TaxTMI Updates e-Newsletter
Oct 10,2014

Taxability of benefit or perquisite arising from business under section 28(1)(iv) - treatment of shares allotted on demutualisation in lieu of membership rights - claim of depreciation on membership card vis-a -vis deemed benefit on demutualisation - substantial question of law for admission of appeal under section 260A

Taxability of benefit or perquisite arising from business under section 28(1)(iv) - treatment of shares allotted on demutualisation in lieu of membership rights - claim of depreciation on membership card vis-a -vis deemed benefit on demutualisation - substantial question of law for admission of appeal under section 260A - Whether the tribunal's order raises a substantial question of law for admission of the Revenue's appeal under section 260A, by treating the notional benefit on demutualisation as taxable in assessment year 2006-07 under section 28(1)(iv). - HELD THAT: - The Court found that for AY 2006-07 the assessing officer had disallowed the assessee's claim for depreciation on the membership card and proceedings in that regard remained pending. The assessing officer nonetheless treated the difference as a benefit arising from demutualisation because members were allotted shares in the new corporate entity. The Court observed that, on the materials for the year under consideration, no transfer had occurred and nothing beyond mere demutualisation and allotment of shares was shown to attract section 28(1)(iv). In those circumstances the question whether the notional advantage should be taxed in the current year is academic: the benefit, if any, would arise on transfer and the claim of depreciation (and its consequences) had not been finally determined. Having regard to that factual background, the tribunal's discussion (including paragraph 7 of its order) did not present any substantial question of law warranting admission of the appeal under section 260A. The Court therefore declined to entertain the Revenue's appeal. [Paras 7, 9, 10, 11]

The appeal under section 260A is dismissed as the tribunal's order does not raise a substantial question of law in the facts of AY 2006-07; the matter is academic for the year under consideration.

Final Conclusion: Revenue's appeal under section 260A is dismissed for lack of any substantial question of law in the facts and circumstances of assessment year 2006-07; no order as to costs.

Royalty - sale of copyright / perpetual transfer - perpetual transfer under Section 26 of the Copyright Act - tax deduction at source under Sec.194J - disallowance under Sec.40(a)(ia)

Royalty - sale of copyright / perpetual transfer - perpetual transfer under Section 26 of the Copyright Act - tax deduction at source under Sec.194J - disallowance under Sec.40(a)(ia) - Whether the payments made by the assessee for acquisition of satellite/film rights constituted royalty or a sale (perpetual transfer), and the consequent applicability of TDS under Sec.194J and disallowance under Sec.40(a)(ia). - HELD THAT: - The Court agreed with the reasoning in Mrs.K. Bhagyalakshmi vs Dy.CIT (Mad.) that a grant of satellite rights characterised as a perpetual/99-year transfer falls within the scope of a sale under Section 26 of the Copyright Act and is excluded from the definition of "royalty" in the relevant taxation provision. Applying that principle to the facts, the Tribunal erred in treating the payments as royalty; since the transactions were sales/perpetual transfers, they did not attract the tax treatment applicable to royalty, namely deduction of tax at source under Sec.194J, nor the consequential disallowance under Sec.40(a)(ia) which follows non-deduction in respect of sums exigible as TDS on royalty. For these reasons the Tribunal's conclusion was set aside and the findings of the Commissioner of Income Tax (Appeals) in favour of the assessee were restored. [Paras 17, 18, 19]

Payments were sale/perpetual transfer and not royalty; Tribunal's finding to the contrary set aside and CIT(A)'s order restored, with consequent inapplicability of TDS under Sec.194J and disallowance under Sec.40(a)(ia).

Final Conclusion: The assessee's appeal is allowed; the order of the Income Tax Appellate Tribunal is set aside and the Commissioner of Income Tax (Appeals)'s order dated 24-12-2012 is restored.

Substantial question of law - questions concluded by earlier decision - claim for deduction under Section 80I - remand for verification of claim under Section 80HH - limited remand upheld by appellate authority

Substantial question of law - questions concluded by earlier decision - Whether the present appeal raises any substantial question of law in view of the Court's earlier order dated 01.04.2014. - HELD THAT: - The Court examined the questions of law advanced in the present appeal and found that questions A to D are covered by the Court's earlier order dated 01.04.2014 in Income Tax Appeal No.5794/2010. The Bench identified that question (A) corresponds to question (1) of the earlier order, (B) to question (3), (C) to question (5), and (D) is decided by paragraph 9 of the earlier order. In light of those earlier findings, the present appeal does not present any new or substantial question of law requiring fresh adjudication. The Court therefore concluded that the appeal does not raise a substantial question of law and disposal on that basis is appropriate. [Paras 2, 3, 4]

Present appeal does not raise any substantial question of law as questions A-D are concluded by the order dated 01.04.2014.

Claim for deduction under Section 80I - remand for verification of claim under Section 80HH - limited remand upheld by appellate authority - Validity of the ITAT's treatment of the deductions claimed under Section 80I and Section 80HH, and whether the remand relates to a substantial question of law. - HELD THAT: - The Court reviewed the ITAT's order and the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals). The ITAT restored the Assessing Officer's order insofar as deduction under Section 80I is concerned, while directing that the deduction under Section 80HH shall abide by the order of the Commissioner of Income Tax (Appeals). The Commissioner had remanded the claim under Section 80HH back to the Assessing Officer for consideration. The ITAT upheld that remand as confined to the limited purpose indicated by the Commissioner. Given the factual backdrop and limited scope of the remand, the Court found that the course adopted by the ITAT-restoring the AO's order on Section 80I and upholding the limited remand on Section 80HH-was a permissible view and does not raise any substantial question of law. [Paras 5]

ITAT's restoration of the Assessing Officer's order on deduction under Section 80I and its upholding of the limited remand for consideration of the claim under Section 80HH are sustained and do not raise any substantial question of law.

Final Conclusion: The appeal is dismissed: no substantial question of law is raised and the ITAT's orders (including the limited remand regarding the Section 80HH claim and restoration relating to Section 80I) are sustained; no costs.

Addition on account of suppressed sales - treatment of sales receipts versus taxable profit on undisclosed sales - rejection of books under section 145(3) and reliance on seized/impounded material - application of gross profit rate from books to compute income from unaccounted sales - addition under section 68 for unexplained difference in cash balance - remand for recomputation of income after adjustments

Addition on account of suppressed sales - rejection of books under section 145(3) and reliance on seized/impounded material - treatment of sales receipts versus taxable profit on undisclosed sales - application of gross profit rate from books to compute income from unaccounted sales - Scope and quantum of addition in assessment year 2007-08 arising from unaccounted/suppressed sales - HELD THAT: - The Tribunal held that the total suppressed sales for AY 2007-08 should be derived from details obtained from the assessee's computer (as worked out by the ld. CIT(A)) and not further enhanced by adding the Assessing Officer's separate estimate after rejection of books. Consequently, the Tribunal fixed the suppressed sales at the amount computed from the impounded material/computer records. However, the Tribunal held that the entire value of suppressed sales cannot be treated as the taxable income absent proof of unexplained investment in purchases; instead the income to be brought to tax is the profit element. The Tribunal adopted the gross profit approach: initial gross profit is to be applied to the determined suppressed sales and, because indirect expenses were already accounted for in the books, the gross profit rate disclosed by the assessee for the relevant year is to be applied. For AY 2007-08 the assessee's declared gross profit rate of 14.10% is to be applied to the suppressed sales to compute the addition to taxable income. [Paras 6, 8, 15, 21, 23]

Suppressed sales for AY 2007-08 limited to the amount derived from the computer records and the taxable addition is the gross profit on those suppressed sales applying the assessee's gross profit rate of 14.10%.

Addition on account of suppressed sales - reliance on impounded material/computer records - application of gross profit rate from books to compute income from unaccounted sales - Scope and quantum of addition in assessment year 2008-09 arising from unaccounted/suppressed sales - HELD THAT: - The Tribunal found that where details of sales are available from the assessee's computer (impounded during survey), there is no justification for the Assessing Officer to re-estimate suppressed sales after rejecting the books. The suppressed sales for AY 2008-09 are to be computed on the basis of the impounded/computer material. As with AY 2007-08, the entire sales amount cannot directly be treated as taxable income; the gross profit disclosed by the assessee is to be applied to the suppressed sales to determine the income. The Tribunal directed application of the assessee's declared gross profit rate for the relevant year. [Paras 16, 21, 23]

Suppressed sales for AY 2008-09 are to be taken from the impounded computer records and the taxable addition is the gross profit on those suppressed sales applying the assessee's gross profit rate of 12.02%.

Addition under section 68 for unexplained difference in cash balance - credit for income generated from suppressed sales - remand for recomputation of income after adjustments - Treatment of difference between closing cash as on 31.3.2007 and opening cash as on 1.4.2007 and the consequential assessment for AY 2008-09 - HELD THAT: - The Tribunal accepted that the survey team obtained differing cash balances from the assessee's computer and that the onus lay on the assessee to satisfactorily explain the substantial opening cash figure. In absence of such explanation, an addition under section 68 is permissible in AY 2008-09. However, the Tribunal held that any profit/income generated from suppressed sales (to be computed by applying the appropriate gross profit rate) must be credited against that difference because such income would have contributed to the opening cash balance. Therefore the net balance after reducing the profit on suppressed sales from the unexplained cash difference is the amount to be added. The Tribunal set aside the relevant orders and remitted the matter to the Assessing Officer for recomputation in accordance with these directions. [Paras 10, 14, 24]

Addition under section 68 for the unexplained cash difference in AY 2008-09 is sustainable but must be reduced by the profit arising on suppressed sales; the matter is remitted to the Assessing Officer for recomputation accordingly.

Final Conclusion: The Tribunal held that suppressed sales must be computed from the impounded/computer records and that only the profit element (computed by applying the assessee's disclosed gross profit rates - 14.10% for AY 2007-08 and 12.02% for AY 2008-09) is exigible as income; the unexplained cash difference addition under section 68 for AY 2008-09 is maintainable but must be adjusted by crediting profit on suppressed sales. The matter was restored to the file of the Assessing Officer for recomputation in terms of these directions; the appeals are allowed for statistical purposes.

Re-opening of assessment under section 147/148 - Survey under section 133A - Change of opinion not a ground for reopening - Requirement of tangible material to show escapement of income - Opportunity of being heard

Re-opening of assessment under section 147/148 - Change of opinion not a ground for reopening - Requirement of tangible material to show escapement of income - Survey under section 133A - Opportunity of being heard - Validity of reopening assessment proceedings initiated by the Assessing Officer under section 147/148 in respect of A.Y. 2005-06 - HELD THAT: - The Tribunal examined whether the Assessing Officer validly initiated reassessment relying on annexures impounded during the survey. The record shows that specific queries on the impounded papers (including annexures 7, 8, 22, 23 and 24) were raised and the assessee furnished explanations during the original assessment completed under section 143(3). The original assessment order demonstrates that those papers were considered. The law does not permit reopening proceedings merely on a change of opinion or reason to suspect absent fresh, tangible material establishing escapement of income. In the absence of any new material justifying a belief that income had escaped assessment, and since the impugned documents had already been enquired into in the original assessment, the reassessment notice issued under section 148 was held to be bad in law. Consequently there was no need to adjudicate the merits of the additions made by the Assessing Officer. [Paras 7, 9]

Reopening notice under section 148/147 quashed; reassessment proceedings invalid and Revenue appeal dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal by holding the reassessment proceedings under section 147/148 invalid because the impugned documents had been considered in the original assessment and reopening could not be justified merely by a change of opinion or without tangible material showing escapement of income; consequently the substantive additions were not adjudicated.

