Non-Fulfillment of Stipulated Event – No Service Tax Payable

B.G. Shirke Oil & Gas India Pvt Ltd Vs Commissioner of Central Tax Visakhapatnam – GST (CESTAT Hyderabad)

The Hon’ble CESTAT, Hyderabad set aside the demand and allowed the appeals. It held: (i) there was no consideration paid by ONGC. There was no invoice.

The appellant is engaged in mining of mineral, oil and gas. It was awarded a contract by ONGC for development, exploration and exploitation of KG basin. The contact provided for supply of petroleum products to ONGC. The contact provided that there would be no payment till supply of petroleum products. Revenue alleged that the cost of over Rs.180 crores has been incurred for development and exploration. The service, therefore, has been provided as point of taxation has arisen in terms of Rule 3 of the Point of Taxation Rules. As the value is not ascertainable, the appellant is liable to pay service tax on cost plus notional profit of 10% in terms of Rule 3(iii) of the valuation rules read with section 67(3) of the Finance Act. Two show cause notices were issued and demand of service tax over Rs.32 crores was confirmed with interest and penalties. Hence, appeals.

The Hon’ble CESTAT, Hyderabad set aside the demand and allowed the appeals. It held: (i) there was no consideration paid by ONGC. There was no invoice. The point of taxation had not arisen as per the contract; the commissioner has misconstrued the contact; (ii) in terms of proviso to Rule 3, the point of taxation was the supply of crude/petroleum to ONGC, which had not arisen; (iii) value cannot be determined in terms of section 67(3) as consideration had been agreed to in the agreement; (iv) addition of notional profit to costs incurred was bad in law and contrary to the rules; (v) extended period of limitation cannot be invoked.

The matter was argued by Ld. Counsel  Bharat Raichandani

FULL TEXT OF THE CESTAT HYDERABAD ORDER

The appellant – M/s B.G. Shirke Construction Technology Pvt Ltd is a Multi-Locational Service Provider registered with the Department. The registration was obtained on 30.10.2012 and was amended subsequently on 30.10.2015 for providing taxable services viz., ‘Mining of Mineral, Oil or Gas service’ and also for payment of service tax on services received viz., ‘Business Support service’ (by foreign entity), ‘Supply of Tangible Goods service’, ‘Works Contract service’, ‘Security/Detective Agency service’, ‘Manpower Recruitment and Supply Agency service’, etc., under Reverse Charge Mechanism.

2. The appellant entered into a service contract with Oil and Natural Gas Corporation Ltd (ONGC for short) vide contract dated 16.07.2007 for ‘development of Manepalli Field of KG onshore’. The contract was initially entered by BG Shirke Construction Technology Pvt Ltd. Thereafter, under business transfer agreement with its fully subsidary company viz., the appellant for transfer of assets and liabilities with entire running business of oil and gas division, the said activity is being carried on by the appellant company under a separate Centralized Service Tax registration and GST registration dated 31.08.2016 and 01.07.2017 respectively.

3. The said contract dated 16.07.2007 inter alia provides:–

3.1. Commercial Production – means production of crude oil or condensate or natural gas or any combination of these from the contract area and delivery of the same at the relevant delivery point under a program of regular production and sale.

3.2. Condensate – means those on low vapour pressure hydrocarbons obtained from natural gas through condensation or extraction and refers solely to those hydrocarbons that are liquid at normal surface temperature and pressure conditions provided that in the event condensate is produced from contract area and is segregated and transported separately to the delivery point, then the provisions of the contract shall apply to such condensate as if it where crude oil.

3.3. ‘Crude Oil’ or ‘Oil’ or ‘Crude’ – means all kinds of hydrocarbons and bitumen, both in solid and liquid form, in their natural state or obtained from natural gas by condensation or extraction, including distillate and condensate when co-mingled with the heavier hydrocarbons and delivered as a blend at the delivery point but excluding verified natural gas.

3.4. Development Operations – means operations conducted in accordance with the Development Plan and shall include, but not be limited to the purchase, shipment or storage of equipment and materials used in developing petroleum accumulations, the drilling, completion and testing of development wells, the drilling and completion of wells for gas or water injection, the laying of gathering lines, the installation of installations, installation of separators, tankages, pumps, artificial lift and other producing an injection facilities required to produce, process and transport petroleum into main oil storage or gas processing facilities, either onshore or offshore, including the laying of pipelines within or outside the contract area, storage and delivery points, the installation of said storage or gas processing facilities, the installation of export and loading facilities and other facilities required for the development and production of the said petroleum accumulations and for the delivery of crude oil and/or gas at the delivery point and also including incidental operations not specifically refer to herein but required for the most efficient and economic development and production of the said petroleum accumulations in accordance with GIPIP.

