TaxTMI Updates e-Newsletter
Jan 15,2021

Input tax credit - works contract service - construction of an immovable property (other than plant and machinery) - input service for further supply of works contract service - inward supply - construction on own account - capitalisation

Input tax credit - works contract service - inward supply - input service for further supply of works contract service - Scope and interpretation of the prohibition in clause (c) of section 17(5) of the GST Act in relation to input tax credit for works contract service. - HELD THAT: - The Authority construed the opening sentence of section 17(5) as addressing the availability of input tax credit to a taxable person in respect of specified supplies, and held that the clauses (a) to (i) must be read as describing inward supplies in respect of which the recipient is prohibited from claiming input tax credit. Clause (c) therefore prohibits a taxable person from claiming input tax credit on the inward supply of works contract service when such service is used for construction of an immovable property (other than plant and machinery), subject to the exception where that works contract service is an input service for the further supply of works contract service. The rest of the clause describes the context and the exception; it does not operate as a standalone prohibition on outward supplies but targets the recipient's entitlement to credit in relation to inward supplies used for the specified construction purposes. [Paras 4]

Clause (c) restricts the recipient's claim to input tax credit on the inward supply of works contract service used for construction of immovable property, except where such inward supply is an input service for further supply of works contract service.

Input tax credit - construction on own account - construction of an immovable property (other than plant and machinery) - inward supply - Applicability of clause (d) of section 17(5) of the GST Act and the entitlement of the applicant to claim input tax credit on inward supplies used for delivery of works contract service to a municipal corporation. - HELD THAT: - Clause (d) was held to extend the prohibition to inputs and input services received by a taxable person for construction of an immovable property on his own account (including items capitalised), thereby addressing situations where the recipient uses inputs for self-construction. Applying the interpretative conclusion to the facts, the applicant is an outward supplier of works contract service to the municipal corporation and is not constructing the immovable property on his own account; consequently the prohibitions in clauses (c) and (d) do not bar his claim to input tax credit on inward supplies used for providing the works contract service to the municipal corporation. [Paras 4]

Clause (d) bars credit only where the taxable person uses inputs for construction on his own account; the applicant, being a supplier of works contract service to the municipal corporation, is eligible to claim input tax credit on inward supplies used to supply that works contract service.

Final Conclusion: The Authority ruled that section 17(5)(c) must be read as prohibiting input tax credit on inward supplies of works contract service used for construction of immovable property (other than plant and machinery) except when such inward supply is an input service for further supply of works contract service, and that clause (d) applies where a taxable person constructs the immovable property on his own account; on the facts the applicant, who supplies works contract service to the municipal corporation, is eligible to claim input tax credit on the inward supplies used to provide that service.

Classification under Chapter 84 (heading 8402) as steam or other vapour generating boilers - HSN heading 8402 19 19 - applicability of entry "waste to energy plants/devices" in Sr. No.234 of Schedule I to Notification No.1/2017-Central Tax (Rate) - requirement that fuel must be "waste" for entry 234 to apply - benefit available only for goods used in initial setting up of renewable energy plants/devices and self-assessment/documentary satisfaction - tax rate under Schedule III Sr. No.310 - CGST 9% + SGST 9% (intra-State) / IGST 18% (inter-State)

Classification under Chapter 84 (heading 8402) as steam or other vapour generating boilers - HSN heading 8402 19 19 - Agro Waste Thermic Fluid Heater or Boiler is classifiable under heading 8402 19 19 of the First Schedule to the Customs Tariff Act, 1975. - HELD THAT: - The impugned product functions as an energy generation device falling within the description of "steam or other vapour generating boilers" in Chapter heading 8402. The tariff schedule lists subheadings including 8402 19 for other vapour generating boilers and 8402 19 90/8402 90 for other and parts; on the material before the Authority the Thermic Fluid Heater/Boiler is classifiable under heading 8402 19 19. The Authority therefore answers the classification question in favour of classification under Chapter 84 heading 8402 19 19. [Paras 14]

Classifiable under heading 8402 19 19.

Applicability of entry "waste to energy plants/devices" in Sr. No.234 of Schedule I to Notification No.1/2017-Central Tax (Rate) - requirement that fuel must be "waste" for entry 234 to apply - benefit available only for goods used in initial setting up of renewable energy plants/devices and self-assessment/documentary satisfaction - tax rate under Schedule III Sr. No.310 - CGST 9% + SGST 9% (intra-State) / IGST 18% (inter-State) - Whether the product attracts concessional rate under Sr. No.234 (Schedule I) as a "waste to energy plant/device" and, if not, the applicable GST rate. - HELD THAT: - Sr. No.234 grants concessional treatment to listed renewable energy devices and parts where the energy is generated from "waste" and where the goods are used in the initial setting up of renewable energy plants/devices; the supplier must self satisfy and, where relevant, possess requisite documents from the buyer. The Authority examined the applicant's submissions and the technical specifications available on the applicant's website and found that the models matching the applicant's product use conventional fuels (imported coal, lignite, coal, wood, briquette, rice husk, etc.) rather than waste/non conventional fuels. The applicant did not adduce documentary evidence showing supply for use in the initial setting up of a waste to energy plant (e.g., supply contracts/orders) nor clarify that the devices actually generate energy from waste. On these findings the conditions for Sr. No.234 are not satisfied and that entry is not applicable. Consequently, the product falls to be taxed under Schedule III Sr. No.310 at the standard rates prescribed thereunder. [Paras 16, 17, 20]

Entry Sr. No.234 is not applicable; applicable tax is CGST 9% + SGST 9% (intra State) or IGST 18% (inter State) under Sr. No.310 of Schedule III.

Final Conclusion: The Authority rules that the Agro Waste Thermic Fluid Heater/Boiler is classifiable under heading 8402 19 19; it does not qualify for the concessional entry for "waste to energy plants/devices" at Sr. No.234 because the product as presented uses conventional fuels and the applicant failed to show use in initial setting up of a WTEP, and therefore the leviable rate is CGST 9% + SGST 9% (or IGST 18%) under Sr. No.310 of Schedule III.

Inland waterways - national waterways - other waterway on any inland water - exemption under Notification No.12/2017-Central Tax (Rate) Entry No.18 (transportation of goods by inland waterways) - territorial waters and State territoriality

Inland waterways - other waterway on any inland water - territorial waters and State territoriality - exemption under Notification No.12/2017-Central Tax (Rate) Entry No.18 (transportation of goods by inland waterways) - Service of transportation of goods between Magdalla Port, Surat and its General Lighterage Area falls within the State of Gujarat so as to qualify for exemption as transportation by inland waterways. - HELD THAT: - The Authority examined whether the stretch used for transport between Magdalla Port and the General Lighterage Area is an "inland water" within the meaning of Clause (b) of Section 2 of the Inland Vessels Act, 1917, which covers "any canal, river, lake or other navigable water within a State." The General Lighterage Area used by the applicant lies in the Arabian Sea and not within a canal, river, lake or other navigable inland water within the State. Consequently, the activity occurs in territorial sea waters that are not part of the State for the purposes of the definition of "other waterway on any inland water." The Authority therefore held that the transport does not fall within the State of Gujarat so as to attract the exemption provided for transportation by inland waterways under Entry No.18 of Notification No.12/2017-Central Tax (Rate). [Paras 9, 11]

The transportation service between Magdalla Port and its General Lighterage Area does not fall within the State of Gujarat for purposes of the inland waterways exemption and therefore does not qualify for the exemption at Entry No.18 of Notification No.12/2017-Central Tax (Rate).

Inland waterways - national waterways - other waterway on any inland water - exemption under Notification No.12/2017-Central Tax (Rate) Entry No.18 (transportation of goods by inland waterways) - Whether the service of transportation between Magdalla Port and its General Lighterage Area falls within the definition of "inland waterways" (either as a national waterway or as an other waterway on any inland water). - HELD THAT: - The Authority considered both limbs of the statutory definition of "inland waterways": (i) national waterways as declared under the National Waterways Act, 2016 and (ii) other waterways on inland waters as defined in the Inland Vessels Act, 1917. The National Waterways Schedule (including National Waterway No.100 Tapi River) was examined and it was found, on cartographic review, that the General Lighterage Area of Magdalla Port does not fall within the limits of National Waterway No.100. Separately, the "other waterway on any inland water" limb requires the waterway to be part of an inland water such as a canal, river, lake or other navigable water within a State; the subject transport route lies in the Arabian Sea and is therefore not an "inland water". On both counts the service does not satisfy the statutory definitions that would bring it within "inland waterways" and hence it is not eligible for the Entry No.18 exemption. [Paras 9, 10, 11]

The transportation service is neither within the definition of "national waterways" nor within the definition of "other waterway on any inland water" and therefore does not fall within the statutory definition of "inland waterways" for the purpose of the notified exemption.

Final Conclusion: The Authority ruled that the applicant's transportation of goods between Magdalla Port, Surat and its General Lighterage Area is not covered by the definition of "inland waterways" (neither national waterways nor other waterways on inland water) and accordingly the service does not qualify for exemption under Entry No.18 of Notification No.12/2017-Central Tax (Rate).

Plant and machinery - foundation - input tax credit - immovable property / civil structures - works contract services for construction of immovable property

Plant and machinery - foundation - immovable property / civil structures - Whether the LNG jetties proposed to be built by the applicant fall within the expression 'plant and machinery' as foundations to apparatus, equipment or machinery in terms of the Explanation to Section 17 of the CGST Act, 2017 (read with GGST Act, 2017). - HELD THAT: - The Explanation to Section 17 requires that 'plant and machinery' be apparatus, equipment or machinery fixed to earth by foundation or structural support, used for making outward supply, and located within factory premises, and expressly excludes land, building or any other civil structures. The Authority examined the nature of a 'jetty' and dictionary meanings of 'foundation' and found that foundations are structures located below ground supporting buildings, whereas the jetties in question are civil, immovable structures constructed above the seabed on pillars/plinths projecting into the sea. On the available record (and noting absence of the agreement details and photographs called for), certain items proposed (gangway towers, fire monitor towers, jetty substations) appear to be civil structures and others may be apparatus or machinery; however the equipment would be fixed to the jetties which themselves do not qualify as 'foundation' or 'structural support' within the Explanation. Further, there is no material showing the items are within a 'factory premises' or that they are engaged in outward supply of goods or services. For these reasons the conditions in the Explanation are not satisfied and the jetties cannot be treated as 'foundation' forming part of 'plant and machinery'. [Paras 10, 11]

The LNG jetties proposed to be built by the applicant are not covered within the expression 'plant and machinery' as foundation to apparatus, equipment or machinery in terms of the Explanation to Section 17 of the CGST Act, 2017 (read with GGST Act, 2017).

Input tax credit - works contract services for construction of immovable property - construction of immovable property (other than plant and machinery) - Whether the applicant can claim input tax credit of GST paid on inputs, input services and capital goods procured for construction of the LNG jetties under Section 16 read with Section 17 of the CGST Act, 2017 (read with GGST Act, 2017). - HELD THAT: - Having held that the jetties are civil, immovable structures and not 'plant and machinery' or foundations thereto, the Authority applied the bar under Section 17(5) (and Rule 17(5)) which disallows ITC in respect of works contract services or goods/services when received for construction of an immovable property (other than plant and machinery). The jetties, being immovable civil structures constructed pursuant to the concession agreement, fall within the exclusion and the applicant has not established that the inputs or services relate to plant and machinery as defined. In absence of contrary material and given the statutory prohibition, ITC on inputs, input services and capital goods used for construction of the jetties is not available. [Paras 5, 12, 13]

The applicant cannot avail input tax credit of GST paid on inputs, input services and capital goods procured for building the LNG jetties in terms of Section 16 read with Section 17 of the CGST Act, 2017 (read with GGST Act, 2017).

Final Conclusion: Advance Ruling: The proposed LNG jetties do not qualify as 'plant and machinery' (as foundations) under the Explanation to Section 17, and consequently the applicant is not eligible to claim input tax credit on inputs, input services or capital goods used for constructing the jetties under Section 16 read with Section 17 of the CGST Act, 2017 (read with GGST Act, 2017).

Classification under Chapter 86 of the First Schedule to the Customs Tariff Act - Distinction between maintenance/service vehicles (HSN 8604) and parts of such vehicles (HSN 8607 / residuary 860799) - Chapter Note 3 - parts suitable for use solely or principally with the articles of Chapters 86-88 and principal use test - Explanatory Notes to HSN 86.04 - self-propelled track maintenance vehicles - Residuary classification under sub-heading 860799 (Other parts of railway or tramway locomotives or rolling stock) - GST rate applicability under Notification No. 01/2017-Central Tax (Rate) (Schedule I and Schedule II) - Circular No. 30/4/2018-GST - supplies classified under Chapter 86 to Indian Railways attract 5% rate - Temporal change in rate w.e.f. 01.10.2019 as per Notification No. 14/2019-Central Tax (Rate)

Classification under Chapter 86 of the First Schedule to the Customs Tariff Act - Residuary classification under sub-heading 860799 (Other parts of railway or tramway locomotives or rolling stock) - Chapter Note 3 - principal use test for parts - GST rate applicability under Notification No. 01/2017-Central Tax (Rate) and its amendment - Circular No. 30/4/2018-GST - 5% rate for goods classified under Chapter 86 supplied to Railways - Classification of 'Wear plates' and 'Tamping tools' manufactured as per RDSO drawings and supplied to Railways through M/s Trio Enterprise, and the applicable GST rate. - HELD THAT: - The Authority examined the nature, use and RDSO-specific manufacture of the items and found that the Ballast Cleaning Machine and the Tie Tamping Machine are self-propelled track maintenance vehicles falling under HSN 8604. Chapter sub-heading 8604 covers the vehicles themselves but is silent as to parts. Chapter Note 3 requires that parts suitable solely or principally for articles of Chapters 86-88 be classified according to their principal use. The tariff provides separate provision for parts of railway locomotives or rolling stock under heading 8607; because no specific sub-heading exists for parts of the vehicles falling under 8604, the wear plates and tamping tools, being parts of the track maintenance vehicles, are classifiable under the residuary entry for other parts of railway or tramway locomotives or rolling stock, viz., sub-heading 860799. Entry Nos. 238 and 241 of Schedule I to Notification No. 01/2017-Central Tax (Rate) tax goods of Chapter 86 (including parts under 8607/860799) at a combined 5% (2.5% CGST + 2.5% SGST). The Authority also noted Circular No.30/4/2018-GST which states that goods classified under Chapter 86 supplied to the Railways attract 5% GST. Following the amendment by Notification No.14/2019 (effective 01.10.2019), goods of headings 8604 and 8607 (and therefore parts classifiable under 860799 by residuary) are listed in Schedule II attracting 12% (6% CGST + 6% SGST) w.e.f. 01.10.2019. Applying these principles, the Authority concluded that the items are parts classifiable under 860799 and subject to the rates prescribed for such parts in the relevant schedules of the notification. [Paras 19, 25, 26, 27, 28]

'Wear plates' and 'Tamping tools' manufactured as per RDSO drawings and supplied to Railways through M/s Trio Enterprise are classifiable under sub-heading 860799 (Other parts of railway or tramway locomotives or rolling stock) and attract GST @ 5% (total) till 30.09.2019 and @ 12% (total) w.e.f. 01.10.2019.

Final Conclusion: The Authority ruled that the applicant's wear plates and tamping tools, being parts of self-propelled railway track maintenance vehicles and manufactured to RDSO drawings, are classifiable under sub heading 860799 and will attract GST at 5% (total) until 30.09.2019 and at 12% (total) w.e.f. 01.10.2019.

