TaxTMI Updates e-Newsletter
Dec 27,2016

Entries in books of account prevail over narrations in bank pay-in-slips - treatment of receipts in the usual course of business - undisclosed income - share application money / share application loan - reliability of statements recorded under Section 132(4)

Entries in books of account prevail over narrations in bank pay-in-slips - treatment of receipts in the usual course of business - undisclosed income - share application money / share application loan - reliability of statements recorded under Section 132(4) - Whether the amount of Rs. 1 crore received from Hindustan Hotels Limited is assessable as undisclosed income/compensation or is to be treated as share application money/share application loan as reflected in the assessee's books of account. - HELD THAT: - The Tribunal correctly held that the true nature of the receipt must be determined from the entries in the books of account and related records maintained in the ordinary course of business, and not from the informal narrations in bank pay-in-slips prepared by staff. The statements of the Managing Director were held to be vague and contradictory and therefore unreliable. The Revenue produced no material beyond the pay-in-slip narrations to establish, beyond reasonable doubt, that the amount was compensation or undisclosed income. Cross-examination of the assessee's employees established that the pay-in-slip narrations were made by them on their own without directions from the assessee. In these circumstances the books of account showing the receipt as share application money/share application loan must prevail, and there is no basis to treat the amount as undisclosed income or compensation. [Paras 6, 9]

The Tribunal's conclusion that the Rs. 1 crore was not assessable as undisclosed income/compensation but was to be treated as share application money/share application loan is upheld.

Final Conclusion: The reference is answered in favour of the assessee and against the Revenue: the Rs. 1 crore received from Hindustan Hotels Limited cannot be assessed as undisclosed income/compensation and is to be treated in accordance with its treatment in the books of account; reference disposed of, no order as to costs.

Annual value - income from house property - notional income - actual rent received or receivable - vacancy and deemed annual value

Annual value - Section 23(1)(a) - Section 23(1)(c) - notional income - actual rent received or receivable - Whether annual value of properties which were vacant throughout the previous year and where the assessee owned more than one house is to be taken as nil under the proviso relating to vacancy or is to be determined notionally under the provision for expected rent. - HELD THAT: - The Court construed Sections 22 and 23 in harmony. Section 23(1)(b) and (c) apply only where a property or part thereof is actually let and rent is received or receivable, dealing with real income. Where properties remained vacant throughout the previous year and no rent was actually received or receivable, the determinative provision is Section 23(1)(a): the annual value is the sum for which the property might reasonably be expected to let from year to year. Section 23(2) (and 23(4)) permits one house to be treated as having annual value nil where occupied as residence (or for employment reasons), but other houses must have their annual value determined under Section 23(1) as if let. Therefore, for more-than-one-house situations where certain properties were vacant and not let, annual value cannot be taken as nil under clause (c) (which presupposes actual letting and reduced receipts due to vacancy) but must be determined notionally under clause (a). The Assessing Officer's notional determination of annual value, upheld by the Commissioner and the Tribunal, accords with this interpretation.

Annual value of the vacant properties owned in addition to the one exempted under Section 23(2)/(4) is to be determined notionally under Section 23(1)(a) and not treated as nil under Section 23(1)(c).

Final Conclusion: Appeals dismissed; the Tribunal's and lower authorities' concurrent conclusion that annual value of the vacant properties be determined notionally is upheld.

Deemed dividend under Section 2(22)(e) - exception for advances in the ordinary course where lending of money is a substantial part of the business - inter corporate deposit versus loan in commercial transactions - exclusion under Section 10(34) read with Section 115 O

Deemed dividend under Section 2(22)(e) - exception for advances in the ordinary course where lending of money is a substantial part of the business - inter corporate deposit versus loan in commercial transactions - Whether the amounts advanced by Sun Polytex Pvt. Ltd. to the assessee fall within the exception in sub clause (ii) of Section 2(22)(e) or are to be treated as deemed dividend - HELD THAT: - The Court held that Section 2(22)(e) operates to treat advances or loans by closely held companies to specified shareholders as deemed dividend to curb devices effected to distribute accumulated profits as loans. Mere payment of interest or deduction of tax at source does not convert an advance into a genuine inter corporate deposit excluded from the deeming fiction. The documentary material (balance sheet and P&L) showed only one loan in the relevant year and other advances unrelated to money lending; interest income of the lender was meagre, and there was no evidence that money lending formed a substantial part of Sun Polytex's business. Consequently the exception in clause (ii) was inapplicable and the advance was rightly treated as deemed dividend. The Court endorsed the AO's and ITAT's assessment that the lending activity was not a substantial part of the company's business and that the advance was gratuitous, not given in return for any advantage to the lender; therefore Section 2(22)(e) applied. [Paras 18, 19, 26]

The loan advanced by Sun Polytex Pvt. Ltd. is not covered by the exception in sub clause (ii) and is to be treated as deemed dividend liable to tax in the hands of the assessee.

Deemed dividend under Section 2(22)(e) - exclusion under Section 10(34) read with Section 115 O - Whether a deemed dividend under Section 2(22)(e) is excluded from the recipient's total income by virtue of Section 10(34) read with Section 115 O - HELD THAT: - The Court observed that Section 10(34) read with Section 115 O excludes from the recipient's income dividends declared, distributed or paid by a domestic company where the company has borne tax under Section 115 O. However, the statutory scheme does not extend that exclusion to amounts treated as 'deemed dividend' under Section 2(22)(e). Deemed dividend is brought within income by virtue of Section 2(24) and is not automatically covered by the exclusion in Section 10(34) unless specifically brought within its scope. Therefore, the deemed dividend continues to be taxable in the hands of the recipient. [Paras 27]

Section 10(34) read with Section 115 O does not exclude deemed dividend under Section 2(22)(e) from the recipient's total income; the deemed dividend remains taxable in the hands of the assessee.

Final Conclusion: Appeals dismissed; the advances from Sun Polytex Pvt. Ltd. were correctly treated as deemed dividend under Section 2(22)(e), and such deemed dividend is not excluded from the recipient's income by Section 10(34) read with Section 115 O.

Reopening of assessment under Section 148 - reasons to believe / supply of reasons for issuance of notice - judicial review versus statutory remedy - right to file objections and disposal by a reasoned order - principles of natural justice / audi alteram partem

Reasons to believe / supply of reasons for issuance of notice - reopening of assessment under Section 148 - Whether the Department complied with this Court's direction to supply fresh reasons for reopening the assessments. - HELD THAT: - The Court held that the Department complied with the order of 18 December, 2014 by issuing the communication dated 15 January, 2015 along with the certified enquiry report which contained the details substantiating the allegations and explaining why notices under Section 148 were issued. The communication and the enclosed enquiry report furnished the reasons for reopening and therefore amounted to the fresh reasons directed by the Court. The assessees' contention that the enquiry report merely repackaged the earlier inadequate communications was rejected, and the Court observed that sufficiency and validity of reasons is a factual matter to be addressed in the statutory process. [Paras 6, 20, 21]

Department supplied fresh reasons by the communication dated 15 January, 2015 together with the certified enquiry report; the Court found compliance with its earlier direction.

Right to file objections and disposal by a reasoned order - judicial review versus statutory remedy - Whether the assessees were obliged to file objections to the reasons and seek statutory redress instead of approaching the High Court by writ at that stage. - HELD THAT: - The Court emphasised that upon receipt of reasons the noticee is entitled to file objections which the assessing officer must dispose of by a reasoned order before proceeding with reassessment. The writ forum should not be invoked to supplant the statutory machinery where an adequate alternative remedy exists. The petitioner ought to have filed objections within the time allowed and, if aggrieved by the outcome of reassessment, pursued the statutory appeals. The Court noted settled authority that sufficiency of reasons ordinarily involves factual inquiry within the domain of the assessing officer. [Paras 11, 20, 21]

Petitioners were obliged to file objections to the reasons and pursue statutory remedies; filing the writ instead was inappropriate though the Court granted relief on other grounds for ends of justice.

Principles of natural justice / audi alteram partem - reassessment orders and remand for fresh consideration - Whether the ex parte assessment orders dated 31 March, 2015 should be upheld or set aside and what further course should follow. - HELD THAT: - While observing that there was no formal stay preventing the assessing officer from proceeding, the Court recognised that ex parte proceedings affecting civil rights should, as far as practicable, observe natural justice and that obtaining leave of the Court before proceeding ex parte would have been proper given the pending writ. In the interests of justice the Court set aside the ex parte assessment orders without adjudicating their merits and afforded the petitioners a limited opportunity to file objections to the Department's communication dated 15 January, 2015 within three weeks. The assessing officer is directed to consider and dispose of any such objection by a reasoned order before proceeding afresh with the reassessment; if no objection is filed within the stipulated time, the assessment orders shall stand revived. [Paras 22, 23]

Ex parte assessment orders dated 31 March, 2015 set aside; matter remitted for fresh consideration-petitioners may file objections within three weeks and the assessing officer must decide them by a reasoned order before proceeding, failing which the assessment orders will revive.

Final Conclusion: The High Court held that the Department complied with its direction by supplying fresh reasons with the enquiry report; the petitioners should have filed objections and availed statutory remedies, but in the interests of justice the Court set aside the ex parte assessment orders dated 31 March, 2015 and remitted the matter for fresh consideration, permitting the petitioners three weeks to file objections which the assessing officer must decide by a reasoned order before proceeding; costs were imposed on the petitioners.

Invocation of proviso to section 145(1) for rejecting a taxpayer's method of accounting - project completion method / completed contract method as a recognised accounting method - recognition of revenue on conveyancing or handing over possession under revenue accounting - averaging purchase cost of land across phases for allocation to sold units - treatment and write off of land earmarked for community/institutional use under urban development rules - allocation and charging of internal development expenses to profit and loss on sale - part performance and transfer by possession under Section 2(47) and Section 53A

Invocation of proviso to section 145(1) for rejecting a taxpayer's method of accounting - project completion method / completed contract method as a recognised accounting method - recognition of revenue on conveyancing or handing over possession under revenue accounting - Whether the Assessing Officer was justified in rejecting the assessee's method of accounting by invoking the First Proviso to Section 145(1), and whether sales of constructed/built properties must be recognised only on handing over possession or conveyancing whichever is earlier. - HELD THAT: - The Court held that the project completion (completed contract) method is a recognised and acceptable method of accounting and that the Tribunal's earlier findings endorsing the assessee's adoption of that method were conclusive. The Tribunal and this Court accepted that under the assessee's bookkeeping the costs (including land) were capitalised to work in progress and sales were brought to account on registration/ conveyancing in the manner adopted. The proviso to Section 145(1) permitting rejection of a method of accounting could not be invoked where the books were correct and complete and where the profits could be determined after rectifying defects; the Assessing Officer's wholesale rejection and application of an arbitrary net profit rate was unjustified. The Court also accepted the CIT(A)'s and Tribunal's reasoning that, in respect of constructed properties sold on deferred payment plans, revenue recognition on handing over possession (or conveyancing whichever is earlier) was appropriate, and that instances of part performance/possession without conveyance did not, on the material before the authorities, establish distortion warranting rejection of the method. Prior Tribunal findings (paras referred below) and the Court's decision in Paras Buildtech were held to conclude the issue against Revenue. [Paras 13, 14, 15, 16]

The invocation of the proviso to Section 145(1) to reject the assessee's method of accounting was not justified; the project completion method and the assessee's timing of revenue recognition were upheld in favour of the assessee.

Part performance and transfer by possession under Section 2(47) and Section 53A - recognition of revenue on conveyancing or handing over possession under revenue accounting - Whether handing over possession (or part performance) in the assessee's arrangements required recognition of revenue earlier than conveyancing so as to distort taxable income. - HELD THAT: - The Court examined the contention that possession or part performance amounted to transfer for tax recognition and noted that while part performance/possession is legally recognised, the assessee consistently recognised income on conveyancing (or on handing over possession as per its stated practice for constructed properties). There was no material before the revenue to show a pattern of possession amounting to transfer that would distort accounts; statutory controls (HUDA oversight, escrow requirements for development funds) and the assessee's audited practice supported the accounting method. The Court therefore found no basis to disturb the Tribunal's acceptance of the assessee's treatment. [Paras 10, 15, 16]

Possession/part performance did not, on the material before the authorities, mandate earlier revenue recognition that would justify rejecting the assessee's accounting practice; the Tribunal's finding in favour of the assessee stands.

Averaging purchase cost of land across phases for allocation to sold units - treatment and write off of land earmarked for community/institutional use under urban development rules - allocation and charging of internal development expenses to profit and loss on sale - Whether the Assessing Officer and the CIT(A) were correct in reworking the cost of land by averaging purchase price across phases and in the treatment/write off of land earmarked for schools, hospitals, clubs and other community uses. - HELD THAT: - On the factual record the Tribunal found, and this Court agreed, that the urban development authority and project approvals treated Phases I-IV as a single project and that the assessee consistently pooled land costs across those phases. The Haryana Development rules required reservation of specified percentages for community and infrastructure uses and the authorities had accepted the assessee's compliance and accounting treatment over extended assessment years; many institutional/community sites had been transferred to trusts or government and only limited sites remained with the assessee. The Tribunal correctly held that excluding Phase IV without intelligible criteria was improper and that the percentage treatment and averaging adopted by the assessee did not distort overall profits in a manner beneficial to Revenue. The CIT(A)'s deviation to a different percentage was therefore not justified on the material before the authorities. [Paras 6, 17, 18, 19]

The reworking proposed by the revenue excluding Phase IV and altering the land area percentage was not justified; the assessee's pooling/averaging and treatment of community sites was upheld.

Final Conclusion: All questions of law raised by Revenue were answered in favour of the assessee; the Tribunal's orders upholding the assessee's method of accounting, timing of recognition of sales, and allocation/treatment of land and development costs are sustained. The appeals are dismissed with no order as to costs.

Reopening of assessment - reason to believe - failure to disclose fully and truly all material facts - time limit for issuing notice under section 148 - proviso to section 147 - change of opinion - requirement of Form 56F for claiming exemption under section 10AA

Reopening of assessment - reason to believe - failure to disclose fully and truly all material facts - proviso to section 147 - requirement of Form 56F for claiming exemption under section 10AA - Validity of reassessment proceedings initiated under sections 147/148 for AY 2009-10 and whether the proviso to section 147 permitting reopening beyond four years is attracted - HELD THAT: - The Court examined the reasons recorded by the Assessing Officer and the assessment record and held that the Assessing Officer had a documented reason to believe that income had escaped assessment. The recorded reasons identified (a) an auditor's note that change in estimate for slow/non-moving inventory had reduced profit, which the Assessing Officer treated as unexplained income, and (b) the absence on record of a Form 56F or calculation/details to substantiate the claim of exemption under section 10AA for amounts shown in Schedule MAT. The Court found that these matters were not elicited or placed on file in the original assessment proceedings under section 143(3) and therefore constituted a failure to disclose fully and truly all material facts for the purposes of the proviso to section 147. The Court further noted that the notice was issued within statutory time limits as prescribed by the relevant time-limit provisions and, given the magnitude of the tax effect, proceedings within six years were permissible. The Court rejected the petitioner's contention that reopening amounted to a mere change of opinion, observing that the AO's reasons indicate substantive omissions and lack of requisite documentation at the time of original assessment, which justified reopening. [Paras 13, 14, 15, 17]

Reassessment proceedings under sections 147/148 for AY 2009-10 validly initiated; the proviso to section 147 is attracted as failure to disclose fully and truly material facts is found, and the AO had reason to believe income had escaped assessment.

