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Issues: Whether the appellate order rejecting the appeal as ex parte without adequate proof of service of hearing notices (including notices uploaded on the electronic portal) is sustainable and whether the appellate order and the detention/penalty order under Section 129(3) of the UPGST Act, 2017 can be maintained.
Analysis: The Court examined the record of service and the parties' competing stand on whether hearing dates/notices were communicated to the appellant through the portal. The respondents relied on entries showing information was loaded in the portal whereas the petitioner denied receipt. The Court referred to the practical difficulties and the comparative decision-law on disputed electronic service, and noted that the appellate authority's order does not satisfactorily demonstrate that the appellant was given effective notice of hearing. In view of the unresolved dispute regarding communication of hearing dates and the need to afford the appellant a real opportunity of hearing, the Court concluded that the appellate order rejecting the appeal in an ex parte manner could not be sustained and the matter required fresh consideration by the appellate authority.
Conclusion: The appellate order dated 10.09.2025 rejecting the appeal is set aside and the matter is remitted to the appellate authority for fresh hearing and decision in accordance with law, giving the petitioner opportunity to receive documents and be heard; the Court did not adjudicate the merits of the original detention/penalty order.
Service of notice - electronic service via portal - ex-parte rejection for non-appearance - opportunity of hearing - remand for fresh consideration - non-adjudication on merits
Service of notice - electronic service via portal - ex-parte rejection for non-appearance - opportunity of hearing - remand for fresh consideration - Validity of appellate order rejecting the appeal on account of non-appearance where the appellant disputes receipt of notices allegedly uploaded on the electronic portal, and the appropriate remedial course. - HELD THAT: - The writ petitioner challenged the appellate order rejecting the appeal on an ex-parte basis, contending that no notice of the hearing dates was served on it although the appellate authority recorded various fixed dates. The respondents relied on an uploaded chart and asserted that hearing dates were intimated through the portal. The Court observed that the factual dispute about whether the electronic notices reached the petitioner could not be resolved by an expansive forensic enquiry into portal communications and observed guidance in earlier Division Bench dicta which cautioned against such enquiry where transmission is disputed. In light of the competing averments and the requirement that an appellant be afforded a real opportunity to be heard, the Court found it appropriate to set aside the appellate rejection and to remit the matter for fresh consideration. The appellate authority is directed to permit the petitioner to approach by the stipulated date, to furnish the documents sought by the petitioner, to fix hearing dates in the week commencing 16.02.2026, and to decide the appeal strictly in accordance with law within six weeks thereafter. The Court expressly refrained from adjudicating the merits of the underlying detention and penalty order, leaving those issues to the appellate authority on fresh hearing. [Paras 15, 16, 18, 19, 20]
Appellate order dated 10.09.2025 set aside; matter remitted to the appellate authority to afford the petitioner documents and a fresh hearing (dates to be fixed in the week commencing 16.02.2026) and to pass a fresh order within six weeks; merits not adjudicated by this Court.
Final Conclusion: The appellate rejection is set aside and the matter remitted for fresh hearing and decision in accordance with law after providing the petitioner the documents and an opportunity to be heard; the High Court has not ruled on the merits of the original detention/penalty order.
Issues: Whether the petition seeking quashing of ex-parte orders passed under Section 73 of the DGST Act and revocation of provisional attachment, on the ground that notices were not communicated due to use of the Chartered Accountant's e-mail, should be allowed and a fresh hearing granted (with the petitioner offering to deposit 50% of the demand).
Analysis: The factual matrix shows GST registration suspension and the provision of the Chartered Accountant's e-mail address on the registration portal were within the petitioner's knowledge. The petitioner did not file replies nor attend personal hearings, resulting in ex-parte orders under Section 73 of the DGST Act. The claim that the Chartered Accountant failed to communicate the show cause notices was not supported by satisfactory evidence of any action against the professional or demonstrable default that would justify equitable interference. Reliance on a prior decision involving different facts does not warrant deviation from the statutory procedure here. An offer to deposit 50% of the liability, without adequate justification for non-compliance with procedural requirements and absence of proof of the asserted representative's failure, is insufficient to invoke equitable relief and bypass statutory compliance.
Conclusion: The petition to quash the ex-parte orders, revoke provisional attachments and grant a fresh hearing (even subject to deposit of 50% of the demand) is rejected; the petitions lack merit and are dismissed.
Quashing of ex-parte order - service of show cause notice - notices not communicated due to use of the Chartered Accountant's e-mail - Provisional attachment -opportunity of fresh hearing - equitable discretionary relief - failure to appear - reliance on agent's lapse - GST proceedings - HELD THAT:- . The petitioner’s GST registration was suspended was a fact within his knowledge.
The fact that the petitioner, for the purpose of GST registration, has provided the e-mail address of his Chartered Accountant was also a fact within his notice.
The petitioner seeks to attribute the entire lapse to his Chartered Accountant for not communicating with him on the issue of show cause notice, which led to consequently passing the impugned order.
When confronted, we are unable to get satisfactory explanation as to whether any action was initiated by the petitioner against his Chartered Accountant, because of whose fault the petitioner has suffered the order impugned.
It is very easy to blame a professional, like the one in the present case, as such professional is not before this Court to defend his interest.
Even otherwise, from the record we are unable to satisfy ourselves as to the ground raised by the petitioner is sufficient enough to infer that there was a default on the part of the Chartered Accountant and the petitioner was required to suffer for the same.
Even if the petitioner is willing to deposit 50% of the liability, that by itself will not call upon us to deviate from the statutory procedure established by law.
Thus, we are not inclined to show indulgence by entertaining the present petitions - petition lack merit, stand dismissed.
Issues: Whether the petitioner is entitled to simple interest on the IGST amount collected (on ocean freight) and later refunded to the petitioner from the date of deposit until the date of actual refund, where the notifications under which the IGST was levied were declared invalid/ultra vires.
Analysis: The Court examined whether interest follows where tax was collected without authority of law because the notifications enabling levy of IGST on ocean freight were held unconstitutional. It considered Section 54 and Section 56 of the CGST Act concerning refund and interest on delayed refunds, Article 265 (no tax except by authority of law), and established doctrines of restitution and unjust enrichment. The Court distinguished refunds withheld during statutory proceedings from refunds flowing from an unauthorized collection: where a levy is held invalid ab initio, the State having retained and used money collected without authority is liable in restitution and equity to refund with interest. The Court surveyed precedents applying restitution and awarding interest where revenue has retained sums collected without legal authority and noted that the law declared by the Supreme Court operates from inception unless expressly made prospective. Authorities and coordinate High Court decisions holding that interest must be paid on IGST refunded in similar factual matrices were considered, and the departmental stand based solely on timeliness of refund under Section 56 was held insufficient to negate the obligation to pay interest where collection was unauthorized.
Conclusion: The petitioner is entitled to simple interest at 6% per annum on the refunded IGST amount (relating to ocean freight) from the date of deposit of such IGST until the date of actual refund; if payment of interest is delayed beyond the period directed for payment, the authority shall pay simple interest at 9% per annum for the period of such delay. The orders refusing and confirming denial of interest are set aside and quashed, and the authority is directed to pay the interest accordingly.
