TaxTMI Updates e-Newsletter
Oct 31,2020

Conversion of provisional registration to permanent registration - relation-back of registration - availability of input tax credit on transition - Rule 24 of the GST Rules (transition procedure) - portal access to upload returns - quashing of administrative communication

Conversion of provisional registration to permanent registration - Rule 24 of the GST Rules (transition procedure) - relation-back of registration - availability of input tax credit on transition - portal access to upload returns - Permanent registration granted on 04.01.2020 relates back to the provisional registration and the petitioner is entitled to upload past returns and claim input tax credit for the transition period. - HELD THAT: - The petitioner had been granted a provisional registration under the transitional procedure and was unable to complete conversion to permanent registration on the portal despite attempts to upload Form TRAN-1. The provisional registration was not formally cancelled by the respondents in accordance with the Act and Rules. The respondents issued a permanent registration dated 04.01.2020 which records the date of liability as 01.07.2017, indicating the petitioner fell within the transitional class under Rule 24. Where a provisional registration granted under the transition procedure has not been cancelled and a regular registration is subsequently issued, the regular registration must relate back to the date of the provisional registration, entitling the dealer to upload returns for the intervening period and to claim eligible input tax credit based on those returns. The Court applied Rule 24 and the admitted facts to hold that denial of portal access and the stipulation of validity only from 04.01.2020 could not defeat the transitional entitlement to file returns and claim input tax credit. [Paras 4, 5]

The permanent registration relates back to the provisional registration and the petitioner is permitted to upload returns for the period between the provisional and permanent registrations and to claim input tax credit accordingly.

Quashing of administrative communication - mandamus to grant portal access - The respondents' communication rejecting the request to make the registration effective from 01.07.2017 (Ext.P4) is quashed and respondents are directed to amend the registration certificate and provide portal access within a specified time. - HELD THAT: - The petitioner sought amendment of the effective date of the registration certificate to reflect the date of liability 01.07.2017. The respondents rejected that request by Ext.P4. Given the respondents themselves acknowledged the date of liability as 01.07.2017 in the permanent registration while having not cancelled the provisional registration, the rejection could not stand. The Court therefore quashed Ext.P4 and directed amendment of the registration certificate to make it valid from 01.07.2017 and ordered the respondents to enable portal access so the petitioner may upload returns and pay tax and claim input tax credit based on those returns, to be effected within one month of receipt of the judgment. [Paras 6]

Ext.P4 is quashed; respondents directed to amend the registration to be valid from 01.07.2017 and to provide portal access within one month to enable uploading of returns and claiming of input tax credit.

Final Conclusion: Writ petition allowed: Ext.P4 is quashed; registration certificate to be amended to be effective from 01.07.2017; petitioner permitted to upload past returns and claim input tax credit for the transitional period; respondents to provide portal access within one month of receipt of this judgment.

Interest on delayed payment of GST - Section 50 of the CGST Act - interest on net cash tax liability versus gross tax liability - Administrative instructions of the Central Board of Indirect Taxes and Customs dated 18.09.2020 - Retrospective application of amendment to section 50 - Quashing of garnishee notices - Keeping show cause notices in call book pending retrospective amendment

Section 50 of the CGST Act - interest on net cash tax liability versus gross tax liability - Administrative instructions of the Central Board of Indirect Taxes and Customs dated 18.09.2020 - Retrospective application of amendment to section 50 - Whether interest under section 50 of the CGST Act for the period prior to the statutory amendment is to be levied on net cash tax liability or on gross tax liability - HELD THAT: - The Court recorded that amendment to section 50 (by Finance (No.2) Act, 2019) provided for charging interest on the net cash tax liability and was made effective prospectively from 01.09.2020 by notification No.63/2020-Central Tax dated 25.08.2020. The GST Council had recommended that interest be charged on net cash tax liability with effect from 01.07.2017 and that a retrospective amendment would be carried out by legislation. In the meanwhile the Board issued administrative instructions dated 18.09.2020 directing field formations to recover interest on the net cash tax liability for the period 01.07.2017 to 31.08.2020 and to keep show cause notices issued on gross tax payable in the call book until retrospective amendment is effected. The Court held that these administrative instructions address the central grievance and answer the question of whether interest should be on net cash liability for the stated pre amendment period. [Paras 12, 13, 14]

Interest for the period 01.07.2017 to 31.08.2020 shall be recovered only on the net cash tax liability in terms of the Board's administrative instructions dated 18.09.2020.

Quashing of garnishee notices - Administrative instructions of the Central Board of Indirect Taxes and Customs dated 18.09.2020 - Whether the garnishee (recovery) notices issued to the petitioner's customers on 16.07.2020 should stand - HELD THAT: - Having accepted that the administrative instructions of 18.09.2020 have substantially met the petitioner's grievance by restricting recoveries for the period 01.07.2017 to 31.08.2020 to net cash tax liability, the Court found no live controversy requiring further adjudication. In consequence the Court held that the garnishee notices issued on 16.07.2020 had become ineffective and ordered them quashed. The respondents were directed to intimate the petitioner the quantum of interest payable in terms of the administrative instructions and the petitioner to pay, if not already paid. [Paras 15, 16]

Garnishee notices dated 16.07.2020 are quashed; respondents to notify petitioner of interest payable in terms of the administrative instructions and petitioner to pay accordingly.

Final Conclusion: Writ petition allowed: administrative instructions dated 18.09.2020 treated as dispositive - interest for 01.07.2017 to 31.08.2020 to be recovered only on net cash tax liability; garnishee notices of 16.07.2020 quashed; respondents to intimate quantum and petitioner to pay as directed; no order as to costs.

Summary order. Petition challenging viability of Section 16(4) CGST Act and amendment to Rule 61(5) CGST Rules, and seeking quashing of demand and blocking letters, not decided on merits; matter directed to be listed before the appropriate Division Bench as the subject does not fall within the present Bench's roster.

Failure to furnish reasons for reopening under Section 148 - right to be furnished reasons and to file objections before reassessment - validity of reassessment where reasons were not supplied - curative effect of furnishing reasons during appellate proceedings - remand to Assessing Officer

Failure to furnish reasons for reopening under Section 148 - right to be furnished reasons and to file objections before reassessment - validity of reassessment where reasons were not supplied - Assessment reopened and fresh assessment made though the Assessing Officer did not furnish reasons for issuance of notice under Section 148; legality of such reassessment. - HELD THAT: - The Court found that after service of notice under Section 148 the assessee had requested the reasons for reopening and the Assessing Officer failed to furnish those reasons but proceeded to reopen and complete assessment. Applying the law in GKN Driveshafts (India) Ltd., the proper course requires the AO to furnish reasons within a reasonable time so that the noticee may file objections and the AO dispose of those objections by a speaking order. The AO's refusal to furnish reasons deprived the assessee of the opportunity to object to reopening and was therefore contrary to the law laid down by the Apex Court and this Court's precedents. Consequentially the reassessment could not be sustained. [Paras 6, 7, 8, 10]

Reassessment is invalid because reasons for reopening were not furnished to the assessee before completion of assessment.

Curative effect of furnishing reasons during appellate proceedings - validity of reassessment where reasons were not supplied - Whether furnishing the reasons at the stage when the matter was pending before the ITAT cures the prior failure to furnish reasons to the assessee. - HELD THAT: - The Court held that reasons supplied at the appellate stage while the matter was pending before the ITAT do not cure the initial procedural default. In the facts of this case the provision of reasons only during appellate proceedings could not retrospectively validate the reopening and assessment which were completed without affording the assessee the opportunity to receive reasons and to file objections at the statutory stage. [Paras 9, 10]

Furnishing reasons before the ITAT does not cure the failure to furnish reasons prior to completion of reassessment; the defect remains.

Remand to Assessing Officer - validity of consequential assessment and demand - Consequences of the above findings on the ITAT remand, the consequential assessment order dated 5/12/2016 and the demand notice issued thereon. - HELD THAT: - Having concluded that the reassessment was invalid for lack of reasons being furnished, the Court set aside the ITAT's remand order and directed that the impugned orders made in pursuance of that remand be set aside. The Court specifically observed that the consequential assessment order dated 5/12/2016 and the demand notice issued pursuant thereto are liable to be set aside in view of the primary illegality in reopening the assessment. [Paras 10, 11, 12]

ITAT's remand order, the consequential assessment order dated 5/12/2016 and the demand notice are set aside.

Final Conclusion: Appeal allowed; impugned orders set aside for failure by the Assessing Officer to furnish reasons for reopening before completing reassessment; consequential assessment order dated 5/12/2016 and the demand notice set aside; no order as to costs.

Summary order. Appeal disposed of as academic in view of mutual agreement and the Assessing Officer's order dated 15.12.2015; liberty granted to the revenue to revive the appeal if occasion arises.