Unexplained gifts and genuineness - burden of proof on the assessee to establish genuineness of gifts - preponderance of probabilities and normal human conduct test - creditworthiness of the donor as a factor in testing genuineness - paper trail/receipt through banking channels insufficient by itself to prove genuineness - addition under section 68 for unexplained credits

Unexplained gifts and genuineness - burden of proof on the assessee to establish genuineness of gifts - creditworthiness of the donor as a factor in testing genuineness - paper trail/receipt through banking channels insufficient by itself to prove genuineness - preponderance of probabilities and normal human conduct test - addition under section 68 for unexplained credits - Whether the gifts received by the assessee were genuine and whether the AO rightly made an addition treating them as unexplained credits under section 68 after the assessee failed to discharge the onus. - HELD THAT: - The Tribunal examined the material relied on by the Assessing Officer and the findings of the Commissioner (Appeals). The AO had recorded multiple objective facts: the gifted sums were deposited into donors' accounts shortly before the alleged gifts; deposit slips were filled by the assessee's accountant; donors' statements contained contradictions and sketchy details about relationship, addresses, occasions and prior transactions; donors had limited incomes and interest from deposits was a major source of their livelihood; donors had undertaken to produce corroborative evidence of creditworthiness but failed to do so. The Tribunal held that mere identity of donors and a paper trail showing banking entries and documentary gift-deeds were not conclusive where attendant circumstances and preponderance of probabilities pointed against genuineness. Applying the tests in Sumati Dayal / P. Mohankala and consistent authorities, the Tribunal concluded that the assessee had not discharged the burden to prove the transactions conformed to normal human conduct and that the AO was entitled to treat the amounts as unexplained credits and add them to income under section 68. The Tribunal therefore reversed the CIT(A)'s deletion of the addition, holding the AO's adverse inferences and factual conclusions to be justified. [Paras 2, 3]

The Tribunal allowed the Revenue's appeal, held the gifts to be non-genuine on the facts and circumstances, and upheld the addition made by the AO as unexplained credits under section 68.

Final Conclusion: On the facts the assessee failed to prove the genuineness and creditworthiness of the donors; the Tribunal reversed the CIT(A) and upheld the AO's addition treating the alleged gifts as unexplained credits for AY 2001-02.

Revisional jurisdiction under Section 263 - limitation under Section 263(2) - reopening of assessment under Section 147 and Explanation 3 - scope of reassessment and doctrine of merger

Revisional jurisdiction under Section 263 - limitation under Section 263(2) - reopening of assessment under Section 147 and Explanation 3 - scope of reassessment and doctrine of merger - Validity of the order passed by the Director of Income-tax under Section 263 insofar as it sought to revise items that were not the subject matter of the reassessment under Section 147. - HELD THAT: - The Tribunal held that the learned DIT attempted to revise assessment items (treatment of 'expenses reimbursed' and 'reimbursable expenses') which were not the subject of the reassessment proceedings initiated under Section 147/notice under Section 148. Where reassessment is limited to specified grounds, issues not reopened continue to be governed by the original assessment; limitation under Section 263(2) therefore runs from the date of the original assessment in respect of those issues. The Tribunal considered the contention based on Explanation 3 to Section 147 (inserted by the Finance Act, 2009 with retrospective effect) and rejected the Revenue's argument that Explanation 3 merges the original and reassessment orders for all purposes so as to reset limitation for revisional action on issues not included in the reasons for reopening. Reliance was placed on the principle that Explanation 3 permits the Assessing Officer, in the course of reassessment proceedings, to examine and assess other income which comes to his notice during those proceedings, but it does not obliterate the distinction between issues actually reopened and those which were not; therefore the bar of limitation under Section 263(2) in respect of issues not forming part of the reassessment continues to be reckoned from the date of the original assessment. The Tribunal applied these principles to the facts and concluded that the impugned order under Section 263, insofar as it sought revision of items not covered by the reassessment, was barred by limitation and thus invalid. [Paras 10, 11, 12, 13, 14]

Order passed by the Director of Income-tax under Section 263 revising the original assessment on issues not forming part of the reassessment is barred by limitation and is invalid; the appeal is allowed.

Final Conclusion: The Tribunal set aside the order passed by the Director of Income-tax under Section 263 as time barred in respect of issues that were not the subject matter of the reassessment under Section 147; the appeal is allowed and the revisional order is declared invalid.

Manufacture - deduction under section 80JJAA - revenue sharing under joint business agreement - tax deduction at source under section 194C / 194H / 194I - disallowance under section 40(a)(ia) - ad-hoc disallowance of expenses - dismissal for want of prosecution

Manufacture - deduction under section 80JJAA - Cutting and polishing of rough diamonds amounts to manufacturing or production of an article or thing for the purpose of claiming deduction under section 80JJAA. - HELD THAT: - The Tribunal examined whether the processes applied to rough diamonds (planning, cleaving/sawing, bruting, polishing and related stages) effect a transformation into a commercially distinct product. It noted that the assessee had placed detailed process descriptions, machinery lists and photographs which were not rebutted by Revenue. The Tribunal applied the principle that the question is fact- and process-specific and that Gem India Mfg. Co. (where no material was placed to show a transformational process) does not lay down a universal bar. Following the Tribunal's reasoning in M/s. Flawless Diamond (India) Ltd. and the Supreme Court's later clarification in Heaven Diamonds that the process must be examined, the Tribunal held that the conversion in this case produces a distinct commercial article (polished diamond) and therefore amounts to manufacture for chapter VIA deduction purposes. Consequently the denial of deduction by lower authorities relying on Gem India was set aside and the Assessing Officer was directed to allow the deduction under section 80JJAA.

Assessee's claim for deduction under section 80JJAA allowed; orders of lower authorities set aside.

Revenue sharing under joint business agreement - tax deduction at source under section 194C / 194H / 194I - disallowance under section 40(a)(ia) - Whether the payment of the assessee's revenue share to Tirupati Organisers Pvt. Ltd. under the JBA attracted TDS under sections 194C or 194H and thereby warranted disallowance under section 40(a)(ia). - HELD THAT: - The Tribunal reviewed the JBA and the factual material. The Assessing Officer treated the payment as contract payment and invoked section 194C; he also entertained characterisation as commission. The CIT(A) found that neither section 194C nor section 194H applied because no material showed that TOPL carried out work or acted as agent for the assessee, and that the arrangement predominantly involved provision of building/infrastructure. The CIT(A) deleted the disallowance under section 40(a)(ia), while observing (without adjudication) that section 194I might be relevant. The Tribunal agreed that Revenue produced no material to show the payment was for carrying out work or that TOPL acted on behalf of the assessee; it therefore upheld deletion of the disallowance. The Tribunal also treated the CIT(A)'s observation on section 194I as academic and declined to decide that question.

Disallowance under section 40(a)(ia) deleted; payment not held to be liable to TDS under section 194C or 194H on the material before the authorities; question of applicability of section 194I left undecided as academic.

Ad-hoc disallowance of expenses - travelling and conveyance expenses - Whether the Assessing Officer's ad-hoc 10% disallowance of travelling/conveyance/vehicle expenses was sustainable. - HELD THAT: - The Assessing Officer made an ad-hoc disallowance without pointing to defects or incompleteness in vouchers or records. On appeal the CIT(A) deleted the ad-hoc disallowance as unsustainable. The Tribunal, on scrutiny of submissions and records, found no material justifying an estimate-based disallowance and confirmed the deletion by the CIT(A).

Ad-hoc disallowance of travelling/conveyance expenses deleted and the deletion confirmed.

Dismissal for want of prosecution - Whether computer expenses treated as capital expenditure should be adjudicated in assessee's appeal when no argument was advanced. - HELD THAT: - The assessee's authorised representative did not advance any submissions in support of this ground at hearing. In the absence of prosecution or argument, the Tribunal dismissed the ground.

Ground relating to computer expenses dismissed for want of prosecution.

Final Conclusion: The Tribunal allowed the assessee's claim that cutting and polishing of diamonds constitutes manufacture for claiming deduction under section 80JJAA (set aside lower authorities), sustained deletion of the section 40(a)(ia) disallowance in respect of the JBA revenue share (finding no material to attract TDS under sections 194C/194H and leaving section 194I as academic), confirmed deletion of the ad-hoc travelling/conveyance disallowance, and dismissed the computer-expense ground for want of prosecution; the Revenue's appeals were accordingly dismissed.

Deduction under section 80HHC - computation of book profits under section 115JB - deduction under section 80HHC(3) - effect of higher court order on pending appeals - remand jurisdiction of the Commissioner (Appeals)

Deduction under section 80HHC - effect of higher court order on pending appeals - Whether the assessee was eligible for deduction under section 80HHC (Revenue's challenge) in the three assessment years. - HELD THAT: - The Tribunal records that its earlier consolidated order on the issue was carried to the High Court and thereafter to the Hon'ble Supreme Court which, by its order dated 25.11.2013, decided the issue and directed the Assessing Officer to pass consequential order. In view of the Supreme Court's order the basis of the impugned CIT(A) orders on this ground no longer subsists and the Revenue's ground attacking the CIT(A)'s finding on eligibility under section 80HHC became infructuous and is dismissed. [Paras 4]

Revenue's challenge to eligibility for deduction under section 80HHC dismissed as infructuous in all three years.

Computation of book profits under section 115JB - deduction under section 80HHC(3) - Whether the deduction computed under section 80HHC(3) is to be allowed to reduce book profits for the purposes of section 115JB. - HELD THAT: - The CIT(A) followed the ratio of the Hon'ble Supreme Court in Ajanta Pharma Ltd. and held that for purposes of section 115JB the eligible profits are to be reduced as computed under section 80HHC(3)/80HHC(3A), and that the restrictions of section 80HHC(1B) are not applicable for determining eligible profits under explanation-1 to section 115JB(2). The Tribunal finds no error in the CIT(A)'s reasoning and the Department could not point to any mistake; accordingly the Revenue's ground on this issue is dismissed and the Assessing Officer is directed to give effect by reducing profits as computed under section 80HHC(3) while computing book profits under section 115JB. [Paras 6, 7]

Assessee entitled to reduce book profits by amounts computed under section 80HHC(3) for computation under section 115JB; AO to give effect.

General challenge to CIT(A) order - Whether the CIT(A) ought to have upheld the Assessing Officer's orders generally (Revenue's general grounds Nos.3 & 4). - HELD THAT: - The Tribunal notes that the pleaded grounds were general in nature and the Departmental Representative did not press any specific plea at hearing. In absence of specific contentions, these general grounds are dismissed. [Paras 9]

General grounds seeking restoration of AO's order dismissed.

Remand jurisdiction of the Commissioner (Appeals) - deduction under section 80HHC - Whether the CIT(A) erred in not deciding assorted detailed computation issues raised by the assessee in its cross-objection (turnover composition, exclusion of excise/sales tax, treatment of interest/rent, negative income, depreciation) when the CIT(A)'s order arose from a remand. - HELD THAT: - The Tribunal observed that the CIT(A)'s order was passed pursuant to specific remand directions by the Tribunal. The assessee could not point to any direction of the Tribunal restoring these specific issues to the CIT(A). The scope of the CIT(A)'s jurisdiction on remand was confined to the issues remanded by the Tribunal; consequently, the CIT(A) was not in error for not adjudicating matters that were not remanded and the assessee's cross-objection on these points is dismissed. [Paras 12]

Cross-objection seeking fresh adjudication of detailed computation items dismissed for lack of remand jurisdiction.

Deduction under section 80HHC(3) - computation of book profits under section 115JB - Whether the assessee's cross-objection seeking direction to allow reduction of profits computed under section 80HHC(3) for computation of book profits under section 115JB succeeds. - HELD THAT: - The assessee's representative made no submissions on this ground before the Tribunal and did not point out any error in the CIT(A)'s order. In consequence, this cross-objection ground is dismissed. [Paras 14]

Cross-objection seeking directive to AO to allow reduction under section 80HHC(3) while computing book profits dismissed.

