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1. ISSUES PRESENTED and CONSIDERED
The judgment revolves around the following core legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the Impugned Order
Issue 2: Opportunity to Respond and Participate
3. SIGNIFICANT HOLDINGS
In conclusion, the judgment highlights the importance of proper communication and procedural fairness in tax assessment proceedings. By setting aside the impugned order and allowing the petitioner to participate in the adjudication process, the court ensures that the principles of natural justice are upheld, providing a fair opportunity for the petitioner to address the disputed tax liability.
Service of notice via GST portal - opportunity of hearing - pre-deposit condition for interim relief - setting aside assessment order - remand for fresh adjudication
Service of notice via GST portal - opportunity of hearing - Impugned assessment order set aside on account of notices being uploaded under the "view additional notices and orders" tab and the petitioner not being given an effective opportunity to participate in adjudication. - HELD THAT: - The Court accepted the petitioner's contention that notices and proceedings were uploaded under the "view additional notices and orders" tab on the GST Portal, which resulted in the petitioner being unaware of the initiated proceedings and therefore unable to participate in adjudication. Reliance was placed on the recent decision of this Court cited by the petitioner. By consent of parties, the impugned order dated 25.06.2024 was set aside and interim relief was conditioned on a pre-deposit by the petitioner, followed by an opportunity to file objections and for the assessing authority to pass fresh orders after hearing. [Paras 4, 5, 6]
Impugned order set aside and petitioner given conditional relief subject to deposit and opportunity to be heard.
Pre-deposit condition for interim relief - remand for fresh adjudication - Conditions for interim relief and procedure on remand: deposit of 25% of disputed taxes, verification and adjustment of prior payments, lifting of recoveries on compliance, and treatment of assessment order as show cause notice for fresh adjudication. - HELD THAT: - The Court directed that the petitioner shall deposit 25% of the disputed taxes within four weeks; any earlier recovery or pre-deposit would be adjusted against this amount and the assessing authority shall inform the petitioner of any balance. The authority is to complete verification and intimation within prescribed short timelines. On compliance, any attachments shall be withdrawn and the impugned assessment shall be treated as a show cause notice; the petitioner is allowed eight weeks to file objections with supporting material, after which the respondent shall consider the objections, afford a hearing and pass orders in accordance with law. Failure to comply with the payment or filing timelines will result in restoration of the impugned order. [Paras 6]
Petitioner to make stipulated pre-deposit and, on compliance, matter remanded for fresh consideration as a show cause notice with specified timelines; non-compliance restores the impugned order.
Final Conclusion: Writ petition disposed by setting aside the assessment order dated 25.06.2024; conditional interim relief granted requiring deposit of 25% of disputed taxes, verification and adjustment of prior payments, and remand of the matter to the assessing authority to consider objections and pass fresh orders after affording a hearing; failure to comply restores the impugned order.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Violation of Principles of Natural Justice
Issue 2: Remand and Conditions
Issue 3: Recovery and Garnishee Proceedings
3. SIGNIFICANT HOLDINGS
In conclusion, the judgment underscores the importance of procedural fairness and adherence to natural justice principles, providing a framework for remand and reconsideration when these principles are at risk of being compromised.
Violation of principles of natural justice - impugned order came to be passed without considering the petitioner's request for time - HELD THAT:- The impugned order dated 07.08.2024 is set aside and the petitioner shall deposit 10% of the disputed tax within a period of four weeks from the date of receipt of a copy of this order. On complying with the above condition, the impugned order of assessment shall be treated as show cause notice and the petitioner shall submit its objections within a period of four weeks from the date of receipt of a copy of this order along with supporting documents/material. If any such objections are filed, the same shall be considered by the respondent and orders shall be passed in accordance with law after affording a reasonable opportunity of hearing to the petitioner. If the above deposit is not paid or objections are not filed within the stipulated period, i.e., four weeks respectively from the date of receipt of a copy of this order, the impugned order of assessment shall stand restored.
Petition disposed off.
Issues: Whether the petitioner's claim for refund of GST collected in the course of execution of the contract required consideration and decision by the State authorities.
Analysis: The grievance concerned non-refund of GST allegedly paid in relation to a pre-GST contract. The authorities did not finally adjudicate the refund claim on merits in the order; instead, the State indicated that the claim would be examined subject to verification of facts and the petitioner's entitlement, with reference to the relevant Central Government orders and subsequent instructions.
Outcome: The authorities were directed to process the refund claim expeditiously after verification of facts and entitlement and to take a decision within 90 days.
Refund of GST - administrative inaction - verification of entitlement - implementation of Central Government circulars - writ remedy for delay
Refund of GST - verification of entitlement - implementation of Central Government circulars - writ remedy for delay - State Authorities directed to process and decide the petitioner's claim for refund of GST after verification and in light of Central Government orders. - HELD THAT: - The petitioner complained of inaction by the State Authorities in refunding GST collected during execution of a contract said to have been awarded at pre-GST rates and relied on Central Government circulars permitting refund upon production of certificates of GST payment. The Court did not adjudicate substantive entitlement on merits but recorded the State's willingness to examine the claim and disposed the writ petition by directing the State Authorities to immediately process the claim, carry out due verification of facts and entitlement, and take an appropriate decision keeping in view the Central Government orders dated 28.01.2020 and 06.06.2018 and subsequent orders. The Court emphasised that consideration should include the petitioner's contention that similar refunds have been granted in other cases and imposed an outer limit for decision-making. [Paras 3, 4, 5]
State Authorities to immediately process the refund claim, verify facts and entitlement in accordance with the Central Government circulars and orders, and decide the claim within 90 days of receipt of the order copy.
Final Conclusion: Writ petition disposed directing the State Authorities to process and decide the petitioner's GST refund claim after verification and in conformity with Central Government orders, within 90 days; interlocutory applications disposed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Violation of Principles of Natural Justice
Issue 2: Rejection of Rectification Petition
3. SIGNIFICANT HOLDINGS
The court's decision to set aside the impugned order and remand the matter for reconsideration underscores the necessity of ensuring procedural fairness in tax assessments. The requirement for the petitioner to deposit 10% of the disputed taxes as a condition for remand reflects a balanced approach, allowing the petitioner to present their case while safeguarding the revenue's interests. The judgment highlights the court's role in rectifying procedural deficiencies and ensuring compliance with the principles of natural justice.
Violation of principles of natural justice - remand for fresh adjudication - pre-deposit condition for interim relief - opportunity of hearing - rectification under Section 161 of the Act - lifting of attachment on compliance
Violation of principles of natural justice - opportunity of hearing - The impugned assessment order dated 27.12.2023 was set aside on the ground that it was made in circumstances amounting to violation of principles of natural justice and the matter required fresh consideration. - HELD THAT: - The court recorded that although Form DRC-01 and a personal hearing notice were issued and documents were filed by the petitioner, the assessing authority proceeded to confirm the proposal. A rectification petition filed by the petitioner remained pending and was later rejected by the authority on the ground that there was no error apparent on the face of the record. By consent, and relying on a comparable earlier decision of this Court, the impugned order was set aside and the matter remitted to the adjudicating authority to treat the assessment as a show cause notice and to permit the petitioner to submit objections and supporting documents, after compliance with the pre-deposit condition imposed by the court. The court directed that any objections filed shall be considered and decided in accordance with law after affording a reasonable opportunity of hearing to the petitioner.
Impugned order dated 27.12.2023 set aside and assessment remitted for fresh consideration with directions to afford opportunity of hearing.
Pre-deposit condition for interim relief - remand for fresh adjudication - lifting of attachment on compliance - The court prescribed structured conditions for the remand, including deposit of 10% of disputed tax, verification/adjustment of amounts already paid, timelines for payment and filing objections, consequences of non-compliance, and lifting of attachments on compliance. - HELD THAT: - By consent, the court directed the petitioner to deposit 10% of the disputed taxes within four weeks of receipt of the order and provided that any amount already recovered or pre-deposited would be adjusted against that 10% with the assessing authority intimating any balance. Time-limits were fixed for verification by the assessing authority and for the petitioner to deposit any remaining sum. Failure to comply with the payment condition within the stipulated period would result in restoration of the impugned order. The court further ordered that any attachment or garnishee recovery shall be lifted on compliance with the payment condition. On compliance, the impugned assessment would be treated as a show cause notice and the petitioner given four weeks to file objections, which the authority shall consider after affording a reasonable hearing; non-filing of objections within the period would also result in restoration of the assessment order.
Remand made subject to deposit of 10% of disputed tax with prescribed verification, adjustment and timelines; non-compliance to result in restoration of the impugned order and attachments to be lifted on compliance.
Final Conclusion: Writ petition disposed by setting aside the assessment order dated 27.12.2023 and remitting the matter for fresh adjudication on the petitioner depositing 10% of the disputed tax and complying with the timelines and procedural directions specified by the court; attachments to be lifted on compliance and the assessing authority to consider objections after affording a hearing.
Issues: Whether the petitioner's pending rectification application arising from the impugned GST assessment order required consideration by the respondent.
Outcome: The writ petition was disposed of by directing the respondent to consider the rectification application on merits and in accordance with law within the stipulated time.
Rectification application - disposal on merits and in accordance with law - assessment under Section 73(1) of the TNGST Act, 2017 - pre-deposit of disputed tax
Rectification application - disposal on merits and in accordance with law - pre-deposit of disputed tax - Direction to consider and dispose of the rectification application filed by the petitioner dated 23.02.2024 - HELD THAT: - The petitioner challenged an assessment order passed pursuant to scrutiny under the TNGST Act and filed a rectification application dated 23.02.2024 which remained pending. The petitioner informed the Court that a substantial portion of the disputed tax had already been deposited and that an appeal was dismissed as time-barred; however, the High Court did not adjudicate the merits of the assessment or the correctness of the deposits. The respondent acknowledged that the rectification application was pending. On that basis the Court directed the respondent to consider the rectification application and pass appropriate orders on merits and in accordance with law within three weeks from receipt of a copy of the order. No substantive determination was made by the Court on the assessment, tax liability, or the plea concerning pre-deposit; those matters remain for the authority to decide in the exercise of its power while disposing the rectification application. [Paras 7, 8]
Respondent to consider and decide the rectification application dated 23.02.2024 on merits and in accordance with law within three weeks; writ petition disposed.
Final Conclusion: Writ petition disposed by directing the respondent to consider and dispose of the rectification application dated 23.02.2024 on merits and in accordance with law within three weeks; no decision was recorded on the merits of the assessment or the pre-deposit of disputed tax.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the Impugned Order
Issue 2: Addressing Discrepancies Found During Audit
Issue 3: Fair Opportunity to Respond
3. SIGNIFICANT HOLDINGS
The judgment emphasizes procedural fairness and the right to a fair hearing, directing the respondent to ensure compliance with these principles in future proceedings.
Set aside of assessment order - Service of notice via GST portal and sufficiency of communication - Opportunity of hearing before adjudication - Verification of pre-existing payment by assessing authority - Conditional deposit (25%) of disputed tax as pre-condition for adjudicatory opportunity - Treatment of assessment order as show cause notice for fresh objections
Service of notice via GST portal and sufficiency of communication - Opportunity of hearing before adjudication - Set aside of assessment order - Impugned assessment order set aside on the ground that the petitioner was not given effective notice or opportunity to participate in adjudication - HELD THAT: - The Court found that reminder notices relied upon by the respondent had been uploaded under the "Additional Notices and Orders" tab on the GST portal and were not tendered or sent by RPAD, causing the petitioner to be unaware of the proceedings and unable to avail personal hearing. In light of these defects in communication and the petitioner's expressed readiness to explain the discrepancies, the Court set aside the impugned order dated 30.08.2024 and granted a remedial opportunity to the petitioner to participate in adjudication, subject to the conditions ordered below. The Court treated the inadequacy of service and consequent denial of effective hearing as a sufficient ground to interfere with the assessment order. [Paras 6, 7, 9]
Impugned order dated 30.08.2024 set aside and petitioner granted opportunity to be heard; respondent directed to verify petitioner's payment and follow the procedure prescribed by the Court.
Verification of pre-existing payment by assessing authority - Conditional deposit (25%) of disputed tax as pre-condition for adjudicatory opportunity - Treatment of assessment order as show cause notice - Directions for verification of payments and conditional procedure for further adjudication including deposit, filing of objections and reconsideration - HELD THAT: - The Court directed the respondent to verify the petitioner's assertion that tax liability was paid immediately after inspection. If verification confirms the payment, the petitioner is to be intimated and shall deposit the balance out of 25% of the disputed taxes within one week; if not confirmed, the petitioner shall be intimated to deposit 25% (or balance) within one week. Upon compliance, the impugned assessment order shall be treated as a show cause notice and the petitioner given four weeks from receipt of the order to file objections. Any objections filed must be considered and decided after affording a reasonable opportunity of hearing. Failure to file objections within four weeks or to make the stipulated deposit will result in revival of the impugned order. These directions constitute the procedure for fresh adjudication rather than a final adjudication on merits. [Paras 8, 9]
Respondent to verify payment; petitioner to deposit 25% (or balance) as directed; on compliance the assessment order treated as show cause notice and objections to be filed and decided after hearing; non-compliance will revive the impugned order.
Final Conclusion: Writ petition disposed by setting aside the assessment order dated 30.08.2024; respondent directed to verify petitioner's payment and permit fresh adjudication on the conditions ordered (deposit of 25% or balance, filing of objections within four weeks and opportunity of hearing); non-compliance will revive the impugned order.
1. ISSUES PRESENTED and CONSIDERED
The judgment primarily considers the following legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the Impugned Order
Issue 2: Notification and Opportunity to Present Case
Issue 3: Justification of Penalties
3. SIGNIFICANT HOLDINGS
The court's decision emphasizes the importance of fair procedural practices in tax assessments and the need for effective communication of notices to ensure taxpayers can adequately defend themselves against allegations of non-compliance.
Challenge to impugned order passed by the respondent relating to the assessment year 2019-20 - petitioner would submit that they would pay the balance remaining out of the 25% after deducting the monies which is stated to have been paid - HELD THAT:- On complying with the above conditions, the impugned order of assessment shall be treated as show cause notice and the petitioner shall file their objections within a period of four weeks from the date of receipt of a copy of this order.
The impugned order passed by the respondent dated 30.08.2024 is hereby set aside - Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Reversal of Ineligible and Excess ITC
Issue 2: Reversal of Credit Notes and Blocked ITC
Issue 3: Discrepancies Between GSTR 3B and GSTR 2A/1
3. SIGNIFICANT HOLDINGS
The judgment reflects the court's balanced approach, providing the petitioner an opportunity to rectify compliance issues while ensuring adherence to statutory requirements. The decision underscores the necessity of proper documentation in tax matters and the willingness of the court to facilitate compliance through conditional relief.
Reversal of ineligible and excess claimed blocked ITC - Mismatch Between GSTR 3B and GSTR 2A - Mismatch Between GSTR 3B and GSTR 1 - petitioner is ready and willing to pay 25% of the disputed tax and that he may be granted one final opportunity before the adjudicating authority to produce the relevant documentary evidences, to which the learned Additional Government Pleader appearing for the respondent does not have any serious objection.
HELD THAT:- The petitioner shall deposit 25% of the disputed taxes as admitted by the learned counsel for the petitioner and the respondent, within a period of four weeks from the date of receipt of a copy of this order. The impugned order dated 03.07.2024 is set aside.
Petition disposed off.
Outcome: The writ petition and the interim application were disposed of with liberty to file a reply to the show cause notice and with directions to the adjudicating authority to decide the notice in accordance with law on its own merits.
Challenge to show cause notice - leave to amend - judicial restraint in interfering with adjudicatory process - liberty to file reply - adjudicating authority to decide on merits
Challenge to show cause notice - leave to amend - judicial restraint in interfering with adjudicatory process - Amendment seeking leave to challenge the Show Cause Notice dated 12 February 2020 was not permitted; court declined to entertain belated challenge to the Show Cause Notice. - HELD THAT: - The petition sought leave to amend to challenge the Show Cause Notice issued on 12 February 2020. The Court refused to permit the petitioner, at this late stage, to treat the original petition as a vehicle for attacking the Show Cause Notice. The Court emphasised that petitions challenging show cause notices should not ordinarily be entertained and that, if the petitioner considers itself covered by earlier decisions, it may rely on those decisions before the adjudicating authority rather than seeking belated amendment for direct judicial intervention. The Court therefore did not undertake an adjudication on the merits of the Show Cause Notice and did not allow the amendment. [Paras 2, 3, 4, 5]
Prayer for leave to amend to challenge the Show Cause Notice is refused; the Court will not permit a belated direct challenge to the Show Cause Notice in these proceedings.
Liberty to file reply - adjudicating authority to decide on merits - Petitioner granted liberty to file a reply within two weeks and the Adjudicating Authority directed to consider that reply and dispose of the Show Cause Notice on merits in accordance with law. - HELD THAT: - Instead of permitting the belated amendment, the Court granted the petitioner two weeks to file a reply to the Show Cause Notice raising all permissible defences, including reliance on prior decisions of the Court. The Court directed that if the reply is filed within the stipulated time, the Adjudicating Authority must consider the reply and the contentions raised therein and dispose of the Show Cause Notice on its own merits by following the law. The Court expressly left all contentions of the parties open and did not enter upon the merits of the rival contentions in the writ proceedings. [Paras 5, 6, 7]
Liberty granted to file reply within two weeks; Adjudicating Authority to consider the reply and decide the Show Cause Notice on merits in accordance with law; all contentions left open.
Final Conclusion: The petition and interim application are disposed of by refusing the belated amendment to challenge the Show Cause Notice and, instead, granting the petitioner two weeks to file a reply; the Adjudicating Authority is directed to consider that reply and decide the Show Cause Notice on its merits in accordance with law, with all contentions left open.
Issues: Whether the petitioner was entitled to operate its bank account after expiry of the provisional attachment period under Section 83 of the Central Goods and Services Tax Act, 2017.
Analysis: The order proceeded on the basis that the maximum period of attachment under Section 83 had expired and that such attachment ends by operation of law after one year. In those circumstances, continued restraint on the bank account could not be sustained, except where the account was attached in relation to some other proceedings.
Conclusion: The petitioner was permitted to operate its bank account unless the attachment related to proceedings other than the one for which the attachment order dated 26.06.2023 had been passed.
Attachment under Section 83 of the Central Goods and Services Tax Act, 2017 - Automatic cessation of attachment on expiry of the maximum statutory period - Right to operate bank account after termination of attachment
Attachment under Section 83 of the Central Goods and Services Tax Act, 2017 - Automatic cessation of attachment on expiry of the maximum statutory period - Right to operate bank account after termination of attachment - Whether the petitioner is entitled to operate its bank account after the expiry of the maximum period of attachment under Section 83 of the Act of 2017, and whether the bank must allow such operation. - HELD THAT: - The Court noted that the attachment in question was issued on 26.06.2023 and that the maximum period of attachment under Section 83 of the Act of 2017 has expired. The legal position, as accepted by the respondent, is that the statutory maximum period of attachment is one year and that the attachment comes to an end automatically by operation of law without any further order. In consequence, the bank is not justified in continuing to freeze or refuse operation of the account on the basis of the expired attachment. The Court qualified this direction by recognizing that the bank need not permit operation if the account remains subject to attachment in respect of some other proceedings distinct from the attachment issued on 26.06.2023. [Paras 2, 3, 4]
Petitioner entitled to operate its bank account; Respondents No. 2 and 3 directed to allow operation unless the account is attached in respect of other proceedings.
Final Conclusion: Writ petition disposed directing the bank to permit the petitioner to operate its account on the ground that the attachment under Section 83 has lapsed by efflux of time, subject only to any separate attachment arising from other proceedings.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification for Cancellation of GST Registration
Issue 2: Validity of Petitioner's Reason for Non-Response
Issue 3: Conditions for Restoration of GST Registration
3. SIGNIFICANT HOLDINGS
The judgment reflects a balanced approach, considering both procedural compliance and exceptional circumstances, ensuring fairness while upholding statutory obligations.
Cancellation of GST registration - non-filing of returns for a continuous period of six months - restoration of registration subject to filing of returns and payment of dues - service of notices and communications via GST Portal - condonation of delay in preferring statutory appeal - prohibition on adjustment of tax liabilities from unutilised Input Tax Credit pending departmental scrutiny
Cancellation of GST registration - non-filing of returns for a continuous period of six months - service of notices and communications via GST Portal - condonation of delay in preferring statutory appeal - Validity of the cancellation of the petitioner's GST registration and whether restoration should be ordered - HELD THAT: - The Court accepted the petitioner's explanation that non-filing of returns for a continuous period of six months resulted from the petitioner's serious health condition and that notices/communications uploaded on the GST portal were not brought to the petitioner's attention. The Court found the reason for non-compliance to be genuine and observed that the statutory time for preferring an appeal had expired in the interim. In the circumstances, the Court directed restoration of the GST registration subject to specified conditions, rather than sustaining the cancellation outright. The determinative consideration was the genuineness of the petitioner's inability to comply and the equitable exercise of the Court's supervisory jurisdiction to conditionally restore registration while ensuring tax compliance. [Paras 7]
GST registration ordered to be restored subject to fulfilment of conditions specified by the Court.
Restoration of registration subject to filing of returns and payment of dues - prohibition on adjustment of tax liabilities from unutilised Input Tax Credit pending departmental scrutiny - cancellation of GST registration - Conditions and safeguards to be imposed upon restoration of GST registration - HELD THAT: - The Court specified conditional directions for restoration: (i) respondents to liaise with GST Network to enable the petitioner to file returns and pay tax/penalty/fine within four weeks of the order; (ii) petitioner to file all outstanding returns and pay tax dues with interest and late fees within four weeks of restoration; (iii) payments towards tax, interest, fine/fee cannot be made or adjusted from any unutilised Input Tax Credit (ITC); (iv) any unutilised ITC must be scrutinised and approved by a competent officer before utilisation; and (v) only approved ITC may be applied against future tax liabilities. The Court further provided that failure to comply with these conditions will result in automatic cessation of the benefit granted by the order. These directions balance restoration with safeguards against misuse of ITC and ensure departmental verification before allowing ITC utilisation. [Paras 8]
Restoration conditional on GSTN enabling filing/payment and on petitioner filing returns and paying dues; restrictions imposed on utilisation of ITC until departmental scrutiny and approval; non-compliance to cause automatic cessation of the order's benefit.
