TaxTMI Updates e-Newsletter
Oct 17,2015

Reopening of assessment under Section 147/148 - reason to believe that income has escaped assessment - availability of the original return of income as a jurisdictional fact - transfer under Section 2(47) and capital gains - part performance and transfer - reliance on other sources of information and requirement of natural justice

Reopening of assessment under Section 147/148 - reason to believe that income has escaped assessment - availability of the original return of income as a jurisdictional fact - reliance on other sources of information and requirement of natural justice - Validity of the notice dated 13/11/2000 under Section 148/147 was set aside and the matter remitted to the Tribunal for fresh consideration. - HELD THAT: - The Court held that jurisdiction under Sections 147/148 is extraordinary and depends on the jurisdictional fact that the Assessing Officer has a reason to believe that income has escaped assessment. The appellant contested that the Assessing Officer did not have the original return filed on 22/09/1997 when the notice was issued and pointed to the Assessing Officer's subsequent letter (20/11/2000) calling for the balance sheet and profit & loss account as prima facie evidence of absence of the original return from Revenue records. The authorities below proceeded on the premise that the original return may have been available on 13/11/2000 without examining or deciding the appellant's contention or any alternative sources of information relied upon by Revenue. The Court held that lack of the jurisdictional fact would render the notice a nullity and that an objection to want of jurisdiction may be raised in appeal. Because the Tribunal had not examined whether the original return was in Revenue's possession at the time the notice was issued, nor whether any other source furnished a valid reason to believe that income had escaped assessment (and if so whether that source was disclosed to the assessee in accordance with natural justice), the Tribunal's order on reopening could not stand. The Court therefore set aside the Tribunal's order on the reopening issue and restored the matter to the Tribunal with liberty to the parties to lead evidence and to permit the Tribunal to examine afresh (a) existence/non-existence of the original return on 22/09/1997 in Revenue records on 13/11/2000; (b) whether any other source supplied a valid reason to believe that income had escaped assessment; and (c) whether reliance on any such source was fairly disclosed so as to afford the assessee opportunity to explain. [Paras 14, 15, 16]

Impugned order quashed and set aside on the jurisdictional issue; matter restored to the Tribunal for fresh consideration on existence of the original return, any other source of information relied upon by Revenue and related natural justice aspects.

Transfer under Section 2(47) and capital gains - part performance and transfer - treatment of consideration and cost for computing capital gains - Questions on whether the agreement/part performance amounted to a transfer under Section 2(47), the taxability of the receipt alleged to be consideration (including the Rs. 66 lakhs) and the computation of capital gains were not decided and were remitted to the Tribunal for fresh adjudication if the reopening notice is held valid. - HELD THAT: - The Court refrained from adjudicating questions concerning whether the agreement dated 08/08/1995 and subsequent events amounted to transfer under Section 2(47), whether the payments received were in the capacity of the firm or partners, and the correct computation of capital gains. Those issues were left open because their resolution is contingent on the preliminary determination whether the reopening notice was validly issued. The Tribunal is directed, if it finds the notice to be within jurisdiction, to examine afresh all contentions of the Revenue and the assessee on these substantive matters and decide them on merits. [Paras 16]

Substantive issues on transfer, part-performance and computation of capital gains reserved for fresh consideration by the Tribunal if it upholds the validity of the reopening.

Final Conclusion: The appeal is partly allowed: the Tribunal's order is quashed and set aside insofar as it upholds the reopening notice, and the matter is restored to the Tribunal to decide afresh (i) the existence of the original return in Revenue records on 13/11/2000 and any other source relied upon to form a reason to believe that income escaped assessment (with due observance of natural justice), and (ii) if the reopening is upheld, the substantive questions concerning transfer and capital gains; the Tribunal is directed to dispose of the matter as expeditiously as possible.

Applicability of Section 50C to transfers of immovable property - date of transfer for capital gains purposes - definition of "transfer" under Section 2(47) - effect of agreement to sell and part performance on transfer - retrospective operation of Explanation 2 to Section 2(47)

Applicability of Section 50C to transfers of immovable property - date of transfer for capital gains purposes - definition of "transfer" under Section 2(47) - effect of agreement to sell and part performance on transfer - Whether Section 50C applies where the agreement to sell (with part consideration received) was executed prior to 01.04.2003 though the sale deed and payment completion occurred thereafter - HELD THAT: - The Court held that the question turns on when the "transfer" occurs for capital gains. Section 45 charges income arising from transfer in the previous year in which the transfer takes place, and Section 2(47) defines "transfer" to include extinguishment of rights and transactions by way of an agreement. The Supreme Court decision (cited in the judgment) establishes that execution of an agreement to sell creates a right in personam in the purchaser and extinguishes some right of the vendor, enabling specific performance. Explanation 2 to Section 2(47), given retrospective effect, further clarifies that transfer includes disposing of or parting with an asset by way of an agreement. Applying these provisions, the Court concluded that when an agreement to sell is executed and part consideration is received, the transfer for capital gains purposes occurs at that point and computation under Section 48 commences accordingly. Because the assessees executed the agreement on 04.07.2001 and received part consideration in that period, the transfer occurred in 2001, prior to the insertion of Section 50C with effect from 01.04.2003. Therefore Section 50C was not applicable and the Assessing Officer was not justified in reassessing capital gains by invoking Section 50C. [Paras 11, 12, 13, 14, 15]

The transfer occurred on execution of the agreement in 2001 (with part consideration received) and Section 50C (effective 01.04.2003) does not apply; reassessment invoking Section 50C was unjustified.

Final Conclusion: Appeals dismissed; substantial question answered in favour of the assessees and against the Department: capital gains arise on the date of the agreement (2001) and Section 50C (w.e.f. 01.04.2003) is not applicable.

Manufacture or production - additional depreciation under section 32(1)(iia) - definition of "manufacture" under section 2(29BA) - value addition versus manufacturing transformation

Manufacture or production - additional depreciation under section 32(1)(iia) - definition of "manufacture" under section 2(29BA) - value addition versus manufacturing transformation - Whether the embroidery work carried out by the assessee on synthetic fabrics amounts to manufacture or production for the purpose of claiming additional depreciation under section 32(1)(iia) of the Act. - HELD THAT: - The Tribunal's conclusion that embroidery on synthetic fabrics constitutes manufacture was affirmed. The court applied the principle in S.S.M. Brothers that machinery used in processing textiles, even where the assessee buys cloth and processes it (for example by embroidering or dyeing), is used in production of processed textiles and is eligible for the relevant fiscal benefit. When embroidery is carried out on synthetic fabric, the fabric is converted into an embroidered product which is commercially known as a different article (for example an embroidered saree or dress material), and the nature of the article depends on the embroidery carried out. This transformation in the basic fabric resulting in a new commercially recognised article falls within the scope of "manufacture" as contemplated by the definition relied upon (section 2(29BA)). The Assessing Officer's characterization of the activity as mere value addition without change of composition or nature was rejected on the basis that the embroidery effects a transformation amounting to production/manufacture for the purposes of section 32(1)(iia). Accordingly, the assessee was held entitled to additional depreciation in respect of the embroidery machines used in the business.

Embroidery of synthetic fabrics amounts to manufacture/production under the Act and the assessee is entitled to additional depreciation under section 32(1)(iia).

Final Conclusion: The appeal is dismissed; the Tribunal correctly held that the embroidery activity amounts to manufacture/production and that the assessee is entitled to claim additional depreciation on the embroidery machines under section 32(1)(iia).

Option to claim depreciation in the year(s) of choice - estoppel by election to avail investment allowance - investment allowance under Section 32A of the Income tax Act - prohibition on depreciation where whole actual cost is allowed as deduction in one previous year - assessment under Section 41(2) of the Income tax Act

Option to claim depreciation in the year(s) of choice - estoppel by election to avail investment allowance - investment allowance under Section 32A of the Income tax Act - Assessee's right to revive and claim depreciation in assessment year 1984-85 after having waived depreciation and availed investment allowance in assessment year 1978-79. - HELD THAT: - The assessee originally claimed full depreciation in AY 1978-79 but subsequently filed a revised return withdrawing that claim and availed investment allowance under Section 32A for the same year. Having elected to forego depreciation and taken the benefit of investment allowance, the assessee could not later revive the claim for depreciation in AY 1984-85. Section 32A operates to preclude allowance of depreciation in respect of any asset the whole of the actual cost of which is allowed as a deduction in one previous year; the assessee's voluntary withdrawal of the depreciation claim and election to take investment allowance precludes a contrary contention thereafter.

Claim for depreciation in AY 1984-85 cannot be revived; the assessee is precluded from claiming depreciation after electing investment allowance for AY 1978-79.

Validity of a revised return under Section 139(5) - Validity of the revised return filed to withdraw the depreciation claim was not decided by the Court. - HELD THAT: - The Court expressly refrained from deciding whether the revised return filed by the assessee constituted a valid revised return within the meaning of Section 139(5), because the primary question concerning the right to claim depreciation was answered adversely to the assessee. Consequently the question as to the legal character and effect of the revised return was left open.

Question on validity of the revised return under Section 139(5) not decided and left open.

Assessment under Section 41(2) of the Income tax Act - Whether Section 41(2) charge could arise in respect of depreciation not actually allowed to the assessee. - HELD THAT: - The Tribunal found, and the Court affirmed, that where the assessee has not actually been allowed depreciation, no question of making a charge under Section 41(2) arises. The High Court agreed with the Tribunal's conclusion that in the absence of any benefit having been availed on account of depreciation, Section 41(2) is inapplicable; the Tribunal's direction to adjust if depreciation is allowed in subsequent proceedings was noted, but the primary holding-non-applicability of Section 41(2) where depreciation was never allowed-was affirmed.

In the absence of any depreciation having been allowed to the assessee, no assessment under Section 41(2) can be made; the Tribunal's view on this point is affirmed.

Final Conclusion: Reference disposed: claim to revive depreciation in AY 1984-85 rejected because the assessee elected investment allowance in AY 1978-79; the question on the legal effect of the revised return under Section 139(5) is left undecided; the Tribunal's finding that Section 41(2) could not be invoked where depreciation was never allowed is upheld and the related appeal is dismissed.

Deduction of interest as business expenditure - requirement of evidence to prove business use of premises - burden of proof on assessee to establish business nexus - appellate interference with concurrent factual findings

Deduction of interest as business expenditure - requirement of evidence to prove business use of premises - burden of proof on assessee to establish business nexus - Whether the claim of interest expenditure in connection with the security deposit was allowable as a deduction on the ground that the premises was used for business purposes. - HELD THAT: - The Tribunal recorded that the Assessing Officer had specifically sought evidence to demonstrate that the premises taken pursuant to the 6.8.1996 agreement were used for the assessee's business, and that the assessee failed to produce corroborative documents before the Tribunal (for example, inclusion in an insurance policy, trade licence or bank records). The CIT(A) had deleted the disallowance without arriving at independent findings affirming business use; the Tribunal reversed that order on the basis that no cogent evidence had been adduced. The High Court, applying the principle that an assessee bears the burden of proving the requisite business nexus for claiming a deduction and that appellate intervention is not warranted where concurrent fact-finding is supported by the record, held that the Tribunal's factual conclusion was unimpeachable. Reliance on Tirupati Trading Co. (Cal) was accepted to the effect that absence of supporting evidence justifies disallowance of the deduction. Consequently, the assessee's claim for interest deduction was not sustainable on the record before the authorities.

Assessee's claim for interest deduction disallowed; the Tribunal's reversal of CIT(A) upheld and the assessee's appeal dismissed.

Appellate interference with concurrent factual findings - burden of proof on assessee to establish business nexus - Whether the High Court should interfere with the Tribunal's factual finding that no evidence was produced to show business use of the premises. - HELD THAT: - The Court noted that the Tribunal engaged with the facts, recorded the specific queries made to the assessee's counsel and the absence of documentary proof, and reached a conclusion adverse to the assessee. The High Court held that in the absence of any cogent material to show that the Tribunal's findings were perverse or unsupported, interference was not warranted. The Tribunal's reasoning and factual appraisal were therefore left undisturbed.

No interference with the Tribunal's concurrent factual findings; the appeal is dismissed.

Final Conclusion: The Tribunal's reversal of the CIT(A)'s deletion of disallowance was upheld: the assessee failed to prove that the premises were used for business and therefore the interest claim was not allowable; the appeal is dismissed.

