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Issues: (i) Whether Section 16(2)(c), read with Section 155, of the Central Goods and Services Tax Act, 2017 is unconstitutional or must be read down to confine ITC reversal to fraudulent, collusive, or non-genuine transactions; (ii) Whether and subject to what safeguards a purchaser's ITC may be denied or reversed when the supplier defaults in depositing tax or its registration is subsequently cancelled.
Issue (i): Whether Section 16(2)(c), read with Section 155, of the Central Goods and Services Tax Act, 2017 is unconstitutional or must be read down to confine ITC reversal to fraudulent, collusive, or non-genuine transactions.
Analysis: Input tax credit is a statutory concession, and actual payment of tax to the Government is integral to the credit mechanism. Section 16(2)(c) operates subject to Section 41 and forms part of an integrated statutory framework governing eligibility, reversal, recovery from the supplier, and subsequent re-availment. The earlier matching and reconciliation framework under Sections 42 and 43 was not operationalised, but the resulting difficulty concerns the manner of enforcement rather than the constitutional validity of the condition itself.
Analysis: The possibility of arbitrary or mechanical action in individual cases does not invalidate Section 16(2)(c). The condition cannot be restricted only to fraud, collusion, or fictitious transactions by reading down its text; instead, it must be applied harmoniously with the statutory safeguards and recovery mechanisms available against the defaulting supplier.
Conclusion: Section 16(2)(c), read with Section 155, is constitutionally valid and is not read down to limit its operation exclusively to fraudulent, collusive, or non-genuine transactions.
Issue (ii): Whether and subject to what safeguards a purchaser's ITC may be denied or reversed when the supplier defaults in depositing tax or its registration is subsequently cancelled.
Analysis: The non-operationalisation of the original matching mechanism, the phased substitution of Section 41, and the subsequent introduction of Rule 37A require the statutory regime applicable to the relevant tax period to be applied. For periods before Rule 37A, the absence of a re-availment mechanism is material. The statutory power to recover tax collected but not deposited by the supplier, including under Section 76, remains a relevant part of the scheme and cannot be rendered ineffective.
Analysis: Subsequent or retrospective cancellation of the supplier's registration, a nil or short tax declaration, or an alert concerning the supplier may justify an inquiry but cannot alone justify denial or reversal of ITC. The notice must disclose the relevant supplier, invoices, tax periods, nature of the default, material relied upon, and the status of recovery proceedings against the supplier. The purchaser may discharge the burden of proof through invoices and evidence of actual receipt and movement of goods or services. A notice invoking fraud, wilful misstatement, or suppression must itself state the foundational facts connecting the purchaser to such conduct. Personal hearing, reasoned consideration of the purchaser's material, and examination of the grounds for retrospective cancellation are required.
Conclusion: ITC cannot be denied or reversed mechanically merely because the supplier defaulted or its registration was subsequently cancelled. Reversal may follow where the purchaser fails to establish eligibility or where fraud, collusion, non-receipt of goods or services, or other grounds rendering the credit inadmissible are established in accordance with law.
Final Conclusion: Pending notices and completed adjudications must be dealt with afresh in conformity with the prescribed safeguards, after adequate opportunity to furnish material and be heard. Amounts already reversed, deposited, or recovered shall be adjusted or refunded as warranted by the fresh determination, and no fresh coercive recovery may be undertaken until that determination.
Ratio Decidendi: Actual payment of tax is a valid statutory condition for input tax credit, but Section 16(2)(c) must be enforced as part of the integrated GST scheme and cannot be used to impose mechanical reversal upon a bona fide purchaser without a fact-based inquiry, procedural fairness, and consideration of recovery from the defaulting supplier.
Issues: Whether the reassessment order under Section 148A(3) and the consequent notice under Section 148 for assessment year 2020-21 warranted writ interference where the materially identical reassessment challenge for the preceding assessment year had already been decided against the assessee.
