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Issues: (i) Whether the assessee was a resident in India for the relevant previous year under section 6(1)(c) of the Income-tax Act, 1961, and whether Explanation 1(a) or Explanation 1(b) to that provision extended the period of stay to 182 days; (ii) Whether, on the facts, the assessee was entitled to treaty residence in Singapore under Article 4 of the India-Singapore Double Taxation Avoidance Agreement; (iii) Whether the draft assessment order and consequent final assessment were invalid on the ground that the assessee was not an eligible assessee under section 144C of the Income-tax Act, 1961; (iv) Whether the demand computation required correction in respect of the refund amount.
Issue (i): Whether the assessee was a resident in India under section 6(1)(c), and whether Explanation 1(a) or Explanation 1(b) applied.
Analysis: The assessee stayed in India for 141 days in the relevant previous year and had stayed in India for more than 365 days in the preceding four years. The statutory conditions in section 6(1)(c) were therefore satisfied. Explanation 1(b) was held to be a relaxation intended for Indian citizens or persons of Indian origin who are already outside India and come on a visit to India, and not for a person who was resident in the immediately preceding year. Explanation 1(a) was also held inapplicable because the assessee had left India for employment in an earlier previous year, not in the relevant previous year.
Conclusion: The assessee was held to be a resident of India for the relevant year, and no benefit was allowed under Explanation 1(a) or Explanation 1(b).
Issue (ii): Whether the assessee was entitled to be treated as resident of Singapore under Article 4 of the India-Singapore DTAA.
Analysis: On the permanent home test, the assessee was found to have residential accommodation in both India and Singapore. On the centre of vital interests test, the Tribunal held that the assessee's personal and economic ties were closer to India, having regard to the Indian properties, investments, business nexus, and the substantial Indian connection of the overall factual matrix. The habitual abode test also did not shift the conclusion away from India.
Conclusion: The tie-breaker provisions did not assist the assessee, and treaty residence was held to be in India.
Issue (iii): Whether the draft assessment order was invalid for want of jurisdiction under section 144C on the ground that the assessee was not an eligible assessee.
Analysis: The assessee had filed the return as a non-resident, and the Assessing Officer proposed a variation prejudicial to the assessee by treating him as a resident. On that basis, the matter was held to fall within section 144C and the draft assessment procedure was treated as valid. The challenge based on limitation therefore failed.
Conclusion: The draft assessment order and the final assessment order were upheld as valid.
Issue (iv): Whether the demand computation required correction for the refund amount.
Analysis: The Tribunal accepted the grievance that the refund amount used in the computation had not been received by the assessee and directed the Assessing Officer to verify the position and issue refund afresh if required.
Conclusion: Relief was granted to the assessee on the refund computation issue.
Final Conclusion: The appeal succeeded only to the limited extent of the refund computation dispute, while the core challenges to residential status, treaty residence, and validity of the assessment procedure were rejected.
Ratio Decidendi: The day-count test in section 6(1)(c) applies unless the assessee strictly satisfies the statutory conditions for the specific Explanation invoked, and treaty residence under Article 4 turns on the sequential factual tests of permanent home, centre of vital interests, habitual abode, and nationality.
Period of stay in India - criteria of "permanent home" - "being outside India" OR "being non-resident" - residential status of Appellant u/s 6(1)(c) - assessee is resident of India or not? - habitual abode and nationality -assessee submitted that he did not "continue to stay in India' - assessee submitted that assessee has a permanent home in Singapore and assessee does not own any residential house in India and he has also not taken any house on rent in India it was the claim of the assessee that on the criteria of "permanent home" assessee has a permanent home in Singapore and does not have a permanent home in India - 'Tiebreaker" test of DTAA - Tie-breaker clause under Article 4 of the India-Singapore DTAA - applicability of provisions of Explanation is 7 (a) to section 9(1)(i) of the Act.
HELD THAT:- It is an undisputed fact that in FY 2019-20, assessee stayed in India for 141 days. Therefore according to section 6(1)(a) assessee does not cross threshold of 182 days.
According to provision of section 6(1)(c) of the Act, if having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for a period or periods amounting in all to 60 days or more in that year. Thus, both the cumulative considering of stay in four preceding years and also of stay in the relevant financial year needs to be satisfied to hold the assessee as resident in India.
Thus assessee has stayed for more than 365 [1237 days] in preceding four years, the first threshold of section 6(1)(c) is met.
Second threshold is of 60 days or more in the impugned financial year, for which assessee has stayed for more than 141 days in India. Therefore it also crosses the second threshold for satisfaction of section 6(1)(c) of the Act.
Explanation 1(b) to section 6(1)(c) provides for a concession for Indian citizens or persons of Indian origin who, being outside India, come on a visit to India in any previous year. In such cases, the prescribed period of 60 days in India to be considered a resident under clause (1)(c) is relaxed to 182 days. The objective behind this relaxation is to enable non-resident Indians who have made investments in India and who find it necessary to visit India frequently and stay here for the proper supervision and control of their investments to retain their status as non-resident.
As decided in Binod Kumar Singh [2019 (4) TMI 1533 - BOMBAY HIGH COURT] the assessee had migrated to a foreign country where he had set up his business interest. He pursued his higher education abroad, engaged himself in various business activities and continued to live there with his family. His whatever travels to India, would be in the nature of visits, unless contrary brought on record.
As in Sudhir Choudhrie [2017 (5) TMI 774 - ITAT DELHI] the word 'being outside India' for non-residents only as assessee was residing abroad and came to India claiming extension of time line from 60 days to 182 days.
Subsequent amendment in clause (b) of Explanation 1 also shows that it is enacted to counter instances where individuals who actually carry out substantial economic activities from India manage their period of stay in India to remain a non-resident in perpetuity and not be required to declare their global income in India. The amendment restricts the relaxation in clause (b) in Explanation 1. This, it is not obviating the difficulty of ' Non-resident' but restrictions to their non- residential status. This also shows that clause (b) of Explanation [1] applies only to non-residents.
Thus, we hold that ld AO and Ld DRP has correctly held that period of stay cannot be extended to 182 days instead of 60 days for deciding the residential status of the assessee as per second limb of section 6(1)(c) of the Act by virtue of Explanation 1 (b) of the Act.
Submission made by the assessee itself shows that he is not a person who is leaving India for employment but he is residing in Singapore, comes on brief visit to India. If the stand of the assessee is accepted that for this assessment year [ AY 2020-21] also the assessee should get a benefit of extended time period of 182 days instead of 60 days as per the second limb of section 6(1)(c) of the Act than every person who visits India will get such an extension of period every year. The provision applies only to the person who are leaving India and not visiting India. That is neither the intention nor the spirit of the provisions. Therefore he does not qualify even for the relaxation provided under Explanation 1 (a) of section 6(1)(c) of the Act.
It is not in dispute between the parties and both have confirmed that it is well settled that in construing fiscal statutes the principle of literal construction is paramount. Nothing can be read into or implied beyond the plain meaning of the words used. We also agree with the above submission of both the parties and we have construed the provisions of section 6 for the purpose of deciding the residential status of the assessee giving literal construction to the provisions. We accept the attempt of neither the revenue or assessee to read something more what has been legislated.
Therefore, we hold that assessee has been in India for more than 60 days and satisfied the residential test of provisions of section 6(1)(c) of the Act and is not entitled to the relaxation in the period of stay as envisaged under clause (a) or (b) to Explanation 1.
Argument of the assessee that he satisfies the criteria to be considered as a resident of Singapore as per Article 4 of the India Singapore Double Taxation Avoidance Agreement which has not been appreciated by the learned dispute resolution panel and the learned assessing officer who erroneously held that assessee is a resident of India even on application of Article 4 of The Double Taxation Avoidance Agreement - If the individual has a permanent home in both the contracting States, the issue of examining his centre of vital interest arises meaning thereby that it is to be ascertained with which of the two states his personal and economic relations are closer. One must have a regard to his family and social relationships, his occupation, his political, cultural or other activities, his place of business and the place from which he administers his property. The circumstances must be examined as a whole.
It is further attest that if a person who is a home in one state sets up a second in the other state while retaining the first, the fact that he retains the first in the environment very has always lived, where he has always worked and where he has his family and possessions, can, together with other elements go to demonstrate that he has retained his centre of vital interest in the first state.
In the present circumstances, the assessee has made investment only after he has shifted to Singapore. Still his major investment, his house properties are situated in India. His family has also migrated with him over a period of time. The wide variety of investments that he has made while in India such as alternative investment funds, unlisted companies equity shares, listed equity shares and mutual funds do not exist in Singapore. In Singapore the assessee has made investment in shares of unlisted companies and further held substantial assets through family trust where assessee and his wife are the major beneficiaries.
Assessee's major capital commitments of investments are also in India. Assessee has also provided loans to the tune of Rs. 30 crores to various entities in India. Assessee does not own any immovable property outside India. Therefore it is apparent that assessee has retained his houses in India where he has decided throughout his life, where he is carried out his business and in assessee's own words he is one of the most successful entrepreneurs through start-ups. It is to be appreciated that assessee moved with his family and his family also shifted to Singapore. But even his family does not have any home in Singapore, therefore, looking at his major economic interest, it is apparent that it is more closer in India than Singapore or anywhere else [ as no details provided about Investment in Singapore only]
Habitual abode, it is apparent that he stayed in India for 141 days in India and balance days in other countries. This is the first year that assessee went out of India for employment purposes. But he kept on visiting India for almost 141 days. Thus, for most part of his life, he was in India, he is having house in India. Thus the assessee worked only for the part of the year in Singapore and also lived in India for part of the year. Thus, In that case, the assessee will have an habitual abode in both India and Singapore.
Undisputedly, assessee is an Indian national.
In view of the above facts we hold that according to the Tiebreaker test also the assessee is a resident of India. Accordingly we uphold the order of the learned assessing officer and dismiss ground of the appeal.
Notices issued under section 143(2) by Addl. Commissioner, NaFAC instead of jurisdictional Assessing Officer to assessee under Central Charge - Where assessee, after being served with notice under section 143(2) had filed response and had also filed response to subsequent notices served under section 142(1) and had participated in proceedings culminating into assessment order, it could not challenge jurisdiction of Assessing Officer to pass impugned assessment order. Accordingly, respectfully following the decision of Adarsh Developers [2024 (1) TMI 425 - KARNATAKA HIGH COURT] we dismiss ground No. 6 of the appeal.
AO has treated the assessee as a 'resident' as per draft assessment - it is the argument of the assessee that when assessee is a 'resident' assessee, there is no requirement of passing of the draft assessment order u/s 144C(1) of the Act in case of a 'resident' assessee - While disposing the earlier grounds of this appeal, we have already held that action of the learned assessing officer is correct in treating assessee as resident of India. We also note that the provisions of section 144C(1) refers to passing of a draft assessment order 'in the first instance'. Therefore the issue of the eligible assessee u/s 144C(15)(b)(ii) is required to be tested at the time of return filed by the assessee as that is the ' in the first instance' and further the issue of eligible assessee u/s 144C(15)(b)(i) is to be tested at the time of passing of the order of the transfer pricing officer under section 92CA(3) of the Act, because in that case it would be ' in the first instance'.
Naturally, in this case, the assessee has opted to go before the learned dispute resolution panel on challenge to the draft assessment order. We take the another issue, that suppose if before the higher courts, the assessee challenges his residential status, and if it is held in favour of the assessee that assessee is a non-resident, then this argument does not survive. Therefore, it is correct that 'in the first instance', the learned assessing officer should have passed the draft assessment order only. Such ' first instance' is the claim of the assessee in his ROI of residential status. Draft order passed by the ld AO is based on this 'first Instance'.
Validity of income tax proceedings once company dissolved - resolution plan approved u/s 31 of the Insolvency and Bankruptcy Code, 2016 on tax authorities -delay of 359 days in filing the Special Leave Petition
As decided by HC [2024 (9) TMI 426 - BOMBAY HIGH COURT] held in favour of the Assessee quashing various proceedings for reassessment initiated against a corporate debtor that had undergone a resolution under the IBC.
HELD THAT:- There is a gross delay of 359 days in filing the Special Leave Petition which has not been satisfactorily explained by the petitioner.
Even otherwise, we see no good ground to interfere with the impugned order passed by the High Court. The Special Leave Petition is, therefore, dismissed on the ground of delay as well as merits.
Validity of reopening of assessment - valuation of share - delay of 141 days in filing this Special Leave Petition - As decided by HC [2024 (9) TMI 1860 - DELHI HIGH COURT] issue of valuation, if liable to be undertaken, had to follow the route as prescribed by Section 56(2)(vii)(c) of the Act read along with Rule 11UA of the Income Tax Rules, 1962 - HELD THAT:- There is a delay of 141 days in filing this Special Leave Petition and we do not find any plausible and bona fide explanation to condone this inordinate delay. The Special Leave Petition is, accordingly, dismissed on the ground of delay.
Outcome: The application for condonation of delay was dismissed and the special leave petition was dismissed with costs.
Validity of reopening of assessment - present petition has been filed impugning the order [2023 (8) TMI 1690 - CALCUTTA HIGH COURT] passed by the High Court at Calcutta vide which the Writ Petition filed by the respondent was allowed and an order of assessment passed by the Department in violation of the interim order passed in favour of the respondent was set aside only on that ground [2023 (3) TMI 1608 - CALCUTTA HIGH COURT] - Delay of 730 days in filing the present petition - HELD THAT:- The application for condonation of delay hardly justifies condonation of such a huge delay in filing the petition.
Accordingly, the application for condonation of delay is dismissed. Consequently, the Special Leave Petition is also dismissed with cost of ₹50,000/- (Rupees fifty thousand only) for filing the present petition after such a huge delay.
Grant of registration u/s 12AA - charitable activity or not? - as per CIT (E) that the activities of the trust is in the nature of trade, commerce or business and covered by proviso to Section 2 (15) - as decided by HC [2025 (1) TMI 186 - CHHATTISGARH HIGH COURT] activities of the assessee Society are for charitable purpose for public at large and in that view of the matter, the learned ITAT is absolutely justified in directing the CIT(E) to grant registration under Section 12AA of the IT Act by setting aside the order of the CIT(E), as such, the order impugned passed by the ITAT is in accordance with law.
HELD THAT:- Having heard the learned Senior Counsel appearing for the petitioner in the facts obtained in the instant case, we are not inclined to interfere with the impugned judgment and order of the High Court. Hence, the Special Leave Petition stands dismissed.
Offence punishable u/s 276B r/w Sec.278AA - accused are running an education institution at Coimbatore and are liable to deduct tax at source in respect of expenditure covered by the provisions of Chapter XVIIB of the Income Tax Act, 1961 - significant failure on the part of accused to pay the tax deducted at source to the Government account within the time limit as required under law - respondent raised objections stating that the delay is caused in paying the tax amount
As decided by HC [2024 (8) TMI 47 - MADRAS HIGH COURT] admittedly, the fact reveals that there is a delay on the part of petitioners and they have subsequently remitted the tax amount and delay is not caused wantonly, but only due to the concerned staff left the concern on maternity leave, the delay was caused. As subsequently rectified and thereafter, they have deducted the tax amount properly and remitted the same without any delay. So, on seeing the conduct of petitioners, the proceedings initiated against them is liable to be quashed.
HELD THAT:- We see absolutely no reason to interfere in the order passed by the High Court, in exercise of our jurisdiction under Article 136 of the Constitution of India.
The present petition is, accordingly, dismissed along with pending application(s), if any.
Issues: Whether the refusal to condone the delay under Section 119(2)(b) of the Income-tax Act, 1961, for filing returns with audit reports for Assessment Years 2018-19 to 2022-23 was justified in the facts of the case.
Analysis: The petitioner, a co-operative society, was required to have its accounts audited under the Odisha Cooperative Societies Act, 1962, before filing returns claiming deduction under Section 80P of the Income-tax Act, 1961. The delay in filing was shown to have arisen from the non-availability and late appointment of auditors by the statutory cooperative audit machinery, a circumstance supported by correspondence and undisputed material. The Board's circular and the Ministry of Cooperation's communication recognized such hardship for cooperative societies and directed that applications for condonation be decided on merits. The relevant enquiry for Section 119(2)(b) had to be confined to the assessment years in question, and the authority was required to assess whether the delay was due to circumstances beyond the assessee's control and whether genuine hardship existed. The impugned order was found to have proceeded on a pedantic and overly restrictive view by relying on past events and by not appreciating the documentary record and the admitted completion of audit on 25.01.2024.
Conclusion: The refusal to condone the delay was unsustainable, and the petitioner was entitled to have the delay condoned and to file the returns with audit reports.
Ratio Decidendi: An application under Section 119(2)(b) of the Income-tax Act, 1961 must be decided on a liberal, justice-oriented assessment of genuine hardship and sufficient cause, and delay caused by circumstances beyond the assessee's control cannot be rejected on a hyper-technical or pedantic approach.
Refusal to condone the delay in furnishing return of income pertaining to the Assessment Years 2018-19 to 2022-23, exercising power u/s 119(2)(b) - Scope of “genuine hardship” constituting “sufficient cause” for condonation of delay - Since, the books of account of the petitioner could not be audited within time-frame because of acute shortage of departmental auditors, as a result of which it could not file its returns of income and audit report(s) within the statutory period allowed u/s 139(1)
Whether the PCCIT appropriately exercised his discretion by considering germane factors to determine ‘genuine hardship’ in rejecting the application under Section 119(2)(b)? - HELD THAT:- Petitioner has made out a case disclosing “genuine hardship” constituting “sufficient cause” for condonation of delay. So far as the merits of the claim of the petitioner for condonation of delay in concerned, this Court finds that though the petitioner is bound to get its accounts audited under Section 62 of the OCS Act, the delay in completion of audit by the auditor appointed under the Act is not attributable to the petitioner.
The argument of the learned Senior Standing Counsel that the delay being inordinate could not be condoned cannot be found favour with inasmuch as the documents enclosed to the application u/s 119(2)(b) of the IT Act read with the Central Board of Direct Taxes Circular followed by the Letter of the Ministry of Cooperation make it clear that there was default on the part of the AGCS in providing for auditors at the relevant period. Besides showing sufficient cause for delay in preparing the audit reports for the Assessment Years in question, which are now ready for filing along with returns, the assessee could establish “genuine hardship”. If the discretion conferred u/s 119(2)(b) of the IT Act is not exercised in favour the petitioner, it would lead to depriving an assessee to claim deductions as is entitled to under Section 80P of the IT Act. Of course, such claim is subject to verification and/or scrutiny by the appropriate authority.
Conclusion - It is consistent view that the power conferred under Section 119(2)(b) of the IT Act is a benevolent provision intended to mitigate “genuine hardship” of assessee. It should be exercised liberally so as to facilitate the assessee to avail the legitimate benefit as entitled to, but not in a pedantic or hyper-technical manner.
It deserves to be stated that the Authorities under the IT Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception, not being properly instructed or due to certain intervening circumstances beyond its control, is over-assessed, the Authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected.
This Court finds it expedient to hold that the petitioner, in the present case, is not in default for not being able to furnish its returns along with the audit report(s) within the period specified in the IT Act, because the statutory authority failed to assist the petitioner in getting its accounts audited as required under the OCS Act.
On the facts and in the circumstances discussed above, this Court finds that the petitioner has rendered explanation which is sufficient and reasonable warranting consideration of application for condonation of delay by the PCCIT invoking Section 119(2)(b) by application of judicious discretion. Having taken cognizance of the fact that the audit has now been completed for the Assessment Years from 2018-19 to 2022-23 on or before 25.01.2024, the said authority should have exercised conscientious discretion, and should not have rejected the application on hyper-technical ground or by adhering to pedantic approach.
Under the above premises, the Order dated 13.06.2024 passed by the Principal Chief Commissioner of Income Tax, Odisha Region, refusing to condone the delay in exercise of power u/s 119(2)(b) cannot withstand judicial scrutiny. Consequently, this Court sets aside said Order (Annexure-3) and exercising power under Article 226 of the Constitution of India issues writ of mandamus to the authority concerned to allow the petitioner to file return(s) of income along with audit report(s).
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the seized movable assets (gold jewellery, bullion, and cash/forex) should be directed to be released pending completion/finalisation of proceedings under Section 158BC of the Income Tax Act, 1961, and on what conditions such release could be ordered to protect the Revenue's interests.
(ii) Whether directing deposit of a quantified amount as self-assessment tax/advance tax, adjustable against any future demand, is an appropriate condition for release of the seized assets.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Conditional release of seized jewellery, bullion and cash/forex pending Section 158BC proceedings
Legal framework (as discussed): The Court noted that the seizure occurred during a search by the Income Tax Department and that proceedings under Section 158BC had not been finalised. The Court did not adjudicate the legality of seizure or the merits of the "undisclosed income" allegation, and expressly left such merits open.
Interpretation and reasoning: The Court balanced the petitioners' request for release-supported by the assertion that the seized items were explained/explainable and the stated personal need for jewellery-against the Department's objection focused on safeguarding potential tax recovery. The Court considered the circumstances of the petitioners (including age-related considerations) and accepted a solution ensuring protection of the Revenue while enabling release of the assets.
Conclusions: The Court allowed the petitions and directed release of the entire seized jewellery, bullion, and cash/forex, but only after compliance with specified financial conditions and production of proof of deposit, with a time-bound direction for release within seven days thereafter.
Issue (ii): Deposit of specified sums as self-assessment/advance tax as a condition for release and protection of Revenue
Legal framework (as discussed): The Court addressed the Department's request that petitioners be required to deposit an amount equal to probable tax liability as advance tax/self-assessment tax for the relevant assessment year, so the Revenue's interest would remain protected in the event of a demand.
Interpretation and reasoning: The Court accepted the petitioners' consented proposal to deposit fixed amounts, treating such deposit as self-assessment/advance tax and permitting adjustment against any demand that may later be raised. This was adopted as an equitable arrangement because it secured the Revenue while avoiding continued retention of assets.
Conclusions: The Court directed two petitioners to deposit specified amounts by a fixed date as self-assessment/advance tax; upon deposit and production of challans to the designated income-tax authority, the Department was directed to release the seized assets within seven days. The Court further clarified that it made no findings on whether the seized assets were duly explained, leaving all parties free to raise their respective pleas at the appropriate stage.
Seeking release of gold jewellery, bullion, cash/forex and other valuable articles seized during the course of search - Department has not even finalized the proceedings u/s 158BC - during the course of search, the Department alleged above referred valuables to be out of the undisclosed income and seized them, though every seized article is explained/explainable - DR submitted that the petitioners be directed to deposit an amount equal to the probable tax liability, as advance tax/self-assessment tax for AY 2025-26 so that in case, any demand is raised, the interest of Revenue remains protected.
HELD THAT:- In view of the above and considering that some of the petitioners are either senior citizens of more than eighty years of age or children below thirty years of age, we are persuaded to accede to the proposals so made by the learned counsel for the petitioners.
The petition is, therefore, allowed by directing as under :
(i). The petitioner namely Manit Rastogi shall deposit Rs. 1,25,00,000/- each as self-assessment tax/advance tax on or before 15.01.2026.
(ii). Upon aforesaid amount being deposited and a copy of the challan produced before the respondent No. 1 (Assistant/Deputy Commissioner), entire jewellery, bullion and cash/forex seized (approximately 6.862 Kg gold jewellery & bullion and Rs. 40,00,000/- as cash/forex) shall be released within a period of seven days.
All the Writ Petitions along with pending applications, stand disposed of, accordingly.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the reassessment notices issued under Section 148 by the jurisdictional Assessing Officer, after the coming into force of the faceless scheme under Section 151A and the relevant notification, suffered from lack of jurisdiction, warranting quashing of the notices and all consequential proceedings for the relevant assessment years.
(ii) Whether, upon quashing of the Section 148 notices and consequential reassessment orders/demand/penalty notices on the jurisdictional ground, the pending statutory appeals should be directed to be disposed of as academic/infructuous, with liberty to both sides to seek revival/restoration if required.
(iii) Whether liberty should be reserved to the Revenue to seek revival of the writ petition depending upon the outcome of pending proceedings before the Apex Court, while keeping all rival contentions open.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Jurisdiction of the Assessing Officer to issue notices under Section 148 post Section 151A faceless scheme
Legal framework (as discussed by the Court): The Court proceeded on the basis that Section 151A of the Income Tax Act, 1961 and the notification issued pursuant thereto provided for issuance of notice under Section 148 only by the faceless authority, and not by the jurisdictional Assessing Officer.
Interpretation and reasoning: The Court held that the controversy was covered by a binding decision of a co-ordinate Bench which had quashed show cause notice(s) on the ground that the jurisdictional Assessing Officer did not have jurisdiction to issue notice under Section 148 in light of Section 151A and the notification implementing the faceless scheme. The Court expressly applied that ratio to the present facts, holding that the same jurisdictional defect vitiated the impugned notices and the proceedings taken pursuant to them.
Conclusion: The impugned Section 148 notices for the concerned assessment years were held to be without jurisdiction and were quashed; consequently, all further proceedings and consequential orders/notices arising from such initiation were also quashed.
Issue (ii): Fate of consequential reassessment orders, demand and penalty notices; and effect on pending statutory appeals
Interpretation and reasoning: Having found the initiation itself defective on the jurisdictional ground and having disposed of the petition in terms of the co-ordinate Bench decision, the Court quashed the consequential reassessment orders (including rectification orders), demand notices issued pursuant thereto, and penalty notices for the relevant assessment years as consequences of the invalid initiation.
Conclusion: The Court directed the appellate authority to dispose of the pending appeals for the relevant assessment years as having become academic/infructuous due to the quashing of the foundational notices and consequential proceedings, while expressly reserving liberty to both sides to seek revival/restoration of the appeals if the occasion arises.
Issue (iii): Liberty to revive proceedings depending on the Apex Court's decision; preservation of rival contentions
Interpretation and reasoning: The Court noted that the co-ordinate Bench approach reserved liberty to the Revenue to seek revival contingent upon the outcome of matters pending before the Apex Court. Following the same course, the Court reserved liberty to the Revenue to seek revival of the writ petition after disposal of the pending Apex Court matters, clarifying that all rival contentions were kept open and no opinion was expressed on those issues at this stage.
Conclusion: Liberty was reserved to the Revenue to seek revival after the Apex Court's decision; additionally, if revival occurs, all contentions of both sides were kept open, including the petitioner's contention regarding validity of search, seizure and inspection proceedings, on which the Court expressly refrained from expressing any opinion.
Validity of reopening of assessment - scope of Section 151A -AO jurisdiction to issue the notice u/s 148 of the Act in the light of Section 151A - issuance of notice only by the faceless authority - HELD THAT:- As decided in RAMACHANDRA REDDY RAVI KUMAR [2025 (8) TMI 1754 - KARNATAKA HIGH COURT] has held in favour of the assessee, holding that once faceless regime is in place, the jurisdictional Assessing Officer could not have acted outside the notification by issuing a notice invoking his jurisdiction.
Any notice issued outside faceless regime would be contrary to law and without jurisdiction. The impugned show cause notices issued by the jurisdictional Assessing Officer outside the scope of Section 151-A of the Act stand obliterated. All further proceedings initiated thereto, challenged in these cases would stand quashed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether revisional jurisdiction under section 263 could be validly assumed where the foundation for revision was the alleged non-consideration of an order under section 92CA(3) that, on admitted facts, was never passed.
(ii) Whether the reassessment order could be treated as "erroneous" under section 263 (including by applying Explanation 2) for not making/ensuring arm's length verification after the Assessing Officer had made a reference under section 92CA and the Transfer Pricing Officer did not pass any order.
(iii) Whether "prejudice to the interests of the Revenue" was established merely from the absence of a transfer pricing order, without a prima facie finding of understatement or likely adjustment, and whether section 263 could be used to direct a fresh arm's length exercise when the statutory time-window for the Transfer Pricing Officer's order had already lapsed.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Validity of invoking section 263 on the premise of non-consideration of a non-existent section 92CA(3) order
Legal framework (as discussed by the Tribunal): Section 263 jurisdiction is conditioned on the coexistence of two jurisdictional facts: the assessment order must be (a) erroneous and (b) prejudicial to the interests of the Revenue.
Interpretation and reasoning: The Tribunal found the revisional order's "central plank" to be the assertion that the reassessment was erroneous for being passed without considering the Transfer Pricing Officer's order under section 92CA(3). However, it was an "admitted and incontrovertible" fact that no such order under section 92CA(3) was ever passed. The Tribunal held that the allegation of failure to consider such an order is self-contradictory and legally untenable, because an authority cannot be faulted for not considering something that never existed.
Conclusion: The assumption of section 263 jurisdiction failed at the threshold because its foundational premise-non-consideration of a section 92CA(3) order-was factually and legally impossible.
Issue (ii): Whether the reassessment order was "erroneous" for lack of arm's length determination after reference to the Transfer Pricing Officer; applicability of Explanation 2 to section 263
Legal framework (as discussed by the Tribunal): The Tribunal examined the statutory design of section 92CA, including the distinct roles assigned to the Assessing Officer and the Transfer Pricing Officer, and the mandate that computation must conform to the Transfer Pricing Officer's order "if any". It also examined Explanation 2 to section 263 (particularly clause (a)) which deems an order erroneous if passed without enquiries/verifications which "should have been made".
Interpretation and reasoning: The Tribunal held that once a reference is made under section 92CA, the specialised function of determining arm's length price lies with the Transfer Pricing Officer, and the Assessing Officer is not a "parallel adjudicator" of arm's length issues in the absence of a Transfer Pricing Officer's order. The phrase "if any" was treated as recognising that situations may arise where no Transfer Pricing Officer order comes into existence. In such a scenario, the Tribunal reasoned, the Assessing Officer is not empowered to "invent, substitute, or simulate" an arm's length determination. Consequently, treating the reassessment as erroneous for not incorporating or considering an arm's length determination that was never made would "punish" the Assessing Officer for not doing what the law did not permit.
On Explanation 2, the Tribunal held that the deeming fiction cannot be stretched to require the Assessing Officer to make an enquiry that falls outside his lawful jurisdiction once the statute channels that enquiry to the Transfer Pricing Officer. The words "should have been made" were construed as confined to what the Assessing Officer could lawfully do; a deeming provision cannot be used to subvert the substantive scheme of the Act.
Further, even assuming a "deficiency" existed because no transfer pricing order was passed, the Tribunal held that an "error" under section 263 must be an error in the Assessing Officer's order, not a perceived inadequacy arising from the omission of another statutory authority, especially where the Assessing Officer had already discharged his statutory role by making the reference.
Conclusion: The reassessment order was not "erroneous" within section 263 merely because no arm's length order was passed by the Transfer Pricing Officer after reference, and Explanation 2 could not be invoked to deem error on the basis of an enquiry the Assessing Officer was not empowered to undertake.
Issue (iii): Whether "prejudice" was shown; and whether section 263 could direct a fresh arm's length exercise after lapse of the statutory time-window for a section 92CA(3) order
Legal framework (as discussed by the Tribunal): The second condition for section 263 is "prejudice to the interests of the Revenue". The Tribunal also considered the statutory time discipline for passing an order under section 92CA(3), noting the requirement that such order be passed within the time window described in section 92CA(3A). It examined whether section 263 could be used to set aside and remand to facilitate a fresh arm's length determination despite the expiry of that statutory period.
Interpretation and reasoning: On prejudice, the Tribunal held that prejudice cannot be presumed from the mere absence of a transfer pricing order. The revisional order proceeded on a generalized apprehension of "potential revenue leakage" without recording any prima facie finding that the royalty income offered was understated or that arm's length determination would necessarily yield an upward adjustment. The Tribunal emphasised that section 263 is not a "roving commission" to conduct exploratory enquiries in the hope of discovering something adverse.
