TaxTMI Updates e-Newsletter
Dec 01,2023

Readjudication - personal hearing - procedural irregularity - order executed/signed after its stated date - setting aside and remand - opportunity to file further reply

Procedural irregularity - order executed/signed after its stated date - setting aside and remand - Validity of the impugned order dated 27.09.2022 in view of the fact that the detailed order though dated 27.09.2022 was signed only on 27.04.2023 - HELD THAT: - The High Court noted that the detailed order dated 27.09.2022 had been signed by the Assistant Commissioner (ST) only on 27.04.2023. On that basis the Court held that the impugned order could not be allowed to stand and therefore set aside the order dated 27.09.2022 and remitted the matter to the authorities concerned for readjudication. The remand was directed because the procedural irregularity in execution and signing of the order affected the validity of the summary order and necessitated fresh consideration by the authority.

Impugned order dated 27.09.2022 set aside and matter remitted for readjudication.

Opportunity to file further reply - Whether the petitioner should be permitted to file any additional reply in the proceedings - HELD THAT: - In view of the remand for readjudication, the Court allowed the petitioner an opportunity to file a further reply in addition to the response already filed in Form GST DRC-01A. The Court prescribed a limited period for such filing to ensure the authority receives the petitioner's complete submissions before passing fresh orders.

Petitioner permitted to file additional reply within thirty days from receipt of copy of this order.

Personal hearing - readjudication - Whether the authority is required to afford personal hearing and pass fresh orders in accordance with law - HELD THAT: - The Court directed that on remand the respondent must afford the petitioner an opportunity of personal hearing and thereafter pass appropriate orders on merits in accordance with law, taking into account the petitioner's submissions. The direction ensures adherence to principles of natural justice and that the authority applies its mind afresh when redeciding the matter.

Respondent directed to afford personal hearing and to pass appropriate orders on merits in accordance with law.

Final Conclusion: The writ petitions were allowed in part: the impugned summary order dated 27.09.2022 was set aside and the matter remitted for readjudication; the petitioner may file an additional reply within thirty days; and the respondent must afford a personal hearing and pass fresh orders on merits. No costs.

Reasonable opportunity - audi alteram partem - show cause notice under Section 73 of the CGST Act - 30 days compliance under Section 73(8) - requirement of particulars/material particulars in show cause notice - service of statement under Section 73(3) - validity of order passed under Section 73

Reasonable opportunity - audi alteram partem - 30 days compliance under Section 73(8) - show cause notice under Section 73 of the CGST Act - Whether the noticee was denied reasonable opportunity of being heard by issuance of show cause notice on 03.09.2022 and passing of order under Section 73 on 12.09.2022. - HELD THAT: - The Court held that while Section 73 does not prescribe a specific period for response, the statute contemplates a reasonable opportunity to reply to a show cause notice. The Court observed that a reasonable minimum period for responding is not less than 15 days but, having regard to the thirty-day statutory period for payment under Section 73(8), the reasonable time to respond should be treated as thirty days. The gap of eight clear days between the show cause notice dated 03.09.2022 and the order dated 12.09.2022 was held to be manifestly inadequate and thus violative of the principle of audi alteram partem, rendering the order invalid. [Paras 6, 7, 10]

Impugned show cause notice dated 03.09.2022 and order dated 12.09.2022 set aside for denial of reasonable opportunity; liberty granted to issue fresh notice after affording adequate opportunity.

Requirement of particulars/material particulars in show cause notice - validity of order passed under Section 73 - Whether the show cause notice was deficient for being vague or lacking in material particulars necessary to enable an effective response. - HELD THAT: - The Court stated that any show cause notice must contain sufficient and adequate material which motivated the authority to form a prima facie view against the noticee. A notice lacking material particulars or being vague is vulnerable to judicial review. On the facts, the Court found the impugned notice to be deficient in material particulars and therefore liable to be quashed. The Court recorded the general principle that adequacy of particulars is necessary for a fair opportunity to respond. [Paras 9, 10]

Impugned show cause notice and consequent order set aside for being deficient in material particulars; Revenue permitted to issue a fresh, legally valid notice with adequate particulars.

Service of statement under Section 73(3) - show cause notice under Section 73 of the CGST Act - Whether the absence of a statement under Section 73(3) required quashing of the proceedings or further consideration by the Court. - HELD THAT: - The Court observed that the obligation to serve a statement under Section 73(3) arises only in cases not covered by Section 73(1). The impugned records did not clearly indicate whether the notice related to periods covered by Section 73(1) or otherwise. Consequently, the Court declined to decide this factual/technical question and left it to the competent authority to determine at its level when issuing any fresh notice or proceeding further. [Paras 8]

This aspect left open for determination by the competent authority; no final adjudication by the Court.

Final Conclusion: Writ petition allowed: the show cause notice dated 03.09.2022 and the order dated 12.09.2022 under Section 73 of the CGST Act are quashed for denial of reasonable hearing and for being deficient in material particulars; Revenue permitted to issue fresh notice and proceed after affording adequate opportunity; petitioner awarded costs.

Provisional release on furnishing bond and bank guarantee under Rule 140(1) read with Section 67(6) - detention and release of goods and vehicle - absence of detention order in Form GST MOV-06 under Section 129(1) - requirement of mens rea or intention to evade tax

Provisional release on furnishing bond and bank guarantee under Rule 140(1) read with Section 67(6) - detention and release of goods and vehicle - Petitioner entitled to provisional release of detained goods and vehicle on furnishing bond in Form GST INS-04 and security by bank guarantee under Rule 140(1) read with Section 67(6) of the UPGST Act, 2017. - HELD THAT: - The respondents did not dispute that the statutory scheme permits provisional release of detained goods and vehicle upon furnishing the bond in Form GST INS-04 and security by way of bank guarantee as provided by Rule 140(1) read with Section 67(6). The petitioner had applied for provisional release on that basis. The challenge to the detention and the demand was based on an alleged mismatch of vehicle number in the challans which the petitioner contends was a clerical mistake subsequently rectified in the e-way bill; there is no recorded finding of any intention to evade tax and no detention order in Form GST MOV-06 under Section 129(1) was produced. In the circumstances, and in view of the respondents' concession on the availability of provisional release on furnishing the prescribed bond and security, the court directed provisional release upon compliance with the statutory procedure.

Mandamus issued directing provisional release of the goods and vehicle RJ11GB6185 on the petitioner furnishing a bond in Form GST INS-04 and security by bank guarantee as per Rule 140(1) read with Section 67(6) of the UPGST Act, 2017.

Final Conclusion: Writ petition allowed; respondent directed to provisionally release the goods and vehicle upon the petitioner furnishing the prescribed bond and bank guarantee pursuant to Rule 140(1) read with Section 67(6) of the UPGST Act, 2017.

Rectification application - disposal within fixed time - re-determination of turnover - seigniorage fee - show cause notice - opportunity to file reply

Rectification application - disposal within fixed time - opportunity to file reply - Direction to respondent to consider and dispose of the rectification application filed by the petitioner within a specified time frame to enable further proceedings. - HELD THAT: - The petitioner, a registered dealer under the TNGST Act, challenged demands raised by the respondent based on seigniorage fee details allegedly obtained from the Mines Department and contended that his filed returns already recorded the seigniorage payments and matched the Mines Department intimations. The petitioner sought rectification of the impugned intimation and/or reconsideration of the demand. The High Court limited the relief sought to a direction for disposal of the rectification application (dated 30.05.2023, or any rectification application filed) and observed that disposal would enable the petitioner to file a reply to the impugned orders. The Court therefore directed the respondent to consider and dispose of the rectification application within three months from receipt of a copy of the order, leaving substantive adjudication of the rectification application to the respondent's consideration. [Paras 9]

Respondent directed to dispose of the rectification application within three months from receipt of a copy of the order.

Final Conclusion: Writ petitions disposed of by directing the respondent to consider and dispose of the rectification application filed by the petitioner within three months; no order as to costs.

Cancellation of GST registration - appeal under Section 107 of the TNGST Act, 2017 - limitation and condonation of delay - amnesty scheme under Notification No.25/2023-Central Tax, dated 17.07.2023 - restoration of registration on payment of arrears and interest

Appeal under Section 107 of the TNGST Act, 2017 - amnesty scheme under Notification No.25/2023-Central Tax, dated 17.07.2023 - restoration of registration on payment of arrears and interest - Disposition of the appeal against cancellation of GST registration in the light of the amnesty scheme where the appeal was filed during the currency of the scheme. - HELD THAT: - The Court observed that the petitioner's appeal against cancellation of GST registration, filed on 23.05.2023, was filed while the amnesty scheme under Notification No.25/2023-Central Tax, dated 17.07.2023 remained in force. Although the second respondent had rejected the appeal on the ground of limitation, the Court directed that the appeal be disposed of by the second respondent in accordance with the amnesty scheme. The petitioner was required to comply with the conditions of the scheme and to deposit the arrears of tax (together with interest as applicable). Subject to such compliance, the authority was ordered to dispose of the appeal within four weeks from receipt of a copy of the Court's order. The Court rejected the respondent's contention that the writ petition should be dismissed in view of earlier Supreme Court precedent, but did not otherwise adjudicate the merits of the cancellation beyond directing disposal in terms of the amnesty scheme. [Paras 8, 9]

The second respondent is directed to dispose of the appeal in the light of the amnesty scheme, on the petitioner complying with the scheme's conditions and depositing the arrears (with interest), and to do so within four weeks of receipt of this order.

Final Conclusion: Writ petition disposed by directing the appellate authority to decide the appeal against cancellation of GST registration under the amnesty scheme, subject to petitioner's compliance and deposit of arrears, with disposal ordered within four weeks; no costs.

Input tax credit - Assessment order - Remand for fresh consideration - Verification by Central Authority - Alternate remedy of statutory appeal

Input tax credit - Assessment order - Remand for fresh consideration - Verification by Central Authority - Impugned assessment orders confirming demand of input tax credit availed on invoices of M/s.C.A.Gowtham Steels set aside and remitted for fresh decision. - HELD THAT: - The Court noted that the respondent confirmed demands by assessment orders dated 27.06.2023 for the stated assessment years seeking to disallow input tax credit claimed on invoices issued by M/s.C.A.Gowtham Steels. A parallel verification by the Central Authority in respect of the petitioner's sister company resulted in a finding that the input tax credit based on the same supplier's invoices was eligible and the proceedings in that matter were closed. Although the petitioner failed to participate in subsequent personal hearings and an alternative statutory appeal remedy under the CGST Act is available, the Court found it appropriate in the circumstances to set aside the impugned orders and remit the matters to the respondent. The respondent is directed to pass fresh orders on merits and in accordance with law after considering the Central Authority's order and after affording the petitioner an opportunity to place on record all relevant documents and submissions. [Paras 12, 13, 14, 15]

Impugned assessment orders quashed and matters remitted to the respondent for fresh adjudication on merits after considering the Central Authority's findings; petitioner directed to produce records.

Final Conclusion: Writ petitions disposed of by setting aside the impugned assessment orders and remitting the matters to the respondent to decide afresh on merits in accordance with law, having regard to the Central Authority's order; liberty granted to the petitioner to file records before the authorities; no costs.

Services by way of renting of residential dwelling for use as residence - residential dwelling - interpretation of exemption notification (strict rule) - tariff heading 9963 (Accommodation, food and beverage services) - taxability of hostel accommodation - composite supply - principal supply

Services by way of renting of residential dwelling for use as residence - residential dwelling - interpretation of exemption notification (strict rule) - Hostel accommodation provided by the applicant does not qualify as 'residential dwelling for use as residence' and is not eligible for exemption under Entry 12 of Notification No.12/2017-Central Tax (Rate) and the corresponding entries under the State notifications. - HELD THAT: - The Authority noted that 'residential dwelling' is not defined in the GST statute but, following prior administrative guidance and common parlance, denotes accommodation treated as a home for a person or family and not establishments meant for temporary or sociable lodging. The applicant's premises, let out on per-bed basis with bundled services (food, housekeeping, etc.), operated under licences and regulatory regimes applicable to hostels and public/commercial buildings, and lack the characteristics of a house let to a family (such as division of maintenance responsibilities and kitchen/living arrangements). Exemption notifications are to be strictly construed and the twin conditions-(i) renting of a residential dwelling and (ii) use as residence-must both be satisfied. On the facts and documentary material, the Authority concluded the premises have been converted into commercial hostel accommodation and therefore do not fall within the exemption entry. The Authority rejected the applicant's reliance on decisions and zoning permissions as determinative, observing pending challenge to contrary precedents and that zoning or permit classification does not by itself convert a commercial hostel into an exempt residential dwelling. [Paras 7]

Hostel accommodation supplied by the applicant is not eligible for exemption under the cited entries of Notification No.12/2017-Central Tax (Rate) and corresponding State notifications.

Tariff heading 9963 (Accommodation, food and beverage services) - taxability of hostel accommodation - Hostel accommodation supplied by the applicant falls under Tariff heading 9963 and is a taxable service. - HELD THAT: - The Authority examined the rate schedule in Notification No.11/2017 (as amended) and distinguished hostels from hotels: hotels are for temporary short stays with broader facilities, whereas hostels offer longer-term basic accommodation. Accordingly, hostel services do not qualify for the lower/Hotel-specific sub-entries and are classifiable under the residual accommodation entry for 'Accommodation, food and beverage services other than (i) to (v)' (Heading 9963). The Authority therefore held the supply to be taxable under the relevant entry of Notification No.11/2017 as amended. [Paras 7]

Supply of hostel accommodation will fall under Tariff heading 9963 and is taxable under the rate notification.

Composite supply - principal supply - taxability of composite supplies - The supply of in-house food and other services bundled with hostel accommodation constitutes a composite supply, and the tax rate applicable to the principal supply governs the composite supply. - HELD THAT: - Applying the definition of composite supply, the Authority found the applicant provides multiple services (accommodation together with food and other ancillary services) as a naturally bundled single supply for a single consolidated price. The principal supply is the hostel accommodation. Under Section 8 of the CGST Act, the rate of tax applicable to the principal supply applies to the entire composite supply. The Authority therefore treated the composite supply as taxable at the rate applicable to the principal supply. [Paras 7]

In-house food and ancillary services supplied along with hostel accommodation form a composite supply and are taxable at the rate applicable to the principal supply.

Final Conclusion: The Authority ruled that the applicant's hostel accommodation is not exempt as 'renting of residential dwelling for use as residence'; the accommodation is classifiable under Tariff heading 9963 and is taxable; supplies of food and other bundled services are composite with the hostel accommodation as the principal supply and are taxable at the rate applicable to that principal supply.

Deduction under section 80P - interest on reserve fund deposits - characterisation of interest as profits and gains of business - investment of surplus funds - attributable to test - distinguishing Totgar's Co-operative Sale Society Ltd.