Reassessment proceedings - interest under sections 234B and 234C - retrospective amendment - Whether the additional grounds in cross-objections challenging reassessment proceedings and claiming no interest under sections 234B/234C on account of retrospective amendments to section 80HHC should be allowed. - HELD THAT: - The Tribunal reiterated that the CIT(A) on remand had jurisdiction only over issues remitted by the Tribunal. The assessee failed to show that these additional grounds were remanded to the CIT(A). Accordingly the Tribunal found no merit in these additional grounds and dismissed them. [Paras 16]

Additional grounds challenging reassessment and claiming waiver of interest dismissed for lack of remand to CIT(A).

Final Conclusion: The appeals filed by the Revenue and the cross-objections filed by the assessee for assessment years 2002-03, 2003-04 and 2004-05 are dismissed. The Assessing Officer is to give effect to the CIT(A)'s direction permitting reduction of book profits by amounts computed under section 80HHC(3) for computation under section 115JB, where applicable.

Depreciation under section 32 - asset "used" for the purposes of business - actual and effective user versus preparation for use - deductibility of employee stock option expense under section 28 read with section 37 - followed Special Bench precedent on ESOP valuation and allowance - consequentiality and prematurity of interest and penalty adjudication

Depreciation under section 32 - asset "used" for the purposes of business - actual and effective user versus preparation for use - Whether depreciation claimed on the Mumbai premises for the year is allowable where the assessee purchased the building and carried out furnishing works but business use and commissioning occurred subsequently. - HELD THAT: - The Tribunal examined the undisputed facts that the premises were purchased on 05/03/2007 and furnishing for the "Bath Studio" was carried out from March 2007 to 31 May 2007. Applying the principle that mere preparation or installation does not amount to actual use in the business, and having regard to the binding view of the jurisdictional High Court in CIT v. Suhrid Geigy Ltd. that depreciation is claimable only when there is actual, effective and real user of the asset in the commercial sense, the claim was rejected. The Tribunal held that the lower authorities were justified in concluding that the property was not put to business use in the relevant previous year and therefore the depreciation under section 32 could not be allowed for that year. [Paras 4]

Claim for depreciation on the Mumbai premises for AY 2007-08 denied; grounds 1 to 4 rejected.

Deductibility of employee stock option expense under section 28 read with section 37 - followed Special Bench precedent on ESOP valuation and allowance - Whether the ESOP-related amount claimed as business expenditure is allowable as a deduction under section 28 read with section 37. - HELD THAT: - The Tribunal noted the assessing officer and CIT(A) disallowed the ESOP claim on the basis that issuance of shares at a discount is capital in nature and does not result in a revenue loss. Having considered the rival submissions and the material on record, the Tribunal applied and respectfully followed the Special Bench decision in Biocon Ltd. v. Dy.CIT, which examined valuation methodology where market price was not available and held in favour of the assessee subject to valuation scrutiny by the AO. In light of that Special Bench precedent, the Tribunal allowed the assessee's appeal on the ESOP claim. [Paras 5, 6]

ESOP-related expenditure of the assessee allowed following the Special Bench precedent; grounds 5 and 6 allowed.

Consequentiality and prematurity of interest and penalty adjudication - Whether interest under sections 234B and 234C and penalty under section 271(1)(c) are to be adjudicated in the present proceedings. - HELD THAT: - The Tribunal treated the claims relating to interest under sections 234B and 234C as consequential to the assessment outcome and the initiation of penalty proceedings under section 271(1)(c) as premature. It therefore refrained from deciding these matters on merits in the present order, recording that they are consequential or premature and do not require independent adjudication at this stage. [Paras 7, 8, 9]

Issues on interest (sections 234B and 234C) and penalty (section 271(1)(c)) not adjudicated as they are consequential or premature; to be considered subsequently as appropriate.

Final Conclusion: Partly allowed: depreciation claim on Mumbai premises rejected; ESOP expenditure allowed following the Special Bench precedent; interest and penalty issues left undecided as consequential/premature for future consideration.

Application of the test of human probabilities - unexplained cash credit treated under section 68 - genuineness of share transactions in penny stocks - onus on the assessee to produce evidence for share purchase and sale - reliance on SEBI findings and conduct of brokers for assessing transaction authenticity

Genuineness of share transactions in penny stocks - onus on the assessee to produce evidence for share purchase and sale - Claimed long term capital gains from sale of shares of Prime Capital Markets Ltd were not genuine and could not be substantiated by the assessee. - HELD THAT: - The Tribunal accepted the revenue's conclusion that the purchase transactions could not be cross-verified: the assessee did not produce share certificates or transfer forms; the purchase was alleged to be an off-market transaction paid by setting off a claimed speculation profit (not routed through bank); the broker M/s D.K. Khandelwal & Co. failed to produce contract notes and books despite identifying contract note numbers and distinctive share numbers; the purported seller could not be located as notice was returned 'Not Known'; margin money for alleged speculation transactions was not proved; the shares were dematerialized only shortly before sale; the sales were through a broker indicted by SEBI for manipulating penny stocks; and there was no explanation for the steep rise in share price. On these material deficiencies, and having regard to surrounding circumstances and conduct, the Tribunal found the transactions not satisfactorily established. [Paras 10, 11, 14, 15, 16]

The claim of long term capital gains was disbelieved for lack of credible evidence and corroboration.

Application of the test of human probabilities - unexplained cash credit treated under section 68 - reliance on SEBI findings and conduct of brokers for assessing transaction authenticity - The assessing officer's treatment of the sale proceeds as an unexplained cash credit under section 68 was upheld by applying the test of human probabilities. - HELD THAT: - The Tribunal held that the tax authorities were justified in applying the test of human probabilities to evaluate the veracity of the claimed transactions, given the absence of direct documentary proof and the incriminating circumstances (off-market routing, non-production of documents, untraceable seller, SEBI-indicted broker, and unexplained price escalation). The Tribunal noted that co-ordinate decisions favorable to the assessee did not apply the test of human probabilities and therefore could not be relied upon in the present facts. The Tribunal also accepted the proposition that the AO may act on material available on record, surrounding circumstances and preponderance of probabilities rather than only on direct evidence akin to criminal standard. [Paras 6, 12, 14, 16]

The assessing officer's addition treating the sale value as unexplained cash credit under section 68 was confirmed and the appellate order sustaining that view was upheld.

Final Conclusion: The appeal is dismissed; the Tribunal upheld the assessment treating the sale proceeds as unexplained cash credit under section 68 after applying the test of human probabilities due to inadequate and uncorroborated evidence of genuine share transactions.

Reopening of assessment-jurisdiction when reasons recorded do not relate to income escaping assessment - Estimation of income by rejecting books-limits where reopening basis is not acted upon - Admission of fresh evidence on appeal without obtaining remand report-obligation under Rule 46A - Bank credits and unexplained deposits-distinction between section 68 and examination of source under section 69

Reopening of assessment-jurisdiction when reasons recorded do not relate to income escaping assessment - Estimation of income by rejecting books-limits where reopening basis is not acted upon - Validity of reassessment and deletion of addition of Rs.18,43,787/- made by AO for AY 2010-11 in the case of the assessee (Prop. M/s Suraj Traders). - HELD THAT: - CIT(A) found that the reasons recorded for reopening under section 148 related to cash and FDRs found in a CBI search but no addition was made by the AO on that basis; instead the AO made an estimated addition by rejecting books and applying a net profit rate. Applying precedents relied upon by CIT(A), the Tribunal held that where the AO accepts the assessee's objection to the basis of reopening and does not assess income which was the subject-matter of the notice, the AO cannot proceed to make an independent addition on a different issue. Since the only addition was by estimation unrelated to the reasons for reopening, CIT(A)'s deletion was upheld and there was no jurisdiction to sustain the reassessment addition. [Paras 5, 6]

Deletion of the addition sustained; appeal of the Revenue dismissed.

Admission of fresh evidence on appeal without obtaining remand report-obligation under Rule 46A - Estimation of income by rejecting books-relying on past years' profit rates - Whether CIT(A)'s decision deleting/ moderating additions for AY 2011-12 (Proprietor) can be sustained or requires remand for a remand report from the AO. - HELD THAT: - The Assessing Officer completed assessment under sections 143(3)/144 after the assessee failed to produce required evidence. CIT(A) estimated net profit at 0.8% based on earlier years' profit rates but did so without obtaining a remand report from the AO despite admission of fresh evidence before the appellate authority. The Tribunal found that, in the interest of justice, the matter should be remitted to CIT(A) to obtain a remand report from the AO and afford both parties reasonable opportunity to be heard, and therefore set aside the CIT(A) order for fresh decision. [Paras 11, 12]

Order of CIT(A) set aside; matter restored to CIT(A) for fresh decision after obtaining remand report from the AO (appeal of the Revenue allowed for statistical purposes).

Admission of fresh evidence on appeal without obtaining remand report-obligation under Rule 46A - Bank credits and unexplained deposits-distinction between section 68 and examination of source under section 69 - Whether CIT(A)'s deletions and findings in AY 2011-12 (Anokhe Lal HUF), including treatment of bank deposits and reliance on fresh evidence, can be upheld or require remand. - HELD THAT: - AO made additions under section 68 by treating certain bank credits as unexplained. CIT(A) accepted new material (bank cash book extracts and insurance maturity proceeds) not produced before the AO and concluded portions of deposits were explained, observing that unexplained bank credits require consideration under section 69. Because CIT(A) decided the matter without obtaining a remand report from the AO and the material relied upon was not before the AO, the Tribunal remitted the matter to CIT(A) for fresh adjudication after obtaining a remand report and providing adequate opportunity of hearing to both parties. [Paras 17, 18]

Order of CIT(A) set aside; matter restored to CIT(A) for fresh decision after obtaining remand report from the AO (appeal of the Revenue allowed for statistical purposes).

Final Conclusion: For AY 2010-11 (Prop. M/s Suraj Traders) the Tribunal upheld CIT(A)'s deletion of the reassessment addition and dismissed the Revenue's appeal. For AY 2011-12 (both the Proprietor and the HUF), the Tribunal set aside the CIT(A) orders and remitted both matters to the CIT(A) for fresh decision after obtaining remand reports from the Assessing Officer and affording parties reasonable opportunity to be heard; those two appeals are allowed for statistical purposes.

Penalty for concealment or furnishing inaccurate particulars of income under section 271(1)(c) - disallowance under section 40(a)(ia) for non-deduction of tax at source - Reasonable explanation defence to penalty - onus to rebut statutory presumption in Explanation (1A) and Explanation (1B) - diversion by overriding title - application of income versus distribution/allocation of profit - cash method of accounting

Disallowance under section 40(a)(ia) for non-deduction of tax at source - Reasonable explanation defence to penalty - onus to rebut statutory presumption in Explanation (1A) and Explanation (1B) - cash method of accounting - Whether the assessee furnished a plausible and substantiated explanation for the payments claimed (Rs.42 lacs) so as to preclude levy of penalty under section 271(1)(c). - HELD THAT: - The Tribunal examined the assessee's books, confirmations and chronology of receipts and payments and found no evidentiary delineation of services or quantum attributable to the alleged payees. The assessee maintained accounts on cash basis and had credited the entire receipts as professional fees, yet failed to produce contracts with the payor companies or documentary proof linking the impugned payments to the receipts. The timing of receipts (April-July 2004) and payments to alleged co-operators (February-March 2005), the unexplained build-up of cash, contradictory positions taken by the assessee (later depositing TDS and claiming deduction in a subsequent year), and confirmations describing the amounts as shares of profit, collectively undermined the genuineness of the claimed expenditure. Given the statutory presumption placed on the assessee by Explanation (1A)/(1B) and the onus to substantiate its claim, the Tribunal held that the assessee did not offer a reasonable explanation to rebut the presumption and therefore could not avoid penalty for concealment or furnishing inaccurate particulars. [Paras 4]

The assessee failed to furnish a plausible, substantiated explanation for the payments; penalty under section 271(1)(c) could be sustained on this ground.