On the direction for fresh verification/arm's length determination, the Tribunal held that revisional jurisdiction cannot be used to "create jurisdiction where none exists" or to "revive" a function that has lapsed by operation of limitation. If the Transfer Pricing Officer does not pass an order within the statutorily carved time window, the authority to determine arm's length price stands exhausted, and such exhaustion is not a curable irregularity. The Tribunal concluded that section 263 cannot enlarge limitation periods or resurrect time-barred statutory functions indirectly by setting aside the reassessment and remanding for an exercise the statute no longer authorises.
Conclusion: Prejudice to the Revenue was not established on tangible material, and section 263 could not be used to direct a fresh arm's length exercise when the statutory time to pass a section 92CA(3) order had lapsed. Both jurisdictional limbs-error and prejudice-were not satisfied; therefore, the revisional order was quashed and the reassessment order restored.
Revision u/s 263 - As per CIT reassessment order is erroneous and prejudicial to the interests of the Revenue, principally because the reassessment order was passed “without considering the order u/s 92CA(3)” and without verification of arm’s length price of the royalty transaction - scope of phrase phrase “if any” - assessee responded by contending that it had voluntarily offered the royalty income to tax, that all details were furnished, that the AO had acted strictly in accordance with law by making a reference to the Transfer Pricing Officer, and that no prejudice had been caused to the Revenue
HELD THAT:- As we examine the impugned revisional order what emerges with clarity is that its central plank is the learned Principal Commissioner’s assertion that the reassessment order is erroneous because it was passed “without considering the order of the Transfer Pricing Officer under section 92CA(3)”. This singular premise, however, falters at the threshold for a reason that is not merely technical but foundational: there exists no order under section 92CA(3) on record at all. The Transfer Pricing Officer did not pass any arm’s length determination. The position is not disputed by either side; indeed, it is an admitted fact. Once that is so, the allegation that the AO failed to consider such an order becomes self-contradictory and legally untenable. One cannot fault an authority for not considering something that never came into existence.
The fallacy becomes more pronounced when one appreciates the statutory scheme of transfer pricing provisions. Section 92CA is not an incidental provision; it is a carefully designed mechanism that allocates distinct roles. Upon reference by the AO, the Transfer Pricing Officer is the statutory authority entrusted with the specialised function of determining the arm’s length price. AO is not a parallel adjudicator of arm’s length issues once such reference is made.
Section 92CA(4) mandates that the total income shall be computed by AO in conformity with the order of the Transfer Pricing Officer, if any. The phrase “if any” is not decorative. It is a conscious legislative recognition that there can exist situations where an order may not come into being. In such a scenario, the AO is not legally empowered to invent, substitute, or simulate the arm’s length determination which the statute assigns to the TPO. The law does not authorise the AO to step into that specialised jurisdiction in the absence of an order.
Principal Commissioner seeks to treat the reassessment order as erroneous because the AO did not “consider” a non-existent order and did not “incorporate” a determination which was never made. This, in effect, punishes the AO for not doing what the law did not permit him to do. AO having made the reference, could not have proceeded to determine the arm’s length price on his own, for that would have amounted to transgressing the statutory allocation of functions. Thus, far from being an “error”, the course adopted by the Assessing Officer reflects adherence to the statutory discipline.
Can the learned Principal Commissioner set aside the reassessment order so as to compel a fresh arm’s length determination? - Here again, the legal difficulty is insurmountable. The revisional jurisdiction cannot be exercised to create jurisdiction where none exists, nor can it be utilised as an instrument to revive a function that has lapsed by operation of limitation. The statute prescribes timelines for passing an order u/s 92CA(3) through section 92CA(3A), which mandates that such order must be passed at least sixty days prior to the expiry of the limitation for completion of assessment or reassessment. If the Transfer Pricing Officer does not pass an order within that statutorily carved time window, the authority to determine the arm’s length price stands exhausted. Such exhaustion is not a curable irregularity; it is statutory finality.
We are of the considered opinion that the learned Principal Commissioner could not have assumed jurisdiction under section 263 in the facts and circumstances of the present case.Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the statutory conditions for rejection of the assessee's books of account under section 145(3) were satisfied, so as to justify disregarding the book results and treating part of the recorded cash deposits as unexplained.
(ii) Whether the cash deposited in the bank during the demonetisation period, to the extent treated as unexplained, was liable to be added as unexplained money under section 69A and consequently taxed under section 115BBE, despite the assessee's explanation that the deposits arose from disclosed sales recorded in regularly maintained books supported by stock and other records.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Validity of rejection of books of account under section 145(3)
Legal framework (as discussed by the Court): The Court applied the principle that accounts regularly maintained in the regular course of business are to be accepted unless there are sufficient reasons to show they are unreliable, incorrect, or incomplete, and that rejection under section 145(3) requires satisfaction of its conditions.
Interpretation and reasoning: The Court found that the record did not show omission of purchases or sales; rather, purchases and sales were found recorded. The assessing authority did not challenge the method of accounting, did not establish that income could not be deduced from the accounts, and did not bring evidence to disprove the genuineness of the entries. The Court held that book results cannot be rejected arbitrarily on "preponderance of probabilities" in the absence of evidence showing the accounts to be unreliable or incomplete. It further reasoned that where the stock register was accepted and stock availability was not disputed, sales out of such stock could not be disregarded as ingenuine.
Conclusion: The Court held that the conditions of section 145(3) were not satisfied; consequently, rejection of the book results (and rejection of the cash book) was unjustified on the material available.
Issue (ii): Addition of demonetisation-period cash deposits as unexplained money under section 69A and taxation under section 115BBE
Legal framework (as applied by the Court): The Court proceeded on the basis that where the source of cash deposits is explained through disclosed business receipts recorded in regular books supported by contemporaneous records, section 69A cannot be invoked merely on suspicion or probability-based reasoning; section 115BBE would apply only if the addition under section 69A is otherwise sustainable.
Interpretation and reasoning: The Court accepted the assessee's explanation that the bank deposits arose from recorded cash sales, supported by day-to-day stock register (showing availability of stock), recorded purchases (not disputed), sales records, and related documentary material. The Court emphasized that there was no adverse evidence disproving the sales or the entries, and that when stock in trade reflected in an accepted stock register is available, sales of goods out of such stock cannot be treated as ingenuine. The Court also noted that the assessee's business volume in the relevant year matched the business volume reflected in the immediately succeeding year placed as a comparative reference, reinforcing the plausibility of the sales and deposits in the year under appeal. Since the deposits were held explained as arising from disclosed sales in the books, the addition as unexplained money could not stand, and the consequential application of section 115BBE was not sustainable.
Conclusion: The Court held that the cash deposits treated as unexplained were in fact explained as arising from disclosed sales recorded in the books, and therefore the addition under section 69A was liable to be deleted, with the result that taxation under section 115BBE did not survive.
Rejection of books of account under section 145(3) of the Income Tax Act - addition as unexplained cash deposits under section 69A - taxation of unexplained income under section 115BBE - preponderance of probabilities - explanation of cash deposits as business sales
Rejection of books of account under section 145(3) of the Income Tax Act - preponderance of probabilities - Whether the Assessing Officer was justified in partially rejecting the books of account and invoking section 145(3) to recast trading results. - HELD THAT: - The Tribunal held that regularly maintained accounts must be accepted unless there are sufficient reasons showing they are unreliable, incorrect or incomplete. There was no evidence before the AO or brought on record to disprove the transactions represented by the entries; purchases and sales were recorded and not challenged. The Tribunal found that the conditions for rejection under section 145(3) were not satisfied and that the AO had not pointed out specific defects warranting part-rejection of books. The approach of discarding book results on the basis of mere preponderance of probabilities, without concrete adverse evidence, was impermissible. Consequently the cash book and related records could not be arbitrarily rejected and sales supported by the accepted stock register could not be treated as ingenuine. [Paras 16, 17]
Books of account cannot be partially rejected; AO's invocation of section 145(3) and part-rejection of books is not sustained.
Addition as unexplained cash deposits under section 69A - taxation of unexplained income under section 115BBE - explanation of cash deposits as business sales - Whether the cash deposits during the demonetisation period, treated as unexplained and added under section 69A (and taxed under section 115BBE), were properly assessable as unexplained income. - HELD THAT: - Having held that the books could not be rejected and that availability of stock in trade was not disputed, the Tribunal examined the documentary material (stock register, purchase and sales registers, confirmed ledger accounts, VAT returns and bank statements) and found that the cash deposits were explained as sale proceeds arising from disclosed business transactions. The Tribunal also took note of comparative evidence from the succeeding year and the absence of any contrary evidence disproving purchases or sales. On these findings the addition made by the AO under section 69A was held to be unsupported and was deleted; consequent application of section 115BBE did not survive. [Paras 3, 16, 18, 19, 20]
Addition under section 69A and taxation under section 115BBE deleted as cash deposits were explained by disclosed sales.
Final Conclusion: The Tribunal allowed the appeal, held that the AO was not justified in rejecting the books or making the addition of unexplained cash deposits, and directed deletion of the addition and consequential taxation; the assessment amendments on these grounds were set aside.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, on the facts found that the assessee facilitated routing of funds through a bank account as accommodation entries, the taxable income should be estimated with reference to (a) the entire business turnover as taken by the Assessing Officer, or (b) the amount of accommodation entries reflected in the bank account, after considering both debit and credit sides.
(ii) What is the reasonable rate of profit/commission to be estimated on the accommodation entries amount routed through the bank account, in substitution of the assessee's declared margin and the higher rates applied by the lower authorities.
(iii) Whether the same estimation should be applied for the other years where the facts were found to be unchanged.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Basis for estimation-entire turnover vs. accommodation-entry amount in the bank account
Legal framework (as discussed in the judgment): The Tribunal addressed reassessment framed under section 143(3) read with section 147, and noted the use of third-party verification/non-response to notices under section 133(6) as part of the factual basis for treating the transactions as accommodation entries. No further statutory interpretation was undertaken for this issue.
Interpretation and reasoning: The Court proceeded on the undisputed factual finding that the assessee's bank account showed frequent, substantial credits from one group entity, with near-immediate transfers to other group entities, and that the pattern indicated routing of funds through the assessee's bank account. It accepted that the lower appellate authority correctly looked at the actual credits in the identified bank account representing the accommodation-entry routing, and also considered that almost all credited amounts were transferred out, making it inappropriate to tax the entire gross credits as income. The Tribunal noted that the Assessing Officer's approach of applying a flat rate on the assessee's entire turnover (rather than on the routed amount in the bank account) was not aligned with the nature of the allegation (accommodation-entry facilitation).
Conclusion: The income was to be estimated with reference to the accommodation-entry amount reflected as total credits in the relevant bank account (and not by applying a rate to the entire turnover adopted by the Assessing Officer), while treating the income component as the profit/commission element arising from such routing.
Issue (ii): Reasonable rate of estimation on accommodation entries
Legal framework (as discussed in the judgment): The Tribunal applied an estimation approach consistent with the characterization of the assessee as an accommodation-entry facilitator, and considered that only a profit/commission element should be brought to tax, taking into account the assessee's admitted margin and the estimation adopted by the first appellate authority.
Interpretation and reasoning: The Court observed that the assessee did not seriously press the reopening challenge and confined arguments to the estimation rate. It treated as undisputed that accommodation entries were provided through the bank account and that the total credits in that account were the relevant base. The Court found that the first appellate authority's estimate at 2% (after noting that the assessee had admitted a very low margin) required downward adjustment to arrive at a more reasonable figure in the facts and circumstances. Balancing the assessee's declared margin against the nature and volume of the routing activity, and the inadequacy of the Assessing Officer's 8% on total turnover approach, the Court fixed a lower but still substantive estimate.
Conclusion: The Tribunal held that estimating income at 1.5% of the accommodation-entry amount (total credits of Rs. 17,41,39,105 as found in the bank account) was more reasonable, and it directed the Assessing Officer to compute income accordingly, thereby reducing the rate from 2% applied by the first appellate authority and rejecting the Assessing Officer's higher estimation on total turnover.
Issue (iii): Applicability of the same determination to other assessment years
Legal framework (as discussed in the judgment): The Tribunal proceeded on the principle of consistency where facts are unchanged across years.
Interpretation and reasoning: The Court recorded that there was no change in facts for the other two years under appeal. Since the core factual foundation (accommodation-entry routing through the bank account) and the nature of estimation were the same, the Tribunal applied the same reasoning and estimation rate.
Conclusion: The Assessing Officer was directed to compute income at 1.5% on the relevant accommodation-entry amounts for the other years as well, and the appeals for those years were also partly allowed on the same terms.
Estimation of gross profit at 2% of total accommodation entries - AO made addition at 8% of the entire turnover instead of the actual amount routed through the bank account as entities failed to response to the summons issued u/s. 133(6) - HELD THAT:- CIT(A) considered the debit and credit sides of the bank account together and estimated the net profit at 2%, considering the assessee has already admitted 0.03% on the entire turnover. Thus, we deem it fit to estimate the profit at 1.5% of Rs. 17,41,39,105/- shall be found more reasonable and direct the Jurisdictional Assessing Officer to determine the income of the assessee accordingly. Thus the grounds raised by the assessee are partly allowed.
Issues: (i) Whether any transfer pricing adjustment could be made on account of alleged interest on delayed receivables from associated enterprises where the assessee was a debt-free company and had higher working capital adjusted margins than comparables. (ii) Whether the Assessing Officer was required to grant credit for tax deducted at source as per law.
Issue (i): Whether any transfer pricing adjustment could be made on account of alleged interest on delayed receivables from associated enterprises where the assessee was a debt-free company and had higher working capital adjusted margins than comparables.
Analysis: The international transactions relating to the consultancy business had been accepted at arm's length. The disputed adjustment arose only from outstanding receivables treated as a separate international transaction under the transfer pricing framework. The assessee had higher working capital adjusted margins than the comparable companies, indicating that the effect of receivables was already captured in the profitability analysis. The assessee was also a debt-free company, so no borrowed funds carrying interest cost could be said to have been deployed for extending credit to associated enterprises. In these circumstances, and in view of the established transfer pricing principle that working capital adjustment subsumes the impact of receivables, a separate notional interest adjustment was not justified.
Conclusion: The transfer pricing adjustment on account of interest on delayed receivables was deleted in favour of the assessee.
Issue (ii): Whether the Assessing Officer was required to grant credit for tax deducted at source as per law.
Analysis: The issue was not finally adjudicated on merits by determining the exact credit amount in the order. The Tribunal directed the Assessing Officer to verify and allow the TDS credit in accordance with law.
Conclusion: The matter was restored for grant of TDS credit as per law in favour of the assessee.
Final Conclusion: The appeal succeeded on the transfer pricing issue and obtained consequential relief on TDS credit, resulting in partial relief to the assessee.
Ratio Decidendi: Where the assessee is a debt-free company and its working capital adjusted margin is higher than that of comparables, no separate transfer pricing adjustment can be made for alleged notional interest on delayed receivables.
TP Adjustment - interest on delayed receivables - HELD THAT:- We find that a Coordinate Bench of the ITAT has already adjudicated in favour of the assessee for AY 2016-17, by following the judgment in the case of Kusum Healthcare [2017 (4) TMI 1254 - DELHI HIGH COURT]
The clinching fact in favour of the assessee would be that the working capital adjusted mean margin of 7.60% of the independent comparable entities is much worse than the assessee’s higher margin of 18.03%. This indicates that the delay in receivables has been adequately taken into consideration by the assessee and on this ground alone no upward adjustment by the TPO would be possible.
Thus, it is held that at least for this year no adjustment can be made on account of interest on delayed receivables considering that the assessee is a debt free company and its working capital margin of 18.03% was significantly higher than such margin of 7.60% earned by the comparable entities - Decided in favour of assessee.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether revision under section 263 was validly assumed to deny exemption under section 10(38) on profit from sale of investments, having regard to section 44 read with Rule 5(b)(i) of the First Schedule, and whether the assessment suffered from "no enquiry".
(ii) Whether revision under section 263 was justified for failure to apply Rule 5(b)(ii) (addition back of provision for diminution in value of investments) where such provision was debited to accounts but not added back and not examined in assessment.
(iii) For the relevant year, whether revision under section 263 was justified on (a) non-disallowance under section 14A read with Rule 8D for an insurance business assessed under section 44 and Rule 5, (b) treatment of interest/income from deposits relating to unclaimed amounts of policy holders, and (c) additions to book profit under section 115JB relating to IBNR/IBNER provisions and reserve for unexpired risk.
(iv) Whether a corrigendum issued after expiry of the limitation under section 263(2), introducing a direction on an issue not decided in the original section 263 order, was legally sustainable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Section 263 revision to deny section 10(38) exemption on profit from sale of investments (section 44 r/w Rule 5(b)(i); "no enquiry" allegation)
Legal framework: The Court considered section 44 (computation for insurance business) read with Rule 5 of the First Schedule, especially Rule 5(b)(i), and the revisionary threshold under section 263 (order must be "erroneous and prejudicial"; lack of enquiry as a ground).
Interpretation and reasoning: Rule 5(b)(i) permits adjustment for "gain or loss on realisation of investments" only where such gain/loss is not credited/debited to the profit and loss account prepared under the applicable insurance regulatory framework. The Court found that the gain on sale of investments had been credited to the profit and loss account, and the revisional authority itself recorded this. Therefore, the premise that Rule 5(b)(i) mandated inclusion by disallowing exclusion was rejected. The Court also found that the Assessing Officer had issued specific statutory notices seeking details on the section 10(38) claim and had dealt with the issue; hence the allegation of "no enquiry" did not survive.
Conclusions: Revision under section 263 to deny exemption under section 10(38) on profits from sale of investments was held not justified for the concerned years where the profit was credited to the profit and loss account and the Assessing Officer had made enquiries. The revisional directions to frame fresh assessments on this point were set aside.
Issue (ii): Section 263 revision regarding provision for diminution in value of investments (Rule 5(b)(ii))
Legal framework: The Court applied Rule 5(b)(ii) of the First Schedule, which requires that "any provision for diminution in the value of investment debited to the profit and loss account, shall be added back", and tested whether non-application made the assessment "erroneous and prejudicial" for section 263 purposes.
Interpretation and reasoning: The Court noted the provision for diminution was debited in multiple accounts but was not added back while computing income, and the assessment order showed no examination of this mandatory adjustment. The Court treated this as a clear failure to apply the applicable adjustment rule and as lack of enquiry on a material item directly affecting computation.
Conclusions: Revision under section 263 was upheld on this limited issue: the assessment was "erroneous and prejudicial" insofar as the Assessing Officer failed to examine and apply Rule 5(b)(ii) to provisions for diminution in value of investments.
Issue (iii): Section 263 on section 14A/Rule 8D, unclaimed policyholder amounts, and section 115JB adjustments (IBNR/IBNER; reserve for unexpired risk)
(a) Section 14A read with Rule 8D
Legal framework: The Court applied the special computation mechanism under section 44 read with Rule 5 for insurance business and addressed whether section 14A/Rule 8D disallowance could be invoked through revision.
Interpretation and reasoning: The Court held that, due to section 44 read with Rule 5 being the governing code for insurance business computation, section 14A was not applicable in the manner invoked. The Court also found the Assessing Officer had sought explanations and examined the matter, negating the "no enquiry" basis.
Conclusions: The section 263 revision on section 14A/Rule 8D disallowance was held not sustainable.
(b) Income from deposits / interest on unclaimed amounts relating to policy holders
Legal framework: The Court tested whether the assessment suffered from lack of enquiry justifying section 263 revision on taxability of such interest/income.
Interpretation and reasoning: The Court accepted that the assessee asserted the amounts were kept separately and income belonged to policyholders, but found the financial statements did not show any separate account for these deposits and interest, and the assessment order contained no discussion. The Court found no record that the Assessing Officer called for or verified material facts on this aspect.
Conclusions: Revision under section 263 on this issue was upheld: absence of verification/enquiry made the assessment "erroneous and prejudicial" regarding taxability of income from unclaimed amounts.
(c) Section 115JB (book profit) - IBNR/IBNER provisions and reserve for unexpired risk
Legal framework: The Court considered whether amounts treated by the revisional authority as liable for add-back to book profit under section 115JB could be sustained when the Assessing Officer had examined the matters and when the liability character was determinative.
Interpretation and reasoning: For IBNR/IBNER, the Court concluded the revisional add-back direction was unwarranted because the provision was treated as an ascertained liability on the material relied upon by the Court, and the Assessing Officer had examined it during assessment proceedings. For reserve for unexpired risk, the Court found that the Assessing Officer had specifically called for and examined MAT computation materials (including Form 29B and related details), and therefore the "no enquiry" foundation for revision failed.
Conclusions: Revision under section 263 directing additions to book profit under section 115JB for IBNR/IBNER provisions and for reserve for unexpired risk was held not justified and was set aside.
Issue (iv): Validity of corrigendum to section 263 order issued beyond limitation and introducing a new decided issue
Legal framework: The Court applied section 263(2) limitation (two years from end of financial year in which the order sought to be revised was passed) and the permissible scope of a "corrigendum".
Interpretation and reasoning: The Court found that while the original section 263 order was passed within limitation, the subsequent corrigendum was issued after limitation and, crucially, addressed and directed on an issue that was not decided in the original section 263 order. The Court held a corrigendum may rectify minor typographical errors but cannot be used to introduce substantive new directions or decide a fresh issue as if revisional power were being exercised again.
Conclusions: The corrigendum order was held unsustainable (time-barred and beyond corrigendum scope) and was quashed.
Revision u/s 263 - assessee is not entitled to claim deduction under section 10(38) of the Act towards profit on sale of investments - profit on sale of investments to the profit & loss account as per IRDA/Insurance Act - According to PCIT, the profit on sale of investments shall not be excluded for the purpose of computation of profits and gains of business as per Rule 5(b)(i) of First Schedule
HELD THAT:- PCIT clearly held that the assessee credited gain on sale of investments to the profit & loss account under Insurance Act, 1938 and Insurance Regulatory & Development Authority Act, 1999. Therefore, the findings of the ld. PCIT in holding that the profit on sale of investment shall not be excluded for the purpose of computation of profit and gains of business as per Rule 5(b)(i) of First Schedule to the Income Tax Act and consequently holding the assessment dated 29.12.2016 is erroneous and prejudicial to the interest of Revenue is not justified.
As evident from computation of memo of income for AY 2014-15 the assessee has included the profit on sale of investments in the total income, therefore, the findings of the ld. PCIT that the profit on sale of investments to an extent of ₹.377,22,70,740/- excluded from the total income is incorrect.
Be that as it may, there is no dispute with regard to issuance of notice dated 31.08.2015 under section 143(2), notice dated 06.05.2016 under section 142(1) and another notice dated 05.12.2016 under section 142(1) of the Act, wherein, the AO sought explanations with regard to exemption claimed under section 10(38) of the Act and dealt the issue extensively. Thus, the question of no enquiry by the Assessing Officer does not arise at all. Therefore, the order of the ld. PCIT in directing the Assessing Officer to pass fresh assessment order by affording fresh opportunity, is not justified.
Provisions made by the assessee towards diminution in the value of investments - according to the ld. PCIT, no explanation offered by the assessee in respect of applicability of provisions under Rule 5(b)(ii) of First Schedule, which reads as “(ii) any provision for diminution in the value of investment debited to the profit & loss account, shall be added back.” - AR submits that the provisions for diminution in the value of equities other than actively traded, made towards diminution in the value of investments as per regulations issued by the IRDAI from time to time, is only in respect of those investments whose realizable value has been diminished on the relevant balance sheet date and the assessee will not be able to recover the loss - HELD THAT:- Assessee itself admitted that the provisions debited to with reference to the above four accounts were not on par with Rule 5(b)(ii) of the First Schedule. On perusal of the assessment order, we find no such examination whatsoever made by the Assessing Officer in this regard. Therefore, the ld. PCIT rightly invoked the provisions under section 263 of the Act in holding that the assessment order is erroneous and prejudicial to the interest of Revenue with reference to provision for diminution in the value of actively traded equities in respect of fire insurance account, marine insurance account, miscellaneous insurance account and profit & loss account. Thus, ground raised by the assessee is dismissed.
PCIT determined the disallowance u/s 14A r.w. Rule 8D and held that the assessment order is erroneous and prejudicial to the interest of Revenue - We note that by following the decision of Birla Sun Life Insurance Co. Pvt. Ltd. [2010 (9) TMI 1117 - ITAT MUMBAI] held that disallowance under section 14A r.w. Rule 8D is not applicable to insurance companies due to the special provisions of section 44 of the Act.
We find vide notice dated 26.08.2019 under section 142(1) of the Act, the Assessing Officer specifically sought for explanation vide question No. 12(1) of the notice and dealt the issue extensively. Thus, the question of no enquiry by the Assessing Office does not arise at all. In view of the above, we find that the ld. PCIT is not correct in invoking the provisions of section 263 of the Act to hold that the assessment order was erroneous and prejudicial to the interest of the Revenue on this issue. Thus, ground Nos. 2(b) along with 8 raised by the assessee are allowed.
Income from unclaimed amount relating to policy holders - On perusal of the financials of the assessee, it is nowhere shown that the amount in fixed deposits and interest thereon kept in separate account. On examination of the balance sheet at page 64 of the financials under “advances and other assets” are placed at Schedule XII. It is noted that no separate account is shown in respect of separate account reflecting the deposits of unclaimed policy amount and interest earned thereon. On perusal of the assessment order, we do not find any discussion whatsoever made in this regard. AR did not bring on record anything to show that the AO considered this issue by seeking information and reply thereon by the assessee, therefore, we find no infirmity in the order of the ld. PCIT in holding that no enquiry was conducted by the Assessing Officer regarding this issue.
Book profits computed under section 115JB relating to the provisions for IBNR and IBNER added back to book profit - It is noted that for AY 2020-21, the Tribunal in assessee’s own case held the same as ascertained liability by following the decision of the Coordinate Bench of this Tribunal in the case of Royal Sundaram General Insurance Co. Ltd. [2025 (1) TMI 640 - ITAT CHENNAI - We find in the case of Cholamandalam MS General Insurance Co. Ltd. [2025 (4) TMI 1093 - MADRAS HIGH COURT] held the provisions made for IBNR/IBNER are ascertained liability. Therefore, the finding of the ld. PCIT for making adding back for the purpose of computation under section 115JB of the Act, is not justified since the provisions are held to be ascertained liability in assessee’s own case and the Assessing Officer also examined the same during assessment proceedings.
Book profits computed u/s 115JB relating reserve of Unexpired Risk to be added back to book profit - We note that the Assessing Officer issued notice dated 26.08.2019 under section 142(1) of the Act, wherein, it was specifically sought for explanation vide question No. (f) of the notice seeking auditor’s report in Form No. 29B in respect of computation of book profit under section 115JB of the Act along with computation of book profit and also issued notice dated 19.12.2019 under section 142(1) of the Act and dealt the issue extensively. Thus, the question of no enquiry by the Assessing Office does not arise at all. In view of the above, we find that the ld. PCIT is not correct in invoking the provisions of section 263 of the Act to hold that the assessment order was erroneous and prejudicial to the interest of the Revenue on this issue.
Action of the PCIT in issuing corrigendum passed under section 263 - Admittedly, the order sought to be revised under section 263 of the Act is assessment order dated 31.12.2019 for AY 2017-18, therefore, the ld. PCIT can pass order under section 263 of the Act revising the same on or before 31.03.2022, we find the ld. PCIT correctly passed order under section 263 of the Act on 31.03.2022, whereas, the corrigendum was passed on 29.03.2023, admittedly, no within the limitation as provided under sub-section (2) of section 263 of the Act. Be that as it may, the settled principle, a corrigendum could be passed rectifying minor typographic errors in main order, but, in the present case, an order passed with reference to an issue which is not part of the original order passed under section 263 of the Act. Therefore, by no stretch of imagination, the corrigendum with reference to the new issue cannot be considered as rectifying the mistake apparent in the main order. Thus, we find force in the argument of the ld. AR in holding that the corrigendum passed with reference to a new issue is not justified and accordingly, the corrigendum passed by the ld. PCIT is quashed. Therefore, the grounds raised by the assessee are allowed.
ISSUES PRESENTED AND CONSIDERED
1) Whether disallowance of interest under section 14A read with Rule 8D(2)(ii) was permissible where the assessee's interest-free own funds exceeded its investments yielding exempt income.
2) Whether disallowance under Rule 8D(2)(iii) could be sustained/recomputed in the absence of recorded objective satisfaction by the Assessing Officer regarding incorrectness of the assessee's suo motu disallowance.
3) Whether leave encashment provision constituted an unascertained liability requiring increase of book profit under section 115JB (Explanation 1(f)).
4) Whether sales tax/power-related subsidies were capital receipts under normal provisions; and whether such capital subsidies could be excluded while computing book profit under section 115JB.
5) Whether additional depreciation under section 32(1)(iia) could be claimed in second/subsequent years for eligible "new" plant and machinery acquired and installed earlier, subject to statutory limits.
6) Whether "provision for bad and doubtful debts" netted off against debtors in the balance sheet amounted to an actual write-off allowable under normal provisions and whether it warranted adjustment under section 115JB.
7) Whether long-term capital loss of an amalgamating company could be carried forward and set off by the amalgamated company pursuant to the approved scheme of amalgamation.
ISSUE-WISE DETAILED ANALYSIS
1) Section 14A read with Rule 8D(2)(ii): interest disallowance where own funds exceed investments
Legal framework: The Court proceeded on the premise that Rule 8D(2)(ii) operates only where interest expenditure is attributable to investments yielding exempt income, and examined the factual availability of interest-free own funds vis-à-vis investments.
Interpretation and reasoning: The Court noted that the assessee demonstrated, with financial particulars, that interest-free funds (share capital plus free reserves/surplus) substantially exceeded the value of investments. It found that the first appellate authority had sustained the disallowance in a summary manner without dealing with the evidences and without a reasoned rebuttal. On these facts, the Court accepted the inference that investments were made out of own funds and held that interest disallowance was unwarranted.
Conclusion: Disallowance under section 14A read with Rule 8D(2)(ii) was held not permissible; the interest component disallowance was directed to be deleted for both years (facts being identical).
2) Rule 8D(2)(iii): requirement of objective satisfaction before disturbing assessee's computation
Legal framework: The Court held that invocation of Rule 8D(2)(iii) "necessarily entails" recording an objective satisfaction by the Assessing Officer, based on the assessee's accounts, that the assessee's disallowance is incorrect.
Interpretation and reasoning: On examining the assessment order, the Court found that such satisfaction was missing. It treated the absence of recorded satisfaction as fatal to sustaining the Assessing Officer's disallowance approach. In that context, it sustained the first appellate direction to recompute disallowance under Rule 8D(2)(iii) rather than adopting the Assessing Officer's computation.
Conclusion: The Revenue's challenge to the direction for recomputation under Rule 8D(2)(iii) failed; the Court sustained the relief granted to the assessee and dismissed the Revenue's ground on this aspect for both years.
3) Leave encashment provision and section 115JB (Explanation 1(f))
Legal framework: The Court applied the statutory prescription that unascertained liabilities fall within Explanation 1(f) to section 115JB, requiring increase of book profit.
Interpretation and reasoning: The assessee withdrew its contest on the core issue of disallowance of leave encashment on provision basis. The Revenue, for the relevant year, specifically challenged the treatment under section 115JB on the footing that the liability was unascertained. Given the assessee's withdrawal and the statutory consequence under section 115JB, the Court accepted the Revenue's position.
