TaxTMI Updates e-Newsletter
Sep 23,2014

Conversion of a private company into a limited liability partnership - applicability of section 47(xiiib) - proviso (f) to section 47(xiiib) - payment out of accumulated profits - interest-free loans to partners as indirect benefit - section 47A(4) - deemed profits of successor LLP where proviso to section 47(xiiib) breached - section 45 - levy and computation of capital gains on transfer of capital assets - remand for computation to Assessing Officer

Proviso (f) to section 47(xiiib) - payment out of accumulated profits - interest-free loans to partners as indirect benefit - Proviso (f) to section 47(xiiib) was violated by the assessee. - HELD THAT: - The LLP gave interest-free loans to its partners shortly after conversion, in the same ratio as profit sharing, and a part of those loans was paid out of the Reserves and Surplus that had stood in the books of the erstwhile company on the date of conversion. Those Reserves and Surplus represented accumulated profits of the company. Payment of such amounts directly to partners from the accumulated profits on the date of conversion amounts to a payment 'either directly or indirectly, to any partner out of balance of accumulated profit' within the meaning of proviso (f). Consequently proviso (f) is breached. [Paras 7, 9]

Proviso (f) to section 47(xiiib) is violated.

Conversion of a private company into a limited liability partnership - applicability of section 47(xiiib) - section 47(xiiib) benefit not available where proviso breached - Benefit of section 47(xiiib) is not available to the assessee. - HELD THAT: - Section 47(xiiib) exempts certain transfers on conversion only if the conditions in its proviso are complied with. Because proviso (f) is breached (as found), the statutory protection under section 47(xiiib) does not apply to the present conversion. The Court held that in the absence of compliance with the proviso the deeming non-transfer benefit under section 47(xiiib) cannot be claimed by the assessee. [Paras 9, 13]

The assessee is not entitled to the benefit of section 47(xiiib).

Section 47A(4) - deemed profits of successor LLP where proviso to section 47(xiiib) breached - section 45 - levy and computation of capital gains - remand for computation to Assessing Officer - Section 47A(4) does not apply and the capital gains are to be computed under section 45; computation is remitted to the Assessing Officer. - HELD THAT: - Section 47A(4) operates where assets were previously regarded as not chargeable to tax by virtue of compliance with the proviso to section 47(xiiib) but subsequently the conditions are not complied with. In this case the assessee never enjoyed the protection of section 47(xiiib) because the proviso was not complied with in the relevant year itself; therefore section 47A(4) is not the operative provision. Instead, the levy under section 45 governs the taxability of profits or gains arising from the transfer of capital assets effected in the previous year. The Tribunal directed that the computation of capital gains be restored to the file of the Assessing Officer who shall compute the capital gains under section 45, taking the sale consideration as the figure at which the assets of the erstwhile company were taken over by the LLP on the date of conversion. [Paras 11, 12, 13]

Section 47A(4) does not apply; capital gains are to be computed under section 45 and the matter is remitted to the Assessing Officer for computation.

Final Conclusion: The Tribunal held that proviso (f) to section 47(xiiib) was breached by payment to partners out of accumulated profits, consequently the exemption under section 47(xiiib) is not available; section 47A(4) is inapplicable and the taxability falls to be determined under section 45, with computation of capital gains restored to the Assessing Officer for determination.

Unexplained investment under section 69 - reference to Departmental Valuation Officer under section 142A without rejection of books of account - verifiability of books of account and reliance on audit accounts - estimation of income by assessing officer on inspection reports - disallowance of unverified discounts as adjustment of profit - estimation of consultancy/dispensary income on defective patient registers

Unexplained investment under section 69 - reference to Departmental Valuation Officer under section 142A without rejection of books of account - verifiability of books of account and reliance on audit accounts - Deletion of addition of Rs. 1,33,17,372/- as unexplained investment in construction of guest house - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the Assessing Officer had not rejected the assessee's books of account before directing inspection and making a reference to the DVO, and therefore the AO's basis for treating the investment as unexplained was unsound. The DVO's valuation, obtained later, showed the period of construction and estimated amounts for FY 2009-10 to 2011-12 which were not substantially different from the figures in the assessee's accounts. The Inspector's estimate lacked technical foundation and no material was produced to demonstrate construction in the year under appeal beyond what was recorded in the books. In these circumstances and applying the principle that a reference to the DVO or reliance on departmental inspection cannot substitute for proper rejection of accounts (as in Sargam Cinema and related decisions), the addition was held to have no logical basis and was deleted. [Paras 5, 8]

Addition for unexplained investment in guest house deleted; CIT(A)'s order sustained.

