TaxTMI Updates e-Newsletter
Dec 18,2024

Efficacious remedy - non-functional Goods and Services Tax Appellate Tribunal - pre-deposit requirement for statutory appeal - stay on recovery of refunded amount - maintainability of writ petition when alternative remedy exists

Efficacious remedy - non-functional Goods and Services Tax Appellate Tribunal - maintainability of writ petition when alternative remedy exists - High Court's refusal to entertain writ petition on the ground of availability of remedy by appeal before the Goods and Services Tax Appellate Tribunal and the consequence of the Tribunal not being functional - HELD THAT: - The High Court declined to admit the writ petition because an appeal under the statutory scheme (Section 112 of the Central Goods and Services Act, 2017) is available. The Supreme Court recorded that the prescribed appellate forum, namely the Goods and Services Tax Appellate Tribunal, has not been made functional to date. In light of the Tribunal's non-functionality, the Court directed a report on why the Appellate Tribunal has not been made functional and sought that report at the earliest, thereby treating the availability of the statutory remedy as impaired for the present. The Court thus required administrative/factual verification rather than finally adjudicating the abstract legal question of maintainability where an appellate remedy exists. [Paras 3, 4, 6, 7]

Report directed on non-functionality of the Goods and Services Tax Appellate Tribunal and notice issued returnable in three weeks

Pre-deposit requirement for statutory appeal - efficacious remedy - Availability of appeal with pre-deposit as an alternative route while the Appellate Tribunal is not functional - HELD THAT: - The Court recorded the respondents' submission that, notwithstanding the Tribunal's non-functionality, an appellant could still file an appeal by making a pre-deposit of 10% of the tax liability demanded. The Court noted this position as the department's assistance to the Court but did not rest the ultimate decision on that concession; it remains a factual representation recorded in the order. [Paras 5]

Department's submission about filing appeal with 10% pre-deposit recorded

Stay on recovery of refunded amount - Operation of the Department's order seeking recovery of an already refunded amount - HELD THAT: - The petition arose because the Department sought to claim back an amount already refunded to the assessee. The Supreme Court directed that, in the circumstances narrated, the Department's order asking the assessee to pay back the refunded amount shall remain stayed from its operation. This is an operative interim relief preserving the status quo while the matter is further considered and the directed report is obtained. [Paras 10, 11]

Order for recovery of the refunded amount stayed

Issue notice - Service of notice and further procedural directions - HELD THAT: - The Court issued notice returnable in three weeks and recorded waiver of service of notice by the respondents through their Senior Counsel. These are procedural directions to secure the respondents' participation and to list the matter after obtaining the directed report. [Paras 8, 9]

Notice issued; service waived on behalf of respondents; matter posted after three weeks

Final Conclusion: The Supreme Court recorded that the statutory appellate forum (the GST Appellate Tribunal) is not functional, directed an early report explaining the non-functionality, issued notice returnable in three weeks (service waived by respondents), and granted an interim stay on the Department's order seeking recovery of the refunded amount.

Non-application of mind - quash for lack of reasons - show-cause notice adjudication on merits - opportunity of personal hearing - template orders - notification issued under Section 168A of the CGST Act

Non-application of mind - quash for lack of reasons - template orders - Impugned order discarding the petitioner's reply as "not comprehensible, conceivable, not perspicuous and ambiguous" was liable to be quashed for lack of reasons and non-application of mind. - HELD THAT: - The Court examined the impugned order which, after summarising background, recorded only that the reply was "not comprehensible, conceivable, not perspicuous and is ambiguous" without any application of mind to the material filed by the petitioner. The Bench noted that identical phrasing appears in earlier orders passed by the same officer and that such template language, without considered reasoning or examination of the reply, demonstrates an abject non-application of mind. Where a show-cause notice may impose liability (including penalties), the adjudicating officer must decide on merits and provide reasoned findings; a perfunctory recitation that a reply is incomprehensible, without analysis, does not satisfy this mandate. On this short score the impugned order was held unsustainable and was quashed. [Paras 4, 6, 7]

Impugned order quashed for want of reasons and non-application of mind.

Show-cause notice adjudication on merits - opportunity of personal hearing - The show-cause notice must be reheard afresh with due consideration of the petitioner's already-submitted reply and a reasoned order recorded. - HELD THAT: - Following quashing of the earlier order, the Court directed that the show-cause notice be heard afresh in light of the reply filed by the petitioner. The respondents were permitted to proceed afresh on the basis of the SCN and the reply; the court emphasised that adjudication must be on merits and that all rights and contentions on merits remain open. The order leaves intact the petitioner's entitlement to personal hearing and a reasoned adjudication rather than reliance on template conclusions. [Paras 8]

Show-cause notice to be heard afresh and a proper reasoned order passed, with all rights and remedies left open.

Notification issued under Section 168A of the CGST Act - Challenges to specified notifications issued under Section 168A were left open for fresh raising if required. - HELD THAT: - While quashing the impugned order and directing rehearing, the Court expressly kept open the petitioner's challenge to Notification No. 9/2023-CT, Notification No. 09/2023-ST, Notification No. 56/2023-CT and Notification No. 56/2023-ST issued under Section 168A of the CGST Act, permitting the petitioner to raise those contentions afresh if necessary. The Court did not decide the validity of those notifications in the present proceedings. [Paras 7]

Validity of the specified notifications kept open to be raised afresh.

Final Conclusion: The impugned order rejecting the petitioner's reply was quashed for lack of reasons and non-application of mind; the show-cause notice is to be reheard afresh with a reasoned order, and the petitioner's challenge to certain notifications under Section 168A of the CGST Act is left open for fresh consideration.

Eligible unit - Budgetary Support Scheme (BSS) - unit-specific benefit - change of ownership - residual period - purposive interpretation of a statutory scheme

Eligible unit - Budgetary Support Scheme (BSS) - unit-specific benefit - change of ownership - purposive interpretation of a statutory scheme - Whether the benefit under the Budgetary Support Scheme is owner-specific or unit-specific. - HELD THAT: - The Court held that the BSS confers benefit on the existing manufacturing unit as such and is pivoted on the geographical location, the specified goods manufactured and the date of commencement of commercial production of the unit as it existed prior to migration to GST. Paragraph 4.1 of the BSS prescribes eligibility on the basis of the unit (premises) and its registration prior to 01-07-2017; it contains no caveat that a change of name, expansion, acquisition or change of ownership would deprive the unit of eligibility. A purposive reading of the notifications shows the object was to encourage industrialisation in specified areas and to compensate eligible units for the residual period; therefore the Court declined to read into the scheme an exclusion for change of ownership where the unit and its manufacturing activity remain the same. Procedural provisions concerning mode of application or registration under GST do not override the definitional eligibility in paragraph 4.1. The Single Judge's interpretation treating the transferee as a different legal entity thereby losing eligibility was found to be a misreading of the scheme. [Paras 12, 15, 18, 25, 26]

The benefit under the BSS is unit-specific; mere change of name, expansion or change of ownership does not, by itself, extinguish the eligibility of an existing unit which was eligible prior to 01-07-2017.

Budgetary Support Scheme (BSS) - residual period - purposive interpretation of a statutory scheme - Whether the claims of the appellants should be re-adjudicated in accordance with the Court's interpretation of the BSS. - HELD THAT: - Having determined that eligibility is unit-specific and that change of ownership/name does not automatically disentitle an otherwise eligible unit, the Court set aside the Single Judge's judgment and directed the concerned respondent authorities to adjudicate the appellants' pending claims afresh in accordance with the observations made. The authorities are required to afford the appellants an opportunity of hearing and decide the claims consistent with the definition of eligible unit and the object of the scheme, taking into account the documentary evidence of the unit's existence and date of commercial production. [Paras 26, 27]

Impugned judgment set aside; respondent authorities directed to adjudicate the appellants' claims afresh, after hearing, within twelve weeks.

Final Conclusion: The appeals are allowed; the Single Judge's judgment is set aside. The respondent authorities shall adjudicate the appellants' pending BSS claims afresh and in accordance with this Court's interpretation that the BSS is unit-specific, after affording opportunity of hearing, within twelve weeks.

Service of notice and validity of assessment - Right to opportunity of hearing / audi alteram partem - Remand for fresh adjudication subject to deposit - Interim relief by lifting bank attachment on deposit

Service of notice and validity of assessment - Right to opportunity of hearing / audi alteram partem - Impugned assessment order dated 08.08.2024 was set aside because the petitioner was not properly served and was denied an effective opportunity to participate in adjudication. - HELD THAT: - The Court found that the show cause notices and the assessment order were uploaded on the GST portal under the Additional Notices tab and were not served on the petitioner by tender or RPAD, resulting in the petitioner being unaware of the proceedings and unable to participate. In view of the failure of effective service and the consequent denial of a fair opportunity to be heard, the impugned order was quashed and set aside and the matter remitted to the adjudicating authority to enable the petitioner to file objections and be heard afresh. [Paras 4, 7]

Impugned order set aside; proceedings remanded for fresh consideration after affording opportunity to the petitioner to file objections.

Remand for fresh adjudication subject to deposit - Interim relief by lifting bank attachment on deposit - Court conditioned the remand and interim relief on the petitioner making specified deposits within stipulated periods and filing objections, failing which the impugned order would be restored. - HELD THAT: - As a precondition for remand, the Court directed the petitioner to deposit 10% of the disputed tax within four weeks from receipt of the order; upon such deposit the impugned order would be treated as a show cause notice and the petitioner given four weeks to submit objections with supporting material. The respondent was directed to consider any objections and pass orders in accordance with law after affording a reasonable opportunity of hearing. The Court further ordered that bank attachment resulting from the impugned assessment would be lifted forthwith on the petitioner paying 25% of the disputed tax within two weeks. If the deposit is not made or objections not filed within the stipulated periods, the impugned order shall stand restored. [Paras 7]

Remand made subject to deposit of 10% and filing of objections; bank attachment to be lifted on payment of 25%; failure to comply results in restoration of the impugned order.

Final Conclusion: Writ petition disposed by setting aside the assessment order dated 08.08.2024 for assessment year 2019-20, remitting the matter for fresh adjudication on conditions of interim deposits and filing of objections, and providing conditional relief from bank attachment.

Audit by tax authorities - Frequency and manner of audit not timebarred - Preliminary inquiry by tax authorities - Concurrent or successive proceedings under Section 65 and Section 73 - Independent initiation of proceedings under Section 74 despite prior action under Section 73

Concurrent or successive proceedings under Section 65 and Section 73 - Audit by tax authorities - Validity of initiating audit proceedings under Section 65 after completion of proceedings under Section 73 - HELD THAT: - The Court held that prior action taken under Section 73 does not preclude the tax authorities from initiating or conducting an audit under Section 65. An audit may result in detection of tax short paid, not paid or erroneously refunded and may even benefit the registered person; therefore initiation of audit after conclusion of Section 73 proceedings is not impermissible. The petition challenging the fresh audit on the ground that earlier proceedings had concluded was rejected. [Paras 9, 10]

The challenge to the audit on the basis that Section 73 proceedings had already been completed is dismissed and the audit proceedings are upheld.

