follow CBDT instructions before converting a case to complete scrutiny. The Pr. CIT cannot, by invoking section 263, broaden the scope of enquiry beyond the jurisdiction vested in the AO at the assessment stage; what cannot be done directly by the AO without prescribed approvals cannot be done indirectly by revisional proceedings. The Tribunal applied its earlier reasoning in M/s Mahendra Singh Dhankhar (HUF) (reproduced in the order) and concluded that the claim of deduction under section 80IA was not within the limited-scrutiny issues and therefore issuance of show-cause and exercise of revisional jurisdiction on that matter amounted to impermissible enlargement of the AO's scope of enquiry under section 263. The appropriate course, if material pointed to escapement of income, would have been conversion to complete scrutiny following prescribed procedure or invoking section 147 where applicable, rather than exercise of section 263 to expand the AO's remit. [Paras 15, 16, 17]

The invocation of revisional jurisdiction under section 263 in respect of the section 80IA deduction was impermissible and cannot be sustained.

Amortization of BOT road construction cost per CBDT Circular No. 9/2014 - ownership criterion for depreciation under section 32(1)(ii) - revisional jurisdiction under section 263 - Whether the assessee was entitled to amortize cost of construction of BOT roads in accordance with CBDT Circular No. 9/2014 and whether the AO's allowance of amortization could be held erroneous and prejudicial to Revenue under section 263. - HELD THAT: - The Tribunal examined CBDT Circular No.9/2014 which clarified that expenditure on development of roads/highways under BOT projects may be amortized as allowable business expenditure and that amortization should be computed so as to evenly spread the whole cost over the concession period (excluding construction period), noting the incompatibility of the ownership requirement for depreciation under section 32(1)(ii) with BOT arrangements. On the facts, the assessee had submitted audit details, concession periods and computations of amortization for the two road stretches, and the Assessing Officer had examined these particulars and allowed amortization. The Tribunal found that the AO had carried out the reasonable enquiries and taken a prudent and judicial view after verification; consequently the assessment order could not be held erroneous as prejudicial to the interest of Revenue. The Pr. CIT's direction to re-examine the amortization claim under section 263 was therefore set aside. [Paras 18, 19, 20, 21, 22]

The allowance of amortization by the AO in accordance with CBDT Circular No.9/2014 was justified; the section 263 revision in respect of the amortization claim is unsustainable.

Final Conclusion: The Tribunal allowed the assessee's appeal for A.Y 2015-16, setting aside the Pr. CIT's order passed under section 263: (i) the revision in respect of the section 80IA deduction was impermissible in a case selected for limited scrutiny; and (ii) the AO's allowance of amortization for BOT road construction in conformity with CBDT Circular No.9/2014 was properly made and not prejudicial to Revenue.

Deemed income under section 69A of the Income tax Act - unexplained money - books of account as evidence of source - cash deposits during demonetisation - addition under section 69A not sustainable where transactions are recorded and explained - application of coordinate bench precedent

Deemed income under section 69A of the Income tax Act - books of account as evidence of source - unexplained money - Whether addition under section 69A can be sustained in respect of cash deposits which are recorded in the books of account and for which the assessee has offered an explanation. - HELD THAT: - The Tribunal held that section 69A treats money as deemed income only where the assessee is found to be in possession of money, bullion, jewellery or other valuable article which is not recorded in the books of account or where the assessee offers no satisfactory explanation. In the present case the assessee produced books of account showing the cash sales and the cash balance corresponding to the bank deposits; the Assessing Officer found no defect in the books. The deposits were therefore satisfactorily explained as business receipts and recorded in the books. Applying the statutory test, the Tribunal agreed with the Commissioner (Appeals) that there was no foundation for an addition under section 69A and that the addition was not sustainable. [Paras 6, 7]

Addition under section 69A deleted; order of the Commissioner (Appeals) upheld.

Cash deposits during demonetisation - addition under section 69A not sustainable where transactions are recorded and explained - application of coordinate bench precedent - Whether the Assessing Officer's reliance on (a) reduction in net profit ratio compared to prior year and (b) staggered timing of deposits during the demonetisation period justified treating the deposits as unexplained and making an addition. - HELD THAT: - The Tribunal found that the AO's considerations - a fall in net profit percentage relative to the earlier year and the fact that deposits were made over the period from 09.11.2016 onwards - were not relevant when the deposits had been accounted for in the books and an explanation was furnished. The Commissioner (Appeals) had accepted the assessee's explanation (including reasons for staggered deposits during demonetisation) and relied on a coordinate-bench decision where additions under section 69A were held unsustainable where payments/receipts were recorded and supported. Respectfully following that decision, the Tribunal held that the AO's reliance on those factors did not justify an addition. [Paras 3, 6, 7]

AO's reliance on profit reduction and timing of deposits rejected; addition cannot be sustained on those grounds.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the Commissioner (Appeals)'s deletion of the addition under section 69A for A.Y.2017-18, holding that cash deposits duly recorded in the books of account and satisfactorily explained as business receipts cannot be treated as unexplained money; the assessee's cross objections became infructuous and were dismissed.

Addition under section 69A - taxation of gifts under section 56(2)(vii)(a) - deeming provision and requirement of recording in books - invocation of section 115BBE - need for enquiry before invoking section 69A - selection under CASS and conversion to complete scrutiny

Addition under section 69A - taxation of gifts under section 56(2)(vii)(a) - deeming provision and requirement of recording in books - need for enquiry before invoking section 69A - invocation of section 115BBE - Whether the addition of the sum admitted as gifts and offered to tax under section 56(2)(vii)(a) could be sustained by invoking section 69A (read with section 115BBE) when the receipts were recorded in books and disclosed to authorities. - HELD THAT: - The Tribunal upheld the view of the Commissioner (Appeals) that section 69A could not be invoked where the assessee had recorded the source of the receipts in the books, had disclosed the receipts as gifts and offered them to tax under section 56(2)(vii)(a), and where neither the DDIT (Inv.) nor the Assessing Officer had drawn any adverse inference or carried out further enquiries into the donors. The CIT(A) had noted that the assessee admitted payment of cash to the vendor, that the amounts were disclosed as gifts in the final accounts and return, and that tax was paid under section 56(2). The Tribunal accepted that, on the material on record, the credits in the books stood explained and there was no basis to treat them as unexplained money under section 69A; consequently section 115BBE was not attracted. On this basis the Tribunal found no reason to interfere with the deletion of the addition by the CIT(A) and dismissed the Revenue's appeal. [Paras 3, 5]

Addition under section 69A deleted; appeal of the Revenue dismissed.

Selection under CASS and conversion to complete scrutiny - CBDT guidelines on survey-conversion - Validity of selection under CASS and alleged impermissible conversion of the case to complete scrutiny in breach of CBDT guidelines (raised in assessee's cross-objection). - HELD THAT: - The Tribunal declined to adjudicate this ground because the Revenue's appeal was dismissed on merits. The Tribunal observed that the assessee remained free to press this grievance before the High Court in the event of the department succeeding on merits; accordingly the cross-objection was treated as infructuous and was dismissed without decision on the substantive validity of the CASS selection or conversion. [Paras 7, 8]

Cross-objection ground on CASS selection/conversion dismissed as infructuous; substantive validity left open for future adjudication if required.

Final Conclusion: The Tribunal affirmed the CIT(A)'s deletion of the addition made under section 69A (read with section 115BBE) since the receipts were recorded, disclosed as gifts and offered to tax under section 56(2)(vii)(a) and no adverse enquiry was made; Revenue's appeal dismissed. The assessee's challenge to CASS selection/conversion was dismissed as infructuous and left open for determination in later proceedings if necessary.

Validity of exercise of jurisdiction under section 263 - Requirement of minimal inquiry before invoking section 263 - Mandatory reference to Transfer Pricing Officer under CBDT Instruction No.3/2016 - Prejudicial to the interest of revenue - Assessment officer's application of mind and verification of claims

Validity of exercise of jurisdiction under section 263 - Requirement of minimal inquiry before invoking section 263 - Prejudicial to the interest of revenue - Lawfulness of the Principal Commissioner's order under section 263 quashing and remitting the assessment - HELD THAT: - The Tribunal held that the Principal Commissioner failed to carry out the minimal independent inquiry required before concluding that the assessment order was erroneous and prejudicial to the revenue. The assessee had responded to AO's questionnaires, produced books and vouchers and the AO had examined submissions and made specific findings (including disallowances). Mere assertion that AO did not make proper inquiries, without specifying how the assessment is erroneous or demonstrating prejudice to revenue, is inadequate to sustain revision under section 263. Reliance was placed on established precedent that both components - error and prejudice - must be shown and that the revising authority must undertake some inquiry before invoking section 263. Applying these principles to the material on record, the Tribunal found no basis to hold the assessment order erroneous or prejudicial and quashed the section 263 order. [Paras 26]

Order under section 263 is quashed; assessment order cannot be said to be erroneous or prejudicial to the interest of revenue.