Disallowance of unverified discounts as adjustment of profit - verifiability of books of account and reliance on audit accounts - estimation of income by assessing officer on inspection reports - Restoration of addition of Rs. 2,27,935/- by treating part of rebate/discount as non-verifiable and adjustment of profit - HELD THAT: - The Tribunal held that the AO's finding of non-verifiability of the discount/rebate entries could not be ignored. The AO noted a significant discount relative to receipts and a declining net profit ratio, indicating that substantial amounts were being returned and that the accounts were not verifiable on this issue. The CIT(A) erred in deleting the addition without addressing the AO's specific factual finding. On this basis the Tribunal restored the AO's disallowance. [Paras 9, 10]

Addition on account of discount/rebate allowed and order of AO restored.

Estimation of consultancy/dispensary income on defective patient registers - verifiability of books of account and reliance on audit accounts - estimation of income by assessing officer on inspection reports - Restoration of addition of Rs. 1,00,000/- by estimating consultancy/dispensary income due to non-genuine patient registers - HELD THAT: - The Tribunal accepted the AO's factual finding that the patient and visiting registers showed repeated recurrence of the same names and did not present a true picture of clientele, undermining the reliability of the declared consultancy/dispensary receipts. Coupled with the observed decline in net profit ratio and absence of material to rebut the AO's finding, the CIT(A) should not have deleted the addition. The AO's estimate of additional income under this head was therefore reinstated. [Paras 11, 12]

Addition in respect of consultancy and dispensary charges restored; CIT(A)'s deletion set aside.

Final Conclusion: The departmental appeal is partly allowed: the deletion of the addition relating to alleged unexplained investment in the guest house is upheld, while the deletions in respect of discounts/rebates and consultancy/dispensary income are set aside and the AO's additions on those issues are restored.

Condonation of delay - bogus purchases - onus of proof on the assessee to prove genuineness of expenditure - estimation of income in best judgment assessment - computation of net profit on disallowed purchases - penalty under section 271(1)(c) consequential on assessment

Condonation of delay - limitation act pragmatic approach - Condonation of delay in filing the appeal - HELD THAT: - The appeal was filed 316 days late. The assessee filed an affidavit explaining the delay and relied on earlier decisions; the Revenue opposed condonation. The Tribunal, after considering the parties' submissions and authorities on the exercise of discretion in condoning delay, applied a pragmatic approach and exercised its discretion in favour of the assessee.

Delay condoned and the appeal admitted.

Bogus purchases - onus of proof on the assessee to prove genuineness of expenditure - estimation of income in best judgment assessment - computation of net profit on disallowed purchases - Validity and quantification of addition on account of alleged bogus purchases aggregating Rs. 14,32,750/- - HELD THAT: - The Assessing Officer relied on supplier affidavits admitting issuance of accommodation/bogus bills and made an addition of the full amount; the CIT(A) confirmed the addition. The assessee failed to discharge the onus to prove that purchases were genuine despite bills and bank payments claimed. The Tribunal noted consistent views of coordinate Benches in respect of the same suppliers and the need to estimate benefit in a best judgment assessment. Having regard to precedents and the facts that suppliers admitted issuing accommodation bills and that the assessee did not produce cogent evidence to establish genuine supply, the Tribunal found it appropriate to estimate the assessable benefit rather than sustain full disallowance.

Assessee's appeal partly allowed: directed AO to compute income by estimating net profit at 30% on the disallowed bogus purchases and to compute tax accordingly.

Penalty under section 271(1)(c) consequential on assessment - Consequential treatment of penalty proceedings arising from the addition - HELD THAT: - Ground challenging initiation/confirmation of penalty under section 271(1)(c) was consequential upon the assessment additions. As the quantum of assessment has been re-determined by directing computation of net profit at 30% on the bogus purchases, the penalty issue remains consequential to that determination.

Penalty issue to follow the outcome of the reassessed income; treated as consequential.

Final Conclusion: Delay in filing the appeal was condoned; on merits the Tribunal held that purchases from the two suppliers were bogus but, applying best judgment estimation, directed the Assessing Officer to compute taxable income by allowing net profit at 30% on the disallowed bogus purchases; penalty proceedings are consequential to the reassessed income. Appeal partly allowed.