Treatment of gains on cashless exercise of stock options as income from salaries - stock options as a capital asset - cashless exercise as transfer by relinquishment/extinguishment of right - employer-employee relationship - consistency of revenue's stand / estoppel

Employer-employee relationship - treatment of gains on cashless exercise of stock options as income from salaries - Whether the gains arising on cashless exercise of stock options could be taxed as income from salaries by treating the assessee as an employee of SiRF USA. - HELD THAT: - The Court examined the material on record, in particular the communication dated 03.08.2006, and found that the assessee was an independent consultant and not an employee of SiRF USA at the relevant time. The conclusion of the Tribunal that an employer-employee relationship existed was held to be perverse because there was no factual foundation to treat the assessee as an employee; absent such a relationship, the income could not be characterised as salary. The Court applied settled principle that salary income requires existence of employer-employee relationship and relied on the authority that a finding of salary without such relationship cannot stand. [Paras 7]

The gains could not be taxed as income from salaries because the assessee was not an employee of SiRF USA; the Tribunal's finding to the contrary was set aside.

Stock options as a capital asset - cashless exercise as transfer by relinquishment/extinguishment of right - Whether the stock option constituted a capital asset and whether the cashless exercise amounted to a transfer taxable as capital gains. - HELD THAT: - The Court held that a stock option is a right to purchase shares and therefore falls within the concept of a capital asset. Relying on precedent recognising rights to subscribe as capital assets and on Explanation 1(e) to Section 2(42A), the Court concluded that the cashless exercise amounted to relinquishment/extinguishment of that right and thus constituted a transfer within the meaning of Section 2(47), making the resulting gain chargeable as capital gains. The Court also noted that the assessee never received the underlying shares but only the sale proceeds under the cashless mechanism, reinforcing the view of extinguishment of a capital right. It further observed that Section 17(2)(iiia) was not in force at the time of grant, supporting the capital gains characterisation. [Paras 8]

The stock option was a capital asset and the cashless exercise amounted to a transfer by extinguishment of the right, attracting capital gains treatment.

Consistency of revenue's stand / estoppel - Whether the revenue could take a different view in this case when in other similar cases it had accepted capital gains treatment on cashless exercise. - HELD THAT: - The Court observed that in several other matters the revenue had accepted that cashless exercise gives rise to capital gains, and no challenge to those views was shown. Invoking the principle of consistency as articulated in authority relied upon (Berger Paints), the Court held that revenue could not adopt a divergent stand in the assessee's case. This formed an additional basis for disallowing the revenue's contention that the gain should be taxed as salary. [Paras 9, 10]

Revenue could not be permitted to take a different view in the assessee's case where it had accepted capital gains treatment in similar matters; this weighed in favour of the assessee.

Final Conclusion: Substantial questions of law were answered in favour of the assessee: the Tribunal's finding of an employer-employee relationship and consequent taxation of the gain as salary was set aside; the stock option was held to be a capital asset and the cashless exercise a transfer attracting capital gains treatment; the revenue was not permitted to adopt an inconsistent stand. The Tribunal's order dated 31.10.2013 is quashed and the appeal is allowed.

Disallowance under Section 14A - application of Rule 8D(2)(ii) - recording of satisfaction under Section 14A(2) - use of interest-bearing funds versus interest-free funds - disallowance under Section 36(1)(iii) for interest on advances - deduction under Section 80IB(10) - concurrent findings of fact - burden of proof on the assessee

Disallowance under Section 14A - application of Rule 8D(2)(ii) - recording of satisfaction under Section 14A(2) - use of interest-bearing funds versus interest-free funds - concurrent findings of fact - Validity of deletion of disallowance under Section 14A read with Rule 8D(2)(ii) and whether the Assessing Officer recorded requisite satisfaction under Section 14A(2). - HELD THAT: - The court upheld the tribunal's and CIT(A)'s deletion of the Rule 8D(2)(ii) disallowance. It found that the Assessing Officer had not recorded the requisite satisfaction under Section 14A(2) questioning the correctness of the assessee's claim, and therefore could not sustain a disallowance under Rule 8D. Independently, concurrent findings of fact by the CIT(A) and the Tribunal - namely that overdraft funds were not shown to have been used for tax exempt investments, that tax free investments had reduced during the year, and that substantial interest free funds (advances from customers and reserves) existed which could have funded the exempt investments - were held to be based on meticulous appreciation of evidence and not vitiated by perversity. On these concurrent factual findings, no interference was warranted and deletion of the disallowance was affirmed. [Paras 9, 11, 12]

Deletion of the disallowance under Section 14A read with Rule 8D(2)(ii) was upheld; Assessing Officer had not recorded satisfaction as required and concurrent facts showed interest free funds sufficed to meet tax exempt investments.

Disallowance under Section 36(1)(iii) for interest on advances - use of interest-bearing funds versus interest-free funds - burden of proof on the assessee - concurrent findings of fact - Whether the deletion of disallowance under Section 36(1)(iii) in respect of advances to subsidiaries was justified. - HELD THAT: - The court affirmed the tribunal's conclusion that advances to subsidiaries were business advances made in the normal course of the assessee's real estate operations (special purpose vehicle companies and payments under joint development arrangements) and not non business or capital advances. The Tribunal and CIT(A) recorded that the assessee's own funds and reserves substantially exceeded advances and deposits for the year, supporting the finding that interest bearing overdraft funds were not the source of those advances. Those concurrent factual findings were sustained as not being perverse, and on accepted authorities an assessee entitled to show that loans/advances were made out of its own funds is entitled to the deduction of interest. Consequently, the deletion of the addition under Section 36(1)(iii) was upheld. [Paras 13]

Deletion of the disallowance under Section 36(1)(iii) was affirmed; advances were business advances funded from assessee's own resources and the concurrent factual findings warranted no interference.

Deduction under Section 80IB(10) - Validity of the tribunal's and CIT(A)'s allowance of deduction under Section 80IB(10) for the assessee's projects. - HELD THAT: - The court expressly adhered to its earlier reasoning in Commissioner of Income Tax vs. Brigade Enterprises Ltd. (orders dated 22.09.2020 in I.T.A.Nos.54/2013 and 55/2013) and answered the substantial questions relating to Sections 80IB(10) in favour of the assessee. The earlier conclusions, reflected in those orders, disposed of the revenue's contentions regarding satisfaction of conditions under Section 80IB(10) and the measurement of individual units, and were followed in the present appeal. [Paras 8]

Substantial questions of law relating to deduction under Section 80IB(10) were answered against the revenue and in favour of the assessee in accordance with the court's earlier orders.

Final Conclusion: The revenue appeal is dismissed. The court affirmed deletion of disallowances under Section 14A read with Rule 8D(2)(ii) and under Section 36(1)(iii), and upheld the allowance of deduction under Section 80IB(10), the conclusions resting on absence of requisite recording of satisfaction by the Assessing Officer and concurrent factual findings that interest free/own funds sufficed to meet the exempt investments and advances.

Method of accounting - Mercantile system of accounting - Proportionate completion method - Accounting Standard 9 - Change in accounting policy - Burden on revenue to prove distortion of profits - Insurance business versus third party administrator

Method of accounting - Proportionate completion method - Mercantile system of accounting - Assessee entitled to recognise TPA fee revenue over the period of insurance policies on a proportionate basis rather than recognising entire invoiced amount in the year invoices were raised. - HELD THAT: - The court held that the assessee, engaged in rendering services throughout the policy year, was justified in adopting the proportionate completion method for recognising revenue arising from services spread over the policy term. Revenue from service transactions may be recognised as the service is performed either by proportionate completion or completed service contract method; the assessee's adoption of proportionate completion was appropriate because the services were rendered over the year. The department failed to discharge the burden of showing that the method invoked caused distortion of profits for any particular year, and the department had subsequently accepted the method for later assessment years, undermining the Assessing Officer's attempt to require immediate recognition on invoicing. [Paras 7]

Addition for unearned income based on immediate recognition of invoiced TPA fees was not sustained; revenue recognition on a pro rata basis across the policy term upheld in favour of the assessee.

Change in accounting policy - Burden on revenue to prove distortion of profits - Assessee permitted to change accounting method from invoice (immediate recognition) to proportionate completion method; change not displaced by revenue. - HELD THAT: - Relying on settled principle that an assessee may arrange its affairs and follow a method of accounting accepted earlier by the Department, the court observed that substitution of an accounting method is warranted only if the Department demonstrates distortion of profits. The assessee changed from recognising revenue on raising invoices to the proportionate completion method; the revenue did not establish that this change produced distortion, and later acceptance of the method in subsequent assessment years reinforced its validity. [Paras 6, 7]

Change in accounting method was permissible and the Assessing Officer was not justified in rejecting it or determining income on estimate basis.

Accounting Standard 9 - Method of accounting - Accounting Standard 9 applies to the assessee's revenue recognition; the assessee is not an insurance company whose revenue would be governed by insurance-contract-specific accounting. - HELD THAT: - The court held that AS-9 governs recognition of revenue for the financial services rendered by the assessee and does not deal with revenue arising from insurance contracts of insurance companies. Consequently, AS-9 was applicable to determine appropriate recognition of TPA fees on a proportionate basis rather than immediate invoicing recognition. The Assessing Officer's contention that AS-9 is inapplicable because the assessee carried on 'insurance business' was rejected on the facts. [Paras 7]

AS-9 applicable to assessee's revenue recognition; Assessing Officer's disapplication of AS-9 was not sustained.

