TaxTMI Updates e-Newsletter
Dec 31,2018

Summary order. Special Leave Petition dismissed; all contentions left open for presentation at the appropriate stage in the proceedings; pending applications disposed of.

Deduction under Section 80IB of the Income Tax Act - manufacture - composite contract - design, engineering and fabrication constituting manufacture - dissection of composite contract by Assessing Officer

Deduction under Section 80IB of the Income Tax Act - manufacture - composite contract - design, engineering and fabrication constituting manufacture - Whether the supply, design, installation and commissioning contract constituted a 'manufacture' entitling the assessee to deduction under Section 80IB - HELD THAT: - The Court examined the nature of the contract as a whole and upheld the view of the Commissioner (Appeals) that the contract for design, supply, installation and maintenance was a composite contract whose elements were inextricably linked. The Assessing Officer's approach of severing erection/installation charges from the contract and treating them as non-manufacturing was held to be improper in the absence of materials permitting such dissection. The product was a bespoke system designed and fabricated to customer specifications and became operational only upon installation and commissioning; therefore the designing, engineering and fabrication activities formed part of the manufacturing process. On that basis the CIT(A)'s conclusion that the criteria for relief under Section 80IA/80IB were satisfied was correct and the Tribunal erred in reversing that finding.

CIT(A)'s order allowing deduction restored; Tribunal order set aside and appeal allowed in favour of the assessee.

Final Conclusion: The High Court answered the substantial questions in favour of the assessee, holding that the contract's design, engineering, fabrication and installation were inextricably connected and constituted 'manufacture' for the purpose of deduction under Section 80IB; the CIT(A) order is restored and the Tribunal's reversal is set aside.

Maintainability of appeal against an order passed under Section 250 to the Income Tax Appellate Tribunal - Computation of interest under Section 234-B - Application of the Explanation to Section 140A(1) for appropriation of payments towards interest - Challenge to enhancement of tax/interest liability by way of appeal - Requirement of natural justice when demand is enhanced in consequence of appellate orders

Maintainability of appeal against an order passed under Section 250 to the Income Tax Appellate Tribunal - Challenge to enhancement of tax/interest liability by way of appeal - Whether the appeal filed before the Tribunal was maintainable where the assessee challenged the computation resulting in enhancement of interest although it did not directly contest the charging of interest - HELD THAT: - The Tribunal erred in holding the appeal not maintainable merely because the assessee did not object to the charging of interest per se. The assessee specifically contested the manner of computation which produced an enhancement of interest payable. Reliance upon the principle that waiver or reduction of interest (as such) may not be entertained does not preclude an appeal where the assessee contends there is no liability or where the computation adopted produces an increase in liability. An appeal under the provision permitting appeals against orders passed under Section 250 is therefore maintainable when it impugns the assessment/ computation made by the Commissioner of Income Tax (Appeals) and results in an alleged enhancement of liability. [Paras 7, 8, 9, 12]

The Tribunal was wrong to hold the appeal not maintainable; the appeal is maintainable.

Computation of interest under Section 234-B - Application of the Explanation to Section 140A(1) for appropriation of payments towards interest - Requirement of natural justice when demand is enhanced in consequence of appellate orders - Whether the Explanation to Section 140A(1) should have been applied by the Assessing Officer/CIT(A) to appropriate payments first towards interest and thereafter towards tax, and whether the matter required fresh consideration - HELD THAT: - The Assessing Officer applied the Explanation to Section 140A(1) to appropriate payments against interest first, resulting in a higher interest computation than claimed by the assessee; the CIT(A) upheld applicability but gave no reasons and did not deal with the assessee's contention referring to the relevant provision governing interest computation. The Court found that when an appellate order produces an increased liability, principles of natural justice require that the assessee be given an effective opportunity and that the reasoning for applying the Explanation must be recorded. Because the CIT(A) failed to examine and record reasons on the contention that the Explanation did not apply, and because the computation produced an enhancement, the matter cannot be left undetermined on the present record and requires fresh adjudication on merits. [Paras 6, 10, 11, 12, 13]

The question of applicability of the Explanation to Section 140A(1) and the correct computation of interest under Section 234-B is not finally decided on merits and is remanded to the Commissioner of Income Tax (Appeals) for fresh consideration and decision in accordance with law after giving the assessee an opportunity.

Final Conclusion: The appeal is allowed: the orders of the Tribunal and the Commissioner (Appeals) are set aside; the matter is remitted to the Commissioner of Income Tax (Appeals) for fresh consideration on merits, including the assessee's contention on the Explanation to Section 140A(1) and the correct computation of interest under Section 234-B, to be decided preferably within three months.

Allowability of revenue expenditure - deduction under Section 37(1) of the Income-tax Act - setting up of business versus commencement of business - capitalization to capital work in progress - test of purpose of expenditure - application of Accounting Standard-10

Allowability of revenue expenditure - deduction under Section 37(1) of the Income-tax Act - setting up of business versus commencement of business - capitalization to capital work in progress - Whether the Assessing Officer was justified in disallowing and capitalizing expenses of Rs. 1,00,17,751/- as CWIP instead of allowing them as revenue expenditure under Section 37(1). - HELD THAT: - The Tribunal upheld the first appellate authority's conclusion that the genuineness of the expenditure was not disputed and that the decisive test is whether the business had been set up, not whether any revenue was earned in the year. The Assessing Officer's premise that absence of business receipts in the assessment year precluded allowance was rejected. The Tribunal applied the principle that expenditures incurred after the setting up of business and before actual commencement are allowable as revenue expenses, relying on the line of authority reproduced by the CIT(A). The facts showed the assessee had entered into the development agreement, had significant capital work in progress and had established a marketing centre; accordingly the business was held to be set up. Administrative and other expenses not directly capital in nature were properly charged to the profit and loss account under the appellant's accounting policy (including application of AS-10 for capitalization of project-specific costs) and were thus deductible under Section 37(1). The Tribunal found the case law relied upon by the Revenue inapplicable on facts and concluded there was no justification to interfere with CIT(A)'s deletion of the addition. [Paras 8]

Addition of Rs. 1,00,17,751/- disallowed by AO deleted; expenditure held allowable as business deduction under Section 37(1) and the Revenue's appeal dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal for AY 2012-13, affirming that the expenditures in question are allowable as revenue deductions under Section 37(1) because the assessee's business was set up (though project incomplete) and therefore the AO's capitalization/disallowance was not justified.

Notional interest - loan restructuring agreement - genuineness of transaction / colourable device - burden of proof and evidentiary verification - remand for fresh adjudication

Notional interest - loan restructuring agreement - genuineness of transaction / colourable device - burden of proof and evidentiary verification - remand for fresh adjudication - Whether the addition of notional interest on the loan to M/s Seitz Technologies India Pvt. Ltd. could be sustained or required fresh adjudication in view of the loan restructuring agreement and the parties' contentions - HELD THAT: - The Tribunal found that the Assessing Officer and the Commissioner (Appeals) rejected the restructuring agreement and treated the arrangement as a colourable device on mere surmise without bringing evidence to disprove the assessee's claim. The lower authorities did not examine the impugned Loan Restructuring Agreement or verify the assessee's contention that the loan was made out of reserves and interest-free funds. The Commissioner (Appeals) also dismissed, without cogent reasoning, the assessee's alternate submission on a reduced interest rate. In these circumstances the Tribunal concluded that the matter requires fresh consideration by the Assessing Officer. The AO is directed to adjudicate the issue afresh after examining the original loan agreement and the loan restructuring agreement, affording the assessee opportunity to file evidence in support (including proof regarding source of funds), and to consider the assessee's alternate contention that interest, if any, be computed at 6.75%. The remand is for full evidentiary and legal verification and not for a mere mechanical exercise. [Paras 5]

Issue restored to the Assessing Officer for fresh adjudication in accordance with law after considering the original loan agreement, the restructuring agreement and the evidences to be filed by the assessee; AO to consider alternate contention of 6.75% interest and afford opportunity to the assessee.

Not pressed - Sustained disallowances of bad debts and business promotion expenses - HELD THAT: - The assessee's counsel expressly declined to press grounds relating to the disallowance of bad debts and the disallowance of business promotion expenses. Those grounds were therefore not pursued before the Tribunal and are treated as not pressed. [Paras 5]

Grounds relating to bad debts and business promotion expenses dismissed as not pressed.

Final Conclusion: The appeal is partly allowed for statistical purposes: the addition on account of notional interest is remanded to the Assessing Officer for fresh adjudication after evidentiary verification and consideration of the restructuring agreement and alternate interest contention; other grounds not pressed are dismissed as not pressed.

Beneficial owner - tax residency - Article 11(3) of the India-Sweden Double Taxation Avoidance Agreement - treatment under Article 11 of applicable tax treaties - section 40(a)(i) of the Income Tax Act, 1961 - section 201(1) of the Income Tax Act, 1961 - remand for de novo adjudication

Remand for de novo adjudication - section 201(1) of the Income Tax Act, 1961 - Restoration of the six assessee appeals to the file of the Assessing Officer. - HELD THAT: - The Tribunal accepted the common consent of parties and observed that the question of taxability of interest and related withholding consequences (invoking section 201(1)) had not been examined by the authorities below. In the interests of justice and having regard to the Tribunal's earlier directions in the assessee's own 2007-08 appeal, the Bench restored these six appeals to the file of the Assessing Officer so that the matters may be adjudicated afresh. [Paras 4, 5]

All six appeals are restored to the file of the Assessing Officer.

Beneficial owner - tax residency - Article 11(3) of the India-Sweden Double Taxation Avoidance Agreement - section 40(a)(i) of the Income Tax Act, 1961 - Remand to the Assessing Officer to determine, de novo, whether the payments were taxable in India by reference to beneficial ownership and tax residency and the consequent applicability of section 40(a)(i) and section 201. - HELD THAT: - The Tribunal referred to its earlier reasoning in the 2007-08 decision that ABN Amro had largely acted as a conduit and that the taxability must be examined in light of factual findings on who the beneficial owners of the interest were and the applicable treaty provisions. Noting that the authorities below had not examined these factual and legal aspects, the Tribunal directed the Assessing Officer to identify relevant factual aspects, apply the legal principles set out by the Tribunal, and adjudicate the taxability of the impugned payments and the applicability of section 40(a)(i) and, consequently, section 201, by a speaking order after giving the assessee a further opportunity of hearing. [Paras 4]

The issue of whether the payments are taxable in India (and the resulting consequences under section 40(a)(i) and section 201) is remanded to the Assessing Officer for fresh adjudication de novo.

Final Conclusion: The six appeals are allowed for statistical purposes and are restored to the file of the Assessing Officer for de novo adjudication of the taxability of the impugned payments (including determination of beneficial ownership and tax residency) and the consequences under section 40(a)(i) and section 201, after affording the assessee a fresh opportunity of hearing.

Comparability analysis under TNMM - selection and rejection of comparables - related party transactions threshold for comparability - functional comparability and sectoral differences - working capital adjustment in transfer pricing - risk adjustment in transfer pricing - maintainability of appeal against initiation of penalty proceedings - claim for deduction under section 10A(1A) and belated claim theory

Comparability analysis under TNMM - selection and rejection of comparables - related party transactions threshold for comparability - Inclusion of Engineers India Limited as a comparable - HELD THAT: - The Tribunal considered the parties' contentions and coordinate precedents. On facts before it and following co ordinate decisions of the ITAT, Delhi (including Bechtel India, AT & T Communications, Eli Lilly and others), the Tribunal concluded that Engineers India Limited (EIL) should not be included as a comparable in the appellant's set. The Tribunal relied on findings in those precedents concerning substantial related party/government work, functional dissimilarity on the facts, and the inappropriateness of relying solely on size or high turnover to determine comparability. In absence of any material distinguishing facts placed before the Bench to depart from those decisions, EIL was excluded from the comparable set in the assessee's case.

Engineers India Limited is excluded from the final set of comparables.

Comparability analysis under TNMM - selection and rejection of comparables - functional comparability and sectoral differences - Inclusion of Petron Engineering Construction Ltd. as a comparable - HELD THAT: - The Tribunal examined the TPO/DRP reasoning and the assessee's reliance on the Tribunal's decision in the immediately preceding year (AY 2009 10). Finding no material distinction in facts for the year under appeal, the Tribunal held that Petron is functionally comparable for the purposes of TNMM and directed its inclusion in the final set of comparables, following the coordinate Bench's earlier conclusion in the assessee's own case.

