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1. ISSUES PRESENTED AND CONSIDERED
(i) Whether Section 16(2)(c) of the CGST Act, 2017 is unconstitutional as violating Articles 14, 19(1)(g), 265 and 300-A of the Constitution, when it conditions ITC on the supplier's actual payment of tax to the Government.
(ii) Whether Section 16(2)(c) should be read down so that ITC is not denied to a bona fide purchasing dealer who has paid GST to the supplier and whose transaction is not collusive/fraudulent.
(iii) Whether the demand order reversing ITC, issued under Section 73 (i.e., not involving fraud/wilful misstatement/suppression), could be sustained against a purchaser where the supplier defaulted in remitting collected GST.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i) - Constitutionality of Section 16(2)(c)
Legal framework: The Court examined Section 16(2)(c), which conditions entitlement to ITC on the tax charged on the supply having been "actually paid to the Government", and noted the statutory scheme of ITC as avoiding double taxation, while treating ITC as available subject to eligibility conditions under Section 16.
Interpretation and reasoning: The Court accepted that the statutory condition linking ITC to actual payment to Government is part of the legislative design, and applied the presumption of constitutionality. It held that the provision can be sustained if interpreted in a constitutionally compliant manner, because the vice identified was not the mere existence of the condition, but its blanket application even to bona fide purchasing dealers who cannot practically verify the supplier's remittance.
Conclusion: Section 16(2)(c) was held not violative of Articles 14, 19(1)(g), 265 or 300-A.
Issue (ii) - Reading down Section 16(2)(c) to protect bona fide purchasers
Legal framework: The Court applied the principle of reading down to preserve constitutionality where a provision, if applied literally in all cases, produces arbitrary/disproportionate results. The Court treated the practical impossibility for a purchaser to ensure the supplier's tax remittance as central to Article 14 scrutiny.
Interpretation and reasoning: The Court found (and noted the respondents did not dispute) that there is no mechanism enabling the recipient to verify whether the supplier has filed the relevant return and actually paid tax to the Government, making compliance with a literal reading effectively impossible for an honest purchaser. It held that placing the risk of the supplier's default on a bona fide purchaser imposes an "onerous burden" and leads to disproportionate consequences, making the blanket denial of ITC vulnerable under Article 14. The Court further reasoned that denying ITC to a purchaser who already paid GST to the supplier would, in effect, compel a second payment without an express legislative mandate for double taxation in such circumstances, undermining the purpose of ITC as avoidance of double tax burden.
Conclusion: Section 16(2)(c) was read down and held inapplicable to deny ITC where the purchase transaction is bona fide. It is to be applied to deny ITC only where the transaction is not bona fide or is collusive/fraudulent to defraud revenue.
Issue (iii) - Validity of the ITC reversal/demand order against the purchaser under Section 73
Legal framework: The Court treated invocation of Section 73 (cases not involving fraud/wilful misstatement/suppression) as significant for characterising the purchaser's conduct and the nature of the transaction.
Interpretation and reasoning: The Court held that the department did not allege that the purchaser failed to pay GST to the supplier or that the transaction was collusive or fraudulent; rather, the case proceeded on the basis that the supplier retained the tax and failed to remit it. Since the proceeding was under Section 73 and not under the fraud-related provision, and since the purchaser's payment of GST to the supplier was not disputed, the Court concluded the transaction was bona fide and the supplier's conduct was blameworthy. On the Court's reading down of Section 16(2)(c), the purchaser could not be denied ITC merely because the supplier failed to deposit the tax.
Conclusion: The impugned demand order reversing ITC was set aside, and the authorities were directed to allow ITC to the purchaser to the extent denied.
Constitutional validity of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 - availment of input tax credit on the supplier having actually paid the tax to the Government - HELD THAT:- There is a failure by the Parliament, while enacting Section 16 (2)(c) of the Act, to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the Act and those that have not. Therefore, there is need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers - The purchasing dealer cannot be asked to do the impossible, i.e., to identify a selling dealer who will not deposit with the Government, the tax collected by him from purchasing dealers, and avoid transacting with such selling dealers.
What section 16(2)(c) of the Act requires the purchasing dealer to do is that after transacting with the selling dealer, somehow ensure that the selling dealer does in fact deposit the tax collected from the purchasing dealer; and if the selling dealer fails to do so, undergo the risk of being denied the ITC. It would be extremely difficult for a purchasing dealer to ensure that the selling dealer deposits the GST collected from him with the Government - if the law seeks to visit disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution.
In CST v. Radhakrishan [1978 (10) TMI 38 - SUPREME COURT] sanction for prosecution of a dealer under the M.P. General Sales tax Act was given by the Commissioner of Taxes under section 46 (1) (c) of the said Act, though there was a procedure for recovery of tax by imposing penalty under section 22(4-A) of the said Act. The validity of the sanction was questioned on the ground that under the Sales Tax Act, the Commissioner is entitled to pursue two different procedures for enforcing and realizing the assessment made, but as there is no guidance as to the circumstances in which he should resort to either of the two procedures, the provision regarding grant of sanction is invalid.
The same issue arose in the Delhi High Court in M/s Shanti Kiran India (P) Ltd v. The Commissioner Trade and Tax, Delhi [2013 (2) TMI 80 - DELHI HIGH COURT] i.e whether the benefit of ITC is available to the registered purchaser dealers who paid taxes to the registered seller dealer(s) in terms of invoice(s) raised by them even though those seller dealers did not deposit the collected tax with the Government. The Delhi High Court held in favour of the purchaser dealers and against State.
The fact that Section 74 of the Act which lays down the procedure for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts, is not invoked by respondent No. 3 is very significant - the respondents are not disputing that the petitioner did pay the GST of Rs. 1,11,60,830/- to respondent no. 4, the supplier, though they contend that the latter has not passed over the same to the Government. There is no allegation by the respondents that petitioner had failed to discharge its liability towards tax on the purchases made by it. It is their case that the respondent no. 4 has fraudulently retained the GST paid by petitioner to it - the transaction between the petitioner and the respondent no. 4 is a bona fide transaction and not a collusive transaction tainted by fraud etc., and that the conduct of respondent no. 4 is blameworthy. Petitioner therefore cannot be penalised by invoking Section 16(2) (c) of the Act and denied the ITC.
Section 16(2) (c) of the Act is held not violative of Art. 14, 19(1) (g) or 265 or 300-A of the Constitution of India - Section 16(2) (c) of the Act ought not to be interpreted to deny ITC to purchasers in a bona fide transaction like the petitioner and it should be read down and applied only where the transaction is found to be not bona fide or is a collusive transaction or fraudulent transaction to defraud the revenue - the order is set aside.
Petition allowed in part.
1. ISSUES PRESENTED AND CONSIDERED
(a) Whether the impugned assessment order was vitiated for want of effective service and denial of opportunity of personal hearing when notices were only uploaded on the GST portal and the taxpayer did not respond.
(b) Whether, in the circumstances of non-response to portal-uploaded notices, the proper officer was required to explore other statutorily recognised modes of service (as contemplated under Section 169 of the GST Act) to ensure effective service before proceeding ex parte.
(c) Whether the impugned order should be set aside and remanded for fresh consideration subject to a condition of deposit of 25% of the disputed tax amount, along with directions on filing objections and granting personal hearing.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a) & (b): Validity of the assessment order in light of service through GST portal and absence of personal hearing
Legal framework (as discussed by the Court): The Court addressed service of notices under the modes prescribed in Section 169 of the GST Act, observing that uploading in the portal is one recognised mode, but other prescribed modes are also valid and may be necessary to ensure effective service.
Interpretation and reasoning: The Court found that the show cause notice had been uploaded in the GST portal tab and that the taxpayer claimed lack of awareness and non-furnishing of the original notice. The Court noted that the assessment order confirmed the proposals in the show cause notice and was passed without affording any opportunity of personal hearing, a fact fairly admitted by the revenue. While recognising that portal uploading can constitute sufficient service, the Court reasoned that where repeated portal communications elicit no response, the officer should apply mind and explore other modes of service prescribed under Section 169 to make service effective. Proceeding ex parte merely by repeating the same mode, without ensuring effective communication, was treated as "empty formalities" and likely to cause multiplicity of litigation and wastage of institutional time.
Conclusions: The Court concluded that there was a lack of effective opportunity to the taxpayer, since the impugned assessment was passed without personal hearing and without the officer exploring alternative statutorily recognised modes of service when portal uploads did not yield any response. This defect warranted interference.
Issue (c): Remand and conditional deposit of 25% of disputed tax; directions for reply and personal hearing
Interpretation and reasoning: The Court accepted the taxpayer's submission expressing willingness to pay 25% of the disputed tax amount, and the revenue's request that remand be made subject to such payment. Considering the absence of personal hearing and the need for effective service and adjudication on merits, the Court held that setting aside and remanding the matter with conditions would balance interests.
Conclusions: The Court set aside the impugned order and remanded the matter for fresh consideration, subject to: (i) payment of 25% of the disputed tax within four weeks, with the setting aside taking effect from the date of such payment; (ii) filing of reply/objections with documents within three weeks from payment; and (iii) the authority issuing a 14 days clear notice fixing personal hearing and thereafter passing orders on merits in accordance with law, expeditiously.
Violation of principles of natural justice - impugned order came to be passed by the respondent without providing any opportunity of personal hearing to the petitioner - petitioner was not aware of the notices and could not reply the same - HELD THAT:- In the case on hand, it is evident that the show cause notice was uploaded on the GST Portal Tab. According to the petitioner, he was not aware of the issuance of the said show cause notice issued through the GST Portal and the original of the said show cause notice was not furnished to them. In such circumstances, this Court is of the view that the impugned assessment order came to be passed without affording any opportunity of personal hearing to the petitioner, confirming the proposals contained in the show cause notice.
No doubt, sending notice by uploading in portal is a sufficient service, but, the Officer who is sending the repeated reminders, inspite of the fact that no response from the petitioner to the show cause notices etc., the Officer should have applied his/her mind and explored the possibility of sending notices by way of other modes prescribed in Section 169 of the GST Act, which are also the valid mode of service under the Act, otherwise it will not be an effective service, rather, it would only fulfilling the empty formalities. Merely passing an ex parte order by fulfilling the empty formalities will not serve any useful purpose and the same will only pave way for multiplicity of litigations, not only wasting the time of the Officer concerned, but also the precious time of the Appellate Authority/Tribunal and this Court as well.
Thus, when there is no response from the tax payer to the notice sent through a particular mode, the Officer who is issuing notices should strictly explore the possibilities of sending notices through some other mode as prescribed in Section 169(1) of the Act, preferably by way of RPAD, which would ultimately achieve the object of the GST Act. Therefore, this Court finds that there is a lack of opportunities being provided to serve the notices/orders etc., effectively to the petitioner.
The impugned order dated 25.10.2024 is set aside and the matter is remanded to the 2nd respondent for fresh consideration on condition that the petitioner shall pay 25% of the disputed tax amount to the respondent within a period of four weeks from the date of receipt of a copy of this order. The setting aside of the impugned order will take effect from the date of payment of the said amount - Petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, on belated filing of "Annual Return" in Form GSTR-9, the authorities can impose both "Late Fee" under Section 47(2) and "General Penalty" under Section 125 of the respective GST Enactments for the same default.
(ii) Whether the waiver/partial waiver of "Late Fee" under Notification issued under Section 128 (fixing concessional "Late Fee" of Rs.10,000/- each under the respective GST Enactments for specified years) must be confined strictly to returns filed within the specified amnesty window, or can be extended to persons who filed the "Annual Returns" before the cut-off date in the Notification.
(iii) Whether a person who filed the "Annual Return" after the amnesty window (though within the outer time-limit contemplated under Section 44(2)) can still claim the Section 128 amnesty; and, irrespective of that, whether "General Penalty" under Section 125 can be sustained when "Late Fee" under Section 47(2) is levied.
2. ISSUE-WISE DETAILED ANALYSIS
(i) Simultaneous levy of Section 47(2) "Late Fee" and Section 125 "General Penalty"
Legal framework (as discussed by the Court): The Court examined Section 44 read with Rule 80 (obligation and due date for filing "Annual Return"), Section 47(2) (late fee for failure to furnish return under Section 44 by the due date), and Section 125 (general penalty). The Court also examined the nature of power under Section 128 (waiver of penalty/fee including late fee).
Interpretation and reasoning: The Court held that "Late Fee" under Section 47(2) is a "Penal Fee"-it is imposed only upon default, functions as a deterrent, lacks quid pro quo, increases with the period of default, and has civil consequences akin to a penalty. Since Section 125 is a "general" provision meant to apply only where no specific penal consequence is otherwise provided, once Section 47(2) is invoked for the very default (belated filing of annual return), there is no scope to superadd Section 125 for the same omission. The Court adopted the ratio that general penalty cannot be imposed where the Act already provides a specific penal exaction for that breach.
Conclusions: Imposition of "General Penalty" under Section 125 in addition to "Late Fee" under Section 47(2) for delayed filing of "Annual Return" is unsustainable; only the "Late Fee" mechanism can operate for that default.
(ii) Extension of Section 128 amnesty (concessional late fee cap) to persons who filed "Annual Returns" before the notified amnesty window
Legal framework (as discussed by the Court): The Court analysed Section 128 (waiver of penalty/fee including Section 47 late fee), contrasted it with Section 11 (exemption), and considered the design of the amnesty notification fixing that late fee in excess of Rs.10,000/- "shall stand waived" for specified years if returns were furnished within the notified period.
Interpretation and reasoning: The Court emphasised that Section 128 waiver notifications are driven by "mitigating circumstances" and operate differently from Section 11 exemptions. It nonetheless held that denying the benefit of partial waiver to persons who filed belated "Annual Returns" before the amnesty cut-off (while granting it to those who filed within the window) would be unfair and would amount to hostile discrimination, offending Article 14. The Court reasoned that if mitigating circumstances justified partial waiver to defaulters who filed within the window, there was no rational basis to exclude defaulters who had already filed prior to that date; singling them out would be arbitrary. Accordingly, the benefit of the concessional cap must be extended to those who filed before the window as well.
Conclusions: Petitioners who filed the relevant "Annual Returns" before 01.04.2023 were held entitled to the same partial waiver/concession: they are not liable to "Late Fee" beyond Rs.10,000/- under each of the respective GST Enactments for the covered years; and "General Penalty" under Section 125, where imposed, must be set aside.
(iii) Claim of amnesty by a person filing after the amnesty window; and sustainability of Section 125 in such case
Legal framework (as discussed by the Court): The Court noted the statutory due dates under Rule 80(1), the later insertion of Section 44(2) (outer time limit), and the limited Section 128 amnesty window under the notification.
Interpretation and reasoning: For the petitioner who filed the "Annual Return" on 19.01.2024 (after the amnesty window), the Court held there was no scope to extend the Section 128 waiver because the filing was long after the dates specified in Section 44(1) read with Rule 80(1) and outside the notified amnesty period. However, even in that case, since "Late Fee" under Section 47(2) was levied for the default, the Court held Section 125 "General Penalty" still could not be imposed in addition.
Conclusions: Amnesty under the notification was denied to the post-window filer; nevertheless, the "General Penalty" under Section 125 was set aside because "Late Fee" under Section 47(2) operated as the penal consequence for the default.
Levy of Late Fee that is payable under Section 47 of the respective GST Enactments - Petitioners have filed the “Annual Returns” either beyond the period prescribed under Rule 80 of the respective GST Rules and before the dates specified in N/N. 7/2023-Central Tax dated 31.03.2023.
Contentions of the Petitioners in is that once a “Late Fee” has been levied under Section 47 of the respective GST Enactments read with the above Notification, while the “General Penalty” under Section 125 of the respective GST Enactments cannot be imposed on the Petitioners.
HELD THAT:- The Hon’ble High Court of Himachal Pradesh and Kerala while dealing with the similar cases, have held that there appears to be no justification in demanding “Late Fee” towards belated filing of Returns in GSTR-9C of those assesses who filed such returns before the cut-off date prescribed in Notification No.7/2023-Central Tax dated 31.03.2023 as amended by Notification No.25/2023-Central Tax dated 17.07.2023.
In Anishia Chandrakanth and others Vs. The Superintendent, Central Tax and Central Excise, Audit Circle-1 and others [2024 (4) TMI 993 - KERALA HIGH COURT], the Kerala High Court, however held that the Petitioners therein who had filed “Annual Returns” before the cut-off date are not entitled to claim refund of the “Late Fee” which has already been paid by them over and above Rs.10,000/-.
In R.T. Pharma Vs. Union of India and Ors. [2024 (12) TMI 1228 - HIMACHAL PRADESH HIGH COURT], the Himachal Pradesh High Court held that the intention of the Government is not to harass the assessee, who come forward to file their return for the assessment years mentioned in the notification within the stipulated period implying the benefit would extend to the Petitioner as well, who filed the returns although belatedly on 13.03.2023, before the cut-off date mentioned in the above Notification.
The “Compensatory Taxes” are equated with “Fee” as there is an element of service. Within the kernel of “Fee”, there are “Compensatory Fee”, “Regulatory Fee” and “Penal Fee”. “Late Fee” is penal in nature and akin to a “Penalty” and therefore a “Penal Fee” although may not involve any discretion in the hands of the adjudicator whether to levy “Late Fee” or not. Requirements of mens-rea may be absent to attract such “Late Fee”, nevertheless “Late Fee” is penal in nature.
A “Fee” under a “Tax” statute becomes akin to a “Penalty” when it is imposed solely for breach of a statutory obligation cast under the statute. It lacks quid pro quo to operate as a deterrent. It has a civil consequence like a “Penalty”. It may be disproportionate to any administrative cost. Notwithstanding its ostensible purpose, it has to be remembered that it is intended to ensure future compliance by a recalcitrant and deviant registrant or a tax payer. In that sense, “Late Fee” is not compensatory in nature.
Thus, the power to grant exemption from “Tax” is under Section 11 of the respective GST Enactments. It would also includes power to withdraw such exemption - Similarly, the power to grant waiver from payment of “Penalty” and / or “Fee” (such as “Late Fee” as in this case) whether wholly or in part under Section 128 of the respective GST Enactments would also include the power to withdraw such waiver under the provisions of the respective GST Enactments. It may also includes a power, exercisable in the like manner and subject to the like sanction and condition (if any), to add to, amend, vary or rescind any (notifications), orders, rules or bye-laws so (issued).
The power to grant “Exemption” under Section 11 of the respective GST Enactments is different from the power to grant “waiver” under Section 128 of the respective GST Enactments.
The benefit of the Notifications namely Notification No.7/2023- Central Tax dated 31.03.2023 as amended by Notification No.25/2023-Central tax dated 17.07.2023 has to be extended to all those Petitioners in Table – 4A who had filed the returns before 01.04.2023 - Since these Petitioners are liable to pay “Late Fee”, the question of imposing “General Penalty” under Section 125 of the respective GST Enactments cannot be countenanced in view of the reasons that “General Penalty” under Section 125 of the respective GST Enactments can be imposed only in the absence of ‘any other penalty’ under the respective GST Enactments - It is therefore held that the Petitioners are neither liable for “Late Fee” over and above Rs.10,000/- under each of the respective GST Enactments nor liable for “General Penalty” under Section 125 of the respective GST Enactments.
Petition allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, for the same tax period, two separate adjudication orders passed by different officers should be remitted and replaced by a consolidated order on merits to address the petitioner's contention of overlapping demands and to balance the interests of the assessee and the revenue.
(ii) Whether interim protection against recovery, including lifting of bank account attachment, should be granted conditionally upon the petitioner making specified deposits/payments and filing replies with documents within the time fixed by the Court.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Remittal for consolidated adjudication for the same tax period where two officers passed separate orders
Interpretation and reasoning: The Court noted that for the same tax period, two different officers (respondents in the respective petitions) had passed separate impugned orders. The petitioner asserted that there was an overlap in the demand confirmed under one of the orders and further stated that, regarding the other order, the tax liability including penalty had largely been paid (with only part of SGST remaining), while the respondents could not confirm the payments and disputed the overlap contention. In these circumstances, the Court considered it appropriate to balance the interests of the assessee and the revenue by avoiding parallel or duplicative adjudication for the same period and by ensuring a single decision on merits after hearing and verification.
Conclusions: The Court remitted the matter to the Deputy State Tax Officer to pass a consolidated order on merits. The petitioner was permitted to substantiate the plea that the demand under the earlier order had been subsumed into the later order and that there was overlap. The petitioner was directed to file replies to both show cause notices with supporting documents, treating the impugned orders as addenda to the respective show cause notices, and the authority was directed to pass the final order expeditiously, preferably within three months after such reply/pre-deposit.
Issue (ii): Conditional pre-deposit/payment directions and consequential vacation of bank attachment
Interpretation and reasoning: To protect revenue while enabling reconsideration on merits, the Court imposed conditions for remittal. It required the petitioner to deposit an additional 25% of the disputed tax in cash (from the electronic cash register) pertaining to the order dated 24.02.2025 and also to pay the balance amount remaining unpaid under the other order, within 30 days. The Court also directed that amounts already paid would be adjusted towards the ordered 25% pre-deposit, subject to verification by the respondents. For recovery measures, the Court linked the lifting of bank attachment to compliance with these stipulations and clarified that attachment would be lifted only if the petitioner was not in arrears of any other amount except the impugned demands.
Conclusions: Upon compliance with the deposit/payment and reply-filing stipulations, the bank account attachment would stand automatically vacated. If the petitioner failed to comply with any stipulation, the authority was given liberty to proceed to recover the tax in accordance with law as if the petitions had been dismissed at admission stage, with the further direction that due notice must be given before passing any such order.
Challenge to impugned order preceded by a SCN in GST DRC-01 - overlap in the demand that has been confirmed - HELD THAT:- Balancing the interest of both parties viz., the Assessee and the Revenue, the case is remitted back to the Deputy State Tax Officer – I / 2nd Respondent herein, to pass a consolidated order on merits subject to the Petitioner depositing another 25% of the disputed tax in cash confirmed vide impugned order dated 24.02.2025 from the Petitioner's Electronic Cash Register together with the balance amount that remains unpaid as far as demand confirmed vide order dated 12.02.2025 within a period of thirty (30) days from the date of receipt of a copy of this order.
Needless to state, amount already paid by the Petitioner shall be adjusted towards pre-deposit of 25% of the disputed tax, which will be however subject to verification by the Respondents.
Petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the confirmed demand arising from the show cause notice for the relevant tax period should be set aside and the matter remitted for a fresh decision on merits, in view of the petitioner's request for one more opportunity to explain the mismatch with supporting documents.
(ii) Whether remand should be made conditional upon a pre-deposit of 25% of the disputed tax (in cash from the Electronic Cash Register) and, upon such compliance, whether any bank account attachment should stand vacated and recovered amounts adjusted towards such pre-deposit.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Quashing of the impugned confirmation order and remand for fresh adjudication on merits
Interpretation and reasoning: The Court noted that the impugned order confirmed the demand proposed in the show cause notice for the stated tax period, and that the petitioner had submitted a reply whose contents were extracted in the impugned order. The petitioner asserted that the mismatch arose from genuine mistakes in return reporting (including double entry and human error) and sought one more opportunity to explain the case with supporting documents. The Court, recording these submissions and following a consistent view adopted in similar circumstances, considered it appropriate to set aside the impugned order and remit the matter for a fresh decision on merits, conditioned by safeguards to protect revenue.
Conclusions: The Court quashed the impugned order and remitted the matter to the respondent to pass a fresh order on merits, upon the petitioner filing a detailed reply with supporting documents, with the respondent directed to decide expeditiously, preferably within three months from such reply/pre-deposit.
Issue (ii): Conditional pre-deposit, adjustment of recovered amounts, and vacation of bank attachment
Interpretation and reasoning: The petitioner undertook to deposit 25% of the disputed tax. The Court accepted this as an appropriate condition for remand, directing that the deposit be made in cash through the petitioner's Electronic Cash Register within thirty days of receipt of the order. The Court further ensured that any amounts already recovered/paid towards the confirmed liability would be adjusted towards the 25% pre-deposit, subject to verification. On the question of bank attachment, the Court ordered that, subject to compliance with the stipulated deposit and where the petitioner was not in arrears of any other amount barring the disputed demand, any bank account attachment already made would stand automatically vacated, and bank attachment would be lifted upon deposit.
Conclusions: Remand was made conditional upon deposit of 25% of disputed tax within thirty days and filing of a detailed reply with documents; any prior recoveries/payments were to be adjusted towards this pre-deposit (subject to verification); and bank attachment, if any, was to be lifted/automatically vacated upon compliance and absence of other arrears. If the petitioner failed to comply with any stipulation, the respondent was permitted to proceed to recover the tax in accordance with law as if the petition had been dismissed, with due notice before taking such steps.
Confirmation of demand proposed in Show Cause Notice in DRC-01 dated 26.11.2024 - petitioner seeks one more opportunity to explain the case with supporting documents - Petitioner submits that the Petitioner is willing to deposit 25% of the disputed tax - HELD THAT:- Following the consistent view taken under similar circumstances, the impugned order is quashed and the case is remitted back to the Respondent to pass a fresh order on merits subject to the Petitioner depositing 25% of the disputed tax in cash from the Petitioner's Electronic Cash Register within a period of thirty (30) days from the date of receipt of a copy of this order and filing a detailed reply with supporting documents. Subject to the Petitioner complying with the above stipulations, the attachment of the bank account of the Petitioner, if any made already, shall also stand automatically vacated.
Petition disposed off by way of remand.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the Court should interfere in writ jurisdiction with GST demand orders passed after the assessee failed to reply to the show cause notices, despite the existence of an appellate remedy under Section 107 and the expiry of the statutory appeal limitation.
(ii) Whether, and on what conditions, the impugned GST demand orders should be quashed and the matter remitted to enable the assessee to file replies with documents and obtain a fresh order on merits.
(iii) Whether bank account attachment should be lifted, and the conditions governing such lifting pending fresh adjudication.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Writ interference despite alternate remedy and expired appeal limitation
Legal framework (as discussed): The Court considered the availability of an alternate appellate remedy under Section 107 of the GST enactments and noted that the limitation for filing such appeal against the impugned orders had already expired. The Court also took note of the respondents' objection that, since the assessee did not reply to the show cause notices, the orders were passed and the writ petitions should be dismissed.
Interpretation and reasoning: The Court found that the writ petitions were filed after the appeal limitation had expired, but relied on its approach in "similar circumstances" where orders had been quashed and matters remitted on terms, including deposit of a portion of disputed tax based on the length of delay in approaching the Court. The Court held there was no reason to adopt a different approach in the present case.
Conclusion: The Court chose to exercise writ jurisdiction to set aside the impugned orders and permit a fresh adjudication, notwithstanding the alternate remedy and the expiry of appeal limitation, but only on stringent conditions designed to protect the revenue.
Issue (ii): Conditional remand; quantum, mode, and timelines for deposit and reply
Legal framework (as discussed): The Court proceeded on the basis that demands were confirmed, inter alia, on account of mismatch between GSTR-3B and GSTR-2A and alleged ineligible input tax credit, and that the assessee had not responded to the DRC-01 show cause notices.
Interpretation and reasoning: The Court considered the request for "one opportunity" to explain the case afresh and the willingness to be put on reasonable terms. It adopted a conditional remand mechanism used in similar cases, requiring substantial pre-deposit to balance equity to the assessee with protection of revenue. The Court directed deposit of 50% of the disputed tax under each impugned order (restricted to the demand confirmed on mismatch and ineligible ITC). It further directed that the deposit be made in cash from the assessee's electronic cash register within 30 days from receipt of the Court's order. The assessee was required, within the same period, to file replies to the DRC-01 notices along with requisite supporting documents, treating the impugned orders as an addendum to the show cause notices.
Conclusion: The impugned orders were quashed and the matter remitted for fresh decision on merits, conditional upon timely deposit and filing of replies with documents. Upon compliance, the department was directed to pass a final order on merits in accordance with law, preferably within three months of such reply/pre-deposit.
Issue (iii): Lifting of bank attachment pending adjudication
Legal framework (as discussed): The Court addressed the continuation of bank account attachment in connection with recovery of the impugned demands.
Interpretation and reasoning: The Court linked the lifting of attachment to compliance with the ordered deposit and clarified that lifting would operate only if the assessee was not in arrears of any other amount apart from the amounts demanded under the impugned orders.
Conclusion: Subject to compliance with the stipulated deposit (50% as ordered) and absence of other arrears, the bank attachment would stand automatically vacated. If the assessee failed to comply with any stipulation, the department was permitted to proceed with recovery as if the writ petitions had been dismissed in limine, after giving due notice before taking such action.
Remand for fresh consideration - pre-deposit for adjudicatory relief - treatment of orders as addendum to show cause notice - vacation of bank attachment subject to conditions - final adjudication on merits within timeline - delay and limitation in filing appeal - alternate remedy under Section 107
Remand for fresh consideration - pre-deposit for adjudicatory relief - treatment of orders as addendum to show cause notice - Remand of the matters to the Respondents for fresh adjudication subject to specified pre-deposit and filing of reply with documents - HELD THAT: - Having noted that the Petitioner failed to reply to the Show Cause Notices and that the statutory period for appeal under Section 107 has expired, the Court exercised its supervisory jurisdiction to quash the impugned Orders and remit the matters for fresh consideration. The Court directed the Petitioner to deposit 50% of the disputed tax demanded under each impugned Order (insofar as the demand arises from mismatch in GSTR-3B and GSTR-2A and ineligible Input Tax Credit) as a pre-condition for remand, and to file replies to the GST DRC-01 Show Cause Notices along with requisite documents. The impugned Orders are to be treated as an addendum to the respective Show Cause Notices so that the Respondents may pass fresh final orders on merits after receipt of the reply and pre-deposit. [Paras 11, 12, 13, 14, 15]
Matters remitted to Respondents for fresh final adjudication provided the Petitioner deposits 50% of the disputed tax for each impugned Order and files replies with supporting documents within the stipulated period.
Delay and limitation in filing appeal - alternate remedy under Section 107 - Effect of delay and availability of alternate remedy under Section 107 on the exercise of writ jurisdiction - HELD THAT: - The Court recorded that the limitation for filing an appeal under Section 107 had expired and that the Petitioner had an alternate statutory remedy which was not availed. These facts were considered relevant when exercising discretion to remit the matter on conditions rather than to grant unconditional relief. The Court referenced precedents where remission was ordered subject to deposit where appellants approached the Court after delay. [Paras 10, 11]
The Court acknowledged the limitation bar and alternate remedy, and accordingly conditioned the grant of remand on compliance with pre-deposit and procedural stipulations.