Mandatory reference to Transfer Pricing Officer under CBDT Instruction No.3/2016 - Assessment officer's application of mind and verification of claims - Whether the AO was obliged to refer computation of ALP to the TPO under Instruction No.3/2016 and whether failure to refer rendered the assessment erroneous - HELD THAT: - The Tribunal examined Instruction No.3/2016 and section 92CA and held that reference to the TPO is not automatically mandatory in every case. The Instruction prescribes specific circumstances (set out in para 3.3) where a reference is required; none of those circumstances applied here (Form 3CEB was filed, no prior TP adjustment above the threshold, no search/survey findings). The AO had selected the case for full scrutiny on non-TP parameters and had examined the accountant's report and related documents. In these facts, mere non-referral to the TPO did not render the assessment order erroneous or prejudicial. [Paras 24]

No obligation to refer to the TPO arose; failure to refer did not make the assessment order erroneous or prejudicial.

Assessment officer's application of mind and verification of claims - Prejudicial to the interest of revenue - Whether specific allowances and disallowances made/allowed by the AO (including claims under sections 32AC, 35(1)(iv), 35(2AB), 10AA, 80IA/80IB/80JJA) were erroneous and prejudicial to revenue - HELD THAT: - The Tribunal reviewed the record of assessment proceedings and found that the AO had considered and verified the supporting documents and returned specific findings: certain claims were allowed after verification (for example 35(2AB) adjusted in accordance with DSIR communication), some claims were restricted or disallowed by the AO (for example 80IA was disallowed and added back). Where the AO had examined submissions, produced books and vouchers and recorded conclusions, the revising authority could not simply assert lack of enquiry. The Tribunal found no demonstrated error in the AO's handling of these claims or shown prejudice to revenue arising from the assessment order. Selective reliance on a bare allegation of inadequate inquiry was rejected. [Paras 16, 17, 21, 22, 27]

The parts of the assessment dealing with the stated claims were not held to be erroneous or prejudicial to the revenue; no interference justified.

Final Conclusion: The order passed by the Principal Commissioner under section 263 for A.Y. 2016-17 is quashed: the revising authority did not undertake the minimal independent inquiry required, the AO had examined and verified the relevant records and submissions, and neither a mandatory reference to the TPO nor any demonstrated error prejudicial to revenue was established.

Section 43B - interest deductible only on actual payment basis - conversion of interest into loan not deemed payment (Explanation 3D) - cash credit/overdraft debits constituting actual payment - classification as Non Performing Asset (NPA) under prudential norms

Section 43B - interest deductible only on actual payment basis - conversion of interest into loan not deemed payment (Explanation 3D) - cash credit/overdraft debits constituting actual payment - Whether interest charged by the bank and debited to the assessee's Cash Credit/Overdraft account and reflected after restructuring was to be treated as actually paid for the purpose of deduction under Section 43B for AY 2014-15 - HELD THAT: - The Tribunal examined whether amounts debited by the bank to the Cash Credit (CC) account and the restructuring of limits amounted to conversion of interest into a loan (which, under Explanation 3D, would not be deemed to be actual payment) or whether the debits represented actual payment. The assessee's uncontroverted case was that interest on term loans and CC/LC facilities was charged monthly and debited to the CC account, and that fresh credits (deposits) to the CC account in the relevant months exceeded the interest debited. The Tribunal applied the reasoning in CIT vs. Prakash Foods & Feed Mills P. Ltd. and CIT vs. Shreekant Phumbhra, which hold that debits to an overdraft/CC account can constitute actual payment where interest is not converted into a separate loan and sufficient credits are available to meet the debits; those ratios were found applicable. The Tribunal also noted that the Delhi High Court decision relied upon by the AO had been set aside by the Supreme Court, restoring the contrary view. On the totality of facts - monthly debiting of interest, payments evidenced by entries from the CC account, and credits in the CC account exceeding the interest debited - the AO's conclusion that interest had been converted into a loan and hence not actually paid under Section 43B was not justified. [Paras 9, 10, 11, 12]

Disallowance made by AO under Section 43B in respect of bank interest set aside; interest treated as actually paid and deductible for AY 2014-15.

Final Conclusion: The appeal is allowed; the order of the Assessing Officer disallowing interest under Section 43B is set aside for Assessment Year 2014-15.

Null and void assessment passed against dissolved company - effect of court-approved scheme of amalgamation on tax proceedings - continuation of proceedings by/transferee company from appointed date - substantive illegality v. procedural irregularity - participation in proceedings not an estoppel against law - quashing of assessment and demand notice issued in name of non-existing entity

Null and void assessment passed against dissolved company - effect of court-approved scheme of amalgamation on tax proceedings - continuation of proceedings by/transferee company from appointed date - substantive illegality v. procedural irregularity - participation in proceedings not an estoppel against law - quashing of assessment and demand notice issued in name of non-existing entity - Final assessment orders and demand notices issued in the name of the amalgamating (dissolved) company are invalid and liable to be quashed where the scheme of amalgamation had been approved and the appointed date rendered the transferor company dissolved. - HELD THAT: - The assessee's amalgamation scheme approved by the High Court effected an appointed date from which the transferor company ceased to exist and the transferee succeeded to rights and liabilities; accordingly proceedings and enforcement were to be continued by or against the transferee. Despite intimation of the amalgamation, the TPO and AO passed consequential orders and framed final assessment and demand notices in the name of the dissolved transferor company. Following the principle in the Supreme Court authority relied upon by the assessee, framing assessment against an entity that had ceased to exist is a substantive illegality and not a mere procedural irregularity curable under the doctrine invoked by the Revenue. Participation in the assessment proceedings by the assessee does not operate as an estoppel to validate an assessment that is void for want of jurisdiction because it was not framed against a legally existent taxpayer. In these circumstances the final assessment orders and consequent demand notices issued in the name of the non existing amalgamating company were held to be bad in law and were quashed. [Paras 8, 13, 16]

Final assessment orders and demand notices issued in the name of the non-existing amalgamating company are quashed for A.Y. 2010-11, 2011-12 and 2012-13.

Final Conclusion: For A.Y. 2010-11, 2011-12 and 2012-13 the Tribunal allowed the assessee's challenge and quashed the final assessment orders and corresponding demand notices issued in the name of the dissolved amalgamating company; the Revenue's appeal (in the one instance) became infructuous and was dismissed.

Rectification of mistake apparent from the record under section 254(2) - limitation for filing miscellaneous application under section 254(2) - character of interest income and availability of deduction under section 80P(2)(d) - pro rata allocation of expenses relating to interest from deposits for computation of deduction

Limitation for filing miscellaneous application under section 254(2) - Maintainability of the miscellaneous application for rectification filed under section 254(2) of the Act - HELD THAT: - The Tribunal applied the amended time limit in section 254(2) and held that a miscellaneous application for rectification must be filed within six months from the end of the month in which the order was passed. The order under challenge was passed on 30th January, 2020, giving a limitation period from 1st February, 2020 to 31st July, 2020. The miscellaneous application was filed on 1st September, 2020 and, on the record, the assessee had received the order on 19th February, 2020. The application therefore fell outside the prescribed six month period and was held barred by limitation. Reliance on earlier decisions distinguishing retrospective application of the amended limitation was considered inapplicable on facts.

Miscellaneous application is not maintainable and is dismissed as barred by limitation.

Rectification of mistake apparent from the record under section 254(2) - character of interest income and availability of deduction under section 80P(2)(d) - Whether there was any obvious or patent mistake apparent on the face of the record warranting exercise of the rectification power under section 254(2) - HELD THAT: - The Tribunal examined the substantive adjudication already recorded and found that the impugned order involved consideration of contested facts and legal reasoning (including analysis of whether interest on deposits with cooperative or scheduled banks could be treated as operational income under section 80P(2)(d)). The Tribunal held that the alleged error was not an obvious patent defect apparent on the face of the record but a matter requiring argument and detailed reasoning. Consequently, rectification under section 254(2) could not be invoked to revisit such contested findings. The Tribunal also noted and followed coordinate bench and High Court decisions which treated interest on surplus or idle funds as not changing character merely because deposited with a cooperative bank, and that such matters involved substantive adjudication rather than an apparent clerical or patent mistake.

No mistake apparent from the record was shown; rectification under section 254(2) cannot be exercised.

Final Conclusion: The miscellaneous application for rectification is dismissed: it is time barred under the six month limitation in section 254(2) and, in any event, no obvious patent mistake on the face of the record was established to justify rectification.

Liability of customs broker for failure to verify KYC and antecedents - penalty under Section 114 of the Customs Act for facilitating attempted export of prohibited goods - obligations of freight forwarders to assist in KYC compliance of customs broker - reduction of penalty where there is no participation in profit or mens rea - confiscation of prohibited goods and concealment material

Liability of customs broker for failure to verify KYC and antecedents - penalty under Section 114 of the Customs Act for facilitating attempted export of prohibited goods - Whether M/s CSB Logistics (the customs broker) was liable to penalty under Section 114 for failing to verify the antecedents and genuineness of the exporter and thereby facilitating attempted export of prohibited goods. - HELD THAT: - The Tribunal affirmed that a customs broker is duty bound under the relevant licensing regulations to verify the IEC, identity of the client and existence/functioning of the client at the declared address using reliable and independent documents or information. The record shows the customs broker never met the exporter or the mastermind, had handled multiple similar consignments from the same exporter, and thus failed to perform required KYC. That negligence facilitated attempts to export prohibited goods (red sanders) and there was a reasonable belief that earlier consignments were similarly tainted. On these findings the customs broker's conduct amounted to conscious disregard of obligations and attracted penal liability under Section 114. The Tribunal however exercised its quantification discretion to reduce the quantum of penalty imposed by the lower authority, while upholding liability. [Paras 11, 12, 19, 21]

Liability of M/s CSB Logistics for penalty under Section 114 is upheld; penalty confirmed but substantially reduced.

