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2026 (10) TMI 1172 - CESTAT KOLKATA Service Tax

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Issues: (i) Whether the demand for the period up to 30 September 2016 was barred by limitation; (ii) Whether works-contract supplies to Sintex Prefab and Infra Ltd. and Sintex Industries Ltd. attracted service tax for the period from 1 October 2016 to 30 June 2017; (iii) Whether commission earned on Vodafone distributorship was exempt from service tax; and (iv) Whether VAT-paid supplies of plastic dustbins, portolet toilets and similar goods to local bodies and State Governments attracted service tax.

Issue (i): Whether the demand for the period up to 30 September 2016 was barred by limitation.

Analysis: The show-cause notice was issued on 22 October 2021. The demand pertaining to the period found to be beyond the five-year extended limitation period could not be sustained.

Conclusion: The demand up to 30 September 2016 is time-barred and is set aside, in favour of the assessee.

Issue (ii): Whether works-contract supplies to Sintex Prefab and Infra Ltd. and Sintex Industries Ltd. attracted service tax for the period from 1 October 2016 to 30 June 2017.

Analysis: The taxable works-contract component was confined to the period from 1 October 2016 to 30 June 2017 and quantified at 33% of the gross amount received.

Conclusion: Service tax at 33% of the gross amount received, with interest, is payable for the specified period; no penalty is imposable.

Issue (iii): Whether commission earned on Vodafone distributorship was exempt from service tax.

Analysis: The commission from Vodafone distributorship fell within Serial No. 29(f) of Notification No. 25/2012-ST dated 20.06.2012.

Conclusion: The commission is exempt from service tax and the entire demand on that account is set aside, in favour of the assessee.

Issue (iv): Whether VAT-paid supplies of plastic dustbins, portolet toilets and similar goods to local bodies and State Governments attracted service tax.

Analysis: The invoices established sale and supply of goods on which VAT had been paid, rather than provision of a taxable service.

Conclusion: The VAT-paid supplies of goods are not liable to service tax and the demand on that account is set aside, in favour of the assessee.

Final Conclusion: Only the non-time-barred works-contract receipts remain chargeable to service tax with interest; the demands relating to Vodafone commission and VAT-paid supplies of goods do not survive, and no penalty is payable.

Ratio Decidendi: Where invoices establish a VAT-paid sale of goods rather than provision of a service, the related receipts are not chargeable to service tax.

Service-tax classification distinguishes taxable works contracts from exempt distributorship commission and VAT-paid goods supplies, with no penalty.
Service-tax demand for the period up to 30 September 2016 was time-barred because it exceeded the five-year extended limitation period. Works-contract receipts from 1 October 2016 to 30 June 2017 remained taxable to the extent of 33% of gross receipts, with interest but without penalty. Vodafone distributorship commission qualified for the applicable service-tax exemption, so the related demand did not survive. VAT-paid supplies of plastic dustbins, portolet toilets and similar goods constituted sales of goods rather than taxable services; consequently, no service tax was payable on those supplies.

2026 (10) TMI 1299 - CALCUTTA HIGH COURT GST

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Effective portal notice safeguards natural justice by requiring separate intimation, response opportunity, and personal hearing before fresh tax adjudication.
Effective notice is required to satisfy principles of natural justice in tax adjudication. Uploading a show-cause notice only under a portal's "Additional Notice and Orders" tab, without separate intimation, may prevent the affected person from becoming aware of the proceedings and submitting a reply. Adjudication undertaken without effective notice and a meaningful opportunity to respond is vitiated by breach of natural justice. The affected person must be allowed to file a response and receive a personal hearing before fresh adjudication.

2026 (10) TMI 1288 - GSTAT LUCKNOW GST

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Issues: (i) Whether denial of ITC and action under Section 74 could be sustained merely because the supplier was subsequently reported non-existent, despite the recipient's contemporaneous transaction records and no proof of fraud; (ii) Whether non-payment of certain invoices within 180 days, followed by credit reversal, attracted Section 74 or governed the statutory reversal and re-availment mechanism.

Issue (i): Whether denial of ITC and action under Section 74 could be sustained merely because the supplier was subsequently reported non-existent, despite the recipient's contemporaneous transaction records and no proof of fraud.

Analysis: Section 16(2) requires actual receipt of goods, while Section 155 places the burden of proving ITC eligibility on the claimant. Section 74 additionally requires fraud, wilful misstatement or suppression of facts with intent to evade tax. Tax invoices, e-way bills, transport documents, books of account, GST records and banking-channel payments constituted relevant contemporaneous evidence. The supplier's subsequent non-existence did not establish that it was non-existent when the transactions occurred, and the record contained no cogent independent evidence rebutting the transaction documents or linking the recipient to accommodation invoices, circular trading, cash-back, or other fraudulent conduct.

Conclusion: In favour of the assessee: the ITC denial and the tax, interest and penalty demand under Section 74 could not be sustained.

Issue (ii): Whether non-payment of certain invoices within 180 days, followed by credit reversal, attracted Section 74 or governed the statutory reversal and re-availment mechanism.

Analysis: The second and third provisos to Section 16(2), read with Rule 37, provide for proportionate reversal of ITC with applicable interest where payment to the supplier is not made within the prescribed period, and permit re-availment upon subsequent payment subject to statutory conditions. The proportionate credit had been voluntarily reversed through Form GST DRC-03. This statutory reversal mechanism is distinct from proceedings under Section 74 and does not, without evidence of fraud, wilful misstatement or suppression with intent to evade tax, establish the jurisdictional conditions for that provision.

Conclusion: In favour of the assessee: the unpaid-invoice component did not attract Section 74, and re-availment of the reversed credit may be considered upon subsequent payment in accordance with the statutory conditions.

Final Conclusion: The impugned treatment of the recipient's ITC as fraudulent was unsustainable, while the consequences of delayed payment to the supplier remained governed independently by the statutory reversal and re-availment framework.

Ratio Decidendi: A supplier's subsequent non-existence cannot by itself justify ITC denial or invocation of Section 74 where the recipient's contemporaneous evidence is not cogently rebutted and fraud, wilful misstatement or suppression with intent to evade tax is not established.

Input tax credit disputes under extended recovery require fraud evidence; delayed payments follow statutory reversal and re-availment rules.
Input tax credit cannot be denied and extended recovery proceedings cannot rest solely on a supplier's later non-existence where contemporaneous invoices, e-way bills, transport records, accounts, GST records and banking-channel payments support actual receipt and eligibility, absent cogent rebuttal or proof of fraud, wilful misstatement or intentional suppression. The claimant bears the burden of proving ITC eligibility, including actual receipt of goods. Where supplier invoices remain unpaid beyond the prescribed period, proportionate ITC reversal with applicable interest applies, and credit may be re-availed after payment subject to statutory conditions. Voluntary reversal alone does not establish grounds for extended recovery proceedings.

Input tax credit on purchases from subsequently non-existent supplier - Fraud or suppression for recovery of wrongfully availed input tax credit Input tax credit on purchases from subsequently non-existent supplier - Proof of actual receipt of goods for input tax credit - Denial of input tax credit on iron-scrap purchases solely because the supplier was subsequently reported to be non-existent, despite invoices, transport records, GST records and banking-channel payments - HELD THAT: - Actual receipt of goods had to be determined on the totality of the evidence. Once the recipient produced contemporaneous transaction documents, the Department was required to examine and rebut them by cogent material; the burden of proving entitlement to credit did not oblige the recipient to prove matters exclusively within the supplier's control. The subsequent non-existence of the supplier and the investigation report could warrant verification, but could not by themselves establish that the supplier was non-existent when the transactions occurred or that the purchases were fictitious. The Department neither conducted independent verification of the appellant's evidence nor established absence of movement or receipt of goods. [Paras 4] The denial of input tax credit was unsustainable, and the iron-scrap transactions were held to be genuine. Fraud or suppression for recovery of wrongfully availed input tax credit - Penalty for fraudulent availment of input tax credit - Recovery of alleged wrongful input tax credit and equal penalty under Section 74 in the absence of evidence of fraud, wilful misstatement or suppression by the recipient with intent to evade tax - HELD THAT: - Recovery under Section 74 requires more than a finding that credit was wrongly availed; fraud, wilful misstatement or suppression with intent to evade tax must be established by positive evidence. There was no independent evidence of collusion, accommodation invoices, cash-back, circular trading, fabricated documents or knowing participation in a fraudulent credit arrangement. Non-appearance before the authorities did not dispense with the statutory requirement of proving those ingredients. Further, non-payment of certain invoices within the prescribed period, followed by proportionate reversal of credit with interest under the statutory delayed-payment mechanism, did not by itself establish the ingredients for action under Section 74. In HCL Infotech Ltd. [2024 (9) TMI 1644 - ALLAHABAD HIGH COURT] held that proceedings under Section 74 are without jurisdiction unless the show cause notice specifically alleges fraud, wilful misstatement, or suppression of facts.[Paras 4] As the jurisdictional ingredients for invoking Section 74 were not proved, the recovery, consequential interest and equal penalty could not be sustained. Final Conclusion: The Tribunal held the iron-scrap transactions genuine, found no basis to invoke Section 74, and set aside the original and consequential appellate orders with consequential relief.

