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Grant of bail - interference on appeal against bail - condonation of delay - compliance with the Code of Criminal Procedure, 1973 - appellate discretion
Condonation of delay - Delay in filing the special leave petition was condoned. - HELD THAT: - The Court, after hearing counsel, exercised its discretion to condone the delay in presentation of the petition. The order records the condonation without elaboration of grounds, but the Court proceeded to hear the matter on merits thereafter.
Delay condoned.
Grant of bail - interference on appeal against bail - compliance with the Code of Criminal Procedure, 1973 - appellate discretion - Whether the Court should interfere with the High Court's judgment granting bail. - HELD THAT: - Although the Supreme Court expressed reservations about the High Court's observations regarding compliance with provisions of the Code of Criminal Procedure, 1973, it declined to exercise its appellate discretion to disturb the grant of bail at this stage. The Court balanced its reservations against the present circumstances and determined that interference was not warranted, thereby upholding the impugned bail order by dismissing the special leave petition.
Special leave petition dismissed; impugned judgment granting bail not interfered with.
Final Conclusion: Delay in filing was condoned; despite reservations about the High Court's remarks on compliance with the Code of Criminal Procedure, 1973, the Supreme Court declined to disturb the High Court's grant of bail and dismissed the special leave petition. Pending applications disposed of.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Proper Communication of Notices
Issue 2: Entitlement to Relief
3. SIGNIFICANT HOLDINGS
This judgment emphasizes the importance of proper procedural compliance in tax matters, particularly regarding the communication of notices. The court's decision to quash the impugned order and allow for a fresh notice underscores the necessity of ensuring taxpayers are adequately informed to exercise their rights effectively.
Challenge to order u/s 73 of the Goods and Service Tax Act, 2017 - valid communication of notice or not - petitioner being unaware of issuance of the notices as well as passing of the orders, could neither appear before the authority nor question the validity of the impugned orders within the period of limitation - HELD THAT:- In the case of OLA FLEET TECHNOLOGIES PRIVATE LIMITED VERSUS STATE OF UP AND 2 OTHERS [2024 (7) TMI 1543 - ALLAHABAD HIGH COURT]a coordinate Bench of this Court inter alia observed 'it does appear that the petitioner is entitled to a benefit of doubt. No material exist to reject the contention being advanced that the impugned order was not reflecting under the tab "view notices and orders". On merits, as noted in the earlier orders an other dispute exists whether all replies and annexures to the replies as filed by the assessee were displayed to the assessing officer and whether those have been considered.'
Conclusion - Proper communication of notices is essential for the validity of tax demands. Incorrect placement of notices on the GST portal does not constitute valid communication.
The order impugned dated 23.07.2024 passed by the Deputy Commissioner, State Tax, Division-7, Prayagraj (Annexure-1 to the writ petition) is quashed and set aside - petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions presented in the judgment are as follows:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of Retrospective Cancellation of Registration
Issue 2: Entitlement to Apply for Fresh Registration
3. SIGNIFICANT HOLDINGS
Cancellation of registration with retrospective effect - fresh application for registration after cancellation - revocation of cancellation of registration - rejection of application for registration in terms of sub-rule (2) read with sub-rule (4) of rule 9 of CGST Rules - due caution by the proper officer while processing registration applications - CGST Circular dated 28 March 2019
Cancellation of registration with retrospective effect - fresh application for registration after cancellation - CGST Circular dated 28 March 2019 - due caution by the proper officer while processing registration applications - revocation of cancellation of registration - rejection of application for registration in terms of sub-rule (2) read with sub-rule (4) of rule 9 of CGST Rules - Petitioner permitted to apply afresh for registration and any such application to be disposed of in accordance with law and the Circular dated 28 March 2019 - HELD THAT: - The Court recorded a belated challenge to the order cancelling the petitioner's registration with retrospective effect but noted that the CGST Act does not preclude the petitioner from seeking fresh registration despite a prior cancellation. The Court extracted and reproduced the instructions contained in the Circular dated 28 March 2019, which advise that the proper officer exercise caution when processing new registration applications by a person whose earlier registration was cancelled, including verification of earlier cancellations, consideration of whether revocation of cancellation has been sought, and rejection where conditions for cancellation persist or satisfactory justification is not furnished. In view of these principles and having regard to the statutory framework, the Court declined to grant substantive relief against the earlier cancellation and instead permitted the petitioner to file a fresh application; it directed that any such application shall be considered and disposed of in accordance with law and bearing in mind the Circular's guidance to the proper officer. [Paras 4, 5]
Leave granted to the petitioner to file an application for fresh registration; such application shall be disposed of in accordance with law and the Circular dated 28 March 2019; writ petition disposed on those terms.
Final Conclusion: The writ petition is disposed of by permitting the petitioner to seek fresh registration; the competent authority is directed to consider and decide any fresh application in accordance with law and the Circular dated 28 March 2019.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addresses the following core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Respondents' Failure to File a Reply
Issue 2: Appellate Authority's Decision to Set Aside the Refund Order
Issue 3: Commissioner's Review under Section 107(2)
Issue 4: Denial of Statutory Interest
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
Core principles established:
Final determinations on each issue:
The judgment underscores the importance of adhering to procedural requirements and respecting appellate decisions unless duly challenged. The court's decision reflects a commitment to ensuring procedural fairness and the proper application of statutory provisions.
Rejection of refund claim - Failure of respondents to file a reply despite granted extensions - HELD THAT:- The petitioner is stated to have applied for refund for the period April 2018 to March 2019 in terms of two applications dated 04 July 2019 and 09 July 2019. Two deficiency memos came to be issued by the respondents while considering the aforesaid applications. It is the case of the writ petitioner that the aforesaid deficiency memos were duly attended to and all material duly supplied. Since the refund was not released even thereafter, the petitioner is stated to have approached the respondents by way of representations dated 13 February 2020 and 27 February 2020.
In light of the continued inaction of the respondents, the petitioner had approached this Court in G.S. INDUSTRIES VERSUS PRINCIPAL COMMISSIONER OF CENTRAL GOODS & SERVICES TAX & ORS. [2020 (11) TMI 1126 - DELHI HIGH COURT] and which came to be disposed of on 24 November 2020, with the direction that the claim of the petitioner be duly processed and a decision taken thereon within a period of three weeks.
Whether it would have been permissible at all for the Commissioner to question the validity of the order dated 09 June 2023 in purported exercise of powers conferred under Section 107 (2) of the Act? - HELD THAT:- The Commissioner, while seeking to review an order passed under the Act and in purported exercise of powers vested by Section 107 (2), cannot possibly sit over and above an order passed by the appellate authority - It clearly does not contemplate the Commissioner seeking to even attempt to review an order passed by the appellate authority. The power so wielded by the Commissioner with reference to Section 107 (2) is rendered further unsustainable when viewed in light of the observations which appear in our earlier order of 28 March 2024 - the impugned order cannot possibly sustain.
Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of GST Demand
Issue 2: Freezing of Bank Accounts
Issue 3: Legal Remedies for Identity Theft
3. SIGNIFICANT HOLDINGS
Cancellation of GST demand - de-freezing of bank accounts - misuse of PAN and Aadhaar / identity theft - recovery by third party attachment under Section 79(1)(c) of the CGST Act - provisional attachment under Section 83 of the CGST Act - final determination under Section 74 of the CGST Act - disputed questions of fact not amenable to resolution in writ proceedings - liberty to pursue alternate remedies and investigation obligation of revenue
Cancellation of GST demand - de-freezing of bank accounts - final determination under Section 74 of the CGST Act - recovery by third party attachment under Section 79(1)(c) of the CGST Act - Prayers for cancellation of the GST demand and de freezing of the petitioner's bank accounts were refused. - HELD THAT: - The Court observed that a final order under the provision governing determination of tax liability (referable to Section 74 of the CGST Act) had been passed in 2019 and remained unchallenged; the present petition did not assail that order. The freeze on the petitioner's bank accounts was held to be referable to recovery proceedings under the provision enabling recovery from third parties holding money payable to the dealer (Section 79(1)(c)), and not to provisional attachment under the provision confined to provisional measures (Section 83). The factual controversy whether the transactions and GST registration pertain to the petitioner or resulted from misuse of his identity cannot be resolved in this writ petition. In view of these determinations, the Court found no justification to grant the substantive reliefs prayed for and declined to order cancellation of the demand or mandatory de freezing of accounts in these proceedings.
Reliefs for cancellation of the demand and de freezing of bank accounts denied.
Misuse of PAN and Aadhaar / identity theft - disputed questions of fact not amenable to resolution in writ proceedings - liberty to pursue alternate remedies and investigation obligation of revenue - Allegations of identity theft and misuse of the petitioner's PAN/Aadhaar give rise to disputed questions of fact which must be investigated or raised in appropriate proceedings; they cannot be adjudicated on the writ petition. - HELD THAT: - The Court recorded that the core question - whether the petitioner's PAN and Aadhaar were misused to obtain GST registration and whether the transactions giving rise to the demand were conducted by the petitioner or by persons misusing his identity - is essentially factual. Such inquiries must extend beyond mere verification of registration details to examination of the transactions themselves. The Court therefore declined to resolve these factual disputes in the present writ and instead accorded the petitioner liberty to pursue all available remedies, including raising identity theft grounds in appropriate fora. The order also emphasised that the respondents remain under an obligation to investigate the complaint lodged by the petitioner.
Identity theft allegations left to investigation or appropriate proceedings; petitioner granted liberty to pursue remedies and respondents obliged to investigate.
Final Conclusion: Writ petition dismissed; substantive reliefs for cancellation of the GST demand and de freezing of bank accounts refused on the ground of existing final order and disputed factual issues; petitioner granted liberty to pursue appropriate remedies and respondents directed to investigate the complaint.
Rejection of refund claim of the petitioner on the ground of limitation - mismatch between the figures of ITC relatable to integrated tax paid on imports, which was auto populated in Form of GSTR-2A and monthly returns filed in Form GSTR-3B returns - HELD THAT:- It is not in dispute that the petitioner deposited amount of Rs. 40,00,000/- by mistake on 20.11.2020 voluntarily which was neither towards any tax, interest or penalty. The similar issue came up for consideration before this Court in case of M/s. Joshi Technologies International [2016 (6) TMI 773 - GUJARAT HIGH COURT] as well as in case of M/S. GUJARAT STATE POLICE HOUSING CORPORATION LTD. VERSUS UNION OF INDIA & ANR. [2024 (1) TMI 1409 - GUJARAT HIGH COURT], wherein it is held by this Court that 'the amount of GST paid by the petitioner is admittedly paid as a self assessment, which the petitioner was not required to pay as per the Notification No. 32/2017. Accordingly, in the facts of the case, the amount paid by the petitioner from electronic cash ledger is required to be refunded by the respondent authority and could not have been rejected on the ground of limitation under Section 54 (1) of the CGST Act.'
In view of above analysis made in the aforesaid judgment which is squarely applicable to the facts of the case, more particularly when the petitioner has deposited voluntarily the amount of Rs. 40,00,000/-, the same would not be covered by the provisions of Section 54 of the GST Act and the same is required to be refunded by the respondent authorities as the same could not have been rejected on the ground of limitation under Section 54 (1) of the GST Act. However, the petitioner will not be entitled to any interest on such amount as the same was deposited voluntarily by mistake and therefore, the respondents to refund the amount of Rs. 40,00,000/- deposited by the petitioner.
The impugned order dated 14. 6. 2024 passed by the respondent No. 2 rejecting the refund application of the petitioner is hereby quashed and set aside - petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addresses the following core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Refund
Issue 2: Entitlement to Interest
Issue 3: Exemplary Damages for Malafide Action
Issue 4: Validity of Deficiency Memo without DIN
3. SIGNIFICANT HOLDINGS
Refund under the provisions of the SGST/CGST Act - interest on the refund amount from the date immediately after the expiry of sixty days from the date of receipt of the application in FORM RFD-01 - HELD THAT:- The writ petition is disposed off by providing the competent authority of the respondents to examine the pending refund application and dispose of the same in accordance with law. The respondents shall also take into consideration the additional documentation that has been provided by the writ petitioner and has been filed in these proceedings.
Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of Retrospective Cancellation under Section 29(2)(e)
Issue 2: Procedural Adequacy and Opportunity to be Heard
Issue 3: Appropriateness of Retrospective Cancellation
3. SIGNIFICANT HOLDINGS
Cancellation of GST registration - Retrospective cancellation - Registration obtained by fraud, wilful misstatement or suppression of facts - Section 29(2)(e) of the CGST Act - Requirement of reasoned order and due application of mind - Opportunity of being heard
Registration obtained by fraud, wilful misstatement or suppression of facts - Section 29(2)(e) of the CGST Act - Whether the impugned cancellation could be sustained under Section 29(2)(e) when there was no material showing that the registration was obtained by fraud, wilful misstatement or suppression of facts at the time of registration. - HELD THAT: - The show cause notice alleged cancellation under Section 29(2)(e) on the basis that registration had been obtained by fraud, wilful misstatement or suppression of facts. The authority's findings rested on a subsequent physical verification indicating the petitioner was not operating from the declared place of business. The Court held that a subsequent finding of non-operation at the declared address does not substitute for material demonstrating a false statement or wilful misstatement made at the time of obtaining registration. In the absence of any material remotely indicating that the registration was fraudulently obtained, the cancellation under clause (e) could not be sustained. [Paras 2, 3, 4, 6]
Cancellation under Section 29(2)(e) cannot be sustained for lack of material showing the registration was obtained by fraud, wilful misstatement or suppression of facts.
Retrospective cancellation - Requirement of reasoned order and due application of mind - Whether the impugned order of retrospective cancellation was lawfully passed without adequate reasons and lawful application of mind. - HELD THAT: - The Court reiterated that clauses of Section 29(2) permit cancellation from a retrospective date but such power cannot be exercised mechanically or routinely. A retrospective cancellation has deleterious consequences (including potential denial of input tax credit to recipients) and therefore the order must reflect the reasons and demonstrate objective satisfaction and due application of mind. The impugned proceedings lacked rudimentary reasons for retrospective cancellation and the authority failed to assign necessary grounds; on that basis the retrospective cancellation was held unsustainable. The Court relied on its prior decisions emphasizing that an order cancelling registration with retrospective effect must state cogent reasons and cannot be a mere recital. [Paras 5, 7, 8]
Retrospective cancellation without adequate reasons and demonstrable application of mind is unsustainable.
Final Conclusion: The writ petition is allowed; the Show Cause Notice dated 20 June 2024 and the order of cancellation dated 09 July 2024 are quashed for want of material to found a Section 29(2)(e) cancellation and for lack of reasoned justification for retrospective cancellation; liberty is reserved to the respondents to initiate fresh proceedings in accordance with law.
Issues: Whether the denial of input tax credit under Section 16(2)(c) of the GST enactments required interference and whether the petitioner was entitled to a fresh consideration of its claim in the light of the circulars referred to in the earlier judgment.