Interest on delayed refunds - restitution - exigibility of IGST on “ocean freight” -doctrine of unjust enrichment - composite supply - unauthorised levy - invoke extraordinary jurisdiction under Articles 226 and 227 -HELD THAT:- In the present case this Court at the time of consideration of prima facie merit of the matter vide Order dated 05.08.2024 made a clear observation that the tax was duly collected on the strength of notifications, ultimately set aside by the Supreme Court of India; as such there was no authority to collect the tax. Therefore, it directed for hearing from the side of the Revenue on the question of scope to allow interest on the amount refunded. Neither any specific averment is made in the counter affidavit nor was it argued by the learned Senior Standing Counsel with respect to levy of interest on refund where the IGST levied and collected by the Department with respect to “ocean freight” was held to be illegal and invalid in the eye of law; thereby retaining the amount representing IGST on ocean freight would be contrary to what is envisioned in Article 265 of the Constitution of India. Rather entire pleading by the Revenue rested on the application made under Section 54 read with Section 56 of the GST Act, which in the opinion of this Court is incorrect approach.
In the case at hand the case of the petitioner does not arise out of misinterpretation of notification by a quasi-judicial authority; rather the notifications were challenged based on constitutionality. The petitioner questioned the validity of notifications under which the levy of IGST on “ocean freight” was sought to be achieved.
In the case at hand the case of the petitioner does not arise out of misinterpretation of notification by a quasi-judicial authority; rather the notifications were challenged based on constitutionality. The petitioner questioned the validity of notifications under which the levy of IGST on “ocean freight” was sought to be achieved.
It is manifest that the IGST collected on the quantum of “ocean freight” on the basis of Notifications dated 28.06.2017 is found to be illegal and in pursuance of Order dated 01.08.2022 of this Court in the petitioner’s own case the Revenue has refunded the amount. It is in dispute whether the petitioner is entitled to interest on said refunded amount from the date of its deposit as the levy itself was declared not in consonance with the constitutional provisions. There is nothing in Mohit Minerals Pvt. Ltd. [2020 (1) TMI 974 - GUJARAT HIGH COURT] to comprehend that the interpretation and declaration of the Hon’ble Supreme Court of India would operate prospectively.
Since the question involved in the present case relates to interest on amount refunded, it is clear that the petitioner is entitled to interest on the amount refunded with respect to IGST collected on “ocean freight” for the period the opposite parties retained the same and restrained the petitioner from utilising it. In other words, such interest should commence to run from the date on which the petitioner parted with the money in the first instance and was restrained from using such amount representing the IGST on the component of “ocean freight”.
The refund itself is as a result of a finding that the tax ought not to have been collected from the petitioner in the first place. If the tax has to be refunded, and in fact, has been refunded to the petitioner, clearly, therefore, in the considered view of the Court, the interest thereon should begin to run from the date of the deposit of such tax. Consequently, the opposite party-competent authority will pay to the petitioner simple interest @6% per annum on the amount of refund from the period beginning with the date of making payment of the IGST on “ocean freight” in the first instance till the date of actual payment of refund made which shall not be more than eight weeks from today. If there is any further delay than the said period in payment of interest on the refunded amount, the authority concerned will be liable to pay simple interest @9% per annum on the sum refunded for the period of delay.
Writ petition stands disposed of.
Issues: (i) Whether show cause notices/orders can be clubbed and issued for more than one financial year (bunching of notices) and (ii) Whether issuance of notice/assessment under Section 73 for financial years 2024-25 and 2025-26 is permissible after omission of Sections 73 & 74 and applicability of Section 74A.
Issue (i): Whether issuance of a single show cause notice/order covering multiple financial years is permissible.
Analysis: The statutory scheme permits issuance of show cause notices linked to the tax period; where annual returns constitute the tax period, notices must be based on that annual return, or where issued before annual returns are filed, on monthly returns. The practice of clubbing notices across distinct financial years lacks statutory basis and results in proceedings without jurisdiction where multiple years are combined in one notice/order.
Conclusion: The clubbing of show cause notices/orders for more than one financial year is impermissible and such notices/orders are liable to be quashed. The Conclusion is in favour of the petitioner.
Issue (ii): Whether notices and assessment proceedings for FYs 2024-25 and 2025-26 under Section 73 are valid after Sections 73 and 74 were omitted with effect from 01.04.2024 and Section 74A applies.
Analysis: Sections 73 and 74 having been omitted with effect from 01.04.2024, the post-omission statutory regime requires reliance on Section 74A for the financial years 2024-25 onwards. Issuing notices or passing assessments under Section 73 for periods to which Section 74A applies reflects non-application of mind and lacks statutory foundation.
Conclusion: Issuance of notice/assessment under Section 73 for FYs 2024-25 and 2025-26 is impermissible; those parts of the proceedings are quashed. The Conclusion is in favour of the petitioner.
Final Conclusion: The impugned assessment order and consequential orders are quashed for lack of jurisdiction arising from clubbing of multiple financial years and for being founded on provisions omitted by statute; the respondents are permitted to initiate separate proceedings for each financial year in accordance with the applicable statutory provision.
Ratio Decidendi: Show cause notices and assessment orders must be issued in accordance with the tax period specified by law and cannot be clubbed across multiple financial years; where statutory amendments omit prior provisions, proceedings must be founded on the provisions in force for the relevant financial year (Section 74A for post-01.04.2024 periods).
Clubbing of show cause notices for multiple financial years - Tax period and issuance of show cause notice based on annual return - Maintainability of assessment qua each financial year - Writ jurisdiction of High Court - Doctrine of lack of jurisdiction where notice covers more than one tax period - HELD THAT:- In the case on hand, it is very clear that the impugned order came to be passed for more than one financial year, i.e., 2022-23 to 2025-26. When such being the case, by following the aforesaid order passed in [2025 (7) TMI 1402 - MADRAS HIGH COURT], this Court holds that in this case, the impugned order was passed by the respondent without any jurisdiction, which is impermissible in law and hence, the same is liable to be quashed.
Yet another aspect raised by the petitioner is with regard to the issuance of notice under Section 73 of the GST Act for the Financial Years 2024-25 & 2025-26. As rightly contended by the petitioner, the provisions of Sections 73 & 74 of the GST Act stood omitted with effect from 01.04.2024 and only the provisions of Section 74A of the GST Act will apply from the financial years 2024-2025 onwards. Hence, it is clear that the impugned order came to be passed by the respondent in total non-application of mind. In such view of the matter, this Court is inclined to quash the impugned order passed by the respondent on this aspect also.
The impugned assessment order and consequential orders are quashed; the show cause notice is set aside, and the State is granted liberty to initiate separate proceedings for each financial year in accordance with the correct statutory provisions and the tax-period principle.
Issues: Whether the impugned assessment order and appeal rejection order warranted interference and whether the matter should be remitted for fresh consideration subject to deposit and further reply.
Analysis: The writ petition arose from a GST assessment based on alleged excess input tax credit claimed on account of mismatch between GSTR-2A and GSTR-2B, followed by rejection of the statutory appeal on limitation. The explanation offered by the petitioner was found to be inconsistent and inadequate, but the Court, following its consistent approach in similar matters, considered it appropriate to grant an for fresh adjudication on merits. The Court therefore directed remand to the assessing authority, requiring the petitioner to make an additional pre-deposit of 40% of the disputed tax over and above the 10% already deposited, to file a detailed additional reply with supporting documents, and permitting adjustment of sums already recovered or paid towards the required pre-deposit.
Conclusion: The matter was remitted for fresh consideration on merits, with conditional relief to the petitioner and corresponding directions regarding pre-deposit, further reply, and lifting of bank attachment upon compliance.
Ratio Decidendi: Where the explanation to a GST show-cause notice is found inadequate but the dispute can still be examined on merits, the Court may remit the matter for fresh adjudication while balancing relief by imposing a quantified pre-deposit and directing filing of a further reply and documents.