Merger of plots for minimum plot-size requirement under section 80IB(10) - Applicability of proviso to section 80IB(10) for housing projects under notified slum redevelopment scheme - Validity of conditional limitation in CBDT notification - Relaxation of minimum one acre requirement for projects under notified slum redevelopment schemes

Merger of plots for minimum plot-size requirement under section 80IB(10) - Interpretation of 'housing project' and contiguous/aggregated area for eligibility - Whether three separate plots developed under SRS can be aggregated as a single plot to satisfy the one acre minimum under clause (b) of section 80IB(10). - HELD THAT: - The Tribunal upheld its earlier consistent view that each housing project must independently satisfy the conditions of section 80IB(10) and that aggregation of separate plots located at different places for claiming the one acre minimum is impermissible. The Tribunal noted that the three plots, though in the same city survey number, were not contiguous and were located at different places with intervening slums, and therefore development on each plot cannot be treated as development on a single one acre plot. The Tribunal followed its prior orders and the decision of the Jurisdictional High Court in CIT v. Brahma Associates as binding authority, concluding that allowing aggregation would subvert the statutory requirement and intention of section 80IB(10). [Paras 6]

Aggregation of the three plots to meet the one acre requirement under clause (b) of section 80IB(10) is not permissible; the claim on this ground is rejected.

Applicability of proviso to section 80IB(10) for housing projects under notified slum redevelopment scheme - Validity of conditional limitation in CBDT notification - Relaxation of minimum one acre requirement for projects under notified slum redevelopment schemes - Whether projects carried out under the Maharashtra slum redevelopment scheme notified by the CBDT on 5.1.2011 are entitled to the benefit of the proviso to clauses (a) and (b) of section 80IB(10), and whether the notification's condition limiting applicability to projects approved between 01.04.2004 and 31.03.2008 is valid. - HELD THAT: - The Tribunal held that the proviso to clauses (a) and (b) of section 80IB(10) excludes the minimum plot size and related timing conditions for housing projects carried out in accordance with a Central or State scheme for redevelopment of slum areas and that such scheme must be notified by the Board. The proviso requires notification of the scheme, not of individual projects. The Tribunal examined the CBDT notification dated 5.1.2011 and found that the notification's clause deeming applicability only to projects approved between 01.04.2004 and 31.03.2008 imposes an additional condition not found in the proviso and is therefore repugnant to the statute and the legislative intent to relax the one acre requirement for notified slum redevelopment schemes. The Board, the Tribunal held, cannot add a new discriminatory condition in the notification which contradicts the proviso; once the scheme is notified, projects carried out in accordance with that notified scheme are entitled to the relief under the proviso subject only to the statutory requirements (other than clauses (a) and (b)). [Paras 7]

Projects carried out in accordance with the State slum redevelopment scheme notified by the Board are entitled to the proviso to clauses (a) and (b) of section 80IB(10); the CBDT's conditional limitation in the 5.1.2011 notification is repugnant to the statute and cannot restrict eligibility.

Final Conclusion: The appeal is partly allowed: the claim based on aggregation of separate plots to meet the one acre threshold is rejected, but the assessee's projects carried out in accordance with the State's slum redevelopment scheme notified by the Board qualify for the proviso to clauses (a) and (b) of section 80IB(10), subject to satisfaction of the remaining statutory conditions.

Levy of penalty under section 271(1)(c) for furnishing inaccurate particulars - effect of admission of a High Court tax appeal on deletion of penalty - prima facie case versus conclusive indication of debatable issue - remand for fresh adjudication on other grounds

Levy of penalty under section 271(1)(c) for furnishing inaccurate particulars - effect of admission of a High Court tax appeal on deletion of penalty - prima facie case versus conclusive indication of debatable issue - Whether deletion of penalty by CIT(A) solely on the ground that the High Court admitted the assessee's quantum appeal is sustainable. - HELD THAT: - The Tribunal examined the contention that mere admission of a tax appeal by the High Court indicates that the issue is debatable and therefore penalty under section 271(1)(c) must be deleted. Having regard to the recent decision of the Hon'ble Gujarat High Court, the Tribunal held that admission of an appeal, often ex parte and without recorded reasons, only indicates that the Court considers the questions require further consideration and does not, by itself, establish that the issue is debatable so as to negate independent grounds for levy of penalty. The Tribunal therefore found that the CIT(A)'s deletion of penalty solely on the ground of High Court admission was not sustainable and that such deletion cannot follow automatically unless the order of admission itself discloses an intention or indication that the issue is prima facie debatable in a manner that undermines the penalty findings. [Paras 13, 15, 16]

The deletion of the penalty by the CIT(A) solely because the High Court admitted the quantum appeal is not sustainable.

