TaxTMI Updates e-Newsletter
Nov 15,2021

Cancellation of registration under GST - revocation of cancellation of registration - documents void ab initio - physical verification of business premises - hyper-technical approach - opportunity of hearing and reasoned speaking order

Cancellation of registration under GST - documents void ab initio - revocation of cancellation of registration - opportunity of hearing and reasoned speaking order - Validity of cancellation of the petitioner's GST registration on the basis that registration was obtained by documents void ab initio and on alleged defect in the sub let agreement, and whether the revocation application was rightly rejected. - HELD THAT: - The High Court found that the cancellation order and the appellate confirmation were susceptible to reconsideration rather than being finally upheld on the facts presented. The petitioner produced a supplementary agreement before the authority to rectify the defect in the rent/sub let agreement and explained absence from the registered premises during the Covid 19 period; the petitioner had paid GST to the State during the relevant period and there was no finding of tax evasion or revenue loss. The Court observed that cancellation on a hyper technical ground, where the activity generated revenue and was not illegal, would be disproportionate and could produce adverse social consequences. Reliance was placed on this Court's earlier decision in International Value Retail Private Limited (supra). In view of these factors the Court set aside the orders and directed reconsideration of the petitioner's revocation application on merits, instructing the respondent to afford full opportunity of hearing and to pass a reasoned and speaking order instead of adopting a hyper technical approach.

Orders cancelling registration and rejecting revocation were set aside and the matter remitted for fresh consideration of revocation on merits with opportunity of hearing and a reasoned order.

Physical verification of business premises - opportunity of hearing and reasoned speaking order - hyper-technical approach - Whether the authority must carry out physical verification of the registered premises and the manner in which such verification and inquiry should be conducted on reconsideration. - HELD THAT: - The Court directed that on reconsideration the respondent shall give notice to the petitioner, make a physical inspection of the premises, permit the petitioner to place all documents to demonstrate actual physical possession and business activity, and may verify existence and business activity from local persons. The Court emphasized that the respondent should not take a hyper technical view, must give hearing to the petitioner or authorised representative, and must record a reasoned and speaking decision after such verification and hearing. The direction was for fresh consideration in light of the Court's observations and the cited precedent.

Reconsideration to include physical inspection on notice, verification from local sources, opportunity to produce documents and hearing, and issuance of a reasoned speaking order avoiding hyper technicality.

Final Conclusion: Writ petition disposed; impugned orders cancelling registration and rejecting revocation set aside and the matter remitted to the State respondent for fresh consideration in accordance with the Court's directions - including notice, physical verification, opportunity to place documents and hearing, and a reasoned speaking order without a hyper technical approach, having regard to the Court's observations and the cited precedent.

Reasoned order - service of order - right to challenge order - supply of adverse material - remand for fresh adjudication - uploading on GSTN portal

Reasoned order - service of order - right to challenge order - Validity of the impugned order DRC-07 dated 20.7.2021 insofar as the copy available to the petitioner on the GSTN portal did not contain reasons. - HELD THAT: - The Court found that the copy of the impugned order visible to the petitioner on the GSTN portal, and annexed to the writ petition, did not disclose any reasons. The fact that another copy containing reasons may exist with the Assessing Officer is immaterial because that copy was not served on the petitioner/assessee; consequently the petitioner was deprived of the ability to challenge the order. In law an order served on an assessee must contain reasons enabling the assessee to know the case against it and to exercise the right to appeal; an order lacking reasons as served is therefore defective. Applying this principle, the Court concluded that the served order was wholly defective for want of reasons and could not be relied upon by the Revenue Authority. [Paras 6, 7]

The impugned order DRC-07 dated 20.7.2021, as served on the petitioner, is set aside for want of reasons.

Supply of adverse material - remand for fresh adjudication - uploading on GSTN portal - Relief and directions following setting aside of the defective order, and administrative measures relating to GSTN portal service and verifiability. - HELD THAT: - The Court remitted the matter to the Assessing Officer with specific procedural directions: to issue a fresh notice to the petitioner, supply all adverse material relied upon along with the notice, grant two weeks for filing a written reply, fix the matter for hearing within a further two weeks and thereafter pass an order containing reasons. The Court required the Assessing Officer to upload the reasoned order on the GSTN portal and additionally serve a copy on the petitioner by registered post AD. Separately, the Court directed communication of this order to respondent No.4 to investigate how an incomplete copy came to be uploaded and to take remedial steps (including provision of verifiable electronic trail/audit) to ensure complete copies of orders are visible to assessees on the GSTN portal, noting the primacy of electronic service and filing under the GST regime and the need to avoid avoidable litigation arising from portal deficiencies. [Paras 8, 9]

Matter remitted to the Assessing Officer with directions to re-notify, supply adverse material, afford opportunity of reply and hearing, pass a reasoned order, upload and serve the order; respondent No.4 to inquire and implement remedial/improvement measures for the GSTN portal.

Final Conclusion: Writ petition allowed; the order served on the petitioner is set aside for want of reasons and the matter is remitted for fresh adjudication in accordance with the Court's procedural and administrative directions; no order as to costs.

Chargeability of GST on minerals subject to royalty - stay of show cause notice - interim relief pending higher court decision - reference to a larger Bench on conflicting precedents

Stay of show cause notice - interim relief pending higher court decision - Stay granted of the show cause notice dated 07.10.2021 issued to the petitioner. - HELD THAT: - The High Court, noting that the question whether GST is chargeable on minerals on which royalty has already been paid is under active consideration before a Nine Judges Bench of the Supreme Court and that related proceedings (including Writ Petition (Civil) No.1076 of 2021 and SLP(C) No.37326 of 2017) are pending, concluded that the petitioner is entitled to interim protection. The Court observed that only a show cause notice has been issued and that similar interim relief has been granted in analogous petitions. In view of the pendency of the higher court proceedings addressing the same controversy, the High Court exercised its discretion to stay the operation of the impugned notice until further orders of the Court envisaged in the listing direction.

The show cause notice dated 07.10.2021 issued to the petitioner is stayed in the meantime.

Chargeability of GST on minerals subject to royalty - reference to a larger Bench on conflicting precedents - Further adjudication of the petition deferred pending disposal of related Supreme Court proceedings. - HELD THAT: - Recognising that the central legal question has been referred to a larger Bench and that related matters are pending before the Supreme Court, the High Court directed that the present writ petition be listed after the disposal of Writ Petition (Civil) No.1076 of 2021 and SLP(C) No.37326 of 2017. The parties were permitted to mention the matter upon disposal of those cases and the Court directed completion of pleadings in the meantime. This places final consideration of the substantive challenge to the show cause notice on hold until the higher court decisions are rendered.

The petition is to be listed after disposal of the specified Supreme Court matters; pleadings to be completed in the interim.

Final Conclusion: Interim protection granted: the show cause notice dated 07.10.2021 is stayed pending disposal of the specified Supreme Court proceedings concerning whether GST is chargeable on minerals on which royalty has been paid; the writ petition is to be listed after those matters are decided and pleadings are to be completed meanwhile.

Composite supply - works contract - immovable property - Input Tax Credit exclusion for construction of immovable property - classification under HSN 9954 and rate 9% CGST & 9% KGST - EPC contract

Composite supply - works contract - immovable property - The transfer of the poultry farm together with goods and services used in its construction constitutes a composite supply in the form of a works contract on immovable property and is to be treated as a supply of services under Schedule II. - HELD THAT: - The activity of procuring goods and executing services for construction, installation and fitting out of the poultry farm on land involves supplies that are naturally bundled and supplied in conjunction with each other with a principal supply, and thus falls within the definition of composite supply and the definition of works contract for immovable property. Schedule II treats such composite supplies in relation to construction of immovable property as services. The Authority applied the definitions in section 2(30) and section 2(119) and the Schedule II scheme to conclude that the composite EPC works for the poultry farm is a works contract/service supply. [Paras 9]

Composite supply constituting a works contract on immovable property is to be treated as a supply of services.

Input Tax Credit exclusion for construction of immovable property - Input Tax Credit is not available in respect of goods or services received for construction of the immovable poultry farm (other than plant or machinery) on the applicant's own account. - HELD THAT: - The Authority relied on the restriction in the GST provisions which disallow credit for goods or services received for construction of an immovable property (other than plant or machinery) on one's own account. Supplies used for construction of the poultry farm therefore do not qualify for input tax credit and the applicant's proposed claim was held not allowable. The Authority also noted the general restriction under section 17(2) as limiting credits in the context of such construction. [Paras 9]

Input Tax Credit is not available for goods/services used in construction of the immovable poultry farm (other than plant or machinery).

Classification under HSN 9954 and rate 9% CGST & 9% KGST - EPC contract - The EPC/composite works contract for construction of the poultry farm (including equipment and installations on the immovable property) is classifiable under HSN 9954 and taxable at 9% CGST and 9% KGST. - HELD THAT: - Having held that the transaction is an EPC/composite works contract for an immovable property and is to be treated as a supply of services, the Authority applied the relevant notification entry and classified such works contract activity under HSN 9954. Consequent to that classification, the applicable rate was determined as 9% CGST and 9% KGST in terms of serial number 3 of item (ii) of the cited GST rate notification. [Paras 9]

EPC/composite works contract for the poultry farm is classifiable under HSN 9954 and taxable at 9% CGST and 9% KGST.

Final Conclusion: The Authority ruled that the construction and transfer of the poultry farm with its equipment is a composite EPC works contract treated as a service, not eligible for input tax credit (except as permitted for plant and machinery), and is classifiable under HSN 9954 with tax charged at 9% CGST and 9% KGST.

Exemption under entry No.3 of Notification No.12/2017 (pure services to Governmental authority/entity in relation to functions under Articles 243G/243W) - Pure services (excluding works contract or composite supplies with goods) - Governmental authority / Government entity (as per notification definitions) - Functions entrusted to Panchayats under Article 243G - Functions entrusted to Municipalities under Article 243W - Classification of supply as service for GST purposes

Pure services (excluding works contract or composite supplies with goods) - Governmental authority / Government entity (as per notification definitions) - Functions entrusted to Panchayats under Article 243G - Functions entrusted to Municipalities under Article 243W - Whether the manpower services supplied by the applicant to the listed organisations/institutions qualify as exempt "pure services" under entry No.3 of Notification No.12/2017 on the ground that they are supplied to a Governmental authority/entity by way of any activity in relation to functions under Articles 243G/243W. - HELD THAT: - Entry No.3 requires two conditions: (i) the supply must be pure services (not works contract or composite supplies involving supply of goods) provided to the Central/State/UT/local authority or a Governmental authority/entity; and (ii) the supply must be by way of any activity in relation to a function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W. The applicant supplies manpower (security, housekeeping, catering) to various organisations. The applicant has not produced supporting documents to establish that those recipient organisations qualify as a "Governmental Authority" or "Government Entity" as defined in the notifications; accordingly the first condition is not demonstrably satisfied. Further, the manpower services supplied are not shown to be provided by way of any activity in relation to the matters listed in the Eleventh or Twelfth Schedules corresponding to Articles 243G/243W. On this basis the manpower services cannot be brought within the exemption in entry No.3 and are therefore taxable. [Paras 13, 16, 17]

The manpower services supplied by the applicant do not qualify as exempt "pure services" under entry No.3 of Notification No.12/2017 and are taxable.

Exemption under entry No.3 of Notification No.12/2017 (claim of exemption) - Classification of services for applicability of notification - Whether the applicant is entitled to claim exemption under Sl. No. 3 of Notification No.12/2017 dated 28.06.2017 for the manpower services rendered. - HELD THAT: - The claimed exemption under Sl. No.3 is contingent upon the services meeting the conditions stated in the entry. As the Authority found that the services are not shown to be provided in relation to any function entrusted to Panchayats or Municipalities under Articles 243G/243W, and the applicant failed to prove that recipients are Governmental authorities/entities for the purposes of the entry, the exemption cannot be allowed. Consequently the claim of exemption under Sl. No.3 is rejected and the services remain subject to GST at the applicable rate. [Paras 16, 17]

The applicant's claim of exemption under Sl. No.3 of Notification No.12/2017 is rejected; the services are not covered by that entry.

Final Conclusion: The Authority rules that the manpower services supplied by the applicant to the listed organisations do not fall within entry No.3 of Notification No.12/2017 and the claim for exemption under that entry is rejected; the services are therefore taxable.

Services relating to conduct of examination by an educational institution - exemption under Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) - scope of the phrase "relating to" in exemption entries - distinction between services conducted by an educational institution and services conducted by third parties - classification as education services under heading 9992

Services relating to conduct of examination by an educational institution - exemption under Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) - scope of the phrase "relating to" in exemption entries - Whether ASSET supplied by M/s Educational Initiative Pvt. Ltd. to schools is exempt from GST under Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate). - HELD THAT: - The Appellate Authority examined the nature and control of the ASSET programme rather than resolving semantic differences between 'examination' and 'assessment'. Documentary material shows that the applicant (not the schools) sets and prints the question papers, fixes test dates, assesses answers, prepares detailed results and analysis, provides personalized practice material and follow-up workshops, and controls subject and package composition. Schools act primarily as facilitators (collecting fees, providing infrastructure and limited administration) and receive an administration discount; they do not set the papers, evaluate answers or prepare reports. Where a third party undertakes the core acts of setting, administering and evaluating the test, the activity is conducted by that third party and not by the educational institution. Consequently ASSET is not a service provided to schools that is "relating to" conduct of examinations by those schools within the meaning of Sl. No. 66(b)(iv). The phrase "relating to" cannot be given an expansive construction to bring within the exemption a service which, on the facts, is conducted by the supplier itself. Prior Advance Rulings where suppliers merely printed or processed material supplied by boards or institutions are distinguishable, because in those cases the content and control remained with the educational institution or board. [Paras 9, 10, 11, 12, 14]

ASSET is conducted by the applicant and not by the schools; therefore ASSET does not fall within Entry Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) and is not exempt from GST.

Final Conclusion: The appeal is allowed; the Advance Ruling of the Gujarat AAR is modified and it is held that ASSET (Assessment of Scholastic Skills through Educational Testing) conducted by M/s Educational Initiative Pvt. Ltd. is not covered by Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) and hence is not exempt from GST.

Input Tax Credit - works contract service - construction of immovable property (including re-construction, renovation, additions or repairs) - business as provision of facilities or benefits by a society to its members - blocking of credit under Section 17(5)(c) and (d) - definition of supply

Input Tax Credit - works contract service - construction of immovable property (including re-construction, renovation, additions or repairs) - blocking of credit under Section 17(5)(c) and (d) - business as provision of facilities or benefits by a society to its members - Eligibility of the applicant to claim Input Tax Credit on GST charged by the contractor for repairs, renovations and rehabilitation works. - HELD THAT: - Section 16 entitles a registered person to claim ITC subject to conditions, but Section 17(5)(c)-(d) excludes ITC in respect of works contract services supplied for construction of an immovable property (other than plant and machinery) except where such services are input services for further supply of works contract service, and excludes goods or services received for construction of immovable property on one's own account. A housing society supplies facilities/benefits to its members and may be regarded as providing club/association services under the definition of business, but that does not mean the society supplies works contract services to its members. The applicant received works contract services from a contractor for repairs/renovation of the society's immovable property, and has not been shown to supply works contract services to its members such that the input services would be used for further supply of works contract service. Consequently the restrictions in Section 17(5) apply and operate to deny ITC in the facts of this case. [Paras 5]

The applicant is not eligible to claim Input Tax Credit on the GST charged by the contractor for the repairs, renovations and rehabilitation works.