Conclusion: The Revenue's ground seeking inclusion of the leave encashment provision in book profit under section 115JB was allowed.
4) Nature of subsidies under normal provisions; treatment under section 115JB
Legal framework: For normal provisions, the Court applied the "purpose test" for characterising subsidies, focusing on the object for which the subsidy is granted rather than timing or mode. For section 115JB, the Court examined whether such capital subsidy could be excluded from book profit in the absence of a specific adjustment in Explanation 1.
Interpretation and reasoning (normal provisions): The Court upheld the finding that the subsidies were intended to promote industrial growth, employment generation, and widespread economic development, and were not merely for encouraging day-to-day business operations. It agreed with the first appellate authority's evaluation of documents and acceptance that the subsidies were capital in nature, and found no infirmity warranting interference.
Interpretation and reasoning (section 115JB): The Court upheld inclusion of the subsidy amounts in book profit, agreeing with the lower authorities that, in computing book profit under section 115JB, the starting point is the profit as per accounts and only specified adjustments in Explanation 1 are permissible; it accepted the reasoning that such capital subsidy could not be reduced from book profit by a non-specified exclusion.
Conclusion: (i) Under normal provisions, the subsidies were conclusively held to be capital receipts (Revenue's challenge dismissed). (ii) Under section 115JB, exclusion of such capital subsidies from book profit was rejected (assessee's challenge dismissed).
5) Additional depreciation under section 32(1)(iia) in second/subsequent years
Legal framework: The Court examined section 32(1)(iia) and the contention that the benefit is confined to the year of installation/first put to use, versus the assessee's position that the statute does not expressly limit allowance only to the initial year and itself prescribes specific restrictions in the proviso.
Interpretation and reasoning: On identical facts for both years, the Court accepted the first appellate view that the claim was allowable, holding that the assessee satisfied the statutory conditions and that the first appellate reliance on tribunal precedent correctly supported allowance in subsequent years (subject to the overall cap that depreciation does not exceed actual cost).
Conclusion: The Revenue's grounds were dismissed; additional depreciation under section 32(1)(iia) was allowed.
6) Provision for bad and doubtful debts: allowability under normal provisions and adjustment under section 115JB
Legal framework: The Court applied the principle that where the amount is debited to the profit and loss account and correspondingly reduced from debtors/loans on the asset side of the balance sheet, it constitutes an actual write-off (not a mere provision) for purposes of deduction under section 36(1)(vii). It also examined whether such amount is to be added back in book profit under section 115JB.
Interpretation and reasoning: The Court found that the assessee had netted off the amount from debtors in the balance sheet, aligning with an actual write-off. It further accepted the first appellate treatment under section 115JB, holding that the Revenue's argument for addition as provision/unascertained liability was not maintainable on the accepted legal position applied by the first appellate authority.
Conclusion: Deletion of the disallowance under normal provisions and rejection of addition under section 115JB were confirmed; the Revenue's grounds were dismissed for both years.
7) Carry forward and set off of long-term capital loss of amalgamating company
Legal framework: The Court evaluated the effect of the approved scheme of amalgamation on transfer of assets and liabilities, and whether that encompassed the capital loss for carry forward/set off in the hands of the amalgamated entity.
Interpretation and reasoning: The Court upheld the first appellate finding that, under the sanctioned scheme, the amalgamated company took over all assets and liabilities, and that the capital loss, being part of what devolved under the scheme, could be carried forward and set off. It found no infirmity in the first appellate reasoning warranting interference.
Conclusion: The Revenue's challenge was dismissed; set off of the amalgamating company's long-term capital loss by the amalgamated company was allowed.
Disallowance u/s 14A r.w.s. 8D - assessee had shown to have earned exempt dividend income u/s 10(34)/10(35) - Assessee had suo-moto offered a sum towards disallowance u/s 14A - assessee primarily argued that it had sufficient own funds for making investment - HELD THAT:- From the details submitted by the appellant, we have noted that the argument of availability of surplus own funds is made out in favour of the assessee. We have also noted that judicial precedents relied upon also support the view that no disallowance u/s 14A read with Rule-8D(ii) is permissible in cases where the assessee had surplus own funds. Accordingly, we are of the considered view that no disallowance under section14A read with Rule-8D(ii) was required to be made. Decided in favour of assessee.
Invocation of statutory provisions to make any disallowance under Rule-8D(2)(iii) - Rule-8D(2)(iii) necessarily entails recording of an objective satisfaction by the AO before making any disturbance to assessee’s calculation. It is trite law that unavailability of any such objective satisfaction by the Assessing Officer would make any disallowance untenable in the eyes of law. We have noted from the impugned assessment order that recording of any such satisfaction is missing. In the case of Godrez & Boyce Manufacturing Company Ltd. [2017 (5) TMI 403 - SUPREME COURT] has held it is imperative for the AO to establish that based upon the accounts of the assessee, the disallowance made under section 14A by it is unacceptable. Accordingly, the decision of ld. CIT(A) directing the AO to recompute the disallowance is sustained.
Addition on account of Sales Tax subsidy, & Power subsidy while computing Book Profit u/s 115JB - HELD THAT:- We have noted that the reliance placed upon the decision of in the case of Appolo Tyres [2002 (5) TMI 5 - SUPREME COURT] is also based upon correct understanding and appreciation of the facts of the case. Accordingly, we are of the considered opinion that no case of any intervention to the order of the ld. CIT(A) is made out at this stage. We therefore confirm the order of ld. CIT(A) and dismiss ground of appeal raised by the assessee.
Treatment of the subsidy amounts as capital receipts - CIT(A) has concurred with the submissions of the assessee that the impugned amounts of subsidy were given not for encouragement of business but for the overall development and growth of State of Andhra Pradesh - HELD THAT:- We have noted that in the case of Ponny Sugars & Chemical Ltd. [2008 (9) TMI 14 - SUPREME COURT] held that nature of any subsidy is to be determined with respect to the purpose for which is granted. Time of disbursal and source/mode of subsidy is immaterial. CIT(A) has rightly distinguished the decision of Meghalaya Steels Ltd. [2016 (3) TMI 375 - SUPREME COURT] concluding that in the impugned case, the issue was as to whether subsidy is admissible for deduction under section 80IB/80IC or not. The issue of capital receipt vs revenue receipts was not agitated there. The ld. CIT(A) after examining various documents placed by the assessee held that the prime object of the impugned subsidies was to create employment, accelerate industrial growth, boost industrial investment in Andhra Pradesh for its wide spread economic development. Accordingly, we find that the decision of ld. CIT(A) is based upon correct understanding of the facts of the case. Decided against revenue.
Additional deprecation u/s 32(1)(iia) - AO disallowed the claim stating that Sec. 32(1)(iia) allows claim of additional depreciation in only the first year in which the asset is installed and put to use - CIT(A) allowed claim - HELD THAT:- We have noted that, as observed by the ld. CIT(A), the issue is fairly covered in favour of the assessee vide its decision in the case of DCIT vs Gloster Jute Mills Ltd. [2017 (3) TMI 1807 - ITAT KOLKATA] We have noted that the decision of learned First Appellate Authority is based upon correct facts of the case and does not require any intervention at this stage. Decided against revenue.
Allowability of claim of provision for bad debts under normal provision and under MAT u/s 115JB - HELD THAT:-We have noted that in the case of Religare Finvest Ltd. [2023 (7) TMI 1148 - ITAT DELHI].considering decision of Vijya Bank case [2010 (4) TMI 46 - SUPREME COURT] it is of the considered opinion that in this matter the assessee not only debited the amount of doubtful debt to the P&L Account but in fact registered the value of assets in the Balance Sheet, and therefore we find that it’s not the case of mere creating provision but actual writing off of the bad debts, and accordingly the assessee is entitled to the deduction under section 36(1)(vii).
Treatment u/s 115JB - As noted that Hon’ble Karnataka High Court in the case Yokogava India Ltd. [2008 (8) TMI 929 - ITAT BANGALORE] have held that the provisions are not liable for addition under section 115JB. This view has been upheld in the case of Delhi State Industrial and Infrastructure Corporation Ltd. [2023 (9) TMI 1740 - ITAT DELHI] - We have noted that the decision of ld. CIT(A) in para -20.4 of his order, following decision of Hon’ble Apex Court in the case of Vijaya Bank. [2010 (4) TMI 46 - SUPREME COURT] as well of this Tribunal in the case of Flex Foods [2013 (11) TMI 112 - ITAT DELHI] holding that the provisions for doubtful debts is an allowable deduction under section 115JB is also correct. Thus, on the issue of treatment of the provisions for doubtful debts under section 115JB also the arguments of the Revenue are non-maintainable.
Carry forward and adjustment of Long Term Capital Loss of amalgamating company - AO disallowed the claim on the contention that u/s 72A(1) only unabsorbed business loss & depreciation of the amalgamating company is available to amalgamated company - CIT(A) allowed the claim holding that the Scheme as approved by Hon’ble High Court, all the assets & liabilities including the capital loss would be transferred to appellant company - HELD THAT:- CIT(A) has accorded relief to the assessee on the premise that in scheme of amalgamations approved by Hon’ble High Court, all the assets and liabilities are taken over by the company taking over and therefore the losses will have to be allowed to the assessee. We have noted of the order of ld. CIT(A) that he has allowed relief after carefully considering the facts of the case in the light of material available before him as well as judicial precedents covering the matter. We have noted that there is no infirmity in the decision of CIT(A). Accordingly, we confirm the order of the ld. CIT(A) and dismiss the grounds of appeal raised by the appellant Revenue.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the appellant was liable to penalty under Section 112(a) and Section 112(b) of the Customs Act, 1962, on the facts found regarding the seized gold jewellery, particularly on the basis of "abetment" and being "concerned in dealing" with goods held liable to confiscation.
(ii) Whether, for deciding the penalty on the appellant, the Tribunal should re-examine the legality of the absolute confiscation of the seized gold jewellery and the applicability of Section 123 (burden of proof), when confiscation was not appealed by the person from whose possession the jewellery was recovered and the appellant's claim of ownership had been rejected.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Liability to penalty under Section 112(a) and 112(b) of the Customs Act, 1962
Legal framework (as discussed by the Tribunal): The Tribunal read Section 112(a) as covering a person who does or omits to do any act (or abets such act/omission) that renders goods liable to confiscation under Section 111. It read Section 112(b) as covering a person who acquires possession of, or is concerned in carrying/removing/keeping/concealing/selling/purchasing or otherwise dealing with goods which he knows or has reason to believe are liable to confiscation under Section 111.
Interpretation and reasoning: The Tribunal found that the appellant admitted association with the persons connected to the seized jewellery, including requesting that gold jewellery be brought through them and making payments purportedly linked to an invoice. The Tribunal further accepted the finding that the appellant attempted to "cover up" the seized jewellery by projecting it as part of other purportedly legitimate transactions, but could not establish ownership or legitimacy of the seized portion he claimed. The Tribunal treated this conduct-claiming part ownership of goods that were held liable to confiscation, without being able to substantiate it, coupled with contradictions emerging from the investigation-as constituting abetment and involvement in dealing with goods liable to confiscation. The Tribunal also considered the appellant's claim that he ordered a precise quantity (in decimal grams) as "wholly unnatural and unbelievable", reinforcing its conclusion that the asserted legitimacy was not credible.
Conclusions: The Tribunal conclusively held that the appellant's conduct amounted to abetment and involvement with goods liable to confiscation, attracting penalty under Section 112(a) and Section 112(b). It upheld the penalty and found no legal infirmity in the appellate order confirming it.
Issue (ii): Whether confiscation and Section 123 should be re-opened for deciding penalty
Legal framework (as applied by the Tribunal): The Tribunal proceeded on the basis that once seizure is made on reasonable belief and Section 123 applies, the burden shifts to the person from whose possession goods are recovered or the person claiming ownership to prove that the goods are not smuggled. It also treated finality of confiscation as relevant where confiscation was not appealed by the person directly proceeded against for confiscation.
Interpretation and reasoning: The Tribunal held that confiscation was not the subject matter before it because it had not been appealed by the person from whose possession the jewellery was recovered, and the appellant's part-ownership claim had already been rejected on findings including rejection of the retraction and lack of corroboration. Accordingly, the Tribunal declined to examine the legality of the absolute confiscation. On Section 123, the Tribunal found that the circumstances (specific intelligence, recovery from a concealed compartment, and lack of satisfactory explanation or documents at seizure) supported shifting the burden, and that the concerned person did not challenge confiscation thereafter. The Tribunal treated these findings as sufficient to proceed to the limited question of penalty, without re-litigating confiscation merits.
Conclusions: The Tribunal conclusively decided that it would not re-examine absolute confiscation in the penalty appeal, and it accepted invocation/applicability of Section 123 on the facts as found, using those settled findings as the foundation to sustain penalty under Section 112.
Imposition of penalty under Section 112(a) and 112(b) - smuggling of goods - absolute confiscation -applicability of under Section 123 -failed to produce any corroborative evidence to the effect that they were the real owners of the seized gold jewellery - HELD THAT:- In the facts of the case, by claiming to be the owner of the part of said goods, which ultimately he could not established, it is a clear case of abatement when the goods were already held to be liable for confiscation. It is a case where he actually tried to cover the offering seized goods by claiming it as some other legitimate jewellery items, which however, could not stand to test in view of various contradictions as well as admitted facts by Shri Niazi Pathan Nymatulla Khan, Shri Niazi Pathan Nasarullah Khan and so called supplier. The retraction of statement by Nymatullah Khan also does not help him because of the reasons given in detail by Original Adjudicating Authority.
A great deal of argument has been made by the appellant that under Section 123 is not invokable in the facts of the case. In this case, interception was made on specific intelligence, recovery of jewellery was made from concealed compartment, Shri Niazi Pathan Nymatulla Khan could not give any valid answer to the bonafide purchase or source or documents at the time of seizure and the onus to prove thereafter, shifted to Shri Niazi Pathan Nymatulla Khan to prove otherwise that it is neither smuggled good nor made out of smuggled gold. Further, he has chosen not to come in appeal against said decision or confiscation. On the other hand, reliance on certain judgments cited by Learned AR, supra, clearly supports invocation and applicability of under Section 123 of Customs Act, 1962 in the facts of the case.
Therefore, in the facts of the case penalty has been rightly imposed on Shri Jacky Kumar Jain under Section 112(a) and 112(b) of the Customs Act, 1962 and therefore, there is no legal infirmity in the impugned order passed by Commissioner (Appeals).
Appeal dismissed.
Issues: (i) Whether the demand of duty and interest, based on alleged suppression and misdeclaration, could be sustained when the differential duty had been paid before issuance of the show cause notice; (ii) Whether confiscation of the imported goods and penalties on the importer and its General Manager were sustainable in the facts of the case.
Issue (i): Whether the demand of duty and interest, based on alleged suppression and misdeclaration, could be sustained when the differential duty had been paid before issuance of the show cause notice.
Analysis: The appellants disclosed the discrepancy through their CHA, made payment of the differential duty and interest before the show cause notice, and the record did not support a finding of deliberate suppression. The payment preceded the notice and the facts indicated a bona fide error in the import documentation rather than a scheme to evade duty. In these circumstances, the demand founded on the allegation of willful misstatement or suppression could not be upheld.
Conclusion: The demand of duty and interest was not sustainable and was set aside in favour of the assessee.
Issue (ii): Whether confiscation of the imported goods and penalties on the importer and its General Manager were sustainable in the facts of the case.
Analysis: Once the differential duty and interest had been voluntarily paid before the notice and the case did not establish mala fide intent, the foundation for confiscation and penal consequences also disappeared. The confiscation order and the penalties rested on the same allegation of suppression and misdeclaration, which was not made out on the evidence relied upon by the Tribunal.
Conclusion: Confiscation and penalties were not sustainable and were set aside in favour of the assessee.
Final Conclusion: The appeals succeeded, and the impugned order was annulled with consequential relief as admissible under law.
Ratio Decidendi: Where an importer voluntarily pays the differential duty and interest before issuance of the show cause notice and the record does not establish willful suppression or mala fide misdeclaration, the extended-duty demand and the allied confiscation and penalty proceedings cannot be sustained.
Demand proceedings - Voluntarily deposited differential duty prior to the issuance of the Show Cause Notice - non-inclusion of second and third invoices for payment of Customs duty at the time of import - confiscation u/s 111(l) - allegations of suppression or misstatement or collusion - HELD THAT:-Adjudicating Authority has observed that the importer. They had voluntarily come forward and paid the differential duty together with interest immediately after they were confronted with the irregularity and much before issue of the Show Cause Notice. - No any mala fide intention for the appellant regarding non-payment of differential duty at the time of import. We find that if the appellant had any malafide intention, he himself would not have disclosed the fact that duty had not paid on the other 2 invoices.
From the above facts, it is clear that the appellants had deposited the differential duty even before the issuance of the Show Cause Notice. The information regarding non-payment of duty on two invoices was provided by the appellants himself and if there had been any malafide intention, he would not have disclosed this information. Thus, the demand, confiscation and penalties is not sustainable against main appellants then penalties on the appellants General Manager is also not sustainable. Therefore appeals deserve to be allowed and the impugned order is liable to be set aside.
Appeals allowed with consequential relief, if any, as per law.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the Department validly displaced classification under tariff item 84313100 for the disputed imported items, and whether the impugned reclassifications were sustainable in the absence of supporting evidence and in light of the "solely or principally" use criterion inherent in heading 8431.
(ii) Whether reclassification could be sustained when the adjudicating authority relied on Section XVI Note 1 exclusions and Section Note 2(a) that were not invoked in the notice, and whether such reliance violated principles of natural justice.
(iii) Whether door locks were excludible from heading 8431 and correctly classifiable under heading 8301, having regard to the specific exclusion for lift locks applied by the Tribunal.
(iv) Whether invocation of the extended period under section 28(4) was justified, and consequentially whether confiscation, redemption fine, and penalties premised on wilful misstatement/misclassification were sustainable.
(v) Whether the adjudicating authority lacked jurisdiction to confirm duty demands relating to imports assessed at ports/airports outside its territorial jurisdiction, in the absence of shown appointment as a common adjudicating authority.
2. ISSUE-WISE DETAILED ANALYSIS
A. Sustainability of reclassification away from 84313100 for the disputed goods (other than door locks)
Legal framework (as discussed): The Court applied the structure of classification under the First Schedule read with the General Rules for Interpretation, emphasising Rule 1 primacy (classification by heading terms and Section/Chapter Notes) and accepted that heading 8431 (and tariff item 84313100) inherently permits consideration of "use/adaptation" because it covers "parts suitable for use solely or principally" with specified machinery. The Court also applied the principle that the burden to justify a changed classification lies on the Revenue when it seeks to reclassify goods away from what the importer claimed.
Interpretation and reasoning: The Court found that the adjudicating authority largely adopted audit-proposed classifications and invoked Section XVI Note 1 exclusions (parts of general use, belts of vulcanised rubber, machine brushes, articles of Chapters 82/83, etc.) without placing on record any product-specific evidence showing that the imported items matched those exclusions or the alternative headings. The Court specifically noted the absence of minimum evidentiary material such as product literature demonstrating "general use", expert opinion/test reports (including on whether belts were vulcanised rubber), or other credible material to discredit the importer's factual assertions that the goods were tailored for lifts/escalators and suitable solely or principally for such use. The Court held that shifting the evidentiary burden to the importer (by faulting the importer for not producing evidence) was incorrect when the Department sought to upset an existing classification.
Conclusions: For all disputed items except door locks, the Court set aside the reclassifications and held the goods were entitled to classification under tariff item 84313100, as claimed, because the Revenue failed to discharge its burden to prove applicability of exclusions or correctness of alternate headings.
B. Reliance on Section XVI Note 1 exclusions / Section Note 2(a) not invoked in the notice (natural justice and scope of notice)
Legal framework (as discussed): The Court treated the notice as the foundation of adjudication and held that an adjudicating authority cannot travel beyond it; introducing new statutory bases not put to notice violates principles of natural justice. The Court also considered that if a provision is not clearly invoked with reasons in the notice, it cannot be relied upon later to sustain the demand.
Interpretation and reasoning: The Court found that the notice relied primarily on Rule 1 and an explanatory-note caution that many parts may be specified elsewhere, but it did not independently invoke and reason through the specific Section XVI Note 1 exclusions or Section Note 2(a) later relied upon in the impugned order. The Court held that the adjudicating authority's subsequent reliance on these exclusions and Section Note 2(a) amounted to new justification "behind the importer's back", vitiating the findings. Additionally, even on merits, the Court held Section Note 2(a) was misapplied to push buttons/switches because the exclusion of 8431 within 2(a) could not be bypassed without evidence that the goods were not covered by 8431.
Conclusions: The Court held that reliance on these un-noticed statutory exclusions/notes was impermissible and independently vitiated the impugned reclassification findings.
C. Correct classification of door locks
Legal framework (as applied): The Court applied the explanatory-note exclusion to heading 8431 that locks for passenger and goods lifts are excluded and fall under heading 8301. Unlike other items, the Court expressly adopted and applied this exclusion as decisive.
Interpretation and reasoning: The Court held that, although the importer asserted sole/principal use in lifts, it did not provide a credible reason to disregard the specific exclusion for lift locks. The Court accepted the adjudicating authority's finding that the explanatory notes clearly exclude such locks from 8431. Therefore, even if reliance on Section XVI Note 1(k) was discounted, the lock-specific exclusion independently justified classification under 83014090.
Conclusions: Reclassification of door locks to tariff item 83014090 was upheld, but only subject to limitation and jurisdiction constraints decided separately.
D. Extended limitation, confiscation, redemption fine, and penalties
Legal framework (as discussed): For section 28(4) extended limitation, the Court required proof of deliberate default/wilful misstatement; it held the Department bears the burden to establish malafide. The Court also treated classification disputes as interpretational where, absent mens rea, penal consequences (confiscation/redemption fine/penalties) could not stand on the premise of misstatement.
Interpretation and reasoning: The Court rejected the view that audit detection alone justified extended limitation. It found no evidence that the importer's declarations differed from supplier documentation/certification, and noted the long-standing acceptance of the importer's classification practice. Isolated prior instances of different classification were treated as not establishing intent. Since the Court found no malafide and held most reclassification itself failed for lack of evidence, it concluded extended limitation was untenable. Consequently, confiscation under section 111(m), redemption fine, and penalties under sections 114A and 114AA, which were premised on wilful misstatement/misclassification, were held unsustainable.
Conclusions: Extended period invocation was set aside. Confiscation, redemption fine, and penalties were quashed. For door locks, demand could survive only for the normal period (and only within jurisdiction).
E. Territorial jurisdiction over imports cleared at other ports
Legal framework (as examined): The Court examined that multi-port demands generally require appointment/authorisation of a common adjudicating authority through Board action or delegated authority, and held the adjudicating authority must show empowerment to adjudicate imports assessed outside its territorial jurisdiction.
Interpretation and reasoning: The Court noted that neither the notice nor the impugned order identified any notification/order empowering the adjudicating authority to cover out-of-jurisdiction ports, and the jurisdiction objection remained uncontroverted. The Court therefore held the adjudicating authority acted beyond jurisdiction for demands relating to imports assessed outside its territorial limits, rendering those confirmations null and void to that extent.
Conclusions: All demands pertaining to imports assessed outside the adjudicating authority's territorial jurisdiction were set aside as without jurisdiction, including with respect to door locks. The only surviving liability was confined to door locks imported within territorial jurisdiction and only for the normal period, with corresponding interest; all other parts of the order were quashed.
Classification under the General Rules of Interpretation (GRI) - consideration of intended/sole or principal use in tariff classification - HSN Explanatory Notes and alignment with First Schedule - burden of proof on the Revenue in reclassification - extended period of limitation / invocation of longer limitation - scope of show cause notice and principles of natural justice - territorial jurisdiction of adjudicating authority - confiscation and penalties not attracted for bona fide classification
Classification under the General Rules of Interpretation (GRI) - consideration of intended/sole or principal use in tariff classification - HSN Explanatory Notes and alignment with First Schedule - burden of proof on the Revenue in reclassification - Validity of reclassification of imported parts (other than door locks) from CTH 84313100 to various residuary headings by the Adjudicating Authority - HELD THAT: - Applying GRI 1-4 sequentially and the principles elucidated in the cited Apex Court authority, the Tribunal found that the subheading 84313100 expressly contemplates parts "suitable for use solely or principally" with lifts/escalators, thereby permitting consideration of intended use where the statutory text so provides. The appellant consistently maintained that the imported items were bespoke parts for lifts/escalators, supported by supplier classification, certificate of origin, invoices, purchase orders and long usage without prior dispute. The Adjudicating Authority redetermined classification by invoking exclusions in Section Note 1 to Section XVI but failed to adduce independent evidence to establish that the items were of general use or otherwise fell within those exclusions. The Tribunal held that the burden to prove a different classification lay on the Revenue and, absent such evidence, the reclassification (which largely consigns goods to residuary headings) is unsustainable. Consequently, except for door locks, the claimed classification under CTH 84313100 is accepted and the reclassification is set aside. [Paras 31, 33, 35]
Reclassification of the imported goods (except door locks) is set aside; the goods are entitled to classification under CTH 84313100 as claimed by the appellant.
HSN Explanatory Notes and alignment with First Schedule - classification under the General Rules of Interpretation (GRI) - Classification of door locks imported for lifts/escalators - HELD THAT: - The Tribunal examined the HSN explanatory notes which specifically exclude "locks for passenger and goods lifts" from heading 8431 and observed that this exclusion is categorical. The appellant did not furnish a convincing basis to disapply that specific exclusion. Therefore, notwithstanding the general acceptance of the appellant's claim for other parts, the door locks legitimately fall under the tariff item for locks (CTH 83014090). The Tribunal limited the extent of the demand in relation to door locks to the normal period and to imports within the Adjudicating Authority's territorial jurisdiction. [Paras 39, 46]
Redetermination of classification in respect of door locks under CTH 83014090 is upheld, but demand sustained only for the normal period and confined to imports within the Adjudicating Authority's territorial jurisdiction.
Extended period of limitation / invocation of longer limitation - confiscation and penalties not attracted for bona fide classification - Whether extended period of limitation was rightly invoked and whether confiscation, redemption fine and penalties could be imposed for the classification dispute - HELD THAT: - The Tribunal held that invocation of the extended period required proof of willful misstatement or deliberate default. Given the appellant's longstanding practice of classifying imports under 8431, supporting supplier documents and absence of any credible evidence of mala fide or deliberate misstatement by the Department, the requisite mens rea for invoking the extended period was not established. The classification dispute was essentially interpretative; accordingly findings of misclassification, confiscation under section 111(m), redemption fine and penalties under Sections 114A/114AA were unsustainable and set aside. [Paras 41, 42, 43]
Invocation of extended limitation and consequential findings of confiscation, redemption fine and penalties are quashed and set aside.
Territorial jurisdiction of adjudicating authority - scope of show cause notice and principles of natural justice - Validity of confirming demands in respect of imports assessed outside the territorial jurisdiction of the Adjudicating Authority - HELD THAT: - The Tribunal noted absence of any Board notification or communication appointing the Commissioner of Customs, ChennaiII as a Common Adjudicating Authority empowered to adjudicate imports assessed at other ports/airports. The Show Cause Notice and impugned order do not disclose jurisdictional authority for treating imports made and assessed outside the Commissionerate's territorial limits. The Department did not controvert this ground. In view of this absence of jurisdictional basis, the Tribunal held that confirmation of demands in respect of imports assessed outside the Adjudicating Authority's territorial jurisdiction is void ab initio. [Paras 44]
Confirmation of demands in respect of imports assessed outside the territorial jurisdiction of the Adjudicating Authority is set aside as void ab initio.
Final Conclusion: The appeal is partly allowed: except for door locks (upheld as classifiable under CTH 83014090 but only for the normal period and confined to imports within the Adjudicating Authority's territorial jurisdiction), the reclassification, extendedperiod demands, confiscation, redemption fine and penalties confirmed by the Adjudicating Authority are quashed and set aside; demands relating to imports outside the Adjudicating Authority's territorial jurisdiction are void ab initio. The appellant is entitled to consequential reliefs in law.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether countervailing duty (additional duty under Section 3 of the Customs Tariff Act) was leviable on imported silk fabric during 2012-2013, when like goods manufactured in India were fully exempt from excise duty under the then prevailing excise exemption.
(ii) Whether the demand could validly be issued by invoking the extended period under Section 28(4) of the Customs Act, 1962, or whether, in view of payment of duty and interest prior to issuance of notice, proceedings stood concluded under Section 28(2).
(iii) Whether confiscation, redemption fine, and penalties imposed under the Customs Act were sustainable once the Tribunal found (a) non-levy of CVD for the relevant period, and (b) statutory conclusion of proceedings under Section 28(2) with absence of suppression/mens rea at the time of import.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Levy of CVD on imported silk fabric during 2012-2013
Legal framework: The Tribunal examined the nature of additional duty (CVD) as a counterbalance to excise duty on like goods manufactured in India, and applied the binding principle that where excise duty on the like domestic article is exempt, the corresponding CVD would not be leviable for the relevant period.
Interpretation and reasoning: The Tribunal held that during 2012-2013, excise duty on silk yarn and silk fabrics was fully exempt under the relevant excise exemption, and that conditions relating to non-availment of credit could not be used to deny the corresponding position for imports because imported goods cannot avail such credit. Later changes to the excise notifications in 2015 were held inapplicable to the 2012-2013 imports, and the adjudicating authority was found to have failed to follow binding law.
Conclusions: CVD was held to be not leviable on the subject imports for 2012-2013. The CVD demand confirmed in the impugned order was set aside in toto, and any surviving liability was confined to Basic Customs Duty with applicable interest as contemplated under the duty exemption mechanism and bonds.
Issue (ii): Applicability of Section 28(2) versus invocation of Section 28(4) (extended period)
Legal framework: The Tribunal applied Section 28(2) of the Customs Act, 1962 as a provision mandating statutory conclusion of proceedings when duty and interest are paid prior to issuance of a show cause notice, and assessed whether the factual foundation existed for invoking Section 28(4) (suppression/wilful misstatement etc.).
Interpretation and reasoning: The Tribunal found it undisputed that imports were made against valid advance authorisations and exemption was granted by the proper officer at the time of import. The notification framework was treated as contemplating a post-import contingency: failure to fulfil export obligation, with duty and interest payable under the executed bonds. The Tribunal held that such post-import failure, by itself, does not amount to suppression or wilful misstatement at the time of import. It further treated the prior written intimation by the importer of inability to meet export obligation, preceding the later search, as material conduct evidencing voluntary disclosure; the Tribunal noted this was not rebutted or meaningfully considered in the impugned order. Payment of Basic Customs Duty and interest before the notice date was treated as attracting Section 28(2), thereby removing the legal basis for extended-period invocation and penal consequences premised on fraud/suppression.
Conclusions: Invocation of Section 28(4) was held legally impermissible on the facts; proceedings stood concluded by operation of Section 28(2) because duty and interest were paid prior to issuance of the show cause notice and there was no evidence of suppression/misdeclaration at the time of import.
Issue (iii): Sustainability of confiscation, redemption fine, and penalties
Legal framework: The Tribunal examined the linkage between penal provisions and a valid demand founded on fraud/suppression, as well as the requirement of intentional falsity for penalty based on use of false documents, and the premise that confiscation/penalty for import contraventions presuppose a subsisting contravention attributable to the import stage rather than a mere post-import default contemplated by the exemption scheme.