2026 (10) TMI 1287 - GSTAT LUCKNOW GST

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Issues: (i) Whether the recorded place of supply could support the allegation that the goods were diverted for delivery in another State; (ii) Whether deviation from the usual transport route, despite valid transit documents, constituted a contravention attracting penalty; and (iii) Whether the driver's statement and the vehicle's presence near a factory gate established an existing contravention and intent to evade tax.

Issue (i): Whether the recorded place of supply could support the allegation that the goods were diverted for delivery in another State.

Analysis: Section 10(1)(a) of the Integrated Goods and Services Tax Act, 2017 determines the place of supply by the location where movement terminates for delivery to the recipient. The statutory demand record specified Punjab as the place of supply, consistent with the invoice and e-way bill, while the allegation asserted intended delivery in Uttar Pradesh. The inconsistent statutory entry undermined the alleged diversion.

Conclusion: The recorded place of supply did not support the allegation of diversion, in favour of the assessee.

Issue (ii): Whether deviation from the usual transport route, despite valid transit documents, constituted a contravention attracting penalty.

Analysis: The GST framework does not require a selling dealer to declare or follow a particular transportation route. The goods were accompanied by a valid e-way bill and invoice, whose genuineness was not disputed. Route deviation alone was therefore not a statutory contravention warranting detention or penalty.

Conclusion: Route deviation with valid transit documents did not attract penalty, in favour of the assessee.

Issue (iii): Whether the driver's statement and the vehicle's presence near a factory gate established an existing contravention and intent to evade tax.

Analysis: The driver's statement referred to instructions allegedly received from an unconnected third person, without corroborative material linking that person to the transaction. The vehicle was intercepted outside the factory gate and no unloading had occurred. Penalty under Section 129(3) required proof of an existing contravention and could not rest upon a presumed future delivery or unsubstantiated tax evasion.

Conclusion: The evidence did not establish an existing contravention or intent to evade tax, in favour of the assessee.

Final Conclusion: Valid statutory documents and records precluded penal action founded only on route deviation, an uncorroborated statement, and a presumed future diversion.

Ratio Decidendi: Penalty for detention under the GST law cannot be sustained solely on route deviation and uncorroborated suspicion where valid transit documents exist and no existing contravention or intent to evade tax is established.

Valid transit documents: Route deviation and uncorroborated suspicion cannot alone justify GST detention penalties where no completed contravention is established.
Place of supply under GST is determined by the location where movement of goods terminates for delivery to the recipient. Where statutory records, including the invoice and e-way bill, identify a stated destination, an allegation of diversion to another State is undermined by inconsistent records. GST law does not require a supplier to declare or use a particular transport route; route deviation alone does not constitute a contravention when valid transit documents are undisputed. Detention penalties require evidence of an existing contravention and intent to evade tax, not an uncorroborated driver statement or a presumed future diversion before unloading.

Place of supply for movement of goods - Route deviation during GST transit - Proof of contravention for goods-detention penalty Place of supply for movement of goods - Inconsistent statutory demand record - Validity of the allegation that goods intended for Punjab were diverted for delivery in Uttar Pradesh despite the statutory demand record showing Punjab as the place of supply - HELD THAT: - The entry of Punjab as the place of supply in the demand record was a material adjudicatory entry and corresponded with the invoice and e-way bill. Since an actual conclusion that delivery would terminate in Uttar Pradesh required the place of supply to be recorded accordingly, the Revenue's own record contradicted and undermined its allegation of diversion for an undeclared local supply. [Paras 4] The recorded place of supply destroyed the basis for treating the goods as diverted for an undeclared Uttar Pradesh supply. Route deviation during GST transit - Genuine transit documents - Detention and penalty for transport on an allegedly diverted route where the goods were accompanied by a valid invoice and e-way bill - HELD THAT: - The GST regime does not require a selling dealer to disclose or adhere to a particular transportation route. Where the genuineness of the accompanying documents was not disputed, movement on a route other than the usual route did not, by itself, establish a statutory contravention justifying detention or penal action. [Paras 4] Route deviation, without more, could not sustain the penalty. Proof of existing contravention for transit penalty - Uncorroborated driver's statement - Penalty for alleged unauthorised delivery at a factory gate based on the driver's statement and the tanker's position outside the premises - HELD THAT: - The driver's statement referred to instructions from an unverified third person whose connection with the appellant or the transaction was not established. The tanker had been intercepted outside the factory gate and no unloading had occurred. A detention penalty requires clear evidence of an existing contravention at the time of interception and cannot rest on an assumed future delivery, uncorroborated statement, or presumption of tax evasion. [Paras 4] The allegation of unauthorised delivery was unsupported by sufficient evidence, rendering the penalty unsustainable. Final Conclusion: The appeal was allowed and the penalty order, along with its appellate confirmation, was set aside. The amount deposited pursuant to the impugned proceedings was directed to be refunded in accordance with law, subject to verification and statutory requirements.

2026 (10) TMI 1281 - ITAT AHMEDABAD Income Tax

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Issues: (i) Whether common shareholding rendered the assessee and the overseas entities associated enterprises and validated the reference to the Transfer Pricing Officer; (ii) Whether Chapter X can bring to tax notional income absent an independent charge under sections 4 and 5; (iii) Whether an arm's-length-price adjustment made without selecting a prescribed most appropriate method could be sustained; (iv) Whether capital research expenditure qualified for deduction under section 35(1)(iv); (v) Whether an unpaid provision for leave encashment was deductible; (vi) Whether software expenditure was capital or revenue according to the duration of its benefit; (vii) Whether expenditure on a handy camera was allowable business or research expenditure rather than impermissible freebies; (viii) Whether research and development expenditure claimed as revenue expenditure under section 37 was capital expenditure.

Issue (i): Whether common shareholding rendered the assessee and the overseas entities associated enterprises and validated the reference to the Transfer Pricing Officer.

Analysis: Section 92A(2)(b) deems enterprises to be associated enterprises where a person holds not less than 26% voting power in each enterprise. The statutory deeming rule operates for the purposes of section 92A(1), and participation in management, control or capital is consequently presumed. The common shareholder held more than the prescribed threshold in the assessee and the parent company of the overseas entities. The Assessing Officer's satisfaction for making the reference was discernible from the recorded shareholding facts; no separate speaking recording of satisfaction was required.

Conclusion: The entities were associated enterprises and the reference for determination of arm's-length price was valid, in favour of the Revenue.

Issue (ii): Whether Chapter X can bring to tax notional income absent an independent charge under sections 4 and 5.

Analysis: Chapter X supplies the machinery for computing the arm's-length value of an international transaction and does not alter either the head or nature of income. Income arising from the technology transactions remained business income chargeable under sections 4 and 5.

Conclusion: Chapter X validly applies as a computation mechanism and does not create an impermissible charge of notional income, in favour of the Revenue.

Issue (iii): Whether an arm's-length-price adjustment made without selecting a prescribed most appropriate method could be sustained.

Analysis: Section 92 requires income from an international transaction to be computed having regard to arm's-length price, while section 92C(1) requires application of a prescribed most appropriate method. The ad hoc determination did not apply such a method. The assessee had also not furnished the prescribed report or its arm's-length-price computation because it denied associated-enterprise status.

Conclusion: The arm's-length-price determination was set aside and remitted for de novo determination under Chapter X; the relief is limited to fresh adjudication, in part in favour of the assessee.

Issue (iv): Whether capital research expenditure qualified for deduction under section 35(1)(iv).

Analysis: Section 35(1)(iv) permits deduction for capital expenditure on scientific research only where the research relates to the business carried on by the assessee. The research expenditure was incurred to develop marketable technology for group concerns and facilitated their business rather than an extension of the assessee's own business.

Conclusion: Deduction under section 35(1)(iv) was not allowable, in favour of the Revenue.

Issue (v): Whether an unpaid provision for leave encashment was deductible.

Analysis: The provision remained unpaid up to the due date for filing the return. Section 43B allows the deduction only upon the prescribed payment condition being satisfied.

Conclusion: The disallowance of the unpaid leave-encashment provision was sustained, in favour of the Revenue.

Issue (vi): Whether software expenditure was capital or revenue according to the duration of its benefit.

Analysis: Software intended for use over an indeterminate or extended period confers an enduring benefit and remains capital notwithstanding that it replaces or upgrades existing software. Conversely, software having validity limited to one year does not confer an enduring benefit extending beyond that period.