Analysis: The information and allegations underlying the impugned reassessment action were identical to those involved in the preceding assessment year. The earlier decision had found that determining whether the amount disclosed by the assessee arose from a spurious transaction resulting in escaped income required factual examination by the Assessing Officer. Judicial discipline required adherence to the coordinate bench decision rendered in the assessee's own case.
Conclusion: The reassessment order and consequential notice did not warrant writ interference; the issue was decided against the assessee.
Issues: (i) Whether service tax paid under a mistake of law on exempt goods transport agency services is refundable; (ii) Whether interest is payable on that amount and, if so, at what rate.
Issue (i): Whether service tax paid under a mistake of law on exempt goods transport agency services is refundable.
Analysis: The assessee was eligible for exemption under Clause (21)(d) of Notification No. 25/2012-ST, as amended, but paid service tax under reverse charge despite no liability. Such payment, made under a mistake of law, is a revenue deposit rather than tax or duty. Consequently, Section 11B of the Central Excise Act, 1944 does not govern the refund claim, and retention of the amount would be without authority of law under Article 265 of the Constitution of India.
Conclusion: The refund of the amount paid under mistake of law is admissible, in favour of the assessee.
Issue (ii): Whether interest is payable on that amount and, if so, at what rate.
Analysis: Since the payment retains the character of a revenue deposit and is outside the statutory refund mechanism for duty, the interest regime under Section 11BB of the Central Excise Act, 1944 is inapplicable. The applicable principle supports compensatory interest at 12% per annum for wrongful retention of the deposit.
Conclusion: The assessee is entitled to interest at 12% per annum from the respective dates of deposit until payment of the refund, in favour of the assessee.
Final Conclusion: The exemption is given full effect by treating the erroneous payment as a refundable revenue deposit, with compensation for its retention.
Ratio Decidendi: A payment made under a mistake of law where no tax liability exists is a revenue deposit outside Section 11B of the Central Excise Act, 1944, and its unlawful retention warrants refund with compensatory interest.
Issues: Whether the Commissioner could withhold the refund under Section 54(11) of the Central Goods and Services Tax Act, 2017 when an anti-evasion investigation concerning alleged fraudulent input tax credit was pending.
Analysis: Section 54(11) permits withholding where the refund-generating order is subject to an appeal, further proceedings, or any other pending proceeding under the Act, and the Commissioner, after hearing the taxable person, forms an opinion that release would adversely affect revenue because of fraud or malfeasance. The expression concerning other pending proceedings extends beyond a formally instituted appeal and includes a pending statutory investigation. The anti-evasion investigation had commenced before the refund-withholding order and was supported by contemporaneous material indicating non-existent or cancelled suppliers, absence of established movement of goods, and absence of the claimant from the manufacturer's supply chain. Those circumstances bore directly on actual receipt of goods for input tax credit purposes and supported the requisite opinion of fraud or malfeasance. A subsequently issued show-cause notice merely crystallised the ongoing investigation; the absence of a pending appellate proceeding or separate judicial stay did not invalidate the statutory withholding.
Conclusion: The refund was validly withheld under Section 54(11); the issue was decided against the assessee.
Issues: Whether extraordinary writ jurisdiction could be exercised to quash an input-tax-credit adjudication order despite an available statutory appeal, on the asserted bar under Section 6(2)(b), variance from the show-cause notice, and denial of an effective hearing.
Analysis: Article 226 jurisdiction does not ordinarily substitute the statutory appellate process where the challenge requires examination of the adjudication record and disputed facts. The bar under Section 6(2)(b) depends upon identity of the precise subject matter, including the relevant tax period, transactions, invoices, ITC liability and allegations; a common supplier or general connection with ITC is insufficient. Whether the State and Central proceedings concerned identical liabilities required examination of their respective notices, orders and transaction-wise material. The impugned order disclosed an independent finding of ITC availment on goods-less invoices with reference to Section 16(2)(b), and therefore did not facially rest on a wholly new basis. The recorded grant of hearing opportunities, notwithstanding an apparent date discrepancy, and objections regarding evidence, limitation, clubbing of periods, replies and invocation of Section 74 required scrutiny of the underlying record in appeal.