Petron Engineering Construction Ltd. is to be included in the final set of comparables.

Comparability analysis under TNMM - selection and rejection of comparables - outsourcing and functional differences - Mahindra Consulting Engineers Ltd. as a comparable - remand for verification - HELD THAT: - The Tribunal noted that the assessee's immediately preceding year ITAT order remitted Mahindra to the TPO/AO to verify the extent of outsourcing and to exclude Mahindra if substantiated. For the year under appeal the parties had not produced distinguishing material. The Tribunal therefore set aside the question for fresh consideration by the TPO/AO consistent with the earlier Tribunal directions, permitting exclusion if the assessee substantiates that Mahindra's outsourced work materially differentiates its functional profile.

Issue remitted to the file of the TPO/AO for fresh examination of Mahindra Consulting Engineers Ltd.; TPO/AO to exclude it if outsourcing renders it non comparable.

Working capital adjustment in transfer pricing - risk adjustment in transfer pricing - Treatment of working capital and risk adjustments (procedural posture before the Tribunal) - HELD THAT: - The Tribunal reviewed the DRP/TPO discussion but did not disturb the DRP's directions generally: the DRP/TPO had accepted the need for working capital adjustment subject to reliable data and had declined risk adjustment without robust, reliable evidence quantifying how risks affected comparables. The Tribunal did not make a contrary determination on these technical adjustments in the appeal and left the methodology/implementation to the assessing authorities as per the directions given by the DRP and TPO where applicable.

No interference with DRP/TPO approach to working capital and risk adjustments; implementation to follow DRP/TPO directions and verification by authorities where required.

Maintainability of appeal - initiation of penalty proceedings - Challenge to initiation of penalty proceedings under section 271(1)(c) - HELD THAT: - The Tribunal observed that initiation of penalty proceedings under section 271(1)(c) is not an appealable order under section 253 of the Act. Consequently, the ground challenging initiation of penalty proceedings was held not maintainable before the Tribunal.

Ground challenging initiation of penalty proceedings under section 271(1)(c) is dismissed as not maintainable.

Claim for deduction under section 10A(1A) and belated claim theory - procedure for assessment and revised return - Claim for 100% deduction under section 10A(1A) (additional ground) - remand to AO - HELD THAT: - The assessee sought to enlarge its deduction claim from 90% (as originally claimed in the return) to 100% for the first time before the DRP and Tribunal. Following the Supreme Court precedent in Goetze and the principle that a claim for deduction ordinarily must be made in the return/revised return, the DRP had declined the belated claim. The Tribunal, however, admitted the additional ground as raising a pure question of law on facts already on record and, applying National Thermal Power and related principles, remitted the matter to the AO for fresh verification with the assessment records and fresh decision in accordance with law.

Additional ground alleging entitlement to 100% deduction under section 10A(1A) is admitted and the matter is restored to the AO for fresh adjudication after verification of assessment records.

Final Conclusion: The appeal is partly allowed: Engineers India Limited is excluded from the comparable set; Petron Engineering Construction Ltd. is directed to be included; the question of Mahindra Consulting Engineers Ltd. is remitted to the TPO/AO for fresh verification on outsourcing and functional comparability; the ground challenging initiation of penalty proceedings under section 271(1)(c) is dismissed as not maintainable; and the assessee's additional claim for 100% deduction under section 10A(1A) is admitted and remitted to the AO for reconsideration after verification of records.

Rectification of mistake apparent from record - classification of income as business income v. income from other sources - deduction under section 80IB(10) - eligibility for deduction in view of filing of return within due date / section 80AC - power of appellate forum to admit new legal grounds (NTPC principle) - maintainability of cross-objection by revenue challenging its own order - sufficient cause for condonation of delay - doctrine of finality / rectification despite non-appeal (J.M. Bhatia principle)

Rectification of mistake apparent from record - doctrine of finality / rectification despite non-appeal (J.M. Bhatia principle) - Validity and maintainability of the assessee's rectification petition filed under section 154 within time even though the original assessment order was not appealed against - HELD THAT: - The Tribunal held that section 154 permits amendment to rectify a mistake apparent from the record and that a previously un-appealed assessment order does not attain literal finality so as to preclude rectification within the statutory period. The decision in J.M. Bhatia was applied to show that an assessment order remains liable to be modified under rectification provisions if the rectification petition is filed within the prescribed period. The AO's objection based on non-appeal did not bar the rectification petition which was filed within four years from the end of the financial year in which the order was passed. [Paras 13, 14]

Rectification petition filed on 13.04.2016 was within time and maintainable for consideration under section 154.

Classification of income as business income v. income from other sources - deduction under section 80IB(10) - Whether cash receipts shown in seized document as 'cash receipts on sale of TDRs' (Rs. 33.99 crores) were business income and therefore eligible for deduction under section 80IB(10) rather than income from other sources - HELD THAT: - The seized document expressly described the amounts as cash receipts on sale of TDRs and included TDR numbers, area and amounts; the partner admitted these as unaccounted receipts in his search statement and the assessee offered them as income in its return. The Tribunal found the AO ignored relevant material (including details later furnished by the assessee) and failed to apply binding authority that when an assessee has a single project the income unearthed relates to that business. Non-consideration of these materials and of precedent amounted to a mistake apparent from the record. Consequently these receipts should be assessed as business income and qualify for deduction under section 80IB(10) as applied in the jurisdictional precedent. [Paras 19, 23, 24]

Set aside the CIT(A) on this point; directed AO to treat the Rs. 33.99 crores as business income and allow deduction under section 80IB(10).

Classification of income as business income v. income from other sources - deduction under section 80IB(10) - Whether amounts received from M/s Satara Properties India Ltd and M/s Khyati Realtors (aggregating Rs. 25.79 crores) were receipts from sale of TDR and thus business income eligible for section 80IB(10) deduction - HELD THAT: - Material on record (seized MOUs/agreements, seized ledger accounts and the assessee's submissions) established transactions with those parties in relation to sale of TDRs. The AO's contrary inferences ignored these documents and were not supported by the record, constituting a mistake apparent on the face of the record. The Tribunal applied the same reasoning as for the cash receipts on TDR sales and relied on authority holding that receipts unearthed in a single-project situation relate to the business. [Paras 25, 26, 27]

Set aside the CIT(A) on this point; directed AO to assess the Rs. 25.79 crores as business income and allow deduction under section 80IB(10).

Classification of income as business income v. income from other sources - deduction under section 80IB(10) - Whether cash receipts from sale of scrap (Rs. 1.12 crores) were business income and eligible for deduction under section 80IB(10) - HELD THAT: - The assessee offered the amount as income and the seized material identified the source as sale of scrap; the AO had assessed similar scrap receipts as business income in AY 2009-10. The AO's contrary conclusion, suggesting other possible sources without record support (e.g., windmill), ignored the available material and the prior assessment view, constituting a mistake apparent from record. Applying the same principles as for the TDR receipts, the Tribunal concluded the scrap receipts were business income arising from the single project and eligible for section 80IB(10) deduction. [Paras 28, 29, 31]

Set aside the CIT(A) on this point; directed AO to assess the Rs. 1.12 crores as business income and allow deduction under section 80IB(10).

Application of income / work-in-progress treatment - deduction under section 80IB(10) - Whether the disallowance of Rs. 9.00 crores claimed as increase in work-in-progress (application of income) should be rectified so as to secure the assessee the benefit of deduction under section 80IB(10) - HELD THAT: - The assessee had offered the additional income and sought to apply part of it to WIP. The AO disallowed the application for lack of supporting evidence; the Tribunal found that the AO and subsequent authorities failed to consider binding jurisdictional authority on the matter and that non-consideration of such authority and the facts on record amounted to mistake apparent from record. Given that the income was offered and taxed, rejecting the application without applying the relevant precedent would result in incorrect denial of the deduction; accordingly the AO was directed to allow the effect in the computation for section 80IB(10). [Paras 32, 33]

Direct the AO to give effect to the assessee's claim by granting deduction under section 80IB(10) in respect of the disallowance of Rs. 9.00 crores.

Maintainability of cross-objection by revenue challenging its own order - eligibility for deduction in view of filing of return within due date / section 80AC - power of appellate forum to admit new legal grounds (NTPC principle) - sufficient cause for condonation of delay - Whether the revenue's cross-objection (seeking to withdraw the 80IB(10) deduction on the ground that the assessee's purported earlier e-filed return was forged and therefore section 80AC applies) was maintainable and should be admitted despite delay and the fact that it effectively challenged the AO's own earlier allowance - HELD THAT: - The Tribunal observed that an assessing officer is not permitted to appeal against his own order and cannot indirectly achieve by cross-objection what law does not permit directly; the AO had already allowed the deduction twice (original assessment and reassessment) and the matter had been examined by Pr. CIT and CIT(A). The revenue's new contention rested on an allegation of fraud (that the e-acknowledgement of timely filing was forged) which was not established on record and which had not formed part of the assessment documents when the appeal arose; the NTPC principle permits new legal grounds only where facts are on record. Although the revenue sought condonation of delay (and the Tribunal found the CPC delay explanation could constitute sufficient cause), the cross-objection was held not maintainable because it sought to challenge the AO's own prior decision and advanced an unestablished fraud allegation that would raise a fresh legal issue (application of section 80AC) on which conflicting authority exists. The Tribunal also noted absence of recorded sanction/approval for the amended grounds. [Paras 63, 66, 68, 72, 73]

Revenue's cross-objection dismissed as not maintainable; alternative grounds (fraud/section 80AC) not entertained.

Final Conclusion: The Tribunal allowed the assessee's appeal against rejection of its rectification petition and directed the AO to treat the seized receipts (cash TDR receipts, amounts from Satara and Khyati, and scrap sales) as business income and to grant deduction under section 80IB(10), and to give effect to the Rs. 9 crore WIP claim; the revenue's cross-objection challenging the allowance (and relying on an unestablished allegation of a forged e-acknowledgement and section 80AC) was held not maintainable and dismissed.

Stay on recovery of demand - interpretation of the second proviso to Section 254(2A) regarding one-year hearing - constitution and functioning of Special Bench - expeditious disposal of appeals - Third Member references - recording reasons for delay in hearing - limits on adjournments in Special Bench and Third Member cases

Stay on recovery of demand - expeditious disposal of appeals - Extension of stay on collection/recovery of outstanding demands of tax and interest in respect of assessment years 2007-08 and 2008-09. - HELD THAT: - The Tribunal noted that the appeals for assessment years 2007-08 and 2008-09 were referred to a Special Bench and, despite constitution of that Bench, had not been listed for hearing for an extended period. As there was no lapse on the part of the assessee and no change in material facts since the original grant of stay, the Tribunal found it appropriate to extend the existing stay. The extension is limited and conditional: the stay is continued until 180 days from the date of the order or until disposal of the appeals, whichever is earlier. The Tribunal recorded that the stay extension is warranted in light of the inordinate delay attributable to registry/listing and the principle that stay granted appeals should be heard expeditiously. [Paras 1, 2, 8]

Stay on collection/recovery of outstanding demands in relation to AY 2007-08 and AY 2008-09 extended till 180 days from the date of the order or till disposal of the appeals, whichever is earlier.

Constitution and functioning of Special Bench - recording reasons for delay in hearing - expeditious disposal of appeals - Formulation of procedural guidelines to ensure expeditious hearing of matters referred to Special Benches and Third Members. - HELD THAT: - The Tribunal found that inordinate delays in listing and hearing Special Bench and Third Member matters undermined the mechanism's efficacy, particularly where stay had been granted. To address registry and scheduling lapses and to give effect to the legislative intent of timely hearing (as reflected in the second proviso to Section 254(2A)), the Tribunal directed that special benches should, as far as possible, commence hearing within 120 days of their constitution. If commencement is not possible within 120 days for exceptional reasons (for example, directions from higher courts or unavoidable blocking awaiting a higher forum), those reasons must be recorded in brief. The Tribunal emphasised that these cases deserve top priority and directed sincere endeavour for expeditious disposal. [Paras 7]

Guidelines issued that Special Benches should commence hearing within 120 days of constitution and that reasons must be recorded where such commencement is not possible.

