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Outcome: The writ petition was disposed of with a direction to the competent authority to consider the petitioner's application for revocation of cancellation of GST registration and pass an order in accordance with law after deposit of outstanding dues, if any.
Quashing of cancellation of GST registration - revocation of cancellation of GST registration - deposit of outstanding tax, interest and penalty - administrative consideration of revocation application - judicial direction for expedition of administrative action
Deposit of outstanding tax, interest and penalty - revocation of cancellation of GST registration - Petitioner permitted to apply for revocation of cancelled GST registration upon depositing outstanding dues and related liabilities - HELD THAT: - The Court recorded the petitioner's statement of readiness to deposit all outstanding tax, interest and penalty and to move an application for reversal of the cancellation. On that basis the writ petition was not adjudicated on merits but disposed by permitting the petitioner to file the application for revocation of the GST registration after making the stated deposits. The direction effectuates the petitioner's expressed willingness to regularise statutory dues as a precondition to seeking administrative revocation. [Paras 3, 5]
Petitioner directed to deposit outstanding dues including interest and penalty, and to submit an application for revocation of cancellation within one week.
Administrative consideration of revocation application - judicial direction for expedition of administrative action - Competent authority directed to consider and decide the petitioner's revocation application within a specified short timeline upon production of certified copy of the order - HELD THAT: - Respondent sought a short period to decide the application. With consent of parties the Court ordered that upon submission of the application together with a certified copy of the order, the competent authority shall consider the application and pass appropriate order in accordance with law within one week from the date of production. The Court limited its intervention to directing expedition and lawful consideration; it did not decide the merits of the revocation application. [Paras 4, 5]
Competent authority to consider and decide the petitioner's application for revocation within one week from production of the certified copy of this order along with the application.
Final Conclusion: Writ petition disposed by granting petitioner permission to file an application for revocation of cancelled GST registration upon depositing outstanding dues; the competent authority directed to consider and decide that application within one week of production of a certified copy of this order.
Issues: Whether the assessment order confirming levy of interest and penalty was liable to be set aside for violation of principles of natural justice and non-consideration of the material placed on record, and whether the assessee should be afforded a further opportunity to file objections.
Analysis: The petition challenged the order on the limited ground that it did not apply its mind to the material on record before confirming interest and penalty. It was noticed that the disputed input tax credit had already been reversed and that a part of the interest demand had also been paid. In these circumstances, the matter warranted one further opportunity to the assessee to place objections before the authority.
Conclusion: The impugned order was set aside and treated as a show cause notice, with liberty to the assessee to file objections within four weeks. The authority was directed to consider the objections and pass fresh orders after granting a reasonable opportunity of hearing; failing compliance, the assessment order would stand restored.
Final Conclusion: The writ petition was disposed of by restoring the matter to the adjudicating authority for fresh consideration after notice and hearing, thereby granting limited relief to the assessee.
Ratio Decidendi: An order confirming tax liability and penalty without adequate consideration of the assessee's objections and relevant material may be set aside to secure compliance with natural justice and to permit fresh adjudication after hearing.
Challenge to impugned order on the limited ground that the impugned order suffers from violation of principles of natural justice inasmuch as it does not apply its mind to the material on record while confirming the levy of interest and penalty - HELD THAT:- Taking into account the peculiar facts of the case, wherein, the petitioner has already reversed the ITC which is in dispute, this Court is of the view that the petitioner may be granted one final opportunity to put forth his objections, which was not objected to by the learned Special Government Pleader for the respondent.
The impugned order, dated 07.12.2023 is set aside. The impugned order shall be treated as show cause notice and the petitioner shall filed their objections within a period of four weeks from the date of receipt of a copy of this order.
Petition disposed off.
ISSUES PRESENTED AND CONSIDERED
1. Whether input tax credit (ITC) is available on services procured for operation and maintenance of Diving Support Vessels (DSVs) used in supplying port and terminal handling services, having regard to section 17(5)(aa)/(ab) read with section 16 of the CGST Act.
2. Whether ITC is available on services procured for hiring of Security Patrol Vessels (SPVs) used in supplying port and terminal handling services, having regard to section 17(5)(aa)/(b)(i) and the proviso permitting ITC where inward supply is used for making an outward supply of the same category or as an element of a taxable composite or mixed supply.
3. Whether the Advance Ruling is vitiated by alleged misrepresentation about ownership of a DSV, engaging section 104 (effect of misrepresentation in advance ruling context) and whether any ruling should be confined to the precise question and vessel ownership on which ruling was sought.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - ITC on operation and maintenance services of DSVs (Legal framework)
Legal framework: Section 16(1) entitles a registered person to ITC on inputs/ services used in the course or furtherance of business subject to restrictions in section 17. Section 17(5) lists blocked credits; clause (aa) restricts ITC in respect of vessels except when used for specified purposes including transportation of goods, and clause (ab) blocks ITC in respect of services of general insurance, servicing, repair and maintenance insofar as they relate to vessels referred to in clause (aa), subject to proviso making such ITC available where the vessels are used for the purposes specified in clause (aa).
(Precedent Treatment) No binding precedent was applied or distinguished in the judgment; the Tribunal relied on statutory text and purposive/contextual interpretation.
(Interpretation and reasoning) The Tribunal examined whether the impugned input services (provided under SAC codes for maintenance/repair and for port & waterway operation services) fall within the blocked category in section 17(5)(ab). The essential question was whether the vessels (DSVs) are "used" for any of the purposes in clause (aa) (notably transportation of goods) so that the proviso would permit ITC. The Tribunal held that clause (ab) applies to repair and maintenance services related to vessels and that the proviso permits ITC only where the vessel is used for the specified purposes. On a plain reading, the DSVs in the facts were not being used for transportation of goods as contemplated by clause (aa)(ii). The Tribunal emphasized that GAAR, being a statutory body, cannot expand or put words into the statute; therefore GAAR's allowance of ITC by treating the contracts as broader "operation and maintenance" to capture transportation nexus was impermissible where the vessels themselves are not used for transportation of goods as specified.
(Ratio vs. Obiter) Ratio: ITC in respect of repair and maintenance services of vessels is blocked under section 17(5)(ab) unless the vessels are used for specified purposes in clause (aa); where vessels are not used for those purposes (including transportation of goods), ITC on repair and maintenance is not available. Obiter: Observations on the substance of contractors' SAC codes and contract descriptions supporting GAAR's original view are ancillary to the statutory interpretation.
(Conclusion) The Tribunal concluded that ITC is not available on input services for repair and maintenance of DSVs (and by parity SPVs where repair/maintenance services are concerned) because the vessels are not used for the purposes in clause (aa) and thus the proviso does not apply. The Tribunal limited applicability of any favorable finding to those DSVs actually owned by the applicant and specifically on which ruling was sought.
Issue 2 - ITC on hiring of SPVs (Legal framework)
Legal framework: Section 17(5)(b)(i) blocks ITC in respect of certain supplies including leasing, renting or hiring of vessels referred to in clause (aa), subject to proviso which allows ITC where the inward supply is used to make an outward taxable supply of the same category or as an element of a taxable composite or mixed supply. Clause (aa) (inter alia) excepts vessel use for transportation of goods from the block.
(Precedent Treatment) No precedential authority explicitly applied; Tribunal applied statutory construction and assessed factual nexus between inward hiring service and outward taxable supply.
(Interpretation and reasoning) The Tribunal first considered whether the SPVs were used for any of the clause (aa) purposes (notably transportation of goods). It found that SPVs were not used for transportation of goods as required by clause (aa)(ii). The Tribunal then examined the proviso: whether the inward hiring of SPVs was used to make an outward taxable supply of the same category or formed an element of a taxable composite or mixed supply. The record did not demonstrate that hiring of SPVs was used to provide an outward supply of the same category nor that hiring formed an element of a taxable composite or mixed supply of the output service; invoices and SAC coding did not establish such correlation. The impugned ruling was also silent in its operative portion about ITC on hiring though it referenced operation and maintenance. The Tribunal emphasized that absence of evidence showing hiring was an element of the outward supply or of the same category meant the proviso did not assist the applicant.
(Ratio vs. Obiter) Ratio: ITC on hiring of vessels is blocked under section 17(5)(b)(i) unless the vessel is used for the clause (aa) purposes or the inward hiring is used to make an outward taxable supply of the same category or is an element of a taxable composite/mixed supply; where neither is established on facts, ITC is not available. Obiter: Discussion of whether services were labeled "operation and maintenance" versus "hiring" as a contractual characterization is supplemental to the statutory test.
(Conclusion) The Tribunal held that ITC is not available on hiring of SPVs because the SPVs were not used for the permitted clause (aa) purposes and there was no factual basis to treat the hiring as used for making an outward supply of the same category or as an element of a taxable composite/mixed supply.
Issue 3 - Effect of alleged misrepresentation regarding DSV ownership on validity/scope of Advance Ruling
Legal framework: Advance ruling is confined to questions as posed; section 104 (effect of misrepresentation in advance ruling) was invoked by Revenue but the Tribunal considered scope and relevance of alleged misrepresentation.
(Precedent Treatment) No authority cited; Tribunal applied principle that rulings are limited to questions and factual matrix before the authority.
(Interpretation and reasoning) The Tribunal accepted that a misstatement about ownership (if any) affects the factual scope on which the ruling was sought. It declined to delve into mala fides but found merit in Revenue's contention that the ruling on ITC for DSVs should be confined to DSVs actually owned by the applicant and on which the ruling was specifically sought. The Tribunal therefore modified the GAAR ruling to make any favorable or adverse conclusion applicable only to DSVs owned by the applicant as to which the ruling question arose.
(Ratio vs. Obiter) Ratio: An advance ruling must be confined to the precise questions and factual ownership on which the ruling was sought; misstatements that change the factual foundation limit the ruling's applicability. Obiter: Comments that a bona fide mistake lacks mala fide were not determinative of section 104 consequences.
(Conclusion) The Tribunal held that the GAAR's ruling as to DSVs applies only to the DSVs owned by the applicant and limited the scope of the ruling accordingly; it did not void the entire ruling ab initio but restricted applicability.
Overall Disposition
1. ITC on repair and maintenance (operation & maintenance characterized services where essentially repairs/maintenance of vessels) of DSVs and SPVs is disallowed under section 17(5)(ab) because the vessels are not used for the clause (aa) purposes (including transportation of goods), so proviso does not permit ITC.
2. ITC on hiring of SPVs is disallowed under section 17(5)(b)(i) because SPVs are not used for clause (aa) purposes and there is no factual basis that hiring was used to make an outward supply of the same category or formed an element of a taxable composite/mixed supply.
3. The Advance Ruling's operative scope is confined to vessels and factual circumstances actually presented; any ruling on DSVs is limited to DSVs owned by the applicant and as specifically on the question posed.
Input Tax Credit (ITC) - blocked input tax credit under section 17(5) - repair and maintenance of vessels - hiring, leasing or renting of vessels as a blocked credit exception - proviso permitting ITC where vessels are used for transportation of goods or for further supply - composite supply as an element qualifying inward supply for ITC proviso - limited scope of advance ruling to facts and items specifically sought
Input Tax Credit (ITC) - repair and maintenance of vessels - blocked input tax credit under section 17(5) - proviso permitting ITC where vessels are used for transportation of goods or for further supply - Eligibility of ITC in respect of services procured for operation and maintenance of DSVs and SPVs - HELD THAT: - The Court examined whether ITC is available on input services classified under SAC 998717 and 996751 relating to operation and maintenance of Diving Support Vessels (DSVs) and Security Patrol Vessels (SPVs). Section 17(5)(ab) blocks ITC in respect of "repair and maintenance" insofar as they relate to vessels referred to in clause (aa), but the proviso permits ITC where those vessels are used for purposes specified in clause (aa) (including transportation of goods). On a plain reading the vessels in question are not used for transportation of goods as contemplated by clause (aa)(ii). GAAR cannot extend or add words to the statute by characterising all such services as non-blocked; where the services are in substance repair and maintenance and the vessels are not used for the excepted purposes, ITC is excluded. The advance ruling therefore could not confer ITC in respect of repair and maintenance services of the DSVs and SPVs. The panel also clarified that the ruling on DSVs is confined to DSVs owned by the respondent insofar as the ruling was sought only in respect of DSVs owned by the respondent. [Paras 21, 24, 25, 33, 34]
ITC is not available on input services in respect of repairs and maintenance of the DSVs and SPVs; the ruling on DSVs is limited to DSVs owned by the respondent.
Input Tax Credit (ITC) - hiring, leasing or renting of vessels as a blocked credit exception - proviso permitting ITC where inward supply is element of a taxable composite or same category outward supply - composite supply as an element qualifying inward supply for ITC proviso - Eligibility of ITC in respect of hiring of Security Patrol Vessels (SPVs) - HELD THAT: - Section 17(5)(b)(i) bars ITC on leasing, renting or hiring of vessels referred to in clause (aa), except when such vessels are used for the purposes specified in clause (aa) or where the inward supply is used to make an outward taxable supply of the same category or as an element of a taxable composite or mixed supply. The record shows the SPVs were not used for the clause (aa) purposes (including transportation of goods) and there is no material demonstrating that the hiring service was used to make an outward supply of the same category or formed an element of a taxable composite or mixed supply. The impugned ruling was silent as to hiring though it characterised some contractor services as operation and maintenance; however, hiring as such remains a blocked input and the respondent did not establish the proviso's conditions. Consequently ITC on hiring of SPVs is blocked under section 17(5). [Paras 27, 30, 31, 32, 34]
ITC is not available on hiring of SPVs; the hiring services are blocked under section 17(5)(b)(i).
Final Conclusion: The appeal is partially allowed. The Advance Ruling is modified to hold that (i) ITC is not available on repairs and maintenance services in respect of the DSVs and SPVs (and the DSV ruling applies only to DSVs owned by the respondent), and (ii) ITC is not available on hiring of SPVs under section 17(5).
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Taxability of Canteen Facility Recoveries
Issue 2: Taxability of Free Bus Transportation
Issue 3: Exemption under Notification No. 12/2017
Issue 4: Admissibility of Input Tax Credit (ITC)
3. SIGNIFICANT HOLDINGS
Perquisites provided by employer to employee in terms of contractual agreement not a supply - services by employee to employer in course of or in relation to employment excluded from supply (Schedule III) - GST not leviable on recoveries from employees collected and paid to third party canteen service provider - GST not leviable on free bus transportation provided to employees as contractual perquisite - input tax credit blocked on supplies of food and beverages to employees under Section 17(5)(b)(i) principle - input tax credit admissible on hiring of motor vehicles having seating capacity more than 13 for transportation of passengers
GST not leviable on recoveries from employees collected and paid to third party canteen service provider - perquisites provided by employer to employee in terms of contractual agreement not a supply - GST is not leviable on the amount representing employees' portion of canteen charges collected by the employer and paid to the canteen service provider. - HELD THAT: - The Appellate Authority agreed with the Authority for Advance Ruling that the employer's collection of the employees' share of canteen charges, which is passed on to the thirdparty canteen service provider, does not amount to a taxable supply by the employer. The reasoning rests on the principle that perquisites provided by an employer to employees in terms of the contractual agreement are in lieu of services rendered by the employee in relation to employment and are therefore not subject to GST, as clarified by the circular reproduced in the impugned ruling. The factual finding that the employer merely collects the employees' portion and remits it to the service provider was not disputed and supports nonlevy at the hands of the employer. [Paras 6, 12]
Upheld that GST is not leviable on employees' portion of canteen charges collected and paid by the employer.
GST not leviable on free bus transportation provided to employees as contractual perquisite - services by employee to employer in course of or in relation to employment excluded from supply (Schedule III) - Free-of-cost bus transportation provided by the employer to its employees, pursuant to the employment contract, is not liable to GST at the hands of the employer. - HELD THAT: - The Authority concurred with the GAAR's conclusion that transportation provided free to employees as a contractual perquisite is in lieu of the services performed by employees and therefore falls within the exclusion in Schedule III. The impugned ruling was supported by the clarification in the Government circular which states that perquisites provided in terms of the employment contract will not be subjected to GST. The factual matrix - provision of nonAC buses by a third party pursuant to the employer's HR policy and employment agreement - was accepted and not controverted by the Revenue. [Paras 6, 12, 13]
Affirmed that GST is not leviable on free bus transportation provided to employees by the employer.
Input tax credit blocked on supplies of food and beverages to employees under Section 17(5)(b)(i) principle - Input tax credit on GST paid for canteen services provided to employees is blocked and inadmissible to the employer under the law. - HELD THAT: - The Appellate Authority upheld GAAR's finding that ITC on canteen services is not admissible to the employer under the provision concerning blocked credits. The advance ruling had recorded that part of the canteen cost is borne by the employer and that the employees' share is collected and remitted; notwithstanding the nonlevy at the hands of the employer on the employees' share, the ITC on the canteen facility remains blocked as per the legal provision applied by the GAAR. [Paras 6, 15]
Confirmed that ITC on GST paid for canteen services is blocked and inadmissible to the employer.
Input tax credit admissible on hiring of motor vehicles having seating capacity more than 13 for transportation of passengers - Input tax credit on GST paid for hiring buses with approved seating capacity of more than 13 persons used for transportation of passengers is admissible to the employer. - HELD THAT: - The Authority agreed with the GAAR's determination that ITC is not blocked on motor vehicles used for transportation of persons where the vehicles have an approved seating capacity of more than 13. The finding reflects the statutory distinction in the blocked credit provision and the accepted factual position that the employer engaged thirdparty buses of such seating capacity and paid GST to the service provider. [Paras 6, 15]
Held that ITC on GST paid for hiring buses with seating capacity over 13 is admissible.
Final Conclusion: The departmental appeal is rejected; the Advance Ruling No. GUJ/GAAR/R/2022/22 dated 12.4.2022 is upheld in all material respects - nonlevy of GST on employees' canteen recoveries and on free contractual bus transport, ITC on canteen services is blocked, and ITC on hiring buses with seating capacity exceeding 13 is admissible.
Validity of Revision proceedings u/s 263 - period of limitation - Delay filling SLP - HC [2024 (2) TMI 1381 - RAJASTHAN HIGH COURT] decided for the purposes of exercising powers u/s 263 the period of limitation for passing the order has to be reckoned from the date of original assessment order and not from the date of reassessment order, thus decided issue in favour of assessee - HELD THAT:- There is a delay of 180 days in filing the Special Leave Petition which has not been satisfactorily explained. Even otherwise, we have gone through the Special Leave Petition and do not find any merit in the same.
Special Leave Petition is, therefore, dismissed on the ground of delay as well as on merits.
