TaxTMI Updates e-Newsletter
Oct 12,2022

Recording of statements under Section 70 of the Central Goods and Services Tax Act - right of an advocate to accompany a summoned person during recording - inspection panchanama and supply of copies - duty of directors and employees to cooperate with tax authorities - power to summon appropriate officers including CFO - consideration of refund application in accordance with law

Recording of statements under Section 70 of the Central Goods and Services Tax Act - right of an advocate to accompany a summoned person during recording - Terms governing recording of statements summoned under the CGST Act and presence of legal counsel during such recording. - HELD THAT: - By consent order the Court directed that all statements recorded pursuant to summons to directors/employees of the petitioner shall be video recorded at the petitioner's cost. The Court permitted an advocate to accompany the person whose statement is being recorded under Section 70 of the CGST Act, but restricted the advocate from interfering, interrupting or disturbing the recording; the advocate may sit at a visible but not an audible distance. These directions were framed as consensual procedural safeguards without any comment on the merits. [Paras 1]

Statements shall be video recorded at petitioner's cost and an advocate may accompany the summoned person but must not audibly interfere with the recording.

Inspection panchanama and supply of copies - Provision of copies of panchanama issued during inspection proceedings under the CGST Act. - HELD THAT: - The Court ordered that copies of the panchanama pertaining to inspection proceedings under Section 67 of the CGST Act shall be provided to the petitioner within two weeks from the time the order is uploaded. This is an interlocutory direction to ensure the petitioner receives inspection records promptly for compliance and response. [Paras 1]

Copies of the inspection panchanama shall be furnished to the petitioner within two weeks of the order being uploaded.

Duty of directors and employees to cooperate with tax authorities - power to summon appropriate officers including CFO - Obligation of specified directors to attend and cooperate with summons and the authority to summon other officers including the CFO. - HELD THAT: - The Court noted that the managing director, having signed and verified the petition on oath, was aware of the facts and therefore could not be exempted from appearance; he was directed to attend when summoned and to fully cooperate. The Court further recorded that if authorities consider the presence of the CFO or any other person necessary, they may issue appropriate summons at the appropriate time. The direction emphasises attendance and cooperation of all persons to whom summons are issued. [Paras 4, 5]

The managing director shall attend and cooperate when summoned; authorities may summon the CFO or others as necessary.

Consideration of refund application in accordance with law - Petitioner's remedy in respect of refund and duty of authorities to consider the same. - HELD THAT: - The Court directed that the petitioner may apply for refund and that the authorities shall consider such application in accordance with law. This is a procedural direction leaving the substantive adjudication of the refund claim to the statutory process. [Paras 6]

Petitioner may file a refund application and authorities shall consider it in accordance with law.

Final Conclusion: By consent order the Court directed video-recording of statements at the petitioner's cost, limited the role of accompanying advocates during recordings, ordered supply of inspection panchanama copies within two weeks, required the managing director to attend and cooperate with summons while permitting authorities to summon the CFO or others as necessary, and directed that any refund application by the petitioner be considered in accordance with law; the petition was disposed of with no costs and without express comment on merits.

Limitation - computation of limitation period during COVID-19 - exclusion of period for limitation - refund under Section 54/55 of the Central Goods and Services Tax Act, 2017 - remand for fresh adjudication

Limitation - exclusion of period for limitation - refund under Section 54/55 of the Central Goods and Services Tax Act, 2017 - Whether the order dismissing the petitioner's refund application as barred by limitation must be set aside in view of the CBIC notification excluding the period 01.03.2020 to 28.02.2022 for computation of limitation, and whether the matter should be remitted for fresh consideration. - HELD THAT: - The Special Commissioner had dismissed the petitioner's refund application solely on the ground of limitation. A CBIC notification dated 05.07.2022 excludes the period from 01.03.2020 to 28.02.2022 for computation of limitation for filing refund applications under Sections 54 and 55 of the Act. In light of that notification, the basis for the impugned order (limitation) no longer stands, and respondent no.4 accepted that the impugned order must be set aside. Consequently, the appropriate course is to set aside the impugned order and remit the refund application to the authority for re-examination and passing of a fresh order applying the exclusion mandated by the CBIC notification. [Paras 2, 3, 4, 5, 6]

Impugned order set aside; matter remitted to the authority to re-examine the refund application and pass a fresh order applying the CBIC notification excluding 01.03.2020-28.02.2022 for computation of limitation.

Final Conclusion: The writ petition is allowed to the extent that the order dismissing the refund application on the ground of limitation is set aside and the matter is remitted to the concerned authority for re-consideration in accordance with the CBIC notification; the petition is disposed of accordingly.

Benefit of Input Tax Credit - Passing on of ITC under Section 171(1) of the CGST Act, 2017 - Commensurate reduction in prices - Computation of profiteering and refund with interest - Availability versus utilization of blocked ITC - Scope of investigation by the DGAP under Rule 133 of the CGST Rules, 2017 - Non-retrospective application of penalty for period prior to 01.01.2020

Benefit of Input Tax Credit - Commensurate reduction in prices - Computation of profiteering and refund with interest - Post-GST additional ITC available to the Respondent (1.74% of turnover) was required to be passed on and resulted in profiteering of Rs. 24,78,383/- for the period 01.07.2017 to 31.03.2019. - HELD THAT: - The Authority accepted the DGAP's comparison of pre-GST and post-GST ratios of credit to turnover (0.84% pre-GST; 2.58% post-GST), yielding an increase of 1.74% attributable to the Respondent for project 'U-FARIA'. Applying this increase to the reported base prices and recomputing cum-tax prices produced an excess collection (profiteering) of Rs. 24,78,383/-. The Authority found no error in the DGAP's methodology or computation and determined that the additional ITC benefit should have been passed on to the recipients; accordingly the entire profiteered amount is to be refunded with interest @18% as per Rule 133(3)(b). [Paras 7, 9]

Profiteering of Rs. 24,78,383/- (inclusive of 12% GST) established; Respondent directed to refund/pass on this amount to eligible buyers along with interest @18%.

Availability versus utilization of blocked ITC - Benefit of Input Tax Credit - ITC provisionally blocked by SGST on 28.03.2019 (for three days within investigation period) could be treated as effectively available and therefore was rightly taken into account in computing profiteering. - HELD THAT: - The DGAP established that the credit in question was blocked provisionally on 28.03.2019 and subsequently unblocked on 08.10.2020. The Authority accepted the DGAP's position that the blockage was temporary and that the credit was, for practical purposes, available during the investigation period; therefore exclusion of the blocked amount from the profiteering computation was not justified. The Authority also noted that ITC may be passed on by various means (credit notes, lowering instalments, etc.) and that the Respondent did not demonstrate that the blocked status prevented him from passing on the benefit. [Paras 3, 8]

The ITC amount blocked on 28.03.2019 was validly included in the profiteering computation.

Passing on of ITC under Section 171(1) of the CGST Act, 2017 - Verification of passing on to recipients - The Applicant (Applicant No.1) received profiteered amount of Rs. 37,107/-; the Respondent's claim of passing on Rs. 9,61,130/- to 90 buyers could not be fully verified by DGAP and therefore could not be accepted for all buyers. - HELD THAT: - DGAP reviewed credit notes submitted by the Respondent and sought confirmations from a sample of buyers. Applicant No.1 confirmed receipt of Rs. 37,107/- (as per DGAP Annexure). Among 55 randomly contacted buyers, only nine responded: five confirmed receipt (totaling Rs. 26,515/-) and four denied receipt. Given the mixed and insufficient confirmations, DGAP could not verify the Respondent's broader claim of passing on ITC to all buyers. Consequently the unverified portion was included in the total profiteering figure. [Paras 3, 5]

Applicant No.1's receipt of Rs. 37,107/- is recognised; other claimed pass-throughs not verified and thus not accepted for purposes of reducing the profiteering liability.

Scope of investigation by the DGAP under Rule 133 of the CGST Rules, 2017 - Passing on of ITC under Section 171(1) of the CGST Act, 2017 - DGAP was entitled to examine supplies to all recipients (not limited to the applicant) since Section 171(1) mandates that any benefit of ITC on any supply must be passed on to the recipient. - HELD THAT: - The Authority observed that Section 171(1) uses the expression 'any supply', which extends the duty to pass on benefits to all supplies where additional ITC or reduction in tax rate has occurred. Accordingly, the DGAP was within jurisdiction to compute profiteering across the Respondent's supplies covered by the investigation rather than restricting inquiry to the applicant alone. [Paras 8]

DGAP's examination of all relevant supplies/customers was justified and within mandate.

Investigation of other projects under same GSTIN - Monitoring and future passing on of ITC until issuance of Completion Certificate - Non-retrospective application of penalty for period prior to 01.01.2020 - DGAP directed to investigate other projects under the same GSTIN; Respondent directed to pass on ITC benefit that accrues until issue of Completion Certificate; penalty for contravention under Section 171(3A) not imposed for the investigation period (pre-01.01.2020). - HELD THAT: - Given the finding of profiteering in the instant project, the Authority reasoned there was a likelihood of similar contraventions in other projects under the same GST registration and therefore directed further investigations under Rule 133(5). The Authority also directed the jurisdictional Commissioner to ensure that any future ITC benefit accruing up to the date of issuance of Completion Certificate is passed on in accordance with the methodology adopted and to report compliance. As Section 171(3A) became effective from 01.01.2020, penalty for the period 01.07.2017 to 31.03.2019 cannot be imposed retrospectively. [Paras 14, 18, 19]

DGAP to investigate other projects under same GSTIN; jurisdictional Commissioner to monitor and ensure passing on of future ITC benefits; penalty not imposed for the investigation period.

Final Conclusion: The Authority accepted the DGAP's methodology and found that the Respondent profiteered by Rs. 24,78,383/- (inclusive of GST) during 01.07.2017 to 31.03.2019 by failing to pass on the additional ITC benefit; the Respondent is directed to refund/pass on the amount to eligible shop buyers with interest @18%, comply with publication and reporting directions, and the DGAP is directed to investigate other projects under the same GSTIN while penalties for the investigation period are not imposed retrospectively.

Anti profiteering under Section 171(1) of the CGST Act, 2017 - passing on benefit of input tax credit (ITC) by commensurate reduction in price - computation of profiteered amount by comparison of pre GST and post GST ITC/turnover ratios - refund/return of profiteered amount with interest under Rule 133(3)(b) of the CGST Rules, 2017 - imposition of penalty for denial of ITC benefit with effect from 01.01.2020 under Section 171(3A) of the CGST Act, 2017 - referral of incorrect GST rate charging to jurisdictional tax authorities - investigation of other projects under same GSTIN pursuant to Rule 133(5)

Anti profiteering under Section 171(1) of the CGST Act, 2017 - passing on benefit of input tax credit (ITC) by commensurate reduction in price - Whether the Respondent violated Section 171(1) by not passing on benefit of additional ITC to recipients in the Project at Kamayani Nagar for the investigation period - HELD THAT: - The Authority accepted the DGAP's finding that the Respondent had availed additional ITC in the post GST period which was not available in the pre GST period. The DGAP's analysis compared ITC/turnover ratios for the pre GST (April 2016-June 2017) and post GST (July 2017-November 2020) periods and found an increase from 0% to 5.92% for the units under investigation. The Authority examined the Respondent's contentions (that the project commenced post GST, that ITC loss in pre GST arose from abatement, and reliance on a CAG study) and rejected them as incorrect or unsupported. Having found that base prices were fixed in the pre GST period and that additional ITC accrued post GST, the Authority held that the Respondent was obliged under Section 171(1) to pass on the ITC benefit by way of commensurate reduction in prices and therefore had violated Section 171(1). [Paras 3, 9, 10, 12]

The Respondent contravened Section 171(1) by failing to pass on the benefit of additional ITC to the eligible recipients for the Project at Kamayani Nagar during 01.07.2017 to 30.11.2020.

Computation of profiteered amount by comparison of pre GST and post GST ITC/turnover ratios - refund/return of profiteered amount with interest under Rule 133(3)(b) of the CGST Rules, 2017 - Quantum of benefit of ITC to be passed on and the manner of relief to recipients - HELD THAT: - Relying on the DGAP's computations and methodology (ratio of ITC to turnover pre and post GST and recalibration of base price), the Authority concurred with the computed additional ITC benefit of 5.92% for the units under investigation. Applying that percentage to the relevant turnover, the DGAP computed the profiteered amount as Rs. 26,33,536 (inclusive of tax) for the Project for the period 01.07.2017 to 30.11.2020, which included Rs. 52,873 due to the Applicant No.1. The Authority found no reason to differ from the computation or methodology and ordered reduction of prices commensurate with the benefit, refund/return of the profiteered amount to the eligible recipients and directed payment of interest thereon at 18% from the date the amount was profiteered until payment, in terms of Rule 133(3)(b). The Authority directed refund/passing on within three months and directed jurisdictional Commissioners to ensure compliance and report. [Paras 17, 19, 20, 26, 28]

The profiteered amount for the Project for 01.07.2017 to 30.11.2020 is determined as Rs. 26,33,536; the Respondent is directed to pass/return this amount to the eligible recipients with interest @18% from the date of profiteering, within three months, failing which recovery under the CGST Act will follow.

