TaxTMI Updates e-Newsletter
Oct 16,2021

Refund of unutilised input tax credit - first proviso to section 54(3) of the CGST Act - exports of goods with nil export duty - meaning of "subjected to export duty" for proviso application - administrative clarification as basis for quashing adjudicatory orders

Refund of unutilised input tax credit - first proviso to section 54(3) of the CGST Act - exports of goods with nil export duty - meaning of "subjected to export duty" for proviso application - Applicability of the first proviso to section 54(3) of the CGST Act to claim for refund of accumulated ITC in respect of exports of goods which attract nil export duty. - HELD THAT: - The Court accepted the subsequent administrative clarification dated 20.09.2021 (and communications of 24.09.2021 and 30.09.2021) which explains that the phrase 'subjected to export duty' in the first proviso to section 54(3) of the CGST Act means goods which are actually leviable to and suffer export duty at the time of export. Consequently, goods for which a NIL rate is specified in the Second Schedule to the Customs Tariff Act, 1975, goods fully exempted from export duty by notification, or goods not covered by that Schedule are not 'subjected to export duty' and therefore fall outside the restriction in the first proviso to section 54(3) for availment of refund of accumulated ITC. Relying on that clarification, the Court concluded that the restriction did not apply to the petitioner's exports and that the impugned adjudicatory order and appellate order must be quashed with a direction to the respondents to process the petitioner's case in conformity with the clarification. [Paras 4, 5]

Impugned order-in-original dated 16.03.2020 and order in appeal dated 27.11.2020 quashed; respondents directed to process the petitioner's refund claim in accordance with the clarification dated 20.09.2021.

Final Conclusion: The petition is allowed: the orders denying refund are set aside and the respondents are directed to process the petitioner's case in accordance with the administrative clarification that the first proviso to section 54(3) does not apply to exports of goods not actually subject to export duty.

Time of supply under Section 13 - consideration includes monetary value of forbearance - forbearance as supply of service - reverse charge liability for arbitration services - interest as part of value of taxable supply - works contract executed in pre-GST period not taxable under CGST/SGST

Time of supply under Section 13 - works contract executed in pre-GST period not taxable under CGST/SGST - Taxability of amounts awarded by arbitration in respect of works contract executed prior to introduction of GST. - HELD THAT: - The Authority held that amounts which constitute payment for work actually executed and completed prior to the appointed day, including unpaid contract sums and price escalation relating to that pre-GST performance, are not exigible to CGST/SGST because the time of supply, determined as per Section 13, falls in the pre-GST period. Similarly, refunds or recovery of wrongful deductions from bills pertaining to works completed before GST do not constitute consideration for supplies in the GST period and are not taxable. Interest claimed in respect of delayed payments relating to works executed in the pre-GST period is also not taxable as the time of supply is not in the GST period.

Unpaid amounts, price escalation, refunds of wrongful deductions and interest on delayed payments relating to works executed prior to introduction of GST are not liable to tax under CGST/SGST.

Forbearance as supply of service - consideration includes monetary value of forbearance - reverse charge liability for arbitration services - interest as part of value of taxable supply - Taxability, HSN/tariff classification and rate applicable to other heads awarded by arbitration (liquidated damages, arbitration costs, interest on arbitration amounts and damages determined by award). - HELD THAT: - The Authority found that amounts determined by the arbitral award which constitute consideration for tolerating an act or situation (liquidated damages/compensation for delay) fall within the concept of monetary value of forbearance and thus constitute supply of service; the time of supply for such forbearance is the date on which the cost/determination is made by the arbitration (09.05.2019) and such consideration is exigible to CGST/SGST. Arbitration services supplied after introduction of GST are taxable on reverse charge; the Authority specified the service tariff code for arbitration and applied the applicable rates. Interest awarded by arbitration on sums found due is consideration for delayed payment and forms part of the value of taxable supply under Section 15(2)(d), hence taxable. The cost of arbitration (fee payable to the arbitral tribunal) is a service taxable on reverse charge and classified under the specified service code.

Liquidated damages/compensation for delay determined by the award are taxable as supply of forbearance; interest on arbitration amounts is taxable as part of value; arbitration services and arbitration costs are taxable on reverse charge. HSN/tariff classifications and rates are those indicated in the ruling (arbitration service code and the stated GST rates).

Final Conclusion: The Authority ruled that receipts attributable to work performed before GST (unpaid contract sums, price escalation, refunds of wrongful deductions and pre-GST interest on delayed payments) are not taxable under CGST/SGST; amounts and services determined or supplied after the advent of GST-namely liquidated damages/compensation for delay (as forbearance), interest on amounts awarded, and arbitration services/costs-are exigible to GST and leviable at the HSN/tariff codes and rates stated in the ruling.

Constructive custody for default bail - effect of interim bail on custody - default bail entitlement where charge-sheet is alleged to be incomplete - scope of supplementary evidence after charge-sheet

Constructive custody for default bail - effect of interim bail on custody - Petitioner on interim bail cannot be treated as being in constructive custody of the court for the purpose of seeking default bail. - HELD THAT: - The Court applied established principles that 'custody' for bail purposes connotes physical control or presence of the accused before the court or in the legal control of authorities. Reliance was placed on the reasoning in Sundeep Kumar Bafna that custody arises where the accused is under the court's control, physically remanded or has submitted to the court's jurisdiction by physical presence. The petitioner having been released on interim bail pursuant to High Power Committee directions was not under physical restraint or the court's control; his movements were not restricted by court directions. Treating a person released on bail as being in custody would subvert the very concept of bail, which presupposes release from detention. Consequently the petitioner could not be regarded as in constructive custody for entitlement to default bail.

The contention that the petitioner should be deemed in constructive custody despite interim bail is rejected.

Default bail entitlement where charge-sheet is alleged to be incomplete - scope of supplementary evidence after charge-sheet - Filing of the present charge-sheet, with reservation to file additional evidence as investigation continues, does not render the charge-sheet incomplete so as to entitle the petitioner to default bail. - HELD THAT: - The Court examined the charge-sheet which alleged offences and recorded that further oral evidence and documentary evidence from third parties might emerge and therefore the department reserved the right to file supplementary complaint or evidence. The court held that the possibility of additional evidence coming to light after the charge-sheet is neither unusual nor sufficient to characterise the charge-sheet as incomplete. The provision for filing further evidence or supplementary complaints post submission is available to the prosecution to ensure justice if new material emerges. Precedents relied upon by the petitioner were found distinguishable on facts. On this basis, the petitioner was not entitled to default bail on the ground of an alleged incomplete charge-sheet.

The plea for default bail on the ground of incomplete charge-sheet is rejected.

Final Conclusion: The petition is dismissed: the petitioner on interim bail cannot be treated as in constructive custody for default bail purposes, and the charge-sheet, though reserving the right to file additional material, cannot be treated as incomplete so as to entitle the petitioner to default bail.

Provisional attachment - formation of an opinion - non-application of mind - protection of government revenue - draconian nature of attachment powers - operation of bank accounts during judicial stay

Provisional attachment - formation of an opinion - draconian nature of attachment powers - protection of government revenue - Whether the impugned provisional attachment orders (Exts.P9, P9(A), P9(B)) satisfy the requirements for valid exercise of power under Section 83 of the CGST Act as explained in Radha Krishan Industries. - HELD THAT: - The Court examined the impugned orders in light of the principles laid down in Radha Krishan Industries, which require that provisional attachment be a draconian power exercised only after the Commissioner forms an opinion, based on tangible material, that attachment is necessary to protect government revenue and to prevent defeat of any demand. On a prima facie reading of Exts.P9, P9(A) and P9(B) the Court is satisfied that the stipulations specified in para 72 of the said decision are not evident in the impugned orders and that there is prima facie non-application of mind by the authority when invoking Section 83. Having found, at the prima facie stage, absence of the requisite satisfaction and tangible material underpinning the opinion to attach, the Court concluded that the provisional attachment orders are liable to be stayed pending further adjudication. [Paras 8]

Prima facie finding that the impugned provisional attachment orders do not disclose the mandated satisfaction and tangible material; non-application of mind established at prima facie stage.

Operation of bank accounts during judicial stay - provisional attachment - Relief to be granted pending adjudication in view of the prima facie conclusions. - HELD THAT: - Balancing the crippling effect of provisional attachment on a running establishment and the prima facie deficiencies found in the attachment orders, the Court ordered an interim stay of operation of Exts.P9, P9(A) and P9(B) for eight weeks. The stay expressly permits the petitioner to operate the attached bank accounts during its continuance, thereby removing any prohibition on account operations while the interim order remains in force. [Paras 9]

Stay of operation of Exts.P9, P9(A) and P9(B) for eight weeks; petitioner permitted to operate the respective bank accounts during the stay.

Final Conclusion: Writ petition admitted; on prima facie consideration the provisional attachment orders are stayed for eight weeks for the reasons stated and the petitioner is permitted to operate the attached bank accounts during the continuance of the interim order.

Detention and adjudication under Section 129 of the CGST Act - pendency of writ petition not a bar to completion of statutory adjudication - right to be heard before finalisation of forfeiture/provisional release proceedings

Detention and adjudication under Section 129 of the CGST Act - pendency of writ petition not a bar to completion of statutory adjudication - right to be heard before finalisation of forfeiture/provisional release proceedings - Whether the adjudication proceedings under Section 129 of the CGST Act could be completed despite pendency of the writ petition and the procedural protections to be afforded before finalisation. - HELD THAT: - The Court held that the pendency of the writ petition does not operate as a bar to the authority completing the adjudication proceedings envisaged by Section 129 of the CGST Act. The High Court directed the second respondent to finalise the adjudication pursuant to the detention orders at the earliest and, in any event, within ten days from receipt of the judgment if not already completed. Before concluding the proceedings, the authority must afford the petitioner an opportunity of personal or representative hearing. The direction contemplates expeditious completion of statutory adjudication while ensuring the procedural right to be heard is observed. [Paras 2]

Adjudication under Section 129 may proceed despite the writ petition; the adjudicating authority to complete proceedings within ten days and hear the petitioner before finalisation.

Final Conclusion: Writ petition disposed by directing completion of the adjudication under Section 129 of the CGST Act without being stayed by the petition's pendency, subject to hearing the petitioner and finalisation within ten days.

Detention and seizure under section 129 of the CGST Act - Non-entertainment of writ petition for release of detained goods - Availability of remedy under the CGST Act as a complete code - Release of goods on compliance with conditions - Time-bound adjudication proceedings

Detention and seizure under section 129 of the CGST Act - Non-entertainment of writ petition for release of detained goods - Availability of remedy under the CGST Act as a complete code - High Court will not entertain a writ petition seeking direction to release goods detained under section 129 of the CGST Act where remedy is available under the Act itself. - HELD THAT: - The Court applied the settled law that a writ petition for release of goods detained under section 129 of the CGST Act is not maintainable in the High Court because section 129 constitutes a self-contained remedial code. Reliance is placed on the decision in State of Uttar Pradesh v. Kay Pan Fragrance Pvt. Ltd., which establishes that the statutory scheme provides the assessee with remedies and therefore precludes entertaining a writ for the same relief. Since relief is available under the CGST Act, the petition is not a proper forum to bypass the statutory procedure for release of detained goods. [Paras 2]

Writ petition seeking release of detained goods under section 129 of the CGST Act is not entertained; remedy lies under the CGST Act.

Time-bound adjudication proceedings - Release of goods on compliance with conditions - Adjudication proceedings under section 129 must be completed in a time-bound manner and any application for release of the vehicle shall be considered according to law. - HELD THAT: - While declining to entertain the writ, the Court directed that the proceedings initiated under section 129 be concluded promptly and specified that the adjudicating authority should complete the adjudication within seven days from receipt of the judgment. The Court further observed that if the petitioner files an application for release of the vehicle, the authority is obliged to consider it in accordance with law and the statutory scheme governing release on compliance with conditions. [Paras 3]

Adjudication under section 129 to be completed within seven days; any application for release to be considered in accordance with law.

Final Conclusion: Writ petition dismissed; detention challenge under section 129 is not maintainable before the High Court as remedy exists under the CGST Act, and the adjudicating authority is directed to conclude proceedings within seven days and consider any release application according to law.

Refund of tax paid on zero-rated supplies - entitlement of any person to claim refund under Section 54 - application under Rule 89 of the CGST Rules - refund of unutilised input tax credit - requirement to establish absence of double claim and documentary proof under Section 54(4)

Refund of tax paid on zero-rated supplies - entitlement of any person to claim refund under Section 54 - SEZ/petitioner is entitled to file an application for refund of taxes erroneously paid on zero-rated supplies - HELD THAT: - The Court examined Section 54 and its Explanation together with Rule 89 and held that the statutory scheme commences with the phrase 'any person' and does not, on its face, restrict entitlement to suppliers alone. The presence of clause (g) in the Explanation and the residuary clause for relevant date indicate that a person other than the supplier may claim refund where entitled. Rule 89 echoes the language of Section 54 and the specific proviso referring to suppliers to SEZs does not operate to exclude other applicants. On this legal construction the Court allowed entitlement in favour of the petitioner. [Paras 6, 7, 14, 15, 17]

Petitioner SEZ is legally entitled to claim refund of taxes erroneously remitted on zero-rated supplies

Application under Rule 89 of the CGST Rules - interpretation of proviso to Rule 89 - The second proviso to Rule 89 which refers to claims by suppliers to SEZs does not imply an exclusive bar on claims by other persons - HELD THAT: - The Court rejected the Revenue's contention that the reference to supplier in the second proviso imposes an exclusive limitation. Rule 89(1) and Section 54 both begin with 'any person', and no word of exclusivity ('only') appears in the proviso. The Court emphasized that words cannot be read into the Rule and therefore the proviso identifies one class of claimants (suppliers) without excluding others who may otherwise be entitled to refund under Section 54. [Paras 16, 17]

Reference to supplier in the proviso to Rule 89 does not exclude other entitled persons from filing refund applications

Requirement to establish absence of double claim and documentary proof under Section 54(4) - quantification and verification of refund - Quantification of refund and entitlement are remanded for factual verification; petitioner must establish absence of double claim and that taxes were remitted to the treasury - HELD THAT: - Although the petitioner is entitled to claim refund as a matter of law, the Court recognized the Revenue's legitimate concerns regarding double claims and whether the tax remitted by the supplier has been deposited to the treasury in returns. Section 54(4) requires the application to be accompanied by documentary evidence establishing the claim and that incidence of tax was not passed on. The Court directed the petitioner to appear before the assessing authority, produce all relevant material, and permitted the authority to make such enquiries as necessary to verify the factual aspects and compute the correct quantification of refund. [Paras 18, 19]

Matter remitted for factual verification and quantification; petitioner to produce documents and authority to examine issues including double claim and remittance to treasury

Final Conclusion: Writ petitions allowed on the legal issue: SEZ entitled to seek refund of taxes erroneously paid on zero-rated supplies; claims must be supported by documentary evidence and are remanded to the respondent for factual verification and quantification with liberty to obtain necessary information

Services by way of job work - Manufacturing services on physical inputs (goods) owned by others - Job work definition under section 2(68) of the CGST Act, 2017 - Manufacture definition under section 2(72) of the CGST Act, 2017 - Classification under Heading 9988 of Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 20/2019 - Circular No.126/45/2019-GST - scope and effect of entries (id) and (iv) under Heading 9988

Services by way of job work - Job work definition under section 2(68) of the CGST Act, 2017 - Manufacture definition under section 2(72) of the CGST Act, 2017 - Classification under Heading 9988 as amended by Notification No.20/2019 - Circular No.126/45/2019-GST - Whether the processes carried out by the applicant constitute job work and are classifiable under clause (id) of Heading 9988 of Notification No. 11/2017-Central Tax (Rate) as amended by Notification No.20/2019. - HELD THAT: - The Authority examined whether the applicant's processes on plain polyester films supplied by the principal (a registered person) result in emergence of a new product having distinct name, character and use (the test of 'manufacture' under section 2(72)). The Authority found that (i) the processes are undertaken by the applicant on goods belonging to a GST-registered principal; (ii) the title to inputs and processed items remains with the principal; (iii) only job charges are received and the processed goods are returned within the period prescribed under section 143(1)(a); and (iv) no new product with distinct name, character and use emerges. Applying section 2(68)'s definition of job work and the manufacture test in section 2(72), the Authority concluded that the activity is job work and not manufacture. Having determined the activity to be job work and having found that none of the specifically enumerated sub-entries (i), (ia), (ib), (ic) apply, the supply falls within the residuary entry at item (id) of Heading 9988 as inserted/amended by Notification No.20/2019. The Authority noted the clarificatory effect of Circular No.126/45/2019-GST but based its conclusion on the statutory definitions and facts presented by the applicant. [Paras 5]

The processes performed by the applicant amount to job work and are classifiable under clause (id) of Heading 9988 of Notification No.11/2017-Central Tax (Rate) as amended by Notification No.20/2019.