Pre-deposit requirement - mismatch on account of excess input tax credit claimed, arising from the difference between GSTR-2A and GSTR-2B - Remittal for fresh adjudication on merits - conditional pre-deposit for interim relief - appeal rejected on ground of limitation - Writ jurisdiction of High Court - Notification No.18/2022-Central Tax - HELD THAT:- Having considered the submission of the parties and following the consistent view taken by this Court under similar circumstances, the case is remitted back to the 1st respondent to pass a fresh order on merits, subject to the Petitioner depositing an additional 40% of the disputed tax, over and above the 10% already pre-deposited at the time of filing the appeal before the office of the 2nd Respondent on 10.11.2025 in case or from the petitioner’s Electronic Cash Register within a period of 30 days from the date of receipt of copy of this order.
Within such time, the Petitioner shall also file an additional detailed reply to the Show Cause Notice in GST DRC-01 dated 29.05.2024 together with requisite documents to substantiate the case by treating the impugned Order dated 30.08.2024 as an addendum to the Show Cause Notice dated 29.05.2024.
It is made clear that bank attachment shall be lifted subject to the deposit of 40% of the disputed tax as ordered above and the Petitioner not being in arrears of any other amount demanded for any other tax period barring the amount demanded under the impugned Order.
In case the Petitioner fails to comply with any of the stipulations, the 1st Respondent is at liberty to proceed against the Petitioner to recover the tax in accordance with law as if this Writ Petition was dismissed in limine today.
Writ Petition stands disposed of.
Issues: Whether the assessment order required interference in view of the retrospective insertion of Sections 16(5) and 16(6) into the GST regime and whether the matter should be remitted for fresh consideration of the petitioner's entitlement to input tax credit.
Analysis: The assessment order was noticed to have confirmed demand partly on account of matters that could be affected by the statutory insertion of Sections 16(5) and 16(6) with retrospective effect from 01.07.2017. The remaining demand was stated to relate to ineligible input tax credit under Section 17(5). In these circumstances, the matter was considered to require reconsideration by the assessing authority, particularly on the question whether the petitioner was otherwise entitled to input tax credit but for belated availment.
Conclusion: The assessment order was quashed and the matter was remitted to the second respondent for fresh examination and a decision on merits.
Eligibility for Input Tax Credit and effect of retrospective amendment - Belated availment of ITC - Waiver of interest and penalty under Section 128A - Quashing of assessment and remittal to assessing authority for fresh consideration on merits - Writ jurisdiction of High Court - HELD THAT:- The petitioner appears to have paid a sum towards the tax liability confirmed by the assessment order. However, the respondents is unable to confirm the same.
In view of the aforesaid statutory intervention by insertion of Sections 16(5) and 16 (6) into the respective GST Enactments vide SO 4253(E) with retrospective effect from 01.07.2017 inserted by the Finance (No.2) Act, 2024 (15 of 2024) dated 16.08.2024, the matter requires reconsideration.
Accordingly, the assessment order dated 26.04.2024 is quashed and case is remitted back to the second Respondent to examine whether the petitioner was otherwise entitled to Input Tax Credit but for the belated availment of such Input Tax Credit for the relevant tax period. The second respondent shall thereafter pass appropriate orders on merits as expeditiously as possible.
Writ Petition stands disposed of.
Issues: Whether the writ petition challenging the intimation in Form GST DRC-01A (issued under Rule 142(1A) and 142(2A) read with Sections 73(5) and 74(5) of the GST enactments) is maintainable and whether the proceedings should be stayed or stalled pending adjudication.
Analysis: The petitioner challenged the statutory intimation and relied on earlier Supreme Court interim directions; that interim order was limited in scope and not applicable to the present facts. The petitioner had submitted a substantive reply/representation to the impugned notice and participated in the departmental proceedings, which bears on the question of maintainability of the writ petition at the admission stage. Given participation and availability of statutory remedies, the petition cannot be allowed to stay the statutory proceedings. Nonetheless, the reply submitted by the petitioner requires consideration on merits and a decision in accordance with law after affording an opportunity of hearing. The respondent must pass a reasoned order before initiating any coercive steps.
Conclusion: The writ petition is not maintainable for the purpose of stalling the statutory proceedings and is dismissed; however, the respondent is directed to consider the petitioner's reply dated 12.12.2025, afford an opportunity of hearing, and pass a reasoned order on merits before taking any coercive action.
Challenge to intimation under Rule 142(1A) and Rule 142(2A) - Liability for sale of mineral rough stone and gravel - Relevance of interim order in Udaipur Chambers of Commerce and Industry - Maintainability of writ petition where representation has been filed and petitioner has participated in proceedings - Requirement of a reasoned order and opportunity of hearing before initiating coercive steps -Audi alteram partem - HELD THAT:- It is noticed that the petitioner has submitted a reply / representation dated 12.12.2025 to the impugned notice. The petitioner has participated in the aforesaid proceedings. Therefore, on this ground, the writ petition is not maintainable.
In any event, the proceedings cannot be stalled. Therefore, the present writ petition is liable to be dismissed. However, this Court directs the respondent to consider the petitioner’s reply dated 12.12.2025 and pass appropriate orders on merits, after affording an opportunity of hearing to the petitioner. It is needless to state that, before initiating any coercive steps, the respondent shall pass a reasoned order in accordance with law.
Writ Petition stands disposed of.
Issues: (i) Whether the extended five-year limitation period under Section 74 of the CGST Act, 2017 invoked in the show cause notice applies to all claims made by the tax authority or is confined to the allegation of availment of irregular ITC on the basis of invoices issued by non-existent entities.
Analysis: The Court examined the specific language of the show cause notice and the ground expressly invoked for application of the extended period, namely availment of irregular ITC on the basis of invoices purportedly issued by non-existent entities against whom alert circulars had been issued. The analysis focused on whether that specific invocation could be read as extending the five-year limitation to other distinct claims in the notice or whether the extension was limited to the fraud/irregular ITC allegation. Having considered the pleadings and the notice, the Court formed a prima facie view that the reference to the extended period was specifically tied to the allegation concerning non-existent entities and did not, on its face, apply to the other claims raised in the show cause notice.
Conclusion: The Court concluded prima facie that the extended period under Section 74 was invoked only in relation to the allegation of irregular ITC based on invoices of non-existent entities and does not extend to the other claims in the show cause notice; accordingly, the tax authorities were restrained from recovering any sum pursuant to the original order dated January 31, 2025 until the next hearing.
Ratio Decidendi: Invocation of the extended five-year limitation under Section 74 is confined to those claims in respect of which fraudulent availment of ITC on the basis of invoices from non-existent entities is specifically alleged and cannot be applied broadly to unrelated claims without specific invocation.
Invocation of extended period of assessment and recovery - extended five-year limitation period under Section 74 - irregular input tax credit by fraudulent invoices and willful misstatement - jurisdictional error in exercise of power - show cause notice - stay on recovery pending adjudication - writ jurisdiction of the High Court - HELD THAT:- This Court is of the prima facie view that the specific reference of invocation of extended period by the responder in the show cause notice to the contention that the petitioners have availed irregular ITC “on the basis of invoices purported to have been issued by non-existent entity against whom alert circular has been issued by Kolkata South and Kolkata North Commissionerate” excludes application of extended period to the other claims made by CGST authorities in the said notice to show cause. However, a final view on this can be taken only upon hearing the respondent authorities in full on this.
Since, this Court is of the prima facie view that the proceeding in respect of the major part of the claim may not have been initiated by invoking the extended period, therefore, the respondent CGST authorities should not proceeded to recover any sum on the strength of the order in original dated January 31, 2025 till the next date of hearing.