Frequency and manner of audit not timebarred - Audit by tax authorities - Whether Section 65 imposes any embargo or prescribed timelimit on conducting audit - HELD THAT: - The Court examined Section 65 and observed that the Commissioner may undertake audit 'for such period, at such frequency and in such manner as may be prescribed.' There is no embargo or fixed outer timelimit in Section 65 preventing the Commissioner from conducting an audit; accordingly the authority's power to audit is not timebarred by the provision as framed. [Paras 6]

No prohibition or timelimit in Section 65 was found to bar the audit; initiation of audit cannot be restrained on that ground.

Preliminary inquiry by tax authorities - Independent initiation of proceedings under Section 74 despite prior action under Section 73 - Characterisation of audit as a preliminary inquiry and the scope for subsequent initiation of Section 74 proceedings - HELD THAT: - The Court characterised audit as akin to a preliminary inquiry and held that the department is entitled to conduct such an inquiry into a registered person's books; this does not cause prejudice warranting interference. Further, where audit discloses fraudulent evasion, the Department retains the power to initiate proceedings under Section 74 independent of any earlier proceedings under Section 73. [Paras 7, 9]

Audit may be treated as a preliminary inquiry and does not preclude subsequent independent initiation of Section 74 proceedings if fraud is detected.

Final Conclusion: Writ petition dismissed; impugned audit proceedings under Section 65 are not interfered with and may continue.

Cross-authorization of officers under the Integrated Goods and Services Tax Act, 2017 - jurisdiction and power of a "proper officer" to issue demand under the IGST Act - absence of notifications limiting cross-authorised officers' authority - deeming of "owner" under administrative circular for purposes of detention and seizure

Cross-authorization of officers under the Integrated Goods and Services Tax Act, 2017 - jurisdiction and power of a "proper officer" to issue demand under the IGST Act - absence of notifications limiting cross-authorised officers' authority - Validity of demand/notice issued by an Assistant Commissioner of State Tax under the IGST Act by virtue of crossauthorization in section 4 - HELD THAT: - Section 4 of the IGST Act authorises officers appointed under the State GST Act to act as proper officers for purposes of the IGST Act, subject to such exceptions and conditions as may be specified by notification on the recommendations of the Council. The Court noted that notifications had been issued under the State Act appointing proper officers and assigning powers and duties, and that no notification under the IGST Act had been made to impose exceptions or conditions limiting the authority of those crossauthorised State officers. In the absence of any notification delineating or curtailing the scope of crossauthorization, the appointment and powers conferred on officers of State Tax carry over to empower them to act under the IGST Act. The Court therefore found no lack of jurisdiction in issuance of the impugned demand and penalty notice by the Assistant Commissioner of State Tax. [Paras 6]

The demand/notice issued by the Assistant Commissioner of State Tax under the IGST Act was valid; writ petition dismissed on this ground.

Deeming of "owner" under administrative circular for purposes of detention and seizure - Whether the petitioner, as consignee, is entitled to be treated as the deemed "owner" of the detained consignment such that interference is warranted - HELD THAT: - The Court considered paragraph 6 of the CBIC circular dated 31 December 2018, which addresses who is to be considered the owner of goods for the purposes of section 129(1) of the CGST Act. The Court observed that the power to deem who is the owner, as reflected in the circular, is a prerogative of the revenue. No grounds were shown which would persuade the Court to interfere with the revenue's exercise of that prerogative in the present case. [Paras 7]

Petitioner's contention that he must be deemed the owner as consignee was not sustained; no interference with revenue's deeming exercise.

Final Conclusion: The Court found that crossauthorization under section 4 of the IGST Act, read with existing State notifications and in the absence of any limiting notification, validly empowered the State Tax officer to issue the impugned demand; the petitioner's claim to be the deemed owner under the administrative circular did not warrant interference. The writ petition is dismissed.

Amendment of petition - remand for fresh consideration - violation of audi alteram partem by failure to give reasons - obligation to consider pleaded precedents - interim reply / treatment of intimation as reply

Amendment of petition - Amendment of the writ petition to challenge the order dated 28th December 2023 was permitted. - HELD THAT: - The Court allowed the petitioner to amend the petition during pendency to challenge the order disposing of the show-cause notice. The allowance was granted in the particular facts because the impugned order required reconsideration in light of contentions based upon settled decisions relied upon by the petitioner. The learned Addl. Govt. Pleader's submission that those decisions might be distinguishable was noted but did not preclude amendment. The Court directed the amendment to be carried out immediately. [Paras 4]

Amendment permitted and to be carried out immediately.

Violation of audi alteram partem by failure to give reasons - remand for fresh consideration - obligation to consider pleaded precedents - interim reply / treatment of intimation as reply - Impugned order dated 28th December 2023 was set aside and the matter remanded because the 4th Respondent failed to consider the petitioner's contentions (including reliance on authoritative decisions) and did not pass a reasoned order, thereby breaching natural justice. - HELD THAT: - The Court found that the 4th Respondent's order was unclear as to whether no reply was filed or a reply was found unsatisfactory, and that merely stating the reply was unsatisfactory did not amount to a reasoned decision. The petitioner had at least intimated that a petition challenging the show-cause notice was filed and relied upon specific authorities; such contentions ought to have been considered. The duty to give reasons is a facet of natural justice, and its breach warranted setting aside the order without relegating the petitioner to alternate remedies. Accordingly, the order was quashed and remitted for fresh adjudication. [Paras 5, 6, 7]

Impugned order quashed for failure to consider contentions and for not rendering a reasoned decision; matter remitted for fresh consideration.

Remand for fresh consideration - On remand, the procedure and timeline for reconsideration were prescribed. - HELD THAT: - The Court directed that the petitioner may file a detailed response within two weeks, raising all permissible contentions and furnishing relevant documents and decisions. The 4th Respondent must consider that response, grant an opportunity of hearing, and thereafter dispose of the original show-cause notice by a reasoned order. The exercise was ordered to be completed within three months from the date of the order. All merits were left open for decision by the 4th Respondent in the first instance. [Paras 8]

Remand with directions: petitioner to file detailed response within two weeks; respondent to grant hearing and pass a reasoned order within three months; merits left open.

Final Conclusion: The petition was permitted to be amended to impugn the order dated 28th December 2023; that order was set aside for failure to consider the petitioner's pleaded contentions and for not giving reasons (breach of natural justice), and the matter was remitted to the 4th Respondent with directions to receive a detailed response, afford hearing and pass a reasoned order within three months.

Condonation of delay in filing appeal - preference for substantial justice over technicality - Penalty for failure to furnish tax audit report under section 271B - Reasonable cause defence under section 273B - Non obstante clause and overriding effect of section 273B - Discretionary exercise in quasi criminal penalty proceedings - Technical breach without loss to the revenue

Condonation of delay in filing appeal - preference for substantial justice over technicality - Short delay of eight days in filing the appeal to the Tribunal was condoned and the appeal admitted. - HELD THAT: - The Tribunal applied the principles in Collector, Land Acquisition v. Katiji, noting that when substantial justice and technical consideration clash, substantial justice should prevail. There was no counter affidavit or contention by the Revenue that the delay was deliberate. The assessee furnished an affidavit explaining the delay. On these facts the Tribunal found the assessee was not callous in filing the appeal and that condonation was appropriate. [Paras 4]

Delay of eight days condoned; appeal admitted for adjudication.

Penalty for failure to furnish tax audit report under section 271B - Reasonable cause defence under section 273B - Non obstante clause and overriding effect of section 273B - Technical breach without loss to the revenue - Discretionary exercise in quasi criminal penalty proceedings - Whether penalty under section 271B should be sustained or cancelled on the ground of reasonable cause. - HELD THAT: - The Tribunal recognised that imposition of penalty under section 271B arises from quasi criminal proceedings and requires judicial exercise of discretion, normally imposed only where failure is deliberate or in conscious disregard of obligation. Section 273B, which begins with a non obstante clause, precludes imposition of penalty under section 271B if the assessee proves reasonable cause. The assessee established that FY 2016 17 was the first year attracting audit, that earlier returns were not filed because income was below taxable limit, that there was delay in identifying a chartered accountant and an honest belief that audit report could be filed with the return. The audit report was furnished before completion of assessment and no additions were made; there was no loss to the exchequer. The Tribunal found these factors constitute reasonable cause and that the authorities below failed to appreciate or apply section 273B appropriately. Consequently the exercise of discretion to levy penalty was vitiated. [Paras 11, 12]

Penalty levied under section 271B set aside and cancelled.

Final Conclusion: Short delay in filing the appeal was condoned and, on the merits, the Tribunal held that the assessee demonstrated reasonable cause under section 273B for delayed furnishing of the tax audit report; the penalty under section 271B was annulled and the appeal allowed.

Reopening of assessment - Reason to believe under section 147 - Quashing of notice u/s 148 - Special audit report u/s 142(2A) - Change of opinion - Information from third parties (NSEL) as basis for reassessment - delay filling SLP

HC held [2024 (9) TMI 872 - GUJRAT HIGH COURT] AO without applying his mind to these materials on record, formed a belief of escapement of income solely on the confidential information from NSEL and earlier-year liabilities determined for prior years. That formation of belief ignored the statutory audit findings and amounted to issuing the notice on a 'borrowed satisfaction' and effectively a change of opinion since the issue had been examined during the original assessment (including special audit) without any addition. Requirements for a valid reason to believe under section 147 were not satisfied

HELD THAT:- There is a delay of 122 days in filing the Special Leave Petition which has not been satisfactorily explained. Even otherwise, we have gone through the Special Leave Petition and do not find any merit in the same.

Special Leave Petition is, therefore, dismissed on the ground of delay as well as on merits.

Revenue expenditure - Premium on redemption of debentures - Crystallization of liability - Contingent liability - Deduction in the year liability arises (debitum in praesenti solvendum in futuro) - Genuineness of transaction - Proportionate allowance over period of debentures - Delay filling SLP

HELD THAT:- Delay of 161 and 269 days respectively in filing the Special Leave Petitions which has not been satisfactorily explained by the petitioner.

Even otherwise, we see no reason to interfere with the impugned orders passed by the High Court [2022 (8) TMI 914 - KARNATAKA HIGH COURT] wherein CIT(A)'s allowance of the premium as revenue expenditure spread over the debenture period is restored. The liability was not merely contingent; the finding that it had not crystallized is set aside and finding that the transaction was a 'make believe' story is rejected.

Validity of reopening of assessment -Time limit for notice under section 148 - Application of substituted section 149(1)(a) and 149(1)(b) - Escaped income threshold of fifty lakh rupees - Validity of reassessment notices issued between 01.04.2021 and 30.06.2021 - Effect of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

HELD THAT:- These Special Leave Petitions are covered by the Judgment of this Court rendered on 3-10-2024 in “Union of India & Ors. vs. Rajeev Bansal” (2024 (10) TMI 264 - SUPREME COURT (LB)

Petitions filed by the Revenue are disposed of. The assessee will be governed by reasons discussed in the said Judgment. The assessing officers will dispose of the objections in terms of the law laid down by this Court.