Insurance business versus third party administrator - Insurance Regulatory distinction - Assessee's activities do not amount to carrying on insurance business; the assessee is a distinct third party administrator. - HELD THAT: - The court referred to the Insurance Regulatory and Development Authority Regulations defining a third party administrator as a company engaged by an insurer to provide specified health services for a fee, and noted the statutory definition of 'insurer' as distinct. The tribunal's finding that the assessee's activities are not those of an insurance company was upheld. The court also noted that an earlier single Judge decision for the assessee had been set aside by a division bench, removing that as binding support for the revenue's contention. [Paras 8]

Finding that the assessee is not carrying on insurance business but is a third party administrator sustained; revenue's contention to the contrary rejected.

Final Conclusion: All substantial questions of law framed by the court in respect of Assessment year 2009-10 were answered against the revenue and in favour of the assessee; the revenue's appeal is dismissed.

Assessment under Section 153A of the Income-tax Act - Warrant of Authorization - Annulment of assessment where warrant issued jointly but assessment in individual name - Remand for fresh decision on unresolved factual record

Warrant of Authorization - Annulment of assessment where warrant issued jointly but assessment in individual name - Remand for fresh decision on unresolved factual record - Order of the Tribunal annulling assessment was quashed and the matter was remitted to the Tribunal for fresh decision on the factual question whether the Warrant of Authorization or only the panchanama was produced and, consequently, on the maintainability of the assessment framed under Section 153A. - HELD THAT: - The High Court found that the Tribunal's conclusion proceeded on a factual premise concerning production on record of the Warrant of Authorization (as opposed to the panchanama). The limited factual discrepancy - whether a copy of the Warrant of Authorization was placed before the Tribunal or only the panchanama was produced by the assessee - could be resolved only by the Tribunal on the record. Given this unresolved factual issue, the High Court declined to decide the substantial questions of law framed at admission and instead quashed the Tribunal's order and remitted the appeal for fresh adjudication in accordance with law. All substantive contentions of the parties were left open for fresh consideration by the Tribunal, which was directed to endeavour disposal within six months from receipt of the copy of the High Court order. [Paras 8, 11]

Tribunal order dated 06.01.2012 quashed; matter remitted to the Tribunal for fresh decision on the factual issue regarding production of the Warrant of Authorization and for reconsideration of maintainability of the assessment framed under Section 153A.

Final Conclusion: The High Court has quashed the Tribunal's annulment of the assessment and remitted the matter to the Tribunal for fresh consideration of the factual question whether the Warrant of Authorization was produced (as distinct from the panchanama) and, on that basis, for determination of the maintainability of the assessment; all merits were left open and the Tribunal was directed to dispose the appeal within six months.

Deduction under Section 10B - formation by splitting or reconstruction of an existing business - transfer of plant and machinery previously used - concurrent findings of fact and perversity - revised claim made during assessment proceedings - accumulated profits for the purpose of deemed dividend - allegation of colorable device for tax evasion

Deduction under Section 10B - formation by splitting or reconstruction of an existing business - transfer of plant and machinery previously used - concurrent findings of fact and perversity - allegation of colorable device for tax evasion - Assessee's entitlement to deduction under Section 10B for the relevant assessment year(s) in view of allegations that the undertaking was formed by reconstruction/splitting, that plant and machinery previously used were transferred, and that a colorable device was adopted to evade tax. - HELD THAT: - The court held that compliance with the conditions of Section 10B(2) is essentially a question of fact. On careful scrutiny of the Commissioner (Appeals)'s detailed findings and the tribunal's order, the facts show that the assessee was incorporated as a separate export oriented unit, commenced operations in the relevant years, and acquired new plant and machinery such that any transfer from the sister concern did not amount to reconstruction or transfer of previously used machinery exceeding the statutory limits. Contemporaneous records (including customs bonding and Form 3CD entries) and retracted affidavits weakened the revenue's case. The Commissioner (Appeals) negatived the charge of colorable device and the tribunal affirmed those factual findings; the High Court found no perversity in the concurrent findings warranting interference under Section 260A. Accordingly the first set of substantial questions were answered against the revenue and in favour of the assessee. [Paras 13, 14]

Findings that the assessee satisfied conditions of Section 10B(2) and was not formed by reconstruction or by transfer of previously used plant and machinery are concurrent factual findings which are not perverse; deduction under Section 10B upheld.

Revised claim made during assessment proceedings - Deduction under Section 10B - Validity of the tribunal's direction to the Assessing Officer to verify an enhanced claim for Section 10B deduction made by the assessee during assessment proceedings (i.e., a revised/enhanced claim not originally in the return). - HELD THAT: - The tribunal recorded that the assessee had filed a revised claim during assessment proceedings increasing the deduction claimed; it therefore directed verification of that claim. The High Court noted that the tribunal considered relevant precedents and held that higher authorities are not precluded from considering a revised claim made in the course of assessment proceedings. On the facts recorded in para 12 of the tribunal's order, the additional substantial question did not arise for the court to decide against the assessee. [Paras 15]

Tribunal correctly directed verification of the enhanced claim made during assessment proceedings; the revenue's challenge to that direction is answered against the revenue.

Accumulated profits for the purpose of deemed dividend - security premium and reserves - concurrent findings of fact and perversity - Whether the security premium shown under reserves and surplus constituted accumulated profits for the purpose of deeming provisions (Section 2(22)(e) context) such that a benefit claimed should be disallowed. - HELD THAT: - The Commissioner (Appeals) found, and the tribunal affirmed, that the reserve and surplus did not reflect accumulated profit but comprised loss and securities premium; therefore there were no accumulated profits available. These are concurrent factual findings based on the assessee's books and accounts and were held by the High Court not to be perverse. Consequently the revenue's contention that share premium should be treated as accumulated profit was rejected on the facts. [Paras 16]

Concurrent finding that there were no accumulated profits (reserve and surplus represented loss and share premium) is upheld; additional question answered against the revenue.

Final Conclusion: All substantial questions of law raised by the revenue are answered against the revenue and in favour of the assessee; the appeals are dismissed.

Capitalisation of exchange difference - treatment of premium paid on forward contract as capital loss - addition to cost of capital asset and allowance of depreciation on enhanced value - connection between foreign currency borrowing and cost of fixed asset - application of Section 43A to exchange fluctuation on loans for acquiring assets

Treatment of premium paid on forward contract as capital loss - capitalisation of exchange difference - Whether the premium paid on forward contract for hedging foreign exchange fluctuations is capital in nature and to be treated as increasing the cost of the project (capital loss) rather than a revenue expenditure. - HELD THAT: - The Tribunal held that the premium paid was incurred in the course of setting up the project and therefore constituted a capital loss; this Court noted that the same question had been raised and answered against the assessee in T.C.A.No.171 of 2019 and that the decision of higher authorities supports treating exchange differences incurred in relation to loans raised for acquiring fixed assets as capital. The Court observed that the purpose for which the loan was raised - to acquire a capital asset - is determinative, and that where a foreign currency liability is incurred for acquiring a fixed asset the exchange difference is required to be capitalised. Having regard to the admitted fact that the loan was borrowed for acquiring the capital asset and the Tribunal's finding that the expense was in the course of setting up the project, the Court affirmed the characterization of the premium as capital in nature. [Paras 3, 6]

The premium on the forward contract is capital in nature and to be treated as a capital loss (added to the cost of the project); the Tribunal's view on classification is upheld.

Addition to cost of capital asset and allowance of depreciation on enhanced value - connection between foreign currency borrowing and cost of fixed asset - application of Section 43A to exchange fluctuation on loans for acquiring assets - Whether, having treated the premium as capital loss, the assessee is entitled to depreciation by adding the premium to the cost of the asset (i.e., allowance of depreciation on the enhanced value). - HELD THAT: - The Tribunal, while confirming that the loss was capital, directed that the Assessing Officer grant depreciation on the enhanced value of the project, reasoning that losses on foreign exchange fluctuations incurred in setting up the plant increase the project cost and thus affect the depreciable base. The Revenue contended there is no provision permitting such addition where assets were purchased in India and the premium is not connected to asset cost. The Court rejected that contention on the facts: although the loan was initially in Indian currency, it was converted into foreign currency and the premium related to that foreign currency borrowing taken for acquiring the capital asset; therefore the foreign currency liability cannot be regarded as unconnected to the asset cost. The Court found no material to place the assessee at a disadvantage on both classification and depreciation grounds and held that the Tribunal was correct in directing allowance of depreciation on the enhanced value. [Paras 4, 6, 7]

The Tribunal was right to direct that the premium be added to the cost of the project and that depreciation be allowed on the enhanced value; the Revenue's challenge is rejected.

Final Conclusion: The Tax Case Appeal is dismissed. The Tribunal's order treating the premium on the forward contract as capital (added to project cost) and directing allowance of depreciation on the enhanced value is upheld; the substantial questions of law are answered against the Revenue.

