ISSUES PRESENTED AND CONSIDERED

1. Whether proceedings and cognizance taken under the Prevention of Money Laundering Act (PMLA) can be quashed or interdicted where the predicate criminal proceedings have dropped or do not name the proposed accused, and where it is contended that, in view of such dropping, there is no live scheduled offence giving rise to "proceeds of crime".

2. Whether specific withdrawals from bank accounts (including withdrawals from accounts subject to provisional attachment orders) and the nature of cash-credit/overdraft facilities can constitute "possession, acquisition, use or concealment" of "proceeds of crime" so as to attract liability under Section 3 PMLA, and whether a specified quantum in bank accounts may be validly attached under Sections 2(1)(v), 2(1)(u) and Section 5 PMLA.

3. Whether exercise of extraordinary constitutional jurisdiction to quash PMLA criminal proceedings is appropriate when an alternative, efficacious, and statutorily provided appellate remedy under Section 26 PMLA is available and actively pursued, and what is the scope for such interference when statutory appeals are pending.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of PMLA proceedings where predicate offence was dropped/not pursued in predicate investigation

Legal framework: The PMLA requires that "proceeds of crime" be derived from scheduled offences; criminal culpability under Section 3 depends upon the existence or demonstrable link to such proceeds as defined in Section 2(1)(u). The ECIR and subsequent complaint under PMLA rely on predicate facts established by investigative agencies.

Precedent Treatment: Reliance was urged on the decision that quashing/discharge in predicate proceedings may vitiate PMLA action. The Court noted prior authorities invoked by parties and referenced the judgment in which the CBI had earlier been directed to investigate mining allegations, but also considered that the ECIR does not name the appellants and that the CBI supplementary report dropped charges against them.

Interpretation and reasoning: The Court examined whether the absence of a presently live scheduled offence ipso facto nullifies the PMLA complaint. It observed that the ED's complaint is predicated on a quantified sum alleged to be unpaid consideration for illegally mined ore and that the PMLA proceeding in question alleges dissipation of that quantified amount post-attachment. The Court concluded that the question whether the quantified amount constitutes "proceeds of crime" is a matter squarely for the statutory adjudicatory process (Adjudicating Authority/Appellate Tribunal) and should not be pre-emptively resolved in writ jurisdiction absent patent illegality.

Ratio vs. Obiter: Ratio - Where predicate proceedings have not resulted in a presently effective bar to PMLA action, the determination whether a specified fund constitutes proceeds of crime must be left to the statutory machinery; absence of naming in ECIR or earlier dropping in another investigation does not automatically oust PMLA jurisdiction in respect of a distinct allegation (concealment/possession post-PAO) of laundering.

Conclusion: The Court declined to quash PMLA proceedings on the ground that predicate proceedings had dropped earlier charges; the determination of whether the sum is proceeds of crime is to be adjudicated through the PMLA fora.

Issue 2 - Characterisation of withdrawals/cash-credit accounts and effect of provisional attachment orders

Legal framework: Sections 5 and 8 PMLA permit provisional attachment and confirmation of specified amounts; Section 2(1)(v) defines "property" to include bank accounts; Section 3 criminalises dealing with proceeds of crime including possession and concealment. The law on stays/marks of lien and effect of withdrawals during pendency of proceedings was also engaged.

Precedent Treatment: Parties relied upon various authorities on treatment of bank accounts as property and on how cash-credit facilities should be treated. The Court noted an argument invoking a High Court decision on the nature of cash-credit accounts but did not adopt a blanket rule disallowing attachment of such facilities.

Interpretation and reasoning: The Court accepted that bank accounts are "property" and that attachment may specify a quantum. However, it also emphasised that the present controversy concerns a particular quantified claim (INR 33.80 Crore) alleged to represent unpaid consideration and the allegation that withdrawals after PAO frustrated recovery. The Court refrained from adjudicating contested factual questions - (i) whether withdrawals were made in collusion with bank officials, (ii) whether lien was wrongfully lifted, and (iii) whether withdrawals occurred in breach of legally effective restraints - since these are matters for the Adjudicating Authority/Tribunal to determine on evidence and on merits.

Ratio vs. Obiter: Ratio - Attachment of specified sums from bank accounts falls within PMLA scheme and questions about the nature of particular withdrawals and the legitimacy of dealing with attached funds are to be decided by the statutory adjudicatory forum. Obiter - Observations that cash-credit accounts may not always equate to identifiable property were not determinative; no categorical rule was laid down in this judgment.

Conclusion: The Court declined to treat the pleaded withdrawals as conclusively constituting an offence under Section 3 PMLA at the interlocutory stage; factual adjudication as to whether specified sums are "proceeds of crime" and whether withdrawals violated PAOs must be left to the PMLA adjudicatory process.

Issue 3 - Appropriateness of exercise of extraordinary jurisdiction when statutory appeals under Section 26 PMLA are pending

Legal framework: The constitutional and appellate jurisdiction of superior courts is to be exercised sparingly where an efficacious statutory remedy exists and is being pursued; principles articulated in prior decisions discourage bypassing designated statutory forums except for patent illegality or jurisdictional error.

Precedent Treatment: The Court relied on established principle that statutory remedies must ordinarily be exhausted; reference was made to prior authority cautioning against constitutional interference when statutory appellate mechanisms are available and actively pursued.

Interpretation and reasoning: The Court found that appellants had invoked the statutory appeal remedy under Section 26 PMLA and those appeals remained pending. There was no finding of patent illegality or jurisdictional error in the impugned proceedings justifying extraordinary interference. The Court emphasized non-prejudgment of issues by permitting the statutory process to run its course, and directed that the Appellate Tribunal decide the pending appeals on their merits uninfluenced by observations made by the Court.

Ratio vs. Obiter: Ratio - Where an efficacious statutory remedy exists and is being actively pursued, extraordinary writ relief to quash criminal PMLA proceedings should not ordinarily be granted absent demonstrable patent illegality or jurisdictional error. Obiter - The Court's admonition that its observations shall not influence the Appellate Tribunal is clarificatory guidance.

Conclusion: The Court declined to exercise extraordinary jurisdiction to quash the cognizance order or interdict ongoing PMLA proceedings while statutory appeals are pending; appellants were directed to pursue remedies before the Appellate Tribunal.

Cross-references and Consolidated Conclusion

These issues are interconnected: the question whether a fund constitutes "proceeds of crime" (Issue 1) and whether specific withdrawals constitute laundering (Issue 2) are essentially questions of fact and law within the PMLA adjudicatory scheme; accordingly (Issue 3) the proper forum for resolution is the statutory machinery (Adjudicating Authority and Appellate Tribunal). The Court therefore declined to interfere, holding that interlocutory quashing is inappropriate absent patent illegality, and left factual and legal determinations to the statutory process while preserving the appellants' right to press their statutory appeals.

ISSUES PRESENTED AND CONSIDERED

1. Whether reimbursements of conveyance expenses paid by an insurer to insurance agents for attending mandatory training constitute consideration for "insurance auxiliary services" rendered by the agents and are includible in the assessable value for Service Tax under the reverse charge mechanism.

2. Whether expenses incurred by an insurer for selecting and sending certain agents abroad for training form part of the taxable value of insurance auxiliary services provided by those agents and are exigible to Service Tax under the reverse charge mechanism.

3. Whether extended period of limitation and levy of interest under the Service Tax provisions are invokable where the taxability turns on interpretation of the statutory scheme and industry practice, absent fraud, suppression or collusion.

4. Whether penalties under Sections 76, 77 and 78 (as applied in the impugned order) are sustainable where the assessee acted under bona fide belief of non-liability and where demands are held not to arise as a matter of law.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Conveyance reimbursements for mandatory training: legal framework

Legal framework: Value determination rules (Rule 5 and Rule 6 of the Service Tax Valuation Rules) and the concept that only "consideration" for a taxable service is includible in assessable value; Service Tax leviable under reverse charge on insurance auxiliary services where commission/fee paid in relation to such services is included in value.

Precedent treatment: The Court relied on and followed the principles in Intercontinental Consultants & Technocrats (as affirmed by higher courts) and the reasoning in Bhayana Builders that only consideration for the taxable service is includible. The Tribunal's prior decisions in Max Life and certain Bench orders (e.g., Bajaj Allianz) with identical facts were treated as persuasive and followed.

Interpretation and reasoning: The Court examined the statutory wording of Rule 5(1) - inclusion of expenditures "incurred by the service provider in the course of providing taxable service" - and Rule 6(1)(ix) - inclusion of sums paid "in relation to insurance auxiliary services." The Court held that reimbursements of conveyance for attending training are incurred to discharge a statutory/regulatory obligation (IRDA-mandated training) and do not constitute remuneration for solicitation or procurement of insurance business. The nexus between payment and any specific taxable act (solicitation/procurement) is absent; selection criteria for overseas training based on prior performance does not convert reimbursement into remuneration for services rendered.

Ratio vs. Obiter: Ratio - reimbursements of conveyance for mandatory training are not consideration for insurance auxiliary services and therefore are not includible in assessable value under Rule 5/6; follows binding principles that assessable value must have nexus to consideration for the taxable service. Obiter - observations on practical reasons for selection of agents for overseas training and policy considerations about IRDA mandates.

Conclusions: The Court concluded that conveyance reimbursements for mandatory training are excluded from the taxable value of insurance auxiliary services and cannot be taxed under the reverse charge mechanism.

Issue 2 - Expenses for overseas training of selected agents: legal framework

Legal framework: Same valuation rules and the reverse charge liability for insurance auxiliary services; statutory mandate under insurance regulations requiring training of agents (regulatory context informing nexus analysis).

Precedent treatment: The Court expressly followed the Tribunal's Principal Bench decision (Max Life) and other Bench orders (Bajaj Allianz) which addressed identical issues and rejected inclusion of training-related reimbursements in assessable value. The Court treated these decisions as applicable and persuasive; no contrary higher court authority was invoked to displace them.

Interpretation and reasoning: The Court emphasized that training mandated by regulatory authority is not the provision of the taxable service by agents to the insurer; training enhances agents' competence but is not consideration for solicitation of business. Expenditure on overseas training borne by the insurer is therefore an expenditure in the conduct of the insurer's business and not remuneration for the agents' taxable services. The rule language "in relation to insurance auxiliary services" requires a direct relation to procurement/solicitation; mere selection based on performance does not create that direct relation.

Ratio vs. Obiter: Ratio - expenses for overseas training of agents, when undertaken pursuant to regulatory mandate and not as remuneration linked to solicitation, are not includible in the taxable value of insurance auxiliary services. Obiter - commentary on impracticability of training all agents abroad and how selection criteria do not supply the requisite nexus.

Conclusions: Expenses for overseas training of selected agents are not part of the assessable value for Service Tax under the reverse charge mechanism and the demands on this count cannot be sustained.

Issue 3 - Extended period of limitation and interest under Section 75

Legal framework: Provisions allowing extended period in cases of wilful suppression, fraud or collusion; interest liability where tax is payable; principles governing invocation of extended limitation.

Precedent treatment: The Court applied established limitation principles and considered industry-wide awareness and regulatory reporting. It followed the view that extended limitation is not automatically available where the matter is interpretational and the department had knowledge of the industry practice.

Interpretation and reasoning: The Court found that the matters in dispute were primarily questions of statutory interpretation and valuation, not instances of concealment or fraud. The department was aware of the insurer's practices through audits and industry practice; there was no finding of willful suppression or collusion. Consequently, the extended period of limitation and related interest were not applicable.

Ratio vs. Obiter: Ratio - extended period of limitation and interest cannot be invoked where taxability depends on bona fide interpretational issues and no fraud/suppression exists. Obiter - none significant beyond application to facts.

