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Summary order. Special Leave Petition dismissed and the impugned order of the High Court is not interfered with.
The core legal issue in this case was whether the imposition of a penalty under Section 129 of the Act was justified when the petitioner had produced the e-way bill before the passing of the seizure order. The Court needed to consider whether the authorities acted correctly in treating the e-way bill as an afterthought and whether there was an intention to evade tax.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The legal framework revolves around the provisions of Section 129 of the Act, which deals with the detention, seizure, and release of goods and conveyances in transit. The case also referenced previous judgments, notably M/s Bans Steel and M/s Akhilesh Traders, which provided guidance on handling situations where e-way bills are produced after the interception of goods.
Court's Interpretation and Reasoning:
The Court noted that the petitioner had produced the e-way bill before the seizure order was passed. The authorities had not identified any discrepancies in the e-way bill, nor had they recorded any finding that the petitioner intended to evade tax. The Court emphasized that the mere absence of an e-way bill at the time of interception does not automatically imply an intention to evade tax if the document is produced before the seizure order.
Key Evidence and Findings:
The petitioner provided evidence that the e-way bill was generated and available before the seizure order. The penalty order and the appellate authority's affirmation did not consider this evidence adequately. The Court found that no defects were pointed out in the e-way bill by the authorities during any stage of the proceedings.
Application of Law to Facts:
Applying the legal principles from previous judgments, the Court concluded that since the e-way bill was produced before the seizure order, the authorities should not have imposed a penalty. The production of the e-way bill before the seizure order indicated compliance with the law, and there was no evidence of intent to evade tax.
Treatment of Competing Arguments:
The petitioner's argument was that the e-way bill was produced in time, and there was no intention to evade tax. The respondent's argument was that the absence of the e-way bill at the time of interception suggested an attempt to avoid tax. The Court found the petitioner's argument more compelling, supported by the timely production of the e-way bill and the lack of any identified discrepancies.
Conclusions:
The Court concluded that the imposition of the penalty was unjustified as the petitioner had complied with the legal requirements by producing the e-way bill before the seizure order. The authorities' decision to treat the e-way bill as an afterthought was not supported by any findings of an intention to evade tax.
SIGNIFICANT HOLDINGS
The Court held that the impugned orders could not be justified under the law and were therefore quashed. The judgment reinforced the principle that if requisite documents are produced before the seizure order and there is no intention to evade tax, the levy of a penalty is not justified. The Court stated, "Once the e-way bill was produced before passing of the seizure order, it could not be said that there was any contravention of the provisions of the Act being made by the petitioner."
The final determination was that the writ petition succeeded, and the orders imposing penalties were quashed. The Court ordered that any amount deposited by the petitioner should be refunded in accordance with the law.
Imposition of a penalty under Section 129 of the Act - petitioner had produced the e-way bill before the passing of the seizure order - intent to evade tax present or not - HELD THAT:- Once the e-way bill was produced before passing of the seizure order, it could not be said that there was any contravention of the provisions of the Act being made by the petitioner.
This Court on various occasions have held that if the requisite documents, which were not accompanying with the goods, were produced before passing the seizure order and if there were no intention to avoid the legitimate tax, the levy of penalty was not justified.
This Court in the case of M/S BANS STEEL THROUGH ITS PROPRIETOR ALPANA JAIN VERSUS STATE OF U.P. AND 2 OTHERS [2024 (8) TMI 772 - ALLAHABAD HIGH COURT]has held that 'It is not in dispute that before the seizure order could be passed, proper E-way bill was produced and the authorities, at no stage, have pointed out any discrepancy in the said E-way bill. Once the E-way bill was produced before the seizure order could be passed, the discrepancy, if any, was cured.'
Petition allowed.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Compliance with Legal Requirements for Arrest
The petitioner argued that the arrest was illegal as it did not comply with the mandate requiring written reasons for arrest, as established in the judgments of Prabir Purkayastha Vs. State (NCT of Delhi) and Pankaj Bansal Vs. Union of India. These cases pertain to the PMLA, which has similar provisions to Section 69 (2) of the Act of 2017. The petitioner contended that the arrest memo lacked written reasons, violating the legal requirement.
The Court, however, noted that Section 69 (2) of the Act of 2017 does not explicitly require written reasons for arrest, unlike the PMLA. The Court emphasized that the petitioner did not challenge the arrest at the time or before a competent court, undermining this argument.
2. Entitlement to Bail
The petitioner sought bail, arguing that the arrest was illegal and that the trial would take considerable time. The petitioner also claimed that there was no risk of evidence tampering, as most witnesses were public servants. The petitioner highlighted that the charge sheet had been filed, and the alleged offenses were triable by a Magistrate with a maximum punishment of five years.
The Court considered the evidence presented by the respondents, including the fraudulent availing of Input Tax Credit (ITC) amounting to Rs.10.87 crores through non-existent firms and forged documents. The Court found that the evidence, such as fake E-way bills and forged rubber stamps, prima facie demonstrated the petitioner's culpability. Given the seriousness of economic offenses, the Court was not inclined to grant bail.
3. Applicability of Precedents on Written Reasons for Arrest
The petitioner relied on precedents requiring written reasons for arrest under the PMLA. However, the Court distinguished these cases, noting that the provisions under Section 69 (2) of the Act of 2017 do not impose such a requirement. The Court also noted that the petitioner did not raise this issue at the time of arrest, weakening the argument.
4. Admissibility of Petitioner's Statements
The petitioner argued that their statements recorded under Section 70 of the Act of 2017 were coerced and should not be admissible. The Court noted that Section 70 empowers authorities to record statements, and these are relevant under Section 136 of the Act. The Court held that the question of coercion is a matter for trial and that other evidence, such as the fraudulent transactions, corroborated the allegations against the petitioner.
SIGNIFICANT HOLDINGS
The Court emphasized the seriousness of economic offenses, citing the judgment in Y.S. Jaganmohan Reddy Vs. Central Bureau of Investigation, which underscores the need to address such offenses with severity due to their impact on the country's economic fabric.
The Court concluded that the evidence presented by the respondents, including the fraudulent availing of ITC and the use of forged documents, established a prima facie case against the petitioner. Consequently, the Court dismissed the bail application, reflecting its stance on the gravity of the alleged offenses and the sufficiency of the evidence.
Seeking grant of bail - false availment of Input Tax Credit without receiving any scrap or goods - HELD THAT:- The substantial matrix of the case, prima facie indubitably points out the present petitioner's culpability. The seizure of the fake rubber stamps of the transport company, fake E Bills purported to be demonstrated as transportation of scrap from Delhi to Jaipur coupled with the statement of the transport company owner, stating the actual route through which his truck has moved on such dates, the report of the concerned authority confirming the non-existence of the firms from whom the petitioner had received so-called scrap affirmatively validates that petitioner fraudulently caused loss to the government revenue by claiming input tax credit in tune to 10.67 crores. The material collected by the respondent prima facie exhibits that the petitioner was fraudulently profited from the ITC based on sham bills obtained or procured in the name of non-existing firms.
As far as judgment of Hon’ble Apex Court in Prabir Purkayastha Vs. State (NCT of Delhi) [2024 (5) TMI 1104 - SUPREME COURT] and Pankaj Bansal Vs. Union of India [2023 (10) TMI 175 - SUPREME COURT] are concerned, the said judgments pertain to Section 19 of the PMLA, under which the provisions are stringent under Section 69 (2) of the Act of 2017. There is no such provision that before arresting a person, written reasons should be assigned to the petitioner. Further, the petitioner has not raised this question at the instance when he was arrested and not challenged before the Competent Court. It is also pertinent to mention here that the statement rendered by the petitioner was recorded under Section 70 of the Act of 2017, empowers the Authority to record the statements.
The Hon’ble Apex Court in the matter of Y.S. Jaganmohan Reddy Vs. Central Bureau of Investigation [2013 (5) TMI 896 - SUPREME COURT] categorically held that the economic offences are to be dealt with iron hands as such offences are committed with cool calculation and deliberate design and they affect economic fabric of the whole country, therefore, considering the above facts, it is not required to enlarge the petitioner on bail.
Conclusion - The evidence presented by the respondents, including the fraudulent availing of ITC and the use of forged documents, established a prima facie case against the petitioner.
Bail application dismissed.
The core legal issue considered in this judgment is whether the respondents' failure to supply the petitioner with a copy of the Special Investigation Branch (SIB) report, which formed the basis of the show cause notice under Section 74 of the Goods and Services Tax Act, 2017, constituted a violation of the principles of natural justice. The court also considered whether the order dated 05.11.2024, which raised a demand of Rs. 90,25,540/-, should be quashed due to this alleged procedural deficiency.
ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
The legal framework revolves around Section 74 of the Goods and Services Tax Act, 2017, which pertains to the determination of tax liability in cases of fraud or willful misstatement. The principles of natural justice, a fundamental aspect of administrative law, require that parties be given a fair opportunity to present their case, which includes access to documents that form the basis of any adverse order.
The petitioner relied on a precedent, M/s Lari Almira House Vs. State of U.P., where it was presumably held that failure to provide foundational documents could violate principles of natural justice.
Court's interpretation and reasoning:
The Court emphasized that the SIB report was the foundation of the show cause notice. It reasoned that merely indicating the conclusions of the SIB report in the show cause notice does not suffice, as it does not allow the petitioner to understand the basis of those conclusions or to challenge any discrepancies effectively. The Court found that the absence of the SIB report denied the petitioner a fair opportunity to respond, thus violating the principles of natural justice.
Key evidence and findings:
The key evidence was the show cause notice itself, which referenced the SIB report but did not include it. The Court noted that the petitioner had explicitly requested the SIB report to prepare an adequate response, which was not provided by the respondents.
Application of law to facts:
Applying the principles of natural justice to the facts, the Court determined that the respondents' failure to supply the SIB report deprived the petitioner of an essential opportunity to respond to the allegations. This procedural lapse rendered the subsequent order invalid.
Treatment of competing arguments:
The respondents argued that the show cause notice was comprehensive and included all necessary details from the SIB report, thus negating the need to provide the report itself. The Court, however, rejected this argument, stating that the petitioner needed the full report to understand and challenge the methodology and findings of the SIB, which could not be discerned from the conclusions alone.
Conclusions:
The Court concluded that the failure to provide the SIB report constituted a breach of natural justice principles, warranting the quashing of the impugned order.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
The Court held, "Once the foundation of the show cause notice has been the SIB report, it was but incumbent on the respondents to supply a copy thereof so as to enable the petitioner to respond to the findings arrived at by the same SIB and/or point out the discrepancy in the said report."
Core principles established:
The judgment reinforces the principle that foundational documents must be provided to parties in administrative proceedings to ensure compliance with natural justice. It underscores that conclusions in a notice cannot substitute for the actual report, which allows the affected party to understand and contest the findings.
Final determinations on each issue:
The Court quashed the order dated 05.11.2024, holding it was passed in violation of natural justice principles. It remanded the matter back to the authority with directions to supply the SIB report to the petitioner, allow a reasonable time to respond, and provide an opportunity for a hearing as required by Section 74 of the Act before deciding the matter afresh.
Violation of principles of natural justice - respondents' failure to supply the petitioner with a copy of the Special Investigation Branch (SIB) report, which formed the basis of the SCN u/s 74 of the Goods and Services Tax Act, 2017 - HELD THAT:- Once the foundation of the show cause notice has been the SIB report, it was but incumbent on the respondents to supply a copy thereof so as to enable the petitioner to respond to the findings arrived at by the same SIB and/ or point out the discrepancy in the said report. The mere fact that in show cause notice, the conclusions arrived at by the SIB, have been indicated, by itself cannot fulfill the requirement of supplying a copy of the SIB report as the manner in which the conclusion had been arrived at by the SIB cannot be deciphered from the show cause notice.
It is apparent that the order impugned has been passed by the respondents in violation of principles of natural justice i.e. without supplying the foundational document before passing of the order impugned.
The matter is remanded back to the authority, who would supply copy of the SIB report to the petitioner, afford opportunity to respond to the show cause notice within a reasonable time and thereafter, after providing opportunity of hearing as required by Section 74 of the Act, decide the matter afresh - Petition allowed by way of remand.
Issues: Whether a revision under Section 108 of the Uttar Pradesh Goods and Services Tax Act, 2017 was maintainable without a prior appeal, and whether the revisional order could be sustained when it was internally inconsistent as to dismissal on merits and dismissal as not maintainable.
Analysis: Section 108(2)(a) bars revisional exercise only where the order sought to be revised has already been subjected to an appeal under the specified provisions. The expression does not require the assessee first to pursue an appeal before invoking revision. The revisional order also proceeded on two mutually inconsistent bases: it indicated non-maintainability on the ground of availability of appeal, yet also made observations touching the merits and the absence of error, illegality, or prejudice to revenue. Such an order lacked clarity and could not stand either as a reasoned decision on merits or as a valid dismissal for want of maintainability.
Conclusion: The revision was not rendered non-maintainable merely because an appellate remedy existed, and the revisional order was unsustainable.
Ratio Decidendi: The bar in Section 108(2)(a) applies only when the order has already been appealed against, not merely because an appeal remedy is available; a revisional order that is internally inconsistent and fails to apply the statutory test cannot be sustained.
Maintenability of revision where remedy of appeal exists under the revisional jurisdiction - Interpretation of the words "the order has been subject to an appeal" in the context of revisional bar - Powers of Revisional Authority under Section 108 of the U.P. Goods and Services Tax Act, 2017 - Requirement of reasoned disposal in revisional orders / prohibition of cryptic orders - Quashing of orders which are unclear or contrary to statutory prescription and remand for fresh consideration
Interpretation of the words "the order has been subject to an appeal" in the context of revisional bar - Maintenability of revision where remedy of appeal exists under the revisional jurisdiction - Whether a revision under Section 108 could be entertained notwithstanding availability of an appeal under Section 107, i.e., meaning of "the order has been subject to an appeal". - HELD THAT: - The Court construed the phrase "the order has been subject to an appeal under Section 107" to mean that an appeal has actually been filed against the order. The words cannot be read to require that the applicant must first file an appeal and only thereafter seek revision; the statutory bar in sub-section (2)(a) operates where an appeal has been instituted, not as a pre-condition that the applicant must invoke the appellate remedy before filing revision. Consequently, the existence of an appellate remedy does not ipso facto render a revision wholly incompetent unless an appeal has in fact been preferred or other statutory bars in sub-section (2) apply. [Paras 9]
Revision under Section 108 is not barred merely because a remedy of appeal exists; the bar in sub-section (2)(a) applies only where an appeal has been filed.
Requirement of reasoned disposal in revisional orders / prohibition of cryptic orders - Quashing of orders which are unclear or contrary to statutory prescription and remand for fresh consideration - Powers of Revisional Authority under Section 108 of the U.P. Goods and Services Tax Act, 2017 - Whether the impugned revisional order was valid, and the appropriate remedy where the order is cryptic or wrongly treated the revision as not maintainable. - HELD THAT: - The Court examined the impugned order and found it indeterminate: if treated as a decision on merits, it was cryptic and failed to address the facts and grounds raised in revision or apply the statutory parameters for exercise of revisional power under Section 108; if treated as dismissing the revision as not maintainable, it was contrary to the statutory scheme discussed by the Court. The Revisional Authority should not have combined merits discussion with a conclusion of non-maintainability; where an order is unclear or fails to apply statutory requirements, it is not a valid adjudication. In consequence, the impugned order could not stand and required quashing with restoration of the revision for fresh consideration in accordance with law, bearing in mind the Court's interpretation of Section 108. [Paras 6, 7, 10, 12]
Impugned order quashed; revision restored to its original number before the Revisional Authority for fresh consideration in accordance with law.
Final Conclusion: The writ petition is allowed: the Court interprets the revisional bar in Section 108(2)(a) as applying only where an appeal has actually been filed, quashes the impugned cryptic/unclear revisional order as unsustainable, and restores the revision for fresh consideration in accordance with law.
Issues: Whether GST was leviable on the assignment of long-term leasehold rights, and whether the show cause notice proposing such levy could be sustained.
Analysis: The transaction of assignment by sale and transfer of leasehold rights in favour of a third-party assignee was treated as an assignment or transfer of benefits arising out of immovable property. In view of the binding precedent of the Court, such transaction did not fall within the scope of supply under section 7(1)(a) read with clause 5(b) of Schedule II and clause 5 of Schedule III to the Central Goods and Services Tax Act, 2017, and was not exigible to GST under section 9 of the Central Goods and Services Tax Act, 2017. Since GST itself was not leviable on the transaction, the question of utilisation or reversal of input tax credit did not arise.
Conclusion: The show cause notice was quashed and set aside. The challenge succeeded and the relief was granted in favour of the petitioner.
Levy of GST on assignment of the leasehold rights - seeking declaration that Respondents are not entitled to charge Goods and Service Tax on the transaction of assignment of the long-term Leasehold rights under the provisions of the Goods and Service Tax, 2017 - HELD THAT:- The issue of levy of GST on assignment of the leasehold rights is now no more res integra in view of the decision of this Court in the case of Gujarat Chamber of Commerce and Industries and others vs. Union of India and others [2025 (1) TMI 516 - GUJARAT HIGH COURT], wherein it is held that 'assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/ transfer of benefits arising out of “immovable property” by the lessee-assignor in favour of third party-assignee who would become lessee of GIDC in place of original allottee-lessee.'
The grievance raised in this petition is required to be considered. Accordingly, as such, without going into the factual matrix as narrated in the petition, the impugned show cause notice is hereby quashed and set aside as the facts are not disputed by the respondent authority for assignment of the leasehold rights by the petitioner - petition disposed off.
The core legal issue considered in this judgment is whether the cancellation of the petitioners' GST registration due to non-filing of returns for six consecutive months was justified and whether the petitioners should be granted an opportunity to rectify the default by filing the pending returns and paying the requisite dues. The court also considered the procedural fairness in the issuance of the show cause notice and the subsequent cancellation order.
ISSUE-WISE DETAILED ANALYSIS
1. Cancellation of GST Registration Due to Non-Filing of Returns
Relevant Legal Framework and Precedents: The Central Goods and Services Tax Act, 2017, particularly Section 107, provides for the appeal mechanism against orders of cancellation of GST registration. The precedents considered include the decisions in Subhankar Golder Vs. Assistant Commissioner of State Tax and Rana Chowdhury Vs. State of West Bengal, where the courts provided an opportunity to rectify defaults under similar circumstances.
Court's Interpretation and Reasoning: The Court interpreted that the cancellation of GST registration for non-filing of returns should not be punitive but corrective, allowing taxpayers to comply with their statutory obligations. The Court emphasized the importance of enabling businesses to continue operations while ensuring compliance with tax laws.
Key Evidence and Findings: The show cause notice dated November 29, 2021, and the cancellation order dated January 27, 2022, were central to the proceedings. The petitioners had not filed returns for six consecutive months, leading to the cancellation of their GST registration.
Application of Law to Facts: The Court applied the principles from the cited precedents, determining that the petitioners should be given a chance to file the pending returns and pay the necessary taxes, interest, fines, and penalties. This approach aligns with the decisions in Subhankar Golder and Rana Chowdhury, where similar relief was granted.
Treatment of Competing Arguments: The respondents argued that the cancellation was justified due to non-compliance. However, the Court considered the broader implications of canceling GST registration, such as hindering business operations and reducing tax recovery potential. The Court favored a pragmatic approach that encourages compliance rather than imposing strict penalties.
Conclusions: The Court concluded that the cancellation order should be set aside, provided the petitioners comply with the conditions of filing returns and paying dues within a specified timeframe. This decision aims to balance regulatory compliance with the operational continuity of businesses.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court referenced the decision in Subhankar Golder, stating: "The appellant should be permitted to remedy the bridge... subject to the condition that the appellant files returns for the entire period of default, pays requisite amount of tax and interest and fine and penalty."
Core Principles Established: The judgment reinforces the principle that tax compliance mechanisms should facilitate voluntary compliance and allow for rectification of defaults, rather than solely imposing punitive measures. It underscores the need for a balanced approach that considers the interests of both the taxpayer and the revenue authorities.
Final Determinations on Each Issue: The Court set aside the show cause notice, the cancellation order, and the appellate authority's order, subject to the petitioners fulfilling the conditions of filing returns and paying dues within four weeks. If the petitioners comply, their GST registration will be restored; otherwise, the cancellation will be reinstated.
Cancellation of GST registration of the petitioners on the sole plea that the petitioners did not file its return in accordance with law for consecutive six months - HELD THAT:- The issue has already received the attention of the Hon’ble Division Bench in the matter of Subhankar Golder Vs. Assistant Commissioner of State Tax [2024 (5) TMI 1262 - CALCUTTA HIGH COURT]. The Hon’ble Division Bench had observed 'the appellant can be provided with one more opportunity to remedy the bridge as the appellant being an individual since a small retailer of imitation jewellery, we deem it appropriate that the appellant should be permitted to remedy the bridge.'
The SCN, the order of cancellation of GST registratio and the order of the appellate authority stands set aside and quashed subject to petitioner files his GST returns for the entire period of default and pays requisite amount of tax, interest, fine and penalty and/or late fees within four weeks from date.
Petition disposed off.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Adequacy of Reasoning in Show-Cause Notice and Cancellation Order
2. Fair Opportunity to Respond
3. Justification of Appellate Authority's Decision
SIGNIFICANT HOLDINGS
Cancellation of the petitioner's GST registration - Non compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed - violation of principles of natural justice - HELD THAT:- Relying upon the decision of this Court in the case of AGGARWAL DYEING AND PRINTING WORKS VERSUS STATE OF GUJARAT & 2 OTHER (S) [2022 (4) TMI 864 - GUJARAT HIGH COURT] both the show-cause notice and the order of cancellation are liable to be quashed and set aside. Therefore, the matter is remanded back to the respondent-authority for deciding the same afresh. It is further made clear that such exercise shall be completed within a period of 12 weeks. It is also made clear that the registration shall remain suspended till the respondent-authority decides the show-cause notice for cancellation after giving an opportunity of hearing to the petitioner and considering the reply of the petitioner by passing a fresh de novo detailed order.
Petition disposed off by way of remand.
The core legal issues considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS
Entitlement to Transitional ITC under Section 140(5) of the CGST Act
Legal Framework and Precedents: Section 140(5) of the CGST Act allows a registered person to claim credit for eligible duties and taxes on inputs or input services received after the appointed day, provided they are recorded in the books of account within 30 days.
Court's Interpretation and Reasoning: The Court noted that the petitioner admitted to an error in filing the Form GST TRAN-1 by placing the carry forward of Transitional ITC in the wrong column. The petitioner argued that the invoices were received after June 30, 2017, and thus should be claimed under Section 140(5).
Key Evidence and Findings: The petitioner submitted relevant documents, including service tax returns and invoices, to support the claim that the ITC was recorded within the prescribed period.
Application of Law to Facts: The Court determined that it was necessary for the respondent authorities to verify whether the petitioner fulfilled the requirements of Section 140(5) by examining the submitted documents and providing an opportunity for explanation.
Treatment of Competing Arguments: The respondents argued that the petitioner's claim was inadmissible due to the error in filing and the lapse of the deadline for amending Form GST TRAN-1. However, the Court emphasized the need for procedural fairness and the opportunity for the petitioner to correct the error.
Conclusions: The Court found that the petitioner should be given an opportunity to prove compliance with Section 140(5) requirements.
Violation of Principles of Natural Justice
Legal Framework and Precedents: Principles of natural justice require that parties be given a fair opportunity to present their case before a decision is made.
Court's Interpretation and Reasoning: The Court observed that the petitioner was not granted a personal hearing, despite the procedural requirement to do so as per CBIC's Circular No. 182 of 2022.
Key Evidence and Findings: The Court noted that the respondent authorities failed to issue a notice for a personal hearing, which was a procedural requirement.
Application of Law to Facts: The lack of a personal hearing constituted a breach of the principles of natural justice, necessitating a reconsideration of the petitioner's claim.
Treatment of Competing Arguments: The respondents contended that sufficient opportunities were provided. However, the Court found that the procedural lapse in not providing a personal hearing was significant.
Conclusions: The Court concluded that the petitioner was denied a fair opportunity to present their case, warranting a remand of the matter.
Compliance with CBIC Circulars
Legal Framework and Precedents: CBIC Circulars provide procedural guidelines for processing claims related to Transitional ITC.
Court's Interpretation and Reasoning: The Court referred to Circular No. 182 of 2022, which mandates a reasoned order post-personal hearing.