Final Conclusion: Writ petition disposed by restoring the petitioner's GST registration on specified conditions: GSTN to enable filing/payment, petitioner to file outstanding returns and pay dues with interest and fees within the stipulated periods, and unutilised ITC not to be used until departmental scrutiny and approval; failure to comply will terminate the relief.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Legality of Consolidated Show Cause Notice
Issue 2: Adequacy of Time to Respond
Issue 3: Interpretation of "Period" in Section 74(3)
3. SIGNIFICANT HOLDINGS
Issuance of a single consolidated show cause notice for more than one financial year - HELD THAT:- The petitioner has not made out any case for grant of relief on the ground that Ext.P1 show cause notice is a consolidated notice for several years mentioned above. The judgment of the Karnataka High Court, in M/S. BANGALORE GOLF CLUB VERSUS ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, KORAMANGALA, BENGALURU [2024 (10) TMI 116 - KARNATAKA HIGH COURT] relied on the judgment of the Madras High Court in TITAN COMPANY LTD., REPRESENTED BY ITS AUTHORIZED SIGNATORY MR. P. MANIVANNAN VERSUS THE JOINT COMMISSIONER OF GST & CENTRAL EXCISE, THE ADDITIONAL COMMISSIONER OF GST & CENTRAL EXCISE [2024 (1) TMI 619 - MADRAS HIGH COURT], where again the question considered was in relation to the proceedings under Section 73 of the GST Act. The court in M/s. Banglore Golf Club held 'Based on the established legal principles and the precedent set by the Hon'ble Apex Court, this Court finds that the respondent erred in issuing a consolidated show cause notice for multiple assessment years, spanning from 2019 to 2023-24.'
Coming to the contention of the learned counsel for the petitioner, that the petitioner has been given a very short time to reply to the show cause notice which runs to 1622 pages (including the documents relied upon), some reasonable time must be permitted to the petitioner to file a reply to the show cause notice.
Accordingly, it is directed that the time for filing a reply to Ext.P1 show cause notice shall be extended till 21.11.2024. Since the extension of time is at the request of the petitioner, any limitation for passing orders for any of the financial years will also stand extended by similar period i.e. the period from 21.10.2024 (last date for filing reply as per show cause notice) till 21.11.2024 will stand excluded.
Issues: Whether the accused-petitioner was entitled to bail in a case alleging issuance of fake invoices and wrongful availment of input tax credit under the Central Goods and Services Tax Act, 2017.
Analysis: The complaint was founded on statements recorded during investigation and on material said to have been recovered from the petitioner and connected premises. The Court noted that the complaint had already been filed, the investigation had been pending for more than a year, and the prosecution had not been able to establish how much input tax credit was actually availed by the alleged beneficiaries or quantify the alleged loss with precision. The maximum punishment for the alleged offence was five years, the offences were compoundable, and the petitioner had already undergone substantial custody. The Court further noted that the apprehension of influencing witnesses was not supported by concrete material, especially when the witnesses shown in the complaint were departmental officers. On these facts, continued detention was found unnecessary for the purpose of the case.
Conclusion: Bail was granted to the accused-petitioner.
Ratio Decidendi: In a bail proceeding arising from alleged GST fake-invoice offences, once the complaint is filed and the prosecution has not shown concrete necessity for further custody or established the alleged tax evasion with clarity, continued detention may be declined and bail may be granted.
Bail - reliance on statement recorded under section 70 - right to cross-examine - offence under section 132 of the CGST Act, 2017 - investigation completeness and quantification of input tax credit - compoundable offence - apprehension of tampering with witnesses
Reliance on statement recorded under section 70 - right to cross-examine - Statements recorded under section 70 of the CGST Act which are not formalised as prosecution witnesses cannot be relied upon for proving case against accused in absence of opportunity to cross-examine. - HELD THAT: - The Court found that the departmental case is founded on statements of persons (Ashutosh Garg, Ravi Kumar, Jatin Gupta, Sanket Gupta, Anil Kumar) whose recorded statements under section 70 were not incorporated as prosecution witnesses in the complaint (Annexure A). It is settled that such statements cannot be relied upon because the accused has the right to cross-examine witnesses to test their trustworthiness. On this basis the Court held that the material reliance placed upon those statements in the complaint is legally insufficient for denying bail. [Paras 13, 14, 26]
Statements not made prosecution witnesses under section 70 cannot be the sole basis to deny bail.
Investigation completeness and quantification of input tax credit - offence under section 132 of the CGST Act, 2017 - The prosecution has not established prime facie quantification of input tax credit beneficiaries or the amount allegedly evaded; investigation remains incomplete and the asserted evasion figure cannot be accepted for bail refusal. - HELD THAT: - The Court noted that though investigation commenced and a complaint has been filed, the Department has not ascertained which persons/firms benefited from input tax credit nor the precise amounts attributable to beneficiaries. The prosecution itself conceded that investigation may continue and can extend (statutorily) up to five years, and that further details would be placed before the competent court. The Court observed that until such quantification and identification are made, the allegation of specific large-scale evasion cannot be accepted as a determinative ground to refuse bail. [Paras 19, 20, 21, 27]
Pending completion of investigation and quantification of ITC beneficiaries/amounts, the alleged evasion figure cannot be treated as established for bail denial.
Apprehension of tampering with witnesses - bail - Prosecution's apprehension that the accused may influence or tamper with witnesses is unsubstantiated and insufficient to deny bail where no incriminating evidence of such risk is on record. - HELD THAT: - The prosecution pointed to a risk that the accused might influence departmental witnesses. The Court observed that the list of prosecution witnesses comprises only departmental officers and there is no material on record to substantiate an apprehension of tampering. The Court emphasised that the integrity and honesty of departmental officers could not be impugned by the prosecution itself without supporting evidence. Consequently, the asserted risk does not outweigh the bail considerations. [Paras 25, 26]
Unsubstantiated apprehension of tampering by the accused does not justify refusal of bail.
Compoundable offence - bail - Given the maximum sentence, compoundability of the offence and the period of incarceration already suffered, the accused is entitled to bail subject to conditions. - HELD THAT: - The Court recorded that the offence as charged attracts a maximum sentence of five years and that offences of this nature are compoundable. The accused had undergone approximately five months' custody. Balancing the incomplete state of investigation, absence of substantiated risk of tampering, and the legal character of the offence, the Court exercised its discretion to grant bail, imposing a personal bond and sureties and conditions including attendance and restriction on leaving the country without prior permission. [Paras 23, 24, 28, 29]
Accused released on bail on furnishing bond and sureties, subject to conditions including appearance and no departure from India without court permission.
Final Conclusion: Bail application allowed; accused directed to furnish personal bond and sureties and comply with imposed conditions. The Court granted bail without expressing any opinion on merits, observing deficiencies in the prosecution's reliance on unformalised statements and the incomplete state of investigation regarding quantification of input tax credit beneficiaries.
Issues: (i) Whether the writ petition was maintainable despite the objection of an alternative remedy under the contract. (ii) Whether the petitioner was entitled to reimbursement of the additional GST differential of 6% for the period from 01.01.2022 to 30.09.2022.
Issue (i): Whether the writ petition was maintainable despite the objection of an alternative remedy under the contract.
Analysis: The dispute did not involve any disputed question of fact. The grievance arose from the admitted increase in GST rate and the respondents' failure to pay the enhanced component, so the petitioner was not required to be relegated to the contractual dispute resolution mechanism.
Conclusion: The writ petition was maintainable and the objection based on alternative remedy was not accepted.
Issue (ii): Whether the petitioner was entitled to reimbursement of the additional GST differential of 6% for the period from 01.01.2022 to 30.09.2022.
Analysis: The applicable GST rate stood enhanced from 12% to 18% with effect from 01.01.2022, and the respondents were shown to have continued paying only 12% on running bills. The public entity had also acknowledged liability to pay the additional 6% from 01.01.2022, leaving only implementation of the enhanced rate differential.
Conclusion: The petitioner was held entitled to payment of the GST differential at 6% for the stated period, together with interest if payment was delayed beyond the period granted by the Court.
Final Conclusion: The writ petition was allowed to the extent of directing payment of the GST differential, and the respondents were obliged to clear the additional tax component within the time fixed by the Court.
Ratio Decidendi: Where the liability to bear enhanced GST is admitted and no disputed question of fact survives, the existence of an alternative contractual remedy does not bar exercise of writ jurisdiction to direct reimbursement of the tax differential.
Reimbursement of excess GST - liability of a government entity to pay GST differential - maintainability of writ petition notwithstanding contractual dispute resolution clause - enhancement of GST rate and retrospective application to running bills - interest for delayed statutory reimbursement
Maintainability of writ petition notwithstanding contractual dispute resolution clause - Writ petition maintainable and petitioner need not be relegated to contractual dispute resolution forum. - HELD THAT: - The Court found that no disputed question of fact arose in the matter and that the controversy related to payment of an enhanced statutory rate of tax by a government entity. In these circumstances the petitioner could not be compelled to pursue the Dispute Resolution Forum under the agreement or arbitration, because the dispute did not involve factual contest requiring adjudication under the contractual mechanism and involved a legal liability arising from the statutory rate change. [Paras 7]
Petition held maintainable; petitioner not relegated to dispute resolution under the agreement.
Reimbursement of excess GST - liability of a government entity to pay GST differential - enhancement of GST rate and retrospective application to running bills - Respondent No.2 (a government entity) liable to pay the difference of GST amount of 6% to the petitioner for the period 01.01.2022 to 30.09.2022. - HELD THAT: - The Court recorded that the GST rate was enhanced effective 01.01.2022 and that the petitioner continued to discharge tax at the higher rate while respondent No.2 paid running bills at the earlier rate. Respondent No.2 had accepted liability in correspondence but delayed payment pending state approval. The State GST Department also acknowledged the enhanced rate and the obligation of the government entity to discharge the differential. Given these findings, the Court directed payment of the differential for the specified period. [Paras 3, 4, 5, 8]
Respondent No.2 directed to pay the 6% GST differential for 01.01.2022 to 30.09.2022 to the petitioner.
Interest for delayed statutory reimbursement - Temporal framework for payment and entitlement to interest on delayed reimbursement. - HELD THAT: - The Court afforded respondent No.2 a period of three months from receipt of certified copy of the order to pay the directed GST differential. The Court further provided that in the event of failure to pay within that period, the petitioner would be entitled to interest at the rate of 6% per annum from the date of entitlement until payment, thereby specifying the remedial consequence of non-compliance. [Paras 9]
Payment to be made within three months; failing which interest at 6% per annum will accrue from the date of entitlement.
Final Conclusion: Writ petition allowed to the extent that respondent No.2 is directed to reimburse the 6% GST differential to the petitioner for the period 01.01.2022 to 30.09.2022 within three months of receipt of certified copy of the order, failing which interest at 6% per annum shall be payable; petition otherwise disposed of.
Issues: Whether the electronic credit ledger could be blocked under Rule 86A without notice and hearing to the affected person.
Analysis: Rule 86A of the Rajasthan Goods and Services Tax Rules, 2017 and the Central Goods and Services Tax Rules, 2017 empowers the Commissioner or an authorised officer, not below the rank prescribed by the rule, to disallow debit of electronic credit ledger where there are reasons to believe that input tax credit has been fraudulently availed or is ineligible, and reasons must be recorded in writing. Even though the rule does not expressly provide for a hearing, the authority exercising the statutory power is obliged to hear the affected person before taking a decision. In the present case, the notice was issued by an authority who was not competent to take the final decision, while the impugned blocking order was passed by the competent authority without hearing the petitioner. Such a procedure prima facie violates the principles of natural justice.
Conclusion: The blocking of the petitioner's electronic credit ledger was kept in abeyance and the respondents were restrained from giving effect to the blocking decision.
Ratio Decidendi: When a statutory power to block input tax credit is exercised without expressly excluding fairness, the competent authority must afford notice and hearing to the affected person before acting on the material and recording reasons in writing.
Principles of natural justice - power under Rule 86A to block electronic credit ledger subject to reasons in writing - competent authority to disallow debit/not allow utilisation of input tax credit - obligation to afford hearing despite absence of statutory provision - competence of Commissioner or officer not below the rank of Assistant Commissioner
Principles of natural justice - power under Rule 86A to block electronic credit ledger subject to reasons in writing - competent authority to disallow debit/not allow utilisation of input tax credit - Validity of order blocking electronic credit ledger where notice was given by an officer who did not pass the order and the Deputy Commissioner who passed the order did not personally hear the petitioner - HELD THAT: - The Court noted that Rule 86A vests the power to disallow debit or block utilisation of electronic input tax credit in the Commissioner or an officer authorised by him (not below the rank of Assistant Commissioner) and requires reasons to be recorded in writing. Although the rule does not expressly provide for a hearing, the authority vested with the statutory power is nevertheless obliged to hear the affected person by giving notice. In the present case the notice was issued by a Joint Commissioner, but the impugned order was uploaded by the Deputy Commissioner who neither issued the notice nor heard the petitioner. That separation between the officer who conducted the preliminary proceedings and the officer who ultimately exercised the statutory power, without the competent authority affording an opportunity to the petitioner, prima facie amounts to a violation of principles of natural justice. The State's contention that the Joint Commissioner's hearing and forwarding of the record cures the defect was not accepted at the interlocutory stage. [Paras 4, 5, 6, 7, 8]
The impugned action of blocking the petitioner's electronic credit ledger is prima facie in violation of principles of natural justice; respondents are restrained from giving effect to the blocking order and the action is kept in abeyance.
Final Conclusion: Interim relief granted: the respondents are restrained from implementing the order blocking the petitioner's electronic credit ledger; matter posted for final hearing at the motion stage in the last week of November, 2024.
1. ISSUES PRESENTED and CONSIDERED
The judgment addresses the following core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the Notice and Order under Sections 148A(b) and 148A(d)
Issue 2: Opportunity to Explain Alleged Unexplained Income
3. SIGNIFICANT HOLDINGS
Validity of reassessment proceedings - order is at variance with the allegations that were made in the impugned notice issued u/s 148A (b) - HELD THAT:- We find merit in the contention that the allegations made in the impugned order u/s 148A (d) of the Act is at variance with that as was set out in the impugned notice issued u/s 148A (b) of the Act.
The very purpose of issuing a notice is to enable the assessee to explain the information available with the AO and to establish that the said information does not indicate that the petitioner’s income has escaped the assessment.
Since, the allegations made in the impugned notice issued under Section 148A (b) is at variance with the grounds raised in the impugned order passed u/s148A (d) of the Act, the petitioner did not have any effective opportunity to further explain that the said information did not indicate that its income had escaped assessment.
AO has not considered the petitioner’s claim that its income that is alleged to have escaped assessment, is a part of the income as was disclosed in its books of account and was also subject matter of the assessment.
We consider it apposite to set aside the impugned notice as well as the impugned order. It is so directed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification for Issuance of Notice under Section 148
Issue 2: Application of Mind by Assessing Officer and PCIT
Issue 3: Relevance of CGST Information
3. SIGNIFICANT HOLDINGS
The judgment concludes by allowing the petition, quashing the impugned notices and orders, and imposing costs on the assessing officer and the PCIT for their conduct. The court also directed the Ministry to scrutinize the conduct of these officers. The petition was disposed of with these directions.
Reopening of assessment - Report generated by the Central Goods and Service Tax (“CGST”) Authorities that certain entities were engaged in issuing/generating/providing fake/bogus invoices to pass on a fraudulent “Input Tax Credit” (“ITC”) without supply of goods - HELD THAT:- The approach of the assessing officer was totally unfounded for more than one reason. The primary reason being the assessing officer’s understanding of the GST transactions; secondly, the assessing officer’s complete mis-reading of the facts, this despite the correct facts being placed on the record of the assessing officer by the petitioner; and thirdly, tangible material in the form of all documents pertaining to the professional services as rendered by the petitioner to M/s Flash Forge and all the details in that regard as reflected in the books of accounts in relation to receipt of fees, the TDS amounts deposited as also the GST amounts deposited in the treasury, have been completely overlooked, misconstrued by the officer.
We are in fact not only surprised but pained with the approach of not only the assessing officer in showing such gross non-application of mind, but also with the mechanical approach of the PCIT, Mumbai, in according approval to the issuance of notice to the petitioner under Section 148A (b). This aspect we advert to little later.
We wonder as to how without verifying the petitioner’s credentials and merely on the basis of some information which was available with the CGST authorities, the assessing officer without verifying the returns which were filed by the petitioner and the supporting documents, qua the professional fees as received by the petitioner from M/s. Flash Forge, could have proceeded to issue a notice under section 148A (b)
The information which was gathered by the department indicated that M/s Flash Forge had made payments to the petitioner. However, there was no material for the assessing officer to jump to a conclusion, that having received such amount, the petitioner was deemed to be involved and/or was the beneficiary of any bogus input tax credit as being portrayed by the CGST authorities. In our opinion, when tested on record it was a wholly unwarranted and a wholly erroneous assumption of the assessing officer and the PCIT to reopen the petitioner’s assessment on such count. In fact, this is a case depicting a mechanical approach being adopted by both these officers.
It is classic case wherein certain information which may be relevant in so far as the CGST authorities are concerned in relation to the transactions qua a registered person under the CGST Act is being mechanically and without application of mind, taken to be relevant, in so far as the proceedings under the IT Act are concerned, more so, when it is a case of re-opening of the assessment.
We say so, as the CGST regime is governed by the provisions of the Central Goods and Service Tax Act and the State Goods and Service Tax Act as applicable. In so far as the income tax is concerned, it is governed under an independent enactment, namely the Income Tax Act, 1961. Both these Acts operate in different fields, with independent scheme of taxation, hence, there is no question of any overlapping or intermixing of the jurisdictions of these authorities, which stand compartmentalized.
Even if some information is available under the CGST regime in respect of the registered person (assessee), the same cannot ipso facto and/or automatically apply to an assessee under the IT Act, unless the assessing officer has tangible material to indicate that certain transactions, which are relevant to the CGST are also relevant and necessary, in so far as the returns filed by an assessee are concerned, and any bogus transactions or anything in relation to such transactions, becomes relevant in so far as in a given case, qua the income disclosed by the assessee under the IT Act is concerned.
Validity of PCIT Granting approval u/s 151 - A firm of Chartered Accountants, which is providing to its clients accounting and audit services, certainly cannot be alleged to have made bogus purchases from “One World Group of Entities” and in respect of which there was not a iota of material, over and above this, the petitioner has been alleged of having accommodation entries in regard to these purchases which are stated to be inflated resulting in suppression of profits, thereby reducing of the taxable income of the petitioner, while claiming fraudulent ITC, when there was no ITC whatsoever being claimed by the petitioner. All these remarks being made by the PCIT against the petitioner in granting approval under Section 151 of the IT Act for issuing notice under Section 148 of the IT Act, in our opinion, has crossed all limits of legitimacy in the discharge of the official duties by the PCIT.
From the reading of the PCIT’s remarks we may observe that if such high officers act with such colossal non-application of mind, amounting to an abuse of the authority and powers which are vested in him in law, which is coupled with a serious duty and an obligation to adhere to the correct facts of the case and on appropriate understanding of the law in grant of an approval, what can be the plight of the assessee.
Thus, the impugned show cause notice issued to the petitioner u/s 148A (b) and also the consequent order u/s 148A (d) quashed - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addresses several core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Reopening under Section 147
Issue 2: Appropriate Section for Assessment - Section 147 vs. Section 153C
Issue 3: Justification of Addition under Section 69
Issue 4: Violation of Principles of Natural Justice
3. SIGNIFICANT HOLDINGS
The judgment emphasizes the importance of substantive evidence and procedural fairness in tax assessments, particularly in cases involving significant additions based on search and seizure operations.
Reopening of assessment u/s 147 - unexplained cash u/s. 69 - addition on the basis of disclosure from seized documents and on the basis of the statements of the partner, accountant and account assistant - HELD THAT:- AO has not recorded the reasons for reopening the assessment. The objection of the assessee against the reasons were not disposed of by AO. No incriminating evidence was shared with assessee before making the quantum addition.
The addition has been made merely on the basis of unauthenticated documents found in search and on the basis of statements of Partner, Accountant and Account assistant. No opportunity to cross examine these persons was afforded to assessee.
Issue in the present case is directly covered by the order passed by ITAT Mumbai bench in [2024 (5) TMI 91 - ITAT MUMBAI] in assessee’s own case wherein held accountant in the statements recorded has explained how the entries are to be decoded for understanding what each entry means really. A sample entry has been considered and explained i.e. how to read the alphabets and the number in the entry.
AO based on the said explanation proceeded to interpret the impugned entries as pertaining to the assessee. However we notice from the assessment order that the AO has not brought out any specific finding on how the impugned entries are linked to the assessee and whether any other seized material other than what is shared with the assessee have been used to aid the interpretation. Decided in favour of the assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Genuineness of the LTCG Claim
Issue 2: Justification of Addition under Section 68
3. SIGNIFICANT HOLDINGS
In conclusion, the judgment underscores the importance of substantiating claims for tax exemptions with credible evidence, particularly in cases involving transactions with penny stocks. The court's reliance on established precedents and the burden of proof principles played a pivotal role in affirming the AO's findings and dismissing the assessee's appeal.
Addition u/s 68 - sale consideration received on sale of shares are not genuine transaction and is only accommodation entries in the form of Long Term Capital Gain - HELD THAT:- Today is the 10th time of hearing of this appeal, none appeared on behalf of the assessee and no Authorization given in favour of any Representative. Even in the previous occasion only stereo-typic adjournment letters were filed by the assessee and no evidence or Paper Book filed by the assessee. This clearly shows that the assessee is not interested in pursuing the above appeal.
Further the ground raised by the assessee is also general in nature without adducing any evidences in support of its claim. In the absence of the same, the Ld. CIT(A) confirmed the addition after calling for Remand Report from the AO. Further the case laws relied by the A.O. and CIT(A) are in favour of the Department. Decided against assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions addressed in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Legitimacy of the Share Transactions and Eligibility for LTCG Exemption
Issue 2: Justification of Addition under Section 68
3. SIGNIFICANT HOLDINGS
The judgment concludes with the court allowing the appeals of the assessee, thereby affirming the legitimacy of the transactions and the applicability of the LTCG exemption under Section 10(38) of the Income-tax Act, 1961.
Addition u/s 68 - bogus share transaction - Allegation of price rigging or circulation of black money to generate LTCG - HELD THAT:- Assessee earned LTCG related to the scrip MPL through transactions conducted on the BSE. No adverse findings or comments have been issued by SEBI regarding this scrip, and the Ld. DR was unable to submit any such directions or allegations by SEBI related to the scrip in question. AO did not reject any of these primary pieces of evidence during assessment proceeding.