Analysis: The claim to input tax credit was rejected under Section 16(2)(c) of the CGST/SGST framework. The Court noted the reliance placed on the circulars referred to in the earlier decision and found that one opportunity should be granted to the petitioner to substantiate its entitlement before the competent authority. The impugned orders were therefore interfered with only to the extent they denied input tax credit on that ground, and the authority was directed to reconsider the claim after affording an opportunity of hearing to an authorised representative of the petitioner.
Conclusion: The denial of input tax credit on the stated ground was set aside to that extent and the matter was directed to be reconsidered by the competent authority; the petitioner succeeded in obtaining a fresh adjudication, but no finding was recorded on the merits of the claim.
Ratio Decidendi: Where a claim to input tax credit is rejected under Section 16(2)(c), the authority must afford a fair opportunity to establish entitlement in the light of the applicable circulars before passing fresh orders.
Denial of input tax credit in terms of the provisions contained in Section 16 (2) (c) of the Central Goods and Services Tax/State Goods and Services Tax Acts, 2017 - HELD THAT:- One opportunity can be granted to the petitioner to prove its claim in terms of the Circulars referred to in paragraph No.101 of the judgment of this Court in M. Trade Links [2024 (6) TMI 288 - KERALA HIGH COURT] before the competent authority.
This writ petition will stand allowed by setting aside Exts. P2 and P3 orders to the extent it denies input tax credit on account of the provisions contained in Section 16 (2) (c) of the CGST/SGST Acts and directing that the claim of the petitioner shall be considered in terms of the Circulars referred to in paragraph No. 101 of the judgment of this Court in M. Trade Linksafter affording an opportunity of hearing to an authorised representative of the petitioner.
Inaction of the municipal authorities in YSR Kadapa District who had granted permission to respondent No.6 to occupy the Annie Besant Municipal High School ground for a period of 45 days for holding the Dussehra and Navaratri exhibition in not recovering the amount due as per the agreed terms - HELD THAT:- It is stated that considering the history of respondent No.6 inasmuch as he was not a defaulter in the past of any of the municipal dues, on his request, relaxation for payment of the balance amount had been granted by the authorities in his favour.
This is not a fit case where the proceedings should be permitted to continue.
Petition dismissed.
Issues: Whether deduction of tax from the petitioner's 2nd and 3rd running bills was to be governed by the earlier VAT regime or by the Goods and Services Tax regime, and whether the writ petition survived in view of the earlier binding decision on the same question.
Analysis: The dispute turned on the stage at which the transaction was to be treated as taxable for purposes of deduction from running bills. The Court noted that the same issue had already been settled in an earlier decision, where the applicable regime was linked to whether bills and invoices were raised before or after the commencement of the GST regime, and the clarification in the departmental circular had been found consistent with the statutory scheme. In light of that binding determination, the Court found no infirmity in the respondents applying GST deductions to the petitioner's later bills. The request to make a representation for any relief under the Sale of Goods Act was left open and was not adjudicated.
Conclusion: The deduction from the 2nd and 3rd running bills under the GST regime was upheld and the writ petition failed as infructuous.
Deductions made from the petitioner's 2nd and 3rd running bills under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Assam Goods and Services Tax Act, 2017 (SGST Act) - validity of Circular No. 3/2017-GST - HELD THAT:- This Court finds that the present writ petition has become infructuous, inasmuch as, there was no infirmity with the application of the CGST and SGST by the State respondents, while making deductions against the 2nd and 3rd running bills of the petitioner. It is needless to add that if the petitioner is of the view that he is entitled to some concession as per law, there is no bar for the petitioner to submit a representation to that effect.
The writ petition is accordingly dismissed as infructuous.
Issues: Whether the rejection of the petitioner's claim for input tax credit was required to be set aside in view of the retrospective insertion of sub-section (5) in section 16 of the Central Goods and Services Tax Act, 2017, and whether the matter required reconsideration by the respondent authorities.
Analysis: The challenge arose from rejection of the petitioner's ITC claim on the basis of section 16(4) of the Central Goods and Services Tax Act, 2017, read with section 20 of the Integrated Goods and Services Tax Act, 2017 and the applicable State GST enactment. During pendency of the writ petition, sub-section (5) was inserted in section 16 of the Central Goods and Services Tax Act, 2017 with retrospective effect, extending entitlement to take ITC for the specified financial years up to the prescribed return date. In view of the amendment, the respondents accepted that the grievance stood redressed, and the petitioner sought setting aside of the impugned order and reconsideration in the light of the amended provision.
Conclusion: The impugned order rejecting the ITC claim was set aside, and the respondent authorities were directed to pass a fresh order taking into account section 16(5) of the Central Goods and Services Tax Act, 2017.
Challenge to vires of Section 16(4) of the GST Act, 2017 - ITC refund claimed by the petitioner for a period from January, 2020 to March, 2020 rejected on the ground that the petitioner availed the Input Tax Credit (ITC) wrongly in contravention to Section 16 (4) of the CGST Act, 2017, read with Section 20 of the IGST Act, 2017, and the applicable Arunachal Pradesh GST Act, 2017 - HELD THAT:- Considering the amendment brought in Section 16 of the Central Goods and Services Tax Act, 2017, by inserting Sub-Section (5), the impugned order in original dated 15.02.2022 is hereby set aside without adjudicating the said orders on merit.
Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Impugned Proceedings
Issue 2: Fair Opportunity to Respond
3. SIGNIFICANT HOLDINGS
Rectification of error apparent on the face of record - Section 161 of the GST Act - assessment order treated as show cause notice - opportunity of hearing - reconsideration and fresh adjudication
Rectification of error apparent on the face of record - Section 161 of the GST Act - reconsideration and fresh adjudication - Challenge to rejection of rectification application under Section 161 of the GST Act and prayer for quashing the impugned proceedings - HELD THAT: - The petitioner sought rectification on the ground that the impugned proceedings sought tax for discrepancies between GSTR-7 and GSTR-3B which had earlier been examined and dropped on two occasions. The assessing authority rejected the rectification application on the ground that the petitioner had not replied to notices prior to assessment. The Court did not decide the merits of the tax demand or the correctness of the assessment on merits. Noting the history of earlier proceedings being dropped and the petitioner's grievance, the Court directed that the impugned assessment proceedings be treated as a show cause notice and afforded the petitioner an opportunity to file objections with supporting material within two weeks of receipt of this order. The respondents were directed to consider any such objections and pass fresh orders in accordance with law after affording a reasonable opportunity of hearing to the petitioner. [Paras 6, 7]
Writ petition disposed by directing respondents to treat the impugned order as a show cause notice, permit objections within two weeks and decide afresh after hearing.
Final Conclusion: The writ petition is closed by directing the assessing authority to treat the impugned proceedings as a show cause notice, entertain the petitioner's objections within two weeks and pass fresh orders after providing a reasonable opportunity of hearing; no costs.
Issues: (i) Whether the appellant could contend prejudice on the ground that no specific question of law was framed by the High Court. (ii) Whether the claim for deduction could be disallowed where, apart from the board resolution, no material was produced in support of the expense claim.
Issue (i): Whether the appellant could contend prejudice on the ground that no specific question of law was framed by the High Court.
Analysis: The record showed that the appellant and counsel had been fully put to notice about the question agitated before the High Court. In those circumstances, the absence of a separately framed question of law did not establish prejudice.
Conclusion: The contention of prejudice was rejected.
Issue (ii): Whether the claim for deduction could be disallowed where, apart from the board resolution, no material was produced in support of the expense claim.
Analysis: The only material placed on record was the board resolution. No further evidence was produced to substantiate the claim for deduction, and the High Court's conclusion on that basis was accepted.
Conclusion: The disallowance was upheld and the appellant's challenge failed.
Final Conclusion: The impugned judgment was affirmed, but the confirmation of the High Court's findings was confined to Assessment Years 1990-1991, 1991-1992 and 1992-1993, while issues relating to subsequent assessment years were left open.
Ratio Decidendi: A deduction claim may be rejected where the assessee fails to produce material beyond a board resolution to support the expenditure, and a complaint of prejudice will not succeed when the party was already put to notice of the issue under consideration.
Disallowance of expenses - finding of the High Court in the impugned judgment is that the appellant assessee, except for producing resolution adopted by the Board, did not produce any material in support of the claim for expenses - HELD THAT:- We concur with the view taken by the High Court that apart from resolution of the Board, no other material was placed on record in support of the claim for deduction. Accordingly, we decline to interfere with the impugned judgment. However, we make it clear that the view taken by the High Court in the impugned judgment will remain confined to the Assessment Years 1990-1991, 1991-1992 and 1992-1993 - Assessee appeal dismissed.
Broken period interest paid on purchase of securities - As decided by HC [2023 (6) TMI 1461 - TELANGANA HIGH COURT] respondent had purchased securities to hold them as stock-in-trade. Therefore, interest paid on such securities would be an allowable deduction - HELD THAT:- The issue involved in this Special Leave Petition is squarely covered by a decision of this Court dated 16th October, 2024 rendered in “Bank of Rajasthan Ltd. [2024 (10) TMI 875 - SUPREME COURT]
In view of the aforesaid decision, the Special Leave Petition is, accordingly, dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Violation of the Principles of Natural Justice
Issue 2: Availability of Alternative Remedy
3. SIGNIFICANT HOLDINGS
Maintainability of writ petition against order of Assessment in violation of the principles of natural justice - invoking extraordinary writ jurisdiction vested in this under Article 226 of the Constitution of India - availability of alternative remedy - HELD THAT:- In the instant case, it is the case of the petitioner that the impugned order of Assessment is in violation of the principles of natural justice. We have enquired into this aspect of the matter and as noted above, the notices had been duly served upon Sh. Sahil Mahajan, the legal heir of Late Sneh Gupta, who was well represented before the Assessing Authority.
The instant case does not fall under any of the exceptions enumerated hereinabove. The order impugned is passed by the Assessing Authority having jurisdiction in the matter and that there is no apparent violation of the principles of natural justice. Needless to say that no provision of Income Tax Act is under challenge in this petition.
We are not inclined to entertain this petition and instead relegate the petitioner to the remedy of appeal before the Appellate Authority, in case, he wishes to challenge the impugned order of assessment.
The petition is, therefore, dismissed with liberty to the petitioner to avail the remedy of appeal provided under the Income Tax Act.
1. ISSUES PRESENTED and CONSIDERED
The judgment addressed the following substantial questions of law:
1. Whether the Tribunal's order is perverse in allowing relief to the assessee by considering royalty income from licensing of software products as profits of eligible units for deductions under sections 10A/10AA, despite the conditions for such relief not being satisfied and the income not being derived from export activity.
2. Whether the Tribunal erred in failing to appreciate that the assessing authority denied the 10A/10AA claim for royalty income as it was not derived from the export business of the 'Undertaking'.
3. Whether the Tribunal's order was flawed in failing to recognize that intellectual property rights were not owned by the specific units claiming exemption under section 10A/10AA, and thus royalty income could not be considered profit 'derived' from these units.
4. Whether the Tribunal was correct in law to hold that no disallowance can be made under Section 14A read with Rule 8(D) of the Act, ignoring CBDT Circular No.5 of 2014 and its Explanation to Section 14(A).
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1-3:
Issue 4:
3. SIGNIFICANT HOLDINGS
Conclusion: The judgment reaffirmed the principles regarding deductions under sections 10A/10AA and the applicability of Section 14A, emphasizing reliance on established precedents and the concept of 'real income'. The appeal was dismissed on all questions of law, favoring the assessee.
Disallowance u/s 14A r.w.r.8D - expenses incurred to the extent relatable to the earned income of taxable income -HELD THAT:- As decided in M/s. Quest Global Engineering Services Pvt. Ltd.,[2021 (3) TMI 434 - KARNATAKA HIGH COURT] since no exempt income has accrued to the assessee therefore, the provisions of Section 14A of the Act do not apply to the fact situation of the case.
Those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to the deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits.
The situation here is therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone.
Therefore, even that the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes upon order to earn profits - Decided against revenue.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in the judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Maintainability of the Writ Petition
Issue 2: Jurisdictional Error and Change of Opinion
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of exhausting statutory remedies before invoking the writ jurisdiction of the High Court, except in cases of jurisdictional errors or violations of natural justice. The court's decision reflects a careful application of established legal principles to the facts of the case, emphasizing the role of appellate mechanisms in tax disputes.
Maintainability of writ petition against reassessment proceedings - HELD THAT:- The change of opinion is to be verified from the records regarding the assessment which has been made on earlier occasion is proper one, or the subsequent assessment is the proper one. If such a situation is there, then the same is to be deliberated upon by the authority by going through the documents available on record and on consideration of the rival submissions advanced on behalf of the parties, meaning thereby, the same pertains to the adjudication of fact.
Also while considering the change in opinion, the order must not be non-speaking and based upon non-speaking order, there cannot be any consideration of the fact that the assessment is based upon the change in opinion.
This Court in order to consider the said aspect has gone through the order impugned and found therefrom that the order is not cryptic, rather it is a detailed order basis upon the documents which were assessed/scrutinized by the Assessing Officer and basis upon the same, the assessment order was made, but when subsequently it was found that the disclosure of the documents needs to be statement in the income tax which is also based upon the material document which led the revenue to issue notice.
It is, thus, evident from the impugned order that the said order is not a cryptic one, rather it is a detailed order on consideration of the rival submissions of the parties based upon the appreciation of the documents.
This Court is of the view that in such a factual aspect where the assessment order is being disputed by the petitioner on fact, then it will not be proper for this Court to exercise its extraordinary jurisdiction conferred under Article 226 of the Constitution of India in a situation where the effective alternative remedy of appeal is available under Section 246A of the Income Tax Act, 1961.
However, it is left open for the petitioner to avail the alternative remedy as provided under Section 246A of the Income Tax Act, 1961.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions presented and considered in this judgment are as follows:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Condonation of Delay
Issue 2: Taxability of GST Refund
3. SIGNIFICANT HOLDINGS
The Tribunal's decision underscores the importance of ensuring justice by considering the merits of a case rather than dismissing it on procedural technicalities, especially when a reasonable explanation for delay is provided.
Condonation of delay filling appeal - delay of 38 days in filing the appeal by the assessee before CIT(A) - eligible reasons for delay - HELD THAT:- Before us the assessee has submitted a detailed affidavit of the chartered accountant of the assessee wherein the complete delay has been explained. It is not the case that the chartered accountant did not act. It is the case where the chartered accountant has under mistaken belief filed a reply on the online portal. The explanation of the chartered accountant clearly shows that that an email was received from the accountant of the company on 13 November 2022 along with the screenshot of the adjustment made.
As the chartered accountant was busy for filing income tax returns for his overseas clients which prevented him from paying close attention to the nature of the proceedings and he presumed that the company received a communication under the Act, and he filed a response on 13 November 2022 itself on the online portal.
It is not the case of the carelessness on behalf of the assessee or its chartered accountant, but merely a case of misapprehension.
It is also correct that in form number 35 the assessee has given a cryptic answer for delay. The explanation of the assessee is that there is no space available for filing a condonation of delay at that particular column.
In this case the delay is small and not inordinate. Nobody gains by filing an appeal late when substantial demand has arisen against him.