Key Evidence and Findings: The Court found that the respondent authorities did not adhere to the procedural guidelines set forth in the circulars.
Application of Law to Facts: The Court emphasized the importance of following procedural guidelines to ensure fairness and transparency in decision-making.
Treatment of Competing Arguments: The respondents argued that the final remarks from the relevant authorities sufficed. However, the Court disagreed, highlighting the necessity for a personal hearing and a reasoned order.
Conclusions: The Court determined that the procedural lapses necessitated a remand for compliance with the circulars.
SIGNIFICANT HOLDINGS
Core Principles Established: The judgment underscores the importance of adhering to procedural fairness and the principles of natural justice in administrative decision-making. It emphasizes the necessity for authorities to provide a personal hearing and issue a reasoned order when processing claims for Transitional ITC.
Final Determinations on Each Issue: The Court quashed the impugned order dated February 27, 2023, and remanded the matter to the respondent authorities to reconsider the petitioner's claim for Transitional ITC. The authorities were directed to provide a personal hearing and assess the claim in accordance with Section 140(5) of the CGST Act and relevant CBIC circulars.
Transitional Input Tax Credit - Entitlement under Section 140(5) of the CGST Act - Principle of natural justice (right to personal hearing) - Requirement of passing a reasoned order and adherence to CBIC Circulars - Remand for fresh consideration
Principle of natural justice (right to personal hearing) - Requirement of passing a reasoned order and adherence to CBIC Circulars - Impugned rejection was invalidated for breach of the principle of natural justice for failure to afford personal hearing and to pass a reasoned order as envisaged by CBIC guidance. - HELD THAT: - The Court found that the petitioner had asserted that invoices were received after 30.06.2017 and had filed supporting documents; the authorities did not issue any date for personal hearing despite reference to a hearing in the show-cause notice and the CBIC Circular prescribing that, after considering verification and submissions, the jurisdictional officer should pass a reasoned order preferably within fifteen days of personal hearing. The respondent rejected the claim by relying on final remarks of the counterpart officer without giving the petitioner an opportunity to be heard or recording reasons addressing the petitioner's explanations. That omission amounted to a breach of natural justice and non-compliance with the procedural mandate in the Circular, necessitating judicial interference without entering into the merits of admissibility. [Paras 9, 10, 11]
Impugned order set aside for lack of personal hearing and absence of a reasoned order; breach of natural justice established.
Transitional Input Tax Credit - Entitlement under Section 140(5) of the CGST Act - Remand for fresh consideration - Whether the petitioner is entitled to claim transitional credit under Section 140(5) requires fresh adjudication after affording opportunity of hearing; matter remanded to the tax authorities for decision. - HELD THAT: - The Court observed that Section 140(5) places onus on the claimant to prove that inputs or input services were received on or after the appointed day and that the relevant invoice or tax-paying document was recorded in books within thirty days (subject to extension). The petitioner had contended that the invoices were received after 30.06.2017 and that records were maintained within the prescribed period; these factual contentions and supporting documents were filed before the authority. Given the procedural lapse identified, the Court declined to decide the merits and remanded the matter to respondent No. 3 to refer the claim to respondent No. 2 for appropriate verification, to afford the petitioner a hearing, and then to decide whether the statutory conditions of Section 140(5) are satisfied. [Paras 8, 9, 12, 13]
Matter remanded to the authorities to determine admissibility of the Section 140(5) claim after verification and affording personal hearing; compliance to be completed within the time directed by the Court.
Final Conclusion: The impugned order dated 27.02.2023 is quashed and set aside for breach of natural justice; the claim under Section 140(5) of the CGST Act is remitted to the tax authorities for fresh consideration after affording personal hearing and verification, to be completed within twelve weeks from receipt of the order.
The core legal issue considered by the Court was whether the petitioner's application for a refund of tax under Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) was filed within the permissible time limit. Specifically, the question was whether the "relevant date" for calculating the two-year period for filing a refund claim was the date the goods left India or the end of the tax period in which the refund claim arose.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents: The legal framework relevant to this issue is Section 54 of the CGST Act, which governs the refund of tax. Section 54(1) allows a person to claim a refund within two years from the "relevant date," which is further defined in Section 54(14). For goods exported by sea, the relevant date is specified as the date the ship leaves India.
Court's interpretation and reasoning: The Court interpreted Section 54(1) and Section 54(14) to determine the relevant date for the petitioner's refund claim. It concluded that the relevant date was the date the ship carrying the exported goods left India, as specified in Section 54(14)(a)(i). The Court rejected the petitioner's argument that the relevant date should be the end of the tax period in which the refund claim arose.
Key evidence and findings: The petitioner exported granite blocks, and the ship left India on 09.03.2022. The petitioner's refund application was filed on 21.03.2024. The Court found that the application was filed beyond the two-year period from the relevant date, which ended on 09.03.2024.
Application of law to facts: The Court applied the definition of the relevant date as provided in Section 54(14) of the CGST Act. It determined that the petitioner's application was untimely because it was filed after the two-year period from the relevant date, which was the date the ship left India.
Treatment of competing arguments: The petitioner argued that the relevant date should be the end of the tax period, based on Section 54(3), which allows for a refund claim at the end of the tax period. The Court rejected this argument, emphasizing that the relevant date for the two-year limitation period is distinctly defined in Section 54(14) and pertains to the date the goods leave India.
Conclusions: The Court concluded that the petitioner's refund application was filed beyond the permissible time limit, as it was not submitted within two years from the relevant date, which is the date the goods were exported.
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning: The Court stated, "A cogent reading of Section 54 (1) and Section 54 (3) would make the scheme of the Act clear. The right to claim refund, under Section 54 (3), starts from the end of the tax period in which the refund arises. Under Section 54 (1) a dealer is entitled to claim refund of excess taxes within a period of two years from the relevant date."
Core principles established: The Court established that the relevant date for calculating the two-year period for filing a refund claim under Section 54 of the CGST Act is the date the goods leave India, as specified in Section 54(14). The end of the tax period is not the relevant date for this purpose.
Final determinations on each issue: The Court determined that the petitioner's refund application was untimely and dismissed the writ petition. There was no order as to costs, and any pending interlocutory applications were closed.
Refund of tax - rejection of refund claim on the ground of being barred by time limitation - HELD THAT:- A cogent reading of Section 54 (1) and Section 54 (3) would make the scheme of the Act clear. The right to claim refund, under Section 54 (3), starts from the end of the tax period in which the refund arises. Under Section 54 (1) a dealer is entitled to claim refund of excess taxes within a period of two years from the relevant date. This would be the outer limit, within which the dealer is entitled to make a claim for refund. Thus, the starting point from when the dealer can make such a request is set out in Section 54 (3), which stipulates that a claim for refund of unutilized input tax credit can be made at the end of tax period and such claim is permissible till the end of two years from the relevant date.
In the circumstances, it would have to be held that the application filed by the petitioner, on 21.03.2024, is beyond the last date of 09.03.2024, within which the application should have been made.
Petition dismissed.
Issues: Whether the assessment order imposing liability for alleged excess utilisation of Input Tax Credit was liable to be set aside and the matter remitted for reconsideration.
Analysis: The dispute arose from the petitioner's utilisation of Input Tax Credit by drawing from IGST credit under the CGST and SGST heads. The Court applied the earlier view that the electronic credit ledger functions as a wallet with distinct compartments for IGST, CGST and SGST, and that such utilisation, by itself, does not amount to wrongful availment of credit warranting penalty. Since an appeal was already pending but had not been disposed of for a considerable period, the Court exercised writ jurisdiction to avoid further delay and directed fresh consideration by the proper officer after giving an opportunity of hearing.
Conclusion: The assessment order was set aside and the matter was remitted for reconsideration in accordance with law, in favour of the petitioner.
Liability for utilisation of Input Tax Credit in excess - HELD THAT:- This Court has, in the decision Rejimon Padickapparambil Alex v. Union of India and Others [2024 (12) TMI 399 - KERALA HIGH COURT] observed that the electronic credit ledger is in the nature of a wallet with different compartments of Integrated Goods and Services Tax, Central Goods and Services Tax and State Goods and Services Tax and there cannot be any wrong availment of input tax credit merely because a taxpayer had availed the benefit of credit of input tax available in IGST under the heads CGST and SGST.
In the instant case, a perusal of the order of assessment produced as Exhibit-P2 reveals that the alleged mistake committed by the petitioner is by availing the benefit of Input Tax Credit available in IGST, under the heads CGST and SGST. The said method of availing ITC cannot be said to be a wrong availment of Input Tax Credit warranting the imposition of any penalty as observed in the above referred judgment. Therefore, it is only appropriate that the order of assessment itself is set aside and a reconsideration be directed by the proper officer. Though petitioner had preferred an appeal, in order to avoid continuance of an unnecessary procedure, it is deemed appropriate to exercise the jurisdiction under Article 226 of the Constitution of India to set aside Exhibit-P2 itself and direct a reconsideration.
Conclusion - i) The said method of availing ITC cannot be said to be a wrong availment of Input Tax Credit warranting the imposition of any penalty. ii) It is only appropriate that the order of assessment itself is set aside and a reconsideration be directed by the proper officer.
Petition allowed.
Issues: (i) Whether the grounds of arrest were properly communicated and explained to the accused. (ii) Whether the safeguards under Section 41 and Section 41A of the Code of Criminal Procedure, 1973 and Section 35 of the Bharatiya Nagarik Suraksha Sanhita, 2023 were required to be followed before arrest under the Central Goods and Services Tax Act, 2017.
Issue (i): Whether the grounds of arrest were properly communicated and explained to the accused.
Analysis: The arrest memo recorded the accused's written acknowledgment that the grounds of arrest had been explained to him. On that basis, the Court found that the communication of grounds of arrest was not a mere formality and had been duly made.
Conclusion: The grounds of arrest were properly communicated and explained.
Issue (ii): Whether the safeguards under Section 41 and Section 41A of the Code of Criminal Procedure, 1973 and Section 35 of the Bharatiya Nagarik Suraksha Sanhita, 2023 were required to be followed before arrest under the Central Goods and Services Tax Act, 2017.
Analysis: The Court treated the alleged offence as punishable up to five years and applied the arrest-safeguard jurisprudence requiring compliance with statutory pre-arrest protections. It relied on the view that the Central Goods and Services Tax Act, 2017 does not exclude the operation of these safeguards and that the power of arrest under Section 69 must be exercised consistently with them. Since such compliance was not shown, the arrest was held to be unlawful.
Conclusion: The safeguards had to be followed and were not complied with.
Final Conclusion: The arrest was held illegal and the accused was ordered to be released from custody forthwith, with liberty to proceed afresh in accordance with the required procedure.
Ratio Decidendi: Where arrest under the Central Goods and Services Tax Act, 2017 is sought for an offence punishable up to seven years, the statutory safeguards governing arrest and notice before arrest must be complied with, and non-compliance renders the arrest unlawful.
Application for seeking judicial remand under Section 167 of Cr.P.C. read with Section 187 of BNSS Act, 2023 for 14 days - ground of arrest were not informed in proper manner - HELD THAT:- This Court has gone through the grounds of arrest, which were conveyed by the prosecution to the accused. It is pertinent to mention here that on arrest memo, it has been acknowledged by the accused himself in writing that he has been informed and explained about the grounds of arrest. Therefore, this Court is of the view of that ground of arrest have been properly informed and explained to the applicant/accused by the prosecution.
It is correct that present offence under Section 132(1) of CGST Act, 2017 is punishable upto 5 years. Hon'ble Apex Court in case law titled as Arnesh Kumar. Vs. State of Bihar [2014 (7) TMI 1143 - SUPREME COURT] made it mandatory to follow the provisions of Section 41 & 41A of Criminal Procedure Code for the offence which are punishable upto 7 years. Prosecution has taken a stand that present accused has been arrested under Section 69 of CGST Act and hence, provision of Section 41 and 41A of Criminal Procedure Code/35 of BNSS Act are not applicable in the present matter but this Court does not find force in the arguments of learned counsel for the complainant.
Further in case law titled as The State of Gujarat etc. Vs. Choodamani Parme Shwaran Iyer and another [2023 (7) TMI 1008 - SUPREME COURT], Hon'ble Apex Court has observed that contention of prosecution that in view of Section 69(3) of CGST Act, 2017, petitioners cannot fall back upon the limited protection against arrest, found in Sections 41 and 41A of Cr.P.C., may not be correct.
Conclusion - This Court is of the view that prosecution was under obligation to comply with the provisions of Section 41, 41A of Cr.P.C/35 of BNSS Ac, 2023 before arresting the accused but same has not been complied and as such, arrest of accused cannot be termed as legal. In view of the matter, the application filed on behalf of applicant/accused Yogesh Gupta is hereby allowed. Accordingly, applicant/accused Yogesh Gupta is released from custody forthwith. However, prosecution/complainant department is given liberty to re-arrest the applicant/accused after following the due procedure as described in Section 41, 41A of Cr.P.C./35 of BNSS Act, 2023/70 (1) of CGST Act.
Application allowed.
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Validity of Proceedings Against a Deceased Assessee
Relevant legal framework and precedents: The legal framework revolves around Section 159 of the Income Tax Act, 1961, which outlines the liability of legal representatives for the tax obligations of a deceased person. Sub-sections (1) and (2) specify that proceedings initiated during the lifetime of the deceased can be continued against the legal representatives, but they do not explicitly allow for initiation posthumously.
Court's interpretation and reasoning: The Court agreed with the Single Judge's finding that proceedings initiated after the death of the assessee are null and void. Section 159 does not permit initiation of proceedings against a deceased person and subsequent enforcement against legal representatives unless the proceedings began during the deceased's lifetime.
Key evidence and findings: The notices were issued after the death of the assessee, and the legal representative informed the Revenue of the death. The Court found that the proceedings were improperly initiated against a deceased individual.
Application of law to facts: The Court applied Section 159 and determined that since the proceedings were not initiated during the lifetime of the deceased, they could not be continued against the legal representatives.
Treatment of competing arguments: The Revenue argued that Section 159 allowed for proceedings against legal representatives, but the Court rejected this, stating the provision did not support posthumous initiation.
Conclusions: The Court concluded that the assessment and related notices against the deceased were void and unenforceable against the legal representatives.
2. Possibility of Initiating Fresh Proceedings Against Legal Representatives
Relevant legal framework and precedents: Section 159(2)(b) allows proceedings against legal representatives if they could have been taken against the deceased. However, such proceedings must adhere to statutory time limits, as outlined in Section 149.
Court's interpretation and reasoning: The Court noted that the statutory time limit for initiating proceedings for the assessment year 2016-17 had expired. Therefore, new proceedings against the legal representatives were not permissible.
Key evidence and findings: The time limit for initiating proceedings had lapsed by the time the legal representatives could be notified, rendering any new proceedings time-barred.
Application of law to facts: The Court applied the limitation provisions and found that the time for initiating proceedings had expired, precluding any new actions against the legal representatives.
Treatment of competing arguments: The Revenue's argument for reserving liberty to initiate fresh proceedings was dismissed, as no legal provision allowed for extending the limitation period due to the pendency of invalid proceedings.
Conclusions: The Court concluded that fresh proceedings against the legal representatives could not be initiated due to the expiration of the statutory time limit.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning: The Court emphasized that "the proceedings initiated against the Assessee during his lifetime can be continued against his Legal Representatives," but initiation posthumously is not permissible.
Core principles established: The judgment reinforces that legal proceedings cannot be initiated against deceased individuals and subsequently enforced against their legal representatives unless commenced during their lifetime. It also underscores the importance of adhering to statutory time limits for initiating tax proceedings.
Final determinations on each issue: The Court upheld the Single Judge's decision, declaring the assessment and related notices void and unenforceable against the legal representatives. It also denied the Revenue's request to initiate fresh proceedings due to the expiration of the statutory time limit.
Reopening of assessment u/s 147 - liability of legal representatives for the tax obligations of a deceased person - HELD THAT:- The proceedings initiated against the Assessee by issuing notice after his demise cannot be continued against his/her legal representative. Had the proceedings been initiated against the Assessee during his life time, they could be continued against the legal representatives of the deceased Assessee. However, that is not the factual position here. Therefore, the order of the learned Single Judge cannot be faltered in quashing what were challenged before him.
Second contention of the learned Panel Counsel that liberty ought to have been reserved to the Revenue for initiating fresh proceedings against the Legal Representatives of the Assessee, once proceedings taken up against the deceased Assessee are set at naught, again does not impress us even in the least. This contention is structured on a premise that the Legal Representatives i.e., persons who hold estate of the deceased Assessee in their hands are under a legal obligation to inform the Revenue as to the death of the Assessee. To support such a premise, no provision of law in general and no section of 1961 Act in particular are brought to our notice. Clause (b) of Section 159 (2) enables proceedings being taken against Legal Representatives of the deceased, is true. However, that is subject to such proceedings being capable of being taken against the deceased. If the statutorily prescribed time limit has expired as against the deceased himself, as has happened in this case then no proceedings can be taken against his LRs.
Conspicuously, there is no provision in 1961 Act which provides for discounting the time spent during the pendency of proceedings against the deceased Assessee while computing the limitation period for initiating the proceedings against his Legal Representatives. Appeal dismissed.
The primary legal issue considered by the Court was whether the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment of the Assessment Year 2016-17 was valid. Specifically, the Court examined whether the issuance of the notice was based on a mere change of opinion by the Assessing Officer, given that the same facts had already been considered during the regular assessment proceedings.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework involved the provisions of the Income Tax Act, 1961, particularly section 148, which pertains to the reopening of assessments. The Court considered the principles governing the reopening of assessments, including the necessity for the Assessing Officer to have tangible material or information to justify the reopening, rather than relying on a mere change of opinion.
Court's Interpretation and Reasoning
The Court interpreted the issuance of the notice under section 148 as unjustified because it was based on the same facts previously examined during the regular assessment proceedings. The Court emphasized that the reopening of an assessment cannot be justified on the grounds of a change of opinion by the Assessing Officer. The Court relied on established precedents which assert that reassessment requires new tangible material or information that was not considered during the original assessment.
Key Evidence and Findings
The key evidence considered by the Court included the sequence of notices issued to the petitioner and the replies submitted by the petitioner. The petitioner had provided detailed information regarding the purchase of immovable property worth Rs. 6,00,00,000/-, including the source of funds, which was a gift received by her son. The Assessing Officer had accepted the returned income of Rs. 13,98,440/- during the original assessment proceedings.
Application of Law to Facts
The Court applied the legal principles governing the reopening of assessments to the facts of the case. It concluded that the reasons recorded for the issuance of the notice under section 148 were based on the same facts that had already been scrutinized during the original assessment. The Court found no new material or information that could justify the reopening of the assessment.
Treatment of Competing Arguments
The Court considered the arguments presented by both parties. The petitioner argued that the reopening was based on a mere change of opinion, which is impermissible under the law. The respondent contended that the reopening was justified due to the discrepancy between the declared income and the investment in the property. However, the Court found that the respondent's argument lacked merit as the same issue had been addressed during the original assessment.
Conclusions
The Court concluded that the issuance of the notice under section 148 was not warranted as it was based on a mere change of opinion. The Court held that the reopening of the assessment was unjustified and quashed the notice.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning
The Court stated, "Considering such facts, it is apparent that the impugned notice and the reasons recorded on the basis of the same facts which were already considered during the regular assessment proceedings are nothing but a mere change of opinion by the respondent Assessing Officer to reopen assessment ignoring the details and the replies filed by the petitioner available on record."
Core Principles Established
The core principle established by the Court is that the reopening of an assessment under section 148 requires new tangible material or information that was not considered during the original assessment. A mere change of opinion by the Assessing Officer does not justify the reopening of an assessment.
Final Determinations on Each Issue
The Court determined that the notice issued under section 148 for reopening the Assessment Year 2016-17 was invalid. The Court quashed and set aside the impugned notice, thereby allowing the petitioner's challenge to the reopening of the assessment. The rule was made absolute to the extent of quashing the notice, with no order as to costs.
Validity of Reopening of assessment - change of opinion - HELD THAT:- The impugned notice and the reasons recorded on the basis of the same facts which were already considered during the regular assessment proceedings are nothing but a mere change of opinion by the respondent AO to reopen assessment ignoring the details and the replies filed by the petitioner available on record. Decided in favour of assessee.
Issues: (i) Whether the Settlement Commission committed any jurisdictional error in accepting the settlement application despite the Revenue's objection that the assessee had not properly disclosed the manner in which the undisclosed income was earned and had not satisfactorily explained the seized material relating to the mobile phone of another person; (ii) Whether the assessee's further voluntary offer of Rs. 25 lakhs during the settlement proceedings amounted to an impermissible revision of the settlement application so as to invalidate the settlement.
Issue (i): Whether the Settlement Commission committed any jurisdictional error in accepting the settlement application despite the Revenue's objection that the assessee had not properly disclosed the manner in which the undisclosed income was earned and had not satisfactorily explained the seized material relating to the mobile phone of another person?
Analysis: The settlement proceedings were based on the assessee's disclosure of undisclosed income arising from land dealing routed through another person, and that factual position was accepted by the Settlement Commission on the strength of the material before it, including the affidavit of the intermediary. The Court held that, in the absence of further evidence contradicting the disclosure, the Settlement Commission was justified in accepting the explanation that the assessee was not directly dealing in the relevant transactions and could not be compelled to explain material recovered from another person's mobile phone when no corroborative linkage to the assessee was established. The Court also noted that judicial review over a settlement order is limited to examining whether the order is contrary to the Act.
Conclusion: The challenge on this ground failed and the settlement order was upheld.
Issue (ii): Whether the assessee's further voluntary offer of Rs. 25 lakhs during the settlement proceedings amounted to an impermissible revision of the settlement application so as to invalidate the settlement?
Analysis: The Court distinguished the case law relied upon by the Revenue on the basis that the assessee had not filed a revised settlement application after objection, but had only made an additional voluntary offer to put quietus to one aspect of the settlement in the spirit of compromise. The Court accepted the Settlement Commission's view that such marginal additional offer did not amount to a fresh or revised disclosure invalidating the application under the settlement provisions.
Conclusion: The additional voluntary offer did not invalidate the settlement application and the Revenue's objection was rejected.
Final Conclusion: The writ petition challenging the settlement order was found to be without merit, and the impugned settlement was allowed to stand.
Ratio Decidendi: In judicial review of a settlement order, interference is warranted only when the order is contrary to the governing provisions of the settlement scheme, and a marginal voluntary addition made to resolve an issue in the course of settlement does not by itself convert the application into an invalid revised disclosure.
Validity of Settlement Commission order accepting the settlement amount offered by the assessee u/s 245D (4) - HELD THAT:- Settlement Commission has, arrived at a finding that the assessee was not directly dealing with land from which income has been earned which has been invested in the land and therefore, it would not be possible for the assessee to disclose the manner in which such undisclosed income was earned from the real estate transactions.
\In view of such finding of fact arrived at by the Settlement Commission and in absence of any further evidence produced by the petitioner before the Settlement Commission and more particularly when the statement made in the application for settlement to the effect that it is based on full and true disclosure, which is to be accepted unless there is evidence found contrary to the disclosure made, therefore, the impugned order passed by the Settlement Commission is just and proper and requires no interference while exercising jurisdiction under Article 227 of the Constitution of India.
Contention raised on behalf of petitioner with regard to documents found in the mobile phone of Mr. Kishor Koshiya pertaining to the assessee - As in view of the order passed by the Settlement Commission in case of Mr. Kishor Koshiya accepting the disclosure made by him as per the application for settlement, no further addition could have been made by the Settlement Commission in the hands of the assessee on such grounds as no further evidence was produced by the department during the joint verification of such documents found from the mobile phone of Shri Kishor Koshiya. Therefore, the Settlement Commission cannot be said to have committed any error while accepting the rejoinder of the assessee to the Rule 9 report.
Thus findings arrived at by the Settlement Commission, it is for Mr. Kishor Koshiya to explain the documents found his mobile phone and the assessee could not be subjected to any further disclosure on the basis of such assumption and presumption in absence of any evidence. It is true that this Court is not required to go into the merits of the matter on issues which are decided by the Settlement Commission while exercising the jurisdiction under Article 227 of the Constitution of India. Appeal dismissed.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Justification for Quashing the Notice under Section 148
2. Change of Opinion in Reopening Assessment
SIGNIFICANT HOLDINGS
Reopening of assessment u/s 147 - Change of opinion - failure on the part of the assessee in furnishing material facts fully and truly for the assessment - assessee has not disclosed true and correct facts regarding the payment of VAT -HELD THAT:- As per notice issued by the CIT(A), Baroda, wherein no recording of reasons of the fact of failure on the part of the appellant in submitting material facts for the purpose of making assessment truly and fully at the time of original assessment is reflecting for initiation of such re-assessment proceeding.
