TaxTMI Updates e-Newsletter
Oct 24,2012

Tobacco preparation - deduction under Section 80I - interpretation of Schedule XI entries - mixing of tobacco renders product a tobacco preparation irrespective of percentage - non-speaking dismissal of Special Leave Petition does not constitute affirmation on merits

Tobacco preparation - deduction under Section 80I - interpretation of Schedule XI entries - mixing of tobacco renders product a tobacco preparation irrespective of percentage - Zarda Yukta Pan Masala is a tobacco preparation within the meaning of Item 2 of Schedule XI and hence not eligible for deduction under Section 80I - HELD THAT: - The Court examined whether a pan masala product containing tobacco (Zarda Yukta Pan Masala) falls within Item 2 of Schedule XI which excludes 'tobacco and tobacco preparation' from the benefit of Section 80I. The Court held that the presence of tobacco, however small in percentage, transforms pan masala into a distinct commercial commodity identifiable as a tobacco preparation and intended for consumers addicted to tobacco. The words 'such as' in Item 2 were read as illustrative and inclusive, not exhaustive, so various forms and mixtures incorporating tobacco fall within the entry. By analogy to authorities on common parlance classification of products containing an essential characteristic ingredient, the determinative test is the character and use of the product as understood by consumers rather than the precise quantitative proportion of tobacco. Applying this principle, the Court concluded that Zarda Yukta Pan Masala is a tobacco preparation and therefore the profits attributable to its manufacture cannot avail deduction under Section 80I. [Paras 15, 17, 19, 21]

Allowed the appeals; Zarda Yukta Pan Masala held to be a tobacco preparation within Item 2 of Schedule XI and deduction under Section 80I disallowed accordingly

Non-speaking dismissal of Special Leave Petition does not constitute affirmation on merits - Legal effect of dismissal of Special Leave Petition in limine - HELD THAT: - The Court considered the legal significance of the Supreme Court's dismissal of the earlier Special Leave Petition and noted binding authorities that a dismissal in limine or non-speaking order does not operate as an affirmation of the reasoning of the impugned decision or constitute binding law on the merits. The Court nonetheless proceeded to decide the present question on its own merits for the assessment years before it, observing that the earlier High Court order had merely held no question of law arose and the SLP dismissal did not resolve the substantive controversy. [Paras 14]

Dismissal of SLP in limine does not amount to confirmation of the reasoning of the decision below; the Court independently decided the substantive question

Final Conclusion: The income tax appeals are allowed: Zarda Yukta Pan Masala is held to be a tobacco preparation within Item 2 of Schedule XI, making the assessee ineligible for deduction under Section 80I for the assessment years before the Court; the earlier non-speaking dismissal of SLP was not treated as an affirmation on merits.

Manufacturing process - chilling of milk as manufacturing - change in physical and chemical properties - industrial undertaking - deduction under Section 80 HHA and Section 80-I

Manufacturing process - chilling of milk as manufacturing - change in physical and chemical properties - The processes applied to raw milk (straining, filtration, chilling using surface milk chillers, and blending) amount to a manufacturing process. - HELD THAT: - The Tribunal and this Court accepted the factual finding that the appellant undertook a sequence of operations - straining and filtration to improve appearance and reduce microbial counts, chilling to prevent fermentation and improve palatability, and blending to standardise fat content and preserve nutrients - which produce dairy milk fit for direct consumption without further processing. These processes, though they may not produce an entirely new commodity in form, effect changes in the physical and chemical properties of the milk, improve its nutritional value, quality and marketability, and render it commercially distinct from raw milk purchased from villagers. On that basis, the treatment undertaken was held to be a manufacturing process for the purposes of the Income Tax Act. [Paras 9, 10]

The processes described constitute manufacturing.

Industrial undertaking - manufacturing process - The assessee's dairy operations, as constituted by the processing steps accepted by the authorities, qualify the enterprise as an industrial undertaking. - HELD THAT: - The Income Tax authorities and the Tribunal found that the appellant's activities went beyond mere collection and resale of raw milk; the processing operations (including cream extraction shown by separate sales of cream and skimmed milk) involved distinct technical processes and resulted in a commercially recognisable product known as dairy milk. Having accepted that these operations involve manufacturing, the Court concurred that the business thus falls within the concept of an industrial undertaking for statutory benefit purposes. [Paras 6, 9, 10]

The assessee's dairy business qualifies as an industrial undertaking.

Deduction under Section 80 HHA and Section 80-I - industrial undertaking - The assessee is entitled to deductions under Sections 80 HHA and 80-I for the relevant assessment years. - HELD THAT: - Because the Court upheld that the processes constituted manufacturing and that the enterprise is an industrial undertaking, the statutory prerequisites for claiming deductions under the cited provisions were satisfied as found by the Tribunal and CIT(A). The Court rejected the Revenue's contention that mere chilling could not amount to manufacturing, distinguishing simple preservation from the composite processing sequence proved by the assessee. In consequence, the claims for deductions were held allowable subject to statutory conditions. [Paras 10, 11]

Deductions under Sections 80 HHA and 80-I are allowable to the assessee for the years in issue.

Final Conclusion: The appeals are dismissed; the questions of law raised are answered against the Revenue and in favour of the assessee, and the Revenue shall proceed in accordance with this decision.

Reopening of assessment under Section 147 - Assessing Officer's formation of belief - opinion of District Valuation Officer not per se information - reference to District Valuation Officer under Section 142A - requirement to reject books of account before referring matter to DVO

Reopening of assessment under Section 147 - Assessing Officer's formation of belief - Validity of reopening the assessments for A.Y. 1998-99 and A.Y. 1999-2000 under Section 147/148 - HELD THAT: - The Court held that the Assessing Officer's opinion for reopening was founded primarily on the preliminary report of the District Valuation Officer (DVO) dated 27.12.2001, which raised doubts about the methodology and verifiability of the earthwork expenditure but did not quantify or decisively disprove the declared investment. The AO had earlier completed assessment after examining books and had made an office note that further action would follow on receipt of the valuation report; however the books were not rejected before referring the matter to the DVO. The Court found that the DVO's incomplete observations, expressing doubts without any quantified valuation at the time of reasons recorded, could not constitute material on which the AO could form a bona fide belief that income had escaped assessment. Reliance solely on such interim DVO remarks, without independent application of mind by the AO or other material contradicting the accounts, rendered the reopening legally unsustainable. The Court therefore concluded that reopening under Section 147/148 was a gross error of law and invalid in these facts. [Paras 6, 12, 17, 18, 20]

Reopening of assessment under Section 147/148 set aside; assessments cannot be reopened on the basis of the impugned DVO report and the AO's recorded reasons.

Opinion of District Valuation Officer not per se information - reference to District Valuation Officer under Section 142A - requirement to reject books of account before referring matter to DVO - Whether the AO could refer the matter to the DVO without rejecting the assessee's books and whether the DVO's opinion alone suffices as 'information' to reopen assessment - HELD THAT: - The Court reiterated that a reference to the DVO under Section 142A is not a licence for a fishing inquiry; the AO must have examined the books and, where he cannot rely on them, reject the accounts before seeking valuation. In the present case the books had been examined and accepted at the original assessment and were not rejected prior to reference. The DVO's initial observations merely questioned verifiability and methodology and did not supply concrete information quantifying the alleged understatement. Consistent with authorities cited, the Court held that the DVO's opinion, by itself and in the circumstances where books were not rejected, did not amount to actionable information to form belief under Section 147. [Paras 12, 16, 18]

AO's reference to DVO without rejecting books was impermissible; DVO opinion alone did not justify reopening.

Assessing Officer's formation of belief - Whether other grounds relied upon by the AO (up-front fee discrepancy and share application money differences) furnished independent basis for reopening - HELD THAT: - The Court examined the additional reasons recorded by the AO concerning excess up-front fee and discrepancies in share application money. It found that the records regarding these transactions were already disclosed in the books which had been accepted at the original assessment, and the AO did not seek explanations from the assessee before issuing notices under Section 148. The trivial differences noted (as recorded) and the fact that the material had been part of the accepted accounts meant these particulars could not constitute fresh material to form a belief of escaped income. Thus these grounds did not supply an independent or adequate basis for reassessment. [Paras 6, 19]

Other stated reasons were insufficient to sustain reopening; they did not independently justify action under Section 147.

Final Conclusion: Both Income Tax Appeals are allowed. The High Court held the reopening of assessment for A.Y. 1998-99 and A.Y. 1999-2000 to be invalid because the Assessing Officer failed to form a proper belief independent of an incomplete DVO opinion and referred the matter to the DVO without rejecting the books; the additional reasons relied upon were inadequate to reopen, and the assessments are set aside accordingly.

Interest on non-SLR investments - business of banking - deduction under Section 80P (2)(a)(i) - Statutory Liquidity Ratio - circulating capital - voluntary reserves

Interest on non-SLR investments - business of banking - deduction under Section 80P (2)(a)(i) - Statutory Liquidity Ratio - circulating capital - Interest earned by a cooperative bank on deposits/investments outside SLR is income from the business of banking and eligible for deduction under Section 80P (2)(a)(i) of the Income Tax Act. - HELD THAT: - The Court upheld the Tribunal's conclusion that investments made to strengthen liquidity-whether mandated SLR investments or voluntary/non-SLR deposits with other banks-form part of a bank's normal mode of conducting banking business and its circulating capital. Reliance on the definition of 'banking' in the Banking Regulation Act and on precedent (including the Supreme Court's reasoning in Bihar State Cooperative Bank Ltd.) supports the view that placing funds in deposits or securities to keep them readily available is a legitimate incident of banking. The Tribunal correctly found no real distinction for tax purposes between SLR and non-SLR investments where the investments serve the bank's liquidity and business purposes; accordingly, interest from such investments qualifies as business income within the ambit of Section 80P (2)(a)(i). [Paras 6, 9, 10, 11, 12]

Answered in favour of the assessee; interest on non-SLR investments treated as banking business income and eligible for deduction under Section 80P (2)(a)(i).

Voluntary reserves - circulating capital - deduction under Section 80P (2)(a)(i) - business of banking - Income earned out of voluntary reserves and other surplus/idle funds of a cooperative bank is attributable to the business of banking and eligible for deduction under Section 80P (2)(a)(i). - HELD THAT: - The Court followed earlier decisions holding that surplus or idle funds, including voluntary reserves and amounts arising from working capital, when invested as deposits or securities, remain part of the bank's circulating capital. The returns from such investments therefore constitute profits from the banking business. The reasoning in precedent cases demonstrates that funds not lent out but invested to earn interest do not cease to be part of banking business for the purposes of Section 80P (2)(a)(i). [Paras 11, 12]

Answered in favour of the assessee; income from voluntary reserves is attributable to banking business and deductible under Section 80P (2)(a)(i).

