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ISSUES PRESENTED AND CONSIDERED
1. Whether the writ petition seeking quashing of a provisional attachment notice and de-freezing of a bank account remained maintainable where the bank account had been de-frozen during proceedings.
2. Whether the manner of arrest of an individual associated with the petitioner amounted to interference with the administration of justice and warranted initiation of contempt proceedings against tax officers.
3. Whether unconditional affidavits of apology by public officers, accompanied by explanation of the circumstances of arrest, suffice to justify discharge of a show-cause notice for contempt, and what judicial direction (if any) is appropriate to prevent recurrence.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Maintainability/Mootness of Writ Petition after de-freezing of bank account
Legal framework: Under the constitutional writ jurisdiction (Article 226), courts adjudicate on reliefs such as quashing of administrative orders and mandating restoration of property or rights. A petition may become moot or academic if the relief sought is rendered infructuous by subsequent events.
Precedent Treatment: No specific authorities were relied upon or discussed in the judgment to determine mootness; the Court proceeded on established principle that reliefs which have been complied with or rendered academic need not be pressed.
Interpretation and reasoning: The learned counsel for the petitioner informed the Court that the bank account which formed the subject-matter of the writ petition had already been de-frozen after the petition was filed. The petitioner thereupon did not press the petition. Given that the primary reliefs sought (quashing the attachment notice and de-freezing the account) had been achieved, continuing the petition was unnecessary.
Ratio vs. Obiter: Ratio - reliefs rendered academic by subsequent compliance can lead to non-pressing or dismissal of petition; the Court disposed of the petition on that basis. There is no extended obiter on principles of mootness.
Conclusion: The writ petition was not pressed and was disposed of as the operative reliefs had been rendered academic by the de-freezing of the account.
Issue 2: Alleged interference with administration of justice by the manner of arrest - necessity for contempt proceedings
Legal framework: Courts protect the administration of justice from improper interferences; actions by executive authorities that obstruct or tend to obstruct judicial processes may invite contempt jurisdiction. Arrests made in a manner that contravene legal safeguards or that appear intended to intimidate or obstruct court processes can raise this issue.
Precedent Treatment: The judgment records the Court's prima facie view that the manner of arrest may amount to interference with the administration of justice and could constitute contempt, but does not cite or apply specific precedents to refine the test; the question was addressed by issuing show-cause notice to the responsible officers.
Interpretation and reasoning: Having observed the circumstances of the arrest, the Court initially opined prima facie that the conduct of the tax authorities could amount to interference with administration of justice and therefore might constitute contempt. A show-cause notice was issued to the officers involved to explain why contempt proceedings should not be initiated.
Ratio vs. Obiter: Ratio - judicial scrutiny is warranted where executive action (e.g., arrest) prima facie appears to interfere with administration of justice; issuance of show-cause notice is an appropriate procedural step. No decisive finding of contempt was made; thus any statement that the arrest might amount to contempt remains part of the Court's interlocutory reasoning rather than a final determination.
Conclusion: The Court initiated inquiry by issuing a show-cause notice to the officers involved, indicating that such conduct prima facie merited scrutiny for possible contempt of court.
Issue 3: Effect of unconditional affidavits of apology and explanation - discharge of show-cause notice and appropriate judicial response
Legal framework: Contempt show-cause proceedings permit the alleged contemnor to explain conduct; courts may accept unconditional apologies and explanations where they adequately address the conduct and when continuation of proceedings is unnecessary. Judicial admonition and directions to follow statutory safeguards may be given to prevent recurrence.
Precedent Treatment: The Court did not rely on or distinguish specific precedent authorities in accepting the apologies; instead, it applied established judicial discretion to accept apologies and to give cautionary directions.
Interpretation and reasoning: The officers filed affidavits setting out the factual matrix of their actions and tendered unconditional apologies. They explained that the arrested individual was a director of a company alleged to have fraudulently availed input tax credit, and the arrest was made on that basis rather than to target the petitioner HUF. On consideration of these affidavits and the apologies, the Court accepted the explanations, concluded that continuation of contempt proceedings was unnecessary, and discharged the show-cause notice.
Ratio vs. Obiter: Ratio - where public officers tender unqualified apologies and provide sufficient explanation of their actions, the court may, in its discretion, accept the apology and discharge contempt show-cause notices, while issuing cautionary directions. Obiter - general admonitions about following the letter of the law in future are cautionary guidance rather than binding legal pronouncements.
Conclusion: The unconditional apologies and explanations were accepted; the show-cause notice was discharged. The Court cautioned the officers to exercise care and adhere to statutory requirements and proper procedure before effecting arrests in future.
Ancillary Points and Directions
1. The Court recorded that the arrest related to alleged fraudulent availment of input tax credit by a company of which the arrested person was a director, and not to actions against the petitioner HUF; this factual distinction informed acceptance of the officers' explanations.
2. The Court issued a cautionary direction to the officers to ensure compliance with the letter of the law and due procedures before issuing arrest memos or effecting arrests, emphasizing protection of administration of justice.
3. Procedural note: The petition was disposed of and no order as to costs was made; the order was to be digitally signed and acted upon accordingly.
Quashing of notice - provisional attachment and de-freezing of bank account - contempt of court - acceptance of apology and discharge of show cause notice - interference with the administration of justice - requirement to follow the letter of the law before effecting arrests
Quashing of notice - provisional attachment and de-freezing of bank account - Writ petition seeking quashing of Notice in Form GST DRC-22 and de-freezing of the petitioner's bank account - HELD THAT: - The petitioners sought quashing of the impugned notice and restoration of access to a frozen bank account. After the petition was filed, the petitioner's bank account with HDFC Bank, Null Bazar Branch was de-frozen. Counsel for the petitioner therefore did not press the petition. The Court recorded that the primary reliefs sought had worked themselves out and noted the non-pressing of the petition. In view of that position the petition was not pursued on merits and was disposed of accordingly. [Paras 2, 6]
Writ petition not pressed as the reliefs sought had been rendered academic by the de-freezing of the bank account; petition disposed of.
Contempt of court - acceptance of apology and discharge of show cause notice - interference with the administration of justice - requirement to follow the letter of the law before effecting arrests - Show cause notice issued to tax officers for alleged contempt in connection with the arrest of the Karta of the petitioner HUF - HELD THAT: - The Court noted that the manner of arrest of the Karta was prima facie such as to amount to interference with the administration of justice, and had issued show cause notices to the officers concerned. Both officers filed affidavits in which they set out the circumstances of the arrest and tendered unconditional apologies to the Court. The affidavits explained that the arrest related to the individual's role as a director of a separate company in relation to alleged fraudulent input tax credit and not to action against the HUF. Having considered the affidavits and the apologies, the Court accepted the apologies, discharged the show cause notices and cautioned the officers to adhere to legal requirements before making arrests in future. [Paras 3, 4, 5]
Show cause notices discharged on acceptance of unconditional apologies; officers cautioned to follow the law before effecting arrests.
Final Conclusion: The writ petition was disposed of as the bank account had been de-frozen and the petitioner did not press the petition; the Court accepted the officers' unconditional apologies regarding the arrest, discharged the show cause notices issued for contempt and cautioned the officers to follow the law in future.
Issues: Whether proceedings under Section 130 of the Uttar Pradesh Goods and Services Tax Act, 2017 could be sustained on the basis of excess stock found during survey, and whether such cases had to be dealt with under the assessment provisions relating to tax determination.
Analysis: The survey at the business premises led to an allegation of excess stock. The settled view applied by the Court was that where excess stock is found, tax liability and quantification are to be determined under the scheme of Sections 73 and 74 of the Uttar Pradesh Goods and Services Tax Act, 2017, and not by invoking Section 130 for assessment and penalty. Section 35(6) also contemplates determination of tax on unaccounted goods in accordance with the process under Sections 73 and 74. The Court followed its earlier decisions to hold that mere excess stock, without more, does not justify resort to Section 130.
Conclusion: The invocation of Section 130 was held unsustainable, and the impugned orders were quashed.
Permissibility of proceedings under Section 130 of the UPGST Act against a registered dealer when excess stock is found during a survey - HELD THAT:- This Court on the various occasions has held that if the excess stock is found, the proceedings under Section 73 or 74 of the UPGST Act will come into play rather than under Section 130 of the UPGST Act read with Rule 122 of the UPGST Rule, 2017.
This Court in the case of S/S Dinesh Kumar Pradeep Kumar [2024 (8) TMI 71 - ALLAHABAD HIGH COURT] has held 'even if excess stock is found, the proceedings under section 130 of the UPGST Act cannot be initiated.'
Conclusion - The proceedings under Section 130 are not applicable for cases of excess stock found during a survey and that proper tax determination procedures must be followed.
The impugned orders cannot be sustained in the eyes of law and the same are hereby quashed - Petition allowed.
Issues: Whether a show cause-cum-demand notice under Section 74 of the Central Goods and Services Tax Act, 2017 could be issued for a period covering multiple financial years in one notice, and whether the writ petition challenging such notice should be entertained.
Analysis: The petition challenged the notice on the ground that separate notices ought to have been issued for each financial year. The Court noted, prima facie, that nothing in Section 74, including sub-section (1), prohibited issuance of a notice for any period, provided the notice was issued within the time framework under sub-section (10). The Court also noted that limitation under Section 74(10) was not in issue. In these circumstances, the Court was not persuaded to entertain the writ petition at the stage of challenge to the show cause notice, leaving the petitioner to raise all available contentions before the authority.
Outcome: The writ petition was disposed of without interference with the impugned show cause-cum-demand notice.
Issuance of one SCN for multiple years - petitioner argued that separate notices should have been issued for each financial year within this period - wrongful availment of ITC - HELD THAT:- There is nothing in Section 74 and more particularly 74 (1) which would prohibit the Authority from issuing a notice calling upon the assessee to pay tax that has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised, by reason of fraud, or any wilful misstatement or suppression of facts to evade tax. At least prima facie, a notice under Section 74 (1) can be issued for any period provided said notice is given at least 6 months prior to the time limit specified in sub-section (10) of Section 74 for issuance of the order.
In the present case, admittedly there is no issue of limitation as contemplated under Section 74(10). In these circumstances, at least prima facie we are not satisfied that this Writ Petition ought to be entertained and which is challenging the show cause notice. The Petitioner will have to face the show cause notice and can canvass all arguments before the authority concerned, including the issues raised in the present Writ Petition.
Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Compliance with Section 169 of the Tamil Nadu Goods and Services Tax Act, 2017
Issue 2: Validity of Service through the Portal as a Sufficient Mode of Notice
3. SIGNIFICANT HOLDINGS
In conclusion, the court emphasized the importance of adhering to the principles of natural justice and ensuring that assessees are adequately informed through effective service of notices. The judgment underscores the necessity of using alternative modes of service when portal notification alone is insufficient, thereby reinforcing the statutory requirements of Section 169 of the Tamil Nadu Goods and Services Tax Act, 2017.
Service of notice - compliance of Section 169 of the Tamil Nadu Goods and Services Tax Act 2017 or not - It is the contentions of the petitioners that the respondents in each of the cases had uploaded only the notices/ orders in the web portal and not by any other modes as prescribed under Section 169 of the Act - HELD THAT:- Having perused section 31 of the TNGST Act and rule 52 (1) of the Rules made thereunder, it is not inclined to accede to the submissions of the learned counsel for the petitioner that only after resorting to the service of notice in person, service through registered post was permissible. A reading of rule 52 (1), makes it clear that the set of expressions in the first part of rule 52 (1), viz., "may be effected in any of the following ways" makes it amply clear that the service of notice on a dealer can be resorted to by any one of the modes specified in rule 52 (1) (a), (b), (c). Only sub-rule 52 (1) (d) specifies that if none of the modes provided under rule 52 (1)(a), (b), (c) is practicable, the alternative mode of affixing notice in some conspicuous place at the last known business or residence can be resorted to. As far as the modes of service specified in rule 52 (1) (a), (b), (c) are concerned, it is for the authorities concerned to resort to anyone of the modes specified therein.
Coming to Section 169 (1), it is to be noted that a learned Single Judge of this Court in a judgment in the case of Pandidorai Sethupathi Raja Vs Superintendent of Central Tax, Chennai [2022 (12) TMI 1028 - MADRAS HIGH COURT] had held that it is the obligation of the assessee to visit the portal and therefore, posting of summons and orders through portal is a sufficient compliance of notice on the assessee and therefore, there is no necessity for any alert. The learned single Judge had also compared the explanation of (r) to (u) of Section 144B of the Income Tax Act which had mandated an alert either to the registered e-mail ID of the assessee or by way of SMS to the registered mobile number of the assessee.
Conclusion - Section 169 mandates a notice in person or by registered post or to the registered e-mail ID alternatively and on a failure or impracticability of adopting any of the aforesaid modes, then the State can, in addition, make a publication of such notices/ summons/ orders in the portal/ newspaper through the concerned officials. The orders of assessment impugned in these Writ Petitions are set aside.
Petition allowed.
Issues: Whether the assignment and sale of long-term leasehold rights in GIDC-allotted land, together with the building constructed thereon, constitutes a taxable supply of services under the GST Act; and whether GST and consequential input tax credit consequences can be sustained on such transaction.
Analysis: The charging scheme of the GST Act proceeds on the concept of "supply", and Schedule II treats renting of immovable property as a supply of services, while Schedule III excludes sale of land and sale of building from the scope of supply. The Court held that the initial grant of long-term lease by GIDC is a supply of service, but the subsequent assignment by the lessee is materially different: the assignor parts with the whole of its leasehold interest and all incidental rights in the land and building, leaving no continuing right akin to a lease or sub-lease. Reading the GST provisions harmoniously with the Transfer of Property Act, the Registration Act and the General Clauses Act, the Court held that leasehold rights in the present context are a bundle of rights and amount to immovable property or benefits arising out of land. The Court also relied on the legislative setting of GST, the exclusion in Schedule III, and the principle that taxing provisions must be construed strictly; a transaction that is in substance an outright transfer of immovable-property interests cannot be expanded into a supply of services by interpretation. The exemption for GIDC's own long-term leasing activity did not alter the character of the later assignment by private lessees.
Conclusion: The assignment of leasehold rights by the lessee to a third-party assignee is not a taxable supply of services under section 7(1)(a) of the GST Act read with Schedule II and Schedule III, and GST is not leviable on such transaction.
Final Conclusion: The impugned show-cause notices and consequential orders were set aside, and the petitions were allowed.
Ratio Decidendi: An outright assignment of the whole leasehold interest in immovable property is to be treated as transfer of immovable property and not as a supply of services under the GST Act; Schedule II cannot be used to tax such a transfer where the transaction, in substance, falls within the exclusionary ambit of Schedule III.
Levy of goods and service tax - assignment of leasehold rights of the plot of land allotted on lease by Gujarat Industrial Development Corporation (GIDC) and building constructed thereon by the lessee or its successor (assignor) to a third party (assignee) on payment of lump-sum consideration considering the same as supply of service under the provisions of Central/State Goods and Service Tax Act, 2017 - whether the transfer/assignment of leasehold rights is a transaction of sale pertaining to immovable property or is supply of goods or supply of services in the course or furtherance of business so as to levy GST as per section 9 (1) of the GST Act at the rate which may be notified by the Government on recommendations of the GST Council?
HELD THAT:- Sub-clause(a) of section 14 of the GIDC Act empowers the GIDC to acquire and hold such property, both movable and immovable as may be necessary for the performance of any of its activities and to lease, sell, exchange or otherwise transfer any property held by it on such conditions as may be deemed proper by the Corporation. In exercise of such powers, GIDC enters into lease agreement of 99 years for allotment of land for industrial purpose in the industrial estate developed by it - The ownership of the plot of land allotted by GIDC remains with it and only the right of possession and occupation are transferred by way of leasehold rights in favour of allottee-lessee.
Even if the assignment of leasehold rights on the land on charge of one time upfront amount by the GIDC for allotment of plot of land to the industrial unit is covered within the scope of “supply of services” as per clause 5(a) of the Schedule II read with section 7 (1) of the GST Act, charging of one time upfront amount as premium by the GIDC would attract Nil rate of tax as per the aforesaid notification. Therefore, when the industrial unit is allotted land by the GIDC, no GST is required to be paid under the provisions of GST Act as per entry no. 41 of Notification No. 12/2017.
It is pertinent to note that what the petitioner has transferred by way of assignment/sale is leasehold rights which is over and above the actual physical plot of land and building, encompasses incorporeal ownership right in such land and building such as the right to possess, to enjoy the income from, to alienate, or to recover ownership of such right from one who has improperly obtained the title. Therefore, immovable property includes in addition to right of ownership, aggregate of rights that are guaranteed and protected by the further agreement or contract between the owner and the lessee.
The place of supply of service may be at the location of the immovable property, however when the lessee-assignor transfers absolute right by way of sale of leasehold rights in favour of the assignee, the same shall be transfer of “immovable property” as leasehold rights is nothing but benefits arising out of immovable property which according to the definition contained in other statutes would be “immovable property”. Therefore, the question of supply of services or place of supply of services does not arise in view of the above analysis of the provisions of the GST Act as the term “immovable property” is not defined under the GST Act - it is clear that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words and entire matter is governed only by the language of the provision.
In view of the legislative intention, section 7 of the GST Act which provides for the scope of supply of good or services or both for the purpose of the GST Act includes all forms of supply of goods or services or both by any form such as transfer, sale, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Therefore, considering the settled legal position as held by the Hon’ble Supreme Court and other High Courts from time to time, it is true that any lease or letting out of a building including commercial, industrial, residential complex for business either wholly or partly would be “supply of service”. Therefore, reading the provisions of the Act together and harmoniously to understand the nature of levy and the object and purpose of its imposition, no activity of the nature mentioned in the inclusive provision of section 7 of the GST Act can be left out of the net of tax - when the GIDC allots the plot of land on lease of 99 years and charges premium for such allotment followed by periodical lease rent to be paid, is to be considered as supply of service in relation to land and building read with clause 5(a) of Schedule-II which specifically provides that renting of immovable property shall be treated as supply of services.
Thus, the scope of “supply of services” would not include transfer of leasehold rights as supply of service as it would be transfer of “immovable property” being a benefit arising out of immovable property consisting of land and building.
GIDC had only allotted the plot of land to the lessee who constructed the building and developed the land to run the business or industry for which such plot of land was allotted. Therefore, what is assigned by the lessee/assignor to the assignee for a consideration is not only the land allotted by GIDC on lease but the entire land along with building thereon which was constructed on such land. The entire land and building is therefore, transferred along with leasehold rights and interest in land which is a capital asset in form of an immovable property and the lessee/assignor earned benefits out of land by way of constructing and operating factory building/shed which constitutes a “profit a pendre” which is also an immovable property and therefore, would not be subject to tax under the GST Act.
Conclusion - Assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/ transfer of benefits arising out of “immovable property” by the lessee-assignor in favour of third party-assignee who would become lessee of GIDC in place of original allottee-lessee. In such circumstances, provisions of section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable to such transaction of assignment of leasehold rights of land and building and same would not be subject to levy of GST as provided under section 9 of the GST Act.