Reopening of assessment - change of opinion - Whether the reassessment is vitiated as being based on mere change of opinion - HELD THAT: - The Court considered the petitioner's argument that the reassessment flowes from matters already on record and therefore represents only a change of opinion which cannot justify reopening. After examining the assessment records and the reasons recorded by the AO, the Court concluded that the reopening was not a mere change of view but was predicated on specific omissions and lack of required documentary support (notably the absence of Form 56F and no explanation obtained regarding the auditor's note) which were not asked for or placed on record during the original assessment. Consequently, the AO's action could not be characterized as reopening based solely on a change of opinion. [Paras 12, 13]

Reopening not a mere change of opinion; objection on that ground is rejected.

Time limit for issuing notice under section 148 - Whether the notice under section 148 was time-barred - HELD THAT: - The Court noted the statutory scheme governing temporal limits and reproduced the relevant provision concerning notices issued within four, six and sixteen years. It observed that the notice in the present case was served within six years from the end of the relevant assessment year and that the tax effect asserted by the AO was substantial. On these factual and statutory bases the Court held that the notice was issued within the permissible time frame. [Paras 14, 15]

Notice under section 148 was not time-barred; issued within the statutory period applicable in the case.

Alternative remedy - Whether availability of an alternative remedy required the Court to decline admission of the writ petition - HELD THAT: - The petitioner relied on precedent asserting that availability of alternative remedies may be a ground to decline writ jurisdiction. The Court observed the reliance but concluded on the merits that the reopening and the objections were rightly decided by the AO; consequently the petition was not admitted. The Court however clarified that its observations would not prejudice the assessee's position in the departmental proceedings or other authorities. [Paras 16, 17]

Admission declined; availability of alternative remedy did not lead to dismissal on that ground but petition rejected on merits as reopening held valid.

Final Conclusion: Writ petition dismissed at admission stage: the reassessment notice for Assessment Year 2009-10 was validly issued within the applicable time limit, the Assessing Officer had recorded sufficient reasons and found failure to disclose fully and truly material facts (including absence of Form 56F and unexplained auditor's note), and objections to reopening were accordingly rejected.

Deduction under Section 80HHB - Foreign Projects Reserve Account - strict compliance with conditions of deduction - double taxation relief under Section 91 - such doubly taxed income - deductibility of foreign tax as business expenditure - real income theory - declaratory/explanatory provision having retrospective effect

Deduction under Section 80HHB - Foreign Projects Reserve Account - strict compliance with conditions of deduction - Extent to which deduction under Section 80HHB can be allowed where part of the amount was credited to the Foreign Projects Reserve after the relevant previous year and after the five year utilisation period. - HELD THAT: - The Court held that the deduction under Section 80HHB is subject to the mandatory conditions in sub section (3). Clause (ii) requires that twenty five per cent of the profits be debited to the profit and loss account of the previous year and credited to the Foreign Projects Reserve Account to be utilised during the five years next only for business purposes other than distribution. The amount of Rs. 50 lakhs was not credited to the Foreign Projects Reserve Account in the previous year relevant to Assessment Year 1983 84 but only transferred from the General Reserve in 1991 92, i.e., after the five year period; consequently the statutory condition was not satisfied and the deduction could not be claimed for that sum. The appellant's reliance on application pendency under another provision and on liberal construction of Section 80HHC was rejected because the statutory requirements and wording of Section 80HHB are different and mandatory. [Paras 2]

Deduction under Section 80HHB restricted to the amount actually credited to the Foreign Projects Reserve Account in the relevant previous year (Rs. 48 lakhs); the Rs. 50 lakhs credited later cannot be allowed.

Double taxation relief under Section 91 - such doubly taxed income - Whether sums reduced from Indian taxable income by way of deductions under Sections 80HHB and 35B (and thus not bearing Indian tax) qualify as 'such doubly taxed income' for relief under Section 91. - HELD THAT: - The Court affirmed that Section 91 relief applies only where the same income has borne tax both abroad and under the Indian Act. The Court relied on precedent and textual analysis to conclude that amounts which do not bear tax in India (because they are deductible under Indian law) do not constitute 'doubly taxed income' for the purpose of Section 91. Therefore the amounts deducted under Section 80HHB and the weighted deduction under Section 35B, which do not bear Indian tax, cannot be counted as doubly taxed income eligible for relief under Section 91. [Paras 3]

The deductions under Sections 80HHB and 35B are not includible in 'such doubly taxed income' for Section 91 relief; claim for double taxation relief on those amounts is disallowed.

Deductibility of foreign tax as business expenditure - real income theory - declaratory/explanatory provision having retrospective effect - Whether tax paid in Saudi Arabia, insofar as it is attributable to income which accrued or arose in India and is not entitled to Section 91 relief, is allowable as a deduction in computing taxable income under the Act; and whether the Tribunal erred in not following its earlier view for A.Y. 1979 80. - HELD THAT: - The Court analysed Section 2(43) (definition of 'tax') and Section 40(a)(ii), and the Explanation inserted into Section 40(a)(ii) by the Finance Act, 2006. It held that the defined term 'tax' in the Act ordinarily refers to tax chargeable under the Act; therefore foreign tax is not automatically within Section 40(a)(ii). However, the Explanation clarified (and was deemed declaratory and retrospective) that sums eligible for relief under Sections 90/91 are to be regarded as within the ambit of Section 40(a)(ii). The Court reasoned that where part of the foreign tax is paid on income that is deemed to accrue or arise in India and thus is not eligible for Section 91 relief, that portion of foreign tax is not barred by Section 40(a)(ii) and may be treated, on the real income theory, as an expenditure attributable to income chargeable in India and hence deductible for computing Indian taxable income. The Court further held that the Tribunal was justified in not following its earlier order for A.Y. 1979 80 because that earlier view was distinguishable and the matter was covered by this Court's prior decision in Inder Singh Gill; nonetheless, on the statutory analysis above the applicant is entitled to deduction of the portion of foreign tax attributable to income accruing in India. [Paras 4]

Tax paid in Saudi Arabia attributable to income that accrued or arose in India (and thus not covered by Section 91) is deductible for computing Indian taxable income; the Tribunal did not err in declining to follow its earlier A.Y. 1979 80 order.

Final Conclusion: Reference answered: (i)(a) deduction under Section 80HHB limited to amounts credited to the Foreign Projects Reserve Account in the relevant previous year (in favour of Revenue); (i)(b) Rs. 50 lakhs credited after the relevant year cannot be allowed (in favour of Revenue); (ii) amounts deductible under Sections 80HHB and 35B that do not bear Indian tax are not 'doubly taxed income' for Section 91 relief (in favour of Revenue); (iii)(a) foreign tax paid to the extent attributable to income accrued/arisen in India (and not covered by Section 91) is deductible under the Act (in favour of assessee); (iii)(b) Tribunal was justified in not following its earlier order for A.Y. 1979 80. Reference disposed accordingly.

Deduction for exploration expenditure under section 42(1) - Penalty under section 271(1)(c) for concealment or furnishing of inaccurate particulars of income - Difference of opinion on scope of deductible expenditure versus development expenditure - Mere unsustainable claim not ipso facto actionable as concealment

Deduction for exploration expenditure under section 42(1) - Penalty under section 271(1)(c) for concealment or furnishing of inaccurate particulars of income - Mere unsustainable claim not ipso facto actionable as concealment - Whether penalty under section 271(1)(c) is leviable for disallowance of deduction claimed as exploration expenditure under section 42(1) for AY 2008-09. - HELD THAT: - The Tribunal held that the dispute between the assessee and the Revenue concerned the scope of expenditure allowable under section 42(1) as against Revenue's characterization of the same as development expenditure. The assessment and penalty proceedings did not demonstrate that the assessee's claim was fanciful or patently erroneous so as to constitute concealment or furnishing of inaccurate particulars within the meaning of section 271(1)(c). Relying on the principle that a mere claim found unsustainable by the assessing authority does not automatically attract penalty, and having regard to the Tribunal's earlier decision in the assessee's own case for the immediately preceding year, the Tribunal found no merit in imposing penalty for the disallowance in issue and upheld deletion of the penalty by the CIT(A).

Penalty under section 271(1)(c) deleted; appeal allowed.

Final Conclusion: The appeal is allowed: the penalty imposed under section 271(1)(c) for disallowance of the deduction claimed under section 42(1) for AY 2008-09 is deleted, following the Tribunal's reasoning that the adjustment arose from a difference of opinion on the scope of allowable expenditure and did not amount to concealment or furnishing of inaccurate particulars.

Permanent Establishment - attribution of profits to permanent establishment - arm's length principle - transfer pricing/arm's length remuneration - agency PE - royalty - 'use' or 'right to use' - disallowance under section 40(a)(i)

Permanent Establishment - attribution of profits to permanent establishment - arm's length principle - transfer pricing/arm's length remuneration - agency PE - Whether any further income of the non-resident (Taj TV Ltd.) is attributable to India on account of a presumed permanent establishment through Taj Television India Pvt. Ltd., where the agent has been remunerated at arm's length - HELD THAT: - The Tribunal applied the principle in Morgan Stanley and subsequent decisions of the Bombay High Court and this Tribunal: Article 7 and the attribution exercise require that a PE be treated as an independent enterprise and profits attributable to it be estimated on a reasonable basis. Where an associated enterprise that also constitutes a PE has been remunerated on an arm's length basis taking into account the relevant functions and risks, nothing further remains to be attributed to the non-resident. The TPO's transfer pricing determinations accepting the transactions between Taj TV Ltd. and Taj India at arm's length were placed on record and, on that factual foundation, the Tribunal held that no additional profits could be taxed in India even if a PE were found. The Tribunal accordingly allowed the assessee's contention that remuneration at arm's length precludes further attribution to a PE; the question of PE qua advertisement revenue was kept open where not finally decided in earlier proceedings. [Paras 9, 12, 13, 18]

Transaction between the non-resident and its Indian agent having been accepted as at arm's length by the TPO, no further income is attributable to India on account of a permanent establishment; assessee's grounds on this score are allowed.

Royalty - 'use' or 'right to use' - disallowance under section 40(a)(i) - Whether payments made to non-residents for programming fees, transponder charges and uplinking charges constitute 'royalty' taxable in India and whether disallowance under section 40(a)(i) was justified for non-deduction of tax at source - HELD THAT: - The Tribunal examined the treaty definition of 'royalties' (Article 12) and held that payments for transponder and uplinking services do not constitute consideration for the 'use of or right to use' copyrights, patents, trademarks or industrial/commercial equipment as envisaged in the relevant DTAA provisions. The Tribunal further held that amendments/clarificatory explanations in the domestic law cannot be read into the DTAA to expand the treaty definition; earlier Tribunal and High Court decisions dealing with similar payments were followed. Given the state of law at the time of payments and judicial precedents holding such payments not to be royalties, the assessee could not be faulted for not deducting tax and the Assessing Officer's disallowance under section 40(a)(i) was not sustainable. Consequently the disallowances in respect of programming costs, transponder and uplinking charges were deleted. [Paras 10]

Payments for programming, transponder and uplinking services are not 'royalty' under the applicable DTAAs and the disallowances under section 40(a)(i) are not sustainable; grounds relating to these disallowances are allowed.

Final Conclusion: For assessment years 2006-07, 2007-08 and 2008-09 the Tribunal held that (i) where the Indian agent/PE is remunerated at arm's length (as accepted by the TPO) no further profits are attributable to the non-resident and hence no additional tax in India, and (ii) payments for programming, transponder and uplinking services do not constitute royalty under the applicable DTAAs so as to justify disallowance under section 40(a)(i); accordingly the assessee's appeals are allowed and the Revenue's appeals are dismissed.

Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars of income - Explanation (1) to section 271(1)(c) - requirement that assessee must offer an explanation and substantiate it - additions based on estimation, surmise or conjecture - penalty leviable only where explanation is absent, false or not substantiated

Penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars of income - Explanation (1) to section 271(1)(c) - requirement that assessee must offer an explanation and substantiate it - additions based on estimation, surmise or conjecture - Whether the penalty under section 271(1)(c) can be sustained in respect of additions made on the basis of impounded loose papers and subsequently reduced on appeal. - HELD THAT: - The Tribunal held that Explanation (1) to section 271(1)(c) permits imposition of penalty only where the assessee either fails to offer any explanation, offers an explanation which is found to be false, or offers an explanation which the Assessing Officer is unable to substantiate. In the present case the additions originated from loose/impounded papers discovered during survey and were largely estimative in nature; the original addition was reduced by the First Appellate Authority to 10% of the amount. The Tribunal found that the statutory conditions for invoking Explanation (1) were not satisfied because the assessee had offered explanations and there was no finding that such explanations were false or un-substantiable by the authorities. Given that the surviving addition at the appellate stage was based on estimation and the requisite threshold for penalty under Explanation (1) was not met, the imposition of penalty could not be sustained.

Penalty under section 271(1)(c) deleted; appeal allowed.

Final Conclusion: The Tribunal set aside the penalty imposed under section 271(1)(c) and allowed the assessee's appeal for AY 2009-10 on the ground that the conditions for applying Explanation (1) were not satisfied where additions were essentially estimative and the assessee's explanations were not found to be false or unsubstantiated.

Deemed dividend under section 2(22)(e) - advance or loan - contractual business transaction - individual benefit - concurrent finding of fact - lifting the corporate veil

Deemed dividend under section 2(22)(e) - advance or loan - contractual business transaction - Whether the credit of Rs.1.61 crores arising between the closely held company and the assessee in the relevant year amounted to a loan or advance taxable as deemed dividend under section 2(22)(e). - HELD THAT: - The Court observed that section 2(22)(e) is a deeming fiction which requires strict concurrent satisfaction of its conditions. On the material before the authorities the credit arose by virtue of a contractual obligation in the course of a subcontract and was the result of business transactions between the parties. The Commissioner (Appeals) and the Tribunal recorded concurrent findings that the credit did not satisfy the definition of an advance or loan, no individual benefit accrued to the assessee, and the balance was squared off in the subsequent year. In those factual circumstances the fiction under section 2(22)(e) was not attracted. [Paras 4, 5, 7, 8, 11]

The credit did not amount to a loan or advance and therefore was not taxable as a deemed dividend under section 2(22)(e).

