TaxTMI Updates e-Newsletter
Oct 26,2018

Definition of "supply" under Section 7 - Schedule I-activities treated as supply without consideration - Supply without consideration between related or distinct persons - RBI permitted liaison office activities - Registration under GST - Liability to pay GST

Definition of "supply" under Section 7 - RBI permitted liaison office activities - Whether the liaison office's activities amount to a "supply" under the CGST/SGST law - HELD THAT: - The Authority examined the nature of activities permitted by RBI and the facts that the liaison office acts only as a communication channel for procurement, quality checks, coordination and shipping, does not enter into contracts in its own name, and receives no consideration for these activities. Applying the definition of "supply" under Section 7, and having regard to Schedule I which treats certain activities without consideration between related or distinct persons as supply, the Authority found that the liaison office operates as an extension of the foreign head office under RBI conditions. It neither charges nor receives consideration and, being not a separate commercial operator permitted to undertake trading or contractual obligations, its activities do not fall within the statutory concept of supply as adopted for GST purposes. The determinative finding is that, strictly subject to compliance with RBI conditions, the liaison activities are not supplies under the CGST/SGST Acts. [Paras 4]

The liaison activities, when carried out strictly in accordance with the RBI permission letter, do not amount to a supply under the CGST and SGST Acts.

Liability to pay GST - Supply - Whether the liaison office is liable to pay CGST, SGST or IGST - HELD THAT: - Since the Authority concluded that the liaison activities do not constitute a supply, there is no taxable event attracting GST. The reimbursement of expenses by the head office and the absence of any consideration for services rule out a tax liability in respect of the liaison activities described and evidenced in the record. The liability question was therefore answered by reference to the prior determination on the absence of supply. [Paras 4, 5]

The applicant is not liable to pay CGST, SGST or IGST in respect of the liaison activities described.

Registration under GST - Liability to pay GST - Whether the liaison office is required to obtain registration under the GST Acts for the liaison activities - HELD THAT: - Registration under Section 22 of the CGST/SGST Acts is mandated for persons liable to pay tax or whose supplies require registration. Given the Authority's finding that the liaison activities do not amount to a supply and therefore do not attract GST, the statutory precondition for compulsory registration is absent. Consequently, for the limited liaison activities carried out strictly in conformity with RBI permission and as evidenced in the record, the applicant is not required to obtain GST registration. [Paras 4, 5]

The applicant is not required to obtain registration under the CGST/SGST Acts for the liaison activities.

Final Conclusion: Advance ruling: Liaison activities undertaken strictly in accordance with the RBI permission do not amount to supply under the CGST/SGST Acts; accordingly, the liaison office is neither liable to pay CGST/SGST/IGST nor required to obtain GST registration for those activities.

Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 - classification as 'parts' versus 'additional equipment' - use based test for classification - component/part in common parlance test - plain language interpretation of exemption notification

Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 - use based test for classification - component/part in common parlance test - Whether the goods listed in Annexure I A are classifiable as parts of ships under entry 252 of Schedule 1 of Notification No. 01/2017 and therefore taxable at the concessional rate of 5% - HELD THAT: - The Authority examined the ordinary meaning of 'part' and the established test in decided cases: whether the article is an integral constituent necessary to the constitution of the whole so that without it the finished article cannot be conceived of. The classification under entry 252 depends on the nature of use; items that form essential components of a vessel (i.e., separate pieces that combine to form the ship and are integral to its functioning) qualify as 'parts' and are eligible for concessional rate. Items that are statutory safety appliances, comfort fittings or ancillary/additional equipments which, though mandated or useful, are not constituent components of the ship in the commercial/common parlance sense, do not qualify as 'parts' under entry 252. Applying this test to the applicant's list, the Authority identified those equipments whose ordinary and primary use is as integral components of a ship's navigational or essential operational systems and distinguished them from equipments that are additional, ancillary or merely for safety/comfort. The Authority also noted that some items (e.g., anchors, hull, propeller, engines, rudder, etc.) are manifestly parts, while other items though compulsory under statutory regimes may still be ancillary rather than parts for the purposes of the notification. Reliance was placed on precedents and dictionary/common parlance tests to determine component character, and the notification was construed in its plain language to give effect to the concessional entry only where the item satisfies the component/part test. [Paras 6, 10]

Only those goods from Annexure I A which are used in the equipments identified at Sr. Nos. A, B, C, D, E, G, H, I, K, M and S of the Authority's table qualify as 'parts' of goods of headings 8901, 8902, 8904, 8905, 8906 and 8907 and are taxable at 5% under entry 252; the remaining listed items are not eligible for the concessional rate.

Final Conclusion: The Advance Ruling holds that from the applicant's list only items used in the expressly identified essential ship equipments qualify as 'parts' under entry 252 and attract GST at 5%; other items in the list are not covered by that concessional entry.

Supply - consideration - outward supply - supply of service - composite supply of food or beverages under Schedule II - services by employee to employer excluded under Schedule III - double taxation

Supply - consideration - outward supply - supply of service - composite supply of food or beverages under Schedule II - Recovery of food expenses from employees for canteen services run by the employer constitutes a 'supply' and is taxable under GST. - HELD THAT: - The authority found that supplying food to employees for cash, even without any profit margin, falls within the statutory concept of 'supply' as envisaged by Section 7(1)(a) and the composite supply treatment for food under Schedule II. The appellant's admission that it recovers the cost of food from employees establishes 'consideration' within the meaning of Section 2(31). Consequently the appellant qualifies as a 'supplier' and the activity is a taxable supply of service under the GST framework. The Appellate Authority affirmed the earlier AAR finding to this effect. [Paras 14, 17]

Supply of food items to employees for consideration in the appellant's canteen is a taxable 'supply' under the GST law; the appeal is dismissed.

Services by employee to employer excluded under Schedule III - double taxation - The appellant's reliance on Schedule III, the CBIC press release, and the Bhimas Hotels decision under the erstwhile regime does not exclude the present activity from GST. - HELD THAT: - The Appellate Authority examined the contention that services by an employee to the employer fall outside GST under Schedule III and noted the press release relied upon by the appellant. It distinguished the Bhimas Hotels decision on factual and legal grounds: that case arose under the pre GST regime where food supplies had been subjected to Value Added Tax, and the High Court's reasoning was directed to avoid double taxation under separate State VAT and Service Tax regimes. In the GST architecture, where such double taxation does not arise, the factual circumstances and legal basis of Bhimas Hotels are not pari materia and therefore do not operate to exempt the appellant's canteen supplies from GST. [Paras 15, 16]

Press releases and the cited pre GST judicial decision do not negate that the canteen recoveries constitute taxable supply under GST; the prior decision is distinguished and does not apply.

Final Conclusion: The Appellate Authority upholds the Advance Ruling: recoveries from employees for food in the employer run canteen constitute consideration for a taxable supply of service under the GST law; the appeal is dismissed.

Classification of goods - HSN 1902 - Seviyan (Vermicelli) - Residuary entry - Rule 4 of the General Rules for Interpretation - Common parlance / commercial usage test

Classification of goods - HSN 1902 - Seviyan (Vermicelli) - Residuary entry - Rule 4 of the General Rules for Interpretation - Ada is classifiable under HSN 1902 as Seviyan (Vermicelli) and not under the residuary entry. - HELD THAT: - The Authority applied the interpretation rules of the First Schedule to the Customs Tariff Act, recognising that the tariff rules and chapter notes govern classification and that precedents on Customs/Central Excise classification apply to GST tariff entries. Ada and seviyan are both produced from maida or rice flour (or a mixture), manufactured by an identical process and used predominantly to impart richness to kheer/payasam; the only distinguishing feature is shape resulting from different dies. Applying Rule 4 (classify according to the goods to which the article is most akin) and the settled principles that a residuary entry cannot be invoked where a specific tariff heading applies, the Authority held that ada is akin in character and use to vermicelli and therefore falls within HSN 1902 (Seviyan). The established tests of common parlance, commercial usage and predominant functional utility support classification under the specific heading rather than the residuary entry. [Paras 7, 14, 20, 21, 22]

Ada is classifiable under HSN 1902 (Seviyan (Vermicelli)) and not under the residuary entry.

Final Conclusion: The Advance Ruling Authority ruled that "Ada" is classifiable under HSN 1902 as Seviyan (Vermicelli) and, accordingly, attracts 5% GST under the notified rates.