Interpretation and reasoning: Having held that Section 28(2) operated to conclude proceedings and that the extended period under Section 28(4) was wrongly invoked, the Tribunal concluded that there was no enforceable determination of duty by reason of fraud or suppression to sustain a penalty that is inextricably linked to such determination. The Tribunal also held that prior disclosure and pre-notice payment negated the mens rea required for penalties. Penalty requiring proof of intentional use of false or fabricated documents was held unsustainable because the impugned order did not identify any such false/fabricated document or deliberate falsification. Confiscation and related penalties were held to presuppose an import-stage contravention, which was absent where the case essentially involved post-import failure expressly contemplated under the exemption mechanism.
Conclusions: Confiscation, redemption fine, and penalties imposed under the Customs Act were set aside in entirety. The only surviving aspect was limited to arithmetical verification of Basic Customs Duty and interest payable/paid.
Relief and operative outcome (material to decision)
The impugned order was set aside in part and the matter remanded strictly for the limited purpose of re-computing and verifying the arithmetical correctness of Basic Customs Duty and applicable interest payable under the exemption/bond mechanism, without invoking Section 28(4) and without any fresh adjudication on merits. Any shortfall was directed to be recovered in accordance with law, and any excess was directed to be refunded with consequential relief as per law.
Levy of countervailing duty on silk yarn and silk fabrics - Show Cause Notice alleging misuse of the Advance Authorization scheme and diversion of duty-free imported goods into the domestic market - post-import failure to fulfil export obligation under Notification No. 96/2009-Cus - duty along with interest in terms of the bond executed at the time of import - Whether Countervailing Duty (CVD) was leviable on imported silk fabric during 2012–2013 - HELD THAT:- Following the binding precedents of the Hon’ble Supreme Court in SRF Ltd. [2015 (4) TMI 561 - SUPREME COURT] as reinforced by the Chennai Bench decision in Enterprise International Ltd./Sunstar International [2015 (8) TMI 191 - CESTAT CHENNAI] and the subsequent dismissal of the Department’s appeals by the Hon’ble Supreme Court, we hold that countervailing duty was not leviable on the imported silk fabrics during the period 2012–2013. We therefore hold that CVD was not leviable on the subject imports.
Whether invocation of Section 28(4) (extended period) or Section 28(2) of Customs Act is applicable in this case. - The failure to fulfil export obligation is admittedly a post-import event and, by itself, does not constitute suppression or wilful misstatement at the time of import. Section 28(2) of the Customs Act, 1962, being a beneficial provision intended to encourage voluntary compliance, mandates statutory conclusion of proceedings once duty and interest are paid prior to issuance of show cause notice.
In the present case, there is no evidence of suppression or misdeclaration at the time of import, and invocation of the extended period under Section 28(4) is therefore legally impermissible.
Having held that countervailing duty was not leviable on silk fabric during the relevant period, the amounts paid necessarily relate to Basic Customs Duty with interest. Once the duty liability stood fully discharged prior to issuance of notice, the very foundation of invocation of Section 28(4) and the consequential penal proceedings ceases to exist. Accordingly, we hold that Section 28(4) was wrongly invoked and the proceedings stood concluded by operation of Section 28(2) of the Customs Act, 1962.
Whether confiscation and penalties under Sections 111, 112, 114A and 114AA of the Customs Act, 1962 are sustainable. - Once the substantive demand fails by operation of law, there survives no enforceable determination of duty by reason of fraud or suppression. Penalty under Section 114A, being inextricably linked to valid determination under Section 28(4), is therefore barred. Further, the Appellant’s prior disclosure vide letter dated 04.01.2013, coupled with discharge of duty and interest before issuance of notice, clearly negatives the existence of mens rea required for imposition of penalties.
Penalty under Section 114AA, which requires strict proof of intentional use of false or fabricated documents, is equally unsustainable, as no such document or deliberate falsification has been identified in the impugned order. Confiscation under Sections 111(d), 111(m) and 111(o), and penalty under Section 112, presuppose a subsisting contravention at the time of import, which is absent in a case of post-import failure expressly contemplated under Notification No. 96/2009-Cus.
Accordingly, confiscation, redemption fine and all penalties imposed under Sections 112, 114A and 114AA are set aside in entirety, and the surviving issue, if any, is confined only to verification of the arithmetical correctness of Basic Customs Duty along with applicable interest already paid.
Thus, the statutory framework governing Advance Authorizations, and the provisions of Sections 28(2) and 28(4) of the Customs Act, 1962, we hold that the impugned proceedings are unsustainable both in law and on facts.
Post-import failure to fulfil export obligation under Notification No. 96/2009-Cus - The Appellant voluntarily discharged the applicable customs duty along with interest prior to issuance of the Show Cause Notice. In such circumstances, proceedings stood statutorily concluded by operation of Section 28(2) of the Act, rendering invocation of the extended period under Section 28(4) legally impermissible particularly in view of the Appellant’s prior written intimation dated 04.01.2013, which preceded the DRI search and remained unrebutted.
We further hold that countervailing duty was not leviable on imported silk fabric during the period 2012–2013 in view of the binding law laid down by the Hon’ble Supreme Court in SRF Ltd., which continues to hold the field.
Once the foundational demand itself fails, the consequential confiscation, redemption fine and penalties imposed under the Customs Act cannot be sustained. The case laws relied upon by the Revenue, being distinguishable on facts, period and statutory context, do not advance its case.
Demand of Basic Customs Duty along with applicable interest is concerned - Having held that countervailing duty is not leviable and that confiscation and penalties are unsustainable, the surviving issue is confined only to verification of the arithmetical correctness of the Basic Customs Duty and interest actually payable.
Accordingly, the impugned order is set aside in part, and the matter is remanded to the adjudicating authority strictly for the limited purpose of re-computing and verifying whether the Basic Customs Duty along with applicable interest has been correctly discharged by the Appellant in terms of Notification No. 96/2009-Cus and the bonds executed, without invoking Section 28(4).
Appeal is disposed of on the above terms.
1. ISSUES PRESENTED AND CONSIDERED
i) Whether officers of the Directorate of Revenue Intelligence had jurisdiction to issue show cause notices in matters involving recovery of duty drawback under the Customs law framework governing drawback.
ii) Whether deliberate post-LEO manipulation of Bills of Lading to alter the port of discharge, without candid disclosure to Customs, constitutes mis-declaration attributable to the Shipping Bill process when done to perpetrate fraud.
iii) Whether a company can be proceeded against as a "person" for penalty under Section 114 of the Customs Act, 1962.
iv) Whether penal action under the Customs Act can lie against a Customs Broker/Custom House Agent for conduct that is essentially non-compliance with regulatory obligations under CHALR, 2004, and what threshold of knowledge/abetment is required.
v) Whether, on the established facts, the employer-Customs Broker was liable for the wrongful acts of its employees so as to sustain penalty under Section 114(i), and whether the Department proved abetment/knowledge by the company.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Jurisdiction of DRI to issue show cause notice in drawback matters
Legal framework discussed by the Court: The Court considered the Customs Act provisions concerning drawback and the legal position on competence of DRI officers to issue show cause notices, and applied the subsequently settled position that DRI issuance of show cause notice is legally proper in drawback cases.
Interpretation and reasoning: The Court applied the later, governing view that challenges to DRI competence (premised on earlier understandings of "proper officer") do not invalidate DRI-issued notices in drawback matters. The Court treated the legal position as settled in favour of Revenue on this jurisdictional objection.
Conclusion: The jurisdictional objection failed; DRI-issued show cause notices in drawback matters were upheld as valid.
Issue (ii): Post-LEO manipulation of Bills of Lading-whether it amounts to mis-declaration in Shipping Bills when used for fraud
Legal framework discussed by the Court: The Court proceeded on the basis that export documents are integral to Customs due diligence and risk assessment, and applied the evidentiary principle that facts especially within a party's knowledge must be proved by that party.
Interpretation and reasoning: The Court held that export documentation is not a mere formality; Customs acts on declarations as prima facie true. Where the destination details are deliberately altered after LEO to defeat examination/risk parameters and to obtain drawback, and there is no candid disclosure to Customs, the act is blameworthy and constitutes fraud. In such circumstances, the Court treated manipulation of Bills of Lading after LEO as effectively amounting to mis-declaration in the Shipping Bill process because it is part of a scheme to mislead Customs and unlawfully obtain public funds.
Conclusion: Deliberate post-LEO manipulation of Bills of Lading to change port of discharge, when done to perpetrate fraud and without bona fide disclosure, was held to amount to mis-declaration attributable to the Shipping Bill/export clearance process.
Issue (iii): Whether a company is a "person" for penalty under Section 114 of the Customs Act
Legal framework discussed by the Court: The Court noted the absence of a definition of "person" in the Customs Act and applied the General Clauses Act definition which includes companies, unless repugnant to context.
Interpretation and reasoning: The Court rejected reliance on definitions from other statutes and held that, by applying the General Clauses Act, a company falls within "person" for purposes of Customs penalties.
Conclusion: A company can be proceeded against as a "person" under Section 114 of the Customs Act.
Issues (iv) & (v) (grouped): Penal action against a Customs Broker under the Customs Act versus CHALR obligations; employer liability for employees' acts; and whether Section 114(i) penalty was made out on facts
Legal framework discussed by the Court: The Court distinguished (a) disciplinary/regulatory consequences under CHALR, 2004 for breach of obligations (including negligence), from (b) penal consequences under the Customs Act which require establishing culpable involvement such as conspiracy/collusion/abetment, i.e., conduct with knowledge/intent beyond mere failure to meet regulatory standards. The Court also articulated principles on when an employer may be liable for employees' acts: liability may attach where acts are within course of employment and authorised (including unauthorised mode of authorised act), or where a fraud is committed for the employer's benefit; but not where acts are outside scope, in defiance of instructions, or for employees' own benefit. The Court emphasised that the Department bears the burden to establish the offence, subject to shifting onus where appropriate.
Interpretation and reasoning: Applying these principles to each appeal, the Court found that the orders primarily proceeded against the company on the basis that its employees failed to verify exporter credentials/authorisation and thereby facilitated fraud. However, the Court found an absence of allegations and proof that the company itself abetted the fraud, directed employees to collude, or had knowledge/common intention to commit the illegal acts. Even where employees were found blameworthy (including accepting extra payments and facilitating false documentation), the findings did not establish that such conduct was undertaken with the company's direction or for its benefit so as to attribute abetment to the employer-company for Section 114(i). The Court held that lapses in discharge of Customs Broker responsibilities, without proof of knowing abetment, are to be examined under CHALR, 2004 rather than penalised under the Customs Act.
Conclusion: The Department failed to establish an offence by the company under the Customs Act; the essential element of abetment/knowledge attributable to the company was not proved. Consequently, penalties imposed on the company under Section 114(i) were set aside in all appeals, with consequential relief as per law.
Jurisdiction of Directorate of Revenue Intelligence (DRI) officers to issue a SCN in the case of drawback - wrongfully availment of drawback benefits - manipulating Bills of Lading (BL), after obtaining the ‘Let Export Order’ (LEO) - misdeclaration of the Shipping Bills (SB) - export of low cost textiles was done by willfully misusing the Importer Exporter Codes (IEC) of third parties without the knowledge of the actual IEC holders - Unlawfully claim duty drawback benefits - Custom House Agent/ Customs Broker (CHA/ CB) - imposition of penalty under Section 114(i) - Whether the appellant being a Public Company can be held liable as a ‘person’ as provided under Sec 114 Customs Act? - HELD THAT:- We find that the judgment of this Tribunal in Manasa Impex – I (supra) later came to be examined in the said appellants case vide FINAL ORDER NOS. 40832-40840/2025, Dated: 21.08.2025 [Manasa Impex Services Vs Commissioner of Customs (Preventive) - [2025 (9) TMI 263 - CESTAT CHENNAI], and the point of law was held in favour of revenue accepting the issue of SCN by DRI to be legal and proper in a case involving drawback.
Have answered the question upholding the issue of SCN by DRI, we now examine the second question.
Whether a subsequent act of manipulating BL to a different Port of Discharge, after obtaining the LEO upon completion of the Shipping Bills process, would amount to misdeclaration in the SB.? - Customs Officers examining the export goods accept the details contained in a document or declaration to be prima facie correct and it would be unfair on the part of the exporter or his agent to betray this trust. Unlike a genuine change in destination caused by bonafide business requirements and the department is informed, when a fraud is perpetrated the parameters of consideration will be different. If there is no candid disclosure of relevant and material facts in the BL or the exporter or his agent is guilty of deliberately misleading the officers, then it is a blameworthy act.
The act of deliberately altering the BL after LEO is an act of fraud as it is well known that Customs facilitation procedures have different yardsticks of verifications based on the destination of goods as a part of its risk assessment and trade facilitation strategy for export goods.
Hence when a subsequent act of manipulating the BL to a different ‘Port of Discharge’ is done to perpetuate a fraud, then even if the act is done after obtaining the LEO upon completion of the Shipping Bills process, it would amount to mis-declaration in the SB.
Under Customs Act, ‘person’ does not include juristic persons like a Company. Then whether the appellant being a Public Company can be held liable as a ‘person’ as provided under Sec 114 Customs Act? - It is true that the word ‘person’ has not been defined under the Customs Act, 1962. When a word is not defined under a Central Act, its meaning can be ascertained from the definition given under section 3 of the General Clauses Act, 1897, unless there is anything repugnant in the subject or context.
Hence a Public Company is also liable to be held as a ‘person’ for the purpose of the Customs Act. The appellant has mis-guided himself by seeking the definition of the term ‘person’ from the Income Tax Act, more so when law provides for such an eventuality in the General Clauses Act.
Imposition of penalty - There is nothing, in this case, to show that the CHA knowingly did or omitted to do an act or abetted an act and consequently rendered the export goods liable for confiscation. Even if there was a failure on the part of the CHA in fulfilling the actions required of him as a CHA it cannot be construed as abetment of offence. Hence no penal action lies against the CHA under the Customs Act in this case and the order imposing penalty on the appellant-CHA merits to be dropped.
The findings against the appellant do not reveal that Shri Sainathan and Shri P.K. Arumugam abetted the above persons with the directions or knowledge of the appellant-CHA. The allegation against the appellant is that their utter disregard of the responsibility cast on them by the statute facilitated the fraudsters from availing undue drawback. Action against a CHA for not fulfilling his responsibilities, if any, have to be examined and if necessary acted upon under CHALR, 2004 and not under the Customs Act 1962. Hence the penalty imposed on the appellant merits to be dropped.
The allegation against the CHA-appellant is that their utter disregard of the responsibility cast on them by the statute facilitated the fraudsters from availing undue drawback. There are no allegations of the CHA company abetting with anyone in an illegal act or directing their employees, Shri N. Sainathan and Shri P.K. Arumugam to abet with the fraudsters in receiving undue drawback benefits. Hence as stated earlier action against a CHA for not fulfilling their responsibilities, if any, have to be examined and if necessary acted upon under CHALR, 2004 and not under the Customs Act 1962. Therefore the penalty imposed on the appellant merits to be dropped.
It was found that CHA failed to verify exporters' credentials or obtain written authorization, contrary to requirements under Section 50(2) of the Customs Act, 1962. The CHA's deliberate neglect of duties contributed to the fraudulent activity, and their argument about physical non-availability of exported goods for confiscation does not negate liability under the relevant sections of the Customs Act. As discussed in the earlier cases there are no allegations of the CHA company abetting with anyone in an illegal act or directing their employees, Shri N. Sainathan and Shri P.K. Arumugam to abet with the fraudsters in receiving undue drawback benefits. Hence action against a CHA for not fulfilling its responsibilities, if any, have to be examined and if necessary, acted upon under CHALR, 2004 and not under the Customs Act 1962. Therefore, the penalty imposed on the appellant merits to be dropped.
We find that the department has not succeeded in establishing an offence committed by the appellant M/s Sanco Trans Ltd. under the Customs Act 1962. Hence a penalty imposed on them under section 114(i) of the said Act, as per the impugned orders, cannot sustain and are set aside. The appellant is eligible for consequential relief as per law. The appeals are disposed of accordingly.
Issues: (i) Whether washing, removal of waste and sizing of imported manganese ore amounted to conversion of ore into concentrate under Chapter Note 4 to Chapter 26; (ii) Whether the exemption under S. No. 4 of Notification No. 04/2006-CE was available even if the goods were treated as concentrate; (iii) Whether the demand of interest on the differential duty was sustainable on final assessment.
Issue (i): Whether washing, removal of waste and sizing of imported manganese ore amounted to conversion of ore into concentrate under Chapter Note 4 to Chapter 26.
Analysis: Chapter Note 4 to Chapter 26 created a deeming provision treating conversion of ore into concentrate as manufacture. The explanatory notes to Chapter 26 showed that concentrates are ores from which part or all foreign matter has been removed by special treatment, and that physical processes such as screening, grading and related preparatory operations fall within the scope of preparation for metallurgical use where they remove unwanted matter and improve grade. On the admitted facts, the imported run-of-mine ore had undergone washing, removal of waste and sizing before shipment, which were found to be processes aimed at removing foreign material and improving concentration for metallurgical use and economic transport.
Conclusion: The imported goods were correctly treated as concentrate and not as mere ore.
Issue (ii): Whether the exemption under S. No. 4 of Notification No. 04/2006-CE was available even if the goods were treated as concentrate.
Analysis: The notification exempted only ore. Once Chapter Note 4 deemed conversion of ore into concentrate to be manufacture, ore and concentrate became distinct commodities for the purpose of the exemption. The exemption notification was therefore required to be construed strictly, and concentrate could not be brought within its scope merely because it originated from ore or because certain physical processes did not alter chemical composition.
Conclusion: The exemption was not admissible and denial of CVD exemption was upheld.
Issue (iii): Whether the demand of interest on the differential duty was sustainable on final assessment.
Analysis: The Bills of Entry were provisionally assessed and finally assessed after denial of exemption. In such a case, the differential duty became payable on finalisation of assessment, and the statutory scheme under the Customs Tariff Act and the Customs law was held to permit recovery of interest on the delayed payment of duty.
Conclusion: The demand of interest was upheld.
Final Conclusion: The appeals failed in entirety, and the orders denying exemption and confirming consequential liability were sustained.
Ratio Decidendi: After insertion of Chapter Note 4 to Chapter 26, processes undertaken on ore that remove foreign matter and convert it into concentrate attract the deeming provision of manufacture, and a notification exempting only ore cannot be extended to concentrate by implication.
Classification - Importers of Manganese ores - undergone washing, removal of waste, sizing, etc. - treated as manufactured goods in terms of deeming provision inserted vide Chapter Note 4 to Chapter 26 w.e.f. 01.03.2011 or otherwis - denial of the exemption from payment of CVD in terms of S.No.4 of Notification No.04/2006-CE - scope and context of HSN explanatory notes - distinguish between concentrate and ore - non-applicability of interest - Meaning term ‘concentrate’ and ‘ore’ - HELD THAT:- It is not in dispute that the activities and processes undertaken were intended for removal of foreign materials from ROM ore. The objective for such removal was also to make it compatible for metallurgical processes for which it has been imported by the appellants and incidentally, it also helped in reducing the shipping cost, as such foreign material would have led to higher shipping cost.
On crucial analysis and plain reading of explanatory note, it is obvious that any activity, which is carried out on the ROM ore with an intent to remove foreign matters, either partially or fully, so as to make it useful for metallurgical purposes or for economic transport, the said process itself would amount to conversion and therefore, the said activities, per se, will have to be considered as amounting to conversion and therefore resulting into deemed emergence of new excisable goods i.e., ore concentrate.
We also find that the circular of CBIC is based on a clarification issued by the Ministry of Mines, where certain processes of crushing and screening were treated as mere preparatory processes and were not treated as special treatments as contemplated in the explanatory notes. We find that while the circulars are binding on the department, however, if it is patently against the obvious stated provisions then it need not be followed. That apart, in the present appeals, it is not only a question of crushing and screening, etc., but washing is also involved for removal of foreign material partly or fully. Therefore, what might have been clarified in the context of iron ore, need not be true for all types of ores or end use, as they have different impurities and intended uses requiring different kinds of preparatory processes.
We find that while prior to insertion of deeming provision, the tests were being conducted to distinguish between concentrate and ore for deciding whether they are eligible for exemption or otherwise. However, post this insertion of Chapter Note, in view of the deeming provision, there was no necessity to conduct any test as long as it is established and admitted that certain activities were undertaken on ROM ore before it was shipped to India.
It is not in dispute that they have received ore of certain concentration and admittedly they are above 35%. The scheme of classification of Manganese ore is that Chapter Heading 2602 00, which covers both Manganese ore and concentrates, including ferruginous manganese ores and concentrates with a manganese content of 20% or more, calculated on dry weight.
For different Manganese content in the ore, different sub classification has been made. A logical question would be if someone imports ore with Manganese content of 20% and someone imports ore of Manganese content of 35% or above, will they be same. In our opinion, this sub-classification clearly indicates that Manganese ore can have different Manganese content, either naturally occurring or by way of subjecting it to certain process to arrive at desired percentage. The lowest percentage for Manganese ore and concentrate had been accepted at 20%. Thus, any improvement in the content itself, where there is clearly admitted fact that it has undergone certain process, would indicate that there has been an improvement in the quality. Therefore, on this count also, it can be said that the subject processes undertaken on ROM ore has resulted into emergence of concentrate, which is distinct excisable goods in view of deeming provisions.
Non-applicability of interest in the facts of the case is concerned - We find that statutory provisions are quite clear and when there is delay in payment of duty due, applicable interest is required to be paid. It is to be noted that in the instant case the Bills of Entries, after provisional assessment, were finally assessed denying exemption benefit.
In this regard, the Hon’ble Supreme Court Larger Bench in the case of Steel Authority of India Ltd Vs CCE [2019 (5) TMI 657 - SUPREME COURT], dealt with a case where the issue was whether interest is payable on the differential excise duty or otherwise, on the basis of escalation clause. In the said case, value of goods was provisional at the time of clearance and later the value was finally determined due to escalation clause and therefore, the final value, so determined, was held to be retrospective to the time of removal and hence it is held that interest is payable on such differential duty between provisional and final determination of values from the date of provisional determination. The Customs Tariff Act (CTA), 1975 vide Section 3(8), prescribed that the provisions of Customs Act, 1962 and the Rules and Regulations made there under, apply to the duty chargeable under this Section as they apply in relation to the duties leviable under that Act. Section 3(8) nowhere excludes the applicability of provisions relating to charging of interest etc., including the power to recover duty due, as available under the Customs Act.
Thus, we do not find any merit in the appeals filed by the appellants and accordingly, all the appeals are dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the Tribunal hearing a petition for rectification under Section 59 of the Companies Act, 2013 can decline jurisdiction and require prior adjudication by a civil/trial court where the dispute involves contested facts and allegations regarding authenticity of documents and share transfer.
(ii) What consequential directions are required where the petition was dismissed on the premise of pending trial-court proceedings, including whether the matter must be decided on merits by the Tribunal (and whether contentions such as limitation and the effect of promissory note/cheque and admissions should be examined).
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Tribunal's jurisdiction under Section 59 vis-à-vis pending civil/trial court proceedings involving disputed facts
Legal framework (as discussed and applied by the Court): The Court applied Section 430 of the Companies Act, 2013, which bars civil-court jurisdiction "in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine" under the Act. The Court also applied the principle (as noted in the judgment relied upon) that rectificatory jurisdiction under Section 59 is to be exercised by the Tribunal even where there are contested facts and disputed questions, in view of the statutory bar under Section 430.
Interpretation and reasoning: The impugned order had declined rectification and proceeded on the premise that issues about authenticity of documents and other "highly contentious issues" were pending before the trial court, and therefore required adjudication there first before rectification could be finally decided. The Court held this approach to be incorrect because, once Section 430 creates a bar on civil-court jurisdiction over matters the Tribunal is empowered to determine, the Tribunal must itself examine disputes arising in a Section 59 rectification proceeding, including disputes involving contested facts. The Court concluded that it is not correct for the Tribunal to defer its determination under Section 59 until the trial court adjudicates such issues.
Conclusions: The Court conclusively decided that the Tribunal has jurisdiction to decide rectification under Section 59 notwithstanding disputed facts, and that the portion of the impugned order holding that such issues fall within civil-court jurisdiction and must await trial-court adjudication is unsustainable and was set aside.
Issue (ii): Consequential relief-remand and scope of reconsideration on merits (including limitation and transaction-related contentions)
Legal framework (as discussed and applied by the Court): Having set aside the impugned order for the jurisdictional error under Section 430, the Court directed a merits-based adjudication by the Tribunal within the Section 59 framework.
Interpretation and reasoning: The Court remanded the matter to the Tribunal with a direction to decide the rectification petition on merits without waiting for any civil-court judgment. It further directed that, on remand, the Tribunal should examine the respondent's contentions and the effect of the asserted promissory note and cheque for the consideration amount said to be connected with purchase/transfer of shares, and should also consider limitation and admissions attributed to the Company Secretary, so as to take an overall view.
Conclusions: The impugned dismissal was set aside and the matter remanded for fresh decision on merits by the Tribunal, with specific direction to consider limitation and other identified contentions, and to dispose of the matter expeditiously (preferably within three months), without deferring to pending trial-court proceedings.
Rectification of the register of shares - illegal share transfer - company petition was dismissed on the ground there are triable issues qua transfer of shares pending before the Ld. Trial Court and these are needed to be adjudicated first by such court, before a final decision on the rectification of register of the members can be arrived at by the Tribunal - dismissal also on the ground of time limitation - HELD THAT:- Admittedly the impugned order noted the original share certificates were produced by the appellant only on 10.11.2023 and similarly Respondent No.2 produced notice of AGM, annual returns, list of shareholders as annexed with the annual return for the financial year 2007-08 only on 23.08.2024. The Ld. NCLT also noted the appellant was not transparent in submitting purported evidence in his possession and thus declined to accede to the prayer of the appellant herein for rectification of the register of members on the ground of insufficient evidence brought on record but then also noted most of the issues relating to the authenticity of the documents placed before it were before the Ld. Trial Court and thus it had no jurisdiction till such related issues be adjudicated upon by the Ld. Trial Court and only thereafter, the final decision on rectification of register could be arrived at.
In Gireesh Kumar Sanghi v. Sanghi Industries Ltd. & 19 Ors. [2023 (12) TMI 187 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, CHENNAI], the Hon’ble court held that 'once the legislature has created a complete bar of the jurisdiction of the Civil Court by enacting Section 430 in the Act as per which no civil court shall have the jurisdiction to entertain any suit or proceedings in respect of any matter which the Tribunal or Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no civil court has the jurisdiction to grant injunction in respect of any action taken or to be taken in pursuance of any power conferred by or under the act or any other law for the time being in force by the Tribunal or Appellate Tribunal, there is no shred of doubt that the jurisdiction to decide the rectificatory jurisdiction under Section 59 of the Act shall be available to be exercised even where there are contested facts and disputed question.'
Thus considering Girish Kumar Sanghi, there are no doubt it is only the Ld. NCLT who also has the power to look into the disputes interse the parties qua rectification of register and the impugned order so far as it says such issues fall within the jurisdiction of Civil Court and cannot be looked into by the Ld. NCLT till the Ld. Trial Court takes a view in this regard, is wholly an incorrect approach - the imougned order is set aside on this ground alone - matter remanded to the Ld. NCLT requesting it to decide it on merits without waiting for judgement of any Civil Court per Section 430 of the Companies Act, 2013.
Appeal disposed off by way of remand.
Issues: Whether assessment proceedings under the EPF law could be continued during the moratorium under the Insolvency and Bankruptcy Code, and whether a demand founded on such proceedings could be enforced after approval of the resolution plan.
Analysis: Section 14(1)(a) of the Insolvency and Bankruptcy Code bars institution or continuation of proceedings against the corporate debtor during moratorium, and the expression "proceedings" is wide enough to include proceedings before statutory authorities. Where assessment proceedings are initiated or continued during the moratorium, no claim based on such assessment can be pressed in the corporate insolvency resolution process. Once a resolution plan is approved under Section 31(1), claims not forming part of the approved plan stand extinguished and cannot be revived through post-plan notices or summons. The EPFO demands in question were founded on assessment and consequential steps taken during the moratorium period, and no such claim was filed in the insolvency process.
Conclusion: The post-moratorium demands based on assessment proceedings undertaken during the moratorium were unenforceable, and the challenge to such demands succeeded.
Ratio Decidendi: Proceedings by statutory authorities that fasten pecuniary liability on a corporate debtor are hit by the Section 14 moratorium, and no claim founded on such barred assessment can be enforced after approval of the resolution plan if it did not form part of the approved plan.
Moratorium under the liquidation proceedings -Lack of jurisdiction -initiation of the CIRP - recovery of dues from the Successful Resolution Applicant (SRA) - waiver of statutory liabilities - Damages levied u/s 14-B operate as a statutory penalty to compensate for loss of interest caused by delayed payment of PF contributions - Enhanced claim made by the EPFO after the approval of resolution plan - non-payment of additional amount of interest u/s 7(Q) of EPF Act - Whether any proceeding under EPFO Act could be undertaken by the EPF Authorities during the period of moratorium in CIRP proceedings u/s 14 of the Code? - HELD THAT:- It is undisputed that the CIRP of the Corporate Debtor commenced on 04.07.2019, and the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 continued till the approval of the Resolution Plan on 09.11.2021. The demand made by the EPFO on the basis of the inspection and assessment culminating in the order dated 06.04.2021, as well as the summons dated 18.05.2022, is clearly a demand sought to be enforced after commencement of the CIRP and during the subsistence of moratorium. The assessment proceedings under Sections 7A, 7Q and 14B, which formed the basis of the subsequent demands, were initiated and culminated during the moratorium period, and the consequential demands were sought to be raised after approval of the Resolution Plan.
We note that the judgment of this Appellate Tribunal in “CA Pankaj Shah [2025 (9) TMI 337 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] reiterated the decision of this Tribunal in Pesumal Arlani [2025 (1) TMI 352 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI - LB], holding clearly that after initiation of the CIRP, no assessment proceedings can be initiated or continued against the Corporate Debtor so as to fasten any pecuniary liability upon it.
In the present case, it is undisputed that the CIRP of the Corporate Debtor commenced on 04.07.2019, and the moratorium under Section 14 of the Code remained in force till 09.11.2021, when the Resolution Plan came to be approved. Notwithstanding the subsistence of the moratorium and the subsequent approval of the Resolution Plan, the EPFO raised demands on the basis of assessment proceeding which culminated in the order dated 06.04.2021. Thereafter EPFO issued a notice dated 29.04.2022 and summons dated 18.05.2022, to the Corporate Debtor, claiming fresh dues amounting to Rs. 62,09,154/- were to be paid by the CD. The said demands were founded upon proceedings and determinations undertaken during the moratorium period, and no claim in respect thereof was ever filed during the CIRP. When no demand could be made on the basis of any inspection or assessment carried out during the moratorium, we find no ground to sustain the claim sought to be enforced by the EPFO through its post-CIRP notices and summons, nor do we find any merit in the cross appeal filed by the EPFO seeking priority treatment of such claims.
In view of the findings, that no assessment proceedings can be continued by the EPFO after the initiation of moratorium under section 14(1) of the Code and further no claim on the basis of assessment carried out during the moratorium period can be pressed by the EPFO, the Appeal filed by the Successful Resolution Applicant, being Company Appeal (AT) (Insolvency), to the extent of prayer (a) of the appeal is allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the appeal against dismissal of the application seeking re-distribution/modification of payments under an already approved resolution plan was maintainable, having regard to limitation under Section 61(2) of the Code and absence of any sufficient cause/condonation request.