Concurrent finding of fact - individual benefit - Whether the Tribunal was justified in relying on concurrent findings of fact (including absence of individual benefit and settlement in the next year) to conclude that section 2(22)(e) did not apply. - HELD THAT: - The Court accepted the concurrent factual findings of the Commissioner (Appeals) and the Tribunal that the assessee's funds had in earlier years been with the company, that the impugned credit resulted from invoicing for subcontract work, and that no personal benefit was derived by the assessee. Those findings were held sufficient to displace the applicability of section 2(22)(e) because the statutory conditions for the deeming fiction were not met on the facts. [Paras 4, 5, 8, 11]

The Tribunal was justified in relying on concurrent findings of fact; in the factual matrix the deeming fiction did not apply.

Lifting the corporate veil - deemed dividend under section 2(22)(e) - Whether precedents relying on piercing the corporate veil or treating transactions as colourable circumscribe the Tribunal's conclusion in this case. - HELD THAT: - The Court distinguished the cited authorities (including decisions where the veil was lifted because transactions were held to be colourable devices to evade section 2(22)(e)) on the basis that in the present case there was no finding of colourable device or circumvention. The facts here showed a business transaction settled in the ordinary course; therefore the earlier decisions did not advance the Revenue's case. [Paras 3, 9, 10]

Precedents involving lifting the corporate veil and colourable transactions were distinguishable and did not affect the Tribunal's conclusion that section 2(22)(e) was not attracted.

Final Conclusion: The substantial questions of law were answered in favour of the assessee: on the facts the credit did not constitute a loan or advance nor confer individual benefit, section 2(22)(e) was not attracted, and the Department's appeal is rejected.

Exemption under section 10(8) - assigned to duties in India in connection with cooperative technical assistance programmes and projects - remuneration received directly or indirectly from the foreign State / contractor personnel financed by the grant - revisional powers under section 264 - intimation under section 143(1) regarded as an order for purposes of section 264 - no tax shall be levied or collected except by authority of law (Article 265)

Exemption under section 10(8) - assigned to duties in India in connection with cooperative technical assistance programmes and projects - remuneration received directly or indirectly from the foreign State / contractor personnel financed by the grant - Whether the remuneration paid to the petitioner by AVSC under the USAID-funded project is exempt from taxation under section 10(8) of the Income-tax Act, 1961. - HELD THAT: - The agreement between the Government of India and the United States (acting through A.I.D.) was a Cooperative Technical Assistance Project and its terms defined 'Grant' to include goods, services, training and contractor personnel provided or financed by AID. The petitioner accepted an appointment with AVSC to perform duties described in the job description in relation to the USAID-funded project and received remuneration from funds connected with the Grant. On a plain reading of section 10(8)(a) an individual assigned to duties in India in connection with such a cooperative technical assistance programme and who receives remuneration directly or indirectly from the foreign State (or its agency/contractor personnel financed by the Grant) falls within the exemption. The revisional authority's conclusions that no assignment of duties existed and that salary was not covered by the Agreement were held to be a misreading of the statutory provision and of the agreement; 'remuneration' includes salary. Consequently the remuneration in question is covered by clause (a) of section 10(8).

Remuneration paid to the petitioner in connection with the USAID-funded cooperative project is exempt under section 10(8) and the revisional authority's contrary conclusion is untenable.

Revisional powers under section 264 - intimation under section 143(1) regarded as an order for purposes of section 264 - no tax shall be levied or collected except by authority of law (Article 265) - Whether the Commissioner erred in rejecting the petitioner's revision under section 264 on the ground that the exemption was not claimed earlier / that fresh documents could not be considered and whether the revision was maintainable in the circumstances. - HELD THAT: - Section 264 confers wide revisional powers on the Commissioner to call for records and pass any order not prejudicial to the assessee; those powers are not confined to correcting only errors made by the assessing officer. Authorities permit the Commissioner to entertain new grounds in revision and to remedy over-assessment arising from mistakes or omissions even if the assessee had earlier shown the receipt as income. An intimation under section 143(1) can be regarded as an 'order' for the purposes of invoking section 264. Further, constitutional principle that no tax can be levied except by authority of law (Article 265) means tax collected without legal basis must be refunded; technicalities cannot defeat a statutory exemption. The revisional authority had condoned delay and decided the matter on merits but misconstrued law and records; therefore its merits-based rejection could not stand.

The revisional order rejecting the petition on merits is legally unsustainable; the Commissioner's exercise of revisional jurisdiction does not preclude granting the exemption and refund where the income is not taxable in law.

Final Conclusion: Writ petition allowed: the order passed by the Commissioner under section 264 is quashed; the assessing authority or other competent authority is directed to refund the tax deducted at source in respect of the assessment years 1998-99, 1999-00 and 2000-01 with interest at 6% per annum and modify the intimation under section 143(1), if necessary.

Reopening of assessment - validity of notice under section 148 - reason to believe - change of opinion - reassessment jurisdiction - Explanation 2 to section 147 - Explanation 3 to section 147 - tangible material - assessment under Section 143(3)

Reopening of assessment - validity of notice under section 148 - reason to believe - Validity of the notice issued under Section 148 and the consequent reassessment under Sections 147/148. - HELD THAT: - The court examined the reasons recorded for issuance of notice (four discrete grounds) and the material then before the Assessing Officer. Authorities emphasise that post 1989 reopening requires 'reason to believe' supported by tangible material and that reopening on mere change of opinion is impermissible. The record shows the Assessing Officer had raised specific queries during original proceedings, the assessee had responded with documents and explanations, and the Assessing Officer had accepted those explanations in the original assessment process. The same material was relied upon for reopening. Where an issue was raised in the original proceedings and was answered and accepted, a subsequent reassessment based on reappreciation of that material amounts to a change of opinion and cannot provide jurisdiction to reopen. Applying these principles, the court held the notice under Section 148 to be invalid and the reassessment to be without jurisdiction. [Paras 11, 12, 18, 19, 27]

Notice under Section 148 was illegal and issued without jurisdiction; reassessment under Sections 147/148 is invalid.

Change of opinion - assessment under Section 143(3) - Whether the four specific grounds relied upon for reopening (capitalisation of interest in capital work in progress, disallowance under Section 57, Section 54F residential unit issue, and excess deduction under Section 80IC) warranted reopening or merely represented a change of opinion. - HELD THAT: - For each ground the court found that the Assessing Officer had expressly raised queries in the original assessment and had the assessee's replies and supporting documents before him: (a) capitalisation of interest in CWIP was raised and the Assessing Officer accepted the assessee's explanation that interest capitalised was low (para 9); (b) interest expense vis a vis interest income was queried and similar explanations were earlier accepted (paras 10-11); (c) Section 54F claim: the assessee had replied that the purchase constituted a single flat (conversion of two adjacent flats into one) and the Assessing Officer accepted that position in original proceedings (para 12); (d) Section 80IC deduction: Form No.10CCB and other particulars were furnished and drawn to the Assessing Officer's attention in original proceedings, showing unit wise accounts and that the Assessing Officer was aware of unit allocations (paras 14-16). On these facts the re opening amounted to reappreciation of already available material and thus to change of opinion, which cannot justify reassessment. [Paras 12, 13, 14, 15, 16]

Each of the four grounds constituted a change of opinion because they had been specifically raised and considered in original proceedings; reassessment on those grounds was not permissible.

Explanation 2 to section 147 - Explanation 3 to section 147 - reassessment jurisdiction - Whether Explanations 2 and 3 to Section 147 validate reassessment proceedings or permit assessment of issues where the notice under Section 148 is invalid. - HELD THAT: - Explanation 2 defines categories of cases where income is deemed to have escaped assessment and thus expands the ambit of 'income chargeable to tax has escaped assessment' but does not remove the prerequisite of a valid notice under Section 148. Explanation 3 allows the Assessing Officer, during valid reassessment proceedings, to assess any issue that comes to his notice albeit not specified in the reasons; however, Explanation 3 presupposes that proceedings were validly initiated by a lawful notice. Therefore, neither Explanation 2 nor Explanation 3 can cure an otherwise invalid notice under Section 148 or confer jurisdiction where the foundational notice is held illegal. [Paras 24, 25, 26]

Explanations 2 and 3 do not validate or save proceedings founded on an invalid notice; a valid notice under Section 148 is a pre requisite for jurisdiction to reassess.

Tangible material - reopening of assessment - Whether the material relied upon in the reasons for reopening constituted fresh or tangible material not available at the time of original assessment. - HELD THAT: - The reasons recorded for reopening refer to material and documents that were already in the assessment record and to queries that the Assessing Officer had raised and received answers to during original assessment proceedings (see the questionnaire and correspondence). Since no fresh material or information was shown to have surfaced after completion of the original assessment, the attempt to reopen was based on reappreciation of existing material. Jurisprudence requires 'tangible material' to form a live link with the belief that income escaped assessment; mere reconsideration of the same material amounts to change of opinion and is not a valid basis for reopening. [Paras 6, 18, 19]

The reasons relied upon did not disclose any fresh or tangible material; they amounted to reappreciation of existing record and therefore could not justify reopening.

Final Conclusion: The High Court held that the notice under Section 148 was illegal and issued without jurisdiction because the matters relied upon for reopening had been raised and considered in the original assessment (reopening amounted to change of opinion), and that Explanations 2 and 3 to Section 147 do not validate proceedings founded on an invalid notice; questions of law answered against the Revenue and the appeal dismissed.

Stay of demand on payment of 15% under O.M. dated 29.02.2016 - Adjustment of pending refunds against disputed demand - Assessing Officer's power to impose conditions while granting stay

Stay of demand on payment of 15% under O.M. dated 29.02.2016 - Grant of interim stay of the demand pending disposal of first appeal on the terms of the CBDT O.M. dated 29.02.2016 - HELD THAT: - The O.M. dated 29.02.2016, para 4(A), mandates that where an outstanding demand is disputed before the CIT(A), the assessing officer shall grant stay of demand till disposal of the first appeal on payment of 15% of the disputed demand, unless the case falls in the exceptions in para 4(B). The Court found that the present case does not fall within para 4(B) and therefore falls squarely under para 4(A). Applying that administrative guideline, and having regard to the pendency of the appeal before the CIT(A), the Court held that an interim stay of the impugned demand is warranted subject to compliance with the 15% pre-condition prescribed by the O.M. The stay granted is interim and subject to the final outcome of the appeal. [Paras 9, 11, 12]

Interim stay of the demand for Assessment Year 2012-13 granted pending disposal of the appeal on condition of compliance with the 15% requirement under the O.M.

Adjustment of pending refunds against disputed demand - Assessing Officer's power to impose conditions while granting stay - Extent to which a pending refund may be adjusted to meet the 15% pre-condition for stay - HELD THAT: - Para 4(E)(iii) of the O.M. permits the assessing officer to reserve the right to adjust refunds arising, if any, against the demand to the extent of the amount required for granting stay and subject to Section 245. The respondents contended that the entire pending refund could be adjusted against the demand; the petitioner contended only 15% should be so adjusted. The Court accepted that adjustment against a pending refund is permissible for the purpose of meeting the pre-condition, but restricted the adjustment to the amount required to satisfy the 15% payment stipulated by para 4(A). Applying that principle to the facts, the Court directed that Rs. 2,53,61,907/- (15% of the demand) be retained/adjusted out of the refunds due for AYs 2006-07 and 2007-08 to meet the stay condition, leaving the balance refund subject to further orders in the appeal and Section 245 considerations. [Paras 8, 11, 12]

Refunds for Assessment Years 2006-07 and 2007-08 may be adjusted only to the extent necessary to meet the 15% pre-condition; the specified 15% amount to be retained/adjusted towards the stay.

Final Conclusion: The petition is partly allowed: the order refusing stay is set aside and an interim stay of the demand for AY 2012-13 is granted pending the appeal, subject to retention/adjustment of 15% of the disputed demand from the refunds due for AYs 2006-07 and 2007-08; liberty reserved to proceed in the appeal and no order as to costs.

Reopening of assessment beyond four years - failure to disclose true and correct facts - jurisdiction to reopen assessment under Section 147 - reasons recorded for reopening under Section 148 - production of documents in response to notice under Section 142(1) during scrutiny under Section 143(3) - sufficiency of reasons to reopen assessment

Reopening of assessment beyond four years - failure to disclose true and correct facts - production of documents in response to notice under Section 142(1) during scrutiny under Section 143(3) - reasons recorded for reopening under Section 148 - Validity of reopening assessment for Assessment Year 2010-11 beyond four years where the assessee had produced details of share capital, share application money, investors' confirmations, income tax returns and bank statements during scrutiny assessment. - HELD THAT: - The Court held that reopening an assessment beyond four years is permissible only if there is a failure on the part of the assessee to disclose true and correct facts necessary for assessment. In the present case the assessee, in response to the notice under Section 142(1) during scrutiny under Section 143(3), furnished particulars including details of share capital, share application money, names and confirmations of shareholders, copies of income tax returns, bank statements and PAN. The Assessing Officer thereafter completed the assessment under Section 143(3) without making any addition. The reasons recorded to reopen the assessment express doubt as to the genuineness of the transactions but do not allege any non disclosure by the assessee of material facts; accordingly the condition precedent for invoking jurisdiction to reopen beyond four years was not satisfied. The Court therefore concluded that the reopening notice could not be sustained on the basis of the material on record and the reasons furnished. [Paras 7, 8]

Impugned notice and reassessment proceedings reopening the assessment for Assessment Year 2010-11 beyond four years quashed and set aside.

Final Conclusion: The petition is allowed; the reassessment proceedings reopening the assessment for Assessment Year 2010-11 under Section 147/148 are quashed and set aside on the ground that there was no failure to disclose true and correct facts necessary for assessment.

End-use condition for exemption - use at job-worker's premises as compliance with end-use condition under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 - ownership of imported goods during manufacture - beneficial interpretation of exemption notification - agent-principal doctrine for acts of job-worker

End-use condition for exemption - use at job-worker's premises as compliance with end-use condition under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 - ownership of imported goods during manufacture - agent-principal doctrine for acts of job-worker - Whether imported bulk drug used at the premises of a loan licensee (job worker) satisfies the end-use condition for exemption under the Rules, thereby entitling the importer to the notification benefit - HELD THAT: - The Tribunal held that the determinative inquiry is end use and ownership. The imported bulk drug was used on behalf of the appellant at the loan licensee's premises while ownership of the goods remained with the appellant from import until their use in manufacture. In these circumstances the condition of end use in the notification, read with the Rules, is satisfied even though the physical manufacture occurred in a job-worker's factory. The decision relied on earlier Tribunal precedents which interpret Rule 3 and the expression 'his factory' purposively to include premises where the importer utilises another's manufacturing facilities, and on the principle that acts done by a duly constituted agent (job worker) are attributable to the principal (importer). A literal insistence on ownership of the factory was rejected as being contrary to the objective of the exemption and established administrative practice. Given these findings on merits, other grounds raised by revenue were not addressed. [Paras 4, 5]

Impugned order set aside; appeal allowed on merits holding that use at loan licensee's premises satisfied the end use condition and exemption is available.