Exemption under Section 54 of the Income Tax Act - capital gains deposit scheme - strict interpretation of fiscal exemptions - infructuous appeal - vacatur of subordinate court's legal finding - direction to give effect to order under Section 264(7) of the Income Tax Act

Infructuous appeal - direction to give effect to order under Section 264(7) of the Income Tax Act - Whether the Revenue's writ appeal remained maintainable after the assessing authority had given effect to the writ court's direction and granted relief. - HELD THAT: - The Division Bench found that, although the appeal was filed, procedural defects delayed its proper presentation and by the time the appeal was properly before the Court the first appellant had already passed an order on 20.02.2020 giving effect to the writ court's directions and granting the assessee the relief. The impugned order recorded that it was passed without prejudice to the department's rights but, in substance, the relief sought in the writ petition had been implemented. Having regard to these facts and the implementation of the relief, the Court held that the Revenue could not pursue the appeal and that it had become infructuous. The Court therefore dismissed the writ appeal on that ground and directed the first appellant to give effect to the order dated 20.02.2020 within four weeks. [Paras 16, 18, 19]

Writ appeal dismissed as having become infructuous; first appellant directed to give effect to his order dated 20.02.2020 within four weeks.

Exemption under Section 54 of the Income Tax Act - capital gains deposit scheme - strict interpretation of fiscal exemptions - vacatur of subordinate court's legal finding - Whether the legal conclusion of the Single Judge - that non compliance with the deposit requirement under the capital gains deposit scheme could not defeat exemption under Section 54 where construction was completed within the time prescribed - should stand. - HELD THAT: - The Division Bench noted conflicting authorities and observed that the question of law concerning the interplay between investment in construction within the statutory time and the deposit requirement in the capital gains deposit scheme raises points on strict construction of exemption provisions. The Bench expressed a prima facie view favouring the position taken in Humayun Suleman Merchant and the principle that fiscal exemptions and related notifications are to be strictly construed, but emphasised that because the appeal was rendered infructuous by implementation of the relief, it would not decide the point finally. Consequently the Court vacated the Single Judge's finding on this question of law and left the legal issue open for determination in appropriate proceedings. [Paras 9, 10, 11, 19]

The Single Judge's legal finding on the question of law is vacated and the question of law is left open for adjudication in appropriate proceedings.

Final Conclusion: The writ appeal was dismissed as having become infructuous because the assessing authority had given effect to the writ court's order; the Court directed implementation of the order dated 20.02.2020 and vacated the Single Judge's legal conclusion on the interpretation of Section 54 and the deposit requirement, leaving that question open for future adjudication.

Container Freight Station as part of an Inland Port - eligibility for deduction under Section 80IA(4) of the Income Tax Act - requirement of agreement with Central/State Government or statutory authority for infrastructure deduction - new infrastructure facility condition and applicability to extensions of pre-existing facilities - role of administrative notifications and communications in construing statutory terms

Container Freight Station as part of an Inland Port - eligibility for deduction under Section 80IA(4) of the Income Tax Act - Container Freight Station (CFS) qualifies as an 'inland port' for the purposes of claiming deduction under Section 80IA(4). - HELD THAT: - The Court applied and followed earlier decisions of the Division Bench in the assessee's own case and the reasoning of the Supreme Court in the cited authority concerning ICDs/ICDs being treated as inland ports. Those precedents recognised that depots functioning to facilitate import/export away from sea ports are to be considered inland ports for tax purposes and that administrative notifications and communications treating such depots as inland ports support that classification. In view of those binding and persuasive decisions, the Tribunal's conclusion that a CFS constitutes an inland port and is thus within the ambit of infrastructure eligible for deduction under Section 80IA(4) was upheld.

The finding that the CFS is part of an inland port and eligible for deduction under Section 80IA(4) is affirmed.

Requirement of agreement with Central/State Government or statutory authority for infrastructure deduction - role of administrative notifications and communications in construing statutory terms - Absence of a formal agreement with Central/State Government, local authority or other statutory body does not preclude the assessee from claiming deduction under Section 80IA(4) in the facts of this case. - HELD THAT: - The Court rejected Revenue's contention that the mandatory condition of an agreement with government/statutory authority, as pleaded, was not satisfied. The decision relied on the Tribunal's application of the earlier favourable Division Bench ruling and related authorities which treat the nature and classification of the facility (as an inland port) and relevant administrative communications as determinative for eligibility. Consequently, the Tribunal's allowance of deduction despite the absence of a formal agreement was sustained on the authority of those precedents.

The claim for deduction was allowed notwithstanding the absence of a formal agreement with government/statutory bodies in the circumstances of the case.

New infrastructure facility condition and applicability to extensions of pre-existing facilities - eligibility for deduction under Section 80IA(4) of the Income Tax Act - Extension of an existing Container Freight Station that was functional prior to 1 April 1995 does not, on the authorities relied upon, bar the assessee from claiming deduction under Section 80IA(4) in the present appeals. - HELD THAT: - The Court, following the Tribunal and the Division Bench decision in the assessee's earlier years, treated the question of whether the facility must be a 'new' infrastructure facility as answered by the precedents which protected eligibility where the nature of the facility and statutory/administrative recognition supported the grant of deduction. The reasoning of higher authorities that units permitted deductions prior to statutory amendments could not be deprived of benefits for the relevant periods was applied to conclude that being an extension of a pre-1995 facility did not defeat the claim in these appeals.

The Tribunal's conclusion that the extension of the pre-1995 CFS remained eligible for deduction under Section 80IA(4) is upheld.

Role of administrative notifications and communications in construing statutory terms - interpretation of CBDT Circular in relation to deemed agreement or eligibility - Reliance on administrative notifications, communications and the CBDT circular to characterise port-related structures as forming part of a 'port' is permissible and does not amount to misconstruction where such instruments support classification; the Tribunal did not err in relying on such materials to uphold the assessee's claim. - HELD THAT: - The Court noted the Tribunal and Division Bench had regard to administrative instruments which treat ICDs/CFS as inland ports. While such notifications and communications are not binding beyond their domain, the authorities referred to provided reasonable foundation to treat the facilities as inland ports for Section 80IA(4) purposes. The Tribunal's use of the CBDT circular and related communications to sustain the claim was therefore sustained, rather than construed as treating the circular as a substitute for a formal agreement.

The Tribunal correctly relied upon administrative notifications/communications and the CBDT circular to support classification of the facility, and no misconstruction of the circular was found.

Final Conclusion: Appeals dismissed. Following the Division Bench precedent in the assessee's earlier case and the higher court authority on classification of ICDs/ICDs as inland ports, the Tribunal's findings allowing deduction under Section 80IA(4) for the Assessment Years 2013-2014 and 2014-2015 are affirmed and the substantial questions of law are answered against the Revenue. Connected miscellaneous petition closed; no costs.

Deduction under Section 54 - substantial payments towards construction within three years - capital gains account deposit and withdrawal - investment from advance received on sale - remand to the Assessing Officer for fresh consideration

Deduction under Section 54 - substantial payments towards construction within three years - capital gains account deposit and withdrawal - investment from advance received on sale - remand to the Assessing Officer for fresh consideration - Claim for deduction under Section 54 of the Income Tax Act remitted to the Assessing Officer for fresh adjudication - HELD THAT: - The Tribunal had negatived the assessee's claim while the Commissioner of Income Tax (Appeals) had recorded findings (reproduced in the order) that the assessee had (i) invested capital gains partly in specified bonds and the balance deposited in capital gains accounts, (ii) purchased a plot and paid advances out of amounts traceable to the sale proceeds, and (iii) made substantial payments to the builder towards construction. The Assessing Officer denied exemption only on the ground that construction was not completed within three years. The High Court observed that the Assessing Officer had not given elaborate reasons nor properly dealt with the CITA's findings, and that the Tribunal had not appreciated those findings in proper perspective. In view of these lacunae and because several related issues were being remanded, the Court set aside the Tribunal's order and restored the matter to the file of the Assessing Officer for fresh consideration of the Section 54 claim, permitting the assessee to raise all points earlier urged before the CITA. The Court left the substantial questions of law open. [Paras 8]

Tribunal's order set aside; matter remanded to the Assessing Officer to decide the assessee's claim under Section 54 afresh, with liberty to the assessee to re-agitate all points; substantial questions left open.

Final Conclusion: The appeal is allowed in part: the Income Tax Appellate Tribunal's order is set aside and the matter is remitted to the Assessing Officer for fresh consideration of the claim under Section 54; the assessee may raise all points earlier placed before the CITA and the substantial questions of law are left open.