Conclusion: An efficacious appellate remedy was required to be pursued because no ex facie lack of jurisdiction or undisputed breach of natural justice was established; all objections, including the applicability of Section 6(2)(b), remained open for appellate determination.
Issues: (i) Whether unfiled GST dues, interest and penalty for the pre-resolution-plan period were extinguished upon approval of the resolution plan, thereby barring later proceedings; and (ii) Whether the statutory appeal barred writ jurisdiction where the demands were initiated without jurisdiction.
Issue (i): Whether unfiled GST dues, interest and penalty for the pre-resolution-plan period were extinguished upon approval of the resolution plan, thereby barring later proceedings.
Analysis: Section 31(1) of the Insolvency and Bankruptcy Code, 2016 makes an approved resolution plan binding upon the Central Government and authorities owed statutory dues, while Section 238 gives the Code overriding effect. The GST liabilities concerned the period preceding approval of the resolution plan, and no claim was lodged during the corporate insolvency resolution process. The approved plan extinguished all pre-effective-date governmental claims, whether assessed or unassessed, unless specifically preserved. This accords with the clean-slate principle, under which a successful resolution applicant cannot be burdened with undisclosed or undecided pre-plan claims.
Analysis: The distinction between adjudication and recovery was inapplicable after extinguishment of the underlying claim. A show-cause notice and consequential demand proceedings under Section 73(9), including interest and penalty, amount to proceedings concerning that extinguished claim. Section 88 concerns liquidation and cannot revive a liability extinguished through an approved resolution plan; the general adjudicatory powers under the GST law remain subject to Sections 31(1) and 238 of the Insolvency and Bankruptcy Code, 2016.
Conclusion: In favour of the assessee, the pre-resolution-plan GST dues, interest and penalty stood extinguished, and no subsequent proceedings for their determination or recovery could be initiated or continued.
Issue (ii): Whether the statutory appeal barred writ jurisdiction where the demands were initiated without jurisdiction.
Analysis: Availability of an appeal under Section 107 of the Central Goods and Services Tax Act, 2017 does not bar writ jurisdiction where the challenged action is without jurisdiction and contrary to binding insolvency law. The relevant facts were undisputed and the challenge raised a pure legal question concerning the authority to initiate proceedings for an extinguished claim.
Conclusion: In favour of the assessee, writ jurisdiction was available notwithstanding the alternate statutory appeal.
Final Conclusion: An approved resolution plan conclusively extinguishes unfiled statutory claims relating to the pre-approval period and precludes subsequent tax-adjudication proceedings concerning those claims.
Ratio Decidendi: Statutory dues not lodged in the corporate insolvency resolution process and not preserved by an approved resolution plan are extinguished under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, and cannot thereafter be assessed, adjudicated or recovered notwithstanding general powers under fiscal legislation.
Issues: Whether a common assessment order covering more than one tax period or assessment year is valid.
Analysis: Sections 74(3) and 74(4) of the Andhra Pradesh Goods and Services Tax Act, 2017 were applied consistently with the binding coordinate-bench ruling that a single show-cause notice or composite assessment order cannot cover multiple tax periods or more than one assessment year after the due date for annual return. The assessment combined the periods 2023-24 and 2024-25 up to November 2024; consequently, the original assessment was invalid and the appellate order affirming it could not survive.
Conclusion: The composite assessment order and the consequential appellate order were set aside. Separate notices and assessments for the relevant tax periods may be undertaken in accordance with law after affording opportunity to the assessee.
Issues: Whether proceedings pending under Rule 96(10) of the Central Goods and Services Tax Rules, 2017 could continue after its omission without a saving clause.
Analysis: Rule 96(10) was omitted with effect from 08.10.2024 without a saving or sunset clause. The governing principle is that proceedings initiated under an omitted rule may continue only where the omission itself preserves them or a statutory legal fiction enables their continuance. The omission was intended to end the complications arising from the rule, and the binding position applied equally to proceedings that had not concluded on the date of omission.