Remand for fresh adjudication on other grounds - opportunity of hearing before adjudication of penalty - Disposition of the penalty proceeding after finding that deletion solely on account of High Court admission is unsustainable. - HELD THAT: - The Tribunal observed that the CIT(A) had not decided other grounds raised by the assessee in contesting the penalty because he relied on the High Court's admission. In view of the inadequacy of that sole ground, the Tribunal restored the penalty issue to the file of the CIT(A) for fresh adjudication on the other grounds pleaded by the parties, directing that both parties be given reasonable opportunity of hearing for disposal in accordance with law. [Paras 17]

The matter of levy of penalty under section 271(1)(c) is remitted to the CIT(A) for fresh adjudication on the other grounds after affording both parties a reasonable opportunity of hearing.

Final Conclusion: The Revenue's appeal is allowed for statistical purposes: the Tribunal holds that deletion of penalty solely because the High Court admitted the quantum appeal is not sustainable and remits the penalty issue to the CIT(A) for fresh consideration on other grounds with opportunity of hearing.

Expenditure wholly and exclusively in connection with transfer of capital asset - deduction under section 48(1) of the Income Tax Act - rate of tax for long term capital gain on listed securities under section 112 - reopening of assessment - change of opinion

Expenditure wholly and exclusively in connection with transfer of capital asset - deduction under section 48(1) of the Income Tax Act - Allowability of proportionate IPO-related expenditure claimed by the assessee in computing long term capital gain - HELD THAT: - The Tribunal examined the material on record, including the computation submitted during original assessment proceedings, the invoices and a certificate from IL&FS Investmart Ltd., and the fact that the assessee paid its proportionate share of expenses incurred for the public issue. The Tribunal accepted the finding of the learned Commissioner (Appeals) that the proportionate expenditure directly related to and was paid in respect of the transfer of the assessee's shares offered in the public issue and was therefore incurred wholly and exclusively in connection with the transfer. On this basis the Tribunal upheld the CIT(A)'s allowance of the deduction under section 48(1) and found no reason to reverse those findings of fact and law. [Paras 7, 11]

Deduction of the proportionate IPO expenses allowed in computing long term capital gain; the CIT(A) order in this respect is upheld.

Rate of tax for long term capital gain on listed securities under section 112 - Applicable rate of tax on the long term capital gain arising from the sale of shares offloaded in the public issue - HELD THAT: - The Tribunal agreed with the CIT(A) that the shares sold by the assessee were allotted to the public in a public issue and were listed on the stock exchange; the public issue mechanism contemplates listing and public allotment. Because the gains related to listed securities and the assessee had opted not to claim indexation, the Tribunal held that the concessional rate applicable was 10% rather than 20% under section 112, and accordingly upheld the learned CIT(A)'s conclusion on the rate of tax. [Paras 12]

Long term capital gain taxed at 10% (CIT(A)'s view upheld).

Reopening of assessment - change of opinion - Validity of reopening of assessment under section 147/148 on the ground of change of opinion - HELD THAT: - Although the parties contested whether the reassessment amounted to an impermissible change of opinion, the Tribunal did not decide this question. Having upheld the CIT(A)'s conclusions on the merits (allowability of expenditure and applicable rate), the Tribunal expressly declined to pronounce on the validity of the reopening on the ground of change of opinion and accordingly refrained from adjudicating that legal issue. [Paras 12]

Left undecided by the Tribunal; no conclusion on the legality of the reopening on the ground of change of opinion.

Final Conclusion: The Tribunal dismissed the Revenue's appeal. The allowance of the proportionate IPO-related expenditure under section 48(1) and the application of the 10% rate to the long term capital gain were upheld; the question on the validity of reopening on the ground of change of opinion was not decided.

Tax deduction at source on commission retained by credit card companies (bank charges v. commission) - Tax deduction at source under Section 194I - whether Passenger Service Fee (PSF) is 'rent' - Statutory levy collected in fiduciary capacity - Conduit/collection agent liability for TDS

Tax deduction at source on commission retained by credit card companies (bank charges v. commission) - Conduit/collection agent liability for TDS - Whether tax was required to be deducted under section 194H on commission retained by credit card companies/banks from amounts payable to the assessee. - HELD THAT: - The Tribunal held that the facts and issue are identical to earlier decisions in the assessee's own case for earlier assessment years and to coordinate-bench decisions which treated amounts retained by banks/credit card companies as bank charges/fees and not as commission within the meaning of section 194H. The bench reproduced and relied upon the reasoning of those coordinate decisions that the bank does not act as a commission agent of the merchant but merely facilitates electronic payment and retains agreed fees; accordingly the charge is a bank fee and not commission attracting TDS under section 194H. Respectfully following those decisions, the CIT(A)'s allowance was confirmed and the revenue's grounds on this point were rejected. [Paras 6]

Grounds No.3, 4 & 5 dismissed; no TDS liability on the commission retained by credit card companies.