Imposition of penalty for denial of ITC benefit with effect from 01.01.2020 under Section 171(3A) of the CGST Act, 2017 - Liability for penalty for offences under Section 171(3A) for conduct occurring after 01.01.2020 - HELD THAT: - The Authority noted that Section 171(3A) (inserted w.e.f. 01.01.2020) creates a penal consequence for denial of ITC benefit. Because the investigation period extended beyond 01.01.2020, the Authority held that the Respondent is liable to be proceeded against for imposition of penalty under Section 171(3A) for the profiteered amount attributable to the period from 01.01.2020 onwards and directed that notice be issued to the Respondent for that purpose. [Paras 18]

Notice to be issued to the Respondent for imposition of penalty under Section 171(3A) in respect of profiteering attributable to the period from 01.01.2020 onwards.

Referral of incorrect GST rate charging to jurisdictional tax authorities - Action on allegation that wrong GST rate was charged to EWS home buyers - HELD THAT: - The Authority accepted the DGAP's finding that the Respondent charged GST at 12% to EWS home buyers whereas the applicable effective rate for EWS houses was 8% (i.e. 12% reduced to 8% by 1/3rd abatement). The Authority held that the grievance of incorrect rate charging does not fall within Section 171 and is outside the anti profiteering remit; it therefore referred the matter to the concerned jurisdictional CGST/SGST Commissioner and to the Commissioner of Commercial Taxes, Indore, Madhya Pradesh for appropriate action and possible refund under the statutory provisions governing tax rates and refunds. [Paras 21, 30]

The matter of incorrect GST rate levied on EWS houses is referred to the jurisdictional tax authorities for suitable action; it is not dealt with under Section 171.

Investigation of other projects under same GSTIN pursuant to Rule 133(5) - Whether the DGAP should investigate other projects of the Respondent under the same GST registration - HELD THAT: - On the material before it and having determined profiteering in the subject project, the Authority observed that there is a reasonable likelihood of similar non compliance in the Respondent's other projects under the same GSTIN. In exercise of powers under Rule 133(5), the Authority directed the DGAP to investigate all other projects of the Respondent under the same GST registration which have not been investigated, and to submit complete investigation reports for those projects. [Paras 22]

DGAP is directed to investigate all other projects under the same GST registration and submit complete reports under Rule 133(5).

Final Conclusion: The Authority accepted the DGAP's computation and methodology and held that M/s Madhya Pradesh Housing and Infrastructure Development Board contravened Section 171(1) by not passing on the additional ITC benefit to home buyers of the Kamayani Nagar project for 01.07.2017 to 30.11.2020; the profiteered amount is determined as Rs. 26,33,536 to be returned/passed to eligible recipients with interest @18% (to be paid within three months or recovered), notice for penalty under Section 171(3A) is to be issued for the period from 01.01.2020, the incorrect GST rate issue is referred to jurisdictional tax authorities, and the DGAP is directed to investigate other projects under the same GSTIN.

Profiteering - benefit of input tax credit - commensurate reduction in price - investigation under Rule 133(5) - Section 171 of the CGST Act, 2017 - DGAP report

Investigation under Rule 133(5) - profiteering - DGAP report - Section 171 of the CGST Act, 2017 - Whether further investigation into other projects under GSTIN 27AAECK9069N1ZQ was required after the Authority's earlier determination of profiteering in the project 'Ruparel Orion'. - HELD THAT: - The Authority considered the DGAP's report submitted under Rule 133(5) which recorded that the current investigation covered the period 01.07.2017 to 31.07.2022 and that the respondent had replied asserting development of only one project, 'Ruparel Orion'. The DGAP verified the respondent's claim against the MHRERA register and, for further confirmation, communicated with the jurisdictional Commissioner. The DGAP noted that 'Ruparel Orion' had already been the subject of an earlier DGAP report dated 28.10.2020 and that the Authority had, by Order No.57/2022 dated 05.08.2022, determined profiteering in respect of that project. On this basis the DGAP concluded that there were no other projects under the same GST registration requiring fresh analysis under Section 171. The Authority examined the DGAP report and the case records and accepted the finding that the respondent had developed only the single project which had already been investigated and adjudicated for profiteering; consequently, no further investigation or re-analysis of that project was necessary. [Paras 3]

Accepted the DGAP's finding that only the single project 'Ruparel Orion' exists under the GSTIN and that it has already been investigated and adjudicated for profiteering; no further investigation into other projects is required.

Final Conclusion: The Authority accepted the DGAP's report that the respondent had only one project already investigated for profiteering (Ruparel Orion) and required no further probe; a copy of the order is to be supplied to the respondent and the DGAP and the file is to be consigned after completion.

Benefit of input tax credit - commensurate reduction in price - profiteering under Section 171 of the CGST Act, 2017 - methodology of comparing pre-GST and post-GST ITC-to-turnover ratios - liability to pass on additional ITC with interest - penalty under Section 171(3A) of the CGST Act, 2017

Benefit of input tax credit - methodology of comparing pre-GST and post-GST ITC-to-turnover ratios - Whether the respondent derived an additional benefit of input tax credit on supply of construction services after implementation of GST and, if so, the quantum of such benefit. - HELD THAT: - The Authority accepted the DGAP's approach of computing the ratio of CENVAT/ITC to turnover in the pre-GST period (April, 2016 to June, 2017) and comparing it with the ratio of ITC to turnover in the post-GST period (01.07.2017 to 31.05.2020). The ratios were computed from the respondent's verifiable statutory records (Service Tax, VAT and GST returns) and the DGAP's derivation of increased ITC percentage (7.19% post-GST less 0.63% pre-GST = 6.56%) was upheld as the correct measure of additional ITC benefit. Applying this percentage to the amounts realised during the investigation period, the Authority determined that the respondent realised an additional amount by way of ITC benefit which he was required to pass on to the recipients. The DGAP's computed profiteered amount as reproduced and adopted by the Authority was used for adjudication. [Paras 16, 17, 18, 35, 38]

The respondent obtained an additional ITC benefit post-GST and the Authority accepted the DGAP's computation of the quantum of benefit as the basis for determining profiteering.

Commensurate reduction in price - liability to pass on additional ITC with interest - penalty under Section 171(3A) of the CGST Act, 2017 - Whether the respondent failed to pass on the additional ITC benefit to recipients, and the consequent reliefs, directions and penal consequences. - HELD THAT: - Applying Section 171(1) of the CGST Act, 2017, the Authority found that the respondent had contravened the obligation to pass on the benefit of additional ITC by way of commensurate reduction in prices during the investigation period. On the basis of the DGAP's calculations (adopted by the Authority) the additional amount realised by the respondent during 01.07.2017 to 31.05.2020 was determined and identified to the eligible identifiable buyers. The Authority directed the respondent to pass on the determined profiteered amount to the eligible buyers along with interest at 18% per annum from the dates the amounts were collected till refund, to be done within three months; directed issuance of notice for penalty under Section 171(3A) insofar as liability arises from 01.01.2020 onwards; and directed monitoring by jurisdictional tax authorities, publication of an advertisement and further investigation into other projects of the respondent as permitted under Rule 133(5)(a). The Authority rejected contentions challenging the DGAP's methodology and reliance on buyer denials as creating an inconclusive factual matrix only to the extent noted, but proceeded to rely on verifiable records and confirmations in reaching its orders. [Paras 40, 41, 42, 43, 46]

The respondent failed to pass on the additional ITC benefit; the Authority ordered passing/return of the determined amount to eligible buyers with interest, initiated penalty proceedings under Section 171(3A) for the period from 01.01.2020, and directed administrative steps for compliance and further investigation.

Final Conclusion: The Authority accepted the DGAP's computation and methodology and held that M/s ATS Township Pvt. Ltd. had realised additional benefit of input tax credit after introduction of GST for the period 01.07.2017 to 31.05.2020 which was not passed on to recipients in contravention of Section 171(1) of the CGST Act, 2017; it directed refund/passing of the determined profiteered amount to identifiable buyers with interest at 18% within three months, ordered initiation of penalty proceedings under Section 171(3A) (from 01.01.2020), and directed monitoring, publicity and further investigation into other projects of the respondent.

Reopening of assessment u/s 147 - Necessity to issue reasons of notice u/s 147 - Non speaking and cryptic order - return of income under protest - HELD THAT:- The impugned order [2022 (1) TMI 1280 - BOMBAY HIGH COURT] it has been rightly contended, is a non-speaking and cryptic order. However, we are not inclined to issue notice in the present special leave petition and leave it open to the petitioner to file return of income under protest within one month, without prejudice to the rights and contentions, and ask for the reasons for issue of notice under Section 147 of the Income Tax Act, 1961. The procedure as prescribed in “GKM Driveshafts (India) Ltd. [2002 (11) TMI 7 - SUPREME COURT] would be followed by the assessing officer. In case of an adverse order, it will be open to the petitioner to challenge the same. Special leave petition is dismissed.

Assessability of cash credits as unexplained income - Re-opening of assessment and inter-connected assessments - Principles of natural justice - Powers of appellate authority co-terminus with assessing authority - Consolidation of appeals for common determination

Assessability of cash credits as unexplained income - Re-opening of assessment and inter-connected assessments - Validity of the impugned assessment insofar as a sum of Rs.10 lakhs claimed as a loan and arising from cash credits in R. Srinivasan's accounts - HELD THAT: - The assessment in the petitioners' hands is factually and legally linked to the assessment completed (and appealed) in the hands of R. Srinivasan because the claimed loan to the petitioner is traceable to cash credits in Srinivasan's bank accounts, and the company of which the petitioner is a director faced identical additions for an earlier year which are the subject of pending statutory appeals. Given the commonality of issues and the appellate authority's capacity to call for relevant documents and verify facts, the High Court declined to interfere with the impugned assessment on merits and deemed it appropriate that the controversies be resolved by the appellate authority which has co-terminus powers with the assessing authority. [Paras 5, 6, 7, 8, 11]

Impugned assessment upheld and left open for determination on appeal by the appellate authority; liberty granted to file appeal within two weeks.

Principles of natural justice - Powers of appellate authority co-terminus with assessing authority - Whether the impugned assessment should be set aside for alleged violation of principles of natural justice due to inadequate time to reply - HELD THAT: - Although the petitioner pointed out that the notice called for a reply within two days and that a request for documents and more time was ignored, the Court held that such procedural deficiency was not fatal in the circumstances. Taking a holistic view-including the existence of parallel and connected appeals where fuller opportunity can be afforded by the appellate forum-the Court refused to annul the assessment solely on that ground and observed that the appellate authority may supply the requisite details and afford full opportunity in appeal. [Paras 9, 10, 11]

Violation of natural justice not found to be a ground for setting aside the assessment in the present circumstances; petitioner permitted to seek remedy in appeal.

Consolidation of appeals for common determination - Powers of appellate authority co-terminus with assessing authority - Procedural direction as to disposal of appeals arising from the connected assessments - HELD THAT: - To ensure uniform and efficient resolution of the common questions regarding genuineness of the alleged loans and the underlying cash credits, the Court directed that all statutory appeals filed by the company, by R. Srinivasan, and those which the petitioners are granted liberty to file, be consolidated and heard together by the appellate authority. [Paras 11, 12]

All relevant appeals to be consolidated and taken up for hearing together.

Final Conclusion: Writ petitions dismissed; impugned assessment orders upheld subject to the petitioners' liberty to file statutory appeal within two weeks; all connected appeals to be consolidated and heard together.

Internal TNMM - external TNMM - preference for internal comparables over external comparables - arm's length price - transfer pricing adjustment - reference to Transfer Pricing Officer for computation of ALP - Dispute Resolution Panel directions - Associated Enterprises / international transactions

Internal TNMM - external TNMM - preference for internal comparables over external comparables - Rejection of the assessee's internal TNMM for benchmarking ITeS and adoption of external TNMM by tax authorities. - HELD THAT: - The Tribunal examined whether internal TNMM was rightly rejected by the authorities. It followed the Coordinate Bench decision in ITA No.6577/Del./2016 (Majorel India Pvt. Ltd.) which held that where the fundamental functions performed across segments fall within the ITeS industry and the segmental financial data is reliable, internal comparables are preferable to external comparables. The Tribunal noted that the authorities below did not demonstrate how services to AEs and non-AEs were fundamentally different nor did they identify discrepancies in the segmental allocation keys furnished by the assessee. Relying on the Coordinate Bench's application of the OECD guidance favouring internal comparables and the UN practical manual supporting TNMM, the Tribunal directed the TPO/AO to adopt internal TNMM for benchmarking the provision of ITeS services. [Paras 9]

Allowed the grounds challenging rejection of internal TNMM and directed adoption of internal TNMM for benchmarking ITeS.