Rejection of Applications for settlement filed before the Interim Board for Settlement - grievance of the assessee was essentially on account of the amendments that were brought about to the I.T. Act through the Finance Act, 2021 - cut-off date prescribed in the CBDT order for satisfying the eligibility conditions for preferring applications for settlement under the I.T. Act.
As decided by HC [2025 (6) TMI 1557 - KERALA HIGH COURT] when Section 245C does not prescribe any prior cut-off date for an assessee to satisfy the requirements for filing an application before the Interim Board for Settlement, and the only statutory requirement is that the assessee should have a pending ‘case’ at the time of filing the application for settlement, then so long as the assessee had a ‘live and un-adjudicated’ notice under Sections 153A/153C as on the date of filing the application, the application had to be considered on merits by the Board. The CBDT order issued under Section 119(2)(b), purportedly to relax the rigours of a statutory provision, could not have merely extended the time limit for filing an application while, simultaneously, denying the benefit of such extension to a class of assessees. The said clause in the CBDT order has to be seen as invalid, and bad in law, as declared by the Bombay High Court in the decision referred above.
Order - We set aside the impugned judgment of the learned Single Judge to the extent it holds that search proceedings under Section 132 would also fall within the ambit of 'case' in relation to the respondent assessees for the purposes of Chapter XIX-A of the I.T. Act. The writ appeals preferred by the Revenue are allowed to that limited extent.We, accordingly, direct that the applications for settlement filed by respondent assessees before the Interim Board for Settlement on or before 30.09.2021, taking note of notices under Sections 153A/153C of the I.T. Act issued to them between 31.03.2021 and 30.09.2021, be considered on merits by the Board.
HELD THAT:- No case is made out for interference.
The Special Leave Petition is, accordingly, dismissed.
Outcome: Delay was condoned and the special leave petition was dismissed as covered by an earlier decision of the Court.
Revision proceedings against company dissolved - Resolution Plan provided for the waiver and extinguishment of all the unassessed/assessed tax liabilities for the period prior to the NCLT approval date - HELD THAT:- Revenue very fairly states that this matter is covered by decision of this Court in the case of Vaibhav Goel & Anr. [2025 (3) TMI 1052 - SUPREME COURT] as held once the Resolution Plan is approved by the NCLT, no belated claim can be included therein that was not made earlier. If such demands are taken into consideration, the appellants will not be in a position to recommence the business of the CD on a clean slate.
The additional demands made by the first respondent in respect of the assessment years 2012-13 and 2013-14 will operate as roadblocks in implementing the approved Resolution Plan, and appellants will not be able to restart the operations of the CD on a clean slate.
Special Leave Petition stands dismissed.
Reopening of assessment - reasons for re-opening within or beyond 4 years - reasons to believe - basic contentions of the revenue for re-opening the assessment is that firstly under-invoicing of export and failure on the part of assessee to disclose fully and truly all material and commission paid to the foreign agents - gross delay of 424 days in filing the Special Leave Petition
As decided by HC [2024 (5) TMI 167 - BOMBAY HIGH COURT] Reasons for re-opening clearly goes to show that Assessing Officer, except borrowing the information from the third report of Justice M.B. Shah Commission, failed to record independently to his own satisfaction any reason so as to direct re-opening of assessment. We do not see any reason independently forming opinion by the Assessing Officer, apart from what was borrowed from the Justice M.B. Shah Commission report.
HELD THAT:- There is a gross delay of 424 days in filing the Special Leave Petition which has not been satisfactorily explained by the petitioner.
Even otherwise, we see no reason to interfere with the impugned order passed by the High Court. The Special Leave Petition is, therefore, dismissed on the ground of delay as well as merits.
Issues: Whether the Assessment Order dated 10.12.2024 passed under Section 143(3) read with Section 260 and 144B of the Income-tax Act, 1961 should be quashed on the grounds that (i) the respondents failed to comply with this Court's direction to pass a de novo assessment within 12 weeks, and (ii) the assessment proceedings involved improper change/transfer of Assessing Officers and inadequate opportunity of hearing thereby violating principles of natural justice.
Analysis: The prior direction required a fresh de novo assessment to be completed within 12 weeks after affording a fresh opportunity of hearing through video conferencing. The respondents admitted non-compliance with the 12-week timeline and did not seek extension from the Court. The assessment process shows intervention by the Jurisdictional Assessing Officer after remand although the Faceless Assessing Officer was the officer directed to pass the fresh order. The Faceless Assessing Officer later issued a show-cause notice allowing only one day to reply and the change of officers and compressed timeline resulted in extensive filings by the petitioner and a hearing, but the overall procedure did not adhere to the temporal directive. The record of communications and transfer requests indicates delay and procedural irregularity in transferring the case to the Faceless Assessment Officer, causing the assessment to be completed beyond the mandated period. The one-day time given to file submissions, following the sudden takeover by a different assessing authority, raised concerns of inadequate opportunity of hearing and procedural fairness.
Conclusion: The Assessment Order dated 10.12.2024 is quashed and set aside for failure to comply with the Court's direction to complete de novo assessment within 12 weeks and for procedural irregularities including improper change of assessing officers and inadequate opportunity of hearing, resulting in violation of principles of natural justice.
Validity of Assessment Order passed u/s 143(3) r/w Section 260 and 144B -Faceless assessment procedure - Change of Assessing Officer during remand- Power of Jurisdictional Assessing Officer to intervene in the proceedings - Violation of principles of natural justice - one day time granted to the petitioner to respond to the show-cause notice and file his reply - HELD THAT:- The hearing which was granted by the respondent No. 2, pursuant to the Show-cause Notice issued by the respondent No. 1 was a totally futile exercise and waste of time and the respondents did not take enough precautions to see that the directions issued by this Court are adhered to.
There was no need for respondent No. 2 – Jurisdictional Assessing Officer to intervene in the proceedings and take over the proceedings which were initially undertaken by respondent No. 1 - Faceless Assessing Officer. On this count also the impugned Assessment Order is required to be quashed and set aside. The one day time granted to the petitioner to respond to the show-cause notice and file his reply would in fact, be a violation of the principles of natural justice in wake of the fact that respondent No. 1 who was supposed to issue the show-cause notice at first place did not choose to do so till 02.12.2024 and prior to that from 29.10.2024 to 27.11.2024, the assessment proceedings were undertaken by respondent No. 2 - Jurisdictional Assessing Officer against whom this Court had not issued direction.
The request made to remand the matter is not accepted in wake of the fact that the directions issued by this Court initially remanding the matter and to pass the Assessment Orders after affording opportunity of hearing within a period of 12 weeks are not adhered. Thus, looking to the manner in which the entire proceedings have been undertaken after the directions issued by this Court, we are not again inclined to send the matter to the AO. Accordingly, the impugned order dated 10.12.2024 passed under Section 143(3) read with Section 260 and 144B of the Act is hereby quashed and set aside.
Issues: (i) Whether the Assessment Order dated 29th September 2021 passed by the National Faceless Assessment Centre is vitiated by non-furnishing of the draft assessment order and non-consideration of the assessee's submissions, warranting quashing and remand; (ii) Whether the amount deposited as a pre-condition for stay (Rs. 2,02,21,990/-) must be refunded with interest following quashing of the assessment and revisional orders.
Issue (i): Whether the impugned faceless assessment and the revisional orders stand vitiated by failure to furnish a draft assessment order and by non-consideration of the assessee's submissions.
