TaxTMI Updates e-Newsletter
Jan 29,2022

Undertaking to cooperate with summons - production of documents and evidence - coercive steps - seven days prior notice - no adjudication on merits

Undertaking to cooperate with summons - Acceptance of counsel's undertaking that the petitioner will cooperate with the respondents in response to the impugned summons and will not seek unnecessary adjournments. - HELD THAT: - The Court recorded the learned counsel's statement on behalf of the petitioner that the petitioner would cooperate with the respondents in responding to the impugned summons and would not seek unnecessary adjournments. The Court expressly accepted this undertaking and disposed of the petition on that basis, treating the undertaking as binding for the purpose of proceeding with the summons. [Paras 1]

The undertaking was accepted and the petition disposed of subject to that assurance.

Production of documents and evidence - coercive steps - seven days prior notice - Requirement that respondents must serve seven days' clear prior notice before taking any coercive steps based on the documents produced or evidence led by the petitioner. - HELD THAT: - The Court directed that if the respondents propose to take any coercive steps against the petitioner founded on the documents to be produced by the petitioner or the evidence to be led by the petitioner, the respondents shall first serve the petitioner with a clear seven days' prior notice before initiating such coercive measures. This direction operates as a protective procedural requirement while permitting the respondents to proceed after complying with the notice condition. [Paras 2]

Respondents must give clear seven days' prior notice before taking coercive steps based on the petitioner's produced documents or evidence.

No adjudication on merits - Court's non-adjudication on the substantive merits of the dispute and preservation of parties' contentions. - HELD THAT: - The Court expressly recorded that it had not gone into the merits of the matter and therefore did not decide the substantive contentions of either party. All contentions of the parties were kept open for determination in appropriate proceedings, preserving the parties' rights to raise and contest substantive issues elsewhere or on further hearing. [Paras 3]

Merits not decided; all contentions kept open.

Final Conclusion: Writ petition disposed of on the basis of the petitioner's undertaking; respondents permitted to proceed subject to a clear seven days' prior notice before any coercive action predicated on documents or evidence produced by the petitioner; no decision on merits and parties' contentions remain open.

Interim injunction - stay of coercive action - summons to directors - adjournment for filing affidavit - service of pleadings - rejoinder - listing for admission

Adjournment for filing affidavit - service of pleadings - rejoinder - Time granted to respondents to file affidavit in reply, and timetable for service and rejoinder established. - HELD THAT: - The Court permitted the respondents four weeks from the date of the order to file an affidavit in reply and directed that a copy be served simultaneously on the petitioners' advocate. The Court further allowed the petitioners two weeks thereafter to file a rejoinder, with a copy to be served on the respondents' advocate. This sequencing fixes the procedural timetable for exchange of pleadings before the matter is placed for admission. [Paras 1]

Respondents to file affidavit in reply within four weeks and serve copy on petitioners' advocate; rejoinder, if any, to be filed within two weeks thereafter with service on respondents' advocate.

Listing for admission - Date for admission hearing fixed. - HELD THAT: - The Court listed the matter for admission and directed that it be placed on the board on the specified date for consideration of admission after compliance with the timetable ordered for filings. [Paras 2]

Matter placed for admission on 7th March, 2022.

Interim injunction - stay of coercive action - summons to directors - Interim restraint granted preventing respondents from taking coercive steps against the petitioners' directors in relation to the impugned summons, and personal appearance postponed till the next date. - HELD THAT: - The Court, by way of interim relief, restrained the respondents from initiating or continuing any coercive measures against the directors of the petitioners pursuant to the impugned summons specified in the petition's prayer. In addition, the Court ordered that the requirement of personal presence of the petitioners' directors in response to those summonses be postponed until the next date, thereby preserving the status quo pending further orders. [Paras 3]

Respondents restrained from taking coercive steps against the petitioners' directors pursuant to the impugned summons; personal presence postponed until the next date.

Final Conclusion: The Court fixed a timetable for filing and service of affidavit and rejoinder, listed the matter for admission on the specified date, and granted an interim restraint preventing coercive action against the petitioners' directors in respect of the impugned summons until the next date.

Summary order. Petition challenging provisions of the Integrated Goods and Services Tax Act, 2017: notice issued to the Attorney General returnable 14 March 2022; petitioner granted leave to amend to include subsequent notice of demand within one week; respondents directed to file affidavit-in-reply with copy to petitioner within four weeks; petitioner may file rejoinder within two weeks thereafter; petitioner may move for interim relief against any proposed coercive action after giving 48 hours' notice to respondents.

Limitation for refund under Section 54 - extension of limitation due to COVID-19 pandemic - requirement to record reasons for rejection in writing under Rule 92 - remand for de novo consideration of refund claim

Limitation for refund under Section 54 - extension of limitation due to COVID-19 pandemic - requirement to record reasons for rejection in writing under Rule 92 - remand for de novo consideration of refund claim - Whether the refund claim filed on 20.09.2021 in respect of exports made during April to August 2019 could be summarily rejected as time-barred, or required fresh consideration in light of the Supreme Court's extension of limitation and the requirements of Section 54 and Rule 92. - HELD THAT: - The Court noted that the petitioner filed the refund claim belatedly on 20.09.2021 for exports effected in April-August 2019 and that the limitation under Section 54 is ordinarily two years from the relevant date. Reliance was placed on a prior decision of this Court in M/s GNC Infra LLP which, having regard to the Hon'ble Supreme Court's extension of limitation due to the COVID-19 pandemic, directed remand for de novo consideration and emphasized that reasons for rejection must be recorded in writing in accordance with Rule 92. Applying the same approach, the Court held that the refund application should not be summarily dismissed as time-barred without reconsideration on merits and in the light of the extension of limitation and the procedural requirement to record reasons for rejection. The matter was therefore remitted to the respondent to examine the refund application afresh and pass appropriate orders in accordance with Section 54 and Rule 92, within the specified time frame. [Paras 5, 6]

Writ petition allowed; respondent directed to reconsider and decide the refund claim on merits in accordance with law (Section 54 and Rule 92) within six weeks from receipt of the order.

Final Conclusion: Writ petition allowed; impugned rejection set aside to the extent that the refund claim shall be examined de novo by the respondent and a fresh decision rendered in accordance with Section 54 and Rule 92, taking into account the extension of limitation due to the COVID-19 pandemic, within six weeks; petition disposed of with no costs.

Composite supply - Principal supply - Time of supply - Taxable value including incidental expenses - Liability to pay tax on supply of goods and services - Registration threshold for suppliers - TDS deduction by government deductor (2%)

Liability to pay tax on supply of goods and services - Whether the activities of tapping/extraction, collection and delivery of Oleo Resin (Lisa) are liable to GST. - HELD THAT: - The Authority found that extraction/tapping of Oleo Resin (Lisa) from Chir/Pine trees involves human endeavour and a defined procedure, and that subsequent delivery to the Motor Road Depot and onward sale are part of a supply chain. On these facts the activities undertaken by contractors and permit holders constitute supplies of goods (and related services) taxable under the GST law. Accordingly all such activities are liable to GST. [Paras 9, 10, 11]

All the activities are liable to GST.

Composite supply - Principal supply - Who is liable to pay GST in respect of tapping/extraction and delivery of Lisa/Resin collected under the two categories? - HELD THAT: - The Authority held that in both Category 1 (bidders/contractors extracting from reserved/forest areas) and Category 2 (individual permit holders extracting from private land) the tapping/extraction together with transportation to the Motor Road Depot constitute a composite supply where the extracted goods (Oleo Resin) are the principal supply. As the suppliers who perform the composite supply, the contractor and the individual permit holder are liable to pay GST on that composite supply. The Authority further noted that once deposited at the Motor Road Depot total control and ownership rests with the applicant and expenses incurred up to that deposit form part of the taxable value of the supplier's composite supply. [Paras 8, 9, 10, 11]

The contractor and the individual permit holder are liable to payment of GST on the composite supply.

Composite supply - Taxable value including incidental expenses - Rate and classification of GST for the activity and treatment of incidental expenses in taxable value. - HELD THAT: - The Authority concluded that the supply is a composite supply with Oleo Resin (Lisa) as the principal supply. Consequently the rate applicable to the principal supply applies to the whole composite supply. The Authority applied GST at the rate of 5% (2.5% CGST + 2.5% SGST) on supplies of Oleo Resin (HSN 13019049) and classified the related transport service under Goods transport service (9965). It further held that all expenses incurred from tapping/extraction to final sale, including incidental expenses such as loading, unloading and transportation, form part of the taxable value and no deductions of such expenses are permissible from the taxable value. [Paras 10]

GST at 5% is payable on the composite supply; classification: Oleo Resin (HSN 13019049) and goods transport service (9965); taxable value includes all incidental expenses.

Time of supply - Invoice timing for movement of goods - Point/time of supply for GST liability in respect of the applicant's final sale of Lisa/Resin. - HELD THAT: - Relying on the provisions relating to time of supply and invoicing where movement of goods is involved, the Authority indicated that an invoice must be issued before or at the time of removal of goods for supply; in the facts before it the applicant charges and deposits GST at the time of final sale by open auction at the Rail Head Depot. The Authority therefore ruled that the applicant is liable to pay applicable GST on Lisa/Resin at the time of issue of invoice by it, i.e. at the time of final sale through open auction. [Paras 10]

The applicant must pay GST at the time of issue of invoice, i.e. at the time of final sale by open auction.

Registration threshold for suppliers - Whether contractors and individual permit holders are required to register under GST. - HELD THAT: - The Authority applied the statutory registration provisions and observed that every supplier is required to register in the State from which taxable supplies are made if aggregate turnover exceeds the threshold exemption limit. Consequently contractors and individual permit holders must register if their aggregate turnover exceeds the threshold; those whose annual turnover is within the threshold exemption are not required to register. [Paras 10]

Contractors and permit holders must register if their aggregate turnover exceeds the statutory threshold; those within the threshold are not required to register.

TDS deduction by government deductor (2%) - Whether the applicant is obliged to deduct TDS while making payments to suppliers and the threshold for such deduction. - HELD THAT: - The Authority noted that a government department is required to deduct tax at source on payments to suppliers where the total value of such supply under a contract exceeds the specified threshold. It recorded that the applicant, being a Government body, must deduct TDS at the rate specified by law on payments for supply of goods and services where the value under a contract exceeds Rs. 2,50,000 (excluding tax). The Authority also observed that transporters engaged separately to move goods from the Motor Road Depot to the Rail Head Depot are independent service providers liable to pay GST on their services. [Paras 10]

Applicant must deduct TDS as per law (2%) on payments to suppliers where contract value exceeds Rs. 2.5 lakhs; transporters are separately taxable service providers.

Final Conclusion: The Advance Ruling holds that tapping/extraction and delivery of Oleo Resin (Lisa) constitute taxable composite supplies with the extractor/permit holder liable to pay GST; the principal supply is Oleo Resin (HSN 13019049) taxed at 5% and related transport service is classified under 9965; taxable value includes all incidental expenses; the applicant pays GST at the time of final sale (invoice on auction); contractors/permit holders must register if turnover exceeds the statutory threshold; and the applicant, as a government deductor, must deduct TDS at the statutory rate where the contract value exceeds the prescribed threshold.

Exemption under Entry No. 74 of Notification No. 12/2017 (health care services by a clinical establishment, authorised medical practitioner or paramedics) - Classification of supply as composite supply - Principal supply rule for composite supplies under Section 8(a) of the CGST Act - Classification under SAC/Heading 9963 (hotel accommodation) versus Heading 9993 (human health services) - Clinical establishment registration under the Clinical Establishments (Registration and Regulation) Act, 2010

Classification of supply as composite supply - Principal supply rule for composite supplies under Section 8(a) of the CGST Act - Classification under SAC/Heading 9963 (hotel accommodation) - Services provided by the applicant constitute a composite supply whose principal supply is accommodation and are therefore to be treated as accommodation services falling under Heading 9963/996311. - HELD THAT: - The Authority examined the nature of the packages and promotional material on the applicant's websites and found the offered programs are residential packages where accommodation, food and leisure activities are integral and mandatory to avail the therapy offerings. The components are naturally bundled and supplied in conjunction with each other; the therapy component cannot be availed independently of the stay. Applying the definition of "composite supply" (Section 2(30)) and the principal-supply rule in Section 8(a) of the CGST Act, the Authority held that the principal supply is the accommodation service. Consequently, the composite package is to be treated as supply of accommodation services classified under Heading 9963 (specifically sub heading 996311 for room/unit accommodation services). [Paras 22, 23, 24, 28]

The supply is a composite supply with accommodation as the principal supply and is classifiable under Heading 9963/996311.

Exemption under Entry No. 74 of Notification No. 12/2017 (health care services by a clinical establishment, authorised medical practitioner or paramedics) - Classification under SAC/Heading 9993 (human health services) - Clinical establishment registration under the Clinical Establishments (Registration and Regulation) Act, 2010 - The applicant's "Aahana Naturopathy Centre" is not eligible for exemption under Entry No. 74 of Notification No. 12/2017 (Heading 9993) in respect of the packages offered. - HELD THAT: - Entry No. 74 exempts health care services by a clinical establishment/authorised medical practitioner/paramedics that involve diagnosis, treatment or care for illness, injury, deformity, abnormality or pregnancy and related diagnostic services. The Authority found that the therapies and packages advertised are predominantly luxury wellness, relaxation and leisure packages provided as part of a resort stay and do not primarily constitute services for diagnosis or treatment of illness, injury, deformity, abnormality or pregnancy. Having already treated the composite supply as accommodation under Heading 9963, the services do not fall under Heading 9993 and hence do not attract the exemption in Entry No. 74. Registration under the Clinical Establishments Act and presence of registered practitioners was considered but held insufficient to alter the classification where the predominant/commercial character of the supply is accommodation-based wellness packages rather than clinical health care services. [Paras 20, 25, 26, 28, 30]

Entry No. 74 of Notification No. 12/2017 is not applicable to the applicant's services; no exemption is available.

