1. ISSUES PRESENTED and CONSIDERED

• Whether penalty can be imposed both on the company and its officers/directors for the same alleged act of misdeclaration under the Customs Act, 1962.
• Whether there is sufficient evidence to establish the appellants' active role and guilty mind in the alleged misdeclaration or suppression of facts regarding classification of imported goods.
• Whether the classification of the imported goods as declared by the appellants was a bona fide classification or a willful misdeclaration intended to evade customs duty.
• Whether invocation of extended period of limitation is justified in the absence of willful misdeclaration.
• Whether penalty under Section 112(a) of the Customs Act, 1962 can be sustained against the appellants on the facts and evidence presented.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Imposition of Penalty on Both Company and Its Officers/Directors

Relevant Legal Framework and Precedents: The Court examined Section 140 of the Customs Act, 1962, analogous to Section 9AA of the Central Excises and Salt Act, 1944, which provides that where an offence is committed by a company, every person in charge of and responsible for the conduct of the business at the time of the offence is deemed guilty and liable to be proceeded against. The Supreme Court in Prakash Metal Works and the Gujarat High Court in VENKATARAMAN T. PAI clarified that such provisions create substantive liability on individuals associated with the company, not merely procedural or evidentiary shifts. Further, the Supreme Court in Ravindranatha Bajpe held that an individual can be prosecuted alongside the company if there is sufficient evidence of active role and criminal intent.

Court's Interpretation and Reasoning: The Tribunal concluded that penalty can be imposed both on the company and its officers/directors for the same alleged act if warranted by evidence. The law does not prohibit concurrent penalties; rather, it recognizes the company and its responsible individuals as separate entities liable for offences.

Conclusions: The contention that penalty cannot be imposed on both company and appellants is rejected. Concurrent imposition is permissible subject to proof of individual culpability.

Issue 2: Evidence of Appellants' Role in Misdeclaration or Suppression

Relevant Legal Framework: For imposition of penalty under Section 112(a), there must be proof of misdeclaration or suppression with a guilty mind (mens rea). The Supreme Court in Aban Loyd Chiles Offshore Limited emphasized that "willful" misstatement or suppression requires intention to evade duty.

Key Evidence and Findings: The impugned order relied primarily on statements recorded under Section 108 of the Customs Act from the appellants and other company officials. The Managing Director stated his limited involvement in day-to-day operations and reliance on technical staff for classification decisions. The Deputy General Manager explained the rationale for classifying the goods under CTH 8473 3099 based on the function of the TV Tuner as an accessory converting signals into data form for computers. The statements acknowledged awareness of the classification and notification benefits but denied any intention to evade duty.

The Original Investigation Officer (OIO) alleged a conspiracy and willful misclassification to evade duty, but no concrete evidence of collusion or guilty intent was produced beyond the statements. The appellants provided reasonable explanations for their classification decisions, indicating a bona fide belief rather than fraudulent intent.

Application of Law to Facts: The Tribunal found the absence of evidence demonstrating that the appellants knowingly or deliberately misclassified the goods to evade duty. Mere error or difference in classification opinion does not amount to misdeclaration. The classification dispute was interpretative, not fraudulent.

Treatment of Competing Arguments: The appellants argued lack of evidence of their active role or guilty mind; the Revenue relied on statements and inferred conspiracy. The Tribunal favored the appellants' position due to absence of cogent proof of intent to evade duty.

Conclusions: No sufficient evidence exists to hold the appellants liable for willful misdeclaration or suppression. The penalty imposed on this basis is unsustainable.

Issue 3: Bona Fide Classification and Extended Period of Limitation

Relevant Legal Framework and Precedents: Classification disputes based on bona fide belief do not attract penalties or extended limitation periods under the Customs Act. The Tribunal referred to a precedent where bona fide classification was held to preclude invocation of extended limitation.

Court's Interpretation and Reasoning: The appellants' classification was based on their understanding of the product's function and applicable tariff headings. The Tribunal noted that classification is a technical and interpretative exercise, not a guessing game, and differences of opinion are not penalizable unless malafide intent is established.

Application of Law to Facts: Since the appellants had a bona fide belief and reasonable grounds for the classification, the extended period of limitation invoked by the Revenue is not justified.

Conclusions: The classification dispute is a matter of interpretation and bona fide belief, negating the Revenue's claim for extended limitation and penalty.

Issue 4: Sustainability of Penalty Under Section 112(a) of the Customs Act, 1962

Relevant Legal Framework: Section 112(a) penalizes misdeclaration or suppression of facts with intent to evade duty. The Supreme Court has emphasized the necessity of proving willful intent.

Court's Interpretation and Reasoning: The Tribunal found that the Revenue failed to prove the essential ingredient of willfulness or fraudulent intent. The appellants' statements and conduct indicated an honest, albeit mistaken, classification. The absence of evidence of active participation in evasion or conspiracy negates penalty applicability.

Application of Law to Facts: The penalty cannot be sustained merely on the basis of difference in classification opinion or on statements without corroborative evidence of intent.

Conclusions: The penalty imposed on the appellants under Section 112(a) is set aside for lack of evidence of willful misdeclaration or suppression.

1. ISSUES PRESENTED and CONSIDERED

• Whether the fees received by a cricket player from a franchisee for playing in Indian Premier League (IPL) matches constitute taxable services under the category of 'Business Auxiliary Services' (BAS) for service tax purposes.
• Whether the display of brand names/logos of sponsors on the player's clothing and the player's role as a brand ambassador/promoter attract liability to service tax under BAS.
• Whether the contractual terms and nature of payments made to the player reflect a composite service including promotional activities or solely remuneration for playing cricket.
• Whether existing precedents and legal principles support the classification of payments to players as BAS or exclude them from such categorization.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of fees received by a cricket player under 'Business Auxiliary Services'

Relevant legal framework and precedents: The category of 'Business Auxiliary Services' under service tax law covers services that support or facilitate business activities, including promotion, marketing, or sale of goods or services. The Tribunal's earlier decisions in cases involving cricket players (Devraj Patil, Bharat Chipli, Anil Kumble, Sourav Ganguly, Swapnil Asnodkar, B. Akhil) have addressed whether payments to players for participation in IPL matches attract service tax under BAS.

Court's interpretation and reasoning: The Tribunal examined the nature of the contractual relationship and payments. The player's remuneration, termed 'player fee,' is explicitly for playing cricket, as evidenced by contract clauses reducing fees if the player is unavailable. This indicates the payment is consideration solely for participation in sport, not for promotional or marketing services.

Key evidence and findings: The contract between the player and franchisee does not impose any obligation on the player to render marketing or promotional services. The player's role as a promoter or brand ambassador is not contractually recognized as a service rendered to the franchisee. The player's fees are distinct from any brand promotion activities.

Application of law to facts: The Tribunal applied the principle that composite contracts involving both taxable and non-taxable components require clear segregation to levy service tax. Absent any machinery or method to apportion the value attributable to promotional services, the entire fee cannot be taxed under BAS. The player's remuneration for playing cricket is not a taxable service under BAS.

Treatment of competing arguments: The Revenue argued that the display of brand names on players' clothes and their role as brand ambassadors constitute taxable BAS. However, the Tribunal rejected this, relying on prior rulings that distinguished between payments for playing and payments for brand promotion. The Tribunal noted that franchisees have separate agreements with corporate sponsors, and players cannot be doubly taxed for promotional services.

Conclusions: The Tribunal concluded that fees paid to players for playing cricket in IPL matches do not fall under 'Business Auxiliary Services' and are not liable to service tax under this category.

Issue 2: Liability for service tax due to brand promotion by players

Relevant legal framework and precedents: Service tax liability arises if a player renders services as a brand ambassador promoting goods or services of a third party. The classification of such services is distinct from BAS and falls under 'Brand Ambassador' services, which require separate registration and tax compliance.

Court's interpretation and reasoning: The Tribunal referred to the appellant's submission and prior case law (notably Sourav Ganguly's case) where it was clarified that players who act as brand ambassadors for goods/services must register and pay service tax under the 'Brand Ambassador' category. However, in IPL contexts, players do not have direct agreements with sponsors; such agreements are held by franchisees.

Key evidence and findings: The appellant had obtained service tax registration under the 'Brand Ambassador' category for any such services rendered outside the IPL franchise context. No evidence was found that the player received separate consideration for brand promotion from the franchise or sponsors.

Application of law to facts: Since the player's contract with the franchisee does not include brand promotion services and the player's remuneration is solely for playing, the display of brand logos on clothing does not automatically render the player liable to service tax under BAS. The franchisee's agreements with sponsors cover promotional activities, and the player's role is incidental.

Treatment of competing arguments: The Revenue's contention that brand display equates to BAS was countered by the Tribunal's reliance on the principle against double taxation and the absence of contractual promotional obligations on players.

Conclusions: The Tribunal held that brand promotion by players under IPL contracts does not attract service tax under BAS, and any brand ambassador services must be separately registered and taxed if applicable.

Issue 3: Interpretation of composite contracts and taxability

Relevant legal framework and precedents: The law requires clear identification and valuation of taxable components in composite contracts. If no method exists to segregate taxable and non-taxable services, the entire contract cannot be taxed. This principle was reiterated in the Tribunal's decisions and is a settled legal norm.

Court's interpretation and reasoning: The Tribunal found that the player's contract is a composite contract for playing cricket, with no separate valuation or consideration for promotional services. The absence of machinery to exclude non-taxable services from the composite fee renders the levy of service tax invalid.

Key evidence and findings: Contract clauses reducing player fees if unavailable for matches confirm that the fee is linked solely to playing services. No documentary evidence was produced to show separate payments for promotion or marketing.

Application of law to facts: The Tribunal applied the principle that vagueness or absence of apportionment in composite contracts makes the service tax levy unsustainable.

Treatment of competing arguments: The Revenue's assumption that the fee was composite and fully taxable was rejected due to lack of evidentiary support and legal precedent.

Conclusions: The Tribunal concluded that the demand for service tax on the entire player fee under BAS is unsustainable and set aside the impugned order.

1. ISSUES PRESENTED and CONSIDERED

• Whether the service tax credit availed on 'Management or Business Consultant's Service' and 'Business Support Service' qualifies as input service under Rule 2(l) of the CENVAT Credit Rules, 2004 (CCR 2004) and is therefore admissible.
• Whether the impugned denial of CENVAT credit on these services and consequent demand of service tax along with interest and penalty under Rule 14 and Rule 15(1) of CCR 2004 is justified.
• Interpretation and scope of the term 'input service' under Rule 2(l) of CCR 2004, especially post its amendment effective from 01.04.2011.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility of CENVAT Credit on 'Management or Business Consultant's Service' and 'Business Support Service'

Legal Framework and Precedents: Rule 2(l) of CCR 2004 defines 'input service' as any service used by a manufacturer, directly or indirectly, in or in relation to the manufacture of final products and their clearance up to the place of removal. The rule includes an illustrative list of services such as advertisement, sales promotion, market research, accounting, financing, recruitment, coaching, security, etc. The definition was amended effective 01.04.2011 to clarify the scope.

Relevant judicial precedents include:

• Bombay High Court's decision in Coca Cola India Pvt. Ltd. v. CCE, which held that the term 'business' is an integrated, continuous activity and not confined to mere manufacture. The phrase 'activities relating to business' is broad and includes all activities related to the functioning of a business.
• Ultratech Cement Ltd. ruling, which recognized that input service credit includes services used in relation to the business of manufacture, whether availed prior to or after manufacture.
• Madras High Court's ruling in M/s. Rane TRW Steering System Ltd., which after extensive analysis, held that the definition of input services cannot be restricted only to manufacture but includes services used in relation to the business of manufacture and clearance.
• Supreme Court decision in Ramala Sahkari Chini Mills Ltd., reinforcing the broad interpretation of input services.

Court's Interpretation and Reasoning: The Court emphasized the wide scope of 'input service' under Rule 2(l), which includes services used indirectly or in relation to manufacture and clearance of final products. The definition explicitly includes services such as management consultancy, business support, and others that support the business operations integral to manufacturing.

The Court rejected the narrow interpretation urged by Revenue that input service credit should be confined strictly to services directly linked to manufacturing processes. It relied on authoritative judicial pronouncements to affirm that services supporting the overall business operations of the manufacturer qualify as input services.

Key Evidence and Findings: The appellant had availed credit on various input services including 'Management or Business Consultant's Service' and 'Business Support Service' based on ISD invoices from their Head Office. The adjudicating authority confirmed disallowance only on these two services, while other services were accepted.

The Revenue's contention was that these services were not used directly or indirectly in or in relation to manufacture and clearance of final products, and thus not eligible for credit.

Application of Law to Facts: Applying the broad interpretation of Rule 2(l) and judicial precedents, the Court found that the impugned services fall within the ambit of input services. The services in question support the business activities related to manufacture and clearance, thereby qualifying for credit.

Treatment of Competing Arguments: The Revenue's argument for restricting input service credit to only those services directly linked to manufacture was rejected. The Court held that the definition and judicial precedents clearly support a wider interpretation encompassing services that relate to the business of manufacture.

Conclusions: The service tax credit availed on 'Management or Business Consultant's Service' and 'Business Support Service' is admissible input service credit under Rule 2(l) of CCR 2004. The disallowance of credit on these services by the adjudicating authority is set aside.

Issue 2: Validity of Demand for Service Tax, Interest and Penalty on Disallowed Credit

Legal Framework: Rule 14 of CCR 2004 read with Section 11A(1) and Section 11AB of the Central Excise Act, 1944 provides for recovery of service tax along with interest where credit is wrongly availed. Rule 15(1) of CCR 2004 provides for imposition of penalty for contravention of the rules.

Court's Reasoning: Since the Court held that the credit on the disputed services was rightly availed, the demand for service tax recovery, interest, and penalties based on disallowance cannot be sustained. The penalty is contingent upon the existence of wrongful availment of credit, which is negated by the Court's findings.

Application of Law to Facts: The adjudicating authority imposed proportionate penalties along with demand of service tax and interest on disallowed credit for the two services. Given the Court's acceptance of credit eligibility, these demands and penalties fail.

Conclusions: The demand of service tax, interest, and penalties on the disallowed credits are set aside as unsustainable.

Issue 3: Interpretation and Scope of Rule 2(l) of CCR 2004

Legal Framework: Rule 2(l) defines 'input service' with an inclusive list and explanation, emphasizing usage in relation to manufacture and clearance of final products. The amendment effective 01.04.2011 clarified and expanded the scope.

Court's Interpretation: The Court interpreted Rule 2(l) in a purposive and expansive manner, consistent with legislative intent and judicial precedents, to include services used indirectly or in relation to business activities associated with manufacture and clearance.

Key Findings: The Court noted that the definition includes services such as advertisement, sales promotion, accounting, recruitment, coaching, security, and others that are integral to business operations supporting manufacture.

Conclusions: The scope of 'input service' under Rule 2(l) is broad and not confined to direct inputs into manufacture. Services supporting the business of manufacture qualify for CENVAT credit.