Final Conclusion: The Tribunal allowed the appeal, holding that imported bulk drug used at the loan licensee (job worker) premises, while remaining the appellant's property and used for the specified manufacture, complies with the end use condition under the Customs Rules and entitles the appellant to the exemption; the impugned demand was set aside.

Sanction of Scheme of Amalgamation - Compliance with Accounting Standard AS-14 - Compliance with Income-tax Act and Rules - Preservation of books and records under Section 396A - Continuance of statutory liabilities post-sanction - Filing for stamp duty adjudication and lodging with Registrar of Companies - Costs

Sanction of Scheme of Amalgamation - Sanction of the Scheme of Amalgamation between the three Transferor Companies and the Transferee Company - HELD THAT: - Having considered the petition, the reports of the Regional Director and the Official Liquidator, the published notices and affidavits of publication, and the Scheme together with relevant documents on record, the Court found it appropriate to grant sanction to the proposed Scheme of Amalgamation. The Court recorded that statutory and procedural prerequisites for adjudication had been complied with and accordingly sanctioned the Scheme. [Paras 12, 13]

Scheme of Amalgamation is sanctioned.

Compliance with Accounting Standard AS-14 - Whether the petitioner companies must comply with Accounting Standard AS-14 in relation to the amalgamation - HELD THAT: - The Regional Director observed on compliance with AS-14. The petitioner companies pointed to provisions in the Scheme (Clauses 13.1 and 13.6) and gave an undertaking to strictly comply with AS-14. The Court noted this undertaking and proceeded to sanction the Scheme having regard to that assurance and the Scheme's provisions. [Paras 8, 9, 12]

Petitioner companies shall comply with the requirements of AS-14 as undertaken.

Compliance with Income-tax Act and Rules - Whether the petitioner companies are to undertake compliance with the Income-tax Act and Rules in relation to the amalgamation - HELD THAT: - The Regional Director drew attention to comments from the Income Tax Department and recommended compliance. The petitioners reported no adverse observations from the Income Tax Department and, without prejudice, undertook to comply with the Income-tax Act and Rules. The Court accepted the position and sanctioned the Scheme subject to the undertaking. [Paras 8, 10, 12]

Petitioner companies to undertake compliance with the Income-tax Act and the Rules made thereunder.

Preservation of books and records under Section 396A - Continuance of statutory liabilities post-sanction - Direction to preserve books, papers and records of the Transferor Companies and effect of sanction on statutory liabilities - HELD THAT: - The Official Liquidator reported that affairs of the Transferor Companies were not prejudicial to members or public interest but requested directions that the Transferor Companies preserve their books and records and not dispose of them without prior permission of the Central Government under Section 396A. The Court directed that the Transferor Companies shall preserve their books of accounts, papers and records and shall not dispose of them without prior permission of the Central Government under Section 396A. The Court also expressly observed that sanction of the Scheme does not absolve the Transferor Companies from any statutory liability, if any. [Paras 11, 13]

Transferor Companies shall preserve books, papers and records and not dispose of them without prior Central Government permission under Section 396A; sanction does not absolve statutory liabilities.

Filing for stamp duty adjudication and lodging with Registrar of Companies - Directions as to stamping and filing of the sanctioned order and Scheme - HELD THAT: - The Court directed the petitioner companies to lodge a copy of the order, the schedule of immovable assets of the transferor companies (if any) as on the date of the order, and the Scheme duly authenticated by the High Court Registrar with the concerned Superintendent of Stamps for adjudication of stamp duty within sixty days. The petitioners were further directed to file a copy of the order and Scheme with the concerned Registrar of Companies electronically along with the requisite form and also submit a physical copy as per the Act. The Court dispensed with filing of a drawn up order and authorised acting on authenticated copies issued by the Registrar, High Court of Gujarat. [Paras 15, 16, 17]

Petitioners to lodge the order and Scheme for stamp duty adjudication and file authenticated copies with the Registrar of Companies within stipulated modes and time; drawn up order dispensed with.

Costs - Determination of costs of the petitions - HELD THAT: - The Court assessed costs in respect of the petitions and fixed the cost payable in each case to the Assistant Solicitor General of India and to the Official Liquidator in the cases of the Transferor Companies as specified in the order. [Paras 14]

Costs of the petitions are determined as directed by the Court.

Final Conclusion: The High Court sanctioned the Scheme of Amalgamation subject to the petitioner companies' undertakings to comply with AS-14 and the Income-tax Act and Rules, directed preservation of the Transferor Companies' records pending Central Government permission under Section 396A and observed that statutory liabilities, if any, continue; it further directed lodging for stamp duty adjudication, filing with the Registrar of Companies and awarded costs as ordered.

Sanction of Scheme of Amalgamation - dispensing with meetings of shareholders and unsecured creditors by written consent - preservation of books of accounts and records pending Central Government permission under Section 396(A) of the Companies Act, 1956 - obligation to obtain regulatory licences and approvals before commencement of regulated power generation activity - compliance with applicable provisions of the Income Tax law - lodgement of authenticated order and scheme for adjudication of stamp duty and filing with Registrar of Companies - award and quantification of costs to Central Government Standing Counsel and Official Liquidator

Sanction of Scheme of Amalgamation - dispensing with meetings of shareholders and unsecured creditors by written consent - Sanction of the proposed Scheme of Amalgamation between the Transferor and Transferee companies. - HELD THAT: - The court considered the petitions and accompanying material including dispensation of meetings by orders dated 15 November 2016 supported by written consents, publication of notice in two newspapers, absence of objections on affidavit, the report of the Official Liquidator and the additional affidavits and undertakings filed on 14 December 2016 addressing observations of the Regional Director. The Regional Director's observations were dealt with by the petitioners and, having perused the record and heard parties, the court found the Scheme to be in the interest of shareholders, creditors and the public. On these determinative considerations the petition for sanction was allowed. [Paras 8, 9]

The Scheme of Amalgamation is sanctioned by the High Court.

Preservation of books of accounts and records pending Central Government permission under Section 396(A) of the Companies Act, 1956 - role of Official Liquidator's report - Directions regarding custody and preservation of the Transferor Company's books, papers and records. - HELD THAT: - The Official Liquidator reported that the Transferor Company's affairs were conducted within its objects and not prejudicial to members or public interest, but recommended that the books and records be preserved and not disposed of without prior permission of the Central Government under Section 396(A). The court accepted that recommendation and issued appropriate directions to safeguard the records while also noting that the Transferor Company shall continue to comply with applicable statutory liabilities even after sanction. [Paras 5]

Transferee Company directed to preserve the Transferor Company's books, papers and records and not to dispose of them without prior Central Government permission; Transferor to remain liable for statutory obligations.

Obligation to obtain regulatory licences and approvals before commencement of regulated power generation activity - Requirement for the Transferee Company to obtain licences/approvals before commencing regulated power generation business. - HELD THAT: - The Regional Director observed that power generation is a regulated activity and that necessary licences/approvals/NOCs should be obtained. The petitioners explained that the Transferee Company, though incorporated with that object, has not commenced power generation activity and undertook to obtain all required permissions from the applicable regulatory authority or concerned Ministry prior to commencement. Having received this undertaking and no contrary material, the court found no further directions necessary. [Paras 7]

Transferee Company to obtain all necessary regulatory licences/permissions/approvals before commencing power generation activity; no additional directions issued.

Compliance with applicable provisions of the Income Tax law - Treatment of Income Tax Department's non-response and obligation to comply with tax laws. - HELD THAT: - The Regional Director had invited the Income Tax Department's objections; none were received. The petitioners undertook to comply with applicable provisions of the Income Tax Act and rules. In light of the non-objection and the undertaking, the court found no further directions necessary regarding income-tax compliance. [Paras 7]

Petitioners to comply with applicable Income Tax provisions; absence of objection by the Income Tax Department noted.

Lodgement of authenticated order and scheme for adjudication of stamp duty and filing with Registrar of Companies - Directions for post-sanction formalities including stamp duty adjudication and filing with Registrar of Companies. - HELD THAT: - The court directed the petitioner companies to lodge a copy of the order, the detailed schedule of immovable assets of the Transferor Company as on the date of the order and the authenticated Scheme with the concerned Superintendent of Stamps within the stipulated period for adjudication of stamp duty, and to file the order and Scheme with the Registrar of Companies electronically and in physical form as required. The Registrar was directed to issue the authenticated copy of the order and Scheme expeditiously and all authorities were to act on such authenticated copies. [Paras 11, 12, 14]

Petitioners directed to lodge the authenticated order and Scheme for stamp duty adjudication and to file the order and Scheme with the Registrar of Companies; Registrar to issue authenticated copies and authorities to act accordingly.

Award and quantification of costs to Central Government Standing Counsel and Official Liquidator - Imposition and quantification of costs payable to the Central Government Standing Counsel and to the Office of the Official Liquidator. - HELD THAT: - The court considered costs and quantified amounts to be paid to the Central Government Standing Counsel for each petition and directed that the Transferor Company alone shall pay the costs quantified in favour of the Office of the Official Liquidator. These quantifications were made as part of the order disposing of the petitions. [Paras 10]

Costs awarded to the Central Government Standing Counsel and to the Office of the Official Liquidator as quantified by the court; the Transferor Company to pay the costs payable to the Official Liquidator.

Final Conclusion: The High Court sanctioned the Scheme of Amalgamation between Diamond Infrastructure Private Limited and Radiant Urja Limited, subject to directions preserving the Transferor's records pending Central Government permission, compliance with regulatory and tax obligations prior to commencement of regulated activities, completion of prescribed post-sanction filings and stamp duty adjudication, and payment of costs as quantified.

Service of petition under Rule 26 - notice of petition under Rule 27/Form No.6 - preadmission vs post-admission service - transfer of pending winding-up petitions to NCLT under Rule 5 - NCLT jurisdiction for corporate insolvency resolution

Service of petition under Rule 26 - notice of petition under Rule 27/Form No.6 - preadmission vs post-admission service - Whether Rule 26 of the Companies (Court) Rules, 1959 requires service of a winding-up petition only post-admission (i.e. service is co-extensive with the Form No.6 notice under Rule 27) - HELD THAT: - The Court held that Rules 26-29 treat service of the petition and notice of the petition as distinct obligations. Rule 26 imposes a mandatory requirement that every petition be served on the respondent named in the petition and on other persons where the Act, the Rules, or judicial directions require; it does not by its language make such service contingent upon admission. Rules 27 and 28 govern the separate obligation of issuing a prescribed notice (Form No.6) and prescribe the time and manner for post-admission notice. The proper reading is that Rule 26 requires service of a copy of the petition on a named respondent as a general rule, whereas Rule 27/Form No.6 is a distinct post-admission notice of hearing. The proposition that Rule 26 contemplates only post-admission service was rejected as untenable and inconsistent with the scheme and wording of the Rules and prior decisions which treat pre-admission notice to the company as discretionary under Rule 96. The Court emphasised that service of the petition (as distinct from the post-admission Form No.6 notice) is the petitioner's responsibility under Rule 29. [Paras 8, 9, 10, 11]

Rule 26 does not restrict service of the petition to a post-admission act; service of the petition on a named respondent is a distinct, generally mandatory requirement independent of the Form No.6 post-admission notice.

Transfer of pending winding-up petitions to NCLT under Rule 5 - service of petition under Rule 26 - NCLT jurisdiction for corporate insolvency resolution - Scope and effect of Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016: which pending winding-up petitions under clause (e) of Section 433 are to be transferred to the NCLT - HELD THAT: - The Court interpreted Rule 5 to mean that only those winding-up petitions pending before the High Court which have not been served on the respondent as required by Rule 26 shall be transferred to the NCLT and treated as applications under the Insolvency and Bankruptcy Code for admission under Sections 7, 8 or 9. Petitions pending admission but already served on the respondent in compliance with Rule 26 are to remain before the High Court and be dealt with under the Companies Act, 1956. The proviso to Rule 5 requiring the petitioner to submit information for admission within sixty days does not convert every pre-admission petition into a transferrable petition; rather, the determinative criterion for transfer is absence of service under Rule 26. The Court rejected the contrary construction which would produce anomalies by transferring admitted petitions merely because notice in Form No.6 had not been issued post-admission. [Paras 11, 12, 13, 14]

Under Rule 5, pending winding-up petitions not served on the respondent as required by Rule 26 shall be transferred to the NCLT; petitions that have been served as required by Rule 26 shall remain in the High Court and be dealt with under the 1956 Act.

Final Conclusion: The petitions in these proceedings were held to have been served on the respondent in accordance with Rule 26 and therefore are not transferable under Rule 5 to the NCLT; they shall remain before the High Court and be dealt with under the Companies Act, 1956.

Provisional attachment under Section 5(1) of the PMLA - proceeds of crime - reason to believe - action in rem - bona fide purchaser for valuable consideration - composition of Appellate Tribunal Bench under Section 27 of the PMLA

Provisional attachment under Section 5(1) of the PMLA - reason to believe - proceeds of crime - Validity of the Deputy Director's provisional attachment order under Section 5(1) of the PMLA on the basis of material in her possession and the existence of 'reason to believe' that the properties were proceeds of crime. - HELD THAT: - The Court held that the expression 'reason to believe' in Section 5(1) requires that the authorised officer have sufficient cause to form belief on the basis of material in her possession, and that the Court cannot re-appraise that material as if sitting in appeal. The Deputy Director had conducted enquiries, issued summons, obtained income-tax records and land particulars, and recorded statements before initiating attachment; these steps furnished a cause sufficient to form 'reason to believe'. The Court observed that 'proceeds of crime' need not be in the hands of the alleged offender at the relevant time and that property derived from criminal activity retains its character even after conversion or transfer; thus the material before the Deputy Director was adequate to initiate action under Section 5(1). [Paras 11, 12, 13, 14, 15]

The provisional attachment order was founded on sufficient material and the Court declined to set it aside.

Bona fide purchaser for valuable consideration - action in rem - proceeds of crime - Effect of the petitioners' status as alleged bona fide purchasers on the maintainability of provisional attachment and availability of defence before the Adjudicating Authority. - HELD THAT: - The Court recognised that PMLA proceedings are action in rem aimed at depriving offenders of fruits of crime and deterring transactions with tainted vendors. While noting the petitioners' contention that they were bona fide purchasers who acquired property to secure ingress and egress, the Court held that such contentions do not preclude initiation of provisional attachment under Section 5(1). The Court emphasised that purchasers may advance their defence (lawful acquisition) before the Adjudicating Authority when served with the complaint and show-cause notice, but such pleas do not negate the sufficiency of material for provisional attachment at the initiation stage. [Paras 8, 9, 11, 15]

Being bona fide purchasers does not, by itself, defeat the provisional attachment; the petitioners' defence must be urged before the Adjudicating Authority.