Final Conclusion: The Advance Ruling holds that the applicant's offerings are composite residential packages with accommodation as the principal supply classified under Heading 9963/996311; therefore, the exemption at Entry No. 74 of Notification No. 12/2017 (Heading 9993) does not apply and the applicant is not eligible for that exemption.

Classification of goods - Medicament vs Food supplement distinction - HSN 3004 (medicaments consisting of vitamins or minerals) - HSN 2106 (protein concentrates and food preparations) - Applicability of GST rate determined by HSN classification

Classification of goods - Medicament vs Food supplement distinction - HSN 3004 (medicaments consisting of vitamins or minerals) - HSN 2106 (protein concentrates and food preparations) - Applicability of GST rate determined by HSN classification - Classification and GST rate applicable to the product 'Dry Powder Containing Protein Powder with Vitamins & Minerals' ('Protowits'). - HELD THAT: - The Authority examined the product composition, the licence and the applicant's claim of approval under Sl. No. 138 of the FDC list and found that the product is not manufactured strictly as per Schedule C/C(1) of the Drugs & Cosmetics Rules nor covered by Sl. No. 138 of the FDC list. The Authority accepted the proposition that taxability under GST is determined by the HSN classification and not by the existence of a manufacturing licence or approval. On construction of the GST tariff headings, sub-heading 3004 50 (medicaments containing vitamins or minerals) covers medicaments for therapeutic or prophylactic uses and lists various preparations of vitamins and minerals but contains no provision for products containing protein. By contrast, heading 2106 expressly covers protein concentrates and textured protein substances and falls under the food preparations category. Applying these tariff descriptions to the material before it, the Authority concluded that the product, which contains protein in appreciable proportion along with vitamins and minerals and is not shown to fall within the medicament entries relied upon, is a food supplement properly classifiable under HSN 2106 and taxable at the rate applicable to that heading. [Paras 2, 3, 4, 5, 6]

The product 'Protowits' is a food supplement classifiable under HSN 2106 and taxable accordingly.

Final Conclusion: Advance ruling: 'Dry Powder Containing Protein Powder with Vitamins & Minerals' (Protowits) manufactured by M/s Windlass Biotech Limited is a food supplement classifiable under HSN 2106 and is taxable under the GST tariff applicable to that heading.

Composite supply of goods and services where value of goods does not exceed 25% - local authority - function entrusted to a Municipality under Article 243W of the Constitution - exemption under Entry No. 3 of Chapter 99 of Notification No. 12/2017 (as amended)

Composite supply of goods and services where value of goods does not exceed 25% - goods - composite supply - Supply of manpower for managing solid waste does not fall within Entry No. 3A of Chapter 99 (composite supply where goods constitute not more than 25% of value). - HELD THAT: - The Authority examined whether the contract involved two or more taxable supplies of goods or services that are naturally bundled with a principal supply. The applicant supplied only manpower (drivers) while vehicles (the only movable property that would be relevant) were provided by the service recipient; safety kits/PPE supplied to personnel were held to be incidental, temporary and mandated for the event (COVID precautions) and not a separate movable property constituting the supply. On this basis the supply did not satisfy the statutory concept of a composite supply of goods and services contemplated by Entry No. 3A and the related definitions of 'composite supply' and 'goods'. [Paras 6, 7, 8]

The contract for supply of manpower for managing solid waste does not come under Entry No. 3A of Chapter 99.

Local authority - Municipality - Nagar Palika Parishad, Muni Ki Reti, Dhalwala is a 'local authority' within the meaning of Section 2(69) of the CGST Act. - HELD THAT: - The Authority applied the statutory definition of 'local authority' and Articles 243P-243R of the Constitution describing constitution, composition and functions of Municipalities. The municipal body in question has municipal attributes (wards, municipal work) and therefore satisfies the constitutional and statutory criteria to be treated as a Municipality and hence as a 'local authority' for the purposes of the notification. [Paras 9]

Nagar Palika Parishad, Muni Ki Reti, Dhalwala is covered under the definition of 'local authority'.

Function entrusted to a Municipality under Article 243W of the Constitution - solid waste management - Supply of manpower for managing solid waste is a service in relation to a function entrusted to a Municipality under Article 243W. - HELD THAT: - Article 243W lists 'public health, sanitation conservancy and solid waste management' among municipal functions. The RFP, LOA and municipal website indicate that the Nagar Palika Parishad undertakes sanitation and solid waste management activities. The manpower supplied by the applicant was employed in performing that municipal function; accordingly the service falls within activities entrusted to a Municipality under Article 243W. [Paras 10]

The service of supplying manpower for managing solid waste is covered by the functions entrusted to a Municipality under Article 243W.

Exemption under Entry No. 3 of Chapter 99 of Notification No. 12/2017 (as amended) - pure services exempted when provided to local authority in relation to municipal functions - The contract for supply of manpower for managing solid waste is exempt from GST under Entry No. 3 of Notification No. 12/2017 (as amended). - HELD THAT: - Entry No. 3 exempts 'pure services (excluding works contract service or other composite supplies involving supply of any goods)' when provided to government/local authorities in relation to functions entrusted to Panchayats or Municipalities. Having found that the applicant supplied only manpower (a pure service), that the recipient is a local authority, and that the activity relates to a municipal function (solid waste management), the contract squarely falls within Entry No. 3 and is entitled to exemption. [Paras 11]

The contract of supplying manpower for managing solid waste to the Nagar Palika Parishad is exempt from GST under Entry No. 3 of Notification No. 12/2017 (as amended).

Final Conclusion: The Authority ruled that (i) the supply is not a composite supply covered by Entry No. 3A, (ii) the recipient is a local authority, (iii) the service supplied relates to a function entrusted to a Municipality under Article 243W, and (iv) consequently the manpower-supply contract for managing solid waste is exempt from GST under Entry No. 3 of Notification No. 12/2017 (as amended).

Mandatory reasonable opportunity of personal hearing under Section 144B(7)(VIII) - construction of "may" as command in exercise of quasi-judicial discretion - invalidity of classification of matters involving disputed questions of fact and law by CBDT Circular dated 23rd November, 2020 - quashing of assessment, demand and penalty orders and remand for fresh decision

Mandatory reasonable opportunity of personal hearing under Section 144B(7)(VIII) - construction of "may" as command in exercise of quasi-judicial discretion - invalidity of classification of matters involving disputed questions of fact and law by CBDT Circular dated 23rd November, 2020 - Whether the assessee was entitled to a personal hearing and whether the CBDT Circular dated 23rd November, 2020 permitting denial of personal hearing except in disputed questions of fact is legally sustainable. - HELD THAT: - The Court applied the principle, as stated in Bharat Aluminium Company Ltd. vs. Union of India & Ors. , that where a discretion is conferred on a quasi judicial authority whose decision has civil consequences, the use of the word "may" must be construed to impose a duty to act rather than an unfettered permissive power. Consequently, an assessee is entitled to a reasonable opportunity of personal hearing. The Court held that the classification effected by the CBDT Circular dated 23rd November, 2020 - permitting personal hearing only in cases involving disputed questions of fact - is not legally sustainable, and the denial of personal hearing on that basis amounted to failure to afford the mandatory opportunity. The Court relied on this construction to conclude that the petitioner's request for personal hearing ought to have been considered and that rejection of the request on the stated circularary ground showed non application of mind. [Paras 8]

The requirement of giving the assessee a reasonable opportunity of personal hearing is mandatory and the Circular dated 23rd November, 2020 insofar as it restricts personal hearing to disputed questions of fact is not legally sustainable; the petitioner was entitled to a personal hearing.

Quashing of assessment, demand and penalty orders and remand for fresh decision - What is the appropriate relief in view of the failure to grant personal hearing and non application of mind by the Revenue? - HELD THAT: - In light of the determination that a mandatory opportunity of personal hearing was not afforded and that the Circular's classification was impermissible, the Court quashed the impugned assessment order dated 09th November 2021, the demand notice dated 30th September 2021 and the penalty proceedings under Sections 270A and 271AAC for Assessment Year 2018 19. The matter was remanded to Respondent No.2 for fresh decision in accordance with law, thereby preserving the rights and contentions of the parties for re adjudication after affording the procedural opportunity found to be mandatory. [Paras 9, 10]

Impugned assessment, demand and penalty orders quashed and matter remanded for fresh decision in accordance with law.

Final Conclusion: The writ petition is allowed: the Court held that the assessee was entitled to a mandatory personal hearing (the CBDT Circular of 23.11.2020 restricting hearings was unsustainable), quashed the assessment, demand and penalty orders for Assessment Year 2018 19 and remanded the matter for fresh decision after affording the requisite hearing.

Faceless assessment regime under Section 144B - Right to personal hearing in faceless proceedings - Principles of natural justice in tax proceedings - Show cause notice treated as fresh proceeding for reply - Remand for fresh consideration and requirement of a speaking order - Portal/dash board procedural compliance for requesting personal hearing

Right to personal hearing in faceless proceedings - Portal/dash board procedural compliance for requesting personal hearing - Principles of natural justice in tax proceedings - Whether the impugned assessment order was passed after affording opportunity of personal hearing and in accordance with principles of natural justice. - HELD THAT: - The Court found that show cause notices provided an option to request a personal hearing by clicking the prescribed option on the portal, but the petitioner did not use the click option in the dashboard even though a request for personal hearing was made in a letter and in the system. Having regard to the introduction of the new faceless assessment system and the fact that assessees may not be fully familiar with its procedural mechanics, the Court held that the impugned order was passed without complying with the principles of natural justice. The Court emphasised that procedural requirements of the faceless regime (portal click option) are material to the exercise of the right to be heard and that a failure in the practical operation of the system or potential confusion arising from the new regime can vitiate proceedings if a party is effectively denied an opportunity of personal hearing. [Paras 2, 6]

Impugned assessment order quashed for being passed without observing principles of natural justice and without providing an effective opportunity for personal hearing.

Remand for fresh consideration and requirement of a speaking order - Show cause notice treated as fresh proceeding for reply - Remedial directions to be given after quashing: whether matter should be remitted, the impugned order treated as a show cause notice, and timelines for further proceedings. - HELD THAT: - On quashing the impugned order, the Court remitted the matter to the assessing officer for fresh consideration in the faceless regime. The Court directed that the impugned order shall be treated as a show cause notice and required the petitioner to file an appropriate written reply within fifteen days of receipt of the order. The assessing officer was directed to pass a speaking order after considering the reply within seventy five days thereafter. The Court also directed respondents to instruct portal administrators to facilitate compliance with these directions so that the fresh proceedings can be conducted in accordance with the faceless assessment mechanism while ensuring effective opportunity to the assessee. [Paras 6, 7]

Matter remitted for fresh consideration; impugned order to be treated as a show cause notice, parties to comply with specified timelines, and respondent directed to instruct portal administrators to facilitate fresh proceedings and issuance of a speaking order.

Final Conclusion: Writ petition allowed: impugned assessment order for AY 2018-19 quashed for breach of natural justice in the faceless assessment process; matter remitted for fresh decision after treating the order as a show cause notice, with specified timelines for reply and for passing a speaking order, and directions to respondents to ensure portal facilitation.

Proviso to Section 270AA(4) of the Income Tax Act, 1961 - opportunity of hearing / audi alteram partem - application under Section 270AA for assessment year 2017-18 - remand for fresh decision after affording hearing - procedural fairness in administrative orders

Proviso to Section 270AA(4) of the Income Tax Act, 1961 - opportunity of hearing / audi alteram partem - remand for fresh decision after affording hearing - Validity of the order dated 8th June, 2021 rejecting the petitioner's application under Section 270AA for Assessment Year 2017-18 on the ground that the proviso mandating opportunity of hearing was not complied with. - HELD THAT: - The High Court examined the impugned order rejecting the petitioner's application under Section 270AA for AY 2017-18 and the respondents were unable to demonstrate that the mandatory condition in the proviso to Section 270AA(4) - namely, affording the assessee an opportunity of hearing before rejecting the application - had been fulfilled. In view of the materials on record and the parties' submissions, the Court found that the failure to show compliance with the proviso rendered the impugned order unsustainable. Rather than deciding the merits of the Section 270AA application, the Court concluded that it was appropriate in the interests of justice to set aside the impugned order and direct the assessing officer to pass a fresh order after granting an effective opportunity of hearing to the petitioner in accordance with the proviso.

Impugned order dated 8th June, 2021 set aside; matter remitted to the assessing officer to pass a fresh order after affording effective opportunity of hearing as required by the proviso to Section 270AA(4).

Final Conclusion: Writ petition disposed by setting aside the order rejecting the Section 270AA application and remitting the matter to the assessing officer for fresh disposal after granting the petitioner an effective hearing in accordance with the proviso to Section 270AA(4).

Addition under Section 68 (unexplained cash credit) - unexplained cash credit - onus on assessee to explain source of credits - agricultural income on crop sharing basis - reliance on presumed percentage disallowance - disallowance of vehicle expenses as personal use

Addition under Section 68 (unexplained cash credit) - unexplained cash credit - onus on assessee to explain source of credits - Validity of addition of cash introduced in capital account of proprietary concern as unexplained income - HELD THAT: - The Tribunal examined the assessee's explanations for cash deposits introduced into the proprietary concern. The Assessing Officer rejected the explanation for a Rs.10 lakh withdrawal because it was deposited after a 14 month gap, treating the delay as indicative of diversion. The Tribunal held that such an inference is speculative and not sufficient to disbelieve the assessee where there is no positive evidence to contradict the explanation that cash was retained for business contingencies. On the facts, the Tribunal accepted the explanation for Rs.10 lakhs and deleted that amount from the addition, while the remaining addition was sustained by implication. The Tribunal therefore upheld the principle that mere delay in depositing cash, without contradicting evidence, does not automatically render the source unexplained. [Paras 9]

Addition of Rs.10 lakhs deleted; remainder of the addition confirmed, appeal on this issue partly allowed.