Power under Section 119(2)(b) to admit refund claims after prescribed period - refund claim for belated return - returns filed in response to notice under Section 148 - avoiding genuine hardship - reconsideration/remand for fresh exercise of discretion

Power under Section 119(2)(b) to admit refund claims after prescribed period - avoiding genuine hardship - reconsideration/remand for fresh exercise of discretion - Validity of Ext.P16 order declining to condone delay under Section 119(2)(b) and consequent relief. - HELD THAT: - Section 119(2)(b) empowers the Board to authorize an income-tax authority to admit applications for refund after the prescribed period for the purpose of avoiding genuine hardship. Exts.P14 and P15 were applications to condone delay under that provision. Ext.P16 does not show that the Commissioner applied the statutory test of condoning delay to avoid genuine hardship; instead the Commissioner examined the merits of the refund claim and held that the delay was not properly explained and that returns filed in response to notices under Section 148 disentitle the assessee to refund. Such reasoning does not reflect a proper exercise of the discretionary power under Section 119(2)(b) and is therefore unsustainable. The appropriate relief is to set aside the impugned orders and direct reconsideration of the condonation applications by the competent authority with a fresh exercise of discretion under Section 119(2)(b). [Paras 6, 8, 9]

Ext.P16 is unsustainable for failure to exercise discretion under Section 119(2)(b) to consider avoidance of genuine hardship; Exts.P13 and P16 are quashed and Exts.P14 and P15 are to be reconsidered afresh by the competent authority.

Returns filed in response to notice under Section 148 - refund claim for belated return - power under Section 119(2)(b) to admit refund claims after prescribed period - Whether filing return in response to a notice under Section 148 by itself precludes entitlement to refund when condonation is granted under Section 119(2)(b). - HELD THAT: - The Bombay High Court has held that returns filed in response to notices under Section 148 preclude refund claims. However, the court held that if the Commissioner properly condones delay under Section 119(2)(b), the circumstance that the return was filed in response to a Section 148 notice would 'pale into insignificance'. Thus, the fact of filing in response to Section 148 is not an absolute bar to refund where the statutory discretion to admit belated claims is validly exercised to avoid genuine hardship. [Paras 7]

Filing a return in response to a Section 148 notice does not automatically preclude refund if the competent authority validly admits the belated refund claim under Section 119(2)(b).

Final Conclusion: Exts.P13 and P16 are quashed; the matter is remitted for reconsideration of Exts.P14 and P15 by the competent income-tax authority who shall re-exercise discretion under Section 119(2)(b) to decide the belated refund claims (assessment years 1996-97 and 1997-98) within two months from receipt of this judgment.

Reassessment proceedings - assumption of jurisdiction under Section 147 and notice under Section 148 - jurisdiction to reopen assessment - prematurity of writ challenging reassessment - obligation to file return and seek particulars before agitating jurisdiction - right to challenge assessment after passing of assessment order

Prematurity of writ challenging reassessment - assumption of jurisdiction under Section 147 and notice under Section 148 - obligation to file return and seek particulars before agitating jurisdiction - Whether the writ petition challenging the notice issued under Section 148 (assumption of jurisdiction under Section 147) was premature and whether the petitioner should first file returns and seek particulars before challenging the reassessment proceedings. - HELD THAT: - The Court held that the challenge to the reassessment notice under Section 148, which proceeded on an assumption of jurisdiction under Section 147, was premature at this stage. The petitioner was directed to file the necessary returns and to seek from the assessing authority the reasons and particulars for the proposed reassessment. The court observed that objections as to jurisdiction or on merits can be raised before the assessing authority once the petitioner has furnished returns and obtained the stated particulars. Thereafter, upon receipt of the assessing authority's reasoned action and upon consummation of any reassessment order, the petitioner remains free to seek appropriate remedies under law. The Court therefore declined to adjudicate the substantive question of jurisdiction in these proceedings and disposed the petition by requiring statutory steps to be taken first.

Writ petition premature; petitioner directed to file returns and obtain particulars from the assessing authority, after which objections may be raised and the assessing authority shall proceed in accordance with law; petitioner may challenge any final assessment order thereafter.

Final Conclusion: Writ petition disposed of as premature; petitioner directed to file the necessary returns and seek particulars from the assessing authority within a reasonable time, after which objections may be filed and the assessing authority shall proceed; any challenge to a final assessment order remains open.

Deduction under Section 10B - Computation of profits derived from export under Section 10B(4) - Harmonious construction of sub-sections (1) and (4) of Section 10B - Duty drawback/DEPB treated as business income under Section 28(iii-c) - Proportionate eligibility for deduction - Analogy to formula-based deduction under Section 80HHC

Computation of profits derived from export under Section 10B(4) - Harmonious construction of sub-sections (1) and (4) of Section 10B - Proportionate eligibility for deduction - Profits eligible for deduction under Section 10B must be computed in accordance with the formula contained in sub section (4) and sub section (1) is to be read in harmony therewith. - HELD THAT: - The court held that sub section (1) of Section 10B identifies the income which is eligible for deduction but does not supply the mechanism for quantification. Sub section (4) is a special provision prescribing the formula by which the profits derived from export are to be calculated. Both sub sections must be applied together so that the manner of computing profits under sub section (1) is governed by sub section (4); treating either provision as negating the other would render one otiose. Therefore only the proportion of business profits attributable to export, as computed by the formula in sub section (4), qualifies for deduction under Section 10B.

Computation of deduction under Section 10B must follow the formula in sub section (4); sub section (1) is to be applied in harmony with sub section (4).

Duty drawback/DEPB treated as business income under Section 28(iii-c) - Proportionate eligibility for deduction - Analogy to formula-based deduction under Section 80HHC - Duty drawback/DEPB constitutes profits and gains of business under Section 28(iii c) but only that portion attributable to export as per Section 10B(4) is eligible for deduction/exemption under Section 10B. - HELD THAT: - The court observed that Section 28 clause (iii c) deems any duty of customs or excise repaid or repayable as drawback against exports to be business income; consequently DEPB/duty drawback cannot be excluded from business profits. However, when applying Section 10B(4)'s formula, the entire duty drawback amount does not automatically qualify for exemption; only the amount which bears to the profits of the undertaking the same proportion as export turnover bears to total turnover is eligible. The position was noted to be akin to the formulaic approach under Section 80HHC, reinforcing that entitlement is proportionate and not absolute.

DEPB/duty drawback is taxable as business income under Section 28(iii c) but only the proportion computed under Section 10B(4) qualifies for deduction under Section 10B.

Final Conclusion: The appeal is dismissed; deduction under Section 10B must be computed by applying sub section (4), and duty drawback/DEPB, being business income under Section 28(iii c), is eligible for deduction only to the extent determined by that formula.

Arm's length price - comparability analysis in transfer pricing - residual/review jurisdiction of appellate forum to remit matters for factual verification - risk adjustment in transfer pricing (quantification and methodology) - application of Accounting Standard (AS 11) to recognition of foreign exchange differences - deduction under section 10A and scope of IT enabled services Notification No. 890(E) dated 26 9 2000 - non allowability under section 43B(f) for unpaid statutory liabilities

Comparability analysis in transfer pricing - residual/review jurisdiction of appellate forum to remit matters for factual verification - Comparability of Aftek Infosys Ltd. as a comparable in the assessee's TNMM study - HELD THAT: - The Tribunal found that the TPO included Aftek Infosys Ltd. as a comparable without critically examining the functional differences shown by the assessee from the annual report. The Tribunal held that factual aspects concerning whether Aftek is primarily a software product company (and therefore functionally dissimilar to the captive contract software service provider) were not adequately examined and that the matter should be restored to the file of the AO/TPO for factual verification. The matter is remitted for fresh examination and determination whether Aftek Infosys Ltd. is functionally comparable to the assessee. [Paras 5]

Matter restored to the file of the AO/TPO for factual examination of Aftek Infosys Ltd.'s comparability

Comparability analysis in transfer pricing - Exclusion of Infosys Technologies Ltd. from the final set of comparables - HELD THAT: - The Tribunal agreed with the assessee that Infosys Technologies Ltd., by virtue of its diversified functions, ownership of proprietary products and significantly different asset and risk profile, is not functionally comparable to the captive service provider. The Tribunal observed that a taxpayer may resile from an earlier claim of comparability if it can demonstrate on FAR that the company is not comparable, and accordingly directed exclusion of Infosys from the comparable set. [Paras 6]

Infosys Technologies Ltd. excluded from the final set of comparables

Comparability analysis in transfer pricing - Exclusion of Satyam Computers Services Ltd. as a comparable - HELD THAT: - On the record before it the Tribunal accepted the assessee's contention that the financial data of Satyam Computers Services Ltd. is unreliable for comparability purposes. In view of unreliable public domain financials, the Tribunal held that Satyam cannot be considered as a comparable and excluded it from the comparable set. [Paras 7]

Satyam Computers Services Ltd. excluded from the final set of comparables

Comparability analysis in transfer pricing - related party transactions (RPT) threshold - Xansa India Ltd. inclusion questioned and remanded for reconsideration on RPT grounds - HELD THAT: - The assessee raised RPT based objection after availability of the annual report. The Tribunal held that the objection on the basis of significant related party transactions (and any consequent impact on comparability) was not considered by the CITA, and therefore restored the issue to the file of the CIT(A) for fresh decision in accordance with law after considering RPT information. [Paras 8]

Issue remanded to CIT(A) for fresh consideration of Xansa India Ltd.'s comparability on RPT and related facts

Comparability analysis in transfer pricing - intellectual property rights and product ownership in FAR - Geodesic Information Systems Ltd. remanded to TPO for fresh examination - HELD THAT: - The Tribunal noted that Geodesic is engaged in software product development, owns IPRs and trademarks, and that these functional attributes were not examined by the TPO despite the assessee having included the company. The Tribunal therefore restored the matter to the TPO for reconsideration in accordance with law. [Paras 9]

Matter remitted to the TPO for fresh examination of Geodesic Information Systems Ltd.'s comparability

Comparability analysis in transfer pricing - Ecosoft Technologies Ltd. restored for fresh consideration in light of availability of current year data - HELD THAT: - The Tribunal held that Ecosoft's functional profile is essentially in software development and that earlier exclusion based on apparent functional differences and non availability of current year financials was not sustainable now that current data is available. The matter was therefore restored to the CIT(A) for fresh adjudication. [Paras 10]

Ecosoft Technologies Ltd. remitted to CIT(A) for fresh examination

Comparability analysis in transfer pricing - Compudyne Winfosystems Ltd. remanded to AO for fresh adjudication after availability of segmental accounts - HELD THAT: - The Tribunal found that the CIT(A)'s rejection depended on an incorrect factual premise that segmental results for the software unit were not available. The assessee produced segmental details showing the software development contribution; consequently the Tribunal restored the matter to the AO to verify segmental information and decide afresh after giving the assessee an opportunity of being heard. [Paras 11]

Compudyne Winfosystems Ltd. remitted to AO for fresh verification and decision

Comparability analysis in transfer pricing - Orient Information Ltd. remanded to CIT(A) for fresh consideration - HELD THAT: - The Tribunal found that the reasons recorded by the CIT(A) for rejecting Orient (consolidated financials, lack of segmental data and possible RPT) were incorrect as the relevant financial details and RPT disclosures were available in the annual report submitted by the assessee. Accordingly, the comparability issue was set aside and restored to the CIT(A) for fresh adjudication. [Paras 12]

Orient Information Ltd. remitted to CIT(A) for fresh consideration

Risk adjustment in transfer pricing (quantification and methodology) - Ad hoc downward risk adjustment of 20% to comparables' margin rejected - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the assessee bore the onus of proposing and quantifying any downward adjustment for lower risk profile (being a captive service provider) by producing a scientific methodology (for example CAPM) during TP proceedings or on appeal. In absence of a quantified, methodologically supported adjustment by the assessee, the TPO's ad hoc 20% downward adjustment was held to be without basis and no interference was called for with the CIT(A)'s rejection of such ad hoc concession. [Paras 13]