3.5. Effective Date – means the date on which the service contract is awarded by ONGC i.e., 04.04.2007, or the field is handed over to the contractor, whichever is later.

3.6. Exploration Operations – means operations conducted in the contract area pursuant to this service contract in searching for petroleum and in the course of an appraisal program and shall include but not be limited to aerial, geological, geophysical, geochemical, paleontological, Palynological, topographical and Seismic surveys, analysis, studies and their interpretation, investigations relating to the subsurface geology including structural test drilling, stratigraphic test drilling. Drilling of exploration wells and appraisal wells and other related activities such as surveying, drill for preparation and all work necessarily connected therewith that is conducted in connection with petroleum exploration.

3.7. Petroleum Operations – means, as the context may require, exploration operations, development operations or production operations or any combination of two or more of such operations, including construction operation and maintenance of all necessary facilities, plugging an abandonment of wells, safety, environmental protection, transportation, storage, sale or disk desposition of petroleum to the delivery point, site restoration and any or all other incidental operations or activities as may be necessary.

ARTICLE 5

WORK PROGRAM

3.8. The scope includes assessment, exploration and development, creation of facilities, production creation of and supply of oil and gas as well as exploration in the identified field area.

3.9. It is not the intention to specify and define each and every component, parameter, activity, rights and obligations of the contractor which may be necessary for fulfilment of scope of work of contractor under this contract. The contract has to include all such activities, inputs and costs as may be necessary for complete and successful completion of scope of contract.

3.10. The broad scope of work identified for each field tendered under the contract but not limited to, are as under:

a) Review, analyse, interpret and assess all the available parameters exploration and production efforts so far carried out by ONGC and contents in the data package and use in the preparation of assessment and development plan for the field.

b) Review, survey, analyse and assess all the wells and well information, well completions, well equipments of wells already drilled, completed and available with ONGC within the defined surface area of this field and use in the assessment and development plan.

c) Survey, assess and analyse the location of the field and the locations of delivery points including the delivery points of ONGC for both crude oil and gas and use in assessment and development plan.

d) Prepare a detailed assessment plan and program giving full details of type of assessments, methodology with breakup of activities and starting and completion date of each activity, proposed executing agencies for each activities, listing of all major inputs and equipments, estimated costs with breakup of major components of costs and means of financing, expected results of each activity and assessment plan. All the assessment must be based upon Good International Industry Practices and time bound.

e) Carry out all necessary drilling both exploratory and development either for upgradation of reserves or development of field including procurement, provisioning, fabrication, constructions, installation of all necessary facilities and systems including well drilling and completion materials and equipments both down hole and surface equipment facilities, pipelines and their hook-up with surface facilities for gathering and transportation.

f) Design and engineering, purchase, acquisition, Lease/hire, installation, commissioning of all facilities and equipments, pipeline and flow lines, storages, custody transfers, building, infrastructure, site preparation, transport, communication, etc., necessary for operation of field.

g) Acquisition and obtaining of all necessary consents, approvals, licenses, registrations, permissions, etc., from all concerned agencies and ONGC that will be necessary for completion of assessment and further development, production and operation of field covered under this contract.

h) Payment of all necessary statutory payments including but not limited to all taxes, fees, duties as may be necessary and required as per the contract. To make payments/ compensation/ damages for any displacement, etc., during execution of the contract.

i) Management, monitoring, maintenance of all data and records, documentations, reporting, reviewing, management and communication with concerned agencies, Asset Manager and contract co-ordinator of ONGC.

j) Decommissioning, abandonment (if required) of all wells and facilities, removal, cleaning and restoration of site to its original condition after closure/termination of contract with the approval of ONGC. Take all measures for prevention of environmental damage (subsurface, land and air) and adopting all other suitable means to maintain industrial and social harmony.

3.11. There will be assessment period of 2 years from the ‘effective date’.

During assessment of 2 years, contractor will carry out all activities as per the work program put forth in the bid and contractor shall be responsible to execute all works as proposed in the bid within this assessment period.