Once, upon considering the documents, the claim of the assessee decided and accepted by not making any addition during the course of regular assessment issuing notice u/s 148 on the same issue by successor AO amongst to assumption of revisionary power which is not valid as per law.
When the AO attempts to reopen an assessment on the count the opinion formed earlier by him was an incorrect opinion, the reopening is not warranted.
Though the statutory power has been given in the hands of the ITO to reopen the final decision made against the Revenue in respect of the question that directly arose from the decisions in earlier proceeding, the same is required to be exercised sparingly upon due application of mind, otherwise it would result in placing an unrestricted and unguided power of review in the hands of the assessing authorities depending on their changing moods.
Thus, we find that in the absence of new material facts brought on record by the Revenue reopening of assessment beyond the period of 4 years from the end of the assessment year in the present facts and circumstances of the case is found to be not sustainable in the eye of law and order of quashing the same by the CIT(A) with the same observation is found to be just and proper so as to warrant interference. Revenue's appeal is found to be devoid of any merit and hence, dismissed.
Instant reopening and consequent addition sought to be made by the AO is nothing other than a mere change of opinion. Decided in favour of assessee.
The appeal before the Delhi High Court involved two primary legal questions:
i) Whether the Income Tax Appellate Tribunal (ITAT) erred in allowing the deduction claimed by the assessee for expenses incurred on soliciting and mobilizing foreign currency deposits from Non-Resident Indians (NRIs) in the context of Section 44C of the Income Tax Act, 1961.
ii) Whether the ITAT erred in allowing the deduction of INR 9.81 crores as expenditure on account of contributions to approved pension funds, ignoring the provisions of Section 36(1)(iv) and 40A(9) of the Act, read with Rule 87 of the Income Tax Rules, 1962.
ISSUE-WISE DETAILED ANALYSIS
Issue (i): Deduction for NRI Expenses
Relevant Legal Framework and Precedents: The core legal framework revolves around Section 44C of the Income Tax Act, which deals with the allocation of head office expenses for non-resident entities operating in India. The relevant precedent cited was the court's own decision in Director of Income Tax vs. ANZ Grindlays Bank.
Court's Interpretation and Reasoning: The Court referred to its previous ruling in the ANZ Grindlays Bank case, where it was established that expenses incurred for garnering foreign currency deposits from NRIs were not to be classified as head office expenses under Section 44C. The Court emphasized that these expenses were India-centric and directly related to the business operations within India.
Key Evidence and Findings: The Tribunal noted that the expenses were incurred for soliciting NRI deposits in Indian branches, driven by the Reserve Bank of India's (RBI) circulars during a balance of payments crisis, which offered favorable interest rates for NRI deposits.
Application of Law to Facts: The Court found that the expenses were incurred solely for the purpose of the Indian business, and thus, they were not head office expenses. Consequently, the deduction was allowable.
Treatment of Competing Arguments: The Court dismissed the appellant's argument that these expenses should be classified as head office expenses, aligning with the Tribunal's view that they were directly related to the Indian business.
Conclusions: The Court upheld the Tribunal's decision, allowing the deduction for NRI-related expenses, finding no merit in the appellant's challenge.
Issue (ii): Deduction for Pension Fund Contributions
Relevant Legal Framework and Precedents: The legal framework includes Section 36(1)(iv) and 40A(9) of the Income Tax Act, along with Rule 87 of the Income Tax Rules. The Supreme Court's decision in Commissioner of Income Tax vs. Sirpur Paper Mills was pivotal in interpreting these provisions.
Court's Interpretation and Reasoning: The Court relied on the Supreme Court's interpretation in Sirpur Paper Mills, which clarified that conditions imposed by the Central Board of Direct Taxes (CBDT) cannot curtail the scope of deductions granted by the statute. The Court also considered the decision in Principal Commissioner of Income Tax vs. Exide Industries Ltd., which distinguished between ordinary annual contributions and additional contributions made in exceptional circumstances.
Key Evidence and Findings: The Tribunal found that the contribution of INR 9.81 crores was necessitated by business requirements, particularly to meet pension obligations under a Voluntary Retirement Scheme (VRS).
Application of Law to Facts: The Court determined that the contribution in question was not an ordinary annual contribution but a necessary payment due to a shortfall in the pension fund, thus falling outside the limits prescribed by Rule 87.
Treatment of Competing Arguments: The appellant's argument that the contribution exceeded the statutory limit was rejected, as the Court found the contribution was made in exceptional circumstances and was not subject to the usual limits.
Conclusions: The Court upheld the Tribunal's decision, allowing the deduction of the entire contribution amount, aligning with the principles established in Sirpur Paper Mills and Exide Industries.
SIGNIFICANT HOLDINGS
Verbatim Quotes of Crucial Legal Reasoning: "The amplitude of the deduction permitted by the section cannot be cut down under the guise of imposing a 'condition'. In fact, this is not a condition but an impermissible attempt to rewrite the section." (Sirpur Paper Mills)
Core Principles Established: The Court reinforced the principle that deductions under the Income Tax Act should not be curtailed by conditions that go beyond the statutory framework. It also emphasized that contributions made in exceptional circumstances, such as to meet specific business obligations, are deductible even if they exceed the usual statutory limits.
Final Determinations on Each Issue: The Court answered both questions in favor of the assessee, dismissing the appeal. It upheld the Tribunal's decisions on both the deduction for NRI-related expenses and the pension fund contributions.
NRI expenses - Expenses incurred on soliciting and mobilization of foreign currency deposits from Non-Resident Indians on the assessee's Indian business in the backdrop of Section 44C - HELD THAT:- Issue would have to be answered in favour of assessee in light of the order passed by us in ANZ Grindlays Bank [2024 (10) TMI 185 - DELHI HIGH COURT] held expenses were incurred for the purposes of inviting NRIs’ to open deposits in the Indian branches of the respondent assessee. The aforesaid initiative was predicated upon the circular of the RBI itself which is dated 16 October 1991. Since this was expenditure which was incurred solely for the purpose of the business of the respondent assessee in India, we find no merits in the challenge which stands mounted to the order of the Tribunal in this respect.
Expenditure on account of contribution to approved pension funds - contribution have breached the limits prescribed by Section 36 (1) (iv) and thus not liable to be allowed as deductions bearing in mind the provisions made in Section 40A (10) - HELD THAT:- The factual position which had fallen for notice of the Calcutta High Court in Exide Industries [2022 (9) TMI 1259 - CALCUTTA HIGH COURT] and which lead it to draw a distinction between an initial or qualificatory contribution as distinguished from a contribution made in a particular year in discharge of employer obligations. It thus held that the limits that the Board could prescribe would only apply to an initial or an ordinary annual contribution. Any contribution made additionally in discharge of an overarching obligation would thus not be rendered as a disallowable expense. We find ourselves in agreement with the view expressed in Exide Industries.
Appeal decided in favour of the assessee.
The primary legal issue considered in this judgment is whether the Income Tax Appellate Tribunal (ITAT) was correct in directing not to levy interest under Section 234B of the Income Tax Act on the addition made in Book Profit under Minimum Alternate Tax (MAT) due to the provision for doubtful debts. This issue arises in light of the retrospective amendment to Explanation 1 of Section 115JB by the Finance (No. 2) Act, which took effect from April 1, 2001. The question also involves the interpretation of the Supreme Court's decision in Anjum M.H. Ghaswala and Others and the applicability of the Circulars issued by the Central Board of Direct Taxes (CBDT).
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework involves Section 234B of the Income Tax Act, which mandates the payment of interest on underpayment of advance tax, and Section 115JB, which deals with the computation of book profits under MAT. The retrospective amendment to Explanation 1 of Section 115JB by the Finance (No. 2) Act is central to the issue. The Supreme Court's decision in Anjum M.H. Ghaswala and Others, which held that statutory interest under Sections 234A, 234B, and 234C cannot be waived by the Settlement Commission, is also a key precedent.
Court's Interpretation and Reasoning
The Court noted that the issue had been previously decided against the revenue by the Bombay High Court in the cases of Mangalore Refinery & Petrochemicals Ltd and JSW Energy Ltd. These decisions considered the Supreme Court's ruling in Anjum M.H. Ghaswala and Others and concluded that the retrospective amendment could not justify the levy of interest under Section 234B for book profits computed as per the law prevailing before the amendment.
Key Evidence and Findings
The Court found that the decisions in Mangalore Refinery & Petrochemicals Ltd and JSW Energy Ltd explicitly considered the Supreme Court's decision in Anjum M.H. Ghaswala and Others. The Court also noted that the revenue's argument that these decisions were obtained by suppressing CBDT circulars was unfounded, as the circulars were considered in the relevant judgments.
Application of Law to Facts
The Court applied the law as interpreted in the previous decisions of the Coordinate Benches, which were binding on the present case. It concluded that the retrospective amendment could not lead to the imposition of interest under Section 234B for the assessment year in question, as the assessee had computed book profits according to the law as it stood before the amendment.
Treatment of Competing Arguments
The Court addressed the revenue's argument that the imposition of interest was mandatory and that there was no equity in tax matters. However, it emphasized the need for fairness and the importance of adhering to binding precedents. The Court also dismissed the argument that the assessee should have approached the Chief Commissioner for redressal, as this point was not raised before the ITAT or framed in the memo of appeal.
Conclusions
The Court concluded that the substantial question of law was answered against the revenue and in favor of the assessee, based on the binding decisions of the Coordinate Benches.
SIGNIFICANT HOLDINGS
The Court held that the ITAT was correct in its decision not to levy interest under Section 234B on the addition made in Book Profit under MAT due to the provision for doubtful debts. The Court emphasized that the retrospective amendment could not be applied to impose such interest, as the assessee had computed book profits according to the law as it stood before the amendment.
In its reasoning, the Court stated: "We cannot bypass or ignore the decisions of the Coordinate Benches, which, according to us, answer the substantial question of law proposed by Mr Chhotaray against the revenue and in favor of the assessee."
The Court also criticized the revenue for not pointing out contrary and binding decisions and for attempting to attack these decisions without substantial grounds. It highlighted the importance of fairness in legal proceedings and the necessity of adhering to established precedents.
The appeal was dismissed without costs, as the Court noted that imposing costs would ultimately burden the taxpayers, who should not bear the consequences of the department's actions.
Levy interest u/s 234B - addition made in Book Profit under MAT being provision for doubtful debts - HELD THAT:- In this case, at least three Coordinate Benches have taken the view that where an assessee computed book profits as per the prevailing law, no interest u/s 234B could have been levied consequent to the inclusion of various items in computing book profits as per explanation to Section 115JB which were brought on the statute by the Finance Act, 2008 with retrospective effect from 1 April 2001.
While it is correct that no question of equity is involved in taxing matters, this principle does not obviate the necessity of the revenue being fair to the Court, and it points out that identical questions were decided against it. Mr Chhotaray could not or perhaps would not say whether the revenue has challenged the decisions in the case of Mangalore Refinery & Petrochemicals Ltd [2020 (6) TMI 587 - BOMBAY HIGH COURT], Prime Securities Ltd. [2010 (12) TMI 475 - BOMBAY HIGH COURT] and JSW Energy Ltd. [2015 (5) TMI 823 - BOMBAY HIGH COURT]
These decisions were delivered in 2020, 2011 and 2015. Undoubtedly, the departments whom Mr Chhotaray represents would know whether the revenue challenged these matters before the Hon’ble Supreme Court. Still, this appeal was instituted, and Mr Chhotaray insisted and argued the matter for a long time.
There is no difficulty hearing long arguments, but we expect greater fairness from the revenue in pointing out contrary and binding decisions directly on the issue. Based on a serious argument, an attempt could also be made to distinguish or seek a reference. But binding precedents should not be suppressed or attempted to be attacked so casually. Appeal dismissed.
The primary legal issue considered by the Court was whether the Income Tax Appellate Tribunal (ITAT) was justified in restricting the addition to the extent of 7% in a case involving alleged bogus purchases. The Court examined whether there were substantial questions of law that warranted admitting the appeal.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The case involved the assessment of bogus purchases under the Income Tax Act. The Assessing Officer (AO) had issued notices under Section 133(6) to verify the authenticity of the purchases. The legal framework primarily involved the procedures for assessment and verification of transactions under the Income Tax Act, including the powers of the AO to conduct inquiries and the responsibilities of the taxpayer to substantiate claims.
Court's Interpretation and Reasoning
The Court analyzed paragraph 7 of the ITAT's order, which highlighted the lack of explicit material to conclude that the purchases were bogus. The Court noted that the AO had not conducted further inquiries beyond issuing notices, and only one of the four parties was listed as a bogus dealer by the Sales Tax Authorities. The Court emphasized that the AO failed to conduct necessary inquiries to substantiate the claim of bogus purchases.
Key Evidence and Findings
The ITAT's order indicated that the assessee had provided comprehensive documentation, including books of account, purchase and sale invoices, ledger accounts, and bank statements, to prove the genuineness of the purchases. The quantitative tally of purchases and sales was not disputed by the AO, nor was the consumption of materials or sales turnover.
Application of Law to Facts
The Court found that the ITAT's decision to restrict the addition to a 7% gross profit rate was justified based on the historical gross profit rates of the assessee, which ranged between 5.5% and 7%. The Court agreed with the ITAT's assessment that the AO had not provided sufficient evidence to justify treating the entire purchases as bogus.
Treatment of Competing Arguments
The appellant argued that the ITAT's restriction to 7% was unjustified and that the entire purchases should be considered bogus. However, the respondent defended the ITAT's order, citing the lack of clear findings on bogus purchases and referencing similar cases where the Court declined to interfere. The Court sided with the respondent, highlighting the factual nature of the issues and the absence of substantial questions of law.
Conclusions
The Court concluded that the issues raised were factual and did not give rise to substantial questions of law. Consequently, the appeal was dismissed without costs.
SIGNIFICANT HOLDINGS
Core Principles Established
The Court reaffirmed the principle that substantial questions of law must be present for an appeal to be admitted. The Court emphasized the importance of conducting thorough inquiries and substantiating claims of bogus purchases with explicit material evidence.
Final Determinations on Each Issue
The Court determined that the ITAT was justified in its approach and that the appeal did not present substantial questions of law. The appeal was dismissed, and the ITAT's decision to restrict the addition to a 7% gross profit rate was upheld.
Bogus purchases - addition based on gross profit rate - appellate review of findings of fact - substantial question of law - scope of interference in appellate jurisdiction
Substantial question of law - scope of interference in appellate jurisdiction - appellate review of findings of fact - Admission of the appeal on the ground that substantial questions of law arise from the ITAT's order restricting the addition. - HELD THAT: - The Court considered the rival contentions on admission and the material on record. It noted that the ITAT's conclusions rest on evaluation of evidentiary material and findings of fact, particularly that the Assessing Officer did not make requisite independent enquiries to establish that purchases were bogus and that the assessee had produced books, invoices, bank statements and quantitative tallies which were not discredited by the AO. In similar matters, Coordinate Benches declined to admit appeals where questions raised were factual. Applying that approach, the Court held that the issues turn on facts and do not give rise to substantial questions of law warranting admission. [Paras 5, 7]
Appeal not admitted; the questions raised are factual and do not present substantial questions of law.
Bogus purchases - addition based on gross profit rate - appellate review of findings of fact - Whether the ITAT was justified in restricting the addition on account of alleged bogus purchases to profit element computed at 7% and directing recomputation by the AO. - HELD THAT: - The Court reproduced and relied upon paragraph 7 of the ITAT order which explained that (i) notices under section 133(6) returned unserved, (ii) no further independent inquiry was made by the AO, (iii) only one supplier appeared in a list of bogus dealers, and (iv) the assessee produced supporting books, invoices, bank statements and quantitative tallies which the AO did not disprove. On that factual matrix the ITAT agreed with the CIT(A) that treating the entire purchases as bogus was not sustainable but that the profit element could be added; having regard to the assessee's historical gross profit ratios (around 5.5%-7%), the ITAT restricted the addition by applying a 7% gross profit rate and directed the AO to compute accordingly. The High Court treated these conclusions as findings of fact and declined interference. [Paras 6]
ITAT's limitation of the addition to profit element at 7% and direction for recomputation is a factual conclusion which the High Court will not interfere with on admission.
Final Conclusion: The High Court declined to admit the appeal, holding that the controversy turns on findings of fact (including the genuineness of purchases and the limited inquiry by the Assessing Officer) and that the ITAT's restriction of the addition to the gross profit element at 7% is a factual determination not giving rise to a substantial question of law; appeal dismissed.
Issues: Whether the petitioner was entitled to condonation of delay under section 119(2)(b) of the Income-tax Act, 1961 for filing a revised return and claiming additional refund beyond the six-year limit prescribed by CBDT Circular No. 9/2015 dated 09.06.2015.
Analysis: The petitioner sought permission to file a revised return for assessment year 2012-13 on the ground that TDS had been credited belatedly. The application was found to be beyond six years from the end of the relevant assessment year, and the circular expressly bars entertaining condonation applications for refund or loss claims beyond that period. The case also did not satisfy the requirement that the claim be correct, genuine, and based on genuine hardship. The Court further noted that no assessment order had been passed under sections 143(1) or 143(3), and that the petitioner's attempt was effectively to obtain an additional refund by revising the return after the limitation period had expired.
Conclusion: The request for condonation of delay was not maintainable and was rejected; the writ petition failed.
Final Conclusion: The challenge to the rejection of the condonation application was not accepted, and the impugned order was sustained, resulting in dismissal of the writ petition.
Ratio Decidendi: A condonation application for filing a revised return and claiming refund cannot be entertained beyond the six-year limit prescribed by CBDT Circular No. 9/2015, and relief under section 119(2)(b) is unavailable unless the claim is within time and satisfies the requirement of a correct, genuine claim based on genuine hardship.
Condonation of delay under Section 119(2)(b) - CBDT Circular No.9/2015 - six year limitation for refund/loss condonation - maintainability of application to file revised return beyond limitation - revised return to claim additional TDS credit and refund - adjustment of subsequently credited TDS in succeeding assessment year
Condonation of delay under Section 119(2)(b) - CBDT Circular No.9/2015 - six year limitation for refund/loss condonation - maintainability of application to file revised return beyond limitation - Maintainability of the petition for condonation to file a revised return beyond the six year period prescribed by CBDT Circular No.9/2015. - HELD THAT: - The Court considered the petition seeking condonation under Section 119(2)(b) to file a revised return for AY 2012-13 which was filed after the six year period specified in CBDT Circular No.9/2015. Paragraph 3 of the Circular bars entertaining condonation applications for claim of refund/loss beyond six years from the end of the relevant assessment year and the delegated authorities must apply that limit. The petitioner had earlier sought condonation and been rejected on grounds including non-genuineness of the claimed income/refund; a subsequent application filed in 2021 was likewise examined and rejected as not maintainable because it was beyond the six year limit set by the Circular. Having regard to the Circular's limitation and the absence of any contrary factual or legal basis to exempt the petitioner from that limit, the Court held that condonation under Section 119(2)(b) could not be granted.
Condonation application to file a revised return for AY 2012-13 filed beyond the six year period under CBDT Circular No.9/2015 is not maintainable and cannot be granted.
Revised return to claim additional TDS credit and refund - adjustment of subsequently credited TDS in succeeding assessment year - Whether the petitioner could, by filing a delayed revised return, claim additional TDS credit and obtain a refund for AY 2012-13, or whether the subsequently credited TDS can only be utilized in a succeeding year. - HELD THAT: - The Court examined the factual position that the original return filed on 20.11.2012 understated gross and taxable income and showed a certain TDS; subsequently a larger TDS credit was reflected. The petitioner's purpose in seeking a revised return was to claim the additional TDS and obtain a further refund. The Income Tax Department had not issued any notice under Section 148, and the time for revising assessment had expired. In these circumstances, and given that the condonation route was closed by the Circular, the Court held that the subsequent TDS credit could not be made the basis for a delayed revision to obtain a refund for the lapsed year; at best such credit could be utilized in the succeeding assessment year.
The petitioner cannot obtain a refund for AY 2012-13 by a delayed revised return; the subsequently credited TDS, insofar as it cannot be claimed for the lapsed year, may be utilised in the succeeding year.
Final Conclusion: Writ petition dismissed as the condonation application to file a revised return for AY 2012-13 filed beyond the six year limitation of CBDT Circular No.9/2015 was not maintainable; the additional TDS credit cannot be claimed by a delayed revision for the lapsed year and may at best be adjusted in a succeeding assessment year.
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Legitimacy of Jurisdiction under Section 147
Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act permits the AO to re-open an assessment if there is a "reason to believe" that income has escaped assessment. The precedents cited include judgments from the Bombay High Court and various coordinate benches, emphasizing that re-opening based on incorrect facts is unsustainable.
Court's Interpretation and Reasoning: The Tribunal noted that the AO's belief that the assessee had not filed a return for AY 2016-17 was factually incorrect, as the return was filed on 02.08.2016. The Tribunal emphasized that a "reason to believe" must be based on accurate and factual premises.
Key Evidence and Findings: The Tribunal found that the AO's reasons for re-opening were based on the incorrect assumption that no return was filed, which was contradicted by the assessment order itself.
Application of Law to Facts: The Tribunal applied the legal requirement that the "reason to believe" must be based on correct facts and found that this prerequisite was not met in the present case.
Treatment of Competing Arguments: The Tribunal favored the assessee's argument that the re-opening was based on incorrect facts, over the Revenue's defense of the AO's actions.
Conclusions: The Tribunal concluded that the jurisdiction assumed under Section 147 was invalid due to the incorrect factual basis for the AO's belief.
2. Validity of Additions towards LTCG
This issue was rendered academic as the Tribunal found the re-assessment proceedings themselves to be invalid. Consequently, the merits of the additions were not adjudicated.
3. Adequacy of Sanction under Section 151
Relevant Legal Framework and Precedents: Section 151 requires the sanctioning authority to apply its mind before approving the issuance of notice under Section 148. Precedents from various High Courts were cited, emphasizing the need for a "speaking approval."
Court's Interpretation and Reasoning: The Tribunal found that the approval by the Addl. CIT was mechanical and lacked the necessary application of mind, as it merely contained a generic statement of satisfaction.
Key Evidence and Findings: The Tribunal noted that the approval was a mere formality without any objective assessment of the reasons recorded by the AO.
Application of Law to Facts: The Tribunal applied the legal standard requiring a detailed and reasoned approval and found that the sanction in this case did not meet this standard.
Treatment of Competing Arguments: The Tribunal agreed with the assessee's contention that the approval process was mechanical and failed to fulfill its statutory purpose.
Conclusions: The Tribunal concluded that the sanction under Section 151 was invalid, further vitiating the re-assessment proceedings.
SIGNIFICANT HOLDINGS
Core Principles Established:
Final Determinations on Each Issue:
The appeal of the assessee was allowed, and the re-assessment order was set aside as bad in law on both counts.
Validity of reopening of assessment - jurisdiction assumed u/s 147 - addition towards LTCG on sale of shares - assessee has not filed the return of income - ‘Reason to believe’ - HELD THAT:- As pointed out on behalf of the assessee, the belief towards escapement of chargeable income has been entertained by the AO on the basis that the assessee has not filed the return of income for AY 2016-17 in question which is grossly contrary to the facts on record.
As demonstrated on behalf of the assessee that the assessee has duly filed return of income on 02.08.2016.
The most basic reason of holding belief itself is wholly incorrect. The basis that return of income has not been filed giving rise to the reason to belief towards escapement in the reasons recorded is itself contradicted by the AO himself in the assessment order where it categorically notes that the assessee had filed return of income for AY 2016-17 on 02.08.2016, declaring total income of INR 6,40,160/-. Thus, the reasons have been recorded grossly contrary to the facts on record.
‘Reason to believe’ is the starting point for re-opening a case. A freak foundation or reason that assessee did not file ROI is blatantly contrary to the facts. Belief stemmed from wholly unfounded reasons thus betrays the prerequisites of s. 147 of the Act. See ARVIND SAHDEO GUPTA [2023 (8) TMI 522 - BOMBAY HIGH COURT] -
Assumption of jurisdiction allegedly without meeting the pre-requisites of s.151 of the Act - In consonance with the view expressed in Jagbir Singh [2025 (1) TMI 503 - ITAT DELHI] we see palpable merit in the plea of the assessee that the sanction granted under s. 151 of the Act is extraneous and an empty formality and do not accord with its salutary purpose. The requirement of law is to grant speaking approval u/s 151 of the Act which is not found to be fulfilled. The notice issued u/s 148 as a sequel to such sanction and resultant assessment is thus vitiated in law.