Deduction of interest on capital borrowed for the purpose of business under Section 36(1)(iii) - Applicability of the cash system of accounting and non-application of the matching principle - Commercial expediency of inter-company advances - Substantial question of law under Section 260A and findings of fact

Deduction of interest on capital borrowed for the purpose of business under Section 36(1)(iii) - Commercial expediency of inter-company advances - Whether the disallowance made under Section 36(1)(iii) was rightly deleted and interest paid on borrowed capital used in the assessee's investment business was allowable. - HELD THAT: - The Court held that Section 36(1)(iii) does not disqualify interest paid on borrowed capital merely because the borrowed funds were used to acquire capital assets or advanced to sister/group concerns. Reliance on earlier High Court and coordinate-bench decisions and the Supreme Court's guidance in S.A. Builders shows that allowance depends on facts and whether advances were made as a matter of commercial expediency. Where, as in the present case, the assessee is an investment company following a cash system of accounting and there is no finding that advances were made for non-commercial or arbitrary purposes, the Tribunal correctly concluded that the disallowance was not warranted. The question whether the lower interest charged reflected lack of commercial expediency is essentially a question of fact, and no such adverse factual finding was recorded by the Tribunal. Hence the concurrent findings of the CIT(A) and the Tribunal upholding the allowance were upheld. [Paras 8, 9]

The deletion of the disallowance under Section 36(1)(iii) was upheld and the interest paid on borrowed capital used in the assessee's investment business was held to be allowable.

Applicability of the cash system of accounting and non-application of the matching principle - Substantial question of law under Section 260A and findings of fact - Whether the matching principle could be applied to disallow interest where the assessee followed the cash basis of accounting. - HELD THAT: - The Court agreed with the Tribunal that when an assessee follows a cash system of accounting interest income is recognised on receipt and interest expense on payment, so the matching principle cannot be mechanically imposed to disallow interest. The disparity between interest received and interest paid could arise from timing differences inherent in cash-basis accounting rather than from selective or improper charging of interest. Applying the matching principle in such circumstances would be inappropriate absent specific factual findings showing non-commercial conduct. The Tribunal's factual conclusion that the disparity arose from the cash system and not from selective lower charging was accepted. [Paras 7, 9]

The matching principle was held not applicable to disallow interest where the assessee followed the cash system of accounting; the Tribunal's conclusion on this point was upheld.

Final Conclusion: The High Court dismissed the revenue's appeals, answered the substantial questions of law against the revenue and in favour of the assessee, and upheld the Tribunal's deletion of the disallowance; no costs.

Discount on issue of debentures - Revenue expenditure versus capital expenditure - Allowability of deduction in the year of incurrence - Spreading deduction over the life of the debentures - Matching principle - Application of Madras Industrial Investment Corporation Ltd. precedent - Inapplicability of decision on issue of bonus shares / General Insurance Corporation decision to debenture discounts

Discount on issue of debentures - Spreading deduction over the life of the debentures - Allowability of deduction in the year of incurrence - Application of Madras Industrial Investment Corporation Ltd. precedent - Whether the discount on issue of debentures is deductible in full in the year of issue or must be allowed proportionately over the period of redemption - HELD THAT: - The Court accepted that discount on debentures is revenue expenditure but applied the exception carved out by the Supreme Court in Madras Industrial Investment Corporation Ltd., observing that allowing the entire discount in one year may give a distorted picture of profits. The assessee had issued debentures at a discount and redemption was staggered over five years; the accounting treatment of spreading the discount over the redemption period was therefore a proper method to reflect the enduring nature of the benefit. Although ordinarily revenue expenditure is deductible in the year of incurrence, the Court held that the exception in Madras Industrial Investment Corporation Ltd. applies to discounts on debentures and justifies proportionate allowance over the life of the debentures rather than a single-year deduction. [Paras 6, 7]

Discount on issue of debentures is revenue in nature but deduction must be allowed proportionately over the redemption period, not in full in the year of issue.

Matching principle - Revenue expenditure versus capital expenditure - Inapplicability of decision on issue of bonus shares / General Insurance Corporation decision to debenture discounts - Allowability of deduction in the year of incurrence - Whether the matching principle or the decision in Taparia Tools Limited / General Insurance Corporation applies to permit full deduction in the year of issue - HELD THAT: - The Court examined Taparia Tools Limited and General Insurance Corporation authorities and distinguished them on facts. Taparia concerned an upfront payment that evidenced continuing benefit and satisfaction of the matching concept; General Insurance Corporation related to issue of bonus shares and the capital-revenue contention in that context. In the present case the assessee did not demonstrate creation of a capital asset or an enduring benefit that would satisfy the matching principle; the benefit from issuing debentures at a discount was immediate (receiving lesser outflow), and there was no fresh flow of funds creating an asset. Consequently, the matching principle as applied in Taparia could not be invoked to allow spreading by concession of the court, and the decisions relied upon by the assessee were held inapplicable. [Paras 4, 6, 7]

Taparia Tools Limited and General Insurance Corporation decisions are inapplicable on the facts; the matching principle is not satisfied and does not justify full deduction in the year of issue.

Final Conclusion: The appeal is dismissed; the discount on issue of debentures is revenue expenditure but must be allowed proportionately over the period of redemption in accordance with the principle in Madras Industrial Investment Corporation Ltd., and the assessee's claim for full deduction in Assessment Year 2006-07 is rejected.

Direct Tax Vivad Se Vishwas Act, 2020 - declaration under Section 4 of the Direct Tax Vivad Se Vishwas Act, 2020 - disposal of pending appeal on account of settlement declaration - liberty to restore appeal where settlement decision is adverse

Declaration under Section 4 of the Direct Tax Vivad Se Vishwas Act, 2020 - disposal of pending appeal on account of settlement declaration - liberty to restore appeal where settlement decision is adverse - Whether the tax appeal should be kept pending after the assessee filed a declaration and remitted tax under the Direct Tax Vivad Se Vishwas Act, 2020, and what procedural liberty should be granted if the Department's decision on the declaration is adverse. - HELD THAT: - The Court recorded that the assessee filed a declaration under Section 4 of the Direct Tax Vivad Se Vishwas Act, 2020 and has remitted the tax computed under the Act. In view of this, the appeal was disposed of as no useful purpose would be served in keeping it pending while the Department processes the declaration under the statutory scheme. The Court nonetheless safeguarded the assessee's position by granting liberty to restore the appeal in the event the final decision on the declaration is not in the assessee's favour; such restoration shall be permitted without insistence on an application for condonation of delay, and the Registry is directed to place any Miscellaneous Petition for Restoration before the Division Bench for orders.

Tax Case Appeal disposed of as the assessee has filed a declaration and remitted tax under the Vivad Se Vishwas Act, 2020; assessee granted liberty to restore the appeal without condonation of delay if the Department's decision on the declaration is adverse.

Final Conclusion: The appeal was disposed of because the assessee filed a declaration and paid the tax under the Direct Tax Vivad Se Vishwas Act, 2020; the Department is directed to process the declaration, and the assessee is granted liberty to restore the appeal without formal delay condonation if the outcome under the Act is unfavourable.

Deduction under Section 80IB - Vivad Se Vishwas Scheme - declaration under Section 4 of the Direct Tax Vivad Se Vishwas Act, 2020 - determination of amount payable under Section 3 of the Direct Tax Vivad Se Vishwas Act, 2020 - immunity from initiation of proceedings and penalty under the VSV Act - restoration of appeals without condonation of delay

Vivad Se Vishwas Scheme - declaration under Section 4 of the Direct Tax Vivad Se Vishwas Act, 2020 - determination of amount payable under Section 3 of the Direct Tax Vivad Se Vishwas Act, 2020 - Direction permitting the assessee to file a declaration under the Direct Tax Vivad Se Vishwas Act, 2020 and ordering its expeditious processing - HELD THAT: - Although the appeals raised Substantial Questions of Law concerning entitlement to deduction under Section 80IB, the Court declined to decide those questions on account of the availability of the statutory VSV scheme enacted by Parliament. The Court granted the assessee liberty to file Form No. I (a declaration under Section 4) on or before the date specified and directed the competent authority to process the declaration and determine the amount payable in accordance with the Act. The Court recorded the legislative scheme permitting calculation of amounts payable under Section 3 and the consequences of filing the declaration, including the statutory provisions concerning time, manner of payment and immunity from certain proceedings and penalties, and therefore framed relief in terms of participation in that scheme rather than adjudicating the Substantial Questions.

Assessee directed to file Form No. I by the stipulated date and competent authority directed to process the declaration and pass orders expeditiously in accordance with the VSV Act.

Restoration of appeals without condonation of delay - immunity from initiation of proceedings and penalty under the VSV Act - Permission to restore the disposed appeals if the VSV declaration outcome is not in the assessee's favour, without insistence on separate condonation applications - HELD THAT: - The Court provided the assessee a procedural safeguard: if the declaration filed under the VSV Act ultimately does not favour the assessee, the assessee may seek restoration of these appeals. The Registry was directed to entertain such restoration petitions and place them before the Division Bench without requiring separate applications for condonation of delay. This direction preserves the assessee's appellate rights pending the outcome of the VSV process while facilitating final disposal if the declaration resolves the dispute.

Liberty granted to the assessee to restore the appeals in the event the declaration outcome is adverse; restoration petitions to be entertained without condonation of delay.

Final Conclusion: The tax appeals are disposed of by permitting the assessee to participate in the Direct Tax Vivad Se Vishwas Act, 2020 by filing the prescribed declaration within the time directed and by directing expeditious processing; liberty to restore the appeals without condonation is granted if the VSV outcome is adverse; the framed Substantial Questions of Law remain undecided.