Limits on adjournments in Special Bench and Third Member cases - Third Member references - expeditious disposal of appeals - Standards for granting adjournments in Special Bench and Third Member matters and registry's role in scheduling hearings. - HELD THAT: - The Tribunal prescribed that adjournments in Special Bench and Third Member cases should be exceptional and scheduled by the registry in consultation with both parties. Even when adjournment is granted, it should not generally exceed 30 days. The Tribunal required the registry to take up Third Member cases with the respective benches for scheduling in terms of the same guidelines, stressing cooperation of learned representatives and sincere endeavour of stakeholders to achieve the intended results. [Paras 7]

Adjournments in Special Bench and Third Member cases to be exceptional, generally not beyond 30 days, and the registry to schedule hearings in consultation with parties.

Expeditious disposal of appeals - Fixing of the hearing date for the related appeals. - HELD THAT: - With consent of the parties and in open court, the Tribunal scheduled the hearing of the related appeals for 13th February 2019 and directed that, as the date was announced in open court, no formal notices were necessary. This scheduling supported the Tribunal's overarching objective of ensuring prompt hearing of stay-granted appeals. [Paras 8]

Hearing of the related appeals scheduled for 13th February 2019 (date announced in open court; no formal notice required).

Final Conclusion: The applications for extension of stay are allowed: the stay on recovery of the outstanding demands for AY 2007-08 and AY 2008-09 is extended till 180 days from the date of the order or until disposal of the appeals, whichever is earlier; the Tribunal issued binding procedural guidelines to ensure timely commencement and hearing of Special Bench and Third Member matters, limited adjournments, recording of reasons for delay, and directed scheduling of the related appeals for hearing on 13th February 2019.

Long Term Capital Gains exemption under section 10(38) - unexplained cash credit under section 68 - evidence versus suspicion or surmise in tax additions - reliance on investigation reports requires production of underlying material - principles of natural justice - right to cross-examination - burden on Revenue to prove transactions are bogus

Long Term Capital Gains exemption under section 10(38) - unexplained cash credit under section 68 - evidence versus suspicion or surmise in tax additions - burden on Revenue to prove transactions are bogus - Whether the Assessing Officer rightly treated the assessee's claimed LTCG as unexplained cash credit and denied exemption under section 10(38). - HELD THAT: - The Tribunal accepted the documentary proof furnished by the assessee - allotment advice, share application, demat statements, contract notes, bank receipts and audited accounts - and found no cogent material brought on record by the AO to demonstrate that the purchases or sales were sham or collusive. The AO relied on a general investigation report and conjectures about modus operandi and price rigging but did not produce specific evidence linking the assessee to any manipulation or entry operators, nor did he challenge the sale prices or the banking trail. The Tribunal applied the settled principle that additions cannot be sustained on mere suspicion, surmise or generalised investigation reports; Revenue bears the burden of proving that a transaction is bogus and must confront the assessee with the material relied upon. In these circumstances the CIT(A)'s deletion of the addition treating LTCG as unexplained cash credit was upheld.

Addition treating the claimed LTCG as unexplained cash credit is deleted and the exemption under section 10(38) sustained.

Reliance on investigation reports requires production of underlying material - principles of natural justice - right to cross-examination - evidence versus suspicion or surmise in tax additions - Whether the Assessing Officer's failure to furnish investigation material and to allow cross-examination vitiated the assessment. - HELD THAT: - The Tribunal found that the AO relied upon investigation reports and statements not placed before the assessee and denied requests to produce the underlying material or permit cross-examination of persons whose statements formed the basis of adverse conclusions. That denial offended principles of natural justice and impaired the assessee's ability to meet allegations. The Tribunal followed authoritative precedents that third-party statements or investigation material relied upon must be furnished and the assessee given opportunity to controvert them; absence of such compliance renders the assessment unsustainable.

Assessment is vitiated for non-provision of investigation material and denial of opportunity for cross-examination; AO's reliance on such material is untenable.

Final Conclusion: The Tribunal dismissed Revenue's appeal, upholding the CIT(A)'s deletion of the addition: the assessee's LTCG for AY 2014-15 is held to be bona fide and exempt under section 10(38), the AO's action being unsupported by evidence and tainted by denial of requisite investigation material and cross-examination.

Explanation of source of bank deposits - Treatment of peak bank balance and circulation of funds - Double taxation prohibition - Additions under Section 68/69 - Remand for re-examination of HUF deduction claimed against full value of consideration

Explanation of source of bank deposits - Treatment of peak bank balance and circulation of funds - Double taxation prohibition - Deletion of addition of Rs. 72,75,116/- made by AO on account of alleged undisclosed deposits in three bank accounts - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the assessee had satisfactorily explained the source of the credit entries in the three bank accounts by demonstrating circulation of funds originating from compensation amounts received on account of acquisition of land. The CIT(A) examined the individual credit entries, the supporting bank evidence and the assessee's computation of cumulative peak balance (arrived at Rs. 37,14,938/-) and found that this peak balance was covered by initial funds of Rs. 41,74,091/- (the compensation amounts), which had already been considered in earlier assessment proceedings. The Tribunal agreed that the AO erred in mechanically totalling all credits as unexplained without examining each entry on its merits and that re-taxing amounts already assessed would amount to double taxation. Consequently, the addition of Rs. 72,75,116/- was held to be unwarranted and correctly deleted by the CIT(A). [Paras 6]

Addition of Rs. 72,75,116/- deleted; CIT(A) order confirmed on this point.

Additions under Section 68/69 - Sustainment of additions relating to FD investment of Rs. 49,000/- and interest aggregating Rs. 39,829/- - HELD THAT: - The CIT(A) and the Tribunal found that the assessee neither during assessment nor on appeal explained the source of the FD investment of Rs. 49,000/- nor the interest amounts (Rs. 1,261/- and Rs. 38,568/-). As these specific credits remained unexplained, the AO's additions in respect of the FD and the associated interest were upheld. [Paras 4, 6]

Additions relating to FD of Rs. 49,000/- and interest totaling Rs. 39,829/- sustained.

Remand for re-examination of HUF deduction claimed against full value of consideration - Direction to AO to re-examine and take action in respect of the HUF's claim of deduction against full value of consideration for the land - HELD THAT: - While addressing completeness of the order, the Tribunal noted that the HUF had claimed substantial deductions against the sale consideration in AY 2009-10 but subsequently admitted during appellate proceedings that the claimed deduction was wrongly taken because the proposed reinvestment did not materialize. The Tribunal directed the AO, who has jurisdiction over the HUF as well, to reconsider the claim of deduction by the HUF in light of these admissions and to compute the HUF's total income accordingly. This direction constitutes a remand for fresh examination of the HUF's assessment issues; it was not finally adjudicated on merits in the assessee's own assessment for AY 2010-11. [Paras 6]

Matter remanded to AO to re-examine and take action on disallowance of deduction claimed by HUF against the full value of consideration.

Final Conclusion: The Tribunal dismissed the revenue appeal and confirmed the CIT(A)'s deletion of the addition of Rs. 72,75,116/-, sustained the additions relating to the unexplained FD and interest (aggregate sustained), and directed the AO to re-examine the HUF's claimed deductions against the full value of consideration.

Unexplained cash credit - onus to prove source of cash under section 68 - deeming provision of section 68 - deduction as bad debt under section 36(1)(vii) - confirmatory evidence from debtors - precedential effect of earlier Tribunal order

Unexplained cash credit - onus to prove source of cash under section 68 - confirmatory evidence from debtors - precedential effect of earlier Tribunal order - deduction as bad debt under section 36(1)(vii) - Deletion of addition of Rs. 1,89,34,232/- treated as unexplained cash credit and alternative claim for deduction as bad debts - HELD THAT: - The Tribunal examined whether sums shown as realizations from sundry debtors could be treated as explained receipts or, alternatively, whether the corresponding reduction of debtors could be allowed as bad debts. The Tribunal found that the assessee had not produced external confirmatory evidence from the debtors for the cash realizations and that seven notices under section 133(6) had returned unserved; thus the primary onus under section 68 to demonstrate the source of cash was not discharged. The Tribunal nevertheless considered the assessee's alternative plea and precedential decisions of co-ordinate benches. Applying those authorities, and having regard to the books which showed earlier sundry debtors and subsequent reduction of those balances, the Tribunal held that the amounts written off/reduced from debtors in the books could be allowed as bad debts under section 36(1)(vii) (alternative contention). The Tribunal also noted that an earlier order of the Tribunal in the assessee's own case for an earlier year supported treating realizations from debtors as conversion of trading assets into cash, but declined to rely solely on that ground because external confirmations were not before the Bench. On the alternative legal footing of allowance as bad debts the Tribunal found for the assessee and concluded that no addition was sustainable. [Paras 5, 6, 7]

The addition under the unexplained cash credit/head of section 68 is not sustained; on the alternative ground the reduction/write off of sundry debtors is allowable as bad debts under section 36(1)(vii), and the revenue's appeal is dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal for Assessment Year 2008-09, holding that although the assessee failed to discharge the primary onus under section 68 by producing external confirmations, the amounts reflected as reduction/write off of sundry debtors are allowable as bad debts under section 36(1)(vii), and therefore no addition is sustained.

Capitalization of trial run receipts to Capital Work in Progress - book profit computation under section 115JB as a self-contained code - limited jurisdiction of assessing officer to go behind audited company accounts - conformity with mandatory Accounting Standards and approval by auditors, shareholders and Registrar of Companies

Capitalization of trial run receipts to Capital Work in Progress - limited jurisdiction of assessing officer to go behind audited company accounts - book profit computation under section 115JB as a self-contained code - Validly capitalized trial run receipts reduced from Capital Work in Progress need not be added to book profits while computing tax under section 115JB. - HELD THAT: - The Tribunal held that the receipts from trial run operations were inextricably linked to the setting up of the Phase II/III plant and were capitalized in the assessee's audited annual accounts in conformity with mandatory accounting standards, approved by auditors, shareholders and filed before the Registrar of Companies. Relying on the principle that section 115JB is a deeming, self-contained code and that the assessing officer's power is limited to the specific increases and reductions provided in the Explanation thereto, the Tribunal found that the AO exceeded his jurisdiction by adding the trial run receipts back to book profits. The AO's comparison of Phase I receipts with Phase II/III without regard to differing capacities and subsequent higher receipts from Phase II/III was held to be speculative and not a valid basis to disturb the accounting treatment. The Tribunal applied the ratio of the Apex Court in Apollo Tyres and the Bombay High Court in Forever Diamonds to conclude that the AO could not re-open or re-characterise entries certified under the Companies Act except within the narrow limits permitted by section 115JB. [Paras 5, 6, 8]

Addition of trial run receipts of Rs. 42,75,00,000/- deleted and CIT(A)'s order confirmed; Revenue's appeal dismissed on this issue.

Reopening of assessment - Cross-objection by the assessee challenging reopening of assessment was not pressed and therefore dismissed as not pressed. - HELD THAT: - The Tribunal recorded that the assessee's counsel did not argue the ground relating to reopening of assessment and accordingly treated the cross-objection as not pressed. No substantive adjudication on reopening was undertaken for lack of contest by the assessee. [Paras 9]

Cross-objection regarding reopening of assessment dismissed as not pressed; consequential reliefs become infructuous.

Final Conclusion: The appeal filed by the Revenue is dismissed and the order of the CIT(A) deleting the addition of trial run receipts is confirmed; the assessee's cross-objection on reopening is dismissed as not pressed.

Arm's length price adjustment for delayed receivables - Transaction Net Margin Method (TNMM) and inclusion of financial impact in operating margins - internal comparable uncontrolled price (Internal CUP) as defence to separate adjustment - tax withholding obligation arises on payment/receipt triggering royalty under applicable DTAAs - disallowance under section 40(a)(i) for failure to deduct tax at source

Arm's length price adjustment for delayed receivables - Transaction Net Margin Method (TNMM) and inclusion of financial impact in operating margins - internal comparable uncontrolled price (Internal CUP) as defence to separate adjustment - Deletion of ALP adjustment made for delayed realisation of receivables from Associated Enterprise - HELD THAT: - The Tribunal held that where exports to the AE have been benchmarked using TNMM and operating profit (which embeds the financial impact of delayed receivables) has been accepted as arm's length, it is improper to treat delayed realisation as a separate international transaction and make an additional notional interest adjustment. The decision of the coordinate benches and the Delhi High Court were followed to the effect that segregating a financial consequence already reflected in TNMM distorts the ALP computation. Further, because similar extended credit periods were allowed to independent (non-AE) parties, such internal comparables negate a stand-alone adjustment for delayed realisation. On these findings the impugned upward adjustment was deleted. [Paras 6, 7, 8]

Impugned ALP adjustment of Rs. 2,04,090/- on account of delayed realisation is deleted.