Decided in favour of assessee.
The core issues considered in this judgment include:
1. Whether the amount of Rs. 56,74,032/- written off by the assessee as bad debt during the relevant year is allowable.
2. Whether the transactions entered into by the assessee, resulting in bad debts, are speculative in nature.
3. Whether the National Spot Exchange Limited (NSEL) was a recognized association/platform, and if the transactions were speculative due to lack of Commodity Transaction Tax (CTT) payment.
4. Whether the transactions qualify as forward contracts covered under the exception to section 43(5) of the Income Tax Act.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Allowability of Bad Debt Write-off
Relevant Legal Framework and Precedents: Under section 36(2) of the Income Tax Act, a bad debt can be deducted if it is written off as irrecoverable in the accounts of the assessee. The Supreme Court in TRF Ltd. vs. CIT clarified that post-1989, it is not necessary to establish that the debt has become irrecoverable; writing it off suffices.
Court's Interpretation and Reasoning: The Tribunal noted that the debt arose from regular business operations and was written off as irrecoverable. The precedent set by TRF Ltd. was pivotal in determining that the mere act of writing off the debt suffices for deduction.
Key Evidence and Findings: The assessee had previously written off 25% of the advance in an earlier assessment year, which was allowed by the Assessing Officer after verification. The Tribunal found no evidence suggesting that the advances were bogus.
Application of Law to Facts: The Tribunal applied the principle from TRF Ltd., emphasizing that the write-off in the accounts was sufficient for claiming the deduction.
Treatment of Competing Arguments: The Revenue's argument that the write-off was premature was countered by the Tribunal's reliance on established legal principles that do not require proving irrecoverability.
Conclusions: The Tribunal concluded that the bad debt write-off was allowable as it was written off in the accounts, aligning with the Supreme Court's interpretation.
Issue 2: Speculative Nature of Transactions
Relevant Legal Framework and Precedents: Section 43(5) of the Income Tax Act defines 'speculative transaction' as one settled otherwise than by actual delivery. The Tribunal referenced prior cases where similar transactions were deemed business losses, not speculative.
Court's Interpretation and Reasoning: The Tribunal found that the transactions were not speculative as the loss arose from amounts recoverable, not from trading during the year.
Key Evidence and Findings: The assessee's transactions were through a recognized broker, and the income from these transactions was declared as business income in prior years.
Application of Law to Facts: The Tribunal applied the principle that losses incidental to business should be treated as business losses, not speculative.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that the transactions were speculative due to lack of physical delivery, emphasizing the nature of the transactions and prior treatment as business income.
Conclusions: The Tribunal concluded that the transactions were not speculative and the loss was a business loss.
Issue 3: Recognition of NSEL and CTT Payment
Relevant Legal Framework and Precedents: Recognition of exchanges and CTT payment are factors in determining the nature of transactions under section 43(5).
Court's Interpretation and Reasoning: The Tribunal noted that the lack of CTT payment did not automatically render transactions speculative, especially given the prior treatment as business income.
Key Evidence and Findings: The Tribunal considered the ongoing recovery process and the nature of transactions as business operations.
Application of Law to Facts: The Tribunal applied the principle that the absence of CTT does not solely determine the speculative nature, focusing on the business context.
Treatment of Competing Arguments: The Tribunal countered the Revenue's reliance on CTT absence by focusing on the broader business context and prior legal interpretations.
Conclusions: The Tribunal concluded that the transactions were not speculative despite the lack of CTT payment.
Issue 4: Forward Contracts Exception under Section 43(5)
Relevant Legal Framework and Precedents: Section 43(5) provides exceptions for certain forward contracts, which the Tribunal considered in the context of the assessee's transactions.
Court's Interpretation and Reasoning: The Tribunal found that the transactions were business-related and did not fall under speculative exceptions.
Key Evidence and Findings: The Tribunal noted the nature of the transactions as business operations and the historical treatment of similar transactions.
Application of Law to Facts: The Tribunal applied the exception criteria, finding that the transactions were not speculative forward contracts.
Treatment of Competing Arguments: The Tribunal addressed the Revenue's arguments by emphasizing the business context and prior legal interpretations.
Conclusions: The Tribunal concluded that the transactions were not speculative forward contracts and were part of regular business operations.
SIGNIFICANT HOLDINGS
The Tribunal held that:
- The bad debt write-off was allowable as it was written off in the accounts, consistent with the Supreme Court's interpretation in TRF Ltd.
- The transactions were not speculative as they arose from amounts recoverable and were treated as business income in prior years.
- The absence of CTT payment did not render the transactions speculative, given the business context and historical treatment.
- The transactions did not qualify as speculative forward contracts under section 43(5) and were part of regular business operations.
Final determination: The appeal of the assessee was allowed, with the Tribunal concluding that the bad debt write-off was justified and the transactions were not speculative.
Disallowance of bad debts claim - claim is premature is unjust, illegal, arbitrary, uncalled for and devoid of any merit and the appellant prays that the same be delete - whether the first appellate authority was justified in upholding the order of the Ld. AO with the further findings that the amount of loss written off is speculative in nature ?
HELD THAT:- Hon’ble Supreme Court in the case of TRF Ltd [2010 (2) TMI 211 - SUPREME COURT] has held that this position in law is well settled. After 1-4-1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.
On the basis of judicial precedents mentioned hereinbefore, it is crystal clear that it is not required for the assessee / appellant to establish that the debt in question has became irrecoverable and bad debt is written off as irrecoverable in the account of the assessee is quite sufficient. Decided in favour of assessee.
The primary issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Unpaid VAT Liability under Section 43B
Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Rent
3. SIGNIFICANT HOLDINGS
Addition of unpaid VAT liability u/s 43B - HELD THAT:-Admittedly, the issue in present case qua the admissibility of unpaid VAT liability which was not paid on or before the due date for furnishing the return u/s 139 of the Act, if the same is not charged to P&L Account, the same cannot be disallowed being not claimed as deduction in the books of accounts.
We may herein note that on this issue the revenue through its Ld. Standing Counsel had accepted that the said amount was not claimed as an expenditure in P&L Account and the case is covered by the decision rendered in the case of M/s Ganapati Motors [2017 (4) TMI 1613 - CHHATTISGARH HIGH COURT] under such admission by the revenue, the contentions raised before us are found to be bereft of any substance. Decided against revenue.
The primary issue considered in this judgment is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the addition made by the Assessing Officer (AO) under Section 2(24)(iv) of the Income Tax Act, 1961, despite the fact that the company, in which the assessee is a director, had already disallowed the credit card payments as personal expenses under Section 37(1) of the Act. This issue was raised in a group of appeals concerning multiple assessment years from 2019-20 to 2022-23.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework primarily involves Section 2(24)(iv) of the Income Tax Act, which pertains to the inclusion of certain benefits or perquisites in the income of a director. Section 37(1) deals with the disallowance of personal expenses in the computation of business income. The appellants argued that the provisions of Sections 2(24)(iv), 17(2)(iv), and 28(iv) are not applicable because the expenses were already disallowed and taxed in the company's hands.
Precedents cited include decisions from the Chennai Bench of the ITAT in the case of ACIT vs. Shri Ali Asgar Shamsuddin and the Mumbai Bench in the case of Mrs. Bakhtawar B. Dubash vs. DCIT, which support the principle that an amount cannot be taxed twice.
Court's Interpretation and Reasoning
The Court found that the addition under Section 2(24)(iv) in the hands of the assessee-director amounts to double taxation. The reasoning was based on the fact that the company had already disallowed the personal expenses under Section 37(1) and paid the applicable taxes. Therefore, taxing the same amount in the hands of the director would contravene the principle against double taxation.
Key Evidence and Findings
Evidence from the search and seizure operation indicated that personal expenses of the director were booked as welfare expenses in the company's books. The AO reopened the assessments based on this evidence. However, the company had not claimed these expenses as deductions in its income computation, thereby nullifying the basis for taxing them again as perquisites in the director's hands.
Application of Law to Facts
The Court applied the principle that an amount cannot be taxed twice. Since the company had already disallowed the expenses and paid taxes on them, the same expenses could not be taxed again as a benefit or perquisite to the director under Section 2(24)(iv).
Treatment of Competing Arguments
The appellants argued that taxing the amount in the director's hands would result in double taxation, supported by previous tribunal decisions. The Department contended that the addition was correctly made as a perquisite. The Court favored the appellants' argument, emphasizing the avoidance of double taxation.
Conclusions
The Court concluded that the addition made by the AO and confirmed by the CIT(A) was incorrect, as it resulted in double taxation. The provisions of Sections 2(24)(iv), 17(2)(iv), and 28(iv) were deemed inapplicable since the company had already disallowed the expenses.
SIGNIFICANT HOLDINGS
The Court held that the addition under Section 2(24)(iv) in the hands of the director amounts to double taxation because the company had already disallowed the expenses under Section 37(1). The Court reiterated the principle that an amount cannot be taxed twice, citing previous tribunal decisions that supported this view.
Core Principles Established
The judgment reinforced the principle against double taxation, emphasizing that once an expense is disallowed and taxed in the company's hands, it cannot be taxed again as a perquisite in the director's hands.
Final Determinations on Each Issue
The Tribunal ordered the deletion of the impugned addition made by the AO and confirmed by the CIT(A), allowing the appeals filed by the assessees. The findings applied to all related appeals, as the facts were identical across cases.
Addition of credit card payments being personal in nature u/s. 37(1) - Addition in hands of the Director as perquisite u/s. 2(24)(iv) - HELD THAT:- As undisputed fact that the company had agreed before the DDIT[Investigation] and disallowed the credit card payments being personal in nature u/s. 37(1) of the Act while filing the return of income of the company for the assessment years under consideration. Once, the company, did not claim the credit card payments being personal in nature as business expenditure while computing the business income, (due to disallowance made by the company), the aforesaid credit card payment relating to personal in nature cannot be taxed again in the hands of the assessee-director as income u/s. 2(24)(iv) of the Act.
AO himself has observed that during post search proceedings, the assessee suo motto submitted before the DDIT [Investigation] and disclosed the details of official expenditure and personal expenses of Directors related to the payment of credit card bills in the hands of the company. Since the company did not claim the personal expenditure while computing the business income, the assessee did not receive any additional benefit from the company.
AO is therefore totally unjustified in making the addition in the hands of the assessee being the personal expenditure of the director paid by the company which was disallowed in the hands of the company and the company paid taxes there on since it amounts to double taxation.
Judgements relied on by the CIT(A) are distinguishable on facts, as in those cases, the company did not disallow the expenses u/s. 37(1) of the Act in the hands of the company. Decided in favour of assessee.
Issues: (i) whether the sale proceeds of cut and polished diamonds could be assessed as unexplained cash credits under section 68; (ii) whether the gain on sale of the diamonds was long-term capital gain or short-term capital gain; and (iii) whether the consequential commission addition under section 69C could survive.
Issue (i): whether the sale proceeds of cut and polished diamonds could be assessed as unexplained cash credits under section 68.
Analysis: The declaration under the Income Declaration Scheme, 2016 and the certificate in Form 4 established the existence of the rough diamonds. The processing of the diamonds through job workers was supported by invoices, confirmations, bank payments and responses to notices under section 133(6) of the Income-tax Act, 1961. The sales to independent purchasers were also supported by sale invoices, confirmations, stock records, bank trail and replies to notices under section 133(6). The adverse statements of third parties were retracted and were not supported by any incriminating material. On these facts, the transaction of sale could not be treated as bogus or the sale consideration as unexplained credit.
Conclusion: The addition under section 68 was unsustainable and was deleted.
Issue (ii): whether the gain on sale of the diamonds was long-term capital gain or short-term capital gain.
Analysis: The diamonds were received as a gift from the grandfather, so the period of holding had to include the period for which the previous owner held the asset under Explanation 1(i)(b) to section 2(42A) of the Income-tax Act, 1961. The date relevant for valuation under the Income Declaration Scheme, 2016 could not replace the statutory rule for computing holding period. Since the asset was held for the requisite period through the previous owner, the resulting gain on transfer retained the character of long-term capital gain.
Conclusion: The gain was held to be long-term capital gain and not short-term capital gain.
Issue (iii): whether the consequential commission addition under section 69C could survive.
Analysis: The commission addition was entirely consequential to the assumption that the diamond transactions were accommodation entries. Once the sale proceeds were held to be genuine and the addition under section 68 failed, there remained no basis to infer commission expenditure for the alleged bogus transaction.
Conclusion: The addition under section 69C was deleted.
Final Conclusion: The appeal succeeded on the substantive tax additions concerning the diamond transactions, while only the non-adjudicated or consequential grounds did not alter the overall partial relief.
Ratio Decidendi: Where the source asset is accepted through an IDS declaration and the chain of processing and sale is supported by contemporaneous evidence, sale proceeds cannot be treated as unexplained cash credits, and the period of holding of a gifted asset must be computed by including the previous owner's holding period under section 2(42A).
Unexplained credits u/s 68 - treatment of sale consideration received on sale of diamonds as unexplained/Bogus LTCG -HELD THAT:- The existence of rough diamonds with the assessee together with the activity of processing of rough diamonds into cut and polished diamonds and sale of those cut and polished diamonds to third party customers is proved beyond reasonable doubt by the assessee herein.
In the present case, the diamonds were gifted to the assessee by his grandfather in the previous year relevant to assessment year 1994-95, while computing capital gains, the period of holding should be construed accordingly. Thus, such diamonds shall fall within the definition of “long term capital assets” and consequently, “long term capital gains” shall arise on their transfer.
CIT-A had relied on CBDT Circulars referred supra to treat the gains arising on sale of diamonds as short term capital gains. In this regard, we find that the Circulars had taken oscillating positions with regard to the period of holding of assets which works contradictory to the existing provisions of the Act itself. Hence the provisions of the Act would prevail.
Explanation 1(i)(b) of Section 2(42A) of the Act clearly lays down the law regarding the period of holding of assets. Hence there is no need to place reliance on Circulars for this purpose. Either way, the Circulars are binding only on the revenue authorities and the same is not binding on the Tribunal.
Period of holding of diamonds need to be reckoned from Assessment Year 1994-95 in terms of provisions of the Act and accordingly the resultant gain on sale of diamonds would have to construed only as Long Term Capital Gains in the facts and circumstances of the instant case.
Gains on sale of cut and polished diamonds is to be construed as LTCG which had already been offered to tax by the assessee in the return of income and the same cannot be treated as unexplained cash credit u/s 68 of the Act in the facts and circumstances of the instant case.Ground Raised by the assessee are allowed.
The primary issues considered in this judgment pertain to the validity of reassessment proceedings under section 147 of the Income-tax Act, 1961, and the legitimacy of the addition of Rs 76,21,459 made by the Assessing Officer (AO), which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. Specifically, the issues include:
1. Whether the reassessment proceedings initiated under section 147 of the Act were valid.
2. Whether the addition of Rs 73,99,475 as bogus Long Term Capital Gains (LTCG) and Rs 2,21,984 as unexplained expenditure under section 69C of the Act was justified.
ISSUE-WISE DETAILED ANALYSIS
1. Validity of Reassessment Proceedings under Section 147 of the Act
Relevant Legal Framework and Precedents: Section 147 of the Income-tax Act allows for the reopening of an assessment if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The reopening must be based on tangible material and not mere suspicion.
Court's Interpretation and Reasoning: The Tribunal noted that the AO had relied on information from the CRIU module, which indicated that the assessee was a beneficiary of accommodation entries for bogus LTCG. However, the AO failed to conduct an independent inquiry or provide substantial evidence against the assessee.
Key Evidence and Findings: The Tribunal observed that the AO did not dispose of the objections raised by the assessee against the reopening in a separate speaking order initially, although this was later rectified. The Tribunal found that the reliance on third-party information without independent verification was insufficient to justify reopening.
Application of Law to Facts: The Tribunal emphasized the necessity of conducting an independent inquiry and the inadequacy of relying solely on third-party information to reopen assessments.
Treatment of Competing Arguments: The Tribunal considered the arguments of the Revenue, which relied on the information from the CRIU module and a SEBI order. However, these were deemed insufficient to substantiate the reassessment.
Conclusions: The Tribunal concluded that the reassessment proceedings were not justified due to the lack of independent inquiry and substantial evidence.
2. Legitimacy of Additions Made by the AO
Relevant Legal Framework and Precedents: Section 10(38) of the Act provides exemption for LTCG from the sale of equity shares subject to certain conditions. Section 69C deals with unexplained expenditure.
Court's Interpretation and Reasoning: The Tribunal scrutinized the evidence provided by the assessee, including bank statements, DEMAT statements, and contract notes, which supported the genuineness of the transactions.
Key Evidence and Findings: The assessee had purchased shares of Anax Com Trade Ltd, which later merged with Yamini Investment Company Ltd. The shares were sold in the open market, and the transactions were supported by documentary evidence.
Application of Law to Facts: The Tribunal applied the principles of independent verification and evidence-based assessment, finding that the AO's reliance on general information and third-party data was inadequate.
Treatment of Competing Arguments: The Tribunal addressed the Revenue's reliance on the SEBI order, which did not implicate the assessee or the share broker. The Tribunal also considered the decision in the case of Aakruti Ketan Mehta vs ITO, which was not directly applicable.
Conclusions: The Tribunal determined that the addition of Rs 73,99,475 as bogus LTCG and Rs 2,21,984 as unexplained expenditure was unwarranted, given the lack of evidence against the assessee.
SIGNIFICANT HOLDINGS
Core Principles Established: The Tribunal reinforced the necessity for independent inquiry and substantial evidence in reassessment proceedings and the importance of considering all relevant documentary evidence before making additions.
Final Determinations on Each Issue: The Tribunal allowed the appeal in part, holding that the reassessment proceedings were not valid and the additions made by the AO were not justified.
In conclusion, the Tribunal emphasized the need for a thorough and evidence-based approach in reassessment proceedings and the evaluation of claims for exemptions under the Income-tax Act. The decision underscores the importance of independent inquiry and the reliance on credible evidence in tax assessments.
Validity of reassessment u/s 147 - Bogus LTCG on shares - HELD THAT:- Lower authorities brushed aside the submissions and all the documents filed during the course of the respective proceedings and merely relied upon the information received through CRIU module of insight portal and failed to conduct an independent inquiry against the claim of the assessee.
Absolutely, there is no direct or indirect evidence against the assessee which has been brought on record by the lower authorities to justify the addition by denying the claim of exemption under section 10(38) for the assessee.
The lower authorities had merely relied on third party information in this regard. It is pertinent to note that the transaction of purchase of shares made by the assessee in this regard has been accepted and no doubts or adverse inference has been drawn on the same.
These investments in shares were made in September 2012. The payments for the same had been made by account payee cheque out of the disclosed bank account by the assessee. These shares were duly dematerialized and were held by the assessee for more than three years.
These shares were admittedly sold through a recognized, through a registered share broker in the recognized stock exchange in the open market after duly suffering STT. Hence, there is absolutely no reason for the lower authorities to doubt the transaction carried out by the assessee. No case made out by the revenue for justifying the denial of exemption under section 10(38) - Decided in favour of assessee.
The primary issues considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS
Interest Disallowance on Interest-Free Advances
Relevant Legal Framework and Precedents:
The Court examined the principles established in the Supreme Court case of S A Builders Ltd vs. CIT, which emphasized the concept of "commercial expediency" in determining the allowability of interest on borrowed funds. According to Section 36(1)(iii) of the Income Tax Act, interest paid on capital borrowed for business purposes is deductible. The Court also referenced the Bombay High Court decision in Reliance Utilities and Power, which established a presumption that investments are made from interest-free funds if such funds are available.
Court's Interpretation and Reasoning:
The Court upheld the principle that if there is commercial expediency in providing interest-free advances, the interest expenditure on borrowed funds could still be deductible. It emphasized that the business purpose and the potential for indirect benefits justify such advances.
Key Evidence and Findings:
The Court reviewed various Memorandums of Understanding (MOUs) and agreements that demonstrated the business purpose behind the advances. It was noted that these advances were made in connection with real estate business ventures, with expectations of future profits.
Application of Law to Facts:
The Court applied the principle of commercial expediency to the facts, concluding that the advances were made for business purposes and that the assessee had sufficient interest-free funds to cover these advances.
Treatment of Competing Arguments:
The Court considered the AO's argument that interest should be disallowed due to the lack of interest charged on advances. However, it found the assessee's explanations and the existence of commercial expediency more persuasive.
Conclusions:
The Court concluded that the disallowance of interest expenses was not justified as the advances were made for business purposes and were supported by sufficient interest-free funds.
Disallowance of Provision for Expenses
Relevant Legal Framework and Precedents:
The Court referred to the Supreme Court decisions in Indian Molasses Co. (P.) Ltd. v. CIT and Rotork Controls India (P.) Ltd. v. Commissioner of Income-tax, which clarified the conditions under which provisions for expenses can be recognized and deducted.
Court's Interpretation and Reasoning:
The Court emphasized that under the mercantile system of accounting, it is necessary to make provisions for known expenses to reflect a true and fair view of the company's financial position. The provision for expenses must be based on a reliable estimate of the obligation.
Key Evidence and Findings:
The Court found that the assessee had made provisions for expenses based on incurred liabilities, even if the actual payments had not been made, aligning with accepted accounting principles.
Application of Law to Facts:
The Court applied the principles of accounting and tax law to determine that the provision for expenses was justified and should not have been disallowed by the AO.
Treatment of Competing Arguments:
The AO's argument that the provisions were unsupported by vouchers was countered by the Court's recognition of the necessity of such provisions under the mercantile system.
Conclusions:
The Court concluded that the disallowance of the provision for expenses was not justified, as the provisions were in line with accounting standards and past practices.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
The Court reiterated the principle from S A Builders Ltd: "The expression 'commercial expediency' is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business."
Core Principles Established:
Final Determinations on Each Issue:
The Court upheld the decision of the CIT(A) to delete the disallowance of interest expenses and the provision for expenses, emphasizing the importance of commercial expediency and adherence to accounting principles.
Disallowance of interest expenses - assessee provided interest-free advances while having interest-bearing loans was justified -whether there was “commercial expediency” in giving interest free advances or loans? - HELD THAT:- We notice that the advances have been given to these three companies during the course of carrying on business for business purposes, i.e., these payments have been given in connection with business ventures with the expectation of profits from the deal that will be entered by the respective parties. Accordingly, the Ld CIT(A) has held that there was commercial expediency in giving these advances without charging interest, since the assessee is expected to get the share of profits from the deal. Further, these three advances continue from the earlier years and the AO did not make any disallowance of interest in the earlier years. CIT(A) was justified in deleting the proportionate interest disallowance.
For the other parties all these balances have been brought forward from earlier years and no disallowance of interest was made in those years. Secondly, the interest free funds available with the assessee are in far excess of these outstanding amounts. Accordingly, we are of the view that there is no requirement of disallowing any interest expenses vis-à-vis these outstanding balances.
Also account has been brought forward from earlier years and no disallowance of interest was made in those years.
Advances have been given in the earlier years and no disallowance of interest was made in those years. Since these advances have been given for business purposes, we are of the view that the Ld CIT(A) has rightly deleted the disallowance of proportionate interest in respect of both these advances.
Some advances have been given on commercial expediency during the course of carrying on of its real estate business. And sufficient interest free funds were also available with the assessee. Decided in favour of assessee.
Disallowance of the provision for expenses - HELD THAT:- There is no dispute that the assessee is following mercantile system of accounting. Under that system, it is mandatory for the assessee to make provision for all known expenses and losses, even if the payments in respect of those expenses have not been made. Unless such kind of provision for expenses are made in the books as at the year end, the financial statements cannot be considered to reflect true and fair view of the company.
The provision for expenses is usually made on some scientific basis at the year end, since the concerned bills would not have been received by the assessee at the time of finalization of accounts. Hence, the assessee would not be in a position to furnish relevant bills in respect of all items.
AR submitted that the provision for expenses are made every year in a routine manner in order to provide for all known expenses and losses in accordance with accounting principles. In the earlier years, the AO had accepted claim of the provision for expenses. Accordingly, we are of the view that the AO was not justified in disallowing the provision for expenses made by the assessee.
Appeal filed by the revenue is dismissed.