Reopening of assessment u/s 147 - claim of deduction u/s 36(1)(viia) - Petitioner filed its return of income (“ROI”) for AY 2010-11 declaring a total income but subsequently, filed a revised ROI as added back an amount being a provision for Non-Performing Advances as per the RBI Regulations. Petitioner has also claimed an amount as deduction u/s 36(1)(viia) being 7.5% of the profit of Petitioner and claim was disclosed in the computation of income - As decided by HC [2024 (3) TMI 731 - BOMBAY HIGH COURT] allow the claim of Petitioner for deduction u/s 36(1)(viia) of the Act and clear case of change of opinion and that cannot be a basis for reopening the assessment, thus decided in favour of assessee - delay filling SLP - HELD THAT:- There is a delay of 162 days in filing the Special Leave Petition which has not been satisfactorily explained. Even otherwise, we have gone through the Special Leave Petition and do not find any merit in the same.
Special Leave Petition is, therefore, dismissed on the ground of delay as well as on merits.
1. ISSUES PRESENTED and CONSIDERED
The court considered the following core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Adequacy of Reasons in the Impugned Order
Issue 2: Agreement Between Commissioners
3. SIGNIFICANT HOLDINGS
Power of transfer of assessment cases under Section 127(2) including requirement of agreement between Commissioners - Requirement to record reasons and afford reasonable opportunity to the assessee (audi alteram partem) - Centralised and coordinated investigation to protect revenue interest - Scope of judicial interference with administrative transfer orders
Requirement to record reasons and afford reasonable opportunity to the assessee (audi alteram partem) - Scope of judicial interference with administrative transfer orders - Impugned transfer order is not vitiated for want of reasons or denial of a reasonable opportunity to be heard. - HELD THAT: - The Court examined the impugned order and found that the petitioner's objections were considered, clarifications were sought from the Commissioner at Delhi, and reasons for transfer were recorded, including reliance on centralisation for coordinated investigation, the secondary nature of assessee convenience, limited duration of centralisation, and references to precedent. The order noted that inconvenience could be mitigated by technological means and that excluding the petitioner alone from centralised assessment of the Pacific Group lacked justification. On this basis the charge that the order was bereft of reasons was rejected as the reasons were neither irrelevant nor extraneous, and therefore did not call for interference in the exercise of extraordinary jurisdiction. [Paras 10, 11, 12, 13]
The impugned order contains sufficient and cogent reasons and the contention of absence of reasons fails.
Power of transfer of assessment cases under Section 127(2) including requirement of agreement between Commissioners - Centralised and coordinated investigation to protect revenue interest - There was agreement between the concerned Commissioners to transfer the proceedings from Mumbai to Delhi, and the transfer is not vitiated for want of such agreement. - HELD THAT: - The respondents produced communications showing a proposal by the Chief Commissioner (Central), New Delhi on 13 September 2022, followed by the Principal Commissioner of Income Tax-4 writing on 2 December 2022 and the Chief Commissioner of Income Tax-2, Mumbai granting approval by communication dated 8 December 2022. The subsequent communications of 29 December 2022 and 16 February 2023 were part of the process of fairly considering the assessee's objections, with the latter clarifying factual aspects relating to alleged bogus transactions in FY 2021-22 and the risk to revenue if the modus operandi of the Pacific Group were not assessed centrally. On this foundation the Court held that the requisite positive concurrence contemplated by Section 127(2)(a) was established and distinguished Noorul Islam Educational Trust on its facts where no evidence of concurrence was placed on record. [Paras 15, 17, 18, 19, 20]
The communications on record demonstrate agreement between the two Commissioners and the challenge on absence of agreement fails.
Final Conclusion: The petition is dismissed; the transfer order dated 22 February 2023 under Section 127(2) of the Income Tax Act is upheld, interim relief (if any) is vacated and no costs are awarded.
Issues: Whether the development agreement and delivery of possession to the developer constituted a transfer within the meaning of section 2(47) of the Income-tax Act, 1961 so as to attract capital gains in assessment year 1997-98.
Analysis: The agreement contemplated a sharing arrangement in which the developer was to construct and the assessee was to receive a stipulated built-up area. The amount referred to in the agreement was only a refundable performance guarantee and not consideration for transfer. The possession handed over under the letter was for the limited purpose of carrying out development work. On these facts, the requirements of section 53A of the Transfer of Property Act, 1882 were not satisfied in the manner necessary to bring the transaction within section 2(47)(v) or section 2(47)(vi) of the Income-tax Act, 1961. The findings recorded by the Tribunal that the entire property had been handed over so as to enable the developer to enjoy 60% of the constructed area and that capital gains arose in assessment year 1997-98 were held unsustainable.
Conclusion: The transaction did not amount to a transfer giving rise to capital gains in assessment year 1997-98, and the questions of law were answered in favour of the assessee.
Ratio Decidendi: Mere handing over of possession under a development agreement for the limited purpose of construction, without transfer for consideration satisfying section 53A of the Transfer of Property Act, 1882, does not constitute a transfer under section 2(47) of the Income-tax Act, 1961.
Capital gain computation - Transfer of capital asset u/s 2(47) - JDA - applicability of Section 53A of the Transfer of Property Act, 1882 - real ownership - assessee handed over the possession of the land to the developer - HELD THAT:- Even though there is a contract to transfer the immovable property, which is signed by the parties, yet the contract has not been executed for consideration.
A sum of Rs. 2,00,000/- mentioned in paragraph 6 of the development agreement is only the performance guarantee which is refundable. The aforesaid amount has not been paid by way of consideration of the transaction. The developer has been handed over the possession for the limited purpose of carrying out the development work. Therefore, in pursuance of the development agreement, the possession of the immovable property has not been handed over to the developer as contemplated u/s 53A of the Transfer of the Property Act, 1882. Therefore, the same does not fall within the definition of ‘transfer’ under Section 2 (47) of the Act.
Reliance placed by the Revenue in Potla Nageswara Rao [2014 (8) TMI 636 - ANDHRA PRADESH HIGH COURT] the same is an authority for the proposition that element of factual possession and agreement are contemplated as transfer within the meaning of Section 2 (47) of the Act. It has further been held that when the transfer is complete, the consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income.
In the instant case, under the development agreement there is no transfer and the consideration has also not been paid. Therefore, the aforesaid decision of the Division Bench has no application to the fact situation of the case.
Similarly, in the case of Arvind S Phake [2017 (12) TMI 1235 - BOMBAY HIGH COURT], the possession was handed over to the developer and the entire consideration was paid. In the instant case, consideration has not been paid. Therefore, the Division Bench decision of the Bombay High Court also does not apply to the fact situation of the case.
The finding has been recorded by the Tribunal that the appellant has handed over the possession of the entire property enabling the developer to enjoy 60% of the constructed area of the building cannot, but be said to be perverse. Similarly, the finding that the assessee is liable to pay capital gains tax during the assessment year 1997-98 also cannot be sustained.
Substantial questions of law framed answered in favour of the assessee and against the revenue.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered by the court in this judgment are as follows:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Violation of Principles of Natural Justice
Issue 2: Procedural Requirements for Personal Hearing
3. SIGNIFICANT HOLDINGS
The court's decision underscores the importance of adhering to procedural fairness and the principles of natural justice in administrative proceedings, particularly in the context of tax assessments.
Principles of natural justice - personal hearing - denial of opportunity to be heard - setting aside of assessment order - remand for fresh disposal after hearing
Principles of natural justice - personal hearing - denial of opportunity to be heard - remand for fresh disposal after hearing - Whether the impugned assessment order dated 26 March 2024 was vitiated by breach of natural justice for denial of a personal hearing and required setting aside and remand. - HELD THAT: - The petitioner had expressly requested a personal hearing in response to the show cause notice. The assessment order records that the request for video conferencing/personal hearing was not allowed on the basis that nothing further would be added to the written reply and that the proceedings had been transferred from the faceless assessing officer to the jurisdictional assessing officer. The Court held that where the law provides for a personal hearing and it is requested by the assessee, the authority should not ordinarily refuse it on the ground that nothing further could be said; the assessee must be allowed to persuade the Assessing Officer on the merits. Reliance on the departmental Circular permitting personal hearings (preferably by video conference) after written submissions reinforced that the departmental justification for denial was unsustainable. Having found a complete failure of natural justice in the denial of a personal hearing, the Court set aside the assessment order and remanded the matter for fresh disposal of the show cause notice after granting a personal hearing. The Assessing Officer was directed to complete the assessment proceedings within three months of uploading the order, and all contentions of the parties were left open for consideration in the first instance. [Paras 6, 7, 10, 11, 12]
Impugned assessment order dated 26 March 2024 set aside for breach of natural justice; matter remitted to the Assessing Officer for fresh disposal after granting a personal hearing, to be completed within three months; consequential demand and penalty notices set aside; parties' contentions left open.
Procedural scope of adjudication - Whether the Court would consider the challenge to the notice dated 31 March 2023. - HELD THAT: - The Court expressly declined to consider the challenge to the notice dated 31 March 2023 and proceeded only with the challenge to the assessment order dated 26 March 2024. [Paras 4]
Challenge to the notice dated 31 March 2023 not considered by the Court.
Final Conclusion: The petition succeeds on the limited ground of breach of natural justice: the assessment order dated 26 March 2024 is set aside and the matter remitted for fresh disposal after granting the petitioner a personal hearing within three months of upload; the Court did not adjudicate the challenge to the notice dated 31 March 2023; consequential demand and penalty notices based on the set-aside order are also quashed, with all substantive contentions left open for the Assessing Officer's fresh consideration.
Issues: (i) Whether reassessment proceedings could be interfered with in writ jurisdiction on the ground that the stated basis that no return was filed was erroneous and the notice was otherwise unsupported; (ii) Whether the issues sought to be reopened were already examined in the original scrutiny assessment and whether Section 153C, rather than Section 148 read with Section 148A, applied; (iii) Whether the approval under Section 151 was vitiated for want of application of mind.
Issue (i): Whether reassessment proceedings could be interfered with in writ jurisdiction on the ground that the stated basis that no return was filed was erroneous and the notice was otherwise unsupported.
Analysis: The objections filed to the show-cause notice did not raise the jurisdictional grounds urged in the writ petition and were confined to the merits. The reopening was founded on information received under the risk management framework, and the inadvertent statement regarding non-filing of the return was treated as not going to the root of the initiation. The disputed aspects involved factual matters better examined in the reassessment and appellate stages.
Conclusion: The challenge on this ground was rejected and no interference in writ jurisdiction was warranted.
Issue (ii): Whether the issues sought to be reopened were already examined in the original scrutiny assessment and whether Section 153C, rather than Section 148 read with Section 148A, applied.
Analysis: The scrutiny assessment was limited to verification of deductions under Chapter VI-A, and the questionnaire did not cover the alleged cash receipt or credit card transactions. The information about the alleged cash receipt was received after the assessment concluded. The petitioner did not place the assessment-stage material before the Court to establish prior examination. The argument based on Section 153C was not accepted because the reopening was not confined to search-related material and also covered other transactions.
Conclusion: The contention that the reassessment lacked jurisdiction on these grounds was rejected.
Issue (iii): Whether the approval under Section 151 was vitiated for want of application of mind.
Analysis: The approval note referred to the draft order, the material on record, and the information under the risk management strategy. It was not a bare mechanical endorsement. On the face of the record, the approval disclosed consideration of the relevant material.
Conclusion: The challenge to the approval failed.
Final Conclusion: The writ petition was not fit for interference and the reassessment notices were left undisturbed, with liberty to urge available contentions in the reassessment and appellate proceedings.
Ratio Decidendi: A writ court will ordinarily not quash reassessment proceedings where the challenge turns on disputed facts, the objections before the authority are confined to merits, and the record shows that reopening is founded on information and an approval reflecting consideration of the material on record.
Reopening of assessment based on information in Risk Management Strategy - limited scrutiny assessment - notice under Section 148 following Section 148A(b) show-cause - approval under Section 151 and application of mind - applicability of provisions relating to searches and seizures versus reassessment procedure
Objections to reopening and scope of grounds raised before assessing officer - Objections filed under Section 148A(b) did not raise jurisdictional grounds now urged before the Court and fresh grounds cannot be entertained in writ jurisdiction. - HELD THAT: - The petitioner's letter of objections dated 8 April 2023 contained merits-based submissions only and did not advance the jurisdictional/contention points raised before this Court. The Court refused to permit the petitioner to expand the grounds in these writ proceedings, observing that such grounds could be pursued in the assessment or appellate process if legally permissible. Accordingly, the challenge based on grounds not raised in the objections was rejected at the prima facie stage. [Paras 12, 13]
Petition dismissed insofar as it sought to raise grounds not raised in the objections; petitioner may raise them in assessment/appellate proceedings.
Examination of alleged undisclosed cash and credit card transactions during original assessment - Alleged cash receipts and credit card transactions were not examined during the original assessment and therefore reopening was not vitiated on the basis that those matters had been earlier considered. - HELD THAT: - The scrutiny assessment concluded on 30 November 2018 and was confined to verification of deductions under Chapter VI-A. Information about the alleged cash receipt was received in February 2022, after completion of assessment. The questionnaire used in the original scrutiny contained no queries on credit card expenses or the alleged cash receipt. On these facts the Court found prima facie that those issues had not been examined in the earlier assessment and rejected the petitioner's contention that reopening was impermissible on that ground. [Paras 3, 4, 14]
Prima facie rejection of the submission that the impugned matters were previously examined; reopening cannot be faulted on that basis in writ proceedings.
Reopening based on information notwithstanding typographical error regarding filing of return - A statement in the annexure to the Section 148A(b) notice incorrectly indicating non-filing of return is not the basis of reopening; reopening was founded on information received under the CBDT Risk Management Strategy. - HELD THAT: - Although the annexure to the show-cause notice stated that the return was not filed, the respondents explained that this was a typographical error. The Court observed that reopening is predicated on the information as reproduced in the annexure (received under the Risk Management Strategy) and not on the erroneous statement about non-filing. This contention was therefore prima facie rejected and left open for appellate examination. [Paras 5, 15]
Submission that reopening is vitiated by erroneous annexure statement was rejected prima facie; matter left open for appellate consideration.
Applicability of search-related provisions versus reassessment procedure - Petitioner's contention that provisions relating to searches (and Section 153C application) should have been invoked instead of Section 148 was not accepted on a prima facie basis. - HELD THAT: - The petitioner argued that because a search in the case of the purchaser occurred prior to 1 April 2021, Section 153C should apply and Section 148A/148 would be inapplicable. The Court noted the information before it was not limited to alleged cash receipts linked to that search but also included credit card transactions, and found no prima facie basis to accept the submission that Section 153C displaced the reassessment procedure invoked. The Court distinguished earlier decisions relied upon by the petitioner on facts and statutory context. [Paras 5, 16, 17, 18]
Prima facie rejection of the submission that search-related provisions exclusively governed the facts; leave to raise the point in appellate proceedings.
Approval under Section 151 and requirement of application of mind - The approval under Section 151 recorded sufficient application of mind and was not shown to be perfunctory on the material placed before the Court. - HELD THAT: - The approval memo annexed to the petition contained remarks indicating perusal of the draft order, consideration of material on record and reference to information under the Risk Management Strategy. The Court found prima facie that the approving authority had applied its mind and that the approval could not be characterized as a mere mechanical endorsement. [Paras 19]
Prima facie satisfaction that approval under Section 151 involved application of mind; challenge to approval rejected.
Writ jurisdiction to quash reassessment notice at prima facie stage - On the material before it, the High Court declined to exercise writ jurisdiction to quash the Section 148 notice and related orders. - HELD THAT: - After considering the objections, the factual record of the earlier assessment, the timing of receipt of information, and the approval memo, the Court was not persuaded at the prima facie stage to interfere with the reassessment proceedings. The Court emphasised that merits need to be examined by the assessing officer and permitted the petitioner to pursue remedies in the reassessment/appellate process. [Paras 20, 21]
Writ petition dismissed; impugned notices not quashed at this stage.
Final Conclusion: The petition under Article 226 challenging the notice issued under Section 148 for AY 2016-17 is dismissed; the Court expresses only a prima facie view and leaves the petitioner free to raise the contested points before the assessing officer and in the appellate process.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Refund
Issue 2: Obligation to Verify Deductions
Issue 3: Waiver of Interest
3. SIGNIFICANT HOLDINGS
The judgment underscores the procedural obligations of tax authorities in handling refund claims and highlights the impact of a petitioner's waiver of interest on the refund process. The court's decision to leave factual contentions open for future determination reflects a focus on ensuring administrative compliance rather than adjudicating substantive tax disputes at this stage.
Refund as reflected in the TDS certificate - Petitioner, on instructions submitted that the Petitioner will not claim any interest on the refund, however, since the TDS certificate has been placed on record, the Respondents should at least verify the position regarding deductions and grant a refund to the Petitioner - HELD THAT:- In the peculiar facts of this case, we think that the Respondent must dispose of the Petitioner’s representation dated 19 June 2019 within three months from today. For this, the Respondents must verify the status of deductions, if any, carried out by Percept Pictures Company Pvt Ltd. If the Petitioner has any further material regarding the deductions, the Petitioner is granted liberty to place the same before the concerned Respondent within two weeks from today. The concerned Respondent must hear the Petitioner, consider the material placed by the Petitioner on record, verify the status of deductions, if any, made by Percept Pictures Company Pvt Ltd and the other material available with the department and dispose of the Petitioner’s representation, dated 19 June 2019.
Suppose the concerned Respondent is satisfied that deductions were indeed made as reflected in the TDS certificate. In that case, this amount should be refunded to the Petitioner within a month from such determination.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Reliance on the Special Audit Report from a Previous Assessment Year
Issue 2: Disallowance of Expenses
Issue 3: Opportunity to Substantiate Claims
3. SIGNIFICANT HOLDINGS
Verbatim Quotes of Crucial Legal Reasoning:
"The primary onus of substantiating its claim lies on the Assessee. The same is the ruling in the case of Joint Commissioner of Income-tax Vs. Superior Manpower Services Limited. It is held in these rulings that only when the primary onus of proof is discharged by the Assessee, the burden of proof falls on the Revenue."