Tax withholding obligation arises on payment/receipt triggering royalty under applicable DTAAs - disallowance under section 40(a)(i) for failure to deduct tax at source - Deletion of disallowance under section 40(a)(i) in respect of provision for royalty where tax was deducted on actual payment/activation - HELD THAT: - The Tribunal held that under the relevant DTAAs the taxability of royalty arises on payment to the non-resident, and the obligation to withhold tax is triggered when the royalty becomes exigible (i.e. on activation/payment), not at the time the assessee made a prudential provision. The assessee recognised revenue on sale to distributors but the royalty liability crystallises only upon activation by end-users; tax was in fact deducted when activation occurred. Accordingly, treating the provision as a payment exigible to tax and disallowing the expense under section 40(a)(i) was unsustainable. [Paras 14, 15, 16]

Disallowance under section 40(a)(i) in respect of the royalty provision is deleted.

Final Conclusion: Both grounds of appeal are allowed: the transfer pricing adjustment for delayed receivables is deleted, and the disallowance under section 40(a)(i) in respect of the royalty provision is deleted; the appeal is allowed.

Reopening of assessment - reason to believe - capital gains on sale of agricultural land - measurement of distance from municipal limits for agricultural land exemption - notification specifying municipalities for section 2(14)(iii)(b) - precedent of coordinate bench

Reopening of assessment - reason to believe - Validity of reopening assessment under section 147/148 on the ground that income had escaped assessment. - HELD THAT: - The Tribunal held that reopening was valid because the assessee had sold agricultural land and had not filed any return of income, which gave the assessing officer a reasonable belief that income had escaped assessment. On this factual basis the initiation of proceedings under section 147/148 was upheld. [Paras 9]

Reopening of assessment was valid and ground challenging initiation of proceedings is dismissed.

Capital gains on sale of agricultural land - measurement of distance from municipal limits for agricultural land exemption - notification specifying municipalities for section 2(14)(iii)(b) - precedent of coordinate bench - Whether the land sold was a capital asset liable to capital gains or rural agricultural land exempt by virtue of being beyond eight kilometers from the notified municipal limits. - HELD THAT: - The Tribunal examined the central government notification (SO 9447 dated 6/1/1994) and noted that Loni is not included in the list of municipalities for the State of Uttar Pradesh; therefore distance must be measured from Ghaziabad Nagar Nigam. The record, including the remand report, showed the land lay 17.5 km from Ghaziabad Nagar Nigam and thus beyond eight kilometres; consequently the plot qualified as rural agricultural land and was not a capital asset. The Tribunal also relied on a coordinate-bench decision on an identical issue and observed that the Revenue did not controvert or distinguish that precedent. Following that reasoning, the addition for capital gain was deleted. [Paras 8]

Impugned land is not a capital asset being situated beyond 8 km from Ghaziabad Nagar Nigam; the addition for capital gains is deleted and ground challenging characterization of land is allowed.

Final Conclusion: The appeal is partly allowed: the reopening under section 147/148 is sustained, but on merits the assessment addition for capital gains is deleted because the land is rural agricultural land situated beyond eight kilometres from the notified Ghaziabad municipal limits.

Classification between competing tariff headings - separately defined organic compounds - General Interpretative Rules - dominant constituent principle - goods of marine origin - prohibition on import of goods of marine origin - onus of proof on customs authorities

Classification between competing tariff headings - separately defined organic compounds - General Interpretative Rules - dominant constituent principle - goods of marine origin - Whether the imported product ('squalane oil 80%') is to be classified under the claimed heading in chapter 29 as an acyclic hydrocarbon or as fish body oil under chapter 15, and whether the appellants have disproved that the goods are of marine origin. - HELD THAT: - The Tribunal examined the competing classifications and the applicability of the General Interpretative Rules, noting that chapter 29 is intended for 'separately defined organic compounds' and that the dominance principle applies principally to mixtures. While the presence and predominance of squalane in the samples was not disputed, the source of that squalane (marine v. plant) remained unresolved. The Court held that technical tests guide classification only within limits and that once an article is established in common parlance under a particular entry, that classification should not be lightly displaced. However, because the potential taint of marine origin engages the statutory prohibition on import of goods of marine origin and because the existing laboratory analyses do not conclusively exclude marine origin, the Tribunal could not finally accept the appellants' claim that the goods are non-marine and correctly classifiable under the claimed residual heading without further, definitive testing by an institution with oceanographic expertise. The Tribunal also observed that the appellants had not produced laboratory evidence supporting a plant origin sufficient to explain the reported concentration of squalane, and that the revenue bears the onus to displace the claimed classification but here further testing was necessary to eliminate doubt created by the available reports. [Paras 7, 8, 9, 10, 11]

Findings on classification and source were not finally adjudicated; the Tribunal set aside the impugned order and remanded the matter for further testing to determine whether the goods are of marine origin.

Prohibition on import of goods of marine origin - onus of proof on customs authorities - Whether further administrative steps should be directed to resolve the question of source and the appellants' eligibility under the advance authorization. - HELD THAT: - Given the public policy importance of the statutory prohibition on imports of goods of marine origin and the inadequacy of the existing analyses to eliminate that possibility, the Tribunal concluded that it was necessary to obtain an authoritative test from an institution having expertise in oceanography. The Tribunal therefore remanded the matter to the assessing authority to have appropriate testing undertaken and allowed the importer the liberty to obtain and furnish clarification from the licensing authorities regarding eligibility to import 'squalane oil', even if of marine origin, under the advance authorization. These directions were framed to enable the administration to reach a conclusive determination consistent with statutory prohibitions and the evidentiary record. [Paras 11, 12]

Remanded to assessing authority for authoritative oceanographic testing; importer permitted to procure and furnish licensing clarification on advance authorization eligibility.

Final Conclusion: The Tribunal set aside the impugned order and remitted the matter to the assessing authority for authoritative testing at an institution with oceanographic expertise to determine whether the imported 'squalane oil' is of marine origin; the importer may also furnish clarification from licensing authorities regarding eligibility under the advance authorization, and the appeals were disposed accordingly.

Habeas corpus as a procedural writ - legality of detention at the time of return - jurisdictional validity of arrest by statutory agency - ex post facto extension of investigatory mandate - sanctity of magistrate's remand order - territorial jurisdiction in habeas corpus proceedings - right to insist on strict and scrupulous observance of forms and rules of law

Jurisdictional validity of arrest by statutory agency - ex post facto extension of investigatory mandate - Whether the arrest of the applicants on 10.12.2018, made by SFIO after the period specified in the Competent Authority's order had lapsed and prior to obtaining any extension, was legal and within jurisdiction. - HELD THAT: - The Court found as an admitted fact that the Competent Authority's order dated 20.06.2018 lapsed on 19.09.2018 and that SFIO sought extension only on 13.12.2018 while the Competent Authority granted a retrospective extension on 14.12.2018. In that factual matrix and having regard to the SFIO's own norms requiring completion within the stipulated timeframe, the Court held that the arrest effected on 10.12.2018 lacked legal sanction and suffered from want of jurisdiction. The Court emphasised that a statutory body must be held to the standards by which it conducts itself and that action taken without valid authority cannot be upheld. The Court therefore concluded that the arrest was unlawful and illegal. [Paras 23, 24, 25, 26, 27]

Arrest on 10.12.2018 was without jurisdiction, unlawful and illegal.

Habeas corpus as a procedural writ - legality of detention at the time of return - sanctity of magistrate's remand order - territorial jurisdiction in habeas corpus proceedings - Whether this Court in habeas corpus proceedings may test the validity of remand orders passed by the Magistrate and whether it has territorial jurisdiction to examine remand orders passed in Gurugram when arrest occurred in New Delhi/SFIO office. - HELD THAT: - The Court reiterated that habeas corpus is a procedural writ aimed at inquiring into the legality of detention and that the legality must be judged at the time of return. Authorities establish that a writ of habeas corpus is not ordinarily entertained where detention is by virtue of a remand order that prima facie is not without jurisdiction or wholly illegal. However, where the detention itself is shown to be illegal for want of authority at the relevant time, subsequent remand orders cannot sanitize that illegality. Applying these principles to the facts, the Court held that because the arrest lacked legal sanction when effected and the applicants were arrested at SFIO's New Delhi office, the remand orders passed by the Magistrate in Gurugram could not be allowed to validate the unlawful arrest; further, the remand orders were in any event rendered without jurisdiction to legitimize detention arising from an arrest in Delhi. Hence the Court entertained the habeas corpus challenge and examined the remand orders to the extent necessary to protect personal liberty. [Paras 27, 28, 29, 30, 31]

This Court may examine remand orders in habeas corpus proceedings where detention is shown to be unlawful at the relevant time; the remand orders from Gurugram could not sanctify the unlawful arrest effected in New Delhi.

Right to insist on strict and scrupulous observance of forms and rules of law - legality of detention at the time of return - Relief to be granted in view of the Court's conclusion on illegality of detention. - HELD THAT: - Having held that the arrest and consequent detention were unlawful, and noting lack of material that applicants were flight risks or had criminal antecedents, the Court concluded that continued detention would violate Article 21. The Court therefore directed interim relief in the form of release on bail during pendency of the writ petitions, subject to specified bond, sureties and conditions including territorial restrictions, cooperation with investigation and surrender of passports. [Paras 36, 37, 38, 39, 40]

Applicants released on interim bail on specified bond, sureties and conditions; continued detention found unlawful and cannot be sanctioned.

Final Conclusion: The High Court held that the SFIO's arrest of the applicants on 10.12.2018 was without legal sanction because the Investigating Agency had no valid extension of the Competent Authority's mandate at that time; subsequent remand orders could not cure the illegality, and the habeas corpus petition was entertained. The applicants were directed to be released on interim bail subject to bond, sureties and conditions during the pendency of the writ petitions.

Mediation under Section 442 of the Companies Act, 2013 - Tribunal's suo motu power to refer to Mediation and Conciliation Panel - Appointment of mediators from Central Government's Mediation and Conciliation Panel - Compliance with The Companies (Mediation and Conciliation) Rules, 2016 - Time bound disposal of mediation within three months - Costs and fees to be negotiated and shared equally

Mediation under Section 442 of the Companies Act, 2013 - Tribunal's suo motu power to refer to Mediation and Conciliation Panel - Scope of Section 442 to permit parties to apply for mediation and to empower the Tribunal to refer matters to the Mediation and Conciliation Panel suo motu. - HELD THAT: - The Tribunal construed Section 442 to mean that any party to proceedings before the Tribunal may apply for reference of the matter to the Mediation and Conciliation Panel during the pendency of proceedings. The provision was further read in conjunction with sub section (3) to confirm that the Tribunal also possesses suo motu power to refer any matter pertaining to proceedings to experts from the Panel. The Court noted that Section 442 has been brought into force and that the Central Government has framed rules and notified a Panel, thereby enabling the exercise of these powers in appropriate cases. [Paras 3]

Section 442 authorises party initiated applications for mediation and also empowers the Tribunal to refer matters suo motu to the Mediation and Conciliation Panel.

Appointment of mediators from Central Government's Mediation and Conciliation Panel - Compliance with The Companies (Mediation and Conciliation) Rules, 2016 - Whether, in absence of consensus between parties on a mediator, the Tribunal may appoint mediators from the notified Panel and the nominative exercise permissible under the Rules. - HELD THAT: - Having received sealed lists from both parties which showed agreement on mediation but no common nominee, the Tribunal applied Section 442 and the Companies (Mediation and Conciliation) Rules, 2016 and proceeded to appoint two persons drawn from the notified Panel. The Tribunal recorded that where parties agree to mediation but cannot agree on a mediator, the Tribunal may, utilising the framework established by the statute and rules and the government notified Panel, appoint mediators to conduct the mediation. [Paras 2, 4]

In absence of a common selection by the parties, the Tribunal appointed two mediators from the Central Government's Mediation and Conciliation Panel to conduct mediation.