Condonation of delay - Exemption from filing certified copy - Remittal to tribunal for fresh consideration in view of precedent
Condonation of delay - Delay in filing the appeal was condoned. - HELD THAT: - The Court recorded satisfaction with the explanation for delay and allowed the petition for condonation. No further substantive reasoning was provided beyond the order condoning the delay. [Paras 1]
Delay condoned.
Exemption from filing certified copy - Application for exemption from filing the certified copy of the impugned judgment was allowed. - HELD THAT: - The Court granted the application seeking exemption from filing the certified copy of the impugned judgment, permitting the appeal to proceed without that document. [Paras 2]
Exemption from filing certified copy allowed.
Remittal to tribunal for fresh consideration in view of precedent - Proceedings were remitted to the Customs, Excise and Service Tax Appellate Tribunal, East Regional Bench, Kolkata, in view of this Court's decision in Commissioner of Customs vs. Canon India Pvt. Ltd. - HELD THAT: - Relying on the precedent established by this Court in Commissioner of Customs vs. Canon India Pvt. Ltd (2024) SCC Online SC 3188, the Supreme Court directed that the matter be sent back to the CESTAT, East Regional Bench, Kolkata for further proceedings. The remittal was ordered as the operative disposition of the appeals, without additional appellate adjudication by this Court. [Paras 3, 4]
Proceedings remitted to the CESTAT, East Regional Bench, Kolkata; appeals disposed accordingly.
Final Conclusion: The Court condoned the delay, allowed exemption from filing the certified copy, and remitted the matter to the Customs, Excise and Service Tax Appellate Tribunal, East Regional Bench, Kolkata, in view of the Court's decision in Commissioner of Customs vs. Canon India Pvt. Ltd; the civil appeals stand disposed.
The primary legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Revocation of Customs Broker License
Relevant Legal Framework and Precedents: The revocation of the Customs Broker license was initially based on perceived irregularities in the Respondent's conduct as a Customs House Agent (CHA). The case revolves around compliance with the Customs Brokers Licensing Regulations, 2013, specifically Regulations 11(n) and 17(9).
Court's Interpretation and Reasoning: The CESTAT found that the revocation was unjustified as the Respondent had submitted the required KYC documents. The Tribunal emphasized the necessity of specifying the date on which the Commissioner of Customs received the show cause notice, which was not done, thus violating the procedural requirements of Regulation 20(1).
Key Evidence and Findings: The CESTAT noted that while the Respondent submitted KYC documents, the Department failed to demonstrate how these documents were improperly obtained, undermining the allegations of irregular conduct.
Application of Law to Facts: The Tribunal applied the procedural requirements of the regulations, finding that the Department did not adhere to the necessary procedural steps, such as specifying the date of receipt of the show cause notice.
Treatment of Competing Arguments: The Department argued that the Respondent failed to adequately explain the acquisition of KYC documents. However, the Tribunal found this insufficient to uphold the revocation, as the documents were duly submitted.
Conclusions: The CESTAT concluded that the revocation of the license was not justified based on the evidence presented and the procedural lapses by the Department.
Violation of Regulations 11(n) and 17(9)
Relevant Legal Framework and Precedents: Regulation 11(n) pertains to the obligation of obtaining KYC documents directly from the exporter, while Regulation 17(9) involves the requirement of declaration compliance.
Court's Interpretation and Reasoning: The CESTAT found no substantial evidence that the Respondent violated Regulation 11(n), as the KYC documents were submitted, and the source of their acquisition was not a relevant factor. Regarding Regulation 17(9), the Tribunal noted the lack of specific allegations in the show cause notice.
Key Evidence and Findings: The CESTAT highlighted that the Commissioner of Customs did not provide a clear basis for the alleged violation of Regulation 17(9), merely reproducing the Respondent's reply without substantive analysis.
Application of Law to Facts: The Tribunal applied the regulatory requirements, finding that the Department's failure to specify allegations and substantiate violations rendered the revocation unjustified.
Treatment of Competing Arguments: The Department's position was undermined by its inability to clearly articulate how the Respondent violated the regulations, leading to the CESTAT's decision to set aside the revocation.
Conclusions: The CESTAT concluded that there was no violation of the cited regulations, and the revocation of the license was not supported by the evidence.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning: The CESTAT held, "It is not possible to sustain the finding recorded by the Commissioner of Customs that Regulation 11 (n) of the 2013 Regulations has been violated."
Core Principles Established: The judgment underscores the necessity for precise procedural adherence by the Department when issuing show cause notices and revoking licenses. It also emphasizes that allegations must be substantiated with clear evidence.
Final Determinations on Each Issue: The Court upheld the CESTAT's decision to set aside the revocation of the Respondent's Customs Broker license, finding no substantial question of law in the appeal. The appeal was rejected, and the Respondent's license was effectively reinstated.
Revocation of Custome Broker License - forefeiture of security deposit - levy of penalty - violation of Regulation 11(n) and Regulation 17(9) of the Customs Brokers Licensing Regulations, 2013 - HELD THAT:- The reasoning given by the CESTAT is that the KYC documents were duly submitted by the Respondent herein. However, the Department’s case is that the Respondent did not explain as to how it had obtained the said KYC documents. Hence, there were serious irregularities in the conduct of its business by the Respondent.
In the opinion of this Court, since the requisite KYC documents had been submitted by the Respondent and the main irregularity was in respect of the exporter Shri. Rakesh Gupta, proprietor of M/s. U.P. Garments, whose Importer Exporter Code (hereinafter “IEC”) had been misused by other exporters in conspiracy with each other, the Respondent’s Customs Broker license cannot be cancelled for perpetuity. The Respondent has already suffered severe consequences due to the cancellation of the said license for several months.
Conclusion - The Court is of the opinion that the impugned Final Order does not warrant any interference. Moreover, it is noted that the CESTAT also records that there is no ground set out in the Order-in-Original as to how the Respondent had violated the requirement of declaration under Regulation 17 (9) of the Customs Brokers Licensing Regulations, 2013.
The Court is of the view that there is no substantial question of law that has arisen in the present appeal - Appeal dismissed.
The High Court of Madras considered the following core legal questions:
ISSUE-WISE DETAILED ANALYSIS
1. Delay in Filing the Appeal and Condonation of Delay
The relevant legal framework involves Section 128 of the Customs Act, which specifies the time limits for filing appeals. The Court examined whether the Tribunal had the authority to condone delays beyond the statutory limit.
The Court noted that the appellant, Food Corporation of India (FCI), had faced a delay of 323 days in filing the appeal. The appellant argued that the delay was due to awaiting the outcome of a similar case decided in their favor by the CESTAT Bangalore, and thus, the delay was justified.
The Court found that the CESTAT should have considered the merits of the case, as the reasons for the delay were compelling. The Court emphasized that the appellant's expectation of a favorable order based on the precedent set by the CESTAT Bangalore was reasonable.
2. Application of Exemption Orders
The Court analyzed whether the adhoc exemption order dated 26.07.1973 applied retrospectively to the appellant's case. The exemption order specifically mentioned the Vessel Kanishka, which carried the appellant's consignment.
The Court rejected the argument that the exemption order could not apply because the vessel arrived before the order's issuance. The Court noted that the Ministry of Finance's intention was to extend the exemption to specified vessels, including Kanishka, as evidenced by the order's language.
The Court concluded that the exemption order was intended to cover the appellant's consignment and that the denial of exemption was contrary to the order's express language.
3. Competency of Authorities in Processing Refund Applications
The Court examined the validity of the Superintendent's order dated 25.08.1976, which denied the refund application. The Court found that the Superintendent was not the competent authority to decide on refund applications, which should have been handled by the Assistant Commissioner of Customs.
Since the Assistant Collector had not passed any order on the appellant's refund application, the Court deemed the Superintendent's order invalid.
SIGNIFICANT HOLDINGS
The Court held that the substantial questions of law regarding the limitation were answered in favor of the appellant. The Court quashed the CESTAT's order dated 11.11.2013 and allowed the Civil Miscellaneous Appeal.
The Court further directed that the refund sought by the appellant under the application dated 10.10.1973, amounting to Rs.1,46,66,016.44, be paid within six weeks from the receipt of the order.
The Court concluded that the exemption issue was fully covered by the CESTAT Bangalore's order dated 10.05.2006, which favored the appellant. The Court did not frame a separate question of law on the exemption issue, as it did not arise directly from the Tribunal's order.
Power of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) to condone the delay in filing the appeal - sufficient cause was made for not presenting the appeal within the said period - import of provisions of Section 129(a) of the Customs Act to condone the delay in filing the appeal under Section 128 of the Customs Act.
HELD THAT:- There is nothing untoward in the order of the Commissioner of Customs (Appeals) dated 13.10.2008 dismissing the appeal on the ground of delay, as the Appellate Commissioner does not have the power to condone delay beyond 30 days. However, the second appeal before the CESTAT also met with the same fate, even though it was filed within the statutory time limit.
The CESTAT ought to have looked into the matter on merits as the reasons for condonation of delay before the Commissioner are compelling. The Appellant’s representation before the third respondent had been made on 22.08.2007 and admittedly, no orders have been passed thereupon. Hence, it is quite possible and plausible, that the appellant might have been awaiting orders on the representation which delayed the filing of the statutory appeal. The impugned order of the CESTAT has taken note of none of the aforesaid parameters and has cursorily closed the appeal.
The substantial questions of law that are admitted touch upon the aspect of limitation alone - the question of exemption must also be addressed which, stands fully covered by the order of the CESTAT, Bangalore dated 10.05.2006 [2006 (5) TMI 371 - CESTAT, BANGALORE], in favour of the Appellant.
Conclusion - The substantial questions of law regarding the limitation were answered in favor of the appellant.
Appeal allowed.
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The case revolves around the application of Section 114 of the Customs Act, 1962, which pertains to the imposition of penalties for attempts to export goods in contravention of the law. The legal framework requires establishing the involvement or culpability of the individual in the act of contravention. The petitioner cited several precedents, including cases such as Fast Cargo Movers Vs. Commissioner of Customs and Skyline Shipping & Logistics Vs. Commissioner of Customs, to argue against the imposition of penalties. However, the Court found these precedents irrelevant due to differing facts and circumstances.
Court's Interpretation and Reasoning
The Court examined the submissions made by the petitioner and the respondent. It noted that the petitioner was accused of facilitating the export of prohibited goods by using unauthorized credentials to file necessary documents, aiding in the smuggling activities. The Court acknowledged the petitioner's argument that their role was limited and that they were not directly involved in the illegal export.
Key Evidence and Findings
The evidence presented included the unauthorized use of M/s. AFS Logistics International Pvt. Ltd.'s User ID and Password by the petitioner to facilitate the movement of the container containing prohibited goods. The Court found that the petitioner, as a Senior Manager, arranged for the container without verifying the authenticity of the parties involved, which contributed to the smuggling activities.
Application of Law to Facts
The Court applied Section 114 of the Customs Act, 1962, to assess the petitioner's liability. It considered the petitioner's limited involvement and the lack of direct evidence of collusion or abetment in the smuggling activities. The Court also evaluated the proportionality of the penalty imposed in relation to the petitioner's purported gains from the illegal export.
Treatment of Competing Arguments
The petitioner argued that they were made a scapegoat and had no direct role in the illegal export activities. The respondent maintained that the petitioner's actions facilitated the smuggling, warranting the penalty. The Court balanced these arguments, acknowledging the petitioner's limited role while questioning the proportionality of the penalty.
Conclusions
The Court concluded that while the petitioner had some involvement in the illegal export, the penalty of Rs. 2 Crores was disproportionate to the petitioner's role and potential gains. It set aside the impugned order regarding the penalty and remitted the case back to the respondent for a fresh assessment, considering the petitioner's financial position and purported gains.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
The Court held, "Even if the role of the petitioner in the alleged illegal export of red sand/armature shaft is confirmed, the imposition of penalty of Rs. 2/- Crores, on a Senior Manager cannot be countenanced as it appears to be disproportionate with the gains that the petitioner would have made from the alleged involvement in the export of red sand/armature shaft."
Core Principles Established
Final Determinations on Each Issue
Levy of penalty u/s 114 of the Customs Act, 1962 - attempted export of prohibited items, specifically red sand/armature shaft - case of petitioner is that the petitioner has no direct role to play in the alleged export of red sand/armature shaft and that the petitioner has been made a scape goat - HELD THAT:- Even if the role of the petitioner in the alleged illegal export of red sand/armature shaft is confirmed, the imposition of penalty of Rs. 2/- Crores, on a Senior Manager cannot be countenanced as it appears to be disproportionate with the gains that the petitioner would have made from the alleged involvement in the export of red sand/armature shaft. Therefore, the impugned order is set aside insofar as imposition of penalty under Section 114 of the Customs Act, 1962 on the petitioner and the case is remitted back to the respondent to pass a fresh order on merits taking note of the financial position of the petitioner and the purported gain the petitioner would have made from the alleged involvement in the export of the contraband goods. This exercise shall be carried out by the respondent within a period of three (3) months from the date of receipt of copy of this order.
Petition disposed off by way of remand.
The core legal issues considered in this judgment are:
1. Whether the appellants successfully discharged the burden of proof under Section 123 of the Customs Act, 1962, regarding the legality of the gold in question.
2. Whether the absolute confiscation of 2 kgs. of gold and the imposition of penalties on the appellants were justified under the circumstances.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Discharge of Burden of Proof under Section 123 of the Customs Act, 1962
- Relevant Legal Framework and Precedents: Section 123 of the Customs Act, 1962, places the burden of proof on the person from whom goods are seized to prove that they are not smuggled. The appellants relied on several judicial precedents to argue that they had met this burden.
- Court's Interpretation and Reasoning: The Tribunal noted that the appellant, Rahul Harichandra Pawar, produced relevant documentation, including tax invoices from M/s. Manappuram Finance Limited and a gold purification voucher, to substantiate the purchase and lawful possession of the gold. The Tribunal observed that the absence of foreign markings and the high purity of the gold (994.2 to 996.9 p.p.t.) further supported the appellant's claim.
- Key Evidence and Findings: The evidence presented included tax invoices, a gold purification voucher, and confirmations of payment through banking channels. The Tribunal found these documents credible and sufficient to demonstrate the legality of the gold's acquisition.
- Application of Law to Facts: The Tribunal applied Section 123, concluding that the appellants had successfully discharged their burden of proof by providing credible documentation and evidence of lawful acquisition.
- Treatment of Competing Arguments: The Tribunal rejected the adjudicating authority's presumption that the absence of a challan for interstate movement indicated illegality. It emphasized that the documentation provided was adequate to establish the legitimacy of the gold.
- Conclusions: The Tribunal concluded that the appellants had met the burden of proof required under Section 123 of the Customs Act, 1962, and that the gold could not be deemed smuggled.
Issue 2: Justification of Absolute Confiscation and Penalties
- Relevant Legal Framework and Precedents: The Customs Act, 1962, provides for the confiscation of goods and imposition of penalties if goods are found to be smuggled. The Tribunal considered whether these actions were justified based on the evidence.
- Court's Interpretation and Reasoning: The Tribunal found that the adjudicating authority's decision to confiscate the gold and impose penalties was based on presumptions rather than concrete evidence. It noted that the invoices and other documents provided by the appellants were verified and found to be correct.
- Key Evidence and Findings: The Tribunal highlighted the lack of any contrary evidence from the Revenue to substantiate claims of smuggling. The gold's purity and the absence of foreign markings were significant factors in its decision.
- Application of Law to Facts: The Tribunal applied the relevant provisions of the Customs Act, determining that the absolute confiscation and penalties were not justified given the evidence of lawful acquisition.
- Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that the absence of a challan indicated illegality, emphasizing the sufficiency of the documentation provided by the appellants.
- Conclusions: The Tribunal concluded that the absolute confiscation of the gold and the imposition of penalties were not justified and should be set aside.
SIGNIFICANT HOLDINGS
- Verbatim Quotes of Crucial Legal Reasoning: "In that circumstances, the appellants are able to discharge his burden of proof under Section 123 of the Customs Act, 1962 for acquisition of the said gold in question."
- Core Principles Established: The Tribunal affirmed that credible documentation and evidence of lawful acquisition are sufficient to discharge the burden of proof under Section 123 of the Customs Act, 1962, and that presumptions without evidence cannot justify confiscation and penalties.
- Final Determinations on Each Issue: The Tribunal set aside the absolute confiscation of the 2 kgs. of gold and the penalties imposed on the appellants, concluding that the appellants had successfully demonstrated the legality of the gold's acquisition.
Burden of proof under Section 123 of the Customs Act, 1962 - absolute confiscation - penalty for possession of smuggled goods - verification of purchase invoices and melting/purification vouchers - absence of marking of foreign origin and interception not at port/airport/international border - revenue's onus to form reason to believe smuggling
Burden of proof under Section 123 of the Customs Act, 1962 - verification of purchase invoices and melting/purification vouchers - revenue's onus to form reason to believe smuggling - Whether the appellant Rahul Harichandra Pawar discharged the burden of proof under Section 123 so as to preclude absolute confiscation of the gold and imposition of penalties on the appellants - HELD THAT: - The Tribunal recorded that the appellant produced purchase invoices from M/s. Manappuram Finance Limited and a gold purification voucher; verification with the seller confirmed issuance of the invoices and sale of the stated quantity to the appellant's firm, and bank payments to the appellant were also verified. The seized pieces bore no marking of foreign origin, the interception did not occur at a port, airport or international border, and the purity was between 994.2 and 996.9 p.p.t. In view of these facts, the appellants discharged the statutory burden under Section 123 by establishing lawful acquisition and movement of the gold, and the Revenue failed to discharge its onus of forming a reason to believe that the gold was smuggled. Consequently the foundational basis for absolute confiscation and penalties-an inability to prove lawful ownership and movement-was absent. [Paras 6, 7, 8]
The absolute confiscation of 2 kgs. of gold belonging to Rahul Harichandra Pawar is set aside and the penalties imposed on both appellants are vacated.
Final Conclusion: Appeals allowed; absolute confiscation of the specified gold quashed and penalties on both appellants set aside, the Tribunal having found that the appellant discharged the burden of proof and the Revenue failed to demonstrate smuggling.
Issues Presented and Considered:
The core legal issues considered include:
(i) Whether the shares held by EAPPL, a subsidiary of the Corporate Debtor, can be treated as assets of the Corporate Debtor.
(ii) Whether the plea of undervaluation of shares is tenable under the Insolvency and Bankruptcy Code (IBC).
(iii) Whether the moratorium under Section 14 of the IBC applies to the shares held by EAPPL.
(iv) Whether the Corporate Debtor, as a guarantor, can question the valuation and sale price of the pledged shares.
Issue-Wise Detailed Analysis:
Relevant Legal Framework and Precedents:
The legal framework involves provisions of the Insolvency and Bankruptcy Code, 2016, specifically Sections 18, 45, 47, and 60(5), and the Indian Contract Act, 1872, particularly Sections 128 and 141. The SARFAESI Act is also referenced in relation to the rights of guarantors.
Court's Interpretation and Reasoning:
The Tribunal affirmed that the assets of a subsidiary company are distinct from those of the holding company, and thus, the shares of The Learning Internet Inc. held by EAPPL cannot be treated as assets of the Corporate Debtor. The Tribunal reasoned that the Resolution Professional (RP) is not obligated to preserve the value of assets not owned by the Corporate Debtor.
Key Evidence and Findings:
The Tribunal noted that EAPPL, a subsidiary of the Corporate Debtor, had pledged shares of The Learning Internet Inc. with the Appellant as collateral for a loan. The shares were sold during EAPPL's liquidation proceedings in Singapore, with the liquidators' consent, for USD 7.1 million.
Application of Law to Facts:
The Tribunal applied the provisions of the IBC and the Indian Contract Act to conclude that the Corporate Debtor cannot claim rights over the assets of its subsidiary. It also held that the moratorium under Section 14 of the IBC does not apply to assets not owned by the Corporate Debtor.
Treatment of Competing Arguments:
The Appellant argued that the NCLT's directive for a fresh valuation was beyond its jurisdiction and not supported by the IBC. The Respondent No. 1 contended that the undervaluation of shares harmed the creditors' interests and that a fresh valuation was necessary for fair treatment of stakeholders.
Conclusions:
The Tribunal concluded that the NCLT's directive for a fresh valuation was unwarranted, as the shares were not assets of the Corporate Debtor and the sale was conducted with the liquidators' consent in accordance with Singaporean law.
Significant Holdings:
The Tribunal held that the assets of a subsidiary cannot be treated as assets of the holding company in insolvency proceedings. It emphasized that the moratorium under the IBC applies only to the assets of the Corporate Debtor. The Tribunal also noted that the NCLT lacked jurisdiction to order a fresh valuation of shares sold during the liquidation proceedings of a subsidiary under foreign jurisdiction.
The Tribunal set aside the NCLT's directive for a fresh valuation of shares, stating that it was beyond the scope of its jurisdiction. It upheld the principle that the assets of a subsidiary are distinct from those of the holding company and are not subject to the insolvency proceedings of the latter.
The judgment reinforces the legal distinction between holding and subsidiary companies in insolvency proceedings and clarifies the non-applicability of the IBC's moratorium to assets not owned by the Corporate Debtor. The Tribunal's decision underscores the importance of jurisdictional boundaries in cross-border insolvency matters.
Fresh valuation of shares of The Learning Internet Inc. held by EAPPL ordered by the Adjudicating Authority - scope of the Adjudicating Authority in directing fresh valuation - assets of the subsidiary company are different from the assets of the holding company or not - preservation of values of shares of EAPPL by Resolution Professional - No reasoning for under valuation has been recorded - three valuation reports quoted by the Respondent No. 1 to justify the revaluation.
Whether the Adjudicating Authority could have passed the directions to the Respondent No 2 to approach the IBBI for appointment of valuers for valuation of shares The Learning Internet Inc. based on the alleged under valuation of shares by the Respondent No. 1?
HELD THAT:- The Adjudicating Authority has rightly held that in terms of the Code and the Regulation, the Corporate Debtor and its subsidiary are two legally distinct entities. It has also been correctly held that the assets of the subsidiary company cannot be treated as part of the assets of the Corporate Debtor. The Adjudicating Authority further rightly held that it is not the duty of the Respondent No. 2 to preserve the assets of the subsidiary company which are not under control of the Corporate Debtor or which are not part of estate of the Corporate Debtor. The Adjudicating Authority has also not found anything wrong in the selling of the shares of The Learning Internet Inc. - However, the Adjudicating Authority has held that the Respondent No. 1 being the corporate guarantor of the principal borrower i.e., EAPPL (subsidiary of the Corporate Debtor) has right to protect its interest in corporate guarantee and therefore the Respondent No. 1 can take certain step to protect himself to reduce risk of standing as guarantor to EAPPL.
The Respondent No. 1 aggrieved due to alleged under valuation shares of The Learning Internet Inc., could have approached the liquidators or could have invoked the suitable jurisdiction, if any, in accordance with the relevant insolvency law of the Singapore before the High Court of Singapore, which he has not done as confirmed by the Respondent No. 1 in reply put by this Appellate Tribunal to Respondent No. 1 during the pleadings - it does not give any right to the Respondent No. 1 to approach the Adjudicating Authority on this issue and without any doubt, the Adjudicating Authority did not has any jurisdiction to give such directions w.r.t. fresh valuation in this regard as contained in Para 27 of the Impugned Order.
The valuations were done at different time periods and in different context on different issues and we are, therefore, of opinion that such valuation reports could not have been relied upon by the Adjudicating Authority. In any case such valuation reports were done long back in 2008 and 2014-2021 which would have been conducted based on the estimates and future projections relevant at that times and cannot be relied upon now.
Regulation 21A of the Liquidation Regulations has no applicability in the present Company Petition which is for insolvency proceeding of the Corporate Debtor.
Conclusion - The assets of a subsidiary cannot be treated as assets of the holding company in insolvency proceedings. The moratorium under the IBC applies only to the assets of the Corporate Debtor. The NCLT's directive for a fresh valuation of shares set aside, stating that it was beyond the scope of its jurisdiction.
The impugned order set aside - appeal allowed.
Issues: Whether bail could be granted to the applicant in a PMLA prosecution despite the rigours of the twin conditions under Section 45 of the Prevention of Money Laundering Act, 2002, on the ground of prolonged incarceration and the right to speedy trial under Article 21 of the Constitution of India, read with Section 436A of the Code of Criminal Procedure, 1973.