(ii) Whether a secured financial creditor could, by filing a belated application styled as seeking "equal treatment" in distribution, indirectly reopen or modify the distribution mechanism of a resolution plan that had already been approved and had attained finality.
(iii) Whether, upon approval of a resolution plan under Section 31, the plan stood "frozen" and binding so as to bar subsequent attempts to claim amounts or seek modifications beyond what the plan provided, and whether the principle affirmed in Ghanashyam Mishra applied to such an attempt.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Maintainability and limitation under Section 61(2) of the Code
Legal framework (as discussed): The Court applied Section 61(2) of the Code, noting that an appeal must be filed within 30 days, with a further condonable period of up to 15 days only on showing sufficient cause.
Interpretation and reasoning: The Court found that the appeal was filed beyond the permissible period. It noted that limitation was incorrectly computed by relying on the date of the certified copy rather than the statutory scheme, and that there was neither a sufficient explanation for delay nor any application for condonation of delay on record. Since the statute restricts condonation beyond the prescribed outer limit, the Court held the appeal could not be entertained.
Conclusion: The appeal was held to be belated and barred by limitation under Section 61(2), rendering it not maintainable on this ground alone.
Issue (ii): Whether belated "equal treatment" application was a disguised challenge to an approved plan and could be entertained
Interpretation and reasoning: The Court examined the reliefs sought and held that, despite being framed as a request to remove "discrimination," the application and the appeal effectively sought: (a) modification of distribution terms of the approved resolution plan, (b) alteration of definitive documents executed pursuant to implementation, and (c) stay of implementation. The Court treated this as a challenge to the resolution plan itself, attempted through an intervention/application route after the statutory appeal window had closed. It further held that the underlying application before the Adjudicating Authority was itself filed after gross and unjustified delay, despite the applicants' knowledge of the plan contents and approval process, amounting to acquiescence. The Court accepted that the Adjudicating Authority lacked jurisdiction to change/modify an already approved plan, and that filing such applications appeared intended to create an appellate route indirectly.
Conclusion: The Court held the proceedings were not maintainable because they were a belated, indirect attempt to reopen and modify a plan that had already attained finality; the applicants were estopped by delay and acquiescence from seeking such relief.
Issue (iii): Finality and binding nature of an approved resolution plan ("frozen plan"); applicability of Ghanashyam Mishra
Legal framework (as applied): The Court applied the binding effect of an approved resolution plan under Section 31, and relied on the proposition that, once approved, the plan becomes binding and the claims as provided stand frozen.
Interpretation and reasoning: The Court upheld the reasoning that once the resolution plan had been approved and had attained finality (no timely appeal against the plan approval order), the stakeholders could not seek payments or recoveries in any manner other than what was envisaged under the plan. The Court rejected the contention that Ghanashyam Mishra was inapplicable, holding that the principle of the plan being frozen and binding prevented saddling the resolution applicant with liabilities not foreseen under the approved plan. The Court also found unpersuasive the argument that mere "readjustment" of distribution within the same overall plan value would not affect the plan, holding that such modification would still upset the plan and introduce uncertainty, particularly after implementation had commenced.
Conclusion: The Court held that the approved resolution plan stood frozen and binding; the attempt to alter distribution/payments post-approval was barred. The Court affirmed the applicability of the principle relied upon from Ghanashyam Mishra to reject post-approval modification attempts.
Discrimination among members of the same class of creditors based on vote - fair and equitable distribution to dissenting financial creditors under Section 30(2)(b)(ii) and Explanation 1 - finality and binding nature of an approved resolution plan - maintainability and limitation under Section 61(2) of the Insolvency and Bankruptcy Code, 2016 - res judicata, acquiescence and estoppel against belated challenge to a resolution plan
Maintainability and limitation under Section 61(2) of the Insolvency and Bankruptcy Code, 2016 - Whether the appeal was maintainable in view of limitation prescribed under Section 61(2) of the Code and whether sufficient cause for condonation of delay was shown. - HELD THAT: - The Tribunal found that the resolution plan was approved by the Adjudicating Authority on 27.03.2019 and the impugned IA was filed before the Adjudicating Authority in September 2021. The appeal before this Appellate Tribunal was filed beyond the statutory period and no application explaining or seeking condonation of delay was placed on record. Section 61(2) allows filing of appeal within 30 days and condonation up to a further 15 days upon sufficient cause; no sufficient cause has been demonstrated. The Tribunal therefore concluded that the appeal is belated and not maintainable on the ground of limitation and dismissed it on that basis. [Paras 26, 27, 36, 37]
Appeal dismissed as not maintainable for want of compliance with limitation under Section 61(2); related IAs disposed of.
Finality and binding nature of an approved resolution plan - discrimination among members of the same class of creditors based on vote - fair and equitable distribution to dissenting financial creditors under Section 30(2)(b)(ii) and Explanation 1 - res judicata, acquiescence and estoppel against belated challenge to a resolution plan - Whether the Appellants could seek modification of distribution under an approved resolution plan on the ground of discrimination between assenting and dissenting/abstaining secured financial creditors. - HELD THAT: - The Tribunal held that an approved resolution plan stands frozen and binding on all stakeholders. Reliance was placed on Ghanashyam Mishra & Sons (supra) and the settled principle that claims not part of an approved plan are extinguished. The Tribunal observed that the IAs filed by the Appellants sought effectively to modify the distribution and terms of an already approved plan and thus amounted to a belated challenge to the plan. The Tribunal found the IAs to be filed after long delay, that the Appellants had knowledge of the plan and opportunities to challenge earlier, and that allowing the present challenge would reopen and upset the finality of the approved plan and disrupt implementation. While Section 30(2)(b)(ii) prescribes minimum payment to dissenting creditors and Explanation 1 requires fairness and equity, the Tribunal concluded that the Appellants' relief sought would alter the approved plan and could not be entertained at this stage. [Paras 30, 31, 32, 33, 35]
Applications seeking modification of the distribution under the approved resolution plan are impermissible at this stage; the challenge is treated as a belated assault on the approved plan and cannot be entertained.
Final Conclusion: The appeal is dismissed as not maintainable for want of compliance with the limitation prescribed under Section 61(2) of the Code; applications seeking modification of distribution under the approved resolution plan are impermissible as a belated challenge to the plan and are disposed of. No orders as to costs.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the operational debt relied upon for admission under Section 9 was within limitation, particularly where older invoices of one unit were transferred by journal entry into another unit's ledger and adjusted against later transactions.
(ii) Whether ledger entries/balance confirmation and a journal transfer entry constituted a valid acknowledgement of debt extending limitation under Section 18 of the Limitation Act, 1963, or a promise to pay a time-barred debt under Section 25(3) of the Contract Act, 1872.
(iii) Whether, after excluding time-barred components, the claim met the statutory threshold for initiation of the insolvency process under Section 9.
(iv) Whether interest claimed formed part of an admissible operational debt where the invoices relied upon did not provide for interest.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i) & (iii): Limitation of principal operational debt and impact on threshold
Legal framework (as discussed): The Court examined limitation principles applicable to operational debt under the Code and evaluated whether the claim, after removing time-barred invoices, still satisfied the threshold for Section 9 admission. The Court also considered the plea for exclusion of time during the Covid-19 period but only in relation to whether limitation had already expired for particular invoices.
Interpretation and reasoning: The Court found that the earliest four invoices (dated in 2016 and forming a substantial portion of the claimed principal) were already time-barred by the time the insolvency petition was filed in 2022. It rejected the attempt to treat later book adjustments and the shifting of balances between unit-ledgers as creating a later "due date" or extending limitation. The Court held that unilateral adjustment of purchases against earlier invoices and a later journal transfer were an "innovative" method to surpass limitation, and limitation could not be revived merely by shifting entries from one account to another while retaining the original transaction dates and character. The Covid-19 exclusion period was held unavailable for those invoices because the three-year limitation had already lapsed before the relevant cut-off, so exclusion could not revive an already time-barred claim.
Conclusion: Since key invoice components were time-barred and had to be excluded, the remaining principal debt fell below the required threshold; therefore, the Section 9 petition was not fit for admission and the dismissal on threshold grounds was upheld.
Issue (ii): Whether ledger/balance confirmation and journal entry amounted to acknowledgement under Section 18 or promise under Section 25(3)
Legal framework (as discussed): The Court considered whether the ledger materials relied upon could operate as an acknowledgement of liability extending limitation under Section 18 of the Limitation Act, 1963, and alternatively whether they could be treated as a promise to pay a time-barred debt under Section 25(3) of the Contract Act, 1872.
Interpretation and reasoning: The Court analysed the ledger and the journal entry transferring liabilities of the closed unit into another unit's account. It held that the document functioned only as an internal accounting transfer/balance confirmation and did not amount to an acknowledgement that could grant a fresh limitation period for the original invoices. The Court reasoned that journal entries shifting liabilities between accounts do not alter original transaction dates or confer "new life" for limitation purposes. It further held that even if treated as an acknowledgement, it could not assist where the underlying invoices were already beyond three years for limitation calculation under the Code. On Section 25(3), the Court found the ledger/balance confirmation did not contain a clear promise to pay; it was ambiguous and routine in nature, lacking promise language and therefore did not create a fresh contractual obligation capable of overcoming time-bar for IBC purposes.
Conclusion: The ledger and journal transfer were held insufficient to extend limitation under Section 18 or to constitute an enforceable promise under Section 25(3); the operational debt remained time-barred to the extent of the older invoices.
Issue (iv): Admissibility of interest claim
Legal framework (as discussed): The Court examined whether interest could be claimed as part of the operational debt based on the invoices relied upon.
Interpretation and reasoning: The Court found that interest was not payable because the invoices in question did not contain terms and conditions providing for interest, and the interest component was therefore arbitrarily calculated without contractual basis on those invoices.
Conclusion: The interest claim was rejected; it did not support enhancement of the operational debt for Section 9 admission.
Limitation principles - Operational debt -time barred - threshold limit - no terms and conditions for interest payment as per the invoices - entitlement to the benefit of Section 25(3) of the Indian Contract Act - acknowledgement of debt u/s 18 of the Limitation Act, 1963 - Whether in this case the Appellant meets the threshold and whether any dispute exists and for that reason the petition is not to be admitted in insolvency u/s 9 of the Code. - HELD THAT:- It is settled law ‘that any acknowledgement after the date of expiry of limitation period i.e., three years, would have no effect and limitation would not extend on the: basis of such acknowledgement.
We have perused the Ledger account of Respondent-CD-Global Extrusion which is at page 100- which doesn’t bear any signature but presumably prepared after 31st March 2020 as the last entry pertains to the journal entry of that date. Very interestingly, the journal entry dated 31st March 2020 has been made, which transfers all the liabilities of the Jamnagar unit into the account in the Mumbai unit- which is claimed to be done by the Appellant based on mutual discussion. Even though it has been signed by both the parties, but the Respondent denies any such understanding. We find that firstly it cannot be treated as acknowledgement of debt as it is just the transfer of the sales and purchase entries of earlier times from its Jamnagar unit – which had been closed. Whatever dates of those sales and purchases in Jamnagar account will continue to remain with the original date and cannot give new date and new life for limitation purposes to the transactions, basis just a journal entry which just shifts the entries from one account to another as it is, while maintaining the original character of the transactions.
Even otherwise, we find that it may not be of any assistance to the appellant for the reason that the first four entries for which journal entry has been made on 31st March 2020 are time barred under the Code and even if it is treated as an acknowledgement, the petition is beyond three years for these entries and this debt is time barred and therefore for these invoices Appellant cannot pursue under code.
Though the ledger of Respondent- Global Extrusions is signed by the Respondent but it is not a clear promise to pay ₹ 1,19,67,353 and in such a situation it cannot be argued that it falls within Section 25(3) of the Contract Act and creates a fresh contractual obligation. In this case, the document is ambiguous and merely an internal ledger and a routine balance confirmation without promise language, thus, we cannot accept it as a Section 25(3) promise, and the operational debt would remain time‑barred for IBC purposes.
We also find that no interest was payable as there are no terms and conditions for interest payment as per these invoices and the interest has been arbitrarily calculated.
Appellant has computed the invoices raised by their Jamnagar Unit as being due on 11.03.2019, and the invoices raised by their Mumbai unit as being due on 02.01.2020 in the Chart of Computation.
Appellant in an innovative attempt to extend the limitation using such adjustment of book entries and that too unilaterally is misleading us and thus the Appellant has been wasting the precious time of the Tribunal.
Thus, we find that the conclusions arrived at regarding the threshold in the impugned order cannot be faulted upon.
We dismiss the appeal.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the claim seeking recognition/admission as a financial creditor could be directed to be admitted when it was pursued belatedly, after rejection by the resolution professional and at a stage where the resolution plan had already been approved by the committee of creditors and was pending approval before the adjudicating authority.
(ii) Whether, despite material indicating acknowledgment of debt by the corporate debtor/promoters and reflection in audited balance sheets, the appellate forum should interfere with rejection/dismissal where the creditor failed to challenge the rejection with due diligence and within a reasonable time in the CIRP timeline.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Belated pursuit of claim and impact on CIRP finality/time-bound process
Legal framework (as discussed by the Court): The Court considered the time discipline for submission and processing of claims under the insolvency regulations (including the requirement to submit claims within the time indicated in the public announcement and the relevance of the 90-day outer window as discussed by the adjudicating authority). The Court also applied the principle that belated claims, if entertained at an advanced stage, undermine the time-bound nature of CIRP and may reopen the process.
Interpretation and reasoning: The Court noted that the claim was submitted after the last date mentioned in the public announcement; further, clarifications/documents sought by the resolution professional were furnished only later, resulting in substantial delay from the insolvency commencement date. The claim was rejected by the resolution professional, and the creditor did not challenge that rejection for nearly a year. In the meantime, the resolution plan was approved by the committee of creditors and was pending before the adjudicating authority for approval. The Court accepted the conclusion that allowing the claim at that stage could cause the process to "go back and forth," making CIRP potentially endless and inviting similar late claims, thereby unsettling the process.
Conclusions: The Court held there was no infirmity in refusing relief because the claim was pursued belatedly and interference at that stage would disrupt the CIRP's finality and time-bound character. On this ground, appellate interference was declined.
Issue (ii): Effect of acknowledgments in balance sheets/promoter admissions versus creditor's lack of diligence
Legal framework (as discussed by the Court): The Court considered the evidentiary value of audited balance sheets and related acknowledgments as supporting the existence of debt and liability. The Court also treated the principle of timely challenge/diligence within CIRP as determinative for relief, even where merits may exist.
Interpretation and reasoning: The Court recorded that the audited balance sheets reflected the loan entries and that there were acknowledgments by the corporate debtor/suspended management. The Court further noted that material from proceedings involving a promoter/personal guarantor also reflected admissions that the corporate debtor had dues towards the creditor. The Court expressly found "no doubt about the debt," observing that these facts supported the creditor on merits. However, it concluded that the creditor's rejection had not been challenged in time; by the time the challenge was brought, the plan had already been approved by the committee of creditors and was pending approval, and the creditor had not been diligent in following up before the resolution professional and the adjudicating authority. The Court reasoned that, at such a late stage, there was no sufficient cause to reopen or effectively restart CIRP, which must proceed in a time-bound manner.
Conclusions: Even assuming the debt/acknowledgment materials supported the creditor, the Court refused to grant relief due to undue delay and the advanced stage of CIRP, and therefore upheld dismissal of the challenge and declined directions to admit the claim.
CIRP - belated claim and the maintainability of an application u/s 60(5) - Rejection of the Appellant’s claim as a financial creditor of the Corporate Debtor - Interim Resolution Professional, asserting its status as a financial creditor of the Corporate Debtor on the basis of a credit facility allegedly sanctioned - delay of 106 days from the CIRP commencement date - claim filed by the Appellant filed before the Resolution Professional is beyond the period of 90 days from the commencement of CIRP as per Regulation 12(2) of IBBI 2016; before the Second Amendment dated 18.09.2023 - HELD THAT:- The main ground of the Appellant is that Corporate Debtor in its audited balance sheet for the year 2013-2014 has admitted and acknowledged the loan of M/s Shivam International as well as the loan given by appellant to Corporate Debtor as two entries in the name of Intec Capital Limited.
From the material placed on record it is noticed that the Appellant was informed by the corporate debtor/ Suspended Board of directors for the very first time on 04.06.2015 via email by one Mr Rajesh who was employee of the Corporate Debtor, stating that M/s Shivam International is not anymore in existence and Corporate Debtor has taken over the said loan hence requested to merge the loans. Suspended board of director Chander Bhushan was also marked CC in the said mail, hence the Corporate Debtor as well as suspended board of director had acknowledged the liability and takeover of the loan of M/s Shivam International by Corporate Debtor.
Furthermore, we also observe that one of the Promoter/Personal Guarantor of the Corporate Debtor namely Ms. Sunita Dogra Alias Sunita Rani has filed an application under section 94 of Insolvency and Bankruptcy Code, 2016 for PIRP, which is pending before the Hon’ble NCLT Chandigarh Bench bearing CP(IB)/52/(CHD)/2024 wherein she has admitted/ acknowledged the fact that the Corporate Debtor has dues against the Appellant. Thus, we find that Personal Guarantor/ Promoters of the Corporate Debtor has admitted the fact that Corporate Debtor has dues against the Appellant. Thus, the promoters of the corporate debtor have duly acknowledged the liability and have also acknowledged the fact that loan of the Shivam International was taken over by the Corporate Debtor.
Thus, we find no doubt about the debt and it is also reflected in the Balance Sheets of the Corporate Debtor. These facts support the case of the Appellant but from the circumstances in the case we find that the rejection of its claims has not been challenged timely and in the meantime resolution plan has been approved by the CoC and now pending before NCLT for approval.
We find that the Appellant has not been diligent enough in following up his claim before the RP and NCLT and at this late stage it has woken up. The merit of above case could have been looked into by the Adjudicating Authority, had they been presented timely not belated. But at this stage, to re-start the process of the CIRP, we also don’t find sufficient cause which is to be done in a time bound manner and cannot be reopened at this stage.
Thus, we are constrained to not agree with the grounds raised by the Appellant due to undue delay in challenging its claim which was rejected by the RP almost a year earlier. Appeal is therefore dismissed.
Issues: (i) Whether the debt due from the personal guarantors subsisted despite the repayments and plan payments relied upon by them. (ii) Whether pendency of recovery proceedings before the DRT barred initiation of proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016. (iii) Whether alleged defects in verification and notice vitiated the admission order.
Issue (i): Whether the debt due from the personal guarantors subsisted despite the repayments and plan payments relied upon by them.
Analysis: The certified bank statement was treated as binding under the guarantee deed, and the Appellants' own repayment calculations could not override it. The payments and acknowledgements relied upon did not amount to a discharge, and no no-dues certificate, settlement, novation, waiver, or other document extinguishing liability was shown. The approved resolution plan also did not expressly discharge the guarantors, and the unpaid balance after plan allocation continued to remain recoverable with the guarantors' co-extensive liability intact.
Conclusion: The debt subsisted and the challenge on the ground of extinguishment of liability failed, against the Appellants.
Issue (ii): Whether pendency of recovery proceedings before the DRT barred initiation of proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016.
Analysis: Pendency of DRT proceedings was held not to bar insolvency proceedings, since the Code operates as an independent statutory regime and the Adjudicating Authority was not required to await the outcome of the DRT dispute. The principle applicable to section 7 proceedings was applied pari materia to personal guarantor proceedings under section 95.
Conclusion: The pendency of DRT proceedings did not bar admission of the Section 95 application, against the Appellants.
Issue (iii): Whether alleged defects in verification and notice vitiated the admission order.
Analysis: The Appellants participated in the proceedings, replied to notices, filed objections, and made written submissions before the Adjudicating Authority. Any alleged lapse in service or verification did not cause prejudice, and the substantive finding of debt and default remained unaffected.
Conclusion: The alleged procedural defects did not invalidate the impugned admission order, against the Appellants.
Final Conclusion: The admission of insolvency proceedings against the personal guarantors was upheld, and both appeals failed.
Ratio Decidendi: A personal guarantor's liability continues where the debt is not shown to have been fully discharged, and pendency of separate recovery proceedings does not prevent initiation of insolvency proceedings under the Code.
Initiation of insolvency proceedings - repayment of debt and absence of default method of computation or acknowledged the debt - Resolution Professional (RP) failed to verify repayment figures and mechanically accepted the Bank’s statements, leading to erroneous conclusions in the Section 99 report - Pendency of recovery proceedings oust Or restrict the jurisdiction conferred upon NCLT under Section 95 read with Sections 97–100 of IBC. - Whether the Adjudicating Authority was justified in admitting the application under Section 95 of the Code by order against the Appellants, who stood as Personal Guarantors to the Corporate Debtor - HELD THAT:- Neither the admitted claim amount nor the approved Resolution Plan was challenged before any forum by the CD or the Personal Guarantors. Under Section 31 of the Code, an approved plan binds all stakeholders, and unless it expressly provides for discharge of guarantors, their liability continues for unpaid balances. Consequently, the admitted unpaid portion remains legally recoverable from personal guarantors unless discharged in law.
There is no evidence that the Bank accepted the Appellants’ method of computation or acknowledged the debt as discharged. No documents like No- Dues Certificate, settlement agreement, accord and satisfaction, waiver, novation, or judicial order which extinguish the liability of the Borrower/Guarantor have been placed on record. The law requires affirmative proof of settlement to extinguish guarantor liability. Mere deposits, without demonstrated exhaustion of contractual interest burden and principal balance, cannot constitute full discharge.
Interest computation is pending before the DRT - The Appellants also placed reliance on the pendency of Section 19 proceedings before the DRT to argue that the Section 95 proceedings should be deferred. In this regard, reference may be made to decision of this Tribunal in State Bank of India v. Abhijeet Ferrotech Ltd. [2024 (7) TMI 624 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] where the Tribunal examined a question as to whether an application under the IBC could be rejected solely on the ground that DRT proceedings were pending and that the DRT had passed certain orders. The Tribunal held that proceedings under Section 19 which were still inconclusive could not prevent admission of proceedings under the IBC, and that such pendency was not a ground to hold an insolvency application as barred. Thus, pendency of Section 19 proceedings before the DRT cannot, by itself, bar consideration of insolvency proceedings.
It is clear from the Judgment in Abhijeet Ferrotech, that pendency of a proceeding in DRT is not a bar for initiation of CIRP process under Section 7. Section 7 in case of companies is similar to Section 95 for the Personal Guarantors to the corporates and pari materia the same principle applies for the Personal Guarantors.
Allegation of non-receipt of notice - The record contains evidence that notices were issued by the Resolution Professional, including notices requiring disclosure of payments. More importantly, the Appellants replied to the notice of the RP; thereafter filed their objections with NCLT; and finally submitted their written statements on 21.02.2024 before the Adjudicating Authority. Their participation in proceedings before the Adjudicating Authority demonstrates knowledge of proceedings. Even assuming some defect in service, procedural irregularity without prejudice is not a ground to set aside admission, where debt and default are established.
Allegation that the RP failed to verify payments - Section 99 mandates preparation of a report by the RP, but Section 100 places the ultimate duty upon the Adjudicating Authority to independently satisfy itself regarding debt and default. The Adjudicating Authority considered the pleadings, objections, and documents before passing the Impugned Order. Even assuming some imperfection in the RP’s verification, no prejudice is shown because the documentary material relied on by the Appellants is insufficient to establish extinguishment of debt. Insolvency admission cannot be invalidated on procedural grounds, where substantive liability is established.
When we look at the issue holistically considering the certified Bank statements binding the guarantors under Clause 19 of the Guarantee deed; the admitted CIRP claim of Rs. 19,08,69,464/-; the Resolution Plan allocation of Rs. 13,80,00,000/- and the continuing unpaid balance; the absence of any discharge document; the unilateral nature of computation sheets relied upon by the Appellants; the continuing co-extensive liability of guarantors under Section 128 of the Contract Act; the legal irrelevance of pending DRT proceedings in IBC jurisdiction; the opportunity afforded to the Appellants to submit objections; and the absence of prejudice from alleged notice lapses it becomes clear that the existence of debt and default is established. The Appellants have not discharged the burden of proving full payment or extinguishment.
Thus, we do not find any infirmity in the impugned order. Accordingly, both the appeals are dismissed. Pending IAs, if any, are closed.
1. ISSUES PRESENTED AND CONSIDERED
1. Whether the Adjudicating Authority was justified in rejecting the application seeking recall of the order forfeiting the corporate debtor's right to file a counter/reply, in light of the corporate debtor's prior participation and repeated non-filing despite time granted.
2. Whether the subsequent commencement of CIRP against the same corporate debtor in a parallel proceeding rendered the pending company petition and the recall application infructuous, warranting closure without adjudication on merits.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of rejecting recall of forfeiture of right to file counter/reply
Legal framework (as discussed by the Court): The Court treated notice in judicial proceedings as serving the object of imparting knowledge and enabling effective opportunity to contest; where a party has knowledge and participates, the "mode of service" becomes irrelevant for alleging denial of opportunity.
Interpretation and reasoning: The Court relied on the order-sheets showing that the corporate debtor appeared through counsel/proxy on multiple dates, sought and obtained time to file a reply, yet failed to file any counter for nearly three months after time was granted. The Court found the recall grounds internally inconsistent: the corporate debtor simultaneously claimed lack of proper notice/knowledge while also admitting participation through counsel and seeking time to file reply. The explanation that counsel mis-noted the date was held insufficient to justify recall, particularly when the corporate debtor neither filed the counter nor sought extension even when the Tribunal indicated a "last opportunity".
Conclusions: The Court held that the corporate debtor was not denied opportunity; rather, it failed to avail the opportunity granted. The forfeiture of the right to file reply/counter and refusal to recall it were upheld as not suffering from legal infirmity.
Issue 2: Effect of commencement of CIRP in a parallel proceeding-whether the petition and recall application became infructuous
Legal framework (as applied by the Court): The Court applied the principle that there cannot be multiple CIRP processes against the same corporate debtor; once CIRP has been initiated and an IRP appointed in another proceeding, further adjudication on merits in the parallel petition is unnecessary.
Interpretation and reasoning: The Court noted that by the time the recall application was considered, CIRP had already been commenced in the parallel proceeding and an IRP appointed. Accordingly, deciding the recall application (and continuing the parallel company petition) would have no practical significance because the corporate debtor was already under CIRP. The Court accepted the Adjudicating Authority's reasoning that, since the main petition had become infructuous due to the existing CIRP, the recall application filed within that petition also became infructuous and unsustainable.
Conclusions: The Court held that closing the parallel petition and rejecting the recall application as infructuous was legally justified, and the impugned rejection did not warrant appellate interference; the appeal was dismissed.
Rejection of recall application - right of the Appellant to file Counter was forfeited - parallel proceedings initiated by an Operational Creditor - commencement of CIRP in respect of the CD and appointment of IRP - No Opportunity to contest the case - Concept of issuance of notice in any judicial proceeding - HELD THAT:- The concept of issuance of notice in any judicial proceeding is only to impart knowledge to the opposite party to the proceedings in order to give him an effective opportunity to contest the same. The mode of service becomes an irrelevant issue when the opposite party already has the knowledge and he appears and participates in the proceedings. Participation in the proceedings itself would suffice the object of issuance of a notice in a judicial proceedings. In the present case, when Appellant on several occasions has sought to file the reply / counter affidavit as per his own Recall Application, mode of service cannot be taken as a ground to raise the allegation of not being given opportunity to contest the case.
The order of 31.01.2025 reflects that, there was a direction to issue notice and file compliance memo within 7 days. Subsequent order sheets reflect that, the Appellant’s representative was participating in the proceedings and was granted time to file counter and that the Appellant has not availed the same till the passing of the impugned order dated 13.06.2025, by which his opportunity to file the counter affidavit was closed.
The Ld. Tribunal has not taken any action except for closing the opportunity. In the instant case, the Appellant himself has not availed the opportunity to contest the case, has instead taken the ground in the recall application that no notice was served upon him nor he was furnished with the records of the CP, which is contrary to the contents of the recall application itself as well as to the order sheet of the proceedings.
Hence, the Application has been rightly rejected and as a consequence thereto, the instant Company Appeal, would too stand dismissed.
Outcome: The Special Leave Petition was disposed of with a direction to complete the further investigation within four months and with liberty to the petitioner to seek bail afresh in case of delayed supplementary prosecution complaint.
Money Laundering - seeking grant of regular bail - proceeds of crime - fraud committed of availing ITC on the strength of bogus invoices, by way of creation of multiple companies/firms in the name of innocent persons - reasons to believe - statements recorded under Section 50 of the PMLA are admissible or not - it was held by High Court that 'Since the petitioner has failed to make out a special case to exercise the power to grant bail and considering the facts and parameters, necessary to be considered for adjudication of bail, this Court does not find any exceptional ground to exercise its discretionary jurisdiction to grant bail.'
HELD THAT:- The respondent is directed to complete further investigation within a period of four months from the date of receipt of a copy of this order - it is made claear that breach of the time limit granted by us will not dis-entitle the respondent from filing the supplementary prosecution complaint belatedly, in which case, liberty is granted to the petitioner to file a fresh bail application.
SLP disposed off.
Issues: (i) whether provisional attachment under the second proviso to Section 5(1) of the Prevention of Money Laundering Act, 2002 was invalid for want of recorded apprehension that the appellants would conceal, transfer or otherwise deal with the properties so as to frustrate confiscation; and (ii) whether the attachment was unsustainable because the value of the attached properties exceeded the alleged proceeds of crime and was assessed on an impermissible basis.
Issue (i): whether provisional attachment under the second proviso to Section 5(1) of the Prevention of Money Laundering Act, 2002 was invalid for want of recorded apprehension that the appellants would conceal, transfer or otherwise deal with the properties so as to frustrate confiscation.
Analysis: Section 5(1) permits provisional attachment when the authority has reason to believe, recorded in writing, that proceeds of crime are likely to be concealed, transferred or dealt with in a manner that may frustrate confiscation. The second proviso specifically permits immediate attachment where non-attachment is likely to frustrate proceedings under the Act. The recorded reasons referred not only to one individual but also to the overall conduct of the persons concerned, including concealment of material information and a likelihood of disposal of the immovable properties liable to be attached. The use of the expression "likely" was treated as sufficient to found apprehension without waiting for actual alienation.
Conclusion: The attachment was validly supported by recorded reasons to believe, and the challenge on this ground failed.
Issue (ii): whether the attachment was unsustainable because the value of the attached properties exceeded the alleged proceeds of crime and was assessed on an impermissible basis.
Analysis: The definition of "value" in Section 2(1)(zb) of the Act means the fair market value of the property on the date of acquisition, or if that date cannot be determined, on the date of possession. The appellants sought to apply a different valuation basis through an independent valuer and to compare the attachment with the quantum of proceeds of crime received by them. The Tribunal held that the statute does not permit substitution of the legislative definition by a current market valuation standard, and that the appellants did not show any provision authorising a contrary valuation method. On the facts, the value taken by the respondents was also found to be below the proceeds of crime in the appellants' hands.
Conclusion: The valuation challenge was rejected, and the attachment was not disproportionate on the statutory basis applicable.
Final Conclusion: The appeals were devoid of merit and the provisional attachment, as confirmed by the Adjudicating Authority, was sustained.
Ratio Decidendi: Under Section 5(1) of the Prevention of Money Laundering Act, 2002, provisional attachment is justified on a recorded and reasonable apprehension of likely concealment, transfer or dealing with property to frustrate confiscation, and the statutory definition of "value" must be applied as enacted without judicially substituting a different valuation standard.