Hon’ble Bombay High Court in Shyam R. Pawar [2014 (12) TMI 977 - BOMBAY HIGH COURT] held that when details of share transactions are substantiated by DEMAT account statements and contract notes, and the AO fails to prove such transactions as bogus, the capital gains cannot be treated as unaccounted income under Section 68 of the Act.
We find no basis to conclude that the assessee was involved in any price rigging or circulation of black money to generate LTCG. The evidence and documents submitted during the assessment proceedings were neither denied nor challenged in terms of their authenticity. - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Allowability of Interest Expenditure under Section 57(iii)
Issue 2: Restriction of Interest Expenditure
3. SIGNIFICANT HOLDINGS
In conclusion, the court allowed the appeal of the assessee, emphasizing the importance of assessing commercial expediency from the taxpayer's perspective and finding no justification for the Revenue's actions in restricting the interest expenditure. The judgment reinforces the application of Section 57(iii) in allowing deductions for expenditures incurred to earn income from other sources.
Addition of interest - interest expenditure claimed by the assessee u/s 57(iii) - no business exigency for which the loan was given at a lower rate of 5.22% which was availed by the assessee at a rate of 9.04%, accordingly, the AO restricted the interest expenditure to a rate of 5.22% - HELD THAT:- Revenue has emphasized on the aspect of business prudence in advancing the loans to the sister concern at lower rates than the rate at which the funds were borrowed by the assessee. In this regard, it is pertinent to note that it is trite law that the test of commercial expediency/business prudence is required to be judged from the point of view of the businessman and not the Revenue. Therefore, we do not find any basis for restricting the interest expenditure claimed by the assessee under section 57(iii) of the Act.
The loan availed by the assessee on interest was used to lend funds to the sister concern on interest and the interest expenditure incurred was claimed as a deduction under section 57(iii) of the Act.
We are considered opinion that the assessee is entitled to claim a deduction under section 57(iii) of the Act in respect of interest expenditure while computing the income under the head “income from other sources”. Accordingly, the impugned disallowance made by the AO and upheld by the learned CIT(A) is deleted. Appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment involves the following core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Treatment of the Amount as Deemed Dividend
Issue 2: Initiation of Penalty Proceedings
3. SIGNIFICANT HOLDINGS
The court's decision underscores the importance of examining the commercial context and purpose of transactions when determining their tax implications under section 2(22)(e) of the Income Tax Act.
Deemed dividend addition u/s 2(22)(e) - advances received by company wherein assessee is one of the shareholders having 35% holding in the company - HELD THAT:- Circular No. 19 of 2017 dated 12/06/2017 issued by the Central Board of Direct Taxes, which provides that the trade advances, which are in the nature of commercial transactions, would not fall within the ambit of the word “advance” in section 2(22)(e).
We find that in Pradip Kumar Malhotra [2011 (8) TMI 16 - CALCUTTA HIGH COURT] held that gratuitous loan or advance given by the company to its shareholders would come within the purview of section 2(22)(e) but not the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder.
In the present case, upon receipt of advance from M/s AGIV India Pvt. Ltd., M/s Paros Corp purchased the shares of IND-AGIV Commerce Ltd. and RST Technologies Ltd., which facilitated the completion of the transaction between M/s AGIV India Pvt. Ltd. and M/s FOR-A Group Japan. Thus, the advance was given in return for an advantage conferred upon M/s AGIV India Pvt. Ltd. by the assessee.
Such a transaction, being completely in the nature of a commercial transaction, would not fall within the ambit of the provisions of section 2(22)(e)and therefore the addition made by the AO is deleted. As a result, grounds raised by the assessee are allowed.
Issues: (i) whether the reassessment was vitiated by alleged defects in the recorded reasons and the stated amount of escapement; (ii) whether receipts for drawings and designs supplied to Indian customers were taxable in India as fee for technical services or business profits; (iii) whether supervisory receipts could be taxed in the year under appeal as fee for technical services or whether the matter required verification in view of the contract completion method and the treaty threshold for a permanent establishment.
Issue (i): whether the reassessment was vitiated by alleged defects in the recorded reasons and the stated amount of escapement.
Analysis: The reassessment was founded on the AO's belief that receipts not offered to tax had escaped assessment. A minor factual discrepancy in the recorded figure was held not to invalidate the reopening because the amount in the reasons and the amount brought to tax were substantially the same, and the basis for reopening remained the escapement of income.
Conclusion: The reassessment was upheld against the assessee.
Issue (ii): whether receipts for drawings and designs supplied to Indian customers were taxable in India as fee for technical services or business profits.
Analysis: The receipts for drawings and designs were examined in the context of the contract terms and the prior view taken in the assessee's own similar matters. The Tribunal treated the issue as governed by the earlier view that such receipts, on the facts presented, were not exigible to tax as FTS/royalty in the manner adopted by the authorities below, and the addition could not be sustained.
Conclusion: The addition on account of drawings and designs was deleted in favour of the assessee.
Issue (iii): whether supervisory receipts could be taxed in the year under appeal as fee for technical services or whether the matter required verification in view of the contract completion method and the treaty threshold for a permanent establishment.
Analysis: The supervisory activity was found to be for a period below the treaty threshold, and the assessee asserted that it followed the contract completion method, under which the relevant receipts were offered in the year of completion. The Tribunal considered this factual position material and found that the correct year of taxation depended on verification of whether the receipts had already been brought to tax in the year of completion. The issue therefore required a limited factual inquiry rather than final sustenance of the enhancement.
Conclusion: The supervisory-receipt issue was remitted for verification, with relief granted subject to that factual determination.
Final Conclusion: The assessee obtained relief on the substantive taxability dispute relating to drawings and designs, the Revenue's appeal failed, and the supervisory-receipt controversy was sent back for limited verification, resulting in a mixed but predominantly assessee-favourable outcome.
Ratio Decidendi: A receipt cannot be taxed as fee for technical services where the relevant contractual and treaty facts show that the amount is not independently chargeable in the manner adopted by the lower authorities, and where a contract-completion accounting approach is pleaded, the correct year of taxation must be verified before making a further addition.
Validity of Reassessment proceedings - reason to believe - assessee has not offered to tax certain receipts from Jindal Steel and Power Limited - HELD THAT:- We observed that as per the information on record, the AO was of the opinion that there is substantial receipts not offered to tax by the assessee and accordingly, he reopened the assessment. Even though there is a small factual error, however the gross amount in terms of rupees mentioned in the reasons supplied to the assessee and the additions made in the assessment order are same. Therefore, we are not inclined to proceed with the objections raised by the assessee for reopening of the assessment.
Consideration received for supply of drawings and designs should be classified as "Fees for Technical Services" (FTS) or "Business Profits" under the Double Taxation Avoidance Agreement (DTAA) between India and Germany - Coming to the issue on merits, we observed that the assessee has declared three invoices in its return of income as exempt from tax however when the case was reopened it has filed its return of income by bringing on record facts clearly and it was submitted before the AO as well as ld. CIT (A) that two invoices of Euro 2,35,000 and 30,500 relates to supply of drawings and designs to Jindal Steel and Power Limited and which is exempt from tax on the basis of ITAT, Vishakhapatnam decision which is in favour of the assessee (it is decided in the case of M/s. SMS Schloemann Siemag AG Germany [2001 (4) TMI 62 - ANDHRA PRADESH HIGH COURT] which is the sister concern of the assessee).
With regard to third invoice of Euro 9,49,600, it was submitted before the ld. CIT (A) that it is relating to supply of equipment.
CIT (A) appreciated the above facts on record and deleted the addition made by the AO relating to supply of equipments. However, he did not consider the decision of ITAT, Vishakhapatnam relating to supply of drawings and designs as royalty/FTS and he proceeded to sustain the addition on the two invoices which assessee has not declared in their return of income. After considering the factual matrix on record, we observed that the ITAT, Vizag has considered the similar issue on record and decided the issue of supply of drawings and designs in favour of the assessee even though as royalties. However, the provisions of royalties and FTS are similar in nature, therefore, we are inclined to accept the submissions of the assessee and we direct the AO to delete the additions proposed in this case.
Claim of the appellant to treat the proceeds towards such supervisory services as non-taxable business profits in the absence of Permanent Establishment ("PE") in India for relevant contracts in terms of Article 7 of the DTAA - CIT (A) has enhanced the addition on the other supervisory services provided by the assessee in the new project for a period of 30 days - HELD THAT:- CIT (A) has enhanced the addition with the observation that the project in which the assessee has provided supervisory services for a period of less than six months still he treated the assessee as a deemed PE and proceeded to enhance the addition. As per the facts on record, assessee has followed contract completion method and accordingly, offered to tax in AY 2016-17 and assessee has submitted the relevant Balance Sheet in its paper book. For the sake of verification, we deem it fit and proper to remit the issue back to the file of AO whether the assessee has offered the relevant revenue based on the method followed by it i.e. contract completion method in the AY 2016-17. In case, it is found that assessee has offered the same in the year of completion, no further addition can be made in the present assessment year. Accordingly, ground no.4 is remitted back to the file of AO with the limited purpose to verify the above aspect after giving opportunity of being heard to the assessee. Hence, ground no.4 is allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The primary legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Denial of Registration under Section 12AB
Issue 2: Applicability of Section 13(1)(b)
Issue 3: Composite Trust Argument
Issue 4: Procedural Aspects of Denial
3. SIGNIFICANT HOLDINGS
Denying registration u/s 12AB - objects of the Trust exclusively for Jain Community which is violation of clause (d) to Explanation of Section 12AB(4) of the Act r.w.s. 13(1)(b) - scope of amended provisions of Section 12AB - HELD THAT:- A conjoint reading of Sections 11, 12, 12A and 12AA of the Act makes it clear that registration u/s 12A and 12AA is a condition precedent for availing benefit u/s 11 and 12. Unless an institution is registered under the aforesaid provisions, it cannot claim the benefit of Sections 11 and 12. Section 13[1][b] prescribes the circumstances wherein the exemption would not be available to a Religious or Charitable trust otherwise falling u/s 11 or 12. Therefore, it requires to be read in conjunction with the provisions of Sections 11 and 12 towards determination of eligibility of a Trust to claim exemption under the aforesaid provisions, while granting registration.
CIT [E] has considered the provisions of sec 13(1)(b) of the Act which is applicable only in a case of Charitable Trust or Institution created or established after commencement of this Act and only for the benefit of any particular religious community or caste namely “Jains” and thereby denied the registration, which in our considered view is well within the provision of amended law and therefore the order denying registration passed by CIT[E] does not require any interference. Decided against assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Violation of Section 269T
Issue 2: Immunity under Section 273B
3. SIGNIFICANT HOLDINGS
Penalty by invoking the provision of sec 271E - default of sec 269T while making repayment of loans by journal entries /book entries to the partners - transactions by way journal entry - HELD THAT:- Where the repayment has been made by the partnership firm to its partners, such transactions are not covered within the fold of s. 269SS/269T of the Act for the reason that under general laws, partnership firm is no different from partners constituting it and a firm is only a compendious name for partners who carry on business etc.
It is the case of the assessee that the repayment has been made by journal entry and a small part paid through banking channel. Thus, the facts available on record would show that no actual payment has been made in cash but has been merely effected by journal entry in the books of the assessee.
As in the case of CIT vs Noida Toll Bridge Co. Ltd. [2003 (1) TMI 46 - DELHI HIGH COURT] had taken judicial view that such repayment of loan by way of journal entry falls outside the ambit of s. 269T. In any case, such transactions are entitled to immunity available u/s 273B of the Act which stipulates that penalty u/s 271E is not to be imposed on a person for any failure, if he proves that there was reasonable cause for such failure in accepting/repaying the loan/deposits in modes other than the ones prescribed.
The journal entries in the instant case appear to have been made with the partner of the firm under the bonafide belief that such transactions would not be hit by the provision of s. 269T in light of various judicial decisions on the issue including the judgement of the Jurisdictional High Court.
There is no finding in the orders of the lower authorities that such transactions by way journal entry were undertaken to evade any tax in any manner. Appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addresses several core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Disallowance of Traffic Challans
Disallowance of Deposits from Customers
CSR Expenditure
Long-Term Capital Gain on Sale of Land
Penalty for Wrong CENVAT Utilized
Delayed Payment of Employees' Contribution to Provident Fund and ESI
Inventory Loss and Leakage
3. SIGNIFICANT HOLDINGS
Disallowance of Traffic Challans and Deposits from Customers: The Tribunal consistently allowed these disallowances in favor of the assessee, following precedents.
CSR Expenditure: The Tribunal held that CSR expenditure could be allowed if it indirectly benefited the business, citing the Ranbaxy Laboratories Ltd. case.
Long-Term Capital Gain on Sale of Land: The Tribunal upheld the AO's determination of the cost of acquisition, dismissing the assessee's appeal.
Penalty for Wrong CENVAT Utilized: The Tribunal held that the penalty was not allowable as it was not yet settled as compensatory.
Delayed Payment of Employees' Contribution to Provident Fund and ESI: The Tribunal followed the Supreme Court's decision, allowing the Department's appeal.
Inventory Loss and Leakage: The Tribunal dismissed the Department's appeal, following past decisions in favor of the assessee.
Final Determinations: The Tribunal partly allowed the assessee's appeals and partly allowed the Department's appeals, with specific directions for future reconsideration where applicable.
Expenditure incurred on CSR - Allowable business expenditure or not? - HELD THAT:- Expenditure incurred on CSR activities may not have direct nexus with the activities of the assessee but it may have indirect and may bring goodwill to the assessee. We observed that similar view was expressed by the coordinate Bench in the case of Ranbaxy Laboratories Ltd. [2009 (6) TMI 126 - ITAT DELHI-I] and decided the issue in favour of the assesse. Thus as the assessee has incurred expenditure for the development of their own staff/workers as well as in the general public interest without there being any obligation imposed upon them, ground decided in favour of assessee.
Addition on account of Long-Term Capital Gain ("LTCG) on sale of land - determination of cost of acquisition for the land in question - adjustment of impairment loss - HELD THAT:- Assessee has not brought on record after acquiring the assets from M/s. Brindavan Beverages, how the cost are allocated and for the purpose of registration, it has booked the value of Rs. 20,93,29,172/-, the combined value for land and building and when such slum sales are being recorded in the books of account the value has to be recorded on the basis of transfer value and if there is any difference between assets acquired and the liability, normally the difference would be charged to goodwill. Nothing has been brought on record to show that what is the value recorded by the assessee in FY 1999-00 after acquisition of the abovesaid factory with the parcel of freehold land and it has only filed fixed assets schedule it contains details of addition on freehold land of Rs. 15,66,92,008/- and also there are several additions in building as well.
It is the duty upon the assessee only to show the fixed assets schedule prepared for the purpose of income-tax alone and in which value of respective assets are disclosed in terms of addition and deletions which tallies with the fixed assets schedule prepared for the purpose of Companies Act. No depreciation schedule prepared for the purpose of income-tax for AY 1999-00 to AY 2014-15 are submitted. The reason for demanding depreciation schedule is, the assessee has acquired not only freehold land but also various buildings. The assessee must have declared the buildings separately and claimed depreciation. No depreciation is allowed in freehold land. Therefore, the claim of the assessee due to business impairment loss adjustment has altered the value of freehold land which assessee has subtracted during the year upon sale is not acceptable and considering the fact that the index cost of acquisition has to be calculated from the actual cost of land acquired by the assessee in FY 1999- 00 - Decided against assesee.
Disallowance on account of penalty paid for wrong CENVAT utilized - AO disallowed the said expenses holding the same to be in the nature of penalty for violation of any law for the time being in force - HELD THAT:- As per the provisions of Section 37, Explanation 1, any expenditure incurred which is offence or prohibited by law shall not be deemed to be incurred for the purpose of business, which shall not be allowed to claim as business expenditure. That be the case, the issue under consideration is not yet settled, unless it is settled as compensation or compounding in nature, the same cannot be allowed to claim as expenditure. Therefore, the above expenditure is not allowable at this stage considering the nature of violation. Decided against assesee.
Delayed payment of the Employees contribution to the Provident Fund, ESI and other welfare funds - HELD THAT:- We observed that this issue is now settled in the case of Checkmate Service Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] Accordingly, in our considered view, this issue is already settled in favour of the Department.
Addition made by the AO on account of inventory loss and leakage - HELD THAT:- We observed that the same issue arose in assessee’s own case for AY 2010- 11 [2023 (7) TMI 1150 - ITAT DELHI] and the same was dismissed by a coordinate Bench of ITAT and the said order in AY 2010-11 has also been followed in subsequent AYs 2011-12 to 2013-14 and 2017-18.
Disallowance of traffic challans and disallowance of deposits from customers to be allowed in favour of assessee as relying on assessee own case [2023 (6) TMI 393 - ITAT DELHI] AY 2009-10 and [2023 (7) TMI 1150 - ITAT DELHI] AY 2010-11 respectively.
Issues: (i) Whether receipts from provision of other related services were taxable as fees for technical services under Article 13(4)(c) of the India-UK Double Taxation Avoidance Agreement. (ii) Whether the initiation of penalty proceedings under section 274 read with section 270A of the Income-tax Act, 1961 was sustainable. (iii) Whether the assessee was entitled to proper credit of tax deducted at source, interest under section 244A of the Income-tax Act, 1961, and correction of the refund adjustment in the computation sheet.
Issue (i): Whether receipts from provision of other related services were taxable as fees for technical services under Article 13(4)(c) of the India-UK Double Taxation Avoidance Agreement.
Analysis: The Tribunal followed its earlier decision in the assessee's own case and noted that the software licence income had been accepted as non-taxable. It held that the related implementation, maintenance, enhancement, consultancy, and training services were connected with the use of the software and, on the facts, the Revenue had not shown that the make available condition was satisfied for the year under appeal.
Conclusion: The receipts of Rs. 13,97,78,164 were held not taxable as fees for technical services and the addition was deleted in favour of the assessee.
Issue (ii): Whether the initiation of penalty proceedings under section 274 read with section 270A of the Income-tax Act, 1961 was sustainable.
Analysis: The ground challenged only the initiation of penalty proceedings and no penalty order was under appeal. The issue was treated as premature.
Conclusion: The ground was dismissed.
Issue (iii): Whether the assessee was entitled to proper credit of tax deducted at source, interest under section 244A of the Income-tax Act, 1961, and correction of the refund adjustment in the computation sheet.
Analysis: The Tribunal directed the Assessing Officer to verify the assessee's claims regarding TDS credit, statutory interest, and refund adjustment, and to give effect according to law.
Conclusion: The matters were restored for verification and appropriate consequential action.
Final Conclusion: The appeal succeeded on the principal transfer-pricing/treaty issue, while the remaining reliefs were either dismissed as premature or remitted for verification, resulting in partial relief to the assessee.
Ratio Decidendi: Where software licence income is accepted as non-taxable and the Revenue fails to establish that ancillary support, training, and related services satisfy the make available requirement, such receipts do not constitute fees for technical services under the treaty.
Taxability in India - sale of software (prime) license fees - Fees for Technical Services (FTS) under the India-UK Double Taxation Avoidance Agreement (DTAA) or not? - ‘Fees for provisions for other related services’ - HELD THAT:- We note that during the present assessment year i.e. AY 2020-21, AO has accepted the claim of the assessee that the ‘sale of software (prime) license fee was not taxable. The Co-ordinate Bench of the Tribunal in AY 2019-20 in the case of the assessee [2023 (4) TMI 1088 - ITAT DELHI] held that when software itself was not taxable, the training and the related activities concerned with utilization and installation cannot be held to be FTS.
CIT-DR could not bring any distinguishing facts to controvert the findings of the above order of the Tribunal. Department has not brought any evidence on record to substantiate that ‘make available’ condition is satisfied in the case of the assessee for this assessment year.
Therefore, we are of the considered view that when software itself is not taxable, the ‘Fees for provisions for other related services’ will also not be taxable. Hence, the addition made treating the ‘Fees for provisions for other related services’ as taxable is not acceptable and the same is deleted. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The judgment addresses several core legal questions, including:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Taxability of Fraudulently Obtained Amounts
Issue 2: Deductions for Recovery or Repayment of Fraudulent Income
Issue 3: Role of the Income-tax Department in Fraud Cases
3. SIGNIFICANT HOLDINGS
Taxability of Illegal Income - Prosecution initiated by the Income-tax Department u/s 277 - fraudulent claim of refunds by producing forged challans - Having recovered the entire amounts from the assessee, can the same amounts be treated as income of the assessee ? - Income-tax Department taxing @ 30-35% of the fraudulent income earned by the assessee by defrauding the Government Department
HELD THAT:- While the taxability of the economic benefits derived from such fraudulent income is beyond the current scope, the fact that the assessee leveraged these funds for personal gains adds weight to the case for taxing the income in the year of accrual. This aligns with the established principle that income, once accrued or received, irrespective of its legality, must be taxed under the Income-tax Act, 1961.
As an undisputable fact that the assessee has admitted to fraudulently earning income and parking the same in the accounts operated by him. The deliberate act of parking funds in the accounts operated by him do not absolve the assessee of the taxability of such income. The assessee had dominion over the funds and utilized them for economic gains, including investments. This clearly establishes that the income accrued to the assessee, making it taxable in his hands.
The leveraging of fraudulently accrued income for economic benefits, such as investments in shares and deposits in the accounts operated by him, further supports its taxability in the hands of the assessee. While the taxation of economic benefits is beyond the current scope, it demonstrates that the assessee exercised full dominion and control over the funds. The fact that the fraudulent income was recovered or repaid in subsequent years does not negate the taxability of the income in the year of accrual.
The doctrine of real income requires taxation at the time of accrual, irrespective of later events.
In CIT v. Shoorji Vallabhdas & Co. [1962 (3) TMI 6 - SUPREME COURT] held that income is taxable when it is received or accrued, and subsequent adjustments do not affect its original taxability. Thus, the assessee’s claim for deductions in respect of recovery or repayment fails, as it does not satisfy the conditions enumerated in Section 57 of the Act. This provision permits deductions only for expenses incurred wholly and exclusively for the purpose of earning income. Recovery of fraudulent income is not an expense incurred for earning taxable income; rather, it represents restitution of wrongful gains.
We also find that the Income-tax Department has initiated prosecution u/s 277 of the Act. This prosecution is primarily launched as per the provisions of the income-tax act for making false statements in verification under the IT Act.