Analysis: The applicant had remained in custody for more than half of the maximum prescribed sentence of seven years. The Court noted that the scheduled offence and the PMLA complaint involved voluminous material, numerous witnesses, and that the trial had not commenced, making early conclusion unlikely. Referring to the constitutional guarantee of speedy trial and the line of authorities recognising that Section 436A of the Code of Criminal Procedure, 1973 operates as a statutory exception that can prevail despite the restrictive bail regime under Section 45 of the Prevention of Money Laundering Act, 2002, the Court held that prolonged pre-trial incarceration could not continue merely because the offence was serious. The Court also noted that substantial proceeds of crime were already recovered or secured, while imposing that seriousness of the offence required stringent conditions.
Conclusion: Bail was granted, as the applicant was held entitled to the benefit of Section 436A of the Code of Criminal Procedure, 1973 and constitutional protection against unduly prolonged incarceration.
Ratio Decidendi: Where an undertrial in a PMLA case has already undergone detention for at least one-half of the maximum sentence and the trial is unlikely to conclude within a reasonable time, the constitutional right to speedy trial under Article 21 may justify release on bail notwithstanding the statutory restrictions in Section 45 of the Prevention of Money Laundering Act, 2002.
Seeking grant of Regular Bail after prolonged incarceration - Money Laundering - twin conditions as contemplated under Section 45 of the PMLA or not - Section 439 of the Code of Criminal Procedure, 1973, read with Sections 45 and 65 of the Prevention of Money Laundering Act, 2002 - HELD THAT:- Supreme Court in the case of Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT (LB)], considered the applicability of Section 436A of the Cr. P. C. which is concerning the maximum punishment for which an under trial prisoner can be detained, held that Section 436A of the Cr. P .C. has come into effect on 23.06.2006 and the said provision is the subsequent law enacted by the Parliament and the same will prevail and will apply in spite of rigors of Section 45 of the PMLA Act.
As per the settled legal position whereas at commencement of proceedings, the courts are expected to appreciate the legislative policy against grant of bail as enacted under Section 45 of the PMLA Act, but the rigours of such provisions will melt down where there is no likelihood of trial being completed within a reasonable time and the period of incarceration already undergone has exceeded a substantial part of the prescribed sentence - Thus, inspite of restrictive statutory provisions like Section 45 of the PMLA Act, the right of the accused undertrial under Article 21 of the Constitution of India cannot be allowed to be infringed. In such a situation, statutory restrictions will not come in the way of the Court to grant bail to protect the fundamental right of the accused under Article 21 of the Constitution of India.
It is an admitted position that both the cases will be tried simultaneously and trial has not yet commenced. Thus, this is a case where the trial is unlikely to conclude any time soon and is likely to take a considerably long time. As noted hereinabove, the Applicant has completed more than half of the punishment. The maximum punishment which can be imposed on the Applicant is 7 years and the Applicant has completed about 3 years and 10 months of imprisonment i.e. more than half of the punishment - the Applicant is entitled to the benefit of Section 436A of the CrPC.
Conclusion - i) The applicant is granted bail with a personal bond of Rs. 10,00,000/- and sureties. ii) The applicant is restricted from entering District Pune except for trial-related purposes. iii) The applicant must report to the Enforcement Directorate's Mumbai office twice a month. iv) The applicant must not tamper with evidence or influence witnesses. v) The applicant must surrender his passport and attend the trial regularly.
The Applicant – Anil Shivajirao Bhosale be released on bail in connection with ECIR No. ECIR/MBZO-II/20/2020 registered with the Enforcement Directorate on his furnishing P. R. Bond of Rs. 10,00,000/- with one or two solvent sureties in the like amount and subject to fulfilment of conditions imposed - bail application allowed.
The Tribunal considered several core legal issues in the appeals challenging the order under the Prevention of Money Laundering Act, 2002 (PMLA). These issues included:
1. Whether the Adjudicating Authority applied its mind in confirming the provisional attachment order.2. The existence of a predicate offence necessary for proceedings under the PMLA.3. The nexus between the appellants and the alleged proceeds of crime.4. Whether the appellants were bona fide purchasers of the attached properties.5. The adequacy of reasons to believe in the show cause notice issued by the Adjudicating Authority.6. Claims by some appellants that they were victims of extortion by the syndicate led by Suryakant Tiwari.
ISSUE-WISE DETAILED ANALYSIS
I. Non-application of mind by the Adjudicating Authority
The appellants argued that the Adjudicating Authority failed to consider the factual and legal issues raised, particularly the disclosure of the source of funds used to acquire the properties. However, the Tribunal found that the Adjudicating Authority had considered the pleas and confirmed the attachment order based on the evidence presented, indicating that there was no non-application of mind.
II. Absence of Predicate Offence
The appellants contended that the absence of a predicate offence invalidated the proceedings under the PMLA. They argued that the charges under section 384 IPC were dropped, making the ECIR and subsequent proceedings untenable. The Tribunal, referencing a Supreme Court judgment in the case of Saumya Chaurasia, held that the predicate offence was not dropped but transferred to Chhattisgarh State Police, and thus the proceedings under the PMLA were valid.
III. No Nexus between the Appellant and Alleged Proceeds of Crime
The appellants claimed no involvement in the generation or concealment of the proceeds of crime, arguing that they were neither named in the FIR nor the ECIR. The Tribunal found that the involvement of the appellants was evident from the investigation, which revealed their role in layering and integrating proceeds of crime into legitimate assets. The Tribunal emphasized that the properties in question were acquired during the period of the alleged criminal activities.
IV. The Appellants as Bona Fide Purchasers
The appellants argued that they were bona fide purchasers, having disclosed the sources of funds used for property acquisition. The Tribunal noted that despite claims of bona fide acquisition, the appellants failed to provide sufficient evidence to substantiate their claims. The Tribunal highlighted that properties acquired during the period of criminal activity, even if purchased before the registration of the FIR, could be subject to attachment if proceeds of crime were involved.
V. Absence of Reasons to Believe in the Show Cause Notice
The appellants challenged the show cause notice for lacking specific reasons to believe against each appellant. The Tribunal found that the Adjudicating Authority had provided adequate reasons to believe in the notice, applicable to all noticees collectively. It was not necessary to issue separate reasons for each appellant, especially when they were in possession of proceeds of crime.
VI. Appellants as Victims of Extortion
Some appellants claimed to be victims of extortion by the syndicate led by Suryakant Tiwari, arguing that they were coerced into paying illegal levies. The Tribunal found this argument to be inconsistent with the appellants' actions, as no FIR was filed against the alleged extortionists. This claim inadvertently supported the respondents' case of systematic extortion by the syndicate.
SIGNIFICANT HOLDINGS
The Tribunal upheld the confirmation of the provisional attachment order, dismissing the appeals. It reaffirmed the existence of a predicate offence and the nexus between the appellants and the proceeds of crime. The Tribunal emphasized the broad definition of "proceeds of crime" under the PMLA, which includes properties acquired indirectly from criminal activities. It also clarified that properties acquired before the registration of an FIR could still be attached if they were linked to criminal proceeds.
The Tribunal concluded that the appellants failed to provide credible evidence to substantiate their claims of bona fide acquisition and the absence of a nexus with the proceeds of crime. It found the arguments regarding the absence of reasons to believe and claims of extortion unconvincing, leading to the dismissal of the appeals.
Money Laundering - challenge to provisional attachment order - large scale illegal extortion punishable under section 384 read with 120 B of IPC - Non application of mind by the Adjudicating Authority - Absence of predicate offence - No nexus between the appellant and alleged proceeds of crime - appellants are bonafide purchaser of the property attached by the respondents - Absence of reasons to believe in the SCN.
Absence of predicate offence - HELD THAT:- The Apex Court in Sunil Kumar Agarwal [2024 (5) TMI 1346 - SC ORDER] found that the petitioner has already undergone incarceration for a period of 1 year and 7 months and was otherwise not named in the FIR, but without expressing any opinion on the issue, the interim bail was granted. The efforts of the appellant is to mis-lead the Tribunal by giving an impression of an order of the Apex Court to hold that the predicate offence does not exist and thus the proceedings under PMLA is not tenable. The written arguments also make a reference of it.
The perusal of the order for grant of the bail to the accused would reveal it to be on the ground of long period of incarceration in violation of Article 21 of the Constitution. The bail was granted on that ground. It was with the clarification that observation made in the order is for the purpose of grant of bail and not to have any effect on the merit of the complaint. There are no judgement of the Apex Court in favour of the appellant rather detailed judgement of the Supreme Court in the case of Saumya Chaurasia [2023 (12) TMI 685 - SUPREME COURT] holds it to be a case of schedule offence.
No nexus between the appellant and the alleged proceeds of crime - HELD THAT:- In the instant case, the syndicate of Suryakant Tiwari has not extorted money overnight but during the period of its operation which was started much prior to the registration of the FIR. It is otherwise settled law of the land that the properties acquired prior to the commission of the crime can also be made subject matter of the attachment if the proceeds are not available or vanished - The appellant may have acquired the property prior to the registration of the FIR but period of operation of crime started much prior to the registration of the FIR and otherwise if the proceeds has been vanished or siphoned off, the property of the equivalent value can be attached. It is otherwise submitted that appellants have been named for commission of the offence under the Act of 2002.
Appellants are bonafide purchaser of the property - HELD THAT:- The appellants have failed to disclose the source to acquire the cash used for acquisition of the properties and illustratively we may refer to 52 properties acquired by M/s. Indermani Minerals (India Pvt. Ltd.),showing it to be through bank channels and based on their financial condition - The statement recorded under section 50 of the Act of 2002 coupled with the documents seized from the custody of Suryakant Tiwari are sufficient to show layering of proceeds of crime and to channelize the same, immovable properties were purchased. The appellant Company has not purchased one or two properties, rather purchased as many as 52 properties without showing the source and document to prove it. In the appeal filed by them, even the Income Tax Return for financial year 2022-2023 was not enclosed. It was submitted later without showing its relevance for purchase of properties prior to it.
It is found that merely using the banking channel for purchase of the property by layering the money with deposit of cash in the Bank without disclosing the source with the material and proof, the source would not stand proved.
Absence of reason to believe - HELD THAT:- The appellants submits that no reasons to believe was given by the Adjudicating Authority while issuing show cause notice. It should have been for each appellant separately - There are no contest on the aforesaid before the Adjudicating Authority, otherwise it has given reasons to believe for issuance of notice. It is not necessary that for the show cause notice, it should be against the person committing the offence under section 3 of the Act of 2002, but can be against the person in possession of crime proceeds. It is not necessary to give reasons to believe separately but can be for the noticee together. The appellants are either the accused or in possession of proceeds of crime and has been indicated in the show cause notice.
The appellants are victims of extortion - HELD THAT:- The appellants are victims of extortion because they were involved in transportation of the coal and thereby had to pay Rs. 25/- per ton to the main accused. The argument aforesaid has been raised specifically in the appeal preferred by M/s. Indermani Minerals (India Pvt. Ltd.),. This argument endorsed the case of the respondents where serious allegations have been made against syndicate headed by Suryakant Tiwari for extortion of money and if the appellant was also victim, it could not be clarified as to why it did not register an FIR against the accused.
Conclusion - The appellants failed to provide credible evidence to substantiate their claims of bona fide acquisition and the absence of a nexus with the proceeds of crime. The existence of a predicate offence and the nexus between the appellants and the proceeds of crime is reaffirmed. The confirmation of the provisional attachment order upheld.
Appeal dismissed.
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
The SVLDRS was introduced to resolve legacy disputes related to indirect taxes. Key provisions include:
Court's interpretation and reasoning:
The Court interpreted the SVLDRS provisions, emphasizing that the petitioner's case should be categorized under "amount in arrears" as no appeal was filed by the petitioner before the cut-off date of June 30, 2019. The Court noted that the designated committee's classification of the petitioner's case under "litigation" was incorrect since the department's appeal was filed after the cut-off date.
Key evidence and findings:
The petitioner had accepted the Order-in-Original without filing an appeal, making the demand amount final. The department's appeal was filed after the cut-off date, which should not affect the petitioner's categorization under the SVLDRS.
Application of law to facts:
The Court applied the SVLDRS provisions to determine that the petitioner was entitled to relief under the "arrears" category. The petitioner had deposited 60% of the tax dues, complying with Section 124(c)(ii) of the SVLDRS.
Treatment of competing arguments:
The petitioner argued that their case fell under the "arrears" category, supported by the fact that no appeal was pending as of the cut-off date. The respondent contended that the petitioner was not entitled to relief due to the pending departmental appeal. The Court favored the petitioner's argument, emphasizing the scheme's intent to reduce litigation and the department's appeal being filed beyond the cut-off date.
Conclusions:
The Court concluded that the petitioner's case falls under the "arrears" category, entitling them to the relief of paying 60% of the tax dues, which they had already deposited.
3. SIGNIFICANT HOLDINGS
Core principles established:
Final determinations on each issue:
The Court ordered the respondents to complete this exercise within twelve weeks, making the rule absolute to the extent of the petitioner's entitlement under the SVLDRS.
Challenge to action of the designated committee formed under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS) by issuing Form No. SVLDRS-3 dated 04.12.2019 - petitioner's case falls under the "arrears" category or the "litigation" category under SVLDRS - recovery of service tax with interest - non-payment of service tax under ‘Construction Service in respect of Commercial and Industrial Building and Civil Structure’ during the period from April 2014 to June 2017.
HELD THAT:- Considering the provisions of the SVLDRS, it is apparent and crystal clear that the case of the petitioner would fall in the category of “amount in arrears” as admittedly the petitioner has not preferred any appeal before 30.06.2019 challenging the Order-in-original and the demand raised in the Order-in-original amounting to Rs. 32,27,856/-has achieved finality so far as the petitioner is concerned and accordingly, the petitioner would be entitled to the benefit of the SVLDRS which has a basic feature of reducing the disputes and create an atmosphere of trust between the assessee and the respondent-department.
However, in the facts of the case it appears that, the designated committee, contrary to the provision of the SVLDRS and with total non-application of mind has issued Form SVLDRS-2 and without taking into consideration reply of the petitioner 29.11.2019 has issued Form SVLDRS-3 in a mechanical manner. The petitioner has been vigilant to challenge such SVLDRS-3 immediately by preferring this petition and this Court has directed the petitioner to deposit 60% of the tax arrears amounting to Rs. 31,32,551.60 which petitioner has already deposited.
Therefore, in the facts of the case, when there was no appeal pending filed by the petitioner, the amount of demand raised in the Order-in-original would become the tax dues being the amount in arrears as per clause (e) of section 123 of SVLDRS and accordingly, the petitioner is entitled to get the benefit of the provision of section 124 of the SVLDRS by paying 60% of the amount in arrears as tax dues which the petitioner has already deposited.
Conclusion - i) The petitioner's case is categorized under "amount in arrears" as per Section 121(c) and Section 123(e) of the SVLDRS. ii) The petitioner is entitled to the relief of paying 60% of the tax dues, having already deposited the amount. iii) The designated committee's issuance of Form SVLDRS-3 demanding a higher amount was incorrect and is set aside.
Petition allowed.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Demand of Service Tax on Cost Sharing under 'Business Support Service'
2. Demand of Service Tax on Differential Value between Profit & Loss Account and ST-3 Returns
3. Demand of Ineligible CENVAT Credit
SIGNIFICANT HOLDINGS
The Tribunal's decision emphasized the importance of adhering to established legal principles and precedents, ensuring that tax demands are substantiated by clear service provisions and proper legal grounds.
Levy of service tax - Business Support Service - cost sharing among the group Companies - Demand of service tax on the differential value of Profit & Loss Account and ST-3 returns - Recovery of ineligible CENVAT Credit - Extended period of limitation.
Levy of service tax - Business Support Service - cost sharing among the group Companies - HELD THAT:- The appellant incurred expenditure on behalf of the group companies and such expenditure has been shared among the group Companies at the ratio agreed in the agreement dated 01-04-2008. It is observed that there is no service element involved in this case. Thus, we find that in these circumstances, the demand of service tax under the category of 'Business Support Service' is not sustainable. We find that the issue is no more res integra as the demand of Service Tax on cost sharing is settled by the decision of the Hon’ble Supreme Court in M/S GUJARAT STATE FERTILIZERS & CHEMICALS LTD. & ANOTHER VERSUS COMMISSIONER OF CENTRAL EXCISE [2016 (12) TMI 103 - SUPREME COURT], wherein, it has been held that demand of Service Tax on cost sharing is not sustainable - the demand confirmed in the impugned order under the category of 'Business Support Service' is not sustainable.
Demand of service tax on the differential value of Profit & Loss Account and ST-3 returns - HELD THAT:- The ld. adjudicating authority has not given any finding regarding the liability of service tax on the differential value. It is the settled position of law that demand of Service Tax cannot be confirmed merely on the ground that there is a difference in the value of Profit & Loss Account and ST-3 returns. This issue is covered by the decision of Tribunal, Kolkata in the case of M/S BALAJEE MACHINERY VERSUS COMMISSIONER OF CGST & EXCISE, PATNA II [2022 (8) TMI 704 - CESTAT KOLKATA] where it was held that 'Since the records have been duly audited, the demand cannot be raised for the same period on account of change in the opinion. Further, we find that the Appellant had duly submitted the VAT Returns which have been recorded by the Ld. Commissioner in the impugned order.' - the demand of service tax of Rs.88,051/-, confirmed merely on the basis of the differential value between the Profit & Loss Account and ST-3 returns is not sustainable.
Recovery of ineligible CENVAT Credit - Extended period of limitation - HELD THAT:- There is no allegation of suppression, wilful misstatement or fraud in the impugned notice. In the impugned order also, the ld. adjudicating authority has not given any finding regarding suppression of facts or wilful misstatement for invocation of the larger period of limitation. Thus, the demand confirmed by invoking the extended period of limitation is not sustainable - the demand of irregular credit confirmed in the impugned order is not sustainable.
Conclusion - i) Service Tax cannot be levied on cost-sharing arrangements lacking a service element. ii) Demand confirmed merely on the basis of the differential value between the Profit & Loss Account and ST-3 returns is not sustainable. iii) As entire demand is time barred, the demand of irregular credit confirmed in the impugned order is not sustainable.
The impugned order set aside - appeal allowed.
The core legal questions considered in this judgment include:
1. Whether the appellant is entitled to interest on the refund of Rs.12,00,00,000/- from the date of deposit until the date of refund.
2. What is the appropriate rate of interest applicable to the refund amountRs.
3. Whether the adjustment of Rs.64,73,631/- from the total refund sanctioned to the appellant was permissible, given the status of the demand in a separate case.
ISSUE-WISE DETAILED ANALYSIS
Entitlement to Interest on Refund
The legal framework surrounding the entitlement to interest on refunds involves principles established in prior judicial decisions, particularly the Supreme Court's ruling in Sandvik Asia Limited vs. Commissioner of Income Tax. The Court has consistently held that amounts paid under protest during investigations are refundable with interest from the date of deposit until the date of refund. This principle was reaffirmed by the Punjab & Haryana High Court in Riba Textiles Limited and applied in subsequent cases.
The Court interpreted these precedents to mean that the appellant is entitled to interest on the entire period from deposit to refund. The evidence showed that the amount was deposited under protest, aligning with the conditions set by previous judgments. Competing arguments from the Revenue, suggesting the application of different statutory provisions such as Section 35F and Section 35FF of the Central Excise Act, were considered but ultimately found unpersuasive in altering the established legal principle.
Rate of Interest
The appellant argued for an interest rate of 12% per annum, citing various precedents where courts, including the jurisdictional High Court, had applied this rate to similar cases. The Tribunal's interpretation aligned with these precedents, particularly the decisions in Indore Treasure Market City Pvt Ltd and Raghuveer Metal Industries Ltd, which established 12% as the appropriate rate. The Court found no compelling reason to deviate from this standard, despite the Revenue's argument for a lower rate of 6%.
Adjustment of Rs.64,73,631/-
The adjustment of Rs.64,73,631/- from the refund was scrutinized under the legal framework that prohibits coercive recovery during the pendency of an appeal, as outlined in the Tribunal's decision in Kisan Irrigations & Infrastructure Ltd. The evidence showed that the demand related to this amount was not confirmed by the Appellate Authority and was subsequently dropped, making the adjustment improper. The Court concluded that the appellant is entitled to a refund of this amount, with interest at 12% per annum from the date of deposit.
SIGNIFICANT HOLDINGS
The Court held that the appellant is entitled to interest on the full refund amount from the date of deposit until the date of refund at a rate of 12% per annum. This decision is based on established legal principles from the Supreme Court and various High Courts, which view such interest as compensation for the retention of funds without legal authority.
In addressing the adjustment of Rs.64,73,631/-, the Court held that such actions are impermissible when the related demand is under appeal and not final. The Tribunal's previous decisions reinforced this position, emphasizing that adjustments in such contexts amount to coercive recovery.
The final determination was to set aside the impugned order and allow the appellant's appeal, granting the requested interest and refund adjustments.
Entitlement to interest on the refund of Rs.12,00,00,000/- from the date of deposit until the date of refund - Rate at which the interest is to be computed - Adjustment of the amount Rs.64,73,631/- from the total refund sanctioned to the appellant.
Entitlement of interest on the amount of Rs.12,00,00,000/- from the date of deposit till the date of refund - HELD THAT:- This issue is no more res integra as the same has been decided by the Hon’ble Apex Court in the case of Sandvik Asia Limited vs. Commissioner of Income Tax [2006 (1) TMI 55 - SUPREME COURT], which has been followed by the jurisdictional High Court of Punjab & Haryana in the case of COMMISSIONER OF CENTRAL EXCISE, PANCHKULA VERSUS RIBA TEXTILES LTD. [2022 (5) TMI 1531 - PUNJAB AND HARYANA HIGH COURT], wherein the Hon'ble High Court has upheld the order of the Tribunal granting interest on refund to the assessee computable from the date of payment till the date of refund @12% per annum. It is pertinent to note that the review application filed by the Revenue against this judgment has also been rejected by the Hon'ble Punjab & Haryana High Court - the Hon'ble Punjab & Haryana High Court in the case of Sunrise Immigration Consultants Private Limited vs. Union of India [2023 (4) TMI 504 - CESTAT CHANDIGARH], after relying upon the decision in the case of Riba Textiles Limited, has re-affirmed that the petitioner was entitled to refund of the amount deposited during investigation along with interest @12% computable from the date of deposit of the amount till the date of refund.
Rate at which the interest is to be computed - HELD THAT:- The Tribunal as well as various Courts in catena of decisions have consistently held that interest is payable from the date of deposit till the date of refund @12% per annum. In this regard, we may refer to the decision of the Tribunal in the case of Indore Treasure Market City Pvt. Ltd. [2024 (5) TMI 367 - MADHYA PRADESH HIGH COURT] wherein the Tribunal after considering the various decisions of the Courts, has held that the assessee is entitled for interest on the amount of refund sanctioned @12% to be calculated from the date of payment till the date of disbursement - the appellant is entitled to receive interest on the amount deposited during investigation from the date of deposit of the amount till the date of its refund at the rate of 12% per annum.
Adjustment of the amount Rs.64,73,631/- from the total refund sanctioned to the appellant - HELD THAT:- The Adjudicating Authority has committed an error because the said demand was not confirmed by the Appellate Authority rather the said demand was set aside by the Appellate Authority in the case of Bharti Infratel Ltd. [2022 (9) TMI 1339 - CESTAT NEW DELHI]. It is also found that in the case of Kisan Irrigations & Infrastructure Ltd. [2016 (7) TMI 429 - CESTAT NEW DELHI], the Tribunal has held that adjustment of refund against a confirmed demand during the pendency of an appeal amounts to coercive recovery and is not permissible under the law. Further, adjustment of demand confirmed by the Bharti OIO against the refund due to the appellant could not have been made prior to the Bharti OIO attaining finality. Further, the demand confirmed against Bharti Infratel Ltd was subsequently dropped vide Bharti OIA dated 13.03.2023; copy of the same has also been placed in the appeal paper-book - the amount adjusted from the total refund sanctioned to the appellant is refundable to the appellant at the rate of 12% per annum computed from the date of deposit till the date of its refund.
Conclusion - i) The appellant is entitled to interest on the full refund amount from the date of deposit until the date of refund at a rate of 12% per annum. ii) The amount adjusted from the total refund sanctioned to the appellant is refundable to the appellant at the rate of 12% per annum computed from the date of deposit till the date of its refund.
Appeal allowed.
Issues: Whether the demand of service tax on a municipality for renting of immovable property and allied municipal activities should be sustained or the matter should be remanded for fresh consideration.