Obligations of freight forwarders to assist in KYC compliance of customs broker - penalty under Section 114 of the Customs Act for facilitating attempted export of prohibited goods - reduction of penalty where there is no participation in profit or mens rea - Whether the freight forwarders (M/s Cargo Specialist Inc., M/s Info Capital Logistic Co., and M/s Blue Bell Logistics Pvt. Ltd.) were liable to penalty under Section 114, and if so, whether penalty should be mitigated in view of absence of profit participation or knowledge. - HELD THAT: - The Tribunal found that the freight forwarders acted as facilitators in the chain that forwarded documents and consignments without independently verifying the genuineness of the exporter or documents; they functioned effectively as intermediaries in the export chain and therefore had a duty to observe KYC norms and assist the customs broker. That negligence rendered them facilitators of the attempted export of prohibited goods and prima facie exposed them to penalty under Section 114. However, the Tribunal accepted the evidence that these appellants acted on normal remuneration and did not participate in or receive profit from the attempted export, and that there was no conclusive proof of conscious participation in the illicit trade. Applying those factual distinctions, the Tribunal reduced the penalties substantially from the amounts imposed by the Commissioner (Appeals), allowing the appeals in part as to quantum while upholding liability. [Paras 13, 14, 15, 20, 21]

Freight forwarders held liable as facilitators; penalties confirmed in principle but markedly reduced in quantum on the basis that they received only normal remuneration and did not share illicit profits.

Final Conclusion: The Tribunal upheld liability of the customs broker and the freight forwarders for facilitating an attempted export of prohibited goods due to failures in KYC and verification, but on the facts reduced the monetary penalties imposed on all appellants other than the exporter; the appeals are partly allowed for the limited purpose of mitigating penalty amounts.

Restoration of struck-off company - evidence required to establish creditor status - requirement that company be carrying on business or in operation at time of striking off - malafide intention in filing revival application - effect of non-filing of financial statements leading to striking off - limitation for restoration under Section 252(1) and Section 252(3) of the Companies Act, 2013

Evidence required to establish creditor status - restoration of struck-off company - Whether the Appellant proved his status as a creditor entitled to restoration of the struck-off company's name. - HELD THAT: - The Tribunal's finding that there was no reliable evidence to establish the Appellant as a creditor was affirmed. The Appellant produced invoices and correspondence asserting an outstanding claim and letters allegedly acknowledging liability, but the material on record did not satisfy the requirement to demonstrate that the Respondent company was carrying on business or in operation when its name was struck off, nor did it establish the Appellant's creditor status to the Tribunal's satisfaction. The appellate court noted the Tribunal's assessment of the contemporaneous evidence and found no infirmity in rejecting the claim of creditor status. [Paras 6, 8, 15, 16]

Appellant failed to prove creditor status; claim insufficient to warrant restoration.

Requirement that company be carrying on business or in operation at time of striking off - effect of non-filing of financial statements leading to striking off - Whether the Respondent company was carrying on business or in operation at the time its name was struck off. - HELD THAT: - Records of the Registrar of Companies showed that the company had not filed annual returns, balance sheets and profit and loss accounts since 31.03.1999. The company itself admitted that its managing director suffered serious health issues from 2000 and that the company was not in operation thereafter. No documents were produced to show that the company was operational when struck off on 30.04.2008. The Tribunal's conclusion that the company was not carrying on business or in operation at the relevant time was upheld as being supported by the record. [Paras 3, 5, 15, 16]

Company was not carrying on business or in operation when struck off; restoration on that basis not justified.

Malafide intention in filing revival application - limitation for restoration under Section 252(1) and Section 252(3) of the Companies Act, 2013 - Whether the Tribunal rightly inferred malafide intention and dismissed the application for restoration on that ground in view of delay and limitation. - HELD THAT: - The company did not file an appeal under Section 252(1) within three years of the Registrar's order (lapsed in April 2011). The Appellant's restoration application under Section 252(3) was filed after publication in the Official Gazette and the circumstances suggested that the appeal may have been filed to take advantage of the longer limitation available under the provision. The Tribunal's reliance on the unexplained delay, the absence of appeals by the company within the statutory period, and surrounding facts to infer mala fides was sustained. The appellate court found no reason to disturb the Tribunal's conclusion that the prosecution of the revival application indicated improper motive. [Paras 14, 18, 19]

Tribunal correctly inferred mala fide intention from the delay and circumstances; dismissal on that ground upheld.

Final Conclusion: The appeal is dismissed. The Appellant failed to establish creditor status or that the company was operational when its name was struck off; the Tribunal's inference of mala fide intention and dismissal of the restoration application is upheld. No order as to costs.

Restoration of name of company - striking off of company name - carrying on business or in operation - evidence of operation - principle of natural justice - duty to serve notice - power under Section 252 of the Companies Act, 2013 - criterion of 'just' restoration

Principle of natural justice - duty to serve notice - Whether the Registrar of Companies failed to afford reasonable opportunity and violated principles of natural justice by striking off the company's name. - HELD THAT: - The Tribunal examined the Respondent's averments and records that notices in Form STK-1 and the public notice in Form STK-5 were issued and served/published prior to striking off. The appellant's plea that no notice was received was negatived on the basis of the ROC's specific averments showing dates when notices were sent and published and the absence of any reply from the company or its directors. The Tribunal found no breach of natural justice in the issuance of the notices or in the striking off process where such notices were shown to have been issued and no response filed by the appellant. [Paras 10, 15, 18, 19]

The contention of violation of the principle of natural justice for non-service of notice is rejected and the notices issued by the ROC are held to have been adequate.

Carrying on business or in operation - evidence of operation - criterion of 'just' restoration - Whether the appellant company was carrying on business or in operation at the time its name was struck off, thereby justifying restoration of its name. - HELD THAT: - The Tribunal considered the documentary material placed by the appellant (income-tax returns, GST returns for a limited period and bank statements) but observed that the appellant failed to produce audited balance sheets showing revenue from operations for the two immediately preceding financial years as directed. The ROC's record indicated that the last annual return and balance sheet filed related to the year ended 31.03.2016 and no further filings or application for dormant status were made. Applying the established test that restoration under the Tribunal's powers requires satisfaction that the company was carrying on business or that it is otherwise just to restore the name, the Tribunal concluded that the appellant did not discharge the burden of proving operation at the relevant time and therefore the exercise of ROC's power to strike off was not interfered with. [Paras 5, 12, 20, 23]

The appellant failed to prove that the company was carrying on business or in operation at the time of striking off; restoration is not warranted.

Final Conclusion: The appeal is dismissed and the action of the Registrar of Companies in striking off the company's name is upheld.

Limitation and applicability of Section 18 of the Limitation Act to Section 7 proceedings - Acknowledgement of debt as fresh start of limitation - Default and admission under Section 7 of the IBC - One Time Settlement (OTS) as acknowledgement - Scope of Section 7 - duty to admit if default established - Exercise of equitable discretion to set aside admission in the interest of justice

Limitation and applicability of Section 18 of the Limitation Act to Section 7 proceedings - Acknowledgement of debt as fresh start of limitation - Whether the Section 7 application filed by the financial creditor was barred by limitation - HELD THAT: - The Tribunal held that limitation in a Section 7 filing is a mixed question of law and fact and must be determined by reference to the material facts. The record showed successive loan agreements and restructuring, service of interest till June 2017, and an OTS letter and related communications culminating in promises to pay from 27.11.2019. Applying the principle in Asset Reconstruction Company (India) Limited, the Tribunal found that the OTS terms and the parties' conduct constituted an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, thereby restarting the period of limitation. Having regard to the promissory correspondence, payments and the OTS schedule (with instalments beginning 27.11.2019), the Tribunal concluded that the three-year period under Article 137 had not expired for instituting proceedings under Section 7 and accordingly the Section 7 application was not time-barred. [Paras 17]

The Section 7 application was not barred by limitation.

Default and admission under Section 7 of the IBC - Scope of Section 7 - duty to admit if default established - Exercise of equitable discretion to set aside admission in the interest of justice - One Time Settlement (OTS) as acknowledgement - Whether the admission order under Section 7 should be sustained or set aside - HELD THAT: - The Tribunal applied the principle in Innoventive Industries that the adjudicating authority must admit a Section 7 application where it is satisfied that a default has occurred, but noted that a corporate debtor may point to absence of a default or other relevant circumstances. Although the record established default and the nature of the debt as financial, the Tribunal took into account the parties' ongoing settlement efforts, the OTS arrangements (including payments made to other lenders and the negotiated OTS with the respondent bank), and the pandemic-related impact on the corporate debtor's business. In the interest of justice and to enable an agreed resolution that could mitigate economic loss to stakeholders, the Tribunal exercised its discretion to set aside the admission and granted the corporate debtor six months to settle the dues; if settlement is not achieved, the financial creditor is at liberty to take appropriate steps. The Tribunal also excluded the appeal period spent for limitation purposes. [Paras 18, 19, 20]

The order of admission under Section 7 is set aside and the corporate debtor is given six months to effect settlement; failure to settle permits the financial creditor to proceed.