Final Conclusion: The Authority answers the advance ruling question in the affirmative: the services provided by M/s Garware Industries Limited constitute job work and are classifiable under clause (id) of Heading 9988 of Notification No.11/2017-Central Tax (Rate) as amended by Notification No.20/2019.

Pure services - supply of services (lease, tenancy, easement, licence to occupy land) - exemption under Entry No. (3) of Notification No.12/2017-CT(R) dated 28.06.2017 - Government Entity / Governmental Authority (90% participation by way of equity or control) - activity in relation to any function entrusted to a Municipality under Article 243W / to a Panchayat under Article 243G - deposit not to be treated as consideration unless appropriated by supplier - Schedule II characterization of lease as service

Pure services - Schedule II - lease to be treated as supply of services - exemption under Entry No. (3) of Notification No.12/2017-CT(R) dated 28.06.2017 - activity in relation to any function entrusted to a Municipality under Article 243W / to a Panchayat under Article 243G - Whether the amounts payable to MbPT (annual lease/way leave fees and compensation for demolition/decommissioning) are for 'pure services' and qualify for exemption under Entry No. (3) of Notification No.12/2017-CT(R) dated 28.06.2017. - HELD THAT: - The Authority found that Schedule II treats any lease, tenancy, easement or licence to occupy land as a supply of services and that the MOU does not envisage any supply of goods; hence the grant of lease/way leave is a supply of pure services (see 5.7.3-5.7.4). It further applied the threefold test in Entry No. (3): (i) supply must be pure services (satisfied), (ii) supplied to Central/State/UT/local authority or a Governmental Authority/Government Entity (examined separately), and (iii) by way of activity in relation to a function entrusted to a Municipality/Panchayat under Articles 243W/243G (the MTHL project falls within entries such as urban planning, roads and bridges and planning for economic/social development listed in the Twelfth/Eleventh Schedules). On these findings the Authority held that the lease/way leave fees and the compensations for demolition/decommissioning are supplies of pure services rendered to a Government Entity in relation to municipal/panchayat functions and therefore exempt under Entry No. (3) (see 5.7.5-5.9.3 and 5.10). [Paras 5]

The annual lease/way leave fees and the compensations for demolition/decommissioning are pure services supplied to a Government Entity in relation to functions entrusted to a Municipality/Panchayat and are exempt under Entry No. (3) of Notification No.12/2017-CT(R) dated 28.06.2017.

Government Entity / Governmental Authority (90% participation by way of equity or control) - definition of Government Entity/Governmental Authority - exemption under Entry No. (3) of Notification No.12/2017-CT(R) dated 28.06.2017 - Whether MMRDA qualifies as a 'Government Entity' / 'Governmental Authority' for the purposes of Entry No. (3) and thereby enables exemption of the supplies to it. - HELD THAT: - The Authority examined Notification No. 31/2017 and the MMRDA Act. MMRDA was held to be established by the State Government (MMRDA Act) and constituted with ministers, nominated legislators, municipal representatives and senior officials, demonstrating State control. Section 46A of the MMRDA Act further evidences State control. On this basis the Authority concluded MMRDA falls within the definition of a Government Entity / Governmental Authority (set up/established by the State with requisite participation/control) and therefore is an eligible recipient under Entry No. (3) (see 5.8.4-5.8.7 and 5.10). [Paras 5]

MMRDA qualifies as a Government Entity/Governmental Authority and supplies made to it fall within the category of recipients covered by Entry No. (3) of Notification No.12/2017-CT(R) dated 28.06.2017.

Deposit not to be treated as consideration unless appropriated by supplier - security deposit - exemption under Entry No. (3) of Notification No.12/2017-CT(R) dated 28.06.2017 - Whether the amounts characterized as 'Way Leave Agreement charges' (15% of security deposit), interest free refundable security deposit (12 months), and the refundable Rs.20 crore deposit constitute 'consideration' taxable under GST or are exempt. - HELD THAT: - Relying on the definition of 'consideration' in Section 2(31) and its proviso, the Authority observed that a deposit given in respect of a supply is not consideration unless the supplier applies it as consideration (5.13.5-5.13.6). Applying the commercial attributes of a security deposit (security for performance, against damage, refundable and held only until completion), it found that the deposits in the MOU are intended as refundable security and will not be appropriated as consideration by MbPT (5.13.7-5.13.8). Independently, even if treated as amounts in relation to the lease/way leave service, such receipts are supplies to a Government Entity in relation to municipal/panchayat functions and therefore exempt under Entry No. (3). The Authority therefore held both on the non consideration principle and on the exemption that the specified deposits/charges do not attract GST (5.13.9). [Paras 5]

The Way Leave Agreement charges, the interest free refundable security deposit (12 months) and the refundable Rs.20 crore deposit are not consideration liable to GST (unless appropriated) and, in any event, are amounts in relation to exempt pure services supplied to a Government Entity and therefore exempt under Entry No. (3).

Final Conclusion: The Authority answered the applicant's question in the affirmative: the annual lease/way leave fees, the compensations for demolition/decommissioning, the Way Leave Agreement charges (15% of security deposit), the interest free refundable security deposit (12 months) and the refundable Rs.20 crore deposit received by MbPT from MMRDA are treated as supplies of pure services to a Government Entity in relation to functions entrusted to a Municipality/Panchayat and are exempt from GST under Entry No. (3) of Notification No.12/2017 CT(R) dated 28.06.2017; deposits are not consideration unless appropriated by the supplier.

Classification under Heading 38.22 (diagnostic or laboratory reagents and kits) - Exclusion from Heading 38.22 where goods fall under Heading 30.02 - Essential character of a diagnostic kit governing classification - Agglutinating sera as a distinct listed product in Schedule I - Classification under Schedule II of Notification No.1/2017 and applicable GST rate - Temporary rate reduction by Notification No.05/2021 (limited period relief)

Classification under Heading 38.22 (diagnostic or laboratory reagents and kits) - Exclusion from Heading 38.22 where goods fall under Heading 30.02 - Essential character of a diagnostic kit governing classification - Agglutinating sera as a distinct listed product in Schedule I - Classification under Schedule II of Notification No.1/2017 and applicable GST rate - Classification of Turbilatex C-reactive protein (CRP) and HbA1c diagnostic kits and the GST rate applicable thereon - HELD THAT: - The Authority examined whether the subject products are agglutinating sera falling under Heading 30.02 (Schedule I, Sr. No.180, List I Sr. No.125) or prepared diagnostic reagents/kits falling under Heading 38.22 (Schedule II, Sr. No.80). Entry No.125 in List I expressly lists "Agglutinating Sera" as an individual product and does not refer to diagnostic kits generally. The Explanatory Note to Heading 30.02 requires that a diagnostic kit be classified there when the essential character of the kit is given by a product of that heading, and the applicant has the burden to identify the single component governing the specificity of the test procedure. The applicant did not demonstrate that any component of the kits is itself an agglutinating serum that imparts the essential character required for classification under 30.02. Having found that the kits are not themselves agglutinating sera but diagnostic kits that may operate on an agglutination principle, the Authority held they are not classifiable under Heading 30.02. The Notes and Explanatory text for Heading 38.22 show that prepared diagnostic reagents and kits (including kits consisting of several components, some of which when presented separately might fall under other headings) are covered by Heading 38.22 provided they are identifiable as diagnostic or laboratory reagents by composition, labelling or instructions for in vitro use. Applying these principles, the Authority concluded that the subject CRP and HbA1c kits fall within Heading 38.22. The Authority further noted a temporary concessional rate in Notification No.05/2021 that reduced the rate for certain inflammatory diagnostic marker kits (including CRP) for a limited period up to 30 September 2021, but that relief was time limited; in ordinary course the products attract the rate fixed in Schedule II of Notification No.1/2017. Therefore the subject goods are classifiable under Heading 38.22 and attract the rate specified in Schedule II. [Paras 5]

Turbilatex CRP and HbA1c diagnostic kits are classifiable under Heading 38.22 and, as per Sr. No.80 of Schedule II to Notification No.1/2017-Central Tax (Rate), attract GST @12%.

Final Conclusion: The Authority answers that Turbilatex C-reactive protein (CRP) and HbA1c diagnostic kits are classifiable under Heading 38.22 and, under Sr. No.80 of Schedule II to Notification No.1/2017-Central Tax (Rate), are liable to GST at 12% (6% CGST + 6% SGST or 12% IGST).

Treatment or process on goods belonging to another person - job work - deemed supply of services under Schedule II - Point No. 3 - distinction between manufacture and processing - classification under Heading 9988 (Manufacturing services on physical inputs (goods) owned by others) - applicability of Notification No.20/2019 reducing GST rate on job work to 6%

Treatment or process on goods belonging to another person - job work - deemed supply of services under Schedule II - Point No. 3 - distinction between manufacture and processing - Whether the processes of CED coating, phosphating and powder coating undertaken by the applicant on goods received from clients amount to job work and are to be treated as supply of services. - HELD THAT: - The Authority examined the nature of the processes and the surrounding facts: goods are received under delivery challan from principals, undergo phosphating and coating (CED/powder) without emergence of a new product, and are returned to the principals within the statutory period. Phosphating and coating were found to enhance life or provide a surface finish but do not change the goods into a new commodity having a distinct name, character or use. Reliance on the statutory definition of job work as any treatment or process on goods belonging to another registered person and on the distinction between manufacture and processing led to the conclusion that the activities are processing/job work rather than manufacture. The Authority recorded that only job charges are received and title remains with the principals, satisfying conditions for job work. Consequently, the processes fall within the scope of supply of services as envisaged by Schedule II - Point No.3 and within the definition of job work under the GST Act. [Paras 5]

The processes undertaken by the applicant constitute job work and are to be treated as supply of services.

Classification under Heading 9988 (Manufacturing services on physical inputs (goods) owned by others) - applicability of Notification No.20/2019 reducing GST rate on job work to 6% - Whether the applicant's job work services are classifiable under Entry (id) of Heading 9988 and whether Notification No.20/2019 (reducing GST on job work to 6%) applies. - HELD THAT: - Having concluded that the applicant's activity is job work, the Authority examined Notification No.11/2017 as amended by Notification No.20/2019. The services did not fall within the specific sub-entries (i), (ia), (ib) or (ic) (which cover specified sectors and exceptions). Therefore the supply is covered by the residuary entry (id) under Heading 9988 - "Services by way of job work other than (i), (ia), (ib) and (ic) above." As Notification No.20/2019 inserts and prescribes rates for these entries and reduces the rate applicable to the residuary job work entry to 6%, the Authority held that the reduced rate notification is applicable to the applicant's services. [Paras 5]

The applicant's services are classifiable under the residuary entry (id) of Heading 9988 and Notification No.20/2019 (reducing GST on job work to 6%) applies to the firm.

Final Conclusion: The Authority answered both questions in the affirmative: the applicant's coating and related processes constitute job work and supply of services under Schedule II - Point No.3, and such job work falls under the residuary entry of Heading 9988 with Notification No.20/2019 (GST rate 6%) being applicable.

Value of supply - reimbursed expenses - pure agent - deductions under Section 15 of the CGST Act - transaction value - consideration - exigibility to CGST/SGST

Value of supply - reimbursed expenses - pure agent - deductions under Section 15 of the CGST Act - exigibility to CGST/SGST - Liability to pay GST on amounts received from the contractee, including wages/salaries and statutory contributions reimbursed by the contractee. - HELD THAT: - The Authority held that the pre-GST decisions relied upon by the applicant concern interpretation of service-tax valuation rules and do not lay down general principles applicable under the GST regime. Under the GST law the applicant does not qualify as a pure agent, and the statutory list of permissible deductions under Section 15 of the CGST Act does not include amounts paid as wages, salaries, EPF or ESI. Consequently the amounts reimbursed by the Hospital cannot be excluded from the value of supply and form part of the consideration for the taxable supply. On these grounds the Authority concluded that the entire amount received from the Hospital is exigible to CGST/SGST.

The applicant is liable to pay tax on all amounts received from the Hospital, including amounts reimbursed towards wages/salaries and statutory contributions.

Final Conclusion: Advance Ruling: The amounts received from the Hospital, including reimbursements of wages/salaries and statutory contributions, form part of the value of supply and are taxable under CGST/SGST; the applicant is liable to pay tax on the entire amounts received.

Concessional rate under Notification No. 01/2018 - Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (Urban) - Eligibility for concessional GST on dwellings acquired under CLSS - Advance Ruling under Section 97 of the GST Act

Concessional rate under Notification No. 01/2018 - Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (Urban) - Eligibility for concessional GST on dwellings acquired under CLSS - Applicability of Notification No. 01/2018 of central tax (rate) dated 25.01.2018 to amounts received from customers claiming benefit under PMAY (Urban) / CLSS. - HELD THAT: - The Authority noted that Notification No. 01/2018 inserted an entry which covers 'houses constructed or acquired under the Credit Linked Subsidy Scheme for EWS/LIG/MIG-1/MIG-2' under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban). The ruling explains that where a person acquires a dwelling under the credit linked subsidy scheme and fulfills the conditions and formalities prescribed under that scheme, and obtains subsidy through designated banks/financial institutions under the scheme, the dwelling falls within the scope of the notification. Accordingly, such transactions qualify for the concessional rate of tax specified by the notification, subject to satisfaction of the scheme's conditions and formalities. [Paras 7, 8]

Notification No. 01/2018 is applicable and the concessional rate is available where the credit linked subsidy scheme under PMAY(U) is availed and its conditions/formalities are fulfilled through the designated banks/financial institutions.

Final Conclusion: The Authority ruled that amounts received from customers are eligible for the concessional rate under Notification No. 01/2018 only if the dwelling is acquired under the Credit Linked Subsidy Scheme of PMAY(U) and the conditions and formalities of that scheme, including subsidy through designated banks/financial institutions, are satisfied.