The deductions claimed for the recovery or repayment of fraudulent income in subsequent years are disallowed. Recovery of such income does not constitute an expense incurred wholly and exclusively for the purpose of earning income under Section 57 of the Act. Therefore, the order of the ld CIT(A) confirming the addition of the fraudulent income is hereby upheld. The denial of deductions for subsequent recovery is also upheld, as it aligns with statutory provisions of the Act as well as judicial precedents.
Taxability arises at the point of accrual or receipt. Even if the income is later restituted or recovered, its taxability remains unaffected for the year of accrual. Subsequent adjustments do not negate the taxability for the original period for the matter generation, recovery and restitution are separate transactions. Thus, the act of restitution or recovery is treated independently for taxation purpose. Taxability remains intact for the year of accrual and recovery does not create a retroactive exemption. Under Section 57 of the Act, only expenses incurred wholly and exclusively for the purpose of earning income or deductible. Restitution does not meet the criterion. Allowing deductions for restitution of fraudulently earned income would undermine public policy by creating an incentive to commit fraud.
In this case, the Income-tax Department has to act in dual role of the executor of the income-tax statute and also as an arm of Government. The prosecution launched was limited in its role as the executor of the income-tax statute. The act of perpetuation of a criminality per se have been ignored by the Income-tax Department as a part of Govt. of India. It is well settled principle that tax authorities are not only responsible for enforcing compliance under Income-tax Act but also act as an arm of Government in ensuring that violations of other laws particularly involving public exchequer are addressed through appropriate legal mechanisms. That is the reason inter-departmental organizations such as CEIB/SFIO/FIO have been established. Decided against assessee.
Issues: (i) Whether assessments under Section 153C of the Income-tax Act, 1961 for assessment years 2009-10 to 2012-13 were within the permissible 10-year block for a non-searched person under the first proviso to Section 153C and Explanation-1 to Section 153A(1); (ii) Whether jurisdiction under Section 153C was validly assumed when the searched person's Assessing Officer and the assessee's Assessing Officer had recorded only consolidated satisfaction notes covering multiple years; (iii) Whether proceedings for the extended period beyond six years could be sustained without seized material showing escaped income represented in the form of an asset and without any addition on such undisclosed asset as required by the fourth proviso to Section 153A(1) read with Explanation-2; (iv) Whether approval under Section 153D was valid where it was granted on the same day in a stereotyped and mechanical manner; (v) Whether additions under Section 68 could be sustained where the impugned amounts were not fresh credits in the relevant year and, for part of assessment year 2013-14, had already been disclosed and taxed under the Income Declaration Scheme.
Issue (i): Whether assessments under Section 153C of the Income-tax Act, 1961 for assessment years 2009-10 to 2012-13 were within the permissible 10-year block for a non-searched person under the first proviso to Section 153C and Explanation-1 to Section 153A(1).
Analysis: The applicable legal framework was the post-2017 scheme under Section 153A(1) and Section 153C of the Income-tax Act, 1961. For a non-searched person, the relevant date is not the original date of search on the searched person but the date on which the seized material is received by the jurisdictional Assessing Officer of the other person. On the record produced by the Revenue, the documents were received on 21.01.2021. The Tribunal treated assessment year 2021-22 as the first year for computing the 10-year block under Explanation-1 to Section 153A(1), making assessment year 2012-13 the tenth year and placing assessment years 2009-10, 2010-11 and 2011-12 beyond the statutory outer limit.
Conclusion: The issue was decided partly in favour of the assessee. Assessments for assessment years 2009-10, 2010-11 and 2011-12 were held barred by limitation and quashed; assessment year 2012-13 was held to fall within the 10-year block and this issue was decided against the assessee for that year.
Issue (ii): Whether jurisdiction under Section 153C was validly assumed when the searched person's Assessing Officer and the assessee's Assessing Officer had recorded only consolidated satisfaction notes covering multiple years.
Analysis: Section 153C requires satisfaction by the Assessing Officer of the searched person before transmission of seized material and independent satisfaction by the Assessing Officer of the other person that the material has bearing on the determination of total income. The Tribunal found that the searched person's Assessing Officer had recorded one consolidated satisfaction note for assessment years 2009-10 to 2019-20, while the assessee's Assessing Officer had also recorded consolidated notes for grouped years. The reasoning adopted was that satisfaction for assumption of jurisdiction under Section 153C must be year-specific and must correlate the seized material to the concerned assessment year. The consolidated notes lacked such year-wise correlation and did not validly establish jurisdiction.
Conclusion: The issue was decided in favour of the assessee. The assessments for assessment years 2009-10 to 2013-14 were held invalid for want of valid jurisdiction under Section 153C.
Issue (iii): Whether proceedings for the extended period beyond six years could be sustained without seized material showing escaped income represented in the form of an asset and without any addition on such undisclosed asset as required by the fourth proviso to Section 153A(1) read with Explanation-2.
Analysis: The Tribunal applied the statutory conditions governing the extended period beyond six assessment years. It held that for the relevant assessment years falling in the extended block, jurisdiction could be invoked only if the Assessing Officer possessed material revealing escaped income represented in the form of an asset of the prescribed value. The additions actually made were under Section 68 in respect of loans, advances, share capital and share application money, which are liabilities and not the specified undisclosed assets contemplated by the fourth proviso and Explanation-2. As no addition was made on any undisclosed asset, the Tribunal treated the foundational jurisdictional fact as absent and held that the Assessing Officer could not proceed to make other additions for those years.
Conclusion: The issue was decided in favour of the assessee. The assessments for assessment years 2009-10 to 2013-14 were held unsustainable for want of the jurisdictional requirement applicable to the extended block period.
Issue (iv): Whether approval under Section 153D was valid where it was granted on the same day in a stereotyped and mechanical manner.
Analysis: The Tribunal held that approval under Section 153D is a mandatory supervisory safeguard requiring independent application of mind to the draft assessment order, the satisfaction note, seized material and connected record. The approvals were granted on the very day on which the Assessing Officer sought them and were in identical form for different years. The approval orders did not indicate consideration of the record, did not reflect any reasoning, and did not address patent jurisdictional and legal defects in the draft assessments. The Tribunal therefore treated the approval exercise as mechanical and merely formal.
Conclusion: The issue was decided in favour of the assessee. The approvals under Section 153D were held invalid, rendering the impugned assessments vitiated.
Issue (v): Whether additions under Section 68 could be sustained where the impugned amounts were not fresh credits in the relevant year and, for part of assessment year 2013-14, had already been disclosed and taxed under the Income Declaration Scheme.
Analysis: Section 68 applies only where a sum is found credited in the books of the assessee for the relevant previous year. The Tribunal found that for assessment years 2009-10 to 2012-13 the impugned additions were not based on fresh credits appearing in the assessee's books for those years. For assessment year 2013-14, part of the addition represented opening balance and part represented share application money already recorded in the books and disclosed under the Income Declaration Scheme, on which taxes had been paid. On these facts, the Tribunal held that Section 68 could not be invoked and that repeating taxation on the already disclosed amount would result in impermissible double addition.
Conclusion: The issue was decided in favour of the assessee. The additions made under Section 68, including the additions for assessment year 2013-14, were deleted.
Final Conclusion: The Tribunal held that the Section 153C proceedings suffered from multiple jurisdictional defects, including limitation for some years, invalid and non-year-specific satisfaction, absence of the statutory jurisdictional fact required for the extended block period, and mechanical approval under Section 153D; it also held on merits that the Section 68 additions were unsustainable where no fresh credits existed or the amounts had already been disclosed and taxed.
Ratio Decidendi: For proceedings against a non-searched person under Section 153C of the Income-tax Act, 1961, the block period is reckoned from the date the seized material is received by that person's jurisdictional Assessing Officer; jurisdiction for the extended years requires year-specific satisfaction and existence of escaped income represented in the form of a qualifying undisclosed asset, and assessments based on consolidated satisfaction notes, absence of such jurisdictional fact, or mechanical approval under Section 153D are invalid.
Validity of assessment made u/s 153C being barred by limitation - AR submitted that the assessment year 2009–10 to 2012–13 would be beyond the block of 10 assessment years as per first proviso to section 153C and Explanation-1 to section 153A and assessment made u/s 153C dated 31/03/2022 for the assessment year 2009–10 would be time barred, is liable to be quashed - HELD THAT:- We find that the assessment year 2009-10, 2010-11 and 2011-12 is beyond the block of 10 year as per first proviso to section 153C read with Explanation-1 to section 153A and, therefore, notice issued under section 153C and assessment made under section 153C by the Assessing Officer for the assessment year 2009-10, 2010-11 and 2011-12 is barred by limitation and is invalid, bad in law and is hereby quashed for the want of valid assumption of jurisdiction on the part of the Assessing Officer.
Validity of Satisfaction Note recorded by the AO of the searched person - We find that it is an admitted position that the consolidated satisfaction note was recorded by the Assessing Officer of the searched person before transmitting the documents/ information to the AO of the non-searched person i.e., the assessee in this case for the assessment year 2009–10 to 2019–20 i.e., for 11 years and thereafter the documents have been transferred on 21/01/2021 to the AO of the non–searched persons i.e., the assessee company and subsequently the AO of the assessee company has further recorded consolidated satisfaction note for the assessment year 2009–10 and 2010–11 and thereafter the AO further recorded another consolidated satisfaction note for the assessment year 2011–12 to 2013–14, which is clear from the above discussions.
We rely on the judgment of Sunil Kumar Sharma [2024 (2) TMI 116 - KARNATAKA HIGH COURT] wherein it has been held that satisfaction note is required to be recorded u/s 153C for each assessment year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different assessment year by both the AO i.e., the Assessing Officer of the searched person has recorded consolidated satisfaction note for the assessment year 2009–10 to 2019–20 and thereafter the Assessing Officer of the assessee has recorded consolidated satisfaction note for the assessment year 2009–10 and 2010–11 and another consolidated satisfaction note for the assessment year 2011–12 to 2013–14. There is no co–relation with the documents year–wise to clearly point out as to how the documents pertain to the assessee.
Additions on account of unexplained cash credit and that too share capital / unsecured loans & advances - In our opinion, as the very usurpation of jurisdiction under section 153C is found to be bad in law for want of jurisdiction, the Assessing Officer was precluded from making any other addition in the assessments made for the assessment year 2009-10 to 2013-14. Hence, the action of the Assessing Officer in making addition under section 68 in the relevant assessment year 2009-10 to 2013-14 is held to be unsustainable for want of jurisdiction and is, therefore, it is invalied and bad- in law. Therefore, in view of the aforesaid discussions, we hold that the Assessing Officer’s action of making addition under section 68 of the Act for the relevant assessment year 2009-10 to 2013-14 is untenable in the eyes of law and it is hereby quashed.
Validity of approval granted u/s 153D by the Addl. CIT, Central Range–1, Nagpur, for making assessment under section 153C of the Act for the assessment year 2009–10 to 2013–14 - From perusal of the approval granted u/s 153D it emerges that it is granted on the same day itself on 31/03/2022 on the basis of letter dated 31/03/2022 by the Assessing Officer for seeking approval, though it is separate approval for each year but it is stereo-type approval, in mechanical & routine manner, though it is recorded that he has perused the draft assessment order but he has not pointed out the mistake / error committed by the Assessing Officer in the alleged draft order.
Addl.CIT did not mention anything in the approval order passed under section 153D dt.31/03/2022, even though for each year separately, towards his process of deriving satisfaction so as to exhibit his due application of mind. The Addl.CIT has failed to satisfactorily record its concurrence. Even the approval granted by the Addl.CIT does not refer to any seized material/assessment records/ satisfaction note or any other documents which could suggest that the Addl.CIT has duly applied his mind before granting approvals.
There is no recording of satisfaction by the Addl.CIT in the impugned approval order as to whether the assessment records/ assessment folders/ files/ seized materials or any incriminating documents or other connected documents and papers/ various statements recorded under section 132(4) and section 131(1A) of the assessee or any other person/ appraisal report of the Investigation Wing of the Department/ materials on hand with the Department at the time of initiation of search or material evidences gathered were placed for its verification and the same were duly verified and/or examined by him as mandated under section 153D.
In the absence of compliance of the above mandate, the approval order dated 31/03/2022, passed under section 153D becomes an empty formality without due process of law and, thus, not sustainable. This is nothing but an approval by way of mere mechanical exercise accepting the draft assessment order without any independent application of mind by the Addl.CIT.
Thus approval given by the Addl.CIT, in our opinion, is invalid in the eyes of law and, therefore, hold that approval gvien under section 153D was granted in a mechanical manner and without application of mind and hence, it is treated as invalid and bad in law.
Addition u/s 68 - The said sum is not found credited in the books of account of the assessee-Company in the assessment year 2009–10, which is sine qua non/ pre-requisite/ pre-condition for making addition under section 68 on account of unexplained cash credits and in absence of this pre-condition of recording of credit entry in the books of account which is mandatory for applying section 68, the addition is unjustified. Thus, we conclude that addition of ₹ 60 lakh made in the assessment year 2009-10 is merely on presumption, surmises and conjectures without bringing any material/ evidence on record by the Revenue for substantiating its contention that it is an undisclosed income in the hands of the assessee-Company for the assessment year 2009-10.
Addition on account of unexplained cash credit u/s 68 involved in the assessment year 2013–14 in respect of the amount of ₹ 50 lakh received as share application money from M/s.Suraksha Projects Ltd. in the assessment year 2013-14, which was recorded in the books of account and has been declared income shown in IDS, 2016 (supra) and due taxes has been paid by the assessee. Further, for ₹ 40 lakh received as share application money from Shridhan Jewellery P. Ltd. in the assessment year 2013–14, which was recorded in the books of account and has been declared income shown in IDS, 2016 (supra) and due taxes has been paid by the assessee-Company; on 11/10/2016 as per the surrender made in survey under section 133A dated 26/09/2016 on account of share capital / share application money by the assessee and hence, further making addition of ₹ 1,25,00,000 by the Assessing Officer in assessment made u/s 153C on 31/03/2022 would tantamount to be double addition on the same amount which had already been offered for taxation by the assessee, which we hold to be unsustainable in the eyes of law, and hence, the addition of ₹ 1,25,00,000 lakh is liable to be deleted.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions addressed in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Condonation of Delay
Issue 2: Taxability of Salary Credited to NRE Account
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of adhering to clarificatory circulars issued by the CBDT and highlights the tribunal's role in ensuring that such clarifications are applied consistently to prevent undue taxation of non-resident income.
Accrual of income India - salary accrued to a non-resident seafarer - foreign income of the assessee taxable in India or not? - salary income in foreign exchange to a non-resident assessee whose salary is accrued/ received outside India and remitted to India - process of remittance of funds from out of India to the NRE account of the assessee, the amount was credited in NRE account of the assessee.
HELD THAT:- A perusal of the Circular No. 13/2017 dated 11.04.2017, which is clarificatory in nature, shows that the salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer.
In view of the CBDT Circular, the assessee is entitled to the claim of relief from the applicability of the provisions of section 5(2)(a) of the Act, which is also allowable to the income accrued outside India in view of the decision of Smt. Sumana Bandopadhyay & Another [2017 (7) TMI 503 - CALCUTTA HIGH COURT]
Thus income is held to be not taxable merely because it is credited in the NRE account of the assessee and the findings of the Ld. CIT(A) in this regard are reversed. Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal question addressed in this judgment is whether the declared transaction value by the importer could be rejected and whether the Revenue authorities were justified in enhancing the same based on a Chartered Engineer's report.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The legal framework governing the valuation of imported goods is primarily outlined in the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Specifically, Rule 3 and Rule 12 are pivotal. Rule 3 establishes that the value of imported goods shall be the transaction value, subject to adjustments under Rule 10. Rule 12 provides a mechanism for the proper officer to doubt the declared value and outlines the steps to be followed if such doubt arises.
The judgment references the precedent set by the Supreme Court in the case of Century Metal Recycling Pvt. Ltd. vs. Union of India, which elaborates on the application and interpretation of these rules.
Court's Interpretation and Reasoning:
The court examined whether the Revenue authorities had a valid basis to reject the declared transaction value. According to the judgment, the initial assessment by the customs officers, which suggested that the value appeared low, lacked a concrete basis. The involvement of a Chartered Engineer, who subsequently assessed a higher value, did not align with the procedural requirements established by Rule 12.
Key Evidence and Findings:
The court found that the Revenue did not provide substantial evidence to justify the rejection of the declared value. The initial observation by the customs officers was based on an assumption without a documented rationale. Furthermore, the Chartered Engineer's report, which was used to justify the enhanced valuation, was not supported by evidence indicating any relationship between the importer and exporter or any extraneous factors influencing the transaction value.
Application of Law to Facts:
The court applied the principles from the Century Metal case, emphasizing that the proper officer must have a reasonable doubt, supported by specific reasons, to reject the declared value. The judgment highlighted that the Revenue failed to demonstrate such reasonable doubt or provide a valid basis for the enhanced valuation.
Treatment of Competing Arguments:
The appellant argued that the Revenue's actions were arbitrary and lacked legal justification. The court agreed, noting that the Revenue had not fulfilled the burden of proof required to reject the declared transaction value. The court also observed that the Revenue's actions were premature and not in accordance with the procedural requirements outlined in the legal framework.
Conclusions:
The court concluded that the Revenue authorities erred in rejecting the declared transaction value without a valid basis. The judgment emphasized the importance of adhering to the procedural requirements established by the Customs Valuation Rules and the need for substantial evidence to justify any deviation from the declared value.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
The court noted, "The Revenue has miserably failed in discharging the burden of proving in accordance with law that the declared value was not acceptable for any justifiable reason/s or that the same was hit by the non-fulfillment of Rule 12."
Core Principles Established:
The judgment reinforces the principle that the declared transaction value should be accepted unless there is a reasonable doubt, supported by specific reasons, regarding its truth or accuracy. The procedural requirements outlined in Rule 12 must be strictly followed before rejecting a declared value.
Final Determinations on Each Issue:
The court set aside the impugned order, concluding that the authorities below had erred in rejecting the declared transaction value without any basis. The appeal was allowed with consequential benefits as per law.
The judgment underscores the necessity for customs authorities to adhere to established legal procedures and provide substantial evidence before rejecting declared transaction values, thereby ensuring fairness and transparency in customs valuation processes.
Valuation of imported goods, especially when the importer and the exporter are unrelated - Rejection of transaction value - enhancement of value with the support of a Chartered Engineer’s report - HELD THAT:- The issue has been dealt-with by the Hon’ble Supreme Court in the case of CENTURY METAL RECYCLING PVT. LTD. AND ANOTHER VERSUS UNION OF INDIA AND OTHERS [2019 (5) TMI 1152 - SUPREME COURT] where it was held that 'Declared valuation can be rejected based upon the evidence which qualifies and meets the criteria of ‘certain reasons’. Besides the opinion formed must be reasonable. Reference to foreign journals for the price quoted in exchanges etc., to find out the correct international price of concerned goods would be relevant but reliance can be placed on such material only when the adjudicating authority had conducted enquiries and ascertained details with reference to the goods imported which are identical or similar and ‘certain reasons’ exists and justifies detailed investigation.'
It is never the case of the Revenue that the parties were related, that there was any extra/on money exchanged between the importer and the exporter or that the value admitted in the bill of entry was influenced by any extraneous considerations/circumstances. Hence, as declared by the Hon’ble Apex Court in Century Metal Recycling Pvt. Ltd., it is found that the Revenue has miserably failed in discharging the burden of proving in accordance with law that the declared value was not acceptable for any justifiable reason/s or that the same was hit by the non-fulfillment of Rule 12 ibid.
Conclusion - The authorities below have erred in rejecting the declared/transaction value of the import without any basis.
Appeal allowed.
Issues: Whether the appellant was entitled to the concessional basic customs duty under Notification No. 46/2011-Cus. during the interregnum period notwithstanding the omission later clarified by Notification No. 127/2011-Cus.
Analysis: The dispute turned on whether the later notification merely corrected an inadvertent omission and clarified the original exemption scheme, or whether the benefit stood denied for the intervening period. The reasoning followed the principle that where the Government's consistent exemption policy is later restored or clarified to cure an apparent mistake, the later notification may be treated as clarificatory and the exemption may continue for the disputed period. Applying that principle to the facts, the omission of the relevant tariff headings was treated as not altering the intended exemption coverage during the interregnum.
Conclusion: The appellant was eligible for the benefit of the notification during the interregnum period, and the Revenue's denial of exemption was held to be unsustainable.
Ratio Decidendi: Where an exemption notification is later clarified to correct an inadvertent omission and the original policy of exemption remains intact, the clarification may operate to preserve the benefit for the intervening period.
Scope of amendment by Notification No. 127/2011-Cus. dated 30.12.2011 - Whether the appellant is eligible for the benefit of N/N. 46/2011–Cus. dated 01.06.2011 which provides for concessional rate of Basic Customs Duty (BCD) for all the goods classifiable under CTH 480830 to 480990? - HELD THAT:- Reliance placed upon decision of the Hon’ble Apex Court in the case of M/S. RALSON (INDIA) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH-I [2015 (4) TMI 74 - SUPREME COURT] where it was held that 'Compounded rubber was also rescinded by the same Notification dated 1.3.94 and reintroduced in the same manner vide another Notification issued on 28.3.1994.'
Thus, during the interregnum period, the taxpayer was eligible for the benefit of Notification in question, denial by the Revenue was not in accordance with law.
Conclusion - The appellant was eligible for the concessional rate of BCD under the original notification, even during the period when the notification did not explicitly list the relevant CTH headings.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The judgment addresses the following core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Jurisdiction of DRI Officers:
Liability of the Appellant:
Genuineness of Documents:
Valuation of the Motorcycle:
Bona Fide Purchaser Status:
Burden of Proof:
3. SIGNIFICANT HOLDINGS
Jurisdiction of Directorate of Revenue Intelligence (DRI) officers to issue a SCN under the Customs Act, 1962 - confiscation of the bike and also imposition of penalty on the ground that the bike was smuggled into India and the documents provided along with the said bike are fake - HELD THAT:- Hon’ble Supreme Court in the case of COMMISSIONER OF CUSTOMS VERSUS M/S CANON INDIA PVT. LTD. [2024 (11) TMI 391 - SUPREME COURT (LB)] now held that DRI Officers have jurisdiction to issue show cause notice under Section 28 of the Customs Act.
The appellant states that Department has failed to discharge its burden to prove that the said bike was smuggled into India and being non-notified good, burden is on the Revenue to prove the case. The appellant is genuine buyer of the bike which was registered in the name of another buyer. The concerned bike is registered in the fake name and other documents also found fake. Appellant purchased the bike with a price more than Rs. 13 lakhs in Rs. 5,70,000/- and paid in cash Rs. 5 lakhs without ascertaining the actual owner or registered owner. Bike is find goods as the appellant stated in his statement dated 24.10.2011 that he is interested in owning super bikes and went Marine Drive, Mumbai on a Sunday to attend super bikes assemble held by owners of such motor bikes. Therefore, the appellant is well aware about bikes. In these facts and circumstances, it is clear that appellant is not bonafide purchaser.