Arm's length price - transfer pricing adjustment - Consequences for the application of external TNMM and RPT filter after adoption of internal TNMM. - HELD THAT: - Having accepted internal TNMM as the appropriate benchmarking method, the Tribunal found that grounds contesting the application of external TNMM and the computation of the related party transactions (RPT) filter had become infructuous. The Tribunal therefore did not undertake a fresh examination of the external TNMM comparability or RPT computations and dismissed those grounds accordingly. [Paras 12]

Grounds challenging external TNMM and RPT filter dismissed as infructuous in view of adoption of internal TNMM.

Final Conclusion: The appeal is partly allowed: the Tribunal directed adoption of internal TNMM for benchmarking the assessee's ITeS transactions (A.Y. 2013-14) and, consequentially, dismissed challenges to the external TNMM and RPT filter as infructuous; appeal otherwise stands disposed.

Presumptive taxation under section 44AD - piercing the deeming fiction of presumptive taxation - assessment under correct heads of income - remand for de novo assessment - treatment of unexplained receipts and unsecured loans under section 69A read with section 115BBE - allowance and set-off of losses from trading in derivatives against other business income

Presumptive taxation under section 44AD - piercing the deeming fiction of presumptive taxation - assessment under correct heads of income - treatment of unexplained receipts and unsecured loans under section 69A read with section 115BBE - allowance and set-off of losses from trading in derivatives against other business income - Whether the assessment for assessment year 2015-16 could be sustained where the Assessing Officer excluded certain receipts from presumptive taxation while failing to assess other receipts under their proper heads and thereby adopted a pick-and-choose approach. - HELD THAT: - The Tribunal found that the assessee had offered diverse receipts on presumptive basis under section 44AD, but the Assessing Officer selectively excluded some items (commission income and unsecured loans) and treated them as unexplained/unaccounted, while failing to assess other items (sale of property, trading losses from futures and options) under their respective heads. The Tribunal held that once the AO pierces the deeming fiction of section 44AD and examines specific sources, he must address all sources consistently and determine the true taxable income under the appropriate heads rather than pick and choose those items which increase tax liability. The Tribunal emphasised the duty of the revenue to assist in computing correct taxable income and not to penalise bona fide or ignorant mistakes by the assessee. For these reasons the Tribunal set aside the orders below and remitted the matter to the Assessing Officer for de novo assessment after considering the assessee's submissions and evidence, giving adequate opportunity, and without being influenced by the assessee's earlier erroneous self-declaration; the AO was directed to determine income under different heads, including consideration of derivative losses and proper taxation of sale of property or other receipts, in accordance with the Act. [Paras 7]

Order of CIT(A) is set aside and the matter is remanded to the Assessing Officer for de novo assessment for assessment year 2015-16 in accordance with the directions given.

Presumptive taxation under section 44AD - piercing the deeming fiction of presumptive taxation - assessment under correct heads of income - remand for de novo assessment - allowance and set-off of losses from trading in derivatives against other business income - Whether the assessment for assessment year 2016-17 should be sustained where similar selective treatment by the Assessing Officer resulted in exclusion of certain receipts from presumptive taxation while other relevant heads and losses were not addressed. - HELD THAT: - The facts and issues for 2016-17 were materially identical to those in 2015-16: the assessee had declared varied receipts on presumptive basis, the Assessing Officer excluded or added certain items as unexplained while not dealing with derivative trading losses and other receipts under their proper heads. Applying the reasoning adopted for 2015-16, the Tribunal directed that the assessment for 2016-17 be restored to the file of the Assessing Officer for fresh adjudication. The AO is to assess income under the relevant heads after considering the assessee's evidence (including proof of loans, affidavits, bank statements, and documents to substantiate trading losses), afford full opportunity of hearing, and determine the true taxable income without being influenced by the assessee's incorrect self-reporting under section 44AD. [Paras 9]

Matter remitted to the Assessing Officer for de novo assessment for assessment year 2016-17 in accordance with the Tribunal's directions.

Final Conclusion: Both appeals were treated as allowed for statistical purposes and remitted to the Assessing Officer for de novo assessment (one each for assessment years 2015-16 and 2016-17) with directions to determine the true taxable income under appropriate heads after considering the assessee's submissions and evidence and to afford adequate opportunity of hearing.

Characterisation of joint development agreement receipts as income from business or as long-term capital gains - adventure in the nature of trade - deduction under section 54 of the Income Tax Act for investment in residential house(s) out of capital gains - availability of section 54 for plural residential units

Characterisation of joint development agreement receipts as income from business or as long-term capital gains - adventure in the nature of trade - Whether the surplus arising from the Joint Development Agreement is assessable as income from business (adventure in the nature of trade) or as Long Term Capital Gain. - HELD THAT: - The Tribunal examined the agreements (agreement of sale, GPA, supplementary agreement and construction agreement) and the factual matrix, including that the assessee was an ancestral landowner who granted a restricted GPA (limited to 73.33% share) and neither had the knowledge, intention nor capability to carry on property development. The builder undertook all construction and marketing activities under the GPA, the assessee retained 26.67% of the land and received specified monetary consideration and four flats in lieu of sale. On these facts the Tribunal found the transaction to be a sale of the plot to the builder with the assessee receiving monetary consideration and flats in part consideration, and not an organised commercial venture by the assessee. Consequently the surplus was held to be capital in nature and to constitute Long Term Capital Gain; the Assessing Officer's characterisation of the transaction as an adventure in the nature of trade was reversed and the AO was directed to assess the transaction as LTCG. [Paras 11]

Transaction treated as Long Term Capital Gain and not income from business; AO directed to assess accordingly.

Deduction under section 54 of the Income Tax Act for investment in residential house(s) out of capital gains - availability of section 54 for plural residential units - Whether the assessee is entitled to deduction under section 54 (and by reference section 54F) for having received multiple residential flats in consideration for the sale and thereby investing the capital gains in residential house(s). - HELD THAT: - Following the finding that the receipt is capital in nature, the Tribunal considered the law on deduction under section 54 and applied the decision of the Hon'ble Madras High Court in Tilokchand & Sons v. ITO, which held that prior to the 01.04.2015 amendment the word 'a residential house' could include more than one residential house and that plural units purchased out of sale consideration may qualify for section 54 subject to compliance with time limits and conditions. The Tribunal, respectfully following that High Court decision, held that the assessee's acquisition of multiple residential flats in her own name out of the capital gains satisfies the conditions for deduction and directed the AO to allow the claim under section 54 (and as applicable). [Paras 13]

Claim for deduction under section 54 (and as applicable section 54F) allowed in respect of plural residential flats acquired out of the capital gains; AO directed to give effect.

Final Conclusion: The appeal is allowed: the receipts from the Joint Development Agreement are held to be Long Term Capital Gain (not business income), and the assessee is entitled to deduction under section 54 in respect of the multiple residential flats acquired out of the capital gains; the Assessing Officer is directed to assess and allow the deduction accordingly.

Power of appellate authority to admit additional claims and evidence - admission of unclaimed deductions during appellate proceedings - deduction for interest on house building loan under section 24 where assessee is owner - distinction between co-borrower and owner for claim of house loan interest - deduction under section 80C on production of supporting evidence before appellate authority

Power of appellate authority to admit additional claims and evidence - admission of unclaimed deductions during appellate proceedings - deduction under section 80C on production of supporting evidence before appellate authority - Whether the appellate authority could allow deductions under section 80C which were not claimed in the original return when the assessee produced supporting documents during appellate proceedings. - HELD THAT: - The Tribunal examined the competing authorities, including the decision relied on by Revenue limiting the Assessing Officer's power to admit claims without a revised return, and decisions recognizing plenary appellate powers. The Tribunal confined its adjudication to the appellate authority's jurisdiction and held that an appellate authority has co-terminus powers to consider and admit a deduction not claimed in the original return if the claim is bona fide and relevant supporting documents are placed before it. On the facts the assessee filed receipts and submissions during appellate proceedings; the Tribunal accepted those documents as sufficient to admit the section 80C claim and set aside the CIT(A)'s disallowance with a direction to allow the claimed deduction. [Paras 7]

The claim under section 80C, supported by documents produced during appellate proceedings, is allowable and the CIT(A)'s order disallowing it is set aside with directions to allow the deduction.

Deduction for interest on house building loan under section 24 where assessee is owner - distinction between co-borrower and owner for claim of house loan interest - Whether interest on housing loan could be allowed entirely to the assessee where the loan was in the names of the assessee and his wife but the property stood in the assessee's name. - HELD THAT: - The Tribunal observed that ownership of the house property, as evidenced by the sale deed placed on record, determines entitlement to deduction under section 24. Mere co-borrowing by the wife did not make her an owner of the property. Having examined the bank certificate and deed submitted in the appellate file, the Tribunal concluded that the assessee alone was the owner and thus entitled to the full deduction for interest under section 24. The Tribunal directed Revenue to allow the balance interest deduction to the assessee. [Paras 7]

The interest on the housing loan is allowable 100% to the assessee (owner) and the Revenue is directed to permit the balance deduction under section 24.

Final Conclusion: The Tribunal allowed the appeals (being common on the decided points) and directed that the section 80C deductions supported by documents produced in appeal be admitted and that the full interest deduction under section 24 be allowed to the assessee as the sole owner; the CIT(A)'s orders to the contrary were set aside.

Re-opening of assessment - change of opinion - finalisation of assessment - requirement to produce evidence in support of increase of authorised share capital and of share premium

HELD THAT: - The Court accepted the High Court's [2021 (12) TMI 998 - BOMBAY HIGH COURT] conclusion that where the Assessing Officer, prior to completing the assessment, had called upon the assessee to produce evidence regarding increase of authorised share capital, share allotment and the sources/parties for share premium and thereafter finalised the assessment, a subsequent re opening of the same assessment amounted to a mere change of opinion. On that basis the High Court rightly set aside the re opening. The Supreme Court found no reason to interfere with that conclusion and dismissed the Special Leave Petition.

Re opening held to be a change of opinion and therefore invalid; High Court order setting aside the re opening sustained.

Final Conclusion: Special Leave Petition dismissed; pending applications disposed of.

Order passed by President, Income Tax Appellate Tribunal (ITAT) to constitute a special Bench to decide the appeal preferred in the case of the respondents - SLP preferred against the impugned judgment and order passed by the High Court of Judicature by which the High Court has set aside the Order passed by Income Tax Appellate Tribunal (ITAT) - as submitted that the issue touches the jurisdiction and/or authority of the President to constitute a special Bench in exercise of the powers under Section 255(3) of the Income Tax Act, 1961

HELD THAT:- As the appeal which was to be heard by the Special Bench has already been now decided and disposed of by the ITAT, Hyderabad and, as such, the present Special Leave Petition has become infructuous and/or academic. Therefore, without expressing anything on merits on the legality and validity of the impugned judgment and order passed by the High Court and the powers of the President to constitute a Special Bench in exercise of powers under Section 255(3) of the Income Tax Act and keeping the question of law open, we dispose of the present Special Leave Petition as having become academic.

However, the strictures passed against the Vice- President, ITAT in the impugned judgment and order are expunged.Special Leave Petition stands disposed of accordingly.

Minimum Alternate Tax (MAT) - Applicability of section 115JB on electricity company - As per HC fiction fixed under section 115JB cannot be pressed into service against the appellant while making the assessment of the tax payable under the Income-tax Act - Applicability of section 43B in respect of the electricity duty collected - As held Section 43B cannot be invoked in making the assessment of the liability of the appellant under the Income-tax Act with regard to the amounts collected by the appellant pursuant to the obligation cast on the appellant under section 5 of the Kerala Electricity Duty Act, 1963 - HELD THAT:- We have gone through the circumstances on record and considered the rival submissions. In our view, no interference is called for. We, therefore, dismiss this appeal.

Addition u/s 43B - Electricity duty payable under section 3(1) of the Electricity Duty Act, 1963 and surcharge payable to Government -Applicability of section 115JB on electricity company -Addition on electricity duty and short provision of interest on Government loan made u/s 43B - HELD THAT:- The view taken by the High Court [2010 (11) TMI 127 - KERALA HIGH COURT] and connected matters was relied upon by the High Court in the instant matters and the issue was answered against the Revenue. Having confirmed the view taken by the High Court, the logical consequence is that the instant matters deserve dismissal.

