TaxTMI Updates e-Newsletter
Nov 16,2019

Export of goods - zero-rated supply - place of supply located outside India - crossing of customs frontier / limits of customs area - warehoused goods supplied before clearance for home consumption - exclusion from supply under paragraph 8(a) of Schedule III

Export of goods - zero-rated supply - place of supply located outside India - crossing of customs frontier / limits of customs area - Whether supplies of stores to foreign going vessels anchored in India amount to export and hence are zero-rated supplies. - HELD THAT: - The Authority examined the statutory meaning of export under the IGST Act and the Customs Act and distinguished it from the concept of crossing the customs frontier for other purposes. Export under the IGST Act means taking goods from India to a place outside India and, for place of supply purposes, requires the location outside India. A foreign going vessel anchored within the territory of India does not constitute a place outside India; taking stores on board such a vessel while it remains within the customs limits does not satisfy the statutory requirement of export under the IGST Act. Although the Customs Act contains provisions (including for warehoused goods) permitting duty-free removal of stores to be taken on board foreign going vessels, those provisions are special exemptions from import duty and do not broaden the meaning of export under the IGST Act. Both supplier and recipient are located in India at the time of supply unless the goods are specifically marked for a foreign destination. Consequently, supplies of stores to foreign going vessels anchored in India cannot be treated as export/zero-rated supplies unless the goods are specifically marked for a location outside India. [Paras 3]

Supplies of stores to foreign going vessels anchored in India are not export or zero-rated supplies unless specifically marked for a location outside India; such supplies are taxable under the GST Act or the IGST Act as applicable.

Warehoused goods supplied before clearance for home consumption - exclusion from supply under paragraph 8(a) of Schedule III - Whether supply of warehoused goods to any person before clearance for home consumption falls outside the ambit of 'supply' under paragraph 8(a) of Schedule III to the GST Act. - HELD THAT: - The Authority noted that where the stores supplied are warehoused goods and are supplied to a person before clearance for home consumption, such transactions fall within paragraph 8(a) of Schedule III read with section 7(2)(a) of the GST Act. Paragraph 8(a) excludes from the definition of supply certain activities or transactions specified therein. Applying that provision, the Authority ruled that supplies of warehoused goods to the recipient before their clearance for home consumption are not to be treated as supply of goods or services for the purposes of the GST Act to the extent covered by paragraph 8(a). This conclusion is distinct from, and does not affect, the general rule on supplies to foreign going vessels which are not specifically marked for export. [Paras 3]

Supply of warehoused goods to a recipient before clearance for home consumption is not a supply of goods or services to the extent covered by paragraph 8(a) of Schedule III under section 7(2)(a) of the GST Act.

Final Conclusion: The Authority ruled that supplies of stores to foreign going vessels anchored in India are taxable and not zero-rated unless the goods are specifically marked for a place outside India; however, where such stores are warehoused goods supplied before clearance for home consumption, those transactions are not treated as supply under paragraph 8(a) of Schedule III and thus fall outside the levy of GST to the extent so covered.

Admissibility for advance ruling under section 97(e) of the GST Act - liability to pay Goods and Services Tax on supplies through Public Distribution System - exemption under Notification No. 2/2017 - CT (Rate) - inclusion in Schedule III of the GST Act

Admissibility for advance ruling under section 97(e) of the GST Act - The Application for advance ruling was admitted. - HELD THAT: - The Applicant sought a ruling on taxability of supplies earmarked 'FOR PDS SUPPLY ONLY' to fair price shops/PDS distributors. The Authority was satisfied that the question falls within the scope of advance ruling under the GST Act and that the question was neither decided by nor pending before any other authority. The concerned revenue officer raised no objection to admission. On these foundations the Authority admitted the Application for adjudication. [Paras 1]

Application admitted.

Liability to pay Goods and Services Tax on supplies through Public Distribution System - exemption under Notification No. 2/2017 - CT (Rate) - inclusion in Schedule III of the GST Act - Supplies of consumer goods made by the Applicant for distribution through the Public Distribution System are taxable and not exempt under the cited notification or included in Schedule III. - HELD THAT: - The Applicant acted as a canalising agency for the State agency, supplying goods earmarked for PDS and performing transportation, packaging and other logistics while receiving only a government-fixed administrative charge. Notwithstanding the contractual relationship and the Applicant's role, the Authority examined the relevant exemption notification and the Schedule III inclusions and found that supply of goods through PDS is not covered by Notification No. 2/2017 - CT (Rate) or its State counterpart, nor are the Applicant's activities included in Schedule III. No revenue objection was raised to the admission or merits. Consequently, the supplies do not qualify for exemption and remain taxable supplies subject to GST at the applicable rate. [Paras 4]

Applicant liable to pay GST at the applicable rate on supplies through PDS.

Final Conclusion: The Authority admitted the Application and held that the Applicant's supplies of consumer goods through the Public Distribution System are not exempt under the cited notification or included in Schedule III, and therefore are taxable with GST payable at the applicable rate.

Writ of mandamus - entitlement to transitional credit - reopening of electronic portal - manual acceptance of GST TRAN-1 - verification of claimed credits - use of electronic system for payment and credit utilisation

Writ of mandamus - reopening of electronic portal - manual acceptance of GST TRAN-1 - entitlement to transitional credit - verification of claimed credits - use of electronic system for payment and credit utilisation - Direction to respondents to reopen the GST TRAN-1 portal or, failing that, to accept and adjudicate the petitioner's GST TRAN-1 manually after due verification, and to permit use of the electronic system for payment and credit utilisation. - HELD THAT: - The petitioner sought a writ of mandamus directing the GST Council to recommend an extension for filing GST TRAN-1 because the electronic portal did not respond on the last date, risking loss of transitional credit. The Court recorded that the petitioner's application was not fully entertained on the last date and that only CENVAT credit had been granted while input tax credit on U.P. VAT remained unallowed. In view of these facts, the Court directed the respondents to reopen the portal within two weeks; if they failed to do so, they were ordered to entertain the petitioner's GST TRAN-1 manually and to pass orders thereon after due verification of the credits claimed. The Court also directed that the petitioner be allowed to pay taxes through the regular electronic system which is maintained for use of the credit likely to be considered for the petitioner. The order preserves the respondents' duty to verify the claimed credits before granting relief.

Respondents directed to reopen the portal within two weeks or, if not reopened, to entertain and decide the petitioner's GST TRAN-1 manually after verification, and to allow the petitioner to use the electronic system for payment and utilisation of credit; respondents to file a counter affidavit within one month.

Final Conclusion: Writ relief granted in part: respondents ordered to reopen the portal or accept and adjudicate the petitioner's GST TRAN-1 manually with due verification, and to permit use of the electronic system for payment and credit utilisation; respondents to file counter affidavit within one month and matter listed for further hearing.

Summary order. Petition against the show cause notice dated 13.5.2019 issued under Section 73(1) of the Central Goods and Services Tax Act, 2017 dismissed as withdrawn with liberty to raise all grounds before the authority concerned.

Detention and seizure under section 129 of the CGST Act - Documents required during movement of goods - invoice and e-way bill (Rule 138A) - Binding nature of Board instructions and circulars issued under section 168 - Prohibition on supplementing statutory orders by subsequent affidavits - Specification of top five goods in FORM GST REG-01 is informational and not a bar on supply of other goods

Detention and seizure under section 129 of the CGST Act - Documents required during movement of goods - invoice and e-way bill (Rule 138A) - Binding nature of Board instructions and circulars issued under section 168 - Legality of detention of conveyances under section 129(1) when invoice and e-way bill, as required under rule 138A, were produced and no inspection was carried out - HELD THAT: - The Court found that rule 138A mandates that the person in charge must carry the invoice and a copy or number of the e way bill, and both documents were produced when the conveyances were intercepted. The Board's Circular laying down the procedure for interception, verification, physical inspection and consequent detention is binding on officers under section 168. The record showed no FORM GST MOV 02, no Part A upload of FORM GST EWB 03, no FORM GST MOV 04 and no Part B upload of FORM GST EWB 03, indicating that no physical inspection was undertaken but only document verification was contemplated. The Circular requires that where prima facie no discrepancy is found on verification of the prescribed documents, the conveyance shall be allowed to proceed; detention under section 129(1) could not therefore be justified on the extraneous ground that the lorry receipt was a photocopy lacking a computerised serial number and contact details, a document not required by statute to be produced. Consequently the detention order and the notices demanding tax and penalty under section 129 were unsustainable. [Paras 16, 17, 18, 28, 29]

Detention under section 129(1) quashed as illegal; conveyances could not be detained when invoice and e way bill required by rule 138A were produced and no statutory inspection procedure was followed.

Prohibition on supplementing statutory orders by subsequent affidavits - Permissibility of relying on additional grounds raised for the first time in the respondents' affidavit to sustain an order of detention - HELD THAT: - The Court applied the settled principle that the validity of a statutory order must be judged by the reasons stated in the order itself and cannot be supplemented by fresh grounds in subsequent affidavits or pleadings. The respondents attempted to rely on new grounds in their affidavit (non disclosure of commodity in registration and a purported driver statement) which were not reflected in the original detention order; such after thought grounds cannot validate an order which is otherwise bad on its face. Even examined on merits, the additional grounds lacked statutory basis as explained elsewhere in the judgment. [Paras 6, 19, 20, 29]

Respondents cannot sustain the detention order by advancing new grounds in affidavit; such supplementation is impermissible and does not cure the invalidity of the order.

Specification of top five goods in FORM GST REG-01 is informational and not a bar on supply of other goods - Amendment of non core registration fields (REG-14) and effect thereof - Whether transporting goods not specified in Part B (column 18) of FORM GST REG-01 renders the transport unlawful or justifies detention - HELD THAT: - Part B, column 18 of FORM GST REG 01 requires disclosure of the top five goods with HSN codes but does not prohibit supply of goods other than those listed. The Court held that specification is for information and many suppliers deal in more than five goods. Amendment of registration to add goods is a change in a non core field under rule 19 and FORM GST REG 14, which does not require prior approval of the proper officer. Consequently, mere non listing of the transported goods in REG 01 did not constitute a statutory contravention warranting detention, particularly where the invoice and e way bill correctly described the goods and the correct tax rate was applied. [Paras 24, 25, 26, 27, 28]

Failure to mention the goods in FORM GST REG 01 does not amount to contravention justifying detention; amendment thereafter is a non core change and does not validate detention.

Final Conclusion: The impugned orders of detention dated 2.4.2019 and the notices under section 129(3) are quashed and set aside: detention was contrary to rule 138A and binding Board instructions, subsequent affidavit grounds cannot validate the order, and non specification of goods in REG 01 did not justify detention.

Transitional input tax credit - Entitlement to carry forward CENVAT credit under section 140 of the CGST Act - FORM GST TRAN-1 - procedural requirement under rule 117 of the CGST Rules - Revision of TRAN-1 under rule 120A of the CGST Rules - Rectification of inadvertent errors in transitional declaration - Retention of tax credit vis-a -vis article 265 of the Constitution - Writ remedy under Article 226 of the Constitution

Transitional input tax credit - FORM GST TRAN-1 - procedural requirement under rule 117 of the CGST Rules - Revision of TRAN-1 under rule 120A of the CGST Rules - Rectification of inadvertent errors in transitional declaration - Retention of tax credit vis-a -vis article 265 of the Constitution - Whether the petitioner, despite having incorrectly filled FORM GST TRAN-1 within the prescribed period and being unable to revise it after the statutory revision period expired, is nevertheless entitled to carry forward the admitted transitional CENVAT credit and obtain rectification by the authorities. - HELD THAT: - The court found that the petitioner had filed FORM GST TRAN-1 within the time permitted but, due to an inadvertent mistake, recorded the balance CENVAT credit in the wrong column which resulted in short transfer of credit. The respondents acknowledge that, on merits, the petitioner was otherwise entitled to the withheld amount. The court noted precedents where similar bona fide filing errors were held to merit rectification and observed that the GST portal did not provide an effective mechanism to rectify such genuine mistakes because the revision facility's deadline coincided with the last date for filing, rendering the revision option impractical. Retention of the credit by the respondents despite the petitioner's substantive entitlement was held to lack legal authority and to be inconsistent with article 265 of the Constitution, which permits levy or collection of tax only by authority of law. Applying these principles, the court concluded that the procedural lapse in revision time could not be allowed to extinguish the petitioner's substantive right to transitional credit and that the respondents were obliged to permit rectification or accept corrected submission so that the admitted credit could be processed. [Paras 23, 24, 25, 26, 27]

Petition allowed; respondents directed to either re-open the online portal to enable the petitioner to file a rectified FORM GST TRAN-1 electronically or to accept the manually filed FORM GST TRAN-1 with corrections on or before 30th November, 2019.

Final Conclusion: The High Court allowed the petition and ordered the respondents to permit rectification of the TRAN-1 declaration (either electronically by re-opening the portal or by accepting a corrected manual TRAN-1) so that the petitioner may obtain the transitional input tax credit to which it is otherwise entitled.

Fixation of TDS rate under Section 197 of the Income Tax Act - Revision of TDS orders under Section 264 of the Income Tax Act - Writ of mandamus for decision of pending revision - Requirement to pass a reasoned order

Revision of TDS orders under Section 264 of the Income Tax Act - Requirement to pass a reasoned order - Writ of mandamus for decision of pending revision - Revisional authority directed to consider and decide the petitioners' revision application filed under Section 264 and to pass a reasoned order within a stipulated time. - HELD THAT: - The petitioners challenged fixation of TDS at a higher rate and had filed a revision under Section 264 which remained undecided. The Court noted that the respondents had sought information which the petitioners say was furnished on 24.10.2019. Without adjudicating the merits of the claim regarding the appropriate TDS rate, the Court exercised its supervisory jurisdiction to direct the Revisional authority to consider the pending revision and to pass a reasoned order within three weeks. The Court expressly refrained from expressing any view on the substantive entitlement of the petitioners to the lower rate sought under Section 197. [Paras 6]

Petition disposed by directing the Revisional authority to consider and decide the revision with a reasoned order within three weeks; merits not examined.

Final Conclusion: Writ petition disposed with a direction to the Revisional authority to decide the pending revision application and pass a reasoned order within three weeks; no decision on the merits of fixation of TDS rate was made.

Reassessment in consequence of search and seizure and effect of seized/incriminating material - Evidentiary value of statements recorded under section 132(4) - Onus on the assessee to prove genuineness, identity and creditworthiness of transaction parties - Remand for fresh adjudication where material requires further appreciation

Reassessment in consequence of search and seizure and effect of seized/incriminating material - Evidentiary value of statements recorded under section 132(4) - Onus on the assessee to prove genuineness, identity and creditworthiness of transaction parties - Remand for fresh adjudication where material requires further appreciation - Whether the deletion by the Commissioner (Appeals) of additions made in the assessment under proceedings consequent to search was justified where computer backups and statements incriminating the assessee were recorded and the assessee failed to substantiate genuineness of transactions - HELD THAT: - The Tribunal found that the first appellate authority deleted additions solely on the basis of a remand report asserting absence of seized incriminating documents for AY 2008-09, without confronting the fact that computer backups and incriminating material were seized during the search and statements of entry providers and associated persons were recorded under section 132(4). Those statements were not shown to have been retracted and therefore carried substantial evidentiary weight. The assessee repeatedly failed to produce books of account or documentary evidence at search, assessment and appellate stages; the onus to prove genuineness, identity and creditworthiness of counterparties thus remained on the assessee and was not discharged. The Tribunal observed that the assessment officer had documented various inconsistencies (including undisclosed bank accounts and routing of funds through non functional entities) which called for appreciation in the light of seized material and statements. Given these facts, the Tribunal concluded that the CIT(A)'s conclusion was premature and insufficiently reasoned and that the matter required re-adjudication by the CIT(A) with adequate opportunity to the assessee to substantiate its transactions. [Paras 5, 6, 7]

The Tribunal set aside the order of the CIT(A) and restored the matter to the CIT(A) for fresh appreciation of the factual matrix and re adjudication in accordance with law, directing that the assessee be given adequate opportunity to substantiate its claim.

Final Conclusion: The Tribunal allowed the revenue appeal for statistical purposes, set aside the CIT(A)'s deletion of additions for AY 2008-09 and remitted the matter to the CIT(A) for fresh adjudication in light of the seized material, recorded statements and the assessee's failure so far to discharge the onus to prove genuineness of the transactions.