Money Laundering - Provisional Attachment Order - invocation of Section 5(1) of the Act of PMLA, 2002 without recording any apprehension of alienation of property under attachment - value of the proceeds of crime vis-à-vis the value of the property.
Invocation of Section 5(1) of the Act of PMLA, 2002 without recording any apprehension of alienation of property under attachment - HELD THAT:- As per Section 5(1)(b), provisional attachment can be caused when the competent authority has reasons to believe that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation. The second proviso to the provision aforesaid starts with non-obstante clause to the first proviso and can be invoked when the Director or any other officer not below the rank of Deputy Director authorized by him has reasons to believe that if the property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under the Act of 2002. The reasons to believe have to be recorded in writing. It is submitted that no reasons to believe to apprehend alienation or transfer the property by the appellants were recorded for invoking Section 5(1) of the Act of 2002.
The reasons to believe for alienation or to deal with the property are not to be drawn only when action has been initiated because for sale of the property, the document can be executed within no time and once it is alienated, the provisional attachment cannot be caused and, therefore, the legislature cautiously used the word “likely” in the provision. In the instant case, the competent authority drawn its conclusion that property is likely to be concealed or dealt with if the Provisional Attachment Order is not caused. Thus, Section 5(1) of the Act of 2002 has been satisfied in this case.
Value of the proceeds of crime vis-à-vis the value of the property - HELD THAT:- The case of the appellant is not that the value of the property was more on the date of acquisition than taken by the respondents, rather the case of the appellants is based on the valuation report going against the provisions of the Act of 2002. The counsel for the appellants could not refer to any provision which may allow the appellants to get independent assessment of the property from the valuer to determine the “value” of the property. In absence of any provision to this effect, rather in the light of the definition of the value, it is unable to accept even the second argument raised by the appellants. It is further found that the value of the property in the hands of the appellant, as taken by the respondents, is much lesser to the proceeds of crime in their hands and accordingly even the second ground is not made out.
Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the appellant's property could be validly attached under the Act of 2002 on the allegation that she was a recipient of "proceeds of crime", despite not being named as an accused in the FIRs or the ECIR.
(ii) Whether the specific monetary receipts relied upon by the respondents (salary from a group company; refund amounts received from a real infrastructure company; and advance amounts received under an agreement to sell from an associate company) were conclusively established, on the record, to be "proceeds of crime" or whether the appellant had disclosed legitimate sources supported by documentary evidence, thereby defeating the basis for attachment and confirmation.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Attachment of property of a person not named as an accused
Legal framework (as discussed by the Tribunal): The Tribunal considered the contention that absence of the appellant's name in the FIRs/ECIR prevents attachment, and held that for provisional attachment it is not necessary that proceeds should be in the hands of the accused; it can be in the hands of any person.
Interpretation and reasoning: The Tribunal rejected the proposition that non-implication as an accused is, by itself, a ground to invalidate attachment, and treated the decisive inquiry as whether the appellant was in fact a recipient of proceeds of crime, or could disclose a legitimate source for the amounts relied upon for attachment.
Conclusion: Non-naming of the appellant as an accused did not, by itself, bar attachment; the legality of attachment depended on proof that the relevant amounts in her hands were proceeds of crime.
Issue (ii): Whether the alleged receipts constituted proceeds of crime or were explained by documentary evidence
Legal framework (as applied in reasoning): The Tribunal proceeded on the premise that if the person discloses the source and is not a recipient of proceeds of crime, the provisional attachment cannot be sustained. It evaluated the evidentiary worth of documentary material (bank statements, income-tax scrutiny/assessment records, appointment order, agreement to sell, and tax disclosures) against the respondents' reliance on oral assertions.
Interpretation and reasoning (salary receipts): The Tribunal found the appellant produced documentary records showing salary credited over time (not as a lump sum), corresponding TDS deductions, income-tax scrutiny/assessment acceptance for the relevant years (including scrutiny under section 143 and block assessment under section 153), and an appointment order. The respondents relied mainly on a statement of an officer claiming he had not seen the appellant working during 2010-2016 and treated the salary as layering. The Tribunal held that documentary evidence could not be ignored in favour of such oral evidence, and concluded the salary receipts could not be treated as proceeds of crime.
Interpretation and reasoning (refunds from real infrastructure company): The Tribunal accepted the appellant's explanation, supported by bank statements, that she paid amounts for booking a villa (including a bank loan disbursal and other payments through banking channels) and, upon cancellation, received refunds in instalments. The Tribunal held the respondents wrongly characterized these refunds as proceeds of crime while ignoring the loan and transaction documents, and treated the receipts as return of booking money rather than illicit proceeds.
Interpretation and reasoning (advance under agreement to sell): The Tribunal accepted that the appellant received two RTGS payments totalling 50 lakhs as advance under an agreement to sell, with a contractual stipulation that failure to pay the balance within two years would result in forfeiture. The Tribunal further noted the appellant's tax return reflected tax paid on the forfeited advance amount, and held that the respondents ignored the agreement and tax disclosure while treating the receipts as proceeds of crime.
Conclusions: On all three components relied upon as "proceeds of crime", the Tribunal held the respondents' inference was contrary to documentary evidence. Since the appellant disclosed the sources and the amounts were not established as proceeds of crime, the provisional attachment and its confirmation were unsustainable; accordingly, both the provisional attachment order and the confirming order were set aside and the appeal was allowed.
Money Laundering - Provisional Attachment Order - proceeds of crime - appellant is recipient of the proceeds of crime or not - justification to provisionally attach her property or appellant could disclose the source for purchase of the property - HELD THAT:- The Appellate Tribunal is not agreed with the view taken by the respondents and accordingly receipt of the salary by the appellant could not have been taken towards the proceeds of crime. It is more so when the appellant had even produced the appointment order issued by M/s SRS Finance Ltd. and has not been disputed by the witnesses other than one named in the earlier para to show that he had not seen appellant’s working in SRS Group of Companies. As against oral evidence, we cannot ignore the documentary evidence. Thus, the first limb towards proceeds of crime in the hands of the appellant cannot be accepted.
The fake statement of facts regarding receipt of the huge amount by the appellant from M/s SRS Real Infrastructure Ltd. cannot be accepted having not visualized after taking into consideration the documents available on record. It would be relevant to add that the reference of the loan amount and payment by banking transaction was given but the relevant document in the shape of bank statement were not produced and it was later on produced along with the application on the direction of the Tribunal. It is sufficient to fortify the claim of the appellant that she had not received the proceeds of crime, rather return of money was for cancellation of the booking of the Villa.
The third allegation regarding receipt of the amount is from M/s Shivnash Sale Agencies Pvt. Ltd. from which Company the appellant has received Rs. 25 lakhs each on two different dates - The appellant has placed on record copy of the income-tax return to indicate the payment of tax on the forfeiture of the advance amount of Rs. 50 lakhs. The Agreement to Sell and the income-tax return was acknowledged but has been ignored by the respondents while holding proceeds of crime in the hands of the appellant. In the light of the discussion made above, we do not find that the amount indicated by the respondents to be proceeds of crime received by the appellant is in ignorance of the documentary evidence available on record. If one has disclosed the source and is not recipient of the proceeds of crime, Provisional Attachment Order may not sustain.
The impugned order cannot be confirmed - The Provisional Attachment Order and its confirmation by the Adjudicating Authority vide the impugned order - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether Service Tax demands for prior years could be sustained by invoking the extended period of limitation in the absence of established suppression of facts with intent to evade tax, including for "Renting of Immovable Property Service" and foreign remittance-based demands.
(ii) Whether Service Tax under reverse charge on "Management or Business Consultancy Service" could be confirmed merely on the basis of differences in foreign currency expenses, when the Department did not establish nexus with any taxable service and the situation was revenue neutral due to availability of CENVAT credit.
(iii) Whether commission paid for selling tea outside India was exempt from Service Tax, and whether the exemption was restricted only to services provided in India.
(iv) Whether Service Tax demand on royalty/licence fee for Intellectual Property-related payments could be sustained for the extended period, and whether proceedings and penalties could continue where tax and interest for the normal period had been paid before issuance of notice, attracting Section 73(3).
(v) Whether Service Tax could be confirmed on foreign remittances booked under "OTHERS" for FY 2012-13 when the adjudicating authority gave no reasons and the record did not establish receipt of any taxable service.
2. ISSUE-WISE DETAILED ANALYSIS
A. Extended period of limitation: requirement of suppression with intent to evade
Legal framework (as discussed): The Court assessed whether the extended period could be invoked, focusing on absence of "suppression of fact with intention to evade the tax."
Interpretation and reasoning: For "Renting of Immovable Property Service," part of the confirmed demand related to years covered only by the extended period. The Court found that no suppression with intent to evade was established and therefore the extended period demand could not stand. Similar reasoning was applied to royalty/licence fee demands for the period up to 2011-12, where extended period invocation was found unsustainable for want of such suppression.
Conclusions: Demands attributable solely to the extended period were set aside where suppression with intent was not established, while amounts within the normal period were treated separately.
B. Renting of Immovable Property Service: partial confirmation within normal limitation; penalty consequence
Interpretation and reasoning: The Court divided the confirmed amount into (a) the portion covered by the extended period and (b) the portion within normal limitation. Since suppression with intent was not proved, the extended period portion was barred. The balance for FY 2012-13 fell within normal limitation and was therefore confirmable. As the appellant had already paid the normal-period tax with interest, penalty was found unwarranted on that confirmed portion.
Conclusions: Extended-period demand under this category was set aside; only the normal-period amount was confirmed; no penalty was imposable on the confirmed normal-period demand because tax and interest had been paid.
C. Reverse charge on Management or Business Consultancy Service: absence of evidence of taxable service; revenue neutrality; limitation
Interpretation and reasoning: The demand was based on differences in foreign currency expenses versus returns. The Court found the Department failed to adduce evidence that such foreign currency expenses were incurred in relation to any taxable service, and therefore the expenses were not liable under reverse charge. Additionally, since any tax paid would be available as CENVAT credit, the matter was treated as revenue neutral, supporting non-sustainability of the demand. The entire demand also fell within the extended period and was held unsustainable on limitation as well.
Conclusions: The entire demand under this category was set aside on lack of evidentiary basis, revenue neutrality, and limitation.
D. Commission for selling tea outside India: applicability of exemption irrespective of place of performance
Interpretation and reasoning: The Court accepted that the nature of service (selling tea) was not disputed. It rejected the view that the exemption was confined only to services within India, holding that there was no exclusion restricting the exemption benefit to services rendered in India. Accordingly, the commission-related Service Tax demand could not be sustained.
Conclusions: The demand on commission expenses for selling tea outside India was set aside as covered by the exemption, which the Court held applicable even where the service was provided outside India.
E. Royalty and licence fee (Intellectual Property-related): limitation; tax paid for normal period; Section 73(3) and penalty
Legal framework (as applied): The Court applied Section 73(3) to conclude proceedings where tax and interest were paid before issuance of notice, and considered penalty consequences under Section 78 in that context.
Interpretation and reasoning: For the period up to 2011-12, the Court held the demand could not be sustained due to failure to establish suppression with intent necessary for the extended period. For the period from 01.07.2012 onwards, the Court noted tax and interest had been deposited before issuance of notice, and therefore proceedings were liable to be concluded under Section 73(3). Because of pre-notice payment with interest, penalty under Section 78 was held not imposable for the normal-period component that was upheld and appropriated.
Conclusions: Extended-period demand on royalty/licence fee was set aside; for the normal period from 01.07.2012 onwards, the paid tax and interest were upheld and appropriated; no penalty was imposable in respect of that confirmed normal-period amount.
F. Foreign remittances booked as "OTHERS" (FY 2012-13): absence of reasons and lack of proof of taxable service
Interpretation and reasoning: The Court noted that the adjudicating authority confirmed tax on specified "OTHERS" sub-items for FY 2012-13 but gave no reasons why Service Tax was payable on those remittances. The Court found these expenses were not incurred with respect to any taxable service and that the Revenue failed to produce corroborative evidence. On that basis, the confirmed demand could not stand.
Conclusions: The entire confirmed demand under "OTHERS" was set aside for lack of reasoning and lack of evidence establishing receipt of taxable services.
G. Penalties: effect of payment before notice; Section 73(3)
Legal framework (as applied): The Court applied Section 73(3) to hold that where admitted tax liabilities and interest were paid before issuance of notice, issuance of notice was unnecessary and penalties should not follow.
Interpretation and reasoning: Since admitted liabilities were paid with interest prior to notice, and confirmed liabilities within the normal period were already discharged with interest, penalties were held unjustified. The Court therefore removed penalties not only for specific categories where tax stood paid, but ultimately set aside all penalties imposed in the order.
Conclusions:All penalties imposed were set aside; no penalty survived for any confirmed portion because the sustained demands were confined to amounts paid with interest and covered by Section 73(3) treatment and/or lack of basis for penalty.
Invocation of extended period fo limitation - Renting of Immovable Property Services - Management & Business Consultancy Services - Intellectual Property Service / Business Auxiliary Services and Others - Business Auxiliary Services - Royalty and Licence Fee under Intellectual Property Services - others - levy of penalties.
Renting of Immovable Property Service - HELD THAT:- The said demand has been confirmed for the period 200809 to 2012-13. Out of this, the demand for the period 2008-09 to 2011-12 has been raised by invoking the extended period of limitation. However, we find that there is no suppression of fact with intention to evade the tax established in this case. Thus, the demand confirmed for the extended period of limitation cannot be sustained. We take note of the appellant’s submission that out of the demanded Service Tax of Rs.83,943/-, tax demand of Rs.60,786/- is covered under extended period of limitation. Hence, this demand is barred by limitation and accordingly, the same stands set aside. The balance demand of Rs.23,157 for the Financial Year 2012-13, falling within the normal period of limitation, is confirmed - As the appellant have already deposited the aforesaid amount of service tax liable to be paid for the normal period of limitation, along with interest thereon, no penalty is imposable on the demand confirmed under this category for the normal period of limitation.
Management or Business Consultancy Service - HELD THAT:- The Department has not brought in any evidence to substantiate the allegation that the said foreign currency expenses were incurred in relation to any taxable service. Therefore, the said expenses were not liable for Service Tax under RCM. Further, the Service Tax, upon payment, would be available as CENVAT Credit and hence the entire issue is revenue neutral in nature - In the present case, the entire demand of Rs. 12,00,557/- confirmed under this category in the impugned order falls within the ambit of extended period of limitation and hence, the demand confirmed on this count is not sustainable. Consequently, the demand on this score is set aside on the ground of limitation and revenue neutrality.
BAS - Intellectual Property Service - Other Income - HELD THAT:- The demand of tax of Rs.24,21,942/- has been raised and confirmed on the commission expenses paid for selling tea outside India for FY 2008-09 to 2012-13. It is observed that services towards selling tea (being agricultural produce) is wholly exempted from payment of service tax under Notification No. 13/2003-Service Tax as amended by Notification No. 8/2004 – Service Tax, as stated by the appellant - Ld. Commissioner did not dispute the nature of services received by the appellant from outside India. Thus, the aforesaid notification exempts services pertaining to sale of tea whether provided within India or outside India inasmuch as no exclusion has been carved out to restrict the exemption benefit for services rendered in India. Therefore, the demand confirmed in the impugned order set aside on this count.
Expenses incurred for Royalty and licence fee paid outside India during 2008-09 to 2012-13 - HELD THAT:- There are force in the appellant’s submission that the demand pertaining to the period up to 2011-12, falling within the scope of extended period of limitation, cannot be sustained as there is no suppression of fact with intention to evade the tax established in this case - it is also noted that the Ld. Commissioner has not given any finding as to the submission made by the appellant that no tax would be payable up to June 2012 since Royalty and Trademark, for which licence fee have been paid, were not registered in India.
Quality Claim, Lab Analysis and Differential Freight paid - Courier Charges - Training charges/Professional Fees paid for Sports - Price Money for Sports - HELD THAT:- The Ld. Commissioner has not given any reason as to why service tax is payable on the expense incurred on the aforesaid remittances. It is found that the above said expenses were not incurred with respect to any taxable service. The Revenue has also failed to adduce any corroborative evidence to substantiate their case. Accordingly, the demand confirmed on this count is not sustainable and hence we set aside the same.
Lev of penalties - HELD THAT:- The fact that the appellant has paid the service tax liabilities admitted by them along with interest. Thus, no penalty imposable on the admitted liabilities, as the appellant has already paid the tax along with interest before issue of the Notice. In fact, as per Section 73(3) of the Finance act, 1994, no need to issue show cause Notice, in such cases. Considering the above, all the penalties imposed in the impugned order against the appellant set aside.
Appeal disposed off.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether amounts collected as Pro-rata Charges and Development Charges, stated to be for creation/augmentation of the electricity transmission network, are liable to service tax.
(ii) Whether Erection Charges recovered for shifting of overhead cables/wires are liable to service tax.
(iii) Whether invocation of the extended period of limitation for the demand was justified on the allegation of suppression.
(iv) Whether the matter required remand for re-computation of any service tax liability on components already held excludible/non-taxable (including material cost and contingency refunds), and consequential re-determination of interest and penalties.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Taxability of Pro-rata Charges and Development Charges collected for transmission network development
Legal framework (as discussed): The Court considered the exemption/tax non-applicability for services of transmission of electricity, as clarified through departmental notifications/circulars referred to in the order, and treated such transmission-related activities/charges as falling within the exempt/non-taxable sphere.
Interpretation and reasoning: The Court recorded that Pro-rata Charges and Development Charges were collected to create a fund for network expansion and to ensure an efficient, coordinated and economical intra-state transmission system, and that these charges were capitalised. On the facts found, these collections were held to be intrinsically connected with the appellant's statutory responsibility as a transmission utility and were not independent taxable services. Since transmission of electricity stood clarified as exempt/non-taxable, charges collected for network development for transmission were treated as part of that exempt activity.
Conclusion:No service tax was held payable on amounts collected towards Pro-rata Charges and Development Charges.
Issue (ii): Taxability of Erection Charges for shifting of overhead cables/wires
Legal framework (as discussed): The Court applied the departmental circular placed on record which specifically classifies shifting of overhead cables/wires (for reasons such as widening/renovation of roads) as not a taxable service under the relevant service tax charging provisions.
Interpretation and reasoning: On facts, the Court accepted the appellant's explanation that Erection Charges were recovered from consumers for shifting of overhead cables/wires. In light of the applied circular clarification treating such activity as not taxable, the Court held the associated charges to be outside service tax levy.
Conclusion:No service tax was held payable on Erection Charges to the extent they related to shifting of overhead cables/wires.
Issue (iii): Justification for invoking the extended period of limitation
Legal framework (as discussed): The Court examined the basis for invoking the proviso enabling the extended period, which depends on suppression/withholding of material facts.
Interpretation and reasoning: The Court accepted the contention that the material facts were within departmental knowledge, including because similar show cause notices had been issued to other units, undermining the allegation of suppression justifying the extended period. Therefore, the precondition for extended limitation was not met.
Conclusion: Invocation of the extended period was held not justified. Any demand that may survive re-computation was directed to be confined to the normal period only.
Issue (iv): Need for remand and scope of re-computation; consequential interest and penalties
Legal framework (as discussed): The Court proceeded on the basis that certain components had already been treated as excludible/non-taxable by lower authorities (including cost of materials and contingency amounts where refunded), but could not be quantified due to absence of requisite details.
Interpretation and reasoning: The Court noted that quantification of exclusions for material cost and contingency refunds required factual verification and data which had not been furnished earlier. It therefore maintained remand for limited purpose of re-computation after the appellant furnishes requisite details. Further, since limitation was confined to the normal period, the Court directed that interest and penalties must be redetermined consistently with the re-computed demand (if any) and the findings on limitation and non-taxability of certain charges.
Conclusion: The matter was remanded for re-computation confined to permissible scope; any resultant demand was restricted to the normal period, and interest and penalty were to be re-determined accordingly. The appeal was allowed by way of remand.
Levy of service tax - amounts collected by the appellant from customers in respect of Material Cost, Erection Charges, Contingency charges, Supervision charges, Pro-rata charges and Development charges, Revenue Loss charges, Row charges and on penalty charges collected from contractors/ suppliers - invocation of extended period of limitation.
Pro-rata charges - Development charges - HELD THAT:- It is found that these charges are actually collected for development of network for transmission of power which is the responsibility and duty of the appellant being a Transmission utility. It has been clarified by CBIC by issue of various Notifications and Circulars that service of transmission of electricity is exempt from service tax - thus no service tax is liable to be paid on these charges.
Erection Charges - HELD THAT:- It is found from explanation of the appellant that these are recovered from the consumers for shifting of overhead cables/ wires which are exempt from service tax in view of CBIC Circular No.123/5/2010-TRU dated 24.05.2010.
Cost of material and Contingency Charges - HELD THAT:- The matter has already been remitted to the Adjudicating Authority for re-computation of service tax liability after taking requisite data from the appellant - it is not required to inetrfere with this finding and direct the Appellant to produce required details before the said authority.
Invocation of extended period - HELD THAT:- The entire facts were in the knowledge of the department which had issued similar show cause notices to other units of the appellant and therefore, invoking extended period of limitation in this case is not justified.
Matter remanded to the Adjudicating Authority to re-compute service tax liability after getting the requisite details/ data from the appellant on material cost and Contingency Charges - appeal allowed by way of remand.
Issues: Whether the services of identifying and counselling students for admission in foreign educational institutions, rendered against commission from overseas universities or colleges, constituted "intermediary services" or amounted to export of services.
Analysis: The disputed activity was found to be rendering services to foreign universities and colleges located outside India, with consideration received in convertible foreign exchange. The arrangement did not show any tripartite structure involving the respondent as a broker or facilitator between two other parties, nor any direct charge to students in India. The nature of the service was held to be the substantive service contracted by the foreign recipients, and not facilitation of another person's service on behalf of a principal. The reasoning adopted the principle that intermediary status requires a minimum of three parties, facilitation of a main supply between them, and a relationship distinct from provision of the main service on one's own account.
Conclusion: The services did not fall within the category of intermediary services and were export of services; service tax was not leviable.
Ratio Decidendi: A person is not an intermediary unless there is a three-party arrangement with facilitation of another person's main service, and the service is not performed on the provider's own account for the overseas recipient.
Levy of differential tax - whether the respondent has deliberately not shown actual income for providing taxable service in ST-3 Returns with mala-fide intention to evade payment 24% service tax? - HELD THAT:- The issue is squarely covered by the decision of this Tribunal in the case of Oceanic Consultants Pvt. Ltd. Vs. Commissioner of Central Excise and Service Tax, Chandigarh-I [2024 (8) TMI 399 - CESTAT CHANDIGARH], wherein this Tribunal has observed that 'the services rendered by the appellants to M/s OCA during the period 01.07.2012 to 31.03.2015 do not fall under the category of "Intermediary Services and thus, the appellants are eligible for the benefit of export of services.'
Admittedly, in this case also respondent undertook activities of finding the potential students willing to study abroad and guide them in respect of various options and opportunities available to them for studying abroad. Further, the respondent provided services to their client ie. universities / colleges who paid commission to them. The main service is the education that starts after completion of services rendered by the respondents - The respondents also provided services relating to specific event i.e. of admission in educational institution/universities to recipient located outside India. For coming within the ambit of intermediary services, there should be a tripartite agreement. There is no such agreement among the parties. The respondent has providing services to their clients, i.e. Universities and Colleges located outside India.
The respondents are not liable to pay the service tax - there are no infirmity in the impugned order - appeal of Revenue dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1) Whether, for levy of service tax under Commercial Training or Coaching Service, the value of study material/books sold by the coaching institute and shown under separate billing/accounting is includable in the gross value of the taxable service, and if includable, whether the assessee is nevertheless entitled to exclusion of such value under Notification No. 12/2003-ST upon satisfying its conditions.
2) Whether the Department can deny the benefit of Notification No. 12/2003-ST by restricting it (through the Circular dated 20.06.2003) only to "standard text books"/priced books, despite separate invoicing and documentary segregation of the value of study material.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Includability of study material value in CTCS and availability of deduction/exclusion under Notification No. 12/2003-ST
Legal framework (as discussed by the Court): The Court considered Notification No. 12/2003-ST which permits exclusion of the value of goods/materials from the taxable value, subject to conditions. The Court also noted that with effect from 20.06.2012, Notification No. 12/2003-ST stood rescinded upon coming into force of the negative list regime and that Section 65B(44) excludes activities constituting transfer of title in goods by way of sale; however, the decision ultimately turned on entitlement to exclusion under Notification No. 12/2003-ST on the established facts.
Interpretation and reasoning: The Court found it admitted that books/materials were sold to students with separate billing and were separately accounted in the Profit & Loss Account. The record did not show that purchase of such materials was compulsory for students. Although the materials were not "standard text books", did not bear printed prices, and were prepared by a group company rather than procured from an independent publisher, the Court held the decisive consideration under the notification was compliance with its conditions-particularly documentary proof indicating the value of the goods and absence of any allegation of availing CENVAT credit on such goods. The Court treated separate invoices and separate accounting as sufficient documentary segregation of value. The Department's reliance on the circular-based approach was not accepted to defeat the notification benefit where the notification conditions were met.
Conclusions: The Court concluded that the study material value was, in principle, connected with and includable in the gross value of coaching because it was relevant and helpful in enlarging the scope of classroom training; however, the appellant was entitled to exclusion of the value of such study material/books under Notification No. 12/2003-ST since the materials were sold under separate invoices with separately identifiable value and there was no allegation of CENVAT credit being taken. Consequently, the demands and penalties founded on inclusion of the separately invoiced study material value were unsustainable and the impugned orders were set aside.
Issue 2: Whether the Circular could curtail the scope of Notification No. 12/2003-ST to only "standard text books"/priced books
Legal framework (as discussed by the Court): The Court examined the Department's reliance on Circular No. 59/8/2003-ST to deny exclusion on the premise that only "standard text books"/priced books could be excluded and that institute-prepared study material formed an integral part of coaching.
Interpretation and reasoning: The Court accepted the contention that the scope of the notification cannot be curtailed by the circular, and that the notification does not restrict exclusion only to standard or priced text books. The Court reasoned that once separate invoicing existed, a price/value was attributable to the materials even if not stamped/printed on the books, and therefore the notification could operate on that documented value. The Court also relied on the consistent tribunal view on similar facts (including the decision upheld by the Supreme Court) to apply the notification benefit where separate sale/value identification was established.
Conclusions: The Court held that denial of Notification No. 12/2003-ST benefit merely because the items were not standard/price-printed text books, or because the circular suggested a narrower scope, was not justified. The appellant satisfied the notification's operative requirements through separate documentation and value identification; hence exclusion was allowable and the contrary view in the impugned orders could not stand.
Classification of services - Commercial Training or Coaching Service or not - sale of books by the appellant, when the sale value of books are separately identified, documented and recorded in the invoice issued - HELD THAT:- The Department has mainly relied on Circular No. 12/2003ST to include the value of the books and materials sold in the gross value for charging service tax under the category of CTCS. In this case, admittedly, the books and materials were being sold to various students and there is a separate billing for the same as well as it’s accountal in the Profit & Loss Account of the appellant. There is nothing on record that the said materials and books were being compulsorily sold to students and it was an option to the students, who may purchase and use such materials. No doubt, these materials were not any standard text books or for that matter carrying any specific price thereon and were not procured from any independent publisher etc. It is also an admitted fact that said books were prepared by their group company and have not been basically purchased from any other agency etc.
Reliance placed by the appellant on the judgment of Cerebral Learning Solutions Pvt Ltd., Vs Commr of C.Ex, Indore [2013 (4) TMI 527 - CESTAT NEW DELHI] is applicable to the facts of the case. In this case, the Tribunal was dealing with similar factual matrix where the appellant was running institute for providing the coaching and paying service tax thereon and was also engaged in selling the printed materials.
There is a force in the argument that the scope of notification cannot be curtailed by the Circular dated 20.06.2003 and that the notification cannot restrict exemption only to standard textbooks or which are priced etc. - the fact remains that Notification No. 12/2003-ST allows exclusion of value of certain goods which are forming part of the service, subject to compliance with certain conditions. In this case, the appellants have clearly established that they were billing separately and once they were billing the same, obviously there was a price attributable to such materials, even though they might not have been independently or specifically stamped or mentioned on the said books or materials. Thus, relying on various judgments including the Cerebral Learning Solutions Pvt Ltd. as upheld by the Hon’ble Supreme Court, and the factual matrix, it is found that in these appeals, the appellants would be entitled for the benefit of Notification No. 12/2003-ST for exclusion of value pertaining to study material etc., sold by the appellant under the cover of separate invoice.
The orders passed by the Adjudicating Authority, as well as Commissioner (Appeals) are liable to be set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, for the post-negative list period involved, the appellant's works contract services provided to the recipient were exempt from service tax under Exemption Notification No. 25/2012-ST (Serial Nos. 12/12A) on the footing that the recipient qualified as a "governmental authority".
(ii) Whether the appellant could rely on a later departmental order dropping demand for an earlier period to seek setting aside of the present demand for the subsequent post-negative list period.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Exemption claim-whether the recipient is a "governmental authority" for purposes of Serial Nos. 12/12A of Exemption Notification No. 25/2012-ST
Legal framework (as discussed by the Tribunal): From 01.07.2012 (post-negative list regime), any service is taxable unless covered by the negative list or exempted. The appellant did not claim coverage under the negative list; the sole basis urged was exemption under Notification No. 25/2012-ST at Serial Nos. 12/12A, which requires, inter alia, that the services be provided to the Government/local authority/governmental authority.
Interpretation and reasoning: The Tribunal treated the determinative question as whether the service recipient qualified as a "governmental authority" for the relevant period. It applied its earlier decision (A.S. Construction) on the same recipient, which had examined the definition of "governmental authority" in the exemption notification (including as amended w.e.f. 30.01.2014) and concluded that the recipient did not satisfy the stipulated conditions. The Tribunal noted that the prior decision held the recipient was not "set up by an Act" in the manner required and that there was no substantiation of the alternative condition relating to establishment by Government with requisite participation/control and linkage to municipal functions. Finding no basis to depart from that view, the Tribunal followed the earlier decision.
Conclusion: The exemption under Notification No. 25/2012-ST (Serial Nos. 12/12A) was not available because the service recipient was held not to be a "governmental authority"; consequently, the demand and penalty as upheld in the impugned order were sustained.
Issue (ii): Effect of an order dropping demand for a previous period
Legal framework (as discussed by the Tribunal): The Tribunal distinguished between the pre-negative list regime (taxability confined to specified "taxable services") and the post-negative list regime (all services taxable unless in the negative list or exempted).
Interpretation and reasoning: The Tribunal held that the order dropping demand for the earlier period related to the pre-negative list regime and turned on the then-applicable scope of the taxable category and interpretation of "residential complex". That reasoning did not govern the present dispute, which concerned the post-negative list period where taxability is the default and exemption must be demonstrated. Therefore, the earlier dropping of demand was not treated as determinative for the present periods.
Conclusion: The earlier order dropping demand for the previous period did not warrant setting aside the present demand; the Tribunal upheld the impugned order and dismissed the appeal.
Eligibility for Exemption Notification No. 25/2012-ST dated 20.06.2012 (Sr. No. 12A) - services provided to Rajasthan Housing Board are exempted being services provided to government authority or not - HELD THAT:- The order of the Commissioner dropping the demand pertained to the pre-negative list period. During that period only taxable services could be charged to service tax. Construction of residential complex was one of the taxable services. The definition of residential complex at that time has been held to not include individual houses but only buildings with 12 or more residential units. It is for this reason, the Commissioner has dropped the demand.