Final Conclusion: The appeal is dismissed. The questions are answered against the revenue and in favour of the respondent: interest from non-SLR investments and income from voluntary reserves of the cooperative bank qualify as profits from the business of banking and are eligible for deduction under Section 80P (2)(a)(i) for assessment year 2005-06.

Mandatory issuance of notice under Section 143(2) in block assessment where return filed in response to notice under Section 158-BC - repudiation of return filed under notice u/s 158-BC necessitates fresh notice u/s 143(2) - Section 292-BB is a rule of evidence/deeming provision and does not dispense with substantive requirement of issuing notice - service of notice by conduct/acquiescence cannot substitute statutory mandate where Section 143(2) is required

Mandatory issuance of notice under Section 143(2) in block assessment where return filed in response to notice under Section 158-BC - repudiation of return filed under notice u/s 158-BC necessitates fresh notice u/s 143(2) - The Assessing Officer was obliged to issue a notice under Section 143(2) when he repudiated the return filed in response to a notice under Section 158-BC and proceeded to make assessment. - HELD THAT: - The Court followed the principle laid down by the Supreme Court in Asstt. CIT v. Hotel Blue Moon and subsequent decisions of this Court, holding that where an assessee files a return in response to a notice under Section 158-BC (block assessment) and the Assessing Officer for any reason repudiates that return and proceeds with enquiry and assessment, the issuance of a notice under Section 143(2) within the prescribed time is necessary. The proviso to Section 143(2) and the statutory scheme governing framing of assessment confer jurisdiction on the AO only upon issue of that notice in such circumstances; hence the absence of a valid notice under Section 143(2) renders the assessment order invalid. The Tribunal's reliance on the Gauhati decision was consistent with this principle and the Court accepted the appellants' contention in favour of the assessee on this point.

Assessment made after repudiation of a return filed under Section 158-BC without issuing notice under Section 143(2) is invalid.

Section 292-BB is a rule of evidence/deeming provision and does not dispense with substantive requirement of issuing notice - service of notice by conduct/acquiescence cannot substitute statutory mandate where Section 143(2) is required - Section 292-BB cannot be invoked to cure the absence of a mandatory notice under Section 143(2); it is a rule of evidence and does not eliminate the statutory requirement to issue the notice. - HELD THAT: - The Court rejected the revenue's submission that Section 292-BB (a deeming provision inserted by Finance Act, 2008) validates or obviates the need for issuance of a notice under Section 143(2). The provision operates as a rule of evidence by deeming service in certain circumstances where the assessee has appeared or cooperated, but it does not negate the substantive requirement that the AO must give notice under Section 143(2) to acquire jurisdiction to frame the assessment after repudiating a return filed in response to Section 158-BC. Consequently, reliance on conduct or acquiescence cannot supply the statutory notice mandated by Section 143(2).

Section 292-BB does not dispense with the requirement of issuing statutory notice under Section 143(2); it only operates as a deeming/evidentiary provision.

Final Conclusion: Both questions raised by the revenue were decided in favour of the assessee: assessments framed after repudiation of returns filed pursuant to Section 158-BC without issuing notices under Section 143(2) are invalid, and Section 292-BB cannot be invoked to cure the absence of such mandatory notices. Both appeals are dismissed.

Addition under section 68 for unexplained share application money - requirement to establish identity of investors before making addition - identity and creditworthiness of shareholders - onus of disclosure by the assessee by furnishing names, addresses and PAN - department's remedy to reopen individual assessments of shareholders

Addition under section 68 for unexplained share application money - requirement to establish identity of investors before making addition - onus of disclosure by the assessee by furnishing names, addresses and PAN - Whether the addition of share application money could be made in the hands of the assessee-company when the assessee had furnished names, addresses and PAN of the applicants but did not produce confirmations from the applicants before the Assessing Officer. - HELD THAT: - The Court held that the assessee had furnished the names, addresses and Permanent Account Numbers of the persons who paid share application money and thereby discharged the onus of disclosure. The Assessing Officer's addition rested on the absence of confirmations, but the AO had not disputed the identity or creditworthiness of the applicants in the assessment order nor had he issued summons to verify them. The CIT(A)'s confirmation on the ground that creditworthiness was not proved was contrary to the record, since the material required to disclose identity (including PAN) was supplied. In these circumstances an addition treating the amount as undisclosed income of the company was not justified.

Assessee's disclosure of names, addresses and PAN was sufficient; addition in the hands of the company was not justified and is set aside.

Department's remedy to reopen individual assessments of shareholders - identity and creditworthiness of shareholders - Whether, where share application money is alleged to be from bogus shareholders whose identities are furnished, the department may proceed against those persons instead of treating the amount as undisclosed income of the company. - HELD THAT: - Relying on the precedent in CIT v. Lovely Exports (and as followed by this Court), the Court reiterated that if the names and other identity particulars of alleged shareholders are given to the Department, the proper course for the Department is to proceed to verify and, if necessary, reopen the individual assessments of those persons in accordance with law. Absent a finding by the Assessing Officer disputing identity or creditworthiness, the amount cannot be treated as the assessee company's undisclosed income.

Department may pursue remedial action against the depositors individually, but cannot treat the disclosed share application money as undisclosed income of the assessee-company.

Final Conclusion: The substantial question of law is answered against the revenue and in favour of the assessee; the Income Tax Appeal is dismissed.

'tax due' under Section 179 - definition of 'tax' under Section 2(43) - distinction between tax, interest and penalty - directors' joint and several liability under Section 179 - statutory presumption placing burden on director to prove non-recovery not due to gross neglect, misfeasance or breach of duty - scope of writ jurisdiction to decide questions of law as to liability

'tax due' under Section 179 - definition of 'tax' under Section 2(43) - distinction between tax, interest and penalty - 'tax due' in Section 179 does not include interest or penalty; directors can be made liable only for the 'tax' as defined in Section 2(43). - HELD THAT: - The Court analysed the text and structure of the Income tax Act and concluded that Parliament has used different expressions (e.g., 'tax', 'amount', 'sum', 'penalty', 'interest') in different provisions to create differing scopes of liability. The definition of 'tax' in Section 2(43) was held not to include interest or penalty. Authorities considering like expressions and the distinct nature of tax, interest and penalty (including the reasoning in decisions cited in the judgment) were examined; the Court accepted the view that fiscal concepts of 'tax', 'interest' and 'penalty' are separate and that where Parliament intended liability for more than tax it has used broader words (such as 'amount' or 'sum payable'). Applying these principles to Section 179(1), the Court held that the phrase 'tax due from a private company' must be read as referring to 'tax' in the sense of Section 2(43) and does not encompass interest and penalties which are separately provided for elsewhere in the Act. [Paras 11, 12, 13, 16, 17]

Directorial liability under Section 179(1) is confined to the 'tax' as defined under Section 2(43) and does not extend to interest or penalty.

Directors' joint and several liability under Section 179 - statutory presumption placing burden on director to prove non-recovery not due to gross neglect, misfeasance or breach of duty - scope of writ jurisdiction to decide questions of law as to liability - Whether the director has rebutted the statutory presumption as to gross neglect, misfeasance or breach of duty is a question of fact for the tax authorities, but the Court may determine the legal question whether Section 179 permits recovery of interest and penalty from a director. - HELD THAT: - The Court accepted the revenue's submission that Section 179(1) creates a statutory presumption and places an evidentiary burden on the director to show that non recovery was not due to gross neglect, misfeasance or breach of duty; such factual determinations are ordinarily for the tax authorities and not to be decided in writ proceedings. However, the Court held that the present challenge raised a pure question of law about the scope of Section 179 - namely whether the provision authorises recovery of interest and penalty from directors - and that this legal question fell within the Court's jurisdiction under Article 226. The Court therefore addressed and decided the legal issue, while noting that factual issues relating to rebuttal of presumption remain for the assessing authority. [Paras 16, 17]

The legal question of the scope of Section 179 is amenable to determination in writ jurisdiction; factual questions about rebutting the presumption of liability remain for the tax authorities to decide.

Remand for determination of liability in light of legal finding - Direction to the assessing authority to determine the petitioner's liability limited to 'tax' and to proceed accordingly. - HELD THAT: - Following the legal conclusion that 'tax' under Section 179 does not include interest and penalty, the Court quashed the impugned orders to the extent they made the petitioner liable for interest and penalty, and directed the first respondent to determine the petitioner's liability afresh in light of this finding. The Court thus set aside the earlier orders and required the assessing authority to give effect to the legal construction adopted by the Court while leaving factual inquiries and any further procedural steps to the authority to complete within the scheme of the Act. [Paras 17]

Impugned orders quashed to the extent they sought to recover interest and penalty; authority directed to determine the petitioner's liability confined to tax as defined in Section 2(43).

Final Conclusion: Writ petitions allowed: Section 179(1) is confined to 'tax' as defined by Section 2(43) and does not authorize recovery of interest or penalties from a director; impugned orders are quashed and the assessing authority is directed to re determine the petitioner's liability in light of this legal conclusion, leaving factual issues of rebuttal for the tax authorities to consider.

Service of notice under Section 143(2) - Presumption of service from compliance with procedure in Section 282 - Onus of proof regarding service - Evaluation of factual finding by Tribunal

Service of notice under Section 143(2) - Onus of proof regarding service - Presumption of service from compliance with procedure in Section 282 - Evaluation of factual finding by Tribunal - Validity of the notice under Section 143(2) and whether the Tribunal was justified in restoring the assessment on the ground of valid service. - HELD THAT: - The Tribunal found on the facts that the notice under Section 143(2) was sent by Speed Post to an address which the assessee himself had used for bank accounts and TDS certificates, and that the assessee failed to produce the PAN copy or obtain postal verification despite specific opportunities. The Tribunal applied the evidentiary principle that, where the department complies with the postal procedure and the assessee fails to produce the best evidence or rebut the presumption, an adverse inference as to service may be drawn. The High Court treated these findings as factual conclusions - recorded after consideration of the material (TDS certificate, address used by the assessee, the departmental RTI reply and the absence of rebuttal) - and observed that the presumption of service arising from compliance with the procedure in Section 282 is properly available. The Court held that the Tribunal's determination on service is a factual finding based on evidence and procedure and therefore not a substantial question of law warranting interference. [Paras 6, 8, 9]

The Tribunal's factual finding of valid service of the notice under Section 143(2) was upheld and the appeal is dismissed.

Final Conclusion: The High Court dismissed the appeal, holding that the Tribunal correctly found service of the Section 143(2) notice on the address used by the assessee and that the findings were factual and not a substantial question of law warranting interference.