The impugned show cause notices and orders in original or appeal as the case may be, are hereby quashed and set aside - petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The judgment addresses the following core legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Authorization of the State Tax Officer
Issue 2: Invoking Writ Jurisdiction
Issue 3: Validity of Delegation by the Commissioner
3. SIGNIFICANT HOLDINGS
The judgment emphasizes adherence to statutory remedies and the proper delegation of authority within the framework of the Tamil Nadu Goods and Services Tax Act, 2017. It also highlights the limits of writ jurisdiction in the context of tax disputes. The appellant was granted an additional eight weeks to file appeals without reference to the question of limitation, allowing the appellate authority to address the merits of the case, including the validity of the authorization.
Refusal to entertain the writ petitions, in view of the alternative remedy that is available under Section 107 of the Tamil Nadu Goods and Services Tax Act, 2017 - challenge to order of the State Tax Officer, Divisional Central Investigating Wing – 2 by which the Officer passed an order under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017 determining the tax payable by the appellant - proper officer to pass the order - HELD THAT:- Section 74 enables the Proper Officer to issue show cause notice to an assessee, if it appears to him or her, that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful misstatement or any like reason to issue a show cause notice as to why he should not be directed to pay the amount along with interest and penalty and Section 74(9) enables the Proper Officer to determine the amount of tax payable and issue an order.
The remedy under Article 226 of the Constitution of India is available to every citizen and no legislation can put fetters on exercise of power by the High Court under Article 226 of the Constitution of India - The condition requiring deposit of the entire tax payable may appear to be onerous, but, the enactment involved is taxing statute and therefore we cannot go by the onerousness or otherwise of the condition imposed. Once it is found that there is effective alternative remedy, as the matter of self-imposed restriction and judicial discipline, the High Court will have to necessarily direct the parties to invoke such alternative remedy instead of the constitutional remedy.
Conclusion - The writ Court was justified in refusing to exercise jurisdiction and directing the appellant to avail of the statutory remedy by way of appeal under Section 107 of the Act.
Appeal dismissed.
Issues: Whether the impugned order was liable to be set aside for travelling beyond the scope of the show cause notice and for violation of natural justice.
Analysis: The impugned order introduced issues relating to alleged suppression based on the difference between the profit and loss account and the returns, and also non-filing of annual return in GSTR 9 and GSTR 9C, although these matters were not covered by the show cause notice. The petitioner therefore had no opportunity to meet those allegations. The respondent also indicated that the petitioner could be permitted to treat the impugned order as a show cause notice and submit objections, followed by a fresh decision after hearing.
Conclusion: The impugned order was set aside for having gone beyond the show cause notice and for denial of a proper opportunity to respond.
Traversing beyond the show cause notice - violation of principles of natural justice - show cause notice - opportunity to be heard - remand for fresh consideration
Traversing beyond the show cause notice - violation of principles of natural justice - Impugned order set aside because it dealt with matters not raised in the show cause notice and, thereby, violated principles of natural justice. - HELD THAT: - The Court found that the show cause notice (Form DRC 01) related to alleged claim of Input Tax Credit on account of carrying on a Residential Real Estate Project, but the impugned order additionally treated the difference between Profit & Loss account and declared outward supplies as suppression and proceeded on non-filing of annual returns GSTR9 and GSTR9C. Those two matters were not the subjectmatter of the show cause notice and the petitioner did not have an opportunity to respond on them. In these circumstances the order traversed beyond the issues raised in the notice and thereby infringed the petitioner's right to be heard. [Paras 3, 4]
Impugned order set aside on ground of breach of natural justice for dealing with issues beyond the show cause notice.
Show cause notice - opportunity to be heard - remand for fresh consideration - Remedial direction to treat the impugned order as a show cause notice and afford the petitioner an opportunity to file objections and be heard, with fresh consideration by the respondent. - HELD THAT: - Instead of pronouncing final adjudication on matters not previously notified, the Court directed that the impugned order be treated as a show cause notice. The petitioner was ordered to file objections within four weeks from receipt of a copy of the order. On receipt of objections the respondent is required to consider them and pass a fresh order after affording a reasonable opportunity of hearing. This remand preserves the right of the parties to contest the additions/ findings (including the alleged suppression and nonfiling of GSTR9/GSTR9C) on merits after proper notice and hearing. [Paras 6]
Matter remanded: petitioner to file objections within four weeks; respondent to consider objections and pass orders after affording a reasonable opportunity of hearing.
Final Conclusion: Writ petition disposed by setting aside the impugned order for having traversed beyond the show cause notice; the order is to be treated as a show cause notice, the petitioner permitted to file objections within four weeks, and the respondent directed to decide afresh after granting a hearing.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Indian Currency as "Goods"
Issue 2: Legality of the Seizure of Indian Currency
Issue 3: Interpretation of "Things" in Section 67
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of adhering to statutory definitions and the intended scope of legislative provisions, particularly in the context of tax enforcement powers.
Seizure under Section 67 of the CGST Act - definition of 'goods' as excluding money and securities - reading 'things' ejusdem generis with 'documents' and 'books' - purposive and contextual interpretation of seizure powers - return of seized items where not relied upon in proceedings - confiscation under Section 130 limited to goods and conveyances
Definition of 'goods' as excluding money and securities - seizure under Section 67 of the CGST Act - Validity of seizure of Indian currency under powers conferred by Section 67 of the CGST Act - HELD THAT: - The Court held that cash (Indian currency) falls within the statutory meaning of money and is explicitly excluded from the definition of goods. Section 67 is designed to permit seizure of goods, documents, books or things that are useful for or relevant to proceedings under the Act to unearth tax evasion; it is not a machinery provision for recovery of tax or for seizing unaccounted wealth. Consequently, seizure of currency simply because it represents unaccounted wealth cannot be sustained under Section 67. The Court applied the purposive and contextual approach to read the statutory scheme, relying on the distinction between seizure powers under Section 67 and recovery/ confiscation mechanisms elsewhere in the Act. [Paras 6]
Seizure of Indian currency under Section 67 was not sustainable.
Reading 'things' ejusdem generis with 'documents' and 'books' - purposive and contextual interpretation of seizure powers - return of seized items where not relied upon in proceedings - Scope of the term 'things' in Section 67(2) and the obligation to return seized material not relied upon - HELD THAT: - The Court decided that the word 'things' in Section 67(2) must be construed ejusdem generis with 'documents' and 'books', limited to items that contain information useful or relevant to proceedings under the Act (e.g., electronic devices storing records). The power to seize is circumscribed by the condition that the material be useful for proceedings; seizure cannot be read expansively to include valuable assets which do not yield evidentiary material. Further, where seized documents, books or things are not relied upon for issuance of notice, Section 67(3) mandates return within the prescribed period. Even assuming arguendo the power to seize currency, such items must be returned if not relied upon in subsequent proceedings. [Paras 4]
The term 'things' is limited to items yielding information relevant to proceedings and non-relied-upon seized items must be returned.
Confiscation under Section 130 limited to goods and conveyances - seizure under Section 67 of the CGST Act - Whether confiscation machinery in Section 130 permits seizure of currency under Section 67 - HELD THAT: - The Court contrasted Section 67 (search and seizure to aid proceedings) with Sections 79/83 and the specific confiscation regime in Section 130, observing that confiscation applies to goods or conveyances that are the subject-matter of contraventions set out in Section 130(1). The statutory scheme therefore does not empower seizure of money under Section 67 as a step towards confiscation; confiscation and its safeguards apply only to goods/conveyances as enumerated in Section 130. [Paras 8]
Section 130's confiscation scheme does not justify seizure of currency under Section 67.
Return of seized items where not relied upon in proceedings - seizure under Section 67 of the CGST Act - Relief to the petitioner in respect of the specific seized currency - HELD THAT: - Applying the legal principles above and following the precedent of the Division Bench in Deepak Khandelwal and the decision in Rahul Tayal, the Court concluded that the seizure of the petitioner's cash was unlawful. The respondents were directed to release the seized currency to the petitioner with applicable interest, without prejudice to the respondents' right to initiate or continue other proceedings in accordance with law. [Paras 9]
Seized sum to be released to the petitioner with applicable interest.
Final Conclusion: The writ petition is allowed: seizure of the petitioner's Indian currency under Section 67 was held unlawful as currency is excluded from 'goods' and seizure powers are limited to material useful for proceedings; the respondents are directed to return and release the seized sum with applicable interest, subject to their liberty to pursue other lawful proceedings.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue: Eligibility to Claim ITC on GST Paid for Surrender of Leasehold Rights
Relevant legal framework and precedents:
Court's interpretation and reasoning:
Key evidence and findings:
Application of law to facts:
Treatment of competing arguments:
Conclusions:
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
Core principles established:
Final determinations on each issue:
Input Tax Credit (ITC) of the GST paid on services provided by GACL in the form of agreeing to surrender/relinquish its right on leasehold property in favor of the appellant - HELD THAT:- The Hon’ble Supreme Court in the case of M/s. Safari Retreats P Ltd [2024 (10) TMI 286 - SUPREME COURT] while analyzing the expression plant or machinery, held that there could be a plant that is an immovable property; that the word ‘plant’ not having been defined under the Act, its ordinary meaning in commercial terms will have to be attached to it. The Hon’ble Court, thereafter laid down a functionality test, further concluding that if a building qualifies to be a plant, ITC can be availed against the supply of services in the form of renting or leasing the building or premises, provided the other terms and conditions of the CGST Act and Rules framed thereunder are fulfilled; that however, if the construction of a building by the recipient of service is for his own use, the chain will break, and ITC would not be available.
The appellant has not denied the fact that construction activity has not been done on the leasehold land acquired from GACL. Though the averment is that the chartered engineers certificate states that 99.85% of the land would be utilized for construction of plant and machinery; that plant building will be constructed on a part of leaseholding premises and the unconstructed area will be used for auxiliary services.
Conclusion - The GST paid on the surrender of leasehold rights is ineligible for ITC.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Penalty under Section 234E for Late Filing of TDS Form 26QB
Issue 2: Consideration of Evidence for Agricultural Land
Issue 3: Voluntary TDS Deduction and Penalty Implication
3. SIGNIFICANT HOLDINGS
Penalty u/s 234E - late fling of TDS form No, 26QB - As argued assessee deducted TDS voluntarily and property was agriculture land - HELD THAT:- In the assessee’s case the purchase consideration paid individually by him is more than 50 lakh, the total stamp duty valuation of the property is more than 50 lacs.
CIT(A) held that the assessee cannot claim exemption under sub-section 2 of Section 194IA of the Income Tax Act, 1961. Besides this the CIT(A) further held that the plea of the assessee that the said land is agricultural land has not been established through documents by the assessee before the CIT(A).
But the fact remains that the assessee deducted the TDS at the time of paying consideration and not deposited the TDS within the statutory time which denied the credit to deductor for his tax purpose.
In the present assessee’s case the TDS was deposited belated as well as Form 26QB. The purpose of depositing the TDS within the stipulated/statutory time is to allow the credit to the other party i.e. deductee, once it is deducted by the deductor. But in the present case the deductee could not avail the same. Thus, CPC-TDS has rightly imposed the penalty u/s. 234E of the Act. The appeal of the assessee is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions addressed in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Creditworthiness of Investing Companies
Issue 2: Location of M/s. Lupin Commodities Pvt. Ltd.
Issue 3: Source of Source
Issue 4: Applicability of CIT vs. Globus Securities & Finance Pvt. Ltd.
3. SIGNIFICANT HOLDINGS
Addition u/s 68 - unexplained credits - Assessee has routed its unaccounted money in the guise of share application and share premium - CIT(A) deleted the addition - D.R. submitted that the assessee has not been able to explain the source of source of share capital contribution received by the assessee company during the year under consideration - HELD THAT:- We hold that assessee has explained the identity, creditworthiness and genuineness of transaction of share capital contribution in terms of provisions of section 68 of the Act.
CIT(A) has correctly deleted the addition in the case of assessee under section 68 of the Act and does not call for any interference. Share capital contribution is not unexplained credit considering facts and evidence on record. In view of above, we find no merits in the appeal filed by the Revenue. Accordingly, the grounds of appeal raised by the Revenue are dismissed.
1. ISSUES PRESENTED and CONSIDERED
The judgment primarily revolves around two core legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of Addition under Section 68
Issue 2: Validity of Reopening under Section 147
3. SIGNIFICANT HOLDINGS
Addition u/s 68 - share capital raised during the year - money raised by the assessee was not explained as the assessee failed to establish the identity, creditworthiness of the subscribers and genuineness of the transactions - CIT(A) deleted addition - HELD THAT:- CIT (A) noted that these transactions were routed through banking channel and all the evidences were placed before the ld. AO qua these subscribers. CIT (A) has noted that the assessee has filed all the evidences and the AO has not pointed out any defect or deficiency in these documents on record in the assessment proceedings as well as during remand proceedings.
In the case of Dataware Private Limited [2011 (9) TMI 175 - CALCUTTA HIGH COURT] has held that where the assessee has given PAN No. and other information along with name of creditors, the ld. AO should enquire from the AO of the creditors about the creditworthiness, genuineness of the transactions and whether such transaction has been accepted by the AO in the case of the Creditors but instead of adopting such course, the AO himself could not brand the creditors as unworthy of credence - so long as it is not established that that return submitted by the creditor/subscriber has been rejected by its AO, the AO of the assessee is bound to accept the same as genuine when the identity of creditor and genuineness of the transactions through account payee cheque has been established.
Similarly, in the case of PCIT Vs. Naina Distributors Pvt. Ltd. [2023 (6) TMI 1362 - CALCUTTA HIGH COURT] has decided the issue in favour of the assessee by holding that mere non-production of director cannot be the ground for making any addition in the hands of assessee u/s 68 of the Act.
Reopening based on borrowed satisfaction - We find that the ld. AO in the reason recorded referred to the search material found during the course of search and also post search enquiries that the assessee was a beneficiary of bogus share capital. We note that that the ld. AO has not made any enquiry and just reached a conclusion that income has escaped assessment and thus reopened the assessment based on the post search enquiries. Therefore, this is the case of borrowed satisfaction by the ld. Assessing Officer. See Meenakshi Overseas (P.) Ltd. [2017 (5) TMI 1428 - DELHI HIGH COURT] wherein it has been held that no reopening could be made on borrowed satisfaction.
Assessee appeal allowed.
Condonation of delay in filing of revised return of income - CBDT rejecting petitioner’s application u/s 119 - delay in filing the returns of Income based on the recasted accounts - Resignation by the statutory auditors happened before completing their term and reference made to unauthorised and undisclosed transactions -HC [2024 (5) TMI 502 - BOMBAY HIGH COURT] decided when the order u/s 130 (2) of the Companies Act has been passed by the NCLT to recast the accounts on an application filed by the MCA, Government of India and the accounts have been recasted and accepted by the NCLT and also filed with the RoC under the Ministry of Corporate affairs, how could the Income Tax Department raise such frivolous objections that the delay in filing the returns of Income based on the recasted accounts should not be even condoned.
Also Petitioner shall file physical returns of income based on books of account, revised/recasted under Section 130 (2) of the Companies Act, 2013, as taken on record by the NCLT for A.Y. 2015-16 to A.Y. 2020-21 before the JAO within 30 days from the date this order is uploaded.
HELD THAT:- Having heard the learned Senior counsel appearing for the petitioners and having gone through the materials on record, we see no reason to interfere with the impugned order passed by the High Court.
Special Leave Petition is, accordingly, dismissed.
1. ISSUES PRESENTED and CONSIDERED
The primary legal issue in this case was whether the issuance of a notice under Section 148A(b) of the Income Tax Act, 1961, to a deceased assessee was valid and whether subsequent proceedings based on such a notice were sustainable in law. Additionally, the applicability of Section 159 of the Income Tax Act concerning proceedings against legal representatives of a deceased assessee was also considered.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Notice Issued to a Deceased Assessee
Relevant Legal Framework and Precedents: The legal framework involved Section 148A(b) and Section 148 of the Income Tax Act, which pertain to the issuance of notices for reassessment of income. The court referred to precedents such as Savita Kapila v. Assistant Commissioner of Income Tax and Dharamraj v. Income Tax Officer to establish the principles governing the issuance of notices to deceased individuals.
Court's Interpretation and Reasoning: The court held that the issuance of a notice under Section 148A(b) to a deceased person was inherently flawed. It emphasized that the jurisdictional requirement under Section 148 necessitates that the notice be served to a "correct person" and not to a deceased individual. The court reiterated that such a notice is void ab initio and cannot confer jurisdiction for reassessment.
Key Evidence and Findings: The petitioner, as the legal heir, informed the tax authorities of the assessee's death, providing a death certificate. Despite this, the authorities proceeded with issuing the notice, which was deemed invalid by the court.
Application of Law to Facts: The court applied the principles from the cited precedents, concluding that the notice issued to the deceased was without jurisdiction and, therefore, invalid. The court emphasized that the legal requirement was not merely procedural but a condition precedent for valid jurisdiction.
Treatment of Competing Arguments: The respondent argued that Section 159 of the Act allowed proceedings against the legal representative. However, the court clarified that Section 159 applies when proceedings are initiated during the lifetime of the assessee, which was not the case here.
Conclusions: The court concluded that the notice issued under Section 148A(b) was invalid, and all subsequent proceedings based on it were unsustainable.
Issue 2: Applicability of Section 159 of the Income Tax Act
Relevant Legal Framework and Precedents: Section 159 of the Income Tax Act deals with the liability of legal representatives for the income tax obligations of a deceased person. The court examined whether this section could cure the defect of issuing a notice to a deceased person.
Court's Interpretation and Reasoning: The court interpreted that Section 159 is applicable only when proceedings are initiated against an assessee during their lifetime and continued against the legal representative after their death. Since no such proceedings were initiated against the deceased assessee in this case, Section 159 was deemed inapplicable.
Key Evidence and Findings: The court found no evidence of proceedings initiated against the deceased during his lifetime. The notice was issued posthumously, which did not satisfy the requirements of Section 159.
Application of Law to Facts: The court applied the legal principles and found that the issuance of the notice to the deceased could not be rectified by Section 159, as the section was not applicable to the factual scenario.
Treatment of Competing Arguments: The respondent's reliance on Section 159 was dismissed by the court, which maintained that the section did not apply to notices issued after the death of the assessee.
Conclusions: The court concluded that Section 159 could not be invoked to validate the notice, and the proceedings were quashed.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning: The court emphasized, "The sine qua non for acquiring jurisdiction to reopen an assessment is that notice under section 148 should be issued to a correct person and not to a dead person."
Core Principles Established: The court established that notices for reassessment must be issued to the correct person, and any notice issued to a deceased person is void ab initio. Furthermore, Section 159 does not apply to posthumous notices.
Final Determinations on Each Issue: The court quashed the notice under Section 148A(b) and all consequential proceedings. It held that the notice was issued without jurisdiction and could not be sustained in law.
In conclusion, the court allowed the writ petition, quashing the impugned notice and all subsequent proceedings, thereby upholding the legal principles regarding jurisdictional requirements for issuing reassessment notices under the Income Tax Act.
Reopening of assessment against dead person/ assessee - respondent directed the deceased assessee to reassess his income and further deemed financial transactions as his taxable income - applicability of Section 159 of the Income Tax Act concerning proceedings against legal representatives of a deceased assessee - HELD THAT:- Issuance of a notice under section 148 of the Act is the foundation for reopening of an assessment. Consequently, the sine qua non for acquiring jurisdiction to reopen an assessment is that such notice should be issued in the name of the correct person. This requirement of issuing notice to a correct person and not to a dead person is not merely a procedural requirement but is a condition precedent to the impugned notice being valid in law. See Sumit Balkrishna Gupta [2019 (2) TMI 1209 - BOMBAY HIGH COURT]
As no notice was issued to the legal heir of the deceased under Section 159(2)(b) of the Act, despite the respondent being informed of the death. Section 159 of the Act is applicable when proceedings are initiated and pending against an assessee during their lifetime, and the legal representative assumes responsibility after the assessee's death. This was not the factual scenario in the present case; therefore, Section 159 of the Act is not applicable here.