Conclusion: Pending proceedings founded on the omitted Rule 96(10) could not be continued after 08.10.2024.
Issues: Whether the assessment order allowing deduction for contribution to the Core Settlement Guarantee Fund, without examining its character as a present and ascertained liability or a contingent reserve, was validly revised under section 263.
Analysis: Revision under section 263 requires both error in the assessment order and prejudice to the Revenue. Under Explanation 2(a), an order passed without inquiries or verification that should have been made is deemed erroneous and prejudicial. Although the Assessing Officer called for supporting material and examined the genuineness and increase in expenses, the assessment order did not disclose an inquiry into the material question whether the contribution augmented a corpus for possible future clearing-member defaults or discharged an accrued and crystallised liability. The accumulated corpus, interest earned by the assessee on the fund, and the absence of material showing a default giving rise to an identified liability required specific examination. The earlier ruling concerning a contributor exchange did not govern the matter because the assessee, as clearing corporation, continued to earn income from the corpus. The merits of allowability under section 37(1) were not adjudicated and remain for independent examination in the set-aside proceedings.
Conclusion: The conditions for revision under section 263 read with Explanation 2(a) were satisfied, and the limited revision directing fresh examination of the deduction claim was valid.
Issues: Whether tax deducted at source during financial year 2022-23 and reflected in Form 26AS for assessment year 2023-24 could be claimed as credit in assessment year 2024-25.
Analysis: The credit claimed through rectification under Section 154 of the Income-tax Act, 1961 had to relate to the assessment year in which the corresponding tax deduction was reflected. The undisputed deduction was made during financial year 2022-23 and appeared in Form 26AS for assessment year 2023-24. The reliance on Section 155(20) of the Income-tax Act, 1961 and Rule 134/Form 71 did not appropriately address this assessment-year mismatch.
Conclusion: The tax deducted at source credit was not allowable in assessment year 2024-25.
Issues: Whether reassessment proceedings could be sustained where approval for issuance of notice was granted under Section 151 in a mechanical manner without application of mind.
Analysis: The approval merely recorded satisfaction with the reasons of the Assessing Officer and that the case was fit for issuance of notice, without disclosing any independent consideration of the material or statutory requirements. Conflicting non-jurisdictional High Court views on the sufficiency of such approval remained independent because summary dismissal of special leave petitions did not attract the doctrine of merger or declare binding law. Applying the interpretation favourable to the assessee, the requirement of sanction was treated as a substantive safeguard requiring meaningful application of mind. Even an administrative approval was required to be reasoned and could not be ritualistic or mechanical.
Conclusion: The approval under Section 151 was invalid for want of application of mind, and the consequential reassessment was quashed.
Issues: Whether the sanction under Section 151 for reopening the assessment was valid where the approving authority merely endorsed that it was a fit case for issuance of notice.
Analysis: Section 151 requires the competent authority to apply its mind before granting sanction for reassessment under Sections 147 and 148. Conflicting views of non-jurisdictional High Courts did not attain binding force merely because the related special leave petitions were summarily dismissed; such dismissal neither attracts the doctrine of merger nor declares law under Article 141 of the Constitution of India. The construction favourable to the assessee was therefore adopted. The approval, stating only that the case was fit for issuance of notice in view of the Assessing Officer's recorded reasons, disclosed no independent consideration or reasons. Even an administrative sanction must reflect application of mind and cannot be a mechanical endorsement.
Conclusion: The sanction under Section 151 was invalid for want of application of mind, and the consequential reassessment was quashed.
Ratio Decidendi: A sanction for reassessment must demonstrate the approving authority's independent application of mind; a bare or mechanical endorsement is not a valid statutory approval.