Conclusion: Expenditure on long-term software was capital and its disallowance was sustained in favour of the Revenue; expenditure on one-year software was revenue and allowable in favour of the assessee.

Issue (vii): Whether expenditure on a handy camera was allowable business or research expenditure rather than impermissible freebies.

Analysis: The stated use of the handy camera for recording clinical trials and research activities was not accepted. The expenditure was treated as a prohibited freebie rather than expenditure incurred for the assessee's business or research.

Conclusion: The disallowance of the handy-camera expenditure was sustained, in favour of the Revenue.

Issue (viii): Whether research and development expenditure claimed as revenue expenditure under section 37 was capital expenditure.

Analysis: The character of research expenditure depends on its intended long-term benefit, not on whether the research ultimately results in a successful product or technology. Research undertaken to obtain enduring benefit is capital in nature. As the necessary bifurcation and supporting details were unavailable, the claim required fresh factual adjudication.

Conclusion: The deletion of the research-and-development disallowance was set aside and the issue was remitted for de novo adjudication, in favour of the Revenue to that extent.

Final Conclusion: Associated-enterprise status and the statutory conditions governing scientific-research, leave-encashment, software and research expenditure claims were upheld as applied; arm's-length-price and research-expenditure computations requiring proper factual and statutory determination must be reconsidered afresh.

Ratio Decidendi: Where the statutory deeming conditions in section 92A(2) are met, associated-enterprise status follows, and any arm's-length-price adjustment must be determined through a prescribed method under section 92C.

Transfer-pricing associated-enterprise rules require prescribed arm's-length methods, while enduring-benefit tests govern software and research expenditure.
Common shareholding of at least 26% voting power in each enterprise triggers associated-enterprise status under section 92A(2), supporting transfer-pricing scrutiny. Chapter X supplies a mechanism for computing the arm's-length value of international transactions; it does not create a separate charge of notional income, and section 92C requires a prescribed most appropriate method rather than ad hoc pricing. Capital scientific-research expenditure is deductible only when related to the taxpayer's own business, while unpaid leave encashment remains subject to the applicable payment condition. Software with an enduring benefit is capital, whereas one-year software may be revenue. Research expenditure intended to yield enduring benefit is capital even if research does not succeed.

Associated enterprises - common shareholding and step-down subsidiaries - Reference to Transfer Pricing Officer - satisfaction for reference - Arm's length price-prescribed most appropriate method - Transfer-pricing provisions-machinery for valuation - Scientific research expenditure-nexus with assessee's own business - Research and development expenditure-capital or revenue character - Software expenditure-enduring benefit and annual validity - Leave-encashment provision-deduction on payment basis Associated enterprises-common shareholding and step-down subsidiaries - Treatment of the assessee and purchasers of technology as associated enterprises where a common shareholder held the prescribed voting power in the assessee and in the parent of the purchasers - HELD THAT: - The deeming provision in section 92A(2) operates for the purposes of section 92A(1). Once a condition in section 92A(2) is fulfilled, associated-enterprise status follows mandatorily, and participation in management, control or capital under section 92A(1) is necessarily presumed. Since the common shareholder held the prescribed voting power in the assessee and in the parent whose wholly owned step-down subsidiaries were the counterparties, the statutory condition stood fulfilled. [Paras 11, 12] The assessee and the purchasers were held to be associated enterprises, and the technology-sale transactions were subject to the transfer-pricing provisions. Reference to Transfer Pricing Officer-satisfaction for reference - Validity of the reference for arm's length price determination in respect of technology sales to the associated enterprises - HELD THAT: - The Assessing Officer's recording of the relevant shareholding in the assessee and the parent company established that satisfaction regarding the associated-enterprise relationship and the need for a reference was properly reached. [Paras 15] The challenge to the reference for determination of the arm's length price was rejected. Transfer-pricing provisions-machinery for valuation - Whether transfer-pricing provisions could bring to tax notional income without an independent charging provision? - HELD THAT: - Chapter X is a machinery provision for determining the arm's length value of transactions between associated enterprises; it neither changes the nature of income nor its head of charge. The technology-sale receipts remained business income, chargeable under the ordinary charging provisions even after determination of their arm's length price. [Paras 17] The plea that the transfer-pricing adjustment sought to tax income not otherwise chargeable was rejected. Arm's length price-prescribed most appropriate method - Consequence of determining the arm's length price of technology transactions without selecting a prescribed method - HELD THAT: - Determination of the arm's length price requires adoption of a prescribed most appropriate method. However, non-adoption of such a method did not compel deletion of the adjustment, particularly when the assessee had not furnished the accountant's report or its computation of arm's length price on the premise that the counterparties were not associated enterprises. Neither the assessee's determination nor the determination made by the authorities could consequently be sustained. [Paras 21, 22, 23, 24] The arm's length price issue was remanded to the Assessing Officer and the Transfer Pricing Officer for de novo determination under Chapter X; the merits of the transfer-pricing adjustment were left unadjudicated. Scientific research expenditure-nexus with assessee's own business - Deduction for capital expenditure on pharmaceutical research undertaken for developing technology for associated enterprises and sister concerns - HELD THAT: - Capital expenditure on scientific research qualifies for deduction only where the research is related to the business carried on by the assessee itself. The concurrent factual finding was that the research was undertaken for the benefit of associated enterprises or sister concerns and resulted in marketable technology, rather than facilitating extension of the assessee's own business. [Paras 25, 29, 48, 50] Deduction under section 35(1)(iv) was held unavailable; the disallowances were sustained and the Revenue's appeals on this issue were allowed. Leave-encashment provision-deduction on payment basis - Deduction for an unpaid provision for leave encashment - HELD THAT: - The provision had not been paid by the due date for filing the return. It was therefore not allowable in accordance with section 43B. [Paras 26] The disallowance of the provision for leave encashment was sustained. Software expenditure - enduring benefit - Character of expenditure on software intended for use over several years notwithstanding subsequent upgradation - HELD THAT: - Software intended for use over years, without a determined shelf life, provides an enduring benefit and is capital in character. Replacement or upgradation of existing software does not alter the capital nature of expenditure incurred for acquiring the replacement software. [Paras 30] The software-expenditure disallowance was upheld, and the alternate claim of scientific-research deduction did not survive. Business expenditure-handy cameras claimed for clinical trials - Deduction for handy cameras claimed to have been supplied for recording clinical trials - HELD THAT: - The asserted use of handy cameras for recording clinical trials and facilitating research activities was not accepted. The equipment was found not to be suitable for the claimed medical or research purpose. [Paras 36] The disallowance of the expenditure on handy cameras was affirmed. Software expenditure-limited annual validity - Character of software expenditure where the software had validity limited to one year - HELD THAT: - Where the validity and benefit of software were confined to one year, the expenditure did not yield an enduring benefit extending to multiple years. [Paras 41, 45] The software expenditure was held revenue in character, and deletion of the disallowance was sustained. Research and development expenditure-capital or revenue character - Characterisation of research-and-development expenditure incurred for product or technology development capable of producing long-term benefit - HELD THAT: - The capital or revenue character of research expenditure depends on its intended long-term benefit and not on whether the research ultimately results in a successful product or technology. As the assessee had not furnished the required bifurcation of expenditure relating to inventions generating lease rent or royalty, factual verification remained necessary. [Paras 41, 43, 45] The issue was restored to the Assessing Officer for de novo adjudication after affording the assessee an opportunity to furnish supporting evidence. Arm's length price-product-development services to associated enterprise - Transfer-pricing adjustment for product-development services supplied to an associated enterprise - HELD THAT: - An earlier decision of the Tribunal had accepted the assessee's position on materially similar facts, and the Revenue identified no basis for departure. [Paras 45] The Revenue's challenge to deletion of the transfer-pricing adjustment was dismissed. Final Conclusion: The appeals were disposed of in accordance with these findings, with remands limited to the identified transfer-pricing and research-expenditure issues.

2026 (10) TMI 1258 - CESTAT KOLKATA Customs

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Issues: (i) Whether the imported ice-making and ice-cream-making machinery was classifiable under CTH 8438.80.90 rather than CTH 8418.69.90; and (ii) whether enhancement of the declared transaction value and consequential reassessment were sustainable without a speaking order under Section 17(5) of the Customs Act, 1962 and evidentiary support.

Issue (i): Whether the imported ice-making and ice-cream-making machinery was classifiable under CTH 8438.80.90 rather than CTH 8418.69.90.

Analysis: Reclassification contrary to the importer's self-assessment required compliance with Section 17(5) of the Customs Act, 1962, including a speaking order where written acceptance was absent. Payment of differential duty under protest to obtain clearance did not amount to written acceptance. Prior and subsequent departmental assessments and unchallenged appellate orders consistently treated identical machinery as falling under CTH 8438.80.90. The Revenue's inconsistent treatment of identical goods, without a cogent basis or speaking order, required that the resulting classification doubt operate in favour of the assessee.