Composition of Appellate Tribunal Bench under Section 27 of the PMLA - Challenge to the show-cause notice on the ground that Section 27 requires the Appellate Tribunal to be manned by a Bench of two members and related contention about invalidity of the notice. - HELD THAT: - The Court explained that Section 27 pertains to the Appellate Tribunal and not to the Adjudicating Authority. The petitioners' submission misread Section 27; the provision permits constitution of a Bench by the Chairperson with one or two Members as the Chairperson deems fit, and sub-section (4) contemplates transfer or constitution of two-Member Benches where necessary. The objection that the show-cause notice was vitiated for failure to adhere to Section 27's Bench composition was therefore unsustainable. The Court further noted that the show-cause notice was accompanied by the complaint and appended documents, and it is for the petitioners to appear and place their defence before the Adjudicating Authority. [Paras 16, 17, 18]

The challenge to the show-cause notice and the argument based on Section 27's composition requirement is without merit.

Final Conclusion: The petition challenging the provisional attachment was dismissed: the Deputy Director had sufficient material to form 'reason to believe' and lawfully initiate attachment under Section 5(1); the petitioners' pleaded status as bona fide purchasers does not preclude provisional attachment and must be urged before the Adjudicating Authority; objections based on Section 27's Bench composition and invalidity of the show-cause notice fail.

Penalty under Section 78 of the Finance Act, 1994 - Extended period of limitation (five years) for suppression, fraud, wilful misstatement or intent to evade - Suppression of facts / fraud / collusion / wilful mis-statement / intent to evade payment - Proviso reducing penalty on payment within prescribed period (25% / 50%) and extended time for small providers - Obligation of self-assessment and filing of returns - Judicial discretion to grant relief by permitting deposit under proviso despite adjudicatory omission

Extended period of limitation (five years) for suppression, fraud, wilful misstatement or intent to evade - Suppression of facts / fraud / collusion / wilful mis-statement / intent to evade payment - Obligation of self-assessment and filing of returns - Whether invocation of the extended period and imposition of 100% penalty under Section 78 was justified on the finding of suppression/intent to evade. - HELD THAT: - The court examined the factual matrix and authorities relied upon by the parties. The assessee registered for service tax in 2009 and admitted liability when the show cause notice was issued; it asserted lack of awareness prior to registration and denied suppression, fraud or wilful misstatement. The adjudicating authority had found suppression and intent to evade and invoked the extended five-year period. The High Court observed that there is substance in the appellant's contention that lack of awareness could be plausible and that several revenue decisions involved assessees who knew of their liability and suppressed material facts. Nevertheless, having regard to the phraseology of the relevant provisions and the material before the court, the High Court was unable to disturb the factual findings of the authorities below that justified invocation of the extended period and the application of Section 78.

Findings of the authorities invoking the extended period and applying Section 78 were not disturbed by the High Court.

Proviso reducing penalty on payment within prescribed period (25% / 50%) and extended time for small providers - Judicial discretion to grant relief by permitting deposit under proviso despite adjudicatory omission - Whether the assessee could be permitted the benefit of the proviso to Section 78(1) (reduction of penalty on payment within the prescribed period) despite the adjudicating authority not having granted the option/time in the original order. - HELD THAT: - The court noted that the provisos to Section 78(1) provide for substantial reduction of penalty if the tax and interest are paid within the stipulated period (30 days or extended 90 days where applicable). In the present case the adjudicating authority had not afforded the time/option expressly in its order even though the demand fell within the monetary threshold for extended time. Considering that the assessee had not disputed liability and had already deposited a substantial amount during adjudication, the High Court considered limited relief appropriate. The court relied on established practice directing adjudicating officers to record the option available and observed that failure to grant the option did not per se invalidate the penalty but warranted modification in the peculiar facts of the case.

Order modified to permit the assessee to deposit the balance service tax with accumulated interest and a penalty equal to 25% of the entire tax due within the period indicated in the proviso; failure to do so would leave the original order (and its execution) intact.

Final Conclusion: The appeal was allowed limitedly: while the Tribunal's and authorities' findings on invocation of the extended period and applicability of Section 78 were not disturbed, the order was modified to grant the assessee the benefit of the proviso by permitting deposit of the balance tax with interest and payment of a reduced penalty of 25% within the period prescribed; non-compliance would revive the original order.

Show-cause notice - quashing of statutory proceedings - abeyance of proceedings - deferment pending appellate adjudication - identical issue pending before Tribunal - personal hearing - adjudication on merits - negative list regime - service tax liability

Show-cause notice - quashing of statutory proceedings - Validity of prayer to quash the impugned show-cause notice - HELD THAT: - The Court considered the petitioner's challenge to the show-cause notice but declined to quash it at this stage. The petitioner had replied to the notice and sought, alternatively, deferment until disposal of an appeal before the CESTAT; however the writ court found that it could not interdict the adjudicatory process and that the petitioner must participate in the statutory adjudication. The Court therefore rejected the primary relief of quashing while preserving the petitioner's ability to press its deferral plea before the adjudicating authority. [Paras 9, 10]

Prayer to quash the show-cause notice is rejected and the writ petition is dismissed.

Abeyance of proceedings - deferment pending appellate adjudication - identical issue pending before Tribunal - personal hearing - adjudication on merits - Direction to adjudicating authority to consider petitioner's request to defer proceedings till CESTAT disposal and to afford personal hearing - HELD THAT: - The Court noted the petitioner had expressly sought deferment as an alternative relief on the ground that identical issues are pending before the CESTAT in the assessee's own case. The Court directed that the adjudicating authority should consider the petitioner's reply (including the deferment plea) first among the issues raised, afford an opportunity for personal hearing, and thereafter pass a comprehensive order on merits in accordance with law. This direction is procedural: the authority must examine whether the issues before it are identical to those pending before the Tribunal and decide the deferment request before proceeding with other aspects of adjudication. [Paras 8, 9]

Respondent is directed to consider the reply dated 08.12.2015, hear the petitioner, treat the deferment plea as the first issue, and pass a comprehensive order on merits.

Final Conclusion: Writ petition dismissed; petitioner must participate in adjudication. The first respondent is directed to consider the petitioner's reply, afford personal hearing, decide the deferment request (to keep proceedings in abeyance pending the CESTAT appeal) as the first issue among those raised, and thereafter pass a comprehensive order on merits; no order as to costs.

C&F agent service - service tax demand - classification of activity - set aside of demand - re-quantification / remand for computation - credit for service tax already paid - penalty not justified

Classification of activity - sales promoter vs C&F agent - service tax demand - The appellant's activities for the period April, 2002 to September, 2006 were that of a sales promoter and not C&F agent, and the service tax demand for that period is not justified. - HELD THAT: - The Tribunal examined the correspondence and documents between the appellant and Maihar Cement and found that goods were sold to the appellant who resold them; the appellant received discounts in price, stored and dispatched the cement as their own goods. On the nature of these transactions the activity could not be classified as C&F agent service. Consequently the demand of Service Tax for the period during which the appellant acted as sales promoter (April, 2002 to September, 2006) was held to be unsustainable and was set aside.

Demand of Service Tax for April, 2002 to September, 2006 set aside as activity was that of a sales promoter and not C&F agent.

C&F agent service - re-quantification / remand for computation - credit for service tax already paid - With effect from 1.10.2006 the appellant was an admitted C&F agent and the demand for Service Tax from that date to March, 2007 requires re-quantification by the original adjudicating authority, taking into account Service Tax already paid. - HELD THAT: - The Tribunal recorded that the appellant's status changed on 1.10.2006 when they were appointed as C&F agent and obtained Service Tax registration for C&F agent services. The appeal was remanded to the original adjudicating authority to recompute the Service Tax demand for the period from 1.10.2006 to March, 2007, allowing adjustment for Service Tax amounts already discharged by the appellant and to determine any differential liability, if any.

Matter remanded for requantification of Service Tax demand from 1.10.2006 to March, 2007, with credit for taxes already paid.

Penalty not justified - service tax demand - Imposition of penalty on the appellant is not justified. - HELD THAT: - In view of the factual conclusion that the appellant was not a C&F agent until 1.10.2006 and the remand to compute any differential liability thereafter, the Tribunal found no justification for imposing any penalty on the appellant and directed that no penalty be levied.

Penalty on the appellant set aside; no penalty to be imposed.

Final Conclusion: The appeal is allowed in part: the Service Tax demand for April, 2002 to September, 2006 is set aside; the matter is remanded to the original authority to recompute the demand for the period from 1.10.2006 to March, 2007 allowing credit for tax already paid; penalties are set aside; appeals disposed accordingly.

Limitation for refund claims under Section 11B (relevant date for refund) - refund entitlement consequent to judgment of a High Court and finality upon Supreme Court decision - doctrine of unjust enrichment in refund claims - verification of pass on of tax and credit to Consumer Welfare Fund

Limitation for refund claims under Section 11B (relevant date for refund) - refund entitlement consequent to judgment of a High Court and finality upon Supreme Court decision - Whether the refund claim arising from the Bombay High Court judgment was time barred under Section 11B. - HELD THAT: - Section 11B requires a refund application to be filed within one year from the relevant date; Explanation (B)(ec) makes the relevant date the date of the judgment, decree, order or direction. Although the Bombay High Court rendered its decision on 21.12.2010, the Revenue's Special Leave Petition was admitted and later dismissed by the Supreme Court on 04.07.2012. Once the SLP was entertained the High Court decision stood imperilled and only attained finality upon the Supreme Court's dismissal. Therefore the relevant date for the present refund claim is 04.07.2012. The refund application filed on 21.08.2012 fell within one year of that relevant date and is not time barred under Section 11B. [Paras 23, 24, 26]

Refund claim is timely filed within the limitation period prescribed by Section 11B, taking 04.07.2012 (Supreme Court dismissal of SLP) as the relevant date.

Doctrine of unjust enrichment in refund claims - verification of pass on of tax and credit to Consumer Welfare Fund - Whether the refund is barred by unjust enrichment and what remedy or further action is necessary. - HELD THAT: - Section 11B permits refund in cash only after satisfaction of the unjust enrichment test. The assessee must produce evidence that the incidence of the tax was passed on to ultimate customers. The record shows the appellant has credited current subscribers' bills and issued cheques to surrendered customers, but some cheques remain unencashed and amounts still lie on the appellant's books. Where the appellant can demonstrate that Service Tax amounts were passed on to ultimate subscribers, those amounts may be refunded in cash. Where such proof is absent or amounts remain unclaimed (thus retained by the appellant), those sums should not be refunded in cash but credited to the Consumer Welfare Fund. The facts as to the exact quantum passed on require verification by the original adjudicating authority. [Paras 27]

Matter remitted to the original adjudicating authority to verify and quantify amounts demonstrably passed on to subscribers for cash refund; amounts not so proved or unclaimed to be credited to the Consumer Welfare Fund.

Final Conclusion: The appeal is allowed in part: the refund claim is held to be within time (relevant date 04.07.2012) but the question of unjust enrichment requires verification - refundable amounts that can be shown to have been passed on to subscribers are to be paid in cash, and amounts not so shown or unclaimed are to be credited to the Consumer Welfare Fund; original authority to proceed with verification and consequential action.

Business Auxiliary Service - Service tax liability of distributor where principal has discharged tax - Successive/duplicate taxation on same transaction

Business Auxiliary Service - Service tax liability of distributor where principal has discharged tax - Whether the respondent (distributor/franchise) is liable to pay service tax under the category of Business Auxiliary Service on commission/discount received for marketing and sale of BSNL telecom services where BSNL has already discharged service tax on the services. - HELD THAT: - The Tribunal found that the respondent sold BSNL services to customers and received commission/discounts, but BSNL had already discharged service tax on the value of those services. Applying the Tribunal's earlier reasoning in Daya Shankar Kailash Chand , and following the decision in Martend Food & Dehydrates Pvt. Ltd. as affirmed by the High Court of Allahabad , the activity of purchase and sale/distribution of SIM cards and related recharge/top-up where the principal (BSNL) has discharged service tax does not amount to providing Business Auxiliary Services such as to justify a second taxation. On this basis the demand for service tax, interest and penalties confirmed against the respondent was held not sustainable. The Tribunal held the issue to be no longer res integra in view of the foregoing precedents and therefore upheld the Commissioner (Appeals) order dropping the demand. [Paras 5, 6, 7]

Respondent is not liable to pay service tax under Business Auxiliary Service for the period in question; impugned order upholding non-liability is affirmed and Revenue's appeal is dismissed.

Final Conclusion: The appeal is dismissed; the order of the Commissioner (Appeals) holding the respondent not liable to pay service tax under Business Auxiliary Service (period 2005-2010) is upheld.

Erection, commissioning or installation service - fabrication amounting to manufacture - classification with reference to the scope of the taxable entry as on the relevant date - remand for de novo adjudication

Classification with reference to the scope of the taxable entry as on the relevant date - erection, commissioning or installation service - Whether the services rendered by the appellant fall under erection, commissioning or installation service must be determined with reference to the precise scope of the taxable entry as it stood at the time each work order was performed. - HELD THAT: - The Tribunal noted that the statutory entry for commissioning/installation was introduced w.e.f. 01/07/2003, expanded on 10/09/2004 to include erection, and its scope was further amended w.e.f. 16/06/2005. The Adjudicating Authority recorded that each contract was examined but did not record findings applying the scope of the entry for the specific periods of demand. Given the repeated changes in coverage during October 2003 to September 2008, the Tribunal held that each work/job order must be examined against the entry as it stood at the relevant time before crystallising any service-tax demand. [Paras 6, 7, 8]

Matter remanded to the original Adjudicating Authority to examine each work order with reference to the scope of the entry as it stood at the relevant time and to decide classification afresh.

Fabrication amounting to manufacture - erection, commissioning or installation service - Whether fabrication of structures that amounts to manufacture is liable to service tax as erection, commissioning or installation service. - HELD THAT: - The Tribunal accepted the relevance of the Tribunal decision in Neo Structo Construction Ltd., holding that where fabrication of structures amounts to manufacture under the Central Excise law (leading to classification as an excisable structure), such activity should be excluded from service-tax cover as erection/installation. The Tribunal observed that several job orders referred to fabrication and erection of structures and that demand must be excluded wherever the activity in substance amounts to manufacture. [Paras 7, 9]

Fabrication that amounts to manufacture is not taxable as erection, commissioning or installation service; the point must be considered by the original Authority in the remand proceedings.