Time bound disposal of mediation within three months - Costs and fees to be negotiated and shared equally - Directions concerning the procedure, timeline for completion of mediation, commencement period after appointment, and allocation of mediator fees and expenses. - HELD THAT: - Relying on the statutory scheme and the Rules, the Tribunal directed that the appointed mediators shall notify parties of commencement and proceed in accordance with the Companies (Mediation and Conciliation) Rules, 2016, completing mediation within three months from the date of first intimation fixing the mediation talks. The Tribunal further ordered that mediation efforts shall commence within ten days of receipt of the order. As to remuneration and incidental expenses of the mediators, the Tribunal left the matter to negotiation between parties and directed that such fees and expenses shall be borne equally by them. [Paras 5]

Mediation to be conducted under the Rules and completed within three months; mediators to commence within ten days of the order; fees and expenses to be negotiated and shared equally by the parties.

Final Conclusion: Application under Section 442 disposed of by directing reference to mediation: the Tribunal affirmed party and suo motu referral powers under Section 442, appointed two mediators from the notified Panel due to lack of consensus, directed mediation to proceed under the Companies (Mediation and Conciliation) Rules, 2016 to be completed within three months (commencing within ten days of the order), and ordered that mediator fees and expenses be negotiated and shared equally by the parties.

Shareholder rights versus corporate assets - enforceability of shareholders' agreement against transferees - claim for demerger of company asset as proprietary right of shareholder - oppression and mismanagement - board decisions and corporate discretion in respect of company property - access to company information and director's entitlement

Shareholder rights versus corporate assets - Whether a shareholder who acquires shares can claim rights in respect of specific assets of the company or restrict another shareholder's participation in relation to company assets. - HELD THAT: - The Tribunal held that corporate assets belong to the company and shareholders have rights in their shares and not direct proprietary rights in particular assets. Shares cannot be dissected so as to create rights in respect of only a part of company property; control and management flow from shareholding and the rights attached to shares are creatures of the Companies Act and the company's constitutional documents. Accordingly, the appellants' contention that the second respondent's investment was confined to the residential portion and thus could not participate in other assets was rejected as untenable in law. [Paras 26, 27]

The claim that shareholding could be limited to specific company assets was rejected and the argument of the second respondent accepted.

Enforceability of shareholders' agreement against transferees - claim for demerger of company asset as proprietary right of shareholder - Whether the appellants were entitled to specific performance or enforcement of the earlier shareholders' agreement (SHA) or to require a demerger of the commercial portion in their favour after acquiring shares from the original promoters. - HELD THAT: - The Tribunal found that the appellants were not parties to the original SHA and no fresh SHA or agreement was placed on record to establish any vested right in the commercial property. The appellants had themselves stated in earlier correspondence that the SHA had become defunct and the transfer of shares to them was registered; a public company cannot normally refuse registration of transfer. Having acquired the shares and not being parties to the SHA, the appellants could not approbate and reprobate by asserting the SHA's validity selectively. No obligation to demerge the commercial portion in favour of the appellants was shown. [Paras 28, 29]

No relief for specific performance or demerger was available to the appellants; the SHA did not create enforceable rights in their favour after the share transfer.

Oppression and mismanagement - board decisions and corporate discretion in respect of company property - Whether the lease/collaboration with a third party for development of the commercial area and other board decisions by nominee directors amounted to oppressive or prejudicial conduct warranting intervention. - HELD THAT: - The Tribunal examined the minutes and contemporaneous correspondence and noted that the proposal to lease the school building was placed before the board and that the first appellant's objection was recorded. The Tribunal emphasised that the property belongs to the company and corporate decisions about leasing or collaboration are business decisions to be taken in accordance with corporate procedure. Absent a showing of arbitrariness or breach of law, such business decisions do not amount to oppression or mismanagement. The appellants failed to demonstrate any illegality or arbitrariness in the board's conduct. [Paras 30, 31]

The challenge to the master collaboration agreement and leasing was not accepted as oppressive or mismanagement; no interference was warranted.

Access to company information and director's entitlement - oppression and mismanagement - Whether denial of information, keeping of books at a different office, and removal/non re-election of appellant No.1 as director constituted oppression or actionable breaches. - HELD THAT: - The Tribunal observed that the appellants were not specific in their requests and that the first appellant, although invited to board meetings and having interim protection earlier, was not re-elected on expiry of tenure which is a routine corporate matter. Allegations about books being kept elsewhere were negatived on the record that the books were available at the registered office. Operational grievances were regarded as vague and more appropriately addressed by procedures under the Act; no just and equitable or oppressive conduct was established. [Paras 32, 33, 34]

Allegations of denial of information, improper custody of books, and director removal did not amount to oppression; no relief was granted.

Final Conclusion: The appeal was dismissed. The Tribunal found no merit in the appellants' contentions that their shareholding conferred proprietary rights in specific assets, that the SHA entitled them to a demerger, or that the respondents' conduct amounted to oppression or mismanagement; routine corporate decisions and operational grievances did not warrant interference.

Refusal to register transfer of shares - sufficient cause - fiduciary duty of directors - Articles of Association restriction on transfer - Section 58(2) and (4) Companies Act, 2013

Refusal to register transfer of shares - Articles of Association restriction on transfer - Section 58(2) and (4) Companies Act, 2013 - sufficient cause - fiduciary duty of directors - Validity of the Board of Directors' refusal to register transfer of shares to the transferees and whether such refusal was supported by sufficient cause under the Articles and Section 58(4). - HELD THAT: - The Tribunal examined the company's Articles (existing Article 24 and the later-introduced Article 23A) and the pleadings and documentary material showing that the transferees' related companies had board resolutions authorising acquisition of up to 15,000 shares. Although Article 23A (introduced in 2015) might require NCLT approval for conversion, Article 24 - permitting the Board to refuse registration where it considers admission of a transferee undesirable - was always in force as part of the contractual Articles. Section 58(2) recognises free transferability in a public company but Section 58(4) permits refusal for sufficient cause; whether cause is sufficient can be a mixed question of law and fact. Applying these principles, the Appellate Tribunal found that the Board had recorded reasonable apprehensions, supported by the transferees' own resolutions and contemporaneous facts, that the transfers were part of a design to introduce outsiders and effect a gradual increase of stake aimed at destabilising management. The Court concluded that the Board's exercise of discretion was bona fide and in the interests of the company, and that the NCLT's allowance of the petitions lacked adequate reasoning. The appellate court therefore substituted its conclusion that the refusal to register the small transfers was justified on sufficient cause and not arbitrary. [Paras 30, 31, 32]

The appeals are allowed; the impugned NCLT orders directing registration are quashed and set aside and the company petitions are rejected.

Final Conclusion: The Appellate Tribunal held that the Board validly and bona fide exercised its discretion under the Articles and Section 58(4) to refuse registration on sufficient cause arising from credible evidence of an intent to acquire control; the NCLT orders directing registration were quashed and the company petitions dismissed.

Scheme of merger by absorption - appointed date - conduct of business during the interim period - liabilities of transferor companies - binding effect of scheme on transferee - rights of Income Tax Authorities - sanction of scheme

Appointed date - liabilities of transferor companies - binding effect of scheme on transferee - rights of Income Tax Authorities - Appellate Tribunal set aside the NCLT direction changing the appointed date of the sanctioned merger scheme and reinstated the appointed date proposed by the parties. - HELD THAT: - The Tribunal accepted the appellants' statement that the transferor companies were wholly owned subsidiaries of the transferee and that, under clause 6 of the Scheme, the transferors carried on business from the Appointed Date on account of and in trust for the transferee. The NCLT's observation that transactions executed after the proposed Appointed Date (1 April 2017) might place such receipts outside the scrutiny of Income Tax Authorities was overruled. The Tribunal held that the appointed date shall remain 1 April 2017 as proposed by the appellants, and clarified that the scheme does not impede Income Tax Authorities from proceeding against the transferee for tax liabilities of the transferors; if necessary and as per law, authorities may also proceed against erstwhile persons, members or directors of the transferor companies. [Paras 6, 7]

Direction in the impugned order altering the appointed date is deleted; appointed date remains 1 April 2017 and Income Tax Authorities retain their rights to proceed against the transferee and, if required, against former persons associated with the transferors.

Final Conclusion: Appeal allowed; NCLT direction changing the appointed date deleted, appointed date restored to 1 April 2017, with clarification that the scheme does not bar Income Tax Authorities from pursuing liabilities in accordance with law.

Sanction of scheme of merger by absorption - sanction under sections 230 to 232 of the Companies Act, 2013 - transfer of liabilities and duties to resulting company upon amalgamation - compliance with accounting standards for amalgamation - preservation of Income-tax authorities' rights and tax scrutiny - cancellation of shares held by transferee where transferors are wholly owned - dissolution of transferor companies without winding up - lodgement for stamp adjudication and filing with Registrar of Companies - payment of costs to statutory authorities

Sanction of scheme of merger by absorption - sanction under sections 230 to 232 of the Companies Act, 2013 - Sanction of the scheme of merger by absorption of three transferor companies with the transferee company under sections 230-232, 2013. - HELD THAT: - After considering the petition, affidavits of compliance, the reports of the Regional Director and the Official Liquidator and the accounts-examination report of the Chartered Accountants appointed under section 230(5), the Tribunal found the scheme to be fair and reasonable, not violative of law and not contrary to public policy. The Tribunal noted the commercial and administrative benefits from consolidation and accepted the clarifications and undertakings given by the petitioners in relation to statutory and regulatory compliance. On that basis the Tribunal sanctioned the scheme with directions as recorded. [Paras 12]

The scheme of merger by absorption is sanctioned by the Tribunal with directions.

Transfer of liabilities and duties to resulting company upon amalgamation - All liabilities, including taxes, charges and duties of the transferor companies shall stand transferred to and become liabilities of the resulting (transferee) company. - HELD THAT: - In exercise of powers under section 232 and on sanctioning the scheme, the Tribunal directed that liabilities of the demerged/transferor companies shall be transferred to and become the liabilities and duties of the resulting company, thereby preserving third party and statutory claims against the transferor companies in the hands of the transferee. [Paras 12]

Liabilities of transferor companies are transferred to the transferee company pursuant to the sanctioned scheme.

Preservation of Income-tax authorities' rights and tax scrutiny - The appointed date of the scheme is altered so as not to dilute the rights of the Income tax authorities to scrutinise transactions and tax liabilities. - HELD THAT: - The Tribunal observed that certain transfers of rights and receipt of consideration by the transferor companies occurred after the originally proposed appointed date of April 1, 2017; sanctioning the scheme with that appointed date could impede Income tax scrutiny of those transactions. To avoid diluting the rights of Income tax authorities and to ensure tax liabilities may be examined, the Tribunal ordered that the appointed date shall be April 1, 2018, leaving the rest of the scheme intact. [Paras 12]

Appointed date of the scheme fixed as April 1, 2018 (in place of April 1, 2017) to preserve Income tax authorities' rights.

Compliance with accounting standards for amalgamation - The petitioners must comply with applicable accounting standards and certify that the accounting treatment for amalgamation conforms to prescribed standards. - HELD THAT: - Addressing observations of the Regional Director and the Official Liquidator, the petitioners undertook to comply with accounting standards under section 133 and related rules (specifying AS14 with AS5 or IND AS103 with IND AS8 as applicable) and to obtain/statutory audit certification. The Tribunal accepted these undertakings and directed compliance with the accounting standards and related filings. [Paras 12]

Petitioners directed to comply with applicable accounting standards and provide required certification and accounting entries in connection with the amalgamation.

Cancellation of shares held by transferee where transferors are wholly owned - dissolution of transferor companies without winding up - Where entire issued, subscribed and paid up share capital of transferor companies is held by the transferee company, no consideration is to be issued; shares held by the transferee company shall stand automatically cancelled and transferor companies shall be dissolved without winding up. - HELD THAT: - The Tribunal noted that the transferor companies were wholly owned subsidiaries of the transferee; accordingly, on sanctioning the scheme the transferee's shareholding in the transferors would be cancelled and the transferors dissolved without winding up, with no issuance of consideration post scheme effective date. [Paras 12]

Shares held by the transferee shall stand cancelled, no consideration to be issued, and transferor companies shall be dissolved without winding up.

Lodgement for stamp adjudication and filing with Registrar of Companies - payment of costs to statutory authorities - Directions for post sanction compliances: lodgement for stamp adjudication, electronic and physical filing with Registrar of Companies, and payment of costs to the Regional Director and Official Liquidator. - HELD THAT: - The Tribunal directed the petitioners to lodge a certified copy of the order and the scheme with the Superintendent of Stamps within 60 days for stamp adjudication, to file a certified copy electronically and physically with the Registrar of Companies within 30 days using e Form INC 28, and to pay specified costs to the Regional Director and the Official Liquidator within four weeks. The Tribunal also permitted concerned authorities to act on certified copies and reserved liberty to interested persons or authorities to seek further directions. [Paras 12]

Petitioners directed to comply with stamp adjudication and RoC filing requirements and to pay costs to the Regional Director and Official Liquidator as ordered.