Conclusion: The goods are classifiable under CTH 8438.80.90, and their reclassification under CTH 8418.69.90 is unsustainable, in favour of the assessee.

Issue (ii): Whether enhancement of the declared transaction value and consequential reassessment were sustainable without a speaking order under Section 17(5) of the Customs Act, 1962 and evidentiary support.

Analysis: A reassessment departing from the declared value required a timely speaking order under Section 17(5) of the Customs Act, 1962 because the importer had not accepted it in writing. No such order was issued, and no reasons, comparable-import material, or other evidence was produced to justify rejection of the declared transaction value or the enhanced value. Payment of duty to avoid demurrage and secure prompt clearance did not validate an unsupported enhancement.

Conclusion: Enhancement of the declared transaction value is unsustainable, and the declared values are to govern assessment, in favour of the assessee.

Final Conclusion: The reassessments failed for non-compliance with the statutory requirement of a speaking order and for lack of a lawful factual basis for changing either classification or value.

Ratio Decidendi: A reassessment departing from declared classification or transaction value cannot be sustained without written acceptance by the importer or a timely speaking order under Section 17(5), and transaction value cannot be enhanced without cogent reasons and supporting evidence.

Customs reassessment requires written acceptance or a speaking order, while transaction-value enhancement needs reasons and supporting evidence.
Customs reassessment departing from an importer's declared classification or transaction value requires written acceptance or a timely speaking order under the Customs Act. Payment of differential duty under protest, or to secure clearance and avoid demurrage, does not constitute written acceptance. Classification of identical imported machinery should be applied consistently; absent cogent reasons, classification uncertainty favours the assessee. Rejection or enhancement of declared transaction value requires stated reasons and evidentiary support, including comparable-import material where relied on. Without a speaking order and lawful factual basis, revised classification and enhanced valuation cannot govern assessment.

Speaking order on re-assessment contrary to self-assessment - Classification of ice-making machinery - Enhancement of declared transaction value without cogent evidence Speaking order on re-assessment contrary to self-assessment - Validity of re-assessment changing the self-assessed classification and declared value of imported ice-making machinery/equipment without a speaking order - HELD THAT: - A re-assessment contrary to self-assessment required a speaking order where the importer had not confirmed acceptance in writing. Payment of the revised duty under protest to secure clearance, coupled with the challenge to the reassessment, did not amount to such acceptance. The importer was also denied an opportunity to support its declared classification and value. [Paras 22, 25] The absence of the mandatory speaking order and observance of natural justice rendered the revised classification and enhanced value unsustainable. Classification of ice-making machinery - Classification of imported ice-making machinery/equipment under CTH 8438.80.90 as machinery for preparation of food or drink OR under CTH 8418.69.90 as ice cream machines - HELD THAT: - Though the Revenue's reliance on the Explanatory Notes was found to have some force, prior and subsequent departmental treatment and unchallenged appellate orders had consistently placed identical machinery under CTH 8438. The Revenue's divergent classification practice, including clearance of identical goods under CTH 8438, created a confusion whose benefit had to go to the importer. [Paras 32, 38, 40, 41] The reclassification under CTH 8418 was held legally unsustainable, and CTH 8438 was held applicable. Enhancement of declared transaction value without cogent evidence - Enhancement of the declared value of imported ice-making machinery/equipment without disclosure of the method or evidentiary basis for rejecting the transaction value - HELD THAT: - No speaking order disclosed the method or procedure for arriving at the enhanced value, and the Revenue produced no evidence supporting rejection of the declared transaction value or the basis of enhancement. The Tribunal therefore concurred with the finding that the enhancement lacked legal and factual foundation. [Paras 42, 44, 45] The setting aside of the enhanced value was affirmed. Final Conclusion: The Revenue's appeals were dismissed, sustaining the setting aside of the reclassification and enhancement of the declared value.

2026 (10) TMI 1256 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI (LB) IBC

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Issues: (i) Whether an appeal filed after commencement of CIRP in the corporate debtor's name by its suspended director could be continued following a belated amendment to substitute the director in his individual capacity; (ii) Whether objections concerning the quality and contractual compliance of supplied goods constituted a genuine pre-existing dispute barring admission of the operational creditor's insolvency application.

Issue (i): Whether an appeal filed after commencement of CIRP in the corporate debtor's name by its suspended director could be continued following a belated amendment to substitute the director in his individual capacity.

Analysis: Upon commencement of CIRP, management of the corporate debtor statutorily vests in the interim resolution professional under Section 17(1)(a) of the Insolvency and Bankruptcy Code, 2016. A suspended director may pursue an appeal in an individual capacity only within the strict period prescribed by Section 61(2). An appeal instituted in the corporate debtor's name by a person lacking authority is incompetent at inception, rather than a procedurally defective appeal capable of correction. Relation back cannot validate such an incompetent proceeding when substitution is made after expiry of the statutory appellate period, and an earlier order permitting amendment cannot override that limitation.

Conclusion: The original appeal was incompetent, and the belated amendment could not retrospectively validate it; against the Appellant.

Issue (ii): Whether objections concerning the quality and contractual compliance of supplied goods constituted a genuine pre-existing dispute barring admission of the operational creditor's insolvency application.

Analysis: The Section 9 enquiry is confined to whether the defence discloses a real and plausible pre-existing dispute requiring investigation, rather than a spurious or illusory objection. The contemporaneous test reports, correspondence, invoices, payments, material test certificates and communications with the principal employer were evaluated. The testing issue concerning measurement units had been rectified, the contractual codes were available in the accompanying material test certificates, and no quality objection was raised by the principal employer. The contractual warranty was for twelve months. Later laboratory reports procured without the resolution professional's authority and relating only to sampled items could not establish a qualifying pre-existing dispute.

Conclusion: The quality and contractual objections did not amount to a genuine pre-existing dispute; operational debt and default stood established, and the Section 9 admission warranted no interference; against the Appellant.

Final Conclusion: Statutory vesting of management and expiry of the appellate period prevented validation of the appeal through later substitution, while the material on record did not displace the basis for commencement of CIRP.

Ratio Decidendi: Once CIRP commences, an appeal instituted in the corporate debtor's name by its suspended director is incompetent ab initio, and later substitution of the director cannot relate back to cure that defect after expiry of the statutory appellate period.

CIRP management vesting prevents suspended directors curing unauthorised corporate appeals after limitation expires and defeats unsupported quality-dispute objections.
Commencement of CIRP vests management of the corporate debtor in the interim resolution professional, rendering an appeal filed in the debtor's name by a suspended director incompetent from inception. Substitution of that director individually after the statutory appellate period cannot relate back to cure the lack of authority. For operational-creditor insolvency proceedings, a Section 9 enquiry requires a real and plausible pre-existing dispute rather than unsupported objections. Rectified measurement issues, available material certificates, absence of objections from the principal employer, and unauthorised later laboratory reports limited to sampled goods did not establish a genuine quality or contractual dispute; operational debt and default remained established.

Appeal by suspended director in corporate debtor's name after commencement of CIRP - Pre-existing dispute concerning quality and contractual compliance of supplied HDPE pond liner Maintainability of an appeal originally instituted in the corporate debtor's name by its suspended director after commencement of CIRP, where amendment to prosecute it in the director's individual capacity was allowed after expiry of the statutory appellate period - HELD THAT: - Upon commencement of CIRP, management of the corporate debtor statutorily vests in the Interim Resolution Professional. An appeal instituted thereafter by a suspended director in the corporate debtor's name is not a procedural irregularity or misdescription but an incompetent proceeding. Relation back of a subsequent amendment is available only where the original proceeding was competent; it cannot retrospectively confer statutory competence or overcome the strict outer limit governing appellate limitation. Finality of the earlier order permitting amendment could not override the statutory mandate. [Paras 52, 53, 55, 56, 57] The appeal was not maintainable, and the subsequent amendment could not convert the incompetent filing into a competent appeal after expiry of the statutory period. Pre-existing dispute concerning quality and contractual compliance of supplied HDPE pond liner - Existence of a genuine pre-existing dispute sufficient to bar admission of the operational creditor's insolvency application, arising from alleged defects in supplied HDPE pond liner and non-compliance with test-certificate, warranty and specification requirements - HELD THAT: - At the admission stage, the enquiry is confined to whether there is a real and plausible dispute requiring further investigation, and not a patently feeble, spurious or illusory defence; it does not entail a technical mini-trial on contractual performance. The Adjudicating Authority had considered the test reports, correspondence, the explanation concerning correction of testing units, and the documentation accompanying the invoices. Although pre-demand correspondence disclosed that issues relating to quality and contractual compliance had been raised, the material did not establish a bona fide dispute meeting the requisite threshold. Later laboratory reports obtained without the Resolution Professional's authority could not retrospectively establish such a dispute, and the principal employer had raised no quality-related objection. No perversity or material irregularity was found in the conclusion that the alleged defence was moonshine. [Paras 75, 76, 77, 78, 79] The alleged deficiencies did not constitute a genuine pre-existing dispute; debt and default stood proved, and no interference with admission of CIRP was warranted. Final Conclusion: The appeal was dismissed as not maintainable. Independently, the order admitting the corporate debtor into CIRP was affirmed, as the material did not disclose a genuine pre-existing dispute.