Remand for de novo adjudication - Whether ancillary contentions including limitation, penalty and the appellant's conduct should be adjudicated in the light of the reclassification exercise. - HELD THAT: - The Tribunal recorded that certain contentions such as limitation, the nature of repair work, and conduct of the appellant (including non-appearance before investigation) were raised but not finally decided on merits. Since classification vis-a -vis the entry at the relevant dates and the question whether fabrication amounts to manufacture are determinative, the Tribunal directed a de novo adjudication by the original Authority, granting the appellant effective opportunity to make submissions. Issues such as limitation and penalty were not decided on merits and must be considered afresh in the remand proceedings. [Paras 4, 8, 10]

Lower orders set aside and matter remanded for de novo decision by the original Adjudicating Authority, including consideration of limitation, penalty and other incidental contentions in the light of reclassification.

Final Conclusion: The appeal is allowed by way of remand: the Tribunal set aside the impugned orders and directed the original Adjudicating Authority to re-examine each work order against the scope of the taxable entry as it stood at the relevant time, to exclude from service tax those fabrication activities that amount to manufacture, and to decide all incidental issues (including limitation and penalty) afresh after giving the appellant an effective opportunity to be heard.

Taxability of commission as Business Auxiliary Services - Application of Continental Foundation principle on limitation where scope for doubt exists - Inapplicability of extended limitation period where departmental views were not uniform - Penalty not leviable for the tax demand

Taxability of commission as Business Auxiliary Services - Commission earned by the distributor on sales made by his sales group is taxable as Business Auxiliary Services. - HELD THAT: - The Tribunal observed that the issue on merit is covered by earlier Tribunal decisions holding that commission received by a distributor from the principal company for purchases made by his sales group falls within the taxable ambit of Business Auxiliary Services. The appellant's counsel conceded that these precedents decide the substantive question against the appellant, and the Bench accepted that position and applied the cited Tribunal precedent to the facts before it. [Paras 6]

The commission received by the appellant is held to be chargeable to service tax under the category of Business Auxiliary Services as per the Tribunal's earlier decisions.

Application of Continental Foundation principle on limitation where scope for doubt exists - Inapplicability of extended limitation period where departmental views were not uniform - The extended five-year limitation period under the proviso is not invokable where there was scope for doubt; demand is restricted to the normal one-year limitation period. - HELD THAT: - The Tribunal relied on the principle laid down by the Apex Court in Continental Foundation Joint Venture v. CCE that where reasonable doubt exists on taxability (demonstrated by divergent departmental views), the longer limitation period under the proviso cannot be invoked. Applying that ratio, and noting that earlier departmental views were not uniform on the issue, the Bench held that only the normal limitation period is available for recovery of service tax in these matters. The Tribunal considered a contrary Tribunal decision (Surendra Singh Rathore) but observed that the Supreme Court's authority had not been cited there and therefore followed the Continental Foundation ratio. [Paras 7]

Demand is to be restricted to the normal limitation period (one year) and the extended five-year period under the proviso is held inapplicable.

Penalty not leviable for the tax demand - Imposition of penalty upon the appellant is not justified. - HELD THAT: - Having concluded that the substantive issue of taxability was covered by divergent views in the Department and that the extended limitation period could not be invoked, the Tribunal found no basis for imposing penalty. The Bench expressly recorded that imposition of any penalty on the appellant was unjustified in the circumstances. [Paras 8]

No penalty shall be imposed on the appellant.

Final Conclusion: The appeal is allowed in part: the taxability conclusion under Tribunal precedent is affirmed, but the demand is limited to the normal period of limitation in accordance with the Continental Foundation principle; the matter is remanded to the original authority to restrict the demand accordingly, and no penalty is to be imposed.

Deposit of certain percentage before filing appeal - Requirement of ten per cent deposit under clause (iii) of Section 35F - Literal interpretation of taxing statutes - No adjustment/set off of earlier deposit against subsequent deposit requirement

Requirement of ten per cent deposit under clause (iii) of Section 35F - No adjustment/set off of earlier deposit against subsequent deposit requirement - Literal interpretation of taxing statutes - Whether the 7.5% deposit made at the first appellate stage could be adjusted against the 10% deposit required under clause (iii) of Section 35F for filing the appeal before this Tribunal. - HELD THAT: - The provision enacted with effect from 06.08.2014 prescribes that an appeal under clause (b) of sub section (1) of Section 35B shall not be entertained unless the appellant has deposited ten per cent of the duty or penalty or duty and penalty as the case may be. The Tribunal found the wording of clause (iii) plain and unambiguous and declined to read into it any entitlement to set off or adjust a prior 7.5% deposit made before the Commissioner (Appeals). Applying the settled rule of strict and literal construction of taxing statutes, the Tribunal held that words not present in the statute cannot be inserted to alter the clear statutory requirement. Reliance was placed on the principle that taxing provisions must be given their natural meaning and no equitable or purposive gloss may be used to permit an adjustment contrary to the expressed language of the provision. [Paras 3, 4]

The prior deposit of 7.5% at the first appellate stage cannot be adjusted against the 10% deposit required under clause (iii) of Section 35F; accordingly the appeal is not entertained.

Final Conclusion: Appeal dismissed (not entertained) for non compliance with the express deposit requirement of clause (iii) of Section 35F; earlier 7.5% deposit cannot be set off against the 10% required for filing the present appeal.

Revisionary power of the Commissioner - penalty under Section 78 - natural justice - opportunity of hearing - concurrent penalties under Sections 76 and 77 vis-a -vis Section 78

Revisionary power of the Commissioner - penalty under Section 78 - Validity of the Commissioner initiating revision under Section 84(1) to impose penalty under Section 78 after the Order in Original was passed - HELD THAT: - The Tribunal examined whether the Commissioner could, in exercise of revisionary power, initiate proceedings under Section 84(1) after the Deputy Commissioner's Order in Original and impose penalty under Section 78. Having considered the authorities relied upon by the appellant and the factual posture where the Deputy Commissioner had already passed the Order in Original and imposed penalties under Sections 76 and 77, the Tribunal held that the impugned exercise of revision was not sustainable. The Commissioner's action in issuing the Section 84 notice after a lapse of 23 months and imposing penalty under Section 78 in revision was set aside as not tenable in law in the circumstances of the case. [Paras 6]

Impugned revisionary order imposing penalty under Section 78 was quashed and set aside.

Natural justice - opportunity of hearing - Whether the Commissioner's ex parte imposition of penalty complied with principles of natural justice - HELD THAT: - The Tribunal noted that the Commissioner imposed penalty without granting the appellant an opportunity of hearing. Applying the principles of natural justice and following the line of authorities cited by the appellant, the Tribunal found that passing the impugned order ex parte violated the appellant's right to be heard. That procedural defect contributed to invalidating the impugned order. [Paras 6]

Order passed without hearing was found to be contrary to principles of natural justice and was set aside.

Concurrent penalties under Sections 76 and 77 vis-a -vis Section 78 - Sustainability of imposing penalty under Section 78 when penalties under Sections 76 and 77 had already been imposed by the Deputy Commissioner - HELD THAT: - The Tribunal considered the contention that imposition of penalty under Section 78 was impermissible in view of penalties already levied under Sections 76 and 77 by the Deputy Commissioner. Having regard to the authorities placed before it and the facts that penalties under Sections 76 and 77 had been imposed in the Order in Original, the Tribunal concluded that the Commissioner's subsequent imposition of a penalty under Section 78 in revision was not sustainable. [Paras 6]

Penalty under Section 78 imposed in revision was held not sustainable in the facts and was set aside.

Final Conclusion: The impugned order dated 04 07 2011 imposing penalty under Section 78 in exercise of revisionary jurisdiction and passed ex parte is quashed; the appeal is allowed and the order set aside with consequential relief, if any.

Penalty under section 11AC for short-levy or non-levy of duty - Recovery of duty under section 11A and extended limitation for fraud, collusion or wilful mis-statement or suppression of facts - Interest liability under section 11AB - Mens rea as a condition for invoking penalty - Effect of payment of differential duty before or after show-cause notice on liability to penalty - Scope and construal of Dharamendra Textile Processors decision

Penalty under section 11AC for short-levy or non-levy of duty - Mens rea as a condition for invoking penalty - Whether penalty under section 11AC is attracted only when the short-payment/non-payment of duty is by reason of fraud, collusion, wilful mis-statement or suppression of facts (i.e., requires a finding of deliberate deception). - HELD THAT: - The court held that section 11AC predicates liability on the existence of the conditions expressly stated in the provision - namely non-payment or short-payment of duty by reason of fraud, collusion, wilful mis-statement or suppression of facts, or contravention of the Act/rules with intent to evade duty. Penalty under section 11AC is therefore punitive and applies where there is deliberate deception; the provision does not automatically apply to every case of non-payment or short-payment absent those conditions. The court analysed the scheme of section 11A and section 11AC and observed that both use identical qualifying expressions, so the extended limitation and the imposition of penalty turn on the same set of facts and findings that establish intentional evasion. [Paras 16, 18, 19]

Penalty under section 11AC applies only where the conditions of deliberate deception (fraud, collusion, wilful mis-statement or suppression of facts, or contravention with intent to evade duty) are established.

Effect of payment of differential duty before or after show-cause notice on liability to penalty - Recovery of duty under section 11A and extended limitation for fraud, collusion or wilful mis-statement or suppression of facts - Whether payment of the differential duty before or after service of notice precludes imposition of penalty under section 11AC or alters liability to penalty. - HELD THAT: - Relying on the exposition of section 11A and 11AC, the court held that timing of payment - whether made before or after the issuance of notice - does not per se alter liability to penalty. The court referred to the explanations in section 11A (noting that payment before notice may nonetheless be subject to interest and, in cases of intentional escape, the proviso excludes the benefit) and to the express conditions in section 11AC, observing that payment alone is not determinative of the question whether the statutory conditions for penalty are satisfied. Thus payment of the differential duty does not automatically negate the applicability of section 11AC if the statutory conditions are otherwise made out. [Paras 15, 21]

Payment of duty before or after service of notice does not, by itself, preclude imposition of penalty under section 11AC; liability depends on whether the statutory conditions for penalty are established.

Scope and construal of Dharamendra Textile Processors decision - Mens rea as a condition for invoking penalty - How the Supreme Court's decision in Union of India v. Dharamendra Textile Processors is to be understood in relation to the applicability and quantification of penalty under section 11AC. - HELD THAT: - The court clarified that Dharamendra Textile must be read as holding that once the conditions of section 11AC are satisfied (i.e., the statutory mens rea/conditions are established), the authority has no discretion in quantifying the penalty - it must be equal to the duty determined under section 11A (subject to provisos). The High Court rejected the Revenue's submission that Dharamendra Textile meant section 11AC applies automatically in every case of non-payment or short-payment regardless of the section's conditions. The Bombay High Court accepted the narrower reading: section 11AC's applicability depends on the specific conditions in the section; Dharamendra Textile governs the quantification/discretion aspect once applicability is established. [Paras 19, 20, 23]

Dharamendra Textile holds that penalty, once the section's conditions are met, must be imposed as prescribed (no discretion in quantification); it does not dispense with the requirement that the statutory conditions (mens rea) for attracting section 11AC be proved.

Standards of appellate interference with tribunal factual findings - Penalty under section 11AC for short-levy or non-levy of duty - Whether the tribunal's factual conclusion - that there was no willful mis-statement or suppression by the assessee and hence no penalty or interest recoverable - was vitiated by legal error warranting reversal. - HELD THAT: - The court examined the tribunal's finding that the assessee was not aware of end-use at the time of clearance, that the assessee later offered to pay the differential duty and that there was no element of malafide or organised evasion. Having interpreted the applicable law (including the correct scope of Dharamendra Textile and the statutory tests in sections 11A/11AC/11AB), the High Court found no perversity or error of law on the face of the record in the tribunal's order. Consequently, and in view of the Supreme Court's clarifications, the tribunal's decision quashing the show-cause and not imposing penalty or interest was not disturbed. [Paras 12, 17, 22]

The tribunal's factual and legal conclusion that penalty and interest were not recoverable in the circumstances is not vitiated by any error of law and is upheld.

Final Conclusion: The appeal is dismissed; the tribunal's finding that penalty and interest were not recoverable on the facts before it is upheld, the court clarifying that section 11AC requires proof of the statutory conditions of deliberate deception for its application and that Dharamendra Textile governs quantification once those conditions are established.

Cenvat credit by job-worker - availability of cenvat credit under Rule 3 and Rule 6 of Cenvat Credit Rules, 2002 - job work under Notification No.214/86 dated 25.03.1986 - precedential value of Larger Bench decision in Sterlite Industries (I) Ltd. - follow-up Tribunal decisions applying Sterlite principle

Cenvat credit by job-worker - availability of cenvat credit under Rule 3 and Rule 6 of Cenvat Credit Rules, 2002 - precedential value of Larger Bench decision in Sterlite Industries (I) Ltd. - Entitlement of the job-worker to avail cenvat credit on furnace oil used in the process of converting ingots into TMT bars, where the goods are returned to the principal and duty is discharged by the principal. - HELD THAT: - The appellants, acting as job-worker under Notification No.214/86, availed cenvat credit on furnace oil used in heating MS ingots during manufacture of TMT bars which were returned to the principal manufacturer. The Department denied credit on the ground that no excise duty was paid by the job-worker on the outward clearance. The Tribunal examined the Larger Bench decision in Sterlite Industries (I) Ltd., and subsequent Tribunal decisions applying the same principle, holding that a job-worker who receives goods from the principal and performs manufacturing operations without clearing the goods on his own account is entitled to take credit of inputs and input services used in the job work, where the final duty is discharged by the principal. Applying that precedent to the facts, the Tribunal concluded that the appellants were entitled to the cenvat credit claimed on furnace oil and that the impugned denial could not be sustained. [Paras 3, 4, 5]

Denial of cenvat credit on furnace oil was set aside and the appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that the job-worker was entitled to cenvat credit on furnace oil used in the manufacturing job-work where the final excise duty was discharged by the principal; the impugned orders were set aside.

Exemption for captive inputs under Notification No. 67/95-CE - obligation under Rule 6 of the CENVAT Credit Rules - disapplication of exemption where final products are exempt unless Rule 6 obligation discharged - captively consumed intermediate goods

Exemption for captive inputs under Notification No. 67/95-CE - obligation under Rule 6 of the CENVAT Credit Rules - captively consumed intermediate goods - entitlement to Notification No. 67/95-CE exemption in respect of packing boxes captively consumed in manufacture of final products exempt under Notification No. 10/2003-CE and whether the appellant discharged the obligation under Rule 6 so as to preserve that exemption - HELD THAT: - The Tribunal examined the proviso to Notification No. 67/95-CE which excludes inputs used in the manufacture of final products that are wholly exempt unless the manufacturer discharges the obligation prescribed in Rule 6 of the CENVAT Credit Rules. Rule 6 contains alternative requirements: sub-rule (1) bars allowance of CENVAT credit on inputs used for exempted goods, while sub-rule (2) prescribes accounting and other conditions where the manufacturer avails credit and manufactures both dutiable and exempt goods. In the present case it is an undisputed fact that the appellant did not avail CENVAT credit on any inputs used in the manufacture of either the final products or the packing boxes. Consequently the appellant complied with Rule 6(1) and was not required to meet the conditions of Rule 6(2). The lower authority's reasoning - that non-fulfilment of Rule 6(2) prevented the exemption - was incorrect because Rule 6(2) is applicable only where credit has been availed; Rule 6(1) is the relevant and satisfied provision here. Applying that determinative legal principle, the Tribunal held that the appellant had discharged the requisite obligation and therefore was entitled to the exemption under Notification No. 67/95-CE in respect of the captively consumed packing boxes.