Disposal of pending application under Section 264 of the Income Tax Act, 1961 by a competent authority - obligation to pass a reasoned order

Disposal of pending application under Section 264 of the Income Tax Act, 1961 by a competent authority - obligation to pass a reasoned order - Direction to the respondent to decide the petitioner's application dated 18th August, 2021 filed under Section 264 of the Act by a reasoned order within a time bound period. - HELD THAT: - The petitioner, a Netherlands company and major shareholder of an Indian subsidiary, had applied under Section 264 of the Income Tax Act, 1961 for administrative relief against the withholding certificate issued by the Assessing Officer under Section 197. The Section 264 application filed before the respondent remained pending despite reminders. The High Court, noting the limited relief sought and that the respondent had no objection to a direction for disposal, declined to adjudicate the substantive tax controversy and instead directed the respondent to decide the pending Section 264 application by a reasoned order in accordance with law. The Court prescribed an eight week timeline for such disposal and required the order to be uploaded and counsel to be informed.

The respondent is directed to decide the petitioner's Section 264 application dated 18th August, 2021 by a reasoned order in accordance with law within eight weeks.

Final Conclusion: Writ petition disposed by directing the respondent to decide the petitioner's pending Section 264 application by a reasoned order in accordance with law within eight weeks; no substantive adjudication on the merits of the tax issues was undertaken.

Disallowance under section 43B - applicability of section 43B to employees' contribution to PF & ESI - due date of furnishing return under section 139(1) - misreporting in Form 3CD / tax auditor's clerical error - remand to Assessing Officer for verification of payments - rectification / mistake apparent from record under section 154

Disallowance under section 43B - applicability of section 43B to employees' contribution to PF & ESI - due date of furnishing return under section 139(1) - misreporting in Form 3CD / tax auditor's clerical error - remand to Assessing Officer for verification of payments - Whether the disallowance of Rs. 1,82,543 under section 43B should be sustained where tax-auditor's Form 3CD reported the amounts as unpaid though the assessee contends payments were made before the due date of filing the return. - HELD THAT: - The Tribunal recorded that the addition under section 43B made by the CPC arose from alleged belated payments of provident fund, ESI, bonus and GST as reflected in the tax-auditor's report (Form 3CD). The assessee produced ledger extracts and payment challans showing payments which, it was contended, were made before the due date prescribed for filing the return under section 139(1), and submitted that the amounts were reported under an incorrect column in Form 3CD due to a clerical mistake by the tax auditor. The CIT(A) had sustained the disallowance solely on the basis of the auditor's report. Considering the totality of facts and in the interest of justice, the Tribunal restored the matter to the file of the Assessing Officer with a direction to verify the payment details; if the Assessing Officer finds that the payments were made on or before the specified dates, the disallowance is to be deleted. The Tribunal therefore did not decide the substantive applicability of section 43B on merits but remanded for factual verification of the dates of payment and attendant clerical misreporting in Form 3CD. [Paras 7]

Issue restored to the file of the Assessing Officer for verification of payment dates and deletion of the addition if payments are found to have been made on or before the specified date; ground allowed for statistical purposes.

Amendment of grounds of appeal - Whether the appellant's general miscellaneous ground (ground No.2) should be entertained. - HELD THAT: - The Tribunal noted that ground No.2 was general in nature and did not raise a distinct substantive contention requiring separate adjudication. Accordingly, the miscellaneous/general ground was not upheld. [Paras 8]

General ground dismissed.

Final Conclusion: The appeal is partly allowed for statistical purposes: the disallowance of Rs. 1,82,543 under section 43B is remanded to the Assessing Officer for verification of payment records and deletion if payments were made on or before the due date; the remaining general ground is dismissed.

Deduction under section 36(1)(va) - employees' contribution to PF and ESI - due date of filing return under section 139(1) - deemed income under section 2(24)(x) - application of Finance Act, 2021 amendment to due date for employees' contribution

Deduction under section 36(1)(va) - employees' contribution to PF and ESI - due date of filing return under section 139(1) - deemed income under section 2(24)(x) - Whether the disallowance of employees' contribution to PF and ESI, paid belatedly under the respective statutes but before the due date for filing the income tax return under section 139(1), is sustainable and deductible under section 36(1)(va). - HELD THAT: - The Tribunal found that the assessee had deposited employees' contribution to PF and ESI before the due date for filing the return under section 139(1) though after the statutory due dates under PF/ESI laws. In light of coordinate bench decisions and the view in Pro Interactive Service (India) Pvt. Ltd. following AIMIL Ltd., the legislative intent is to allow expenditure when payment is actually made and not to treat such belated deposits as deemed income under section 2(24)(x). The Tribunal noted that the Finance Act, 2021 amendments (which clarify the meaning of "due date" and exclude application of section 43B for determining that due date) take effect from 01.04.2021 and therefore do not apply to the assessment year before the Tribunal. Applying the settled precedents and the temporal non-applicability of the 2021 amendments, the Tribunal held that no disallowance was warranted where employees' contributions were paid before the return filing due date. [Paras 7, 8]

The disallowance of Rs. 8,37,846/ on account of belated payment of employees' contribution to PF and ESI is deleted and the appeal is allowed.

Final Conclusion: The Tribunal set aside the CIT(A)'s order sustaining the CPC's disallowance, holding that employees' contributions to PF and ESI paid before the due date of filing the return for A.Y. 2018 2019 are allowable under section 36(1)(va); the Finance Act 2021 amendments are not applicable to the assessment year under appeal.

Allowability of deduction under section 36(1)(va) for employees' contribution to PF & ESI paid before the due date of filing the return - application of section 43B to employees' contribution and its temporal scope - treatment of employees' contribution as deemed income under section 2(24)(x) - rectification under section 154 and intimation under section 143(1)(a)(iv)

Allowability of deduction under section 36(1)(va) for employees' contribution to PF & ESI paid before the due date of filing the return - treatment of employees' contribution as deemed income under section 2(24)(x) - application of section 43B to employees' contribution and its temporal scope - Whether the disallowance of Rs. 3,26,330/- on account of belated deposit of employees' contribution to PF & ESI is sustainable where such contribution was deposited before the due date for furnishing the return of income under section 139(1). - HELD THAT: - The Tribunal found that the assessee had deposited employees' contribution to PF & ESI before the due date for filing the return under section 139(1). Relying on coordinate-bench decisions and the approach of the Hon'ble Delhi High Court in Pro Interactive Service (India) Pvt. Ltd. (following AIMIL Ltd.), the Tribunal held that the legislative intent is to allow the expenditure when actual payment is made and that belated payment treated as income under section 2(24)(x) should not be used to deny deduction where payment was made before the return filing due date. The Tribunal observed that amendments introduced by the Finance Act, 2021 (which clarify application of section 43B and insertion of Explanation 2 to section 36(1)(va)) are prospective with effect from 1 April 2021 and therefore do not affect the assessment year before consideration. Applying these principles, the Tribunal concluded that the addition/disallowance made by the Assessing Officer/CPC and sustained by the CIT(A) is not sustainable in law where the employees' contribution was deposited before the due date of filing the return, and directed deletion of the disallowance. [Paras 7, 8]

The disallowance of Rs. 3,26,330/- on account of late deposit of employees' contribution to PF & ESI is set aside and deleted as the deposit was made before the due date for filing the return.

Rectification under section 154 and intimation under section 143(1)(a)(iv) - Whether the rectification application under section 154 against the intimation under section 143(1) (invoking clause (a)(iv)) was rightly dismissed where the disallowance itself was not sustainable. - HELD THAT: - The Tribunal noted that the CPC had processed the return by making an adjustment under section 143(1)(a)(iv) and that the assessee's rectification under section 154, which pointed out that payment had been made before the due date of filing the return, was dismissed by the CPC. Having concluded on the substantive question that the disallowance was not sustainable because payment was made before the return filing due date, the Tribunal effectively held that the rectification dismissal could not stand and directed deletion of the adjustment made by the AO/CPC. The Tribunal therefore allowed the grounds raised in the appeal which encompassed the rectification grievance. [Paras 7, 8]

The dismissal of the section 154 rectification (and the consequent adjustment made in the section 143(1) intimation) is set aside; the adjustment is deleted.

Final Conclusion: The Tribunal allowed the appeal, holding that the disallowance of employees' contribution to PF & ESI (deposited before the due date for filing the return) was not sustainable; the Assessing Officer's/CPC's adjustment under the section 143(1) intimation and the dismissal of the section 154 rectification are set aside and the disallowance of Rs. 3,26,330/- is deleted.

Revenue expenditure versus capital expenditure - Stock-in-trade versus capital asset - Allowability of legal expenses incurred to acquire rights in property - Section 14A r.w. Rule 8D disallowance - Computation of book profit under section 115JB and treatment of disallowance under Section 14A r.w. Rule 8D

Revenue expenditure versus capital expenditure - Stock-in-trade versus capital asset - Allowability of legal expenses incurred to acquire rights in property - Legal expenses (including service tax component) incurred in relation to acquisition of interest in properties of the erstwhile Nizam - whether revenue expenditure deductible as business expense or capital expenditure - HELD THAT: - The Tribunal examined the character of the properties and the nature of the expenditure. It noted that earlier orders of the first appellate authority and the Tribunal had held the immovable properties at Hyderabad to be stock-in-trade of the assessee. The assessee had treated the properties as stock-in-trade in its books and had offered compensation received for compulsory acquisitions as business income, which was accepted by the revenue. Given these findings and the authorities relied upon, the Tribunal held that the expenditures related to assets held as stock-in-trade and thus are revenue in nature. Consequently, the legal expenses (including the service-tax component) were held allowable as business expenditure and even the partial disallowance sustained by the Commissioner (Appeals) was deleted. [Paras 6, 7]

Legal expenses aggregated to Rs.1,35,89,610/- are revenue expenditure and allowable; assessee's appeal on this ground allowed and revenue's corresponding ground dismissed.

Section 14A r.w. Rule 8D disallowance - Computation of book profit under section 115JB and treatment of disallowance under Section 14A r.w. Rule 8D - Disallowance under Section 14A read with Rule 8D in respect of exempt dividend income - whether AO's computation should be sustained or Commissioner (Appeals) rightly restricted disallowance to the amount suo motu disallowed by the assessee; and whether such disallowance is to be considered while computing book profit under section 115JB - HELD THAT: - The assessing officer computed a higher disallowance under Rule 8D(2)(iii) based on administrative expenses, whereas the assessee had itself made a suo motu disallowance larger than 50% of the total administrative and management expenditure claimed. The Tribunal agreed with the Commissioner (Appeals) that when the assessee has disallowed more than half of the relevant administrative expenditure, no further disallowance by the AO is called for. The Tribunal rejected the assessee's submission to follow a fixed cap (Rs.2 lakhs) from an earlier year because Rule 8D was not applicable then and subsequent Tribunal decisions confined the disallowance to the assessee's suo motu amount. On the question of inclusion in book profit under section 115JB, the Tribunal followed the binding decision of the Delhi Special Bench in ACIT vs Vireet Investments P Ltd and upheld deletion of the disallowance while computing book profit. [Paras 9, 11, 13]

Commissioner (Appeals)'s deletion of the AO's additional disallowance under Section 14A r.w. Rule 8D is upheld; the disallowance need not be increased beyond the assessee's suo motu amount, and deletion in computation of book profit under section 115JB is sustained.

Final Conclusion: Assessee's appeal is allowed in respect of disallowance of legal expenses (including service tax) which are held to be revenue expenditures; the revenue's appeal and the assessee's cross-objection are otherwise dismissed, and the Commissioner (Appeals)'s deletion of the additional Section 14A r.w. Rule 8D disallowance (including for computation of book profit under section 115JB) is upheld.

Framing of assessment under section 147 - Notice under section 143(2) as condition precedent to assessment - Quashing of assessment for want of mandatory procedure - Maintainability of appeal under section 249(4)

Notice under section 143(2) as condition precedent to assessment - Framing of assessment under section 147 - Quashing of assessment for want of mandatory procedure - Assessment framed without issuance of notice under section 143(2) is without authority of law and vitiates the assessment under section 147. - HELD THAT: - The Tribunal found on the record and on the assessment order that no notice under section 143(2) was issued prior to framing the assessment under section 147. The Revenue did not rebut that factual finding. The Assessing Officer proceeded on the basis of notices under sections 148 and 142(1) and completed the assessment ex parte; however, issuance of notice under section 143(2) is a mandatory procedural prerequisite as recorded by the lower authority. In view of the admitted non-issuance of the mandatory notice and absence of any contrary evidence from Revenue, the assessment framed under section 147 lacks jurisdictional validity and must be set aside. The Tribunal therefore quashed the assessment; having done so, it declined to adjudicate the merits of the addition as those grounds became academic. [Paras 5, 6]

Assessment quashed for want of issuance of notice under section 143(2); appeal allowed.

Final Conclusion: The appeal is allowed. The assessment for Assessment year 2009-10, framed without issuance of the mandatory notice under section 143(2), is quashed; other grounds were left academic and not decided.

Validity of reassessment proceedings where Form 26AS shows higher receipts - Taxability of gross receipts vis-a -vis profit element - Application of a notional/net profit rate on disputed business receipts

Validity of reassessment proceedings where Form 26AS shows higher receipts - Reopening of assessment under section 148 was validly initiated. - HELD THAT: - The Tribunal found that the Assessing Officer identified a clear and material discrepancy between the gross receipts reflected in Form 26AS and the receipts declared by the assessee in its profit & loss account. On this basis the Assessing Officer was justified in issuing notice under the reassessment provisions and reopening the assessment. The Court recorded that the ground of objection to reopening lacked merit because the AO had sufficient cause to believe regarding the understated receipts as per Form 26AS and therefore the reassessment was valid. [Paras 6]

Reopening of the assessment was sustained.

Taxability of gross receipts vis-a -vis profit element - Application of a notional/net profit rate on disputed business receipts - Only the profit element embedded in the disputed receipts is taxable; the Assessing Officer could not treat the entire gross receipts as income and was directed to apply a notional net profit rate of 8%. - HELD THAT: - The Tribunal held that there was no material or finding to show that the assessee had invested undisclosed funds to earn the gross receipts; consequently the AO's addition of the entire difference between Form 26AS and the return (i.e., gross receipts) was contrary to settled principle. Under the uncontroverted facts the gross receipts could not be equated with income and only the income/profit portion is taxable. Following a coordinate bench decision, the Tribunal directed the Assessing Officer to compute taxable income by applying a net profit rate of 8% on the difference of receipts, thereby sustaining an addition limited to the profit element and deleting the balance addition. [Paras 6, 7]

Addition reduced by taxing only 8% of the difference of receipts; rest of the addition deleted.

Final Conclusion: The appeal was partly allowed: reopening under reassessment provisions was sustained, but the addition based on the difference between Form 26AS and declared receipts was restricted to the profit element by applying a notional net profit rate of 8%, with the balance deletion ordered.