Section 263 jurisdiction to revise assessment - Explanation 2 to Section 263(1) - failure to make inquiries or verification - Assessing Officer's exercise of inquiry under Section 142(1) and application of mind - Tribunal's power to quash exercise of revisional jurisdiction

Section 263 jurisdiction to revise assessment - Explanation 2 to Section 263(1) - failure to make inquiries or verification - Assessing Officer's exercise of inquiry under Section 142(1) and application of mind - Whether the Principal Commissioner of Income Tax was justified in invoking revisional jurisdiction under Section 263 on the ground (under Explanation 2) that the Assessing Officer failed to make requisite inquiries or verification. - HELD THAT: - The Tribunal examined the assessment record and found that the Assessing Officer issued six notices under Section 142(1) with detailed questionnaires and received comprehensive replies running into about 300 pages. The AO considered the documentary evidence and discussed each reason for selection for scrutiny, recorded categorical findings and accepted the returned income after passing an assessment order under Section 143(3). The Principal Commissioner set aside the assessment under Section 263, relying on Explanation 2 that requisite inquiries or verifications were not undertaken. On review of the record the Tribunal concluded that the AO had applied his mind and conducted the necessary inquiries and verifications, and therefore the exercise of revisional jurisdiction by the Principal Commissioner was without basis. The High Court, after perusal of the record and Tribunal's reasoning, found no perversity in the Tribunal's conclusion that the Section 263 order was without jurisdiction and that the factual foundation for invoking Explanation 2 was absent. [Paras 6, 11, 12, 13]

Tribunal's decision allowing the assessee's appeal and quashing the Principal Commissioner's order under Section 263 is upheld; the revisional exercise was without jurisdiction.

Final Conclusion: The appeal is dismissed. The Tribunal's order allowing the assessee's appeal and quashing the order passed under Section 263 is sustained on the record that the Assessing Officer had conducted requisite inquiries and applied his mind.

Transactional Net Margin Method - functional comparability - arm's length price - separate segmentation of distribution and production activities - working capital adjustment

Functional comparability - Transactional Net Margin Method - separate segmentation of distribution and production activities - arm's length price - Exclusion of seven channel/content-owner companies from the set of comparables for benchmarking the assessee's distribution segment under TNMM - HELD THAT: - The Tribunal excluded seven companies (channel and content owners) from comparables after finding that their operating and earning models are significantly different from the assessee's distribution activity. The Tribunal relied on its earlier unchallenged findings in the assessee's own matters for AY 2006-07, 2007-08 and 2008-09 that satellite TV channels and cable network operators are functionally dissimilar to the distribution business. The Court noted the factual distinction between the assessee's distribution activity and its ancillary/production services, observing that (a) separate remuneration was earned and accepted for production services, (b) production constituted only a small fraction of the international transaction value (about 4%), and (c) the production services were captive and separately benchmarked. Mixing channel/content-owner companies with distributors would distort functionality and thus impair comparability under the TNMM. In these circumstances the Tribunal's exclusion of those seven comparables was upheld. The Tribunal's acceptance of the remaining three comparables after working-capital adjustments was not assailed before this Court. [Paras 2, 3, 4, 5, 6]

The seven channel/content-owner companies were excluded from the comparable set for the distribution segment and the Revenue's appeals are dismissed.

Final Conclusion: The Court upheld the Tribunal's exclusion of the seven channel/content-owner comparables on the ground of functional dissimilarity with the assessee's distribution activity, relied on prior unchallenged findings for earlier assessment years, and dismissed the Revenue's appeals.

Taxability of fees for technical services under Section 9(1)(vi) of the Income Tax Act, 1961 - standard facility not amounting to royalty - application of Finance Act, 2012 amendment to cross-border royalty/FTS provisions - precedential effect of Supreme Court decision in Engineering Analysis Centre of Excellence

Taxability of fees for technical services under Section 9(1)(vi) of the Income Tax Act, 1961 - standard facility not amounting to royalty - precedential effect of Supreme Court decision in Engineering Analysis Centre of Excellence - Whether the amended provisions of Section 9(1)(vi) of the Income Tax Act, 1961 (as amended by the Finance Act, 2012) apply to the assessee who availed/used only a standard facility that does not amount to royalty. - HELD THAT: - The Court found that the controversy is squarely covered by the decision of the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax & Another (paras 84-90). Both parties agreed that the Supreme Court's reasoning resolves the question of law as to the scope of the amended provision vis-a -vis use of a standard facility that does not constitute royalty. In view of the binding precedent, no further adjudication on the merits was necessary and the Revenue's appeal could not be sustained. [Paras 4]

Appeal dismissed in view of the Supreme Court decision; the amended Section 9(1)(vi) does not, on the facts and as per the cited precedent, apply to the assessee who used only a standard facility not amounting to royalty.

Final Conclusion: The Revenue's appeal relating to assessment year 202-13 is dismissed as the question is concluded by the Supreme Court judgment in Engineering Analysis Centre of Excellence, which governs the applicability of the amended Section 9(1)(vi) to the facts of this case.

Use of thirdparty statements and right to crossexamination - principles of natural justice - additions under section 69A - assessments under section 153C - deletion of additions based on conjecture and surmise

Use of thirdparty statements and right to crossexamination - principles of natural justice - assessments under section 153C - Whether material and statements seized from a searched third party and used to initiate proceedings against the assessee could be acted upon when copies of those statements/documents were not furnished to the assessee and no opportunity was given to crossexamine the declarants. - HELD THAT: - Proceedings stemmed from search on JBL and relied on digital ledger entries and statements of JBL personnel. The Tribunal found that the assessing officer reproduced and acted upon statements recorded during the search but did not furnish copies of those statements or related documents to the assessee, nor afford an opportunity to crossexamine the persons whose statements were relied upon. In these circumstances the assessment proceeded on material which the assessee could not confront; the Tribunal applied principles of natural justice and the approach adopted by Coordinate Benches which held that a statement of a third person recorded during search cannot be adversely used against an assessee where the assessee was not given the opportunity to know the contents and to crossexamine. Because the AO relied upon such statements in forming his conclusions, the material so acted upon could not legally sustain adverse additions against the assessee.

Statements and seized material of the searched third party could not be legally used against the assessee in the absence of furnishing of copies and an opportunity to crossexamine; reliance on such material vitiated the assessment.

Additions under section 69A - deletion of additions based on conjecture and surmise - Whether the additions made by the AO-unexplained money under section 69A and undisclosed income computed on cash transaction-were sustainable on the material on record. - HELD THAT: - The AO made additions by treating cash ledger entries as unexplained money and applied a percentage on alleged cash transaction. The Tribunal noted that the additions were founded on ledger entries and statements seized from JBL without corroborative evidence such as invoices, bills or other supporting material, and that the AO's conclusions amounted to conjecture and surmise. Given that the relied upon statements were not made available for confrontation and that there was no independent corroboration of the alleged cash transactions, the Tribunal held the additions were not sustainable on legally sound footing and followed the reasoning in Coordinate Bench decisions which set aside similar additions in connected cases.

Additions made under section 69A and the small addition on alleged undisclosed cash receipt were deleted as unsustainable being based on conjecture and on material not properly confronted to the assessee.

Final Conclusion: The Tribunal allowed the appeal for Assessment Year 2016-17, deleting the additions treated as unexplained money under section 69A and the addition on alleged undisclosed cash receipt, because the assessments were founded on thirdparty material and statements that were not furnished to the assessee nor subject to crossexamination and hence could not legally sustain the additions.

Proportionate disallowance of interest - unexplained cash credit under Section 68 - allowability of cost of improvement for computation of capital gains - gifts from relatives and applicability of Section 56(2)(vii) - notional rent and allowance of interest against deemed rental income

Proportionate disallowance of interest - Proportionate disallowance of interest expenses made by AO and sustained by CIT(A) for AY 2016-17 and AY 2017-18 is deleted. - HELD THAT: - The assessee showed that interest-free funds (owned capital and unsecured loans) exceeded the value of personal assets and interest-free advances for both years and demonstrated that a substantial portion of the personal assets/liabilities were inherited or pre-existing and not funded by interest-bearing borrowings. The AO did not establish any direct nexus between interest-bearing borrowed funds and the non-income-generating investments, nor did he rebut the documentary ledgers and other material produced. Following the principles in South Indian Bank Ltd. and the coordinate-bench decision relied upon by the assessee, in the absence of proof of nexus the presumption is that investments were made from interest-free funds. The CIT(A) erred in sustaining the proportionate disallowance without addressing these aspects. Consequently the disallowances of Rs. 38,36,692 (AY 2016-17) and Rs. 44,06,456 (AY 2017-18) are held unjustified and deleted. [Paras 8, 9, 10]

Ground allowed; proportionate disallowance of interest deleted for both assessment years.

Unexplained cash credit under Section 68 - Additions under Section 68 treating unsecured loans as unexplained cash credits for AY 2016-17 and AY 2017-18 are deleted. - HELD THAT: - The assessee furnished loan confirmations, copies of the lenders' ITRs, bank statements, PAN details and ledger extracts; loans were advanced through banking channels. AO's suspicion arose from cash deposits in lenders' bank accounts prior to issuance of cheques, but AO did not summon or examine the lenders under Sections 131/133(6) to verify sources of those cash deposits. The assessee explained the sources (including sale proceeds in one case) and produced corroborative documents including an assessment order of the lender. Once identity, genuineness and creditworthiness are prima facie established by the assessee, the onus shifts to Revenue to disprove them. The AO failed to rebut the evidence; therefore the additions under Section 68 are unsustainable and are deleted. [Paras 11, 12, 13, 14, 16]

Ground allowed; additions under Section 68 deleted for both assessment years.

Allowability of cost of improvement for computation of capital gains - Disallowance of cost of improvement is restricted to 10% of the claimed expenses; 90% of the claimed improvement costs are allowed for both AYs. - HELD THAT: - The assessee produced bills/invoices, vendor PANs and entries in books showing expenses such as 'Mati Puran' and fencing, and explained the necessity of such improvements (notably for land which appreciated substantially). The AO disallowed the entire claim due to perceived inadequacy of corroborative evidence and non-filing of tax returns by vendors; CIT(A) sustained that view. The AO did not carry out independent verifications under Sections 131/133(6). Given that a substantial portion of the claim is substantiated by records and earlier acceptance in scrutiny of prior years, complete disallowance is not justified. However, due to lack of full corroboration (absence of contractor agreements, photographs etc.) and the cash-intensive nature of such works, a reasonable adjustment is warranted. On balancing these factors, a proportional disallowance of 10% of claimed improvement costs is imposed. [Paras 18, 21, 22, 23, 24]

Ground partly allowed; AO directed to allow 90% of improvement expenses for both assessment years.

Gifts from relatives and applicability of Section 56(2)(vii) - Addition treating the gift of Rs. 10,00,000 as unexplained cash credit is deleted; gift accepted as genuine and donor is a relative within Section 56(2)(vii). - HELD THAT: - The assessee produced a signed confirmation from the donor, capital account and cash book of the donor showing opening cash balance and the dates of gifts, and the donor's ITR and computation evidencing sufficient cash balance and creditworthiness. The relationship (donor is wife of assessee's brother) was satisfactorily explained on appeal. AO's objections about unsigned confirmation and absence of a formal gift deed were addressed by the signed confirmation and supporting records. On the totality of evidence the transaction's genuineness and source are established, and there is no justification to sustain the addition under Section 68. [Paras 25, 27, 29, 30]

Ground allowed; addition of Rs. 10,00,000 deleted.