Analysis: The dispute concerned service tax liability arising from leasing and renting of municipal properties and collection of charges connected with municipal functions. The Tribunal noticed conflicting High Court views on the taxability of such activities by local authorities, including decisions treating certain municipal functions as sovereign in nature and other decisions upholding levy. It also noted that similar matters involving the same appellant had earlier been remanded for reconsideration in the light of those decisions. In the circumstances, and particularly because the nature of the activities and the possible applicability of exemptions and constitutional functions required closer examination, the Tribunal held that the controversy could not be finally decided at that stage. It therefore directed the Adjudicating Authority to re-examine the matter afresh after giving the appellant an opportunity to produce evidence and to be heard, and left all issues open, including limitation.
Conclusion: The demand was not finally sustained or annulled on merits. The impugned appellate order was set aside and the matter was remanded for fresh adjudication, which is in favour of the assessee.
Levy of service tax on the appellant, Velur Town Panchayat - Renting of Immovable Property service - exemption of service tax for performing sovereign functions - local authority - extended period of limitation - HELD THAT:- In similar circumstances, this Tribunal had in the Appellants own case for the previous period in M/S. VELUR TOWN PANCHAYAT VERSUS THE COMMISSIONER OF GST & CENTRAL EXCISE, SALEM COMMISSIONERATE AND M/S. MOHANUR TOWN PANCHAYAT VERSUS THE COMMISSIONER OF GST & CENTRAL EXCISE, SALEM COMMISSIONERATE [2024 (6) TMI 1182 - CESTAT CHENNAI] had remanded the matter to the Adjudicating Authority by taking note of the judgement passed by the jurisdictional High Court in the case of CUDDALORE MUNICIPALITY VERSUS THE JOINT COMMISSIONER OF GST & CENTRAL EXCISE, THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX AND VIRUDHACHALAM MUNICIPALITY VERSUS THE ASSISTANT COMMISSIONER, OFFICE OF THE ASSISTANT COMMISSIONER OF GST AND CENTRAL EXCISE, CUDDALORE [2021 (4) TMI 500 - MADRAS HIGH COURT], and the subsequent decision in the case of ST. THOMAS MOUNT CUM PALLAVARAM CANTONMENT BOARD VERSUS ADDITIONAL COMMISSIONER, COMMISSIONER OF GST AND CENTRAL EXCISE, CHENNAI [2023 (4) TMI 1024 - MADRAS HIGH COURT].
Conclusion - It is required to take a detailed examination of whether the services in question fall within the scope of sovereign functions.
Appeal allowed by way of remand.
The relevant legal framework is section 102 of the Finance Act, 1994, which provides a special provision for exemption in certain cases relating to the construction of government buildings. Sub-section (1) of section 102 exempts service tax for specific services provided to the government during a specified period. Sub-section (2) allows for a refund of service tax collected but not due under this exemption. Importantly, sub-section (3) mandates that any refund claim must be filed within six months from the date the Finance Act, 2016, received presidential assent, which was on May 14, 2016.
The appellant argued that despite filing the refund claim beyond the six-month period, the application should be considered within a "reasonable period" due to the retrospective nature of the exemption. The appellant relied on precedents from the Tribunal in Aadhar Stumbh Township and the Karnataka High Court in KVR Construction to support their position. They contended that the refund application was filed within a reasonable time and that the statutory time limit should not bar their claim.
The Tribunal, however, rejected this argument, emphasizing that the specific time limit prescribed in sub-section (3) of section 102 is mandatory and cannot be waived or extended based on subjective interpretations of "reasonable time." The Tribunal noted that the appellant's reliance on Aadhar Stumbh Township was misplaced, as the decision did not correctly apply the provisions of section 102(3). The Tribunal further pointed out that the Madhya Pradesh High Court in MDP Infra (India) had already addressed similar arguments and upheld the statutory time limit.
The Tribunal also considered the appellant's reliance on the Karnataka High Court decision in KVR Construction, which dealt with the applicability of time limits under section 11B of the Central Excise Act when service tax was paid under a mistake. However, the Tribunal found this precedent inapplicable to the present case, as section 102 of the Finance Act was not under consideration in that judgment. The Tribunal noted that the Madhya Pradesh High Court had distinguished the Karnataka High Court's decision in MDP Infra (India).
In conclusion, the Tribunal upheld the orders of the Commissioner (Appeals) and the Assistant Commissioner, affirming that the refund claim was rightly rejected as time-barred. The Tribunal emphasized that statutory time limits must be adhered to, and neither the Tribunal nor the revenue authorities have the power to extend or ignore such limits. The appeal was dismissed, reinforcing the principle that statutory provisions regarding time limits for refund claims are binding and must be strictly followed.
Refund of service tax paid on Government work during the period from April 2015 to December 2015 - time limitation - rejection of refund for the reason that it had been filed beyond the period of six months prescribed under section 102 of the Finance Act - HELD THAT:- Once the time limit of six months has been provided, it cannot be contended that merely because the character of the tax deposit would continue to be in the nature of the tax collected without authority of law and, therefore, no limitation can be prescribed for filing the refund application. The learned Member failed to take into consideration the terms of sub-section (3) of the section 102 while arriving at such a conclusion.
The appellant also placed reliance of the judgment of the Karnataka High Court in KVR Construction [2012 (7) TMI 22 - KARNATAKA HIGH COURT]. The provisions of the section 102 of the Finance Act were not under consideration in this judgment. All that was considered was if service tax has been paid under a mistake, then the time limit provided under section 11B of the Central Excise Act would not be applicable.
Conclusion - The statutory time limits must be adhered to, and neither the Tribunal nor the revenue authorities have the power to extend or ignore such limits. The refund claim was rightly rejected as time-barred.
Appeal dismissed.
Issues: (i) Whether services rendered by a statutory development authority in discharge of sovereign or statutory functions are taxable under service tax law, and whether commercial activities carried on by it remain taxable; (ii) Whether the demand was sustainable when the show cause notice and adjudication order lacked proper service-wise and transaction-wise quantification; (iii) Whether the extended period of limitation could be invoked in the absence of suppression with intent to evade tax.
Issue (i): Whether services rendered by a statutory development authority in discharge of sovereign or statutory functions are taxable under service tax law, and whether commercial activities carried on by it remain taxable?
Analysis: The authority was created under the State planning and development statute and functioned under governmental control. Services performed in discharge of statutory obligations, such as collection of statutory charges and other governmental functions, were treated as activities of a sovereign/public authority. The negative-list provision for services by Government or a local authority, together with the statutory meaning of Government and the Board circular on statutory functions, supported non-taxability of such mandatory public functions. At the same time, the reasoning distinguished such functions from commercial activities like renting of immovable property, advertisement space, and supply of tangible goods, which do not acquire exemption merely because they are undertaken by a statutory body.
Conclusion: The authority's sovereign or statutory function-based receipts were not taxable, but commercial services remained liable to service tax; on the facts, the confirmed demand could not be sustained.
Issue (ii): Whether the demand was sustainable when the show cause notice and adjudication order lacked proper service-wise and transaction-wise quantification?
Analysis: The demand was worked out largely from balance-sheet and bank-statement figures without a clear bifurcation of taxable and non-taxable receipts, and without transaction-specific particulars for several years. The record showed that statutory charges and governmental receipts were mixed with other amounts, yet no reliable service-wise basis was laid down for quantification. In those circumstances, the demand for the later years was held to be unsupported by a scientific or evidentiary foundation, and the dropping of part of the demand was upheld.
Conclusion: The demand was not legally sustainable to the extent it was founded on improper and non-specific quantification.
Issue (iii): Whether the extended period of limitation could be invoked in the absence of suppression with intent to evade tax?
Analysis: The authority's accounts and income-expenditure details were on record, the body was statutory in nature, and its claim of sovereign-function status was bona fide. On those facts, suppression with intent to evade tax was not established. The invocation of the extended period was therefore rejected for the relevant part of the demand.
Conclusion: The extended period was not sustainable for the confirmed demand covered by the delayed period.
Final Conclusion: The statutory body was not liable to service tax on receipts referable to sovereign or mandatory public functions, the impugned demand failed for want of proper quantification, and the extended limitation could not be invoked on the facts found.
Ratio Decidendi: Charges collected by a sovereign or statutory authority for mandatory functions performed under law are not taxable service consideration, but receipts from independent commercial services remain taxable and any demand must be supported by clear, service-wise quantification and lawful limitation.
Levy of service tax - services provided by the Asansol Durgapur Development Authority (ADDA), a government agency - the agency was performing statutory functions - quantification of the service tax demand - time limitation.
HELD THAT:- The ADDA has been created under a specific statute and it performs all acts on behalf of the State Govt of West Bengal. Their accounts, income and expenditure etc. are all controlled by and are answerable to the State Government. Therefore, there are no hesitation to come to a conclusion that ADDA is performing sovereign functions on behalf of the State Government of West Bengal.
The Bangalore Bench of CESTAT in the case of Karnataka Industrial Areas Development Board v. CCT, Bangalore (North), [2020 (6) TMI 227 - CESTAT, BANGALORE], the coordinate Bench of Bangalore has held that 'the appellant is a statutory body discharging the statutory function as per the statute KIAD Act, 1966 and hence are not liable to pay service tax in view of the ratios of the various decisions cited supra.'
Thus, the assessee would be exempted from payment of Service Tax when they are performing sovereign functions. But it is also required to check if all the considerations received by ADDA would be in the course of sovereign function alone are if some of the services are commercial in nature.
In the present case, though it stands established that ADDA is a statutorily created body, also recognized as such by ITAT for Income Tax purposes, and is seen to be performing some sovereign functions like collecting licensing fee and other fee on account the land development [which is required to be verified], the other services provided by them like that of Renting of Immovable property, Renting of Advertisement space, Leasing of Tangible goods like road roller are not eligible for Service Tax exemption - ADDA would be required to pay the Service Tax, since these services are not in any way on account of performing of any sovereign function.
Quantification of the service tax demand - HELD THAT:- The Licensing Fee, Land Development fee would be in the nature of compulsory fee / mandatory fee, being collected as part of sovereign function and hence would be exempted. But no bifurcation has been carried out in the Annexure B to SCN, wherein the quantification is done.
In respect of 2009-10, 2010-11 and 2011-12, even the above perfunctory work has not been undertaken. Simply the value shown in the Balance Sheet / Bank Statement have been taken to quantify the demand. Therefore, there are considerable force in the argument of the appellant that quantification of demand is neither scientific nor is properly backed by any concrete documentary evidence - there are no hesitation in holding that Service Tax demand for the 2009-10, 2010-11 and 2011-12 cannot be legally be sustained - the quantification adopted by the Revenue while issuing the SCN, even the confirmed demand of Rs. 2,95,48,401/- cannot be legally sustained.
Time limitation - HELD THAT:- The ADDA a body created by statute and is undertaking various functions assigned to them by the State Govt. and is also rendering various taxable services. But it is an admitted fact that all their income and expenditure are subject to the control of the State Govt. Hence, it would be difficult to adduce any ulterior motive to ADDA to the effect that they have suppressed the facts with an intent to evade the Service Tax payment. It is also seen that the figures taken for quantification of demand have been derived the Income and Expenditure statement and Balance Sheet of ADDA, which shows that all the details have been disclosed in the records. Further, their reliance on ITAT order, and vehement argument about their being statutory body carrying out sovereign functions, shows that they may have carried bona fide belief that they are not required to the Service Tax. Hence, the SCN issued on 12.10.2012 for the 2007-2008 to 2011-12 is partly time barred. Accordingly, the confirmed duty for the extended period is legally not sustainable.
Conclusion - i) ADDA is performing sovereign functions on behalf of the State Government of West Bengal. ii) The quantification of demand is neither scientific nor is properly backed by any concrete documentary evidence. iii) The proceedings were partly time-barred.
Appeal filed by the appellant [ADDA] is allowed fully on merits. The Appeal filed by the appellant [ADDA] is allowed on time bar in respect of the confirmed demand for the extended period.
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Violation of Principles of Natural Justice
Relevant Legal Framework and Precedents: The principles of natural justice, particularly the right to a fair hearing, are fundamental to administrative adjudication. Section 9D of the Central Excise Act, 1944, mandates the opportunity for cross-examination of witnesses whose statements are relied upon.
Court's Interpretation and Reasoning: The Court noted that the CESTAT had remanded the matter to ensure compliance with natural justice, directing the respondent to allow cross-examination and provide necessary documents. The Court found that the respondent issued notices for cross-examination, but none of the witnesses appeared, and no adjournment requests were made.
Key Evidence and Findings: The respondent recorded that the petitioner's representatives requested a decision based on the Tribunal's judgment in similar cases, as none of the witnesses were present. The respondent proceeded with adjudication based on available records, noting the absence of witnesses.
Application of Law to Facts: The Court observed that the respondent attempted to comply with the CESTAT's directions by issuing notices for cross-examination. The failure of witnesses to appear was beyond the respondent's control.
Treatment of Competing Arguments: The petitioner argued that the lack of multiple opportunities for cross-examination constituted a breach of natural justice. The respondent contended that they complied with the Tribunal's directions and that the petitioner's request for documents was a delay tactic.
Conclusions: The Court concluded that the respondent made reasonable efforts to comply with natural justice principles and that any further issues should be addressed by the CESTAT.
Access to Documents
Relevant Legal Framework and Precedents: The right to access documents relied upon in adjudication is crucial for a fair defense, as emphasized by the CESTAT's remand order.
Court's Interpretation and Reasoning: The Court noted the respondent's assertion that all relevant documents had been provided and that the petitioner's request for additional documents was unfounded.
Key Evidence and Findings: The respondent stated that the petitioner's document request included items already provided, suggesting a delay tactic.
Application of Law to Facts: The Court found no evidence that the respondent withheld necessary documents, aligning with the respondent's position that the petitioner had received all relevant materials.
Treatment of Competing Arguments: The petitioner claimed a lack of access to documents, while the respondent maintained that all necessary documents were supplied and that the petitioner's request was unnecessary.
Conclusions: The Court did not find a breach of natural justice regarding document access, deferring to the CESTAT for any further examination.
Consideration of Precedents in Similar Cases
Relevant Legal Framework and Precedents: Consistency in adjudication is essential, particularly when similar cases have been decided differently.
Court's Interpretation and Reasoning: The Court acknowledged the petitioner's reference to similar cases where demands were dropped but noted the respondent's position that each case must be evaluated on its unique facts and evidence.
Key Evidence and Findings: The respondent argued that the evidence in the petitioner's case differed from those where demands were dropped, and that the matter was pending before the Supreme Court.
Application of Law to Facts: The Court recognized the respondent's discretion in weighing evidence and distinguishing the petitioner's case from others.
Treatment of Competing Arguments: The petitioner argued for consistency with other cases, while the respondent emphasized the distinct evidence in the current case.
Conclusions: The Court deferred to the CESTAT for a detailed examination of the merits and consistency with other cases.
Alternative Remedies
Relevant Legal Framework and Precedents: The availability of alternative remedies, such as appeals to the CESTAT, often precludes direct intervention under Article 227.
Court's Interpretation and Reasoning: The Court emphasized the availability of an appeal to the CESTAT as an appropriate remedy for the petitioner.
Key Evidence and Findings: The Court cited previous decisions where similar matters were directed to the CESTAT.
Application of Law to Facts: The Court found that the petitioner had an efficacious remedy through an appeal to the CESTAT.
Treatment of Competing Arguments: The petitioner sought relief under Article 227, while the respondent argued for the use of the statutory appeal process.
Conclusions: The Court directed the petitioner to pursue an appeal with the CESTAT, preserving the petitioner's right to raise all issues there.
SIGNIFICANT HOLDINGS
Core Principles Established: The judgment reinforces the principles of natural justice, the importance of compliance with procedural directions from appellate bodies, and the appropriateness of pursuing statutory remedies before seeking extraordinary judicial intervention.
Final Determinations on Each Issue: The Court determined that the petitioner's grievances regarding natural justice and document access should be addressed by the CESTAT. The petition was not entertained under Article 227, with the petitioner directed to pursue an appeal to the CESTAT.
Principle of natural justice - cross-examination of witnesses - supply of relied upon/non relied upon documents - remand for de-novo adjudication - alternative efficacious remedy - relegation to appellate forum - discretion of adjudicating authority regarding cross-examination - distinguishing reliance on decisions in similar cases
Principle of natural justice - cross-examination of witnesses - Alleged breach of natural justice by failing to provide adequate opportunity for crossexamination - HELD THAT: - The CESTAT had earlier remanded the matter directing supply of documents and allowing crossexamination. On remand the adjudicating authority issued notices for crossexamination of ten witnesses for 21.08.2024, but none appeared and no adjournment requests were made. The authority recorded the petitioners' representatives' request to decide on available records, observed that reliedupon documents/ RUDs were already supplied and treated the petitioners' later list as a delaying tactic, and proceeded to adjudicate. The High Court refrained from deciding the merits of whether the opportunity was adequate, noting the factual findings recorded by the adjudicating authority and the availability of an alternative efficacious remedy before the CESTAT. Consequently the Court did not entertain the writ petition on this ground and permitted the petitioner to raise the grievance before the appellate forum. [Paras 6, 7, 9]
Writ petition not entertained on the ground of alleged breach of natural justice; petitioner relegated to raise the grievance before the CESTAT.
Supply of relied upon/non relied upon documents - remand for de-novo adjudication - discretion of adjudicating authority regarding cross-examination - Whether directions of the CESTAT regarding supply of documents and crossexamination were complied with and whether those issues should be decided in writ jurisdiction - HELD THAT: - The adjudicating authority recorded that it had invited the petitioner to list documents to be supplied and that the petitioner later furnished a list comprised of documents already supplied as RUDs; hence the request was treated as dilatory. The authority also noted nonappearance of witnesses on the fixed date and, in view of the petitioners' representatives' request to decide on available records, proceeded to pass a denovo order. The High Court declined to adjudicate these factual/contentionspecific matters in writ jurisdiction and directed that such contentions may be agitated before the CESTAT, which remains entitled to consider them in accordance with law. [Paras 7, 11, 12]
Questions regarding supply of documents and compliance with remand directions are to be raised and considered by the CESTAT; High Court refrained from deciding them.
Alternative efficacious remedy - relegation to appellate forum - distinguishing reliance on decisions in similar cases - Appropriate forum for raising the petitioners' contentions and the remedy available - HELD THAT: - Respondentauthority and the High Court observed that the petitioner has an alternate efficacious remedy by way of appeal to the CESTAT under the statute. The Court relied on precedent and the circumstances of the remand to conclude that the statutory appellate forum is the appropriate avenue to ventilate the grievances (including alleged noncompliance with remand directions and reliance on decisions in similar cases). The Court therefore refused to entertain the writ petition and granted liberty to file the appeal to the CESTAT within a limited time, directing that time already spent before the High Court be treated as bona fide for the purpose of condonation of delay. [Paras 5, 10, 12]
Petitioner relegated to file appeal before the CESTAT; time spent in High Court to be considered bona fide and the petitioner given four weeks to file appeal.
Final Conclusion: Writ petition under Article 227 not entertained; petitioner granted liberty to prefer appeal before the CESTAT under Section 35E within four weeks, with the time spent before this Court to be treated as bona fide for condonation of delay; merits of alleged breaches and factual disputes left open for the Tribunal to decide.
The core legal question considered in this judgment is whether the appellant is entitled to interest on the refund of a pre-deposit amount made in 2012, which was refunded following a favorable appellate decision in 2018. The determination hinges on the interpretation and application of Sections 35F and 35FF of the Central Excise Act, 1944, as they existed prior to and after the amendments introduced by the Finance Act, 2014.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework revolves around Sections 35F and 35FF of the Central Excise Act, 1944. Section 35F pertains to the deposit of duty or penalty pending an appeal, while Section 35FF addresses the interest on delayed refunds of such deposits. The provisions were amended by the Finance Act, 2014, which introduced a new regime for deposits and refunds, including interest on delayed refunds.
The appellant cited several precedents to support their claim for interest from the date of deposit, including decisions from various CESTAT benches and circulars issued by the Central Board of Excise and Customs.
Court's Interpretation and Reasoning
The Tribunal analyzed the provisions of Sections 35F and 35FF as they existed before and after the 2014 amendments. It noted that the pre-deposit made in 2012 was governed by the provisions as they stood before the amendments. The Tribunal emphasized that the proviso to Section 35FF, as amended, explicitly states that deposits made prior to the commencement of the Finance Act, 2014, would continue to be governed by the old provisions.
The Tribunal also considered the interpretation of similar provisions in other statutes, such as Section 129EE of the Customs Act, and the judicial precedents interpreting these provisions.
Key Evidence and Findings
The Tribunal found that the refund was processed within three months from the date of communication of the appellate order, which is the critical timeframe under the pre-amended Section 35FF for the accrual of interest. Therefore, no interest was due to the appellant under the statutory provisions applicable at the time of deposit.
Application of Law to Facts
The Tribunal applied the pre-amended Section 35FF to the facts of the case, concluding that the appellant was not entitled to interest because the refund was made within the stipulated three-month period from the date of the appellate order's communication.
Treatment of Competing Arguments
The appellant's argument for interest from the date of deposit was primarily based on judicial precedents and circulars that suggested a broader interpretation of interest entitlement. However, the Tribunal found these arguments unpersuasive in light of the clear statutory language and the specific provisions applicable to deposits made before the 2014 amendments.
Conclusions
The Tribunal concluded that the appellant was not entitled to interest on the refunded pre-deposit amount because the refund was processed within the statutory period outlined in the applicable provisions of the Central Excise Act, 1944, as they stood prior to the 2014 amendments.
SIGNIFICANT HOLDINGS
Core Principles Established
The Tribunal reaffirmed the principle that statutory provisions governing interest on refunds must be applied as they existed at the time of the deposit, particularly when specific amendments clarify the applicability of old provisions to pre-existing deposits.
Final Determinations on Each Issue
The Tribunal dismissed the appeal, holding that the appellant was not entitled to interest on the refunded amount as the refund was made within the statutory period, and the applicable legal provisions did not support the appellant's claim for interest from the date of deposit.
Entitlement to interest on the refund of a pre-deposit amount made in 2012, which was refunded following a favorable appellate decision in 2018 - interpretation and application of Sections 35F and 35FF of the Central Excise Act, 1944, as they existed prior to and after the amendments introduced by the Finance Act, 2014 - HELD THAT:- From the perusal of the section 35F it is evident that the amounts deposited in terms of this section are noting but duty. The use of phrase in this section “pending the appeal, deposit with the adjudicating authority the duty demanded.”Further from the perusal of Section 35 FF it is evident that in case the appeal is finally decided in favour of the appellant hen the amount, so deposited under Section 35 F shall be refunded along with interest for period after expiry of period of three months from the date of communication of order of Appellate Authority at the rates specified as per section 11BB.
It is observed that while making the above substitution w.e.f. 06.08.2014 specifically by proviso to Section 35F and Section 35FF, it has been stated that the amount deposited under Section 35F of the Act, prior to commencement of Finance Act, 2014, will be governed by provision of Section 35F as it existed before the commencement. In view of the specific provision made in the Act, the refund claim of the deposit made will have to be considered in terms of Section 35FF as it existed on the date of deposit and the interest will be paid at the rate specified in Section 11BB after expiry of three months from the date of communication of the order of the Appellate Authority till the date.
Reliance placed on the decision of the Hon’ble Supreme Court in the case of Sandvik Asia [2006 (1) TMI 55 - SUPREME COURT]. Interpreting the above decision of Hon’ble Supreme various benches of tribunal have concluded in the favour of the grant of interest form the date of deposit and at the rate of 12% (though not provided by the statute or any Notification issued in terms of Section 11BB or Section 35FF of the Central Excise Act, 1944). However it may also be noted that these decisions were in respect of the deposits made when there was no separate provision for refund of deposits along with interest. In that situation courts and tribunals were allowing interest from the date of deposit till the date of refund and were also prescribing the rate of interest as deemed fit.
Conclusion - The appellant was not entitled to interest on the refunded amount as the refund was made within the statutory period, and the applicable legal provisions did not support the appellant's claim for interest from the date of deposit.
Appeal dismissed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Confiscation of seized goods - provisional release on payment of redemption fine - penalty under Rule 25 of Central Excise Rules, 2002 - HELD THAT:- Since the main appellant has settled the issue under SVLDR Scheme, penalty imposed on co-noticees being the CEO and Managing Director of the main noticee is unsustainable.