Deduction under section 80P - interest on reserve fund deposits - characterisation of interest as profits and gains of business - investment of surplus funds - attributable to test - distinguishing Totgar's Co-operative Sale Society Ltd. - Claim for deduction under section 80P on interest earned on deposits earmarked as reserve fund with a cooperative bank - HELD THAT: - The Tribunal considered whether interest earned on deposits maintained as reserve fund with DCC Bank is deductible under section 80P. The Assessing Officer and CIT(A) had disallowed the claim relying on precedents including Totgar's Co-operative Sale Society Ltd., which treated interest on short term investments of surplus as not business income on the facts of that case. The Tribunal found the facts of the present case distinguishable from Totgar's and followed the reasoning of the jurisdictional High Court in Vavveru Cooperative Rural Bank Ltd., and decisions of coordinate Benches which held that where investments are made out of monies originally derived from activities enumerated in clause (a) of section 80P, the character of that income is not lost and interest thereon can be attributable to the business activity. Applying the "attributable to" test, and respecting the line of authority of the High Court and coordinate Benches, the Tribunal held that interest on the reserve fund deposits constituted income attributable to the assessee's activities covered by section 80P(2)(a)(i) and is allowable as a deduction under section 80P; accordingly the appellate order upholding the addition was quashed and the assessee's appeal allowed. [Paras 7, 8]

Interest on deposits forming reserve fund with the cooperative bank is allowable as deduction under section 80P and the CIT(A) order upholding its disallowance is quashed; the assessee's appeal is allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal for A.Y. 2017-18, holding that interest on reserve fund deposits with the cooperative bank is deductible under section 80P as income attributable to activities covered by clause (a), distinguishing Totgar's on facts and following the jurisdictional High Court and coordinate Tribunal precedents.

Constitutional Validity of New Provision 271(1B) - Initiation of Penalty Proceedings - Satisfaction of the AO - Retrospective Amendment by Finance Act, 2008 - appellant and respondent jointly submitted that this appeal has been rendered infructuous in view of the subsequent development namely that the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 has been deleted and the said order has attained finality.

HELD THAT:- Taking note of the said fact and also the order of this Court in the case of Union of India and Anr. vs. Ms. Madhushree Gupta [2023 (9) TMI 1046 - SC ORDER] the instant appeal is dismissed as having become infructuous.

Application filed u/s 154 - seeking tax on interest income at 15%/10% under the DTAA regime by virtue of the Notification No.11438 issued with France - contention of the assessee was also that although the assessee(s) was not having any contract as such during the relevant period it was nevertheless engaged in business in the country and therefore, it was entitled to the benefit of deduction insofar as the expenses incurred are concerned.

HELD THAT:- What is necessary to ascertain at this stage is the reason as to why the assessee(s) sought for rectification u/s 154 of the Act seeking a lesser rate of taxation to be imposed under the DTAA regime if the assessee(s) was not seeking to be taxed under the said regime.

In response to the query of this Court, assessee(s) submitted that although such an application seeking rectification was made nevertheless the assessee(s) was being taxed under the provisions of the Act and was filing returns under the said Act.

We direct the appellant/assessee(s) to produce the copy of the application or petition filed u/s 154 of the Act seeking rectification and also any other pleading or document which can enable this Court to come to a conclusion as to whether the assessee(s) intended to be taxed under the DTAA regime or under the provisions of the Income Tax Act. The order made by the Department u/s 154 of the Act also to be produced by the next date of hearing.

List on 29.11.2023.

Allowability of diminution in value of Government of India Fertilizer Bonds as revenue loss - deductibility of employee welfare expenditure for running a school as business expenditure under section 37(1) and exclusion from section 40A(9) by operation of section 40A(10)

Allowability of diminution in value of Government of India Fertilizer Bonds as revenue loss - commercial expediency / compulsion in accepting bonds in lieu of cash subsidy - The diminution in value of GOI Fertilizer Bonds received in lieu of cash subsidy is an allowable revenue deduction in computing business income. - HELD THAT: - The Court accepted the Tribunal's conclusion that the fertilizer bonds were received in the course of business in lieu of cash subsidy and were not acquired as an investment with the intention of holding them as capital assets. Reliance was placed on the Delhi High Court decision in DCM Shriram and the Supreme Court decision in Patnaik & Co., which held that where bonds are allotted under compulsion or commercial expediency in the course of business, diminution in their value constitutes a revenue loss and is deductible. The Court distinguished Sajjan Mills and Indian Overseas Bank as involving different factual matrices (gratuity as contingent statutory obligation and foreign exchange transactions not received in lieu of other payments) and therefore not applicable. Applying these authorities to the facts, the reduction in value of the GOI bonds was held to be a revenue expenditure allowable as a deduction. [Paras 9]

Appeal dismissed on this ground; ITAT rightly allowed the deduction for diminution in value of the bonds.

Deductibility of employee welfare expenditure for running a school under section 37(1) - application of section 40A(9) and section 40A(10) to contributions for employee welfare - The contribution/payments made for running a school for the welfare of employees (paid to DAV School Management) are allowable as business expenditure under section 37(1) and fall outside the prohibition of section 40A(9) by operation of section 40A(10). - HELD THAT: - The Court analysed the legislative purpose and judicial precedents to hold that expenditure laid out wholly and exclusively for the welfare of employees, even if benefiting others incidentally, may be deductible under section 37(1). The Court noted that section 40A(9) disallows certain employer contributions but section 40A(10) permits deduction where the assessing officer is satisfied that the amount has been bona fide expended for employee welfare. Authorities including Season J. David, P. Balakrishnana (Travancore Cochin Chemicals), Mysore Kirloskar and Bombay Dyeing were relied upon to illustrate that commercial expediency (provision of schools, housing, etc.) can constitute revenue expenditure promoting the business. Applying these principles, the Court upheld the Tribunal's finding that the payments to run the DAV school were incurred wholly and exclusively for employee welfare and for the smooth functioning of the business, and therefore allowable under section 37(1) and section 40A(10). [Paras 13, 14, 15, 16, 17]

Tribunal's allowance of the school-related expenditure upheld; deduction permitted under section 37(1) and section 40A(10).

Final Conclusion: Both appeals are dismissed/disposed of: the Tribunal's decisions allowing (i) the deduction for diminution in value of GOI Fertilizer Bonds as a revenue loss and (ii) the deduction for contributions towards running the school as an employee-welfare business expenditure under section 37(1) (with section 40A(10) operating to exclude it from disallowance under section 40A(9)) are affirmed.

Validity of notice under Section 148 issued to a deceased assessee - Requirement to issue notice to the correct person as a condition precedent for reopening assessment - Notice issued to a dead person is unenforceable and void for want of jurisdiction - Non-obligation of legal heirs to intimate death to the revenue - Inapplicability of continuation provisions where proceedings were not initiated during assessee's lifetime

Validity of notice under Section 148 issued to a deceased assessee - Requirement to issue notice to the correct person as a condition precedent for reopening assessment - Notice issued to a dead person is unenforceable and void for want of jurisdiction - Non-obligation of legal heirs to intimate death to the revenue - Inapplicability of continuation provisions where proceedings were not initiated during assessee's lifetime - Impugned notice under Section 148 and order under Section 148A(d) issued in the name of the deceased assessee are enforceable in law. - HELD THAT: - The Court examined whether a notice under Section 148 issued in the name of the deceased assessee (who died before initiation of proceedings) can sustain reassessment. It held that issuance of notice to a dead person is a foundational defect because a valid notice to the correct person is a condition precedent to exercise jurisdiction for reopening an assessment. The Court relied on precedents and reasoning that legal representatives are not under a statutory duty to inform the revenue of the assessee's death, and that Section 159 cannot be invoked where proceedings were not initiated during the assessee's lifetime to permit continuation against legal heirs. Having regard to these principles, the notice issued in the name of the deceased was declared unenforceable and null for want of jurisdiction, and consequential proceedings were held unsustainable. [Paras 11, 12, 15, 16]

Notice dated 31.03.2022 under Section 148 and order dated 31.03.2022 under Section 148A(d) for AY 2018-19 issued in the name of the deceased assessee are quashed and all actions in furtherance thereto are prohibited.

Final Conclusion: Writ petition allowed; the reopening notice and the Section 148A(d) order issued in the name of the deceased assessee for AY 2018-19 quashed and consequential proceedings prohibited; no order as to costs.

Procedure in appeal under Section 250 of the Income Tax Act - right to be heard - set aside for breach of statutory procedure - remand for fresh decision after hearing

Procedure in appeal under Section 250 of the Income Tax Act - right to be heard - set aside for breach of statutory procedure - Impugned appellate orders were invalid because no notice fixing date and place of hearing was issued after the petitioner filed written submissions and sought impleadment following the death of the original appellant. - HELD THAT: - The appeals were instituted by the deceased husband and, after his death, the petitioner sought impleadment and filed written submissions and responses to showcause notices. Section 250 requires the Commissioner (Appeals) to fix a date and place for hearing and to give notice so that the appellant or authorised representative may appear and be heard. The appellate authority did not issue any notice fixing a hearing date after the petitioner filed her written submissions and impleadment documents, and admitted that no such notice was issued. The impugned orders were therefore passed in breach of the statutory procedure and without affording the petitioner the right to be heard. Consequently the orders cannot stand and must be set aside. [Paras 3, 5, 6]

Impugned orders in Exhibits P-34 to P-39 set aside for violation of the procedure prescribed under Section 250; the appeals require fresh adjudication after hearing.

Remand for fresh decision after hearing - limitations on further filing - Appeals remanded for fresh disposal with directions for hearing the petitioner and limits on further filings. - HELD THAT: - The matter was remitted to the Commissioner (Appeals) to pass fresh orders in accordance with law. The petitioner was directed to appear before the respondent on the specified date and no notice of hearing was to be issued to her. She was permitted to take additional grounds in support of the appeal, and the respondent was directed to decide the appeals afresh after hearing the petitioner. The court expressly restricted any further opportunity to file documents or evidence, other than the filing of additional grounds, thereby confining the scope of rehearing to submissions and additional grounds already identified. [Paras 7, 8]

Matter remanded for fresh disposal; petitioner to appear on the appointed date, may file additional grounds, and respondent to hear and decide afresh; no other opportunity for filing documents or evidence.

Final Conclusion: Writ petition allowed; impugned appellate orders set aside and matters remanded to the Commissioner (Appeals) for fresh hearing and disposal in accordance with law, with the petitioner directed to appear and permitted to file additional grounds but not further documents or evidence.

Comparability of interest rates between secured loans and unsecured non-convertible debentures - Determination of arm's length interest rate for unsecured inter-company non-convertible debentures - Proportionate disallowance of excess interest limited to interest debited to profit and loss account - Deduction under section 80G for corporate social responsibility (CSR) contributions - Applicability of the principle of consistency across assessment years

Comparability of interest rates between secured loans and unsecured non-convertible debentures - Determination of arm's length interest rate for unsecured inter-company non-convertible debentures - Proportionate disallowance of excess interest limited to interest debited to profit and loss account - Deletion of disallowance of interest on unsecured redeemable cumulative non-convertible debentures and whether AO correctly restricted interest to secured loan rate. - HELD THAT: - The Tribunal held that comparing the interest rate on secured term loans with the interest rate on unsecured non-convertible debentures is incorrect because different risk factors (credit risk, liquidity risk, security, pledge, quantum and tenure) affect pricing of unsecured instruments. The correctness of the interest rate paid on the debentures must be tested by determining the arm's length interest rate prevailing for unsecured non-convertible debentures at the relevant time. The Tribunal found that the question of allowability in earlier years did not constitute a precedent entitling the assessee to automatic application of the principle of consistency because in earlier years the interest was either capitalised or not debited to profit and loss account; hence those years did not decide the same claim. Consequently, the Tribunal set aside the CIT(A) order to the extent it deleted the disallowance and restored the issue to the file of the AO for de novo adjudication to determine the arm's length interest rate. The Tribunal further directed that any disallowance, if found necessary, must be proportionate to the interest actually debited to the profit and loss account (and not on the entire contractual interest), and instructed the AO to examine the relevance of the CBDT Circular relied upon by the assessee while conducting the de novo adjudication. [Paras 12, 13]

Issue restored to the AO for de novo determination of the arm's length interest rate; disallowance, if any, to be proportionate to interest charged to P&L; CIT(A) order set aside to this extent; grounds 1 and 2 allowed for statistical purposes.

Deduction under section 80G for corporate social responsibility (CSR) contributions - Applicability of the principle of consistency across assessment years - Deletion of disallowance of deduction claimed under section 80G in respect of CSR expenditure that was mandatorily incurred under the Companies Act, 2013. - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that CSR expenditures, although mandated under section 135 of the Companies Act, may still be eligible for deduction under section 80G subject to satisfaction of the conditions for that deduction. The Tribunal noted precedents of coordinate benches supporting the view that the existence of a statutory obligation does not ipso facto exclude entitlement to section 80G deduction where the statutory conditions for section 80G are otherwise met. The AO had not examined whether the conditions for claiming deduction under section 80G were satisfied and had treated the payments as non-voluntary without dealing with the statutory conditions for section 80G; the CIT(A) applied the consistent line of Tribunal decisions and deleted the disallowance. [Paras 17, 18]

CIT(A)'s deletion of the disallowance and allowance of deduction under section 80G in respect of the CSR expenditure is upheld; ground 3 dismissed.

Final Conclusion: The revenue appeal is partly allowed: Grounds 1 and 2 are set aside and remitted to the AO for de novo determination of the arm's length interest rate for the unsecured debentures, with any disallowance to be proportionate to interest charged to the profit and loss account; Ground 3 (CSR/section 80G deduction) is dismissed and the CIT(A)'s order on that issue is upheld.

Classification of receipts as business income - Estimation of income in absence of books of account - Application of presumptive taxation rates under section 44AD as guidance - Disallowance of unsubstantiated deductions claimed under income from other sources - Adoption of reasonable net profit rate for estimation

Classification of receipts as business income - Re-allocation of income between heads - Disallowance of unsubstantiated deductions claimed under income from other sources - Estimation of income in absence of books of account - Adoption of reasonable net profit rate for estimation - Whether amounts received from Mysore City Corporation are to be treated as business receipts and whether net profit at 8.5% should be adopted on the portion treated as business income in absence of books and substantiation of claimed deductions - HELD THAT: - The Tribunal found that the payments received from Mysore City Corporation are receipts of a contractor and therefore fall under Chapter IV - Part D - Profits & gains of business or profession, noting that the AO himself treated the receipts as business income by splitting them between heads. The assessee had declared part of the receipts under section 44AD at 6% and treated the balance as income from other sources with large deemed expenditures claimed under section 57 but failed to produce supporting documents. In view of the absence of books of account and audit, and considering the AO accepted business-character of the receipts, the balance turnover ought to have been assessed as business income. Having regard to the assessee's past returns (earlier years showing profits around 8%) and the assessee's own fair offer during hearing, the Tribunal held that adopting a net profit rate of 8.5% on the balance turnover of Rs. 3,09,23,045 is appropriate in the peculiar facts of the case, rather than disallowing all claimed expenditures which lacked substantiation. [Paras 10, 11]

The receipts from Mysore City Corporation are business receipts and net profit at 8.5% is to be adopted on the balance turnover; appeal is partly allowed.