We find that the CIT–A has taken a very pedantic approach in considering the delay caused in filing of the appeal which is nominal. We find that now because of the affidavit of the chartered accountant filed before us, there is a sufficient cause of delay in filing of appeal by 38 days.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Disallowance of Prior Period Expenses (AY 2006-07)
Disallowance of Contributions to Pension and Gratuity Funds (AY 2007-08)
Addition of Upfront Lease Premium (AY 2007-08)
Procedural Lapses and Consequential Levies
3. SIGNIFICANT HOLDINGS
Disallowance of prior period expenses, contributions to pension and gratuity funds, and the treatment of upfront lease premium assessee's income is exempt u/s 11 and 12 - HELD THAT:- Additions and disallowances made by the AO and confirmed by the CIT(A) are not sustainable, particularly in view of the settled position regarding the assessee’s entitlement to exemption u/s 11 and 12 of the Act. Consequently, all additions, disallowances, and consequential levies are deleted, and the grounds of appeals in AYs 2006-07 & 2007-08 filed by the assessee are allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of PCIT's Order under Section 263
Issue 2: Sufficiency of AO's Inquiry
Issue 3: Applicability of Res Judicata
Issue 4: Directions for Fresh Assessment
3. SIGNIFICANT HOLDINGS
Revision u/s 263 - valuation of shares and the premium charged - PCIT noted that AO while passing the scrutiny assessment order rejected the valuation report submitted by the merchant banker and adopted fair value of shares at face value of Rs. 10 per share thereby brought excess share premium to tax - HELD THAT:- While making an assessment, the assessing officer has varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, his reasons therefore, which is absent in the present facts of the case.
Merely by passing an order sheet entry, the Ld.AO accepted the value as per the valuation report to be the market value and admits that no further enquiry has been made. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary.
In the present facts of the case, the order passed by the Ld.AO, therefore becomes erroneous because enquiry has not been made regarding the share valuation report based on which the assessee determined the share value at premium. It was incumbent on him to verify by making necessary enquiries, more so when in the immediately preceeding assessment year in assessee’s own case the valuation report by the merchant banker was rejected on similar facts. Thus, we hold that provision of section 263 has been rightly invoked - Decided against assessee.
Issues: (i) Whether the delay of 702 days in filing the appeal before the Tribunal deserved condonation; (ii) whether the addition of Rs. 2,50,00,000 sustained as alleged cash receipt was justified.
Issue (i): Whether the delay of 702 days in filing the appeal before the Tribunal deserved condonation.
Analysis: The appeal had been filed before the Departmental Representative within time and the appeal fee was also paid in time. The delay before the Registry arose from inadvertence of the assessee's counsel's staff in assuming that filing before the Departmental Representative completed the filing requirement. The explanation was supported by affidavit and documents, and the assessee should not suffer for the lapse of its legal advisor.
Conclusion: The delay was condoned in favour of the assessee.
Issue (ii): Whether the addition of Rs. 2,50,00,000 sustained as alleged cash receipt was justified.
Analysis: The addition was based only on a seized loose paper which did not bear the assessee's signature and was not shown to have been prepared by the assessee or its staff. No independent enquiry was made from the broker or the alleged counterparty, no corroborative evidence of cash receipt was found in search, and the assessee's explanation that the figure related to letters of credit and accounted sales remained unrebutted. In the absence of supporting material, the seized note by itself could not sustain an addition as income.
Conclusion: The addition of Rs. 2,50,00,000 was held unsustainable and deleted in favour of the assessee.
Final Conclusion: The appeal succeeded, the delay was excused, and the impugned addition was set aside for want of corroboration and supporting evidence.
Ratio Decidendi: A seized document not attributable to the assessee and unsupported by independent corroborative evidence cannot, by itself, justify an income addition; suspicion or presumption cannot replace proof, and the assessee's unrebutted explanation must be tested by proper enquiry and natural justice.
Addition of income having received amount in cash - reliance on notings and the paper so seized in search - evidentiary value of documents so found - HELD THAT:- It has not been established that the assessee actually received the said sum and further when the entire balance, as mentioned in the impugned document, is duly accounted for in the books of accounts of the assessee and the entire sales having been duly recorded in the books of accounts and no sales have been found to have been made outside the books and no other evidence having been established to prove the assessee having actually received the said sum.
It is excruciating to note that the addition of ₹ 2.5 crore has been made without any charging provision so as to fall within the four squares of law. Nothing can be more painful to note that such order has passed the muster of section 153 of the Act.
AO grossly erred in making the addition and which was wrongly confirmed by the learned CIT(A). Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Delay in Filing Appeal
Addition of Undisclosed Income
Evidentiary Value of Survey Statement
Declaration under Section 44AD
3. SIGNIFICANT HOLDINGS
Undisclosed income - difference of income voluntarily offered for taxation during the survey and income declared in the return of income - HELD THAT:- Assessee has been able to demonstrate its case for declaring the income below than the disclosure made by one of the directors in the survey operation u/s 133A of the Act and even otherwise the Hon’ble Co-ordinate Bench of the Tribunal in the case referred to above pertaining to AY 2017-18 [2023 (1) TMI 757 - ITAT MUMBAI] has analyzed the identical facts and circumstances as involved in the instant case and by giving clear cut finding approved the Assessee’s income as declared, hence, the addition under consideration is liable to be deleted, thus the same is deleted. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification for Invoking Section 263
Issue 2: Validity of Revision Order under Section 263
3. SIGNIFICANT HOLDINGS
Revision u/s 263 - AO failed to make sufficient inquiries and without application of mind passed reassessment order relating to the “income from house property” accrued to the appellant company on unsold inventories -
Whether the AO's failure to make an addition for the deemed annual letting value of unsold inventories constitutes an "error" that is "prejudicial to the interest of revenue."? - HELD THAT:- Order of the AO is very cryptic and no inquiries/verification were made even though assessment was reopened for that very specific purpose. The Ld. PCIT has issued a show cause notice with a specific purpose as to leaving tax on unsold inventories of Rs. 54.26 crores when the project was 100% complete.
Bench agrees with the view of PCIT who relied on the judicial precedent laid down in the case of Ansal Housing Financial and Leasing Company Ltd. [2012 (11) TMI 323 - DELHI HIGH COURT] and Emtci Engineering Ltd. [1996 (4) TMI 145 - ITAT AHMEDABAD-C] where it was specifically held that the “income from house property” has to be offered for tax purpose on the unsold inventories. We further draw our inference by placing reliance on the decision Gundecha Builders [2019 (1) TMI 112 - BOMBAY HIGH COURT] and CIT Vs. Sane Doshi Enterprises [2015 (4) TMI 882 - BOMBAY HIGH COURT] where it was held that the income from unsold inventories of a building should be offered under the head “income from house property”.
Similar view was taken by in the case of DCIT Vs. M/s. Inorbit Malls P. Ltd. [2022 (10) TMI 1150 - ITAT MUMBAI] in which reliance was placed on the decision of Ansal Housing Finance & Leasing Company Ltd. [2012 (11) TMI 323 - DELHI HIGH COURT] where it was held that the vacant units in the possession of the appellant are liable to be charged as notional rental income under the head income from house property on the basis of their annual letting value.
The rental income should be offered on notional basis as per the statute. This order of the coordinate Bench was very exhaustive and binding in nature as it dealt with all cases relating to the core issue.
AO committed an “error” of not making the addition of notional annual letting value on vacant units of building, for which the assessment was reopened. This error caused “prejudice to the interest of Revenue” by not taxing the amount as mentioned above. Thus, the twin conditions of “error” and ‘prejudice to the interest of Revenue” were fulfilled - Decided against assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions addressed in the judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Deduction under Section 80IA(4)
Issue 2: Jurisdiction of CPC to Disallow Deduction
Issue 3: Technical Glitches and Filing Delay
3. SIGNIFICANT HOLDINGS
Denial of deduction u/s 80IA(4) - audit report in Form-10CCB was filed belatedly i.e., not along with the return of income - HELD THAT:- We find the Kolkata Bench of the Tribunal in the case of Tarasafe International (P.) Ltd [2024 (10) TMI 363 - ITAT KOLKATA] after considering the decision of Wipro Ltd.,[2022 (7) TMI 560 - SUPREME COURT] has held that when the audit report is filed before the final order of assessment, the assessee was entitled to claim deduction under section 80JJAA.
Since the assessee in the instant case has admittedly filed the audit report in Form-10CCB prior to the processing of the return, therefore, assessee cannot be denied deduction u/sec.80IA(4) - Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of PCIT's Invocation of Section 263
Issue 2: Scope of Deduction under Section 36(1)(viia)
Issue 3: Validity of Proceedings under Section 263
3. SIGNIFICANT HOLDINGS
Revision u/s 263 - As per CIT allowance of deduction u/s 36(1)(viia) passed by the AO is erroneous and prejudicial to the interest of Revenue - HELD THAT:- As undisputed fact that the issue on which the PCIT has invoked jurisdiction u/s 263 has already been decided by the Tribunal in assessee’s own case in its favour. Merely because the department has not accepted the decision of the Tribunal and has filed an appeal before the Hon’ble High Court, therefore, in our opinion, the order of the AO cannot be held as erroneous. In our opinion, it may be prejudicial to the interests of the Revenue but certainly not erroneous.
As decided in the case of Malabar Industrial Co Ltd. [2000 (2) TMI 10 - SUPREME COURT] has held that in order to invoke the jurisdiction u/s 263 the twin conditions must be satisfied i.e. the order must be erroneous and the order must be prejudicial to the interests of the Revenue.
In the instant case, the Tribunal has already decided the issue in favour of the assessee though it has not been accepted by the Revenue and the appeal is pending before the Hon’ble High Court and since the AO on the basis of submissions made by the assessee and relying on the decision of the Tribunal in assessee’s own case has not made any addition / disallowance, therefore, the order of the AO in our opinion cannot be held to be erroneous - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions addressed in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Exemption under Section 54F
Issue 2: Validity of Transaction with Related Concern
Issue 3: Investment in Disputed Property
3. SIGNIFICANT HOLDINGS
The Tribunal's decision underscores the importance of the substantive intent of tax provisions over procedural formalities and affirms the validity of genuine transactions with related concerns.
Deduction u/s 54F - as per AO assessee has diverted the money to the family concern without purchase of any residential house and the entire transaction for claiming exemption u/s 54F is manipulated and doctored - actual sale deed has not been entered into within the specified period and such an MoU has been entered into with a concern where the assessee and the family members are shareholders.
HELD THAT:- We find as in the case of CIT vs. Smt. B.S. Shantakumari [2015 (8) TMI 274 - KARNATAKA HIGH COURT] has held that once it is established by the assessee that she had invested entire net consideration in construction of residential house within stipulated period, it would meet requirement of section 54F and she would be entitled to get benefit of section 54F even if the construction was not completed within a period of three years.
We find in the case of Lalitkumar Kesarimal Jain [2019 (9) TMI 1138 - ITAT PUNE] has held that mere fact that assessee was one of associated parties in said concern which was developing housing project, could not be a ground to deny benefit of deduction u/s 54F.
Hon'ble Supreme Court in the case of Fibre Boards (P) Ltd. [2015 (8) TMI 482 - SUPREME COURT] has held that advances paid for purpose of purchase and / or acquisition of plant / machinery, and land / building amount to utilization by assessee of capital gains under section 54G
Thus, considering the fact that the assessee has admittedly entered into MoU and paid an amount of Rs. 10.60 crores to M/s. Kumar Housing Corporation, which finds mention in the sale deed executed subsequently, therefore, merely because the assessee and his family members are the shareholders in KUD and that the sale deed has been executed after a period of two years, the assessee in our opinion cannot be denied the benefit of deduction u/s 54F of the Act - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment primarily deals with the following core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Reopening of Assessment under Section 147 and Notice under Section 148
Addition of Cash Deposits
Estimation of Profit at 8%
Penalty under Section 271B
3. SIGNIFICANT HOLDINGS
The final determinations on each issue were as follows:
In conclusion, the appeals were partly allowed, with specific directions for the AO regarding the addition of cash deposits, while the other grounds were dismissed.
Reopening assessment u/s 147 - “reason to believe” - cash deposits in the undisclosed bank account - HELD THAT:-Whether material would conclusively prove escapement of income is not the concern at that stage. Requirement is that there should be prima facie reason at the stage of reopening. The sufficiency or correctness of the reason cannot be examined at the threshold. In the present case, the assessee has not disclosed his SB bank account with Bank of Baroda in his return of income. On the other hand, he had deposited cash of Rs. 13,20,535/-. Hence, there was prima facie reason to reopen the case. Reopening is upheld and ground No.1 is dismissed.
Addition of entire amount of cash deposited in the undisclosed bank account of the assessee - There is nothing on record to suggest that assessee was carrying on any business other than the business of wholesale purchase and sale of vegetables. Therefore, the logical conclusion would be that either he was carrying out the same business a part of which was not disclosed to the Department. It is also possible that part of the profit of his disclosed business was diverted and the amounts were deposited in the SB account. However, it is seen that the appellant has also made multiple withdrawals of almost the same amounts during the year. In absence of any evidence, it cannot be ascertained whether the amounts withdrawn were used for purchase of vegetables or were used for personal expenses or investments. Hence, a reasonable estimate of cash deposit may be considered as income of the assessee. In our view, it will be fair and reasonable if 25% of the cash deposit of is taken as the income of assessee.
Estimation of profit @ 8% by the CIT(A) in lieu of profit @ 35% by the AO on the turnover - Appellant has not disclosed all credit entries even of his disclosed bank account. The appellant has not brought anything on record to show that the nature of the other credit entries are different from sales made by assessee and they are not tenable. Hence, the total credit entries are held to be sales of the assessee during the year. As assessee himself has shown profit @ 8% of the turnover in his ROI. Hence, we do not find any reason, to adopt a profit rate lower than the rate adopted by appellant. Therefore, the decision of CIT(A) in estimating income @ 8% is upheld.
Penalty u/s 271B - failure to get his accounts audited on or before due date - HELD THAT:- Hon’ble Supreme Court in case of Wipro Ltd. [2022 (7) TMI 560 - SUPREME COURT] has held that the twin conditions of furnishing a declaration before the AO and that too before due date of filing original return u/s 139(1) are to be satisfied and both are mandatorily to be complied with. Hence, we agree with the CIT(A) that filing of audit report is mandatory and only exception for non-compliance is to establish with documentary evidence a “reasonable cause”. The assessee has not been able to establish any reasonable cause for failure to get accounts audited. In fact, he had estimated profit @ 8% on turnover of Rs. 32,34,156/- though the actual turnover was Rs. 89,63,222/-. No reasons are given as to why such a lower turnover was shown by the assessee. Hence, the accounts were not audited by showing turnover below limit prescribed u/s 44AB of the Act but assessee is taking the plea that he was not aware of the provisions of section 44AB of the Act. In view of the above facts the ground is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification under HS Code 87089900
3. SIGNIFICANT HOLDINGS
Refusal to extend certain benefits claimed by it under the Merchandise Exports from India Scheme (MEIS) on goods exported - car seat covers manufactured by the petitioner fall under the Harmonized System (HS) Code 87089900 or not - HELD THAT:- In Mehra Brothers V. Joint Commercial Officer [1990 (11) TMI 144 - SUPREME COURT], the Apex Court considered the question as to whether car seat covers are accessories to motor vehicles. After referring to the dictionary meaning of the term “accessory”, the Apex Court found that car seat covers or upholstery is “accessories as an addition; an adjunct; an accompaniment for comfortable use of the motor vehicles or for elegance to the seat”. The Court also noticed that the items concerned were being sold as “automobile parts”.