Vacation of bank attachment subject to conditions - pre-deposit for adjudicatory relief - Operation of provisional measures (bank attachment) in relation to compliance with the Court's conditional directions - HELD THAT: - The Court directed that, subject to the Petitioner making the required pre-deposit of 50% of the disputed tax and not being otherwise in arrears, the attachment of the Petitioner's bank account shall stand automatically vacated. The Court made clear that the bank attachment would be lifted only upon compliance with the deposit condition and that failure to fulfil the stipulations would entitle the Respondents to proceed to recover the tax as if the writ petitions were dismissed. [Paras 15, 16, 17]
Bank attachment to be vacated automatically on deposit of 50% of the disputed tax and subject to no other arrears; non-compliance will permit Respondents to proceed as if writs were dismissed.
Final Conclusion: Writ petitions disposed of by quashing the impugned orders and remitting the matters to the Respondents for fresh final adjudication; remand is conditional upon the Petitioner depositing 50% of the disputed tax for each impugned order, filing replies with supporting documents within thirty days, and, on compliance, the Respondents to decide the matters on merits expeditiously (preferably within three months) with the bank attachment standing vacated; failure to comply permits the Respondents to proceed as if the petitions were dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the impugned GST adjudication order confirming tax, interest and penalty could be sustained when the taxpayer's reply to the show cause notice raised only limited legal objections and did not address the allegations on merits, including the factual basis for invoking the extended period under Section 74.
(ii) Whether the Court should exercise writ jurisdiction to quash and remit the matter for fresh adjudication, and if so, on what conditions (including pre-deposit, filing of a comprehensive reply, timelines, and consequences for bank account attachment and recovery).
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Sustainability of the adjudication in light of the taxpayer's non-merits reply and challenge to Section 74 limitation
Legal framework (as discussed): The Court noted that the demand comprised tax along with interest under Section 50 and penalty under Section 74 of the GST enactments, and that the taxpayer's challenge included an objection to invocation of the extended period of limitation under Section 74.
Interpretation and reasoning: The Court found that, in response to the show cause notice, the taxpayer had confined the reply to a "legal plea" (finality based on earlier proceedings having been dropped) and did not deal with the merits of the allegations in the later show cause notice. The Court held that, because the taxpayer failed to respond on the factual allegations and did not explain the asserted mismatch circumstances at the adjudication stage, the authority was effectively left with no option but to confirm the demand on the material before it. The Court further reasoned that assessment of whether invocation of the extended limitation under Section 74 was justified required a proper, combined reply on merits along with legal submissions; without such a reply, the limitation challenge could not be properly evaluated.
Conclusion: The Court concluded that the taxpayer's writ challenge could not be accepted on the footing of limitation alone, in the absence of an appropriate reply on merits addressing the allegations underpinning Section 74 invocation; a merits-based response was necessary to test the legality of extended limitation in the circumstances.
Issue (ii): Remand/quashing with conditions, and ancillary directions on pre-deposit, reply, time limits, bank attachment and recovery
Legal framework (as applied in relief): The Court exercised its discretion in writ jurisdiction to set aside the impugned order and remit the matter, while imposing conditions to secure the revenue and enable adjudication "on merits and in accordance with law."
Interpretation and reasoning: The Court took note that the taxpayer approached the Court "almost immediately" after the impugned order. To enable a fair merits adjudication (including the taxpayer's explanation that mismatch between GSTR-2A and GSTR-3B arose due to technical synchronization issues affecting IGST credit), the Court directed a remand but conditioned it on a partial pre-deposit and a comprehensive reply with supporting documents. The Court also structured the remand by treating the impugned order as an addendum to the show cause notice, requiring the taxpayer to respond accordingly. To balance enforcement with compliance, the Court linked lifting of bank attachment to the mandated pre-deposit and clarified that attachment would be lifted only if no other arrears existed beyond the impugned demand. The Court also preserved the department's right to recover if conditions were not met, while requiring due notice before any such steps.
Conclusions: The Court quashed the impugned order and remitted the matter to the tax authority, subject to: (a) deposit of 10% of the disputed tax from the electronic cash ledger within 30 days; (b) filing, within the same time, a detailed reply to the show cause notice with supporting documents, treating the impugned order as an addendum; (c) fresh final order on merits preferably within three months of such compliance; (d) automatic vacation of bank attachment upon compliance, limited by the clarification that it would be lifted only on the 10% deposit and absence of other arrears; and (e) liberty to the department to recover as if the writ were dismissed in limine if the taxpayer defaulted, subject to prior due notice.
Invocation of extended period of limitation under Section 74 of TNGST Act - SCN that preceded the impugned order is also unclear - mismatch between GSTR 2A and GSTR 3B - HELD THAT:- To appreciate whether indeed a case was made out or not for invoking extended period of limitation or not, the Petitioner should have given a proper reply on merits as well together and combine it with legal submissions on the law.
Since the Petitioner has approached this Court almost immediately after the impugned order came to be passed, the case is remitted back to the Respondent by quashing the impugned order, subject to the Petitioner depositing 10% of the disputed tax from the Petitioner's Electronic Cash Register within a period of thirty (30) days from the date of receipt of a copy of this order.
Petition disposed off.
Issues: Whether the DGAP report determining the balance input tax credit benefit to be passed on to the eligible homebuyers was to be accepted.
Analysis: The respondent accepted the findings, observations and conclusions contained in the DGAP report without objection and undertook to pass on the quantified benefit to the remaining homebuyers. In view of this undertaking, no dispute survived for adjudication.
Conclusion: The DGAP report was accepted.
ITC benefit not passed to 21 homebuyers - Respondent filed written submission to the effect that to avoid further litigation the Respondent unconditionally accept the findings, observations and conclusions contained in the report of DGAP without any objection - HELD THAT:- In view of the undertaking given by learned counsel for the Respondent, no further dispute survives in the matter. The Report of the DGAP is liable to be accepted.
The report of DGAP dated 07.11.2025 is accordingly accepted in view of the undertaking given by the Respondent.
Proceedings concluded.
Reopening of assessment u/s 147 - reason to believe - AO Ward 2 (1) (1), Ahmedabad jurisdiction to issue the notice for reopening - As decided by HC [2025 (5) TMI 895 - GUJARAT HIGH COURT] there cannot be said to be lack of jurisdiction of AO while issuing impugned notice as the respondent, after change of name cannot be said to have, different territorial jurisdiction and all AOs within the same territorial jurisdiction are authorized to take action in accordance with law but impugned notice is not tenable in the eye of law as per the settled legal position as AO could not have formed a reason to believe to assume jurisdiction in absence of details of nature of transaction, date of transaction and any live nexus of the information with the transactions recorded and audited as per the books of accounts of the petitioner to come to even prima facie conclusion that the income has escaped assessment.
HELD THAT:- We are not inclined to interfere with the impugned judgment and order of the High Court; hence, the special leave petition is dismissed.
Validity of Reopening of assessment u/s 147 - audit party objections had come and the AO issues notice - independent application of mind by AO v/s borrowed satisfaction - As decided by HC [2023 (2) TMI 1080 - GUJARAT HIGH COURT] there is no material worth the name emerging that to indicate any independent application of mind could be noticed. On the contrary, there are glaring facts which have been pointed out that the Assessing Officer had no subjective satisfaction while issuing the notice of reopening - AO himself initiated the reassessment proceedings without his own conviction and only at the instance of the audit party which was termed to be a coulourable exercise of jurisdiction and the same was not sustained.
HELD THAT:- We are not inclined to interfere with the impugned judgment and order of the High Court; hence, the special leave petition is dismissed.
Reopening of assessment u/s 147 - reasons to believe -Non disposal of objections - AO has not provided any documents, statements or any material to the petitioner as relied upon.
As decided by HC [2025 (4) TMI 544 - GUJARAT HIGH COURT] AO has recorded the reasons in mechanical manner, referring on the basis of the information provided by the DCIT, Central Circle-1, Rajkot, which relied on the survey and the search operation carried out in case of M/s. National Shroff & Company on 19th September, 2014. There is no reference to the transaction carried out by the petitioner - AO has failed to consider the objections of the petitioner in the true perspective and in absence of any material from M/s. National Shroff, Rajkot pertaining to the details relating to the petitioner, so as to prove that income has escaped assessment AO could not have assumed jurisdiction to issue impugned notice for reopening.
HELD THAT:- We do not find a good ground to interfere with the impugned order/judgment in exercise of our jurisdiction under Article 136 of the Constitution of India. Accordingly, the special leave petition stands dismissed.
Rectification application u/s 254 - pendency of the application filed by the assessee before the Settlement Commission as per the provision of Section 245F(2) - assessee filed an appeal before the ITAT challenging the order passed by the CIT(Appeal) with an application to condone the delay in preferring the appeal - ITAT by order condoned the delay of 4379 days and remitted the matter back to the CIT(Appeal) for fresh consideration on merits
HC [2024 (4) TMI 1230 - GUJARAT HIGH COURT] decided no infirmity in the impugned order passed by the Tribunal to come to the conclusion that there is no mistake apparent on record in the order of the Tribunal wherein after following the decision of the Coordinate Bench, the Tribunal condoned the delay and as the CIT(Appeal) did not adjudicate the issue on merits and dismissed the appeals of the respondent-assessee as not maintainable in view of the order passed by the Settlement Commission on the ground that the matters have abated, the Tribunal has rightly remanded the matter back to the CIT(Appeal).
HELD THAT:- It is brought to the notice of this Court by learned counsel appearing for the petitioner that a similar petition [2025 (8) TMI 847 - SC ORDER] has been dismissed by this Court as stated at the Bar that the application before the Settlement Commission has not been decided, and an order u/s 245D(4) of the Income Tax Act, 1961, on the application is to be passed.
It is only if the application for settlement is rejected without providing for terms of settlement that Section 245HA of the 1961 Act will be applicable and the appellate proceedings will stand revived.
The stand of the Revenue that the assessee must give up his right to contest the assessment order on merits, if the settlement application is rejected without providing for terms of settlement, is misconceived and must be rejected.
In the peculiar facts of the case the Income Tax Appellate Tribunal was justified in condoning the delay, as well as setting aside the order of the Commissioner of Income Tax (Appeals) and restoring the first appeal.
Nature of land sold - capital asset u/s 2(14) v/s agricultural land - Assessment of Capital Gains on sale of assessees' agricultural property - burden of proof - interpreting the meaning of 'purayidom' as plain land - whether the land in question was within 8 Kms limits of the Cochin Municipality? -
As decided by HC [2025 (3) TMI 1575 - KERALA HIGH COURT] assessee did not produce any evidence other than a certificate from the Village Officer that the land in question was agricultural land, which certificate went against the revenue records itself that pointed to the land being in the nature of ‘Purayidam’ which translates as dry land suitable for construction of houses. Appellant/assessee had not established that the land sold by him was agricultural in nature.
HELD THAT:- No case is made out for interference with the impugned order passed by the High Court. The Special Leave Petition is, accordingly dismissed.
Issues: Whether the notice issued under Section 148 of the Income-tax Act, 1961 was jurisdiction or otherwise void, and whether the material relied upon by the Assessing Officer was sufficient to justify initiation of reassessment proceedings.
Analysis: The notice was founded on material indicating a cash transaction entry linked to the petitioner, and the petitioner had also admitted purchasing a flat from the same group. The Court held that this material was sufficient to infer escapement of income for the relevant assessment year. It further noted that after 01.04.2021, Section 148 does not require recording of reasons to believe in the pre-amendment sense, nor possession of information or evidence in that form. The petitioner remained at liberty to explain before the authority that the basis was erroneous or that there was no nexus with the amount reflected in the material.
Conclusion: The notice under Section 148 was held to be valid and not void for want of jurisdiction.
Final Conclusion: The writ petition challenging the reassessment notice failed, and the petitioner was left to pursue her objections before the respondents in accordance with law.
Ratio Decidendi: Post-01.04.2021, a reassessment notice under Section 148 of the Income-tax Act, 1961 can be sustained on material indicating possible escapement of income, and the notice will not be invalid merely because the assessee disputes the nexus or sufficiency of that material at the threshold.
Validity of reopening notice u/s 148 - as asserted that except for the excel sheet, which was found at premises of ‘Bhutani Infra Group and Associates’ in which the petitioner’s name reflecting a cash transaction was mentioned, there is no other material - as argued that unless the AO is able to establish a link of the petitioner with that transaction or is able to bring on record any other incriminating material, he cannot proceed against the petitioner - HELD THAT:- Having heard, petitioner, we are of the considered view that the material, which has been relied upon by the AO, is enough to infer escapement of income of the petitioner-assessee in the relevant assessment year. Language of section 148 of the Income Tax Act after 01.04.2021, does not even require recording reason to believe much less possession of information or evidence.
Be that as it may. It is for the petitioner to satisfy the concerned authority that the basis is erroneous or that she has no nexus with the amount, which has been shown by the said Bhutani Infra Group and Associates. WP dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether criminal prosecution for willful attempt to evade tax and allied offence could lawfully continue when the penalty for concealment, forming the basis of the complaint, had been deleted in appeal and that deletion had attained finality.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Sustainability of prosecution after deletion of penalty forming the complaint's foundation
Legal framework (as considered in the judgment): The Court proceeded on the footing that the complaint was instituted for offences under the Income Tax law (including provisions relating to willful attempt to evade tax and making false statements), and that the prosecution had been initiated on the premise of concealment as found by the assessing authority and reflected in the penalty proceedings. The Court also considered the legal effect of appellate orders deleting penalty, as applied through the Supreme Court decisions discussed in the judgment.
Interpretation and reasoning: The Court treated the concealment/penalty finding as the operative factual foundation for launching the criminal complaint. It noted that the penalty order had been set aside by the first appellate authority, that the departmental challenge failed before the Tribunal, and that the matter had attained finality up to the High Court. On that premise, the Court accepted that the "subject matter" of the penalty and the criminal prosecution was the same, and that once the penalty was deleted, the very basis for alleging concealment (as the complaint's underpinning) no longer survived "in the eyes of law." The Court applied the principle that where the appellate forum has annulled the conclusions forming the basis of the criminal complaint, continuation of prosecution would be inappropriate and without jurisdiction, because the foundation of the complaint stands "knocked out."
Conclusions: Since the penalty order (which supplied the basis for the complaint) no longer existed after being set aside in appeal and affirmed thereafter, the Court held that permitting the criminal proceedings to continue would be unjustified. The Court therefore allowed the application and quashed the complaint case and all consequential proceedings.
Criminal prosecution under Section 276(C)1 and 277 of Income Tax Act, 1971 - Complaint Case filed on basis of alleged willful attempt to evade tax and penalty imposed upon the applicant by the Income Tax Officer-IV(1), Lucknow - penalty was already dropped -AO treating capital gain as concealed income - The applicant in order to avoid further litigation and to purchase peace, voluntarily surrendered the capital gain - HELD THAT:- Supreme Court in the case of G.L Didwania [993 (11) TMI 3 - SUPREME COURT] has considered the aspect of penalty and launching of criminal proceedings. In the said case, the Supreme Court has observed that in the order of the Appellate Tribunal, those conclusions reached by the assessing authority have been set aside and consequently, the very basis of the complaint is knocked out and, therefore, in the interest of justice, proceedings ought to have been quashed by the High Court.
Similar view has also been taken in the case of K.C. Builders [2004 (1) TMI 7 - SUPREME COURT] wherein the Supreme Court has observed that the Assistant Commissioner of Income Tax cannot proceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot survive for further consideration. In the opinion of the Supreme Court, if the trial is allowed to proceed further after the order of the Tribunal and consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable.
In the present case, it is evident that the subject matter of penalty is the same by which, criminal proceedings have been launched. Once the Tribunal has set aside the penalty order, at this juncture, it would not be appropriate to allow criminal proceedings against the applicant - First appellate Tribunal, the second appellate Tribunal and the High Court have not interfered in the order of penalty and the department could not succeed. Thus, the fact has come on record that the order of penalty does not exist.
The application is allowed and the entire as well as all consequential proceedings of Complaint Casepending before the court of Special Chief Judicial Magistrate (Economic Offence), Lucknow, are quashed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether an assessee can invoke revision under Section 264 of the Income Tax Act, 1961 against an intimation under Section 143(1) despite the order being appealable, and whether the revisional authority can refuse jurisdiction on that ground.
(ii) Whether the revisional authority's jurisdiction under Section 264 extends to granting relief where the adverse consequence (including denial of exemption) arises from the assessee's own mistakes/errors in the return of income/audit report, including claims not properly made due to such errors.
(iii) Whether the principle relied upon from a decision concerning fresh claims without a revised return limits the revisional authority's power under Section 264 in such circumstances.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Maintainability and choice between appeal and revision
Legal framework: The Court examined the availability of revision under Section 264 vis-à-vis the appellate remedy under Section 246A.
Interpretation and reasoning: The Court held that the statute does not mandate that an assessee must pursue only the appellate remedy and thereby forgo revision under Section 264 when an appeal is not filed. The Court accepted that the assessee has discretion to choose either remedy. The Court further held that a revisional authority cannot refuse to exercise revisional jurisdiction merely because the impugned order was appealable.
Conclusion: Revision under Section 264 could not be rejected solely on the ground that the intimation/order was appealable; the assessee was entitled to invoke Section 264.
Issue (ii): Scope of Section 264-errors by assessee and relief for legitimate claims
Legal framework: The Court considered the nature and width of the powers conferred under Section 264, including the object of preventing miscarriage of justice and providing relief permissible in law.
Interpretation and reasoning: The Court treated as settled that Section 264 confers wide revisional powers, not confined to correcting errors of subordinate authorities. It extends to situations where the assessee itself committed mistakes/errors in the return of income (including erroneous "punching"/disclosure in wrong schedules/fields) which led to adverse adjustments under Section 143(1) and denial of exemption. The Court held that Section 264 can cover cases where, due to error, a legitimate claim was not properly put forth in the return and is subsequently raised in revision. On the facts, the revisional authority's rejection-premised on the return being processed as per the figures entered and attributing deliberateness-was held to be inconsistent with the width of Section 264 jurisdiction, which required consideration of the assessee's explanation and claim on merits.
Conclusion: The revisional authority was required to consider and decide, on merits, the assessee's request for relief arising from its own return/audit report errors; rejection on the basis that there was no processing error, or that the assessee made the mistake, was unsustainable.
Issue (iii): Applicability of the limitation associated with fresh claims without revised return
Legal framework: The Court addressed the revenue's contention that a claim not made in the return could not be considered in revision, and that the assessee should have filed a revised return.
Interpretation and reasoning: The Court held that the relied-upon principle concerning claims made after filing the return without a revised return was not in the context of Section 264 revisional powers. The Court concluded that such principle does not restrict the Commissioner's authority under Section 264 to examine and grant relief for errors/mistakes discovered later and raised in revision.
Conclusion: The cited limitation was held inapposite; it did not bar consideration of the assessee's claim under Section 264.
Final determination and directions material to the decision
The Court quashed the revisional order rejecting the Section 264 application and restored the revision application for de novo consideration. The revisional authority was directed to provide an effective hearing, allow the assessee to submit explanation and documentary evidence, and decide the revision on merits within a fixed period, including consideration of errors/mistakes in the return/audit report and grant relief if tenable in law.
Revision u/s 264 - Petitioner Trust has been denied the benefit of exemption under Section 11 of the IT Act - discretion to either file an appeal under the provisions of Section 246A before the Commissioner of Income tax (Appeals) against an appealable order or to apply for revision u/s 264 of the IT Act before the prescribed authorities - HELD THAT:- There is nothing in the statute which mandates the assessee only to pursue the appeal remedy and deny the remedy under Section 264 (when no such appeal is filed). In fact, this Court in the case of Kamal Pasricha As Trustee of Kuldip Kaur Trust [2025 (2) TMI 656 - BOMBAY HIGH COURT] and Aafreen Fatima Fazal Abbas Sayed [2021 (4) TMI 1034 - BOMBAY HIGH COURT] has consistently held that the Revisional Authority under Section 264 cannot refuse to exercise its revisional jurisdiction on the ground that order impugned was appealable before the appellate authority.
Whether the prescribed authority can exercise its power under Section 264 to make good the mistakes/errors which are committed by the assessee itself in the return of income ? - This aspect is no longer res-integra. This Court has time and again held that the powers conferred on the Commissioner under Section 264, are not only wider in its scope but are also intended for the purpose of preventing miscarriage of justice and for providing relief to an assessee, which it is otherwise entitled to. See Pramod R. Agrawal [2023 (10) TMI 1142 - BOMBAY HIGH COURT] held proceedings u/s 264 of the Act are intended to meet a situation faced by an aggrieved assessee, who is unable to approach the Appellate Authorities for relief and has no other alternate remedy available under the Act. The Commissioner is bound to apply his mind to the question whether petitioner was taxable on that income and his powers are not limited to correct the error committed by the subordinate authorities but could even be exercised where errors are committed by assessee. It would even cover situation where assessee because of an error has not put forth legitimate claim at the time of filing the return and the error is subsequently discovered and is raised for the first time in an application under section 264 of the Act.
Thus, we are of the view that the provisions of Section 264 would cover within its ambit even a scenario where the assessee commits any error/mistake in the return of income.
Also we are of the considered opinion that the decision of Goetze (India) Ltd. [2006 (3) TMI 75 - SUPREME COURT] is wholly inapposite to the case at hand.
We are, therefore, of the view that Respondent No.1 ought to have considered the revision application u/s 264 of the Petitioner even though the mistakes/errors were committed by the Petitioner itself in the return of income. Thus, we quash and set aside the Impugned Order pertaining to the Assessment Year 2016-17 whereby the application filed by the Petitioner under Section 264 of the IT Act was rejected.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the reassessment notice issued under Section 148 (new regime) for the relevant assessment year was barred by limitation, having regard to Section 149 (including the first proviso), the effect of the earlier notice issued under the old regime within the period April-June 2021, and the operative directions governing such notices.
(ii) Whether the statutory pre-condition of obtaining approval from the "specified authority" under Section 151 (as applicable to the new regime) was satisfied for passing the order under Section 148A(d) and issuing the consequential notice under Section 148.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Limitation for issuance of notice under Section 148 (new regime)
Legal framework (as discussed by the Court): The Court examined the post-01.04.2021 reassessment regime, including the amended time limits under Section 149 (3 years/10 years), the first proviso restricting issuance where notice would have been time-barred under the pre-amendment regime, and the manner in which notices issued under the old regime after 01.04.2021 are to be treated as show-cause notices under Section 148A(b), with computation of surviving limitation time as per the governing directions applied by the Court.
Interpretation and reasoning: The Court held that the earlier notice issued under Section 148 (old regime) on 30.06.2021 fell within the extended outer limit applicable under the old regime (six years as extended up to 30.06.2021). Consequently, the first proviso to Section 149 did not bar further action under the new regime. Since the alleged escaped income exceeded the threshold for the extended period, the case fell within the ten-year window under Section 149(1)(b) (new regime). On this basis, issuance of the notice under Section 148 (new regime) on 29.07.2022 was treated as within time, and the limitation challenge failed.
Conclusion: The impugned notice under Section 148 (new regime) dated 29.07.2022 was held to be within limitation because the old-regime notice dated 30.06.2021 was itself within the surviving/extended limitation, and the reassessment fell within the ten-year time limit applicable where escaped income exceeded the monetary threshold.
Issue (ii): Compliance with approval requirement under Section 151
Legal framework (as discussed by the Court): The Court considered that, under the amended reassessment regime, passing an order under Section 148A(d) and issuing notice under Section 148 require prior approval of the specified authority under Section 151.
Interpretation and reasoning: The Court noted that the impugned proceedings were preceded by approval from the specified authority, namely the Principal Chief Commissioner of Income Tax, granted before passing the order under Section 148A(d) and issuing the notice under Section 148. The Court treated this as satisfying the statutory requirement under Section 151 as applicable after 01.04.2021.
Conclusion: The sanction/approval requirement under Section 151 was held to be complied with; therefore, the jurisdictional challenge based on lack of approval failed.
Reopening of assessment u/s 147 - Period of limitation - Notice issued u/s 148A(b) of the Act, in the light of the decision of Union of India Vs. Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] - Notice u/s 148A(b) of New Law as amended by Finance Act, 2021 - scope of TOLA - New regime v/s old regime - re-assessment proceedings challenged on the ground of limitation stating the time limit to issue a Notice u/s 148 of the Act has expired as per Section 149 of the Act as in force with effect from 01.04.2021.
HELD THAT:- In the light of the limitation for issuance of Notice under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) prescribed under Section 149 of the Act read with Section 151 of the Act, it is clear that the Notice that was issued after 1st April, 2021 under the old regime as it stood till 31.03.2021 has to be treated as a Notice under Section 148A(b) of the Act under the new regime in terms of Ashish Agarwal case (cited supra) and in terms of Paragraph No. 114(g) of Rajeev Bansal case (2024 (10) TMI 264 - SUPREME COURT (LB),
The time during which the aforesaid Show Cause Notices were deemed to be stayed is from the date of issuance of the deemed notice between April 1, 2021 and June 30, 2021 till the supply of relevant information and material by the Assessing Officers to the assessee’s in terms of the directions issued by this court in Ashish Agarwal case (cited supra), and the period of two weeks allowed to the assessee’s to respond to the show-cause notices as confirmed by Rajeev Bansalcase (cited supra).
Thus, it is clear that the Notice that was issued on 30.06.2021 under Section 148 of the Act under the old regime as it stood till 31.03.2021 has to be treated as a Notice issued under Section 148A(b) of the Act in terms of Ashish Agarwal case (cited supra) and Rajeev Bansal case (cited supra).
The Hon'ble Supreme Court in Rajeev Bansal case referred to supra, thus held that the combined effect of the legal fiction and the directions issued by the Hon'ble Supreme Court in Ashish Agarwal case referred to supra was that the time begins to run for an assessee to respond to the show-cause notices, after the supply of the relevant material and information to the assessee.
If an assessee replies within the time stipulated in the above illustrations, the Assessing Officer has time up to sixty-one days from the date of reply. Therefore, the notices issued under Section 148 of the new regime issued in pursuance of the deemed notices ought to have been issued within the time limit surviving under the Act read with TOLA.
Thus, for the Assessment Years 2013-2014, 2014-2015, 2015- 2016, 2016-2017 and 2017-2018, the Hon'ble Supreme Court in Rajeev Bhansal case referred to supra held to assume jurisdiction to issue notices under Section 148 under the new regime with respect to these Assessment Years, an Assessing Officer has to:
1. issue the such notices within the period prescribed under Section 149(1) of the new regime read with Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.
2. obtain the previous approval of the authority specified under Section 151.
Thus, a Notice under Section 148 of the Act was required to be issued for reassessment within the time limit surviving under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.
For the Assessment Year 2014-2015, the Notice under Section 148 of the Act ought to have been issued on 31.03.2018 within three years from the end of the Assessment Year, if the income allegedly escaping assessment was less than Rs. 50,00,000/- and within Ten years on 31.03.2025, if the income allegedly escaping assessment was more than Rs. 50,00,000/-.
In the present case, the income that has allegedly escaped assessment is more than Rs. 50,00,000/- viz. Rs. 9,36,83,489/-. Therefore, the assessing officer has a period upto ten years from the end of the Assessment Year to issue the reassessment notice under Section 148 of the Act under the new regime, provided the said Notice issued under Section 148 of the Act under the old regime was in time.
As per the 1st Proviso to Section 149 of the Act, no notice can be issued under Section 148 of the Act under the new regime as in force with effect from 01.04.2021, if the limitation to issue Notice under Section 148 of the Act under the old regime had already expired.
By virtue of TOLA extensions, the six year limitation for issuance of Notice under Section 148 under the old regime was extended upto 30.06.2021 in view of the extension under Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) for the Assessment Year 2014-2015. The limitation would have otherwise expired on 31.03.2021 under the old regime.
Since Notice issued under Section 148 of the old regime on 30.06.2021 was issued within the limitation of six years, the impugned notice issued on 29.07.2022 under Section 148 of the Act is in time. As the income that had allegedly escaped assessment was more than Rs. 50,00,000/-, the Assessing Officers has time upto 30.06.2025 to issue a Notice under Section 148 of the Act under the new regime with effect from 01.04.2021.
Therefore, impugned Notice dated 29.07.2022 issued under the new regime under Section 148 of the Act has to be held to be in time. The impugned Notice dated 29.07.2022 was also preceded with an approval from the specified authority under Section 151 of the Income Tax Act, 1961 viz., the Principal Chief Commissioner of Income Tax as under amended Section 151 of the Act with effect from 01.04.2021, the challenge to the impugned order has to fail. WP dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, after a valid and timely first-time exercise of option under section 115BAB by filing Form 10-ID within the due date under section 139(1), the concessional tax rate under section 115BAB must continue to apply in subsequent assessment years even if the subsequent year's return is filed belatedly.
(ii) Whether the processing authority was justified, while processing the return under section 143(1), in computing tax at 22% under section 115BAA instead of 15% under section 115BAB, despite the assessee's continuing option under section 115BAB.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Continuity of section 115BAB option in subsequent years despite belated return
Legal framework: The Court examined section 115BAB(7), which makes section 115BAB applicable only if the option is exercised in the prescribed manner on or before the due date under section 139(1) for furnishing the first return of income for the relevant assessment year commencing on or after 01.04.2020, and further provides that once exercised, the option applies to subsequent assessment years.
Interpretation and reasoning: The Court held that section 115BAB(7) requires timely filing of Form 10-ID with reference to the first year in which the concessional regime is opted. Once that condition is met, the statute itself provides continuity of the option for later years. The Court expressly concluded that there is no statutory requirement that, for a subsequent year, the return of income must necessarily be filed within section 139(1) for claiming the concessional rate under section 115BAB, when the option had already been validly exercised in the first year within time.
Conclusion: Since a valid option under section 115BAB had been exercised for the first time in the earlier year by filing Form 10-ID within the due date under section 139(1) and was accepted by the tax authorities, the assessee was entitled to continue to be taxed at 15% under section 115BAB in the year under consideration, notwithstanding that the return for that year was filed beyond the due date under section 139(1).
Issue (ii): Legality of applying section 115BAA rate under section 143(1) processing instead of section 115BAB rate
Legal framework: The Court considered the interaction of section 115BAB (concessional tax for eligible manufacturing domestic companies upon valid option) with section 143(1) processing, in the context of the assessee's continuing section 115BAB option.
Interpretation and reasoning: The Court found the computation of tax at 22% under section 115BAA to be erroneous because the assessee's section 115BAB option, once validly exercised in the first year, statutorily continued to apply in subsequent years. On the facts, the year under consideration was the second year of claim under section 115BAB, and the earlier year's valid exercise of option governed the subsequent year as well. The Court therefore held that the processing authority could not deny the continuing application of section 115BAB and mechanically substitute the section 115BAA rate.