Final Conclusion: The Tribunal held that the amounts received from Mysore City Corporation are business receipts assessable under profits and gains of business or profession; in the absence of books and substantiation for deductions claimed under income from other sources, the balance turnover is to be taxed as business income adopting a net profit rate of 8.5%, and the appeal is partly allowed.

Unexplained share application money under Section 68 - computation of book profits under Section 115JB (including adjustment for brought forward loss or unabsorbed depreciation) - inclusion of surplus on demerger in book profits - provision for diminution in value of asset (provision for doubtful advances) and its impact on book profit - disallowance under Section 14A for exempt income - deduction under Section 35DD for expenditure incurred exclusively for demerger - TDS liability and disallowance under Section 40(a)(ia) in relation to Explanation 6 to Section 9(1)(vi) and Section 194J - reconciliation of discrepancies between Form 26AS and books and inquiry under Section 133(6) - tests of identity, creditworthiness and genuineness (including fiscal nullity, treaty shopping and round tripping) - remand to Assessing Officer for verification and fresh computation

Unexplained share application money under Section 68 - tests of identity, creditworthiness and genuineness (including fiscal nullity, treaty shopping and round tripping) - remand to Assessing Officer for verification and fresh computation - Addition of share application money received from New Silk Route PE Mauritius LLC treated as unexplained credit under Section 68 - HELD THAT: - The Tribunal examined the material placed before the AO, the information obtained from Mauritius competent authority and the documentation furnished by the assessee (share subscription and shareholders agreements, FIPB approvals, bank remittances, audited accounts of the investor, board resolutions and shareholding pattern). While noting the Revenue's reliance on tests of fiscal nullity, treaty shopping and public reports of ongoing investigations, the Tribunal found that the question of genuineness, identity and creditworthiness requires a holistic enquiry and that material and explanations furnished by the assessee and information received from Mauritius were not fully tested by the AO. In view of incomplete adjudication and the need to examine all evidence (including due diligence, correspondence, investment strength and the Mauritius record), the Tribunal held that the matter cannot be finally decided on the record before it and restored the issue to the file of the Assessing Officer with directions to examine the transaction afresh under Section 68 and apply the relevant tests, after affording the assessee an opportunity of hearing. [Paras 20, 21]

Grounds 1-3 of the AO's appeal (addition under Section 68) are restored to the Assessing Officer for fresh examination and verification.

Computation of book profits under Section 115JB (including adjustment for brought forward loss or unabsorbed depreciation) - inclusion of surplus on demerger in book profits - Whether surplus arising on demerger credited "below the line" is liable to be included in book profit under Section 115JB and whether brought forward losses/unabsorbed depreciation must be allowed - HELD THAT: - The Tribunal held that the surplus generated on transfer of the general entertainment undertaking and credited to the profit and loss account (even if shown "below the line" in the appropriation section) constitutes profit for the year and is liable to be taken into account for computation of book profit under Section 115JB. The Tribunal rejected the assessee's contention that the surplus is a capital receipt or was excluded by direction of the Bombay High Court. Separately, the Tribunal accepted the assessee's legal claim that Explanation 1(iii) to Section 115JB requires reduction of book profit by the aggregate amount of brought forward losses or unabsorbed depreciation, whichever is less. The Tribunal entertained the assessee's additional ground, accepted the Form 29B certificate produced, and directed the AO to verify and give effect to the lower of the two amounts in computing book profit; after such reduction the book profit would be nil. [Paras 15, 30, 34]

Inclusion of demerger surplus in book profit is upheld; claim for deduction of the lower of brought forward losses or unabsorbed depreciation is allowed and the matter is remitted to the AO for verification and computation.

Provision for diminution in value of asset (provision for doubtful advances) and its impact on book profit - computation of book profits under Section 115JB - Whether provision for doubtful advances is to be added back to book profit under Explanation 1(i) to Section 115JB - HELD THAT: - The Tribunal agreed with the lower authorities that "book debts" are assets and that a provision for diminution in their value falls within the language of Explanation 1(i) to Section 115JB. The assessee's contention that book debts are not "assets" for this purpose was rejected. [Paras 35]

Addition of the provision for doubtful advances to book profit is sustained.

Disallowance under Section 14A for exempt income - Validity of disallowance under Section 14A where no exempt income was earned during the year - HELD THAT: - The Tribunal accepted the assessee's submission that no exempt income arose in the relevant assessment years and held that where there is no exempt income, disallowance under Section 14A is not warranted. The lower authorities' disallowances for the respective years were therefore set aside. [Paras 36, 37]

Disallowances under Section 14A are deleted for the assessment years in question.

Deduction under Section 35DD for expenditure incurred exclusively for demerger - Treatment of legal and professional fees paid in relation to demerger and manner of allowance under Section 35DD - HELD THAT: - The Tribunal found that the expenditure was incurred exclusively in relation to the demerger and falls within Section 35DD. Accordingly, the statutory regime of Section 35DD applies, permitting deduction of one fifth of the expenditure in each of five successive years beginning with the year in which the demerger takes place. The Tribunal upheld application of Section 35DD by the lower authorities but allowed the assessee to claim the remaining four fifths over the subsequent four years as provided by the statute. [Paras 39, 40]

Expenditure is governed by Section 35DD; one fifth is allowable in the relevant year and the balance 4/5 is to be allowed in equal instalments in the succeeding four years.

Content cost: classification as revenue or capital expenditure - computation of book profits under Section 115JB - remand to Assessing Officer for verification and fresh computation - Allowability of content cost (animated episodes and in house production) as revenue expenditure or capitalized intangible assets - HELD THAT: - Having regard to prior coordinate bench decisions and the nature of animated episodes and in house productions, the Tribunal held that content already telecast in the year should ordinarily be allowed as revenue expenditure in that year; there is no uniform formula to spread expenditure unless facts justify it. The Tribunal found the CIT(A)'s formulaic 85%/15% split unsupported by law and restored the issue to the AO to determine in light of the Tribunal's directions, applying the coordinate bench precedents and verifying the extent of cost already telecast and other relevant accounting practice. [Paras 23, 24]

Direction to AO to apply precedents and allow content costs telecast in the year as revenue expenditure; the residual issue is remitted to the AO for fresh decision.

TDS liability and disallowance under Section 40(a)(ia) in relation to Explanation 6 to Section 9(1)(vi) and Section 194J - Whether carriage/channel placement fees were taxable as 'royalty' requiring TDS under Section 194J (by reason of retrospectively inserted Explanation 6) and whether disallowance under Section 40(a)(ia) was warranted - HELD THAT: - The Tribunal applied the Bombay High Court authority holding that a payer cannot be required to comply with a tax deduction obligation based on a provision introduced later with retrospective effect; further Section 40(a)(ia) refers to Explanation 2 to Section 9(1)(vi) and not to Explanation 6. Accordingly the retrospective amendment could not be imposed to fasten TDS liability for the assessment year in question, and the CIT(A)'s deletion of disallowance was sustained. [Paras 26, 27]

Revenue's appeals seeking disallowance under Section 40(a)(ia) in respect of carriage/channel placement fees are dismissed.

Reconciliation of discrepancies between Form 26AS and books and inquiry under Section 133(6) - remand to Assessing Officer for verification and fresh computation - Additions made on account of mismatch between amounts in Form 26AS and amounts shown in the assessee's books - HELD THAT: - The AO issued notices under Section 133(6) and communicated results to the assessee; some enquires were unresponded/letters returned and the assessee failed to reconcile the discrepancies. The Tribunal found that the assessee should be given one more opportunity to reconcile and show that certain parties had no dealings. Consequently the Tribunal set aside the confirmed additions and remitted the matter to the AO to examine the reconciliation, entertain the assessee's explanations and decide afresh. [Paras 41, 44]

Grounds relating to Form 26AS mismatches are remitted to the AO for fresh verification after reconciliation by the assessee.

Final Conclusion: The Tribunal partly allowed the appeals. Key outcomes: additions under Section 68 for foreign share application money are remitted to the AO for fresh examination; surplus on demerger was held to be includible in book profit although the assessee's right to deduct the lower of brought forward losses or unabsorbed depreciation was allowed and remitted for verification; provision for doubtful advances added to book profit was sustained; Section 14A disallowances were deleted; fees for demerger fall under Section 35DD (one fifth allowed in year of demerger and balance amortisable over next four years); content cost and Form 26AS mismatch issues were remitted to the AO for fresh consideration; and AO's claims under Section 40(a)(ia)/TDS in respect of carriage/channel placement fees were dismissed.

Addition on account of alleged bogus purchases - Reliance on third party information from Sales Tax Department - Duty to make independent inquiry and to afford opportunity of cross examination - Taxation of profit margin where purchases are disallowed as non genuine - Quantum of disallowance - apportionment by reference to gross profit margin

Addition on account of alleged bogus purchases - Reliance on third party information from Sales Tax Department - Duty to make independent inquiry and to afford opportunity of cross examination - Validity of addition of 100% of purchases made from M/s Akash Steel Traders based solely on information from the Sales Tax Department and third party statements without further enquiry or cross examination - HELD THAT: - The assessing officer treated the entire purchases as bogus relying on information received from the Sales Tax Department and completed assessment ex parte when the assessee did not respond. On appeal the assessee produced purchase registers, sales registers, invoices, bank evidences and stock movement to demonstrate actual purchase and corresponding sales. The tribunal noted that the AO did not bring any independent contrary material on record nor doubted the corresponding sales. Where corresponding sales are accepted, and the assessee demonstrates possession and sale of goods, additions cannot be sustained solely on third party information without independent inquiry or evidence to negativate the claim. The tribunal therefore rejected the AO's blanket treatment of 100% purchases as non genuine and accepted that only the profit element embedded in such transactions could be taxed. [Paras 7]

Addition of 100% purchases based solely on Sales Tax Department information and third party statement is not sustainable; only the profit element collectible.

Taxation of profit margin where purchases are disallowed as non genuine - Quantum of disallowance - apportionment by reference to gross profit margin - Appropriate quantum of disallowance where purchases are held non genuine in part but corresponding sales are accepted - HELD THAT: - The tribunal examined the assessee's historical gross profit ratios for FY 2009 10 to 2011 12 as placed on record before the CIT(A). Given that sales were not doubted and the assessee had been benefitted by the margin in grey market procurements, the tribunal held that taxing the embedded profit element was fair and reasonable. Applying the factual profit indicators, the tribunal concluded that a restricted disallowance, representing the profit element, was appropriate. On the facts it was reasonable to restrict the disallowance to 4% of the impugned purchases rather than the 25% allowed by the CIT(A) or the 100% treated by the AO. [Paras 7, 8]

Disallowance reduced and restricted to 4% of the purchases from the specified party as the taxable profit element.

Final Conclusion: The appeal is partly allowed: the Tribunal disallowed the AO's 100% addition, held that additions cannot rest solely on Sales Tax Department information without independent enquiry, and reduced the disallowance to 4% of the impugned purchases for A.Y. 2011-12.

Allocation of common costs - Transactional Net Margin Method (TNMM) - Profit level indicator (OP/OC) - Entity-level PLI versus segmental PLI - Comparability of comparable companies - Disallowance under section 14A and application of Rule 8D - Relief under section 90 - Onus on assessee to furnish documentary particulars

Allocation of common costs - Transactional Net Margin Method (TNMM) - Profit level indicator (OP/OC) - Onus on assessee to furnish documentary particulars - Allocation key for apportioning G&A/common costs for computing segmental PLI in benchmarking of provision of software development services - HELD THAT: - The Tribunal accepted that TNMM with OP/OC was the appropriate method and PLI. The dispute concerned the appropriate allocation key for G&A/common costs to arrive at segmental operating cost. The assessee proposed allocation based on person months (headcount/APM) whereas the TPO allocated common costs on the basis of direct cost. The Tribunal found that the Transfer Pricing Study Report did not clearly set out the basis of allocation and that the assessee failed to place necessary supporting particulars (including actual branch employee numbers and full explanatory details) before the TPO. The Tribunal noted that the assessee's direct cost allocation itself rested on APMs, but observed that the TPO's choice of direct cost as allocation key was verifiable and readily ascertainable. Given the absence of requisite documentary foundation from the assessee and the TPO's reasons (including geographic variations in direct cost per person), the Tribunal sustained the TPO/DRP allocation on direct cost and dismissed the assessee's ground on the allocation key. [Paras 6, 7]

Assessee's headcount/person-month allocation rejected; allocation based on direct cost upheld and Ground No.5 dismissed.

Entity-level PLI versus segmental PLI - Transactional Net Margin Method (TNMM) - Whether entity level PLI could be adopted instead of segmental PLI for benchmarking the POSS (software services) transactions - HELD THAT: - The Tribunal examined the relative weight of transactions and observed that nearly 90% of the assessee's turnover arose from non associated enterprises. Adoption of an entity level PLI would therefore be materially influenced by non AE transactions and would distort benchmarking for transactions with AEs. On these factual findings, the Tribunal concluded that entity level PLI was inappropriate for determining ALP of the inter company software services transactions. [Paras 8]

Entity level PLI rejected; Ground No.3 dismissed.

Comparability of comparable companies - Transactional Net Margin Method (TNMM) - Admissibility of specific comparable companies selected by the TPO for benchmarking the POSS transactions - HELD THAT: - The Tribunal examined the factual matrix and annual report details of each impugned comparable. It found that Exilant Technologies Pvt. Ltd. had extraordinary events and only had accounts for part of the year (share acquisition and other events), and therefore was not suitable as a comparable. E Infochips Pvt. Ltd. carried on sale of products and ITES activities without segregated segmental data, making it unsuitable for comparison with the assessee's pure software development segment. Nihilent Ltd.'s business description showed consulting/analytics/technology offerings materially different from the assessee's activities, rendering it functionally dissimilar. Cybage Software Pvt. Ltd. was found to undertake ITES/BPO and other activities (branding, content marketing) making functional comparability doubtful. Ninestar Information Technologies Ltd.'s annual report was cryptic and did not demonstrate clear software development functions comparable to the assessee. On this review the Tribunal directed deletion of these specific companies from the comparable set and held that Ground No.8 is allowed to that extent. [Paras 12, 13, 14, 15, 16]

Exilant Technologies, E Infochips, Nihilent, Cybage and Ninestar directed to be excluded from the comparable set; Ground No.8 allowed.