Applicability of Section 115JB to the assessee Electricity Company - Since the issue involved in the instant matters stand covered by the dismissal of Civil Appeal in this case the instant matters are also dismissed.

Reopening of assessment - Change of opinion - Re-assessment proceedings under Sections 147/148 of the Income Tax Act - Quashing of reassessment on change of opinion - Judicial review of reopening orders

Reopening of assessment - Change of opinion - Re-assessment proceedings under Sections 147/148 of the Income Tax Act - Validity of re-opening assessment where re-assessment was initiated solely on a change of opinion of the Assessing Officer - HELD THAT: - The Court examined the impugned High Court judgment which had quashed and set aside the re-assessment proceedings and the order re-opening assessment under Sections 147/148 of the Income Tax Act. The material on record showed that the re-opening was effected only because of a change of opinion by the Assessing Officer. The Supreme Court concurred with the High Court's conclusion that reopening a completed assessment solely on the basis of a change of opinion is impermissible and that the re-assessment proceedings were therefore liable to be set aside. Having found no error in the High Court's reasoning or conclusion, the Supreme Court saw no reason to interfere with the order under review.

The re-assessment proceedings/re-opening of the assessment were set aside as they were founded solely on a change of opinion; the High Court's order was upheld and the Special Leave Petition dismissed.

Final Conclusion: The Special Leave Petition is dismissed; the High Court's quashing of the reassessment/reopening founded solely on change of opinion is maintained; pending application disposed of.

Re-opening of assessment - reassessment proceedings - change of opinion - assessment under Section 143 of the Income-tax Act, 1961 - reopening on the same ground after specific queries answered

HELD THAT: - The High Court [2021 (9) TMI 200 - MADRAS HIGH COURT] set aside the re-opening of assessment on the ground that the reassessment proceedings amounted to a change of opinion. At the original assessment under Section 143 the assessing officer had raised specific queries which were answered by the assessee; in those circumstances the Revenue was not permitted to re-open the assessment on the same ground. Since the reassessment was quashed for being a change of opinion after considering that the specific queries had been addressed during the original assessment, the High Court did not commit any error in setting aside the reassessment proceedings.

The High Court's order setting aside the re-opening of assessment was upheld and the Special Leave Petition dismissed.

Final Conclusion: The Special Leave Petition is dismissed and pending applications stand disposed of.

Validity of notice under Section 148A(d) - Jurisdiction to reopen assessment after expiry of three years - Threshold requirement of escapement of income exceeding Rs.50 lakh for extended reassessment - Application of amended Section 149(1)(a) and (b)

Validity of notice under Section 148A(d) - Jurisdiction to reopen assessment after expiry of three years - Threshold requirement of escapement of income exceeding Rs.50 lakh for extended reassessment - Impugned order dated 28th July, 2022 under Section 148A(d) quashed for lack of jurisdiction where notice was issued after expiry of three years and alleged escapement of income was below Rs.50 lakh. - HELD THAT: - The Court examined the impugned order and the admitted facts recorded therein. It was not disputed and is reflected in the assessing officer's conclusion that the notice under the newly amended provisions was issued after the expiry of three years from the end of the relevant assessment year and that the alleged escapement of income amounted to less than Rs.50 lakh. Under the amended statutory scheme, such a reopening beyond three years requires escapement exceeding the specified threshold. In the absence of that threshold being met, the assessing officer lacked jurisdiction to issue the notice and pass the impugned order. For these reasons the impugned order is legally unsustainable and liable to be set aside.

Impugned order dated 28th July, 2022 under Section 148A(d) quashed for want of jurisdiction.

Final Conclusion: Writ petition allowed; the order dated 28th July, 2022 under Section 148A(d) is quashed because the notice was issued after three years and the alleged escapement was below the statutory threshold of Rs.50 lakh.

Reassessment under Section 148/Section 148A - new information - bogus/fictitious share capital - survey report as basis for reassessment - veracity of transactions is a matter of evidence - assessment/reassessment machinery as exclusive remedy - writ jurisdiction under Article 226

Reassessment under Section 148/Section 148A - new information - survey report as basis for reassessment - bogus/fictitious share capital - Validity of initiating reassessment proceedings for AY 2016-17 based on information and survey report alleging receipt of bogus/fictitious share capital. - HELD THAT: - The Court examined the letter and survey report placed before the Assessing Officer which identified the assessee in connection with information collated during a survey of the BDR Group and stated that funds said to be received as share capital were from dubious sources. The Court found that the information relied upon (including statements recorded during the survey and the survey report) was received after the original assessment and constituted material which the AO could use to form a belief for reopening. The earlier assessment and appellate orders had treated confirmations from the alleged entry-provider as establishing genuineness; that fact does not negate the later information pointing to layered transactions and accommodation entries. The question of whether the transactions were in fact bogus involves factual inquiry and evidence for the AO to examine; on the material placed, initiation of reassessment was not shown to be arbitrary. [Paras 4, 5, 6, 7]

Reassessment proceedings initiated under Section 148/148A for AY 2016-17 were held to be supportable on the basis of the survey report and subsequent information; initiation was not found to be arbitrary.

Reply to show cause notice considered - Whether the Assessing Officer failed to consider the assessee's reply to the show cause notice. - HELD THAT: - The petitioner alleged non-consideration of its reply dated 2nd/6th June, 2022. The Court reviewed the impugned order and recorded that the assessee's reply had been noted and dealt with in the order. There was therefore no merit in the contention that the AO ignored the reply. [Paras 9]

The contention that the assessee's reply was not considered was rejected; the reply was recorded and dealt with in the impugned order.

Writ jurisdiction under Article 226 - assessment/reassessment machinery as exclusive remedy - veracity of transactions is a matter of evidence - Whether the High Court should exercise writ jurisdiction to quash the reassessment proceedings on merits. - HELD THAT: - Relying on the principle that the Income-tax Act provides a complete machinery for assessment and reassessment, the Court observed that the veracity of the Revenue's allegations (that the BDR Group provided bogus capital and the assessee and its shareholders benefited) are factual matters requiring investigation and adjudication under the statutory process. Invoking Article 226 to decide contested factual questions or to supplant the statutory adjudicatory process was not warranted. The Court noted the Supreme Court's statement in Chhabil Das Agarwal that the statutory machinery is the appropriate forum for such disputes and that exceptional grounds for writ relief were not present in this case. [Paras 10]

Writ jurisdiction was not available to decide the merits of the reassessment; the petition seeking to quash the reassessment on merits was accordingly dismissed.

Final Conclusion: Writ petition dismissed; initiation of reassessment proceedings for AY 2016-17 on the basis of the survey report and subsequent information was not shown to be arbitrary, the assessee's reply was considered, and factual disputes about the genuineness of share capital must be examined through the statutory assessment/reassessment process rather than by invoking Article 226.

Violation of principles of natural justice - opportunity of hearing in assessment proceedings - e filing portal technical failure and right to be heard - reopening of assessment and faceless assessment procedure - set aside and remand for fresh consideration

Violation of principles of natural justice - opportunity of hearing in assessment proceedings - e filing portal technical failure and right to be heard - Validity of the assessment order dated 30th March, 2022 and notice of demand dated 30th March, 2022 in light of alleged denial of opportunity to file reply to the show cause notice. - HELD THAT: - The Court found that the petitioner was given a curtailed time to respond to the show cause notice dated 27th March, 2022 and, when attempting to submit her reply on the e Filing Portal on 29th March, 2022, the portal's 'submit' button was disabled (as evidenced by a screenshot). The petitioner lodged a grievance on the e Filing Portal and also informed the respondents by email on the same date. Having considered these facts, the Court concluded that the assessment order and notice of demand dated 30th March, 2022 were passed in breach of the principles of natural justice because the petitioner was effectively prevented from filing her reply within the time permitted. [Paras 4]

Impugned assessment order and notice of demand dated 30th March, 2022 set aside as unsustainable for violation of principles of natural justice.

Set aside and remand for fresh consideration - remand for fresh consideration - opportunity to file reply - Relief and further procedure following setting aside of the assessment order. - HELD THAT: - The Court directed that the petitioner be granted a fresh opportunity to file her reply to the show cause notice. The petitioner was given three weeks to file her reply with the National Faceless Assessment Centre, Delhi. The respondents were permitted to consider the reply and to pass appropriate orders thereafter, within a specified timeframe, thus remitting the matter for fresh consideration in accordance with law. [Paras 5]

Petitioner granted three weeks to file reply; respondents at liberty to pass appropriate orders within ten weeks thereafter.

Final Conclusion: The assessment order and notice of demand dated 30th March, 2022 were quashed for breach of natural justice; the petitioner is permitted three weeks to file her reply with the National Faceless Assessment Centre, Delhi, and the respondents may pass appropriate orders within ten weeks thereafter; writ petition disposed of.

Burden of proof under Section 106 of the Evidence Act - cash deposit as unexplained cash credit - corroboration of declared source with documentary recitals - verification from purchaser - reliance on sale deed recitals for attribution of sale consideration

Burden of proof under Section 106 of the Evidence Act - cash deposit as unexplained cash credit - corroboration of declared source with documentary recitals - Whether the assessee discharged the onus of proving that the cash deposit represented sale proceeds of the vendor-wife so as to negate the addition as unexplained income - HELD THAT: - The Court held that the assessee disclosed the claimed source (sale of the vendor-wife's land) but did not discharge the burden of proof in respect of the entire amount deposited, because the contemporaneous sale deed recitals showed a document value materially lower than the cash deposited. The Court emphasised that mere production of the sale deed showing the lower documented consideration, coupled with an affidavit and assertions, was insufficient to establish that the larger sum originated from the sale without further cogent evidence. The Court noted the absence of direct evidence from the vendor (the wife) and the failure to produce corroborative material to bridge the discrepancy between the deed value and the bank deposit. On these grounds the Tribunal's approach of confining credit to the documentary sale consideration and treating the balance as unexplained was upheld.

Assessee failed to discharge the burden to prove that the entire cash deposit represented legitimate sale consideration; the Tribunal's partial credit to the deed value was sustainable.

Verification from purchaser - reliance on sale deed recitals for attribution of sale consideration - Whether the tax authorities were obliged to verify the assessee's claim by obtaining evidence from the purchaser to accept the larger sale consideration asserted by the assessee - HELD THAT: - The Court rejected the contention that the Assessing Officer was obliged to accept the assessee's affidavit and then independently verify with the purchaser as the sole means of discharging the onus. The decision records that ample opportunities were afforded to the assessee to adduce evidence and that despite the claim, the assessee did not produce the vendor or cogent corroboration before the Assessing Officer. The Tribunal examined the documents and materials and, relying on the recitals in the sale deed, declined to accept the higher, unsubstantiated figure. The Court found no legal or factual infirmity in the authorities declining to treat the unexplained portion as proved merely on the basis of an assertion without satisfactory evidence from the purchaser or vendor.

Authorities were not required to accept the asserted higher sale consideration without satisfactory corroboration; their refusal to do so was justified.

Reliance on sale deed recitals for attribution of sale consideration - corroboration of declared source with documentary recitals - Whether the conclusions of the Tribunal were arbitrary, perverse or unsupported by material and thereby liable to be set aside - HELD THAT: - The Court considered the Tribunal's reasoning and found that it had examined the submissions and documents, gave credit to the documentary sale consideration shown in the sale deed, and rejected the claim for the excess amount for want of corroboration. The Court held that the Tribunal's conclusion to allow credit only to the amount disclosed in the deed and to treat the balance as unexplained was based on materials on record and not perverse or arbitrary. Consequently, no interference with the Tribunal's factual and evidentiary findings was warranted.

Tribunal's findings were not perverse or unsupported by material and were therefore sustainable.

Final Conclusion: The substantial questions of law were answered against the appellant; the Tribunal's partial allowance limited to the documentary sale consideration and the resultant addition for the unexplained balance were upheld and the income tax appeal is dismissed.