The exemption under Notification No. 67/95-CE applies to the packing boxes used captively, since the appellant did not avail CENVAT credit and thus complied with Rule 6(1); the impugned order is set aside and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that where no CENVAT credit has been availed the requirement of Rule 6(1) is satisfied and the exemption under Notification No. 67/95-CE is available to captively consumed packing boxes used in manufacture of exempt final products.

Unaccounted manufacture and clandestine removal - admissibility of circumstantial evidence - preponderance of probability - penalty under Rule 173Q read with Section 11AC - penalty under Rule 209A - remand for fresh adjudication - refund and interest on refund

Unaccounted manufacture and clandestine removal - admissibility of circumstantial evidence - preponderance of probability - penalty under Rule 173Q read with Section 11AC - penalty under Rule 209A - Findings of clandestine manufacture and clandestine clearance without payment of Central Excise duty sustained and consequential duty and penalties held recoverable/imposed - HELD THAT: - The Tribunal concluded that the department discharged its burden by adducing contemporaneous third party transport documents, money receipts, crossing account statements and statements under Section 14 which, taken together, established clandestine manufacture and clearance of Mahak brand gutkha. The Tribunal applied the yardstick of preponderance of probability and accepted circumstantial evidence and admissions (including admission of clearance of seized bags and payment of duty for seized goods) as sufficient to sustain the charge without mathematical precision. On that basis the Tribunal held the duty demand recoverable and imposed penalties: duty and penal demand in terms of the Show Cause Notice sustained; a penalty equivalent to the duty under Rule 173Q read with Section 11AC; and individual penalties under Rule 209A on responsible persons in accordance with their roles. [Paras 11, 12, 13, 16, 17]

Demand for Central Excise duty in the show cause notice is held recoverable from M/s S.K. Industries and penalties are imposed as specified in the order.

Remand for fresh adjudication - refund and interest on refund - Order granting interest on refund (appeal E/881/2007) is remanded for fresh decision by Commissioner (Appeals) - HELD THAT: - As the refund of Rs. 6 lakhs arose from the adjudication order whose validity the Tribunal is setting aside in the main appeals, the Tribunal directed that the question of interest granted by the Commissioner (Appeals) be reconsidered afresh by the Commissioner (Appeals) in light of the Tribunal's findings in the main appeals, after giving personal hearing to the respondent. The remand is directed to ensure consequential decision consistent with the Tribunal's determinations. [Paras 18]

Appeal E/881/2007 allowed by way of remand to the Commissioner (Appeals) for fresh decision within four months after personal hearing.

Remand for fresh adjudication - refund and interest on refund - Order allowing refund (appeal E/1109/2008) is remanded to the Commissioner for de novo adjudication in terms of the Tribunal's decision in the main appeals - HELD THAT: - The Tribunal observed that the refund claim and its allowance flowed from the adjudication order being set aside; accordingly, the grant of refund must be examined afresh by the Commissioner in the light of the Tribunal's determinations on clandestine clearances and related findings. The Commissioner is directed to hear the respondent personally and decide de novo. [Paras 20]

Appeal E/1109/2008 remanded to the Commissioner for fresh de novo adjudication after personal hearing.

Final Conclusion: The Tribunal sets aside the adjudication insofar as it had earlier dropped the duty demand, holds that the department established clandestine manufacture and clearance on the preponderance of probability and sustains the duty and penalties as indicated; consequentially, appeals concerning prior grants of refund/interest are remanded to the appropriate appellate authority for fresh decision in accordance with the Tribunal's findings.

Transaction value and retrospective price escalation - proviso to Section 11A(1) of the Central Excise Act relating to extended period assessment - penalty under Section 11AC of the Central Excise Act - interest under Section 11AB of the Central Excise Act - absence of malafide intention / intention to evade duty - supplementary invoice / enhanced value raised after clearance

Penalty under Section 11AC of the Central Excise Act - absence of malafide intention / intention to evade duty - supplementary invoice / enhanced value raised after clearance - Whether penalty under Section 11AC was exigible where duty became payable on retrospectively escalated prices after clearance of goods. - HELD THAT: - The Tribunal found no dispute that duty was payable on the escalated value, but concluded that the escalation occurred subsequent to clearance and the assessee had no knowledge of the differential value at the time of clearance. The assessee had paid duty on the transaction value prevailing at clearance and thereafter did not resist the demand. Given that the chargeability of interest on such escalation is a debatable question then pending reference to a Larger Bench of the Supreme Court, and there being no evidence of mala fide intention to evade duty, the requisites for invoking penalty under Section 11AC were not satisfied. Reliance on a remand order in BIL Metal Industries was examined and, on reading, the High Court decided the question of levy of interest on payment after issuance of supplementary invoices but did not make an explicit finding sustaining penalty; accordingly that authority did not compel a contrary result on penalty in the present facts. On these bases the Commissioner (Appeals) was right to set aside the penalty imposed by the original adjudicating authority.

Penalty under Section 11AC set aside as there was no mala fide intention to evade duty and the enhanced value arose after clearance.

Final Conclusion: The appeal by the Revenue is dismissed; the order of the Commissioner (Appeals) setting aside the penalty under Section 11AC is upheld while the demands for duty and interest, which were not contested in this appeal, remain unaffected.

Pre-deposit - refund of pre-deposit - principle of unjust enrichment - prospective operation of statute - passing on of duty / burden to prove

Pre-deposit - refund of pre-deposit - passing on of duty / burden to prove - Entitlement to refund of amount paid through TR-6 challan on 05.12.1986 which was a pre-deposit during pendency of writ proceedings. - HELD THAT: - The Tribunal found that the amount deposited on 05.12.1986 was a pre-deposit made while the show cause notice was under challenge before the High Court and was not a payment of duty at the time of clearance nor a duty finally determined payable by adjudication. Consequently, the requirement to demonstrate that the incidence of duty was not passed on to customers (as argued by the revenue by reference to balance-sheet evidence) did not arise. The payment being a pre-deposit made in the context of judicial proceedings falls for treatment as refundable subject to law, and the Commissioner (Appeals) correctly found absence of evidence that the deposit had been appropriated by the appellants as duty.

Refund of the pre-deposit is permissible; the revenue's objection based on failure to prove non-passing-on of duty is unsustainable.

Principle of unjust enrichment - prospective operation of statute - Applicability of the principle of unjust enrichment (as enacted in 1991) to the deposit made in 1986. - HELD THAT: - The Tribunal held that the statutory provisions embodying the principle of unjust enrichment were enacted in 1991 and have no retrospective effect. Since the deposit was made in 1986 and was not paid as duty determined by adjudication, the principles of unjust enrichment could not be applied to deny the refund. The Tribunal therefore rejected the revenue's attempt to invoke unjust-enrichment doctrine against a pre-1991 deposit.

Unjust-enrichment provisions enacted in 1991 are not applicable to the 1986 pre-deposit; refund cannot be denied on that ground.

Final Conclusion: The appeal is dismissed; the amount deposited on 05.12.1986 being a pre-deposit is refundable and cannot be withheld on the basis of unjust-enrichment provisions enacted in 1991 or for failure to demonstrate non-passing-on of duty; respondents are entitled to consequential relief as per law.

Validity of show cause notice - requirement of intelligible show cause notice - failure to disclose grounds in show cause notice - vagueness doctrine - invocation of extended period under Section 11A of the Central Excise Act, 1944 - setting aside proceedings for non compliance with minimum statutory particulars

Validity of show cause notice - requirement of intelligible show cause notice - failure to disclose grounds in show cause notice - vagueness doctrine - The show cause notice issued to the appellant was void for vagueness and did not disclose the factual or legal basis for the demand. - HELD THAT: - The show cause notice and its annexure failed to set out the facts and the provisions of law on which the Revenue concluded that differential duty was payable for the years 1985-86 and 1986-87. A person called upon to show cause must be able to understand the contentions of the Revenue; the impugned notice did not reveal the basis for the alleged demands and therefore was vague and did not make sense on its face. The original authority also did not record any finding on whether the appellant had obtained the requisite licence in the meantime. For these reasons the proceedings arising from the impugned notice were held to be vitiated.

Impugned show cause notice quashed; proceedings arising therefrom set aside and the appeal allowed with consequential relief.

Final Conclusion: The Tribunal quashed the impugned show cause notice as vague and non sustainable, set aside the consequent proceedings for the tax periods 1985-86 and 1986-87, and allowed the appeal with consequential relief.

Interpretation of Section 4A of Central Excise Act - valuation under Section 4 of the Central Excise Act - CBEC Circular No.625/16/2002 CX para 6 - application of MRP vs transaction value - proviso to Sub Section 1 of Section 11A - requirement of establishing intention to evade

CBEC Circular No.625/16/2002 CX para 6 - application of MRP vs transaction value - interpretation of Section 4A of Central Excise Act - Applicability of valuation under Section 4A vis a vis Section 4 in light of CBEC Circular dated 28.02.2002 (para 6) for goods not statutorily required to declare MRP. - HELD THAT: - The Tribunal noted Para 6 of Circular No.625/16/2002 CX which clarifies that for goods not statutorily required to declare retail sale price on packages, valuation shall be done under Section 4 (or Section 3(2) where tariff values are fixed), and that the same notified commodity may be partly assessed on MRP under Section 4A and partly on transaction value under Section 4. The appellant had followed this circular in determining value for bulk supplies to institutional consumers. The Tribunal accepted that the circular contemplates mixed modes of assessment and that reliance on the circular for not declaring MRP on the packages in question was a legitimate basis for applying Section 4 valuation rather than assessment solely on MRP under Section 4A. [Paras 3, 5]

The appellant's valuation under Section 4 in accordance with the CBEC circular is permissible and relevant for adjudication of the demand.

Proviso to Sub Section 1 of Section 11A - requirement of establishing intention to evade - Whether the proviso to Sub Section 1 of Section 11A could be invoked without establishing intention to evade payment of duty. - HELD THAT: - The Tribunal observed that the proviso to Sub Section 1 of Section 11A requires a separate and positive finding of intention to evade duty to sustain proceedings under that proviso. Since the appellant had followed the CBEC circular in determining valuation and there was no evidence to establish a deliberate intention to evade payment of central excise duty, the requisite element of intention was missing. In absence of such intention, the show cause notice issued invoking the proviso was held to be unsustainable. [Paras 5]

Invocation of the proviso to Section 11A(1) is not sustainable as intention to evade payment of duty was not established.

Final Conclusion: The impugned show cause notice and consequential Order in Original and Order in Appeal are set aside; the appeal is allowed and the appellant is entitled to consequential relief.

Classification under Central Excise Tariff - Classification of goods as travel goods - Tariff classification of constituent parts of composite product - Imposition and validity of penalty for misclassification - Remand for re-quantification of duty - Followance of Tribunal precedent

Classification under Central Excise Tariff - Tariff classification of constituent parts of composite product - Followance of Tribunal precedent - Classification of the constituent items of 'Synthetic Web Equipment'. - HELD THAT: - The Tribunal applied its prior Final Order in MKU Pvt. Ltd. v. CCE, Kanpur to the facts of the present case and held that four of the constituent items-'Pack with aluminum frame', 'Haversack', 'Pouches Ammunition' and 'Frog Bayonet'-fall within Sub Heading 4202 of the Schedule to the Central Excise Tariff Act, 1985, while the 'Belt Waist' is classifiable under Sub Heading 63.07. The Tribunal treated the earlier decision as squarely applicable and followed it, thereby determining the appropriate tariff headings for each item rather than treating the composite product as uniformly classifiable under a single heading. [Paras 5]

Pack with aluminum frame, Haversack, Pouches Ammunition and Frog Bayonet classified under Sub Heading 4202; Belt Waist classified under Sub Heading 63.07.

Imposition and validity of penalty for misclassification - Remand for re-quantification of duty - Validity of penalties imposed and the course for assessment adjustment following reclassification. - HELD THAT: - On the basis of the reclassification adopted by the Tribunal, the bench found no justification for the penalties earlier imposed on the appellants. The Tribunal set aside the penalties and remanded the matter to the Original Authority with a direction to re quantify the duty in accordance with the classification reached by the Tribunal after affording the appellants an opportunity of hearing. The remand is for computation/quantification of duty pursuant to the Tribunal's classification and not for re-adjudication of classification on merits. [Paras 5]

Penalties set aside; matter remanded to the Original Authority to re quantify duty in accordance with the Tribunal's classification after hearing the appellants.

Final Conclusion: The impugned order is set aside; the Tribunal classifies the specified items as indicated, cancels the penalties, and remands the matter to the Original Authority for re quantification of duty in accordance with this classification after giving the appellants an opportunity of hearing.

Application of Rule 8 of Central Excise Valuation Rules, 2000 - cost of manufacture plus 15% as assessable value - requirement of proforma CAS4 certificate by a registered Cost Accountant - ER-1 return disclosure and bar on invocation of extended period

Application of Rule 8 of Central Excise Valuation Rules, 2000 - cost of manufacture plus 15% as assessable value - requirement of proforma CAS4 certificate by a registered Cost Accountant - Validity of demand under Rule 8 where Revenue did not rely on a CAS4 certificate certified by a registered Cost Accountant - HELD THAT: - The Tribunal held that Rule 8 mandates that where goods are not sold, assessable value for the purposes of Section 4 is to be arrived at on the basis of cost of manufacture with addition of 15%. Board standing instructions require use of proforma CAS4 certified by a registered Cost Accountant when applying Rule 8. In the present case Revenue treated the invoice/stock-transfer value to the Silvasa unit as if it were the cost of manufacture and added 15% without any CAS4 certification. Because the show cause notice did not rely on a CAS4 certificate issued by a registered Cost Accountant, the requirements of Rule 8 and the consequential Board instructions were not complied with and the demand under Rule 8 could not be sustained. [Paras 6]

Demand under Rule 8 set aside as the statutory requirement of CAS4 certification by a registered Cost Accountant was not complied with.

ER-1 return disclosure and bar on invocation of extended period - extended period of limitation / invocation of extended period - Sustainability of invocation of extended period where transactions were disclosed in ER-1 returns - HELD THAT: - The Tribunal noted that all the transactions in question were reported in the assessee's ER-1 returns and subsequently scrutinized. On that basis the Department could not invoke the extended period of limitation. Consequently, reliance on the extended period to justify the show cause notice was unsustainable. [Paras 6]

Extended period could not be invoked as transactions were disclosed in ER-1 returns; show cause notice is time-barred on this ground as well.