Issues: (i) Whether Infosys BPM Limited, Integra Software Services Private Limited, Vitae International Accounting Services Private Limited and MPS Limited were valid comparables for the assessee's captive IT-enabled services operations; (ii) Whether companies otherwise comparable could be excluded solely for not appearing in the TPO's search matrix; (iii) Whether outstanding receivables from associated enterprises require separate arm's-length benchmarking and the proper interest benchmark for delayed realization; (iv) Whether foreign-exchange gains from restatement of export trade receivables and payables qualify for deduction under Section 10AA of the Income-tax Act, 1961.
Issue (i): Whether Infosys BPM Limited, Integra Software Services Private Limited, Vitae International Accounting Services Private Limited and MPS Limited were valid comparables for the assessee's captive IT-enabled services operations.
Analysis: Arm's-length benchmarking requires functional comparability after considering the functions performed, scale of operations, business model, intangibles and service profile. Infosys BPM Limited had substantially larger operations, diversified integrated services, significant intangibles and brand value. Vitae International Accounting Services Private Limited derived revenue from accounting, audit, tax and technical-content services, which differed from routine IT-enabled services. MPS Limited provided publishing, digital and platform solutions with a materially distinct functional profile. Integra Software Services Private Limited, however, derived revenue from IT-enabled services and was functionally similar; absence of segmental information did not establish dissimilarity on the facts found.
Conclusion: Infosys BPM Limited, Vitae International Accounting Services Private Limited and MPS Limited must be excluded, while Integra Software Services Private Limited is retained as a comparable. The issue is partly in favour of the assessee.
Issue (ii): Whether companies otherwise comparable could be excluded solely for not appearing in the TPO's search matrix.
Analysis: A company that is otherwise comparable and satisfies the applicable filters cannot be rejected solely because it was absent from the TPO's search matrix. The requested companies required verification of their annual reports, functional profile and FAR analysis before their inclusion could be determined.
Conclusion: Rejection solely for absence from the search matrix is unsustainable; the inclusion claims are restored to the Assessing Officer/TPO for verification and decision in accordance with law. The legal issue is in favour of the assessee.
Issue (iii): Whether outstanding receivables from associated enterprises require separate arm's-length benchmarking and the proper interest benchmark for delayed realization.
Analysis: Trade receivables from associated enterprises constitute an international transaction under Section 92B of the Income-tax Act, 1961 and require separate benchmarking with reference to the credit period allowed. Interest on delayed realization must reflect the appropriate foreign-currency benchmark; use of the SBI short-term deposit rate was not appropriate.
Conclusion: Separate benchmarking of delayed receivables is upheld against the assessee, but interest must be computed at LIBOR plus 200 basis points after allowing a credit period of 60 days. The issue is partly in favour of the assessee.
Issue (iv): Whether foreign-exchange gains from restatement of export trade receivables and payables qualify for deduction under Section 10AA of the Income-tax Act, 1961.
Analysis: Deduction is confined to income having a direct, immediate and proximate nexus with export activity; the expression "derived from" is narrower than "attributable to". Foreign-exchange gains arising from restatement of trade receivables and payables were held not to satisfy that direct nexus with export income.
Conclusion: Foreign-exchange gains from reinstatement of trade receivables and payables do not qualify for deduction under Section 10AA of the Income-tax Act, 1961. The issue is against the assessee.
Final Conclusion: The transfer-pricing computation requires recomputation after exclusion of three comparables and application of the prescribed LIBOR-based rate; the proposed additional comparables require fresh verification, while denial of the Section 10AA deduction is sustained.
Issues: Whether the adjudication based on the mismatch between Forms GSTR-2A and GSTR-3B should be set aside to afford an opportunity to reply to the show-cause notice.
Analysis: Section 73 of the Central Goods and Services Tax Act, 2017 and the Karnataka Goods and Services Tax Act, 2017 governed the mismatch-based adjudication. The adjudication proceeded because no response was filed to the intimation and show-cause notice. The petitioner asserted that the registered email belonged to its Chartered Accountant, who had not assisted it, and that reconciliation material could establish that the mismatch resulted from delayed supplier returns.
Conclusion: A further opportunity to file a reply and supporting reconciliation material was required before a reasoned determination on the show-cause notice.