Analysis: The impugned final assessment was passed after an ITAT remand. It is admitted that no draft assessment order was furnished to the assessee prior to the final order. The final assessment also did not deal with documents and written submissions filed by the assessee. The revisional authority likewise failed to address those submissions. These deficiencies engage principles of fair procedure and the statutory framework governing faceless assessments and post-remand proceedings.
Conclusion: The impugned Assessment Order dated 29th September 2021 and the revisional orders dated 13th January 2023 and 9th February 2023 are quashed and set aside. The matter is remanded to the National Faceless Assessment Centre for de-novo consideration of all submissions.
Issue (ii): Whether the pre-condition deposit of Rs. 2,02,21,990/- made for stay of demand must be refunded with interest in view of the quashing of the assessment and revisional orders.
Analysis: The deposit was made pursuant to a stay conditioned on the revisional order and assessment which have now been quashed. The quashing removes the basis for the conditioned stay and the pre-condition deposit taken under those orders.
Conclusion: The deposit of Rs. 2,02,21,990/- shall be refunded to the assessee along with interest as payable in law.
Final Conclusion: The assessment and revisional orders are set aside and the matter is remanded for fresh consideration; consequential refund with interest is directed. All other contentions are kept open for consideration on fresh proceedings.
Ratio Decidendi: Failure to furnish a draft assessment order and failure to consider an assessee's submissions in faceless assessment proceedings vitiate the assessment, requiring quashing and remand for de-novo consideration.
Non-furnishing of the Draft Assessment Order before passing the Final Assessment Order -denial of natural justice - faceless assessment - quashing and setting aside of assessment and revisional orders - HELD THAT:- This is a clear case of non-furnishing of the Draft Assessment Order before passing the Final Assessment Order. This is not disputed by the Revenue. We also find that there is non-consideration of the documents and submissions submitted by the Petitioner before the Final Assessment Order was passed. The Revisional Authority viz. Respondent No. 1 has also not considered the submissions of the Petitioner by the order passed in Revision, as also by the order refusing to correct the Revisional Order under Section 154 of the Income Tax Act.
We hereby quash and set aside the impugned order dated 13th January 2023 and 9th February 2023 passed by Respondent No. 1 u/s 264 and u/s 154 of the Income Tax Act respectively and also the impugned Assessment Order dated 29th September 2021 passed by Respondent No. 2. We now remand the matter back to Respondent No. 2 to pass a fresh order after de-novo consideration of all the submissions made by the Petitioner.
Issues: (i) Whether the Income Tax Appellate Tribunal was justified in setting aside the Order under Section 263 of the Income-tax Act, 1961 which had held the assessment order to be erroneous and prejudicial to the interest of Revenue?
Analysis: The statutory framework includes Section 10(23FB) and Section 115U (pass-through treatment of VCF income), and Section 263 (revisional jurisdiction requiring the assessment order to be both erroneous and prejudicial to revenue). The VCF Regulations, 1996 and the amended Third Schedule (negative list) determine whether investments in entities engaged in real estate are excluded from the definition of venture capital undertakings. The assessment proceedings recorded requests for detailed information and the Assessing Officer obtained and considered statements, SEBI registration, fund-wise and investment-wise details, Form No.64 filings and other materials before completing assessment allowing exemption under Section 10(23FB). SEBI amendments removed real estate from the negative list w.e.f. 05-04-2004 and SEBI clarification permits temporary investments in mutual funds. The revisional authority substituted its view without demonstrating that the AO had not applied his mind or that both conditions for exercise of Section 263 jurisdiction were satisfied; the disputed income was subject to tax in the hands of unit-holders under Section 115U and no adverse action was shown by SEBI.
Conclusion: The Tribunal correctly quashed the revisional Order under Section 263 because the jurisdictional requirements for revision were not satisfied and the assessment order represented a possible view of the Assessing Officer who had applied his mind; consequently, the appeal by Revenue is without merit.
Ratio Decidendi: Exercise of revisional jurisdiction under Section 263 requires satisfaction of both that the assessment order is erroneous and that it is prejudicial to the interest of revenue; a revisional order that merely substitutes the revisional authority's view for that of an Assessing Officer who has applied his mind and made detailed enquiries is impermissible.
Validity of revision u/s 263 - ITAT setting aside the order passed u/s 263 and restore the order passed by the AO - PCIT held that the assessment order was set-aside to verify the claim for exemption u/s 10(23FB) as investment made by the Assessee in VCUs which are engaged in the real estate sector are not eligible VCUs for the purpose of Section 10(23FB) - ITAT held it is not a case where the Assessing Officer has either not conducted any enquiry or has accepted the Assessee’s claim without applying his mind to the facts and material on record or the relevant statutory provisions and that the view taken by the AO in allowing the Assessee’s claim for exemption u/s 10(23FB) of the Act, is certainly a possible view
HELD THAT:- We find that the AO has examined the claim of exemption u/s 10(23FB) of the Act in detail at the time of passing the original assessment order dated March 17, 2016.
We find that the Assessing Officer had made a detailed enquiry in the matter during the course of assessment proceedings. We, therefore, find that what the PCIT has done in his order u/s 263 is only to substitute her views in place of the views of the Assessing Officer. This is clearly contrary to the ruling of this Court in CIT v/s Gabriel India Limited [1993 (4) TMI 55 - BOMBAY HIGH COURT]
The detailed factual aspects of the matter have been discussed in the impugned order and set out hereinabove, with reference to the queries posed, details sought, and replies furnished, clearly establishing how the Assessing Officer has applied his mind to the facts of the present case. After applying his mind and considering the explanation given by the Assessee, the exemption was allowed by the Assessing Officer. We, therefore, find that the PCIT was not justified in invoking the provisions of Section 263 by only substituting his views in place of the views of the Assessing Officer.
ITAT has noted that the Assessee has submitted statements in Form No.64 before the appropriate authority and there is no adverse observation by the concerned authority that the Assessee has violated the conditions of Section 115U of the Act.
ITAT has held that the disputed income has been subjected to tax, though, not in the hands of the VCF, but in the hands of the unit holders. Hence, we find that no prejudice is caused to the revenue as the income has already been subjected to tax in the hands of the unit holders.
Even otherwise, we are of the view that the assessment order cannot be said to be erroneous on the basis of the allegation made by the PCIT. With respect to investment made by the Assessee in mutual funds, we note that SEBI has issued a clarification that temporary investments in mutual funds by the VCFs are permissible, and therefore, such investment cannot be said to be in violation of the SEBI VCF Regulations.
With respect to investment in the real estate sector and entities in such sector being eligible to be considered as a VCU, the Tribunal has noted that the PCIT has relied on the AIF Regulations whereas the Assessee is governed by the VCF Regulations, and therefore, reliance on the AIF Regulations is not justified. Further, in so far as the VCF Regulations are concerned, the real estate sector has been removed from the Negative List under the Third Schedule of the VCF Regulations with effect from 5th April, 2004. Therefore, there is no violation of the VCF Regulations by investing in the real estate sector. Lastly, when the Assessee invested in the VCU, merely because the VCU was engaged in real estate activity, it cannot be stated that the Assessee is engaged in real estate activity as the Assessee is an entity separate from the VCUs. Further, in the absence of any allegation or action by SEBI against the Assessee for alleged violation of the SEBI VCF Regulations, the PCIT cannot make such allegations to deny exemption under the provisions of the Act.
ITAT has rightly set aside the order passed by the PCIT u/s 263 - Decided in favour of assessee.
Issues: (i) Whether disallowance under Section 14A read with Rule 8D can be made where the assessee has not earned any exempt income in the relevant year and whether the Tribunal and CIT(A) were correct in deleting the Section 14A disallowance.