Exemption of services provided by an educational institution to its students, faculty and staff - definition of "educational institution" for GST exemption - exemption for services by an entity registered under section 12AA of the Income-tax Act by way of charitable activities - definition of "charitable activities" for the purpose of GST exemption - GST registration requirement for taxable supplies

Exemption of services provided by an educational institution to its students, faculty and staff - definition of "educational institution" for GST exemption - exemption for services by an entity registered under section 12AA of the Income-tax Act by way of charitable activities - definition of "charitable activities" for the purpose of GST exemption - Entitlement of the applicant's activities to exemption from GST under the specified entries of Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 - HELD THAT: - The Authority examined Entry No.66 which exempts services provided by an "educational institution" to its students, faculty and staff and found that the statutory definition of "educational institution" is limited to pre-school up to higher secondary education, education as part of a curriculum leading to a recognised qualification, and approved vocational courses. The applicant's activities - non-formal, supplementary science programmes, mobile exhibitions, workshops, hands-on facilitation and sale of teaching materials - do not fall within that definition and therefore do not attract the Entry No.66 exemption. The Authority further considered Entry No.1 and related entries exempting services by entities registered under section 12AA by way of "charitable activities" and analysed the notified definition of "charitable activities." That definition confines exemption to specified public health, advancement of religion/spirituality/yoga, certain targeted educational or skill-development programmes (for abandoned/orphaned/homeless children, abused persons, prisoners or persons over 65 in rural areas), and preservation of environment. The applicant's general science-promotion and activity-centre programmes do not fall within the specified categories of "charitable activities" for exemption. The Authority noted it cannot expand statutory definitions or add categories (for example, by treating community science centres as educational institutions) and therefore held that the applicant is not entitled to exemption under the cited entries of Notification No.12/2017-Central Tax (Rate). [Paras 16, 17]

The applicant is not entitled to exemption under Entry No.66 (educational institution exemption) nor under Entry Nos.1, 13 or 80 (exemptions for entities registered under section 12AA by way of charitable activities) of Notification No.12/2017-Central Tax (Rate).

GST registration requirement for taxable supplies - Requirement of GST registration by the applicant in respect of the taxable activities carried out - HELD THAT: - Having held that the applicant's activities are not covered by the statutory exemptions examined, the Authority concluded that the supplies made by the applicant are taxable under GST. Consequent to the taxable character of those activities, the applicant is required to obtain registration under the GST law for the taxable services provided by it. The conclusion follows from the prior determination that the applicant does not fall within the notified exemption categories and therefore its supplies attract GST liability. [Paras 18, 19]

The applicant is liable to pay GST on the activities carried out and is required to obtain GST registration for such taxable services.

Final Conclusion: The Authority ruled that the Vikram A Sarabhai Community Science Centre's activities do not qualify for the examined exemptions under Notification No.12/2017-Central Tax (Rate) and accordingly the Centre's services are taxable and it must obtain GST registration.

Composite supply - mixed supply - principal supply - tax liability on a composite supply treated as supply of principal supply - classification under tariff heading 24039910 (chewing tobacco) - compensation cess and NCCD on chewing tobacco

Composite supply - mixed supply - principal supply - Whether delivery of grated supari, slaked lime and chewing tobacco in a single transparent pouch (with each item separately priced and invoiced) amounts to a mixed supply or a composite supply. - HELD THAT: - The Authority examined the factual character of the supply and the statutory definitions of composite supply and mixed supply. Although the items are invoiced and priced separately, the Authority found that grated supari, slaked lime and chewing tobacco are naturally bundled and supplied in conjunction with each other in the ordinary course of business because they are commonly mixed by consumers prior to use (examples such as mawa, gutkha and regional mixtures were noted). Chewing tobacco was held to be the dominant ingredient and the principal supply in that bundle. Consequently, the combination does not fall within the definition of mixed supply (which requires a single price for the package) but constitutes a composite supply of goods with chewing tobacco as the principal supply. [Paras 10, 11]

The supply is a composite supply of goods, not a mixed supply, with chewing tobacco as the principal supply.

Tax liability on a composite supply treated as supply of principal supply - classification under tariff heading 24039910 (chewing tobacco) - compensation cess and NCCD on chewing tobacco - If the supply is a composite supply with chewing tobacco as principal supply, what is the tax classification and additional duties/cess applicable to the composite supply? - HELD THAT: - Applying the rule that a composite supply is to be treated as a supply of the principal supply, the Authority treated the composite supply as supply of chewing tobacco falling under tariff item 24039910. Consequently, the composite supply is subject to the GST rate applicable to chewing tobacco as notified, and the ancillary duties applicable to chewing tobacco also attach. The Authority therefore ruled that the composite supply would attract the tax rate and ancillary levies applicable to chewing tobacco, and specifically recorded the notified GST classification and the applicability of the compensation cess and National Calamity Contingent Duty in respect of chewing tobacco. [Paras 11, 12]

The composite supply is to be treated as supply of chewing tobacco (tariff item 24039910) and is liable to the tax rate and additional levies notified for chewing tobacco, including the specified compensation cess and NCCD.

Final Conclusion: Delivery of grated supari, slaked lime and chewing tobacco together in a single transparent pouch (though separately priced and invoiced) is a composite supply with chewing tobacco as the principal supply; the composite supply is accordingly taxable as chewing tobacco and subject to the GST rate and the notified compensation cess and National Calamity Contingent Duty applicable to chewing tobacco.

Classification of goods - Distinction between 'part' and 'accessory' - Heading 8708 - parts and accessories of motor vehicles - Heading 9401 - seats and parts thereof - Specific entry prevails over general entry - Explanatory Notes to HSN as an interpretative aid - Common parlance and functional (usage) tests for classification

Classification of goods - Distinction between 'part' and 'accessory' - Heading 8708 - parts and accessories of motor vehicles - Heading 9401 - seats and parts thereof - Explanatory Notes to HSN as an interpretative aid - Common parlance and functional (usage) tests for classification - Whether the product 'seat adjuster' is classifiable under Heading 8708 (parts and accessories of motor vehicles) or under Heading 9401 (seats and parts thereof). - HELD THAT: - The Authority examined the competing entries and the nature, function and use of the 'seat adjuster'. The applicant contended it to be a 'part' of seats (9401) relying on various precedents, explanatory notes and functional/common parlance tests. The Authority analysed the statutory headings, dictionary meanings and Explanatory Notes and applied the established tests. It found that a 'part' denotes an essential component without which the whole is incomplete or non-functional, whereas an 'accessory' is supplementary and enhances usefulness or convenience but is not essential. The 'seat adjuster' (rail/rail assembly enabling fore-aft sliding) does not impart essential structure to a seat nor render a seat non-functional if absent; it merely improves convenience and enables adjustment. The conditions in the Explanatory Notes to Chapter 87 (suitability solely or principally for motor vehicles and not excluded by Section XVII notes) are satisfied and the Heading 8708 is wide enough to cover accessories of motor vehicles (with uncaptured items falling under 87089900). The Authority relied on precedent of the Supreme Court (Insulation Electrical / Mehra Brothers line) holding similar rail/adjuster mechanisms to be accessories of motor vehicles rather than parts of seats. The applicant's reliance on Chapter 94 being specific did not persuade because the product does not meet the test of being an essential part of a seat. On the cumulative application of the common parlance, functional and usage tests, and in light of the Explanatory Notes and binding precedent, the 'seat adjuster' is an accessory of the motor vehicle and not a part of a seat. [Paras 15, 16, 17]

The 'seat adjuster' is classifiable under Tariff item No. 8708 (parts and accessories of motor vehicles) and is covered by Serial No.170 of Schedule-IV of Notification No.1/2017-Central Tax (Rate).

Final Conclusion: The Advance Ruling holds that the product 'seat adjuster' manufactured and supplied by M/s. Shiroki Technico India Pvt. Ltd. is an accessory of a motor vehicle and is classifiable under Heading 8708 (Serial No.170 of Schedule-IV to Notification No.1/2017-Central Tax (Rate)).

Best judgment assessment - cancellation of GST registration - stay of coercive action - assessment under section 62(1) of the Maharashtra Goods and Services Tax Act, 2017 - Article 226 of the Constitution - lock-down impact on business activity

Cancellation of GST registration - lock-down impact on business activity - Whether the impugned cancellation of the petitioner's GST registration should be stayed pending adjudication. - HELD THAT: - Petitioner challenged cancellation dated 24.12.2020 on the ground that the registration order did not acknowledge payment of GST made by the petitioner and that the order lacked a rational basis, particularly having regard to the lockdown period when business activity was minimal. The Court, on hearing counsel and on consideration of the limited material placed before it at this stage, granted an interim stay of the impugned cancellation to preserve the petitioner's rights until further orders. [Paras 7]

Impugned cancellation of registration dated 24.12.2020 stayed.

Best judgment assessment - assessment under section 62(1) of the Maharashtra Goods and Services Tax Act, 2017 - stay of coercive action - Whether coercive steps pursuant to the best judgment assessments should be restrained pending further proceedings. - HELD THAT: - Petitioner contended that best judgment assessments dated 25.11.2020 and 11.12.2020 for the period March, 2020 to October, 2020 failed to take into account payment made by the petitioner and were rendered during a period of restricted business activity due to lockdown. The Court directed that no coercive steps in relation to those best judgment assessments shall be taken meanwhile, thereby preserving the status quo and permitting adjudicatory processes to continue without enforcement action for the present. [Paras 7]

No coercive steps in relation to the best judgment assessments shall be taken meanwhile.

Final Conclusion: Interim relief granted: cancellation of GST registration stayed and coercive action in respect of the best judgment assessments restrained until further orders; matter posted to 16.03.2021 with respondents directed to file a reply affidavit.

Summary order. Court directed the State to obtain and furnish instructions on (i) whether an appeal against the FORM GST MOV-11 confiscation order under Section 107 of the GST Act has been filed and its status, (ii) whether an application under Section 67(6) for provisional release of goods is pending, and (iii) whether 10% of the amount sought to be recovered has been deposited where an appeal is pending; matter posted on top of the Board to 13.1.2021.

Penalty for transporting taxable goods without the cover of specified documents - penalty under Section 122(xiv) of the CGST Act, 2017 - excess of jurisdiction in imposition of penalty - proportionality in imposition of penalty - verification of tax payment by revenue authority

Penalty under Section 122(xiv) of the CGST Act, 2017 - penalty for transporting taxable goods without the cover of specified documents - Breach of law in not carrying a valid e-way bill falls within the ambit of Section 122(xiv) of the CGST Act, 2017. - HELD THAT: - The Court found that the only violation recorded by the detention and notice related to the absence of a valid e-way bill for goods in movement. On the material on record, including the petitioner's admission about the change of vehicle and inability to amend the e-way bill during the lockdown, the breach was held to be covered by the clause relating to transport of taxable goods without specified documents. The Court therefore held that the petitioner was prima facie liable to a penalty under Section 122(xiv). [Paras 3, 4, 6, 9]

The breach is within Section 122(xiv) and attracts penalty liability under that provision.

Excess of jurisdiction in imposition of penalty - proportionality in imposition of penalty - Whether the Superintendent of State Tax exceeded jurisdiction in imposing penalty equivalent to the tax and whether the penalty imposed was disproportionate. - HELD THAT: - Having accepted that the breach fell under Section 122(xiv), the Court examined the scheme of Section 122 which prescribes a fixed penalty in certain categories and larger amounts where tax is evaded or not paid under specified provisions. The Court held that for the breach falling under clause (xiv) the appropriate penalty is the fixed amount provided by Section 122 and that the Superintendent had exceeded jurisdiction by imposing a penalty equivalent to the tax payable. The Court emphasised that penalties applicable to instances of tax evasion or failure to deduct/collect tax are not comparable to the present omission and that proportionality and statutory prescription must guide imposition of penalty. [Paras 7, 9]

The penalty as imposed (equivalent to tax) was beyond the Superintendent's jurisdiction; the penalty is set at the statutory fixed amount for clause (xiv).

Verification of tax payment by revenue authority - Whether the Court should interfere with the tax liability determined by the authority and whether tax payment had been made. - HELD THAT: - The Court declined to adjudicate or disturb the tax liability itself. Although the petitioner asserted that the tax had been paid and reflected in returns, the Court did not accept that assertion on its face and left it open for the revenue to verify and take appropriate action if tax remained unpaid. The direction was limited to setting aside the excessive penalty while permitting the revenue to verify payment and proceed as provided by law if tax is outstanding. [Paras 6, 9]

Tax liability not disturbed; revenue is at liberty to verify payment and take appropriate action if tax remains unpaid.

Final Conclusion: Writ petition partly allowed: the Court held the omission to tender a valid e-way bill attracts penalty under Section 122(xiv) but set aside the penalty equivalent to tax as beyond the Superintendent's jurisdiction and directed imposition of the statutory fixed penalty of Rs. 10,000; the tax determination is left open for verification by the revenue.

Deduction u/s 80P(2)(a)(i) - co-operative societies registered as ‘primary agricultural credit societies’, together with one ‘multi-State co-operative society’ - eligibility after introduction of section 80P(4) -Interpretation of "Engaged in" Providing Credit Facilities - Principle of Mutuality - Assessee stated to be providing credit facilities to their members for agricultural and allied purposes, have been classified as primary agricultural credit societies by the Registrar of Cooperative Societies under the Kerala Co-operative Societies Act, 1969.

HELD THAT:- The ratio decidendi of Citizen Cooperative Society Ltd. [2017 (8) TMI 536 - SUPREME COURT], must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee.

A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word “agriculture” into Section 80P(2)(a)(i) when it is not there.

Section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are cooperative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm’s way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.

Thus, the giving of loans by a primary agricultural credit society to nonmembers is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra).

Resultantly, the impugned Full Bench judgment is set aside. The appeals and all pending applications are disposed of accordingly.

Final Conclusion: The Full Bench decision of the Kerala High Court is set aside. Section 80P(2)(a)(i) must be read as a benevolent provision; section 80P(4) excludes only co-operative banks as defined in Part V of the Banking Regulation Act. Registered co-operative societies not falling within that definition are eligible for deduction under section 80P(2)(a)(i), subject to the assessee proving in each assessment year that it is in fact "engaged in" providing credit facilities to its members and that the income claimed is attributable to that activity. The appeals are remanded to the Kerala High Court for determination on merits in accordance with these principles.

Processing of return under section 143(1) - refund of income tax with interest under section 244A - jurisdictional transfer from CPC to Assessing Officer and ITBA technical errors - mandamus to administrative authority to act in accordance with law

Processing of return under section 143(1) - jurisdictional transfer from CPC to Assessing Officer and ITBA technical errors - refund of income tax with interest under section 244A - Direct the income-tax authorities to complete processing of the return for AY 2019-20 and release the refund with applicable interest. - HELD THAT: - Petitioner filed the return for Assessment Year 2019-20 claiming a refund and the return was electronically uploaded, with jurisdiction initially at CPC Bengaluru which transferred the return to the jurisdictional Assessing Officer on 12 March 2020. The respondents admitted that attempts to process the return at the Assessing Officer's end were frustrated by technical issues in the ITBA system, tickets were raised, and processing was ultimately completed at the Assessing Officer and Range Head levels after resolution of the technical errors. The Court observed that the grievance was therefore narrowed to completion of administrative steps at respondent No.5 (CPC) to intimate the petitioner and to effect the refund. In view of the admitted factual position and the statutory scheme under which refunds are payable following processing under section 143(1), the Court exercised its supervisory jurisdiction under Article 226 to direct respondent No.5 to complete processing and release the refund along with interest as provided by law within two weeks from receipt of the order. [Paras 10, 11]

Respondent No.5 to complete processing of the refund claim and release the refund with applicable interest in accordance with law within two weeks from receipt of a copy of this order.

Final Conclusion: Writ petition allowed to the extent of directing the income-tax authorities to complete processing of the return for Assessment Year 2019-20 and to release the due refund with interest in accordance with law within two weeks; no order as to costs.