Validity of levy of fees under section 234E - Power to process TDS statements under section 200A(1) - Prospective effect of amendment to section 200A - Rectification under section 154 and requirement of existing order - Principles of natural justice and notice under section 154(3)

Validity of levy of fees under section 234E - Power to process TDS statements under section 200A(1) - Prospective effect of amendment to section 200A - Levy of late filing fees under section 234E by issuing an intimation under section 154 without any intimation under section 200A(1) for the period prior to 01.06.2015 is not valid. - HELD THAT: - The Tribunal held that the amendment to section 200A by Finance Act, 2015 (inserting a provision enabling adjustment to compute fees under section 234E while processing TDS statements) took effect w.e.f. 01.06.2015 and is prospective. In the absence of any intimation under section 200A(1) on record and having regard to decisions of co-ordinate Benches (ITAT Delhi and Pune) construing the amendment as prospective, the Assessing Officer was not empowered to charge fees under section 234E while processing TDS returns/statements for periods prior to 01.06.2015. Consequently, an intimation purporting to raise demand by charging section 234E fees, issued without the statutory processing under section 200A(1), was beyond the lawful scope of the adjustment and could not be sustained.

Intimation/orders raising demand by charging fees under section 234E for the period prior to 01.06.2015 are quashed and the fees deleted.

Rectification under section 154 and requirement of existing order - Principles of natural justice and notice under section 154(3) - Issuance of intimation under section 154 purportedly rectifying or creating demand in the absence of any prior intimation under section 200A(1), and without giving notice/opportunity as required by section 154(3), is invalid. - HELD THAT: - Section 154 permits rectification of an existing order; where an amendment has the effect of enhancing assessment or otherwise imposing liability, section 154(3) requires notice and reasonable opportunity to the assessee/deductor. In the present case the intimations under section 154 were generated automatically without any preceding intimation under section 200A(1) and without affording the assessee an opportunity of being heard. The Assessing Officer disclaimed the factual position and no section 200A(1) intimation was placed on record. Consequently, the actions amounted to rectification or creation of liability without compliance with statutory preconditions and principles of natural justice, warranting quashing of the impugned intimations/orders.

The intimations/orders passed under section 154 in the absence of a section 200A(1) intimation and without notice are set aside and quashed.

Final Conclusion: All appeals of the assessee are allowed; the impugned orders/intimations under section 154 purporting to levy fees under section 234E (for the period prior to 01.06.2015) are quashed and the demands deleted for failure to comply with section 200A(1) and section 154(3) and for breach of principles of natural justice.

Estimation of income by application of prescribed net profit rate - Assessment under section 144 - estimation due to non-production of books - Unexplained cash credits - Rejection of books of account for non-cooperation - Condonation of delay in filing appeal on medical grounds

Estimation of income by application of prescribed net profit rate - Rejection of books of account for non-cooperation - Whether the net profit rate of 12% applied by the AO for estimating the assessee's income was justified or required modification in view of non-production of books and the assessee's profit history. - HELD THAT: - The AO framed an ex parte assessment under section 144 after the assessee failed to produce books of account, bills or vouchers despite repeated opportunities. Rejection of the books was held to be justified. However, on consideration of the assessee's declared net profit rates in the preceding and subsequent years (notably 8.134% in the subsequent year) and in view of the assessee's non-cooperation, the Tribunal found the 12% gross profit rate applied by the authorities to be excessive and unreasonable. The Tribunal directed the AO to apply a net profit rate of 8% on the total turnover and to compute the additions accordingly, thereby partly allowing the appeal against the estimation. [Paras 13]

Application of net profit rate of 12% was excessive; AO directed to apply net profit rate of 8% and make additions accordingly.

Unexplained cash credits - Whether amounts of Rs. 3,00,000 and Rs. 1,50,000 received from M/s Om Track Builders and M/s Shiv Ram Construction respectively, should be excluded from business receipts or treated as unexplained credits. - HELD THAT: - The assessee claimed these amounts were security releases and thus not part of business receipts, but failed to produce any supporting documents. In absence of evidence or explanation, the Tribunal agreed with the authorities below that the receipts constituted unexplained credits and correctly included them in income. The addition in respect of these receipts was therefore sustained. [Paras 15]

Addition of Rs. 4,50,000 treated as unexplained credit is maintained.

Unexplained cash credits - Whether the amount shown in Form 26AS of Rs. 1,06,644 received from M/s Mukand Engineers Ltd. was to be treated as unexplained income or otherwise. - HELD THAT: - Form 26AS reflected a payment credited to the assessee which was not disclosed in his returns and for which no explanation or evidence was furnished before the AO, CIT(A) or the Tribunal. The assessee even disputed receipt but did not satisfactorily explain the entry. The Tribunal concurred with the authorities below that the sum amounted to unexplained credit and sustained the addition. [Paras 17]

Addition of Rs. 1,06,644 shown in Form 26AS is upheld as unexplained income.

Assessment under section 144 - estimation due to non-production of books - Rejection of books of account for non-cooperation - Whether the addition of cash deposits of Rs. 83 lakhs in the Corporation Bank account should be sustained or deleted. - HELD THAT: - The AO made an addition on account of unexplained cash deposits of Rs. 83 lakhs. The assessee claimed these deposits were withdrawals from an overdraft account and filed related copies before the appellate authority. The CIT(A) deleted the addition of Rs. 83 lakhs. The Tribunal, noting the record and the deletion by the CIT(A), did not disturb that deletion and proceeded to decide the other additions and the net profit rate issue. Accordingly, the deletion of the 83 lakhs addition stood accepted. [Paras 7, 13]

Deletion of the addition of Rs. 83 lakhs is maintained.

Condonation of delay in filing appeal on medical grounds - Whether the delay of 27 days in filing the appeal before the Tribunal should be condoned. - HELD THAT: - The assessee sought condonation of delay supported by medical prescriptions showing his only son was suffering from a brain tumour/cancer. The Tribunal found the delay to be nominal and the medical explanation satisfactory, and therefore condoned the delay in filing the appeal. [Paras 9, 10]

Delay of 27 days in filing the appeal is condoned.

Final Conclusion: Appeal partly allowed: delay in filing condoned; deletion of the addition relating to Rs. 83 lakhs upheld; additions of Rs. 4,50,000 and Rs. 1,06,644 sustained as unexplained credits; estimation by gross profit rate reduced from 12% to 8% and remitted to the AO for computation accordingly.

Transfer pricing adjustments - Arm's length price - Transactional Net Margin Method (TNMM) - CUP method - Benefit test in transfer pricing - Disallowance under section 14A read with Rule 8D - Re-adjudication / remand for de-novo consideration - Inclusive method of accounting under Section 145A - Allowability under Section 43B (leave encashment) - Computation of interest under Section 234

Transfer pricing adjustments - Arm's length price - Transactional Net Margin Method (TNMM) - Benefit test in transfer pricing - Deletion of transfer pricing adjustment of Rs. 1,12,36,000 in respect of technical consultancy fees paid to AE - HELD THAT: - The Tribunal examined the TPO's finding that no evidence of specific services was available and that the ALP should be nil. It followed a coordinate-bench decision in the group's cases which held that (i) existence of an agreement for bundled services and contemporaneous emails and documents could demonstrate rendition of services, (ii) non use of particular services under a bundled agreement does not render the entire consideration nil, and (iii) the revenue cannot substitute commercial expediency calls for the payment. The Tribunal observed that CUP prerequisites were absent and that TNMM adopted by the assessee was not shown to be inappropriate. Following the coordinate-bench ruling and noting that the facts are pari materia, the Tribunal deleted the impugned ALP adjustment and allowed the ground of appeal. [Paras 3]

Impugned transfer pricing adjustment deleted; ground allowed.

Disallowance under section 14A read with Rule 8D - Deletion of additional disallowance of Rs. 2,404 arising under section 14A r.w. Rule 8D - HELD THAT: - The assessee had offered a suo moto disallowance which exceeded the exempt dividend income. The AO made an additional disallowance of Rs. 2,404 which the Tribunal found unsustainable in view of the higher suo moto disallowance already offered by the assessee. Therefore the additional disallowance was deleted. [Paras 4]

Additional disallowance of Rs. 2,404 deleted; ground allowed.

Re-adjudication / remand for de-novo consideration - Depreciation on intangible assets - Remand to AO for de-novo adjudication of depreciation claim on intangible assets (treated as fictitious in earlier years) - HELD THAT: - The Tribunal observed that the issue of depreciation on intangibles must be reconsidered by the AO in light of directions and findings in earlier co ordinate bench rulings for the assessee's AYs 2007 08 and 2008 09. The matter is returned to the file of the AO for fresh adjudication on similar lines as directed earlier. The ground is allowed for statistical purposes, i.e., remitted for fresh consideration rather than finally decided on merits here. [Paras 4]

Issue remanded to AO for de-novo adjudication in accordance with Tribunal's earlier directions.

Inclusive method of accounting under Section 145A - Re-adjudication / remand for de-novo consideration - Remand to AO for de-novo adjudication of adjustment under Section 145A regarding CENVAT credit / stock valuation - HELD THAT: - The AO invoked Section 145A to adjust closing stock and related items on account of CENVAT credit; the assessee maintained it used net method and there would be no overall impact. The Tribunal directed that the matter be returned to the AO for fresh adjudication in light of the Tribunal's earlier directions in the assessee's own cases for AYs 2007 08 and 2008 09. The ground is allowed for statistical purposes and remitted for reconsideration. [Paras 4]

Issue remanded to AO for de-novo adjudication in accordance with earlier Tribunal directions.

Allowability under Section 43B (leave encashment) - Re-adjudication / remand for de-novo consideration - Remand to AO for de-novo adjudication of disallowance under Section 43B in respect of leave encashment provision - HELD THAT: - The assessee contended there was a write back during the year and that the amount was not a fresh provision; DRP rejected the claim for lack of evidence. Having considered submissions, the Tribunal directed the AO to re adjudicate the issue de novo and examine the factual assertions and documentary evidence regarding the write back and prior non allowance. [Paras 4]

Issue remanded to AO for de-novo adjudication in light of representations; ground allowed for statistical purposes.

Computation of interest under Section 234 - Interest and penalty grounds treated as consequential; direction to compute interest in accordance with law - HELD THAT: - The Tribunal treated the claims as consequential to substantive adjustments and observed they did not require separate adjudication at this stage. It directed the AO to compute interest in accordance with law and indicated that other consequential consequences (including penalty) would follow the final outcome of the substantive issues. [Paras 4]

Interest to be computed by AO in accordance with law; consequential grounds left to follow final adjudications.

Final Conclusion: Appeal partly allowed: transfer pricing adjustment in respect of technical consultancy fees deleted and minor additional 14A disallowance deleted; several substantive issues (depreciation on intangibles, Section 145A adjustment, Section 43B disallowance) remitted to the AO for de novo adjudication in accordance with Tribunal's earlier directions; interest to be computed as per law; appeal otherwise disposed partly in terms above.

Treatment of TDS credit on advance payments - disallowance under section 43B for unpaid statutory dues - disallowance under section 40(a)(ia) for failure to deduct TDS - retrospective/curative effect of proviso to section 40(a)(ia) - service tax as statutory liability and not assessable income

Treatment of TDS credit on advance payments - Deletion of addition of Rs. 10,43,114 on account of mobilization advance where TDS was deducted and claimed by the assessee. - HELD THAT: - CIT(A) accepted that the sum represented mobilization advance evidenced by the work order and that TDS on advance payments must be credited in the assessment year in which tax was deducted; reliance was placed on precedents holding that TDS credit pertains to the assessment year of deduction and cannot be apportioned to particular items of income. Revenue did not point out any infirmity in CIT(A)'s findings before the Tribunal. In absence of contrary demonstration, the Tribunal found no reason to interfere with the factual and legal conclusions recorded by CIT(A). [Paras 5, 9]

Revenue appeal dismissed; deletion of the addition upheld.

Disallowance under section 43B for unpaid statutory dues - Deletion of addition of Rs. 96,505 being professional tax deducted from employees but not deposited by due date. - HELD THAT: - CIT(A) accepted the assessee's explanation of reasonable cause for non-deposit, noted amounts were credited to a separate account and that the debit to Profit & Loss was on account of salary (not professional tax). On these facts and submissions the CIT(A) concluded section 43B did not mandate disallowance. Revenue failed to demonstrate error in CIT(A)'s findings before the Tribunal and the Tribunal declined to interfere. [Paras 11, 15]

Revenue appeal dismissed; deletion of the addition under section 43B upheld.

Disallowance under section 40(a)(ia) for failure to deduct TDS - retrospective/curative effect of proviso to section 40(a)(ia) - Disallowance of Rs. 4,66,658 for interest paid to NBFCs under section 40(a)(ia) was not finally adjudicated by the Tribunal but remitted to the Assessing Officer for fresh consideration. - HELD THAT: - CIT(A) had deleted the disallowance after examining statutory amendments and relevant precedents holding the second proviso to section 40(a)(ia) remedial/clarificatory and retrospective; Revenue argued there was no evidence that payees had offered such receipts to tax. The Tribunal observed that the Revenue's contention (absence of evidence that payees included the amounts in their returns and paid tax) was not controverted by the assessee before the Tribunal. In view of the Delhi High Court authority discussed, the Tribunal found it appropriate to restore the matter to the Assessing Officer to examine and decide afresh whether the payees had returned the income and paid tax, granting the assessee opportunity to file requisite details. [Paras 16, 21, 22]

Ground allowed for statistical purposes and remanded to the Assessing Officer for fresh adjudication in accordance with law and binding precedents; assessee to furnish required details and be granted hearing.

Service tax as statutory liability and not assessable income - disallowance under section 43B for unpaid statutory dues - Deletion of addition of Rs. 1,90,81,660 treated as service tax collected but not deposited. - HELD THAT: - CIT(A) found the amount represented service tax (an indirect statutory liability) billed and shown as a liability in accounts rather than part of the assessee's income; it was not debited to Profit & Loss nor claimed as deduction. On these factual findings and in view of precedents (including the assessee's own earlier-year Tribunal decision and the Delhi High Court decision in Noble & Hewitt), the Tribunal found no reason to interfere with CIT(A)'s conclusion that section 43B disallowance did not arise where service tax was not treated as expenditure in P&L and was maintained separately. [Paras 23, 29, 31]

Revenue appeal dismissed; deletion of addition sustained.

Service tax as statutory liability and not assessable income - disallowance under section 43B for unpaid statutory dues - For A.Y. 2011-12, deletion of addition (identical to A.Y. 2010-11 service tax issue) was upheld mutatis mutandis. - HELD THAT: - Facts for 2011-12 were identical to 2010-11 and the Tribunal applied the same reasoning and authorities, concluding that the CIT(A)'s view that service tax element was not income and was not debited to P&L warranted no interference. [Paras 33, 34]

Revenue appeal dismissed; deletion of the addition sustained for A.Y. 2011-12.

Disallowance under section 40(a)(ia) for failure to deduct TDS - retrospective/curative effect of proviso to section 40(a)(ia) - For A.Y. 2011-12, disallowance under section 40(a)(ia) was remitted to the Assessing Officer for fresh consideration on the same basis as A.Y. 2010-11. - HELD THAT: - The Tribunal held the facts of 2011-12 identical to 2010-11 and applied the same course: since the question of whether payees had offered receipts to tax needed verification in light of relevant precedents including the Delhi High Court decision, the matter was restored to the Assessing Officer for answer and quantification in accordance with law, with the assessee directed to file requisite details. [Paras 35, 36]

Ground allowed for statistical purposes and remitted to the Assessing Officer for fresh adjudication in accordance with law.

Final Conclusion: Both Revenue appeals were partly allowed for statistical purposes: the Tribunal upheld the deletions made by the CIT(A) in respect of (i) TDS credit on mobilization advance, (ii) professional tax treated as salary-related and not liable to disallowance under section 43B, and (iii) service tax treated as a statutory liability not charged to P&L; however, the Tribunal remanded the disputes under section 40(a)(ia) (failure to deduct TDS on interest) in both assessment years to the Assessing Officer for fresh consideration consistent with binding precedents and directed the assessee to furnish necessary details.