Cancellation of provisional GST registration - restoration of cancelled provisional registration - failure of online migration from VAT to GST - assistance for uploading on GST Portal / manual filing - duty of the Proper Officer to facilitate compliance - impact of registration deactivation on revenue collection

Restoration of cancelled provisional registration - duty of the Proper Officer to facilitate compliance - Direction to restore cancelled provisional GST registrations where facility exists and shortcomings have been complied with - HELD THAT: - The Court noted the Commissioner's circular dated 03.08.2018 which records that GSTN provides a facility to restore cancelled provisional registrations and instructs Proper Officers to take immediate steps for restoration after due compliance by the taxpayer. The Court commended that approach and held that Proper Officers must use the restoration facility and restore provisional registrations where shortcomings are remedied, giving priority to such cases to avoid disruption of taxpayers' business and inability to file returns or generate e Waybills. The Court emphasised that enabling restoration is also in the interest of revenue collection.

Proper Officers directed to restore cancelled provisional registrations after due compliance, as per the Commissioner's instructions.

Failure of online migration from VAT to GST - assistance for uploading on GST Portal / manual filing - Obligation of tax administration to provide alternative/manual assistance where taxpayers cannot upload required information online - HELD THAT: - Recognising recurrent problems faced by dealers migrating from VAT to GST and instances where taxpayers could not upload required information on the GST Portal, the Court held that where a dealer faces such difficulty the Commissioner must ensure availability of an alternative authority or officer (for example, the Sales Tax Officer or appropriate officer) before whom manual returns can be filed or who can assist the dealer in uploading the necessary information at the office. The Court rejected an approach where officers merely attribute failure to computer/portal issues and proceed to cancel registrations without providing alternative facilitation, observing that such inaction harms both dealers and State revenue.

State tax authorities must provide alternative/manual filing or assistance to dealers unable to complete online migration or uploads.

Restoration of cancelled provisional registration - duty of the Proper Officer to facilitate compliance - Specific direction to CT & GST Circle, Cuttack I (West) to address petitioner's grievance within one week - HELD THAT: - Applying the principles recorded above to the petitioner's case, the Court directed the CT & GST Circle, Cuttack I, West to attend to the petitioner's problems forthwith in terms of the Commissioner's 03.08.2018 directions and to do so positively within one week from receipt of a certified copy of the order. The direction is operative and aimed at securing restoration or facilitation in the individual matter.

CT & GST Circle, Cuttack I, West ordered to resolve the petitioner's registration issues within one week of receiving the certified copy of this order.

Final Conclusion: Writ petition disposed with directions that cancelled provisional GST registrations be restored where shortcomings are complied with and restoration facility exists, that tax authorities must provide alternative/manual assistance to taxpayers unable to upload online, and that CT & GST Circle, Cuttack I (West) shall resolve the petitioner's grievance within one week.

Summary order. The Special Leave Petition is dismissed; delay condoned. Pending applications, if any, stand disposed of accordingly.

Summary order. The Special Leave Petition is dismissed; delay condoned.

Summary order. Special Leave Petition dismissed; pending applications, if any, are disposed of.

Retrenchment compensation and continuity of employment - Transfer of undertaking and liability under the Industrial Disputes Act proviso - Deductibility of business expenditure under Section 37 - Expenditure incurred for the purpose of sale as distinct from expenditure for carrying on business - Apportionment of expenses into pre-transfer and post-transfer components

Retrenchment compensation and continuity of employment - Transfer of undertaking and liability under the Industrial Disputes Act proviso - Retrenchment compensation paid after transfer of the business to a partnership firm in which the transferor was a partner - HELD THAT: - The Tribunal had allowed the claim; the Assessing Officer disallowed it relying on Gemini Cashew Sales Corporation (Supreme Court) which held that where service of workmen continued uninterruptedly by the transferee, there is no liability for retrenchment compensation. The assessee had sold the business on 14.07.2000 and the retrenchment compensation was paid thereafter; the business was continued by the transferee partnership. On these facts the transferee's continuance of the undertaking negates a right to retrenchment compensation against the transferor. The Assessing Officer's disallowance is therefore restored. [Paras 4, 5, 8]

Retrenchment compensation disallowed; order of the Assessing Officer restored.

Deductibility of business expenditure under Section 37 - Expenditure incurred for the purpose of sale as distinct from expenditure for carrying on business - Allowability of renovation and repairs and maintenance expenses incurred in relation to an establishment sold to the partnership firm - HELD THAT: - The Assessing Officer treated such expenditures as not allowable because the business had been sold. The assessee asserted that renovation and repairs were incurred for the purpose of effecting the sale and declared long term capital gains on the transfer. Given that the expenses were incurred in connection with the sale transaction and in relation to the asset transferred, they qualify as allowable under Section 37 on the facts found. The Tribunal and first appellate authority rightly allowed these expenses and their orders are upheld. [Paras 6, 8]

Renovation and repairs and maintenance expenses allowed; order of the Tribunal upheld.

Apportionment of expenses pre- and post-transfer - Deductibility of business expenditure under Section 37 - Allowability of advertisement and sales promotion expenses incurred after the date of sale - HELD THAT: - The Assessing Officer disallowed the portion of advertisement and sales promotion expenses incurred after the date of sale; the Tribunal had earlier affirmed the first appellate authority's allowance. On review the court found it proper to disallow the post transfer portion because expenditure incurred after transfer is not expenditure of the transferor's business. The Assessing Officer's apportionment and disallowance of the post sale expenditure is therefore restored. [Paras 7, 8]

Advertisement and sales promotion expenses incurred after the date of sale disallowed; order of the Assessing Officer restored.

Final Conclusion: The appeal is partly allowed and partly dismissed: the disallowance of retrenchment compensation is restored in favour of Revenue; the allowance of renovation and repairs is upheld for the assessee; and the Assessing Officer's disallowance of advertisement and sales promotion expenses incurred after the date of sale is restored. Parties to bear their own costs.

Allowability of business expenditure under the Income-tax Act - disallowance for personal element in foreign travel expenses - appreciation of facts by assessing officer, appellate authorities and tribunal - precedential weight of earlier tax-year decisions and year-to-year factual distinction - scope of interference by High Court in fact based tax orders

Allowability of business expenditure under the Income-tax Act - disallowance for personal element in foreign travel expenses - appreciation of facts by assessing officer, appellate authorities and tribunal - Validity of the Tribunal's direction to restrict disallowance of foreign-travel expenses to one-fifth (20%) for assessment year 2009-2010 and to confine disallowance to 1/5th for assessee's appeals - HELD THAT: - The Tribunal reduced the Assessing Officer's disallowance and held that only one-fifth of the foreign-travel expenses was to be disallowed, having regard to the presence of some personal element but not treating the trips as wholly personal. The High Court noted that the Tribunal's conclusion was based on appreciation of the facts recorded in the assessment and that the Assessing Officer himself had applied a 20% disallowance for the year 2009-2010. The Court found no reason to interfere with the Tribunal's factual determination or its assessment of the proportional disallowance, and observed that earlier decisions for different years were distinguishable on facts and had been set aside in separate proceedings. [Paras 3]

Tribunal's orders confining the disallowance to one-fifth (20%) in favour of the assessee for the relevant years are upheld; assessee's appeals are rejected.

Scope of interference by High Court in fact based tax orders - precedential weight of earlier tax-year decisions and year-to-year factual distinction - appreciation of facts by assessing officer, appellate authorities and tribunal - Maintainability of Revenue's challenge to increase disallowance to 50% or 100% for assessment year 2008-09 against the Tribunal's direction to confine disallowance to 20% - HELD THAT: - The Revenue sought greater disallowance for 2008-09, but the Assessing Officer had in some instances himself applied 50% disallowance and for 2009-2010 had applied 20%. The Tribunal, after considering the assessment record, confined the disallowance to 20% for 2008-09 as well. The High Court held that the Tribunal's order was an appraisal of facts contained in the order of assessment and that no substantial question of law arose warranting interference. The Court therefore declined to disturb the Tribunal's fact-based conclusion. [Paras 4]

Revenue's appeal seeking full or higher disallowance is dismissed; the Tribunal's confinement of disallowance to 20% for 2008-09 is sustained.

Final Conclusion: Both the assessee's and the Revenue's appeals are rejected; the Tribunal's fact based orders confining disallowance of foreign travel expenses to one fifth (20%) for the assessment years 2008 09 and 2009 2010 are upheld and the High Court declines to interfere.

First proviso to Section 12A(2) - retrospective effect of registration where assessment proceedings are pending before the Assessing Officer - retrospective application of registration under Section 12AA - exemption under Section 10(23C)(iiiad) - institution "existing solely for educational purposes" - predominant object test - incidental or allied charitable activities not altering predominant character

First proviso to Section 12A(2) - retrospective effect of registration where assessment proceedings are pending before the Assessing Officer - retrospective application of registration under Section 12AA - Registration under Section 12AA granted on 30.05.2016 with effect from 01.04.2015 does not entitle the petitioner to retrospective benefit for Assessment Year 2014-15 where assessment proceedings were already completed before the Assessing Officer on 28.02.2016. - HELD THAT: - The Court held that the first proviso to Section 12A(2) applies only where the assessment proceedings for the earlier assessment year are pending before the Assessing Officer on the date of registration. The registration granted with effect from 01.04.2015 was not in force on the date the assessment for AY 2014-15 was completed (28.02.2016). Reliance on the CBDT circular did not override the statutory requirement that proceedings must be pending before the Assessing Officer to attract retrospective application. Consequently, the petitioner cannot claim the benefit of registration retrospectively for AY 2014-15. [Paras 11, 12]

Claim for retrospective applicability of registration under the first proviso to Section 12A(2) rejected.