Conclusion: The order upholding tax computation at 22% under section 115BAA was reversed. The Court directed that the assessee be granted the concessional tax rate of 15% under section 115BAB for the year under consideration, and the assessee's grounds were allowed.
Computing Tax @ 22% u/s 115BAA OR concessional rate of tax @ 15% w/s 115BАВ - Mandation of filing of Form No.10-ID on or before the due date specified u/s. 139(1) - HELD THAT:- We find that sub-section (7) clearly mandates that the provisions of section 115BAB shall apply only if the option is exercised by the person in the prescribed manner, i.e. filing of Form No.10-ID on or before the due date specified u/s. 139(1) of the Act for furnishing first return of income for any previous year relevant to the assessment year commencing on or after 01.04.2020 which in the case of the assessee has opted for the first time for A.Y. 2023-24 and further such option once exercised shall apply to subsequent assessment years also.
This shows that only the option to be exercised on Form No.10-ID is required to be filed u/s. 139(1) of the Act for the first assessment year for which the assessee has exercised the option.
There is no statutory requirement for filing the return of income u/s. 139(1) of the Act for claiming benefit of concessional rate of tax u/s. 115BAB of the Act and the only requirement is that for the first time when the assessee intends to opt for such concessional rate then it has to file Form No.10-ID for that year within the due date specified u/s. 139(1) of the Act. See GFCL EV Products Ltd. [2025 (11) TMI 650 - ITAT AHMEDABAD]
Since the assessee in the instant case though has filed belated return but it is the second year and for the first year, i.e. A.Y. 2023-24 a valid option has been exercised by the assessee u/s. 115BAB(7) of the Act on Form 10-ID and the same has been accepted by the Revenue authorities and therefore the assessee deserves to get the benefit of concessional rate @15% u/s. 115BAB of the Act for the A.Y. 2024-25 also. Thus, finding of ld.CIT(A) is reversed and the grounds of appeal raised by the assessee are allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether interest awarded on motor accident compensation (and kept under court directions in fixed deposits under lien) constitutes taxable income in the relevant year, or forms part of the compensation and therefore is not chargeable to tax.
(ii) Whether, on the facts found, any taxability could arise on an accrual/protective basis when the assessee had not received the interest amount and the funds were under court-ordered custody.
(iii) Whether the assessee is entitled to corresponding credit of tax deducted at source where the Tribunal holds the interest amount is not taxable in the assessee's hands.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i) & (ii): Taxability and timing of tax on MACT interest kept under lien / court custody
Legal framework (as discussed by the Tribunal): The Tribunal considered the application of Section 56(2)(viii) read with Section 145B(1), and examined whether "interest" on compensation could be taxed, and if so, the year of taxability under the statutory scheme referring to "interest received".
Interpretation and reasoning: The Tribunal found as a fact that although compensation and interest were computed, the assessee did not obtain access to the money because the award was under challenge and the court had stayed release to the claimants while directing deposit into fixed deposits under strict lien. The Tribunal held the issue was squarely covered by a High Court decision applied by it, which treated interest awarded on compensation under the Motor Vehicles Act as "part and parcel of the compensation" and therefore not income. The Tribunal further reasoned that, even otherwise, the statutory scheme relied on by the revenue (Section 56(2)(viii) read with Section 145B(1)) hinges on receipt of interest; on the Tribunal's findings, the assessee had not received the interest during the relevant year. Therefore, taxing an amount merely credited into court-controlled fixed deposits, without receipt by the assessee, would amount to taxing hypothetical income. On these combined grounds, the Tribunal rejected the addition whether made substantively or "protectively".
Conclusions: The interest component on motor accident compensation, in the circumstances found (amount lying in court-ordered fixed deposits under lien and not received by the assessee), could not be brought to tax for the relevant year; the addition could not be sustained either on substantive or protective basis.
Issue (iii): Grant of credit for tax deducted at source
Interpretation and reasoning: Having held that the impugned interest amount was not taxable in the assessee's hands, the Tribunal directed that the credit of tax deducted at source, as available to the assessee on the record, must be granted.
Conclusions: The assessing authority was directed to allow the available tax deducted at source credit and re-compute the assessee's income accordingly.
Taxability of interest component on motor accident compensation claim - AR pointed out that the interest income has not been received, at all, by the assessee during this year and the claim continue to be in the court custody as per the directions of the court - HELD THAT:- From the facts itself, it is clear that the assessee has not received the said interest component till date. The compensation and the interest amount are lying in a court-ordered Fixed Deposit under a strict lien because the Insurance Company has challenged the award.
One cannot be taxed on income that is merely hypothetical and has not reached the hands of the assessee. The provisions of Sec.56(2)(viii), which has apparently been applied to the case of the assessee, seeks to bring to tax income by way of interest received on compensation or on enhanced compensation referred to in subsection (1) of section 145B.
The provisions of Sec.145B(1) provide that the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received. Thus, no case of levy of tax on the accrued interest could be made out against the assessee for this year. Viewed from any angle, the assessment of interest income, whether protectively or substantively, could not be upheld in the eyes of law. Since the impugned interest amount is not taxable in the hands of the assessee as per the cited decision of Hon’ble High Court, the credit of TDS, as available to the assessee, shall be granted by Ld. AO.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether revisionary jurisdiction under section 263 could be validly assumed on the ground of alleged lack of enquiry when the assessment reflected a plausible view and/or the issues were covered by settled law.
(ii) Whether club membership/subscription expenditure claimed under section 37(1) could be revised under section 263 when the expenditure was for corporate membership used for business purposes and its allowability was settled by binding precedents.
(iii) Whether ESOP expenditure (to the extent claimed) was allowable under section 37(1) as employee compensation, and whether the assessment allowing it could be termed erroneous and prejudicial under section 263.
(iv) Whether deduction under section 80G could be allowed for donations forming part of CSR spend (after disallowance under section 37(1)), and whether the assessment order allowing such deduction could be revised under section 263.
(v) Whether payments described as "penalties" to the stock exchange were disallowable under Explanation 1 to section 37(1), and whether allowance thereof in assessment justified section 263 revision.
(vi) Whether interest expenditure was required to be capitalised under the proviso to section 36(1)(iii) as relatable to CWIP, and whether the assessment allowing it as revenue expenditure was erroneous and prejudicial.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Scope of section 263-"erroneous and prejudicial" in cases of enquiry/plausible view
Legal framework: The Court examined section 263 in the context of the requirement that the assessment order must be both "erroneous" and "prejudicial to the interests of the Revenue," and the principle that revision cannot be used to substitute one plausible view with another.
Interpretation and reasoning: The Court found that across the revised issues, the assessment either reflected enquiries and a plausible view, or the view adopted was supported by binding/settled judicial position on the point. The revisional authority proceeded largely on alleged "inadequacy of enquiry" and audit objections, without demonstrating a specific legal or factual error rendering the assessment unsustainable in law.
Conclusion: Section 263 was held to have been wrongly invoked; the revisional order was set aside in entirety because no issue satisfied the cumulative requirements of "error" and "prejudice," and mere preference for a different view was impermissible.
Issue (ii): Club expenses under section 37(1)
Interpretation and reasoning: The Court held the expenditure related to corporate club membership obtained for business purposes (business meetings, networking, business development) and did not bear the character of personal expenditure. The allowability of such corporate club membership fees was treated as well-settled by binding precedent. Consequently, the assessment allowing the claim could not be characterized as erroneous or unsustainable merely because the revisional authority sought further enquiry or disagreed on nexus.
Conclusion: The section 263 revision on club expenses was held unjustified and was set aside.
Issue (iii): ESOP expenditure claimed under section 37(1)
Interpretation and reasoning: The Court accepted that the ESOP charge debited in accordance with applicable accounting standards and regulatory framework had a direct nexus with employee compensation, motivation and retention. It noted that the assessee had itself disallowed the ESOP cost attributable to the parent's scheme and claimed deduction only for the balance attributable to its own scheme. The Court treated the allowability of ESOP expenditure as settled in favour of deductibility as business expenditure and rejected the revisional premise that it was merely notional and involved no accrued liability so as to warrant revision.
Conclusion: Allowance of the ESOP claim in assessment was a legally sustainable view; section 263 could not be used to revisit it. The revision on this issue was set aside.
Issue (iv): Section 80G deduction for donations forming part of CSR spend (after disallowance under section 37(1))
Legal framework: The Court considered the interaction between Explanation 2 to section 37(1) (CSR not allowable as business expenditure) and deduction under section 80G (Chapter VIA deduction from gross total income), and the statutory exclusions specifically identified within section 80G.
Interpretation and reasoning: The Court held that once CSR expenditure was disallowed while computing business income under section 37(1), a donation to an institution approved under section 80G stood on an independent statutory footing for Chapter VIA deduction, subject to satisfaction of section 80G conditions. It accepted that donation certificates and eligibility of donees under section 80G were produced and that the claim did not fall within the specific exclusions referred to by the Court. The Court treated the assessment's allowance of the claim as a plausible view supported by consistent Tribunal decisions and held that revision could not be founded on the revisional authority's differing opinion on "voluntariness."
Conclusion: The assumption of section 263 jurisdiction on the section 80G/CSR issue was held unsustainable; the revision was set aside.
Issue (v): Stock exchange "penalties" and Explanation 1 to section 37(1)
Interpretation and reasoning: The Court found that the amounts comprised (a) charges for operational/procedural lapses (bad/short delivery, late reporting, margin shortfall, client code modification, etc.) under exchange frameworks, and (b) an amount paid pursuant to a settlement order. On the record, the Court concluded these were compensatory/regulatory charges for technical/procedural non-compliances in the ordinary course of business and not statutory penalties for an "offence" or "purpose prohibited by law" so as to attract Explanation 1 to section 37(1). It also noted the existence of a consistent view in the assessee's own earlier year on similar payments.
Conclusion: Allowance of the expenditure was not erroneous or prejudicial; section 263 invocation on this issue was unjustified and was set aside.
Issue (vi): Interest under section 36(1)(iii) and CWIP-applicability of proviso requiring capitalisation
Interpretation and reasoning: The Court held that the CWIP represented advances for assets not yet "ready-to-use," with no depreciation claimed on CWIP, and capitalisation occurred only when assets became ready for use. Crucially, the Court found that borrowings were short-term commercial papers used for business purposes (trade funding, margin deposits, working capital) and not for acquisition of fixed assets or funding CWIP; there was no demonstrated nexus between borrowings and CWIP. It further accepted that Ind AS lease-related finance cost entries were reversed/disallowed in computation and did not affect the allowability analysis.
Conclusion: In absence of nexus, the proviso to section 36(1)(iii) did not apply; the assessment allowing interest as revenue expenditure was sustainable. The section 263 revision on interest/CWIP was set aside.
Revision u/s 263 - revision in respect of deduction allowed for club membership expenses u/s 37(1) - HELD THAT:- It is evident that the expenditure in question relates to corporate club membership obtained for business purposes and does not partake the character of personal expenditure. The allowability of such expenditure is now well-settled by authoritative pronouncements of the Hon’ble Supreme Court as well as the Hon’ble jurisdictional High Court. In view of these binding precedents, the Assessing Officer’s action in allowing the expenditure cannot be regarded as erroneous or unsustainable in law.
Allowance of Employee Stock Option Plan (ESOP) expenditure - On a careful appraisal of the facts and the legal position, it is evident that the assessee had incurred ESOP expenditure in the course of its business, in accordance with statutory regulations and accounting standards, and that such expenditure had a direct nexus with employee compensation and retention. The fact that a portion of the expenditure had already been disallowed by the assessee itself further demonstrates due compliance and application of mind.
In view of the settled judicial position recognising ESOP expenditure as an allowable business expenditure, the AO’s action in allowing the claim cannot be regarded as erroneous or prejudicial to the interests of the Revenue. The learned Principal Commissioner, therefore, exceeded the permissible limits of section 263 in setting aside the assessment on this issue.
Deduction u/s 80G on CSR Expenditure - Principal Commissioner, while invoking revisionary jurisdiction, held that since the expenditure incurred towards CSR was mandatory in nature, it lacked the essential attribute of voluntariness and, therefore, could not qualify as a “donation” eligible for deduction u/s 80G - It is evident that once the assessee has disallowed CSR expenditure under section 37(1), there is no embargo in law on claiming deduction u/s 80G, provided the statutory conditions thereof are satisfied. AO having examined the claim and allowed the deduction, had taken a plausible and legally sustainable view. Principal Commissioner could not have invoked section 263 merely because he held a different opinion on the matter. Substitution of one plausible view by another is impermissible in revisionary proceedings. Accordingly, on this issue also, the assumption of jurisdiction under section 263 is held to be unsustainable.
Allowability of expenditure incurred towards penalties paid to the stock exchange - Principal Commissioner observed that the AO had allowed the said expenditure without examining whether it was hit by Explanation 1 to section 37(1) of the Act, which disallows expenditure incurred for any purpose which is an offence or which is prohibited by law - Penalties in question are not statutory penalties imposed for violation of law, but are in the nature of compensatory charges levied for operational and procedural lapses under the bye-laws and regulations of the stock exchange. Such payments do not fall within the mischief of Explanation 1 to section 37(1).
The distinction between expenditure incurred for an offence or for a purpose prohibited by law, and expenditure incurred in the ordinary course of business for regulatory non-compliances of a technical or procedural nature, is well recognised in law. The latter category of expenditure has consistently been held to be allowable.It is also an undisputed fact that in the assessee’s own case for an earlier assessment year, the Tribunal has held that penalties levied by the stock exchange on account of similar operational lapses are allowable as business expenditure. AO by allowing the claim, had thus followed a consistent view. Principal Commissioner was, therefore, not justified in invoking revisionary jurisdiction on this issue.
Disallowance of Interest Expenditure u/s 36(1)(iii) - The assessee also explained that the financial year 2019-20 was the first year in which it adopted Indian Accounting Standard (Ind AS) 116 relating to leases. Pursuant thereto, the assessee recognised right-of-use (ROU) assets and corresponding lease liabilities in its books of account. The interest component arising from such lease liabilities was disclosed as finance cost in the audited financial statements.
While computing the total income, the assessee reversed the entire impact of Ind AS adjustments, including the interest component on lease liabilities, and disallowed the same in the computation of income. It was also pointed out that no depreciation was claimed on ROU assets. Thus, the Ind AS-related accounting entries had no bearing on the allowability of interest under section 36(1)(iii).
From the cumulative appreciation of the above facts, it clearly emerges that the interest expenditure in question was incurred wholly in relation to general business borrowings and not for acquisition of capital assets or for CWIP. There is no material on record to establish any direct or indirect nexus between the borrowings and the CWIP. In the absence of such nexus, the proviso to section 36(1)(iii) has no application. The Assessing Officer, having examined the nature of borrowings and their utilisation, was justified in allowing the interest expenditure as a revenue deduction.
Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether disallowance under section 14A read with Rule 8D can be made for a year in which the assessee earned no exempt income, and whether the corresponding addition is liable to be deleted.
(ii) Where exempt income (dividend) is earned, whether the disallowance under section 14A read with Rule 8D can exceed the amount of exempt income, and whether the disallowance must be restricted to the exempt income actually earned.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Disallowance u/s 14A when no exempt income is earned
Legal framework (as discussed): The Court examined the applicability of section 14A (with Rule 8D) in a year where the assessee admittedly earned no exempt income. The Court treated it as a settled position that section 14A disallowance is not warranted in such circumstances and applied judicial precedent to that effect.
Interpretation and reasoning: The Court recorded a clear factual finding that there was "no dispute" that the assessee did not earn any exempt income during the relevant year, as corroborated by the audited accounts and the computation of income placed on record. On that basis, the Court applied the settled principle that, for the year under consideration, section 14A cannot be invoked if no exempt income is earned. The Court therefore held that the disallowance made by the Assessing Officer under section 14A read with Rule 8D was not called for.
Conclusion: Since no exempt income was earned during the year, the addition made under section 14A was deleted in full and the assessee's ground was allowed.
Issue (ii): Ceiling of disallowance u/s 14A to the extent of exempt income earned
Legal framework (as discussed): The Court considered the settled position that disallowance under section 14A cannot exceed exempt income earned by the assessee in the relevant year and applied that principle to the disallowance computed under section 14A read with Rule 8D.
Interpretation and reasoning: The Court noted the assessee's concession that exempt income was earned in the form of dividend during the year. On verification of the audited accounts and computation of income, the Court found that dividend income of Rs. 32,95,039/- was reflected as "other income" and was reduced from taxable income as exempt income. In these circumstances, although section 14A disallowance was otherwise attracted, the Court held that the disallowance cannot exceed the exempt income actually earned. Accordingly, the disallowance originally made at Rs. 40,03,808/- was restricted to Rs. 32,95,039/-.
Conclusion: The disallowance under section 14A read with Rule 8D was limited to the amount of dividend exempt income earned during the year, resulting in partial relief to the assessee on this issue.
Addition u/s 14A r/w Rule 8D on account of interest and administrative expense - no exempt income earned - HELD THAT:- There is no dispute to the fact that no exempt income was earned by the assessee during the year. It is a settled position that for the year under consideration, no disallowance u/s 14A was called for if no exempt income was earned by the assessee.
As in the case of CIT Vs. Chettinad Logistics (P.) Ltd. [2018 (7) TMI 567 - SC ORDER] has upheld the decision of Hon’ble Delhi High Court that where no exempt income was earned in the relevant assessment year by the assessee, the provision of Section 14A of the Act could not be invoked. Further,
As in Corrtech Energy (P.) Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT] has held that if the assessee did not make any claim for exemption of any income, disallowance u/s 14A of the Act could not be made. It is found from the audited accounts as well as the computation of income brought on record in the paper book filed by the assessee, that no exempt income was earned by the assessee during the current year. In view of this fact and respectfully following the decisions referred above, no disallowance u/s 14A of the Act was called for in the current year. Accordingly, the addition as made by the AO is deleted. Appeal of the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the claimed share purchase and sale transactions were proved to be genuine so as to entitle the assessee to claim the resultant loss for set-off against other income.
(ii) Whether the assessee proved that delivery of shares was taken/given in the impugned transactions, and whether the evidence relied upon (particularly broker contract notes mentioning distinctive numbers) was credible.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Genuineness of the share transactions and allowability of the claimed loss
Legal framework: The Tribunal examined the dispute on the factual core of genuineness of transactions and actual delivery, as the determinative basis on which the loss was claimed and disallowed. The order proceeds on the basis that a loss claim requires credible proof of real purchase and sale transactions in the ordinary course, supported by reliable documentation and surrounding circumstances.
Interpretation and reasoning: The Court treated the surrounding circumstances relating to settlement and payments as material indicators of genuineness. It found that the assessee's funds were transferred against the alleged share purchases only after a substantial lapse of time from the purchase dates. The Tribunal considered such delayed payment to be uncommon in share-broking transactions, observing that brokers typically insist upon advance or prompt payment for securities purchased. This commercial improbability, read with the evidentiary deficiencies on delivery, undermined the assessee's claim that the transactions were real and carried out in the normal manner of the business.
Conclusions: The Tribunal held that the assessee failed to establish genuineness of the transactions and therefore did not make out a case to interfere with the finding that the loss claim was not allowable. The appellate findings denying the benefit of the loss were confirmed.
Issue (ii): Proof of delivery of shares and credibility of contract notes/distinctive numbers
Legal framework: The Tribunal addressed delivery as a central factual requirement for accepting the assessee's claim and evaluated whether the documents produced were reliable proof of delivery.
Interpretation and reasoning: The Tribunal found the assessee's reliance on broker contract notes to be not credible for proving delivery. Although the contract notes were computer-generated on printed stationery, the distinctive numbers (relied on to show identification and delivery of specific share certificates) were handwritten and were not authenticated by the issuing person. In the Tribunal's view, this lack of authentication affected the reliability of the "crucial information" asserted to evidence delivery. The Tribunal also considered it significant that distinctive numbers were not mentioned in earlier orders of the tax authorities and the Tribunal, which further weakened the evidentiary value attributed to such handwritten particulars in the contract notes.
Conclusions: The Tribunal concluded that delivery of shares was not proved by credible evidence. On this decisive factual deficiency, the Tribunal upheld the adverse finding that the loss could not be allowed on the basis of the impugned share transactions.
Genuine share transactions - Transactions of purchase and sale of shares as claimed by the assessee were genuine or not? - whether delivery of stocks was taken/given by the assessee at the time of purchase/sales transaction respectively?
HELD THAT:- As far as the delivery of shares is concerned, we are of the view that the assessee’s reliance on the contract notes is not credible. This is for the reason that although the contract notes are computer generated on printed stationary of the broker Bubana Stock Broker; the distinctive numbers have been written in hand writing without any authentication of the person issuing the contract note. In the absence of any authentication of the issuing person; this crucial information cannot be treated as credible this is specially so, as there was no mention and distinctive numbers in the earlier orders passed by ITAT, learned CIT(A) and AO.
Secondly, as far as genuineness of transaction is concerned, we find that the transfer of funds by the assessee against purchase of shares was after substantial passage of time after the purchase transactions, which is uncommon in this line of business. The brokers do insist on advance/prompt payments against shares/securities purchased by a person. In view of the foregoing, we are of the view that the CIT(A) has passed just and reasonable order having regard to applicable law and relevant facts and circumstances of the case.
The assessee has failed to make a good case to persuade us to intervene with the impugned appellate order of the Learned CIT(A). Therefore, the findings of the learned CIT(A) are confirmed. Appeal of the assessee stands dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether share application money (including share premium) received on private placement of preference shares was liable to be treated as unexplained cash credit under section 68 for failure to establish identity, creditworthiness, and genuineness to the satisfaction of the Assessing Officer.
(ii) Whether an estimated commission/expenditure addition at 5% in relation to the share application money transaction was sustainable as unexplained expenditure under section 69C, once the underlying share capital/premium transaction was upheld as non-genuine under section 68.
(iii) Whether disallowance under section 14A read with Rule 8D could exceed the amount of exempt dividend income earned during the year, and the consequential direction required.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Addition under section 68 for share application money/share premium on preference shares
Legal framework: The Court applied the section 68 requirement that the assessee must establish (a) identity of the creditor/investor, (b) creditworthiness, and (c) genuineness of the transaction; and that in private placement transactions, a higher onus operates because relevant information lies especially within the assessee's knowledge.
Interpretation and reasoning: The Court noted that statutory notices issued to share applicants were either returned unserved with remarks like "left/not known" or remained unanswered. Despite being confronted with this, the assessee neither produced the investors nor furnished updated addresses. The evidentiary material relied upon (ITR/audited accounts/bank extracts/ledger confirmations) was found incomplete in important respects: for certain applicants, ITR acknowledgements for the relevant year were not on record; and for all applicants, no board resolutions authorising investment were furnished. The Court further held that reliance on corporate registry status was insufficient to establish identity or negate sham character, particularly where some entities showed adverse status and in any case registry status did not prove genuineness. On creditworthiness, the Court accepted that balance-sheet "net worth" alone did not establish liquidity or financial capacity, especially when compared with gross income and surrounding circumstances. Given that the transaction was an off-market private placement, the Court stressed the assessee's obligation to explain how and why such parties subscribed and the mode/manner of allotment beyond doubt, which was not done.
Conclusion: The assessee failed to discharge the primary onus under section 68 to prove identity, creditworthiness, and genuineness of the share application money and premium. The addition of the entire amount as unexplained credit under section 68 was upheld.
Issue (ii): 5% commission/expenditure addition under section 69C linked to the bogus share capital/premium transaction
Interpretation and reasoning: The Court reasoned that once the principal receipt of share application money was upheld as a bogus/non-genuine transaction under section 68, the related inference of commission payment for arranging such entries was not infirm. The estimate of 5% commission was treated as justified in the circumstances tied to the upheld section 68 finding.
Conclusion: The addition of commission at 5% as unexplained expenditure under section 69C was sustained, and the challenge to this addition was rejected.
Issue (iii): Ceiling of section 14A disallowance to the amount of exempt income
Legal framework: The Court applied the principle that disallowance under section 14A cannot exceed the exempt income earned during the year.
Interpretation and reasoning: It was undisputed that the assessee earned exempt dividend income of Rs. 1,36,840. The disallowance computed under section 14A read with Rule 8D at Rs. 4,39,494 exceeded the exempt income. The Court therefore directed restriction of disallowance to the exempt income. It further directed that if the assessee had already made a voluntary disallowance up to the exempt income, then no further disallowance should be made.
Conclusion: The section 14A disallowance was directed to be restricted to the exempt income for the year, with no additional disallowance if the assessee's own disallowance already equalled the exempt income.
Addition u/s 68 - share application money received by the assessee - HELD THAT:- It is pertinent to note that in the present case despite the fact of notices issued to the share applicant being returned back with remark ‘left / not known’, etc., and some of these parties not responding the same being brought to the notice of the assessee, it is evident from the record that the assessee did not furnish latest address of these parties to the AO for necessary examination and all the details which were furnished before the AO was only submitted by the assessee and none of these details came from any of these share applicants.
Since, in the present case, the preference shares were issued to the share applicants through private placements, i.e., off-market transactions, we are of the considered view that the assessee can only have the information and knowledge as to how these preference shares were issued and allotted to these share applicants, and as to how these share applicants got in touch with the assessee for this transaction.
Therefore, in such circumstances, it is all the more relevant that the assessee furnishes all the information regarding the share applicants and the mode/manner of allotment of preference shares beyond doubt to the satisfaction of the AO. However, in the instant case, neither such information was brought on record by the assessee before the lower authorities, nor was the same placed before us.
As, in the present case, the assessee has failed to prove the nature and source of share application money received from the share applicants, beyond doubt, we are of the considered view that the AO was justified in making the impugned addition u/s 68 of the Act. Accordingly, the impugned order on this issue is upheld, and Ground No.1 raised in the assessee’s appeal is dismissed.
Addition of 5% as commission on transaction u/s 69C - Since the main transaction of receipt of share application money has been treated as bogus and the addition has been upheld u/s 68 of the Act, we do not find any infirmity in the addition made on account of commission payment at 5% under section 69C of the Act. Accordingly, Ground No.2 raised in assessee’s appeal is dismissed.
Disallowance u/s 14A- assessee submitted that while computing its total income, it had voluntarily disallowed expenses to the extent of exempt income u/s 14A - AO disagreed with the submissions of the assessee and held that all the expenses connected with the exempt income have to be disallowed under section 14A of the Act, regardless of whether they are direct or indirect, fixed or variable and mandatorily or financial - HELD THAT:- As we find that there is no dispute regarding the fact that during the year under consideration, the assessee earned dividend income which was claimed as exempt under section 10(34) of the Act.
As in Nirved Traders Pvt. Ltd. [2019 (4) TMI 1738 - BOMBAY HIGH COURT] has held that disallowance under section 14A of the Act cannot be more than the exempt income. Thus, we direct the AO to restrict the disallowance made under section 14A of the Act to the exempt income earned by the assessee and if it is found that the assessee has already disallowed the expenses to the extent of exempt income under section 14A of the Act, then no further disallowance be made. Accordingly, Ground No.3 raised in assessee’s appeal is allowed for statistical purposes.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the imported aluminium shelving is classifiable as "structures" under CTI 76109010 or as "parts" of agricultural machinery under CTI 84369900.
(ii) Whether Chapter Heading 8436 can apply when the subject goods are neither "machinery" nor "parts" of machinery, and the asserted mushroom-growing "apparatus" does not qualify as machinery, a composite machine, or a functional unit.
(iii) Whether the Tribunal erred by invoking GRI 3 (specific-vs-general) without first establishing, under GRI 1, that the goods are prima facie classifiable under both competing headings, and by relying on unproven assertions of "no other purpose" and "trade parlance."
2. ISSUE-WISE DETAILED ANALYSIS
A. Classification of the subject goods: "aluminium structures" (CTI 76109010) vs "parts of agricultural machinery" (CTI 84369900)
Legal framework (as discussed by the Court): The Court applied the First Schedule classification methodology, emphasising that GRIs must be applied sequentially, beginning with GRI 1 (terms of headings plus relevant Section/Chapter Notes). The Court treated aligned HSN Explanatory Notes as binding guidance. It also relied on Section Note 1(f) of Section XV (excluding "articles of Section XVI" from Section XV) and the Explanatory Notes' exclusion of "assemblies identifiable as parts of articles of Chapters 84 to 88" from heading 7610.
Interpretation and reasoning: For heading 7610, the Court held the criterion is twofold: the goods must be made of aluminium and must be "structures" (or parts of structures). Using the Explanatory Notes' characteristics of structures (once installed they generally remain in position; assembled from prepared components joined by bolting/riveting/welding, etc.), the Court found the aluminium shelving satisfies these objective characteristics and properties. The Court additionally stated that even in common parlance the subject goods would be referred to as structures.
For heading 8436/parts under 84369900, the Court held that 8436, though eo nomine ("agricultural machinery"), inherently involves a use aspect, but the threshold inquiry remains whether the goods (or the relevant "apparatus" to which they allegedly belong) are "machinery" within the heading. The Court found the shelving is static and non-moving, is not understood as "machinery" in common parlance, and its classification as machinery would be "patently absurd." The Court further held that Section Note 5 of Section XVI (defining "machine" for the purposes of Section Notes) does not expand the scope of a specific tariff heading that uses only the term "machinery."
Conclusions: The subject goods are classifiable as "structures" under CTI 76109010. They cannot be classified under Chapter Heading 8436/CTI 84369900 because neither the subject goods nor the alleged mushroom-growing "apparatus" qualifies as "machinery" for that heading, and the subject goods are not "parts" of any such machinery.
B. Whether the asserted mushroom-growing "apparatus" qualifies as machinery, composite machine, or functional unit under Section XVI notes
Legal framework (as discussed by the Court): The Court examined the relevant Section XVI Notes and Explanatory Notes on composite machines (Note 3) and functional units (Note 4), and the meaning and operation of those concepts.
Interpretation and reasoning: The Court found the mushroom-growing arrangement described on record to be a combination of separate machines performing independent tasks (e.g., watering, compost-related functions), united only by their participation in the broader cultivation process. On that basis, it held the arrangement is not a composite machine (not designed to be fitted together permanently) and not a functional unit (the components do not contribute together to a single clearly defined function covered by a heading; rather they perform separate functions).
Conclusions: The mushroom-growing "apparatus" does not qualify as "machinery" under Chapter Heading 8436 via composite-machine or functional-unit concepts; therefore, classification of the shelving as parts of such "machinery" necessarily fails.
C. Whether the shelving is a "part" of agricultural machinery
Legal framework (as applied by the Court): The Court applied its settled understanding that a "part" is an integral/constituent component essential for the article to be complete and functional.
Interpretation and reasoning: The Court held that the machines said to be mounted or integrated post-import are self-contained and operational; their mechanical/electrical functions do not rely on the shelving. The shelves merely provide a surface or platform. The Court reasoned that providing a surface that supports an object does not make the surface a "part" of that object, and rejected the proposition that being custom-made to allow integration automatically makes an item a "part."