Core Principles Established:
Final Determinations on Each Issue:
Reliance on prior years' Special Audit report - Assessment by sampling - Onus of proof on the assessee to substantiate exemption claims - Disallowance of administrative and salary expenses - Remand for de novo assessment
Reliance on prior years' Special Audit report - Assessment by sampling - Reliance on a Special Audit Report prepared for an earlier assessment year cannot, prima facie, justify concluding a similar pattern for a subsequent assessment year. - HELD THAT: - The court examined the Special Audit Report dated 02.06.2017 which related to Assessment Year 2014-2015 and noted that Section 142(2A) contemplates directing a special audit in respect of a particular assessment year where the Assessing Officer forms an opinion 'at any stage of the proceedings before him' and having regard to the nature and complexity of the accounts of that year. The court held that prima facie reliance on a report generated for earlier assessment years to infer that the assessee followed a similar pattern in a subsequent year amounts to assessment by sampling and is impermissible. Consequently, such reliance cannot form the basis for confirming demand for Assessment Year 2018-2019. [Paras 14, 15, 16, 17, 22]
Impugned assessment insofar as it is founded on the Special Audit Report for earlier year is set aside and cannot be relied upon to conclude for AY 2018-2019; matter remitted for fresh consideration.
Onus of proof on the assessee to substantiate exemption claims - Disallowance of administrative and salary expenses - The disallowance of amounts claimed as applied for charitable purposes, including salary and administrative expenses, requires fresh examination and cannot be sustained without proper independent assessment of evidence. - HELD THAT: - The court observed that the impugned order appears to have disallowed the entire amount claimed towards staff salaries and administrative expenses and, after allowing a fixed accumulation percentage, arrived at assessed income. While the Assessing Officer referred to authorities on burden of proof, the court emphasised that the department cannot substitute conclusion by mere reliance on earlier material or resort to guesswork under Section 144 if no specific amount is established. The court directed that the petitioner be given an opportunity to file proper evidence explaining and substantiating the expenses it seeks to exclude, and that these claims be independently considered on merits in the remand proceedings. [Paras 18, 19, 20, 21, 23]
Disallowance of salary and administrative expenses set aside for fresh adjudication; assessee to file evidence and claims to be re-examined on merits.
Remand for de novo assessment - The impugned assessment order is set aside and the matter is remitted for de novo adjudication by the assessing authorities without being influenced by the earlier year's Special Audit Report. - HELD THAT: - Having found that reliance on the earlier Special Audit Report and the summary disallowance of expenses rendered the assessment unsustainable, the court set aside the assessment order dated 14.09.2021 and directed the respondents to pass a fresh order on merits and in accordance with law. The court mandated that the reassessment be conducted independently, that the petitioner be permitted to furnish proper documentary evidence in support of its claimed exclusions, and that the proceedings be completed within six months from receipt of the order. The court also declined to entertain the department's suggestion of resorting to Section 144 guesswork in the absence of proper admissible material. [Paras 22, 23, 24, 25]
Impugned order set aside; matter remitted for de novo assessment and determination on merits within six months, with liberty to the assessee to file evidence.
Final Conclusion: The assessment order for Assessment Year 2018-2019 dated 14.09.2021 is set aside insofar as it relies on a Special Audit Report of an earlier year and has summarily disallowed salary and administrative expenses; the matter is remitted for de novo consideration on merits, the assessee to furnish evidence, and the respondents to complete reassessment within six months.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are as follows:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Nature of DDT
Issue 2: Application of DTAA
Issue 3: Amendments to Domestic Law and Treaty Obligations
Issue 4: Section 115-O and Treaty Provisions
Issue 5: Eligibility for DDT Refund and Time Limits
3. SIGNIFICANT HOLDINGS
Dividend Distribution Tax paid by the Company is a tax on shareholders income or the company itself- HELD THAT:- The aforesaid issue is squarely covered against the assessee by decision of Total Oil India Pvt. Ltd.[2023 (4) TMI 988 - ITAT MUMBAI (SB)] hold that where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder(s), which attracts Additional Income-tax (Tax on Distributed Profits) referred to in sec.115-O of the Act, such additional income tax payable by the domestic company shall be at the rate mentioned in section 115-O of the Act and not at the rate of tax applicable to the non-resident shareholder(s) as specified in the relevant DTAA with reference to such dividend income.
We are conscious of the sovereign's prerogative to extend the treaty protection to domestic companies paying dividend distribution tax through the mechanism of DTAAs. Thus, wherever the Contracting States to a tax treaty intend to extend the treaty protection to the domestic company paying dividend distribution tax, only then, the domestic company can claim benefit of the DTAA, if any. Decided against assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment were:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification for Penalty under Section 271G
Issue 2: Violation of Principles of Natural Justice
Issue 3: Impact of Quashed Assessment Order
3. SIGNIFICANT HOLDINGS
In conclusion, the appeal by the Revenue was dismissed, and the penalty imposed under Section 271G was deemed invalid. The judgment emphasized the necessity for clear communication of deficiencies, adherence to natural justice, and the impact of quashed assessment orders on penalty proceedings.
Penalty u/s 271G by TPO - as argued TPO had not asked for specific information/data in statutory notice u/s 92D(3) and that it is not the case where the documents were not furnished at all by the assessee and that there was a reasonable cause for delay in furnishing the details/documents - HELD THAT:- Hon’ble Bombay High Court in the case of Undercarriage and Tractor Parts (P.) Ltd. Vs. Dispute Resolution Panel[2023 (9) TMI 759 - BOMBAY HIGH COURT] wherein the assessee challenged the validity of the assessment order passed u/s 143(3) r.w.s. 144C(13) and the Hon’ble Bombay High Court quashed and set aside the directions issued by the Ld. DRP and consequent assessment order. However, the Ld. CIT(A) has failed to take cognizance of the said decision of the Hon’ble Bombay High Court while allowing the penalty appeal of the assessee. Before us, the Revenue has not brought on record any decision of the Higher Forum against the said decision of the Hon’ble Bombay High Court (supra).
Thus, in our considered view, the impugned penalty is not exigible. Consequently, we reject the appeal of the Revenue being devoid of any merits and substance.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment revolves around several core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Verification of Appellant's Activities
Issue 2: Taxability of Income
Issue 3: Precedent in Previous ITAT Decision
Issue 4: Nature of Appellant's Activities
Issue 5: Interpretation of Supreme Court Judgment
3. SIGNIFICANT HOLDINGS
Revision u/s 263 - exemption claimed u/s 11 - DR argued that while the ITAT considered the gross receipts as exempt in the hands of the assessee, it made no specific observations regarding Section 11, retaining it for academic purposes only - HELD THAT:- A critical aspect of the decision was that the assessee’s role was purely custodial, with ownership of the collected funds (lease premiums, etc.) remaining with the State Government. As the assessee merely acted as an agent, the income could not be taxed in its hands, thereby obviating the need for a detailed analysis under Section 11.
The revenue’s contention that the assessee’s activities were commercial in nature was also examined. This issue was conclusively addressed in Ahmedabad Urban Development Authority [2022 (10) TMI 948 - SUPREME COURT] wherein it was held that similar activities did not constitute commercial activity.
Further, in the revisional order under Section 263 of the Act, the Ld. CIT(E)directed the Ld. AO to verify the exemption claimed under Section 11 of the Act. However, the nature of gross receipts had already been examined in the ITAT’s ruling, which was duly followed by the Ld. AO. Despite issuing notices under Section 263, the Ld. CIT(E) was unable to identify any new income sources beyond what had already been disclosed by the assessee. Consequently, the Ld. AO adhered to the directions of the higher authority. We respectfully rely on the rulings in Malabar Industrial Co. Ltd. [2000 (2) TMI 10 - SUPREME COURT], NYK Line (India) Ltd. [2012 (2) TMI 283 - BOMBAY HIGH COURT], and M/s Paul Brothers [992 (10) TMI 5 - BOMBAY HIGH COURT] as well as N.N. Agrawal [1991 (1) TMI 119 - ALLAHABAD HIGH COURT] all of which underscore that Section 263 cannot be invoked merely on the basis of a change of opinion.
In our considered view, the direction to verify Section 11 is inapplicable in this case. Accordingly, the revisional order passed by the CIT(E) under Section 263 is unjustified and is hereby quashed. Assessee appeal allowed.
Issues: Whether the ex parte rejection of applications for registration and approval, and cancellation of provisional registration and approval, should be set aside and the matters remanded for fresh adjudication after granting adequate opportunity of hearing.
Analysis: The applications were rejected because the assessees did not respond to the notices issued by the authority and no adjournment was sought. The Tribunal accepted that the matters had been decided ex parte, but noted the request that the assessees be given one more opportunity to place the required documents and explanations. It held that the principles of natural justice require a reasonable opportunity of hearing before a conclusive adverse order is made, particularly where the assessee expresses readiness to comply. Accordingly, the Tribunal set aside the impugned orders and restored the matters to the authority for fresh consideration.
Conclusion: The ex parte orders were set aside and the matters were remanded for fresh adjudication after granting adequate opportunity of hearing, subject to payment of cost.
Final Conclusion: The appeals were disposed of by remand, with the impugned orders vacated and the issues reopened before the authority for a fresh decision in accordance with law.
Ratio Decidendi: Where an adverse registration or approval order is passed ex parte for non-compliance, and the affected party seeks a further opportunity, the order may be set aside and the matter remitted to preserve fairness and compliance with natural justice.
Rejection of application for registration of trust u/s 12AB and provisional registration u/s 80G(5) - applicant failed to file documentary evidences to enable him to satisfy about (i) genuineness of activities of the trust or institution, (ii) that the activities of trust or institution are in consonance with the objects of the trust or institution and (iii) that other laws material for the purpose of achieving objects are complied with - HELD THAT:- CIT(E) has decided the matter ex parte due to non-compliance by the applicant to the two notices issued by him. There was also no adjournment request by the assessee.
AR has contended that the assessee-trust is ready to submit all the details and evidences needed by the CIT(E). He requested that in the interest of justice, one more opportunity may be given to the assessee to plead its case, which is strong on merits. We are of the view that one more opportunity should be given to the assessee to file requisite documents and evidences before the CIT(E) and to plead its case before him. It is a settled law that the principles of natural justice require the affected party to be granted sufficient opportunity of being heard to contest his case. Grounds of appeal raised by the assessee are allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification for Invoking Section 263
Issue 2: Erroneous and Prejudicial Assessment Order
Issue 3: Validity of Order Against a Non-Existing Entity
3. SIGNIFICANT HOLDINGS
Revision u/s 263 - excess claim of depreciation on the part of the assessee while computing the book profit u/s 115JB - HELD THAT:- CIT invoked the provisions of section 263 on the basis of incorrect facts, whereas the claim of depreciation in the return of income filed by the assessee i.e. FDPL was found in order by the Assessing Officer as per the details furnished by the assessee. We also notice that there is no discrepancy in the claim of the assessee in the book depreciation while computing the book profit u/s 115JB of the Act as the amount of claim is same as reflected in the P&L Account.
All these details were available before the learned Pr. CIT as well as before the AO. However, without considering the facts and details objectively, the learned Pr. CIT has passed the impugned order and directed the Assessing Officer to re-verify the claim of the assessee. It is pertinent to note that as per the order sheet in details and office note of the National E-Assessment Centre, the Regional Assessing Officer of the Assessment Unit has admitted the fact that the assessment order passed in the case of the assessee is not sustainable being passed against the non-existing entity.
The impugned order passed by the learned Pr. CIT u/s 263 is based on incorrect facts is not sustainable in law and liable to be quashed.Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issue in this judgment is whether the addition of Rs. 51,00,000/- made by the Assessing Officer (AO) and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 56(2)(viib) of the Income Tax Act, 1961, is justified. The specific questions considered include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Valuation Method for Shares
Issue 2: Addition of Share Premium and Share Capital
3. SIGNIFICANT HOLDINGS
In summary, the court found that the valuation method used by the assessee was valid and the addition of share premium and capital under Section 56(2)(viib) was not justified. The court directed the deletion of the addition, emphasizing adherence to the prescribed valuation methods under the Income Tax Rules.
Addition u/s 56(2)(viib) - issue of share at premium -Addition of share premium and share capital treating the value of share value at Rs. Nil u/s 56 - valuation report submitted by the assessee rejected - AR submitted share valuation report which was not as per rule 11UA but valuation of shares was done as per 'Adjusted Net Asset Method and as per 'future earning analysis - AO noted that future earning analysis method not allowed in rule 11UA but that rule allow two methods discounted free cash flow method and 'Book value of net asset method.
HELD THAT:- As during Assessment Proceedings Appellant-assessee company filed Valuation Report obtained from an Accountants as per requirement of Rule 11UA of the Income Tax Rule. In the said report valuation of Equity Share is carried out on various methods i.e. Fair Market Value, Net Asset Value, Future Earning Method and Discounted Cash Flow method.
CIT(A) did not discuss as to why the report of an accountant placed on record which is based on the relevant rule for valuation of shares is not considered and he has simply confirmed the view of the assessing officer. Before us ld. AR supported that valuation done was as prescribed by the rule and that report of the independent accountant submitted by the assessee was not doubted or challenged on any of the aspect. The assessee has discharged his onus by submitting the relevant report in support of the fair market value adopted by the assessee.
Assessee-appellant having placed on record the report of the accountant dated 05.01.2015 that the fair market value of the share shall be determined under various methods of valuation including discounted cash flow method. However as per explanation given under provision of section 56(2)(viib) of the Act, the fair market value of the shares shall be the value as may be determined in accordance with rule 11Uand 11UA of I. T. Rules. Therefore it is mandatory that the fair market value of the shares for the purpose of section 56(2)(viib) of the Act is determined as per the method prescribed under rule 11U and 11UA of the I. T. Act only and thus the fair market value of shares determined by any other method is not to be considered. See Idana Pet Industries P. Ltd [2023 (12) TMI 1393 - ITAT JODHPUR]. Thus direct the AO to delete the addition so made in the hands of the assessee. Decided in favour of assessee.
Issues: (i) Whether a fiscally transparent LLC was entitled to benefits under the India-USA tax treaty; (ii) Whether receipts from domain name registration services were taxable as royalty; (iii) Whether receipts from web hosting, web designing, SSL certification and on-demand products were taxable as fees for technical services or fees for included services, including on the basis of the make available test.
Issue (i): Whether a fiscally transparent LLC was entitled to benefits under the India-USA tax treaty.
Analysis: The assessee was a liable-to-tax entity for treaty purposes notwithstanding that it was fiscally transparent under US domestic law. The relevant inquiry was not actual tax payment in the foreign jurisdiction but liability to taxation. The record and the cited coordinate bench authority supported treaty access where the assessee held a valid tax residency certificate.
Conclusion: The issue was decided in favour of the assessee.
Issue (ii): Whether receipts from domain name registration services were taxable as royalty.
Analysis: The assessee acted only as a registrar facilitating registration of domain names and did not own the domain names or possess proprietary rights in them. Mere facilitation of registration did not amount to granting a right to use or transfer the right to use any property of the assessee. On that footing, the receipts could not be characterised as royalty under the domestic law or the treaty.
Conclusion: The issue was decided in favour of the assessee.
Issue (iii): Whether receipts from web hosting, web designing, SSL certification and on-demand products were taxable as fees for technical services or fees for included services, including on the basis of the make available test.
Analysis: Web hosting and allied services were held to be distinct from domain registration and not ancillary or subsidiary to any royalty-bearing right. The services were standardised customer services and did not transmit technical knowledge, skill, know-how or processes so as to satisfy the make available requirement. Accordingly, the receipts did not fall within the treaty definition of fees for included services, nor within the corresponding domestic law provision as applied by the Revenue.
Conclusion: The issue was decided in favour of the assessee.
Final Conclusion: The additions made on account of treaty denial, royalty and fees for technical services were deleted, and the appeals succeeded with consequential relief.
Ratio Decidendi: A domain name registrar that does not own the domain name cannot be treated as granting a right to use its property, and standardised web-related services do not become fees for included services unless they make available technical knowledge or skills to the recipient.
Income taxable in India - Taxability of income from domain name registration services - royalty receipts - whether income from domain name registration services squarely fell within the definition of ‘royalty’ as per section 9(1)(vi) of the Act as well as Article 12(3)(a) of India-USA DTAA - HELD THAT:- Appellant, being a Registrar, is not the owner of domain name that it helps to register and does not hold any proprietorship rights in the names used domain names. This is affirmed by clause 3.5 of the Accreditation Agreement between the Appellant and ICANN and reference and clause 2 of the agreement between the Appellant and its customers, was made. It was contended that in the absence of ownership over the domain names, the Appellant cannot confer the right to use or transfer the right to use such domain names to another person / entity. Therefore, the income earned by the Appellant from domain name registration services is not chargeable to tax in India as ‘royalty’ under the provisions of section 9(1)(vi) of the Act as well as Article 12(3)(a) of India-USA DTAA.
We find that this view has also been affirmed by Hon’ble Delhi High Court in the Appellant’s own case for AY 2013-14 to AY 2015-16 [2023 (12) TMI 718 - DELHI HIGH COURT] wherein, vide order dated December 11, 2023, it has been held that the income earned by the Appellant from assisting customers in registration of domain names cannot be treated as ‘royalty’ under the provisions of section 9(1)(vi) of the Act itself.
DR could not cite before us any new or different set of facts for the present years to claim that the clauses of the relevant agreements are not identical to the years for which the above mentioned order was passed by the Hon’ble Delhi High Court. Thus the ratio of the said decision should apply and the income earned by the Appellant from providing domain name registration services to Indian customers during the year under consideration cannot be held to be taxable in India under the provisions of section 9(1)(vi) of the Act as well as Article 12(3)(a) of India-USA DTAA. Ground no. 3 is sustained.
Eligibility of assessee for benefit of DTAA and taxability of income from non-domain services such as web hosting, web designing services etc. - AO has erred in giving a findings that being a LLP the assessee is not eligible for treaty benefits. The law in this regard is quite settled as it is now settled that the term, ‘liability to taxation’ has to be distinguished from actual payment of taxation. ‘Liability to taxation’ indicates the powers of taxing an income though the incidence of taxation and actual payment may be different. The reliance of the ld. counsel on the decision of Wild West Domains, LLC [2024 (8) TMI 356 - ITAT DELHI] certainly takes care of the issue wherein relying the decision of Linklaters LLP [2010 (7) TMI 535 - ITAT, MUMBAI] and Herbert Smith Freebills LLP [2022 (10) TMI 903 - ITAT DELHI] the coordinate bench has given benefit of DTAA, irrespective of the fact that the assessee in that case was fiscally transparent entity in USA, like the present assessee. Accordingly, ground No.2 is sustained in favour of the appellant.
Income from provision of non-domain services (such as web hosting, web designing services etc.) - A web host provides multiple web servers to host many different websites, ensuring they are accessible on the internet. One can even set up a web site on two separate servers from two different hosting companies with the same domain just by ensuring that domain names are set up on both servers.
A person may buy domain and hosting from different providers. It even has benefits like buying domains and hosting from different providers can give you more flexibility and control over your website, as such person is able to choose the best provider for each service. It is sometimes more cost-effective, as one may find better deals on either domain or hosting by shopping around. AO has fallen in error to consider web hosting charges and other non-domain services charges as FTS, being ancillary and subsidiary to the application or enjoyment of domain name registration.