Final Conclusion: The Tribunal held that the Section 7 petition was not time barred (Section 18 acknowledgement and OTS communications restarting limitation) but, exercising its discretion in the interest of justice and having regard to settlement efforts and pandemic impact, set aside the admission under Section 7 and granted the corporate debtor six months to settle; if settlement fails the financial creditor may proceed and the time spent in the appeal is excluded for limitation.

Voluntary liquidation - declaration of solvency - special resolution - appointment of liquidator - final report of liquidation - dissolution under Section 59(7) of the Insolvency and Bankruptcy Code, 2016

Voluntary liquidation - declaration of solvency - special resolution - appointment of liquidator - final report of liquidation - dissolution under Section 59(7) of the Insolvency and Bankruptcy Code, 2016 - Whether the Corporate Person complied with the statutory requirements for voluntary liquidation and is entitled to be dissolved under Section 59(7) of the Code. - HELD THAT: - The Tribunal found that the Board of Directors passed a resolution to liquidate and filed the required declaration of solvency and audited financial statements; a Special Resolution approving voluntary liquidation and appointment of an insolvency professional as Liquidator was passed by the members; requisite filings were made with the Registrar of Companies and the IBBI; public notices were issued and no claims were received; the Income Tax Department issued a no-objection certificate; the Liquidator opened the liquidation bank account, prepared and filed the preliminary and final reports including audited accounts of liquidation, and distributed the available funds to shareholders after liquidation expenses. The Tribunal recorded that the affairs of the Corporate Person have been wound up, assets liquidated, there were no creditors or outstanding liabilities, and the liquidation process was completed in compliance with Section 59 of the Code and the IBBI (Voluntary Liquidation Process) Regulations, 2017. [Paras 10, 12, 14, 15, 16]

The Tribunal held that the Company complied with the statutory requirements for voluntary liquidation and allowed the petition for dissolution under Section 59(7) of the Code.

Final Conclusion: The Company Petition under Section 59(7) is allowed; the Corporate Person is dissolved and the Liquidator is directed to file this order with the Registrar of Companies and the IBBI within 14 days.

Approval of Resolution Plan under Section 31 - Binding effect of an approved resolution plan and extinguishment of claims - Statutory dues of government authorities in the corporate insolvency resolution process - Commercial wisdom of the Committee of Creditors

Approval of Resolution Plan under Section 31 - Binding effect of an approved resolution plan and extinguishment of claims - Statutory dues of government authorities in the corporate insolvency resolution process - Commercial wisdom of the Committee of Creditors - Whether interference with the Adjudicating Authority's approval of the resolution plan was warranted where the operational creditor (Department of Sales Tax) received a small distribution under the approved plan. - HELD THAT: - The Tribunal noted that the Committee of Creditors had considered and approved the distribution of dues, including statutory dues, in the resolution plan and that the plan proposed an upfront payment and treatment of operational creditors as set out in the plan (including distribution to statutory authorities). Reliance was placed on the Supreme Court's exposition that once a resolution plan is duly approved under Section 31, the claims provided in the plan stand frozen and binding on the corporate debtor and all creditors, and claims not part of the approved plan stand extinguished. In view of that binding principle and the fact that the CoC had, in its commercial wisdom, approved the treatment of the appellant's claim within the plan, the Tribunal found no ground to interfere with the Adjudicating Authority's order approving the plan. [Paras 5, 6]

Appeal declined and disposed of at the stage of admission; impugned order approving the resolution plan is not interfered with.

Final Conclusion: The appeal by the Department of Sales Tax challenging the Adjudicating Authority's approval of the resolution plan was dismissed at the admission stage: the resolution plan dealt with the appellant's operational claim and, in view of the binding effect of an approved plan, no interference was warranted.

Liquidator appointment null and void ab initio - Section 34(4)(a) of the Insolvency and Bankruptcy Code, 2016 - proviso to Section 34(4)(a) as a quo warranto mechanism - power of Adjudicating Authority to set aside/replace liquidator without separate application - role of IBBI in nomination/replacement of liquidator

Liquidator appointment null and void ab initio - Section 34(4)(a) of the Insolvency and Bankruptcy Code, 2016 - proviso to Section 34(4)(a) as a quo warranto mechanism - power of Adjudicating Authority to set aside/replace liquidator without separate application - Validity of the appointment of Mr. Sisirkumar Appikatla as Liquidator and the power of the Adjudicating Authority to set aside that appointment under the proviso to Section 34(4)(a). - HELD THAT: - The Tribunal examined whether the appointment of the person functioning as Liquidator offended the disqualification in the proviso to Section 34(4)(a) and whether the Adjudicating Authority could act to set aside such appointment without a separate application by an aggrieved party. The bench accepted the applicant's contention that the proviso to Section 34(4)(a) operates in a manner akin to quo warranto and does not require a formal application solely by an aggrieved party to invoke it. Having considered the submissions and the legal position, the Tribunal found that the appointment of Mr. Sisirkumar Appikatla was non est and void ab initio. The Tribunal clarified that this limited order of replacement is confined to the removal and replacement of the Liquidator and does not seek to interfere with any appeal pending before the Appellate Tribunal; it does not transgress the powers of the Adjudicating Authority. The Registry was directed to inform the IBBI of the replacement so that IBBI may suggest a substitute liquidator. [Paras 6, 7, 8, 9, 10]

Appointment of Mr. Sisirkumar Appikatla as Liquidator held void ab initio; Registry directed to notify IBBI for replacement and a suggested name was forwarded to IBBI but final selection left to IBBI.

Final Conclusion: The Tribunal set aside the appointment of the respondent as Liquidator as void ab initio under the proviso to Section 34(4)(a) of the IBC, directed the Registry to notify the IBBI for replacement, made a non-binding suggestion for a successor, and disposed of the listed application while rendering related challenges infructuous.

Extension of liquidation period - exclusion of lockdown period from computation of timelines - exceptional circumstances under Section 60(5) of the Code - Regulation 47A of the IBBI (Liquidation Process) Regulations, 2016 - liquidator's duty to carry on operations for beneficial liquidation - obligation to conclude liquidation expeditiously

Extension of liquidation period - exclusion of lockdown period from computation of timelines - exceptional circumstances under Section 60(5) of the Code - Regulation 47A of the IBBI (Liquidation Process) Regulations, 2016 - liquidator's duty to carry on operations for beneficial liquidation - Application for extension of the liquidation period beyond 11.04.2021 was allowed for four months. - HELD THAT: - The Tribunal recorded that the material facts were undisputed and that the lockdown and COVID-19 related disruption constituted exceptional circumstances under the Code enabling appropriate directions under Section 60(5). It relied on the Supreme Court's order extending limitation from 15.03.2020 and on Regulation 47A which permits exclusion of the lockdown period from computation of timelines for tasks in liquidation. The liquidator had kept the corporate debtor as a going concern, pursued completion and handover of a government project (awaiting response from ISRO), conducted two e-auction attempts (with only plant and machinery sold), and awaited relinquishment of security by a financial creditor, all of which caused delay in completing liquidation. Having regard to these circumstances and the settled law, the Tribunal found that a limited extension was warranted but emphasised that the liquidator must take expeditious steps to finalise the liquidation without further delay. [Paras 5, 6]

Grant of four months' extension of the liquidation period from 11.04.2021 and direction to the liquidator to finalise the liquidation expeditiously.

Final Conclusion: IA No.125 of 2021 disposed of by granting a four month extension of the liquidation period from 11.04.2021, the extension being founded on COVID 19 lockdown exclusion and exceptional circumstances; the liquidator directed to conclude the liquidation without further delay.

Default under the Insolvency and Bankruptcy Code triggering Section 7 admission - deemed authentication of Information Utility certificate - pendency of arbitration not a bar to Section 7 application - insufficiency of security not a defence to insolvency application - write off or reclassification in financial statements not extinguish debt - admission and initiation of Corporate Insolvency Resolution Process and appointment of IRP - moratorium under Section 14 of the Code

Default under the Insolvency and Bankruptcy Code triggering Section 7 admission - debt due and payable - Existence of debt and occurrence of default by the corporate debtor under the loan agreement. - HELD THAT: - The loan agreement stipulated repayment by 31.03.2019 and the corporate debtor has not repaid the amount. The High Court observed that the respondent admitted non repayment and the corporate debtor executed a Demand Promissory Note evidencing liability. Applying the test in Innoventive Industries, once a debt is due and unpaid the adjudicating authority need only be satisfied on records produced that default has occurred. The record on file, including contemporaneous admissions and documentary evidence, establishes that the debt became due on 31.03.2019 and remained unpaid, satisfying the threshold for a Section 7 application. [Paras 16, 19, 20, 22, 26]

Default is established and the Section 7 application is maintainable.

Deemed authentication of Information Utility certificate - Validity and evidentiary weight of the Information Utility (NeSL) record of default. - HELD THAT: - The applicant produced an Information Utility report recording default. The respondent challenged the manner of communication but did not impugn the certificate before the appropriate authority nor produce evidence contradicting the record. In absence of a successful challenge, the NeSL certificate is to be treated as duly authenticated and admissible evidence of default for the purposes of the Section 7 petition. [Paras 23, 24]

The Information Utility certificate is deemed valid and supports the claim of default.