Final Conclusion: Question Nos. 1 and 2 were withdrawn by the applicant. On Question No. 3 the Authority rules that the applicant is not entitled to claim ITC in respect of the works contract services for repairs, renovations and rehabilitation received from the contractor.

Supply - In the course or furtherance of business - Business (definition) - Employer-employee transactions - Related persons - Schedule I and Schedule III

Supply - In the course or furtherance of business - Business (definition) - Employer-employee transactions - Related persons - Schedule I and Schedule III - Recovery of amounts from employees towards Top-up and parental insurance premium by the employer constitutes a supply of service under Section 7 of the CGST Act, 2017 - HELD THAT: - The Authority examined whether the three requisites of 'supply' - (i) provision of goods or services, (ii) for a consideration, and (iii) in the course or furtherance of business - are satisfied. The employer procures group, top-up and parental insurance from an insurance company which issues master and top-up policies and charges GST. The applicant initially pays the premium and recovers specified portions from employees; it is not engaged in the business of providing insurance nor is provision of such insurance mandatory by law. The Authority found that the applicant is merely acting as an intermediary or conduit in remitting premiums to the insurer and that the insurance company, not the employer, is providing the insurance service. As the recovery of premium does not form part of the applicant's business activities as defined in Section 2(17) (being neither an activity ancillary or incidental to its principal trade of power generation/transmission/distribution nor a business in insurance), the element of supply 'in the course or furtherance of business' is absent. The Authority also relied on and followed prior rulings of the same forum with similar facts, which held that such recoveries do not amount to taxable supply between employer and employee. Applying these determinative considerations, the Authority concluded there is no supply of insurance service by the employer to its employees in the facts before it. [Paras 5]

The recovery of Top-up and parental insurance premium from employees by the applicant does not amount to a supply of service under Section 7 of the CGST Act, 2017.

Final Conclusion: The Advance Ruling answers the question in the negative: amounts recovered from employees towards Top-up and parental insurance premiums by the employer are not taxable as a supply of service under Section 7 of the CGST Act, 2017, the employer acting merely to remit premiums to the insurer and not rendering insurance services as part of its business.

Requirement of registration - taxability of grants and donations - definition of charitable activities under the exemption notification - scope of supply and consideration in GST - classification under SAC 9993 (residential social assistance services) - applicable GST rate at 18%

Requirement of registration - definition of charitable activities under the exemption notification - Applicant is required to obtain registration under the GST Act. - HELD THAT: - The Authority found that although the applicant is registered under section 12AA of the Income Tax Act, the exemption in Notification No.12/2017 (Sr. No.1, Chapter 99) applies only to services rendered "by way of charitable activities" as specifically defined in that notification. The applicant's stated activities (shelter, food, clothing, health, guidance and representation before legal forums for orphans and destitute women) were not shown to be confined to the specific heads listed (for example, advancement of educational programmes or skill development for abandoned, orphaned or homeless children or the specified public health and social categories). Since the activities do not, on the material before the Authority, strictly fall within the notified definition of "charitable activities", they do not attract the exemption and the applicant must therefore register under the GST Act. [Paras 5]

Registration under the GST Act is required.

Taxability of grants and donations - scope of supply and consideration in GST - Circular on display of donor name and characterization of donation - Grants received from Government are taxable; donations are not taxable where they are bona fide gifts made for philanthropic purposes without quid pro quo or advertising benefit. - HELD THAT: - Applying the statutory definitions, the Authority observed that "supply" requires supply for a "consideration" in the course or furtherance of "business"; the definition of "consideration" includes payments and grants (excluding only government "subsidy"). On the facts submitted, grants received from Central/State Government are for activities that were not held to be exempt charitable activities and therefore constitute consideration for taxable supplies. As to donations from individual donors, the Authority followed the Government Circular which clarifies that where a gift or donation to a charitable organisation is philanthropic in nature, not intended for commercial gain or advertising, and any acknowledgement (such as display of donor name) is mere recognition and not an advertising/service obligation, there is no supply for consideration and hence no GST. Absent evidence about the character of particular donations, GST liability must be determined on that basis. [Paras 5]

Grants are taxable; donations are not taxable only if they are genuine philanthropic gifts without quid pro quo or advertising benefit; otherwise GST is leviable.

Classification under SAC 9993 (residential social assistance services) - applicable GST rate at 18% - Services supplied by the applicant are classifiable under SAC 9993 and attract GST at 18%. - HELD THAT: - On the applicant's own description, the services include provision of accommodation and round the clock social care to children and to adult destitute women (including shelter, food, medical facilities and counselling). The Authority held these services fall within SAC headings for human health and social care services, specifically SAC 999332 (residential social assistance services for children) and SAC 999334 (residential social assistance services for adults/other social rehabilitation services). In consequence, where the services are taxable, the applicable rate is 18% (CGST 9% + SGST/UTGST 9% or IGST 18%) as per the relevant notifications. [Paras 5, 6]

Taxable services are classifiable under SAC 9993 and taxable at 18%.

Final Conclusion: The Authority ruled that the applicant must obtain GST registration; grants from Government for the non exempt activities are taxable, whereas donations that are bona fide philanthropic gifts without quid pro quo or advertising are not taxable; and taxable services supplied by the applicant fall under SAC 9993 and attract GST at 18%.

Definition of "business" under Section 2(17) - scope of "supply" and "outward supply" under Section 2(83) - taxable supply and "taxable supply" under Section 2(108) - liability for registration under Section 22 - exemption from registration under Section 23 - compulsory registration under Section 24 - exemption of educational services (Sr. No. 66 of Notification No.12/2017-CT(Rate)) - exemption of health care services (Sr. No. 74 of Notification No.12/2017-CT(Rate)) - Circular No.32/6/18-GST clarifications on hospitals and composite supply - taxability of residuary/insurance-like services under the residual entry - classification and taxability of renting/real estate services - tax treatment of food supplies: composite healthcare supply v. restaurant supply

Definition of "business" under Section 2(17) - exemption of educational services (Sr. No. 66 of Notification No.12/2017-CT(Rate)) - Whether the applicant's activities constitute "business" under GST and whether medical education supplied by the applicant is taxable or exempt - HELD THAT: - The Authority held that the definition of "business" in Section 2(17) is inclusive and covers activities even if undertaken without pecuniary gain, including "profession" and ancillary activities; on that basis the applicant's activities (including medical education) fall within the scope of "business". However, supplies of medical education conducted as recognized courses are classified under the exempt entry for educational services (Sr. No. 66 of Notification No.12/2017-CT(Rate)) and therefore such education services supplied by the applicant are exempt from GST. The Authority thus answered affirmatively that the applicant's activities are business, but clarified that the medical-education supplies are exempt under the Notification. [Paras 5]

Applicant's activities amount to "business" under the GST Act; the medical-education services supplied are exempt under Sr. No. 66.

Liability for registration under Section 22 - exemption from registration under Section 23 - taxable supply and "taxable supply" under Section 2(108) - compulsory registration under Section 24 - Whether the applicant is liable for GST registration or may remain outside registration under Section 23 because there is no taxable supply - HELD THAT: - The Authority explained that liability to register depends on occurrence of taxable supply and aggregate turnover exceeding the threshold. A person engaged exclusively in wholly exempt supplies is not liable to register. Section 23 exempts persons engaged exclusively in non-taxable or wholly exempt supplies. Section 24 makes certain categories compulsorily registrable. Since the applicant undertakes exempt supplies of education and healthcare but also effects certain taxable supplies (discussed in subsequent issues) and its aggregate turnover exceeds the threshold, the applicant is liable for registration under Section 22. If the applicant were to supply only exempt services, registration would not be required, but given admitted taxable supplies, registration is required. [Paras 5]

Applicant is liable to obtain GST registration because it effects taxable supplies and its aggregate turnover exceeds the threshold.

Scope of "supply" and "outward supply" under Section 2(83) - exemption of educational services (Sr. No. 66 of Notification No.12/2017-CT(Rate)) - exemption of health care services (Sr. No. 74 of Notification No.12/2017-CT(Rate)) - Circular No.32/6/18-GST clarifications on hospitals and composite supply - Whether fees from students and recoupment charges from patients constitute "outward supply" and whether they fall under the educational or health-care exemption entries - HELD THAT: - The Authority observed that 'outward supply' is a term describing supplies in the course or furtherance of business; fees/charges are consideration for supply rather than being "outward supply" per se. The fees charged to students for recognized courses are exempt under Sr. No. 66. Charges recouped from admitted patients (including retention monies and amounts for investigations and consumables forming part of diagnosis/treatment) fall within the health-care exemption at Sr. No. 74 and are exempt, supported by Circular No.32/6/18-GST which treats the entire amount charged by hospitals to patients (including retention money and consultant fees) as towards exempt healthcare. The Authority therefore held the student fees and the patient recoupment charges (in the admitted-patient/healthcare context) are exempt. [Paras 5]

Student fees for recognized courses are exempt under Sr. No. 66; recoupment charges from patients forming part of healthcare are exempt under Sr. No. 74.

Exemption of health care services (Sr. No. 74 of Notification No.12/2017-CT(Rate)) - Circular No.32/6/18-GST clarifications on hospitals and composite supply - Whether charges for medicines, consumables and diagnostic investigations recovered from OPD patients qualify as composite supply exempt as health-care services - HELD THAT: - The Authority applied the scope of health-care services (para 2(zg) of the Notification) and Circular No.32/6/18-GST and held that charges recovered from OPD patients for medicines, consumables and diagnostic investigations provided in diagnosis and treatment are covered by the health-care exemption and are not taxable. The Authority agreed with the jurisdictional officer's reliance on the schedule entries and circular clarifications to reach this conclusion. [Paras 5]

Charges recovered from OPD patients for medicines, consumables and diagnostic investigations are exempt as health-care services.

Taxability of residuary/insurance-like services under the residual entry - Whether nominal premiums collected under the applicant's "Unparallel Health Insurance Scheme" are exempt as healthcare/educational services or taxable - HELD THAT: - The Authority noted the scheme collects small premiums but the applicant does not hold an insurance license; therefore the receipts cannot be treated as regulated insurance services. Each service must be classified against schedule entries: the insurance-like collection falls under the residuary entry (Heading 9997 / other miscellaneous services) and is taxable at the applicable rate (not exempt). The Authority held that this particular scheme's receipts are taxable at 18% under the residuary entry. [Paras 5]

Nominal charges collected under the insurance-like scheme are taxable under the residuary entry (treated at the applicable rate).

Classification and taxability of renting/real estate services - tax treatment of food supplies: composite healthcare supply v. restaurant supply - exemption of educational services (Sr. No. 66 of Notification No.12/2017-CT(Rate)) - Whether receipts for renting space (banking, parking), refreshments, and disposal of waste qualify as exempt support activities or are taxable, and the tax treatment of food supplies - HELD THAT: - The Authority held that the nature of each ancillary supply must be separately classified. Rent for commercial space (bank branch, canteen contractor, parking) is a real-estate/rental service (Heading 9972 series) and taxable (the Authority applies the applicable rate, noting classification under real-estate services). Food supplied to in patients as part of medical advice, and supplies to employees/staff from the canteen, form part of composite healthcare or educational supply and are exempt; food supplied to non in patients, their attendants or visitors is taxable as restaurant/service-at-mess supply (5% without ITC) unless exempt by specific entries. The applicant did not specify the nature of waste; disposal-of-waste receipts were not answered because the type of waste was not specified. [Paras 5]

Rent receipts for commercial space are taxable (real-estate/rental classification). Food to in patients and staff is exempt as composite healthcare/educational supply; food to outsiders is taxable at 5% (without ITC). Disposal-of-waste receipts not decided for lack of specification.

Final Conclusion: The Authority concluded that (i) the applicant's activities fall within the inclusive definition of "business" but the medical-education supplies are exempt under Sr. No. 66; (ii) the applicant is required to obtain GST registration because it effects certain taxable supplies and its aggregate turnover exceeds the threshold; (iii) student fees for recognized courses and patient charges forming part of healthcare are exempt under Sr. Nos. 66 and 74 respectively; (iv) OPD charges for medicines, consumables and investigations are exempt as healthcare; (v) amounts collected under the applicant's insurance-like scheme are taxable under the residuary entry; and (vi) rents for commercial space are taxable, food to in patients/employees is exempt while food to outsiders is taxable, and disposal-of-waste was not decided for want of specification.

Pure services - reimbursement as consideration - exemption under Notification No. 12/2017 CT(R) Entry No. 3 - Government Entity - functions entrusted under Article 243W of the Constitution (Twelfth Schedule)

Pure services - reimbursement as consideration - Government Entity - exemption under Notification No. 12/2017 CT(R) Entry No. 3 - functions entrusted under Article 243W of the Constitution (Twelfth Schedule) - Whether amounts received by M/s. Maha Mumbai Metro (M3) Operation Corporation Limited from MMRDA as reimbursement of expenses (salaries, rent, training, staff welfare etc.) are liable to GST - HELD THAT: - The Authority found that the applicant, though describing receipts as reimbursements, is supplying consultancy/services (transport studies and related advisory services) to MMRDA and the amounts received are consideration in the form of reimbursement for those services (reasoning reflected at 5.8-5.10). The Authority held that MMRDA qualifies as a "Government Entity" within the amended meaning in Notification No. 31/2017 (being constituted and controlled by the State under the MMRDA Act) (see 5.16-5.21). The services rendered by the applicant fall within activities in relation to functions entrusted to a Municipality under Article 243W (notably urban planning in the Twelfth Schedule) (see 5.22-5.23). Consequently, the supplies are pure services provided to a Government Entity in relation to functions entrusted under Article 243W and thus fall within the scope of Entry No. 3 of Notification No. 12/2017 CT(R) (as amended), entitling them to nil rate/exemption; therefore the amounts received are not liable to GST (conclusion recorded at 5.24). The Authority clarified that this finding applies to the facts before it (pure consultancy/supply of services without supply of goods) and will not apply if the applicant undertakes the other O&M or commercial activities described in para 5.25.1, in which case the position may change (see 5.25.1-5.25.3). [Paras 5]

Amounts received by the applicant from MMRDA as reimbursements for the consultancy/pure services rendered to MMRDA (a Government Entity) in relation to functions entrusted under Article 243W are not liable to GST under Entry No. 3 of Notification No.12/2017 CT(R) (as amended).

Final Conclusion: The Authority answered Question 1 in the negative - the reimbursements received from MMRDA for the subject consultancy/pure services are not taxable under GST; Question 2 was left unanswered as consequential.

Composite supply of goods and services (works contract) - place of supply in relation to immovable property - location of the supplier of services - inter State supply under IGST - registration in the State from where taxable supply is made - Input Service Distributor registration and distribution of ITC - HSN or SAC requirement in tax invoice and e waybill

HSN or SAC requirement in tax invoice and e waybill - composite supply of goods and services (works contract) - Whether the Authority may rule on whether HSN or SAC should be mentioned in the invoice for the fabricated steel structures moved to the work site - HELD THAT: - The advance ruling applicant sought guidance on whether to mention SAC (as a works contract/service classification) or HSN (as goods moved) in invoices and on the e waybill. The Authority found that the question relates to the form and particulars to be furnished in tax invoices and to classification aspects that fall outside the scope of matters it may decide under Section 97(2) of the CGST Act. Consequently the Authority refrained from answering that question. The Authority nevertheless clarified, by way of general observation, that where an invoice is for supply of goods or services the HSN covering the transaction should be mentioned when mandated, whereas an e waybill records movement of goods and should carry the HSN and value of the goods moved; this clarification was not treated as a binding ruling on classification or invoicing particulars. [Paras 11]

The Authority refrains from giving any ruling on whether HSN or SAC must be mentioned in the invoice, as the question is beyond its jurisdiction; a non binding observation on invoice versus e waybill particulars is recorded.