Hon’ble Supreme Court in NALIN CHOKSEY APPELLANT VERSUS THE COMMISSIONER OF CUSTOMS, KOCHI [2024 (12) TMI 687 - SUPREME COURT] held that as per Section 125(1) of the Customs Act and the possession of the vehicle can be made liable only when the owner of the goods is not known. In this case, owner of the vehicle is unknown and appellant is possessor of the vehicle. Therefore, he is liable to pay the duty.
Conclusion - The possession of the vehicle can be made liable only when the owner of the goods is not known. In this case, the owner of the vehicle is unknown and appellant is possessor of the vehicle. Therefore, he is liable to pay the duty.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The judgment primarily revolves around the following legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Misclassification of Goods
Valuation of Goods
Confiscation and Penalties
Re-export and Redemption Fine
3. SIGNIFICANT HOLDINGS
Classification of imported goods - Process Betel Nuts - to be classified under CTH as 21069030 or under CTH 08028020 - rejection of declared value - redetermination of value based on the fixed Tariff Value as per the Customs Act, 1962 - confiscation - penalties - permission to re-export the goods.
Classification of goods - HELD THAT:- All the arguments advanced by the appellant in respect of the classification have been considered by Chennai Bench in case of M/S. S.T. ENTERPRISES AND M/S. AYUSH BUSINESS OVERSEAS VERSUS COMMISSIONER OF CUSTOMS (CHENNAI VII) [2021 (3) TMI 27 - CESTAT CHENNAI] and rejected observing 'since the import goods are ‘betel nuts whole‘, these would merit classification under Chapter 8 and specifically under Chapter 0802 80 10 as classified by the department.'
This decision of Chennai Bench ahs been affirmed by Hon’ble Supreme Court in M/S AYUSH BUSINESS OVERSEAS ETC. VERSUS COMMISSIONER OF CUSTOMS (CHENNAI VII) [2021 (3) TMI 1285 - SC ORDER]. Thus, the goods imported by the appellant have been rightly held to be classifiable under the heading 0802 8030.
Valuation of goods - HELD THAT:- The impugned order relies on the Notification of the DGFT fixing the minimum import price for the import of the areca nuts classifiable under Chapter 0802. The minimum import price fixed by the DGFT could not be called the tariff value as has been done by the impugned order. The Tariff Value as defined by the Custom Act, 1962 is the value of the good fixed by the Board and could not have been fixed by any DGFT. Minimum Import Price fixed by the DGFT is an indicative minimum price of the goods imported and the goods if imported below this price could not have been allowed clearance for home consumption. However this price could not have been basis for rejection of the transaction value declared by the importer. Appellant has for this reason instead of clearing the goods for home consumption sought the re-export.
Appellant has in his submissions made before the adjudicating authority has submitted that the redemption fine be imposed on @ of 5%. Agreeing to the submission made, the end of justice will be met if we reduce the redemption fine to 5 of the value determined in the impugned order on the basis of minimum import price fixed by the DGFT. Thus redemption fine in case of goods imported as per B/E No 2329397 is reduced to Rs.3,45,000/- and goods imported as per B/E No.2625658 to Rs.7,50,000/-. Thus the total redemption fine is reduced to Rs.10,95,000/- - the penalty imposed on the appellant under Section 112 (a) of the Customs Act, 1962 reduced to Rs.5,00,000/-.
Conclusion - The goods were correctly classified under CTH 08028020. The confiscation and penalties were justified, and re-export is allowed with a reduced redemption fine.
Appeal allowed in part.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions addressed in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Mis-declaration and Undervaluation
Rejection and Re-determination of Transaction Value
Penalties and Extended Limitation Period
3. SIGNIFICANT HOLDINGS
The judgment provides a comprehensive analysis of the appellants' conduct, affirming the lower authority's decision to impose penalties and re-determine the transaction value based on actual invoices. The court's reasoning underscores the importance of compliance with customs regulations and the consequences of fraudulent practices.
Mis-declaration and undervaluation of transaction value - rejection of declared value under rule 12 of CVR, 2007 - re-determination of value under rule 9 and section 14 of the Customs Act, 1962 - admissibility of statements recorded under section 108 of the Customs Act, 1962 - admissibility of electronic records retrieved from e-mail and requirement of certificate under section 138C - extended period of limitation for recovery under section 28(4) by reason of suppression of facts - confiscation under section 111(m) - penalty under sections 112(a)(ii)/112(b)(ii), 114A and 114AA - onus of proof and standard of quasi judicial satisfaction in valuation cases
Mis-declaration and undervaluation of transaction value - rejection of declared value under rule 12 of CVR, 2007 - re-determination of value under rule 9 and section 14 of the Customs Act, 1962 - Validity of rejection of declared transaction value and re-determination of assessable value for the imported goods - HELD THAT: - On the material recovered during search (parallel commercial invoices showing higher and lower values), admissions in statements recorded under section 108 by the importer and the authorised representative, and corroborative email correspondence, the Tribunal found that two sets of invoices were maintained-one actual higher valued invoice and another lower valued invoice used for customs assessment. Such conduct amounted to manipulation and suppression of actual transaction value. Consequently, the declared value was rightly rejected under rule 12 of CVR, 2007. As valuation could not be resolved under rules 4-8, the adjudicating authority correctly resorted to rule 9 and section 14 to determine value by reasonable means, using the actual invoices and contemporaneous imports from the same foreign supplier and period to compute average values. The Tribunal held that original invoices issued by the foreign supplier, admitted by the parties, constitute the best evidence of transaction value and that Jaspreet Singh's admission to pay duty on that basis further corroborated the re determination. [Paras 12, 15, 17, 18]
Declared transaction value was rightly rejected and value re determined on the basis of actual invoices and contemporaneous imports; no error in applying rule 9 and section 14.
Admissibility of statements recorded under section 108 of the Customs Act, 1962 - admissibility of electronic records retrieved from e-mail and requirement of certificate under section 138C - Admissibility and evidentiary value of statements under section 108 and electronic documents recovered from e mail without separate certificate under section 138C - HELD THAT: - The Tribunal noted settled law that statements made to customs officers under section 108 are admissible and not barred by section 24 of the Evidence Act. The persons whose e mails yielded the electronic documents admitted the truth and authenticity of the retrieved documents and self certified the printouts; accordingly, the absence of a formal certificate under section 138C did not render the documents inadmissible. The Tribunal relied on its earlier and High Court precedents where admitted electronic records recovered from a party's e mail/laptop were treated as evidence. Given the admissions, the electronic invoices fortified the oral statements and were rightly relied upon by the adjudicating authority. [Paras 16, 21]
Statements under section 108 and electronic records retrieved and admitted by the parties are admissible and may be relied upon even without a separate section 138C certificate.
Pre-show cause notice consultation under notification 29/2018-Cus(NT) - right to be heard / procedural compliance - Whether failure to provide pre show cause notice consultation vitiated proceedings - HELD THAT: - The Tribunal observed that consultation provision in notification No.29/2018 does not preclude issuing a show cause notice when the person summoned fails to respond. The records showed repeated summons were served and the appellant deliberately evaded appearance and cooperation. The first proviso to Para 3 of the notification permits proceeding to issue a notice if no response is received within the specified period. Given the appellant's non cooperation, denial of pre show cause consultation did not invalidate the proceedings. [Paras 8, 11]
Lack of pre show cause consultation did not vitiate the adjudication where the appellant wilfully evaded investigation and failed to respond to summons.
Extended period of limitation for recovery under section 28(4) - suppression of facts - Validity of invoking the extended period of limitation based on suppression of facts - HELD THAT: - The Tribunal found deliberate suppression of actual invoices and deliberate evasion of investigation by failure to appear as established facts. Relying on precedent, once suppression is established the extended period may be invoked. The show cause notice issued within five years of knowledge of suppression was therefore timely and proper. [Paras 22]
Extended period of limitation was rightly invoked because suppression of facts and deliberate evasion of investigation were established.
Confiscation under section 111(m) - penalty under sections 112(a)(ii)/112(b)(ii), 114A and 114AA - Liability to confiscation and imposition of penalties on the importer and on the authorised signatory - HELD THAT: - Having found mis declaration, undervaluation, and suppression of invoices with intent to evade duty, the Tribunal held the goods liable to confiscation under section 111(m). The adjudicating authority's imposition of penalties under the cited provisions was affirmed on merits; the quantum of penalty was held proportionate to the re determined valuation. In respect of the authorised signatory, his admissions and role as mastermind supported imposition of penalty under sections 112 and 114AA. [Paras 23, 24, 26]
Goods are liable to confiscation and the penalties imposed on the importer and the authorised signatory are upheld.
Onus of proof and standard of quasi judicial satisfaction - Whether the revenue discharged its initial onus of proof and standard required in undervaluation investigations - HELD THAT: - The Tribunal acknowledged the revenue's duty to discharge initial onus but held that the investigation, statements under section 108, recovered documents, and admissions met the requisite degree of probability in quasi judicial proceedings. The burden shifted to the appellant to rebut, which it failed to do. The Tribunal rejected the appellant's unsupported claim of 'seconds quality' in absence of documentary proof. [Paras 19, 20]
Revenue discharged the initial onus; appellant failed to rebut the case, and the findings based on preponderance of probability stand.
Final Conclusion: The Tribunal affirmed the adjudicating authority's findings of mis declaration, rejection of declared value, re determination of assessable value, invocation of extended limitation, confiscation and penalties; the appeals are dismissed and the penalties and consequential orders are upheld.
Issues: Whether the respondent was entitled to have the rate of duty applied as on the date of the attempted ex-bond filing, where the electronic system returned a negative acknowledgement and the Bill of Entry number was not generated because of a system-related or departmental error.
Analysis: The dispute turned on a mixed question of fact and law. The respondent produced the ICEGATE report showing an attempted filing and negative acknowledgement, and the factual basis of the system error was not effectively rebutted. The principle that he who asserts must prove was applied, but once the respondent established the attempt to file, the onus shifted to Revenue. The rate of duty under Section 15 of the Customs Act, 1962 depends on the date of presentation of the Bill of Entry, while the electronic filing regulations treat filing as complete only when a Bill of Entry number is generated. The Board's circular and instruction recognised that importers should not be penalised for system-related faults, and the warehousing regulations did not require the importer to maintain the bond module in the manner suggested by Revenue. The defect was treated as curable and attributable to the system interface rather than to the respondent.
Conclusion: The respondent was entitled to the benefit of the earlier attempted filing date, and the duty differential was correctly refundable. The issue is answered in favour of the assessee.
Final Conclusion: The appeal failed and the order granting relief to the respondent stood affirmed.
Ratio Decidendi: An importer who proves an attempted timely electronic filing cannot be denied the earlier rate of duty when generation of the Bill of Entry number fails because of a system-related fault not attributable to the importer.
Refund of excess paid duty due to a System error - 6 – 7 months delay in filing the bill of entry after the record of error alluded to by the appellant - whether the appellant was indeed responsible for having caused the error by non-updation of the bond details manually? - HELD THAT:- Section 11(4) states that a licensee shall file with the bond officer a monthly return of the receipt, storage, operations and removal of the goods in the warehouse, within ten days after the close of the month to which such return relates. The said provisions are reiterated in the above-mentioned Boards Circular. As stated by the appellant the provisions did not require an importer to keep the electronic bond module updated. This being so the department cannot fasten the delay in up-dation of the bond module on the importer and deny him the facility to file the bill of entry citing ‘well known procedure’ which has no legal basis. Defects in linking of the bond module and ICES by the department, cannot be made a reason to deny the adherence to a statutory requirement by an importer, more so when the statute does not require the importer to enter such details in the ICES prior to filing a bill of entry. It is at best a curable defect and not a substantive one.
The question arises whether the Commissioner (Appeals) was right in allowing the rate of duty as on 26/09/2018 to be applied after a period of 6 – 7 months, when the goods were actually cleared, which is against section 15 of the Customs Act 1962. It is true that in this case a Bill of Entry number was not generated by the Indian Customs Electronic Data Interchange System (ICES) for the said declaration and the self-assessed copy of the Bill of Entry was not electronically transmitted to the authorised person.
The instruction pertains to payment of charges for late presentation of Bill of Entry, which has a discretionary element, unlike the relevant date for the rate of duty to be effective, which is fixed by the Customs statute and does not leave room for discretion. However, the issue that delays in filing of Bill of Entry happen due to system related faults is acknowledged by the instruction and has legal implications. In an era with progressive use of modern technology, the instruction take a pragmatic view of the procedure in vogue at the time the law was enacted and as applicable to the present. In such a situation the appellant should not be blamed for the delay and held responsible.
Conclusion - The appellant should not be blamed for the delay and held responsible, once it is shown that an importer had attempted filing the bill of entry prior to the issue of a rate change notification. Importers should not be penalized for system-related faults.
No purpose would be served in remanding the matter to the Original Authority to re-examine whether ex-bond bills of entry was filed for the entire lot of imported 6680 packages of Split Air Conditioners as claimed by the appellant or only for a part or for some other goods, as this would involve a fresh investigation of the facts which is beyond the issue on the file of the Original Authority and would result in a new proceedings - the lower authority has taken a view which is reasonable, legal and proper - Appeal disposed off.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment from the Appellate Tribunal CESTAT Chennai revolves around several core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Mis-declaration of Quantity, Grade, and Value
Issue 2: Reliance on Earlier Imports for Valuation
Issue 3: Non-provision of Documents and Data
Issue 4: Sufficiency of the Analytical Report
Issue 5: Onus of Proof
3. SIGNIFICANT HOLDINGS
Alleged import of excess quantity of MACE, beyond the quantity declared in the BE and the value of the goods was also allegedly undervalued - misdeclaration of quantity, grade, and value of imported Mace to evade customs duties - onus to prove - HELD THAT:- The non-supply of the Bill of Entry relied upon to enhance the price of the imported goods and lacunae in the analytical report dated 30.07.2009 given by the Spice Board, Cochin, regarding the grade of the goods is fatal to the department’s case. It is settled law that the onus to prove that the declared price did not reflect the true transaction value is always on the Department. Further NIDB data can be a guideline for the customs to arrive at the value of the goods but the NIDB data cannot be applied directly unless the value given therein falls within the parameters of identical goods or similar goods as stated in section 14 of the Customs Act 1962 and the Customs Valuation Rules. As stated by the Hon’ble Supreme Court, it is always for the Customs Authorities to establish by methods known to law and in a satisfactory manner that the value of imported goods is not what the importer says it is and what that value actually is. That onus cannot be shifted to the importer.
Similarly, any analytical report must state the grade of the goods being tested, the prevalent national / international standards if any for that product and how the product matches or deviates from that standard. Without that, the opinion is of no help. It can only be treated as an opinion in general and not pertaining to the goods in question as in the present case.
Conclusion - The Department failed to meet the burden of proof. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice.
In the light of the infirmities in the SCN and the resultant erroneous decision taken in re-determining the value of the goods in the OIO and the impugned order, the re-determined value merits to be set aside along with fine and penalties imposed. As regards the case of the excess quantity of 590.83 Kgs the price as declared should be adopted and appropriate duty demanded from the importer-appellant as per law - Appeal disposed off.
ISSUES PRESENTED AND CONSIDERED
1. Whether the Commissioner (Appeals) was justified in rejecting an appeal solely on the ground of limitation without considering the appellant's explained reasons for delay.
2. Whether the Commissioner (Appeals) has statutory power to condone delay beyond the prescribed discretionary period and the legal consequence of such limitation on the power to entertain an appeal.
3. Whether procedural fairness / principles of natural justice require adjudicatory consideration of an explanation for delay before mechanically rejecting an appeal on limitation grounds.
4. Whether remand for fresh adjudication on merits is appropriate where the appellate authority has not considered the explanation for delay and there is no evidence of deliberate or inexcusable laches by the appellant.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Rejection of appeal solely on ground of limitation without considering explanation for delay
Legal framework: Appeal provisions under the Customs legislative scheme prescribe a period for filing appeals before the Commissioner (Appeals) and prescribe limited discretion for condonation of delay.
Precedent Treatment: The impugned order relied upon a High Court decision treating limitation strictly; the Tribunal also referenced an Apex Court authority regarding the outer reach of appellate condonation power.
Interpretation and reasoning: The Court observed from the grounds of appeal that the appellant had furnished sufficient explanation for the delay. The impugned order, however, did not engage with or adjudicate those explanations and instead mechanically rejected the appeal by citing the statutory provision and precedent. The Tribunal emphasized that an appellate order must deal with the explanation tendered and cannot be a mere formulaic recital resulting in automatic dismissal.
Ratio vs. Obiter: Ratio - An appellate authority must consider and record reasons on the explanation for delay before rejecting an appeal on limitation grounds; mechanistic rejection without dealing with the explanation is unsustainable. Obiter - The exact standard of sufficiency of an explanation in every factual permutation remains contextual.
Conclusion: The rejection was procedurally flawed because the explanation for delay was not considered; this procedural omission justified intervention.
Issue 2 - Extent of statutory power to condone delay and implications for dismissal
Legal framework: Statutory limitation period and the maximum discretionary window available to the Commissioner (Appeals) to condone delay under the Customs Act.
Precedent Treatment: The Court acknowledged authority that limits condonation power of the appellate authority beyond a specified outer period and drew support from an Apex Court pronouncement on the subject.
Interpretation and reasoning: The Tribunal recognized that where the appeal was filed beyond the statutory discretionary period, the Commissioner (Appeals) may lack power to condone the delay. However, the Tribunal distinguished that legal limitation from the procedural duty to consider the explanation. If the explanation shows the appeal was filed within the discretionary period as effectively received by the appellant (i.e., counting from actual notice), the authority's power dynamics change. Thus, the statutory limitation is a substantive constraint but does not absolve the appellate authority from considering explanations properly.
Ratio vs. Obiter: Ratio - The absence of statutory power to condone delay beyond a defined outer limit stands; however, the authority still must record its reasoning on the explanation when within or relevant to the discretionary window. Obiter - Practical interplay between receipt of order and computation of limitation may vary by facts.
Conclusion: Statutory limitations cap condonation power, but this does not permit mechanical dismissal; factual determination of when limitation begins (actual notice) and consideration of explanations are necessary preliminaries.
Issue 3 - Principles of natural justice and requirement to consider explanation for delay
Legal framework: Principles of natural justice require that a party be heard on material grounds affecting its right to appeal; reasoned decision-making is a component of fair adjudication.
Precedent Treatment: The Tribunal cited general jurisprudence favoring liberal approach to condonation where justice so requires and preventing merits being foreclosed by technicality.
Interpretation and reasoning: The failure to examine and record the appellant's explanation amounted to denial of opportunity to have the matter adjudicated on merits. Given that the appellant proffered reasons - misplacement of the order by an employee, delay in amendment of Bill of Entry due to incorrect consignee details, application for waiver of penalty - the Tribunal held that these explanations warranted consideration under natural justice before limitation-based rejection. The Tribunal further noted the equitable policy that ordinarily a litigant does not benefit from delay and that condonation, where proper, permits adjudication on merits rather than dismissal at threshold.
Ratio vs. Obiter: Ratio - Procedural fairness requires that the appellate authority consider and record reasons concerning delay; failure to do so violates natural justice and is grounds for remand. Obiter - The equitable presumption that appellants do not gain by delay is a guiding principle supporting liberal treatment.
Conclusion: Principles of natural justice mandated adjudicatory consideration of the explanation; absence of such consideration rendered the impugned order infirm.
Issue 4 - Appropriate remedy where appellate authority fails to consider explanation and no deliberate misconduct is shown
Legal framework: Remedies include remand for de novo consideration versus outright dismissal; courts/tribunals may remit matters for fresh hearing where procedural defect prejudices determination on merits.
Precedent Treatment: The Tribunal relied on established jurisprudential policy that refusal to condone delay can result in denial of justice, and that matters should be decided on merit where possible.
Interpretation and reasoning: The Tribunal found no record that the appellant deliberately caused delay or sought to gain by delay. The appeal, when reckoned from the date of actual notice, fell within a one-month period; furthermore, substantive reasons (error in Bill of Entry, administrative amendment time, pending waiver application) supported non-deliberate delay. Balancing prejudice, the Tribunal found no demonstrable prejudice to the department if the matter proceeded to merits. Accordingly, the Tribunal remanded the matter for de novo adjudication by the Commissioner (Appeals), directing a fresh decision within a specified period after affording hearing to both parties.
Ratio vs. Obiter: Ratio - Where an appellate order dismisses an appeal without considering explanations for delay and there is no evidence of deliberate dilatory conduct, remand for fresh adjudication on merits is an appropriate remedy. Obiter - Time limits for remand compliance and procedural directions are case-specific.
Conclusion: The matter was remanded for de novo consideration on merits after affording opportunity of hearing; directions to decide within a fixed period were given to avoid further prejudice.
Time Limitation - Rejection of appeal on the ground of delay - HELD THAT:- It is observed that apparently the appeal has been filed beyond the period of limitation meant for filing the appeal before Commissioner (Appeals) in terms of Section 128 of Customs Act, 1962. However, from the copy of the grounds of appeal filed before Commissioner (Appeals), it is observed that the reason for the delay that occurred in filing the said appeal was sufficiently explained by the appellant. However, the impugned order has not dealt with those reasons. The appeal has mechanically been rejected on ground of limitation by quoting the provision of Customs Act, 1962 and the decision of Hon’ble High Court Delhi in the case of DELTA IMPEX VERSUS COMMISSIONER OF CUSTOMS (ACU) , NEW DELHI [2004 (2) TMI 81 - HIGH COURT OF DELHI]. There is no discussion about the explanation given by the appellant for the delay that has occurred. Though, the Commissioner (Appeals) having no statutory power to condone the delay beyond 90 days of the receipt of order in original, seen from that perspective no infirmity can be found in the impugned order.
In view of the explanation given by the appellant, the appeal was otherwise well within time when it was filed before Commissioner (Appeals). There has been catena of decisions referring that the matter shall be referred to be disposed on merits and the plea of limitation has to be dealt with liberally.
Conclusion - The appeal filed on 30.02.2019 is within one month of date of receipt of order in original with the appellant. Keeping in view that there is nothing on or record, otherwise to show that the appellant deliberately had caused the impugned delay. Otherwise also while appellant is not going to gain anything while causing delay in filing the appeal.