Pendency of arbitration not a bar to Section 7 application - Whether invocation or pendency of arbitration proceedings prevents admission of the Section 7 application. - HELD THAT: - The respondent relied on the arbitration clause, but did not place evidence to show that a subsisting arbitration proceeding interdicts payment or otherwise precludes initiation of CIRP. It is a settled position that mere existence or suggestion of arbitration proceedings is not a defence to a Section 7 application absent proof that the debt is not due or is otherwise legally interdicted. No such proof was furnished. [Paras 25]

The arbitration clause/claim is not a bar and the objection is unsustainable.

Insufficiency of security not a defence to insolvency application - write off or reclassification in financial statements not extinguish debt - Whether sufficiency of securities or reclassification/write off in the creditor's accounts defeats the Section 7 petition. - HELD THAT: - The respondent argued that recovery must first be made from secured assets and that accounting reclassification or removal of the loan from a particular head in the applicant's financial statements indicates repayment or assignment. The Tribunal held that proceedings under the Code are not money recovery suits and that giving the creditor the option to realize securities demonstrates non payment. Reliance on authorities establishes that internal accounting treatment, write off or reclassification does not extinguish the creditor's right to recover the debt. No assignment of debt was proved. [Paras 9, 11, 18, 21, 22]

Objections based on sufficiency of security and financial statement reclassification/write off are rejected.

Admission and initiation of Corporate Insolvency Resolution Process and appointment of IRP - moratorium under Section 14 of the Code - Final orders consequential to admission: initiation of CIRP, appointment of IRP, public announcement and imposition of moratorium. - HELD THAT: - Having found that the petition is complete, the debt and default are established and the threshold amount is met, the Tribunal admitted the Section 7 petition and directed initiation of CIRP. An Interim Resolution Professional was appointed and directed to make the public announcement within three days. The statutory moratorium under Section 14 was declared and the statutory prohibitions and obligations on the corporate debtor, the IRP and related persons were specified. Directions were also given regarding IRP functions and interim funding by the applicant to meet IRP expenses to be treated as CIRP costs. [Paras 28, 29, 31, 32, 33]

The petition is admitted; IRP is appointed; public announcement to be made and moratorium is declared with consequential directions.

Final Conclusion: The Tribunal held that the loan became due on 31.03.2019 and remained unpaid, the Information Utility certificate stands unchallenged, objections based on arbitration, sufficiency of security and accounting reclassification are unsustainable, and accordingly admitted the Section 7 petition, appointed an Interim Resolution Professional, directed public announcement and declared the moratorium with standard consequential directions.

Section 9 petition under the Insolvency and Bankruptcy Code - pre-existing dispute - expunction of judicial observations affecting arbitration - non-adjudication of merits - direction for deletion of portions of record and uploading of judgment

Expunction of judicial observations affecting arbitration - non-adjudication of merits - Paras 29 and 34 of the Impugned Order dated 04.01.2021 were expunged from the record and the appeal disposed of on that basis without adjudicating the merits of the dispute between the parties. - HELD THAT: - The Appellate Tribunal observed that Paras 29 and 34 of the Adjudicating Authority's order contained observations touching upon the merits of the dispute (including findings on short supply and liability to pay penalty) which could prejudice any future arbitration proceedings. The respondent conceded that those observations did touch the merits and did not object to their expunction. The Tribunal expressly recorded that it had not gone into the merits on the question of any pre-existing dispute and therefore ordered deletion of the two paragraphs to ensure that merits-related remarks do not impede arbitration or further proceedings. The Tribunal directed the Adjudicating Authority to carry out the deletion and further directed the Registry to upload the judgment and send a copy to the Adjudicating Authority for compliance. [Paras 7]

Paras 29 and 34 of the Impugned Order are expunged; the appeal is disposed of without adjudication on merits and with directions to delete the specified paragraphs and upload/send the judgment.

Final Conclusion: The Appellate Tribunal allowed the appeal for the limited purpose of expunging Paras 29 and 34 from the Adjudicating Authority's order because those paragraphs contained merit-based observations that could affect arbitration; the Tribunal did not decide the substantive dispute and directed deletion of the paragraphs and uploading and circulation of the judgment.

Section 439(2) Cr.P.C. - scope of interference with subordinate bail orders - maintainability of cancellation/review application prior to actual release on bail - irrelevant consideration in grant of bail - change in circumstances for grant of bail - Section 45(1) PMLA - twin conditions and effect of 2018 amendment - Nikesh T. Shah - validity of Section 45 of the PMLA Act

Section 439(2) Cr.P.C. - scope of interference with subordinate bail orders - maintainability of cancellation/review application prior to actual release on bail - Maintainability of an application under Section 439(2) Cr.P.C. where the accused has not been actually released on bail. - HELD THAT: - The Court examined competing authorities and concluded that Section 439(2) must be given a practical and purposive construction so as not to render the provision redundant. Relying on the reasoning in Assistant Collector of Customs v. Madam Ayabo and subsequent High Court decisions, the Court held that an order directing release on bail is amenable to reconsideration under Section 439(2) once passed and that the prosecution need not wait until physical release is effected to challenge a manifestly unsustainable bail order. The contrary interpretation - that maintainability is contingent on actual release - would graft an unexpressed condition into the statute and unduly narrow its scope. The preliminary objection to maintainability was therefore overruled and the application entertained on merits. [Paras 19, 22, 26, 27]

Application under Section 439(2) Cr.P.C. is maintainable even though the accused had not been physically released on bail; the preliminary objection is overruled.

Section 45(1) PMLA - twin conditions and effect of 2018 amendment - Nikesh T. Shah - validity of Section 45 of the PMLA Act - Whether the 2018 amendment to Section 45(1) of the PMLA Act revived the twin conditions struck down in Nikesh T. Shah and thereby applies to the offence of money laundering. - HELD THAT: - The Court analysed the scope of Nikesh T. Shah, which struck down Section 45 as a whole, and considered subsequent amendments and later authorities. It held that the Apex Court in Nikesh T. Shah had declared Section 45 manifestly arbitrary and invalid in its entirety. Consequently, the 2018 amendment does not operate to revive the twin conditions for offences under the PMLA in the manner urged by the applicants. Earlier High Court decisions holding that the twin conditions do not apply to money laundering accused were consistent with this view, and the submissions that P. Chidambaram (relied upon by the applicants) changed that position were not persuasive. [Paras 28, 32, 33]

Amendment of 2018 does not revive the twin conditions of Section 45(1); Nikesh T. Shah's conclusion that Section 45 is invalid remains operative for the purposes of bail in money laundering cases.

Irrelevant consideration in grant of bail - change in circumstances for grant of bail - Whether the Special PMLA Court granted bail to the respondent by acting upon irrelevant material and ignoring relevant material. - HELD THAT: - The Court reviewed the trial Court's reasons for denying the first bail application and for subsequently granting bail. It noted that the Special Court had earlier found prima facie complicity and ongoing investigation, but on the later application the Special Court observed lack of progress in investigation and absence of steps against certain co accused. The High Court examined the prosecution's contention that filing of the charge sheet was not a change in circumstance and that relevant material (including statements of land owners and documentary trail) was ignored. Having considered the record and the comparative role of other co accused who had been granted bail, and recognising that the prosecution placed no material showing further progress in investigation against the respondent, the High Court concluded that the trial Court had not acted upon irrelevant material nor ignored relevant material in a manner warranting interference. The Court also observed that the risk of tampering was low given the documentary nature of the evidence and that some accused with greater alleged roles had been granted bail. [Paras 35, 39, 40, 41]

The Trial Court did not act upon irrelevant material or ignore relevant material so as to justify cancellation; the challenge on this ground fails and the prosecution's application is rejected.

Final Conclusion: The prosecution's application under Section 439(2) Cr.P.C. was held maintainable despite non availment of physical release on bail; the Court held that the 2018 amendment did not revive the twin conditions of Section 45(1) PMLA as invalidated by Nikesh T. Shah; on the merits, the High Court found no perversity or reliance on irrelevant material in the trial Court's grant of bail and accordingly rejected the prosecution's application.

Suppression of facts - willful mis-statement or suppression of facts - extended period of limitation - bonafide belief - reverse charge mechanism - service tax liability of service recipient - double taxation

Suppression of facts - willful mis-statement or suppression of facts - extended period of limitation - bonafide belief - Alleged non-payment of service tax on 25% of gross value was not a willful suppression attracting invocation of the extended period of limitation. - HELD THAT: - The Tribunal found that the appellant had an honest belief that liability under the notification amendment applied from 75% to 100% and that the period in dispute immediately followed the amendment's coming into effect. Relying on the principle that 'suppression' for the purpose of invoking extended limitation must be deliberate and willful (as explained in the authorities cited by the Tribunal), mere omission or lack of awareness does not amount to suppression or intent to evade duty. There was no finding of fraud, collusion or deliberate intent to evade payment; consequently the Department failed to justify invocation of the extended period. Further, the Show Cause Notice dated 2018 for the period in question was held to be beyond the normal period and therefore time-barred insofar as the extended period could not be invoked without proof of willful suppression. [Paras 6, 7, 8]

Extended period of limitation could not be invoked; the Show Cause Notice for the period is time-barred on the facts and findings.