Speaking order - quasi-judicial duty to record reasons - re-assessment and time for passing speaking order under Section 17(5) - confusion as to date of adjudication and date of signing/issuance of order - remand for fresh adjudication - maintenance of status quo on seized/imported goods

Speaking order - quasi-judicial duty to record reasons - confusion as to date of adjudication and date of signing/issuance of order - Validity of the order-in-original impugned for being non-speaking and for internal inconsistencies in dates and recording of operative part. - HELD THAT: - The Court found that the adjudicating authority had recorded the operative part of the order before recording reasons, and the file demonstrated conflicting dates (order dated 04.09.2020, signing and issuance on 24.09.2020, but assertions of final assessment on 09.09.2020). Such splitting of an operative order and subsequent 'speaking' reasons is contrary to the obligation of a quasi-judicial authority to pass a composite, self-sustaining speaking order. The Court relied on statutory provision governing re-assessment and the requirement of a speaking order, relevant CBIC instructions and binding precedents emphasising that reasons are an indispensable component of adjudicatory decisions. In view of the demonstrated non-application of mind and procedural irregularity, the order-in-original was set aside in toto and the conduct of passing the impugned order was deprecated. [Paras 18, 21, 23, 25, 32]

Order-in-original dated '4th September, 2020 signed on 24th September, 2020 and issued on 24th September, 2020' set aside in toto for failure to pass a speaking order and for internal inconsistency regarding dates and procedure.

Remand for fresh adjudication - personal hearing - maintenance of status quo on seized/imported goods - Procedure to be followed after setting aside - re-delegation and fresh adjudication. - HELD THAT: - Having set aside the impugned order, the Court directed that another officer be deputed in place of the present adjudicating authority to hear the petitioner's case. The officer so deputed is to afford an opportunity of personal hearing and to pass a reasoned speaking order in accordance with law within two weeks from the date of the Court's order. Meanwhile, the Court ordered maintenance of status quo in respect of the goods covered by Bill of Entry No. 8389492 dated 6th August, 2020, pending the fresh adjudication. The Court expressly refrained from expressing any opinion on the merits of the valuation or confiscation. [Paras 32]

Matter remanded for fresh adjudication by a different officer who shall grant personal hearing and pass a speaking order within two weeks; status quo to be maintained in the interim.

Standing order as guideline - Challenge to the vires of Standing Order No.7493/99 (and its amendment) raised by the petitioner. - HELD THAT: - The Court noted that the Supreme Court in earlier authority has held the impugned Standing Order to be non-binding and merely advisory in nature. In the light of that precedent and the petitioner's correspondence requesting valuation as per PLATT rates, the Court declined to examine the vires of the Standing Order and considered it unnecessary to decide that challenge in the present proceedings. [Paras 34]

Challenge to the vires of Standing Order No.7493/99 (and its amendment) not considered as unnecessary in view of binding precedent; no adjudication on that challenge.

Final Conclusion: The writ petition is disposed by setting aside the impugned order-in-original for failure to be a speaking order and for procedural irregularities; the matter is remitted to a different adjudicating officer to afford personal hearing and to pass a reasoned order within two weeks, with status quo maintained on the goods; the challenge to the Standing Order was not adjudicated as unnecessary in view of precedent; no costs awarded.

Amendment of shipping documents under Section 149 of the Customs Act - No Objection Certificate for fulfilment of export obligation - Circulars cannot override statutory provisions - Time-limit prescribed by departmental circular for conversion of shipping bill

Amendment of shipping documents under Section 149 of the Customs Act - No Objection Certificate for fulfilment of export obligation - Circulars cannot override statutory provisions - Validity of rejection of the petitioner's application for issuance of No Objection Certificate on the ground that it was filed beyond the three months time-limit prescribed by a departmental circular. - HELD THAT: - The Court examined Section 149 of the Customs Act, 1962, which permits amendment of documents including shipping bills after export only subject to the proviso requiring documentary evidence in existence at the time of export. The respondents had rejected the petitioner's request for a No Objection Certificate by applying condition 3(a) of the departmental circular fixing a three months timeline from the date of Let Export Order for conversion. The Court held that a departmental circular cannot supplant or curtail the statutory scheme under Section 149 by imposing a time-bar inconsistent with the Act. If the revenue considered a legislative change necessary, it could seek amendment of the statute or an ordinance; absent such change the circular cannot be applied to deny relief which the statute permits. Consequently, the rejection based on the circular was contrary to Section 149 and unsustainable. [Paras 8, 9, 10]

Rejection of the application for No Objection Certificate on the basis of the three-month time-limit in the circular was quashed; the circular cannot override Section 149.

No Objection Certificate for fulfilment of export obligation - Remedial direction to administrative authorities - Relief to be granted to the petitioner after quashing of the impugned order. - HELD THAT: - Having found the respondents' reliance upon the circular impermissible, the Court set aside the impugned order rejecting the petitioner's application (Ext.P10) and directed the respondents to issue the No Objection Certificate so as to permit amendment of the shipping bills and to treat the three shipments as fulfillment of the respective advance authorisations. The Court required this administrative exercise to be completed within one month from receipt of the judgment, thereby providing a direct and time bound remedy to the petitioner. [Paras 10]

Impugned order Ext.P10 quashed and respondents directed to issue the No Objection Certificate and complete the amendment exercise within one month.

Final Conclusion: Writ petition allowed; departmental rejection based on the three month circular is quashed as inconsistent with Section 149 of the Customs Act, and respondents are directed to issue the No Objection Certificate and effect the amendments within one month.

Import and export free subject to regulation - power of Central Government to formulate and amend the Foreign Trade Policy - restriction on import can be imposed only by notification under the Foreign Trade (Development and Regulation) Act/Foreign Trade Policy - DGFT may impose restrictions by notification under the Foreign Trade Policy; prohibition cannot be effected by mere circulars - Reserve Bank of India circulars regulate nominated banks/agencies and the mode of payment, not the import policy - customs classification under ITC/CTH codes relevant to import policy applicability

Import and export free subject to regulation - restriction on import can be imposed only by notification under the Foreign Trade (Development and Regulation) Act/Foreign Trade Policy - Whether the gold medallions and gold granules were subject to restriction at the time of their importation. - HELD THAT: - The Court held that the imports in question were freely importable on the dates they were brought into India. The Central Government's Notification dated 25.08.2017 (restricting certain imports from South Korea) was issued after the import of the gold medallions on 03.07.2017, and the amendment by DGFT dated 18.12.2019 (restricting import of gold through nominated agencies) was issued after the import of gold granules on 21.09.2017. Under the Foreign Trade (Development and Regulation) Act, 1992 and the Foreign Trade Policy, changes in categorization from free to restricted must be made by amendment/notification by the Central Government or by DGFT under the policy provisions, and cannot be applied retrospectively to imports made prior to such notifications. Hence, at the respective dates of import the goods were not subject to restriction. [Paras 6, 7, 8, 9, 10]

The imported gold medallions and gold granules were freely importable on their respective dates of import and were not subject to confiscation on the basis of subsequently issued restrictions.

Reserve Bank of India circulars regulate nominated banks/agencies and the mode of payment, not the import policy - DGFT may impose restrictions by notification under the Foreign Trade Policy; prohibition cannot be effected by mere circulars - power of Central Government to formulate and amend the Foreign Trade Policy - Whether Reserve Bank of India circulars or DGFT circulars could, in themselves, impose or effect a prohibition or restriction on import applicable to the respondent. - HELD THAT: - The Court observed that regulation of imports/exports, including imposition of prohibitions or restrictions, lies within the domain of the Ministry of Commerce/DGFT and is governed by the Export Import/Foreign Trade Policy promulgated under Section 5 of the FT(D&R) Act. Circulars issued by the RBI pertain to nominated banks/agencies and modalities (such as mode of payment) and do not substitute for a statutory notification amending the import policy. Likewise, DGFT cannot effect a change in categorization from free to restricted by mere circulars; such change requires issuance of a notification under the statutory scheme. The Court relied on the RBI communication confirming that import/export regulation is within DGFT/Ministry of Commerce's domain. [Paras 6, 7, 11, 12]

RBI circulars do not, by themselves, impose import prohibitions on non nominated importers; DGFT/Central Government must issue the statutory notification to change import policy.

Final Conclusion: The revenue appeals are dismissed; the Tribunal's orders quashing the earlier confiscation/restriction findings were upheld because the goods were freely importable on the dates of import and restrictions were imposed only by subsequent notifications, and RBI circulars do not effect import prohibitions applicable to the respondent.