Re-opening under Section 147 - escaped assessment - cogent or tangible material - mere incorporation of provisions in partnership deed not mandating payment - re-opening beyond four years and failure to disclose fully and truly

Re-opening under Section 147 - escaped assessment - re-opening beyond four years and failure to disclose fully and truly - Validity of the notice issued under Section 148/147 to re-open assessment beyond four years on the ground that income had escaped assessment. - HELD THAT: - The Court examined whether the Assessing Officer possessed sufficient satisfaction, supported by cogent or tangible material, that the assessee had omitted to disclose income such that it had escaped assessment within the meaning of Section 147. The Recorder relied on alleged receipts by the petitioner of interest on capital and remuneration from a partnership firm and the Department's contention that corresponding deduction claimed by the firm resulted in income chargeable to the partners. The Court held that mere incorporation of clauses in the partnership deed providing for interest and remuneration is not conclusive evidence of receipt by the partners; there must be material to show actual payment or accrual to the partner. Applying settled law and the decision in PCIT v. Alidhara Taxspin Engineers, the Court concluded that the reasons recorded did not furnish cogent material to form a belief of escapement of income and therefore the assumption of jurisdiction to re-open beyond four years was not justified. [Paras 20, 21, 22, 23, 24]

Impugned notice for re-opening the assessment for AY 2011-12 quashed as the AO had no sufficient material to justify re-opening beyond four years.

Final Conclusion: Writ allowed; the notice dated 31.03.2018 under Section 148 read with Section 147 for Assessment Year 2011-12 is quashed and set aside and all consequential proceedings are terminated.

Capital nature of non-compete fees - precedential effect of earlier decision between same parties - deletion of disallowance made on estimate basis - deduction under section 80HHC

Capital nature of non-compete fees - precedential effect of earlier decision between same parties - Receipt characterized as non-compete fees in respect of the assessee are capital in nature and not chargeable to tax. - HELD THAT: - The Court observed that the identical question concerning the characterisation and taxability of the non-compete consideration had been earlier raised between the same parties in Tax Appeal No.800 of 2013 and was finally answered in favour of the assessee by its judgment dated 04.07.2016. Having regard to that earlier adjudication, the present challenge to the Tribunal's holding that the receipt is capital in nature could not be sustained. The prior decision on the same question involving the same assessee operates as determinative of the contention now raised by the revenue.

Tribunal's conclusion that the non-compete fees are capital and not taxable is upheld; the revenue's challenge is dismissed.

Deletion of disallowance made on estimate basis - Validity of the Tribunal's deletion of the disallowance of sales promotion expenses disallowed by the Assessing Officer on an estimated basis. - HELD THAT: - The Court noted the revenue's challenge to the ITAT's deletion of the disallowance of sales promotion expenditure assessed on estimate. The matter was raised before the Court but, on consideration, the appeal did not succeed. The order under challenge securing deletion of the disallowance was thereby left undisturbed.

Tribunal's deletion of the disallowance of sales promotion expenses is sustained and the revenue's appeal with respect thereto is dismissed.

Deduction under section 80HHC - Whether miscellaneous income was eligible for deduction under section 80HHC. - HELD THAT: - The revenue contested the ITAT's finding that the miscellaneous income was eligible for deduction under section 80HHC despite alleged inability of the assessee to establish that the income was derived from exports. The Court considered the point but found no basis to overturn the Tribunal's conclusion and therefore did not accede to the revenue's contention.

Tribunal's conclusion awarding deduction under section 80HHC in respect of the miscellaneous income is upheld and the revenue's challenge is dismissed.

Final Conclusion: The revenue's Tax Appeal is dismissed and the Income Tax Appellate Tribunal's order dated 04.05.2020 in ITA No.1671/AHD/2006 for A.Y. 2002-2003 is affirmed.

Disallowance under Section 40(a)(ia) of the Income tax Act - characterisation of stall fees as rent - requirement to furnish reasons recorded - validity of reassessment proceedings initiated on audit objection - quashing and remand for fresh adjudication

Characterisation of stall fees as rent - disallowance under Section 40(a)(ia) of the Income tax Act - Tribunal failed to decide on the contention that payment of stall fees is not in the nature of rent and consequent applicability of disallowance under Section 40(a)(ia). - HELD THAT: - The Tribunal did not adjudicate this substantive controversy on its merits but disposed of the appeal on a technical ground. Given that the question whether stall fees constitute rent directly affects the applicability of disallowance under Section 40(a)(ia), the matter requires fresh consideration by the Tribunal so that the characterisation of the payment and the legal consequences flowing therefrom are decided after addressing the parties' contentions.

Issue remanded to the Tribunal for fresh adjudication on merits.

Requirement to furnish reasons recorded - quashing and remand for fresh adjudication - Tribunal did not deal with the assessee's plea that reasons recorded were not furnished despite written requests. - HELD THAT: - The High Court found that the Tribunal omitted to consider whether the proceedings were vitiated by failure to furnish the reasons recorded, as alleged by the assessee. This procedural contention bears on the legality of the assessment process and must be examined by the Tribunal in the course of re hearing rather than being left undecided.

Issue remanded to the Tribunal for fresh consideration and decision.

Validity of reassessment proceedings initiated on audit objection - quashing and remand for fresh adjudication - Tribunal did not decide the contention that proceedings under Sections 147/148 could not be initiated solely on the basis of an audit objection. - HELD THAT: - The High Court observed that the Tribunal dealt with the appeal on a technicality and failed to address whether initiation of reassessment proceedings on the basis of an audit objection met the legal requirements for reopening. Because this question relates to the jurisdictional and substantive validity of the reassessment, it must be adjudicated afresh by the Tribunal.

Issue remanded to the Tribunal for fresh adjudication on merits.

Final Conclusion: The order of the Tribunal dated 04.12.2015 is set aside and the matter is remitted to the Tribunal to decide the three specified issues on merits; the substantial question of law framed in the appeal is not answered and the appeal is disposed of.

Competency of the Deputy Director to institute prosecution under Section 279 of the Income tax Act - requirement of findings by the Assessing Officer / applicability of Section 195 Cr.P.C. to prosecutions for false statements in income tax proceedings - necessity of incriminating material seized from the accused or incriminating statements under Section 132/131/132(4) to sustain prosecution under Section 276C/277 of the Income tax Act - admissibility of electronic evidence and relevance of Section 65B of the Evidence Act - prematurity of prosecution pending assessment or reassessment under Sections 148/153A/153C - Circular policy on prosecution under Chapter XXII of the Income tax Act

Competency of the Deputy Director to institute prosecution under Section 279 of the Income tax Act - requirement of findings by the Assessing Officer / applicability of Section 195 Cr.P.C. to prosecutions for false statements in income tax proceedings - Validity of the complaint filed by the Deputy Director of Income Tax before any finding by the Assessing Officer and whether the Deputy Director was competent to lodge prosecution in the facts of the case. - HELD THAT: - The Court examined the statutory scheme and precedents and concluded that where alleged false statements or false verifications relate to proceedings before an income tax authority (deemed judicial proceedings under Section 136), prosecution cannot be sustained merely on the basis of the Deputy Director's formation of opinion from third party material. The explanations to Section 276C indicate that incriminating books, documents or statements should, in principle, be found in the possession or control of the accused or be otherwise directly incriminating. Decisions of the Supreme Court and this Court emphasize that while criminal prosecution and assessment proceedings are independent, prosecution initiated before an Assessing Officer records a finding of wilful evasion (or where incriminating material is seized from the accused or incriminating statements recorded from the accused) is sustainable; where such materials and findings are absent and the complaint is founded on third party entries or the complainant's opinion, the prosecution is premature. The court also considered the role of Section 195 Cr.P.C. and authorities holding that complaints for false statements in judicial proceedings must follow the special procedural safeguards where applicable. Applying these principles to the facts - completed returns for AY 2014 15 and 2015 16, absence of incriminating documents or confessional statements seized from the petitioners, reliance on third party entries and the Deputy Director's opinion - the Court found the complaint defective and premature. [Paras 17, 18, 20, 21, 48]

Complaint filed by the Deputy Director was not maintainable in the given facts; prosecution was premature and the revisions were allowed.

Necessity of incriminating material seized from the accused or incriminating statements under Section 132/131/132(4) to sustain prosecution under Section 276C/277 of the Income tax Act - prematurity of prosecution pending assessment or reassessment under Sections 148/153A/153C - Circular policy on prosecution under Chapter XXII of the Income tax Act - Whether prosecution can be maintained in absence of incriminating material seized from the accused or in absence of an Assessing Officer's finding, especially where returns were earlier filed and assessments scrutinized. - HELD THAT: - The Court reviewed authorities holding that prosecution may, in some cases, be initiated before completion of assessment, particularly where incriminating material is seized from the accused or where confessional/incriminating statements are recorded from the accused during search. However, the Court held that those precedents are factually distinguishable because they involved incriminating material seized from the accused or statements recorded from them. The present complaint rested primarily on third party entries and materials seized from third parties, with the petitioners denying the prosecution case and having maintained their filed returns. The Court noted the Government circulars prescribing policy and thresholds for initiating prosecution under Chapter XXII, which underscore prosecutorial restraint and the usual practice of launching prosecution after appellate confirmation of penalty in many cases. Given the absence of direct incriminating material or Assessing Officer's finding of wilful evasion, continuing criminal proceedings would be inappropriate; however the Department remains free to proceed if an Assessing Officer, in appropriate proceedings under Sections 153/153A/153C, records findings of under reporting or wilful evasion based on seized material. [Paras 40, 43, 44, 46, 48]

Prosecution was premature in the present factual matrix; the Department may initiate penal proceedings later if the Assessing Officer, after proper assessment/reassessment, records findings of wilful evasion or undisclosed income based on material appropriately attributable to the accused.

Admissibility of electronic evidence and relevance of Section 65B of the Evidence Act - Approach to the contention that electronic records (printouts from cloned hard disks) are inadmissible for want of certificates under Section 65B. - HELD THAT: - The Court observed that questions of admissibility of electronic evidence under Section 65B are significant but declined to determine them because it had already concluded that the complaint itself was not maintainable in the present circumstances. The Court noted that certification and production of originals can be addressed at the appropriate stage and that the legal principles in Arjun Panditrao Khotkar (supra) govern admissibility; however, since the prosecution was quashed on prematurity and competence grounds, further discussion on admissibility was restrained to avoid pre deciding issues that may arise if the Assessing Officer later initiates proceedings. [Paras 49]

Admissibility of electronic evidence was not decided; the Court refrained from ruling on Section 65B objections in view of its finding that the complaint was premature.

Final Conclusion: The revisions were allowed: the complaint lodged by the Deputy Director of Income Tax was held premature and not maintainable in the facts of these cases. The Department remains free to take penal action if, after proper assessment/reassessment proceedings, the Assessing Officer records findings of wilful evasion or uncovers incriminating material attributable to the accused; questions on admissibility of electronic evidence were left open for determination at the appropriate stage.

Deemed registration under Section 12A - deemed grant after expiry of six months - doctrine of merger - failure of revenue to act and relief by writ

Deemed registration under Section 12A - deemed grant after expiry of six months - failure of revenue to act and relief by writ - Petitioner is to be treated as registered under Section 12A by reason of the assessing authority's long inaction, with registration deemed granted after the expiry of six months from the date of application. - HELD THAT: - The Income Tax Appellate Tribunal set aside the Commissioner's order and revived the petitioner's application for registration filed in March 2007. The Tribunal's direction remained unimplemented for almost twelve years. Relying upon the ratio in the Supreme Court's decision in Commissioner of Income Tax, Kanpur and the Division Bench decision of this Court which applied the doctrine of merger to hold that non-action within six months results in deemed registration only from the expiry of that six-month period, the High Court found no satisfactory explanation for the prolonged inaction. In view of those authoritative precedents and the Tribunal's order, the Court held that the petitioner's application must be treated as allowed by operation of law after the statutory six-month period and accordingly allowed the application for registration under Section 12A.

Application for registration under Section 12A is allowed and the petitioner is to be treated as duly registered consequent to the deemed grant upon expiry of six months from the date of the application.

Final Conclusion: Writ petition disposed of by allowing the petitioner's application for registration under Section 12A on the basis that, after the Tribunal's order and prolonged inaction by the revenue, registration is deemed granted upon expiry of the six month period from the application date.

Applicability of an amended tax rate brought into force on 1st April to assessments of that assessment year - distinction between creation of a new substantive liability and mere enhancement of tax rate for prospective/retrospective effect - enhanced rate under Section 115BBE - surcharge as partaking the character of income-tax and chargeable under the charging scheme - advance tax increased by surcharge as a rate enhancement

Applicability of an amended tax rate brought into force on 1st April to assessments of that assessment year - enhanced rate under Section 115BBE - distinction between creation of a new substantive liability and mere enhancement of tax rate for prospective/retrospective effect - Whether the enhanced rate of tax under Section 115BBE made effective from 01.04.2017 applies to assessments in the assessment year 2017-18 relating to income of the previous year 2016-17. - HELD THAT: - The Court examined precedent distinguishing amendments that create new substantive liabilities from amendments that merely change the rate or quantum to be applied in assessment. Prior decisions establish that where an amendment coming into force on 1st April of an assessment year only alters the rate by which tax is quantified, that altered rate applies to assessments carried out in that assessment year. By contrast, measures that impose new liabilities or disturb accrued rights cannot be given retrospective effect unless legislative intent so provides. Section 115BBE, originally providing a tax rate of 30%, was amended by the 2nd Amendment Act to enhance the rate to 60% with effect from 01.04.2017; this change does not create a new charge but increases the rate of tax applicable to income assessed under the existing charging provisions. The seizures and admissions occurred in FY 2016-17 and the assessments were carried out in the assessment year commencing 01.04.2017; accordingly the enhanced rate as on 01.04.2017 is applicable to those assessments. [Paras 11, 13, 15]

The enhanced rate under Section 115BBE effective from 01.04.2017 applies to the assessments carried out in assessment year 2017-18 (relating to FY 2016-17); the amendment is a change of rate and not the creation of a new substantive liability.

Surcharge as partaking the character of income-tax and chargeable under the charging scheme - advance tax increased by surcharge as a rate enhancement - Whether the enhanced surcharge introduced by amendment to the Finance Act (increasing surcharge to 25% for income under Section 115BBE) effective from 01.04.2017 applies to the assessments in assessment year 2017-18. - HELD THAT: - The Court analysed the nature of surcharge in the Finance Act and prior authority which treats surcharge as an addition that effectively enhances income-tax for the purpose of the Union (Article 271). The Finance Act provisions operate to increase the income-tax computed for an assessment year by a surcharge; thus a change in the rate of surcharge effected from the commencement of an assessment year is a rate enhancement that must be applied to assessments in that year. The amendment removing Section 115BBE from an earlier proviso and inserting a proviso to levy surcharge at 25% on advance tax computed under Section 115BBE(1)(i) was held to be an enhancement of surcharge rates rather than creation of a new liability. [Paras 14, 16, 17]

The enhanced surcharge (25%) effective from 01.04.2017 applies to assessments in assessment year 2017-18; surcharge is to be treated as partaking the character of income-tax and is applied as a rate enhancement.

Final Conclusion: The Single Judge's order is affirmed. The amendments enhancing the rate under Section 115BBE and the surcharge effective from 01.04.2017 are applicable to assessments carried out in assessment year 2017-18 relating to FY 2016-17; the writ appeal is dismissed.