3.12. The assessment plan must commence within 6 months from the effective date or else the contract may be terminated.

ARTICLE 15

PAYMENTS TO THE CONTRACTOR

3.13. Clause 15.1 provides – no advance payment of whatsoever will be entertained by ONGC.

3.14. Clause 15.3 provides – contractor will raise monthly bill of service charges based of percent of contractor share as per the service contract to the concerned Asset Manager. The payment thereof shall be effected to the designated bank of the contractor as stated in the invoice. Similarly, ONGC will raise monthly bill to the contractor based on sale of gas to contractor.

3.15. Clause 15.8 provides – all payments in respect of delivering crude oil or condensate to ONGC pursuant to the provisions of Article 19 shall be made by ONGC within a period of 30 days from the date of delivery of invoice by contractor as per the terms and conditions of payment

3.16. Clause 15.11 provides – all costs under the contract, except costs explicitly indicated herein to be payable by ONGC, shall be borne by the contractor….

…. Payment will be made by ONGC for the services of contractor on delivery of oil and gas as the case may be.

3.17. Clause 15.12 provides – payment to contractor will be based on fixed percentage/share price of oil and gas quoted by contractor for his services…

….Payment will be made to the contractor only on delivery of oil/condensate, if any.

3.18. Clause 15.13 provides – Payment for delivery of oil: The contractor will produce and deliver net oil/condensate to ONGC at pre-determined delivery point. The contractor will be paid by ONGC as a percentage of the price of oil for the services rendered by it for delivery on net oil/condensate to ONGC as per Article 13/elsewhere.

4. Revenue issued query letter dated 31.01.2017 in response to which the appellant filed reply dated 15.02.2017 and 06.03.2017 inter-alia stating that under the said contract, ‘effective date’ means the date on which the contract was awarded by ONGC i.e., 04.04.2007 or the date on which the field was handed over to them, whichever was later. The field was handed over to them on 19.09.2007, which is the ‘effective date’. It was further submitted that on holistic reading of the contract it is evident that there were no milestones at all, either payment linked or operational and therefore, no stage-wise completion but they as a contractor were obligated to explore and ultimately supply oil/gas to ONGC, which is clearly mentioned in Article 5.7 of the contract. The Appellant also enclosed copies of works contracts/agreements in respect of services received from body corporate/non-body corporate for the period 01.07.2012 to 31.03.2015 along with copies of e-payment challans under partial/reverse charge mechanism.

5. Appellant also enclosed e-payment challans in respect of other services received like Rent-a-cab service, Manpower Supply service, Security service, GTA service, Business Support service and SOTG service, received under partial /reverse charge mechanism along with copies of ST3 returns for the relevant period. Appellant also included statement showing the details of expenditure incurred, month and year-wise, for the period from October 2011 to March 2015 (total expenditure incurred was Rs.181.46 Crores).

6. It appeared to Revenue that appellant had completed the activities of exploration operations and development operations during the relevant period in connection with providing of main service i.e., Mining of Mineral, Oil or Gas service in terms of Article 5.9 of the contract. It further appeared to Revenue from the reply filed that appellant have neither issued invoice/bill to ONGC nor received any consideration from ONGC in connection with the activities carried out by them and would receive it only on production and supply of oil/gas to ONGC.

7. It further appeared that under section 67(1)(iii) of the Finance Act, the value shall in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. Further, Rule 3 of Service Tax (Determination of values) Rules 2006 was relied upon which provides – with effect from 01.07.2012, “where such value is not ascertainable” has been substituted for “where the consideration received is not wholly or partly consisting of money”.

(a) The value of such taxable service shall be equivalent to gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration;

(b) where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such construction which shall, in no case be less than the cost of provision of such taxable service.

8. It further appeared that the appellant were required to discharge service tax liability on the expenditure incurred (which was nothing but cost of provision of service) as per section 67(1)(iii) of the Finance Act read with Rule 3(b) of Service Tax (determination of value) Rules 2006. Further, under the facts there was no legal document to arrive at actual value of the service rendered. Hence, the cost of provision of service (+) notional profit of 10%, as per Rules, was taken into consideration to arrive at the taxable value. It further appeared to Revenue in reference to Rule 4A of Service Tax Rules 1994, which provides that every person providing taxable services, not later than 14 days (till 31.03.2012)/30 days (from 01.04.2012 onwards) from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier, shall issue an invoice, a bill or as the case may be, a challan signed by such person or a person authorised by him in respect of such taxable service provided or agreed to be provided and such invoice, bill or as the case maybe, challan shall be serially numbered.