Allowability of business expenditure under Section 37(1) - distinction between business expenditure and donation - business expediency test - capital versus revenue expenditure - ownership of assets and benefit to third parties - relevance of precedential decisions and consistency with earlier assessment years - Explanation-2 to Section 37(1) (CSR exclusion)

Allowability of business expenditure under Section 37(1) - distinction between business expenditure and donation - business expediency test - Explanation-2 to Section 37(1) (CSR exclusion) - relevance of precedential decisions and consistency with earlier assessment years - Deletion of addition of project expenses made under Section 37(1) was sustained and the expenses were held allowable as business expenditure. - HELD THAT: - The Tribunal affirmed the CIT(A)'s deletion of the addition on project expenses after applying the business expediency test under Section 37(1). The Tribunal relied on consistent findings in earlier assessment years and on higher forum decisions which held that the assessee's social and economic development activities were intertwined with and connected to its business of trading/marketing fertilisers; grants and contributions received were for the stated objects and expenditure incurred to carry out those activities was necessary to run and continue the assessee's commercial operations. The Tribunal further accepted that assets created belonged to third party villagers and were not capital assets in the hands of the assessee; accordingly the expenditure did not assume a capital character for the assessee. The Tribunal noted no distinguishing facts for AY 2012 13 and rejected the Revenue's contention that such outlays were mere donations or excluded by Explanation 2 to Section 37(1), holding that the statutory test under Section 37(1) (whether expenditure is incurred wholly and exclusively for business) and the precedential findings applied in favour of the assessee. [Paras 7, 8]

The addition on account of project expenses was correctly deleted and did not require interference.

Capital versus revenue expenditure - ownership of assets and benefit to third parties - Project expenditure was not held to be capital in nature in the hands of the assessee. - HELD THAT: - The Tribunal accepted the earlier finding that assets created through the projects belonged to third parties (villagers) and were not owned by the assessee; therefore such outlays could not be treated as capital expenditure of the assessee. The assessing officer had not examined ownership or referred to facts demonstrating that the assessee acquired capital assets; on the contrary, the characterisation by earlier decisions and the factual matrix established that the expenditure remained revenue in nature for the assessee. [Paras 7]

The expenditure was not capital in nature in the hands of the assessee.

Final Conclusion: The Revenue's appeal is dismissed; the Tribunal upheld the CIT(A)'s deletion of the addition relating to project expenses for AY 2012-13, following consistency with earlier years and applicable precedents.

Non-compete fee as intangible asset - depreciation on intangible assets - inclusive interpretation of "any other business or commercial rights of similar nature" - deduction under section 35 for research and development expenditure - deemed dividend under section 2(22)(e) - disallowance of expenditure relatable to exempt income under section 14A

Non-compete fee as intangible asset - depreciation on intangible assets - inclusive interpretation of "any other business or commercial rights of similar nature" - Entitlement to depreciation on non-compete fee paid in connection with acquisition of trademark and associated rights. - HELD THAT: - The Tribunal held that a non-compete fee paid pursuant to the memorandum of understanding for acquisition of a trademark and associated know-how constitutes an intangible asset falling within 'any other business or commercial rights of similar nature' and is therefore eligible for depreciation under section 32(1)(ii). The Tribunal rejected the Assessing Officer's view that a non-compete is merely a negative right incapable of being owned or transferred; noted that the clause strengthens the commercial right transferred with the trademark and that the inclusive phraseology of clause (ii) indicates the provision is not exhaustive. The Tribunal followed the decision of the Jurisdictional High Court in Pentasoft Technologies Ltd v. DCIT and, in view of that binding precedent, allowed depreciation on the non-compete fee and directed deletion of the addition. [Paras 7]

Depreciation on the non-compete fee allowed; addition deleted.

Deduction under section 35 for research and development expenditure - Allowability of deduction under section 35 in respect of motor cars provided to staff of the R&D unit. - HELD THAT: - The Tribunal accepted the assessee's undisputed fact that the cars were provided to staff who are employed in the R&D unit and held that, once that fact is accepted, denial of the deduction merely because a log book was not produced was not justified. The Tribunal concluded that it is immaterial whether the vehicles were exclusively used so long as they were given to staff of the R&D unit and the expenditure therefore qualified as incurred for R&D purpose; directed the Assessing Officer to delete the disallowance. [Paras 8]

Deduction under section 35 in respect of the motor cars allowed; addition deleted.

Deemed dividend under section 2(22)(e) - Whether loan from a sister concern constituted deemed dividend under section 2(22)(e). - HELD THAT: - The Tribunal found that the two statutory conditions for invoking section 2(22)(e) were satisfied: payment by way of loan/advance by a company to a concern in which a shareholder is a member, and the company having accumulated profits in excess of the loan. The assessee's argument that the loan ceased to be such because of a subsequent court-ordered amalgamation was rejected: what matters is the existence of the loan for the relevant previous year and the factual existence of accumulated profits. The Tribunal, following the Supreme Court authority cited, sustained the addition under section 2(22)(e). [Paras 9]

Addition under section 2(22)(e) upheld.

Disallowance of expenditure relatable to exempt income under section 14A - Extent of disallowance under section 14A for expenditure relatable to exempt income (dividend from mutual funds) for years prior to applicability of Rule 8D. - HELD THAT: - Recognising that Rule 8D was not applicable for the relevant years, the Tribunal followed earlier coordinate-bench practice and case law estimating the expenditure relatable to exempt income and concluded that the Assessing Officer's flat 5% estimate was excessive. On facts and consistent with the Tribunal's prior decision in TIL Healthcare Pvt. Ltd., the Tribunal restricted the scope of disallowance to 2% of the exempt income for the year and directed the Assessing Officer to compute accordingly. [Paras 10]

Disallowance under section 14A restricted to 2% of exempt income.

Final Conclusion: Both appeals partly allowed: depreciation on non-compete fee and deduction under section 35 for R&D vehicles were allowed (additions deleted); addition under section 2(22)(e) upheld; disallowance under section 14A reduced to 2% of exempt income for the years 2005-06 and 2006-07.

Dependent agent permanent establishment - agent of independent status - fixed place permanent establishment - Article 5(5) of India Mauritius DTAA - Article 5(1) of India Mauritius DTAA - operation of ships - Article 8 of India Mauritius DTAA (contextual)

Dependent agent permanent establishment - agent of independent status - Article 5(5) of India Mauritius DTAA - Whether M/s Freight Connection India Pvt. Ltd. constitutes a dependent agent permanent establishment of the assessee in India - HELD THAT: - The Tribunal examined whether the activities of FCIPL were devoted exclusively or almost exclusively to the assessee so as to negate its status as an agent of independent status under Article 5(5) of the India Mauritius DTAA. Relying on earlier co ordinate Bench decisions in the assessee's own case and relevant precedent, the authorities found that FCIPL rendered services to multiple principals and derived only a small proportion of its revenue from the assessee, and that clause 11 of the agency agreement restrained acting only for competitors and did not establish exclusivity. The Tribunal accepted the view that independence must be assessed from the agent's perspective - whether the agent's activities are devoted wholly or almost wholly to the principal - and that in the present facts FCIPL was an agent of independent status acting in the ordinary course of its business. The revenue offered no new reason to depart from the ci te d ITAT findings and the CIT(A)'s acceptance of those findings was held to be justified. [Paras 12, 13]

FCIPL is an agent of independent status and does not constitute a dependent agent PE of the assessee in India; the Revenue's challenge on this ground is dismissed.

Fixed place permanent establishment - Article 5(1) of India Mauritius DTAA - operation of ships - Article 8 (contextual) - Whether the assessee had a fixed place permanent establishment in India through its agent - HELD THAT: - The Tribunal considered whether the presence and activities of the agent gave rise to a fixed place PE under Article 5(1). Following the co ordinate Bench and Supreme Court guidance that where a foreign enterprise carries on business in a State through an agent, the fixed place PE provision does not come into play, and noting that there was no evidence that any premises were at the disposal of the assessee, the Tribunal upheld the finding that no fixed place PE existed. The Tribunal also observed that even if Article 8 benefits were not available, the absence of a PE meant the business profits could not be taxed in India. [Paras 12, 13]

The assessee did not have a fixed place PE in India through FCIPL; the Revenue's challenge on this ground is dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal for AY 2013 14, holding that M/s Freight Connection India Pvt. Ltd. is an agent of independent status and that the assessee did not have a fixed place or dependent agent permanent establishment in India; accordingly the CIT(A)'s order is upheld and the appeal is dismissed.

Reopening of assessment - reasons recorded - application of mind - reasons borrowed from other files - notice under Section 148 and proceedings under Section 147 - quashing of reassessment

Reopening of assessment - reasons recorded - application of mind - reasons borrowed from other files - notice under Section 148 and proceedings under Section 147 - quashing of reassessment - Validity of reopening the assessment for Assessment Year 2007-08 in view of reasons recorded and application of mind by the Assessing Officer - HELD THAT: - The Tribunal found that the reasons recorded for reopening were essentially copied from other files and related primarily to accommodation entries for A.Y. 2006-07, with reference to disposal of objections and conclusions reached in other cases. The Assessing Officer's reasons contained internal contradiction (noting both non-filing and filing of return) and demonstrate no independent examination of the assessee's records or application of mind. Reliance was placed on earlier tribunal and court authorities holding that mechanically acting on information/directions from investigation or other officers, without the AO forming an independent prima facie belief on the basis of material in his possession, does not satisfy the requirements of reopening under the Act. For these reasons the Tribunal held that the initiation of proceedings under Section 147 and issuance of notice under Section 148 in the present case was invalid and liable to be quashed. The Tribunal expressly followed the reasoning in the cited similar matter (ITA No. 7060/DEL/2017 dated 07.09.2018) and declined to examine the merits since reopening itself was set aside. [Paras 6, 7, 11]

Reopening of assessment for Assessment Year 2007-08 was held invalid for lack of independent application of mind and the reassessment proceedings under Sections 147/148 were quashed.

Final Conclusion: The appeal is allowed on the legal ground that the reassessment proceedings for Assessment Year 2007-08 were initiated without independent application of mind and are quashed; consequential merits were not adjudicated.

Revisionary jurisdiction under section 263 of the Income tax Act - Taxation of unexplained income under section 115BBE of the Income tax Act - Accepting surrendered income as business income - Requirement of inquiry to determine source of surrendered amounts - Evidence sufficiency to explain source of surrendered income

Revisionary jurisdiction under section 263 of the Income tax Act - Requirement of inquiry to determine source of surrendered amounts - Evidence sufficiency to explain source of surrendered income - Accepting surrendered income as business income - Taxation of unexplained income under section 115BBE of the Income tax Act - Whether the Principal Commissioner of Income Tax was justified in invoking revisionary jurisdiction under section 263 and setting aside the assessment for having accepted the surrendered amount as business income and taxed it at normal rates without adequate inquiry or satisfactory evidence of its source, thereby causing prejudice to the Revenue - HELD THAT: - The Tribunal examined the documents and statements on record and held that the materials found during survey did not satisfactorily disclose that the surrendered sums originated from the assessee's medical profession. The pages relied upon by the assessee comprised a list of advances (page Nos.47-49) and separate pages listing card numbers and patient names (page Nos.51-53), but there was no demonstrable connection between those lists and the amounts surrendered; nothing on the documents established collection of the surrendered sums from the listed patients. The statement attributed to the assessee at the survey merely recorded a surrender of additional amounts and did not, in itself, satisfactorily explain the source; an oral statement alone was insufficient to establish that the amounts were business receipts. Payment of tax at normal rates prior to revision was held to be irrelevant to the question of character or explainability of the amount. In view of the absence of adequate enquiry by the assessing officer and lack of satisfactory evidence explaining the source, the Tribunal agreed with the Principal Commissioner that the assessment order was erroneous and prejudicial to the interests of the Revenue and that treatment of the surrendered amounts as business income (taxed at normal rates rather than subject to the special rate applicable to unexplained income) could not be sustained. [Paras 12, 13, 16, 17, 18]

The order of the Principal Commissioner under section 263 is upheld; the assessment is set aside on the ground that the surrendered amount was accepted as business income without adequate inquiry or satisfactory evidence, and the appeal is dismissed.

Final Conclusion: The Tribunal dismissed the assessee's appeal and upheld the Principal Commissioner's revisionary order under section 263 holding that the assessing officer had erred in accepting the surrendered amounts as business income without adequate enquiry or satisfactory evidence, thereby prejudicing the Revenue; the matter is remitted to the assessing officer to pass fresh order in accordance with law.

Penalty under section 271G for failure to furnish information in transfer pricing proceedings - determination of arm's length price and duties of the Transfer Pricing Officer - practical impracticability of segmental bifurcation in the diamond industry - acceptance of benchmarking under TNMM by the Transfer Pricing Officer - precedential value of coordinate bench decisions in transfer pricing penalty cases

Penalty under section 271G for failure to furnish information in transfer pricing proceedings - practical impracticability of segmental bifurcation in the diamond industry - acceptance of benchmarking under TNMM by the Transfer Pricing Officer - Whether penalty under section 271G could be sustained for failure to furnish segmental profitability details where the assessee's TNMM benchmarking was accepted by the TPO and bifurcation was practically difficult. - HELD THAT: - The assessee, a resident corporate engaged in manufacture and sale of cut and polished diamonds/jewellery, undertook international transactions with associated enterprises and benchmarked them using the TNMM in its transfer pricing study, a benchmarking which was accepted by the Transfer Pricing Officer. The TPO sought segmental profitability for AE and non-AE segments, but the assessee contended that, given the nature of the business, it was practically not possible to bifurcate stock, costs and revenues as required. The Tribunal observed that if the TPO was dissatisfied with the TNMM benchmarking, he could have rejected the benchmarking and determined the arm's length price independently by applying any of the prescribed methods; the TPO's inability or failure to determine ALP independently cannot be visited upon the assessee as a failingsufficient to attract penalty. The Tribunal further relied on consistent coordinate-bench precedents holding that, in the diamond industry where segmental bifurcation is practically difficult, imposition of penalty under section 271G for non-furnishing of such information is not justified. Applying these principles to the facts, the Tribunal found no infirmity in the Commissioner (Appeals) order deleting the penalty. [Paras 6, 7, 8]

Penalty under section 271G deleted; Revenue's appeal dismissed.

Final Conclusion: The Tribunal upheld the Commissioner (Appeals) order deleting the penalty under section 271G for AY 2012-13, dismissing the Revenue's appeal.

Arm's length principle - Transaction Net Margin Method (TNMM) - Cost base for TNMM limited to costs incurred by the enterprise - Characterisation as limited-risk service provider versus trader - Imputation of third-party/Associated Enterprise Free on Board (FOB) value into assessee's remuneration base - Binding nature of jurisdictional High Court precedent

Transaction Net Margin Method (TNMM) - Cost base for TNMM limited to costs incurred by the enterprise - Imputation of third-party/Associated Enterprise Free on Board (FOB) value into assessee's remuneration base - Characterisation as limited-risk service provider versus trader - Arm's length principle - Whether the TPO was justified in treating the assessee as akin to a trader and in computing its arm's length remuneration by adopting the FOB value of goods procured by Associated Enterprises (and costs incurred by third parties) as the assessee's cost base under TNMM, thereby making an adjustment to income. - HELD THAT: - The Tribunal found on the material facts that the assessee is a limited risk entity providing routine sourcing support services and does not make strategic sourcing or purchasing decisions, does not negotiate or contract with suppliers, does not bear market, inventory, credit or product liability risks, and does not effect payments to suppliers. The TPO's approach proceeded from an erroneous characterisation of the assessee as a trader and, on that basis, imported the FOB value of goods procured by the AEs (and costs borne by third party vendors) into the assessee's cost base to compute remuneration. That approach conflicts with the proper application of TNMM, which requires computation of the assessee's net profit margin with reference to costs incurred (or sales effected or assets employed) by the assessee itself and not costs incurred by third parties or the AE. The Tribunal relied on the binding decision of the jurisdictional High Court in Li & Fung (as followed by the Tribunal's earlier coordinate decision) holding that imputing third party/AEs' costs into the assessee's cost base for TNMM is impermissible. As the High Court's decision had not been stayed, the TPO was bound to follow it. Applying these principles to the facts, the Tribunal concluded that the TPO's selection of trading comparables and use of FOB value to compute remuneration was legally unsustainable and led to an arbitrary addition. [Paras 13, 16, 17]

TP adjustment based on including FOB/third party costs in the assessee's cost base was erroneous; the addition of Rs. 43,01,97,828/- is set aside.