Tax deduction at source under Section 194I - whether Passenger Service Fee (PSF) is 'rent' - Statutory levy collected in fiduciary capacity - Conduit/collection agent liability for TDS - Whether the assessee was required to deduct tax under section 194I on Passenger Service Fee (PSF) collected from passengers and paid to airport operators. - HELD THAT: - The Tribunal examined Rule 88 of the Indian Aircraft Rules, 1937 and relevant CBDT instructions, noting that PSF is a statutory fee collected by the licensee on behalf of the airport operator and that the assessee acted merely as a conduit collecting the statutory levy. The bench accepted the CIT(A)'s conclusion that PSF is not in the nature of rent, lease, sub-lease or tenancy and drew analogy to CBDT clarifications (including on cooling charges) and judicial authority indicating that mere payment for services or charges not conferring use of demarcated space does not attract section 194I. The security component held in escrow and statutory character of PSF reinforced that the amount is not rent payable by the assessee, and thus no TDS under section 194I was exigible. [Paras 15]

Grounds No.1 & 2 dismissed; no TDS liability on PSF collected and paid to airport operators.

Final Conclusion: The Revenue's appeal is dismissed; the orders of the CIT(A) are confirmed on both contested points - no TDS under section 194H on commission retained by credit card companies and no TDS under section 194I on Passenger Service Fee collected and remitted to airport operators.

Classification of goods - essential character test - restricted import requiring licence - question of fact - perversity - appellate interference

Classification of goods - essential character test - restricted import requiring licence - Whether the imported equipment is classifiable as a TV broadcast transmitter (a restricted item requiring a licence) or as a one to one transmission device not amounting to broadcasting to the general public. - HELD THAT: - The Court accepted the factual finding that the impugned equipment is used to transmit audio video signals from a field reporter to a studio over the GSM cellular network, whereupon the studio processes and broadcasts to the public by separate apparatus. Applying the essential character approach as applied by the authorities below, the usage and function of the device show it serves one to one transmission to the studio and is not itself a transmitter for public reception. The Court treated this as a question of fact and noted that no substantial question of law arises for its consideration. The Court also observed that the appellant had not placed the technical literature before this Court to challenge the factual conclusions and found no perversity in the Tribunal's conclusion warranting interference.

The Tribunal's conclusion that the equipment is not a TV broadcast transmitter but a device for transmitting signals to a studio is upheld; no interference.

Final Conclusion: The appeal is dismissed; the Tribunal's order setting aside confiscation and penalty is upheld and there is no order as to costs.

Misuse of Transfer of Residence facility - penal liability of syndicate organisers for smuggling - independent corroboration for statement of co-noticee - confession of co-accused not substantive without corroboration - appellate reappreciation of evidence

Misuse of Transfer of Residence facility - penal liability of syndicate organisers for smuggling - Whether the appellant could claim benefit from the exoneration of another participant in the syndicate and avoid penalty - HELD THAT: - The Tribunal and Adjudicating Authority analysed the respective roles of the persons involved and found that the appellant, together with his brother and a co-accused, formed a syndicate which arranged import of vehicles in the names of eligible passengers and thereby misused the Transfer of Residence facility. The role of the exonerated person (D.K. Jain) was held to be limited to making payments and not equivalent to the active role of the appellant in procurement, invoicing and arranging clearance. The Tribunal recorded that the basic facts were not disputed and there was evidence, including passenger statements and documentary material concerning the company Inpub, establishing the mechanism devised by the organisers. On this appreciation of oral and documentary evidence the appellant could not derive advantage from the exoneration of D.K. Jain. [Paras 4, 5, 6, 7, 8]

The appellant cannot claim the benefit of another participant's exoneration and the penalty imposed on him was upheld.

Independent corroboration for statement of co-noticee - confession of co-accused not substantive without corroboration - Whether reliance on the statement of a co-noticee (co-accused) without independent corroboration rendered the penalty unsustainable - HELD THAT: - The Tribunal considered the statement of co-noticee Shri Anoop Gandhi but did not rely on it in isolation. The adjudicatory findings show that independent corroboration existed in the form of passenger statements, documentary records relating to the company Inpub and other material rooted in the import transactions. While recognising the legal principle that a confession or statement of a co-accused requires corroboration, the Tribunal held that such corroboration was present here and thus the reliance upon the co-noticee's statement was proper. The court distinguished the criminal authority cited by the appellant on the ground that, where independent corroboration exists, the co-accused's statement may be relied upon. [Paras 8]

Reliance on the co-noticee's statement did not vitiate the adjudication because there was independent corroboration; the Tribunal's approach was held to be legally sound.