Ad hoc 20% risk adjustment denied; assessee's ground on risk adjustment rejected

Deduction under section 10A and scope of IT enabled services Notification No. 890(E) dated 26-9-2000 - Incidental back office/support services covered by Notification No. 890(E) qualify as part of export turnover for section 10A - HELD THAT: - The Tribunal accepted the assessee's submission that certain incidental services (IT support, HR support, accounting and financials, IT network and software support) are part of back office operations and are covered by Notification No. 890(E) dated 26 9 2000. Consequently the CIT(A)'s treatment excluding only a limited set of services was modified to include the incidental services within export turnover for computation of deduction under section 10A. [Paras 17]

Incidental back office and support services held eligible as export turnover for section 10A purposes

Non allowability under section 43B(f) for unpaid statutory liabilities - Claim for leave encashment (provision) disallowed under section 43B(f) - HELD THAT: - The Tribunal noted there was no binding decision of the jurisdictional High Court favourable to the assessee; the Calcutta High Court decision relied upon by the assessee had been stayed by the Supreme Court. In view of the statutory mandate of clause (f) of section 43B, and the stay of the contrary Calcutta High Court decision, the Tribunal dismissed the assessee's ground and upheld the application of section 43B(f) to disallow the provision for leave encashment not actually paid. [Paras 17]

Disallowance under section 43B(f) on leave encashment upheld

Application of Accounting Standard (AS 11) to recognition of foreign exchange differences - Deduction of foreign exchange loss recognised under mercantile accounting and AS 11 allowed - HELD THAT: - The Tribunal, following the Supreme Court and authoritative precedents applying AS 11, held that exchange differences arising on foreign currency monetary items must be recognised in the period in which they arise under mercantile accounting. The assessee followed mercantile system and AS 11 principles; therefore the notional forex loss debited to profit and loss account was an allowable deduction. The departmental ground disallowing the forex loss as notional was dismissed. [Paras 21]

Foreign exchange loss as recognised under AS 11 and mercantile accounting allowed; departmental appeal dismissed

Comparability analysis in transfer pricing - related party transactions (RPT) threshold - AY 2004 05: treatment of various comparables - remittals and exclusions - HELD THAT: - For AY 2004 05 the Tribunal dealt with several comparables: Bangalore Softsell (remitted to CIT(A) to verify RPT and other functional facts), Infosys and Satyam excluded for reasons similar to AY 2003 04, Intertec Communications confirmed excluded due to lack of segmental data, and Cherrysoft/Future/Mahindra/Xcel (restored to CIT(A) as financial/functional data is now available). The Tribunal directed remands or exclusions as appropriate so that the AO/CIT(A)/TPO can recompute ALP after factual verification. [Paras 28, 29, 30, 31, 32]

Several comparables either excluded or remitted to CIT(A)/AO/TPO for factual verification; AO to recompute ALP for AY 2004 05 after such examination

Final Conclusion: The Tribunal partly allowed the assessee's appeals and dismissed the departmental appeals. Several comparability findings were remitted to the AO/CIT(A)/TPO for factual verification (Aftek, Xansa, Geodesic, Ecosoft, Compudyne, Orient, Bangalore Softsell, Cherrysoft/Future/Mahindra/Xcel), certain large IT companies (Infosys, Satyam) were excluded as comparables, the ad hoc 20% risk adjustment was rejected for lack of a scientific quantification, incidental back office services were held eligible for section 10A export turnover under Notification No. 890(E), the provision for leave encashment was disallowed under section 43B(f), and the recognised foreign exchange loss under AS 11 was allowed as a deduction.

Rejection of books of account under section 145(3) of the Income tax Act - Estimation of income by difference in gross profit rates - Addition under section 69A - unexplained cash/unaccounted money - Mandatory levy of interest under sections 234A, 234B and 234C - Res judicata and year to year examination of books

Rejection of books of account under section 145(3) of the Income tax Act - Estimation of income by difference in gross profit rates - Res judicata and year to year examination of books - Whether the books of account of the assessee for AY 2008 09 were rightly rejected under section 145(3) and the consequent estimation of undisclosed income on the basis of difference in gross profit was justified - HELD THAT: - The Tribunal examined the materials placed before the AO and CIT(A) and the contemporaneous records produced during appellate proceedings, including day to day stock registers maintained in Tally, purchase and sale invoices (including sample invoices), and documentary replies which identified bulk buyers and cheque receipts. The Bench found that the AO and CIT(A) relied primarily on statements recorded during survey and the alleged non production of registers at the time of survey without adequately verifying the records subsequently furnished by the assessee. The assessee had filed detailed movement analysis, stock registers showing opening balance, purchases, milk processed, consumption and sales (quantity wise and value wise), and proof of cheque receipts from buyers; these materials were neither properly examined nor rebutted by the authorities. As each assessment year is to be examined on its own facts, the Tribunal held that the earlier adverse decisions for AYs 2006 07 and 2007 08 could not be automatically applied to AY 2008 09 where the books and supporting records were produced and verified by the Bench. On this basis the Tribunal concluded that rejection of books and the estimation of income by adopting a differential gross profit method were not sustainable in the facts of AY 2008 09. [Paras 14, 16]

Books of account accepted; addition of undisclosed income of Rs. 8,30,742/- made by estimation is deleted.

Addition under section 69A - unexplained cash/unaccounted money - Whether addition under section 69A could be made in the hands of the assessee company for cash found from residences of directors and family members - HELD THAT: - Cash was found at residences of directors and family members, and the assessee group produced cash book and personal books showing aggregated cash in hand across family members and the company which accounted for the amounts claimed as held. The AO and CIT(A) did not adequately rebut or examine these explanations. The Tribunal held that where cash is found from residences of directors and family members and books of those persons show cash balances sufficient to account for the amounts, addition cannot be made in the hands of the company; the correct approach would be to examine the books of the persons from whose premises cash was seized. On the material on record the availability of cash in personal books was found correct and therefore the addition in the hands of the assessee company under section 69A was not justified. [Paras 22]

Addition of Rs. 8,73,500/- under section 69A in the hands of the assessee company is deleted.

Mandatory levy of interest under sections 234A, 234B and 234C - Validity of interest levied under sections 234A, 234B and 234C - HELD THAT: - The Tribunal noted that levy of interest under the cited provisions is mandatory and consequential to assessment proceedings. There was no infirmity shown in the application of these provisions on the facts of the case and they operate as a statutory consequence where applicable. [Paras 23]

Levy of interest under sections 234A, 234B and 234C is upheld; ground relating to interest is dismissed.

Final Conclusion: Appeal partly allowed: books of account for AY 2008 09 accepted and the estimated addition of undisclosed income deleted; addition under section 69A in the hands of the assessee company deleted; interest under sections 234A, 234B and 234C sustained.

Deductibility of advertisement and publicity expenditure incurred after certification by Board of Film Censors - Scope and application of Rule 9A and Rule 9B of the Income tax Rules vis a vis section 37 - Admissibility of post production expenditure (positive prints) under section 37 - Primary versus technical/secondary documents for substantiation of film production expenses - Validity of ad hoc disallowance for non production of technical production records

Deductibility of advertisement and publicity expenditure incurred after certification by Board of Film Censors - Scope and application of Rule 9A and Rule 9B of the Income tax Rules vis a vis section 37 - Admissibility of post production expenditure (positive prints) under section 37 - Assessee entitled to deduction of advertisement expenses incurred after Censor Board certification; Rule 9A/9B do not prohibit allowance of such post production expenditure under section 37 where appropriate. - HELD THAT: - The Tribunal followed the coordinate bench decisions (including the assessee's own earlier order and precedents such as CIT v. Prasad Productions and Mukta Arts) and held that exclusion of advertisement expenditure and cost of positive prints from the definition of "cost of production" in Rule 9A does not operate to disallow those expenditures altogether. Such post production expenses are not part of the statutory prohibition that would override section 37; they remain business expenditures allowable under section 37 if otherwise genuine. The Tribunal observed that delegated legislation (Rule 9A) cannot be interpreted so as to negate or curtail the statutory provisions of the Act and that where Rule 9A excludes certain items from "cost of production" it does not thereby render them non deductible; they are claimable under the general provision for business expenditure. Having applied these principles and being bound by the coordinate bench view favourable to the assessee, the Tribunal set aside the CIT(A)'s disallowance and directed deletion of the addition relating to advertisement expenses. [Paras 4]

Disallowance of advertisement expenses deleted; assessee entitled to claim the advertisement expenditure.

Primary versus technical/secondary documents for substantiation of film production expenses - Validity of ad hoc disallowance for non production of technical production records - Ad hoc disallowances for non production of technical production records were unwarranted where primary vouchers, bills and payment records were produced and not impugned; technical records are secondary and not mandatory primary books of account. - HELD THAT: - The Tribunal examined the AO's reliance on several technical production records (time tables, film editor's reports, laboratory registers, call sheets, rehearsal books, controllers' statements) and concluded these are technical/secondary documents prepared for shooting and are not part of the primary accounting records required to establish expenditure. Where primary documentary evidence (bills, vouchers, invoices and payment records) was produced and the AO did not find the expenses to be bogus or specifically impugned, making ad hoc disallowances merely for non production of technical production documents was unjustified. The Tribunal followed earlier coordinate bench decisions (including the assessee's own orders and the decision in Yash Raj Films) and, applying the principle that secondary documents may only be required if primary documents are doubted, set aside the adhoc disallowances and directed their deletion. [Paras 10, 11, 12, 13, 14]

Ad hoc disallowances deleted; AO directed to withdraw the impugned percentage disallowances made for non production of technical records.

Final Conclusion: The Tribunal allowed the appeal: (i) deleted the disallowance of advertisement and related post production expenses, permitting their claim under section 37 consistent with coordinate bench precedents; and (ii) set aside the ad hoc disallowances imposed for non production of technical production records where primary vouchers and bills were produced, directing the AO to delete those disallowances.

Allowability of deduction from full value of consideration for expenditure incurred to vacate tenants - validity and probative value of a registered deed of rectification and subsequent affidavits in altering sale consideration - effect of development agreement and sale deed clauses as allocating liability to the purchaser for vacating tenants - exemption under section 54 - interpretation of the expression 'a residential house' as permitting acquisition of multiple units within the same building

Validity and probative value of a registered deed of rectification and subsequent affidavits in altering sale consideration - effect of development agreement and sale deed clauses as allocating liability to the purchaser for vacating tenants - Reduction of sale consideration from Rs. 2.75 Crores to Rs. 1.50 Crores by registered Deed of Rectification and affidavits is not to be accepted for computing capital gains. - HELD THAT: - On the materials placed on record the Tribunal found that both the development agreement and the registered sale deed originally fixed the consideration at Rs. 2.75 Crores and expressly contemplated that the purchaser/developer would deal with tenants and occupants. The affidavits executed immediately after the sale deed and the registered rectification deed executed after more than three years were regarded as self-serving and suspicious given (i) the four-month interval available prior to the sale deed during which parties could have addressed tenant liabilities, (ii) the stamp-paper for the vendor's affidavit being purchased a day before the sale deed, and (iii) absence of any evidence that the alleged Rs. 1.25 Crores was actually paid to tenants. While recognising that subsequently registered documents can amend earlier registered instruments, the Tribunal held that the surrounding circumstances and lack of corroboration negatived the assessee's claim that the sale consideration was in truth reduced; mere registration of a rectification deed does not render its contents immune from scrutiny. Consequently the purported reduction was rejected for capital gains computation. [Paras 9, 10, 11, 12, 13]

The reduction in sale consideration by the rectification deed/affidavits is disallowed; the original consideration of Rs. 2.75 Crores stands for capital gains purposes.

Allowability of deduction from full value of consideration for expenditure incurred to vacate tenants - Claim that Rs. 1.25 Crores was expended to settle tenants' claims and hence deductible from full value of consideration under the charging provisions is not accepted in absence of cogent evidence. - HELD THAT: - Although law recognises that amounts necessarily incurred in connection with transfer (including expenses to remove encumbrances) may be deducted from the apparent consideration, the assessee produced only self-serving affidavits and the rectification deed without any independent proof that the alleged payments to tenants were made. Moreover, the development agreement and sale deed allocated the obligation to settle tenant claims to the purchaser. In these circumstances, and having considered precedents cited by the parties, the Tribunal concluded there was no satisfactory evidence to substantiate the asserted expenditure and therefore it could not be allowed as a deduction from the full value of consideration. [Paras 10, 12, 13]

The claimed deduction of Rs. 1.25 Crores towards settlement of tenants' claims is disallowed for want of corroborative evidence.