Determination of fair market value for capital gains - Application of valuation of a subsequent assessment year to an earlier assessment year - Role of Departmental Valuation Officer under section 50C(2) - Binding effect of statutory agency (APIIC) rates for industrial plots - Maintainability of cross objections defective for want of competent signature

Application of valuation of a subsequent assessment year to an earlier assessment year - Each assessment year is independent - Admissibility of adopting DVO valuation made for A.Y.2009-10 for computing fair market value in A.Y.2008-09 - HELD THAT: - The Tribunal held that a valuation determined by the DVO for a subsequent assessment year (A.Y.2009-10) cannot be mechanically applied to an earlier assessment year (A.Y.2008-09) because values change year to year and each assessment year is independent for income tax purposes. The proper course, if the AO intended to rely on departmental valuation for A.Y.2008-09, was to refer the matter to the DVO under the provision dealing with valuation (sub section 2 of section 50C) or to make specific enquiries (for example with the APIIC) relevant to the year under consideration. The AO's adoption of the DVO value for the subsequent year without making year specific enquiries or a fresh reference was therefore impermissible. [Paras 7]

DVO valuation for A.Y.2009-10 cannot be applied to A.Y.2008-09; AO should have obtained year specific valuation or enquiries.

Determination of fair market value for capital gains - Role of Departmental Valuation Officer under section 50C(2) - Binding effect of statutory agency (APIIC) rates for industrial plots - Validity of the CIT(A)'s determination of fair market value for A.Y.2008-09 and the acceptability of APIIC rate as basis for valuation - HELD THAT: - The Tribunal noted that the land was situated in an industrial area where APIIC rates governed transfers and that the AO did not dispute the APIIC rate of Rs.6,000 per sq.yd. nor make enquiries with APIIC about any transfer restrictions. Having found no material from the department to show the CIT(A)'s determination was incorrect, and given that the AO had neither made the statutory DVO reference for A.Y.2008-09 nor investigated APIIC constraints, the Tribunal upheld the CIT(A)'s exercise of determining fair market value after allowing a reduction to account for annual variations. The department failed to establish that the market value in the impugned year exceeded the value adopted by the CIT(A). [Paras 7]

CIT(A)'s determination of fair market value for A.Y.2008-09 is upheld; no interference with the CIT(A)'s order.

Maintainability of cross objections defective for want of competent signature - Competency and maintainability of the assessee's cross objections - HELD THAT: - The Tribunal observed that the cross objections filed by the assessee in support of the CIT(A)'s order were not signed by a competent person as required, rendering the cross objections defective. Consequentially, the Tribunal dismissed the cross objections in limine without considering their merits. [Paras 8]

Cross objections are defective for want of competent signature and are dismissed in limine.

Final Conclusion: The departmental appeal is dismissed and the CIT(A)'s determination of fair market value for A.Y.2008-09 is upheld; the assessee's cross objections are dismissed in limine for lack of competent signature.

Determination of transfer price under Section 80IA(8) - Inclusion of electricity duty in landed cost for ascertaining open market value - Allowability of education cess as deductible expenditure - Condonation of delay in filing cross-objection on grounds based on subsequent judicial decisions

Determination of transfer price under Section 80IA(8) - Inclusion of electricity duty in landed cost for ascertaining open market value - The transfer price of power supplied by the eligible unit to the non eligible unit for computing deduction under Section 80IA(8) must be determined by reference to the average landed cost at which electricity was procured from the SEB, including the electricity duty. - HELD THAT: - The Tribunal upheld the view taken by the CIT(A) that the methodology adopted by the assessee-taking the transfer price as the average landed cost (including electricity duty) at which the non eligible unit procured power from the SEB-was justified. The AO's reliance on an earlier ITAT Mumbai decision to exclude electricity duty was held to be distinguishable and no longer good law in view of subsequent decisions of the ITAT, Mumbai and several High Courts which have held that taxes, duties and cess embedded in the landed cost should not be excluded when ascertaining the market value for Section 80IA(8). The Tribunal also placed reliance on coordinate decisions of the ITAT, Kolkata and Higher Courts (including Bombay, Gujarat and Chhattisgarh High Courts) that the market price for supply to a non eligible unit should be equated to the price at which electricity distribution companies supply to consumers, and that the electricity duty embedded therein is not to be reduced. In consequence the AO was directed to grant the deduction under Section 80IA on the transfer price adopted by the assessee and to recompute the eligible deduction with opportunity of hearing to the assessee. [Paras 2, 3]

Revenue's appeal on this issue dismissed; AO directed to allow deduction under Section 80IA based on the transfer price inclusive of electricity duty and to recompute the deduction accordingly.

Condonation of delay in filing cross-objection on grounds based on subsequent judicial decisions - Allowability of education cess as deductible expenditure - Delay in filing the assessee's cross objection was condoned and the claim that education cess is an allowable deduction under the Act was accepted. - HELD THAT: - The Tribunal found sufficient cause for condonation of the 303 day delay in filing the cross objection, noting that relevant judicial pronouncements on the deductibility of education cess had come into public domain later and the assessee acted without mala fide or negligence in seeking to rely on those decisions. Admitting the cross objection, the Tribunal followed High Court decisions (including Rajasthan and Bombay High Courts) and its own precedents which held that education cess is not a part of tax for the purpose of disallowance provisions and is therefore allowable as an expenditure. Applying those authorities, the Tribunal allowed the assessee's claim for deduction of the education cess and held that corresponding disallowance under Section 40(a)(ii) could not be sustained. [Paras 6, 7]

Delay condoned; cross objection allowed and education cess held allowable as deduction.

Final Conclusion: The Revenue's appeal is dismissed; the CIT(A)'s order allowing the transfer price inclusive of electricity duty for computing deduction under Section 80IA(8) is upheld and the AO is directed to recompute the deduction. The assessee's delayed cross objection is admitted, and the claim for deduction of education cess is allowed.

Royalty as defined in Explanation 6 to section 9(1)(vi) - deduction of tax at source under section 194J - disallowance under section 40(a)(ia) - retrospective amendment and its effect on TDS liability - revenue expenditure reimbursed by associated enterprise - revenue v. capital treatment of RSA tokens - Arm's Length Price - Transactional Net Margin Method - selection and exclusion of comparables in transfer pricing

Royalty as defined in Explanation 6 to section 9(1)(vi) - deduction of tax at source under section 194J - disallowance under section 40(a)(ia) - retrospective amendment and its effect on TDS liability - Leased line charges paid during the relevant year did not attract disallowance under section 40(a)(ia) because there was no obligation to deduct tax at source at the time of payment. - HELD THAT: - The Tribunal examined whether leased line charges constituted 'royalty' for the purpose of section 194J by reference to Explanation 2 to section 9(1)(vi) and the Explanations (including Explanation 6) inserted by the Finance Act, 2012. It accepted that with Explanation 6 the definition of 'royalty' was broadened to include transmission by optic fibre and similar technologies, thereby covering leased line charges. However, the obligation to deduct tax at source arises under the law as it stood at the time of payment. The retrospective amendment (Finance Act, 2012, w.e.f. 01-06-1976) rendered the payments taxable as royalty in the hands of the recipient but could not retrospectively impose on the payer an obligation to deduct TDS when no such obligation existed at the time the payments were made during F.Y. 2011-12. Consequently, since there was no TDS liability at the material time, disallowance under section 40(a)(ia) could not be sustained. [Paras 5, 6, 9, 10, 11]

Ground allowing deduction of leased line charges upheld; disallowance under section 40(a)(ia) deleted.

Revenue expenditure reimbursed by associated enterprise - revenue v. capital treatment of RSA tokens - Expenditure on purchase of RSA tokens is allowable as revenue expenditure where the cost was reimbursed by the associated enterprise and included in income. - HELD THAT: - The assessee charged the cost of RSA tokens to the profit and loss account and the associated enterprise reimbursed that cost with a mark-up, which reimbursement was included in the assessee's income for the year. The Tribunal followed the principle that expenditure debited to profit and loss cannot be disallowed where the identical amount (with markup) is credited to income. Reference was also made to a Tribunal decision on similar facts holding RSA tokens to be revenue expenditure. On this basis, the addition made by the AO after allowing depreciation was deleted. [Paras 12, 14]

Disallowance in respect of RSA tokens deleted; expenditure treated as allowable revenue expenditure.

Arm's Length Price - Transactional Net Margin Method - selection and exclusion of comparables in transfer pricing - Exclusion of Infosys Technologies Ltd. from the comparables set for determination of Arm's Length Price was justified and upheld. - HELD THAT: - The Tribunal noted that the assessee was a captive service provider operating on cost-plus terms for its associated enterprise, whereas Infosys is a large independent provider operating at a very different scale and commercial model. The ld. CIT(A) had earlier directed exclusion of Infosys (including in the preceding assessment year), and precedents treating large independent providers as unsuitable comparables for captive service providers were considered. In view of the material demonstrating difference in nature and scale of operations, the exclusion of Infosys from the comparables was sustained. [Paras 15, 16, 17, 18, 19]

Exclusion of Infosys from comparables upheld; related additional grounds rendered academic.

Final Conclusion: The Tribunal allowed the assessee's appeal by deleting the disallowance of leased line charges and the RSA tokens addition, and upheld the exclusion of Infosys from transfer pricing comparables; the Revenue's appeal was dismissed as infructuous or otherwise on merits.

Commissioner (Appeals) power of enhancement - unexplained cash credit under section 68 - identity and creditworthiness of shareholders - remand for fresh adjudication - reasonable opportunity under section 251(2)

Commissioner (Appeals) power of enhancement - reasonable opportunity under section 251(2) - Validity of enhancement of assessment by the Commissioner (Appeals) - HELD THAT: - The Tribunal examined whether the first appellate authority could enhance the assessment on the same set of facts where the Assessing Officer had accepted certain share application monies as genuine. Relying on precedent and the statutory scheme, the Tribunal noted that where the AO has dealt with an item in the body of the assessment order such items fall within the appellate jurisdiction for enhancement only in the situations envisaged by the Act and established case law. The Tribunal observed that the matter fell within the category where the AO had not made additions though the items were discussed during assessment proceedings, and that the appropriate remedy in such circumstances is under section 263 rather than enhancement by the CIT(A). Having considered the material on record and the manner in which the CIT(A) proceeded, the Tribunal concluded that the enhancement could not be sustained without appropriate enquiry and opportunity, and that the matter required fresh consideration by the AO. [Paras 8]

Enhancement by the Commissioner (Appeals) is not sustained and the matter is set aside for fresh adjudication by the Assessing Officer.

Unexplained cash credit under section 68 - identity and creditworthiness of shareholders - remand for fresh adjudication - Addition of share application money of Rs.2,10,00,000 as unexplained cash credit - HELD THAT: - On the addition under section 68, the Tribunal recorded that enquiries by the AO and by departmental inspectors produced conflicting findings regarding the existence and addresses of the share applicant companies. The assessee contended that non service of notices resulted from change of addresses and produced documentary material to establish transactions. The Revenue accepted that if the assessee cooperates and furnishes present addresses and produces principal officers, the matter could be reconsidered. In view of these factual uncertainties and the requirement to give the assessee an opportunity to produce the principal officers and current addresses, the Tribunal found it appropriate to remit the question of genuineness, identity and creditworthiness of the share subscribers to the Assessing Officer for fresh adjudication in accordance with law. [Paras 8]

Addition of Rs.2,10,00,000 under section 68 is set aside and remanded to the Assessing Officer for fresh adjudication; assessee to produce principal officers and furnish present addresses.

Estimation of income - Challenge to estimation of gross profit at 8% of turnover - HELD THAT: - The assessee elected not to press the ground challenging the AO's estimation of gross profit at 8% of turnover during the hearing before the Tribunal. Consequently the Tribunal did not undertake any adjudication on the merits of that estimation. [Paras 5, 8]

Ground relating to estimation at 8% dismissed as not pressed.

Final Conclusion: The appeal is allowed for statistical purposes: the enhancement by the CIT(A) is not sustained and the addition under section 68 is remitted to the Assessing Officer for fresh adjudication after the assessee furnishes present addresses and produces the principal officers of the share applicant companies; the challenge to the 8% estimation is dismissed as not pressed.

Carry forward and set off of deficit/expenditure of earlier years by a charitable trust - application of income under section 11(1)(a) - scope and timing - commercial/mercantile system of accounting for computation of income of trusts - amortisation of preliminary/earlier year expenditure and adjustment against subsequent years' income - no double benefit where earlier year accumulation/amortisation is adjusted in later year

Carry forward and set off of deficit/expenditure of earlier years by a charitable trust - commercial/mercantile system of accounting for computation of income of trusts - amortisation of preliminary/earlier year expenditure and adjustment against subsequent years' income - no double benefit where earlier year accumulation/amortisation is adjusted in later year - Whether a charitable trust may carry forward and set off excess expenditure or unamortised earlier year expenditure against income of subsequent years and whether such adjustment is permissible without amounting to an impermissible double benefit. - HELD THAT: - The Tribunal upheld the view that income of a trust is to be computed on commercial (mercantile) principles and that expenses or amortisation carried forward from earlier years may be adjusted against income in subsequent years. The decision relied upon by the assessing authorities and the Revenue were found to be answered by binding precedents of the Karnataka High Court and the Bombay High Court (including the Society of the Sisters of St. Anne line of decisions) and by CBDT guidance that 'income' for trusts is to be understood in its commercial sense. Those authorities recognise that non cash deductions (such as depreciation or amortisation of preliminary expenditure) and earlier year outgoings, when brought forward and set off in later years, properly reduce the book income of the trust in the year of set off and are to be treated as application of income in that year for the purposes of section 11. The Tribunal also accepted earlier coordinating bench precedent to like effect. On this basis the CIT(A)'s allowance of the carried forward deficit was held to be in accordance with law and not to confer an impermissible double benefit on the assessee.

Carry forward and set off of the earlier year deficit/expenditure was permitted; the CIT(A)'s allowance of the carry forward deficit is upheld and the revenue's appeal is dismissed.

Final Conclusion: The Tribunal dismissed the revenue appeal and upheld the CIT(A)'s allowance of the carried forward deficit, applying established precedents that trusts compute income on commercial principles and may amortise or set off earlier year expenditure against subsequent years' income without creating an unlawful double benefit.

Allowability of business expenditure under Section 37(1) - treatment of free of cost promotional goods as revenue expenditure or capital asset - remand for production and verification of evidence - taxability and withholding obligation on embedded software components supplied with goods - artificial bifurcation of lump sum consideration between hardware and embedded software - deduction at source and disallowance under Section 40(a)(i) / Section 195 - withholding obligations in relation to trade discounts/trade offers and applicability of Section 194H/194J - principal to principal v. principal agent characterisation for withholding tax liability - allowability of Trade Price Protection as commercial revenue expenditure - provision for obsolescence and valuation at lower of cost or net realisable value - remand to Assessing Officer to determine quantum in light of accounting standards and precedents - revenue v. capital characterisation of advertisement and publicity expenditure

Treatment of free of cost promotional goods as revenue expenditure or capital asset - remand for production and verification of evidence - allowability of business expenditure under Section 37(1) - Remand to Assessing Officer for verification of claim for free of cost (FOC) phones issued to care centres, dealers and employees - HELD THAT: - The Tribunal noted that both the Assessing Officer and the CIT(A) recorded that only sample documents were produced and extensive party wise details were not furnished. The assessee maintained stock requisition forms and some delivery related documents but full documentary evidence was not placed before the revenue authorities. In view of earlier decisions concerning the predecessor entity (Nokia India Pvt. Ltd.) and the need to afford the assessee an opportunity to substantiate its claim, the Tribunal directed production of details in consonance with the claim and remanded the issue to the Assessing Officer for taking into account the evidence and passing fresh orders in accordance with the Tribunal's earlier decision in the predecessor cases, while observing that principles of natural justice be followed. [Paras 7]

Issue remanded to the Assessing Officer for verification of documentary evidence and fresh adjudication; assessee to be given opportunity of hearing.