The customized technology and services of the provider are fairly available to everyone who proceeds to acquire a domain name or pays for web hosting services. There is no transfer of any knowledge or know-how by the service provider which can deliver any enduring benefit to said person. In fact, to make the website operational on the basis of ownership of a domain name and having services of web hosting, the person creating a website has to independently engage its technological inputs which may be unique to the needs of that person in terms of the objectives of the website.
Thus the income from provision of non-domain services (such as web hosting, web designing services etc.) do not ‘make available’ any technical knowledge, experience, skill, know-how, or processes or result in transfer of any technical plan or technical design to the users. Accordingly, the consideration received by the Appellant for rendering such services should fall outside the ambit as FIS as per Article 12(4)(b) of the India-USA DTAA. Ground no. 4 is sustained.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification for Withholding Containers
Issue 2: Legal Obligations for Clearance and Disposal
Issue 3: Liability for Handling Charges
Issue 4: Remedies for Delay
Issue 5: Handling Detained Goods
3. SIGNIFICANT HOLDINGS
The court's judgment underscores the need for efficient coordination between the Customs Department and CONCOR to prevent undue delays in the release of containers, while also addressing the legal responsibilities of all parties involved.
Direction to Respondents to release various containers containing imported consignments that have not been released to the respective Petitioners for various reasons - clearance of subject containers and the manner and mode in which the goods contained therein are to be disposed of - whether any handling charges are to be paid to CONCOR or not for clearing the subject containers? - HELD THAT:- The present order is being passed in the unique facts and circumstances of the present cases which have been pending for several years. The legal issues raised are left open.
The appearance of Ms. Anju Gupta and Mr. Roshan Lal Gupta, ld. Counsels for Respondent No. 1 in W.P.(C) 2580/2018 may be reflected in order dated 10th December, 2024.
Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addresses several core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Appealability of the Investigation Report
Issue 2: Principles of Natural Justice
Issue 3: Applicability of Circular No. 05/2016
Issue 4: Appellant as "Person Aggrieved"
3. SIGNIFICANT HOLDINGS
Order pronounced in open court on 08. 01. 2025
Maintainability of an appeal before the Commissioner (Appeal) against a letter received from the department enclosing SVB’s Investigation Report - Investigation Report (IR) -HELD THAT:- The power of the Government to issue instructions has been recognised by a Constitution Bench of the Hon’ble Supreme court in SANT RAM SHARMA VERSUS STATE OF RAJASTHAN & ANR. [1967 (8) TMI 117 - SUPREME COURT]. The Hon’ble Court held that while statutory rules cannot be amended by Executive instructions but "if the rules are silent" on any particular point, Government can fill up the gaps by issuing executive instructions, in conformity with the existing rules. The Circular per se is not under challenge. It deals with the subject; ‘Procedure for investigation of related party import cases and other cases by the Special Valuation Branches’.
In the instant case, the appellant has not been able to demonstrate that the IR is a quasi-judicial decision or order issued under the statute and that they are an arraigned party having a ‘legal grievance’, that they satisfy the criteria stated in the above judgment, inasmuch as the IR has wrongly deprived them of something, or wrongly refused them something, or wrongfully affected their title to something. Hence they cannot be stated.
The appellant has also not demonstrated any real prejudice caused to them by the investigation report. Merely being disappointed or dissatisfied is not enough. Further the IR is the product of a consultative process between the department and the appellant as the facts are known only to the appellant. It is a compilation of evidence gathered, and subjective conclusions reached by the investigators. The appellant had ample opportunity to put forward his views orally and in writing - They involve a quasi-judicial procedure with inbuilt safeguards of natural justice and procedural fairness. The appellant has a fair chance to represent his case including assailing the investigation report, which is not binding on the Original Authority while deciding the lis and if he is still aggrieved by the final decision, the appellant can take up the matter in further appeal as provided in the statute. Hence the appellant has not made out a case for quashing the impugned order and the same is upheld.
Conclusion - The impugned order holding that the IR is not an appealable order is legal and proper. The right to appeal is a statutory right, not a constitutional one, and is subject to the conditions set forth in the statute.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The judgment primarily addresses the following legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Interest on Delayed Payment of SAD
Penalties under Sections 114A and 114AA
Confiscation of Goods
Penalty on CHA, M/s. J.M. Baxi & Co.
Proceedings Against Five Officers
3. SIGNIFICANT HOLDINGS
Final Determinations:
Application of Customs Act provisions to SAD under Section 3(12) of the Customs Tariff Act, 1975 - levy of interest under Section 28AB of the Customs Act, 1962 for delayed payment of SAD - penalty under Sections 114A and 114AA of the Customs Act, 1962 - penalty under Section 112(a)(ii) of the Customs Act, 1962 - confiscation of imported goods - dropping of proceedings against officers
Application of Customs Act provisions to SAD under Section 3(12) of the Customs Tariff Act, 1975 - levy of interest under Section 28AB of the Customs Act, 1962 for delayed payment of SAD - Whether interest for delayed payment of SAD was payable and properly appropriated by the Customs authorities - HELD THAT: - Section 3(12) of the Customs Tariff Act, 1975 makes provisions of the Customs Act applicable to duties leviable under the Tariff Act, including SAD. The Tribunal holds that this inclusive provision brings into application the machinery for levy of interest under the Customs Act where there is delay in payment of SAD. Consequently, interest as leviable under Section 28AB of the Customs Act is payable for delayed payment of SAD. The interest already deposited by the appellant-importer was correctly appropriated towards that liability. [Paras 6, 10]
Interest for delay in payment of SAD is payable; the interest already paid is appropriated against that liability.
Penalty under Sections 114A and 114AA of the Customs Act, 1962 - Whether penalties under Sections 114A and 114AA could be sustained against the appellant-importer - HELD THAT: - The penalties under Section 114A (for short levy/non-payment by reason of collusion or wilful misstatement or suppression) and Section 114AA imposed on the appellant-importer were examined in light of the factual finding that the conduct was interpretational and there was no wilful misstatement or suppression of fact. Bills of entry were cleared without queries and the importer acted under bona fide belief in entitlement to exemption. As the primary condition for invoking Section 114A is absence, and no specific finding supports wilful conduct, the Tribunal holds the penalties unsustainable and sets them aside. [Paras 6, 10]
Penalties imposed on the appellant-importer under Sections 114A and 114AA are set aside.
Confiscation of imported goods - Whether the imported goods were liable for confiscation - HELD THAT: - Having found absence of wilful, intentional and deliberate non-payment of SAD and that Bills of entry were cleared after obtaining due permission from competent Customs officers, and noting that proceedings were triggered only after an alert issued by another formation, the Tribunal holds that confiscation is not warranted. The goods cleared with proper permissions are not liable to be confiscated. [Paras 7, 10]
Imported goods are not liable for confiscation.
Penalty under Section 112(a)(ii) of the Customs Act, 1962 - Whether penalty under Section 112(a)(ii) could be sustained against the CHA, M/s. J.M. Baxi & Co. - HELD THAT: - The CHA filed Bills of Entry relying on documents furnished by the importer and continued a practice of claiming the notified exemption, with Bills cleared without queries. There is no material to show wilful misstatement or active role rendering the CHA liable under Section 112(a)(ii). In these circumstances the Tribunal finds the penalty unsustainable and sets it aside. [Paras 8, 10]
Penalty imposed on the CHA under Section 112(a)(ii) is set aside.
Dropping of proceedings against officers - Whether the adjudicating authority erred in dropping proceedings against five officers of the importer-company - HELD THAT: - The adjudicating authority found no valid reason to impose penal action on the five named officers, recording that they were acting as employees and no material established their liability. The Tribunal finds no infirmity in that finding and upholds the order dropping proceedings against those officers. [Paras 9, 10]
Dropping of proceedings against the five officers is upheld; Revenue's appeal rejected.
Final Conclusion: The Tribunal affirms liability to pay interest on delayed SAD (appropriating amounts already paid), rejects confiscation, sets aside penalties on the importer under Sections 114A and 114AA and on the CHA under Section 112(a)(ii), and upholds the dropping of proceedings against the five officers; appeals disposed accordingly.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Right to Travel Abroad
Issue 2: Application of Res Judicata
Issue 3: Justification for LOC
3. SIGNIFICANT HOLDINGS
Seeking suspension of the LOC - whether the apprehensions raised by the investigative agencies justify the continued imposition of restrictions on Petitioner’s right to travel? - HELD THAT:- A Look Out Circular serves as a preventive measure to restrict an individual from leaving the country, particularly when there are reasonable grounds to believe that such departure may hinder legal proceedings or jeopardize investigations into serious transgressions. While the issuance of an LOC aims to safeguard the interests of justice, it must be reconciled with the constitutional guarantees of personal liberty. The right to travel abroad has been recognized as an integral aspect of the right to life and personal liberty enshrined under Article 21 of the Constitution of India.
The principle of res judicata, enshrined in Section 11 of the Code of Civil Procedure, 1908, precludes a Court from adjudicating an issue that has been directly and substantially decided in a prior proceeding between the same parties. However, the doctrine of res judicata does not rigidly apply to writ proceedings, especially in cases where ongoing violations of fundamental rights are alleged. Even the principle of constructive res judicata which is often applied to ensure judicial finality, cannot prevent the enforcement of fundamental rights when the cause of action has undergone change. When subsequent developments alter the factual or legal matrix, courts retain the flexibility to revisit and adjudicate such matters to ensure justice.
In the present case, while Petitioner’s earlier request for suspension of the LOC in W.P.(Crl.) 2332/2022 was declined, the doctrine of res judicata cannot mechanically bar the current petition. This is because the dismissal of the earlier writ petition was premised in the nascent stage of the SFIO investigation and the preliminary nature of the proceedings under the Black Money Act at that time. However, the circumstances prevailing at the time of adjudicating W.P.(Crl.) 2332/2022 have significantly changed - This assessment is currently under challenge by the Petitioner before the Commissioner of Income Tax (Appeals)-31, New Delhi. Moreover, vide Assessment Order dated 30th March, 2024, the total quantified taxable undisclosed assets of the Petitioner’s son, Mr. Shiv Punj, has been assessed at NIL.
Proceedings under the RBI Master Circular on Fraud - HELD THAT:- The classification of PLL’s account as “fraud” by IDBI Bank was previously challenged before this Court in W.P.(C) 10796/2020. On 12th May, 2023, this Court set aside the Financial Monitoring Report and the classification of PLL’s account as fraudulent. However, this decision was rendered on account of procedural infirmities, resting on the lack of an opportunity of hearing provided to PLL rather than a substantive adjudication on the merits of the allegations. SFIO has correctly contended that the ruling did not exonerate PLL or the Petitioner but was limited to ensuring compliance with principles of natural justice.
While these proceedings signal the gravity of the allegations, they remain at a preliminary stage. As of now, no formal complaint has been filed by IDBI Bank, nor any FIR has been registered against the Petitioner or PLL. This lack of conclusive action demonstrates that the allegations have yet to translate into definitive findings of wrongdoing - In the instant case, in absence of any definitive findings or legal proceedings, an imminent risk warranting the continuation of the LOC against the Petitioner cannot be established.
Status of SFIO Investigation - HELD THAT:- SFIO possesses the mechanism to obtain evidence independently, including through forensic analyses of PLL’s financial accounts. The liquidator of PLL, appointed during the liquidation proceedings, holds custody of all relevant company records, which are readily accessible to the SFIO for their investigation. It is also noteworthy that the investigating agencies are already apprised of the Petitioner’s foreign assets, leaving little room for concealment or evasion. Crucially, there have been no credible allegations of evidence tampering, witness intimidation, or any conduct by the Petitioner that could potentially derail the investigation. In such circumstances, the indefinite continuation of the LOC imposed on the Petitioner cannot be justified. As observed in multiple judgments, including MANEKA GANDHI VERSUS UNION OF INDIA [1978 (1) TMI 161 - SUPREME COURT] any restriction on personal liberty must meet the test of proportionality and be reasonably connected to the legitimate - while the SFIO’s concerns regarding the gravity of the allegations cannot be dismissed outright, investigations must not become an instrument for imposing indefinite constraints on an individual’s fundamental rights, particularly when no substantive evidence has been presented to establish non-cooperation or obstruction by the Petitioner. Discharge from Personal Guarantees.
Furthermore, an application filed by the Union Bank of India under Section 95 of the Insolvency and Bankruptcy Code, 2016, seeking to invoke the Petitioner’s personal guarantees, was dismissed by the NCLT in its order dated 10th January, 2024. The NCLT’s relied on the DRT’s findings, which had already discharged the Petitioner from his personal guarantees.
Conclusion - The right to travel abroad, being an essential component of the right to personal liberty under Article 21 of the Constitution, cannot be curtailed arbitrarily or indefinitely. Restrictions such as an LOC must pass the test of proportionality and necessity, ensuring that they are imposed only when supported by credible material. In the present case, while the State’s interest in investigating allegations of financial impropriety is undeniable, this Court finds that the absence of tangible material on record of the Petitioner’s intent to abscond or tamper with the investigation tilts the balance in favour of permitting conditional travel - The permission to travel abroad given in this order shall be subject to all other applicable conditions and shall not be deemed as a direction to any other authority. In case any of the afore-noted conditions are violated, the security shall be forfeited.
The present petition is disposed of.
Issues: (i) Whether the contempt application was within limitation and could be examined on merits; (ii) whether admission of a fresh section 7 application for a different project of the corporate debtor amounted to wilful disobedience of the earlier appellate order so as to constitute civil contempt.
Issue (i): Whether the contempt application was within limitation and could be examined on merits.
Analysis: The application was filed within one year from the impugned order dated 24.08.2023 that was alleged to have caused the grievance. On that basis, the objection of delay was repelled and the matter was considered on merits.
Conclusion: The limitation objection failed and the contempt application was held to be maintainable for consideration on merits.
Issue (ii): Whether admission of a fresh section 7 application for a different project of the corporate debtor amounted to wilful disobedience of the earlier appellate order so as to constitute civil contempt.
Analysis: Civil contempt requires clear, unambiguous, and wilful disobedience. The earlier order protected fees and steps taken in the insolvency process, but it did not bar a statutory section 7 proceeding by a class of financial creditors for another project. The Adjudicating Authority acted within its statutory jurisdiction while admitting the later section 7 petition on proof of debt and default. The applicant's grievance as to unpaid CIRP costs did not convert that admission order into contempt, especially when prior proceedings had already held that the remedy lay in the original CIRP.
Conclusion: No wilful disobedience or contempt was made out, and the request to initiate contempt proceedings failed.
Final Conclusion: The application was rejected in entirety, and no contempt proceedings were directed against the Adjudicating Authority.
Ratio Decidendi: Civil contempt lies only when there is clear, deliberate, and wilful breach of a specific judicial command; a statutory order passed in exercise of independent jurisdiction does not amount to contempt merely because it affects a party's collateral financial claim.
Admission of section 7 application - Prayer for initiation contempt proceedings for violation of order - time limitation - HELD THAT:- The present Contempt Application has been filed on 16.06.2024, i.e. within a period of one year, the Contempt Application, which alleges violation of order dated 13.01.2021 by the order of Adjudicating Authority dated 24.08.2023 needs to be heard on merits, it having been filed within one year from passing of the order dated 24.08.2023. It is proceeded to consider the Contempt Application filed by the Applicant on merits.
The Applicant has rightly filed Application with respect to other Projects, i.e. Sneh Project and Samhita Project for deciding upon the CIRP cost of the Applicant, which Application was wrongly rejected by the Adjudicating Authority. It is submitted that the Adjudicating Authority while passing the order dated 24.08.2023 for initiating CIRP with regard to Project Samhita of the CD, has violated the order dated 13.01.2021. Hence, both the Members of the Adjudicating Authority, who are Respondent Nos.1 and 2 need to be proceeded under the Contempt of Courts Act, 1971. The Applicant submits that the present RP, who is appearing in CP(IB) No. 84 of 2019 is misconducting himself and not taking steps to pay the CIRP costs to the Applicant. Various fraudulent activities are being undertaken by present RP - Shri K.P. Raju. The Applicant submits that order dated 24.08.2023, by which the CIRP has been initiated against another Project of CD, i.e. Samhita Project is in violation of order dated 13.01.2021. Hence, both the Members of the Adjudicating Authority be proceeded under the Contempt of Courts Act.
The law is well settled that civil contempt under Section 2(b) of the Contempt of Courts Act must be wilful and where there is deliberate flouting of the orders of the Court, the Court may initiate action. On looking into the facts of the present case, the Adjudicating Authority has passed order dated 24.08.2023 on an Application filed by Apartment Buyer’s Consumer Association seeking initiation of CIRP with respect to Project Dreamz Samhita. The Adjudicating Authority after finding debt and default has admitted Section 7 Application and directed the CIRP to commence with respect to Project Dreamz Samhita.
While admitting Section 7 Application, which was filed by Financial Creditors in a class, no contempt can be said to have been committed by the Adjudicating Authority, who was exercising its statutory jurisdiction under Section 7 of the IBC, while admitting Section 7 Application filed by the Financial Creditors in a class. It has already been held by Adjudicating Authority and affirmed by this Tribunal that Applicant for his unpaid CIRP costs has to approach in CP(IB)No.84/BB/2019 in which CIRP, the Applicant was appointed as RP by order dated 17.12.2019, which order was subsequently set aside on 13.01.2021 by this Tribunal.
In the present case, the facts and sequence of events and various orders passed have already been noticed above and it is clear that Adjudicating Authority while passing the order dated 24.08.2023 has not disobeyed any directions, nor circumvented any proceedings.
Conclusion - Thus, no contempt has been committed by Adjudicating Authority in admitting Section 7 Application by order dated 24.08.2023 with respect to Project Samhita of the CD. There are no ground to initiate any contempt proceedings against the Adjudicating Authority.
The Contempt Application is devoid of any merit and is accordingly dismissed.