Maintainability of appeal under Section 130A of the Customs Act, 1962 - appellate limitation by monetary threshold - applicability of Central Board instructions to legacy Central Excise and Service Tax matters - instruction dated 11.12.2015 fixing monetary limit for filing appeals - instruction dated 22.08.2019 limited to legacy Central Excise and Service Tax

Maintainability of appeal under Section 130A of the Customs Act, 1962 - appellate limitation by monetary threshold - instruction dated 11.12.2015 fixing monetary limit for filing appeals - instruction dated 22.08.2019 limited to legacy Central Excise and Service Tax - Whether the appeal under Section 130A of the Customs Act, 1962 is maintainable in view of departmental instructions fixing a monetary threshold for filing appeals. - HELD THAT: - The Court examined the sequence of Board instructions fixing monetary limits for filing appeals and their fields of application. The instruction of 11.12.2015 fixed the monetary limit at Rs. 15 lakhs for filing appeals and, as applied to this case, governs appeals arising under the Customs Act. The later instruction dated 22.08.2019 was held to apply only to legacy Central Excise and Service Tax matters and does not extend to matters under the Customs Act. As the dispute before the Tribunal was confined to interest on an amount which is less than the monetary threshold fixed by the 11.12.2015 instruction, the statutory and administrative framework disallows entertaining the appeal on merits.

Appeal not entertainable as the amount in dispute is below the Rs. 15,00,000 monetary limit fixed by the Board's instruction dated 11.12.2015; appeal dismissed.

Final Conclusion: The appeal is dismissed because the amount in dispute falls below the monetary limit for filing appeals under the Customs Act as prescribed by the Board's instruction dated 11.12.2015; the 22.08.2019 instruction does not apply to Customs matters.

Confiscation of smuggled goods - penalty under Section 112(a) and 112(b) of the Customs Act, 1962 - valuation for penalty and principles of natural justice - redemption fine - deeming of goods as prohibited goods under the definition of prohibited goods - reduction of penalties

Valuation for penalty and principles of natural justice - Validity of the valuation adopted by the Department for computing penalties and whether principles of natural justice were complied with - HELD THAT: - The Tribunal found that the show-cause notice and adjudication relied upon internet reference values without providing website addresses, screenshots or any reasoning explaining adoption of those values; the Annexures listing values lacked verifiable particulars. This omission prevented verification of the Department's claim and constituted a breach of principles of natural justice and rendered the valuation arbitrary and legally unsustainable. Notwithstanding this finding, because the appellants did not press for revaluation or a market survey at this stage, the Tribunal refrained from remanding the matter to the Commissioner for fresh valuation. [Paras 6]

Valuation adopted by the Department is arbitrary and violative of natural justice, but matter is not remanded as appellants did not press for revaluation.

Confiscation of smuggled goods - penalty under Section 112(a) and 112(b) of the Customs Act, 1962 - deeming of goods as prohibited goods under the definition of prohibited goods - Whether the goods were liable for confiscation and whether the appellants were liable for penalties under Section 112 - HELD THAT: - The appellants had accepted carrying goods in excess of free baggage allowances and mis-declaration/non-declaration in their statements. The Tribunal held there was no doubt that the goods were smuggled in nature and therefore liable for confiscation. The Tribunal noted inconsistencies in the Department's approach to characterising goods as 'prohibited' for the purpose of penalty calculation but accepted that confiscation and liability for penalty under Section 112(b) are warranted on the facts of mis-declaration and smuggling. The Tribunal also observed that the adjudicating authority ought to have given reasons relating to the role of individual appellants when imposing penalty under Section 112(a) and (b). [Paras 7]

Goods liable for confiscation and appellants liable to penalties under Section 112(b); deficiencies in reasoning on individual roles were noted.

Redemption fine - reduction of penalties - penalty under Section 112(a) and 112(b) of the Customs Act, 1962 - Appropriate quantum of redemption fines and personal penalties to be imposed in light of defects in valuation and other circumstances - HELD THAT: - Having held the Department's valuation to be arbitrary and in view of the appellants' acceptance of smuggling but without pressing revaluation, the Tribunal exercised its discretion to reduce both the redemption fines and the personal penalties imposed by the Commissioner. The Tribunal set out specific reduced redemption fines and corresponding reduced personal penalties for each appellant in the order, disposing of the appeals accordingly. [Paras 7, 8]

Redemption fines and personal penalties reduced as per the Tribunal's order; appeals disposed of on those terms.

Final Conclusion: The Tribunal sustained confiscation of the smuggled goods and appellants' liability to penalty, found the Department's valuation arbitrary and violative of natural justice (but did not remit for revaluation since appellants did not press it), and reduced the redemption fines and personal penalties, disposing of the appeals in the terms indicated.

Export obligation under EPCG scheme - denial of exemption for non-fulfilment of EPCG export obligation - remand for verification of documentary evidence - de novo adjudication - opportunity of personal hearing

Export obligation under EPCG scheme - denial of exemption for non-fulfilment of EPCG export obligation - remand for verification of documentary evidence - de novo adjudication - opportunity of personal hearing - Whether the adjudged demands and consequential measures can be sustained without fresh verification of the appellant's claim of having achieved the export obligation under the EPCG licence. - HELD THAT: - The Tribunal observed that the department initiated proceedings and confirmed demands on the ground of non-fulfilment of export obligation as per the EPCG licence and the applicable Customs notification. The appellant asserted that it had fulfilled the export obligation and that this achievement had been endorsed by the issuing DGFT office. Given that the factual question of achievement of the export obligation is disputed and supported by documentary assertions, the Tribunal held that the adjudged demands could not be sustained without examination of those facts at the original stage. Accordingly, the Tribunal set aside the impugned adjudication and remanded the matter to the original authority for de novo adjudication, directing that documentary evidence be verified and that the appellant be afforded an opportunity of personal hearing before a fresh decision is taken. [Paras 6, 7]

Impugned order set aside and matter remanded to the original authority for de novo adjudication of the factual question of achievement of export obligation, with opportunity of personal hearing.

Final Conclusion: Appeal allowed by way of remand: the adjudication is set aside and the matter is remitted to the original authority for fresh verification and decision on whether the export obligation under the EPCG licence has been achieved, after affording the appellant personal hearing.

Anticipatory bail under Section 438 Cr.P.C. - power of Customs to arrest and question under Section 108 of the Customs Act - prematurity of anticipatory bail where the person has not been made an accused - economic offences as a separate class requiring sparing exercise of anticipatory bail

Anticipatory bail under Section 438 Cr.P.C. - power of Customs to arrest and question under Section 108 of the Customs Act - prematurity of anticipatory bail where the person has not been made an accused - economic offences as a separate class requiring sparing exercise of anticipatory bail - Whether the petitioner, who has been summoned and questioned but not yet made an accused, is entitled to anticipatory bail. - HELD THAT: - The Court held that anticipatory bail is premature where the petitioner has only been questioned under the statutory power of Customs and has not been made an accused. The power of Customs officers to arrest or to exercise questioning under the Customs Act is statutory and cannot be curtailed by an anticipatory bail order at a stage when the officer's objective reason to believe is yet to be tested; the Court relied on the principle that interference with such statutory powers is not appropriate in the absence of a clear showing that the power is being exercised on whims or mala fide. The judgment observed that economic offences constitute a distinct class and that extraordinary relief under Section 438 Cr.P.C. must be exercised sparingly in such matters, adopting the approach of the Apex Court in earlier decisions [Padam Narain Aggarwal] and authorities emphasising restraint in granting anticipatory bail in economic offences [P. Chidambaram], [Rohit Tandon] while noting the applicant's reliance on broader statements about the scope of Section 438 [Sushila Aggarwal]. Applying these principles to the material on record - repeated questioning, contact with a principal accused and volunteered assistance to that person - the Court found no sufficient basis to curtail the statutory questioning powers or to grant pre-arrest bail at this stage; whether the petitioner was actively involved in the offence was left to investigation and subsequent adjudication. [Paras 11]

Anticipatory bail refused; prayer for pre-arrest bail dismissed as premature and inappropriate in the circumstances of an economic offence where the petitioner has not yet been made an accused.

Final Conclusion: The petition for anticipatory (pre-arrest) bail is dismissed on the ground of prematurity and in view of the need to preserve the statutory power of Customs to question and investigate in an economic offence; the issue of culpability is left to the ongoing investigation and any subsequent prosecution.

Jurisdiction of civil courts under Section 9 of the Code of Civil Procedure, 1908 - Bar on civil suit by Section 430 of the Companies Act, 2013 - Powers of the National Company Law Tribunal under Sections 241 and 242 of the Companies Act, 2013 - Setting aside of transfers under Section 242(2)(g) of the Companies Act, 2013 - Exclusion of jurisdiction to be strictly construed but given effect where provided

Bar on civil suit by Section 430 of the Companies Act, 2013 - Powers of the National Company Law Tribunal under Sections 241 and 242 of the Companies Act, 2013 - Jurisdiction of civil courts under Section 9 of the Code of Civil Procedure, 1908 - Whether the Civil Court had jurisdiction to entertain the suit which challenged a board resolution and the consequent sale-deed, in view of the jurisdiction conferred on the NCLT and the bar under Section 430 of the Companies Act, 2013. - HELD THAT: - The Court held that a conjoint reading of Sections 241/242 with Section 430 of the Companies Act, 2013 excludes civil court jurisdiction in respect of matters which the NCLT or NCLAT are empowered to determine. The plaintiff's principal challenge before the Civil Court was to the board resolution dated 2nd February, 2014, a matter squarely within the NCLT's jurisdiction under Sections 241/242. Because the relief in the civil plaint (including setting aside the board resolution) is within the scope of powers exercisable by the NCLT, the trial court correctly upheld the objection to its jurisdiction under Section 9A CPC. The Court emphasised that although jurisdictional exclusion must not be lightly inferred given the plenary jurisdiction under S.9 CPC, where a statute expressly or by necessary implication bars civil jurisdiction, that bar must be given full effect. Accordingly, the impugned order disallowing the Civil Court's jurisdiction was upheld. [Paras 13, 16]

Civil Court lacked jurisdiction to entertain the suit to the extent it challenged the board resolution and related transfer, and the Trial Court correctly upheld the objection under Section 9A CPC in view of Section 430 read with Sections 241/242 of the Companies Act, 2013.