Allowability of foreign exchange loss as revenue expenditure under AS-11 - treatment of exchange differences on foreign currency borrowings and applicability of section 43A/section 43(1) - scope of limited scrutiny under CASS and conversion to comprehensive scrutiny where potential escapement exceeds prescribed monetary limit - jurisdiction of Pr. CIT under section 263 where Assessing Officer failed to make necessary enquiries - addition to book profit for computation of MAT of provision for doubtful debts

Scope of limited scrutiny under CASS and conversion to comprehensive scrutiny where potential escapement exceeds prescribed monetary limit - jurisdiction of Pr. CIT under section 263 where Assessing Officer failed to make necessary enquiries - Validity of Pr. CIT's exercise of jurisdiction under section 263 in a case selected for limited scrutiny where Assessing Officer did not convert to comprehensive scrutiny despite potential escapement exceeding the prescribed limit. - HELD THAT: - The Tribunal held that even in a limited scrutiny assessment the Assessing Officer is required to make a prima facie enquiry into other items which may cause potential escapement of income exceeding the monetary threshold (Rs.10 lakh for non-metro charges as per CBDT instructions). If such potential escapement exists, the AO ought to have sought written approval of the Pr. CIT/DIT to convert the assessment into comprehensive scrutiny. Failure to do so and failure to make necessary enquiry renders the assessment order capable of being treated as erroneous and prejudicial to the revenue under section 263. The appellant's contention that a Pr. CIT cannot exercise section 263 in respect of issues beyond the scope of limited scrutiny was rejected; the Pr. CIT was entitled to set aside the assessment for the limited purpose of verifying issues which the AO had not examined. The assessee conceded the direction to rework MAT income after add-back of provision for doubtful debts. [Paras 7]

Pr. CIT's exercise of jurisdiction under section 263 was upheld insofar as the AO failed to make requisite enquiries or obtain approval to convert limited scrutiny into comprehensive scrutiny when potential escapement exceeded the prescribed limit.

Allowability of foreign exchange loss as revenue expenditure under AS-11 - treatment of exchange differences on foreign currency borrowings and applicability of section 43A/section 43(1) - Whether foreign exchange loss on a foreign currency loan used to acquire indigenous fixed assets is capital in nature (to be adjusted to cost of asset) or is allowable as revenue expenditure in the Profit & Loss account. - HELD THAT: - The Tribunal analysed the conflict between earlier judicial decisions, accounting standards and statutory provisions. It noted that section 43A and the AS-11 (1994) treatments concerned assets imported or acquired in foreign currency, and that AS-11 was revised in 2003 to require recognition of exchange differences on monetary items in profit or loss (subject to specified exceptions). The Tribunal observed that the Companies Act and MCA clarification require compliance with AS-11 and that, in absence of a specific provision in the Income-tax Act prescribing otherwise, generally accepted accounting principles (AS-11 Revised 2003) govern treatment of exchange differences. It further held that the liability for exchange fluctuation arises on devaluation and is an independent event, not automatically a capital expenditure merely because the loan was used for acquiring fixed assets. Applying these principles, the Tribunal concluded that exchange loss on foreign currency loan used for acquiring indigenous fixed assets is required to be recognised in profit and loss and is allowable as revenue expenditure; section 43A is not attracted to indigenous asset acquisition by foreign currency loan. [Paras 8, 9]

Foreign exchange loss arising from foreign currency borrowings used to acquire indigenous fixed assets is to be treated as revenue expenditure (charged to Profit & Loss in accordance with AS-11 Revised 2003) and thus allowable; the assessee's claim in this respect was accepted.

Addition to book profit for computation of MAT of provision for doubtful debts - jurisdiction of Pr. CIT under section 263 where Assessing Officer failed to make necessary enquiries - Validity of Pr. CIT's direction to rework book profit for MAT by adding back provision for doubtful debts debited to P&L. - HELD THAT: - The Principal CIT observed that the provision for diminution in value of trade receivables, being a provision of the nature contemplated in explanation to section 115JB(2), ought to be added back for computation of book profit. The Assessing Officer had not carried out necessary examination/verification on this aspect. The Tribunal recorded that the assessee accepted the correctness of the Pr. CIT's direction to rework MAT income after making the add-back. Given the absence of requisite enquiry by the AO, the Pr. CIT's limited direction to revise computation for MAT was sustained. [Paras 3, 7]

Direction to rework MAT income by adding back the provision for doubtful debts was upheld; the assessee conceded this direction.

Final Conclusion: The appeal is partly allowed: the Tribunal upheld the Pr. CIT's jurisdiction under section 263 to set aside the limited-scrutiny assessment where the AO failed to make necessary enquiries or obtain approval to convert to comprehensive scrutiny; it allowed the assessee's claim that the foreign exchange loss on foreign currency borrowings used to acquire indigenous fixed assets is revenue in nature and deductible under the Profit & Loss treatment prescribed by AS-11 (Revised 2003); and it sustained the Pr. CIT's direction to rework MAT computation by adding back the provision for doubtful debts (a direction accepted by the assessee).

Computation of disallowance under Rule 8D read with section 14A by reference to net interest - Differentiation between profits and gains from business and income from other sources for allowance of deduction under section 80-IC - Non availability of section 80-IC deduction for interest income on fixed deposits - Overriding operation of disallowance under section 14A vis-a -vis claim under section 80-IC

Computation of disallowance under Rule 8D read with section 14A by reference to net interest - Netting of interest expense and taxable interest income for Clause (ii) of sub rule (2) of Rule 8D - Whether amount of expenditure by way of interest, for computing disallowance under Rule 8D(2)(ii) read with section 14A, is to be taken as gross interest expense or as net interest expense (interest paid minus taxable interest earned). - HELD THAT: - The Tribunal examined competing precedents and the mechanism in Clause (ii) of sub rule (2) of Rule 8D which requires an 'amount of expenditure by way of interest' to be applied in a formula with the ratio of investments yielding exempt income to total assets. Having considered decisions of coordinate Benches and the Gujarat High Court in PCIT v. Nirma Credit & Capital (P.) Ltd. and subsequent ITAT decisions (including DCIT v. DLF Asset Pvt. Ltd., DCIT v. Machino Finance Ltd., and DCIT v. Trade Apartment Ltd.), the Tribunal held that where an assessee both pays interest on borrowings and earns taxable interest on investments, the appropriate 'amount of expenditure by way of interest' for the purposes of Clause (ii) is the net interest (interest paid on borrowings minus taxable interest earned during the year). On that basis and respectfully following those precedents, the Tribunal directed that disallowance under Rule 8D read with section 14A be computed using net interest for Clause (ii) of sub rule (2).

Disallowance under Rule 8D read with section 14A to be computed by reference to net interest (interest paid minus taxable interest earned) for Clause (ii) of sub rule (2).

Differentiation between profits and gains from business and income from other sources for allowance of deduction under section 80-IC - Non availability of section 80-IC deduction for interest income on fixed deposits - Whether interest income earned on fixed deposits (margin money/FDRs) of the eligible industrial unit qualifies as 'profits and gains from business' and is eligible for deduction under section 80-IC. - HELD THAT: - The Tribunal reviewed the facts, the assessment officer's conclusion and the CIT(A)'s reasoning, and found no material or legal infirmity warranting interference. Applying the statutory test that deduction under section 80-IC is allowable only in respect of profits and gains derived from the eligible business, the Tribunal agreed with the CIT(A) that interest earned on fixed deposits constituted 'income from other sources' and was not inextricably linked to the industrial undertaking so as to be treated as business profits. The Tribunal relied on precedent (including the Supreme Court principle requiring a direct nexus between profits and the industrial undertaking and subsequent High Court and tribunal decisions) cited by the CIT(A) to uphold the disallowance of the claim under section 80-IC in respect of the interest income.

Claim for deduction under section 80-IC in respect of interest income from fixed deposits is not allowable; the disallowance is upheld.

Overriding operation of disallowance under section 14A vis-a -vis claim under section 80-IC - Treatment of expenses disallowed under section 14A for purpose of deduction under section 80-IC - Whether expenses disallowed under section 14A for earning exempt income (the portion pertaining to the exempted unit) can be treated as allowable for deduction under section 80-IC. - HELD THAT: - The Tribunal considered the CIT(A)'s finding that expenses disallowed under section 14A relate to earning exempt income and that section 14A has overriding effect, thereby precluding those expenses from being considered for deduction under section 80-IC. The assessee did not advance additional material persuading a different outcome. The Tribunal found the CIT(A)'s order reasoned and in accordance with law and declined to interfere, holding that disallowances under section 14A cannot be converted into deductible business profits for section 80-IC purposes.

Expenses disallowed under section 14A for earning exempt income are not allowable for deduction under section 80-IC; the CIT(A)'s rejection of that claim is upheld.

Final Conclusion: The Tribunal partly allowed the appeal: it upheld the CIT(A)'s disallowance of deduction under section 80-IC in respect of interest on fixed deposits and the exclusion of expenses disallowed under section 14A from section 80-IC, but it directed that disallowance under Rule 8D read with section 14A be recomputed using net interest (interest paid minus taxable interest earned) for the purposes of Clause (ii) of sub rule (2).

International transaction - arm's length price (ALP) - benchmarking of cross border loan transactions against LIBOR - transfer pricing adjustment under section 92CA(3) - corporate guarantee - inclusion within definition of international transaction - treatment of convertible bonds for ALP determination - additional depreciation on plant and machinery - section 32(1)(iia) - disallowance of employer's PF contribution - section 36(1)(va) read with section 2(24)(x) - computation of book profits under section 115JB - applicability of section 14A read with Rule 8D

Corporate guarantee - inclusion within definition of international transaction - transfer pricing adjustment under section 92CA(3) - Deletion of transfer pricing adjustment made under section 92CA(3) on account of guarantee commission upheld on the ground that issuance of corporate guarantee did not constitute an international transaction in the facts of the case. - HELD THAT: - The Tribunal agreed with the CIT(A)'s conclusion that where a parent company issues a corporate guarantee to enable its associated enterprise to obtain third party finance, and no consideration is received from the AE, the transaction does not, in the factual matrix before the authorities, fall within the ambit of an "international transaction" for transfer pricing purposes. The Tribunal followed coordinate precedents which analysed the scope of the Explanation to section 92B and held that mere issuance of guarantee, without any bearing on the profits, incomes, losses or assets of the guarantor (and without any fee charged), would be outside the scope of international transaction. In view of identical reasoning applied to the impugned years and absence of distinguishing facts, the addition was deleted. [Paras 11, 35]

Grounds of the Revenue challenging deletion of guarantee related TP adjustment dismissed.

Arm's length price (ALP) - benchmarking of cross border loan transactions against LIBOR - transfer pricing adjustment under section 92CA(3) - Deletion of upward transfer pricing adjustment in respect of interest on loans advanced to associated enterprises upheld by applying LIBOR+2% as the arm's length benchmark. - HELD THAT: - The Tribunal endorsed the CIT(A)'s finding that cross border loans denominated in foreign currency should be benchmarked against international reference rates (LIBOR) rather than domestic lending rates. Reliance was placed on consistent decisions of coordinate benches and RBI guidance indicating a reasonable spread of 1-2% over LIBOR; on facts the assessee charged interest higher than LIBOR+2%, therefore no upward adjustment was warranted. The TPO's use of the assessee's average domestic cost of funds and an arbitrary 750 bps spread was held to be factually and legally unsustainable. [Paras 17]

Ground of the Revenue challenging deletion of loan interest TP adjustment dismissed.

Treatment of convertible bonds for ALP determination - transfer pricing adjustment under section 92CA(3) - Deletion of transfer pricing adjustment relating to interest on investment in fixed rate convertible bonds upheld because TPO's ALP computation ignored conversion facts and applied an inappropriate hypothetical rate. - HELD THAT: - The Tribunal agreed with CIT(A) that the TPO erred by treating the bonds purely as fixed rate instruments and by spreading a redemption premium over the life without giving weight to the fact that the overwhelming majority of bonds had been converted into equity well before the TP order; consequently the hypothetical ALP rate computed by the TPO (13.95%) could not be compared with the coupon actually received (6.5%). The TPO's approach was found to be based on a hypothetical premise contrary to established facts, rendering the adjustment unsustainable. [Paras 21]

Ground of the Revenue challenging deletion of the bond interest adjustment dismissed.

Additional depreciation on plant and machinery - section 32(1)(iia) - Assessee entitled to additional depreciation on electrical installations held to be integral parts of plant and machinery; CIT(A)'s deletion of the disallowance was upheld. - HELD THAT: - The Tribunal accepted the factual finding that the electrical installations formed an integral, impartible and essential part of the manufacturing plant (integrated with co generation power plant) and therefore fell within the inclusive definition of "plant" under section 43. Application of section 32(1)(iia) was held appropriate because the installations were newly acquired, not used earlier, not office/residential appliances, and their cost had not been fully allowed earlier. Reliance on jurisdictional and other Tribunal precedents supporting electrical installations as plant reinforced the conclusion. [Paras 30]

AO's disallowance of additional depreciation rejected; claim allowed.

Disallowance of employer's PF contribution - section 36(1)(va) read with section 2(24)(x) - Disallowance of employer's PF contribution deleted in view of binding precedents; CIT(A)'s order sustained. - HELD THAT: - The Tribunal followed the Supreme Court and jurisdictional High Court decisions applied by the CIT(A) in allowing the claim and found no infirmity in deleting the AO's disallowance under the cited provisions. [Paras 31]

AO's disallowance of PF contributions set aside; claim sustained.

Computation of book profits under section 115JB - applicability of section 14A read with Rule 8D - Disallowance under section 14A read with Rule 8D was not to be applied in computing book profits under clause (f) of Explanation 1 to section 115JB; CIT(A)'s deletion of the addition upheld. - HELD THAT: - The Tribunal followed the Special Bench decision in ACIT vs. Vireet Investments Pvt. Ltd. and held that the computation required under clause (f) of Explanation 1 to section 115JB is to be made without resorting to the section 14A/Rule 8D computation. Accordingly, the CIT(A)'s deletion of the alleged disallowance in computing book profits was sustained. [Paras 34]

AO's disallowance under section 14A/Rule 8D for purposes of section 115JB computation rejected.

Transfer pricing adjustment under section 92CA(3) - bank guarantee commission - international transaction - Deletion of TP adjustment on account of bank guarantee commission upheld for the same reasons as for corporate guarantees; Revenue's ground dismissed. - HELD THAT: - The Tribunal applied the same reasoning adopted for the corporate guarantee issue in the other assessment year: the transaction did not qualify as an international transaction in the factual matrix and under the interpretative approach followed, therefore the transfer pricing adjustment was not sustainable. Consistency across assessment years and absence of distinguishing facts warranted dismissal of the Revenue's challenge. [Paras 35]

TP adjustment on bank guarantee commission deleted; Revenue's ground dismissed.

Arm's length price (ALP) - benchmarking of cross border loan transactions against LIBOR - transfer pricing adjustment under section 92CA(3) - Deletion of TP adjustment on loan advanced to AE for AY 2010-11 upheld by applying the LIBOR+2% benchmark and by reference to independent bank facility benchmark. - HELD THAT: - The Tribunal sustained the CIT(A)'s conclusion that LIBOR+2% constitutes a reasonable arm's length benchmark for foreign currency loans and that the assessee had charged interest higher than that benchmark. Alternatively, the AO's adjustment was also negated on the basis that comparable credit facilities provided to the AE by SBI Sydney formed an independent and appropriate benchmark; moreover the existence of the assessee's guarantee did not alter the bank's pricing so as to make the bank rate non comparable. [Paras 36, 37]

AO's TP adjustment on the loan advanced to AE rejected; ground dismissed.

Final Conclusion: Appeals filed by the Revenue for AY 2008-09 and AY 2010-11 are dismissed. The Tribunal upheld the CIT(A)'s deletions of transfer pricing adjustments relating to corporate guarantees, bank guarantee commissions, loans and bond interest (applying LIBOR based benchmarking and fact specific analysis of convertible bond conversions), allowed additional depreciation on electrical installations as part of plant and machinery, set aside the PF contribution disallowance, and rejected the application of section 14A/Rule 8D in computing book profits under section 115JB.

Rejection of books of account under Section 145(3) - estimation of income by applying net profit rate based on past history - treatment of interest on FDR as business income where FDRs are placed as security for contracts - disallowance under Section 40(a)(ia) in relation to payments where person has furnished PAN - disallowance under Section 40A(3) and Rule 6DD genuine hardship exception - precedential application of Tribunal's own earlier decisions and High Court orders

Rejection of books of account under Section 145(3) - estimation of income by applying net profit rate based on past history - precedential application of Tribunal's own earlier decisions and High Court orders - Whether the net profit rate applied by the Assessing Officer on rejection of books of account was correctly fixed at 8.5% or whether the net profit rate of 1% based on past history and earlier tribunal/high court decisions should be applied. - HELD THAT: - The Tribunal found that the Assessing Officer applied an 8.5% net profit rate without adequate basis and without considering the assessee's past history or similarly situated precedents. The authorities below (CIT(A) and Tribunal in the assessee's own earlier years) had considered the assessee's prior years' declared results and orders of the Coordinate Bench and the Rajasthan High Court, which supported using past history where factual position has not changed. On the facts - identical business activity, audited books, and earlier tribunal and High Court confirmations - the Tribunal concluded that applying NP rate of 1% (as adopted in the assessee's prior years by the Tribunal and upheld by the High Court) was reasonable. The Tribunal held that past history is the appropriate basis for estimation when there is no change in factual position and the Assessing Officer must rely on such history or on similarly situated taxpayers rather than make an unexplained higher estimate. [Paras 13, 14]

The NP rate of 1% on gross receipts is to be applied; the revenue grounds challenging the CIT(A)'s adoption of 1% are dismissed.