We may also refer to decision of this Court in Dharamraj [2022 (1) TMI 844 - DELHI HIGH COURT] wherein also the assessee had died much prior to the issuance of the notice under Section 148 of the Act, and the issuance of such a notice was held to be unsustainable in law, inter-alia holding that even section 292Bof the Act does not apply in such a situation.
This writ petition is allowed, and resultantly, the impugned notice u/s 148A(b) is quashed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Calculation of the Amount Payable under the DTVSV Act
Issue 2: Consideration of Additional Grounds for Disputed Tax
3. SIGNIFICANT HOLDINGS
The judgment provides clarity on the application of the DTVSV Act, emphasizing the importance of timely filing and accurate classification of cases for determining the amount payable under the scheme.
Determining the disputed tax under the Direct Tax Vivad Se Vishwas Act - calculation is based on the premise that a search was executed in some other taxpayer’s case and that this was not a case of voluntary disclosure by the Petitioner or that this was not a “non-search” case - as submitted that the calculation should have been based on the rate of 100% of the disputed tax, not 125% - addition towards the claim of LTCG u/s 68 - HELD THAT:- There is no material on record to show that the Petitioner retracted from the concession given regarding the addition u/s 68 either by raising an additional ground or otherwise in such an appeal. Only after the DTVSV Act came into force, or rather, only after the CBDT issued its Circular dated 04 December 2020, was an attempt made by the Petitioner to belatedly amend the Appeal Memo and challenge the addition.
While giving the Petitioner benefits of the DTVSV Scheme, the Respondents correctly refused to consider this belated attempt to amend the Appeal Memo, claiming that even Rs. 2,02,50,919/- constituted a “disputed tax”. Such approbation and reprobation were quite correctly not appreciated by the Respondents. The Respondents' approach is consistent with the DTVSV Act and the CBDT circular dated 04 December 2020.
DTVSV Act aims to settle tax disputes pending in Courts and other adjudicatory authorities as of the specified date. The petitioner attempted to post facto and belatedly expand the scope of the dispute to include amounts that the Petitioner had explicitly conceded as liable to additions. The Petitioner never appealed such additions and restricted its appeal only to the addition of Rs. 9,11,037/- under Section 69C of the Income Tax Act. The Petitioner also paid the tax on the added amount of Rs. 2,02,50,919/- towards LTCG. By such a belated expansion of the disputes, the object of the DTVSV Act or the amnesty schemes cannot be frustrated.
The remedies under Articles 226 and 227 of the Constitution are discretionary and equitable. Such jurisdiction must be exercised to promote justice. Here is the Petitioner, who conceded and acknowledged the addition of Rs. 2,02,50,919/- towards LTCG, which was incorrectly claimed. It paid tax on this amount without any serious demur. Naturally, therefore, the Assessment Order dated 26 December 2016, which made the addition based upon such concession/acknowledgement, could not have been ordinarily appealed by the Petitioner.
Petitioner, therefore, did not appeal this addition in the Memo of Appeal lodged on 27 January 2017. By attempting to amend the appeal memo belatedly and after the specified date, this amount of Rs. 2,02,50,919/- towards LTCG cannot be considered the disputed tax amount. If this is permitted, the Petitioner, by such a subterfuge or by creating an artificial dispute, will claim a refund of the tax paid without demur or claim concessions even with respect to undisputed taxes already paid.
Accordingly, we are satisfied that the Respondents did not act illegally or arbitrarily in not considering the additional grounds concerning the addition u/s 68 in determining the amount payable under the DTVSV Act. Therefore, the challenge on this count is liable to be rejected and is hereby rejected.
Petitioner is on firm ground in contending that the Petitioner’s case was not a “search case”, or that it was a “non-search case”, and therefore, the computation at the rate of 125% as also FAQ 70 of Circular dated 04 December 2020 could be adopted. The record shows, and in fact, it was conceded by the Respondents, that the Petitioner’s case was a “non-search case”. Therefore, the computation could not be at the rate of 125% but had to be at the rate of only 100%.
The decision in Bhupendra Mehta [2021 (5) TMI 47 - BOMBAY HIGH COUR] supports the Petitioner’s case regarding the computation of the tax payable amount at 100% instead of 125%. The Respondents conceded this position at the stage of arguments and in the Principal Commissioner’s Affidavit dated 17 July 2021. Accordingly, limited interference on this aspect is called for in this matter.
Considering that the Affidavit was filed on 17 July 2021, this revised Form-3 should have been issued by now. In any event, we direct that revised Form-3 determining the amount payable at the rate of 100% of the disputed tax for the Assessment Year 2014-15 should be issued by the Competent Authority to the Petitioner within 30 (thirty) days from today, along with all consequential benefits.
Claim for including addition u/s 68 for benefits under the DTVSV Act/Scheme is rejected. However, the Petitioner’s contention about determining the amount payable at the rate of 100% of the disputed tax for the Assessment Year 2014-15 is allowed, and the Respondents are directed to issue the revised Form-3 as undertaken by them in their Affidavit within 30 (thirty) days from today along with all consequential benefits.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Violation of Principles of Natural Justice
Issue 2: Technical Issues and Breach of Natural Justice
Issue 3: Requirement to Pursue Alternate Remedy
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of procedural fairness in administrative proceedings, particularly in ensuring that parties are given a fair opportunity to present their case and that all submitted materials are duly considered. The court's decision to set aside the impugned order reflects a commitment to upholding these principles.
Validity of assessment order and the consequential demand notice - relegating the petitioner to avail of the alternate remedy - petitioner request for personal hearing through video conference rejected - HELD THAT:- As it is apparent that no personal hearing was granted to the petitioner, and this denial was not due to any reasons attributable to the petitioner. The impugned order and the consequential notices must be set aside on this short ground.
The petitioner had digitally uploaded 21 annexures. The 21st annexure was, in fact, the reply to the show cause notice. The impugned order, however, records that the Assessing Officer could not see the annexures.
Surprisingly, the assessing officer took cognisance of the 21st annexure, i.e., the reply to the show-cause notice. Again, for reasons not attributable to the petitioner, its documents/annexures were not seen or considered by the Assessing Officer. This also amounts to a violation of the principles of natural justice and fair play.
Although the petitioner has raised or attempted to raise other grounds, without going into all such grounds and based on the failure of natural justice, we set aside the impugned assessment order dated 28 March 2023 and consequential notices issued based upon the impugned order.
We remand the matter to the National Faceless Assessment Centre i.e. respondent No.1, for disposing of the show cause notice following the law with liberty to pass a fresh assessment order within 4 months from the date of uploading of this order on the website of the Court.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Sufficient Time to Respond
Issue 2: Justification for Issuance of Notice under Section 148
Issue 3: Nature of Transactions
3. SIGNIFICANT HOLDINGS
Validity of reassessment proceedings - Shorter time to respond to the notice issued un/s 148A(b) - petitioner was provided seven days to respond to the same, however, three days out of seven days were holidays - HELD THAT:- In the present case, the petitioner was required to clearly show the movement of goods to establish that the goods had in fact moved from Shri Ajay Gupta to the petitioner. It does not appear that any such information was provided by the petitioner to the AO.
AO, after taking note of the response submitted by the petitioner, issued an order holding that it was a fit case for issuance of notice u/s 148. AO had also noted that the Goods and Service Tax Identification Numbers (GSTIN) of the said dealer (Ajay Gupta) had been cancelled as the concerned authorities had found that the said entities were not involved in actual business activities but were mere shell entities.
After issuance of notice u/s 148 AO had also issued notices u/s 142 (1) of the Act and the reassessment proceedings are being conducted. The petitioner has also filed his response to the said notices.
The contention that the petitioner was not afforded sufficient time to file a reply to the notice issued u/s 148A (b) of the Act is unpersuasive. The said ground clearly appears to be an afterthought as the petitioner had not made any request for further time to file a response to the said notice. On the contrary, the petitioner had filed his response to the said notice within the stipulated period.
Clause (b) of Section 148A of the Act does not stipulate that the Assessee is required to be provided minimum of seven working days. The Assessee is required to be provided notice not being less than seven days but not exceeding thirty days for furnishing his reply.
Even if it is accepted that the public holidays are required to be excluded for the purpose of calculation of seven days, the petitioner would be required to file his reply on the next date following the public holiday. However, petitioner did in fact file his reply within the specified period and, therefore, he cannot make any grievance at this stage of not being provided sufficient time to do so. Petition dismissed.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment primarily addressed the following issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Notice under Section 148
Issue 2: Addition of Rs. 13 Lakhs as Unexplained Investment
Issue 3: Liability to Pay Interest under Sections 234A and 234B
3. SIGNIFICANT HOLDINGS
Reopening of assessment - Unexplained investment u/s 69 - HELD THAT:- No reason is indicated in the assessment order and/or in the impugned first appellate order as to why the explanation of the assessee is not being accepted.
Mere investment with M/s Wasankar Group by itself is no reason to derive belief for escapement of income as has been concluded in the reasons recorded for issue of notice u/s 148.
The addition made in the assessment is unjustified and unsustainable considering the fact and evidence on record. The details of withdrawals and bank account for the past four years are placed on record. Withdrawal during the year under consideration itself and earlier year is around ₹ 25 lakh. The assessee has given reasonable explanation along with documentary evidence to explain the cash given to M/s. Wasankar Group. Thus, we are of the opinion that ₹ 15.50 lakh stands reasonably explained by the assessee considering withdrawals from the bank account and documentary evidences placed on record.
Notice issued under section 148 - We find that the AO had issued notice under section 148 of the Act on mere information of deposit of cash with M/s. Wasankar Group. No verification has been made by the Assessing Officer before issuance of such notice to derive belief of escapement of income. In our opinion, no valid notice under section 148 of the Act can be issued on the basis of mere information of amount given to M/s. Wasankar Group, without verification as to the assessee not having source to explain the cash deposit. Reasons recorded for issuance of notice under section 148 of the Act are not in accordance with law and consequent notice is held to be suspicion. In our opinion, no valid belief of escapement of income is derived in the assessee’s case to issue notice under section 148 of the Act.
Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Addition under Section 69A
Issue 2: Application of Section 115BBE
3. SIGNIFICANT HOLDINGS
In conclusion, the appellate tribunal found in favor of the assessee, allowing the appeal and directing the deletion of the addition under Section 69A, thereby preventing double taxation of the same income. The judgment emphasizes the importance of adhering to the principles of tax law, particularly the prohibition against double taxation.
Addition u/s 69A - cash deposited during the demonetization period - taxing the same u/s 115BBE - HELD THAT:- We note that AO has not disputed the return filed by the assessee, wherein the assessee has suomoto shown the cash deposit of Rs. 42 lacs as income. However, made another addition over and above the income declared by the assessee towards cash deposited resulting into double addition of the same amount of income and also levied taxes at the rate as provided u/s 115BBE.
In our opinion, the order passed by the AO and confirmed by the CIT(A) is totally wrong as the same income cannot be taxed twice. On the one hand the AO accepted the income declared by the assessee in the return of income, which included the amount of ₹42 lacs deposited as cash into the bank account of the assessee and secondly, the addition was made by way of unexplained money u/s 69A - The said addition is wrong and against the provisions of the Act. See Shri Dinesh Kumar singal [2023 (6) TMI 606 - ITAT CHANDIGARH] & Aakriti Jain [2024 (11) TMI 1187 - ITAT CHANDIGARH] Appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The judgment addresses several core legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Penalty under Section 271(1)(c)
Issue 2: Enhancement of Income
Issue 3: Penalty on Zinc and Transport Expenses
Issue 4: Penalty under Section 14A
Impact of NCLT Proceedings
3. SIGNIFICANT HOLDINGS
Penalty u/s 271(1)(c) against company dissolved - National Company Law Tribunal (NCLT) is seized of the proceedings initiated under section 7 of the Insolvency and Bankruptcy Code, 2016 and has already approved a resolution plan and granted the moratorium in respect of any other proceedings pending before any authority or tribunal etc.- HELD THAT:- Section 14 of IBC Code is very clear on the aspect that once moratorium is drawn and the insolvency commencement date is declared any institution of suits or definition of pending suits or proceedings against the creditor, debtor (in the present facts of the case of assessee before us) including the execution of any judgment, decree, or order in any Court of law, Tribunal, Arbitration Resolution Plan/Process has been accepted by the NCLT.
At this juncture, we refer to the decision in the case of Ghanshyam Manz Retails Pvt. Ltd. Mishra and Sons Pvt. Ltd. [2021 (4) TMI 613 - SUPREME COURT] wherein has considered a situation wherein, the resolution plan was approved by the adjudicating authority under Section 31(1) of the IBC Code. Hon’ble Supreme Court observed that, once the resolution plan was drawn, the claim as provided in the resolution plan stood frozen, and will be binding on the corporate debtor, its employee, its members, creditors, Central Government and any State Government or legal authority, guarantor and other stakeholders. We also note that in the present facts of the case, the resolution plan is yet to be finalized. When, we read the newly inserted provisions of Section 156A of the Act, it is necessary to remand the appeal to the AO to take necessary steps/action as per Rules.
Our above order applies mutatis mutandis to all the assessment years in appeal.
Hence, in the above circumstances, we deem it fit and proper to remand these appeals back to AO to take necessary steps as per Section 156A of the Act. Accordingly, we partly allow the appeals filed by the assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Jurisdiction Assumed under Section 147
Issue 2: Validity of Approval under Section 151
Issue 3: Legality of the Reassessment Order
3. SIGNIFICANT HOLDINGS
Assumption of jurisdiction u/s 147 r.w.s 151 - Validity of approval granted by the Competent Authority u/s 151 for reopening the assessment - additions made towards Long Term Capital gain (“LTCG”) on sale of land on merits - HELD THAT:- In the peculiar facts of the instant case, the purported sanction of the Addl.CIT is based on the premise that the assessee has not filed return of income at all and engaged in land deals of substantial amount. Driven by such grossly incorrect factual position, the Addl.CIT has granted sanction resulting in civil consequences to the assessee.
This apart, an omnibus approval without any comment on any aspect betrays the application of mind on foundational points recorded in reasons for reopening. The approval granted do not utter a word towards any reasons which induced him to obtain satisfaction on the alleged escapement claimed by the AO.
Approval u/s 151 grossly suffers from the vice of non-application of mind. The Hon’ble Delhi High Court in the case of N.C. Cables[2017 (1) TMI 1036 - DELHI HIGH COURT]; Pioneer Town Planners[2024 (3) TMI 828 - DELHI HIGH COURT]; Manujendra Shah [2023 (7) TMI 1093 - DELHI HIGH COURT] have struck a balance and declined to endorse a rubber stamp approval granted by the Competent Authority under s. 151 of the Act.
We see palpable merit in the plea of the assessee that the sanction granted under s. 151 of the Act is extraneous and an empty formality and do not accord with its salutary purpose. Validity of re-assessment order is contingent upon the valid approval under s. 151 of the Act. Where the identity of sanctioning authority itself is under cloud and coupled with this, the requirement of law to grant speaking approval under s. 151 of the Act is not found to be fulfilled, the notice issued under s. 148 as a sequel to such sanction and resultant assessment would also to be vitiated in law.
Re-assessment proceedings under s. 147 as a consequence of nonest and invalid approval is without sanction of law and consequently, the re-assessment order in question is bad in law. Hence, the jurisdiction usurped by the AO based on such approval is required to be cancelled and set aside. Appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this judgment is the validity of the reopening of the assessment under Sections 147 and 148 of the Income Tax Act, 1961. Specifically, the question is whether the reopening was based on independent application of mind by the Assessing Officer (AO) or merely on borrowed satisfaction from information received from the Investigation Wing, without tangible material.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
The reopening of an assessment under Section 147 of the Income Tax Act requires the AO to have "reason to believe" that income has escaped assessment. This belief must be based on tangible material and not merely on borrowed satisfaction. Section 148 mandates that reasons for such belief must be recorded before issuing a notice. The case law cited, including G & G Pharm, Meenakshi Overseas, and Signature Hotels (P) Ltd. Vs. ITO, emphasizes the necessity of independent application of mind by the AO.
Court's interpretation and reasoning:
The Tribunal analyzed whether the AO independently verified the information received from the DDIT Investigation, Kolkata, regarding the alleged bogus commodity profits. The Tribunal found that the reopening was based solely on the information received without any independent verification or application of mind by the AO, thus constituting borrowed satisfaction.
Key evidence and findings:
The AO received information indicating that the assessee was a beneficiary of accommodation entries in the form of commodity profits amounting to Rs. 20 lacs. However, the assessee had already disclosed commodity profits of Rs. 84,45,684.48, which included the Rs. 20 lacs in question, in their return. This disclosure was not refuted by the Department's Representative (DR).
Application of law to facts:
The Tribunal applied the principles established in the cited precedents, which require an independent application of mind by the AO. The Tribunal concluded that the AO failed to independently verify the information and merely acted on borrowed satisfaction, rendering the reopening invalid.
Treatment of competing arguments:
The assessee argued that the reopening was invalid due to lack of independent verification by the AO. The Department contended that the reopening was justified based on the information received. However, the Department failed to provide any further evidence or report from the AO to support their claim, leading the Tribunal to side with the assessee.
Conclusions:
The Tribunal concluded that the reopening of the assessment was invalid and bad in law due to the lack of independent application of mind by the AO. As a result, the reopening was quashed, and the appeal of the assessee was allowed.
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
"...the reopening has been made on the basis of information received without any independent verification and application of mind and is a case of in fact borrowed satisfaction, which is not permissible under the Act."
Core principles established:
The judgment reinforces the principle that reopening of assessments must be based on the AO's independent application of mind and tangible material, not merely on borrowed satisfaction from external information.
Final determinations on each issue:
The Tribunal determined that the reopening of the assessment was invalid due to the lack of independent verification by the AO. Consequently, the appeal was allowed, and the reopening was quashed.
Validity of Reopening of assessment u/s 147 r.w.s 148 - assessee has earned bogus commodity profits - as argued information received from the investigation wing without any independent application of mind/ tangible material and is on the borrowed satisfaction and therefore bad in law - HELD THAT:- We note that the assessee has disclosed a details of commodity profits from transactions done through Kali Commodity Pvt. Ltd. which is inclusive of ₹ 20 lacs as per the arguments presented before us which could not be controverted b y the ld. DR.
Thus, the very basis of the reopening fails and therefore, it is adequately clear that the reopening has been made on the basis of information received without any independent verification and application of mind and is a case of in fact borrowed satisfaction, which is not permissible under the Act.
The case of the assessee is supported by the decision of Meenakshi Overseas [2017 (5) TMI 1428 - DELHI HIGH COURT]. Thus, we are inclined to hold that the reopening of assessment has been made invalidly and is bad in law. Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Nature of the Loan - Secured vs. Unsecured
Issue 2: Procedural Validity of AO's Actions
3. SIGNIFICANT HOLDINGS
In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 2,25,00,519/-, as the procedural and substantive grounds for the addition were not met by the AO.