Setting aside of transfers under Section 242(2)(g) of the Companies Act, 2013 - Powers of the National Company Law Tribunal under Sections 241 and 242 of the Companies Act, 2013 - Whether the petitioner was rendered remediless because the NCLT could not set aside transfers older than three months under Section 242(2)(g), and whether refusal of interim relief by the NCLT amounted to lack of jurisdiction. - HELD THAT: - The Court noted that Section 242(2)(g) permits the Tribunal to set aside transfers made by or on behalf of the company within three months before the date of application, but that this statutory power does not automatically render the NCLT incapable of affording consequential or other reliefs by virtue of its broader powers under Sections 241/242. The NCLT had admitted the company petition and refused interim relief in respect of the 2014 transaction on the ground that the transaction had already concluded; it did not decline jurisdiction. The High Court observed that if the transaction is ultimately held ultra vires, consequential legal remedies would be available to the petitioner. Therefore, the contention that the petitioner would be remediless or that the NCLT lacked jurisdiction was rejected; the appropriate course is to pursue remedies and challenge refusal of interim relief in accordance with law. [Paras 11, 17]

Petitioner is not rendered remediless; the NCLT has jurisdiction to entertain the company petition and the refusal of interim relief does not evidence lack of jurisdiction, so this contention fails.

Distinguishing precedent on facts - Jurisdictional bar under the Companies Act vis-a -vis maintainability of civil suit - Whether reliance on the decision in Candolim Developers (distinguishable facts) entitled the petitioner to maintain the civil suit despite statutory bar. - HELD THAT: - The Court found Candolim Developers inapposite: that case turned on the nature of reliefs before the civil court and provisions of the old Companies Act (Section 10GB), whereas the present dispute concerns Sections 241/242 and Section 430 of the Companies Act, 2013. Given the differences in statutory regime and the nature of the reliefs sought (challenge to board resolution), the precedent did not assist the petitioner. The trial court's view upholding jurisdictional bar therefore could not be faulted on the basis of that authority. [Paras 18, 20]

Reliance on Candolim Developers was misplaced; the decision is distinguishable and does not vitiate the finding that the Civil Court's jurisdiction was barred in this case.

Final Conclusion: Writ petition dismissed. The High Court upheld the Trial Court's order allowing the objection to jurisdiction under Section 9A CPC, holding that the challenge to the board resolution and consequential reliefs fall within the NCLT's jurisdiction under Sections 241/242 and are barred from being entertained by the Civil Court by virtue of Section 430 of the Companies Act, 2013; the petitioner is not rendered remediless as the company petition is pending before the NCLT.

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - quantified (written communication of amount payable) - eligibility to make declaration under the scheme where inquiry/investigation/audit is pending - principles of natural justice - right to opportunity of hearing - Designated Committee's obligation to give personal hearing where its estimate exceeds declarant's figure - liberal interpretation of amnesty/dispute resolution scheme to achieve scheme's object - rectification of bona fide/curable mistakes in declaration

Quantified (written communication of amount payable) - eligibility to make declaration under the scheme where inquiry/investigation/audit is pending - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - Declarant's tax dues were quantified on or before 30th June, 2019 and petitioner was therefore eligible to file declaration under the scheme. - HELD THAT: - Sections 121(r), 123(c) and 125(1)(e) read together require that where an enquiry or investigation is pending, only those cases in which the amount of duty has been "quantified" (meaning a written communication of the amount payable) on or before 30th June, 2019 qualify as "tax dues" for the scheme and thus for eligibility. The record shows respondent's letter dated 21st May, 2019 quantified liability for 1st April, 2016 to 31st March, 2017 and the petitioner's letter dated 18th June, 2019 admitted liability for 1st April, 2017 to 30th June, 2017 - both prior to the cut off date. The department's circular and FAQs also treat an admission by the declarant as a written communication falling within the meaning of "quantified." Consequently, the petitioner satisfied the quantification requirement and was eligible to make the declaration under the scheme. [Paras 32, 44, 45, 49, 50]

Petitioner was eligible to file the declaration under the scheme as its tax dues for the two contested periods stood quantified on or before 30th June, 2019.

Principles of natural justice - right to opportunity of hearing - Designated Committee's obligation to give personal hearing where its estimate exceeds declarant's figure - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - Summary rejection of the petitioner's declaration without affording an opportunity of hearing was contrary to the scheme's requirements and principles of natural justice and therefore unlawful. - HELD THAT: - Sections 127(2)-(3) require that where the Designated Committee's estimate exceeds the amount declared, the Committee must issue the estimate and give the declarant an opportunity of being heard before finalizing the amount payable. Even where admissibility or eligibility is disputed, outright summary rejection without affording any hearing would defeat the scheme's object of liquidating legacy disputes and granting amnesty. The court held that denying a hearing, particularly where the declarant could explain discrepancies or demonstrate quantification prior to the cut off date, violates natural justice and undermines the liberal, scheme promoting approach that the Board and Parliament intended. Therefore the summary electronic rejection was set aside and the matter remitted for fresh consideration with hearing and a speaking order. [Paras 38, 39, 51, 54, 55]

Rejection of the declaration without hearing was unlawful; the rejection order is set aside and the Designated Committee must reconsider after affording hearing and issue a speaking order.

Rectification of bona fide/curable mistakes in declaration - liberal interpretation of amnesty/dispute resolution scheme to achieve scheme's object - A bona fide computational error in the declared amount was curable and, had a hearing been afforded, could have been explained and rectified without affecting entitlement to relief under the scheme. - HELD THAT: - The petitioner declared a higher figure for the second period due to a calculation error; even taking the lower admitted figure, the total tax dues exceed the threshold attracting the same percentage relief under section 124(1)(d)(ii). The court noted precedents and the Board's emphasis on making the scheme successful and concluded that genuine, curable mistakes should be permitted to be rectified on hearing so as to effectuate the scheme's object of unloading legacy disputes rather than frustrate it on technicalities. [Paras 46, 52, 53]

The computational discrepancy was a bonafide, curable mistake which should have been permitted to be explained and rectified on hearing; it does not disentitle the petitioner to relief.

Final Conclusion: The rejection dated 27th January, 2020 is quashed. The Designated Committee is directed to decide the petitioner's declaration dated 12th December, 2019 afresh after giving the petitioner notice of hearing and an opportunity to be heard; the fresh decision shall be a speaking order taking into account the eligibility, the scope for rectification of bona fide errors and the scheme's object of facilitating liquidation of legacy disputes. No order as to costs.

Input service - Cenvat credit on outward transportation - clearance of final products from the place of removal - interpretation of 'from' versus 'upto' in definition of input service - amendment substituting 'from' with 'upto' w.e.f. 1-4-2008

Cenvat credit on outward transportation - input service - clearance of final products from the place of removal - Entitlement to Cenvat credit of service tax paid on outward transportation of finished goods from factory (place of removal) up to the customers' premises for the period January, 2005 to September, 2007. - HELD THAT: - The Tribunal held that the question is no longer res integra in view of the decision of the Hon'ble Supreme Court in CCEx., Belgaum v. Vasavadatta Cements Ltd., which affirmed that services used in relation to clearance of final products "from the place of removal" include transportation from the place of removal up to the first point of delivery, whether a depot or the customer's premises, and that Cenvat credit in respect of tax paid on such transportation is admissible. The Supreme Court accepted the approach of the Full Bench of the CESTAT and the High Court that the expression "from the place of removal" should be read as permitting credit for the first leg of transportation from factory to depot or customer when claimed, and that subsequent transportation from depot to customer (if any) was not claimed. The Tribunal also noted the subsequent amendment by Notification No. 10/2008-C.E. (N.T.) substituting "from" with "upto" w.e.f. 1-4-2008, which restricts availability of credit thereafter, but held that for periods prior to that amendment the Supreme Court's interpretation entitles the assessee to credit for outward transportation from place of removal to customer. Applying that precedent to the facts, the Tribunal sustained the Commissioner (Appeals) order allowing the assessee's credit for the stated period.

The assessee is entitled to Cenvat credit for service tax paid on outward transportation from the place of removal to the customer's premises for the period January, 2005 to September, 2007; the Revenue's appeal is dismissed.

Final Conclusion: The appeal filed by the Revenue is dismissed; Cenvat credit on outward transportation from the place of removal to the first delivery point (depot or customer) for the period January, 2005 to September, 2007 is allowable in view of the Supreme Court's decision, the amendment effective 1-4-2008 notwithstanding for subsequent periods.