Conclusions: The subject goods are not "parts" of agricultural machinery for CTI 84369900.
D. Errors in the Tribunal's approach: sequential application of GRIs and reliance on unproven "trade parlance/no other purpose" findings
Legal framework (as discussed by the Court): GRIs must be applied sequentially; GRI 3 is only reached after GRI 1 (and where relevant GRI 2) yields prima facie classification under two or more headings.
Interpretation and reasoning: The Court held the Tribunal erred in applying the "more specific heading" approach (GRI 3(a)) without first establishing that, under GRI 1, the goods are prima facie classifiable under both headings. Separately, the Court found the Tribunal's conclusions that the shelves had "no other purpose" and that they were known in "trade parlance" as mushroom racks were unsupported by reasoning or evidence; marketing materials and the seller's line of business were insufficient to establish such specialised trade meaning or exclusive-purpose limitation.
Conclusions: The Tribunal's classification reasoning was flawed; the correct classification remains CTI 76109010 as aluminium structures.
Classification of aluminium shelves imported by the respondent - to be classified under Customs Tariff Item 84369900, as ‘parts’ of agricultural machinery or as Customs Tariff Item 76109010, as aluminium structures - recovery of duty short levied with interest - HELD THAT:- A classification dispute in the context of imported goods arises when the revenue and the importer disagree on the tariff heading or sub-heading under which the imported goods ought to be classified. In such scenarios, the tribunals and courts are tasked with determining the most appropriate heading/sub-heading for the purposes of customs law classification. When undertaking this exercise of determining the most appropriate heading, the tribunals and courts are bound by the GRIs, which are provided for in the First Schedule to the Act, 1975 and ought to be applied sequentially. The GRI 1 forms the basis for classifying goods under the First Schedule of the Act, 1975, and establishes the primacy of the notes and terms of headings in determining classification. Thus, any customs law classification dispute at its core would involve interpreting the tariff headings involved, along with the section and chapter notes relevant to such headings.
When interpreting a tariff heading involved in a classification dispute, the tribunal or court may need to invoke and rely on the common or trade parlance test to understand the meaning and scope of the terms used in that tariff heading. After a thorough consideration of this Court’s various rulings on this issue, we have succinctly summarised the broad factors that need to be considered in invoking common or trade parlance when dealing with classification disputes in paragraph 66 of this judgment. At the core of all the factors mentioned therein is that the common or trade parlance test can be invoked to determine the meaning and scope of words, only in the absence of statutory guidance - A close examination of various decisions of this Court on this issue indicates that ‘use’ or ‘adaptation’ can be a relevant factor in determining classification under a heading, only if such a heading refers to ‘use’ or ‘adaptation’, explicitly or inherently. Further, only the intended use as is discernible from the objective characteristics and properties of the goods can be taken into account, and not the actual use, as the same ensures conformity with the ‘as imported’ principle.
To be classified under CTI 76109010, the subject goods need to fulfil a two-part criterion: first, they must be made of aluminium, and secondly, they must be a structure or part of such a structure. On the basis of examining the objective characteristics and properties of the subject goods, it is evident that the subject goods fulfil both the characteristics and thus can be classified under CTI 76109010 as aluminium structures - Chapter Heading 8436 is an eo nomine provision as it refers to goods by their name: ‘agricultural machinery’. However, it is undeniable that the term ‘agricultural machinery’ inherently refers to ‘use’, i.e, machinery whose principal use is in agricultural processes.
The “mushroom growing apparatus” seems to be a combination of various separate machines. However, on applying the relevant section notes and Explanatory Notes, it appears to us that mushroom growing apparatus does not qualify as: (i) a composite machine, as different machines are not meant to be fitted together permanently, or (ii) a functional unit, because all the machines do not appear to work together towards a single, clearly defined function. Rather, each machine, i.e., the head filling machine, the automatic watering system, and the compost spreading equipment, seems to perform its own independent task. The only common element is that they are all part of the broader mushroom cultivation process, which is different from fulfilling a specific, unified function. Thus, mushroom growing apparatus cannot be classified as ‘agricultural machinery’ under Chapter Heading 8436.
Lastly, the subject goods also fail to qualify as parts of the machines with which they are integrated post-importation. All of the individual machines are already complete and fully operational on their own, i.e, their mechanical and electrical functions do not rely on the aluminium shelves. These shelves do not contribute to their operation; they merely serve as a surface for the devices to perform their functions. A surface supports an object but does not become a part of it.
Thus, the subject goods cannot be classified under Chapter Heading 8436. Consequently, the subject goods are liable to be classified under CTI 76109010 as ‘Aluminium Structures’.
The impugned Judgment is hereby set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether confiscation under Section 111(m) of the Customs Act, 1962 and consequential denial of claimed exemption were sustainable on the Court's acceptance of the finding that the imported goods were misdeclared (Corduroy imported but declared as Cotton Griege/Grey fabric).
(ii) Whether penalty could be sustained against a person who was merely the predecessor/transferor of the DFRC licence, when it was an admitted position that such person had no role in the subject import.
(iii) Whether the appeal against a deceased appellant abated on record proof of death.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Misdeclaration-confiscation under Section 111(m) and related consequences
Legal framework: The Court proceeded on the applicability of Section 111(m) (confiscation for misdeclaration) as reflected in the orders under challenge, and treated the Tribunal's factual finding on the nature of goods as decisive for answering the substantial question on misdeclaration.
Interpretation and reasoning: The Court noted a categorical finding of fact by the Tribunal that the goods imported were Corduroy and not Grey fabric as declared, thereby establishing misdeclaration. Before the Court, counsel did not dispute the nature of the goods; the only attempt was to still characterize them as falling within "Grey Cotton fabric," which the Court found unsuccessful. On this basis, the Court found no merit in the challenge to the confiscation and allied action founded on misdeclaration.
Conclusions: The Court answered the substantial question on misdeclaration in favour of the Revenue and dismissed the appeals concerning that issue, thereby upholding the finding of misdeclaration and sustaining the confiscation and related outcomes premised on it.
Issue (ii): Sustainability of penalty against predecessor/transferor of DFRC licence without involvement in import
Legal framework: The Court confined itself to whether any factual basis existed to sustain penalty against the concerned appellant, given the admitted lack of involvement in the import.
Interpretation and reasoning: The Court recorded that the appellant concerned was the predecessor in title to the DFRC licence and that the licence had been transferred to the importer prior to the subject import. It was an admitted position that this appellant had no role to play in the import which led to the alleged misdeclaration. In the absence of any demonstrated participation or responsibility in the import, the Court held that no case was made out to sustain the penalty.
Conclusions: The Court answered the question in favour of the assessee and against the Revenue and allowed the appeal of the licence predecessor/transferor, setting aside the penalty as unsustainable on the admitted facts.
Issue (iii): Abatement upon death of an appellant
Legal framework: The Court applied the principle of abatement where the appellant had died and the fact of death was evidenced on record.
Interpretation and reasoning: On production of the death certificate and noting the date of death, the Court held that the appeal filed by the deceased appellant abated.
Conclusions: The appeal against the deceased appellant was treated as abated.
Misdeclaration of goods imported - confiscation u/s 111(m) of the Customs Act, 1962 - imposing penalty to the main appellant firm and its partner - HELD THAT:- The appellant is Sri Krishna Spinning and Weaving Mills, the predecessor in title to the DFRC licence that was transferred to the appellant on 18.10.2006. No case has been made out to sustain the penalty in this case as, admittedly, this appellant had no role to play in the subject import. This is an admitted position.
The question of law is thus answered in favour of the assessee and against the Revenue.
1. ISSUES PRESENTED AND CONSIDERED
1. Whether the Customs Department's Order-in-Original directing release of detained gold items (one gold chain and two gold pieces) had to be implemented within a fixed timeframe once the Department stated that it had accepted the Order-in-Original.
2. Whether warehousing charges were payable after the date of the Order-in-Original, and if not, what warehousing charges (if any) remained payable for the period prior to the Order-in-Original.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Enforcement and time-bound implementation of the accepted Order-in-Original for release of detained items
Legal framework: The Court proceeded on the basis that an Order-in-Original had been passed by the Customs Department determining the manner of release of the detained items, and the Department informed the Court that it had accepted that order.
Interpretation and reasoning: The Court treated the Department's statement of acceptance of the Order-in-Original as removing any impediment to implementation. Since the grievance before the Court was non-implementation despite the operative directions in the Order-in-Original, the Court required that the Order-in-Original be "given effect to" within a specific period to ensure release in terms of that order, subject to payment of amounts stipulated therein.
Conclusions: The Court directed that the Order-in-Original dated 29 July 2025 must be implemented within two weeks, and that upon payment of amounts payable under that Order-in-Original, the detained items shall be released. The Court also directed the petitioner to appear before the Customs Department on a specified date, with a designated officer to facilitate appearance and compliance.
Issue 2: Liability for warehousing charges post-Order-in-Original and for the prior detention period
Legal framework: The Court addressed warehousing charges in the context of continued detention and the passing of the Order-in-Original determining release terms.
Interpretation and reasoning: The Court drew a temporal distinction between (i) the period after the Order-in-Original, when the release terms stood crystallised and the Department was required to implement the order, and (ii) the prior period, when the goods remained detained. On this basis, the Court held that warehousing charges should not accrue after the Order-in-Original date, while charges for the earlier period would remain payable as applicable at the date of detention, along with other amounts payable under the Order-in-Original.
Conclusions: The Court held that no warehousing charges are payable for the period after 29 July 2025 (the date of the Order-in-Original). For the period prior to 29 July 2025, warehousing charges as applicable on the date of detention are payable, together with other amounts in terms of the Order-in-Original, after which the detained items must be released.
Seeking release of the gold items seized by the Customs Department - grievance of the Petitioner was that no orders were passed by the Customs Department despite the Petitioner being willing to pay customs duty on the seized items - HELD THAT:- As per the Order-in-original, the gold chain and the two gold pieces weighing 65 grams were directed to be released on payment of customs duty - Since this order was not being implemented, an application was filed by the Petitioner in which Ms. Narain, ld. SSC for the Customs Department was directed to seek instructions on 2nd September, 2025.
It is made clear that no warehousing charges shall be payable for the period after passing of the OIO i.e., after from 29th July, 2025. However, for the previous period, warehousing charges as applicable on the date of detention shall be payable along with other amounts in terms of the said OIO. Upon the payment of the amounts as per the OIO, the detained items shall be released to the Petitioner.
Application disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the imported polyester knitted fabric was correctly re-classified from "long pile fabrics" to "other" pile fabrics of man-made fibres, warranting classification under CTI 6001 92 00 and consequential duty demand.
(ii) Whether mis-declaration in respect of quantity and nature/type of the imported goods rendered the goods liable to confiscation under section 111(l) and 111(m) of the Customs Act, 1962.
(iii) Whether, on the established mis-declaration, penalty under section 112 of the Customs Act, 1962 was sustainable.
2. ISSUE-WISE DETAILED ANALYSIS
(i) Classification under CTI 6001 92 00 and consequential demand
Legal framework: The Court examined the relevant Customs Tariff structure under Heading 6001, which sub-classifies pile fabrics into "long pile" fabrics, "looped pile" fabrics, and "other", and further sub-classifies "other" into "of cotton" and "of man-made fibres".
Interpretation and reasoning: The Court accepted the Textile Committee test result that the goods were "100% Polyester Knitted Cut Pile Fabric". It reasoned that cut pile fabric was neither "long pile" nor "looped pile", and therefore fell under the residual category "other" within Heading 6001. Since the fabric was polyester, it was "of man-made fibres", placing it under CTI 6001 92 00.
Conclusion: Classification under CTI 6001 92 00 was upheld, and the consequential duty demand arising from re-classification was also upheld.
(ii) Confiscation under section 111(l) and 111(m)
Legal framework: The Court applied section 111(l) (liability to confiscation for dutiable goods not included or in excess of the entry) and section 111(m) (goods not corresponding in any particular with the entry made under the Act).
Interpretation and reasoning: The Court found, on record, mis-declaration of quantity (excess weight over the declared quantity) and mis-declaration of the type/nature of goods (declared as long pile fabric but found to be cut pile fabric). These discrepancies were held to fall squarely within the mis-match and excess/non-inclusion conditions covered by sections 111(l) and 111(m).
Conclusion: Confiscation under section 111(l) and 111(m) was held to be correct and was upheld.
(iii) Penalty under section 112
Interpretation and reasoning: On the Court's findings that the goods were mis-declared in quantity and nature and that some goods were not declared, the Court concluded that the conduct rendering the goods liable to confiscation also justified imposition of penalty under section 112.
Conclusion: The penalty under section 112 was upheld. The appellate order was upheld and the appeal was dismissed.
Classification of imported goods - to be classified as “100% Polyester Knitted Cut Fabric” under CTI 6001 92 00 instead of “100% Polyester Knitted Long Pile Fabric” under CTI 6001 10 90? - Violation of principles of natural justice - denial of re-testing of the samples - goods liable to confiscation u/s 111(l) and (m) of the Act or not - levy of penalty - HELD THAT:- The quantity of the goods was mis-declared which was discovered during examination.
There is no dispute that the goods fall under the four-digit Customs Tariff Heading of 6001. Under this CTH, there are three sub-headings, long pile fabrics, looped pile fabrics and others. Cut pile fabrics imported by the appellant were, as per the test report, neither long pile fabrics nor looped pile fabrics and hence they fall under ‘others’. The ‘others’ are further sub-classified into ‘of cotton’ and ‘of man-made fibres’. Since the fabrics were made of polyester, they fall under CTI 6001 92 00 as those made of man-made fibres. Therefore, the demand consequent upon such re-classification must also be upheld - the impugned order needs to be upheld insofar as the classification of the goods and the consequential demand is concerned.
Confiscation of the goods under section 111(l) and (m) of the Act - HELD THAT:- Since the goods were mis-declared in terms of quantity and type of goods, they were correctly confiscated by the Commissioner in the impugned order under section 111(l) and (m).
Levy of penalty - HELD THAT:- The facts of the case show that the goods were mis-declared in terms of quantity and nature and some goods were not declared at all. The actions on the part of the appellant rendered the goods liable to confiscation. Therefore, the penalty imposed under section 112 needs to be upheld.
The impugned order dated 14.06.2019 passed by the Commissioner (Appeals) is upheld - Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the imported goods were mis-declared in description/composition, justifying re-classification and consequential demand of differential duty.
(ii) Whether rejection of declared transaction value under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and re-determination of value under Rule 5 based on contemporaneous imports was legally sustainable on the record.
(iii) Whether confiscation under section 111(m) of the Customs Act, redemption fine under section 125, and mandatory penalty under section 114A were validly imposed; and whether the quantum of redemption fine warranted interference.
2. ISSUE-WISE DETAILED ANALYSIS
(i) Mis-declaration of goods and resultant re-classification/differential duty
Interpretation and reasoning: The Court treated it as an undisputed fact that the goods declared in the bill of entry did not correspond to the goods actually imported. Examination and CRCL testing established that the fabric was of polyester filament yarn, not "viscose polyamide woven fabric" as declared. The importer did not dispute the test result and accepted re-classification and reassessment after being confronted with the report; the explanation that the overseas supplier made a mistake did not alter the finding that the declaration was incorrect.
Conclusion: Mis-declaration stood established, supporting re-classification and the consequential reassessment leading to differential duty confirmation.
(ii) Rejection of transaction value under Rule 12 and re-determination under Rule 5
Legal framework (as discussed): The Court applied Rule 3 (transaction value as the basis subject to Rule 12), Rule 12 (mechanism for rejection where there is reason to doubt truth/accuracy), and the sequential re-determination scheme (Rules 4 to 9), including Rule 5 (transaction value of similar goods where Rule 4 is not available).
Interpretation and reasoning: The Court held that where the invoice/documentation related to goods different from what was imported, the proper officer had "reason to doubt" the declared transaction value. It found no record of any evidence produced by the importer to justify the declared value, and the invoice submitted with the bill of entry being for different goods reinforced reasonable doubt about truth and accuracy. Once the transaction value was rejected, the officer was required to re-determine value sequentially; the Court found that this was done and that value was determined on the basis of contemporaneous import data treated as "similar goods" under Rule 5. The argument that the officer relied on "assessed value" (rather than "declared value") of contemporaneous imports failed because the Court found nothing on record showing any difference between declared and assessed values in the contemporaneous import relied upon.
Conclusion: Rejection of the declared value under Rule 12 and re-determination under Rule 5 based on contemporaneous similar goods was upheld as procedurally and substantively valid on the available record.
(iii) Confiscation, redemption fine, and penalty
Legal framework (as applied): Section 111(m) (liability to confiscation where goods do not correspond with the entry), section 125 (redemption on fine), and section 114A (mandatory penalty equal to duty sought to be evaded in the circumstances found).
Interpretation and reasoning: Since the goods did not correspond to the bill of entry particulars, confiscation under section 111(m) followed as a direct consequence of mis-declaration. On redemption fine, the Court assessed proportionality: with goods value recorded at Rs. 20,90,068/-, a fine of Rs. 2,00,000/- (about 10%) was characterized as "fair and balanced" and not warranting interference. For penalty, the Court held that mis-declaration led to reassessment and recovery of differential duty and, under section 114A, the penalty equal to the duty sought to be evaded was mandatory; hence, imposition of penalty equal to the differential duty was sustained.
Conclusion: Confiscation, redemption fine (including its quantum), and penalty under section 114A were upheld, and no interference was warranted.
Mis-declaration of nature of the goods - re-classification and re-assessment of duty - rejection of declared value based on the data of contemporaneous imports - Valuation of goods - Confiscation, imposition of redemption fine and penalty.
Mis-declaration of nature of the goods - re-classification and re-assessment of duty - rejection of declared value based on the data of contemporaneous imports - HELD THAT:- The undisputed fact is that the goods were mis-declared in the Bill of Entry. What was declared was ‘Viscose Polyamide Woven Fabric’, whereas the fabric found to be of ‘Polyester Filament Yarn’. This mis-declaration was discovered by the Customs Preventive officers on the basis of specific intelligence, examination of the goods and test by the CRCL. When questioned, the appellant did not dispute that the goods were mis-declared. The appellant’s submission was that they were mis-declared on account of the mistake of the overseas supplier. However, since the goods were already tested by CRCL, the appellant accepted the re-classification of the goods and also re-determination of the duty.
Valuation of goods - HELD THAT:- As per Rule 3 of the Valuation Rules, the value of the goods shall be the transaction value subject to Rule 12. Rule 12 provides for rejection of transaction value by the proper officer. In other words, if the transaction value is not rejected by the proper officer under Rule 12, the transaction value shall be the assessable value. If the transaction value is rejected under Rule 12 then it should be re-determined sequentially under Valuation Rules 4 to 9.
In this case, since the invoice was for goods different from what were imported, the proper officer had reason to doubt the transaction value. When asked, the appellant agreed to pay the differential duty. There is nothing on record to show that the appellant had produced any evidence to justify his transaction value and the invoice which was submitted along with the Bill of Entry was for different goods. Under these circumstances, the proper officer had a reasonable doubt about the truth and accuracy of the transaction value - Once the transaction value is rejected, the value should be re-determined based on the transaction value of identical goods under Rule 4. If such value is not available, then the transaction value shall be based on the transaction value of similar goods under Rule 5. In this case, the transaction value was determined based on the transaction value of similar goods imported through a Bill of Entry at ICD, Ballabhgarh.
Confiscation, imposition of redemption fine and penalty - HELD THAT:- Since the goods did not correspond to what was declared in the Bill of Entry, they were liable to confiscation under section 111(m). There is no dispute that the goods which were imported were different from the goods which were declared in the Bill of Entry - there are no infirmity in the confiscation of imported goods. Having confiscated the goods, they were allowed to be redeemed on payment of redemption fine of Rs. 2,00,000/-. The goods were worth Rs. 20,90,068/-. The redemption fine imposed was only about 10% of the value of the goods. We find the quantum of redemption fine fair and balanced and it does not call for any interference.
Because of the mis-declaration of the goods, the duties had to be re-assessed and differential duty was to be recovered. As per section 114A of the Act, in such cases the mandatory penalty equal to the amount of duty sought to be evaded has to be imposed. The Additional Commissioner imposed penalty accordingly. The order of the Additional Commissioner has been correctly upheld by the Commissioner (Appeals) by the impugned order.
The impugned order is upheld - appeal dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether the imported "Chilly Seeds" were correctly classifiable under Chapter 12 (CTI 1209 99 90) as "seeds of a kind used for sowing", or under Chapter 9 (CTI 0904 20 40 up to 31.12.2011 / CTI 0904 22 12 from 01.01.2012) as "Chilly Seeds" under heading 0904.
2. Whether Rule 3(a) of the General Rules for Interpretation could be applied to prefer classification under heading 0904 over 1209 on the facts, having regard to the heading structure and the General Explanatory Notes on "- / -- / ---" sub-classification.
3. Whether invocation of the extended period of limitation was sustainable in the absence of a finding that any alleged suppression/misstatement was with intent to evade duty, particularly where Bills of Entry were physically assessed and examined by the department.
4. Whether the proceedings could validly be treated as concluded under section 28(6)(ii) merely because the importer initially opted for closure under section 28(5), despite a subsequent withdrawal request and request for personal hearing before adjudication.
ISSUE-WISE DETAILED ANALYSIS
1. Classification of "Chilly Seeds" under Chapter 12 vs Chapter 9
Legal framework: The Court considered the relevant tariff structure of Chapter 9 and Chapter 12, Supplementary Note defining "spice" in Chapter 9, Note 3 to Chapter 12 excluding Chapter 9 "spices" from heading 1209 "even if for sowing", and the General Rules for Interpretation and General Explanatory Notes governing hierarchical sub-classification.
Interpretation and reasoning: The Court held that classification under heading 0904 could not be sustained because, at the single-dash level, heading 0904 (and the relevant single-dash entry) covers "dried or crushed or ground fruits of the genus Capsicum or of the genus Pimenta". The imported goods were "seeds" of genus Capsicum, not "fruits", and they were neither crushed nor ground. Applying the General Explanatory Notes, the Court reasoned that an article can be classified at a "---" level only if it first falls within the immediately preceding "-" (and "--") description; since the goods did not satisfy the single-dash "fruits" description, the classification could not proceed to the lower-level tariff item for "Chilly seed" under heading 0904. The Court further held that Chapter 9 "spice" coverage is limited by the Supplementary Note definition to products mainly used as condiments, and found as a fact that these chemically treated seeds were not edible and were solely used for sowing; hence they were not "spice" as so defined for Chapter 9 purposes. Having found the goods not classifiable under heading 0904, the Court concluded they appropriately fell within heading 1209 as seeds used for sowing; and that Note 3(b) to Chapter 12 did not bar classification under 1209 because the goods were not "spices or other products of Chapter 9" on the Court's findings.
Conclusions: The Court conclusively held that the imported "Chilly Seeds" did not merit classification under heading 0904 and were correctly classifiable under CTI 1209 99 90.
2. Applicability of Rule 3(a) (specific vs general) and the "- / -- / ---" structure
Legal framework: The Court relied on the General Rules for Interpretation (including Rule 3(a)) and the General Explanatory Notes explaining hierarchical sub-classification by dash levels.
Interpretation and reasoning: The Court reasoned that Rule 3(a) applies where goods are prima facie classifiable under two or more headings; here, the Court found the goods did not satisfy the relevant heading description under 0904 at the foundational ("-" level) because they were seeds, not fruits. Consequently, the premise for applying Rule 3(a) to prefer 0904 over 1209 failed. The Court also stated that the term "heading" in Rule 3(a) clarifies it is not meant for comparison at the eight-digit level in the manner adopted in the impugned reasoning. The Court therefore rejected the approach that treated the presence of an eight-digit tariff item for "Chilly Seeds" under 0904 as determinative without first satisfying the higher-level heading description and structure.
Conclusions: The Court held that the classification reasoning based on Rule 3(a) and direct reliance on the eight-digit entry under 0904 was unsustainable on these facts, and that the hierarchical tariff structure required first satisfying the relevant single-dash description.
3. Extended period of limitation
Legal framework: The Court assessed the show cause notice and the impugned findings on "willful mis-statement and suppression of facts" for invoking the extended limitation, and examined whether there was a requisite finding of suppression with intent to evade duty.
Interpretation and reasoning: The Court held that the show cause notice and the impugned order merely asserted willful misstatement/suppression but did not record a finding that any suppression was with intent to evade duty, which the Court treated as necessary for invoking the extended period. The Court also relied on the factual circumstance that the Bills of Entry had been physically assessed and examined by the department, indicating departmental awareness of the relevant facts, thereby undermining invocation of the extended limitation. On this reasoning, the Court concluded extended limitation was not available.
Conclusions: The Court conclusively held that the extended period of limitation could not have been invoked in the circumstances of the case.
4. Validity of concluding proceedings under section 28(6)(ii) after initial option under section 28(5)
Legal framework: The Court evaluated the effect of the importer's initial request to conclude proceedings under section 28(6)(ii) after payment, against the later supplementary reply seeking withdrawal of that request and seeking opportunity of personal hearing prior to adjudication.
Interpretation and reasoning: The Court found that the appellate reasoning upholding conclusion under section 28(6) was flawed because it failed to account for the importer's subsequent supplementary reply filed before adjudication, asserting correct classification, seeking withdrawal of the earlier acceptance, and requesting personal hearing to present its case. In these circumstances, the Court held it was not justified to treat the order under section 28(6) as valid merely because of the earlier request, when the importer had retracted before adjudication and sought to contest classification.
Conclusions: The Court held that the view sustaining the section 28(6) conclusion was unjustified on the record, contributing to setting aside the impugned order.
Classification of imported Chilly Seeds - to be classified under CTI 1209 99 90 as claimed by the appellant, or under CTI 0904 20 40 (upto 31.12.2011) and under CTI 0904 22 12 (w.e.f. 01.01.2012) as claimed by the department? - extended period of limitation - HELD THAT:- Chilly Seeds are not mainly used as a condiment in contrast with mustard seeds or pepper seeds. Subject goods are neither edible nor fit for human consumption. The subject goods are solely used for sowing purposes. The goods are treated and laced with poisonous chemicals, making them unfit for consumption - the Chilly Seeds are not edible and hence cannot be called as spice and are excluded from the scope of Chapter 09.
Whether the Chilly Seeds deserve classification under CTI 1209 99 90? - HELD THAT:- CTH 1204 covers all seeds, fruits, spores for sowing purposes. Note 3 to Chapter 12 explains the scope of Chapter heading 1204. The Chilly Seeds do not fall under the heading and subheading of Chapter 0904. Further, the seeds are meant for sowing and fulfil the definition of ‘seeds’ under the Seeds Act. The subject goods are poisonous and unfit for human consumption but only fit for sowing and hence is not covered by the Note 3 (b) to Chapter 12 - The impugned order has based its decision of classification on application of rule 3(a) of General Rules for the Interpretation, which provides that where by application of rule 2(b) of General Rules for the Interpretation, if the goods are classifiable under two or more headings, the same will inter alia, be classified under a heading which provides the most specific description over the heading which provides a general description. The use of the term ‘heading’ in the above rule clarifies that same is not applied to compare headings at eight-digit levels.
Invocation of Extended Period of Limitation - HELD THAT:- The Courts have time and again held that mere suppression of fact is not enough and there has to be a deliberate attempt to evade payment of excise duty. The show cause notice must specifically deal with this aspect and the adjudicating authority is also obliged to examine this aspect in the light of the facts stated by the assessee in reply to the show cause notice. In the absence of any finding having been recorded that suppression was with an intent to evade payment of duty, the extended period of limitation could not have been invoked - In the present case, the Bills of Entry were physically assessed and examined by the department and, therefore, the department was fully aware and the correct facts. The extended period of limitation, therefore, could not have been invoked.
The Commissioner (Appeals) has also placed reliance on the fact that the appellant in reply to the show cause notice filed before the Additional Commissioner requested to conclude all the proceedings against it under section 28(6)(ii) of the Customs Act as the appellant had already paid the differential duty, interest and penalty. What has, however, not been noticed is the fact that once the appellant ascertained the correct facts it filed a supplementary reply dated 26.05.2014 before the Additional Commissioner and stated that the classification adopted by it for the seeds at the time of their importation was correct and that it had rightly claimed exemption from the payment of SAD. The appellant also requested the Additional Commissioner to withdraw the reply dated 04.04.2014 and to grant an opportunity for personal hearing so that it can present its case. The Commissioner (Appeals) was, therefore, not justified in holding that the order passed under section 28(6) of the Customs Act would not be invalid.
The impugned order dated 01.11.2016 passed by the Commissioner (Appeals) cannot be sustained and is set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether cancellation of a private bonded warehouse licence under section 58B can be sustained when there is no contravention of the Customs Act, rules/regulations, or breach of licence conditions, and the cancellation is premised on the Commissioner's reassessment of the propriety of granting the licence.
(ii) Whether "mining of coal" undertaken in a licensed private bonded warehouse can fall within "any manufacturing process or other operations" under section 65 read with MOOWR, 2019, so as to justify grant/continuance of MOOWR permission.
(iii) Whether ownership of the premises is a statutory requirement for grant/continuance of a private bonded warehouse licence under section 58, so that absence of ownership could justify cancellation under section 58B.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Limits of cancellation power under section 58B; impermissibility of "review" of the grant
Legal framework: The Court considered sections 58 and 58B of the Customs Act. Section 58 authorises grant of a private bonded warehouse licence. Section 58B authorises cancellation only where the licensee contravenes the Act/rules/regulations or breaches licence conditions, after hearing.
Interpretation and reasoning: The Court held that section 58B does not confer any power upon the Commissioner to review the earlier decision to grant the licence and cancel it on the basis that it was wrongly granted. It noted that, post-2016 amendments, the prior discretion to cancel a licence by notice was removed, and cancellation is now confined to specified statutory grounds of contravention/breach. The Court found it undisputed that there was no allegation of violation of the Act, rules, or licence conditions by the licensee.
Conclusions: In the absence of any established contravention or breach, invocation of section 58B to cancel the private bonded warehouse licences was without authority of law, as it amounted to an impermissible review of the grant decision.
Issue (ii): Whether mining qualifies as "other operations" under section 65/MOOWR, 2019; effect on MOOWR permission
Legal framework: The Court examined section 65 (permission for "any manufacturing process or other operations" in relation to warehoused goods) and MOOWR, 2019 (including the scheme where permission, once granted, remains valid unless cancelled/surrendered, or upon cancellation/surrender of the underlying section 58 licence in terms of law).