Addition u/s 68 - unexplained unsecured loan - Assessee submitted that it was the amount of SD (Security Deposit) of sub/petty contractors - case was selected for limited scrutiny - HELD THAT:- As evident from a perusal of the balance-sheet of the assessee that the issue of security deposit from sub/petty contractors, which figure as secured loans within Schedule B of the assessee’s balance-sheet was not a subject matter selected for limited scrutiny under the CASS parameters. Therefore, as per the CBDT guidelines, if the AO was to enquire into the same, he was required to obtain permission from the concerned PCIT in writing before making investigations / additions in the matter.
There is no indication in the assessment order that this has been done instead the ld. AO has expanded the scope of limited scrutiny by expression of an opinion that the security deposits by the petty / sub-contractors amount to unsecured loans and therefore, could be investigated within the parameters selected under the CASS. As this is clearly outside the jurisdiction of the ld. AO, the addition made by him in this regard is unsustainable on this count.
Also amounts that were collected from these petty/sub-contractors were against project that were executed by them on behalf of the assessee and the fact remains that the assessee has made payments to the sub-contractors against execution of such contracts which is proved by the deduction of tax at source against such payments. Therefore, there does not appear to be any reason to doubt the receipt of this security money, which has subsequently been deposited with the Government Departments.
As unsecured loans as referred to in Schedule C of the assessee’s balance-sheet pertained to altogether different parties and the ld. AO has already satisfied himself that these were on account of opening balances, not calling for any action in this assessment - Unsecured loan in Schedule ‘F’ pertain to different amounts which do not seem to be the subject matter of the additions. Therefore, on the basis of the aforesaid facts, we hold that the addition made by the AO of security deposits from sub/petty contractors is unsustainable - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment involves the following core issues:
a) Whether the Assessing Officer (AO) erred in making disturbances in the Income Tax Return (ITR) filed by the appellant, despite being satisfied with the reasons for initiating proceedings under sections 147/148 of the Income Tax Act, 1961.
b) Whether the CIT (Appeals) was correct in confirming the AO's action of disallowing the appellant's claim under section 80P(2) of the Income Tax Act, 1961, on the grounds of non-compliance with section 80A(5).
c) Whether the appeal filed by the assessee, delayed by 26 days, should be condoned based on the reasons provided.
2. ISSUE-WISE DETAILED ANALYSIS
a) Issue of Disturbance in ITR and Validity of Reassessment Proceedings
Relevant Legal Framework and Precedents: The legal framework involves sections 147 and 148 of the Income Tax Act, which deal with the reassessment of income that has escaped assessment. The precedents cited include decisions from various High Courts, such as CIT vs. Jet Airways and Ranbaxy Laboratories Ltd. vs. CIT, which establish that if the AO does not make an addition on the issue that led to the reassessment, they cannot assess other issues.
Court's Interpretation and Reasoning: The court interpreted that the AO, having found the cash deposit of Rs. 63,33,000/- satisfactorily explained, should have ceased further assessment. The AO's jurisdiction was limited to the issue for which the reassessment was initiated.
Key Evidence and Findings: The AO issued a notice under section 148 based on cash deposits flagged by the Risk Management Strategy. However, no addition was made on this issue, as the AO was satisfied with the explanation provided.
Application of Law to Facts: The court applied the principles from cited precedents, concluding that the AO's jurisdiction ended once the initial reason for reassessment was resolved without any addition.
Treatment of Competing Arguments: The appellant argued that the AO's actions were beyond jurisdiction once the initial issue was resolved. The Revenue supported the AO's actions, but the court found the appellant's argument more compelling.
Conclusions: The court concluded that the AO's additional assessments were illegal, as they were beyond the jurisdiction once the original issue was resolved.
b) Disallowance of Claim under Section 80P(2)
Relevant Legal Framework and Precedents: Sections 80P(2) and 80A(5) of the Income Tax Act are relevant here, dealing with deductions available to cooperative societies and the conditions for such deductions.
Court's Interpretation and Reasoning: The court did not delve into the merits of this issue, as it became academic after resolving the jurisdictional issue.
Key Evidence and Findings: The AO disallowed the claim based on non-compliance with section 80A(5), but the court focused on the jurisdictional issue.
Application of Law to Facts: The court did not apply the law to the facts of this issue, as it was rendered moot by the resolution of the jurisdictional issue.
Treatment of Competing Arguments: The court did not address competing arguments on this issue due to its academic nature.
Conclusions: The court did not provide a conclusion on this issue, as it was not considered necessary after the jurisdictional decision.
c) Condonation of Delay
Relevant Legal Framework and Precedents: The principles for condoning delays in filing appeals are guided by the need to show sufficient cause, as established in the case of Collector, Land Acquisition vs. Mst. Katiji.
Court's Interpretation and Reasoning: The court found the reasons for delay, including the hospitalization of the appellant's counsel, to constitute sufficient cause for condonation.
Key Evidence and Findings: The affidavit provided by the appellant outlined the reasons for the delay, which the court found credible.
Application of Law to Facts: The court applied the principle of sufficient cause to the facts, condoning the delay.
Treatment of Competing Arguments: There was no significant opposition to the condonation of delay, and the court's decision was straightforward.
Conclusions: The court condoned the 26-day delay in filing the appeal.
3. SIGNIFICANT HOLDINGS
Core Principles Established:
"Once the AO finds that the issue on which reassessment proceedings were initiated does not subsist, the AO loses jurisdiction to assess other issues of concealment that come to his knowledge."
Final Determinations on Each Issue:
a) The court quashed the additional assessments made by the AO, as they were beyond jurisdiction once the initial issue was resolved.
b) The court did not address the merits of the disallowance under section 80P(2), as it became academic.
c) The court condoned the delay in filing the appeal, allowing the case to be heard on its merits.
Reopening of assessment u/s 147 - addition on account of Interest income u/s 56 and addition on account of proposed disallowance u/s 80P - addition of cash deposit in the bank account - HELD THAT:- The issue of cash deposit was examined by the AO during assessment proceedings and in the assessment order AO states that no variation is proposed on the issue of cash deposit by the assessee society in its bank account and finally he has not made any addition on this score. He has disallowed the claim of the assessee u/s 80P claimed on interest from Bank and the surplus appearing in Profit and Loss Account.
It is apparent that no addition has been made by the ld. AO on the issue on which reassessment was undertaken by him.
In various case laws relied upon by the ld. AR the Hon`ble Courts including the jurisdictional High Court of Rajasthan [2008 (5) TMI 200 - RAJASTHAN HIGH COURT] have held that if the AO finds that the issue on which reassessment proceedings were initiated does not subsist then the ld. AO looses jurisdiction to assess other issues of concealment that comes to his knowledge.
AO was required to stop at the point when he found that the issue of cash deposit into bank account was out of genuine sources and was required to pass a NIL order.
Once it is found that none of the reasons recorded by the AO for initiating proceedings under section 147 was germane to initiation of such proceedings, then it has to be held that the AO had no reason to believe that any income had escaped assessment and, therefore, any further proceeding would be without jurisdiction. But still he moved further without having jurisdiction and made other additions in the assessment which is illegal as the AO has exhausted his jurisdiction as soon as he was satisfied that the cash deposit in the bank account of the assessee, for which the case of the assessee was reopened under the provisions of section 147 read with section 148 of the IT Act, was satisfactorily explained - we are of the view that the other disallowances/additions made by the AO in the assessment order are illegal - Appeal of the assessee is allowed.
Classification of imported goods - Transponder, Muxponder, and Optical splitter cards - to be classified under Customs Tariff Item (CTI) 8517 62 90 or under CTI 8517 70 90 as claimed by the appellant - it was held by CESTAT that 'The subject cards are not similar in nature to ‘NIC Cards’ and any reliance on the classification of ‘NIC Cards’ to determine appropriate classification for the subject cards is misplaced - the subject cards deserves classification under CTI 8517 70 90.'
HELD THAT:- There are no reason to interfere with the impugned order passed by the Central Excise Service Tax Appellate Tribunal.
Appeal dismissed.
Valuation of imported goods - inclusion of royalty and the cost of advertisement incurred by the Appellant in India in assessable value - related party - Rule 10(1)(c) and Rule 10 (1)(e) of the Customs Valuation Rules 2007 - it was held by CESTAT that 'As per the stipulation in the agreement, the appellant is obliged to be responsible for sales and distribution in its territory of distribution and further to make such expenditure in consultation with the seller, does not attract the provisions of Rule 10(1)(e) of CV Rules.'
HELD THAT:- The view taken by the Tribunal is concurred with.
Appeal dismissed.
Seizure of gold of foreign origin, silver granules and Indian currency notes - confiscation u/s 111 (b),111 (d) and 121 - Penalty u/s 112 (a) and/or 112 (b) and 117 - Smuggling - Burden to prove on co-noticees - Sale proceeds of smuggled gold and silver - huge amount of cash of Indian currency - Reliance on the statement - Presumptions of innocence - Retracted confession - it was held by High Court that 'The mobile phones which were recovered and the call details record which were obtained have all been elaborately discussed by the adjudicating authority. This aspect has not been dealt with by the learned tribunal.'
HELD THAT:- There are no reason to interfere with the impugned order passed by the High Court.
SLP dismissed.
Summary order. Civil Appeal dismissed; delay condoned.
Valuation of imported goods - related party transactions - addition of 5% royalty on carbon brushes under Rule 10(1)(c) of the Customs Valuation Rules, 2007 - it was held by CESTAT that 'In the present appeal, the facts have clearly proved that the pricing was at arm’s length and the relationship had not influenced the price, which has been accepted by the department hence there is no question of adding the royalty to the transaction value.'
HELD THAT:- There are no reason to interfere with the impugned order passed by the Customs, Excise & Service Tax Appellate Tribunal, Bangalore.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Liability to Pay Customs Duty
Issue 2: Imposition of Redemption Fine and Penalty
Issue 3: Validity of Confiscation
Issue 4: Refund of Deposited Amount
3. SIGNIFICANT HOLDINGS
Confiscation of goods - redemption under section 125 of the Customs Act - liability to pay duty on redemption - title of goods upon confiscation and redemption - penalty under section 112 of the Customs Act - refund of deposit with interest
Confiscation of goods - title of goods upon confiscation and redemption - Confiscation of the seized motorbike cannot be sustained in absence of any finding under a specific legal provision and is set aside. - HELD THAT: - The orders below did not record any specific provision or reasoning justifying confiscation. The Joint Commissioner's operative order recited confiscation but failed to identify the legal basis under which the motorbike was liable to be confiscated, and the Commissioner (Appeals) did not make a specific finding sustaining confiscation. In these circumstances the Tribunal held that the confiscation cannot be maintained and thereby restored title to the appellant. [Paras 14, 15]
Confiscation set aside; title of the motorbike reverts to the appellant.
Redemption under section 125 of the Customs Act - liability to pay duty on redemption - Because confiscation is set aside, the appellant is not liable to pay any redemption fine or duty and other charges under section 125 of the Customs Act in respect of the motorbike. - HELD THAT: - Section 125 permits redemption of goods on payment of a fine and, where redemption is effected, obliges the redeemer to pay duty and charges. That scheme presupposes valid confiscation. Having set aside confiscation for lack of any sustaining finding, the Tribunal held there is no occasion to impose or sustain redemption fine or to require payment of duty and charges under section 125 in this case. [Paras 15, 17]
No redemption fine or duty/charges payable by the appellant under section 125.
Penalty under section 112 of the Customs Act - Penalty imposed under section 112 (a)/(b) cannot be sustained and is set aside because confiscation has been quashed. - HELD THAT: - Penalties under section 112 are predicated on acts or omissions which render goods liable to confiscation under section 111. Since the Tribunal has set aside confiscation for want of a legal basis, the consequential penalties imposed under section 112 must also fall. [Paras 16]
Penalty under section 112 set aside.
Refund of deposit with interest - return of seized goods - Amount deposited by the appellant during investigation must be refunded with appropriate interest and the seized motorbike returned to the appellant within one month, if not already returned. - HELD THAT: - The Commissioner (Appeals) found the appellant was not the importer and that duty could not be demanded under section 28; consequently any sum deposited as duty during investigation cannot be treated as duty but only as a deposit. The Tribunal directed refund of that deposit with applicable interest and ordered physical return of the motorbike within one month. [Paras 17, 18]
Deposit to be refunded with interest; motorbike to be returned within one month if not already returned.
Final Conclusion: The appeal is allowed: confiscation of the motorbike is set aside, redemption fine and duty/charges under section 125 are not payable, penalties under section 112 are quashed, the deposit made by the appellant shall be refunded with interest, and the motorbike shall be returned to the appellant within one month if not already returned.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Maintainability of Appeals
Issue 2: Entitlement to Transfer of Shares
Issue 3: Fraudulent Preferences and Void Transactions
3. SIGNIFICANT HOLDINGS
Maintainability of appeal under Section 483 of the Companies Act, 1956 - transfer of Equity shares - fraudulent preferences or void transactions under Sections 531, 531-A, and 536 of the Companies Act, 1956 - HELD THAT:- There are no hesitation in holding that the appeal filed by the appellant No.1 CRBCML, through appellant No.2 Mr. C.R. Bhansali is not maintainable in law. First things first, it is pertinent to mention that the learned Single Judge while passing the impugned order dated 25.07.2023 had delved into the issue of the maintainability of the objections that were being raised on behalf of the appellants - it is an undisputed position that the shares in questions were purchased by the applicants through the RBI-approved Stock brokers in the open market. Furthermore, it is a matter of fact that the Reserve Bank of India's (RBI) order dated April 9, 1997, directing CRBCML not to proceed with any sale, transfer, or charge on the property or assets without written consent, was not in the public domain, and the applicants had no notice of the directions passed by the Company Court. The applicants, in ignorance of such facts, apparently bought the shares from open market and paid the consideration thereof.
It is not within the jurisdiction of the Company Court to investigate, at the behest of the appellants, the sale of shares by CRBCML, including the recipients or the consideration involved. Undoubtedly, the transfer of equity shares occurred during a period when such transfers were typically executed through the exchange of share certificates along with signed or blank transfer deeds. The sole requirements were a Contract Note in favour of the transferee, substantiated by the payment of the share amount to the Stock Broker.
Conclusion - i) The present appeal by Appellant No. 1, CCL, and Appellant No. 2/Ex-Director, is not maintainable under Section 483 read with Sections 521& 531-A of the Act. The objections raised by them to the clarification applications preferred by the applicants/transferees in the winding-up petition cannot be entertained in law. ii) Since the sale of shares took place prior to 09.04.1997, although the company (in liquidation) remained its de jure owner, the de facto legal right or title in the same passed on to the applicants in the ordinary course of business and thus was saved by Section 562 (2) of the Act.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Writ of Mandamus or Quo Warranto
Issue 2: Exhaustion of Remedies
3. SIGNIFICANT HOLDINGS
In summary, the Court dismissed the writ petition on the grounds that the Petitioner had not exhausted the statutory remedies available under the Companies Act, specifically the option to appeal to the NCLAT, and that the Companies Act provides a comprehensive mechanism for addressing issues related to AGMs and corporate governance.
Maintainability of petition - availability of alternative remedy - Liability for default in holding the Annual General Meeting - HELD THAT:-The Petitioner herein in accordance with the scheme of the Companies Act, has rightly approached the NCLT with a Petition under Section 241 of the Companies Act, 2013 wherein admittedly one of the five Reliefs claimed are for holding of the Annual General Meeting. Though the waiver has not been granted to the Petitioner since the Petition was not supported by 1/5th members of the Company, however, Section 421 of the Companies Act, 2013 clearly provides for a remedy by way of an Appeal to Appellate Tribunal. The Petitioner himself has submitted that he intends to approach the NCLAT for redressal of his grievances of rejection of petition under Section 241 of the Companies Act, by NCLT.
From the submissions of the Petitioner himself it is evident that firstly, the AGM was scheduled for 29.09.2023 but could not be held on account of sealing of premises by DDA which is still continuing. Secondly, he has already approached the NCLT and has an alternate efficacious remedy to file an Appeal against the orders of NCLT under Section 421 of the Companies Act, 2013.
Conclusion - There being an alternate efficacious remedy available to the Petitioner, the present Writ Petition is not maintainable.
Petition dismissed.
Issues: Whether the blacklisting and debarment of the petitioner, after approval of the resolution plan and change in management under the Insolvency and Bankruptcy Code, 2016, was valid in law.
Analysis: The resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 was treated as effecting a fresh start for the corporate debtor under the new management. The Court relied on the statutory scheme of Sections 31 and 32A, together with the settled principle that approval of a resolution plan freezes claims not forming part of the plan and is intended to revive the corporate debtor as a going concern on a clean slate. The impugned blacklisting was founded on alleged defaults of the erstwhile management in execution of the contract, while the company had already undergone insolvency resolution and change of management. The Court also considered that the respondents had already forfeited the performance bank guarantee for the contractual breach. In these circumstances, continuing a three-year blacklisting would perpetuate the consequences of past conduct against the revived company and would materially impede its ability to carry on business and participate in future tenders.
Conclusion: The blacklisting and debarment were held not to be proper in law and were quashed in favour of the petitioner.
Ratio Decidendi: After approval of a resolution plan resulting in a change of management, punitive blacklisting based on the past defaults of the erstwhile management is inconsistent with the clean slate objective of insolvency resolution and is disproportionate where the contractual breach has already been visited with forfeiture of security.
Blacklisting order - Seeking quashing of the order issued by the respondents whereby the petitioner has been blacklisted for a period of three years and debarred from participating in the tender process for any work advertised by the Government of Tripura - Whether the order of blacklisting dated 5th October, 2023 is proper in the eye of law and on facts? - HELD THAT:- The impugned order of blacklisting for a period of three years and debarment of the petitioner from participating in the future tender processes for any work advertised by the Government of Tripura cannot be held to be proper in the eye of law for the reasons recorded hereinafter.
The object of revival of a sick company on approval of the resolution plan by the NCLT is intended to provide a clean slate for the company to ensure that the new management makes a clean break from the past. The resolution plan of the successful resolution applicant has been approved under Section 31 of the I&B Code by the learned NCLT vide its order dated 11th August, 2023 which is Annexure-2 to the writ petition. It records that on the date of approval of the resolution plan by the adjudicating authority all such claims which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.
Reference made to the decision of the Apex Court in Ghanashyam Mishra & Sons Pvt. Ltd [2021 (4) TMI 613 - SUPREME COURT] wherein it has been held that once a resolution plan is duly approved by the Adjudicating Authority under sub-section (1) of section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Govt. any State Govt. or any local authority, guarantors and other stakeholders.
In the case of Ghanashyam Mishra & Sons Pvt. Ltd the apex court held that one of dominant objects of the I&B Code is to see that an attempt has to be made for revival of the corporate debtor and make it a running concern. The scheme of the I&B Code is therefore to make an attempt by divesting the erstwhile management of its powers and vesting it in a professional agency to continue the business of the corporate debtor as a going concern until a resolution plan is drawn up - The apex court held that one of the principal object of the I&B Code is to provide for revival of the corporate debtor and make it a growing concern.
Once action in the nature of forfeiture of performance bank guarantee to the tune of Rs. 95,58,000/- has been imposed upon the company for the delay in the execution of the work of the contract, the order of blacklisting would not be proper in the eye of law. The penalty of blacklisting for a period of three years and debarment from future contracts with the Government of Tripura would thus be disproportionate as the petitioner would be practically unable to enter into new contracts and undertake business in order to become a growing and running concern.