Final Conclusion: The Tribunal sanctioned the scheme of merger by absorption subject to the petitioners' undertakings and specific directions: transfer of liabilities to the transferee, compliance with accounting standards, alteration of the appointed date to April 1, 2018 to protect tax scrutiny, cancellation of intra group shares and dissolution of transferors without winding up, lodgement for stamp adjudication, filing with the Registrar of Companies and payment of ordered costs; liberty reserved for interested persons and authorities to seek further directions.

Corporate Insolvency Resolution Process - admissibility of Section 10 application - default under the Code - disqualification under Section 11 - compliance with Section 10(3)(a) and (b) - appointment of Interim Resolution Professional - moratorium under Section 14

Admissibility of Section 10 application - default under the Code - The Section 10 application filed by the corporate applicant is complete and is to be admitted as a petition for commencement of CIRP on account of occurrence of default. - HELD THAT: - The Tribunal found on the material placed before it that the corporate debtor had admittedly committed a default exceeding the statutory monetary threshold. The Code is a self-contained scheme and Section 10(4)(a) mandates admission where the application is complete. Having observed that the application satisfied the statutory requirements and a default had occurred, the Tribunal held that the petition was complete and admitted it for initiation of the Corporate Insolvency Resolution Process. [Paras 8, 14, 15]

The petition under Section 10 is admitted as the application is complete and a default has occurred.

Disqualification under Section 11 - The corporate applicant is not disqualified under Section 11 of the Code from filing and maintaining the Section 10 petition. - HELD THAT: - The applicant affirmed by affidavit that it was not disqualified under the provisions of Section 11 and that no CIRP, liquidation or winding up order had been previously made against it. The Tribunal noted these averments and the absence of any contrary material, concluding that the applicant was eligible to file the Section 10 application. [Paras 9, 12]

The applicant is not ineligible under Section 11 and may maintain the Section 10 petition.

Compliance with Section 10(3)(a) and (b) - appointment of Interim Resolution Professional - The requirements of Section 10(3)(a) and (b) were complied with and the proposed Insolvency Professional is appointed as Interim Resolution Professional. - HELD THAT: - The corporate debtor filed audited financial statements and provisional statements as required by Section 10(3)(a). It also proposed a registered insolvency professional and produced Form-2 confirming his consent and that no disciplinary proceedings were pending, satisfying Section 10(3)(b). On this basis the Tribunal appointed the proposed IRP and directed him to take statutory steps under the Code and to submit an interim report, and to issue notices to creditors. [Paras 10, 11, 17]

Statutory requirements under Section 10(3)(a) and (b) are met; Mr. Gurpreet Singh is appointed as Interim Resolution Professional.

Moratorium under Section 14 - A moratorium under Section 14 is imposed from the date of the order for the duration of the CIRP. - HELD THAT: - Upon admission of the petition, the Tribunal issued the moratorium mandated by Section 14, prohibiting institution or continuation of suits or proceedings against the corporate debtor, transfer or disposal of its assets, enforcement of security interests and recovery of property occupied by the corporate debtor. The Tribunal also recorded ancillary directions regarding supply of essential goods and the statutory exceptions notified by the Central Government. [Paras 16, 18]

A moratorium under Section 14 is declared with effect from the date of the order until completion of the CIRP.

Final Conclusion: The Section 10 petition filed by the corporate applicant is admitted; the applicant was held not to be disqualified under Section 11, statutory compliances under Section 10(3)(a) and (b) were satisfied, Mr. Gurpreet Singh is appointed as Interim Resolution Professional, a moratorium under Section 14 is declared with effect from the date of the order, and the matter is listed for further proceedings.

Summary order. The appeal is dismissed on the ground of delay as well as on merits.

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

Relevant date to be the end of the quarter in which FIRC is received - limitation under Section 11B of the Central Excise Act, 1944 - refund of accumulated and unutilized CENVAT credit under Rule 5 of CENVAT Credit Rules, 2004 - remand to original authority for fresh verification of refund claims - beneficial amendment retrospective application principle

Relevant date to be the end of the quarter in which FIRC is received - limitation under Section 11B of the Central Excise Act, 1944 - remand to original authority for fresh verification of refund claims - Whether the original authority correctly applied the Tribunal's remand directions and the Larger Bench principle in computing the relevant date for refund claims and in allowing or rejecting parts of the appellant's refund claims as time-barred. - HELD THAT: - The Tribunal's remand directed the original authority to reconsider the refund claims in light of its finding that the relevant date is to be computed from the end of the quarter in which the FIRC is received. On remand the original authority conducted verification, sanctioned that portion of the claims found within the period of limitation and rejected the amounts found to be beyond the period prescribed by the Tribunal. The Larger Bench of the Tribunal has held that for export of services where refunds are claimed on a quarterly basis the relevant date for limitation under Rule 5 may be taken as the end of the quarter in which the FIRC is received, applying the principle that beneficial amendments may be given retrospective effect while burdens are prospective. The appellate authority applied these principles and the remand direction to accept timely portions and reject time barred portions. No error in law or in application of the remand and Larger Bench principle is demonstrated on the record before the Tribunal.

The original authority's de novo verification and resultant sanction of in time refund amounts and rejection of time barred amounts (computed with the relevant date as end of the quarter in which FIRC is received) is upheld.

Final Conclusion: The appeals are dismissed; the impugned order upholding the original authority's post remand sanction and rejection of the refund claims (applying the end of quarter FIRC rule for computing limitation) is sustained.

Reverse charge mechanism - insurance agent - insurance auxiliary service - transfer of tax liability to recipient - interpretation of indirect definitions

Reverse charge mechanism - insurance agent - transfer of tax liability to recipient - insurance auxiliary service - Whether commissions paid to 'lead generators' are taxable on the respondent under the reverse charge mechanism as payments to 'insurance agents' and thus includible in the respondent's assessable value - HELD THAT: - The Tribunal examined the statutory scheme whereby the Central Government notifies taxable services and may prescribe, by rule, that tax be paid by a person other than the service provider. Rule 2(d) places the burden on the recipient in respect of services provided by an 'insurance agent'. The Tribunal held that the definition of 'insurance agent' derives from the Insurance Act, 1938 and that the statutory language adopted in the Finance Act and Service Tax Rules is specific and limited. The factual role of the 'lead generators', as evident from their agreement, was confined to marketing and short-listing prospective customers and did not equate to acting in place of the insurer vis-a -vis the policyholder as an 'insurance agent'. The Tribunal rejected Revenue's broader construction that would import all distribution-channel participants into the definition merely because the Finance Act references definitions in other statutes. Reliance on post-facto regularisation under the Insurance Act could not be used to read back and transform canvassers who were not licensed agents into 'insurance agents' for the purpose of imposing reverse charge liability on the insurer. The Board's instruction indicating that indirect references to other laws do not enlarge the specific content of definitions supported a narrow construction. Consequently, where the burden to discharge tax is not specifically transferred to the respondent for the service rendered by these 'lead generators', the show cause notice seeking to fasten reverse charge liability on the respondent fails.

Commissions paid to 'lead generators' are not payments to 'insurance agents' for the purpose of the reverse charge; such amounts are not includible in the respondent's assessable value under the Finance Act, 1994.

Final Conclusion: The appeal is dismissed: the Tribunal upholds the order dropping proceedings against the respondent, holding that commissions paid to the 'lead generators' do not attract reverse charge liability as payments to 'insurance agents' for the period October 2008 to March 2011.

Service tax liability for commercial or industrial construction service - Audit-based demand and voluntary payment of service tax and interest - Penalties under Section 76, 77 and 78 of the Finance Act, 1944 - Section 80 - requirement of suppression or mis-declaration to invoke penalties - Extended period invocation absent in show-cause notice

Service tax liability for commercial or industrial construction service - Audit-based demand and voluntary payment of service tax and interest - Validity of the demand of service tax and interest - HELD THAT: - The demand arose from an audit report and the appellant did not deny non-payment of service tax; on being pointed out by audit the appellant paid the service tax and later paid interest. The Tribunal notes that the demand is supported by the audit finding and that there is no dispute by the appellant on liability or on payment of tax and interest. Having regard to these facts, the Tribunal sustains the demand of service tax and the interest levied. [Paras 4]

Demand of service tax and interest is maintained.

Penalties under Section 76, 77 and 78 of the Finance Act, 1944 - Section 80 - requirement of suppression or mis-declaration to invoke penalties - Extended period invocation absent in show-cause notice - Sustainability of penalties imposed under Sections 76, 77 and 78 - HELD THAT: - The show-cause notice did not contain an explicit charge invoking the extended period, and the demand stemmed from audit findings rather than any proved suppression or deliberate mis-declaration by the appellant. Section 80 requires suppression of fact or mis-declaration to justify invocation of the specified penalties. In the absence of any allegation or finding of suppression or mala fide conduct and given the appellant's prompt payment on being pointed out by audit, the Tribunal held that penalties under Sections 76, 77 and 78 are not sustainable and set them aside by applying Section 80 of the Finance Act, 1944. [Paras 2, 4]

Penalties under Sections 76, 77 and 78 are set aside by invoking Section 80.

Final Conclusion: The appeal is partly allowed: the demand of service tax and interest is upheld, while the penalties imposed under Sections 76, 77 and 78 of the Finance Act, 1944 are set aside by applying Section 80.

Eligibility of Cenvat credit on services received under reverse charge mechanism - qualified input service - services for setting up premises / preparatory input services - registration for output service not a condition precedent for availing Cenvat credit - treatment of recipient of foreign-origin services as provider/output service provider for Cenvat purposes

Eligibility of Cenvat credit on services received under reverse charge mechanism - treatment of recipient of foreign-origin services as provider/output service provider for Cenvat purposes - Validity of disallowance of credit availed on consulting engineer services (service tax paid under reverse charge) claimed for April 2009 to March 2010. - HELD THAT: - The Tribunal accepted appellant's submission that consulting engineer services were availed as preparatory input services for development of the township and service tax on those services had been discharged under reverse charge. Relying on earlier decisions (Kansara Modler Ltd. and Arvind Fashions Ltd.) which hold that a recipient who is liable to pay service tax on imported services can be treated as a provider/output service provider for the purposes of Cenvat rules, the Tribunal held that payment of service tax under reverse charge does not disentitle the recipient from availing credit. Rule provisions considered distinguish availing of credit from utilisation, and there is no requirement that the recipient must have been providing output services at the time of availing credit. Consequently the disallowance of credit in respect of consulting engineer services was incorrect and was set aside.

Disallowance of credit on consulting engineer services (reverse charge) set aside; credit held allowable.

Qualified input service - services for setting up premises / preparatory input services - registration for output service not a condition precedent for availing Cenvat credit - Validity of disallowance of Cenvat credit availed for various input services for the period March 2008 to March 2009 on the ground that appellant obtained registration for works contract service only on 23.10.2009. - HELD THAT: - The Tribunal examined the nature of the input services (management consultancy, manpower recruitment, renting of immovable property, survey, design, engineering, telecom etc.) and noted that, prior to 1.4.2011, the definition of input service expressly included services necessary for setting up factory/office. The Tribunal followed precedents (Tavant Technologies, Spandana Spoorthy and mPortal Wireless) which held that there is no statutory provision making registration for output service a precondition for availing Cenvat credit and that credits can be availed on the basis of documents evidencing receipt of eligible inputs even before service tax registration. Applying those principles to the facts, the Tribunal concluded that denial of credit solely because registration for output service came later was unjustified and set aside the impugned disallowance.

Disallowance of Cenvat credit for March 2008 to March 2009 set aside; credits held allowable and appeals allowed with consequential relief.

Final Conclusion: Both impugned orders disallowing Cenvat credit were set aside: (i) credit on consulting engineer services paid under reverse charge held allowable; and (ii) credits on preparatory/input services availed prior to obtaining registration for output service held allowable, following relevant Tribunal and High Court precedents; appeals allowed with consequential relief.