Recasting trading account on rejection of books of account under Section 145 - deletion of additions by Tribunal on appreciation of facts - survey under Section 133A and surrendered investments - appellate interference in factual findings

Recasting trading account on rejection of books of account under Section 145 - appellate interference in factual findings - Deletion of addition of Rs.13,64,441/- made by assessing officer by recasting the trading account - HELD THAT: - After survey and physical verification the stock found exceeded the stock disclosed by the assessee. The assessee explained that certain sarees had become unsalable and discounts were given; the Tribunal accepted this explanation and recalculated the gross profit rate, reducing the addition. The High Court held that the question involved appreciation of factual material and exercise of discretion by the income tax authorities and the Tribunal in proceedings under Section 145 when books are rejected and best judgment assessment is applied. Such factual conclusions do not raise substantial questions of law warranting interference by the Court.

Tribunal's deletion of the addition was not interfered with; appeal dismissed on this question as involving factual discretion.

Survey under Section 133A and surrendered investments - deletion of additions by Tribunal on appreciation of facts - Deletion of addition of Rs.5,84,300/- made on account of unexplained investment in shop, godown, furniture etc. surrendered during survey - HELD THAT: - The Tribunal deleted the addition relating to investments surrendered during survey. The High Court found that this too was essentially a question of fact and the exercise of the Tribunal's discretion in accepting the assessee's explanation, and did not constitute a substantial question of law for the Court's adjudication.

Tribunal's deletion of the addition was upheld by the High Court; no interference on law.

Appellate interference in factual findings - Addition of Rs.68,800/- on account of disallowance of salary - HELD THAT: - The order notes that the addition of Rs.68,800/- on account of disallowance of salary was maintained by the authorities. The High Court treated this as a factual conclusion attendant to assessment proceedings and did not disturb the finding.

Addition on account of disallowance of salary maintained; no interference by the Court.

Final Conclusion: The appeal under Section 260A was dismissed as the questions raised were held to be factual matters involving the discretion of the income tax authorities and the Tribunal; no substantial question of law was found for consideration.

Deduction under section 10A - applicability of section 10A(7A) on demerger - demerger as transfer of an undertaking on a going concern basis - separate STPI undertaking / maintenance of separate books - carry forward and set off of losses and unabsorbed depreciation under section 72A(4) - harmonious construction to avoid absurdity or unjust result - treatment of undertaking's entire year's income as income of the resulting company - beneficial provision to be given full effect

Deduction under section 10A - precedent of coordinate bench - Whether the CIT(A)'s allowance of deduction under section 10A to the assessee in respect of the STPI income for the relevant period was sustainable in view of the Tribunal's earlier decision in the assessee's own case for earlier years. - HELD THAT: - The Tribunal noted that a coordinate bench had already decided identical issues in the assessee's own case for Assessment Years 2003-04 and 2004-05 and that the CIT(A) had expressly followed the ITAT decision when allowing the deduction. On this basis the Tribunal confirmed the CIT(A)'s order and dismissed Revenue's grounds challenging that allowance as covered by precedent. [Paras 6]

Confirmed the CIT(A)'s allowance of deduction under section 10A as covered by the Tribunal's earlier decision; Revenue's grounds 2 and 3 dismissed.

Factual correctness of reliance - Whether the CIT(A) granted relief solely on the basis of the CIT(A)'s order in the resulting company's case, as contended by Revenue. - HELD THAT: - The Tribunal examined the impugned CIT(A) order and found the Revenue's assertion factually incorrect: the CIT(A) had stated that he was respectfully following the ITAT decision when allowing the deduction. Accordingly the ground alleging reliance only on the resulting company's CIT(A) order was rejected. [Paras 7]

Ground No.4 dismissed as factually incorrect.

Applicability of section 10A(7A) on demerger - demerger as transfer of an undertaking on a going concern basis - Whether section 10A(7A) precludes the demerged company (assessee) from claiming deduction under section 10A for the previous year in which the demerger took place (relevant to AY 2005-06). - HELD THAT: - The Tribunal observed that section 10A(7A) applies where an undertaking entitled to deduction under section 10A is transferred in a scheme of amalgamation or demerger before the expiry of the specified period. Clause (a) of section 10A(7A) expressly mandates that no deduction shall be admissible to the demerged company for the previous year in which the demerger takes place. Since the STPI undertaking was transferred by way of demerger during the relevant year, the provision applies and the demerged company is not entitled to deduction under section 10A for Assessment Year 2005-06. [Paras 8]

Allowed Revenue's ground No.5 to the extent of holding that the assessee is not entitled to any deduction under section 10A for AY 2005-06 by virtue of section 10A(7A).

Treatment of undertaking's entire year's income as income of the resulting company - harmonious construction to avoid absurdity or unjust result - separate STPI undertaking / maintenance of separate books - carry forward and set off of losses and unabsorbed depreciation under section 72A(4) - beneficial provision to be given full effect - Whether, notwithstanding that section 10A(7A) denies deduction to the demerged company, any part of the STPI undertaking's income for the year should nevertheless be assessed in the hands of the demerged company, or whether the entire year's income should be treated as the income of the resulting company and assessed accordingly. - HELD THAT: - The Tribunal analysed sections 2(19AA), 10A(1), 10A(7A) and 72A(4) and observed that the Act treats an STPI unit as a distinct undertaking with separate books and that a demerger transfers the undertaking as a going concern. Applying harmonious construction to avoid the absurdity of rendering the STPI income taxable (without deduction) in the hands of the demerged company contrary to section 10A(1), the Tribunal held that the entire income of the undertaking for the financial year must be deemed to be income of the resulting company. The Tribunal relied on the demerger scheme (transfer of assets/liabilities as on appointed date), authorities recognising that book entries may not reflect true accrual, and the principle that beneficial provisions should fully reach the intended recipient. Consequently the Assessing Officer was directed to delete the STPI income from the assessee and assess it in the hands of the resulting company for AY 2005-06. [Paras 9, 11]

Held that no part of the STPI undertaking's income for the year is to be treated as income of the demerged company; directed AO to delete that income from the assessee and bring it to tax in the hands of the resulting company for AY 2005-06.

Final Conclusion: The Tribunal upheld the CIT(A)'s allowance of section 10A deduction as covered by earlier ITAT precedent, rejected Revenue's factual contention regarding reliance, held that section 10A(7A) precludes the demerged company from claiming deduction for the year of demerger, and, to avoid an absurd or unjust result, directed that the entire year's STPI income be treated and assessed as income of the resulting company for Assessment Year 2005-06 with consequential adjustments by the Assessing Officer.

Reopening of assessment - change of opinion - reason to believe based on information obtained in a subsequent year - depreciation-capitalisation of compensation for right to use / right of way as part of plant & machinery - crop compensation added to cost of plant & machinery - land compensation not includible in cost of plant & machinery - security-deposit type payments excluded from capitalization - limited right of use is a tangible right not an intangible asset for depreciation purposes

Reopening of assessment - change of opinion - reason to believe based on information obtained in a subsequent year - Validity of reassessment proceedings under section 147 where depreciation on capitalised right of use/right of way payments was allowed in original assessments without enquiry - HELD THAT: - The Tribunal held that reassessment was valid because the Assessing Officer had not formed a considered opinion during the original assessments and had not made any enquiry into the depreciation claim; the Assessing Officer subsequently obtained material in the assessment of A.Y. 2006 07 which led him to form a belief that income had escaped assessment. On these facts the reopening within four years was not a mere change of opinion but was founded on fresh materials obtained in a subsequent year's assessment proceedings; precedents were applied distinguishing cases of impermissible change of opinion and upholding reopening where fresh information in a later year justifies forming a belief that income chargeable to tax has escaped assessment. The Tribunal therefore upheld the CIT(A)'s conclusion that reassessment proceedings were valid. [Paras 8, 9]

Reopening of assessment was valid; grounds challenging reassessment as change of opinion are dismissed.

Depreciation-capitalisation of compensation for right to use / right of way as part of plant & machinery - crop compensation added to cost of plant & machinery - land compensation not includible in cost of plant & machinery - security-deposit type payments excluded from capitalization - limited right of use is a tangible right not an intangible asset for depreciation purposes - Whether various compensations paid for laying pipelines (crop compensation, land/right of use compensation, and right of way payments) are capitalisable to plant & machinery and eligible for depreciation - HELD THAT: - Following the Tribunal's decision for A.Y. 2006 07, the appellate order for A.Y. 2004 05 and A.Y. 2005 06 was applied. The Tribunal held that (i) crop compensation paid to land owners for damage to standing crops/trees is properly added to the cost of the pipeline (plant & machinery) and is eligible for depreciation because it was paid to avoid project delay and relates to the asset cost; (ii) compensation that effectively confers ownership rights in land is not includible in the value of plant & machinery and therefore not eligible for depreciation; and (iii) expenditure towards obtaining right of way, to the extent not in the nature of a security deposit and where capitalised by the assessee, shall be included in the value of plant & machinery and is entitled to depreciation; payments characterised as security deposits or rental for security deposits are excluded from capitalization. The Tribunal also rejected the alternate contention that the rights acquired were intangible assets within section 32, treating the rights in question as tangible rights not falling within the intangible asset block. [Paras 13, 15]

Crop compensation is capitalisable to plant & machinery and eligible for depreciation; land compensation not eligible for depreciation; right of way payments (other than security deposit type payments) capitalised and eligible for depreciation; alternative claim of classification as intangible asset rejected.

Final Conclusion: Assessee's appeals are dismissed; revenue's appeals are partly allowed in accordance with the Tribunal's directions: reassessment upheld and depreciation adjustments confirmed as per the Tribunal's findings on crop compensation, land compensation and right of way capitalization.

Waiver of interest under Section 220(2A) of the Income Tax Act - Genuine financial hardship - Circumstances beyond the control of the assessee - Assessee's cooperation in inquiry or recovery proceedings - Reliance on assessing officer's report for exercise of discretionary power

Waiver of interest under Section 220(2A) of the Income Tax Act - Genuine financial hardship - Reliance on assessing officer's report for exercise of discretionary power - Ext.P7 order rejecting the petition for waiver of interest under Section 220(2A) was validly passed because the condition of genuine hardship was not established. - HELD THAT: - Section 220(2A) prescribes three conditions for reduction or waiver of interest: (i) payment would cause genuine hardship, (ii) default was due to circumstances beyond the assessee's control, and (iii) the assessee cooperated in relevant inquiries or recovery proceedings. The Commissioner, on receipt of the assessee's waiver petition, called for and relied upon the assessing officer's report which recorded that as on 31/3/2006 the assessee had a cash balance, substantial debtors, export incentives receivable and significant assets. Those factual findings demonstrated that the assessee had available resources and thus failed to establish the statutory prerequisite of genuine hardship. Although the principle that presence of assets does not automatically negate financial difficulty was noted, the Court found that on the facts here the other resources available to the assessee sufficiently rebutted the claim of genuine hardship. In those circumstances the Commissioner was entitled to reject the waiver petition and the order cannot be characterized as illegal. [Paras 2, 3, 4, 5]

The Commissioner's rejection of the waiver petition under Section 220(2A) is upheld for failure to prove genuine hardship.