Registration in the State from where taxable supply is made - location of the supplier of services - place of supply in relation to immovable property - inter State supply under IGST - Whether the applicant is required to obtain separate GST registration in Karnataka for executing the works contract at Karwar - HELD THAT: - Section 22(1) requires registration in the State from where a supplier makes taxable supplies. Section 2(71) identifies the location of the supplier of services as the place of business for which registration has been obtained, or a fixed establishment if services are supplied from such. The applicant's principal place of business and registration is at Noida (UP) and it has admitted it has no fixed establishment in Karnataka. Section 12(3) of the IGST Act makes the place of supply of immovable property related services the location of the immovable property (Karwar), and Section 7(3) treats supplies where supplier location and place of supply are in different States as inter State supplies. Applying these provisions, the place of supply is Karnataka but the location of the supplier remains the Noida registration; therefore the supply is inter State and the applicant may supply from its Noida registration charging IGST. No separate registration in Karnataka is required where the applicant has no fixed establishment there. [Paras 12, 13, 14, 15, 16]

The applicant need not obtain separate registration in Karnataka and may raise invoices from its Noida registration charging IGST, with place of supply as Karnataka.

Input Service Distributor registration and distribution of ITC - registration in the State from where taxable supply is made - Whether the applicant can obtain ISD registration in Karnataka to receive and distribute input tax credit for services procured locally at the Karwar site - HELD THAT: - An Input Service Distributor (ISD) is defined as an office of the supplier which receives tax invoices and distributes credit to suppliers having the same PAN. Section 24(viii) requires ISDs to be registered. The Authority found as an admitted fact that the applicant neither has nor intends to have any establishment at Karwar; because ISD registration must be for the premises from which credit is to be distributed, the applicant cannot obtain ISD registration for the Karwar site where it has no establishment. [Paras 17, 19, 20]

The applicant cannot obtain ISD registration for the Karwar site as it does not have and does not intend to have an establishment there.

Final Conclusion: The Authority declined to rule on the HSN/SAC invoice question as beyond its jurisdiction; held that the applicant, having its registration and place of business at Noida and no fixed establishment in Karnataka, need not obtain separate registration in Karnataka and may invoice from Noida charging IGST with place of supply Karnataka; and held that ISD registration in Karnataka is not available to the applicant because it has no establishment at Karwar.

Manufacturing services on physical inputs (goods) owned by others - job work as defined in Section 2(68) of the CGST Act, 2017 - distinction between services provided to registered persons and unregistered persons - applicability of Notification No.11/2017-Central Tax (Rate) as amended (entry 26, heading 9988) - applicable GST rate for job work services (12% v. 18%) - advance ruling admissibility under Section 97(2)(b) of the CGST Act, 2017

Job work as defined in Section 2(68) of the CGST Act, 2017 - manufacturing services on physical inputs (goods) owned by others - applicability of Notification No.11/2017-Central Tax (Rate) as amended (entry 26, heading 9988) - distinction between services provided to registered persons and unregistered persons - applicable GST rate for job work services (12% v. 18%) - Job work services by the applicant carried out on goods belonging to registered persons fall under clause (id) of entry 26 (heading 9988) of Notification No.11/2017-Central Tax (Rate) as amended and attract GST at 12%. - HELD THAT: - The Authority considered the scope of entry 26 for heading 9988 as amended by Notification 20/2019 (effective 01.10.2019) and the CBIC clarification in Circular No.126/45/2019-GST (para 4), which draws a clear demarcation: entry (id) covers services by way of treatment or processing undertaken on goods belonging to another registered person (i.e., job work as per Section 2(68)), while entry (iv) excludes such services and covers services on goods owned by persons not registered under the CGST Act. The applicant undisputedly performs treatment/processes (anodizing, plating, painting) on materials supplied by registered persons and returns those materials to the principals. Applying the circular's demarcation to these facts, the Authority concluded that the applicant's services fall squarely within clause (id) of entry 26 and therefore attract the concessional combined GST rate of 12% (6% CGST + 6% SGST) applicable to that entry w.e.f. the amendment. [Paras 14, 15, 16]

The applicant's job work services on goods belonging to registered persons are covered by clause (id) of entry 26 and attract GST at 12%.

Final Conclusion: The Advance Ruling holds that the applicant's job work activities (anodizing, plating, painting) on materials belonging to registered persons are taxable under clause (id) of entry 26, heading 9988 of Notification No.11/2017-Central Tax (Rate) as amended, and accordingly subject to GST at the rate of 12%.

Import of goods - valuation for levy of IGST on imports governed by Customs Act, 1962 and Customs Tariff Act, 1975 - admissibility under Section 97(2)(e) of the CGST Act, 2017 - jurisdiction of Advance Ruling Authority regarding valuation of imports

Valuation for levy of IGST on imports governed by Customs Act, 1962 and Customs Tariff Act, 1975 - import of goods - jurisdiction of Advance Ruling Authority regarding valuation of imports - Whether the Government of Karnataka subsidy is to be reduced from the value of imported plant and machinery for the purpose of levying GST and whether the Advance Ruling Authority can decide this question. - HELD THAT: - The Authority examined the nature of the applicant's query concerning reduction of government subsidy from the value of imported plant and machinery for levy of GST. It noted the statutory definition of "import of goods" and that IGST on imports is levied and collected in accordance with the Customs Act, 1962 and Customs Tariff Act, 1975, with value determined under the latter. Since the value for levy of IGST on imports is governed by the Customs legislation and the point of levy arises at customs, the question whether a government subsidy may be reduced from the import value does not fall within the adjudicatory competence of this Advance Ruling Authority under the CGST/KGST Acts. Although the application was otherwise admissible as concerning determination of liability to pay tax, the substantive question sought requires determination under the customs valuation regime and is therefore not a matter this Authority can decide.

Application disposed of as rejected; the Authority cannot decide the question because valuation for levy of IGST on imports is governed by the Customs Act, 1962 and Customs Tariff Act, 1975, placing the matter outside the Advance Ruling Authority's purview.

Final Conclusion: The Advance Ruling Authority declined to answer whether the State subsidy should be excluded from the import value for levy of GST, holding that valuation for IGST on imports is governed by the Customs Act and Customs Tariff Act and that the question falls outside the Authority's jurisdiction; the application is disposed of as rejected.

Exemption under Notification No.12/2017 - pure services provided to Government, local authority, Governmental authority or Government Entity - activity in relation to any function entrusted to a Panchayat under Article 243G - activity in relation to any function entrusted to a Municipality under Article 243W - pure services excluding works contract or composite supplies involving goods - determination of tax liability under Section 97(2)(e) of the CGST Act

Exemption under Notification No.12/2017 - pure services provided to Government, local authority, Governmental authority or Government Entity - activity in relation to any function entrusted to a Panchayat under Article 243G - pure services excluding works contract or composite supplies involving goods - Documentary services including picture of testimony/documentary videos provided to corporations and various boards including KHB are taxable. - HELD THAT: - The notification exemption requires two conditions: (1) the supply must be a pure service (excluding works contract or other composite supplies involving goods) provided to the Central/State/Union territory/local authority/Governmental authority/Government Entity; and (2) the service must be by way of an activity in relation to any function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W. While the applicant supplies documentary services to State/Central Departments, Boards and Corporations, the authority observed that the applicant has not specified that the recipient Boards or Corporations qualify as a Governmental Authority or Government Entity as defined in the notification; more importantly, the services rendered to the Boards and corporations were not shown to be by way of any activity in relation to functions entrusted to Panchayats or Municipalities under Articles 243G/243W. Consequently the second condition for exemption is not satisfied and the services are taxable at the prescribed rates. [Paras 10, 11, 12]

Taxable at 9% CGST and 9% SGST.

Exemption under Notification No.12/2017 - pure services provided to Government, local authority, Governmental authority or Government Entity - activity in relation to any function entrusted to a Municipality under Article 243W - pure services excluding works contract or composite supplies involving goods - Documentary services including picture of testimony/documentary videos provided to various government departments including Zilla and Taluk Panchayat are taxable. - HELD THAT: - The exemption applies only where the service is in relation to a function entrusted to Panchayats (Article 243G) or Municipalities (Article 243W). The applicant's documentary services provided to government departments and to Zilla and Taluk Panchayats were examined against the Eleventh and Twelfth Schedules' enumerated functions. The authority concluded that the services were not provided by way of any activity in relation to functions entrusted to Panchayats or Municipalities as required by the notification. Hence the second and determinative limb of the exemption is not satisfied and the supplies are taxable. [Paras 10, 11, 12]

Taxable at 9% CGST and 9% SGST.

Exemption under Notification No.12/2017 - pure services provided to Government, local authority, Governmental authority or Government Entity - pure services excluding works contract or composite supplies involving goods - Providing documentary videos and/or pictures of testimony through CD or other storable devices to various Government Departments and Panchayats is taxable. - HELD THAT: - The format or medium (CD or other storable devices) does not alter the nature of the supply; it remains a service. The authority applied the two-condition test of the notification and found that although the supplies are to government entities, they are not by way of any activity linked to functions entrusted to Panchayats or Municipalities under Articles 243G/243W. Therefore, the exemption is inapplicable and the services delivered by such mediums are taxable. [Paras 10, 11, 12]

Taxable at 9% CGST and 9% SGST.

Final Conclusion: The Advance Ruling holds that the applicant's documentary services (including pictures of testimony and videos delivered on CDs or other storable media) supplied to corporations, boards, government departments, Zilla and Taluk Panchayats are not covered by the exemption in Notification No.12/2017 because they are not services rendered by way of any activity in relation to functions entrusted to Panchayats under Article 243G or to Municipalities under Article 243W; accordingly such services are taxable at 9% CGST and 9% SGST.

Allowability of 100% depreciation for pollution control equipment - classification of aerators and marine pumps as pollution control equipment versus aquaculture equipment - treatment of 'natural pond' as 'plant' for depreciation under Section 32 - classification of approach road, drainage, bore-well and reservoirs for rate of depreciation

Allowability of 100% depreciation for pollution control equipment - classification of aerators and marine pumps as pollution control equipment versus aquaculture equipment - treatment of 'natural pond' as 'plant' for depreciation under Section 32 - Whether depreciation claimed at 100% on aerators, marine water pumps and motors could be allowed as pollution control equipment or had rightly been restricted to 25% - HELD THAT: - The Tribunal's conclusion that the aerators and allied equipments were not eligible for 100% depreciation was upheld. The Assessing Officer obtained supplier responses and referred to the Central Pollution Control Board which stated that aerators used for purposes other than treatment of waste water/sewage effluent/trade effluent may not qualify as pollution control equipment and would not be entitled to tax concessions. The District Fisheries Officer classified the aerators as aquaculture equipment rather than pollution control devices. No evidence was produced by the assessee to show that the equipments fell within the statutory description warranting 100% depreciation. The Supreme Court decision in Assistant Commissioner of Income Tax v. Victory Aqua Farm Ltd. was distinguished as relating to a specially designed 'natural pond' with factual material not present in the present case. On these factual findings, the reduction of the rate of depreciation to 25% was held to be justified. [Paras 6, 7, 12, 14]

Claim for 100% depreciation on the specified equipments was rightly disallowed and restricted to 25%.

Classification of approach road, drainage, bore-well and reservoirs for rate of depreciation - treatment of 'natural pond' as 'plant' for depreciation under Section 32 - Whether approach road, drainage, bore-well, reservoir and similar works were correctly treated as plant attracting 25% depreciation or whether the Tribunal was right to restrict depreciation to 10% - HELD THAT: - The Assessing Officer found no basis on the material before him to treat approach roads, drainage, bore-wells and reservoirs as plant attracting the higher rate of depreciation claimed. The assessee failed to explain or produce evidence to demonstrate that these works qualified as 'plant' in the sense required for higher depreciation. The Commissioner (Appeals) and the Tribunal concurred with the AO's factual conclusion. The Court found no error in that concurrent factual and legal conclusion and therefore upheld the limitation of depreciation to 10% for those items. [Paras 8, 15]

Depreciation on approach road, drainage, bore-well and reservoirs was correctly limited to 10% by the Tribunal.

Final Conclusion: The appeals are dismissed. The ITAT was right in restricting the claim for depreciation on the referenced equipments to 25% (not 100%) and in limiting depreciation on approach road, drainage, bore-well and reservoirs to 10%. No order as to costs.

Validity of notice under Section 148 when issued to a non existing entity - Curing clerical errors under Section 292B of the Income tax Act - Jurisdiction invoked under Section 148 - Amalgamating entity ceases to exist upon approved scheme of amalgamation

Validity of notice under Section 148 when issued to a non existing entity - Curing clerical errors under Section 292B of the Income tax Act - Jurisdiction invoked under Section 148 - Amalgamating entity ceases to exist upon approved scheme of amalgamation - Notice issued under Section 148 in the name of an entity that had ceased to exist cannot be treated as a mere clerical error and corrected under Section 292B in the facts of the case; such notice is quashed. - HELD THAT: - The Court applied its earlier reasoning in Alok Knit Exports Ltd., noting the distinction drawn by the Supreme Court in Maruti Suzuki and the limited applicability of Sky Light Hospitality where the wrong name was a clerical error in peculiar facts. Here the assessing authority issued the Section 148 notice to an entity that had ceased to exist despite records on file indicating the merger; the respondents' contention that the mistake could be corrected under Section 292B was rejected as an afterthought. Where jurisdiction is invoked on a basis fundamentally at odds with the legal effect of an approved amalgamation (namely that the amalgamating company ceases to exist), participation in proceedings cannot estop the legal consequence. Applying that determinative reasoning, the impugned notice dated 27th March 2021 issued to a non existing entity was held invalid and liable to be quashed. [Paras 3]

Impugned notice dated 27th March 2021 issued under Section 148 to a non existing entity is quashed and set aside.

Final Conclusion: The writ petition is allowed; the notice dated 27th March 2021 under Section 148 is quashed on the ground that it was issued in the name of an entity which had ceased to exist and the error could not be treated as a curable clerical mistake under Section 292B in the facts before the Court.

Allowability of business expenditure under section 37(1) - Explanation to section 37(1) - expenditure prohibited by law - Reclamation and rehabilitation payments pursuant to Supreme Court directions - Admissibility of public documents as additional evidence

Allowability of business expenditure under section 37(1) - Explanation to section 37(1) - expenditure prohibited by law - Reclamation and rehabilitation payments pursuant to Supreme Court directions - Whether the sum disallowed as mining expenses paid towards reclamation and rehabilitation of mine area is deductible under section 37(1) and not hit by the Explanation to section 37(1). - HELD THAT: - The Tribunal examined the sequence of Supreme Court orders and the CEC/monitoring committee directions which required leaseholders to make compensatory and guarantee payments for restoration and rehabilitation of damage caused by mining, and which contemplated utilisation/refund arrangements tied to implementation. The payments in question were made pursuant to those directions and were aimed at restoring ecological damage; they were not expenditures for an unlawful purpose nor were they prohibited by law. The Tribunal admitted public domain documents as additional evidence to elucidate these directions. Reliance was placed on the Tribunal's earlier decision in Ramgadh Minerals and Mining Ltd., which held similar R&R contributions to be allowable under section 37. Applying that reasoning, the Tribunal concluded that the expenditure was revenue in nature, incurred wholly and exclusively for the business, and therefore deductible under section 37(1); the Explanation to section 37(1) did not apply. [Paras 11, 12, 13]

Deduction under section 37(1) allowed for the reclamation and rehabilitation expenditure; disallowance set aside.