Agricultural income on crop sharing basis - reliance on presumed percentage disallowance - Whether a 40% deduction of agricultural receipts as cost of cultivation (treating part as undisclosed income) was justified - HELD THAT: - The Assessing Officer applied a blanket 40% disallowance against declared agricultural receipts without investigating particulars or assigning reasons to disbelieve the assessee's case that agricultural receipts arose on a crop sharing arrangement where the cultivator bore cultivation expenses. The Tribunal found no statutory or factual basis for such an arbitrary percentage reduction and noted that the AO did not dispute landholding or earning of agricultural income. In absence of contrary evidence or any statutory provision mandating the applied yardstick, the Tribunal deleted the disallowance of Rs.1,20,000. [Paras 10]

Addition of Rs.1,20,000 treated as income from undisclosed sources is deleted; appeal on this issue allowed.

Disallowance of vehicle expenses as personal use - Whether 10% disallowance of depreciation and petrol expenses as personal in nature was justified - HELD THAT: - The assessee produced vehicle registration particulars showing that three motor cars were used for business and personal use was met by vehicles registered in personal names of the Karta and son. The Tribunal found the assessee's factual explanations and supporting documents to be acceptable and concluded that the AO and CIT(A) erred in treating a portion of the vehicle expenses as personal without displacing the assessee's evidence. Consequently, the disallowance was deleted. [Paras 11, 12]

Disallowance of Rs.36,203/ on account of vehicle expenses is deleted; ground allowed.

Final Conclusion: The appeal is partly allowed: the Tribunal deleted Rs.10 lakhs of the addition under Section 68 and deleted the Rs.1,20,000 disallowance treating part of agricultural receipts as undisclosed income, and also deleted the disallowance of vehicle expenses; the balance of the additions as sustained by the Assessing Officer remain confirmed.

Reference to Valuation Officer under section 55A - Fair market value as on 01.04.1981 - Prospective effect of amendment to section 55A w.e.f. 01.07.2012 - Validity of departmental valuation where assessee's registered valuer's figure exceeds DVO figure

Reference to Valuation Officer under section 55A - Fair market value as on 01.04.1981 - Prospective effect of amendment to section 55A w.e.f. 01.07.2012 - Whether the Assessing Officer was justified in referring the assessee's claimed valuation to the Valuation Officer under section 55A and adopting the DVO's lower value for computation of capital gains for AY 2010-11. - HELD THAT: - The Tribunal examined section 55A as it stood for the period relevant to AY 2010-11 and noted that, prior to the amendment effective from 01.07.2012, a reference under section 55A could not be validly made where the value claimed by the assessee (supported by a registered valuer) exceeded the Assessing Officer's view of fair market value. The Assessing Officer did not record that the assessee's claimed value was less than the fair market value nor invoke any threshold prescribed for reference under the pre-amendment provision. Reliance was placed on earlier decisions holding that references to the DVO to determine fair market value on the date of sale or outside the statutory remit were not permissible and that the 2012 amendment, which widened the circumstances in which a reference could be made, operates prospectively. Applying these principles, the Tribunal held that the reference and consequent adoption of the DVO's lower valuation for the purpose of computing capital gains in AY 2010-11 were not justified.

Reference to the Valuation Officer under section 55A and the adoption of the DVO's lower valuation for AY 2010-11 was not warranted; the appeal is allowed on this ground.

Final Conclusion: The Tribunal allowed the assessee's appeal, holding that for AY 2010-11 the Assessing Officer was not justified in making a section 55A reference and adopting the DVO valuation in place of the assessee's valuation supported by a registered valuer; remaining grounds were not adjudicated as academic.

Validity of reassessment notice issued by a non jurisdictional assessing officer - Jurisdictional competence in issuance of notice under Section 148 - Reopening of assessment - reason to believe - necessity of jurisdictional AO - Computation of indexed cost of acquisition in respect of undivided ancestral property - Allocation of sale consideration and matching of cost of acquisition with proportionate share - Carry forward of capital loss arising from transfer of inherited interest

Validity of reassessment notice issued by a non jurisdictional assessing officer - Jurisdictional competence in issuance of notice under Section 148 - Reopening of assessment - reason to believe - necessity of jurisdictional AO - Notice under Section 148 issued by the ITO Ward 2 Gandhidham was invalid as the issuing officer lacked jurisdiction over the assessee - HELD THAT: - The Tribunal found on the material on record that the PAN change request filed by the assessee (showing Navi Mumbai address) pre dated the notice and the notice under Section 148 itself quoted the Navi Mumbai address. The assessing officer at Gandhidham thereupon issued the reopening notice without verifying whether he had jurisdiction over the assessee. The approval under Section 151 was also granted without such verification. In these factual circumstances the belief recorded for reopening cannot be treated as belief of a jurisdictional assessing officer, and the notice issued by the non jurisdictional officer is not sustainable. The Tribunal further held that the assessee properly raised the jurisdictional objection by way of cross objection and was entitled to have the notice quashed. [Paras 20, 21, 22, 23]

Notice under Section 148 issued by ITO Ward 2 Gandhidham quashed; reassessment void for want of jurisdiction and cross objection allowed.

Computation of indexed cost of acquisition in respect of undivided ancestral property - Allocation of sale consideration and matching of cost of acquisition with proportionate share - Carry forward of capital loss arising from transfer of inherited interest - Assessing Officer erred in treating the assessee's cost of acquisition as 1/77th instead of 1/7th of the indexed cost; CIT(A)'s direction to allow 1/7th and permit carry forward of loss is sustainable - HELD THAT: - On the merits, the Tribunal accepted the factual matrix that the deceased ancestor held 41% of the property which devolved upon seven successors (including the assessee). The sale consideration attributable to the assessee was determined on the basis that the seven successors shared that 41% and hence the assessee's share was 1/7th of the 41% interest. The AO's approach of treating the assessee as 1/77th co owner for computing indexed cost of acquisition was found to be contrary to the facts recorded in the assessment proceedings and devoid of logical basis. Consequently, the Tribunal agreed with the CIT(A)'s direction that the cost of acquisition be allowed in proportion to 1/7th and that the resulting capital loss be allowed to be carried forward. [Paras 24, 25]

AO's appeal dismissed on merits; CIT(A)'s direction to compute cost of acquisition at 1/7th and allow carry forward of the capital loss upheld.

Final Conclusion: The appeal filed by the assessing officer is dismissed. The reassessment notice issued by the ITO Gandhidham is quashed for want of jurisdiction and the CIT(A)'s treatment of the assessee's share as 1/7th (with consequent allowance of indexed cost and carry forward of capital loss) is affirmed.

Disallowance under section 14A - Rule 8D - Interest free funds as source of investment - Remand for factual verification of source of investment - Deductibility of education cess - Interpretation of "rate or tax" in Section 40(a)(ii)

Disallowance under section 14A - Rule 8D - Interest free funds as source of investment - Remand for factual verification of source of investment - Whether the disallowance u/s. 14A made by the Assessing Officer (computed under Rule 8D) should be sustained or requires remand for verification of whether investments were made out of interest free funds. - HELD THAT: - The Tribunal, following its decision in the assessee's own case on A.Y. 2013 14 and on the admitted parity of facts, observed that the assessee had not conclusively established before the subordinate authorities that the investments were made exclusively from reserves and interest free funds. The Tribunal noted that the AO and the CIT(A) had not had an opportunity to examine the quantum and availability of interest free funds vis a vis the investments, particularly where overdraft/OD account transactions intermix own funds and interest bearing funds. In the interest of justice and after applying the same reasoning as in the earlier decision, the Tribunal set aside the order on this issue and remanded the matter to the Assessing Officer for factual verification of the source of investments and adjudication after complying with principles of natural justice. [Paras 7, 8]

Order of the CIT(A) on the 14A disallowance set aside and the issue remanded to the Assessing Officer for verification of investments vis a vis interest free funds; matter allowed for statistical purposes.

Deductibility of education cess - Interpretation of "rate or tax" in Section 40(a)(ii) - Whether education cess paid is allowable as deduction while computing income under the head 'profits and gains of business or profession'. - HELD THAT: - Relying on the decision of the Hon'ble Bombay High Court in Sesa Goa Ltd., the Tribunal held that the term 'rate or tax' in Section 40(a)(ii) does not encompass a 'cess' such as education cess. The mode of collection of cess (even if collected as part of income tax) does not convert it into a 'rate or tax' within the meaning of Section 40(a)(ii). Consequently, amounts paid towards education cess are allowable as expenditure for computing business income. Applying that legal principle, the Tribunal directed the Assessing Officer to allow the deduction for education cess paid. [Paras 11]

Additional ground allowing deduction of education cess is accepted; Assessing Officer directed to allow the deduction.

Final Conclusion: The appeal is partly allowed for statistical purposes: the disallowance under section 14A (Rule 8D) is set aside and remanded to the Assessing Officer for factual verification of the source of investments vis a vis interest free funds, and the claim for deduction of education cess is allowed with direction to the Assessing Officer to permit the deduction.

Revisionary jurisdiction under section 263 of the Income tax Act - allowability of employee stock option expenses as deduction under 37(1) of the Income tax Act - change in accounting policy from intrinsic value method to fair value method for ESOP valuation - vesting period as determinative for amortisation of ESOP discount premium - Special Bench principle in Biocon - amortisation of discount premium over the vesting period - distinction between 'lack of enquiry' and 'inadequate enquiry' for exercise of revisionary jurisdiction - inclusion of interest under section 234D in computation of book profits for section 115JB - initiation of penalty proceedings under section 271(1)(c) - premature adjudication

Revisionary jurisdiction under section 263 of the Income tax Act - allowability of employee stock option expenses as deduction under 37(1) of the Income tax Act - change in accounting policy from intrinsic value method to fair value method for ESOP valuation - vesting period as determinative for amortisation of ESOP discount premium - Special Bench principle in Biocon - amortisation of discount premium over the vesting period - distinction between 'lack of enquiry' and 'inadequate enquiry' for exercise of revisionary jurisdiction - Whether the Commissioner (PCIT) was justified in invoking revisionary jurisdiction under section 263 to disallow ESOP expenditure debited by the assessee in A.Y. 2012 13. - HELD THAT: - The Tribunal examined the audited financial statements, the assessee's letter dated 11/03/2016 filed during assessment proceedings and the disclosures in Schedule 'P' and Schedule 'O', which showed that the company had retrospectively changed its ESOP valuation method from intrinsic value to fair value and had disclosed the resulting restatement as an exceptional item. The Tribunal held that the vesting period for the relevant grants was one year and, applying the Special Bench decision in Biocon, the entire discount premium was properly charged in the year of vesting (A.Y. 2012 13). The PCIT's invocation of section 263 was based on an incorrect factual assumption (that vesting was four years) and on a premise of inadequate enquiry; however the record showed the AO had received and examined the assessee's disclosures and submissions. As revision jurisdiction under section 263 can be exercised only for lack of enquiry and not for merely inadequate enquiry, the PCIT's direction to disallow the ESOP expense was quashed and the AO's order on this issue was upheld in favour of the assessee. [Paras 3]

Revision under section 263 quashed insofar as it sought disallowance of the ESOP expenditure; the assessee's ESOP deduction for A.Y. 2012 13 is accepted.

Revisionary jurisdiction under section 263 of the Income tax Act - inclusion of interest under section 234D in computation of book profits for section 115JB - Whether the PCIT was justified in invoking section 263 to direct recomputation to include interest under section 234D while computing demand under section 115JB. - HELD THAT: - The assessment was ultimately finalised under normal provisions because tax under normal provisions exceeded the notional tax under section 115JB. The Tribunal observed that interest under section 234D forms part of the tax liability and, by virtue of Explanation 1(a) to section 115JB(2), such tax/interest must be added back while computing book profits for section 115JB. Therefore an omission to consider interest under section 234D while computing book profits could prejudice the revenue. On this basis the Tribunal upheld the PCIT's exercise of revisionary jurisdiction in respect of computation of interest for section 115JB purposes. [Paras 4]

Revision under section 263 upheld insofar as it relates to inclusion of interest under section 234D in computation of book profits under section 115JB.

Initiation of penalty proceedings under section 271(1)(c) - premature adjudication - Whether direction to initiate penalty proceedings under section 271(1)(c) for A.Y. 2013 14 could be adjudicated at this stage. - HELD THAT: - The Tribunal observed that directing initiation of penalty proceedings at the revision stage was premature for adjudication within the present proceedings. The question of penalty requires separate adjudication according to law and could not be finally determined in the present appeal. [Paras 7]

Direction to initiate penalty under section 271(1)(c) is premature and not adjudicated in the present proceedings.

Final Conclusion: Both appeals are partly allowed: the revision under section 263 is quashed insofar as it sought disallowance of the ESOP expenditure for A.Y. 2012 13 (accepted in favour of the assessee), the PCIT's revision is upheld insofar as it relates to recomputation to include interest under section 234D for purposes of section 115JB, and the direction to initiate penalty proceedings under section 271(1)(c) is held to be premature for adjudication.