Pre-notice consultation - violation of the proviso to Section 28(1)(a) of the Customs Act, 1962 requiring pre-notice consultation - compliance with Regulation 3(2) and Regulation 3(4) of the Pre-Notice Consultation Regulations, 2018 - mandatoriness of procedural safeguards to avoid unnecessary litigation - principles of natural justice

Pre-notice consultation - compliance with Regulation 3(2) of the Pre-Notice Consultation Regulations, 2018 - violation of the proviso to Section 28(1)(a) of the Customs Act, 1962 requiring pre-notice consultation - Whether the order-in-original dated 25.05.2022, founded on the show-cause notice dated 22.12.2021, is vitiated for failure to comply with the statutory requirement of pre-notice consultation and the 15-day response period prescribed by the Regulations. - HELD THAT: - The Court found that the proviso to Section 28(1)(a) of the Customs Act, 1962 mandates that the proper officer shall hold pre-notice consultation in the manner prescribed. Regulation 3(2) of the Pre-Notice Consultation Regulations, 2018 requires that the person chargeable be given fifteen days from the date of communication to make written submissions and may indicate a desire to be heard; Regulation 3(4) permits the officer to drop proceedings if consultation obviates the need for a show-cause notice. In the present case the pre-consultation communication is dated 14.12.2021 and the statutory 15-day period would expire on 29.12.2021, whereas the show-cause notice is dated 22.12.2021. The show-cause notice was therefore issued prior to the expiry of the prescribed response period and without adherence to the mandated consultative procedure. The Court held that this contravened both the proviso to Section 28(1)(a) and Regulation 3(2), and that non-compliance frustrated the statutory scheme intended to reduce unnecessary litigation. Having regard to these findings, the order-in-original based on that show-cause notice cannot be sustained. [Paras 16, 17, 18, 23, 24]

The order-in-original dated 25.05.2022 founded on the show-cause notice dated 22.12.2021 is set aside for non-compliance with the statutory pre-notice consultation procedure and the 15-day response period.

Mandatoriness of procedural safeguards to avoid unnecessary litigation - principles of natural justice - Whether respondent no.2 may proceed afresh after the impugned order is set aside. - HELD THAT: - While the impugned order-in-original was set aside for procedural non-compliance, the Court clarified that respondent no.2/revenue remains free to initiate proceedings de novo so long as they comply with the statutory scheme and regulations governing pre-notice consultation and afford the procedural safeguards contemplated by law. The Court emphasised the purpose of the consultative regime to reduce litigation and required that any fresh proceedings be initiated in conformity with the proviso to Section 28(1)(a) and the 2018 Regulations. [Paras 25, 26]

Respondent no.2 is at liberty to initiate proceedings de novo, subject to strict compliance with the applicable statutory provisions and regulations.

Final Conclusion: The order-in-original dated 25.05.2022 is set aside for failure to comply with the mandatory pre-notice consultation procedure and the 15-day response period; respondent no.2 may initiate fresh proceedings in accordance with law. The petitioner is entitled to costs.

Condonation of delay - Setting aside the impugned order - Remittance to the Tribunal for fresh decision on merits - Application of earlier co-ordinate Bench directions mutatis mutandis - Decision on merits subject to outcome of Mangli Impex Limited

Condonation of delay - Delay in re-filing the appeal was condoned. - HELD THAT: - The application for condonation of delay in re-filing the appeal, which involved a delay of 79 days as pointed out by the appellant, was considered. For the reasons recorded in the application and as agreed by counsel, the Court exercised its discretion to condone the delay and allowed the application for re-filing the appeal. [Paras 2, 3, 4, 10]

Delay of 79 days in re-filing the appeal condoned and the condonation application disposed of accordingly.

Setting aside the impugned order - Remittance to the Tribunal for fresh decision on merits - Application of earlier co-ordinate Bench directions mutatis mutandis - Decision on merits subject to outcome of Mangli Impex Limited - The impugned Tribunal order dated 01.08.2017 was set aside and the matter remitted to the Tribunal to be decided on merits, applying the directions of the earlier judgment mutatis mutandis, subject to the outcome of Mangli Impex Limited pending in the Supreme Court. - HELD THAT: - Having noted the earlier co-ordinate Bench order dated 28.03.2022 in the lead appeal (Pr. Commissioner of Customs vs. Kunal Lalani) which remitted similar matters to the Tribunal for fresh consideration on merits, the Court issued similar directions in the present appeal. The impugned order of the Tribunal dated 01.08.2017 was set aside and the Tribunal was directed to decide the matter on merits. The Court clarified that the Tribunal's decision on merits would be subject to the final outcome of the question of law in Mangli Impex Limited, which is pending adjudication in the Supreme Court. The directions in the earlier judgment are to apply mutatis mutandis as the question of law in this appeal is identical. [Paras 7, 11, 12, 13, 14]

Impugned Tribunal order set aside; matter remitted to the Tribunal for fresh adjudication on merits in accordance with the earlier co-ordinate Bench direction, with the adjudication being subject to the outcome of Mangli Impex Limited.

Final Conclusion: Delay in re-filing the appeal was condoned; the Tribunal's order dated 01.08.2017 is set aside and the matter remitted to the Tribunal to be decided on merits in accordance with the earlier co-ordinate Bench directions (applied mutatis mutandis), with the merits decision being subject to the eventual determination in Mangli Impex Limited.

Liability of custodian for duty on pilfered goods under Section 45(3) of the Customs Act read with Regulation 6(1)(j) of HCCAR, 2009 - requirement of cogent evidence of pilferage before shifting duty liability to custodian - penalty under Section 117 of the Customs Act for failure to comply with obligations as custodian - duty of custodian vis-a -vis shortcomings of sub-contractor - prohibition on opening imported packages without permission of proper officer (Imported Packages (Opening) Regulation, 1963) - manual of seizure/inspection and evidentiary value of local commissioner/police inquiry reports

Liability of custodian for duty on pilfered goods under Section 45(3) of the Customs Act read with Regulation 6(1)(j) of HCCAR, 2009 - requirement of cogent evidence of pilferage before shifting duty liability to custodian - Whether duty could be demanded from the appellant-custodian on the basis that the imported goods were pilfered while in its custody - HELD THAT: - The Tribunal found that the sealed packages presented for warehousing were never opened or physically examined by Customs or by the appellant at the time of acceptance; storage was on the basis of the importer's declaration. The first opening of packages occurred during police investigation following the FIR, when only packing material was found. The local commissioner appointed by the High Court reported non existence of the claimed goods at the customs bonded premises. There is no contemporaneous documentary or physical evidence demonstrating pilferage while the goods were in the custody of the appellant. Absent cogent proof that the goods existed as declared and were subsequently pilfered during custody, the statutory shift of duty liability to the custodian under Section 45(3) / Regulation 6(1)(j) cannot be sustained. Applying these findings to the material on record, the Tribunal held that the preconditions for imposing duty on the custodian were not satisfied. [Paras 36, 37, 38]

Demand of duty under Section 45(3) read with Regulation 6(1)(j) confirmed by the Commissioner was set aside for want of proof of pilferage while in custody.

Penalty under Section 117 of the Customs Act for failure to comply with obligations as custodian - duty of custodian vis-a -vis shortcomings of sub-contractor - Whether penalty under Section 117 could be imposed on the appellant for alleged failure to safeguard the goods and for non-compliance with HCCAR obligations - HELD THAT: - The adjudicating authority imposed penalty on the basis that the appellant failed in its obligations and was responsible for safety of the warehoused goods, including acts/omissions of its sub-contractor. The Tribunal examined the record and found no evidence that the appellant had opened or inspected the sealed consignments or otherwise had occasion to verify contents; acceptance was based on importer's declarations and existing regulatory restriction on opening packages without proper officer's permission. In absence of any finding that the appellant breached a specific obligation that resulted in pilferage proven to have occurred in its custody, imposition of penalty cannot be sustained. The Tribunal therefore held the penalty unsupportable on the record before it. [Paras 21, 22, 36]

Penalty imposed under Section 117 was set aside as it was founded on an unproven charge of pilferage and no established breach by the custodian.

Prohibition on opening imported packages without permission of proper officer (Imported Packages (Opening) Regulation, 1963) - manual of seizure/inspection and evidentiary value of local commissioner/police inquiry reports - Whether the conduct of not opening the sealed packages by the appellant or Customs precluded relief to the importer and affected the adjudication of pilferage - HELD THAT: - The Tribunal noted that regulation prohibits opening imported packages without permission of the proper officer and that no such opening or sampling occurred prior to warehousing; consequently, there were no records of physical examination or sampling establishing the contents as declared by the importer. The first examination was by police after FIR, and the local commissioner's report recorded non existence of the goods as claimed. Those post-hoc findings do not substitute for contemporaneous evidence of contents at import or of pilferage in custody. The absence of prior inspection undermines the finding of pilferage attributable to the custodian. [Paras 26, 27, 36]

Failure to open/examine packages prior to warehousing and lack of contemporaneous inspection evidence precluded sustaining the pilferage finding against the custodian.

Duty of custodian vis-a -vis shortcomings of sub-contractor - Whether shortcomings of the sub-contractor absolve the custodian of liability - HELD THAT: - Though the appellant contended that mechanized handling and inventory management were performed by its sub-contractor, the Commissioner had held that the custodian remains responsible for safety of goods in its customs area. The Tribunal did not accept that the involvement of a sub-contractor, without more, absolves the custodian; however, since pilferage was not established against the custodian on the facts, no liability followed in this case. The question of attribution to subcontractor was therefore rendered academic by the primary finding of absence of proof of pilferage in custody. [Paras 19, 21, 36]

Custodian remains responsible for goods in its custody, but on the facts no liability arose because pilferage was not proved.

Suspension or revocation of approval under Regulation 10/11/12 of HCCAR, 2009 - Whether the approval of the appellant under Regulation 10 of HCCAR should be suspended or revoked - HELD THAT: - The Commissioner had examined the proposal for suspension/revocation as a preventive step and concluded that suspension requires sufficient reasons showing that damage would continue unless immediate suspension is ordered. No such grounds were made out and the proposal for suspension/revocation was dropped. The Tribunal did not find error in dropping the preventive action given the record. [Paras 23]

Proposal for suspension/revocation of approval was rightly dropped for lack of sufficient grounds.

Final Conclusion: On the evidence the Tribunal held that pilferage of the imported goods while in custody was not established; the demand of duty and the penalty confirmed by the Commissioner were set aside, the proposal to suspend or revoke the appellant's approval having been dropped, and the appellant was allowed consequential reliefs in accordance with law.

Exemption of inputs or parts for use in manufacture of Printed Circuit Board Assembly (PCBA) - classification as Microphone for Cellular Mobile Phone - availability of alternative exemption under Notification No. 50/2017 (List 20, Entry No.427) - claiming exemption at a belated stage and right to seek a more beneficial entry - penalty for intentional malafide or suppression of facts

Exemption of inputs or parts for use in manufacture of Printed Circuit Board Assembly (PCBA) - classification as Microphone for Cellular Mobile Phone - Impugned imported microphones qualify as parts of PCBA and are eligible for exemption under Entry No.6A of Notification No.57/2017 - HELD THAT: - The Tribunal accepted the IIT Delhi expert opinion (report dated 18.03.2019) - procured by the department - that components requiring soldering on the PCB are PCBA components. The adjudicating authority's reliance on internet-sourced material and its disregard of the department's own expert report amounted to extraneous consideration. Explanation B to Notification No.57/2017 lists example components using the phrase "such as", indicating a non-exhaustive list; microphones which must be soldered to the PCB to render the PCBA functional fall within the scope of PCBA inputs/parts. Consequently, the microphones imported by the appellant are covered by Entry No.6A and entitled to nil rate of duty under that entry. [Paras 11, 13, 17, 18]

Impugned microphones are parts of PCBA and eligible for exemption under Entry No.6A of Notification No.57/2017.

Availability of alternative exemption under Notification No. 50/2017 (List 20, Entry No.427) - Microphones are expressly covered by Entry No.427/List 20 of Notification No.50/2017 and are therefore alternatively exempt from customs duty - HELD THAT: - Notification No.50/2017 (Entry No.427 and List 20) specifically lists "Microphones/Microphone cartridges" in List 20 and grants nil rate of duty. The Tribunal held that this exemption applied irrespective of whether microphones were parts of PCBA or of cellular mobile phones. As Notification No.50/2017 was in force during the relevant period, the appellant was entitled to 100% exemption under that notification as an alternative basis. [Paras 19, 20, 21, 22]

Microphones are covered by Entry No.427/List 20 of Notification No.50/2017 and are exempt from customs duty on that basis as well.

Claiming exemption at a belated stage and right to seek a more beneficial entry - An importer may claim the benefit of a more beneficial exemption notification even if not claimed at the time of filing the Bill of Entry; the belated claim could not be denied - HELD THAT: - Relying on binding principles reiterated by the Apex Court and earlier Tribunal decisions, the Tribunal held that where an assessee is entitled to benefit under two notifications, the more beneficial exemption must be extended even if not claimed initially. The respondent's denial of Notification No.50/2017 on the ground of belated claim was contrary to these authorities and thus erroneous. Consequently, refusal to grant the alternative exemption on the ground of belatedness was set aside. [Paras 21, 22]

Denial of exemption on the ground that the benefit under Notification No.50/2017 was claimed belatedly is unsustainable; the appellant is entitled to the benefit.