1. ISSUES PRESENTED AND CONSIDERED

• Whether the order dated 11th April, 2025 passed under Section 73 of the GST Act is legally sustainable when it includes demand for tax periods already covered and recovered under a prior order dated 1st December, 2022.
• Whether raising a demand for the same tax periods twice amounts to double taxation and is thus impermissible under the GST Act.
• What procedural safeguards and directions should be followed when reassessing input tax credit claims for remaining tax periods not covered by the earlier order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of the order dated 11th April, 2025 including previously adjudicated tax periods

Relevant legal framework and precedents: The GST Act, specifically Section 73, empowers authorities to adjudicate demands related to input tax credit mismatches. However, principles against double taxation and finality of orders under the GST regime are well recognized. The Court also invoked Articles 226 and 227 of the Constitution for judicial review.

Court's interpretation and reasoning: The Court examined the two orders: one dated 1st December, 2022 demanding Rs.21,38,338/- for April to September 2021, and the subsequent order dated 11th April, 2025 demanding Rs.51,39,498/- for April 2021 to March 2022. It was found that the latter order subsumed the earlier period's demand, effectively duplicating the tax liability for April to September 2021.

Key evidence and findings: The petitioner demonstrated, and the Standing Counsel conceded, that the demand for April to September 2021 was included twice-once in the order of December 2022 and again in April 2025. The earlier demand had already been deducted from the petitioner's cash ledger during the pendency of appeal.

Application of law to facts: The Court held that inclusion of the same tax periods in two separate demands violates the principle against double taxation. The GST Act does not permit recovery of the same tax twice for identical periods and transactions.

Treatment of competing arguments: The petitioner argued lack of jurisdiction and impermissibility of double recovery. The State initially defended the order but later conceded the error upon instructions. The Court found the petitioner's submissions well-founded.

Conclusions: The order dated 11th April, 2025 is unsustainable and set aside as it results in double taxation for overlapping tax periods.

Issue 2: Procedural directions for reassessment of input tax credit claims for remaining tax periods

Relevant legal framework: Section 73 of the GST Act provides the adjudicatory framework for demands related to input tax credit mismatches. Principles of natural justice and procedural fairness require opportunity of hearing and examination of evidence before passing orders.

Court's interpretation and reasoning: The Court recognized the need for a fair and expeditious reassessment of the petitioner's claims for tax periods from October 2021 to March 2022, excluding the already adjudicated periods.

Key evidence and findings: The petitioner was directed to produce books of account, tax invoices, and other relevant documents supporting the ITC claims for the specified period.

Application of law to facts: The Court mandated that the tax authority issue intimation within one week, provide opportunity of hearing, and pass a reasoned order after considering evidence and submissions. The petitioner was required to cooperate and avoid unnecessary adjournments.

Treatment of competing arguments: The Court balanced the State's interest in tax collection with the petitioner's right to fair procedure, emphasizing adherence to timelines and avoidance of undue delay.

Conclusions: The Court directed completion of the reassessment process within six weeks from issuance of intimation, ensuring procedural fairness and finality.

1. Whether the reopening of assessment under section 147 of the Income Tax Act, 1961, was justified based on the reasons recorded and information received from the Investigation Wing regarding alleged bogus purchases by the assessee trust.

2. Whether the addition of Rs. 1,85,00,000/- made by the Assessing Officer under section 68 of the Act treating the alleged bogus purchases as unexplained credit was sustainable.

3. Whether the statement recorded under section 132(4) of the Act of the alleged accommodation entry operator holds significant evidentiary value in absence of cross-examination and can be relied upon to establish bogus transactions.

4. Whether the Assessing Officer was required to conduct independent inquiry or third-party verification to establish the bogus nature of purchases before making additions.

5. Whether the assessee's status as a charitable trust registered under section 12A and claiming exemption under section 11, with excess application of income over receipts, negates the possibility of bogus purchases affecting taxable income.

6. Whether the proceedings initiated under section 147 are valid in light of the search conducted on the alleged accommodation entry operator and whether the Assessing Officer ought to have initiated proceedings under section 153C instead.

7. Whether penalty under section 271(1)(c) of the Act levied on the basis of the addition is justified when the addition itself is deleted.

Issue 1: Justification for reopening assessment under section 147

- Legal Framework and Precedents: Section 147 permits reopening where the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. Explanation 2(b) to section 147 extends time limits in certain cases. The reopening must be based on credible material and reasons recorded.

- Court's Reasoning: The Assessing Officer reopened the assessment based on information from the Investigation Wing indicating fictitious purchases from a shell entity linked to an accommodation entry operator. Reasons recorded detailed the modus operandi and linked the assessee's purchases to the shell entity. Sanction under section 151 was obtained as more than four years had elapsed.

- Findings: The reopening was procedurally valid with reasons recorded and sanction obtained. However, the credibility of the material was questioned due to absence of independent verification and inconsistencies in the statement of the alleged operator.

- Application of Law to Facts: The Court noted that the statement of the operator indicated that bogus bills were provided only from January 2018 onwards, whereas the assessment year in question was 2014-15. The Assessing Officer did not conduct further inquiry to establish that bogus bills were provided during the relevant year.

- Treatment of Competing Arguments: Revenue argued reopening was justified on credible information. Assessee contended that the information was selectively relied upon and no independent inquiry was made. The Court found merit in the assessee's argument that reopening based solely on such information without further investigation was not justified.

- Conclusion: Reopening was valid procedurally but the material basis for reopening was insufficient to establish escapement of income for the relevant year.

Issue 2: Validity of addition of Rs. 1,85,00,000/- under section 68 treating purchases as unexplained credit

- Legal Framework and Precedents: Section 68 allows addition of unexplained credits if the assessee fails to satisfactorily explain the nature and source of such credits. The genuineness of transactions must be established by the Assessing Officer.

- Court's Reasoning: The Assessing Officer treated the purchases from the shell entity as bogus and added the amount under section 68. The CIT(A) deleted the addition on grounds that the assessee and its employees did not know the alleged operator and no opportunity was given to cross-examine him. No third-party inquiry was conducted and no material was produced to prove the bills were fake. The assessee's application of income exceeded its receipts, negating tax liability.

- Key Evidence and Findings: The statement of the alleged operator indicated no bogus bills were provided during the relevant year. The assessee produced books of account, bank statements, and invoices. The excess application of income was Rs. 5,79,77,998/- beyond receipts.

- Application of Law to Facts: The Court held that addition under section 68 requires independent verification and cannot be based solely on third-party statements without cross-examination or inquiry. The excess application of income further negated any tax liability.

- Treatment of Competing Arguments: Revenue relied on investigation reports and statements to assert bogus nature. Assessee emphasized lack of independent inquiry and contradictory statements. The Court sided with the assessee on the need for independent inquiry and factual inconsistencies.

- Conclusion: Addition under section 68 was not sustainable and rightly deleted by the CIT(A).

Issue 3: Evidentiary value of statement recorded under section 132(4) without cross-examination

- Legal Framework and Precedents: Statements recorded under section 132(4) have evidentiary value but principles of natural justice require opportunity for cross-examination for such statements to be relied upon conclusively.

- Court's Reasoning: The CIT(A) and the Court noted that the assessee was not given opportunity to cross-examine the alleged operator. The statement indicated the operator began providing bogus bills only from 2018, post the relevant assessment year. Reliance on the statement without cross-examination was improper.

- Treatment of Competing Arguments: Revenue argued the statement has significant evidentiary value. Assessee argued that absence of cross-examination and contradictory content diminished its value. The Court held that reliance on such statements without cross-examination is not justified.

- Conclusion: Statement recorded under section 132(4) cannot be the sole basis for addition without cross-examination and independent verification.

Issue 4: Requirement of independent inquiry or third-party verification before making additions

- Legal Framework and Precedents: Judicial precedents mandate that Assessing Officers must conduct independent inquiry or third-party verification to establish the bogus nature of transactions before making additions.

- Court's Reasoning: The Assessing Officer failed to conduct any third-party inquiry or independent verification despite having access to books of accounts, bank statements, and invoices. The Court emphasized that additions based on mere information from investigation wing or statements without independent inquiry are not sustainable.

- Treatment of Competing Arguments: Revenue contended information from investigation wing sufficed. Assessee highlighted lack of inquiry and failure to verify facts. The Court concurred with the assessee's position.

- Conclusion: Independent inquiry is essential before making additions on account of alleged bogus purchases.

Issue 5: Effect of assessee's status as charitable trust and excess application of income on taxability and addition

- Legal Framework and Precedents: Under section 11, income of a charitable trust is exempt if applied for charitable purposes. Excess application of income over receipts negates taxable income. Denial of exemption is limited to diversion or misapplication of funds.

- Court's Reasoning: The assessee's application of income was Rs. 108,17,64,353/- against income of Rs. 102,37,86,355/-, showing excess application of Rs. 5,79,77,998/-. Even if the alleged bogus purchases were disallowed, the excess application negated any taxable income. The Court relied on precedents restricting denial of exemption to amounts diverted to prohibited persons.

- Treatment of Competing Arguments: Revenue argued bogus purchases warranted addition. Assessee argued excess application negated tax liability. The Court accepted assessee's argument.

- Conclusion: The assessee's excess application of income negates any tax liability and addition on account of alleged bogus purchases.

Issue 6: Validity of proceedings initiated under section 147 instead of section 153C post search

- Legal Framework and Precedents: Section 153C applies to assessments in cases where search or seizure has taken place. However, initiation under section 147 is not invalid merely because section 153C could have been invoked.

- Court's Reasoning: The assessee contended that since incriminating material was found during search on the alleged operator, proceedings should have been initiated under section 153C. The Revenue relied on judicial decisions holding that initiation under section 147 is valid even if section 153C could have been invoked.

- Conclusion: Proceedings under section 147 are valid and not vitiated by non-invocation of section 153C.

Issue 7: Validity of penalty under section 271(1)(c) when addition is deleted

- Legal Framework and Precedents: Penalty under section 271(1)(c) is contingent upon the addition being sustained. Deletion of addition generally leads to deletion of penalty.

- Court's Reasoning: Since the addition of Rs. 1,85,00,000/- was deleted, the penalty levied on the same basis was rightly deleted by the CIT(A). The Court upheld the deletion of penalty.

- Conclusion: Penalty under section 271(1)(c) was rightly deleted following deletion of addition.

1. ISSUES PRESENTED and CONSIDERED

• Whether the order passed under section 263 of the Income Tax Act, 1961 ("the Act") is justified on the grounds that the assessment order for AY 2018-19 is erroneous and prejudicial to the interest of the Revenue.
• Whether the Assessing Officer (AO) erred in allowing depreciation on goodwill in AY 2018-19 when the same was disallowed in the immediately preceding year (AY 2017-18) without any change in facts or legal position.
• Whether invoking section 263 of the Act is valid where the AO is alleged to have failed to make relevant inquiries or verify claims regarding depreciation on goodwill and escapement of income related to the amalgamating company.
• Whether the principle of consistency precludes revisional proceedings under section 263 when depreciation on goodwill was allowed in subsequent years after being disallowed in the earlier year.
• Whether the goodwill recorded post-amalgamation qualifies as a depreciable asset under the relevant provisions of the Act.
• Whether the Principal Commissioner of Income Tax (PCIT) exceeded jurisdiction by directing the AO to examine valuation aspects of goodwill pertaining to an earlier assessment year.
• Whether the invocation of section 263 proceedings is a mere difference of opinion or based on a substantive error prejudicial to Revenue.
• Whether the invocation of section 263 was a mechanical exercise ignoring the concluded reassessment proceedings and accepted returned income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of invoking section 263 of the Act on grounds of erroneous and prejudicial assessment order

Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the PCIT to revise an assessment order if it is found to be erroneous and prejudicial to the interest of the Revenue. Both conditions must be satisfied for exercise of revisional jurisdiction.

Court's Interpretation and Reasoning: The Court observed that the AO had disallowed depreciation on goodwill in AY 2017-18 based on facts and legal position applicable also to AY 2018-19. However, in AY 2018-19, the AO allowed the same depreciation claim without any inquiry or fresh justification, thereby failing to apply mind to the claim.

Key Evidence and Findings: The goodwill was recorded at Rs.1202.35 crores post-amalgamation, and depreciation of Rs.57.11 crores at 5% was claimed under the block for "Buildings," which was inconsistent with the intangible nature of goodwill. The AO's failure to disallow depreciation again despite no change in facts was found to be an error prejudicial to Revenue.

Application of Law to Facts: The Court held that the AO's order was erroneous and prejudicial as it allowed a claim previously disallowed without inquiry, violating the statutory requirement under section 263.

Treatment of Competing Arguments: The assessee's argument that the AO had accepted depreciation in subsequent years and thus the revisional jurisdiction was barred by the principle of consistency was rejected as the facts and legal position remained unchanged.

Conclusion: The revisional jurisdiction under section 263 was validly invoked as the assessment order was erroneous and prejudicial to Revenue.

Issue 2: Application of the principle of consistency in depreciation claims on goodwill

Legal Framework and Precedents: The principle of consistency generally prevents the Revenue from changing its stand arbitrarily in successive years unless there is a change in facts or law.

Court's Interpretation and Reasoning: The Court emphasized that the principle applies when a claim has been accepted in the past and continues without change. Here, the depreciation claim was disallowed in the first year and allowed in the next without any fresh basis or change in facts.

Key Evidence and Findings: No material indicated any change in facts or circumstances justifying allowance in AY 2018-19 after disallowance in AY 2017-18. The AO's failure to disallow in AY 2018-19 was an oversight, not a consistent application of law.

Application of Law to Facts: The principle of consistency was held inapplicable as the position was reversed; the claim was disallowed first and then allowed without justification.

Treatment of Competing Arguments: The assessee's reliance on subsequent allowance of depreciation was dismissed as irrelevant to the correctness of the earlier assessment.

Conclusion: The principle of consistency did not bar invoking section 263 to correct the erroneous allowance of depreciation in AY 2018-19.

Issue 3: Whether goodwill qualifies as a depreciable asset under the Act

Legal Framework and Precedents: Goodwill is an intangible asset. Depreciation on goodwill is generally not allowable under section 32 read with section 43(1) of the Act unless specific provisions or judicial precedents permit.

Court's Interpretation and Reasoning: The Court noted that goodwill recorded represented actual consideration paid over the value of assets taken over from the amalgamating company. However, the goodwill was treated as a depreciable building asset at 5%, which was inconsistent with its intangible nature.

Key Evidence and Findings: The AO's acceptance of depreciation claim without verifying the nature of asset or applying correct depreciation rate was flawed. The PCIT distinguished judicial precedents cited by the assessee, noting that higher forums have not upheld depreciation on goodwill on merits.

Application of Law to Facts: The Court found that the depreciation claim on goodwill was not legally sustainable as the asset was intangible and depreciation claimed under "Buildings" block was incorrect.

Treatment of Competing Arguments: The assessee's argument that goodwill falls within the definition of depreciable asset was rejected due to lack of legal basis and incorrect classification.

Conclusion: Goodwill does not qualify for depreciation as claimed, and the AO's failure to disallow depreciation was erroneous.