2026 (10) TMI 1255 - DELHI HIGH COURT Money Laundering

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Issues: (i) Whether the material established that the yacht and apartment were proceeds of crime connected with a scheduled offence, so as to satisfy the first condition for bail under Section 45 of the PMLA. (ii) Whether the second condition under Section 45 was satisfied and continued pre-trial custody was justified in light of the likely duration of the trial and Article 21.

Issue (i): Whether the material established that the yacht and apartment were proceeds of crime connected with a scheduled offence, so as to satisfy the first condition for bail under Section 45 of the PMLA.

Analysis: Section 2(1)(u) requires property to be derived or obtained, directly or indirectly, from criminal activity relating to a scheduled offence. The statutory presumption regarding proceeds of crime operates only after foundational facts establishing that nexus. Although money laundering may be a continuing offence and Section 3 extends to subsequent possession, use, concealment or disposal of proceeds of crime, those provisions do not dispense with the requirement that the concerned property first qualify as proceeds of crime.

Analysis: The yacht and apartment were acquired before the period of the alleged scheduled offences. The repayment and refinancing trail may require examination at trial, but did not, on the material available at the bail stage, establish the required temporal and causal nexus between the earlier acquisitions and criminal activity relating to the later loans. The Applicant's subsequent dealings with the assets and their sale proceeds could not independently resolve the character of the assets as proceeds of crime.

Conclusion: The first statutory condition under Section 45 was satisfied.

Issue (ii): Whether the second condition under Section 45 was satisfied and continued pre-trial custody was justified in light of the likely duration of the trial and Article 21.

Analysis: The documentary and electronic evidence had substantially been secured; the Applicant no longer held office; no previous conviction was shown; and risks of interference with evidence, witnesses or the assets could be addressed through restrictive conditions. These circumstances supported the finding that the Applicant was not likely to commit an offence while on bail.

Analysis: The prosecution had substantially expanded after the supplementary complaint, involving extensive records, additional accused and continuing investigation, with no realistic prospect of an early trial. Prolonged pre-trial detention in those circumstances would impair the right to speedy trial and personal liberty protected by Article 21; the restrictions under Section 45 could not justify indefinite detention.

Conclusion: The second statutory condition under Section 45 was satisfied, and continued pre-trial detention was not warranted.

Final Conclusion: The statutory bail restrictions did not preclude conditional liberty pending trial, with safeguards adequate to protect the investigation, evidence and trial process.

Ratio Decidendi: For the Section 45 bail assessment, refinancing of earlier borrowings, without material establishing that an asset was derived from criminal activity relating to a scheduled offence, does not establish the asset as proceeds of crime.

Proceeds-of-crime nexus governs PMLA bail, while prolonged detention amid delayed trial may yield to conditional liberty.
Section 45 PMLA bail analysis requires material showing that property was directly or indirectly derived from criminal activity relating to a scheduled offence before it can be treated as proceeds of crime. Refinancing or subsequent dealings with assets acquired before the alleged scheduled offences do not, without a temporal and causal nexus, establish that character. The statutory presumption operates only after foundational facts establish the nexus. Where evidence is secured, interference risks can be addressed through conditions, and trial is unlikely to conclude early, prolonged pre-trial custody may impair Article 21 rights; conditional bail may protect the investigation and trial process.

Proceeds of crime - nexus with scheduled offence - Money-laundering bail-statutory twin conditions - Protracted pre-trial detention-Article 21 Proceeds of crime-nexus with scheduled offence - Money-laundering bail-reasonable grounds of non-guilt - Regular bail for alleged laundering through later dealings with a yacht and a Manhattan apartment acquired before the scheduled-offence period, where the alleged proceeds-of-crime nexus rested on subsequent refinancing of earlier borrowings - HELD THAT: - Property can qualify as proceeds of crime only when it is derived or obtained, directly or indirectly, from criminal activity relating to a scheduled offence; the continuing nature of money laundering does not dispense with that foundational nexus. The repayment trail required examination at trial, but refinancing through loans allegedly availed during 2013-2017 did not, on the material available, sufficiently establish that assets acquired earlier were derived from that criminal activity. The applicant's subsequent participation in dealing with the assets could constitute money laundering only if their character as proceeds of crime was first established. [Paras 16, 17, 18, 20, 25] The statutory condition of reasonable grounds for believing that the applicant was not guilty was satisfied, without deciding the legality of the underlying transactions or eventual culpability at trial. Protracted pre-trial detention-Article 21 - Money-laundering bail-likelihood of reoffending - Regular bail in an enlarged money-laundering prosecution where early completion of trial was unlikely and the risks of interference with evidence or reoffending could be addressed through conditions - HELD THAT: - The substantial enlargement of the prosecution, the extensive predominantly documentary record, unresolved procedural steps and continuing investigation made an early conclusion of trial unrealistic. Statutory bail restrictions cannot justify indefinite pre-trial detention where trial is unlikely to conclude within a reasonable time. Further investigation did not by itself warrant continued custody, and the concerns regarding witnesses, evidence and dealings with the assets could be adequately addressed by appropriate safeguards. [Paras 28, 29, 30, 31, 32] The condition that the applicant was not likely to commit an offence while on bail was satisfied, and continued detention was unwarranted; regular bail was granted subject to conditions. Final Conclusion: The application was allowed and regular bail was granted subject to stipulated conditions, with all observations confined to the bail determination and not the merits at trial.

2026 (10) TMI 1254 - DELHI HIGH COURT Money Laundering

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Anticipatory bail in money-laundering investigations depends on statutory twin conditions, material involvement with proceeds of crime, and cooperation.
Anticipatory bail in money-laundering matters is governed by the twin conditions in Section 45 of the Prevention of Money Laundering Act. Money laundering is a standalone offence involving processes connected with proceeds of crime. Investigators may rely on material indicating a person's involvement with proceeds of crime even where that person is not named or charge-sheeted in the scheduled offence, and are not confined to amounts quantified in predicate-offence chargesheets. Financial transactions, digital records, witness statements, non-compliance with summons, and the need for custodial interrogation are relevant to assessing bail eligibility.

Money-laundering as an independent offence - Twin conditions for anticipatory bail under the Prevention of Money Laundering Act - Personal attendance pursuant to summons under the Prevention of Money Laundering Act Money-laundering as an independent offence - Scope of proceeds-of-crime investigation - Scope of the money-laundering investigation into alleged diversion of homebuyers' funds where the applicant was not charge-sheeted in the predicate offences - HELD THAT: - Money laundering is an independent offence concerning any process or activity connected with proceeds of crime derived from criminal activity relating to a scheduled offence. The investigation under the PMLA was therefore not confined to the funds quantified in chargesheets arising from individual predicate FIRs; nor did the applicant's absence as an accused in the scheduled offences preclude proceedings if he was shown to be involved with the proceeds of crime. The material relied upon indicated his involvement in the affairs of the company and its group entities, while his explanation concerning project-related data was a defence for trial. [Paras 19, 24, 25, 26, 27] The challenge to the investigation on the basis of the predicate chargesheets and the applicant's non-arraignment therein was rejected. Twin conditions for anticipatory bail under the Prevention of Money Laundering Act - Entitlement to anticipatory bail in the money-laundering investigation arising from alleged diversion of homebuyers' funds - HELD THAT: - The statutory twin conditions governing bail under the PMLA apply equally to anticipatory bail. At that stage, the Court was not required to conduct a mini-trial on the precise quantum allegedly diverted or on whether the transfers were legitimate business transactions. Having regard to the material on record, the ongoing investigation and the findings concerning the applicant's role, the Court could not be satisfied that there were reasonable grounds to believe that he was not guilty or that he was unlikely to commit an offence while on bail. The Supreme Court in CBI v. Anil Sharma [1997 (9) TMI 626 - SUPREME COURT] has clearly held that custodial interrogation is necessary for the purposes of an effective investigation. The non-appearance of the applicant pursuant to repeated summons issued by ED would disentitle the applicant to protection.[Paras 12, 21, 29, 30, 37] The applicant failed to satisfy the twin conditions for grant of anticipatory bail. Personal attendance pursuant to summons under the Prevention of Money Laundering Act - Cooperation with investigation in anticipatory bail proceedings - Effect of non-personal appearance in response to PMLA summons despite undertakings to cooperate, on anticipatory bail - HELD THAT: - A person summoned under the PMLA is bound to appear in person, and earlier attendance does not preclude further summons in light of new facts. The reasons advanced for seeking exemption from personal appearance or for appearing through video conferencing were held unjustified. The applicant had failed to join and cooperate with the investigation despite recorded undertakings to do so. In the opinion of this Court, the reasons given by the applicant for not appearing in person before the ED in response to the said summons are not justified. It has been held by this Court in Amanatullah Khan [2024 (4) TMI 718 - DELHI HIGH COURT] that a person summoned under Section 50 of PMLA is bound to appear in person. Further, just because a person has appeared earlier would not preclude the Investigating Agency from summoning the said person again in light of new facts. (Ref. Homi Rajvansh v. Central Bureau of Investigation [2011 (11) TMI 895 - DELHI HIGH COURT] .[Paras 33, 34, 35, 36, 37] The applicant's non-cooperation independently disentitled him to anticipatory bail. Final Conclusion: The anticipatory bail application was dismissed as the applicant failed to satisfy the statutory twin conditions and had not cooperated with the ongoing investigation.