Analysis: The issue engages interpretation of Section 14A and Rule 8D read with Section 14A(1) and (2). The legal framework includes the principle of apportionment of expenditure between taxable and non-taxable income as recognised by the Supreme Court in Maxopp Investment Ltd., which holds that only the portion of expenditure attributable to exempt income is liable to be disallowed; expenditure having no causal connection with exempt income remains allowable as business expenditure. The analysis requires examination of whether any exempt income was earned in the year and, if none, whether Rule 8D/CBDT Circular guidance permits disallowance notwithstanding absence of exempt receipts. The Supreme Court in Maxopp clarifies that where no exempt income is earned the quantum of disallowance under Section 14A cannot exceed the exempt income and that the theory of apportionment governs the applicability of Section 14A. Further, before making suo moto disallowance the Assessing Officer must record satisfaction in matters contemplated by Section 14A(2) and Rule 8D. Applying these principles, where no exempt income arises in the year, apportionment yields nil disallowance because there is no exempt income to which expenditure can be attributed; hence deletion of the impugned addition under Section 14A is consistent with the apportionment approach and the cited judicial guidance.
Conclusion: The deletion of the Section 14A disallowance is upheld and the Revenue's appeal is dismissed; the decision is in favour of the assessee.
Addition u/s 14A r.w.r. 8D - if no exempt income was earned by the assessee - theory of apportionment of expenditure between taxable and non-taxable income - ITAT upholding the decision of the Ld. CIT(A) in deleting the addition made holding that disallowance u/s.14A r/w. Rule 8D of the Act cannot exceed the exempt income -HELD THAT:- Once there was no exempt income the tribunal could not be said to be in any error in applying the ratio of the decision of the Supreme Court in Maxopp Investment Ltd [2018 (3) TMI 805 - SUPREME COURT] We are accordingly not inclined to interfere with the concurrent orders passed by the CIT(A) and the tribunal. The question of law as raised for consideration would not arise. Appeal dismissed.
Issues: (i) Whether, for the purpose of valuation under Section 50C of the Income-tax Act, 1961, the multiplicative factor '1' (applicable to agricultural/residential land) should be applied to the subject Lal Dora property despite its actual commercial use as a godown.
Analysis: The Tribunal examined the revenue records and the identification of the subject property as agricultural/residential (Lal Dora) in state records and the agreement to sell. The Tribunal noted that the building's commercial use as a godown was not recognized by revenue authorities by way of reclassification, levy of penalty, or any alteration in official revenue records. The Tribunal applied the principle that circle rate multiplicative factors for stamp duty are to be determined by the character of the property as shown in revenue records maintained by competent authorities, and that mere unauthorised or factual commercial use does not amount to deemed conversion for valuation purposes unless recognized by revenue authorities.
Conclusion: The multiplicative factor '1' is to be applied for valuation under Section 50C; the application of multiplicative factor '3' by the Assessing Officer is invalid. This conclusion is in favour of the Assessee.
Ratio Decidendi: For stamp-duty valuation under Section 50C, the multiplicative factor applicable to circle rates is determined by the property's classification in official revenue records; unrecognised or unauthorised change in use does not alter that classification for valuation purposes.
Capital gains computation u/s 50C - Nature of land - application of multiplicative factor of ‘3’ - reliance on the circle rate of the property based on the usage of the property and by applying multiplicative factor ‘3’ -Characterisation of property for circle rate valuation (agricultural/residential versus commercial) -
HELD THAT:- Admittedly the property in question is a “Laldora” property and as per the Revenue record, the same has been identified as agriculture land wherein the building has been erected. However, the said building has been used for other than agriculture purpose i.e. commercial purpose for the sake of Godown for which no sanction has been issued by the competent authority and admittedly the competent authority has not levied any penalty or find for such misuse of land by the Assessee, therefore, in our considered opinion, since, the property in question is identified as residential/ agricultural property in the Revenue records maintained by the State Government, the multiplicative factor ‘1’ has to be taken.
As long as the Revenue records maintained by the Authorities remains agriculture in nature there could be no dispute about the character of the land which in the instant case was agriculture/residential. There cannot be any deemed conversion of land based on the usage of the property until and unless it is recognized by the revenue authorities, therefore, the multiplicative factor in the present case would be the ‘1’ which was prescribed by the Delhi Government for permissible/sanctioned use of lands either as agriculture or residential or industrial or commercial.
Usage of agricultural/residential land to commercial purpose will be at the most subject to action by government for misuse of permissible use and consequential action but for the purpose of circle rate, the nature of the property has to be seen based on the revenue record maintained by the authorities. Since, the subject property being an agriculture/residential in the revenue records and also in the agreement to sell, the multiplicative factor of ‘1’requires to be applied and the Ld. CIT(A) rightly held that factor of ‘3’ applied by the A.O. is contrary to the revenue records.
We find no reason to interfere with the finding and the conclusion of the Ld. CIT(A) that application of multiplicative factor of ‘3’ by the A.O. as invalid and consequently we find no error or infirmity in the order of the CIT(A) in directing the A.O. to work out the value of the land by applying the factor as of ‘1’. Decided against revenue.
Issues: Whether the final assessment orders passed under section 144C(13) read with section 153 of the Income-tax Act, 1961 are barred by limitation; specifically, whether the time limits prescribed under section 153 apply to proceedings under section 144C(13).
Analysis: The Tribunal examined the competing positions, including the Madras High Court decision in Roca Bathroom Products (P.) Ltd., and the pendency of related matters before the Supreme Court. Having considered the statutory scheme of section 144C and section 153 and the timeline for DRP and Assessing Officer action, the Tribunal compared the statutory due dates with the actual dates of passing final orders for the six assessment years. The dates were not disputed by the Revenue and the Tribunal found that in each assessment year the final assessment order was passed after the limitation period as computed with reference to section 153. The Tribunal therefore applied the principle that the provisions of sections 144C and 153 are mutually inclusive for computing the limitation in such remand/DRP cases and that where the final order is beyond the outer time-limit under section 153, the order is time-barred.
Conclusion: The final assessment orders for the six assessment years are time-barred and are quashed; the appeals are allowed in favour of the assessee.
Ratio Decidendi: Where assessment proceedings involve section 144C remand/DRP processes, the limitation for passing the final assessment order must be computed with reference to section 153 of the Income-tax Act, 1961; if the final order is passed beyond that outer time limit, it is barred by limitation.
Limitation for passing the final assessment order under section 144C(13) - Interplay of provisions of section 144C and 153 - as submitted limitation for passing the final assessment order under section 144C(13) of the Act is to be seen only with reference to the timeline specified u/s. 144C of the Act only without referring to provisions of section 153
HELD THAT:- We find that identical submissions were made by the Department in the case of Roca Bathroom Products P. Ltd. [2021 (4) TMI 355 - MADRAS HIGH COURT] as rejected the arguments of the Department and held that provisions of section 144C and 153 of the Act are mutually inclusive as both contain provisions relating to section 92CA of the Act and are inter-dependent and are overlapping. Hence, the period of limitation for passing the final assessment order u/s. 144C(13) of the Act has to be determined with reference to section 144C r.w.s 153 of the Act.
The dates mentioned in the above table have not been disputed by the Ld. DR. A perusal of the sequence of the dates for all the six assessment years involved would clearly show that the date on which the final assessment order was passed by the Ld. AO is beyond the period of limitation for passing the order.
Issues: Whether the final assessment orders passed under section 144C(13) read with section 153 of the Income-tax Act, 1961 are barred by limitation.