Issue 4: Whether the AO failed to make relevant inquiries or verify claims on depreciation and escapement of income

Legal Framework and Precedents: The AO is required to apply mind and make necessary inquiries to verify claims and ensure correct assessment.

Court's Interpretation and Reasoning: The Court observed that the AO did not make inquiries regarding the depreciation claim on goodwill despite disallowing it in the prior year and despite pending appeals. The AO also failed to clarify whether income of the amalgamating company (UMIPL) was offered to tax by the amalgamated entity (UMIL).

Key Evidence and Findings: The PCIT noted that the AO merely accepted the claim as shown in the computation without any inquiry or verification, which is insufficient to constitute proper assessment.

Application of Law to Facts: The AO's failure to apply mind and make inquiries rendered the assessment order erroneous and prejudicial.

Treatment of Competing Arguments: The assessee contended that primary details were provided and the claim was apparent from records, but the Court found this insufficient to absolve the AO of duty to verify.

Conclusion: The AO's failure to make relevant inquiries justified revision under section 263.

Issue 5: Jurisdictional limits regarding examination of valuation of goodwill relating to earlier assessment year

Legal Framework and Precedents: The revisional authority cannot direct reassessment or inquiry into issues pertaining exclusively to an earlier assessment year under section 263.

Court's Interpretation and Reasoning: The PCIT directed the AO to examine valuation of goodwill pertaining to AY 2017-18 while deciding AY 2018-19. The Court noted this was beyond the scope of revisional jurisdiction under section 263 for the year under consideration.

Key Evidence and Findings: The valuation issue related to an earlier year and was already subject to assessment and appeal proceedings.

Application of Law to Facts: The Court held that the PCIT exceeded jurisdiction by directing inquiry into earlier year's valuation while revising the current year's assessment.

Treatment of Competing Arguments: No substantial argument was accepted to justify such direction.

Conclusion: Direction to examine earlier year valuation was beyond jurisdiction and void.

Issue 6: Whether revisional proceedings under section 263 amount to mere difference of opinion

Legal Framework and Precedents: Section 263 cannot be invoked merely because of a difference of opinion between AO and PCIT; the assessment order must be erroneous and prejudicial.

Court's Interpretation and Reasoning: The Court found that the AO's failure to disallow depreciation on goodwill, contrary to the previous year's order and without inquiry, constituted an error, not merely a difference of opinion.

Key Evidence and Findings: The AO's acceptance of depreciation at an incorrect rate and classification without verification was a substantive error.

Application of Law to Facts: The Court distinguished mere difference of opinion from an error affecting Revenue's interest.

Treatment of Competing Arguments: The assessee's claim of difference of opinion was rejected.

Conclusion: Revision under section 263 was not based on difference of opinion but on an error prejudicial to Revenue.

Issue 7: Whether section 263 proceedings were a mechanical exercise ignoring concluded reassessment and accepted returned income

Legal Framework and Precedents: Revisional proceedings must be based on fresh material or error; they cannot be a mechanical repetition of concluded proceedings.

Court's Interpretation and Reasoning: The Court noted that the reassessment under section 148 had concluded with no additions, and the returned income including the disputed amount was accepted. However, the PCIT found that the AO did not apply mind in the subsequent year's assessment.

Key Evidence and Findings: The PCIT's invocation of section 263 was based on the AO's failure to disallow depreciation in AY 2018-19, not on the reassessment of escaped income.

Application of Law to Facts: The revisional proceedings addressed a distinct error in AY 2018-19 assessment order and were not a duplication of earlier proceedings.

Treatment of Competing Arguments: The assessee's contention of duplication and mechanical exercise was rejected.

Conclusion: Section 263 proceedings were valid and not mechanical or duplicative.

1. ISSUES PRESENTED and CONSIDERED

• Whether penalty under section 272A(1)(d) of the Income-tax Act, 1961 can be imposed for failure to comply with notices issued under section 142(1) when the assessee claims non-receipt of such notices.
• Whether the existence of reasonable cause under section 273B of the Act can exempt the assessee from penalty liability for non-compliance with statutory notices.
• Whether the non-compliance with notices was willful or due to lack of knowledge arising from improper service, particularly considering the assessee's non-resident status.
• The applicability and scope of penalty provisions under section 272A(1)(d) in cases of non-cooperation and ex-parte assessment under sections 147 and 144 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Imposition of penalty under section 272A(1)(d) for non-compliance with notices under section 142(1)

Legal Framework and Precedents: Section 272A(1)(d) imposes penalty for failure to comply with notices issued under sections 143(2), 142(1), etc. The penalty is predicated on the assessee's failure to furnish information or documents as required by the statutory notice.

Court's Interpretation and Reasoning: The Tribunal observed that the Assessing Officer (A.O.) issued multiple notices under section 142(1), which the assessee did not respond to. The A.O. completed assessment ex-parte under section 147 read with section 144 due to non-cooperation. The CIT(A) affirmed the penalty on the basis that the assessee failed to comply with statutory notices despite reminders and show cause notices.

Key Evidence and Findings: The Department relied on the fact that the assessee did not file return or respond to notices. The penalty notices under section 272A(1)(d) were also not responded to. However, the assessee claimed non-receipt of all such notices, citing lack of effective service, especially given the non-resident status.

Application of Law to Facts: The Tribunal noted that the fundamental basis for penalty under section 272A(1)(d) is willful default or failure to comply. Mere non-compliance without knowledge of the notices cannot constitute willful default. The absence of proof of proper service undermines the Department's case.

Treatment of Competing Arguments: While the Department emphasized non-cooperation, the assessee argued absence of knowledge due to non-service. The Tribunal found no material on record to show proper service in accordance with prescribed procedures for a non-resident assessee.

Conclusions: Penalty under section 272A(1)(d) cannot be sustained where the assessee was not effectively served and thus had no knowledge of the notices. Non-compliance due to lack of service does not amount to willful default.

Issue 2: Existence of reasonable cause under section 273B and its impact on penalty liability

Legal Framework and Precedents: Section 273B provides that no penalty shall be imposed if the assessee proves that there was reasonable cause for failure to comply with the provisions of the Act.

Court's Interpretation and Reasoning: The assessee contended that non-receipt of notices constituted reasonable cause for non-compliance. The Tribunal accepted that lack of knowledge due to improper service is a reasonable cause exempting penalty under section 273B.

Key Evidence and Findings: The assessee produced evidence of first knowledge of proceedings only upon receipt of a demand notice via email, months after the notices were allegedly issued. No evidence was presented by the Department to prove service of notices.

Application of Law to Facts: The Tribunal applied the principle that penalty should not be imposed where default is not deliberate or negligent but due to circumstances beyond the assessee's control, such as non-service.

Treatment of Competing Arguments: The Department did not produce any material to rebut the assessee's claim of non-service or to establish willful default. The Tribunal found the assessee's explanation credible.

Conclusions: The Tribunal held that reasonable cause existed under section 273B, warranting waiver of penalty.

Issue 3: Willful default versus lack of knowledge in the context of penalty under section 272A(1)(d)

Legal Framework and Precedents: The essence of penalty under section 272A(1)(d) is willful default in complying with statutory notices. Mere non-compliance without willfulness or negligence is insufficient for penalty.

Court's Interpretation and Reasoning: The Tribunal emphasized that willful default requires knowledge of the notice and deliberate refusal to comply. Here, the assessee's non-compliance was due to lack of knowledge arising from non-service.

Key Evidence and Findings: The assessee's long-term non-resident status and absence of any communication from the Department until receipt of demand notice supported the conclusion of absence of willful default.

Application of Law to Facts: The Tribunal found the penalty unsustainable in absence of proof of willful default.

Treatment of Competing Arguments: The Department's argument of non-cooperation was rejected due to lack of proof of proper service and knowledge.

Conclusions: No willful default was established; hence, penalty under section 272A(1)(d) was not justified.

Issue 4: Effect of non-resident status on service of notices and penalty proceedings

Legal Framework and Precedents: Proper service of notices on non-resident assessees requires adherence to prescribed procedures under the Act. Failure to serve notices effectively invalidates subsequent penalty proceedings based on non-compliance.

Court's Interpretation and Reasoning: The Tribunal noted the assessee's non-resident status for over 30 years and the lack of evidence that notices were served in accordance with the Act's requirements for non-residents.

Key Evidence and Findings: The assessee was unaware of any proceedings until receipt of demand notice by email. The Department failed to produce any proof of service of notices under sections 148A(b), 148, 142(1), or penalty notices.

Application of Law to Facts: The Tribunal held that the foundation of penalty proceedings-service of notices-was not established, rendering penalty untenable.

Treatment of Competing Arguments: The Department did not counter the assessee's claim with evidence of proper service.

Conclusions: Non-service of notices to a non-resident assessee negates the basis for penalty under section 272A(1)(d).

1. Issues Presented and Considered

• Whether the addition made under Section 56(2)(viib) of the Income Tax Act on account of share premium received by the assessee is justified, considering the valuation report based on the Discounted Cash Flow (DCF) method.
• Whether the Assessing Officer (AO) was correct in rejecting the valuation report relying on actual financial performance and disallowing the share premium as income.
• Whether depreciation @ 25% claimed on a non-refundable deposit paid to a society running a hospital, treated as an intangible asset, is allowable under Section 32(1)(ii) of the Income Tax Act.
• Whether depreciation disallowance in subsequent assessment years is justified when depreciation was allowed in earlier years on the Written Down Value (WDV) of the intangible asset.
• Whether the AO or appellate authorities can substitute or revalue the fair market value (FMV) of shares issued at premium when the valuation is done by a prescribed expert using prescribed methods under Rule 11UA of the Income Tax Rules.

2. Issue-wise Detailed Analysis

Issue 1 & 2: Validity of Addition under Section 56(2)(viib) on Share Premium and Rejection of Valuation Report

Legal Framework and Precedents:

• Section 56(2)(viib) of the Income Tax Act deems any share premium received in excess of the FMV as income from other sources.
• Rule 11UA(2)(b) prescribes methods for valuation of shares, including the Discounted Cash Flow (DCF) method and Net Asset Value (NAV) method.
• Precedents establish that valuation is not an exact science and is based on projections and assumptions at the time of valuation, which cannot be tested against actual performance retrospectively.
• Relevant judicial pronouncements emphasize that the AO cannot substitute or tinker with a valuation report prepared by a prescribed expert using prescribed methods unless there is a specific provision empowering such action.
• Commercial wisdom of investors, especially unrelated third-party investors, is to be respected and not lightly questioned by the Revenue.

Court's Interpretation and Reasoning:

• The assessee adopted the DCF method, a recognized and prescribed method under Rule 11UA, for valuation of shares.
• The AO rejected the valuation report by comparing projected profits with actual results and alleged the projections were unrealistic and speculative.
• The Court held that valuation based on DCF inherently involves future projections and assumptions which cannot be equated with actual financial performance.
• The AO lacks statutory authority to reject the valuation report without providing an alternative valuation prepared by a prescribed expert.
• The presence of prominent outside investors subscribing to the shares at the premium value supports the genuineness and commercial prudence of the valuation.
• Judicial precedents cited by the Court affirm that Revenue cannot sit in the armchair of a businessman to question commercial decisions or the valuation methodology adopted by the assessee.

Key Evidence and Findings:

• Valuation report prepared by a Chartered Accountant using DCF method as per Rule 11UA.
• AO's observations of losses and no revenue in earlier years contrasted with projected profits in valuation report.
• Subscription of shares at premium by reputed unrelated investors indicating acceptance of valuation.
• Prior assessment years where similar valuation reports were accepted or additions were made and subsequently deleted.

Application of Law to Facts:

• The assessee's valuation complies with statutory provisions and prescribed methods.
• AO's rejection based on hindsight comparison of projections with actuals is impermissible.
• Revenue's attempt to substitute valuation or discredit commercial wisdom of investors is unsustainable.

Treatment of Competing Arguments:

• Revenue argued that projections were unrealistic and premium was a colourable device for tax evasion.
• Assessee contended valuation was done by expert using prescribed method and was accepted by investors.
• The Court favored the assessee's position, emphasizing statutory scheme and judicial precedents.

Conclusions:

• Addition under Section 56(2)(viib) on account of share premium based on rejected valuation report is unsustainable.
• Valuation report prepared using DCF method by prescribed expert must be accepted unless specific statutory authority exists to reject or substitute it.
• Commercial prudence of investors subscribing at premium cannot be questioned by Revenue.
• Ground challenging addition under Section 56(2)(viib) is dismissed.

Issue 3 & 4: Allowability of Depreciation on Non-Refundable Deposit Treated as Intangible Asset

Legal Framework and Precedents:

• Section 32(1)(ii) of the Income Tax Act allows depreciation on intangible assets used for business or profession.
• Judicial precedents recognize that business or commercial rights acquired under agreements, including lease rights or concession rights, constitute intangible assets eligible for depreciation.
• Prior allowance of depreciation on the same asset in earlier years creates a binding precedent for subsequent years on WDV basis.

Court's Interpretation and Reasoning:

• The non-refundable deposit paid to acquire rights for operation and management of a hospital is a business or commercial right, an intangible asset.
• The AO's disallowance of depreciation in subsequent years is incorrect since depreciation was allowed in earlier years on the same asset's WDV.
• Findings of the CIT(A) and ITAT, supported by High Court decisions, affirm the intangible nature of the asset and allow depreciation.
• Revenue did not challenge the finding of intangible asset status before the ITAT, thereby accepting the factual basis.

Key Evidence and Findings:

• Agreements with government and society for hospital management rights.
• Payment of non-refundable deposit treated as acquisition cost of intangible asset.
• Depreciation claimed and allowed in earlier assessment years.
• Judicial precedents recognizing lease or concession rights as intangible assets.

Application of Law to Facts:

• The deposit qualifies as an intangible asset under Section 32(1)(ii).
• Depreciation on WDV basis is allowable in subsequent years once allowed earlier.

Treatment of Competing Arguments:

• Revenue argued that deposit was refundable or conditional, hence not eligible for depreciation.
• Assessee demonstrated the non-refundable nature and intangible asset status, supported by precedent.
• The Court upheld the assessee's claim and rejected Revenue's disallowance.

Conclusions:

• Depreciation on non-refundable deposit treated as intangible asset is allowable under Section 32(1)(ii).
• Disallowance of depreciation in subsequent years is improper once depreciation has been allowed on WDV.
• Ground challenging disallowance of depreciation is dismissed.

Issue 5: Authority of AO or Appellate Authorities to Substitute or Revalue FMV of Shares

Legal Framework and Precedents:

• Section 56(2)(viib) and Rule 11UA prescribe valuation methodologies and require valuation to be done by prescribed experts.
• There is no express provision empowering AO to substitute or revalue the FMV determined by prescribed experts.
• Judicial pronouncements hold that AO cannot reject valuation reports without statutory authority or provide alternative valuations.