1. ISSUES PRESENTED and CONSIDERED
The judgment revolves around several core legal questions, including:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of ECIR and Complaint under PMLA
Issue 2: Possession of "Proceeds of Crime"
Issue 3: Genuine Nature of Transactions
Issue 4: Money-Laundering under PMLA
Issue 5: Abuse of Process and Violation of Justice Principles
3. SIGNIFICANT HOLDINGS
Money Laundering - proceeds of crime - scheduled offence - ambit and scope of exercise of inherent power of this Court saved under Section 482 Cr. P.C. for quashing of a complaint/FIR - HELD THAT:- The consistent view of the Constitutional Courts that it is neither possible not desirable to lay down any inflexible rule which would govern the exercise of inherent jurisdiction and no legislative enactment dealing with procedure can provide for all cases that may possibly arise, thus suggesting that the courts have inherent powers apart from provisions of law which are necessary for proper discharge of functions and duties imposed upon them by law. That is the doctrine which finds expression in Section 482 Cr. P.C. which merely recognises and preserves the inherent power of the High Court to do the right and to undo the wrong in the course of administration of justice on the principle “that when the law gives a person anything, it gives him that without which it cannot exist” and that the inherent power is exercised ex debito justitiae to do real and substantial justice for the administration of which alone the courts exist and that the authority of court exists for advancement of justice and if any attempt is made to abuse the authority so as to produce injustice, the court has power to prevent abuse and that it would be an abuse of process of court to allow any action which would result in injustice and prevent promotion of justice and that in exercise of powers, the court would be justified to quash any proceeding if it finds that the initiation/continuance of it amounts to abuse of process of court or quashing of these proceedings would otherwise serve the ends of justice.
Perusal of the record tends to show that initially the investigation in the matter was initiated by the ACB upon registration of FIR 4/2020 under the J&K Prevention of Corruption Act, wherein crux of the composite allegations against the petitioners in both the petitions was that the Society was falsely created which succeeded in obtaining the loan from the Bank on a false premise, which loan had been sanctioned by the Bank illegally and fraudulently without following Standard Operative Procedure, proper documentation, KYC norms, inasmuch as without obtaining tangible security and that the whole exercise had been undertaken by the accused persons including the petitioners herein at the behest and instance of Chairman of the Bank being petitioner, who was alleged to be the kingpin in the whole affair and upon completion of the investigation in the said FIR, charge-sheet came to be laid before the competent court against the petitioners, which is pending trial and whether the accused persons including the petitioners herein committed a scheduled offence is for the court of competent jurisdiction to decide.
Further perusal of the record tends to show and as has been noticed in the preceding paras, admittedly no money was transferred to the accounts of the petitioners herein, therefore, there was no occasion for the petitioners herein to indulge in any activity associated with the so called “proceeds of crime” as the money that has been released out of the sanctioned loan, which is described as the “proceeds of crime” in the complaint, had admittedly been transferred/credited directly into the accounts of the land owners and the petitioners herein had never been in possession or control of the said money, which is alleged to have been laundered - In the instant case, “proceeds of crime” in favour of the petitioners would have arisen only had the petitioners developed the plots in the colony and sold them to earn profit in the process, in that, the said profits would have been the “proceeds of crime” and any activity related to such profits may have resulted in money-laundering, which stage in the instant case has not reached.
Conclusion - None of the ingredients of the offence of money-laundering against the petitioners herein is found to be existing in the present case, more so in view of the fact that an act of mortgaging the property with the Bank for securing the loan that is said to have been obtained fraudulently without following Banking rules and regulations cannot by any stretch of imagination be termed as money-laundering and that the act of the petitioners herein of having fraudulently secured loan for development and establishment of satellite township by submitting false documents, at the most makes out a case for forgery or Bank fraud.
Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Qualification of Services as Business Auxiliary Services
Issue 2: Substantial Question of Law
3. SIGNIFICANT HOLDINGS
This judgment underscores the importance of clear contractual terms in determining the nature of services for tax purposes and reaffirms the principle that factual findings, when well-supported, are not easily overturned on appeal. The High Court's decision to dismiss the appeal highlights the necessity for a substantial question of law to be present for successful appellate review under Section 35G of the Central Excise Act, 1944.
Classification of services - business auxiliary services or not - case of Revenue is that the Tribunal ought to have appreciated that the services rendered by the appellant cannot be treated as business auxiliary services - HELD THAT:- The Tribunal, inter alia, has held that the business auxiliary services at the relevant period included the services related to promotion or marketing or sale of goods produced or provided by or belonging to the client. The agreements which have been entered into by the appellant clearly state that it has been employed as promoter of the products of its clients. It has further been found that the appellant is required to promote and market the goods to the sole customer, namely APBCL. The Tribunal after taking into account the provisions of the agreement, has recorded the finding that the services rendered by the appellant are business auxiliary services. The aforesaid finding is a finding of fact which has been arrived at by the Tribunal by assigning valid and cogent reasons. The aforesaid finding of fact cannot be termed as perverse - no substantial question of law arises for consideration in this appeal.
Conclusion - The agreements which have been entered into by the appellant clearly state that it has been employed as promoter of the products of its clients. The services provided by the appellant were classified as business auxiliary services.
Thus, no substantial question of law arises for consideration in this appeal - appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The judgment primarily revolves around the following core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Service and Scope of Show Cause Notice
Issue 2: Liability under Reverse Charge Mechanism
Issue 3: Imposition of Interest and Penalties
3. SIGNIFICANT HOLDINGS
In conclusion, the court allowed the appeal, setting aside the impugned order and emphasizing the necessity for specificity in tax demands and adherence to statutory provisions regarding tax liabilities.
Levy of service tax - Business auxiliary services - income from sponsorship from sports associations - SCN was issued demanding Service Tax without specifying any particular category of service under which the Service Tax was payable - scope of SCN - demand of interest and penalty.
Levy of service tax - Sponsorship services - HELD THAT:- The Show Cause Notice has been issued on the basis of the information available in the balance sheet of the Appellant for the years 2010-11 and 2011-12. The Appellant has shown the income under the category of “income from sponsorship from sports associations”. As per Rule 2(1)(d)(vii), Service Tax on the amount sponsored is liable to discharged by the person who sponsors the programme, under reverse charge mechanism. Thus, in respect of sponsorship service, the liability is not on the Appellant. Consequently, the demand of Service Tax from the Appellant under sponsorship service is not sustainable.
Levy of service tax - Business auxiliary services - scope of SCN - HELD THAT:- In the Order-in-Original, the ld. adjudicating authority has confirmed the demand of Service Tax under the category of business auxiliary service, which was not there in the Show Cause Notice. Thus, ld. adjudicating authority has gone beyond the scope of the Show Cause Notice and confirmed a demand which was not raised in the Show Cause Notice. Accordingly, the demand confirmed in the Order-in-Original, which was upheld by the Ld. Commissioner (Appeals) in the impugned order, is not sustainable as the Show Cause Notice has not specified the Service Tax payable under any particular category of service.
Demand of interest and penalty - HELD THAT:- Since the demand itself is not sustainable, the question of demanding interest and imposing penalties does not arise.
Conclusion - In respect of sponsorship service, the liability is not on the Appellant. As regards Business Auxiliary service, Show Cause Notice must specify the category of service for a demand to be sustainable. The ld. adjudicating authority has gone beyond the scope of the Show Cause Notice and confirmed a demand which was not raised in the Show Cause Notice.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Time-barred Refund Claim
Issue 2: Classification of Payment as Deposit
Issue 3: Eligibility for Exemption under Notification No. 25/2012-S.T.
3. SIGNIFICANT HOLDINGS
Refund claim - rejection of refund on the ground of time-bar holding that the payment of Service Tax was made on 03.06.2014 and the refund claim was filed by the claimant on 21.03.2016, which is beyond the period of one year fixed for filing of a refund application in terms of Section 11B of the Central Excise Act, 1944 as made applicable to Service Tax by virtue of Section 83 of the Finance Act, 1994.
HELD THAT:- The Appellant have not submitted any evidence before the original authority or the appellate authority to substantiate their claim that they had undertaken construction of road work. Thus, the claim of the Appellant that they are not liable to pay Service Tax in terms of Notification No. 25/2012-S.T. dated 20.06.2012 [Entry No.13(a)] has not been established or affirmed by any order. The Appellant cannot merely claim that they have rendered construction of roads and bridges and thus eligible for exemption under Notification No. 25/2012-S.T. dated 20.06.2012. In the absence of any order allowing the benefit of Notification No. 25/2012-S.T. dated 20.06.2012 to the Appellant, it is found that the Appellant cannot claim the refund suo moto without producing any corroborative evidence.
Conclusion - The refund claim was filed by the Appellant on 21.03.2016, which is beyond the period of one year prescribed under Section 11B of the Central Excise Act, 1944 as made applicable to Service Tax by virtue of Section 83 of the Finance Act, 1994. Since the Appellant has paid the amount as Service Tax, the refund claim, if any, has to be filed as per the time-limit provided under Section 11B of the Central Excise Act,1944. As the Appellant has not filed the refund claim within the period of one year as prescribed under Section 11B of the Act, the lower authorities have rightly rejected the refund claim on the ground of limitation.
There are no infirmity in the impugned order upholding the rejection of the refund claim filed by the Appellant and accordingly, the appeal filed by the Appellant is liable to be rejected - the appeal filed by the Appellant stands rejected.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Services
Issue 2: Invocation of Extended Period for Demand
Issue 3: Tax Liability on Export Services
3. SIGNIFICANT HOLDINGS
The judgment ultimately allowed the appeal, setting aside the impugned order and confirming the appellant's eligibility for consequential relief as per law.
Levy of service tax - GTA service or cargo handling service - services provided by the appellant under separate contracts for loading, unloading, shifting, and transportation of iron ore - composite service or not - HELD THAT:- the appellant is basically carrying out the activity of loading of iron ore and shifting the same as per the direction of their client, and unloading the same at the other end. The major portion of the contract is towards transportation of the goods. Admittedly, the appellant has been given two different contracts – towards loading/shifting and towards transportation of the iron ore - However, it is seen that this arrangement is more in the nature of a convenience so as to make the payments part by part to the appellant for the activities undertaken by them. By such different contracts themselves, the Revenue cannot come to the conclusion that the entire activity would amount to cargo handling service.
This Bench in the case of M/S MAA KALIKA TRANSPORT PRIVATE LIMITED VERSUS COMMISSIONER OF CGST & CENTRAL EXCISE, ROURKELA, ROURKELA [2023 (7) TMI 435 - CESTAT KOLKATA] has gone through a similar issue and has held 'We observe that the contract is a composite contract primarily for the purpose of transportation of coal beyond 180 to 200 KM. The activities like loading, unloading, obtaining delivery orders etc. are incidental or ancillary to the transportation service. The contract has not provided any separate charges for these activities. The composite contract cannot be vivisected to arrive at the value of service for each activity artificially.'
It is found that for the period from 2010-11 to 2011-12, the Ld. Commissioner (Appeals) has got the documents verified and has found that the goods in question were actually exported by M/s. Rungta Mines Ltd. Accordingly, he has set aside the demands for the said period - the confirmed demand does not survive.
Time limitation - HELD THAT:- There are substantial force in the appellant’s claim that the confirmed demand for the extended period is hit by time-bar. The appellant is duly registered with the Service Tax Department and admittedly, have been paying Service Tax as well as filing their S.T.-3 Returns. Even the data towards turnover on account of these activities has come to light only on the basis of the Income Tax Returns and P&L Account maintained by the appellant. This shows that there has been no attempt on the part of the appellant to suppress any fact - the appellant genuinely believed that no Service Tax was required to be paid on this service. Therefore, they were neither charging the same on their client nor collecting the same and nor paying the same to the Service Tax Department. In view of this factual evidence brought in by the appellant, it is found that the confirmed demand for the extended period is legally not sustainable, on account of time bar - the confirmed demand set aside in respect of the extended period on account of time bar also.
Conclusion - The composite contract cannot be vivisected to arrive at the value of service for each activity artificially. Revenue cannot come to the conclusion that the entire activity would amount to cargo handling service. There has been no attempt on the part of the appellant to suppress any fact, demand not sustainable on the ground of time bar also.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Cenvat Credit on Invoices Addressed to Unregistered Branch Offices
3. SIGNIFICANT HOLDINGS
The judgment effectively underscores the importance of distinguishing between procedural and substantive requirements in tax law, ensuring that procedural lapses do not unjustly deprive taxpayers of their entitlements.
CENVAT Credit - denial of credit on the ground that appellant had availed and utilized Cenvat credit on input services on the strength of invoices which were not addressed to its registered premises as per Rule 4A(1) of the Service Tax Rules, 1994 read with Rule 9(2) of Cenvat Credit Rules, 2004 - HELD THAT:- This issue is no more res integra and the Tribunal in various decisions has consistently held that Cenvat credit cannot be denied on procedural irregularities.
Reliance can be placed in SPICE DIGITAL LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH [2023 (5) TMI 196 - CESTAT CHANDIGARH] where it was held that 'the availment based on invoices issued by input service distributor prior to registration under Service Tax (Registration of Special Category of Persons) Rules, 2005 is only procedural irregularity and hence the denial of credit is bad in law.'
Further, it is found that in the case of M/S RAJENDER KUMAR & ASSOCIATESS VERSUS COMMISSIONER OF SERVICE TAX, DELHI-II [2020 (11) TMI 621 - CESTAT NEW DELHI], Hon'ble CESTAT has held that registration of the premises is not a condition for availing cenvat credit. In this order. Hon'ble CESTAT has relied upon Hon'ble Karnataka High Court's ruling, in MPORTAL INDIA WIRELESS SOLUTIONS (P.) LTD. VERSUS COMMISSIONER OF SERVICE TAX [2011 (9) TMI 450 - KARNATAKA HIGH COURT] that there is no requirement in law that the premises should be registered for availing cenvat credit.
Conclusion - Substantial benefit cannot be denied because of procedural irregularity.
The impugned orders are not sustainable in law therefore set aside - appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Services
Issue 2: Liability to Pay Service Tax
3. SIGNIFICANT HOLDINGS
In conclusion, the Tribunal's decision underscores the importance of correctly classifying services under the Finance Act, 1994, and acknowledges the binding nature of previous Tribunal decisions in similar cases. The judgment provides clarity on the exemption of service tax for services related to agricultural produce.
Classification of services - renting of immovable property service or storage and warehousing services? - providing storage and warehousing services to the Food Corporation of India (FCI) mainly for storage of agriculture produce - HELD THAT:- The appellant is not liable to pay service tax under the category of ‘renting of immovable property service’. Here it is pertinent to reproduce the relevant findings of the Tribunal in the appellant’s own case PUNJAB STATE WAREHOUSING CORPORATION VERSUS CCE, CHANDIGARH [2018 (2) TMI 154 - CESTAT CHANDIGARH] where it was held that 'the appellants are engaged in the activity of providing of space for storage and warehousing as well as keeping the records thereof and providing insurance & security service. As the appellant is providing various other services apart from the space for storage, therefore, the services appropriately fall under the category of Storage and Warehousing Services. Further, as these services are for agricultural produce, which is not in dispute, therefore, the appellant is not liable to pay service tax on Storage and Warehousing which has been exempted from service tax as per section 65 (105) (zzza) of the Finance Act, 1994.'
Conclusion - The appellants are engaged in the activity of providing of space for storage and warehousing as well as keeping the records thereof and providing insurance & security service.
The impugned order set aside - appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Demand under "clearing and forwarding agency service"
Issue 2: Demand under "goods transport agency (GTA) service"
Issue 3: Penalties under Sections 77 and 78
3. SIGNIFICANT HOLDINGS
The judgment provides a nuanced application of the law concerning the extended period of limitation and the obligations of service providers under the Finance Act, 1994. It distinguishes between compliant and non-compliant behavior, emphasizing the importance of registration and accurate filing of returns to avoid extended liability and penalties.
Extended period of limitation - normal period of limitation - suppression of facts - clearing and forwarding agency service - goods transport agency (GTA) service - remand for quantification of demand - penalty under Section 78 of the Finance Act, 1994 - penalty under Section 77 of the Finance Act, 1994
Extended period of limitation - normal period of limitation - clearing and forwarding agency service - suppression of facts - remand for quantification of demand - Sustainability of demand and penalties for clearing and forwarding agency service by invoking the extended period of limitation - HELD THAT: - The Tribunal found that the appellant had registered for and regularly filed returns for clearing and forwarding agency services and that the show cause notice was based on discrepancies between figures in the balance sheet and ST-3 returns. Applying the ratio of earlier co ordinate Bench decisions cited by the appellant, the Tribunal held that where the demand is raised on information disclosed in the appellant's own returns and accounts and there is no established suppression with intent to evade tax, the Revenue cannot invoke the extended period of limitation. Consequently, the demand as confirmed for the extended period is unsustainable; the appellant remains liable only for tax within the normal limitation period. As no suppression with intent to evade was found for this category, penalty is not imposable for the demand falling within the normal period. The matter of quantifying the tax for the normal period is remanded to the adjudicating authority for determination. [Paras 6, 8]
Demand for clearing and forwarding agency service cannot be sustained for the extended period; tax recoverable only for the normal period; no penalty for that demand; remanded for quantification.
Suppression of facts - extended period of limitation - goods transport agency (GTA) service - penalty under Section 78 of the Finance Act, 1994 - penalty under Section 77 of the Finance Act, 1994 - Sustainability of demand and penalties for GTA service where registration and return filing were not made despite collection of service tax - HELD THAT: - The Tribunal concluded that for GTA services the appellant had collected service tax and paid amounts under that category but had not taken registration for GTA nor filed returns in respect of that category until 04.09.2013. The Tribunal found that the appellant suppressed information regarding collection and non payment of appropriate tax for GTA services; on this basis the extended period of limitation was rightly invoked. The demand of tax under the GTA category as confirmed is therefore sustained along with interest. Because suppression of information was established, the Tribunal upheld imposition of penalty equal to the tax under the provisions applicable (Section 78) and also upheld the penalty imposed for non registration (Section 77) in respect of GTA service. [Paras 7, 8]
Demand for GTA service sustained by invoking extended limitation; tax with interest payable; penalty equal to tax under Section 78 upheld; penalty for non registration under Section 77 upheld.
Final Conclusion: The appeal is allowed in part and dismissed in part: the demand for clearing and forwarding agency service for the extended period is set aside and remanded for quantification for the normal period with no penalty; the demand, interest and penalties in respect of GTA service are upheld.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Liability to Pay Service Tax
Issue 2: Exemption under Notification No. 25/2012
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of considering all relevant evidence and reports in tax adjudication, particularly when exemptions are claimed. The remand allows for a comprehensive review of the appellant's eligibility for service tax exemption under the specified notification.