Treatment of interest on FDR as business income where FDRs are placed as security for contracts - precedential application of Tribunal's own earlier decisions and High Court orders - Whether interest on FDRs placed/pledged with government departments as security for contract work is assessable as business income or as income from other sources. - HELD THAT: - The Tribunal accepted the reasoning of the CIT(A) and earlier tribunal decisions in the assessee's own case that FDRs were made as security for obtaining contract work and therefore the interest earned on such FDRs is integrally connected to the business. The Assessing Officer's treatment of the FDR interest as income from other sources was displaced by findings that the FDRs were placed for business purposes and decisions of the Tribunal and High Court in the jurisdiction supported assessing such interest as business income. [Paras 5, 10, 15]

Interest on FDRs used as security for contract work is to be treated as business income; no separate addition as other sources is warranted.

Disallowance under Section 40(a)(ia) in relation to payments where person has furnished PAN - rejection of books of account under Section 145(3) - Whether the addition under Section 40(a)(ia) in respect of JCB hire charges (for non-deduction of tax) was correctly made where the payee furnished PAN and when income was estimated after rejection of books. - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the JCB falls within the ambit of goods carriage and that, under the statutory proviso, where PAN is furnished no TDS deduction is required. The owner had furnished PAN and accordingly the assessee was not liable to deduct TDS. Moreover, Coordinate Bench precedents establish that when income is estimated after rejection of books, separate disallowances under Section 40(a)(ia) are not called for as the estimated NP rate takes care of business-related payments. Applying these principles, the Tribunal found no infirmity in deletion of the addition. [Paras 6, 16, 18]

Addition under Section 40(a)(ia) in respect of JCB hire charges is deleted.

Disallowance under Section 40A(3) and Rule 6DD genuine hardship exception - rejection of books of account under Section 145(3) - estimation of income by applying net profit rate based on past history - Whether disallowance under Section 40A(3) for cash payments was tenable where payments were made due to genuine hardship and income was estimated by applying a net profit rate. - HELD THAT: - The Tribunal endorsed the CIT(A)'s conclusion that payments in cash were made because parties insisted and genuine hardship was shown; Rule 6DD (as then in force) and judicial precedents recognise genuine hardship as a relevant consideration. Further, multiple Coordinate Bench and High Court authorities hold that once books are rejected and income is assessed by applying an estimated NP rate, additional disallowances under Section 40A(3) are generally unnecessary because the estimate subsumes such expenditures. No finding was recorded that payments were not genuine or not for business purpose, and therefore the disallowance was not sustainable. [Paras 7, 17, 18]

Addition under Section 40A(3) is deleted.

Final Conclusion: All revenue appeals are dismissed: the NP rate of 1% is applied for estimation on the years under consideration; interest on contract related FDRs is treated as business income; additions under Section 40(a)(ia) and Section 40A(3) are deleted in accordance with the findings and applicable precedents.

Depreciation on goodwill as an intangible asset eligible under section 32 - integrated computer system doctrine for higher rate of depreciation on computer peripherals - deduction under section 80IA for generation of power including captive consumption and steam as a form of power - application of section 43A - foreign exchange gain/loss to be adjusted on actual payment basis - disallowance under section 14A read with Rule 8D(2)(iii) - benchmark 0.5% of investments

Depreciation on goodwill as an intangible asset eligible under section 32 - Allowance of amortisation/depreciation claimed on goodwill arising from acquisition and amalgamation. - HELD THAT: - Following the coordinate bench decisions in the assessee's own earlier years, the Tribunal held that the excess consideration paid on acquisition, representing various intangible rights and business advantages attendant to amalgamation, falls within the ambit of intangible assets contemplated by section 32 and is eligible for amortisation/depreciation. The Tribunal applied the substance-over-form approach, recognising that the amalgamation conferred know how, brands, licences and other commercial advantages which are akin to items enumerated in section 32, and therefore upheld the CIT(A)'s allowance and dismissed Revenue's appeal. [Paras 9]

Revenue's appeal dismissed; depreciation on goodwill allowed.

Integrated computer system doctrine for higher rate of depreciation on computer peripherals - Whether printers, scanners and other peripherals qualify for higher rate of depreciation as part of the computer block. - HELD THAT: - The Tribunal, following earlier bench rulings relied upon by the CIT(A), accepted that a computer is an integrated processing machine and cannot be dissected into isolated parts for disparate rates of depreciation. Input and output devices, connecting media and peripherals that form an integrated computer system were held to qualify collectively for the higher depreciation rate applicable to computers. Consequently, the CIT(A)'s direction to allow depreciation treating such items as part of the computer system was upheld. [Paras 13]

Revenue's appeal dismissed; depreciation at higher rate on integrated computer system upheld.

Deduction under section 80IA for generation of power including captive consumption and steam as a form of power - Entitlement to section 80IA deduction for (a) captive generation of electricity and (b) steam generated and used captively. - HELD THAT: - The Tribunal followed prior decisions of the coordinate bench holding that a power generation undertaking is eligible for deduction under section 80IA even where generated power is consumed captively, subject to computation at arm's length for transfer pricing purposes. On the specific question of steam, the Tribunal accepted authorities construing 'power' broadly as 'energy', and held that steam, being a form of energy capable of performing work, qualifies as 'power' for section 80IA. The CIT(A)'s direction to quantify the value of steam at arm's length and to compute deduction after appropriate adjustments (e.g., brought forward losses and depreciation as required by section 80IA(5)) was affirmed. [Paras 18]

Revenue's appeal dismissed; deduction under section 80IA allowed for captive electricity and for steam used captively, subject to arm's length valuation and statutory adjustments.

Application of section 43A - foreign exchange gain/loss to be adjusted on actual payment basis - Treatment of foreign exchange fluctuation gain relating to import of plant and machinery and whether adjustment to cost of asset is to be made at year end or on actual payment. - HELD THAT: - Relying on Supreme Court precedents and coordinate bench decisions, the Tribunal agreed with the CIT(A) that increases or reductions in liability due to exchange rate fluctuations (under section 43A) must be adjusted to the cost of the asset only upon actual payment. The Assessing Officer's attempt to adjust forex gain at year end as per the assessee's accounting system was held incorrect; AO was directed to verify dates of payments and apply section 43A accordingly. [Paras 23]

Revenue's appeal dismissed; AO directed to adjust foreign exchange effects to asset cost on actual payment and recompute depreciation.

Disallowance under section 14A read with Rule 8D(2)(iii) - benchmark 0.5% of investments - Whether disallowance under section 14A read with Rule 8D should be restricted to a specific employee cost or applied as per Rule 8D(2)(iii) percentage. - HELD THAT: - On examination, the Tribunal found that Rule 8D(2)(iii) prescribes a formulaic disallowance (0.5% of average investments) which the Assessing Officer applied to compute disallowance. The CIT(A) had reduced the addition to an assessed figure; however, the Tribunal observed that the Assessing Officer's application of Rule 8D(2)(iii) was correct and set aside the CIT(A)'s reduction, restoring the disallowance computed by the AO. [Paras 28]

Revenue's appeal allowed; disallowance under section 14A read with Rule 8D(2)(iii) reinstated as computed by AO.

Application of section 43A - foreign exchange gain/loss to be adjusted on actual payment basis - carry forward of unabsorbed depreciation - Directions regarding recomputation of income and carry forward of unabsorbed depreciation consequent to correct application of section 43A. - HELD THAT: - Having held that forex adjustments under section 43A are to be made on actual payment, the Tribunal directed the AO to make necessary adjustments to the cost of assets and to recompute income under normal provisions, allowing the assessee to carry forward the correct unabsorbed depreciation determined after such recomputation. [Paras 30, 31]

Cross objection allowed; AO directed to recompute income and permit correct carry forward of unabsorbed depreciation.

Verification of tax credits and interest computation - Verification and grant of tax credits (TDS/advance tax) and correct computation of interest under sections 234C and 244. - HELD THAT: - The Tribunal observed that it is the statutory obligation of tax authorities to give correct credit for taxes deducted/paid and to compute interest correctly. Where the assessee raised non credit of TDS/advance tax or interest computation issues which were not decided below, the Tribunal remitted these matters to the AO for verification and fresh decision in accordance with law. [Paras 36, 37, 42]

Cross objections partly allowed; matters remitted to AO for verification and consequential adjustments of tax credits and interest.

Assessment of MAT liability - factual and consequential determination - Determination of Minimum Alternate Tax (MAT) liability for A.Y.2009 10 consequent to other adjustments. - HELD THAT: - The Tribunal noted that MAT liability was a factual and consequential issue which had not been raised before the CIT(A). It therefore directed the Assessing Officer to verify and decide the MAT consequence afresh on merits while giving effect to the Tribunal's order. [Paras 41]

Ground allowed for statistical purpose; AO to decide MAT liability afresh on merits.

Final Conclusion: Appeals by the Revenue were partly allowed (disallowance under section 14A reinstated); in other respects the orders of the CIT(A) were upheld - depreciation on goodwill and computer systems, and deduction under section 80IA for captive power and steam were allowed; issues of foreign exchange adjustment under section 43A were remanded for adjustment on actual payment and recomputation (including carry forward of depreciation), and several consequential and verification matters (tax credits, interest, MAT) were directed to be verified and decided afresh by the Assessing Officer.

Reversal of revenue recognised on percentage of completion method - recognition of foreseeable loss under percentage of completion method - applicability of ICAI Guidance Note and accounting standards as basis for tax computation - requirement of reliable estimates and supporting computation for change in accounting estimates

Reversal of revenue recognised on percentage of completion method - recognition of foreseeable loss under percentage of completion method - requirement of reliable estimates and supporting computation for change in accounting estimates - Deletion of addition of Rs. 6,81,13,165/- representing reversal of profits declared in earlier years from WIP for AY 2014-15. - HELD THAT: - The Tribunal examined whether the assessee could reverse profits previously recognised on the percentage of completion method by recognising estimated foreseeable loss for the project in the year under appeal. While precedent permits assessees to follow accounting standards or ICAI guidance notes for computing real income and to recognise foreseeable losses immediately under the percentage of completion method, such adjustments must be supported by reliable, prudent estimates and computations. The assessee filed two inconsistent sets of aggregate figures and failed to produce detailed supporting computation of total costs incurred to date, estimated cost to complete and the method used to arrive at the percentage of completion. The Guidance Note and AS-7 require cumulative application of current estimates and reversal of previously recognised revenue only as a change in accounting estimate supported by adequate workings. The Tribunal held that the assessee's workings suffered from basic deficiencies (contradictory totals, absence of computation of costs to date and prudent estimate of additional cost to complete) and amounted to bald statements without evidentiary support. As the reversal entry upset the matching and mercantile accounting principles central to AS-7 and was not substantiated, the CIT(A)'s deletion was not based on proper appreciation of facts and law, and the AO's addition was restoreable on facts. [Paras 7, 8]

CIT(A) order deleting the addition is set aside; AO's disallowance of the reversal of earlier profits amounting to Rs. 6,81,13,165/- for AY 2014-15 is restored.

Applicability of ICAI Guidance Note and accounting standards as basis for tax computation - requirement of reliable estimates and supporting computation for change in accounting estimates - Whether the Guidance Note could be applied retrospectively to transactions commenced before its effective date and whether reliance on the Guidance Note alone suffices to permit reversal of previously recognised revenue. - HELD THAT: - The Tribunal acknowledged authority that an assessee may apply accounting standards or ICAI Guidance Notes to compute taxable income and that there is no express bar in the Act to apply such standards; Guidance Notes are recommendatory but may inform the proper method of computation. However, retrospective application or application from an earlier date must be accompanied by consistent application and, crucially, by cogent, reliable supporting computations. In the instant case the assessee invoked the Guidance Note's provisions on recognising foreseeable losses and on changes in estimates, but failed to furnish adequate contemporaneous evidence or detailed computations to substantiate the claimed revision of earlier revenue recognition. Consequently, mere invocation of the Guidance Note without the requisite supporting workings did not justify the deletion of the addition. [Paras 7]

Although the Guidance Note and accounting standards can inform tax computation, the assessee's unsupported application of the Guidance Note could not sustain reversal of previously recognised profits; reliance on the Guidance Note alone was insufficient in absence of reliable estimates and computations.

Final Conclusion: The Tribunal allowed the Revenue's appeal, set aside the CIT(A) order, and restored the Assessing Officer's addition disallowing the reversal of earlier profits of Rs. 6,81,13,165/- for Assessment Year 2014-15, holding that the assessee's estimates and computations were not reliable or adequately supported despite the general permissibility of following ICAI guidance and accounting standards.

Maintainability of appeal under section 246A - appeal against an order passed under section 195(2) - appeal under section 248 by the payer/deductor - statutory right to appeal

Maintainability of appeal under section 246A - appeal against an order passed under section 195(2) - appeal under section 248 by the payer/deductor - statutory right to appeal - Whether the assessee (non resident payee) could maintain an appeal under section 246A against an order issued under section 195(2) directing the payer to deduct tax at source, instead of the payer/deductor invoking remedy under section 248. - HELD THAT: - The Tribunal examined the statutory scheme governing appeals and proceedings under section 195. Section 246A enumerates orders appealable by an assessee or deductor, and does not list orders under section 195(2). A specific remedy against an order under section 195(2) is provided by section 248, which contemplates appeal by the payer/deductor subject to prescribed conditions. The order under section 195(2) is directed at the payer (here ONGC) to deduct tax and does not determine the assessee's liability in an assessment proceeding. The right to appeal is statutory and exists only where conferred. Consequently, an appeal by the payee before the Commissioner (Appeals) under section 246A against an order under section 195(2) is not maintainable; the payee's appropriate course is to contest liability in assessment proceedings and seek refund of any tax deducted. The Tribunal followed its coordinate bench's earlier reasoning in identical facts for the preceding year and applied it to the present year. [Paras 6, 7]

The appeal filed by the respondent before the Commissioner (Appeals) against the order under section 195(2) was not maintainable under section 246A; the impugned order of the Commissioner (Appeals) is set aside and the Assessing Officer's order under section 195(2) is restored.

Final Conclusion: Revenue's appeal is allowed; the first appellate order in favour of the assessee is set aside on the ground of lack of maintainability and the Assessing Officer's order under section 195(2) is restored.

Reopening of assessment - jurisdiction to reopen assessment under Section 147/148 of the Income-tax Act - reason to believe that income has escaped assessment - tangible material - change of opinion

Reopening of assessment - reason to believe that income has escaped assessment - tangible material - change of opinion - jurisdiction to reopen assessment under Section 147/148 of the Income-tax Act - Validity of reopening assessment for A.Y. 2006-07 by issuing notice under section 148/147 where documents relied upon were already before the Assessing Officer during original assessment. - HELD THAT: - Notice under Section 148/147 was issued within four years of the end of A.Y. 2006-07 and therefore the Assessing Officer needed a live reason to believe that income had escaped assessment based on tangible material which came to his knowledge after the original assessment. The material on record shows that the AO had during the original proceedings issued a questionnaire, obtained and considered detailed information and submissions from the assessee concerning share purchase and sale transactions, and the assessment under section 143(3) was thereafter completed without making any addition. The diary entry relied upon as a basis for reopening was found during a survey on 29.02.2008 and was thereby already before the same Assessing Officer when framing the original assessment on 24.12.2008. Where the purported basis for reopening was available to the AO at the time of original assessment and was considered by him, the subsequent issuance of a reopening notice amounts to a mere change of opinion, which cannot furnish a reason to believe justifying reassessment. The Tribunal applied the principle that reassessment jurisdiction under Section 147/148 cannot be exercised on the basis of change of opinion and requires post-assessment tangible material establishing escapement of income, relying on the legal position articulated by the Supreme Court in Kelvinator and subsequent consistent authority. Because the reopening was founded on material already considered in the original assessment, the AO lacked jurisdiction to reopen and the reassessment proceedings were vitiated. [Paras 4, 5, 6, 7, 8]

Impugned reassessment proceedings under section 147/148 in respect of A.Y. 2006-07 are quashed as arising from a mere change of opinion; the reassessment is set aside.

Final Conclusion: Reopening of assessment for A.Y. 2006-07 was invalid because the purported basis for reopening was already before and considered by the Assessing Officer in the original section 143(3) assessment; therefore the reassessment proceedings under section 147/148 are quashed and the appeal is allowed.