Taxability and withholding obligation on embedded software components supplied with goods - artificial bifurcation of lump sum consideration between hardware and embedded software - deduction at source and disallowance under Section 40(a)(i) / Section 195 - Deletion of disallowance under Section 40(a)(i) for alleged failure to withhold tax on consideration ascribed to embedded software - HELD THAT: - The Tribunal accepted the CIT(A)'s reasoning that finished mobile phones were imported for sale against a lump sum consideration and there was no separate payment for software. The Assessing Officer's reliance on an artificial split of price between hardware and embedded software was not supported by distinguishing facts showing a separate software payment. The Tribunal found the decisions relied upon by the assessee appropriate and observed there was no need to interfere with the CIT(A)'s deletion of the addition. [Paras 10]

Disallowance under Section 40(a)(i) deleted; Revenue's Ground No.1 dismissed.

Withholding obligations in relation to trade discounts/trade offers and applicability of Section 194H/194J - principal to principal v. principal agent characterisation for withholding tax liability - allowability of business expenditure under Section 37(1) - Deletion of disallowances under Section 40(a)(ia) in respect of trade offers/discounts to HCL Infosystems Ltd. and other distributors - HELD THAT: - The Tribunal agreed with the CIT(A) that the discounts/trade offers were commercial measures to promote sales and, on the material before it (including scheme documents and third party confirmations), the relationship between the assessee and distributors was principal to principal rather than principal agent. In the absence of a principal agent relationship or separate consideration for services, the additions under Sections 194H/194J (and consequent disallowance under Section 40(a)(ia)) were not sustainable. The Tribunal also relied on precedents and earlier favorable adjudications in respect of the predecessor entity. [Paras 13]

Disallowances under Section 40(a)(ia) in respect of trade offers/discounts to HCL and other distributors deleted; Revenue's Grounds No.2 and No.3 dismissed.

Allowability of Trade Price Protection as commercial revenue expenditure - allowability of business expenditure under Section 37(1) - Deletion of disallowance in respect of Trade Price Protection (TPP) payments to distributors - HELD THAT: - The Tribunal found that the assessee filed party wise details and independent confirmations from distributors during assessment proceedings and before the CIT(A). The CIT(A)'s conclusion that the confirmations could not be regarded as stereotyped and that TPP constituted commercial expediency in a dynamic market was upheld. Reliance was placed on earlier Tribunal decisions for the predecessor entity where similar payments were held to be allowable. The Assessing Officer's failure to file a remand report and the documentary material on record led the Tribunal to dismiss the Revenue's challenge. [Paras 16]

Disallowance in respect of Trade Price Protection deleted; Revenue's Ground No.4 dismissed.

Provision for obsolescence and valuation at lower of cost or net realisable value - remand to Assessing Officer to determine quantum in light of accounting standards and precedents - Remand to Assessing Officer for fresh determination of ad hoc disallowance of provision for obsolescence - HELD THAT: - The Tribunal observed that the Assessing Officer made an ad hoc 25% disallowance without independent reasoning and that the assessee had produced a provision computed in accordance with accounting practice certified by the statutory auditor. In light of Accounting Standard 2 principles, binding Supreme Court authority on allowance of provisions made in accordance with accounting standards, and the history of remand in predecessor matters, the Tribunal directed remand to the Assessing Officer to decide afresh with reference to net realisable value, affording the assessee an opportunity of hearing. [Paras 19]

Issue remanded to the Assessing Officer for fresh determination of provision for obsolescence with reference to net realisable value; Ground No.5 partly allowed for statistical purpose.

Revenue v. capital characterisation of advertisement and publicity expenditure - allowability of business expenditure under Section 37(1) - Deletion of ad hoc 25% disallowance of advertisement and publicity expenses - HELD THAT: - The Tribunal endorsed the CIT(A)'s conclusion that the advertising and publicity expenditures were incurred in the ordinary course of trading activity (road shows, industry events, media advertising) to attract customers and enhance sales, and therefore were revenue in nature. The Tribunal relied on the binding decision of the Delhi High Court cited by the CIT(A) and found no error in deleting the ad hoc disallowance imposed by the Assessing Officer. [Paras 22]

Ad hoc disallowance of advertisement and publicity expenses deleted; Revenue's Ground No.6 dismissed.

Final Conclusion: The Tribunal partly allowed the appeals for statistical purposes: it dismissed Revenue's challenges in respect of non withholding on embedded software, trade offers/discounts to distributors, trade price protection and advertisement disallowance; it remanded the issues of free of cost phones and provision for obsolescence to the Assessing Officer for fresh consideration with directions to afford the assessee an opportunity of hearing; overall the assessment for Assessment Year 2014 15 stands modified in accordance with the above directions.

Carry forward and set off of capital losses - prospective operation of statutory amendment and vested rights - treatment of capital gain computed under the deeming provision of section 50 - remand for quantification and verification of admitted figures

Carry forward and set off of capital losses - prospective operation of statutory amendment and vested rights - treatment of capital gain computed under the deeming provision of section 50 - Whether long term capital loss brought forward from AY 2001 02 could be set off against capital gains (including short term capital gains) of AY 2005 06 despite amendment to the law w.e.f. 01.04.2003. - HELD THAT: - The Tribunal held that losses incurred prior to the amendment effected by the Finance Act, 2002 (w.e.f. 01.04.2003) are governed by the law as it stood when the loss was incurred and that the more restrictive carry forward/set off regime introduced thereafter cannot be applied so as to divest a pre existing vested right. The Tribunal followed earlier decisions (including the Special Bench in Kotak Mahindra and other authorities cited) which construed the amended provision as applicable to losses of AY 2003 04 and onwards and not to losses incurred prior thereto. The Tribunal further accepted the assessee's contention that the capital gain computed under section 50 on sale of depreciable plant does not, for purposes of section 74, alter the character or the entitlement under pre amendment carry forward rules where the asset was acquired earlier; accordingly the brought forward long term capital loss of AY 2001 02 was held available for set off against the capital gains of AY 2005 06. The Tribunal directed the Assessing Officer to allow the set off in principle, applying the pre amendment law to the loss of AY 2001 02. [Paras 7]

Long term capital loss of AY 2001 02 is entitled, in principle, to be set off against the capital gains of AY 2005 06 (including short term capital gains), the amended provisions w.e.f. 01.04.2003 not applying to losses incurred prior to AY 2003 04.

Remand for quantification and verification of admitted figures - Whether the exact amount of carry forward loss available from AY 2001 02 should be finally determined by the Tribunal or remitted to the Assessing Officer for verification. - HELD THAT: - The Tribunal noted discrepancies in the amounts claimed by the assessee in different submissions and, while allowing the appeal in principle, declined to adjudicate the precise quantification itself. The Tribunal therefore restored the matter to the Assessing Officer for the limited purpose of ascertaining and verifying the correct carry forward amount available for set off, directing the AO to verify the figure and give effect accordingly. [Paras 7]

Issue remanded to the Assessing Officer for limited verification and determination of the correct amount of carry forward loss available from AY 2001 02.

Final Conclusion: The Tribunal allowed the appeal in principle, holding that the pre amendment law governs the carry forward and set off of the long term capital loss of AY 2001 02 and directing the Assessing Officer to permit set off against the capital gains of AY 2005 06; a limited remand was ordered to the AO for verification and finalisation of the exact amount available for set off.

Provisional release of imported goods for home consumption - balancing of competing interests between revenue and importer - release on deposit of portion of assessed duty and furnishing of bank guarantee for remainder - final assessment as an appealable order and availability of remedy before Commissioner of Customs (Appeals)

Provisional release of imported goods for home consumption - release on deposit of portion of assessed duty and furnishing of bank guarantee for remainder - balancing of competing interests between revenue and importer - Direction to release imported consignments for home consumption notwithstanding a final assessment, subject to payment of part duty and security for the balance. - HELD THAT: - The petitioner imported an electric motorcycle consignment in CKD condition and claimed concessional duty under the relevant notification; respondents examined the goods, found certain components missing and proceeded to 100% examination and later passed a final assessment disallowing the concession and levying basic customs duty at a higher rate. Although the assessment is a final and appealable order and the respondents contend the petitioner may pursue remedy before the Commissioner (Appeals), the Court exercised its discretionary jurisdiction to protect the interests of both parties. Balancing the competing interests, the Court ordered immediate release for home consumption on payment of 25% of the assessed basic customs duty and on the petitioner furnishing a bank guarantee from a nationalized bank for the remaining duty as per the assessment. On compliance with these conditions, respondents were directed to release the goods forthwith. [Paras 9, 10]

Goods to be released for home consumption on payment of 25% of basic customs duty and on furnishing a nationalized bank guarantee for the remaining assessed amount; release to follow on compliance.

Final Conclusion: Writ petition disposed by directing provisional release of the imported consignment on partial deposit of assessed duty and bank guarantee for the balance, while preserving the respondent's right to pursue the assessment through statutory appeal.

Grant of bail despite prior violation of bail conditions - conditions of bail including bond and sureties - cancellation of bail for breach of conditions - risk of absconding as factor in bail adjudication - COFEPOSA detention and its impact on criminal proceedings - surrender of passport as a bail condition - periodic appearance before investigating officer as condition - security deposit with forfeiture on breach - prohibition on influencing witnesses - restriction on leaving territorial jurisdiction - impact of pandemic on trial pendency as relevant consideration

Grant of bail despite prior violation of bail conditions - risk of absconding as factor in bail adjudication - COFEPOSA detention and its impact on criminal proceedings - Whether the petitioner, who previously violated bail conditions and underwent COFEPOSA detention, should be granted bail pending filing of final report. - HELD THAT: - The court recognised the prosecution's apprehension arising from the applicant's prior failure to comply with express bail conditions and the consequent risk of absconding. It noted that the applicant had been initially granted bail, later violated conditions (including overstaying permission to leave the jurisdiction) and was subsequently apprehended and detained under COFEPOSA. The court observed that the investigation is in its final stage but, given the pandemic, trial completion is not imminent. Balancing the liberty interest against the risk of non compliance, the court concluded that bail could be permitted only subject to stringent safeguards. These safeguards were crafted to mitigate the specific risks identified: surrender of passport, compulsory periodic appearances before the investigating officer, a bond with solvent sureties, a security deposit liable for forfeiture on breach, prohibition on influencing witnesses and engaging in similar offences, and restriction on leaving the territorial jurisdiction without court permission. The court also made clear that any breach would permit the prosecution to move for cancellation of bail before the jurisdictional court. [Paras 4, 5, 6, 7]

Bail granted subject to execution of a bond with two solvent sureties and specified stringent conditions including surrender of passport, periodic appearances, a security deposit liable to forfeiture, prohibition on influencing witnesses, prohibition on similar offences, restriction on leaving Trivandrum district without permission, and liberty to the prosecution to seek cancellation on breach.

Final Conclusion: The petition is allowed: the applicant is released on bail on stringent conditions (bond with two sureties, surrender of passport, periodic reporting, security deposit with forfeiture, non interference with witnesses, prohibition on similar offences, and restriction on leaving the district); prosecution may move for cancellation on any breach.

Provisional release under Section 110A of the Customs Act, 1962 - Imported goods cleared for home consumption (Section 2(25)) - Plant Quarantine compliance / Phytosanitary Certificate and prohibition under Plant Quarantine (Regulation of Import into India) Order, 2003 - Substantial compliance and safeguarding revenue as condition for provisional release - Remand for reconsideration of provisional release with conditions

Provisional release under Section 110A of the Customs Act, 1962 - Imported goods cleared for home consumption (Section 2(25)) - Substantial compliance and safeguarding revenue as condition for provisional release - Whether the goods cleared for home consumption after SIIB investigation ought to be provisionally released under Section 110A. - HELD THAT: - The Tribunal recorded that the consignment in appeal C/60425/2020 had been cleared for home consumption after SIIB investigation which concluded that the country of origin was the Kingdom of Saudi Arabia. Once cleared for home consumption the goods cease to be "imported goods" under Section 2(25). In view of that factual position, and the perishable nature of the goods, the Tribunal held that provisional release ought to be reconsidered by the adjudicating authority by applying reasonable conditions to protect revenue rather than by treating clearance as vitiated on mere third party material. The Tribunal therefore remanded the matter to the adjudicating authority to re consider the request for provisional release and pass orders in a judicious manner within seven days from receipt of the order. [Paras 7]

Matter remanded to the adjudicating authority to re consider provisional release of the goods in appeal C/60425/2020 within seven days.

Provisional release under Section 110A of the Customs Act, 1962 - Plant Quarantine compliance / Phytosanitary Certificate and prohibition under Plant Quarantine (Regulation of Import into India) Order, 2003 - Substantial compliance and safeguarding revenue as condition for provisional release - Whether the goods seized at port for alleged non compliance with Plant Quarantine requirements ought to be provisionally released under Section 110A. - HELD THAT: - In appeal C/60424/2020 the Tribunal noted that the Phytosanitary Certificate for re export on record incorporated details showing origin as Kingdom of Saudi Arabia and that the importer had furnished the certificate of re export. Considering the substantial compliance by production of the re export certificate, the perishable nature of the goods and the need to safeguard revenue, the Tribunal directed the adjudicating authority to re consider the provisional release request in a manner consistent with similar cases and to decide the matter within seven days. The remand leaves the adjudicating authority to examine Plant Quarantine compliance, revenue protection and appropriate conditions for provisional release. [Paras 7]

Matter remanded to the adjudicating authority to re consider provisional release of the goods in appeal C/60424/2020 within seven days.

Final Conclusion: Both appeals are allowed to the extent that they are remitted to the adjudicating authority for fresh consideration of the requests for provisional release under Section 110A, each to be decided in a judicious manner within seven days taking into account the perishable nature of the goods and appropriate conditions to safeguard the revenue.

Confiscation for want of BIS certification - classification as LED Modules versus LED chains - redrawal of samples and retest under Circular No. 30/2017-Cus. - admissibility of additional evidence under Rule 23(3) of the CESTAT Procedure Rules, 1992 - penalty under Section 112(a) of the Customs Act, 1962

Confiscation for want of BIS certification - classification as LED Modules versus LED chains - Whether the order of absolute confiscation (and ancillary penalty) could be sustained where the BIS test report, after redrawal and retest, confirmed the imported goods to be LED Modules. - HELD THAT: - The Tribunal examined the rejection of the original BIS test report by the adjudicating authority on the basis that photographs did not match the sample; it held that photographic variance alone, being secondary evidence, was an insufficient foundation to classify the goods as 'LED chains' and to sustain confiscation. Following this Bench's direction, a redrawal was effected and BIS reconfirmed the goods as LED Modules (standard IS 16103). On the basis of the retest report and related communications, the Tribunal concluded that the confiscation order did not survive legal scrutiny and therefore could not be maintained. The Tribunal also noted that the Port Duty Officer's communication indicating that compulsory BIS registration mark was not required for the item supported clearance as LED Modules. (See paras 3-4.) [Paras 3, 4]

Order of absolute confiscation and penalty set aside; goods to be treated as LED Modules for clearance.

Redrawal of samples and retest under Circular No. 30/2017-Cus. - Whether the option of redrawal and retest under Circular No. 30/2017-Cus. ought to have been availed by the adjudicating authority when discrepancy was noticed between the sample and photographs. - HELD THAT: - The Tribunal observed that Circular No. 30/2017-Cus. permits redrawal and retest where discrepancies arise between test results and supporting material, and that the option was not invoked by the adjudicating authority or the Commissioner (Appeals) despite such discrepancy being recorded. The Bench had earlier directed redrawal, which was subsequently carried out; the availability and exercise of the redrawal/retest mechanism under the Circular was a relevant procedural remedy that ought to have been considered prior to sustaining confiscation. (See para 3.) [Paras 3]

Failure to invoke redrawal/retest was a procedural lacuna; redrawal and retest subsequently carried out led to reversal of confiscation.