Penalty for intentional malafide or suppression of facts - Penalties under section 112(b)(ii) read with section 117 of the Customs Act, 1962 are not attracted as there is no evidence of intentional evasion or malafide - HELD THAT: - Having held that the appellant was entitled to exemption either under Notification No.57/2017 (Entry 6A) or alternatively under Notification No.50/2017 (Entry 427), the Tribunal found no liability for customs duty during the relevant period. In the absence of duty liability and without any evidence of intentional malafide or suppression, imposition of penalties was unjustified and the penalties were accordingly set aside. [Paras 23, 24]

Penalties imposed are not sustainable and are set aside.

Final Conclusion: The appeal is allowed: the demand confirming duty on imported microphones is set aside because the goods are eligible for exemption under Entry No.6A of Notification No.57/2017 and, alternatively, under Entry No.427/List 20 of Notification No.50/2017; penalties are also quashed.

Refund of Special Additional Duty (SAD) paid at the time of import - Special Additional Duty levied in lieu of sales tax - Notification No. 102/2007-Cus - condition 2(b) endorsement on invoice - distinction between procedural condition and substantive condition - technical infraction doctrine - entitlement of a trader-importer to refund despite absence of endorsement where VAT/sales tax is paid - Cenvat credit not admissible on commercial invoices issued by unregistered traders

Notification No. 102/2007-Cus - condition 2(b) endorsement on invoice - entitlement of a trader-importer to refund despite absence of endorsement where VAT/sales tax is paid - distinction between procedural condition and substantive condition - Whether a trader-importer who has paid SAD at import and discharged VAT/sales tax on resale is entitled to refund under Notification No. 102/2007-Cus despite not making the endorsement required by para 2(b) on commercial invoices. - HELD THAT: - The Tribunal applied the Larger Bench decision in Chowgule & Company Pvt Ltd which held that the endorsement stipulated in para 2(b) of Notification No. 102/2007-Cus is procedural in nature. A trader-importer who has paid the SAD on import, has subsequently paid the appropriate VAT/sales tax on sale, and issues commercial invoices without indicating the SAD particulars or the non-admissibility of credit, cannot be deprived of the refund merely for absence of such endorsement. The Larger Bench drew a clear distinction between substantive conditions and procedural requirements, and followed the principle that exemption or refund should not be denied for a technical procedural infraction where the substantive purpose - prevention of double benefit by enabling the buyer to take credit - is not frustrated. In the case of an unregistered trader who is not competent to issue Cenvat-creditable invoices, omission of the endorsement and omission of duty particulars in the commercial invoice do not result in the buyer obtaining Cenvat credit; accordingly denial of refund on that ground is not warranted. Applying that ratio, the appeal was allowed and the adjudicating authority directed to grant the refund with interest within a stipulated period.

The appellant is entitled to refund of the SAD paid under Notification No. 102/2007-Cus despite non-compliance with para 2(b) endorsement, and the adjudicating authority is directed to grant the refund with interest within 60 days.

Final Conclusion: Appeal allowed; following the Larger Bench precedent, refund of SAD under Notification No. 102/2007-Cus granted to the trader-importer despite absence of the para 2(b) invoice endorsement; adjudicating authority directed to grant refund with interest within 60 days.

Proviso to Section 28-I(2) - classification as a kit - Rule 3(b) of the General Rules of Interpretation - essential character - reception apparatus for the transmission or reception of voice, images or other data - classification under Heading 8517 and sub heading 8517 62 90

Proviso to Section 28-I(2) - distinct legal entity - Application under Section 28-I(2) is not barred by issuance of a show cause notice to a group company and is admissible. - HELD THAT: - The Authority examined whether the first proviso to Section 28-I(2) precluded entertaining the applicant's request because a show cause notice on the same subject-matter had been issued to a group company. The proviso bars an application only where the question raised is already pending in the applicant's own case before an officer of customs, the Appellate Tribunal or any Court. The Authority held that the applicant and the group company are separate legal persons incorporated as distinct companies with separate PAN and IEC. Consequently, proceedings pending in respect of the group company do not render the present application ''already pending in the applicant's case'' under the proviso. There was no material on record to show that the question of classification was pending in the applicant's own case. On this basis the objection raised by the Commissioner of Customs, JNCH was rejected and the application was held admissible. [Paras 4]

Objection based on the proviso to Section 28-I(2) overruled; application allowed for determination on merits.

Classification as a kit - Rule 3(b) of the General Rules of Interpretation - essential character - reception apparatus for the transmission or reception of voice, images or other data - classification under Heading 8517 and sub heading 8517 62 90 - Fire TV Stick 4K Max, as a kit comprising an HDMI Digital Media Receiver and Alexa voice remote, is classifiable under Heading 8517 and sub heading 8517 62 90. - HELD THAT: - The Authority confined the ruling to the kit as packaged (HDMI Digital Media Receiver model K2R2TE with Alexa voice remote model L5B83G) and applied Rule 3(b) of the General Rules of Interpretation to determine the classification by reference to the component imparting the essential character. The HDMI Digital Media Receiver was found to be a reception apparatus for voice, image and other data in wireless networks (LAN/WAN) with inbuilt PCB and software running OTT applications; it receives streamed media via the internet and converts/transmits it to the television, and does not receive satellite/cable/terrestrial broadcast signals. On these determinative functional considerations, the device falls within the description of apparatus for the transmission or reception of voice, images or other data and is properly classifiable under Heading 8517 and more specifically sub heading 8517 62 90. The Alexa voice remote was held to be ancillary, serving to operate the receiver and not altering the essential character of the kit. [Paras 6, 8]

Classification of Fire TV Stick 4K Max (kit) is Heading 8517; sub heading 8517 62 90.

Final Conclusion: The Authority allowed the application, holding it admissible notwithstanding proceedings against a group company, and ruled that the Fire TV Stick 4K Max kit (HDMI Digital Media Receiver with Alexa voice remote) is classifiable as a reception/transmission apparatus under Heading 8517, specifically sub heading 8517 62 90, the classification being determined by the HDMI Digital Media Receiver which imparts the essential character.

Classification under Heading 8517 - subscriber end equipment - customer premises equipment (CPE) - most specific description rule (GIR 3(a)) - titles not determinative; classification by headings and notes (GIR 1) - composite machine classification (Note 4 to Section XVI) - strict interpretation of exemption notifications

Classification under Heading 8517 - subscriber end equipment - customer premises equipment (CPE) - ITU T / TEC technical description of ONT - Impugned GPON ONT is classifiable as subscriber end equipment under sub heading 8517 69 50. - HELD THAT: - The device is an Optical Network Terminal (ONT) functioning as the access node in a GPON FTTH architecture installed at the subscriber's premises and providing user interfaces (UNI), uplink (IFPON) interfaces and management (OMCI) including modem, bridging, Wi Fi and service derivation functions. TEC and ITU T descriptions identify the residential gateway ONT variant which consolidates Layers 1-3 and CPE functionality; the applicant's technical specifications match this variant. By application of GIR 1 and GIR 3(a), the tariff entry that specifically names subscriber end equipment is preferred over more general or partial descriptions. Note 4 to Section XVI applies where a combination of components contribute together to a defined function; the ONT's integrated components perform that function. For these reasons the device falls within sub heading 8517 69 50. [Paras 5]

GPON ONT is classifiable under sub heading 8517 69 50 as subscriber end equipment.

Classification under Heading 8517 - router versus modem distinctions - most specific description rule (GIR 3(a)) - strict interpretation of exemption notifications - GPON ONT is not classifiable as a standalone router (and thus not entitled to exemption as a router under Sr. No. 421 of Notification No. 50/2017). - HELD THAT: - Although the impugned device performs routing and Wi Fi functions and shares features with modems and routers (sub headings that cover modems and routers exist elsewhere in Chapter 85), the ONT is more than a mere combination of a modem and a router: it includes PON specific uplink/downlink interfaces, OMCI for service provisioning and bridging, and performs subscriber termination functions. Given that sub heading 8517 69 50 specifically covers subscriber end equipment, that heading is the appropriate and more specific description. Exemption notifications must be construed strictly and apply only to the goods they expressly cover; the device is not a standalone router and therefore does not qualify under Sr. No. 421. [Paras 5]

Device is not classifiable as a router for the purpose of Sr. No. 421; exemption under that entry is not available.

Scope of sub heading 8517 69 50 - customer premises equipment (CPE) - auxiliary devices included in subscriber end equipment - Sub heading 8517 69 50 covers subscriber end equipment including ONT and other CPE listed by the telecom regulator. - HELD THAT: - Telecom Regulatory Authority material identifies subscriber end equipment for wireline access services to include, inter alia, landline telephone sets, ONT, ISDN terminal adapters, broadband modems and PABX as customer premises equipment. Absent a specific tariff entry elsewhere for a particular device, such devices fall within 8517 69 50. The entry therefore covers ONTs and similar CPE used at the subscriber's premises. [Paras 5]

Entry 8517 69 50 covers ONT and other customer premises equipment used in wireline access services, unless a specific entry applies elsewhere.

Final Conclusion: The Advance Ruling holds that the imported GPON ONT is classifiable under sub heading 8517 69 50 as subscriber end equipment and is eligible for exemption under Sr. No. 13P of Notification No. 24/2005 Customs; it is not classifiable as a standalone router and therefore does not qualify for benefit under Sr. No. 421 of Notification No. 50/2017 Customs.

Voluntary Liquidation under Insolvency and Bankruptcy Code, 2016 - Declaration of Solvency - Dissolution of company under section 59(7) of the Insolvency and Bankruptcy Code, 2016 - Compliance with IBBI (Voluntary Liquidation Process) Regulations - Liquidator's Final Report and distribution of assets

Voluntary Liquidation under Insolvency and Bankruptcy Code, 2016 - Declaration of Solvency - Compliance with IBBI (Voluntary Liquidation Process) Regulations - Sufficiency of compliance with statutory and regulatory requirements for commencement and conduct of voluntary liquidation. - HELD THAT: - The petition records that the board passed a Declaration of Solvency, members passed a special resolution for voluntary liquidation and appointed a registered insolvency professional as liquidator; public announcement and claims invitation were made; filings with the Registrar of Companies and various statutory authorities were effected; the liquidator opened and later closed a liquidation bank account; and the liquidator filed the preliminary and final reports in accordance with the IBBI (Voluntary Liquidation Process) Regulations. These factual and documentary compliances satisfied the statutory and regulatory prerequisites for conducting voluntary liquidation under the Code and its regulations. [Paras 11, 12, 13, 14, 15]

The Tribunal found that the petitioner complied with the statutory and regulatory requirements for voluntary liquidation.

Liquidator's Final Report and distribution of assets - Dissolution of company under section 59(7) of the Insolvency and Bankruptcy Code, 2016 - Whether the company's affairs have been wound up and whether the company should be dissolved under section 59(7) of the Code. - HELD THAT: - The final report submitted by the liquidator records realization and payment to members and indicates that the company's assets have been liquidated. On examination of the petition and annexures, the Tribunal concluded that the affairs of the company have been completely wound up and its assets completely liquidated. Having satisfied itself on completion of the liquidation process and the liquidator's report, the Tribunal exercised the power under section 59(7) to order dissolution. [Paras 15, 18, 19]

The Tribunal ordered that the company be dissolved from the date of the order under section 59(7) of the Code.

Registrar of Companies notification and consequential action - Procedure to be followed following the order of dissolution. - HELD THAT: - The Tribunal directed the petitioner to serve a copy of the dissolution order on the Registrar of Companies within fourteen days and directed the Registrar to take necessary action upon receipt of the order, thereby prescribing the immediate procedural step required to give effect to the dissolution. [Paras 20]

The petitioner was directed to serve the order on the Registrar of Companies within fourteen days and the Registrar was directed to take necessary action.

Final Conclusion: The Tribunal held that the voluntary liquidation was conducted in compliance with the Code and IBBI regulations, that the liquidator's final report established completion of winding up and distribution, and accordingly ordered dissolution of the company under section 59(7), with directions to serve the order on the Registrar of Companies.

Workability of the Resolution Plan - continuation of erstwhile promoters in the company - appellate interference with NCLAT/NCLT orders

Appellate interference with NCLAT/NCLT orders - The Supreme Court declined to interfere with the impugned judgment and order of the National Company Law Appellate Tribunal, affirming the view of the National Company Law Tribunal. - HELD THAT: - Having considered the submissions and perused the impugned NCLAT judgment, the Court found no reason to disturb the Tribunal's conclusions and recorded complete agreement with the conclusions reached by both the NCLT and the NCLAT. The Court therefore refused to exercise appellate jurisdiction to alter the Tribunal's decision.