Exemption under Section 10(23C)(iiiad) - institution "existing solely for educational purposes" - predominant object test - incidental or allied charitable activities not altering predominant character - The petitioner, predominantly running an educational institution, is entitled to claim exemption under Section 10(23C)(iiiad) for AY 2014-15 despite a minimal allied charitable expenditure on distribution of sarees, and the revenue's denial of the claim was unjustified. - HELD THAT: - The Court applied the predominant object test to conclude that an institution must be judged by its overall, predominant activities and purpose, not by isolated or incidental allied charitable expenditures. Spending that has nexus to and furthers the main educational object - even if not strictly classroom expenditure - does not defeat the character of an institution existing solely for educational purposes, particularly when such expenditure is meagre and aimed at retaining students. The Court noted that Section 10(23C) looks to income "received by" an educational institution; incidental spending on allied charitable activities will not deprive the institution of the exemption unless such spending manifests a deliberate abandonment of the predominant educational purpose or is substantial enough to alter its character. On the facts, the minimal distribution of sarees to mothers and grandmothers to encourage school attendance did not negate the petitioner's status. [Paras 22, 23, 24, 32, 33]

Revenue's rejection of exemption under Section 10(23C)(iiiad) set aside; petitioner entitled to have claim under Section 10(23C)(iiiad) considered and granted.

Final Conclusion: Writ petition allowed. The order rejecting the petitioner's claim is set aside: retrospective effect of registration under Section 12A(2) is not available for AY 2014-15 as assessment proceedings were concluded before registration; on merits the petitioner qualifies for exemption under Section 10(23C)(iiiad) and the respondents are directed to consider and grant the exemption and pass appropriate orders for AY 2014-15 within four weeks.

Disallowance of business expenditure - provision for one year warranty / maintenance and repair charges - ad hoc disallowance for lack of bills and vouchers - admission of additional evidence at appellate stage - remand for verification of expenditure

Disallowance of business expenditure - provision for one year warranty / maintenance and repair charges - Deletion of addition made by Assessing Officer disallowing expenditure claimed by the assessee for provision of one year warranty (maintenance and repair charges). - HELD THAT: - The Assessing Officer had disallowed approximately Rs. 2.58 crores as expenditure relating to maintenance and repair charges on air conditioner units supplied to customers. Both the Commissioner of Income Tax (Appeals) and the Tribunal examined the nature of the expenditure and recorded that it was incurred as actual cost in rendering after sale services, including the one year warranty obligation. On that basis the appellate authorities deleted the addition. The High Court, on appeal by Revenue, did not find error in the appellate authorities' conclusion that the expenditure represented bona fide business expenditure incurred in performance of warranty obligations and therefore was correctly allowed.

Addition disallowing the warranty/maintenance expenditure deleted; appellate authorities' deletion upheld.

Ad hoc disallowance for lack of bills and vouchers - admission of additional evidence at appellate stage - remand for verification of expenditure - Deletion of Assessing Officer's adhoc 10% disallowance of various expenditure for alleged non production of bills and vouchers. - HELD THAT: - The Assessing Officer made an adhoc 10% disallowance on the ground that bills and vouchers were not produced. The Commissioner (Appeals) permitted the assessee to produce additional evidence at the appellate stage, directed a remand for verification, and concluded that the expenditures were duly reflected and supported. The Tribunal upheld that conclusion. The High Court found no question of law in the matter and did not interfere with the appellate finding that the adhoc disallowance was not justified in view of the evidence allowed and verified on remand.

10% adhoc disallowance deleted; appellate decision admitting evidence and remanding for verification upheld.

Final Conclusion: Revenue's appeal is dismissed; the High Court upholds the Tribunal/CIT(A) in deleting the additions - one relating to warranty/maintenance expenditure and the other an adhoc 10% disallowance for lack of vouchers after admission of evidence and remand verification.

Computation of income under Section 115J - Explanation to Section 115J(1A) - provisions for foreseeable losses - ascertained liability versus contingent liability - limited power of the Assessing Officer to go behind the profit and loss account - application of accounting standard AS-7 on construction contracts - provision for gratuity as an ascertained liability - provision for bad and doubtful debts / provision for diminution in value of any asset

Explanation to Section 115J(1A) - provisions for foreseeable losses - application of accounting standard AS-7 on construction contracts - limited power of the Assessing Officer to go behind the profit and loss account - ascertained liability versus contingent liability - Whether the Assessing Officer could add back provisions for foreseeable/anticipatory losses in computing income under Section 115J - HELD THAT: - The Court held that provisions made for foreseeable losses on incomplete contracts are not necessarily ascertained liabilities. AS 7 itself recognises a high degree of uncertainty in determining future loss on running contracts and permits provision in some cases but does not convert such foreseeable loss into an ascertained liability for tax purposes. Apollo Tyres limits the Assessing Officer's power to go behind profit and loss accounts certified under the Companies Act, but that limitation is subject to the Explanation to Section 115J(1A), which authorises additions of amounts set aside as provisions for liabilities other than ascertained liabilities. Applying those principles, the Court found that loss on a contract ordinarily can be finally ascertained only on completion of the contract and that the Explanation permits the AO to add back such provisions so as to reflect correct taxable profits. [Paras 11]

Provisions for foreseeable/anticipatory losses on incomplete contracts may be added back under the Explanation to Section 115J(1A); question answered for the Revenue and against the assessee.

Provision for gratuity as an ascertained liability - ascertained liability versus contingent liability - Whether the provision for gratuity in the accounts is an ascertained liability exempt from addition under the Explanation to Section 115J(1A) - HELD THAT: - The Court held that gratuity accrues relateable to each year of service and, insofar as provision is made with respect to amounts earned by individual employees in the previous year, such provision constitutes an ascertained liability. The liability, though payable in future, is in praesenti as to its incurrence and is capable of being estimated with reasonable certainty; hence it falls outside Clause (c) of the Explanation and should not be added back in computing income under Section 115J. [Paras 13]

Provision for gratuity was held to be an ascertained liability; question answered for the assessee and against the Revenue.

Provision for bad and doubtful debts / provision for diminution in value of any asset - computation of income under Section 115JA - Whether provision for bad and doubtful debts (diminution in value of any asset) is to be added back in computing income under Section 115JA - HELD THAT: - The Court followed the binding Supreme Court authority relied upon and its own earlier decision in favour of the assessee, concluding that the provision for diminution in the value of assets (provision for bad and doubtful debts) could not be added back under the clause then applicable to Section 115JA. On that precedent, the addition with respect to such provision was disallowed and the orders of the lower authorities were set aside. [Paras 15]

Provision for bad and doubtful debts (diminution in value of assets) is not to be added back for computation under Section 115JA; question answered for the assessee and against the Revenue.

Final Conclusion: ITA No.43/2003 rejected (in favour of the Revenue on foreseeable contract losses); ITA No.1/2007 partly allowed (gratuity provision sustained for the assessee; foreseeable losses disallowed as per the earlier conclusion); ITA No.2/2007 allowed (provision for bad and doubtful debts/diminution in value not to be added back).

Net profit rate estimation - allowance for interest and depreciation - question of law - factual conclusion - opportunity to place facts on record - admission of evidence

Net profit rate estimation - allowance for interest and depreciation - admission of evidence - question of law - Whether the Tribunal was justified in confirming a net profit rate of 15% for a new business unit without separately allowing interest on loans and depreciation, and whether that decision raised a question of law. - HELD THAT: - The Court examined the record and found that only one substantive ground (ground no.4) was pressed before the Commissioner and the Tribunal concerning details of interest payments. The assessee failed to produce documentary evidence and the Tribunal's finding rested in part on a statement by Rajeev Agarwal that an initial estimate of 20% net profit was reduced by consensus to 15%; this consensus and the related details are recorded in the orders of the Commissioner and the Tribunal. The Tribunal had taken these facts into account and also granted relief to the assessee on that basis. In these circumstances the High Court held that the matter was one of fact already concluded on the record, no disputed point of law arose for the Court's consideration, and the appellant had not been prevented from placing relevant facts on record.

No question of law arises; the factual findings underpinning the Tribunal's confirmation of the 15% net profit rate (and the treatment of interest and depreciation) stand, and the appeal is dismissed.