Final Conclusion: Writ petition dismissed; Ext.P7 rejecting the application for waiver of interest under Section 220(2A) is maintained.

Allowability of commission under section 37 - application of section 14A - disallowance of expenditure in relation to exempt income - deduction under section 80-IB - treatment of interest income and netting - eligibility of duty drawback for deduction under section 80-IB when refund equals duty paid - allowability under section 43B - employees' contribution to PF & ESI paid before due date - treatment of voluntary disclosure during survey proceedings - remand to Assessing Officer to verify set-off of brought forward loss

Allowability of commission under section 37 - Deletion of disallowance of sales commission except in respect of six transactions where A.O.'s disallowance was confirmed. - HELD THAT: - Tribunal upheld CIT(A)'s factual finding that commission agreements existed and, except for six specified transactions, agents rendered inbound services that materially assisted in maturing sales; payments were evidenced by cheques, recipients were genuine taxpayers, recipients were independent and there was demonstrable increase in sales. For six customers (identified in the CIT(A) order) statements recorded under section 131 showed that customers directly initiated the transactions and there was no evidence that agents induced those customers; accordingly payments in respect of those six transactions were not in accordance with the contract and were held not to be for business purposes. The Tribunal found no basis to apply the Apex Court decision relied upon by revenue given different facts and declined to interfere with the factual conclusions of CIT(A). [Paras 2]

Part disallowance of commission of Rs. 42,81,600/- (in respect of six transactions) confirmed; balance disallowance deleted and appeals on this issue rejected.

Application of section 14A - disallowance of expenditure in relation to exempt income - Disallowance under section 14A in relation to dividend income: deletion of disallowance in respect of interest on funds used for investments in foreign subsidiaries; limited disallowance to be made in respect of dividend from Indian subsidiaries and apportioned administrative expenses. - HELD THAT: - Tribunal accepted that dividend from foreign subsidiaries was taxable and therefore investments in foreign subsidiaries could not trigger section 14A disallowance. With respect to investments in Indian subsidiaries (approx. Rs. 38 crores), the Tribunal noted assessee's large interest-free own funds (as per balance sheet) and absence of any finding by A.O. of a direct nexus between interest-bearing borrowings and those investments; consequently disallowance out of interest expenditure was not sustainable. However, CIT(A)'s direction to make proportionate disallowance from administrative expenses (directors' remuneration, fees and travelling) towards earning dividend income from Indian subsidiaries was upheld; the allocation should be confined to dividend income from Indian subsidiaries. [Paras 3]

Revenue's appeals against deletion of interest-related disallowance rejected; assessee's appeal against proportionate allocation of certain administrative expenses rejected (i.e., CIT(A)'s direction sustained).

Deduction under section 80-IB - treatment of interest income and netting - Interest income on FDRs/ICDs is not income 'derived from industrial undertaking' for section 80-IB; net interest (after expenses directly attributable to earning interest) alone is to be excluded when computing profits for section 80-IB. - HELD THAT: - Tribunal held interest receipts are not income derived from the industrial undertaking and therefore cannot be allowed as part of deduction under section 80-IB. Relying on the reasoning of the Apex Court in ACG Associated Capsules (interpreting netting under Explanation (baa) to section 80HHC), Tribunal applied the same logic to section 80-IB and directed that only net interest (i.e., interest income less expenditure incurred to earn that interest) be reduced from business profits for computing the 80-IB deduction. [Paras 4]

Assessee's primary claim rejected (no 80-IB on interest income); alternative claim allowed for statistical purposes - only net interest to be excluded for computing section 80-IB deduction, with only expenses incurred to earn interest being deductible against interest.

Eligibility of duty drawback for deduction under section 80-IB when refund equals duty paid - Duty drawback that is a refund arithmetically equal (or substantially matching) to customs/excise duty actually paid is eligible to be excluded in computing profits for section 80-IB (i.e., it does not constitute ancillary taxable profit). - HELD THAT: - Tribunal distinguished Liberty India (where drawback/DEPB at AIR had no arithmetic correlation with duty actually paid) and found on facts that the assessee received duty drawback/refund corresponding to actual duty paid (after minor deductions for recoverable wastage). The Tribunal examined section 75 of the Customs Act and the Drawback Rules and accepted that drawback in the present case fell within the category which refunds an amount arithmetically equal to duty actually paid. Following Tribunal precedent (e.g., J K Aluminium) and subsequent Supreme Court guidance on netting receipts and costs, the Tribunal held that such duty drawback is a refund of cost and does not generate profit that is excluded from 'profits derived from industrial undertaking' under section 80-IB. [Paras 5]

Deduction under section 80-IB allowed in respect of duty drawback that represents refund of duty actually paid; revenue's appeals on this point rejected.

Allowability under section 43B - employees' contribution to PF & ESI paid before due date - Employees' contribution to PF & ESI paid before the due date of filing the return is allowable for deduction (not disallowable under section 43B). - HELD THAT: - Tribunal followed earlier tribunal decisions (including assessee's own earlier years) and found that the entire amount of employees' contributions was paid prior to the due date for filing the return; therefore amounts qualify for deduction and are not barred by section 43B. [Paras 6, 13]

Grounds of revenue rejected and assessee's grounds allowed; deductions in respect of PF & ESI contributions allowed.

Treatment of voluntary disclosure during survey proceedings - Voluntary conditional disclosure made during survey, in absence of incriminating material linking the disclosure to undisclosed income, cannot be treated as undisclosed income to be added; voluntary disclosure accepted only under the stated conditions. - HELD THAT: - Tribunal reviewed facts of survey and impounded material (no incriminating documents demonstrating undisclosed income) and relied on tribunal precedent and Supreme Court guidance to hold that the voluntary conditional disclosure (made to avoid long litigation and to cover any errors/omissions) did not constitute taxable undisclosed income where no evidence linked impounded materials to unaccounted income. The Tribunal found acceptance of disclosure by AO without pointing to discrepancies does not convert the disclosure into taxable income. [Paras 15, 16]

Assessee's appeals on conditional disclosure allowed; addition based solely on the post-survey statements was disallowed.

Remand to Assessing Officer to verify set-off of brought forward loss - Matter relating to set-off of Dhuneta unit's loss remanded to Assessing Officer to ascertain quantum already set off in earlier year and balance available for set-off in the relevant year. - HELD THAT: - Tribunal observed that the same loss figure appears in both assessment years and that in the earlier year the ground was not pressed; records did not disclose what portion (if any) of the brought forward loss was set off previously. In absence of clear record, Tribunal set aside CIT(A)'s order and directed AO to determine the actual brought forward loss in AY 2005-06, the amount set off then, and whether any balance remained eligible for set-off in AY 2006-07. [Paras 23]

Revenue's ground allowed for statistical purposes and matter remanded to AO for fresh adjudication on quantification and permissible set-off.

Final Conclusion: Tribunal partly allowed and partly dismissed the cross-appeals: commission disallowance largely deleted except in respect of six transactions; section 14A disallowance largely deleted with limited allocation for Indian dividend income; interest income not deductible under section 80-IB but only net interest to be excluded for computing 80-IB deduction; duty drawback that refunds duty actually paid held eligible for 80-IB computation; PF/ESI contributions paid before return due date allowed; voluntary conditional survey disclosure not treated as undisclosed income; set-off of Dhuneta unit loss remanded to Assessing Officer to verify prior set-off and any balance available.

Preclusion of administrative adjudication pending parallel judicial proceedings - show cause notice and opportunity to file objections - adjudication on merits after personal hearing

Preclusion of administrative adjudication pending parallel judicial proceedings - show cause notice and opportunity to file objections - adjudication on merits after personal hearing - Whether the petitioner is entitled to restraint on the Revenue from proceeding with the show cause notice dated 10.09.2012 while a connected Tax Case (T.C.No.665 of 2011) is pending before the Division Bench, and the manner in which the respondent must proceed. - HELD THAT: - The Court declined to grant the relief sought by the petitioner to restrain the first respondent from proceeding pursuant to the impugned show cause notice. The Court held that the petitioner may raise before the first respondent all objections available in law, including grounds pleaded in the writ petition, and that the first respondent is obliged to consider those objections and pass appropriate orders on merits in accordance with law. The Court directed that the petitioner file its objections by the specified date and that the first respondent afford an opportunity of personal hearing to the authorised representative before passing orders. [Paras 5]

Writ petition dismissed with directions that the petitioner file objections before the first respondent by the stipulated date, and that the first respondent consider those objections and decide the matter on merits after giving a personal hearing.

Final Conclusion: The writ petition is disposed of; no injunction granted against the show cause proceedings and the Revenue is directed to adjudicate the matter on merits after considering the petitioner's objections and granting personal hearing.

Rejection of books of account - acceptance of book results - verifiability of expenditures - written agreement as evidentiary foundation - estimation of income in absence of verifiable books - remand for fresh assessment

Written agreement as evidentiary foundation - acceptance of book results - The orders of the C.I.T.(A) and the I.T.A.T. which accepted the assessee's book result and treated the assessee as entitled to a commission of Rs.3/- per metric ton contrary to the written contract are set aside. - HELD THAT: - The High Court found that both the C.I.T.(A) and the I.T.A.T. ignored the written agreement between the assessee and the company which stipulated that the company would pay Rs.283/- per metric ton inclusive of loading and unloading. The appellate authorities recorded a contrary finding that the assessee retained Rs.3/- per metric ton as commission and paid the balance to truck owners, but that finding is inconsistent with the written contract on record. The Court observed that it is not apparent from the orders below whether they had the benefit of, or relied upon, the letter of the Truck Owners Association dated 1.4.2004 placed on record by the assessee. Because the appellate authorities reached a conclusion contrary to the clear stipulation in the written agreement without resolving the evidentiary position regarding the association letter, their conclusions could not be sustained.

Orders of the C.I.T.(A) dated 11.11.2008 and the I.T.A.T. dated 29.4.2010 are set aside.

Rejection of books of account - verifiability of expenditures - estimation of income in absence of verifiable books - remand for fresh assessment - The matter is remanded to the Assessing Officer for fresh assessment to consider the available materials, including the written agreement and the letter dated 1.4.2004, and to decide on verifiability of receipts and payments and the appropriate basis of assessment. - HELD THAT: - The High Court held that the evidentiary value of the letter dated 1.4.2004 (placed on record by the assessee) was not evaluated by the authorities below and cannot be adjudicated in this appeal. Given the unresolved factual and evidentiary questions - notably whether the assessee merely acted as a commission agent receiving Rs.3/- per metric ton or received Rs.283/- inclusive as per contract, and whether payments to truck owners and other claimed expenses are verifiable - the Court directed that the Assessing Officer should make a fresh assessment after examining all available materials and determining verifiability of the books and claims. The remand contemplates fresh consideration of whether rejection of books and estimation of income at a prescribed percentage was justified on the materials.

Matter remanded to the Assessing Officer for fresh assessment after considering the written agreement, the letter of the Truck Owners Association dated 1.4.2004 and other available materials.