Exemption under section 54 - interpretation of the expression 'a residential house' as permitting acquisition of multiple units within the same building - Assessee is entitled to claim exemption under section 54 for investment in two flats within the same building. - HELD THAT: - The Tribunal followed the view of coordinate benches and relevant High Court authorities that the phrase 'a residential house' in section 54/54F does not restrict the assessee to a single residential unit; acquisition of a building comprising several independent residential units satisfies the legislative requirement. On the facts the Commissioner (Appeals) found that both flats purchased by the assessee were in the same building, and the Tribunal found no infirmity in that conclusion or in allowing exemption for both flats. [Paras 15]

The Revenue's challenge to the grant of exemption under section 54 in respect of both flats is rejected; exemption upheld.

Final Conclusion: The appeal is partly allowed: the Tribunal disallowed the reduction of sale consideration and the claimed deduction for amounts allegedly paid to tenants for vacating the property, but upheld the assessee's claim of exemption under section 54 in respect of the two flats acquired in the same building.

Penalty under section 271(1)(c) - concealment of particulars of income / furnishing inaccurate particulars - bona fide disclosure and reasonable explanation in penalty proceedings - effect of post facto approval by competent authority (RBI) on entitlement to deduction under section 80HHC - admission of appeal by High Court and its effect on levy of penalty - independent nature of penalty proceedings

Effect of post facto approval by competent authority (RBI) on entitlement to deduction under section 80HHC - bona fide disclosure and reasonable explanation in penalty proceedings - penalty under section 271(1)(c) - Whether the assessee's alleged 'post facto approval' from RBI and its conduct barred levy of penalty under section 271(1)(c) in respect of export turnover disallowed for non-receipt of export proceeds within the prescribed period. - HELD THAT: - The Tribunal examined whether any application for extension of time to receive export proceeds had been made to the competent authority and whether any post facto approval was in fact granted. The record contains no application for extension and the communication from the RBI merely noted receipt of information from the assessee and did not grant an extension or post facto approval. The Tribunal accepts the earlier factual finding that no approval was allowed to the assessee; that finding having attained finality, the assessee could not re-agitate it in penalty proceedings without new material. On the merits of penalty, the Tribunal held that where no approval was sought or obtained and the return claimed the deduction without disclosure that approval was not/was awaited, the claim constituted furnishing inaccurate particulars. Given the absence of any explanation for the inordinate delay in receipt of payments and the lack of an approved extension, the assessee's conduct was not bona fide; Explanation 1 to section 271(1)(c) applied and penalty was justified. [Paras 4]

No post facto approval was granted by RBI and, absent any extension application or satisfactory explanation, the assessee furnished inaccurate particulars and is liable to penalty under section 271(1)(c).

Admission of appeal by High Court and its effect on levy of penalty - independent nature of penalty proceedings - bona fide disclosure and reasonable explanation in penalty proceedings - Whether admission of a tax appeal by the High Court, or subsequent decisions admitting or dismissing appeals, per se renders the issue debatable and precludes levy of penalty under section 271(1)(c). - HELD THAT: - The Tribunal considered the assessees' reliance on later High Court decisions and tribunal orders to contend that admission of appeal makes the issue debatable and therefore saves the levy of penalty. The Tribunal held that mere admission of an appeal by the High Court is only an indicium that the issue requires further consideration and is not, without more, a conclusive indication that the issue is debatable so as to negate penalty. Penalty proceedings are separate and independent; the assessee remains free to furnish explanations or new material in penalty proceedings. Precedents holding that admission alone does not automatically preclude penalty were followed, and contrary tribunal decisions were disapproved where they conflict with higher court rulings. Applying these principles to the facts-where no extension was sought or granted and the assessee's explanation was found to be false or not bona fide-the Tribunal found no bar to imposing penalty despite any subsequent or collateral admissions or appeals. [Paras 4]

Admission of an appeal by the High Court, by itself, does not automatically preclude levy of penalty under section 271(1)(c); in the facts of this case the existence of subsequent or collateral appeals did not negate the applicability of penalty.

Final Conclusion: The assessee's appeal is dismissed; the Tribunal upholds the penalty under section 271(1)(c) for A.Y. 2003-04 on the ground that no extension or post facto approval was obtained, the claim in the return furnished inaccurate particulars, and the existence or admission of collateral appeals did not preclude levy of penalty.

Deeming of unrecorded investments under section 69 - Bank reconciliation and double entry bookkeeping as evidence against invocation of section 69 - Onus on assessing officer to disprove reconciliation and explanation - Classification of machinery repair expenditures as revenue expense versus capitalization - Requirement of cogent evidence to treat repair outlays as creation of new asset for capitalization

Deeming of unrecorded investments under section 69 - Bank reconciliation and double entry bookkeeping as evidence against invocation of section 69 - Onus on assessing officer to disprove reconciliation and explanation - Addition of Rs. 33,38,164 made by AO under section 69 in respect of untallied bank entries - HELD THAT: - The Tribunal examined whether the AO was justified in deeming the disputed bank credits as unrecorded investments under section 69. The material shows that the assessee maintained double entry books, audited accounts and had disclosed the bank accounts in the balance sheet; bank-to-bank transfers were part of the books and reconciliations were furnished. The CIT(A) accepted that the transfers were accounted for and that the AO had not identified investments which were unrecorded. The Tribunal observed that section 69 applies only where investments are not recorded in the books and the assessee offers no satisfactory explanation; here the assessee produced reconciliations and the AO did not disprove the explanations. On these facts the conditions for invoking section 69 were not satisfied and the addition was not tenable. [Paras 4, 6]

Addition of Rs. 33,38,164 under section 69 deleted; order of CIT(A) upheld.

Classification of machinery repair expenditures as revenue expense versus capitalization - Requirement of cogent evidence to treat repair outlays as creation of new asset for capitalization - Addition of Rs. 12,98,213 by AO on account of machinery repair expenses treated as capital expenditure - HELD THAT: - The Tribunal considered whether the repair and maintenance outlays ought to have been capitalized. The AO relied on an inspection report and photographs, concluding the machines appeared new and part of the expenditure should be capitalized; he allowed depreciation on a portion and capitalized the rest. The CIT(A) and the Tribunal found the AO's conclusion based on mere visual appearance was not a sufficient basis to overturn sustained accounting treatment. The assessee had a history of similar repair expenditures over prior years, produced vouchers and ledger entries (majority small items), and showed a separate capital addition for the boiler treated as capital. The AO did not produce cogent evidence that new assets were created or that the repairs conferred enduring benefit requiring capitalization. On this record the expenses were revenue in nature and the addition was deleted. [Paras 7, 8, 11]

Addition of Rs. 12,98,213 as capitalized machinery repair expenses deleted; order of CIT(A) upheld.

Final Conclusion: The Tribunal dismissed the Revenue's appeal for AY 2009-10, upholding the CIT(A)'s deletions of the additions made by the Assessing Officer under section 69 and in respect of machinery repair expenses.

Interest on refund - protective assessment - Kar Vivad Samadhan Scheme - double taxation - compensatory interest - interest on interest - precedent of Special Bench and Gujarat High Court

Interest on refund - protective assessment - Kar Vivad Samadhan Scheme - precedent of Special Bench and Gujarat High Court - Entitlement to interest on refund of Rs. 40,442/- - HELD THAT: - The Tribunal held that the assessee was entitled to interest on the refund. The Tribunal followed the earlier Special Bench decision and the Gujarat High Court's affirmation which held that where substantive assessments in the hands of the main trust are settled under KVSS, the corresponding protective assessments in the hands of beneficiary trusts become invalid and tax paid under such protective assessments is refundable. Refund being a mandate of law attracts compensatory interest. The Assessing Officer's view denying interest was contrary to the binding precedents and was therefore set aside; the Revenue was directed to grant interest to the assessee. [Paras 7]

Ground No.2 allowed; assessee entitled to interest on refund of Rs. 40,442/- and AO directed to grant interest.

Interest on refund - protective assessment - double taxation - precedent of Special Bench and Gujarat High Court - Entitlement to interest on refund of Rs. 11,138/- - HELD THAT: - Applying the same reasoning as in the lead matter, the Tribunal found that the balance refund was payable because the substantive assessment had been settled under KVSS and the protective assessment could not subsist. Following the Special Bench and the Gujarat High Court, the Tribunal directed grant of interest on the refund due to the beneficiary trust. [Paras 7]

Ground No.3 allowed; assessee entitled to interest on refund of Rs. 11,138/- and AO directed to grant interest.

Interest on interest - statutory interest - Claim for interest on interest - HELD THAT: - The Tribunal applied the law as settled by the Supreme Court and held that there is no provision permitting grant of interest on the statutory interest payable under section 244A (i.e., no compound interest). Accordingly, the assessee's claim for interest on interest was rejected. [Paras 8]

Ground No.4 dismissed; assessee not entitled to interest on interest.

Final Conclusion: Appeals partly allowed: the Tribunal directed grant of interest on the refunds due to the beneficiary trusts (grounds 2 and 3 allowed) following the Special Bench and Gujarat High Court decisions, but denied the claim for interest on interest (ground 4 dismissed); appeals otherwise disposed of accordingly.

Extension of initial six months period under proviso to Section 110(2) of the Customs Act, 1962 - exclusion of the day of seizure in computation of a statutory period (Section 9, General Clauses Act) - effect of specifying a commencement date in an order of extension - requirement that notice of proposed extension be issued within the initial period

Exclusion of the day of seizure in computation of a statutory period (Section 9, General Clauses Act) - extension of initial six months period under proviso to Section 110(2) of the Customs Act, 1962 - Whether the initial six months period under Section 110(2) is to be computed excluding the day of seizure and whether the Commissioner validly extended that period. - HELD THAT: - Applying the principles in Econ Antri Ltd. (approving Vasantlal Ranchhoddas Patel), the day on which goods are seized is to be excluded in computing the six-month period under Section 110(2). Thus the initial period in the present case commenced on 04.03.2015 and ended on 03.09.2015. The proviso contemplates an extension of the initial period (not a fresh commencement) and the extended period therefore attaches to and follows the expiry of the initial period. The Commissioner issued the notice of proposed extension within the initial period and passed the extension order on 02.09.2015; consequently the extension for six months from 04.09.2015 is not vitiated by the specific date mentioned in the order and is effective as an extension of the initial period. [Paras 12, 13, 14, 15]

The initial six months is to be computed excluding the day of seizure (04.03.2015-03.09.2015) and the Commissioner validly extended that period by a further six months; the extension order is not infirm.

Effect of specifying a commencement date in an order of extension - requirement that notice of proposed extension be issued within the initial period - Whether the mention of a specific commencement date (04.09.2015) in the extension order or the timing of service affects validity of an extension passed on 02.09.2015. - HELD THAT: - The court held that the mere specification of a date in the extension order does not invalidate the extension where the order records that the initial period is extended by six months and the order itself was passed within the initial period. The decision in I.J. Rao, relied on by the petitioner, concerns the requirement that notice of proposed extension go to the affected person before expiry of the initial period; here the notice was issued within the initial period and the extension order was passed on 02.09.2015, hence the extension is operative and the precise date mentioned in the order does not defeat its effect. [Paras 7, 8, 9, 11]

The specification of 04.09.2015 in the order does not invalidate an extension passed on 02.09.2015 within the initial period where notice of proposed extension was given in time.

Final Conclusion: The writ petition is dismissed. The Commissioner of Customs validly extended the initial six-month period under the proviso to Section 110(2); the computation excludes the day of seizure and the extension order dated 02.09.2015 is sustained.