Interpretation and reasoning: Since neither the Act nor section 65 defines "manufacture" or "operations," the Court applied their natural meaning and treated "operations" as broad, akin to manufacture-related activities. It expressly disagreed with the finding that mining is outside the scope of "manufacture and other operations," and held that mining of coal qualifies as "other operations" that can be permitted under section 65. The Court further reasoned that, once permission under MOOWR, 2019 is granted after verification, the scheme does not empower the Commissioner to later withdraw it by re-evaluating the correctness of the grant; cancellation must follow the statutory route (including the limited grounds under section 58B for the underlying licence).
Conclusions: Mining was held to be covered by "other operations" under section 65. The cancellation of MOOWR permission on the premise that mining/services are impermissible was therefore unsustainable, particularly when it reflected an attempt to revisit the original grant rather than any proved violation.
Issue (iii): Whether ownership of premises is required for a private bonded warehouse licence; relevance to cancellation
Legal framework: The Court analysed section 58 in determining whether it mandates ownership of premises by the licensee.
Interpretation and reasoning: The Court held that section 58 does not require the licensed premises to be owned by the licensee; therefore, ownership of the land/premises was treated as legally irrelevant to the validity of the licence. Since section 58B cancellation requires contravention/breach, mere non-ownership could not supply a statutory basis for cancellation in the absence of any demonstrated breach of law or licence conditions.
Conclusions: Non-ownership of premises did not justify cancellation. The impugned cancellations, being unsupported by any proved contravention or breach, were set aside, and consequential relief followed.
Cancellation of two private bonded warehouse licences and permission under Manufacture and Other operations in Warehouse (No.2) Regulations, 2019 u/s 58B of the Customs Act, 1962 - appellant has not satisfied the definition of “Private Warehouse” as given in Private Warehouse Licensing Regulations, 2016 - appellant does not own the premises, has no access control over the premises and capability to provide secure storage of the imported goods Regulation 8 of the MOOWR, 2019 - area of the MOOWR, 2019 Unit is too vast to ensure general supervision by the Customs officers - operations undertaken by the appellant is a service which is not permissible under the MOOWR Scheme - goods be capable of removal for home consumption or export in terms of Regulation 15 of the MOOWR Regulations, 2019.
HELD THAT:- From the year 2016, a private bonded licence once issued, cannot be cancelled unless there is a contravention of the Act or Rules or conditions of licence by the licensee. If the Commissioner issues a licence under section 58 and thereafter feels that he had wrongly issued it, he cannot cancel the licence. In this case, it is not in dispute that the Commissioner had issued Private Bonded Warehouse licences to the two mines and there is no allegation of any violation of Act or Rules or the conditions of licence by the appellant. Therefore, the Commissioner cannot cancel the licence under section 58B since this power was specifically withdrawn by the Parliament in Finance Act, 2016.
What needs to be noted is that the amended section 61 treats warehouses where MOOWR licences are issued differently from the other custom bonded warehouses. It does not stipulate that the permission to warehouse capital goods until they are cleared and other goods until they are consumed or cleared will be confined to only certain types of capital goods or other goods indicated in the MOOWR licence - There is also no restriction on what types of goods can be warehoused in a warehouse with MOOWR licence or any other warehouse. All that is required is a Bill of Entry for Warehousing must be filed and a Warehousing bond must be executed as per section 59 of the Act and the officer would permit transfer of the imported goods into the warehouse under section 60 of the Act.
Neither the MOOWR, 2019 Regulations nor the Customs Act confers any such power on the Commissioner. Section 58B can be invoked to cancel the private bonded warehouse licence only if there is violation of the Act or Rules or conditions of the licence and it is not the case of the Revenue that the appellant had violated any provisions of the Act or Rules or the conditions of the licence.
The impugned orders cannot be sustained. The impugned orders are set aside - Appeal allowed.
Issues: Whether the refund claim of customs duty paid during investigation was barred by unjust enrichment.
Analysis: The amount was deposited after issuance of the show cause notice and during the course of investigation, and was therefore treated as a deposit made under protest or a revenue deposit. The Chartered Accountant's certificate and the invoices on record supported the claim that the duty burden had not been included in the sale price or recovered from customers. Mere booking of the amount in the profit and loss account was held to be insufficient, by itself, to establish passing on of the incidence of duty. In the absence of contrary evidence from the department, unjust enrichment was held not to apply.
Conclusion: The refund was not hit by unjust enrichment and was held admissible.
Ratio Decidendi: Duty deposited during adjudication or investigation, when supported by evidence showing that its incidence was not passed on to customers, does not attract the bar of unjust enrichment.
Refund of Customs Duty amount deposited during investigation - incidence of duty has been passed on to customers or not - applicability of unjust enrichment - HELD THAT:- The Hon’ble Supreme Court also in the case ofCommissioner of Customs, New Delhi Vs. Organan (India) Ltd. [2008 (9) TMI 62 - SUPREME COURT] held that if there is no change in the price post levy of duty and the Auditor’s certifies that the incidence of duty has not been passed to the customers, it can safely be presumed that the duty burden has not been passed on to the customers as such the question of unjust enrichment does not arise.
Commissioner (Appeals) while invoking the clause of unjust enrichment has merely relied upon the fact that the customs duty was booked as expenditure in profit and loss account. However, the same is not the appropriate test. What has to be ascertained is as to whether the price of final product has been enhanced due to duty burden and has been charged from the customer - Perusal reveals that the sale amount mentioned in the invoice included cost of gold, labour charges and one per cent VAT. Noting is mentioned in the invoice vis-à-vis the amount of customs duty. This observation is sufficient to hold that the gold was sold at the price without including the proportionate customs duty as was paid by the appellant at the stage of investigation, that too under protest. It becomes clear that once, the invoices do not show any element of duty having been recovered from the customers, it stands proved that no burden of duty has been passed on to the customers by the importer. Commissioner (Appeals) is therefore held to have wrongly held that too in the absence of any evidence that the duty burden has been passed on by the appellant. The findings of Commissioner (Appeals) are therefore not in consonance with the law.
Hon’ble High Court of Punjab & Haryana High Court in the case of Modi Oil & General Mills [2007 (1) TMI 31 - HIGH COURT, PUNJAB & HARYANA], wherein, it was specifically held that the doctrine of unjust enrichment will not apply to a situation, wherein the assessee is directed to pay the amount and pay the same on being pointed out by the authorities and he claims the refund of the same after succeeding in the proceedings.
The order under challenge is hereby set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the order directing that the earlier defreezing direction "shall not be acted upon" and keeping the connected contempt proceeding in abeyance could be sustained when it recorded no reasons or prima facie basis.
(ii) Whether parties could be added as respondents to a writ petition already disposed of, without first allowing the pending recall application and reopening the disposed matter.
(iii) Whether the applications seeking (a) "clarification" from the bank and (b) "recall simpliciter" by third parties were, on the Court's determination for purposes of the appeal, lacking maintainability so as to render the impugned directions unsustainable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Sustainability of suspending operation of the earlier defreezing order and keeping contempt in abeyance without reasons
Interpretation and reasoning: The Court found that the impugned order effectively suspended the earlier direction to defreeze accounts and consequentially kept the contempt application in abeyance. However, the Single Judge's order merely stated that, upon hearing submissions, the matter "was required to be heard", without recording any reasons, without indicating any prima facie case, and without adverting to a discernible basis for restraining implementation of the earlier order.
Conclusions: Such suspension of the operative direction and keeping contempt in abeyance, in the absence of recorded reasoning, was held unsustainable and could not stand.
Issue (ii): Permissibility of impleading/addition of parties in a disposed writ petition
Interpretation and reasoning: The Court held that once a writ petition is disposed of, the writ court is no longer in seisin of the matter. Therefore, there is no scope to implead or add parties in a "dead" (disposed) writ petition. Such relief could be considered only after, and contingent upon, allowing a recall application (if maintainable) and reopening the disposed proceeding. The impugned order granted, at a premature stage, one of the final reliefs sought in the recall application by directing formal addition of parties, even though the recall application itself was not allowed and was deferred for hearing.
Conclusions: The direction adding parties to a disposed writ petition was contrary to basic procedural tenets and was set aside.
Issue (iii): Effect of the Court's findings on maintainability of the pending recall and clarification applications in assessing validity of the impugned order
Interpretation and reasoning: For purposes of deciding whether the impugned directions could stand, the Court concluded that the recall request, framed as a recall simpliciter of an order passed on merits in a disposed writ petition, did not disclose a case of review and did not furnish any other legal justification warranting recall. The Court further treated the bank's clarification request as lacking substance in the context presented. On that footing, the Court found that no prima facie case was made out to justify the impugned suspension of the earlier order and the consequential directions.
Conclusions: The impugned order, founded on an unreasoned assumption that the matter required hearing and granting consequential restraints and impleadment, was held not sustainable; the appeals were allowed and the impugned order was set aside. The Single Judge was requested to take up the pending applications together by first deciding the recall and clarification applications and thereafter the contempt application, depending on the outcome of the recall application.
Oppression and MIsmanagement - Freezing of bank accounts of the appellant no.2-Company - material facts were suppressed by the writ petitioners while obtaining the order under recall or not - locus standi of Bank to seek any further clarification - removal/non-reappointment of respondent no.5 to 6 - HELD THAT:- It is found from the relevant annexure to the stay application in the present appeal that by a communication dated July 15, 2021, the ROC itself wrote to the appellant no. 2- Company intimating it about the decision of the MCA dated July 9, 2021, as intimated to the ROC, for unmarking of the management dispute in respect of the appellant no.2-Company, also directing all consequential steps to be taken to remove such marking as management dispute in respect of the appellant no.2-Company - the Bank, going beyond its charter as the banker to the appellant no.2-company, still persisted in retaining the freeze of the accounts.
Since the marking of the company with “management dispute” has since been unmarked by the ROC on the specific directive of the MCA, there cannot be any further fetter in operation of the account. Even otherwise, the marking by the ROC as management dispute operates in an entirely different sphere of Company Law, having nothing to do with the banking business of the Axis Bank vis-à-vis appellant no.2-Company. At the worst, such marking of management dispute might have an impact of statutory compliances on the part of the company insofar as the ROC is concerned, which is entirely within the domain of Company Law and has nothing to do with the transactions of the company with its banker, the Axis Bank.
Also, the challenge to the removal of respondent nos. 5 to 7 as Directors before the NCLT, in the garb of oppression and mismanagement disputes under Section 241 and 242 of the Companies Act, 2013, was dismissed by the NCLT. Although an appeal is pending before the NCLAT against such dismissal, in the absence of any stay order passed by the Appellate Authority, the order of the NCLT is still operative and binding on the parties. Thus, as on date, the removal/non-reappointment of respondent nos. 5 to 7 as Directors of the appellant no.2-Company subsists, thereby denuding them of any locus standi to raise any objection with regard to the affairs of the appellant no.2-company or the operation of its bank accounts.
The other ground on which the said respondents seek to be impleaded in the writ petition as necessary parties is that on their complaint, the freezure of the accounts-in-question took place. However, such plea is ex-facie a sham, since the bank itself, in its communication dated June 9, 2021 cited a letter dated May 18, 2021 on the letter-head of VTL, a 100% shareholding company of the appellant no.2 August Agents Limited, as the trigger for freezing the accounts - the respondent nos. 5 to 7, prima facie, do not have any locusstandi whatsoever to be impleaded in the original writ petition and/or to file a recall application of the original order passed by the writ court directing defreezing of the accounts, nor does the bank any subsisting justification not to comply with the parent order of the writ court and defreeze the accounts-in-dispute.
No prima facie case having been made out for the order impugned before this Court being passed. The learned Single Judge, while passing the impugned order dated June 19, 2025, merely recorded that after hearing the submissions of the parties it appeared to the court that the matter was required to be heard, unfortunately, without recording any reason or adverting to any prima facie case made out for so observing. Thus, putting the parent order dated April 9, 2025 in suspension by directing the parties not to act upon the same for the time being, as well as keeping the contempt application in abeyance consequentially, are not substantiated by any reasoning and, accordingly, cannot be sustained.
Appeal disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether any interference was warranted with the dismissal of objections to a scheme of amalgamation, where the scheme expressly provided for continuation/transfer of pending legal proceedings against the transferee company and the objector's primary concern related to continuation of its separate insolvency application.
(ii) Whether the cost imposed for filing such objections warranted modification, and if so, the appropriate quantum and mode/time for payment.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Interference with dismissal of objections to the scheme of amalgamation
Legal framework (as discussed): The Tribunal considered the operative clauses of the scheme providing that the "undertaking" included liabilities and legal proceedings, and that pending suits/appeals and other proceedings "shall not abate" and would continue by or against the transferee company, with the transferee to be substituted/impleaded and to prosecute/defend such proceedings.
Interpretation and reasoning: The Tribunal noted that the objector's submissions showed predominant concern about continuation of its pending insolvency application and substitution of the correct corporate entity. Given the scheme's express stipulation that legal proceedings would continue against the transferee company without abatement, the Tribunal held there was no cause to continue the appeals challenging dismissal of objections to the scheme. The Tribunal further reasoned that the objector could seek impleadment/substitution of the transferee company in the insolvency proceeding or otherwise pursue remedies available in law; therefore, interference with dismissal of objections was not warranted.
Conclusion: The Tribunal declined to interfere with the dismissal of the objections to the amalgamation scheme and disposed of the appeals on the basis that the scheme itself preserved continuation of proceedings against the transferee company.
Issue (ii): Modification of costs imposed for filing objections
Legal framework (as discussed): The Tribunal addressed the discretionary imposition of costs by the adjudicating forum and its own power to modify the quantum, including directions regarding payment to a designated public fund and timelines for compliance.
Interpretation and reasoning: While the objector sought reduction of costs on the basis of having acted bona fide, the Tribunal recorded that the opposing side did not raise a serious objection to reduction and, in fact, expressed no objection to reducing the cost to a specified lower amount. In these circumstances, the Tribunal exercised discretion to reduce the costs and set a revised timeline for deposit and proof of payment.
Conclusion: The Tribunal reduced the cost from Rs. 10 lakhs to Rs. 2.5 lakhs, directed deposit in the Prime Minister National Relief Fund within six weeks, and required submission of proof of deposit to the Tribunal's Registrar within one week thereafter. The connected applications were also disposed of.
Maintainability of application due to lack of locus standi - dismissal of objections to a scheme of amalgamation - HELD THAT:- Admittedly the amalgamation scheme provides for the transfer of legal and other proceedings hence, there are no cause to continue this appeal. The appellant may seek impleadment of Respondent no.2 in such petition u/s. 9 of IBC or lest pursue its remedy as per law, hence it is not inclined to interfere in dismissal of his objections.
However, at this stage, the appellant prays the cost imposed of Rs. 10 lacs be reduced as the appellant acted bona fide in filing the objections for the reasons aforesaid. Though the learned senior counsel for the respondent objects to the bona fide of the appellant but submits has no objection if the cost imposed is reduced. Since no serious objection is raised by the learned senior counsel for the Respondent qua the cost imposed and has rather no objection if the cost is reduced to Rs. 2.5 lakhs, hence the cost reduced to Rs. 2.5 lac, to be paid in the account of Prime Minister National Relief Fund, within six weeks from today. The proof of deposit of cost be submitted to the Ld. Registrar of this Tribunal within a week thereafter.
Appeal disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether Clause 2.2 of the Deed of Undertaking, by which the obligor agreed to "arrange for the infusion" of funds into the borrower to enable compliance with financial covenants, constituted a contract of guarantee within Section 126 of the Indian Contract Act, 1872, so as to treat the obligor as a guarantor of the borrower's financial facility.
(ii) Whether the creditor's reliance on alleged admissions in pleadings and on a promoter's payment could establish or evidence a guarantee obligation when the underlying undertaking did not create a direct promise to discharge the borrower's liability to the creditor.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Construction of Clause 2.2-whether it is a "contract of guarantee" under Section 126
Legal framework (as discussed by the Court): The Court applied Section 126 of the Indian Contract Act, 1872, which defines a contract of guarantee as a contract "to perform the promise, or discharge the liability, of a third person in case of his default." The Court identified essential ingredients: (a) existence of principal debt, (b) default by the principal debtor, and (c) a promise by the surety to discharge the principal debtor's liability upon such default. The Court further held that to constitute a guarantee there must be a specific undertaking or unambiguous affirmation to discharge the third person's liability in case of default.
Interpretation and reasoning: The Court read Clause 2.2 as obligating the obligor to "arrange for the infusion" of funds into the borrower so that the borrower could comply with financial covenants. The Court held that Section 126 requires a direct and unambiguous obligation of the surety to the creditor to perform the promise or discharge the liability of the principal debtor. Clause 2.2 did not record an undertaking to discharge the borrower's debt to the creditor, nor did it contemplate payment to the lender upon default. Instead, it was a promise to facilitate the borrower's compliance with covenants through infusion of funds, which the Court held is not equivalent to a promise to discharge the borrower's liability to the creditor. The Court treated such covenant as insufficient to satisfy Section 126, characterising it as a measure to ensure financial discipline rather than a statutory guarantee.
Conclusions: Clause 2.2 did not constitute a contract of guarantee under Section 126; consequently, the obligor could not be treated as a guarantor for the borrower's facility, and no financial debt could be asserted against it on that basis.
Issue (ii): Effect of contemporaneous documents, "see to it" characterisation, alleged admissions, and voluntary payment
Interpretation and reasoning: The Court relied on contemporaneous documentation to reinforce intention: the sanction terms did not contemplate any personal or corporate guarantee; the information memorandum did not reflect a guarantee; the assignment documentation recorded "Nil" against guarantor/co-borrower details; and the borrower's audited financial statements did not reflect a guarantee obligation. These materials supported the inference that the parties did not intend to create a guarantee.
The Court addressed the argument that the undertaking was a "see to it" guarantee, holding that Section 126 mandates direct "perform a promise" or "discharge the liability," implying direct performance/discharge. The Court distinguished an obligation to enable the principal debtor to perform (by arranging infusion of funds) from an obligation to discharge the debtor's liability to the creditor, and held that such enabling arrangement is not a guarantee under Section 126.
On the alleged payment made by the obligor, the Court held that the payment was not made pursuant to any contractual guarantee obligation but in the obligor's capacity as promoter, and such payment could not create a guarantee where none existed in the undertaking.
On reliance upon pleadings as admissions, the Court held pleadings must be read as a whole and not selectively. The statement relied upon arose in the context of proceedings concerning mortgage security and described a limited position tied to mortgaged property with no personal recourse; it did not amount to a clear admission establishing a Section 126 guarantee arising from Clause 2.2. The Court therefore rejected the attempt to treat those pleadings as determinative proof of a guarantee obligation.
Conclusions: Neither the "see to it" characterisation, nor the payment by the promoter, nor the selective reliance on pleadings displaced the construction of Clause 2.2 as a non-guarantee; the Court affirmed the concurrent finding that no guarantee existed and dismissed the appeal.
Rejection of application filed by the appellant u/s 7 of IBC - contract of guarantee within the meaning of Section 126 of the Indian Contract Act, 1872 - approval of resolution plan extinguished the debt or not - HELD THAT:- Section 126 of the Act defines a ‘Contract of Guarantee’, as a contract to perform promise, or discharge the liability, of a third person in case of his default. The essential ingredients of a guarantee, therefore, are (a) existence of principal debt, (b) default by the principal debtor and (c) a promise by the surety to discharge the liability of the principal debtor upon such default. Thus, a guarantee is a promise to answer for the payment of some debt, or the performance of some duty, in case of failure of another party, who is in the first instance, liable to such payment or performance - A guarantee is a security in the form of right of action against a third party. In order to constitute a guarantee, there has to be a specific undertaking or unambiguous affirmation to discharge the liability of a third person in case of their default.
It is well settled in law, that, pleadings must be read as a whole and cannot be read selectively out of context or in isolation. The appellant had initiated an action to enforce the mortgage security created by ECL in favour of SREI. In the aforesaid proceeding, ECL in its pleadings stated that it has given a guarantee which is limited to the mortgaged property with no personal recourse to ECL - The reliance of the appellant on the decisions of Nagindas Ramdas [1973 (11) TMI 89 - SUPREME COURT] and Mumbai International Airport Pvt. Ltd. [2010 (9) TMI 1153 - SUPREME COURT], is misconceived, as the aforesaid decisions are an authority for the proposition that if admissions are true and clear, they are the best proof of facts, admitted in the context of Section 58 of the Indian Evidence Act, 1872. Therefore, the aforesaid decisions have no application to the fact situation of the case.
The findings of NCLT and NCLAT that Clause 2.2 of the Deed of Undertaking does not constitute a contract of guarantee and that ECL cannot be treated as guarantor for the financial facilities availed by ESL - there are no infirmity in the impugned judgment warranting interference in this appeal.
The appeal is dismissed.
Issues: Whether the order of the President of the National Company Law Tribunal rejecting the transfer application calling for transfer of the pending company matters from the Amravati Bench to the Hyderabad Bench required interference.
Analysis: The transfer request was founded on the allegation that, during subsequent hearing, a member of the Tribunal had indicated that the interim stay order might be vacated. Such a basis was found insufficient to justify transfer of proceedings. The reasoning treats the application as lacking a legitimate foundation and characterises it as an attempt to browbeat the Tribunal. On that footing, the President of the National Company Law Tribunal was justified in treating the transfer request as liable to be dismissed, even if on a different ground.
Conclusion: No interference was called for with the order rejecting the transfer application; the challenge failed.
Disposition of of a transfer application filed by the petitioners - principal plea urged is that the Amravati Bench of the NCLT had granted an interim stay on 12.10.2022, and that during the course of hearing thereafter, a learned Member (Technical) allegedly “threatened to vacate” the said interim order - HELD THAT:- The ground urged is nothing but a brazen attempt to browbeat the Members of the Tribunal. Proceedings cannot be transferred merely because the Presiding Officer or a Member, during the course of hearing, has made certain observations. Since the very foundation of the transfer application was motivated and entirely unjustified, it is opined that the application was rightly treated as liable to be dismissed by the President of the NCLT, albeit on a different ground.
The impugned order dated 05.12.2025 of the President of NCLT does not warrant any interference by this Court. However, the question of law raised in the connected matter, which has also been filed by the petitioners, is kept open and shall be determined in the proceedings in which notice has been issued separately.
SLP disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the appellate tribunal was legally justified in refusing to entertain an appeal as time-barred on the ground that delay beyond the statutorily permissible condonable period under the insolvency appellate limitation provision could not be condoned.
(ii) Whether, upon dismissal of the appeal as time-barred, the Court should issue a direction for refund (with interest) of an amount stated to have been deposited by the respondents with the appellant.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Statutory limitation and absence of power to condone delay beyond the prescribed period
Legal framework (as discussed/applied by the Court): The Court treated as governing the limitation and condonation structure under the insolvency appellate provision, under which the tribunal's power to condone delay is confined to a limited additional period, and delay beyond that cannot be condoned.
Interpretation and reasoning: The Court held that the point was "squarely covered" by binding precedent and applied that settled position to the facts before it. The Court accepted the tribunal's view that the appeal had been filed far beyond the permissible period and that the tribunal's statutory power to condone delay was limited to the prescribed short window, which had been exceeded. Consequently, the tribunal had no jurisdiction to condone the delay or to entertain the appeal.
Conclusions: The Court concluded that the tribunal committed no error in declining to entertain the appeal as time-barred and in rejecting the delay-condonation request, since there was no provision permitting condonation beyond the statutorily capped period. The appeals were dismissed.
Issue (ii): Request for refund of deposited amount with interest after dismissal of the appeals
Interpretation and reasoning: After dismissing the appeals, the Court recorded the respondents' submission seeking a direction for refund with interest of an amount allegedly deposited with the appellant. The Court declined to adjudicate or issue any such direction within these proceedings and instead indicated that the respondents should pursue the matter with the appellant through appropriate legal means.
Conclusions: No refund (or interest) direction was granted; the respondents were left to take up the issue with the appellant "in accordance with law."
Condonation of 132 days delay in filing the appeal - HELD THAT:- The Tribunal could not be said to have committed any error while declining to entertain the appeal on the ground that the same was time barred and there was no provision in the Insolvency & Bankruptcy Code, 2016 to condone the delay.
Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the appellate tribunal was justified in dismissing an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 as time-barred by presuming the date of knowledge and rejecting the appellant's explanation for delay.
(ii) Whether the appellate tribunal correctly evaluated "sufficient cause" for delay where the appellant asserted that it was not made a party despite being the contesting participant, and claimed to have received the impugned order only later through email communication.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i) & (ii) - Dismissal as barred by limitation and assessment of "sufficient cause"
Legal framework (as addressed in the judgment): The Court proceeded on the basis that the appellate limitation for filing an appeal is governed by Section 61 of the IBC. The impugned decision had also adverted to denial of benefit under Section 12 of the Limitation Act on the ground that a certified copy was applied for much later.
Interpretation and reasoning: The Court found fault with the approach adopted by the appellate tribunal in dealing with the appellant's explanation for delay. The appellant's case, as noted by the Court, was that although it was the sole contesting party in the application before the adjudicating authority, it was not impleaded as a respondent, and it obtained knowledge of the order only when it was emailed to it later. The appellate tribunal had rejected this explanation by presuming that the order was "most likely" uploaded on the date it was pronounced, and on that basis treated the date of knowledge as the pronouncement date, while also relying on the later date of applying for a certified copy to deny any benefit under Section 12.
The Court held that the appellate tribunal's manner of examining the explanation offered for delay (i.e., the "sufficient cause" pleaded) was unsatisfactory, and expressed dismay at the way the explanation was dealt with. The Court therefore interfered with the dismissal on limitation, without making any final determination on the merits of the underlying controversy.
Conclusions: The order dismissing the appeal as barred by limitation was set aside. The matter was remitted to the appellate tribunal with a direction to hear the appeal on its own merits in accordance with law. The Court further directed that all connected appeals pending on the same subject be heard together on merits, continued the interim protection earlier granted until the appeal is decided on merits, and emphasized that there should be no further delay in the hearing.
Dismissal of appeal holding that the same was barred by limitation as prescribed under Section 61 of the Insolvency and Bankruptcy Code, 2016 - sufficient cause for delay or not - HELD THAT:- The Apex Court is dismayed with the manner in which the NCLAT looked into the explanation which was offered i.e. the sufficient cause which was assigned by the appellant in so far as delay is concerned.
The impugned order passed by the NCLAT is set aside and the matter is remitted to the NCLAT. The appeal filed by the appellant shall now be heard on its own merits in accordance with law - Let all the appeals be heard together on their own merits in accordance with law.
Appeal disposed off.
Outcome: The Civil Appeal was dismissed, and the interlocutory application(s), if any, stood disposed of.
Oppression and Mismanagement - challenge to family settlement - Respondent No.2 never participated in such family settlements - case of the Respondents is such family settlements were concealed by the Appellant from the Ld. NCLT - it was held by NCLAT that 'the Appeal is disposed off by requesting the Ld. NCLT to prepone the hearing of the matter to any day in second week of September, 2025 as per its convenience.'
HELD THAT:- It is not inclined to interfere with the impugned judgment and order passed by the National Company Law Appellate Tribunal (NCLAT), it is noted that there is a specific direction to the National Company Law Tribunal (NCLT) to advance the hearing and to take up the matter in the second week of September, 2025.
In view of the fact that the case hearing is advanced to the second week of September, 2025 the parties shall maintain status quo only till the date when the matter is first taken up by the NCLT. The decision with regard to interim order(s) if any will be taken by the NCLT without being influenced by the observations made by the NCLAT or by this Court.
The Civil Appeal is dismissed and the accompanying interlocutory application(s), if any, stands disposed of.
Issues: Whether a contempt petition before the High Court was maintainable for alleged non-compliance of consent terms recorded by the National Company Law Tribunal in insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, or whether the Tribunal itself had exclusive contempt jurisdiction.
Analysis: Section 425 of the Companies Act, 2013 was treated as the governing source of contempt power for the National Company Law Tribunal and the Appellate Tribunal. The provision was read as conferring the same contempt jurisdiction, powers and authority as a High Court, without limiting that power to proceedings under the Companies Act alone. The statutory scheme was read harmoniously with Section 408 and Section 424(3) of the Companies Act, 2013, Section 60(5) of the Insolvency and Bankruptcy Code, 2016, and Rule 11 of the National Company Law Tribunal Rules, 2016, to conclude that the Tribunal is a single adjudicatory institution with effective authority over matters before it, including insolvency matters. The High Court's contempt jurisdiction under Section 10 of the Contempt of Courts Act, 1971 was held not to be available in parallel where the statute has itself vested contempt power in the Tribunal. The Court also noted that contempt cannot be used as a substitute for execution or for resolving disputed questions arising out of consent terms.
Conclusion: The contempt petition was not maintainable before the High Court and was dismissed.
Contempt jurisdiction of National Company Law Tribunal - High Court contempt jurisdiction under Section 10 of the Contempt of Courts Act, 1971 - Section 425 of the Companies Act - power to punish for contempt - Designation of NCLT as Adjudicating Authority under the Insolvency and Bankruptcy Code - Supervisory jurisdiction under Articles 226 and 227 of the Constitution - Inherent powers of Tribunals to prevent abuse of process - Contempt jurisdiction is extraordinary, penal and must be expressly conferred
Contempt jurisdiction of National Company Law Tribunal - Section 425 of the Companies Act - power to punish for contempt - Designation of NCLT as Adjudicating Authority under the Insolvency and Bankruptcy Code - NCLT and NCLAT possess statutory power to punish for contempt of their own orders, including orders passed while exercising jurisdiction under the IBC. - HELD THAT: - The Court holds that Section 425 of the Companies Act vests the Tribunal and the Appellate Tribunal with the same jurisdiction, powers and authority in respect of contempt as the High Court and directs application of the Contempt of Courts Act subject to specified modifications. That statutory power is plenary and self-contained and is not confined to matters arising solely under the Companies Act. The NCLT derives its institutional existence and authority from the Companies Act and exercises functions conferred by that Act and by other laws (including the IBC); consequently the Tribunal's contempt jurisdiction applies to all proceedings before it, including insolvency proceedings. This construction is reinforced by Section 408 (constitution and functions of the NCLT), Section 60(5) of the IBC which confers wide jurisdiction relating to insolvency matters, the purposive requirement to give statutory provisions effective operation, and the NCLT Rules saving inherent powers to prevent abuse of process. The Court accordingly rejects any restricted reading that would divest the Adjudicating Authority of contempt powers in IBC matters. [Paras 20, 23, 26, 30, 31]
NCLT/NCLAT have independent and effective jurisdiction to punish for contempt of their own orders, including in IBC proceedings.