Diversion by overriding title - application of income versus distribution/allocation of profit - Whether the payments to the three firms and one individual constituted a diversion by overriding title (i.e., application of income) so as to negate the taxability of the amount in the hands of the assessee. - HELD THAT: - The Tribunal reviewed the documentary material including ledger entries, payment summaries, communications and confirmations, which consistently described the amounts as shares of profit of a joint project rather than transfers by way of diversion by overriding title. There were no separate accounts maintained to establish an AOP, no contracts evidencing an overriding title, and the arrangement appeared to be an internal mutual allocation or application of income arising to the assessee from the project. Even on the assessee's own case the payments were not shown to be transfers that vest legal title outside the assessee prior to receipt. Consequently, the Tribunal concluded that the payments could not be treated as diversion by overriding title; they were at best an application/allocation of income and, without independent substantiation, did not defeat the inference of concealment or inaccuracy in particulars. [Paras 4]

The claim of diversion by overriding title was not established and could not prevent the levy of penalty under section 271(1)(c).

Final Conclusion: The Tribunal dismissed the appeal and upheld the levy of penalty under section 271(1)(c) for A.Y. 2005-06, holding that the assessee failed to furnish reasonable and substantiated explanations either to treat the payments as allowable expenditures or as diversion by overriding title, and therefore could not rebut the statutory presumption.

Condonation of delay - Section 35(2AB) weighted deduction for in-house R&D - Rule 6 / Form 3CK, Form 3CL, Form 3CM - procedural approval and certification - Deeming of approval where prescribed authority fails to submit report - Section 80JJA deduction - allocation of R&D expenditure between business segments

Condonation of delay - Delay in filing appeal of 396 days was condoned and the appeal admitted for hearing on merits. - HELD THAT: - The Tribunal considered the delay condonation petition supported by medical records showing that the company's Managing Director underwent serious illness and open heart surgery and had resumed work only partially. Applying the principle that not every lapse of a litigant is a ground to shut the doors of justice unless the explanation shows mala fides or dilatory strategy, and preferring substantial justice over technicality, the Tribunal found the cause genuine and exercised discretion to condone the delay. The appeal was therefore admitted for hearing on merits. [Paras 6]

Delay of 396 days condoned and appeal admitted for hearing.

Section 35(2AB) weighted deduction for in-house R&D - Rule 6 / Form 3CK, Form 3CL, Form 3CM - procedural approval and certification - Deeming of approval where prescribed authority fails to submit report - Assessee entitled to weighted deduction under section 35(2AB) for R&D expenditure; denial solely for non-submission of Form 3CL by DSIR is not sustainable where approval exists and requisite filings by assessee were made. - HELD THAT: - The Tribunal recorded that there was no dispute that revenue expenditure towards R&D was incurred and that the assessee's in-house R&D facility had been approved by DSIR since AY 2003-04 with approval extended (record shows Form 3CM approval and application in Form 3CK dated 26.9.2012). Having complied with statutory requirements under section 35(2AB) read with Rule 6, the assessee could not be penalised for non-submission of Form 3CL by the prescribed authority, a matter beyond the assessee's control. The Tribunal applied the ratio of coordinate decisions holding that procedural defects or non-availability of prescribed form from the authority do not defeat substantive entitlement where the approval in substance exists; further, in absence of a show-cause and rejection procedure being followed, approval may be deemed. The Tribunal directed the AO to allow the weighted deduction but made provision for adjustment if the prescribed authority later disallows or quantifies the expenditure differently. [Paras 12, 13]

Weighted deduction under section 35(2AB) allowed (Rs. 72,75,245 as claimed), subject to adjustment if the prescribed authority subsequently disapproves or quantifies the expenditure differently.

Section 80JJA deduction - allocation of R&D expenditure between business segments - Question of apportionment of R&D expenditure between organic-manure and non-organic segments remitted to the AO for fresh verification. - HELD THAT: - AO apportioned R&D expenditure between segments on the basis that general expenses were apportioned on turnover ratio, while assessee claimed the R&D expenditure related wholly to the non-organic segment. Given the factual nature of the dispute and the need for adequate evidence, the Tribunal declined to decide on the record before it and remitted the matter to the AO to re-examine the allocation after verifying books, supporting documents and evidence tendered by assessee; if assessee establishes that R&D expenditure pertains solely to the non-organic segment, AO may allow deduction under section 80JJA accordingly. [Paras 18]

Issue remitted to AO for factual verification and fresh adjudication; ground allowed for statistical purposes.

Final Conclusion: Delay in filing the appeal was condoned and the appeal admitted. The Tribunal allowed the weighted deduction under section 35(2AB) in view of DSIR approval and assessee's compliance, subject to future modification if the prescribed authority disallows or reduces the certified amount. The dispute on allocation of R&D expenditure for claiming deduction under section 80JJA was remitted to the AO for fresh verification; the appeal is partly allowed.

Applicability of Tax Deducted at Source to payments between a partner and the partnership firm - Proviso exempting individual/HUF from TDS subject to turnover threshold - Reasonable cause for non-deduction and relief under section 273B - Penalty under section 271C for failure to deduct tax at source - Tax includes surcharge and TDS liability on surcharge - Remand for verification whether recipient has discharged tax liability

Applicability of Tax Deducted at Source to payments between a partner and the partnership firm - Proviso exempting individual/HUF from TDS subject to turnover threshold - Whether an individual partner was required to deduct tax at source on interest paid to the partnership firm - HELD THAT: - The Tribunal examined section 194A and held that the opening language exempts individuals and HUFs from the obligation to deduct TDS on interest. However, the proviso to section 194A(1) renders that exemption inapplicable where the individual's total sales, gross receipts or turnover exceed the limits specified under clause (a) or (b) of section 44AB for the preceding financial year. On the facts of the case the assessee's gross receipts exceeded the prescribed limit and therefore the individual assessee was liable to deduct tax at source when making interest payments to the partnership firm. [Paras 6]

Individual assessee was required to deduct tax under section 194A because his gross receipts exceeded the threshold in the proviso.

Tax includes surcharge and TDS liability on surcharge - Remand for verification whether recipient has discharged tax liability - Whether the assessing officer should verify if the recipient had already paid tax (including surcharge) before treating the payer as assessee in default - HELD THAT: - The Tribunal observed that surcharge is part of tax and that the question whether the payer can be treated as an assessee in default must be examined in the light of whether the recipient has already discharged the tax liability, including surcharge. Relying on earlier decisions of the Tribunal and guidance from the Apex Court, the Tribunal set aside the orders of the lower authorities and remitted the matter to the assessing officer for fresh verification of whether the recipient has paid the tax and surcharge. The assessing officer was directed to decide the matter in accordance with law after giving the assessee a reasonable opportunity of hearing. [Paras 8, 9]

Issue remitted to the assessing officer to verify if the recipient has paid tax including surcharge and to decide accordingly after hearing the assessee.

Penalty under section 271C for failure to deduct tax at source - Reasonable cause for non-deduction and relief under section 273B - Whether penalty under section 271C should be sustained for failure to deduct TDS on interest paid to the partnership firm - HELD THAT: - On identical facts previously considered by a coordinate bench, the Tribunal held that the belief of a partner that TDS need not be deducted on payments to the partnership firm is a debatable legal position and can constitute a 'reasonable cause' within the meaning of section 273B. The Tribunal referred to authoritative pronouncements construing 'reasonable cause' liberally and noted that where the partnership firm has included the interest in its return and there is no loss to revenue, the penalty provision should be avoided. Applying that reasoning to the present appeals, the Tribunal found no justification to confirm the CIT(A)'s orders and deleted the penalty levied under section 271C. [Paras 12, 13]

Penalty under section 271C deleted on the ground that the assessee had a reasonable cause for non-deduction; assessing officer directed to delete the penalty.

Final Conclusion: The Tribunal held that (i) an individual must deduct TDS under section 194A if the proviso threshold is crossed (assessee liable for TDS for AY 2009-10), (ii) the question whether the payer can be treated as assessee in default is remitted to the assessing officer to verify whether the recipient has already paid tax including surcharge, and (iii) penalties under section 271C were deleted on the basis that the assessees had reasonable cause under section 273B; accordingly all appeals were allowed.

Customs Valuation Rules - related persons and transaction value adjustments - loading of overheads in transaction value - loading of notional profit in transaction value - STPI unit imports and valuation adjustment

Loading of overheads in transaction value - Customs Valuation Rules - related persons and transaction value adjustments - Whether the addition of 10% as overheads to the invoice value is justified for imports from the related supplier for the periods before and after April 2008. - HELD THAT: - The Tribunal noted that the adjudicating authority had imposed a uniform 10% overhead loading on imports made from 2006 to 2008. Examination of supplier worksheets showed that from April 2008 the supplier began separately computing and including Material Overhead (MOH) in the invoice price, the MOH percentage varying between 5% and 33% (and in some cases up to 38%). Where the supplier had already built overhead costs into the invoice price for imports effected after April 2008, imposing an additional 10% would amount to double counting and is therefore unjustified. Conversely, for shipments in the period April 2006 to April 2008 the supplier did not include overheads in the invoice price; in those cases the Valuation Rules require additions to arrive at correct transaction value, and a nominal 10% addition was found to be reasonable and just in view of available materials and the lower authority's assessment. [Paras 10, 11]

10% overhead loading is set aside for imports made after April 2008; 10% overhead loading is upheld for imports made from April 2006 to April 2008.

Loading of notional profit in transaction value - Customs Valuation Rules - related persons and transaction value adjustments - STPI unit imports and valuation adjustment - Whether a 10% notional profit addition to the invoice value is justified for all imports from the related supplier. - HELD THAT: - Although the parties are related under the Valuation Rules, the Tribunal found the supplier procured and supplied goods across its affiliates under centralized global purchase arrangements and did not sell to third parties at higher prices; the supplier acted to centralize procurement, warehousing and quality control rather than to trade for profit. The lower authority did not furnish reasons for fixing profit at 10%. Considering the appellant's status as an STPI unit and that supplies were for internal consumption by affiliated companies, the Tribunal concluded that a nominal notional profit is appropriate. In the exercise of valuation discretion under the Rules and having regard to the factual matrix, a reduction of the notional profit from 10% to 1% was warranted. [Paras 12, 13, 14]

The 10% notional profit loading is reduced to 1% for all imports.

Final Conclusion: The appeal is partly allowed: the 10% overhead loading is upheld for imports made from April 2006 to April 2008 but set aside for imports after April 2008; the 10% notional profit loading is reduced to 1% for all imports.

Recall of ex parte order - dismissal for want of prosecution - requirement of substantial question of law under Section 130 of the Customs Act, 1962 - adequate opportunity to be heard - abuse of process by repetitive litigation

Dismissal for want of prosecution - recall of ex parte order - adequate opportunity to be heard - abuse of process by repetitive litigation - Tribunal was justified in dismissing the application to recall its earlier order and refusing restoration of the appeal which had been dismissed for want of prosecution. - HELD THAT: - The Tribunal's order records that the appellant was repeatedly absent on listed dates, that absence was not taken advantage of to decide issues on merits, and that the appellant resorted to miscellaneous applications amounting to repetitive litigation. The High Court found no error in those findings and held that successive non-appearances and failure to prosecute the appeal amounted to either casualness or negligence without sufficient cause to recall the ex parte order. The Court accepted that adequate opportunities had been afforded and that the Tribunal had no option but to dismiss the appeal for want of prosecution; accordingly, the application for restoration was rightly dismissed. [Paras 4, 5, 6, 7]

Application to recall the earlier order and to restore the appeal dismissed; no sufficient cause shown to recall the ex parte order.