Final Conclusion: The appeal is dismissed for lack of merit: the Tribunal's factual conclusions regarding the net profit rate and the related treatment of interest and depreciation were upheld, no question of law arose for determination, and the assessee failed to place supporting evidence on the record.

Computation of relief under Section 80IA/80IB - Inclusion of tariff components in taxable income - Tax component included in tariff constitutes income for exemption computation - Transfer price/sale price adjustment in allied supply arrangements

Computation of relief under Section 80IA/80IB - Tax component included in tariff constitutes income for exemption computation - Inclusion of tariff components in taxable income - Components of price of electricity fixed with reference to tax liability are to be included as part of the sale/transfer price for computing relief under Section 80IA/80IB. - HELD THAT: - The Tribunal had held that components of the tariff determined by reference to tax liability should be excluded from the transfer price of coal and the sale price of electricity when computing relief under Section 80IA/80IB. The High Court, however, followed the Division Bench decision in the assessee's earlier case (T.C.(A) No.1317 of 2006) which held that where the agreement includes a tax-related component as part of the sale price of electricity, the mere reference to tax liability in that component does not render it non-income for the purpose of computing exemption under Section 80IA/80IB. The Revenue did not dispute this legal position before the Court. Applying that precedent, the Court concluded that the tax component forming part of the tariff must be treated as income and included in the relevant price for calculating the statutory relief.

Appeal allowed; the substantial question answered in favour of the assessee and the tax-linked components of the tariff are held includible for computing relief under Section 80IA/80IB.

Final Conclusion: Following the Division Bench precedent in the assessee's earlier appeal and in the absence of any challenge by the Revenue, the High Court allowed the appeal and held that tariff components referring to tax liability form part of income and must be included in the transfer/sale price for computing relief under Section 80IA/80IB for AY 2002-03.

Penalty under Section 271(1)(c) - Concealment of income - Mitigating circumstances and bona fide belief on professional advice - Ignorance of law as a defence - Valuation of cost of acquisition of leasehold rights as on 1.4.1981

Penalty under Section 271(1)(c) - Concealment of income - Valuation of cost of acquisition of leasehold rights as on 1.4.1981 - Mitigating circumstances and bona fide belief on professional advice - Deletion of penalty imposed under Section 271(1)(c) for alleged concealment of income by wrong claim of cost of acquisition - HELD THAT: - The Tribunal and this Court upheld the deletion of penalty. The Assessing Officer had modified the cost of acquisition by rejecting the assessee's valuation of leasehold rights as on 01.04.1981 and made additions, but higher authorities in quantum granted substantial relief and treated the valuation issue as complex and debatable. The assessee had acted on professional advice in determining the fair market value claimed in the return. In view of the contentious and fact sensitive nature of the valuation and the availability of mitigating circumstances, the explanation offered by the assessee was held not to be mala fide. On these findings the imposition of penalty for concealment was inappropriate and rightly deleted by the CIT(A) and sustained by the Tribunal and this Court.

Penalty under Section 271(1)(c) deleted; appellate orders sustaining deletion affirmed.

Ignorance of law as a defence - Mitigating circumstances and bona fide belief on professional advice - Whether 'ignorance of law' can be a valid ground to hold that the assessee did not conceal income and that penalty under Section 271(1)(c) is not leviable - HELD THAT: - The Tribunal noted that the assessee relied upon professional advice in arriving at the valuation and claim; given the debatable nature of the issue and the absence of mala fide conduct, the explanation was treated as a mitigating circumstance. The Court accepted that where the claim is based on bona fide belief founded on professional advice and the disputed question is complex and arguable, the imposition of penalty for concealment is unwarranted. The decision thus effectively treated the assessee's reliance on advice and the contentious character of the legal/factual issue as sufficient to negative conscious concealment.

Reliance on professional advice and the debatable nature of the issue sufficed to negative concealment; penalty not leviable on that basis.

Final Conclusion: The High Court dismissed the Revenue's appeal against the deletion of penalty, affirming the Tribunal's conclusion that, in light of the contentious valuation issue and the assessee's bona fide reliance on professional advice, the penalty under Section 271(1)(c) for alleged concealment of income could not be sustained.

Disallowance under section 40(a)(i) - tax deduction at source on commission to non-resident - accrue or arise in India - business income of non-resident and business connection - permanent establishment / source of income in India - binding effect of tribunal precedents in assessee's own case

Disallowance under section 40(a)(i) - tax deduction at source on commission to non-resident - accrue or arise in India - business income of non-resident and business connection - Disallowance under section 40(a)(i) for failure to deduct TDS on foreign agent commission was not sustainable. - HELD THAT: - The Tribunal held that the Assessing Officer's conclusion that the commission "accrued or arose in India" was based on a misinterpretation of the phrase accrue or arise in India. The payment was for commission to a foreign agent for services rendered outside India and the agent had no business connection, source of income, or permanent establishment in India. In absence of any business connection or source of income in India, the commission in the hands of the foreign agent is not taxable in India and therefore no TDS under the Act was exigible. The Tribunal applied and followed its earlier rulings in the assessee's own case and the co-ordinate bench decision in ACIT v. Vilas N. Tamhankar, and observed that the AAR decision relied upon by the Department was not applicable where the Tribunal's precedent in the assessee's own case has not been reversed by the jurisdictional High Court. Having regard to these precedents and the factual finding that services were rendered outside India, the deletion of the disallowance was upheld. [Paras 6, 7, 8]

The disallowance under section 40(a)(i) was deleted and the order of the ld. CIT(A) was upheld.

Binding effect of tribunal precedents in assessee's own case - Cross-objection by the assessee became infructuous after the Revenue's appeal was dismissed. - HELD THAT: - The assessee's cross-objection merely supported the CIT(A)'s order. As the Tribunal upheld the CIT(A)'s decision in the Revenue's appeal by following its unrevoked precedents in the assessee's own case, there was no independent relief to be granted by the cross-objection. Consequently the cross-objection was held to be infructuous. [Paras 9, 10]

The cross-objection was dismissed as infructuous.

Final Conclusion: Revenue's appeal dismissed; order of the ld. CIT(A) deleting the disallowance upheld and the assessee's cross-objection dismissed as infructuous.

Reopening of assessment beyond four years for failure to disclose fully and truly all material facts - reasons to believe - reopening based on investigation report - requirement of self explanatory reasons to believe - protection of assessment concluded under section 143(3) - change of opinion - unexplained credit under section 68 - sanction for reassessment beyond four years

Reopening of assessment beyond four years for failure to disclose fully and truly all material facts - reasons to believe - reopening based on investigation report - change of opinion - Validity of notice issued under section 148 reopening assessment for A.Y. 2009-10 - HELD THAT: - The Tribunal held that the Assessing Officer could not validly reopen the assessment beyond four years because there was no demonstration that the assessee had failed to disclose fully and truly material facts necessary for assessment. The assessee had furnished particulars regarding the share subscriptions in response to a questionnaire under section 142(1) during original proceedings and the AO had accepted those replies without making additions. The reasons to believe relied on an investigation wing report but did not specify any new material or identify what primary fact was withheld by the assessee; reliance on a generalized allegation of 'paper companies' or on the investigation report without paraphrasing or annexing the relevant portions did not satisfy the statutory rigour. Reopening on the basis of such material amounted to a change of opinion and was contrary to the settled principle that reasons must be self explanatory and indicate what material fact was undisclosed. Accordingly, following the exposition of the Hon'ble Delhi High Court reproduced in the order, the reopening notice was invalid and the reassessment proceedings could not be sustained.

Reopening notice under section 148 quashed; appeal allowed on validity of reopening and assessment set aside on that ground; merits of additions not adjudicated.

Final Conclusion: The Tribunal allowed the appeal solely on the ground that the reassessment notice beyond four years was invalid for failure to establish that the assessee did not disclose material facts; consequential additions were not decided and the reassessment proceedings were quashed.

Reopening of assessment beyond four years and requirement of prior satisfaction under the proviso to Section 151(1) - misapplication of Section 151(2) where proviso to Section 151(1) governs - notice under section 148 and its validity when issued after four years - absence of notice under section 143(2) prior to making additions - reopening not sustainable in absence of finding of failure to disclose fully and truly all material facts

Reopening of assessment beyond four years and requirement of prior satisfaction under the proviso to Section 151(1) - misapplication of Section 151(2) where proviso to Section 151(1) governs - Validity of notices issued under section 148 after expiry of four years where approval was obtained under Section 151(2) instead of satisfaction by the Commissioner as required by the proviso to Section 151(1). - HELD THAT: - The Tribunal found that the notices u/s 148 were issued after the expiry of four years from the end of the relevant assessment years, bringing the matter within the proviso to sub-section (1) of Section 151. The Assessing Officer recorded that approval was obtained from the Additional CIT under Section 151(2), but Section 151(2) applies only to cases other than those falling under sub-section (1). A plain reading establishes that where notices are issued beyond four years, the satisfaction of the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner as recorded on reasons by the AO is required. The AO misread the statutory scheme and did not follow the mandate of the proviso to Section 151(1); accordingly the reopening was held to be bad in law on this ground. [Paras 8]

Reopening notices issued after four years were invalid because the proviso to Section 151(1) required satisfaction by the Commissioner-level authority and the AO's reliance on Section 151(2) approval was a misapplication of the statute.