Final Conclusion: The appeal is allowed; the transfer pricing addition computed by treating the assessee as a trader and by imputing third party/AEs' FOB costs into the assessee's TNMM cost base is deleted in accordance with the applicable TNMM principle and binding jurisdictional precedent.

Allowability of contribution to an approved gratuity fund - effectivity of administrative approval from date of application - deduction under section 80P(4) for cooperative banks - allowability of provision for fringe benefit tax under section 40ic - application of section 14A for disallowance of expenditure relating to exempt dividend income - classification of loans as non-performing assets in accordance with RBI guidelines - remand for fresh consideration after administrative decision

Allowability of contribution to an approved gratuity fund - effectivity of administrative approval from date of application - remand for fresh consideration after administrative decision - Whether contributions made by the assessee to a gratuity fund are allowable having regard to the approval of the Pr. Commissioner and the date from which such approval should operate. - HELD THAT: - Assessing Officer disallowed contributions to the gratuity fund on the ground that the fund was not approved by the Pr. Commissioner. The assessee had filed an application for approval on 02-01-2009; the Pr. Commissioner granted approval with effect from 01-05-2017. The Tribunal followed a coordinate bench decision holding that where an application for approval of the gratuity trust is filed within time the approval must be treated as effective from the date of the application and not prospectively. In view of the pending administrative decision and the principle that approval should operate from date of application, the matter was remitted for fresh adjudication after the Pr. Commissioner decides the pending application expeditiously and the AO reconsiders the allowability in accordance with law. [Paras 11, 15, 16]

Issue remitted to the AO for fresh decision after the Pr. Commissioner decides the assessee's application; direction that approval, if granted, shall be considered from the date of application and AO shall decide accordingly (decided in favour of the assessee for statistical purposes).

Deduction under section 80P(4) for cooperative banks - Whether dividend received by the assessee from UP Cooperative Federation is deductible under the cooperative-bank deduction provision relied upon by the assessee. - HELD THAT: - The assessee received dividend from UP Cooperative Federation and claimed deduction under the provisions invoked. The Tribunal examined the statutory scheme and observed that the deduction under the cited provision is not available to the assessee bank in the circumstances of the case. The finding of the CIT(A) confirming the AO's disallowance was upheld as there was no illegality in the conclusion that the cooperative bank was not eligible for the claimed deduction. [Paras 17, 18]

Grounds challenging the disallowance of dividend under the relevant provision are rejected; the disallowance is confirmed (decided against the assessee).

Allowability of provision for fringe benefit tax under section 40ic - remand for fresh consideration after administrative decision - Whether the provision for fringe benefit tax debited in the profit and loss account is allowable under law for the relevant assessment year. - HELD THAT: - The CIT(A)'s appellate order did not adjudicate the issue, apparently due to inadvertence. The Tribunal therefore did not enter into the merits but remitted the matter to the CIT(A) for fresh adjudication after giving the assessee an opportunity of being heard. [Paras 19]

Issue remitted to the CIT(A) for fresh decision and opportunity to the assessee (decided in favour of the assessee for statistical purposes).

Classification of loans as non-performing assets in accordance with RBI guidelines - remand for fresh consideration after administrative decision - Whether interest relating to certain accounts may be disallowed because those accounts were not shown to have been categorized as NPA in accordance with RBI guidelines. - HELD THAT: - The AO made additions on the ground that interest related to alleged NPA accounts which the assessee had not demonstrated were classified as NPA in compliance with RBI guidelines. The CIT(A) confirmed the addition noting absence of evidence. The assessee candidly admitted lack of documentary proof before the Tribunal. The Tribunal remitted the issue to the AO to decide afresh after entertaining evidence which the assessee may bring on record to establish classification as NPA in accordance with RBI norms. [Paras 20, 21]

Issue remitted to the AO to adjudicate afresh after allowing the assessee to produce evidence of RBI-compliant NPA classification (decided in favour of the assessee for statistical purposes).

Application of section 14A for disallowance of expenditure relating to exempt dividend income - Whether the disallowance made by the AO under the provision governing expenditure in relation to exempt income should be sustained and the manner of computing any such disallowance. - HELD THAT: - The AO disallowed an amount as expenditure attributable to earning exempt dividend income. The CIT(A) partially allowed the appeal by directing the AO to recompute the disallowance following the principles applied in an earlier appellate order for A.Y. 2012-13. The Tribunal noted that the CIT(A) has already given directions and therefore left the matter to the AO to decide in accordance with the CIT(A)'s direction. [Paras 22, 23, 24]

AO directed to recompute the disallowance in accordance with the CIT(A)'s order; ground accordingly disposed as directed by the CIT(A.).

Final Conclusion: The appeals are partly allowed for statistical purposes: certain issues (gratuity-fund contribution, FBT provision, interest on alleged NPAs and computation under section 14A) are remitted to the appropriate authorities for fresh consideration in accordance with the directions recorded; the disallowance of dividend under the cooperative-bank deduction provision is affirmed against the assessee.

Challenge to consequential orders without challenging the order-in-original - furnishing of show cause notice and summons and production of order-in-original - right to challenge orders in the manner known to law

Challenge to consequential orders without challenging the order-in-original - furnishing of show cause notice and summons and production of order-in-original - Petitioner cannot maintain a challenge to consequential recovery orders without first challenging the order-in-original; respondents must furnish the show cause notice, summons and order-in-original to enable challenge. - HELD THAT: - The Court noted that the impugned consequential orders are issued pursuant to an order-in-original dated 24.08.2020 and observed that, ordinarily, a petitioner cannot assail consequential orders without first assailing the main order-in-original. The petitioner, however, asserted non-service of the show cause notice, summonses and the order-in-original. In view of that claim, the Court directed the respondent / Customs to furnish copies of the show cause notice dated 18.07.2018, the summonses dated 16.06.2020, 30.07.2020 and 19.08.2020, and the order-in-original to the petitioner's counsel within two weeks, so that the petitioner may, if advised, challenge the order dated 24.08.2020 in the manner known to law. The Court contemplated that depending on the outcome of that challenge, the present challenge to the consequential orders may also be pursued. [Paras 4, 5, 6]

Respondent / Customs to furnish the specified notices and the order-in-original to the petitioner's counsel within two weeks; petitioner may thereafter challenge the order dated 24.08.2020, and on the outcome of that challenge the consequential orders can be put to challenge; writ petition disposed of with no costs.

Final Conclusion: Writ petition disposed of: respondents directed to furnish the show cause notice, listed summonses and the order-in-original to the petitioner's counsel within two weeks to enable the petitioner to challenge the order dated 24.08.2020; no order as to costs.

Review petition - error apparent on the face of the record - refund of amounts deposited during investigation - liberty to department to adjudicate duty - independence of Revenue in determining duty

Review petition - error apparent on the face of the record - Whether the review petition filed by the Revenue discloses any error apparent on the face of the record warranting interference with the earlier dismissal of Customs Appeal No.3/2018. - HELD THAT: - The Court examined the grounds advanced in the review petition and the excerpts relied upon by the Revenue. It found that the matters now urged do not point to any error apparent on the face of the record in the judgment under review. The petition sought to re-open the conclusions reached by the Tribunal and this Court, but the Court was not shown any manifest illegality or patent error in the prior order which would justify exercise of review jurisdiction. In these circumstances the Court concluded that the statutory and judicial threshold for entertaining a review petition had not been met. [Paras 4]

Review petition dismissed on the ground that no error apparent on the face of the record has been shown.

Refund of amounts deposited during investigation - liberty to department to adjudicate duty - independence of Revenue in determining duty - Whether, notwithstanding dismissal of the review, the Revenue retains the authority to determine and recover any duty/additional duty payable by the respondent and whether liberty should be granted to proceed in accordance with law. - HELD THAT: - Although the review was refused, the Court expressly recognised that the Revenue is an independent authority with statutory powers to determine and collect duty. The Court clarified that its orders directing refund did not and do not fetter the Department's statutory function to adjudicate and assess the duty/additional duty payable by the respondent in relation to the subject import. Consequently, the Court granted liberty to the Revenue to proceed with necessary adjudicatory steps and pass such orders as are permissible under law to determine and recover any duty found to be payable. [Paras 4]

Liberty granted to the Revenue to proceed in accordance with law to determine and recover any duty/additional duty payable; review dismissed subject to this observation.

Final Conclusion: The review petition is dismissed for failure to demonstrate any error apparent on the face of the record; however, the Revenue's independence to adjudicate and determine any duty/additional duty payable by the respondent is affirmed and liberty is granted to proceed in accordance with law.

Proper officer - jurisdiction to issue show cause notice under Section 28 read with Section 2(34) of the Customs Act, 1962 - requirement of specific entrustment of functions by the Board or the Commissioner of Customs - invalidity of a notification purporting to assign functions under Section 2(34) - entrustment of functions by the Central Government under Section 6 of the Customs Act, 1962

Proper officer - jurisdiction to issue show cause notice under Section 28 read with Section 2(34) of the Customs Act, 1962 - requirement of specific entrustment of functions by the Board or the Commissioner of Customs - Additional Director General, DRI, Ludhiana is not a proper officer to issue show cause notice under Section 28(4) read with Section 2(34) of the Customs Act, 1962. - HELD THAT: - The Tribunal applied the principle that Section 2(34) defines a 'proper officer' as an officer of customs who has been assigned specific functions by the Board or the Commissioner of Customs; therefore issuance of a notice under Section 28 must be by such a specifically entrusted Customs officer. A notification purporting to confer the functions of a 'proper officer' issued by the Board under Section 2(34) is invalid because Section 2(34) is a definitional provision and does not itself confer power to entrust functions. If officers outside the Customs cadre (such as officers of the Directorate of Revenue Intelligence) were to be entrusted with Customs functions, the entrustment ought to have been made by the Central Government under Section 6. The Tribunal followed the reasoning and conclusions in Canon India P. Ltd. and subsequent approvals by higher fora, applied that reasoning to the present record and held that the proceedings initiated by the Additional Director General, DRI, by issuing show cause notices are without authority of law and liable to be set aside. [Paras 8, 9]

The impugned proceedings initiated by the Additional Director General, DRI, Ludhiana are invalid for want of jurisdiction and are set aside.

Final Conclusion: The appeal is allowed; the show cause proceedings initiated by the Additional Director General, DRI, Ludhiana are quashed for lack of authority to issue notices under Section 28(4) read with Section 2(34) of the Customs Act, 1962, with consequential relief.

Quashing of criminal proceedings - Venue and territorial jurisdiction of the magistrate - Maintainability of complaint - Disqualification for directorship under Section 165 of the Companies Act

Venue and territorial jurisdiction of the magistrate - Maintainability of complaint - Whether the complaint registered as EOCC.No.104/2016 before the Additional Chief Metropolitan Magistrate, Economic Offences Wing-1, Egmore, Chennai was maintainable in that forum in view of the territorial locus of the companies concerned. - HELD THAT: - The respondent's counsel expressly stated that out of the 16 companies implicated, only two fell within the territorial jurisdiction of the Court at Chennai while 14 companies were within the jurisdiction of the competent Court at Coimbatore. The petitioner also pointed to facts bearing on the merits of the charge-resignation from directorships and striking off of certain companies-which further militated against proceeding in Chennai. Given the admitted territorial distribution and the attendant question of proper forum for trial of offences alleged under the Companies Act, the continuation of the proceedings in Chennai was not appropriate. The Court declined to direct the respondent to file a fresh complaint elsewhere but observed that the respondent may address to the competent Court at Coimbatore the reasons why the complaint was originally lodged in Chennai and why it was thereafter instituted before the competent forum, allowing the competent Court to accept or reject those reasons in accordance with law. The petitioner retains the right to controvert any explanation put forward by the respondent in the manner known to law.

Proceedings in EOCC.No.104/2016 pending before the Additional Chief Metropolitan Magistrate, EOW 1, Egmore, Chennai are quashed.

Final Conclusion: The Criminal Original Petition is allowed; the EOCC.No.104/2016 pending at Egmore, Chennai is quashed, with liberty to the respondent to place before the competent Court at Coimbatore any explanation for the forum chosen, which the competent Court may consider in accordance with law.

Oppression and mismanagement - deadlock in management - valuation of shares and implementation - buyout/sell-out procedure by bidding - appointment of valuer by Special Officer - finality of valuation report for want of objection - principles of natural justice in interlocutory valuation proceedings - equitable relief in family company disputes

Oppression and mismanagement - deadlock in management - equitable relief in family company disputes - buyout/sell-out procedure by bidding - Whether, in a family company dispute exhibiting a managerial deadlock and alleged oppression, the Tribunal was justified in directing a buyout/sell-out by competitive bidding as an equitable measure to resolve the dispute. - HELD THAT: - The Tribunal found a persistent deadlock given article 53 (two thirds quorum) and extensive, continuing litigation between the rival groups of brothers such that reunion was not reasonably feasible. The Tribunal's conclusion that the situation was one of irretrievable breakdown of relationships and that a consensual management solution was unlikely is supported by the pleadings and the pattern of multiple interlocutory applications. Relying on precedent permitting bidding between rival groups in such circumstances, the Tribunal treated the valuation report as the operative basis and ordered parties to quote competitive prices higher than the reserve so that the higher bidder would have the option to buy and the lower bidder to sell, thereby permitting a final resolution. Given the factual matrix of entrenched hostility and litigation instinct, the appellate court held that directing buyout/sell out by bidding was a just and equitable course and not liable to interference. [Paras 22, 24]

The Tribunal was justified in ordering buyout/sell out by competitive bidding as an equitable remedy to resolve the deadlock and alleged oppression.

Appointment of valuer by Special Officer - valuation of shares and implementation - finality of valuation report for want of objection - principles of natural justice in interlocutory valuation proceedings - Whether the appointment of the valuer by the Special Officer and the subsequent reliance on the valuation report (without fresh objections) could be treated as final and form the basis for implementing buyout/sell out orders. - HELD THAT: - The Tribunal recorded that the Special Officer attempted to accommodate respondents by fixing meeting dates and that respondents did not propose alternative valuers or challenge the valuer's report on merits within the time granted. The earlier order directing valuation by taking names from petitioners and respondents culminated in the Special Officer appointing a valuer when respondents failed to cooperate. The Tribunal held that the valuation order of December 3, 2019 became final and the valuation report became operative for want of objections; consequently, no further consent was required to implement buy/sell options based on that valuation. The appellate court accepted that, in the circumstances, the Special Officer's course and finality of the unchallenged valuation report were not vitiated and could ground the consequential bidding order. [Paras 16, 22, 23]

The valuer's appointment by the Special Officer and the unchallenged valuation report were properly treated as final and could be relied upon to implement the buyout/sell out process.