The claim of the appellant is that the services were exempted as they were rendered to Rajasthan Housing Board which is a governmental authority. In A.S. Construction Company Limited[2025 (4) TMI 108 - CESTAT NEW DELHI], this Tribunal held that 'The appellant did not lead any evidence to substantiate that the Rajasthan Housing Board was established by the State Government with 90% or more participation by way of equity or control by the Government, to carry out any function entrusted to a municipality under article 243W of the Constitution.'
There are no reason to take a different view in this case. Respectfully following AS Construction, the impugned order needs to be upheld - appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether service tax and interest were payable on "Construction of Residential Complex Service" despite the assessee's claim that tax was collected from home buyers only with the final instalment and therefore could not be deposited earlier.
(ii) Whether amounts collected from home buyers towards maintenance, retained as a corpus and intended to be handed over to the Residents Welfare Association, constituted consideration for "Management, Maintenance or Repair Service" so as to attract service tax.
(iii) Whether "lease rent" collected from home buyers and remitted to the State Government (as land was held on leasehold from the Government) amounted to taxable "Renting of Immovable Property Service" by the assessee.
(iv) Whether penalties imposed under sections 76, 77 and 78 were sustainable, or liable to be set aside by applying section 80 on the ground of reasonable cause.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Service tax and interest on Construction of Residential Complex Service
Legal framework (as discussed by the Court): The Court considered the statutory charge of service tax under the Finance Act, 1994, the valuation principle reflected in section 67 (gross amount charged for the service), and the time-limit for payment under Rule 6 of the Service Tax Rules, 1994 requiring monthly deposit by the prescribed due date following the month in which service is provided or deemed to be provided.
Interpretation and reasoning: The Court held that the obligation to pay service tax arises from the charging provisions and is not dependent on whether the assessee has collected service tax from its customers. The assessee cannot justify delayed payment on the ground that it collected service tax only with the last instalment. Rule 6 requires payment within the stipulated monthly time-frame, and delay triggers interest liability.
Conclusion: The demand under "Construction of Residential Complex Service" was upheld, and interest was held payable for delayed payment. Any amounts already paid were directed to be adjusted against this confirmed demand.
Issue (ii): Taxability of amounts collected towards maintenance under Management, Maintenance or Repair Service
Interpretation and reasoning: The Court found that the amounts collected from home buyers were retained as deposits/corpus to be later transferred to the Residents Welfare Association and were not "consideration received" by the assessee for providing "Management, Maintenance and Repair" services. On the facts examined, the retention and intended transfer of the amounts to the Residents Welfare Association negated characterization as taxable consideration for the said service category.
Conclusion: The service tax demand under "Management, Maintenance or Repair Service" was set aside.
Issue (iii): Taxability of lease rent receipts under Renting of Immovable Property Service
Interpretation and reasoning: The Court accepted that the relevant land was held by the assessee on leasehold from the State Government and that the "lease rent" collected from home buyers was the lease rent charged by the Government, merely collected and remitted by the assessee. Since the assessee was not leasing any immovable property to customers under this arrangement, the receipts could not be treated as consideration for "Renting of Immovable Property Service" by the assessee.
Conclusion: The service tax demand under "Renting of Immovable Property Service" was set aside.
Issue (iv): Sustainability of penalties under sections 76, 77 and 78 in light of section 80
Legal framework (as applied by the Court): The Court applied section 80 (as it existed during the relevant period), which permitted non-imposition of penalty upon showing "reasonable cause" for failure.
Interpretation and reasoning: The Court treated the assessee as a government entity engaged in providing housing services and accepted that it could have (though wrongly) assumed that service tax was payable only upon collection from clients. This was held sufficient to invoke section 80 and to negate penalty consequences.
Conclusion: Penalties imposed under sections 76, 77 and 78 were set aside by applying section 80.
Liability of interest on Construction of Residential Complex Service - tax was collected from home buyers only with the final instalment and therefore could not be deposited earlier - Management, Maintenance and Repair services were rendered or not - amount collected under Renting of Immovable Property Service or not - penalties.
Liability of interest on Construction of Residential Complex Service - HELD THAT:- The obligation to pay the service tax arises on account of the charge in the Finance Act, 1994 and is not dependent on whether or not the assessee had collected service tax from its clients. This principle applies to any indirect tax. Central Excise duty, VAT, Sales Tax etc., can be recovered from the buyers/clients/ customers by the assessee but payment of these duties and taxes within time is responsibility of the assessee. The assessee cannot delay paying service tax on the ground that it had not yet collected the service tax. Rule 6 of the Service Tax Rules, 1994 makes it clear that the service tax has to be paid on the sixth day of the month following the month in which the service was provided or deemed to be provided. The appellant had, therefore, to pay service tax every month and could not have delayed paying service tax. Since there was a delay in paying service tax, interest needs to be paid. In view of the above, the demand of service tax under ‘Construction of Residential Complex service’ needs to be upheld and is upheld along with applicable interest.
Management, Maintenance and Repair services - amounts collected from home buyers or not - HELD THAT:- Evidently, the appellant had collected amounts from home buyers and retained as deposit to further pass it on to the RWA, it is not a consideration received by the appellant for Management, Maintenance and Repair services. Therefore, the demand of service tax under this head needs to be set aside and is set aside.
Renting of Immovable Property Service - lease rent collected from home buyers and remitted to the State Government - HELD THAT:- The lease rent said to have been collected by the appellant is not for leasing of any immovable property by the appellant but is the lease rent charged by the Government of Madhya Pradesh ( since all land on which the houses were built were on lease hold basis). Therefore, the demand of service tax under the head of renting of immovable property service cannot sustain and needs to be set aside.
Penalties - HELD THAT:- The appellant is a Government entity engaged in providing housing service and he could have, albeit wrongly, resumed that the service tax had to be paid only when it has been collected from the client and not before. During the relevant period, section 80 of the Finance Act, provided for penalty not being imposed for reasonable cause for failure. Invoking section 80 of the Finance Act, the penalties imposed on the appellant set aside.
The appeals are partly allowed upholding the confirmation of demand under construction of complex services along with interest and any amounts already paid may be adjusted towards this demand. Rest of the impugned orders are set aside.
Issues: (i) Whether logistics services rendered by foreign service providers in the USA and received there were exigible to service tax in India under the reverse charge mechanism as business support service. (ii) Whether leasing of windmills attracted service tax as renting of immovable property.
Issue (i): Whether logistics services rendered by foreign service providers in the USA and received there were exigible to service tax in India under the reverse charge mechanism as business support service.
Analysis: The services were wholly rendered and consumed in the USA. The activities described in the show cause notice amounted to complete logistics operations, more appropriately classifiable as clearing and forwarding agency service. Applying the statutory scheme governing import of services and the Tribunal's earlier view on identical facts, services performed wholly outside India did not attract service tax under the reverse charge mechanism.
Conclusion: The demand on this count was unsustainable and was set aside in favour of the assessee.
Issue (ii): Whether leasing of windmills attracted service tax as renting of immovable property.
Analysis: The foundation of the demand was defective and the notice did not clearly establish why windmills, merely because they were shown as assets, should be treated as a factory or as immovable property. Windmills and their parts were treated as goods, and the evidence did not show permanent annexation to the earth. In the absence of proof of permanent attachment, and given that the Revenue bore the burden to establish immovable character, the levy could not be sustained.
Conclusion: The demand under renting of immovable property was not maintainable and was set aside in favour of the assessee.
Final Conclusion: All impugned demands and penalties failed, and the appeals were allowed with consequential relief.
Ratio Decidendi: Services performed and consumed wholly outside India are not taxable under the import-of-services reverse charge framework, and articles such as windmills are not immovable property unless permanent annexation to the earth is proved.
Levy of service tax at the hands of the appellant under the reverse charge mechanism - services rendered by the service providers in USA - income earned by letting out the windmills by the appellant.
Whether the demand of tax for the services rendered by the service providers in USA are exigible to tax at the hands of the appellant under the reverse charge mechanism? - HELD THAT:- It is an admitted position that the services provided to the appellant are rendered by the service providers in USA and are received and consumed in the said country. The activity of the service providers with respect to the services rendered to the appellant is also not in dispute as the SCN itself does not controvert the appellant’s clarification that the service providers abroad cleared the goods from the Customs, transported from the port of arrival to the Warehouse, stored, packed and delivered to the intended customers of the Appellant in that country. However, while conceding that this was in the nature of complete logistics services rendered to the appellant, the proposal is to classify such services as Business Support Services, which is now disputed before us by the Appellant - it is agreed with the Appellant’s contention that these logistics services as stated supra, are more appropriately classifiable under clearing and forwarding agency services under Section 65 (105) (j), which stipulates the said taxable service as, service provided to any person by a clearing and forwarding agent in relation to clearing and forwarding operations in any manner - the demand of service tax under Business Support Service on the appellant do ot sustain.
Whether the income earned by letting out the windmills by the appellant is exigible to tax as renting of immovable property? - HELD THAT:- The reasons for considering the windmill as an immovable property, stated in the Order in Original is that upon consideration of the definition of “immovable property” as defined in Clause 26 of Section 3 of the General Clause Act, such windmills would be covered under the expression immovable property. It is found that citing the aforesaid definition of “immovable property” as given in the General Clauses Act, is an improvisation by the Adjudicating Authority beyond the Show Cause Notice itself, as the show cause notice has not put the appellant to notice of any such reliance. It is a settled position in law that the principles of natural justice have to be complied at every stage and violation at the initial stage can’t be cured through additional reasons incorporated in the final order, thereby rendering the impugned order sustaining such demand untenable on this ground alone.
The surmise of the Appellate authority that they are permanently embedded is without any evidence, especially when all along the appellant’s contention has been that these are excisable goods which can be removed and re-erected at any other place, which is not seen disproved. The onus to establish that the attachment was intended to be permanent, given that it is the Revenue which seeks to treat the windmills as immovable property, is squarely on the Revenue and is not seen discharged. In view of the above, the demand made on the leasing of windmills, treating it as renting of immovable property, is thus untenable.
The impugned orders in appeal cannot be sustained and are liable to be set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the Appellant's post-production digital activities (computer graphics, digital restoration and reverse telecine) are classifiable as "Video Tape Production Service" for the period prior to 01.07.2012.
(ii) Whether services provided to overseas clients qualify as "export of services" under the Export of Services Rules, 2005 (pre-01.07.2012).
(iii) For the period post-01.07.2012, whether Rule 4 or Rule 3 of the Place of Provision of Services Rules, 2012 applies to determine the place of provision for such digital post-production services, and consequently whether the services satisfy Rule 6A of the Service Tax Rules, 1994 as "export of service".
(iv) Whether the confirmed demands of service tax, and consequential interest and penalties, are sustainable once the above classification and export determinations are made.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Classification prior to 01.07.2012-whether "Video Tape Production Service"
Legal framework: The Court examined the statutory definition of "Video Tape Production" under Section 65(120) read with Section 65(105)(zi) of the Finance Act, 1994, and treated the "means" portion as laying down the essential and foundational requirement, with the inclusive portion not capable of expanding the scope beyond the core activity.
Interpretation and reasoning: The Court found it undisputed that the Appellant does not undertake recording of any programme, event or function. The activity is confined to post-production digital manipulation of already recorded footage/data supplied by clients. Since recording is the core requirement under the definition, the inclusive portion (editing/special effects/processing etc.) could not be invoked independently to tax an activity that lacks the foundational element of recording.
Conclusion: The Court held that the impugned services are not classifiable as "Video Tape Production Service" for the period prior to 01.07.2012.
Issue (ii): Export of services prior to 01.07.2012 under the Export of Services Rules, 2005
Legal framework: The Court applied the Export of Services Rules, 2005 and examined the rival positions on whether the export criteria are determined by place of performance or by recipient/benefit-based criteria for the relevant category invoked in the case.
Interpretation and reasoning: The Court accepted that the recipients were located outside India and consideration was received in convertible foreign exchange, and held that the benefit of the services accrued to the foreign clients and the services were integrally used in their commercial activities abroad. The Court rejected the Department's denial based solely on performance in India and held that, for the services in question, recipient/benefit considerations were determinative on the facts as found.
Conclusion: The Court held that the services rendered to foreign clients qualified as export of services for the period prior to 01.07.2012.
Issue (iii): Post-01.07.2012-Rule 4 vs Rule 3 (POPS Rules, 2012) and export under Rule 6A
Legal framework: The Court applied the Place of Provision of Services Rules, 2012, holding that determination of "place of provision" must be made under those Rules, and then applied Rule 6A of the Service Tax Rules, 1994, noting that the only disputed export condition was Rule 6A(1)(d) (place of provision outside India).
Interpretation and reasoning: The Court held Rule 4 applies only when services are in respect of goods that are required to be made physically available to the service provider and where physical possession/control is indispensable. On facts, the services were performed on intangible digital data, and the physical media (if any) was merely a carrier and not the subject matter of the service. The admitted fact that the same services were rendered even when data was transmitted electronically negated any requirement of physical availability, making Rule 4 inapplicable. Consequently, the default Rule 3 applied, fixing the place of provision as the location of the service recipient (outside India). With place of provision outside India, the Court held all Rule 6A conditions stood satisfied.
Conclusion: The Court held that Rule 3 (not Rule 4) governs the place of provision; the place of provision is outside India; and the post-01.07.2012 services qualify as export of service under Rule 6A, resulting in no service tax liability on such services.
Issue (iv): Sustainability of service tax demand, interest and penalties
Legal framework: The Court considered that interest and penalties are consequential to the sustainability of the principal demand under the Finance Act, 1994.
Interpretation and reasoning: Having held that the services qualify as export (and that the pre-01.07.2012 classification adopted for levy was inapplicable), the Court held the foundation for the tax demand fails. The Court further held that where the principal demand fails, consequential interest and penalties cannot survive; additionally, consistent decisions in favour of the Appellant negated allegations of suppression or intent to evade.
Conclusion: The Court held the demands of service tax along with interest and penalties were wholly unsustainable, and set aside the impugned orders in toto with consequential relief as per law.
Classification of services - Video Tape Production Services or not - export under the Export of Services Rules, 2005 or not - place of provision of service is in India under Rule 4 of the Place of Provision of Services Rules, 2012 - all conditions of Rule 6A of the Service Tax Rules, 1994 satisfid or not.
Whether the services rendered by the Appellant are classifiable as “Video Tape Production Service” for the period prior to 01.07.2012? - HELD THAT:- In the present case, it is an undisputed fact that the Appellant does not undertake recording; the services are rendered on already recorded footage and the activity is purely post-production digital manipulation of data received from its clients - this Tribunal, in the Appellant’s own earlier cases [2021 (1) TMI 384 - CESTAT CHENNAI], has consistently held that postproduction digital services cannot be equated with video tape production service - there are no change in facts or law warranting a departure from the settled view. Judicial discipline requires to follow coordinate Bench decisions, particularly when affirmed by higher forums - the services rendered by the Appellant do not fall under “Video Tape Production Service” for the period prior to 01.07.2012.
Whether the services rendered by the Appellant to overseas clients qualify as “export of services” under the Export of Services Rules, 2005 and Rule 6A of the Service Tax Rules, 1994 read with the Place of Provision of Services Rules, 2012? - HELD THAT:- Benefit of the service accrues to foreign clients, and the services are integrally used in their commercial activities abroad - the services rendered to foreign clients qualify as export of services prior to 01.07.2012.
Whether Rule 4 or Rule 3 of the Place of Provision of Services Rules, 2012 is applicable for determining the place of provision of the impugned services? - HELD THAT:- The admitted fact that the same services are rendered even when data is transmitted electronically completely negates the applicability of Rule 4 - the issue stands squarely covered by Prime Focus Ltd. [2023 (1) TMI 1142 - CESTAT MUMBAI], affirmed by the Hon’ble Supreme Court in [2023 (7) TMI 955 - SC ORDER], wherein it was categorically held that post-production and digital processing services rendered on electronic data are governed by Rule 3, and qualify as export of services.
Whether the demands of service tax along with interest and penalties confirmed under the impugned Orders-in-Original are sustainable in law? - HELD THAT:- Rule 6A of the Service Tax Rules, 1994 provides a complete code for determining whether a service qualifies as export. The only disputed condition in the present case is Rule 6A(1)(d) relating to the place of provision of service - Rule 4 of the POPS Rules applies only where services are performed in respect of goods which are required to be made physically available to the service provider. The essential requirement is that physical possession or control of goods must be indispensable for rendering the service.
In the present case, the services rendered by the Appellant i.e., Computer graphics, digital restoration and reverse telecine are performed on intangible digital data. The physical media, if any, is merely a carrier of data and not the subject matter of service - The admitted fact that the same services are rendered even when data is transmitted electronically establishes beyond doubt that physical availability of goods is not a pre-condition. Therefore, Rule 4 of the POPS Rules has no application - Once the place of provision is held to be outside India, all the conditions of Rule 6A(1) stand fulfilled. Accordingly, the services rendered by the Appellant post-01.07.2012 qualify as export of service.
Also, the interest under Section 75 and penalties under Sections 76/77 cannot survive.
The impugned Orders-in-Original are set aside in toto - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the activity of playing cricket under an IPL player contract, including wearing team clothing bearing franchise/sponsor marks and permitting filming/photography, constitutes a taxable service of promotion or marketing of a brand/logo/mark under Section 65(105)(zzzzq) of the Finance Act, 1994.
(ii) Whether the appellate authority could sustain service tax demand by unilaterally changing the classification from the taxable category proposed in the show cause notices and confirmed by the original authority, to a different taxable category, and thereby confirm the demand.
(iii) Whether, on the facts, a demand could be sustained by treating an assumed "percentage" of player fees as attributable to promotional/brand activities when the contract consideration is composite and no documentary basis exists for segregation.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Taxability as "Brand Promotion Service" for activities incidental to playing cricket
Legal framework (as discussed by the Court): The Tribunal examined the statutory definition of taxable service under Section 65(105)(zzzzq), which requires service "under a contract" for "promotion or marketing of a brand" (including trade name/logo/house mark), by appearing in advertisements/promotional events or carrying out promotional activity.
Interpretation and reasoning: On a plain reading of the entry and on the contractual factual matrix, the Tribunal found the appellant's primary obligation was to play cricket in league matches. Wearing team clothing containing badges/marks/logos and allowing photographing/filming/televising occurred as part of match participation and related activities, and was not shown to be undertaken with the exclusive intent of promotion or marketing of a brand. Such incidental display during sporting performance did not strictly fit the statutory requirement of a contract for promotion/marketing of a brand.
Conclusion: The Tribunal held the impugned confirmation of demand by classifying the activity under Section 65(105)(zzzzq) was not legally sustainable on the facts.
Issue (ii): Sustainability of demand where the taxable category was changed at appellate stage beyond the show cause notice
Legal framework (as applied): The Tribunal treated it as impermissible in law to uphold a demand by shifting classification at the appellate stage to a taxable category different from that proposed in the show cause notice and confirmed by the adjudicating authority.
Interpretation and reasoning: The show cause notices proposed demand under "Business Support Service" and the original authority confirmed under that category. The appellate authority dropped that classification but confirmed demand by shifting the levy to "Brand Promotion Service" on its own. Relying on consistent tribunal reasoning in similar fact situations, the Tribunal held such unilateral re-classification "going beyond the show cause notice" is not sustainable.
Conclusion: The Tribunal set aside the demand on the ground that the appellate authority could not legally confirm tax by changing the classification beyond the show cause notice.
Issue (iii): Attempted segregation of "promotional" portion from composite player fees
Legal framework (as discussed by the Court): The Tribunal applied the principle that where consideration is composite and the law does not provide a workable mechanism to exclude the non-taxable element and quantify the taxable portion, the levy cannot be sustained on an assumed allocation.
Interpretation and reasoning: The appellate authority proceeded on the basis that only a "percentage" of player fees would relate to promotional activities, but acknowledged lack of documentary evidence for such apportionment and thus accepted the original authority's suggested taxable value. The Tribunal, applying its prior approach in similar matters, held that the player fees were received for playing cricket, and in any event confirmation of demand based on an assumed/unsupported segregation of taxable portion from a composite contract was not sustainable.
Conclusion: The Tribunal held that confirmation of service tax demand on a purported percentage of player fees attributable to promotional activities could not be sustained and set aside the demand.
Promotion or marketing of brand/logo/mark involving taxable services or not - activity of playing cricket by the appellant in the IPL league matches, wherein the appellant was obliged to wear the team clothing as supplied by the IPL franchise i.e., the Knight Riders, allowing them to photograph himself, film, televise etc - HELD THAT:- In the case of Commissioner of Central Excise, Customs & CGST, Delhi-III Vs. Piyush Chawla [2018 (7) TMI 1388 - CESTAT NEW DELHI], the Tribunal by relying on various case laws, held that remuneration received by the respondent cricket player from the IPL franchisee M/s KPH Dream Cricket Pvt. Ltd. is not liable to service tax levy under BSS.
In another case of Sourav Ganguly v. Union of India & Ors.[2016 (7) TMI 237 - CALCUTTA HIGH COURT], the Hon'ble Calcutta High Court while deciding the issues in favour of cricketer have observed that the Petitioner therein entered into an agreement with the franchisee under which he was obliged to participate in promotional activities apart from playing cricket for their franchisee and the department sought to tax the consideration received by the Petitioner from their franchisee under 'Business Support Service'. The Hon'ble High Court of Calcutta held that the Petitioner was engaged as a professional cricketer for which the franchisee was to provide fee to the petitioner. He was under full control of the franchisee and had to act in the manner instructed by the franchisee. The Hon'ble High Court further held that the Petitioner therein was not providing any service as an independent individual worker and his status was that of an employee. Therefore it cannot be said that the Petitioner was rendering any service which could be classified as Business Support Service.
The impugned order dated 31.10.2016 passed by the learned Commissioner (Appeals) does not stand the legal scrutiny - the impugned order is set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1) Whether the Tribunal was justified in refusing to entertain and decide the plea of time bar/departmental knowledge under the extended limitation provision, when such plea was not raised before the adjudicating authority or the first appellate authority, and was also not taken as a ground in the appeal before the Tribunal but urged only orally at hearing.
2) Whether, on the record as it stood, the plea challenging invocation of the extended period of limitation involved disputed or missing facts such that it could not be examined for the first time at the appellate stage.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entertaining limitation plea raised belatedly (only at hearing) and not pleaded earlier
Legal framework (as discussed): The Court recognised the general principle that limitation, if a pure question of law, may be raised at any stage, including in appeal, provided the necessary facts to decide it are already available on record.
Interpretation and reasoning: The Court noted that the assessee contested the demand only on merits before the adjudicating authority and did not raise any plea on limitation or the conditions for invoking the extended period. The same omission continued in the first appeal. Before the Tribunal as well, no limitation ground was taken in the appeal, and the contention was advanced only orally during hearing. In these circumstances, the Court examined whether the Tribunal's refusal to consider such a new plea was unjustified. The Court held that the permissibility of raising limitation at a late stage is conditioned on the availability of necessary facts on record; without that, the plea cannot be effectively adjudicated as a pure legal issue.
Conclusion: The Tribunal's rejection of the belated limitation plea was upheld as proper, given that it was not raised earlier and was not supported by established material on the record enabling adjudication.
Issue 2: Whether limitation under Section 11A could be examined without foundational facts on record (mixed question of law and fact)
Legal framework (as discussed): The Court described Section 11A as providing a normal limitation period of one year, and an extended period of five years where the department establishes fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty.
Interpretation and reasoning: The assessee's limitation contention rested substantially on "departmental knowledge" of the alleged units and the assertion that the ingredients for extended limitation were not established. The Court found that deciding this contention required determining factual matters-particularly whether the department was aware of the existence and activities of the concerned units during the relevant period. The Court observed that documents were produced in a compilation, but it was unclear whether they formed part of the adjudicatory record. Even from those papers, while there was material suggesting one unit had filed an exemption-related form in an earlier year, there was no comparable contemporaneous material showing that the other unit existed or that the department was aware of it before its later registration. This absence of reliable, record-based facts made the limitation issue a mixed question of law and fact that could not be decided for the first time in appeal. The Court also noted that the Tribunal had specifically recorded and affirmed suppression on merits, which supported invocation of the extended period.
Conclusion: Because the record lacked the necessary factual foundation to determine departmental knowledge and the applicability of the extended period, the Court held that the limitation plea could not be adjudicated at that stage and affirmed the Tribunal's approach. The questions were answered in favour of the department, and the appeal was dismissed.
Rejection of legal plea regarding department’s knowledge and time bar by holding that this plea was not raised before the lower authorities - rejection of plea holding that the same was not raised even in the appeal filed before it, but only during the hearings - invocation of extended perido of limitation - HELD THAT:-Normally, limitation, if it were to be a pure question of law may be raised at any stage of the proceeding, and it would not have been fatal for either the Tribunal or even this Court, at the stage of appeal on a substantial question of law, to consider the question of limitation for the first time. The only caveat is that all necessary facts to determine that question are available on record. In the present case, the necessary facts, to determine as to whether invocation of larger period of limitation is correct or otherwise, are unavailable.
Section 11A deals with recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. The period of limitation provided for such recovery is one year from the relevant date, being the date of short levy/non-levy. However, in cases where the Revenue is able to establish the ingredients of a) fraud, b) collusion, c) wilful misstatement, d) suppression of facts or e) contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the Department has in its arsenal, an extended period of 5 years of limitation from the relevant date, to serve a notice for assessment.
It is found from the records that relevant form has been filed by MFE before the Assistant Collector of Central Excise, Salem Division, Salem-7 on 26.04.1991 claiming exemption as an SSI unit for the period 1990-91. However, as far as EPI is concerned, there is only a registration certificate dated 03.02.1998 and nothing to indicate that EPI was in existence prior to its registration on the aforesaid date. Hence, it cannot be accepted, as a fact, the position that the Department was well aware of the existence of EPI and its activities.
This becomes a very relevant question of fact, one which is critical to determine the question of limitation, in this case thus, a mixed question of law and fact. Thus, and in the absence of necessary facts, there are nothing untoward in the conclusion of the Tribunal rejecting the plea of limitation raised for the first time before it, particularly in the absence of any supporting material.
Petiiton dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether CENVAT credit was admissible on service tax paid for outward transportation of finished goods where sales were on FOR destination basis and freight was included in the assessable value on which duty was paid.
(ii) Whether the adjudicating authority's finding that delivery and transfer effectively occurred at the buyer's doorstep (and not at the factory gate), based on contractual terms and invoicing/valuation practice, justified treating outward transportation as eligible input service for CENVAT credit during the relevant period.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i) & (ii): Admissibility of CENVAT credit on outward transportation under FOR destination contracts
Legal framework (as discussed/applied by the Court): The Tribunal treated eligibility of credit on outward transportation as turning on whether, under FOR destination sales, the customer's premises could be regarded as the effective place up to which responsibility for delivery continued, thereby making the outward transportation integrally connected with the sale and clearance. The adjudicating authority also relied on a Board circular dated 08.06.2018 (as applied to the facts) supporting credit availability in such circumstances.
Interpretation and reasoning: The Tribunal affirmed the adjudicating authority's core factual inference that inclusion of transportation cost in the assessable value and payment of duty on that enhanced value was strong evidence that the goods were to be delivered at the buyer's doorstep under the contractual terms. The Tribunal accepted that, if the place of removal were at the factory gate, there would be no requirement to include freight in the assessable value in the manner shown by the invoices relied upon by the adjudicating authority. The Tribunal further held that the matter was covered by its decision in Mangalam Cement, which upheld credit on outward transportation where sales were on FOR destination basis and the seller remained responsible for delivery up to the buyer's premises; accordingly, the Principal Commissioner's approach was consistent with the Tribunal's settled view on the point.
Conclusions: The Tribunal held that there was no illegality in allowing CENVAT credit of the service tax paid on outward transportation for the relevant period where the assessee sold on FOR destination basis and included freight in assessable value while discharging duty. The departmental appeal was dismissed.
CENVAT credit of the service tax paid on the outward transportation of goods - period 2013-14 to June 2017 - HED THAT:- Reliance placed upon a decision of this Tribunal in M/s. Mangalam Cement Ltd. vs. Commissioner, Central Goods, Excise & Service Tax, Udaipur [2025 (10) TMI 1188 - CESTAT NEW DELHI] where it was held that 'The admissibility of CENVAT credit of service tax paid on goods transport agency availed for outward transportation of goods on FOR destination basis has been upheld in M/s Prism Johnson Ltd. [2024 (6) TMI 612 - CESTAT NEW DELHI].
In view of the aforesaid decision of the Tribunal in Mangalam Cement it has to be held that the Principal Commissioner committed no illegality in holding that the respondent was entitled to take CENVAT credit of Rs. 73.30 lakhs of the service tax paid on outward transportation of goods to the customs premises.
The appeal filed by the department is, accordingly, dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether, in alleged FOR destination sales, the "place of removal" can be treated as the factory gate without examining contractual and transactional documents, or whether it must be determined through a fact-based inquiry into sale terms, transfer of title, risk, and freight inclusion.
(ii) Whether CENVAT credit on GTA services for outward transportation from factory/depots to buyers' premises is admissible for (a) the period prior to 01.04.2008 and (b) the period after 01.04.2008, depending on the "place of removal" so determined.
(iii) Whether, in light of binding precedent (including decisions in the assessee's own matters) and the requirement of judicial discipline, the impugned denial of credit can be sustained despite absence of mandatory factual verification.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Determination of "place of removal" in FOR destination contracts
Legal framework: The Court treated determination of "place of removal" under the Central Excise law as a mixed question of fact and law, requiring examination of relevant contractual and transactional parameters (sale terms, transfer of title, assumption of transit risk, and whether freight forms part of the assessable/value basis), and noted that it cannot be fixed by presumption.
Interpretation and reasoning: The Court held that the adjudicating authority's approach-treating the factory gate as the place of removal on a blanket basis-was legally flawed because it did not examine sale contracts, purchase orders, invoices, transport documents, or allied records. The Court accepted that, in principle, where clearances are on FOR destination basis and property/risk passes only on delivery, the buyer's premises can constitute the place of removal. It emphasized that such a conclusion can be reached only after a factual verification of the governing documents for the disputed period.
Conclusions: The Court conclusively held that (a) "place of removal" cannot be mechanically fixed at the factory gate, and (b) if factual verification establishes FOR destination sales with freight integral to price and title/risk passing on delivery, the buyer's premises shall be the "place of removal". The matter was remanded solely for this limited factual determination.
Issue (ii): Eligibility of CENVAT credit on GTA outward transportation (pre- and post-01.04.2008)
Legal framework: The Court treated eligibility of outward GTA credit under Rule 2(l) of the CENVAT Credit Rules, 2004 as consequential to the "place of removal" determination. It recognized that outward transportation qualifies as "input service" up to the "place of removal" and applied this principle for both periods, subject to the factual finding on where the place of removal lies.
Interpretation and reasoning: For the period prior to 01.04.2008, the Court held the legal position to be settled that outward transportation up to the place of removal qualifies as input service. For the period after 01.04.2008, the Court held that even after amendment, credit remains admissible up to the place of removal; therefore, if the buyer's premises are found to be the place of removal in FOR destination transactions, GTA services up to such premises remain eligible. The Court repeatedly linked admissibility to the outcome of the remanded factual verification.
Conclusions: The Court conclusively held that GTA services used for outward transportation up to the place of removal qualify as "input service" both prior to and after 01.04.2008; consequently, if (on verification) buyer's premises are the place of removal in FOR destination clearances, credit is admissible up to that point for the disputed period.