Absence of notice under section 143(2) prior to making additions - notice under section 148 and its validity when issued after four years - Whether additions sustained where there is no evidence that a notice under section 143(2) was issued after reopening and before making the additions. - HELD THAT: - The record contains no evidence that any notice u/s 143(2) was issued following the reopening and prior to the making of the additions. The Tribunal noted that the Revenue did not contend otherwise or produce such material. In absence of issuance of the requisite procedural notice before completing assessment proceedings post-reopening, the procedural defect militates against sustaining the additions. [Paras 9]

Additions could not be sustained because there was no evidence that a notice under section 143(2) was issued after reopening and before making the additions.

Reopening not sustainable in absence of finding of failure to disclose fully and truly all material facts - reopening of assessment beyond four years and requirement of prior satisfaction under the proviso to Section 151(1) - Whether reopening beyond four years is sustainable in absence of any recorded finding that the assessee failed to disclose fully and truly all material facts necessary for assessment. - HELD THAT: - For reopenings beyond four years, the Tribunal observed that the Assessing Officer must record reasons demonstrating that the reopening is not a mere change of opinion, which ordinarily includes a finding of failure to disclose material facts. In the present case there was no such allegation or recorded finding against the assessee that it failed to disclose fully and truly material facts; consequently, the rationale for reopening on merits was absent. Coupled with the procedural defects noted, the Tribunal found no basis to interfere with the CIT(A)'s conclusion. [Paras 9]

Reopening was unsustainable on merits because there was no recorded finding of failure by the assessee to disclose fully and truly all material facts necessary for assessment.

Final Conclusion: The order of the CIT(A) upholding the quashing of the reassessment and disallowance of the additions was affirmed; both appeals filed by the Revenue are dismissed.

Rectification under Section 254(2) of the Income tax Act, 1961 - reliance on documents seized from third parties - reopening of assessment on the basis of incriminating material - right to fair opportunity and cross examination in remand proceedings - appellate authority's powers co terminus with the assessing officer - preponderance of probabilities standard in income tax proceedings

Rectification under Section 254(2) of the Income tax Act, 1961 - reliance on documents seized from third parties - Whether the Tribunal's order contained a mistake apparent from record warranting rectification under Section 254(2). - HELD THAT: - The Bench examined the Miscellaneous Application seeking rectification on the ground that the Tribunal had failed to consider certain precedents and had erred in remanding the matter. The Tribunal had set aside the deletion of additions and restored the issue to the Assessing Officer for de novo determination after noting seized incriminating material specifically naming the assessee and describing the plot, amount and date. The Tribunal also directed that copies of incriminating material to be relied upon by Revenue be furnished to the assessee and that persons from whose possession the documents were recovered be made available for cross examination. The Tribunal considered and distinguished the authorities relied upon by the assessee (including decisions dealing with documents found in third party possession where no link to the assessee was shown), emphasising that each case depends on its factual matrix and that the seized document in the present case was not a 'dumb document' but explicitly recorded the assessee's nexus with the transaction. The Bench held that these findings and the remand were based on material on record and legal principles applicable to income tax proceedings where the standard is preponderance of probabilities, and that no error apparent on the face of the record had been shown which could be rectified under Section 254(2). [Paras 3]

Application for rectification under Section 254(2) dismissed; no mistake apparent from record.

Reopening of assessment on the basis of incriminating material - right to fair opportunity and cross examination in remand proceedings - appellate authority's powers co terminus with the assessing officer - Whether the Tribunal erred in remanding the matter to the Assessing Officer with directions to supply seized material and permit cross examination. - HELD THAT: - The Tribunal had evaluated the factual matrix, including the provenance and contents of seized material (Annexure A 3/page 221) which specifically recorded payment to the assessee and plot particulars, and the finding of the CIT(A) upholding validity of reopening had attained finality as the assessee did not appeal that finding. Given these circumstances, the Tribunal concluded that a remand for fresh adjudication on merits, coupled with directions to afford the assessee full opportunity (supply of documents, admission of evidence and cross examination of persons from whose possession documents were seized), was appropriate to secure substantial justice. The Bench found no infirmity in that exercise of power, rejected the contention that the remand caused prejudice, and observed that the appellate authority was correct to ensure that the assesee is not unfairly prejudiced while allowing Revenue to rely on incriminating material subject to the safeguards ordered. [Paras 3, 4]

Tribunal's remand to the Assessing Officer with directions to furnish seized material and permit cross examination is upheld.

Final Conclusion: The Miscellaneous Application seeking rectification of the Tribunal's order is dismissed. The Tribunal's order restoring the issue to the Assessing Officer for de novo adjudication, with directions to furnish incriminating material to the assessee and to permit cross examination and admission of evidence, stands affirmed.

NDPS bail regime under Section 37 - reasonable grounds for believing that accused is not guilty - Offences to be cognizable and non-bailable - reliance on statements under Section 67 - evidentiary discrepancies and sample tampering - observations for grant of bail not to prejudice trial

NDPS bail regime under Section 37 - reasonable grounds for believing that accused is not guilty - Offences to be cognizable and non-bailable - Grant of regular bail to the petitioner in Sessions Case No.1/3/14 under the NDPS Act - HELD THAT: - The court considered the special statutory bar in Section 37 making certain NDPS offences non-bailable unless the court is satisfied that there are reasonable grounds for believing the accused is not guilty and that he is not likely to commit an offence while on bail. The Public Prosecutor opposed bail. After examining the material and the contentions of the parties, including alleged investigative and evidentiary discrepancies (sampling, custody, conveyance and forensic examination), the court found these discrepancies weighty enough to create reasonable grounds to believe the petitioner is not guilty. The court also accepted that the petitioner has no criminal antecedents and that the prosecution did not controvert his contention in this respect, satisfying the second limb that he is not likely to commit an offence while on bail. On that basis the court held the requirements of Section 37 were fulfilled and that bail should be granted subject to conditions. [Paras 34, 35, 36, 37, 38]

Petitioner granted bail on furnishing bond and surety, subject to conditions; observations are for bail purpose only and shall not affect trial.

Reliance on statements under Section 67 - evidentiary discrepancies and sample tampering - Evaluation of prosecution evidence comprising statements under Section 67 and alleged discrepancies in seizure, sampling and testing - HELD THAT: - The court examined the voluntariness and content of the statements recorded under Section 67 and the series of alleged defects in the prosecution case-conflicting consignor details, inconsistencies between airway bills and invoices, re-packaging of the parcel, variance in recorded weights and physical description, only one out of several concealed packages being field-tested, and mismatch between field/test memo weights and Chemical Examiner's report. The prosecution did not satisfactorily counter these contentions. These evidentiary lacunae were treated as material and influential in forming reasonable doubt on guilt for the purpose of bail, though the court clarified such observations are confined to the bail order and not final adjudication. [Paras 27, 32, 33, 34, 35]

Prosecution evidence found to have material discrepancies which contributed to the grant of bail; credibility and admissibility remain for trial.

Final Conclusion: Bail granted to the petitioner under Section 37 NDPS Act on finding reasonable grounds to believe he is not guilty and is unlikely to offend while on bail; release subject to specified bond, surety and supervisory conditions, and court observations confined to the bail order and not binding at trial.

Failure of official respondents to appear - representation by panel counsel - conditional acceptance of appearance by private counsel - direct service - interim suspension of bank freezing orders - costs payable to State Legal Services Authority

Failure of official respondents to appear - representation by panel counsel - conditional acceptance of appearance by private counsel - direct service - costs payable to State Legal Services Authority - Official respondents' repeated non-appearance and the Court's permit to a volunteered advocate to represent them subject to conditions - HELD THAT: - The Court recorded that despite direct service on respondent nos.2 and 3, there was no appearance on the returnable date and thereafter, and observed a recurring communication gap between the authorities and their panel advocates or Government Standing Counsel (paras 1-5). In view of that conduct and to secure assistance to the Court, the Court permitted the volunteered advocate to appear for respondent nos.2 and 3 and ordered that the reply must be filed without fail on or before 17.10.2018. The Court imposed a condition that the reply shall be accompanied by proof of payment of Rs.10,000 to be deposited before the State Legal Services Authority, leaving it open to the Government to consider recovery of such cost from any erring official if negligence is established (para 6). Direct service on the respondents was permitted to continue. [Paras 2, 4, 6]

Volunteered counsel permitted to appear; reply to be filed by 17.10.2018 accompanied by proof of deposit of Rs.10,000 to the State Legal Services Authority; direct service on respondent nos.2 and 3 permitted

Interim suspension of bank freezing orders - Interim relief in respect of the petitioner's frozen bank accounts - HELD THAT: - As interim relief while the matter is pending and in light of the procedural directions to secure assistance from the respondents, the Court ordered suspension of the freezing order affecting the petitioner's nine bank accounts and stood the matter over to 17.10.2018 for further hearing (para 7). [Paras 7]

Freezing order of the petitioner's bank accounts suspended as an interim measure; matter adjourned to 17.10.2018

Final Conclusion: The Court granted interim relief by suspending the bank account freezing order, permitted a volunteered advocate to represent the official respondents subject to strict conditions including filing of a reply by 17.10.2018 with proof of deposit of Rs.10,000 to the State Legal Services Authority, and directed continued direct service on respondent nos.2 and 3.