Exemption for construction of road and bridge services - administrative closure report by subordinate officer - requirement to verify documentary evidence before confirming tax demand - reliance on thirdparty data and Form 26AS for initiation of demand
Exemption for construction of road and bridge services - administrative closure report by subordinate officer - requirement to verify documentary evidence before confirming tax demand - Whether the demand of service tax could be confirmed without examining the appellant's claim of exemption under entry no. 13 of Notification No. 25/2012 and without accepting or rebutting the closure report submitted by the Superintendent, CGST & CX, RangeIV, Hazaribagh. - HELD THAT: - The Tribunal held that the adjudicating authority erred in ignoring the closure report submitted by his subordinate without assigning any valid reason and without examining the appellant's documentary claim that the services rendered (construction of roads, bridges etc.) are exempt under entry no. 13 of Notification No. 25/2012. The Commissioner confined his reliance to receipts shown in the financial statements/Form 26AS and observed discrepancies, but did not address or displace the findings recorded in the Superintendent's verification report. The Tribunal concluded that confirming the demand without verifying the appellant's entitlement to the Notification benefit was legally unsustainable. [Paras 5]
Demand set aside insofar as it was confirmed without adjudication of the appellant's exemption claim; impugned order quashed on this ground.
Requirement to verify documentary evidence before confirming tax demand - reliance on thirdparty data and Form 26AS for initiation of demand - Remand for fresh consideration of the exemption claim and verification of documents. - HELD THAT: - The Tribunal remanded the matter to the adjudicating authority to afford the appellant an opportunity and to examine the claim of exemption on the basis of documentary evidence. The remand is directed to be completed within a specified time frame and is limited to the assessment of eligibility for the Notification benefit; the appellant was directed to produce all relevant documents and cooperate with the authority for a decision on merits. [Paras 6]
Matter remitted to the adjudicating authority for fresh adjudication and verification of documents within four months; appeal disposed on these terms.
Final Conclusion: The Tribunal set aside the impugned order insofar as demands were confirmed without adjudicating the appellant's claim of exemption under entry no. 13 of Notification No. 25/2012, and remitted the matter for fresh consideration of that claim on production and verification of relevant documents within four months.
1. ISSUES PRESENTED and CONSIDERED
The core legal issue in this judgment is whether the Customs, Excise & Service Tax Appellate Tribunal was justified in upholding the order of the Commissioner (Appeals) dated 27.01.2005, in which the appellant's challenge to the original order was dismissed based on the appellant's voluntary participation in the Kar Vivad Samadhan Scheme.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The case revolves around the application of the Central Excise Act, 1944, particularly Section 35G, which allows for appeals against decisions of the Tribunal. Additionally, the Kar Vivad Samadhan Scheme, a tax settlement scheme, plays a crucial role in the resolution of this dispute.
Court's Interpretation and Reasoning:
The court noted that the appellant, during the pendency of its appeal, voluntarily applied for settlement under the Kar Vivad Samadhan Scheme. The appellant paid the required amount and obtained a certificate of full and final settlement. The court reasoned that by opting for the Scheme, the appellant effectively accepted the original order, thereby forfeiting the right to challenge it further.
Key Evidence and Findings:
The evidence highlighted includes the appellant's application under the Scheme, the payment made, and the certificate issued for full settlement. The Tribunal noted that despite multiple notices, the appellant failed to appear before it, reinforcing the conclusion that the appellant had accepted the terms of the Scheme.
Application of Law to Facts:
The court applied the provisions of the Central Excise Act and the Kar Vivad Samadhan Scheme to the facts, concluding that the appellant's voluntary participation in the Scheme and subsequent settlement precluded any further legal challenge to the original order.
Treatment of Competing Arguments:
The respondent argued that the appellant's voluntary settlement under the Scheme validated the original order, and no further challenge was permissible. The court agreed, finding no reason to interfere with the decisions of the Commissioner (Appeals) and the Tribunal.
Conclusions:
The court concluded that the Tribunal's decision to uphold the Commissioner (Appeals)'s order was justified. The appellant, having opted for the Scheme and settled the dues, could not seek reimbursement or challenge the original order.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
"The Tribunal inter alia held that the order passed by the Commissioner (Appeals) does not suffer from any infirmity, as the appellant itself had opted for settlement under the Scheme and the amount was paid accordingly."
Core Principles Established:
The judgment establishes that voluntary participation in a tax settlement scheme, such as the Kar Vivad Samadhan Scheme, and the acceptance of its benefits, precludes further legal challenges to the original tax assessment or order.
Final Determinations on Each Issue:
The court affirmed the Tribunal's decision, finding no infirmity in the order of the Commissioner (Appeals). The appeal was dismissed, and the substantial question of law was answered in the affirmative, confirming the validity of the Tribunal's decision to uphold the original order.
Clandestine removal - whether CESTAT was justified in upholding the order of the Commissioner (Appeals) in which the appellant's challenge to the original order was dismissed based on the appellant's voluntary participation in the Kar Vivad Samadhan Scheme? - HELD THAT:- From the material available on record, it is evident that during pendency of the appeal against the order passed in original proceeding, the appellant with its eyes wide open had applied under the Scheme. Thereafter, the appellant paid the amount due under the Scheme and produced the certificate of payment. The Commissioner (Appeals) therefore was justified in dismissing the appeal preferred by the appellant on the ground that appellant is not entitled to challenge the order dated 28.10.1997. Despite several opportunities the appellant did not even appear before the Tribunal. The Appellate Tribunal by assigning valid and cogent reasons had affirmed the order passed by the Commissioner (Appeals). The orders impugned in this appeal do not suffer from any infirmity.
Conclusion - The order passed by the Commissioner (Appeals) does not suffer from any infirmity, as the appellant itself had opted for settlement under the Scheme and the amount was paid accordingly.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The judgment revolves around two core legal questions:
1. Whether the CESTAT was justified in setting aside the demands of duty confirmed and the penalties imposed by the adjudicating authority, particularly when admissions were made by the managing partner of the respondent firm and its sole distributorsRs.
2. Whether the appellant is still obligated to prove the clandestine manufacture and clearance of excisable goods when admissions have been made by the managing partner of the respondent firm and its sole distributorsRs.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of CESTAT's Decision
Relevant Legal Framework and Precedents:
The case primarily hinges on the interpretation of Section 9D of the Central Excise Act, 1944, which deals with the relevancy of statements made during the course of any inquiry or proceeding under the Act. The provision outlines circumstances under which such statements can be considered relevant, particularly focusing on whether the person who made the statement is available for cross-examination.
Court's Interpretation and Reasoning:
The court emphasized that under Section 9D(1)(b), statements made during investigations cannot be used against the assessee unless the witnesses are produced in adjudication proceedings and are available for cross-examination. The court referenced several precedents, including decisions from the Punjab and Haryana High Court, Bombay High Court, and Jharkhand High Court, which consistently held that the principles of natural justice necessitate the opportunity for cross-examination.
Key Evidence and Findings:
The evidence included statements from the managing partner and other individuals associated with the respondent firm. However, these statements were not subjected to cross-examination during the adjudication proceedings, which the court found problematic.
Application of Law to Facts:
The court applied the principles from Section 9D and related case law to determine that the CESTAT's decision to set aside the demands and penalties was justified. The lack of opportunity for the respondent to cross-examine witnesses meant that the statements could not be used as evidence against them.
Treatment of Competing Arguments:
The appellant argued that the admissions made by the managing partner and others should suffice to uphold the penalties. However, the court found that without cross-examination, these admissions could not be relied upon as conclusive evidence.
Conclusions:
The court concluded that the CESTAT was correct in its decision, as the procedural requirements under Section 9D were not met, rendering the statements inadmissible.
Issue 2: Obligation to Prove Clandestine Activities
Relevant Legal Framework and Precedents:
Similar to the first issue, this question also involves the application of Section 9D of the Excise Act and the principles of natural justice. The court examined whether admissions alone, without corroborative evidence subjected to cross-examination, could establish the alleged clandestine activities.
Court's Interpretation and Reasoning:
The court reasoned that the burden of proof in such cases cannot be shifted solely based on admissions that were not tested through cross-examination. The procedural safeguards provided by Section 9D are integral to ensuring fairness in adjudication.
Key Evidence and Findings:
The evidence consisted of statements and documents allegedly indicating clandestine manufacture and clearance of goods. However, the absence of cross-examination of key witnesses weakened the evidentiary value of these admissions.
Application of Law to Facts:
The court applied the legal standards from Section 9D and found that the appellant failed to meet the burden of proof due to procedural lapses in the adjudication process.
Treatment of Competing Arguments:
The appellant's reliance on admissions was countered by the respondent's argument that these admissions were not subjected to due process. The court sided with the respondent, emphasizing the necessity of cross-examination.
Conclusions:
The court concluded that the appellant's obligation to prove clandestine activities was not fulfilled, as the evidence was not admissible without the opportunity for cross-examination.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
"The incriminating material/statements recorded behind the back of the petitioner cannot be used against him, unless, such witnesses are produced in adjudication proceedings and they were permitted to be cross-examined by the petitioner."
Core Principles Established:
The judgment reinforces the principle that procedural fairness, including the right to cross-examine witnesses, is essential in adjudication proceedings under the Excise Act. Statements made during investigations cannot be used as evidence unless they comply with the requirements of Section 9D.
Final Determinations on Each Issue:
1. The CESTAT's decision to set aside the demands and penalties was upheld due to non-compliance with Section 9D, which necessitates cross-examination of witnesses.
2. The appellant's obligation to prove clandestine activities was not met, as the evidence relied upon was inadmissible without the opportunity for cross-examination.
Clandestine manufacture and removal - circumstantial evidence are clearly brought out or not - evasion of duty is clearly established beyond doubt or not - whether the Tribunal can ignore binding admissions made by the managing partner of the respondent firm and its sole distributors and various other traders? - HELD THAT:- So far Section 9D (1) (a) of the Excise Act is concerned, it has no application in the instant case. Sub-section (1) (a) can be pressed into service (a) when person who had given the statement is dead, (b) when he cannot be found, (c) when he is incapable of giving evidence, (d) when he is kept out of the way by the adverse party and (e) when his presence cannot be secured without an amount of delay or expense, which officer considers unreasonable. In the considered opinion of this Court, this provision is based on doctrine of necessity. Admittedly, in the instant case, sub-section 1 (a) of Section 9D of the Excise Act has no application.
The judgment of Jharkhand High Court in Bihar Foundry & Casting Ltd’s [2022 (3) TMI 694 - JHARKHAND HIGH COURT] makes it clear that the statement recorded by the Gazetted Central Excise Officer during enquiry or investigation is in a quasi criminal proceeding. In this view of the matter, the word ‘prosecution’ needs to be understood. The proceeding may lead into imposition of penalty. In some cases, it may also result into ‘prosecution’. The view taken by Division Bench of Jharkhand High Court in Bihar Foundry & Casting Ltd. Thus, it is unable to persuade ourselves with the line of argument of revenue that because of use of the word ‘prosecution’ in Section 9D of the Excise Act, the requirement of producing evidence in adjudication proceeding can be done away with.
It is clear like noon day that the incriminating material/statements recorded behind the back of the petitioner cannot be used against him, unless, such witnesses are produced in adjudication proceedings and they were permitted to be cross-examined by the petitioner.
Conclusion - In the teeth of Section 9D (1) (b) of the Excise Act, unless, the incriminating material and witnesses are produced in the adjudication proceedings and are permitted to be cross-examined by the assessee, the said incriminating material cannot be used against the assessee.
Appeal dismissed.
Issues: (i) Whether the demand and penalty for non-reversal of CENVAT credit attributable to SAD on inputs cleared as such were sustainable when the clearances were made on payment of duty on transaction value. (ii) Whether the extended period of limitation could be invoked and penalties sustained in the absence of suppression or wilful misstatement.
Issue (i): Whether the demand and penalty for non-reversal of CENVAT credit attributable to SAD on inputs cleared as such were sustainable when the clearances were made on payment of duty on transaction value.
Analysis: The liability under Rule 3(5) of the CENVAT Credit Rules, 2004 is to pay an amount equal to the credit availed when inputs are removed as such. The records showed that the appellant cleared the inputs as such and paid duty on the sale value, which was higher than the credit sought to be reversed. On those facts, the Tribunal found no revenue loss and held that the department could not sustain the demand merely on the ground that the SAD component was not separately reflected or reversed.
Conclusion: The demand on merits was not sustainable and was decided in favour of the assessee.
Issue (ii): Whether the extended period of limitation could be invoked and penalties sustained in the absence of suppression or wilful misstatement.
Analysis: The ER-1 returns and invoices disclosed that the goods were cleared as such, and the relevant facts were available to the department. In that background, the allegation of suppression and misstatement was held to be untenable. Once the extended period failed, the connected penalties imposed on the main appellant and co-appellants also could not survive.
Conclusion: The extended period of limitation and the penalties were not sustainable and were decided in favour of the assessee.
Final Conclusion: The appeals succeeded, the impugned order was set aside, and the consequential penalty orders also fell.
Ratio Decidendi: Where inputs are cleared as such and the duty paid on their sale value is higher than the CENVAT credit attributable to such inputs, no sustainable demand arises merely for non-separate reversal of SAD credit, and in the absence of disclosure suppression, the extended period and penalties cannot be invoked.
CENVAT credit of additional duty of customs (SAD) availed by the Appellant can be demanded due to failure on the part of the Appellant to comply with Rule 3(5) of Cenvat Credit Rules, 2004 or not - suppression of facts or not - extended period of limitation.
HELD THAT:- The fact that the said items were imported inputs cleared 'as such' as established by the investigation by correlating the part number indicated in the invoices with those reflected in the Bills of Entry under which the said items were imported. Therefore, there has been a continuous attempt on the part of assessee to misrepresent and suppress the facts deliberately with the intention to avoid payment of the amount availed as CENVAT Credit at the time of 'as such' clearances. Thus, Appellant is liable to be imposed with penalty as held by the Adjudication authority.
Extended period of limitation - HELD THAT:- As per the finding in the impugned order, the Adjudication authority held that the facts regarding inputs cleared 'as such' was established by investigation. However as evident from the ER-1 return submitted by the Appellant and as per the invoices relied in the impugned order, Appellant had clearly mentioned in the invoice that the goods are cleared 'as such'. Facts being so, there is no reason to allege that the Appellant has suppressed the facts regarding removal of inputs 'as such' and it was not established by way of investigation by the Department. Hence, the impugned order is not tenable on limitation.
Reversal of Cenvat credit on 'as such' clearances - HELD THAT:- The case of the department is that they have not reversed the Cenvat credit taken of the SAD amounts, on their 'as such' clearances. However as per Rule 3(5) of Cenvat Credit Rules, 2004 when the goods are cleared as such they have to either reverse the Cenvat credit availed on such goods or pay duty equivalent to the Cenvat credit availed on such goods. In this case the appellant paid duty which was higher than the reversable Cenvat credit. Hence, there is no Revenue loss.
Conclusion - i) There has been a continuous attempt on the part of assessee to misrepresent and suppress the facts deliberately with the intention to avoid payment of the amount availed as CENVAT Credit at the time of 'as such' clearances. Thus, Appellant is liable to be imposed with penalty as held by the Adjudication authority. ii) There is no reason to allege that the Appellant has suppressed the facts regarding removal of inputs 'as such' and it was not established by way of investigation by the Department. Hence, the impugned order is not tenable on limitation. iii) In this case the appellant paid duty which was higher than the reversable Cenvat credit. Hence, there is no Revenue loss.
Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question in this judgment is whether the value to be adopted for job-worked goods was in accordance with Rule 10A(iii) read with Rule 8 of the Central Excise Valuation Rules, 2000 (CEVR).
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
The relevant legal framework involves Rule 10A and Rule 8 of the Central Excise Valuation Rules, 2000. Rule 10A addresses the valuation of goods manufactured by a job worker on behalf of a principal manufacturer. Specifically, Rule 10A(iii) applies when the goods are not sold by the principal manufacturer at the time of removal from the job worker's factory. Rule 8 pertains to the valuation of goods not sold but used for consumption by the assessee or on their behalf.
Significant precedents cited include the Supreme Court decisions in Ujjagar Prints and M/s. Pawan Biscuits Ltd., as well as Tribunal decisions in M/s. Advance Surfactants India Ltd. Vs. CCE, Mangalore and Rolastar Pvt. Ltd. Vs. CCE, Daman.
Court's interpretation and reasoning:
The court analyzed whether Rule 10A(iii) and Rule 8 were applicable to the valuation of HDPE Plastic Caps manufactured by the Appellants on a job work basis. It was determined that Rule 10A(iii) was not applicable because the goods were not consumed by the principal manufacturer on behalf of the Appellants. The court emphasized that Rule 8 requires that the goods be consumed by the assessee or on their behalf, which was not the case here.
Key evidence and findings:
The Appellants manufactured HDPE Plastic Caps using materials supplied by M/s. Marico Ltd. and paid duty based on the cost of materials plus conversion cost. The department contended that the valuation should have been done using Rule 10A(iii) read with Rule 8, as the goods were not sold. However, the court found that the caps were not consumed by the Appellants or on their behalf, thus Rule 8 was not applicable.
Application of law to facts:
The court applied the legal principles from the cited precedents, particularly the Supreme Court's guidance in Ujjagar Prints, which supports valuing goods based on the cost of materials plus job work charges. The court concluded that the Appellants correctly valued their products using this method, as Rule 10A(iii) and Rule 8 did not apply.
Treatment of competing arguments:
The Appellants argued that the assessable value should be based on the cost of manufacture and job work charges, as supported by prior decisions and CBEC Circulars. The Department argued for the application of Rule 10A(iii) and Rule 8, asserting that the Appellants had not adopted the correct valuation method. The court sided with the Appellants, finding that the Department's reliance on Rule 10A(iii) and Rule 8 was misplaced.
Conclusions:
The court concluded that the demand for differential duty was not legally sustainable, as the valuation method used by the Appellants was appropriate. The impugned orders were set aside, and the appeals were allowed.
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
"The key words in Rule 8 that needs to be interpreted are 'consumption by an assessee or on his behalf' for applying the said Rule for arriving at valuation or determination of goods. In the case in hand, it is very clear and not disputed that the appellant is not consuming the said LABSA nor is it consumed on his behalf by HUL. In our considered view, the provisions of Rule 8 will not get attracted in this case."
Core principles established:
The judgment reaffirms the principle that Rule 8 of the CEVR applies only when goods are consumed by the assessee or on their behalf, and that valuation should be based on the cost of materials plus job work charges when these conditions are not met.
Final determinations on each issue:
The court determined that the Appellants' valuation method was correct, and the demands for differential duty were not legally sustainable. The impugned orders were set aside, and the appeals were allowed with consequential relief as per the law.
Method of valuation of job-worked goods - it appeared that the value adopted by the Appellants by considering the cost of materials plus conversion cost, was not in accordance with Rule 10A (iii) read with Rule 8 of Central Excise Valuation Rules, 2000 (CEVR) resulting in short payment of duty - HELD THAT:- The Appellants have manufactured HDPE Plastic Caps on job work basis and have paid duty on the assessable value worked out by taking into account the cost of materials plus conversion cost. The principal manufacturer (M/s. Marico) used the caps for fitment onto bottles, in its factory, for filling coconut oil. The department therefore contends that after 01.04.2007 the valuation should be done applying Rule 10A(iii) r/w Rule 8 of Central Excise Valuation Rules which applies when goods are not sold. The appellant does not captively consume the goods nor does M/s. Marico consume it on behalf of appellant.