High Court contempt jurisdiction under Section 10 of the Contempt of Courts Act, 1971 - Supervisory jurisdiction under Articles 226 and 227 of the Constitution - Contempt jurisdiction is extraordinary, penal and must be expressly conferred - The High Court should not exercise parallel contempt jurisdiction in respect of alleged breaches of NCLT orders where the Tribunal is statutorily empowered to punish for contempt; contempts against NCLT orders are not maintainable directly before the High Court. - HELD THAT: - The Court emphasises that contempt jurisdiction is penal and coercive and cannot be assumed by implication. Once contempt jurisdiction is vested in the Tribunal by statute, parties cannot bypass the forum empowered by statute by pursuing contempt in the High Court. While the High Court retains supervisory powers under Articles 226 and 227, that supervisory jurisdiction is distinct from contempt jurisdiction and cannot be invoked by filing a Contempt Petition in place of the statutory forum. Accordingly, the High Court will not ordinarily exercise parallel contempt jurisdiction over matters falling within the Tribunal's statutory contempt power. [Paras 14, 26, 35]
The present contempt petition is not maintainable in the High Court because the NCLT/NCLAT are statutorily empowered to punish for contempt; supervisory jurisdiction under Articles 226/227 is not a substitute for contempt jurisdiction.
Inherent powers of Tribunals to prevent abuse of process - Contempt jurisdiction is extraordinary, penal and must be expressly conferred - Contempt proceedings cannot be used as a surrogate for execution or to resolve disputes of fact or interpretation arising from Consent Terms; contempt is inappropriate where compliance depends on disputed facts. - HELD THAT: - The Court clarifies that although Tribunals possess inherent powers to meet ends of justice, inherent powers do not substitute for statutory contempt powers. Further, contempt proceedings are not a mechanism for enforcement where the dispute concerns contested facts or interpretations of agreements; in such cases contempt jurisdiction may be unsuitable and ordinary remedies of execution or other appropriate proceedings must be pursued. [Paras 21, 34]
Contempt is not to be used as a substitute for execution or for resolving disputes dependent on contested facts or interpretation of Consent Terms.
Final Conclusion: The Contempt Petition is dismissed as not maintainable in the High Court because the NCLT/NCLAT have statutory contempt jurisdiction in respect of their orders, including in IBC proceedings; the petitioner is at liberty to pursue such other appropriate remedies in accordance with law.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the recusal orders passed by the Ahmedabad Benches of the Tribunal were legal and justified under Rule 62 of the National Company Law Tribunal Rules, 2016.
(ii) Whether the administrative transfer orders issued from Delhi, purporting to act under Rule 16(d) of the National Company Law Tribunal Rules, 2016, could validly transfer matters from the Ahmedabad Bench to the Mumbai Bench, particularly when transfer applications on the judicial side were pending.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Legality of recusal orders under Rule 62 of the NCLT Rules, 2016
Legal framework: The Court examined Rule 62, which specifies circumstances for recusal (personal/familial/professional relationship; prior involvement in another capacity; or other circumstances making participation seem inappropriate). The Court also noted that Rule 62(2) uses "may" for recording reasons and the proviso denies parties a right to know reasons, indicating discretion on recording reasons, but not an unfettered discretion to recuse outside Rule 62 circumstances.
Interpretation and reasoning: The Court held that where the legislature has prescribed circumstances in which recusal is permissible, recusal beyond those circumstances is open to judicial scrutiny. On the first recusal order, the Members gave no reasons; the Court found the timing-immediately after an email sent by counsel-made it difficult to discern any other basis, and inferred the recusal was influenced by that act rather than Rule 62 circumstances. On the later recusal orders, the Court found the recusal was based on counsel's courtroom conduct and allegations against the Bench and Registry, and the Tribunal's perception of intimidation and loss of faith by counsel; this, in the Court's view, did not fall within the enumerated Rule 62 grounds. The Court emphasized that yielding to such conduct would embolden "browbeating", "forum shopping", and attempts to influence the Bench, and that the "principle of necessity" required the last available forum within the territorial jurisdiction to continue rather than recuse for such reasons.
Conclusions: The Court conclusively held that the recusal orders dated 9 January 2024, 23 April 2024, and 24 April 2024 were not legal or justified under Rule 62 and therefore were quashed and set aside.
Issue (ii): Validity of administrative transfer from Ahmedabad to Mumbai under Rule 16(d), and effect on pending judicial transfer proceedings
Legal framework: The Court examined Rule 16(d), which empowers the President to "transfer any case from one Bench to other Bench when the circumstances so warrant." The Court treated the scope of this administrative power as confined by territorial limits of Benches.
Interpretation and reasoning: The Court held that Rule 16(d) authorizes transfer between Benches but does not confer power to transfer matters beyond the territorial jurisdiction of the concerned Bench; the President has no administrative power to alter or extend territorial jurisdiction. Accordingly, transferring matters from Ahmedabad to Mumbai was held to be a "serious error" and "without any legal authority," making the administrative transfer orders subject to judicial review. The Court further treated it as improper that, while transfer applications were pending before the Tribunal on the judicial side, the administrative transfer rendered those proceedings ineffective, which reinforced the illegality/impropriety of the administrative action.
Conclusions: The Court held that the administrative transfer orders dated 6 June 2024 and 10 February 2025 were ultra vires Rule 16(d) and were quashed and set aside. The Court directed the President, exercising administrative powers, to allot the matters to any Bench at Ahmedabad and/or, if circumstances so warrant and otherwise permissible, to constitute a virtual Bench for expeditious adjudication.
Validity of orders of recusal passed by the NCLT – I, Ahmedabad and NCLT – II, Ahmedabad in light of the provisions under Rule 62 of the NCLT Rules, 2016 - correctness in transferring the cases from the jurisdiction of Ahmedabad Bench, NCLT to the jurisdiction of Mumbai Bench, NCLT, more particularly, when the issue of transfer of those cases along with the objections filed by the petitioners pending before the NCLT, Delhi on its judicial side.
Whether the recusal order can be said to be justified and legal? - HELD THAT:- On a plain reading of the order dated 9th January 2024 passed by the NCLT – I, Ahmedabad, it is apparent that the learned Members have not assigned any reason for their recusal. At this stage, it becomes relevant to take note of the immediate preceding event – namely the Email addressed by the learned advocate appearing for the respondents to the Members of the NCLT – I. Though the order of recusal makes no reference to the said Email, this Court finds it difficult to discern any other apparent reason for the recusal. If any of the circumstances contemplated under Rule 62 of the NCLT Rules, 2016 were actually existing, the NCLT – I would have recused itself at the very outset. However, in the present case, the matter was already being heard, and the recusal followed immediately after the Email was received. In these circumstances, it appears that the recusal by the NCLT – I was influenced by the act of sending the Email, which, in the opinion of this Court, ought not to have affected the judicial functioning of the Tribunal.
On a plain reading of the orders passed by the NCLT – II, Ahmedabad, particularly the order dated 23rd April 2024, it appears that the learned Members recused themselves mainly due to the conduct of the learned counsel who had made allegations against the Members of the Tribunal and the Registry, and who had also arranged for certain persons to remain present in the courtroom to record the proceedings. It is thus evident that the recusal was not on account of any of the circumstances enumerated under Rule 62 of the NCLT Rules, 2016, but rather on account of the conduct of the advocate appearing before the Tribunal - the NCLT – II ought not to have recused itself or yielded to such conduct of the parties. If Courts and the Tribunals begin to succumb to pressure or intimidation from counsel or litigants, it would only embolden those who seek to manipulate judicial proceedings and promote practices such as browbeating, forum shopping, and attempts to influence the Bench. Courts and Tribunals are expected to be magnanimous, but such magnanimity should never be at the cost of judicial dignity or independence.
Upon a comprehensive consideration of the facts and law, this Court finds that the recusal orders passed by the NCLT – I and NCLT – II, Ahmedabad, cannot be said to be legal or justified.
Correctness in transferring the cases from the jurisdiction of Ahmedabad Bench, NCLT to the jurisdiction of Mumbai Bench, NCLT, more particularly, when the issue of transfer of those cases along with the objections filed by the petitioners pending before the NCLT, Delhi on its judicial side - HELD THAT:- On a perusal of Rule 16(d) of the NCLT Rules, 2016, it becomes clear that the Rule defines the powers and functions of the President, Registrar, and Secretary. Under this provision, the President has the authority to transfer cases from one Bench to another within the same Tribunal when circumstances so require. However, the Rule does not confer any power to transfer a case beyond the territorial jurisdiction of a particular Bench. In other words, the President’s authority to transfer matters is confined to Benches falling within the same territorial limits - In the present case, the NCLT, New Delhi, while acting on the administrative side, has committed a serious error by transferring the cases from the NCLT, Ahmedabad, to the NCLT, Mumbai. The President of the NCLT has no administrative power to alter or extend the territorial jurisdiction of any Bench. Such an administrative decision directly affecting pending judicial proceedings is, therefore, subject to judicial review. Accordingly, the orders dated 6th June 2024 and 10th February 2025 passed by the NCLT, New Delhi, on the administrative side, are without any legal authority and are liable to be quashed and set aside.
Moreover, since the issue of transfer of these petitions was already pending before the NCLT, New Delhi, on the judicial side, the exercise of administrative powers in this manner has rendered those proceedings ineffective, which further fortifies the impropriety of the orders.
The orders of recusal dated 9th January 2024, 23rd April 2024 and 24th April 2024 respectively passed by the learned NCLT – I, Ahmedabad and NCLT – II, Ahmedabad deserve to be quashed and set aside and are hereby quashed and set aside - Petition allowed in part.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, after completion of the real estate project under the Tribunal's "court monitored CIRP"/"reverse CIRP" directions and satisfaction of homebuyer claims, the insolvency process should be closed and the admission order set aside.
(ii) Whether closure of the insolvency process required a separate application for withdrawal/closure, or could be ordered by the Tribunal in the absence of surviving creditor claims.
(iii) Whether the outstanding tax authority claim constituted an impediment to closing the insolvency process, and the effect of closure on that disputed claim.
2. ISSUE-WISE DETAILED ANALYSIS
(i) Closure of insolvency proceedings after completion of construction and satisfaction of homebuyer claims
Legal framework: The Tribunal proceeded on the basis of its earlier direction permitting continuation of construction in terms of the development arrangement, effectively monitoring completion to enable handing over of possession to flat owners.
Interpretation and reasoning: The Tribunal noted that, pursuant to its earlier directions permitting the developer to proceed with construction, the project stood completed and occupation certificates were obtained. The Tribunal relied on the Local Commissioner's report as confirming completion and recording that remaining fittings would be installed as occupants came forward upon making balance payments. The Tribunal further considered the updated position that possession had been handed over and that the homebuyer-related claims identified by the Resolution Professional had been satisfied through possession/settlement/transfer of units.
Conclusion: Since the construction was complete and possession was being handed over, and there was "no claimant left", the Tribunal held that there was no impediment to closing the insolvency process, set aside the admission order, closed the CIRP, and discharged the Resolution Professional.
(ii) Necessity of a separate withdrawal/closure application versus Tribunal's power to close proceedings when no claims survive
Legal framework: The Tribunal applied its own prior decisions recognising that, where there are no creditors other than the initiating financial creditor and settlement/closure is evident, insisting on a formal withdrawal application may be unnecessary and closure can be ordered in appropriate cases.
Interpretation and reasoning: The Tribunal considered the Resolution Professional's affidavit identifying pending claims and the subsequent material demonstrating satisfaction of those claims. It also recorded submissions that any alleged claims for interest/compensation could be pursued independently, with the corporate debtor contesting as per law if required. In these circumstances, the Tribunal treated continuation of CIRP as unwarranted once no creditor claim requiring insolvency resolution remained.
Conclusion: The Tribunal concluded that, given satisfaction of claims and absence of surviving creditors, the CIRP could be closed and the admission order set aside without treating a separate withdrawal mechanism as a necessary precondition on the facts before it.
(iii) Effect of a disputed tax authority claim on closure of CIRP
Legal framework: The Tribunal acted on the recorded stand of the tax authority's counsel and the undertaking/statement that closure of CIRP would not extinguish the disputed tax claim and that it would be dealt with in accordance with law outside the insolvency process.
Interpretation and reasoning: The Tribunal noted that the tax authority confirmed it had no objection to closure of CIRP provided the underlying dispute was not extinguished, and also noted the stay of demand and deposit made for such stay. The Tribunal accepted the position that post-closure, the tax dispute would continue to be governed by the applicable legal process.
Conclusion: The Tribunal held that the disputed tax claim did not bar closure of CIRP, expressly proceeding on the basis that closure would not extinguish the tax claim and it would be addressed as per final adjudication in accordance with law.
(Ancillary determination) The Tribunal disposed of the contempt proceedings because they were not pressed, and closed all pending applications.
Initiation of Court monitored CIRP/ reverse CIRP so that possessions could be handed over to the flat owners - HELD THAT:- There is nothing left in the matter as the construction is complete in pursuance of order dated 26.09.2023 and possession being handed over to all the claimant homebuyers and there is no claimant left, hence, we see no impediment in closing of the CIRP and hence it is directed that the CIRP of the Corporate Debtor stands closed. Accordingly, the Resolution Professional is discharged. The impugned order is thus set aside.
Appeal disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, in light of the lenders' stated consensus to withdraw the insolvency proceedings on the basis of a proposed revival/settlement framework, the appeals should be kept pending or disposed of with liberty to pursue withdrawal under Section 12A of the Code.
(ii) What operative directions were required regarding filing and processing of a Section 12A withdrawal application (including submission of Form 'FA' and steps by the IRP), and whether protection by continuation of stay on the admission order should operate until the withdrawal application is decided.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Disposition of appeals in view of proposed withdrawal/settlement
Legal framework: The Court considered withdrawal of commenced CIRP through a Section 12A process, in the context of the lenders' decision to have the lead lender take steps for withdrawal.
Interpretation and reasoning: The Court proceeded on the submissions that the lead lender had decided to move for withdrawal, that other financial creditors had agreed in principle to such withdrawal, and that consent terms and supporting affidavits were already placed on record. Given this consensus position and the stated intent to pursue withdrawal before the Adjudicating Authority, the Court held that keeping the appeals pending would serve no useful purpose.
Conclusion: The appeals were disposed of, with liberty granted to pursue withdrawal of CIRP through the Section 12A route.
Issue (ii): Directions for Section 12A steps and interim protection pending decision
Legal framework: The Court addressed the procedural steps for moving a withdrawal request under Section 12A, specifically the requirement of furnishing Form 'FA' to the IRP and the IRP thereafter taking steps to file the withdrawal application.
Interpretation and reasoning: The Court directed that the lead lender may file the Section 12A withdrawal application after providing Form 'FA' to the IRP, and fixed a timeline that the IRP shall take steps to file the application within two weeks from receipt of Form 'FA'. Since an interim stay of the admission order had earlier been granted, the Court considered it necessary to maintain protection so that no steps are taken pursuant to the admission order until the Adjudicating Authority decides the Section 12A application.
Conclusion: Liberty was granted to initiate Section 12A withdrawal; the IRP was directed to act within two weeks of Form 'FA' being provided; and no action was permitted to be taken pursuant to the admission order until the Section 12A application is decided by the Adjudicating Authority.
Withdrawal of CIRP proceedings - Govt. of Gujarat has decided to infuse fund for revival of the corporate debtor - corporate debtor had already submitted an OTS proposal to the Bank of Baroda - HELD THAT:- In the present case no useful purpose shall be served in keeping the appeal pending. As prayed we grant liberty to the Bank of Baroda to file 12A application for withdrawal of CIRP after giving Form ‘FA’ to the IRP, IRP shall take steps to file an application, which may be done within two weeks from giving the Form ‘FA’ by Bank of Baroda - an interim order is already passed on 12.04.2024 staying the impugned order 08.04.2024. No action shall be taken in pursuance of the impugned order till the application under 12A is decided by the Adjudicating Authority.
It is also noticed that consent terms have already been brought on the record by the appellant by way of an affidavit dated 05.07.2025. The Bank of Baroda has also filed an affidavit on 22.05.2025.
Appeal disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the claimant established a valid and enforceable corporate guarantee by the corporate debtor for the borrower's loan and, if so, whether the guarantee was invoked so as to crystallise an enforceable claim in CIRP.
(ii) Whether the guarantee-based claim was liable to be rejected as belated/time-barred under the IBC's claims framework, given the unexplained delay and the stage reached in the resolution process.
(iii) Whether filing the same underlying debt in the CIRP of both the principal borrower and the alleged guarantor, without disclosure/adjustment, constituted impermissible duplication warranting rejection of the claim in the guarantor's CIRP.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Proof of valid corporate guarantee and invocation/crystallisation
Legal framework: The Court examined Section 5(8)(i) of the Code (financial debt includes liability in respect of a guarantee/indemnity) and treated the existence and enforceability of the guarantee as a threshold requirement for financial creditor status on that basis.
Interpretation and reasoning: The claimant initially asserted a separate "deed of guarantee" but failed to produce it before either forum and later shifted to relying on a guarantee clause embedded in a multi-party loan agreement. The Court held that corporate guarantees are not to be lightly inferred in insolvency where competing stakeholder rights are affected; the creditor must prove a legally binding obligation through clear documentation and enforceability. Although the clause contained guarantee-like language and contemplated "first demand" payment, the Court found it was unsupported by any board authorization/resolution of the corporate debtor, which the Court treated as fatal to inferring a valid corporate guarantee. Separately, the Court held that even assuming arguendo that the clause could be read as a guarantee, the claimant did not invoke it by any demand/notice before the insolvency commencement, and therefore the contingent liability did not mature into an enforceable claim as on that date.
Conclusions: The claimant failed to prove a valid, binding corporate guarantee by the corporate debtor; additionally, the alleged guarantee was not invoked prior to commencement of CIRP. Consequently, the claimant was not entitled to recognition as a financial creditor on the strength of the alleged guarantee-based claim.
Issue (ii): Belated claim and bar under the Code's time-bound process
Legal framework: The Court treated the IBC as a time-bound statute and considered the claims timeline under the CIRP framework, noting that late admission is discretionary only within a limited window and requires diligence and absence of prejudice.
Interpretation and reasoning: The Court noted that the claimant was an active participant in the CIRP (having filed another claim within time) and thus could not plead lack of knowledge. The guarantee-based claim was filed about 388 days after the stated last date for submission, with no explanation. The Court reasoned that allowing such a grossly delayed claim, particularly after the process had advanced to plan approval by the creditors, would undermine predictability and finality and prejudice other stakeholders.
Conclusions: The claim was held barred on account of gross, unexplained delay, and was not entertainable at the stage reached in the resolution process.
Issue (iii): Duplicate assertion of the same debt in two CIRPs
Legal framework: The Court evaluated admissibility of simultaneous claims through the IBC's equitable distribution principle and the requirement that double recovery be avoided, treating absence of coordination/adjustment as material.
Interpretation and reasoning: The Court found that the claimant had already filed and obtained admission of the same loan claim in the CIRP of the principal borrower, and later filed an identical amount in the corporate debtor's CIRP without disclosure and without proposing any adjustment/reconciliation mechanism. The Court held this conduct amounted to impermissible duplication (double-dipping) inconsistent with the IBC's discipline and fairness, and that permitting it would prejudice other stakeholders in the corporate debtor's CIRP.
Conclusions: Independent of the failure to prove/enforce the guarantee, the repeated filing of the same underlying debt without safeguards against double recovery was held impermissible, supporting rejection of the claim in the corporate debtor's CIRP.
Dismissal of Appellant’s application seeking admission of its claim as a Financial Creditor - existence of a valid and enforceable corporate guarantee - claim arising from the corporate guarantee constitutes a “financial debt” under Section 5(8)(i) of IBC or not - rejection of the claim, without adequate reasoning and without appreciating the legally binding guarantee agreement.
Whether a valid and enforceable corporate guarantee has been executed by the Corporate Debtor, and if so, has it been invoked? - HELD THAT:- The Appellant has failed to prove that a valid and binding corporate guarantee was executed by Dream Procon Pvt. Ltd. - The reliance on Clause 28 of the MLA, unsupported by any separate guarantee deed falls short of establishing an enforceable obligation under Section 5(8)(i) of the IBC. Even this clause has not been invoked by the Appellant which is essential for filing any claim under the code - The Appellant could not produce a resolution of the board of Directors of the Dream Procon Pvt Ltd. for providing such guarantee.
Thus, a legally binding valid guarantee has not been executed by the Respondent and consequently, the Appellant does not qualify as a financial creditor of the Corporate Debtor on the strength of the alleged guarantee.
Whether the Appellant’s claim, is barred by limitation under the Code? - HELD THAT:- The Appellant was not a dormant or unaware creditor. It had already submitted a claim for a different transaction in October 2019, acknowledging the existence and schedule of the CIRP. Its failure to file the present claim within the permitted time cannot be attributed to lack of knowledge or external impediments. No explanation—let alone a legally sustainable one— has been offered to justify a delay of 388 days. Even assuming that the Appellant only became aware of its right to enforce the corporate guarantee subsequently, it could have sought directions from the Adjudicating Authority or filed the claim with a proper explanation. It did neither.
The Appellant’s claim is barred by limitation - The same cannot be entertained after the approval of the Resolution Plan by the CoC, as doing so would contravene the statutory mandate of Section 12, undermine the resolution process, and prejudice the interests of other stakeholders. The delay in submission of the claim is solely attributable to the Appellant, who was well aware of the timelines and who has already submitted one of his claims well within timeline, but submitted the second one with 388 days delay for which it has no explanation.
Whether the Appellant’s claim is admissible in the CIRP of the Corporate Debtor considering the admitted claim for the same underlying debt of in the CIRP of IHCPL? - HELD THAT:- The Appellant had already submitted and secured admission of the ₹ 14.59 crore claim in the CIRP of IHCPL on 07.09.2019. This fact is not denied. A year later, on 20.10.2020, the Appellant filed the same claim in the CIRP of Dream Procon without disclosing that the earlier claim had been admitted. There was no mechanism proposed for adjusting or reconciling the claims in both CIRPs. The Appellant merely filed the same claim amount twice in two proceedings for the same underlying loan transaction. This amounts to impermissible duplication and is contrary to the equitable distribution principle underlying the IBC - The Report of the Insolvency Law Committee (2020) also clarifies that simultaneous claims are permitted only to the extent that double recovery is avoided. In the present case, the Appellant made no effort to safeguard against such eventuality.
The Appellant has failed to establish the existence of any valid or enforceable corporate guarantee executed by the Corporate Debtor. Clause 28 of the Master Loan Agreement, without a separate deed or board resolution, does not constitute a financial debt under Section 5(8)(i) of the IBC - The claim was filed after a delay of 388 days and cannot be entertained post-approval of the Resolution Plan by the CoC with 90.66% majority. Further, the alleged guarantee was never invoked prior to the Insolvency Commencement Date, and the same claim had already been admitted in the CIRP of the principal borrower, IHCPL. Filing the identical claim in the CIRP of Dream Procon constitutes impermissible duplication.
There are no infirmity in the impugned order - The appeal is dismissed.
Issues: Whether the appellants, facing prosecution under the Prevention of Money Laundering Act, 2002, were entitled to bail in view of the release of co-accused and the likelihood of delayed conclusion of trial.
Analysis: The bail refusal was reconsidered in the light of the fact that similarly placed co-accused had already been enlarged on bail. The Court also took note of the apparent time likely to be taken for completion of the trial. On these considerations, the continued custody of the appellants was not warranted.
Conclusion: The appellants were held entitled to bail, and the impugned order refusing bail was set aside.
Money Laundering - rejection of appellants’ prayer for bail - High Court observed that three cases had been registered against appellant and that he is in custody since 11th January, 2024 - HELD THAT:- Having regard to the fact that the co-accused have been released on bail and that there is every likelihood of the trial taking sufficient time to conclude, it is inclined to accept the present appeals.
The impugned judgment and order set aside to the extent the same refuses to enlarge the appellants on bail - Appellants shall be released on bail, subject to furnishing of bail bonds to the satisfaction of the trial court as well as on such terms and conditions as may be imposed by it.
Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1. Whether the petitioner's arrest under Section 19(1) of the PMLA was vitiated for non-compliance with the statutory safeguards, including the requirement of "material in possession", recording "reasons to believe" in writing, and informing the arrestee of the "grounds of arrest" as soon as may be.
2. Whether Section 19(2) of the PMLA was violated because the arrest order and accompanying material were forwarded to the Adjudicating Authority three days after arrest, and whether such forwarding satisfied the statutory requirement of being done "immediately after arrest".
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of arrest under Section 19(1) PMLA (material in possession; recorded reasons to believe; communication of grounds)
Legal framework (as discussed by the Court): The Court identified three pre-conditions for a valid arrest under Section 19(1): (i) the authorised officer must have "material in his possession"; (ii) on that basis, the officer must form and record in writing "reasons to believe" that the person is guilty of an offence punishable under the PMLA; and (iii) the person arrested must be informed of the "grounds of arrest" as soon as may be. The Court further confined writ scrutiny to checking compliance with these safeguards and not to evaluating the sufficiency/adequacy of the material at the investigative stage.
Interpretation and reasoning: The Court found it undisputed that the "grounds of arrest" and "reasons to believe" were furnished to the petitioner immediately upon arrest, satisfying the communication requirement. On the petitioner's contention that the arrest was based merely on investigation "borrowed" from the predicate offence, the Court examined the documents produced and held that they prima facie suggested an independent investigation by the enforcement agency, resulting in collection of material against the petitioner and a recorded "reasons to believe" note. The Court held that the arresting officer's subjective satisfaction regarding the material and necessity to arrest appeared to be in accordance with law, and that the Court could not, at this stage, scrutinise the sufficiency or correctness of the underlying facts and material.
Conclusion: Section 19(1) was held to have been sufficiently and adequately complied with; the arrest was not vitiated on the ground of non-compliance with Section 19(1).
Issue 2: Compliance with Section 19(2) PMLA (forwarding arrest order and material to Adjudicating Authority "immediately after arrest")
Legal framework (as discussed by the Court): The Court treated forwarding of the arrest order and the material to the Adjudicating Authority under Section 19(2) as a mandatory safeguard, while considering the practical content of the statutory phrase "immediately after arrest" in the factual context presented.
Interpretation and reasoning: The petitioner was arrested on April 4, 2025, and the forwarding to the Adjudicating Authority occurred on April 7, 2025. The Court accepted the explanation that the documents were handed over to the petitioner after working hours on April 4, and that the intervening two days were holidays, making April 7 the earliest working day for dispatch. The Court also relied on its prior holding (as applied to the present facts) that where "grounds of arrest" and "reasons to believe" are furnished immediately upon arrest, the Court can ascertain that the arresting officer already had the material prior to arrest, supporting compliance. In this backdrop, the three-day gap was treated as justified on the attending circumstances and not as a breach of Section 19(2).
Conclusion: Section 19(2) was held complied with on the facts; forwarding on the next working day after intervening holidays did not vitiate the arrest.
Overall dispositive holding: Since the petitioner sought release solely on alleged non-compliance with Section 19, and the Court found Section 19(1) and Section 19(2) complied with, the petitioner was held not entitled to release on that ground and the writ petition was dismissed. The Court expressly did not examine the case on merits, leaving bail on merits to be considered independently by the appropriate court.
Money Laundering - validity of arrest of petiitoner - arrest is violative of the safeguards contained in Section 19(1) and 19(2) of PMLA or not - both reasons to believe and grounds of arrest are a mere sham - Material in possession on the basis of which the arresting officer has arrived at a subjective satisfaction of guilt of the petitioner is incomplete, inchoate and inconclusive - non-cooperation could be the basis of arrest u/s 19(1) of the PMLA or not - HELD THAT:-The accused cannot be arrested on the anvil of investigation borrowed from the predicate offence. Independent investigation leading to prima facie satisfaction of the three cardinal points is mandatory. It is trite law that guilt can be established only on admissible evidence to be led before the Court and cannot be based on inadmissible evidence. Power to arrest under Section 19(1) of the Act is not for the purpose of investigation and such power can be exercised only when the designated officer is able to form an opinion by recording reasons in writing that the arrestee is guilty. The material which exonerates the arrestee should also be considered.
The mandate laid down under Section 19 of the PMLA has been complied with by the arresting officer in effecting arrest of the petitioner. In view thereof, the petitioner is not entitled to release on such score - It is made clear that this Court has not gone into the merits of the case since release of the petitioner has been sought solely on the ground of non-compliance of Section 19 of the PMLA. In the event the petitioner seeks bail on merits, the appropriate Court may deal with the same independently in accordance with law without being influenced by any observation which may have been made in this judgment.
Petition dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the appellant's training activity was taxable as "commercial training or coaching service", and whether exemption notifications relied upon by the appellant applied to the training provided.
(ii) Whether service tax was payable by the appellant on consultancy fees received from an intermediary, despite service tax having been charged and paid on the gross amount by the intermediary to the ultimate client.
(iii) Whether service tax on "renting of immovable property service" was payable where the appellant sub-let premises despite not being the owner of the property.
(iv) Whether penalties under sections 77 and 78 of the Finance Act, 1994 were sustainable, including applicability of section 80 (reasonable cause) and the requirement of reasons for alleging suppression/fraud etc.
2. ISSUE-WISE DETAILED ANALYSIS
(I) Taxability of training and availability of exemptions
Legal framework: The Court examined the statutory definitions of "commercial training or coaching", "commercial training or coaching centre", and "taxable service" under the Finance Act, and considered the exemption notifications specifically invoked by the appellant (including the requirement that vocational training should enable employment/self-employment directly after training, and conditions relating to Modular Employable Skill courses and registration under the Skill Development Initiative Scheme).
Interpretation and reasoning: On facts, the Court found that the training imparted was for skill upgradation of existing construction workers/workmen and supervisors, with fees collected by the associated body and reimbursed to the appellant. Such training did not enable trainees to seek employment or self-employment directly after completion, but merely enhanced skills of already employed persons. The Court further held that the conditions of the Modular Employable Skill course exemption were not satisfied because the relevant understanding documents did not specify qualifying courses and the appellant did not produce proof of registration with the competent authority under the Scheme. The Court also rejected the claimed exemption on the basis that the appellant was not established to be an "Associate Training or Coaching Center" as asserted.
Conclusion: The training activity was held taxable as commercial training/coaching, and the claimed exemptions were denied for failure to satisfy their conditions. The Court upheld the demand on this head.
(II) Liability on consultancy fees despite tax paid by another entity on gross amount
Legal framework: The Court proceeded on the basis that service tax liability attaches to the person providing the service and receiving consideration for it.
Interpretation and reasoning: The Court found that consultancy services were effectively performed by the appellant (though the contract with the end client was through another entity), and 90% of the fees received from the end client were paid to the appellant as "consultancy fees". The fact that the intermediary charged and paid service tax to the Department on the gross amount billed to the end client did not, by itself, absolve the appellant of liability on the amount it received for providing the consultancy service.