Court's Interpretation and Reasoning:

• Valuation done by Chartered Accountant using DCF method is a recognized and prescribed method.
• AO's rejection of valuation report without statutory power to substitute or revalue is impermissible.
• The valuation is a technical matter to be left to experts and cannot be overruled by AO or appellate authorities on mere disagreement.

Key Evidence and Findings:

• Valuation report by prescribed expert using DCF method.
• AO's rejection based on comparison with actuals and allegations of unrealistic projections.
• Judicial precedents disallowing AO's substitution of valuation.

Application of Law to Facts:

• AO's action in rejecting valuation report and making addition is not supported by law.
• Appellate authorities correctly upheld valuation report and deleted addition.

Treatment of Competing Arguments:

• Revenue argued for rejection of valuation due to unrealistic projections and lack of supporting evidence.
• Assessee relied on statutory provisions and expert valuation report.
• The Court favored the statutory scheme and expert valuation, rejecting Revenue's contention.

Conclusions:

• AO or appellate authorities cannot substitute or revalue FMV determined by prescribed expert under Rule 11UA.
• Valuation report prepared using prescribed methods must be accepted unless statutory authority exists to reject or substitute.

Additional Observations

• The Court emphasized that valuation is inherently based on approximations and projections, not exact arithmetic precision.
• Commercial prudence of reputed investors subscribing to shares at premium supports genuineness of valuation and share premium received.
• Revenue's challenge based on hindsight comparison of projections with actuals is legally untenable.
• Other grounds raised by Revenue were consequential or academic and hence not adjudicated.

1. Whether the appellate authority was justified in passing an order without granting any personal hearing to the appellant.

2. Whether the disallowance made under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962, was justified.

3. Whether the invoking of Rule 8D by the Assessing Officer without recording objective satisfaction under section 144(2) of the Act was valid.

4. Whether the appellate authority was bound to accept the appellant's working of disallowance under section 14A in light of consistent past practice and earlier Tribunal orders.

5. Whether the addition under section 43CA of the Act on account of difference between stamp duty value and actual sale consideration was justified.

6. Whether the addition of foreign currency translation difference and profit on redemption of preference shares to income was justified, considering the nature of the gain as a book entry and prior treatment of foreign exchange losses.

7. Whether the disallowance of carry forward of long-term capital loss on sale of shares on which Securities Transaction Tax (STT) was paid was justified.

8. Whether the disallowance of carry forward of long-term capital loss on the ground that section 10(38) of the Act exempts long-term capital gains and includes the term "loss" was valid.

9. Whether the appellate authority erred in not following binding precedent of the Tribunal regarding carry forward of long-term capital loss on shares on which STT was paid.

10. Whether the appellate authority erred in upholding the initiation of penalty proceedings based on purported satisfaction recorded by the Assessing Officer.

Issues 2, 3, and 4: Disallowance under Section 14A read with Rule 8D

Legal Framework and Precedents: Section 14A of the Income Tax Act mandates disallowance of expenditure incurred in relation to exempt income. Rule 8D prescribes the method for computing such disallowance. The Assessing Officer must record objective satisfaction under section 14A(2) before invoking Rule 8D. The Supreme Court and various High Courts have held that the AO must first be dissatisfied with the assessee's suo motu disallowance before applying Rule 8D.

Court's Interpretation and Reasoning: The Assessing Officer rejected the assessee's suo motu disallowance of Rs. 35,01,925/- and computed disallowance under Rule 8D at Rs. 2,16,68,975/-, adding a balance of Rs. 1,81,67,050/- to income. However, the AO did not record any objective satisfaction or examine the nexus between the expenditure and exempt income before invoking Rule 8D. The Tribunal relied on a Coordinate Bench decision in the assessee's own case and a Bombay High Court ruling which held that mere non-conformity with Rule 8D does not amount to satisfaction required under section 14A(2). The AO's approach was held to be "putting the cart before the horse."

Key Evidence and Findings: The assessee had made suo motu disallowance and furnished computations. The AO's order did not refer to the assessee's accounts or expenditure to record dissatisfaction. The disallowance was computed mechanically using average investment method without objective satisfaction.

Application of Law to Facts: Without recording dissatisfaction based on the assessee's accounts, invoking Rule 8D is impermissible. The AO's disallowance is therefore unsustainable.

Treatment of Competing Arguments: The Revenue relied on a Gujarat High Court decision where detailed reasons were given for disallowance under section 14A. However, that case was factually distinguishable as the AO there recorded detailed satisfaction. The Tribunal preferred the Coordinate Bench decision aligned with Supreme Court precedents.

Conclusion: The additional disallowance under section 14A read with Rule 8D is deleted. Grounds relating to section 14A disallowance are allowed.

Issue 5: Addition under Section 43CA on Sale of Immovable Property

Legal Framework and Precedents: Section 43CA applies where sale consideration received is less than the value adopted by the stamp valuation authority. However, judicial precedents allow a tolerance limit of 10% difference between stamp duty value and sale consideration without invoking section 43CA.

Court's Interpretation and Reasoning: The assessee is not a real estate trader but a media company disposing of immovable properties. The difference between stamp duty value (Rs. 2.07 crores) and sale consideration (Rs. 1.90 crores) was Rs. 17,46,440/-, which is within the 10% tolerance limit. The addition under section 43CA was therefore unwarranted.

Key Evidence and Findings: Tax Audit Report and Form 3CD disclosed the difference. The assessee declared the income under capital gains correctly. The difference was within permissible limits.

Application of Law to Facts: The addition under section 43CA is not justified as the difference falls within the accepted tolerance.

Treatment of Competing Arguments: Revenue relied on the AO and CIT(A) orders but did not effectively counter the tolerance limit argument.

Conclusion: Addition under section 43CA is deleted. Ground relating to section 43CA addition is allowed.

Issue 6: Addition of Foreign Currency Translation Difference and Profit on Redemption of Preference Shares

Legal Framework and Accounting Standards: AS-11 requires foreign currency monetary items to be translated at year-end rates with exchange differences recorded in reserves and amortized over time. Such entries are book entries and do not represent actual income or gain unless realized.

Court's Interpretation and Reasoning: The amount of Rs. 37,64,61,452/- represented unamortized foreign exchange translation differences carried as a reserve in the books of a merged subsidiary, written back upon redemption of preference shares. The profit on redemption was separately computed and reflected. The foreign exchange difference was a book entry and not consideration for capital gains. The AO and CIT(A) did not examine these facts adequately.

Key Evidence and Findings: Detailed submissions and annexures showing prior treatment of exchange differences, accounting entries, and assessment orders of the merged subsidiary were submitted. The amount was not claimed as income or deduction in earlier years.

Application of Law to Facts: Since the amount is a book entry under AS-11 and not actual income, it should not be added to income. The matter requires verification and opportunity to the assessee.

Treatment of Competing Arguments: Revenue relied on AO and CIT(A) orders without addressing the accounting treatment.

Conclusion: The matter is remitted to AO for verification after hearing the assessee. Ground relating to foreign currency translation difference is allowed for statistical purposes.

Issues 7, 8, and 9: Disallowance of Carry Forward of Long-Term Capital Loss on Sale of Shares on which STT was Paid

Legal Framework and Precedents: Section 10(38) exempts long-term capital gains arising from transfer of equity shares or units on which STT is paid. The question is whether this exemption extends to losses and whether such losses can be carried forward and set off against other capital gains. Tribunal precedents have held that section 10(38) excludes only income and not the computation of capital gains or losses, allowing carry forward and set off of losses.

Court's Interpretation and Reasoning: The AO disallowed carry forward of loss on the ground that income is exempt under section 10(38) and thus loss cannot be carried forward. The CIT(A) upheld the AO's order, expressing concern that allowing carry forward and set off against unrelated capital gains (movable or immovable property) would hinder verification by AO in subsequent years.

Key Evidence and Findings: The assessee claimed carry forward of loss on shares on which STT was paid. Tribunal precedent (Raptakos Brett & Co. Ltd.) supports carry forward and set off. However, CIT(A) emphasized practical difficulties in verification.

Application of Law to Facts: The CIT(A)'s reasoning is a valid administrative concern. The Tribunal upheld the CIT(A)'s order as a reasoned decision.

Treatment of Competing Arguments: The assessee relied on binding precedent allowing carry forward; the Revenue emphasized administrative difficulties.

Conclusion: The disallowance of carry forward of long-term capital loss is upheld. Grounds relating to this issue are dismissed.

Issue 1: Passing Order Without Personal Hearing

Legal Framework: Principles of natural justice require that an appellant be given an opportunity of personal hearing before adverse orders are passed.

Court's Interpretation and Reasoning: The appellate order was passed without granting any personal hearing to the appellant. The grounds raised include challenge to the validity of such order.

Conclusion: The grounds relating to absence of personal hearing are allowed, implying that orders passed without hearing are not justified.

Issue 10: Initiation of Penalty Proceedings Based on Purported Satisfaction

Legal Framework: Penalty proceedings require proper satisfaction recorded by the Assessing Officer based on material and reasons.

Court's Interpretation and Reasoning: The appellate authority upheld initiation of penalty based on satisfaction recorded by AO. No detailed analysis or findings provided in the judgment extract.

Conclusion: No interference indicated; issue not elaborated, presumed upheld.

Application of Decisions to Assessment Year 2016-17

All grounds raised for AY 2016-17 are identical to those for AY 2015-16. The Tribunal applied the same reasoning and conclusions mutatis mutandis to AY 2016-17 appeals.

Final Disposition

The appeals are partly allowed: disallowance under section 14A and addition under section 43CA are deleted; foreign currency translation difference issue remitted for verification; disallowance of carry forward of long-term capital loss upheld; absence of personal hearing ground allowed; other grounds as per above analysis.

1. ISSUES PRESENTED and CONSIDERED

• Whether the addition of Rs. 14,92,643/- as undisclosed business profit on unexplained cash deposits is justified.
• Whether the addition of Rs. 31,03,000/- under the head income from other sources on unexplained credit entries in bank accounts is sustainable.
• Whether the addition of Rs. 6,94,853/- as long-term capital gain arising from cancellation of flat booking is valid.
• Whether the addition of Rs. 52,361/- under income from other sources on account of difference in interest income requires adjudication.
• Whether the imposition of interest under Sections 234A and 234B of the Income Tax Act, 1961 is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 14,92,643/- as undisclosed business profit on unexplained cash deposits

- Legal Framework and Precedents: Under the Income Tax Act, unexplained cash deposits can be treated as undisclosed income if not satisfactorily explained by the assessee. Profit is often computed on such unexplained turnover using the declared profit rate under presumptive taxation provisions (Section 44AD).

- Court's Interpretation and Reasoning: The assessee submitted a fresh working demonstrating that the unexplained cash deposits, when adjusted, result in a negative figure, negating the basis for addition. However, this new explanation was not previously considered by the Assessing Officer (AO) or the National Faceless Appeal Centre (NFAC).

- Key Evidence and Findings: The assessee provided a detailed fact sheet with computations excluding certain amounts from the unexplained deposits. The Revenue pointed out non-cooperation during remand proceedings, weakening the assessee's case before the lower authorities.

- Application of Law to Facts: The Tribunal noted that the new computations and explanations were not examined by the AO, and the assessee was not given an opportunity to present evidence during remand. Principles of natural justice require that fresh explanations be considered by the AO with due opportunity.

- Treatment of Competing Arguments: The Revenue relied on the remand report and non-response of the assessee to notices, while the assessee emphasized fresh submissions and supporting documents.

- Conclusion: The issue is restored to the AO for fresh consideration after affording the assessee an opportunity of being heard to verify the correctness of the new working and explanations.

Issue 2: Addition of Rs. 31,03,000/- under income from other sources on unexplained credit entries

- Legal Framework and Precedents: Unexplained credits in bank accounts can be treated as income from other sources if the assessee fails to satisfactorily explain their nature.

- Court's Interpretation and Reasoning: The assessee submitted fresh explanations and supporting documents for each of the four credit entries totaling Rs. 31,03,000/-, which were not considered by the lower authorities.

- Key Evidence and Findings: The fresh submissions include documentary evidence supporting the nature of the credits.

- Application of Law to Facts: Since the explanations and evidence were not examined by the AO or NFAC, the Tribunal found it appropriate to remit the matter for fresh verification and decision.

- Treatment of Competing Arguments: The Revenue did not dispute the need for fresh examination but relied on the previous findings.

- Conclusion: The issue is restored to the AO for fresh adjudication after giving the assessee due opportunity to substantiate the nature of the credits.

Issue 3: Addition of Rs. 6,94,853/- as long-term capital gain from cancellation of flat booking

- Legal Framework and Precedents: Capital gains tax arises on transfer of capital assets. The calculation of long-term capital gain requires verification of cost of acquisition and consideration received.

- Court's Interpretation and Reasoning: The assessee produced for the first time confirmations from the builder and related documents concerning the booking and cancellation of the flat, which were not available to the AO earlier.

- Key Evidence and Findings: The documents include confirmation letters and payment details supporting the transaction and cost basis.

- Application of Law to Facts: The Tribunal emphasized the necessity of verifying these documents before finalizing the capital gain computation, ensuring correct application of capital gains provisions.

- Treatment of Competing Arguments: The Revenue relied on the AO's original computation, while the assessee sought re-examination based on new evidence.

- Conclusion: The issue is remitted to the AO for fresh consideration after due opportunity to the assessee to substantiate the transaction and cost details.

Issue 4: Addition of Rs. 52,361/- under income from other sources on account of difference in interest income

- Legal Framework and Precedents: Interest income must be declared accurately; discrepancies can lead to additions.

- Court's Interpretation and Reasoning: The assessee did not press this ground of appeal before the Tribunal.

- Conclusion: This ground is deemed abandoned and requires no adjudication.

Issue 5 & 6: Imposition of interest under Sections 234A and 234B of the Income Tax Act, 1961

- Legal Framework and Precedents: Interest under Section 234A is for delay in filing return; Section 234B relates to default in payment of advance tax.

- Court's Interpretation and Reasoning: These grounds are consequential upon the additions made and require no separate adjudication.

- Conclusion: No separate adjudication is necessary on these grounds.

1. ISSUES PRESENTED and CONSIDERED

• Whether customs authorities have jurisdiction to seize goods stored within a Special Economic Zone (SEZ) unit under the SEZ Act, 2005.
• Whether the seizure of imported goods declared as "leftover fabrics of tarpaulin" but found to be different types of fabrics is justified and lawful.
• Whether the conditions imposed for provisional release of seized goods, including submission of bond and bank guarantee, are reasonable and justified under Section 110A of the Customs Act, 1962.
• Whether goods warehoused within SEZ are liable to customs duty prior to clearance into Domestic Tariff Area (DTA), in light of exemptions under Section 26 of the SEZ Act, 2005.
• Whether the importer's failure to cooperate with investigation and provide requisite documents justifies stringent conditions for provisional release.
• Appropriateness of the quantum of bank guarantee demanded, particularly the inclusion of differential duty plus penalty at the provisional release stage.
• Whether the appellant should be allowed to re-export or clear goods in DTA without conditions or penalties.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction to Seize Goods Within SEZ

Legal Framework and Precedents: Section 53(1) of the SEZ Act, 2005 restricts customs officers' jurisdiction within SEZ. The appellant relied on judgments holding that customs officers lack jurisdiction to seize goods inside SEZ premises.