Notional rent and allowance of interest against deemed rental income - Ground relating to notional rent and claim for deduction of interest against such notional rent is dismissed as consequential. - HELD THAT: - AO had computed notional rent and CIT(A) rejected claim for deduction of interest against same for want of particulars. The assessee did not press arguments before the tribunal on this point. Since the interest disallowance and additions under Section 68 have been decided in favour of the assessee, the notional rent issue and related grounds (including taxation under Section 115BBE claimed by assessee to be retrospective) are rendered infructuous and are dismissed as consequential. [Paras 31, 32]

Ground dismissed as consequential/infructuous.

Final Conclusion: Both appeals are allowed in part: proportionate disallowance of interest deleted for AY 2016-17 and 2017-18; additions under Section 68 (unsecured loans) deleted for both years; disallowance of cost of improvement reduced to 10% (90% allowed) for both years; addition for alleged bogus gift deleted; notional rent ground dismissed as consequential. Overall result: appeals partly allowed.

Validity of notice under section 148 - Reassessment and escapement of income - Use of statements recorded during search as basis for reassessment - Requirement of independent enquiry before reopening - Onus to explain share capital under section 68 - Deletion of addition under section 68 where identity, creditworthiness and genuineness established

Validity of notice under section 148 - Use of statements recorded during search as basis for reassessment - Requirement of independent enquiry before reopening - Notice issued under section 148 and reassessment framed thereon are invalid and the reassessment is cancelled. - HELD THAT: - The Assessing Officer issued notice under section 148 after receiving information arising from search and seizure related to thirdparty operator Shri Shirish C. Shah. The reasons recorded relied principally on the general statement of Shri Shirish Shah and seized material which did not identify dates of transactions, link the assessee's specific receipts to the statements, or demonstrate any independent enquiry by the AO after the regular assessment under section 143(3) which had already examined and accepted the share capital. The Tribunal found that the reasons did not disclose tangible material connecting the corporate contributors to the thirdparty operator and amounted to mere suspicion; relying on the settled law cited in the order, the AO's use of departmental information from the search without independent verification was held inadequate to form a valid belief of escapement of income. Consequently, the Tribunal held the issuance of notice under section 148 and the resultant reassessment to be not in accordance with law and cancelled the reassessment. [Paras 11, 12, 19, 20, 21]

Notice under section 148 was invalid; reassessment framed is cancelled.

Onus to explain share capital under section 68 - Deletion of addition under section 68 where identity, creditworthiness and genuineness established - Addition under section 68 of the Act in respect of share capital is deleted as the assessee discharged its onus. - HELD THAT: - The assessee had produced confirmations, audited financial statements, shareapplication forms, bank account extracts and ITR acknowledgements evidencing the identity, creditworthiness and genuineness of the four corporate shareholders who subscribed to the share capital. Those documents had been furnished during the original assessment proceedings and were available to the AO, who nevertheless made additions in reopening primarily on the basis of the statement of Shri Shirish Shah without conducting any independent verification or testing that statement by crossexamination. Applying judicial authorities relied upon in the order and following coordinate decisions discrediting untested, generalized statements of the searchrecorded declarant, the Tribunal held that the assessee discharged the evidential onus under section 68 and that the addition was unjustified and unsustainable; the addition of the specified amount under section 68 was therefore deleted. [Paras 15, 16, 17, 18, 21]

Addition under section 68 is deleted.

Final Conclusion: The appeal is allowed: the reassessment initiated by the section 148 notice is cancelled and the addition made under section 68 is deleted; consequential grounds need no separate adjudication.

Withdrawal of appeal - dismissal of appeal as withdrawn - penalty for non-disclosure of foreign assets - assessment under section 43 of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015

Withdrawal of appeal - dismissal of appeal as withdrawn - Request for withdrawal of the appeals and consequent dismissal as withdrawn. - HELD THAT: - The assessee filed a signed letter stating that the penalty amount had been paid and that the assessee did not wish to continue litigation, requesting withdrawal of the appeals for the three assessment years. Having received the request for withdrawal, the Tribunal treated the appeals as withdrawn and did not adjudicate the merits of the penalty or the assessment under the BMA. [Paras 5, 6]

All three appeals are dismissed as withdrawn.

Final Conclusion: The Tribunal accepted the assessee's request to withdraw the appeals (after payment of the penalty) and dismissed the appeals for A.Y. 2019-20, 2020-21 and 2021-22 as withdrawn; no adjudication was made on the merits of the penalty or assessment.

Validity of approval under section 153D - Mechanical approval without application of mind - Quashing of assessment under section 153A where approval under section 153D is invalid - Binding effect of coordinate Tribunal and upheld High Court decisions on identical approval

Validity of approval under section 153D - Mechanical approval without application of mind - Quashing of assessment under section 153A where approval under section 153D is invalid - Binding effect of coordinate Tribunal and upheld High Court decisions on identical approval - Approval dated 30.12.2018 by the Addl. CIT under section 153D was mechanical and without application of mind and is therefore invalid, and the assessment orders founded on that approval are vitiated and liable to be quashed for AY 2016-17 and AY 2017-18. - HELD THAT: - The Tribunal examined the approval letter dated 30.12.2018 and observed that it was a consolidated approval covering multiple assessment years and multiple cases, with no indication that the draft assessment orders were perused or that independent reasons were recorded by the approving authority. The Tribunal placed weight on the fact that the approving officer had granted approvals in a large number of files on the same day, which made it implausible that each file was considered with application of mind. The coordinate Bench earlier quashed assessments for the same approval in the assessee's related appeals (AYs 2011-12 to 2015-16) after relying on High Court precedents holding that an approval which is merely a formal or mechanical endorsement without examination of the draft orders is unsustainable. That coordinate Bench decision was challenged by the Revenue and the Hon'ble High Court upheld the Tribunal's view. Given the identical approval in the present matters and the subsequent affirmance by the Jurisdictional High Court, the Tribunal declined to distinguish the instant facts from those earlier determinations and followed the established view. Consequently, the approval under section 153D was held invalid and the assessment proceedings under section 153A founded on that invalid approval were vitiated and quashed; ancillary grounds on merits were treated as academic. [Paras 8, 9, 11, 15]

Approval dated 30.12.2018 under section 153D is invalid as having been granted mechanically without application of mind; assessments for AY 2016-17 and AY 2017-18 based on that approval are quashed and the Revenue's cross-appeal is dismissed.

Final Conclusion: The appeals filed by the assessee for AY 2016-17 and AY 2017-18 are allowed by quashing the assessment orders as the approval under section 153D dated 30.12.2018 was held to be mechanical and without application of mind; the Revenue's appeal fails and is dismissed.

Burden of proof under section 68 - Denial of exemption under section 10(38) - Addition under section 69C - Preponderance of probabilities in fact-finding - Requirement of independent enquiry before rejecting assessee's evidence - Improper reliance on investigation report without opportunity for cross-examination - Deletion of additions where evidence produced by assessee is not disproved

Burden of proof under section 68 - Denial of exemption under section 10(38) - Requirement of independent enquiry before rejecting assessee's evidence - Preponderance of probabilities in fact-finding - Whether the addition of Rs. 49,27,649/- under section 68 and denial of exemption under section 10(38) in respect of long term capital gains was sustainable - HELD THAT: - The Tribunal examined the material furnished by the assessee - purchase contract notes, bank payment by account payee cheque, dematerialisation entries, broker contract notes with date/time stamps, sale through a recognised stock exchange, receipt of sale consideration through broker account pay out and payment of securities transaction tax - and found that the assessee had explained the nature and source of the credit. The Assessing Officer relied largely on an investigation wing report and a third party statement but failed to conduct independent enquiries (for example, by obtaining details from the exit provider, relevant brokers, or correctly addressed inquiries to the merged company) and did not examine the assessee. The Tribunal held that an addition under section 68 can be sustained only if the assessee fails to prove the nature and source of the credit; where evidence produced by the assessee is not disproved by proper enquiry, it cannot be discarded merely on the basis of the investigation report or on probabilities. Applying the preponderance of probabilities principle and having regard to the absence of concrete enquiries by the AO, the Tribunal concluded that the denial of exemption under section 10(38) and the addition under section 68 were not justified. [Paras 13, 14, 18, 19]

Addition under section 68 deleted and exemption under section 10(38) granted

Addition under section 69C - Deletion of additions where evidence produced by assessee is not disproved - Requirement of independent enquiry before rejecting assessee's evidence - Whether the disallowance of commission expenditure (treated as unexplained) under section 69C was sustainable once the primary addition was deleted - HELD THAT: - The Tribunal reasoned that the addition of commission expenditure was consequential to and premised upon the primary finding that the long term capital gains were bogus. Having found that the AO had not made requisite enquiries and that the assessee's evidence regarding the transactions remained unrefuted, the basis for treating commission as unexplained did not survive. Consequently, the consequential addition under section 69C could not be sustained. [Paras 13, 20]

Addition of unexplained commission expenditure deleted

Final Conclusion: The appeals are allowed: the addition of Rs. 49,27,649/- under section 68 is deleted and exemption under section 10(38) is granted; the consequential addition under section 69C is also deleted.

Transfer pricing adjustment - re-characterisation of international transaction - arm's length price - Transactional Net Margin Method (TNMM) - working capital adjustment - selection and exclusion of comparables - revenue recognition - percentage of completion method - unearned revenue - tax deducted at source credit - advance tax credit - interest under sections 234A, 234B and 234C - prematurity of penalty proceedings

Transfer pricing adjustment - re-characterisation of international transaction - arm's length price - Deletion of transfer pricing adjustment made by AO/TPO/DRP in respect of payment of service fees to AE - HELD THAT: - The Tribunal examined the identical controversy decided by a co-ordinate bench in the assessee's own cases for earlier assessment years and found no distinguishing facts for AY 2015-16. The co-ordinate bench had held that the payments were in accordance with the agreement, that the substance of the transactions supported the assessee's treatment and that no defect in documentation or benchmarking was shown by Revenue. As Revenue did not point to any change in functions, assets or risks, the Tribunal, following the co-ordinate bench, concluded that the TPO/AO/DRP adjustment was unsustainable and directed deletion of the transfer pricing adjustment in respect of service fees. [Paras 9]

Transfer pricing adjustment disallowing payment of service fees is set aside and deleted.

Transactional Net Margin Method (TNMM) - working capital adjustment - arm's length price - Grant of working capital adjustment for provision of software support services (cost plus 15% segment) - HELD THAT: - Relying on the Tribunal's decision in the assessee's own case for AY 2016-17, which had allowed working capital adjustment across segments, and noting no change in the assessee's functions, assets and risks for AY 2015-16, the Tribunal held the assessee entitled to working capital adjustment. The TPO/AO was directed to verify and grant the working capital adjustment on the final set of comparables used by the TPO. [Paras 12]

Assessee entitled to working capital adjustment; TPO/AO directed to grant it on final comparables.