Reverse charge mechanism - service tax liability of service recipient - double taxation - Demand for additional service tax could not be sustained because the Department had already received tax on the full value from the service provider, and confirming the demand would amount to taxing the same transaction twice. - HELD THAT: - The appellant admitted liability to pay service tax under the reverse charge mechanism at 75% and the record showed that the service provider had paid the balance amount. Commissioner (Appeals) had acknowledged existence of supporting documents (journal vouchers, cash memos, salary details) relating to the amount in dispute. In these circumstances, confirming a demand against the appellant would result in the Department effectively receiving tax twice for the same transaction. The Tribunal held the lower authority's finding that there was no documentary evidence to prove payment was unsustainable and that the appellant's liabilities stood discharged, rendering the demand untenable. [Paras 6, 8]

Demand for the additional service tax was not sustainable and was set aside.

Final Conclusion: Impugned order set aside; appeal allowed. The demand and penalties confirmed below are quashed as barred by limitation and unsustainable on merits insofar as the Department had already received tax on the transaction.

Deemed provider under Section 66A - identification of recipient of service - support service of business or commerce - infrastructural support service - telecommunication service and licensing regime - taxability of cross border roaming, call termination and carrier charges - set aside of demand, interest and penalties

Deemed provider under Section 66A - identification of recipient of service - Validity of invoking Section 66A (treating the recipient as deemed provider) without proper identification of the recipient as required by the statutory scheme and Rules. - HELD THAT: - The Tribunal held that Section 66A operates as a statutory deviation from the general rule and creates a legal fiction that the recipient is to be treated as if he had provided the service in India, but this regime requires concatenation of classification of the service with identification of the recipient under the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006. The impugned order transposed transactions onto portions of definitional provisions without any discussion to identify the appellant as the recipient and, in accordance with Section 66A and the Rules, as the deemed provider liable to tax. Because identification of the recipient is an essential precondition for applying Section 66A, the failure to undertake that identification vitiated the invocation of Section 66A and warranted setting aside the order on that ground. [Paras 5, 12]

Invocation of Section 66A was improper as the adjudicating authority failed to identify the recipient as required; the impugned order is liable to be set aside on that count.

Support service of business or commerce - infrastructural support service - telecommunication service and licensing regime - taxability of cross border roaming, call termination and carrier charges - Whether amounts paid for roaming charges, call termination charges and carrier charges to overseas telecom operators were taxable as 'support service of business or commerce' (in particular as 'infrastructural support service') or were to be treated as telecommunication services outside the ambit of that entry when the appellant is the licensed telecom operator and the overseas operator provides the service to the subscriber. - HELD THAT: - The Tribunal analysed the licensing based definition of 'telecommunication service' and the statutory restriction that telecommunication taxability is anchored to services provided by licensed telegraph/telecom authorities to subscribers. It noted that subscribers contract and deal only with the licensed domestic operator, and overseas operators provide connectivity to the subscriber while the domestic licensee merely facilitates billing and reimbursement under commercial arrangements. The factual matrix - separate itemisation in subscriber bills and contractual inability of the domestic licensee to collect on behalf of the overseas operator - contradicted the premise that the overseas operator's infrastructural facilities were placed at the appellant's disposal or constituted input services for the appellant. Relying on precedent and administrative clarifications recognising the primacy of the telecommunication service entry and the nature of international roaming and carrier arrangements, the Tribunal concluded that the impugned order's expansion of 'infrastructural support service' to tax such charges was unwarranted and beyond the enumerated scope. [Paras 6, 7, 8, 11, 13]

The demand of tax on roaming charges, call termination charges and carrier charges, characterized as 'support service'/'infrastructural support service', fails and is set aside; those services do not fall within the challenged taxable entry as applied by the adjudicating authority.

Set aside of demand, interest and penalties - Disposition of consequential tax liability, interest and penalties that were imposed in the impugned order. - HELD THAT: - Having found the foundational classification and invocation of Section 66A improper and that the services in question were not taxable as the impugned order held, the Tribunal proceeded to allow the appeal to the extent of setting aside the tax demands, interest and penalties. The order annulled the tax liabilities and interest under the relevant assessment provisions and set aside penalties imposed under the penal provisions, as the primary demand failed. [Paras 14]

Tax demands, interest and penalties imposed in the impugned order are set aside and the appeal is allowed to that extent.

Final Conclusion: The appeal is allowed in part: the invocation of Section 66A was improper for failure to identify the recipient as required by the statutory scheme, and the adjudicating authority erred in treating roaming, call termination and carrier charges as taxable 'support/infrastructural support' services; consequently the impugned tax demands, interest and penalties are set aside.

Power of remand - appellate jurisdiction - Section 85 of the Finance Act, 1994 - Section 35A(3) of the Central Excise Act, 1944 - limitation - refund claim - personal hearing

Power of remand - appellate jurisdiction - Section 85 of the Finance Act, 1994 - Whether the Commissioner (Appeals) had power to remand the matter to the adjudicating authority in appeals under Section 85 of the Finance Act, 1994. - HELD THAT: - The Tribunal reviewed conflicting authorities including decisions of the Gujarat High Court, the Delhi High Court, the Supreme Court and various CESTAT Benches. It noted that Section 85(4) confers wide powers on the Commissioner (Appeals) to "pass such orders as he thinks fit" and that sub-section (5) subjects those powers to the Chapter but does not, by itself, curtail the width of the power under sub-section (4). The Tribunal observed authorities holding both that remand is inherent in appellate jurisdiction and that the amended form of Section 35A(3) curtailed remand power under the Central Excise Act; however, those limits were not necessarily transferable to appeals under Section 85. While acknowledging the Revenue's contention and the contrary Supreme Court and Punjab & Haryana High Court authorities cited by it, the Tribunal concluded that, in the interests of justice, the appeal would be allowed to the limited extent of the Revenue's contention about the Commissioner (Appeals) remanding the matter, but on merits remanded the case to the Original Authority itself for fresh adjudication. [Paras 5, 6]

Allowed in part: while recognising the controversy over the Commissioner (Appeals)'s power to remand, the Tribunal held that the appeal is allowed to the extent that the Commissioner (Appeals) could not have remanded the matter, but the Tribunal itself remanded the matter to the Original Authority for fresh adjudication on merits.

Limitation - refund claim - personal hearing - Validity of the Commissioner (Appeals)'s finding that the refund claims were not time-barred and that the adjudicating authority failed to afford personal hearing. - HELD THAT: - The Tribunal noted that the adjudicating authority had rejected refund claims solely on the ground of limitation without deciding the claims on merits. The Commissioner (Appeals) found that the limitation bar did not apply because duty had been paid 'under protest' and that the sanctioning authority had also failed to grant a personal hearing as required by the applicable provisions. The Revenue did not challenge that finding in its appeal. Given those unchallenged findings, the Tribunal found no infirmity in the Commissioner (Appeals)'s reasoning and retained the finding that the refund claims could not be regarded as time barred and that the matter required de novo consideration after affording opportunity of personal hearing. [Paras 5]

Finding of the Commissioner (Appeals) that the refund claims were not time-barred and that personal hearing was not given is left undisturbed; matter remanded to Original Authority for adjudication on merits.

Final Conclusion: The appeal is disposed of by allowing the Revenue's contention to the limited extent that the Commissioner (Appeals) ought not to have remanded the matter; notwithstanding that conclusion, this Tribunal remands the matter to the Original Authority for fresh adjudication on merits (without disturbing the Commissioner (Appeals)'s finding on limitation), directing disposal within three months; the stay application is dismissed.

Taxability of commission on corporate guarantees as business auxiliary service - Certainty of taxable service in a show cause notice - Classification between banking and other financial services and business auxiliary service

Taxability of commission on corporate guarantees as business auxiliary service - Commission earned for providing corporate guarantees is taxable as business auxiliary service. - HELD THAT: - The Tribunal held that the decision in Olam Agro India Ltd establishes that commission received for providing corporate guarantees falls within the ambit of business auxiliary service and is therefore taxable under the relevant provisions of the Finance Act, 1994. The Tribunal found that earlier authorities (including re Olam Agro India Ltd) and allied decisions support the proposition that corporate guarantees, though distinct in form from bank guarantees, perform the same facilitative function and attract taxation as business auxiliary services. [Paras 6]

Commission on corporate guarantees is taxable as business auxiliary service.

Certainty of taxable service in a show cause notice - Show cause notice must specify with certainty the taxable service alleged; absence of such certainty vitiates the proceedings. - HELD THAT: - Relying on precedents emphasising that the tax demand must be founded on a clear classification proposed in the show cause notice, the Tribunal found a patent lack of certainty in the impugned proceedings. The authorities initially inclined to one classification but the impugned order invoked a different taxable service without clear attribution in the notice, thereby failing the requirement that the taxing authority apply its mind to the specific classification in the notice. For that reason the Tribunal concluded that the impugned adjudication was unsustainable. [Paras 6, 7]

Impugned order suffers from lack of certainty of the taxable service and cannot be sustained.