Thus, with reference to the Sales Tax and Central Excise levies, the question was addressed, holding that even if the seat covers are being made up of textile fabric, in so far as they are used as an addition/accompaniment for the motor vehicle, they are accessories of the Motor vehicle/car seat. It is also noticed that the afore findings of the CEGAT were accepted by the Central Exercise Department, which is produced as Ext. P17. Similarly, the Director General of Foreign Trade has also accepted the afore classification as seen from Ext. P20. Likewise, Ext. P25 communication is issued by the 6th respondent, accepting the classification as seat covers as covered under 87089900 irrespective of whether made up of textile or not.
Conclusion - The petitioner's products, which are exported are to be classified under serial No. 4558 having HS 8708990. The impugned orders/proceedings by which the benefit under the Scheme stood denied to the petitioner, would stand set aside.
Petition allowed.
Issues: (i) whether the importer was entitled to release of the seized consignments and cancellation of the conditions imposed for their release; (ii) whether compensation for demurrage was payable.
Issue (i): whether the importer was entitled to release of the seized consignments and cancellation of the conditions imposed for their release.
Analysis: The entitlement to release turned on the earlier adjudication of the same objections against the importer, which had already been considered and resolved in prior proceedings. The Court treated the factual objections as no longer requiring fresh examination and proceeded on the basis that the importer had succeeded on the issue. In that view, the conditions attached to the earlier release order could not continue to operate against the importer.
Conclusion: The issue is decided in favour of the importer. The consignments were directed to be released, the superdarinama was cancelled, and the conditions imposed for release were revoked.
Issue (ii): whether compensation for demurrage was payable.
Analysis: The claim for demurrage was rejected by adopting the earlier reasoning that liability shifts away from the importer only where delay in inspection is caused by the authorities. On the facts, no such attributable delay was found, and the controversy raised in the case did not justify an award of compensation.
Conclusion: The issue is decided against the importer. The claim for demurrage compensation was rejected.
Final Conclusion: The writ petition succeeded only to the extent of securing release of the consignments and related ancillary relief, while the claim for demurrage compensation failed, and the matter stood finally disposed of.
Ratio Decidendi: Where the controversy over import clearance has already been resolved against the authorities on the same factual objections, the importer is entitled to release of the goods, but compensation for demurrage is not payable unless delay in inspection is attributable to the authorities.
Refusal to the release of five consignments - consignments allegedly constituted ‘firearms’ - HELD THAT:- In the opinion of the Court, the Petitioner is entitled to relief sought in the present writ petition.
The relief sought in prayer, regarding the release of consignments stands granted through order dated 30th September, 2024, with certain conditions. However, since the Petitioner is entitled to succeed, the superdarinama is cancelled and the conditions imposed by the Court stand revoked. The Petitioner shall be entitled to deal with the said goods under the consignments, in accordance with law - The claim for compensation for demurrage is rejected.
The present writ petition is disposed of along with pending applications.
Issues: (i) Whether the limitation period for exercising the option to redeem confiscated goods under Section 125 of the Customs Act, 1962 begins to run without communication of the order granting redemption; (ii) whether the daughter and sole legal heir of the deceased passenger could be permitted to redeem the confiscated goods on compliance with the adjudication order.
Issue (i): Whether the limitation period for exercising the option to redeem confiscated goods under Section 125 of the Customs Act, 1962 begins to run without communication of the order granting redemption.
Analysis: The order granting redemption had not been shown to have been duly communicated to the passenger. In the absence of proof of service, the redemption option could not be treated as having been brought to the notice of the person concerned. The period prescribed for exercising the option under Section 125 could therefore not be said to have commenced merely because the order had been passed.
Conclusion: The limitation period under Section 125 was not triggered, and it did not bar redemption of the goods.
Issue (ii): Whether the daughter and sole legal heir of the deceased passenger could be permitted to redeem the confiscated goods on compliance with the adjudication order.
Analysis: The passenger had died after the confiscation order, the petitioner's identity and relationship with the deceased passenger were not disputed, and the goods were of substantial value. Since the order had not been communicated and the petitioner was the legal heir, redemption could be permitted upon payment of the fine and penalty determined in the original adjudication order, together with compliance with the required formalities and an indemnity as to sole heirship.
Conclusion: The petitioner was permitted to redeem the confiscated goods in accordance with the order dated 26 July 2023, subject to payment and personal collection with indemnity.
Final Conclusion: The petitioner obtained relief enabling redemption and release of the confiscated goods, and the demurrage charges were waived in the peculiar facts of the case.
Ratio Decidendi: The limitation for exercising a statutory redemption option does not commence unless the redemption order is duly communicated to the person entitled to exercise that option.
Seeking issuance of a writ of mandamus directing the Respondent- Commissioner of Customs to re-export gold seized from the Petitioner’s mother - Petitioner, as the legal heir of the deceased passenger, is entitled to redeem the confiscated goods, or not - applicability of limitation period for redeeming the goods under Section 125 of the Customs Act when the order was not duly communicated to the deceased passenger.
Petitioner, as the legal heir of the deceased passenger, is entitled to redeem the confiscated goods under the Customs Act, 1962 or not - HELD THAT:- The passenger was a senior citizen of more than 70 years of age. The death certificate has been placed on record, which shows that she passed away on 11th December, 2023 in Uzbekistan itself. The Petitioner/daughter - Ms. Umida Karimova has placed a copy of her passport on record. The identity of the Petitioner and her relationship with late Ms. Sharipova is not being doubted by the Respondent. Considering that the goods in question are of substantial value and the passenger having expired, her heir/s i.e., her daughter cannot be deprived of the goods so long as the Order in Original dated 26th July, 2023 is complied with by the Petitioner.
Applicability of limitation period for redeeming the goods under Section 125 of the Customs Act - HELD THAT:- The limitation period under Section 125 would apply only when the option to redeem, given to the passenger, is duly communicated to the passenger. In the present case, admittedly, there is no evidence on record to show that the said order was duly communicated. Under such circumstances, the limitation period is not triggered and thus would not bar release of the goods in terms of the said order.
Admittedly, the Customs Department did not verify the address that was available in the detention receipt or in the copy of the passport. In this regard, the Court is of the opinion that whenever such detentions of goods are made or seizures are effected, the department ought to consider taking the proper contact details including the postal address, email address and mobile number of the passenger concerned and add the same on the detention receipt. This would facilitate communication with the passenger in respect of further proceedings and the order passed, if any.
Also, in view of the fact that the passenger has expired and there is no proof of service of the order passed by the Customs department, the demurrage charges shall stand waived. The present order shall not act as a precedent.
Conclusion - The Petitioner is entitled to redeem the goods upon compliance with the original order. The limitation period under Section 125 did not commence due to lack of communication.
Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addresses the following core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Orders and Requirement of Pre-Deposit
Issue 2: Entitlement to Relief from Penalty
Issue 3: Constitutional Challenge to Section 129E
Issue 4: Forum Shopping
3. SIGNIFICANT HOLDINGS
Non-compliance of provisions of mandatory pre-deposit Section 129(E) of Customs Act - Imposition of penalty on the petitioner under various provisions of the Customs Act, 1962 - HELD THAT:- The petitioner has exhausted its remedies against it grievance of its appeals not being entertained on the ground of not making the pre-deposit. The petitioner has also agitated his grievance in this regard before the Hon’ble Allahabad High Court, albeit unsuccessfully.
The petitioner is seeking to reagitate the issues before this Court. This is clearly a case of forum shopping and cannot be countenanced.
Petition dismissed.
Abatement of appeals due to approval of Resolution Plan under IBC - request for adjournment due to the absence of counsel - HELD THAT:- On going through the Order of the Coordinate Bench M/S. TATA STEEL LIMITED ( [FORMERLY M/S. TATA STEEL BSL LTD) VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, BHUBANESWAR [2024 (4) TMI 1211 - CESTAT KOLKATA], it is found that the Bench had recorded that the appellant company underwent CIRP in terms of IBC, which culminated into approval of Resolution Plan of Bhushan Steel Ltd by the Adjudicating Authority at NCLT, Principal Bench at New Delhi. They have also considered the relevant clauses of the Resolution Plan and the fact that both sides viz., the appellant as well as the Revenue have no qualms over the impugned appeals being abated and having been rendered infructuous, in view of the above said developments. The Order of the Coordinate Bench in respect of the same appellant for other appeals pending before the said bench has held that in the facts of the case, all those appeals abate. In addition, they have also gone through plethora of case laws, etc., keeping in view some of the other arguments concerning refund of pre-deposits, etc., and came to the conclusion that any order passed by the Tribunal beyond the vested power would ipso facto be non-est in law.
Therefore, in view of the settled legal position, as clearly brought out in the Order of the Coordinate Bench dt.16.04.2024 and in view of Rule 22 and Rule 41 of the CESTAT (Procedure) Rule, 1982, these appeals would abate and after abatement of these appeals, the Tribunal would be rendered functus officio in the matters relating to these appeals and thus would not be able to decide any other issues connected with the said appeals.
These appeals abate with effect from the date of approval of Resolution Plan by the NCLT vide its Order dt.15.05.2018 and are disposed of accordingly.
Issues: (i) Whether the audit firm and engagement personnel were guilty of professional misconduct for failing to obtain sufficient appropriate audit evidence, exercise professional skepticism, and report material irregularities concerning the premature closure and appropriation of the fixed deposit and related-party transactions. (ii) Whether the auditors failed to identify and communicate with the proper persons comprising those charged with governance.
Issue (i): Whether the audit firm and engagement personnel were guilty of professional misconduct for failing to obtain sufficient appropriate audit evidence, exercise professional skepticism, and report material irregularities concerning the premature closure and appropriation of the fixed deposit and related-party transactions.
Analysis: The Order found that the auditors issued an unmodified opinion without obtaining the critical bank communication explaining the premature closure of the fixed deposit, ignored several red flags, did not adequately probe the role of promoters and management, and failed to test the related-party transactions and the suspected fraud indicators. It held that the audit evidence was incomplete and selective, the audit response to assessed risks was inadequate, and the conclusion that reporting under Section 143(12) was not triggered was unsupported. These failures were treated as violations of the auditing standards and the Companies Act, amounting to professional misconduct.
Conclusion: The issue was decided against the auditors and in favour of the respondent.
Issue (ii): Whether the auditors failed to identify and communicate with the proper persons comprising those charged with governance.
Analysis: The Order held that the auditors treated the audit committee as synonymous with those charged with governance without determining the appropriate persons within the company's governance structure or considering whether further communication was required. This was found inconsistent with the communication requirements under the applicable auditing standard and supported the finding of deficient audit conduct.
Conclusion: The issue was decided against the auditors and in favour of the respondent.
Final Conclusion: The charges of professional misconduct were established, and monetary penalties and debarment were warranted against the concerned audit firm and partners.
Ratio Decidendi: An auditor must obtain sufficient appropriate audit evidence, maintain professional skepticism, investigate significant related-party and fraud indicators, and communicate properly with those charged with governance before issuing an audit opinion; failure to do so can constitute professional misconduct under Section 132(4) of the Companies Act, 2013.
Professional misconduct under Section 132(4) of the Companies Act, 2013 - reporting of suspected fraud under Section 143(12) of the Companies Act, 2013 - failure to exercise professional skepticism and due diligence - failure to obtain sufficient appropriate audit evidence - non-compliance with Standards on Auditing (including SA 240, SA 500, SA 330, SA 260, SA 220 and SA 560) - liability of the audit firm under SQC 1 / firm responsibility for audit quality - imposition of monetary penalties and debarment as disciplinary sanctions
Professional misconduct under Section 132(4) of the Companies Act, 2013 - failure to obtain sufficient appropriate audit evidence - reporting of suspected fraud under Section 143(12) of the Companies Act, 2013 - failure to exercise professional skepticism and due diligence - non-compliance with Standards on Auditing (SA 240, SA 500, SA 330, SA 260, SA 220) - Auditors guilty of professional misconduct in respect of the audit of ZEEL for FY 2018-19 and FY 2019-20 - HELD THAT: - NFRA examined the audit files and communications and found that the Audit Firm, the Engagement Partner and the EQCR Partner omitted to obtain and verify critical evidence concerning the premature closure and appropriation of a Rs.200 crore fixed deposit by Yes Bank, ignored multiple red flags (communications indicating possible appropriation, absence of bank reconciliations for relevant months, history of letters of comfort by the promoter, timing discrepancies in communications, and inadequate scope and objectivity of the internal investigation), and failed to follow applicable Standards on Auditing. These cumulative omissions demonstrated absence of professional skepticism, gross negligence and failure to obtain sufficient appropriate audit evidence to support an unmodified opinion or to justify omission of reporting under Section 143(12). NFRA accordingly held the charges in the SCN proved and concluded that the auditors breached their duties under the Act and relevant SAs. [Paras 54, 72, 73]
Charges of professional misconduct as pleaded in the SCN are established against M/s Deloitte Haskins & Sells LLP, CA A.B. Jani and CA Rakesh Sharma for the audits of FY 2018-19 and FY 2019-20.
Imposition of monetary penalties and debarment as disciplinary sanctions - direction to follow SA 560 for subsequent events and revision procedures - firm responsibility under SQC 1 for audit quality - Penalties, debarments and directions to be imposed on the audit firm and the individual auditors - HELD THAT: - Having found professional misconduct and violations of auditing standards and the Act, NFRA applied the disciplinary provisions under Section 132(4). The Authority directed the Audit Firm to follow SA 560 procedures for subsequent events and report back within the prescribed time and imposed monetary penalties and debarments proportional to the misconduct: a monetary penalty on the firm and monetary penalties with debarments on the Engagement Partner and the EQCR Partner for specified periods. The Order records the firm-level responsibility under SQC 1 and the basis for imposing sanctions on both the firm and the individuals. [Paras 6, 74, 75, 76]
Monetary penalties and periods of debarment are imposed on the firm and the named partners, and the Audit Firm is directed to undertake the SA 560 exercise and submit action taken within the specified timelines.
Final Conclusion: NFRA concluded that the Audit Firm and the two named partners committed professional misconduct in relation to the statutory audits of ZEEL for FY 2018-19 and FY 2019-20, proved the charges in the SCN, imposed monetary penalties and debarments on the individuals and firm, and directed the firm to undertake SA 560 procedures and report compliance within the timelines specified in the Order.
Issues: (i) whether NFRA had jurisdiction to proceed against the auditors in respect of alleged misconduct relating to an audit period preceding the constitution of NFRA; and (ii) whether the auditors committed professional misconduct by failing to exercise due diligence and by conducting deficient audit procedures in relation to guarantees and securities, loans and advances, investments, engagement partner supervision, and engagement quality control review.
Issue (i): whether NFRA had jurisdiction to proceed against the auditors in respect of alleged misconduct relating to an audit period preceding the constitution of NFRA.