Transactional Net Margin Method (TNMM) - working capital adjustment - selection and exclusion of comparables - Grant of working capital adjustment and exclusion of Axis Integrated Systems Limited from final comparables for sales & marketing support services (cost plus 5% segment) - HELD THAT: - The Tribunal followed its decision in AY 2016-17 permitting working capital adjustment and directed its grant for AY 2015-16 as there were no changes in functional profile. With regard to Axis Integrated Systems Limited, the Tribunal relied on its earlier finding in AY 2014-15 that this comparable suffered functional dissimilarities and directed that it be removed from the final set of comparables, with computation adjusted accordingly. [Paras 15, 17]

Working capital adjustment to be granted; Axis Integrated Systems Limited to be excluded from final comparables and AO to recompute accordingly.

Revenue recognition - percentage of completion method - unearned revenue - Deletion of addition made by AO/DRP treating subscription-related unearned revenue as current year income - HELD THAT: - The Tribunal reviewed co-ordinate-bench decisions in the assessee's own cases for earlier years which upheld the assessee's consistent revenue recognition policy (percentage of completion/straight-line over subscription period) under Accounting Standard-9 and related authorities. Finding no change in facts or basis to disturb the consistently followed method, and noting that services under subscriptions are rendered over the contract term, the Tribunal held the AO/DRP's preponement of income to be unsustainable and deleted the addition. [Paras 22]

Addition on account of unearned revenue in respect of subscription services deleted.

Tax deducted at source credit - TDS credit shortfall to be considered and decided by AO on evidence - HELD THAT: - The assessee claimed TDS credit in the return which was partly not granted in assessment. The assessee has filed an application under section 154 which remains pending. The Tribunal directed the AO to decide the claim on the basis of evidence produced, after affording opportunity of hearing. [Paras 23]

AO directed to decide TDS credit claim on evidence; ground allowed for statistical purposes.

Advance tax credit - Advance tax credit claimed to be decided by AO on evidence - HELD THAT: - The assessee claimed advance tax credit in the return which was not allowed. A section 154 application is pending. The Tribunal directed the AO to decide the advance tax credit claim after considering evidence and hearing the assessee. [Paras 24]

AO directed to decide advance tax credit claim on evidence; ground allowed for statistical purposes.

Interest under sections 234A, 234B and 234C - Direction on interest: 234A and 234C disallowed; 234B to be dealt with by AO - HELD THAT: - The Tribunal treated the challenge to interest under section 234B as consequential and directed the AO to decide it in accordance with law. On the facts that the return was filed within statutory time and advance tax was paid in time, the Tribunal held that interest under sections 234A and 234C should not be levied and directed recomputation of tax without such interest. [Paras 25, 26]

No interest under sections 234A and 234C to be levied; AO to decide 234B issue in accordance with law and recompute tax/refund accordingly.

Prematurity of penalty proceedings - Challenge to initiation of penalty proceedings under section 274 read with section 271(1)(c) dismissed as premature and consequential - HELD THAT: - The Tribunal found the ground to be premature and consequential to other findings and therefore declined to adjudicate on the penalty challenge. [Paras 27]

Ground regarding penalty proceedings dismissed as premature.

Final Conclusion: The appeal is partly allowed for statistical purposes: transfer pricing adjustment on service fees and addition for unearned subscription revenue are deleted; working capital adjustments are to be granted and one comparable excluded with recomputations; TDS and advance tax credit claims are remitted to the AO for decision on evidence; interest under 234A and 234C is disallowed while the 234B issue is left to AO to decide; penalty ground dismissed as premature.

Tax on Distributed Profits (Dividend Distribution Tax) under Section 115-O - Application of Article 11 (Dividends) of the India-Italy DTAA to Dividend Distribution Tax - Characterisation of DDT as tax on distributed profits/domestic company - Scope of DTAA vis-a -vis residents of Contracting States - Requirement of express treaty provision to extend DTAA protection to domestic company paying DDT

Application of Article 11 (Dividends) of the India-Italy DTAA to Dividend Distribution Tax - Tax on Distributed Profits (Dividend Distribution Tax) under Section 115-O - Characterisation of DDT as tax on distributed profits/domestic company - Requirement of express treaty provision to extend DTAA protection to domestic company paying DDT - Claim for refund of excess Dividend Distribution Tax paid by the assessee by invoking the rate limit in Article 11 of the India Italy DTAA - HELD THAT: - The Tribunal upheld the view that Section 115 O constitutes a self-contained code charging an additional tax on amounts declared, distributed or paid by a domestic company by way of dividends (tax on distributed profits). The Special Bench of the Mumbai Tribunal in Total Oil India (P.) Ltd. was followed: the statutory non obstante clause and scheme of Section 115 O show the charge is distinct and payable by the domestic company, and the payment does not operate as tax paid on behalf of the shareholder. The DTAA operates to allocate taxing rights in respect of income of residents of the Contracting States; treaty protection is generally given to residents of the other Contracting State and, where Contracting States intend to extend treaty protection to domestic companies paying DDT, that extension must be specifically provided in the treaty (as in the India-Hungary protocol). Absent any provision in the India-Italy DTAA or protocol expressly deeming DDT to be within the treaty's dividend article, the DTAA does not limit the rate of DDT payable by an Indian resident company under Section 115 O. Reliance on Supreme Court decisions characterising DDT as relating to dividend income was considered but did not displace the Special Bench's conclusion that the statutory scheme and judicial precedent support treating DDT as a tax whose incidence and charge fall on the domestic company and therefore outside the operation of the DTAA unless expressly covered.

Claim for refund of excess DDT under Article 11 of the India-Italy DTAA rejected; DDT payable at the rate provided in Section 115 O and no treaty relief available to the domestic company for AY 2016 17.

Final Conclusion: The Tribunal dismissed the assessee's appeal seeking refund of excess Dividend Distribution Tax for AY 2016 17, respectfully following the Special Bench decision in Total Oil India (P.) Ltd. that DTAA Article on dividends does not curtail the statutory DDT charged on a domestic company under Section 115 O unless the treaty expressly extends such protection.

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

Compromise/settlement binding on parties - scope of liberty to file miscellaneous application - implementation of compromise limited to removal of obstructions - enforcement and interpretation of compromise terms - limitations on executor/observer powers - prohibition on reopening disposed company petition by miscellaneous application - no indirect revival of removed director

Compromise/settlement binding on parties - implementation of compromise limited to removal of obstructions - scope of liberty to file miscellaneous application - Liberty in the NCLT order to file miscellaneous applications is limited to seeking directions for implementation of the terms of the Joint Compromise Petition and to remove obstructions in such implementation, and does not confer a general or open-ended right to seek any direction. - HELD THAT: - The Tribunal construed para 9(e) of the order dated 07.08.2018 as a confined liberty for parties (including the Executor/Observer) to approach the Tribunal only for directions necessary to implement the compromise and to remove obstacles to that implementation. The court held that the liberty must be read in the context of the rights reserved by the Joint Compromise Petition dated 14.06.2017 and cannot be read as empowering parties to seek directions beyond the compromise's scope. Consequently, filing of miscellaneous applications is permissible only insofar as they seek to effectuate the compromise terms and to resolve implementation issues, not to enlarge or alter the compromise itself. [Paras 16]

Liberty to file miscellaneous applications under the order dated 07.08.2018 is restricted to implementation-related directions and removal of obstructions within the compromise's terms.

Enforcement and interpretation of compromise terms - limitations on executor/observer powers - no indirect revival of removed director - Directions which effectively place the erstwhile Managing Director back in control or empower a party beyond the negotiation and sale role assigned by the compromise are impermissible. - HELD THAT: - The Joint Compromise confined the role of Mr. R.P. Trivikram to involvement in sale negotiations and sale transactions of the Scheduled Properties. The impugned directions in IA No. 227/2019 (disposed by the NCLT) went beyond that limited role by directing that Mr. Trivikram be 'involved in all the affairs' of the company, which would indirectly reconstitute managerial control and undermine the Registrar of Companies' earlier removal of Mr. Trivikram as Managing Director. The Appellate Tribunal found such an extension contrary to the compromise and the earlier order confirming it, and therefore inconsistent with the limited powers of the Executor/Observer and the settlement. [Paras 23, 26]

Directions that effectively restore managerial control to a person whose role under the compromise was limited to sale negotiations and transactions are not permissible.

Prohibition on reopening disposed company petition by miscellaneous application - prohibition on reopening disposed company petition by miscellaneous application - A miscellaneous application filed in a company petition already disposed of cannot be used to re-open, review, recall or modify the earlier compromise order so as to confer powers beyond the compromise. - HELD THAT: - The Court held that the interlocutory application (IA No. 227/2019) filed purportedly under the liberty in para 9(e) sought reliefs (superseding the board, appointing the Executor as Administrator, authorising signatory powers) that amounted to re-opening a decided petition and effecting changes not contemplated by the compromise or the order of 07.08.2018. The Appellate Tribunal concluded that such exercise was not maintainable and that the portion of the impugned order giving such directions must be quashed. [Paras 27, 28]

The reliefs sought by IA No. 227/2019, to re-open or alter the disposed petition and to confer powers beyond the compromise, are not maintainable and are quashed to the extent they exceed the compromise.

Final Conclusion: The appeal is allowed; the NCLT directions to 'involve the Applicant in all the affairs of the R 1 Company' (sub para 1 of para 11 of the impugned order) are quashed as exceeding the scope of the Joint Compromise Petition and the limited liberty to file miscellaneous applications, with no order as to costs.

Retention allowance - salary and wages during CIRP - requirement of legal sanction/evidence for entitlement - internal managerial note/proposal not creating enforceable entitlement - distinction between emolument and non-salary allowances - priorities under Section 53 IBC

Retention allowance - requirement of legal sanction/evidence for entitlement - internal managerial note/proposal not creating enforceable entitlement - distinction between emolument and non-salary allowances - Members of the appellant association are not entitled to payment of the claimed retention allowance. - HELD THAT: - The Tribunal affirmed the Adjudicating Authority's finding that the endorsement and internal note relied upon by the appellant were only a proposal and not a conclusive decision creating an enforceable right. An allowance qualifies as part of salary only where entitlement arises regularly (monthly) or under service terms creating a quid pro quo; the appellant failed to produce service conditions, rules, policy or other evidence showing the retention allowance formed part of the emolument payable to employees. The internal endorsement of 18.05.2017 limited payability to employees "continuing in role" till March 2018 and did not establish who satisfied that condition or that the allowance accrued as salary during the claimed period. Precedents cited concerning wages during CIRP were distinguished on facts and statutory context; the payment sought could not be treated as salary absent legal enforceability and evidentiary foundation. Accordingly, the impugned rejection of IA No. 251/2022 on the retention allowance claim was upheld. [Paras 4, 5, 6, 7, 9]

Claim for retention allowance dismissed for lack of legal basis and evidence; not part of salary.

Salary and wages during CIRP - priorities under Section 53 IBC - Salary for June 2017 is treated as payable in accordance with the Adjudicating Authority's order subject to facts recorded. - HELD THAT: - It was admitted that salary for June 2017 had been paid to the members of the association; the Tribunal noted the Adjudicating Authority's decision on that aspect and observed that the amount pertaining to determination of salary for June 2017 will be considered payable as per the impugned order, provided it has not already been paid or is not the subject of a challenge before a superior forum. Distinctions made in earlier judgments concerning wages during CIRP do not alter this factual determination. [Paras 1, 9]

Salary for June 2017 stands as payable in accordance with the impugned order, subject to prior payment or pending challenge.