Conclusions: Extended limitation and interest under Section 75 are not invokable on these facts; interest liability does not survive where the underlying demand is unsustainable as a matter of law.

Issue 4 - Penalties under Sections 76, 77 and 78

Legal framework: Penalty provisions applicable for non-payment/short payment/erroneous refund and for other defaults, and defenses where assessee acted bona fide under an arguable legal position.

Precedent treatment: The Court considered that penalty cannot be imposed where tax demand itself is not sustainable and where bona fide belief negates culpability; it applied established principles disallowing penalties in the absence of mala fide intent or willful default.

Interpretation and reasoning: The Court observed that where the appellant had a bona fide belief in non-liability (supported by legal authority and reviewable interpretation), and where part of the demand had been paid prior to the show cause notice, imposition of penalties under the cited sections lacked justification. The absence of intentional evasion or mis-statement meant statutory thresholds for extended or aggravated penalties were not crossed.

Ratio vs. Obiter: Ratio - penalties under Sections 76, 77 and 78 are unsustainable where the underlying tax demand is untenable as a matter of law and where the taxpayer acted under bona fide belief without fraud or collusion. Obiter - remarks on adequacy of penalty where some amounts were paid pre-notice.

Conclusions: Penalties imposed by the adjudicating authority cannot be sustained on the facts; penalty orders must be set aside along with the tax demands held unsustainable.

Final Disposition (Court's conclusion)

The Court held that the impugned demands in respect of conveyance reimbursements and overseas training expenses cannot be sustained, followed relevant precedents, rejected invocation of extended limitation and interest, and found penalties unsustainable; accordingly, the impugned order was set aside and the appeal allowed.

ISSUES PRESENTED AND CONSIDERED

1. Whether amounts paid by a company to a shareholder/director in reduction of salary payable constitute deemed dividend under Section 2(22)(e) of the Income Tax Act where the recipient holds beneficial voting power of at least 10%.

2. Whether a credit of Rs. 18,75,000 appearing in the assessee's bank account is an unexplained cash credit under Section 68 (and relatedly unexplained receipt under Section 69A) absent authenticated corroborative evidence from the alleged payer (a stock-broker) and bank details of cheque origin.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Characterisation of payments as deemed dividend under Section 2(22)(e)

Legal framework: Section 2(22)(e) treats any payment by a company to a shareholder (holding not less than 10% of voting power) by way of advance or loan as deemed dividend to the extent of accumulated profits of the company. The provision applies to advances/loans or deposits where the beneficial interest and company's accumulated profit are relevant.

Precedent Treatment: The Tribunal considered the statutory test of whether the amounts were advances/loans (thus covered by s.2(22)(e)) versus payments in discharge of legitimate salary liability. No distinct precedent was overruled; the approach followed is consistent with established principle that substance and ledger entries supporting salary liability are material.

Interpretation and reasoning: The Tribunal examined the ledger and the assessee's return/computation showing salary income from the company amounting to Rs. 57,60,000 for the year. The assessee produced ledger entries and contended that specific payments (Rs. 6,000; Rs. 23,00,000; Rs. 15,000 totaling Rs. 23,21,000) were payments against salary payable aggregating Rs. 32,92,500, thereby discharging salary liability rather than constituting advances or loans. The Revenue's contention was absence of evidence showing the payments were on account of salary. The Tribunal found the contemporaneous evidence of salary declared/received persuasive and held that payments were in discharge of salary payable and did not create a debit balance constituting a loan/advance. Accordingly, the statutory precondition for deeming the payments as dividend (i.e., amounts given by way of loan or advance out of accumulated profits) was not satisfied in respect of Rs. 23,21,000.

Ratio vs. Obiter: Ratio - where payments from a company to a shareholder/director are supported by company ledger and aggregate salary declared/received by the recipient, such payments discharging salary payable do not qualify as advances/loans under s.2(22)(e) and cannot be taxed as deemed dividend to that extent. Obiter - detailed treatment of accumulated profits computation is not central, as the Tribunal's holding rests on characterisation of payments as salary discharge.

Conclusion: Addition of Rs. 23,21,000 as deemed dividend under Section 2(22)(e) was deleted. The Tribunal held no addition was called for in respect of those payments since they were payments against salary payable.

Issue 2: Explanation of credit of Rs. 18,75,000 - applicability of Section 68/Section 69A

Legal framework: Section 68 casts the initial onus on the assessee to explain identity, capacity and genuineness of credited amounts; if explanation is satisfactory, the onus shifts to the Assessing Officer to prove contrary. Section 69A deals with unexplained money credited to bank accounts and unexplained investments/credits.

Precedent Treatment: The Tribunal applied the standard two-stage burden approach: (i) assessee must offer a plausible explanation with supporting documents; (ii) absent cogent contradictory material, the AO cannot make additions. Reliance was placed on coordinate bench decisions recognizing that documentary evidence from third parties (e.g., broker ledger, bank instruments) and bank entries may be required but the absence of certain bank particulars does not automatically render the explanation insufficient where alternative corroboration exists.

Interpretation and reasoning: The assessee produced a broker's ledger extract and a broker's note showing an advance of Rs. 22,96,110 on 15.04.1999 and a refund/receipt of Rs. 18,75,000 which was reflected in the assessee's bank account. The Assessing Officer and Commissioner rejected the claim for lack of authentication and absence of cheque number in the broker's ledger and bank statement. The Tribunal emphasised that once the assessee furnished an explanation and documentary material to establish the transaction with the stock-broker, the evidentiary burden shifts to the AO to bring contrary evidence. The Tribunal noted that bank statements often do not carry details of incoming cheque numbers and that lack of such detail in bank statement does not ipso facto negate the genuineness of a reflected credit. In absence of any affirmative evidence produced by the AO to disprove the broker refund explanation, the Tribunal found the explanation sufficient and deleted the addition under Section 68 (and/or Section 69A as applied by the CIT(A)).

Ratio vs. Obiter: Ratio - where an assessee produces contemporaneous third-party records (broker ledger/note) corroborating a refund/credit and the bank account shows the correspondent receipt, the AO must produce contrary material to sustain an addition under s.68/69A; mere lack of authentication of ledger or absence of cheque number in bank statement, without further adverse evidence, is insufficient. Obiter - remarks on procedural shortcomings (e.g., authentication) of the broker ledger as weighed by lower authorities.

Conclusion: Addition of Rs. 18,75,000 treated as unexplained cash credit was deleted. The Tribunal held the assessee discharged initial onus and the AO failed to rebut the explanation with independent evidence.

Cross-references and Interaction between Issues

The Tribunal's conclusions in both issues rest on factual characterisation supported by ledger/computational materials and the allocation of evidentiary burden: (a) payments characterized as salary discharge preclude treatment as loan/advance (Issue 1) and (b) documentary corroboration from a third party and bank entries shifts the onus to the AO to disprove genuineness (Issue 2). Both holdings emphasize that absence of specific bank cheque particulars or non-authentication of ledger pages alone cannot sustain adverse additions without further contradictory evidence from the Revenue.

ISSUES PRESENTED AND CONSIDERED

1. Whether imposition of penalty under Section 158 of the Customs Act for failure to comply with sub-rule (3) of Rule 6 of the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 is justified where quarterly returns were filed late and with procedural deficiencies.

2. Whether procedural non-compliance (late filing; omission of unit's name, seal and signature of the concerned authority) amounts to fraud, gross and willful neglect, or intent to evade revenue so as to attract penal consequences under the taxing statute.

3. What legal standard and principles govern exercise of penal power under tax statutes in cases of technical, bona fide or venial breaches of procedural conditions attached to exemption notifications.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Legality of invoking Section 158 for late filing and defective quarterly returns

Legal framework: Sub-rule (3) of Rule 6 of the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 requires an importer availing exemption notification benefits to submit a quarterly return, in the prescribed form, to the Deputy Commissioner or Assistant Commissioner of Customs having jurisdiction over the premises, by the tenth day of the following quarter. Section 158 of the Customs Act authorises imposition of penalty for contraventions of conditions of exemption notifications and related rules.

Precedent treatment: The Tribunal relied on settled principles that contraventions of conditions attached to exemption notifications may attract penalties, but such penal power is to be exercised in accordance with established tests distinguishing culpable conduct from mere procedural lapses.

Interpretation and reasoning: The returns in question were admittedly filed but not before the competent Customs authority (they were filed before a CGST office), and were filed after the stipulated due dates; some returns also lacked unit's name, seal and authorised signature. The Tribunal treated these facts as establishing a procedural lapse rather than substantive breach. The Court analyzed whether the failure went beyond procedure to constitute conduct punishable under Section 158.

Ratio vs. Obiter: Ratio - Late filing and filing before a non-competent authority, plus omissions in prescribed particulars, do not automatically justify penalty under Section 158 where there is no fraud, gross and willful neglect or intent to evade revenue. Obiter - Observations on the sufficiency of certificates issued by non-Customs authorities as evidence of compliance.

Conclusion: Invoking Section 158 solely on the basis of the recorded procedural deficiencies was not justified; the penal orders were set aside insofar as they punished bona fide procedural lapses.

Issue 2 - Whether absence of fraud, gross and willful neglect or intent to evade revenue precludes imposition of penalty

Legal framework: Principles applicable to exemption notifications require the assessee to prove entitlement and to comply with prescribed procedure; where contravention is alleged, the burden rests on the assessee to show absence of fraud, gross and willful neglect, and intent to evade revenue to avert penal consequences.

Precedent treatment: The Tribunal invoked authoritative judicial principles establishing that penal sanctions under taxing statutes are not to be imposed for technical or venial breaches absent culpable mental state or deliberate wrongdoing. The Tribunal relied on higher court jurisprudence laying down the three-element test (fraud, gross and willful neglect, intent to evade revenue) as decisive in penalty matters arising from non-compliance with exemption conditions.

Interpretation and reasoning: The record did not disclose fraud, gross and willful neglect, or any intent to evade revenue. Admissions by the appellant acknowledged late filing but did not admit any dishonest or evasive motive; earlier certificates and subsequent filings demonstrated bona fide attempts to comply. The Tribunal found these facts weighed against treating the breaches as punishable misconduct.

Ratio vs. Obiter: Ratio - Absence of the three culpable elements precludes imposition of penalty for procedural non-compliance relating to exemption notifications. Obiter - Remarks on the evidentiary value of administrative communications and timing of filings.

Conclusion: The conditions necessary to justify penal action under the taxing provision were not satisfied, and penalty could not be imposed on the facts presented.

Issue 3 - Proper approach to penal policy in tax statutes for technical or bona fide breaches

Legal framework: Penal provisions in tax statutes are remedial/coercive and aimed at ensuring compliance and preventing evasion; however, exercise of penal discretion must observe the principle that penalties are generally not imposed for technical, venial, or bona fide breaches absent culpable conduct.

Precedent treatment: The Tribunal followed established jurisprudence that a revenue authority should refrain from invoking penal consequences where non-compliance arises from bona fide belief, inadvertence, or technical lapses, and that the purpose of penalty is deterrence against deliberate evasion rather than punishment for every procedural infirmity.

Interpretation and reasoning: Applying these principles to the facts, the Tribunal concluded that the appellant's failures were procedural and bona fide. The Court emphasized that penal power should be reserved for deliberate defiance, conscious disregard, or dishonest conduct and that minimum penalties should not be mechanically imposed where the breach is venial.

Ratio vs. Obiter: Ratio - Authorities must distinguish between deliberate evasion and procedural lapses; the latter do not merit penal sanctions if devoid of culpability. Obiter - Discussion on the broader policy rationale behind tempering penal enforcement in tax administration.

Conclusion: The Tribunal held that penalties are not appropriate in the present circumstances and set aside the penalties imposed under Section 158 as having been applied inappropriately to a bona fide procedural lapse.