Disallowance under section 14A and application of Rule 8D - Onus on assessee to furnish documentary particulars - Validity of addition under section 14A computed by applying Rule 8D without recording satisfaction or identifying which sub rule was applied - HELD THAT: - The AO made a disallowance under section 14A by applying Rule 8D but did not specify the sub rule relied upon nor record satisfaction regarding the correctness of the assessee's claim. The Tribunal followed the jurisdictional High Court and earlier ITAT precedents holding that invocation of Rule 8D requires the AO to record satisfaction and examine fund position/particulars before applying the formula. Given the absence of such satisfaction or analysis in the assessment order, and the assessee's unexplained fund position, the Tribunal held the disallowance unsustainable and directed deletion. [Paras 17]

Addition under section 14A set aside; disallowance deleted.

Relief under section 90 - Claim for additional relief under section 90 made after filing the return - HELD THAT: - The assessee submitted that additional withholding tax certificates were obtained after filing the return and that corresponding foreign tax was paid and the income offered to tax in India. The Tribunal did not decide the claim on merits but set the matter aside to the Assessing Officer for de novo verification of the additional relief claim and supporting documentation. [Paras 18]

Issue remitted to the Assessing Officer for fresh verification; Ground No.10 allowed for statistical purpose (set aside for de novo consideration).

Final Conclusion: The appeal is partly allowed. The Tribunal upheld the TPO/DRP's allocation of common costs on direct cost basis and rejected the assessee's headcount allocation and entity level PLI (Grounds 5 and 3 dismissed). Several comparables (Exilant, E Infochips, Nihilent, Cybage and Ninestar) were directed to be excluded from the comparable set (Ground 8 allowed). The addition under section 14A computed by applying Rule 8D was deleted for lack of recorded satisfaction (Ground 9 allowed). The claim for additional relief under section 90 was remitted to the Assessing Officer for de novo verification (Ground 10 set aside). Other grounds were either not pressed or not adjudicated and the appeal is otherwise dismissed in part.

Foreign tax credit - Double Taxation Avoidance Agreement (DTAA) relief - procedural requirement of Form 67/Rule 128(9) - mandatory versus directory nature of procedural rules - rectification under Section 154 - time limit for filing return under Section 139

Foreign tax credit - procedural requirement of Form 67/Rule 128(9) - mandatory versus directory nature of procedural rules - Double Taxation Avoidance Agreement (DTAA) relief - rectification under Section 154 - Whether foreign tax credit could be denied because the claim was not made in the original return/Form 67 within the time prescribed, and whether the rectification proceedings under Section 154 could be used to admit the belated claim. - HELD THAT: - The Tribunal accepted that the genuineness of foreign tax paid in Singapore was not in dispute but the AO rejected the additional foreign tax credit on the ground that the claim was not part of the original return and that the time to file a revised return had expired. The Tribunal held that the procedure for claiming relief under section 90 (embodied in Rule 128 and Form 67) is procedural in nature and, following decisions of the Coordinate Bench and the Supreme Court on the distinction between substantive and procedural conditions, a purely procedural non compliance does not extinguish the substantive right conferred by the DTAA and section 90. The Tribunal relied on earlier coordinate bench decisions holding that Rule 128(9)'s time stipulation is directory and does not prescribe forfeiture of the right to foreign tax credit, and observed that Form 67 (and evidence) was available to the AO. Consequently, the Tribunal set aside the CIT(A)'s and AO's orders rejecting the claim in rectification proceedings and directed the AO to allow the foreign tax credit under section 90 in accordance with law. [Paras 6, 7, 8]

The order of the CIT(A) is set aside and the AO is directed to allow the foreign tax credit under section 90 for A.Y. 2020-21.

Final Conclusion: The Tribunal allowed the appeal, held that non filing of Form 67 within the time prescribed is a procedural/default that does not extinguish the assessee's substantive right to foreign tax credit under the DTAA and section 90, set aside the CIT(A)'s order, and directed the AO to grant the foreign tax credit for A.Y. 2020 21.

Rejection of books of account under section 145(3) - reassessment under section 147/148 and borrowed satisfaction - onus of proof on the assessee to establish genuineness of purchases - estimation of income by applying a presumptive gross profit rate - application of CBDT benign assessment instruction for diamond traders - right of confrontation and cross-examination of statements relied upon by the Revenue

Rejection of books of account under section 145(3) - onus of proof on the assessee to establish genuineness of purchases - Whether rejection of the assessee's books of account and treating purchases as bogus was justified - HELD THAT: - The Tribunal accepted that information from the Investigation Wing showed the supplier group admitted issuance of accommodation entries and that the assessee had claimed purchases from those suppliers. The authorities invoked the principle that when specific information indicates suppliers issued bogus invoices, the primary onus lies on the assessee to prove existence of suppliers and genuineness of transactions. Mere production of bills, confirmations and payment by account-payee cheque did not suffice in face of such information. The Tribunal observed that receipt of goods was not disputed but the real cost was in question; non-production of suppliers for verification left purchases unverifiable. On these facts the Tribunal held that the rejection of books and treating a portion of purchases as not established was legally sustainable to the extent necessary to address inflation of purchases.

Rejection of books and conclusion that certain purchases were not established is sustainable in principle; the assessee failed to discharge the onus to prove genuineness.

Estimation of income by applying a presumptive gross profit rate - application of CBDT benign assessment instruction for diamond traders - Appropriate method and quantum for estimating income where purchases are treated as accommodation entries (whether 25% disallowance was justified and whether a lower presumptive GP rate should be applied) - HELD THAT: - While the Assessing Officer applied a standard 25% estimate on the disputed purchases, the Tribunal examined industry practice and the CBDT Instruction No.2/2008 acknowledging a 6% profit benchmark for diamond traders. The Tribunal noted the nature of diamond business where gross margins are thin, the assessee's disclosed gross profit for diamond sales computed at about 5.96%, and that receipt of goods and quantity records were not disputed. Considering these material facts, the Tribunal found the AO's flat 25% estimate disproportionate and inappropriate for the trade characteristics. The Tribunal thus deemed it reasonable to apply a presumptive rate aligned with the industry benchmark and the assessee's own disclosed figures rather than the AO's 25% estimate.

The AO's 25% addition is not sustained; the Tribunal partly allows the appeal and directs estimation at a rate of 6% (in place of 25%) on the relevant purchases.

Reassessment under section 147/148 and borrowed satisfaction - right of confrontation and cross-examination of statements relied upon by the Revenue - Whether reopening under section 147/148 was vitiated by 'borrowed satisfaction' and whether non-furnishing of statements or denial of cross-examination vitiated the proceedings - HELD THAT: - The assessee challenged reopening as based on borrowed satisfaction from the Investigation Wing and contended statements relied upon were not furnished and cross-examination denied. The Tribunal examined authorities on borrowed satisfaction and principles of natural justice. It observed that the AO had issued statutory notices, called for documents and afforded opportunity to the assessee to produce records and make submissions; the assessee failed to demonstrate any specific prejudice from non-furnishing of investigation material or from the absence of cross-examination. Applying the test of prejudice and fair hearing, the Tribunal found no nullifying illegality in the procedure adopted and concluded that non-furnishing of the investigation statements amounted at most to a curable irregularity where no prejudice was shown.

The challenge to reopening on the ground of borrowed satisfaction and to the non-furnishing of statements/cross-examination is dismissed; no prejudice to the assessee established.

Final Conclusion: The appeal is partly allowed: while the authorities were entitled to treat the purchases as not established given the investigative material and the assessee's failure to discharge the onus, the AO's uniform 25% estimation was excessive for the diamond trade; the Tribunal reduces the estimate to 6% and otherwise upholds the reassessment and procedural steps as not vitiated by borrowed satisfaction or denial of cross-examination.

Deductibility of finance costs under section 36(1)(iii) read with section 57(iii) - treatment of loss as speculation loss under section 43(5) - allowability of bonus payment as business expenditure under section 37 and timing under section 43B - disallowance of expenditure for earning exempt income under section 14A read with Rule 8D - ad-hoc disallowance of business expenses for want of verification - transfer pricing adjustment and mandatory reference to TPO in terms of CBDT guidelines/section 92CA - remand for verification of provision for professional fees and related facts

Deductibility of finance costs under section 36(1)(iii) read with section 57(iii) - Allowability of the finance cost claimed by the assessee as business deduction. - HELD THAT: - The assessee furnished a breakup of finance costs (interest on overdraft, bank guarantee charges and bank charges) and evidence that bank guarantees and temporary OD were used to meet margin requirements for client trades. The Tribunal accepted the CIT(A)'s factual finding that interest on the OD had direct nexus with the broking business and, on examining the nature of bank guarantee charges and bank charges, concluded these expenses were incurred in the course of stock broking for institutional clients. The Tribunal observed that these finance costs were not towards borrowings used to make interest free loans to the subsidiary and therefore fall within the ambit of deduction under section 36(1)(iii) rather than being disallowed under section 57(iii) or limited to general allowance under section 37. On this basis the Tribunal allowed the ground in favour of the assessee. [Paras 9]

Finance costs of Rs. 5,650,752 debited to P&L are deductible under section 36(1)(iii); the disallowance is deleted.

Treatment of loss as speculation loss under section 43(5) - Whether the business loss returned by the assessee arises from speculative transactions and is therefore disallowable. - HELD THAT: - The Tribunal examined the detailed breakup of the assessee's income showing predominance of brokerage and advisory income and other non speculative receipts (dividends, interest, commission). The Assessing Officer's conclusion that the net loss arose from speculative share trading was found to be unsupported by the record and contrary to the assessee's explained fall in revenue from operations. The Tribunal held the finding of speculation to be factually incorrect, noting that lower authorities ignored the assessee's submissions and the computation breakdown, and accordingly deleted the addition. [Paras 13, 14]

Addition treating the loss as speculative is deleted; the ground is allowed in favour of the assessee.

Allowability of bonus payment as business expenditure under section 37 and timing under section 43B - Allowability of bonus debited to P&L and whether the claim was rightly disallowed by the authorities. - HELD THAT: - The assessee produced employee wise details of bonus payments, tax deductions, and bank payment evidence and had itself made a suo motu disallowance for unpaid bonus. The Assessing Officer and CIT(A) raised tax avoidance and due date objections without properly considering the documentary proofs. The Tribunal found that the assessee's submissions and supporting documents were not considered by the lower authorities and, in view of actual payments and the suo motu disallowance, the disallowance of the claimed bonus was not sustainable. [Paras 19, 20]

Disallowance of the bonus amount is deleted; the ground is allowed in favour of the assessee.

Disallowance of expenditure for earning exempt income under section 14A read with Rule 8D - Scope of disallowance under section 14A read with Rule 8D and the correct basis for computation. - HELD THAT: - The Tribunal accepted that depository charges were statutory and incurred in the normal course of the broking business and therefore not directly related to earning exempt dividend income; those charges were to be excluded from disallowance under Rule 8D(2)(i). With respect to computation under Rule 8D(2)(iii), the Tribunal applied the settled principle that only investments yielding exempt income should be considered for calculating the proportionate interest attributable to exempt income. The Tribunal directed the Assessing Officer to recompute the disallowance taking into account only investments earning tax free income and to factor in the assessee's suo motu disallowance. [Paras 21, 24]

Part of the Rule 8D disallowance deleted (depository charges); reassessment under Rule 8D(2)(iii) directed to be recomputed considering only investments yielding exempt income and the assessee's suo motu disallowance.

Ad hoc disallowance of business expenses for want of verification - Validity of the assessing officer's adhoc (20%/25%) disallowance of certain operating expenses. - HELD THAT: - The assessee furnished party wise details, ledgers, invoices, tax deducted particulars and audit subjected books. The assessing officer made an adhoc disallowance without recording specific adverse findings, confronting defects, or seeking further verification. The Tribunal held that in absence of particularised adverse findings and given audited accounts and supporting documents, the adhoc disallowance was not sustainable. [Paras 27]

Ad hoc disallowance of the expenses is deleted; the ground is allowed in favour of the assessee.

Transfer pricing adjustment and mandatory reference to TPO in terms of CBDT guidelines/section 92CA - Validity of the transfer pricing adjustment made by the Assessing Officer without reference to the TPO. - HELD THAT: - The Tribunal relied on CBDT guidelines (Instruction No.3/2016) clarifying that where cases are selected on TP risk parameters or otherwise require TPO consideration, the AO must refer the matter to the TPO and should not determine ALP himself in the absence of such reference; if no reference is made, AO should record that TP issue was not examined. The Assessing Officer made an ALP adjustment without any reference to the TPO. Applying the guideline and statutory scheme, the Tribunal held that the AO lacked jurisdiction to make the TP adjustment and deleted the same. [Paras 31, 32]

Transfer pricing addition of Rs. 2,87,62,981 made by the AO is deleted for lack of reference to the TPO; the ground is allowed in favour of the assessee.

Remand for verification of provision for professional fees and related facts - Adjudication of the allowability of the provision for professional fees (related to AE) remitted to AO for fresh examination. - HELD THAT: - The Assessing Officer had disallowed a provision for expenses but the Tribunal found that the question whether the provision of Rs. 1,28,75,981 is included in the TP adjustment or separately assessable was not properly examined. The Tribunal therefore remitted the matter to the AO to examine the allowability on merits, call for relevant details, and decide in accordance with law, directing the assessee to cooperate and produce documents. [Paras 33]

Issue remitted to the Assessing Officer for fresh examination and determination after calling for necessary details; decision on allowability deferred.

Final Conclusion: The Tribunal allowed the appeal largely in favour of the assessee: finance costs and the business loss (not speculative) were allowed; the bonus claim and ad hoc expense disallowance were deleted; part of the section 14A disallowance was deleted and Rule 8D(2)(iii) recomputation was directed; a transfer pricing adjustment made without TPO reference was deleted; and the question of a provision for professional fees was remitted to the Assessing Officer for fresh consideration. Appeal allowed.