Permission to withdraw appeal - monetary threshold for filing appeals - applicability of departmental instructions to pending cases - non-prejudice clause on withdrawal

Monetary threshold for filing appeals - applicability of departmental instructions to pending cases - permission to withdraw appeal - Appeal permitted to be withdrawn as the tax amount involved falls below the revised monetary threshold for filing appeals. - HELD THAT: - The Court noted the Central Board of Indirect Taxes & Customs instruction dated 11.07.2018 raising the monetary limit for filing appeals in the High Court to Rs. 50 lakhs and held that this revised threshold applies to pending cases. As the amount of tax involved in the present appeal is below that threshold, the appellant was permitted to withdraw the appeal. The Court granted withdrawal while expressly recording that such withdrawal is not to be construed as an acceptance or upholding of the Tribunal's order; the legal questions raised remain open for adjudication in an appropriate case.

Withdrawal of the appeal permitted; withdrawal shall not be treated as upholding the Tribunal's order and the legal issues are left open.

Final Conclusion: The High Court allowed the appellant to withdraw the appeal under the updated monetary threshold applicable to pending cases, subject to a clear non-prejudice statement that the Tribunal's order is not upheld and legal issues remain open.

Composite works contract - service simpliciter - Works Contract Service - Commercial or Industrial Construction Service - Construction of Complex Service - Construction of Residential Complex Service - classification of service under Section 65A - retrospective levy prior to 1.6.2007 - Larsen & Toubro ratio on indivisible works contracts

Composite works contract - retrospective levy prior to 1.6.2007 - Larsen & Toubro ratio on indivisible works contracts - Whether services forming part of an indivisible composite works contract can be subjected to service tax under CICS/CCS/RCS for the period prior to 1.6.2007. - HELD THAT: - Relying on the Supreme Court's decision in Larsen & Toubro and following this Bench's precedent, the Tribunal held that where the activity is in the nature of an indivisible composite works contract, service tax could not validly be levied under the construction-service heads prior to 1.6.2007. The Court observed that the statutory scheme before 1.6.2007 lacked a mechanism to separate and assess the service component of composite contracts, and therefore composite contracts could not be taxed as services simpliciter before that date. The Tribunal applied this ratio to the appellant's projects and concluded that the impugned demands for periods prior to 1.6.2007 were unsustainable. [Paras 7, 8]

Composite works contracts are not liable to service tax under CICS/CCS/RCS for periods prior to 1.6.2007; demands for such periods cannot sustain.

Service simpliciter - Commercial or Industrial Construction Service - Construction of Complex Service - classification of service under Section 65A - Whether, for the period after 1.6.2007, composite contracts can be taxed under CICS/CCS/RCS when they involve supply of goods along with service. - HELD THAT: - The Tribunal held that after 1.6.2007 the construction-service heads (CICS/CCS/RCS) continue to apply only to activities that are service simpliciter. Where the contract remains an indivisible composite works contract involving supply of goods, it does not become a pure construction-service simpliciter for classification under those specific heads. The Tribunal referred to legislative intent (including the 2007 budget speech) and CBEC guidance and noted that Section 65A mandates preference to the more specific description; hence composite contracts should not be reclassified as CICS/CCS/RCS merely because construction is involved. [Paras 7, 8]

For the period after 1.6.2007, CICS/CCS/RCS apply only to service simpliciter; composite contracts involving supply of goods cannot be taxed under those heads.

Works Contract Service - composite works contract - Whether indivisible composite contracts involving construction should be exigible to tax as Works Contract Service. - HELD THAT: - The Tribunal concluded that indivisible composite contracts for construction of buildings or complexes fall within the definition of Works Contract Service introduced with effect from 1.6.2007. The Tribunal reasoned that the statutory introduction of Works Contract Service and the optional composition scheme was intended to bring composite contracts within a distinct taxable category capable of dealing with the service and goods elements, and therefore such contracts should be taxed under Works Contract Service rather than under the specific construction-service heads. [Paras 7, 8]

Indivisible composite construction contracts are exigible as Works Contract Service and not under CICS/CCS/RCS.

Show cause notices - Commercial or Industrial Construction Service - Construction of Complex Service - Construction of Residential Complex Service - Whether the show cause notices and adjudication confirming service tax under CICS/CCS/RCS on the appellant's composite contracts for the disputed periods can be sustained. - HELD THAT: - Applying the foregoing principles, the Tribunal found that the show cause notices which proposed service tax under CICS/CCS/RCS for contracts that are composite in nature could not be sustained for periods prior to 1.6.2007 and, insofar as the disputed periods after that date involved composite contracts, similarly could not be sustained because such contracts are not service simpliciter. Consequently, the impugned adjudication confirming demand and penalties under those heads failed to pass legal muster. [Paras 7, 8]

The show cause notices and impugned order demanding service tax under CICS/CCS/RCS on the appellant's composite contracts for the disputed periods cannot be sustained.

Final Conclusion: The appeal is allowed; following the Larsen & Toubro ratio and this Tribunal's precedents, demands and penalties upheld under CICS/CCS/RCS in respect of the appellant's indivisible composite works contracts for the disputed periods (including those prior to 1.6.2007 and the periods in issue up to December 2009) are set aside, and the impugned order is quashed with consequential benefits as may be applicable.

Cenvat credit - export of service - treatment of designing services as export under Rule 6A of the Service Tax Rules, 1994 - refund claim under Rule 5 of the Service Tax Rules - debit from cenvat credit account at time of refund claim - appellate power to make further enquiry under Rule 35C - substantial justice over technical rejection

Cenvat credit - export of service - treatment of designing services as export under Rule 6A of the Service Tax Rules, 1994 - refund claim under Rule 5 of the Service Tax Rules - debit from cenvat credit account at time of refund claim - substantial justice over technical rejection - appellate power to make further enquiry under Rule 35C - entitlement to refund of cenvat credit of Rs. 2,64,298/- for the two quarters ending December 2013 and March 2014 - HELD THAT: - The Tribunal found that the Commissioner (Appeals) had recorded and accepted material facts: service orders were received online from the foreign client; a copy of the agreement between the appellant and the overseas recipient and subsequent orders were furnished; the service qualifies as design service under Section 65(b)(4) and falls within export of service under Rule 6A. The Commissioner (Appeals) exercised powers to make further enquiry under Rule 35C and accepted the agreement, contrary to the original authority's rejection for non-submission. The departmental contention that refund could not be allowed because the claimant had not earlier debited the claimed amount from the cenvat credit account (in terms of Notification No. 23/18.06.2012) was held not to be a bar to refund where the claimable amount could be ascertained from records (ST-3 and cenvat ledger) and where substantial justice requires relief against mere technical objection. The Tribunal held that the Commissioner (Appeals) ought to have, by application of mind to the ST-3 and cenvat ledger, ascertained the disputed amount and granted refund rather than rejecting it solely for lack of clearness as to period of debit, and that rejection on such technical ground was not justified. [Paras 6, 7, 8]

The appeal is allowed; the order of the Commissioner (Appeals) is set aside and the appellant is held eligible for the refund claim of Rs. 2,64,294/- to be paid within three months with applicable interest.

Final Conclusion: The Tribunal allowed the appeal and directed payment of the refund claim relating to the two quarters ending December 2013 and March 2014, holding that the services qualified as export under Rule 6A, that requisite records (agreement, ST-3, cenvat ledger) supported the claim, and that refusal on narrow technical grounds was improper where the amount was ascertainable and substantial justice required allowance.