Conclusion: The Court sustained the finding that the appellant was liable to pay service tax on consultancy fees received from the intermediary, and upheld the demand on this head.
(III) Service tax on renting/sub-letting of immovable property where appellant not owner
Legal framework: The Court treated the taxable event as receipt of consideration towards letting/renting of immovable property for the relevant purpose, without making ownership a determinative condition.
Interpretation and reasoning: The Court accepted that the appellant had taken premises on rent and sub-let surplus space for commercial purposes. It rejected the argument that tax could not be levied because the appellant was not the owner. The Court held that ownership was not material; so long as the appellant received rent for letting the premises to the other entity, it was liable to service tax on the rent received.
Conclusion: The Court upheld service tax liability on the rent received from sub-letting and sustained the demand on this head.
(IV) Interest and penalties under sections 77, 78, and applicability of section 80
Legal framework: The Court examined sections 77 (penalty for contraventions), 78 (penalty for non-payment due to fraud/collusion/wilful misstatement/suppression), and section 80 (pre-14.05.2015) which barred penalties under section 77 where the assessee proved "reasonable cause".
Interpretation and reasoning: The Court upheld recovery of tax with interest under section 75 since service tax had not been paid. However, it found that the Commissioner imposed section 77 penalty merely on the basis of contravention, without considering the appellant's specific pleas of bona fide belief based on exemption notifications and its stated understanding regarding renting taxability. This entitled the appellant to section 80 protection, making section 77 penalty unsustainable. As to section 78, the Court held that the Commissioner's conclusion of deliberate suppression with intent to evade was unsupported by reasons; given the appellant's consistent bona fide explanation and the absence of reasoned findings establishing fraud/suppression etc., section 78 penalty could not be sustained.
Conclusion: Interest was maintained, but penalties under sections 77 and 78 were set aside. The demands on all three service heads were otherwise maintained, and relief was granted only to the extent of deletion of penalties.
Levy of service tax - commercial training or coaching service - benefit of Notifications dated 20.06.2003 and 29.04.2010 - Benefit of Notifications dated 20.06.2003 and 29.04.2010 - Levy of service tax on consultancy services provided by the appellant - Levy of service tax on renting of immovable property services - Levy of interest and penalty.
Levy of service tax - commercial training or coaching service - benefit of Notifications dated 20.06.2003 and 29.04.2010 - HELD THAT:- The ‘commercial training or coaching’ means any training or coaching provided by a commercial training or coaching centre. A ‘commercial training or coaching centre’ has been defined to mean, any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field with or without issuance of a certificate and includes coaching or tutorial classes, but does not include any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force - It is seen that the appellant provided commercial coaching/training of workmen under an agreement with CIDC which is an agency recognized by the government for testing and certification of skill of labour. The fees were collected by the CIDC and reimbursed to the appellant - The training imparted by the appellant does not enable the trainees to seek employment or undertake self employment directly after training since the appellant imparted training for skill up-gradation of existing construction workers and training of existing workmen and supervisors. The appellant, therefore, only enhanced the qualities of skills among the workers who were already employed.
Benefit of Notifications dated 20.06.2003 and 29.04.2010 - HELD THAT:- The appellant does not satisfy the conditions set out in this Notification because a perusal of the Memorandum of understanding dated 02.03.2006 between CIDC and the appellant does not specify the courses to be undertaken for provision of services by the appellant. The appellant also did not provide any certificate/document that it was registered with the Directorate General of Employment and Training under the Skill Development Initiative Scheme - The appellant is also not entitled to the benefit of Notification dated 20.06.2003 as the appellant is not an Associate Training or Coaching Center of CIDC.
Levy of service tax on consultancy services provided by the appellant - HELD THAT:- In this connection it needs to be noted that consultancy services were provided pursuant to an agreement between CIDC and ONGC. CIDC, however, assigned this work to the appellant and 90% to this fees received by CIDC from ONGC was paid to the appellant which were shown under the head ‘consultancy fees’. CIDC may have charged full service tax from ONGC, but that would not absolve the appellant from paying service tax on the amount received from CIDC towards consultancy - There is, therefore, no error in the finding recorded by the Commissioner on this issue.
Levy of service tax on renting of immovable property services - HELD THAT:- The submissions advanced is that the appellant was not the owner of the property and so any income received from renting of property would not amount to renting and, therefore, no service tax would be leviable - It is not possible to accept this contention advanced by the learned counsel for the appellant. It is not material whether the appellant was the owner of the property or not. So long as it received rent towards letting of property to CIDC, it was liable to pay service tax on the amount of rent received. There is, therefore, no error in the order passed by the Commissioner.
Levy of interest and penalty - HELD THAT:- As the appellant had not paid service tax, the Commissioner was justified in ordering it to be recovered with interest under section 75 of the Finance Act - The appellant would be clearly entitled to the benefit of section 80 of the Finance Act and no penalty can be imposed upon the appellant under section 77 of the Finance Act - The Commissioner has merely observed that the appellant deliberately suppressed facts of providing taxable services with wilful intent evade to payment of service tax. No reasons have been assigned by the Commissioner for coming to this conclusion. Penalty under section 78 of the Finance Act, therefore, cannot be sustained.
The order dated 05.02.2013 passed by the Commissioner that has been challenged in Service Tax Appeal No. 57371 of 2013 and the order dated 31.10.2013 passed by the Commissioner that has been challenged in Service Tax Appeal No. 50907 of 2014 are maintained except to the extent that the penalties that have been imposed upon the appellant under sections 77 and 78 of the Finance Act are set aside - Appeal allowed in part.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether service tax could be demanded on "free services and facilities"/reimbursable expenses (transportation, medical, telephone, accommodation, etc.) for the period prior to 14 May 2015, when the demand was founded on Rule 5(1) of the 2006 valuation rules.
(ii) Whether, after 1 July 2012, the liability to pay service tax on the security services supplied by a Government department to a commercial business entity stood shifted entirely to the service recipient under a notification issued under section 68(2), thereby barring demand, interest, and penalty from the service provider (including for the post-14 May 2015 period).
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Taxability of reimbursable expenses/free facilities prior to 14 May 2015 under Rule 5(1)
Legal framework: The Tribunal considered the validity and effect of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 vis-à-vis section 67 of the Finance Act, as judicially determined, for valuing taxable services by including reimbursable expenditure/cost.
Interpretation and reasoning: The Tribunal held that for the period prior to 14 May 2015, the demand rested on Rule 5(1). Since the Supreme Court had already held that Rule 5(1) was ultra vires section 67 (pre-amendment), the Tribunal treated the matter as no longer open to debate and applied that binding determination to the present valuation-based demand on reimbursable/free facilities.
Conclusions: The Tribunal upheld the dropping of the service tax demand for the period prior to 14 May 2015 insofar as it was premised on including reimbursable expenses/free facilities under Rule 5(1).
Issue (ii): Effect of section 68(2) notification-whether the service provider remained liable post 1 July 2012 (including after 14 May 2015)
Legal framework: The Tribunal examined sections 68(1) and 68(2) governing who must pay service tax, emphasizing that section 68(2) empowers the Government to notify services where the service recipient becomes liable "as if" he were the person liable. The Tribunal also applied the principle that identification of the person liable to pay is an essential component of a valid tax charge.
Interpretation and reasoning: The Tribunal found there was no dispute that the service provider was a Government department and the recipient was a commercial entity. It further found that the services in question were covered by the relevant entry in the section 68(2) notification, and were not within the excluded categories. Consequently, under the notification, 100% of the service tax was payable by the service recipient and nil by the service provider. The Tribunal rejected the Commissioner's view that such shifting of liability was merely a "facilitation" and that the tax could still be demanded from the provider; it held that once the statute/notification fixes liability on the recipient, the tax cannot be levied from the provider. The Tribunal also held that the provider's past payment of tax could not create or shift the statutory charge, because tax liability flows from the charging provisions and valid notifications, not from a party's conduct.
Conclusions: The Tribunal held that after the notification came into force, the service provider had no liability to pay service tax on the services rendered to the recipient. Therefore, the demand of service tax, interest, and the penalty confirmed for the post-14 May 2015 period (and any demand sought against the provider for the period covered by the notification) could not be sustained, and the impugned order was set aside to that extent, with consequential relief.
Levy of service tax as per Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, with interest and penalty - DIAL provided some free services and facilities such as transportation, medical, reimbursement or office expense, telephone expenses, rent free accommodation, dog squad handling expenses, etc. - HELD THAT:- As far as the period before the amendment of section 67 (14 May 2015) is concerned, the Supreme Court has already held in Intercontinental Consultants and Technocrats [2018 (3) TMI 357 - SUPREME COURT] that the Rule 5(1) of the 2006 Rules under which the demand was made was ultra vires of section 67. This issue is no longer res integra. Respectfully following the Intercontinental Consultants and Technocrats, the Commissioner dropping the demand for the period is upheld.
As far as the period after 14 May 2015 is concerned, the submission of the learned Advocates is that although the CISF has been paying service tax, it did not have to pay service tax because as per Notification No. 30/2012 dated 20.6.2012 effective from 1.7.2012 issued under section 68(2) of the Finance Act, the service recipient and not the CISF had to pay service tax.
As held by the Supreme Court in Govind Saran Ganga Saran [1985 (4) TMI 65 - SUPREME COURT], both the taxable event which makes the tax payable and the person who is obliged to pay the tax are two of the essential components of any charge of tax. If it is chargeable from ‘A’, it cannot be charged from ‘B’. Usually, as per section 68(1) of the Finance Act, the service provider has to pay the service tax but if the Central Government issues a notification shifting part or whole of the liability to pay service tax to the service recipient, the liability shifts to that extent to the service recipient. Needless to say that in such cases, the service tax can be charged from the service recipient and cannot be charged from the service provider.
The CISF has been paying service tax all through except on the reimbursable expenses but we find that after Notification No. 30/2012 was issued, it had no liability to pay service tax at all. The mere fact that CISF was paying service tax does not shift the charge on to CISF. Conversely, if one was liable to pay tax and was not paying, it does not erase his liability to pay tax. The reason for this is simple. The fountain head of charge of any tax is the charging section of the Act and not any action of any individual - CISF was not liable to pay any service tax at all on the services which it had rendered to DIAL after Notification No. 30/2012-ST dated 20.6.2012 came into force. Therefore, the demand of service tax, interest and the penalties imposed cannot be sustained.
The impugned order is set aside - appeal allowed.
Issues: (i) Whether the services rendered by the appellant prior to 1.7.2012 are taxable as "Business Auxiliary Service" or are taxable/exempt as "Transportation of goods by air"; (ii) Whether for the period after 1.7.2012 the place of provision of the appellant's services is in India (appellant acting as an intermediary under Rule 9 of POPS Rules) or at the destination outside India (transport of goods by air under Rule 10 of POPS Rules).
Issue (i): Whether the appellant's services prior to 1.7.2012 are to be classified as Business Auxiliary Service (chargeable under section 65(105)(zzb)) or as Transportation of Goods by Air (section 65(105)(zzn)) and thus covered by Notification No. 29/2005-ST.
Analysis: The Tribunal examined the actual nature of transactions rather than the terms of the GSSA. The appellant invoiced exporters a consolidated amount for end-to-end carriage (domestic leg, handling and the international leg), issued airway bills covering the entire journey, bore domestic transport and incidental costs, and paid airlines (including Aeroflot) for carriage. These facts show the appellant rendered transport services on its own account using other carriers rather than procuring services for the exporters as an agent. The statutory definition of "aircraft operator" (Section 65(3b)) does not require ownership or operation of aircraft; it requires providing the service of transport by aircraft. Thus, the appellant's activities fall within the scope of transport of goods by air and not within clause (iv) of "business auxiliary service" which covers procurement of inputs for a client.
Conclusion: The Tribunal held that the appellant's services prior to 1.7.2012 are transportation of goods by air under section 65(105)(zzn) and are covered by Notification No. 29/2005-ST; they are not Business Auxiliary Services under section 65(105)(zzb). The appellant succeeds on this issue.
Issue (ii): For the period after 1.7.2012, whether the appellant's service is an intermediary service (place of provision in India under Rule 9) or transportation of goods by air (place of provision at destination outside India under Rule 10).
Analysis: The Tribunal emphasised the consideration paid by the exporter and the actual service rendered. The exporter paid a consolidated price for end-to-end transportation to destination; the appellant did not merely link exporter and carrier for a commission. The appellant provided transport services to the exporter, using other carriers as input providers. Under the Place of Provision of Services Rules, transportation of goods by air is deemed provided at the destination (Rule 10), whereas Rule 9 applies to intermediary services. Given the factual characterisation as transport on the appellant's account, the service falls under Rule 10 and is deemed provided at the foreign destination outside India.
Conclusion: The Tribunal concluded that for the period after 1.7.2012 the place of provision is the destination outside India under Rule 10 and, therefore, the services are outside the taxable territory; the appellant succeeds on this issue.
Final Conclusion: The impugned order confirming service tax demands, interest and penalties is set aside and the appeal is allowed because the services were transport of goods by air (pre-1.7.2012) covered by the exemption and, post-1.7.2012, were provided outside India by reason of Rule 10; accordingly, no service tax is leviable.
Ratio Decidendi: Where a service provider invoices and provides an end-to-end consolidated transportation service to the customer, issues the airway bill covering the entire journey, bears domestic transport and incidental costs and pays carriers for carriage, such service is transportation of goods by air (within section 65(105)(zzn)) and, for place-of-provision purposes, is deemed to be provided at the destination outside India under Rule 10 of the Place of Provision of Services Rules, 2012.
Transportation of goods by air - business auxiliary service - aircraft operator - place of provision of service - intermediary - Place of Provision of Services Rules, 2012 - Rule 9 of the POPS Rules - Rule 10 of the POPS Rules - exemption under Notification No. 29/2005ST
Transportation of goods by air - business auxiliary service - aircraft operator - exemption under Notification No. 29/2005ST - Characterisation of the appellant's service for the period up to 01.07.2012 and entitlement to exemption - HELD THAT: - The Tribunal found that, irrespective of the GSSA, the actual transactions showed the appellant providing a consolidated endtoend carriage service to exporters: issuing airway bills covering the entire journey, collecting consolidated consideration and contracting on principaltoprincipal basis with Aeroflot and other carriers. These facts meant the appellant did not merely procure services for exporters (i.e., did not render a Business Auxiliary Service procuring inputs for a client) but rendered transport services on its own account using other carriers as subcontractors. The statutory definition of "aircraft operator" under the Act covers any person who provides the service of transport of goods by aircraft and does not require ownership or operation of an aircraft. Consequently the appellant fell within the scope of services described as "transportation of goods by air" and was covered by the exemption in Notification No.29/2005ST for the relevant period. [Paras 20, 21, 22, 23, 24]
The service rendered up to 01.07.2012 is characterised as "transportation of goods by air" by an "aircraft operator" and not as a "business auxiliary service"; the appellant is covered by the exemption.
Place of provision of service - intermediary - Place of Provision of Services Rules, 2012 - Rule 9 of the POPS Rules - Rule 10 of the POPS Rules - Taxability and place of provision for the period after 01.07.2012 - HELD THAT: - After 01.07.2012 services not in the negative list became taxable within the taxable territory; therefore the determinative question was where the appellant's service was provided. The Tribunal applied the substance of the transactions and asked what the recipient paid for: exporters paid the appellant for a package of carriage to the destination. The appellant did not act as an intermediary linking exporter and carrier but provided transport to the exporter on its account. Under Rule 10 of the POPS Rules services relating to transportation of goods are deemed to be provided at the place of destination. Since the destination in these transactions lay outside India, the services were outside the taxable territory and not exigible to service tax. The Tribunal therefore rejected Revenue's contention that Rule 9 (place of supplier for intermediary) applied. [Paras 27, 28, 29, 30, 31]
For the period after 01.07.2012 the appellant's service is a transportation service deemed to be provided at destination under Rule 10 and, as the destination was outside India, the services are outside the taxable territory and not subject to service tax.
Final Conclusion: The impugned order confirming service tax, interest and penalties is set aside; appeal allowed on the grounds that the appellant's activity constituted transportation of goods by air (entitled to the pre1.7.2012 exemption) and, post1.7.2012, the place of provision was the destination outside India so no service tax was exigible.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether consideration received for the activity of laying of cables under or alongside roads was liable to Service Tax for the period covered, and consequently whether demands confirmed under multiple heads could survive when all receipts related to that activity.
(ii) Whether invocation of the extended period of limitation was sustainable where the demand was raised from the assessee's own records and there was no suppression of facts.
(iii) Whether interest and penalty could be sustained once the underlying Service Tax demand was held unsustainable; and whether any refund could be claimed for tax already paid where the assessee had collected such tax from clients and deposited it with the Government.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Taxability of receipts for laying of cables under or alongside roads; effect on demands confirmed under various heads
Legal framework (as applied in the judgment): The Court applied the Board clarification stating that laying of cables under or alongside roads is "not a taxable service" and treated it as determinative of taxability for the relevant period. The Court further treated the clarification as clarificatory and therefore applicable retrospectively to the period in dispute.
Interpretation and reasoning: The Court recorded that the appellant's receipts underlying the confirmed demands (raised under five categories such as alleged undervaluation, point of taxation, denial of abatement, ROW reimbursements, and reverse charge) pertained entirely to the activity of laying of cables under or alongside roads. Since that activity stood clarified as not liable to Service Tax, the Court held that the categorisation adopted in the impugned order could not create taxability when the foundational activity itself was not taxable. On that basis, it concluded that none of the components of the confirmed demand could survive.
Conclusion: The entire Service Tax demand confirmed under all the specified heads was held not sustainable and was set aside because all amounts received related to laying of cables under or alongside roads, an activity held not leviable to Service Tax as per the applied clarification.
Issue (ii): Sustainability of extended period of limitation
Interpretation and reasoning: The Court found, on the facts recorded, that there was no suppression of information by the assessee. It noted that the demands were raised and confirmed based on information available in the assessee's own maintained records and that the assessee had been filing returns regularly. On these findings, the Court held that the necessary basis to invoke the extended period was absent.
Conclusion: Invocation of the extended period of limitation to confirm the demand was held unsustainable.
Issue (iii): Consequences for interest, penalty, and refund of tax already paid
Interpretation and reasoning: Having set aside the tax demand itself, the Court held that the demand for interest and the imposition of penalty could not stand. Separately, the Court addressed the situation where Service Tax had been collected from clients in some cases and deposited with the Government, notwithstanding the activity being non-taxable. It expressly clarified that the assessee would not be eligible for refund of such tax paid, because it had already been collected from clients and deposited into the Government account.
Conclusion: Interest and penalty were set aside as consequential to the setting aside of the tax demand; and refund was denied for Service Tax already paid where it had been collected from clients and deposited with the Government.
Non-payment of appropriate Service Tax - alleged undervaluation based on Sundry Debtors - demand under Point of Taxation Rules - disallowance of abatement under N/N. 01/2006‑ST - Service Tax on ROW reimbursements - Reverse charge mechanism - Time Limitation - Refund of service tax paid - HELD THAT:- The Service Tax liability in respect of the activities undertaken by the appellant has been in dispute and there was no uniform practice followed by the service providers. In some cases, the customers paid Service Tax and in some cases, the customers contended that the said activities were not liable to Service Tax and accordingly, had not paid Service Tax. It is on record that the appellant has been paying whatever Service Tax was being collected by them to the department and filing returns regularly.
It is found that the liability of payment of Service Tax on the activity of laying of cables under or alongside roads has been clarified by C.B.E.C. vide Circular No. 123/5/2010‑TRU dated 24.05.2010, wherein it has been categorically clarified that no Service Tax is payable on such service.
The demand of Service Tax has been confirmed under five different categories - However, it is found that the appellant has in fact received the entire consideration for the activity of laying of cables under or alongside roads, which has been clarified as an activity not liable to Service Tax vide the C.B.E.C. Circular. Hence, the entire demand confirmed in the impugned order under these specific categories are not liable to Service Tax, as all the amounts received by the appellant pertain to laying of cables under or alongside roads, which is not leviable to Service Tax as clarified by C.B.E.C. vide Circular No. 123/5/2010‑TRU. Accordingly, the entire demand of Service Tax confirmed in the impugned order is not sustainable and hence, the same is set aside.
Time Limitation - HELD THAT:- The appellant have not suppressed any information from the Department. In fact, the demands have been raised and confirmed on the basis of information available in the records maintained by them. Thus, the demand confirmed, by invoking the extended period of limitation, is not sustainable.
Refund of service tax paid - HELD THAT:- In the present case, it is found that the appellant has been collecting Service Tax from the clients in some cases and paying the Service Tax collected by them to the Department. Even though the said activity undertaken by the appellant is not liable to Service Tax as clarified by C.B.E.C. vide Circular No. 123/5/2010‑TRU, it is made clear that the appellant would not be eligible for refund of Service Tax paid by them, as they have already collected it from their clients and deposited the same in the government account.
Interest and penalty - HELD THAT:- As the demand of Service Tax itself cannot be sustained, the question of demanding interest or imposing penalty thereon does not arise.
The impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether Cenvat Credit could be denied solely on the basis that vehicle numbers reflected on input invoices were allegedly non-existent or not goods vehicles as per VAHAN portal, despite admissions by supplier and recipient regarding actual supply, receipt, and use of inputs, and in absence of corroborative evidence of non-receipt.
(ii) Whether computer printouts/data extracted from the VAHAN web portal could be relied upon as admissible evidence without compliance with Section 36B of the Central Excise Act, and whether such non-compliance vitiated the demand founded on that material.
(iii) Whether penalties imposed on the noticees, including a director, were sustainable when the substantive allegation of fraudulent/irregular availment of credit (non-receipt of inputs) was not established on legally admissible and cogent evidence.
2. ISSUE-WISE DETAILED ANALYSIS
(i) Denial of Cenvat Credit based only on VAHAN-related vehicle discrepancies
Interpretation and reasoning: The Court found that the impugned denial rested on a single foundational premise: that certain vehicle numbers in invoices were not suitable for transporting bulky goods or were not traceable on the VAHAN portal. The Court treated this as insufficient, particularly because both the suppliers and the recipient admitted that the goods were supplied, received, and used in manufacture of finished goods cleared on payment of duty. The Court also noted that payments for the inputs were made through banking channels, cheques were encashed, and the show cause notice did not allege any flow-back of funds. Further, the Court found no discrepancies were pointed out in statutory and accounting records relating to receipt and utilization of inputs, and there was no supporting transactional evidence such as stock discrepancies or other corroboration to support non-receipt.
Conclusions: Vehicle-number anomalies, without independent corroboration and in the face of consistent banking and record evidence supporting receipt and utilization, could not sustain the allegation of paper transactions or non-receipt. The credit denial was therefore held legally unsustainable.
(ii) Admissibility and evidentiary value of VAHAN portal printouts without Section 36B compliance
Legal framework: The Court examined Section 36B of the Central Excise Act in relation to reliance on computer-generated evidence. It also considered the inclusive meaning of "document" (as discussed in the judgment) to determine whether printouts of digitally maintained data fall within documentary evidence requiring statutory compliance.
Interpretation and reasoning: The Court rejected the Revenue's stance that Section 36B was inapplicable because the information was obtained from a web portal rather than stored on a personal computer. The Court held that any information culled out from digital storage and reproduced in printed form is a computer printout/facsimile of digitally maintained records and therefore must satisfy Section 36B requirements. Since the prescribed legal requirements were not adhered to, the Court held the VAHAN-derived material lacked meaningful credibility and could not constitute a reliable basis to sustain the demand.
Conclusions: Non-compliance with Section 36B rendered the VAHAN portal printouts legally unreliable for sustaining the demand; reliance on such material, particularly as the sole basis, was impermissible.
(iii) Sustainability of penalties (including on a director) where the core allegation fails
Interpretation and reasoning: Having concluded that the evidence was inadequate and legally infirm to establish non-receipt and fraudulent availment of credit, the Court held that penalties imposed on the appellants could not stand. The Court also expressly accepted the applicability of the cited ratio (as applied in the judgment) to hold that penalty on the director was not leviable in the circumstances of the case.
Conclusions: Penalties were held unsustainable and were set aside along with the credit denial; the appeals were allowed with consequential relief as per law.
Irregular availment of Cenvat Credit - availment and utilization of Cenvat Credit in violation of laid down legal principles merely, on the basis of paper transactions, fraudulently made without receiving goods in the factory of production - admissibility of the computerized data as obtained from the web Portal - HELD THAT:- Merely on the basis of enquiries conducted on the basis of VAHAN portal and statement of owners identified in a few of the cases of such vehicles, cannot constitute a conclusive inference to allege non-receipt of the said goods. It is a foregone conclusion that as long as the vehicle is identified, to be of a non-commercial nature, the owner of the said vehicle will certainly assert its actual and non-commercial nature. Any enquiry therefore does not go into establishing the revenue’s charge. This is all the more so when the transactions are substantiated through bank transactions and not an iota of doubt is cast upon their veracity. It fails the fundamental principle of economics to conclude that one would make payments through licit channels when no material supply is effected by the suppliers. Such obviously fallacious conclusions are not supported in law and that is why the rigors of Section 36B also come into play.
The Learned Commissioner (Appeals) has held that “the contention of making payments through account pay checks or RTGS also did not hold good” and observed that M/s. Gagan Ferrotech Ltd. was a regular customer of the supplier company and adjustment of such payments against other supplies was not a very difficult task - It is noted that no discrepancy at even a single place with regard to incorporation of the goods in various accounts like RG-23 A Part I or Part II or the DSA or Raw material register or even ER-1 return filed have been pointed out or ascertained by the revenue. Also no case of short receipt or excess stocks of finished goods or any other transactional evidence has been placed on record in support by the Revenue vis-à-vis the banking transactions. This leads to the inevitable conclusion that the claims of the revenue are completely unfounded and baseless and therefore fail on the touchstone of legality of the evidence relied upon.
There is lack of legal merit in the order of the lower authority, denying the cenvat credit availed and the same is therefore set aside. Penalties as imposed on the various appellants herein are also clearly not sustainable and are required to be dismissed - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether central excise duty and penalty could be sustained solely on the basis of shortage of finished goods found on physical verification, where the record contained no corroborative evidence of clandestine removal, notwithstanding that duty had been paid at the time of detection.
(ii) Whether Cenvat credit on iron and steel items used for fabrication of base structures, foundations, shades and related works within the manufacturing set-up was admissible for the relevant period, and whether receipt of such items after the factory became operational could, by itself, justify denial of credit.
(iii) Whether Cenvat credit was admissible on paints and welding electrodes used for coating/protection and repair/maintenance purposes in the factory.
(iv) Whether credit on weigh-scales/weighing equipment installed at agricultural fields/cane collection points for seasonal weighment of sugarcane, and credit on computers installed in office, could be denied on the ground of being outside the factory/office use.
(v) Whether service tax under reverse charge on freight for transportation of sugarcane from collection centres to the factory was payable where the freight was borne by farmers through deduction from their bills and where the record did not establish "GTA service" by requisite documentary basis.
(vi) Whether extended period of limitation could be invoked for recovery of duty/credit/service tax in the circumstances of the case, and the consequential sustainability of interest and penalties.
2. ISSUE-WISE DETAILED ANALYSIS
A. Demand of duty and penalty based on shortage of finished goods
Legal framework (as discussed by the decision-making opinions): The Tribunal considered the legal requirement that clandestine removal must be proved by the Department through positive/corroborative evidence, and that mere discrepancy/shortage in stock is insufficient to infer clandestine clearance.
Interpretation and reasoning: The majority accepted that the earlier remand directions required examination of corroborative evidence beyond shortage, but the adjudication after remand again rested only on shortage and admission of shortage. The majority held that, even if shortage was admitted and duty was paid, absence of evidence such as transport documents, buyer identification, sale proceeds trail, or any other supporting material meant clandestine removal was not proved. The majority also relied on the controlled nature of the commodity as a factor undermining an inference of open-market clandestine sale without supporting proof.
Conclusion: Duty demand founded only on shortage, without corroborative evidence of clandestine removal, was held unsustainable; consequently, penalty linked to such demand was also not sustainable.
B. Cenvat credit on iron and steel items used for base structure/foundations/shades/civil-related works; and receipt after the factory became operational
Legal framework (as discussed by the decision-making opinions): The Tribunal examined admissibility of credit for the period prior to 07.07.2009 and considered that denial based solely on the earlier larger bench view (applied by adjudication) could not stand in light of subsequent binding judicial views holding that the 07.07.2009 amendment was prospective and that the earlier larger bench approach was not good law for the prior period.
Interpretation and reasoning: The majority held that for the period involved (prior to 07.07.2009), credit could not be denied merely by relying on the earlier larger bench decision, as later higher judicial decisions had disapproved that approach and treated the amendment as prospective. On the "post-commissioning receipt" objection, the majority found no evidence in the record to conclude that receipt after the factory became operational established non-eligible use; it treated capital goods receipt as an ongoing process and held that operational status alone was irrelevant where receipt in the factory was not disputed.
Conclusion: Denial of credit on iron and steel items for the impugned period was set aside; credit was held admissible, including where goods were received after the factory became operational, absent evidence proving non-eligible use.
C. Cenvat credit on paints and welding electrodes used for coating/protection and repairs
Interpretation and reasoning: The Tribunal treated these credits as covered and allowable on the basis that the issue stood settled, and found no sustainable ground in the impugned order to deny credit on these items used for factory purposes such as coating/protection and repair/maintenance.
Conclusion: Credit on paints and welding electrodes was held admissible.
D. Credit on weigh-scales/weighing equipment installed at agricultural fields/cane collection points and credit on computers installed in office
Interpretation and reasoning: The majority accepted the factual characterization that the disputed items were weigh-scales (not weighbridges) used for sugarcane weighment during the crushing season, with a portion installed in the factory and the remainder deployed at fields/collection points without being treated as permanent removals from the factory set-up. On this basis and applying the cited coverage, denial of credit was rejected. Credit on computers installed in office was also allowed by applying the cited Tribunal view treated as covering the issue.
Conclusion: Credit on the weighing equipment and office computers was held admissible; denial was set aside.
E. Service tax under reverse charge on freight for transportation of sugarcane
Interpretation and reasoning: The majority found, on the record, that the freight was borne by farmers and merely deducted by the assessee from farmers' bills, so the assessee did not bear the freight liability. It also accepted that the demand was not sustainably supported as "GTA service" on the record basis relied upon.
Conclusion: Service tax demand under reverse charge on the sugarcane freight was set aside.
F. Extended limitation; interest and penalties
Interpretation and reasoning: The majority held that invocation of the extended period could not be sustained in the circumstances, including that the principal dispute turned on interpretational/legal position that had seen conflicting views and later reversal of the basis relied upon by adjudication. With the substantive demands/denials set aside, the Tribunal held that interest and penalties could not survive.