The very same issue has been considered by this Tribunal in the Appellants case [2018 (2) TMI 139 - CESTAT CHENNAI] following the judgement in the case of M/s. Advance Surfactants India Ltd. Vs CCE, Mangalore [2011 (3) TMI 1380 - CESTAT, BANGALORE], where it was held that 'it is undisputed that LABSA is manufactured by job worker and cleared to HUL for further consumption and the said LABSA is the intermediate product required by HUL which is manufactured or produced by the appellant as a job worker. The key words in Rule 8 that needs to be interpreted are ‘consumption by an assessee or on his behalf’ for applying the said Rule for arriving at valuation or determination of goods. In the case in hand, it is very clear and not disputed that the appellant is not consuming the said LABSA nor is it consumed on his behalf by HUL. In our considered view, the provisions of Rule 8 will not get attracted in this case.'
Conclusion - Rule 8 of the CEVR applies only when goods are consumed by the assessee or on their behalf, and that valuation should be based on the cost of materials plus job work charges when these conditions are not met.
The demand confirmed is not legally sustainable and requires to be set aside - Appeal allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether CENVAT credit can be availed by the manufacturing unit which paid service tax under reverse charge where the service invoices were addressed to a different (non-operational or differently registered) office of the same assessee.
2. Whether a GAR-7 challan evidencing payment of service tax by the service recipient qualifies as a valid duty-paying document under Rule 9(1)(e) of the CENVAT Credit Rules, 2004 for availment of CENVAT credit in respect of reverse charge services.
3. Whether inadvertent mentioning of an incorrect address on service provider invoices (i.e., address of another office) disentitles the service receiver to avail CENVAT credit.
4. Whether extended period of limitation can be invoked where there is no finding of suppression with intent to evade duty and the credit has been disclosed in returns; and consequent questions as to imposition of interest and penalty where demand is not sustainable.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Eligibility of the manufacturing unit to avail CENVAT credit where invoices addressed to a different office
Legal framework: CENVAT Credit Rules, 2004 govern availment of credit; reverse charge liability places obligation on service recipient to discharge service tax and entitles recipient to CENVAT credit when proper duty-paying documents are available and services are received and used in manufacture.
Precedent treatment: Tribunal and High Court decisions relied upon by the appellant (including decisions holding credit admissible where reverse charge duty paid and challan produced) were followed.
Interpretation and reasoning: The Tribunal examined factual position that the Gurgaon unit was the sole operative manufacturing unit since 2009, that the service tax liability in respect of the impugned invoices was discharged by the Gurgaon unit and that the GAR-7 challans mention the Gurgaon unit address and evidence payment by that unit. Given consumption/use of services at the Gurgaon unit and actual payment by it, the Tribunal held that the Gurgaon unit was eligible to avail CENVAT credit despite invoices being addressed elsewhere.
Ratio vs. Obiter: Ratio - Where the service recipient unit has paid tax under reverse charge and the services are received/used by that unit, that unit is entitled to avail CENVAT credit notwithstanding invoices addressed to a different office (subject to documentary proof of payment and use). Obiter - peripheral observations on factual singularity of unit closure at earlier location.
Conclusion: The Gurgaon manufacturing unit could avail CENVAT credit in respect of the subject invoices.
Issue 2 - Validity of GAR-7 challan as duty-paying document under Rule 9(1)(e)
Legal framework: Rule 9(1)(e) of the CENVAT Credit Rules, 2004 treats "a challan evidencing payment of service tax by the service recipient as the person liable to pay tax" as a duty-paying/documentary requirement for availment of credit in reverse charge cases.
Precedent treatment: Decisions cited by the appellant (Tribunal/High Court authorities) hold that payment challan under reverse charge is a valid document for availment of credit.
Interpretation and reasoning: The Tribunal found GAR-7 challans produced on record and noted payment by the Gurgaon unit; applying Rule 9(1)(e) and the cited precedents, it concluded that the challan is a valid duty-paying document entitling the unit to credit.
Ratio vs. Obiter: Ratio - GAR-7 challan evidencing payment of service tax by the recipient under reverse charge satisfies Rule 9(1)(e) and supports availment of CENVAT credit.
Conclusion: The GAR-7 challans produced by the appellant constituted valid duty-paying documents permitting availment of CENVAT credit.
Issue 3 - Effect of inadvertent wrong address on invoices on admissibility of credit
Legal framework: CENVAT Credit Rules and principle that substantive eligibility cannot be denied on mere procedural/clerical errors absent prejudice or evasion; consistency with jurisprudence that inadvertent clerical mistakes on invoices do not ipso facto deny credit.
Precedent treatment: The Tribunal relied upon multiple authorities which held that incorrect address or clerical errors in invoices by the service provider are inadvertent and do not disentitle the service recipient to credit where tax liability is discharged by the recipient and other documentary requirements are met.
Interpretation and reasoning: The Tribunal assessed that the service provider's addressing of invoices to a closed/non-operative office was inadvertent; since the recipient had paid service tax, produced GAR-7 challans, and the services were consumed by the Gurgaon unit which alone operated, the clerical error could not be a ground to deny substantive credit. The Court emphasized that a substantial benefit like CENVAT credit should not be denied for procedural irregularities absent mala fides.
Ratio vs. Obiter: Ratio - Inadvertent mis-description or wrong address in service provider's invoices does not defeat the recipient's right to CENVAT credit where recipient has discharged reverse charge liability and documentary proof of payment and use exist. Obiter - remarks stressing the policy against denying substantial benefits for mere procedural lapses.
Conclusion: Wrong address on invoices, being an inadvertent error, did not justify denial of CENVAT credit to the Gurgaon unit.
Issue 4 - Invocation of extended period of limitation, mens rea, and consequences for interest and penalty
Legal framework: Provisions permitting invocation of extended period of limitation require suppression with intent to evade duty; penalty and interest considerations follow if demand is sustainable and culpability established.
Precedent treatment: The Tribunal referred to authority that show cause notice forms the foundation of case and that extended limitation cannot be invoked absent suppression/mala fides; and that interest/penalty are not exigible if primary demand is unsustainable.
Interpretation and reasoning: The Tribunal found no positive finding or material establishing suppression with intent to evade duty by the appellant; the availment of credit had been disclosed in returns and detected during audit. Absent suppression or mens rea, the extended period of limitation could not be invoked. As the substantive demand was held unsustainable, consequential imposition of interest and penalty was also unjustified.
Ratio vs. Obiter: Ratio - Extended period of limitation cannot be invoked where there is no evidence of suppression or intent to evade duty and where credit has been disclosed; interest and penalty do not survive where the substantive demand is unsustainable. Obiter - procedural remarks on scope of Departmental pleading vis-à-vis show cause notices.
Conclusion: Invocation of extended limitation was unjustified; consequential interest and penalty could not be sustained when the primary demand failed.
Cross-References
See Issue 1 and Issue 2: entitlement to credit depended both on actual payment/use (Issue 1) and on presence of valid duty-paying document (GAR-7 under Rule 9(1)(e)) (Issue 2).
See Issue 3 and Issue 4: the Tribunal treated the mis-addressing of invoices as a procedural irregularity (Issue 3) and, coupled with absence of suppression/mens rea, refused invocation of extended limitation and penalty (Issue 4).
Final Disposition
The Tribunal allowed the appeal, set aside the impugned demand and penalty, and granted consequential relief in favor of the appellant on the grounds stated above (credit admissible; GAR-7 valid; wrong address inadvertent; extended limitation and penalties unjustified).
Admissibility of CENVAT credit on reverse charge services - GAR-7 challan as duty paying document for availment of CENVAT credit - inadvertent error in invoice address not a ground to deny credit - extended period of limitation requires suppression with intent to evade - substantial benefit not to be denied for procedural irregularity
Admissibility of CENVAT credit on reverse charge services - GAR-7 challan as duty paying document for availment of CENVAT credit - inadvertent error in invoice address not a ground to deny credit - extended period of limitation requires suppression with intent to evade - Whether the Gurgaon manufacturing unit was entitled to avail CENVAT credit on services invoiced to the Bangalore office where the service tax liability under reverse charge was discharged by the Gurgaon unit and GAR 7 challans recorded the Gurgaon address, and whether the extended period of limitation was invokable. - HELD THAT: - The Tribunal found that the only determinative question was entitlement of the Gurgaon unit to CENVAT credit notwithstanding that the invoices were addressed to the Bangalore office. The material facts established that the Bangalore unit had ceased operations in April 2007 and the Gurgaon unit was the sole manufacturing unit in operation during the relevant period; the service tax under reverse charge was discharged by the Gurgaon unit; GAR 7 payment challans specified the Gurgaon address; and the payment was made by the appellant's Gurgaon unit. In view of Rule 9(1)(e) of the CENVAT Credit Rules, a challan evidencing payment of service tax by the service recipient is a valid document for availment of credit. The Tribunal relied on earlier decisions accepting availment of credit on the basis of challans where reverse charge was discharged by the recipient. The Tribunal further held that the mistaken mention of the registered office address in the invoices was an inadvertent error by the service provider which, in the circumstances, could not justify denial of substantial benefit of CENVAT credit to the service receiver. Finally, the Department had not demonstrated suppression with intent to evade duty; the appellant had been filing returns and disclosed the credit, and the demand first arose on audit; consequently invocation of the extended period of limitation was not justified. [Paras 10, 11]
Credit availed by the Gurgaon unit on the basis of GAR 7 challans is admissible and the extended period of limitation is not invocable; impugned order set aside.
Final Conclusion: Appeal allowed; the order confirming demand and imposing penalty is set aside, with consequential relief as per law.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Valuation Methodology and Compliance:
Penalty and Suppression of Facts:
Revenue Neutrality and Intention:
3. SIGNIFICANT HOLDINGS
The judgment underscores the significance of procedural compliance and the protective scope of Section 11A(2B) in precluding unnecessary penalty impositions when duty and interest are paid timely. The emphasis on revenue neutrality as a defense against allegations of duty evasion is also a key takeaway.
Section 11A(2B) - payment of unpaid duty before service of notice bars issuance of show cause notice - Penalty under Section 11AC - Valuation under Rule 8 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000 - Stock transfer to related parties - Revenue neutrality and absence of mens rea
Section 11A(2B) - payment of unpaid duty before service of notice bars issuance of show cause notice - Stock transfer to related parties - Whether a show cause notice under Section 11A(1) could be issued when the assessee had paid the unpaid duty and undisputed interest before issuance of the notice and had informed the Department - HELD THAT: - The Tribunal found on the material on record that the appellant had paid all differential duty and undisputed interest prior to issuance of the Show Cause Notice and that this fact is recorded in the Show Cause Notice itself. Sub-section (2B) of Section 11A provides that where the assessee makes payment of unpaid duty before service of the notice and informs the Central Excise Officer in writing, a demand notice under sub-section (1) should not be served. The short or excess payments arose from application of the Valuation Rules (Rule 8) in respect of stock transfers to related units and were rectified by payment or refund processes available to the appellant. Given payment before notice and the valuation-driven nature of discrepancies, the Tribunal held that issuance of the Show Cause Notice was not warranted. [Paras 10, 11]
Show Cause Notice should not have been issued; issuance set aside insofar as it relied on unpaid duty where duty and interest had been paid before notice.
Penalty under Section 11AC - Revenue neutrality and absence of mens rea - Valuation under Rule 8 of Central Excise (Determination of Price of Excisable Goods) Rules, 2000 - Whether penalty under Section 11AC could be sustained where valuation discrepancies arose from Rule 8 stock transfers, duty and interest were paid before notice, and there was no intent to evade duty - HELD THAT: - The Tribunal recorded that the valuation variations-resulting in over- or under-payment on individual invoices-flowed from application of the Valuation Rules for supplies to related parties and from use of pre-determined values pending cost audit. Wherever duty was short paid, it was paid immediately with interest; excess payments were subject to refund mechanisms available to the appellant and ultimately resulted in no loss to Revenue. In these circumstances the Tribunal concluded there was no culpable suppression or mala fide intention to evade duty. Applying the cited precedents and the statutory bar in Section 11A(2B), the Tribunal held that imposition of penalty under Section 11AC was not sustainable. [Paras 11, 12]
Penalty imposed under Section 11AC set aside.
Final Conclusion: Appeal allowed; impugned order set aside and penalty vacated, with consequential relief, the Tribunal finding that duty and interest had been paid prior to notice and that valuation discrepancies arising from Rule 8 stock transfers did not disclose suppression or intent to evade revenue.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Commencement of Commercial Production
Issue 2: Procedural Errors and Documentation
Issue 3: Use of CENVAT Credit
3. SIGNIFICANT HOLDINGS
Exemption under Notification No. 50/2003-CE - commercial production commencement - admissibility of departmental certification - burden of proof for clandestine production - verification of evidence and natural justice in adjudication - availability and application of CENVAT credit against duty liability
Exemption under Notification No. 50/2003-CE - commercial production commencement - admissibility of departmental certification - burden of proof for clandestine production - verification of evidence and natural justice in adjudication - availability and application of CENVAT credit against duty liability - Whether the order denying exemption and confirming duty, interest and penalties should be sustained or the matter should be remanded for fresh consideration - HELD THAT: - The Tribunal found that the adjudicating authority reached conclusions largely on the basis of the visit of Central Excise officers and inferences drawn therefrom, while disregarding a contemporaneous certificate issued by the Superintendent, Central Excise Range, certifying that the unit was working and availing the exemption. The adjudicating authority did not record any findings on the admissibility or weight of that departmental certificate. Allegations of fabrication, clandestine production and purchase of raw materials after the relevant date were not supported by sufficient investigation or verification of transportation and financial records. The claim that discrepancies in the khasra number rendered the exemption inapplicable was not addressed, notwithstanding that mistakes by the Land Revenue Officer could be curable and not ipso facto grounds for denial. The adjudicating authority also failed to consider the appellants' submission regarding available CENVAT credit which could offset any duty liability. In these circumstances, and having regard to the need to examine the available documentary evidence, resolve the conflict between departmental records, and afford the appellants an opportunity to be heard, the Tribunal concluded that the issue requires fresh consideration by the original authority rather than final adjudication on merits by the Tribunal. [Paras 8, 9]
Appeal allowed by way of remand; matter directed to be reconsidered afresh by the original authority after verifying evidence, considering the Range Superintendent's certificate and appellants' submissions, and giving opportunity of hearing, with a remand period of 16 weeks.
Final Conclusion: The impugned order confirming duty, interest and penalties is set aside to the extent that the matter is remanded for fresh adjudication by the original authority in accordance with the directions given, to be completed within 16 weeks.
Issues: Whether the appellant was entitled to the benefit of Notification No. 6/2002-CE dated 01.03.2002 and Notification No. 6/2006-CE dated 01.03.2006 after reversing the Cenvat credit attributable to the goods cleared without payment of duty, and whether penalty was sustainable.
Analysis: The goods were held to fall within the exemption scheme governing motor vehicles manufactured out of duty-paid chassis, subject to the condition that no credit of duty paid on the chassis and inputs used in the manufacture of such vehicles had been taken. The material on record showed that the credit attributable to the exempt clearances had been reversed during investigation, along with interest, before issuance of the show cause notice. On that basis, the condition attached to the exemption notifications was treated as satisfied, and the denial of exemption was held to be unsustainable. Since the appellant succeeded on the principal exemption issue, and the disputed SSI benefit had already been conceded in part, penalty was held not to be warranted.
Conclusion: The appellant was held entitled to the benefit of Notification No. 6/2002-CE dated 01.03.2002 and Notification No. 6/2006-CE dated 01.03.2006. Penalty was set aside, while the demand relating to Notification No. 8/2003-CE dated 01.03.2003 was upheld for the conceded amount.
Benefit of exemption notification - CENVAT Credit reversal - classification of motor vehicles versus special purpose vehicles - SSI exemption - penalty imposable
Benefit of exemption notification - CENVAT Credit reversal - classification of motor vehicles versus special purpose vehicles - Entitlement to benefit of Notification No. 6/2002-CE dated 01.03.2002 and Notification No. 6/2006-CE dated 01.03.2006 - HELD THAT: - The notifications grant exemption for certain motor vehicles subject to the condition that no CENVAT credit on the duty-paid chassis and other inputs used in manufacture has been taken under the CENVAT Credit Rules. Revenue contested the appellant's classification of the goods (8705.10.90) and proposed classification under heading 87.04, but the Tribunal held that even if the goods are classifiable under chapter heading 87.04 the notifications would remain available provided the condition regarding non-availment (or reversal) of attributable CENVAT credit is satisfied. The appellant had, during investigation and prior to the show cause notice, reversed the CENVAT credit attributable to the goods cleared under the notifications. That reversal fulfilled the statutory condition and, accordingly, the benefit of the notifications could not be denied merely because the credit had been originally taken and later reversed during the investigation. [Paras 17, 18, 19, 20, 21]
Appellant entitled to benefit of Notification No. 6/2002-CE and Notification No. 6/2006-CE as attributable CENVAT credit has been reversed.
SSI exemption - CENVAT Credit reversal - Claim to exemption under Notification No. 8/2003-CE dated 01.03.2003 - HELD THAT: - The appellant conceded that the benefit of Notification No. 8/2003-CE (SSI exemption) was not maintainable in respect of certain finished goods. The Tribunal recorded that concession and confirmed the demand arising from denial of that exemption for the period specifically identified by the parties. The confirmed demand is to be paid along with interest as ordered by the Tribunal. [Paras 5, 22]
Appellant not entitled to benefit of Notification No. 8/2003-CE; the demand in respect of that denial is confirmed and payable with interest.
Penalty imposable - Imposition of penalty - HELD THAT: - Having found that the condition for the exemption notifications was satisfied by reversal of the attributable CENVAT credit and noting the appellant's concession on the SSI issue, the Tribunal exercised its discretion and held that no penalty should be imposed on the appellant in the facts and circumstances of the case. [Paras 23, 24]
No penalty is imposable on the appellant.