Addition as unexplained cash deposits - burden of proof for source of cash deposits - identification of creditors and effect on addition under section 68 - penalty under section 271D and its effect on assessment additions - application of section 69 to cash deposits

Addition as unexplained cash deposits - burden of proof for source of cash deposits - identification of creditors and effect on addition under section 68 - penalty under section 271D and its effect on assessment additions - application of section 69 to cash deposits - Validity of addition of aggregate cash deposits in assessee's bank account as unexplained income and extent to which part of the addition should be deleted. - HELD THAT: - The Tribunal examined the bank deposits of Rs. 34,36,000/- and the explanations offered by the assessee that the deposits comprised contributions/loans from other persons for purchase of a parasailing boat. The AO treated the aggregate deposits as unexplained and made an addition u/s 69. The assessee pointed out that certain amounts were identified as loans from outsiders and that AO had levied penalty u/s 271D in respect of part of those deposits. The Tribunal accepted that where creditors have been identified and their advances/loans established to the satisfaction of the assessing authority (as evidenced by separate penalty proceedings identifying unsecured cash loans), addition under section 68/section 69 is not warranted to that extent. For the remaining deposits, however, the assessee failed to furnish plausible particulars or satisfactorily rebut the finding on creditworthiness and source; the Tribunal agreed with the AO and CIT(A) that those deposits remained unexplained. Applying these principles, the Tribunal deleted part of the addition to the extent the parties were identified and confirmed the balance addition as unexplained cash deposits. [Paras 4, 5, 6, 7]

Part of the addition of cash deposits is deleted to the extent the creditors/loans are identified (and penalty proceedings had been initiated), while the remaining addition is confirmed; the appeal is partly allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal deleted a portion of the addition in respect of identified loans/contributions (as reflected in separate penalty proceedings) and confirmed the balance addition of unexplained cash deposits for A.Y. 2014-15.

Repeal and savings - repugnancy of pre-existing quasi-judicial order to subsequent statute - non-application of savings clause to orders repugnant to new Act - quasi-judicial order - absence of prohibition under the new regulatory regime

Repeal and savings - quasi-judicial order - repugnancy of pre-existing quasi-judicial order to subsequent statute - Whether proceedings based on the Competent Authority's order dated 14-11-1986 could be sustained in respect of imports effected after the Foreign Trade (Development and Regulation) Act, 1992 came into force. - HELD THAT: - The Court held that after the 1992 Act came into force the import of the stated goods was not prohibited under the new statute and the appellants failed to show that the earlier quasi judicial order of 14 11 1986 was saved by the statutory savings in Section 20. The Court construed the effect of repeal and the savings provision, observing that the impugned order, being founded on a Statutory Order which stood repealed, could not be treated as continuing lawfully where its continued operation would be repugnant to the legislative intent of the 1992 Act to open the import regime. The appellants were unable to demonstrate that the subject order fell within sub sections (2) or (3) of Section 20, and the General Clauses Act could not help them for the reasons stated. Consequently, reliance on the repealed order to take action in respect of imports made after the 1992 Act's commencement was impermissible and the show cause notice grounded on that order could not withstand judicial scrutiny. [Paras 4, 5, 6, 7, 8]

Proceedings based on the Competent Authority's order dated 14 11 1986 in respect of imports after the 1992 Act came into force cannot be sustained; the show cause notice based on that order is quashed.

Final Conclusion: The appeals are dismissed; no interference is required with the High Court's conclusion that action founded on the 14 11 1986 order cannot be maintained in relation to imports after the Foreign Trade (Development and Regulation) Act, 1992 came into effect.

Provisional release - Section 110A of the Customs Act, 1962 - prohibited goods (definition under Section 2(33) of the Customs Act, 1962) - re import under the Exhibition Export Scheme - Advance Authorisation Scheme imports - non exercise of discretion / non speaking order - balance of convenience

Provisional release - Section 110A of the Customs Act, 1962 - non exercise of discretion / non speaking order - balance of convenience - Application for provisional release of seized/detained goods under Section 110A was allowed subject to conditions. - HELD THAT: - The adjudicating authority's order rejecting provisional release was found to be non speaking and a failure to fairly exercise the discretion vested under Section 110A. The Tribunal examined the documentary record, the assessing officer's endorsement that re imported jewellery corresponded with earlier shipping bills, and the appellant's status as an established exporter/manufacturer. Considering the hardship caused by prolonged detention of working capital and the absence of cogent reasons recorded for refusal, the balance of convenience favoured provisional release. The Tribunal therefore directed release on specified security terms - a bond for full value backed by a bank guarantee with an auto renewal clause - and ordered release within four working days on compliance with the conditions. [Paras 25, 30, 31, 32]

Provisional release granted on furnishing a bond for full value and a bank guarantee as directed; impugned order rejecting provisional release set aside.

Prohibited goods (definition under Section 2(33) of the Customs Act, 1962) - re import under the Exhibition Export Scheme - Advance Authorisation Scheme imports - Seized/re imported gold jewellery and imported gold bars were not prima facie 'prohibited goods' and the re import constituted legitimate imports subject to procedural verification. - HELD THAT: - The Tribunal analysed the nature of the seized consignments: (a) re imported jewellery assessed by the assessing officer after inspection and supported by shipping bills, export documents and customs endorsed photographs; and (b) gold bars whose unique identification numbers largely tallied with the appellant's import bill of entry under the Advance Authorisation Scheme. The Department produced no evidence to contradict that the re imported jewellery was the same as exported, and minor procedural lapses did not convert the consignments into prohibited goods under Section 2(33). The Madras High Court decision relied on by Revenue was held distinguishable on facts. On the prima facie record the consignments could not be equated with smuggled or prohibited goods. [Paras 26, 27, 28, 29]

On prima facie consideration, the seized goods are not prohibited goods; legitimate re import and import under Advance Authorisation established, entitling the appellant to provisional relief.

Final Conclusion: The appeal is allowed: the order refusing provisional release is set aside and the seized/detained goods are to be released forthwith on the appellant furnishing a bond for full value and a bank guarantee in the terms directed by the Tribunal.

Commercial wisdom of the committee of creditors - feasibility and viability of a resolution plan - supervisory jurisdiction of the adjudicating authority to test compliance with statutory process - requirement of satisfaction under section 31(1) for effective implementation - priority of promoting resolution over liquidation - confidentiality of fair value and liquidation value

Commercial wisdom of the committee of creditors - supervisory jurisdiction of the adjudicating authority to test compliance with statutory process - feasibility and viability of a resolution plan - Validity of the CoC's decision to reject the Taguda resolution plan and to move for liquidation of the Corporate Debtor - HELD THAT: - The Tribunal held that the Adjudicating Authority is not a mere stamping authority and, exercising supervisory jurisdiction, may examine whether the CoC's commercial decision rests on a rational, prudent basis and on adequate commercial data. Where the CoC's decision is shown to be glaringly devoid of common prudence and not founded on material facts or figures, the decision can be discarded. On the facts, the CoC's rejection relied on an unsubstantiated assertion of recoverable trade receivables (claimed by SBI as Rs. 400-500 crores) contrary to the audited accounts and valuers' findings that treated most receivables as doubtful or nil; the CoC did not demonstrate feasible, viable or effectively implementable grounds for preferring liquidation. The Bench found that the prerequisites of feasibility and viability required under section 30(4) and the requirement of satisfaction under section 31(1) were not met by the CoC's decision to liquidate on the basis relied upon, rendering that commercial decision unsustainable. [Paras 35, 36, 37, 38, 39]

The CoC's decision to reject the resolution plan and to liquidate the Corporate Debtor was set aside as being unsound and unsupported by adequate commercial material.

Feasibility and viability of a resolution plan - requirement of satisfaction under section 31(1) for effective implementation - priority of promoting resolution over liquidation - confidentiality of fair value and liquidation value - Approval and sanctioning of the Resolution Plan submitted by Taguda Pte. Ltd. and consequential orders for implementation - HELD THAT: - Having found the CoC's reasons for liquidation unsound, the Tribunal examined the Taguda resolution plan and recorded that it prima facie met the statutory requirements: it provided for CIRP costs and operational creditors, proposed upfront and staged payments to financial creditors above the liquidation value, contained mechanisms for recovery of receivables (including a Monitoring Committee and sharing arrangements), and included implementation steps, infusion of funds and governance changes. The Bench concluded that the plan was advantageous to the corporate debtor and stakeholders and that the Adjudicating Authority's supervisory role required approval where a plan demonstrably satisfied the statutory tests of feasibility, viability and effective implementation. The Tribunal therefore approved the Taguda resolution plan, directed implementation steps (including handover of records and cessation of moratorium), and refused the liquidation application. [Paras 42, 43, 44, 45, 46]

The Resolution Plan submitted by Taguda Pte. Ltd. is approved; the RP's application for liquidation is rejected and directions issued for implementation, handover and further steps necessary to give effect to the plan.

Final Conclusion: The Tribunal, applying its supervisory jurisdiction, found the CoC's decision to liquidate to be unsupported by adequate commercial material and therefore unsustainable; the liquidation application was rejected and the Resolution Plan submitted by Taguda Pte. Ltd. was approved with directions for implementation, handover of records and steps necessary to effect the revival under the terms of the approved plan.

Financial debt - Commercial effect of borrowing - Corporate Insolvency Resolution Process - Privity - Account entries and characterization of advance

Privity - Corporate Insolvency Resolution Process - Whether Respondents No.2, No.3 and R4 can be treated as corporate debtors in the Section 7 application - HELD THAT: - The Tribunal examined the documentary record and submissions and found that no document or pleaded averment establishes privity between the Applicant and Respondents No.2 and No.3 (and R4). The MoUs relied upon are draft documents and cannot support the claim of contractual privity. On the material placed, the payments were made only to R1. The explanations offered by R2 and R3 were held to be persuasive and there was no basis to fasten liability on them or to treat them as corporate debtors in the present application. [Paras 5]

Respondents No.2, No.3 and R4 cannot be pleaded or treated as corporate debtors in this Section 7 petition for lack of privity; they are not liable under the present application.

Financial debt - Commercial effect of borrowing - Account entries and characterization of advance - Whether the amounts paid by the Applicant to R1 constitute a "financial debt" under the Code so as to sustain a Section 7 CIRP application - HELD THAT: - The Tribunal held that to qualify as a financial debt the payment must carry the commercial effect of borrowing, normally evidenced by terms such as interest and consideration for time value of money. The Applicant failed to produce any agreement fixing interest, a repayment schedule, or any document showing that the advance carried a contractual obligation to pay interest. The Applicant's own pleadings sought repayment "with commercial interest of at least 24% p.a.", indicating the rate was not pre fixed. Further, the Applicant's balance sheets for FY 2014 15 and 2015 16 record the payment as "Advance to others" rather than as a loan, and R1's accounting entry as "unsecured loan" was held to be an accounting practice not determinative of a financial debt in law. On these fundamental lacunae, the Tribunal concluded that the advance did not have the commercial effect of borrowing and therefore did not amount to a financial debt under the Code. [Paras 6, 7, 8]

The payments do not constitute a financial debt under the Code; the Section 7 application is devoid of merit and is dismissed.

Final Conclusion: The Section 7 petition seeking initiation of CIRP is dismissed: R2, R3 and R4 are not corporate debtors for want of privity, and the advance made to R1 does not qualify as a financial debt under the Code for lack of contractual terms evidencing borrowing.

Ineligibility under Section 29A of the Insolvency and Bankruptcy Code, 2016 - Persons not eligible to be resolution applicant - test of eligibility to be determined as on the date of submission of the resolution plan - connected person / related party

Ineligibility under Section 29A of the Insolvency and Bankruptcy Code, 2016 - test of eligibility to be determined as on the date of submission of the resolution plan - connected person / related party - Whether the Successful Resolution Applicants were ineligible under Section 29A by reason of connection with a former director and shareholder of the Corporate Debtor. - HELD THAT: - The Court applied the principle that ineligibility under Section 29A is to be tested as on the date when the resolution plan is submitted by the resolution applicant, as laid down in Arcelormittal India Private Limited v. Satish Kumar Gupta and Ors. It was found on the record that the alleged connected person, Mr. B. Srinamulu, had transferred his shareholding on 17th March, 2018 and resigned as a director on 19th March, 2018, both events preceding the initiation of the corporate insolvency process on 29th May, 2018 and the subsequent submission of the resolution plan on 5th November, 2018. Since Mr. Srinamulu had ceased to be a director and shareholder before the relevant test date, the Resolution Applicants could not be held ineligible under Section 29A on the date of submission of the plan.

The Resolution Applicants were not ineligible under Section 29A and the challenge to approval of the resolution plan fails.

Final Conclusion: The appeal is dismissed for lack of merit; the approval of the resolution plan is sustained and no costs are awarded.

Moratorium under Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016 - Protection of corporate debtor's occupation of premises during moratorium - Limits of IBC proceedings vis-a -vis third party property rights - Prohibition on enforcement or sale of third party premises under Section 53 of the IBC

Moratorium under Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016 - Protection of corporate debtor's occupation of premises during moratorium - Whether the moratorium under Section 14(1)(d) of the I&B Code prevents eviction of the corporate debtor from premises occupied by it although the premises belong to a third party. - HELD THAT: - The Tribunal held that Section 14(1)(d) operates to prevent ejection or disturbance of the corporate debtor from premises occupied by it during the moratorium period even where the property is not owned by the corporate debtor. On the facts, the corporate debtor was occupying the 'A' and 'B' Wing premises of Lakshmi Towers and, therefore, the Adjudicating Authority rightly directed return of possession of the 'B' Wing and restrained eviction from the 'A' Wing. The protection is aimed at preserving the corporate debtor as a going concern and applies to occupation by the corporate debtor notwithstanding third party ownership.

The moratorium applied to prevent eviction of the corporate debtor from the said premises; the Adjudicating Authority's directions to restore possession and restrain eviction were upheld.

Limits of IBC proceedings vis-a -vis third party property rights - Whether the question of ownership of the 'A' and 'B' Wings and the Appellant's proprietary rights over those premises must be adjudicated in the I&B Code proceedings. - HELD THAT: - The Tribunal stated that determination of ownership or proprietary rights in the premises is not required in the I&B Code proceeding deciding the moratorium and possession issues. If the corporate debtor is preserved under other corporate reorganisation routes or if the premises are sold with employees to a third party, the question of ownership or the Appellant's rights can be pursued before the competent civil forum. Thus, the Tribunal declined to decide ownership or proprietary claims within the IBC proceeding.

Ownership and proprietary rights over the premises were left undecided and to be determined by the appropriate competent court; such issues are not to be resolved in the IBC proceeding.

Prohibition on enforcement or sale of third party premises under Section 53 of the IBC - Whether the Liquidator can sell the premises in question under Section 53 of the I&B Code. - HELD THAT: - The Tribunal observed that if action under Section 53 is contemplated, the Liquidator cannot sell the assets of the premises in question. This follows from the protective scope of the IBC in relation to the moratorium and the limits upon enforcement against assets where the corporate debtor's occupation is to be preserved during insolvency processes.

The Liquidator is precluded from selling the premises in question under Section 53 in the circumstances before the Tribunal.

Final Conclusion: The appeal was dismissed; the Adjudicating Authority's directions to restore possession of the 'B' Wing and to restrain eviction from the 'A' Wing were upheld, ownership disputes were left to competent civil fora, and the Liquidator was held not to be entitled to sell the premises under Section 53.

Summary order. Delay condoned; petition admitted; respondent permitted to file counter-affidavit within six weeks and rejoinder to be filed within four weeks thereafter.

Liability to service tax on security services - inclusion of value of employer provided facilities in taxable value - interest on tax paid which was not legally due - waiver of interest where main demand is unsustainable

Liability to service tax on security services - inclusion of value of employer provided facilities in taxable value - Whether the appellant's provision of security services attracted service tax and whether the value of facilities provided to staff required inclusion in the taxable value. - HELD THAT: - The Tribunal examined that the appellant provided security services to Central Government establishments and that the service recipient supplied facilities such as accommodation, medical care, vehicles, fuel, telephone, stationery and transport, which were not included in the deployment charges. Having considered the precedents relied upon by the appellant and the fact that other CISF units on the same issue had their demands dropped, the Tribunal concluded that the activity of the appellant does not attract service tax and that the amounts representing those facilities were not required to be included in the taxable value. The Tribunal also noted that these authorities and departmental orders were not before it in the earlier round of litigation but are determinative of liability on the merits.

The appellant's security services were held not liable to service tax and the value of the employer provided facilities need not be included in the taxable value.