The respondents have taken a stand that challenge to the order of blacklisting in an independent proceeding would lead multiplicity of proceedings and conflicting views which are best avoided. However, as it appears that the learned Arbitral Tribunal has not entertained the plea against the order of blacklisting as no such claim was made before it. In such a case, refusal to entertain a challenge to the order of blacklisting by this Court under Article 226 of the Constitution of India would amount to denying a remedy available in law.
Conclusion - Such order of blacklisting and debarment of the petitioner company after approval of the resolution plan with a new management would defeat the dominant aim and object of the Insolvency and Bankruptcy Code, 2016 and in all likelihood defeat the very purpose of revival of the company. The order of blacklisting is quashed.
Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The judgment primarily addresses the following legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Conduct and Replacement of IRP
Issue 2: Conflict of Interest and Transparency
Issue 3: Locus Standi of the Applicant
Issue 4: Fulfillment of Conditions Precedent
3. SIGNIFICANT HOLDINGS
The judgment underscores the critical importance of maintaining transparency, avoiding conflicts of interest, and ensuring stakeholder trust in insolvency proceedings. The Tribunal's decision reflects a commitment to uphold these principles to protect the interests of all parties involved in the CIRP.
Seeking replacement of the Interim Resolution Professional of Sequel Buildcon Private Limited-Corporate Debtor undergoing Corporate Insolvency Resolution Process - whether the conduct of the IRP in the given factual matrix gives adequate reason to believe that there was a breach of the Code of Conduct of Insolvency Professionals by IRP warranting his removal and replacement by another IRP? - HELD THAT:- Regulation 3(1) and the explanatory clause of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 lays down that the RP must not have any conflict of interest or business relationship with the corporate debtor, its promoters, or any other stakeholders. Regulation 7(2)(h) of the IBBI (Insolvency Professionals) Regulations, 2016 provides that insolvency professionals must adhere to a Code of Conduct specified in the First Schedule to these regulations for avoiding conflicts of interest and maintaining independence.
Keeping in mind the status of Applicant as a strategic project partner and a key financier of the project, it does stand to reason for them to have raised questions on the manner of selection of consultants followed by the IRP when they were not satisfied with the quality of services rendered. From material on record, it is noticed that the Applicant had issued letters to the IRP to clarify the manner in which these consultants were appointed including details of their credentials, professional profile, work experience, man power and HR structure etc. The stone-walling of such relevant information by the IRP does create room for suspicion on the conduct of the IRP of trying to conceal/supress relevant and necessary facts. The apprehensions of the Applicant with regard to the manner of appointment of the consultants ought to have been allayed by the IRP rather than create a shroud of opacity.
There was a clear breach of fiduciary duties on the part of the IRP besides conflict of interest in the appointment of the consultants. Hence the IRP should be immediately replaced. Per contra, the IRP has justified non-disclosure of its association with CLL, PMC and other related business entities on the ground that Clauses 8B, 8C and 8D of the Code of Conduct apply only to a period of 3 years preceding their appointment of IRP and since their association had terminated more than 3 years back, it need not have been disclosed - this cannot come to the rescue of the IRP since in terms of Clause 8C of the Code of Conduct, the disclosure requirement comes into play “at any time” when the IRP is a key managerial person, a partner of a related party or a partner or director of the concerned company, firm or LLP.
In the conduct of Reverse CIRP, the relationship between the IRP and stakeholders of the Corporate Debtor including home-buyers and interim financier is built on trust. Once this trust is belied, it has the potential to jeopardise the resolution process. In the present case, the IRP has been found to be forthcoming in parting with all relevant information with regard to the credentials of their consultants to the Applicant. As a key financier, the Applicant had a definite stake in the manner of appointment of the PMC and LC. The contention of the IRP that the consent of the Applicant had been obtained before the appointment of the PMC and LC has been denied by the Applicant. The IRP had merely informed the Applicant regarding the appointment of PMC post their appointment which cannot be viewed as their concurrence after consultation - For a Corporate Debtor which was already financially stressed and insolvent, payment of fees by the IRP to related party consultants without commensurate services forthcoming from them constituted sufficient ground to seek change of the IRP. The Applicant definitely enjoys locus standi to file the present application since it has been infusing funds into the project for the benefit of all stakeholders including the home-buyers. There is merit in the application filed by the Applicant seeking replacement of the IRP with another IRP who can better safeguard the interest of all stakeholders, especially home-buyers.
Conclusion - There is incidence of infringement of the Code of Conduct of the Insolvency Professionals by the present IRP for not having disclosed their relationships or potential conflicts of interest in the appointment of consultants. To prevent further abuse of process and to meet the ends of justice, the removal of the IRP directed forthwith and the consultants appointed by them.
Application allowed.
Issues: Whether the operational creditor's application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by a pre-existing dispute between the parties.
Analysis: The record showed that the notice invoking arbitration had been issued before the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016. The dispute related to the same work order and the same claim forming the basis of the operational debt. Under the statutory scheme, the adjudicating authority must examine whether there is a real and existing dispute, and if a notice of dispute or record of arbitration exists before the demand notice, the application cannot be admitted. The objection that the dispute was not raised by the corporate debtor alone was not accepted as decisive, because the material on record showed an existing dispute concerning the underlying transaction.
Conclusion: The pre-existing dispute was established, and the Section 9 application was not maintainable.
Dismissal of Section 9 application filed by the Operational Creditor for initiating Corporate Insolvency Resolution Process - novation of the original contract between the parties - pre-existing dispute existed between the Operational Creditor and the Corporate Debtor - HELD THAT:- A look at the relevant statutory construct of IBC at this juncture would be useful. Section 8 of the IBC requires the Operational Creditor, on occurrence of a default by the Corporate Debtor, to deliver a Demand Notice in respect of the outstanding Operational Debt. Section 8(2) lays down that the Corporate Debtor within a period of 10 days of the receipt of the Demand Notice would have to bring to the notice of the Operational Creditor, the existence of dispute, if any. After issue of demand notice by the Operational Creditor, if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute under Section 8(2), he may file an Application under Section 9(1) of IBC - it is clear that the existence of dispute and its communication to the Operational Creditor is therefore statutorily provided for in Section 8. It is an undisputed fact in the present matter that the Operational Creditor did not receive any payment from the Corporate Debtor and had therefore proceeded to file an application under Section 9 of IBC.
Pre-existing dispute - HELD THAT:- It is also a well settled proposition of law that for a pre-existing dispute to be a ground to nullify an application under Section 9, the dispute raised must be truly existing at the time of filing a reply to notice of demand as contemplated by Section 8(2) of IBC or at the time of filing the Section 9 application. In the present case, the pre-existing dispute has been predicated on notice invoking arbitration dated 19.01.2023 prior to the issue of Section 8 Demand Notice on 25.02.2023 as was highlighted by in the Notice of dispute of the Corporate Debtor dated 17.03.2023 - the reply to the Section 8 Demand Notice clearly articulates the ongoing arbitration between the two parties which predated the Section 8 demand notice.
In the present case, it is an undisputed fact that the demand notice was issued by the Operational Creditor on 25.02.2023 and a notice of dispute raised by the Corporate Debtor on 17.03.2023 wherein the issue of invocation of notice of arbitration of 19.01.2023 on was articulated as a ground of pre-existing dispute.
The pre-existing dispute must relate to the transaction or debt that forms the basis of the Section 9 application. Clearly the debt in this case arises out of RA Bills relating to the original work order of 12.10.2018. When an arbitration notice is served in respect of disputes stemming from the original work order and the arbitration notice was issued before the Section 8 demand notice, clearly it signifies that a dispute already existed between the parties. As an arbitration notice is a formal communication from one party to the other, initiating arbitration proceedings, the arbitration notice evidences a pre-existing dispute. This therefore constitutes sufficient ground for rejection of a Section 9 application.
Conclusion - There was no novation of the contract and that a pre-existing dispute existed, leading to the dismissal of the appeal. The existence of a pre-existing dispute, as evidenced by an arbitration notice, is sufficient to reject a Section 9 application under the IBC.
The Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant - Appeal dismissed.
Issues: Whether the FIRs and consequential ECIR arising out of a loan and pledge transaction, where the core disputes were already subject to arbitration and prior civil adjudication, disclosed any prima facie criminality or were liable to be quashed as an abuse of the criminal process.
Analysis: The transaction was a commercial lending arrangement governed by loan and pledge agreements containing arbitration clauses. The grievances raised in the FIRs substantially concerned recall of loans, enforcement of security, valuation of pledged shares, alleged under-disbursal, and alleged transfer-related losses, all of which were already part of pending or concluded civil and arbitral proceedings. The material placed before the Court showed that the borrower had suppressed those prior proceedings and other relevant facts while setting the criminal law in motion, and the complaint was lodged after significant delay. The allegations, even if taken at face value, were found to be essentially contractual and commercial in nature, with no prima facie basis for cheating, forgery, conspiracy, or similar criminal offences. The Court also found that allowing criminal proceedings to continue would pre-empt issues reserved for adjudication in arbitration and would amount to using criminal process to gain leverage in a civil dispute.
Conclusion: The FIRs and the connected ECIR were held unsustainable and were quashed as an abuse of process of law.
Ratio Decidendi: Where a dispute arising from a commercial loan transaction is governed by contractual remedies and arbitration, and the criminal complaint merely re-packages those civil issues without prima facie criminal intent, especially after suppression of material facts and unexplained delay, criminal proceedings cannot be permitted to continue.
Money Laundring - proceeds of crime - seeking declaration that Section 420 IPC be declared as manifestly arbitrary and ultravires Article 14 and 21 of the Constitution of India - whether lodging of the impugned FIRs and the consequential ECIR is an abuse of the criminal process?
HELD THAT:- Sanction of loan is a commercial transaction. It is to be regulated by the terms of loan/contract and any dispute in respect thereof would require adjudication in the manner stipulated therein. It is undisputed that sanction of loan to the borrower is pursuant to loan agreement which contain an Arbitration clause. Even the pledge of shares of Kadam is in accordance with the pledge agreement dated 6.4.2018 which contains clause 20 as per which any dispute/disagreement/differences between the lender and pledger and/or confirming party (defined in the pledge agreement i.e. Indiabulls, borrower and Kadam) has to be resolved by way of arbitration.
There is complete suppression in the complaint filed before the Chief Judicial Magistrate, Gautam Budh Nagar with regard to the terms of loan agreement; existence of Arbitration clause, therein; invocation of Arbitration clause by the borrower; rejection of application filed by borrower before the Delhi High Court under Section 9 of the Act of 1996 and many other relevant facts which have a material bearing on the issue in question.
Suppression of material facts by the borrower while invoking criminal proceedings against the lender assumes greater significance in the facts of the present case as repeated attempts made by it to injunct the lender i.e. Indiabulls from proceeding against the pledged property had not succeeded. The non-disclosure of material facts would lead to an inference that criminal proceedings are maliciously instituted with the intent to avoid repayment of availed loan facility; to secure leverage in pending Arbitration and other proceedings inter-se between the parties; coerce the lender i.e. Indiabulls to succumb to the terms dictated by the defaulter borrower.
There are substance in the petitioners’ argument that the conduct of borrower in initiating criminal action vide Complaint instituted under Section 156(3) Cr.P.C. on 23.3.2023 is lacking in bona fide. Admittedly, the borrower with open eyes had entered into commercial transaction with the Indiabulls and having prima facie defaulted in honouring the terms of contract, availed the remedy in respect of the coercive action taken against it. After having failed at it the borrower has initiated criminal action, concealing the orders of Delhi High Court in pending Arbitration proceedings as per which the issues raised are required to be resolved in Arbitration. Institution of criminal action can therefore be said to be with oblique motive.
Conclusion - i) There are no hesitation in holding that initiation of criminal proceedings at the instance of borrower are instituted on the strength of suppression and concealment of relevant facts, with unexplained delay and malicious intent to thwart legitimate steps taken by Indiabulls to recover the financial assistance extended to the borrower. Such proceedings are also intended to create leverage in ongoing civil/arbitration proceedings inter se between the parties. The criminal proceedings are, therefore, clearly an abuse of the process of law and deserve to be quashed. ii) The FIRs and ECIR were quashed, the disputes were directed to be resolved through arbitration.
Petition allowed.
Issues: (i) Whether the licence fee collected by the appellant from bar operators for permitting them to run bars, sell eatables and collect empty bottles was liable to service tax under the post-1.7.2012 regime. (ii) Whether the interest and penalties imposed under the Finance Act, 1994 were sustainable.
Issue (i): Whether the licence fee collected by the appellant from bar operators for permitting them to run bars, sell eatables and collect empty bottles was liable to service tax under the post-1.7.2012 regime.
Analysis: The dispute turned on the character of the appellant's activity after introduction of the negative list regime. The Tribunal followed its earlier decision in the appellant's own case, as affirmed by the High Court, and held that the activity did not cease to be taxable merely because the appellant was a State undertaking. The statutory amendment empowering the Corporation to grant privilege to run bars and collect tender amounts, retaining 1% as agency commission, was treated as relevant only from the date of the amendment, while the balance licence fee continued to form part of the taxable consideration for the period in dispute.
Conclusion: The demand of service tax on the licence fee was upheld; the issue was decided against the appellant.
Issue (ii): Whether the interest and penalties imposed under the Finance Act, 1994 were sustainable.
Analysis: Interest under section 75 follows the delayed payment of tax by operation of law. As regards penalty, the Tribunal distinguished between the different provisions invoked. It upheld the statutory consequence attaching to section 76, but, following the earlier view that the controversy was interpretational, it set aside the penalties under sections 77 and 78.
Conclusion: Interest was upheld, penalty under section 76 was sustained, and penalties under sections 77 and 78 were dropped.
Final Conclusion: The tax demand was sustained in full, while the penalty structure was modified by deleting the penalties under sections 77 and 78 and maintaining the rest of the adjudged liability.
Ratio Decidendi: Under the negative list regime, a State undertaking's licence-fee based activity is taxable where it is not a sovereign or statutory function falling within the exclusion, and interest follows delayed tax payment automatically, while interpretational disputes may justify deletion of some penalties.
Classification of service - Support Service for Business or Commerce or not - services rendered by TASMAC by giving license and permitting contractors to do the business within the bars - levy of interest and penalty - HELD THAT:- As stated by revenue an identical issue was considered by a coordinate bench of this Tribunal in the appellants own case M/S. TAMILNADU STATE MARKETING CORPORATION LTD. VERSUS THE PRINCIPAL COMMISSIONER OF GST AND CENTRAL EXCISE, CHENNAI NORTH COMMISSIONERATE, CHENNAI [2019 (6) TMI 1328 - MADRAS HIGH COURT] where it was held that 'TASMAC is liable to pay service tax of the licence fees received for the period 1.7.2012 to 28.3.2013.'
Levying of interest under section 75 and imposition of penalty under section 76 (as it stood prior to amendment on 14/05/2015), 77 & 78 of the Finance Act 1994 - HELD THAT:- It is no longer res integra that interest is necessarily linked to the delayed or deferred payment of duty, such liability arises automatically by operation of law, as under section 75 of the Finance Act 1994, in the instant case. The same cannot hence be set aside once delayed payment of duty is demanded. Similarly, the imposition of penalty under section 76 of the Finance Act, 1994 is statutory in nature and becomes payable when there is a failure to pay service tax in the normal course.
Conclusion - i) TASMAC is liable for service tax for the period 1st July 2012 to 28th March 2013. ii) Interest is applicable, but penalties under sections 77 and 78 are not, due to the interpretative nature of the issue.
Appeal disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Refund of Service Tax
Issue 2: Interpretation of Section 142(4) and Section 174 of the CGST Act
3. SIGNIFICANT HOLDINGS
Denial of refund of Service Tax paid on input services, in pre- GST era on manufacturing of ‘cut and polished diamonds’ which were exported post commencement of GST regime - Rule, 5 of the CENVAT Credit Rules, 2004 read with Notification No. 41/2012-ST dated 29.06.2012 (2016) - HELD THAT:- It is a recognisable fact that Section 42 read with Section 174 of the CGST Act have made it crystal clear that Service Tax paid on inputs or input services before commencement of GST would be dealt by the Finance Act, 1994 and its connected notifications, rules etc. As could be noticed from the order passed by the Refund Sanctioning Authority, it has been clearly mentioned that Appellant/Claimant had issued export invoices after 01.07.2017 i.e. after the appointed day prescribed in CGST Act, 2019.
This being the command of law, his finding that received concurrence of the Commissioner (Appeals) that provision of existing law would mean CGST Act is erroneous and contrary to the provision of law and therefore, Claimant’s/Appellant’s filing of refund applications was made appropriately under the provisions of Finance Act read with Rule, 5 of the CENVAT Credit Rules, 2004, that can’t be said to be not maintainable. Since the Commissioner (Appeals) was supposed to pass his order in accordance to Section 35A(4) of the Central Excise Act, 1944, equally applicable to Service Tax matters, in view of operation of Section 85(5) of the Finance Act, 1994 and as no other ground or reason is cited by the Commissioner (Appeals) for refusal of refund, which Appellant is entitled to get the refund as sought under the existing law.
Conclusion - Refund claims for taxes paid before the GST rollout should be processed under the existing law, not the CGST Act, 2017.
Appeal allowed.
Issues: (i) whether loading and unloading of coal within the mining area amounted to cargo handling service or mere transportation of goods by road for the pre-negative list period; (ii) whether the activity was taxable for the post-negative list period; and (iii) whether invocation of the extended period of limitation was justified.
Issue (i): whether loading and unloading of coal within the mining area amounted to cargo handling service or mere transportation of goods by road for the pre-negative list period
Analysis: The definition of cargo handling service covers loading, unloading, packing or unpacking of cargo, but it does not extend to mere transportation of goods. The expression "cargo" was construed in its ordinary commercial sense as goods that have entered the stream of transport, whereas coal moved within the mines and railway siding remained part of the stock and had not yet become cargo. The activity was therefore treated as transportation of goods by road, with loading being only incidental, and the liability, if any, lay on the service recipient under reverse charge.
Conclusion: The activity was not cargo handling service for the pre-negative list period and the demand was not sustainable against the assessee.
Issue (ii): whether the activity was taxable for the post-negative list period
Analysis: After introduction of the negative list regime, services by way of transportation of goods by road remained outside tax net except where provided by a goods transport agency or courier agency. No material showed that the assessee was a goods transport agency or had issued consignment notes. On that basis, the activity did not attract service tax under the post-negative list provisions.
Conclusion: The demand for the post-negative list period was not payable by the assessee.
Issue (iii): whether invocation of the extended period of limitation was justified
Analysis: The notice was founded on the assessee's records and the department was aware that the recipient had discharged tax under reverse charge. In the absence of suppression, fraud, or mala fide intent to evade tax, the extended period could not be invoked.
Conclusion: Invocation of the extended period of limitation was unjustified.
Final Conclusion: The assessee was held not liable for the disputed service tax demand, and the appellate order in its favour was sustained, resulting in rejection of the departmental challenge.
Ratio Decidendi: Mere loading and unloading of goods within a mining area does not amount to cargo handling service when the activity is essentially transportation of goods, and tax cannot be levied for the post-negative list period unless the service falls within a taxable category such as a goods transport agency.