Issue (iii): Effect of binding precedent/consistency and sustainability of the impugned order
Legal framework: The Court applied the principle of judicial discipline and consistency, noting that where identical issues have been settled in principle by binding precedent and the same approach has been followed in later matters involving identical facts/contracts, the adjudicatory outcome should align-subject to satisfaction of factual prerequisites.
Interpretation and reasoning: The Court found that while the issue stands settled "in principle" by binding decisions and consistent approach in later periods, the adjudication for the present period still required factual establishment of FOR destination sales and the attendant elements (freight integral to price; transfer of ownership/risk upon delivery). Because the impugned order denied credit without undertaking this mandatory factual exercise, it was held to be legally unsustainable.
Conclusions: The Court set aside the impugned order as unsustainable for failure to conduct the required fact-based inquiry, and remanded the matter strictly for limited verification of documents to determine FOR destination nature/place of removal and then re-determine admissibility of credit accordingly. It directed that the remand be confined to this verification, that no fresh issues be raised, and that penalty not be imposed without independent findings in accordance with law.
Recovery of CENVAT credit availed on outward transportation (GTA) services along with interest and penalty - demand confirmed holding that the place of removal was the factory gate and that GTA credit beyond such point was inadmissible - place of removal in the case of FOR destination sales.
Determination of Place of Removal in FOR Contracts - HED THAT:- The determination of the “place of removal” under Section 4(3)(c) of the Central Excise Act, 1944 is a mixed question of fact and law and cannot be mechanically or presumptively fixed at the factory gate in all cases. The Larger Bench of this Tribunal in Ramco Cements Ltd. v. CCE, Puducherry, [2023 (12) TMI 1332 - CESTAT CHENNAI-LB], has authoritatively held that the “place of removal” must be determined by examining the terms of sale, transfer of title, assumption of risk during transit, and inclusion of freight in the assessable value, applying the principles laid down by the Hon’ble Supreme Court in Emco Ltd., [2015 (8) TMI 200 - SUPREME COURT] and Roofit Industries Ltd., [2015 (4) TMI 857 - SUPREME COURT], the judgment of the Hon’ble Karnataka High Court in Bharat Fritz Werner Ltd., [2022 (7) TMI 352 - KARNATAKA HIGH COURT], and CBIC Circular No. 1065/4/2018-CX dated 08.06.2018.
CBIC Circular No. 1065/4/2018-CX dated 08.06.2018 also mandates that adjudicating authorities must determine the “place of removal” based on factual parameters emerging from contracts and invoices, and not by applying a uniform presumption. In the present case, such an exercise has admittedly not been undertaken - It is considered appropriate to remand the matter for a limited factual verification to ascertain: i). Whether the clearances during the disputed period were effected on FOR destination basis; ii). Whether freight formed an integral part of the sale price; and iii). Whether ownership and risk in the goods were transferred only at the buyer’s premises.
Upon such verification, the adjudicating authority shall determine the “place of removal” strictly in accordance with the law laid down by the Hon’ble Supreme Court, the Hon’ble Karnataka High Court in Bharat Fritz Werner Ltd., the Larger Bench of this Tribunal in Ramco Cements Ltd., and CBIC Circular dated 08.06.2018 - Accordingly, if it is found that the clearances were effected on FOR destination basis and that ownership and risk passed only at the buyer’s premises, such buyer’s premises shall constitute the “place of removal”.
Eligibility of CENVAT Credit on GTA Services - HELD THAT:- For the period prior to 01.04.2008, the law stands conclusively settled by the Hon’ble Supreme Court in Vasavadatta Cements Ltd., [2018 (3) TMI 993 - SUPREME COURT] and Andhra Sugars Ltd., [2018 (2) TMI 285 - SUPREME COURT], holding that outward transportation up to the “place of removal” qualifies as “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004 - Even after the amendment to Rule 2(l) with effect from 01.04.2008, the Larger Bench in Ramco Cements Ltd. has held that where sales are effected on FOR destination basis and the buyer’s premises constitute the “place of removal”, GTA services used up to such place remain eligible for CENVAT credit - GTA services used for outward transportation up to the buyer’s premises shall be eligible for CENVAT credit subject to factual verification that such premises constitute the “place of removal”.
The determination of the “place of removal” is a fact-based exercise and cannot be mechanically fixed at the factory gate - In cases where sales are established to be on FOR destination basis and ownership and risk pass only upon delivery, the buyer’s premises constitute the “place of removal” - GTA services used for outward transportation up to such place qualify as “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004, both prior to and after 01.04.2008 - The impugned Order-in-Original, having been passed without undertaking the mandatory factual examination, is unsustainable in law.
Accordingly, the impugned Order-in-Original is set aside, and the matter is remanded to the adjudicating authority solely for the limited purpose of examining the sale contracts, purchase orders, invoices, transport documents and allied records to determine whether the disputed clearances were effected on FOR destination basis and whether the buyer’s premises constitute the “place of removal” - Upon such verification, the adjudicating authority shall re-determine the admissibility of CENVAT credit on GTA services strictly in accordance with the law laid down by the Hon’ble Supreme Court, the Hon’ble Karnataka High Court in Bharat Fritz Werner Ltd., the Larger Bench of this Tribunal in Ramco Cements Ltd., and CBIC Circular dated 08.06.2018.
Appeal allowed by way of remand.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether "waste mud / spent earth (spent fuller earth)" arising involuntarily during bleaching of crude palm oil is chargeable to central excise duty as "excisable goods" on the basis of the post-Budget 2008 amendment to the definition in Section 2(d) of the Central Excise Act, 1944, when the departmental case rests primarily on the CBIC circular dated 28.10.2009.
(ii) Whether the demand treating such waste/by-product as excisable is unsustainable in view of the subsequent withdrawal/rescission of the CBIC circular dated 28.10.2009 and the Tribunal's acceptance that similar demands were dropped after such rescission.
(iii) Whether, even otherwise, the said waste mud/spent earth is covered by the exemption for waste under Notification No. 89/1995-CE dated 18.05.1995, thereby negating duty liability.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i) & (ii): Excisability of waste mud/spent earth based on Section 2(d) amendment and reliance on CBIC circular dated 28.10.2009
Legal framework (as discussed by the Tribunal): The Tribunal noted that the department's case proceeded on the amendment in Section 2(d) of the Central Excise Act, 1944 (Budget 2008), read with departmental reliance on the CBIC circular dated 28.10.2009 for treating such waste/by-product as "excisable goods". The Tribunal also considered the Board's subsequent circular dated 25.04.2016 stating that certain by-products/waste cleared for consideration are "non-excisable goods" and that earlier circular directions including the circular dated 28.10.2009 stood withdrawn/rescinded.
Interpretation and reasoning: The Tribunal found that the adjudicating authority's conclusion of excisability was founded on the clarification in the CBIC circular dated 28.10.2009. It recorded as undisputed that the spent fuller earth/waste mud did not emerge by any "conscious effort" and arose involuntarily during the bleaching process. The Tribunal further treated as material that the Board itself later rescinded the earlier circular guidance, and that the subsequent Board position (circular dated 25.04.2016) treated comparable by-products/waste as "non-excisable goods". The Tribunal accepted the appellant's reliance on decisions where similar demands were dropped considering the rescission of the 28.10.2009 circular, and held that the departmental foundation for the demand (the rescinded circular-based approach) could not sustain the levy.
Conclusion: The Tribunal held that the demand premised on treating waste mud/spent earth as excisable goods on the strength of the circular dated 28.10.2009 was not sustainable, particularly in light of the circular's withdrawal/rescission and the fact that the waste arose involuntarily without conscious manufacture.
Issue (iii): Applicability of exemption for waste under Notification No. 89/1995-CE dated 18.05.1995
Legal framework (as discussed by the Tribunal): The Tribunal identified an "omnibus" exemption under Notification No. 89/1995-CE dated 18.05.1995 exempting "all waste, parings and scrap" arising in the course of manufacture of exempted goods and falling within the relevant Schedule, from the whole of the duty of excise.
Interpretation and reasoning: Having found the waste mud/spent earth to be a waste arising during the manufacturing process, the Tribunal treated the existence of this omnibus waste exemption as reinforcing the lack of duty liability on the impugned clearances. The Tribunal expressly relied on this notification as an additional decisive consideration supporting the appellant.
Conclusion: The Tribunal concluded that the waste mud/spent earth was covered by the waste exemption under Notification No. 89/1995-CE dated 18.05.1995, providing an additional ground to set aside the duty demand.
Final determination
On the above grounds, the Tribunal found merit in the appeal and set aside the impugned order, allowing the appeal and holding that excise duty demand on waste mud/spent earth was unsustainable.
Chargeability to Excise Duty - waste mud (spent earth) - applicability of amendment in section 2 of Central Excise Act, 1944, whereby, certain explanation was inserted to decide as to what would be treated as ‘excisable goods’ - HELD THAT:- It is found that the department has mainly relied on the circular dt.28.10.2009 issued by the CBIC to treat such goods as excisable goods, whereas, the Board themselves have, vide their circular dt.25.04.2016, inter alia, directed that certain items like bagasse, dross and skimming’s of non-ferrous metals or any such by-product or waste, which are non-excisable goods and are cleared for a consideration from the factory need to be treated like exempted goods for the purpose of reversal of credit of input and input services, in terms of Rule 6 of Cenvat Credit Rules (CCR), 2004. This was in view of certain amendments made in Rule 6 of CCR, 2004 w.e.f. 01.03.2015. Therefore, it is an undisputed fact that the directions contained in various circulars including Circular No.904/24/09-CX dt.28.10.2009, were withdrawn and rescinded.
In the present case, it is not in dispute that the spent fuller earth has not emerged by way of any conscious effort and it has emerged involuntarily in the process of bleaching the crude palm oil and that the said emergence called waste mud (spent earth) during the course of bleaching. It is also not disputed that the adjudicating authority has relied on clarification issued vide circular dt.28.10.2009 to hold said waste mud as excisable good - there are also force in the judgments cited by the appellant, wherein, the demands have been dropped taking into account the rescindment of said circular. There is an omnibus N/N.89/1995-CE dt.18.05.1995, which exempts all waste, parings and scrap arising in the course of manufacture of exempted goods and falling within the Schedule to the Central Excise Tariff Act, 1985, from the whole of the duty of excise.
There are merit in the appeal filed by the appellant and accordingly, the impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(i) Whether CENVAT credit is admissible under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004 in respect of 1%/2% Additional Duty of Customs (CVD) paid on imported steam coal at concessional rates under the relevant Customs notifications.
(ii) Whether conditions of non-availment of CENVAT credit contained in Central Excise exemption notifications can be imported into, or superimposed upon, a Customs exemption notification to deny credit of CVD paid on imported goods.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Admissibility of CENVAT credit of 1%/2% CVD paid on imported steam coal under Rule 3(1)(vii)
Legal framework (as discussed by the Court): The Court examined Section 3(1) of the Customs Tariff Act, 1975 providing for levy of additional duty of customs (CVD) on imported goods, and Rule 3(1)(vii) of the CENVAT Credit Rules, 2004 permitting credit of "the additional duty leviable under Section 3 of the Customs Tariff Act". The Court noted that although CVD is measured by reference to excise duty on a like domestic article, it retains its character as a customs duty.
Interpretation and reasoning: The Court found that Rule 3(1)(vii) contains no qualification that credit is available only where CVD is paid at the full tariff rate and not where paid at a concessional rate. The Court rejected the Department's contention that the expression "equivalent to the duty of excise" in Rule 3(1)(vii) imports all excise-side restrictions into CVD credit, holding that this interpretation finds no support in the statutory text. Since the additional duty was admittedly paid under Section 3(1) on the imported coal and there was no allegation of diversion or non-use in manufacture, the levy satisfied the Rule's description for credit.
Conclusion: CENVAT credit of 1%/2% CVD paid on imported steam coal at concessional rates under the Customs notifications was held to be admissible under Rule 3(1)(vii).
Issue (ii): Whether Central Excise notification conditions can be imported into a Customs notification to deny credit
Legal framework (as discussed by the Court): The Court analysed the proviso to Rule 3(1)(i) of the CENVAT Credit Rules, 2004 and held that it expressly operates with reference to duty of excise and specified excise notifications. The Court separately considered the Customs exemption notification governing concessional CVD on imported coal, issued under the Customs law, and observed that it did not stipulate any condition barring availment of CENVAT credit of the additional duty paid.
Interpretation and reasoning: The Court held it impermissible to read into a notification a restriction that is not present, and further held that conditions embedded in central excise exemption notifications cannot be implied into a customs exemption notification "by implication", particularly when the customs notification itself is silent on credit restriction. The Court applied the principle that exemption notifications are to be interpreted strictly and additional conditions cannot be implied, and relied on consistent judicial authority (including a binding High Court decision) that CVD under Section 3 retains the character of customs duty and restrictions in Central Excise notifications do not apply to customs duties. On judicial discipline, the Court followed the uniform line of decisions holding such credit admissible and rejecting the Department's approach of superimposing excise-side conditions onto customs notifications.
Conclusion: Conditions of non-availment of credit contained in Central Excise exemption notifications cannot be imported into the relevant Customs notification to deny CENVAT credit of concessional CVD paid on imported coal; denial on that basis was held legally unsustainable.
Disposition (material to the decision): Having conclusively decided the merits in favour of admissibility of credit and illegality of importing excise-conditions into customs notifications, the Court set aside in toto the demands of ineligible credit along with interest and equal penalties and allowed the appeals with consequential relief in accordance with law. The Court expressly declined to examine the separately framed issues on extended period and penalty as unnecessary once the merits were decided.
Availment of CENVAT credit of Additional Duty of Customs (Countervailing Duty – CVD) paid at the concessional rates of 1% and 2% on imported steam coal, under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004 - period April 2012 to May 2015, and June 2015 to January 2016 - invocation of extended period of limitation - levy of penalty under Rule 15(2) read with Section 11AC.
HELD THAT:- The proviso to Rule 3(1)(i) applies exclusively to duty of excise. Customs Notification No. 12/2012-Cus is issued under Section 25 of the Customs Act, 1962 and does not impose any restriction on credit. It is settled law that conditions cannot be read into a notification when none exist.
The Hon’ble Supreme Court has held in the case of Hansraj Gordhandas v. H.H. Dave, [1968 (9) TMI 112 - SUPREME COURT] that exemption notifications must be interpreted strictly and no additional conditions can be implied. Therefore, the denial of credit by importing excise side restrictions into customs notifications is legally unsustainable.
The consistent view taken by this Tribunal as well as affirmed by the Hon’ble Calcutta High Court is that CENVAT credit of 1% / 2% Additional Duty of Customs (CVD) paid on imported coal is admissible under Rule 3(1)(vii) of the CENVAT Credit Rules, 2004, and that conditions prescribed under Central Excise exemption notifications cannot be imported into or superimposed upon Customs notifications for the purpose of denial of such credit.
In Shyam Steel Industries Ltd. [2022 (9) TMI 230 - CALCUTTA HIGH COURT], the Hon’ble High Court has unequivocally held that CVD levied under Section 3 of the Customs Tariff Act retains its character as a customs duty and that restrictions contained in Central Excise notifications have no application to duties levied under the Customs law. The said judgment, being of a High Court, is binding and squarely applicable to the facts of the present case.
The Appellant is entitled to avail CENVAT credit of 1% / 2% Additional Duty of Customs (CVD) paid on imported coal under Notification No. 12/2012-Cus dated 17.03.2012 and Notification No. 12/2013-Cus dated 01.03.2013 - Appeal allowed.
Issues: Whether the repair and refurbishment of imported used tunnel boring machines amounted to manufacture, and whether CENVAT credit on inputs and input services used for such activity was admissible.
Analysis: The appeal turned on the substantive character of the activity undertaken on the imported used machines. The prior adjudication had not conclusively answered that question, but the record also showed that in a subsequent proceeding concerning the same respondent on an identical issue, the department accepted that the activity amounted to manufacture and acted upon that finding. Once the activity was treated as manufacture, the credit taken on inputs and input services used in carrying out that manufacture could not be denied on the premise that the process was non-manufacturing.
Conclusion: The activity amounted to manufacture and the respondent was entitled to CENVAT credit on the inputs and input services used for the process.
Ratio Decidendi: Where the department has accepted, on an identical factual matrix, that repair and refurbishment of used machinery amounts to manufacture, CENVAT credit attributable to inputs and input services used in that process is allowable.
Process amounting to manufacture or not - process of repair and refurbishment undertaken by the Respondent on the imported used TBMs - availment of input credit by the Respondent on inputs used for carrying out the process of repair and refurbishment on the imported used TBMs - contravention of Rule 3 ofCENVAT Credit Rules, 2004 read with Rule 6 of the said Rules or not - suppression of facts or not - HELD THAT:- The Respondent has brought to notice that a similar allegation that the activity undertaken by the Respondent does not amount to manufacture within the meaning of Sec. 2 [f] of the Central Excise Act was decided in order-in-original No. 52/2017 dated 11.05.2017 where the learned Commissioner held that the said activity amounted to manufacture within the meaning of Sec. 2[f] of the Central Excise Act and on review of the same, the Committee of Chief Commissioners have concurred with the finding of the learned Commissioner and accepted the said order. Thus, it is accepted by the department that the activity undertaken by the Respondent amounted to ‘manufacture’. Respondent has also brought to notice that in another case of the Respondent, reliance has been placed by the learned Commissioner on the order-in-original No. 52/2017 dated 11.05.2017 to grant rebate on the export of one such machine. It is needless to mention that once the department has accepted that the Respondent is eligible to grant of rebate on export of TBM in the light of Order-in-Original No. 52/2017 dated 11.05.2017, it follows that the Respondent is eligible for Cenvat credit on the inputs and input services utilized for the activity of ‘manufacture’ of TBM in the light of the said order-in-original.
The impugned Order-in-Original No. 04/2015 dated 10.09.2015 is upheld - the Revenue’s appeal is rejected being not maintainable.
Issues: Whether the Final Order suffered from any mistake apparent on record warranting modification of the date from which the assessee could claim the benefit of Notification No. 50/2003-CE and consequent deletion of the confirmed duty demand for the earlier period.
Analysis: The applications sought to reopen the conclusion already reached in the Final Order that Notification No. 50/2003-CE was a conditional exemption notification and that the assessees had opted for the benefit only from the specific retrospective dates stated in their own declarations. The record showed that the exemption could not be compelled upon an assessee from an earlier date contrary to the choice recorded in the declaration. The demand had been confirmed only for the period prior to the opted dates, and no error apparent on record was shown to justify altering that determination through rectification.
Conclusion: No mistake apparent on record was established, and the request to modify the Final Order to extend the exemption further backward in time was rejected, in favour of Revenue.
Ratio Decidendi: A conditional exemption can operate only from the date consciously opted by the assessee, and rectification cannot be used to substitute a different retrospective commencement date in the absence of an apparent error.
Rectification of mistakes - Misatke apparent on the face of record or not - declaration under N/N. 50/2003-CE was made by Hindustan Unilever Limited (HUL), the Principal manufacturer would apply to job-workers as well or not - Filing of ST-3 returns, etc. is as good as filing declaration under N/N. 50/2003-CE dated 10.6.2003 or not - HELD THAT:- The exemption N/N. 50/2003-CE was a conditional exemption notification. Any conditional exemption notification is optional. One may opt for it, fulfil the conditions and avail the exemption notification OR one may not opt for it and not fulfil the conditions and not avail the exemption notification. If one avails the exemption, evidently other benefits such as CENVAT credit will not be available. It is for the assessee to decide whether to avail the benefit of a conditional notification or not. Neither Revenue nor any court can compel an assessee to avail a conditional exemption notification and consequently forfeit any benefit such as CENVAT. It is purely the business decision of the assessee.
Denial of benefit of the exemption notification for procedural lapses - HELD THAT:- Although the declaration was to be made before availing the benefit of the exemption, both Maxima and Today filed declarations and sought benefit with retrospective effect from specific dates and it has been allowed retrospectively from the dates of their choices - The submission of the learned counsel that since service tax has been paid, no excise duty is payable has no basis. If an activity amounts to manufacture, excise duty has to be paid and if the activity is a service, service tax has to be paid. Neither the charging sections nor any other provisions of the Central Excise Act, 1944 or the Finance Act, 1994 give any assessee an option to choose whether to pay central excise duty or to pay service tax. If service tax was wrongly paid, they can seek refund of service tax but that is not the subject of this appeal.
Thus, it is not open to this Tribunal to modify the retrospective dates from which the applicant Respondents had opted for the exemption Notification No. 50/2003-CE. The exemption was allowed retrospectively from the dates of their choice - There is no mistake in the Final Order, let alone, one apparent on record.
Both applications for Rectification of Mistake are rejected.
Issues: (i) whether recredit of excess CENVAT credit reversed by mistake could be taken suo motu; (ii) whether the demand could be sustained by invoking the extended period of limitation.
Issue (i): whether recredit of excess CENVAT credit reversed by mistake could be taken suo motu.
Analysis: The dispute arose from excess reversal of CENVAT credit caused by arithmetical and clerical mistakes. The reversal was made only to neutralise an incorrect debit, and the credit was re-availed on discovery of the error. The reasoning accepted that where the amount was wrongly reversed and no fresh duty liability arose, there was no legal bar to rectifying the mistake by recredit. The issue was treated as settled in favour of the assessee on the facts of the case.
Conclusion: The suo motu recredit was permissible and the finding against the assessee on merits could not be sustained.
Issue (ii): whether the demand could be sustained by invoking the extended period of limitation.
Analysis: The record did not disclose fraud, wilful misstatement, or suppression of material facts. The credit reversal and subsequent recredit were traceable to disclosed accounting mistakes, and the assessee had placed the relevant facts before the department. In the absence of concealment, the extended period could not be invoked merely because a contrary view was later taken on the admissibility of recredit.
Conclusion: Invocation of the extended period of limitation was unsustainable.
Final Conclusion: The demand, interest, and penalty were set aside and the appeal succeeded with consequential relief.
Ratio Decidendi: A recredit made to correct an excess reversal caused by an evident mistake is not barred merely because it is taken suo motu, and the extended limitation period cannot be invoked without proof of suppression, fraud, or wilful misstatement.
Suo moto reversal of CENVAT Credit - invocation of extended period of limitation - HELD THAT:- As regards invoking the extended period of limitation, the issue was considered by this Tribunal in the matter of M/s. Volvo India Pvt Ltd Vs. CCE, LTU [2024 (8) TMI 86 - CESTAT BANGALORE], where it is held that when there is a conflicting decision which ultimately got settled by Larger Bench, the question of suppression cannot be alleged against the Appellant.
As regards the ratio of the decision of Larger Bench in the matter of M/s. BDH Industries Vs. C.EX.(Appeals), Mumbai-I [2008 (7) TMI 78 - CESTAT MUMBAI-LB], the finding given by the Larger Bench was due to the reason that there was a dispute regarding the finding given by the Tribunal in the matter of M/s. Motorola [2005 (9) TMI 152 - CESTAT, BANGALORE]. However, on appeal Hon’ble High Court of Karnataka has upheld the finding given by this Tribunal in the matter of M/s. Motorola. Further the Appellant is a Central Public Sector undertaking (CPSU) under the administrative control of the Ministry of Defence and suppression cannot be alleged.
The impugned order confirming the demand by invoking the extended period of limitation is unsustainable and is liable to be set aside - Appeal allowed.
Issues: (i) Whether Article 19 of the Agreement identified New Delhi, India as the juridical seat of arbitration or whether Singapore was the seat by reason of the ICC Court's fixation of the place of arbitration; (ii) Whether the non-disclosure by the co-arbitrator concerning his prior professional association created justifiable doubts as to independence and impartiality so as to justify an anti-arbitration injunction.
Issue (i): Whether Article 19 of the Agreement identified New Delhi, India as the juridical seat of arbitration or whether Singapore was the seat by reason of the ICC Court's fixation of the place of arbitration?
Analysis: The arbitration clause was read as a whole and harmoniously. The clause conferred exclusive jurisdiction on the courts at New Delhi, while separately providing that disputes would be arbitrated under ICC Rules and that the place of arbitration was to be mutually agreed. The reference to ICC Rules was treated as governing procedure, not seat. The use of the word "place" in the clause, and the later fixation of Singapore by the ICC Court, was held to be concerned with venue and administrative convenience rather than the juridical seat. The contractual intention, on a prima facie reading, was that the supervisory jurisdiction would remain with Indian courts.
Conclusion: New Delhi, India was held to be the juridical seat, and the fixation of Singapore as the place of arbitration did not displace that seat. The objection to Indian court jurisdiction failed.
Issue (ii): Whether the non-disclosure by the co-arbitrator concerning his prior professional association created justifiable doubts as to independence and impartiality so as to justify an anti-arbitration injunction?
Analysis: Section 12 of the Arbitration and Conciliation Act, 1996 was treated as imposing a continuing duty of disclosure and as requiring an objective assessment of whether circumstances give rise to justifiable doubts from the standpoint of a fair-minded and informed third party. The prior professional connection was found to fall within the disclosure-sensitive categories under the Fifth Schedule. The arbitrator's failure to disclose, including after becoming aware of the conflict, was treated as a material non-disclosure undermining neutrality. The Court also held that the foreign anti-suit injunction from Singapore did not operate as res judicata in India because the Indian seat court retained supervisory jurisdiction and the foreign forum was not a court of competent jurisdiction for that purpose. On the facts, the arbitral proceedings were viewed as prima facie vexatious and oppressive, and the civil suit was held maintainable.
Conclusion: The non-disclosure was held to create justifiable doubts and supported the grant of anti-arbitration relief. The foreign anti-suit injunction did not bar the suit in India.
Final Conclusion: The appeal was held to lack merit, and the injunction restraining continuation of the arbitral proceedings was left undisturbed, with the suit to be decided independently on its own merits.
Ratio Decidendi: Where the arbitration clause, read harmoniously, confers exclusive jurisdiction on Indian courts and the arbitral "place" is fixed only administratively, Indian courts may treat India as the seat; a material and continuing failure by an arbitrator to disclose a prior professional connection that gives rise to justifiable doubts as to impartiality can justify anti-arbitration injunctive relief, and a foreign anti-suit injunction will not operate as res judicata against the Indian seat court absent competent jurisdiction.
Correctness of order while injuncting continuation of arbitration proceeding in an anti-arbitration suit - fixing of seat of arbitration - Applicability of doctrine of lex fori.
Whether Article 19 of the Agreement which encapsulates the Dispute Resolution, as it presents itself, determines the “Seat” of the Arbitration, or the substantive law governing the Agreement, to be Indian law or the law of Singapore and its effect thereof? - HELD THAT:- Prima facie, this Court is of the view that the Article and its various parts would require us to harmoniously construe the Article as each sub-Article or their respective parts cannot be read disjunctively, as doing so would lead to considerable consternation. Our interpretation, as expressed hereinbefore and re-iterated hereinafter, is based on the harmonious cadence decipherable by us. The explicit stipulation that the “jurisdiction” of the Contract Agreement shall lie with the Courts at New Delhi, India, is determinative of the intent of the parties in conferring exclusive jurisdiction on the courts of New Delhi in respect of all substantive disputes arising from or in connection with the agreement. When such exclusive jurisdiction is coupled with an agreement to arbitrate disputes under an institutional regime, it ordinarily denotes the choice of the juridical seat, unless the contract clearly indicates a different intention. However, in the present case, and as discussed hereinbefore, Article 19.1 is comprised of 3 parts and the reference of the ICC Rules is only determinative of the procedural law applicable to the Arbitration.
Had the parties intended that the place of arbitration would function as the juridical seat and thereby the supervisory jurisdiction, it is reasonable to expect that they would have expressly identified such a place in the agreement. The fact that the place of arbitration was left open for later decision, and ultimately fixed by the ICC Court only due to the failure of the parties to agree, strongly suggests that the parties never contemplated that the designated place, Singapore, would acquire the status of the seat.
Hence, a harmonious and holistic construction of Articles 19.1, 19.2, and 19.3 leads to the following conclusions: (a) Article 19.1 confers exclusive jurisdiction on courts at New Delhi. Such a conferral typically identifies the juridical seat. (b) Article 19 also provides for the Arbitration to be conducted under the ICC Rules for Arbitration. The reference to ICC Rules designates procedural and administrative aspects of the arbitration, not the seat. (c) Article 19.2 is confined to the substantive legal framework governing the operation and performance of the contract within Oman. (d) Article 19.3 provides a mechanism for fixing the venue, not the seat.
The intention of the parties, therefore, is unmistakable. The juridical supervision over the arbitration lies in the courts at New Delhi, India. The arbitration may be conducted elsewhere as a matter of convenience, but the seat remains India.
Whether the non-disclosure by the learned Arbitrator, is of such significance that it would warrant the exceptional grant of an Anti-Arbitration injunction by Indian Courts? - HELD THAT:- It is trite law that the jurisdiction of the civil courts under Section 9 of the CPC is plenary, and unless specifically excluded, the civil courts have jurisdiction to try and decide all civil disputes.
The primacy of the law of the seat is further underscored by the consequences that flow from non-compliance with the standards of the seat State. An award rendered in violation of the seat’s statutory standards of impartiality is liable to be set aside by the courts at the seat, thereby undermining the finality and enforceability of the award. International commercial arbitration requires a predictable and coherent supervisory structure. Such predictability would be compromised if procedural rules are allowed to dictate or modify the substantive test of impartiality - Further, the doctrinal distinction between procedural rules and the law of the seat must be respected. Procedural rules regulate the conduct of the proceedings, whereas the law of the seat prescribes the mandatory norms that safeguard the fairness of the adjudicatory framework itself. Standards of impartiality comprising both the objective perception of bias and the subjective duties of disclosure are matters that belong to the latter category. It is the law of the seat that determines the threshold for a valid challenge, the nature of disclosures required, and the legal consequences of any breach. Where any procedural rule appears inconsistent with these mandatory requirements, the procedural rule must yield; it cannot reinterpret the protections enacted by the law of the seat.
This Court is of the opinion that the statutory regime of the law of the seat must govern the assessment of impartiality, and it necessarily prevails over any procedural stipulations to the contrary. Arbitrators must conform to, and courts must apply, the standard prescribed by the law of the seat when adjudicating challenges to independence or bias.
This Court is of the considered view that the omission to disclose the aforesaid prior professional involvement constitutes a material non-disclosure within the contemplation of the Fifth Schedule appended of the A&C Act, and is sufficient to induce a justifiable doubt in the mind of a fair-minded and objective person.
This Court is of the considered view that the juridical seat of arbitration being India confers exclusive supervisory jurisdiction upon the Indian courts, and consequently, any anti-suit injunction issued by the Singapore court acting merely as the venue jurisdiction cannot attain conclusive effect so as to operate as res judicata before the seat court. The foreign anti-suit injunction, though enforceable within its own territorial limits, cannot be elevated to a status that undermines or circumscribes the prerogative of the Indian courts under the A&C Act. While a party may seek to rely upon such an injunction to plead the bar of res judicata, the same cannot be sustained in law, as the foreign judgment fails to satisfy the statutory threshold under Sections 11 and 13(a) of the CPC. Accordingly, the anti-suit injunction issued by the SGHC, being one rendered by a forum lacking subject-matter competence, cannot preclude or restrain the Indian seat court from exercising its rightful supervisory jurisdiction over the arbitration.
Having been rendered in respect of an injunction, only constitutes as prima facie opinion, purely for the purposes of deciding the present lis, the appeal is dismissed with the observations that the Impugned Order shall not be construed as a final expression on the merits of the case, and the suit will be decided independently, uninfluenced by the observations made in the Impugned Order - Appeal dismissed.
TaxTMI 