Admissibility of public documents as additional evidence - Admittance of public documents relating to R&R reports and CEC/Monitoring Committee communications as additional evidence. - HELD THAT: - The Tribunal found the tendered documents to be public documents in the public domain and necessary to adjudicate the issue, and therefore admitted them as additional evidence. [Paras 10]

The public documents were admitted as additional evidence.

Final Conclusion: The Tribunal allowed the appeal for Assessment Year 2014-15, holding that the reclamation and rehabilitation payments made pursuant to Supreme Court/CEC directions are revenue expenditures deductible under section 37(1) and are not hit by the Explanation to section 37(1); public documents relied upon were admitted as additional evidence.

Validity of notice under Section 274 read with Section 271(1)(c) - Penalty under Section 271(1)(c) for concealment of particulars or furnishing inaccurate particulars of income - Requirement to specify the limb of Section 271(1)(c) in the show-cause notice - Defect in notice vitiating assumption of jurisdiction and violating principles of natural justice - Admission of additional ground under Rule 11 in light of authoritative precedent

Validity of notice under Section 274 read with Section 271(1)(c) - Requirement to specify the limb of Section 271(1)(c) in the show-cause notice - Defect in notice vitiating assumption of jurisdiction and violating principles of natural justice - Whether the penalty levied under Section 271(1)(c) is liable to be deleted as the notice under Section 274 read with Section 271 did not specify whether proceedings were for concealment of particulars of income or for furnishing inaccurate particulars of income. - HELD THAT: - The Tribunal admitted the additional ground under Rule 11 and examined the notice dated 20/06/2014 which did not specify which limb of Section 271(1)(c) the penalty proceedings were initiated under. Reliance was placed on earlier Tribunal and High Court decisions which held that initiation of penalty proceedings must specify the grounds so that the assessee is put to notice and afforded an opportunity to meet those specific grounds; initiation on one ground and imposition on another offends principles of natural justice and vitiates the penalty order. Following the identical reasoning applied by this Tribunal in earlier orders on the same facts, and consistent with the precedents relied upon, the defect in the notice was held to have vitiated the Assessing Officer's assumption of jurisdiction to levy the penalty. Consequently the penalty could not be sustained. [Paras 9, 10]

Penalty levied under Section 271(1)(c) deleted as the show-cause notice under Section 274 read with Section 271 was defective for not specifying the limb of Section 271(1)(c).

Final Conclusion: The appeal is allowed; the penalty imposed under Section 271(1)(c) for Assessment Year 2007-08 is deleted on account of a defective notice which failed to specify whether proceedings were for concealment of particulars of income or for furnishing inaccurate particulars of income.

Deductibility of employees' contribution to provident fund and ESI - due date for deduction under section 43B and section 36(1)(va) - clarificatory versus substantive amendment and retrospective operation - prospective operation of Finance Act, 2021 amendment to section 36(1)(va) and 43B - extension of limitation for filing appeals

Extension of limitation - Whether the appeal suffered delay and whether limitation was extended when the appeal was filed. - HELD THAT: - The Tribunal recorded the Registry's notation of a 122-day delay but accepted the effect of the Hon'ble Supreme Court's order extending limitation for filings before courts and tribunals (referenced judgment dated 27.04.2021). In view of that extension being in force at the time of filing, the Tribunal held there was no delay in presenting the appeal and proceeded to decide the merits. [Paras 2]

Delay in filing the appeal is not attracted as limitation had been extended by the Hon'ble Supreme Court when the appeal was filed.

Deductibility of employees' contribution to provident fund and ESI - due date for deduction under section 43B and section 36(1)(va) - clarificatory versus substantive amendment and retrospective operation - prospective operation of Finance Act, 2021 amendment to section 36(1)(va) and 43B - Whether the amendment by the Finance Act, 2021 to section 36(1)(va) and section 43B is clarificatory and retrospective, and whether the assessee is entitled to deduction for employees' contribution paid before the due date of filing the return for A.Y. 2019-2020. - HELD THAT: - The Tribunal examined precedents, including the Karnataka High Court decision in Essae Teraoka which held that employer is entitled to deduction where the employees' contribution to PF/ESI is paid on or before the due date for filing return under section 139(1). The Tribunal distinguished the relied Supreme Court decision on clarificatory amendment (CIT v. Gold Coin Health Food) as dealing with a different statutory context and factual matrix. Applying the principles expounded in decisions on retrospectivity, including the presumption against retrospective operation unless legislative intent is clear and the rule that an amendment that alters existing law adversely cannot be treated as merely clarificatory, the Tribunal concluded that the Finance Act, 2021 amendment alters the earlier position and has been expressly made effective from 01.04.2021. Therefore the amendment is prospective and does not apply to assessment year 2019-2020. As the assessee had remitted the employees' contribution before the due date of filing the return, deduction under the relevant provisions must be allowed for A.Y. 2019-2020. [Paras 7, 9]

Amendment by Finance Act, 2021 to section 36(1)(va) and section 43B is prospective; the disallowance for late remittance is deleted and deduction is allowed as payment was made before the due date of filing return for A.Y. 2019-2020.

Final Conclusion: The appeal is allowed: delay in filing was excused by the Supreme Court's extension of limitation, and on merits the Tribunal held the Finance Act, 2021 amendment to section 36(1)(va) and 43B is prospective; accordingly the disallowance for employees' contribution is deleted for A.Y. 2019-2020 and deduction is granted.

Chargeability of undisclosed foreign income and assets when detected after commencement of the Black Money Act - undisclosed asset located outside India - bank account as an "asset" for purposes of the Black Money Act - valuation of a foreign bank account under the Rules - beneficial owner in relation to undisclosed foreign assets - treatment of unexplained foreign credits as income - onus of proof and admissibility of explanations in search cases - proviso to section 3(1) - charge in the year asset comes to Assessing Officer's notice - non-allowance of deductions in computing undisclosed foreign income under section 5(1)(i)

Chargeability of undisclosed foreign income and assets when detected after commencement of the Black Money Act - proviso to section 3(1) - charge in the year asset comes to Assessing Officer's notice - Whether an undisclosed foreign asset or bank account which existed in the past but came to the Assessing Officer's notice after commencement of the BMA can be assessed under the BMA - HELD THAT: - The Tribunal held that the relevant trigger for charging under the BMA is the year in which the undisclosed asset comes to the notice of the Assessing Officer. The proviso to section 3(1) supports charging value of an undisclosed foreign asset in the previous year in which it comes to the Assessing Officer's notice, so assets detected post commencement may be assessed even if they were acquired earlier. Reliance on F.S. Gandhi was held inapposite because the meaning of 'is' is contextual and the statutory scheme and proviso demonstrate legislative intent to tax assets noticed after commencement. The Tribunal therefore answered the contention of retrospective inapplicability against the assessee and in favour of revenue (paras 71-89). [Paras 71, 79, 87, 89]

An undisclosed foreign asset or bank account can be assessed under the BMA when it comes to the notice of the Assessing Officer, even if the asset existed prior to commencement of the Act.

Bank account as an "asset" for purposes of the Black Money Act - valuation of a foreign bank account under the Rules - Whether an undisclosed foreign bank account can be treated as an 'asset' under section 2(11) of the BMA and whether Rule 3(e) is inconsistent with the Act - HELD THAT: - The Tribunal held that a foreign bank account represents an asset (the right to amounts credited) and may be brought within section 2(11). The valuation methodology in Rule 3(1)(e) (sum of all deposits since opening, subject to proviso) is consistent with legislative intent and confirms that bank accounts fall within the Act's scope; the Rule does not improperly expand the Act but provides a workable valuation mechanism. The Tribunal also noted in the case at hand the Assessing Officer treated primarily the income/ unexplained credits, not merely the account valuation (paras 90-95). [Paras 90, 91, 93, 94]

A foreign bank account can be an 'undisclosed asset' under section 2(11) of the BMA and Rule 3(1)(e) provides a permissible method of valuing such accounts.

Treatment of unexplained foreign credits as income - non-allowance of deductions in computing undisclosed foreign income under section 5(1)(i) - Whether unexplained credits in the foreign bank accounts can be treated as undisclosed foreign income under the BMA and whether AO was justified in taxing such credits without allowing expenditure deductions - HELD THAT: - The Tribunal observed that the assessee himself offered for taxation unexplained credits and interest entries as undisclosed foreign income; under section 5(1)(i) no deduction for expenditure is allowable in computing undisclosed foreign income. Therefore the Assessing Officer was entitled to treat unexplained credits and interest as income for BMA purposes. The Tribunal emphasised that the AO accepted the assessee's own approach and that the legal scheme of the BMA permits taxation of such receipts without netting against expenses (paras 73-76). [Paras 73, 74, 75, 76]

Unexplained credits and interest in the foreign accounts can be assessed as undisclosed foreign income under the BMA; deductions for expenditure are not allowable in such computation.

Onus of proof and admissibility of explanations in search cases - Whether the Assessing Officer/CIT(A) were right to reject the assessee's explanations and treat specified credits as unexplained income - HELD THAT: - The Tribunal examined the assessee's conduct: initial repeated denials during search and investigations, later late 'owning up' and a detailed explanation supplied three days before the assessment time bar. The Tribunal applied principles about burden of proof and human probabilities, observing that contemporaneous documents obtained from Singapore (account opening forms, instructions, remittances to Indian group companies) supported AO's conclusion on ownership and operation of accounts. The Tribunal found many explanations implausible and inconsistent, and held that the onus remained on the assessee to satisfactorily substantiate particular credits (paras 45-56, 61-69). [Paras 51, 53, 61, 62, 69]

The authorities were justified in rejecting the assessee's explanations where unsupported by contemporaneous evidence; burden of proof lay on the assessee and many explanations were rightly found unsatisfactory.

Specific additions sustained and deleted - assessment of particular credits - Whether specific credits in the UBS accounts should be treated as unexplained income: (i) US$ 32,13,307.60 (credit dated 22.02.2010), (ii) missing interest US$ 87,500, (iii) US$ 2,000,000 (early redemption), and (iv) US$ 2,186,000 (credit from sister) - HELD THAT: - Tribunal reviewed the AO's findings, CIT(A)'s relief and the documentary record. It reversed CIT(A) and restored AO in respect of (i) US$ 32,13,307.60 - assessee failed to substantiate the claimed investment/purchase documents (para 62); (ii) confirmed AO/CIT(A) treatment of missing interest US$ 87,500 as reasonable inference given missing statement pages (para 63); (iii) sustained AO on US$ 2,000,000 early redemption on facts showing acquisition prior to records available and lack of explanation (para 67); and (iv) sustained AO on US$ 2,186,000 received from sister as no documentary proof of genuine loan was furnished (para 68). The Tribunal computed and confirmed aggregate undisclosed foreign income from the two UBS accounts (paras 65-69). [Paras 65, 66, 67, 68, 69]

The Tribunal restored the Assessing Officer's additions: the US$ 32,13,307.60 credit and other specified credits (including US$ 87,500 interest, US$ 2,000,000 and US$ 2,186,000) were rightly treated as unexplained and assessed as undisclosed foreign income.

Beneficial owner in relation to undisclosed foreign assets - incorporation of Income Tax definitions into the BMA and contextual application - Whether the definition of 'beneficial owner' in Explanation 4 to section 139(1) of the Income tax Act applies unaltered for the BMA so that beneficial ownership requires proof of having provided consideration for the asset - HELD THAT: - Although section 2(15) of the BMA imports definitions from the Income tax Act, the Tribunal held that definitions operate subject to 'unless the context otherwise requires'. Given the BMA's object to capture undisclosed funds in tax havens where consideration is rarely traceable through official channels, applying the ITA definition literally (requiring proof of providing consideration) would render the BMA unworkable. Thus the Tribunal declined to apply the ITA's beneficial owner test rigidly in the BMA context and did not accept the assessee's contention that absence of demonstrable consideration precluded beneficial owner findings (paras 101-105). [Paras 101, 102, 104, 105]

The ITA definition of 'beneficial owner' is not to be applied rigidly where the BMA's context requires a different approach; the Tribunal rejected the assessee's contention that absence of shown consideration prevents a finding of beneficial ownership under the BMA.

Application of CBDT clarification re: compliance window vs. assessment proceedings - Whether CBDT Circular No.13/2015 could exclude from BMA assessment assets about which the Government had information before commencement - HELD THAT: - The Tribunal held the circular related to the voluntary declaration/compliance window (Chapter VI) and does not bind assessment proceedings. The circular's mechanics (intimations regarding information received by Government) do not alter statutory charging provisions; it cannot be used to exclude matters from assessment where the Assessing Officer later exercises chargeability under the statute (paras 96-99). [Paras 96, 97, 98, 99]

The CBDT circular on the compliance window does not prevent the Assessing Officer from assessing undisclosed foreign assets/income under the BMA even if information existed with Government authorities prior to commencement; the circular is confined to declaration procedures.

Levy of interest under sections 40(1) and 40(2) of the BMA (referring to sections 234A/234B/234C) - Whether interest under BMA's provisions (sections 40(1)/(2) by reference to sections 234A/B/C) was leviable in the facts of the case - HELD THAT: - The Tribunal agreed in principle with the assessee's legal submission that interest consequences differ depending on whether tax is on income or asset; however, on facts the disputed amounts were assessed as undisclosed foreign income. Consequently the assessee's plea failed and interest under the referenced provisions was sustained (paras 106 and 76-76 cross ref). The Tribunal therefore denied relief on interest because the assessment was of income as computed under the BMA (para 106). [Paras 76, 106]

No relief on interest: because the Tribunal upheld assessment of undisclosed foreign income, interest under the specified provisions stood sustained.

Final Conclusion: The Tribunal dismissed the assessee's appeal and allowed the Revenue's cross appeal for AY 2017-18: it held that undisclosed foreign assets or bank accounts discovered after commencement of the BMA are chargeable when they come to the Assessing Officer's notice; a foreign bank account can be an asset under section 2(11) (Rule 3(1)(e) is a permissible valuation method); unexplained credits and interest may be assessed as undisclosed foreign income (without deductions under section 5(1)(i)); the assessee's late explanations were rejected on the record and specific additions by the AO (including specified credits) were restored.

Condonation of delay - validity of reopening of assessment under section 147 - allowability of depreciation on a JCB as a motor vehicle entitling to higher rate - application of change of opinion doctrine

Condonation of delay - Whether delay in filing the appeals was liable to be condoned and the appeals admitted for hearing. - HELD THAT: - The assessee filed identical applications for condonation of an 11-day delay, supported by affidavit explaining that appeals could not be instituted earlier due to changes in the Tribunal's filing Form-36 despite payment of fee within time. The Revenue did not press strong opposition. The Tribunal found the delay neither intentional nor deliberate, accepted the explanation as sufficient cause and held that the appeals should be admitted for adjudication on merits. [Paras 5]

Delay in filing the appeals is condoned and the appeals are admitted for hearing.