Present is deemed to be a fit case to be re-heard by Commissioner (Appeals) vis-à-vis the merits of the appeal. Resultantly, the matter remanded back for de-novo adjudication on merits without discussing the aspect of limitation - appeal allowed by way of remand.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Reliability of the Test Report
Issue 2: Classification and Anti-Dumping Duty
Issue 3: Confiscation under Section 111(m)
Issue 4: Penalties under Section 114A
3. SIGNIFICANT HOLDINGS
Evaison of ADD - Confiscation - interest - penalty along with anti-dumping duty - misdeclaration of imported goods - Aluminum Printing Plates having one side blue in colour and other side natural aluminum colour, declared as "P.S. Printing Plates (Photosensitive Printing Plate)".
The basic challenge of the appellant is to the test report relying on the findings of this Tribunal in the later decision in Sun N Sand [2024 (10) TMI 158 - CESTAT NEW DELHI], where test report was held to be not reliable as the lab was lacking proper infrastructure for CTCP machine testing and, therefore, outsourced it for testing.
HELD THAT:- The facts of the present case are not identical to the case of Sun N Sand in so far as the authenticity of the test report is concerned. Though in both the cases, the Government labs had refused to conduct the test due to non-availability of the infrastructure and the testing was forwarded to the private lab, i.e., M/s. Don Bosco, however, the present case is distinguishable as the testing had not been outsourced by M/s. Don Bosco and it has also not been proved by the appellant herein that M/s. Don Bosco was not fully equipped to carry out the testing of the samples. In the case of Sun N Sand, it was noted that on cross-examination of the technical expert from M/s. Don Bosco, the Commissioner (Appeals) had set aside the imposition of anti-dumping duty, whereas in the present case as noted by the original authority and as is evident from the absence of the appellant before the adjudicating authority, they have never sought for any cross-examination of the technical experts of M/s Don Bosco and in that view, the contention raised by the appellant that they have not been granted any opportunity of cross examination is unsustainable. Hence, the findings of the Tribunal in Sun N Sand are not applicable in the present case and no fault can be attributed to the test report.
The fact cannot be ignored that as per the procedure for drawing the samples, one sample is given to the aggrieved party, i.e. the appellant herein and the appellant had an option to get the retesting done through the sample given to him, however, they refrained from exercising this right.
On the issue, that the test was conducted after the expiry period of 18 months and therefore, the test report cannot be relied upon has been rightly rejected by the adjudicating authority as the testing agency has no way stated in the test report that the shelf life of the Plates had expired. Nor the appellant had produced any evidence from the supplier about the shelf life of the plates. Considering that the invoice of the goods is dated 18.04.2015 and hence they could have been manufactured sometime before the said date, the samples drawn from the consignment on 03.11.2015 were initially forwarded to the Government lab on 19.11.2015 but due to the unforeseen circumstances, the samples were finally sent on 14.12.2017 and soon, thereafter, the test report was made on 30.03.2017 - Since only the date of invoice as 18.04.2015 is available, the delay, if any, is not really very material as it would not change the nature and characteristics of the goods. The declared goods, as P.S. Plates, would remain the same even on the expiry of eighteen months and would not convert to CTCP Printing Plates. The simple illustration is, that if a food item, for example, bread which normally comes with the specification, “Best before” say 15th January 2025, if tested anytime after the said date would not convert into “Roti”. The bread would remain bread and infact, is edible for a few days later even after the expiry date. Therefore, the argument of the learned counsel that expired goods no way reflect its authentic and correct characteristics on testing has no merit and is unsustainable.
Conclusion - The test report by Don Bosco was not faulty and relying on the same the authorities below have rightly held that the subject goods have been mis-declared by the appellant as Aluminium P.S. Printing Plates so as to evade the imposition of anti-dumping duty under the notification no. 51/2012-CUS(ADD) dated 03.12.2012. The appellant having given wrong description have violated the provisions of section 46(4) of the Act as such the goods are liable for confiscation under section 111 (m) of the Act. Consequently, the appellant is liable to pay the anti-dumping duty of Rs. 44,15,360/- along with the penalty of the same amount under section 114 (A) of the Act.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The Supreme Court judgment revolves around several core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Jurisdiction of the High Court under Article 226
Issue 2: Principles of Natural Justice
Issue 3: Delay in Approaching the High Court
Issue 4: Completeness of the IBC
3. SIGNIFICANT HOLDINGS
Correctness of High Court of Karnataka exercising power of judicial review interdicting Corporate Insolvency Process culminating in the acceptance of a resolution plan by the Committee of Creditors - HELD THAT:- The jurisdiction and power of the Adjudicating Authority under Section 60(5)(c) has already been reiterated by this Court in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019 (11) TMI 731 - SUPREME COURT] and Gujarat Urja Vikas Nigam Limited v. Amit Gupta [2021 (3) TMI 340 - SUPREME COURT]. It is important to note that CIRP proceedings commenced on 26.10.2018, six years ago, and the resolution plan of the appellant was approved in 2020, four years back. The importance of concluding the CIRP proceedings was highlighted by this Court, on a number of occasions.
In a recent order in COMMITTEE OF CREDITORS OF KSK MAHANADI POWER COMPANY LIMITED VERSUS M/S UTTAR PRADESH POWER CORPORATION LIMITED AND OTHERS [2024 (10) TMI 1624 - SUPREME COURT], this Court has observed that an unjustified interference with the proceedings initiated under the Insolvency and Bankruptcy Code 2016, breaches the discipline of law.
In view of the delay in approaching the High Court, particularly when respondent no.1 himself has initiated proceedings under the Code by filing interlocutory applications seeking similar relief, the High Court committed an error in entertaining the writ petition.
Apart from delay and laches, High Court should have noted that Insolvency and Bankruptcy Code is a complete code in itself, having sufficient checks and balances, remedial avenues and appeals. Adherence of protocols and procedures maintains legal discipline and preserves the balance between the need for order and the quest for justice.
Conclusion - The supervisory and judicial review powers vested in High Courts represent critical constitutional safeguards, yet their exercise demands rigorous scrutiny and judicious application.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Inclusion of the Wockhardt Cephalosporin Facility in the Liquidation Estate
Issue 2: Adequacy of Reasons in the Adjudicating Authority's Order
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of adhering to procedural requirements for lease assignments and sub-letting, as well as the necessity for judicial orders to be adequately reasoned to facilitate appellate review.
Reasoned order - assignment of leasehold rights - consent of lessor for sub-letting/assignment - unauthorised sub-letting - liquidation estate
Reasoned order - Whether the impugned order of the Adjudicating Authority was non-speaking and liable to be set aside for failure to record reasons - HELD THAT: - The Tribunal examined the impugned order and the record of proceedings. The Adjudicating Authority had noted the submissions of the applicant and the liquidator, extracted clauses of the Assignment Deed and recorded a brief conclusion that the Assignment Deed established the absolute right of the Corporate Debtor over the property and therefore it formed part of the liquidation estate. On that basis the Tribunal held that reasons, though brief, were recorded and the order could not be set aside solely on the ground of absence of reasons. The Court therefore found no violation of the requirement for a reasoned order in the impugned decision. [Paras 19]
Impugned order is not vitiated for want of reasons; reasons were recorded, albeit briefly.
Assignment of leasehold rights - consent of lessor for sub-letting/assignment - unauthorised sub-letting - liquidation estate - Whether the Wockhardt Cephalosporin Facility (approx. 13,000 sq. ft.) is excluded from the liquidation estate of the Corporate Debtor - HELD THAT: - The Tribunal analysed the title documents on record, including the Lease Deed in favour of the original lessee, the Business Transfer Agreement, the earlier Deed of Assignment in 2002 and the Deed of Assignment dated 27.03.2018 by which Baxter assigned the Waluj lease deed to the Corporate Debtor. The MIDC consent letter dated 09.03.2017 was found to relate to the transfer of the entire Plot No. B-15/2 (64,925 sq. mtrs.) to the Corporate Debtor and the Assignment Deed of 27.03.2018 was relied upon by the Adjudicating Authority to conclude that the Corporate Debtor acquired leasehold rights in the whole plot. The Tribunal observed that the original lease prohibited assignment or sub-letting without prior written consent of MIDC and that there was no record of MIDC having granted a valid consent to sub-let the 13,000 sq. ft. area to the applicant. Correspondence from MIDC treating the arrangement as unauthorised and demanding sub-letting charges reinforced that there was no valid sub-letting consent. Payment of amounts demanded as unauthorised sub-letting charges could not be construed as MIDC consent or as conferring leasehold rights on the applicant. In view of these findings, the Adjudicating Authority correctly rejected the application seeking exclusion of the facility from the liquidation estate. [Paras 7, 8, 23, 26]
The Wockhardt facility is not excluded from the liquidation estate; the Corporate Debtor holds the leasehold rights over the entire plot and no valid MIDC consent for sub-letting in favour of the applicant was established.
Final Conclusion: The appeal is dismissed; the Tribunal upholds the Adjudicating Authority's finding that reasons were recorded and that the Corporate Debtor's assignment of the entire plot, together with absence of MIDC consent for sub-letting, precludes exclusion of the 13,000 sq. ft. facility from the liquidation estate. Parties to bear their own costs.
Issues: (i) Whether, after imposition of moratorium under Section 14(1) of the Insolvency and Bankruptcy Code, 2016, the Employees' Provident Fund authorities could continue assessment proceedings under Sections 7A, 14B and 7Q of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. (ii) Whether a claim based on an assessment made during the moratorium period could be admitted in the corporate insolvency resolution process. (iii) Whether claims filed after approval of the resolution plan by the Committee of Creditors could be admitted in the corporate insolvency resolution process.
Issue (i): Whether, after imposition of moratorium under Section 14(1) of the Insolvency and Bankruptcy Code, 2016, the Employees' Provident Fund authorities could continue assessment proceedings under Sections 7A, 14B and 7Q of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
Analysis: Section 14(1) creates a statutory freeze on the continuation of proceedings against the corporate debtor during the insolvency resolution process. The expression "proceedings" is wide enough to include assessment proceedings that may create new liabilities or affect the assets of the corporate debtor. The Tribunal distinguished authorities that dealt with winding-up proceedings under the Companies Act, 1956, and held that the broader language of Section 14 controlled the situation during CIRP. The decision on customs dues in the later Supreme Court authority was read as permitting only assessment within limits, but not as authorising continuation of EPFO assessment proceedings during moratorium.
Conclusion: No assessment proceedings can be continued by the EPFO after initiation of moratorium under Section 14(1) of the Insolvency and Bankruptcy Code, 2016.
Issue (ii): Whether a claim based on an assessment made during the moratorium period could be admitted in the corporate insolvency resolution process.
Analysis: Once the assessment itself is undertaken or completed in breach of the moratorium, the resulting claim cannot be pressed in CIRP. The Tribunal held that a claim founded on a proceeding prohibited by Section 14(1) cannot be admitted, since doing so would undermine the statutory discipline of the insolvency process. The claim must therefore fail independently of the amount quantified.
Conclusion: No claim founded on an assessment carried during the moratorium period can be pressed in the corporate insolvency resolution process.
Issue (iii): Whether claims filed after approval of the resolution plan by the Committee of Creditors could be admitted in the corporate insolvency resolution process.
Analysis: The claims in both matters were lodged only after the Committee of Creditors had already approved the resolution plan. At that stage, the insolvency process had progressed beyond the point at which fresh claims could ordinarily be entertained. The Tribunal applied the principle that belated claims cannot be introduced after approval of the resolution plan, particularly where the underlying assessment itself was hit by moratorium.
Conclusion: Claims filed after approval of the resolution plan by the Committee of Creditors could not be admitted in the corporate insolvency resolution process.
Final Conclusion: The impugned rejection orders were upheld and the appeals failed, with no interference warranted in the decision of the Adjudicating Authority.
Ratio Decidendi: During CIRP, the moratorium under Section 14(1) bars continuation of assessment proceedings that create or crystallise liabilities against the corporate debtor, and a claim founded on such prohibited assessment, or lodged after approval of the resolution plan, is not admissible in CIRP.
Assessment proceedings can be carried on by the EPFO under Section 7A, 14B and 7Q of the EPF & MP Act, 1952 after imposition of moratorium under Section 14 of the IBC - claim on the basis of assessment, subsequent to imposition of moratorium, can be admitted in the CIRP - claims, which were filed by the Appellant(s), subsequent to the approval of Resolution Plan by the CoC, could have been admitted in the CIRP.
Whether after imposition of moratorium under Section 14 of the IBC, assessment proceedings can be carried on by the EPFO under Section 7A, 14B and 7Q of the EPF & MP Act, 1952? - Whether any claim on the basis of assessment, subsequent to imposition of moratorium, can be admitted in the CIRP? - HELD THAT:- The plain reading of Section 14, sub-section (1) indicates that expression ‘suits or proceedings against the corporate debtor’ has been used. The word ‘proceeding’ is not qualified, so as to confine it to proceedings before the Civil Court. The proceedings, which have the effect on the assets of the CD are all covered in the expression ‘proceeding’. The question to be answered is as to whether after moratorium has been imposed, it was open for EPFO to proceed with the assessment proceeding. Learned Counsel for the parties state that during moratorium proceeding, no recovery proceeding can be initiated against the CD. However, submissions of the learned Counsel for the Appellant is that assessment proceedings against the CD may continue. Hence, the orders of assessment passed during moratorium period, were fully permissible and the claim on the basis of the said proceedings had to be admitted in CIRP.
In the case before the Hon’ble Supreme Court in Sundresh Bhatt, Liquidator of ABG Shipyard [2022 (8) TMI 1161 - SUPREME COURT], demand notice was issued subsequent to initiation of CIRP and that was not the case of any assessment carried out by Customs Authorities and the liquidation order was passed on 25.04.1999 and notice under Section 72 was issued on 11.07.2019, i.e. after the liquidation - It is well settled law that a judgment of the Court has to be read in the context of the facts and ratio of judgment has to be read in reference to the facts, which have come for consideration before the Court. It is well settled that ratio of a judgment cannot be read as statute and above judgment of the Hon’ble Supreme Court, does not support the submission of the Appellant that after imposition of moratorium under Section 14, sub-section (1), it was open for the EPFO Authority to proceed with the assessment and conclude the assessment.
In the present case, admittedly assessment has been completed after initiation of the moratorium. We, thus, are of the view that once order of liquidation is passed, moratorium under Section 14 comes to an end and moratorium under Section 33(5), which is differently worded, comes into play. Under Section 33(5), the expression used are “suit or other legal proceeding”, which occurs in Section 446 of sub-section (1) noticed above. Thus, bar is only against suit or legal proceeding and there is no bar against assessment proceeding to be conducted by statutory Authorities, including the EPFO. Thus, after the liquidation, it is open for EPFO to carry on the assessment. Section 33(5), cannot be held to apply on assessment proceedings. However, while looking to the expression used in Section 14(1), assessment proceedings before the EPFO, cannot be continued after initiation of CIRP.
Whether claims filed by the appellants subsequent to the approval of the Resolution Plan by the Committee of Creditors (CoC) could have been admitted in the CIRP? - HELD THAT:- It is an admitted fact that claims were filed by the Appellant subsequent to approval of Resolution Plan by the CoC. The Adjudicating Authority has relied on the judgment of the Hon’ble Supreme Court in RPS Infrastructure Ltd. Vs. Mukul Kumar & Anr. [2023 (9) TMI 516 - SUPREME COURT], which judgment squarely applies to the facts of the present case. More so, when the claim on the basis of assessment, which has been made subsequent to initiation of moratorium is hit by Section 14, sub-section (1) of the IBC, no such claim can be admitted in the CIRP.
Conclusion - After initiation of moratorium under Section 14, sub-section (1), no assessment proceedings can be continued by the EPFO. If after an order of liquidation is passed, Section 33, sub-section(5), does not prohibit initiation or continuation of assessment proceedings. No claim on the basis of assessment carried during the moratorium period, which is prohibited under Section 14(1) can be pressed in the CIRP. When the claim on the basis of assessment, which has been made subsequent to initiation of moratorium is hit by Section 14, sub-section (1) of the IBC, no such claim can be admitted in the CIRP.
There are no error in the order impugned in the present Appeal(s) passed by Adjudicating Authority - appeal dismissed.
Condonation of delay of 154 days in filing the appeal - no satisfactory explanation given - Revenue appeal against the various issues involved, e.g.: - outdoor catering services - under-valuation of taxable services - in-flight catering services to International and Domestic airlines - bundled services - HELD THAT:- There is a gross delay of 154 days in filing the appeal which has not been satisfactorily explained.
There are no good reason to interfere with the impugned order - The appeal is, therefore, dismissed on the ground of delay as well as on merits.
ISSUES PRESENTED AND CONSIDERED
1. Whether a single protest letter filed by the taxpayer in relation to disputed liability covers subsequent payments made in the same dispute, thereby treating such subsequent payments as made "under protest".
2. Whether payments made during an investigation/audit and contested throughout are to be treated as payments "under protest" even absent express contemporaneous protest notation for each payment.
3. Whether the limitation bar under Section 11B (refund period) is attracted where the amounts paid did not constitute tax levied under authority of law but were payments/deposits made while liability was disputed.
4. Whether interest on the refunded amount is payable under Section 11BB and, if so, from which date and at what rate.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Scope and effect of a single protest letter covering subsequent payments
Legal framework: Principle of "payment under protest" as relevant to refund claims and limitation under the Central Excise / Service Tax refund regime; administrative practice requires demonstration of protest to treat payments as not voluntary.
Precedent Treatment: Followed prior tribunal decisions (e.g., Niphad SSK Ltd.) holding that once an "under protest" letter is filed, subsequent reversals/payments in the same dispute are covered from the date of protest; referenced Supreme Court dicta recognizing protest letters as evidence of non-acceptance of liability.
Interpretation and reasoning: The Court accepted that the initial protest letter dated before the first payment manifested the taxpayer's non-acceptance of the Revenue's view and that subsequent payments were made only after enquiries/investigation; absent any evidence from the Revenue showing that the subsequent payment was voluntary or made in the normal course, the initial protest must be taken to extend to later payments relating to the same dispute.
Ratio vs. Obiter: Ratio - a contemporaneous protest letter relating to a disputed liability applies to subsequent payments in the same dispute unless the Revenue adduces evidence that a later payment was voluntary. Obiter - none identified beyond application to the facts.
Conclusion: The single protest letter filed on 28.03.2006 covers the subsequent payment on 05.07.2006; the second payment must be treated as made under protest and thus not time-barred on that ground.
Issue 2: Treatment of payments made during investigation/audit as payments "under protest"
Legal framework: Principle that payment made while contesting liability, especially during investigation or audit, may be treated as payment under protest; doctrinal support from Supreme Court and tribunal jurisprudence addressing payments made while prosecution of dispute is on-going.
Precedent Treatment: Followed Supreme Court authority (Indian Cement and other cited Supreme Court dicta) and multiple tribunal decisions which hold that payments made during investigation or litigation and contested from inception are to be treated as payments under protest even if not expressly so annotated for each payment.
Interpretation and reasoning: The Court observed that the appellant was not a routine payer of Service Tax for such activity, payments were made only upon Revenue insistence during enquiries, and the appellant had contemporaneously expressed non-acceptance of liability. Where the matter was under investigation and the taxpayer showed intent to contest the levy, payment must be treated as under protest; absence of explicit protest for the second payment is not decisive.
Ratio vs. Obiter: Ratio - payments made during investigation/administrative enforcement and contested from the start are to be regarded as paid under protest; Obiter - examples and supporting case law reiterated but not necessary to decide beyond the facts.
Conclusion: The second payment, made during investigation and in the context of ongoing dispute, qualifies as payment under protest notwithstanding lack of a separate contemporaneous protest letter.
Issue 3: Applicability of Section 11B limitation where amounts paid lacked character of tax levied under authority of law
Legal framework: Section 11B (refund period) and its applicability where payments were not taxes collected under authority of law but deposits made while liability was disputed; principle that limitation bars under provisions applicable only to legally collected duties.
Precedent Treatment: Followed tribunal decisions and Supreme Court authority (UOI v. ITC and related tribunal orders) holding that where collection lacked authority of law or the amount is a deposit, the time bar in Section 11B cannot be applied to deny refund.
Interpretation and reasoning: The Court accepted submissions that Service Tax was not leviable during the impugned period and that the amounts were effectively deposits paid under protest; where tax was not due, Section 11B limitation cannot be invoked to defeat a refund claim of amounts paid without authority of law.
Ratio vs. Obiter: Ratio - Section 11B's time bar does not apply to amounts which do not have the character of duty collected under authority of law and which were deposited while liability was contested; Obiter - discussion of analogous authorities and principles on deposit vs. tax.
Conclusion: Section 11B limitation is not a bar to the refund of the amounts paid under protest which did not constitute legally due Service Tax for the period in question.
Issue 4: Entitlement to interest on refund and rate/date of commencement
Legal framework: Section 11BB provides for interest on delayed refunds; when Section 11B is held inapplicable (or refund is of deposit), tribunals and courts have awarded interest under analogous principles with reference to appropriate rates under notifications and case law.
Precedent Treatment: Followed tribunal decisions (including Parle Agro and other cited authorities) and Supreme Court guidance (Ranbaxy) awarding interest on refunds of amounts deposited during dispute, with courts/tribunals commonly fixing interest at around 12% where statutory rates vary and equitable considerations apply.
Interpretation and reasoning: The Court applied precedent to hold that interest is payable from three months after the date of filing the refund claim (allowing three months for processing) until the date of actual payment; adopting prior tribunal reasoning, a rate of 12% per annum was considered appropriate given variability of notification rates and comparative authority granting similar relief.
Ratio vs. Obiter: Ratio - interest is payable from three months after the refund claim date until payment; a 12% per annum rate is an appropriate exercise of discretion in these circumstances. Obiter - discussion of other rates in prior decisions and policy rationales.
Conclusion: Interest shall be paid on the refunded amount from three months after the refund claim (i.e., from 22.02.2008) until payment at the rate of 12% per annum; refund and interest to be paid within eight weeks of communication of the order.
Cross-references and operative outcome
1. Issues 1 and 2 are interrelated: the Court's conclusion that an initial protest covers subsequent payments is reinforced by the principle that payments made during investigation and contested from inception are to be treated as payments under protest.
2. Issue 3 supports Issues 1 and 2 by removing Section 11B limitation as a bar where the sums were deposits paid while liability was disputed and not taxes collected under authority of law.