Interest on tax paid which was not legally due - waiver of interest where main demand is unsustainable - Whether interest quantified and imposed on the differential service tax must be sustained where the underlying tax demand is unsustainable and the tax was paid in ignorance of law. - HELD THAT: - The Tribunal recalled that in the earlier proceedings penalty had been set aside and interest was remanded for quantification. On consideration of subsequent authorities holding the activity non taxable, and accepting that the appellant paid the tax only in ignorance of the law and is not seeking refund, the Tribunal applied the principle that when the main demand is not sustainable the demand for interest cannot be sustained. Relying on the precedents cited by the appellant and the departmental orders in related matters, the Tribunal held that interest liability does not arise in these circumstances and that the impugned order upholding interest was not sustainable.

The demand of interest was set aside and the appeal allowed to the extent of waiver of interest.

Final Conclusion: The appeal is allowed insofar as the quantified interest is concerned: the impugned order is set aside and interest is waived, the Tribunal having held that the appellant's security services are not chargeable to service tax and that interest cannot be sustained where the main demand is unsustainable.

Steamer Agent Service - Business Auxiliary Service - onus of proving taxability - taxability of freight element - ancillary activities

Steamer Agent Service - onus of proving taxability - ancillary activities - Whether the appellant is liable to pay Service Tax as a provider of Steamer Agent Service - HELD THAT: - The definition of Steamer Agent Service requires performance of any one of the specified functions: services in connection with ship's husbandry or dispatch including administrative work; booking, advertising or canvassing for cargo for or on behalf of a shipping line; or providing container feeder services for or on behalf of a shipping line. The Department issued a show cause notice alleging the appellant acted as agent of shipping lines, but produced no evidence to establish that the appellant performed any of the specified functions. The Commissioner (Appeals) himself recorded that the appellant did not provide steamer agent services yet sustained the demand on the basis of ancillary activities. Applying the principle that the onus of proving taxability lies on the Department, and having regard to the absence of evidence and the internal contradiction in the impugned order, the Tribunal held that the demand under the heading of Steamer Agent Service is unsustainable. The Tribunal also noted that classification of the same service as both Steamer Agent Service and Business Auxiliary Service by the Department is not tenable.

Demand of Service Tax under Steamer Agent Service is set aside.

Business Auxiliary Service - penalty - Validity of Service Tax demand and penalty under Business Auxiliary Service - HELD THAT: - The appellant accepted tax liability under Business Auxiliary Service for the commission received from airlines and paid the tax with interest. In view of the contemporaneous confusion regarding taxability of such commissions during the relevant period and the voluntary payment of tax with interest, the Tribunal sustained the tax demand insofar as it had been paid but found no basis to sustain the penalty. Accordingly, the penalty imposed under the Business Auxiliary Service categorisation was set aside.

Service Tax demand under Business Auxiliary Service upheld (as paid with interest); penalty set aside.

Taxability of freight element - Whether Service Tax can be imposed on the freight element (including margin) claimed by the Department - HELD THAT: - The Tribunal observed that the Department sought to tax the freight element as part of the steamer agent classification. Having found that the Department failed to establish that the appellant rendered steamer agent services, and having regard to the nature of the freight element, the Tribunal held that seeking Service Tax on the freight element under the steamer agent category is not tenable in law.

Demand of Service Tax on the freight element under the steamer agent category is not sustainable.

Final Conclusion: The appeal is partly allowed: the Service Tax demand under Steamer Agent Service (including tax on the freight element) is set aside; the Service Tax demand under Business Auxiliary Service is sustained to the extent paid with interest but the penalty imposed under that head is quashed.

Taxability of indivisible works contract prior to 1.6.2007 - Non-applicability of service categories: Health Club and Fitness Centre Service, Real Estate Agent Service, Maintenance or Repair Service - Application of Rule 6(3)(c) of the CENVAT Credit Rules, 2004 to mixed taxable and exempted services - Definition of exempted service under the CENVAT Credit Rules, 2004

Taxability of indivisible works contract prior to 1.6.2007 - Non-applicability of service categories: Health Club and Fitness Centre Service, Real Estate Agent Service, Maintenance or Repair Service - Whether the appellant's activity of constructing and selling residential apartments attracted service tax under the impugned service heads for the period prior to 1.6.2007, and whether the appellant rendered the specific services alleged by the Department. - HELD THAT: - The Tribunal found as a fact that the appellant's activity is an indivisible works contract involving transfer of property in goods together with provision of service and that the appellant treated the transaction as works contract for VAT purposes. Applying the legal principle laid down by the Supreme Court in Commissioner of Central Excise vs. Larsen & Toubro Ltd., the Tribunal held that works contract as a taxable service could be levied only with effect from 1.6.2007 when a distinct charging provision for works contract service was introduced. As the period under adjudication is prior to 1.6.2007, there was no charging section to specifically levy service tax on the works contract element and the impugned demands under Health Club and Fitness Centre Service, Real Estate Agent Service and Maintenance or Repair Service could not be sustained. The Tribunal further examined the statutory definitions and the factual matrix and concluded that the appellant did not render the alleged services: the club/health facility was constructed and handed over to the owners' association (not operated as a taxable health/fitness service), the appellant did not perform agency functions attracting Real Estate Agent Service but merely updated records on transfer, and the amounts collected as maintenance were pooled to meet common expenses and not consideration for a taxable maintenance or repair service. Reliance was placed on the authorities cited by the appellant and the CBEC clarification that co-developers do not render services to one another, reinforcing that the impugned classified services were not made out for the period in question. [Paras 6]

The demands of service tax under Health Club and Fitness Centre Service, Real Estate Agent Service and Maintenance or Repair Service for the period prior to 1.6.2007 were set aside as unsustainable.

Application of Rule 6(3)(c) of the CENVAT Credit Rules, 2004 to mixed taxable and exempted services - Definition of exempted service under the CENVAT Credit Rules, 2004 - Whether Rule 6 of the CENVAT Credit Rules, 2004 (restricting credit utilisation where taxable and exempted services are provided) applied to disallow CENVAT credit as claimed by the Department. - HELD THAT: - The Tribunal held that Rule 6 could be invoked only where the activity undertaken is a 'service' as defined and there is a mix of taxable and exempted services. Since the Tribunal determined that the appellant's core activity was an indivisible works contract not constituting a taxable service for the period prior to 1.6.2007, the preliminary requirement to attract the definition of 'exempted service' was absent. Further, the Tribunal observed that the transfer of constructed apartments to landowners under joint development arrangements could not, by any stretch, be classified as a service rendered to the co-developer. Having found no taxable service, the basis for invoking the excess utilisation restriction under Rule 6(3)(c) did not exist, and accordingly the demand of excess CENVAT credit utilisation was not sustainable. [Paras 6]

Rule 6 of the CENVAT Credit Rules, 2004 was held inapplicable and the demand for excess utilization of CENVAT credit was set aside.

Final Conclusion: The appeal was allowed and the impugned order dated 31.12.2008 was set aside: the service tax demands under the specified service heads and the demand for excess CENVAT credit utilisation for the period prior to 1.6.2007 were held unsustainable.

Classification of services as Works Contract Service - Construction Service - Classification of services pre- and post-01.06.2007 - Inclusion of free supply of materials in assessable value - Entitlement to benefit under Notification No. 01/2006-ST on reversal of cenvat credit - Reversal of cenvat credit prior to issuance of show cause notice - Extended period of limitation

Classification of services as Works Contract Service - Construction Service - Classification of services pre- and post-01.06.2007 - Construction activities executed by the appellant are to be treated as "Works Contract Service" and not taxable as "Construction Service" for the periods in question. - HELD THAT: - The Tribunal applied the law as laid down by the Apex Court in Larson & Toubro Ltd., holding that prior to 01.06.2007 where services were rendered along with supply of materials no service tax was payable under Construction Service; post 01.06.2007 such activities fall within "Works Contract Service" and, consequently, demand can only be made under that head. As no demand was made by the revenue under Works Contract Service for the post-01.06.2007 period, the Tribunal followed its earlier decision in Srishti Constructions and set aside the demand. The Tribunal therefore concluded that the correct classification on merits is "Works Contract Service" and not "Construction Service", and that the appellant is not liable to pay service tax on the construction jobs impugned under the construction-service head.

Answered for the appellant: the services are merit-wise "Works Contract Service"; no service tax is payable under "Construction Service" for the periods under dispute.

Inclusion of free supply of materials in assessable value - Value of materials supplied free by the service recipient is not includible in the gross amount charged for levy of service tax. - HELD THAT: - Relying on the Apex Court's decision in Bhayana Builders (P) Ltd., the Tribunal held that supplies of materials provided free by the service recipient do not constitute a form of payment captured by the statutory Explanation and therefore are not to be included in the gross amount charged. The Court's reasoning (as applied) distinguishes situations where credit/debit entries, credit/debit notes or book adjustments are made; absent such entries, the value of free materials is not taxable as part of the service-provider's gross receipts.

Answered for the appellant: no service tax is leviable on the value of free materials supplied by the service recipient.

Entitlement to benefit under Notification No. 01/2006-ST on reversal of cenvat credit - Reversal of cenvat credit prior to issuance of show cause notice - Appellant is entitled to the benefit of Notification No. 01/2006-ST dated 01.03.2006 where cenvat credit on input services (telecom services) was reversed along with interest prior to issuance of the show cause notice. - HELD THAT: - The Tribunal found on record that the appellant had reversed the cenvat credit availed on telecom services together with interest before the show cause notice was issued. On that factual foundation, the Tribunal applied the established principle (as reflected in earlier decisions) that reversal of inadmissible credit prior to initiation of proceedings permits retention of the benefit under the abatement notification. Accordingly the appellant was held eligible for the notification's benefit.

Answered for the appellant: entitlement to Notification No. 01/2006-ST is confirmed because the cenvat credit was reversed with interest before the show cause notice.

Final Conclusion: All contested demands were answered in favour of the appellant: the construction works were classified as "Works Contract Service" (not taxable as Construction Service for the periods concerned), free materials supplied by recipients are not includible in assessable value, and the appellant retained entitlement to the abatement under Notification No. 01/2006 ST by reversing the cenvat credit with interest prior to issuance of the show cause notice; the impugned order is set aside and the appeal is allowed with consequential relief.

Cenvat credit reversal - trading activity - exempted service - Rule 6(3) of the CENVAT Credit Rules, 2004 - proportionate attribution of input service credit - Authorized Service Station - extended period of limitation

Cenvat credit reversal - trading activity - exempted service - proportionate attribution of input service credit - Whether the appellant was required to reverse proportionate common input service tax credit attributable to sale/use of consumables during provision of ASS services on the ground that such sale amounted to trading (an exempted service). - HELD THAT: - The Tribunal held that the appellant's factual position falls within the principle that credits availed in respect of inputs or input services used for activities not leviable to service tax (trading) are impermissible and must be segregated and reversed. The earlier CBEC circular treating consumables shown separately as not includible in taxable service value was issued prior to the 2012 amendment which brought trading within the scope of 'exempted service' under the CENVAT Credit Rules; hence that circular cannot override the subsequent legal position. The Tribunal followed the reasoning in M/s. Lally Automobiles Pvt. Ltd. (Delhi High Court) that where taxable and non-taxable activities coexist, the assessee must exclude or reverse input service credit attributable to trading and that proportionate attribution (including a turnover-based method where separate records are not maintained) is a reasonable mechanism. The appellant's contention that consumables are incidental and form part of a bundled taxable service was rejected in light of law and precedents holding trading/non-service activities outside entitlement to input-service credit. [Paras 9]

Claim for credit in respect of input services attributable to trading (sale of consumables) must be reversed; ground of appeal on this issue dismissed.

Extended period of limitation - proportionate attribution of input service credit - Cenvat credit reversal - Whether invocation of the extended period of limitation for recovery of excess Cenvat credit was justified. - HELD THAT: - The Tribunal applied the Delhi High Court's reasoning in M/s. Lally Automobiles that where the assessee was conscious of conducting trading activity and failed to maintain separate accounts or disclose the non-service activity, invocation of extended limitation is justified. The adjudicating authority's use of a proportionate turnover-based attribution to compute the excess credit was held to be a reasonable and logical method in absence of specific records. Further, the appellant had itself adopted the prescribed reversal procedure from 01.04.2014, which demonstrated knowledge of the legal requirement and supported the Revenue's invocation of extended limitation for earlier periods. [Paras 10]

Extended period of limitation was rightly invoked and the method of proportionate attribution for recovery of excess credit upheld.

Final Conclusion: The appeal is dismissed: the assessee was required to reverse Cenvat credit attributable to trading (sale of consumables) and the invocation of the extended period of limitation and proportionate recovery of excess credit were upheld.

Taxability of composite contracts prior to introduction of work-contract service - segregation of material and labour component for service tax - extended period of limitation and change of opinion - requirement of fraud, suppression or falsification to invoke extended period - validity of show cause notice based on reassessment/change of opinion

Taxability of composite contracts prior to introduction of work-contract service - segregation of material and labour component for service tax - No service tax was leviable on the appellant for the period 1st October, 2004 to 30th May, 2007 in respect of the composite interior-decor contracts. - HELD THAT: - The Tribunal applied the principle laid down by the Supreme Court in Larsen & Toubro that prior to 1st June, 2007 contracts which are composite involving supply of both materials and labour cannot be subjected to service tax by segregating the material and labour components. The appellant's contracts were composite in nature and the invoices and accounts showed segregation between material sales (subject to sales tax/VAT) and the labour/service component. On that legal basis the Tribunal held that no service tax could be demanded for the period up to 30th May, 2007. [Paras 8]

Service tax demand for 1st October, 2004 to 30th May, 2007 set aside.

Extended period of limitation and change of opinion - requirement of fraud, suppression or falsification to invoke extended period - validity of show cause notice based on reassessment/change of opinion - For the period 1st June, 2007 to 31st March, 2009 the show cause notice could not be sustained under the extended period of limitation in the absence of any finding of fraud, suppression or falsification; the notice was based on a change of opinion and therefore bad. - HELD THAT: - The Tribunal examined the departmental case and the appellant's records and returns, noting that accounts were maintained, audited by a chartered accountant and sales-tax returns were filed for material sales. There was no material to demonstrate fraud, suppression or falsification of accounts or returns. The show cause notice had invoked the extended period of limitation but was prima facie founded on a change of opinion by the Revenue. In absence of the statutory prerequisites (fraud/suppression/falsification), the extended limitation could not be invoked and the SCN was held not tenable. [Paras 8, 9]

Demand for the period 1st June, 2007 to 31st March, 2009 could not be sustained; the show cause notice was set aside.

Final Conclusion: The appeal is allowed, the impugned order is set aside and the show cause notice/demand is held not tenable for the periods 1st October, 2004 to 30th May, 2007 and 1st June, 2007 to 31st March, 2009; the appellant is entitled to consequential relief in accordance with law.

Composite works contract - Works Contract Service as distinct taxable category - Erection, Commissioning and Installation Service (ECIS) cannot be invoked where transfer of materials is involved - taxability of mobilization advances - reverse charge liability for Goods Transport Agency (GTA) services and reimbursement to vendors - consequential relief of interest and penalties where primary demand fails

Composite works contract - Works Contract Service as distinct taxable category - Erection, Commissioning and Installation Service (ECIS) cannot be invoked where transfer of materials is involved - Demand of service tax adjudged under Erection, Commissioning and Installation Service on contract for floodlighting project - HELD THAT: - The contract awarded to the appellant for floodlighting works plainly involved supply of materials together with installation and commissioning without any clear demarcation or separate contracts for supply and service. The Tribunal accepted the Apex Court's characterization that a works contract is a separate specie of contract and, post 01.06.2007, such composite contracts are taxable only under the category of Works Contract Service. ECIS does not encompass contracts involving transfer of materials. Since the demand was made under ECIS and the contract is a composite works contract, the demand under ECIS could not be sustained and was set aside. [Paras 15]

Demand under Erection, Commissioning and Installation Service set aside; contract is a composite works contract chargeable, if at all, only under Works Contract Service.

Reverse charge liability for Goods Transport Agency (GTA) services and reimbursement to vendors - Demand of service tax under reverse charge on freight/GTA charges as computed from appellant's books - HELD THAT: - The department's demand relied solely on the appellant's books showing freight expenses. The appellant contended that part of the freight amounts were reimbursements to their vendors who had in turn availed GTA services. The Tribunal held that once the department accepted the appellant's records as the basis for computation, it could not reject the appellant's explanation that some payments were reimbursements without adducing contrary evidence. In absence of independent evidence that the appellant itself had availed GTA services, the demand could not be sustained. [Paras 20]

Demand on account of GTA/reverse charge set aside for lack of evidence that appellant itself availed GTA services.

Taxability of mobilization advances - Demand of service tax and interest on mobilization advances received by the appellant - HELD THAT: - The appellant produced bank guarantees and paid interest on the amounts received as mobilization advances; the advances were adjusted against final bills and service tax was paid on the final value. The Tribunal applied its earlier view and authoritative decisions that mobilization advances which are in the nature of secured advances/backed by bank guarantee and adjusted later are not chargeable to service tax at the time of receipt. Consequently, the demand of service tax and interest on mobilization advances was held unsustainable. [Paras 21]

Demand and interest relating to mobilization advances set aside.