2026 (10) TMI 1248 - CESTAT MUMBAI Service Tax

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Intermediary services arranged abroad fall outside reverse-charge service tax where local representatives only facilitate third-party production support.
Overseas local area representatives that only arrange third-party filming locations, equipment, personnel and production support qualify as intermediaries where the producer retains creative, budgetary and business control and the representatives' fixed fee is separately identifiable from third-party costs. The specific place-of-provision rule for intermediary services, or alternatively the later equally applicable rule, locates the service at the representatives' overseas location. Because that location is outside the taxable territory, reverse-charge service tax does not apply. Governmental production incentives routed through representatives do not establish independent provision of film-production services; the related tax demand and penalties are unsustainable.

2026 (10) TMI 1245 - CESTAT KOLKATA Central Excise

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Issues: (i) Whether allegations of clandestine manufacture and clearance could be sustained solely on uncorroborated third-party records; (ii) Whether computer printouts recovered from a third party and an unidentified handwritten ledger were admissible and reliable evidence; (iii) Whether statements not tested in accordance with Section 9D could substantiate the allegations; (iv) Whether alleged undervaluation based on third-party "souda" rates was established; (v) Whether penalties upon the company and its director were sustainable.

Issue (i): Whether allegations of clandestine manufacture and clearance could be sustained solely on uncorroborated third-party records.

Analysis: Clandestine manufacture and removal require cogent evidence linking the assessee with unaccounted production and clearance. The third-party records were neither recovered from nor supported by the assessee's records. No independent material established excess raw-material procurement, excess production, electricity consumption, physical movement through transporters, or receipt of unaccounted consideration.

Conclusion: The allegation of clandestine manufacture and clearance was not established. This issue was decided in favour of the assessee.

Issue (ii): Whether computer printouts recovered from a third party and an unidentified handwritten ledger were admissible and reliable evidence.

Analysis: Section 36B(2) and Section 36B(4) require statutory conditions and certification for reliance on computer-generated printouts. No certificate identified the electronic records, described their production, or certified compliance with the prescribed conditions. The custody and preservation of the pen drives were also not established. The statutory presumption under Section 36A was unavailable because the electronic records were neither produced by nor seized from the appellants. The OSPL handwritten ledger was also of unproved authorship and provenance.

Conclusion: The electronic printouts and handwritten ledger could not constitute reliable substantive evidence against the assessee. This issue was decided in favour of the assessee.

Issue (iii): Whether statements not tested in accordance with Section 9D could substantiate the allegations.

Analysis: The deponents whose statements were relied upon were not examined before the adjudicating authority under Section 9D(1)(b), and the request for cross-examination remained unaddressed. The director's statement that sales were made through a broker on payment of duty, coupled with inability to comment on third-party records, did not amount to an admission.

Conclusion: The untested statements could not supply the missing evidentiary link for the alleged clandestine activity or undervaluation. This issue was decided in favour of the assessee.

Issue (iv): Whether alleged undervaluation based on third-party "souda" rates was established.

Analysis: The alleged differential between invoice values and "souda" rates arose solely from the inadmissible and uncorroborated third-party electronic material. No independent evidence established receipt by the assessee of any consideration above the declared invoice value. The burden to displace the transaction value remained upon the Revenue.

Conclusion: The allegation of under-invoicing and undervaluation was not proved. This issue was decided in favour of the assessee.

Issue (v): Whether penalties upon the company and its director were sustainable.

Analysis: Penalty under Section 11AC depended on a sustainable duty demand and proof of the requisite contumacious conduct. Penalty under Rule 26 required reliable evidence of the director's conscious and specific involvement in dealing with goods liable to confiscation. Neither requirement was met.

Conclusion: The penalties upon the company and its director were unsustainable. This issue was decided in favour of the assessee.

Final Conclusion: The duty demand, interest liability, and penalties lacked an admissible and corroborated evidentiary foundation and were annulled.

Ratio Decidendi: A central-excise demand alleging clandestine removal or undervaluation cannot rest solely on unauthenticated third-party records and untested statements; it requires admissible evidence and independent corroboration linking the assessee to unaccounted manufacture, clearance, or additional consideration.

Evidentiary Standards for Clandestine Removal Claims Require Corroborated Records, Certified Electronic Evidence, and Tested Witness Statements
Central-excise allegations of clandestine manufacture, removal, under-invoicing, or undervaluation require admissible, cogent evidence independently linking the assessee to unaccounted production, clearance, or additional consideration. Third-party records require corroboration through material such as raw-material procurement, production, electricity use, transport movement, or receipt of unaccounted funds. Computer-generated printouts require statutory compliance, certification, and established custody; unidentified handwritten ledgers lack reliability without proven authorship and provenance. Witness statements require examination and an opportunity for cross-examination under the applicable procedure. Transaction value cannot be displaced solely by uncorroborated third-party rates, and penalties require a sustainable duty basis and proof of knowing involvement.

Clandestine manufacture and removal - corroboration of third-party records - Electronic records - statutory admissibility requirements - Statements in central excise adjudication - statutory examination requirements - Undervaluation - proof of additional consideration - Penalty on Director - conscious involvement in duty evasion Clandestine manufacture and removal - corroboration of third-party records - Alleged clandestine manufacture and clearance of Sponge Iron - sufficiency of third-party purchase records without independent corroboration - HELD THAT: - Third-party records may be relevant, but cannot by themselves prove clandestine manufacture or removal unless independently connected to the assessee and the alleged transactions. The appellant-company's examined records reflected duty-paid sales, while the Department produced no evidence of excess raw-material procurement, corresponding unaccounted production, or physical movement through transporters or drivers. The evidentiary chain thus began and ended with the third-party entries. [Paras 13, 18] The allegation of clandestine manufacture and clearance was held unproved, and the demand founded thereon was set aside. Electronic records - statutory admissibility requirements - Unproved authorship of third-party records - Admissibility of computer printouts and a handwritten third-party ledger relied on to prove alleged duty evasion - HELD THAT: - The computer-generated printouts could not be admitted without the statutory certificate identifying the record, its manner of production, the device involved, and compliance with the prescribed conditions. The accountant's presence when printouts were taken did not substitute such certification, and the unexplained custody of the electronic devices further impaired their evidentiary worth. The statutory presumption was unavailable because the material was neither produced by nor seized from the appellants. The handwritten ledger also lacked proved authorship and provenance; these documents were the foundational, rather than merely corroborative, material for the demand. [Paras 14] The electronic printouts and the handwritten ledger could not be treated as reliable substantive evidence against the appellants. Statements in central excise adjudication - statutory examination requirements - Right of cross-examination - Reliance on third-party statements without statutory examination and consideration of the request for cross-examination - HELD THAT: - The statements did not directly and unequivocally incriminate the appellants and could not be treated as substantive evidence without examination of the deponents in the statutory manner. The appellants' request for cross-examination remained unaddressed. Director's statement that he could not comment upon entries in records maintained by another entity could not be transformed into an admission of clandestine transactions. [Paras 15] The statements were held unreliable and incapable of supplying the missing corroborative link for the alleged clandestine clearances. Undervaluation - proof of additional consideration - Alleged undervaluation of duty-paid Sponge Iron clearances - proof of consideration received above the invoice value - HELD THAT: - The alleged differential was derived solely from third-party electronic notings whose admissibility and evidentiary worth were not established. There was no positive evidence that any consideration exceeding the invoice value had been paid to the appellant-company. The Department could not displace the declared transaction value through successive presumptions or shift the burden to the appellant without first establishing additional consideration by reliable evidence. [Paras 19, 20] The demand attributable to alleged under-invoicing and undervaluation was set aside. Penalty for alleged duty evasion - established duty liability and statutory ingredients - Penalty on the appellant-company for alleged clandestine clearance and undervaluation after failure of the underlying duty demand - HELD THAT: - As the allegations giving rise to the duty demand were not proved by positive and cogent evidence, there remained no basis to establish the suppression, wilful misstatement, fraud, or other contumacious conduct required for the penalty. [Paras 20] The penalty imposed on the appellant-company was dropped. Penalty on Director - conscious involvement in duty evasion - Penalty on the Director for alleged clandestine removal and undervaluation - proof of specific role and knowledge - HELD THAT: - No reliable evidence established that the Director had dealt with, removed, concealed, sold, or otherwise handled goods with knowledge or belief that they were liable to confiscation. Directorship alone, without proof of conscious and specific involvement in the alleged transactions, could not sustain the personal penalty. [Paras 20] The personal penalty imposed on the Director was dropped. Final Conclusion: The appeals were allowed. The central excise duty demand with consequential interest and penalties, as well as the impugned appellate order, were set aside.