Amounts paid for resale/use of computer software under EULAs/distribution agreements not taxable as royalty for use of copyright - binding application of Engineering Analysis Centre of Excellence (Supreme Court) on royalty characterisation of off the shelf software - amendment to domestic definition of royalty cannot be imported into DTAA without corresponding treaty amendment - strict construction of treaty terms for determining royalty - receipt for internet bandwidth charges not royalty under India-Singapore DTAA where treaty language differs - fees for technical services/FTS - taxable only where services make available technical knowledge/skill under Article 12(4)(b) - precedential effect of co ordinate Bench/earlier tribunal orders in assessee's own case

Amounts paid for resale/use of computer software under EULAs/distribution agreements not taxable as royalty for use of copyright - binding application of Engineering Analysis Centre of Excellence (Supreme Court) on royalty characterisation of off the shelf software - precedential effect of co ordinate Bench/earlier tribunal orders in assessee's own case - Whether receipts from sale/resale of off the shelf computer software to Indian users/distributors constitute royalty chargeable in India. - HELD THAT: - The Tribunal followed the Supreme Court's definitive ruling in Engineering Analysis Centre of Excellence (as applied by co ordinate Bench in the assessee's earlier years) that amounts paid by resident Indian end users or distributors to non resident software manufacturers/suppliers for resale/use under EULAs/distribution agreements do not constitute payment of royalty for use of copyright and do not give rise to income taxable in India. The Tribunal observed that a non exclusive licence or transactional arrangements that merely permit use/access under EULAs do not transfer the proprietary rights under the Copyright Act and therefore do not amount to royalty as understood in the DTAA and the domestic law where the treaty definition prevails. Relying on this binding precedent and the assessee's concession that the issue had been decided in its favour earlier, the Tribunal allowed the grievance in respect of off the shelf software receipts. However, receipts from two specified companies (Mphasis Finsource Ltd and Mphasis Software and Services (India) Limited) were not covered by the agreements relied upon for earlier years and, on the assessee's concession that agreements were not available/these transactions were not covered, the Tribunal directed the Assessing Officer to treat revenue from these two companies as royalty and tax them under the Act. [Paras 6, 8, 9, 10]

Following the Supreme Court and prior Tribunal decisions, receipts from resale/use of off the shelf software are not royalty; allowed for the assessed years except that receipts from two specified companies are to be taxed as royalty and referred to the Assessing Officer for assessment.

Receipt for internet/bandwidth charges not royalty under India-Singapore DTAA where treaty language differs - amendment to domestic definition of royalty cannot be imported into DTAA without corresponding treaty amendment - Whether receipts for provision/use of telecom/internet bandwidth constitute royalty or equipment/process royalty taxable in India. - HELD THAT: - The Tribunal examined the characterisation of internet/bandwidth receipts and observed parity with a co ordinate bench decision (Planetcast). It held that although domestic law was amended to broaden the definition of royalty, no corresponding amendment was made to Article 12(3) of the India-Singapore DTAA; consequently the widened domestic definition cannot be read into the treaty. Applying strict construction of the treaty language and relevant precedents, the Tribunal concluded that the receipts in issue could not be treated as royalty under the DTAA and directed deletion of the addition. [Paras 11, 13]

Receipts from internet/bandwidth charges are not royalty under the India-Singapore DTAA; the addition is deleted.

Fees for technical services/FTS - taxable only where services make available technical knowledge/skill under Article 12(4)(b) - application of Planetcast ratio to IT support services - no making available of technology - Whether payments for information technology related support services constitute Fees for Technical Services (FTS)/royalty under the India-Singapore DTAA by virtue of enabling the recipient to apply the technology. - HELD THAT: - The Tribunal applied the reasoning in Planetcast where, on facts, services did not make available technical knowledge, experience or skill as contemplated by Article 12(4)(b) of the DTAA. Examining the nature of the services rendered, the Tribunal found that the payments in question did not transmit technical knowledge or make technology available to the Indian recipient and hence did not fall within Article 12(4). Consequently, the additions on account of alleged FTS/royalty were deleted. [Paras 14, 16, 17]

Payments for the IT support services are not FTS/royalty under Article 12(4)(b) of the India-Singapore DTAA; the addition is deleted.

Final Conclusion: Appeals for Assessment Years 2011 12 to 2014 15 were allowed or partly allowed in favour of the assessee: receipts for resale/use of off the shelf software are not royalty in view of the Supreme Court's decision, subject to taxation of receipts from two specified companies as directed; additions treating internet/bandwidth charges and IT support service receipts as royalty/FTS are deleted.

Summary order. The appeal is dismissed on account of low tax effect, having regard to Notification No.380/Miscellaneous/30/2023-JC (Instruction) dated 02.11.2023; pending applications, if any, are disposed of.

Summary order. Special Leave Petitions dismissed for delay; the question of law is kept open.

Dismissal of appeal for low tax effect - monetary limit for granting leave to appeal to the Supreme Court - preservation of question of law for subsequent assessment year - judicial discretion to refuse entertainment of appeal where tax effect is below threshold

Dismissal of appeal for low tax effect - monetary limit for granting leave to appeal to the Supreme Court - Civil appeals dismissed on account of the tax effect being below the prescribed monetary threshold for entertaining appeals to this Court. - HELD THAT: - The Court applied the updated administrative instruction raising the monetary threshold for appeals from CESTAT to the Supreme Court and concluded that the tax effect in these appeals is below that threshold. In exercise of judicial discretion and having regard to the low tax effect, the Court dismissed the civil appeals while recording the appellant's submission about the applicable monetary limit. No substantive adjudication on the merits of any question of law was undertaken.

Civil appeals dismissed in view of the low tax effect.

Preservation of question of law for subsequent assessment year - judicial discretion to refuse entertainment of appeal where tax effect is below threshold - Whether questions of law raised in these appeals are kept open for future litigation by the same assessee in later assessment years. - HELD THAT: - Although the appeals were dismissed for want of sufficient tax effect, the Court expressly left open any question of law that may arise in relation to the respondent assessee in respect of any subsequent assessment year. That reservation preserves the right of the assessee to agitate legal issues in future proceedings notwithstanding the present dismissal based on monetary threshold.

Questions of law, if any, are kept open to be agitated by the respondent assessee in respect of subsequent assessment years.

Final Conclusion: The appeals are dismissed on the ground that the tax effect is below the monetary threshold for entertaining appeals to this Court; however, any question of law raised is reserved and may be agitated by the respondent in relation to subsequent assessment years. Pending applications are disposed of.

Regular bail under Section 439 CrPC - Custody and progress of investigation - Seriousness of allegations not precluding grant of bail - Conditional release on executing bond and sureties - Reporting to Investigating Officer - Territorial travel restriction as bail condition - Non-tampering with evidence and non-influence of witnesses - Surrender of passport/affidavit in lieu - Provision for cancellation of bail on breach of conditions

Regular bail under Section 439 CrPC - Custody and progress of investigation - Seriousness of allegations not precluding grant of bail - Conditional release on executing bond and sureties - Non-tampering with evidence and non-influence of witnesses - Surrender of passport/affidavit in lieu - Application for regular bail of the petitioner in proceedings under Section 135 of the Customs Act was allowed subject to conditions. - HELD THAT: - The court noted that though the allegations against the petitioner are serious and the prosecution has filed a report opposing bail, the petitioner had been in custody since 5.10.2023 and the investigation had progressed. Bearing these facts in mind, the court exercised its discretion under Section 439 CrPC to grant regular bail. The grant of bail was made on condition that the petitioner executes a bond with two solvent sureties, reports to the Investigating Officer as required, observes a specified territorial restriction (not entering Kozhikode District for three months except for reporting or by direction), refrains from tampering with evidence or influencing witnesses, does not commit any other offence while on bail, surrenders his passport to the jurisdictional court or files an affidavit if he has no passport, and furnishes his residential address and mobile number to the court and Investigating Officer. The court also recorded that breach of any condition would empower the jurisdictional court to move for cancellation of bail as per law.

Bail granted to the petitioner on the stated conditions.

Final Conclusion: The petition for regular bail is allowed; the petitioner is to be released on furnishing bond and sureties and subject to the enumerated conditions including reporting to the Investigating Officer, territorial restriction, non-tampering obligations, surrender of passport or affidavit, and furnishing contact details, with liberty to the jurisdictional court to cancel bail on violation.

Chargeability of customs duties on clearance from SEZ to DTA - Deeming fiction of re import under rule 48(3) of SEZ Rules - Sales in Domestic Tariff Area under rule 47 of SEZ Rules - Primacy of the SEZ Act over subordinate rules; rules cannot supplant the Act - SEZ treated as territory outside the customs territory for duty purposes - Re import liability under Customs law

Chargeability of customs duties on clearance from SEZ to DTA - Sales in Domestic Tariff Area under rule 47 of SEZ Rules - Deeming fiction of re import under rule 48(3) of SEZ Rules - Primacy of the SEZ Act over subordinate rules; rules cannot supplant the Act - Whether goods removed from SEZ to DTA (initially procured from DTA) are chargeable to customs duties in terms of section 30 of the SEZ Act read with rule 47 of the SEZ Rules, notwithstanding rule 48(3). - HELD THAT: - The Tribunal held that SEZs are treated as outside the customs territory and that section 30, which makes goods removed from SEZ to the Domestic Tariff Area chargeable to customs duties, is clear and unambiguous. Where statutory language is plain, rules cannot be interpreted to override or supplant the Act. Rule 48(3) merely prescribes that goods procured from DTA and supplied back without substantial processing shall be treated as re imported goods for procedural purposes; it does not extinguish liability to customs duties. Rule 48(3) must be read together with rule 47, which expressly provides for DTA sales on payment of customs duty under section 30. The rules cannot be construed to create a deeming fiction that nullifies the levy mandated by the Act, and re import treatment under the Customs law does not imply blanket exemption from duty. [Paras 7, 8, 9, 11]

The Tribunal affirmed that clearances from SEZ to DTA are chargeable to customs duties; the appellant's interpretation that rule 48(3) excludes basic customs duty and other levies is rejected.

Applicability of exemption Notification No. 45/2017 Cus. to re imported goods - Refund claim in relation to conditional exemptions on re imports - Whether the appellant is entitled to benefits/exemptions under Notification No. 45/2017 Cus. in respect of goods cleared from SEZ to DTA and whether the refund claim requires further examination. - HELD THAT: - The Tribunal observed that the Commissioner (Appeals) did not examine the applicability of Notification No. 45/2017 Cus. to the appellant's claim with sufficient detail and specific reasons, noting facts in the record (sample invoices and claims) that could bear on eligibility for conditional exemptions. Consequently, the Tribunal found that the limited question of entitlement under the notification and any consequent refund requires fresh consideration by the authority concerned. [Paras 13]

The appeal is partly allowed only to remand the limited issue of applicability of Notification No. 45/2017 Cus. and the appellant's entitlement to any exemption or refund thereunder for fresh adjudication.

Final Conclusion: The Tribunal upheld that clearance of goods from SEZ to DTA is chargeable to customs duties under section 30 read with rule 47, rejected the appellant's reading of rule 48(3) as creating a duty free deeming fiction, and remanded the limited question of entitlement under Notification No. 45/2017 Cus. for fresh consideration by the adjudicating authority.

Valuation with reference to retail sale price (RSP) - distinction between maximum retail price (MRP) and retail sale price (RSP) - confiscation for non correspondence in value under Section 111(m) of the Customs Act, 1962 - penalty for use of false or incorrect material under Section 114AA of the Customs Act, 1962 - penalty under Section 112(a) of the Customs Act, 1962 - requirement of knowledge or intention for penal liability - bona fides of importer in mis-declaration cases

Confiscation for non correspondence in value under Section 111(m) of the Customs Act, 1962 - distinction between maximum retail price (MRP) and retail sale price (RSP) - valuation with reference to retail sale price (RSP) - bona fides of importer in mis-declaration cases - Whether confiscation of the imported goods under Section 111(m) was justified - HELD THAT: - The Tribunal found no deliberate mis declaration by the importer. Documentary evidence (purchase order, e mail exchanges and a revised MRP list) established an agreed revision of the price to be printed, and the price actually affixed by the foreign vendor did not match either the original purchase order or the revised MRP list. The court emphasised the distinction between MRP and RSP and noted that the statutory scheme relating to valuation with reference to RSP does not equate every MRP discrepancy with deliberate mis declaration. Given the documentary record and absence of mala fides on the part of the appellant, the case did not fall within the mischief of Section 111(m) so as to warrant confiscation; the vendor's independent act of affixing a different price tag disentitles the Revenue from treating the importer as having intentionally mis declared value. [Paras 11, 12, 15, 16]

Confiscation under Section 111(m) set aside; no case made out for confiscation of the goods.

Penalty for use of false or incorrect material under Section 114AA of the Customs Act, 1962 - penalty under Section 112(a) of the Customs Act, 1962 - requirement of knowledge or intention for penal liability - bona fides of importer in mis-declaration cases - Whether penalties under Sections 112(a) and 114AA were justified - HELD THAT: - Section 114AA requires knowledge or intention to use false or incorrect material. The Tribunal concluded that the requisite knowledge or intention was absent: the importer had documentary proof of an agreed revised MRP and promptly paid the differential duty once the discrepancy was pointed out. The vendor's independent and unexplained affixation of a different MRP broke the chain of culpability. On these findings the penalties premised on intentional or knowing mis declaration could not be sustained. [Paras 11, 13, 14]

Penalties under Sections 112(a) and 114AA deleted.

Final Conclusion: Appeal allowed: the impugned order upheld by the Commissioner (Appeals) is set aside; confiscation of goods is quashed and penalties under Sections 112(a) and 114AA are deleted.

Implementation of Tribunal order - Judicial discipline - Contempt for non-implementation of appellate orders - Bank guarantee as condition for re-export - Imposition of costs for non-compliance - Referability to High Court under Contempt of Courts Act, Section 10

Implementation of Tribunal order - Bank guarantee as condition for re-export - Judicial discipline - Failure of Customs authorities to implement the Tribunal's final order permitting re-export and the consequent direction to implement the order forthwith. - HELD THAT: - The Tribunal found that its final order dated 12.09.2019, and subsequent interlocutory directions under Rule 41 requiring the appellant to furnish a bank guarantee, had not been complied with by the Commissioner of Customs (Exports), IGI Airport, New Delhi despite the appellant depositing the ordered bank guarantee and keeping it alive as directed. The Tribunal held that no stay had been granted by the High Court and that, in view of established principles of judicial discipline and binding precedents cited in the order, subordinate authorities are bound to comply with appellate directions unless the operation of such orders is stayed by a competent court. The Tribunal observed that holding on to goods after the order setting aside confiscation is illegal and that the department had no lawful basis to continue to withhold the goods. On these grounds the Tribunal directed the concerned Commissioner to implement the order dated 12.09.2019 within a fortnight of receipt of this order. [Paras 6, 8, 13, 19]

The Commissioner of Customs (Exports), IGI Airport, New Delhi is directed to implement the Tribunal's order dated 12.09.2019 and permit the re-export within a fortnight of receipt of this order.