Allowability of depreciation on a JCB as a motor vehicle entitling to higher rate - validity of reopening of assessment under section 147 - application of change of opinion doctrine - Whether the disallowance of excess depreciation claimed on the JCB should be sustained or deleted. - HELD THAT: - On merits the Assessing Officer treated the JCB as plant and machinery eligible for normal depreciation and disallowed the higher rate claimed. The Tribunal examined authorities relied upon by the assessee and noted decisions holding that a JCB, being registered as a motor vehicle and answering the description of a motor lorry, qualifies as a motor vehicle for higher depreciation. Applying that reasoning, the Tribunal found that the disallowance of higher depreciation was not sustainable and directed the AO to delete the addition. Having allowed the appeal on merits, the Tribunal observed that adjudication on the validity of the reopening became academic. [Paras 13]

Disallowance of excess depreciation on the JCB is deleted and the appeal is allowed on merits; the reopening issue is rendered academic.

Final Conclusion: The Tribunal condoned the delay in filing the appeals, allowed the appeals for AY 2010-11 to 2012-13 on merit by deleting the disallowance of depreciation on the JCB, and held the question of validity of reopening to be academic.

Slump sale - computation of capital gains under section 50B - itemized sale versus lump sum transfer - taxability of consideration for self-generated goodwill as capital gain - proof and admissibility of agreed additions by authorised representative

Slump sale - computation of capital gains under section 50B - itemized sale versus lump sum transfer - taxability of consideration for self-generated goodwill as capital gain - Whether the transfer of the passenger car dealership business was a slump sale attracting the special computation under section 50B and whether the difference between sale consideration and net worth was chargeable as long term capital gain. - HELD THAT: - The Tribunal examined the transfer agreement and Annexure A which set out values of individual assets and identified assets excluded from the transfer. Applying the statutory definition of slump sale (sale for a lump sum consideration without value being assigned to individual assets and liabilities), the Tribunal held that values were in fact assigned to individual assets and liabilities were taken over by the purchaser. The Tribunal relied on the principle in Vatsala Shenoy (as discussed in the order) that a sale will not be a slump sale where individual asset values are assigned and, accordingly, the special mechanism of section 50B for computing capital gains in a slump sale does not apply. Given this factual and legal conclusion, the addition made by the Assessing Officer treating the difference as long term capital gain under section 50B was not sustainable and was deleted. Although the CIT(A) had considered alternate contentions on taxability of goodwill and legislative change in cost of acquisition, the Tribunal's dispositive finding was that the transaction was not a slump sale and therefore section 50B was not attracted; accordingly the addition was set aside. [Paras 10]

Transaction held not to be a slump sale; section 50B not attracted; addition of Rs. 3,68,33,000/- deleted.

Proof and admissibility of agreed additions by authorised representative - Validity of the disallowance of expenditure of Rs. 12,14,253/- allegedly agreed by the assessee's authorised representative during assessment proceedings. - HELD THAT: - The Assessing Officer disallowed expenses on the basis that bills and vouchers were not produced and recorded that the assessee's authorised representative had agreed to the disallowance in the assessment hearing. The assessee disputed that any such authorization was given. In view of these conflicting contentions and the record relied upon by the parties, the Tribunal did not decide the matter on merits but directed a fresh adjudication. The issue was remitted to the Assessing Officer for reconsideration after examining the documentary material produced by the assessee and after providing reasonable opportunity of hearing; the assessee was directed to substantiate its claim with documentary evidence and afforded three effective opportunities of hearing. [Paras 14]

Issue remitted to the Assessing Officer for fresh decision after examination of evidence and providing opportunity of hearing; matter allowed for statistical purposes.

Final Conclusion: Appeal partly allowed: the addition of Rs. 3,68,33,000/- treated as long term capital gain under section 50B is deleted as the transfer was held not to be a slump sale; the disallowance of Rs. 12,14,253/- is remitted to the Assessing Officer for fresh consideration after opportunity of hearing.

Charitable purpose under section 2(15) - relief of the poor as charitable purpose - objects of general public utility - benefit to a section of the public - registration under section 12A/12AA - consideration of objects not of application of income

Charitable purpose under section 2(15) - relief of the poor as charitable purpose - objects of general public utility - benefit to a section of the public - Whether the aims and objects of the assessee society qualify as charitable purpose falling within section 2(15) of the Act. - HELD THAT: - The Tribunal found on the material before it that the assessee society was formed for the welfare of small and marginal farmers by organizing them into FPGs, FPOs and producer companies to secure bargaining power, economies of scale, forward and backward linkages and access to markets and infrastructure. The CBDT Circular No.11/2008 (para 2.2) treats relief of the poor as including small and marginal farmers. The Tribunal applied the settled principle that an object conferring benefit on a section of the public (as distinct from specific individuals) qualifies as an object of general public utility; reliance was placed on Rana Caste Association and relevant decisions of the ITAT. Having regard to the memorandum of association, the assessee's role in implementing state schemes for crop-cluster development through FPOs and the nature of its objects, the Tribunal held that the objects fall within the definition of charitable purpose under section 2(15) as relief of the poor/advancement of general public utility. [Paras 7]

The assessee's objects qualify as charitable purposes within section 2(15); the activities aimed at the welfare of small and marginal farmers constitute relief of the poor and an object of general public utility.

Registration under section 12A/12AA - consideration of objects not of application of income - stage of granting registration-examination of objects not application of income - Whether the Commissioner (Exemptions) was justified in denying registration under section 12AA by examining the assessee's past expenditures and return form filing instead of confining the inquiry to the objects of the society. - HELD THAT: - The Tribunal held that at the stage of granting registration under section 12AA the proper inquiry is into the objects of the society and not into year to year application of income or expenditure patterns, which are matters for the Assessing Officer when exemption under section 11 is claimed. The CIT(E) had commented on the assessee's expense heads and noted filing of ITR 5 for AY 2018 19; the Tribunal observed such examination of application of income and the form chosen for filing returns was not a permissible basis for denying registration. Applying the principle that registration depends on objects and not on incidental or later accounting/expenditure issues, the Tribunal concluded the denial was not justified and directed granting of registration. [Paras 3, 7]

The CIT(E) erred in denying registration by analysing past expenditures and return form; registration must be granted based on the charitable nature of objects and the impugned order is set aside.

Final Conclusion: The impugned order rejecting the application for registration under section 12AA is set aside. The Tribunal directs the Commissioner (Exemptions) to grant registration to the assessee society under section 12AA; the appeal is allowed.

Deemed full value of consideration under section 50C(1) - Applicability of proviso to section 50C(1) (Finance Act, 2016) - retrospective/curative application - Stamp duty valuation on date of agreement vs date of registration - Benefit of proviso where part consideration received by banking channel on or before date of agreement - Effect of change in parties between agreement to sell and registered sale deed on entitlement to proviso

Deemed full value of consideration under section 50C(1) - Stamp duty valuation on date of agreement vs date of registration - Whether the Assessing Officer was justified in adopting the stamp valuation as on date of registration under section 50C(1) instead of the agreed sale consideration fixed by the parties in the agreement dated 09.02.2012. - HELD THAT: - The Tribunal found that the assessee had entered into an agreement to sell on 09.02.2012 fixing the sale consideration and had received an advance by cheque on that date, and that the sale deed registered subsequently on 07.05.2012 gave effect to the same agreed consideration. Section 50C(1) ordinarily mandates adoption of the value assessed for stamp duty as full value of consideration where that value exceeds the consideration received. However, where the guideline value was revised after the date of the agreement and became higher than the agreed consideration, the Assessing Officer could not, in the facts of this case, rightly substitute the agreed consideration by the subsequently revised stamp valuation. Applying the proviso (or the rationale behind it as accepted by various courts) and on the material that the agreement fixed the consideration and part consideration was received by banking channel on the date of the agreement, the Tribunal held that the agreed sale consideration must be taken for computing capital gains and directed the Assessing Officer to adopt the sale consideration as per the agreement dated 09.02.2012. [Paras 11]

The Assessing Officer erred in recomputing long term capital gain by adopting the stamp valuation as on date of registration; the agreed consideration in the sale agreement dated 09.02.2012 is to be adopted.

Applicability of proviso to section 50C(1) (Finance Act, 2016) - retrospective/curative application - Benefit of proviso where part consideration received by banking channel on or before date of agreement - Whether the proviso inserted to section 50C(1) by the Finance Act, 2016 (w.e.f. 01.04.2017) operates retrospectively or otherwise affords relief to the assessee for AY 2013-14. - HELD THAT: - The Tribunal noted that several judicial decisions treat the 2016 proviso as curative in nature and applicable retrospectively to relieve undue hardship where conditions of the proviso are satisfied. On the facts - agreement fixing consideration dated 09.02.2012 and receipt of part consideration by cheque on that date - the Tribunal applied the principle that where an amendment removes an apparent incongruity or undue hardship and the conditions of the proviso are met, the proviso's relief may be given effect to in earlier years. The Tribunal therefore concluded that the assessee is entitled to the relief contemplated by the proviso, irrespective of the formal retrospective cut-off dated by the Finance Act, 2016, and that the proviso does not lose the assessee's entitlement in the present facts. [Paras 9, 10, 11]

The proviso's relief is available to the assessee on the facts (agreement date and payment by cheque), and the proviso's curative effect supports adopting the agreement consideration for computing capital gain.

Effect of change in parties between agreement to sell and registered sale deed on entitlement to proviso - Whether the fact that the registered sale deed names different purchasers (mother and sister of the original purchaser) disentitles the assessee from claiming the benefit of the agreement for the purpose of section 50C(1). - HELD THAT: - The Tribunal examined the contention that the agreement to sell was with a different person than those named in the registered deed. It observed that the sale deed effectuated the transaction in favour of the purchaser's mother and sister and that such change did not, on the facts, take away the assessee's right to the benefit of the proviso when the agreement had fixed the consideration and the payment conditions of the proviso were satisfied. The Tribunal also noted that mandatory registration of agreements in the State was introduced later and non-registration of the earlier agreement - especially when acted upon - cannot be a ground to deny benefit. [Paras 10, 11]

The alteration in parties between agreement and registered deed does not preclude the assessee from claiming the benefit of the proviso; entitlement arises from the agreement and receipt of consideration by banking channel.

Final Conclusion: The assessee's appeal is allowed: the Tribunal directs the Assessing Officer to compute long term capital gain by adopting the sale consideration as per the agreement dated 09.02.2012 (part consideration having been received by cheque), and not the subsequently revised stamp duty guideline value adopted as on the date of registration.

Validity of reassessment proceedings - reopening beyond four-year limitation - reason to believe - requirement of fresh material for reopening - independent satisfaction of the Assessing Officer - mandatory compliance of Section 144C(1) - draft assessment order - incurable illegality - binding nature of CBDT Instruction No. 3/2016 for TP cases

Validity of reassessment proceedings - reopening beyond four-year limitation - reason to believe - requirement of fresh material for reopening - independent satisfaction of the Assessing Officer - Lawfulness of reopening assessment under Section 147/148 for AY 2008-09 in view of limitation and existence of fresh material/reason to believe. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the reassessment notice issued on 31.03.2015 for AY 2008-09 was time-barred as the four-year period expired on 31.03.2013 and the Assessing Officer failed to establish that the assessee had not fully and truly disclosed material facts. The Assessing Officer's reasons relied on alleged incorrect computation of an average margin submitted in transfer-pricing proceedings, but the CIT(A) found that the underlying margin data had been submitted and what was allegedly incorrect was only the average figure; that did not constitute a failure to disclose material facts. The CIT(A) also found, and the Tribunal agreed, that no new material was recorded to form the required 'reason to believe' and that belief must be founded on material contained in recorded reasons and be the Assessing Officer's independent satisfaction rather than borrowed satisfaction. In absence of new material and independent satisfaction, reassessment was impermissible. The Tribunal found no contrary material placed before it by Revenue and, applying established principles, sustained quashing of reassessment as invalid. [Paras 8, 9, 10, 11, 22]

Reopening under Sections 147/148 for AY 2008-09 quashed as time-barred and without requisite fresh material or independent reason to believe; reassessment held invalid.

Mandatory compliance of Section 144C(1) - draft assessment order - incurable illegality - binding nature of CBDT Instruction No. 3/2016 for TP cases - Validity of final assessment order passed under Section 143(3) r.w.s. 147 without issuing a draft assessment order under Section 144C(1). - HELD THAT: - The Tribunal accepted the assessee's contention that where Section 144C applies the AO is mandated to first forward a draft assessment order to the assessee before passing a final order; this is not a mere procedural formality but a statutory right enabling the assessee to object and approach the DRP. The Tribunal followed the Jurisdictional High Court precedents holding Section 144C(1) mandatory and that failure to comply is a jurisdictional error amounting to incurable illegality which cannot be cured by Section 292B. The Tribunal rejected Revenue's submission that the requirement applies only to 'eligible assessee' in a narrower sense, relying also on CBDT Instruction No. 3/2016 which mandates reference to the TPO in transfer-pricing risk cases and underscores the applicability of the Section 144C procedure. Consequently, the final assessment passed without the draft assessment order was held void-ab-initio. [Paras 17, 18, 20, 21, 22]

Final assessment order passed without complying with Section 144C(1) was held to be vitiated by jurisdictional error and therefore void; reassessment quashed on this ground as well.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order quashing the reassessment for Assessment Year 2008-09: the reassessment was time barred and lacked requisite new material/reason to believe, and the final assessment was also void for failure to comply with the mandatory draft-assessment procedure under Section 144C(1).

Recording of reasons for reopening assessment - Communication of reasons to the assessee - Reopening under Section 147/148 of the Income-tax Act - Jurisdiction to reopen assessment - Validity of reassessment proceedings

Recording of reasons for reopening assessment - Communication of reasons to the assessee - Reopening under Section 147/148 of the Income-tax Act - Jurisdiction to reopen assessment - Validity of reassessment proceedings - Reassessment proceedings reopened under notice u/s. 148 are invalid because the reasons recorded for reopening were not supplied to the assessee despite a specific request. - HELD THAT: - The Tribunal found that notices under Section 148 were issued and the assessee expressly requested supply of the reasons recorded for reopening but those reasons were not furnished before completion of reassessment. Relying on the decision of the jurisdictional High Court in Pr. CIT v. V. Ramaiah, which applied the Supreme Court's principle in GKN Driveshafts that recording and communication of reasons for reassessment is not a mere procedural formality but goes to jurisdiction, the Tribunal held that non-communication of reasons renders the reassessment without jurisdiction. The Tribunal rejected the Revenue's contention that the assessee had constructive or actual knowledge of the reasons from participation in proceedings or from order-sheet entries, noting the High Court's view that mere participation does not substitute for contemporaneous supply of recorded reasons and that reasons produced only before the Tribunal cast doubt on their contemporaneous recording. Having concluded that reopening was invalid, the Tribunal did not decide the merits of the claim for deduction u/s. 80HHC. [Paras 6, 7]

Reopening of assessment for AYs 1994-1995 and 1995-1996 is quashed for non-supply of the reasons recorded; merits not adjudicated.

Final Conclusion: The appeals are partly allowed by quashing the reassessment orders for assessment years 1994-1995 and 1995-1996 on the ground that the reasons recorded for reopening under Section 147/148 were not supplied to the assessee despite specific request; the merits of the assessments were not considered.