Ex parte order - right to be heard / audi alteram partem - service of notice / non-service of hearing intimation - recall and setting aside of order for want of notice - adjournment notice procedure and intimation - rectification application v. review

Ex parte order - service of notice / non-service of hearing intimation - right to be heard / audi alteram partem - recall and setting aside of order for want of notice - Whether the CESTAT's final order dated 20.01.2016, passed in the absence of the assessee, should be recalled and set aside on the ground that the assessee did not receive intimation of the hearing date. - HELD THAT: - The Tribunal had adjourned the matter earlier and had issued an adjournment notice fixing an interim date; the assessee received the adjournment notice fixing the earlier adjourned date but neither the assessee nor its authorised representative received any communication that the matter was listed on 20.01.2016. The CESTAT proceeded ex parte and accepted the departmental representative's narrative. The High Court found that there was no material to show that the adjournment notice fixing 20.01.2016 was sent to the assessee and that non-appearance on 20.01.2016 was therefore not attributable to the assessee. In these circumstances the absence of effective intimation deprived the assessee of its right to be heard and constituted sufficient grounds to recall and set aside the impugned order so that the appeal may be heard and decided on merits in accordance with law.

CESTAT order dated 20.01.2016 set aside and the appeal restored to the Tribunal for fresh hearing on merits; substantial questions of law left open.

Rectification application v. review - recall and setting aside of order for want of notice - Whether the Tribunal's order dated 11.08.2016 rejecting the assessee's application for rectification (treated as a review) should be set aside consequent to recalling the main order. - HELD THAT: - The assessee filed an application for rectification contending non-receipt of notice and that the CENVAT credit was reversed under protest. The Tribunal refused the rectification application treating it as a review. Given the High Court's conclusion that the main order of 20.01.2016 must be recalled and set aside for want of intimation, the consequential order rejecting the rectification application cannot stand. The High Court therefore set aside the order dated 11.08.2016 and restored the matter to the Tribunal to be heard afresh, permitting both parties liberty to canvass all points.

Order dated 11.08.2016 set aside; matter remitted to the Tribunal for fresh adjudication with liberty to both parties.

Final Conclusion: Both Civil Miscellaneous Appeals are allowed: the CESTAT's order of 20.01.2016 and the consequential order of 11.08.2016 are set aside; the appeal is restored to the Tribunal for fresh hearing and decision on merits, with liberty to the assessee and Revenue to raise all points; no costs; substantial questions of law left open.

Withdrawal of statutory appeal - monetary threshold for High Court appeals - application of departmental instructions raising pecuniary limit - without prejudice to merits of tribunal order

Withdrawal of statutory appeal - monetary threshold for High Court appeals - application of departmental instructions raising pecuniary limit - Permission to withdraw the appeal was granted because the amount of tax involved falls below the monetary limit for filing appeals in the High Court as raised by departmental instructions. - HELD THAT: - The Court recorded that the amount of tax in dispute in the present appeal is Rs. 26,68,741/-. In view of the Central Board of Indirect Taxes & Customs instruction dated 11.07.2018 which raised the monetary limit for filing appeals in the High Court to Rs. 50 lakhs and which is held to be applicable to pending cases, the appeal was permitted to be withdrawn. The Court expressly clarified that allowing withdrawal is procedural and does not amount to an acceptance or endorsement of the Tribunal's order; the legal questions raised in the appeal remain open for decision in an appropriate case.

Appeal permitted to be withdrawn as amount in dispute is below the enhanced pecuniary threshold; withdrawal not to be treated as upholding the Tribunal's order and legal issues left open.

Final Conclusion: The appeal was allowed to be withdrawn because the tax amount in dispute is below the departmental pecuniary threshold for High Court appeals raised to Rs. 50 lakhs; withdrawal is procedural only and does not decide the merits of the Tribunal's order.

Summary order. Appeals by the Revenue dismissed as withdrawn on departmental instruction under the Board's monetary threshold; the substantial questions of law raised are left open.

Short reversal of CENVAT credit under Rule 6(3A)(b)(iii) - compliance with intimation requirements under Rule 6(3A)(a) - extended period of limitation under Section 11A(4) of the Central Excise Act, 1944 - remand for speaking findings - principles of natural justice and opportunity to produce documents

Short reversal of CENVAT credit under Rule 6(3A)(b)(iii) - compliance with intimation requirements under Rule 6(3A)(a) - Whether the Commissioner (Appeals) recorded any speaking findings on short reversal of CENVAT credit under Rule 6(3A)(b)(iii) and on the appellant's compliance with the intimation procedure under Rule 6(3A)(a), and the consequent relief. - HELD THAT: - The Tribunal found that the Commissioner (Appeals) did not pass a speaking order on the issue of short reversal of CENVAT credit under Rule 6(3A)(b)(iii) in these two appeals and that the Commissioner (A) had remanded multiple appeals without recording appellant's submissions on merit. The record shows the appellants had filed periodic intimation letters and particulars regarding reversal as required by the Rules and that those intimations were acknowledged by revenue authorities. Given the absence of specific findings on the merits of short reversal and on compliance with the intimation procedure, the Tribunal considered it appropriate to remit the matters to the Commissioner (A) for fresh consideration and determination on merit after affording the appellants opportunity to place documents on record.

Remanded to the Commissioner (Appeals) for fresh, speaking findings on the short reversal of CENVAT credit and on the appellant's compliance with Rule 6(3A) procedures; Commissioner (A) to decide merits within two months after providing opportunity under principles of natural justice.

Extended period of limitation under Section 11A(4) of the Central Excise Act, 1944 - remand for speaking findings - Whether the demands confirmed in the original orders are time-barred and whether the extended period under Section 11A(4) was rightly invoked. - HELD THAT: - The Tribunal observed that a substantial part of the demand related to periods for which the appellants had made timely disclosures by filing monthly returns and maintaining records; there was no finding of suppression with intent to evade tax recorded by the Commissioner (A). On the material on record, including the intimations filed by the appellant, the Tribunal found force in the appellant's contention that most of the demand appeared to be time-barred and that the invocation of the extended period under Section 11A(4) required specific consideration. Because the Commissioner (A) did not record any findings on limitation or on whether the ingredients of Section 11A(4) were established, the Tribunal directed remand so that the Commissioner (A) may examine and decide the question of limitation and the applicability of the extended period with reasons.

Remanded to the Commissioner (Appeals) to examine and record specific findings on limitation and the applicability of Section 11A(4), and to decide the point with reasons within two months.

Final Conclusion: Both appeals are allowed only to the extent of remanding the matters to the Commissioner (Appeals) for fresh, speaking findings on (a) the short reversal of CENVAT credit under Rule 6(3A)(b)(iii) including compliance with intimation requirements, and (b) the question of limitation and the applicability of Section 11A(4); the Commissioner (A) is directed to decide both issues after observing principles of natural justice and within two months from receipt of certified copy of this order.

Rectification of mistake apparent on the face of the record - limitations of rectification vis-a -vis review - appellate appreciation of evidence for each appellant - absence of cross examination not ipso facto a clerical mistake

Appellate appreciation of evidence for each appellant - rectification of mistake apparent on the face of the record - Whether the dismissal of the three co-appellants' appeals could be treated as a mistake requiring rectification because the appeal of another party (M/s. Sofina Fashion) was allowed. - HELD THAT: - The Tribunal examined and appreciated the evidence separately in respect of each appellant and reached individual conclusions; the fact that the appeal of M/s. Sofina Fashion was allowed while the present three appeals were dismissed reflects an independent evaluation of the material on record. Such an outcome arising from merits-based appreciation does not constitute a mistake apparent on the face of the record that is remediable by rectification. The ROM applications sought to substitute review of those merits-based conclusions, which is impermissible under the limited scope of rectification. [Paras 4]

The contention that the co-appellants' appeals should have been allowed because the main appellant's appeal was allowed is rejected; no rectification is warranted.

Absence of cross examination not ipso facto a clerical mistake - rectification of mistake apparent on the face of the record - Whether non grant of cross examination to witnesses constitutes a mistake apparent on the face of the record justifying rectification. - HELD THAT: - The applicants alleged that cross examination was not granted and that this omission rendered the order defective. The Tribunal held that the question of cross examination pertains to the merits and factual adjudication and cannot be characterised as a clerical or manifest error on the face of the record. An issue requiring contested factual argument and consideration cannot be remedied by a rectification petition. [Paras 4]

The absence of cross examination (as alleged) is not a mistake apparent on the face of the record; rectification on that ground is not permissible.

Limitations of rectification vis-a -vis review - rectification of mistake apparent on the face of the record - Whether the ROM (rectification) applications were maintainable when they effectively sought a review of merits-based findings. - HELD THAT: - The Tribunal affirmed the settled principle that rectification is confined to mistakes apparent on the face of the record and cannot be used as a vehicle for rehearing or reviewing issues that require detailed argument between the parties. The grounds advanced in the ROM applications relate to the merits and therefore fall outside the narrow scope of rectification. Consequently, the applications cannot be entertained as a substitute for review. [Paras 5]

ROM applications are not maintainable insofar as they seek review of merits; they are rejected.