2026 (10) TMI 1244 - CESTAT KOLKATA Central Excise

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Issues: (i) Whether DTA clearances of instant tea made by a 100% EOU from wholly indigenous raw materials were assessable under Serial No. 3, rather than Serial No. 2, of Notification No. 23/2003-C.E. dated 31.03.2003; (ii) Whether the extended limitation under Section 11A(4) of the Central Excise Act, 1944 could be invoked; and (iii) Whether penalty under Section 11AC(1)(c) of the Central Excise Act, 1944 was sustainable.

Issue (i): Whether DTA clearances of instant tea made by a 100% EOU from wholly indigenous raw materials were assessable under Serial No. 3, rather than Serial No. 2, of Notification No. 23/2003-C.E. dated 31.03.2003.

Analysis: Serial No. 3 applies where the goods are manufactured wholly from indigenous raw materials, cleared into the DTA in accordance with the applicable Export and Import Policy, and like goods produced by a non-EOU are neither wholly exempt nor subject to nil duty. The goods cleared into the DTA were manufactured from indigenous inputs, the clearances complied with the applicable policy, and like domestic goods were dutiable. The prior departmental verification and the record supported fulfilment of these conditions. Rejection of the claim under Serial No. 4 did not make Serial No. 2 automatically applicable. A procedural lapse in selecting an incorrect serial entry could not defeat a substantive exemption otherwise available on admitted facts.

Conclusion: The clearances were covered by Serial No. 3, and duty was restricted to the excise duty leviable on like goods manufactured by a domestic unit. The demand computed under Serial No. 2 in excess of that liability was unsustainable, in favour of the assessee.

Issue (ii): Whether the extended limitation under Section 11A(4) of the Central Excise Act, 1944 could be invoked.

Analysis: The department had prior knowledge of the manufacturing process, the segregation of imported and indigenous inputs, and the DTA clearances through earlier verification, audits, returns and earlier notices concerning the same exemption and computation. The subsequent demand arose from a revised departmental computation rather than discovery of concealed facts. Such departmental knowledge precluded an allegation of wilful suppression for invoking extended limitation.

Conclusion: Extended limitation was unavailable; any correctly computed liability could be pursued only within the normal limitation period, in favour of the assessee.

Issue (iii): Whether penalty under Section 11AC(1)(c) of the Central Excise Act, 1944 was sustainable.

Analysis: The record did not establish fraud, collusion, wilful misstatement, or suppression of facts with intent to evade duty. The error concerned selection of an incorrect notification entry, while the material facts had already been disclosed and examined by the department.

Conclusion: The statutory ingredients for penalty were not established, and the penalty was set aside, in favour of the assessee.

Final Conclusion: Only duty, if any, correctly computable under Serial No. 3 after adjusting duty already paid and confined to the normal limitation period may remain recoverable, with consequential interest as applicable.

Indigenous-input DTA clearances qualify for domestic-equivalent excise duty, while prior departmental knowledge defeats extended limitation and penalty.
DTA clearances of instant tea manufactured by a 100% EOU wholly from indigenous raw materials fall under Serial No. 3 of Notification No. 23/2003-C.E. where policy conditions are met and like domestic goods are dutiable. Duty is therefore confined to the excise duty applicable to like goods produced by a domestic unit; an incorrect serial entry cannot defeat the substantive exemption. Extended limitation cannot rest on wilful suppression where the department already knew the manufacturing process, input segregation and DTA clearances through verification, audits, returns or prior notices. Penalty requires fraud, collusion, wilful misstatement or intentional suppression, and is unavailable where disclosed facts show only an incorrect exemption-entry selection. Any liability remains subject to normal limitation, adjustment of duty paid and applicable interest.

EOU DTA clearances - substantive exemption for goods manufactured from indigenous raw materials - Extended limitation-prior departmental knowledge of material facts - Penalty-wilful suppression not established EOU DTA clearances - Notification No. 23/2003-C.E., Serial No. 3 - Substantive exemption despite incorrect serial number - Applicable concessional duty entry for a 100% EOU's DTA clearances of Instant Tea manufactured wholly from indigenous raw materials - HELD THAT: - The clearances fulfilled all conditions of Serial No. 3: the Instant Tea was manufactured wholly from indigenous inputs, the DTA clearances were in accordance with the applicable policy, and like goods manufactured by a non-EOU were neither wholly exempt nor subject to nil duty. The inapplicability of Serial No. 4 did not automatically attract Serial No. 2; the entry specifically applicable to the established facts had to be applied. Relying on Share Medical Care v. Union of India [2007 (2) TMI 2 - SUPREME COURT] the Tribunal held that an incorrect initial claim under another entry could not deny the substantive exemption for which the prescribed conditions stood fulfilled. [Paras 13, 14, 15, 16, 17] Serial No. 3 governed the disputed DTA clearances, and the demand computed under Serial No. 2 was set aside; duty, with interest if unpaid, remained payable only as correctly computable under Serial No. 3 after considering duty already discharged and subject to normal limitation. Extended limitation-prior departmental knowledge of material facts - Invocation of the extended limitation period for differential duty on DTA clearances after prior departmental examination of the indigenous-input manufacture and issuance of notices on the same notification - HELD THAT: - The Department had previously verified the manufacturing process and the use of imported and indigenous raw materials, and had subsequently issued notices concerning the same notification and duty computation. A later supplementary notice substantially overlapping the earlier periods could not found a fresh allegation of suppression on facts already known to the Department. Applying Nizam Sugar Factory v. Collector of Central Excise, A.P. [2006 (4) TMI 127 - SUPREME COURT] the Tribunal held that prior departmental knowledge precluded invocation of the extended period on the same or similar facts. [Paras 18] The extended period of limitation was unavailable, and demands raised by invoking that period were set aside. Penalty for incorrect exemption claim-absence of wilful suppression - Penalty for alleged short-payment of duty on DTA clearances arising from adoption of an incorrect serial number of the exemption notification - HELD THAT: - The record disclosed no tangible evidence of fraud, collusion, wilful misstatement or suppression with intent to evade duty. The dispute arose from an incorrect application of the relevant notification entry, while the material facts concerning manufacture and indigenous inputs had already been examined by the Department. A procedural error in claiming the exemption could not by itself establish the statutory ingredients for penalty. [Paras 19] The penalty imposed for the alleged duty short-payment was set aside. Final Conclusion: The confirmed duty demand with interest and the penalty were set aside. Any duty correctly payable under Serial No. 3 remains recoverable only within the normal period of limitation.

2026 (10) TMI 1243 - CESTAT CHENNAI Central Excise

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Deemed export treatment for supplies to export-oriented units supports refunds of accumulated CENVAT credit on export-linked clearances.
Rule 5 of the CENVAT Credit Rules permits refund of unutilized credit attributable to export clearances. Supplies made without payment of duty to a 100% Export Oriented Unit qualify as deemed exports where the unit's production is export-linked, because such supplies possess the essential attributes of exports. A contrary position based on a departmental circular concerning a distinct Export-Import Policy context does not govern these refund claims. Refund of unutilized CENVAT credit is therefore available for such clearances, and rejection or recovery of sanctioned refunds is unsustainable.

2026 (10) TMI 1242 - HIMACHAL PRADESH HIGH COURT VAT / Sales Tax

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Issues: (i) Whether withdrawal of the earlier revision with liberty limited to approaching the Tribunal permitted a fresh challenge before the High Court to the appellate order; (ii) Whether a revision under Section 48 of the Himachal Pradesh Value Added Tax Act, 2005 is maintainable against an order passed on a rectification application under Section 47(1) of that Act.