Allowability of borrowing cost where investment funded from mixed funds - treatment of interest on funds advanced to subsidiary as deductible where utilised for subsidiary's business - deductibility of brokerage and commission in real estate business as selling/finance expense - treatment of Transferable Development Rights (TDR) - capitalisation to WIP v. sale as stock-in-trade - adjustment of closing work-in-progress where sale proceeds of project inputs were previously reduced from WIP - distinction between depreciation/administrative expenses forming part of WIP and those allowable as standalone business deductions

Allowability of borrowing cost where investment funded from mixed funds - Whether interest on borrowed funds used (partly) to acquire shares of a subsidiary is disallowable under section 36(1)(iii) when assessee had sufficient self-owned funds. - HELD THAT: - The Tribunal found on record that the shares of the subsidiary were acquired in a prior year and the investment was out of mixed funds primarily sourced from maturity proceeds of fixed deposits. Given the substantial interest free/self owned funds available on the balance sheet, the presumption applicable to mixed funds is that the investment is out of self owned funds. Applying the principle in the Bombay High Court decisions relied upon, the Tribunal held that no part of the interest expense was attributable to the investment and therefore disallowance under section 36(1)(iii) could not be sustained. The CIT(A)'s and AO's disallowance of Rs.1,23,87,552/- was set aside. [Paras 11, 12]

Disallowance of interest of Rs.1,23,87,552/- vacated; ground allowed.

Treatment of interest on funds advanced to subsidiary as deductible where utilised for subsidiary's business - Whether interest expense attributable to amount advanced as interest free loan to subsidiary is disallowable under section 36(1)(iii). - HELD THAT: - The Tribunal accepted the CIT(A)'s finding that the interest free loan advanced to the wholly owned subsidiary was utilised by the subsidiary for its business. In that factual matrix, the Tribunal applied the ratio of S.A. Builders Ltd. and held that interest could not be disallowed where funds were made available to the subsidiary for business purposes. The AO's disallowance of Rs.59,00,000/- was therefore correctly vacated. [Paras 31, 32, 33]

Disallowance of Rs.59,00,000/- vacated; revenue ground dismissed.

Deductibility of brokerage and commission in real estate business as selling/finance expense - Whether brokerage and commission paid in relation to sale/bookings of properties are allowable as revenue expenditure in the year incurred despite no corresponding sales being recognised in that year, or must be treated as WIP. - HELD THAT: - Although the assessee had shown the amounts as prepaid in accounts, accounting entries are not conclusive. The Tribunal relied on the Guidance Note on Real Estate Transactions and on authoritative judicial decisions (DLF Home Developers Ltd. and subsequent Supreme Court disposal) holding that brokerage/commission are finance/selling expenses not to be capitalised into construction WIP and are allowable in the year of incurrence. Consequently, the CIT(A)'s direction to treat the amount as part of WIP was unnecessary because the Tribunal held the expenditure allowable as revenue expenditure and vacated the AO's disallowance of Rs.1,24,64,408/-. [Paras 16, 18, 19, 20]

Disallowance of brokerage and commission of Rs.1,24,64,408/- vacated; expense allowed as revenue deduction.

Treatment of Transferable Development Rights (TDR) - capitalisation to WIP v. sale as stock-in-trade - Whether profit on sale of TDRs (purchased from market and earlier capitalised to project WIP) is to be reduced from WIP or taxed as business income. - HELD THAT: - The Tribunal agreed with the AO and CIT(A) that where TDRs were purchased from the market (and not earned in the course of executing the project) they are part of stock in trade and not inextricably linked to the project's execution. Consequently, sale of such market purchased TDRs amounts to sale of stock in trade and profit thereon is assessable as business income. The Tribunal found the authorities relied upon by the assessee distinguishable (they related to TDRs earned in the course of execution) and upheld the addition of profit on sale of TDRs quantified at Rs.5,56,12,975/-. [Paras 21, 23, 24, 26, 27]

Profit on sale of TDRs of Rs.5,56,12,975/- upheld as business income; appeal on this point dismissed.

Adjustment of closing work-in-progress where sale proceeds of project inputs were previously reduced from WIP - Whether, if profit on sale of TDRs is held taxable as business income, closing WIP must be increased to reflect cost of TDRs whose sale proceeds were previously reduced from WIP. - HELD THAT: - Having held the surplus on sale of market purchased TDRs to be assessable as business income, the Tribunal directed the AO to increase closing WIP by the cost of the TDRs whose sale proceeds the assessee had earlier reduced from WIP, thereby ensuring proper matching and correct determination of project cost. The AO was to allow the assessee a reasonable opportunity during the set aside proceedings to substantiate costs. [Paras 28]

Directed AO to increase closing WIP by cost of the TDRs whose sale proceeds were reduced from WIP; ground partly allowed.

Distinction between depreciation/administrative expenses forming part of WIP and those allowable as standalone business deductions - Whether depreciation on office assets and various administrative/general expenses are disallowable because project income was not recognised during the year. - HELD THAT: - The Tribunal approved the CIT(A)'s reasoning that depreciation on assets used for administrative purposes (computers, furniture, office equipment, vehicles) does not form part of project WIP and is allowable as a deduction. Likewise, general administrative expenses are not construction/development costs under the Guidance Note and are deductible in the year incurred. The CIT(A)'s vacatur of disallowances in respect of depreciation (Rs.70,09,252/-) and general expenses (Rs.4,82,51,174/-) was upheld. [Paras 35, 38, 39]

Disallowances of depreciation and general administrative expenses vacated; amounts allowed as deductions.

Final Conclusion: The assessee's appeal is partly allowed: disallowances of interest on share acquisition (Rs.1,23,87,552/-), brokerage/commission (Rs.1,24,64,408/-), depreciation (Rs.70,09,252/-) and general administrative expenses (Rs.4,82,51,174/-) are vacated and allowed; the addition of profit on sale of market purchased TDRs (Rs.5,56,12,975/-) as business income is upheld, but the AO is directed to increase closing WIP by the cost of the TDRs whose sale proceeds were reduced from WIP. The revenue's appeal is otherwise dismissed.

Allowability of running expenses incurred between setting up of business and commencement of commercial operations - ad hoc disallowance inadmissible without rejection of audited books or pointing out specific defects - commercial expediency - proviso to section 36(1)(iii) - disallowance of interest on borrowed funds applied to acquisition of capital asset until asset brought to use - interest on delayed payment of statutory dues compensatory v. penal - TDS written off treated as business loss where irrecoverable - disallowance under section 14A of expenditure in relation to exempt income - deemed dividend under section 2(22)(e)

Allowability of running expenses incurred between setting up of business and commencement of commercial operations - ad hoc disallowance inadmissible without rejection of audited books or pointing out specific defects - Whether various expenditures claimed by the assessee for setting up and maintenance of offices and for project-related activities were deductible as business expenses - HELD THAT: - The Tribunal upheld the CIT(A)'s findings that the assessee had entered into a joint venture and taken necessary steps to set up business (including office premises and staff) and that many disputed items (legal, research, rent, architectural fees, brokerage, depreciation on office assets, travelling, salaries and staff welfare, tenant service charges and similar running costs) were incurred in furtherance of the assessee's business. The CIT(A) applied precedent recognising that running expenses incurred after setting up the business and prior to commercial receipts may be revenue in nature, and found the Assessing Officer's wholesale or ad hoc disallowances unsustainable where books were audited, vouchers were produced and no specific defects were pointed out. Where particular items conferred enduring benefit (for example site plans, registration), those specific disallowances were confirmed as capital. The Tribunal, after reviewing the facts and the CIT(A)'s item wise reasoning, found no infirmity warranting interference and dismissed the Revenue's challenges on these recurring heads across the assessment years.

Disallowed additions deleted in large measure; specific capital items upheld where found to confer enduring benefit.

Interest on delayed payment of statutory dues compensatory v. penal - TDS written off treated as business loss where irrecoverable - Whether interest on delayed deposit of TDS and amounts of TDS written off were allowable deductions - HELD THAT: - Relying on Supreme Court and High Court precedents distinguishing penal from compensatory interest, the CIT(A) and the Tribunal held that interest on delayed payment of TDS/service tax is compensatory in nature and deductible under the general business expenditure provision; the Tribunal found the Assessing Officer's reliance on decisions concerning delayed payment of income tax inapplicable. As regards TDS amounts written off for want of certificates, the CIT(A) treated the write off as a business loss incurred in the course of business where recoverability had been determined to be nil; the Tribunal found no error in that conclusion and sustained deletion of the disallowance.

Disallowance of interest on delayed TDS and of TDS written off deleted.

Commercial expediency - proviso to section 36(1)(iii) - disallowance of interest on borrowed funds applied to acquisition of capital asset until asset brought to use - Whether interest on borrowings was disallowable under the proviso to section 36(1)(iii) where borrowed funds were used to make interest free advances/loans to group/subsidiary companies - HELD THAT: - Applying the Supreme Court's formulation of 'commercial expediency' and the legal test that the ultimate use of funds, not the source, determines applicability of the proviso, the CIT(A) analysed audited balance sheet schedules and project documents and concluded that loans from the bank were used for income earning investments or for business purposes (including advances to group entities engaged in joint ventures and projects). The Tribunal found that the AO's unilateral conclusion ignored documentary material and that the advances served a business purpose or commercial expediency; accordingly the proviso did not operate to disallow the interest. The Tribunal sustained the deletion of the AO's disallowance in the relevant assessment years.

Interest claimed allowed; AO's disallowance under proviso to section 36(1)(iii) deleted.

Ad hoc disallowance inadmissible without rejection of audited books or pointing out specific defects - Whether an addition based solely on AIR/Form 26AS information (undisclosed income) could be sustained where the assessee demonstrated non receipt and mismatch of entries - HELD THAT: - The CIT(A) accepted the assessee's explanation that the payer had wrongly reported the assessee's name in the AIR/Form 26AS and that the assessee had not received the alleged income; documentary material identifying the actual transacting party and ledger entries were placed before the authorities. The Tribunal found no infirmity in the CIT(A)'s deletion of the addition made by the AO on the basis of database information alone, given the satisfactory explanation and supportive evidence.

Addition made on AIR/Form 26AS deleted.

Disallowance under section 14A of expenditure in relation to exempt income - Whether proportionate expenditure (disallowance under section 14A) should be added in respect of investments made where assessee's own funds exceeded the investments - HELD THAT: - The CIT(A) examined the audited balance sheet and cash resources and observed that the assessee had substantial own funds and that interest free advances to subsidiaries were small relative to overall funds. Applying the established approach that disallowance under section 14A depends on the nexus and funding of exempt income investments, the CIT(A) concluded the AO's proportionate disallowance was unjustified. The Tribunal agreed with the appellate reasoning and upheld deletion of the section 14A disallowance.

Disallowance under section 14A deleted.

Deemed dividend under section 2(22)(e) - Whether the addition under section 2(22)(e) for deemed dividend should be sustained for the assessment year 2007-08 - HELD THAT: - The CIT(A) observed that facts were unclear, the Assessing Officer's treatment appeared ad hoc and the matter had not been properly examined on evidence. The Tribunal remitted the issue to the Assessing Officer for fresh adjudication and a speaking order after appreciating ledger accounts and documents furnished by the assessee; the remand was for decision on merits rather than disposal on procedural grounds.

Matter remanded to Assessing Officer for fresh consideration and speaking order.

Final Conclusion: The Tribunal dismissed the Revenue's appeals for assessment years 2004-05, 2005-06, 2006-07, 2007-08 and 2009-10 on the principal grounds that the CIT(A)'s item wise allowance of running/project expenses, deletion of ad hoc disallowances, allowance of interest where applied to business or arising compensatorily, and deletion of section 14A and AIR based additions were legally and factually sustainable; the assessee's appeal under section 2(22)(e) for AY 2007-08 was remitted to the Assessing Officer for fresh consideration.

Liquidated damages - capital receipt - cost of capital asset - business expenditure - books of account-non-production - allowability of expenditure on business expediency

Liquidated damages - capital receipt - cost of capital asset - Whether amounts received from contractors as liquidated damages for delay in completing fit-out works are capital receipts not chargeable to income-tax. - HELD THAT: - The assessee entered into contracts for interior works to make rented premises fit for commencement of business and stipulated a fixed daily liquidated damage payable by contractors for delay. The assessee reduced the contractor payments by the liquidated damages so recovered, thereby reducing the capital cost of the project. As the payments were connected to bringing the profit making apparatus into existence and were credited against the project cost, they were held to be capital in nature and not exigible to tax as revenue receipts. The Tribunal applied this reasoning to the assessment year under appeal and, following the same view, extended it to the subsequent assessment year. [Paras 6, 8]

Amount received as liquidated damages treated as capital receipt and addition deleted; same view applied to the other assessment year.

Books of account-non-production - business expenditure - allowability of expenditure on business expediency - Whether expenditure incurred on gifts to VIPs and celebrities is allowable despite non-production of books of account leading to disallowance by the Assessing Officer. - HELD THAT: - The Assessing Officer disallowed the expenditure on the ground of non production of books, but had allowed other deductions notwithstanding the same factual matrix. The Tribunal noted the assessee's substantial nationwide operational revenue and that the expenditure on gifts was incurred to promote business. Having regard to the nature and quantum of the expense relative to the scale of business, the Tribunal held the expenditure to be allowable as business expenditure and reversed the disallowance. The Tribunal applied this conclusion to the subsequent assessment year as well. [Paras 7, 8]

Disallowance set aside and the expenditure allowed as business expenditure; same view applied to the other assessment year.

Final Conclusion: Both appeals were allowed: the addition on account of liquidated damages was deleted as capital receipt and the disallowance for non-production of books in respect of gifts was reversed and treated as allowable business expenditure; the same conclusions were applied to the other assessment year.

Reverse charge mechanism - business auxiliary service - charging section must be strictly construed - repeal of charging provisions with effect from 1.7.2012 - extended period of limitation-requirement of intent to evade - penalty under Section 78 linked to confirmed demand - exemption notifications-strict interpretation and burden on assessee

Repeal of charging provisions with effect from 1.7.2012 - charging section must be strictly construed - Validity of invoking Section 66A and Section 65(105)(zzb) for demands raised for the period after 1 July 2012. - HELD THAT: - The Tribunal found that the very charging provisions relied upon by the Department-Section 66A read with Section 65(105)(zzb)-did not exist after 1 July 2012 following the introduction of the negative list regime. A taxing statute's charging section must be strictly construed and any ambiguity is resolved in favour of the assessee. Where the charging section itself has been repealed with effect from the relevant date there is no scope to invoke that provision for demands pertaining to the post-repeal period. Consequently demands, interest and penalties based on those provisions for the post-1.7.2012 period cannot be sustained and were set aside. [Paras 8, 9, 13, 14, 16]

Demand, interest and penalty for the period after 1.7.2012 set aside as the charging provisions relied upon did not exist for that period.

Reverse charge mechanism - business auxiliary service - exemption notifications-strict interpretation and burden on assessee - Whether commissions paid to foreign commission agents prior to 1 July 2012 were taxable as business auxiliary services under reverse charge, and whether exemption notifications applied. - HELD THAT: - The Tribunal accepted that commissions paid to overseas agents for procuring export orders constituted business auxiliary service and, for the pre-1.7.2012 period, were covered by the reverse charge mechanism under the charging provisions invoked. The appellant's claim to conditional exemption notifications failed because the notifications imposed substantive procedural conditions (prior intimation, registration with export promotion council, IEC, half-yearly returns, documentary proof of payment and agreement) which were not satisfied. The burden to prove applicability of an exemption lies on the assessee and exemption notifications are to be interpreted strictly; therefore the appellant could not claim the benefit. [Paras 17, 20, 21, 26, 27]

For the pre-1.7.2012 period the services were taxable under the reverse charge mechanism and exemption notifications did not apply on the facts; taxability was upheld as a legal proposition though practical recovery was affected by limitation findings.