Requirement of substantial question of law under Section 130 of the Customs Act, 1962 - The appeal did not involve any substantial question of law warranting interference under Section 130 of the Customs Act, 1962. - HELD THAT: - The High Court observed that the appeal raised no substantial question of law as required for entertaining an appeal under Section 130. The Court therefore declined to exercise jurisdiction to reopen or entertain the appeal on merits, noting that the matter concerned factual non-prosecution and procedural consequences rather than a determinative legal question. [Paras 5, 8]

No substantial question of law exists; appeal not entertainable under Section 130.

Final Conclusion: The appeal is dismissed in limine; the Tribunal's refusal to recall its order and to restore the appeal was upheld, and no costs were ordered.

Nexus between input/input service and output/output service - permissibility of Cenvat credit utilisation for output service - Rule 3 of the CENVAT Credit Rules, 2004 - pre deposit as condition for grant of stay in appeals

Nexus between input/input service and output/output service - permissibility of Cenvat credit utilisation for output service - Rule 3 of the CENVAT Credit Rules, 2004 - Whether Cenvat credit availed on input services used in manufacturing at Pune could be utilised for discharge of service tax on renting of immovable property in Mumbai - HELD THAT: - The Tribunal applied the well established principle under the CENVAT Credit regime that credit is admissible only where there is a nexus between the input or input service and the output or output service. Credit taken for inputs/input services used in or in relation to manufacturing cannot be lawfully utilised for an unrelated output service. In the present case the admitted facts show that the credit related to services used in manufacturing at the Pune factory, whereas the utilised credit discharged service tax liability on renting of immovable property situated in Mumbai. There is no nexus between the input/input services and the renting service; consequently the utilisation was not permissible under Rule 3 of the CENVAT Credit Rules, 2004. The Tribunal therefore found that the demand confirmed by the adjudicating authority for denial of utilisation of Cenvat credit was sustainable. [Paras 6]

Utilisation of the Cenvat credit for renting of immovable property was not permissible for want of nexus; demand confirmed is sustainable.

Pre deposit as condition for grant of stay in appeals - Relief to be granted pending appeal and terms for stay of recovery - HELD THAT: - Having held that the utilisation was not permissible, the Tribunal concluded that the appellant had not made out a prima facie case for waiver of the dues. Accordingly, the Tribunal directed the appellant to make a pre deposit of the entire amount of Cenvat credit wrongly taken and utilised. The Tribunal limited waiver to the balance of dues adjudged (interest and penalties), which shall remain waived and their recovery stayed during the pendency of the appeal upon compliance with the pre deposit direction within the stipulated period. [Paras 6]

Appellant directed to pre deposit the full Cenvat credit amount confirmed as demand; on such compliance interest and penalties waived and recovery of those amounts stayed during pendency of appeal.

Final Conclusion: The Tribunal upheld the denial of utilisation of Cenvat credit for the renting service for want of requisite nexus and directed the appellant to pre deposit the entire confirmed Cenvat credit amount; upon such compliance interest and penalties were waived and their recovery stayed pending the appeal.

Surety bond compliance under Supreme Court order - Validity of surety bond executed in improper format - Acceptance by competent authority after verification of credit worthiness - Stay conditional on execution of proper surety bond

Surety bond compliance under Supreme Court order - Validity of surety bond executed in improper format - Acceptance by competent authority after verification of credit worthiness - Whether the surety bond produced by the appellant complied with the format and requirements directed by the Supreme Court and could be accepted. - HELD THAT: - The Bench examined the surety bond on record and noted that the document was not in the format required to be accepted in favour of the President of India through the jurisdictional Assistant Commissioner, nor was it signed and accepted in the presence of the competent authority. The revenue's communication did not furnish the confirmation sought by the Bench. In view of these deficiencies, the bond as executed cannot be treated as complying with the Supreme Court's direction. The appellant was directed to cause the tenant to execute the surety bond in the proper format before the competent authority, who shall consider and accept the bond only after assessing the credit worthiness of the surety. [Paras 3]

The existing surety bond is not acceptable; the tenant must execute a proper bond before the competent authority who shall decide acceptance after verifying credit worthiness.

Stay conditional on execution of proper surety bond - Disposition of the stay petitions pending compliance with the requirement to execute a proper surety bond. - HELD THAT: - Counsel for the appellant sought four weeks' time to complete the formalities of executing the surety bond in the correct format. In view of the requirement that a valid bond be executed and accepted as directed, the Bench granted time for completion of that formality and listed the stay petitions for further consideration on a specified date to enable compliance. [Paras 4, 5]

Stay petitions adjourned and listed for 30.09.2014 to enable completion of the surety bond formalities.

Final Conclusion: The surety bond on record is held non-compliant with the required format and must be re-executed before the competent authority who will determine acceptance after assessing the surety's credit worthiness; the stay petitions are adjourned and listed for 30.09.2014 to permit completion of these formalities.

Construction Service - Residential complex exclusion - Personal use - Commercial or Industrial Construction Service - Pre-deposit for stay - Stay of recovery

Residential complex exclusion - Personal use - Construction Service - Taxability of construction of low cost flats for Nagpur Improvement Trust and Ramtek Municipal Council under service tax - HELD THAT: - The tribunal held that, prima facie, the flats constructed for Nagpur Improvement Trust (leased to low income groups while ownership remains with the Trust) and the flats for Ramtek Municipal Council (provided to slum dwellers/low income groups for nominal consideration) fall within the exclusion contained in the definition of "residential complex". The construction in these cases was by a person who directly engaged another for design/planning and construction and the complexes were intended for personal use (including permitting use by others on rent or without consideration) as contemplated by the explanatory provision. On that prima facie view, the appellants made out a case against service tax liability on these constructions and relief by way of stay was warranted. [Paras 5]

Demand of service tax in respect of the residential complexes constructed for Nagpur Improvement Trust and Ramtek Municipal Council was prima facie excluded from levy and a stay was directed in favour of the appellant.

Commercial or Industrial Construction Service - Construction Service - Taxability of construction of the meditation (Vipassana) centre for Nagpur Municipal Corporation - HELD THAT: - The tribunal observed, on a prima facie basis, that the Vipassana centre used for meditation by registered members and not put to commercial use could not be treated as a Commercial or Industrial Construction Service. Given the absence of commercial use, the activity did not prima facie attract service tax as a commercial construction and the appellant was entitled to protective relief. [Paras 6]

Construction of the meditation centre for Nagpur Municipal Corporation was prima facie not a taxable Commercial or Industrial Construction Service and a stay was granted in respect of that demand.

Construction Service - Pre-deposit for stay - Stay of recovery - Taxability of construction of tourist centre for Maharashtra Tourism Development Corporation (MTDC) and interim financial condition for maintaining stay - HELD THAT: - The tribunal found that the construction of the tourist centre for MTDC did not fall within the exclusions relied upon and prima facie constituted a taxable commercial/industrial construction service. Accordingly, the tribunal directed an interim financial condition: the appellant was to make a specified pre deposit to obtain protective relief while the appeal proceeds. On compliance with the directed pre deposit, the balance of the adjudged dues would be waived for the period of the appeal and recovery stayed. [Paras 6]

The construction of the MTDC tourist centre was held prima facie taxable; the appellant was directed to make a pre deposit of Rs. 85,000 within four weeks, on compliance with which recovery of the balance would be stayed during the pendency of the appeal.

Final Conclusion: On the tribunal's prima facie findings, service tax demands in respect of the low cost residential complexes (Nagpur Improvement Trust and Ramtek Municipal Council) and the Vipassana meditation centre were stayed; taxability in respect of the MTDC tourist centre was upheld prima facie and the appellant directed to pre deposit Rs. 85,000 within four weeks, compliance with which results in waiver of recovery of the balance during the appeal.

Relevant date - time limit for refund/rebate - refund under Rule 5 of the Cenvat Credit Rules - rebate under Notification 11/2005-ST - reasonable time limit - binding precedent of a Division Bench

Refund under Rule 5 of the Cenvat Credit Rules - relevant date - time limit for refund/rebate - Whether the Division Bench decision in Vodafone Cellular Ltd. governs the relevant date and time limit in the appellant's claim for refund under Rule 5 read with Notification 5/2006-CE(NT). - HELD THAT: - The Tribunal held that Vodafone Cellular Ltd. concerned rebate under Notification 11/2005-ST where no specific time limit was prescribed and the Division Bench applied a one year 'reasonable time' rule, with the one year counted from the date of payment of service tax. The present case, by contrast, concerns refund under Rule 5 read with Notification 5/2006-CE(NT), where the Notification adopts the time limit prescribed under Section 11B of the Central Excise Act. Further, in the present facts the appellant did not pay duty, making the date of payment irrelevant; accordingly the Tribunal treated the date of raising the invoice as the relevant date (with the alternative of date of taking credit being adverse to the appellant). On these factual and statutory distinctions the Vodafone Division Bench decision was held not to control the present refund claim. [Paras 4]

Vodafone Cellular Ltd. is distinguishable and does not govern the relevant date or time limit for the refund claim under Rule 5 and Notification 5/2006-CE(NT); the date of raising the invoice is the relevant date in the present case.

Time limit for refund/rebate - reasonable time limit - binding precedent of a Division Bench - Whether the Tribunal failed to consider the decision in Deepak Spinners Ltd. and whether that decision requires a different result. - HELD THAT: - The Tribunal found that the Deepak Spinners view derived from the Gujarat High Court's decision in CCE, Surat-I vs. Swagat Synthetics, and that the Tribunal's order had extensively considered and applied higher court rulings, including the Madras High Court's discussion in CCE, Coimbatore vs. GTN Engineering (I) Ltd. The ROM application did not establish any omission of consideration of these authorities; the Bench noted that for brevity not every cited judgment was discussed but that relevant High Court decisions were relied upon in reaching the conclusion. Accordingly there was no apparent error in failing to consider Deepak Spinners or in the resultant conclusion on applicability of the relevant date and time limit. [Paras 4]

The Tribunal had taken into account the authorities relied upon (including the High Court decisions underpinning Deepak Spinners) and no mistake apparent on record is made out.

Final Conclusion: The ROM application is dismissed: the Vodafone Division Bench decision is distinguishable on statutory and factual grounds and the Tribunal properly considered the High Court authorities underlying Deepak Spinners; no mistake apparent from the record is shown.

Eligibility for CENVAT credit - input service used for providing output service - essentiality requirement not necessary for input service - reversal of CENVAT credit and interest - evidentiary substantiation for expense and non-recovery - settlement in lieu of remand and verification

Eligibility for CENVAT credit - input service used for providing output service - essentiality requirement not necessary for input service - CENVAT credit availed on various input services (chartered accountant services, business auxiliary services, event management service, photography service, installation and commissioning service, mandap keeper service, management and business consultancy service) is admissible. - HELD THAT: - The Tribunal held that the statutory test requires that an input service be used for providing the output service, and that there is no separate legal requirement of 'essentiality' for an input service. The authorities' disallowance on the ground that the services were not 'essential' was therefore not in accordance with law. The appellant's reliance on earlier decisions before various courts and tribunals was accepted as supporting the admissibility of the credits. Applying this legal principle, the Tribunal concluded that the impugned disallowance of CENVAT credit in respect of the listed services cannot be sustained.

CENVAT credit in respect of the listed input services is allowable; the disallowance set aside.

Evidentiary substantiation for expense and non-recovery - reversal of CENVAT credit and interest - settlement in lieu of remand and verification - Rejection of CENVAT credit claimed on insurance service upheld on the ground of lack of substantiation that expense was incurred and not recovered from employees; but appeal disposed on agreed terms regarding reversal and final settlement. - HELD THAT: - The Tribunal agreed with the authority that the appellant had not adequately substantiated that insurance expenses were actually incurred and not recovered from employees, making the rejection valid. Although a remand for verification would have been the normal course, the appellant informed the Tribunal that they had reversed the disputed credits in related rebate proceedings and would forgo the rebate and not seek re-credit. Considering that the appellant had already reversed the debited amounts within a short period and wished to end litigation, the Tribunal accepted the pragmatic proposal and declined to require further payment beyond interest implications, effectively disposing the appeal without remand.