Cross-references

See Issue 1 and Issue 2 for overlapping analysis on procedural non-compliance and the three-element test; Issue 3 explains the governing penal policy and public law rationale informing the conclusions reached under Issues 1 and 2.

ISSUES PRESENTED AND CONSIDERED

1. Whether Rule 6(3) of the CENVAT Credit Rules (CCR) required reversal of credit attributable to exempted services rendered to SEZ units for the period April 2010 to March 2011.

2. Whether the introduction of Rule 6(6A) / Notification No.03/2011-CX(NT) (w.e.f. 01.03.2011) and retrospective operation conferred by Section 144 of the Finance Act, 2012, excludes application of Rules 6(1)-(4) to services supplied to SEZ units, thereby negating any demand under Rule 6(3) for the impugned period.

3. Whether the adjudicating authority exceeded the scope of the show cause notice by invoking conditions of Notification No.09/2009-ST and by confirming extended-period recovery and penalties beyond reversal of credit proportionate to exempted services.

4. Whether supplies to SEZ units amount to "export" for purposes of exemption from reversal under Rule 6 and related statutory scheme, and whether that principle supports entitlement to CENVAT credit.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of Rule 6(3) CCR to services provided to SEZ units

Legal framework: Rule 6(3) CCR prescribes reversal of credit attributable to exempted services where inputs/input services are used for both taxable and exempted services; Notification No.03/2011-CX(NT) amended CCR to exclude certain provisions in relation to supplies to SEZs; Section 144, Finance Act, 2012, gave retrospective effect to the exclusion.

Precedent Treatment: Tribunal decisions (including cited Tribunal orders) have held that amendments and retrospective application negate requirement to reverse credit for supplies to SEZ units; High Court authority (Repro India Ltd.) has interpreted export-related exceptions in Rule 6 context.

Interpretation and reasoning: The Court examined the statutory amendments and explanatory CBEC communication and concluded that amendment by Notification No.03/2011 and retrospective operation under Section 144 removed the applicability of Rule 6(3) to services rendered to SEZ units. The Tribunal reasoned that once the legislature/Executive has carved out an exclusion for SEZ supplies, the reversal machinery of Rule 6(3) cannot be invoked for those supplies during the relevant period.

Ratio vs. Obiter: Ratio - Rule 6(3) does not apply to services provided to SEZ units where exclusion/retrospective amendment applies; Obiter - factual observations regarding filing of ST-3 returns and particulars supplied during adjudication.

Conclusion: The appellants were not required to reverse any amount under Rule 6(3) in respect of services provided to SEZ units for the impugned period.

Issue 2 - Effect of Notification No.03/2011-CX(NT) and retrospective operation under Section 144 of the Finance Act, 2012

Legal framework: Notification No.03/2011 amended CCR to provide that reversal provisions do not apply to supplies to SEZ units/developers; Section 144 confers retrospective effect to amendment for specified earlier period; CBEC letter (334/1/2012-TRU) provided administrative clarification.

Precedent Treatment: Prior Tribunal rulings (including Tata Consulting Engineers Ltd. and cited Final Orders) applied the retrospective amendment to nullify reversal obligations; these decisions were relied upon and followed.

Interpretation and reasoning: The Tribunal treated Section 144 as legislative confirmation of retrospective non-applicability of Rules 6(1)-(4) to SEZ supplies and accepted the CBEC clarification as corroborative. The Tribunal found that the amendment and retrospective operation meant that during the impugned period there was "no need to reverse any Cenvat credit" relating to SEZ supplies.

Ratio vs. Obiter: Ratio - Retrospective amendment via Section 144 removes liability to reverse credit under Rule 6 for the specified period; Obiter - reliance on administrative circular as supportive, not dispositive, evidence.

Conclusion: Notification No.03/2011 together with retrospective operation under Section 144 relieved the appellants of the obligation to reverse credit under Rule 6 for services rendered to SEZ units in the impugned period.

Issue 3 - Scope of show cause notice, extended period and imposition of penalties

Legal framework: Principles of adjudicatory fairness constrain confirming demands beyond grounds specified in a show cause notice; Rule 14 CCR prescribes recovery where excess credit is found; Finance Act penalty provisions (Sections 77 and 78) permit penalties for contraventions subject to mens rea and statutory limits.

Precedent Treatment: Authorities cited by the appellant support the proposition that assessment must be confined to issues canvassed in the notice and that where statutory amendments negate liability adjudication cannot proceed to extended period/penalties merely on pre-amendment footing.

Interpretation and reasoning: The Tribunal found the impugned order travelled beyond the scope of the show cause notice by relying on non-satisfaction of Notification No.09/2009-ST conditions and by imposing extended-period recovery and penalties rather than limiting consequence to reversal of proportionate credit (if any). Given the statutory amendment removing reversal obligation, the foundational premise for extended-period invocation and penalties fell away.

Ratio vs. Obiter: Ratio - Adjudicating authority cannot confirm demand and impose penalties beyond the scope of the show cause notice and statutory position prevailing after amendment; Obiter - comments on specific procedural omissions by the adjudicating authority regarding examination of ST-3 return details.

Conclusion: Extended period invocation and penalties were unsustainable where reversal liability itself was negated; at most, liability would be limited to proportionate reversal where applicable, which was not the case here.

Issue 4 - Characterisation of supplies to SEZ as "export" and consequent exemption from reversal

Legal framework: SEZ Act defines supplies to SEZ unit/developer by DTA supplier as deemed "export"; Rule 6 contains explicit exceptions (e.g., Rule 6(6)(v)) for exports; SEZ Act's Section 50 gives SEZ Act overriding effect over other enactments.

Precedent Treatment: High Court and Tribunal authority (Repro India Ltd. and subsequent Tribunal decisions) have treated supplies to SEZ units as exports for purposes of Rule 6 exceptions and entitlement to credit.

Interpretation and reasoning: The Tribunal relied on the statutory deeming and the priority of SEZ Act to hold that supplies to SEZ units qualify as "export" and therefore fall within exceptions to reversal under Rule 6; this line of reasoning reinforces the conclusion reached from the amendment/retrospective provisions.

Ratio vs. Obiter: Ratio - Supplies from DTA to SEZ unit/developer are to be treated as exports for Rule 6 purposes, supporting non-reversal of credit; Obiter - linkage to specific rule subclauses as illustrative rather than independently decisive where retrospective amendment also applies.

Conclusion: The export characterization of SEZ supplies provides an independent statutory basis (alongside the amendment and retrospective operation) for entitlement to CENVAT credit without reversal.

FINAL CONCLUSION OF THE COURT

The Tribunal concluded that in view of Notification No.03/2011-CX(NT), the retrospective operation granted by Section 144 of the Finance Act, 2012, and supporting administrative and judicial precedents, the appellants were not required to reverse credit under Rule 6(3) for services provided to SEZ units in the impugned period; consequently, the demand, extended-period invocation and penalties confirmed by the adjudicating authority were set aside. (Order pronounced in open court.)

ISSUES PRESENTED AND CONSIDERED

1. Whether the imported LED continuous lighting equipment (described as "Studio light mini", "Ring studio light", etc.) are classifiable under Customs Tariff Heading (CTH) 9006 (photographic flashlight apparatus) or under CTH 9405 (lamps and lighting fittings) for customs duty purposes.

2. Whether the declared transaction value of the imported goods for the period 10.03.2018 to 31.03.2022 ought to be rejected under Rule 12(1) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (the 2007 Valuation Rules) and re-determined under Rules 3 and 9 read sequentially with Rules 4-8, having regard to evidence relied upon by the revenue (statements recorded under section 108 of the Customs Act, a supplier price list e-mailed to the importer, a market survey and revised stock statements) and documents produced by the importer (Chartered Accountant certificate, initial stock statement).

ISSUE-WISE DETAILED ANALYSIS

I. Classification of imported lighting equipment (CTH 9006 v. CTH 9405)

Legal framework: Classification governed by the Customs Tariff (HSN) headings and Explanatory Notes (HSN Explanatory Notes to Chapter 90 and Chapter 94). Chapter 90 (CTH 9006) covers "photographic flashlight apparatus" producing very bright light for a very short duration (flash) distinguished from photographic lighting equipment of Chapter 94. Chapter 94 (CTH 9405) covers lamps and lighting fittings having a permanently fixed light source.

Precedent treatment: The principle of following earlier departmental/adjudicatory orders accepted by competent authority and limits on re-opening classification where binding departmental orders exist was applied; the decision relied upon the Supreme Court principle that departmental orders accepted by competent authority ordinarily preclude taking a contrary administrative view (principle invoked from a cited Supreme Court decision).

Interpretation and reasoning: The Tribunal examined the product catalogues, submitted documents and prior adjudicatory findings which found that the impugned goods produce bright light for very short durations (e.g., 1/2800-1/3000 secs every 3-5 seconds), lack a permanently fixed light source, and thereby possess the characteristics of photographic flashlights. The Tribunal contrasted Explanatory Note II to Chapter 90 (flash devices producing very bright light for a very short duration) with General Explanatory Note (3) to Chapter 94 (permanently fixed light source). The Tribunal gave effect to earlier findings by the Commissioner (Appeals) and Joint Commissioner that had concluded classification under CTH 9006 after considering product literature and absence of contrary evidence from the department; those earlier orders had been accepted by the department and were therefore binding on the Principal Commissioner absent cogent contrary evidence.

Distinguishing/reliance on precedent: The Principal Commissioner had discarded earlier departmental orders on the ground that those orders did not discuss evidence; the Tribunal held that where earlier orders of competent authorities (which had examined catalogues and similar material) were accepted by the department, the Principal Commissioner could not take a different view without demonstrating contrary evidence. The Tribunal expressly invoked the administrative/judicial discipline principle that an accepted departmental adjudication should not be lightly departed from.

Ratio vs. Obiter: Ratio-goods that produce bright light for a very short duration and do not have a permanently fixed light source fall within CTH 9006 and are excluded from CTH 9405; where prior adjudicatory orders on identical goods by competent authorities have been accepted by the department, subsequent reclassification by a later authority requires cogent contrary evidence. Obiter-observations on the quality of reasoning in the discarded orders (commentary on whether those orders discussed evidence) are ancillary to the main holdings.

Conclusion on classification: The Court concluded the appellant's classification under CTH 9006 was correct; the Principal Commissioner's re-classification to CTH 9405 was unsustainable. The Tribunal set aside the re-classification and held classification under CTH 9006 valid for the consignments in issue (including those covered by earlier accepted orders).

II. Valuation - admissibility and weight of evidence relied upon by revenue

Legal framework: Customs Valuation Rules, 2007 - Rule 3 (transaction value), Rule 12 (rejection of declared value), and the sequence of Rules 4-9 for redetermination. Evidentiary provisions of the Customs Act: section 108 (power to record statements during inquiry) and statutory safeguards in section 138B (admissibility of statements recorded during inquiry) governing when such statements may be used to prove truth of facts; analogous provisions considered from Central Excise jurisprudence (section 14 and section 9D of the Central Excise Act) were applied by the Tribunal to construe admissibility requirements.

Precedent treatment: The Tribunal relied on its earlier decision (M/s Surya Wires Pvt. Ltd. v. Principal Commissioner) which held that statements recorded under section 108 during inquiry are not automatically admissible to prove truth of contents unless (i) the person is examined as a witness before the adjudicating authority and (ii) the adjudicating authority forms an opinion that the statement should be admitted in evidence in the interests of justice - and thereafter the deponent must be available for cross-examination; non-compliance renders such statements inadmissible. This precedent was applied to exclude reliance on a "revised stock statement" produced during a section 108 statement as a basis for rejecting declared transaction value.