Issues: Whether an adjudication under Section 73 could be sustained when the taxpayer's prior reply explaining an alleged clerical error in the annual return had not been considered.
Analysis: The record showed that a response to the audit intimation had been furnished, explaining that the reported tax figure in the annual return resulted from a clerical error and that no debit notes had been issued for the relevant period. The premise that no response had been made was therefore inconsistent with the material on record. The explanation required consideration before deciding whether the proposal in the show-cause notice was to be confirmed.
Conclusion: The issue was decided in favour of the assessee; the adjudication order and consequential garnishee notice were quashed, with the proceedings restored for submission of a detailed response to the show-cause notice.
Issues: Whether interest liability converted into cumulative redeemable preference shares under a corporate debt restructuring arrangement was allowable without disallowance under section 43B(d).
Analysis: Section 43B(d) of the Income-tax Act, 1961 conditions deduction of specified interest on actual payment. The deletion of the disallowance was sustained on the basis that the High Court decision relied upon by the appellate authority continued to have precedential force. Mere pendency of a special leave petition against that decision, without any stay, reversal, or modification by the Supreme Court, did not displace its binding effect.
Conclusion: The disallowance of Rs. 3,32,62,140 under section 43B(d) in respect of the interest liability converted into preference shares was unsustainable and stood deleted, in favour of the assessee.
Issues: Whether an ex parte GST order passed without a personal hearing or enquiry was valid.
Analysis: Observance of the principles of natural justice requires a meaningful opportunity of personal hearing before an adverse tax order. The impugned order was passed ex parte without affording such hearing and without conducting an enquiry.
Conclusion: The ex parte order was unsustainable for breach of the principles of natural justice.
Issues: Whether the mismatch-liability order was sustainable when the supplier's GSTR-3B return had been filed within the extended time limit for availing Input Tax Credit under Section 16(5).
Analysis: The record contained the replies, supply documents, supplier certificate and the supplier's GSTR-3B return filed on 07.05.2021. That return was within the extended statutory time limit under Section 16(5). The proper officer relied only on Section 16(4) and disregarded Section 16(5) despite the materials on record.
Conclusion: The liability determination was unsustainable because the asserted Input Tax Credit eligibility required consideration under Section 16(5).
Issues: (i) Whether the writ petition seeking contractual refund was maintainable under Article 226 of the Constitution of India; (ii) Whether the insurer was entitled to retain the security deposit and unadjusted premium balance, and whether interest was payable on those amounts.
Issue (i): Whether the writ petition seeking contractual refund was maintainable under Article 226 of the Constitution of India.
Analysis: Article 226 permits relief in contractual matters where the action of a public authority is arbitrary and the material facts are documentary and not seriously disputed. The defences of statutory violations, fraudulent claims, lien and set-off were unsupported by contemporaneous documents, proceedings, quantified claims, or any demonstrated adjustment. Reasons not communicated when the money was withheld could not be subsequently constructed through affidavits.
Conclusion: The writ petition was maintainable.
Issue (ii): Whether the insurer was entitled to retain the security deposit and unadjusted premium balance, and whether interest was payable on those amounts.
Analysis: Under the MoUs, the security deposit could be adjusted only against a financial default. No financial default was established, identified, quantified, or adjusted against the deposit. The unadjusted cash balance represented unconsumed advance premium, and no appropriation towards any liability was shown. The contractual exclusion of interest applied only to the security deposit and not to the unadjusted cash deposit balance.
Conclusion: Retention of the security deposit and unadjusted cash deposit balance was unauthorized. The security deposit was refundable without interest, while the unadjusted cash deposit balance was refundable with simple interest at 7% per annum.
Final Conclusion: The insurer could not retain contractual deposits in the absence of a documented financial default, lawful adjustment, or established liability.
Ratio Decidendi: A public insurer's contractual deposits cannot be retained through an unsubstantiated lien or set-off; writ relief is available where the relevant facts are documentary and the asserted defence lacks contemporaneous support.
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