Duties of excise collected from the buyer to be deposited with the Central Government (Section 11D) - Liability of consignor for amounts collected by depots on stock transfer - Valuation/payment of duty determined by price prevalent at time of sale - Concurrent findings of fact by appellate fora

Duties of excise collected from the buyer to be deposited with the Central Government (Section 11D) - Valuation/payment of duty determined by price prevalent at time of sale - Section 11D is applicable and the differential amount collected by depots due to upward tariff revision between stock transfer and sale is required to be paid to the Central Government by the consignor. - HELD THAT: - The Court construed Section 11D to mean that any person liable to pay duty who has collected any amount in excess of the duty assessed or determined and paid on excisable goods from the buyer, representing excise duty, must forthwith pay such amount to the credit of the Central Government. The facts show stock transfers from the appellant's terminal to depots and subsequent sales at depots after upward revisions of duty on 01.03.2001 and 12.01.2002. The additional amounts recovered by the depots on sale, representing increased excise duty, must be treated as excess excise duty under Section 11D. The appellant cannot avoid liability by relying on the timing of clearance from the warehouse; where sale to the ultimate customer occurs after a rate increase, the additional amount collected at sale reflects excise duty collectible under Section 11D. The appellant's contention that depots were independent and beyond its control was rejected because the consignor remains responsible to account for excise and to maintain records of amounts received from depots on sale of the transferred stock. [Paras 23, 24, 26, 27, 28]

The differential excise amounts collected by depots consequent to duty revisions on 01.03.2001 and 12.01.2002 are exigible under Section 11D and the appellant (consignor) is liable to pay the differential duty.

Liability of consignor for amounts collected by depots on stock transfer - Concurrent findings of fact by appellate fora - The concurrent factual findings that (a) goods were removed on stock transfer to depots which effected the sales and (b) amounts representing higher duty were collected by depots and accounted against the appellant are sustainable, and the appeal is liable to be dismissed. - HELD THAT: - The Tribunal and lower authorities found on facts that the appellant removed petroleum products on stock transfer to depots, that sales to customers occurred at depots after the duty revisions, and that invoices raised by depots reflected the revised duty rates; consequently the difference between amounts collected by depot invoices and the value declared at the time of clearance from the warehouse constitutes excess excise duty. The High Court declined to interfere with these concurrent findings of fact, noting the appellant's responsibility as consignor to produce sale records and account for excise until the transferred stock was sold out. Given the concurrent factual findings by the fora below, the appellate challenge was held to be without merit. [Paras 11, 12, 13, 14, 29]

The concurrent findings that the depots effected sales after rate revisions and collected excess duty, which was accounted against the appellant, are upheld; the appeal is dismissed.

Final Conclusion: The Civil Miscellaneous Appeal is dismissed; the Tribunal's order upholding the demand under Section 11D (in respect of the upward duty revisions on 01.03.2001 and 12.01.2002) and the consignor's liability to pay the differential excise duty is confirmed; no costs.

Summary order. Notice issued returnable on 26th December 2018; ad-interim relief granted restraining the respondents from proceeding further pursuant to the impugned show-cause notice dated 07.09.2018.

Denial of right to cross-examination - principles of natural justice - statutory requirement of cross-examination under Section 9D - admissibility and reliability of statements under Section 14 - onus on Revenue to facilitate cross-examination - failure to comply with tribunal remand directions - remedy of setting aside an order for breach of natural justice

Failure to comply with tribunal remand directions - principles of natural justice - Whether the adjudicating authority complied with the Tribunal's remand directions to verify the appellant's packaging/labelling activities and afford an opportunity to be heard. - HELD THAT: - The Tribunal had remanded the matter for de novo decision specifically directing verification of the appellant's packaging/labeling practices and to afford opportunity including cross-examination. The adjudicating authority did not cause the required verification during the period available after remand and relied on the justification that shifting of premises made such a study infeasible. The Tribunal finds that verification could and should have been undertaken while the premises were still at Hosur and that the laches in conducting verification frustrates the purpose of the remand and casts doubt on the Department's stand that the activity amounted to manufacture. Non-compliance with the remand directions thereby denied the appellant a meaningful opportunity to establish its case. [Paras 6]

Remand directions to verify packaging/labeling were not complied with; failure to undertake verification vitiates the de novo adjudication on that aspect.

Denial of right to cross-examination - statutory requirement of cross-examination under Section 9D - admissibility and reliability of statements under Section 14 - onus on Revenue to facilitate cross-examination - Whether the adjudicating authority was justified in relying upon statements of dealers/staff without granting cross-examination despite the Tribunal's direction. - HELD THAT: - The adjudicating authority treated earlier statements as voluntary admissions and refused cross-examination, without identifying or proving any exceptional circumstances permitted by Section 9D to dispense with cross-examination. The Tribunal reiterates established principles that statements under Section 14 are not reliable evidence unless cross-examination as contemplated by Section 9D(2) is afforded, that only the statutory exceptions permit denial of cross-examination, and that the Department bears the responsibility to facilitate cross-examination of witnesses it relies upon. Mere ipse dixit by the adjudicating authority that statements are voluntary or that exceptional circumstances exist is insufficient. The refusal to permit cross-examination, in breach of the remand direction, denied the appellant a fundamental facet of a fair hearing. [Paras 6]

Refusal to allow cross-examination was unjustified and vitiated the adjudicatory process; the statements relied upon cannot be treated as reliably proved in absence of permitted exceptions.

Remedy of setting aside an order for breach of natural justice - failure to comply with tribunal remand directions - Whether the proper remedy is further remand to the adjudicating authority or to set aside the impugned order. - HELD THAT: - The Tribunal considered precedent where orders were set aside when reliance was placed on evidence that could not be tested by cross-examination, and observed that the present proceedings had already spanned over a decade, with key witnesses possibly no longer available if remand were ordered again. Given the adjudicating authority's failure to comply with remand directions and to afford cross-examination, and the consequential prejudice and delay, the Tribunal concluded that another remand would be futile and would further prejudice the appellant. Applying the cited ratio, the Tribunal held that the impugned order must be set aside rather than remitted for a fresh adjudication. [Paras 6, 7]

Impugned adjudication order is set aside; appeal allowed with consequential reliefs rather than ordering a further remand.

Final Conclusion: The adjudication order was set aside because the Commissioner failed to comply with the Tribunal's remand directions and denied the appellant cross-examination contrary to the requirements of Section 9D, thereby violating principles of natural justice; the appeal is allowed and the impugned order quashed with consequential reliefs as per law.

Cenvat Credit - capital goods - definition of input in Rule 2 (k) of the Cenvat Credit Rules, 2004 - retrospective application - accessories of capital goods

Cenvat Credit - capital goods - definition of input in Rule 2 (k) of the Cenvat Credit Rules, 2004 - retrospective application - accessories of capital goods - Entitlement to Cenvat credit on TMT Steel and PPCement used in fabrication of structures of capital goods for the period April 2006 to December 2007. - HELD THAT: - The Tribunal found that the disputed goods (TMT Steel and PP Cement) were used in fabrication of structures of capital goods essential to manufacture of final products. The period in dispute falls under the un-amended definition of "input" (effective up to 7 July 2009), which did not contain the specific restrictions later introduced on 7 July 2009. In absence of an express provision making the amended definition retrospective, the amended restriction could not be applied to the earlier period. The Tribunal relied on the view adopted by the Hon'ble Chhattisgarh High Court (following the Gujarat High Court decision in Mundra Ports & SEZ Ltd.) that the amended definition is prospective unless retrospective application is specifically provided. The Tribunal also noted the Larger Bench decision in Manglam Cement Ltd., which treated cement and steel items used for fabrication of structures enabling machinery as "accessories of capital goods," allowing Cenvat credit. Applying these authorities and the statutory timeline, the Tribunal concluded that Cenvat benefit could not be denied for the disputed period and that the adjudged demand was not sustainable. [Paras 5, 6]

Impugned order denying Cenvat credit set aside; appeal allowed and Cenvat benefit allowed for the disputed period.

Final Conclusion: The Tribunal allowed the appeal, holding that Cenvat credit on TMT Steel and PP Cement used in fabrication of structures of capital goods cannot be denied for April 2006 to December 2007 because the restrictive amendment to the definition of "input" was effective only from 7 July 2009 and not retrospectively; the adjudged demand was set aside.

Clandestine removal - burden of proof - corroborative evidence requirement - reliance on confessions and statements - inapplicability of smuggling jurisprudence to Central Excise

Clandestine removal - corroborative evidence requirement - reliance on confessions and statements - Statement of the managing director alone is insufficient to sustain a finding of clandestine removal in the absence of corroborative material evidence. - HELD THAT: - The Commissioner(Appeals) himself recorded that there was no corroborative evidence apart from the statement of Shri Rakesh Jhindal. Reliance solely on that statement to infer clandestine manufacture and clearance is impermissible. This Tribunal, following its precedent in Rimjhim Ispat Ltd. and Others, holds that a confession or statement cannot, without independent corroboration, form the sole basis for establishing clandestine removal. Consequently, the finding of clandestine removal founded only on the director's statement cannot be sustained. [Paras 5]

Findings of clandestine removal based solely on the director's statement are set aside and the appeal is allowed on this ground.

Burden of proof - inapplicability of smuggling jurisprudence to Central Excise - The principle in D. Bhoormull (smuggling context) cannot be invoked to shift the burden onto the appellant in Central Excise proceedings where no statutory provision mandates such shift. - HELD THAT: - The Tribunal noted the Delhi High Court's ruling that D. Bhoormull dealt with possession of smuggled goods and the special onus in that context, a rule not available under the Central Excise law. Revenue's attempt to import that smuggling jurisprudence to justify treating the director's statement as sufficient is therefore unsound. Absent statutory or evidentiary justification to displace the Revenue's burden to prove clandestine removal, the D. Bhoormull ratio is inapplicable. [Paras 3, 5]

Revenue cannot rely on the D. Bhoormull smuggling doctrine to sustain a finding of clandestine removal in Central Excise proceedings where corroborative evidence is absent.

Final Conclusion: Impugned Order-in-Original and Order-in-Appeal upholding duty demand and penalty are set aside insofar as they rest on uncorroborated statement(s); appeals allowed and appellants granted consequential relief as per law.

Cenvat credit - shortage on stock verification - reversal of credit under Rule 57-I - reconciliation of inventories - lack of evidence of clandestine removal - accepted commercial and accounting practice

Cenvat credit - shortage on stock verification - reversal of credit under Rule 57-I - lack of evidence of clandestine removal - reconciliation of inventories - accepted commercial and accounting practice - Whether cenvat credit in respect of shortages recorded on the basis of the appellant's own stock taking required reversal or recovery. - HELD THAT: - The Tribunal accepted the appellant's case that shortages detected on periodic physical verification-reconciled or otherwise-were small in percentage and arose from accounting/reconciliation processes rather than any clandestine removal or improper utilisation of inputs. Reliance was placed on the Tribunal's earlier decision in the appellant's own case and on the reasoning in Maruti Udyog Ltd., which held that where no evidence of diversion or misuse exists and discrepancies are intrinsic to large-volume computerized accounting systems, demands under Rule 57-I cannot be sustained. The authorities had accepted many reconciliations and the presence of substantial unreconciled excesses supported the conclusion that detected shortages were attributable to accounting or verification errors. In these circumstances, absent positive evidence of removal or improper use, recovery of credit was not justified and the demand was set aside. [Paras 4, 5]

Impugned demand for reversal/recovery of cenvat credit on account of theoretical shortages recorded in the appellant's stock-taking is set aside and the appeal is allowed with consequential relief.

Final Conclusion: The Tribunal set aside the demand for reversal/recovery of cenvat credit arising from shortages recorded in the appellant's own stock verification, holding that in the absence of evidence of clandestine removal and having regard to accepted accounting practice and prior Tribunal precedents, no recovery under Rule 57-I was sustainable.