9. The appellant vide their letters dated 15.02.2017 and 06.03.2017 had apprised the position of non-issuance of invoice/bill to ONGC and non-receipt of any consideration and also denied the allegation of completion of provision of activities of exploration operation and development operations carried by them during the relevant period in relation to providing of Mining of Mineral, Oil or Gas service. However, Revenue, being of the belief that appellant is required to pay service tax on the basis of cost incurred for providing the service in respect of the alleged completion of service, calculated the service tax liability year-wise as follows:–

10. SCN dated 19.04.2017 was issued invoking the extended period of limitation inter alia alleging as hereunder:–

a) The service of ‘Mining of Mineral, Oil or Gas service’ was made subject to levy of service tax with effect from 01.06.2007 and it appears that appellants have been rendering the said service since 19.09.2007 (from the date of taking possession of the field). The appellant failed to take registration within the stipulated of 30 days from the date of commencement of the activity.

b) The appellant being a limited company failed to discharge the service tax liability within the stipulated time.

c) The appellant for the period prior to 01.07.2012 had failed to file the returns within the stipulated time.

d) The issuance of non-payment of service tax by the appellant came to light only due to efforts of the departmental officers upon enquiry and verification. Had the Department not verified and enquired into the affairs the tax liability would have escaped. The appellant never informed the Department about the fact that they had entered into a service contract with ONGC during to the year 2007 for development of onshore marginal gas field – Rajamahendravaram Asset, and carried out exploration and development operations since 19.09.2007. Further urges that the activities were in relation to main service i.e., Mining of Mineral, Oil or Gas service, which was a taxable service. Appellant had taken registration in October 2012 and paid service tax on the services received under partial/reverse charge mechanism for the period from 01.07.2012 to 31.03.2015. It further appeared that appellant had wilfully suppressed the fact of rendering of the alleged services by not filing the Statutory Returns prior to 01.07.2012 with intent to evade payment of tax. Accordingly, service tax as calculated above was demanded Rs.24,63,96,836/- including cess on the taxable value determined under section 67(1)(iii) read with Rule 3(b) of the Service Tax (Determination of Value) Rules. Further, penalties are also proposed under section 77(1)(a), 77(2) and 78(1) of the Act.

11. Similar Show Cause Notice was also issued dated 16.04.2019 for the subsequent period 2015–16 up till June 2017, demanding service tax on similar basis Rs.8,67,39,750/- including cess with proposal to impose penalty under section 76, 77(2) and 78(1) of the Finance Act.

12. Both the Show Cause Notices were adjudicated on contest vide separate OIOs and the proposed demands were confirmed with equal penalty under section 78 of the Finance Act and a further penalty of Rs.10,000/- alleging improper filing of service tax returns under section 77(2) of the Act. Being aggrieved, the appellant has filed appeals against both the OIOs before this Tribunal.

13. Learned counsel for the appellant – Mr. Bharat Raichandani, inter-alia, urges that the impugned orders are cryptic and non-speaking and have been passed mechanically, without application of mind.

14. He further urges that the point of taxation is not triggered in the facts of the present case. The services are in the nature of continuous supply of service. The event specified in the contract to trigger the point of taxation was not yet reached and hence, no tax was payable for the period under dispute. The services rendered by the appellant to ONGC are in the nature of exploration; thereafter, development; and thereafter, production of gas/oil. Only on successful production, pursuant to exploration and development, the point of taxation is arrived when the appellant is entitled to raise the invoice from the gas/oil supply to ONGC. The contract stipulates that until or unless the gas/oil is not delivered to ONGC, the services are incomplete.

15. Rule 2(c) of Point of Taxation Rules defines ‘continuous supply of service’ as under:

“‘Continuous supply of service’ means any service which is provided or to be provided continuously or on recurrent basis, under a contract, for a period exceeding 3 months with the obligation for payment periodically or from time to time, or where the Government by notification in the official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not, subject to any condition.”