Liability to pay service tax on the taxable value received - Cargo Handling Services - providing services of cargo handling to the projects of Northern Coalfield Ltd. by deploying the tipping trucks, for loading of coal into contractor’s tipping trucks by contractor’s pay loaders - reverse charge mechanism - extended period of limitation.
Liability to pay service tax on the taxable value received - Cargo Handling Services - providing services of cargo handling to the projects of Northern Coalfield Ltd. by deploying the tipping trucks, for loading of coal into contractor’s tipping trucks by contractor’s pay loaders - HELD THAT:- The issue of transportation of goods is different from cargo handlings transportation of coals from the coal mines to the tippers/trucks is no more res integra as it stands decided that the activity is not a Cargo Handling Service but is that of transportation of goods by road. The service recipient is liable to pay service tax on this activity under Reverse Charge Mechanism. Apparently and admittedly M/s. Northern Coalfield Ltd., the service recipient has already discharged the same. These observations are sufficient to hold that the demand for this partial period has rightly been dropped by Commissioner (Appeals) - There is no evidence on record that respondent-assesse is a Goods Transport Agency nor any consignment note is placed on record. Thus in terms of Section 66B, there is no tax liability on the impugned activity even for the post negative period. The demand for this period is also rightly dropped by Commissioner (Appeals).
Invocation of extended period of limitation - HELD THAT:- It is observed from the SCN that the demand has been proposed based upon the respondent’s own documents. It is also clear that the fact of discharge of the impugned service tax liability by the service recipient/Northern Coalfield Ltd. under Reverse Charge Mechanism was also brought to be notice of the department. There are no act of alleged suppression on part of the respondent-assessee. The department rather has failed to take into consideration the submissions of the assessee-respondent at the time of issuing the show cause notice. In absence of any such evidence which may prove the mala fide intent with the assessee to evade payment of tax, the department was not entitled to invoke the proviso to Section 73 of Finance Act, 1994 - The show cause notice is therefore held to be barred by time.
Conclusion - i) The issue of transportation of goods is different from cargo handlings transportation of coals from the coal mines to the tippers/trucks is no more res integra as it stands decided that the activity is not a Cargo Handling Service but is that of transportation of goods by road. The service recipient is liable to pay service tax on this activity under Reverse Charge Mechanism. ii) In absence of any evidence which may prove the mala fide intent with the assessee to evade payment of tax, the department was not entitled to invoke the proviso to Section 73 of Finance Act, 1994.
Appeal of Revenue dismissed.
The core legal questions considered by the Tribunal include:
2. ISSUE-WISE DETAILED ANALYSIS
Liability to Pay Service Tax on Renting of Immovable Property and Mandap Keeper Services
The relevant statutory framework includes Section 65B(44) of the Finance Act, 1994 defining taxable services, the provisions of Section 73(1) relating to demand and recovery of Service Tax, and Section 75 relating to interest. The appellant was alleged to have provided taxable services without registration or payment of Service Tax.
The Tribunal noted that the appellant failed to provide evidence that the community centre was used exclusively for religious functions, which are exempt under certain circumstances. The invoices produced did not specify the purpose of booking. Thus, the Tribunal upheld the finding that the services rendered fall within the taxable categories.
The appellant's contention that the services were exempt as a governmental authority under Notification No. 25/2012-ST was examined in light of the definition of "Governmental Authority" requiring 90% or more government participation and establishment by statute to perform municipal functions under Article 243W of the Constitution. The Tribunal found no evidence that the appellant met these criteria and held that the appellant was not entitled to exemption under the mega exemption notification.
Precedents such as the Allahabad High Court decision in Greater Noida Development Authority were relied upon to emphasize that leasing immovable property for consideration is a taxable service and not a statutory duty exempt from Service Tax.
Validity and Sufficiency of Show Cause Notices
The appellant challenged the show cause notices as vague and issued without application of mind, also contending that some notices quoted obsolete provisions. The Tribunal rejected these contentions, holding that the notices clearly communicated the charges and legal basis, enabling the appellant to respond. The principle that the substance rather than form of the notice governs its validity was applied, supported by precedents including Petlad Bulkhidas Mills and The Elphinstone Spinning and Weaving Mills Co. Ltd.
Applicability of Extended Period of Limitation
The extended period of limitation of five years under proviso to Section 73(1) applies only in cases involving fraud, willful suppression of facts, or deliberate evasion. The Tribunal, relying on the Allahabad High Court and Tribunal decisions in Greater Noida Development Authority, held that the appellant's failure to pay Service Tax arose from a bona fide belief that the service was not taxable. Therefore, the extended limitation period was not invokable, and the demand was restricted to the normal limitation period.
Penalties under Sections 77, 78 and 78A
The Tribunal upheld the penalty under Section 77 for failure to register and file returns, as the appellant did not comply with these statutory obligations. However, penalties under Section 78, which relate to evasion, were set aside due to the absence of fraud or suppression of facts. The personal penalty under Section 78A on the Finance Controller was also set aside on similar grounds.
The appellant's plea that penalty should not be imposed due to retrospective amendment was rejected, as judicial precedents upheld the retrospective levy on renting of immovable property.
Cum-Tax Price Treatment under Section 67(2)
The appellant claimed that the amounts received included Service Tax and should be treated as cum-tax price. The Tribunal found no evidence that the appellant had recovered Service Tax from clients and directed re-determination of Service Tax liability allowing benefit of cum-tax price as per Section 67(2).
Exemption as Governmental Authority or Local Authority
The Tribunal analyzed the definitions under Section 65B(31) and the mega exemption Notification 25/2012-ST. It held that the appellant did not qualify as a governmental or local authority entitled to exemption. The Tribunal distinguished between statutory duties and commercial activities, holding that leasing of property for consideration is a commercial activity and taxable.
Reliance on Judicial Precedents
The Tribunal extensively relied on judicial precedents including:
The Tribunal also considered the appellant's reliance on case law exempting religious functions from Mandap Keeper service tax and rejected it due to lack of evidence supporting the claim that the community centre was used for religious purposes.
3. SIGNIFICANT HOLDINGS
"I observe that as per the allegation made against the appellant, they provided taxable Renting of Immovable Property and Mandap Keeper Services during the year 2008-09 to 2012-13 without discharging their Service Tax liability. It has also been alleged that they neither got themselves registered under Service Tax law nor filed Service Tax returns (ST-3) in respect of the taxable services rendered by them as mentioned above."
"The Appellant also contended that their activities are exempt from service tax under S.No. 39 of Notification 25/2012-ST dated 20.06.2012 for the period 01.07.2012 to 31.03.2013 as they are a body established with complete participation and control by the Government and it has been set up by the Uttar Pradesh Urban Planning and Development Act, 1973 Act therefore it qualifies under the definition of 'governmental authority'. The above contention of the Appellant is not acceptable and I agree with the findings of the adjudicating authority that that the Appellant is neither a Government Authority nor a local authority."
"I therefore find that there is nothing on the record which may prove that GDA has been established with 90% or more participation by way of equity or control by Government... Therefore, I hold that M/s Ghaziabad Development Authority did not fall under any of the above categories as per the provisions of Service Tax Law and thus they are not entitled to exemption granted under the mega Exemption Notification 25/2012-ST dated 20.06.2012."
"The Appellant's contention that there is no suppression of facts by them as their activities were all in public domain and it was carried out in open is also not tenable as they failed to declare to the department that they are providing taxable service. They neither got themselves registered with the department nor paid any service tax as well as filed their Service tax return. Therefore, I find that the extended period of limitation as envisaged under proviso to Section 73(1) of the Finance Act, 1994 has been correctly invoked in this case."
"In view of the foregoing discussions, I hold that the services rendered by the Appellant are covered under the Service tax net within the definition of 'Renting of immovable property' and Mandap keeper and they are liable to pay Service-tax on the amount as adjudged in the impugned order under Section 73(1) of the Finance Act, 1994 alongwith interest at appropriate rate under Section 75 ibid. The appellant also rendered themselves liable for penal action Section 77 and 78 of the Finance Act, 1994."
"Accordingly, I hereby direct the adjudicating authority/jurisdictional Divisional officer to re-determine the service tax liability allowing benefit of cum Tax price as stated above."
"Thus in nut shell while we hold that in respect of both the show cause notices extended period of limitation cannot be invoked in view of decision referred in para 4.4, we are inclined to uphold the impugned order on merits. As we have held that extended period of limitation is not available for making these demands, we set aside the penalties imposed on the appellant under section 78. However as appellant have failed to take registration and file the returns by the due date we uphold the penalties imposed under Section 77."
Core principles established include:
Final determinations:
Recovery of service tax with interest and penalty - Renting of immovable property service - Mandap Keeper/ Renting of Community Centre service - Appellant is a Governmental Authority as defined by Notification No 25/2012-ST dated 20.06.2012 and thus exempted in terms of S No 39 of the Notification or not.
Appellant is a Governmental Authority as defined by Notification No 25/2012-ST dated 20.06.2012 and thus exempted in terms of S No 39 of the Notification - HELD THAT:- In the case of GREATER NOIDA INDUSTRIAL DEV. AUTHORITY VERSUS COMMR. OF CUS., C. EX. [2015 (4) TMI 1231 - ALLAHABAD HIGH COURT] Hon’ble Allahabad High Court has held 'Letting of immovable property for consideration, which is determined on the basis of offers received from public at large by the assessee Greater Noida Industrial Development Authority is a service provided for consideration and not on payment of statutory fees, neither it is a statutory service performed by the assessee. It may be that the statute permits such activities of letting out of immovable property for augmenting its finances but the same cannot be termed as the service in public interest nor it is a mandatory or statutory functions of the Development Authority. Accordingly such activity of leasing do constitute a taxable service.'
Vague SCN - HELD THAT:- There are no merits in the contention of the appellant that the show cause notice is vague etc., impugned order has specifically considered this issue and after examination of the said show cause notice concluded that there is no vagueness. Even otherwise till the time the show cause notice is able to communicate the allegations and reasons for the demand being made the same cannot be termed as vague. The show cause notice or in fact any document issued in course of transaction of Government business or in a judicial proceedings is not a document of literature but only means of communication. Till the time the person or whom the said document is issued is able to read and respond to the same, it cannot be termed as vague - there are no merits in the submissions made by the appellant to the effect that show cause notice dated 21.05.2014 has been issued quoting the obsolete provisions and hence bad in law.
Taxability - mandap keeper service - renting of immovable property service - HELD THAT:- It is found that even after the introduction negative list regime with effect from 01.07.2012 onwards the activities undertaken by the appellant fall within the definition of service as per the Section 65B (44) and are taxable being not in negative list or exempted it is not inclined to accept the submission of the appellant in this respect.
Further impugned order after examination of the documents in respect of the Mandap Keeper Services have concluded that there is no evidence to the effect that these services were for the purpose of religious functions appellant have not countered the said findings by producing the relevant documents to show that these service were indeed rendered by them in respect of such religious ceremonies and functions. The reliance placed on the decisions in this respect is not correct as impugned order has recorded a finding of fact.
Conclusion - i) The appellant failed to provide any evidence which may prove that the said community centres are given for religious activities. ii) The appellant is neither a Government Authority nor a local authority. iii) The extended period of limitation as envisaged under proviso to Section 73(1) of the Finance Act, 1994 has been correctly invoked in this case. Penalties u/s 78 set aside. iv) As appellant have failed to take registration and file the returns by the due date the penalties imposed under Section 77 upheld.
Appeal allowed in part.
ISSUES PRESENTED AND CONSIDERED
1. Whether interest under Section 11BB of the Central Excise Act becomes payable from the date immediately after the expiry of three months from the date of receipt of the refund application to the original authority or from the date immediately after the expiry of three months from the date on which an appellate/tribunal order is made allowing the refund.
2. Whether the date of initial payment "under protest" (prior to filing of refund application) constitutes the commencement date for computation of interest on delayed refund.
3. The appropriate rate of interest payable on delayed refunds-whether the statutory/notified rate in force or a rate of 12% per annum is to be applied in the facts of the case.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Commencement date for interest under Section 11BB
Legal framework: Section 11BB prescribes payment of interest where duty ordered to be refunded under Section 11B(2) is not refunded within three months from the date of receipt of the application under Section 11B(1); an Explanation deems an appellate/tribunal/court order allowing refund to be an order under Section 11B(2) for the purposes of Section 11BB.
Precedent treatment: The Court follows and applies the reasoning of the Supreme Court in Ranbaxy Laboratories (and subsequent decisions adopting the same principle) which held that Section 11BB's liability to pay interest commences on expiry of three months from receipt of the refund application and that the Explanation does not postpone the commencement date to the date of an appellate order.
Interpretation and reasoning: The tribunal interprets the statutory language to require two antecedent events before interest flows: (a) an order for refund under Section 11B(2) and (b) non-refund within three months from the date of receipt of the application. The Explanation only deems an appellate order to be an order under Section 11B(2) for purposes of applicability of Section 11BB; it does not alter the starting point (three months from the application date) for computing delayed-interest. The CBEC circular reiterating that interest is attracted automatically beyond three months is relied on to reinforce the statutory interpretation and administrative position.
Ratio vs. Obiter: Ratio - the commencement of interest is from the date immediately after the expiry of three months from receipt of the refund application; the Explanation does not shift the starting date to the date of appellate order.
Conclusion: Interest is payable from three months after the date the refund application was originally filed (in the case, from 22.02.2008), and not from three months after the date of the Tribunal/appeal order.
Issue 2 - Effect of payment "under protest" on commencement of interest
Legal framework: Section 11BB deals with interest on delayed refunds once an order for refund under Section 11B(2) exists and three months from application have expired. There is no express provision in Section 11BB fixing commencement from date of any interim payment made "under protest".
Precedent treatment: Decisions cited (including Ranbaxy and later benches following it) treat the date of filing the refund application as the relevant trigger for interest reckoning; separate line of authorities dealing with pre-deposits/amounts deposited during investigation allow interest from deposit date when such deposits are regarded as pre-deposit, but those are distinguishable on facts.
Interpretation and reasoning: The Court distinguishes between (a) a refund claim filed and (b) an earlier involuntary or protested payment. Where the statutory scheme focuses on application date for triggering interest, mere payment under protest prior to filing the refund claim does not alter the statutory commencement date for interest under Section 11BB. The Court notes authorities awarding interest from deposit date in contexts of pre-deposit during investigation or adjudication but treats those as fact-specific and separate from refund-application-triggered interest.
Ratio vs. Obiter: Ratio - the date of filing the refund application governs when interest under Section 11BB begins; payment "under protest" does not shift that statutory commencement, absent factual/legal basis equating such payment to a treated pre-deposit under applicable authorities.
Conclusion: The appellant is not entitled to have interest computed from the date of payment "under protest" (30.03.2006); interest runs from three months after the refund application date (22.02.2008) until the refund date.
Issue 3 - Rate of interest to be applied on delayed refund
Legal framework: Section 11BB prescribes interest at such rate (not below 5% and not exceeding 30%) as fixed by the Central Government by notification; administrative practice and tribunal/court precedents apply notified rates or adopt an appropriate equitable rate in specific contexts (including application of 12% in several tribunal decisions).
Precedent treatment: The Tribunal follows a line of decisions (Parle Agro, Churchit, Duggar Fibre, Emmar Mfg Construction and others) which have applied/enhanced interest to 12% p.a. in cases involving refund of amounts deposited during investigation or litigation and where higher benches deemed 12% appropriate. The Ranbaxy line governs commencement date, while Parle Agro and subsequent benches supply precedent for selecting 12% in similar refund contexts.
Interpretation and reasoning: The Court reasons that while Section 11BB contemplates a notified range, tribunal practice and precedents in analogous refund/pre-deposit situations have found 12% to be an appropriate rate where notified rates varied and where equities favored a higher rate. Given the factual posture (refund allowed after long delay and parallels drawn to authorities awarding 12% for amounts deposited under compulsion/in litigation), the Tribunal adopts 12% as the appropriate rate to compensate for prolonged deprivation.
Ratio vs. Obiter: Ratio - in the facts of this appeal, interest on the sanctioned refund is to be paid at 12% per annum; this is a determinative remedial conclusion for the present matter (applies the cited tribunal precedents). The broader question of mandatory application of a particular rate in all cases remains dependent on notification and facts (obiter in broader generality).
Conclusion: Interest on the delayed refund is to be calculated at 12% per annum from 22.02.2008 (three months after filing the refund application) until the date of actual refund; payment is directed to be made within the period fixed by the Tribunal (eight weeks from communication of the order in this judgment).
Cross-references and outcome
Cross-reference: Issue 1's conclusion (commencement date) controls computation under Issue 3 (rate) - interest computed at 12% runs from 22.02.2008 to refund date. Issue 2 is distinguished from Issue 3: although some authorities award interest from deposit date where deposits were pre-deposits made during investigation, those are fact-specific and do not displace the statutory trigger under Section 11BB for ordinary refund claims.
Disposition: The impugned order denying interest is set aside to the extent necessary; refundant interest is directed as above (commencement from three months after original refund application, at 12% per annum), with payment to be made within the timeframe ordered by the Tribunal.
Interest on delayed refund - relevant date from which the interest would be payable by the Revenue - rate of interest thereon.
Interest on delayed refund - relevant date from which the interest would be payable by the Revenue - HELD THAT:- The issue is no more res integra. The Hon‟ble Supreme Court in the case of RANBAXY LABORATORIES LTD. VERSUS UNION OF INDIA AND ORS. [2011 (10) TMI 16 - SUPREME COURT] has held that 'the liability of the revenue to pay interest under Section 11BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund under Section 11B(1) of the Act and not on the expiry of the said period from the date on which order of refund is made.'
Thus, the appellant is eligible for the interest taking the refund claim date as the base. The appellant has filed the refund claim on 22.11.2007. Hence after considering the period of 3 months for processing of this application, the interest would be payable from 22.02.2008 till the date on which the refund has been paid to them.
Rate of interest to adopted - HELD THAT:- The Allahabad Bench, in the case of M/S. PARLE AGRO PVT. LTD. VERSUS COMMISSIONER, CENTRAL GOODS & SERVICE TAX, NOIDA (VICE-VERSA) [2021 (5) TMI 870 - CESTAT ALLAHABAD] has held that 'Section 11BB provides for interest on delayed refund. It states that if any duty ordered to be refunded under sub-section (2) of Section 11B is not refunded within three months from the date of receipt of the application, then the applicant shall be entitled to interest after the expiry of three months from the date of receipt of the application at such rate not below 5% and not exceeding 30% as may be notified by the Central Government in the Official Gazette.' - thus, the appellant would be eligible for interest @ 12% per annum.
Conclusion - i) The interest is required to be paid from three months from the date of the initial filing of the refund claim till the date of granting the refund. ii) The interest is to be paid @ 12% per annum. iii) Interest to be paid within 8 weeks from the date of communication of this order.
Appeal allowed.
Issues: Whether the appeal before the Commissioner (Appeals) was barred by limitation and whether the appellant rebutted the presumption of service of the order-in-original so as to justify condonation of delay.
Analysis: Section 85(3A) of the Finance Act, 1994 permits filing of an appeal within two months from receipt of the adjudication order and empowers the Commissioner (Appeals) to condone delay only up to a further period of one month. The record showed postal delivery of the order-in-original at the appellant's address, attracting the statutory presumption of service under Section 27 of the General Clauses Act, 1897, and a corresponding rebuttable presumption under Section 114 of the Evidence Act, 1872. The appellant's affidavit was found insufficient to dislodge the documentary proof of service, especially in view of the surrounding conduct showing awareness of the proceedings and lack of due diligence.