Conclusion: Extended period was held not invocable on the facts as appreciated by the majority; interest and all penalties were set aside as consequentially unsustainable.
FINAL DISPOSITION (MAJORITY): The impugned order was set aside and the appeal was allowed with consequential relief in accordance with law.
Disallowance of credit on various accounts - demand of Central Excise Duty on sugar found short during inspection by the Departmental Officers - Goods removed in clandestine manner - penalty imposed under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 - difference of opinion - matter referred to Third Member.
Whether the demand of excise duty on the stock of sugar found short consequent to physical verification is sustainable in law or not? - HELD THAT:- A clear-cut finding was given in the case of CCE, Kanpur vs. Minakshi Castings [2011 (8) TMI 896 - ALLAHABAD HIGH COURT] that mere shortage by itself does not lead to the conclusion of clearance of goods in clandestine manner - the said Order has not challenged by the department and thus the same has attained finality and cannot be contested at this stage. It is also found that instead of bringing fresh evidence of clandestine removal, the Adjudicating Authority has again confirmed the demand on the basis of mere shortage which cannot lead to a conclusion that there was a clandestine removal of goods.
This issue is no more res integra and has been settled in various decisions relied upon by the Appellant. In this regard, I may refer to the decision of the Tribunal in the case of Star Alloys & Chemicals Pvt Ltd [2018 (4) TMI 363 - CESTAT NEW DELHI], wherein the Tribunal has held that mere shortage cannot lead to the conclusion of clandestine removal of goods in the absence of any other evidence brought on record by the Revenue showing such illegal activity on the part of the assessee.
Further, Hon’ble Punjab & Haryana High Court in the case of CCE, Chandigarh vs. Kewal Garg [2019 (2) TMI 1624 - PUNJAB HARYANA HIGH COURT] has considered the issue of clandestine removal/shortage and upheld the order of the Tribunal by dismissing the appeal of the department.
The view taken by the Member (Judicial) is legally correct.
Whether the Cenvat Credit taken on HR Coils, Sheet, Shape, Section, Angle, Rod, Plate etc which were used for making base-structure, shades and civil-work in the factory, would be admissible or not? - Adjudicating Authority has denied the credit mainly on the basis of law laid down by the Larger Bench of the Tribunal in Vandana Global Ltd’s case [2010 (4) TMI 133 - CESTAT, NEW DELHI (LB)] - HELD THAT:- The said decision of the Larger Bench has been set aside by the Hon’ble Chhattisgarh High Court by relying upon the judgment of Hon’ble Gujarat High Court in Mundra Ports & Special Economic Zone Ltd’s case [2015 (5) TMI 663 - GUJARAT HIGH COURT]. In this regard, it may be noted that that Hon’ble Gujarat High Court in Mundra Ports & Special Economic Zone Ltd’s case [2015 (5) TMI 663 - GUJARAT HIGH COURT] has considered the amendment to Explanation-2 of Rule 2(k) of the Cenvat Credit Rules w.e.f. 07.07.2009 and after considering the other decisions of various Courts and the Rules, it was been observed by the Hon’ble Gujarat High Court - the Appellant are entitled to Cenvat Credit on these items, therefore, in this regard the view taken by the Member (Judicial) is legally correct.
Whether credit can be allowed on capital goods after the factory has become operational? - Appellant has submitted that only allegation is that the capital goods were received after the factory became operational and there is no allegation that the capital goods were not received in the factory - HELD THAT:- Argument of the learned Counsel has a force that credit cannot be disallowed on capital goods simply because the same was received when the factory was in operation.
Whether the Cenvat Credit taken on paints used for coating of base structure and shades and welding electrodes used for repairing purposes in the factory, would be admissible or not? - HELD THAT:- On this issue, both the Members of original bench have allowed the credit in the interim order, therefore, there is no need to give any finding on this issue.
Whether the Cenvat Credit taken on HR Coils, Sheet, Shape, Section, Angle, Road, Plate etc which were cleared from the factory as such, would be allowable or not? - HELD THAT:- The Member (Judicial) has given the benefit of limitation on the ground that the issue of substantial amount was decided by the Larger Bench of the Tribunal in Vandana Global Ltd.’s case which has already been reversed by Hon’ble High Court. Therefore, the invoking the extended period of limitation cannot sustain; accordingly, on this issue, it is opined that the finding of the Member (Judicial) is correct.
Whether the Cenvat Credit taken on Weigh Bridges installed outside the factory premises, would be valid or not? - HELD THAT:- The Member (Judicial) while dealing with this issue, has noted in para 11 of his interim order that “denial of credit on the ground that certain weigh bridges/weigh scales were removed outside factory, hence they were liable to pay the amount of credit availed under Rule 3(5) of the Cenvat Credit Rules.” The Member (Judicial) has also observed that “as per the details in the Annexure enclosed with the SCN, the items are not weigh bridges but are weigh scales; it is clear from Annexure-G of the SCN that 9 weigh scales, which were of higher capacity, were installed in the factory itself and balance 41 weigh scales of lower capacity were installed at the Agriculture Fields to weigh the sugarcanes from the farmers during the crushing season; the said weigh scales of smaller capacity are not permanently removed from the Appellant’s factory and the issue regarding the eligibility of credit on weigh scales has been decided in the case of Triveni Engg. & Inds. Ltd. [2014 (9) TMI 680 - CESTAT NEW DELHI]”; hence, the Member (Judicial) has allowed the credit - there are no infirmity in the finding of the Member (Judicial) on this aspect which is based upon the earlier decision of the Tribunal in the case of Triveni Engg. & Inds. Ltd.
Whether the Cenvat Credit taken on Computers installed in Offices of the party, would be legally correct or not? - HELD THAT:- This issue is squarely covered by the decision of the Tribunal in the case of Maruti Suzuki Ltd vs. CCE, Gurugram [2023 (2) TMI 66 - CESTAT CHANDIGARH]. By following the said decision, the Member (Judicial) has allowed the credi - there are no infirmity in the finding of the Member (Judicial) on this aspect also.
Whether the Appellant are liable to pay service tax under reverse charge mechanism on freight amount paid for transportation of sugarcanes from cane collection centers to the factory? - HELD THAT:- It is found that both the Members of original bench have allowed the appeal on this issue vide the interim order, therefore, there is no need to give any finding on this issue.
Extended period of limitation - HELD THAT:- The Member (Judicial) has held that major amount involved, was earlier decided against the assessee by the Larger Bench in Vandana Global Ltd.’s case which has already been reversed by Hon’ble High Court of Chhattisgarh; also, the issue relates to interpretation of the same; therefore, the invocation of extended period of limitation was held to be bad as held by the Member (Judicial). Accordingly, on this issue also, the finding of the Member (Judicial) is correct.
Whether the demand for normal period is sustainable when the extended period of limitation is not invokable? - HELD THAT:- If the SCN was issued invoking the extended period of limitation and subsequently, it was found that invocation of extended period could not sustain then the demand for the normal period also cannot be upheld in view of the judgement of Hon’ble Supreme Court in the case of Collector of C.Ex, Jaipur vs. Alcobex Metals [2003 (3) TMI 98 - SUPREME COURT] that when the combined SCN is issued for both normal and extended period, and the extended period is not held sustainable then the entire SCN has to be quashed. Similar view has been taken by the Hon’ble Calcutta High Court in the case of Infinity Infotech Parks Ltd vs. UOI [2014 (12) TMI 36 - CALCUTTA HIGH COURT] as well as by the Tribunal in the cases of Shyam Spectra Pvt Ltd [2024 (8) TMI 95 - CESTAT NEW DELHI] and R.S. Financial Services [2024 (8) TMI 1520 - CESTAT CHANDIGARH].
Penalty under Rule 25 of the Central Excise Rules - HELD THAT:- When the demand is set aside on merit, then the penalty under Rule 25 cannot be upheld and the Member (Judicial) has rightly set aside the same.
The view taken by the Member (Judicial) is justified in law - Now, let the matter be placed before the original Division Bench for drawing majority view.
Majority order - In view of the majority order, the appeal is allowed with consequential relief, as per law.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, on confirmation of recovery of ineligible CENVAT credit under rule 14 of the CENVAT Credit Rules, 2004 read with section 11A of the Central Excise Act, 1944, the adjudicating authority was required to impose penalty under section 11AC read with rule 15 of the CENVAT Credit Rules, 2004, in the facts found.
(ii) Whether the record and the show cause notice disclosed the necessary ingredients to sustain penalty under section 11AC/rule 15, despite reversal/payment of the disputed amount and disclosure in returns, so as to justify interference with the finding dropping penalty.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i) & (ii): Imposability of penalty under section 11AC read with rule 15 when credit recovery is confirmed
Legal framework (as discussed by the Court): The Court treated recovery under rule 14 of the CENVAT Credit Rules, 2004 as being invoked through section 11A only in the event of "non-payment/short-payment" of duty, and noted that resort to such recovery provisions becomes relevant for penalty under section 11AC only where the circumstances and allegations establish the ingredients permitting invocation of that penalty provision.
Interpretation and reasoning: The Court found that the assessee had discharged its obligation under rule 6 of the CENVAT Credit Rules, 2004 by not retaining ineligible credit attributable to manufacture of non-excisable goods and trading activity before issuance of the show cause notice, and that the amount volunteered was appropriated though such appropriation was unnecessary once appropriate reversal had occurred. The Court further held that the show cause notice lacked tenable allegation, supported by evidence, of the necessary ingredients warranting penalty under section 11AC. It was also material that there was no allegation that the credits were barred under rule 3 of the CENVAT Credit Rules, 2004 or that the inputs were identifiable ab initio as meant only for manufacture of non-excisable goods; at best, the breach concerned retention after deployment. The Court accepted the impugned order's factual finding that the assessee had followed a wrong procedure due to mis-interpretation-confusing "exempted goods" with "non-excisable goods"-yet ended up paying more than what was legally required, had accepted the mistake, reversed the credit, and had reflected the reversals in monthly returns, negating mala fide intent. The Court also observed that proceedings under section 11A were "superfluous" on these facts except for the purpose of penalty, which could not be sustained absent the enabling circumstances.
Conclusions: The Court held the adjudicating authority's finding dropping penalty to be unassailable, and concluded that the challenge to non-imposition of penalty was untenable because (a) the show cause notice did not establish ingredients for section 11AC, and (b) the factual findings supporting absence of mala fides and prior reversal/payment were not effectively controverted. Accordingly, the appeal seeking imposition of penalty was dismissed as without merit.
Non-imposition of penalty u/s 11AC, in conjunction with rule 15 of CENVAT Credit Rules, 2004, on recovery confirmed under rule 14 of CENVAT Credit Rules, 2004 - credit of duty paid on ‘inputs’ used for manufacture of ‘cosmetic preparations containing alcohol’ - HELD THAT:- The dispute arose in relation to ‘input’ utilised for manufacture of non-excisable goods and ‘input service’ attributable to trading undertaken by the respondent. There is no allegation in the show cause notice that these credits were barred under rule 3 of CENVAT Credit Rules, 2004 or that the impugned ‘inputs’ were identifiable, from the very beginning, as suitable for deployment in the manufacture of only non-excisable goods. Consequently, the breach of CENVAT credit scheme could, at best, be the retention once so deployed for manufacture of non-excisable goods. It may not be out of place to take note that the bar on retention, mandated in rule 6 (1) of CENVAT Credit Rules, 2004, is governed by the precedence assigned to rule 6(2) therein and that the mandated reversal, by any of the methods, in rule 6 (3) of CENVAT Credit Rules, 2004 is qualified by non-obstante clause controlling the preceding two sub-sections. Consequently, the resort to debit of percentage of value of ‘exempted goods’ sufficed for retention of the credit taken initially.
The penalty imposed under rule 15(2) of CENVAT Credit Rules, 2004 is not tenable and relying on the findings in the impugned order on penalty under rule 15(1) of CENVAT Credit Rules, 2004 not liable to be invoked in relation to credit of duty paid on ‘inputs’ attributable to production of non-excisable goods that is impugned by the jurisdictional Commissioner of Central Excise herein.
The appeal is without merit and is dismissed.
Issues: Whether non-execution of bond under the prescribed procedure for removal of jute products without payment of cess disentitled the appellant from exemption and justified confirmation of the demand.
Analysis: The appellant cleared jute products without following the procedure prescribed under the relevant removal rules and without executing the required bond to safeguard the cess. The procedural requirement was treated as essential to ensure that exempted goods reached the intended recipient and were not diverted. In the absence of compliance, the omission was held to be a clear contravention of the rules and not a mere irregularity.
Conclusion: The demand of cess, along with consequential interest and penalty, was upheld against the appellant.
Final Conclusion: The appeal failed because the statutory procedure governing concessional removal of goods was not complied with, and the impugned order was sustained.
Ratio Decidendi: Where exemption from duty or cess is made conditional upon compliance with a prescribed procedural safeguard such as execution of bond, non-compliance defeats the exemption and sustains the demand.
Failure to follow the procedure laid down in terms of Notification No. S.O. 526(E) dated 17.05.2002 read with Notification No. 34/2001-C.E.(N.T.) dated 21.06.2001 - appellant removed its final jute products without payment of applicable Jute Manufactures Cess for home consumption - non-execution of bond by the appellant - procedural mistake - HELD THAT:- It is an admitted fact that the appellant has not followed the procedure laid down under the said Rules by non-execution of bond to safeguard the Jute Cess. In these circumstances, it can be termed as a deliberate act on the part of the appellant to evade payment of Jute Cess during the impugned period due to non-following of the procedure of execution of bond for safeguarding the duty/cess. As there is a clear contravention of the Rules by the appellant, therefore, there are no ground for interfering with the impugned order.
In view of this, there are no merit in the appeal filed by the appellant or infirmity in the impugned order - the appeal filed by the appellant is dismissed.
Issues: Whether Jute Cess was payable after conversion of cess-paid jute fabric into jute bags.
Analysis: The exemption notifications governing articles of jute manufacture exempted specified goods consumed within the factory for manufacture of final jute products, and the Tribunal had already decided the same question in earlier proceedings. That view had also been affirmed by the Calcutta High Court. Following that binding line of authority, the Tribunal held that conversion of cess-paid jute fabric into jute bags did not attract Jute Cess again.
Conclusion: The appellant was not liable to pay Jute Cess on conversion of cess-paid jute fabric into jute bags.
Ratio Decidendi: Where cess has already been paid on jute fabric and the same material is merely converted into jute bags, the subsequent conversion does not create a fresh liability to Jute Cess.
Demand on account of Jute Cess - appellant manufactured jute bags and did not pay Jute Cess thereon, for the period from March, 2012 to May, 2014 - whether the appellant is liable to pay Jute Cess after conversion of cess-paid jute fabrics into jute bags, or not? - HELD THAT:- The said issue has been decided by this Tribunal in the case of Royal Touch Fablon (P) Ltd. v. Commissioner of Central Excise, Kolkata-IV [2009 (4) TMI 749 - CESTAT, KOLKATA], which has been affirmed by the Hon’ble Calcutta High Court. In these circumstances, following the precedent decision of this Tribunal and the Hon’ble High Court, it is held that the appellant is not liable to pay Jute Cess for conversion of cess-paid jute fabric into jute bags.
The impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether exemption under Notification No. 12/2012-C.E. for Traction Motors was available when such Traction Motors were cleared "as such" from the factory to various zones of the Indian Railways, on the plea that such clearances amounted to "captive consumption" within the same organisational unit.
(ii) Whether the demand could be sustained by invoking the extended period of limitation when the alleged non-payment was detected from information disclosed in ER-1 and ER-6 returns, and whether penalty under Section 11AC was imposable in the absence of suppression with intent to evade.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Eligibility to exemption for Traction Motors cleared outside the factory
Legal framework (as discussed): The Court considered Notification No. 12/2012-C.E. and applied its condition that the exemption is available only when the parts (Traction Motors) are used within the factory of production (or within any other factory of the same manufacturer) in the manufacture of specified final goods.
Interpretation and reasoning: The Court treated it as an admitted fact that the Traction Motors were removed outside the factory. It rejected the argument that various zones of the Indian Railways should be deemed to be factories of the manufacturer merely because the manufacturer is a part of the Indian Railways. The Court also noted the absence of evidence showing how the goods were used after clearance from the factory of production. It further held that the cited authorities relied upon by the appellant were not relevant to the facts (being from different tax contexts), and applied the Tribunal's earlier view in the appellant's own case as squarely covering the merits.
Conclusion: The Court conclusively held that the conditions of Notification No. 12/2012-C.E. were not fulfilled for Traction Motors cleared outside the factory, and therefore the exemption was not available; duty was payable on such clearances.
Issue (ii): Extended limitation, interest, and penalty
Legal framework (as discussed): The Court examined invocation of the extended period on the allegation of suppression, and the consequential penalty under Section 11AC, in the context of the record showing the demand was derived from ER-1 and ER-6 returns.
Interpretation and reasoning: The Court found no suppression of information because the dispute emerged from scrutiny of the appellant's own statutory returns, and therefore extended limitation was not sustainable. Following the same approach as taken in the earlier order referred to by the Court, it maintained liability within the normal period. Since suppression with intent to evade was not established, it held that penalty under Section 11AC could not be imposed.
Conclusion: The Court set aside the demand to the extent it relied on the extended period, upheld duty with interest only for the normal period, and set aside the penalty. The matter was remanded solely for quantification of the duty demand confined to the normal period.
Availment of benefit of exemption as per Sl. No. 333 of Central Excise Tariff N/N. 12/2012-C.E. dated 17.03.2012 on ‘Traction Motor’ - central excise duty was not paid on removal of Traction Motor for captive consumption - contention of the appellant is that the Indian Railways is a single unit and thus, the various zones of the Indian Railways, to which the goods viz. Traction Motors were cleared, should be considered as factories of the appellant - extended period of limitation - levy of penalty - HELD THAT:- The benefit of the said Notification is available only when the goods viz. Traction Motors are used within the factory of production. It is an admitted fact that the goods in question were removed outside the factory of the appellant. Thus, we do not agree with the submission of the appellant that the various zones of the Indian Railways to which the goods were cleared are to be considered as “other factories of the appellant”. We also find that the appellant has also not produced any evidence to show as to how the goods cleared were used after clearance from the factory of production. of the appellant-company.
The exemption provided under N/N. 12/2012-C.E. dated 17.03.2012 is available only when the parts, i.e., Traction Motors, are used within the factory of production or any other factory of the same manufacturer in the manufacture of goods falling under heading nos. 8601 to 8606. Accordingly, the appellant has not fulfilled the conditions laid down under N/N. 12/2012-C.E. dated 17.03.2012 in respect of the goods cleared outside the factory of production and hence, the appellant is not eligible for the benefit of exemption provided under the said Notification - the appellant is liable to pay central excise duty on the Traction Motors manufactured and cleared to various zones of the Indian Railways.
Extended period of limitation - HELD THAT:- The appellant has not suppressed any information from the Department. It is seen that the entire demand has been raised and confirmed on the basis of the information furnished by the appellant in their ER-1 and ER-6 Returns - the demand confirmed against the appellant by invoking the extended period of limitation is not sustainable.
Levy of penalty - HELD THAT:- As suppression of fact with intention to evade the central excise duty has not been established in this case, no penalty can be imposed on the appellant. Accordingly, the penalty imposed on the appellant under Section 11AC of the Act stands set aside.
Appeal disposed off.
Issues: (i) Whether the MM Plant unit was a new industrial unit under the industrial policy of 1989 or merely an expansion of an existing unit; (ii) whether the subsidy claims could be rejected on the ground that the overall subsidy limit under earlier industrial policies had already been exhausted; (iii) whether the respondents were estopped from declining disbursal after sanctioning the subsidies and acting on the appellant's subsequent correspondence.
Issue (i): Whether the MM Plant unit was a new industrial unit under the industrial policy of 1989 or merely an expansion of an existing unit.
Analysis: The policy defined a new industrial unit by reference to fixed capital investment made after the effective date, while expansion required additional investment beyond the prescribed threshold and an increase over existing capacity. The unit was separately registered, separately located, separately powered, and commenced commercial production after the policy came into force. The investment, licences, physical setup, and production profile showed a distinct industrial undertaking rather than a continuation of the earlier business. The judicial tests for identifying a new undertaking also supported this conclusion, namely fresh capital outlay, physical separateness, functional independence, and the existence of an identifiable unit capable of operating on its own.
Conclusion: The MM Plant unit was a new industrial unit and not an expansion of the existing unit.
Issue (ii): Whether the subsidy claims could be rejected on the ground that the overall subsidy limit under earlier industrial policies had already been exhausted.
Analysis: The overall-limit restriction introduced through later operational instructions and the subsequent amendment was directed to claims arising in expansion, modernisation, or diversification of existing units. A new industrial unit governed by the incentive provisions for fresh units was not controlled by that restriction. Since the MM Plant unit was found to be a new unit, the earlier subsidies availed under previous policies by the predecessor and the appellant could not be used to deny the fresh entitlements sanctioned for the MM Plant unit.
Conclusion: The rejection on the ground of exhaustion of the overall subsidy limit was unjustified.
Issue (iii): Whether the respondents were estopped from declining disbursal after sanctioning the subsidies and acting on the appellant's subsequent correspondence.
Analysis: The respondents repeatedly treated the unit as eligible, sanctioned the subsidies, acknowledged the amalgamation, and later recommended release of the amounts. The appellant continued to act on those assurances and maintained the unit on that basis. In such circumstances, the State and its instrumentalities were bound by the representations made, and their later refusal was inconsistent with fair, non-arbitrary public administration. The case also attracted the doctrine of legitimate expectation, because the appellant had a reasonable expectation of disbursal arising from clear official communications and repeated confirmations.
Conclusion: The respondents were estopped from refusing disbursal and were bound to honour the sanctioned subsidies.
Final Conclusion: The denial of subsidy was set aside, the appellant was held entitled to the sanctioned amounts, and the respondents were directed to release the subsidy with interest.
Ratio Decidendi: Where a policy grants incentives to new industrial units, a physically and functionally distinct unit set up with fresh capital after the effective date cannot be denied the sanctioned subsidy on the basis of limits meant for expansion claims, and the State cannot resile from clear and repeated representations inducing reliance by the beneficiary.
New industrial unit - capital investment subsidy - expansion/modernisation/diversification - claim for additional subsidy - promissory estoppel - legitimate expectation - retrospective amendment to policy - non-arbitrariness under Article 14
New industrial unit - fixed capital investment - separate industrial undertaking - MM Plant unit set up by Indo Flogates qualifies as a new industrial unit under the industrial policy of 1989 - HELD THAT: - Clause 2.7 defines a 'new industrial unit' by reference to fixed capital investment made on or after the effective date (01.12.1989). The Court applied established judicial tests (Textile Machinery, Indian Aluminium and subsequent authorities) requiring a fresh and substantial identifiable deployment of capital, physical separateness, an independent industrial licence and capacity to function as an integrated undertaking. On the facts the MM Plant's fixed capital investment and commencement dates postdate the policy, it had separate sheds, a distinct industrial licence, separate electricity connection, independently financed project cost and produced distinct marketable outputs. There was no material on record showing MM Plant to be merely an expansion under Clause 2.2; the authorities that earlier recognised and sanctioned the unit treated it as a separate new unit. For these reasons MM Plant is a new industrial unit under the 1989 policy. [Paras 75, 76, 80, 85, 135]
MM Plant is a new industrial unit under Clause 2.7 of the industrial policy of 1989.
Claim for additional subsidy - overall financial limit - retrospective amendment to policy - Instruction of 28.10.1994 and the retrospective amendment (30.10.2008) limiting overall financial entitlement does not apply to fresh claims by new industrial units - HELD THAT: - The instruction dated 28.10.1994 and the later amendment introduced a limitation on 'capital investment subsidy claim including claims for additional subsidy on account of E/M/D' to respect overall limits under prior IPRs. The Court analysed timing and text: Indo Flogates applied for subsidy in 1993 (before the instruction), made fixed capital investment and commenced production after the 1989 effective date, and was recognised as a new unit in 1998. The phrase 'claim for additional subsidy' and the heading of the amendment demonstrate that the overalllimit rule is directed to additional subsidy for existing units undergoing expansion/modernisation/diversification, not to fresh subsidies payable to genuinely new units governed by Clause 4.1 and the unitwise caps in Clauses 5.1 and 11.4.4. Consequently the respondents were not justified in rejecting disbursal on the ground that prior entitlements exhausted overall limits applicable to expansions. [Paras 88, 89, 90, 91, 135]
The overall financiallimit instruction/amendment applies to expansion/modernisation/diversification (additional subsidy) and does not bar fresh subsidy to a bona fide new industrial unit; rejection on that ground was incorrect.
Promissory estoppel - legitimate expectation - non-arbitrariness under Article 14 - Respondents are estopped / precluded from refusing disbursal of the sanctioned subsidies because of clear official communications and legitimate expectation; refusal was arbitrary - HELD THAT: - The Court examined equitable doctrines and Indian precedents (Motilal Padampat, Pawan Alloys, Camma Textile, Prachi Engineering and others) and held that where public authorities make clear and unequivocal representations or sanctions and the claimant relies thereon and alters its position, equity and publiclaw fairness may preclude the authority from resiling. The record shows recognition of MM Plant (05.11.1998), sanction letters (10.04.2003 and 19.04.2003), subsequent acknowledgements and recommendations for disbursal (24.03.2007; 23.08.2007) and repeated followups by the appellant. The authorities' later volteface (rejection dated 04.10.2008) was tainted by bureaucratic inaction and constituted unfair and arbitrary conduct inconsistent with Article 14. Accordingly, promissory estoppel / legitimate expectation principles operate in favour of the appellant and entitlement to disbursal is upheld. [Paras 132, 133, 135, 136, 137]
Respondents are precluded by promissory estoppel / legitimate expectation and publiclaw fairness from refusing disbursal; appellant entitled to sanctioned subsidies and relief.
Final Conclusion: Appeal allowed; the High Court judgment is set aside. The Court directed respondents to disburse the sanctioned capital investment subsidy and DG Set subsidy totaling Rs. 11,14,750/- to the appellant with interest at 9% p.a. from the date of sanction, within three months; pending applications disposed of.
Outcome: The Special Leave Petition was dismissed, and the time granted by the High Court for hearing of the appeal was extended by six weeks.
Dishonour of Cheque - admission of appeal subject to requirement of pre-deposit of the Compensation award - exceptional circumstance as per section 148 of NI Act - rejection of prayer under Section 91 of the Code of 1973 - it was held by High Court that 'Neither was any such exceptional reason canvassed by the petitioners nor was did the Court find any special reason to act otherwise.' - HELD THAT:- Having considered the matter in its entirety and on hearing the learned senior counsel for the petitioners, as also the facts and circumstances of the present case, it is not pursuaded to interfere in the matter.
SLP dismissed.
Issues: Whether the complaint disclosed the essential ingredients of criminal breach of trust under Section 409 of the Indian Penal Code, 1860 so as to justify the summoning order and the consequential warrants, and whether the proceedings were liable to be quashed.
Analysis: Criminal breach of trust requires entrustment of property and dishonest misappropriation or conversion in violation of the trust reposed. For Section 409, the foundational requirements under Section 405 must first be satisfied, and the accused must be shown to have been entrusted with property in a fiduciary capacity and thereafter to have breached that trust. A security cheque issued under a commercial loan arrangement, where the terms of the agreement contemplated its use for recovery upon default, does not by itself create entrustment in the criminal sense or a fiduciary relationship. On the admitted facts, the cheque was part of the contractual security mechanism and was presented in terms of the loan documents. The complaint did not plead specific facts showing dishonest intention at the inception of the transaction or any criminal misappropriation distinct from a civil or contractual dispute. The allegations, at best, raised a defence in the connected proceedings under the Negotiable Instruments Act, 1881, but did not disclose a prima facie offence under Section 409 of the Indian Penal Code, 1860.
Conclusion: The complaint did not disclose the offence of criminal breach of trust under Section 409 of the Indian Penal Code, 1860, and the summoning order and warrants were liable to be set aside.
Ratio Decidendi: A security cheque issued in a commercial loan transaction, when presented in accordance with the contractual security arrangement, does not amount to entrustment or dishonest misappropriation so as to attract Section 409 of the Indian Penal Code, 1860 in the absence of a fiduciary relationship and specific allegations of criminal intent.
Dishonour of Cheque - misappropriation of the cheque - security cheque or otherwise? - Challenge to summoning Order - whether presentation of the Security Cheque for realization of alleged outstanding amount, would constitute an offence of criminal breach of trust by Agent, which is punishable under Section 409 IPC? - HELD THAT:- The offense of criminal breach of trust under Section 406 IPC requires two foundational elements: first, an "entrustment" of property, and second, a dishonest misappropriation of that property.
The Apex Court in Central Bureau of Investigation, SPE, SIU(X), New Delhi vs. Duncans Agro Industries Ltd., Calcutta, [1996 (7) TMI 552 - SUPREME COURT] held that the expression "entrusted with property" used in Section 405 of the IPC, connotes that the property in respect of which criminal breach of trust can be committed, must necessarily be the property of some person other than the accused or that the beneficial interest in or ownership thereof must be in the other person and the offender must hold such property in trust for such other person or for his benefit.
As observed in the case of N. Raghavender vs. State of Andhra Pradesh, CBI [2021 (12) TMI 1490 - SUPREME COURT], the entrustment of public property and dishonest misappropriation or use thereof in the manner provided under Section 405 IPC, are a sine qua non for making an offence punishable under Section 409 IPC.
From the facts as narrated, it emerges that there was no entrustment of property by the Complainant to the Petitioners; rather the very fact that it was a security cheque under the Loan Agreement, which was intended to secure any debt and liability which may arise under the Loan Agreement in future and for the realization of the same, the cheque would be presented - The cheque was voluntarily issued as part of a commercial transaction and formed an integral component of the contractual security mechanism, intended to be encashed in case of default of Loan liability. The issuance of a security cheque pursuant to a commercial loan transaction, does not create a fiduciary relationship, but merely evidences a contractual arrangement between creditor and debtor. There is neither any entrustment nor any misappropriation of the cheques; the presentation of which was strictly in terms of the Loan Agreement.
Thus, no prima facie offence under Section 409 IPC is made out in the Complaint. Rather it is evident that the present Complaint had only been filed as a counterblast to the Complaint under Section 138 NI Act. Also, by way of this Complaint, the Complainant intended to prove its defences which is required to be done in the Complaint under Section 138 NI Act. The present Complaint is blatantly an abuse of the process of law on which ground as well, it is liable to be quashed.
The impugned Order of the Ld. MM dated 12.07.2017 summoning the Petitioners under Section 409 IPC, and the Order whereby NBWs were issued are hereby, set aside - Petition allowed.
TaxTMI 