Admissibility of additional evidence under Rule 23(3) of the CESTAT Procedure Rules, 1992 - Whether the e-mail printouts of the BIS retest report and Port Duty Officer's communication could be accepted as additional evidence and relied upon by the Tribunal. - HELD THAT: - Relying on Rule 23(3) of the CESTAT Procedure Rules, 1992, the Tribunal accepted the two e-mail printouts containing the BIS retest report and the Port Duty Officer's cover note as additional evidence. Having admitted and considered these documents, the Tribunal treated them as establishing that the imported goods were LED Modules and that compulsory BIS registration mark was not required for clearance, which informed the final order setting aside confiscation. (See para 3.) [Paras 3]

E-mail printouts of the retest report and cover communication admitted as additional evidence and relied upon to quash the confiscation order.

Final Conclusion: The appeal is allowed; the order of the Commissioner (Appeals) dated 26.06.2020 confirming absolute confiscation and penalty is set aside. The respondent is directed to treat the imported goods as LED Modules for clearance in favour of the appellant and to complete the clearance process within one month of communication of this order.

Disqualification of directors - reactivation of DIN and DSC - CFSS-2020 - proviso to Section 167(1)(a) - opportunity to avail the scheme - directors of struck off companies seeking appointment in other companies

Disqualification of directors - proviso to Section 167(1)(a) - Mukut Pathak precedent - retrospective effect - Legal effect of the proviso to Section 167(1)(a) on directors disqualified prior to 7th May 2018. - HELD THAT: - The Court applied and followed the decision in Mukut Pathak that the proviso to Section 167(1)(a) cannot be given retrospective effect. Consequently, directors who incurred disqualification prior to 07.05.2018 do not demit office in companies other than the defaulting company by operation of that proviso. The continuing validity of Mukut Pathak means such disqualifications qua active companies are liable to be set aside and the deactivation arising solely from the proviso cannot be sustained in respect of periods prior to 07.05.2018. [Paras 4]

The proviso to Section 167(1)(a) does not apply retrospectively; Mukut Pathak continues to govern disqualifications occurring before 07.05.2018.

CFSS-2020 - opportunity to avail the scheme - reactivation of DIN and DSC - directors of struck off companies seeking appointment in other companies - Relief to be granted to directors (including those of struck off companies) to enable them to avail CFSS-2020 or to be appointed in/continue as directors of other companies by reactivating DIN/DSC. - HELD THAT: - The Court recognized CFSS-2020 as a scheme to provide a fresh start to defaulting companies and their directors and held that its purpose would be frustrated if directors remained disqualified where a substantial part of the disqualification period has elapsed. In line with earlier decisions (including Sandeep Agarwal and Radhika Byrne), directors who are disqualified but fall within categories capable of availing the Scheme - including directors of struck off companies seeking appointment in other/new companies or directors who are also associated with active companies - should be given an opportunity to avail the Scheme. The Court observed that the launch of CFSS-2020 constitutes a fresh and continuing cause of action and, where applicable, questions of delay or limitation would not preclude relief. The Court further indicated that if the Scheme is extended beyond its earlier cut-off, eligible directors should be permitted to avail its benefits. [Paras 4, 5, 6]

Directors who fall within the Scheme's scope and who have undergone a substantial period of disqualification ought to be allowed to avail CFSS-2020; eligible directors' DINs and DSCs should be reactivated to permit them to act as directors or set up new companies.

Reactivation of DIN and DSC - Application of the above principles to the petitioners and the specific relief ordered. - HELD THAT: - The petitioners were found to fall within the relevant categories (including directors of a struck off company and seeking to act in/establish other companies). In furtherance of the scheme's purpose and given that a substantial part of the disqualification period had elapsed, the Court directed immediate operational relief by ordering reactivation of the petitioners' DIN and DSC to enable them to continue as directors of their active company and to form new companies in accordance with law. A short timeline was fixed for compliance. [Paras 7]

Petitioners' DINs and DSCs to be reactivated within one week to enable them to act as directors and to set up companies.

Final Conclusion: The Court followed Mukut Pathak on non-retrospectivity of the proviso to Section 167(1)(a); affirmed that CFSS-2020 affords eligible defaulting companies and their directors a fresh start and that directors (including those of struck off companies who have served a substantial part of disqualification) should be permitted to avail the Scheme; accordingly, the petitioners' DINs and DSCs were ordered reactivated within one week and the petition disposed of.

Virtual/Video Conferencing and Other Audio-Visual Means for shareholder meetings - Scheme of Arrangement under Section 230(1)(b) - Service of notices to creditors and debenture holders - Compliance with MCA checklist/guidelines for VC/OVAM meetings - Preservation of unedited meeting recording for verification - Electronic dispatch of notices and facility for e-mail registration - Placement of notices on company, SEBI and stock exchanges' websites

Virtual/Video Conferencing and Other Audio-Visual Means for shareholder meetings - Scheme of Arrangement under Section 230(1)(b) - Permission to convene and conduct the equity shareholders' meetings of Applicant Company 1 and Applicant Company 3 through video-conferencing and/or other audio-visual means in place of physical meetings. - HELD THAT: - The Tribunal, having regard to the prevailing COVID-19 pandemic and the impracticability of convening large physical meetings while maintaining social distancing, modified its earlier directions and permitted the equity shareholders' meetings called for considering the Scheme (an arrangement under Section 230(1)(b) between the companies and their shareholders) to be convened on specified alternate dates through video-conferencing and/or other audio-visual means without requiring physical presence at a common venue. The Tribunal recorded that physical meetings were infeasible, relied upon the MCA extension permitting meetings via VC/OVAM and the availability of authorised virtual platforms capable of accommodating the companies' shareholder numbers, and consequently allowed the meetings to proceed virtually on the revised dates and times. [Paras 3, 9]

The shareholders' meetings of Applicant Company 1 and Applicant Company 3 are permitted to be convened and conducted by video-conferencing and/or other audio-visual means on the specified alternative dates and times.

Compliance with MCA checklist/guidelines for VC/OVAM meetings - Virtual/Video Conferencing and Other Audio-Visual Means for shareholder meetings - Obligation of the Applicant Companies to comply with the MCA's checklist/broad guidelines for conducting meetings through VC/OVAM. - HELD THAT: - The Tribunal accepted the Regional Director, MCA's affidavit confirming that NSDL's virtual platform is authorised and suitable, and reproduced the MCA checklist containing pre-meeting, notice, advertisement and on-the-day requirements for VC/OVAM meetings. The Applicant Companies undertook to comply with the checklist/guidelines, and the Tribunal directed that the meetings to be conducted by VC/OVAM shall comply with those MCA-prescribed measures to ensure adequate notice, participation, question-asking mechanisms, and voting facilities. [Paras 6, 9]

Applicant Company 1 and Applicant Company 3 must comply with the MCA checklist/guidelines when conducting the meetings via VC/OVAM.

Preservation of unedited meeting recording for verification - Virtual/Video Conferencing and Other Audio-Visual Means for shareholder meetings - Requirement to record and preserve unedited raw footage of the meetings conducted by video-conferencing or other audio-visual means. - HELD THAT: - Given the virtual mode of the meetings, the Tribunal directed that the meetings shall be duly recorded and that the unedited raw footage be preserved and made available for verification if deemed necessary at a later stage. This preserves a contemporaneous record of the proceedings and voting for potential future scrutiny. [Paras 9]

The meetings conducted by VC/OVAM shall be recorded and the unedited raw footage preserved for possible verification.

Service of notices to creditors and debenture holders - Electronic dispatch of notices and facility for e-mail registration - Modification of the earlier directions on issuing notices to specified creditors and debenture holders so that notices shall be sent based on the companies' records as on 30.09.2020 and all notices shall be sent in electronic form with provision for e-mail registration. - HELD THAT: - The Tribunal observed that the earlier cut-off dates for notifying creditors may not reflect the current creditor position and, on the Applicant Companies' request, directed that notices referred to in paragraph 20 of the earlier order be issued to those secured and unsecured creditors (and debenture holders where applicable) having outstanding of Rs. 10,00,000 and more as on 30.09.2020. It further ordered that all such notices, including notices of postal ballot to shareholders and notices to creditors/debenture holders, shall be sent in electronic form and that persons whose e-mail addresses are not available shall be allowed to register their e-mail addresses to receive the notice. [Paras 8, 9]

Notices to relevant creditors/debenture holders shall be issued based on records as on 30.09.2020, shall be sent electronically, and facilities shall be provided for registration of e-mail addresses.

Placement of notices on company, SEBI and stock exchanges' websites - Service of notices to creditors and debenture holders - Requirement to place notices on the companies' websites and to send documents to SEBI and the stock exchanges for publication. - HELD THAT: - The Tribunal directed, following the proviso to Section 230(3), that notices to members, creditors and debenture holders shall also be placed on the companies' websites and, given that Applicant Company 1 and Applicant Company 3 are listed entities, shall be sent to SEBI and the stock exchanges where the securities are listed for placing on their websites in addition to newspaper publication, thereby ensuring wider dissemination in lieu of physical circulation. [Paras 9]

Notices shall be placed on the companies' websites and sent to SEBI and the respective stock exchanges for publication, in addition to required newspaper publications.

Scheme of Arrangement under Section 230(1)(b) - Applicant Companies withdrew the prayer to change the Appointed Date and the original Appointed Date of April 1, 2019 remains unchanged. - HELD THAT: - The Tribunal recorded the Applicant Companies' subsequent affidavits wherein they sought to withdraw their earlier request for amendment of the Appointed Date. On that basis, the Tribunal accepted that the applicants are not pressing for change and ordered that the original Appointed Date of April 1, 2019 in the Scheme shall remain unchanged. [Paras 7]

The prayer for change in the Appointed Date is withdrawn and the Appointed Date remains April 1, 2019.

Virtual/Video Conferencing and Other Audio-Visual Means for shareholder meetings - Service of notices to creditors and debenture holders - Ancillary procedural directions and compliance filing requirements relating to the modified order. - HELD THAT: - The Tribunal directed that the Applicant Companies shall file proof of compliance electronically within ten days from completion of the stated compliances, include prescribed brief details (date of Board resolution, valuation, method adopted, share exchange ratio and Appointed Date) in the notice to shareholders to enable informed decision-making, and specified that paragraph 9 of the original order stands modified mutatis mutandis while other directions in the original order remain unaltered. [Paras 9, 10, 11]

The Applicant Companies must include specified scheme details in the notices and file electronic proof of compliance within ten days; paragraph 9 is modified as ordered and other directions remain unaltered.

Final Conclusion: The Tribunal, in view of the COVID-19 pandemic and on the applicants' undertakings and MCA's endorsement of authorised virtual platforms, modified its earlier order to permit the equity shareholders' meetings of Applicant Company 1 and Applicant Company 3 to be convened by video-conferencing/other audio-visual means on specified alternative dates, mandated compliance with MCA guidelines, required electronic issuance and wider publication of notices (using 30.09.2020 as the cut-off for certain creditors), directed preservation of unedited meeting recordings and filing of proof of compliance, and recorded withdrawal of the prayer to change the Appointed Date (which remains April 1, 2019).

Restoration of company name under Section 252(3) - Strike off from register for non filing of financial statements and annual returns - Requirement of filing latest balance sheet and Income tax return acknowledgment as condition for restoration - Direction to Registrar of Companies to restore and notify status and permit filing - Conditional restoration subject to compliance, fees and undertaking - Power of Registrar to initiate penal action for late filings despite restoration

Restoration of company name under Section 252(3) - Strike off from register for non filing of financial statements and annual returns - Order for restoration of the appellant company's name to the Register of Companies - HELD THAT: - The Tribunal, after considering the appellant's explanation regarding cessation of operations caused by alleged criminal acts of employees, the report of the Registrar of Companies and the statutory provision reproduced from Section 252(3), held that it would be just and equitable to restore the company's name. The Tribunal recorded that the strike off was effected in accordance with the RoC's statutory procedure but nevertheless directed restoration subject to compliance with conditions imposed in the order. The Tribunal therefore ordered the RoC to change the company's status from 'Strike off' to 'Active', to allow filing of statutory documents and to intimate bankers to defreeze accounts upon compliance. [Paras 14]

The Tribunal ordered restoration of the company's name to the Register of Companies and directed the RoC to take consequential actions to re activate the company.

Requirement of filing latest balance sheet and Income tax return acknowledgment as condition for restoration - Conditional restoration subject to compliance, fees and undertaking - Restoration was made conditional on production of latest balance sheet, financial statements for year ending 31st March 2019, Income tax return acknowledgment for Assessment Year 2019-20, filing of statutory documents with prescribed fees/additional fee/fine, and submission of an undertaking regarding non use of accounts for tainted money during demonetisation - HELD THAT: - Although the Tribunal found restoration to be just and equitable, it expressly recorded that the appellant had not produced the balance sheet/financial statements for year ending 31st March 2019 nor the Income tax Return Acknowledgment for AY 2019-20. Consequently, the Tribunal directed that restoration by the RoC shall be undertaken only after those documents are produced; directed filing of all statutory documents with applicable fees/additional fee/fine within 30 days of restoration; and required a joint undertaking from shareholders/directors regarding non use of accounts to transact tainted money during demonetisation. These conditions form part of the restoration order. [Paras 12, 14]

Restoration permitted only after production of the specified financial and tax documents and completion of filing and undertaking obligations within the timelines fixed.

Costs and directed payment to public fund as condition of restoration - Imposition of cost payable to PM CARES FUND as condition for restoration - HELD THAT: - The Tribunal directed the appellant to pay costs of Rs. 50,000 to the PM CARES FUND and to furnish proof of payment to the RoC within three weeks of receipt of the order while submitting the required documents, failing which the restoration order would lapse. This condition was imposed as part of the terms permitting restoration. [Paras 14]

The appellant must pay the directed costs to PM CARES FUND and produce proof of payment within the stipulated time, failing which the order will lapse.

Interim restraint on alienation of assets - Prohibition on alienation or disposal of valuable assets until compliance with directions - HELD THAT: - As part of protective measures supporting the restoration, the Tribunal prohibited the company from alienating or disposing of any of its valuable assets until all compliances mandated in the order are completed. This restraint is intended to preserve the company's estate while restoration and statutory filings are effected. [Paras 14]

The company shall not alienate or dispose of valuable assets until it has complied with the directions in the restoration order.

Power of Registrar to initiate penal action for late filings despite restoration - Restoration does not bar the RoC from proceeding against the company and its directors for alleged late filings or other compliance lapses - HELD THAT: - The Tribunal expressly clarified that allowing the appeal and restoring the company's name would not circumscribe the Registrar's statutory power to take action against the company and its directors in relation to late filing of forms, documents, returns or other compliance breaches under the Companies Act. Thus, restoration was granted without extinguishing regulatory or penal remedies available to the RoC. [Paras 14]

The RoC remains entitled to proceed against the company and its directors for alleged defaults notwithstanding restoration of the company's name.

Registrar to publish order in Official Gazette upon compliance - Direction to the Registrar to publish the Tribunal's restoration order in the Official Gazette after compliance - HELD THAT: - The Tribunal directed that upon fulfillment of the conditions and delivery of required documents, the Registrar of Companies, Kochi shall, under his office name and seal, publish the restoration order in the Official Gazette. This publication is to formalize the restoration in the public record. [Paras 14]

The RoC is directed to publish the order in the Official Gazette after the company has complied with the directions.

Final Conclusion: The Tribunal allowed the company appeal and ordered restoration of the company's name to the Register of Companies as if not struck off, subject to production of specified financial and tax documents, filing of statutory records with prescribed fees/fine, submission of an undertaking, payment of directed costs to PM CARES FUND, a prohibition on alienation of assets until compliance, and without prejudice to the RoC's power to proceed against the company and its directors for past defaults; the RoC is directed to effect restoration and publish the order in the Official Gazette upon compliance.