Application of provisions of the Customs Act, 1962 to additional duty under the Customs Tariff Act by virtue of the phrase 'so far as may be' - refund of duty and interest on delayed refunds under Sections 27 and 27A of the Customs Act, 1962 - validity of subordinate instrument (CBEC Circular) vis-a -vis statutory scheme - subordinate legislation cannot negate statutory right to interest - ultra vires of administrative circular to the extent it denies interest on belated refunds - imposition of limitation period by subordinate legislation impermissible where it affects substantive statutory rights

Refund of duty and interest on delayed refunds under Sections 27 and 27A of the Customs Act, 1962 - application of provisions of the Customs Act, 1962 to additional duty under the Customs Tariff Act by virtue of the phrase 'so far as may be' - Sections 27 and 27A of the Customs Act apply to refund of Special Additional Duty (SAD) leviable under Section 3 of the Customs Tariff Act, 1975, and therefore interest on delayed refunds is payable under Section 27A in cases of belated SAD refunds. - HELD THAT: - The Court observed that the definition of 'duty' in Section 2(15) of the Customs Act is wide enough to include all kinds of customs duty and that Section 3(8) of the Customs Tariff Act incorporates, 'so far as may be', the provisions of the Customs Act relating to refunds and interest. A collective reading of Section 3(8) CTA with Sections 27 and 27A of the Customs Act leads to the conclusion that the statutory scheme for refund and interest on delayed refunds applies to SAD levied under the CTA. The Court relied on the statutory language and the established principle that where the parent enactment provides for refund and interest, those provisions govern; accordingly, the CESTAT was correct in directing interest under Section 27A on the refunded SAD. The determinative reasoning is that the CTA's 'so far as may be' incorporation does not exclude the refund and interest scheme in the Customs Act and that Section 27A unambiguously mandates interest for delayed refunds. [Paras 11, 17, 20, 22]

Sections 27 and 27A apply to SAD refunds under Notification No.102/2007 and interest under Section 27A is payable on delayed refunds.

Ultra vires of administrative circular to the extent it denies interest on belated refunds - validity of subordinate instrument (CBEC Circular) vis-a -vis statutory scheme - subordinate legislation cannot negate statutory right to interest - Paragraph 4.3 of CBEC Circular No.6/2008-Cus, insofar as it directs that payment of interest 'does not arise' for refund claims under Notification No.102/2007, is inconsistent with and ultra vires Section 27A of the Customs Act; the Department was not justified in denying interest by relying on that paragraph. - HELD THAT: - The Court examined the Circular's para 4.3 which sought to exclude interest for refunds under Notification No.102/2007 by asserting absence of a specific provision. Noting the statutory command of Section 27A that interest shall be paid where refunds are delayed beyond three months, the Court held that a subordinate administrative circular cannot negate a statutory right to interest. The Court further referred to precedent and earlier reasoning (as in Sony India) that limitation or substantive rights cannot be imposed or altered by subordinate legislation without statutory amendment. Consequently, to the extent para 4.3 denies interest on belated SAD refunds, it is inconsistent with Section 27A and cannot be relied upon to deny interest to a successful refund claimant. [Paras 14, 20, 21]

Para 4.3 of Circular No.6/2008 is inconsistent with Section 27A and cannot be used to deny interest; the Department's denial of interest was unjustified.

Final Conclusion: The High Court dismissed the appeal, upheld the CESTAT's allowance of the respondent's appeal and its direction to pay interest on the refunded SAD in terms of Section 27A of the Customs Act; no interference with the impugned order was warranted.

Impleadment - registration of Focus Licence - mandamus to administrative authority - pending investigation as bar to relief - opportunity of hearing - non-co-operation with investigation - direction to complete investigation within a specified time

Impleadment - Impleadment application No.344068 of 2015 - HELD THAT: - The Court allowed the impleadment application and directed correction in the array of parties to be carried out by the petitioners during the course of the day. This is a procedural determination permitting the addition of parties and administrative rectification of the party-list. [Paras 1, 2]

Impleadment application allowed and petitioners directed to correct the array of parties.

Registration of Focus Licence - mandamus to administrative authority - opportunity of hearing - pending investigation as bar to relief - non-co-operation with investigation - Whether a mandamus should be issued directing registration of the Focus Licence despite an ongoing investigation and alleged non-production of documents by the petitioners - HELD THAT: - The Court examined the sequence of communications and orders: the petitioners' application for registration, earlier directions by the Writ Court to the Chief Commissioner, summons issued by the Directorate of Revenue Intelligence under Section 108 of the Customs Act, the petitioners' failure to produce documents despite court orders, and an interim investigative report alleging procurement of authorisation on false documents. The Court held that the direction of the Writ Court to consider the application had been complied with by the authorities and that the Assistant Commissioner's refusal to register the Focus Licence during the pendency of the investigation was justified. Given the ongoing investigation and the respondents' assertion of the petitioners' non-co-operation, issuance of mandamus at this stage was inappropriate; the contention that no hearing was afforded was held to be irrelevant in the circumstances because the Court's direction was limited to passing an appropriate order on the application. [Paras 9]

No mandamus to register the Focus Licence; writ petition dismissed on merits insofar as mandamus was sought.

Direction to complete investigation within a specified time - Timetable for completion of the ongoing investigation and consequential decision on the application for registration - HELD THAT: - Although refusing to grant the mandamus, the Court directed that the investigation being conducted against the petitioners should be completed preferably within three months from the date of the order and that consequential orders on the petitioners' application for registration of the Focus Licence be passed thereafter. This is a supervisory time-bound direction intended to ensure prompt conclusion of the probe and decision on the administrative application. [Paras 10]

Investigation to be completed preferably within three months and consequential order on the application to be passed.

Final Conclusion: Impleadment allowed; writ petition seeking mandamus for registration of the Focus Licence dismissed because registration cannot be ordered while an investigation is pending and the petitioners have not cooperated; investigation directed to be completed preferably within three months and consequential decision on the application to follow.

Provisional release of seized goods - show cause notice under Section 110(2) of the Customs Act - entitlement to return of goods on failure to issue show cause notice within six months - extension of time for issuance of show cause notice - liability to confiscation

Show cause notice under Section 110(2) of the Customs Act - entitlement to return of goods on failure to issue show cause notice within six months - extension of time for issuance of show cause notice - liability to confiscation - Failure to issue the show cause notice contemplated by sub section (2) of Section 110 of the Customs Act within six months after seizure entitled the petitioner to return of the seized goods; the Trial Court's direction for provisional release was unassailable. - HELD THAT: - The goods were seized on 13.7.2014. No show cause notice as required by Section 110(2) was issued within six months, and the revenue failed to produce any letter or record showing that time had lawfully been extended. The petitioner produced documents to establish that the goods were indigenous as claimed, and the revenue was unable to demonstrate any reasonable basis to believe the goods were liable to confiscation. In those circumstances the learned Trial Court's order directing provisional release was not shown to be infirm and required no interference. The court observed dissatisfaction with the manner in which the revenue had proceeded, noting absence of proof of any lawful extension and inability to justify confiscation. The Trial Court's timelines for furnishing security, bond and effecting release are to commence from the date of this order.

Appeal dismissed; direction for provisional release of goods upheld subject to securities and bond to be furnished from today.

Final Conclusion: The revenue's appeal is dismissed; the Trial Court's order for provisional release of the seized goods is upheld, the petitioner is entitled to return of the goods subject to furnishing securities and bond, and costs are awarded to the petitioner.

Reduction of penalty by appellate authority as a factual exercise - question of law versus question of fact - condonation of delay under Section 5 of the Limitation Act - penalty under the Customs Act and appellate interference

Condonation of delay under Section 5 of the Limitation Act - The application for condonation of delay in filing the appeal under Section 5 of the Limitation Act - HELD THAT: - The High Court examined the explanation furnished by the appellant for the 55-day delay in presenting the appeal. Having found the explanation satisfactory, the court exercised its discretion under Section 5 of the Limitation Act to allow the application and condone the delay. Consequentially, the appeal was directed to be registered with a regular number while retaining the earlier number in brackets for reference.

Application under Section 5 of the Limitation Act allowed and delay in filing the appeal condoned.

Reduction of penalty by appellate authority as a factual exercise - question of law versus question of fact - penalty under the Customs Act and appellate interference - Whether the Tribunal's reduction of the penalties imposed under the Customs Act warrants interference by the High Court - HELD THAT: - The Tribunal reduced the penalties imposed on the respondents under the Customs Act after considering the quantity of exported sugar and attendant factors such as profitability and related aspects, and corrected an excessive penalty against the individual respondent. The High Court held that the Tribunal's assessment and mitigation of penalty involved factual appraisal and the exercise of discretion by the Tribunal. Since the Tribunal's conclusion was one of fact and discretionary gradation of penalty, it did not raise any substantial question of law that would justify interference by the High Court.

The Tribunal's reduction of penalties is upheld; no substantial question of law is made out to warrant interference.

Final Conclusion: The High Court condoned the delay in filing the appeal and, on merits, dismissed the Revenue's appeal observing that the Tribunal's reduction of penalties was a factual and discretionary determination not warranting judicial interference.

Liability under bond for duty on goods imported under exemption notification - effect of hire purchase ownership on customs liability - successor purchaser liability for customs duty under proviso to Section 142 - allowance of depreciation for computation of duty on removal of capital goods - pre deposit non dismissal under Section 35F and adjudication on merits

Liability under bond for duty on goods imported under exemption notification - effect of hire purchase ownership on customs liability - Assessee remained primarily liable to pay customs duty despite purchase of the machine under a hire purchase agreement and subsequent recovery by the financier. - HELD THAT: - The Tribunal held that liability to pay customs duty flowed from the bond executed by the assessee on availing exemption under the notification and that mere existence of a hire purchase agreement did not absolve the assessee. Ownership under a hire purchase agreement vests in the hirer on payment of the last instalment; possession may be with the hirer until default, and recovery of the machine by the financier upon default does not shift the primary obligation under the bond. The Tribunal rejected the contention that the financier (M/s TFL) being the registered/real owner was primarily liable, observing that the assessee's default in instalments led to recovery and therefore the assessee remained primarily liable to duty. [Paras 9]

Assessee is primarily liable to pay the customs duty; the hire purchase arrangement does not relieve the assessee of the obligation under the bond.

Successor purchaser liability for customs duty under proviso to Section 142 - The successor purchaser (M/s Vamptex Traders) who bought the machine is liable to meet the customs duty, but the Department failed to proceed against it in the show cause notice. - HELD THAT: - The Tribunal noted that the sale to the purchaser was on an 'as is where is' basis and the sale terms made the purchaser liable for outstanding duties. It further observed that under the proviso to Section 142 (as inserted), a successor of a defaulter can be held liable. However, the Department did not raise a demand of duty against the purchaser in the SCN issued, and the Commissioner (Appeals) erred in not proceeding against the purchaser for demand of duty; the assessee was left to pursue civil remedies to recover any amounts paid from the purchaser. [Paras 10, 11]

M/s Vamptex Traders, as successor purchaser, is liable for the duty but the Department failed to issue demand against it; the adjudicating authority should have proceeded against the purchaser.

Allowance of depreciation for computation of duty on removal of capital goods - Depreciation at the rate and period allowed by the Commissioner (Appeals) was upheld. - HELD THAT: - Having regard to the facts that the machine was warehoused on the assessee's premises until 31.5.1998 and removed thereafter, the Commissioner (Appeals) allowed depreciation for three years and two quarters at the rate of 45% pursuant to the relevant Board circular. The Tribunal, considering the nature of the machine (Automatic Cone Winder) and the particular facts, found no reason to interfere with the first appellate authority's exercise of discretion in allowing depreciation and therefore sustained the reduction in duty computed by applying that depreciation. [Paras 12]

The depreciation allowance granted by the Commissioner (Appeals) is upheld and the reduction in duty on that basis is sustained.

Final Conclusion: The Tribunal, after noting that the appeal could be decided on merits and that service attempts were exhausted, dismissed both the Revenue's and the assessee's appeals: the assessee is primarily liable for the duty under the bond, the successor purchaser is liable though the Department failed to proceed against it, and the appellate authority's allowance of depreciation is upheld.