Conclusion: The appeal was time-barred, the delay could not be condoned beyond the statutory limit, and the dismissal of the appeal by the Commissioner (Appeals) was upheld.
Ratio Decidendi: Where the statute prescribes a fixed outer limit for condonation of delay in appeal, the appellate authority cannot entertain a delayed appeal beyond that limit, and service by post is presumed proved unless the contrary is established by cogent evidence.
Rejection of appeal on the grounds of limitation - delay in filing the said appeal was much beyond the period of 60 days + 30 days as per Section 85 of Finance Act, 1994 - HELD THAT:- Sub clause 3(A) of Section 85 of the Finance Act, 1994, makes it abundantly clear that the Commissioner (Appeals) is being vested with the power to condone the delay which may occur while filing the appeal before him, only for further period of one month (30 days) over and above the period of two months during which, otherwise, the appeal would have been filed. The present appeal apparently and admittedly has been after a delay of more than 12 months from the date of receipt of order-in-original as shown in the document received from Postal Department. Keeping in view the said statutory mandate of Section 85(3A) of Finance Act, 1994, there are no infirmity in the impugned order where the Commissioner (Appeals) has rejected the present appeal on the grounds of limitation.
There are no request from the appellant even post receiving the recovery notice dated 15.02.2023 vide which appellant would have requested the department for the status/copy of the order in original. It is also observed that even after receiving the copy of order in appeal admittedly, on 24.02.2023 the present appeal has been filed at the period of two months from the said date. The said conduct is insufficient to reflect the due diligence on part of the appellant specifically when appellant was aware of the impugned proceedings.
Conclusion - The statutory limits for filing appeals under Section 85 of the Finance Act, 1994, are strict and cannot be extended beyond the prescribed period. The appeal was dismissed due to being filed beyond the permissible period.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal question considered in this judgment is:
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents
The case revolves around Rule 8(3A) of the Central Excise Rules, 2002, which required assessees in default of duty payment to pay duty on consignment basis without utilizing CENVAT credit until the outstanding amount with interest was paid. This rule was challenged and subsequently declared unconstitutional by various High Courts, including the Gujarat High Court in Indsur Global Ltd. v. Union of India and the Madras High Court in Malladi Drugs & Pharmaceuticals Ltd. v. Union of India. These rulings held that the rule was ultra vires of the Constitution, specifically Article 14, for being unreasonable and arbitrary.
Court's interpretation and reasoning
The Tribunal noted that the issue of utilizing CENVAT credit during default is no longer res integra, as multiple judicial authorities have invalidated the condition in Rule 8(3A) as unconstitutional. The Tribunal followed the precedents set by the Gujarat and Madras High Courts, which struck down the rule as it infringed upon the substantive right of an assessee to utilize CENVAT credit.
Key evidence and findings
The appellant's submission included references to previous judgments where Rule 8(3A) was deemed unconstitutional. The appellant also provided an affidavit and a Chartered Accountant's certificate to substantiate the interest calculations for delayed duty payments, which were taken on record by the Tribunal.
Application of law to facts
The Tribunal applied the legal precedents to the facts of the case, determining that the demands made under Rule 8(3A) could not be sustained. The Tribunal emphasized that the rule had been consistently held as unconstitutional by various High Courts and that the Department's appeal against the Gujarat High Court's decision was settled in the Supreme Court, reinforcing the invalidity of the rule.
Treatment of competing arguments
The Tribunal considered the department's arguments, which reiterated the findings of the impugned order. However, given the established legal precedents declaring Rule 8(3A) unconstitutional, the Tribunal found no merit in the department's position and ruled in favor of the appellant.
Conclusions
The Tribunal concluded that the demands made under Rule 8(3A) were unsustainable in law, set aside the impugned order, and allowed the appellant's appeal with consequential benefits.
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning
"The issue as to whether the Assessee can utilise the CENVAT credit toward payment of duty when in default is no more res integra and many judicial authorities have held that the provision of Rule 8(3A) of Central Excise Rules, 2002 as ultravires to the Main Act."
Core principles established
Final determinations on each issue
Demands made for violation of Rule 8(3A) of the Central Excise Rules, 2002 - HELD THAT:- This bench has in the case of M/S. SAS AUTOCOM ENGINEERS INDIA PVT. LTD. AND SHRI S. SHYAM RAJ VERSUS COMMISSIONER OF GST AND CENTRAL EXCISE, CHENNAI [2024 (11) TMI 343 - CESTAT CHENNAI], followed the ratio decidendi laid down in the aforementioned Judgements of the Honourable High Courts of Gujarat and Madras and has held 'Rule 8(3A) of Rules, 2002 is ultra vires of Article 14 of Constitution being unreasonable, irrational, arbitrary and violative.' - in view of the above position in law as settled by the Honourable Constitutional Courts, which is being consistently followed by this Bench, there is no merit in the confirmation of demands made in the impugned order and hence the impugned order cannot sustain.
Interest due on the duty amount paid by the Appellant - HELD THAT:- While the impugned order has confirmed the demand of additional payment towards interest due after considering the amount paid by the Appellant, on the basis of the report dated 06.04.2015 of the Preventive Unit, Puducherry; in light of the affidavit filed by the Appellant duly supported by the chartered accountant’s certificate, reiterating the payable interest as Rs.15,18,153/-, that has already been paid, we leave it to the Adjudicating Authority to verify the CA certificate, if felt necessary, and hold the Appellant to its affidavit. Registry is directed to forward a copy of the affidavit and the CA certificate filed to the jurisdictional Commissioner, while dispatching this order.
Conclusion - Rule 8(3A) of the Central Excise Rules, 2002, is unconstitutional and invalid as it infringes upon the substantive right of an assessee to utilize CENVAT credit. The rule is unreasonable, irrational, arbitrary, and violative of Article 14 of the Constitution.
The impugned order set aside - appeal allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether CENVAT credit of service tax paid under reverse charge mechanism (RCM) for Goods Transportation Agency services can be validly availed in the month in which the relevant invoice/challan is received, notwithstanding payment of service tax being due by 5th of the next month (Rule 3(4), Rule 4(7) and Rule 9(1), CENVAT Credit Rules, 2004).
2. Whether availment of CENVAT credit prior to actual payment of service tax under RCM attracts disallowance and recovery, and whether interest under Sections 11AA/11AB of the Central Excise Act and Rule 14 of the CENVAT Credit Rules is payable where credit is availed but not utilized before making the RCM payment.
3. Whether imposition of penalty equal to the amount of disallowed credit under Section 11AC read with Rule 15 of the CENVAT Credit Rules is sustainable where availment of credit is found to be proper and there is no utilization prior to payment.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Legal framework for availing CENVAT credit on input services under RCM
Legal framework: Rules 4(7) and 9(1) of the CENVAT Credit Rules, 2004 prescribe that CENVAT credit in respect of input services shall be allowed on or after the day on which the invoice or challan referred to in Rule 9 is raised; Rule 9(1)(a) allows a manufacturer to claim credit based on specified documents (including invoices/challans) issued by service providers. Rule 3(4) concerns timing of payment under RCM.
Precedent treatment: The Tribunal has previously followed the proposition that credit can be availed on the basis of prescribed documents (invoices/TR-6 challans) and that receipt of such documents is material for entitlement. Decisions cited by the appellant (including a recent Tribunal decision considering Ind-Swift Laboratories Ltd.) support that document-based entitlement and subsequent compliance with payment provisions are determinative.
Interpretation and reasoning: The Tribunal construed Rules 4(7) and 9(1) to mean that entitlement to CENVAT credit arises when the document specified in Rule 9(1) is received. Where RCM payment is required by the 5th of the next month, receipt of invoice/TR-6 challan in the relevant month suffices for availing credit for that month, subject to compliance with payment due dates. The Tribunal found the assessee possessed the requisite invoices/challans for the disputed period.
Ratio vs. Obiter: Ratio - entitlement to CENVAT credit on input services for a month is established by receipt of documents specified in Rule 9(1), even where payment under RCM falls due thereafter, provided other statutory requisites are met. This forms a binding part of the decision. Any ancillary remarks on administrative practice are obiter.
Conclusion: The Tribunal held that CENVAT credit availed on the basis of invoices/TR-6 challans for GTA services during the period in dispute was legally permissible; the allegation of wrongful availment contrary to Rule 3(4) was not sustainable.
Issue 2 - Liability for interest where credit is availed before payment under RCM but not utilized before payment
Legal framework: Interest provisions under Sections 11AA/11AB of the Central Excise Act and Rule 14 of the CENVAT Credit Rules apply where tax/credit irregularity causes delayed remittance; assessment of interest depends on whether credit was utilized and whether payment was delayed vis-à-vis utilization.
Precedent treatment: The Tribunal relied on its recent decision that after considering the Supreme Court decision in Union of India v. Ind-Swift Laboratories Ltd., interest is not payable where CENVAT credit, though availed, has not been utilized prior to the payment of the underlying service tax. Several decisions cited by the appellant support the proposition that interest is linked to utilization causing short remittance rather than mere availment.
Interpretation and reasoning: The Tribunal reasoned that if credit is availed but remains unutilized before the payment of service tax under RCM, no actual deprivation of revenue arises that would attract interest. The maximum equitable remedy, if utilization preceded payment, would be demand for interest for the short period of such utilization; but where no utilization occurred, interest liability does not arise. The factual finding was that the credit taken was not utilized for other liabilities in the relevant months.
Ratio vs. Obiter: Ratio - no interest is payable where CENVAT credit availed prior to payment under RCM is not utilized before the RCM payment, aligning with prior Tribunal precedent and Supreme Court reasoning as interpreted. Observations about hypothetical short-period utilization and corresponding limited interest are obiter to the extent they address scenarios not present on facts.
Conclusion: The Tribunal held that no interest was payable as the appellant had not utilized the credit before making payment of service tax under RCM; accordingly interest charged in the impugned order was set aside.
Issue 3 - Penalty assessment where availment found proper and no utilization before payment
Legal framework: Section 11AC of the Central Excise Act read with Rule 15 of the CENVAT Credit Rules prescribes penalty for wrongful availment or misuse of CENVAT credit; imposition requires demonstration of irregularity or wrongful availment.
Precedent treatment: Penalty jurisprudence requires a finding of culpability or irregular availment; where availment is consistent with statutory provisions and documents, penalty is normally not sustainable.
Interpretation and reasoning: Given the Tribunal's findings that (a) the appellant had requisite invoices/challans and thus entitlement to credit, and (b) the credit was not utilized prior to payment of the RCM liability, there was no irregularity or wrongful availment attracting penalty. The Tribunal reasoned that absence of misuse or deprivation of revenue negated the basis for imposing penalty equal to the credit amount.
Ratio vs. Obiter: Ratio - penalty under Section 11AC cannot be sustained where the availment of credit is lawful and there is no utilization constituting misuse; such penalty is therefore inappropriate. Ancillary comments on proportionality are obiter.
Conclusion: The Tribunal set aside the penalty imposed under Section 11AC/Rule 15, holding it unsustainable in light of lawful availment and absence of utilization before payment.
Cross-references and overall disposition
All three issues are interlinked: entitlement under Rules 4(7)/9(1) establishes lawful availment (Issue 1), which determines interest exposure under Sections 11AA/11AB (Issue 2) and penalty exposure under Section 11AC/Rule 15 (Issue 3). Applying these principles to the facts, the Tribunal allowed the appeal, set aside demand and interest, and quashed the penalty.
Disallowance/recovery of CENVAT Credit along with interest and imposed equal amount of tax as penalty - service tax paid under the reverse charge mechanism (RCM) for Goods Transportation Agency (GTA) services - Interest and penalty - HELD THAT:- The appellant has paid service tax on GTA service under RCM basis. Under RCM basis, the service tax liability is paid within 5th of the next month and the CENVAT Credit of the same is availed by the Appellant while filing the ST 3 return of the half year wherein the said amount paid by the Appellant is also shown as CENVAT Credit in the Cenvat table of the return. The same is also disclosed in ER 1 return by the Appellant. Thus, it is observed that the allegation of availment of CENVAT Credit without payment cannot arise as the payment is done within the due date of payment of service tax which is also visible from the table set out in the demand order. There is no dispute with respect to the genuineness of input services availed by them. Thus, the appellant is eligible to avail the credit and the allegation in this regard in the impugned order is not sustainable.
Utilization of credit before making payment of the service tax - HELD THAT:- It is observed that if the appellant has utilized the credit before making the payment of service tax on GTA service, at the maximum the department could have demanded interest for the few days before which the credit was utilised, before payment. However, it is observed from the submission of the appellant that although they have availed the CENVAT Credit during the relevant period, they have not utilised the credit for the payment of any other liabilities for the said month. Thus, there is no obligation on them to pay any interest.
Hon’ble Supreme Court in UOI AND ORS. VERSUS IND-SWIFT LABORATORIES LTD. [2011 (2) TMI 6 - SUPREME COURT] held that no interest is payable when there is no utilisation of CENVAT Credit. By following the ratio of the decisions, it is held that the appellant is not liable to pay interest as the credit taken by the appellant was not utilized before making the payment of service tax.
Levy of penalty - HELD THAT:- Since there is no irregularity in availment of the credit, no penalty imposable on the appellant and hence the penalty imposed in the impugned order is set aside.
Conclusion - i) The appellant is eligible to avail the CENVAT Credit of service tax of Rs. 1,35,91,278 - paid by them on RCM basis for Goods Transportation Agency Services and hence the demand confirmed in the impugned order along with interest, is set aside. ii) The penalty imposed on the appellant in the impugned order is set aside.
Appeal disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal issue in this case is whether interest is liable to be paid if the differential duty is paid before the finalization of provisional assessment under Rule 7(4) of the Central Excise Rules, 2002.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The legal framework revolves around Rule 7(4) of the Central Excise Rules, 2002, and Section 11AB of the Central Excise Act, 1944. The rule mandates the payment of interest on differential duty arising from the finalization of provisional assessments. Precedents considered include various tribunal decisions and judgments from higher courts, including the Supreme Court, which have interpreted these provisions.
Court's Interpretation and Reasoning:
The Tribunal interpreted that the liability for interest on differential duty is statutory and arises from the date of removal of goods, irrespective of whether the differential duty is paid before the finalization of the provisional assessment. The Tribunal relied on the principle that interest is compensatory and is imposed for the delay in payment of duty due.
Key Evidence and Findings:
The Tribunal considered the appellant's payment records, which showed that the differential duty was paid before the finalization of the provisional assessment. However, the Tribunal found that this did not absolve the appellant from the liability to pay interest, as the interest is calculated from the date the duty was originally due.
Application of Law to Facts:
The Tribunal applied Rule 7(4) and Section 11AB to the facts, concluding that the appellant was liable to pay interest on the differential duty amounting to Rs. 68,07,274/-, despite having paid the duty before the assessment's finalization. The Tribunal emphasized that the statutory obligation to pay interest is not negated by the timing of the differential duty payment.
Treatment of Competing Arguments:
The appellant argued that interest should not be charged as the differential duty was paid before the finalization of the assessment. They cited various tribunal decisions supporting this view. However, the Tribunal rejected these arguments, emphasizing the statutory nature of the interest liability and referencing the Supreme Court's decision in Bharat Heavy Electricals Ltd., which upheld the interest liability regardless of the timing of the differential duty payment.
Conclusions:
The Tribunal concluded that the appellant was liable to pay interest on the differential duty under Section 11AB, affirming the adjudication authority's decision. The appeal was dismissed based on the interpretation that interest is due from the date of removal of goods, not the finalization of the assessment.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
The Tribunal quoted the Supreme Court's reasoning that "interest is compensatory in nature and is imposed on an assessed amount who has withheld any tax as and when it was due and payable."
Core Principles Established:
The judgment reinforced the principle that interest on differential duty is a statutory liability that arises from the date of removal of goods, irrespective of when the differential duty is paid. The interest serves as compensation for the delay in payment of the duty due.
Final Determinations on Each Issue:
The Tribunal determined that the appellant was liable to pay interest on the differential duty amounting to Rs. 68,07,274/-, affirming the lower authorities' decisions. The appeal was dismissed, and the statutory nature of the interest liability was upheld.
This judgment highlights the importance of understanding the statutory obligations under the Central Excise Act and Rules, particularly concerning the payment of interest on differential duties. It also underscores the judiciary's role in interpreting these provisions consistently with established precedents.
Liability of interest if differential duty is paid before finalization of provisional assessment in terms of Rule 7(4) of Central Excise Rules, 2002 - HELD THAT:- The issue regarding demand of interest on the goods which were cleared provisionally was considered by the Hon’ble High Court of Allahabad in the matter of M/s Bharat Heavy Electricals Ltd [2015 (8) TMI 1055 - ALLAHABAD HIGH COURT], wherein it is held that 'There is no doubt that interest is compensatory in nature and is imposed on an assessed amount who has withheld any tax as and when it was due and payable. Levy of interest is on actual amount of tax withheld and the extent of the delay in paying the tax on the due date'.
Conclusion - Interest on differential duty is a statutory liability that arises from the date of removal of goods, irrespective of when the differential duty is paid. The interest serves as compensation for the delay in payment of the duty due.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issue presented in this case is whether the appellant is eligible for CENVAT Credit on inputs received from a 100% Export Oriented Unit (EOU) under the Cenvat Credit Rules, 2004, particularly in light of amendments to Rule 3(7)(a) and the applicability of certain notifications and duties.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The legal framework revolves around the Cenvat Credit Rules, 2004, specifically Rule 3(7)(a), which governs the availment of CENVAT Credit on inputs received from EOUs. The rule was amended by Notification No. 22/2009 CE (NT) dated 07.09.2009, which plays a crucial role in this case. The appellant also referenced prior decisions, including those in Encure Pharmaceuticals Ltd., Shreya Pets Ltd., and Tyche Industries Ltd., which addressed similar issues regarding the availment of credit on duties other than the basic excise duty.
Court's Interpretation and Reasoning:
The Tribunal focused on whether the appellant's availing of CENVAT Credit was in accordance with Rule 3(7)(a) before its amendment. The Tribunal noted that the rule restricts the availment of credit to the formula specified therein for basic excise duty but does not explicitly cover other duties such as Education Cess and Secondary Higher Education Cess. The Tribunal also considered the appellant's argument that the legislative intent was not to restrict the credit of these additional duties.
Key Evidence and Findings:
The Tribunal acknowledged that the appellant had availed credit based on invoices issued by the EOU, which had cleared goods by availing benefits under certain notifications. The Tribunal found no dispute regarding the proper payment of duty by the EOU, as evidenced by the invoices.
Application of Law to Facts:
The Tribunal applied the legal principles from prior cases, particularly the interpretation that Rule 3(7)(a) restricts only the basic excise duty credit and not other duties. It found that the appellant was entitled to avail full credit of Education Cess and other duties paid by the EOU, as these were not explicitly restricted by the rule.
Treatment of Competing Arguments:
The Tribunal considered arguments from both the appellant and the respondent. The appellant argued that the restrictive formula under Rule 3(7)(a) should not apply to duties other than the basic excise duty, supported by prior Tribunal decisions. The respondent maintained that the appellant was not eligible for the credit as per the adjudication authority's findings. The Tribunal favored the appellant's interpretation, supported by precedent cases.