Final Conclusion: The appeal is dismissed. The Adjudicating Authority's rejection of the claim for retention allowance is upheld for lack of legal entitlement and evidentiary support; the determination regarding salary for June 2017 remains as per the impugned order subject to the conditions stated.

Speaking order - dismissal for non-prosecution - restoration of dismissed application - vicarious fault of counsel - remand for fresh consideration

Speaking order - dismissal for non-prosecution - vicarious fault of counsel - The Order dated 11th January, 2024 is non speaking and is liable to be set aside. - HELD THAT: - The Tribunal recorded that it had heard counsel and perused the application but gave no reasons appreciating the Appellant's explanation for non appearance on earlier dates. The Appellate Tribunal accepted that the Appellant had pursued the application for two years and that non appearance resulted from the advocate leaving for abroad without informing the client. Relying on the principle that a litigant who has engaged counsel should not be penalised by the fault of the advocate, the Court found that the reasons advanced by the Appellant were not considered and that the impugned order therefore lacked requisite reasoning. In these circumstances the impugned order was held to be non speaking and unsustainable. [Paras 8, 9]

Order dated 11th January, 2024 is set aside as non speaking.

Restoration of dismissed application - remand for fresh consideration - The matter is remanded to the learned Tribunal to decide the restoration application in accordance with law by passing a speaking order. - HELD THAT: - Having set aside the non speaking order, the Appellate Tribunal directed that the Restoration Application No.200/2023 be reconsidered on its merits with reasons recorded. The remand is for fresh adjudication and issuance of a speaking order; no observation was made on the merits of the underlying claim. Parties were directed to appear before the learned Tribunal on the date specified for further proceedings. [Paras 9, 10]

Matter remanded to the learned Tribunal for fresh decision with a speaking order; no decision on merits is made.

Final Conclusion: The appeal is allowed to the extent that the impugned order dated 11th January, 2024 is set aside for being non speaking; the restoration application is remitted to the Tribunal for fresh consideration and a speaking order, with no adjudication on the merits at this stage.

Withdrawal of special leave petition with liberty to apply for bail - priority disposal of bail applications - procedural impropriety in service of summons and subsequent arrest - remedial measures by investigating agency

Withdrawal of special leave petition with liberty to apply for bail - priority disposal of bail applications - The Special Leave Petitions are permitted to be withdrawn with liberty to apply for grant of bail and the Special Court is directed to give priority to disposal of any bail applications filed. - HELD THAT: - Learned senior counsel for the petitioners sought and were granted permission to withdraw the petitions subject to liberty to apply for bail. The Court disposed of the special leave petitions as withdrawn while expressly directing that, if bail applications are filed in view of the withdrawal, the concerned Special Court shall accord necessary priority to their disposal. Pending applications were ordered to stand disposed of. The Court thereby confined its relief to enabling the petitioners to seek bail afresh and to ensure expeditious consideration by the trial forum. [Paras 1, 4, 5]

Petitions disposed of as withdrawn with liberty to apply for bail; Special Court to give priority to bail applications; pending applications disposed of.

Procedural impropriety in service of summons and subsequent arrest - remedial measures by investigating agency - The Court recorded disturbing features in the manner the Enforcement Directorate summoned and arrested the petitioner and noted that the ED has taken remedial measures. - HELD THAT: - The Court recorded factual findings about the chronology: the petitioner received multiple summons on the same day while in the ACB office, was taken to the ED, interrogated through the night and shown as arrested in the early hours. The Court observed there was no justification for the ED to act in that manner. In response, the Additional Solicitor General represented that remedial measures have been instituted by the ED and a press release to that effect was issued on 29th October, 2024. The Court recorded these disturbing features and the representation about corrective steps but did not direct further specific remedial orders in this judgment. [Paras 2, 3]

Court recorded procedural impropriety in the ED's actions and noted the ED's representation that remedial measures have been taken (press release dated 29th October, 2024).

Final Conclusion: The Special Leave Petitions are dismissed as withdrawn with liberty to apply for bail; the trial Special Court is directed to prioritize any bail applications arising therefrom. The Supreme Court also recorded disturbing features concerning the Enforcement Directorate's conduct in service of summons and arrest, and noted the ED's representation of having taken remedial measures.

Non-compliance of Section 19 of the PMLA vitiates arrest and enures to benefit of the arrestee - Admissibility of statements recorded under Section 50 of the PMLA while in custody - Requirement of recorded reasons forming opinion of guilt by the designated officer - Twin conditions for grant of bail under Section 45 of the PMLA - Bail under PMLA where court is satisfied there are no reasonable grounds to believe guilt and no likelihood of re-offence

Non-compliance of Section 19 of the PMLA vitiates arrest and enures to benefit of the arrestee - Requirement of recorded reasons forming opinion of guilt by the designated officer - Twin conditions for grant of bail under Section 45 of the PMLA - Effect of non-compliance with Section 19 of the PMLA on entitlement to bail under the PMLA - HELD THAT: - The Court examined the statutory scheme and precedents and held that compliance with Section 19 is integral to the arrest process under the PMLA because the designated officer must form and record reasons in writing to believe the accused is guilty. Where Section 19 has not been complied with and the opinion of guilt rests on inadmissible or insufficient material, the rigours of Section 45 must be scrutinised by the court and non-compliance will enure to the benefit of the arrestee. Applying these principles, the Court found that the ED did not summon the applicant, did not seek material from the licensing authority, and based its opinion largely on statements of co-accused persons; thus the statutory mandate of Section 19 was not satisfied. In view of the absence of compliance and on the further finding that no custodial interrogation was necessary, the court concluded that the twin conditions for denial of bail under Section 45 were not a bar to releasing the applicant on bail in the present case. [Paras 12, 13, 14]

Non-compliance of Section 19 was held to have occurred and, on that basis and considering there was no need for further custodial interrogation, the applicant was granted bail.

Admissibility of statements recorded under Section 50 of the PMLA while in custody - Use of co-accused statements only for corroboration - Admissibility and evidentiary value of statements recorded under Section 50 of the PMLA and statements of co-accused - HELD THAT: - Relying on authoritative precedents, the Court reiterated that any statement recorded under Section 50 of the PMLA from a person while in custody of the same investigating agency is inadmissible against the maker for the purposes of forming guilt. Further, the statement of a co-accused cannot prima facie be treated as substantive evidence against the applicant and can, at best, be used to lend assurance to other admissible evidence after that other evidence is marshalled. The Court observed that the ED's opinion of guilt appeared to rely substantially on co-accused statements and that admissible corroborative material from other sources (including licensing authority records) had not been obtained before arrest. This infirmity contributed to the conclusion that continued custody was not warranted. [Paras 12]

Statements recorded under Section 50 while in custody and statements of co-accused were held to be inadmissible or of limited corroborative value; reliance upon them without independent admissible material militated in favour of bail.

Final Conclusion: The bail petition was allowed; the applicant Mr. Asif Hanif Thara was directed to be released on bail subject to specified bonds and conditions, the court observing that Section 19 of the PMLA had not been complied with, statements relied upon were inadmissible or insufficient, and no further custodial interrogation was required.

Taxable service - real estate agent service - service tax liability - definition of "service" under section 65B (44) of the Finance Act - reliance on Form 26AS as a source of information - threshold exemption for small service providers - burden on assessee to rebut departmental records

Taxable service - real estate agent service - definition of "service" under section 65B (44) of the Finance Act - Whether the amounts received by the appellant from M/s DHL for acting as a commission agent during 2010-2011 to 2014-2015 constituted taxable service and attracted service tax. - HELD THAT: - The appellant acted as a commission agent for M/s DHL and received amounts solely for rendering that agency service. The activity falls within the definition of "service" (as under section 65B(44) of the Finance Act) and was not in the negative list; accordingly the activity was taxable during the entire disputed period. The tribunal recorded the appellant's concession that he had no other business with DHL in the relevant period and relied on that undisputed factual position to conclude that amounts reflected as paid by DHL represented fees for the taxable service. On this basis the demand of service tax was sustained. [Paras 3, 8, 11]

Amounts received from DHL for commission-agent activity were taxable and the demand of service tax was correctly sustained.

Reliance on Form 26AS as a source of information - burden on assessee to rebut departmental records - Whether service tax demand could be based on amounts reflected in Form 26AS where the appellant had not registered or filed service tax returns. - HELD THAT: - Although Form 26AS cannot be the sole basis for a demand in every case, where an assessee is unregistered and has not filed service-tax returns, Form 26AS provides an important source of information about amounts paid by third parties. If it is shown that amounts reflected in Form 26AS were for rendering a taxable service and the assessee does not place evidence to the contrary, the department may rely on those entries to determine value of services. In this case the entries in Form 26AS were undisputedly payments by DHL for commission services and the appellant produced no evidence to show that those amounts related to anything other than taxable services; hence reliance on Form 26AS to compute the demand was justified. [Paras 9, 11]

Form 26AS entries were a permissible and relevant source to determine the value of services in the absence of registration or return-filing, and the department's reliance on them was justified.

Threshold exemption for small service providers - burden on assessee to rebut departmental computation - Whether the appellant could claim exemption under the threshold notifications by proportionately reducing receipts for 2012-2013 and thus escape liability. - HELD THAT: - The appellant contended that annual receipts did not exceed the exemption threshold and, for 2012-13, that the taxable period commenced only from July 2012 so receipts should be proportionately reduced. The tribunal held that such proportionate reduction could not be accepted without supporting evidence. The appellant failed to produce evidence to substantiate the asserted apportionment or to rebut the departmental computation based on payments reflected in Form 26AS. In absence of such evidence the claim of exemption could not be sustained. [Paras 4, 10]

Claim of exemption based on threshold and proportional reduction for 2012-13 was rejected for lack of supporting evidence.

Final Conclusion: The impugned order confirming service-tax demand (including interest and penalties) was held to be correct; the appeal is dismissed and the order-in-original and order-in-appeal are upheld.

Activity of packaging amounts to manufacture - job work services versus manpower supply service - services by way of processes amounting to manufacture excluded from service tax (negative list) - retracted statements inadmissible unless tested under Section 9D - classification cannot be determined by account nomenclature or registration alone - extended period of limitation not invocable where issue is one of interpretation/revenue-neutrality - no liability for registration/penalty where no service tax liability

Activity of packaging amounts to manufacture - services by way of processes amounting to manufacture excluded from service tax (negative list) - Whether packing of bulk finished goods into retail packs amounts to manufacture and is outside the levy of service tax - HELD THAT: - The Tribunal held that the activity of packing bulk finished goods into retail packs falls within the definition of "manufacture" as reflected by the Chapter Notes to Chapters 30 and 33 and Section 2(f) of the Central Excise Act. Consequently, such activity is a process amounting to manufacture and is covered by the negative list entry in the relevant service legislation, placing it outside the charge to service tax. The Tribunal rejected the Revenue's contention and concluded that service tax could not be levied on the packing activity. [Paras 6, 7, 10]

Packing of bulk into retail packs amounts to manufacture and is not liable to service tax.