Disallowance under section 40(a)(ia) - obligation to deduct tax at source under section 194C - pre-amendment applicability of section 194C (reasons for non-deduction prior to 1/6/2015) - certificate under the first proviso to section 201(1) - judicial restraint in interfering with appraisal of factual and quantum findings

Disallowance under section 40(a)(ia) - obligation to deduct tax at source under section 194C - pre-amendment applicability of section 194C (reasons for non-deduction prior to 1/6/2015) - certificate under the first proviso to section 201(1) - Whether the addition under section 40(a)(ia) for failure to deduct TDS on payments to transport suppliers was sustainable for assessment year 2014-15 - HELD THAT: - The Tribunal examined the wording and amendment history of section 194C and noted that for the assessment year 2014-15 the pre-amendment regime applied: the contractor was required to obtain PAN details of transport suppliers and, once obtained, there was no requirement to deduct TDS under section 194C as introduced w.e.f. 1/6/2015. The assessee had produced a certificate from a Chartered Accountant under the first proviso to section 201(1). The CIT(A) applied binding precedents which interpreted the pre-amendment provision in the same manner and, on that basis, concluded that the Assessing Officer erred in applying the post-amendment rule to AY 2014-15. The Tribunal found no illegality in the CIT(A)'s reliance on those precedents and on the pre-amendment position, and therefore upheld the deletion of the addition under section 40(a)(ia). [Paras 10, 11, 12]

Addition under section 40(a)(ia) deleted; CIT(A)'s finding upholding application of pre-amendment law and reliance on the CA certificate and binding precedents is sustained.

Vehicle running expenses - admissibility and supporting evidence - judicial restraint in interfering with appraisal of factual and quantum findings - Whether the ad hoc disallowance of vehicle running expenses should be upheld or varied - HELD THAT: - The Assessing Officer made an ad hoc disallowance of 25% of vehicle running expenses for lack of supporting vouchers. The CIT(A) noted that the assessee's books were audited, tax audit was carried out, and no discrepancy was recorded by the Assessing Officer; the assessee had not produced supporting vouchers but the expenditure was booked in audited accounts. The CIT(A) accepted that some ad hoc disallowance was justified but, having regard to the nature of the assessee's business and that audited accounts were produced, restricted the disallowance to a sum of Rs. 5 lakhs. The Tribunal observed that the Assessing Officer had not articulated the basis for quantifying a 25% disallowance and that the CIT(A)'s restriction involved appraisal of factual and quantum aspects. As quantum is a question of fact and Revenue did not demonstrate that the restriction was unsustainable, the Tribunal declined to interfere. [Paras 13, 14]

CIT(A)'s restriction of the vehicle running expenses disallowance to the specified amount is upheld; Revenue's challenge dismissed.

Final Conclusion: Both grounds of Revenue's appeal are dismissed: the Tribunal upholds the CIT(A)'s deletion of the addition under section 40(a)(ia) for AY 2014-15 on the pre-amendment interpretation of section 194C and the assessee's CA certificate, and also sustains the CIT(A)'s factual determination limiting the disallowance of vehicle running expenses.

Imposition of penalty under Section 271(1)(c) - additions made under Section 40A(3) and on account of cash deposits and household expenditure - remand for fresh adjudication following outcome of quantum proceedings - duty of appellate authority to decide on merits despite non-prosecution

Imposition of penalty under Section 271(1)(c) - remand for fresh adjudication following outcome of quantum proceedings - Whether the penalty levied under Section 271(1)(c) can be sustained when the underlying additions against which penalty was imposed have been remitted for fresh adjudication in the quantum appeal. - HELD THAT: - The Tribunal observed that the Assessing Officer had levied penalty under Section 271(1)(c) in respect of additions made under Section 40A(3), cash deposits in the bank account and household expenditure. However, in the related quantum appeal the Tribunal (Varanasi Bench) set aside the additions to the file of the CIT(A) for fresh adjudication, holding that the CIT(A) had dismissed the quantum appeal for non-prosecution without affording proper opportunity and without deciding the appeal on merits. As a consequence of that remand, the additions which formed the basis for levying the penalty no longer subsist as final adverse findings. The Tribunal therefore held that the penalty cannot be sustained in that state of the record and the matter must be remitted to the CIT(A) for fresh adjudication of the quantum issues; the penalty issue is to be considered in light of the outcome of those proceedings.

Penalty set aside and matter remitted to the file of the CIT(A) for fresh adjudication in accordance with the outcome of the quantum proceedings.

Duty of appellate authority to decide on merits despite non-prosecution - Whether dismissal of the quantum appeal for non-prosecution without affording opportunity and without detailed reasons was permissible. - HELD THAT: - The Tribunal relied on precedent and its own finding that the CIT(A) had denied proper opportunity and had not recorded reasons for agreeing with the assessment order, thus necessitating another opportunity and decision on merits. Accordingly, the Tribunal remitted the quantum appeal to the CIT(A) to decide afresh on merits after affording due and adequate opportunity to the assessee; all legal pleas remain available to the assessee.

The quantum appeal was remitted to the CIT(A) for fresh adjudication on merits after affording due and adequate opportunity to the assessee.

Final Conclusion: The appeal is allowed for statistical purposes; the penalty order under Section 271(1)(c) is set aside and the matter is remitted to the CIT(A) for fresh adjudication of the quantum issues and consequential consideration of penalty in accordance with the outcome of those proceedings.

Deductibility of sugarcane purchase price - distribution of profit versus deductible expenditure - recomputation of final/additional purchase price under Clause 5A of the Sugar Cane (Control) Order, 1966 - application of Section 40A(2) to payments to non-members - remand for fresh adjudication to determine profit component - following precedent of the Hon'ble Supreme Court in CIT v. Tasgaon Taluka S.S.K. Ltd. - cross-appeals dismissed as infructuous

Deductibility of sugarcane purchase price - distribution of profit versus deductible expenditure - recomputation of final/additional purchase price under Clause 5A of the Sugar Cane (Control) Order, 1966 - application of Section 40A(2) to payments to non-members - remand for fresh adjudication to determine profit component - following precedent of the Hon'ble Supreme Court in CIT v. Tasgaon Taluka S.S.K. Ltd. - Assessee's claim for deduction of cane price in excess of SMP/FRP remitted to the Assessing Officer for fresh determination of the profit component in accordance with the Supreme Court's directions in Tasgaon Taluka S.S.K. Ltd. - HELD THAT: - The Tribunal held that the question whether the portion of cane price paid in excess of the Statutory Minimum Price/Fair and Remunerative Price constitutes an appropriation/distribution of profit (and hence non-deductible) or a deductible business expense is governed by the Hon'ble Supreme Court's judgment in CIT v. Tasgaon Taluka S.S.K. Ltd. The matter is not susceptible to a blanket disallowance: the AO must examine the accounts, balance sheet and the material furnished to the State Government when fixing the final/additional purchase price under Clause 5A, determine the component attributable to profit sharing (which will be treated as appropriation and disallowed), and allow the remainder as deductible expenditure. For payments to non-members, the AO must consider Section 40A(2) to decide whether the payments are excessive or unreasonable. The Tribunal followed its coordinate-bench precedent applying the Supreme Court's framework and therefore set aside the impugned conclusions and restored the issue to the file of the AO for fresh adjudication, directing that the assessee be given fair opportunity of hearing before fresh determination. [Paras 8, 9]

Issue remitted to the Assessing Officer to recompute/assess the final/additional price and segregate the profit component in accordance with the Supreme Court's directions; assessee to be afforded reasonable hearing.

Cross-appeals dismissed as infructuous - Revenue's cross-appeals rendered infructuous by remand and accordingly dismissed. - HELD THAT: - Because the primary dispute regarding the excess cane price was restored to the file of the Assessing Officer for fresh consideration in accordance with the Supreme Court's decision, the Tribunal found that the Revenue's grounds challenging the CIT(A)'s directions have become academic. The cross-appeals therefore raise no subsisting contest and were dismissed as infructuous. [Paras 10]

Revenue's cross-appeals dismissed as infructuous.

Final Conclusion: Appeals of the assessee allowed for statistical purposes by restoring the principal issue to the Assessing Officer for fresh determination of the profit component in the excess cane price (under the framework of Tasgaon Taluka S.S.K. Ltd.); Revenue's cross-appeals dismissed as infructuous.

Disallowance under section 14A read with Rule 8D(2)(ii) - interest expense attributable to exempt income - Disallowance under section 14A read with Rule 8D(2)(iii) - administrative expenses attributable to exempt income - Nexus of expenditure with exempt income and presumption of deployment of interest free funds - Requirement of Assessing Officer's subjective satisfaction before applying Rule 8D apportionment - Precedent principle: presumption of investment out of interest free funds - Precedent principle: recording of satisfaction as precondition to disallowance under Rule 8D

Disallowance under section 14A read with Rule 8D(2)(ii) - interest expense attributable to exempt income - Nexus of expenditure with exempt income and presumption of deployment of interest free funds - Precedent principle: presumption of investment out of interest free funds - Disallowance of interest expenses under Rule 8D(2)(ii) read with section 14A deleted for lack of proof of nexus - HELD THAT: - The Assessing Officer did not demonstrate any nexus between interest expense and the exempt dividend income despite the assessee producing books of account and having made a suo motu disallowance. Where nexus is not established, the presumption that investments giving rise to exempt income were made out of interest free funds (such as share capital and reserves) applies. The assessee's balance sheet showed shareholder funds exceeding the investments yielding exempt income, and the Tribunal followed the principle in the cited HDFC Bank decision that, in absence of nexus, disallowance under Rule 8D(2)(ii) cannot be sustained. On this basis the addition made by the AO under Rule 8D(2)(ii) was deleted. [Paras 8]

Addition of interest expenses under Rule 8D(2)(ii) deleted and issue allowed in favour of the assessee

Disallowance under section 14A read with Rule 8D(2)(iii) - administrative expenses attributable to exempt income - Requirement of Assessing Officer's subjective satisfaction before applying Rule 8D apportionment - Precedent principle: recording of satisfaction as precondition to disallowance under Rule 8D - Disallowance of administrative expenses under Rule 8D(2)(iii) deleted for failure of the AO to record requisite satisfaction - HELD THAT: - Rule 8D read with section 14A requires that the Assessing Officer record satisfaction before applying the theory of apportionment where the assessee has itself made an apportionment. The AO's assessment order did not record the necessary subjective satisfaction and proceeded on an incorrect premise that no expenses had been attributed to exempt income, notwithstanding the assessee's suo motu disallowance. Following the principle in Maxopp Investments (supra) that satisfaction must be recorded as a precondition to substituting the assessee's apportionment, the Tribunal held that the AO's disallowance under Rule 8D(2)(iii) could not be sustained and deleted the addition. [Paras 9]

Addition of administrative expenses under Rule 8D(2)(iii) deleted and issue allowed in favour of the assessee

Final Conclusion: Both additions made under section 14A read with Rule 8D(2)(ii) and Rule 8D(2)(iii) were deleted: interest disallowance set aside for lack of proved nexus and on presumption of deployment of interest free funds, and administrative expense disallowance set aside because the AO failed to record the requisite satisfaction; appeal allowed.

Reliance on statement recorded during survey u/s. 133A for making additions - Requirement of independent corroborative evidence before making additions - Valuation of work-in-progress as a question of fact - No addition can be based solely on admissions in survey without supporting material

Reliance on statement recorded during survey u/s. 133A for making additions - Requirement of independent corroborative evidence before making additions - Valuation of work-in-progress as a question of fact - Deletion of addition of Rs. 31,00,000 made by the Assessing Officer based on statement recorded during survey proceedings. - HELD THAT: - The Assessing Officer made additions of Rs. 26,00,000 (undervaluation of work-in-progress) and Rs. 5,00,000 (unverifiable expenditure) solely on the basis of admissions recorded during survey under section 133A. The Tribunal observed that the Assessing Officer did not bring on record any specific discrepancies or independent evidence to substantiate undervaluation of closing work-in-progress or the alleged bogus nature of expenditure. Valuation of work-in-progress and genuineness of expenditure are questions of fact which require supporting material; a mere statement recorded during survey is insufficient to justify additions. The Tribunal relied on the settled principle - as reflected in the cited decisions and CBDT instructions reproduced in the order - that additions cannot be sustained solely on the basis of survey statements without corroboration. In view of the absence of corroborative evidence and the failure of the Assessing Officer and the CIT(A) to apply that principle, the additions were held unsustainable and were deleted. [Paras 10]

Addition of Rs. 31,00,000 based solely on statements recorded during survey set aside and deleted.

Final Conclusion: The appeal is allowed; the additions of Rs. 31,00,000 made on the basis of statements recorded during survey proceedings are deleted for lack of independent corroborative evidence.

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - disallowance of deduction under section 36(1)(viia) - mere disallowance not warranting penalty - requirement of a finding linking disallowance to inaccurate particulars - application of Reliance Petro Products ratio

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - disallowance of deduction under section 36(1)(viia) - mere disallowance not warranting penalty - requirement of a finding linking disallowance to inaccurate particulars - Legality of levying penalty under section 271(1)(c) for disallowance of excess deduction claimed under section 36(1)(viia) where no finding records that the assessee furnished inaccurate particulars of income. - HELD THAT: - The Tribunal found that the Assessing Officer's action amounted to a mere disallowance of an excess claim for want of creation of requisite provision and that such disallowance does not, by itself, constitute furnishing of inaccurate particulars of income or a false claim. The penalty order lacks any specific finding explaining how the assessee furnished inaccurate particulars leading to the addition. Applying the ratio of the Hon'ble Supreme Court in Reliance Petro Products and a conspectus of earlier decisions, the Tribunal held that in absence of a clear finding connecting the disallowance to dishonest or inaccurate particulars, penalty under section 271(1)(c) cannot be sustained. Consequently, the Commissioner (Appeals) was correct in deleting the penalty. [Paras 9, 10]

Penalty under section 271(1)(c) deleted as the disallowance of the deduction under section 36(1)(viia) was a mere disallowance and there was no finding that the assessee furnished inaccurate particulars of income.