Final Conclusion: The High Court dismissed the appeal, finding no substantial question of law and declining to re-appreciate the evidence; the Tribunal's upholding of the penalty was affirmed.

Willful suppression of facts with intent to evade duty - extended period of limitation (five years) for issuance of show cause notice - acquisition of departmental knowledge does not curtail extended limitation - imposition of penalty for suppression, non registration and non filing of returns

Willful suppression of facts with intent to evade duty - extended period of limitation (five years) for issuance of show cause notice - acquisition of departmental knowledge does not curtail extended limitation - Extended period of limitation was invokable because there was willful suppression of facts with intent to evade service tax. - HELD THAT: - The Tribunal found on the material on record that the appellants provided cleaning services but were neither registered nor had discharged service tax; the Commissioner (Appeals) recorded suppression of taxable service which only came to light after departmental enquiries. The Tribunal concurred that such willful suppression brings the case within the proviso extending the period to five years, and that the department's subsequent acquisition of knowledge does not shorten that statutory extended period. Reliance was placed on the Larger Bench decision in Nizam Sugar Factory and the view of the High Court in Commissioner of C.Ex, Surat-I v. Neminath Fabrics to support the proposition that the statutory relevant date, not the date of departmental knowledge, governs computation of the extended limitation where suppression is established. [Paras 6, 7]

Extended period for issuance of show cause notice under the proviso is invokable as willful suppression was established; the limitation defence fails.

Imposition of penalty for suppression, non registration and non filing of returns - The demand for service tax and the penalties imposed were sustained (with revision of one penalty by the Commissioner (Appeals)). - HELD THAT: - The Tribunal noted the departmental finding that the appellants were neither registered nor paying service tax nor filing ST 3 returns, and that the appellants had suppressed material facts. The Commissioner (Appeals) confirmed the service tax demand under section 73(1) with interest and imposed penalties under the relevant provisions, while reducing the penalty imposed under section 78. The appellants' plea of bonafide belief and reliance on earlier authorities to avoid penalties was rejected on the facts and the adjudicatory finding of suppression. [Paras 1, 2, 3, 6]

Service tax demand and penalties as adjudicated by the Commissioner (Appeals) are upheld (penalty under section 78 reduced by Commissioner (Appeals) as recorded).

Final Conclusion: The appeal is dismissed; the Commissioner (Appeals) was correct in invoking the extended limitation period on finding of willful suppression and in upholding the service tax demand and penalties (subject to the reduction of the section 78 penalty as recorded by the Commissioner (Appeals)).

Levy of service tax on charges forming part of the sale consideration of goods - Captive consumption of services in or in relation to manufacture and clearance - Surface transport charges included in transaction value / sale value at place of removal - Cargo Handling Service - Principle-to-principle sale of goods - Time-bar and suppression in demand of service tax - Bharat Sanchar Nigam Ltd principle that sale of goods does not attract service tax

Levy of service tax on charges forming part of the sale consideration of goods - Captive consumption of services in or in relation to manufacture and clearance - Surface transport charges included in transaction value / sale value at place of removal - Cargo Handling Service - Bharat Sanchar Nigam Ltd principle that sale of goods does not attract service tax - Whether service tax is leviable on surface transport charges shown separately in invoices for coal sold by the assessee - HELD THAT: - The Tribunal accepted that loading, unloading and transport activities may, in isolation, fall within the ambit of Cargo Handling Service. However, on the admitted facts the assessee is primarily engaged in mining and sells coal on a principal-to-principal basis. The surface transport charges were shown in the sale invoices and excise duty and sales tax were discharged on the sale value inclusive of those charges. Where such activities are consumed captively in or in relation to the manufacture and clearance of coal, their cost is absorbed in the sale value; charges which form part of the transaction value at the place of removal cannot be separately subjected to service tax. The Tribunal relied on the principle in Bharat Sanchar Nigam Ltd

Service tax demand on surface transport charges set aside; such charges being part of the sale value of coal are not leviable to service tax and a strong prima facie case made out for waiver of pre-deposit.