Interpretation and reasoning: The Principal Commissioner's valuation rejection rested significantly on (a) a revised stock statement produced during a section 108 statement increasing the value of branded goods, (b) an e-mailed supplier price list (dated after the import period) and (c) a market survey conducted in another State. The Tribunal evaluated each piece of evidence: (i) the revised stock statement generated during a section 108 statement could not be used to prove undervaluation because statutory safeguards of section 138B were not complied with (no examination as witness before adjudicating authority and no opportunity for cross-examination), aligning with the Tribunal's prior holdings; (ii) the e-mailed price list (04.07.2022) purportedly from supplier was shown by a later e-mail from the alleged supplier to be not sent by the supplier's official address and thus unreliable; the IP address inconsistency (Mumbai v. supplier in China) further undermined its probative value; (iii) the market survey conducted without participation/notice to the importer and conducted out of State could not be given decisive evidentiary weight; and (iv) the Chartered Accountant certificate submitted by the importer declaring the lower value could not be discarded without cogent reasons and was insufficiently countered by revenue evidence that failed the admissibility and reliability tests above.

Distinguishing/reliance on precedent: The Tribunal applied and followed its prior ruling on admissibility of inquiry statements and emphasized the mandatory nature of sections 138B/9D procedure; where procedural safeguards are not observed, the revenue cannot rely on such statements to reject declared transaction value under Rule 12(1). The Tribunal distinguished the Principal Commissioner's reliance on the section 108 material as procedurally infirm.

Ratio vs. Obiter: Ratio-statements recorded under section 108 during inquiry are not admissible to prove their contents for valuation purposes unless the deponent is examined as a witness before the adjudicating authority and the adjudicating authority admits the statement in the interests of justice after affording opportunity of cross-examination; evidence alleged to be forged or unauthenticated (supplier e-mail subsequently disowned by supplier and with conflicting IP data) cannot sustain valuation re-determination; market surveys conducted without notice or participation may not be decisive. Obiter-remarks on the specific sequence of events in the investigation and the reliability of particular documents as applied to this factual matrix.

Conclusion on valuation: The Tribunal concluded that the declared transaction value could not be rejected under Rule 12(1) and re-determined under Rule 9(1) on the basis of the impugned evidence. The Chartered Accountant certificate and original stock statement evidence could not be set aside on the record before the Principal Commissioner; consequently, re-determination of value was unwarranted and the valuation findings in favor of the importer were upheld.

COMPENDIUM CONCLUSION AND RELIEF

Cross-reference: On classification (see Issue I) and valuation (see Issue II), the Tribunal found both that the goods were correctly classified under CTH 9006 and that the declared transaction value was not lawfully rejectable. The Principal Commissioner's order rejecting declared value and re-classifying goods was set aside and the appellant's classification and declared values were sustained.

ISSUES PRESENTED AND CONSIDERED

1. Whether a show cause notice issued under section 274 read with section 271(1)(c) that reproduces both limbs/charges of section 271(1)(c) without striking off the inapplicable limb or otherwise specifying which limb is invoked, is a valid initiation of penalty proceedings.

2. Whether resumption of penalty proceedings after an order giving effect (OGE) to appellate/tribunal directions cures the defect of an initial general/standard-form notice that did not specify the applicable limb of section 271(1)(c).

3. Whether, having found the initial notice defective for lack of specification of the applicable limb, any further factual or proportionality arguments (e.g., monetary quantum or percentage of turnover, TP adjustments, or de minimis variation in Form 26AS) require separate determination or become academic.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of a general/standard-form show cause notice under section 274 read with section 271(1)(c) that fails to specify/strike off the inapplicable limb

Legal framework: Section 271(1)(c) prescribes penalty for concealment of particulars of income or furnishing inaccurate particulars; section 274 governs initiation of penalty proceedings by issuing a show cause notice. Communication of the charge in the notice must satisfy mandatory conditions for validity.

Precedent treatment: The Court followed binding and persuasive authorities holding that a contravention of a mandatory requirement for a communication is fatal and that notices must be precise and not ambiguous. Prior rulings (including the cited jurisdictional High Court and Supreme Court treatments referenced) establish that issuing a standard format notice without striking off inapplicable portions or otherwise specifying the exact charge renders the notice invalid.

Interpretation and reasoning: The notice in question was admitted to be a standard-format/blanket form reproducing both limbs of section 271(1)(c) without striking off the inapplicable limb or indicating which limb was invoked for each alleged misstatement. The Court reasoned that such absence of specificity leaves room for ambiguity, is contrary to principles of fair communication, and breaches a mandatory condition required for a valid initiation of penalty proceedings. The Court expressly relied on the principle that precision in the notice is required in the interest of fairness and justice, and that a communication lacking such precision is fatal to the proceedings.

Ratio vs. Obiter: The holding that initiation of penalty proceedings is invalid when the SCN fails to specify/strike off the applicable limb of section 271(1)(c) is ratio decidendi of the decision.

Conclusions: The initial show cause notice was invalid ab initio for not specifying the applicable limb; penalty proceedings premised on such notice cannot be sustained and the penalty must be deleted on that ground.

Issue 2 - Effect of resuming penalty proceedings after issuing an OGE where the subsequent notice still fails to specify the applicable limb

Legal framework: Resumption of proceedings after an order giving effect is governed by reassessment/penalty procedure rules; however, the formal requirements for a valid show cause notice (clarity as to charge) remain applicable to any fresh show cause notice.

Precedent treatment: Authorities relied upon demonstrate that subsequent procedural steps do not cure a fundamental defect in the initial communication if any fresh notice similarly lacks required specificity; courts have sustained invalidation where notices continued to be ambiguous.

Interpretation and reasoning: The subsequent notice dated 17/03/2020, issued after OGE, likewise reproduced both limbs/charges and did not strike off the inapplicable limb or clearly indicate the precise basis of the penalty. The Court held that resumption of the same defective process does not cure the initial defect. Fairness and the mandatory nature of the notice requirement mean that deficiency in either the initial or renewed notice is fatal.

Ratio vs. Obiter: The ruling that a renewed or resumed SCN which repeats the ambiguity of the original notice is likewise invalid forms part of the operative ratio.

Conclusions: The resumed penalty proceedings were also invalid because the SCN after OGE failed to remedy the fundamental lack of specificity; consequently, penalty imposed pursuant to such defective notices must be deleted.

Issue 3 - Consequence for other contested factual/contention issues once notice invalidity is established

Legal framework: Where a fundamental jurisdictional or procedural defect invalidates the initiation of proceedings, subsequent merits-based inquiries into culpability, quantification, proportionality, or de minimis considerations become unnecessary to decide.

Precedent treatment: Courts have held that when initiation of proceedings is invalid, merits issues become academic unless the initiation defect is cured in a valid manner compliant with law.

Interpretation and reasoning: Having found the notice(s) defective and the penalty initiation void, the Court treated other arguments (validity of TP adjustment, percentage of turnover, quantum of variation in Form 26AS, and whether the facts constituted furnishing inaccurate particulars or mere difference of opinion) as rendered academic for the purpose of upholding or deleting the penalty. The Court therefore did not adjudicate those merits issues but expressly stated that they were ancillary once the jurisdictional defect was decided.

Ratio vs. Obiter: The conclusion that all other grounds become academic in view of notice invalidity is an application of settled procedural principle and operative in the judgment (ratio as to consequence), though not a determination on merits.

Conclusions: The penalty deletion was ordered on procedural grounds; substantive contentions regarding concealment, inaccuracy, proportionality, or de minimis variation were not decided and are rendered academic in the present adjudication.

Disposition and consequential holding

The penalty imposed under section 271(1)(c) read with section 274 was deleted because the show cause notice initiating penalty proceedings reproduced both limbs of section 271(1)(c) without striking off the inapplicable limb or otherwise specifying the charge, a mandatory defect held to be fatal. The appeal against deletion is dismissed; the cross-objection seeking deletion of penalty is partly allowed to the extent of the above. All other grounds raised by the parties were not adjudicated as they became academic in light of the above holding.

ISSUES PRESENTED AND CONSIDERED

1. Whether Sections 69 and 132 of the Haryana Goods and Services Tax Act, 2017 are intra vires the State Legislature and/or violative of Article 13 of the Constitution.

2. Whether powers of summons, arrest and prosecution under Sections 69 and 132 (analogous to the corresponding Central GST provisions) fall within the legislative competence conferred by Article 246-A read with the doctrine of pith and substance.

3. What are the pre-conditions, standards and procedural safeguards required for exercise of arrest powers under the GST statutory scheme, including (a) the content and sufficiency of the "reasons to believe" recorded by the Commissioner; (b) the necessity (or otherwise) of completion of assessment proceedings under Section 73 before arrest; and (c) applicability of safeguards developed under Customs jurisprudence.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Constitutional vires of Sections 69 and 132 of the State GST Act

Legal framework: The challenge raises competence under the Constitution and conformity with Article 13; legislative power for GST matters is governed by Article 246-A (special entry allocating GST legislative field).

Precedent Treatment: The Court relied upon a binding higher bench decision upholding constitutional validity of the corresponding Central GST provisions as determinative for analogous State provisions.

Interpretation and reasoning: The Court applied the doctrine of pith and substance to hold that provisions conferring powers to summon, arrest and prosecute are ancillary and incidental to the power to levy and collect GST under Article 246-A. Entries conferring legislative power are to be construed liberally and in their widest amplitude; ancillary machinery and penal mechanisms necessary to prevent evasion fall within the legislative field.

Ratio vs. Obiter: Ratio - penal and coercive provisions (including arrest and prosecution) that are necessary for the levy and collection of GST are within legislative competence under Article 246-A when they are ancillary to the GST scheme. Distinctive authority and doctrine from the higher bench decision are treated as binding precedent.

Conclusions: Sections 69 and 132 of the State GST Act are constitutionally valid as measures ancillary to the legislative power under Article 246-A; the vires challenge is rejected.

Issue 2 - Scope of legislative power to provide arrest and prosecution mechanisms as ancillary to GST levy and collection

Legal framework: Construction of legislative entries and Article 246-A; application of the pith and substance doctrine and long-standing principles that entries be read broadly to include ancillary and subsidiary matters necessary for the tax machinery.

Precedent Treatment: The Court applied established authorities requiring liberal construction of legislative entries and prior decisions holding that powers necessary for levy and collection, including penalties and prosecution for evasion, are encompassed within legislative competence.

Interpretation and reasoning: The impugned provisions lay down powers necessary for effective levy and collection of GST; they are part of the machinery of government intrinsic to implementing the tax. The Court endorsed the principle that legislative powers should not be read narrowly and that measures to prevent evasion are permissible incidents of the taxing power.

Ratio vs. Obiter: Ratio - legislative competence extends to adoption of enforcement measures, including arrest and prosecution, when these are ancillary to the power to levy and collect GST under Article 246-A.

Conclusions: The power to create a penalty or prosecution mechanism, and to confer powers of arrest, is a permissible exercise of legislative power ancillary to GST; such provisions are within constitutional competence.

Issue 3 - Pre-conditions and standards for exercise of arrest power under Section 132 (procedure and safeguards)

Legal framework: Statutory text of Section 132 and related provisions, statutory scheme for assessment (e.g., Section 73), and procedural safeguards applicable to arrests; comparative application of safeguards developed under the Customs Act.

Precedent Treatment: The Court relied on higher bench guidance which elucidated pre-conditions for arrest: recording of "reasons to believe" by the Commissioner, reference to material forming the basis of satisfaction, and application of principles from Customs jurisprudence concerning records and obligations of arresting officers.