Principles of natural justice in interlocutory valuation proceedings - appointment of valuer by Special Officer - finality of valuation report for want of objection - Whether the impugned order violated principles of natural justice by disposing of the unnumbered interlocutory application and acting on the valuation report without affording further opportunities to the respondents. - HELD THAT: - The appellants contended they were denied opportunity to file replies and that the Special Officer could not appoint a valuer unilaterally. The Tribunal, however, recorded that the interlocutory application was heard through video conferencing in extraordinary Covid 19 circumstances, that the petitioners had given notice, that respondents were given opportunities before the Special Officer and that they failed to propose valuers or to challenge the valuation on merits within the time allowed. The Tribunal noted multiple pending applications and a pattern of delay and litigation instinct. Considering the purpose of the valuation (to enable a buyout/sell out) and the respondents' conduct, the appellate court found no breach of natural justice sufficient to invalidate the order; it accepted the Tribunal's assessment that further procedural formalities were not required before acting on the unchallenged valuation report. [Paras 14, 16, 22, 24]

No breach of principles of natural justice was shown; the impugned order did not merit interference on that ground.

Final Conclusion: On the facts of entrenched family dispute, managerial deadlock and unchallenged valuation, the Appellate Tribunal upheld the NCLT's order directing buyout/sell out by competitive bidding based on the valuation report, and dismissed the appeals; no costs were awarded.

Operational debt - debt arising under a statute - Section 5(21) of the IBC - deeming fiction (arrears of tax vs. tax arising under statute) - pre-existing dispute under Section 9(5)(2)(d) - plausible contention requiring further investigation - maintainability of petition under Section 9

Operational debt - Section 5(21) of the IBC - debt arising under a statute - deeming fiction (arrears of tax vs. tax arising under statute) - Whether the sums claimed by SDMC under the Toll Tax Collection Agreement qualify as an "operational debt" within the meaning of Section 5(21) of the IBC. - HELD THAT: - The Tribunal examined whether the claimed liability falls within any limb of Section 5(21) - supply of goods, provision of services (including employment), or a debt arising under any law payable to a government or local authority. The Agreement appoints the contractor to collect tolls; SDMC is not shown to have supplied goods or services to the corporate debtor, and thus the claim does not satisfy the goods/services limb (para. 24-25). SDMC relied on Section 455 of the DMC Act to contend that contractual dues are recoverable as "arrears of tax" and therefore fall within debts arising under a statute. The Tribunal distinguished between dues that are recoverable by taxing machinery as "arrears of tax" and taxes or statutory dues that arise under a statute. The deeming/fiction in the DMC Act (making recovery as arrears of tax possible) does not convert a contractual debt into a tax arising under the statute for the purposes of Section 5(21). Reliance on precedents showing that a statutory enforcement fiction is limited to recovery/ enforcement purpose supported this distinction (paras. 30-37). Consequently the claim does not meet the definition of "operational debt" under Section 5(21). [Paras 30, 32, 33, 36, 37]

The claim does not qualify as an "operational debt" under Section 5(21) of the IBC; the contractual dues are not taxes or statutory dues arising under the DMC Act.

Pre-existing dispute under Section 9(5)(2)(d) - plausible contention requiring further investigation - maintainability of petition under Section 9 - Whether there exist pre-existing disputes between the parties such that the Section 9 petition is not maintainable. - HELD THAT: - The Tribunal considered the existence of multiple proceedings and interim orders between the parties before the Delhi High Court, as well as correspondence and contested factual/contractual claims (including force majeure and competing loss claims). Applying the test that the adjudicating authority must reject a Section 9 application if a notice of dispute or a record of dispute exists and the dispute is a plausible contention requiring further investigation, the Tribunal found substantial and bona fide disputes on facts and law. The Delhi High Court's orders and observations that parties should resolve contractual disputes in appropriate civil proceedings reinforced that these are pre-existing disputes for which the Section 9 route is inappropriate at the admission stage (paras. 38-44). Accordingly, the petition was found to be not maintainable on this ground. [Paras 38, 39, 41, 42, 44]

There are pre-existing disputes between the parties which are plausible and require adjudication in appropriate civil fora; the Section 9 petition is not maintainable and must be dismissed.

Final Conclusion: The Section 9 petition filed by South Delhi Municipal Corporation was dismissed: the claimed dues do not qualify as an "operational debt" under Section 5(21) of the IBC, and there exist pre-existing disputes rendering the petition not maintainable; interlocutory application challenging maintainability was allowed.

Fee of Interim Resolution Professional - reasonableness of professional fees - Regulation 33 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - reimbursement by the Committee of Creditors - adjudicating authority fixing expenses

Fee of Interim Resolution Professional - reasonableness of professional fees - IBBI expert committee report - quantum of fee and expenses payable to the Interim Resolution Professional for the period he functioned - HELD THAT: - The Tribunal examined the applicant's claim, the respondent's objections and the report of the IBBI Committee. Applying Regulation 33, which vests the Adjudicating Authority with power to fix expenses where the applicant has not fixed them and contemplates reimbursement by the Committee of Creditors, the Tribunal accepted the IBBI's assessment of admissible items and amounts subject to one modification. The IBBI had treated the claimed fee as excessive and recommended a total fee of Rs. 2,00,000 (at Rs. 40,000 per month) for activities performed on a limited scale, allowed a legal retainership of Rs. 3,00,000, accepted certain other expenses (Rs. 42,750) and accepted only the first public announcement (Rs. 47,074) while rejecting the second. The Tribunal adopted the IBBI's recommendations but disagreed with rejection of the second public announcement on the ground that the second announcement was made and not denied; consequently it allowed both public announcements. On that basis the Tribunal fixed the aggregate payable to the IRP for fee and expenses. [Paras 15, 16, 17, 18, 19]

The IRP is entitled to a total amount of Rs. 6,38,470 towards his fee and other expenses, computed by accepting the IBBI recommendations with approval of both public announcements.

Reimbursement by the Committee of Creditors - liability of Corporate Debtor to pay - no Committee of Creditors constituted - which party is liable to pay the fixed fee and expenses - HELD THAT: - Regulation 33 contemplates that the applicant bears expenses which are to be reimbursed by the Committee of Creditors to the extent it ratifies. In the present case no Committee of Creditors came into being because the CIRP was set aside by the NCLAT. The Tribunal noted that the NCLAT's order directing the Adjudicating Authority to fix the IRP's fee did not specify the person liable to pay. Given termination of CIRP and absence of a CoC, the Tribunal held that the Corporate Debtor must bear the cost rather than the applicant. [Paras 12, 13, 19, 20]

The Corporate Debtor shall pay the fixed amount to the IRP; payment to be made within one month.

Final Conclusion: The Tribunal, adopting the IBBI report with limited modification, fixed the IRP's entitlement at Rs. 6,38,470 and directed the Corporate Debtor to pay that amount within one month; the interlocutory application is disposed of.

Corporate Insolvency Resolution Process (CIRP) - default under the Insolvency and Bankruptcy Code - summary adjudication of default - appointment of Interim Resolution Professional - public announcement of admission - moratorium under Section 14 - compliance with Section 7(3)(b)

Default under the Insolvency and Bankruptcy Code - summary adjudication of default - The Section 7 application was admitted on the ground that the Financial Creditor proved occurrence of default by the Corporate Debtor. - HELD THAT: - The Tribunal examined the loan agreement dated 14.03.2016, disbursement particulars and correspondence produced by the Financial Creditor and found no documentary material from the Corporate Debtor to rebut the claim of non-payment. The Code requires only a summary satisfaction of occurrence of default before admission; the material on record supported that credit was availed and repayment defaulted. The Tribunal therefore held the application complete and that default has occurred, satisfying the requirement of sub-section 5(a) of Section 7 and admitting the petition to initiate CIRP. [Paras 5, 6, 7, 8]

Application under Section 7 admitted as default was established and the petition was complete.

Compliance with Section 7(3)(b) - appointment of Interim Resolution Professional - The proposed Interim Resolution Professional was held to satisfy the statutory requirements and was appointed. - HELD THAT: - Sub-section (3)(b) of Section 7 requires the financial creditor to furnish the name of an Interim Resolution Professional. The Applicant proposed Mr. Naresh Munjal who signed the requisite Form 2 communication, declared no disciplinary proceedings were pending against him and made the disclosures required by IBBI Regulations. The Tribunal found these requirements satisfied and appointed Mr. Naresh Munjal as the Interim Resolution Professional. [Paras 9, 10]

Mr. Naresh Munjal appointed as Interim Resolution Professional.

Moratorium under Section 14 - public announcement of admission - Corporate Insolvency Resolution Process (CIRP) - Upon admission the Tribunal directed public announcement and declared the moratorium with its statutory consequences. - HELD THAT: - In pursuance of Section 13(2) the Interim Resolution Professional was directed to make the public announcement within the prescribed period. The Tribunal also declared the moratorium as mandated by Section 14 and specified the prohibitions flowing from it, clarifying exceptions as per statutory provisions and the Insolvency and Bankruptcy Code (Amendment) Act, 2018. The Interim Resolution Professional was directed to perform duties under the Code and the Registry was directed to communicate the order to relevant authorities for updating public records. [Paras 11, 12, 13, 14, 15]

Public announcement directed and moratorium declared; IRP to perform statutory functions and Registry to notify authorities.

Final Conclusion: The Tribunal admitted the Section 7 petition against the Corporate Debtor, initiated CIRP, appointed Mr. Naresh Munjal as Interim Resolution Professional, directed immediate public announcement of admission and declared the statutory moratorium with attendant directions for the IRP and Registry.

Default under the Insolvency and Bankruptcy Code - admission of application under Section 7 of the Insolvency and Bankruptcy Code - summary adjudication to ascertain occurrence of default - Form 2 consent of Interim Resolution Professional - appointment of Interim Resolution Professional - public announcement under Section 13(2) - moratorium under Section 14

Default under the Insolvency and Bankruptcy Code - summary adjudication to ascertain occurrence of default - Whether the Corporate Debtor committed default and the application under Section 7 is complete and admissible. - HELD THAT: - The Tribunal examined the loan agreement dated 01.03.2017, bank transfer evidence and correspondence including the corporate debtor's letter dated 03.01.2020. The material on record demonstrated that credit was availed and repayment at maturity was not made. The Tribunal observed that the Code requires only a summary satisfaction as to occurrence of default before admission, and on the documents produced there was no documentary evidence from the corporate debtor to rebut the claim of default. Consequently the Tribunal found that default had occurred and that the Section 7 application was complete. [Paras 6, 7, 8, 9]

Default established on the basis of the documents and the application under Section 7 is complete and admissible.

Form 2 consent of Interim Resolution Professional - appointment of Interim Resolution Professional - Whether the requirements relating to furnishing the name and consent of an Interim Resolution Professional were satisfied and the proposed IRP could be appointed. - HELD THAT: - The Tribunal noted that Form-2 had been filed and that the originally proposed IRP's authorisation had expired, leading the applicant to file an interlocutory application proposing Mr. Rahul Jain. The Tribunal recorded that Mr. Rahul Jain had executed Form 2, made the requisite disclosures and declared absence of pending disciplinary proceedings. On that basis the Tribunal held that the mandate of furnishing the IRP's name and his consent under Section 7(3)(b) and Rule 9 was satisfied and appointed Mr. Rahul Jain as Interim Resolution Professional. [Paras 5, 10, 11]

The requirement of furnishing the name and consent of the Interim Resolution Professional is satisfied; Mr. Rahul Jain is appointed as IRP.

Admission of application under Section 7 of the Insolvency and Bankruptcy Code - public announcement under Section 13(2) - moratorium under Section 14 - Consequences of admission: initiation of CIRP, public announcement and imposition of moratorium. - HELD THAT: - Upon admission of the Section 7 petition the Tribunal directed initiation of the Corporate Insolvency Resolution Process with immediate effect. It directed the Interim Resolution Professional to make the public announcement in accordance with Section 13(2) and the relevant IBBI Regulations, and declared the moratorium under Section 14, listing the statutory prohibitions and clarifying exceptions recognised by the Code and its amendments. The Tribunal also recorded directions regarding the IRP's duties and communication of the order to stakeholders and the Registrar of Companies. [Paras 12, 13, 14, 15, 16]

CIRP initiated; public announcement to be made by the IRP and moratorium imposed with statutory prohibitions and necessary directions to the IRP and registry.

Final Conclusion: The Tribunal, on summary satisfaction of default and completion of formal requirements including IRP consent, admitted the Section 7 petition, appointed the Interim Resolution Professional Mr. Rahul Jain, directed immediate public announcement and declared the statutory moratorium while issuing ancillary directions to the IRP and Registry.

Application under Section 95 for initiation of insolvency resolution process against personal guarantor - Interim moratorium on debts of personal guarantor - Appointment of Resolution Professional for personal guarantor proceedings - Powers and duties of Resolution Professional under Section 99

Appointment of Resolution Professional for personal guarantor proceedings - Appointment of the proposed Resolution Professional to manage the proceedings under the Code in respect of the application filed against the personal guarantor. - HELD THAT: - The Tribunal considered the proposal of the Financial Creditor to appoint Mr. Anil Kohli as Resolution Professional and noted that no disciplinary proceedings were pending against him. Exercising the power under the Code, and subject to the relevant IBBI Regulations, the Tribunal appointed Mr. Anil Kohli as Resolution Professional to act in the proceedings initiated by the Financial Creditor against the personal guarantor. The appointment is made with the direction that the Resolution Professional shall carry out the functions as provided under the Code and the Regulations. [Paras 8]

Mr. Anil Kohli is appointed as the Resolution Professional, subject to Regulations 4(1) and (2) of the IBBI Regulations.

Interim moratorium on debts of personal guarantor - Commencement and effect of the interim moratorium in relation to the application filed against the personal guarantor. - HELD THAT: - The Tribunal recorded that, upon filing of the application by the Financial Creditor, the interim moratorium as provided in the Code comes into effect in relation to all debts of the personal guarantor and continues until admission of the application. During the interim moratorium period pending admission, pending legal actions or proceedings in respect of any debt of the personal guarantor are deemed to be stayed and creditors are prohibited from initiating legal action in respect of such debts, subject to statutory exceptions notified by the Central Government in consultation with regulators. [Paras 7]

The interim moratorium commences on the date of filing and its specified prohibitions apply until the application is admitted.

Powers and duties of Resolution Professional under Section 99 - Scope of functions to be performed by the Resolution Professional and requirement to file recommendations on the application. - HELD THAT: - The Tribunal directed that the appointed Resolution Professional shall exercise the powers enumerated under the Code read with the applicable rules, and specifically directed him to make recommendations in writing, with reasons, for acceptance or rejection of the application within the time stipulated under Section 99. The Tribunal further directed that a copy of the report prepared under sub-section (7) of Section 99 shall be provided to the Applicant/Creditor upon filing before the Authority, and that the Applicant and Registry shall serve the order and application documents on the Resolution Professional for compliance. [Paras 9, 10]

The Resolution Professional shall exercise powers under Section 99, submit written recommendations with reasons within the prescribed time, and furnish the report to the Applicant/Creditor; the Registry and Applicant are to serve documents on the Resolution Professional.