3. Issue 4 provides the remedial consequence: refund of the disputed amount found to be paid under protest together with interest @12% p.a. from three months after the refund claim date until payment, payable within eight weeks.
Refund claim - payment made by the appellant under protest is applicable to subsequent payments for the same issue - applicability of limitation period under Section 11B of the Central Excise Act, 1944 - interest on the refund amount under Section 11BB of the Central Excise Act, 1944.
Refund claim - payment made by the appellant under protest is applicable to subsequent payments for the same issue - HELD THAT:- The issue as to whether Service Tax is payable or not on Construction of Residential Complex service was under litigation for quite some time, right from its inception. In the present case, there is nothing to indicate that the Appellants were paying the Service Tax in the normal course. When the enquiries were made, they made two payments of Rs.17,28,454/- on 30.03.2006 and Rs.8,05,266/- on 05.07.2006, filing their under protest letter dated 28.03.2006. Both the payments have been made after this protest letter. No doubt the letter dated 28.03.2006, specifically mentions the payment of Rs.17,28,454 as being done ‘under protest’. But the fact remains that the subsequent payment was made only on 05.07.2006 - Filing such a letter clarifies that they are not subscribing to the view of the Revenue that Service Tax is payable. Such letter would have to taken as the one which pertains to all the payments made subsequently, unless the Revenue comes out any evidence to the contrary to the effect that subsequent payment has been made voluntary and is not made under protest. Such evidence is not forthcoming in the Revenue’s case here.
In the case of M/S NIPHAD SSK LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NASHIK [2017 (1) TMI 1024 - CESTAT MUMBAI] Tribunal has held that once the ‘Under Protest’ letter is filed, it would be applicable for the future payments also. Applying the ratio of this case law, it is held that the ‘Under Protest’ letter filed at the time of the first payment also holds good for the subsequent payments made. The first letter clearly shows the view of the appellant that they are not in agreement with the stand taken by the Revenue.
The appellant cannot be denied the refund of the second amount of Rs.8,05,266/-.
Grant of interest on the refund in terms of Section 11BB - HELD THAT:- In the appellant’s own case, in respect of already granted refund of Rs. Rs. 17,28,454, their appeal was before this Bench. Relying on the judgement of the Hon’ble Supreme Court in the case of RANBAXY LABORATORIES LTD. VERSUS UNION OF INDIA AND ORS. [2011 (10) TMI 16 - SUPREME COURT], this Bench has held 'The appellant has filed the refund claim on 22.11.2007. Hence after considering the period of 3 month’s for processing of this application, the interest would be payable from 22.02.2008 till the date on which the refund has been paid to them.'
In the present case, the Revenue has not pointed out any factual difference from the above case. Therefore, the appellant would be eligible for interest from 3 months from the date of their refund claim letter till the refund is granted.
Conclusion - The appellants are eligible for refund of Rs. 8,05,266/-. The appellant would be eligible for interest from 3 months from the date of refund claim till the refund is paid. The interest payable would be @12% per annum.
Appeal allowed.
Issues: Whether denial of CENVAT credit was justified solely on the ground that the assessee did not produce the original documents in support of its claim.
Analysis: The non-production of original documents was explained on the ground that the records had been destroyed in a cyclone, and the explanation was treated as bona fide. Since the credit was denied only for want of documents, and the assessee sought an opportunity to place the relevant material before the adjudicating authority, the matter was fit to be reconsidered. The appeal was therefore disposed of by remitting the matter for verification of the documents and fresh decision in accordance with law.
Conclusion: The denial of CENVAT credit was set aside and the matter was remanded to the adjudicating authority for fresh consideration after verification of the documents to be furnished by the assessee.
Denial of CENVAT Credit for the reason that the assessee-Appellant herein did not produce the original documents in support of its claim - HELD THAT:- The Appellant has given a plausible reason for non-production of original documents before the Commissioner, which is not suspected. Hence, at the outset, the reasons indicated by the Appellant appears to be bona fide. Further, the denial of Credit has been made only for the reason of non-production of the documents, which was clearly beyond the control of the appellant.
Hence, it would meet the ends of justice if an opportunity is given, by setting aside the order, thereby directing the Appellant to go before the Commissioner/Adjudicating authority before whom the Appellant shall furnish all relevant documents to the satisfaction of the said authority; the said authority shall cause verification of the same and if satisfied, then consider allowing the claim of CENVAT Credit after following the process of law. But in any case, since the issue pertains to the year 2014, it is deemed appropriate to direct the Appellant to co-operate with the Authority without seeking any unnecessary adjournments and thereby enable the said Authority to pass a speaking order after considering the documents that may be furnished before him, within a period of 30 days from the date of the receipt of this Order. All the contentions insofar as the present issue is concerned, are left open.
Conclusion - The denial of Credit has been made only for the reason of non-production of the documents, which was clearly beyond the control of the appellant. Hence, it would meet the ends of justice if an opportunity is given, by setting aside the order, thereby directing the Appellant to go before the Commissioner/Adjudicating authority.
Appeal disposed off by way of remand.
1. ISSUES PRESENTED and CONSIDERED
The core legal question addressed in this judgment is: "Whether the demand of service tax on the appellant for the activity of powder coating of metals and articles of metals is justifiableRs." This involves determining whether the activity qualifies as 'manufacture' under Section 2(f) of the Central Excise Act, 1944, and whether the appellant is entitled to the exemption benefit under Notification No.8/2005-ST dated 01.03.2005.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The legal framework revolves around the interpretation of 'manufacture' under Section 2(f) of the Central Excise Act, 1944, and the applicability of service tax exemption under Notification No.8/2005-ST. The adjudicating authority originally classified the appellant's activity under 'Business Auxiliary Service' (BAS), denying the exemption based on the activity not constituting 'manufacture'.
Court's Interpretation and Reasoning:
The tribunal scrutinized the adjudicating authority's decision, particularly the oversight regarding permission letters issued by SEZ units for outsourcing job work. The tribunal found these letters crucial as they evidenced the intent and authorization for the appellant's activities, which the lower authority failed to consider adequately.
Key Evidence and Findings:
The appellant provided permission letters from SEZ units, which authorized the job work and indicated the purpose and entities involved. The tribunal noted that both parties, including the SEZ units, did not dispute the execution of the job work or the payment involved, which was crucial in establishing the legitimacy of the appellant's claims.
Application of Law to Facts:
The tribunal applied the provisions of Notification No.8/2005-ST, which allows exemption for goods used in the manufacture of duty-paid final products. The appellant's activities were aligned with this requirement, as the SEZ units utilized the processed components in manufacturing final products subject to appropriate duty.
Treatment of Competing Arguments:
The tribunal addressed the adjudicating authority's misapplication of Notification No.4/2004-ST, clarifying that the appellant's claim was under Notification No.8/2005-ST. The tribunal also dismissed the Commissioner (Appeals)'s doubts about the physical delivery of goods, emphasizing the undisputed receipt and payment for the job work.
Conclusions:
The tribunal concluded that the appellant's activity did not fall under 'Business Auxiliary Service' and was entitled to the exemption under Notification No.8/2005-ST. The tribunal's decision was supported by precedents from higher judicial fora, reinforcing the appellant's entitlement to the exemption.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
"We therefore hold that the job worker / Appellant is entitled to the benefit of exemption Notification No.8/2005 (supra) and that the activity of the Appellant was not taxable under BAS."
Core Principles Established:
The judgment establishes that activities authorized and performed under SEZ permissions, where the processed goods are used in the manufacture of duty-paid final products, qualify for exemption under Notification No.8/2005-ST. It also underscores the importance of considering all relevant documents and permissions in tax exemption cases.
Final Determinations on Each Issue:
The tribunal set aside the impugned order, allowing the appeal with consequential benefits as per law. The decision affirmed the appellant's right to the exemption benefit and negated the service tax demand under BAS for the powder coating activity.
Nature of activity - service or manufacture - Process amounting to manufacture or Business Auxiliary Service? - powder coating of metals and articles of metals - HELD THAT:- The Appellant has inter alia furnished before the Adjudicating Authority permissions letters to send the materials for job work since, admittedly, the principals were SEZ units. Strangely, however, the Adjudicating Authority has not at all given due consideration to the said permission letters granted by the Authorized Officer for outsourcing the job work by the SEZ units to the Appellant herein. The said letters are clear in as much as, they indicate the purpose and also identify the entities to whom the job work was outsourced.
On perusal of Notification No.8/2005 makes it clear that the goods received on job work should be used in the manufacture of goods on which appropriate duty is payable. The appellant has claimed that it had performed the job work as instructed by the SEZ units; the SEZ units did not dispute the job work executed by the Appellant for which both the parties did not dispute the payment / consideration and it is nowhere even disputed by the authorities below that the principals / SEZ units had used the said components that underwent the process of job work in the manufacture of final products which attract appropriate duty.
There may be a doubt which is clearly out of context since, when the appellant had claimed to have delivered and the principals / SEZ units having not disputed the receipt of the same and that there has also been flow of consideration that too in cheque, that itself shows that the delivery is complete. But in any case, this aspect having been accepted by the Adjudicating Authority without any doubt and when there was no appeal by the Revenue, the impugned order to this extent is clearly arbitrary, uncalled for and beyond the appellate proceedings and it is also are in violation of the well settled principles of natural justice.
Conclusion - The job worker / Appellant is entitled to the benefit of exemption Notification No.8/2005 and that the activity of the Appellant was not taxable under BAS.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of Penalties
Issue 2: Invocation of Extended Period under Section 73(4)
3. SIGNIFICANT HOLDINGS
Justification for levying penalty - suppression of facts or not - Whether the demand of/imposition of penalty is correct, especially when admittedly, the payments of tax and interest stand discharged before the issuance of SCN? - HELD THAT:- Section 73(3) casts a serious responsibility on the officer who is issuing or proposing to issue SCN, to arrive at or decide or ascertain that the assessee has remitted the tax along with applicable interest. The allegation regarding suppression should not only be based on the non-filing of returns, but with an intention to evade tax.
Here, in the case on hand, the assessee has pleaded that it could not file the ST-3 returns in time because it had no money or, rather they were under financial constraints due to which, they could also not remit the tax and therefore, they could not fill up the requirements of online filing of the returns, which, according to them was a bona fide reason for on filing of their ST3 returns and pay the tax in time. But, however, the fact remains that even before the issuance of SCN, they had remitted the entire tax demand along with interest - there was a plausible explanation on record, by the appellant, which was not found to be incorrect or that there was any other intention unearthed by the Revenue to disbelieve the said explanation. They only reason adopted in the impugned order is Section 73(4) ibid, which carves out an exception to Section 73(3) ibid. In the SCN, though suppression has been alleged, but however, the same is not connected with ‘intent’ to evade tax, since admittedly, the appellant itself has admitted the non-payment for the reasons of its financial constraints, which is not denied by the revenue.
Conclusion - SCN is issued only to impose penalty by invoking the larger period of limitation. This is clearly forbidden under Section 73(3) ibid and the case on hand therefore not covered under Section 73(4) ibid. The Commissioner has therefore erred in passing an unsustainable order which deserves to be set aside.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addresses several core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Services
Issue 2: Exemption under 'Work Contract'
Issue 3: Services to a Governmental Authority
Issue 4: Invocation of Extended Period
3. SIGNIFICANT HOLDINGS
Failure to obtain service tax registration and failure to deposit due service tax liability thereon in government exchequer - manpower recruitment or supply agency - site formation and clearance excavation and earthmoving and demolition services - Extended perod of limitation.
Non-payment of service tax - HELD THAT:- It is found that the show cause notice dated 01.10.2014 was issued by the department for evasion of service tax on the allegation that the appellant has rendered taxable services under the category of ‘manpower recruitment or supply agency’ and ‘site formation and clearance excavation and earthmoving and demolition’ services and did not obtain service tax registration and also did not deposit the service tax liability in government exchequer - in this case, the services were provided to M/s NTPC which is a governmental authority and were exempted from levy of service tax. M/s NTPC is a public sector undertaking under the ownership of the Ministry of Power and is under control of the Government of India and is engaged in generation of electricity.
Hon’ble Apex Court in the case of COMMISSIONER, CUSTOMS CENTRAL EXCISE AND SERVICE TAX, PATNA VERSUS M/S SHAPOORJI PALLONJI AND COMPANY PVT. LTD. & ORS. AND UNION OF INDIA & ORS. VERSUS M/S SHAPOORJI PALLONJI AND COMPANY PVT. LTD. [2023 (10) TMI 748 - SUPREME COURT] has considered the scope of definition of ‘Governmental Authority’ and as per the settled position of law, a ‘Governmental Authority’ means “an authority or a board or any other body: (i) set up by an Act of Parliament or a State Legislature; or (ii) established by government with 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution”.
Extended period of limitation - HELD THAT:- The invocation of extended period in the present case is also not warranted because the appellant had a bona fide belief that no service tax was attracted on the value of services rendered by them to turnkey projects being a minor sub-contractor in projects declared by Government of India as Mega Development Project of National Importance. The appellant even did not get itself registered due to the said bona fide belief and also did not recover any service tax from the main contractor M/s ITD or from M/s NTPC; and there was no intention to evade payment of service tax on the part of the appellant.
Conclusion - Services provided as part of a 'Work Contract' related to dam construction are exempt. The services to a 'governmental authority' are exempt. The invocation of extended period in the present case is also not warranted because the appellant had a bona fide belief that no service tax was attracted.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Services
Issue 2: Qualification as Export of Services
Issue 3: Nature of Payments as Incentives or Discounts
3. SIGNIFICANT HOLDINGS
Classification of service - services provided by the Appellant to Canpotex - Business Auxiliary Services (BAS) or fall under Business Support Services (BSS) and Business Promotion Services (BPS)? - place of provision of services - services are used in India in the hands of the Indian farmers - export of services or not - non-application of mind and uncertainty in the mind of the Adjudicating Authority - violation of principles of natural justice - HELD THAT:- Reliance is placed on the decision of the Tribunal in Paul Merchants Limited vs. Commissioner, [2012 (12) TMI 424 - CESTAT, DELHI (LB)], wherein it was held that the person, who is obliged to make payment for the service and whose need is satisfied by the provision of the service, is the recipient of service. On this ground, the Tribunal held that where the person located abroad is under an obligation to pay for the service and thus pays for it, the service is used outside India. The Tribunal has further held that when the person on whose instructions the services in question have been provided is located abroad, the destination of the service has to be treated abroad. The destination has to be decided on the basis of the place of consumption and not the place of performance. The place of provision of such services is outside the taxable territory and thus, these are not taxable for the period from July, 2012.
In the instant case, considering the nature of services, it is found that the place of provision has to be determined under the general rule, i.e. Rule 3. Under Rule 3 of the POPS Rules, the place of provision of service will be Canada, i.e. location of Canpotex. As the place of provision of these services is outside the taxable territory, the same are not chargeable to Service Tax under Section 66B. In the impugned order the place of provision has been determined under Rule 4(b) of the POPS rules. It is evident from the agreement as well as the impugned order that service was not provided to an individual thus, such rule is not applicable. Further, no recipient of service was acting on behalf of the recipient in India as there was no contract between Canpotex and the farmers and Canpotex was also not present in India, therefore, Rule 4 (b) is not applicable to the facts of the case. Further, the recipient of service is the exporter and not the farmers thus, the presence of exporters determines that the service was performed outside India.
The price of goods sold by one party to another is governed by the mutual understanding thereof. The seller may offer discount to the buyer towards the purchase price which will result into reduction of such sale price. The discount can be given in any form. The form of giving the discount cannot modify the nature of such discount being a factor resulting reduction of the price agreed. In this regard reliance is placed on Union of India vs. Bombay Tyres International Private Limited, [1983 (11) TMI 70 - SUPREME COURT], wherein the Hon'ble Supreme Court laid down the principles for determining the deduction on account of discounts - On a perusal of the observations of the Hon'ble Supreme Court, it is clear that irrespective of the nomenclature used to describe discounts, so far as the discounts are established under the agreement or under terms of sale or by established practice and the nature of the discounts is known at or prior to the removal of the goods, they shall be admissible as deduction for arriving at the transaction value. Further, the Court has categorically held that the discounts shall be allowed even if they are not payable at the time of each invoice.
Conclusion - The said discount, being towards sale of goods, is not covered under any of the categories of services under Section 65(105) and not chargeable to Service Tax under Section 66 of the Act for the period till June, 2012. Similarly, such discount, being towards sale of goods, is excluded from the definition of 'service' under Section 65B(44) of the Act and thus not chargeable to Service Tax under Section 66B of the Act for the period from July 2012.
The confirmation of demand in the impugned order is not sustainable and deserves to be set aside - 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 Issuance of SCN
Issue 2: Imposition of Penalties
Issue 3: Recovery of CENVAT Credit
3. SIGNIFICANT HOLDINGS
The judgment emphasizes the importance of adhering to statutory provisions regarding the issuance of SCNs and the imposition of penalties, particularly when dues are paid proactively by the taxpayer without evidence of fraud or suppression.
Justification in issuance of SCN - whether SCN was justified when the appellant had already discharged the service tax liability along with applicable interest before the issuance of the SCN? - levy of penalty - HELD THAT:- Once the discrepancies were pointed out by the audit team and accepted by the Appellant Assessee and service tax liability was discharged alongwith interest much before the issuance of the SCN, there was no occasion to issue a SCN, as has been consistently held by the Tribunal and the Superior Courts.
The Tribunal in the case of Gardenia India Ltd., [2018 (11) TMI 305 - CESTAT ALLAHABAD] observed 'there was no need for issue of show cause notice in respect of the demands confirmed in the Order-in-Original. We set aside the penalties imposed under section 77 and 78 of Finance Act, 1994 read with Rule 15 of Cenvat Credit Rules.'
Conclusion - In view of the payment of entire amount before issue of show cause notice there was no need for issue of show cause notice. Penalty also set aside.
Appeal allowed.
Issues: Whether service tax was payable on the sale or supply of bought out goods such as spares supplied along with drilling rigs and ancillary equipment, and whether such activity amounted to Business Auxiliary Service.
Analysis: The issue had already been decided in the appellant's own cases, and the Revenue fairly accepted that the controversy stood covered. The prior decisions were followed, and the proceedings had also been dropped in a subsequent matter on the same issue, showing that the controversy no longer survived as an open question.
Conclusion: The issue was held to be no longer res integra and was decided in favour of the appellant. The impugned orders were set aside.
Levy of service tax - Business Auxiliary Service - act of selling / supplying bought out goods (spares) by the appellant to the buyers, while selling drilling rigs and ancillary equipment produced - HELD THAT:- Reliance placed in the case of LMP PRECISION ENGINEERING CO P LTD VERSUS C.C.E & S.T. -VALSAD [2024 (5) TMI 777 - CESTAT AHMEDABAD], where it was held that 'A simple requisition by the customer of the spare parts as may be required by them and delivering the same by them was as per contractual requirement or warranty obligation by the appellant. It would not tend to bring the transaction within the ambit of ‘Business Auxiliary Service’.'
Conclusion - The act of selling / supplying bought out goods (spares) by the appellant to the buyers, while selling drilling rigs and ancillary equipment produced, does not come within the ambit of Business Auxiliary Service.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question in this judgment is whether the profit earned from the sale of land, which was initially intended for purchase, attracts the levy of service tax under the category of "Real Estate Agent" services.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The legal framework revolves around the interpretation of the term "Real Estate Agent" under the service tax laws. The relevant precedents include previous judgments by the Tribunal in similar cases, such as Niliesh Patel (2023), Premium Real Estate Developers (2018 and 2020), and Rattha Holding Co. P. Ltd. (2018). These cases have established that mere trading in land does not constitute a service liable for service tax under the "Real Estate Agent" category.
Court's Interpretation and Reasoning:
The court interpreted that the activity of purchasing and selling land, where profit is made, does not automatically classify the entity as a "Real Estate Agent" for service tax purposes. The Tribunal emphasized the absence of a defined consideration for the alleged service, which is a critical component for establishing a service contract and subsequent tax liability.
Key Evidence and Findings:
The Tribunal relied on the Memorandum of Understanding (MoU) between the parties, which did not specify a fixed remuneration for any service rendered. Instead, the MoU indicated a margin or profit-sharing arrangement, which does not meet the criteria for service tax liability. The Tribunal also noted that some MoUs were not fully executed, further complicating the determination of any service tax liability.
Application of Law to Facts:
The Tribunal applied the legal principles from the precedents to the facts of the case, determining that the transactions in question were primarily trading in land. The absence of a clear service component or defined consideration meant that the transactions could not be classified under "Real Estate Agent" services for service tax purposes.
Treatment of Competing Arguments:
The Tribunal considered the arguments from the revenue department, which contended that the profit from land transactions should be taxed as a service. However, the Tribunal found these arguments unconvincing in light of the established legal principles and the nature of the transactions.
Conclusions:
The Tribunal concluded that the appellant's activities did not fall under the "Real Estate Agent" service category, and thus, the demand for service tax was unsustainable. The appeal was allowed, and the impugned order was set aside.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
"In order to render a transaction liable for service tax, the nexus between the consideration agreed and the service activity to be undertaken should be direct and clear."
Core Principles Established:
The judgment reinforced the principle that for a transaction to be liable for service tax, there must be a clear and direct nexus between the consideration and the service provided. The mere presence of profit in a transaction does not automatically imply a service has been rendered.
Final Determinations on Each Issue:
The Tribunal determined that the appellant's activities were not taxable under the "Real Estate Agent" service category. The revenue's appeal was dismissed, and the appellant was entitled to consequential relief in accordance with the law.
Overall, the judgment underscores the importance of clearly defined service agreements and considerations in determining service tax liabilities, particularly in the context of land transactions.
Levy of service tax - Real Estate Agent service - having sold the land which was intended to be purchased initially for a profit - HELD THAT:- The very same issue in the present appellant company’s case i.e. Rajni Builders Pvt Ltd. the issue in hand has been decided in RAJNI BUILDERS PVT LTD VERSUS C.C.E. & S.T. -VADODARA-I [2024 (8) TMI 1448 - CESTAT AHMEDABAD] whereby this tribunal held that 'in the identical nature of transaction, it was held that assessee cannot be charged with service tax under 'Real Estate Agent'.'
Conclusion - The appellant's activities were not taxable under the "Real Estate Agent" service category.