Issue (i): Whether withdrawal of the earlier revision with liberty limited to approaching the Tribunal permitted a fresh challenge before the High Court to the appellate order.

Analysis: The earlier revision challenging the appellate order was withdrawn after submissions, with express liberty only to seek an appropriate application or review before the Tribunal. Withdrawal without liberty to reinstitute proceedings before the High Court precluded a renewed challenge to the same appellate order.

Conclusion: Against the assessee: the limited liberty granted on withdrawal did not permit a fresh High Court challenge to the appellate order.

Issue (ii): Whether a revision under Section 48 of the Himachal Pradesh Value Added Tax Act, 2005 is maintainable against an order passed on a rectification application under Section 47(1) of that Act.

Analysis: Section 48 confines revisional jurisdiction to orders made under Section 45(2) or Section 46(3). The impugned order arose from an application for rectification under Section 47(1) and was not an order within the statutory categories amenable to revision.

Conclusion: Against the assessee: no revision under Section 48 lies against an order passed on a rectification application under Section 47(1).

Final Conclusion: The limited withdrawal liberty did not revive the challenge to the original appellate order, and the rectification order may be pursued only through such remedy as is otherwise available in law.

Ratio Decidendi: A statutory revision is maintainable only against orders expressly enumerated in the revisional provision and cannot be used to challenge an order rejecting rectification that falls outside those categories.

Limited withdrawal liberty and enumerated revisional jurisdiction bar renewed appellate challenges and revisions against rectification orders.
Limited liberty granted on withdrawal of a revision, confined to seeking relief before the Tribunal, does not permit a renewed High Court challenge to the same appellate order. Revisional jurisdiction under the Himachal Pradesh Value Added Tax Act, 2005 extends only to expressly listed appellate orders. An order disposing of a rectification application falls outside those categories and cannot be challenged through statutory revision. Relief against such a rectification order must therefore be pursued through any other remedy available in law.

2026 (10) TMI 1238 - ALLAHABAD HIGH COURT GST

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Hearing on disputed additional departmental evidence is mandatory before an appellate authority decides the appeal.
Introduction of additional departmental documents or inputs at the appellate stage requires consideration of an assessee's objection to their admission. Where the assessee objects, the appellate authority must provide an opportunity of hearing before deciding the appeal. Deciding the appeal shortly after receiving the objection, without hearing the assessee on the newly introduced material, violates principles of natural justice and vitiates the appellate order.

2026 (10) TMI 1219 - GSTAT NEW DELHI GST

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Correction of respondent descriptions permits substitution of the jurisdictional tax authority through an amended appeal memorandum.
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2026 (10) TMI 1218 - GSTAT KOLKATA GST

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Delayed payment of short-paid GST leaves interest liability and can trigger penalty when tax and interest remain unpaid after notice.
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2026 (10) TMI 1217 - GSTAT KOLKATA GST

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Speaking orders in GST disputes require examination of supplier-procurement evidence before rejecting claims without deciding computation merits.
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2026 (10) TMI 1185 - CESTAT MUMBAI Customs

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IGST valuation must use effective exempt customs duty, preventing notional tariff-duty additions on duty-free imports.
IGST assessable value for goods imported under a duty-free import authorisation includes the value of imported goods and customs duty actually chargeable. Where an applicable exemption reduces basic customs duty to nil, the effective nil duty, rather than the tariff-rate duty, applies to the valuation computation. A nil duty debit under the authorisation confirms that no basic customs duty is chargeable. Electronic assessment cannot add tariff-rate basic customs duty notionally while disregarding the available exemption.

2026 (10) TMI 1184 - CESTAT KOLKATA Customs

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Penalties on Chartered Engineers fail when unsupported principal import demands, confiscation and related penal consequences no longer survive.
Penalties imposed on Chartered Engineers cannot stand once the principal import proceedings and their associated demand, interest, confiscation and penalties have been invalidated. The alleged under-valuation lacked corroborative evidence, revaluation was arbitrary, and the proceedings were time-barred. With no enforceable underlying demand or related penal consequence, no independent basis remains for penal action against the Chartered Engineers; the penalties were therefore set aside.

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Home › All Cases › Central Excise › Central Excise + SC › Central Excise - 2009 (3) SC › This

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2009 (3) TMI 31 - SC - Central Excise

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180-day limit in unamended s.35H(1) CEA is absolute; s.5 Limitation Act cannot extend statutory period for appeals
SC held that the 180-day limitation in unamended s.35H(1) CEA is absolute and cannot be extended by s.5 Limitation Act; the legislative scheme shows a ... Summary

180-day limit in unamended s.35H(1) CEA is absolute; s.5 Limitation Act cannot extend statutory period for appeals

SC held that the 180-day limitation in unamended s.35H(1) CEA is absolute and cannot be extended by s.5 Limitation Act; the legislative scheme shows a deliberate, different time structure for appeals and references, leaving no power to condone delay beyond 180 days. The High Court correctly dismissed the reference as barred by limitation, and the SC affirmed that courts lack authority to enlarge the statutory period under s.5. All appeals were dismissed.

Issues Involved:
1. Whether the High Court has the power to condone the delay in the presentation of the reference application under unamended Section 35H(1) of the Central Excise Act, 1944, by applying Section 5 of the Limitation Act, 1963.

Detailed Analysis:

Issue 1: Power of High Court to Condon Delay under Section 35H(1) of the Central Excise Act

Background and Context:
In these appeals, the primary question was whether the High Court could condone the delay in filing a reference application under Section 35H(1) of the unamended Central Excise Act, 1944, beyond the prescribed period by applying Section 5 of the Limitation Act, 1963. The issue arose from the Allahabad High Court's decision, which dismissed the reference applications filed by the Commissioner of Customs & Central Excise due to the delay, citing a lack of power to condone such delays under the Act.

Relevant Provisions of the Central Excise Act:
- Section 35: Allows appeals to the Commissioner of Central Excise (Appeals) within 60 days, extendable by 30 days if sufficient cause is shown.
- Section 35B: Permits appeals to the Appellate Tribunal within 90 days, with the Tribunal empowered to condone delays beyond this period if sufficient cause is shown.
- Section 35EE: Provides for revisions by the Central Government within 90 days, extendable by another 90 days for sufficient cause.
- Section 35G: Allows appeals to the High Court within 180 days, with no provision for condoning delays.
- Section 35H: Pertains to reference applications to the High Court within 180 days, with no provision for condoning delays.

Arguments and Legal Precedents:
- The Additional Solicitor General argued that the High Court, having inherent and plenary powers, could consider delays beyond the prescribed period under the Act, invoking Section 5 of the Limitation Act due to the absence of a specific prohibition.
- The respondents contended that the Central Excise Act is a self-contained code, and the absence of a provision for condoning delays in Section 35H reflects legislative intent that should be respected.

Constitutional and Legal Principles:
- Article 214 and 215 of the Constitution of India establish the High Courts as courts of record with inherent and plenary powers.
- Section 5 of the Limitation Act allows for the extension of prescribed periods if sufficient cause is shown, while Section 29(2) states that provisions of the Limitation Act apply to special or local laws unless expressly excluded.

Judicial Analysis:
- The Court examined whether Section 5 of the Limitation Act applies to reference applications under Section 35H of the Central Excise Act.
- The Court noted that the Central Excise Act provides specific periods for filing appeals and revisions, with explicit provisions for condoning delays in certain sections but not in Sections 35G and 35H.
- The Court referred to the decision in Union of India vs. M/s Popular Construction Co., where the phrase "but not thereafter" in the Arbitration and Conciliation Act, 1996, was held to exclude the application of Section 5 of the Limitation Act.
- The Court also considered the principles laid out in Sharda Devi vs. State of Bihar and M.V. Elisabeth and Others vs. Harwan Investment and Trading Pvt. Ltd., emphasizing the inherent powers of High Courts but distinguishing these cases based on the specific statutory provisions of the Central Excise Act.

Conclusion:
- The Court concluded that the language of Sections 35, 35B, 35EE, 35G, and 35H of the Central Excise Act indicates a legislative intent to limit the period for filing appeals and references strictly.
- The absence of a provision for condoning delays in Sections 35G and 35H suggests a complete exclusion of Section 5 of the Limitation Act.
- The Court held that the High Court has no power to condone delays beyond the prescribed period of 180 days for filing reference applications under Section 35H(1) of the unamended Central Excise Act, 1944.

Judgment:
The Supreme Court confirmed the decision of the High Court, dismissing the appeals and holding that the High Court correctly refused to condone the delay in filing the reference applications. The appeals were dismissed with no costs.

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Limitation Act, 1963

Central Excise Act, 1944

Constitution of India

Referred In :

Articles

Notes

180-day limit in unamended s.35H(1) CEA is absolute; s.5 Limitation Act cannot extend statutory period for appeals

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