Time for presenting documents under Section 23 of the Registration Act - Presentation of copy of decree or order - Commencement of limitation when decree or order becomes final - Provision for acceptance of delayed presentation on payment of fine under Section 25

Time for presenting documents under Section 23 of the Registration Act - Presentation of copy of decree or order - Commencement of limitation when decree or order becomes final - Provision for acceptance of delayed presentation on payment of fine under Section 25 - Whether the copy of the Company Court order dated 08.04.2011 was presented within the time permitted by law for registration or, alternatively, whether limitation for presentation commenced only after the order became final on dismissal of O.S.A.No.359 of 2013. - HELD THAT: - The court noted that Section 23 prescribes a four months period for presentation of documents and contains a proviso allowing a copy of a decree or order to be presented within four months from the day on which it was made or, if appealable, within four months from the day on which it becomes final. Although the order dated 08.04.2011 was not presented within the initial four month period, the Company Court's sanction of the demerger was subject to subsequent proceedings (Comp.A.No.258 of 2012) which affected the allocation of shares and thus the scheme's finality. The appeal in O.S.A.No.359 of 2013 challenged matters connected with the sanction and its determination by the Division Bench (dismissed on 04.04.2014) finally resolved the controversy. For limitation purposes the relevant starting point is when the decree/order became final and the petitioner was furnished with the certified copy of the Division Bench judgment. Reckoning from that date the petitioner's request to register the certified copy of the order dated 08.04.2011 fell within the permissible period; accordingly the respondents' computation of limitation from the original sanction date was held to be untenable. The court directed the Registrar to accept the certified copy for registration subject to other formalities, within the stipulated time, thereby applying the proviso to Section 23 and the reliefs contemplated by Section 25 where applicable. [Paras 13, 14, 16, 18, 19]

Limitation for presenting the certified copy of the order dated 08.04.2011 commenced from the date the order became final on dismissal of O.S.A.No.359 of 2013 (04.04.2014); the petitioner's request to register the certified copy is within time and the third respondent is directed to accept it for registration on compliance with formalities.

Final Conclusion: Writ petition allowed; respondent directed to accept the certified copy of the order dated 08.04.2011 for registration on compliance with formalities within four weeks of receipt of this order.

Definition of 'service' - actionable claim - principal-to-principal sale versus agency - negative list exclusion (betting, gambling, lottery) - Explanation cannot enlarge statutory scope - subordinate legislation cannot create or validate a tax charge - reverse charge on distributors/selling agents

Definition of 'service' - actionable claim - principal-to-principal sale versus agency - Whether the Petitioners' activities of buying and selling state lottery tickets fall within the amended definition of 'service' and are therefore taxable under the Finance Act, 1994 as amended by the Finance Act, 2015. - HELD THAT: - The Court held that the Petitioners' transactions are principal-to-principal purchases and resales of lottery tickets (actionable claims) and do not establish a relationship of performing an activity for another for consideration as required by Clause (44) of Section 65B. Applying the earlier decisions (including Sunrise Associates and this Court's prior Future Gaming judgments) and construing the agreements between the State and the Petitioners, the Court found no element of a service component capable of being segregated: the Petitioners purchase in bulk at a discounted price and resell on their own account, incur publicity expenses at their cost, appoint sub-distributors without privity of the State, and earn profit as purchasers/resellers. Accordingly, their activities do not constitute 'service' within the meaning of the Finance Act, 1994 (as amended). [Paras 86, 95]

The activities of the Petitioners do not fall within the meaning of 'service' under Clauses (31A) and (44) of Section 65B and are outside the service-tax net.

Negative list exclusion (betting, gambling, lottery) - Explanation cannot enlarge statutory scope - Whether the Explanation inserted into Clause (44) of Section 65B and the corresponding Explanation to Section 66D (Finance Act, 2015) validly exclude certain distributor/agent activities from 'actionable claim' so as to bring them within taxable 'service'. - HELD THAT: - The Court concluded that the inserted Explanations were enacted to overcome this Court's earlier rulings but cannot operate to enlarge or alter the core exclusion of 'actionable claim' from the definition of 'service' or to nullify the negative-list protection for lotteries. Relying on settled principles that an Explanation cannot enlarge the substantive scope of a provision and on the earlier holdings in the Future Gaming matters, the Court held that the Explanation impermissibly seeks to rewrite the statutory scheme and is ultra vires the Finance Act, 1994 to the extent it attempts to subject the Petitioners' activities to service tax. [Paras 91, 95]

The Explanation to Clause (44) of Section 65B and the Explanation to Section 66D (as introduced by the Finance Act, 2015) are ultra vires and struck down insofar as they seek to tax the Petitioners' activities.

Subordinate legislation cannot create or validate a tax charge - reverse charge on distributors/selling agents - Whether Sub-Rule (7C) of Rule 6 of the Service Tax Rules, Notification No.7/2015-ST (amending Notification No.30/2012-ST), the DOF Circular dated 19-05-2015 and the impugned departmental letters validly impose service-tax liability (including reverse-charge liability) on the Petitioners in respect of their selling or marketing agents. - HELD THAT: - The Court reiterated that Sub-Rule (7C) is an optional composition scheme and, being subordinate legislation, cannot create a substantive charge of service tax where the parent statute does not authorize it. Because the Petitioners' activities are not taxable services, the reliance on Sub-Rule (7C), the Notification and the Circular to fasten reverse-charge liability was unsustainable. Further, the factual matrix shows that the selling/marketing agents in the downstream tiers likewise buy tickets as goods on their own account; therefore the Notification's attempt to fasten reverse-charge liability upon the Petitioners for agents' transactions was legally untenable. [Paras 88, 92, 95]

Sub-Rule (7C), the amended Notification, the DOF Circular and the impugned letters are quashed insofar as they seek to impose service-tax or reverse-charge liability on the Petitioners; the respondents are restrained from demanding such tax.

Final Conclusion: Writ petitions allowed. The Court held that the Petitioners' buying and selling of State lottery tickets do not constitute a taxable 'service' under the Finance Act, 1994 (as amended), struck down the Explanations introduced by the Finance Act, 2015 insofar as they purport to tax those activities, quashed the impugned notifications, circular and departmental letters and restrained the respondents from demanding or enforcing service tax in respect of the Petitioners' lottery activities.

Non-issuance of show cause notice under Section 73 - service tax demand and procedure for value of taxable services escaping assessment - competence of subordinate officers to issue statutory notices - compliance with principles of natural justice in tax adjudication - constitutional safeguard under Article 265 against taxing without prescribed procedure - entertainment of belated tax appeal where demand is below prescribed monetary threshold

Non-issuance of show cause notice under Section 73 - competence of subordinate officers to issue statutory notices - compliance with principles of natural justice in tax adjudication - constitutional safeguard under Article 265 against taxing without prescribed procedure - Validity of setting aside the adjudication and appellate orders by the Tribunal on the ground that no show cause notice as required by Section 73 was issued to the respondent - HELD THAT: - The Tribunal recorded as an undisputed fact that no show cause notice was ever issued by an officer of or above the rank of Assistant Commissioner/Deputy Commissioner as mandated by Section 73. The departmental reliance on a letter dated 17.08.2001 issued by a Superintendent was rejected because that officer lacked authority to issue a Section 73 notice and the letter did not specify the statutory basis, the period or the amount demanded; it was advisory and addressed clarificatory registration queries. Section 73 requires service of a notice indicating whether the case falls under clause (a) or (b) and specifying the amount; that procedural mandate cannot be dispensed with. Failure to follow the statutory notice procedure thus amounted to a fundamental breach, impinging on the safeguards guaranteed by Article 265 and on the principles of natural justice, and justified the Tribunal in setting aside the orders passed without issuance of the statutorily-required notice.

Tribunal correctly set aside the adjudicating and appellate orders for non-issuance of the Section 73 show cause notice; departmental correspondence by a subordinate officer could not cure the defect.

Entertainment of belated tax appeal where demand is below prescribed monetary threshold - Whether the High Court should entertain the departmental appeal after long delay and when the tax demand was within the prescribed limit for instituting statutory appeals - HELD THAT: - The Court noted the considerable delay in presenting the appeal (order dated 08.05.2007; appeal filed in 2012 and numbered in 2015) and observed no justification for entertaining the matter at such belated stage. Although Section 35 as applied to service tax post-dates some proceedings, the underlying spirit concerning limits on institution of appeals was taken into account. The parties admitted there is a circular prescribing a monetary threshold; the tax demand in this case fell below that threshold. In these circumstances the Court found no merit in entertaining the departmental appeal.

Appeal not entertained on account of inordinate delay and because the tax demand was within the prescribed limit; appeal dismissed.

Final Conclusion: The Tribunal's order setting aside the adjudication and appellate orders for failure to issue the statutory show cause notice under Section 73 is upheld; the departmental appeal is dismissed both on merits (fundamental procedural breach) and for being inordinate and belated, the tax demand being within the prescribed threshold.

Service of decisions, orders, summons or notices by registered post with acknowledgment due - service effected by speed post not recognised under Section 37C(1)(a) prior to 10-5-2013 - proof of delivery as mandatory requirement for reckoning service and limitation - limitation to be reckoned from date of actual receipt, not from proof of dispatch

Service of decisions, orders, summons or notices by registered post with acknowledgment due - service effected by speed post not recognised under Section 37C(1)(a) prior to 10-5-2013 - proof of delivery as mandatory requirement for reckoning service and limitation - limitation to be reckoned from date of actual receipt, not from proof of dispatch - Tribunal's dismissal of the appeals as time barred where the Department dispatched the Commissioner (Appeals) order by speed post without proof of delivery and without complying with modes of service in Section 37C(1)(a). - HELD THAT: - The Court examined Section 37C(1)(a) as it stood prior to 10-5-2013 and held that service by speed post was not an approved mode of service under that provision. The statutory scheme required either tender or sending by registered post with acknowledgment due, and service by any other mode not recognised by the provision could not be treated as valid for reckoning limitation. Proof of dispatch alone does not amount to proof of receipt; consequently, limitation must be computed from the date of actual service supported by proof of delivery. In the present case the record only showed dispatch by speed post on 9-5-2011 but no proof of delivery on that date; the assessee was informed of the order only on 22-12-2011 and filed the appeals on 4-1-2012. Since speed post was not a recognised mode prior to 10-5-2013 and no proof of delivery was placed on record, the Tribunal erred in treating the appeals as time barred. The Court concluded that the appeals were within time and directed the Tribunal to decide the appeals on merits. [Paras 11, 12, 13]

Tribunal's order dismissing the appeals as barred by limitation is set aside; appeals held to be within time and remitted to the Tribunal for disposal on merits.

Final Conclusion: The Tribunal's dismissal of the appeals on the ground of delay was unjustified because service by speed post without proof of delivery did not comply with Section 37C(1)(a) as it stood prior to 10-5-2013; appeals are within time and the Tribunal is directed to decide them on merits.

Business Auxiliary Services - service tax on commission paid to franchisees/distributors - characterisation of transactions as sale versus commission - allocation of tax liability where principal collects full value - precedential value of CESTAT ratio - exemption under Notification 25/2012-S.T.

Business Auxiliary Services - service tax on commission paid to franchisees/distributors - characterisation of transactions as sale versus commission - allocation of tax liability where principal collects full value - Whether the commission/margin/bonus received by the franchisee for distribution/sale of prepaid and postpaid BSNL cards is liable to service tax as Business Auxiliary Services or whether the transactions are to be treated as sale of cards. - HELD THAT: - The Court accepted the ratio of the CESTAT, Principal Bench in G.R. Movers (quoted at length) that where the principal (BSNL) sells cards through a distributor, collects money from customers and pays the distributor a commission out of the consideration so received, the transactions of the parties are essentially a single commercial transaction and the tax liability on the full value is discharged by the principal. Given this special nature, and the ease of verification that BSNL has discharged tax on the full value of the telecommunication service, there is no basis to treat the distributor's receipt as an independent taxable service liability which would lead to double taxation. The Court therefore followed that ratio and answered the substantial question in favour of the assessee, holding that the Tribunal was correct to resolve the matter against the Revenue on this point. [Paras 3, 4]

Answered in favour of the assessee; the commission receipts are not to be additionally taxed as Business Auxiliary Services in the facts of this case.

Precedential value of CESTAT ratio - exemption under Notification 25/2012-S.T. - Whether the Tribunal was right in deciding the case in favour of the assessee notwithstanding reliance on earlier tribunal decisions (including one where the Franchisee Agreement was not before that Tribunal). - HELD THAT: - The Court noted the Department's concession that the CESTAT (Delhi) decision in G.R. Movers is applicable to the present facts and relied on its reasoning. The Court observed that the CESTAT decision recognises the special nature of such distributor arrangements and that the issue has subsequently been rendered less significant for the future by the exemption in Notification 25/2012-S.T. Having accepted the applicability of that ratio, the High Court upheld the Tribunal's decision in favour of the assessee despite differences in factual presentation in prior tribunal orders. [Paras 3, 4]

Answered in favour of the assessee; reliance on the CESTAT ratio justified and the Tribunal's decision affirmed.