Interpretation and reasoning: (a) The Commissioner must record reasons to believe that the person committed a non-bailable offence and must refer to the material supporting the finding; ipse dixit is insufficient. (b) The computation of tax for triggering monetary thresholds must be supported by relevant and sufficient material. (c) Arrest cannot be made merely to investigate whether conditions are met; there must be a formulated opinion grounded in evidence and recorded reasons. (d) While completion of assessment proceedings under Section 73 normally quantifies tax evaded and thus assists determination under Section 132, it is not an absolute pre-condition. Where the Revenue can, without a formal assessment order, ascertain with sufficient certainty that an offence under Section 132 (clauses (a)-(d)) and the monetary threshold in clause (i) exist, the Commissioner may authorise arrest after recording explicit reasons referring to the underlying material. (e) The principle of benefit of doubt remains applicable and must be considered by both Commissioner and Magistrate on production.

Ratio vs. Obiter: Ratio - (i) Arrest under Section 132 requires recorded reasons to believe supported by material establishing non-bailable offence and satisfaction of subsection (5); (ii) completion of assessment is not an absolute prerequisite where sufficient material exists to satisfy the statutory thresholds; (iii) safeguards applicable under Customs jurisprudence (maintenance of records, obligations of arresting officer, rights of arrested person) apply equally.

Conclusions: Arrests under the GST statutory scheme are constitutionally permissible only when statutory pre-conditions are met and when reasons to believe are recorded with reference to supporting material; assessment need not always precede arrest provided the Commissioner can, on evidence, form and record an opinion with requisite certainty. Compliance with procedural safeguards and record-keeping obligations is mandatory.

Issue 4 - Applicability of Customs Act jurisprudence and standards to GST arrests

Legal framework: Established Customs jurisprudence concerning maintenance of records, obligations of arresting officers, and rights of accused when arrested under revenue statutes.

Precedent Treatment: The Court accepted the applicability of findings and ratio developed in Customs-law contexts to arrests under the GST Acts with respect to documentation, procedural obligations and protections of the accused.

Interpretation and reasoning: Principles governing lawful arrest, requirement of foundational material, and the necessity for objective exercise of power apply uniformly; failure to comply results in illegal arrest. The obligations of the arresting officer and rights of the arrested person must be observed in GST arrests as they are in Customs cases.

Ratio vs. Obiter: Ratio - Customs jurisprudential safeguards govern arrests under the GST Acts insofar as maintenance of records and procedural obligations are concerned.

Conclusions: Arresting authorities under the GST statutory scheme must adhere to the same standards of record-keeping and procedural safeguards as under the Customs regime; non-compliance renders arrest unlawful.

Final conclusion adopted by The Court

In the factual matrix before the Court, challenge to constitutional validity of Sections 69 and 132 of the State GST Act is negated and dismissed in view of the binding higher bench authority which upheld the corresponding Central GST provisions and clarified the pre-conditions, standards and safeguards applicable to exercise of arrest powers.

ISSUES PRESENTED AND CONSIDERED

1. Whether the impugned clarification dated 25 September 2020 issued by the Central Board of Indirect Taxes and Customs (CBIC) can be sustained, and whether the Court should quash or refuse to give effect to that clarification in adjudicating duty drawback claims.

2. Whether respondents may take coercive steps to recover drawback already granted pending determination of challenges to the impugned clarification.

3. Whether pending or future applications for duty drawback must be processed and disposed of without relying on the impugned clarification, and what scope of adjudication remains open on merits and other contentions.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of the impugned clarification dated 25 September 2020

Legal framework: The Court considers the legal effect of an administrative clarification issued by CBIC and its applicability in adjudication of duty drawback claims; judicial review of executive circulars/clarifications and their binding effect on subordinate authorities.

Precedent Treatment: The Court follows the decision of another High Court which had struck down the impugned clarification. That decision has not been interfered with by the Supreme Court and a Special Leave Petition against it was dismissed.

Interpretation and reasoning: Having regard to the interlocutory posture and the binding effect of the other High Court's decision not stayed or reversed by the Supreme Court, the Court accepts that the impugned clarification cannot be relied upon. The Court notes that additional rival contentions were placed on affidavit by respondents, but declines to adjudicate those competing merits issues at this stage; the only contention determined is the one directly concerning the impugned clarification.

Ratio vs. Obiter: Ratio - The impugned clarification dated 25 September 2020 is set aside and cannot be relied upon by respondents when processing and deciding duty drawback applications. Obiter - Remarks refraining from adjudicating other merit-based contentions raised by affidavit and general statements on judicial discipline.

Conclusions: The Court strikes down the impugned clarification and declares that it will not survive as a basis for decision-making by the respondents in processing past, pending or future drawback applications.

Issue 2 - Coercive recovery of drawback already granted

Legal framework: Principles permitting temporary restraint on coercive executive action where legality of the underlying administrative act is in issue; equitable protection of vested or already-granted benefits pending resolution of legal challenges.

Precedent Treatment: The Court notes that, in view of the striking down of the clarification by another High Court and absence of interference by the Supreme Court, it is appropriate to prevent coercive recovery that would defeat effective relief.

Interpretation and reasoning: On the basis that the impugned clarification has been struck down elsewhere and that the Supreme Court has not restored it, the Court directs that respondents shall take no coercive steps to recover drawback already granted, at least until further orders. This interim protection is linked to the legal status of the clarification rather than final adjudication on other merits.

Ratio vs. Obiter: Ratio - Respondents are restrained from taking coercive recovery steps in relation to drawback already granted insofar as such steps would rest upon the impugned clarification. Obiter - Grant of liberty to parties to apply in case of further orders by the Supreme Court.

Conclusions: No coercive recovery shall be undertaken by respondents in respect of already-granted drawback premised on the impugned clarification, subject to future orders and the parties' liberty to seek relief if the Supreme Court acts.

Issue 3 - Direction to process and dispose of pending and future duty drawback applications and scope of adjudication

Legal framework: Duty drawback claims must be decided in accordance with law and on their own merits; administrative authorities are obliged to process applications without reliance on an invalidated circular.

Precedent Treatment: The Court follows the adopted approach of the other High Court decision and a related batch decision of this Court recognizing that relief striking down the Circular stands worked out.

Interpretation and reasoning: The Court finds the petitioners' broadly-worded prayer for relief in part too wide, and calibrates relief to direct respondents to process and dispose of pending and future applications for duty drawback. The Court emphasizes that disposal must be in accordance with law and on merits, keeping all contentions except the one based on the impugned clarification open for adjudication. The Court clarifies that reliance on the struck-down clarification would, at least prima facie, amount to judicial indiscipline.

Ratio vs. Obiter: Ratio - Respondents must process and decide pending and future drawback applications without relying on the impugned clarification and must do so in accordance with law and merits. Obiter - Cautionary statement regarding judicial discipline and how respondents should conduct themselves.

Conclusions: The respondents are directed to process and dispose of the petitioners' pending applications and any further applications for duty drawback; decisions must be on the merits and in accordance with law, and the impugned clarification shall not be relied upon.

Cross-references and Ancillary Points

1. The Court expressly limits its determination to the issue of the impugned clarification (which is struck down) and interim relief against coercive recovery; all other rival contentions on merits remain open for adjudication.

2. The Court's directions are founded on and aligned with the judgment of another High Court that struck down the same clarification, a decision which has stood unmodified by the Supreme Court; this inter-jurisdictional posture informs the Court's reasoning and relief.

3. Relief is prospective and administrative: processing and disposal obligations are imposed on respondents, but adjudicatory outcomes on merits are reserved to the appropriate authorities or courts after consideration of all relevant law and facts.

ISSUES PRESENTED AND CONSIDERED

1. Whether an adjournment sought by counsel on the ground of illness without supporting medical documentation merits grant when previous opportunity was expressly made the last opportunity.

2. Whether repeated or mechanical requests for adjournment by counsel justify rejection and sanction, having regard to principles limiting adjournments and the duty of courts to prevent delay.

3. Whether the Tribunal may dismiss an appeal for non-prosecution under the applicable procedural rule when the appellant (through counsel) fails to appear after having been granted a last opportunity.

4. What legal standards and authorities govern exercise of discretion in granting or refusing adjournments (including applicability of Order 17 CPC provisions, relevant procedural rules, and high court/Supreme Court jurisprudence condemning routine adjournments).

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Adjournment on ground of counsel's illness without supporting medical evidence

Legal framework: The Tribunal's procedure rule governing appellant's default permits dismissal for non-appearance or hearing on merits in its discretion, subject to setting aside if sufficient cause is later shown; Order 17 CPC principles outline conditions and limits on adjournments (including provisos requiring sufficient cause and restricting adjournments where pleader's engagement elsewhere is relied upon; illness must be such that another pleader could not have been engaged).

Precedent treatment: The Court relied upon prior tribunal and Supreme Court pronouncements condemning mechanical adjournment applications and requiring objective support (e.g., medical certificate) for illness claims; such authorities were followed and applied.

Interpretation and reasoning: An adjournment request premised on counsel's illness was not accompanied by any medical certificate or corroborating material; the application was treated as mechanical and routine. Given that the earlier listing had been expressly treated as the last opportunity, and absent documentary proof satisfying the Tribunal that sufficient cause existed (and that another pleader could not have been engaged), the Court found no merit in the application and rejected it.

Ratio vs. Obiter: Ratio - An adjournment predicated on counsel's illness must be supported by objective evidence (e.g., medical certificate) and satisfy the provisos of Order 17 CPC before it can be granted, particularly where a last opportunity has been given; mechanical or unsupported claims of illness do not constitute sufficient cause. Obiter - Emphatic policy comments on the role of advocates and their duty towards timely conduct of cases, while grounded in precedent, serve as guidance rather than novel legal proposition.

Conclusions: The adjournment request based solely on an unsigned/verbal illness claim without documentary support was properly rejected; parties and their counsel must furnish objective proof to substantiate illness-based adjournments, especially after a last opportunity has been granted.

Issue 2 - Repeated or mechanical adjournments and the duty of the Tribunal to prevent delay

Legal framework: Principles derived from Order 17 CPC, procedural rules of the Tribunal, and recommendations stressing full utilization of court hours constrain routine adjournments. The Tribunal's discretion must be exercised judiciously to prevent abuse and ensure timely justice.

Precedent treatment: The Court repeatedly cited and followed higher-court authority condemning habitual adjournments as corrosive of the justice delivery system, holding that adjournment is not a matter of right and that courts must resist routine indulgence. These authorities were treated as binding guidance for the exercise of discretion.

Interpretation and reasoning: The Court reiterated the policy that repeated adjournments delay justice, erode public confidence, and may unjustly prejudice other parties. Where prior opportunities (including last chances) had been given, and where adjournment requests are stereotyped or lacking bona fide support, the Tribunal must refuse further indulgence to prevent misuse of process.

Ratio vs. Obiter: Ratio - Courts and tribunals must curtail mechanical or repeated adjournments; adjournments are discretionary and to be granted only for sufficient cause. Obiter - Extended reflections on the social and institutional harms of delay, while persuasive, constitute policy exposition accompanying the ratio.

Conclusions: The Tribunal correctly applied the principle that adjournments are not to be granted routinely and that judicial officers must be vigilant against dilatory tactics; refusal was warranted in the circumstances.

Issue 3 - Power to dismiss appeal for non-prosecution under procedural rule and standards for restoration

Legal framework: The Tribunal's procedural provision permits dismissal for default where the appellant does not appear, but also permits the Tribunal to hear on merits; where dismissal occurs, restoration is available upon showing sufficient cause for non-appearance.

Precedent treatment: The Court treated prior tribunal authority as supportive of exercising discretion to dismiss for non-prosecution when counsel fails to appear after last opportunity and when adjournment requests lack merit; Supreme Court authority warning against repeated adjournments was followed as explanatory of the circumstances in which dismissal is appropriate.