Appeal dismissed; impugned NCLAT/NCLT orders are affirmed.

Workability of the Resolution Plan - Acceptance of the appellants' submissions would render the Resolution Plan unworkable. - HELD THAT: - The Court observed that if the contentions advanced by the appellants were accepted, the Resolution Plan would not be workable. This practical consequence formed part of the basis for upholding the Tribunal's decision and for refusing to sustain the appellants' challenge.

Appellants' submissions rejected to the extent they would vitiate the workability of the Resolution Plan.

Continuation of erstwhile promoters in the company - Erstwhile promoters cannot be continued in the company in any capacity, including as shareholders. - HELD THAT: - The Court endorsed the NCLAT's observation that the appellants are erstwhile promoters and therefore cannot be permitted to continue in the company in any capacity. That finding was accepted as a valid basis for upholding the Resolution Plan and the Tribunal's decision.

The appellants, being erstwhile promoters, cannot continue in the company in any capacity.

Final Conclusion: The appeal is dismissed; the Supreme Court affirms the NCLT and NCLAT orders, holding that the appellants' contentions would render the Resolution Plan unworkable and that the erstwhile promoters cannot continue in the company.

Initiation of corporate insolvency resolution process by financial creditor - joint financial creditors aggregate threshold - minimum default threshold for triggering CIRP - interpretation of Section 7 of the Insolvency and Bankruptcy Code, 2016 - judicial review of statutory validity in light of precedent

Joint financial creditors aggregate threshold - minimum default threshold for triggering CIRP - interpretation of Section 7 of the Insolvency and Bankruptcy Code, 2016 - Whether a group of financial creditors may file a joint application under Section 7 and aggregate their defaults to meet the minimum default threshold of Rs.1 crore for initiation of CIRP. - HELD THAT: - The Court held that Section 7, on its plain grammatical reading, permits a financial creditor to file an application either individually or jointly with other financial creditors and that the statutory amendment raising the threshold to Rs.1 crore was not enacted to require that each individual financial creditor meet that threshold. Construing the provision to require an individual threshold for every creditor would render the statutory recognition of joint applications purposeless and frustrate the legislative aim of providing an efficacious remedy to smaller creditors, including those of MSMEs. The provision and its amendment are directed to enable convergence of smaller creditors so that their combined default may satisfy the threshold and trigger CIRP. Accordingly, aggregate defaults by joined financial creditors can be relied upon to meet the minimum default requirement under Section 7.

A joint application by financial creditors may aggregate their defaults to meet the Rs.1 crore threshold for initiating CIRP under Section 7; the section admits no contrary interpretation.

Initiation of corporate insolvency resolution process by financial creditor - judicial review of statutory validity in light of precedent - Whether Section 7 of the IBC is constitutionally invalid insofar as it permits joint applications by financial creditors aggregating defaults. - HELD THAT: - The petition's challenge to the constitutional validity of Section 7 was considered in the light of existing precedent. The Court observed that the Supreme Court in Swiss Ribbons Pvt. Ltd. examined and upheld the validity of Section 7 and that the present challenge advances a different factual contention (the effect of the amended threshold on joint applications) rather than a new constitutional infirmity. Having found the statutory interpretation permissive of aggregate joint claims, there was no basis to sustain a distinct constitutional attack on Section 7 in the present proceedings.

The constitutional challenge to Section 7 is repelled; no relief granted on validity grounds and the writ petition is dismissed.

Final Conclusion: The writ petition is dismissed. Section 7 of the IBC, as amended, permits a group of financial creditors to join and aggregate their defaults to meet the Rs.1 crore threshold for initiation of CIRP; the petitioner's challenge to the validity of Section 7 is rejected and the petitioner remains at liberty to pursue available remedies against the NCLT order.

Extortionate credit transactions - avoidance transactions - investigation by resolution professional under Section 25(2) - commercial wisdom of the Committee of Creditors - finality of an approved resolution plan including addendum - limited judicial review of commercial decisions

Extortionate credit transactions - avoidance transactions - investigation by resolution professional under Section 25(2) - Validity of the Resolution Professional's rejection of Connect Residuary's claim on grounds that the transactions were extortionate, preferential and fraudulent and subject to avoidance proceedings. - HELD THAT: - The Tribunal upheld the Adjudicating Authority's conclusion that the RP was justified in rejecting the claim. The RP had appointed Alvarez & Marshall to investigate potential avoidance transactions and, relying upon the investigative report together with examination of books, records and enquiries, concluded that the transactions with the applicant were extortionate, preferential and unsupported by cogent documentation. The Adjudicating Authority accepted those findings (observing absence of satisfactory documentation, payments exceeding the value of equipment, and untraceability of kits) and rejected the Miscellaneous Application seeking admission of the claim. The Tribunal found no material irregularity or error on record in the RP's exercise of duty under Section 25(2) to identify avoidance transactions and no basis to disturb the Adjudicating Authority's factual and administrative findings that led to rejection of the claim. [Paras 10, 11, 12]

The rejection of the Appellant's claim as extortionate/avoidance-based was sustained and the Miscellaneous Application seeking admission of the claim was dismissed.

Commercial wisdom of the Committee of Creditors - finality of an approved resolution plan including addendum - limited judicial review of commercial decisions - binding nature of approved resolution plan - Whether the Resolution Plan approved by the CoC and adjudicating authority (including the addendum providing NIL treatment to the contested claim) was liable to be set aside or interfered with. - HELD THAT: - The Tribunal applied the doctrine that the commercial wisdom of the Committee of Creditors is ordinarily not amenable to judicial interference except within the limited scope prescribed by the Code and precedent. The Resolution Plan was approved by CoC by a large majority and was approved by the Adjudicating Authority; the Supreme Court has subsequently restored and upheld the Adjudicating Authority's orders, including the approval of the plan and its addendum. The Tribunal therefore held that the approval, and the addendum clarifying NIL payment treatment even if the claim were later admitted, has attained finality. No material irregularity was found that would justify interference with the CoC's decision or the adjudicating authority's approval, and implementation of the plan had been carried out. [Paras 13, 15, 16]

The Resolution Plan (including the addendum providing NIL treatment to the Appellant's claim) stands approved and final; the challenge to set aside or alter the plan is rejected.

Final Conclusion: The Appeals are dismissed. The adjudicating authority's dismissal of the Applications and approval of the Resolution Plan (including the addendum) are sustained; no interference is warranted with the RP's rejection of the claim or with the CoC approved and judicially upheld resolution plan.

Corporate Insolvency Resolution Process - admission under Section 10 of the Insolvency and Bankruptcy Code, 2016 - default - moratorium - appointment of Interim Resolution Professional - public announcement of initiation

Default - admission under Section 10 of the Insolvency and Bankruptcy Code, 2016 - Corporate Insolvency Resolution Process - Whether the Corporate Applicant has committed a default and whether the application under Section 10 for initiation of CIRP is liable to be admitted. - HELD THAT: - The Adjudicating Authority examined the Section 10 application, the financial statements (which disclosed losses), and the provisional balance sheet. The Corporate Applicant alleged inability to meet operational expenses, non-maintenance of regular accounts due to acute financial constraints, and a total default quantified in the application. The Authority directed issuance of notices to unsecured creditors and statutory authorities; notices were sent and no objections were received. The Corporate Applicant stated it had no secured creditors, supported by a Chartered Accountant's certificate. Having considered the material on record, the operational difficulties faced by the corporate applicant, absence of objections from stakeholders, and the documents filed including the proposed Interim Resolution Professional's consent and shareholders' resolution authorising initiation of CIRP, the Authority found the factual and procedural prerequisites for admission under Section 10 satisfied and was satisfied that a default had occurred warranting initiation of CIRP. [Paras 5, 7]

Application under Section 10 is admitted and CIRP initiated on the ground of default.

Moratorium - appointment of Interim Resolution Professional - public announcement of initiation - Reliefs and incidental directions consequential to admission of the Section 10 application. - HELD THAT: - Upon admitting the application, the Authority declared moratorium for the purposes of Section 14, prohibiting institution or continuation of suits or enforcement actions, and restraining transfer or disposal of the corporate applicant's assets; directed continuity of supply of essential goods or services during the moratorium; directed public announcement of initiation as prescribed; appointed the proposed Interim Resolution Professional whose consent was on record; and directed registry to forward the order to the IRP, IBBI and Registrar of Companies for updating the corporate status on MCA-21. The moratorium's temporal effect was tied to completion of CIRP or approval of a resolution plan or an order for liquidation, whichever is earlier. [Paras 7]

Moratorium declared, public announcement ordered, proposed Interim Resolution Professional appointed and consequential administrative directions issued.

Final Conclusion: The Tribunal admitted the Section 10 application, held that the corporate applicant had committed default, initiated the CIRP, declared moratorium, directed public announcement and appointed the named Interim Resolution Professional, with consequential administrative directions.

Denial of CENVAT credit on inputs/input services - Centralised billing and centralised accounting as basis for CENVAT entitlement - Entitlement to CENVAT credit despite invoices addressed to unregistered branch premises - Requirement of Service Tax registration within the prescribed period and its relevance to credit - Application of prior MODVAT/CENVAT ratio to service tax credit disputes

Denial of CENVAT credit on inputs/input services - Centralised billing and centralised accounting as basis for CENVAT entitlement - Entitlement to CENVAT credit despite invoices addressed to unregistered branch premises - Whether CENVAT credit availed in respect of input services received by an unregistered Delhi branch can be denied where service tax on those input services and on the output services was discharged by the main registered office under a centralised system. - HELD THAT: - The Tribunal applied its earlier decision in Manipal Advertising Services Pvt. Ltd. and analogous MODVAT/CENVAT precedents to hold that where a centralized billing and centralized accounting system exists and Service Tax liability has been discharged by the registered main office for services provided by branches, the appellant is not disentitled from CENVAT credit merely because invoices were addressed to unregistered branch premises. The Tribunal noted that the payments of Service Tax from the main office for input services received by the branch and discharge of output tax by the main office brought the transactions within the ambit of permissible credit under the CENVAT regime. Consequently, the denial of credit on the ground of non-inclusion of the Delhi premises in the registration certificate was treated as a technical defect which did not defeat the substantive entitlement to credit where tax had in fact been paid and accounting was centralized. The respondent's reliance on the requirement of registration within the prescribed period was considered but the Tribunal, following its prior ratios, emphasised substance over form and set aside the denial of credit with consequential relief. [Paras 5, 6]

The denial of CENVAT credit in respect of input services availed by the Delhi branch is set aside and the appellant is entitled to consequential relief.

Final Conclusion: Appeal allowed; order of the Commissioner (Appeals) denying CENVAT credit for input services availed by the Delhi branch is set aside and consequential relief granted to the appellant.

Cenvat credit - Common input services - Obligations under Rule 6 of the Cenvat Credit Rules - Reversal of credit as compliance with Rule 6 - Recovery of irregularly availed credit under Rule 14 - Payment under Rule 6(3) as an option, not a mandatory selection by Revenue

Cenvat credit - Common input services - Obligations under Rule 6 of the Cenvat Credit Rules - Reversal of credit as compliance with Rule 6 - Recovery of irregularly availed credit under Rule 14 - Whether reversal of Cenvat credit on common input services during audit satisfies the obligations under Rule 6(1)/6(2) of the Cenvat Credit Rules and precludes demand under Rule 6(3)/recovery under Rule 14 and imposition of penalty. - HELD THAT: - The Tribunal examined the statutory scheme of Rule 6 which offers alternative modes of compliance: not availing credit for inputs used in exempted services (Rule 6(1)); maintaining separate accounts where both taxable and exempted services are provided (Rule 6(2)); or paying the proportion specified under Rule 6(3) if neither of the first two options is complied with. The options are available to the assessee to choose and Revenue cannot unilaterally impose one. In the present case the appellant, upon audit objection, reversed the entire Cenvat credit taken on common input services and paid interest. The Tribunal held that such reversal effectively eliminates any availed credit and thus satisfies the requirement of Rule 6(1). Further, the Tribunal found that Rule 6(2) does not prescribe a particular form of accounts and that taking credit and subsequently reversing it during audit is a permissible manner of accounting; consequently Rule 6(2) is also satisfied. Given compliance with Rule 6(1) and Rule 6(2) by reversal, there was no occasion to invoke Rule 6(3) or to recover alleged irregular credit under Rule 14, nor to impose penalty. The Tribunal relied on the established principle that reversed credit, when reversed before adjudication, operates against the claim of irregular availing and the Supreme Court precedent cited in the impugned order supports that position. Applying these conclusions, the Tribunal held the show cause notice and the impugned adjudication confirming demand, interest and penalty to be unsustainable. [Paras 8, 9]

The reversal of Cenvat credit during audit satisfied the obligations under Rule 6(1)/6(2); consequently the demand, interest and penalty confirmed by the impugned order under Rule 14/Rule 6(3)/Rule 15(3) are set aside.