Final Conclusion: The appellate orders upholding the assessee's book result are set aside and the matter is remitted to the Assessing Officer for fresh assessment in light of the written agreement and the other materials on record.

Entitlement of candidates who qualified under superseded regulations - saving clause in delegated legislation - prospective operation of subordinate legislation - delegated legislation and limits of retrospective effect - invalidity of executive clarifications inconsistent with regulations - scope of administrative discretion in invitation of applications

Entitlement of candidates who qualified under superseded regulations - saving clause in delegated legislation - Candidates who had passed the examinations conducted under the Customs House Agents Licensing Regulations, 1984 are entitled to be treated as having passed the examination under the Customs House Agents Licensing Regulations, 2004 and to be considered for grant of licence subject to fulfillment of other eligibility conditions in the 2004 Regulations. - HELD THAT: - The Court held that the opening paragraph of the 2004 Regulations and the proviso to Clause 8(1) of the 2004 Regulations preserve actions already taken under the 1984 Regulations and exempt persons who have already passed the examination from further examination. The procedural schemes of 1984 and 2004 Regulations are substantially similar, and therefore those who cleared the examinations between 1995 and 2003 under the 1984 Regulations did not have their qualifications nullified by enactment of the 2004 Regulations. Consequently, such candidates are eligible for grant of licence subject to meeting the other conditions of Clauses 6 and 9 of the 2004 Regulations.

Candidates who qualified under the 1984 Regulations are not required to re appear and are entitled to consideration for licence under the 2004 Regulations on meeting the prescribed conditions.

Prospective operation of subordinate legislation - delegated legislation and limits of retrospective effect - The 2004 Regulations operate prospectively and do not retrospectively defeat rights accrued under the 1984 Regulations. - HELD THAT: - The Court observed that the Customs Act does not empower the Board to make regulations with retrospective effect and therefore the 2004 Regulations could not be read to annul qualifications already obtained under the 1984 Regulations. The prefatory saving language in the 2004 Regulations corroborates that actions done under the earlier Regulations were intended to be preserved. Hence the 2004 Regulations cannot be applied so as to deprive successful candidates under the 1984 regime of their entitlement.

The 2004 Regulations have prospective effect and do not take away the entitlement of those who had already qualified under the 1984 Regulations.

Invalidity of executive clarifications inconsistent with regulations - scope of administrative discretion in invitation of applications - The Board's Circular dated 10.06.2004 and the Commissioner's decision to treat the 563 applications as not processable (Public Notice / letter disposing applications) are contrary to the proviso to Clause 8 of the 2004 Regulations and the prefatory statement and thus cannot be relied upon to deny licences to successful candidates. - HELD THAT: - The Court found that the Circular and the Commissioner's disposal of pending applications were inconsistent with the clear language of the 2004 Regulations which saved prior actions and exempted persons already passed from further examination. Administrative instructions or actions that conflict with the terms of the regulations cannot defeat the statutory saving and the entitlement of qualified candidates. Further, the notices did not show that the Commissioner had made the assessment of number of licences as contemplated by Clause 4, and therefore the disposal of those applications was not justified.

The Board's clarification and the Commissioner's action disposing the pending applications are contrary to the regulations and cannot be used to deny licences to those qualified under the 1984 Regulations.

Scope of administrative discretion in invitation of applications - The Division Bench was not justified in introducing a concept of vacancies to limit grant of licences to those who had qualified under the 1984 Regulations where the inviting notices did not demonstrate any prior assessment of number of licences. - HELD THAT: - The Court noted that Clauses 4 of both sets of regulations contemplate an assessment by the Commissioner of the number of licences to be granted before inviting applications. The Public Notices relied upon did not indicate any such assessment. Consequently, the Division Bench erred in importing a vacancies criterion and restricting grant of licences to only those who could be accommodated within such an inferred cadre; the absence of demonstrable assessment meant the concept of vacancies could not be invoked to curtail the entitlement of successful candidates.

The Division Bench's modification introducing vacancies as a limiting criterion was erroneous and unjustified.

Final Conclusion: The Single Judge's order directing grant of licences to appellants who had qualified under the 1984 Regulations (subject to meeting the conditions in Clauses 6 and 9 of the 2004 Regulations) is restored; the Division Bench's contrary modification is set aside, and the administrative circular and disposal of pending applications cannot be used to deny the appellants' entitlement.

Provisional assessment - demand under Section 28 of the Customs Act, 1962 - remand for finalization of provisional assessment - utilisation of DEPB licence and Release Advice - confiscation under Section 111(o) of the Customs Act, 1962 - penalty under Section 114A of the Customs Act, 1962 - principles of natural justice

Provisional assessment - demand under Section 28 of the Customs Act, 1962 - remand for finalization of provisional assessment - utilisation of DEPB licence and Release Advice - principles of natural justice - Whether a demand for duty under Section 28 can be raised before provisional Bills of Entry are finalized and whether the matter should be remitted for finalisation of provisional assessment and reconsideration of the claim to exemption. - HELD THAT: - The Tribunal found it is undisputed that the Bills of Entry were provisionally assessed and that the Show Cause Notice for recovery of duty under Section 28 was issued prior to finalisation of those provisional assessments. Applying the principle that an assessment which is provisional remains provisional for all purposes, as recognised in the cited authority, the Tribunal held that a demand under Section 28 will not arise until the provisional assessment is finalised. The Tribunal therefore did not decide the merits of the question whether the DEPB licence/Release Advice was forged or whether confiscation or penalties were warranted; instead, keeping all such issues open, it remanded the matter to the adjudicating authority to first finalise the provisional assessments, to reconsider the claim for exemption and related contentions, and to follow the principles of natural justice in reaching any fresh conclusion. [Paras 10, 11, 12, 13, 14]

Matter remanded to the adjudicating authority to finalise the provisional Bills of Entry and to reconsider the demand and related issues afresh, observing principles of natural justice; impugned order set aside.

Final Conclusion: The Tribunal set aside the impugned order and remitted the case to the adjudicating authority to finalise the provisional assessment(s) and to reconsider the appellant's claim to exemption and other connected issues afresh, keeping all substantive points open and requiring observance of natural justice.

Classification of goods for drawback - Finished leather vs. residual 'others' category - Weight of expert opinion of Central Leather Research Institute (CLRI) - Remand for clarification and fresh adjudication

Classification of goods for drawback - Finished leather vs. residual 'others' category - Customs Drawback schedule interpretation - Whether the exported 'buffalo sole leather' was correctly classified under sub heading 410709 as 'others' or whether it falls within sub heading 410701 as finished leather, and the appropriate remedial direction. - HELD THAT: - The Government found that the lower authorities classified the goods under the residual sub heading 410709 on the basis of the shed appraiser's report and an assumption regarding the number of processing stages, without citing specific authority. The expert opinion of CLRI, an established government expert body in matters relating to leather, had stated that the impugned goods meet the definition of finished leather under the DGFT Public Notice and undergo sixteen operations over 45 days. The Government noted that departmental practice has often involved referring classification disputes to expert bodies like CLRI and that the appellate authority's dismissal of CLRI's opinion as limited to exportability (and not relevant to drawback eligibility) was not logical in the absence of contrary documentary evidence. Where the department harbours reservations about an expert opinion favourable to the exporter, the proper course is to seek specific clarification from the expert body on the contested points rather than rejecting the opinion outright. On these grounds, the Government set aside the impugned orders and remanded the matter to the original authority to obtain specific clarification from CLRI if disagreement persists, and to decide the classification after affording both parties a reasonable opportunity of hearing. [Paras 9, 10, 11]

Impugned orders set aside; matter remanded to the original authority to seek specific clarification from CLRI if required and to decide classification after affording reasonable hearing to both parties.

Final Conclusion: The Central Government allowed the revision in part by setting aside the Orders in Original and Orders in Appeal and remanding the classification dispute for fresh adjudication, directing the original authority to obtain specific clarification from CLRI if necessary and to afford both parties a hearing before deciding whether the exported buffalo sole leather falls under sub heading 410701 or 410709.

Principles of natural justice - disclosure of evidence at show cause stage - use of investigative agency reports by adjudicating authority - right to inspect or obtain investigative agency's internal communications - inter-departmental/internal correspondence confidentiality - Target Plus Scheme - eligibility for duty credit benefit

Principles of natural justice - disclosure of evidence at show cause stage - use of investigative agency reports by adjudicating authority - Whether denial of copies of internal DRI communications to the petitioner violated principles of natural justice and required quashing of the communication refusing disclosure. - HELD THAT: - The show cause notice and the demand were founded on information obtained by DRI from the petitioner's bankers. Copies of the bank communication dated 7-12-2010 and its annexures, which contained the relevant bank realisation details relied upon by the authority, were furnished to the petitioner. Where the adjudicating authority has relied upon material obtained from an investigating agency, the petitioner is not automatically entitled as of right to internal inter-departmental communications of the investigating agency at the stage of a show cause notice. Disclosure of internal correspondence between an investigating agency and the adjudicating authority may be withheld where such communications are internal and their disclosure would impede the investigative process; this discretion is not arbitrary where the substantive records relied upon (here, bank records) have been supplied. The decision in Kothari Filaments was distinguished on facts since in that case the overseas enquiry was unverified and disclosure had been denied despite reliance; by contrast, in the present case the primary bank records relied upon were provided to the petitioner. Applying these principles, denial of the internal DRI communications did not constitute a violation of natural justice. [Paras 8, 9]

The refusal to furnish internal DRI communications was justified and did not violate principles of natural justice, since the relevant bank records forming the basis of the show cause notice were furnished to the petitioner.

Final Conclusion: Writ petition dismissed; impugned communication refusing disclosure of internal DRI records upheld, petitioner granted 15 days to file reply to the show cause notice.

Scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956 - dispensation of convening meetings of equity shareholders - dispensation of convening meetings of secured creditors - dispensation of convening meetings of unsecured creditors - consents / NoC as substitute for convened meeting - certificate by chartered accountant evidencing absence or payment of secured creditors - board approval of scheme

Dispensation of convening meetings of equity shareholders - consents / NoC as substitute for convened meeting - Meeting of the equity shareholders of the applicant companies dispensed with - HELD THAT: - The Court examined the consent letters/NoC's placed on record by the applicant companies and, in light of those consents, dispensed with the requirement to convene meetings of the equity shareholders in relation to the proposed scheme of amalgamation. The board resolutions approving the scheme and the consents were treated as sufficient compliance to justify dispensation of shareholder meetings.

Dispensation of the requirement to convene meetings of the equity shareholders of the applicant companies granted.

Dispensation of convening meetings of secured creditors - consents / NoC as substitute for convened meeting - Meeting of the secured creditor of Transferor Company 1 dispensed with - HELD THAT: - Transferor Company 1 produced the consent/NoC of its sole secured creditor. Having regard to that consent, the Court dispensed with convening a meeting of the secured creditors of Transferor Company 1.