Rejection of insurance-service credit sustained on merits, but appeal is allowed on terms agreed by parties: appellant will not claim re-credit or rebate and will not be liable to pay any further amount beyond the settlement made.

Final Conclusion: The appeal is allowed in part: CENVAT credit disallowances in respect of the various input services listed (other than insurance) are set aside and held admissible; the rejection of credit for insurance service is sustained for lack of substantiation, but, on the appellant's undertaking that they will not claim re-credit or rebate and having already reversed disputed amounts, the Tribunal disposed the appeal by accepting that no further payment by the appellant is required.

Underwriting services as defined under SEBI/Finance Act - definition of underwriter and underwriting in SEBI (Underwriter) Rules, 1993 - purchase-and-resale contractual arrangements vis-a -vis underwriting - classification as banking and other financial services - place of provision / Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 - reverse charge mechanism - extended period of limitation for suppression of facts

Underwriting services as defined under SEBI/Finance Act - definition of underwriter and underwriting in SEBI (Underwriter) Rules, 1993 - purchase-and-resale contractual arrangements vis-a -vis underwriting - Services provided by Citigroup Global Markets Ltd. and Goldman Sachs International in relation to the July 2007 GDR issue are not underwriting services within the meaning of the Finance Act, 1994. - HELD THAT: - The Finance Act adopts the meaning of 'underwriter' and 'underwriting' as given in the SEBI (Underwriter) Rules, 1993, which envisages an agreement to subscribe to securities when the public or existing shareholders do not subscribe to the offered securities. The agreements in the present case (letter dated 8.6.2007 and the Purchase Agreement dated 23.07.2007) evidence a purchase-and-resale arrangement whereby the Joint Lead Managers purchased the Offered GDRs and were entitled to resell all or part thereof to subsequent purchasers. That contractual structure is a purchase agreement and not an undertaking to subscribe for unsubscribed securities offered to the public and therefore does not fall within the statutory concept of underwriting for service-tax purposes. Reliance on foreign law definitions or dictionary meanings is immaterial where the Finance Act and SEBI Rules provide a clear domestic definition. [Paras 7, 8, 9, 10, 11]

Services rendered by the joint lead managers in the July 2007 GDR transaction are not 'underwriting services' under the Finance Act, 1994.

Classification as banking and other financial services - reverse charge mechanism - The services received by the appellant from the overseas joint lead managers fall within the scope of 'banking and other financial services' under the Finance Act, 1994. - HELD THAT: - Sectional definitions of 'banking and other financial services' and the related taxable service provision indicate that the nature of the services supplied by Citi and Goldman Sachs are covered under the clause dealing with merchant banking and allied financial services. There is no requirement under the Finance Act that the service-provider must be registered with SEBI in India for the service to be taxable; the statutory definitions capture services provided by foreign entities. Accordingly, the appellant's contention that these overseas activities cannot be classed as taxable banking/financial services because SEBI registration rules apply only to domestic merchant bankers is rejected. [Paras 16]

Services received from the overseas joint lead managers are covered by 'banking and other financial services' under the Finance Act and thus fall within the taxing net.

Place of provision / Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 - purchase-and-resale contractual arrangements vis-a -vis underwriting - Rule 3(ii) exemption for services provided fully outside India does not apply because the services are not underwriting services within the meaning of the Finance Act. - HELD THAT: - The appellant sought to invoke Rule 3(ii) on the premise that the service was underwriting provided wholly outside India. Having held that the contractual arrangement evidences a purchase-and-resale and not underwriting as defined domestically, the appellant cannot avail the Rule 3(ii) treatment for underwriting services. The characterisation of the service under the Finance Act determines applicability of the place-of-provision rule. [Paras 6, 10, 11]

Rule 3(ii) does not exempt the impugned receipts because the services are not underwriting services as defined under the Finance Act.

Extended period of limitation for suppression of facts - Extended period of limitation under the proviso to Section 73(1) is rightly invoked and penalties under Sections 77 and 78 are sustained. - HELD THAT: - The department was not aware of the foreign service receipts and payments because the appellant did not disclose the GDR-related service receipt in ST-3 returns or otherwise inform the department; balance-sheet disclosure alone did not put the department on notice. The facts amount to suppression within the meaning of the proviso to Section 73(1), permitting invocation of the five-year extended period. In consequence, the levy of demand within the extended period and the imposition of consequential penalties were upheld. [Paras 17, 18]

Extended limitation is correctly invoked for suppression of facts and the penalties imposed are upheld.

Final Conclusion: The appeal is dismissed: the joint lead managers' engagement in the July 2007 GDR transaction does not constitute 'underwriting services' under the Finance Act, their services are taxable as banking and other financial services, Rule 3(ii) exemption is inapplicable, and the department validly invoked the extended period of limitation with penalties sustained.

Export of services - business auxiliary service - destination based consumption tax - principle of equivalence - export of services rules - service tax liability - time bar / limitation and extended period - cum-tax benefit and CENVAT credit

Export of services - business auxiliary service - export of services rules - Whether the business auxiliary services provided by the appellant to its foreign principal amounted to export of services and were therefore not liable to service tax - HELD THAT: - Having considered the Export of Services Rules, 2005, the Tribunal (majority) concluded that the disputed market promotion/business auxiliary services were provided to a service recipient located outside India and thus fell within the scope of export under the Rules applicable for the relevant period. The majority followed earlier Bench authority (Paul Merchants Ltd.) and other Tribunal decisions holding that, for Category III services, the location of the service recipient (the person paying for the service) is the decisive criterion; where that recipient is outside India and other conditions in the Rules are met, the service is to be treated as exported. The majority held that the fact that the promotional activities physically occurred in India and may facilitate sales in India does not preclude classification as export where the recipient is situated abroad and payment is in convertible foreign exchange. The majority therefore disagreed with the view that constitutional or goods focused concepts of "export" (Article 286 and Customs definitions) control the Rules dealing with export of services and accepted the Board circulars and Tribunal precedent construing Rule 3(1)(iii) in favour of export where the recipient is outside India. The result was that the contested business auxiliary services were held to be exports and not taxable under the Finance Act for the impugned period.

Business Auxiliary Services as performed for the foreign principal were export of services under the Export of Services Rules, 2005 and are not liable to service tax for the impugned period.

Maintenance and repair of software - service tax liability - Whether maintenance and repair of software was taxable prior to 07-10-2005 - HELD THAT: - Both Members recorded and the Tribunal accepted that maintenance/repair of computer software was not exigible to service tax prior to issuance of Circular No.81/02/05 dated 07-10-2005. The adjudicating authority's demand for the earlier period was held unsustainable to the extent it sought to tax maintenance/repair services rendered before 07-10-2005.

Maintenance and repair of software before 07-10-2005 was not taxable and no liability can be enforced for that earlier period.

Time bar / limitation and extended period - suppression of facts - Whether the Department could invoke the extended period of limitation under the Act - HELD THAT: - Applying settled authorities on suppression and extended limitation, the Tribunal found that Revenue did not prove willful suppression or deliberate mis statement with intent to evade tax. The record did not establish conscious withholding of material facts such as would attract the proviso to the extended limitation provision. Consequently the extended period could not be invoked and adjudication was confined to the normal limitation period.

Extended period of limitation cannot be invoked; proceedings limited to the normal period.

Cum-tax benefit and CENVAT credit - Whether the appellant is entitled to cum tax benefit and CENVAT credit - HELD THAT: - The Tribunal held that, in law and on the facts, the appellant was entitled to cum tax benefit and to CENVAT credit in accordance with law. Where refunds or credits had been granted earlier, that did not preclude entitlement to benefit; the adjudicating authority was directed to give effect consistent with law.

Appellant entitled to cum tax benefit and CENVAT credit as per law.

Service tax liability - recomputation and remand - Computation of tax, interest and consequential reliefs following the legal conclusions - HELD THAT: - Although the Tribunal (majority) held the business auxiliary services to be exports and not taxable, the original adjudication had determined tax and interest. The Tribunal therefore directed remand to the adjudicating authority to recompute tax liability and interest for the normal period only, giving effect to the findings on export, limitation, cum tax benefit and CENVAT credit. The remand is for quantification and recalculation in conformity with the legal conclusions reached by the Tribunal.

Matter remanded to the adjudicating authority to recompute tax and interest for the normal period, granting cum tax benefit and CENVAT credit in accordance with law.

Procedural listing - Disposition of the companion appeal ST/828/2010 - HELD THAT: - ST/828/2010 was not argued and the Tribunal directed that it be listed for hearing; the majority order records that the identical issue may arise in that appeal and it should be placed for final disposal after appropriate hearing.

ST/828/2010 to be listed for hearing; not finally disposed by this order.

Final Conclusion: Majority of the Tribunal allowed Service Tax Appeal No. ST/866/2008: the business auxiliary/market promotion services rendered to the foreign principal were held to be export of services under the Export of Services Rules, 2005 and are not taxable for the impugned period; maintenance/repair services before 07 10 2005 are not exigible; the extended period of limitation cannot be invoked; appellant entitled to cum tax benefit and CENVAT credit; the matter is remanded to the adjudicating authority to recompute tax and interest for the normal period giving effect to these conclusions; companion appeal ST/828/2010 to be listed for hearing.

Alternative remedy of appeal under the Central Excise Act - binding effect of High Court's earlier decision on subordinate authorities - supervisory jurisdiction under Article 227 of the Constitution - quasi-judicial discipline of appellate authorities - pre-deposit requirement for entertaining appeals

Alternative remedy of appeal under the Central Excise Act - binding effect of High Court's earlier decision on subordinate authorities - quasi-judicial discipline of appellate authorities - Whether the Commissioner was justified in dismissing the appeal as non-maintainable despite the High Court's prior direction that an appeal lies, and what relief should follow. - HELD THAT: - The Division Bench of this Court had earlier held that an efficacious alternative remedy of appeal exists under the Central Excise Act and by implication that the petitioner should pursue that remedy. The petitioner accordingly filed an appeal under the statutory provision before the Commissioner, who declined to entertain it on the ground that no appeal lies against notices issued under Section 11 of the Central Excise Act. The High Court found that the Commissioner, being a subordinate authority within the supervisory scope of the Court, ought not to have taken a view contrary to the Court's clear ruling and that the Commissioner merely accepted the departmental opinion instead of independently proceeding to hear the appeal on merits. In these circumstances the appellate authority's action amounted to a breach of its quasi-judicial duty to hear the appeal, particularly after the Court had directed registration and disposal of the application for resubmission. The Court therefore set aside the impugned order and restored the appeal for hearing on merits, subject only to compliance with any statutory pre-deposit requirement as applicable, and directed expeditious disposal within a specified period. All points were kept open for decision on merits by the Commissioner. [Paras 6, 9, 10, 11]

Impugned order dismissing the appeal as non-maintainable is set aside; the appeal is restored for fresh hearing on merits and to be disposed of within two months, with the pre-deposit requirement to be complied with if law requires.

Final Conclusion: Writ petition allowed; the Commissioner's order dismissing the appeal is set aside and the appeal is restored for adjudication on merits within two months, subject to any applicable pre-deposit requirement; no order as to costs.