Interpretation and reasoning: Given the absence of counsel despite a last opportunity and an unsupported adjournment application, the Tribunal invoked its discretion under the procedural rule to dismiss the appeal for non-prosecution. The Court observed that reinstatement remains available if the appellant later satisfies the Tribunal that sufficient cause existed for non-appearance; however, no such showing was before the Tribunal.

Ratio vs. Obiter: Ratio - Where an appellant fails to appear after an expressly final opportunity and offers an unsupported/merely mechanical explanation, the Tribunal may dismiss for non-prosecution under its procedural rule; restoration is contingent on later satisfactory proof of sufficient cause. Obiter - Discussion of restorative measures and costs as remedies against counsel may be regarded as ancillary guidance.

Conclusions: Dismissal for non-prosecution under the procedural rule was appropriate in the circumstances; the procedural safeguard of restoration remains available upon satisfying the Tribunal of sufficient cause.

Issue 4 - Applicability and role of Order 17 CPC and related authorities in guiding adjournments in appellate tribunals

Legal framework: Order 17 CPC's provisions limiting adjournments (including provisos forbidding adjournments except where circumstances beyond control, restrictions regarding pleader's engagement elsewhere, and requirements when illness is claimed) were invoked as the guiding legal standard; Tribunal procedure rules supplement these principles.

Precedent treatment: The Court drew upon Law Commission recommendations and Supreme Court pronouncements that endorse strict application of Order 17 principles, and followed tribunal decisions applying these norms to reject routine adjournments and to dismiss for non-prosecution when warranted.

Interpretation and reasoning: The Tribunal treated Order 17 CPC principles as applicable by analogy and as embodying the policy that adjournments must be granted sparingly and only on sufficient cause. The Court applied these standards to the facts (last opportunity given; lack of documentation for illness), finding the standards unmet.

Ratio vs. Obiter: Ratio - Order 17 CPC principles, and the disciplinary jurisprudence enforcing them, apply as controlling guidance for the exercise of discretion on adjournments in tribunals; courts must require evidence of sufficient cause and ensure that illness or other personal reasons do not automatically entitle a party to adjournment. Obiter - Broader exhortations regarding judicial culture and the Bench-Bar relationship are persuasive commentary supplementing the ratio.

Conclusions: The Tribunal properly relied on Order 17 CPC principles and allied authority to reject a mechanical adjournment request and to dismiss the appeal for non-prosecution; these authorities mandate restraint in granting adjournments and promote timely disposal of matters.

1. ISSUES PRESENTED AND CONSIDERED

Whether CENVAT/Credit is available for sugar cess levied under the Sugar Development Fund Act, 1982 where the assessee is a manufacturer of final excisable goods and pays central excise duty on those goods.

Whether the sugar cess constitutes a "fee" (not eligible for CENVAT credit) or a "duty of excise / tax" (eligible for CENVAT credit) having regard to its destination to the Consolidated Fund and the statutory scheme governing the cess and the Cenvat Credit Rules.

Whether prior judicial authorities relied upon by Revenue (holding contrary view) remain binding or are distinguishable on the facts and statutory scheme before the Tribunal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Availability of CENVAT Credit for sugar cess paid on input (manufacturer of final product)

Legal framework: Cenvat Credit Rules, 2004 (Rule 3(1) and sub-clauses) set out duties/levies eligible for credit; Sugar Development Fund Act, 1982 (Section 3 levy; Section 4 proceeds to Consolidated Fund; appropriation by Parliament to Sugar Development Fund) governs levy and destination of sugar cess.

Precedent treatment: The Tribunal followed a later High Court decision that examined whether the cess is a fee or tax and concluded it is a duty of excise/tax entitling the manufacturer to credit; the Tribunal also relied on subsequent Tribunal orders adopting that High Court view. A contrary High Court decision was cited by Revenue but was considered distinguishable on context (different issue of levy of an education cess upon sugar cess).

Interpretation and reasoning: The Court examined whether the cess is earmarked as a fee (quid pro quo and credited to a special fund not part of Consolidated Fund) or whether proceeds are credited to the Consolidated Fund and thereafter appropriated by Parliament (indicating tax/duty character). Section 4 explicitly credits proceeds to the Consolidated Fund and Section 3(2) contemplates appropriation by Parliament to the Sugar Development Fund. Because proceeds go into the Consolidated Fund and are not directly and exclusively earmarked as quid pro quo for services to the payer, the levy partakes the character of a duty of excise (tax) rather than a fee.

Ratio vs. Obiter: Ratio - where statutory provisions direct proceeds of a cess into the Consolidated Fund with appropriation by Parliament, such cess is properly characterized as a duty of excise/tax for purposes of Cenvat eligibility. Obiter - general commentary on distinctions between fees and taxes derived from older constitutional decisions and the conceptual analysis of earmarking, though supportive, serve as explanatory reasoning rather than novel holdings beyond the statutory application.

Conclusions: CENVAT credit on sugar cess is allowable to a manufacturer of final products who pays central excise duty, since the sugar cess is a duty of excise/tax (not a fee) under the statutory scheme and therefore falls within the scope of duties eligible for credit under the Cenvat Credit Rules as interpreted by the Court.

Issue 2 - Effect and precedential weight of earlier decisions relied upon by parties

Legal framework: Principles of precedent and hierarchical weight of judicial decisions; assessment of decisions requires examining context, statutory provisions considered, and whether factual or legal matrices align with the present controversy.

Precedent treatment: The Court expressly followed a later High Court decision that conducted an elaborate statutory and constitutional analysis and was subsequently affirmed by dismissal of an appeal (thereby leaving the High Court view intact). The Tribunal's prior orders adopting that High Court reasoning were treated as persuasive and directly on point. A jurisdictional High Court decision advanced by Revenue was distinguished on its facts and context - specifically because it concerned the leviability of an education cess upon sugar cess rather than the direct characterization of sugar cess under the Sugar Development Fund Act.

Interpretation and reasoning: The Court gave controlling effect to the later, fully reasoned High Court decision which applied constitutional and statutory analysis to determine the nature of the cess; the dismissal of an appeal against that decision by the apex forum was treated as affirming the correctness and finality of that reasoning for present purposes. The earlier contrary decision was found to address a materially different legal question and therefore was not followed.

Ratio vs. Obiter: Ratio - a later reasoned and effectively affirmed judicial pronouncement that a cess directed to the Consolidated Fund and appropriated by Parliament is a duty/tax should govern identical controversies unless distinguishable. Obiter - remarks about procedural posture of appeals and general observations about precedence were ancillary to the dispositive comparative analysis.

Conclusions: The later High Court decision and the Tribunal orders following it are bindingly persuasive for present controversy and justify allowing CENVAT credit; the contrary decision relied on by Revenue is distinguishable and therefore does not prevent granting credit.

Issue 3 - Characterization of cess as fee v. tax: constitutional and statutory considerations

Legal framework: Constitutional provisions concerning Consolidated Fund and Public Accounts; jurisprudence distinguishing fees (earmarked, quid pro quo, not part of Consolidated Fund) from taxes/duties (credited to Consolidated Fund and appropriated for public purposes).

Precedent treatment: The Court relied on established authoritative principles distinguishing fees from taxes and applied them to the statutory language of the Sugar Development Fund Act to determine destination and earmarking.

Interpretation and reasoning: The decisive factor is whether the levy is intended to be a fee - i.e., credited to a special fund and appropriated specifically for services exactly corresponding to the levy - or whether it is credited to the Consolidated Fund and may be appropriated for general public purposes by Parliament. The statutory scheme explicitly credits proceeds to the Consolidated Fund and contemplates appropriation by Parliament; hence, the characteristics of a fee (direct quid pro quo and non-merger into public funds) are absent.

Ratio vs. Obiter: Ratio - statutory direction of proceeds to Consolidated Fund and Parliamentary appropriation transforms the levy into a duty/tax for legal characterisation relevant to Cenvat eligibility. Obiter - reiteration of constitutional principles and illustrative discussion of earmarking vs. appropriation are explanatory support for the ratio.

Conclusions: On constitutional and statutory analysis, sugar cess (as levied under the Act and routed to the Consolidated Fund) is a duty of excise/tax and not a fee, supporting entitlement to CENVAT credit.

Final Disposition (linked conclusion)

Because the sugar cess is characterized as a duty of excise/tax under the statutory scheme and in light of binding later judicial reasoning adopted by the Tribunal, the impugned order disallowing CENVAT credit was set aside and credit of sugar cess allowed; contrary authority relied upon by Revenue was distinguished on context and did not prevent allowance of credit.

ISSUES PRESENTED AND CONSIDERED

1. Whether additional duty of customs under section 3(1) read with proviso to section 3(2) of the Customs Tariff Act, 1975 can be re-determined post-clearance by invoking a deemed "retail sale price (RSP)" where imported goods do not bear RSP on packages as required by the Legal Metrology (Packaged Commodities) Rules, 2011.

2. Whether parts of forklift trucks and material-handling equipment imported for supply to existing customers (industrial/institutional consumers or for after-sale service) fall within the scope of "packages intended for retail sale" under the Legal Metrology rules and thereby attract RSP-based valuation for additional duty.

3. Whether officers of Customs have statutory competence to apply Central Excise valuation machinery (including the Central Excise Rules determining RSP) to re-determine value for levy of additional duty of customs, including reliance on rules framed under the Central Excise Act.

4. Whether absence of a legislated machinery to determine RSP (for certain periods) prevents re-assessment of additional duty based on RSP and precludes recovery under sections 17(4) and 28 of the Customs Act, 1962.

5. Whether evidentiary and procedural requirements were met to justify imposition of differential duty, interest and penalties predicated on re-determined RSP and consequent confiscation.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Power to re-determine additional duty by invoking RSP where RSP not declared on package

Legal framework: Section 3(1) of the Customs Tariff Act charges additional duty equal to excise duty leviable on a like article; section 3(2) prescribes that value for such additional duty shall be the aggregate determined under section 14 of the Customs Act, subject to a proviso deeming value to be RSP where RSP declaration on package is required by Legal Metrology rules and the article is covered by notifications under section 4A of the Central Excise Act. Customs Act sections 17(4) and 28 permit reassessment and recovery of duties not paid or short-paid.

Precedent treatment: Tribunal and larger-bench decisions have held that where statutory machinery to determine RSP was not in force for a period, RSP cannot be ascertained by retrospective application of rules made under the Central Excise Act; decisions also affirm that valuation rules under Customs Act for transaction value cannot be supplanted by excise RSP rules in absence of enabling provision.

Interpretation and reasoning: The Court reasons that the proviso to section 3(2) creates a limited exception to the general transaction-value based valuation and that the deeming of value as RSP operates only where the Legal Metrology statute requires declaration of RSP and the imported goods are within the class notified under section 4A. The RSP concept is a self-declared ceiling imprinted on pre-packaged goods and lacks an independent surrogate benchmark akin to transaction value; absent a statutorily prescribed machinery for ascertaining RSP, customs authorities cannot validly re-determine value for additional duty post-clearance by applying excise valuation rules.

Ratio vs. Obiter: Ratio - RSP-based valuation for additional duty cannot be re-determined post-clearance by customs in the absence of statutory machinery permitting ascertainment of RSP; Obiter - observations on legislative history and policy behind legal metrology.

Conclusion: Re-determination of additional duty on the basis of an RSP not declared on packages and ascertained by applying excise rules is impermissible; recovery under section 28 based on such re-determination is invalid.

Issue 2 - Applicability of Legal Metrology (Packaged Commodities) Rules to imported parts supplied to institutional/industrial customers or for after-sale service

Legal framework: The Legal Metrology (Packaged Commodities) Rules, 2011 apply to "packages intended for retail sale"; rule 3 provides exclusions (e.g., industrial/institutional consumers) from stipulatory marking. The proviso to section 3(2) and associated notifications focus on goods for which declaration of RSP is required under Legal Metrology and listed under central excise notifications.