Time-bar and suppression in demand of service tax - Principle-to-principle sale of goods - Whether the demand is time-barred or based on suppression of facts by the assessee - HELD THAT: - The Tribunal noted that the assessee was a central excise assessee discharging excise duty on the sale value inclusive of surface transport charges and was also registered under service tax provisions for reverse-charge transportation liabilities. Given that excise duty and returns reflected the inclusive value and the assessee's service-tax registration, there was no suppression of material facts warranting a finding of time-bar or concealment. Accordingly the demand could not be sustained on the ground of suppression or limitation. [Paras 9]

No suppression; demand not sustained on time-bar/suppression grounds.

Final Conclusion: Pre-deposit of the adjudged dues waived and unconditional stay granted; demands of service tax on surface transport charges set aside on prima facie view that such charges form part of the sale value of coal and are not exigible to service tax.

Time-barred show cause notice - computation of limitation under Section 73 of the Finance Act, 1994 - effect of judicial stay on period for service of notice - exclusion of period of stay from limitation - precedential application of Gokak Patel Volkart Ltd. v. CCE

Time-barred show cause notice - effect of judicial stay on period for service of notice - The show cause notice dated 19-10-2005 seeking recovery of service tax for services received between 16-11-1997 and 2-6-1998 was time-barred. - HELD THAT: - The Tribunal had held that the show cause notice was barred by time. This Court examined the interim order granted in the writ proceedings and found that the interim direction restrained recovery of tax and prevented filing of returns, but did not stay the service of notices or proceedings for recovery in accordance with law. Because no stay of service of notice was granted by the High Court, the period could not be excluded when computing limitation. The Court reinforced this conclusion by reference to the Supreme Court's decision in Gokak Patel Volkart Ltd. v. CCE, which rejected a similar contention where no stay of issuance of notice or levy was granted. In consequence, the show cause notice issued on 19-10-2005 was held to be beyond the permissible period and therefore time-barred. [Paras 2, 6, 7, 12, 13]

The show cause notice dated 19-10-2005 is time-barred and cannot be sustained.

Computation of limitation under Section 73 of the Finance Act, 1994 - exclusion of period of stay from limitation - The explanation to Section 73(1) of the Finance Act, 1994 does not exclude the period of the interim order in this case from computation of limitation because there was no stay of service of notice. - HELD THAT: - Counsel for the appellant relied on the explanation to Section 73(1) which provides for exclusion of the period during which service of notice is stayed by a Court. The Court analysed the interim order and concluded that it did not stay service of notice; it only relieved the assessee from filing returns and restrained recovery. Given the absence of a stay on service of notice, the statutory explanation could not be invoked to extend or suspend the limitation period. Therefore Section 73(1)'s exclusion was inapplicable on the facts of this case. [Paras 9, 10, 11]

The explanation to Section 73(1) cannot be invoked to exclude the interim period since there was no stay of service of notice.

Final Conclusion: The appeal is dismissed: the show cause notice was time-barred, Section 73(1) explanation did not apply because no stay of service of notice was granted, no substantial question of law arises.

Condonation of delay - pre-deposit compliance for stay - waiver of pre-deposit - remand for adjudication on merits

Condonation of delay - pre-deposit compliance for stay - Whether delay in depositing the pre-deposit directed by the Tribunal could be condoned where the pre-deposit was ultimately made belatedly. - HELD THAT: - The petitioner tendered a demand draft of Rs. 2,00,000/- after the date fixed by the Tribunal but before adjudication of the writ petition. The Court found that the deposited amount covered the 50% pre-deposit which the Tribunal had directed to be made and, in the circumstances disclosed, condoned the delay in making that deposit. The Court ordered handing over of the draft to the departmental counsel against receipt and treated the condition of pre-deposit as complied with despite belated payment, having regard to the totality of facts and financial constraints asserted by the petitioner. [Paras 4, 5]

Delay in compliance with the Tribunal's pre-deposit direction is condoned and the belated pre-deposit is treated as having been complied with.

Remand for adjudication on merits - Whether the Tribunal's dismissal of the appeal for non-compliance should be set aside and the matter remitted for fresh adjudication on merits. - HELD THAT: - Because the Court held that the pre-deposit requirement (as to 50%) has now been satisfied, it set aside the Tribunal's order dismissing the appeal for non-compliance. The matter is remitted to the Tribunal to decide the appeal on merits in accordance with law, thereby restoring the appellate consideration which had been foreclosed by the dismissal for non-compliance. [Paras 6]

Order of the Tribunal dated 16-9-2011 is set aside and the matter is remitted to the Tribunal for adjudication on merits.