Court's Interpretation and Reasoning: The Court recognized the appellant's contention regarding SEZ being a deemed foreign territory and the jurisdictional limitation. However, it held that such questions of jurisdiction and duty liability can only be conclusively addressed after issuance of show cause notice and adjudication process. At the provisional release stage, these issues are premature.

Conclusion: Jurisdictional objections are deferred to adjudication. The Court will not interfere with the seizure legality at provisional release stage.

Issue 2: Legality and Justification of Seizure Based on Mis-declaration

Legal Framework and Evidence: The goods were declared as "leftover fabrics of tarpaulin" but examination and testing by CRCL Vadodara revealed multiple types of fabrics (woven, non-woven, PVC/PU coated etc.). Seizure was under Section 111 of the Customs Act, 1962 for mis-declaration.

Court's Reasoning: The Court noted that test reports received prima facie indicate discrepancies in composition. However, final determination requires adjudication, including possible retesting and cross-examination of experts. Investigation was ongoing and incomplete.

Conclusion: Seizure is prima facie justified but final sustenance depends on adjudication. The Court refrained from final conclusion at this stage.

Issue 3: Applicability of Customs Duty on Goods Within SEZ Under SEZ Act, 2005

Legal Framework: Section 26 of the SEZ Act, 2005 grants exemption from customs duty on goods imported into SEZ for authorized operations. Duty becomes payable only when goods move from SEZ to DTA.

Appellant's Argument: Since goods are warehoused within SEZ, no customs duty is payable at this stage, and thus, conditions for provisional release demanding bond and bank guarantee are legally incorrect.

Court's Analysis: The Court acknowledged the exemption under Section 26 and that SEZ is a deemed foreign territory. However, it emphasized that the question of duty liability and classification disputes must be adjudicated after investigation. The Court did not accept the appellant's contention to waive conditions solely on this ground at provisional release stage.

Conclusion: Duty exemption under SEZ Act is recognized but does not preclude provisional conditions pending adjudication.

Issue 4: Reasonableness and Legality of Conditions Imposed for Provisional Release (Bond and Bank Guarantee)

Legal Framework: Section 110A of the Customs Act, 1962 mandates taking bond in proper form with security and conditions as adjudicating authority may require for provisional release. Circular 35/2017 guides discretion in imposing conditions.

Court's Reasoning: The Court held that submission of bond equal to the value of goods with an undertaking to pay duty, fine, or penalty is a mandatory and justified condition. However, the imposition of a bank guarantee covering 100% of differential duty plus 10% penalty was found onerous and disproportionate at the provisional release stage.

The Court emphasized that provisional release aims to balance revenue protection and preventing goods deterioration. It criticized mechanical imposition of maximum financial security without considering the ongoing nature of investigation and the appellant's rights. The Court noted that the department's duty calculations are tentative and subject to change upon adjudication.

Conclusion: Condition requiring bond equal to goods value is upheld. Condition demanding full bank guarantee covering differential duty plus penalty is modified as excessive and contrary to the purpose of provisional release.

Issue 5: Importer's Non-Cooperation and Impact on Provisional Release Conditions

Evidence: The importer failed to provide requested documents such as packing lists, purchase agreements, and financial transaction details. Searches revealed the importer's premises to be a nominal address with a dummy director and lack of operational business knowledge.

Court's Analysis: The appellant's non-cooperation and suspicious circumstances justified the department's cautious approach. However, the Court balanced this with the need to allow provisional release on reasonable terms to prevent loss due to goods deterioration.

Conclusion: Non-cooperation supports imposition of security but does not justify excessive conditions defeating the purpose of provisional release.

Issue 6: Allowance for Re-export or Clearance into DTA Without Conditions or Penalties

Appellant's Submission: The appellant sought provisional release without conditions to allow re-export or clearance into DTA freely.

Court's Reasoning: The Court held that movement of goods from SEZ to DTA or re-export requires compliance with statutory provisions and security for duty payment where applicable. It directed that for re-export, a bank guarantee of 10% of goods' value is sufficient, as no duty is payable. For clearance into DTA, 50% of differential duty must be deposited upfront, allowing payment in installments as goods are cleared.

Conclusion: Provisional release without any conditions is not permissible. Reasonable conditions linked to duty payment and security are mandated.

Issue 7: Quantum and Mode of Payment of Security for Provisional Release

Court's Analysis: The Court modified the impugned order by directing that instead of 100% differential duty plus penalty as bank guarantee, the importer shall deposit 50% of differential duty at the time of clearance from SEZ to DTA or movement to other SEZ/EOU units. The balance may be paid in installments as goods are cleared. For re-export, a 10% bank guarantee is sufficient.

The Court emphasized a pragmatic approach balancing revenue protection and business viability, preventing goods deterioration, and avoiding undue hardship.

Conclusion: Bank guarantee and duty deposit conditions are modified to a more reasonable and practicable regime facilitating provisional release.

Summary of Court's Conclusions:

• Jurisdictional and duty liability issues within SEZ are deferred for adjudication; seizure legality not interfered with at provisional release stage.
• Seizure based on prima facie mis-declaration is justified but final outcome depends on adjudication.
• Section 26 SEZ Act exemptions acknowledged but do not obviate provisional release conditions.
• Bond equal to goods value with undertaking is mandatory and justified.
• Bank guarantee covering full differential duty plus penalty at provisional release stage is excessive and modified.
• Importer's non-cooperation supports caution but does not justify onerous conditions defeating provisional release purpose.
• Provisional release conditions modified to require 50% differential duty deposit for DTA clearance or movement and 10% bank guarantee for re-export.
• Adjudicating authority's discretion must balance revenue protection with avoiding undue hardship and goods deterioration.

1. ISSUES PRESENTED and CONSIDERED

• Whether the cancellation of GST registration under Section 29(2)(c) of the CGST Act, 2017 for non-filing of returns for a continuous period of six months or more was validly done.
• Whether the petitioner can seek restoration or revocation of GST registration after the prescribed time limit for filing such application has expired.
• The scope and applicability of proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017 regarding dropping of cancellation proceedings upon compliance by the registered person.
• The authority and jurisdiction of the proper officer to restore GST registration upon fulfillment of conditions post cancellation.
• The applicability of limitation periods under Sections 44 and 73(10) of the CGST Act in the context of arrears and restoration of registration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of GST Registration Cancellation under Section 29(2)(c) of the CGST Act, 2017

Legal Framework and Precedents: Section 29(2)(c) empowers the proper officer to cancel GST registration where a registered person has not furnished returns for a continuous period of six months or more. Rule 22 of the CGST Rules, 2017 prescribes the procedural safeguards and steps for cancellation, including issuance of show cause notice and opportunity to reply.

Court's Interpretation and Reasoning: The Court noted that the petitioner failed to file GST returns continuously for six months, triggering the statutory ground for cancellation. The proper officer issued a show cause notice in FORM GST REG-17 with a seven-day period to respond. The petitioner did not respond within the stipulated time, and consequently, the Superintendent passed the cancellation order in FORM GST REG-19.

Key Evidence and Findings: The petitioner admitted non-filing of returns for the requisite period and non-appearance for personal hearing or reply submission. The procedural requirements under Rule 22 were complied with by the authorities.

Application of Law to Facts: The cancellation was in accordance with statutory provisions and rules. The petitioner's non-compliance with notice timelines justified the ex-parte cancellation.

Treatment of Competing Arguments: The petitioner argued lack of familiarity with online procedures and inability to respond in time. However, the Court emphasized the statutory mandate and procedural fairness provided by notice and opportunity.

Conclusion: The cancellation of GST registration under Section 29(2)(c) was validly effected following due procedure.

Issue 2: Possibility of Restoration or Revocation of GST Registration Post Expiry of Prescribed Time Limit

Legal Framework and Precedents: Rule 22(4) of the CGST Rules, 2017 allows dropping of cancellation proceedings if the person furnishes all pending returns and pays full tax dues with interest and late fees. The time limit for filing revocation applications is 270 days from the date of cancellation order.

Court's Interpretation and Reasoning: The petitioner's attempt to file revocation was barred by expiration of the 270-day timeline. Nonetheless, the Court referred to the proviso to Rule 22(4), which provides an alternative remedy where the person complies with pending returns and payments even after cancellation.

Key Evidence and Findings: The petitioner updated all pending returns and paid dues, but the revocation application was rejected due to lapse of time.

Application of Law to Facts: The Court recognized that strict adherence to timelines is required but also acknowledged the proviso allowing dropping of proceedings upon compliance, which may be invoked even after cancellation.

Treatment of Competing Arguments: The petitioner contended that inability to file revocation within time should not bar restoration given compliance. The respondents relied on the statutory time limit and rejection of appeal.

Conclusion: Although the prescribed timeline for revocation lapsed, the petitioner may still seek restoration by fulfilling conditions under the proviso to Rule 22(4).

Issue 3: Scope and Applicability of Proviso to Sub-rule (4) of Rule 22 of the CGST Rules, 2017

Legal Framework and Precedents: The proviso to Rule 22(4) states that if the person furnishes all pending returns and makes full payment of tax dues along with interest and late fees instead of replying to the show cause notice, the proper officer shall drop the proceedings and pass an order in FORM GST REG-20.

Court's Interpretation and Reasoning: The Court emphasized that the proviso provides a substantive right to the registered person to have cancellation proceedings dropped upon compliance, even after issuance of show cause notice. It is a protective provision aimed at mitigating harsh consequences of cancellation.

Key Evidence and Findings: The petitioner expressed readiness and willingness to comply with all formalities under the proviso. The Court noted that such compliance had been made post cancellation.

Application of Law to Facts: The petitioner's compliance with pending returns and payment obligations triggered the applicability of the proviso, entitling the petitioner to have cancellation proceedings dropped and registration restored.

Treatment of Competing Arguments: The respondents did not dispute the applicability of the proviso but highlighted procedural limitations and timelines.

Conclusion: The proviso to Rule 22(4) is applicable and empowers the proper officer to drop cancellation proceedings and restore registration upon full compliance.

Issue 4: Authority and Jurisdiction of the Proper Officer to Restore GST Registration Post Cancellation

Legal Framework and Precedents: Rule 22(4) confers authority on the proper officer to drop proceedings and pass an order in FORM GST REG-20 upon compliance. Section 29(2)(c) allows cancellation from any date as deemed fit by the officer.

Court's Interpretation and Reasoning: The Court held that the proper officer, being duly empowered, has jurisdiction to consider an application for restoration of registration if the petitioner complies with the conditions prescribed in the proviso to Rule 22(4). The cancellation order does not preclude restoration if statutory conditions are met.

Key Evidence and Findings: The petitioner was directed to approach the proper officer within two months with full compliance to seek restoration.

Application of Law to Facts: The Court's direction to the petitioner to apply for restoration and the obligation on the proper officer to consider such application expeditiously confirms the officer's authority and jurisdiction.

Treatment of Competing Arguments: The respondents' reliance on the expiry of the revocation timeline was balanced against the proviso's remedial mechanism.

Conclusion: The proper officer has the jurisdiction and authority to restore GST registration upon fulfillment of the proviso to Rule 22(4).

Issue 5: Computation of Limitation Periods under Sections 44 and 73(10) of the CGST Act for Arrears and Restoration

Legal Framework and Precedents: Section 73(10) prescribes limitation for recovery of tax arrears. Section 44 deals with filing of returns and related timelines.

Court's Interpretation and Reasoning: The Court clarified that the limitation period under Section 73(10) shall be computed from the date of the Court's order, except for the financial year 2024-25, where Section 44 provisions shall apply. The petitioner remains liable to pay arrears including tax, penalty, interest, and late fees.

Key Evidence and Findings: The Court's order explicitly states the computation of limitation periods and the petitioner's liability for dues.

Application of Law to Facts: The limitation periods for recovery are reset by the Court's order, ensuring the petitioner's compliance is assessed within fresh timelines.

Treatment of Competing Arguments: No direct competing arguments on limitation periods were recorded.

Conclusion: Limitation periods for recovery of arrears shall be computed from the date of the Court's order, with the petitioner liable to pay all dues accordingly.

1. ISSUES PRESENTED and CONSIDERED

• Whether the Customs Department can demand recovery of export benefits under Section 28(4) and/or Section 28AAA of the Customs Act, 1962, when the Merchandise Export from India Scheme (MEIS) scrips have not been cancelled by the Directorate General of Foreign Trade (DGFT).
• Whether the export benefit can be legitimately demanded by invoking Section 28(4) and/or Section 28AAA of the Customs Act, 1962.
• Determination of correct classification of the products in dispute under the Customs Tariff Heading (CTH): whether under CTH 38089199/38089290/38089910/38089990 as claimed by the appellants, or under CTH 38086100/38086200/38086900 as held by the adjudicating authority.
• Whether the extended period of limitation is invocable in the present case, considering the facts and circumstances, including prior knowledge of the department and existence of earlier show cause notices (SCNs) for the same period and products.
• Whether the Customs authorities have jurisdiction to question the validity of MEIS benefits granted by DGFT under the Foreign Trade Policy (FTP) and Foreign Trade (Development & Regulation) Act, 1992.
• Whether the allegation of suppression of facts or wilful misstatement justifying invocation of extended limitation period is sustainable.
• Whether different government departments (Customs, Excise, GST) can take contradictory stands on classification of the same products.
• Whether registration under the Insecticides Act, 1968 by the Central Insecticide Board and Registration Committee is determinative of product classification for Customs purposes.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Legality of demanding export benefit recovery under Section 28(4) and/or Section 28AAA of the Customs Act, 1962 when MEIS scrips have not been cancelled by DGFT

- The MEIS scheme, introduced under FTP 2015-2020, provides export incentives through scrips issued by DGFT after verification of eligibility.

- The Foreign Trade (Development & Regulation) Act, 1992 (FTDR Act) and its rules empower DGFT to cancel or withdraw MEIS benefits by cancelling issued licenses or scrips.

- The Customs Department's demand for recovery of export benefits under Section 28(4) and/or Section 28AAA of the Customs Act is based on alleged wrongful availment of MEIS benefits due to misclassification.

- Section 28(4) and Section 28AAA empower recovery of import duty wrongly forgone, but do not explicitly empower recovery of export benefits.

- The Tribunal referred to judicial precedents holding that Customs authorities cannot question the validity of MEIS scrips or benefits granted by DGFT unless the scrips have been cancelled or invalidated by the competent DGFT authority.

- The DGFT has exclusive jurisdiction over interpretation and enforcement of FTP provisions, including classification and eligibility for MEIS benefits (FTP Para 2.57).

- The DGFT had not cancelled the MEIS scrips issued to the appellants; hence, Customs demand for recovery is without jurisdiction.

- The Tribunal relied on Supreme Court and High Court decisions affirming that Customs cannot act against MEIS benefits without prior DGFT adjudication or cancellation.