Consequential relief of interest and penalties where primary demand fails - Liability to pay interest and penalties imposed in consequence of the confirmed demands - HELD THAT: - Having found that the primary demands under ECIS, GTA reverse charge and on mobilization advances were not sustainable on merits, the Tribunal held that the consequential imposition of interest and penalties could not stand. The impugned penalties and interest were therefore set aside along with the substantive demands. [Paras 22]

Interest and penalties imposed in the impugned order set aside as consequential relief.

Final Conclusion: The appeal is allowed: the demands confirmed under Erection, Commissioning and Installation Service, for GTA reverse charge (as computed), and for tax on mobilization advances are set aside; consequential interest and penalties are also set aside; the impugned order is set aside and the appellant is granted consequential relief, if any.

Summary order. Special Leave Petition dismissed for delay and on merits; all pending applications disposed of.

Appealability of preliminary internal order - Show cause notice under Section 11A and post-notice adjudication - Prima facie determination and communication of internal views - Writ remedy against mere show cause notice - Remand for adjudication and opportunity to be heard

Appealability of preliminary internal order - Prima facie determination and communication of internal views - Whether the Internal Order dated 15.03.2006 recording a prima facie view that the authorities had jurisdiction to proceed was an appealable order. - HELD THAT: - The Court held that the Internal Order of 15.03.2006 merely recorded a prima facie view and was not a determination in terms of sub-section 10 of Section 11A. The Act does not contemplate a stagewise segregation where a department must, before issuance of a show cause notice, make and communicate a preliminary determination that the process amounts to manufacture and thereby create an independently appealable order. The Internal Order was communicated only in deference to a High Court direction and was not part of any adjudication after hearing and consideration of representations. Consequently, the respondent had no right to prefer an appeal against that Internal Order and the Appellate Authority and the Tribunal erred in treating it as appealable. [Paras 9, 10, 11]

The Internal Order dated 15.03.2006 was not an appealable order.

Show cause notice under Section 11A and post-notice adjudication - Remand for adjudication and opportunity to be heard - Whether adjudication under Section 11A is to follow issuance of a show cause notice and whether the determination arises only after affording opportunity to be heard and considering representations. - HELD THAT: - The Court explained that Section 11A envisages issuance of a show cause notice followed by an opportunity of being heard and consideration of representations, after which the Central Excise Officer determines the duty under sub-section 10. The department's initial prima facie view (which may lead to issuance of a show cause notice) is distinct from the final determination; all substantive contentions (including whether the process amounts to manufacture, entitlement to exemptions, rates, quantities, etc.) are to be raised and adjudicated during proceedings consequent to the show cause notice. Accordingly, proceedings must be taken to their logical conclusion, allowing the concerned person to file a response and place material in support, and the adjudicating authority must decide in accordance with law. [Paras 5, 6, 7, 11]

Determination under Section 11A arises after response to the show cause notice and opportunity to be heard; adjudication must proceed on merits following the show cause notice.

Writ remedy against mere show cause notice - Whether a writ petition under Article 226 is maintainable against the issuance of a show cause notice (or prior internal prima facie view) in excise proceedings. - HELD THAT: - Relying on settled principles that excise law is a complete code, the Court reiterated that ordinarily writ petitions challenging issuance of show cause notices should not be entertained and the statutory remedy of raising objections before the authority issuing the notice must first be availed. In the present case the High Court initially entertained relief but subsequently directed that the respondent submit its reply to the show cause notice and that adjudication be in accordance with law; the Court observed that no show cause notice had, in fact, been issued when the writ was first entertained and that challenge to a mere internal prima facie view is premature. [Paras 12, 13]

A writ against a mere show cause notice or internal prima facie view is generally premature; statutory remedies under excise law must be pursued first.

Remand for adjudication and opportunity to be heard - Whether the appellate order allowing the respondent's appeal against the Internal Order should be set aside and the matter remitted for adjudication under the show cause notice. - HELD THAT: - The Court set aside the appellate order of 10.01.2007 and the Tribunal's order, concluding that those forums erred in entertaining a premature appeal against a non-appealable internal order. The proper course is to proceed with the show cause notice dated 21.03.2006 to its logical conclusion. The respondent is entitled to file its response within a stipulated period and place material in support; thereafter the adjudication shall proceed in accordance with law, including full consideration of the respondent's contentions and application of Section 11A. [Paras 16]

Appellate and Tribunal orders set aside; proceedings pursuant to the show cause notice remitted for adjudication and the respondent given opportunity to respond.

Final Conclusion: The appeal is allowed: the Internal Order of 15.03.2006 is not appealable; adjudication under Section 11A arises only after issuance of a show cause notice and hearing, writ remedy against a mere show cause or internal view is generally premature; the appellate and Tribunal orders are set aside and the matter is remitted for adjudication pursuant to the show cause notice, with the respondent granted a limited time to file its response.

Penalty under section 11AC of the Central Excise Act - condition precedent of fraud, collusion, mis-statement or suppression of facts with intent to evade duty - penalty under rule 25 of the Central Excise Rules, 2002 - concurrent findings of fact by adjudicating authority and appellate Tribunal - principles of natural justice and requirement to assign reasons

Penalty under section 11AC of the Central Excise Act - condition precedent of fraud, collusion, mis-statement or suppression of facts with intent to evade duty - concurrent findings of fact by adjudicating authority and appellate Tribunal - Whether mandatory penalty under section 11AC was imposable on the respondent in view of the findings of the adjudicating authority and the Tribunal. - HELD THAT: - The adjudicating authority recorded that re-warehousing certificates were not filed within the stipulated period but that the lapse was condoned/regularised by post-facto permission to dispose of the goods, and, critically, that there was no fraud, collusion, mis-statement or suppression of facts with intent to evade duty. The Tribunal agreed with these factual findings and upheld the levy of penalty under rule 25. Section 11AC is attracted only where the condition precedent of fraud, collusion, mis-statement or suppression of facts (or contravention with intent to evade duty) is established. Given the concurrent categorical findings negating any such intent or fraudulent conduct, the statutory threshold for invoking section 11AC was not satisfied and imposition of the mandatory penalty under that provision was not warranted. [Paras 4, 6]

Penalty under section 11AC was not imposable because the necessary condition of fraud, collusion or suppression with intent to evade duty was not established; penalty under rule 25 was appropriately levied and upheld.

Principles of natural justice and requirement to assign reasons - concurrent findings of fact by adjudicating authority and appellate Tribunal - Whether the Tribunal erred or breached principles of natural justice by not assigning cogent and independent reasons while upholding the adjudicating authority's order. - HELD THAT: - The Tribunal concurred with the adjudicating authority's factual findings and affirmed the levy under rule 25. The High Court reviewed the record of the adjudicating authority and the Tribunal's order and found that the Tribunal had accepted the adjudicating authority's reasoned finding that there was no fraud, collusion or intent to evade duty. In these circumstances, there was no legal infirmity in the Tribunal upholding the adjudicating authority's conclusions; no breach of natural justice requiring interference was demonstrated. [Paras 5, 6]

No error or breach of principles of natural justice by the Tribunal in not assigning independent reasons beyond endorsing the adjudicating authority's reasoned findings; the Tribunal's order does not suffer legal infirmity.

Final Conclusion: The appeal is dismissed; the Tribunal's order upholding the adjudicating authority's findings and the levy of penalty under rule 25 stands, and mandatory penalty under section 11AC was not attracted on the facts.

Eligibility for exemption notification - date of entitlement to exemption - substantive benefit not to be denied for procedural infirmity - liberal construction after eligibility established - incidence of duty and right to refund where duty reimbursed

Eligibility for exemption notification - date of entitlement to exemption - liberal construction after eligibility established - Date from which KPCL (and consequently the appellant) is entitled to exemption under Notification No.6/2003. - HELD THAT: - It was undisputed that KPCL satisfied the substantive conditions of the exemption notification. KPCL filed an application for exemption on 04/03/2003; the Department sought a clarification as to the continuing validity of an earlier certificate, which was supplied and verified by correspondence dated 24/04/2003 and 09/05/2003. After verification, the eligibility certificate issued by the authority relates back to the date of application. The Revenue's contention that entitlement arises only from 08/07/2003 was rejected as untenable. Where substantive eligibility is established, strict construction of procedural provisions is not to defeat the substantive entitlement; once eligibility is shown, a liberal approach to the effective date is permissible and procedural delays by the Department should not deprive the applicant of the benefit effective from the date of application.

KPCL is entitled to the benefit of the exemption with effect from its application date of 04/03/2003; the Revenue's stand that entitlement arises only from 08/07/2003 is rejected.

Substantive benefit not to be denied for procedural infirmity - incidence of duty and right to refund where duty reimbursed - Whether the appellant (purchaser) is entitled to refund of excise duty reimbursed to KPCL where duty burden was not passed on to any other person. - HELD THAT: - The Tribunal accepted the appellant's evidence that the excise duty paid by KPCL was reimbursed by KSEB pursuant to the power purchase agreement and was accounted as loans and advances in KSEB's books, not treated as income or expenditure. On the facts, the incidence of duty was not passed on to any third party. Principles that substantive benefit should not be denied for procedural lapses were applied. Accordingly, the appellant was found entitled to the refund corresponding to the duty reimbursed to KPCL for the period in dispute.

The appellant is entitled to the refund of excise duty reimbursed to KPCL, the incidence of duty not having been passed on to others.

Final Conclusion: The appeal is allowed; the impugned order is set aside and the appellant is held entitled to the exemption with effect from the application date and to the refund of the duty reimbursed by it.

Interest under Section 11BB - Refund under Section 11B - Mandatory payment of interest for delayed refund - Adjustment of sanctioned refund against pending demand - Appropriation/adjustment not affecting entitlement to interest - Board circulars on payment of interest after three months - Ranbaxy Laboratories-interpretation of Section 11BB

Interest under Section 11BB - Refund under Section 11B - Mandatory payment of interest for delayed refund - Appropriation/adjustment not affecting entitlement to interest - Board circulars on payment of interest after three months - Ranbaxy Laboratories-interpretation of Section 11BB - Whether interest is payable to the assessee for delayed disbursal of sanctioned refunds from the expiry of three months from receipt of the refund application, even where the sanctioned refund was earlier adjusted against other demands. - HELD THAT: - The Tribunal found that the Commissioner(Appeals) gave no reasons for withholding interest on the belatedly disbursed refunds and that there was an admitted delay in payment. Relying on the Apex Court's interpretation in Ranbaxy Laboratories, the Board's circulars and earlier decisions of this Tribunal and the Karnataka High Court (Vijai Industries), the Tribunal held that interest under Section 11BB becomes payable on the expiry of three months from the date of receipt of the refund application. An ex parte or erroneous adjustment/appropriation of a sanctioned refund against other demands, including demands that were sub judice, does not defeat the assessee's statutory entitlement to interest for the period of delay. The Tribunal rejected the contrary reliance on Bakelite Hylam as inconsistent with the binding precedents on the point, and directed quantification of interest from the expiry of three months from filing the refund application until actual payment. [Paras 6, 7]

Interest under Section 11BB is payable from the expiry of three months from the date of receipt of the refund application until payment, and the impugned order denying interest is set aside; the original authority is directed to quantify the interest for that period.

Final Conclusion: Appeal allowed; impugned order set aside for failure to award interest on delayed refunds. The original authority to quantify interest from the expiry of three months from filing of each refund application until payment and proceed accordingly.

Assessable value - related person - scope of show cause notice - application of section 4(1)(b) of the Central Excise Act read with valuation rules - incentive by way of refund/self-credit of duty paid in cash - finality of orders sanctioning refund/self-credit and reopening

Scope of show cause notice - related person - assessable value - application of section 4(1)(b) of the Central Excise Act read with valuation rules - Whether the adjudicating authority could treat the buyer as a related person and determine assessable value on that ground when the show cause notice did not allege relationship or invoke the relevant valuation rule. - HELD THAT: - The Tribunal found that the show cause notice was issued on the basis of cost data alleging that the appellant sold goods below cost and therefore the transaction value could not be the assessable value. However, the adjudicating authority in the impugned order treated the buyer as a related person and applied valuation principles under section 4(1)(b) read with the valuation rules without any allegation of relationship in the show cause notice. The Tribunal held that this amounted to travelling beyond the scope of the show cause notice. Further, the Revenue's conclusion of relationship based on a large outstanding balance in the appellant's balance sheet was held insufficient to establish a related-party transaction for the purposes of valuation. Consequently the finding treating the buyer as a related person and altering assessable value on that basis was not sustainable. [Paras 10, 12]

The finding that the buyer was a related person and the consequential valuation on that basis is set aside as beyond the scope of the show cause notice and unsupported by the material relied upon.

Incentive by way of refund/self-credit of duty paid in cash - finality of orders sanctioning refund/self-credit and reopening - Whether availment of refund/self-credit of duty paid in cash (incentive) by the appellant precludes treating the declared transaction value as below cost and whether assessments finalised by sanctioning such refund/self-credit could be reopened by issuance of a show cause notice. - HELD THAT: - The Tribunal noted that the appellant, located in Jammu & Kashmir, had been granted refund/self-credit of duty paid in cash under the relevant notification, which operated as an incentive. Taking that incentive into account showed that the appellant had in fact earned a profit on the goods sold, undermining the Revenue's premise that sales were below cost. The Tribunal further observed that the orders sanctioning refund/self-credit had attained finality and relied upon the principle that assessments finally concluded by sanctioning refund/self-credit cannot be reopened by issuing a show cause notice. Applying these considerations, the Tribunal concluded that the show cause notice based on the alleged below-cost sales was not sustainable. [Paras 11]

The claim of short payment based on alleged below-cost sales is unsustainable once the cash refund/self-credit incentive is taken into account, and finalised refunds/self-credits cannot be reopened by the show cause notice; the show cause notice is therefore not sustainable on this ground.

Final Conclusion: The impugned order confirming demand is set aside. The appeal is allowed with consequential relief, the Tribunal finding the adjudication to have exceeded the scope of the show cause notice and to be unsustainable in view of the refund/self-credit incentive and the finality of those orders.

Interest on delayed refunds - Section 11BB of the Central Excise Act - rate fixed by Central Government by notification - statutory range of interest - apparent error on face of record

Interest on delayed refunds - Section 11BB of the Central Excise Act - rate fixed by Central Government by notification - Appellant's entitlement to interest on delayed refund at 12% or at the rate specified by the notification. - HELD THAT: - Section 11BB provides that where a refund is not made within three months the applicant shall be paid interest at a rate not below five per cent and not exceeding thirty per cent per annum "as is for the time being fixed by the Central Government by Notification in the Official Gazette." The Tribunal noted existence of Notification No. 67/2003 dated 12.09.2003 fixing the rate at 6% and held that where the Central Government has fixed the rate by notification that rate must be followed. Decisions allowing 12% which did not take the operative notification into account cannot prevail over the statutory scheme which expressly empowers the Central Government to fix the rate within the prescribed range. Applying this reasoning, the appellant is entitled only to interest at 6% as already ordered, and enhancement to 12% is not permissible. [Paras 4, 5, 6]

Interest on the delayed refund is payable at 6% as fixed by Notification No. 67/2003 and not at 12%.

Apparent error on face of record - statutory range of interest - Whether the prior Final Order of the same bench permitting interest at 12% was wrongly decided and should be departed from. - HELD THAT: - The Tribunal observed that its earlier Final Order relied on Supreme Court and High Court decisions but inadvertently did not consider the statutory phrase empowering the Central Government to fix the rate "for the time being by notification." That omission rendered the earlier order affected by an apparent error on the face of the record. Where such an error is apparent and the statutory scheme compels following the notified rate, the earlier view is retracted. The Tribunal also distinguished authorities which were decided in periods or contexts where the notification was not applicable or where courts had reached different conclusions. [Paras 6, 7, 8]

The earlier Final Order of the bench permitting 12% contained an apparent error and is departed from; the notified rate of 6% governs.

Final Conclusion: The appeal is dismissed. Interest on the delayed refund is payable at 6% as fixed by Notification No. 67/2003; the Tribunal departs from its earlier order that had allowed 12% because that order failed to apply the operative notification.