Analysis: The order held that Section 132(4) of the Companies Act, 2013 confers power on NFRA to investigate professional or other misconduct of chartered accountants and that the provision applies to misconduct committed earlier as well, because the forum changed but the underlying misconduct was already prohibited and punishable under the disciplinary law then in force. Reliance was placed on the exclusivity of NFRA jurisdiction under the statutory scheme and on the merger of the earlier appellate ruling with the Supreme Court's dismissal of appeals. The challenge based on retrospectivity was rejected.
Conclusion: NFRA had jurisdiction to initiate and complete proceedings for the alleged pre-2018 misconduct, and the objection to jurisdiction failed.
Issue (ii): whether the auditors committed professional misconduct by failing to exercise due diligence and by conducting deficient audit procedures in relation to guarantees and securities, loans and advances, investments, engagement partner supervision, and engagement quality control review.
Analysis: The order found that the auditors did not obtain sufficient appropriate audit evidence, did not apply professional skepticism, did not properly evaluate valuation reports or the competence and objectivity of valuation experts, did not carry out adequate testing of recoverability and existence of material balances, did not verify key bank and fund-movement evidence, and did not substantiate the basis for treating major matters as emphasis items while qualifying an immaterial item. It further held that the engagement partner failed to direct and supervise the audit and that the engagement quality control reviewer did not objectively review significant judgments. These failures were held to amount to violations of the applicable Standards on Auditing and professional misconduct under the disciplinary framework.
Conclusion: The charges of professional misconduct were proved against both auditors, with penalty and debarment ordered.
Final Conclusion: The proceedings culminated in findings of professional misconduct, followed by monetary penalty and debarment against the auditors for the specified periods.
Ratio Decidendi: An auditor must exercise due diligence, professional skepticism, and obtain sufficient appropriate audit evidence for material areas of the audit, while the regulatory forum empowered to discipline professional misconduct may proceed even where the audited period predates the forum's creation if the misconduct was already actionable under the governing law.
Professional misconduct - Engagement Partner (EP) and Engagement Quality Control Reviewer (EQCR) failed to meet the requirements of the Standards on Auditing (SA) and provisions of the Companies Act 2013 during the audit of DB Realty Limited for the Financial Year 2015-16 - Section 132(4) of the Companies Act 2013 - Penalties and sanctions.
HELD THAT:- The EP and the EQCR have made a series of serious departures from the Standards and the Law, in conduct of the audit of DBRL for FY 2015-16. Based on the above discussion, it is proved that they had failed to exercise due diligence in performance of this audit. Based on the foregoing discussion and analysis, it is concluded that the EP and the EQCR have committed Professional Misconduct as defined under Section 132 (4) of the Companies Act 2013 in terms of section 22 of the Chartered Accountants Act 1949 (CA Act) as amended from time to time, and as detailed below:
a) The EP and the EQCR committed professional misconduct as defined by clause 7 of Part I of the Second Schedule of the CA Act, which states that a chartered accountant in practice is guilty of professional misconduct when he "does not exercise due diligence or is grossly negligent in the conduct of his professional duties" - This charge is proved as the EP and the EQCR failed to conduct the audit in accordance with the SAs and applicable regulations, failed to evaluate valuation reports and failed to perform engagement quality control review.
b) The EP committed professional misconduct as defined by clause 8 of Part I of the Second Schedule of the CA Act, which states that a chartered accountant in practice is guilty of professional misconduct when he "fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion" -This charge is proved as the EP failed to conduct the audit in accordance with the SAs.
c) The EP committed professional misconduct as defined by clause 9 of Part I of the Second Schedule of the CA Act, which states that a chartered accountant in practice is guilty of professional misconduct when he "fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances" - This charge is proved since the EP failed to conduct the audit in accordance with the SAs.
Penalties and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed is evident from the fact that a minimum punishment is laid down by the law - Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered that imposition of a monetary penalty of Rs five lakhs. upon CA Chetan Desai; and Rs three lakhs upon CA Rakesh Rathi. In addition, they are debarred for a period of five years, and three years respectively from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
Conclusion - The EP and the EQCR failed to conduct the audit in accordance with the SAs and applicable regulations, failed to evaluate valuation reports and failed to perform engagement quality control review. Auditors must exercise due diligence, professional skepticism, and obtain sufficient audit evidence to support their audit opinions.
1. ISSUES PRESENTED and CONSIDERED
The judgment revolves around the following core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Issue A: Whether the information of stock split could be inferred as UPSI in natureRs.
Issue B: Whether the appellants can be held as 'insiders' within the meaning of PIT regulationsRs.
3. SIGNIFICANT HOLDINGS
The Tribunal allowed the appeal, set aside the impugned order, and imposed no costs.
Persons/entities traded in the scrip of IAL while in possession of Unpublished Price Sensitive Information (‘UPSI’) -higher price rise seen - contravention of provisions of Section 12A of the SEBI Act and PIT Regulations, 2015 - information of a stock split considered as Unpublished Price Sensitive Information (UPSI) or not? - - HELD THAT:- Splitting of stock per se is a Price sensitive information, since splitting of stock is an important decision for a company, (requiring approval of general body of shareholders under Section 61 of the companies Act, 2013), which is intended to improve the liquidity of stock and its affordability, which is likely to make an impact on price. In our considered view, splitting of shares results in shares of smaller face value, which makes the shares affordable, and thereby allows new sets of shareholders to come into picture with the resulting impact on demand and liquidity, that is likely to influence the price trends. Instances of three cases of stock split brought out by the respondent show that it resulted in price rise on the day of split, compared to the previous day.
In our view the appellant’s argument that there was insignificant price rise of 1.46% on BSE and of 1.25% on NSE on June 27, 2016 upon disclosure of the information compared to the previous trading day, is not relevant as it is the likelihood of materially affecting the price of the securities, which is the main factor to determine price sensitivity of information and not actual price rise.
Lastly, in appellant’s own admission, the information regarding stock split was UPSI, which in their view, came into existence on June 26, 2017 and was hence disclosed on the same date. If it were not a price sensitive information, there was no need to close the trading window.
On which day UPSI commenced ? - It is evident that in the meeting held on November 22, 2016, the discussion was in the nature of a general briefing on the concept of stock split, without any specific reference to securities of IAL. Hence it cannot be held that the UPSI period started from November 22, 2016. Nevertheless, in subsequent ‘one to one’ meeting between the MD and CFO held March 20, 2017, the discussion specifically included ‘analysis of budget for next fiscal, along with sensitivity analysis to many scenarios including but not limited to impact of demonetization, GST, share split, dividends, etc.’. Since this discussion was specifically with regard to the stock split for company IAL, it may be construed that the UPSI period started from March 20, 2017.
Whether the appellants can be held as ‘insiders’ within the meaning of PIT regulations? - None of the reasonings, directly or indirectly, suggest that appellants were in possession of or had access to the aforesaid UPSI at the time of trading in IAL scrip. With regard to the first reasoning relating to the pre-IPO allocation of preferential shares of IAL in 2014 for Rs. 49.99 crores, the Ld. Senior advocate for the appellants furnished a list of all such allottees, which was filed in compliance of the Companies (Share capital and debenture) Rules, 2014. The list shows that apart from the Appellant No. 2 and her husband, there were more than 80 such allottees, who had subscribed to the preferential allotment. The last column of the prescribed form makes disclosure of such allottees as ‘Unrelated party’ or ‘promoter / promoter group’. Majority of such preferential allottees including appellant No. 2 and her husband were shown as ‘unrelated party’. Therefore, in our view, in contrast with the ‘promoters’, such unrelated parties cannot be held as ‘connected persons’, unless otherwise provided in the regulation.
It is generally seen that prior to listing, subscription to its capital comes through reaching out to potential investors, directly or indirectly, since till the company remains unlisted, the benefit of the faceless digital platform of Stock exchange is not available to it. The assumption that in that process relationship is built among the investors, which may make them insiders is only an assumption and lacks credence.
We have already held that there is no evidence suggesting that the appellants had access to or mere in possession of UPSI. Therefore, it cannot be held that trades made by the appellants during the alleged UPSI period were motivated by knowledge of UPSI.
Thus, there is no evidence or inkling of communication of UPSI by insiders of IAL to the appellants. In view of this, there is no merit in the allegations that appellants traded in IAL based on knowledge of UPSI in their possession. Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The primary legal issue in this judgment concerns the applicability of Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) to the appellant company. Specifically, the question is whether the appellant company is exempt from compliance with corporate governance provisions under Regulation 15(2) of the LODR Regulations.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
The LODR Regulations, particularly Regulation 15(2), stipulate that a listed entity with a paid-up equity share capital not exceeding Rs.10 crores and a net worth not exceeding Rs.25 crores is exempt from certain corporate governance provisions, including Regulation 23. The interpretation of these provisions is crucial to determining the applicability of the regulations to the appellant.
Court's interpretation and reasoning:
The court examined the language of Regulation 15(2), emphasizing the conjunctive requirement that both the paid-up equity share capital and the net worth must meet the specified thresholds for exemption. The court considered the literal meaning of the word "and" in the regulation, which necessitates satisfaction of both conditions for the exemption to apply.
Key evidence and findings:
The appellant's paid-up equity share capital as of March 31, 2021, was Rs.5.71 crores, and its net worth was Rs.31.36 crores. The appellant argued that since the paid-up share capital was below Rs.10 crores, it should qualify for the exemption. However, the net worth exceeded the Rs.25 crores threshold, which was a point of contention.
Application of law to facts:
The court applied the statutory language of Regulation 15(2) to the facts, concluding that the appellant did not meet both criteria for exemption. The court noted that the regulation's proviso indicated that the exemption would continue until either the equity share capital or the net worth fell below the specified thresholds, reinforcing the conjunctive requirement.
Treatment of competing arguments:
The appellant's argument relied on the interpretation that the exemption should apply if either condition was met. The respondent countered that both conditions must be satisfied, citing the need for strict compliance with corporate governance provisions due to their impact on the securities market. The court favored the respondent's interpretation, supported by precedents emphasizing the conjunctive nature of "and" in statutory language.
Conclusions:
The court concluded that since the appellant's net worth exceeded Rs.25 crores, it did not qualify for the exemption under Regulation 15(2), despite its paid-up equity share capital being below Rs.10 crores.
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
"The word 'and' is normally conjunctive and word 'or' is normally disjunctive. The word 'and' is required to be given its literal meaning."
Core principles established:
The judgment reinforces the principle that statutory language must be interpreted according to its plain and ordinary meaning, particularly when the language is clear and unambiguous. The conjunctive use of "and" in legal provisions requires all conditions to be satisfied for applicability or exemption.
Final determinations on each issue:
1. The corporate governance provisions under Regulation 23 of the LODR Regulations are not applicable to the appellant, as the paid-up equity share capital is less than Rs.10 crores.
2. The penalty imposed on the appellant is unsustainable, and the court directed a refund of the penalty amount with interest at 8% per annum within eight weeks.
Applicability of corporate governance provisions - applicability of Regulation 23 of SEBI (LODR) Regulations Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 to appellant Company - Appellant’s solitary contention is that the paid-up share capital is less than Rs.10 crores, thus entitled for exemption from compliance with the corporate governance provisions - HELD THAT:- It is settled that words of a statute are understood in their natural and ordinary sense; and sentences are construed according to their grammatical meaning. It is also settled that if the enacting portion of a Section is not clear, a proviso appended to it may give an indication as to its true meaning.
Contention of the appellant is that in order to get the exemption from compliance with corporate governance provisions, the entity has to satisfy both conditions, namely, that the equity share capital should not exceed Rs.10 crores and net worth not exceed Rs.25 crores. We see force in this argument because a plain reading of the proviso makes it clear that the exemption shall continue to remain applicable till the equity share capital or the net worth of the entity reduces below the specified threshold.
Therefore, we are of the considered view that since the paid-up equity share capital is less than Rs.10 crores, the corporate governance provisions do not apply to the appellant entity.
Appeal allowed holding that the corporate governance provisions are not applicable to the appellant as the paid-up equity capital is less than Rs.10 Crores - As the penalty is unsustainable with a further direction to refund the same with interest at 8% p.a. within a period of 8 weeks from the date of this order.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment presents the following core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Necessity of Interference with SEBI's Interim Order
Issue 2: Execution of RPTs without Shareholder Approval
Issue 3: Violation of Principles of Natural Justice
Issue 4: SEBI's Authority to Issue Interim Orders
3. SIGNIFICANT HOLDINGS
Validity of SEBI's interim directions - lack of an opportunity for the appellant to be heard provided as alleged - appellant has executed Related Party Transactions without obtaining prior approval from the shareholders in terms of Regulation 23(4) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 - As argued there have been series of correspondence between the appellant and the SEBI but the impugned order interim ex-parte order has been passed without any tenable reasons - HELD THAT:- We are of the opinion that prima facie, is indubitable that appellant and SEBI were in exchange of correspondence since 2020, although it was vehemently contended by Shri. Kapadia that the relevant date to be reckoned is September 2023. In any event, it cannot be gainsaid that appellants have been called upon to file their reply within 21 days from the date of the impugned order. As recorded hereinabove, Shri Kapadia has submitted that SEBI shall pass orders within 30 days from the date of conclusion of hearing. The Learned Senior Advocate for the appellant is also in agreement with the proposed course of action.
Thus, it would not be just and appropriate to continue the impugned interim ex-parte order any further keeping in view that:-
The appellant has been directed to file reply within 21 days; and
SEBI has made a statement before us to pass orders within 30 days from the date of conclusion of hearing and in the event of any adverse order, SEBI is enjoined with all powers to pass appropriate directions including an order of disgorgement.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of Proceedings Based on Omitted Provision
Issue 2: Applicability of Section 6 of the General Clauses Act
3. SIGNIFICANT HOLDINGS
Initiating proceedings against the petitioner on the basis of provision which stood omitted by the Finance Act, 2015 - proceedings were initiated as against the petitioner alleging violation of Section 6 (3) (b) of "FEMA" Act in the year 2021 - As submitted the said provision stood omitted by the Finance Act, 2015, which was notified on 15.10.2019 - HELD THAT:- The provisions of the Finance Act, 2015 are quite specific. It provides for amendments to the FEMA Act and by Section 139 of Finance Act, 2015, Section 6 (3) of the FEMA Act stood omitted. The said omission was effective from the date of notification i.e., 15.10.2019.
Thus, we notice that the complaint as well as the show cause notice issued to the petitioner were specifically referable to Section 6 (3) (b) of the FEMA Act. It is clear that the complaint itself was made on 25.10.2019 and the show cause notice was issued on 25.02.2020. It is also clear that Section 6 (3) (b) stood omitted by the Finance Act, 2015 as notified on 15.10.2019.
In view of the clear language of the omission, the contentions raised by the learned panel counsel that Section 6 of the General Clauses Act would come to the aid of the respondents cannot be accepted.