Scheme of Amalgamation - Dispensation of meetings - Convening of meetings of Unsecured Creditors - Appointment of Chairperson and Scrutinizer - Quorum for creditor meetings - Publication of notice of meeting - Compliance with Companies Act, 2013 and Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - Filing of Chairperson's and Scrutinizer's reports

Dispensation of meetings - Convening of meetings of Unsecured Creditors - Appointment of Chairperson and Scrutinizer - Quorum for creditor meetings - Publication of notice of meeting - Whether meetings of the Shareholders and Secured Creditors may be dispensed with and meetings of the Unsecured Creditors of the three applicant companies should be convened, with appointment of chairperson and scrutinizer, fixation of quorum and directions for publication of notice. - HELD THAT: - The Tribunal found that the applicant companies had complied with the statutory prerequisites for seeking dispensation of meetings of Shareholders and Secured Creditors: the Board approvals, statutory auditor/chartered accountant certificates verifying shareholders and creditors, and disclosure of material facts together with required documents. On that basis the Tribunal exercised its power to dispense with convening the meetings of Shareholders and Secured Creditors. Concurrently, the Tribunal directed the convening of meetings of Unsecured Creditors of Applicant Company Nos. 1, 2 and 3 on 14.08.2020 at specified times and places for considering the composite Scheme of Amalgamation. For each meeting the Tribunal appointed a Chairperson and a Scrutinizer, fixed their remuneration, prescribed a quorum (30% of total value of Unsecured Creditors), and directed publication of the notice in the specified English and Kannada newspapers. These directions were given as part of the Tribunal's exercise of its powers under Sections 230-232 and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 to ensure statutory process for consideration of the Scheme by unsecured creditors. [Paras 5, 6]

Dispensed with meetings of Shareholders and Secured Creditors; directed convening of Unsecured Creditors' meetings for each applicant company on specified dates, appointed Chairperson and Scrutinizer, fixed quorum and required publication of notices.

Compliance with Companies Act, 2013 and Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - Filing of Chairperson's and Scrutinizer's reports - What further procedural compliances are required after holding the creditors' meetings and the timelines for filing reports and the petition for sanction of the Scheme. - HELD THAT: - The Tribunal directed that the Applicant Companies and the appointed Chairperson and Scrutinizer must follow all applicable provisions of the Companies Act, 2013 and the 2016 Rules in convening and conducting the meetings. It required the Chairperson and Scrutinizer to file their respective reports with the Tribunal Registry within ten days from the conclusion of each meeting. Thereafter the Applicant Companies were granted two weeks to file the appropriate Company petition to seek sanction of the Scheme, subject to all statutory compliances. The order also preserved the right of any aggrieved person or entity to seek interim relief from the Tribunal by filing an interim application. [Paras 6]

Directed strict compliance with statutory provisions in convening and conducting meetings; required filing of Chairperson's and Scrutinizer's reports within ten days and filing of the Company petition within two weeks thereafter; preserved avenue for interim applications by aggrieved parties.

Final Conclusion: C.A.(CAA) No. 27/BB/2020 disposed of by dispensing with meetings of Shareholders and Secured Creditors and directing convening of meetings of Unsecured Creditors for the three applicant companies with appointed Chairperson and Scrutinizer, subject to statutory compliance and filing of requisite reports and petition within the timelines specified by the Tribunal.

Clean hands doctrine in seeking equitable relief under sections 241/242/244 - removability of a life/permanent director - compliance with special notice and removal procedure under section 169 read with section 115 - oppression and mismanagement jurisdiction of the Tribunal - fit and proper requirement for directors affecting corporate licence

Clean hands doctrine in seeking equitable relief under sections 241/242/244 - Petitioner failed to approach the Tribunal with clean hands by not disclosing material facts and by instituting other proceedings against the company and its officers. - HELD THAT: - The Tribunal found that the Petitioner did not disclose material facts, including the pendency of criminal proceedings and multiple civil suits involving his dealings with the company, and had himself been the subject of allegations of financial irregularities. The Petitioner, while a substantial shareholder and director, had fiduciary duties and had initiated or been party to other fora before approaching the Tribunal. On the record before the Tribunal these omissions and the existence of adverse proceedings indicated that the Petitioner had not come with clean hands and therefore was not entitled to equitable relief under the oppression and mismanagement provisions. [Paras 7]

Petition dismissed in part on the ground that the Petitioner did not come with clean hands and thus was not entitled to equitable relief.

Removability of a life/permanent director - A director appointed as a life or permanent director can be validly removed by the company if the statutory procedure for removal is complied with. - HELD THAT: - Relying on settled precedents and established company law principle, the Tribunal held that appointment as a life or permanent director does not confer indefeasible tenure. The statutory scheme permits removal (as illustrated by earlier authority) and the Articles cannot confer immunity from removal where the statutory requirements are satisfied. Thus the legal proposition is that permanence in articles does not prevent removal under the Act if the conditions for removal are met. [Paras 8]

Permanent or life directorship does not preclude removal; removal is permissible if statutory requirements are complied with.

Compliance with special notice and removal procedure under section 169 read with section 115 - oppression and mismanagement jurisdiction of the Tribunal - The removal of the Petitioner was carried out in accordance with the statutory procedure (special notice, board notice, opportunity to be heard, and EGM) and therefore was valid; Tribunal will not intervene. - HELD THAT: - The Tribunal examined the sequence of notices and meetings. The 4th Respondent, holding requisite shareholding, served special notice, the company sent requisite board notices and convened the EGM after posting notices and communicating the draft resolution. The Petitioner received the notices, did not provide a written representation in time, did not attend the board meeting and was absent at the EGM, offering only a belated request for adjournment at the start of the EGM. A quorum representing a majority of paid-up capital was present and the members voted for removal; the company filed Form DIR-12. On these facts the Tribunal concluded the requirements of section 169 and section 115 were complied with and the Petitioner had been afforded reasonable opportunity; allegations of fabrication or procedural irregularity were not substantiated. Consequently, there was no ground for the Tribunal to set aside the removal or to grant relief under sections 241/242/244. [Paras 12, 13, 14, 15, 16]

Procedure for removal complied with the Act; the removal is valid and does not call for interference by the Tribunal.

Fit and proper requirement for directors affecting corporate licence - The company and its majority shareholders legitimately assessed that the Petitioner was not a 'fit and proper' person to continue as director in light of allegations and conduct affecting the company's licence and business. - HELD THAT: - The Tribunal noted that the company, regulated in part by IRDAI norms for corporate agents, found the Petitioner unsuitable given allegations of fraud, misappropriation and other misconduct. The company and its shareholders acted on concerns that the Petitioner's continuance affected regulatory qualification and the company's interests. This assessment, coupled with the petitioner's own conduct and pending proceedings, supported the company's decision to remove him. [Paras 9]

Company's determination that the Petitioner was not 'fit and proper' is a relevant factor supporting the removal.

Final Conclusion: The Tribunal dismissed the petition. It held that the Petitioner had not come with clean hands, that a life/permanent directorship is not immune from removal, that the statutory procedure under section 169 read with section 115 was followed and the Petitioner was afforded reasonable opportunity, and that the company's assessment of the Petitioner's unfitness as director supported removal; accordingly no relief under sections 241/242/244 was granted.

Mandatory service of demand notice under Section 8 of the Insolvency and Bankruptcy Code - maintainability of an application under Section 9 in absence of Section 8 notice - effect of transfer of winding-up proceedings on requirement to serve fresh demand notice - abatement of petition and setting aside of CIRP orders for non-compliance with mandatory preconditions - liberty to operational creditor to issue fresh Section 8 notice and file a fresh Section 9 application

Mandatory service of demand notice under Section 8 of the Insolvency and Bankruptcy Code - maintainability of an application under Section 9 in absence of Section 8 notice - Whether service of a demand notice under Section 8 is a mandatory precondition for maintainability of an application under Section 9 of the I&B Code. - HELD THAT: - The Tribunal held that service of the demand notice in the prescribed manner under Section 8 is mandatory and a forerunner to initiating insolvency proceedings. The notice must be delivered in the prescribed form and by the prescribed modes so that the corporate debtor is put on notice and afforded the statutory 10-day opportunity to raise a dispute or make payment. A Section 9 application filed without compliance with Section 8 is not maintainable and the defect is not a curable/formal defect because a bankruptcy notice sets in motion the insolvency machinery which Parliament intended to be rigidly and narrowly construed. The Tribunal relied on the statutory scheme and precedent to conclude that absence of service of the Section 8 notice vitiates the Section 9 admission. [Paras 40, 43, 47, 53]

Service of demand notice under Section 8 is mandatory; an application under Section 9 without such service is not maintainable.

Effect of transfer of winding-up proceedings on requirement to serve fresh demand notice - maintainability of an application under Section 9 in absence of Section 8 notice - Whether the transfer of a winding up petition from the High Court to the Adjudicating Authority under the Transfer Rules absolves the operational creditor of the requirement to have served a fresh demand notice under Section 8 before filing under Section 9. - HELD THAT: - The Tribunal examined Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016 and the proviso relied upon by the operational creditor. It rejected the contention that records transferred from the High Court dispense with the statutory requirement of serving a demand notice under Section 8. The Tribunal held that Rule 5 does not obviate the mandatory obligation to serve a Section 8 notice or otherwise comply with Section 8 before a Section 9 filing; the transferred records do not cure the absence of the Section 8 service. Precedents were cited to support that failure to furnish required information or to issue the Section 8 notice results in abatement or non-maintainability. [Paras 55, 56]

Transfer of proceedings does not relieve the operational creditor from serving a fresh Section 8 notice; Rule 5 does not cure non compliance with Section 8.

Abatement of petition and setting aside of CIRP orders for non-compliance with mandatory preconditions - Whether the admission order and consequential CIRP orders fall to be set aside where the Section 8 notice was not served and returned unserved. - HELD THAT: - On the admitted fact that the demand notice was returned unserved and that the Adjudicating Authority admitted the Section 9 petition without establishing service of the Section 8 notice, the Tribunal found the admission unsustainable. Consequential orders-appointment of Interim Resolution Professional, declaration of moratorium and other actions taken pursuant to admission-were declared illegal and set aside. The petition was held to be abated and the Adjudicating Authority directed to close the CIRP proceedings and release the corporate debtor from the rigours of the Code. [Paras 54, 60]

Impugned admission and all consequential CIRP orders are set aside; the petition is dismissed as abated and the corporate debtor is released from CIRP rigours.

Liberty to operational creditor to issue fresh Section 8 notice and file a fresh Section 9 application - Whether the operational creditor is entitled to issue a fresh demand notice under Section 8 and, upon service, file a fresh Section 9 application. - HELD THAT: - While setting aside the earlier admission for procedural non compliance, the Tribunal granted the operational creditor leave to issue a fresh demand notice in accordance with Section 8(1) of the Code. It clarified that any fresh Section 9 application filed upon service of such notice shall be decided on merits by the Adjudicating Authority uninfluenced by the observations made in the present order, subject to law. [Paras 61]

Operational creditor granted liberty to issue fresh Section 8 notice and to file a fresh Section 9 application, which shall be adjudicated on merits.

Final Conclusion: The appeal is allowed. The Tribunal set aside the Adjudicating Authority's admission order and all consequential CIRP actions for failure to serve the mandatory Section 8 demand notice; the company is released from CIRP and the petition is dismissed as abated. The operational creditor is granted liberty to issue a fresh Section 8 notice and, if service is effected and default established, to file a fresh Section 9 application to be decided on merits.

Eligibility under Section 29A - willful defaulter - commercial wisdom of the Committee of Creditors - non justiciability of CoC decision on rejection of resolution plan - liquidation under Section 33(2) - MSME exemption under Section 240A limited to clauses (c) and (h) of Section 29A - jurisdictional limit on adjudicator to revisit willful defaulter declaration - compliance with RFRP/Evaluation Matrix and relevant regulations

Eligibility under Section 29A - willful defaulter - Appellant was ineligible to submit a resolution plan by virtue of being declared a willful defaulter and therefore barred under Section 29A(b). - HELD THAT: - The Tribunal found on the record that the Appellant had been declared a willful defaulter by respondent banks in terms of RBI guidelines and therefore fell squarely within the disqualification envisaged by Section 29A(b). The interim order of the High Court permitting submission of a resolution plan did not negate the statutory ineligibility nor the COC's right to reject a plan that conflicts with the Code. The Appellant's challenge to the impugned order on this ground therefore lacked locus. [Paras 33]

Appellant is ineligible under Section 29A(b) and cannot challenge the rejection of his plan on that basis.

Commercial wisdom of the Committee of Creditors - non justiciability of CoC decision on rejection of resolution plan - liquidation under Section 33(2) - The CoC's decision to reject the resolution plan and to liquidate the Corporate Debtor is a commercial decision not amenable to judicial re examination by the Adjudicating Authority or this Tribunal, and mandates liquidation under Section 33(2). - HELD THAT: - Relying on the statutory scheme and the reasoning in K. Sashidhar, the Tribunal reiterated that the legislature confers primacy on the commercial wisdom of the CoC and limits judicial intervention. Where the resolution plan is rejected by the CoC, the Adjudicating Authority is obliged to initiate liquidation as envisaged by Section 33(2). The Tribunal held that a limited judicial review exists only for an approved plan; a rejected plan cannot be judicially revisited to question the CoC's business decision. [Paras 34, 35, 36, 37]

The COC's decision to reject the plan and to liquidate is non justiciable in the manner urged by the Appellant and liquidation under Section 33(2) was correctly ordered.

MSME exemption under Section 240A limited to clauses (c) and (h) of Section 29A - compliance with RFRP/Evaluation Matrix and relevant regulations - The Appellant could not avail the MSME exemption under Section 240A to escape disqualification under Section 29A(b), and its MSME registration was ineffective as it post dated initiation of CIRP. - HELD THAT: - On construction of Sections 29A and 240A, the Tribunal observed that Section 240A affords exemption only in relation to clauses (c) and (h) of Section 29A and does not cover clause (b) relating to willful defaulters. Further, the Corporate Debtor's MSME registration recorded after initiation of CIRP (post admission date) was without authority and could not validate an otherwise barred eligibility claim. Separately, the Tribunal noted that necessary RFRP documents, evaluation matrix and prescribed affidavits/undertakings required under the Code must accompany a resolution plan and the Appellant failed to comply. [Paras 21, 22, 39]

MSME exemption did not cure ineligibility under Section 29A(b); registration after CIRP admission was ineffective and the Appellant failed required compliance for a valid resolution plan.

Jurisdictional limit on adjudicator to revisit willful defaulter declaration - This Tribunal cannot examine the correctness of the willful defaulter declaration; the challenge to that declaration lies in the pending High Court proceedings and not before the Tribunal in the CIRP appeal. - HELD THAT: - The Tribunal recorded that a writ petition contesting the willful defaulter declaration was pending before the High Court which had not stayed the declaration and had only permitted submission of a plan. Accordingly, the RP and CoC were entitled to rely on the current status of the Appellant as a willful defaulter and the Tribunal has no jurisdiction to adjudicate the correctness of the bank declarations in the CIRP appeal. [Paras 38]

The correctness of the willful defaulter declaration is outside the remit of this Tribunal and must be adjudicated in the pending High Court proceedings.

Compliance with RFRP/Evaluation Matrix and relevant regulations - Appellant's contention that he was not afforded the statutory 30 day period to submit a resolution plan is without merit, as he submitted his plan within the timeframe agreed in COC meetings and extension of CIRP was a commercial decision of the COC. - HELD THAT: - The record showed that the Appellant submitted his proposal within the timeline agreed in the COC meeting. The Tribunal emphasized that whether to seek extension of the CIRP timeline is a commercial choice of the CoC. Given the Appellant's failure to comply with requisite documentation and his ineligibility, the contention of denial of 30 days could not sustain. [Paras 23, 26, 40]

No infirmity in finding that the Appellant had opportunity to submit the plan within agreed time and that refusal to seek extension was within CoC's commercial discretion.