Dispensation of the requirement to convene meeting of the secured creditor of Transferor Company 1 granted.

Certificate by chartered accountant evidencing absence or payment of secured creditors - dispensation of convening meetings of secured creditors - No meeting of secured creditors required for Transferor Company 2 and Transferee Company - HELD THAT: - A chartered accountant's certificate was produced in respect of Transferor Company 2 certifying that it has no secured creditors; accordingly no meeting is required. For the Transferee Company, a chartered accountant's certificate evidencing that the two secured creditors have been paid off was placed on record; accordingly no meeting of its secured creditors is required.

No meetings of secured creditors required for Transferor Company 2 and Transferee Company.

Dispensation of convening meetings of unsecured creditors - consents / NoC as substitute for convened meeting - Meeting of the unsecured creditors of Transferor Company 1 dispensed with - HELD THAT: - Transferor Company 1 demonstrated that a substantial majority of its unsecured creditors have either been paid off or have given consent to the scheme; the company's counsel quantified this in the application and relied on the consents and payments to justify dispensing with a convened meeting. The Court accepted these submissions and dispensed with the meeting of unsecured creditors of Transferor Company 1.

Dispensation of the requirement to convene meeting of unsecured creditors of Transferor Company 1 granted.

Dispensation of convening meetings of unsecured creditors - consents / NoC as substitute for convened meeting - Meeting of the unsecured creditors of Transferor Company 2 dispensed with - HELD THAT: - Transferor Company 2 placed consent letters/NoC's of its three unsecured creditors on record. On that basis the Court dispensed with the requirement to convene a meeting of its unsecured creditors.

Dispensation of the requirement to convene meeting of unsecured creditors of Transferor Company 2 granted.

Dispensation of convening meetings of unsecured creditors - consents / NoC as substitute for convened meeting - Meeting of the unsecured creditors of the Transferee Company dispensed with - HELD THAT: - The Transferee Company showed that the majority of its unsecured creditors have either been paid off or have given consent to the scheme; consents and payments were placed on record. The Court accepted these materials and dispensed with convening a meeting of the unsecured creditors of the Transferee Company.

Dispensation of the requirement to convene meeting of unsecured creditors of the Transferee Company granted.

Scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956 - board approval of scheme - First motion application under sections 391-394 allowed in respect of convening meetings and related procedural dispensation - HELD THAT: - The Court recorded that the board resolutions approving the proposed scheme, the memorandum and articles, the audited and provisional balance sheets, and the various consents/chartered accountant certificates were placed on record. In view of the materials and consents, the Court allowed the first motion application insofar as it sought dispensation of the requirement to convene the specified meetings and related procedural reliefs.

First motion application under sections 391-394 allowed in the terms recorded in the order.

Final Conclusion: The Court, on the materials filed (board resolutions, consents/NoC's and chartered accountant certificates), dispensed with convening the meetings of equity shareholders, secured creditors and unsecured creditors of the applicant companies as specified and allowed the first motion application under sections 391-394 of the Companies Act, 1956.

Oppression and mismanagement - just and equitable winding up - purchase of shares as a remedy under section 402 - company treated as quasi-partnership / piercing the veil to apply partnership principles - maintainability of petition by a majority shareholder under sections 397/398

Maintainability of petition by a majority shareholder under sections 397/398 - The respondent, though a majority shareholder, was entitled to maintain a petition under sections 397 and 398. - HELD THAT: - The Court examined the scheme of sections 397, 398 and 399 and held that there is no prohibition in section 397/398 against a majority shareholder seeking relief for oppression or mismanagement. Section 399 prescribes the quantitative threshold for presenting a petition; if that threshold is satisfied the member has a statutory right to apply. A majority shareholder alleging oppression may in effect become an "artificial minority" for the purpose of the remedy. The judgments relied upon do not mandate that only a numerical minority may invoke sections 397/398, and therefore the Company Law Board correctly entertained the petition filed by the respondent.

Petition under sections 397/398 was maintainable by the respondent despite its majority shareholding.

Company treated as quasi-partnership / piercing the veil to apply partnership principles - The principles applicable to partnerships were attracted to the factual structure of the company and the Company Law Board rightly treated the company as a 'glorified partnership' for the purposes of relief. - HELD THAT: - Having considered the nature of the parties' dealings - initial technical collaboration, payment of know-how fees, a shareholders' 'partnership' agreement and the real conduct of business - the Court concluded that the company's apparent corporate form masked a relationship resembling a partnership. Relying on authority that permits applying partnership dissolution principles where the real structure is a partnership, the Court found sufficient material on record to uphold the Company Law Board's conclusion that partnership principles were applicable and that the corporate veil could be pierced for remedial purposes.

The Company Law Board's finding that partnership principles applied was justified and sustainable on the facts.

Oppression and mismanagement - just and equitable winding up - purchase of shares as a remedy under section 402 - Sufficient facts of oppressive conduct and a breakdown in the relationship were found, and the Company Law Board's direction that the appellant sell its shares to the respondent (purchase by the company on fair value to be determined) was appropriate and warranted. - HELD THAT: - The Court reviewed the correspondence and conduct of the parties, concluding there was continuous, linked conduct by the appellant that was harsh, burdensome and wrongful: competing with the company, exerting pressure to favour a competitor, asserting termination of collaborative rights and threatening to re-establish competing operations. Such conduct, in the factual matrix, amounted to oppression and created a situation where the company could not be run effectively. While the facts justified winding up on just and equitable grounds, winding up would be prejudicial; accordingly the discretionary remedial power under section 402 to order purchase of shares was properly exercised by the Company Law Board. The finding that the minority (appellant) with veto-like protections was acting to the detriment of the majority supported directing a buy-out on fair value.

Findings of oppression and mismanagement were sustained and the order directing purchase of the appellant's shares on fair market value was upheld.

Final Conclusion: The appeal is dismissed. The High Court upheld the Company Law Board's conclusions that the petition was maintainable notwithstanding the respondent's majority shareholding, that the company's factual structure attracted partnership principles, and that the established oppressive conduct justified directing purchase of the appellant's shares as the appropriate remedy.

Verification of accounts by departmental audit team - service tax demand based on accrual-based income declarations - burden of proof for cenvat credit on the assessee - imposition of penalty for suppression under section 78 - adjustment of excess tax and Rule 6(3) of Service Tax Rules, 1994

Verification of accounts by departmental audit team - service tax demand based on accrual-based income declarations - Validity of the departmental verification and the reduction of the original inflated demand to the figure confirmed by the Commissioner - HELD THAT: - The Tribunal found that the show-cause notice was originally framed on figures taken from income-tax returns which reflected accrual-based income. The assessee admitted discrepancies between declared service charges and actual receipts and submitted a year-wise worksheet quantifying a lesser liability. The Commissioner deputed an audit team which inspected invoices, cash books, bank books, sales registers, client ledgers and other financial records and prepared a verification report reconciling actual monthly receipts with ST-3 returns; further verification was carried out after representations by the assessee. The Revenue's challenge alleging inadequate verification was bald and unsupported; there was no material to show that the deputed officers failed in their task or that the Commissioner himself needed to re-do the verification. Consequently the Tribunal upheld the Commissioner's computation and rejected the department's appeal. [Paras 8]

The departmental appeal against the Commissioner's verification and computation is rejected and the Commissioner's quantified demand is upheld.

Burden of proof for cenvat credit on the assessee - adjustment of excess tax and Rule 6(3) of Service Tax Rules, 1994 - Claim for additional cenvat credit and permissibility of adjustments claimed by the assessee - HELD THAT: - The Tribunal noted that the burden to substantiate entitlement to cenvat credit lies on the assessee and that the Commissioner allowed credit where supporting documents were found satisfactory by the verification team. The audit report also observed that certain excess payments adjusted by the assessee did not comply with the requirements of Rule 6(3) because the tax collected was not returned to the service recipient nor were details furnished in ST-3 returns, rendering such adjustments impermissible. The appellant's further claim for about Rs.4 lakhs of cenvat credit was not sustained on the record and the plea that omissions arose from software crash was not convincing. [Paras 8, 9]

The appellant's claim for additional cenvat credit is rejected and the Commissioner's disallowance is confirmed.

Imposition of penalty for suppression under section 78 - Validity of the demand of service tax of Rs. 18,20,057/- along with interest and imposition of penalty under section 78 - HELD THAT: - The Tribunal recorded that the assessee had not furnished correct service charges in returns and that the admitted shortfall was quantified and verified by the Commissioner's audit team. The Commissioner imposed penalty under the Act for suppression or concealment and offered the statutory option of concessional payment. The Tribunal found the explanation of software crash and other defenses unconvincing and noted instances where collected service tax had not been remitted. On those findings the confirmation of the demand, interest and penalty by the Commissioner was held to be justified. [Paras 9, 10]

The Commissioner's confirmation of the service tax demand, interest and the penalty is upheld and the appellant's challenge is dismissed.

Final Conclusion: Both the assessee's appeal and the departmental appeal are dismissed; the Commissioner's order confirming the quantified service tax liability, interest and penalty and disallowing the additional cenvat claim is upheld, and the connected cross-objection is dismissed as withdrawn.

Rent-a-Cab Service - Tour Operator's Service - Prima facie case - Pre-deposit for stay of demand - Waiver of pre-deposit and stay of recovery of penalties

Rent-a-Cab Service - Tour Operator's Service - Prima facie case - Classification of the appellant's chartered-bus activity as 'Rent-a-Cab Service' rather than 'Tour Operator's Service' was not successfully challenged and no prima facie case was established for the appellant. - HELD THAT: - The Tribunal examined whether the activity of chartering buses on specified routes for short periods constituted 'Tour Operator's Service' as held in the Bench's earlier Final Order dated 14-12-2011 for other Commissionerates. The Bench noted that the relevant definition of 'tour operator' requires features such as planning, scheduling, organising or arranging tours, which are prima facie absent in the appellant's case where buses were chartered under contract carriage permits and operated by the owner (KSRTC) on specified routes. The earlier decision relied upon was distinguishable because in that case buses ran on pre-determined routes in scheduled hours and the operators undertook organising/arranging tours. On the facts before it, the appellant did not make out a prima facie case to treat the activity as 'Tour Operator's Service' and to repel the demand classified as 'Rent-a-Cab Service'. [Paras 3]

The appellant has not succeeded in establishing a prima facie case that the activity is 'Tour Operator's Service'; the demand under 'Rent-a-Cab Service' stands prima facie.