16. The said fact of continuous supply has been recorded by the Commissioner in the impugned order. Further, the Commissioner also noticed that appellant is not entitled to receive any remuneration/consideration until and unless they achieved the milestone i.e., production of gas/oil and supply of same to ONGC. Admittedly, during both the periods under dispute, this milestone was admittedly not achieved.

17. Learned counsel further refers to the proviso under Rule 3 of Point of Taxation Rules, which reads as under:

“Provided that for the purposes of clauses (a) and (b),-

(i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service;”

18. Thus, it is evident from a plain reading of the Point of Taxation Rules, particularly, Rule 2 and Rule 3 that in case of continuous supply of service where under the contract stipulates that the receiver of service is required to make payment to the service provider on the achieving of any event or milestone, in such case the date of completion is such event/milestone as specified in the contract. Admittedly, during the period under dispute, the appellants have neither supplied any gas/oil to ONGC nor have raised any invoice nor have received any amount from ONGC in relation to the alleged services rendered by it. Admittedly, the point of taxation has not been triggered during the period under dispute and thus the appellant is not liable to pay any service tax towards the alleged output service.

19. The learned Commissioner in the impugned order, in spite of taking notice of the provisions of Point of Taxation Rules, has misconceived the Rules and the facts of the case and has held appellant liable to pay service tax. Learned Commissioner has misconceived Para 5.9 of the contract, which provides that there will be assessment period of 2 years from the effective date of the work done or progress made by the contractor. The said provision is evidently put in the contract that if a contractor fails to take effective measures in execution of the contract towards achievement of the stipulated goals, in that case the contractee/ONGC has option to terminate the contract.

20. Evidently the learned Commissioner have erroneously excluded to notice the portion of Rule 3 of Point of Taxation Rules, which reads – “which requires the receiver of service to make any payment to service provider”, from the proviso to Rule 3. If the said proviso is read in toto, it evidently provides that in case of continuous supply, the date of completion of service shall be the date of completion of the event specified in the contract, which requires the receiver of service to make any payment to the service provider.

21. The learned Commissioner have evidently missed out in not reading Article 15 to the contract properly, which provides that the appellant is not entitled for any advance payment, whatsoever. Further, the contractor is entitled to raise monthly bill of service charges based on percentage of contractor share as per the contract on the basis of supply of gas/oil to ONGC. Further Clause 15.11 of the contract explicitly provides that all costs have to be borne by the contractor and payment will be made by ONGC for services of the contractor on delivery of oil and gas, as the case may be. Further, the payment to contractor will be based on percent fixed share price of oil and gas quoted by the contractor for his services. Further provides – payment will be made to the contractor only on delivery of oil/condensate, if any.

22. Thus, it is evident from a plain reading of the contract that appellant is not entitled to receive a single naya paisa or rupee from ONGC until and unless it achieves the milestone and is able to supply gas/oil to ONGC. Admittedly, there is no allegation that in the period, under dispute under both the SCNs, appellant has achieved this milestone.

23. It is further urged that the determination of taxable turnover in the impugned order by the Commissioner is wholly illegal and is in clear conflict with the provisions of Point of Taxation Rules.

24. Without prejudice to the above submission, learned counsel further urges that no service is rendered to ONGC during the relevant period of dispute. The activities undertaken by the appellant during the period of dispute are merely intermediate activities in order to render services to ONGC. It is further urged that part performance of service is no service at all. Hence, in absence of any rendition of service, tax is not payable.

25. It is further urged that the contract cannot be artificially split or bifurcated. It is urged that there is no basis in law or under the contract to artificially split the activities and seek to levy service tax on some activities on standalone basis. Further urges that admittedly under the period under dispute, appellant has not received any consideration from ONGC. Once this is the admitted position, there cannot be any demand of tax. Hence, the impugned orders are liable to be set aside. Also admittedly under the terms of the contract, appellant was not entitled to raise invoice on ONGC, in absence of reaching the stipulated milestone, being in a position to deliver oil/gas to ONGC duly produced from the earmarked area under the contract. It is further urged that the Service Tax (Determination of Value) Rules 2006 are not applicable in the facts of the present case.

26. Learned Counsel also submits that the Commissioner have erred in the impugned order by observing that the consideration in the facts of the present case for the period under dispute is not ascertainable. This is in contrast to the provisions of the contract, which specify the consideration for undertaking the activities i.e., fixed percentage of the price of the crude oil/gas as per clause 15.12 and 15.13 of the contract.