Job work services versus manpower supply service - classification cannot be determined by account nomenclature or registration alone - Whether the contracts in question were manpower supply services (taxable) or job work services (not taxable) and whether registration/labels determine the nature of service - HELD THAT: - Applying the contractual terms, scope of work, production plan, piece-rate payments, responsibility for wastage and supervision as reflected in the agreements and records, the Tribunal found the arrangements satisfied the indicia of job work rather than manpower supply. It held that mere registration as a manpower supplier or the use of particular nomenclature in financial accounts or trade/labour licenses does not conclusively determine the legal classification of the activity; classification must follow statutory definition and facts of the arrangement. Thus the contractors' registration or account descriptions did not convert packing into a taxable manpower supply service. [Paras 7, 8, 9, 10]

The contracts are job work arrangements; registration or accounting descriptions do not alter that classification; therefore the services are not manpower supply services for service tax purposes.

Retracted statements inadmissible unless tested under Section 9D - Whether statements recorded during investigation which were retracted can sustain the service tax demand without being tested under the procedure prescribed in Section 9D - HELD THAT: - The Tribunal observed that the impugned demand relied on statements recorded during investigation which were later retracted and were not tested in accordance with the procedure mandated by Section 9D of the Central Excise Act. Consequently, those statements had no evidentiary value and could not form the basis for sustaining the service tax demand. [Paras 7]

Statements recorded during investigation, retracted and not tested under Section 9D, are not admissible to sustain the demand.

Extended period of limitation not invocable where issue is one of interpretation/revenue-neutrality - Whether the extended period of limitation could be invoked to sustain parts of the demand - HELD THAT: - The Tribunal found that the question involved interpretation of law (classification of the activity as manufacture) and that the exercise was revenue-neutral (any service tax, if hypothetically payable, would be available as Cenvat credit). Given these circumstances and the fact that the activity was held to be manufacture, the Tribunal concluded that the extended period of limitation was not invocable to uphold any portion of the demand. [Paras 3, 13]

Extended period of limitation cannot be invoked; demands confirmed under extended limitation are not sustainable.

No liability for registration/penalty where no service tax liability - Whether penalties and registration requirements could be imposed on the contractors where no service tax liability exists - HELD THAT: - Having concluded that the activity amounted to manufacture and hence was outside the levy of service tax, the Tribunal reasoned that there was no obligation to obtain service tax registration under the statute and consequently no basis to impose penalties. The Tribunal therefore set aside penalties imposed on the appellants. [Paras 11, 12, 14]

In absence of service tax liability, registration and penalties could not be imposed; penalties set aside.

Final Conclusion: The appeals are allowed. The Tribunal holds that packing bulk finished goods into retail packs amounts to manufacture and is not liable to service tax; statements relied upon by the Revenue were retracted and not tested under Section 9D and thus lacked evidentiary value; classification cannot be determined solely by account entries or registration; the extended period of limitation is not invocable; accordingly the demand of service tax, interest and penalties, and penalties/registration-related consequences as confirmed below are set aside.

Reverse charge mechanism - consumption of services in India - suppression of facts - wilful intent to evade - extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 - cenvat credit and revenue neutrality

Reverse charge mechanism - consumption of services in India - Liability to pay service tax under reverse charge on research & development and consultancy services - HELD THAT: - The Tribunal accepted the finding that the appellant, engaged in manufacture of blasting machinery, received R&D and consultancy services that were for its commercial activity in India and were consumed in India. Applying the legal test of situs and commercial consumption, the Tribunal held on merits that service tax was payable by the appellant under the reverse charge mechanism in respect of those services. [Paras 6]

Demand for service tax on R&D and consultancy services under reverse charge is sustainable on merits.

Suppression of facts - wilful intent to evade - extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 - cenvat credit and revenue neutrality - Invocability of the extended period based on alleged suppression of facts - HELD THAT: - The Tribunal examined whether the proviso to Section 73(1) permitting invocation of the extended period could be applied. Noting authorities which construe 'suppression of facts' strictly (observing it must be deliberate and with intent to evade), the Tribunal recorded that all transactions were disclosed in the appellant's audited books and detected during departmental audit. No positive act establishing wilful suppression or intent to evade was shown. The Tribunal also observed that some demands were dropped and that appellant claimed bona fide belief and entitlement to Cenvat credit, supporting the absence of deliberate evasion. On this basis the Tribunal held that mere non-disclosure in returns or detection on audit does not suffice to invoke the extended period; the burden to prove wilful suppression and intent to evade rested on the Revenue and was not discharged here. [Paras 9, 10, 11, 12, 13]

Extended period under the proviso to Section 73(1) cannot be invoked as wilful suppression with intent to evade is not established; extended-period demand set aside.

Final Conclusion: The appeal is allowed: the Tribunal upheld the substantive liability for service tax on certain R&D and consultancy services under reverse charge but set aside the extended-period reassessment/demand for lack of proven wilful suppression and intent to evade; the impugned order is set aside and the appeal allowed (cause title amended as directed).

Extended period of limitation - time-bar - availability of documents to the Department - slump sale - Intellectual Property Right service - assignment of values for stamp duty - goodwill

Extended period of limitation - time-bar - availability of documents to the Department - The demand confirmed in the impugned order is barred by limitation for the periods in question. - HELD THAT: - The Appellant had informed the Superintendent of Central Excise, Munnar of the business transfer by letter dated 30.03.2005 and the transfer deed was later submitted to the Superintendent while seeking registration; the Department therefore had access to the transfer deeds and related documents well before issuance of the show cause notice. The SCN was issued on 22.04.2010 in respect of demands covering March 2005 and July 2005. Given that the relevant documents and facts were available to the Department much earlier, invocation of the extended period of limitation was held to be untenable. Since the demands were held to be time-barred, the Tribunal declined to adjudicate the merits of the substantive contention regarding levy under Intellectual Property Right service and held that, insofar as the demand itself is unsustainable, consequential claims for interest and penalties do not survive. [Paras 7, 8]

Set aside the demands confirmed in the impugned order as barred by limitation; consequential interest and penalties do not survive.

Final Conclusion: Appeal allowed. Demands confirmed in the impugned order (covering March 2005 and July 2005) are set aside on the ground of limitation; interest and penalties consequential to the demand are not sustained.

Intellectual property service - intellectual property right - taxability of technical know-how (know-how as undisclosed information) - requirement of recognition under Indian law for IPR-based service - permanent transfer versus taxable service - CBIC/TRU clarification on scope of intellectual property services

Intellectual property service - intellectual property right - taxability of technical know-how (know-how as undisclosed information) - CBIC/TRU clarification on scope of intellectual property services - Royalty payments made for receipt of technical know-how are not taxable as intellectual property service under the Finance Act, 1994. - HELD THAT: - The Court examined the statutory definition of intellectual property right and intellectual property service and the CBIC (TRU) clarification. The statutory scheme requires that the intangible right be one recognised by Indian law (for example, trademarks, designs, patents or similar intangible property) for the corresponding service to be taxable. The Board's clarification expressly treats undisclosed information/know-how as an example of intellectual property not covered by Indian law and therefore outside the scope of taxable intellectual property services. Applying these principles, the Tribunal found that the transactions in question concerned transfer/ licensing of technical know-how (undisclosed information) which does not constitute an intellectual property right recognised under Indian law and thus does not satisfy the essential ingredient of the statutory definition. The decision notes that mere licensing or transfer of know-how, absent an IPR recognised by Indian law, is not a taxable intellectual property service, and that prior Tribunal decisions have reached the same conclusion. Having applied the statutory definitions and the Board clarification, the Tribunal set aside the demand founded on classification of the royalty as intellectual property service. [Paras 5, 6, 7, 9]

Demand of service tax confirmed on royalty for technical know-how as intellectual property service set aside and appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that royalty paid for technical know-how (undisclosed information) is not taxable as intellectual property service under the Finance Act, 1994, and set aside the impugned order with consequential reliefs as per law.

Summary order. Special Leave Petition dismissed; pending application disposed of.

Cenvat credit wrongly availed and passed to customers - Reversal of Cenvat credit versus utilization - Final fact finding authority and scope of appellate review - Substantial question of law under Section 35G - Limitation and requirement that question arise from Tribunal's order - Confirmation of penalty where fraud/suppression and modus operandi established

Limitation and requirement that question arise from Tribunal's order - Section 35G appeal to High Court - Question alleging that the show cause notice dated 5 September 2014 for the period August 2009 to September 2012 is barred by limitation does not arise from the Tribunal's order and cannot be entertained in the Section 35G appeal. - HELD THAT: - Section 35G permits the High Court to hear only substantial questions of law arising out of the Tribunal's order. The Tribunal's order contains no recording or finding on limitation and there is no indication the limitation ground was argued and left undecided by the Tribunal. An appellate court will not entertain a ground that does not appear to have been raised and/or considered by the Tribunal; the proper remedy would have been to seek rectification from the Tribunal if material documents or grounds were overlooked. Reliance on precedent supports that the High Court may consider only questions which were raised before and not determined by the Tribunal. Consequently, the limitation plea cannot be raised afresh in this appeal. [Paras 9, 10, 11]

Limitation ground rejected as not arising from the Tribunal's order; Question No. (8) refused.

Cenvat credit wrongly availed and passed to customers - Reversal of Cenvat credit versus utilization - Final fact finding authority and scope of appellate review - Confirmation of penalty where fraud/suppression and modus operandi established - Tribunal's factual findings that Cenvat credit was inadmissibly availed, utilised and passed on to customers (despite any entries of reversal) are final and do not raise substantial questions of law; confirmation of recovery, interest and penalty is sustainable. - HELD THAT: - The adjudicating authority and the Tribunal found on facts - supported by customer statements and admissions by the assessee's representatives - that imported inputs did not enter the factory, yet excise invoices were prepared as if they had, enabling customers to take Cenvat credit. Although the assessee claims reversal entries in its records, the Tribunal concluded the credit was availed, utilised and passed on to customers by the invoicing modus operandi and rejected the contention of effective reversal. These uncontroverted factual findings by the final fact finding authority cannot be recharacterised into substantial legal questions under Section 35G. The Court observed that if documentary charts or material had been overlooked by the Tribunal, the remedy lay in seeking rectification from the Tribunal rather than raising the matter in this appeal. As the Tribunal also affirmed the basis for invoking extended limitation on account of suppression/fraud, confirmation of recovery and penalty does not suffer from legal infirmity. [Paras 15, 16, 17, 18, 19]

Questions Nos. (1)-(7) do not present any substantial question of law; the Tribunal's confirmation of recovery, interest and penalty is maintained.

Final Conclusion: The High Court dismissed the appeal under Section 35G: the limitation ground (Question No. 8) does not arise from the Tribunal's order and is not entertained; the Tribunal's factual findings that inadmissible Cenvat credit was availed, utilised and passed to customers - and its consequent confirmation of recovery and penalty - do not raise substantial questions of law and are upheld; appeal dismissed with no order as to costs.