Pre-deposit for stay of demand - Waiver of pre-deposit and stay of recovery of penalties - Whether waiver of pre-deposit and stay of recovery should be granted and the quantum of pre-deposit to be directed. - HELD THAT: - Having found that the appellant failed to make out a prima facie case and that the plea of financial hardship was unsubstantiated, the Tribunal exercised its discretion under the appellate regime to order a limited pre-deposit. The Tribunal directed the appellant to pre-deposit a specified portion of the service tax demand within a stipulated period and ordered that, subject to such compliance, the penalties and the balance of the service tax demand would be stayed and the waiver of pre-deposit as to penalties and the remaining tax would apply. [Paras 4]

Appellant directed to pre-deposit the specified amount within six weeks; on compliance, penalties and the balance of service tax demand shall be stayed.

Final Conclusion: Applications for waiver of pre-deposit and stay of recovery were refused in part: appellant failed to establish a prima facie case that the activity was 'Tour Operator's Service' and was directed to make a limited pre-deposit for the period January 2007 to December 2009, subject to which penalties and the balance demand are stayed.

Double taxation - value of services - Cenvat credit and set-off of service tax paid by an intermediary - remand for factual verification of tax payment and equivalence of amounts

Waiver of pre-deposit - proceeding with appeal on merits - Requirement of pre-deposit of dues was waived and the Tribunal proceeded to decide the appeal on merits. - HELD THAT: - The Tribunal noted that the issue raised in the appeal had already been decided in favour of appellants by the Tribunal in earlier decisions and, on that basis, the requirement of pre-deposit of dues was waived so that the appeal could be heard on its merits. The court therefore admitted and decided the appeal without insisting on the pre-deposit. [Paras 1]

Pre-deposit requirement waived; appeal admitted and heard on merits.

Double taxation - value of services - Cenvat credit and set-off of service tax paid by an intermediary - remand for factual verification of tax payment and equivalence of amounts - Whether turnover/transaction charges collected by the appellants from customers should be included in the value of services rendered by them, and whether tax already paid by MCX on those charges precludes charging service tax again on the same amounts. - HELD THAT: - The Tribunal applied the principle that service tax is not intended to be a multiple taxation and that where the same taxable event has been subjected to service tax by an intermediary, the ultimate service provider may be entitled to set off or not be doubly taxed, subject to establishment of identity and integrity of the transactions and verification of evidence. The Tribunal held that this principle is applicable to the present case but that factual inquiry is required to determine whether the amounts collected by the appellants correspond exactly to amounts on which MCX has paid service tax and whether documentary proof supports the appellants' contention. Consequently, the matter was remanded to the adjudicating authority for verification of facts and for the appellants to produce the documents on which they rely. [Paras 4, 5]

Legal principle against double taxation accepted; remanded to original authority for factual verification of equivalence of amounts and proof of tax payment by MCX.

Final Conclusion: The Tribunal waived the pre-deposit and heard the appeal; it accepted the legal principle that the same taxable service should not be doubly taxed and directed remand to the adjudicating authority to verify whether the amounts collected by the appellants correspond to amounts on which MCX has already paid service tax and to consider the appellants' documentary evidence.

Manufacture - job worker - recovery of duty on articles of apparel manufactured on job work - liability to pay duty cast on person who gets goods produced on his account on job work - exemption for articles of apparel manufactured from material supplied by the customer for personal use - deviation from the general rule that manufacturer pays duty

Manufacture - job worker - liability to pay duty cast on person who gets goods produced on his account on job work - exemption for articles of apparel manufactured from material supplied by the customer for personal use - Whether respondents were liable to pay excise duty on garments stitched by them from fabric supplied by customers (either bought from respondents or brought from outside). - HELD THAT: - The Court examined Rule 7AA (and its successor provisions, Rule 4(1) and 4(3)) and Notification No. 7/2003-C.E. The rules place responsibility for duty on the person who gets goods produced on job work on his account, permitting that person to authorise the job worker to pay duty on his behalf; they do not by their terms make the job-worker automatically the person liable in every case. Notification No. 7/2003-C.E. exempts apparel or clothing accessories knitted or stitched by a tailor from material supplied by the customer for the personal use of the customer. Applying the notification, tailoring establishments that stitch garments in a customised manner from customer-supplied fabric are exempt from excise duty. In the present facts the customers supplied the already purchased fabric for stitching; consequently the tailoring activity falls within the exemption. The Tribunal correctly construed Rule 7AA and its successors and correctly concluded that duty liability had not been cast on the respondent in these circumstances. The Court also rejected the departmental reasoning that provision of buttons, threads or labels or handing over material to others converted the respondent into the manufacturer, noting no material showed the respondent undertook part of the manufacturing process as contemplated by the definition of "job worker" in the rules. [Paras 6, 7, 10, 11, 12]

Respondents are not liable to pay excise duty on garments stitched from fabric supplied by customers; the exemption in Notification No. 7/2003-C.E. applies and the appeal is dismissed.

Final Conclusion: The appeal is dismissed; garments stitched by the respondents from fabric supplied by customers are exempt from excise duty under Notification No. 7/2003-C.E., and the Tribunal's conclusion that respondents are not liable is upheld.

Manufactured goods - Marketability - Classification of refinery gas - Board Circular No.246/80/96-CX - Demand of duty and penalty

Classification of refinery gas - Manufactured goods - Marketability - Board Circular No.246/80/96-CX - Demand of duty and penalty - Whether the demand of duty and imposition of penalty in respect of refinery gas used for generation of electricity (including supply to township) can be sustained on the basis that such gas is a manufactured or marketable product. - HELD THAT: - On the facts, refinery gas which earlier was flared is being utilized within the refinery for generation of steam and power and a portion of that power is consumed in the township. The Tribunal noted earlier decisions including the appellant's own case and Bongaigaon Refinery & Petrochem Ltd. where appeals on similar facts were allowed. The Board in Circular No.246/80/96-CX had treated the impugned refinery gas as not being a manufactured product and consequently deleted it from the list of exempted goods. Having regard to that conclusion and the fact that the gas is not marketed (it was earlier flared and is used for pollution control/internal consumption), the Tribunal held that the gas cannot be treated as marketable or as a manufactured product for attracting duty. On that basis the demand and penalty confirmed by the Commissioner were found unsustainable. [Paras 5, 6]

The Commissioner's order confirming the demand and penalty is set aside and the appeal is allowed with consequential relief.

Final Conclusion: Appeal allowed; order-in-original confirming demand and penalty set aside in view of prior Tribunal decisions and the Board's classification that refinery gas is not a manufactured or marketable product.

Cenvat credit - input service - activity related to business - welfare activity - limitation

Cenvat credit - input service - Entitlement to Cenvat credit in respect of outdoor catering service to the factory canteen to the extent cost of the service is recovered from workers. - HELD THAT: - The Tribunal accepted that outdoor catering service may fall within the definition of "input service" in view of the Larger Bench decision in GTC Industries Ltd., and Board Circular No.120/1/2010-ST, but held that where part of the cost of providing the canteen facility has been recovered from the workers, that portion of the service is not eligible for Cenvat credit. The appellate facts show recovery from workers (as recorded by the adjudicating authority), and therefore credit cannot be allowed to that extent. The question of overall entitlement beyond the recovered portion requires factual examination at final hearing. [Paras 5]

Cenvat credit disallowed to the extent the cost of canteen/outdoor catering has been recovered from the workers; entitlement beyond that is to be examined at final hearing.

Activity related to business - welfare activity - Whether provision of canteen facility by the appellant (when not statutorily required) is a welfare activity excluding it from "activity related to business", or an activity essential for improving worker productivity and thus eligible as input service. - HELD THAT: - The Tribunal observed that since the factory has fewer than 250 workers and there is no statutory obligation to provide canteen facilities, there arises a live question whether the service is a welfare activity (not eligible) or an activity aimed at increasing productivity (which may qualify as an "activity related to business"). The characterisation depends on facts such as factory location, shifts and attendant circumstances. These factual aspects were not finally adjudicated and therefore must be considered at the stage of final hearing. [Paras 5]

Remanded for fresh consideration at final hearing whether the canteen/service is a welfare activity or an activity related to business.

Limitation - Applicability of extended limitation period and correctness of invoking longer limitation and penalty for allegedly wrongly availed credit. - HELD THAT: - The Tribunal noted the appellant's plea that a substantial part of the demand is time-barred and that conflicting decisions existed when credit was availed. It treated limitation as a mixed question of fact and law that cannot be resolved on the interim application and requires detailed examination during final hearing. [Paras 5]

Limitation and related question of penalty remitted for adjudication at final hearing.

Final Conclusion: Interim relief partly granted: appellant directed to deposit 50% of the Cenvat credit demand within four weeks; on such deposit the balance pre-deposit requirement (credit, interest and penalty) is waived and recovery stayed pending disposal of the appeal; substantive questions of entitlement, characterisation as welfare or business activity, and limitation are to be examined at final hearing.

Cenvat credit of input services - Input service - Place of removal - Job-work / principal-manufacturer relationship - Rule 3(xi)(ii) of Cenvat Credit Rules, 2004

Cenvat credit of input services - Input service - Place of removal - Rule 3(xi)(ii) of Cenvat Credit Rules, 2004 - Outward transportation of manufactured goods to the depots of the principal manufacturer constitutes an input service and is eligible for cenvat credit where it is used in relation to the manufacture and clearance of final products up to the place of removal. - HELD THAT: - The Court examined the definition of input service which includes services used by the manufacturer in or in relation to the manufacture and clearance of final products from the place of removal, and Rule 3 which allows the manufacturer to take cenvat credit of input services. Applying these provisions, the Court held that outward transportation up to the place of removal falls within the ambit of input services. The Tribunal found that where the job-work arrangement and conduct of parties show that the manufactured goods were required to be delivered to the principal's depots as the place of removal, transportation to those depots is an input service eligible for credit. The Tribunal therefore concluded that service tax paid on such outward transportation could be availed as cenvat credit under the Rules. [Paras 9, 10, 11]

Outward transportation to the principal's depots is an input service and eligible for cenvat credit.

Job-work / principal-manufacturer relationship - Cenvat credit of input services - The appellant, a job-worker authorized and contractually obliged by the principal manufacturer to manufacture, pack and deliver biscuits to the principal's depots, was entitled to avail cenvat credit of service tax paid on outward transportation supported by authorization and payment records. - HELD THAT: - The Tribunal reviewed the contractual authorization from the principal manufacturer and the terms of the job-work agreement which required the appellant to deliver finished goods to specified depots. The Court accepted the appellant's documentary evidence, including the authorization letter and TR-6 payment forms for service tax, as demonstrating that the transportation services were procured in connection with clearance to the place of removal directed by the principal. On that factual and documentary basis the Tribunal held that the appellant rightly availed cenvat credit and that the authorities erred in denying credit. [Paras 3, 6, 11, 12]

The appellant was entitled to the cenvat credit claimed; the denial by lower authorities was unsustainable.

Final Conclusion: The appeal is allowed; the impugned appellate and adjudication orders denying cenvat credit of service tax on outward transportation are set aside and the appellant's claim for credit is upheld.