Final Conclusion: The Tribunal allowed the appellants' claim to benefit under Notification No. 6/2002-CE and Notification No. 6/2006-CE on account of reversal of attributable CENVAT credit, confirmed the demand arising from denial of Notification No. 8/2003-CE (payable with interest), and held that no penalty is imposable.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Cenvat Credit for Exempted Goods Cleared for Export
Issue 2: Justification for Reversal of Cenvat Credit and Refund Entitlement
Issue 3: Violation of Notification No. 42/2001-CE(NT) and Applicability of Rule 6(6)(v)
Issue 4: Sustainability of Demand under Rule 6(3) on Limitation and Merits
3. SIGNIFICANT HOLDINGS
Refund claim - CENVAT Credit for goods cleared under exemption Notification No. 4/2006-CE for export - Applicability of rule 6(6)(v) of CCR - HELD THAT:- In the present case the appellant have reversed the amount in terms of Rule 6(3) in respect of the exempted goods under Notification No. 4/2006-CE and cleared for export and for the said reversal the appellant filed the refund claim. On the identical issue in the appellant’s own case where the revenue had demanded the amount under rule 6(3) in respect of the similar nature of export this tribunal vide order no. 11450-11451/2023 dated 07.07.2023 [2023 (7) TMI 360 - CESTAT AHMEDABAD] held that the appellant was not required to pay an amount under rule 6(3) of Cenvat Credit Rules even though the goods are exempted under Notification No. 4/2006-CE for the reason that the said notification is conditional one.
The appellant have reversed the Cenvat Credit amount in terms of rules 6(3) therefore claiming refund of the same amount is nothing but seeking a credited of the Cenvat amount. It is a settled law that if any amount of Cenvat is reversed for any reason which is not liable to be reversed the same can be recredited in the Cenvat account if the amount is reversed from Cenvat account. If the said amount was reversed from the cash the appellant is entitled for the cash account. Therefore, the contention of the revenue that the present refund is not governed by Section 11B is not relevant in the facts in the present case.
Conclusion - The exempted goods cleared for export under bond are eligible for Cenvat Credit, and reversal under Rule 6(3) is not justified. The Appellant is not required to pay an amount under Rule 6(3) of Cenvat Credit Rules in respect of the goods exported under Notification No. 4/2006-CE in terms of Rule 6(6)(v) of Cenvat Credit Rules, 2004.
The impugned order is not sustainable - Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question in this judgment is whether the appellant is eligible for a waiver of the penalty imposed under Rule 26 of the Central Excise Rules, 2002, given that the main case of M/s Suryansh Trading Company has been settled under the Sabka Vishwas (Legacy Dispute Resolution) Scheme (SVLDRS) 2019, and the Tribunal has disposed of the appeal as deemed withdrawn.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The relevant legal framework involves Rule 26 of the Central Excise Rules, 2002, which pertains to the imposition of penalties. The SVLDRS 2019 is a scheme aimed at resolving legacy disputes by providing relief from penalties, interest, and other consequences upon payment of the disputed duty. Precedents cited include judgments from various cases such as Prakash Steeladge Ltd, Anil K Modani, and others, which have established that penalties on co-noticees are not sustainable when the main case is settled under SVLDRS 2019.
Court's Interpretation and Reasoning:
The court interpreted the SVLDRS 2019 as providing relief not only to the main party against whom the duty demand was confirmed but also to co-noticees or co-appellants involved in the same case. The reasoning is based on the intent of the scheme to resolve disputes by focusing on the collection of duty and waiving penalties and interest. The court emphasized that the relief scheme's purpose is to erase the detriment of penalties in cases where the main demand is settled.
Key Evidence and Findings:
The court considered the submissions and judgments from previous cases where penalties on co-noticees were waived once the main case was settled under SVLDRS 2019. The evidence presented included past judgments from both single and division benches that consistently supported the waiver of penalties under similar circumstances.
Application of Law to Facts:
The court applied the principles established in previous judgments to the facts of the current case. It concluded that since the main case involving M/s Suryansh Trading Company was settled under SVLDRS 2019, the penalty imposed on the appellant under Rule 26 should also be waived. The court found that the appellant was similarly situated to the co-noticees in the cited precedents.
Treatment of Competing Arguments:
The court addressed the arguments presented by the Revenue, which relied on a single-member bench decision in the case of M/s Four R Associates. However, the court distinguished this case by emphasizing that division bench decisions, which supported the appellant's position, prevail over single-member bench decisions. The court found that the division bench judgments provided a more authoritative interpretation of the SVLDRS 2019.
Conclusions:
The court concluded that the penalty imposed on the appellant is not sustainable under the circumstances, as the main case was settled under SVLDRS 2019. The appeal was allowed, and the penalty was set aside.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
"It is settled that once the main case of duty evasion is settled under SVLDRS 2019, the penalty on the co-appellant shall not survive."
"Division Bench judgment will prevail over Single Member Bench."
Core Principles Established:
The core principle established is that when a main case is settled under SVLDRS 2019, penalties on co-noticees involved in the same case are not sustainable. The intent of the SVLDRS 2019 is to resolve disputes by focusing on the collection of duty and waiving penalties and interest.
Final Determinations on Each Issue:
The final determination is that the penalty imposed on the appellant under Rule 26 of the Central Excise Rules, 2002, is set aside, and the appeal is allowed. The court's decision aligns with the principles established in previous division bench judgments, which support the waiver of penalties under the SVLDRS 2019.
Eligibility (of co-noticee) for waiver of penalty imposed under Rule 26 of the Central Excise Rules, 2002 - main case of M/s Suryansh Trading Company has been settled under SVLDRS- 2019 - HELD THAT:- As per the judgments of not only Single Member Bench but also of the division bench cited by the learned Counsel, it has been held that in case of settlement of case under SVLDRS-2019 against the main party on whom there is duty demand, the co-noticee/co-appellant shall not liable to penalty under Rule 26 of Central Excise Rules, 2002.
The one division bench judgment, in the case of Prakash Steeladge Ltd [2024 (11) TMI 468 - CESTAT AHMEDABAD] held that 'the penalties imposed on the co-noticees in a case where the main noticee against whom the demand is confirmed, the case is settled under SVLDRS then in respect of other co-noticees penalty will not sustain even if they have not filed a declaration under SVLDRS-2019 and decision on the issue of SVLDRS-2019 in the case of Four R Associates and others reported as [2023 (11) TMI 9 - CESTAT CHENNAI] given by Single Member Bench whereas the aforesaid cited decisions are given by Division Bench. Therefore, Division Bench judgment will prevail over Single Member Bench.'
Conclusion - When a main case is settled under SVLDRS 2019, penalties on co-noticees involved in the same case are not sustainable.
The penalty on the appellant is set aside. Appeal is allowed.
Issues: (i) Whether, in the absence of an express bar in the NDPS Act, a seized conveyance can be released in interim custody pending trial. (ii) Whether the appellant's vehicle, in the facts of the case, ought to be released on superdari.
Issue (i): Whether, in the absence of an express bar in the NDPS Act, a seized conveyance can be released in interim custody pending trial.
Analysis: The NDPS Act does not contain any specific prohibition against interim release of a seized conveyance during the pendency of the criminal case. In the absence of such a bar, and having regard to the application of the Code of Criminal Procedure under the NDPS framework, the general powers under Sections 451 and 457 of the Code of Criminal Procedure remain available. The power to release a seized vehicle is therefore discretionary and must be exercised on the facts and circumstances of each case. The Court also noted that a construction preventing interim release in every case would produce an irrational result, particularly where the vehicle is not owned or used with the knowledge of the owner.
Conclusion: Yes. Interim release of a seized conveyance is not barred as a matter of law under the NDPS Act and may be ordered by the trial court in an appropriate case.
Issue (ii): Whether the appellant's vehicle, in the facts of the case, ought to be released on superdari.
Analysis: The charge-sheet did not array the appellant-owner or the driver as accused, and the contraband was found with a third-party occupant. The investigation did not establish that the vehicle was used with the owner's knowledge or connivance, or that the owner or his agent failed to take reasonable precautions. Keeping the vehicle in police custody till the end of trial would serve no useful purpose and would expose it to deterioration. Conditions such as preparation of video footage and still photographs, authentication of identification material, and restrictions on transfer were found sufficient to safeguard the prosecution case.
Conclusion: Yes. The vehicle was directed to be released in interim custody on superdari subject to conditions.
Final Conclusion: The appeal succeeds and the seized vehicle is to be returned in interim custody with protective conditions, leaving the trial on the NDPS offence otherwise unaffected.
Ratio Decidendi: In the absence of an express statutory bar, a seized conveyance under the NDPS Act may be released in interim custody under the CrPC, and where the owner is not shown to have knowledge or connivance in the offence, the vehicle should ordinarily be released on suitable safeguards.
Seeking for interim release of a seized vehicle pending the conclusion of a criminal trial - drug trafficking - HELD THAT:- Upon a reading of the NDPS Act, this Court is of the view that the seized vehicles can be confiscated by the trial court only on conclusion of the trial when the accused is convicted or acquitted or discharged. Further, even where the Court is of the view that the vehicle is liable for confiscation, it must give an opportunity of hearing to the person who may claim any right to the seized vehicle before passing an order of confiscation. However, the seized vehicle is not liable to confiscation if the owner of the seized vehicle can prove that the vehicle was used by the accused person without the owner’s knowledge or connivance and that he had taken all reasonable precautions against such use of the seized vehicle by the accused person.
This Court is further of the opinion that there is no specific bar/restriction under the provisions of the NDPS Act for return of any seized vehicle used for transporting narcotic drug or psychotropic substance in the interim pending disposal of the criminal case.
In the absence of any specific bar under the NDPS Act and in view of Section 51 of NDPS Act, the Court can invoke the general power under Sections 451 and 457 of the Cr.P.C. for return of the seized vehicle pending final decision of the criminal case. Consequently, the trial Court has the discretion to release the vehicle in the interim. However, this power would have to be exercised in accordance with law in the facts and circumstances of each case.
This Court is of the view that criminal law has not to be applied in a vacuum but to the facts of each case. Consequently, it is only in the first two scenarios that the vehicle may not be released on superdari till reverse burden of proof is discharged by the accused-owner. However, in the third and fourth scenarios, where no allegation has been made in the charge-sheet against the owner and/or his agent, the vehicle should normally be released in the interim on superdari subject to the owner furnishing a bond that he would produce the vehicle as and when directed by the Court and/or he would pay the value of the vehicle as determined by the Court on the date of the release, if the Court is finally of the opinion that the vehicle needs to be confiscated.
This Court is also of the view that if the Vehicle in the present case is allowed to be kept in the custody of police till the trial is over, it will serve no purpose. This Court takes judicial notice that vehicles in police custody are stored in the open. Consequently, if the Vehicle is not released during the trial, it will be wasted and suffering the vagaries of the weather, its value will only reduce.
Conclusion - In the absence of a specific prohibition under the NDPS Act, the general provisions of the Cr.P.C. could be applied for the interim release of seized vehicles. The appellant was entitled to the interim release of the vehicle, subject to conditions ensuring its availability for trial and preventing its misuse.
The present Criminal Appeal is allowed with directions to the trial Court to release the Vehicle in question in the interim on superdari after preparing a video and still photographs of the vehicle and after obtaining all information/documents necessary for identification of the vehicle, which shall be authenticated by the Investigating Officer, owner of the Vehicle and accused by signing the same.
Issues: (i) Whether the complaint and revisional order were liable to be quashed in exercise of inherent jurisdiction under Section 482 of the Code of Criminal Procedure, 1973 and Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023; (ii) Whether the complaint disclosed the ingredients of Sections 138 and 141 of the Negotiable Instruments Act, 1881 against the petitioners, including the validity of the demand notice and the petitioners' vicarious liability as partners of the firm.
Issue (i): Whether the complaint and revisional order were liable to be quashed in exercise of inherent jurisdiction under Section 482 of the Code of Criminal Procedure, 1973 and Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023
Analysis: The power to quash is to be exercised sparingly and only where continuation of proceedings would amount to abuse of process or where no prima facie offence is disclosed. On the material placed, the complaint contained specific averments regarding the petitioners' involvement in the transaction and the revisional court had already found a prima facie case for the cheque(s) issued on behalf of the firm. No jurisdictional or legal infirmity was shown in the revisional order.
Conclusion: The request to quash the complaint and the revisional order was rejected.
Issue (ii): Whether the complaint disclosed the ingredients of Sections 138 and 141 of the Negotiable Instruments Act, 1881 against the petitioners, including the validity of the demand notice and the petitioners' vicarious liability as partners of the firm
Analysis: The cheques arose out of the same commercial transaction relating to possession of the property, and the demand notice was within time when the limitation extension during the COVID-19 period was applied. For vicarious liability under Section 141, specific averments showing that the accused was in charge of and responsible for the conduct of the business are required, but it is not necessary to reproduce statutory wording verbatim. The complaint specifically stated that the petitioners were partners and participated in the transaction from its inception, which was sufficient at the prima facie stage. The revisional court correctly confined liability to the cheques issued on behalf of the firm and not to cheques issued in the personal capacity of the signatory.
Conclusion: A prima facie case under Sections 138 and 141 of the Negotiable Instruments Act, 1881 was made out against the petitioners only in relation to the cheques issued on behalf of the firm, and the demand notice was held to be valid.
Final Conclusion: The proceedings were allowed to continue, the revisional order was upheld, and no interference was warranted in the exercise of inherent jurisdiction.
Ratio Decidendi: In a cheque dishonour prosecution against a firm, quashing is unwarranted where the complaint contains specific averments showing the partners' involvement in the transaction and responsibility for the firm's affairs, and the statutory notice is timely in law as extended by the applicable limitation directions.
Dishonour of cheque - vicarious liability of partners of the accused-firm - whether this Court can exercise inherent powers under Section 482 of the Code (Section 528 of the BNSS) for quashing the complaint bearing no. 4971/2020 and impugned order dated 3rd August, 2023? - HELD THAT:- It is imperative to understand the scope of interference of this Court under Section 482 of the Code i.e., Section 528 of the BNSS, wherein, this Court is bestowed with the inherent jurisdiction to exercise its powers to either “prevent any abuse of process of law” or “secure the ends of justice”. However, the said terminologies are devoid of any specific definition due to its wide ambit and therefore, the determination as to whether the case falls within the scope of the aforesaid term lies with the Court and must be testified based on the established principles of law. Moreover, under this provision, the Court must exercise its powers sparingly, cautiously and in exigent cases.
The Court can exercise its inherent powers under Section 482 of the Code to quash complaints and criminal proceedings emanating therefrom, if it does not constitute a prima facie offence against the accused and the same was elaborately dealt with by the Hon’ble Supreme Court in the case of INDIAN OIL CORPORATION VERSUS NEPC INDIA LTD & ORS [2006 (7) TMI 575 - SUPREME COURT].
Considering the peculiar factual situation, the demand notice dated 1st September, 2020 issued under Section 138 of the NI Act is within the prescribed time and despite the service of the same on the petitioners, no amount was paid by the petitioners. Therefore, an offence under Section 138 of the NI Act has been made out against the petitioners - Now coming to Section 141 of the NI Act, it is observed that when a company commits an offence under Section 138 of the NI Act, any person who is “in charge of” or “responsible for the conduct of the affairs of the company” shall be held guilty of the offence. However, if it is proved that the said offence is committed without the knowledge, the said person cannot be made liable. Therefore, the burden of proving the same lies on such person claiming such defence.
It is a settled principle of law that under Section 138 of the NI Act, only a drawer of the cheque is liable for the dishonour of the said cheque. In this case, Mr. Harkaran Singh has issued cheque nos. (a), (b), (d), (e) (g), (h) and (i) in his personal capacity and not in the name of the firm and hence, the petitioners, as partners of the accused-firm, cannot be made to share the liability for the dishonour of said cheques. However, Mr. Harkaran Singh has issued cheque nos. (c) and (f) to the complainant as an Authorised Signatory on behalf of the accused-firm. Therefore, the learned Revisional Court has rightly observed that a prima facie case has already been made out under Sections 138/141 of the NI Act against the petitioners only with respect to cheque nos. (c) and (f).
Conclusion - This Court is of the considered view that the learned Revisional Court has not committed any error or illegality in passing the impugned order and therefore, this Court does not find any reason to exercise its inherent powers under Section 482 of the Code to grant the reliefs prayed for.
The impugned order passed by the learned Session Judge, South-East District, Saket Courts, New Delhi in criminal revision petition bearing no. 455/2022 is, hereby, upheld - Petition dismissed.
Issues: (i) Whether interference under Article 227 of the Constitution of India was warranted against the arbitral order refusing to condone delay for want of sufficient cause; (ii) Whether the impugned order disclosed perversity, bad faith, or any exceptional circumstance justifying supervisory interference.
Issue (i): Whether interference under Article 227 of the Constitution of India was warranted against the arbitral order refusing to condone delay for want of sufficient cause.
Analysis: The scope of supervisory interference under Article 227 in arbitral matters is narrow and is to be exercised only in exceptional circumstances. A discretionary finding on whether sufficient cause exists for condonation of delay lies primarily within the arbitral tribunal's domain, and a different possible view by the supervisory court is not by itself a ground for interference.
Conclusion: No interference was warranted on this ground.
Issue (ii): Whether the impugned order disclosed perversity, bad faith, or any exceptional circumstance justifying supervisory interference.
Analysis: The record did not show non-consideration of material evidence, findings contrary to evidence, or conclusions based on impermissible inferences. No circumstance suggesting bad faith or perversity of an extreme nature was found, and the arbitral order did not justify intervention under the restricted supervisory jurisdiction.
Conclusion: The impugned order did not justify interference under Article 227.
Final Conclusion: The petition was not maintainable on merits for supervisory correction and the arbitral tribunal's refusal to condone delay was left undisturbed.
Ratio Decidendi: Interference under Article 227 in arbitral proceedings is confined to exceptional cases of patent perversity, bad faith, or jurisdictional error, and a discretionary finding on sufficient cause for condonation of delay will not be upset merely because another view is possible.
Power of Arbitral Tribunal to recall/review its orders - discretion of Hon’ble Tribunal to condone the delay in filing the SOD and CC - whether “sufficient cause” existed or not for the purpose of condoning delay in filing Statement of Defence? - HELD THAT:- Having seen the order passed by learned Sole Arbitrator, this Court does not find any reason to interfere with the impugned order. The aspect whether the ground shown is “sufficient or not” is primarily in the domain of discretionary jurisdiction and even if this Court was to take a contrary view, the impugned order cannot be set aside while exercising supervisory power under Article 227 of Constitution of India, particularly in context of arbitral proceedings where such interference is, to a very large extent, proscribed.
There is also nothing which may indicate that exercise of such discretion smacks off any bad faith or demonstrates any perversity, much less of extreme nature.
Conclusion - Arbitral Tribunals have the power to recall orders and condone delays upon showing "sufficient cause," and that judicial interference in arbitral processes should be minimal.
Petition dismissed.
TaxTMI 