Appeal of Revenue dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Exemption Notification
Issue 2: Validity of Test Reports
Issue 3: Precedent Value of Tribunal Decisions
Issue 4: Extended Period of Limitation and Penalties
3. SIGNIFICANT HOLDINGS
Benefit of the Exemption on the manufacture of mehandi paste - Recovery of central excise duty with interest and penalty - availment of N/N. 12/2012-CE dated 17.03.2012, as subsequently amended by N/N. 12/2013CE dated 01.03.2013, by the appellant on the manufacture of mehandi paste - extended period of limitation.
Benefit of the Exemption on the manufacture of mehandi paste - HELD THAT:- The period of dispute in the present case is from 01.08.2014 upto 30.06.2017. The Exemption Notification, dated 17.03.2012, against serial no. 134, describes the excisable goods as “henna powder, not mixed with any other ingredient”. This was subjected to six percent excise duty. The amendment made on 17.03.2012 substituted serial no. 134 as “henna powder or paste, not mixed with any other ingredient”. It was subjected to Nil rate of duty. It is the said amendment that would be applicable to the facts of the present case - exemption would be available to an assessee if henna powder is mixed with a liquid, so far that the liquid is a medium to change the form of henna powder into paste. The liquid is not restricted to water. It can be any liquid which is a medium to change the form of henna powder into paste. What has been excluded are products like henna dye and such other products which are cosmetics.
In Prem Henna [2019 (3) TMI 847 - CESTAT NEW DELHI], in the matter of the appellant itself and in the matter of manufacture of henna paste from henna powder, the show cause notice that was issued to the appellant alleged that the appellant was mixing clove oil with henna powder for the manufacture of henna paste and, therefore, since another ingredient was added to henna powder, the appellant would not be entitled to the benefit of the Exemption Notification. Rejecting this contention, the Tribunal held that clove oil is a liquid used to make henna paste from henna powder and make it marketable as such paste in cones. Such a process for making the paste marketable/usable by the customers would not mean that the appellant would not be entitled to the benefit of the Exemption Notification. In this connection, the Tribunal placed reliance upon the letter dated 10.07.2014 issued by the Board regarding the Exemption Notification.
The Commissioner, in the present case, has not accepted the two orders in Prem Henna [2019 (3) TMI 847 - CESTAT NEW DELHI] and in M/S. PREM MEHANDI CENTRE APPELLANT VERSUS CCE, JAIPUR [2018 (12) TMI 2009 - CESTAT NEW DELHI] for the reason that the department did not file appeals to challenge these orders passed by the Tribunal and had accepted the decisions of the Tribunal only on the ground of monetary limit. In this connection, the Commissioner placed reliance upon section 35R of the Central Excise Act to hold that the final orders passed by the Tribunal did not have a binding effect.
The effect of section 35R of the Central Excise Act and the Circular dated 20.10.2010 issued by the Central Board of Indirect Taxes would need to be considered.
The Commissioner, therefore, clearly fell in error in holding that in cases where the department decides not to pursue the matter before a higher appellate forum due to monetary limits, the decision of the Tribunal or the High Court shall not have any precedence value. In fact, the observations made by the Commissioner are against all propriety and judicial discipline. So long as the orders of the Tribunal have not been set aside, the Commissioner is bound to follow the decision of the Tribunal.
In Smt. Kaushalya Devi Bogra and others vs. The Land Acquisition Officer and another [1984 (2) TMI 349 - SUPREME COURT], the Supreme Court also observed that the direction of the Appellate Court is binding on the courts subordinate thereto and that judicial discipline requires and decorum known to law warrants that appellate directions should be taken as binding and followed.
In the instant case, though there were two binding decisions of the Tribunal on the issue that had arisen for consideration before the Commissioner, but the Commissioner decided to not follow the decisions as according to him they had no precedence value.
Extended period of limitation - HELD THAT:- It would not be necessary to examine the contention raised by the learned counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case.
Conclusion - The appellant would clearly be entitled to avail the benefit of the Exemption Notification dated 17.03.2012, as amended on 01.03.2013, when manufacturing henna paste from henna powder.
The order dated 30.12.2020 passed by the Commissioner is, accordingly, set aside - Appeal allowed.
Condonation of gross delay of 3213 days in filing the appeals - no satisfactory explanation provided - HELD THAT:- There are no good reason to interfere with the impugned order dated 15-10-2015 passed by the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench at Ahmedabad in Appeal Nos. E/640/2009-DB, E/1284-1285/2009-DB and E/557/2012-DB respectively.
The appeals are, therefore, dismissed on the ground of delay as well as on merits.
Exemption from Duty - Wrongful availment of N/N. 12/2012-CE dated 17.03.2012 - food preparation supplied to Women Industrial Co-Operative Societies intended for free distribution to the economically weaker sections of the society - it was held by CESTAT that 'The demand of Central Excise duty along with interest and penalty confirmed in the impugned order is set aside.'
HELD THAT:- There is no merit in these appeals and the same are accordingly dismissed.
Condonation of delay - Stay of operation of impugned judgment - Service of notice by all modes including dasti - Consideration under Section 11BB of the Central Excise Act, 1944
Condonation of delay - Six years' delay on the part of the respondent was condoned. - HELD THAT: - The Court recorded that delay has been condoned in favour of the respondent. The order treats condonation as disposed by recording 'Delay condoned' and proceeds to grant further interim reliefs and directions in the petition. No detailed reasoning on the merits of condonation is set out in the order.
Delay is condoned.
Stay of operation of impugned judgment - Consideration under Section 11BB of the Central Excise Act, 1944 - Operation of the impugned judgment was stayed until the next date of hearing on the ground that the impugned judgment allegedly did not take notice of relevant facts and statutory provisions including Section 11BB. - HELD THAT: - The Court observed that the impugned judgment did not take notice of relevant facts and the statutory provisions, specifically referencing Section 11BB of the Central Excise Act, 1944, and therefore directed an interim stay of the impugned judgment's operation until the next hearing. The order is interlocutory and directed at preserving the position pending adjudication on merits after issuance and return of notice.
Stay of the operation of the impugned judgment is granted until the next date of hearing.
Service of notice by all modes including dasti - Notice was issued in the petition and directed to be returnable in the week commencing 24.03.2025, with service permitted by all modes including dasti. - HELD THAT: - The Court directed issuance of notice in the petition, fixed the returnable week, and permitted service by any mode including personal service (dasti). This direction ensures the respondent is given notice of the proceedings in multiple modes to secure appearance and opportunity to be heard on the returnable date.
Notice issued, returnable in the week commencing 24.03.2025, to be served by all modes including dasti.
Final Conclusion: Interim order: delay condoned; notice issued returnable in the week commencing 24.03.2025 (service by all modes including dasti); operation of the impugned judgment stayed until the next date of hearing.
Issues: Whether the demand was barred by limitation and, consequently, whether the appeal was liable to be allowed without examining the merits of the Cenvat credit dispute.
Analysis: The appellant had disclosed the receipt of rejected goods in the statutory records and filed monthly returns, so the relevant facts were already within the department's knowledge. The show cause notice was issued only on the basis of an audit objection, after a considerable delay and without any further investigation. In such circumstances, the ingredients necessary for invoking the extended period were not established.
Conclusion: The demand was held to be time-barred and the appeal was allowed on limitation.
Ratio Decidendi: When the material facts are disclosed in the statutory records and are within the knowledge of the department, the extended period of limitation cannot be invoked merely on the basis of an audit objection without further investigation.
Cenvat Credit in respect of the rejected finished goods received back from the buyer - invocation of extended period of limitation - Suppression of facts or not - HELD THAT:- Though the appellant has recorded the factum of return of the defective goods in their RG 23A Part-I alongwith the relevant invoices and subsequent issuance of the production area for manufacture of finished products but has not been able to establish that the same were cleared on payment of duty. Further, the appellant has also not strictly followed the procedure as prescribed in Rule 16 of Central Excise Rules, 2002. In the absence of clear proof of payment of duty after re-processing of defective goods, it will be difficult for me to give a concrete finding on the said issue; but as far as extended period of limitation is concerned, the appellant has shown the defective goods returned in RG 23A Part-I and has been regularly filing monthly returns before the department and the department has not raised any objection and only during the course of audit conducted by AG Audit (H.P.) during 06.09.2003 to 29.10.2003 it has been pointed out that the appellant has wrongly taken the Cenvat Credit; and thereafter the show cause notice was issued purely on the basis of audit objection which is unsustainable.
The appellant has been regularly filing monthly ER-1 returns for the period in dispute declaring the Cenvat Credit admissible to them and therefore, the appellant cannot be accused of suppression of relevant facts when there are series of instructions issued by the CBIC board directing the field officers to scrutinize the ER-1 returns carefully.
When the audit was conducted in year 2003, the entire information was within the knowledge of the department from the date of conclusion of the audit, but in spite of that, the show cause notice was issued after a gap of three years without any further investigation conducted by the department from the date of conclusion of audit. It has been consistently held by various Courts that when the relevant facts are within the knowledge of the department, the extended period for raising the demand cannot be applied.
Conclusion - The show-cause notice was issued purely on the basis of audit objections without the necessary investigation which must precede action under Section 11A of the Act. The demands based solely on audit objections without further investigation are unsustainable and that extended periods cannot be applied when facts are known to the department.
The appeal of the appellant allowed on limitation alone by setting aside the impugned order.
Issues: (i) whether a refund claim under the Central Excise Act could be used to question an unchallenged self-assessment and obtain re-determination of duty; (ii) whether the appellant discharged the burden of proving that the incidence of duty had not been passed on so as to avoid the bar of unjust enrichment.
Issue (i): Whether a refund claim under the Central Excise Act could be used to question an unchallenged self-assessment and obtain re-determination of duty.
Analysis: Refund proceedings were treated as executionary in nature and not as a forum for fresh assessment or re-assessment on merits. The self-assessment made at clearance had not been appealed against or modified in the statutory manner, and therefore the refund authority could not reopen the assessment issue while considering the refund claim. The challenge to the valuation basis could not be sustained in refund proceedings.
Conclusion: The issue was decided against the assessee.
Issue (ii): Whether the appellant discharged the burden of proving that the incidence of duty had not been passed on so as to avoid the bar of unjust enrichment.
Analysis: The statutory scheme places the burden on the claimant to establish that duty was borne by it and not passed on to any other person. The presumption under the excise law and the surrounding documents at the time of clearance supported the view that the duty incidence had been included in the sale realization. Subsequent material, including a later certificate, was not accepted as sufficient to displace the statutory presumption or the contemporaneous record. The refund claim therefore failed the test of unjust enrichment.
Conclusion: The issue was decided against the assessee.
Final Conclusion: The refund claim was not maintainable on the facts and law applied, and the dismissal of the appeal was sustained because the assessment could not be reopened in refund proceedings and the statutory bar of unjust enrichment was not overcome.
Ratio Decidendi: A refund claim under excise law cannot be used to circumvent an unchallenged assessment, and refund is payable only when the claimant proves, in terms of the statutory presumption, that the duty burden was not passed on to another person.
Refund of central excise duty under Section 11B of the Central Excise Act, 1944 - Self Assessment - Claim on the ground that excess payment of such duty made due to wrong valuation of goods - rejection on the ground that appellant have failed to justify that the burden of central excise duty paid by them and have not been passed on to the customers - principles of unjust enrichment - HELD THAT:- In the present case appellant have paid the duty of self assessment basis. Whether the issue with regards to applicability of Section 4A or Section 4 for making assessment of duty could not have been raised by the appellant in these proceedings of refund in terms of Section 11B of Central Excise Act, 1944 needs to be considered in the light of decision of Hon’ble Supreme Court in the case of ITC LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLKATA -IV [2019 (9) TMI 802 - SUPREME COURT (LB)]. Hon’ble Supreme Court has specifically held that 'The provisions under Section 27 cannot be invoked in the absence of amendment or modification having been made in the bill of entry on the basis of which self- assessment has been made. In other words, the order of self-assessment is required to be followed unless modified before the claim for refund is entertained under Section 27. The refund proceedings are in the nature of execution for refunding amount. It is not assessment or re- assessment proceedings at all. Apart from that, there are other conditions which are to be satisfied for claiming exemption, as provided in the exemption notification. Existence of those exigencies is also to be proved which cannot be adjudicated within the scope of provisions as to refund. While processing a refund application, re- assessment is not permitted nor conditions of exemption can be adjudicated.'
Nothing has been brought on record to show that the self assessment made by the appellant at the time of clearance of these goods was ever appealed against by the appellant before the Commissioner (Appeals) in terms of Section 35 of Central Excise Act, 1944 or the order of self assessment has been modified. In absence of such modification the submissions made by the appellant in these proceedings under Section 11B challenging the self assessment made for claiming this refund cannot be said to be proper. In view of the above referred decision of Hon’ble Supreme Court were in it has been specifically held that refund proceedings under Section 11B are executionary in nature.
Conclusion - The refund proceedings are in the nature of execution for refunding amount. It is not assessment or re-assessment proceedings at all. The appellant failed to prove entitlement to a refund under Section 11B.
There are no merits in this appeal - appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Sustainability of the Demand for Central Excise Duty
Issue 2: Inclusion of Industrial Customer Clearances
Issue 3: Imposition of Interest and Penalty
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of correctly categorizing clearances for duty assessment and reaffirms that penalties cannot be imposed when the underlying duty demand is invalid.
Central Excise Duty for the period prior to registration - inclusion of clearances made to industrial customers in the assessable value - HELD THAT:- The claim made by the appellant is substantiated with documentary evidence. The clearances made to industrial customers is also included while computing the duty demanded in the impugned order. Since MRP based assessment is not applicable to clearances made to industrial customers, the submission made by the Appellantagreed upon, that the value of clearances amounting to Rs.3,62,038/- needs to be reduced from the value of Rs.1,53,53,283/- worked out by the Department for demanding duty. If this amount is reduced, then the value of clearances made during the Financial Year 2014-15 prior to 31.01.2015 i.e., the date of taking registration, works out to Rs.1,49,91,245/- - There is no demand liability to be paid by the Appellant for the period prior to 31.01.2015. There is no dispute that the Appellant has adopted the MRP based assessment after taking registration with effect from 31.01.2015.
Since the demand itself is not sustainable, the question of demanding interest and imposing penalty does not arise.
Conclusion - MRP-based assessments are not applicable to industrial customer clearances, and demands based on incorrect assessments are unsustainable. No demand liability to be paid by the Appellant for the period prior to registration.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addressed the following core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Annual Maintenance Contract
Printing and Card Personalization
Trading or Resale
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of examining the contractual obligations and factual circumstances surrounding the movement of goods to determine their classification under the CST Act. The Tribunal's decision reflects a nuanced approach to differentiating between stock transfers and inter-state sales, emphasizing the need for detailed scrutiny of each transaction.
Disallowance of claims of branch transfers by CMS Computers under section 6A of the CST Act - inter-state sale or not - levy to tax under the CST Act with interest and penalty - HELD THAT:- It is seen that the Assessing Officer has not provided any specific finding and had given a general finding that there were pre-existing orders for movement of goods. Mere existences of pre-existing purchase orders, prior to movement of goods, does not automatically imply that the entire movement constitutes an inter-state sale, particularly when the goods are stock transferred in the regular course of business. CMS Computers had to maintain ample stock at the branch office to fulfill the orders placed by the different customers. The Assessing Officer was obliged to evaluate each transaction involving the transfer of goods before deciding whether to allow or disallow the branch transfer.
In this connection reference can be made to the judgment of the Supreme Court in Tata Engineering Locomotive [1970 (3) TMI 104 - SUPREME COURT], wherein it was held that 'It has been suggested that all the transactions were of similar nature and the appellant’s representative had himself submitted that a specimen transaction alone need be examined. In our judgment this was a wholly wrong procedure to follow and the Assistant Commissioner, on whom the duty lay of assessing the tax in accordance with law, was bound to examine each individual transaction and then decide whether it constituted an inter-state sale exigible to tax under the provisions of the Act.'
Conclusion - The State Tribunal had meticulously examined the decisions and the factual position and has, therefore, considered it appropriate to remand the matter to the Assessing Officer to verify the lorry receipts/dispatch proof in respect of each of the transactions. There is, therefore, no infirmity in order passed by the State Tribunal.
Appeal dismissed.
Issues: (i) Whether a cheque issued as advance payment for purchase of a vehicle, in the facts pleaded, constituted discharge of a legally enforceable debt or other liability so as to attract Section 138 of the Negotiable Instruments Act, 1881. (ii) Whether the summoning order was vitiated for want of the mandatory inquiry under Section 202(1) of the Code of Criminal Procedure, 1973, where the accused was residing beyond the territorial jurisdiction of the Magistrate.
Issue (i): Whether a cheque issued as advance payment for purchase of a vehicle, in the facts pleaded, constituted discharge of a legally enforceable debt or other liability so as to attract Section 138 of the Negotiable Instruments Act, 1881.
Analysis: The complaint was examined against the statutory scheme of Sections 118, 138 and 139 of the Negotiable Instruments Act, 1881. The presumption under Section 139 operates only in relation to a cheque issued for discharge of a legally enforceable debt or liability and remains rebuttable on a probable defence. On the facts, the Court accepted the defence version that the cheque was issued as an advance payment in connection with a proposed purchase, and held that such an advance does not represent an existing enforceable liability for the purposes of Section 138. The absence of disclosure of the real relationship between the parties and the circumstances surrounding the transaction further weakened the complainant's case.
Conclusion: The cheque was not treated as one issued in discharge of a legally enforceable debt or liability, and the complaint under Section 138 of the Negotiable Instruments Act, 1881 was held not maintainable.
Issue (ii): Whether the summoning order was vitiated for want of the mandatory inquiry under Section 202(1) of the Code of Criminal Procedure, 1973, where the accused was residing beyond the territorial jurisdiction of the Magistrate.
Analysis: The amended Section 202(1) of the Code of Criminal Procedure, 1973 requires postponement of process and inquiry or investigation where the accused resides beyond the area of the Magistrate's jurisdiction. The Court relied on the settled principle that this requirement is mandatory and that failure to comply renders the process vulnerable. As the applicant was residing beyond jurisdiction and no such inquiry was shown to have been undertaken before issuance of summons, the summoning order was found procedurally unsustainable.
Conclusion: The summoning order was held to be vitiated for non-compliance with Section 202(1) of the Code of Criminal Procedure, 1973.
Final Conclusion: The criminal proceedings and summoning order were quashed in exercise of inherent jurisdiction, the Court finding both the absence of an enforceable liability under the cheque transaction and the procedural illegality in the pre-summoning process.
Ratio Decidendi: A cheque issued as advance payment, without an existing legally enforceable debt or liability on the relevant date, does not attract Section 138 of the Negotiable Instruments Act, 1881; and where the accused resides beyond the Magistrate's jurisdiction, the inquiry mandated by Section 202(1) of the Code of Criminal Procedure, 1973 must be conducted before issuance of process.
Dishonour of Cheque - legally enforceable debt or other liability - Nature of Advance Payment - whether the cheque as given by the applicant was in discharge of a legally enforceable debt/liability or not? - Complainant i.e. opposite party no.2 has not disclosed the lawyer and client relationship between him and the applicant - HELD THAT:- It is clear that for commission of an offence under Section 138 N.I. Act, the cheque that is dishonoured must represent a legally enforceable debt not only on the day when it was drawn but also on the date of its maturity/presentation. If the cheque presented for collection of total value of the cheque without endorsing the part payment made by the drawer is dishonoured no offence under Section 138 N.I. Act would be attracted, as being held in the case of DASHRATHBHAI TRIKAMBHAI PATEL VERSUS HITESH MAHENDRABHAI PATEL & ANR. [2022 (10) TMI 424 - SUPREME COURT].
In the present case, the opposite party no.2 has mentioned that he had given Rs.12,25,000/- in cash to the applicant for purposes of purchasing property. Although, in the complaint as well as notice, the complainant has spoken about returning of Rs.11,00,000/- by giving a cheque in this regard but there is no whisper about Rs.1,25,000/-. In case it is taken that Rs.1,25,000/- has already been paid, therefore, as part payment was already made, the complaint under Section 138 N.I. Act could not have been entertained - Be that as it may, once the complainant i.e. opposite party no.2 has not disclosed the lawyer and client relationship between him and the applicant and as for the first time admitted the aforesaid fact in his counter affidavit, the story in the complaint of giving advance in cash without disclosing as to how and from where such an arrangement was made also gives benefit to the applicant who under such relationship as admitted by the opposite party no.2 in his counter affidavit has mentioned about an agreement which cannot be disbelieved by this Court.
As per the provision of Section 202 Cr.P.C. as amended with effect from 23.6.2006, the requirement is that in those cases where the accused is residing at a place beyond the area in which the concerned Magistrate exercises his jurisdiction, it is mandatory on the part of Magistrate to conduct an enquiry or investigation before issuing the process. That means, in case, if such an enquiry is not conducted in cases where the accused resides at a place beyond the area in which the Magistrate exercises his jurisdiction, the purpose of amendment in Section 202 Cr.P.C. would frustrate.
Further the Apex Court in BHARAT BARREL & DRUM MANUFACTURING COMPANY VERSUS AMIN CHAND PAYRELAL [1999 (2) TMI 627 - SUPREME COURT], had considered Section 118(a) of the Act and held that once execution of the promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by a consideration. Such a presumption is rebuttable and defendant can prove the non-existence of a consideration by raising a probable defence.
The present case appears to be a case of malicious prosecution wherein the opposite party no.2 has concealed the real fact of lawyer-client relationship and has wrongly disclosed about Dilip Kumar Singh who is related to the applicant being Manager of the Institution where opposite party no.2 was working at the relevant point of time to which the Court cannot close its eyes as at the instance of relative of the applicant, the present complaint has been filed concealing the real relationship of lawyer & client.
It is also relevant to point out the fact that scope and ambit of Section 482 Cr.P.C. is a very agitated and debatable issue. Nevertheless, there are some cases which have got wide acceptance in the legal fraternity and hence, are used as the minor guidelines/principles governing the cases of quashing criminal proceedings.
Conclusion - In the facts of the present case, where it has been established that opposite party no.2 has not approached the Court with clean hand, noticing his conduct as is clear from the records, this Court finds it to be a fit case for exercising powers under Section 482 Cr.P.C. Keeping in mind that criminal prosecution is a serious matter, it effects the liberty of a person, no greater damage can be done to the reputation of a person than dragging him in a criminal case, continuance of prosecution would be nothing but an abuse of the process of law and will be a mental trauma to the applicants, it becomes necessary for this Court to invoke inherent powers under Section 482 Cr.P.C. in present facts and circumstances of his case.
This Court finds a good ground for quashing the impugned summoning order as well as entire proceedings - The present application under Section 482 Cr.P.C. is, accordingly, allowed.
TaxTMI 