Analysis: Relevant legal framework comprises the timelines prescribed under section 144C (including draft order, DRP directions and finalisation) and the outer limitation periods in section 153 (including provisos and extended periods). The decision in Roca Bathroom Products P. Ltd. (Madras High Court) treated the DRP proceedings as part of assessment proceedings and held that the outer time limits under section 153 apply to finalisation after remand; that approach was followed by the Tribunal. The assessee supplied uncontested date charts showing draft assessment dates, DRP direction dates and the due dates for final assessment under section 144C(13) r.w.s. 153. The final assessment orders were passed after the applicable due dates. Competing contentions that section 144C is a complete code with its own self-contained timelines and that the non-obstante clause excludes section 153 were considered and distinguished on statutory construction, practical consequences and on authority supporting application of section 153 timelines to post-draft proceedings.
Conclusion: The final assessment orders passed beyond the period of limitation under section 144C(13) read with section 153 are without jurisdiction and are quashed; decision is in favour of the assessee.
Limitation for passing the final assessment order under section 144C(13) - Interplay of provisions of section 144C and 153 - as submitted limitation for passing the final assessment order under section 144C(13) of the Act is to be seen only with reference to the timeline specified u/s. 144C of the Act only without referring to provisions of section 153
HELD THAT:- We find that identical submissions were made by the Department in the case of Roca Bathroom Products P. Ltd. [2022 (6) TMI 848 - MADRAS HIGH COURT] as rejected the arguments of the Department and held that provisions of section 144C and 153 of the Act are mutually inclusive as both contain provisions relating to section 92CA of the Act and are inter-dependent and are overlapping. Hence, the period of limitation for passing the final assessment order u/s. 144C(13) of the Act has to be determined with reference to section 144C r.w.s 153 of the Act.
A perusal of dates for passing the final assessment order in the respective appeals would clearly show that the final assessment order in the respective appeals have been passed by the AO beyond the period of limitation u/s. 144C(13) r.w.s. 153 of the Act. Thus, following the ratio laid down in the case of Roca Bathroom Products P. Ltd. (supra), we hold that final assessment orders in the appeals by different assessee’s passed beyond the period of limitation is without jurisdiction. Consequently, the final assessment order in the respective appeals are quashed.
Issues: Whether the claim of long term capital loss of Rs. 183,00,38,564/- on sale of shares is allowable where the assessee furnished valuation report and documentary evidence before the first appellate authority and the Assessing Officer in remand reports did not present an independent valuation or concrete contrary material to rebut the assessee's valuation.
Analysis: The issue centres on sufficiency and veracity of evidence substantiating LTCL on sale of shares to an unrelated foreign purchaser. The factual matrix shows sale to an unrelated Singapore entity and production before the appellate forum of documentary evidence including demat statements, agreements and an independent valuation report (dated 22.02.2021). The first appellate authority forwarded these materials to the A.O. for remand verification and multiple remand reports and opportunities were exchanged. The A.O.'s initial objections related to non-submission of certain documents and funding being routed through related entities; however, the assessee demonstrated that earlier name changes and provided demat/purchase records before the appellate authority. In the second remand report the A.O. did not identify any specific deficiency in the independent valuer's determination of value nor did the department produce its own valuation or evidence quantifying market value on the date of sale. Rule 11UA (NAV considerations) and procedural notice under Section 250 were part of the appellate record; the assessee's chart showed sale prices were not below NAV and the department failed to controvert the valuation with affirmative proof. Where the transaction is between unrelated parties and the assessee produces an independent valuation and corroborative documents, the onus rests on the revenue to rebut with concrete contrary material; a mere assertion or failure to produce an alternative valuation is inadequate to summarily reject the assessee's claim.
Conclusion: The claim of long term capital loss of Rs. 183,00,38,564/- is allowable; the Revenue's grounds are dismissed and the first appellate authority's decision upholding the LTCL is affirmed in favour of the assessee.
Final Conclusion: The appellate tribunal affirms the appellate authority's allowance of the LTCL, holding that in absence of independent contrary evidence from the revenue the valuation and documentary evidence produced by the assessee suffice to establish the genuineness and quantum of the loss.
Ratio Decidendi: Where an assessee produces an independent valuation and supporting documentary evidence for share sale to an unrelated party, and the revenue fails to produce a contrary valuation or concrete rebuttal during remand/appellate proceedings, the assessing officer cannot summarily reject the assessee's valuation and disallow the long term capital loss.
Long term capital loss (LTCL) on sale of shares - assessee is a resident corporate entity, stated to be engaged in business of generation and supply of Power and Energy -Onus of proof and genuineness of transaction - Valuation of shares and Net Asset Value - assessee submitted that without issuing any show cause notice, the A.O. has proceeded to disallow the claim of loss - AO has rejected assessee’s claim of LTCL primarily on the reasoning that the assessee failed to furnish the requisite documentary evidences for enabling the A.O. to verify the genuineness of the claim
HELD THAT:- A careful analysis of the chart clearly demonstrates that the sale value per share of the companies are more than the NAV as on the date of sale. As discussed earlier, in the remand report, the A.O. has not specified any deficiency in determination of the value of shares by the independent valuer appointed by the assessee.
Though, the department had enough opportunities to counter the valuation of shares as per assessee at various stages, such as, in course of first appellate authority and remand proceedings, the department failed to do so. Even, before us as well, the department has not furnished any material to demonstrate, what according to the department, would have been the value of shares as on the date of sale.
Without doing his own home work, the A.O. cannot summarily reject the valuation of the assessee and the LTCL arising out of sale of shares. If the department is disputing the value at which the shares were sold, the department should have come up with its own valuation. The A.O. could not have simply rejected the transaction out of which the LTCL arose. At this point, it would be pertinent to mention, in the year under consideration, the assessee had sold substantial number of shares of Solar Edge Power and Energy Ltd. Solar to the same overseas entity at the pre share sale value of Rs. 2.66, the same value as in case of LTCL, and suffered loss of Rs. 6,83,51,278/-. Interestingly, the A.O. has accepted the loss without raising any demur.
Thus, in our view, the A.O. cannot take contradictory position in respect of LTCL and STCL when factual position remains same. Therefore, we are inclined to agree with the reasoning of the first appellate authority. Accordingly, we uphold his decision by dismissing the grounds.
Issues: (i) whether certain companies were correctly selected or excluded as comparables for transfer pricing benchmarking, including the use of segmental data; (ii) whether the assessee was entitled to risk adjustment and working capital adjustment; (iii) whether bank charges and provision for doubtful debts were to be treated as operating expenses while computing margins of comparables; and (iv) whether the Revenue's Rule 27 application based on an adjustment not arising from the assessment order was maintainable.
Issue (i): whether certain companies were correctly selected or excluded as comparables for transfer pricing benchmarking, including the use of segmental data.
Analysis: The comparability exercise turned on functional similarity and the availability of reliable segmental information. One comparable was remanded for reconsideration after examining its segmental data. Another was directed to be examined on the basis of its ARMS segment. A third comparable was directed to be rejected following the earlier year's view. The newly challenged comparable was sent back for examination of its full business profile and the additional material produced.
Conclusion: The issue was partly decided in favour of the assessee, with some comparables remanded for fresh examination and one comparable rejected.
Issue (ii): whether the assessee was entitled to risk adjustment and working capital adjustment.
Analysis: The adjustment question was governed by the comparable risk profile and the directions already issued in the assessee's earlier years. Risk adjustment was not finally quantified and was therefore sent back for fresh determination after the assessee demonstrates the risk assumed and the differences in risk borne by comparables. Working capital adjustment was to be granted in accordance with the DRP's directions and methodology.