Reversal of CENVAT credit on opting SSI exemption - Returned goods treated as inputs under Rule 16 - Obligation to pay amount equivalent to CENVAT credit under Rule 11(2) - Non availability of CENVAT credit where exemption is availed - SSI exemption under Notification No.8/2003 and its conditions

Reversal of CENVAT credit on opting SSI exemption - Returned goods treated as inputs under Rule 16 - Obligation to pay amount equivalent to CENVAT credit under Rule 11(2) - SSI exemption under Notification No.8/2003 and its conditions - Whether CENVAT credit availed on goods returned for reconditioning and held in stock as on the date of exercising option under Notification No.8/2003 required reversal under Rule 11(2) of the CENVAT Credit Rules. - HELD THAT: - The Tribunal accepted the undisputed facts that 100 stabilizers returned on 30.11.2004 were treated as inputs for CENVAT credit purposes under Rule 16, eight were subsequently cleared on payment of duty in 2004-05 and 92 remained in stock as on 01.04.2005 when the appellant opted for SSI exemption under Notification No.8/2003. Rule 16 treats returned finished goods as inputs and thus the credit taken thereon is equivalent to credit on inputs. The SSI exemption Notification disallows availing CENVAT credit on goods cleared without payment of duty and, conditionally, requires that a manufacturer who had been taking CENVAT credit before exercising the option shall pay an amount equivalent to the CENVAT credit in respect of inputs lying in stock, in process or contained in final products lying in stock on the date of option. Applying these provisions, the Tribunal held that the credit attributable to the returned goods lying in stock on 01.04.2005 required reversal under Rule 11(2) read with the Notification, and the Commissioner (Appeals) was correct in confirming the demand. [Paras 5, 7, 9, 10]

CENVAT credit on the returned stabilizers lying in stock as on 01.04.2005 had to be reversed under Rule 11(2) when the appellant opted for SSI exemption; the demand was upheld.

Final Conclusion: Appeal dismissed; order confirming reversal/demand of CENVAT credit in relation to returned goods held in stock on the date of exercise of SSI exemption is upheld.

Reversal of CENVAT credit for exempted service 'trading' prior to its notification as exempted - invocation of extended period of limitation - prohibition on piecemeal or successive SCNs on same issue - procedural infirmities (ISD registration, invoice naming) do not disentitle credit where receipt and utilisation are undisputed - penalty for irregular availment of CENVAT credit cannot be sustained where credit is held eligible

Reversal of CENVAT credit for exempted service 'trading' prior to its notification as exempted - Reversal of input service credit attributable to 'trading' for the period 2007-08 to 2010-11 - HELD THAT: - The Tribunal noted that 'trading' was brought under the category of exempted service only with effect from 01.04.2011. The demand challenged related to the period 2007-08 to 2010-11, when trading was not an exempted service. Therefore the legal basis for reversing proportional input service credit on account of trading did not exist for the period in question. Applying that temporal statutory fact, the demand for reversal, and the attendant interest and penalty, were held unsustainable and set aside. [Paras 6]

Demand for reversal of input service credit on account of trading for 2007-08 to 2010-11 set aside; interest and penalty also set aside.

Invocation of extended period of limitation - prohibition on piecemeal or successive SCNs on same issue - Validity of subsequent Show Cause Notices issued by invoking extended period of limitation in piecemeal on the same issue - HELD THAT: - The Tribunal applied the principle laid down by the apex court in Nizam Sugar Factory (as cited in the impugned order) that once a show cause notice invoking the extended period of limitation is issued for an issue, the authorities cannot issue another notice later invoking the extended period again on the same issue. The impugned subsequent notices were issued piecemeal based on audit objections raising the same issue, and therefore the demands confirmed in those subsequent notices could not be sustained. [Paras 6]

Demands confirmed in subsequent SCNs invoking extended limitation period in piecemeal are unsustainable and set aside.

Procedural infirmities (ISD registration, invoice naming) do not disentitle credit where receipt and utilisation are undisputed - Whether CENVAT credit can be denied on procedural grounds when receipt and utilisation of services are not in dispute - HELD THAT: - On merits the Tribunal observed that the denial of credit in the impugned orders rested on procedural defects such as the head office not being registered as an Input Service Distributor and invoices not being in the assessee's name. The Tribunal held that where receipt and utilisation of input services are not disputed, mere procedural infirmities cannot be a ground to deny the credit. Consequently the appellant was held eligible for the input service credit, and once credit was held eligible, demands for interest and imposition of penalties based on alleged irregular availment fell away. [Paras 6]

Credit availed held eligible despite procedural infirmities; interest and penalties connected to such demands do not arise.

Penalty for irregular availment of CENVAT credit cannot be sustained where credit is held eligible - Sustainability of enhanced and original penalties imposed for alleged irregular credit for 2009-10 - HELD THAT: - The Commissioner (Appeals) had enhanced the penalty for 2009-10; the Tribunal found that since the underlying availment of credit has been held to be in order, there was no basis for either the enhanced penalty or the original penalty imposed by the adjudicating authority. The Tribunal therefore set aside both the enhanced penalty and the original lesser penalty. [Paras 6]

Enhanced penalty and original penalty set aside as unsustainable in view of credit being held eligible.

Final Conclusion: All impugned orders are set aside: reversal demand relating to 'trading' for 2007-08 to 2010-11 quashed; subsequent SCNs issued by invoking extended limitation period in piecemeal held unsustainable; input service credit allowed where receipt and utilisation are undisputed despite procedural infirmities; interest and penalties linked to those demands set aside; appeals allowed.

Inter-state sale versus branch transfer - Presumption that movement of goods is occasioned by sale and its rebuttal - Burden of proof under section 6A of the CST Act - Camouflage of inter-state sales as stock transfers - Section 22(1B) transfer/refund direction

Inter-state sale versus branch transfer - Presumption that movement of goods is occasioned by sale and its rebuttal - Burden of proof under section 6A of the CST Act - Camouflage of inter-state sales as stock transfers - Characterisation of transfers from Coimbatore to the appellant's Palakkad depot during 01.04.1996 to 28.08.1996 as inter-state sales or as branch transfers - HELD THAT: - The tribunal examined D-7 records recovered on inspection (correspondence, dispatch instructions, branch invoices, day book entries and receipts) which showed pre arranged dispatch instructions from Argus's Chennai office for supply to its Ernakulam branch, invoices raised by the appellant's Palakkad branch being routed via the Coimbatore head office and payments for such consignments being made to the head office. Section 6A of the CST Act places the burden on the dealer to prove that movement was not occasioned by sale; the presumption that inter State movement is occasioned by sale can be rebutted only by evidence. On the material before it the tribunal found the Palakkad depot was acting as a conduit and that the movement of goods was occasioned by sales to Argus's Ernakulam branch. The court accepted the impugned tribunal finding that the D 7 material established camouflaged inter State sales and that the claimed branch transfers for the period 01.04.1996 to 28.08.1996 were in fact inter state sales. Although Forms F were produced, the court upheld the tribunal's conclusion because the documentary matrix (dispatch instructions, invoices, receipts and stock/control information) was determinative and unrefuted to the requisite standard under section 6A. [Paras 19, 21, 22, 23, 24]

Transfers made from 01.04.1996 to 28.08.1996 were inter state sales and central sales tax was payable; the impugned order upholding the assessment to the extent of Rs. 90,39,554/- is affirmed.

Section 22(1B) transfer/refund direction - Applicability of an order under section 22(1B) directing transfer of amounts paid in Kerala to Tamil Nadu - HELD THAT: - Section 22(1B) permits the authority to direct refund or transfer of tax collected by a State which is not due to it, but requires that the amount collected by the collecting State and the central sales tax payable to the other State be known. Although central sales tax payable to Tamil Nadu on the upheld transactions was quantified, details of sales tax claimed to have been paid in Kerala were not available on the record. In the absence of particulars of the amount collected by Kerala, the tribunal held it was not possible to pass an order under section 22(1B). [Paras 25, 26, 27]

No direction under section 22(1B) could be issued because the amount of tax collected by Kerala was not shown; therefore the alternative prayer for transfer/refund under section 22(1B) is declined.

Final Conclusion: The appeal is dismissed; the impugned order is upheld insofar as it sustains the assessment on turnover of Rs. 90,39,554/- (period 01.04.1996 to 28.08.1996) as inter state sales and rejects the alternative remedy under section 22(1B) for want of particulars of tax collected by Kerala.

Presumptions under Section 118 of the Negotiable Instruments Act - Presumption under Section 139 of the Negotiable Instruments Act - Rebuttal standard - preponderance of probabilities / probable defence - Scope of revisional jurisdiction under Section 397 CrPC - Regulatory nature of offence under Section 138 of the Negotiable Instruments Act and sentencing discretion

Presumptions under Section 118 of the Negotiable Instruments Act - Presumption under Section 139 of the Negotiable Instruments Act - Rebuttal standard - preponderance of probabilities / probable defence - Whether the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act were rightly applied and whether the accused successfully rebutted those presumptions. - HELD THAT: - The Court reviewed the scope and effect of the presumptions under Sections 118 and 139 and reiterated that these are rebuttable presumptions which shift the onus to the accused. The judicial position adopted in the impugned proceedings - that after admission of signature and dishonour the onus shifts to the accused to raise a probable defence and that rebuttal need not be by proof beyond reasonable doubt but by preponderance of probabilities - was accepted. The revisionist's defence that the cheque was security for a loan taken by his employee was considered on the materials on record, including his own and DW2's statements. The Court found no legal error in the trial court's approach to the presumptions and accepted conclusion that the statutory presumption was not sufficiently rebutted on the facts of this case. [Paras 23, 24]

The application of presumptions under Sections 118 and 139 was correct and the accused failed to rebut them by a probable defence.

Scope of revisional jurisdiction under Section 397 CrPC - Whether interference in revision was warranted on the ground that the trial and appellate courts' findings were perverse or based on inadmissible or ignored evidence. - HELD THAT: - The Court observed that revisional jurisdiction is limited to correcting illegality, perversity, or fundamental error and is not an occasion for reappraisal of evidence except where findings are perverse or admissible evidence was ignored. On perusal of the record, including the trial court's detailed discussion of evidence and the appellate affirmation, the High Court found that admissible evidence was considered and no material evidence was ignored. The findings were held to be supportable on evidence and not vitiated by legal infirmity that would justify interference under revisional jurisdiction. [Paras 19, 33, 38]

No ground for interference in revision; conviction under Section 138, as recorded and affirmed, is maintained.

Regulatory nature of offence under Section 138 of the Negotiable Instruments Act and sentencing discretion - Whether the sentence imposed required modification in view of the regulatory nature of the offence and the period of custody already undergone by the revisionist. - HELD THAT: - While upholding the conviction, the Court noted the regulatory character of offences under Section 138 and the established discretion of courts to tailor punishment having regard to nature of transaction, bona fides, and period of custody already undergone. Having considered submissions and precedents permitting imposition of fine or reduction of imprisonment in appropriate cases, the Court exercised discretion to modify the sentence. The trial court's order as to fine and directions for payment of compensation were left intact, but the custodial sentence was set off against custody already undergone. [Paras 35, 37, 39, 41, 42]

Sentence modified: imprisonment substituted by period of custody already undergone; fine and compensation directions remain unaltered.

Final Conclusion: Revision partly allowed: conviction under Section 138 of the Negotiable Instruments Act confirmed; the statutory presumptions under Sections 118 and 139 were correctly applied and not rebutted on the record; the sentence of imprisonment is modified to the period of custody already undergone while the fine and compensation directions are maintained; the revisionist to be released if not wanted in any other case.