Liability to pay duty on removal of capital goods under Rule 3(5) of Cenvat Credit Rules, 2004 - removal of capital goods after being put to use - removal of capital goods as such or as waste and scrap - no duty payable on removal of used capital goods prior to amendment of Rule 3(5) - effect of proviso inserted by Notification No.39/2007 regarding used capital goods

Liability to pay duty on removal of capital goods under Rule 3(5) of Cenvat Credit Rules, 2004 - removal of capital goods after being put to use - effect of proviso inserted by Notification No.39/2007 regarding used capital goods - Whether duty under Rule 3(5) was exigible on removal of capital goods after they had been put to use in July 2006. - HELD THAT: - The Tribunal examined the text of Rule 3(5) as it stood during the relevant period. The rule imposed payment of an amount equal to CENVAT credit where inputs or capital goods on which credit had been taken are removed "as such" from factory or premises, and separately provided for payment where capital goods are cleared as waste and scrap. The proviso making payment payable where capital goods are removed after being used was inserted only by Notification No.39/2007 dated 13-11-2007. Therefore, by plain reading, prior to that amendment there was no obligation under Rule 3(5) to pay duty when capital goods were removed after having been put to use. The Tribunal relied on the consistent line of authorities concluding no liability before the proviso was added (including Solectron Centum Electronics Ltd ) and noted that contrary decisions relied upon by Revenue were distinguishable or reversed by higher courts. Applying this legal position to the facts, removal in July 2006 of capital goods after use did not attract duty under Rule 3(5) as then in force. [Paras 4, 5]

Duty under Rule 3(5) was not exigible on removal of capital goods after use in July 2006; the demand is unsustainable.

Final Conclusion: The impugned order demanding duty on removal of capital goods after use (July 2006) is set aside and the appeal is allowed.

Cenvat credit of tax paid - credit available to the recipient - service tax paid by job worker - assessment cannot be reopened at the recipient end

Cenvat credit of tax paid - credit available to the recipient - service tax paid by job worker - entitlement to cenvat credit where the job worker has paid service tax - HELD THAT: - The Tribunal found that it was not disputed that the job worker had paid service tax and that the statutory entitlement is to the credit of tax "paid". The law recognises the recipient's right to take credit of tax actually paid by the job worker; it does not condition the recipient's entitlement on whether the tax was ultimately payable by the job worker. Accordingly, the appellant was entitled to cenvat credit of the service tax paid by the job worker during the relevant period. [Paras 3]

The credit taken by the appellant of service tax paid by the job worker is allowable.

Assessment cannot be reopened at the recipient end - whether the revenue could deny credit at the recipient's end by contesting the job worker's entitlement to exemption - HELD THAT: - The Tribunal relied on earlier decisions of the Tribunal to hold that the assessment cannot be reopened at the recipient's end to deny credit on the ground that the job worker should not have paid service tax. Since the job worker had paid the tax and the recipient claimed credit of tax paid, the revenue's challenge to the job worker's entitlement to exemption could not be used to disallow the recipient's credit in assessment proceedings against the recipient. [Paras 4]

Denial of credit at the recipient's end on the basis that the job worker ought to have been exempt is not permissible; the assessment cannot be reopened in this manner.

Final Conclusion: The impugned order denying cenvat credit was set aside; the appeal is allowed and the appellant is entitled to consequential relief in respect of the credit of service tax paid by the job worker for the period 1.3.2007 to 30.4.2008.

Penalty for suppression of turnover under the PVAT/PGST regimes - mens rea requirement for imposing penal liability in tax assessments - Form C as a dealer-generated statutory declaration and its estoppel effect - burden of proof to rebut dealer's own statutory declarations - power to summon witnesses and permit cross-examination under Section 58 of the PGST Act - reassessment based on third party supply details - duty to record reasons and requirement of reasoned orders - appellate/tribunal discretion in quantum of penalty

Power to summon witnesses and permit cross-examination under Section 58 of the PGST Act - reassessment based on third party supply details - Whether the dealer was entitled to cross examine officials of the selling oil company before completion of reassessment. - HELD THAT: - The Court held that the supply details and the copies of Form C sent along with the pre assessment notice were documents generated by the dealer and were furnished to the dealer, who was therefore required to raise specific objections and seek verification with the selling party. The Form C is a statutory, triplicate declaration; the duplicate retained by the selling dealer and the counterfoil retained by the purchaser established that the declaration was made by the dealer. The material placed by the Department amounted to primary evidence and created a presumption of validity; absent specific rebuttal evidence by the dealer, the contention for cross examination was rejected. The earlier writ petition decision relied upon by the dealer was distinguished on its facts and not followed. [Paras 31, 32, 33, 34, 35]

Request for cross examination was not required in the facts of these cases and the contention is rejected.

Form C as a dealer-generated statutory declaration and its estoppel effect - burden of proof to rebut dealer's own statutory declarations - Whether the burden of proof lay on the Department or on the dealer to disprove the contents of Form C declarations. - HELD THAT: - The Court concluded that Form C is a statutory declaration generated by the dealer and, once produced by the Department, attracts a presumption of correctness. The dealer, who is in possession of the counterfoil and whose signature appears on the declaration, bears the burden to rebut that evidence. Absent any specific, reliable documentary evidence from the dealer to dislodge the declaration, the initial burden was discharged by the Department and did not shift to the Assessing Officer. [Paras 31, 32, 33, 39]

Burden to rebut Form C lies on the dealer; Department's production of the declarations sufficed to establish the claim unless specifically rebutted.

Duty to record reasons and requirement of reasoned orders - Whether the assessment, appellate and tribunal orders were without reasons and therefore void. - HELD THAT: - On examination of the orders, the Court found that the Assessing Officer had considered the dealer's objections and assigned reasons in his order. The first appellate authority, though not adopting elaborate reasons, recorded findings including that the dealer had signed all pages of the Form C declarations. The Tribunal's judgment set out findings and the parties' contentions across multiple paragraphs; reasons could be culled therefrom. Accordingly the Court rejected the submission that the impugned orders were non reasoned and void. [Paras 37, 38]

Orders below and the Tribunal contain reasons and are not vitiated for want of reasons.

Mens rea requirement for imposing penal liability in tax assessments - penalty for suppression of turnover under the PVAT/PGST regimes - Whether mens rea is required for imposition of penalty and, if so, whether mens rea was established in the cases at hand so as to justify penalty. - HELD THAT: - The Court acknowledged the settled proposition that mens rea (or blameworthy conduct) is a relevant consideration in cases of penal liability under sales tax statutes. Applying the facts, the Court found mens rea manifest from the documents: signed Form C declarations, invoice particulars, and discrepancies with returns indicated large scale suppression. The dealer's conduct and earlier litigation history supported the conclusion of deliberate suppression. On that basis the Assessing Officer's imposition of penalty was held to be justified. [Paras 41, 42, 43]

Mens rea is a relevant requirement and, on the material, mens rea has been established; penalty imposition is justified.

Appellate/tribunal discretion in quantum of penalty - penalty for suppression of turnover under the PVAT/PGST regimes - Whether the Tribunal was justified in reducing the penalty and whether that interference should be sustained. - HELD THAT: - The Court found that the Tribunal's reduction of penalty (by applying sympathy on account of payment of tax) was misplaced in the factual matrix where willful suppression was established. The Tribunal had not recorded adequate reasons for granting partial relief by reducing the penalty. Given the findings of deliberate suppression and the nature of the transactions, the Court held there was no ground for compassionate reduction and restored the Assessing Officer's order. [Paras 43, 44, 45, 46]

Tribunal's reduction of penalty was not justified and is set aside; the Assessing Officer's penalty order is restored.

Final Conclusion: The tax case revisions filed by the dealers are dismissed; the revisions filed by the Department are allowed. The Assessing Officer's assessment and penalty orders are restored and the Tribunal's reduction of penalty is set aside; no costs.

Order VII Rule 11(d) of the Code of Civil Procedure - Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Remedy under Section 17 before the Debt Recovery Tribunal - Mardia Chemicals exception - fraud/absurdity permitting civil court jurisdiction - Mandatory duty on court to reject plaint where barred by law - Order VI Rule 4 - particularity in pleading fraud - Maharashtra Ownership Flats Act (MOFA) - requirement of registered agreement under Section 4

Order VII Rule 11(d) of the Code of Civil Procedure - Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Remedy under Section 17 before the Debt Recovery Tribunal - Mandatory duty on court to reject plaint where barred by law - Whether the plaints insofar as they implead Axis Bank are barred by Section 34 of the Securitisation Act and therefore liable to be rejected under Order VII Rule 11(d) CPC - HELD THAT: - The Court held that Rule 11 of Order VII is mandatory and obliges rejection of a plaint when it appears from the plaint that the suit is barred by law; it is not a discretionary power. A holistic reading of the plaints shows the bank was impleaded only because the project had been mortgaged to the bank and the plaintiffs' grievances directly or indirectly challenge measures adopted by the bank under Section 13 of the Securitisation Act. Section 34 bars civil courts from entertaining any suit in respect of matters which the DRT is empowered to determine, and Section 17 provides the statutory remedy to 'any person' aggrieved by measures under Section 13(4). Where the plaintiffs' case seeks to question the bank's security interest or restrain enforcement measures, the proper forum is the DRT; accordingly the plaints against the bank are barred by Section 34 and liable to be rejected under Order VII Rule 11(d). [Paras 25, 33, 51, 56, 70]

Plaints against Axis Bank are barred by Section 34 of the Securitisation Act and, insofar as they seek to impugn the bank's actions or security interest, must be rejected under Order VII Rule 11(d) CPC.

Mardia Chemicals exception - fraud/absurdity permitting civil court jurisdiction - Order VI Rule 4 - particularity in pleading fraud - Whether the averments of fraud and collusion in the plaints fall within the limited Mardia exception so as to permit civil suit against the bank despite Section 34 - HELD THAT: - The Court applied the Mardia principle: civil jurisdiction is excepted only to a limited extent where the secured creditor's action is alleged to be fraudulent or the claim plainly absurd or untenable such that no probe is required. The Court held that general, vague or unparticularised allegations of collusion/fraud cannot sustain that exception. Pleadings alleging fraud must satisfy Order VI Rule 4 by giving particulars; the averments in these plaints were found vague, weak and insufficient to meet that threshold. The plaintiffs' allegations of lack of due diligence and collusion were not pleaded with the specificity required and did not, on the face of the plaint, render the bank's claim so absurd or untenable as to take the matter out of the DRT scheme. [Paras 34, 51, 72, 73, 74]

The fraud/connivance averments in the plaints do not satisfy the Mardia exception or the particularity requirement of Order VI Rule 4; they are inadequate to defeat the bar under Section 34.

Maharashtra Ownership Flats Act (MOFA) - requirement of registered agreement under Section 4 - Section 4A of MOFA - effect of non-registration - Whether the plaintiffs acquire protection under MOFA that would outrank or render inapplicable the bank's mortgage so as to permit civil suit against the bank - HELD THAT: - The Court examined MOFA provisions and noted that the protective consequences of MOFA (including Section 9) operate where a promoter has entered into the statutory written agreement for sale as required by Section 4. Section 4A applies only where an agreement has been entered under Section 4 and remains unregistered. In the present cases there was no compliance with Section 4 (no statutory/formal registered agreement), and in some cases only unregistered MOUs or allotment letters existed. Therefore MOFA's mandatory regime and its protections could not be invoked to override the bank's registered mortgage; plaintiffs could not rely on MOFA to avoid the statutory remedy under the Securitisation Act. [Paras 61, 62, 63, 64]

MOFA protections do not assist the plaintiffs because the statutory precondition of a registered agreement under Section 4 is not satisfied; MOFA does not displace the bank's rights nor obviate the DRT remedy.

Order VII Rule 11(d) of the Code of Civil Procedure - Permissibility of rejecting plaint against some defendants - Whether the Court can reject the plaint in part, i.e. insofar as it concerns the bank, while allowing the suit to proceed against other defendants - HELD THAT: - The Court observed that where a plaint discloses no cause of action against some defendants it is permissible to reject the plaint as to those defendants while allowing proceedings to continue against others. Precedents support rejecting the plaint in toto so far as a particular defendant is concerned under Order VII Rule 11. Given that the claims against the bank fall squarely within the DRT's jurisdiction and are barred in the civil court, the plaint may properly be rejected insofar as against Axis Bank. [Paras 80, 81, 83]

It is permissible and appropriate to reject the plaint insofar as it is against Axis Bank while leaving the suit to proceed, if at all, against other defendants.

Final Conclusion: The impugned order is set aside to the extent it refused the bank's applications; the notices of motion filed by Axis Bank under Order VII Rule 11(d) CPC are allowed. The plaints insofar as they implead Axis Bank are rejected because they are barred by Section 34 of the Securitisation Act; the plaintiffs' averments of fraud are insufficient to attract the limited Mardia exception and MOFA does not assist the plaintiffs in the absence of the statutory registered agreements. No stay is granted.