Final Conclusion: The appeal is allowed; the Order-in-Original and Order-in-Appeal are set aside because Rule 8 was applied without the mandatory CAS4 certification by a registered Cost Accountant and because the extended period could not be invoked where transactions were disclosed in ER-1 returns.

Inclusion of value of bought-out goods in the assessable value for central excise - independence of ancillary software and bought-out components from the manufactured excisable goods - assessable value for excise duty and application of proviso to Section 11A of the Central Excise Act, 1944 - precedent of PSI Data Systems Ltd. regarding non-inclusion of separately functioning software/accessories in assessable value

Inclusion of value of bought-out goods in the assessable value for central excise - independence of ancillary software and bought-out components from the manufactured excisable goods - precedent of PSI Data Systems Ltd. regarding non-inclusion of separately functioning software/accessories in assessable value - Whether the value of bought-out items (N.M.S. and L.C.T.) supplied along with the respondent's manufactured STM equipment must be included in the assessable value of the STM for central excise duty. - HELD THAT: - The Tribunal accepted the Original Authority's reliance on the Apex Court's ruling in PSI Data Systems Ltd., holding that items which are not integral parts of the manufactured goods and which can function independently or are installed separately need not be treated as part of the assessable value of the manufactured goods. The respondents demonstrated that the N.M.S. and L.C.T. software/hardware are installed separately to monitor the STM system, do not interfere with the normal functioning of the transmission equipment, and that the STM units are capable of functioning without those items. On these facts and the authoritative precedent, the Tribunal found no merit in Revenue's contention that the value of the bought-out goods should be included in the assessable value of the STM.

Revenue's appeal dismissed; demand set aside and respondents entitled to consequential relief; cross objections disposed of.

Final Conclusion: The Tribunal upheld the order of the Original Authority, rejecting Revenue's claim to include the value of separately functioning bought-out items in the assessable value of the manufactured STM equipment and dismissing the appeal while allowing consequential relief to the respondent.

Assessable value - inclusion of job work value in valuation of manufactured goods - job work under Notification No.214/1986 - exemption to job worker - principal manufacturer's liability for payment of duty - transactions completed by endorsement on challans

Inclusion of job work value in valuation of manufactured goods - assessable value - job work under Notification No.214/1986 - principal manufacturer's liability for payment of duty - transactions completed by endorsement on challans - Whether value of goods received by the appellant for job work (returned on 57F4 Challans) can be included in the assessable value of the outer component manufactured and cleared by the appellant for the periods in dispute - HELD THAT: - The Tribunal examined the statutory and regulatory treatment of job work and the procedure under Notification No.214/1986. The law recognises job work as a distinct operation and provides an elaborate procedure under the notification, including exemption to the job worker and responsibility upon the principal manufacturer for payment of duty on goods emerging from job work. Goods returned to the principal by endorsement on the challans complete the transaction under the notified procedure. There is no provision in the Central Excise law permitting inclusion of the value of goods received for job work (and returned on challans) into the assessable value of goods manufactured and cleared by the manufacturer. The case law relied upon by the Department was not found to be squarely applicable to these facts. Applying these legal principles to the material before it, the Tribunal concluded that the demands and consequential penalties and interest founded on including job work value in the assessable value were unsustainable.

Show cause notices and consequential orders demanding excise duty by including the value of job work in the assessable value are not sustainable; the appeals are allowed.

Final Conclusion: The appeals are allowed; the demands, penalties and interest based on inclusion of job work value in the assessable value are set aside with consequential relief, if any.

Part-payment in stay applications - interim stay - prima facie findings and provisional nature of interim orders - maximum retail price and tax component - sale during course of medical treatment - expeditious disposal on remand by first appellate authority

Part-payment in stay applications - interim stay - prima facie findings and provisional nature of interim orders - Validity of the Tribunal's order deleting interest and fixing the part-payment amount as security at the interim stage - HELD THAT: - The Tribunal, on the stay application, reduced the part-payment fixed by the First Appellate Authority and deleted the interest component, directing only the tax component to be secured. The High Court held that the Tribunal's observations on the tax component were tentative and prima facie, recorded at the interlocutory stage, and were not conclusive for final adjudication. The Court found no basis to conclude that those interim observations raise a substantial question of law warranting interference with the Tribunal's conditional order. Consequently the Tribunal's exercise in fixing the reduced part-payment and deleting interest was upheld as interlocutory protection subject to final adjudication on merits. [Paras 5, 9, 11]

Appeal dismissed insofar as it challenges the Tribunal's interim determination of the part-payment and deletion of interest; the interim order stands.

Maximum retail price and tax component - sale during course of medical treatment - Whether medicines supplied to in patients from a hospital pharmacy constitute a sale and whether the MRP prima facie includes VAT - deferred for final adjudication - HELD THAT: - The Court declined to pronounce finally on the legal question whether the inclusion of tax in the MRP necessarily signifies inclusion of VAT or whether supply of medicines to in patients during treatment amounts to a sale. It held that these are fact sensitive questions requiring full consideration at the final hearing and observed that the Tribunal's interim remark that tax is prima facie included in the MRP is provisional. The Court noted precedents relied upon by the parties but refrained from deciding their applicability to the present facts, directing that such issues be determined by the Tribunal/First Appellate Authority at the final hearing. [Paras 8, 9, 10, 12]

Issue not finally adjudicated; remitted for consideration on merits by the adjudicating authority at final hearing.

Expeditious disposal on remand by first appellate authority - Direction for expeditious disposal by the First Appellate Authority - HELD THAT: - Recognising that the matter concerns a hospital and that similar issues may arise with advancing medical practice, the Court directed that the First Appellate Authority give priority to the matter and decide it expeditiously. While no outer time limit was fixed by the Court, it expected the First Appellate Authority to decide the issue within three months from receipt of the order. The Court also extended the time for depositing the amount by four weeks to enable compliance with the interim direction. [Paras 12]

Matter remitted for expeditious disposal by the First Appellate Authority; time to deposit extended by four weeks.

Final Conclusion: The appeal is dismissed; the Tribunal's interim order reducing the part payment and deleting interest is affirmed as an interlocutory protection, questions regarding MRP, VAT and sale during medical treatment are left for final adjudication and the matter is remitted for priority disposal by the First Appellate Authority within the period indicated by the Court.

Entry Tax on goods purchased through electronic commerce portals - Constitutional validity - Reduction in tax liability - Set-off of Central Sales Tax - Inter-state trade or commerce - Procedure for claiming reduction under Rule 5 - Relegation to appropriate authority for verification of CST payment

Entry Tax on goods purchased through electronic commerce portals - Constitutional validity - Validity of the Gujarat amendments and notifications seeking to levy Entry Tax on goods purchased by individual consumers through electronic commerce portals for personal use and consumption. - HELD THAT: - The High Court, in view of the Nine-Judge Bench decision of the Supreme Court in Jindal Stainless Limited, held that the challenged provisions of the Gujarat Tax on Entry of Specified Goods into Local Areas (Amendment) Act, 2016 and the associated notifications and rules are intra vires. The court applied the authority of the Apex Court to conclude that the levy of entry tax on such goods is constitutionally valid and therefore the writ petitions challenging the levy on this ground must fail. [Paras 5, 9]

The constitutional challenge to the levy of Entry Tax on goods purchased through electronic commerce portals is dismissed and the relevant provisions are upheld as constitutionally valid.

Reduction in tax liability - Set-off of Central Sales Tax - Inter-state trade or commerce - Procedure for claiming reduction under Rule 5 - Relegation to appropriate authority for verification of CST payment - Whether importers/petitioners who have already paid Central Sales Tax (CST) on specified goods are entitled to reduction/set-off of Entry Tax under Section 4(2) of the Entry Tax Act, 2001 and the manner of claiming such benefit under Rule 5. - HELD THAT: - The court interpreted and applied sub-section (2) of Section 4 of the Entry Tax Act, 2001 and Rule 5 of the Entry Tax Rules, 2001, noting that those provisions provide for reduction of Entry Tax to the extent of CST paid on goods purchased in the course of inter-state trade or commerce, subject to prescribed conditions. The judgment records that the Apex Court's observations in Jindal Stainless Limited also address this situation. The petitioner/importer must prove payment of CST and comply with Rule 5 by producing the purchase invoice and/or vendor declaration and copies thereof (and supporting challans), after which the assessing/appropriate authority must consider the claim and give effect to any reduction permissible under law. [Paras 6, 7]

Petitioners are relegated to make appropriate claims before the appropriate authority; upon satisfying the conditions and proving payment of CST as required by Rule 5, the authority shall consider and grant reduction/set-off in accordance with Section 4(2) and Rule 5.

Final Conclusion: The petitions challenging the constitutional validity of the Gujarat amendments and notifications imposing Entry Tax on goods procured via electronic commerce portals are dismissed; petitioners who have paid CST may claim reduction/set-off under Section 4(2) and Rule 5 by approaching the appropriate authority with requisite proof, which must be considered in accordance with law.

Refund of excess entry tax - adjustment of entry tax against sales tax liability - payment of entry tax from own funds not collected from customers - speaking order - opportunity of personal hearing - contempt for non-compliance of court order

Refund of excess entry tax - payment of entry tax from own funds not collected from customers - adjustment of entry tax against sales tax liability - speaking order - opportunity of personal hearing - Respondent to consider petitioner's application for refund of excess entry tax paid and pass a speaking order after giving an opportunity of personal hearing. - HELD THAT: - The petitioner, a dealer importing tractors into Tamil Nadu from its Haryana factory, paid entry tax at the specified rate and states the tax was borne from its own funds and not collected from customers. Under the Entry Tax Act, where entry tax is paid and Section 4(1) is applied, the corresponding liability under the sales tax enactments is to be adjusted and any excess entry tax paid is refundable. This Court had earlier set aside the respondent's refusal and remitted the matter for fresh consideration, but the respondent failed to comply within the directed time. The reasons recorded by the respondent in its internal instructions - that related appellate proceedings or constitutional challenges were pending - were found not tenable in the circumstances of this case. In view of the petitioner's specific claim that the excess tax was not passed on, and the earlier binding direction of this Court, the respondent is obliged to consider the refund claim on merits, pass a reasoned (speaking) order and afford the petitioner's authorised representative an opportunity of personal hearing before concluding the matter. [Paras 7, 8]

Writ petitions disposed by directing the respondent to consider the refund application on merits, pass a speaking order after giving personal hearing to the petitioner's authorised representative within four weeks from receipt of the order.

Final Conclusion: The respondent is directed to consider and decide the petitioner's application for refund of excess entry tax paid for the specified assessment years, on merits and in accordance with law, after affording a personal hearing to the authorised representative, and to pass a speaking order within four weeks.

Determination order under Section 62 - binding effect of a determination on the department and other dealers - tax liability determined by position prevailing at the time of transaction - Commissioner's power to limit retrospective effect under sub section (2) of Section 62

Determination order under Section 62 - tax liability determined by position prevailing at the time of transaction - Commissioner's power to limit retrospective effect under sub section (2) of Section 62 - Whether a subsequent determination order under Section 62 could be applied to determine the tax liability of transactions effected prior to that subsequent determination. - HELD THAT: - At the time of the transactions in 1996-97 the earlier determination dated 22.3.1985 was in force and binding on all, including the department. Liability to pay sales tax arises on the transaction and must be determined by the position prevailing when the transaction occurred. A later determination dated 24.3.1999 could not be applied retrospectively to alter the tax liability of sales that took place prior to that later determination. Applying the subsequent determination to earlier transactions would cause undue hardship to a trader who had charged and paid tax according to the earlier binding determination and would make recovery from consumers impracticable. Sub section (2) of Section 62 expressly contemplates that the Commissioner may direct that a determination shall not affect liability in respect of sales effected prior to the determination, reinforcing that determinations are not to be given retrospective effect to unsettle earlier liabilities. The Tribunal therefore erred in holding that the first determination did not hold the field until the second determination was passed; the subsequent determination could not be used to recharacterise transactions that had already occurred under the earlier binding determination. [Paras 6, 7, 8]

The subsequent determination dated 24.3.1999 cannot be applied to transactions effected in 1996-97 when the earlier determination dated 22.3.1985 was in force; the Tribunal's contrary conclusion is set aside.

Final Conclusion: The appeal is allowed to the extent indicated. The orders of the Assessing Officer, the first appellate authority and the Tribunal insofar as they applied the subsequent determination to the 1996-97 transactions are quashed and set aside; necessary consequential directions follow. No order as to costs.

Prohibition on grant of liquor licences along National and State Highways including stretches within municipal limits - reasonableness of classification between Gaon Panchayat areas and Municipal Corporation/Municipality/Town Committee areas - closure of licensed premises for non-compliance with court directions - re-examination of impugned statutory explanation in light of higher court direction

Closure of licensed premises for non-compliance with court directions - prohibition on grant of liquor licences along National and State Highways including stretches within municipal limits - The petitioner must close his liquor shop situated on the State Highway. - HELD THAT: - The court noted the State Government's order declaring licensed retail IMFL premises situated within 100 metres from the midpoint of National or State Highways closed after licensees failed to shift despite court-granted time. The High Court further observed the Supreme Court's directive dated 15.12.2016 prohibiting States and Union Territories from granting licences for sale of liquor along National and State Highways and that the prohibition extends to stretches of such Highways falling within municipal limits. In view of that position, the court held that the petitioner has no choice but to close his liquor shop on the State Highway and disposed of the writ accordingly.

Petitioner directed to close the liquor shop on the State Highway; writ disposed on that basis.

Reasonableness of classification between Gaon Panchayat areas and Municipal Corporation/Municipality/Town Committee areas - re-examination of impugned statutory explanation in light of higher court direction - The challenge to the constitutional validity of the explanation to Rule 289(2) was not adjudicated on merits but was referred back for reconsideration in light of the Supreme Court's order. - HELD THAT: - The petitioner contested the explanation to Rule 289(2) which exempts parts of National or State Highways situated within Municipal Corporation, Municipality or Town Committee limits from the 100 metre restriction, alleging unreasonable classification vis-a -vis Gaon Panchayat areas. Rather than deciding the validity of that classification, the court observed the recent Supreme Court direction which bars grant of licences along National and State Highways including stretches within municipal limits. In consequence, the High Court recommended that the State Government immediately re-examine the impugned explanation in the light of the Supreme Court's order and refrained from pronouncing a final finding on the constitutional challenge.

Constitutional challenge to the explanation left for re-examination by the State Government in light of the Supreme Court's order; no final adjudication on validity.

Final Conclusion: Writ petition disposed: petitioner directed to close the liquor shop on the State Highway; the State Government is recommended to re-examine the impugned explanation to Rule 289(2) in light of the Supreme Court's directive prohibiting grant of licences along National and State Highways (including stretches within municipal limits), and a copy of the order is to be sent to the Chief Secretary for compliance.