Conclusion: Customs Department cannot demand recovery of export benefits under Section 28(4) and/or Section 28AAA when MEIS scrips have not been cancelled by DGFT; such demand is without jurisdiction and unsustainable.

Issue 3: Correct classification of the products in dispute under Customs Tariff Headings

- The appellants classified the products under CTH 38089910 or 38089990 ("Pesticides, not elsewhere specified or included") and claimed MEIS benefit @3% on FOB value.

- DGFT issued MEIS scrips based on this classification; local sales were also made under the same classification with applicable excise duty/GST paid.

- The Directorate General of Revenue Intelligence (DRI) initially alleged misclassification under CTH 380891, 380892, 380893 (technical grade insecticides/fungicides/herbicides) with MEIS benefit @2%.

- The Special Intelligence and Investigation Branch (SIIB-JNCH) later alleged classification under CTH 38086100, 38086200, or 38086900 (not covered under MEIS schedule), thus denying MEIS benefit eligibility.

- The appellants relied on registration certificates issued under the Insecticides Act, 1968 by the Central Insecticide Board and Registration Committee, which specify the product as pesticide or insecticide, supporting their classification.

- It was noted that the classification is primarily a function of Customs authorities during assessment, but the appellants' bona fide claim supported by registration and acceptance by other government departments (Excise/GST) was relevant.

- The Tribunal observed that different wings of the Customs Department themselves had divergent views on classification (DRI vs SIIB-JNCH), indicating uncertainty within the department.

Conclusion: The classification claimed by the appellants under CTH 38089910/38089990 is supported by registration and acceptance by other departments; the department's contradictory classification allegations lack clarity and do not justify rejection of appellants' classification.

Issue 4: Invocability of extended period of limitation in view of prior knowledge and earlier SCN for same period and products

- The SIIB-JNCH issued the impugned SCN dated 28.09.2023 invoking extended limitation period for recovery of MEIS benefits for exports during January 2017 to December 2019.

- The DRI had earlier issued an SCN dated 20.10.2020 for the same products and same period alleging wrongful availment of MEIS benefits.

- The Tribunal held that issuance of a second SCN invoking extended limitation for the same facts, period, and products where the department had prior knowledge is impermissible.

- The Tribunal relied on the Supreme Court decision that suppression of facts cannot be alleged in a second SCN when all relevant facts were known to authorities at the time of the first SCN.

- The SIIB-JNCH itself acknowledged the existence of the earlier DRI SCN and excluded common shipping bills from its investigation.

- The Tribunal emphasized that allowing multiple SCNs for the same issue leads to endless litigation, contrary to legislative intent.

Conclusion: Extended period of limitation cannot be invoked where the department had full knowledge and had already issued an SCN for the same issue and period; the impugned SCN and order are barred by limitation and unsustainable.

Issue 5: Jurisdiction of Customs authorities to question MEIS benefits granted by DGFT

- The FTP and Foreign Trade (Regulation) Rules vest exclusive authority in DGFT to interpret and decide on eligibility and classification for MEIS benefits.

- Para 2.57 of FTP states that DGFT's decision is final and binding on matters of policy interpretation and classification under ITC (HS).

- The Tribunal referred to judicial precedents holding that Customs authorities cannot override or question DGFT's grant of benefits unless DGFT cancels or invalidates the scrips.

- The appellants' MEIS scrips were never cancelled or invalidated by DGFT following due procedure.

Conclusion: Customs authorities lack jurisdiction to deny or recover MEIS benefits granted by DGFT absent cancellation or invalidation by DGFT; the impugned demand is beyond Customs' authority.

Issue 6: Allegation of suppression of facts or wilful misstatement justifying extended limitation period

- The appellants consistently classified the products under the claimed headings and paid applicable duties locally.

- The department was aware of the classification and had cleared goods without objection during the period in dispute.

- Divergent classification views within Customs departments (DRI and SIIB) indicate lack of clarity rather than deliberate suppression by appellants.

- The Tribunal relied on Supreme Court authority holding that extended limitation period cannot be invoked where bona fide doubts or divergent views exist, and no evidence of fraud, collusion, or wilful suppression is present.

Conclusion: Allegations of suppression or wilful misstatement are not sustainable given departmental knowledge, divergent views, and absence of mala fide intent; extended limitation period invocation is unjustified.

Issue 7: Consistency of classification across government departments

- Appellants' classification under CTH 38089910/38089990 was accepted by Excise and GST authorities, with applicable duties paid.

- The Tribunal observed settled law that different government wings cannot take contradictory stands on classification of the same product.

- Reliance was placed on Supreme Court decisions mandating consistent classification across departments.

Conclusion: Customs authorities cannot take a contrary classification stand inconsistent with Excise and GST authorities on the same product; appellants' classification is supported by other departments' acceptance.

Issue 8: Role of registration under the Insecticides Act, 1968 in classification

- The Central Insecticide Board and Registration Committee under the Insecticides Act, 1968 is the competent authority to determine whether a product is a pesticide, insecticide, etc.

- Appellants obtained registration certificates under Section 9 of the Insecticides Act, specifying the product category.

- The Tribunal noted that registration certificates issued by the competent authority are relevant and binding for classification purposes.

- Reliance was placed on Supreme Court precedents holding that classification cannot be contrary to the determination of the competent authority under the Insecticides Act.

Conclusion: Registration under the Insecticides Act by the competent authority supports appellants' classification; Customs cannot disregard such registration in classification disputes.

1. Whether the impugned assessment order and demand notice issued by the Income Tax Department for Assessment Year 2011-12 can be enforced against a corporate debtor undergoing Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), especially after approval of a Resolution Plan.

2. Whether the provisions of the IBC, particularly Sections 14 (moratorium), 15 (public announcement), 31(1) (binding effect of resolution plan), and 238 (overriding effect), override conflicting provisions under the Income Tax Act and other laws in respect of pre-CIRP liabilities.

3. Whether the Income Tax Department was required to submit its claim during the CIRP and whether failure to do so results in extinguishment of its claim.

4. Whether the petitioner-company, as the successful resolution applicant under the approved Resolution Plan, is entitled to a "fresh start" free from pre-CIRP liabilities not included in the plan.

5. Whether the petitioner-company can invoke writ jurisdiction to challenge the assessment order and demand notice despite availability of alternative remedies under the Income Tax Act.

6. Whether the Division Bench erred in dismissing the writ petition without considering the overriding effect of the IBC and binding Supreme Court precedents on the subject.

Issue 1 & 2: Enforceability of pre-CIRP tax demands and overriding effect of IBC provisions

- Relevant Legal Framework and Precedents:

Sections 14 and 15 of the IBC impose a moratorium on suits and proceedings against the corporate debtor from the insolvency commencement date until completion of CIRP. Section 31(1) mandates that the approved Resolution Plan is binding on all stakeholders, including government authorities. Section 238 contains a non-obstante clause establishing the overriding effect of IBC over inconsistent laws. Supreme Court rulings in Duncan Industries and Essar Steel emphasize the primacy of IBC over other statutes and the finality of the resolution plan in extinguishing pre-CIRP claims.

- Court's Interpretation and Reasoning:

The Court reaffirmed that the moratorium under Section 14 prohibits continuation of proceedings against the corporate debtor during CIRP. The Income Tax Department's claim for AY 2011-12, being a pre-CIRP liability, was subject to the moratorium and required submission as a claim during CIRP. The approved Resolution Plan, binding on all creditors under Section 31(1), extinguished all pre-CIRP liabilities not included therein. Section 238 ensures that these provisions override conflicting provisions in the Income Tax Act or other laws.

- Key Evidence and Findings:

The Resolution Plan disclosed total statutory dues of Rs.30.71 crores, indicating claims by government authorities were considered. The Income Tax Department did not separately assert its claim outside the CIRP process. The plan was approved by NCLT and upheld by NCLAT, attaining finality.

- Application of Law to Facts:

Since the tax demand relates to a pre-CIRP period and was not enforced through the insolvency resolution process, it stands extinguished by operation of law. The Income Tax Department cannot enforce the assessment order or demand notice after approval of the Resolution Plan.

- Treatment of Competing Arguments:

The Income Tax Department argued that alternative remedies under the Income Tax Act exist and the petitioner should have approached appellate forums. The Court held that the IBC's overriding effect and the nature of the challenge (jurisdictional and legal) justified writ jurisdiction despite alternative remedies.

- Conclusions:

The impugned tax demand is unenforceable against the corporate debtor post-CIRP and approval of the Resolution Plan. The IBC provisions override the Income Tax Act in this context.

Issue 3: Obligation of Income Tax Department to submit claims during CIRP and consequences of non-submission

- Relevant Legal Framework and Precedents:

Section 15 of the IBC mandates public announcement of CIRP and invites claims from creditors, including statutory authorities. Regulation 6 of the Insolvency and Bankruptcy Board of India (IBBI) Regulations requires claims to be submitted in prescribed formats. Supreme Court judgments emphasize that all claims must be submitted and adjudicated during CIRP for finality.

- Court's Interpretation and Reasoning:

The Court noted that the Income Tax Department, as a government creditor, was required to submit its claim during CIRP. Failure to do so results in the claim being barred from enforcement post-approval of the Resolution Plan.

- Key Evidence and Findings:

The record does not indicate that the Income Tax Department submitted a separate claim during CIRP. The Resolution Plan accounted for aggregate statutory dues, but the specific tax demand was not enforced thereafter.

- Application of Law to Facts:

Non-submission of claim by the Income Tax Department during CIRP leads to extinguishment of the claim, barring subsequent enforcement.

- Treatment of Competing Arguments:

The petitioner argued that the Income Tax Department's failure to submit claims invalidated the demand. The Department did not provide evidence of claim submission.

- Conclusions:

The Income Tax Department's claim for the assessment year in question is barred due to non-submission during CIRP.

Issue 4: Entitlement of successful resolution applicant to a "fresh start" free from pre-CIRP liabilities

- Relevant Legal Framework and Precedents:

Section 31(1) of IBC and the Supreme Court's decision in Essar Steel establish that the successful resolution applicant takes over the corporate debtor free from undecided or unclaimed liabilities existing prior to CIRP. This principle prevents "hydra-headed" claims from undermining the revival effort.

- Court's Interpretation and Reasoning:

The Court emphasized that the petitioner, as the successful resolution applicant, acquired the corporate debtor on a "clean slate." Any pre-CIRP liabilities not included in the approved plan are extinguished and cannot be enforced subsequently.

- Key Evidence and Findings:

The Resolution Plan was approved and final, transferring management to the petitioner. The tax demand arose prior to CIRP and was not part of the plan.

- Application of Law to Facts:

The petitioner is entitled to operate free from the impugned tax liability, consistent with the "fresh start" doctrine.

- Treatment of Competing Arguments:

The Income Tax Department's attempt to enforce the demand post-approval was rejected as contrary to the IBC's objectives.

- Conclusions:

The petitioner's entitlement to a "fresh start" bars enforcement of the pre-CIRP tax demand.

Issue 5: Maintainability of writ petition despite availability of alternative remedies

- Relevant Legal Framework and Precedents:

Generally, availability of alternative statutory remedies precludes writ jurisdiction. However, writ jurisdiction may be invoked where the order is without jurisdiction or where important questions of law arise, especially involving constitutional or overriding statutory provisions.

- Court's Interpretation and Reasoning:

The Court held that the petitioner's challenge was a jurisdictional and legal question regarding the enforceability of tax demands post-CIRP under the overriding provisions of the IBC. Tax appellate authorities are bound by the Income Tax Act and cannot adjudicate on the IBC's overriding effect.

- Key Evidence and Findings:

The petitioner did not challenge mere tax calculation but the authority of the tax department to enforce the demand at all.

- Application of Law to Facts:

The writ petition was maintainable to prevent enforcement of an unlawful demand inconsistent with the IBC.

- Treatment of Competing Arguments:

The Income Tax Department's reliance on alternative remedies was rejected as insufficient to bar writ jurisdiction in this exceptional context.

- Conclusions:

Writ jurisdiction was appropriately invoked and the earlier dismissal on this ground was erroneous.

Issue 6: Error apparent on the face of the record in the Division Bench's dismissal of the writ petition

- Relevant Legal Framework and Precedents:

Review jurisdiction under Order XLVII Rule 1 CPC is limited to errors apparent on the face of the record, including glaring omissions or disregard of binding authorities.

- Court's Interpretation and Reasoning:

The Court found that the Division Bench failed to consider binding provisions of the IBC and authoritative Supreme Court rulings, resulting in a manifest error apparent on the record. The dismissal on the basis of alternative remedies and non-aggrieved status overlooked the overriding effect of the IBC and the nature of the challenge.

- Key Evidence and Findings:

The Division Bench did not address the moratorium, binding effect of the Resolution Plan, or the "clean slate" doctrine.

- Application of Law to Facts:

This omission led to upholding an unenforceable tax demand, causing injustice to the petitioner.

- Treatment of Competing Arguments:

The Court rejected the Income Tax Department's contention that no error existed.

- Conclusions:

The review petition was rightly allowed to correct the error apparent on the face of the record.

1. Issues Presented and Considered

• Whether the claims raised by the appellants can be classified as financial debt under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016, particularly under the amended definition including allottees of real estate projects.
• Whether the appellants qualify as financial creditors by virtue of being allottees under real estate projects as defined under RERA Act, 2016.
• Whether the amounts claimed by the appellants, adjusted against brokerage/commission dues, constitute disbursal of money against consideration for time value of money.
• Whether the appellants, having earlier filed a petition under Section 9 of the IBC as operational creditors, are estopped from claiming to be financial creditors subsequently.
• Whether the National Company Law Tribunal (NCLT) and the Resolution Professional (RP) erred in rejecting the appellants' claims as financial debt and treating them as operational debt.

2. Issue-wise Detailed Analysis

Issue 1: Classification of Claims as Financial Debt under Section 5(8) of IBC

Legal Framework and Precedents: Section 5(8) of the IBC defines "financial debt" as debt disbursed against consideration for the time value of money, including amounts raised from allottees under real estate projects per Explanation (i) and (ii) inserted by the 2018 amendment. The Supreme Court in Pioneer Urban Land and Infrastructure Ltd. clarified that amounts raised from allottees have the commercial effect of borrowing, as money is paid in advance for temporary use, and the allottee receives a flat/apartment in return, reflecting the time value of money. The Court emphasized that the disbursal must be money paid against consideration for time value of money, and the transaction must have a commercial effect of borrowing.

Court's Interpretation and Reasoning: The Tribunal examined the nature of the amounts paid by the appellants to the corporate debtor (CD). It was found that only Rs. 2,00,000/- was actually paid by the appellants towards booking a flat which was later cancelled. The remaining amounts claimed as consideration for two flats allotted later were adjustments of brokerage/commission dues owed by the CD to the appellants. No fresh money was disbursed by the appellants for these flats.

Application of Law to Facts: Since the appellants did not disburse any money in respect of the two flats allotted under the MoUs dated 25.11.2021 and 03.02.2022, and the allotments were made by adjusting brokerage dues, the Tribunal held that there was no "disbursal" of money against consideration for time value of money as required under Section 5(8). The amounts adjusted were operational dues, not financial debts.