Final Conclusion: The substantial questions of law raised by the Revenue are answered in favour of the assessee by applying the CESTAT ratio; the civil miscellaneous appeal is dismissed and there shall be no order as to costs.

Grant of pre-deposit waiver - Cenvat credit for inputs, capital goods and input services - CAM services - deposit of 50% of disputed amount as condition for interim relief - prohibition on dismissal for non-compliance and direction to decide appeal on merits after deposit

Grant of pre-deposit waiver - deposit of 50% of disputed amount as condition for interim relief - Extent of waiver of pre-deposit and quantum to be directed for interim compliance - HELD THAT: - The Court declined to grant an unconditional or total waiver of the pre-deposit sought by the appellant, having regard to the disputed question concerning entitlement to Cenvat credit and CAM services and the appellant's financial constraints. Balancing the interests of revenue and the appellant and relying on the Court's earlier interlocutory direction in a sister matter, the appeal was allowed only in part by directing the appellant to deposit 50% of the amount in question within 45 days as a condition for interim relief. The Court recorded that the issues relating to availment of Cenvat credit and CAM services remain matters for adjudication on merits and therefore total waiver was not justified. [Paras 6]

Appellant directed to deposit 50% of the disputed amount within 45 days; total waiver refused and appeal allowed in part.

Prohibition on dismissal for non-compliance and direction to decide appeal on merits after deposit - Cenvat credit for inputs, capital goods and input services - CAM services - Whether the Tribunal may dismiss the appeal for non-compliance and the procedural consequence following the interim deposit - HELD THAT: - The Court directed that, pending compliance with the deposit direction, the CESTAT shall not dismiss the appellant's appeal for non-compliance with the pre-deposit direction. Instead, the Tribunal is to decide the appeal on merits expeditiously and in accordance with law only after receipt of the directed deposit. The substantive questions concerning entitlement to Cenvat credit in respect of inputs, capital goods and input services used in or in relation to CAM services remain open for adjudication by the Tribunal. [Paras 7, 8]

Tribunal restrained from dismissing the appeal for non-compliance and directed to decide the appeal on merits after receipt of the 50% deposit.

Final Conclusion: Appeal allowed in part: unconditional waiver refused; appellant directed to deposit 50% of the disputed amount within 45 days; CESTAT restrained from dismissing for non-compliance and directed to decide the appeal on merits after receipt of the deposit.

Waiver of pre-deposit - financial hardship - remand for fresh consideration - attachment pursuant to Debts Recovery Tribunal proceedings - stay of penalty pending appeal

Waiver of pre-deposit - financial hardship - remand for fresh consideration - Tribunal's orders dated 2-12-2013 and 7-2-2014 set aside and the application for waiver of pre-deposit remanded to the Tribunal for fresh consideration in light of the assessee's financial hardship and DRT proceedings. - HELD THAT: - The High Court found that the assessee had instituted proceedings before the Debts Recovery Tribunal and that a proclamation of sale had been issued and plant and machinery attached, constituting a case of financial hardship which was not placed before the Tribunal for its consideration. In view of these circumstances the Court held it appropriate that the Tribunal re-examine the assessee's application for waiver of pre-deposit after allowing the assessee to place on record an affidavit and supporting documents detailing the financial hardship. The Tribunal was directed to decide the application afresh and not to be influenced by any observations in the present judgment or by its earlier orders of 2-12-2013 and 7-2-2014. [Paras 10, 11, 12]

Orders dated 2-12-2013 and 7-2-2014 set aside; matter remanded to the Tribunal for fresh decision on waiver of pre-deposit after the assessee files an affidavit on financial hardship and appears on the specified date.

Final Conclusion: The appeal is allowed insofar as the Tribunal's orders are set aside and the matter is remanded to the Tribunal to decide the assessee's application for waiver of pre-deposit afresh, after permitting the assessee to file evidence of financial hardship and appear before the Tribunal.

Rebate of duty on exported goods under a notification issued pursuant to rule 18 of the Central Excise Rules, 2002 - period of limitation for claims - interplay between a specific scheme/notification and general limitation in Section 11-B of the Central Excise Act, 1944 - special statute or scheme with self-contained procedure governs enforcement of benefits - generalia specialibus non derogant (special provision overrides general provision where both govern same subject-matter)

Rebate of duty on exported goods under a notification issued pursuant to rule 18 of the Central Excise Rules, 2002 - period of limitation for claims - interplay between a specific scheme/notification and general limitation in Section 11-B of the Central Excise Act, 1944 - special statute or scheme with self-contained procedure governs enforcement of benefits - Whether the one-year limitation in Section 11-B of the Central Excise Act, 1944 applies to a claim for rebate made under a notification issued under rule 18 of the Central Excise Rules, 2002 which does not itself prescribe any time-limit. - HELD THAT: - The Court held that rule 18 authorises the Central Government to grant rebate subject to such conditions or limitations as may be specified in the notification, including any time-limit for making a claim. Where the notification issued under rule 18 does not prescribe any period of limitation, the limitation in Section 11-B cannot be imported into the notification. The judgment of the Supreme Court in Collector of Central Excise v. Raghuvar (India) Ltd. was applied on the basis that a specific beneficial scheme with a self-contained procedure governs claims and enforcement under that scheme and, therefore, the special provision (the notification under rule 18) governs the matter rather than the general provision (Section 11-B). The Court rejected the contrary view of the Bombay High Court in Everest Flavours Ltd., observing that the Supreme Court's reasoning in paragraphs 14-15 of Raghuvar, that a special scheme with its own remedies displaces application of a general provision, is applicable by parity of reasoning to rebate claims under rule 18/notification which do not prescribe a limitation period. Consequently the appellate rejection of the claim on the ground of being barred by Section 11-B was not justified. [Paras 10, 14, 15]

The limitation of one year in Section 11-B does not apply to a rebate claim governed by a notification under rule 18 when the notification does not prescribe any time-limit; the claim is not barred by Section 11-B.

Processing of rebate claim under notification subject to conditions specified therein - judicial quashing of appellate order and remand for consideration in accordance with law - Validity of the Commissioner (Appeals) order dismissing the petitioner's rebate claim as time-barred and the consequent relief. - HELD THAT: - Having concluded that Section 11-B's one-year limitation cannot be read into a notification under rule 18 which contains no limitation, the Court found the Commissioner (Appeals) order dismissing the claim on the ground of limitation to be unsustainable. The impugned order was therefore quashed and set aside. The Court directed that the application for rebate be processed and dealt with in accordance with law on the basis that it is not barred by the period of limitation prescribed in Section 11-B, thereby remitting the matter for fresh adjudication in accordance with the applicable notification and rules. [Paras 15, 19]

The Commissioner (Appeals) order is quashed and set aside; the rebate application shall be processed afresh in accordance with law, treating it as not barred by Section 11-B.

Final Conclusion: The judgment quashes the appellate order rejecting the rebate claim as time barred and directs that the claim, relating to exports in September, 2011, be processed and adjudicated in accordance with rule 18 and the governing notification, since Section 11 B's one year limitation cannot be read into a notification that prescribes no time limit.

Deemed production - single track vs multiple track packing machine - interpretation of Rule 5 of the Pan Masala Packing Machine (Capacity Determination and Collection of Duty) Rules, 2008 - duty determined per packing machine per month - assessment under Section 3-A of the Central Excise Act - deference to findings of the appellate tribunal as last fact-finding authority

Single track vs multiple track packing machine - interpretation of Rule 5 of the Pan Masala Packing Machine (Capacity Determination and Collection of Duty) Rules, 2008 - deemed production - duty determined per packing machine per month - Machine purchased by the assessee is to be treated as a single track packing machine for the purposes of Rule 5 and duty assessment under the PMPM Rules. - HELD THAT: - Rule 5 of the PMPM Rules distinguishes between single track and multiple track packing machines for the purpose of determining the number of pouches deemed to be produced by one operating packing machine per month. The proviso to the Explanation to Rule 5 treats each track or line as an individual packing machine where multiple-track machines are incapable of performing additional moulding processes. The Tribunal found, on the basis of the technical literature and factual inspection, that the machine was a duplex type but comprised only one track in which two pouches are cut and filled simultaneously, and thus was not a multiple-track machine within the meaning of Rule 5. The Court accepted the Tribunal's factual finding as it is the last fact-finding authority and observed that duty under the notification is fixed per packing machine per month (and not on actual turnover), a position reinforced by a Board circular. The Commissioner therefore erred in treating the machine as a double-track machine and levying duty accordingly; the Tribunal rightly set aside that assessment and penalty.

Assessment treating the machine as a multiple-track machine set aside; machine to be treated as a single track packing machine for levy of duty.

Substantial question of law - deference to findings of the appellate tribunal as last fact-finding authority - No substantial question of law arises for consideration in the appeal filed by the department. - HELD THAT: - The dispute turned on the factual characterization of the machine and application of Rule 5 to those facts. The Tribunal's finding that the machine consisted of a single operational track was a factual conclusion entitled to deference. Given that duty under the notification is determined per packing machine per month and the Tribunal correctly applied Rule 5 to the stated facts, the High Court found no substantial question of law warranting interference with the Tribunal's order.

Department's appeal dismissed for lack of any substantial question of law.

Final Conclusion: The Tribunal's factual finding that the machine is a single track packing machine was upheld; the Commissioner's order treating it as a double-track machine and imposing additional duty and penalty was set aside and the departmental appeal is dismissed.

Cenvat credit claimed on imported inputs without receipt - Requirement of corroborative evidence to establish diversion of inputs - Admissibility and evidentiary value of third party statements in quasi judicial proceedings - Right to cross examination when extrinsic statements are relied upon - Validity of penalties imposed under Rule 26 / Cenvat Credit Rules - evidence threshold for confirmation

Admissibility and evidentiary value of third party statements in quasi judicial proceedings - Right to cross examination when extrinsic statements are relied upon - Whether statements of the transporter proprietor and similar third party statements could be relied upon without granting opportunity of cross examination. - HELD THAT: - The Tribunal found that the proprietor of the transporter (PSTC) gave contradictory statements at different times about transportation and delivery of imported scrap. The adjudicating authorities relied primarily on these statements and on loading/return reports of containers. Reliance upon such third party statements, when they are the principal basis for alleging diversion and when they are contradictory, requires that the person who made them be made available for cross examination unless exceptional circumstances (as contemplated in the statutory scheme) exist. Absent a confession by the importer/user or other clinching documentary recovery or corroborative evidence, reliance solely on unsupported or contradictory third party statements is impermissible. The Tribunal applied authorities holding that the need for cross examination depends on circumstances of each case and that statements used against an assessee ordinarily require an opportunity for cross examination unless the limited grounds for dispensing with it are shown to exist. [Paras 4, 5, 7]

Statements of the transporter proprietor could not be relied upon in the absence of cross examination and corroboration.

Requirement of corroborative evidence to establish diversion of inputs - Cenvat credit claimed on imported inputs without receipt - Validity of penalties imposed under Rule 26 / Cenvat Credit Rules - evidence threshold for confirmation - Whether the disallowance of Cenvat credit and the penalty/interest confirmed by lower authorities were sustainable on the material on record. - HELD THAT: - The Tribunal examined the material relied upon by Revenue - loading reports, container return letters and statements of certain witnesses - and found no contemporaneous, uncontradicted or corroborative evidence establishing diversion of imported scrap or that the assessee had not received inputs in its factory. The assessee maintained statutory records and there was no confession by the importer/user that goods were not received. The Tribunal noted precedents where demands based solely on transporter statements or tallying of documents were set aside when not supported by further investigation or corroboration, and distinguished cases where compelling private records or confessions existed. Applying that reasoning to the present facts, and having held that the relied upon statements were contradictory and not susceptible to being used without cross examination, the Tribunal concluded that the factual foundation for disallowance and penalties was lacking. [Paras 4, 6, 7]

The disallowance of Cenvat credit and the penalties/interest confirmed by the lower authorities were not sustainable; appeals allowed.

Final Conclusion: Appeals allowed: the Tribunal set aside the disallowance of Cenvat credit and associated penalties/interest because Revenue's case rested on contradictory third party statements and uncorroborated documentary inferences without affording opportunity for cross examination or producing clinching evidence.