Final Conclusion: The Tribunal recorded the filing of the Section 95 application, directed commencement of the interim moratorium from the date of filing, appointed the proposed Resolution Professional subject to regulatory conditions, directed him to exercise powers and file recommendations under Section 99, ordered service of the order and papers on the Resolution Professional, and listed the matter for further proceedings.

Sabka Vishwas Scheme - admissibility of declaration where dues not quantified by cut-off date - Quantification and communication of tax dues as precondition for settlement - Principles of natural justice - opportunity of hearing in tax settlement proceedings

Sabka Vishwas Scheme - admissibility of declaration where dues not quantified by cut-off date - Quantification and communication of tax dues as precondition for settlement - Principles of natural justice - opportunity of hearing in tax settlement proceedings - Validity of rejection of the petitioner's second declaration under the Sabka Vishwas Scheme on the ground that the amount of dues was not quantified up to 30.06.2019 and related claims for hearing and disclosure of file materials. - HELD THAT: - The Court examined the correspondence and records and observed that the communications from the respondents, including the letter dated 08.08.2019 and the summons of 20.05.2019, do not show that the quantum of dues had been quantified or communicated to the petitioner on or before 30.06.2019. The summons indicate that an investigation under the relevant provisions was ongoing and that the department had sought further documents, which demonstrates that the dues were not finally determined by the cut-off date prescribed for the Scheme. In these circumstances the respondent's summary rejection of the declaration on the stated ground was sustainable. The petitioner's ancillary requests for a hearing and for supply of correspondence and note-sheets were considered in the context of that primary defect and, given that the statutory precondition of quantification by the cut-off date was not satisfied, provided no basis to set aside the rejection. [Paras 8]

Rejection of the declaration was upheld because the amount of dues had not been quantified or communicated to the petitioner up to 30.06.2019; the petition seeking rehearing and disclosure was dismissed.

Final Conclusion: Writ petition dismissed. The rejection of the second declaration under the Sabka Vishwas Scheme is sustained because the dues were not quantified/communicated by 30.06.2019; no relief on claims for hearing or disclosure.

Refund of excess tax - limitation under Section 11B of the Central Excise Act, 1944 - pre-deposit during investigation - Doctrine of unjust enrichment - evidentiary sufficiency of Chartered Accountant certificate - credit to welfare fund under Section 11B - remand for fresh adjudication and speaking order

Refund of excess tax - limitation under Section 11B of the Central Excise Act, 1944 - pre-deposit during investigation - Rejection of the refund claim on the ground of limitation under Section 11B. - HELD THAT: - The Tribunal held that the lower authorities could not sustain rejection of the refund claim merely because the period prescribed under Section 11B had expired. Relying on the decision of the High Court of Judicature at Madras, the Tribunal observed that when service tax (or analogous levy) is paid in excess or by mistake during investigation or under protest, a claim for refund cannot be defeated solely on the ground of limitation under Section 11B. Allowing the Revenue to retain excess tax would be contrary to Article 265 of the Constitution. On this basis the Tribunal set aside the rejection as time-barred and concluded that the claim merits consideration on merits. [Paras 5]

Rejection as time-barred under Section 11B set aside; refund claim to be considered on merits.

Evidentiary sufficiency of Chartered Accountant certificate - Doctrine of unjust enrichment - credit to welfare fund under Section 11B - remand for fresh adjudication and speaking order - Adjudication on the merits of the refund claim and adequacy of documents supporting the claim. - HELD THAT: - On the merits the Tribunal noted deficiencies in the appellant's documentary proof: the Chartered Accountant certificate was dated long after the payments and was issued at the appellant's request, rendering it self-serving and not conclusive. The adjudicating authority had also recorded discrepancies as to certain challans not pertaining to the appellant's registration and observed potential applicability of the Doctrine of unjust enrichment. Given that Section 11B contemplates consequences (including credit to the welfare fund) if the claimant is not entitled, and that the welfare fund had not been credited, the Tribunal granted the appellant a further opportunity. The matter was remanded to the adjudicating authority for the appellant to furnish necessary documentary evidence; the authority is directed to examine the documents, consider the question of unjust enrichment, and pass a reasoned (speaking) order dealing with entitlement and any consequential action, including appropriate crediting under Section 11B if the claim is rejected. [Paras 5, 6, 7]

Matter remanded for fresh adjudication; appellant to produce documentary evidence and adjudicating authority to pass a speaking order after consideration.

Final Conclusion: The appeal is allowed by way of remand: the rejection of the refund as time-barred is set aside, and the matter is remitted to the adjudicating authority to adjudicate the refund claim on merits after considering documentary evidence and to pass a reasoned order addressing entitlement and consequential steps under Section 11B.

Business Auxiliary Services - valuation of taxable services excluding reimbursable expenses - penalty under Section 78 of the Finance Act, 1994 - Section 73A obligation to deposit amounts collected as representing tax - finality of departmental refund orders - binding effect of Tribunal's decision on quasi judicial authority - presumption that taxation introduced by a subsequent specific head is not chargeable earlier

Business Auxiliary Services - finality of departmental refund orders - binding effect of Tribunal's decision on quasi judicial authority - presumption that taxation introduced by a subsequent specific head is not chargeable earlier - Chargeability of service tax under the head Business Auxiliary Services for the period 10.09.2004 to 30.04.2006 and validity of the demand confirmed by the Commissioner. - HELD THAT: - The Tribunal in the appellant's earlier proceedings held that the appellant's services were not chargeable to service tax under Business Auxiliary Services prior to 01.05.2006, and the appellant obtained refunds for tax paid under protest for the period 10.09.2004 to 30.04.2006 which the Revenue did not challenge. A quasi judicial authority is bound by the Tribunal's decision and by the finality of the departmental orders sanctioning refunds; the Commissioner could not properly reopen the settled position by differing from the Tribunal's ratio. Additionally, where specific taxable heads for share transfer agent and registrar to issue were introduced w.e.f. 01.05.2006, it is presumed those services were not taxable prior to that date. For these reasons the demand under Business Auxiliary Services for 10.09.2004 to 30.04.2006 cannot be sustained and is set aside. [Paras 20, 21, 22, 23, 24]

Demand under Business Auxiliary Services for 10.09.2004 to 30.04.2006 set aside; Commissioner was not entitled to disregard the Tribunal's earlier final order and departmental refunds.

Valuation of taxable services excluding reimbursable expenses - Intercontinental Consultants principle - Section 73A obligation to deposit amounts collected as representing tax - Whether service tax can be levied on reimbursable expenses recovered from clients (both for the period post 01.05.2006 and insofar as the demand sought to treat collected amounts as tax payable). - HELD THAT: - Applying the Supreme Court's decision in Intercontinental Consultants, valuation of taxable services excludes reimbursable expenses charged to clients because such amounts are not consideration 'for such service'. Accordingly, the demand of service tax on reimbursable expenses collected from clients cannot be sustained. However, where the service provider has collected amounts from clients representing service tax and interest, Section 73A requires such collected amounts to be deposited with the Government and no refund is available even if the tax was not payable. The impugned order incorrectly treated collected reimbursable amounts as tax payable under Section 73 rather than recognising the effect of Intercontinental Consultants and Section 73A deposit obligation. [Paras 15, 16, 17, 18]

Demand of service tax on reimbursable expenses set aside; amounts collected as representing tax must be deposited under Section 73A and are not refundable to the appellant.

Manpower recruitment or supply agency service - Imposition of service tax under the head 'Manpower Recruitment or Supply Agency' on salary reimbursed for a person seconded by an overseas group company. - HELD THAT: - The person in question was deputed/seconded by an overseas group company and her salary was paid by that company and reimbursed by the appellant. This arrangement did not constitute a manpower supply or recruitment agency service to the appellant. The demand under the manpower recruitment or supply agency head could not be sustained on these facts. [Paras 25]

Demand under 'Manpower Recruitment or Supply Agency' service set aside.

Penalty under Section 78 of the Finance Act, 1994 - requirement of suppression, fraud or wilful mis statement - Validity of imposition of penalty under Section 78 for suppression or wilful mis statement. - HELD THAT: - Section 78 permits penalty where a person, with intent to evade payment of service tax, has suppressed or concealed the value of taxable service or furnished inaccurate value; there must be evidence of fraud, collusion or wilful mis statement. In this case the material shows the Department was aware of the appellant's activities; refunds had been granted and the DGCEI merely asserted a different view. The essential elements for invoking Section 78 are not established. Further, because the substantive demand of tax itself is unsustainable, a penalty equal to the tax cannot be sustained. [Paras 26, 27, 28]

Penalty under Section 78 set aside for lack of requisite fraud/suppression and because the underlying tax demand is not sustainable.

Final Conclusion: The appeal is allowed: the demand of service tax under Business Auxiliary Services for 10.09.2004 to 30.04.2006, the demand on reimbursable expenses, the manpower supply demand and the penalty under Section 78 are set aside; amounts collected from clients as representing tax must be deposited under Section 73A and are not refundable.

Classification of services as Repair and Maintenance, Commercial or Industrial Construction Service or Works Contract Service - abatement entitlement under Notification No. 18/2005-ST - criteria for treating a contract as works contract where execution is with material - verification of facts on remand - effect of Larsen & Toubro on taxability of works contract w.e.f. 01.06.2007

Classification of services as Repair and Maintenance, Commercial or Industrial Construction Service or Works Contract Service - abatement entitlement under Notification No. 18/2005-ST - criteria for treating a contract as works contract where execution is with material - effect of Larsen & Toubro on taxability of works contract w.e.f. 01.06.2007 - Whether the appeal should be remanded to the adjudicating authority for fresh adjudication to verify if the service provided falls under repair and maintenance, commercial/industrial construction or works contract and whether abatement is consequently admissible. - HELD THAT: - The Tribunal found that the adjudicating authority had decided the matter solely on the basis that the service was repair and maintenance without verifying material facts - specifically whether the contracts were executed with material and whether sales tax had been discharged on the material portion. The Tribunal recognised that when the service is executed along with material and the criteria for classifying it as a works contract are satisfied, the service merits classification as works contract service. In that event issues of abatement under Notification No. 18/2005 ST and the applicability of the Hon'ble Supreme Court's decision in Larsen & Toubro (noting the entry of works contract service within service tax net w.e.f. 01.06.2007) become material. Because these factual determinations were not made by the adjudicating authority, the matter is remanded for de novo adjudication with directions to verify execution-with-material, payment of sales tax on material, and then classify the service and determine entitlement to abatement accordingly. [Paras 4, 5]

Appeal allowed by way of remand to the adjudicating authority for fresh adjudication and verification of the factual and legal aspects necessary to determine classification of the service and entitlement to abatement.

Final Conclusion: The Tribunal allowed the appeal by remanding the matter to the adjudicating authority for de novo consideration to verify whether the contracts were executed with material and, if so, whether the services qualify as works contract (with attendant consequences for abatement and taxability), in accordance with the observations in the earlier order dated 09.01.2019.

Doctrine of unjust enrichment in provisional assessment - refund procedure under provisional assessment and interplay of Rule 7(6) and Rule 9B - distinction between making of refund under rules and claiming of refund under Section 11B - application of the presumption in Section 12B in provisional assessment

Doctrine of unjust enrichment in provisional assessment - Whether the doctrine of unjust enrichment is applicable to provisional assessments where refund arises on finalization. - HELD THAT: - The Court held that refunds determined on finalization of provisional assessments under the self-contained provisions of the Rules fall to be examined in light of those Rules, and that the authorities had recorded findings that the assessee/manufacturer had borne the incidence of duty and had not passed it on. The Tribunal's reliance on the decision in Indian Telephone Industries Ltd. was held to be applicable to the facts, and the factual findings that burden was borne by the assessee were not successfully challenged by the Revenue. Consequently, the doctrine of unjust enrichment did not preclude refund in these provisional-assessment cases where the statutory scheme and recorded findings showed no passing on of incidence. [Paras 13, 16, 17]

Doctrine of unjust enrichment is not a bar to refunds determined on finalization of provisional assessments where the statutory provisions and recorded findings demonstrate the assessee bore the incidence of duty.

Refund procedure under provisional assessment and interplay of Rule 7(6) and Rule 9B - Whether the test of unjust enrichment must be applied in provisional assessment cases in view of Rule 7(6) and Rule 9B. - HELD THAT: - The Court examined Rule 9B (provisional assessment) and Rule 7(6) and concluded that these provisions together form a self-contained code governing adjustment and payment of refunds on finalization of provisional assessment. Rule 7(6) permits payment of refund to the applicant instead of crediting to the Fund where the amount is relatable to duty paid by the manufacturer who has not passed on its incidence. Thus Rule 7(6) cannot be dislocated from Rule 9B(5)'s proviso requiring compliance with Section 11B procedure; on the facts the authorities had applied Rule 7(6) and recorded findings that the assessee had borne the duty and issued credit notes and depot invoices showing discounts passed on, so the requirement for an unjust-enrichment test did not defeat the refund. [Paras 9, 11, 13]

Rule 7(6) read with Rule 9B governs refunds on finalization of provisional assessments and supports payment to the applicant where the duty is shown to have been borne by the manufacturer rather than being passed on.

Distinction between making of refund under rules and claiming of refund under Section 11B - Whether refunds in provisional assessments are governed by the mechanism of making of refund under the Rules as distinct from claiming under Section 11B. - HELD THAT: - Relying on the reasoning in Allied Photographics and Mafatlal as explained in the judgment, the Court noted the established distinction that Rule 9B is a complete code for provisional-assessment adjustments and provides for making of refund by the proper officer on final assessment, whereas Section 11B deals with claiming of refunds by persons who have paid duty on their own. The proviso to Rule 9B(5) requires adherence to the procedure in Section 11B(2), but this does not obliterate the character of Rule 9B/Rule 7(6) as governing refunds consequent to provisional assessment. On the facts, the authorities applied the correct legal framework and recorded findings favourable to the assessee. [Paras 11, 13, 15]

Refunds consequent to provisional assessment are governed by the self-contained procedure in the Rules (Rule 9B and Rule 7(6)), subject to the procedural proviso referencing Section 11B, and thus differ from ordinary refund claims under Section 11B.

Application of the presumption in Section 12B in provisional assessment - Whether the presumption in Section 12B applies in provisional-assessment cases. - HELD THAT: - The Court considered the Revenue's plea but observed that the authorities had verified sample depot invoices, noted the issue of cenvatable invoices, and recorded that credit notes and discounts were passed on to dealers as per marketing policies. The factual findings demonstrating that the incidence of duty was borne by the assessee were not disturbed. In that factual setting the statutory presumption in Section 12B did not defeat the refund; the Court found no perversity in the impugned orders. [Paras 16, 17]

The presumption under Section 12B does not operate to deny refunds on finalization of provisional assessments where the authorities have recorded and upheld findings that the assessee bore the incidence of duty and had not passed it on.

Final Conclusion: The substantial questions of law raised by Revenue were answered in favour of the assessee; the CESTAT orders upholding refunds on finalization of provisional assessments are free from perversity or illegality, and the appeal is dismissed.