Final Conclusion: Writ petition allowed: belated compliance with the Tribunal's pre-deposit direction is condoned and treated as satisfied; the Tribunal's dismissal for non-compliance is set aside and the appeal is remitted to the Tribunal for decision on merits (pertaining to demand for the period 25-10-2004 to 20-12-2007).

Input service - CENVAT credit - outward transportation of final products - place of removal - Rule 2(l)(ii) of the CENVAT Credit Rules, 2004 - service tax as a consumption tax - denial of credit converting consumption tax into tax on business

Input service - outward transportation of final products - place of removal - Rule 2(l)(ii) of the CENVAT Credit Rules, 2004 - CENVAT credit - Services availed by a manufacturer for outward transportation of final products from the place of removal qualify as "input service" under Rule 2(l)(ii) of the CENVAT Credit Rules, 2004, permitting credit of service tax paid. - HELD THAT: - The Tribunal and the appellate authority held, and this Court concurs, that the transportation services for outward movement of final products from the place of removal fall within the inclusive definition of "input service" under Rule 2(l)(ii). The authorities relied upon include the Gujarat Ambuja decision and the Board Circular dated 2-2-2006; the Tribunal also applied the principle articulated by the Supreme Court in All India Federation of Tax Practitioners that service tax is a consumption tax and denial of credit would convert it into a tax on business. The Revenue's contention that CENVAT credit should be denied where the value of the service does not form part of the excisable value was rejected as contrary to the consumption-tax concept of service tax and the scheme of the CENVAT Credit Rules. Having accepted these legal propositions, no substantial question of law arises that would require interference with the Tribunal's conclusion that the manufacturer is entitled to take CENVAT credit of service tax paid on such outward transportation. [Paras 5, 6]

The services for outward transportation from the place of removal are "input service" under Rule 2(l)(ii) and CENVAT credit of the service tax paid is available to the manufacturer; Revenue's appeal dismissed.

Final Conclusion: Appeals dismissed at the stage of admission; the Tribunal's Larger Bench decision that outward transportation from the place of removal is an "input service" eligible for CENVAT credit is upheld and no substantial question of law is made out.

Support Service of business or commerce - Business Auxiliary Services - Classification of taxable services - Prospective applicability of statutory amendment - Service Tax liability

Support Service of business or commerce - Business Auxiliary Services - Classification of taxable services - Billing and accounting services rendered by the assessee are classifiable as Support Service of business or commerce and not as Business Auxiliary Services. - HELD THAT: - The Tribunal examined the agreements and factual matrix and held that the assessee performed billing and accounting for the electricity distribution companies by entering meter readings provided by the department into a computer and generating bills, without interaction with customers and not performing billing on behalf of the companies but for them. The High Court agrees that the definition of Support Service of business or commerce (which expressly includes accounting and processing of transactions) aptly covers the activities undertaken by the assessee. The Court concludes that the Tribunal's interpretation and application of the definition to the assessee's transactions is a fair view and does not merit interference. [Paras 5]

Classification upheld: services are Support Service of business or commerce and not Business Auxiliary Services.

Prospective applicability of statutory amendment - Service Tax liability - Whether the transactions for the period 1-7-2003 to 30-9-2006 attracted Service Tax in view of insertion of Support Service of business or commerce into the charging net by the Finance Act, 2006 with effect from 1-5-2006. - HELD THAT: - Sectional amendment bringing Support Service of business or commerce within the Service Tax net was effected by the Finance Act, 2006 with effect from 1-5-2006. The transactions in dispute relate to the period 1-7-2003 to 30-9-2006. Applying the temporal effect of the statutory amendment, the Court endorses the Tribunal's conclusion that services falling within the definition are not liable to Service Tax for the period prior to insertion of the clause (i.e., before 1-5-2006). The consequence is that taxable liability, if any, would arise only from the date the provision came into force, and not retrospectively for the earlier portion of the period in question. [Paras 6]

Transactions prior to 1-5-2006 are not taxable as Support Service of business or commerce; Tribunal's temporal conclusion is upheld.

Final Conclusion: The Tribunal's classification of the assessee's billing and accounting services as Support Service of business or commerce (and not as Business Auxiliary Services), and its conclusion that such services are not taxable for the period prior to insertion of that category into the Service Tax net (before 1-5-2006), are sustained; the appeal is dismissed at the admission stage.

Summary order. Petitions dismissed as nothing remains for consideration in view of Circular/Instruction F. No. 275/7/2010-CX8A dated 30-6-2011.

Summary order. Delay condoned and appeals admitted.