Intention to evade tax - penalty under Section 54(1)(14) of the U.P. Value Added Tax Act, 2008 - CENVAT credit entitlement of a manufacturer - seizure of goods on incomplete Import Declaration Form - mens rea in tax proceedings

Intention to evade tax - penalty under Section 54(1)(14) of the U.P. Value Added Tax Act, 2008 - mens rea in tax proceedings - Validity of imposition of penalty for alleged intention to evade tax where the authority recorded that material fields of the Import Declaration Form were blank/overwritten but did not assign reasons adequately supporting a finding of intention to evade tax. - HELD THAT: - The Court held that intention to evade tax is a state of mind and before arriving at a positive finding of mens rea the authority must carefully weigh all material on record and record reasons linking the material to the inference of guilty intention. Mere reliance on incomplete or overwritten fields in the Import Declaration Form, without considering other material aspects, is insufficient to sustain a finding of intention to evade tax. The Tribunal's summary rejection of the assessee's explanation, without meaningful consideration of documentary evidence and consequences, rendered the penalty unsustainable in the form in which it was imposed. Given the foregoing, the Tribunal's order sustaining the penalty cannot stand and requires reconsideration. [Paras 11, 12]

Order of the Tribunal sustaining the penalty is set aside and the matter is remitted for fresh consideration of whether a reasoned finding of intention to evade tax is supportable on the evidence.

CENVAT credit entitlement of a manufacturer - seizure of goods on incomplete Import Declaration Form - Relevance of excise invoices and the assessee's status as a manufacturer (and corresponding entitlement to CENVAT) to the question of whether the goods were clandestinely imported or whether there was an intention to evade tax. - HELD THAT: - The Court recorded that the goods were accompanied by regular excise invoices disclosing payment of excise duty and additional duties, and that the assessee was an admitted manufacturer of excisable goods who would be entitled to avail CENVAT credit proportionate to the duty paid. The absence of any allegation of clandestine import or clandestine sale by the revenue meant that these documents and the manufacturer's status were material which the Tribunal ought to have given meaningful consideration to before sustaining the penalty. The Tribunal's heavy reliance on incomplete fields in the Import Declaration Form, without reconciling that fact with the excise documentation and CENVAT entitlement, was inadequate. Consequently the question of how these materials affect the existence of guilty intention is remitted to the Tribunal for fresh determination on the evidence. [Paras 5, 7, 8, 10]

Tribunal directed to reconsider, in light of the excise invoices and the assessee's entitlement to CENVAT as a manufacturer, whether the material supports a finding of intention to evade tax.

Final Conclusion: The Tribunal's order dated 12.02.2013 sustaining the penalty is set aside and the matter is remitted to the Tribunal for fresh decision on the evidence, preferably within three months.

Prematurity of writ petitions - reopening of assessment - classification and rate of tax - exemption under Section 15 of the TNVAT Act - levy of purchase tax under Section 12 of the TNVAT Act - independence of Assessing Officer; non-binding nature of circulars - role of Enforcement Wing reports as prima facie material

Prematurity of writ petitions - reopening of assessment - The writ petitions challenging revision notices issued under Section 27 of the TNVAT Act were premature and liable to be dismissed. - HELD THAT: - The Court held that the impugned orders were only revision notices proposing to revise turnover and levy purchase tax, and therefore the proper forum was for the Assessing Officer to adjudicate after hearing objections. Reopening of assessment is normally not interfered with in writ jurisdiction unless it is wholly time-barred or constitutes a clear change of opinion. The dealers had not filed objections before approaching the writ Court, making the petitions premature. Consequently the writ petitions cannot be allowed to by-pass the statutory procedure of filing objections and adjudication by the Assessing Officer.

Writ petitions dismissed as premature.

Classification and rate of tax - exemption under Section 15 of the TNVAT Act - levy of purchase tax under Section 12 of the TNVAT Act - The substantive questions regarding classification of goods, applicability of the exemption under Entry 68 of Part B of the Fourth Schedule and the rate (including whether rate is zero) are not decided on merits but must be considered afresh by the Assessing Officer. - HELD THAT: - The Court observed that issues concerning rate of tax and classification of goods fall to be determined by the Assessing Officer in the first instance. The Single Judge's findings on the taxable issue were vacated to enable the Assessing Officer to consider these matters on merits after receiving objections. The Court declined to resolve whether Section 15 exempts sales and purchases of pulses and grams within the specified turnover limit or whether Section 12 would apply for levy of purchase tax; those contentions require adjudication by the Assessing Officer based on evidence and submissions.

Findings on the taxable issue vacated and the questions as to classification, rate and exemption remitted to the Assessing Officer for fresh consideration.

Independence of Assessing Officer; non-binding nature of circulars - role of Enforcement Wing reports as prima facie material - The Assessing Officer must adjudicate the revision notices independently on the basis of objections and documents produced by the dealers, uninfluenced by circulars issued for third parties or by Enforcement Wing reports which are only prima facie material. - HELD THAT: - The Court emphasized that circulars issued by the Commissioner may bind departmental officers but do not bind a dealer who was not a party to the circular; the Assessing Officer must consider the dealer's case independently and may disregard a circular if applicable only to a third party. Similarly, reports of the Enforcement Wing can constitute prima facie material to issue a revision notice but the Assessing Officer is obliged to decide the matter on the objections and evidence presented by the dealer, and not blindly upon enforcement reports. The Single Judge's observations on these matters were vacated to avoid prejudicing the Assessing Officer's independent decision-making.

Assessing Officers directed to decide objections independently, uninfluenced by third party circulars or Enforcement Wing observations.

Prematurity of writ petitions - reopening of assessment - Procedural directions for further conduct of proceedings were issued: dealers to file objections within 30 days and Assessing Officers to adjudicate on receipt of objections after personal hearing. - HELD THAT: - The Court vacated the Single Judge's substantive finding and directed the appellants to file their objections to the revision notices within 30 days from the date of copy of the judgment. On receipt, the respective Assessing Officers are to adjudicate the revision notices on the basis of the contentions and documents produced at personal hearings and to reach independent decisions. This procedural route was ordered in place of allowing the premature writ challenges to proceed.

Appellants directed to file objections within 30 days; Assessing Officers to adjudicate on objections after personal hearing.

Final Conclusion: The writ appeals were dismissed as premature; the Single Judge's findings on the taxable issues were vacated and the matters concerning classification, exemption and rate were remitted to the respective Assessing Officers to be decided independently on the dealers' objections and evidence, uninfluenced by circulars issued for third parties or by Enforcement Wing reports, with the appellants directed to file objections within 30 days.

Tax as first charge on property - Transfer to defraud revenue void - Attachment and charge under revenue recovery provisions - Distraint and sale of immoveable property under the land revenue code - Requirement to seek civil remedy to declare transfer void - Bona fide purchaser for consideration

Tax as first charge on property - Distraint and sale of immoveable property under the land revenue code - Bona fide purchaser for consideration - Validity of the attachment and creation of a charge on the subject property made after its sale to the petitioners. - HELD THAT: - The Court found that no charge was created prior to the sale deed in favour of the petitioners and therefore the statutory notion of a "first charge" on the dealer's property does not embrace the petitioners' property as on the date of attachment. Section 48 (concept of tax as first charge) is inapplicable because the petitioners were not liable for the dealer's tax. The attachment order dated 9.9.2011 was made under provisions of the Gujarat Land Revenue Code (distraint/sale of immoveable property), but section 155 empowers sale of the defaulter's right, title and interest in immoveable property; on the date of that order the erstwhile owner had no right, title or interest in the subject property. Consequently the exercise of attaching and creating a charge over property not belonging to the defaulter was invalid. The Court also noted that the assessment order on which the attachment relied had been set aside by the Tribunal and remanded, thereby removing the very substratum for the attachment. [Paras 10, 11, 12, 13, 14]

Attachment and creation of charge on the subject property made after its sale to the petitioners was invalid and unsustainable.

Transfer to defraud revenue void - Requirement to seek civil remedy to declare transfer void - Attachment and charge under revenue recovery provisions - Whether the VAT authority could declare the post-sale transfer void and sustain attachment without obtaining a civil court declaration under the provision penalising transfers made to defraud revenue. - HELD THAT: - Relying on the Supreme Court precedent concerning the corresponding income-tax provision, the Court held that the revenue authority (or revenue recovery officer) cannot, in the course of revenue attachment proceedings, itself declare a transfer to be void on the ground of intent to defraud the revenue. The proper forum to obtain a declaration that a transfer is void under the provision dealing with transfers made to defraud revenue is a civil court action. The departmental power in attachment proceedings is limited to determining possession and whether property is in the defaulter's possession; if the department considers the transfer void, it must institute appropriate civil proceedings for annulment. The right of the department to seek such a declaration in civil court is preserved. [Paras 15, 16, 17, 18]

Revenue authority cannot declare the transfer void in attachment proceedings; it must approach the civil court for a declaration that the transfer was made to defraud revenue, though the department's right to seek such relief remains.

Final Conclusion: The petition is allowed. The respondents are directed to withdraw the charge and attachment on the subject property made in respect of alleged dues of the erstwhile owner; the departmental right to seek a civil declaration that the transfer was void remains open, but the impugned attachment is quashed. Rule made absolute, no order as to costs.

First charge on property - liability of bona fide auction purchaser - statutory garnishee notice under section 44 of the GVAT Act - requirement of inquiry on objection under section 44 - as is where is purchase - garnishee proceedings

Liability of bona fide auction purchaser - first charge on property - as is where is purchase - Whether the petitioner, as purchaser of the subject property in a bank auction held prior to passing of assessment orders, is liable to discharge the tax dues of the third respondent. - HELD THAT: - The court held that the Government's first charge arises on the property of the dealer at the time the liability exists; therefore the property must belong to the dealer when the charge crystallises. The auction notice pursuant to which the petitioner purchased the subject property was issued before any assessment orders were passed against the third respondent, and the petitioner bought the property on an "as is where is" basis. The sale certificate dated 20.3.2017 effected transfer of the property so that, as on the dates when the assessments relied upon were passed, the subject property no longer belonged to the third respondent. The petitioner, being a bona fide purchaser in sale proceedings under the Securitisation Act prior to any charge in favour of the Revenue, did not owe any sum to the third respondent and therefore could not be saddled with the third respondent's tax liabilities. Applying the principle that garnishee attachment requires existence of a debt or monies due to the judgment-debtor/dealer, the court found no basis to treat the petitioner as holding monies on behalf of the third respondent. [Paras 11, 12, 16]

The petitioner is not liable to discharge the tax dues of the third respondent as purchaser of the subject property in the bank auction.

Statutory garnishee notice under section 44 of the GVAT Act - requirement of inquiry on objection under section 44 - garnishee proceedings - Whether the notice dated 18.7.2018 and the order dated 26.9.2018 issued under section 44 of the GVAT Act against the petitioner and the petitioner's banker were sustainable in law. - HELD THAT: - Section 44 constitutes a statutory garnishee mechanism permitting recovery from persons who owe or hold monies for a dealer, subject to statutory safeguards. Sub-section (5) mandates that when the person to whom a notice is sent objects that the sum demanded is not due or that he does not hold monies for the dealer, the Commissioner must hold an inquiry and give the objector and the dealer a reasonable opportunity of being heard before making an order. The record discloses no allegation that any notice under subsection (1) was served on the dealer, nor any finding that the bank or the petitioner was holding monies on account of the dealer. The petitioner had objected in writing, but no statutory inquiry was conducted prior to issuance of the impugned order to the bank directing deposit of the amount. Consequently the statutory conditions for invocation of section 44 were not satisfied and the order to the bank was without authority. [Paras 14, 17, 18, 19, 20]

Both the notice issued to the petitioner and the order to the bank under section 44 are unsustainable for want of the prerequisite notice to the dealer, absence of any holding of monies on behalf of the dealer and failure to hold the inquiry mandated by sub-section (5).

Final Conclusion: The petition is allowed; the impugned notice dated 18.7.2018 and the order dated 26.9.2018 are quashed and set aside. Rule is made absolute with costs.

Appointment of arbitrator as per contract - Excepted matters - Section 11(6) Arbitration and Conciliation Act, 1996 - Applicability of Amendment Act, 2015 to pending requests - No Claim / accord and satisfaction alleged to have been signed under duress - Court's power to appoint arbitrator where contract prescribes arbitral mechanism

Appointment of arbitrator as per contract - Court's power to appoint arbitrator where contract prescribes arbitral mechanism - Section 11(6) Arbitration and Conciliation Act, 1996 - Whether the High Court was justified in appointing an independent arbitrator instead of directing appointment in terms of Clause 64(3) of the General Conditions of Contract. - HELD THAT: - The Court held that where the contract specifically prescribes the procedure and designation for appointment of arbitrators, the appointment must ordinarily be made in terms of the contract. Precedents establish that the High Court should not ignore the inbuilt mechanism and appoint an independent arbitrator except in the exercise of discretion where the authority has failed to act. Applying that principle, the appointment of independent arbitrators by the High Court was set aside and the matter was remitted for appointment in accordance with Clause 64(3) of the GCC. Directions were given for the General Manager to appoint the arbitrator within a stipulated time and for the conduct of the arbitration thereafter. [Paras 14, 15, 17]

Impugned orders appointing independent arbitrators set aside; Union of India directed to appoint arbitrator in terms of Clause 64(3) within one month and arbitration to proceed accordingly.

Applicability of Amendment Act, 2015 to pending requests - Section 11(6) Arbitration and Conciliation Act, 1996 - Whether the Amendment Act, 2015 applies to the requests for appointment of arbitrator made prior to 23.10.2015. - HELD THAT: - The Court held that requests made before the commencement of the Amendment Act, 2015 are to be governed by the principal unamended Act, 1996, unless the parties agree otherwise. Reliance was placed on prior decisions to the same effect, and the Court applied that principle to the present petitions which were filed before the amendment came into force. [Paras 10, 11]

Proceedings and requests for appointment are to be governed by the principal Act, 1996, and not by the Amendment Act, 2015.

No Claim / accord and satisfaction alleged to have been signed under duress - Excepted matters - Validity of the supplementary agreements/No Claim certificates and whether the disputes fall within "excepted matters" was not finally decided but left for adjudication by the arbitrator. - HELD THAT: - The Court declined to adjudicate on the merits of the contentions whether the respondents had executed supplementary agreements or No Claim certificates under compulsion or undue influence, and whether the matters were excepted from arbitration. Those factual and contractual disputes required evidence and examination and were left open to be considered by the arbitrator when constituted. [Paras 16]

Contentions regarding accord and satisfaction/No Claim certificates and excepted nature of the claims are left open for the arbitrator to decide.

Final Conclusion: Impugned High Court orders appointing independent arbitrators are quashed; Union of India directed to appoint arbitrator in terms of Clause 64(3) within one month, parties to file claims and replies within specified timelines, arbitration to proceed under the principal Act, 1996, and factual issues as to validity of No Claim/accord and satisfaction to be determined by the arbitrator.

Arbitrability of dispute - accord and satisfaction - no dues certificate / discharge voucher - economic duress / coercion - prima facie inquiry by Chief Justice/designate under Section 11(6) - Section 11(6) of the Arbitration and Conciliation Act, 1996

Arbitrability of dispute - accord and satisfaction - no dues certificate / discharge voucher - economic duress / coercion - prima facie inquiry by Chief Justice/designate under Section 11(6) - Maintainability of an application under Section 11(6) where the claimant had executed a discharge voucher alleged to be a 'full and final' settlement but contends it was signed under economic duress and coercion. - HELD THAT: - The Court applied the established line of authority (notably Boghara Polyfab, Master Construction and Genus Power) that while a genuine, voluntary full and final discharge/no dues certificate ordinarily precludes arbitration, a claimant's allegation that such a document was obtained by fraud, coercion, undue influence or economic duress must be examined prima facie by the Chief Justice/his designate under Section 11(6). A mere bald or after thought plea is insufficient; however, where supporting material prima facie indicates financial distress, insistence by the payer on execution of a discharge as a precondition to release of admitted amounts, delay in payment and contemporaneous correspondence evidencing banker pressure and urgency, the plea cannot be dismissed at the threshold. Applying these principles to the admitted record - the surveyor's higher assessment, the insurer's re survey yielding a much lower figure, repeated correspondence over 27 months, production of voluminous documents by the insured and letters from banks - the Court held there was material to satisfy a prima facie view that the discharge voucher may have been executed under economic duress and that the question should be left to the arbitral tribunal for conclusive decision (or be tried on evidence if necessary). The Court thus found an arbitrable dispute existed and that appointment of an arbitrator under Section 11(6) was maintainable. [Paras 21, 22]

The Section 11(6) application was maintainable; prima facie material showed the discharge voucher might have been obtained under economic duress and the dispute as to validity of the discharge is referable to arbitration.

Final Conclusion: The appeal is dismissed; the High Court's order appointing an arbitrator is affirmed and the arbitration proceedings may determine conclusively whether the discharge voucher operated as a full and final settlement (the Court dismissed the appeal without any order as to costs).