Final Conclusion: The Revenue's appeal is dismissed; the deletion of the penalty under section 271(1)(c) is upheld because the assessment reflects only a disallowance of an excess deduction without any finding of inaccurate particulars of income.

Treatment of survey declaration in books - closing work-in-progress valuation and verification - deemed income under section 68 read with section 115BBE - remand for factual verification - wrong section citation not fatal to assessment

Treatment of survey declaration in books - closing work-in-progress valuation and verification - remand for factual verification - Whether the additional sum of Rs. 6,00,00,000 declared during survey and debited to profit and loss account as 'WIP declared u/s. 133A survey' is reflected in the closing work-in-progress and, if so, whether that factual finding negates the addition. - HELD THAT: - The Tribunal found that the revenue authorities concluded the declaration represented unexplained income without fully examining the components of closing work-in-progress and the accounting effect of the debit entry. The assessee's factual contention - that the declared sum was capitalised to closing WIP and thus not an additional taxable profit - raises veracity issues capable of being resolved by examination of the closing WIP components, books and supporting records. Those factual aspects, including whether the profit before partner interest and remuneration exceeded the declared sum and whether the audited notes reflect inclusion of the declared amount in closing WIP, were not conclusively resolved by the AO or CIT(A). The Tribunal therefore directed that these factual matters be examined afresh by the AO, with the assessee being afforded adequate opportunity to be heard, so that the correctness of the addition can be determined on verified facts. [Paras 11, 12, 13]

Matter remitted to the Assessing Officer for factual verification of whether the Rs. 6,00,00,000 declared in survey was reflected in closing work-in-progress and for consequential determination, with opportunity to the assessee to be heard.

Deemed income under section 68 read with section 115BBE - wrong section citation not fatal to assessment - Whether mis-quotation of the provision under which the addition was made (section cited by authorities) vitiates the addition when the addition is otherwise justified on facts and circumstances. - HELD THAT: - The Tribunal observed that the legal question about applicability of deemed income under section 68 read with section 115BBE will arise only if the AO, upon factual verification, finds the assessee's submissions incorrect. Independently, the Tribunal applied settled principle that quoting an incorrect statutory provision does not render an assessment invalid where the addition is justified on the facts and circumstances. Thus, if after factual verification the addition is warranted, the technical mis labelling of the provision will not be fatal to the assessment. [Paras 12]

Quoting a wrong section does not invalidate an addition if the addition is warranted on facts; the question of applicability of the deemed income provision will be considered by AO after factual verification.

Final Conclusion: The Tribunal has remitted the matter to the Assessing Officer to verify, on the basis of books, closing WIP components and supporting records, whether the Rs. 6,00,00,000 declared in survey is reflected in closing work in progress and to decide the correctness of the addition accordingly, granting the assessee adequate opportunity to be heard; additionally, the Tribunal held that a mistaken citation of the statutory provision does not invalidate an otherwise justified addition.

Writ of mandamus - summons under Section 108 of the Customs Act, 1962 - leave to amend to implead party - liberty to impugn statutory summons - restraint on coercive action pending compliance

Leave to amend to implead party - liberty to impugn statutory summons - Grant of leave to amend the petition to impugn the summons annexed to the compilation and to implead the Directorate of Revenue Intelligence, Zonal Unit, Bangalore as a respondent. - HELD THAT: - The Court allowed the petitioner liberty to challenge the validity of the summons produced with the compilation and permitted amendment of the writ petition to implead the authority which issued those summons. The amendment was directed to be carried out within one week and simultaneous copies were to be supplied to the respondents; re verification was dispensed with as no additional averments were proposed. The direction enables the petitioner to place the challenge to the summons before the Court while ensuring procedural regularity in impleading the issuing authority. [Paras 7]

Leave to amend granted; petitioner permitted to impugn the summons and to implead the Directorate of Revenue Intelligence, Zonal Unit, Bangalore within one week.

Writ of mandamus - Petitioner to comply with summons and to cooperate with the Directorate of Revenue Intelligence by appearing and assisting in recording statements and producing documents. - HELD THAT: - The petitioner, through its counsel, undertook to appear before the DRI in response to the specified summons on the stated date and time and agreed to cooperate with the authority during recording of statements and submission of documents. The Court recorded these undertakings and accepted the statements made on behalf of the petitioner, thereby facilitating the authority's fact finding subject to the protective directions subsequently issued by the Court. [Paras 8]

Petitioner directed to appear and cooperate with the DRI; statements accepted by the Court.

Restraint on coercive action pending compliance - Restriction on the Directorate of Revenue Intelligence from taking coercive steps against the petitioner during the course of recording statement, with a requirement of 7 days' notice before any coercive action. - HELD THAT: - The Court restrained the DRI from adopting any coercive measures against the petitioner while the petitioner appeared and statements were being recorded pursuant to its undertaking. The Court further directed that should the DRI propose any coercive action, it must give the petitioner seven days' clear notice, and permitted the petitioner to initiate appropriate proceedings in response to such notice. This protective injunction preserves the petitioner's rights during the immediate compliance process without adjudicating the merits of the underlying dispute. [Paras 9]

DRI restrained from taking coercive steps during recording of statements; any proposed coercive action requires seven days' notice to the petitioner.

Final Conclusion: Writ petition disposed of in terms of the directions recorded: leave to amend and implead granted, petitioner to appear and cooperate with DRI, and DRI restrained from coercive action during recording of statements save after seven days' notice; Court declined to express any view on the merits.

Classification of imported goods - burden of proof on the Revenue in classification disputes - reliance on textile committee/ATIRA reports for composition and classification - requirement of 85% texturised polyester filament threshold for headings 5407.51-5407.54 - inconclusive test reports and necessity for resampling/retesting - consequence of Revenue's incorrect primary classification

Classification of imported goods - burden of proof on the Revenue in classification disputes - reliance on textile committee/ATIRA reports for composition and classification - requirement of 85% texturised polyester filament threshold for headings 5407.51-5407.54 - inconclusive test reports and necessity for resampling/retesting - Whether the impugned classification of the imported goods as "polyester woven fabric" under CTH 54075490 is sustainable and whether the appellants' classification as bed cover/quilt case must be upheld. - HELD THAT: - The Tribunal found that the Department relied upon multiple textile/ATIRA reports which were inconclusive as to the composition of the samples, in particular because the weft ruptured during testing and the essential condition that fabric contain 85% or more by weight of texturised polyester filaments could not be established. One report classified the sample as polyester woven printed quilt case (HS 630222) while others were inconclusive; the Department discredited that favourable report without explaining who tampered with it or what action was taken. Given the inconclusive nature of the expert reports, the Tribunal held that the Department had not discharged the burden of proof required to justify reclassification to the heading relied upon by Revenue. The Tribunal further observed that where the Revenue's primary classification fails, the Department's case cannot be sustained even without finally determining the correctness of the appellants' pleaded classification. The Tribunal noted that, instead of relying on inconclusive reports, resampling and retesting should have been considered, and reliance upon case-law establishes that the onus lies on the taxing authority to produce cogent material to support a change of classification. [Paras 3, 4]

The Tribunal held that the Revenue failed to discharge its burden of proof and set aside the impugned orders; the appeals are allowed with consequential relief in accordance with law.

Final Conclusion: Following the Tribunal's earlier detailed decision on the same common issue, the reclassification of the imported goods to "polyester woven fabric" under CTH 54075490 was rejected for want of cogent and conclusive expert evidence; the impugned orders are set aside and the appeals are allowed with consequential relief.

Natural justice - remand for further investigation - power of first appellate authority to issue notice of intent under section 128A of the Customs Act, 1962 - application of rule 6 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 based on market survey - scope of appellate interference with original authority's order

Natural justice - scope of appellate interference with original authority's order - Validity of the first appellate authority's setting aside of the original authority's order on grounds of denial of opportunity to be heard - HELD THAT: - The appellate tribunal noted that the first appellate authority correctly found that principles of natural justice were not observed by the original authority. The Commissioner of Customs' review plea effectively sought reinstatement of the original detrimental order despite that admitted denial. The Tribunal held that where the original proceedings had not placed material before the importer or had failed to issue a proper show cause notice, such defects were not rectifiable at an advanced stage and justified setting aside the original order. The appellate authority's exercise to decide the matter on merits and propriety rather than remanding was not found to be improper in the circumstances. [Paras 4, 5, 8]

Setting aside of the original authority's order by the first appellate authority on grounds of denial of natural justice is upheld.

Remand for further investigation - power of first appellate authority to issue notice of intent under section 128A of the Customs Act, 1962 - Whether the matter should have been remanded to the original authority for further inquiry or issuance of show cause notice - HELD THAT: - The Tribunal observed that the Revenue's grievance was that the first appellate authority did not remand the matter to enable further action. However, the record showed that investigations by the original authority remained inconclusive and no viable show cause notice could appropriately be issued at that stage. The Tribunal further noted that the jurisdiction under section 128A to issue notice of intent is one for the first appellate authority to exercise based on existing evidence to enhance detriment, but such jurisdiction cannot be invoked through a review process to secure a remand when the appellant had already suffered maximum deprivation. A remand would have served no useful purpose and would merely prolong the exporter's hardship. [Paras 5, 6, 7]

No remand was warranted; the first appellate authority did not err in refusing to remand the matter.

Application of rule 6 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 based on market survey - Tenability of reliance on market survey under rule 6 for re-determination of export value given the lapse of time and multiple surveys - HELD THAT: - The Tribunal endorsed the first appellate authority's criticism of the original authority's reliance on a market survey conducted many months after filing of shipping bills and on selective adoption of one survey while ignoring another without explanation. The lapse of between nine months to a year between shipment and survey undermined the tenability of applying rule 6 on the basis of that market survey. Given these infirmities, the appellate authority was justified in rejecting the original authority's valuation approach. [Paras 7]

Reliance on the belated and selectively applied market survey under rule 6 was untenable; appellate rejection of that valuation is sustained.

Final Conclusion: The appeal against the impugned appellate order is dismissed; the first appellate authority correctly set aside the original authority's order for breach of natural justice, refusals to remand were justified, and the valuation approach based on belated market surveys under rule 6 was unsustainable.

Classification of goods under heading 8471 versus heading 8528 - General Rules for the Interpretation of the Import Tariff - comparison at four digit level - onus on the Revenue to establish appropriateness of substituted classification - exemption available to goods classified under heading 8471

Classification of goods under heading 8471 versus heading 8528 - General Rules for the Interpretation of the Import Tariff - comparison at four digit level - exemption available to goods classified under heading 8471 - Imported 'interactive intelligent panel (automatic data processing machine) model - cloudtouch' is classifiable under heading 8471 and not under heading 8528. - HELD THAT: - The Tribunal found that, although the catalogue descriptions show characteristics of monitors, the impugned panels contain a central processing unit and operate on software requiring input devices and thus perform functions enumerated for automatic data processing machines. Comparison between competing headings must follow the General Rules for Interpretation of the Import Tariff, permitting comparison at the four digit heading level and then selection of the most specific subheading. Applying those rules to the record, recourse to heading 8528 for monitors and projectors is inconsistent with the statutory scheme because the goods are more aptly covered by heading 8471. As the exemption notification is available to all goods falling under heading 8471, the duty paid by the appellant sufficed for levy and the reclassification in the impugned order lacked authority of law; the appeal was allowed. [Paras 2, 5, 7, 8]

Revised classification under heading 8528 set aside; goods held classifiable under heading 8471 and appeal allowed.

Onus on the Revenue to establish appropriateness of substituted classification - Revenue failed to discharge the burden of proof required to substitute the importer's claimed classification. - HELD THAT: - The Tribunal reiterated settled law that classification relates to chargeability and the burden to prove a different classification lies on the Department. Absent evidence adduced by the Revenue to demonstrate that the goods did not fall within the description claimed by the importer, substitution of the declared classification could not be sustained. Applying that principle to the facts, the Revenue did not discharge this onus and therefore the revised assessment was unsustainable. [Paras 6]

Since the Revenue did not discharge the burden of proof for reclassification, the substitution was invalid.

Final Conclusion: The Tribunal set aside the order reclassifying the imported interactive panels as monitors under heading 8528, held them to be classifiable under heading 8471, found that the Revenue failed to discharge the burden to justify reclassification, and allowed the appeal with consequential relief.

Legality of lay-off - entitlement to back wages and consequential benefits - binding effect of a settlement reached in conciliation proceedings - representation by a registered or unregistered trade union before an Industrial Tribunal - effect of moratorium and liquidation under the Insolvency and Bankruptcy Code on adjudication and enforcement of labour claims - priority of workmen's dues under the distribution scheme of the Insolvency and Bankruptcy Code

Representation by a registered or unregistered trade union before an Industrial Tribunal - challenge to the entitlement of the respondent-Union to represent the workmen before the Industrial Tribunal - HELD THAT: - The Court examined the history of the registration and its challenge, the interim stay by the Supreme Court and the legislative scheme concerning representation (Section 6-I of the U.P. Act and Rule 40 of the U.P. Industrial Disputes Rules). The High Court found that (a) an industrial dispute referred suo moto by the State Government is not confined to members of any particular union; (b) even an unregistered union or a body of workmen can raise or sponsor an industrial dispute; and (c) the interim order of the Supreme Court staying an earlier intra-court order operated so as to leave the registration cancellation in abeyance from the date of stay, thereby enabling representation. The Court also noted absence of any pleading that the authority letter for representation was invalid and observed that any authority filed after the Supreme Court's interim order would suffice. On these bases the Court held that the petitioner's challenge to the respondent-Union's entitlement to represent the workmen could not be sustained.