Inclusion of pre fabrication engineering and design charges in assessable value - assessable value of machinery and equipment - integral connection test for additional consideration - extended period of limitation for suppression of material facts - liability of consultant for duty where consultancy is instrumental to manufacture - forfeited/liquidated damages treated as consideration connected to supply - penalty discretion and reduction of quantum

Inclusion of pre fabrication engineering and design charges in assessable value - integral connection test for additional consideration - assessable value of machinery and equipment - The consultancy, engineering and design charges paid to the project consultant (appellant No.2) form part of the assessable value of the machinery and equipment manufactured and supplied by appellant No.1 where such activities are integrally connected with pre fabrication and fabrication of the equipments. - HELD THAT: - The Tribunal accepted the Commissioner's factual finding that the services provided by appellant No.2 (process designing, mechanical equipment specifications, electrical, piping, instrumentation, insulation) related to pre fabrication engineering and detailed design on the basis of which appellant No.1 fabricated and assembled the plant. The agreement and annexures show these activities included machine/equipment specifications, shop/fabrication drawings and performance guarantees which were necessary for manufacture. Where no separate breakup for post manufacturing activities was furnished, the Commissioner was entitled to include the entire billed amounts attributable to those activities in the assessable value. The Tribunal agreed that, on the material before it, the engineering/design charges were directly attributable to manufacture and therefore properly added to value. [Paras 6, 7]

Engineering and design charges paid to the consultant are includible in the assessable value of the machinery and equipment supplied by the manufacturer.

Forfeited/liquidated damages treated as consideration connected to supply - assessable value of machinery and equipment - Amounts initially paid to the consultant by a third party (Triveni) and later forfeited as liquidated damages still form part of the assessable value of goods manufactured by appellant No.1 where fabrication proceeded on the basis of the consultant's designs. - HELD THAT: - The Tribunal held that it is immaterial that the consultancy charges were ultimately forfeited by appellant No.2 as liquidation/demurrage charges to Triveni. The determinative fact is that the fabrication and supply to Vamorganic Chemicals Ltd. were effected on the basis of the engineering designs prepared by appellant No.2 at the initial stage; consequently those amounts are connected to manufacture and properly included in assessable value for the subsequent sale. The same reasoning applied as in the supplies to EID Parry. [Paras 7]

Forfeited consultancy charges connected to the designs used for manufacture are includible in the assessable value of the supplied goods.

Extended period of limitation for suppression of material facts - The extended period of limitation was correctly invoked by the Revenue. - HELD THAT: - The Tribunal accepted the Commissioner's finding that critical facts concerning the consultant's role and the nature of services were not disclosed in the price declarations. In the absence of disclosure and given that the engineering/design services were material to valuation, the invocation of the extended limitation period was justified. [Paras 7]

Extended limitation period was properly invoked due to non submission of material facts.

Liability of consultant for duty where consultancy is instrumental to manufacture - penalty discretion and reduction of quantum - The consultant (appellant No.2) is liable in relation to duty since it was instrumental in design and ensuring performance; penalties imposed on both appellants were excessive and are reduced. - HELD THAT: - The Tribunal rejected appellant No.2's contention that it had not dealt with goods, noting that the consultant was responsible for designing, coordinating supplies and ensuring performance and conformity of the equipment. Consequently, imposition of penalties was sustainable in principle. However, assessing the overall facts and recognizing that some activities might be post manufacture but lacked separate valuation, the Tribunal exercised its discretion to reduce penalties: Rule 173Q penalty on appellant No.1 reduced to Rs. 1,00,000 and penalty under Rule 209A on appellant No.2 reduced to Rs. 1,00,000. [Paras 7, 8]

Consultant held liable in relation to duty; penalties sustained in principle but reduced in quantum to Rs. 1,00,000 each as a discretionary mitigation.

Final Conclusion: The appeals are dismissed on merits: consultancy and design charges paid to the project consultant are includible in the assessable value of the machinery where integrally connected to pre fabrication and manufacture; amounts forfeited as liquidated damages are similarly includible; extended limitation was rightly invoked; penalties are sustained but reduced to Rs. 1,00,000 each for the respective parties.

Violation of principles of natural justice - denial of opportunity for cross examination - remand for fresh adjudication after affording opportunity to cross examine witnesses - pre deposit under Section 35F - waiver in view of deposits already made - admissibility and evidentiary value of confessional statements/admissions

Violation of principles of natural justice - denial of opportunity for cross examination - remand for fresh adjudication after affording opportunity to cross examine witnesses - Impugned adjudication based on statements and documents recovered from Rutuja Ispat Pvt. Ltd. is vitiated by denial of cross examination and therefore requires remand for fresh adjudication. - HELD THAT: - The Tribunal found that the adjudicating authority relied substantially on documents and statements recovered from Rutuja Ispat Pvt. Ltd. (RIPL) and on statements of the appellants' directors which were recorded after investigation at RIPL. Cross examination of the RIPL witnesses whose statements and recoveries were used was not afforded. The Members holding the majority view concluded that denial of the opportunity to cross examine those deponents amounted to a gross violation of principles of natural justice and that, having regard to the pendency of adjudication of RIPL arising from the same search and investigation and to disputes/retractions in respect of some RIPL witnesses, the appellants must be given a reasonable opportunity to meet the case against them, including cross examination of the witnesses relied upon. For these reasons the impugned order was set aside and the matter remanded to the adjudicating authority for fresh adjudication after granting the opportunity of cross examination and a reasonable hearing to the appellants. [Paras 8, 30, 31, 33, 34]

Impugned order set aside; matter remanded to the adjudicating authority for re adjudication after granting cross examination and reasonable opportunity to the appellants.

Pre deposit under Section 35F - waiver in view of deposits already made - Whether the requirement of further pre deposit should be waived and whether existing deposits suffice for admission/hearing of the appeals. - HELD THAT: - The Tribunal considered the statutory scheme of Section 35F and the amendment by the Finance Act, 2014 which prescribes a minimum pre deposit (as amended). It was noted that the appellants had already deposited approximately 22% of the duty in dispute (Rs.1.2 crore of Rs.5.65 crore), which the Third Member found sufficient in view of legislative intent and for purposes of hearing the appeals on merits. In consequence, the requirement of further pre deposit of duty, interest and penalties was waived and the appeals were admitted for disposal; the appeals were taken up and disposed of by remand without ordering additional pre deposit. [Paras 7, 29, 34]

Existing deposit by the appellants was held sufficient; requirement of further pre deposit waived and appeals taken up for disposal.

Final Conclusion: Majority of the Tribunal allowed the appeals by setting aside the adjudicating order and remanding the matters for fresh adjudication after affording cross examination and reasonable opportunity to the appellants; the requirement of additional pre deposit was waived in view of deposits already made.

Extended period of limitation under proviso to Section 11A - suppression of facts, fraud, collusion or willful mis-statement - onus of proof for invoking extended period - finality of Tribunal as fact-finding authority and standard of interference

Extended period of limitation under proviso to Section 11A - suppression of facts, fraud, collusion or willful mis-statement - onus of proof for invoking extended period - finality of Tribunal as fact-finding authority and standard of interference - Applicability of the five-year extended limitation under the proviso to Section 11A where the Department issued show cause notice beyond one year, and whether the High Court should interfere with the Tribunal's finding that there was no suppression of facts. - HELD THAT: - The Tribunal found that the assessee had filed all relevant declarations and there was no suppression of facts, and accordingly held the demand to be time-barred because the extended five-year period under the proviso to Section 11A applies only where there is suppression, fraud, collusion or willful mis-statement. The High Court accepted the Tribunal's factual finding, noting that no material was placed before it to show perversity in those findings or to justify a contrary conclusion. The Court reiterated that the Tribunal is the final fact-finding authority on such issues and that the High Court will not interfere with factual findings of the Tribunal in the absence of a specific challenge supported by relevant material showing perversity. Consequently, the Court declined to re-adjudicate merits or substitute its view on the existence of suppression where the Tribunal's finding was unchallenged by admissible material.

The finding that the extended five-year period under the proviso to Section 11A is not attracted (as there was no suppression of facts) is upheld; the Tribunal's order dismissing the Department's appeal as time-barred is maintained.

Final Conclusion: The Department's appeal is dismissed; the High Court upheld the Tribunal's factual finding that there was no suppression of facts and therefore the extended period under the proviso to Section 11A was not attracted, leaving the demand time-barred.

Proviso to Section 21(2) of the U.P. Trade Tax Act, 1948 - reason to believe - reassessment jurisdiction - application of scientific/chemical formula to determine production for tax assessment - change of opinion

Proviso to Section 21(2) of the U.P. Trade Tax Act, 1948 - reason to believe - reassessment jurisdiction - application of scientific/chemical formula to determine production for tax assessment - Validity of the authorization under the proviso to Section 21(2) and the notices issued under Section 21 of the Act where initiation was premised solely on a chemical formula without material to form a reason to believe that turnover had escaped assessment. - HELD THAT: - The Assessing Authority had accepted and examined the petitioners' books of account and manufacturing records and recorded that purchases, sales and stocks were verifiable and production figures had been maintained. Earlier and subsequent assessments, appellate orders and Tribunal decisions on identical facts accepted the petitioners' explanation that the chemical formula relied upon would apply only if the metal raw material were 100% pure and could not be applied as a rule without regard to raw material quality. In those proceedings authorities found the explanation acceptable and production figures were upheld. Given these materials and prior findings, there was no relevant material before the Assessing Authority giving rise to a prima facie inference or "reason to believe" that turnover had escaped assessment; initiation of reassessment proceedings based merely on theoretical application of the chemical formula was therefore without jurisdiction. The sufficiency of materials for assessment would be examinable in proceedings after notice and hearing, but existence of material establishing a reason to believe was absent on the facts of these cases. [Paras 10, 11, 12, 13]

The authorisation under the proviso to Section 21(2) and the consequent notices under Section 21 issued by the Assessing Authority were without jurisdiction and are quashed.

Final Conclusion: Writ petitions allowed; impugned authorisation orders and notices under Section 21 quashed for want of any relevant material giving rise to a reason to believe that turnover had escaped assessment; no order as to costs.

Unjust enrichment - review under Section 41 of the Haryana General Sales Tax Act, 1973 - purchase tax liability of last purchaser of taxable inputs used in manufacture of non taxable goods - refund where tax was deposited as condition precedent to maintainability of appeal

Unjust enrichment - review under Section 41 of the Haryana General Sales Tax Act, 1973 - refund where tax was deposited as condition precedent to maintainability of appeal - Validity of the Tribunal's rejection of the appellant's review on the ground of unjust enrichment and entitlement to refund of the amount deposited - HELD THAT: - The Tribunal admitted the review and concluded that although the seller later became entitled to exemption, the appellant was precluded from refund because, by admission, the purchase price included sales tax and a prudent businessman would have passed that tax on to consumers, therefore causing unjust enrichment (impugned conclusion recorded at para 5). The High Court held that this reasoning was perverse. The Court observed that no finding was recorded by the Tribunal that the appellant in fact recovered the tax from consumers; on the contrary the appellant was compelled to deposit the purchase tax element with authorities as a condition precedent to maintain its appeal and therefore had been put out of pocket (paras 6-8). Even on the Tribunal's own assumption that tax was included in the purchase price, two consequences follow: if the appellant had paid and recovered tax from consumers, the appellant would not be liable; if the appellant had not paid/recovered, there is no evidence it recovered from consumers and, in any event, the appellant had deposited the amount to pursue its remedy and thus suffered an out of pocket loss. The Court declined to speculate that recovery had occurred where no finding was recorded and concluded that there was no basis to sustain the plea of unjust enrichment by the respondents. The determinative legal reasoning is that absence of a finding of actual recovery, together with the fact of deposit as a condition to maintainability, precludes a conclusion of unjust enrichment and requires restitution by way of refund. [Paras 5, 6, 7, 8, 9]

Tribunal's rejection of the review on the ground of unjust enrichment set aside; respondents directed to refund the deposited amount within 12 weeks.

Final Conclusion: Appeals allowed; the Tribunal's finding of unjust enrichment was reversed and the amount deposited by the appellant, as a condition precedent to maintainability of its appeal, shall be refunded by the respondents within twelve weeks.