Clandestine removal - SSI exemption - admissibility of statements recorded during search and seizure under Section 9D - third-party evidence and requirement of cross-examination - ownership/authorship of seized documents (diaries) - requirement of corroboration for clandestine removal (manufacturing capacity, electricity consumption) - confiscation and redemption fine - personal penalty on directors

Ownership/authorship of seized documents (diaries) - admissibility of statements recorded during search and seizure under Section 9D - third-party evidence and requirement of cross-examination - Admissibility and evidentiary value of seized diaries A/2 & A/3 and related third party records in establishing clandestine removal where the director disowned the diaries. - HELD THAT: - The Tribunal found that the diaries A/2 and A/3, relied upon by the Department to establish clandestine removal, were disowned by the appellant's director and that the Adjudicating Authority did not examine/cross examine the third party witnesses (transporters, dealers) whose statements and documents were relied upon. In view of the mandatory scheme of Section 9D, the Tribunal held that denial of authorship/ownership of seized documents by the assessee required the Adjudicating Authority to test the veracity of third party statements by permitting their examination; absent such cross examination the statements and third party documents could not be admitted as evidence to sustain demand. Applying precedents, the Tribunal concluded that the diaries and the uncorroborated third party records were not legally admissible proof of clandestine removals. [Paras 4]

Diaries A/2 & A/3 and third party statements/documents were not admissible evidence as relied upon; they could not support a finding of clandestine removal.

Requirement of corroboration for clandestine removal (manufacturing capacity, electricity consumption) - clandestine removal - Whether the Department established clandestine removal by independent corroborative evidence such as manufacturing capacity or other objective indicia. - HELD THAT: - The Tribunal observed that the Department did not undertake enquiries to corroborate the alleged large scale manufacture and clearance - for example, by verifying machine capacity, electricity consumption or other objective indicators of production. The absence of such corroboration weakened the case that the appellant had produced and cleared the quantities alleged. Given that the primary documentary evidence was excluded for want of admissibility, the additional absence of independent corroboration meant clandestine removal was not established beyond doubt. [Paras 4]

Clandestine removal was not established due to lack of corroborative investigation of manufacturing capacity and related objective evidence.

Confiscation and redemption fine - personal penalty on directors - Sustainability of confiscation, redemption fine and personal penalties imposed on the appellant and others consequential to the finding of clandestine removal. - HELD THAT: - Because the Tribunal concluded that clandestine removal was not proved (on account of inadmissibility of the relied documents and lack of corroboration), it followed that the consequential measures - confirmation of duty demand, imposition of penalty, redemption fine in lieu of confiscation and personal penalties on directors and others - could not be sustained. The Tribunal applied the principle that penalties and confiscation cannot stand when the foundational charge of clandestine removal is not established by admissible evidence. [Paras 4, 5]

Consequential demand, confiscation (and redemption fine) and personal penalties were set aside.

Final Conclusion: The Tribunal allowed the appeals, set aside the Order in Original and quashed the demand, confiscation/redemption fine and penalties because clandestine removal was not established by admissible and corroborated evidence; consequential relief to be given in accordance with law.

Principles of natural justice - right to be furnished with relied-upon documents - opportunity for personal hearing - denovo adjudication - remand for fresh consideration

Principles of natural justice - right to be furnished with relied-upon documents - opportunity for personal hearing - Impugned adjudication set aside for violation of principles of natural justice as relied-upon documents were not furnished to the appellants and they were not afforded a proper opportunity to meet the case against them. - HELD THAT: - The Tribunal examined the correspondence between the appellants, the adjudicating authority and DGCEI and found that numerous letters demonstrate that the appellants had repeatedly requested supply of the documents relied upon in the show cause notice but were not furnished all such documents. The adjudication proceeded without provision of the relied-upon material to the appellants, which the Tribunal concluded amounted to a gross violation of principles of natural justice. Having regard to settled law cited by the appellants on the necessity of giving parties the material relied upon and an opportunity to contest it, the Tribunal held that the impugned order could not be sustained where the foundational requirement of fair hearing had not been met. On this basis the Tribunal set aside the order and directed that all relied-upon documents be supplied, that the appellants be given sufficient opportunity to file their defence and for personal hearing, and that the adjudicating authority proceed to a denovo adjudication thereafter.

Impugned order set aside for breach of principles of natural justice; matter remanded to the adjudicating authority for fresh adjudication after supplying relied-upon documents and granting opportunity of personal hearing.

Final Conclusion: The appeals are allowed by way of remand: the impugned adjudication order is quashed for non-observance of natural justice; the adjudicating authority is directed to supply all relied-upon documents to the appellants, afford them opportunity to file defence and personal hearing, and pass a fresh adjudication order.

Legislative competence to tax alcoholic liquor for human consumption - goods and services tax (GST) versus State sales tax/UPVAT - industrial alcohol / Extra Neutral Alcohol (ENA) not being alcoholic liquor for human consumption - prohibition on levying tax under a general legislative entry - ultra vires delegation of taxing power by subordinate notification - rule against unjust enrichment and refund of tax collected without authority

Legislative competence to tax alcoholic liquor for human consumption - industrial alcohol / Extra Neutral Alcohol (ENA) not being alcoholic liquor for human consumption - goods and services tax (GST) versus State sales tax/UPVAT - State legislature lost competence to impose tax on sale of ENA after the 101st Constitution Amendment and ENA is not 'alcoholic liquor for human consumption'. - HELD THAT: - The court analysed the effect of the 101st Constitution Amendment (Articles 246A and Article 366(12A)) and the substituted Entry 54 of List II, concluding that the constitutional scheme now leaves taxation of all goods (except the specifically listed items including 'alcoholic liquor for human consumption') to the GST regime. Applying binding Supreme Court precedents, the court held that ENA (industrial alcohol/rectified spirit/ENA) is not an 'alcoholic liquor for human consumption' as understood in Synthetics and Chemicals Ltd. and subsequent decisions; its commercial identity in presenti is determinative and it is not transformed into potable liquor merely by potential use. Because the UPGST Act expressly preserved State taxation only in respect of goods in substituted Entry 54, and ENA is not one of those goods, the State legislature cannot validly tax ENA post-amendment. The court also emphasised the constitutional rule that a taxing power must derive from a specific taxing entry and cannot be squeezed out of a general entry. The court therefore concluded that the State lacked legislative competence to impose UPVAT on ENA after 01.07.2017. [Paras 60, 61, 62, 63, 73]

The State had no legislative competence to impose UPVAT on ENA after the 101st Constitution Amendment; ENA is not 'alcoholic liquor for human consumption'.

Ultra vires delegation of taxing power by subordinate notification - prohibition on levying tax under a general legislative entry - Notification No. KA.NI-2-1793 dated 17.12.2019 (inserting Schedule entry 1-A to tax 'non-GST alcohol') is ultra vires and invalid insofar as it seeks to impose UPVAT on ENA, Rectified Spirit and SDS. - HELD THAT: - The court found that the impugned Notification sought to create or treat ENA as 'non-GST alcohol' to justify UPVAT; but Article 366(12A) and the substituted Entry 54 restrict the State's taxing field to specific items only. Because ENA remains industrial alcohol and is not within the saved Entry 54, the State had no delegated authority to bring ENA within UPVAT by executive notification. The court held that the Notification attempts to circumvent the constitutional scheme and is therefore beyond the legislative/delegated competence of the State and invalid. [Paras 22, 62, 63, 73]

The Notification dated 17.12.2019 is ultra vires and quashed to the extent it seeks to impose UPVAT on ENA, Rectified Spirit and SDS.

Quashing of assessment orders and administrative circulars - goods and services tax (GST) versus State sales tax/UPVAT - Assessment orders/notices and administrative Circulars/letters issued to impose UPVAT or CST on ENA (specified dates/orders) are quashed as consequent on the primary findings. - HELD THAT: - As a consequence of the findings that the State lacked legislative and delegated competence and that the impugned Notification is ultra vires, the court quashed the assessment orders/notices and administrative Circulars/letters impugned in the writ petitions which sought to charge UPVAT/CST on ENA for the tax periods in dispute. The court noted the legal impossibility of enforcing the Notification and related assessments once the legislative competence and validity of the Notification were negated. [Paras 73]

Impugned assessment orders/notices and Circulars/letters imposing UPVAT/CST on ENA are quashed.

Rule against unjust enrichment and refund of tax collected without authority - Direction for refund of UPVAT amounts deposited on ENA on or after 01.07.2017, subject to unjust enrichment, except as specified in Writ Tax 355 of 2020. - HELD THAT: - Having held the State actions to be without legislative or delegated authority, the court directed that amounts deposited by petitioners by way of UPVAT on ENA on or after 01.07.2017 be refunded within one month, subject to the rule against unjust enrichment. The order carved out petitioners covered by Writ Tax 355 of 2020 as an exception as recorded in the judgment. [Paras 74]

Refund directed of UPVAT amounts deposited on ENA on or after 01.07.2017, within one month, subject to the rule against unjust enrichment (with the specified exception).

Final Conclusion: All writ petitions allowed: the State lacked legislative and delegated competence to impose UPVAT on ENA after the 101st Constitution Amendment; the impugned Notification dated 17.12.2019 is quashed insofar as it seeks to tax ENA/Rectified Spirit/SDS; related assessment orders/notices and administrative Circulars/letters are quashed; amounts of UPVAT deposited on ENA on or after 01.07.2017 are to be refunded within one month subject to the rule against unjust enrichment.

Grant of bail in NDPS commercial quantity cases - Standard of "reasonable grounds to believe" under Section 37(1)(b)(ii) of the NDPS Act - Application of Section 37 NDPS Act bail bar where commercial quantity is involved - Admissibility of confessional statements recorded under Section 67 of the NDPS Act

Grant of bail in NDPS commercial quantity cases - Application of Section 37 NDPS Act bail bar where commercial quantity is involved - Standard of "reasonable grounds to believe" under Section 37(1)(b)(ii) of the NDPS Act - Whether the petitioner was entitled to regular bail in view of the recovery of contraband in commercial quantity and the requirements of Section 37(1)(b)(ii) of the NDPS Act. - HELD THAT: - The Court applied the statutory bail regime in Section 37 of the NDPS Act and the judicial gloss on the phrase "reasonable grounds to believe" as expounded in Union of India v. Shiv Shanker Kesari. The test requires the court to be satisfied, on reasonable grounds, that the accused is not guilty and is not likely to commit an offence while on bail; it is a stricter test than prima facie satisfaction but does not require a full trial or an acquittal. The record disclosed recovery of commercial quantity of contraband from a co-accused, extensive WhatsApp and call communications between the petitioner and the co-accused implicating the petitioner in arranging orders and coordination, and conduct indicative of concealment (destruction of SIM). The prosecution was afforded opportunity to oppose bail and the material on record furnished substantial grounds to believe involvement of the petitioner in the trafficking conspiracy; absence of personal recovery from the petitioner did not displace the rigors of Section 37 in view of precedents including Union of India v. Rattan Mallik. Applying these principles, the Court found that the statutory threshold for releasing an accused on bail under Section 37(1)(b)(ii) was not satisfied. [Paras 25, 26, 27, 28, 29]

Bail application dismissed; petitioner not entitled to bail under Section 37(1)(b)(ii) in view of commercial quantity recovery and supporting incriminating materials.

Admissibility of confessional statements recorded under Section 67 of the NDPS Act - Whether the petitioner's confessional statement under Section 67 NDPS Act was admissible as evidence. - HELD THAT: - The Court noted the precedent in Tofan Singh v. State of Tamil Nadu holding that confessional statements made under Section 67 of the NDPS Act are not admissible in evidence. While observing the inapplicability of such confessional statements as evidentiary proof, the Court proceeded to assess the bail application on the remaining material - recoveries from co-accused, call records, WhatsApp communications, and other investigative findings - and concluded that even without admissibility of the Section 67 confession, the overall material justified refusal of bail. [Paras 21]

Confessional statement under Section 67 is not admissible; nevertheless, other investigative material sustained the denial of bail.

Final Conclusion: The bail petition is dismissed; the court declined to grant bail under the stringent test of Section 37(1)(b)(ii) of the NDPS Act in a case involving commercial quantity and corroborative investigative material, while observing that confessions under Section 67 are inadmissible but that other evidence sufficed to refuse release.

Quashing of criminal proceedings under Section 482 Cr.P.C. - prima facie satisfaction for summoning - prohibition on roving inquiry or pre trial evaluation of evidence - categories for quashing proceedings as laid down in Bhajan Lal - compounding and compromise in cheque dishonour cases and directions under Damodar S. Prabhu

Quashing of criminal proceedings under Section 482 Cr.P.C. - categories for quashing proceedings as laid down in Bhajan Lal - Whether the complaint case under Section 138 N.I. Act and the summoning/proceedings against the applicant should be quashed. - HELD THAT: - The High Court examined the record and found that the contentions advanced on behalf of the applicant relate to disputed questions of fact and call for assessment of the credibility and testimonial worth of prosecution evidence. The court reiterated the settled law that quashing under Section 482 is permissible only in limited and illustrative categories (as recognised in R.P. Kapur and State of Haryana v. Bhajan Lal and related authority) where allegations do not constitute an offence, are absurd or impossible, prosecution is barred, or proceedings are malicious. On the material before it the court was satisfied that a prima facie case exists and that the matter does not fall within the recognised categories warranting quashing. The court therefore refused to quash the complaint, summoning order or subsequent proceedings and found no abuse of process.

Prayer to quash the complaint and proceedings is refused; case does not fall within recognised categories for quashing.

Prohibition on roving inquiry or pre trial evaluation of evidence - prima facie satisfaction for summoning - Whether the High Court should undertake a detailed pre trial factual inquiry into the merits and probative value of prosecution material at the Section 482 stage. - HELD THAT: - The court declined to embark upon a roving or threadbare pre trial examination of factual minutiae or to adjudge whether the case will ultimately result in conviction. It emphasised that only a prima facie satisfaction regarding existence of sufficient grounds to proceed is required at the quashing stage and that matters of credibility and disputed factual issues are to be left to the trial court. Consequently, the High Court refrained from detailed factual adjudication which might prejudice trial.

High Court will not conduct a pre trial evaluation of evidence; disputed factual issues are to be decided by the trial court.

Compounding and compromise in cheque dishonour cases and directions under Damodar S. Prabhu - Whether the accused should be permitted an opportunity to seek compounding/compromise and whether any protective directions should be given pending such steps. - HELD THAT: - Having regard to the Supreme Court's observations in Damodar S. Prabhu that the compensatory aspect of cheque dishonour cases should be given priority and that early compounding may reduce litigation and arrears, the High Court granted the accused a limited opportunity to pursue compromise. The accused was directed to appear through counsel within one month and to move an application for compounding; the trial court was directed to take steps in accordance with law, to provide further opportunity not exceeding four months to endeavour settlement, and to decide the application in accordance with the law within five months from the date of the order. Pending the decision or for the five month period (whichever earlier), no coercive measures shall be adopted against the accused. The court also clarified that if compounding/settlement does not conclude the proceedings, the trial court remains free to proceed and take lawful steps to secure attendance.

Accused permitted to seek compounding; timelines and protective stay on coercive measures for up to five months ordered; trial court to decide application in accordance with law and may proceed if compounding does not conclude the matter.

Final Conclusion: The application under Section 482 Cr.P.C. seeking quashing of the complaint and proceedings is dismissed on merits; the High Court declined to undertake pre trial factual evaluation, found prima facie grounds to proceed, and directed that the accused be afforded a limited opportunity to apply for compounding/compromise under the guidance of Damodar S. Prabhu with protective directions (no coercive measures for up to five months) while preserving the trial court's power to proceed if compounding does not conclude the matter.