Precedent treatment: Earlier rulings recognize that chapter 2 of the Legal Metrology rules is limited to packages intended for retail sale and that industrial/institutional use is an exclusion; authorities must demonstrate that goods passed through a retail channel to attract RSP deeming.

Interpretation and reasoning: The Court finds that the imported goods were parts intended for incorporation into equipment or for after-sale service to existing customers (manufacturers or service providers), and thus fall within the industrial/institutional category. The onus lay on customs to demonstrate the contrary (i.e., that goods were intended for retail sale), which was not discharged. The adjudicating authority's reliance on central excise conceptions of "manufacture" or on exemption-notification strictness was misplaced for determining applicability of Legal Metrology rules in this context.

Ratio vs. Obiter: Ratio - Parts imported for supply to institutional/industrial customers or for after-sale service are not prima facie within "packages intended for retail sale" and Legal Metrology RSP obligations do not automatically apply; Obiter - commentary on misapplication of exemption-notification jurisprudence.

Conclusion: The impugned goods were not shown to be within the scope of Legal Metrology RSP requirements; Customs failed to prove that the RSP-deeming proviso applied.

Issue 3 - Competence of Customs officers to apply Central Excise RSP rules and to use excise-rule methodologies to re-determine RSP

Legal framework: Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 were framed under section 4A of the Central Excise Act; Customs valuation rules and the Customs Valuation (Determination of Value of Imported Goods) Rules apply to transaction value for basic customs duty under section 14 of the Customs Act. Section 3(2) proviso limits recourse to Customs Act valuation where RSP deeming applies.

Precedent treatment: Tribunal decisions have held that excise RSP rules cannot be invoked by customs authorities to determine value for additional duty absent statutory empowerment; the later-made excise rules cannot be applied retrospectively to periods before their coming into force to determine RSP.

Interpretation and reasoning: The Court emphasizes the distinct statutory schemes and that excise rules framed under the Central Excise Act are not instruments that vest customs officers with power to determine surrogate RSP for imported goods. In the absence of specific machinery within Customs law akin to excise RSP rules (or a notification linking the two with operative mechanics), customs cannot adopt excise valuation methods to revise additional duty post-clearance. Reliance on excise rule 6 or similar provisions by customs adjudicating authority is legally untenable.

Ratio vs. Obiter: Ratio - Customs officers lack statutory competence to apply Central Excise RSP determination rules to re-value imported goods for additional duty; Obiter - legislative history explaining why separation of machinery matters.

Conclusion: Invocation of excise RSP rules by Customs to re-determine assessable value for additional duty is not sanctioned; consequent demands based on such exercise are invalid.

Issue 4 - Effect of absence of legislated machinery (temporal and substantive) to determine RSP on post-clearance reassessment and recovery

Legal framework: The Central Excise RSP Rules came into force at a specified date; prior to that effective machinery for determining RSP was lacking. Section 28 of the Customs Act enables recovery of duties not paid or short-paid, but the power is constrained by the statutory bases of assessment.

Precedent treatment: Larger Bench decisions have held that absent rule-based machinery, RSP cannot be ascertained for periods before the excise rules came into force, and recovery based on retrospective or extrapolated RSP determination is barred.

Interpretation and reasoning: The Court explains that the absence of a surrogate valuation mechanism akin to Customs Valuation Rules prevents a legitimate re-assessment of RSP after clearance. The proviso to section 3(2) contemplates RSP declared under Legal Metrology and registered via excise notifications; where those mechanisms are absent or inapplicable, reopening valuation under section 28 would subvert statutory scheme and lack legal foundation.

Ratio vs. Obiter: Ratio - Lack of statutory machinery for determining RSP disables post-clearance reassessment and recovery of additional duty premised on RSP; Obiter - remarks on administrative concerns and exchequer interest being insufficient to justify contrived valuation methods.

Conclusion: Absence of enabling machinery precludes re-determination of RSP and recovery of differential additional duty under sections 17(4)/28; the impugned reassessment is jurisdictionally infirm.

Issue 5 - Evidentiary sufficiency and legality of penalties, interest and confiscation imposed on basis of re-determined RSP

Legal framework: Penalties under Customs Act provisions attach where duty is found unpaid or short-paid in consequence of misdeclaration or contravention; interest under section 28AA follows on recovery of duty; confiscation follows where statutory conditions are met. Validity depends on lawful establishment of duty liability.

Precedent treatment: Decisions follow the principle that penalties and consequential measures cannot stand if the foundational duty determination is invalid for lack of jurisdiction or statutory authority.

Interpretation and reasoning: The Court holds that because the re-determination of value and fixation of additional duty were legally impermissible for reasons stated above (lack of applicability of Legal Metrology RSP, lack of machinery, and lack of competence to invoke excise rules), all consequential fiscal consequences (differential duty, interest, penalties, confiscation) founded on that re-determination fall with it. The adjudicating authority also failed to establish evidentiary facts (e.g., sale at the adopted RSP; that buyers were not institutional consumers) necessary to sustain the demand.

Ratio vs. Obiter: Ratio - Penalties, interest and confiscation predicated on an invalid reassessment are unsustainable; Obiter - comments on burden of proof regarding customer classification.

Conclusion: The fiscal consequences imposed on the basis of the defective valuation are invalid and must be set aside.

OVERALL CONCLUSION

The Court finds lack of jurisdictional and statutory competence in the adjudicating authority to re-determine value for additional duty of customs by invoking RSP (absent Legal Metrology coverage and in absence of enabling machinery); Customs could not validly apply Central Excise RSP rules or re-assess post-clearance on that basis. The impugned re-determination of duty, and consequential interest, penalties and confiscation, are set aside and the appeals are allowed.

ISSUES PRESENTED AND CONSIDERED

1. Whether the offence under Section 454(5) of the Companies Act (non-filing of statement of affairs) is a continuing offence for limitation purposes.

2. Whether evidence by way of affidavit in lieu of examination-in-chief is permissible in a summons-triable offence under Section 454(5) (i.e., whether the prosecution's affidavit evidence complied with CrPC and Evidence Act requirements).

3. On whom lies the burden of proving absence of a "reasonable excuse" for failing to file the statement of affairs: prosecution's initial burden and any shift to the accused.

4. Whether failure to issue notice in prescribed Form (Rule 124 of Companies (Court) Rules, 1959) absolves directors from the statutory obligation to file statement of affairs.

5. Whether the prosecution led evidence sufficient to prove wilful default beyond reasonable doubt (including proof of availability of necessary books/records with accused and that defaults continued despite availability).

6. Whether any prejudice arose from not putting wilful-default allegations to accused under Section 313 CrPC and whether Section 313 compliance affected the outcome.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Continuing nature of offence and limitation

Legal framework: Section 454(3) prescribes 21 days (extendable up to three months) from the relevant date to file statement of affairs; Section 454(5) prescribes punishment including fine "for every day during which the default continues." Limitation for summons trials governed by Section 468 CrPC; Section 472 CrPC deals with continuing offences.

Precedent treatment: Decisions recognizing continuing offences where statute prescribes recurrent penalty (e.g., State of Bihar v. Deokaran Nenshi; decisions on non-filing/returns and de die in diem penalties) and Delhi High Court authority holding non-filing of statement of affairs to be continuing (Globe Associates).

Interpretation and reasoning: The Court examined the legislative language "for every day during which the default continues" and comparative authorities on de-in-deie penalties to conclude that the statutory scheme contemplates a continuing wrong that persists until compliance. Treating the offence as not continuing would frustrate the winding-up process and permit escape from obligation after expiry of the initial window.

Ratio vs. Obiter: Ratio - the offence under Section 454(5) is a continuing offence; reliance on legislative wording and precedent forms the operative ratio.

Conclusion: The offence constitutes a continuing offence; limitation is governed by Section 472 CrPC so the complaint was not time-barred.

Issue 2 - Admissibility of affidavit evidence in summons trial

Legal framework: CrPC Sections 273 (evidence in presence of accused), 295-296 (affidavit evidence in limited situations), Section 283 (High Court rules on recording evidence); Evidence Act definition of "evidence".

Precedent treatment: Apex Court authorities emphasize accused's right to see witnesses and cross-examine (Dr. Praful B. Desai; Sujay Mitra; A.T. Mydeen), and that affidavit evidence is permissible only in specified, formal circumstances; case law distinguishing contexts where affidavits are acceptable.

Interpretation and reasoning: Section 454(5A) makes procedure for summons cases applicable; Section 273 therefore governs and ordinarily requires oral evidence in presence of accused. Affidavit in lieu is permissible under Sections 295/296 only for specified formal matters, not general prosecution evidence. Rule 976 of Bombay High Court rules prescribes manner of taking evidence. However, procedural waiver principles apply: the affidavit was tendered in court without objection at tendering; subsequent belated objection is treated as waived where the accused cross-examined the witness and the affidavit contents were not inherently inadmissible. The Court balanced strict procedure and principles of fair trial with waiver doctrine and prior judicial ruling rejecting the initial objection.

Ratio vs. Obiter: Mixed - ratio that affidavit evidence is not a substitute for oral evidence except where law permits; but where a party fails to object at the point of tender, objection to mode may be waived - operative holding in the case.

Conclusion: Affidavit evidence was not the preferred mode but the omission to object when the affidavit was tendered and subsequent cross-examination amounted to waiver; admissibility challenge could not be raised later to vitiate the trial.

Issue 3 - Burden of proof as to "reasonable excuse" for default

Legal framework: Evidence Act Sections 101, 105, 106 (burden of proof; exceptions). Criminal burden principles require prosecution to prove guilt beyond reasonable doubt except where statute creates exceptions.

Precedent treatment: Authorities (P.V.R.S. Manikumar; Vertex; Official Liquidator v. B.K. Bedi) hold that prosecution bears initial burden to show absence of reasonable excuse by proving primary facts; Section 106 applies only in exceptional cases where facts are especially within accused's knowledge and inaccessible to prosecution.

Interpretation and reasoning: The Court reaffirmed that prosecution must initially prove wilful default (absence of reasonable excuse). Section 106 does not generally shift burden to accused unless prosecution cannot, with due diligence, produce facts especially within accused's knowledge. The statutory language of Section 454(5) does not create a legal exception placing burden on accused; thus prosecution must make prima facie case (notice, lapse of time, availability of records) before onus shifts to accused to explain.

Ratio vs. Obiter: Ratio - prosecution bears initial burden; only after prima facie proof does burden shift to accused to prove reasonable excuse; Section 106 applies narrowly.

Conclusion: The prosecution bore the initial onus to establish absence of reasonable excuse; the onus would shift only upon discharge of that initial proof burden.

Issue 4 - Necessity of Rule 124 Form 55 notice

Legal framework: Substantive duty to file statement arises from Section 454; Rule 124 prescribes Form 55 notice by Official Liquidator.

Precedent treatment: Authorities interpret relationship between substantive enactment and procedural rules; issuance of prescribed form may be procedural but not a condition precedent where statute imposes independent duty.

Interpretation and reasoning: Conjoint reading shows Section 454 imposes duty on directors from relevant date; Rule 124 prescribes a procedural step for the Official Liquidator. The Court held that absence of Form 55 notice is not a sine qua non to fix culpability because statutory obligation exists irrespective of whether the Official Liquidator issued the particular form notice; thus non-issuance is irrelevant to culpability under Section 454(5).

Ratio vs. Obiter: Ratio - failure to issue Form 55 notice under Rule 124 does not relieve directors of statutory duty to file statement of affairs.

Conclusion: Lack of formal notice in Form 55 is not a defence to criminal liability under Section 454(5); liability attaches to statutory non-compliance unless a reasonable excuse is proved.