Imposition of costs for non-compliance - Judicial discipline - Whether pecuniary penalty should be imposed on the concerned Commissioner for willful non-compliance of Tribunal orders. - HELD THAT: - Having concluded that the Commissioner acted in flagrant violation of the Tribunal's directions and breached the doctrine of judicial discipline by repeatedly failing to implement orders passed under Rule 41 despite being given opportunities and specific directions, the Tribunal found imposition of costs to be appropriate to vindicate its authority and deter recurrence. The Tribunal therefore imposed a cost on the concerned Commissioner for delay and non-implementation and directed recovery or payment to the specified fund. [Paras 16, 20]

A cost of Rs. 2,00,000 is imposed on the concerned Commissioner (Customs Export, IGI Airport, New Delhi); the amount is to be paid or recovered from the Commissioner and deposited to the PM Cares Fund within a fortnight of receipt of this order.

Contempt for non-implementation of appellate orders - Referability to High Court under Contempt of Courts Act, Section 10 - Whether the matter should be referred to the High Court for initiation of contempt proceedings against the concerned Commissioner for non-compliance. - HELD THAT: - The Tribunal, having recorded persistent non-compliance of its orders and the failure of the departmental officers to act in accordance with judicially binding directions, held that the conduct warranted consideration for contempt. Relying on the Contempt of Courts Act framework, the Tribunal directed that the matter be referred to the Registrar General of the Hon'ble Allahabad High Court under Section 10 of the Contempt of Courts Act, 1971 for such action as the High Court may deem fit. [Paras 17, 21]

The matter is referred to the Hon'ble Allahabad High Court under Section 10 of the Contempt of Courts Act, 1971 for consideration of initiation of contempt proceedings against the concerned Commissioner and related officers.

Final Conclusion: The Tribunal ordered immediate implementation of its final order permitting re-export (subject to the earlier bank guarantee condition), imposed costs of Rs. 2,00,000 on the concerned Commissioner for willful non-compliance to be deposited to the PM Cares Fund or recovered from salary, and referred the matter to the Hon'ble Allahabad High Court under Section 10 of the Contempt of Courts Act, 1971 for consideration of contempt proceedings; compliance is to be reported as directed.

Professional misconduct - failure to obtain sufficient appropriate audit evidence - non-consolidation of subsidiary requiring adverse opinion under SA 705 - failure to prepare audit documentation (SA 230) - failure to report credit risk disclosures (Ind AS 107) - failure to determine materiality (SA 320) - failure to perform risk assessment (SA 315) and design responses (SA 330) - failure to perform analytical procedures (SA 520) - failure to communicate with Those Charged with Governance and report control deficiencies (SA 260/265) - penalty and debarment under Section 132(4) of the Companies Act, 2013

Non-consolidation of subsidiary requiring adverse opinion under SA 705 - failure to obtain sufficient appropriate audit evidence - Qualified opinion was insufficient; an adverse opinion was required for non-consolidation of MSPL which was material and pervasive. - HELD THAT: - The EP issued a qualified opinion on the Consolidated Financial Statements notwithstanding non-consolidation of wholly owned subsidiary MSPL. NFRA found no stay order by the Bombay High Court and no evaluation of the 2015 legal opinion in the audit file. MSPL's assets and liabilities were material and pervasive to MIIL (about 19.20% and 28.96% respectively). In these circumstances SA 705 required an adverse opinion, and the EP's failure to give one showed lack of due diligence and absence of sufficient appropriate audit evidence. [Paras 18, 19, 20, 21]

EP should have given an adverse opinion for non-consolidation; his qualified opinion was without due diligence and lacked SAAE.

Failure to prepare audit documentation (SA 230) - tampering and backdating of audit work papers - Audit documentation was deficient and tampered with; SA 230 requirements were not met. - HELD THAT: - The Audit File contained work papers inconsistent with the FY 2016 17 engagement (references to GST and later standards), undated and backdated documents, and missing evaluations of external reports and confirmations. The file lacked evidence of who performed and reviewed work and of significant professional judgements. NFRA concluded documents were inserted after issuance of the SCN and that the EP failed to prepare sufficient documentation to enable an experienced auditor to understand the nature, timing, extent, results and significant judgements as required by SA 230. [Paras 28, 29, 30, 31, 32]

EP failed to comply with SA 230; the Audit File was deficient and showed tampering and gross negligence.

Failure to report credit risk disclosures (Ind AS 107) - failure to obtain external confirmations (SA 505) - EP failed to report material non disclosures concerning credit risk profile of trade receivables and did not obtain required external confirmations. - HELD THAT: - The Company omitted disclosures required by Para 35M/35N of Ind AS 107 and did not provide ageing or provision matrix disclosures; the EP did not document analysis supporting his conclusion that credit risk was low, nor evidence of external confirmations for trade receivables as required by SA 505. Audit file lacked corroborative evidence (e.g., letters of credit, ageing, receipts) and the EP's post hoc explanations were undocumented and unacceptable. This constituted negligence in reporting non disclosure and in audit procedures over trade receivables. [Paras 40, 41, 42, 43, 44]

EP negligent in not reporting non disclosure under Ind AS 107 and in failing to obtain external confirmations for trade receivables.

Failure to determine materiality (SA 320) - EP did not determine or document materiality and performance materiality as required by SA 320. - HELD THAT: - SA 320 mandates determining materiality when establishing overall audit strategy. The Audit File contained no working papers evidencing determination of materiality or performance materiality. Given multiple material misstatements (e.g., non consolidation, related party disclosure failures), NFRA rejected the EP's assertions that materiality had been determined and concluded the requirement was not complied with. [Paras 56, 57, 58, 60, 61]

EP failed to adhere to SA 320 by not determining or documenting materiality and performance materiality.

Failure to perform risk assessment (SA 315) and design responses (SA 330) - failure to obtain SAAE - EP did not perform or document required risk assessment procedures nor design appropriate responses to identified risks. - HELD THAT: - There was no evidence in the Audit File of risk assessment procedures at financial statement and assertion levels as required by SA 315, nor of audit responses as required by SA 330. The EP failed to identify applicable accounting framework issues (e.g., Ind AS 101), to test internal controls or to document testing of IFCoFR, yet issued unmodified opinions on internal controls. These omissions indicate gross negligence and failure to obtain sufficient appropriate audit evidence. [Paras 68, 69, 70, 71, 72]

EP failed to perform and document risk assessment and responses under SA 315/330 and did not obtain SAAE.

Failure to perform analytical procedures (SA 520) - EP failed to design and perform analytical procedures required to evaluate consistency of financial statements. - HELD THAT: - Significant year on year fluctuations (notably in revenue, PBT and various asset/liability items) were not analysed or documented. Working papers relied on management representation without recorded analytical procedures, reasons for substantive changes, or enquiries of management. NFRA concluded SA 520's requirements were violated. [Paras 50, 51, 52, 53, 54]

EP violated SA 520 by not performing or documenting analytical procedures.

Failure to communicate with Those Charged with Governance and report control deficiencies (SA 260/265) - EP failed to identify and document communications with Those Charged with Governance and did not communicate significant findings or control deficiencies as required. - HELD THAT: - Audit documentation contained no records of communications with TCWG about auditor's responsibilities, planned scope/timing, or significant findings; oral communications were not documented. There is no written communication of significant deficiencies in internal control. NFRA concluded that the EP did not exercise due diligence and was grossly negligent in complying with SA 260 and SA 265. [Paras 79, 80, 81, 82]

EP failed to communicate with TCWG and to document such communications and control deficiencies as required by SA 260/265.

Failure to report non disclosure of related party loans on gross basis (Ind AS 24) - EP erred in not reporting non disclosure of related party loan transactions on a gross basis as required by Ind AS 24. - HELD THAT: - Ind AS 24 requires disclosure of the amount of transactions and outstanding balances with related parties to enable users to assess effects on financial position and profit or loss. The Company disclosed certain related party loan items on a net basis; EP misconstrued the standard. NFRA held that the EP failed to exercise due professional care in not reporting this material non disclosure. [Paras 84, 85, 86]

EP failed to report non disclosure of related party loans on gross basis in breach of Ind AS 24 and SA 550.

Failure to report non disclosure under MSME Act / Schedule III - EP failed to report non disclosure of amounts due to micro, small and medium enterprises as required by Schedule III and MSME Act obligations. - HELD THAT: - Company's annual report stated suppliers under MSME were not identified; EP did not assess materiality or the impact of missing disclosure, nor modify his opinion. NFRA concluded the EP should have reported the material non disclosure and its effect on the financial statements. [Paras 87, 88, 89, 90]

EP failed to report non disclosure of MSME related payables and its impact as required.

Failure to report full particulars of loan to related party (Section 186(4)) - EP did not ensure disclosure of full particulars and purpose of related party loan as required; claimed exemption under Section 186(11) was undocumented and unverified. - HELD THAT: - Loans to MSPL lacked disclosure under Section 186(4) and SEBI Schedule V. EP asserted applicability of Section 186(11) exemption but did not record any evaluation or conclusion in the audit file nor evidence of discussion with management/TCWG. Given sensitivity of RPTs, NFRA found this to be an afterthought and a failure to exercise professional scepticism. [Paras 91, 92, 93]

EP failed to obtain or document evidence supporting exemption and to report non disclosure of full particulars of related party loan.

Penalty and debarment under Section 132(4) of the Companies Act, 2013 - NFRA imposed monetary penalty and debarment for proved professional misconduct. - HELD THAT: - Having found multiple proven instances of professional misconduct (failure to obtain SAAE, deficient documentation, improper audit opinions, failure to report material non disclosures and other breaches of SAs and Ind AS), NFRA concluded sanctions were warranted. In exercise of powers under Section 132(4)(c), NFRA imposed a monetary penalty and a period of debarment. [Paras 101, 102, 103, 104, 105]

Monetary penalty of Rs.5,00,000 and debarment for five years from appointment as auditor or undertaking audits; order effective after 30 days.

Charge dropped - disclosure of lien on fixed deposits (Ind AS 107) - Charge relating to non disclosure of lien on fixed deposits was dropped on the material before NFRA. - HELD THAT: - The EP produced confirmations and workpapers concerning bank confirmations and management representations; on consideration of those papers NFRA observed that the evidence did not establish a failure to disclose a lien on fixed deposits and therefore the charge in respect of that matter was not pursued. [Paras 94, 95, 96]

Charge regarding non disclosure of lien on fixed deposits is dropped.

Final Conclusion: NFRA found the Engagement Partner guilty of multiple instances of professional misconduct-including failure to obtain sufficient appropriate audit evidence, inadequate and tampered audit documentation, incorrect audit opinion on a material non consolidation, and failures under various SAs and Ind AS-and imposed a monetary penalty of Rs.5,00,000 and debarred him for five years from appointment as auditor or undertaking audits; the order becomes effective 30 days from its date of issue.

Maintainability of appeals under Article 136 prior to adjudication under Section 100 of the Insolvency and Bankruptcy Code, 2016 - availability of remedies before the Adjudicating Authority at the stage of Section 100 - declination to exercise discretionary jurisdiction

Maintainability of appeals under Article 136 prior to adjudication under Section 100 of the Insolvency and Bankruptcy Code, 2016 - availability of remedies before the Adjudicating Authority at the stage of Section 100 - declination to exercise discretionary jurisdiction - Special Leave Petitions and Civil Appeals filed before adjudication under Section 100 of the Insolvency and Bankruptcy Code, 2016 are not entertained by this Court. - HELD THAT: - The Court declined to exercise its discretionary jurisdiction under Article 136 in relation to petitions and appeals filed prior to adjudication under Section 100 of the Insolvency and Bankruptcy Code, 2016, on the ground that the petitioners/appellants remain able to pursue all available remedies before the Adjudicating Authority at the stage of Section 100. The Court expressly relied on the separate judgment delivered in Court today in Dilip B Jiwrajka v Union of India as the basis for directing that the remedies before the Adjudicating Authority are adequate and therefore these matters should not be entertained under Article 136. Consequently, the petitions and appeals were dismissed for want of entitlement to invoke this Court's discretionary jurisdiction at this stage.

The Special Leave Petitions and Civil Appeals are dismissed and pending applications, if any, stand disposed of.

Final Conclusion: The Supreme Court declined to entertain the SLPs/Civil Appeals filed prior to adjudication under Section 100 of the Insolvency and Bankruptcy Code, 2016, holding that petitioners/appellants can pursue remedies before the Adjudicating Authority at the Section 100 stage; the SLPs/CAs are dismissed and pending applications disposed of.

Application of precedent in tax appeals - setting aside appellate tribunal order - refund of pre-deposit

Application of precedent in tax appeals - setting aside appellate tribunal order - refund of pre-deposit - Appeals against the CESTAT order are covered by the precedential judgment in Bhayana Builders Private Limited and others and are to be allowed. - HELD THAT: - Counsel for both parties jointly submitted that the questions raised in these appeals are governed by this Court's decision in Commissioner of Service Tax and Ors. v. Bhayana Builders Private Limited and others. Having regard to that binding dictum, the Court applied the precedent and set aside the impugned order of the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad. The Court further directed that the pre-deposit made before the CESTAT be refunded to the appellant in accordance with law. No other issues were decided or remanded.

Appeals allowed; impugned CESTAT order set aside; pre-deposit to be refunded in accordance with law.

Final Conclusion: In view of the binding decision in Bhayana Builders Private Limited and others, the appeals are allowed, the CESTAT order is set aside and the pre-deposit made by the appellant shall be refunded as per law; pending applications disposed of.

Quantification of tax dues - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - eligibility under SVLDRS where enquiry/investigation/audit is quantified on or before 30.06.2019 - Section 125(1)(e) - bar where amount has not been quantified before 30.06.2019 - Section 121(r) - "quantified" means written communication of amount of duty payable - CBIC Circulars (27.08.2019 and 12.12.2019) on quantification and eligibility - Form SVLDRS-3 and Form SVLDRS-4 - statement of amount payable and computation - personal hearing under Section 127(3) - triggered when designated committee issues estimate exceeding declarant's amount

Quantification of tax dues - eligibility under SVLDRS where enquiry/investigation/audit is quantified on or before 30.06.2019 - CBIC Circulars (27.08.2019 and 12.12.2019) on quantification and eligibility - Section 121(r) - "quantified" means written communication of amount of duty payable - Declarant was eligible to file under SVLDRS, 2019 because the tax liability for the relevant periods had been quantified on or before 30.06.2019. - HELD THAT: - The Court found no dispute between the amount declared by the petitioner in Form SVLDRS-1 (25.12.2019) and the amount proposed in Show Cause Notice No.84/19-ST (08.11.2019), the variance being marginal. The Board's Circulars dated 27.08.2019 and 12.12.2019 clarify that where duty involved in an enquiry/investigation/audit has been quantified and communicated to the party on or before 30.06.2019, the declarant is eligible to avail the scheme. Section 121(r) defines "quantified" as written communication of the amount payable; the petitioner had filed ST-3 returns (between 07.01.2018 and 22.02.2018) reflecting the liability which, together with the subsequent show cause notice, evidenced quantification. Applying those clarifications and statutory definitions, the Court concluded that the petitioner's liability for the financial years 2014-2015 to 2017-2018 was quantified within the relevant cut-off, and hence Section 125(1)(e) did not bar the application. [Paras 25, 31, 33, 34, 36]

Petitioner entitled to relief under SVLDRS, 2019 as tax dues were quantified on or before 30.06.2019.