Exemption under concessional notification - retail sale price - classification of supply as sale - pre deposit requirement on appeal - suspension of recovery on deposit

Exemption under concessional notification - retail sale price - classification of supply as sale - Whether benefit of Notification No. 4/2006 CE (entry S.No.1A) is available for cement supplied free of cost within factory premises. - HELD THAT: - The Tribunal examined S.No.1A of the table to Notification No.4/2006 CE and noted that the phrase 'retail sale price' denotes the maximum price at which excisable goods in packaged form may be sold to the ultimate consumer. The concession in S.No.1A is framed with reference to retail sale price thresholds and, on a prima facie reading, applies to sales. In the present case the cement was supplied free of cost for construction within the factory premises and there was no sale. Consequently the applicant failed to make out a prima facie case for entitlement to the concessional exemption under the notification.

Prima facie entitlement to the concessional exemption under S.No.1A of Notification No.4/2006 CE is not established for free supplies made within factory premises because there is no sale.

Pre deposit requirement on appeal - suspension of recovery on deposit - Interim relief in the appeal by way of pre deposit and stay of recovery. - HELD THAT: - Having found that the applicant had not made out a prima facie case for exemption, the Tribunal directed a conditional pre deposit as a prerequisite for continuation of the appeal. The applicant was directed to deposit Rs.5,00,000 within eight weeks. Upon such deposit, the pre deposit of the balance amount of duty along with interest was waived and recovery of the balance stayed until disposal of the appeal. A compliance date for reporting the deposit was fixed.

Applicant to pre deposit Rs.5,00,000 within eight weeks; on deposit, pre deposit of the balance and its recovery stayed until final disposal of the appeal; compliance to be reported on the date fixed.

Final Conclusion: The Tribunal held that the concessional exemption under S.No.1A of Notification No.4/2006 CE is not prima facie available for cement supplied free of cost (no sale), directed a conditional pre deposit of Rs.5,00,000 within eight weeks, and ordered waiver of pre deposit of the balance and stay of its recovery upon such deposit until the appeal is finally decided.

Cenvat credit admissibility - invoice serial numbering - Rule 9(2) of the Cenvat Credit Rules, 2004 - acceptance of handwritten invoice numbers - requirement of particulars in documents for CENVAT - precedent on invoice numbering

Cenvat credit admissibility - invoice serial numbering - Rule 9(2) of the Cenvat Credit Rules, 2004 - acceptance of handwritten invoice numbers - requirement of particulars in documents for CENVAT - CENVAT credit taken on invoices bearing handwritten serial numbers is allowable. - HELD THAT: - The show-cause notice challenged CENVAT credit solely because supplier invoices did not bear pre-printed serial numbers but had serial numbers handwritten. Rule 9(2) of the Cenvat Credit Rules, 2004 requires prescribed particulars to be contained in the document but permits allowance of credit where the document, though not containing all particulars, records essential details and the adjudicating authority is satisfied that goods/services have been received and accounted for. The Tribunal applied this provision and followed the coordinate Bench ruling which held that the Rule requires invoices to be serially numbered but does not mandate pre-printed numbers; handwritten sequential numbering satisfies the requirement. As no other discrepancy affecting receipt or accounting of goods was shown, the Tribunal held the credit admissible.

Appeal allowed; CENVAT credit upheld and consequential relief granted.

Final Conclusion: The Tribunal allowed the appeal, holding that invoices with handwritten serial numbers satisfy the requirements of Rule 9(2) and that the CENVAT credit claimed for the period April, 2007 to March, 2010 is admissible; consequential relief to follow in accordance with law.

Stay of operation of appellate order by Revenue - maintainability of stay application by Revenue - Section 35F - deposit requirement pending appeal - absence of provision in Chapter VIA for Revenue to seek stay - scope of appellate powers under Chapter VIA

Stay of operation of appellate order by Revenue - maintainability of stay application by Revenue - absence of provision in Chapter VIA for Revenue to seek stay - Whether the Revenue can file an application before the Appellate Tribunal seeking stay of operation of an order passed by the Commissioner (Appeals). - HELD THAT: - The Tribunal held that Chapter VIA of the Central Excise Act (Sections 35 to 35Q) governs appeals and the statutory mechanism for deposit pending appeal is contained in Section 35F, which applies to a person against whom duty has been demanded or penalty imposed. In the absence of confirmation of a duty demand or imposition of penalty in the adjudication order, Section 35F does not permit an application by the Revenue seeking stay. The chapter contains no provision enabling the department to file a stand-alone stay application of the kind presented. Further, the Revenue's application was filed under Section 35, which concerns filing of appeals before the Commissioner (Appeals) and does not provide for seeking stay before the Appellate Tribunal. For these reasons the Tribunal found the stay application to have no legal sanction and to be not maintainable. [Paras 3, 4, 5, 6]

The stay application filed by the Revenue is not maintainable and is dismissed.

Final Conclusion: The Appellate Tribunal dismissed the Revenue's application for stay of the Commissioner (Appeals)' order, holding that Chapter VIA contains no provision enabling the department to seek such a stay and that Section 35F's deposit mechanism applies only to persons against whom duty or penalty has been confirmed.

Condonation of delay for filing appeal on bona fide belief - reduction of penalty to 25% where duty, interest and 25% penalty are paid within 30 days - waiver of pre-deposit of remaining penalty - penalty under Section 11AC(1)(a) of the Central Excise Act, 1944

Condonation of delay for filing appeal on bona fide belief - Whether the delay of 134 days in filing the appeal is liable to be condoned - HELD THAT: - The appellants had deposited the entire duty and interest and 25% of the penalty within 30 days of the adjudicating order and were under the bona fide impression that the matter stood finalised and no further payment would be required. The Revenue thereafter sought recovery of the remaining 75% of the penalty, and only then the appellants filed the appeal. The Tribunal accepted this explanation as a bonafide reason for inaction and held that condonation of the delay in filing the appeal is justified. [Paras 5]

Delay of 134 days in filing the appeal is condoned and the application for condonation of delay is allowed.

Waiver of pre-deposit of remaining penalty - Whether the condition of pre-deposit of the balance 75% penalty should be insisted upon for admission of the appeal - HELD THAT: - The Tribunal noted that the appellants had already deposited duty, interest and 25% of the penalty. In view of the condonation granted and the fact of such deposits, the Tribunal exercised its discretion to waive the requirement of pre-deposit of the remaining 75% penalty for admitting the appeal, while observing that there was no requirement to impose such penalty. [Paras 6]

Condition of pre-deposit of the 75% penalty is waived.

Reduction of penalty to 25% where duty, interest and 25% penalty are paid within 30 days - penalty under Section 11AC(1)(a) of the Central Excise Act, 1944 - Whether the appellant is liable to pay the remaining 75% of the penalty or the penalty is reduced to 25% - HELD THAT: - The Tribunal examined the statutory scheme embodied in the provision that where the duty determined and interest payable are paid and the 25% penalty is deposited within 30 days of communication of the adjudicating order, the penalty liability is reduced to 25% of the duty determined. As the appellants had made the required payments within the 30-day period, the Tribunal held that the statutory condition for reduction was satisfied and that the appellants were not liable to pay the remaining 75% of the penalty. [Paras 7]

The penalty is reduced to 25% and the appellants are not required to pay the remaining 75% of the penalty.

Final Conclusion: The Tribunal condoned the delay in filing the appeal, waived the requirement of pre-deposit of the remaining 75% penalty, and on merits held that since duty, interest and 25% penalty were deposited within 30 days, the statutory provision reduces the penalty to 25%, absolving the appellants from payment of the balance 75%.

Cenvat credit entitlement for manpower supply invoices - Interpretation of input service exclusion of outdoor catering from input service effective 1.4.2011 - Prima facie case test and requirement of pre-deposit

Cenvat credit entitlement for manpower supply invoices - Cenvat credit claimed on invoice of manpower recruitment/service provider - HELD THAT: - The Tribunal examined the invoice and found that it contained details evidencing deployment days and charges relating to ESI, PF and other components attendant to supply of manpower. Although the specific words 'manpower supply' were not expressly mentioned, the Tribunal held that a closer reading of the invoice makes it clear that the service relates to manpower supply and therefore the omission of the literal phrase cannot defeat the assessee's right to avail credit. The Tribunal accepted the appellant's submission and concluded that the invoice shows the service to be one for supply of manpower for credit eligibility. [Paras 3]

Credit on the manpower recruitment/service provider invoice allowed.

Interpretation of input service exclusion of outdoor catering from input service effective 1.4.2011 - Prima facie case test and requirement of pre-deposit - Availment of Cenvat credit on outdoor catering service for the period 1.4.2011 to December 2011 - HELD THAT: - The Tribunal noted that the statutory definition of input service was amended effective 1.4.2011 to exclude certain services, including outdoor catering, when used primarily for personal use or consumption of employees. The Revenue contended that the exclusion applied and that extended period was rightly invoked because the appellant had not disclosed availment of credit earlier. The appellant did not file written submissions despite opportunity. On the material before it the Tribunal found a prima facie case in favour of the Revenue and, rather than finally adjudicating the substantive claim, directed a pre-deposit for entertaining the appeal. The Tribunal thereby treated the issue as one requiring further adjudication on merits but sufficiently strong for conditional admission subject to deposit. [Paras 4, 6, 7, 8, 9]

Prima facie case upheld for Revenue; appellant directed to make pre-deposit of the contested amount for outdoor catering to proceed with the appeal, with specified conditional waiver arrangements.

Final Conclusion: The Tribunal allowed credit on the manpower-supply related invoice, while finding a prima facie case against credit for outdoor catering (post 1.4.2011 amendment) and directed a pre-deposit to admit the appeal on that issue; conditional waiver of balance was ordered pending disposal.

Cenvat credit - excisable goods - application of Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules - emergence of bagasse as a waste product during sugarcane crushing - waiver of pre-deposit and stay of recovery pending appeal

Cenvat credit - excisable goods - application of Rule 6(3) and Rule 6(3A) of the Cenvat Credit Rules - emergence of bagasse as a waste product during sugarcane crushing - Whether Rule 6(3) / 6(3A) of the Cenvat Credit Rules applies to bagasse cleared by the appellant and cenvat credit is exigible on account of such clearances. - HELD THAT: - The Tribunal accepted the appellant's case that bagasse emerges as a waste product at the sugarcane crushing stage in the process of extracting juice for manufacture of sugar and molasses, and therefore cannot be treated as an excisable final product for purposes of applying Rule 6(3)/6(3A). The reasoning notes there is no realistic manner in which common inputs or input services used for manufacture of dutiable final products could have been separately applied to bagasse at the crushing stage, and that earlier tribunal and appellate decisions on identical facts supported the view that bagasse is not excisable and Rule 6(3) does not apply. Reliance placed on a decision concerning furnace oil was distinguished as dealing with different facts. On this basis the Tribunal found merit in the appellant's contention and set aside the impugned demand in respect of the same issue for the purposes of the stay application.

Bagasse is not an excisable product arising at the crushing stage and therefore Rule 6(3)/6(3A) does not apply for the purpose of the stay; the contention of the appellant succeeds for stay purposes.

Waiver of pre-deposit and stay of recovery pending appeal - Whether pre-deposit of duty, interest and penalty should be waived and recovery stayed pending disposal of the appeal. - HELD THAT: - On consideration of the facts, submissions and earlier tribunal precedents on the identical issue, the Tribunal exercised its discretion to stay recovery of the demanded duty, interest and penalty and to waive the requirement of pre-deposit until final disposal of the appeal. The order therefore suspends enforcement of the impugned demand during the pendency of the appeal.

Pre-deposit of duty, interest and penalty is waived and recovery is stayed until disposal of the appeal.

Final Conclusion: Both stay applications are allowed: the Tribunal held that bagasse, emerging as a waste product at sugarcane crushing, is not an excisable product for the limited purpose of these stay proceedings (and Rule 6(3)/6(3A) would not apply), and accordingly waived pre-deposit and stayed recovery of the demand, interest and penalty pending disposal of the appeal.