Similar issue decided in decision of the Tribunal in the matter of V K Agarwal Vs. CC, New Delhi [2023 (9) TMI 178 - CESTAT NEW DELHI] wherein it is held that 'without considering the directions given in the remand order and allowing cross examination, Commissioner has imposed penalties on the appellant, just for reason that the appellant did not settle the issue along with others under SVLDRS. Such approach of Commissioner cannot be justified. Even if the appellant has not approached under SVLDRS, Commissioner should have adjudicated as directed by Tribunal. No justification for imposition of penalty on reconsideration as per order of Tribunal is forthcoming.'
Conclusion - When a demand is settled under the SVLDR Scheme, penalties on co-noticees should not be sustained.
Since the issue is squarely covered by the decision of the Tribunal in the matter of VK Agarwal, there are no reason to differ - appeal allowed.
Issues: (i) Whether the refund claim was barred by limitation under the excise refund provisions despite the duty having been collected without authority of law. (ii) Whether endorsement of payment "under protest" on gate passes was sufficient compliance, and whether the procedural requirement for protest under Rule 233B was mandatory. (iii) Whether the assessee was entitled to refund with interest and whether retention of the amount by the Department was legally sustainable.
Issue (i): Whether the refund claim was barred by limitation under the excise refund provisions despite the duty having been collected without authority of law.
Analysis: The amount was collected only because the Department compelled payment on the footing that the activity was dutiable, although the underlying activity was later held not to amount to manufacture. A levy collected without authority of law stands on a different footing from an ordinary duty payment. When the amount retained by the State is not legally due, the ordinary limitation applicable to refund of duty does not defeat the claim.
Conclusion: The refund claim was not barred by limitation and rejection on the ground of delay was unsustainable.
Issue (ii): Whether endorsement of payment "under protest" on gate passes was sufficient compliance, and whether the procedural requirement for protest under Rule 233B was mandatory.
Analysis: The record showed continuous endorsement of protest on gate passes and allied documents during the relevant period. The protest was made in the context of a statutory body following a uniform practice across its units. The procedural requirement governing protest was treated as directory, not as a rigid condition that could defeat substantive relief. A narrow or pedantic insistence on a particular format was rejected.
Conclusion: The endorsements were sufficient to establish payment under protest and the refund could not be denied for non-compliance with the prescribed form.
Issue (iii): Whether the assessee was entitled to refund with interest and whether retention of the amount by the Department was legally sustainable.
Analysis: Once the collection was found to be without authority of law, the State could not retain the amount. Retention of a revenue deposit collected under mistake of law was held to be unjustified and inconsistent with the constitutional mandate that tax be levied and collected only by authority of law. On that footing, interest was also warranted on the refunded amount.
Conclusion: The assessee was entitled to refund with interest at 12% per annum.
Final Conclusion: The impugned order was set aside, the refund claim was sustained, and the Department was directed to release the refund together with interest.
Ratio Decidendi: A payment collected without authority of law and maintained as a revenue deposit cannot be defeated by refund limitation when the assessee has paid under protest, and the protest procedure is to be applied in a substantive and not technical manner.
Refund of Excise duty paid under protest - appellant's activity of fabricating transmission towers amounting to manufacture or not - time limitation under Section 11B of the Central Excise Act - HELD THAT:- The amount collected by way of Central excise duty was illegal as the activity itself did not involve any manufacture and the same cannot be allowed to be retained by the Government. On the principle that tax can be collected only by authority of law, the observations of the Tribunal in the case of COMMISSIONER OF CUSTOMS, DELHI VERSUS POLYGLASS ACRYLIC MFG. CO. P. LTD. [2011 (6) TMI 305 - CESTAT, DELHI] that when Central excise duty is collected illegally the same cannot be retained by the Government supports the case of the appellant. Such is the mandate of Article 265 of the Constitution of India.
Once it is held that the Government is not entitled to retain the amount deposited by the appellant, the next issue is regarding the time limit for reversing the said amount to the assessee. The Madras High Court in M/S. NATRAJ AND VENKAT ASSOCIATES VERSUS ASSISTANT COMMISSIONER, SERVICE TAX [2009 (10) TMI 36 - MADRAS HIGH COURT] and the Punjab and Haryana High Court in INDIAN OIL CORPORATION LTD. VERSUS COMMISSIONER OF C. EX., NEW DELHI [2010 (4) TMI 625 - PUNJAB & HARYANA HIGH COURT] held that once the tax was not payable at all, time limit does not apply for filing the refund of the said amount.
The other issue that ‘under protest’ was not made in the prescribed format, is irrelevant. It is a settled principle that on mere procedural technicalities, the relief cannot be denied, which otherwise is available to a party. For the period prior to the introduction of Rule 233B (01.06.1981), there was no specific provision prescribing any specific mode of endorsing ‘under protest’ and, therefore, the appellant cannot be non-suited for not making proper endorsement.
The refund claim cannot be rejected for non-compliance with the provisions of Rule 233B. The endorsement ‘under protest’ on the gate passes by the appellant is sufficient to say that the appellant paid the duty ‘under protest’ and hence, cannot be denied the refund of the amount illegally collected by the Department.
The Apex Court in SANDVIK ASIA LIMITED VERSUS COMMISSIONER OF INCOME-TAX AND OTHERS [2006 (1) TMI 55 - SUPREME COURT] with reference to the provisions of the Income Tax Act has observed that in view of the express provisions of the Act the assessee is entitled to compensation by way of interest on the delay in the payment of amounts lawfully due to the appellant which were wrongly withheld by the Department for an inordinate long period. The Act itself recognised in principle, the liability of the Department to pay interest where the amount deposited by the assessee is unduly retained.
Conclusion - i) Duty was collected by the Department under mistake of law for which no time limit applies and, therefore, the refund claim on the ground of delay has been wrongly rejected. ii) The endorsement on the gate passes, ‘under protest’ is sufficient to indicate that the appellant has paid the duty ‘under protest’ and hence, the refund claim cannot be rejected as time barred. iii) The retention of the amount which is in the nature of revenue deposit would be wholly unjustified being violative of Article 265 of the Constitution. iv) The appellant is entitled to the refund claim along with interest @ 12% per annum from the date of refund claim was rejected.
The impugned order is set aside and the Department is directed to release the refund along with interest to the appellant - Appeal allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether an intermediate product arising in a continuous/composite manufacturing process (Polypropylene Multifilament Yarn - PPMFY) constitutes excisable/marketable goods liable to central excise duty.
2. Whether claim to exemption under an exemption notification for the finished product (Narrow Woven Fabric) is barred where CENVAT credit on inputs used in the manufacture of the finished goods has been availed.
3. Whether duty already paid on the intermediate product (PPMFY) must be adjusted against a re-quantified demand for duty on the finished product when the intermediate product is held non-excisable.
4. Whether penalty under Section 11AC(1)(a) is sustainable where the demand confirmed is remitted for re-quantification and earlier adjudications/tribunal orders had held the intermediate product non-excisable.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Marketability/excisability of intermediate product generated in a continuous/composite manufacturing process
Legal framework: Central Excise levies apply to goods that come into existence as excisable goods; test of marketability is central to whether an intermediate product is a marketable excisable good. Concepts of continuous/composite unit and nascent/intermediate products are relevant.
Precedent Treatment: The Tribunal's earlier final order in the appellant's own case held that PPMFY generated in the continuous process was not marketable and, therefore, not liable to duty; Supreme Court precedents (e.g., Bata India) and Tribunal decisions support that integrated/inert-winded intermediate products failing the marketability test are not excisable.
Interpretation and reasoning: The Court accepted factual findings that PPMFY at the stage generated is semi-finished, inert-winded, oil-coated, bound in loose bobbins, not coned or prepared for sale and intended only for internal subsequent processing. Such characteristics render it non-marketable; thus no excisable goods come into existence at that stage.
Ratio vs. Obiter: Ratio - intermediate product that is integrally produced, not fit for sale and intended only for further internal processing in a continuous composite unit is not an excisable/marketable good. Obiter - references to specific manufacturing steps and physical descriptions supporting marketability are fact-specific guidance.
Conclusion: PPMFY, as generated in the appellant's continuous process, fails the marketability test and is not liable to central excise duty as an intermediate excisable good.
Issue 2: Effect of availing CENVAT credit on entitlement to exemption under the exemption notification for finished goods
Legal framework: Exemption notifications (provisos) expressly disapply exemption where credit of duty on inputs or capital goods has been taken under the CENVAT Credit Rules. Procedural conditions in notifications and Rule/Chapter X/Rule 56A-type requirements (as applicable) are mandatory for claiming exemption benefits.
Precedent Treatment: Supreme Court and Tribunal authorities (Cadila Laboratories; Eagle Flask; PAM Instruments; Saboo Cylinders; State of Jharkhand v. Amey Cements) establish that exemption conditions and prescribed procedures are mandatory, and failure to comply or taking credit where the proviso disallows exemption disentitles the assessee to the notification benefit.
Interpretation and reasoning: The Court found on record that the appellant had availed CENVAT credit on inputs used in manufacturing the finished goods. The exemption notification expressly excludes goods for which input/capital goods credit has been taken. The proviso is mandatory; therefore entitlement to exemption cannot be extended despite any contention about intermediate-product duty payment. The Court rejected the appellant's attempt to treat nascent intermediate product credit as permitting exemption for final goods.
Ratio vs. Obiter: Ratio - taking CENVAT credit on inputs used in manufacture of goods precludes applicability of the exemption notification for those goods; procedural/conditional requirements of exemption notifications must be strictly complied with. Obiter - references to stretching the meaning of a notification or characterizing intent are supportive but fact-specific.
Conclusion: Availing CENVAT credit on inputs disbars the appellant from claiming exemption under the notification for the finished goods; therefore duty is payable on the finished goods notwithstanding arguments about the intermediate product.
Issue 3: Adjustment of duty already paid on non-excisable intermediate product against demand on finished product
Legal framework: Where an adjudication confirms demand on finished goods but duty has already been paid on inputs or on intermediate stages under protest, principles of equity and assessment practice require computation/quantification to account for duty already discharged; statutory machinery permits re-quantification/re-computation.
Precedent Treatment: The impugned tribunal judgment relies on earlier findings and principles that duty cannot be demanded twice on the same value chain; the record supports allowing credit of duty already paid, subject to proper computation.
Interpretation and reasoning: Even though PPMFY is not excisable, the appellant in practice paid duty on PPMFY under protest. The Tribunal observed that while the exemption cannot be allowed (because of CENVAT credit), the demand confirming duty on finished goods must be re-worked after allowing the benefit/adjustment for duty already paid on PPMFY. The Court remanded the matter to original authority for re-quantification to avoid double recovery and to reflect payments already made.
Ratio vs. Obiter: Ratio - where duty already paid on an intermediate product (even if later held non-excisable) is demonstrably paid, an assessing authority must allow adjustment/credit against a re-quantified demand on finished goods to prevent double recovery; remand for computation is appropriate. Obiter - specific methods of computation were not prescribed and remain for the original authority.
Conclusion: Demand for duty on finished goods is sustainable (given disallowance of exemption) but must be re-quantified after giving credit/adjustment for duty already paid on the intermediate product; matter remitted for re-computation accordingly.
Issue 4: Sustainability of penalty under Section 11AC(1)(a) where demand is re-quantified and prior tribunal order held intermediate product non-excisable
Legal framework: Penalty under the Central Excise Act is tied to the confirmed duty demand and the culpability in not paying/delaying payment. Penalty assessment must be consistent with the final quantification of duty and relevant adjudications.
Precedent Treatment: Where a substantial part of the demand is affected by subsequent tribunal/authority decisions or where the demand itself requires re-quantification, courts/tribunals have set aside penalties that cannot be sustained on the altered factual/legal position.
Interpretation and reasoning: The Tribunal noted that because the intermediate product had earlier been adjudicated by the Tribunal as non-excisable in the appellant's own case, and because the present confirmation requires re-quantification to account for duty already paid, the penalty imposed could not be sustained in its present form. Given the altered assessment landscape and remand for re-quantification, the Tribunal set aside the penalty since it depended on an unadjusted demand.
Ratio vs. Obiter: Ratio - penalty based on a demand that is to be re-quantified or undermined by earlier tribunal findings cannot be sustained and may be set aside; finality of penalty depends on final duty determination. Obiter - suggestions about future penalty assessment after recomputation are left to the adjudicating authority.
Conclusion: Penalty under Section 11AC(1)(a) is not sustainable in the present form and is set aside; penalty liability, if any, must await final re-quantified determination of duty.
Cross-References and Overall Disposition
The issues are interlinked: (i) PPMFY is not excisable (Issue 1) but the appellant's prior availing of CENVAT credit bars the exemption claim on the finished goods (Issue 2); (ii) duty payable on finished goods must be recomputed allowing credit for duty already paid on PPMFY (Issue 3); and (iii) because the demand requires re-quantification and prior tribunal findings impact liability, the penalty is set aside (Issue 4). The matter is remanded to the original authority solely for re-quantification of duty after adjustment for duty already paid; penalty is vacated.
Recovery of Central excise Duty with interest and penalty - duty on intermediate product PPFMY which arises during the course of manufacture of the finished products - confirmation of duty with interest and penalty - HELD THAT:- As the Tribunal has in Appellant’s own case M/S ASMA TRADERS VERSUS CCE&ST, KANPUR [2018 (1) TMI 1535 - CESTAT ALLAHABAD] held that PPMFY arises during the continuous manufacturing process of Narrow Woven Fabric is not marketable and hence no goods/excisable goods comes into existence. The claim of the Appellant in the present proceedings that they were paying duty on the intermediate product goes contrary to this order as Appellant can pay duty only on the goods/ excisable goods which come into existence and are subject to duty.
Undisputedly the Appellant has taken a cenvat credit on inputs used in the manufacture of finished goods. In terms of the condition of Exemption N/N. 30/2004-Central Excise the benefit of said Notification would not be available to them, and they are required to pay central excise duty on the finished goods - the demand has been confirmed against the Appellant without allowing the benefit of the duty already paid by them by treating PPMFY as excisable goods. The quantum demand confirmed needs to be worked out after making adjustment for the duty already paid.
Conclusion - The demand for excise duty on the final product, Narrow Woven Fabric, due to the appellant's availing of CENVAT credit on inputs upheld. The penalty imposed under Section 11AC(1)(a) was set aside.
Matter is remanded for re-quantification of the demand of duty, giving credit of the duty already paid - appeal allowed by way of remand.
Issues: (i) Whether penalty under Rule 26(2) of the Central Excise Rules, 2002 could be sustained for alleged conduct occurring before the insertion of that sub-rule; (ii) Whether penalty under Rule 25 of the Central Excise Rules, 2002 could be imposed when the appellants were not shown to have dealt with goods liable to confiscation.
Issue (i): Whether penalty under Rule 26(2) of the Central Excise Rules, 2002 could be sustained for alleged conduct occurring before the insertion of that sub-rule.
Analysis: Rule 26(2) came into force only with Notification No. 8/2007-C.E. (N.T.) dated 01.03.2007. The alleged period preceded that amendment. Penal provisions are not retrospective unless the legislature clearly so provides. The provision relied upon for penalising issuance of documents or abetment in taking ineligible credit was therefore not available for the relevant period.
Conclusion: The penalty under Rule 26(2) was not sustainable and was set aside.
Issue (ii): Whether penalty under Rule 25 of the Central Excise Rules, 2002 could be imposed when the appellants were not shown to have dealt with goods liable to confiscation.
Analysis: Rule 25 applies where a person removes, accounts for, manufactures, stores, or otherwise deals with excisable goods in circumstances attracting confiscation. The record did not show that the appellants handled, removed, or otherwise dealt with any goods liable to confiscation. The allegation against them was confined to supplying documents on the basis of which credit was taken, which did not satisfy the essential ingredients of Rule 25.
Conclusion: The penalty under Rule 25 was not sustainable and was set aside.
Final Conclusion: The impugned penalties on the appellants could not be sustained in law, and the appeals succeeded.
Ratio Decidendi: A penal provision cannot be applied to conduct predating its insertion, and penalty under Rule 25 requires proof that the person dealt with goods liable to confiscation.
Penalties u/r 26(2) of the Central Excise Rules, 2002 - denial of certain Cenvat credit on the ground that the said credit was taken against the material which were never received by them or used by them for production of the finished goods - HELD THAT:- Rule 26(2) was introduced by Notification No.8/2007-CE(NT) dated 01.03.2007. From the plain reading of the said notification it appears that Rule 26 as is existed prior to the said amendment was reframed at 26(1) and 26 (2) provided for imposition of penalties under the said Rule the provisions specified therein. The said rule being a separate new rule inserted could not have been said to be in respect of the persons covered by Rule 26 (1) which apparently was rule 26 prior to the existence, prior to the date of insertion. The provisions of said rule 26 (2) could not have been invoked for the imposition of penalties on the persons whose offences were specified in terms of Rule 26.
There is not even iota of allegation or evidence to show that appellants were concern with handling, removing of any goods which were liable for confiscation. On the contrary, the case against the appellants is that there were paying duties, credit of which was being taken by M/s Accurate Meters Ltd.
In the case of COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH VERSUS SURYA ISPAT UDYOG [2017 (4) TMI 1298 - CESTAT CHANDIGARH] has held that 'penalty provision for facilitating others in taking credit or issuance of invoice without actual supply of material has been inserted w.e.f. 1-3-2007 by inserting sub-rule (2) of Rule 26 of Central Excise Rules with the issue of Notification No. 8/2007-C.E. (N.T.), dt. 1-3-2007 and during the relevant period there was no provision under law for imposition of penalty for issuance of invoices without actual supply of material.'
Conclusion - Penal provisions cannot be applied retrospectively unless explicitly stated in the statute. Rule 26(2) of the Central Excise Rules, 2002, cannot be applied to conduct predating its enactment. Rule 25 requires specific involvement with goods liable for confiscation, which was not demonstrated in this case.
The duty paid goods could not have been held liable for confiscation as the basic ingredient for invoking Rule 25 are missing in the cases against the appellant. The penalties imposed under Rule 25 also set aside.
Appeal allowed.
Issues: Whether the Revenue's appeal under Section 27 of the Maharashtra Value Added Tax Act, 2002 gave rise to any substantial question of law where an identical refund issue had already been decided by the Tribunal and accepted by the Department.
Analysis: The appeal concerned refund of excess tax under the Maharashtra Value Added Tax Act, 2002. The Tribunal had already taken the view, in an identical matter, that the dealer's returns had to be scrutinized and that excess tax paid was not the property of the Department. That earlier decision had been accepted by the Department and had attained finality. In these circumstances, the Department could not take a contrary stand in another case on the same issue. The Court therefore held that the appeal did not involve any substantial question of law. While disposing of the appeal, the Court directed that the assessee's returns for the relevant assessment year be scrutinized in accordance with law and that any refundable amount be paid within the stipulated period.
Conclusion: The Revenue's challenge failed on the issue of maintainability on merits, and the refund claim was required to be processed by scrutiny of returns in accordance with law.
Final Conclusion: The appeal was disposed of in the assessee's favour with a direction for timely scrutiny of the returns and payment of any refundable amount found due.
Ratio Decidendi: Where the Department accepts an identical decision on the same refund issue and allows it to attain finality, it cannot later adopt a contrary position in another case involving the same question, and no substantial question of law arises.
True and proper construction of Section 51 (7) of Maharashtra Value Added Tax, 2002 - mere filing of self-assessment returns under Section 20 (1) r/w. Section 50 of the MVAT Act, 2002, is sufficient without filing application for refund as per law to claim refund when it is mandatory to file refund application on portal within stipulated limitation - mandate to submit E-form-501, within stipulated period of limitation to claim refund despite filing of self-assessment returns under Section 20 (1) r/w. Section 50 of the MVAT Act, 2002 - correctness in directing Assessing Authority to process application of refund when it was neither filed as per law nor within limitation - applicability of decision in Mahalaxmi Cotton and Ginning Pressing and Oil Industries v/s. The State of Maharashtra [2012 (5) TMI 152 - BOMBAY HIGH COURT] - limitation with respect to claim of refund ought to be considered in view of the provisions of u/s. 23 of the MVAT Act or not.
HELD THAT:- The Appellant/Assessee before the Tribunal, being a dealer registered under the MVAT Act, had filed returns for the period 2010-2011 showing a refund of Rs. 4,56,216/-. However, the said refund was not granted to the Assessee. Hence, a letter was written to the Nodal Officer. The Commissioner of State Tax (D-901), Nodal Division-5, vide Order dated 19th May, 2018, rejected the Assessee’s request for refund on the ground that the Assessee had failed to apply for grant of refund within the prescribed time. It was mentioned that the application for refund in respect of Assessment Year 2010-2011 was time barred under the provisions of Section 23 of the MVAT Act.
The Tribunal (in M/s. Om Shree Developers), after relying upon the decision of this Court in the case of Vichare and Co. Pvt. Ltd., v/s. State of Maharashtra & Others [2015 (3) TMI 1403 - BOMBAY HIGH COURT], came to the conclusion that the Department had misconstrued the legal provisions and the right to get a refund under Section 51 (1) to (7) of the Act. The Tribunal held that if the dealer has paid an excess amount than what it is liable to pay, then the excess is not the property of the Department, or of the Government, but it is the property of the dealer, who is entitled to get a refund after scrutiny of the returns. In these circumstances, the Tribunal (in M/s. Om Shree Developers) allowed the Appeal and directed the Assessing Authority to scrutinize/ assess the returns submitted by the Appellant [i.e. Om Shree Developers], in accordance with law, at the earliest.
Conclusion - The self-assessment returns are sufficient for refund claims and that the Department must process the Assessee's refund application. The appeal was disposed of with a directive for the Department to scrutinize the returns and process any due refund within six months.
Appeal disposed off.
Issues: Whether a former director, who was not shown to be in charge of the company's day-to-day affairs at the time of dishonour of the cheque and against whom the legal notice contained no averment, could nevertheless be summoned under Sections 138 and 141 of the Negotiable Instruments Act on the basis of a personal guarantee and pledge agreement.
Analysis: The complaint and supporting materials did not contain any specific averment that the petitioner continued to be a director or was responsible for the conduct of the company's business when the cheque was issued and dishonoured in 2017. The petitioner's role was traced only to an earlier stage of the transaction, and the pledge agreement was treated as creating, at the highest, a personal civil liability for recovery. Liability under Section 141 depends on an accused being in charge of and responsible for the company's business at the relevant time. The legal notice also was addressed only to the company and its managing director, with no allegation against the petitioner. On these facts, the foundational requirements for vicarious criminal liability were not satisfied.
Conclusion: The petitioner could not be summoned under Sections 138 and 141 of the Negotiable Instruments Act, and the summoning order was set aside.
Ratio Decidendi: Vicarious criminal liability under Section 141 of the Negotiable Instruments Act arises only where the complaint specifically alleges that the accused was in charge of and responsible for the company's business at the time of the offence; a prior directorship or personal guarantee, without such averments, is insufficient to sustain summons.
Challenge to summoning order - Dishonour of Cheque - determination of criminal liability of a Director, on the date on which the offence is alleged to have been committed - HELD THAT:- From the entire averments made in the Petition, what emerges is that the Petitioner herein was admittedly the Director in the year 1998 at the time when the parties started negotiating initially - There is not an iota of averment made against the Petitioner that he continued to be the Director or was responsible for day-to-day conduct of business at the time in 2017, when the impugned Cheque was issued.
Section 141 of the N.I. Act mandates that those Directors/Officials who are responsible for the day-to-day affairs of the Company are responsible for any dishonour of the Cheque issued for and on behalf of the Company.
In the present case, there is not a single averment to show that the Petitioner was in any way responsible for the day-to-day affairs of the Company on the date of issuance of Cheque and cannot be summoned in a Complaint under Section 138 of N.I. Act, on the basis of his personal liability. Moreover, the Legal Notice dated 06.09.2017 is addressed only to the Respondent No. 2/Company/M/s Selco International Ltd. and Respondent No. 3/Dr. Venkata Rama Krishna Govindraju a.k.a. Dr. G.V. Rama Krishna; it is not addressed to the Petitioner - He is neither a signatory to the Cheque nor is a Director in the accused-Company and there is no Legal Notice served upon him; therefore, he is entitled to be discharged.
Conclusion - i) Only directors responsible for the company's day-to-day affairs at the time of the offense can be held liable under Section 141 of the N.I. Act. ii) A guarantor's liability is civil and does not extend to criminal proceedings under Section 138 of the N.I. Act. iii) The absence of a legal notice to the petitioner and lack of evidence of his involvement warranted setting aside the summoning order.
The impugned Order dated 18.05.2018 summoning the Petitioner Sh. N. Vijaya Kumar, is hereby set aside - Petition disposed off.
TaxTMI 