Final Conclusion: All three rectification (ROM) applications are dismissed; no mistake apparent on the face of the record has been shown and the applications impermissibly seek review of merits-based findings.

Valuation of goods cleared for captive consumption - Transaction value after abatement under Rule 8 - Application of Central Excise Valuation Rules to by products - Revenue neutrality in recovery of excise duty

Valuation of goods cleared for captive consumption - Transaction value after abatement under Rule 8 - Assessee's valuation methodology (transaction value after abating expenses) for 'soap stock' cleared to a sister unit is legally acceptable under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. - HELD THAT: - The Tribunal relied upon its earlier decision in HM Polycontainer Ltd. to hold that computation based on transaction value after deducting allowable expenses is an acceptable basis of valuation even under rule 8 of the Valuation Rules. The Tribunal found no legal infirmity in the valuation adopted by the assessee for goods cleared to the sister unit and disagreed with the revenue's reliance on cost of production as the sole basis for determining value of goods captively consumed.

Valuation adopted by the assessee upheld; demand and related order on valuation set aside.

Application of Central Excise Valuation Rules to by products - Revenue neutrality in recovery of excise duty - Contentions that the goods are 'by products' exempting them from the Valuation Rules and that revenue neutrality/credit availed by the sister unit precludes recovery were considered and did not sustain the demand against the assessee in the facts of the case. - HELD THAT: - The Tribunal observed the appellant's contention that 'soap stock' were by products and therefore outside the valuation regime, but proceeded on the basis that the valuation adopted by the assessee was permissible. The Tribunal also noted authorities affirming the principle of revenue neutrality in recovery of duty; having regard to the accepted mode of valuation and relevant precedents, the challenge to the demand succeeded. The combined consideration of the valuation methodology and established principles on revenue neutrality led to disallowance of the revenue's demand in this appeal.

Contentions on by product treatment and revenue neutrality did not sustain the demand; appeal allowed and impugned orders set aside.

Final Conclusion: The appeal is allowed; the impugned orders confirming the duty demand and penalty are set aside as the valuation adopted by the assessee for 'soap stock' cleared to its sister unit is held to be acceptable under the Valuation Rules, with the Tribunal applying its precedent and relevant principles of revenue neutrality.

Rectification of order - typographical error - restoration of appeal - hearing afresh - ends of justice

Rectification of order - typographical error - Whether the Final Order dated 23/10/2017 contains typographical errors requiring correction or other remedial action. - HELD THAT: - The Tribunal recorded that the first paragraph of its order incorrectly named the appellant as the assessee and that the operative portion mis-stated the result by recording 'appeal dismissed' instead of allowing the appeal in favour of the Revenue. The existence of these typographical errors was acknowledged and considered in light of the parties' applications seeking correction. The Tribunal noted that the errors, together with the fact that the matter involved a different set of facts and law than reflected, warranted remedial attention rather than simple clerical correction alone. [Paras 2]

Typographical errors in the Final Order were recognised and taken into account; corrective action was considered necessary.

Restoration of appeal - hearing afresh - ends of justice - Whether the appeal should be restored to its original number and listed for final hearing afresh. - HELD THAT: - Having considered the submissions of both Revenue and the assessee, and mindful that the order contained typographical mistakes and that the appeal had been disposed on a factual and legal basis not reflecting the proceedings before the lower authorities, the Tribunal concluded that the interests of justice required rehearing. Rather than limited rectification alone, the Tribunal exercised its power to allow a fresh hearing so that the merits could be addressed correctly and on record. [Paras 4]

Appeal No. E/90091/2014 restored to its original number and directed to be listed on 05/11/2018 for final hearing.

Final Conclusion: Applications for correction/relief were allowed to the extent that the appeal was restored for fresh final hearing; the Registry was directed to list the appeal on 05/11/2018.

Rectification of mistake - consideration of written submissions - limitation - imposition of penalty - merits of an application for rectification

Rectification of mistake - consideration of written submissions - merits of an application for rectification - Whether the application for rectification of mistake in the Tribunal's order dated 16.03.2018 is maintainable and merits interference - HELD THAT: - The Tribunal examined the appellant's plea that its written note dated 08.02.2018 was not properly considered and that core contentions (that show cause proceedings were barred by limitation and that an equal amount penalty was wrongly imposed) were overlooked. On perusal of the written note and the Tribunal's order dated 16.03.2018, the Tribunal found that those basic issues were in fact considered and findings were recorded in the earlier order. Since the alleged omission was not established and the earlier order already addressed the pleaded contentions, the application did not disclose any substantive mistake warranting rectification. The application therefore lacked merit and required no interference with the Tribunal's prior order. [Paras 3]

Application for rectification dismissed for want of merit

Final Conclusion: The application for rectification of mistake in the Tribunal's order dated 16.03.2018 is dismissed as the Tribunal found that the written submissions and the contentions regarding limitation and penalty had already been considered and decided in the earlier order.

Rectification of clerical mistake - administrative-versus-judicial distinction - responsibility of the Bench for orders - jurisdiction of the Registry to amend administrative errors - directions to Registry for correction - format of judgments and assent table

Rectification of clerical mistake - jurisdiction of the Registry to amend administrative errors - directions to Registry for correction - Application for correction of the narration in the Tribunal's order to include an omitted order in original was allowed by directing the Registry to make the necessary amendment. - HELD THAT: - The Tribunal observed that clerical errors occurring on the administrative side fall within the Registry's responsibility and ordinarily should be rectified by the Registry without engaging the judicial bench. Notwithstanding this institutional division, to prevent detriment to the applicant the Bench exercised its supervisory authority on this occasion and directed the Registry to amend the narration so as to reflect disposal of both appeals. The Court emphasised that the Bench's orders are its responsibility but administrative alterations that lie above the assent/table belong to the Registry and are to be corrected by it when clerical mistakes are pointed out. The order disposed the rectification application by directing the Registry to make the necessary alteration to reflect the disposal by the Bench. [Paras 3, 4]

Registry directed to amend the narration to include the omitted order in original and the rectification application disposed of.

Administrative-versus-judicial distinction - responsibility of the Bench for orders - format of judgments and assent table - Institutional directions issued concerning the future handling of clerical corrections and the format of Tribunal orders. - HELD THAT: - The Tribunal criticised the removal of the earlier conventionary assent/table and held that what lies above the table is within the Registry's administrative domain while what lies below is exclusively for the Bench. The Registry was directed to place the matter before the President for restoration of the earlier format that included the assent/table. Until such restoration, the Bench directed that its orders shall be issued under the earlier format and that applications for rectification shall be placed before the Bench only when they pertain to contents below the table. These directions are prophylactic and procedural to prevent recurrent invocation of the judicial time for purely administrative corrections. [Paras 4]

Registry to seek restoration of the earlier format; until restoration orders to be issued under the earlier format and rectification applications to come before the Bench only for matters below the table.

Final Conclusion: The application for rectification was disposed of by directing the Registry to amend the order narration to include the omitted order in original; additionally the Registry was directed to place before the President the restoration of the earlier judgment format and interim procedural directions were issued governing future rectification requests.

Reversal of CENVAT credit prior to issuance of show cause notice - Penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 - Absence of fraud, suppression or collusion as a bar to imposition of penalty - Entries in ER-1 returns and CENVAT credit register as evidentiary support

Reversal of CENVAT credit prior to issuance of show cause notice - Penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 - Absence of fraud, suppression or collusion as a bar to imposition of penalty - Entries in ER-1 returns and CENVAT credit register as evidentiary support - Whether penalty under Rule 15(2) read with Section 11AC can be imposed where an irregular CENVAT credit was reversed before issuance of the show cause notice and there is no evidence of fraud, suppression or collusion - HELD THAT: - The Tribunal found as an admitted fact that the appellant had sufficient balance in its CENVAT account between taking the irregular credit and reversing it, and that the credit particulars were reflected in the ER-1 returns and the CENVAT credit register. The audit report which prompted reversal did not allege fraud, collusion or suppression by the appellant. Given that the irregularly availed credit was reversed before issuance of the show cause notice and there was no material substantiating malafide or deliberate suppression, the conditions necessary to invoke penal provisions under sub-rule (2) of Rule 15 read with Section 11AC were not made out. The Tribunal relied on the principle in the Bombay High Court decision in Gaurav Mercantiles Ltd., that where duty/credit is rectified prior to initiation of adjudication and no culpable conduct is established, penalty cannot be imposed. Decisions cited by Revenue were held distinguishable on facts because those cases involved substantiated allegations of fraud or collusion which are absent here. [Paras 5, 6]

Penalty imposed under Rule 15(2) read with Section 11AC set aside as the irregular credit was reversed prior to show cause notice and no fraud, suppression or collusion was shown.

Final Conclusion: The impugned order upholding the penalty is set aside and the appeal is allowed to the extent of quashing the penalty; no remand was made.