Treatment of Competing Arguments: The appellants contended that by virtue of allotment and execution of builder-buyer agreements, they are allottees and thus financial creditors. The Respondent argued that the underlying transaction was brokerage services (operational debt), and the allotments were adjustments of the same, with no fresh disbursal by appellants. The Tribunal agreed with the Respondent, highlighting that the appellants had earlier filed a Section 9 petition as operational creditors, thus estopped from changing their stance.

Conclusion: The claims of the appellants do not qualify as financial debt under Section 5(8) of the IBC, as there was no disbursal of money by the appellants against consideration for time value of money. The claims are operational debts.

Issue 2: Status of Appellants as Financial Creditors under the Definition of Allottee in RERA

Legal Framework and Precedents: Section 5(8)(f) Explanation (i) and (ii) of the IBC includes amounts raised from allottees under real estate projects as financial debt. The RERA Act defines "allottee" as a person to whom a plot, apartment or building has been allotted or sold by the promoter. The Supreme Court in Pioneer Urban Land recognized allottees as financial creditors due to their financial stake and interest in the project's completion.

Court's Interpretation and Reasoning: The Tribunal noted that the appellants were initially brokers engaged by the CD and had paid a nominal booking amount for a flat which was later cancelled. The subsequent allotments of flats were made by adjusting outstanding brokerage dues. The Tribunal observed that the appellants did not raise any fresh amount from the CD as allottees, and the transactions were essentially adjustments of operational dues.

Application of Law to Facts: The appellants could not be considered allottees in the true sense under RERA, as they did not disburse money for the flats allotted under the MoUs. The allotments were not independent transactions but adjustments of brokerage dues. The Tribunal relied on a precedent where landowners allotted flats under development agreements were held not to be financial creditors as no amount was raised from them.

Treatment of Competing Arguments: The appellants argued that execution of builder-buyer agreements and issuance of receipts evidenced their status as allottees and financial creditors. The Respondent countered that the agreements were settled adjustments of operational dues and no new financial debt was created. The Tribunal found the Respondent's arguments persuasive.

Conclusion: The appellants do not qualify as financial creditors/allottees under the RERA definition for the purpose of Section 5(8)(f) of the IBC, as no fresh amount was raised from them for the flats allotted.

Issue 3: Effect of Earlier Admission as Operational Creditor on Subsequent Claim as Financial Creditor

Legal Framework and Precedents: The principle of estoppel prevents a party from adopting contradictory positions in legal proceedings. The Supreme Court in Anuj Jain vs. Axis Bank Ltd. emphasized that a financial creditor is one to whom the corporate debtor owes financial debt. The nature of the debt is determined by the underlying transaction.

Court's Interpretation and Reasoning: The appellants had earlier filed a petition under Section 9 of the IBC claiming operational debt and were admitted as operational creditors. The Tribunal held that they cannot later claim to be financial creditors as it would be inconsistent and contrary to the principle of estoppel.

Application of Law to Facts: The appellants' prior admission as operational creditors and their conduct during CIRP, including attending Committee of Creditors (CoC) meetings, evidenced their acceptance of the operational debt classification. The Tribunal found no change in circumstances warranting reclassification as financial creditors.

Treatment of Competing Arguments: The appellants argued that the amended definition of financial debt includes allottees and thus they qualify as financial creditors. The Respondent highlighted the appellants' earlier admission as operational creditors and estoppel. The Tribunal sided with the Respondent.

Conclusion: The appellants are estopped from changing their status from operational creditors to financial creditors, and their claims remain operational debts.

Issue 4: Legality of NCLT and RP's Rejection of Financial Debt Claims

Legal Framework and Precedents: The NCLT and RP are tasked with verifying claims and classifying creditors as financial or operational based on the nature of debt and transactions. The Supreme Court judgments provide guidance on classification criteria.

Court's Interpretation and Reasoning: The Tribunal found that the NCLT and RP correctly rejected the appellants' claims as financial debt since no fresh disbursal of money was made by the appellants for the flats allotted, and the amounts were adjustments of brokerage dues, constituting operational debt.

Application of Law to Facts: The factual matrix showed that the appellants' claims were based on brokerage commissions due and adjusted against flats allotted. The NCLT and RP's classification aligned with the statutory definitions and judicial precedents.

Treatment of Competing Arguments: The appellants contended that the allotment and execution of builder-buyer agreements created financial debt. The Respondent maintained the operational nature of the claims. The Tribunal upheld the Respondent's position.

Conclusion: The rejection of the appellants' claims as financial debt by the NCLT and RP was lawful and justified.

Summary of Conclusions

• The appellants' claims do not constitute financial debt under Section 5(8) of the IBC as there was no disbursal of money by them against consideration for time value of money.
• The appellants do not qualify as financial creditors/allottees under RERA for the purpose of financial debt classification since the flats allotted were adjustments of brokerage dues, not fresh allotments funded by the appellants.
• The appellants are estopped from changing their status from operational creditors to financial creditors due to their earlier admission and conduct.
• The NCLT and RP correctly rejected the appellants' claims as financial debt and treated them as operational debt.
• The appeals challenging the rejection of financial debt claims were dismissed with no order as to costs.

1. Whether the impugned order dated 03.01.2025 passed by the National Company Law Tribunal (NCLT) is an unreasoned order and thus liable to be set aside for failure to record reasons.

2. Whether the principles of natural justice were violated by the NCLT in passing the impugned order, specifically regarding the denial of reasonable opportunity to file a reply and be heard.

3. Whether the application filed challenging the election results was maintainable given the participation of the applicants in the election and the timing of the application.

4. Whether the appointment of an independent scrutiniser and directions for re-scrutiny of election results were justified on the facts and law.

5. Whether the NCLT complied with procedural requirements under Rule 37 of the NCLT Rules, 2016 in issuing notice and affording opportunity to the respondents.

6. The effect of interim orders passed by the Hon'ble Supreme Court in related proceedings on the adjudication of the present appeal.

Issue 1: Whether the impugned order dated 03.01.2025 is an unreasoned order

- Relevant legal framework and precedents:

The requirement for recording reasons in quasi-judicial orders is well-established under Indian law. The Supreme Court has held that reasons are the "links between the materials on which certain conclusions are based and the actual conclusions" and are essential for transparency, fairness, and judicial accountability. Key precedents emphasize that reasons must be cogent, clear, and not mere "rubber-stamp" or formalistic statements. Recording reasons is a fundamental component of due process and natural justice.

- Court's interpretation and reasoning:

The impugned order primarily recites facts and submissions of the parties up to paragraph 4.22 without any analysis or conclusion. The so-called "Analysis and findings" section (paragraph 5) merely issues directions without any reasoning or prima facie satisfaction recorded by the NCLT. The statement that the applicant "has reasons to believe" manipulation occurred is attributed to the applicant, not the Tribunal's own finding or satisfaction.

- Key evidence and findings:

The record shows that the election was conducted with a scrutiniser appointed, and the scrutiniser's report was on record. The application for re-scrutiny was filed two months after the election and after office bearers had taken charge. The NCLT did not analyze these facts or address objections raised regarding maintainability and delay.

- Application of law to facts:

The Tribunal's failure to provide any reasoned basis for appointing an independent scrutiniser and directing re-scrutiny amounts to an unreasoned order. This violates settled principles requiring courts and tribunals to record reasons for their decisions, especially when interfering with election results and management of a company/club.

- Treatment of competing arguments:

The appellant contended that the order lacked reasons and was thus unsustainable. The respondents argued that the Tribunal heard parties and considered submissions. The Court found that mere hearing without reasons does not satisfy the requirement of reasoned orders.

- Conclusion:

The impugned order is an unreasoned order and is liable to be set aside on this ground alone.

Issue 2: Whether principles of natural justice were violated by denial of reasonable opportunity to file reply and be heard

- Relevant legal framework and precedents:

Rule 37 of the NCLT Rules, 2016 mandates issuance of notice to respondents with a copy of the application and reasonable opportunity to file reply and be heard. Principles of natural justice require that parties be given adequate opportunity to present their case before adverse orders are passed.

- Court's interpretation and reasoning:

On 09.12.2024, when the application was first listed, no notice was issued to the appellant. Although the NCLT allowed one week to file reply, it simultaneously reserved the order on the same day, effectively denying any opportunity to respond to the reply or make submissions thereafter. This was held to be a mere formality and not a meaningful opportunity.

- Key evidence and findings:

The appellant was present on 09.12.2024 and raised objections including maintainability, confidentiality, participation of applicants in election, and delay. The NCLT did not address these objections or provide opportunity for further submissions after the reply was filed.

- Application of law to facts:

The procedure adopted violated Rule 37 and natural justice, as the appellant was deprived of reasonable and sufficient time to file reply and be heard on the basis of that reply. The order was passed without affording a proper hearing.

- Treatment of competing arguments:

The respondents argued that the appellant was heard and filed written submissions, thus natural justice was complied with. The Court rejected this, emphasizing that filing a reply without opportunity to respond or argue on it is insufficient.

- Conclusion:

The impugned order was passed in violation of principles of natural justice and Rule 37 of the NCLT Rules, warranting its setting aside.

Issue 3: Maintainability of the application challenging election results given participation of applicants and timing

- Relevant legal framework and precedents:

Challenges to elections must be filed by parties with locus standi and within reasonable time. Participation in the election may estop a party from challenging the process unless fraud or mismanagement is alleged and proved. Delay in filing may also render a challenge unsustainable.

- Court's interpretation and reasoning:

The applicants who filed the application challenging the election results had participated in the election. The application was filed more than two months after the election and after office bearers had taken charge. The appellant contended that such challenge was an afterthought and beyond the scope of the company petition.

- Key evidence and findings:

The Tribunal did not address these issues or analyze the maintainability of the application in the impugned order. The Court noted these submissions but refrained from deciding on merits due to procedural infirmities in the impugned order.

- Application of law to facts:

While these grounds raise serious questions on maintainability, the Court declined to adjudicate on them in the present appeal, given the primary defects in procedure and reasoning.

- Treatment of competing arguments:

Respondents argued that participation does not bar challenge and that preserving election materials was necessary for ultimate adjudication. The Court acknowledged these contentions but emphasized that the impugned order failed to address these issues.

- Conclusion:

Maintainability issues remain open for consideration by the NCLT in appropriate proceedings; the present appeal did not decide on these merits.

Issue 4: Justification for appointment of independent scrutiniser and directions for re-scrutiny of election results

- Relevant legal framework and precedents:

Courts may appoint independent officers such as receivers or special officers to ensure fair scrutiny in cases of alleged mismanagement or manipulation, subject to prima facie satisfaction and reasoned orders.

- Court's interpretation and reasoning:

The NCLT appointed an independent scrutiniser based on the applicant's "reasons to believe" manipulation occurred, without recording its own satisfaction or reasons. The directions were issued without analysis of the scrutiniser's report already on record or the objections raised.

- Key evidence and findings:

The scrutiniser's report dated 01.10.2024 was on record. The election was conducted by an appointed team of scrutinisers. The application for re-scrutiny was filed belatedly and without prima facie findings by the Tribunal.

- Application of law to facts:

The appointment and directions lacked a reasoned basis and were premature. The Court found the order unsustainable due to absence of reasons, not on the substantive merits of the appointment.

- Treatment of competing arguments:

The appellant argued the directions were unwarranted and an afterthought. The respondents contended that the appointment was necessary to preserve election materials and ensure fairness. The Court did not decide on these competing contentions due to procedural defects.

- Conclusion:

The impugned directions are set aside for want of reasoned order; the question of appointment merits fresh consideration by the NCLT with proper reasoning and opportunity to parties.

Issue 5: Compliance with procedural requirements under Rule 37 of NCLT Rules, 2016

- Relevant legal framework and precedents:

Rule 37 mandates issuance of notice to respondents with copy of application and reasonable opportunity to file reply and be heard. Failure to comply violates natural justice and grounds for setting aside orders.

- Court's interpretation and reasoning:

No formal notice was issued to the appellant on IA No.225 of 2024. The order on 09.12.2024 allowed one week to file reply but simultaneously reserved the order, denying any hearing on the reply. This was held to be a violation of Rule 37 and natural justice.

- Key evidence and findings:

The appellant raised objections on maintainability and other grounds which required consideration. The NCLT did not address these or provide opportunity for submissions post filing of reply.

- Application of law to facts:

The procedural lapses vitiated the impugned order. Precedents of this Tribunal emphasize that reasonable and sufficient time must be granted for filing reply and hearing before adjudication.

- Treatment of competing arguments:

The respondents contended that written submissions were filed and parties were heard. The Court rejected this as inadequate to fulfill Rule 37 requirements.

- Conclusion:

The impugned order is set aside for non-compliance with Rule 37 and principles of natural justice.

Issue 6: Effect of interim orders passed by the Hon'ble Supreme Court in related proceedings

- Relevant legal framework and precedents:

Interim orders by the Supreme Court in related appeals restrain the NCLT from passing final orders but do not preclude consideration of interlocutory applications or appeals against orders passed prior to such interim orders.

- Court's interpretation and reasoning:

The impugned order was passed on 03.01.2025, prior to the Supreme Court's interim orders dated 19.05.2025 and 18.07.2025. Hence, the present appeal against the impugned order was to be decided on merits.

- Key evidence and findings:

The Supreme Court's subsequent orders restrained further proceedings in the Company Petition but did not invalidate the impugned order or bar this appeal.

- Application of law to facts:

The Tribunal proceeded correctly to decide the appeal on merits as the impugned order predated the Supreme Court's interim directions.

- Treatment of competing arguments:

No significant competing arguments on this issue were raised.

- Conclusion:

The appeal was maintainable and properly decided on merits notwithstanding the Supreme Court's interim orders in related proceedings.

- The impugned order dated 03.01.2025 is an unreasoned order lacking any recorded reasons or prima facie satisfaction by the NCLT, thereby violating settled legal principles and warranting setting aside.

- The order was passed in violation of principles of natural justice and Rule 37 of the NCLT Rules, 2016, as the appellant was denied reasonable and sufficient opportunity to file a reply and be heard on the application.

- Procedural infirmities in the impugned order preclude adjudication on the substantive merits of the application challenging the election results and the appointment of an independent scrutiniser.

- The appeal is allowed, the impugned order is set aside, and the interim order passed by this Tribunal is discharged.

- Custody of election materials deposited with the Tribunal is directed to be returned to the appellant.

- No order as to costs is made.

1. Whether the application filed under Section 95 of the Insolvency and Bankruptcy Code (IBC) by the financial creditor against the personal guarantor is barred by limitation.

2. The correct limitation period applicable for filing an application under Section 95 of the IBC, particularly in light of recovery certificates issued by the Debt Recovery Tribunal (DRT).

3. Interpretation and applicability of the Supreme Court judgment in 'Tottempudi Salalith' regarding limitation period for filing insolvency applications based on recovery certificates.