Conclusions:
The Tribunal concluded that the appellant was eligible for the CENVAT Credit on the inputs received from the EOU, including the Education Cess and other duties, as these were not covered by the restrictive formula under Rule 3(7)(a).
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
"Rule 3(1) allows a manufacturer to take credit of specified duties paid on inputs or capital goods or input services and Rule 3(4) allows a manufacturer to utilise such credit for payment of excise duty on final product or service tax on output service. However, an exception has been carved out in respect of inputs supplied by an EOU, where the availment of credit is restricted to the formula specified under Rule 3(7)(a) only in respect of basic excise duty levied under Section 3 of the Central Excise Act."
Core Principles Established:
The Tribunal reaffirmed the principle that Rule 3(7)(a) of the Cenvat Credit Rules, 2004, restricts the availment of credit only for the basic excise duty and does not extend to other duties such as Education Cess and Secondary Higher Education Cess. It emphasized the importance of legislative intent and the specific language used in statutory provisions.
Final Determinations on Each Issue:
The Tribunal determined that the appellant was eligible for the CENVAT Credit on inputs received from the EOU, including the Education Cess and other duties, as these were not restricted by the amended Rule 3(7)(a). The appeal was allowed with consequential relief in accordance with the law.
Eligibility of CENVAT Credit on inputs received from EOU unit of the appellant - Whether the credit availed by the appellant based on the strength of the invoices issued by the 100% EOU prior to amendment Rule 3(7)(a) of the Cenvat Credit Rules, 2004 by Notification No.22/2009 CE (NT) dated 07.09.2009 is correct or otherwise? - HELD THAT:- The very same issue was considered by this Tribunal in the matter of SHREYA PETS PVT. LTD. VERSUS COMMISSIONER OF CUS. & C. EX., HYDERABAD-IV [2008 (9) TMI 351 - CESTAT, BANGALORE], wherein it is held that 'Mumbai Bench has given a clear cut finding that appellants are entitled to avail 100% credit of Education Cess on the goods supplied to them by a 100% EOU in terms of the above findings. The findings given by the Commissioner (A) is not legal and proper and the same is set aside by allowing the appeal with consequential relief.'
Conclusion - Rule 3(7)(a) of the Cenvat Credit Rules, 2004, restricts the availment of credit only for the basic excise duty and does not extend to other duties such as Education Cess and Secondary Higher Education Cess. The appellant is eligible for the CENVAT Credit and the appeal is sustainable.
Appeal allowed.
Issues: (i) whether the assessee could be relegated to the statutory appellate remedy under Section 62 of the Karnataka Value Added Tax Act, 2003 despite the challenge to the assessment orders in writ jurisdiction; (ii) whether the requirement of pre-deposit could be treated as a bar to availing the statutory appeal; (iii) whether the same relief could be granted in the connected appeal on the principle of parity.
Issue (i): Whether the assessee could be relegated to the statutory appellate remedy under Section 62 of the Karnataka Value Added Tax Act, 2003 despite the challenge to the assessment orders in writ jurisdiction.
Analysis: The appellate remedy created by the statute is ordinarily to be pursued in tax matters, and the availability of such remedy justified directing the assessee to the statutory forum instead of entertaining the writ challenge on merits. The Court treated the matter as fact-specific and did not lay down any general rule against writ intervention.
Conclusion: The assessee was permitted to avail the statutory appeal under Section 62.
Issue (ii): Whether the requirement of pre-deposit could be treated as a bar to availing the statutory appeal.
Analysis: The statutory right of appeal can validly be conditioned by a pre-deposit requirement, and the existence of such a condition does not by itself justify bypassing the appellate remedy. The Court, however, granted limited indulgence by allowing the appeal to be filed on compliance with the stipulated deposit.
Conclusion: The appeal was made contingent upon deposit of 30% of the disputed tax with interest as directed.
Issue (iii): Whether the same relief could be granted in the connected appeal on the principle of parity.
Analysis: The connected matter involved substantially similar facts and issues, and the principle that like cases should be treated alike applied. In the absence of distinguishing circumstances, identical relief was extended in the companion appeal.
Conclusion: The connected appeal was disposed of on the same terms as the companion matter.
Final Conclusion: The assessee was not granted writ relief on merits, but was given access to the statutory appellate remedy with a conditional deposit requirement, and the same treatment was extended to the connected appeal.
Ratio Decidendi: Where a statute provides an efficacious appellate remedy, the writ court may relegate the assessee to that remedy and condition access to appeal on compliance with the statutory pre-deposit requirement.
Maintainability of petition - availability of alternative statutory appellate remedy - invocation of writ jurisdiction of the High Court - HELD THAT:- It is inclined to grant a limited indulgence in the matter to the effect that appellant can prefer a statutory appeal against the orders that were impugned in the writ petitions subject to he making pre-deposit of 30% of disputed tax along with interest accruing due thereon till the filing of writ petitions i.e., 30.08.2019, within four weeks.
This appeal is disposed off permitting the appellant to avail the remedy of statutory appeal under section 62 of the 2003 Act subject to depositing 30% of the amount due in terms of the impugned Assessment Orders; the interest accruing due on such amount only till 30.08.2019 shall also be reckoned while computing this.
Issues: Whether toasted bread was classifiable under Entry 34 of Schedule A of the Orissa Value Added Tax Act, 2004 as bread, or under Entry 77B of Schedule B as rusk or hardened bread, and whether any substantial question of law arose from the Tribunal's decision.
Analysis: The product was found to be essentially bread, but the statutory scheme treated bread and toasted bread differently by providing separate entries. Entry 34 covered bread, while Entry 77B covered mixture, bhujia, namkin, farshan and rusk, that is, hardened bread. The product, being toasted bread, was treated as hardened bread and therefore fell within the taxable entry. The earlier decisions relied upon were found inapplicable because the corresponding statutory setting and entry structure were materially different. On that basis, no confusion in the Tribunal's factual finding was accepted and no substantial question of law was seen to arise.
Conclusion: The toasted bread was held to fall under the taxable entry in Schedule B and not under the exempt bread entry in Schedule A. The challenge failed.
Final Conclusion: The revision was dismissed after upholding the classification adopted by the Tribunal and the absence of any substantial question of law.
Ratio Decidendi: Where the statute provides separate entries for bread and for rusk or hardened bread, toasted bread may be classified under the latter taxable entry if the factual finding is that the product is hardened bread.
Violation of principles of natural justice - passing a non-speaking order without considering the submissions of the Petitioner - classification of product as "Rusk" under Entry 77B of the Schedule of the OVAT Act, 2004, instead of classifying it as "Bread (branded or otherwise)" under Entry 34 of Schedule A of the OVAT Act, 2004 - non-consideration of judgment of KESHARWANI ENTERPRISES VERSUS STATE OF CHHATTISGARH AND OTHERS (AND OTHER CASES) [2018 (3) TMI 1683 - CHATTISGARH HIGH COURT] - HELD THAT:- The product in question is essentially bread. However, the Odisha Act provides for two separate entries in respect of bread. When something more is done to it to result in toasted bread, it is included in the separate taxable entry. On perusal of the assessment order, the first appellate order and impugned order we do find there has been different findings on fact regarding the product. However, the Tribunal does not appear to have suffered from any confusion in finding, as the last forum to find on facts that the product is toasted bread. Though entry 77B in Schedule B includes products other than rusk, but given meaning by the entry, of rusk to be hardened bread, the Tribunal cannot be faulted for coming to a finding that petitioner’s product is hardened bread as in toast. It is a clear case of the product of bread having two applicable classifications.
The decision in Kesharwani Enterprises is not applicable since the Chhattisgarh Act does not have an entry corresponding to entry 77B in Schedule B. Also, revenue’s submission regarding G. RADHAKRISHNA MURTHI & CO. AND OTHERS VERSUS COMMERCIAL TAX OFFICER-IVB, VIJAYAWADA AND OTHERS (AND OTHER APPEALS AND WRIT PETITION) [1997 (2) TMI 474 - SUPREME COURT], of a distinct and separate product said by the Supreme Court as cannot come within the entry, as cannot be expanded to accommodate it, to be inapplicable because the Odisha Act provides for two separate entries in respect of essentially the same products bread and rusk, the latter being hardened bread as in toast.
Conclusion - The product in question is essentially bread. The Tribunal's classification of the product under Entry 77B and imposition of penalty is upheld.
There are no substantial question of law to arise from impugned judgment of the Tribunal. The review petition is dismissed.
Issues: (i) Whether penalty under sub-section (7) of section 16 of the HP VAT Act, 2005 could be sustained without a specific finding on compliance with sub-section (4) of section 16.
Analysis: The penalty provision under section 16(7) is triggered only on failure to comply with the payment requirement in section 16(4). The authorities had not recorded any specific finding on the applicability or breach of section 16(4) before invoking penalty under section 16(7). In the absence of such foundational finding, the penal orders lacked the necessary legal basis and could not be sustained. The matter also required reconsideration in the light of the principles governing imposition of penalty and the need for judicially exercised discretion.
Conclusion: The penalty orders were unsustainable and the matter was remitted to the assessing authority for fresh after considering the relevant legal principles.
Final Conclusion: The petitioner obtained relief, with the impugned orders set aside and the case sent back for reconsideration in accordance with law.
Ratio Decidendi: A penalty provision conditioned on breach of a statutory compliance requirement cannot be invoked without a specific finding establishing breach of that precondition, and a penal order founded on such omission is liable to be set aside and reconsidered afresh.
Applicability of provisions of sub-section (4) of Section 16 of HP VAT Act, 2005 - HELD THAT:- Without there being a specific finding with regard to applicability of sub-section (4) of Section 16, the orders passed by the authorities below cannot sustain.
The present revision petition is allowed and the matter is remitted back to the assessing authority to decide the case afresh and while doing the assessing authority shall take into consideration the ratio of the judgments laid down by the Hon’ble Supreme Court in HINDUSTAN STEEL LIMITED VERSUS STATE OF ORISSA [1969 (8) TMI 31 - SUPREME COURT], the judgment of Rajasthan High Court in ASSISTANT COMMERCIAL TAXES OFFICER VERSUS KAMAL GLASS BOTTLES SUPPLY CO. [1992 (3) TMI 340 - RAJASTHAN HIGH COURT], A Division Bench judgment of Orissa High Court in INDIAN PAINTS AND CHEMICALS (P) LTD. VERSUS SALES TAX OFFICER, CUTTACK CENTRAL I CIRCLE [1997 (5) TMI 409 - ORISSA HIGH COURT] and the judgment of Hon’ble Supreme Court in DAYLE DE’SOUZA VERSUS GOVERNMENT OF INDIA THROUGH DEPUTY CHIEF LABOUR COMMISSIONER (C) AND ANOTHER [2021 (11) TMI 67 - SUPREME COURT], wherein it was held that 'Under the Proviso (a) to Section 200 of the 1973 Code, there may lie an exemption from recording pre-summoning evidence when a private complaint is filed by a public servant in discharge of his official duties; however, it is the duty of the Magistrate to apply his mind to see whether on the basis of the allegations made and the evidence, a prima facie case for taking cognizance and summoning the accused is made out or not.'
Matter remanded back to the assessing authority for fresh consideration with specific instructions to comply with procedural requirements and exercise discretion judiciously.
Issues: Whether the delay in filing the appeal deserved condonation on the showing of sufficient cause.
Analysis: The notice and assessment proceedings were duly served, and the explanation offered for the belated challenge was found unconvincing. The authorities below had declined to condone the delay after rejecting the account given for non-filing within time. On the record, no material was shown to establish a credible explanation for the delay, nor was any perversity demonstrated in the exercise of discretion by the appellate authorities.
Conclusion: The refusal to condone the delay was upheld, and the appeal failed.
Ratio Decidendi: Interference with a refusal to condone delay is unwarranted where no sufficient cause is established and the discretionary finding is not shown to be perverse.
Condonation of delay in filing the appeal against the ex-parte assessment order - no sufficient cause has been made out for condoning the delay - HELD THAT:- The First Appellate Authority as well as the MSTT have correctly come to the conclusion that no sufficient cause has been made out for condoning the delay. It is the case of the Appellant that the ex-parte assessment order, and which was challenged under Section 26, was served upon the brother of one of the partners of the Appellant-Firm. That brother did not inform any of the partners of the passing of the assessment order and therefore the delay in filing the Appeal. Both the Authorities below have disbelieved this story and hence refused to exercise their discretion in condoning the delay. After going through the record we also find the story of the Appellant rather unbelievable.
There is absolutely no explanation coming forward as to how the brother of one of the partners of the firm, and who claims that he was never a partner of the Appellant-firm, got his hands on the seal of the partnership firm. Even the affidavit filed by the said brother, and which is on record at Exhibit- “F” of the Petition, is completely silent on how he (the brother) had in his possession the seal of a partnership firm of which he claims he was never a partner. Even in the above Appeal, no explanation is given as to how the brother of the one of the partners had in his possession the seal of the partnership firm.
Conclusion - The delay in filing the appeal was not condoned due to the lack of sufficient cause.
Appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Authorization to File the Complaint
Issue 2: Rebuttal of Presumptions under Sections 118 and 139 of the NI Act
Issue 3: Legally Enforceable Debt or Liability
Issue 4: Justification of Acquittal by the Learned MM
3. SIGNIFICANT HOLDINGS
Dishonour of cheque - acquittal of offence under Section 138 of the Negotiable Instruments Act, 1881 - rebuttal of presumption under Sections 118 and 139 of the NI Act - HELD THAT:- The present case relates to acquittal of an accused in a complaint under Section 138 of the NI Act. The restriction on the power of Appellate Court in regard to other offence does not apply with same vigor in the offence under NI Act which entails presumption against the accused.
It is also well settled that once the execution of the cheque is admitted, the presumption under Section 118 of the NI Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the NI Act that the holder of the cheque/ respondent received the cheque in discharge of a legally enforceable debt or liability are raised against the accused.
In the present case, the ground on which the respondent has been acquitted is that since the money was advanced by the complainant and his children, the complainant himself was not entitled to the entire sum of money, that is, Rs. 7,00,000/-. The learned MM noted that the person in whose favour the cheque was issued must be entitled to the cheque amount or must have some special authorization to file a complaint qua the cheque of other person. It was noted that the present complaint was not maintainable qua Manish Gupta and Bhumika Gupta. Consequently, the learned MM noted that since the complainant himself was not entitled to the entire cheque amount thereby making the cheque amount more than the liability owed by the respondent, the respondent was liable to be acquitted.
It is undisputed that the respondent had entered into the agreement with the complainant, pursuant to which the subject cheque was issued to the complainant. The subject cheque, on presentation, dishonoured for the reason “Funds Insufficient.” Thus, all the ingredients to constitute an offence under Section 138 of the NI Act are met - The respondent was obligated to raise a probable defence in order to rebut the presumptions raised against him under Section 139 and 118 of the NI Act. Except for contentions that the complainant was not competent to file the complaint, and that the respondent was not liable to the entire cheque amount towards the complainant, the respondent has failed to raise a probable defence to rebut the presumptions raised against him.
Conclusion - The respondent failed to rebut the presumptions raised against him under Sections 139 and 118 of the NI Act.
The impugned judgment dated 19.11.2018, acquitting the respondent of the offence under Section 138 of the NI Act is accordingly set aside - List on 16.01.2025 for further directions.
Issues: Whether the conviction under Section 138 of the Negotiable Instruments Act, 1881 was liable to be interfered with in revision on the grounds that the cheque return memo was not proved, the reason for dishonour was said to be inconsistent, and the accused had failed to establish that the cheque was lost or misused.
Analysis: The revisional court's interference is limited to testing the correctness, legality and propriety of the concurrent findings and it does not function as a second appellate court. Once the signatures on the cheque were admitted, the presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881 arose that the cheque was issued for consideration and in discharge of a legally enforceable debt or liability. The burden then shifted to the accused to rebut those presumptions by raising a probable defence on a preponderance of probabilities. The defence that the cheque was misplaced or stolen was not supported by any complaint or other evidence, and a bare assertion was insufficient to displace the statutory presumptions. The plea that the dishonour reason was inconsistent or that no formal return memo was produced was also rejected, because dishonour on "stop payment" instructions still attracts Section 138, and Section 146 of the Negotiable Instruments Act, 1881 does not require a particular mode of intimation of dishonour. The challenge to the trial procedure did not show any prejudice, and the accused also failed to show that the concurrent findings were perverse or illegal.
Conclusion: The conviction under Section 138 of the Negotiable Instruments Act, 1881 was upheld and no revisional interference was warranted.
Dishonour of cheque - conviction of the accused under Section 138 of the Negotiable Instruments Act, 1881 - rebuttal of presumptions under Sections 118 and 139 of the NI Act - HELD THAT:- It is trite law that this Court is required to exercise restraint and should not interfere with the findings in the impugned orders or reappreciate evidence merely because another view is possible unless the impugned orders are wholly unreasonable or untenable in law.
It is also well settled that once the execution of the cheque is admitted, the presumption under Section 118 of the NI Act that the cheque in question was drawn for consideration and the presumption under Section 139 of the NI Act that the holder of the cheque/ respondent received the cheque in discharge of a legally enforceable debt or liability are raised against the accused.
From a perusal of the statement of the petitioner under Section 313 of the CrPC, it is apparent that the petitioner does not dispute that the respondent had advanced a sum of Rs. 20,00,000/- to the petitioner. The petitioner in fact admitted that he had already returned a sum of Rs. 12,00,000/- by way of various cash installments. He stated that the said amount was arranged by him by withdrawing the same from his bank account, and that he also had receipts in that regard - From a perusal of the impugned judgment, it is apparent that the learned ASJ took into account all the contentions of the petitioner. It was noted that since the petitioner had admitted his signatures on the cheque, the presumptions under Section 139 and 118 were raised against the petitioner.
In the present case, the petitioner sought to raise a probable defence by stating that the cheques in question were misplaced from his office for which he had lodged a police complaint and had given intimation to the bank. Though pleaded that the cheques were stolen, and that he had filed a police complaint, the petitioner failed to lead any evidence to corroborate the same. The petitioner failed to produce or append a copy of such police complaint. In the absence of any evidence to substantiate his claim, a bare averment that a police complaint had also been filed does not suffice to refute the presumption raised against the petitioner under Sections 139 and 118 of the NI Act - Since the signatures on the cheque were not disputed, the presumptions were raised against the petitioner under Section 139 and 118 of the NI Act. It was thus up to the petitioner to raise a probable defence on a preponderance of probabilities to contend that there existed no debt/liability in the manner as pleaded by the respondent.
Even otherwise, the learned ASJ did not rely upon the testimony of the Court witnesses while upholding the conviction of the petitioner under Section 138 of the NI Act. Since the signatures were not disputed, the onus was on the petitioner to have raised a probable defence on a preponderance of probabilities that there existed no debt/liability in the manner as pleaded by the respondent.
Conclusion - The petitioner had not led any evidence to controvert the presumptions against him under Section 118 and Section 139 of the NI Act. Once the signature on the cheque was admitted, it was for the petitioner to rebut, and establish a probable defence to show that on a preponderance of probabilities, there existed no debt/liability in the manner pleaded in the complaint/demand notice/affidavit evidence. In the opinion of this Court, the said burden had not been discharged. The learned ASJ rightly upheld the conviction of the petitioner under Section 138 of the NI Act, and the same cannot be faulted with.
Petition dismissed.
TaxTMI 