Extended period of limitation-requirement of intent to evade - penalty under Section 78 linked to confirmed demand - Whether the extended period of limitation and penalty/interest under the Finance Act could be invoked and sustained. - HELD THAT: - The Tribunal noted that invocation of the extended period under Section 73 requires satisfaction of statutory ingredients (fraud, collusion, willful misstatement or suppression of facts with intent to evade) and that the impugned order did not discuss or invoke the proviso to Section 73(1) in its operative part. Although the Tribunal found evidence that the appellant had consciously chosen not to comply with Section 66A (and therefore there was material from which intent could be inferred), procedural and decisional defects in the original order-specifically the failure to properly invoke and record the extended limitation and the absence of a proper finding on the ingredients-required that the extended-period demand, and the linked penalty under Section 78 and interest under Section 75, be set aside. The Tribunal emphasised that revenue neutrality or availability of Cenvat credit does not, by itself, extinguish a tax liability; but procedural compliance in invoking extended limitation is indispensable. [Paras 22, 23, 30, 31]

Extended period demand and consequential penalty and interest set aside because the original order failed to properly invoke or record the requisite findings for extended limitation.

Final Conclusion: The appeal is allowed: demands, interest and penalty confirmed in the impugned order are set aside - demands relating to the post-1.7.2012 period were unsustainable as the charging provisions were repealed; although pre-1.7.2012 taxability under reverse charge was accepted, the extended-period invocation and consequential penalty and interest were quashed for failure of the original order to properly record the requisite findings.

Taxability of statutory compensation - service of agreeing to tolerate a situation - consideration by operation of law versus contractual consideration - penalties consequent on confirmed service tax demand

Taxability of statutory compensation - service of agreeing to tolerate a situation - consideration by operation of law versus contractual consideration - Receipt of compensation under the Coal Mines (Special Provisions) Act, 2015 is not taxable as a service under the Finance Act, 1994. - HELD THAT: - The tribunal held that the characterisation of the amount received as consideration for 'agreeing to tolerate an act or situation' presupposes (a) a choice to tolerate, (b) an affirmative choice by the recipient, (c) an agreement (express or implied) to tolerate for consideration, and (d) the tolerance being a taxable service. None of these elements exist where cancellation of coal block allocations and payment of compensation occurred by operation of law under a statutory scheme enacted in consequence of a judicial order. The compensation paid to the appellant is analogous to statutory compensation (for example land acquisition compensation) or statutory payments such as leave encashment on retirement and does not arise from any contract or agreement constituting consideration for a service. Therefore, the amount cannot be treated as consideration for a taxable service of 'agreeing to tolerate' under section 66E(e) read with the definitions in section 65B, and service tax cannot be levied on the compensation received under CMSPA. [Paras 6, 7]

Demand of service tax on the compensation received under CMSPA is unsustainable and is set aside.

Penalties consequent on confirmed service tax demand - limitation for invoking extended period - Penalties and interest imposed consequential to the service tax demand are set aside; the question of limitation invoked for the extended period was not examined. - HELD THAT: - Having decided on the merits that the compensation is not a taxable service, the tribunal found it unnecessary to adjudicate the department's claim under the proviso to section 73(1) (extended period) and therefore did not examine limitation. Because the substantive demand was quashed, concomitant interest and penalties imposed under the Finance Act, 1994 were also found unsustainable and were set aside. [Paras 8]

Interest and penalties imposed in the impugned order are set aside; the extended period of limitation was not adjudicated.

Final Conclusion: The appeal is allowed: the service tax demand, interest and penalties confirmed in the impugned order are set aside because the statutory compensation received under CMSPA does not constitute a taxable service; the question of limitation was not considered.

Reversal of proportionate CENVAT credit - Rule 6(3A) - formula and procedural requirements for proportionate reversal - Rule 6(5) - exclusion of specified input services from reversal/penalisation - Obligations under Rule 6 and availability of alternative options - Invalidity of show cause notice demanding payment under Rule 6(3) - Penalty under Rule 15 for wrongly availed CENVAT credit

Reversal of proportionate CENVAT credit - Rule 6(3A) - formula and procedural requirements for proportionate reversal - Whether the assessee was entitled to reverse a proportionate amount of CENVAT credit for electricity partly wheeled out. - HELD THAT: - The Tribunal held that proportionate reversal of CENVAT credit satisfies the obligations under Rule 6(1) (non-availment of credit in respect of inputs/input services used for exempted goods) and Rule 6(2) (maintenance of separate accounts). Where only a portion of inputs/input services is utilised for exempted output, reversal is equivalent to not availing credit for that portion; this is a permissible accounting method. Rule 6(3A) (introduced from 1.4.2008) specifically provides for proportionate reversal and a formula which the assessee followed. Procedural defects alleged by Revenue (non filing of declaration with the Superintendent under Rule 6(3A) or misfiling with Deputy Commissioner for pre 1.4.2008 periods and delayed payment of interest) were treated as technical and not sufficient to deprive the assessee of the substantive benefit, provided amounts and interest were ultimately paid. Consequently the Tribunal sustained the proportionate reversal for both the post 1.4.2008 period under Rule 6(3A) and for prior periods under the retrospective provision in Finance Act, 2010. [Paras 10, 11, 12, 13, 24]

Proportionate reversal of CENVAT credit by the assessee is sustainable and meets the requirements of Rules 6(1), 6(2) and 6(3A)/Finance Act, 2010.

Rule 6(5) - exclusion of specified input services from reversal/penalisation - Whether the assessee could exclude credit taken on services specified in Rule 6(5) while computing the reversal. - HELD THAT: - Rule 6(5) expressly allows full credit of specified services unless such services are used exclusively for manufacture of exempted goods or provision of exempted services. The Tribunal rejected Revenue's contention that electricity not being an 'excisable good' under the Tariff removes the applicability of Rule 6(5), observing that the Revenue's premise would nullify Rule 6 itself and the case turned on Rule 6 applying. Revenue did not dispute that some of the common input services were used for electricity that further entered manufacture of dutiable products; therefore, where services are not exclusively used for exempted production, the assessee is entitled to retain credit on services listed in Rule 6(5) and is not required to reverse proportionate credit on them. [Paras 14, 16, 17, 18, 24]

The assessee correctly excluded from reversal the credit on services covered by Rule 6(5), unless such services were exclusively used for exempted goods/services.

Obligations under Rule 6 and availability of alternative options - Invalidity of show cause notice demanding payment under Rule 6(3) - Whether a show cause notice could validly demand payment under Rule 6(3) (8%/10% option) instead of proceeding under recovery provisions for wrongly availed credit. - HELD THAT: - Rule 6 sets out alternative obligations for assessees and does not constitute a charging provision enabling the authorities to compel one of those options upon an assessee. The Tribunal accepted the position in Tiara Advertising that authorities cannot choose an option under Rule 6(3) for the assessee; if the assessee has wrongly availed credit, recovery must be effected under Rule 14. Thus a show cause notice predicated on demanding payment under Rule 6(3) (i.e., enforcing the 8%/10% option) was held to be without authority of law and therefore unsustainable. [Paras 19, 20, 21, 23, 24]

The show cause notice demanding payment under Rule 6(3) is without authority of law and must be set aside; recovery, if any, should follow the remedy under Rule 14.

Penalty under Rule 15 for wrongly availed CENVAT credit - Whether the penalty under Rule 15 imposed upon the assessee was sustainable. - HELD THAT: - Rule 15 contemplates penalty where CENVAT credit is taken or utilised wrongly and envisages recovery under Rule 14. The Tribunal found that the impugned show cause notice did not properly propose recovery under Rule 14 but instead was founded on an unlawful demand under Rule 6(3). Because the show cause notice was issued without authority of law, any penalty imposed pursuant to that notice could not be sustained and had to be set aside. [Paras 22, 23, 24]

The penalty imposed under Rule 15 is set aside because it flowed from a show cause notice that was without authority of law.

Final Conclusion: The impugned order is set aside: the assessee's appeal is allowed (proportionate reversal sustained and exclusion of Rule 6(5) services upheld; penalty set aside) and the Revenue's appeal is rejected.

Options under Rule 6(3) of the CENVAT Credit Rules - Authority cannot choose option on behalf of assessee - Recovery of wrongly taken CENVAT credit under Rule 14 - Reversal of CENVAT credit and acceptance by revenue - Penalty consequential on invalid demand

Options under Rule 6(3) of the CENVAT Credit Rules - Authority cannot choose option on behalf of assessee - Validity of demand calculated at 5% or 10% of value of exempted goods by invoking Rule 6(3) where assessee did not maintain separate records or file the prescribed declaration - HELD THAT: - The Tribunal applied the ratio of the Telangana High Court in Tiara Advertising and held that Rule 6(3) merely offers choices to an assessee who does not maintain separate accounts; it does not empower departmental authorities to select one of those options on behalf of the assessee and thereby impose a liability of payment equal to 5% or 10% of the value of exempted goods. Where the assessee failed to follow the procedural option, the proper recourse, if any credit was wrongly availed or utilised, was to invoke the recovery mechanism under Rule 14 and not to unilaterally foist the Rule 6(3) payment obligation on the assessee. Applying that principle, the demand computed by applying the 5%/10% formula under Rule 6(3) could not be sustained. [Paras 11, 12]

Demand based on selecting the Rule 6(3) 5%/10% option could not be sustained and is set aside.

Recovery of wrongly taken CENVAT credit under Rule 14 - Reversal of CENVAT credit and acceptance by revenue - Penalty consequential on invalid demand - Whether Rule 14 permits recovery of an amount equal to the 5%/10% option and the consequence of the assessee's belated reversal of credit and payment of interest - HELD THAT: - The Tribunal observed that Rule 14 provides for recovery of CENVAT credit wrongly taken or utilised and for application of the statutory recovery provisions; it does not provide for recovery of an amount equal to the 5%/10% option which is a non-mandatory choice available under Rule 6. Since there is no legal provision to recover the 5%/10% sum under Rule 14, the Show Cause Notice premised on such recovery lacked authority of law. The Tribunal further noted that the assessee had reversed the proportionate credit and paid interest, and that the Department had accepted that reversal for the earlier period; consequently the Revenue's contention concerning delayed filing of declaration did not justify sustaining the impugned demand. Penalty founded on the invalid demand was therefore also set aside. The Revenue's appeal was rejected. [Paras 12, 13, 14]

Recovery under Rule 14 of an amount equal to the 5%/10% option is not permissible; the assessor's reversal and payment of interest having been accepted, the demand and penalty are liable to be quashed and the Revenue's appeal is rejected.

Final Conclusion: Impugned order set aside; appeal of the assessee allowed with consequential relief and penalty set aside; Revenue's appeal rejected.

Refund of unutilized cenvat credit - Utilisation of E-cess and SHE-cess credit against excise duty - Interpretation of notification permitting utilisation of cess credit - Vested right to input credit once admissible - Refund on transition to GST and refund under section 142

Refund of unutilized cenvat credit - Vested right to input credit once admissible - Refund of the unutilized balance of Education Cess and SHE-Cess standing in ER-1 as on 30.06.2017 is allowable to the appellant. - HELD THAT: - The Tribunal accepted the appellant's submission that the accumulated credit of E-cess and SHE-cess, which was lawfully taken when permissible, represents the assessee's money and cannot be denied once the right to credit has vested. Reliance is placed on the principle that credit, once taken during the period it was allowable and crystallised by receipt of inputs and payment of duty, cannot be retrospectively denied. As the unutilized balance could not be utilised thereafter, the amount is refundable to the assessee. [Paras 6, 7, 8]

The unutilized balance of E-cess and SHE-cess as on 30.06.2017 is refundable to the appellant.

Utilisation of E-cess and SHE-cess credit against excise duty - Interpretation of notification permitting utilisation of cess credit - The adjudicating authorities erred in interpreting notification No. 12/2015 and the 2015 amendment to the Cenvat Credit Rules so as to deny utilisation of E-cess and SHE-cess credit for payment of excise duty. - HELD THAT: - The Tribunal found that notification No.12/2015 and the subsequent amendment to the Cenvat Credit Rules in 2015 permitted utilisation of the cess credit for payment of excise duty in respect of inputs/capital goods received on or after 01.03.2015. The lower authorities misconstrued the notification and wrongly held that such utilisation was not permissible; that erroneous interpretation was a sufficient ground to set aside the rejection of the refund claim. Consequently, since utilisation became impossible following transition to GST, denial on the basis of that incorrect interpretation could not stand. [Paras 3, 5, 7]

The interpretation by the Original Authority and Commissioner (Appeals) was incorrect; the notification and rule amendment permitted utilisation and their denial warrants setting aside the impugned orders.

Transition to GST and refund under section 142 - Refund of unutilized cenvat credit - On commencement of GST, the residual balance of cess which could not be carried forward or utilised became refundable under the transitional provisions (section 142) of the GST Act. - HELD THAT: - The Tribunal observed that with effect from 01.07.2017 the GST regime commenced and there was no mechanism in TRAN-1 to carry forward the balance of E-cess and SHE-cess; therefore utilisation became impossible. Under the transitional provision identified in the order, such amount is made refundable in cash. Denial of refund by the Commissioner (Appeals) on these grounds was held to be unreasonable. [Paras 8]

The residual balance became refundable on transition to GST and denial of refund was unjustified.

Final Conclusion: The impugned orders rejecting the refund claim are set aside; the appeal is allowed and the appellant is entitled to refund of the unutilized balance of Education Cess and SHE-Cess standing as on 30.06.2017, which could not be utilised after transition to GST.

Input service - Cenvat credit - used in or in relation to manufacture and clearance of goods up to the place of removal - business activity as qualifying input service under the inclusion clause - nexus between input service and manufacture

Input service - Cenvat credit - business activity as qualifying input service under the inclusion clause - nexus between input service and manufacture - Whether the appellant is entitled to Cenvat credit of the services in question as input services under Rule 2(l) of the Cenvat Credit Rules, 2004. - HELD THAT: - The Tribunal found that the services (including Courier, Insurance, Port, Maintenance, Meal, Telecom, Business Support, Consulting, Interior Decorator, Designing, LP, Repair & Maintenance and Technical Inspection services) were used either in or in relation to manufacture of the final product or for the overall business activity of the appellant. The Revenue's contention that admissible input services must be used not only in relation to manufacture but also for clearance of goods up to the place of removal was rejected as unreasonable: services used for the business activity need not be directly related to manufacture or clearance to qualify as input services. The Tribunal relied on earlier decisions treating similar services as admissible input services and held that those precedents, together with the factual finding that the services were employed for the appellant's business activity, support allowing Cenvat credit under Rule 2(l). [Paras 4, 5]

All the services in question are input services within Rule 2(l) and the appellant is entitled to Cenvat credit; the impugned order is set aside and the appeal is allowed with consequential relief.

Final Conclusion: The impugned order denying Cenvat credit for the listed services is set aside; the appellant is entitled to Cenvat credit for those services in view of their use in relation to manufacture or the overall business activity and relevant precedents.