27. Learned counsel further urges that the taxable turnover (as per Revenue) includes material portion/inputs used by the appellant during the period under dispute. On such material portion the goods have suffered Excise duty and further sales tax is leviable. Custom duty is available in the case of importation of the goods. The calculation of Value of the taxable turnover is also erroneous on this score also rendering the demand vitiated and fit to be set aside.

28. It is further urged that demand of service tax on notional value is bad in law. It is further urged that there is no provision to add notional profit to the alleged cost of service under the provisions of service tax read with the Rules thereunder. It is further urged that in the facts and circumstances that the appellant was registered with the department, have maintained proper books of accounts in the ordinary course of business, have regularly filed their ST3 returns and also furnished the details from time to time as requisitioned by the Department, there was no scope for making the best judgement assessment. It is also urged that audit report cannot be the sole basis for the demand. Evidently, SCNs were issued without verifying the factual position, assuming the audit report as gospel truth.

29. It is further urged that under the facts and circumstances, extended period of limitation is not invokable. Admittedly, appellant have maintained proper books of accounts and records of the transactions, the work done is under the proper contract with ONGC–PSU; admittedly, appellant was registered and they have filed their returns and made other compliances like paying service tax on reverse charge basis; No case of any malafide, concealment, mis-representation, etc., has been made out. This is also evident from the list of RUDs as mentioned in Para 21 of the SCN:–

a) Service Contract bearing No. MR/WOB/MM/NMFD/68/2005/EB-2130, dt.16.07.2007 for “Development of Manepalli Field of KG Onshore” entered into with ONGC, furnished by M/s BG Shirke Construction Technology Pvt Ltd.

b) Letter dt.31.01.2007 issued to M/s BG Shirke Construction Technology Pvt Ltd, by the Assistant Commissioner (Audit), Central Excise & Service Tax, Kakinada Audit Circle, Rajamahendravaram.

c) Letters dt.15.02.2017 of M/s BG Shirke Construction Technology Pvt Ltd, wherein details of expenditure incurred towards execution of above said Service Contract, service tax payments on the services received under partial reverse/reverse charge mechanism, enclosing necessary documents and ‘effective date’ of the contracts, have been furnished.

d) Letter dt.06.03.2017 of M/s BG Shirke Construction Technology Pvt Ltd, wherein they have denied the allegation of the completion of provision of ‘exploration operation’ and ‘development operations’ in relation to the above said Service Contract.

e) ST-3 returns filed by M/s BG Shirke Construction Technology Pvt Ltd, for the period from July 2012 to March 2015.

30. Accordingly, the learned Counsel prays for allowing the appeals with consequential benefits.

31. Learned AR for Revenue relies on the allegations made in the SCN and the findings recorded in the impugned orders.

32. Having considered the rival contentions and on perusal of records, we find that admittedly appellant have not reached the stipulated event where it can raise invoice pursuant to supply of crude oil/gas to ONGC, during both the periods under dispute. We find that the value of taxable turnover determined by the Commissioner in the impugned order is hit by proviso to Rule 3 of Point of Taxation Rules, as admittedly, the stipulated event for completion of service i.e., supply of crude oil/gas by the appellant to ONGC was not achieved. We further find that admittedly appellant have neither received any consideration nor was entitled to receive any consideration during the period under dispute in absence of achieving the stipulated milestone. We also hold that the determination of taxable turnover under the provisions of section 67 read with the Service Tax (Determination of Value) Rules is erroneous and against the provisions, particularly, proviso to rule 3 of Point of Taxation Rules.

33. We further hold that addition of notional value towards profit @ 10% is also bad and against the provisions of law. We also hold that the impugned orders, being in the nature of best judgment assessment are bad under the admitted facts that the appellants have maintained proper records of the transactions and were registered with the department and have regularly filed the returns. We further find that the impugned orders are cryptic and non­speaking.

34. Under the admitted facts and circumstances, we also find that the extended period of limitation is not available to Revenue, in absence of conditions stipulated/precedent for invocation.

35. In view of our aforementioned findings and observations, we allow the appeals and set aside the impugned orders. The appellant shall be entitled to consequential benefits, in accordance with law.

36. Appeals are allowed.

(Pronounced in the Open Court on 08.04.2024)