As in Kolhapur Canesugar Works Ltd. [2000 (2) TMI 823 - SUPREME COURT] has clearly held that Section 6 only applies to repeals and not to omissions and since the present case is specifically one of omission, we are of the opinion that Section 6 would not have any application in the instant case. In view of the fact that what has been specifically referred in the complaint and the show cause notice is Section 6 (3) (b), which stood omitted even as on the date, when the complaint was filed, the entire action as against the petitioner on the basis of infraction of Section 6 (3) (b) was without jurisdiction. WP allowed.
Issues: Whether a summons issued in proceedings under the Prevention of Money Laundering Act can be quashed merely because the respondent has been discharged in the predicate offence.
Analysis: The respondent had been issued only a summons. The discharge in the predicate offence did not, by itself, justify quashing the summons at that stage. The question whether the respondent should be arrayed as an accused was left to be decided later, and all relevant contentions on that aspect were kept open for consideration if such a stage arose.
Conclusion: The quashing of the summons was held to be unsustainable, and the appellant was permitted to proceed in pursuance of the summons.
Money Laundering - whether the High Court is justified in quashing the summons on the premise that the respondent has been discharged in the predicate offence? - HELD THAT:- What has been issued to the respondent is merely a summons. Simply because he has been discharged in the predicate offence, a Court cannot quash the summons. The questions as to whether the respondent would be arrayed as an accused or not, is a matter which has to be decided at a later stage. In that eventuality, it is well open to the respondent to raise all relevant contentions for the aforesaid purpose including the submissions that since the predicate offence has been quashed, the subsequent action of the appellant arraying him as an accused in the PMLA proceedings would not be sustained in the eyes of law.
The impugned order stands set aside and the appellant is at liberty to proceed in pursuance to the summons that had been issued. However, we make it clear that all issues are left open to the respondent, in the event of him being arrayed as an accused. - Appeal allowed.
Issues: Whether the earlier order required partial modification to clarify the amount deposited and the manner in which the deposited amount would be repatriated.
Analysis: The order records the deposited amount, directs an additional deposit, clarifies that the amount deposited is to be repatriated to the complainants and other depositors after compliance with the requisite formalities, and permits the respondent to seek further directions in case of grievance.
Outcome: The earlier order was partly modified and the miscellaneous application was disposed of in those terms.
Money Laundering - Seeking grant of Anticipatory Bail - commission of a serious economic offence of money laundering - offence punishable under Section 3 read with Section 4 of the Prevention of Money Laundering Act, 2002 - it was held by High Court that 'The anticipatory bail application filed by the petitioner is dismissed.'
HELD THAT:- In view of the averments made in the present application, the order dated 21.11.2024 is partly modified and it is clarified that the appellant, Rajkumar Daitapati, has deposited ₹80,00,000/- in the account of the respondent, Directorate of Enforcement, in the Union Bank of India (erstwhile, Corporation Bank). ₹20,00,000/- will also be deposited in the same account.
Application disposed off.
Money Laundering - Seeking grant of bail - Money Laundering - proceeds of crime - diversion of funds - disproportionate assets more than 14 crores - it was held by High Court that 'It is deemed appropriate to allow this application and the applicant herein enlarged on bail subject to the conditions imposed' - HELD THAT:- It is not inclined to interfere with the ultimate conclusion arrived at by the High Court, taking into consideration the length of time, coupled with the fact that a complaint has already been filed.
SLP dismissed.
Issues: Whether the applicant was entitled to regular bail in a prosecution alleging a large-scale liquor scam, corruption and forgery, despite prolonged custody, completion of substantial investigation, and reliance on parity and constitutional safeguards.
Analysis: The application was assessed on the settled bail factors, including the nature and gravity of the accusations, the severity of the punishment, the likelihood of absconding, tampering with evidence, influencing witnesses, and the overall strength of the prima facie material. The Court noted that the case involved serious economic offences, a large syndicate allegation, multiple charge-sheets, voluminous records and a large number of witnesses. It further held that while liberty, presumption of innocence and the rule that bail is the norm remain relevant, those considerations do not automatically outweigh the seriousness of the allegations in a case of this nature. The Court also considered the claim of parity and the contention that investigation was substantially complete, but found that the gravity of the offence and the material relied upon by the prosecution weighed against release on bail.
Conclusion: The applicant was not entitled to regular bail.
Ratio Decidendi: In serious economic offence cases, even after substantial progress in investigation, bail may be refused where the prima facie material, gravity of accusation, and risk of interference with the trial outweigh the general rule favouring liberty.
Seeking grant of bail - Money Laundering - collecting illegal bribes and controlling the high level management of important State Departments and State Public Sector undertakings - HELD THAT:- In the case in hand, the factors enumerating in the case which should be taken in consideration while granting or refusing bail in a non-bailable case are that there are three charge sheets filed against the applicant in relation to the same allegations, 457 witnesses have been cited and more than 13,000 pages have been filed before the Special Court (PC) Raipur.
It is trite that the court while considering an application seeking bail, is not required to weigh the evidence collected by the investigating agency meticulously, nonetheless, the court should keep in mind the nature of accusation, the nature of evidence collected in support thereof, the severity of the punishment prescribed for the alleged offences, the character of the accused, circumstances which are peculiar to the accused, reasonable possibility of securing the presence of the accused at the trial, reasonable apprehension of the witness being tampered with, the larger interests of the public/State etc. Though, the findings recorded by the Court while granting or refusing bail would be tentative in nature, nonetheless the Court is expected to express prima facie opinion for granting or refusing to grant bail which would demonstrate an application of mind, particularly dealing with the economic offences - In the present case, the applicant was involved in the criminal acts of the syndicate and that he received commission from the liquor suppliers. However, no recovery of unaccounted money has been made in this regard and as per the investigating agency, the investigation is pending, hence, a conclusive determination of their role is yet to be made.
As has been held in catena of decisions, the economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offences having deep-rooted conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country. Undoubtedly, economic offences have serious repercussions on the development of the country as a whole.
There is no denial to the fact that the economic offences constitute a separate class of their own, but trite it is that presumption of innocence is one of the bedrocks on which the criminal jurisprudence rests. Time and again, Apex Court has reiterated the need to integrate the right of investigating agencies to have effective interrogation of the accused with the right of liberty of the accused.
In the instant case, the offence as alleged against the accused persons is very serious involving deep-rooted planning in which, huge financial loss is caused to the State exchequer. The gravity for the said purpose will have to be gathered from the facts and circumstances arising in each case. Keeping in view the consequences that would befall on the society in cases of financial irregularities, it has been held that even economic offences would fall under the category of "grave offence" and in such circumstance while considering the application for bail in such matters, the Court will have to deal with the same, being sensitive to the nature of allegation made against the accused - In that regard what is also to be kept in perspective is that even if the allegation is one of grave economic offence, it is not a rule that bail should be denied in every case but the consideration will have to be on case-to-case basis on the facts involved therein.
Conclusion - The applicant's bail application was denied due to the gravity of the charges and the potential risks associated with his release. The court found sufficient grounds to believe that the applicant was involved in a criminal syndicate, justifying further judicial proceedings.
The prayer for grant of bail to the applicant is liable to be rejected and it is hereby rejected.
Issues: Whether the petitioners were entitled to bail in proceedings under the Prevention of Money Laundering Act, 2002, in the light of the twin conditions under Section 45 of that Act and the prolonged period of incarceration.
Analysis: The bail jurisdiction under the Prevention of Money Laundering Act, 2002 is controlled by Section 45, which requires the Court, after hearing the Public Prosecutor, to be satisfied that there are reasonable grounds for believing that the accused is not guilty and is not likely to commit any offence while on bail. The Court noted that the provisions of the Code of Criminal Procedure, 1973 apply only to the extent they are not inconsistent with the Act, and that the Act has overriding force. The materials placed showed that the petitioners had remained in custody for about 14 months, the complaint in the money-laundering case had already been filed, and the predicate offence investigation had not yet culminated in a charge sheet, making early commencement of trial unlikely. The Court also considered the petitioners' explanations regarding their alleged involvement and found, on the material available at the bail stage, that the statutory conditions stood diluted. The possibility of absconding or tampering with evidence was held capable of being addressed through stringent conditions.
Conclusion: The petitioners satisfied the requirements for bail under Section 45 of the Prevention of Money Laundering Act, 2002 and were entitled to be enlarged on bail.
Ratio Decidendi: In a bail application under the Prevention of Money Laundering Act, 2002, the statutory twin conditions must be assessed on broad probabilities, and where continued pre-trial incarceration becomes indefinite and trial is not likely to commence within a reasonable time, constitutional liberty under Article 21 may justify grant of bail with safeguards.
Seeking grant of bail - Money Laundering - proceeds of the crime - unexplained source of income - prolonged incarceration of the petitioners without the commencement of trial - applicability of twin conditions under Section 45 of the PMLA, 2002 - HELD THAT:- In the case on hand, the petitioners have been in judicial custody for the last 14 months; the investigation of the crime, so far as the petitioners are concerned, is complete, and the complaint has been filed. But the investigation into the predicate offence is not complete and the charge sheet has not been filed. Therefore, there is not even the remotest possibility of the trial in the crime commencing in the near future. So, keeping the petitioners in indefinite incarceration till the culmination of the trial will infringe on their right to life guaranteed under Article 21 of the Constitution of India. The petitioners have strong roots in the State. The apprehension of the prosecution that the petitioners may flee from justice, can be adequately safeguarded by imposing stringent conditions. The petitioners have volunteered to abide by any condition that may be imposed by this Court and they will cooperate with the investigation.
On considering the prosecution allegations and the explanations put forward by the petitioners, which have been narrated above, this Court is satisfied that there are reasonable grounds to hold that the petitioners have not committed the above offences. As the petitioners have no criminal antecedents, going by the law laid down by the Honourable Supreme Court in Dheeraj Kumar Shukla v. State of Uttar Pradesh [2023 (1) TMI 1374 - SC ORDER], this Court has no hesitation to hold that the petitioners are not likely to commit an offence if they are enlarged on bail. This Court is convinced that the petitioners have satisfactorily diluted the twin conditions under Section 45 of the Act. Hence, the petitioners are entitled to be enlarged on bail.
Conclusion - The prolonged incarceration before being pronounced guilty of an offence should not be permitted to become punishment without trial.
The applications are allowed, by directing the petitioners to be released on bail on them executing a bond for Rs. 2,00,000/- each, with two solvent sureties for the like sum, to the satisfaction of the jurisdictional court, which shall be subject to fulfilment of conditions imposed.
1. ISSUES PRESENTED and CONSIDERED
The judgment primarily revolves around the following legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Summons under Section 50 of PMLA
Issue 2: Constitutional Validity of Section 50 of PMLA
Issue 3: Dependency of Money Laundering Offence on Scheduled Offence
3. SIGNIFICANT HOLDINGS
Offence of money laundering - proceeds of crime - dependency of PMLA prosecution on the existence/outcome of scheduled offence - summons under Section 50 PMLA - quashing of summons upon discharge in scheduled offence
Summons under Section 50 PMLA - quashing of summons upon discharge in scheduled offence - Validity of the summons dated 18.12.2021 issued under Section 50 PMLA to the petitioner - HELD THAT: - The petitioner had been discharged by the learned Special Judge in the related FIR/charge sheet proceedings. The petitioner relied on the Supreme Court decision in Vijay Madanlal Choudhary emphasising that prosecution under the PMLA cannot proceed on a notional basis where the scheduled offence is not established and that if a person is finally discharged/acquitted of the scheduled offence there can be no offence of money laundering against him. The respondents, through their counsel, expressed no objection to granting the relief sought in Clause (B) of the writ petition. Applying the principle that a PMLA proceeding cannot be allowed to continue against a person who has been discharged in the predicate proceedings, the High Court set aside and quashed the summons issued to the petitioner in respect of the Enforcement Case File No. F.No. GWZO/09/2020.
Summons dated 18.12.2021 issued to the petitioner in respect of File No. F.No. GWZO/09/2020 is set aside and quashed.
Final Conclusion: The writ petition succeeds to the extent that the summons issued under Section 50 PMLA to the petitioner is quashed in view of the petitioner's discharge in the related scheduled offence proceedings and the respondents' lack of objection; the matter is closed.
Condonaton of gross delay of 160 days in filing these appeals and 35 days in refiling which has not been satisfactorily explained by the appellant - Exemption from service tax - it was held by CESTAT that the services are eligible for exemption - HELD THAT:- There are no reason to interfere with the impugned order dated 23-02-2024 passed by the Custom Excise Service Tax Appellate Tribunal, West Zonal Bench at Ahmedabad.
The Civil Appeals are, accordingly, dismissed on the ground of delay as well as merits.
Issues: (i) Whether the appellant was entitled to cash refund of the untransitioned Cenvat credit under the transitional provisions of the GST regime; (ii) Whether interest was payable on the refunded amount.
Issue (i): Whether the appellant was entitled to cash refund of the untransitioned Cenvat credit under the transitional provisions of the GST regime.
Analysis: The refund claim related to Cenvat credit that had accrued before the appointed day and could not be carried forward to GST only because the revised ST-3 return was filed after Form GST TRAN-1 had already been submitted. The governing transitional provision provides that claims for refund of Cenvat credit under the existing law are to be disposed of under that law and the amount eventually accruing is to be paid in cash, subject to the statutory carve-out. The inability to transition the amount through TRAN-1, when the credit was otherwise admissible and had accrued under the erstwhile regime, was held to be only a procedural consequence and not a valid ground to deny refund. The Tribunal followed earlier decisions treating transitional credit as a protected accrued right and held that the claim was covered by the transitional refund mechanism.
Conclusion: The appellant was held entitled to cash refund of the untransitioned Cenvat credit, in favour of the assessee.
Issue (ii): Whether interest was payable on the refunded amount.
Analysis: Once the refund claim was held to be maintainable and payable in cash, the statutory provision for interest on delayed refund applied from the expiry of the prescribed period after receipt of the refund application. No separate disqualification for interest was accepted.
Conclusion: Interest on the refund amount was held payable in accordance with law, in favour of the assessee.
Final Conclusion: The rejection of the refund claim was unsustainable, and the assessee was held entitled to refund with consequential relief, including interest as applicable.
Ratio Decidendi: Where Cenvat credit had accrued under the erstwhile regime but could not be carried forward into GST for procedural reasons, the transitional refund provision mandates cash payment of the admissible amount and such substantive entitlement cannot be defeated merely because TRAN-1 was filed before the revised return.
Refund of unutilized Cenvat credit under Section 142(9)(b) of the CGST Act, 2017 - rejection on the ground that there is no enabling provision under the Excise Act, where refund of closing balance of Cenvat credit can be allowed in cash - HELD THAT:- There is no dispute that the refund claim sought by the appellant is in respect of the amount of Cenvat credit which was already accrued as on 30th June, 2017. The only mistake on the part of the appellant is that due to inadvertent mistake that they could not carry forward part of the amount of Cenvat credit and therefore, for the same they claimed the refund. It is found that even if the appellant could not declare the Cenvat credit in the ST-3 return for the period April 2017 To June 2002 but, subsequently they have revised the ST-3 return wherein the differential amount of Cenvat credit was incorporated and due to this reason the Cenvat credit of Rs. 1,11,37,766/- could not be carried forward as form GST TRAN-1 was already filed prior to revision of the ST-3 return. Only for this reason refund claim of admitted Cenvat credit accrued prior to 30.06.2017 cannot be rejected. The appellant is eligible for refund in terms of section 142 (3) of CGST ACT, 2017.