Classification between banking and other financial services and business auxiliary service - Whether the bank guarantees issued by the appellant fall within the definition of banking and other financial services was not adjudicated and requires fresh consideration. - HELD THAT: - The Tribunal observed that the impugned order failed to determine the congruity of the facilitation arising from the bank guarantee issued by the appellant with the definition of banking and other financial services in the Finance Act, 1994. Because the adjudicating authority did not examine and record findings on that specific question of classification, the matter was not finally decided on the merits and requires reconsideration by the authority with proper application of mind to the correct classification. [Paras 8]

Issue of inclusion of the bank guarantee within banking/financial services was not adjudicated and is remanded for fresh consideration.

Final Conclusion: Impugned adjudication set aside and the appeal allowed; while commission on corporate guarantees is regarded as taxable as business auxiliary service by reference to existing tribunal precedent, the adjudicating authority failed to specify the taxable service with requisite certainty and failed to determine congruity of the bank guarantee with banking/financial services, the latter being remanded for fresh consideration.

Eligibility to avail CENVAT/Service Tax credit - Authenticity of invoice description and true nature of services - Camouflaged payouts disguised as service invoices (substance over form) - Followed precedent of the jurisdictional High Court - Setting aside demand for disallowance of credit

Eligibility to avail CENVAT/Service Tax credit - Authenticity of invoice description and true nature of services - Camouflaged payouts disguised as service invoices (substance over form) - Whether the appellant was entitled to avail CENVAT/Service Tax credit of the tax charged by automobile dealers under invoices describing provision of infrastructure and administrative support, when the department alleged those invoices merely camouflaged payouts on OD premium and no such services were rendered. - HELD THAT: - The Tribunal examined the department's allegation that dealers received payouts calculated as a percentage of Own Damage premium and were directed to raise invoices describing services (computing network connectivity, internet space, furniture, staff costs, etc.) which, according to the department, did not reflect the true nature of the transactions. The Tribunal noted that the issue had been previously analysed and decided in the appellant's own case for an earlier period, following the decision of the jurisdictional High Court in Modular Auto Ltd. v. CCE, Chennai. Applying the same reasoning and following the binding earlier decision of the Tribunal in the appellant's case, the Tribunal held that the impugned order disallowing credit could not be sustained and required setting aside. The Tribunal therefore accepted the appellant's entitlement to credit as previously adjudicated and declined to uphold the department's demand based on the alleged camouflaging of commission as service invoices.

The impugned order rejecting/denying the CENVAT/Service Tax credit is set aside; the appeal is allowed with consequential reliefs, following the appellant's earlier favorable decision and the jurisdictional High Court precedent.

Final Conclusion: Following the Tribunal's earlier decision in the appellant's own case and the authority of the jurisdictional High Court, the demand disallowing CENVAT/Service Tax credit on payouts to automobile dealers (challenged as camouflaged rather than genuine services) was held unsustainable; the impugned order was set aside and the appeal allowed with consequential reliefs.

Eligibility for exemption under notification No. 69/2003-CE dated 25.08.2003 - expansion of existing manufacturing unit versus establishment of a new unit - common registration and integrated operations as indicia of a single manufacturing unit

Eligibility for exemption under notification No. 69/2003-CE dated 25.08.2003 - expansion of existing manufacturing unit versus establishment of a new unit - common registration and integrated operations as indicia of a single manufacturing unit - Whether Sheds No.15 and 36D formed part of the existing manufacturing unit so that production therefrom qualified for exemption under the notification despite commencement of activities after 28.02.2001. - HELD THAT: - The Tribunal's finding that the additional sheds constituted an expansion of the existing manufacturing unit and not separate new units was founded on uncontroverted factual material showing integrated operations: common central registration by the department, interlinking of the manufacturing process across sheds, common procurement of raw materials, a common workforce, common management control, adjacency and physical inter connection of the sheds, and common tax and income tax registrations. The Department did not dispute these factual assertions. On these facts the Court held that the Tribunal committed no error in treating the additional sheds as part of the existing unit; the production from the augmented capacity therefore fell within the exemption scheme of the notification. The Court further noted that the department did not contend that expansion of an existing unit after 28.02.2001 would, as such, be excluded from exemption under the notification. [Paras 4, 7, 8, 9]

Sheds No.15 and 36D are part of the existing manufacturing unit and production from them qualifies for exemption under the notification; appeal dismissed.

Final Conclusion: The Tribunal's conclusion that the additional sheds constituted an expansion of the existing manufacturing unit and thereby qualified for exemption under notification No.69/2003-CE (subject to its eligibility conditions) is upheld; the departmental appeal is dismissed.

Entitlement to sales tax exemption under industrial policy - continuing units of 1980 Policy - ineligibility of guest house and restaurant for exemption - first point tax paid goods and subsequent sales - remand for bifurcation of turnover where tax status changed during year

Entitlement to sales tax exemption under industrial policy - continuing units of 1980 Policy - ineligibility of guest house and restaurant for exemption - Whether the petitioner is a hotel (and not a restaurant/guest house) and therefore entitled to sales tax exemption under Entry 30-FFFF of the IPR-1989 as a continuing unit of the 1980 Policy for the period covering AY 1995-96. - HELD THAT: - The DIC-issued eligibility certificate dated 18th April 1995 categorised the unit as a small-scale continuing unit of the 1980 Policy and declared it eligible for seven years' exemption under the IPR-1989 notification. The Tribunal had accepted identical certificates and findings for adjacent assessment years, holding that a hotel is distinct from a guest house and restaurant and that the Department could not nullify the DIC certificate by subsequent action of the State Level Empowered Committee. The Supreme Court's reasoning in Vadilal Chemicals was relied upon to show that the Sales Tax Department cannot go behind eligibility certificates issued by the Department of Industries and Commerce. Given the consistent acceptance of the same certificate for other years covering the exemption period and absence of any challenge before the STO/ACST that the unit was not a continuing unit, the Court found no basis to treat AY 1995-96 differently and concluded that the petitioner is a hotel and entitled to the exemption under Entry 30-FFFF in terms of the Finance Department notification dated 16.8.1990. [Paras 20, 21, 24, 25]

The petitioner is a hotel and does not fall within Clause 27 (guest house and restaurant) of the ineligibility list of IPR-1989 and is entitled to sales tax exemption under Entry 30-FFFF for AY 1995-96.

First point tax paid goods and subsequent sales - remand for bifurcation of turnover where tax status changed during year - Whether the disallowance of the claim of first point sale for cold drinks and IMFL under Section 5(2)(A)(a) read with Section 8 of the OST Act is sustainable, and whether any part of this issue requires remand. - HELD THAT: - With respect to cold drinks, it was accepted that the petitioner was not the first seller and had produced purchase invoices; earlier Tribunal orders for other assessment years treated cold drinks as having suffered tax at first sale even where the first seller was unregistered. The statutory scheme, read with Explanation (1) to Section 5(2)(A)(a) and Section 8, supports that a subsequent seller need only show there was an earlier sale in the State; the onus to levy on the first sale lies on the revenue. Consequently, the Tribunal's rejection of invoices solely because the seller was unregistered was unsustainable and the disallowance in respect of cold drinks was set aside. As regards IMFL, the Tribunal correctly observed that IMFL attained first-point tax-paid status only from 14th July 1995, so purchases and sales spanning 1st April-13th July 1995 and 14th July-31st March 1996 must be bifurcated. Those figures were not available and therefore inquiry and fresh determination by the Assessing Authority are necessary. The Court upheld the need for remand for IMFL but allowed the petitioner's claim in respect of cold drinks. [Paras 26, 29, 30]

The disallowance regarding cold drinks is not sustainable and is allowed; the issue of IMFL sales for AY 1995-96 is remanded to the Assessing Authority for fresh determination including bifurcation of turnover for periods before and after 14th July 1995.

Final Conclusion: Revision petition allowed in part: Tribunal's order dated 4th September 2006 modified to hold the petitioner entitled to exemption under Entry 30-FFFF for AY 1995-96 and to uphold the petitioner's claim in respect of cold drinks; the question of IMFL sales for AY 1995-96 is remanded to the Assessing Authority for further enquiry and determination.

Works contract - first sale - second sale exemption - transfer of property in goods involved in works contract - deemed sale in execution of works contract - levy of tax on the transfer of goods involved in works contract - manufacture versus service

Works contract - transfer of property in goods involved in works contract - deemed sale in execution of works contract - Characterisation of the transaction between the petitioner and the cassette manufacturer as a works contract and not a first sale. - HELD THAT: - The Court examined the contractual arrangement whereby the petitioner (master-copy/copyright holder) supplied the master for large-scale recording by a third party who purchased or manufactured blank cassettes, recorded the master material and returned or sold the recorded cassettes only to the petitioner. Relying on the statutory definition, which expressly includes manufacture and processing within "works contract", and on the threefold test in the Supreme Court's decision in M/s. Larsen & Toubro Ltd. (existence of a works contract; goods involved in execution; transfer of property in goods to a third party in some form), the Court found all three conditions satisfied. The Court held that the cassette manufacturer's activity of recording under an agreement, with restriction on resale and with transfer of the recorded goods to the petitioner, falls within the definition of "works contract" and the invoices raised for such activity are part of that contract and not independent first sales. [Paras 21, 22, 23, 26, 27]

The transaction is a works contract and not a first sale.