4. Whether the limitation period for filing an application under the IBC is governed by a 3-year period under Article 137 of the Limitation Act or a 12-year period applicable to decrees under Article 62 or Article 136 of the Limitation Act.

5. The effect of a recovery certificate issued by the DRT on the limitation period for initiating insolvency proceedings under the IBC.

6. The applicability of the Supreme Court's Suo Moto order in WP (Civil) No. 3 of 2022 extending limitation periods in the context of Section 95 applications.

Issue 1 & 2: Limitation for Filing Section 95 Application under IBC and Effect of Recovery Certificate

Legal Framework and Precedents: The limitation period for filing an application under Section 95 of the IBC is governed by the Limitation Act, 1963. Article 137 of the Limitation Act prescribes a 3-year limitation period for "application" suits not specifically covered by other articles. Recovery certificates issued by the DRT under the Recovery of Debts and Bankruptcy Act, 1993 (the 1993 Act) are deemed to be decrees or orders of the court (Section 19(22-A) of the 1993 Act).

Supreme Court precedents, including 'Kotak Mahindra Bank Ltd. v. A. Balakrishnan' and 'Gaurav Hargovindbhai Dave v. Asset Reconstruction Ltd.', have held that a recovery certificate gives rise to a fresh cause of action and the limitation period for initiating insolvency proceedings based on such certificate is three years from the date of issuance.

Court's Interpretation and Reasoning: The Court examined whether the application under Section 95 filed by the financial creditor was within the prescribed limitation period. It noted that the recovery certificate was issued on 25.01.2019, and the application was filed on 02.09.2024. The three-year limitation period would have expired on 25.01.2022. Even after considering the Supreme Court's extension of limitation period in Suo Moto WP (Civil) No. 3 of 2022 (extending limitation till 11.01.2024), the application was filed beyond the extended period.

The Court rejected the submission that the limitation period is 12 years based on the decree's validity period. It clarified that the 12-year limitation under Article 62 or Article 136 of the Limitation Act applies to suits or execution of decrees but not to applications under the IBC, which fall under Article 137.

Key Evidence and Findings: The recovery certificate dated 25.01.2019 was the relevant date from which limitation runs. The application under Section 95 was filed more than three years later. The extension of limitation by the Suo Moto order was also insufficient to cover the delay.

Application of Law to Facts: The Court applied the settled legal position that limitation for filing insolvency applications based on recovery certificates is three years from the date of the certificate. The application filed beyond this period was correctly held to be barred by limitation.

Treatment of Competing Arguments: The appellant bank argued reliance on the Supreme Court judgment in 'Tottempudi Salalith' to claim a 12-year limitation period. The Court analyzed the judgment in detail and found that it reaffirmed the three-year limitation under Article 137 for Section 7 applications and did not extend limitation to 12 years for insolvency proceedings based on recovery certificates.

Conclusions: The limitation period for filing an application under Section 95 of the IBC based on a recovery certificate is three years. The application filed beyond this period, even after considering the extension granted by the Supreme Court's Suo Moto order, is barred by limitation. The impugned orders rejecting the Section 95 applications on limitation grounds were upheld.

Issue 3 & 4: Interpretation of 'Tottempudi Salalith' Judgment and Applicability of 12-Year Limitation

Legal Framework and Precedents: The 'Tottempudi Salalith' judgment dealt with applications under Section 7 of the IBC based on recovery certificates issued by the DRT. The Supreme Court reiterated the applicability of Article 137 (three-year limitation) for such applications and clarified that recovery certificates constitute fresh causes of action.

Court's Interpretation and Reasoning: The Court scrutinized the appellant's reliance on the judgment to argue for a 12-year limitation period. It found that the Supreme Court expressly rejected the application of 12-year limitation under Article 62 or Article 136 for Section 7 or Section 95 applications under the IBC. The judgment confirmed that the limitation period is three years from the date of the recovery certificate.

Key Evidence and Findings: The judgment emphasized that while a recovery certificate is deemed a decree for certain purposes, the limitation for initiating insolvency proceedings remains three years. The Court noted that the Supreme Court also rejected claims of acknowledgment of debt beyond the three-year period.

Application of Law to Facts: The appellant's argument that the 12-year limitation period applicable to decrees should apply to Section 95 applications was found to be a misinterpretation of the judgment. The Court applied the correct legal position that the limitation is three years.

Treatment of Competing Arguments: The appellant's contention was considered and rejected based on the clear ratio of the Supreme Court judgment and the established legal framework.

Conclusions: The 'Tottempudi Salalith' judgment does not support a 12-year limitation period for filing applications under the IBC. The limitation period remains three years from the date of the recovery certificate.

Issue 5: Effect of Recovery Certificate on Limitation and Status as Decree

Legal Framework and Precedents: Section 19(22-A) of the Recovery of Debts and Bankruptcy Act, 1993, provides that a recovery certificate issued by the DRT shall be deemed to be a decree or order of the court for purposes including initiation of insolvency proceedings.

Court's Interpretation and Reasoning: The Court acknowledged that a recovery certificate has the character of a decree, which gives rise to a fresh cause of action. However, the limitation period for initiating insolvency proceedings based on such certificate is governed by Article 137 of the Limitation Act (three years) and not by the 12-year limitation applicable to execution of decrees under Article 136.

Key Evidence and Findings: The recovery certificate dated 25.01.2019 was the triggering event for limitation. The Court found that the financial creditor's right to initiate insolvency proceedings arises from the certificate, but the limitation period is limited to three years from issuance.

Application of Law to Facts: The Court applied the legal principle that while the recovery certificate is a decree for certain purposes, the limitation for filing insolvency applications is three years from the date of the certificate.

Treatment of Competing Arguments: The appellant's argument that the decree's 12-year validity period should determine limitation was rejected as inconsistent with statutory provisions and Supreme Court rulings.

Conclusions: The recovery certificate is deemed a decree but limitation for filing insolvency applications based on it is three years from issuance, not 12 years.

Issue 6: Applicability of Suo Moto Extension of Limitation by Supreme Court

Legal Framework and Precedents: The Supreme Court's Suo Moto order in WP (Civil) No. 3 of 2022 extended limitation periods for certain filings due to extraordinary circumstances.

Court's Interpretation and Reasoning: The Court considered whether the extension granted by the Suo Moto order applied to the Section 95 application filed by the financial creditor. It found that even with the extended limitation period (up to 11.01.2024), the application filed on 02.09.2024 was beyond the extended limitation period.

Key Evidence and Findings: The original limitation expired on 25.01.2022; the extension granted by the Supreme Court was until 11.01.2024; the application was filed after this date.

Application of Law to Facts: The Court applied the extended limitation period and concluded that the application was still time-barred.

Treatment of Competing Arguments: The appellant did not dispute the dates but argued that the limitation should be 12 years. The Court rejected this argument and found no error in the limitation rejection.

Conclusions: The extension of limitation by the Supreme Court's Suo Moto order was insufficient to save the delayed application. The application remained barred by limitation.

1. ISSUES PRESENTED and CONSIDERED

• Whether the activity of rehabilitation of breakwaters constitutes a 'works contract' liable to tax under the Finance Act, 1994, or is exempt under notification no. 25/2012-ST dated 20th June 2012.
• Interpretation of the expression 'by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration' in the exemption notification and its applicability to the activity of breakwater rehabilitation.
• Determination of the value of taxable service in the absence of declared value by the appellant, including the use of income tax returns data and the applicability of section 72 and section 73 of the Finance Act, 1994.
• Whether the breakwater structure qualifies as 'civil structure' intended for use other than commerce, industry, or any other business or profession, thereby entitling the activity to exemption.
• Whether the difference between income tax returns and service tax returns can be used as a basis for demand under section 73 of the Finance Act, 1994.
• Applicability of precedent decisions and advance rulings concerning the classification and exemption of breakwater-related works.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of the activity as 'works contract' and applicability of exemption notification

Relevant legal framework and precedents: The Finance Act, 1994, governs service tax liability, with section 73 providing for determination of tax demand and section 75 for interest. Notification no. 25/2012-ST exempts certain works contracts provided to government authorities, subject to specified conditions. The definition of 'works contract' includes activities involving construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration.

Court's interpretation and reasoning: The Tribunal acknowledged that the activity undertaken was a 'works contract' rendered to a governmental authority. The adjudicating authority had held that the rehabilitation of breakwaters was not covered by the exemption notification, reasoning that the activity was not exactly 'by way of' any of the enumerated activities in serial no. 12A of the notification. However, the Tribunal found this interpretation flawed, noting that the adjudicating authority placed undue emphasis on the phrase 'by way of' without adequate semantic or legal justification.

Key evidence and findings: The appellant undertook rehabilitation of breakwaters awarded by the Department of Ports and Inland Water Transport, Government of Karnataka. The appellant contended that the work was excluded from taxation under the exemption notification and no tax was collected from the contract awarding authority.

Application of law to facts: The Tribunal observed that the expression in the exemption notification was intended to circumscribe the exclusion narrowly, limiting it to civil structures predominantly for non-commercial, non-industrial, or non-business use. The breakwater, by its nature, serves to protect the coastline and port infrastructure, not for commerce or industry, thus falling within the exemption scope.

Treatment of competing arguments: The adjudicating authority's narrow interpretation was contrasted with prior decisions, including the dropping of proceedings in similar cases and advance rulings recognizing exemption for such works. The appellant's reliance on these precedents was accepted as supportive of exemption.

Conclusions: The Tribunal concluded that the activity of rehabilitating breakwaters qualifies as a 'works contract' exempt under the notification, and the impugned order erred in denying this exemption.

Issue 2: Interpretation of the phrase 'by way of' in the exemption notification

Relevant legal framework and precedents: The exemption notification uses the phrase 'by way of' to describe the nature of works contracts eligible for exemption. Interpretation principles require contextual and purposive reading of such expressions.

Court's interpretation and reasoning: The Tribunal found that the adjudicating authority's emphasis on 'by way of' was misplaced. The phrase was intended to limit the exclusion to a specific activity among the enumerated ones, not to restrict all activities listed. The Tribunal held that the breakwater rehabilitation falls within the enumerated activities, particularly 'repair, maintenance, renovation or alteration' of civil structures.

Key evidence and findings: The nature and purpose of breakwaters as civil structures protecting coastal infrastructure were highlighted. The Tribunal noted that the breakwater is not constructed for commercial or industrial use, supporting the exemption claim.

Application of law to facts: The phrase 'by way of' was interpreted to support exemption rather than deny it, given the purpose and nature of the breakwater works.

Treatment of competing arguments: The adjudicating authority's restrictive interpretation was rejected in favor of a broader purposive approach consistent with the exemption's intent.

Conclusions: The Tribunal held that the phrase 'by way of' does not exclude the rehabilitation of breakwaters from the exemption notification.

Issue 3: Determination of value of taxable service and use of income tax returns data

Relevant legal framework and precedents: Section 72 of the Finance Act, 1994, allows the adjudicating authority to determine the value of taxable service in the absence of declared value. Section 73 provides for determination of tax demand. Precedents establish that differences between income tax returns and service tax returns are not a proper basis for demand under section 73.

Court's interpretation and reasoning: The adjudicating authority relied on income tax returns to determine the value of taxable service, citing discrepancies and absence of declared value by the appellant. The Tribunal noted that the use of income tax returns for this purpose is improper, especially given settled precedents rejecting such cross-referencing as a basis for demand under section 73.

Key evidence and findings: The appellant had not reported the value under service tax but had reported receipts in income tax returns. The adjudicating authority used these figures to quantify demand.

Application of law to facts: The Tribunal applied established legal principles that the difference between income tax and service tax returns cannot be used to determine demand under section 73 and that section 72 proceedings are independent and cannot be conflated.

Treatment of competing arguments: The respondent's reliance on income tax returns as indicative of value was rejected in light of legal precedents and principles of proper valuation under the Finance Act.

Conclusions: The Tribunal held that the valuation method adopted by the adjudicating authority was flawed and could not sustain the demand.

Issue 4: Qualification of breakwater as 'civil structure' and its use for commerce, industry or business

Relevant legal framework and precedents: The exemption notification applies to works contracts relating to 'civil structures' predominantly used other than for commerce, industry, or any other business or profession. Prior rulings and judicial decisions provide guidance on classification of breakwaters and related structures.

Court's interpretation and reasoning: The Tribunal emphasized the functional purpose of breakwaters-to resist wave action and protect coastal and port infrastructure. It rejected the notion that breakwaters serve commercial or industrial purposes directly. The Tribunal referred to relevant authority that held breakwaters do not qualify as 'plant and machinery' and are not used for outward supply of goods or services.

Key evidence and findings: The nature of breakwaters and their protective function was established. The appellant's work was limited to rehabilitation, not construction for commercial use.

Application of law to facts: The Tribunal applied the exemption criteria strictly, concluding that breakwaters fall within 'civil structures' used other than for commerce, industry, or business.

Treatment of competing arguments: The adjudicating authority's failure to consider the purpose and nature of breakwaters was criticized. The appellant's submissions and supporting precedents were accepted.

Conclusions: The Tribunal concluded that the breakwater rehabilitation work qualifies for exemption as it relates to civil structures not used for commerce, industry, or business.

Issue 5: Use of precedent decisions and advance rulings

Relevant legal framework and precedents: Prior decisions, including the dropping of proceedings in similar cases and advance rulings by authorities, provide persuasive guidance on the classification and exemption of breakwater-related works.

Court's interpretation and reasoning: The Tribunal relied on the decision of the Commissioner of Central Excise & GST, Thane Rural, which dropped proceedings in a similar case involving the Maharashtra Maritime Board. It also considered the Authority for Advance Ruling in Maharashtra, which held similar works exempt. Additionally, the Tribunal referred to the Bombay High Court's ruling on classification of breakwaters and denial of input tax credit eligibility, reinforcing the non-commercial nature of breakwaters.

Key evidence and findings: The appellant's reliance on these precedents was supported by factual similarity and legal reasoning consistent with exemption.

Application of law to facts: The Tribunal found these precedents directly applicable and supportive of the appellant's claim for exemption.

Treatment of competing arguments: The respondent did not effectively counter these precedents; the Tribunal found the precedents persuasive.

Conclusions: The Tribunal accepted the precedents as authoritative and consistent with the appellant's position, reinforcing the grant of exemption.

Issue 6: Legality of demand and penalty imposition under the Finance Act, 1994

Relevant legal framework and precedents: Sections 73, 75, 77, and 78 of the Finance Act, 1994, govern tax demand, interest, and penalties for non-compliance.

Court's interpretation and reasoning: Given the Tribunal's findings that the activity was exempt and valuation was improperly determined, the demand of tax, interest, and penalties were unsustainable.

Key evidence and findings: The impugned order confirmed tax demand and penalties based on erroneous classification and valuation.

Application of law to facts: The Tribunal applied the principle that demand and penalties cannot be sustained if the foundational tax liability is invalid.

Treatment of competing arguments: The respondent's justification for demand and penalties was premised on flawed findings, which the Tribunal rejected.

Conclusions: The Tribunal set aside the impugned order, quashing the demand and penalties.