Section 125(1)(e) - bar where amount has not been quantified before 30.06.2019 - personal hearing under Section 127(3) - Form SVLDRS-3 and Form SVLDRS-4 - statement of amount payable and computation - Impugned Order in Original No.06/2022(C) confirming the demand was quashed and the Designated Authority was directed to issue SVLDRS-3 and SVLDRS-4 enabling settlement as per the petitioner's SVLDRS-1 application; no refund of amounts already paid; payment to be made as per Section 127(5). - HELD THAT: - Having held that quantification existed by the relevant date, the Court concluded the proposals in Show Cause Notice No.84/2019-ST and the consequent Order in Original confirming the demand were unwarranted. The Court observed that entitlement to a personal hearing under Section 127(3) arises only if the designated committee issues an electronic notice indicating an estimate exceeding the declarant's amount; that procedural point did not preclude the substantive finding of eligibility. The Court therefore allowed the writ petitions, quashed the impugned order, and directed the competent authority to issue Form SVLDRS-3 and SVLDRS-4 so that the petitioner may discharge the tax liability as declared in Form SVLDRS-1; it also directed compliance with the scheme provision on payment and disallowed any refund of amounts already paid. [Paras 37, 38, 39, 40]

Impugned demand order quashed; authority directed to issue SVLDRS-3 and SVLDRS-4 and permit settlement in accordance with the petitioner's SVLDRS-1 and Section 127(5); no refund of amounts already paid.

Final Conclusion: Writ petitions allowed. Court held that the petitioner's tax liability for the periods 2014-2015 to 2017-2018 was quantified on or before 30.06.2019 and therefore the petitioner was eligible under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019; the show cause notice proposals and the Order in Original confirming demand were quashed, and the designated authority is directed to issue Form SVLDRS-3 and SVLDRS-4 and permit settlement strictly in accordance with the petitioner's SVLDRS-1 and Section 127(5); no refund of amounts already paid.

Reduced penalty under proviso to section 78 - Factual verification of tax and penalty payment

Reduced penalty under proviso to section 78 - Factual verification of tax and penalty payment - The Tribunal considered whether any surviving dispute remained when the appellant asserted that the service tax, interest and the reduced penalty had already been paid, and held that the matter turned only on factual verification of such payments. - HELD THAT: - The Tribunal recorded that there was no dispute regarding the quantified service tax liability sustained by the lower authorities. The appellant's written submissions sought only the benefit of payment of reduced penalty on the footing that the tax, interest and 25% of the penalty had already been deposited within the prescribed time. The Tribunal held that this was not a legal controversy requiring adjudication on merits, but a matter requiring verification by the original authority as to the actual amount deposited towards service tax and whether 25% of the penalty under section 78 had been paid within 30 days so as to avail the statutory benefit. [Paras 6, 7]

The impugned order was upheld, the appeal was dismissed, and the appellant was directed to place the necessary documents before the original authority for verification of payment of duty, interest and penalty within time.

Final Conclusion: The Tribunal found that no adjudicatory issue survived on merits and that the appellant's grievance depended only on factual verification of payments already claimed to have been made. The appeal was therefore dismissed while permitting verification by the original authority for grant of the statutory benefit, if otherwise admissible.

Composite works contract - works contract service - commercial or industrial construction service - abatement and segregation of goods and service portions - service tax demand not maintainable where show cause notice and adjudication are framed under a different service head - tax liability cut off 01.06.2007

Composite works contract - works contract service - abatement and segregation of goods and service portions - Classification of the appellant's construction activity as works contract - HELD THAT: - The Tribunal found that the Additional Director's conclusion rejecting classification of the appellant's activity as works contract could not be sustained. The impugned order had given abatement to the appellant so as to segregate the goods portion from the service portion, thereby demonstrating that the activity involved both transfer of goods and provision of services and falls within the ambit of a composite works contract. The Tribunal accepted the appellant's contention (including reliance on the authority invoked) that the nature of the transaction is not purely commercial or industrial construction service but a works contract governed by the principle of segregation of goods and services. [Paras 8]

The activity performed by the appellant is a works contract and the finding to the contrary is set aside.

Tax liability cut off 01.06.2007 - service tax demand not maintainable where show cause notice and adjudication are framed under a different service head - commercial or industrial construction service - Sustainability of the service tax demand for periods before and after 01.06.2007 - HELD THAT: - In view of the classification as a works contract, the Tribunal held that no service tax could be demanded for the period prior to 01.06.2007. For the period after 01.06.2007, the Tribunal recorded that the show cause notice and the Adjudicating Authority proceeded on the basis that the appellant rendered commercial or industrial construction service. Because the demand confirmed by the authority was under that head and not on the basis of works contract, the demand for the post 01.06.2007 period also could not be sustained. Consequently, the impugned order confirming service tax demands was not maintainable for either period. [Paras 9, 10]

No service tax is leviable prior to 01.06.2007; the confirmed demand for the post 01.06.2007 period cannot be sustained as it was made under a different service head than that which applies.

Final Conclusion: The impugned order dated 30.11.2016 is set aside; the appeal is allowed, the appellant's transactions are held to be works contract and the service tax demands (both pre and post 01.06.2007 on the basis upheld by the authority) are unsustainable.

Summary order. Civil Appeals dismissed owing to low tax effect; delay condoned; pending applications disposed of.

Recall of dismissal - restoration of appeal - condonation of delay - application to recall an order dismissed as withdrawn - delay sufficiently explained

Recall of dismissal - restoration of appeal - condonation of delay - Order dated 02.08.2019 dismissing the Civil Appeal No.19562/2017 as withdrawn was to be recalled and the appeal restored. - HELD THAT: - The Court considered an application seeking recall of the earlier order which recorded dismissal of the civil appeal as withdrawn pursuant to the Departmental Circular limiting filing of appeals involving tax incidence up to Rs.1 crore. The applicant sought recall after a delay of 326 days, contending that the true tax incidence exceeded Rs.5 crores and that the appeal had been withdrawn under a misconception. On perusal of the delay-condonation and restoration affidavits and submissions, the Court found the explanation for the delay satisfactory and accepted that the dismissal had occurred under the stated misconception. In these circumstances the Court exercised its power to recall the earlier order and to restore the appeal to its original number for consideration on merits.

I.A. Nos. 91565 and 122714 of 2022 allowed; the order dated 02.08.2019 is recalled and Civil Appeal No.19562/2017 is restored for consideration on merits; M.A. No.1568 of 2022 disposed of.

Final Conclusion: The petition for recall and restoration was allowed: the earlier dismissal (as withdrawn) dated 02.08.2019 was recalled, the appeal restored to its original number for adjudication on merits, and related interim application disposed of.

Valuation for levy of Central Excise duty - transaction value under Section 4(1)(a) of the Central Excise Act - agency versus principal-to-principal sale - place of removal for levy - disregard of invoice as not reflecting real value - extended period of limitation for mis declaration - penalty for concealment/evasion - precedential effect of Mahanagar Gas Ltd

Transaction value under Section 4(1)(a) of the Central Excise Act - agency versus principal-to-principal sale - disregard of invoice as not reflecting real value - Whether the sale of CNG by the Appellant to HPCL at factory gate was a real sale constituting the transaction value for excise duty or whether HPCL was an agent and the retail sale price to end customers should be treated as transaction value. - HELD THAT: - The Tribunal found that the written Agreement, taken as a whole, records a principal to principal sale: Clause 2 records a defined sale price and invoicing, Clause 8 records discharge of VAT by the Appellant, and Clause 14 denies any agency relationship. The Appellant did not in fact receive the additional profit margin retained by HPCL and raised sales invoices charging VAT which was discharged. The Tribunal relied on the coordinate Bench decision in Mahanagar Gas Ltd - upheld by the Apex Court - which held that where the assessee has charged a mutually agreed price to an OMC and no additional consideration flows back, that price constitutes the transaction value under Section 4(1)(a). Applying that principle, the Tribunal held that the departmental conclusion that invoices were to be disregarded as not reflecting real value and that HPCL was an agent was erroneous. The presence of operational arrangements at retail outlets and the use of the word 'commission' in the Agreement did not, in the Tribunal's view, convert the relationship into agency or establish that the retail RSP was the transaction value. [Paras 5, 6, 11, 12, 15]

The sale to HPCL at the invoiced price is a real sale and the transaction value for excise duty is the price adopted by the Appellant; the departmental view of agency and of using retail RSP as transaction value is rejected.

Place of removal for levy - valuation for levy of Central Excise duty - Whether the 'place of removal' for the purposes of valuation and levy should be treated as the Appellant's factory or as the retail outlet of HPCL. - HELD THAT: - The Tribunal disagreed with the departmental finding that the place of removal was the retail outlet where HPCL dispensed CNG. Having held that a genuine sale occurred at the factory gate to HPCL on the invoiced price, the Tribunal concluded that the Department erred in treating the retail outlet as the place of removal for re determining value. The fixed RSP and operational arrangements at retail outlets did not alter the legal character of the clearance from the factory as a sale in the ordinary course of business. [Paras 11, 15]

The Department's treatment of the retail outlet as the place of removal is rejected; the factory gate sale price stands for valuation.

Extended period of limitation for mis declaration - penalty for concealment/evasion - Whether invocation of the extended period of limitation and imposition of penalty were justified on the ground of mis declaration and concealment by the Appellant. - HELD THAT: - The Appellate Authority had sustained invocation of the extended period and confirmed penalty on the premise that facts (such as installation and maintenance of equipment at HPCL stations) were concealed and that the true nature of transactions amounted to evasion. The Tribunal, however, found that adverse inferences based on the use of the term 'commission' and on operational arrangements were misplaced where the written Agreement and commercial conduct evidenced a sale and where no additional consideration flowed to the Appellant. In view of the primary conclusion that the invoiced transaction value was correct, the basis for extended limitation and penalty collapsed. [Paras 11, 15]

Invocation of the extended period of limitation and confirmation of penalty are not sustained in light of the finding that the factory gate sales and invoiced value reflected the true transaction value; the Appellant is entitled to consequential relief.

Final Conclusion: Appeal allowed; the Tribunal set aside the impugned order, holding that the Appellant's factory gate sale to HPCL was a real sale and the invoiced price constituted the transaction value for excise duty (relying on Mahanagar Gas Ltd), and that the Department's conclusions on agency, place of removal, extended limitation and penalty were erroneous; appellant to receive consequential benefits in accordance with law.

Input service - cenvat credit - construction services for setting up a factory - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - amendment to definition effective 01.04.2011 - Board Circular No. 98/1/2008 - eligibility of credit during the relevant period

Input service - cenvat credit - construction services for setting up a factory - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - Board Circular No. 98/1/2008 - Admissibility of cenvat credit of service tax on construction services used for setting up the appellant's factory during the period 2006 to December 2010 - HELD THAT: - The Tribunal examined the definition of "input service" as it stood in the relevant period and noted that Rule 2(l) expressly included services used in relation to the setting up of a factory or premises of a manufacturer. The appellants' claim related to construction services for setting up the factory during 2006 to December 2010, a period prior to the amendment effective 01.04.2011 which later excluded construction services in certain circumstances. The Tribunal observed that the Board Circular No. 98/1/2008 relied upon by the adjudicating authority did not override the statutory definition in Rule 2(l) for the period in question. Relying on consistent tribunal and High Court precedents (including the Punjab & Haryana High Court decision in Commissioner of Central Excise, Delhi-III v. Bellsonica Auto Components India P. Ltd. and various CESTAT decisions) which held that construction services for setting up factory premises fell within the scope of "input service" under Rule 2(l) for the relevant period, the Tribunal concluded that the impugned demand and penalty were unsustainable. The Tribunal therefore set aside the order confirming the demand and allowed the appeal, with consequential relief as per law. [Paras 6, 7, 8, 9, 10]

The impugned order confirming demand and imposing penalty was set aside and the appeal allowed, the Tribunal holding that cenvat credit for construction services used in setting up the factory during 2006 to December 2010 was admissible.

Final Conclusion: The Tribunal allowed the appeal, set aside the Commissioner's order of demand and penalty, and held that service tax paid on construction services for setting up the factory during the period 2006 to December 2010 was eligible for cenvat credit under Rule 2(l) of the Cenvat Credit Rules, 2004, in view of the statutory definition and consistent judicial precedents.

Unit for the purposes of Central Excise and CENVAT Credit Rules - area-based exemption and its effect on availment of CENVAT credit - self-assessment and refund remedy for erroneously paid duty - temporal restriction on availment of CENVAT credit by notification effective 1 September 2014 - limitation for issuance of show cause notice under Central Excise law

Unit for the purposes of Central Excise and CENVAT Credit Rules - area-based exemption and its effect on availment of CENVAT credit - Whether the distillery and the sugar factory constituted one unit under Central Excise law and whether area-based exemption available to the unit precluded availment of CENVAT credit on inputs and capital goods used in the distillery - HELD THAT: - The Tribunal found as undisputed that the appellant had a single Central Excise registration and filed single ER1 returns covering both the sugar factory and the distillery, and that the distillery was established within the same premises. Merely obtaining separate licences or permissions under other statutes (State Excise, pollution control, labour laws) does not determine unithood under Central Excise; unithood depends on the law under which the question arises. Applying Central Excise law and rules, the sugar factory and the distillery constitute one unit. Once the assessee had opted for the area-based exemption notification for the unit, that exemption extended to goods subsequently manufactured in the unit (including denatured alcohol and CO2) and the assessee could not selectively treat some goods as dutiable while claiming exemption for others. As the denatured alcohol and CO2 were held to be fully exempt, CENVAT credit on capital goods and inputs used in setting up the distillery was not admissible. [Paras 14, 15, 16, 19]

Sugar factory and distillery are one unit for Central Excise; area-based exemption covered denatured alcohol and CO2 manufactured in the unit and consequently CENVAT credit on capital goods/inputs for the distillery is not admissible.