From the plain reading of the above provision of Section 142 it can be seen that those amount of Cenvat credit which could not be transferred under GST after 01.07.2017, the same is refundable under the existing Act. In the present case due to non mention of part amount of Cenvat Credit in ST-3 return for April–June 2017 same could not be transferred to TRTRAN-1 - the refund cannot be rejected because the amount of Cenvat credit could not be transferred to TRAN-1 under GST.
Reliance can be placed in M/S. GIGAMON SOLUTIONS PVT. LTD. VERSUS COMMISSIONER OF GST & CENTRAL EXCISE, CHENNAI [2024 (6) TMI 1111 - CESTAT CHENNAI] where it was held that 'the appellant has paid the tax under the erstwhile law. In the present case, the claim is only for refund and not proceedings for assessment or adjudication. In such a scenario, sub-section (3) of section 142 gets attracted. Rejection of the refund claim is not legally valid and merits to be set aside.'
Conclusion - The appellant is eligible for refund in terms of section 142 (3) of CGST ACT, 2017. Procedural lapses should not defeat substantive rights; specific provisions in the CGST Act override general provisions in the Excise Act. Interest is payable on delayed refunds under Section 11BB of the Excise Act.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question in this judgment is whether the denial of Cenvat credit availed on the strength of invoices dated prior to the amendment of Rule 4 via Notification No. 21/2014-CE (NT) dated 11.07.2014 is correct. Specifically, the issue revolves around the applicability of the amended rule to invoices issued before the amendment date.
2. ISSUE-WISE DETAILED ANALYSIS
- Relevant legal framework and precedents: The legal framework involves Rule 4 of the Cenvat Credit Rules, 2004, which was amended by Notification No. 21/2014-CE (NT) dated 11.07.2014. The amendment introduced a time limit of six months for availing Cenvat credit from the date of issue of the invoice. Several precedents were cited, including judgments from various tribunals and high courts, which consistently held that such amendments cannot be applied retrospectively.
- Court's interpretation and reasoning: The court interpreted that the amendment to Rule 4 is prospective and does not apply to invoices issued before the amendment date. The reasoning is based on the principle that a statutory provision cannot be applied retrospectively unless explicitly stated. The court relied heavily on prior judgments which affirmed this interpretation, emphasizing that the right to Cenvat credit accrues at the time of payment of tax on inputs and is not affected by subsequent amendments.
- Key evidence and findings: The court found that all invoices related to the Cenvat credit in question were issued before 11.07.2014. Therefore, the amended rule prescribing a six-month time limit was not applicable to these invoices. The court noted that the appellant had availed the credit belatedly, but this delay did not contravene the rules applicable at the time the invoices were issued.
- Application of law to facts: The court applied the law by determining that the appellant's actions were in compliance with the rules as they stood prior to the amendment. Since the invoices were issued before the amendment date, the six-month time limit did not apply, and the credit could not be denied on this basis.
- Treatment of competing arguments: The court considered the arguments of the Revenue, which reiterated the findings of the impugned order, asserting that the credit was availed beyond the prescribed time limit. However, the court dismissed these arguments by referencing multiple judgments that supported the non-retrospective application of the amended rule.
- Conclusions: The court concluded that the denial of Cenvat credit based on the amended rule was incorrect. The appellant was entitled to the credit as the invoices were issued before the amendment, and the retrospective application of the rule was not justified.
3. SIGNIFICANT HOLDINGS
- Preserve verbatim quotes of crucial legal reasoning: The court quoted from several judgments, emphasizing that "the amendment effective from 11.07.2014 cannot have retrospective effect." It further stated, "The right to the Cenvat credit accrued on the very day when the inputs were received."
- Core principles established: The judgment reinforced the principle that amendments to statutory provisions are generally prospective unless explicitly stated otherwise. It also affirmed that the right to Cenvat credit is established at the time of tax payment on inputs and remains unaffected by subsequent procedural amendments.
- Final determinations on each issue: The court determined that the appellant was entitled to the Cenvat credit for invoices issued before the amendment date, and the denial based on the amended rule was incorrect. The appeal was allowed, and the impugned order was set aside, granting consequential relief to the appellant.
Denial of Cenvat credit availed on the strength of invoices which are dated prior to amendment of Rule 4 vide Notification No. 21/2014-CE (NT) dated 11.07.2014 - As per amended rule, whether time limit of six months from the date of issue of the invoice for taking the credit, can be applied retrospectively to invoices issued before the amendment date - HELD THAT:- As per the facts of the present case though the appellant have availed the Cenvat credit belatedly in the month of August/September-2014, however, all the invoices related to such credit were issued before 11.07.2014. Therefore, in respect of those invoices, the amended Rule 4 vide Notification No. 21/2014-CE (NT) dated 11.07.2014 is not applicable and the credit could not have been denied on the ground of time bar.
In the case of Voss Exotech Automotive Pvt. Ltd. [2018 (3) TMI 1048 - CESTAT MUMBAI] the Mumbai Tribunal has held that 'the Notification No. 21/2014-S.T. (N.T.), dated 11-7-2014 should be applicable to those cases wherein the invoices were issued on or after 11-7-2014 for the reason that notification was not applicable to the invoices issued prior to the date of notification therefore at the time of issuance of the invoices no time limit was prescribed. Therefore in respect of those invoices the limitation of six months cannot be made applicable. Moreover for taking credit there is no statutory records prescribed the assessee’s records were considered as account for Cenvat credit. Even though the credit was not entered in so-called RG-23A, Part-II, but it is recorded in the books of accounts, it will be considered as Cenvat credit was recorded. On this ground also it can be said that there is no delay in taking the credit. As per my above discussion, the appellant is entitled for the Cenvat credit hence the impugned order is set aside.'
Conclusion - The time limit prescribed under Notification No. 21/2014-CE (NT) dated 11.07.2014 has no application in respect of the invoices issued prior to date of the said amendment in Rule 4 of Cenvat Credit Rules, 2004.
The impugned order is not sustainable - Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Reversal of Cenvat Credit under Rule 6(3)(i)
Issue 2: Treatment of Sulphuric Acid as Exempted Goods
Issue 3: Common Input Services
3. SIGNIFICANT HOLDINGS
Reversal of Cenvat credit on inputs and input services used in the manufacture of exempted goods, specifically Di-Ammonium Phosphate (DAP), under Rule 6(3)(i) of the Cenvat Credit Rules, 2004 - by-product in the manufacturing process of copper products - exempt goods or not - HELD THAT:- Di-Ammonium Phosphate (DAP) is being manufactured by the appellant by using phosphoric acid and in-house manufacturing of the sulphuric has been obtained by processing sulphuric acid. It is an accepted fact that sulphuric acid is unintended product which emerges during the process of copper concentrate while manufacturing various types of copper products.
This Tribunal in the appellant’s own case, vide final order No. 12425-12427/2023 dated 02.11.2023 reported under [2023 (11) TMI 1070 - CESTAT AHMEDABAD] has held 'it is clear that any input/input services contained in any by- product/waste/refuse, Cenvat Credit cannot be varied or denied. With this statutory clarification demand under Rule 6 in respect of by-product is not applicable. This issue has been considered in various judgments as cited by Learned Counsel. Once it is established that the product in question is by-product then it is settled that in respect of by-product demand under Rule 6 will not sustain. Accordingly, in the present case also, Sulphuric Acid being a by-product, no demand under Rule 6 shall sustain.'
Thus, sulphuric acid which is an unintended by-product, has further been used by the appellant for manufacture of phosphoric acid and the same has further found use in the manufacturing of Di-Ammonium Phosphate (DAP) which is chargeable to 1% rate of Central Excise duty as provided in Notification No. 12/2012-CE dated 17.03.2012 - Since the Di- Ammonium Phosphate (DAP) has been manufactured by utilizing a product which has emerged as unintended by-product, following the various legal pronouncements including the Hon’ble Supreme Court decision in the case of BIRLA CORPORATION LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE [2005 (7) TMI 104 - SUPREME COURT] and in the case of Commissioner vs. Sterling Gelatin [2015 (10) TMI 557 - SC ORDER], it is held that even after the amendment to Rule 6 by Notification No. 6/2015-CE dated 01.03.2015, so far as demand of Cenvat credit pertaining to use of sulphuric acid/phosphoric acid for manufacturing Di-Ammonium Phosphate (DAP) is not sustainable.
Since the impugned order-in- original has not specifically mentioned the use of any input service on which Cenvat credit has been taken by the appellant while manufacturing and clearing Di-Ammonium Phosphate by the appellant and if so, he has to re- calculate the demand of Cenvat credit giving benefit of the fact that appellant is entitled not to reverse Cenvat credit on the inputs which have been availed on the copper concentrate while manufacturing various copper products.
Conclusion - Sulphuric Acid being a by-product, no demand under Rule 6 shall sustain.
The Adjudicating Authority has to segregate the demand of Cenvat credit into two segments, one which has been demanded on the primary inputs namely copper concentrate etc. and second, the demand on the use of common input and input services which have gone into manufacture of exempted DAP - matter remanded for fresh adjudication on the above terms - The appeals are allowed by way of remand.
Issues: (i) Whether a writ petition against the impugned show-cause notices was maintainable on the ground of lack of jurisdiction after the parties had entered into a one time settlement under the VAT settlement scheme; (ii) whether, in the peculiar facts of the case, the respondents could invoke revisional power and issue the impugned show-cause notices after the settlement had been recorded.
Issue (i): Whether a writ petition against the impugned show-cause notices was maintainable on the ground of lack of jurisdiction after the parties had entered into a one time settlement under the VAT settlement scheme.
Analysis: The challenge was not a mere objection to disputed facts at the stage of notice. The core grievance was absence of authority to proceed after the settlement had been entered into and recorded. Where the objection goes to jurisdiction, interference under Article 226 is not barred merely because the impugned action is in the form of a show-cause notice.
Conclusion: The petition was maintainable insofar as it assailed the notices on the ground of lack of jurisdiction.
Issue (ii): Whether, in the peculiar facts of the case, the respondents could invoke revisional power and issue the impugned show-cause notices after the settlement had been recorded.
Analysis: The settlement mechanism was intended to conclusively resolve the disputed tax liability. The respondents themselves had initiated the settlement process, scrutinised the application through the prescribed committee, issued the settlement communication, and recorded acceptance after being aware of the audit communication indicating further objection. In these circumstances, the subsequent notices were inconsistent with the object and finality of the settlement, and the absence of any allegation of fraud further weakened the attempt to reopen the matter. Section 32 was held to be available in ordinary circumstances, but not in a manner that would defeat an already recorded settlement.
Conclusion: The respondents had no authority to issue the impugned show-cause notices after the one time settlement had been entered into and recorded.
Final Conclusion: The settlement operated as a conclusive closure of the disputed liability, and the later attempt to revive the same demand could not stand.
Ratio Decidendi: Once a tax dispute is conclusively settled under an accepted settlement scheme, the revenue cannot reopen the very same liability by issuing a subsequent notice unless the settlement itself is shown to be vitiated by fraud or a statutorily preserved exception.
Authority and jurisdiction of respondent to issue show cause notices after entering into a One Time Settlement (OTS) with the petitioner - no allegation of any fraud being committed by the petitioner - HELD THAT:- The fact remains that very purpose of bringing such OTS scheme is to encourage the tax payers to settle their disputes. Interestingly, in the OTS scheme issued by the Government of Telangana, the entire exercise of determination of tax/penalty amount was in the hands of the respondents and for that purpose, a committee consisting of senior officers was constituted. After having undertaken the entire exercise of determination of amount, a proposal was given by the respondents to the petitioner, which was duly accepted. The most important thing is that between the date of acceptance dated 22.06.2022 and actual recording of OTS on 17.08.2022, the Audit Officer by communication dated 11.07.2022 informed the respondents about the alleged short levy of tax/penalty. Despite having full knowledge about it, the respondent entered into OTS. There is no allegation against the petitioner in the show cause notice that petitioner had committed any fraud.
After having entered into OTS, it was not open for the respondents to issue the impugned show cause notice. Curtains were finally drawn by the respondents by entering into OTS. If we permit the respondents to undertake aforesaid exercise of issuance of show cause notices even after entering into settlement, the very purpose of such scheme will vanish in thin air. This practice will certainly discourage the tax payers to enter into settlement. The settlement should draw the curtains for all times to come otherwise the very meaning of OTS will pale into insignificance.
Conclusion - The finality of settlements under OTS schemes should be respected, and reopening is not permissible without statutory authority or allegations of fraud.
The impugned show cause notices cannot sustain judicial scrutiny - Petition allowed.
Issues: (i) whether the complainant organisation had locus to maintain the consumer complaint in a representative capacity; (ii) whether the National Commission could interfere with banking policy and fix a ceiling on interest rates, despite the statutory domain of the Reserve Bank of India; (iii) whether the impugned decision impermissibly interfered with the contractual terms governing credit card transactions; and (iv) whether the charging of interest in terms of RBI circulars, without a prescribed ceiling rate, amounted to an unfair trade practice.
Issue (i): whether the complainant organisation had locus to maintain the consumer complaint in a representative capacity.
Analysis: To maintain a complaint under the Consumer Protection Act, 1986, the complainant must satisfy the statutory definition of consumer or fall within the categories recognised by section 12. A complaint filed on behalf of consumers in a representative capacity must comply with the procedural mandate akin to Order I Rule 8 through section 13(6). The record showed no prior permission by the Commission for such representative litigation. In addition, a trust was not treated as a consumer for the purpose of the proceedings as a matter of the then prevailing law. The complaint also failed to disclose a concrete consumer cause of action and bore the character of a public interest dispute.
Conclusion: The complainant organisation had no maintainable locus in the manner in which the complaint was pursued.
Issue (ii): whether the National Commission could interfere with banking policy and fix a ceiling on interest rates, despite the statutory domain of the Reserve Bank of India.
Analysis: The statutory scheme of the Banking Regulation Act, 1949 vests the regulation of banking policy and interest-related directions in the Reserve Bank of India. Section 21A bars courts and tribunals from reopening banking transactions on the ground that the rate of interest is excessive, while section 35A empowers the Reserve Bank to issue binding directions in public interest and for proper banking management. The Commission could not assume the role of a financial regulator or impose a judicially created cap on interest in the absence of a RBI mandate. Judicial review is confined to testing legality and reasonableness, not substituting judicial views for expert economic policy.
Conclusion: The National Commission had no jurisdiction to fix a ceiling on credit card interest or to interfere with RBI's regulatory domain.
Issue (iii): whether the impugned decision impermissibly interfered with the contractual terms governing credit card transactions.
Analysis: The credit card terms, including interest and charges, had been disclosed to cardholders through the relevant contractual documents and terms and conditions. A court or tribunal cannot rewrite a contract merely because it considers other terms to be preferable or fairer. In the absence of arbitrariness, mala fides, discrimination, or statutory violation, the contractual stipulations accepted by the parties had to be enforced as written. The Commission's attempt to recast the rate structure amounted to substituting a new contract for the one entered into by the parties.