The challenge to the respondent-Union's entitlement to represent the workmen before the Industrial Tribunal is rejected.

Legality of lay-off - binding effect of a settlement reached in conciliation proceedings - validity of the lay-off effected on 15.04.2007 and the binding effect of the 13.04.2007 settlement on all workmen - HELD THAT: - The Court reviewed the settlement terms, the Standing Orders, the evidence (including admissions and documents produced before the Tribunal) and earlier appellate observations. It noted that the settlement contemplated indefinite phased re-employment and partial (50%) lay-off compensation, but that the petitioner produced no documentary or cogent oral evidence to show compliance with the settlement terms or lawful justification for keeping a large number of workmen laid off for years. The Industrial Tribunal relied on documentary notices and witness testimony indicating non-payment or partial payment of lay-off compensation, fresh appointments made without re-employing laid-off workmen, and substantive factual findings that only a minority were given employment under the settlement while the majority remained laid off. The Court distinguished authorities on settlements where the majority had accepted terms and where the settlement operated fairly; on the present facts-long continued non-employment, non-payment of compensation and absence of proof of compliance-the Tribunal rightly examined the validity and fairness of the settlement and concluded the lay-off was unjustified and illegal.

The finding of the Industrial Tribunal that the lay-off of 15.04.2007 was unjustified and illegal is upheld.

Entitlement to back wages and consequential benefits - effect of moratorium and liquidation under the Insolvency and Bankruptcy Code on adjudication and enforcement of labour claims - priority of workmen's dues under the distribution scheme of the Insolvency and Bankruptcy Code - scope and enforceability of the Tribunal's award for full wages, allowances and consequential benefits in the context of the company's insolvency, moratorium and subsequent liquidation - HELD THAT: - The Court considered the Tribunal's award for full wages from the date of lay-off and the petitioner's contention that liquidation, prior moratorium and the company's precarious finances preclude such relief. The Court observed that (a) the NCLT moratorium ceased upon the liquidation order of 23.03.2018, so Tribunal proceedings were not barred thereafter; (b) liquidation and appointment of a liquidator do not immunize the corporate debtor from having adjudicated liabilities assessed-the Liquidator must admit, value and verify claims under the Code (Sections 39-41) and decisions on claims may be appealed under Section 42; (c) distribution of proceeds is governed strictly by Section 53 of the Code, which accords a specified priority to workmen's dues for 24 months preceding the liquidation commencement date and prescribes the order for other dues; and (d) exceptional case-law permitting denial or modulation of reinstatement/back wages where reinstatement is impossible or would impose an impossible burden is distinguishable where the company is under liquidation and claims must be quantified and paid according to the Code. The Court also accepted the evidentiary finding that the laid-off workmen were not gainfully employed elsewhere (attendance evidence) and that the respondent-Union need not produce a separate list because admitted claims were already before the Liquidator.

Workmen held entitled to full wages, allowances and consequential benefits as directed by the Industrial Tribunal for the period from 15.04.2007, subject to adjustment of any amounts already received; realization and distribution of such amounts are to be processed by the Liquidator and paid in accordance with the priorities and procedures laid down in the Insolvency and Bankruptcy Code.

Final Conclusion: The writ petition is disposed of by upholding the Industrial Tribunal's award that the lay-off of 15.04.2007 was unjustified and illegal and that laid-off workmen are entitled to full wages, allowances and consequential benefits (with adjustment of amounts already paid). The petitioner's challenge to the respondent-Union's representation is rejected. Enforcement and distribution of any monetary liabilities shall be subject to the Liquidator's claim-admission, valuation and the priority scheme under the Insolvency and Bankruptcy Code.

Order VII Rule 11(d) CPC - rejection of plaint as barred by law - Civil Court jurisdiction barred by Section 430 of the Companies Act - Tribunal's power to set aside transfers under Section 242(2)(f) and (g) - Limitation of three months for setting aside transfers - Declaratory relief against third party sale where tribunal lacks power

Civil Court jurisdiction barred by Section 430 of the Companies Act - Tribunal's power to set aside transfers under Section 242(2)(f) and (g) - Limitation of three months for setting aside transfers - Order VII Rule 11(d) CPC - rejection of plaint as barred by law - Whether the Civil Suits seeking declaration that certain sale deeds are invalid are barred by Section 430 of the Companies Act because the National Company Law Tribunal/Appellate Tribunal is empowered to grant the reliefs sought. - HELD THAT: - The Court held that the bar in Section 430 applies only where the Tribunal or Appellate Tribunal under the Companies Act is empowered to determine the same matter exclusively. Examination of Section 242(2) shows clause (f) permits termination or setting aside of agreements only subject to obtaining consent of the affected party, and clause (g) permits setting aside of transfers only if made within three months before the application. The sales in question took place in 2013-2014 while the petition under Sections 241/242 was filed in 2016, well beyond the three month limit; accordingly the Tribunal lacked power to set aside those sales. Because the Tribunal/Appellate Tribunal did not have the requisite power to set aside the impugned sale deeds, the statutory bar in Section 430 did not operate to oust the jurisdiction of the Civil Court. The trial Court therefore correctly dismissed the applications under Order VII Rule 11(d) seeking rejection of the plaints as barred by law. [Paras 6, 7, 8, 9, 11]

The plea for rejection of the plaints under Order VII Rule 11(d) on the ground of bar by Section 430 fails; the Civil Suits are not barred.

Declaratory relief against third party sale where tribunal lacks power - Whether a person who is not a party to a sale deed can seek to set aside the sale or is confined to a declaration that the sale is not binding on him. - HELD THAT: - The Court applied the settled principle that a non party to a sale deed need not seek rescission of the sale; such a person may seek a declaration that the sale is not binding upon him. The judgment of this Court in L.P. Alaghappa Chettiar v. V. Janardhanan was applied to support this principle, and the contention raised by the petitioners on this point was rejected. [Paras 10]

A non party may seek a declaratory decree that a sale is not binding on him; he need not pursue direct rescission of the sale.

Final Conclusion: The revisions are dismissed. The trial Court did not err in rejecting the applications under Order VII Rule 11(d); Section 430 of the Companies Act does not bar the Civil Suits because the NCLT/NCLAT lacked power to set aside the impugned sales, and a non party may seek a declaration that a sale is not binding on him. No costs.

Sanction of scheme of arrangement under Sections 230 and 232 - Transfer and vesting of assets and liabilities pursuant to Section 232(4) - Continuation of pending proceedings and succession to liabilities by transferee/resulting company - Obligation to file certified copy with Registrar of Companies and consequential dissolution - Compliance with regulatory requirements and reservation of rights of statutory authorities - Requirement to furnish Schedule of Assets in Form No. CAA-7 - Accounting treatment and stamp duty compliance - NBFC regulatory clearance (Reserve Bank of India NOC)

Sanction of scheme of arrangement under Sections 230 and 232 - Transfer and vesting of assets and liabilities pursuant to Section 232(4) - Sanction of the composite scheme of amalgamation and de-merger and vesting of specified assets, rights and liabilities in the Transferee and Resulting Companies with effect from the appointed date. - HELD THAT: - The Tribunal, after considering the petitioners' averments, statutory auditor certificates and representations received, allowed the petition and sanctioned the Scheme to be binding from the Appointed Date (01.04.2019). Consequent to sanction, the Transferor Companies' assets, properties, rights and interests vest in the Transferee Company and the Demerged Undertaking's assets and rights vest in the Resulting Company without further act or deed. The corresponding liabilities and duties of the Transferor Companies and of the Demerged Undertaking are similarly transferred and become the liabilities and duties of the Transferee Company and Resulting Company respectively, subject to existing charges. [Paras 1, 2, 8]

Scheme sanctioned; assets, rights and liabilities stand transferred and vested in transferee/resulting companies with effect from 01.04.2019.

Continuation of pending proceedings and succession to liabilities by transferee/resulting company - Compliance with regulatory requirements and reservation of rights of statutory authorities - Pending proceedings, suits or appeals by or against the Transferor Companies and the Demerged Undertaking shall continue by or against the Transferee and Resulting Companies; statutory authorities retain the right to take action against defaults of transferor companies post-sanction. - HELD THAT: - The Tribunal directed that all proceedings, suits and appeals pending by or against the Transferor Companies and the Demerged Undertaking shall be continued by or against the Transferee and Resulting Companies as applicable. The Tribunal explicitly recorded that statutory authorities (including Income Tax department and ROC) are at liberty to initiate appropriate proceedings for any defaults or non-compliances of the Transferor Companies, and that sanction of the scheme does not preclude such action. The petitioners also undertook that sanction will not impede actions in accordance with law against concerned persons or officers if violations are found. [Paras 6, 8]

Proceedings to continue against transferee/resulting companies; statutory authorities' rights to initiate proceedings preserved.

Obligation to file certified copy with Registrar of Companies and consequential dissolution - Requirement to furnish Schedule of Assets in Form No. CAA-7 - Employees' engagement and allotment of shares pursuant to the scheme - Post-sanction procedural obligations: filing of certified copy with ROC, filing of Schedule of Assets in prescribed form, allotment of shares and engagement of employees as per scheme. - HELD THAT: - The Tribunal granted leave to file the Schedule of Assets in the form prescribed in the Schedule to Form No. CAA-7 within four weeks from receipt of a copy of the order and directed each company to cause a certified copy of the order to be delivered to the Registrar of Companies within thirty days of receipt. Upon filing of the certified copy, the Transferor Companies shall be dissolved without winding up with effect from the date of filing (Effective Date) and the ROC shall consolidate records as directed. The Transferee and Resulting Companies are directed to issue and allot shares to the entitled shareholders and to engage employees of the Transferor Companies and Demerged Undertaking as provided in the Scheme. The registry is to append an acceptable legible printout of the scheme and schedule of assets to the certified copy of the order. [Paras 8, 9, 11]

Petitioners directed to file schedule and deliver certified copy to ROC; transferor companies to be dissolved on filing; allotment of shares and employee engagement to be effected as per scheme.

Accounting treatment and stamp duty compliance - NBFC regulatory clearance (Reserve Bank of India NOC) - Compliance with regulatory requirements and reservation of rights of statutory authorities - Representations of the Regional Director concerning accounting entries, stamp duty, disclosure lapses and RBI NOC were considered; petitioners' undertakings accepted and compliance directed, but absence of RBI response did not preclude sanction. - HELD THAT: - The RD's observations on (inter alia) the need for RBI NOC for an NBFC transferee, adjustment of fees on clubbing of authorised capital, payment of applicable stamp duty on transfer of immovable property, adherence to applicable accounting standards, and alleged non-disclosures in transferor companies' financial statements were addressed by the petitioners through rejoinder and undertakings. The Tribunal noted service of notices on RBI and that no representation was received from RBI. The petitioners undertook to comply with Section 232(3)(i), to pay stamp duty after sanction, and to make accounting entries in accordance with applicable accounting standards. Where alleged past non-compliances exist, the Tribunal recorded that statutory authorities (including ROC) may proceed post-sanction. The Tribunal accepted these responses and proceeded to sanction the scheme subject to those compliances. [Paras 5, 7, 8]

RD representations considered; petitioners' undertakings accepted and directed to comply; lack of RBI objection did not prevent sanction.

Final Conclusion: The Tribunal allowed the petition and sanctioned the composite scheme of amalgamation and de-merger with effect from 01.04.2019; the specified assets, rights and liabilities are vested in the Transferee and Resulting Companies, pending proceedings continue against the successor companies, petitioners are directed to comply with filing and regulatory formalities (including filing Schedule of Assets and delivering certified copy to ROC leading to dissolution of Transferor Companies), and statutory authorities retain the right to initiate appropriate action for any defaults despite the sanction.

Sanction of scheme of amalgamation under Sections 230-232 of the Companies Act, 2013 - vestiture and transfer of undertaking as a going concern - appointed date and effect of ante-dating - compliance with convening of meetings and majority approval of shareholders and creditors - accounting treatment under pooling of interests method / IND-AS 103 and conformity with Section 133 - dissolution of transferor company without winding up - continuance of proceedings and liabilities by transferee company - employees' continuity and substitution of employer - payment of regulatory/legal expenses to Regional Director and Official Liquidator

Sanction of scheme of amalgamation under Sections 230-232 of the Companies Act, 2013 - compliance with convening of meetings and majority approval of shareholders and creditors - Whether the proposed Scheme of Amalgamation between Perlcon Premix Private Limited (Transferor) and Amol Minechem Limited (Transferee) should be sanctioned by the Tribunal. - HELD THAT: - The Tribunal examined the petition, the convening of statutory meetings, the chairman's reports and the voting results, and the statutory notices and publications. The chairman's reports show requisite approval by the classes of shareholders and creditors convened; the scheme was found to satisfy the requirements of Sections 230 and 232. Representations received from the Regional Director, Official Liquidator and Reserve Bank were considered and responded to by the petitioners. On the facts and material placed before it, the Tribunal found the scheme to be bona fide and in the interest of shareholders and creditors and concluded that the statutory requirements for sanction were met.

The Company Petition is allowed and the Scheme of Amalgamation is sanctioned and declared binding on the companies, their shareholders and creditors.

Appointed date and effect of ante-dating - Validity of the proposed Appointed Date (1st April, 2019) which is earlier than the date of filing of the application. - HELD THAT: - The Regional Director drew attention to the MCA circular requiring justification where the Appointed Date is antedated beyond one year from filing. The petitioners explained delay in filing was caused by the COVID-19 pandemic and lockdown which postponed initiation of proceedings despite earlier board decisions. The Tribunal accepted the explanation and found the antedated Appointed Date not to be contrary to public interest.