First sale - second sale exemption - levy of tax on the transfer of goods involved in works contract - Consequences of the characterisation for the petitioner's claim of second-sale exemption and liability to sales tax. - HELD THAT: - Because the initial processing/recording was held to be part of a works contract and not a sale by the cassette manufacturer in the open market, the petitioner's subsequent sale in the market must be treated as the first taxable sale for the purposes of the TNGST Act. The Court accepted the respondents' position that allowing the arrangement to be treated as a prior taxable sale by the recorder would amount to the petitioner avoiding payment of tax (i.e., improperly claiming second-sale exemption) and that the levy under the State Act on the transfer of goods involved in works contract (Section 3B contextually) is permissible. Consequently, exemption previously allowed as second sales cannot be sustained where the antecedent transaction is contractual processing. [Paras 6, 7, 22, 23, 27]

The petitioner cannot claim second-sale exemption; its market sale is the first taxable sale under the TNGST Act.

Manufacture versus service - works contract - Appropriateness of reliance on Gramophone Co. (pre-recorded cassettes as manufacture for excise) for the purpose of sales-tax characterisation under the TNGST Act. - HELD THAT: - The Court reviewed Gramophone Co. (which treated recording as manufacture under Central Excise law) but held that that decision related to Central Excise concepts of manufacture and was not directly determinative of whether a given arrangement constitutes a sale or a works contract under the TNGST Act. Given the distinct statutory framework for sales tax and the relevance of the works-contract definition and the Larsen & Toubro threefold test for deemed sale in works contracts, the Court found Gramophone Co. inapposite to displace the State's view that the arrangement amounts to a works contract for sales-tax purposes. [Paras 11, 24, 26]

Gramophone Co. (central-excise manufacturing finding) does not compel a different characterisation under the TNGST Act; it is inapplicable to negate the works-contract finding.

Final Conclusion: The impugned Circular dated 16.05.2003 is upheld; the contractual recording arrangement constitutes a works contract and the petitioners' market sales are to be treated as first taxable sales under the TNGST Act. The writ petitions are dismissed.

First point tax - taxability of spare parts and accessories - prospective operation of statutory notification - disallowance of deduction claimed under Form-XXXIV

First point tax - taxability of spare parts and accessories - disallowance of deduction claimed under Form-XXXIV - Whether the Tribunal was justified in holding that the goods sold by the petitioner were exigible to first point tax for the assessment year 1999-2000 and in disallowing the deduction claimed against declaration Form-XXXIV. - HELD THAT: - The Court examined the Finance Department notification relied upon by the assessing authorities and the Tribunal and observed that the inclusion of spare parts within the scope of first point tax by that notification was intended to operate prospectively. The notification was effective from 1st April, 2001 and does not indicate retrospective application to earlier periods. Since the assessment under challenge relates to the year 1999-2000, the notification could not be applied to make the goods exigible to first point tax for that year. On that basis the Tribunal's acceptance of the assessing authority's conclusion that the burden of tax had been borne by the petitioner and the consequent disallowance of the Form-XXXIV deduction were held to be unsustainable for the period in question. [Paras 8, 9]

Tribunal's conclusion reversed; items were not exigible to first point tax for 1999-2000 and disallowance of the Form-XXXIV deduction was improper.

Final Conclusion: The revision petition is allowed: the Tribunal was not justified in holding the goods taxable at first point for the assessment year 1999-2000 and the disallowance of the deduction claimed under Form-XXXIV is set aside.

Inter-State sale versus intra-State sale as mixed question of fact and law - applicability of Section 6(2) of the Central Sales Tax Act - works contract and deemed sale in course of execution of works contract - appropriation of goods on erection/commissioning - penalty under Section 12(5) of the Orissa Sales Tax Act, 1947

Inter-State sale versus intra-State sale as mixed question of fact and law - applicability of Section 6(2) of the Central Sales Tax Act - appropriation of goods on erection/commissioning - Whether the transactions between the petitioner and M/s. TRL were inter State sales exigible to tax under Section 6(2) of the CST Act or intra State sales/works contract exigible to OST. - HELD THAT: - The Court held that the conclusion of the Sales Tax authorities and the Tribunal treating the transactions as intra State sales was erroneous. Applying the principle that characterization of a sale as inter State or intra State is a mixed question of fact and law (as explained in the cited authority concerning supply of components for on site assembly), the Court found the documents showed components were manufactured or procured outside Orissa and transported into Orissa for erection, testing and commissioning. Mere assembly or accretion at the work site did not convert those movements into intra State sales or justify treating the entire transaction as a works contract for purposes of Orissa sales tax. The Tribunal's extended inquiry into whether the contract was a works contract was unnecessary where the movement of goods originated outside the State and were received in Orissa, bringing them within the scope of inter State sales and Section 6(2) of the CST Act. Consequently the Tribunal erred in holding the transactions exigible to OST. [Paras 16, 18, 19, 20]

Transactions held to be inter State sales exigible under Section 6(2) of the CST Act; the Tribunal and revenue orders treating them as intra State sales are set aside.

Penalty under Section 12(5) of the Orissa Sales Tax Act, 1947 - Whether the Tribunal was justified in declining to delete the penalty imposed under Section 12(5) of the Orissa Sales Tax Act. - HELD THAT: - Having held that the transactions were inter State sales and therefore exigible under the CST Act, the Court concluded that the Tribunal was not justified in refusing to delete the penalty. The Court answered the framed question in the negative and set aside the imposition. [Paras 2, 21]

Tribunal was not justified in declining to delete the penalty; penalty deleted.

Final Conclusion: The revision petition is allowed: the orders of the STO, ACST and the Sales Tax Tribunal treating the transactions as intra State sales are set aside and the transactions are held to be inter State sales exigible under Section 6(2) of the CST Act; the penalty under Section 12(5) of the Orissa Sales Tax Act is deleted and the STREV is disposed of.

Irregular versus illegal appointment - exception to non-regularization in Umadevi (10 years in duly sanctioned post without interim protection) - effect of finality and res judicata of inter partes judgments - regularization of ad hoc/temporary incumbents

Irregular versus illegal appointment - Nature of the appellant's initial appointment - whether irregular or illegal. - HELD THAT: - The Court found that the appellant was appointed by the prescribed appointing authority on a sanctioned post and possessed the prescribed qualifications. Applying the tests in M.L. Kesari, the appointment must be classified as irregular and not illegal because the appointment was to a sanctioned post and the incumbent had requisite qualifications, notwithstanding selection without open competitive process. The Division Bench's contrary finding that the appointment was illegal is unsustainable. [Paras 23, 24]

Appointment held to be irregular and not illegal.

Exception to non-regularization in Umadevi (10 years in duly sanctioned post without interim protection) - Whether the appellant is disentitled to regularization because she continued in service under an interim order. - HELD THAT: - The Court examined paragraph 53 of Umadevi(3) and the exception carved out therein, which requires (i) ten years' continuous service in a duly sanctioned post without the benefit or protection of any interim order, and (ii) that the appointment be not illegal. The Court held that the appellant satisfied the second condition (appointment irregular but not illegal) and the ten-year threshold, and further observed that the earlier High Court judgment of 23.01.2006 crystallized the appellant's right and attained finality. The fact that the earlier judgment was passed before Umadevi(3) does not oblige re-opening or denial of rights inter partes merely because subsequent precedent alters the general principle. [Paras 25, 26, 27, 28, 30]

Appellant's continuation under the interim order did not disentitle her from regularization in the facts - her case falls within the exception's ambit as applied with regard to the final, unchallenged earlier judgment.

Effect of finality and res judicata of inter partes judgments - Whether the Division Bench could, in collateral proceedings, set aside or ignore the effect of the earlier High Court judgment which had attained finality between the parties. - HELD THAT: - The Court held that the Division Bench improperly proceeded as if reappraising the earlier final judgment of the same High Court. A judgment which has attained finality inter partes cannot be reopened in collateral proceedings; principles of res judicata and finality preclude collateral attack. The Court relied on established authorities to observe that final adjudication between parties cannot be set aside except by the modes recognized by law and that later decisions overruling a principle do not nullify an inter partes final judgment. [Paras 32, 33, 34, 35, 36]

Division Bench's allowance of the Special Appeal as a collateral challenge to an earlier final judgment was impermissible; the earlier judgment remained binding inter partes.

Regularization of ad hoc/temporary incumbents - Whether the appellant is entitled to regularization and consequential relief. - HELD THAT: - Having found the appointment irregular (not illegal), and having held that the earlier High Court judgment in favour of the appellant attained finality and crystallized her right, the Court concluded that refusal to regularize was unlawful. The respondents had already regularized the appellant in compliance with the 2014 Single Judge order subject to LPA, and the Supreme Court directed final implementation: the appellant is entitled to regularization with consequential benefits within a specified period. [Paras 13, 27, 37, 39]

Appellant entitled to be regularized; respondents directed to effect regularization with consequential benefits within three months.

Final Conclusion: The impugned Division Bench judgment is set aside; the appellant's appointment is held to be irregular (not illegal), the earlier unchallenged High Court judgment crystallizing her right is binding inter partes, and the appellant is entitled to regularization with consequential benefits to be granted within three months.