Recall of ex parte order - restoration of stay petition - waiver of pre-deposit - stay of recovery during pendency of appeal - classification of sugar syrup as intermediate product - exemption of inputs used in manufacture of exempted goods - issuance of Notification under section 11C of the Central Excise Act

Recall of ex parte order - restoration of stay petition - Ex parte dismissal of the stay petition was recalled and the stay petition restored to its original number. - HELD THAT: - The applicants' representative arrived late on the date of hearing and, as explained by the applicants, the stay petition was dismissed in their absence. The Tribunal accepted the explanation for non appearance, recalled the ex parte order which had dismissed the stay petition, and restored the stay petition to its original number.

Ex parte order dismissing the stay petition recalled and stay petition restored.

Waiver of pre-deposit - stay of recovery during pendency of appeal - classification of sugar syrup as intermediate product - exemption of inputs used in manufacture of exempted goods - issuance of Notification under section 11C of the Central Excise Act - Pre deposit was waived and recovery stayed in appeals where demand related to sugar syrup used in manufacture of exempted biscuits. - HELD THAT: - The demands arise from classification and liability in respect of sugar syrup used in manufacture of exempted biscuits. The Tribunal noted that the biscuit manufacturers' association had sought relief from the Government and that the Revenue had floated surveys regarding issuance of a Notification under section 11C of the Central Excise Act for the earlier period. Relying on the Tribunal's earlier decision in M/s Ajmer Food Products P. Ltd., and having regard to the pending governmental survey and representations, the Tribunal found that the applicants have a prima facie case warranting relief. Consequently, the Tribunal waived the requirement of pre deposit of dues and stayed recovery during the pendency of the appeals.

Pre deposit waived and recovery stayed during pendency of the appeals.

Final Conclusion: The Tribunal recalled an ex parte dismissal and restored the stay petition; it also waived pre deposit and stayed recovery of the demands concerning sugar syrup used in manufacture of exempted biscuits pending the appeals, having regard to pending governmental surveys and the Tribunal's earlier decision in M/s Ajmer Food Products P. Ltd.

Appeal to the Supreme Court - subject to the provisions of Section 31 - leave to appeal - appeal as of right - point of law of general public importance - certificate by the Tribunal - jurisdiction to punish for contempt

Appeal to the Supreme Court - subject to the provisions of Section 31 - leave to appeal - An appeal under Section 30(1) of the Armed Forces Tribunal Act, 2007 is not a vested or absolute right and is available only in accordance with the provisions of Section 31. - HELD THAT: - Section 30(1) commences with the expression 'subject to the provisions of Section 31', which, by ordinary grammatical and legal meaning, conditions the right of appeal on compliance with Section 31. Section 31(1) requires leave to appeal and mandates that the Tribunal shall not grant such leave unless it certifies that a point of law of general public importance is involved; alternatively, leave may be granted by the Supreme Court where it appears the point ought to be considered by that Court. A conjoint reading of Sections 30 and 31 thus shows that, except where Section 30(2) applies, there is no independent, indefeasible right to appeal directly to the Supreme Court against a final order of the Tribunal. To interpret Section 30 as conferring an unfettered right of appeal would render Section 31 redundant, contrary to the rule that legislative words are not to be treated as surplusage. [Paras 3, 4, 6, 11]

Section 30(1) is subordinate to Section 31; appeals under Section 30(1) are maintainable only in the manner provided by Section 31.

Appeal as of right - jurisdiction to punish for contempt - Orders or decisions of the Tribunal made in exercise of its jurisdiction to punish for contempt are appealable to the Supreme Court as of right under Section 30(2). - HELD THAT: - Section 30(2) expressly provides that an appeal shall lie to the Supreme Court as of right from any order or decision of the Tribunal in the exercise of its jurisdiction to punish for contempt, subject to a sixty-day limitation. Parliament has thereby distinguished between contempt jurisdiction (appealable as of right) and other final orders (appealable only under Section 31). The appeals before the Court were not contempt appeals and therefore did not fall within Section 30(2). [Paras 3, 6]

Only Tribunal orders in exercise of contempt jurisdiction are appealable as of right under Section 30(2); other final orders are governed by Section 31.

Certificate by the Tribunal - point of law of general public importance - leave to appeal - An application for leave to appeal to the Supreme Court under Section 31 must ordinarily begin before the Tribunal for a certificate; only upon refusal may the aggrieved party apply to the Supreme Court for leave within the period prescribed by Section 31(2). - HELD THAT: - Section 31(2) prescribes time limits for making applications both to the Tribunal for leave and to the Supreme Court for leave, the latter period running from the date on which the Tribunal refuses the application for leave. This scheme indicates the legislative intent that an aggrieved party should first seek a certificate from the Tribunal that a 'point of law of general public importance' is involved; only if the Tribunal refuses may the party seek leave of the Supreme Court. The statutory scheme thus precludes a direct initial approach to the Supreme Court for leave without first invoking the Tribunal's certificate procedure. [Paras 7]

The statutory scheme requires seeking the Tribunal's certificate before approaching the Supreme Court for leave; a direct first approach to the Supreme Court is not contemplated by Section 31.

Leave to appeal - appeal shall be treated as pending - Applications for certificate or leave are treated as pending under Section 31(3); an application for certificate may be made orally and the Court may treat the time for application as having commenced from the date of the present order for the purpose of limitation. - HELD THAT: - Section 31(3) deems an appeal to be pending until the application for leave is disposed of, and treats an application for leave as disposed of on expiry of the prescribed time if not made. Section 31(3) therefore accommodates urgent situations by treating the application as pending once made and by permitting prompt refusal by the Tribunal; further, an application for certificate can be made orally. In the present case the Court exercised its power to relieve the appellants of any prejudice by directing that the period of limitation for making an application for leave by certificate shall start from the date of this order. [Paras 17, 18]

An application for certificate may be made orally and is treated as pending once made; the Court directed that limitation for seeking certificate shall run from the date of this order.

Final Conclusion: The appeals are dismissed. An appeal under Section 30(1) is maintainable only in the manner provided by Section 31 (save for contempt appeals under Section 30(2) which are appealable as of right). Liberty is reserved to the appellants to seek relief under Section 31, and the period of limitation for making an application for leave by certificate is directed to commence from the date of this order.

Tribunal akin to a court / judicial character of Tribunal - consultation with High Court for appointment to judicial office - qualifications for President of Revenue Tribunal - rule-making power to prescribe qualifications for Tribunal members - meaning and scope of "judicial office"

Tribunal akin to a court / judicial character of Tribunal - meaning and scope of "judicial office" - Whether the Gujarat Revenue Tribunal is to be regarded as akin to a court for the purposes of appointing its President and whether its functions attract supervisory/revisional jurisdiction of the High Court. - HELD THAT: - The Court examined the statutory scheme of the Act, 1957 and numerous statutes conferring appellate, revisional and court-like powers on the Tribunal, including powers modelled on the CPC, Cr.P.C. and provisions deeming its proceedings "judicial proceedings". Applying established authorities distinguishing courts and tribunals, the Court held that the terms are not interchangeable but that a tribunal which exercises definitive judicial functions in the exercise of sovereign judicial power and is amenable to appellate or revisional jurisdiction of the High Court may be regarded as akin to a court. Having regard to the powers, procedures and statutory bars on other fora, and the conceded position that the High Court could exercise supervisory control under Article 227, the Tribunal in the present statutory matrix was held to perform functions akin to a court and to attract the relevant consultative safeguards applicable to judicial offices. [Paras 9, 13, 26, 27]

The Tribunal is akin to a court for the purposes of appointment of its President, because it performs definitive judicial functions and is subject to the High Court's supervisory/revisional jurisdiction.

Consultation with High Court for appointment to judicial office - qualifications for President of Revenue Tribunal - rule-making power to prescribe qualifications for Tribunal members - Validity of Rule 3(1)(iii)(a) of the Gujarat Revenue Tribunal Rules, 1982 insofar as it permits appointment of the Secretary to the Government as President of the Tribunal without effective consultation with the High Court. - HELD THAT: - The Court considered the constitutional requirement and the object of consultation: it must be meaningful, conscious and effective, not a mere formality. Given the Tribunal's court-like character and the need for appointments to judicial offices to be made after meaningful consultation with the High Court, a provision that enables appointment of an executive/administrative Secretary to preside over such a body without the requisite consultative process was vulnerable. The High Court had struck down Rule 3(1)(iii)(a) on the ground that the President must be a judicial officer and that appointment requires High Court concurrence; the Supreme Court found no reason to take a contrary view, affirmed the High Court's conclusion and dismissed the appeal. [Paras 21, 27, 28, 30]

Rule 3(1)(iii)(a) insofar as it permitted appointment of the Secretary to the Government as President without the meaningful consultation/concurrence of the High Court is not tenable; the High Court's order striking down the provision is upheld and the appeal is dismissed.

Final Conclusion: The High Court's conclusion that the Gujarat Revenue Tribunal is akin to a court for the purposes of appointment to its President and that Rule 3(1)(iii)(a) permitting appointment of the Secretary without meaningful consultation with the High Court was unsustainable is affirmed; the appeal is dismissed.

Performance audit - duties and powers under Article 149 of the Constitution - duties of the Comptroller and Auditor General under Section 16 of the 1971 Act - validity of the Regulations on Audit and Accounts, 2007 - parliamentary and legislative scrutiny of audit reports under Article 151

Performance audit - duties and powers under Article 149 of the Constitution - duties of the Comptroller and Auditor General under Section 16 of the 1971 Act - validity of the Regulations on Audit and Accounts, 2007 - parliamentary and legislative scrutiny of audit reports under Article 151 - Whether the Comptroller and Auditor General has power to conduct and issue performance audit reports and whether the Regulations on Audit and Accounts, 2007 are constitutional. - HELD THAT: - Article 149 empowers Parliament to prescribe duties and powers of the CAG, and the Comptroller & Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 was enacted in pursuance of that constitutional mandate. Section 16 of the 1971 Act requires the CAG to audit receipts payable into the Consolidated Fund and to satisfy himself that rules and procedures provide an effective check on assessment, collection and allocation of revenue, permitting such examination of accounts as he thinks fit and report thereon. The function of examining economy, efficiency and effectiveness in the use of Government resources is therefore inherent in the statutory scheme. Performance audit reports prepared under the Regulations on Audit and Accounts, 2007 fall within this statutory and constitutional ambit. Further, reports submitted by the CAG are subject to scrutiny by Parliament or the State Legislature under Article 151, providing institutional oversight of such audits. For these reasons the Regulations do not offend the Constitution. [Paras 3, 4]

Regulations empowering the CAG to conduct performance audits are not unconstitutional; the CAG has power to conduct and issue performance audit reports and such reports are subject to parliamentary or legislative scrutiny.

Final Conclusion: Writ petition dismissed; challenge to the Regulations on Audit and Accounts, 2007 and to the CAG's power to issue performance audit reports rejected.