The Appointed Date of 1st April, 2019 is accepted for the purposes of the Scheme.

Vestiture and transfer of undertaking as a going concern - continuance of proceedings and liabilities by transferee company - Effect of the sanction on transfer and vesting of assets, liabilities, rights and pending proceedings of the Transferor Company. - HELD THAT: - The Scheme provides for transfer and vesting of the entire undertaking of the Transferor Company as a going concern to the Transferee Company from the Appointed Date, including movable and immovable property, contracts, intellectual property, tax attributes and statutory approvals. The Tribunal sanctioned these provisions and ordered that all liabilities and duties of the Transferor Company shall stand transferred to and be the liabilities and duties of the Transferee Company and that any proceedings pending against the Transferor Company shall be continued by or against the Transferee Company.

All assets, liabilities, rights and pending proceedings of the Transferor Company stand transferred to and vested in the Transferee Company in accordance with the Scheme.

Accounting treatment under pooling of interests method / IND-AS 103 and conformity with Section 133 - Whether the accounting treatment for the amalgamation as set out in the Scheme is acceptable. - HELD THAT: - The petitioners stated that Clause 10 prescribes accounting in accordance with the Pooling of Interest method in Appendix C of IND-AS 103 and that such treatment conforms with accounting standards prescribed under Section 133 of the Companies Act, 2013. The Tribunal noted the stated conformity and the scheme provisions preserving carrying amounts, reserves and requiring restatement of comparative information, and accepted the accounting treatment subject to resolution by the boards and auditors where differences in accounting policy arise.

The accounting treatment set out in the Scheme is accepted as conforming with the applicable accounting standards as stated.

Employees' continuity and substitution of employer - Whether employees of the Transferor Company shall continue in service and on what terms. - HELD THAT: - The Scheme provides that on effectiveness all employees on the payroll of the Transferor Company (including contract staff and trainees) shall become employees of the Transferee Company on terms no less favourable than those on which they were engaged, with continuity of service for statutory benefits. The Tribunal sanctioned these provisions and the undertaking by the Transferee Company to honor past service for calculation of terminal benefits.

Employees of the Transferor Company shall become employees of the Transferee Company on terms no less favourable and with continuity of service as provided in the Scheme.

Dissolution of transferor company without winding up - payment of regulatory/legal expenses to Regional Director and Official Liquidator - Consequences of sanction regarding dissolution of the Transferor Company and payment of regulatory expenses. - HELD THAT: - The Tribunal declared that upon the Scheme becoming effective the Transferor Company shall be dissolved without winding up. The Regional Director and Official Liquidator had sought payment for their representation; the Tribunal quantified and directed payment of the legal fees/expenses of the Regional Director and the Official Liquidator and directed the Transferee Company to make such payments. The Tribunal also directed preservation and filing of records with the Registrar of Companies and the Official Liquidator as required.

The Transferor Company shall be dissolved without winding up upon effectiveness of the Scheme, and the Transferee Company is directed to pay the quantified regulatory/legal expenses and comply with filing and preservation directions.

Final Conclusion: The Tribunal sanctioned the Scheme of Amalgamation between Perlcon Premix Private Limited and Amol Minechem Limited as meeting the requirements of Sections 230-232, ordered transfer and vesting of the Transferor Company's undertaking, liabilities, employees and tax attributes to the Transferee Company with effect from the Appointed Date of 1st April, 2019, directed necessary filings and preservation of records, declared the Transferor Company dissolved without winding up on effectiveness of the Scheme, and directed payment of the regulatory/legal expenses as quantified.

Acknowledgement of liability under Section 18 of the Limitation Act, 1963 - date of default for a guarantor is the date of invocation of the guarantee - separate and independent liability of guarantor arising from a guarantee contract - discharge of surety by creditor's conduct under Sections 135 and 139 of the Indian Contract Act, 1872 - maintainability of an application under Section 7 of the IBC against a corporate guarantor - requirement to furnish particulars of default in Form 1 for Section 7 filing

Acknowledgement of liability under Section 18 of the Limitation Act, 1963 - Whether the corporate debtor's letter dated 27.09.2017 constituted an acknowledgement extending the limitation period so that the Section 7 application filed on 01.08.2019 was within time. - HELD THAT: - The Tribunal held that the corporate debtor's reply dated 27.09.2017 to the bank's demand amounted to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, 1963. An acknowledgement need not contain an express promise to pay; an admission of the jural relationship and existence of liability suffices. The reply expressly recognised that the principal borrower had failed to pay and that the bank had invoked the guarantees and called upon the corporate debtor to pay; it also requested the bank not to initiate insolvency proceedings. That acknowledgement operated to extend the period of limitation and rendered the Section 7 petition filed on 01.08.2019 within the extended limitation period. [Paras 99, 100, 101, 120, 122]

The letter dated 27.09.2017 is an acknowledgement under Section 18 which extended limitation and the Section 7 application was held to be within time.

Date of default for a guarantor is the date of invocation of the guarantee - separate and independent liability of guarantor arising from a guarantee contract - Whether the date of default for the corporate guarantor is distinct from the date the principal borrower's account became NPA, and whether the invocation date (08.12.2014) can be treated as the guarantor's date of default. - HELD THAT: - The Tribunal reiterated that a guarantee is an independent contract creating separate and reciprocal obligations between creditor and guarantor. The liability of a guarantor may arise at a different time than the principal debtor; where the guarantee is enforceable on demand, limitation against the guarantor runs from demand/ invocation. The petition correctly recorded two dates: 29.07.2014 as the principal borrower's NPA date and 08.12.2014 as the date of invocation of the corporate guarantee; both can coexist because they relate to distinct liabilities. Thus the date of invocation (08.12.2014) is the relevant date of default for the guarantor for limitation reckoning unless extended by acknowledgement. [Paras 95, 96, 97, 116, 117]

The invocation date (08.12.2014) is the date of default for the corporate guarantor and the two dates of default in the Section 7 application are consistent and valid.

Discharge of surety by creditor's conduct under Sections 135 and 139 of the Indian Contract Act, 1872 - Whether the bank's conduct (including accepting recoveries, granting NOC for bidding and variation/forbearance) discharged the corporate guarantor's liability under Sections 135/139 of the Indian Contract Act, 1872. - HELD THAT: - The Tribunal examined the guarantee clauses and the bank's conduct. It observed that the guarantee agreements expressly permitted the bank to vary loan terms, release or forbear enforcement of securities and that the guarantor had waived certain suretyship rights. Given Clause 5-7 of the guarantees, the bank's actions including agreeing recovery adjustments and issuing an NOC for bidding did not operate to discharge the guarantor. The bank was not under a duty to exercise its powers of sale at any particular time and the guarantees remained independent obligations; hence the pleas of discharge under Sections 135/139 were rejected. [Paras 65, 118]

The bank's conduct did not discharge the corporate guarantor; the guarantee remained enforceable.

Maintainability of an application under Section 7 of the IBC against a corporate guarantor - requirement to furnish particulars of default in Form 1 for Section 7 filing - Whether a Section 7 application by a financial creditor is maintainable against a corporate guarantor and whether the particulars of default in Form 1 were sufficiently furnished. - HELD THAT: - The Tribunal noted settled law that a financial creditor may initiate CIRP against a corporate guarantor and that a guarantor's liability is a 'financial debt' under the Code. It observed that Form 1 requires particulars of debt and default but is not to be equated with a plaint; documents can be filed until final order admitting or dismissing the application. On the facts, the Section 7 application identified the financial facilities, the guarantees and the date of default for both principal borrower and guarantor (invocation date). The Tribunal found no fatal defect in the pleading and held the Section 7 petition to be maintainable against the corporate guarantor. [Paras 116, 119, 121, 122, 123]

The Section 7 petition against the corporate guarantor was maintainable and the particulars in Form 1 were adequate for admission.

Final Conclusion: The Tribunal dismissed the appeal and upheld the Adjudicating Authority's admission of the Section 7 petition against the corporate guarantor: the guarantor's acknowledgement dated 27.09.2017 extended limitation, the invocation date constituted the guarantor's date of default, the bank's acts did not discharge the guarantee, and the Section 7 filing was maintainable.

Pre-existing dispute - Existence of debt due and payable - Termination notice effect on claim for services - Demand notice under the Insolvency and Bankruptcy Code, 2016 - Mobilox Innovations principle as applied to Section 9 - Rejection under Section 9(5)(2)(d) for a pre-existing dispute

Pre-existing dispute - Demand notice under the Insolvency and Bankruptcy Code, 2016 - Termination notice effect on claim for services - Mobilox Innovations principle as applied to Section 9 - There existed a pre-existing dispute prior to the issuance of the demand notice and the debt was not shown to be indisputably due and payable. - HELD THAT: - The Tribunal examined whether there was a pre-existing dispute and whether the documentary evidence established that the debt was due and payable. The corporate debtor produced an undisputed email dated 22.02.2018 terminating the work and directing demobilisation, which the operational creditor did not deny (paras 7, 8). Discrepancies in the invoices and ledger entries, and lack of evidence that services were rendered after 22.02.2018, supported the corporate debtor's contention that bills for subsequent periods were not legitimately claimable. Applying the test in Mobilox Innovations, the Court held that an adjudicating authority need only determine whether a plausible dispute exists that is not spurious, hypothetical or illusory and that requires further investigation. On the material on record the dispute was real and pre existing to the demand notice; therefore the application under Section 9 could be rejected under the authority of Mobilox Innovations and subsequent clarifications (paras 5, 9, 10). The Tribunal accordingly did not adjudicate other collateral points such as authority under the partnership deed because the existence of the pre existing dispute was dispositive. [Paras 7, 8, 10, 11]

The Tribunal upheld the finding that a pre-existing dispute existed prior to the demand notice and that the debt was not shown to be indisputably due and payable, warranting rejection of the Section 9 claim.

Final Conclusion: The Appeal is dismissed; the Adjudicating Authority's order rejecting the Section 9 application is upheld on the ground that a pre-existing dispute existed prior to the demand notice and the debt was not shown to be indisputably due and payable.

Submission of documents on record - reconsideration on production of documents - remand for fresh adjudication - service of notice - verification of documents in information-based proceedings

Submission of documents on record - verification of documents in information-based proceedings - service of notice - reconsideration on production of documents - remand for fresh adjudication - Whether the appeal was rightly rejected for want of documents and whether the matter required reconsideration by the Commissioner (Appeals) in light of the documents allegedly submitted to his office. - HELD THAT: - The Tribunal found on the material on record, specifically a letter received in the Office of the Commissioner (Appeals) on 27.01.2021 prior to the impugned order, that the appellant had submitted invoices and challans for the financial year 2013-14. The appellants contended that the challans related to job-work services claimed to be exempt under the exemption notification. Those documents were not placed on record in the present appeal nor produced by the Department before the Tribunal, and the Commissioner (Appeals) had dismissed the appeal without appreciation of those documents. Given that the proceedings originated from information received from the Income Tax Department, the Tribunal emphasised that verification of the requisite documents was necessary. Because the documents submitted to the Commissioner (Appeals) were not before the adjudicating authority in an appreciable form for decision-making, the Tribunal concluded that the proper course was to remit the matter for fresh consideration in the light of all relevant documents (invoices, job-work challans, ledgers, and any additional documents). The Tribunal therefore directed the appellant to re-submit all documents before the Commissioner (Appeals) within one week of appearing, and directed the Commissioner (Appeals) to adjudicate the matter afresh within two months thereafter. [Paras 5, 6, 7, 8]

The appeal is allowed by way of remand for fresh adjudication by the Commissioner (Appeals) after production and verification of the relevant documents.

Final Conclusion: The Tribunal allowed the appeal by remanding the matter to the Commissioner (Appeals) for reconsideration in the light of invoices, job-work challans, ledgers and any additional documents to be produced by the appellant, with specified timelines for production and adjudication.

Summary order. Appeal dismissed as deemed withdrawn because the appellant opted for the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and obtained the SVLDRS-4 Certificate.

Acceptance of payment under an amnesty scheme - Sab Ka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - remittance mismatch - bona fides - discharge certificate under the scheme - lapse/closure of the amnesty scheme

Remittance mismatch - acceptance of payment under an amnesty scheme - discharge certificate under the scheme - bona fides - Whether the petitioners' contention that payment was remitted under the Amnesty Scheme but returned due to a rounding/mismatch entitles them to the benefit of the scheme - HELD THAT: - The Court found no material on record to substantiate the petitioners' plea that the remittance was unknowingly returned and thereafter kept in a fixed deposit by the bank sweep facility. The court observed that notifications or re-credit/decline messages from banks are ordinarily received by account holders and that the petitioners produced no bank certificate or documentary evidence to support their version. Under Rule 9 of the scheme, issuance of an electronic discharge certificate by the designated committee follows satisfaction of payment and submission of proof; had payment genuinely been effected, the petitioners would have sought that certificate, but there is no averment or evidence of any such effort. The petitioners' prolonged silence after the alleged return, their failure to correspond after service of demand notices, and the absence of attempts to procure a discharge certificate led the Court to conclude that their conduct lacked bona fides. Consequently, the Court rejected the claim that the returned remittance should be treated as payment accepted under the scheme. [Paras 4, 8, 9, 10, 11]

Claim that payment was made but returned due to mismatch is not accepted for want of supporting evidence and bona fides; petitioners are not entitled to be treated as having paid under the scheme.