Final Conclusion: Having considered that the Appellant was disqualified under Section 29A(b) as a declared willful defaulter, that the CoC's rejection of his proposal was a commercial decision not amenable to re examination, that MSME relief did not cure the disqualification and that procedural timelines were not violated, the appeal is dismissed and the liquidation order is upheld.

Maintainability of parallel proceedings before Labour Court during pendency of appeal under Section 42 IBC - requirement to exhaust statutory appellate remedy under Section 42 IBC - power of Tribunal under Section 60(5) IBC to permit alternate remedies - ability of Liquidator to act only on crystallized claims/awards and not decide disputed liabilities without decree or award - limitation bar to raise an industrial dispute

Maintainability of parallel proceedings before Labour Court during pendency of appeal under Section 42 IBC - power of Tribunal under Section 60(5) IBC to permit alternate remedies - requirement to exhaust statutory appellate remedy under Section 42 IBC - limitation bar to raise an industrial dispute - ability of Liquidator to act only on crystallized claims/awards and not decide disputed liabilities without decree or award - Whether the Tribunal should permit the appellant to pursue remedies before the Labour Court and keep the pending appeal under Section 42 of the IBC in abeyance. - HELD THAT: - The Tribunal held that it is not its function to grant permission to a party to initiate or continue proceedings before a statutory forum; the aggrieved party must exhaust the remedy of appeal under Section 42 of the IBC, which the appellant has already invoked. Allowing the appellant to pursue Labour Court proceedings and stay the Section 42 appeal would amount to a delaying tactic prejudicial to the liquidation process. The Tribunal observed that claims for disputed liabilities cannot be unilaterally determined by the Liquidator in the absence of a crystallized decree or award, but that does not entitle the appellant to derail the appeal process before this Tribunal by seeking a parallel adjudication. The Tribunal further found that the appellant's attempt to raise an industrial dispute was time-barred and that approaching the Labour Court at this stage would be futile and would delay the CIR process. Accordingly, the IA seeking permission to pursue Labour Court remedies and to keep the Section 42 appeal in abeyance was rejected. [Paras 6, 7, 8]

IA dismissed; no permission granted to pursue Labour Court remedies or to keep the Section 42 appeal in abeyance.

Final Conclusion: The application under Section 60(5) IBC was dismissed; the appellant must proceed by the statutory remedy of appeal under Section 42 and may not be permitted to pursue parallel Labour Court proceedings so as to stay or delay the appeal or the liquidation process.

Debt and default - insolvency requirement for admission under Section 9 of the IBC - service of notice - settlement between parties - liberty to file fresh petition

Debt and default - insolvency requirement for admission under Section 9 of the IBC - Whether the petition under Section 9 could be admitted in the absence of pleading that the Corporate Debtor had become insolvent - HELD THAT: - The Tribunal observed that admission of a petition under the Code requires not only existence of debt and default but also that the Corporate Debtor has become insolvent by virtue of its financial position. Although correspondence annexed to the petition prima facie indicated admission of debt by the Corporate Debtor, the Petitioner failed to plead or establish insolvency of the Corporate Debtor and confined its case to non-payment of outstanding dues and its own status as a small entrepreneur. In view of this omission, the requisite condition for admission under Section 9 was not satisfied on the pleadings before the Tribunal. [Paras 5]

Petition could not be admitted on the basis of the existing pleadings for want of averment or evidence of insolvency; matter was not adjudicated on merits and the petition was disposed.

Service of notice - settlement between parties - liberty to file fresh petition - Appropriate course of action in view of failure to effect service and the Petitioner's omission to establish insolvency - HELD THAT: - The Tribunal noted repeated failures to effect service on the Respondent and that notices sent through the Registry remained unserved; the Petitioner also failed to comply with office objections within the time allowed. Rather than keeping the petition pending for service and further pleadings, the Tribunal directed the parties to attempt an amicable settlement, taking into consideration the Operational Creditor's status as a small entrepreneur. The Tribunal also recorded that if the Respondent failed to settle the dispute within two months of receipt of the order, the Petitioner would be at liberty to file a fresh petition in accordance with law for the same cause of action. [Paras 4, 6]

Company petition disposed with directions to the Respondent to settle the dispute within two months; failing which the Petitioner may institute fresh proceedings; registry to forward copy of the order to both parties.

Final Conclusion: The Tribunal disposed of C.P. (IB) No. 140/BB/2020 without admitting the Section 9 petition for want of pleading or evidence of insolvency, directed the parties to settle the dispute within two months (considering the Operational Creditor's small-entrepreneur status), granted the Petitioner liberty to file a fresh petition if settlement is not effected, and directed the Registry to forward copies of the order to both parties.

Assignment of unsold intangible assets - distribution of assets to secured creditor - relinquishment of security interest - dissolution of corporate debtor - early dissolution under Regulation 14 of IBBI (Liquidation Process) Regulations, 2016 - exercise of power under Section 54(2) of the Insolvency and Bankruptcy Code, 2016 - liquidation estate and realization of intangible assets

Assignment of unsold intangible assets - distribution of assets to secured creditor - relinquishment of security interest - Permitting the Liquidator to assign absolute rights over the unsold intangible assets (intellectual property) to the secured creditor, Technology Development Board, towards its admitted claim. - HELD THAT: - The Tribunal found that all other assets of the corporate debtor had been realized and only the intellectual property (IP) remained unsold, having elicited no bids in e-auctions and with private sale attempts failing due to market and technical reasons. The Technology Development Board had earlier created a charge over the IP and subsequently had relinquished that security, but later withdrew the relinquishment to enable dissolution. The liquidation proceeds realized to date were insufficient to meet liquidation costs and continued liquidation would yield no additional funds. In these circumstances the Adjudicating Authority, exercising discretion, permitted the Liquidator to assign absolute rights in the unsold IP to the secured creditor to satisfy its liability and facilitate completion of the liquidation process. [Paras 6, 7]

The Liquidator is permitted to assign absolute rights over the unsold intangible assets to Technology Development Board towards its liability.

Early dissolution under Regulation 14 of IBBI (Liquidation Process) Regulations, 2016 - exercise of power under Section 54(2) of the Insolvency and Bankruptcy Code, 2016 - liquidation estate and realization of intangible assets - Dissolution of the corporate debtor forthwith and ancillary directions to effect dissolution once the assignment to the secured creditor is completed. - HELD THAT: - Relying on Regulation 14, the Tribunal noted that the realizable properties were insufficient to cover liquidation costs and that no further investigation of affairs was necessary. Given the absence of realizable value in the remaining IP notwithstanding valuation attempts and marketing efforts, and the withdrawal by the secured creditor of its relinquishment to permit assignment, the Adjudicating Authority exercised its power under Section 54(2) of the Code to order dissolution immediately after the permitted distribution. The order includes directions to the Registry to forward the order to the Registrar of Companies and to the Liquidator to notify relevant authorities, while expressly preserving any personal liability of the company's directors. [Paras 5, 6, 7]

Subject to the permitted assignment to Technology Development Board, the corporate debtor is dissolved with immediate effect and the Registry and Liquidator are directed to notify the Registrar of Companies and other authorities; directors' personal liabilities, if any, are not absolved.

Final Conclusion: The Tribunal allowed the Liquidator to assign the unsold intellectual property to the secured creditor, Technology Development Board, in satisfaction of its claim and, upon such distribution, ordered immediate dissolution of Virtual Logic Systems Private Limited with directions to notify the Registrar of Companies and other authorities while preserving any personal liability of the directors.

Maintainability of petition under Insolvency and Bankruptcy Code, 2016 - initiation of corporate insolvency resolution process - default and proof of debt in operational creditor claim - contractual dispute resolution and alternative remedies - continuation of services and waiver or estoppel affecting right to initiate CIRP - abuse of process - force majeure clause and its bearing on cause of action - application of amended minimum default threshold

Default and proof of debt in operational creditor claim - contractual dispute resolution and alternative remedies - continuation of services and waiver or estoppel affecting right to initiate CIRP - force majeure clause and its bearing on cause of action - abuse of process - Petition under the Code by the operational creditor is not maintainable because the petitioner failed to make out even a prima facie case of undisputed default and the petition amounted to an abuse of the insolvency process. - HELD THAT: - The Tribunal found that the Licence Agreement contained express payment terms, a right to suspend services for non-payment, an agreed dispute-resolution mechanism and a Force Majeure clause. Despite non-payment the petitioner continued to provide services and did not invoke contractual remedies set out in the agreement. The petitioner relied only on uncorroborated emails and issued the statutory demand notice long after the alleged cause of action arose; the petition lacked adequate prima facie substantiation of an undisputed debt. Having regard to these facts, the contractual provisions including the dispute resolution mechanism and the Force Majeure clause, the delay in issuing the Code notice, and the broader context of economic distress, the Tribunal concluded that invoking the Code in these circumstances would amount to abuse of process. The Tribunal also noted the recent amendment raising the minimum default threshold but observed that its applicability would be examined when relevant; that observation did not convert the petition into a maintainable claim. On these grounds the petition was held misconceived and liable to be rejected. [Paras 5, 6, 7, 8, 9]

Company Petition rejected for failure to establish a prima facie case of undisputed default and for being an abuse of the Code.

Final Conclusion: C.P.(IB) No.164/BB/2020 is dismissed; Registry to communicate the order to the respondent; no order as to costs.

Summary order. Tax Appeal admitted on the specified substantial questions of law (A-G) and listed to be heard along with Tax Appeal No. 399/20.

Consideration of appeals on merits - condonation of delay - stay of recovery / coercive proceedings pending disposal - direction to dispose within fixed time-frame

Consideration of appeals on merits - condonation of delay - direction to dispose within fixed time-frame - The appellate authority must consider and decide the appeals, delay condonation petitions and stay petitions on merits and dispose them within a stipulated period. - HELD THAT: - The High Court directed that the appeals (Exhibits P2, P2(a) and P2(b)), the delay condonation petitions (Exts.P3, P3(a) and P3(b)) and the stay petitions (Exts.P4, P4(a) and P4(b)) filed by the petitioner before the 2nd respondent appellate authority are liable to be considered and disposed of on merits. The court mandated disposal in accordance with law and fixed a definite time-frame of six weeks from the date the appellate authority receives a copy of the judgment. This decision requires the appellate authority to examine the matters substantively rather than permitting immediate recovery to proceed without adjudication of those applications. [Paras 2, 3]

The 2nd respondent appellate authority is directed to consider and pass appropriate orders on the appeals, delay condonation petitions and stay petitions on merits and dispose of them within six weeks.

Stay of recovery / coercive proceedings pending disposal - Coercive recovery proceedings arising from the original penalty order are to be kept in abeyance until the appellate authority disposes of the pending applications. - HELD THAT: - As an ancillary but operative direction, the High Court ordered that until the appellate authority passes orders on the appeals and related petitions, coercive proceedings based on the original penalty order shall be kept in abeyance. This preserves the status quo and prevents recovery action from being taken pending conclusion of the appellate process directed by the court. [Paras 3]

Coercive proceedings under the original order shall remain in abeyance until the appellate authority disposes of the appeals and ancillary petitions.

Final Conclusion: Writ petition allowed by directing the appellate authority to consider and dispose of the appeals, delay condonation and stay petitions on merits within six weeks and ordering that coercive recovery proceedings be kept in abeyance until such disposal.

Section 138 of the Negotiable Instruments Act - Presumption under Section 139 of the Negotiable Instruments Act - Admission in insolvency petition as evidence of liability - Service of legal notice by certificate of posting

Section 138 of the Negotiable Instruments Act - Presumption under Section 139 of the Negotiable Instruments Act - Admission in insolvency petition as evidence of liability - Service of legal notice by certificate of posting - Whether the Trial Judge erred in acquitting the accused in respect of the offence under Section 138 of the N.I. Act. - HELD THAT: - The appellate court concluded that the materials on record established the essential ingredients of the offence. The accused admitted the signature on the cheque (Ex.P.1) and his own insolvency petition (Exs.P.8-P.10) listed the complainant as a creditor for the amount claimed, which amounted to an admission of liability. Service of the statutory demand notice was established by the certificate of posting and endorsements on returned registered posts; the accused's testimony did not satisfactorily negate service. The Trial Judge's reasons-doubting the complainant's financial capacity, treating the cheque as part payment, and holding lack of acquaintance between the parties-were held to be contrary to the documentary and oral evidence. The Trial Judge failed to consider and apply the statutory presumption under Section 139 of the N.I. Act despite the admitted signature and other incriminating material. On these grounds the acquittal was held to be perverse and liable to be set aside, and conviction under Section 138 was considered appropriate. [Paras 13, 14, 15, 16]

Acquittal set aside; accused convicted for the offence punishable under Section 138 of the N.I. Act and directed to pay the fine as ordered, failing which undergo simple imprisonment as provided in the order.

Final Conclusion: Appeal allowed. The judgment of acquittal in C.C.No.14227/2006 dated 05.01.2011 is set aside; the accused is convicted under Section 138 of the N.I. Act and directed to pay the fine as ordered, failing which to undergo simple imprisonment; trial court to secure the accused for sentence and record consequent proceedings.

Section 138 of Negotiable Instruments Act - Presumption under Section 118 and 139 of Negotiable Instruments Act - Post-dated cheque given as security - Continuing security clause in loan-cum-hypothecation agreement - Conviction and sentencing under Section 138 - Compensatory object of Section 138 (Damodar S. Prabhu principle)

Section 138 of Negotiable Instruments Act - Presumption under Section 118 and 139 of Negotiable Instruments Act - Post-dated cheque given as security - Continuing security clause in loan-cum-hypothecation agreement - Whether the complainant established the ingredients of offence under Section 138 of the N.I. Act and whether the accused rebutted the statutory presumptions relied upon by the complainant. - HELD THAT: - The accused admitted signing and issuing the cheque but contended it was a post dated cheque given only as security. Admission of signature and issuance engages the presumptions under Section 118 and 139 of the N.I. Act. The accused did not lead evidence to rebut those presumptions; mere suggestions in cross examination were denied and no cogent evidence was produced. The complainant produced the cheque, bank endorsement of dishonour, statutory notice and postal proof of service, and documents corroborating the claim. The trial court's reliance on the accused's alleged repossession and sale of the vehicle and on authorities concerning hire purchase agreements was held to be perverse because the loan cum hypothecation agreement contained a specific continuing security clause (Clause 11) which preserved the borrower's liability for any balance even after repossession and sale. Having regard to the statutory presumptions and absence of rebuttal, and to the continuing security provision distinguishing this contract from hire purchase cases relied upon by the trial court, the High Court held that the complainant proved all ingredients of Section 138 and that the acquittal was unsustainable. [Paras 14, 15, 16, 17, 18]

Acquittal set aside; accused held guilty of offence punishable under Section 138 of the N.I. Act.

Conviction and sentencing under Section 138 - Compensatory object of Section 138 (Damodar S. Prabhu principle) - What sentence and relief should follow conviction under Section 138 in the facts of this case. - HELD THAT: - Applying the principle that the purpose of Section 138 is compensatory rather than punitive, the Court exercised discretion to impose a fine rather than direct imprisonment. Considering the long pendency of debt and the nature of the offence, the Court sentenced the accused to pay a fine (to be treated as compensatory) and, acting under Section 357 Cr.P.C., directed payment of a specified sum to the complainant as compensation and the balance to the State towards prosecution expenses. The Court allowed default imprisonment as per law only in the contingency of non payment of the fine.

Accused sentenced to pay fine; compensation to complainant ordered and residual amount to be defrayed to the State; default imprisonment provided for non payment.

Final Conclusion: The High Court allowed the appeal, held the accused guilty under Section 138 of the Negotiable Instruments Act by applying statutory presumptions and by giving effect to the continuing security clause in the loan cum hypothecation agreement, set aside the trial court's acquittal as perverse, imposed a fine and directed payment of compensation to the complainant with provision for default imprisonment.