Penalty under Section 54(1)(14) of the U.P. Value Added Tax Act - Form 38 declaration requirements for import - intention to evade payment of tax (mens rea) - power to detain goods and impose penalty for attempt to evade tax - officer's duty to fill blank columns in Form 38

Penalty under Section 54(1)(14) of the U.P. Value Added Tax Act - Form 38 declaration requirements for import - intention to evade payment of tax (mens rea) - officer's duty to fill blank columns in Form 38 - Whether the Tribunal was justified in deleting the levy of penalty under Section 54(1)(14) where column no. 6 of Form 38 was left blank though other accompanying documents supported the consignment. - HELD THAT: - The Court recorded that the goods were accompanied by Form 38 and all other relevant documents (bill/challan/builty) but column no. 6 (bill/cash memo/challan/invoice number and date) remained unfilled. Relying on earlier decisions of this Court and the departmental circular dated 03.02.2009, the Court held that mere non-filling of column no. 6, by itself, cannot be the sole basis for imposing penalty under Section 54(1)(14). Penalty provisions for detention and levy of penalty require recorded satisfaction, reached after opportunity of hearing, that the goods were being transported in an attempt to evade assessment or payment of tax; thus, mens rea or intention to evade is a necessary ingredient under the Act. The circular placed a duty on the inspecting officer to fill up blank columns of Form 38 after verifying accompanying documents and to release the goods. Where the assessing authorities and the Tribunal have found as a fact that there was no intention to evade tax and the goods tallied with the documents produced, such concurrent findings are not to be disturbed in revision unless perverse or based on irrelevant consideration. Distinguishing the cited Apex Court authority on its facts and statutory provisions, the Court concluded that in the present factual matrix the penalty was wrongly imposed.

Penalty deleted; Tribunal's order quashing penalty affirmed as non-filling of column 6 alone did not establish intention to evade tax and the inspecting officer should have filled the blank as per the circular after verifying documents.

Final Conclusion: Both revisions are dismissed; no substantial question of law arises as the concurrent factual finding of no intention to evade tax and the legal principle that mere omission to fill a column in Form 38 is not by itself sufficient to sustain penalty have been upheld.

Condonation of delay - limitation during COVID-19 - reimbursement of Value Added Tax (VAT) - final demand note - admission by alternative plea - builder-buyer agreement liabilities - interim stay - definition of 'purchase price' under Section 2(y) of the Uttar Pradesh Value Added Tax Act, 2008

Condonation of delay - limitation during COVID-19 - Appeal held to be within limitation - HELD THAT: - The office reported delay in filing the appeal. The Court applied the principle relating to limitation expiring during the COVID-19 pandemic as dealt with by the Supreme Court in SMW(C) No.3 of 2020 (Misc. Application No. 665/2021) and therefore held that the appeal is within limitation and directed the office to allot a regular number to the appeal.

Appeal treated as within limitation and regular number to be allotted.

Reimbursement of Value Added Tax (VAT) - final demand note - admission by alternative plea - builder-buyer agreement liabilities - interim stay - definition of 'purchase price' under Section 2(y) of the Uttar Pradesh Value Added Tax Act, 2008 - Operation of impugned judgment insofar as it directs reimbursement of VAT charges by the appellant to the respondent stayed - HELD THAT: - The appellant challenged only the direction for reimbursement of VAT. Counsel relied on the builder-buyer agreement clauses limiting liability, on the definition/explanation in Section 2(y) of the Uttar Pradesh VAT Act, 2008 (particularly that tax, if shown separately on an invoice, is not part of purchase price), and on the fact that the final demand note dated 13.12.2016 did not seek VAT and possession was handed over thereafter. It was further contended that a later demand in 2019 for VAT could not be sustained and that an alternative submission in written pleadings was wrongly treated as an admission. The Court found these submissions raised arguable points requiring consideration and granted the respondent four weeks to file objections.

Stay granted on the operation of the impugned judgment and order dated 30.07.2021 insofar as it relates to reimbursement of VAT charges; respondent directed to file objections within four weeks.

Substantial questions of law - Admission of substantial questions of law for consideration - HELD THAT: - The Court admitted for consideration three substantial questions of law framed in the memo of appeal: (i) whether the appellate tribunal erred in imposing VAT on category no.3 by ignoring Section 8 of the Uttar Pradesh Apartment (Promotion of Construction, Ownership and Maintenance) Act, 2010 together with the definition in Section 2(y) of the Uttar Pradesh VAT Act, 2008; (ii) whether an alternative submission made without prejudice can be treated as an admission; and (iii) whether the respondent can perpetually recover amounts once a final demand note has been issued and settled. These questions were recorded for adjudication in the appeal.

The three substantial questions of law are admitted for hearing.

Final Conclusion: Delay in filing the appeal condoned by application of the Supreme Court's COVID-19 limitation position; three substantial questions of law admitted for consideration; and a limited interim stay granted on the impugned judgment to the extent it directs reimbursement of VAT, with the respondent given four weeks to file objections.

Limitation on submission of Forms III-B under Rule 25-B(3) - non-acceptance of belated Forms III-B - exclusion of period of seizure from computation of limitation - binding effect of Division Bench precedent and doctrine of per incuriam

Limitation on submission of Forms III-B under Rule 25-B(3) - non-acceptance of belated Forms III-B - Belated Forms III-B filed beyond two years of the transaction cannot be accepted and the benefit of concessional rate is not available. - HELD THAT: - The amendment to Rule 25-B(3) of the U.P. Trade Tax Rules prescribes that Forms III-B must be submitted within two years of the transaction. The revisionist admitted that the Forms III-B were filed after the prescribed two-year period. This Court applied the binding Division Bench authority in M/s Oriental Carbon & Chemicals Limited (followed by subsequent single-judge authorities) which upheld the validity of the time-limit and held that the period cannot be extended. The Single Judge decision in M/s Narbada Industries was held to be per incuriam and cannot displace the Division Bench ruling. Consequently, the authorities below were correct in refusing the claim based on belated Forms III-B.

The claim based on Forms III-B filed after the two-year period under Rule 25-B(3) is not maintainable and was rightly rejected.

Exclusion of period of seizure from computation of limitation - limitation on submission of Forms III-B under Rule 25-B(3) - Seizure and custody of books by CBI does not operate to exclude or extend the two-year period prescribed by Rule 25-B(3) for submission of Forms III-B. - HELD THAT: - The revisionist's plea that seizure of its books by the CBI (from 24.12.2005 until release on 17.08.2007) prevented timely filing of Forms III-B was considered. The Court found that, notwithstanding the custodial status of records, the statutory two-year limitation under Rule 25-B(3) is absolute and cannot be extended. Applying the Division Bench precedent and subsequent authorities, the Court rejected the contention that the seizure period should be excluded for computing the two-year window for filing Forms III-B.

The period during which books were seized by CBI does not justify acceptance of Forms III-B filed beyond two years; exclusion of that period is not permitted.

Final Conclusion: Both revisions are dismissed. In view of the binding Division Bench precedent upholding the two-year limit under Rule 25-B(3) and rejecting exclusion of the seizure period, no substantial question of law arises and the Tribunal's refusal to accept belated Forms III-B is affirmed.

Reason to believe - Reassessment under Section 21 of the U.P. Trade Tax Act, 1948 - Verification of tax paid purchases - Levy of tax on goods supplied by a Government/department - Application under Section 12 B of the U.P. Trade Tax Act, 1948

Reason to believe - Reassessment under Section 21 of the U.P. Trade Tax Act, 1948 - Verification of tax paid purchases - Validity of reopening assessment under section 21 where reassessment was initiated on the ground that claimed tax paid purchases were not verifiable. - HELD THAT: - The Court found that the reassessment was founded merely on the fact that the selling dealer had not produced bill books or sale lists, whereas the revisionist had produced cash memos which were never disbelieved or held to be forged by any authority. There was no material on record establishing a nexus between the information relied upon and a belief that turnover had escaped assessment. The Court relied on the principle that action under section 21 requires a 'reason to believe' - a rational connection between the material available and formation of the belief - and cannot be initiated on speculative or extraneous grounds. In the absence of any finding that the cash memos were invalid and given the lack of enquiry or contrary material regarding one of the selling dealers, the reopening was held to be unjustified.

Reassessment initiated under section 21 was invalid for want of any material giving 'reason to believe' that turnover had escaped assessment; reopening quashed.

Levy of tax on goods supplied by a Government/department - Application under Section 12 B of the U.P. Trade Tax Act, 1948 - Validity of imposition of tax on Bitumen where the revisionist produced an application, affidavit and a certificate before the Tribunal stating Bitumen was supplied by the PWD and not purchased or used by the revisionist. - HELD THAT: - The Court noted that the revisionist had placed on record before the Tribunal an application under section 12 B together with an affidavit and a certificate from the Superintending Engineer, PWD, certifying that the Bitumen was supplied by the department for use in road works and was not purchased or used by the dealer. In absence of any material contradicting that certification, the assessing authority had no basis to impose tax on the Bitumen. The Tribunal ought to have considered the section 12 B material; on the record before the Court there was no justification for the levy.

Levy of tax on Bitumen was unjustified and set aside; the assessing authority was not entitled to impose tax in absence of material contradicting the PWD certificate.

Application under Section 12 B of the U.P. Trade Tax Act, 1948 - Tribunal's duty to consider documentary evidence - Whether the Tribunal erred in failing to act upon or give effect to the application and documentary evidence filed under section 12 B. - HELD THAT: - The Court observed that the revisionist had placed before the Tribunal an application under section 12 B along with an affidavit and a departmental certificate regarding Bitumen supply. The Tribunal did not properly address or allow the claim in light of that material. Given that the assessing authority likewise lacked contrary material, the Tribunal's failure to appreciate the section 12 B evidence contributed to the erroneous upholding of the reassessment and the tax on Bitumen.

Tribunal's upholding of the reassessment and the tax on Bitumen was unsustainable because it did not give effect to or sufficiently consider the section 12 B material and the PWD certificate.

Final Conclusion: Revision allowed: reassessment under section 21 quashed for want of 'reason to believe' and the tax imposed on Bitumen set aside in view of the unrebutted section 12 B application and departmental certificate; costs awarded to the revisionist.

Composition of tax under Section 15(1) and Section 15(5)(a) of the KVAT Act - interpretation of the phrase "value of such goods" in Section 15(5)(a) - levy of tax under Section 4 of the KVAT Act on inter state purchases - eligibility for composition scheme where goods are purchased from outside the State - deduction of value of such goods from total consideration of works contracts - treatment of gross profit on inter state purchases in works contracts

Levy of interest and penalty under Sections 36(1) and 72(2) of the KVAT Act - interpretation of Section 15(5)(a) - The Karnataka Appellate Tribunal was correct in setting aside the levy of interest and penalty under the said provisions. - HELD THAT: - The Tribunal's decision to set aside interest and penalty was founded on the correct interpretation of Section 15(5)(a) which determined that tax liability on inter state purchases used in works contracts arises only on the value of the goods liable under Section 4 and not additionally on any undeterminable gross profit. Because the assessing and first appellate authorities had levied tax by treating the "value of such goods" as inclusive of sale value (purchase value plus gross profit) and thereby created a basis for additions leading to interest and penalty, the Tribunal rightly reversed those orders. The setting aside of interest and penalty follows from the primary conclusion that the impugned tax demand itself (as assessed by adding gross profit) was unsustainable under the correct construction of Section 15(5)(a). [Paras 13, 17, 18, 19]

Tribunal correctly set aside the levy of interest and penalty; revision dismissed on this point.

Interpretation of the phrase "value of such goods" in Section 15(5)(a) - levy of tax under Section 4 of the KVAT Act on inter state purchases - treatment of gross profit on inter state purchases in works contracts - deduction of value of such goods from total consideration of works contracts - Tax is leviable under Section 4 only on the value of the goods (purchase value) and not on an undetermined sale value that includes gross profit; the Tribunal was right to set aside the orders which added a 20% gross profit to the purchase value for levy of tax. - HELD THAT: - A plain and harmonious reading of Section 15(5)(a) shows that where a dealer executing works contracts purchases goods from outside the State and the property in such goods is transferred in a works contract, the dealer shall be liable to pay tax on the value of such goods at the rate specified in Section 4, and that value is to be deducted from the total consideration for the purpose of composition under Section 15(1). The phrase "value of such goods" refers to the purchase value (the amount on which liability under Section 4 arises), not the sale value in the works contract which would be purchase value plus any gross profit. There is no mechanism in the Act to determine and tax the undeterminable gross profit component by treating it as value of goods under Section 4. The legislative scheme, including the deductive mechanism in Section 15(5)(a), is intended to neutralise the anomaly of inter state purchases by taxing the goods' value under Section 4 and deducting that from the contract consideration, not by subjecting the gross profit to separate tax under Section 4 while also applying composition on the total consideration. The assessing and first appellate authorities therefore erred in adding 20% gross profit to the purchase value for levying tax; the Tribunal correctly reversed those orders. [Paras 12, 13, 16, 17, 18]

Tribunal correctly held that tax under Section 4 is leviable only on the value of the goods (purchase value) and not on an added gross profit; orders adding 20% gross profit were set aside.

Final Conclusion: The revision petition is dismissed. The High Court affirms the Tribunal's interpretation of Section 15(5)(a): the "value of such goods" means the purchase value taxable under Section 4 and does not include an added gross profit; consequential interest, penalties and additions based on treating sale value (purchase plus gross profit) as the taxable value were rightly set aside.

Revisional powers under Section 15(2) of the Karnataka Tax on Entry of Goods Act, 1979 - power to set aside and direct fresh assessment/remand to Assessing Authority - prohibition on revisional authority passing a fresh reassessment - jurisdictional defect/nullity

Revisional powers under Section 15(2) of the Karnataka Tax on Entry of Goods Act, 1979 - jurisdictional defect/nullity - Validity of the Additional Commissioner exercising revisional jurisdiction under Section 15(2) to call for and examine records and to set aside orders found prejudicial to revenue. - HELD THAT: - The Court examined subsections (1) to (3) of Section 15 and observed that while the subsections identify different authorities and the class of orders they may call for, the common second limb vests those revisional authorities with power to pass orders including enhancing, modifying, cancelling or directing a fresh assessment. The Additional Commissioner initiated suo motu revision after concluding that the order of the First Appellate Authority (Joint Commissioner) was erroneous and prejudicial to revenue. The Court held that such initiation and exercise of power under Section 15(2) was within jurisdiction and not vitiated by lack of power. The Court reiterated that jurisdictional objections may be raised belatedly because absence of jurisdiction renders an order a nullity, but found no jurisdictional infirmity in the present revisional exercise. [Paras 11, 12, 13, 20]

The Additional Commissioner validly exercised revisional jurisdiction under Section 15(2); the impugned revisional order does not suffer from lack of jurisdiction.

Power to set aside and direct fresh assessment/remand to Assessing Authority - prohibition on revisional authority passing a fresh reassessment - Whether the Revisional Authority exceeded its jurisdiction by setting aside the Assessing Authority's order and directing recomputation of turnover and tax liability in relation to RS Emulsion (as opposed to itself passing a fresh assessment). - HELD THAT: - The Court considered earlier precedents distinguishing permissible directions and impermissible re-assessments by a revisional authority. It noted that the revisional authority can direct re-assessment by the Assessing Authority but must not step into the shoes of the Assessing Authority to pass a fresh assessment. In the present case the Additional Commissioner set aside the assessment in respect of RS Emulsion and directed the Assessing Authority to recompute turnover and tax liability and to explore interest and penalty, rather than himself passing a fresh reassessment order. On that basis the Court held the Revisional Authority did not transgress the prohibition against conducting a reassessment in place of the Assessing Authority. [Paras 14, 15, 16, 18, 19]

Setting aside the Assessing Authority's order and remanding the matter for recomputation was within the Revisional Authority's power; it did not improperly pass a fresh reassessment.

Final Conclusion: The questions of law raised on behalf of the assessee are answered against it; the appeal is dismissed.