Issue 5 - Sufficiency of prosecution evidence to prove wilful default beyond reasonable doubt

Legal framework: Prosecution must prove elements of offence beyond reasonable doubt, including that accused wilfully defaulted without reasonable excuse and had the means/records to comply.

Precedent treatment: Earlier High Court decisions set out minimum proof: notice, lapse of time, and availability of company records with accused to enable preparation of statement of affairs.

Interpretation and reasoning: The prosecution relied on affidavit evidence of an Official Liquidator's junior officer and documentary exhibits (communications, orders). Critically, the Court found gaps: PW-1 lacked personal knowledge of meetings and documents; P-14 indicated that statement and records were forwarded; PW-1 could not prove contents of P-15 or demonstrate that requisite books/records were in accused's possession sufficient to prepare statement of affairs prior to filing; P-18 and P-19 (statements filed after complaint) were produced but were incomplete and their sufficiency was not established by prosecution evidence. On these facts the prosecution failed to discharge the initial burden of proving wilful default without reasonable excuse.

Ratio vs. Obiter: Ratio - absent prima facie proof that records were available with accused and despite that they wilfully failed to file a compliant statement, prosecution fails; findings about evidentiary insufficiency are dispositive.

Conclusion: Prosecution did not prove wilful default beyond reasonable doubt; therefore accused are entitled to acquittal.

Issue 6 - Section 313 CrPC compliance and prejudice

Legal framework: Section 313 CrPC requires putting evidence against accused for explanation; purpose is to afford opportunity to contradict adverse facts.

Precedent treatment: Section 313 is remedial and affords accused chance to explain; prejudice arises only where material adverse facts appear in evidence and are not put for explanation.

Interpretation and reasoning: Because prosecution failed to lead evidence establishing wilful default, there were no material adverse facts required to be specifically put; absence of targeted questioning under Section 313 did not prejudice accused. Accused made statements explaining submission of documents and one accused claimed no directorship at relevant time.

Ratio vs. Obiter: Ratio - where prosecution fails to establish essential adverse facts, omission to put hypothetical wilful-default allegations under Section 313 causes no prejudice and does not vitiate trial.

Conclusion: No prejudice resulted from Section 313 procedure in the circumstances; failure to prove wilful default was determinative.

Final Disposition (Court's Conclusion)

The prosecution failed to prove beyond reasonable doubt that the accused committed wilful default in filing the statement of affairs without reasonable excuse; while the offence is a continuing one and affidavit evidence is generally impermissible in summons trials, waiver and procedural facts rendered the affidavit admissible here; however evidentiary shortcomings on the critical issue of wilful default necessitated acquittal of all accused.

ISSUES PRESENTED AND CONSIDERED

1. Whether CENVAT credit of duty paid on TMT bars, MS channels, MS beams, MS angles, MS round bars, etc., used in fabrication/structural works qualifies as creditable "inputs" under Rule 2(k) of the CENVAT Credit Rules, 2004 for the period April 2007-April 2009.

2. Whether such goods qualify as "Capital Goods" within the meaning of Rule 2(a) for the same period.

3. Whether Explanation 2 to Rule 2(k) (as originally in force during the dispute period) excluded goods used in construction/supporting structures from being inputs, and whether the 07.07.2009 amendment (inserting an exclusion expressly listing cement, angles, channels, CTD/TMT bars etc.) is clarificatory and retrospective or prospective only.

4. Whether the Larger Bench decision holding that foundation/supporting-structure materials are not inputs (and treating the 2009 amendment as clarificatory and retrospective) remains binding in view of subsequent High Court decisions taking the opposite view.

5. Whether personal penalty imposed on an officer/director (vice-president) should be sustained where credit is found allowable for the period in dispute.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - CENVAT creditability of structural/steel items as "inputs" (Rule 2(k))

Legal framework: Rule 2(k) defines "input" to include "all goods ... used in or in relation to the manufacture of final products" and, by Explanation 2 (as originally worded during the dispute period), expressly included "goods used in the manufacture of capital goods which are further used in the factory of the manufacturer." The question is whether goods used in fabrication/embedded structures supporting plant/plant foundations qualify as inputs used in relation to manufacture of final products or as inputs for capital goods.

Precedent treatment: A Tribunal Larger Bench had held that foundation/supporting-structure materials are neither inputs nor capital goods and treated the 2009 amendment as clarificatory (thus retrospective). Subsequent High Courts (notably Chhattisgarh and Gujarat) and several Tribunals have taken the opposite view, holding that steel/ cement used in fabrication of structures embedded to earth or supporting plant/jetty construction qualify as inputs (or as inputs for capital goods) pre-amendment.

Interpretation and reasoning: The Court examined the text of Rule 2(k) and Explanation 2 as in force during April 2007-April 2009 and found that the inclusive language of "all goods ... used in or in relation to the manufacture" and Explanation 2's inclusion of "goods used in the manufacture of capital goods" supports treating items that go into fabricated structures used in production or service provision as inputs. The Court also considered functional realities (materials supplied for construction of jetty/factory/roads used in the provider's operations) and the manner of procurement/usage (supply of materials by appellant to contractor), concluding entitlement to credit where goods were provided/used by the taxable entity for its operational fixed structures.

Ratio vs. Obiter: The ratio is that, for the period prior to 07.07.2009, goods like TMT bars and structural steel used in fabrication/embedded/supporting structures that are integrally used in the factory/for providing output service fall within the scope of "inputs" under Rule 2(k) (including via Explanation 2). Observations on the method of construction (contractor vs. supplier-provided materials) and on exempted services vs. input credit are applied reasoning rather than mere obiter.

Conclusion: CENVAT credit of the duty paid on the specified steel items is allowable for the period April 2007-April 2009 where such items were used to create structures/works integrally related to the factory or to provision of output services (e.g., jetty), subject to the factual finding that the goods were indeed supplied/used by the appellant for that purpose.

Issue 2 - Whether such goods qualify as "Capital Goods" (Rule 2(a))

Legal framework: Rule 2(a) enumerates classes of goods treated as "Capital Goods" (chapters/heads, pollution control equipment, components/spares/accessories of specified goods, moulds/dies/jigs/fixtures, refractories, tubes/pipes, storage tanks, etc.) and excludes office equipment. The question is whether structural steel items fall within that enumerated definition.

Precedent treatment: Departmental approach relied on the restricted, itemized definition to deny classification of structural steel as capital goods. Conversely, judicial authorities (High Courts/Tribunals cited by the appellant) have found that goods used in fabrication of structures that are integral to operations can be treated as inputs for capital goods or inputs under Explanation 2 pre-amendment.

Interpretation and reasoning: The Court notes that the literal, headwise enumeration in Rule 2(a) does not expressly list structural steel items such as TMT bars and channels as "capital goods" under clause (i). Therefore, treating such items as capital goods purely on the basis of that definition is not tenable. However, Explanation 2 to Rule 2(k) (pre-amendment) permitted inclusion of "goods used in the manufacture of capital goods," enabling credit where those goods serve to create or support capital goods or structured plant used in manufacture/service.

Ratio vs. Obiter: The definitive legal ratio is that, under the pre-amendment legal scheme, such structural items are not necessarily "capital goods" by the strict definition of Rule 2(a) but can qualify as "inputs" by virtue of Explanation 2 to Rule 2(k) where they are used in manufacture of capital goods or structures integrally used in the factory/premises for provision of output service.

Conclusion: Structural steel items do not automatically fall within the enumerated definition of "capital goods" in Rule 2(a), but may be creditable as "inputs" for capital goods under Explanation 2 as it stood during the disputed period.

Issue 3 - Effect and character of the 07.07.2009 amendment to Explanation 2 (clarificatory/prospective) and retrospective application

Legal framework: The 07.07.2009 notification amended Explanation 2 to expressly exclude cement, angles, channels, CTD/TMT bars and other items used for construction of factory shed, buildings, laying foundations or making structures for support of capital goods.

Precedent treatment: The Larger Bench characterized the amendment as clarificatory and retrospective; High Courts disagreed, finding no legislative indicia of clarificatory intent and treating the amendment as substantive/prospective, thereby not impacting creditability for the pre-amendment period.

Interpretation and reasoning: The Court reviewed the notification and legislative practice. It held that there is no express language in the amending notification indicating that the change was meant to clarify an existing legislative intent; rather, it introduced a new exclusion. Where the legislature intends retrospective clarification it normally indicates so. The Court found the Larger Bench's conclusion that the amendment was clarificatory rested on conjecture, lacking supporting material showing legislative intent to clarify. Consequently, the amendment cannot be applied retrospectively to disallow credits legitimately claimed under the law in force prior to the amendment.

Ratio vs. Obiter: The ratio is that the 07.07.2009 amendment is not a clarificatory amendment with retrospective effect absent clear legislative intent; therefore, it cannot defeat claims validly made under the pre-amendment Explanation 2 for periods prior to the amendment.

Conclusion: The 2009 amendment is not treatable as clarificatory and retrospective; it cannot be invoked to deny credit for the period April 2007-April 2009 where the earlier Explanation 2 permitted credit.

Issue 4 - Binding effect of Larger Bench decision vis-à-vis subsequent High Court decisions

Legal framework: Tribunal decisions and Larger Bench pronouncements carry persuasive/precedential weight; High Court decisions on the point are authoritative within their jurisdiction and may prompt re-evaluation of Tribunal conclusions.

Precedent treatment: The Larger Bench took a restrictive view; later High Courts (Chhattisgarh, Gujarat) and other appellate bodies revisited and reversed that approach on legal and textual grounds, finding the restrictive reading unsustainable and the 2009 amendment non-clarificatory.

Interpretation and reasoning: The Court weighed the Larger Bench's reasoning against the textual construction of Rule 2(k)/Explanation 2 and the legislative context of the 2009 amendment. Finding the Larger Bench's characterization of the amendment as clarificatory unsubstantiated, the Court followed the High Court decisions that interpreted the pre-amendment law to permit credit for structural items used integrally in operations. The Court rejected reliance on the Larger Bench where it conflicted with the persuasive high court jurisprudence and textual analysis.

Ratio vs. Obiter: The operative ratio adopted is the High Court line of authority and textual interpretation favoring creditability for the pre-amendment period; the Larger Bench's contrary view is treated as distinguishable and not followed for the facts and period in dispute.

Conclusion: The Court declined to follow the Larger Bench position to the extent it treated the amendment as clarificatory and retrospective; instead, it followed High Court authorities and allowed credit for the disputed pre-amendment period.

Issue 5 - Personal penalty on officer/director where credit is allowable

Legal framework: Penalty for wrongful availment of CENVAT credit is contingent on the correctness of the demand and the existence of culpability.

Precedent treatment and interpretation: Where appellate scrutiny finds that the credit was allowable under the law as in force for the disputed period, sustaining a personal penalty is unsupportable. The Court applied the same legal analysis and holdings on creditability to the question of personal liability.

Ratio vs. Obiter: The ratio is that personal penalty imposed on an officer/vice-president cannot be sustained where the underlying demand/denial of credit is set aside because the credit was lawfully available for the period in dispute.

Conclusion: The personal penalty imposed on the officer/director is set aside as consequential relief because the CENVAT credit was held allowable for the disputed period.

OVERALL CONCLUSION

The Court allowed the appeals: holding that, for the period April 2007-April 2009, items such as TMT bars and structural steel used in fabrication/embedded/supporting structures that are integrally related to the factory or to provision of output services fall within the ambit of "inputs" under Rule 2(k) (via Explanation 2 as then worded); that such items are not to be excluded by the 07.07.2009 amendment retrospectively; that the Larger Bench characterization of the amendment as clarificatory is not sustainable; and that consequent personal penalties must be set aside where credit is held allowable.