Conclusion: The impugned decision wrongly interfered with the contractual bargain between the banks and cardholders.
Issue (iv): whether the charging of interest in terms of RBI circulars, without a prescribed ceiling rate, amounted to an unfair trade practice.
Analysis: An unfair trade practice requires a trade practice adopted by deception, misrepresentation, or an unfair or deceptive method in the promotion or provision of services. The record did not show any material particulars establishing deception or any false representation by the banks. The RBI's circulars permitted banks to determine credit card interest within the regulatory framework, and there was no demonstrated violation of those directions. Mere charging of interest, even at a high rate, could not by itself establish an unfair trade practice in the absence of the necessary statutory ingredients.
Conclusion: Charging interest in accordance with RBI's regulatory framework did not constitute an unfair trade practice on the facts of the case.
Final Conclusion: The consumer complaint and the directions issued by the National Commission could not be sustained in law, and the banks' challenge succeeded on all material questions decided.
Ratio Decidendi: Where a statute vests exclusive regulatory control over banking policy and interest directions in the Reserve Bank of India, a consumer forum cannot reopen the transaction, impose a ceiling on interest, or rewrite contractual terms in the absence of proven deception, statutory breach, or other legally recognised unfair trade practice.
Locus of Respondent organization to approach the National Commission - jurisdiction of National Consumer Disputes Redressal Commission to interfere with banking operations, which is the exclusive statutory domain of the Reserve Bank of India - jurisdiction to fix a maximum ceiling rate of interest to be charged by banks from their credit card holders for their failure to make full payment on the due date - interference with the contract executed between the parties or not - charging rate of interests by banks in the manner as advised by Reserve Bank of India vide its master circulars & notifications being independent of a standard ceiling rate prescribed by the Reserve Bank of India, is unfair trade practice or not.
Whether the Respondent organization has the locus to approach the National Commission? - HELD THAT:- Section 12(1)(b) also permits a “any recognised consumer association whether the consumer to whom the goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided is a member of such association or not” to file a complaint, in terms of the procedure prescribed under section 13 of the Act. The Respondent nos. 1 and 2 herein, have taken refuge under this provision claiming themselves to be a voluntary consumer association, to approach the National Commission.
Since, this Court has held that the requirement of Order I Rule 8, prescribed in Section 13(6) is to be read into section 12(1) of the 1986 Act RAMESHWAR PRASAD SHRIVASTAVA ORS. AND AVINASH GAUR AND ORS. VERSUS DWARKADHIS PROJECTS PVT. LTD. AND ORS. [2018 (12) TMI 2007 - SUPREME COURT], the requirement of obtaining prior permission from the Commission, for any consumer to act in a representative capacity, can in no way be dispensed with.
The consumer Complainant fails to disclose any deficiency in service or violation and is in fact a public interest litigation in guise of a purported consumer dispute. We also agree with the contention of the Appellants, that the Respondents had approached the National Commission at the behest of the Respondent no. 3, a credit card holder with Citibank, purportedly claiming an amount of Rs. 90,000/- against excess interest charged by the bank, which is barred by the pecuniary jurisdiction of the Commission.
A direction by the National Commission or any other Court, must be based on material or evidence and not on surmises, and bald averments made by complainants. Any such directions issued otherwise is unsustainable. It is unable to subscribe to the view adopted by the National Commission, that ‘any complaint under the Consumer Protection Act, 1986 to curb unfair trade practice(s) adopted by the banks is maintainable’.
Whether the National Consumer Disputes Redressal Commission, has the jurisdiction to interfere with banking operations, which is the exclusive statutory domain of the Reserve Bank of India? - Whether the National Consumer Disputes Redressal Commission had the jurisdiction to fix a maximum ceiling rate of interest to be charged by banks from their credit card holders for their failure to make full payment on the due date, at the behest of the Reserve Bank of India & unilaterally direct banks/non-banking financial institutions to charge rates of interest not beyond the 30% p.a., in absence of an instruction/directive of the Reserve Bank of India? - HELD THAT:- The National Commission has assumed jurisdiction and expertise over the Reserve Bank of India, whilst observing that a ceiling on the rates of interest, is the purported solution to the alleged exploitation of credit card holders. It has made observations, that are contrary to the legislative intent of Section 21A of the Banking Regulation Act, 1949 that provides for a statutory bar on any court/tribunal to re-open transactions, that the rate of interest charged by the banking company in respect of such transaction is excessive - The decision of the National Commission to unilaterally hold that any interest above 30% p.a. is usurious, is in contrary to the legislative intent of section 21A and is an encroachment upon the domain of the Reserve Bank of India.
In the case of Central Bank of India Vs Ravindra & Ors. [2001 (10) TMI 1065 - SUPREME COURT], this Hon’ble Court had decided on the issue, when banks in India were not following a uniform practice, and other banks charged interest with monthly or quarterly rests while others charged with yearly or six-monthly rests. It was held by this Hon’ble Court, that a distinction was drawn between the court’s power to interfere on the promise that the interest charged is excessive under the general law, and the court’s interference on the premise that the interest charged is in contravention of the circulars and directions issued by the Reserve Bank of India. In the former case, it would not be permissible in view of the bar enacted by Section 21A of the Banking Regulation Act, while in the latter case, it would be permissible because of the Reserve Bank of India’s circulars and directions having statutory force under section 21/35A of the Act, having been violated.
The RBI is the prime regulator and the decision-making authority for the economic/financial decisions of the Indian economy, any endeavor by the National Commission or any other Court/Tribunal to decide at the behest of the RBI cannot be termed to be just, fair and equitable - There is also merit in the submission made by the Appellants, that a direction cannot be issued to the Reserve Bank of India, to enact a particular legislation. It is a settled cannon of law that “when an executive authority, exercises a legislative power by way of subordinate legislation pursuant to the delegated authority of a legislature, such executive authority, cannot be asked to enact a law, which he has been empowered to do under the delegated legislative authority.
Whether the Impugned Judgment interferes with the contract executed between the parties? - Whether charging rate of interests by banks in the manner as advised by Reserve Bank of India vide its master circulars & notifications being independent of a standard ceiling rate prescribed by the Reserve Bank of India, constitute an unfair trade practice? - HELD THAT:- It is a well-settled principle that the terms of a contract executed between two parties, are not open to judicial scrutiny unless the same is arbitrary, discriminatory, mala fide or actuated by bias. The courts cannot strike down the terms of a contract, because it feels that some other terms would have been fair, wiser or logical.
In the present context, the pre-conditions of ‘deceptive practice’ and unfair method’ are manifestly absent. The Banks have in no manner made any misrepresentation, to deceive the credit card holders. Upon availing the facility of the credit cards, the customers, are made aware of ‘the most important terms and conditions’, including the rate of interest, that shall be charged by the Banks. Even on merits, the Reserve Bank of India, has made it clear that there exists no material on record, to establish that any bank has acted contrary to the policy directives issued by the RBI - The mere inflation in the rates of interest cannot be construed as a practice, intended to cause loss or injury.
It is correct to say that the National Commission has been duly empowered under the statute to set aside unfair contracts, which may symbolise a single will or are unilaterally dominant or incorporate terms which are unfair and unconscionable. However, the rate of interest, charged by the banks, determined by the financial wisdom & directives issued by the Reserve Bank of India, and is duly communicated to the credit card holders from time to time, cannot be in any manner unconscionable or unilateral. The credit card holders are duly educated and made aware of their privileges and obligations, including timely payment & levying of penalty on delay - the question of directing the RBI to act against any bank does not arise, in the facts and circumstances of the present case and that there is no question of the RBI being directed to impose any cap on the rate of interest, either on the banking sector as a whole, or in respect of any one particular bank, contrary to the provisions contained in the Banking Regulation Act, and the circulars/directions issued thereunder.
Conclusion - The Court emphasized that the RBI is the primary regulator of banking practices, and the National Commission overstepped its jurisdiction by interfering with banking operations and contractual terms. The decision reinforced the RBI's authority in regulating interest rates and banking policies - the National Commission's judgment was set aside - appeal allowed.
Issues: Whether criminal complaints under the Negotiable Instruments Act could be quashed under Section 482 of the Code of Criminal Procedure, 1973 solely because they were filed in the complainant company's old name after its name had been changed, and whether such a defect was curable.
Analysis: The Court held that the inherent power to quash proceedings at the summoning stage must be exercised sparingly, particularly where the matter is still at a pre-trial stage and the accused can raise defences before the trial court. A mere change in the complainant company's name did not affect the substance of the complaints, the underlying transaction, or the rights of the company. The filing of the complaints in the former name was treated as a formal or technical infirmity capable of being corrected by amendment, especially since no cogent prejudice to the petitioners was shown. The Court also distinguished authority dealing with substantial amendments and accepted that the pending defects had been taken steps to be cured.
Conclusion: The defect in naming the complainant company was held to be curable and not a ground for quashing the complaints; the petitions were rejected.
Seeking quashing of Criminal Complaint - Dishonour of Cheque - continuation of legal proceedings commenced by the company in its former name by its new name - inherent jurisdiction under Section 482 of the CrPC for quashing the proceedings.
Continuation of legal proceedings commenced by the company in its former name by its new name - HELD THAT:- It is relevant to note that the inherent jurisdiction of the Court under Section 482 of the CrPC ought to be exercised sparingly especially when the matter is at the stage of issuance of summons as the same has the effect of scuttling the proceedings without the parties having an opportunity to adduce the relevant evidence. The Hon’ble Apex Court, in the case of Rathish Babu Unnikrishnan v. State (NCT of Delhi) [2022 (4) TMI 1434 - SUPREME COURT], adverting to a catena of judgments, had underscored the parameters for exercising inherent jurisdiction to quash the proceedings at the stage of the summoning order.
In the present case, apart from raising an argument in relation to the cheques in dispute being given as security, the petitioners have sought to challenge the complaints essentially on the ground that the same are not maintainable by virtue of the same being filed in the old name of the complainant company - It is argued that even though the name of the complainant company was changed on 28.05.2018, however, the complaints were subsequently filed in the erstwhile name in June, 2018.
In the case of MUNISH KUMAR GUPTA VERSUS M/S MITTAL TRADING COMPANY [2024 (4) TMI 1212 - SC ORDER], the Hon’ble Apex Court had set aside the order whereby the concerned High Court had permitted the complainant to amend the date in the complaint by observing that if such amendment was not permitted, the same will be fatal to the case of the complainant. In the said case, the complainant therein had claimed that the error in the date of the cheque in dispute in the evidence as well as the complaint was merely typographical in nature. The Hon’ble Apex Court observed that the date of the cheque is a relevant aspect as the same was instrumental in determining whether the issue of notice was within the time frame as provided under the NI Act and as to whether there was sufficient balance in the account of the issuer on the date. In view of the same, it was held that the amendment as sought for was not justified.
While a bald averment is made that grave prejudice would be caused to the petitioners if the substitution of the new name of the complainant company is allowed, however, in the opinion of this Court, mere use of the old name of the complainant company is not a relevant aspect as the same is not likely to have any effect on the merits of the case. No cogent argument is made in relation to how the change in name will affect the case against the petitioners or as to how their defence would be hampered by such a change - It is also relevant to note that the mere change in name does not alter or affect the rights of the company. Furthermore, the agreement between the complainant company and the accused company is not disputed. The change of the name of the complainant company is merely formal in nature and the same can be easily cured. The same also has no effect on the original nature of the complaint.
Application of inherent jurisdiction under Section 482 of the CrPC for quashing the proceedings - HELD THAT:- It is incumbent on this Court to exercise its inherent jurisdiction to ensure substantial justice. In light of the same, considering that the petitioners have failed to show as to how they will be gravely prejudiced by a mere correction in the name of the company, quashing of the criminal proceedings merely on account of a technical error at this junction, when the signatures on the cheques in dispute have not been disputed and the claim of the complainant company has not been adjudicated on merits, would be unmerited and it will frustrate the ends of justice - considering that the complaints have been pending since the year 2018, this Court considers it apposite to request the learned Trial Court to expedite the proceedings.
The present petitions are dismissed.
Issues: Whether the offence under the Negotiable Instruments Act could be compounded after conviction on the basis of a compromise between the parties, and whether the conviction and sentence could be set aside on such compounding.
Analysis: The dispute related to dishonour of cheques under Section 138 of the Negotiable Instruments Act, 1881. During the pendency of the petition, the petitioner and the complainant settled the matter, and the complainant expressed no objection to compounding. The Court relied on Section 147 of the Negotiable Instruments Act, 1881, which makes offences under the Act compoundable notwithstanding the general rule under the criminal procedure law, and on the principle that compounding may be permitted even after conviction. The Court also applied the graded cost framework for delayed compounding and reduced the compounding fee having regard to the financial condition of the petitioner.
Conclusion: The offence was permitted to be compounded, and the conviction and sentence were quashed with the petitioner acquitted of the charge.
Ratio Decidendi: An offence under Section 138 of the Negotiable Instruments Act, 1881 may be compounded even after conviction when the parties have settled the dispute, and the Court may exercise discretion to reduce the compounding costs on the facts of the case.
Dishonour of Cheque - compounding of offence after the judgment of conviction and order of sentence have been passed - petitioner compromised the matter with the respondent (complainant) - HELD THAT:- Having taken note of the fact that the petitioner - accused and the complainant-respondent have settled the matter and the complainant has no objection in compounding the offence, therefore, this Court sees no impediment in accepting the prayer made on behalf of the accusedpetitioner for compounding of offence while exercising power under Section 147 of the Act as well as in terms of guidelines issued by the Hon’ble Apex Court in Damodar S. Prabhu V. Sayed Babalal H. [2010 (5) TMI 380 - SUPREME COURT], wherein the Hon’ble Apex Court has held 'since Section 147 was inserted by way of an amendment to a special law, the same will override the effect of Section 320(9) of the CrPC, especially keeping in mind that Section 147 carries a non obstante clause.'
In K. Subramanian Vs. R. Rajathi [2009 (11) TMI 1013 - SUPREME COURT], it has been held by the Hon’ble Apex Court that in view of the provisions contained in Section 147 of the Act read with Section 320 of Cr.P.C., compromise arrived at can be accepted even after recording of the judgment of conviction.
Since, in the instant case, the petitioner-accused after being convicted under Section 138 of the Act, has compromised the matter with the complainant, prayer for compounding the offence can be accepted in terms of the aforesaid judgments passed by the Hon’ble Apex Court.
Conclusion - In view of the compromise arrived at between the parties, the petitioner should be permitted to compound the offence committed by him under Section 138 of the Code.
The present matter is ordered to be compounded and the impugned judgment of conviction and order of sentence passed by learned Chief Judicial Magistrate, Shimla, District Shimla, H.P, which was affirmed in appeal by learned Additional Sessions Judge (CBI Court), Shimla, District Shimla, H.P., are quashed and set-aside and the petitioner-accused is acquitted of the charge framed against him under Section 138 of the Act - Undisputedly, the total amount of the cheques is Rs.15,000/-, however, the learned counsel for the petitioner submitted that the petitioner is a poor person and the imposition of compounding fee may be reduced.
Petition disposed off.
TaxTMI 