Abatement of equalised/averaged sales tax from transaction value - transaction value under Section 4 of the Central Excise Act - deduction on equalised basis

Abatement of equalised/averaged sales tax from transaction value - transaction value under Section 4 of the Central Excise Act - Appellants are entitled to claim abatement of equalized (averaged) sales tax from the transaction value for arriving at assessable value under Section 4 of the Central Excise Act. - HELD THAT: - The Tribunal accepted the appellants' claim for deduction of equalised sales tax from transaction value, following earlier decisions in the appellant's own cases and precedents of the Tribunal (including the cited orders A/1956/WZB/Mum/05/C-III/EB dt. 25.8.2005 and A/361 & 362/13/EB/C-II dt. 16.4.2013, and decisions such as Dabur India Ltd.). The Tribunal observed that deductions on account of additional sales tax and octroi-accepted in principle-may be allowed on an equalised basis, subject to segregation insofar as they relate exclusively to excisable goods cleared in the relevant year and after affording opportunity for verification. Applying these precedents, the Tribunal found no warrant to deny the equalised sales tax abatement claimed by the appellants and set aside the impugned orders. [Paras 3, 5]

Impugned orders set aside; appeals allowed and appellants entitled to the claimed abatement of equalised sales tax from transaction value; stay applications disposed of.

Final Conclusion: The Tribunal, applying its earlier precedents, allowed the appeals and held that equalised/averaged sales tax is deductible from transaction value for computing assessable value under Section 4 of the Central Excise Act, setting aside the impugned orders and granting consequential relief.

Waiver of pre-deposit - stay of recovery of duty, interest and penalty - supplies to Special Economic Zone treated as export and not as 'exempted goods' - liability on intermediate product where final product claimed exempt

Waiver of pre-deposit - stay of recovery of duty, interest and penalty - supplies to Special Economic Zone treated as export and not as 'exempted goods' - Pre-deposit requirement was waived and recovery of the demand stayed pending disposal of the appeal. - HELD THAT: - The Tribunal, following its earlier orders in the applicant's own case and decisions taking a prima facie view that supplies to a Special Economic Zone constitute 'export' and do not fall within the category of 'exempted goods', exercised its discretion to relieve the assessee from the requirement of pre-deposit. Applying that precedent to the present facts - where a demand was raised on an intermediate product for the period November 2007 to August 2008 on the ground that the final product was exempt - the Tribunal found it appropriate to waive the pre-deposit of duty, interest and penalty and to stay recovery until the appeal is finally disposed of. The order is interlocutory and based on the Tribunal's reliance on the cited prima facie view in earlier decisions rather than an adjudication on merits of the substantive demand. [Paras 4]

Pre-deposit of duty, interest and penalty waived and recovery stayed until disposal of the appeal.

Final Conclusion: Stay application allowed; pre-deposit requirement waived and recovery of the demand (duty, interest and penalty) stayed pending disposal of the appeal.

Prima facie finding - provision of CT-3 Certificate - exemption under Notification No.22/2003-CE - use of inputs in manufacture and domestic clearance on payment of duty - claim for Cenvat credit on clearances - interim relief by waiver of pre-deposit and stay of recovery

Prima facie finding - use of inputs in manufacture and domestic clearance on payment of duty - claim for Cenvat credit on clearances - Whether the records prima facie show that inputs were procured under CT-3 Certificate, used in manufacture and the finished goods were cleared on payment of duty, with the consequence that duty paid on clearances exceeds the demand. - HELD THAT: - The Tribunal recorded a prima facie conclusion from the materials on record that the assessee procured inputs without payment of duty under CT-3 Certificate and used them in manufacture of the final product which was subsequently cleared in domestic market on payment of duty. The Tribunal noted the assessee's contention that duty was paid on clearance of the finished goods after value addition and that, in any event, Cenvat credit could have been availed if duty had been paid on inputs. The Tribunal observed that the duty paid on clearance of the finished goods was more than the amount of demand confirmed by the adjudicating authority.

A prima facie finding was recorded that inputs were used and finished goods cleared on payment of duty and that duty paid on clearances exceeded the confirmed demand.

Interim relief by waiver of pre-deposit and stay of recovery - Whether interim relief in the form of waiver of pre-deposit and stay of recovery should be granted pending disposal of the appeal. - HELD THAT: - Having noted the prima facie position and that duty paid on clearance of finished goods exceeded the demand, the Tribunal exercised its discretion to grant interim relief. The Tribunal waived the requirement of pre-deposit of duty, interest and penalty and ordered stay of recovery of the demand until disposal of the appeal, thereby preserving the assessee's position during adjudication of the appeal on merits.

Pre-deposit of duty, interest and penalty waived and recovery stayed until disposal of the appeal.

Final Conclusion: The Tribunal recorded a prima facie finding that inputs obtained under CT-3 were used and finished goods were cleared on payment of duty (with duty paid on clearances exceeding the confirmed demand) and, on that basis, waived the pre-deposit and stayed recovery of the demand until the appeal is finally disposed of.

Availability and admissibility of CENVAT Credit on inputs - proof of maintenance and production of CENVAT records including RG-23A and input invoices - remand for fresh adjudication to verify seized/produced documents - waiver of pre-deposit of disputed duty and penalty for interim relief - penalty under Section 11AC of the Central Excise Act and penalty under Rule 26 of the Central Excise Rules

Waiver of pre-deposit of disputed duty and penalty for interim relief - Waiver of balance pre-deposit and disposal of appeals on deposit already made by the appellant. - HELD THAT: - The Tribunal noted that the appellant had deposited a portion of the demand (Rs. 20.00 Lakhs) and, with consent of both parties, treated that deposit as sufficient for interim purposes and waived the requirement of depositing the balance. On that basis the Tribunal proceeded to dispose of the appeals instead of requiring further pre-deposit before adverting to the merits. The order granting interim relief was a practical step to enable adjudication on merits while securing a portion of the claimed demand.

Deposit of Rs. 20.00 Lakhs treated as sufficient for interim relief and the requirement of further pre-deposit was waived; appeals taken up for final disposal.

Availability and admissibility of CENVAT Credit on inputs - proof of maintenance and production of CENVAT records including RG-23A and input invoices - remand for fresh adjudication to verify seized/produced documents - Admissibility of CENVAT Credit during the period in dispute remitted to the adjudicating authority for fresh consideration on production/verification of records. - HELD THAT: - The Tribunal found that the core controversy concerned whether the appellant had correctly availed and utilized CENVAT Credit on inputs received and used in manufacture from 18th August, 2008 to 31.03.2009. While prima facie RG-23A part I & II records appeared to have been maintained and some records were subsequently forwarded by DGCEI, the adjudicating authority had not had those documents before it when deciding the case. The Revenue did not object to remand. In view of this, the Tribunal set aside the impugned order and remitted the matter to the Commissioner for fresh adjudication, directing that the Commissioner consider the evidence produced before the Tribunal as well as any further evidence the appellant may produce and decide the admissibility of the claimed CENVAT Credit after scrutiny.

Impugned order set aside; matter remanded to the Commissioner for fresh decision on admissibility of CENVAT Credit after verification of the seized/produced records.

Final Conclusion: Appeals allowed by setting aside the impugned order and remitting the question of admissibility of CENVAT Credit for the period 18th August, 2008 to 31.03.2009 to the Commissioner for fresh adjudication after consideration of the records; interim pre-deposit requirement waived in view of the deposit already made.

Transfer of business and liability under KGST Act - registration and continuing liability for earlier assessment years - settlement or transfer document not affecting statutory liability - revenue recovery proceedings - installment settlement of revenue dues

Registration and continuing liability for earlier assessment years - transfer of business and liability under KGST Act - settlement or transfer document not affecting statutory liability - Petitioner remains liable for the demands raised in respect of earlier assessment years despite subsequent transfer of the business to the daughter. - HELD THAT: - The Court found that the transfer of business to the 4th respondent in 1997 does not relieve the petitioner of liability for assessments and penalty completed for earlier years because the petitioner did not comply with the statutory formalities for transfer of registration prior to those assessment years. The purported settlement (Exhibit P1) in favour of the 4th respondent was held to be of no consequence for extinguishing liability under the KGST Act. Consequently the challenge to the revenue recovery notices relating to the earlier assessments and penalty fails and the writ petition is dismissed on this ground. [Paras 5]

Petition dismissed insofar as it seeks to avoid liability for the specified earlier assessment years and penalty; transfer to the daughter and Exhibit P1 do not discharge the petitioner's liability.

Revenue recovery proceedings - installment settlement of revenue dues - Court granted limited relief to permit settlement of the dues by instalments on application by the petitioner. - HELD THAT: - Considering the petitioner's plea of impecuniosity, the Court directed that if the petitioner applies to the revenue recovery authorities within one month, the authorities shall issue a statement of account as on the date of application and permit settlement of the dues in ten equal monthly instalments. The Court further directed that on satisfaction of those instalments any further claim of interest shall be raised for the period commencing from the date of the order and be satisfied in the succeeding month. [Paras 6]

Revenue authorities to provide statement of account and permit ten equal monthly instalments upon petitioner's timely application; interest thereafter to be claimed and satisfied as directed.

Transfer of business and liability under KGST Act - Petitioner's contentions against the 4th respondent (the daughter) were not adjudicated and are left open for determination. - HELD THAT: - Although the 4th respondent admitted the business was released in her favour in 1997, the Court did not decide the question of liability between the petitioner and the 4th respondent for the earlier assessment years. The Court explicitly left the petitioner's contentions against the 4th respondent open for separate adjudication. [Paras 5]

Contentions against the 4th respondent remain undetermined and are left open for appropriate proceedings.

Final Conclusion: Writ petition dismissed insofar as it seeks to avoid liability for demands relating to assessment years 1987-88 and 1994-95 and the penalty for 1993-94; petitioner may seek a statement of account and repayment by ten equal monthly instalments if he applies within one month, and claims against the 4th respondent are left open.

Principles of natural justice - non-consideration of objections - rehearing and fresh adjudication - electronic service and receipt of communications

Principles of natural justice - non-consideration of objections - Final assessment order (Exhibit P4) was set aside on the ground that the petitioner's objections were not considered, amounting to a violation of natural justice. - HELD THAT: - The Court found that although an assessment notice under Section 24(1) was issued and the petitioner sought and was granted time to file a reply, the Assessing Officer passed Exhibit P4 without reference to or consideration of the objections submitted by the petitioner. The Court observed that start-up problems with e-mail transmission and the Assessing Officer's non-receipt of the reply may explain the circumstance and do not necessarily attract personal blame to the Assessing Officer. Nevertheless, the absence of any consideration of the petitioner's objections rendered the order procedurally infirm. In view of the failure to consider objections, the order was set aside to secure compliance with the principles of fair hearing. [Paras 4]

Exhibit P4 is set aside because the petitioner's objections were not considered, resulting in a breach of the principles of natural justice.

Rehearing and fresh adjudication - electronic service and receipt of communications - The matter was remanded to the Assessing Officer for fresh consideration and hearing with specified procedural directions. - HELD THAT: - The Court directed that the petitioner shall produce a certified copy of the judgment together with the writ petition and the objections before the Assessing Officer within two weeks. The petitioner was directed to be present before the Assessing Officer on the specified date, and the Assessing Officer was directed to hear the matter on that date or an adjourned date and to dispose of the matter within two months from that hearing. The remand was ordered to afford the petitioner an opportunity of hearing and for the Assessing Officer to consider the objections on merits; the Court framed these directions despite noting possible e-mail transmission issues to ensure effective adjudication. [Paras 5]

Matter remanded to the Assessing Officer for fresh hearing and disposal within two months, with directions for service of the judgment and production of objections by the petitioner.

Final Conclusion: Writ petition allowed: the assessment order Exhibit P4 was set aside for failure to consider the petitioner's objections and the matter was remanded to the Assessing Officer for fresh hearing and disposal within the timeframe directed; parties to bear their respective costs.