Sab Ka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - lapse/closure of the amnesty scheme - Whether a belated offer to deposit the amount (with interest) after the scheme had closed can attract benefit under the Amnesty Scheme - HELD THAT: - The Court noted that the Amnesty Scheme had a definite period and had lapsed. The petitioners' assertion of readiness and willingness to deposit the amount at a belated stage was treated as an afterthought; coupled with their earlier inaction and lack of documentary proof of payment, this could not furnish a basis for relief under a scheme that had already closed. Reliance placed on precedent by the respondents reinforced that post-closure attempts cannot be allowed to revive scheme benefits in absence of established entitlement. [Paras 6, 12]

Belated willingness to pay cannot entitle the petitioners to the benefits of the lapsed Amnesty Scheme; relief is rejected.

Final Conclusion: The petition is dismissed for lack of merit: the petitioners failed to establish that payment under the Amnesty Scheme was effected or that they acted with bona fides, and a belated offer to pay cannot avail them of benefits of a scheme that has lapsed.

Violation of principles of natural justice - entitlement to CENVAT credit of inputs contained in final products lying in stock on the date goods become excisable - re-credit of reversed CENVAT credit - non-application of limitation for re-credit where conditions for re-credit are satisfied

Violation of principles of natural justice - Whether the order of the Commissioner (Appeals) suffered from violation of principles of natural justice for want of proof of service of notice of personal hearing. - HELD THAT: - The Tribunal found that notices for personal hearing issued by the Commissioner (Appeals) are not accompanied by any proof of service on the appellant. The appellant had actively responded to earlier proceedings and had appeared before the original adjudicating authority. The mere issuance or dispatch of a notice does not establish service in the absence of proof. On these facts the Tribunal concluded that the appellant's contention of non-receipt of the hearing notice prior to pronouncement of the impugned order is acceptable and that the appellate order therefore suffers from violation of the principles of natural justice. [Paras 6]

The order of the Commissioner (Appeals) is vitiated for want of proof of service of the hearing notice and suffers violation of natural justice.

Entitlement to CENVAT credit of inputs contained in final products lying in stock on the date goods become excisable - Rule 3(2) of Cenvat Credit Rules, 2004 - Whether the appellant was entitled to avail CENVAT credit in December 2016 in respect of inputs contained in final products lying in stock when production resumed and the goods became excisable. - HELD THAT: - The Tribunal accepted the unchallenged factual matrix that the appellant had opted out of the CENVAT scheme and reversed credit on 31.03.2016 when the factory closed, and that production resumed in December 2016. Applying Rule 3(2) of the Cenvat Credit Rules, 2004, the Tribunal held that a manufacturer is entitled to take CENVAT credit of duty paid on inputs contained in final products lying in stock on the date when goods become excisable. Since the goods manufactured became excisable in December 2016 and production had recommenced then, the availment of credit in December 2016 in respect of such inputs was permissible. [Paras 7, 8]

Appellant was entitled to avail CENVAT credit in December 2016 under Rule 3(2) for inputs contained in final products lying in stock when the goods became excisable.

Re-credit of reversed CENVAT credit - non-application of limitation for re-credit where conditions for re-credit are satisfied - Whether the limitation period under Rule 9 applies to the re-credit (taking of credit) of amounts earlier reversed and whether the appellant satisfied conditions to take re-credit. - HELD THAT: - The Tribunal accepted the appellant's reliance on the Board's circular which clarifies that the limitation period in Rule 9 (as amended) is intended to ensure credit is taken within the stipulated period from issuance of the eligible document, but that where re-credit is being taken after reversal (i.e., taking credit for the first time on an eligible document in the circumstances envisaged), the limitation does not operate to bar re-credit once the condition of first-time taking on an eligible document is met. The Tribunal noted there was no denial that the conditions for re-credit were met in the appellant's case and concluded that the limitation under Rule 9 was not a bar to the appellant taking re-credit. [Paras 9, 10]

Limitation under Rule 9 does not preclude re-credit where the conditions for re-credit are satisfied; the appellant met those conditions and was not time-barred from taking credit.

Final Conclusion: The Tribunal set aside the Commissioner (Appeals) order for breach of natural justice and, on merits, held that the appellant was entitled to avail CENVAT credit in December 2016 under Rule 3(2) and that limitation under Rule 9 did not bar the re-credit once the prescribed conditions were satisfied; the appeal is allowed.

Mandatory pre-deposit requirement under section 35F - procedural lapse cured by subsequent compliance - right to be heard and disposal on merits

Mandatory pre-deposit requirement under section 35F - The Commissioner (Appeals) was correct in rejecting the appeal for non-compliance with the mandatory pre-deposit requirement. - HELD THAT: - The provision requires that an appeal before the Commissioner (Appeals) shall not be entertained unless the appellant deposits 71/2% of the duty in dispute. The use of the word "shall" renders the obligation mandatory. In the facts before the Tribunal the appellant had not made the required pre-deposit at the time of filing the initial appeal, and therefore the Commissioner (Appeals) did not commit an error in dismissing the appeal on that ground. [Paras 4]

Dismissal of the appeal by the Commissioner (Appeals) for non-compliance with the mandatory pre-deposit requirement is legally sustainable.

Procedural lapse cured by subsequent compliance - right to be heard and disposal on merits - Whether the appellant's subsequent deposit cured the procedural lapse and entitled the appellant to a fresh adjudication on merits. - HELD THAT: - The record shows that the appellant subsequently made the pre-deposit which remedied the procedural defect. Established principle and natural justice require that procedural lapses which have been cured should not foreclose substantive adjudication. Since the defect was cured, the Commissioner (Appeals) ought to have afforded an opportunity to decide the appeal on merits. In view of this, the Tribunal directed that the matter be remanded to the Commissioner (Appeals) for fresh consideration on merits. [Paras 5]

Matter remanded to the Commissioner (Appeals) to hear the appellant and decide the appeal on merits after recording compliance with the pre-deposit requirement.

Final Conclusion: The Tribunal upheld the legality of dismissal for initial non-compliance with the mandatory pre-deposit rule but remanded the matter to the Commissioner (Appeals) for fresh adjudication on merits in view of the appellant's subsequent compliance and the requirement of disposal on merits after affording an opportunity of hearing.

CENVAT credit - capital goods - input - immovable property - user test - fabrication of capital goods

CENVAT credit - capital goods - input - immovable property - user test - Entitlement to CENVAT credit on steel items (MS channels, beams, bars, angles, plates, etc.) used in fabrication of capital goods which are thereafter embedded/installed and become immovable. - HELD THAT: - The Tribunal held that where steel items are used in the fabrication of capital goods which are ultimately used in the factory for manufacture of final products, the duty paid on those steel inputs is eligible for CENVAT credit. Applying the user test and relying on prior decisions cited (including Monnet Ispat and authority treating fabricated steel items as components of capital goods), the Tribunal distinguished the exclusion which disallows credit where inputs are used for construction of factory sheds, buildings, foundations or making of structures for support of capital goods. That exclusion does not apply where the steel items form part of capital goods (for example, storage tanks, pollution control equipment or machinery components) even if the assembled capital goods become embedded or immovable. On the facts, it was not disputed that the steel items were used in fabrication of capital goods employed in manufacture of cement; accordingly, the impugned denial of credit was unsustainable.

Appellant entitled to CENVAT credit on the steel items used in fabrication of capital goods; impugned order set aside and appeal allowed with consequential relief.

Final Conclusion: The Tribunal allowed the appeal, set aside the impugned order denying CENVAT credit, and held that duty paid on steel items used in fabrication of capital goods (even if such goods become embedded/immovable) is admissible as CENVAT credit where those capital goods are used in manufacture of final products.

Attachment of personal property of director for recovery of company sales tax - personal liability of directors for company tax dues - lifting the corporate veil - quashing of charge in revenue records/mutation - State's remedy to recover company dues in accordance with law

Attachment of personal property of director for recovery of company sales tax - personal liability of directors for company tax dues - Validity of creation of charge in revenue records and attachment orders against the petitioner's immovable property on the ground that the vendor was a director of the company liable for sales tax dues - HELD THAT: - The Court applied its earlier decision in Manharlal Hirjibhai Virdiya and the Division Bench decision in Mr. Choksi to hold that the State had not shown that the property belonged to the company or that the directors were personally liable to pay the company's sales tax dues. The Court noted that the statutory scheme (as explained in the cited precedents) imposes criminal liability on directors under Section 78 but does not create a personal civil liability to recover the company's sales tax from the directors' private property. The doctrine of lifting the corporate veil applies only where there is a strong factual foundation and, in the absence of any specific order or factual findings fastening personal liability on the directors, the authorities were not justified in attaching the private property of the director for the company's dues. Relying on those determinations, the Court found the attachment orders and the mutation creating a charge in the revenue records to be without lawful basis. [Paras 4, 5, 6]

The charge created in the revenue records and the orders of attachment are quashed and set aside; the State may pursue recovery from the company by other lawful remedies.

Final Conclusion: Writ application allowed; attachments and revenue-record charge on the petitioner's property set aside, and the State directed to recover dues from the company by available legal remedies.

Remand for fresh adjudication - deposit as precondition for adjudication - reinstatement of right to be heard / opportunity to file reply - limitation and laches in filing statutory appeal - assessment under the Tamil Nadu Value Added Tax Act, 2006 and Finance Act, 1994

Remand for fresh adjudication - assessment under the Tamil Nadu Value Added Tax Act, 2006 and Finance Act, 1994 - Impugned assessment orders set aside and remitted to respondent for fresh decision on merits. - HELD THAT: - The Court noted that the writ petitions were filed after expiry of the statutory limitation and that the petitioner had not participated in earlier proceedings. Considering the dual possibility that the amounts may be taxable under different statutes, the Court exercised its remedial discretion to set aside the impugned orders and remand the matters to the respondent for fresh adjudication on merits. The remand was directed to enable the respondent to reassess the claims and contentions afresh, taking into account submissions to be made by the petitioner and applying the proper statutory tests under the relevant enactments. [Paras 9]

Impugned orders set aside and cases remitted to the respondent for de novo consideration on merits.

Deposit as precondition for adjudication - limitation and laches in filing statutory appeal - Remand ordered subject to petitioner depositing 30% of the disputed tax for each assessment year within thirty days as a condition for fresh adjudication. - HELD THAT: - Although the petitions were belated and the petitioner had defaulted in responding to statutory notices, the Court opted for a conditional remand rather than outright dismissal. As a protective and interlocutory measure, the Court directed that the petitioner deposit a specified percentage of the disputed tax for each Assessment Year within a prescribed time-frame; such payment was made a precondition to the respondent taking up the cases afresh and was stated to be subject to final appropriation according to the outcome of the fresh proceedings. [Paras 3, 9, 10]

Remand allowed on condition that petitioner deposit 30% of the disputed tax for each Assessment Year within thirty days; deposit to be subject to final appropriation.

Reinstatement of right to be heard / opportunity to file reply - Petitioner granted liberty to file reply/written submissions within fifteen days from receipt of the order and participate in the fresh proceedings. - HELD THAT: - Recognising the petitioner's explanation for non-participation in earlier proceedings, the Court afforded the petitioner an opportunity to be heard in the remanded proceedings. The petitioner was given a limited period to file written submissions before the respondent, thereby restoring the procedural right to present its case during the de novo consideration mandated by the remand. [Paras 11]

Petitioner permitted to file reply/written submissions within fifteen days and to participate in the remanded proceedings.

Final Conclusion: Writ petitions disposed by setting aside the impugned assessment orders for Assessment Years 2014-2015 and 2015-2016 and remitting the matters to the respondent for fresh adjudication on merits, subject to the petitioner depositing 30% of the disputed tax for each year within thirty days and filing written submissions within fifteen days; deposit to be subject to final appropriation.

Ineligible input tax credit - vires of Section 19(11) of the TNVAT Act, 2006 - limitation on claim of input tax credit - opportunity to show cause - principles of natural justice - personal hearing - remand for speaking order

Ineligible input tax credit - limitation on claim of input tax credit - Claim for input tax credit beyond the period of limitation was not maintainable and demand confirmed in the impugned orders is upheld. - HELD THAT: - The Court examined the challenge to recovery of input tax credit claimed beyond the limitation period and held that the petitioner is not entitled to credit beyond the period of limitation. On merits, there was no case made out to interfere with the demand for input tax credit confirmed by the assessing authority, and accordingly the amounts confirmed in the impugned orders are to be paid by the petitioner. [Paras 8]

Demand for input tax credit confirmed in the impugned orders is sustained and the petitioner is directed to pay the amounts so confirmed.

Opportunity to show cause - principles of natural justice - personal hearing - remand for speaking order - Imposition of penalty (200% of the confirmed amount) was set aside and the matter remitted to the respondent for a speaking reconsideration, because the petitioner's representation was not considered and the order was passed after delay. - HELD THAT: - Although the show cause notice had been issued and an opportunity to reply was availed by the petitioner, the Court noted that the petitioner's representation dated 29.08.2013 had not been considered by the respondent when imposing penalty. Considering the lapse of time, absence of consideration of the representation and the limited scope for personal hearing under the statutory provision as it then stood, the Court interfered with the penalty portion. The Court quashed the penalty in the impugned order and remitted the matter to the respondent to pass a speaking order after affording the petitioner an opportunity to make additional submissions; the respondent is directed to decide afresh within forty five days from receipt of the judgment. [Paras 9, 10, 11]

Penalty imposition quashed and remitted for fresh speaking consideration by the respondent within 45 days; petitioner may make further submissions.

Final Conclusion: Writ petitions partly allowed: demand for input tax credit confirmed in the impugned orders is upheld and the petitioner directed to pay the confirmed amounts within 45 days; the imposition of penalty is quashed and the matter remitted to the respondent for passing a speaking order on penalty after considering the petitioner's representation within 45 days; no costs.