Final Conclusion: The appeal is allowed; the impugned order confirming the demand, interest and penalty is set aside, since reversal of the Cenvat credit during audit complied with the obligations under Rule 6 and precluded recovery or penalty.

Admissibility of cenvat credit on input services where invoices are recorded in books and payment made - genuineness of transactions established by book entries and bank transfers - time-limit for taking credit under Rule 4(1) proviso and effect of delayed claim - penalty under Section 78 for short payment - penalty under Section 77 for failure to assess and pay correct tax

Admissibility of cenvat credit on input services where invoices are recorded in books and payment made - genuineness of transactions established by book entries and bank transfers - time-limit for taking credit under Rule 4(1) proviso and effect of delayed claim - Cenvat credit on input services admitted despite delayed claim where invoices are recorded in books, payments made through bank and genuineness is established. - HELD THAT: - The Tribunal found that the input service invoices for SOTG were duly recorded in the appellant's books of account, payments were made in the regular course mainly through bank transfers and the amounts are reflected in bank records, establishing the genuineness of the transactions. The adjudicating authority's denial based on the proviso to Rule 4(1) that credit should have been taken within six months of the invoice was rejected on the facts: there was no finding that the invoices were sham or that credit was being claimed twice. Following the Tribunal's precedents cited (Meta Pack and Shriji Chemicals), the benefit of cenvat credit could not be denied where the transaction is genuine and supported by books and bank evidence notwithstanding the delayed claim. [Paras 7]

Credit on the input service of SOTG allowed and the impugned denial set aside.

Penalty under Section 78 for short payment - penalty under Section 77 for failure to assess and pay correct tax - Penalty under Section 78 set aside; penalty under Section 77 confirmed. - HELD THAT: - Having found the short payment to be attributable mainly to clerical or calculation error and the underlying transactions to be recorded and genuine, the Tribunal held that imposition of equal penalty under Section 78 was not justified and set it aside. However, because there was admittedly a failure on the part of the appellant to assess and pay the correct duty/tax, the Tribunal sustained the penalty under Section 77. The Tribunal distinguished the nature of the two penalties and applied them according to the established facts. [Paras 8]

Section 78 penalty quashed; Section 77 penalty upheld.

Final Conclusion: The appeal is partly allowed: cenvat credit on input services for the period in question is permitted and the denial set aside; penalty under Section 78 is set aside, while penalty under Section 77 is sustained; consequential benefits granted to the appellant.

Commercial or industrial construction service - works contract service - extended period of limitation - abatement under Rule 2A of Service Tax (Determination of Value) Rules, 2006 - penalty under Section 78 - penalties under Section 76 and Section 77 - interest under Section 75

Commercial or industrial construction service - works contract service - extended period of limitation - Validity of demand in Show Cause Notice dated 28-09-2012 for the period March 2010 to March 2012 and classification of service for period up to 01.07.2012. - HELD THAT: - The Tribunal accepted that the contract was a composite works contract and that, as a matter of law, construction services in such contracts are to be treated as works contract service for the relevant period. However, the first show cause notice had proposed demand under commercial or industrial construction service. The Tribunal held that a demand made under one category cannot be confirmed under a different category at the adjudication stage; accordingly the demand for the period March 2010 to March 2012 (pre-01.07.2012) as adjudicated in the impugned order cannot be sustained and is set aside. The question of invocation of the extended period of limitation in respect of that show cause notice becomes irrelevant because the demand itself for that period is set aside on merits. [Paras 4]

Demand in respect of Show Cause Notice dated 28-09-2012 for the period March 2010 to March 2012 is set aside; classification-based confirmation for the pre-01.07.2012 period cannot be sustained.

Abatement under Rule 2A of Service Tax (Determination of Value) Rules, 2006 - works contract service - Redetermination of service-taxable value and claim of abatement under Rule 2A for periods after 01.07.2012 (parts of April 2012 to March 2013 and whole of April 2013 to March 2014). - HELD THAT: - For the periods after 01.07.2012 the Tribunal observed that classification issues are governed by the expanded definition of 'service' and that the appellants asserted entitlement to exemption entries and/or abatement. The Commissioner denied abatement under Rule 2A on the ground that the appellant had not produced evidence that CENVAT credit was not availed. The Tribunal held the denial of abatement to be legally sustainable on the record but afforded the appellant one opportunity to substantiate the claim. Consequently, the Tribunal remanded the matters relating to determination of service-taxable value and consideration of abatement under Rule 2A to the original authority for redetermination for (i) the portion of the April 2012-March 2013 period after 01.07.2012 and (ii) the April 2013-March 2014 period, directing re-determination within three months. [Paras 4]

Matters relating to quantification/redetermination of service tax payable after consideration of the claim of abatement under Rule 2A are remanded to the original authority for the periods after 01.07.2012 in the Show Cause Notices dated 09-05-2014 and 11-02-2015.

Interest under Section 75 - Liability to pay statutory interest on confirmed demands in the two show cause notices dated 09-05-2014 and 11-02-2015. - HELD THAT: - The Tribunal upheld the impugned order's confirmation of interest on the amounts of service tax found payable for the show cause notices of 09-05-2014 and 11-02-2015. Reliance was placed on settled law that interest accrues automatically once demand is confirmed, and no infirmity was found in the imposition of interest under Section 75 for the amounts required to be paid following remand/redetermination. [Paras 4]

Demand for interest under Section 75 is upheld in respect of the Show Cause Notices dated 09-05-2014 and 11-02-2015.

Penalty under Section 78 - penalties under Section 76 and Section 77 - Sustainability of penalties imposed in the impugned order for the show cause notices dated 09-05-2014 and 11-02-2015 and effect of setting aside extended-period demand on penalty under Section 78. - HELD THAT: - The Tribunal held that because the extended-period demand (covering the pre-01.07.2012 period) was set aside, penalty under Section 78 insofar as it depended on that extended-period finding could not be sustained in view of Apex Court precedent. However, the Tribunal found suppression/incorrect disclosures in returns for the later periods and, following the reasoning in the impugned order, upheld the penalties imposed under Section 76 and Section 77 for the Show Cause Notices dated 09-05-2014 and 11-02-2015, observing that those provisions impose civil liabilities for failures in statutory compliance and disclosure. [Paras 4]

Penalty under Section 78 set aside to the extent dependent on the extended-period finding; penalties under Sections 76 and 77 upheld for the show cause notices dated 09-05-2014 and 11-02-2015.

Final Conclusion: The appeal is partially allowed. The demand in respect of the show cause notice dated 28-09-2012 (March 2010-March 2012) is set aside; for the show cause notices dated 09-05-2014 (April 2012-March 2013) and 11-02-2015 (April 2013-March 2014) the matters touching quantification and entitlement to abatement under Rule 2A for the post-01.07.2012 periods are remanded to the original authority for redetermination; interest claimed under Section 75 and penalties under Sections 76 and 77 are upheld for the latter two notices, while penalties under Section 78 tied to the extended-period finding are not sustained. The original authority is directed to re-determine remanded issues within three months.

Clandestine removal / clandestine clearance - onus on Revenue to prove clandestine manufacture and clearance - corroborative evidence requirement for third party records - inadmissibility of untested oral statements in absence of cross examination - tests for proving clandestine removal (raw material procurement, excess electricity, actual removal, receipt of sale proceeds, transportation proof) - unsustainability of penalty where demand is not established

Clandestine removal / clandestine clearance - onus on Revenue to prove clandestine manufacture and clearance - tests for proving clandestine removal (raw material procurement, excess electricity, actual removal, receipt of sale proceeds, transportation proof) - Demand of Central Excise duty for alleged clandestine clearances by the appellant - HELD THAT: - The Tribunal found that the allegation of large scale clandestine clearance was premised primarily on a loading/booking register seized from a transporter and statements of transporter employees. The Court reiterated that clandestine removal is a serious charge which must be established by tangible and reliable evidence and applied the established tests (including proof of unaccounted procurement of raw materials, evidence of actual removal of finished goods, discovery of goods outside the factory, receipts of sale proceeds, abnormal electricity usage and proof of transportation and buyer involvement). The records recovered from the appellant's premises did not disclose unaccounted raw material receipts, excess production, discrepancies in stock, receipts of clandestine sale proceeds, or abnormal power consumption; investigation of only 3 of 63 code names was carried out and no corroborative material was produced to link third party records to activities in the factory. In these circumstances the onus placed on Revenue was not discharged and mere suspicion arising from a third party register was insufficient to sustain the demand. [Paras 4, 5]

The demand of Central Excise duty for alleged clandestine clearances against the appellant is not proved and is set aside.

Corroborative evidence requirement for third party records - inadmissibility of untested oral statements in absence of cross examination - Reliance on third party documents and oral statements of third parties (transporters/buyers) for confirming duty demand - HELD THAT: - The Tribunal held that third party private records cannot form the sole basis for confirming clandestine removal unless supported by corroborative evidence. The Court noted authoritative precedents that inculpatory statements of third parties have persuasive value but cannot be used as stand alone evidence where the deponents are not produced for cross examination. Here, 18 deponents were listed but only 4 were made available for cross examination; therefore the untested statements could not be relied upon. The Tribunal concluded that reliance on transporter registers and untested third party statements, without independent corroboration linking those records to the manufacturer's factory activities, is legally untenable. [Paras 4]

Third party records and untested oral statements could not sustain the findings of clandestine removal and were insufficient to confirm the demand.

Unsustainability of penalty where demand is not established - Sustainability of personal penalties under Rule 26 of the Central Excise Rules, 2002 on co appellants - HELD THAT: - The Tribunal observed that imposition of personal penalties on co appellants under Rule 26 is contingent upon a validly established duty demand. As the primary demand of duty was held unsustainable for want of proof, the question of imposing penalties did not arise. Accordingly, penalties imposed on co appellants were set aside consequentially. [Paras 6]

Penalties imposed on co appellants under Rule 26 are not sustainable and the appeals against those penalties are allowed.

Final Conclusion: The appeals are allowed: the confirmed duty demand (with interest and penalty) arising from alleged clandestine clearances is set aside for lack of cogent and corroborative evidence, and consequential personal penalties under Rule 26 are held unsustainable.

Reversal of cenvat credit under Rule 6(3) of Cenvat Credit Rules, 2004 - distinction between waste/by product and final product for applicability of presumptive reversal - liability on clearance of old plant parts where no cenvat/modvat credit was taken - burden of proof on Revenue to establish prior credit

Reversal of cenvat credit under Rule 6(3) of Cenvat Credit Rules, 2004 - distinction between waste/by product and final product for applicability of presumptive reversal - Reversal of cenvat credit under Rule 6(3) is not attracted on clearance of zinc dross/ash (waste) generated during galvanising. - HELD THAT: - The Tribunal applied the ratio of the Supreme Court in Hindustan Zinc Ltd. (and the principles in Rallis India Ltd. as discussed) that Rule 6(3) (pari materia to earlier provisions) must be read in the context of the scheme distinguishing inputs, final products, by products and waste. Where the material cleared is a waste product (zinc dross/ash) generated in the process and not a final product manufactured alongside a dutiable final product, the presumptive reversal under Rule 6(3) does not apply. The appellant only manufactured ERW tubes/pipes and the zinc dross/ash was waste arising from galvanising; therefore the requirement to pay 6% under Rule 6(3)(i) was not attracted. The Tribunal accordingly allowed the appeal on this ground. [Paras 13]

Demand on clearance of zinc dross/ash under Rule 6(3) set aside; issue decided for the appellant.

Liability on clearance of old plant parts where no cenvat/modvat credit was taken - burden of proof on Revenue to establish prior credit - Duty cannot be demanded on clearance of parts of old plant (zinc components) where those parts are not manufactured goods and Revenue has not shown that cenvat/modvat credit was availed on them. - HELD THAT: - The Tribunal found that the cleared items were parts of an old plant acquired in 1995 96 and were not manufactured products of the appellant; furthermore, the Revenue did not produce evidence to show that cenvat/modvat credit had been taken on that old plant. In absence of proof that credit was availed, there is no basis to demand excise duty on their clearance. On these factual and legal grounds the demand was unsustainable and was set aside in favour of the appellant. [Paras 14]

Demand on clearance of old plant parts disallowed; issue decided for the appellant.

Final Conclusion: Both demands confirmed by the lower authority were set aside: (i) reversal under Rule 6(3) does not apply to zinc dross/ash (waste), and (ii) no duty is leviable on clearance of old plant parts where they are not manufactured goods and Revenue has not proved prior cenvat/modvat credit; appeal allowed with consequential relief.