Temporal restriction on availment of CENVAT credit by notification effective 1 September 2014 - Whether CENVAT credit of Rs. 32,82,816 on input services was rightly denied by application of notification restricting availment to six months from date of invoice - HELD THAT: - The Tribunal noted that notification no. 21/2014-CE (NT), which limited availment of CENVAT credit to six months from invoice date, came into force on 1 September 2014. If the invoices in question were issued prior to 1 September 2014, settled legal position permits availment of credit notwithstanding later availment. The appellant asserted that relevant invoices were dated prior to 1 September 2014 and availed in December 2014; on that basis the Tribunal held that the appellant is entitled to CENVAT credit on those invoices and set aside the denial (with consequent adjustment of interest and penalty to that extent). [Paras 20, 23]

CENVAT credit of Rs. 32,82,816 on input services is allowable to the extent the invoices were issued prior to 1 September 2014; denial of that credit is set aside and interest/penalty adjusted accordingly.

Duplication of demand and reversal under Rule 6(3A) - Whether the demand of Rs. 4,57,436 for alleged short reversal under Rule 6(3A) (December 2014) was duplicative of the demand for denied input-service credit - HELD THAT: - The appellant contended the alleged short reversal for December 2014 was a duplication of the demand for denied input-service credit. The Tribunal, having allowed the input-service credit where invoices pre-dated 1 September 2014, examined the duplication contention and found that, on the appellant's case that such invoices were prior to that date, duplication would not arise. Nonetheless, the Tribunal upheld the demand of Rs. 4,57,436 as not duplicative in the circumstances presented. [Paras 21]

The demand of Rs. 4,57,436 under Rule 6(3A) is upheld.

Self-assessment and refund remedy for erroneously paid duty - limitation for issuance of show cause notice under Central Excise law - Whether the show cause notice issued on 4.01.2016 was time-barred and whether duty paid by the assessee could be treated as accepted by the department - HELD THAT: - The Tribunal explained that under Central Excise law assessees self-assess and pay duty; if duty is paid where not due, the remedy is by filing a refund claim since there is no provision for departmental suo motu refund. The SCN was issued on 4 January 2016; the relevant returns (including return for December 2014 filed in January 2015) placed the SCN well within the normal one-year limitation period applicable at the time. The impugned order did not invoke the extended limitation. Accordingly the Tribunal found the SCN not time-barred. The Tribunal also observed that payment of duty by the assessee does not imply departmental acceptance or assessment of that payment. [Paras 17, 18, 22]

Show cause notice issued on 4.01.2016 was within the normal limitation period and is not time-barred; payment of duty by the assessee does not amount to departmental acceptance and the proper remedy for excess payment is a refund claim.

Final Conclusion: The appeal is partly allowed: the Tribunal holds that the sugar factory and distillery constitute one unit for Central Excise, so area-based exemption covered denatured alcohol and CO2 and precluded CENVAT credit on capital goods; however, CENVAT credit of Rs. 32,82,816 on input services is allowed to the extent invoices were dated prior to 1 September 2014 (notification limiting credit from that date inapplicable), interest and penalty are modified accordingly, the demand of Rs. 4,57,436 under Rule 6(3A) is upheld, and the show cause notice was not time-barred.

Liberty to invoke remedies before the High Court - limitation defence not to be raised if remedy is filed within stipulated period - no further leave to appeal to this Court against the impugned order

Liberty to invoke remedies before the High Court - limitation defence not to be raised if remedy is filed within stipulated period - Appellant permitted to challenge the impugned High Court order by invoking available remedies before the High Court, with protection against a limitation plea if instituted within four weeks. - HELD THAT: - The Court observed that although the impugned order was rendered by reference to an earlier High Court decision, the appellant now contends that the facts are distinct and that the earlier decision does not govern the present case. Rather than adjudicating the merits, the Court disposed of the appeal by granting the appellant liberty to pursue appropriate remedies before the High Court. The Court directed that if the appellant institutes proceedings in the High Court within four weeks, the High Court shall not raise the plea of limitation. This disposition preserves the appellant's opportunity to obtain substantive adjudication at the High Court level while temporarily negating a limitation defence should the appellant act within the prescribed period.

Appeal disposed by granting liberty to the appellant to approach the High Court; limitation plea shall not be raised if proceedings are commenced within four weeks.

No further leave to appeal to this Court against the impugned order - No liberty granted to the appellant to challenge the impugned High Court order in this Court if unsuccessful before the High Court. - HELD THAT: - The Court explicitly curtailed subsequent recourse to this Court by stating that no liberty is reserved to the appellant to assail the impugned order before this Court in the event the appellant is unsuccessful before the High Court. The effect is that the present disposal is final as regards further direct invocation of this Court following an adverse result in the High Court.

No leave reserved to approach this Court against the High Court's order in the event of an unsuccessful challenge before the High Court.

Final Conclusion: The appeal is disposed of by granting the appellant liberty to seek appropriate remedies before the High Court within four weeks (with limitation not to be taken as a bar if so filed), and by denying the appellant subsequent recourse to this Court against the impugned order.

Compliance of court directions - refund of amounts pursuant to judicial direction - liberty to recover amounts refunded in future proceedings - remand to Assessing Officer for fresh consideration - infructuous/academic appeal where relief has been executed

Compliance of court directions - refund of amounts pursuant to judicial direction - infructuous/academic appeal where relief has been executed - liberty to recover amounts refunded in future proceedings - Whether the appeals require further consideration when the High Court's directions have been complied with and the refund has been made to the respondent. - HELD THAT: - The Court recorded that the appellants have complied with the directions issued by the Division Bench of the High Court and that the refund ordered has been paid to the respondent-assessee. In view of that compliance and the narrow compass of the present controversy, the correctness of the impugned orders need not be further examined in these appeals. The Court nevertheless preserved the appellants' right to seek recovery of amounts refunded in accordance with law should they succeed in the main or subsequent proceedings. The conclusion to dispose of the appeals is therefore founded on execution of the High Court's directions, while keeping all substantive contentions open for adjudication in appropriate proceedings.

Appeals disposed as the impugned directions have been complied with; liberty reserved to appellants to seek recovery of refunded amounts in accordance with law.

Remand to Assessing Officer for fresh consideration - liberty to recover amounts refunded in future proceedings - compliance of court directions - Whether the appellants' right to challenge remanded assessments or the High Court's subsequent orders is affected by compliance with the refund direction. - HELD THAT: - The Court noted that the main disputes in the Tax Revision Cases were remanded to the Assessing Officer by the High Court and that those remand orders have been the subject of further proceedings. Compliance with the refund direction does not preclude the appellants from challenging the High Court's disposals or the remanded assessments before this Court. Accordingly, the Court kept all substantive contentions open and expressly reserved to the appellants the right to seek recovery of refunds if they prevail in later or pending proceedings. The present appeals were disposed on the limited ground of compliance, without deciding the merits of the remanded or substantive disputes.

Appeals disposed as infructuous on the ground of compliance; appellants' rights to contest remands and to seek recovery of refunded amounts are preserved.

Final Conclusion: The appeals are disposed solely because the appellants complied with the High Court's directions and refunded the amounts to the respondent; the correctness of the impugned orders is not adjudicated, and the appellants retain liberty to seek recovery of the refunded amounts in accordance with law if they succeed in the underlying or future proceedings.

Limitation for Best Judgment Assessment - Best Judgment Assessment under Section 12(2) of the TNGST Act - Assessment under Section 22(4) of the VAT Act - Assessment of escaped turnover - Maximum/reasonable time limit where no specific period is prescribed - Periods of limitation for Sections 22(4) and 27 co-exist

Limitation for Best Judgment Assessment - Best Judgment Assessment under Section 12(2) of the TNGST Act - Assessment under Section 22(4) of the VAT Act - Assessment of escaped turnover - Periods of limitation for Sections 22(4) and 27 co-exist - Validity of notices under Best Judgment Assessment issued after the statutory limitation period and whether such notices for the stated assessment years are time-barred. - HELD THAT: - The Court examined the impugned show cause notices issued under the Best Judgment Assessment provisions. Noting that no specific time-limit is prescribed for initiation of Best Judgment Assessment, the Court adopted the principle that, where no period is fixed, the reasonable maximum time to initiate such proceedings is the maximum limitation applicable to related assessment proceedings for escaped turnover. For the periods under the erstwhile TNGST Act the Court identified a five-year limitation and under the VAT Act (by reference to Section 27) a six-year limitation. The Court followed the view in WP Nos.28896 of 2019 etc. batch that the period of limitation for passing an order under Section 22(4) must be read in conjunction with the limitation under Section 27, so that an order under Section 22(4) cannot be passed beyond the limitation prescribed for initiation under Section 27. Applying this principle, the notices dated 12.03.2015 issued in respect of the assessment years 2002-03, 2003-04, 2004-05 (under TNGST Act) and 2006-07 (under VAT Act) were found to have been issued beyond the respective maximum limitation periods and therefore without authority of law. [Paras 3, 9, 10]

Impugned show cause notices in respect of AYs 2002-03, 2003-04, 2004-05 and 2006-07 are time-barred and are quashed; writ petitions allowed.

Final Conclusion: The High Court held that Best Judgment Assessment notices issued beyond the applicable maximum limitation (five years under the TNGST framework for the relevant years and six years under the VAT framework) were without authority of law, followed the earlier decision in WP Nos.28896 of 2019 etc., and quashed the impugned notices; the writ petitions were allowed.

Principles of natural justice - service of show cause notice - opportunity of personal hearing - speaking order and reasoned decision - remand for fresh consideration - consequential attachment of bank account

Principles of natural justice - service of show cause notice - opportunity of personal hearing - Impugned assessment order set aside for violation of principles of natural justice and remitted for fresh consideration. - HELD THAT: - The show cause notice dated 04.03.2023 required reply/objections within 30 days but, in the same paragraph, fixed a personal hearing on 17.03.2023 which was prior to the expiry of the 30 day period. The notice was not served by post or other direct communication but uploaded on the online portal and, as recorded, the department proceeded to confirm the proposals without awaiting a reply and without affording a genuine personal hearing after the reply period. These facts demonstrate that the opportunities purportedly granted were nominal and not fair. For these reasons the impugned order dated 01.06.2023 was held to be in gross violation of natural justice and was set aside, with the matter remanded to enable the respondent to receive the petitioner's reply, fix a date for personal hearing, consider documents produced, and thereafter pass a reasoned speaking order recording reasons in the event of rejection of the reply. [Paras 8, 9]

Order dated 01.06.2023 set aside; matter remanded to the State Tax Officer for fresh consideration after affording the petitioner a proper opportunity to file reply and a personal hearing, and for passing a speaking order.

Consequential attachment of bank account - remand for fresh consideration - Order attaching the petitioner's bank account set aside as consequential to the quashed assessment order. - HELD THAT: - The order dated 04.10.2023 attaching the petitioner's bank account was an aftermath of the impugned assessment order. Since the primary order has been set aside, the consequential attachment order was also set aside and any attachment directed to be lifted. The petitioner was directed to appear before the department on the date fixed for hearing in the remand proceedings. [Paras 9]

Order dated 04.10.2023 set aside and any bank account attachment ordered to be lifted as consequential to the quashed assessment order.

Final Conclusion: Writ petition allowed; impugned assessment order quashed and remanded for fresh consideration after affording a proper opportunity of reply and personal hearing; consequential bank account attachment set aside and directed to be lifted; no costs.

Chargeability of stamp duty on instruments - refund of stamp duty for unused stamps - allowance for stamps not required for use - limitation under Section 54(c) - knowledge within six months - Article 14 - arbitrariness - Article 265 and Article 300A - levy and property - interpretation to avoid constitutional invalidity - principle of restitution / actus curiae neminem gravabit

Article 265 and Article 300A - levy and property - chargeability of stamp duty on instruments - refund of stamp duty for unused stamps - Validity of the provision in Section 54 permitting retention of ten naye paise in the rupee (ten percent) on refunds of stamps vis-a -vis Articles 265 and 300A of the Constitution - HELD THAT: - The Court held that stamp duty is a levy chargeable on instruments specified by the Act and that the machinery provisions permit collection of duty by sale of stamp papers and E-stamp certificates even prior to the execution of an instrument. The statutory right to refund is governed by the statute and an assessee has no inherent right to refund outside statutory provisions. Consequently the challenge that Section 54(allowing retention of ten naye paise per rupee) is ultra vires Articles 265 and 300A was rejected. The Court observed that payments collected under the taxing statute are collected by lawful authority and retention under the statutory provision is not without authority of law; refunds of amounts paid by mistake that are not covered by the taxing statute are a separate enquiry. The Court therefore did not strike down the retention provision and rejected the petitioner's challenge on Articles 265 and 300A. [Paras 27]

Section 54(allowing retention of ten naye paise per rupee) is not ultra vires Articles 265 and 300A; the challenge on those grounds is rejected.

Allowance for stamps not required for use - limitation under Section 54(c) - knowledge within six months - Article 14 - arbitrariness - interpretation to avoid constitutional invalidity - principle of restitution / actus curiae neminem gravabit - Constitutionality and proper construction of Section 54(c) of the Indian Stamp Act - whether the six month limitation for refund is arbitrary in breach of Article 14 as applied to a purchaser who did not, within six months of purchase, know the stamp would not be required - HELD THAT: - The Court recognised an apparent anomaly if Section 54(c) were construed to bar all refunds of unused, unspoiled stamps after six months from purchase, even where the cause for refund arises later and the purchaser lacked knowledge within six months that the stamps would not be used. Applying established authorities (including the Supreme Court's interpretation of similarly worded provisions) and the principle that statutes should, if possible, be construed to avoid constitutional invalidity, the Court read Section 54(c) narrowly. Section 54 applies where the applicant knew within six months of purchase that the stamps had no immediate use (i.e., permanent abandonment or delay of more than six months); it is inapplicable where the applicant, in bona fide expectation, only becomes aware after six months that the stamps are not required. In such cases the limitation should be reckoned from the date the cause for refund arises and the claim, if made within a reasonable period (and ordinarily within six months of becoming aware), should be entertained, subject to clauses (a) and (b) of Section 54 being satisfied. The Court further noted equitable and restitutionary principles and precedents that support refund where the taxing event did not occur and the payment was made under mistake or where transactions fail for reasons beyond the payer's control. [Paras 42, 53]

Section 54(c) is to be interpreted so as not to operate arbitrarily; where the purchaser did not know within six months that the stamps would not be used, the proviso in Section 54(c) is inapplicable and the claim must be considered from the date the cause for refund arose. The petitioner, having applied promptly once aware, is entitled to relief.

Final Conclusion: The challenge to retention of ten naye paise per rupee under Section 54 vis-a -vis Articles 265 and 300A is rejected. Section 54(c) is read narrowly to apply only where the purchaser knew within six months that the stamps had no immediate use; it does not bar refund where the purchaser only becomes aware later that the stamps are unusable. Applying that construction and equitable/restorationary principles, the Court directed the Collector to process the petitioner's refund claim for 90% of the E stamp within two weeks and disposed of the petition.