Conclusion: Risk adjustment was remanded for reconsideration, while working capital adjustment was directed to be allowed.
Issue (iii): whether bank charges and provision for doubtful debts were to be treated as operating expenses while computing margins of comparables.
Analysis: The operating margin computation required expenses closely linked to business operations to be treated as operating in nature. Bank charges and provision for doubtful debts were held to have a direct nexus with operations, and the margin computation was required to reflect that treatment.
Conclusion: The issue was decided in favour of the assessee and remanded for recomputation by treating those items as operating expenses.
Issue (iv): whether the Revenue's Rule 27 application based on an adjustment not arising from the assessment order was maintainable.
Analysis: The application sought to support an enhancement that did not emanate from the assessment order, and therefore lacked a proper foundation in the impugned order under appeal.
Conclusion: The Rule 27 application was dismissed.
Final Conclusion: The transfer pricing disputes were not finally determined on several comparability and adjustment questions, with partial relief granted to the assessee and consequential remands for fresh examination, while the Revenue's separate application failed.
Ratio Decidendi: Comparable selection in transfer pricing must rest on functional similarity and reliable segmental data, and adjustments such as risk and working capital must be determined in accordance with the comparable profile and the directions already applicable to the assessee's case.
TP Adjustment - comparable selection - risk adjustment denied to the assessee - allegation that both the Ld. TPO and Ld. DRP committed certain errors while computing the margins of comparables and incorrectly computing the ALP of the International Transactions - risk adjustment denied to the assessee - HELD THAT:- As directed:-
i. Regarding In house Production Ltd. as a comparable, the matter is remanded back to the file of Ld. TPO to decide on including this company after considering the segmental data of this entity;
ii. Regarding considering India Tourism Development Corporation Ltd. as a comparable, TPO is directed to decide about the comparability of ARMS Segment of this entity and consider using the same as a comparable.
iii. Regarding the case of Global Procurement Consultants, respectfully following the ITAT’s order for AY 2010-11 [2020 (4) TMI 608 - ITAT DELHI] this entity is directed to be rejected as a comparable.
iv. Regarding the case of M/s Quadrant Communication Ltd., it is felt that the Ld. TPO may consider adopting this entity as a comparable only after examining the entire business profile of the said entity and also considering the documents filed before us by way of Rule 29. AO is directed to consider this entity on merits and thereby adopting the same as a comparable in case the business profile of Quadrant matches significantly with the business profile of the assessee. To this extent, we remand this matter back to the file of the Ld. AO.
v. The issue of risk adjustment denied to the assessee deserves to be remanded back, following the findings given by the ITAT for AYs 2010-11 and 2012-13. Respectfully following the directions given in AY 2012-13 in para 24, we also set aside this issue back to the file of Ld. TPO with direction to the assessee to demonstrate the risk assumed by it and how the risk of the comparable entities are different. The Ld. TPO may decide the issue accordingly.
vi. The working capital adjustment as directed by the Ld. DRP must be allowed on terms set by the Ld. DRP in its order.
vii. The bank charges and provision for doubtful debts should be considered as operating expenses by the comparables and following the directions given in ITAT’s order for AY 2010-11 the Ld.TPO must consider these expenses as operating while computing the margins of comparables. The matter is accordingly remanded back for such consideration.
Application under Rule 27 of the ITAT Rules in support of Ld. DRP’s direction to enhance the income on account of secondment of employees - It deserves to be mentioned that the issue raised in application refers to an adjustment u/s 40(a)(ia). The said issue does not emanate from the AO’s order. Hence, the said application is mis-conceived. Accordingly, the same is dismissed.
Issues: (i) Whether the final assessment orders passed under section 144C(13) read with section 153 of the Income-tax Act, 1961, for AYs 2009-10 to 2012-13, which were issued beyond the applicable period of limitation, are without jurisdiction and liable to be quashed.
Analysis: The dispute concerns the temporal interplay between section 144C (the DRP framework with in-built timelines) and section 153 (general outer time-limits for completion of assessment). The Tribunal examined the legislative scheme of section 144C, the presence of non-obstante language, and the timelines prescribed for draft order, filing of objections, DRP directions and finalisation of assessment. The Tribunal considered binding and persuasive authorities addressing whether the outer time limits under section 153 apply to proceedings remanded involving DRP, including the Madras High Court decision in Roca Bathroom Products P. Ltd., and contrasted those with the Revenue's submissions that section 144C is a self-contained code whose timelines operate independently. The Tribunal evaluated undisputed date charts for AYs 2009-10 to 2012-13 showing due dates computed with reference to section 144C(13) read with section 153 and the actual dates on which final orders were passed, and applied the legal conclusion that proceedings remanded and processed via DRP remain subject to the outer limitation under section 153 and to the statutory timelines embedded in section 144C.
Conclusion: The final assessment orders for AYs 2009-10 to 2012-13, having been passed beyond the period of limitation determined with reference to section 144C(13) read with section 153, are without jurisdiction and are quashed; accordingly the appeals are allowed in favour of the assessee.
Ratio Decidendi: Where assessment proceedings involve remand to the DRP under section 144C, the period of limitation for passing the final assessment order must be determined with reference to section 144C read with section 153; final orders passed beyond the applicable limitation are without jurisdiction and liable to be quashed.
Limitation for passing the final assessment order under section 144C(13) - Interplay of provisions of section 144C and 153 - as submitted limitation for passing the final assessment order under section 144C(13) of the Act is to be seen only with reference to the timeline specified u/s. 144C of the Act only without referring to provisions of section 153
HELD THAT:- We find that identical submissions were made by the Department in the case of Roca Bathroom Products P. Ltd. [2022 (6) TMI 848 - MADRAS HIGH COURT] as rejected the arguments of the Department and held that provisions of section 144C and 153 of the Act are mutually inclusive as both contain provisions relating to section 92CA of the Act and are inter-dependent and are overlapping. Hence, the period of limitation for passing the final assessment order u/s. 144C(13) of the Act has to be determined with reference to section 144C r.w.s 153 of the Act.
A perusal of dates for passing the final assessment order in the impugned assessments years would clearly show that the final assessment order for the respective assessment years have been passed by the AO beyond the period of limitation u/s. 144C(13) r.w.s. 153 of the Act. Thus, following the ratio laid down in Roca Bathroom Products P. Ltd. (supra), we hold that final assessment orders for AYs 2009-10 to 2012-13 passed beyond the period of limitation are without jurisdiction. Consequently, the assessment orders for AYs 2009-10 to 2012-13 are quashed. Decided in favour of assessee.
Issues: Whether the reassessment notice issued under Section 148 for AY 2014-15 is invalid for want of prior approval from the specified authority under Section 151 when more than three years have elapsed from the end of the relevant assessment year.
Analysis: Section 151 prescribes the specified authority whose prior sanction is a precondition for issuance of a notice under Section 148; the new regime (effective 1 April 2021) requires a higher level of authority where more than three years have elapsed. The statutory scheme links the time elapsed with the level of authority competent to grant sanction and makes grant of sanction a jurisdictional precondition to assume jurisdiction under Section 148. Non-compliance with the mandatory procedure under Section 151 vitiates the reassessment proceedings. The proviso in the legislative scheme and the temporal adjustments under TOLA operate to determine whether extended time for sanction applies, but do not substitute for the requirement that the sanction must be granted by the authority specified for the relevant elapsed period. Factual material on record shows the sanction was not accorded by the authority specified under Section 151(ii) for notices issued after three years.
Conclusion: The notice under Section 148 is invalid for want of prior approval by the specified authority under Section 151(ii); the reassessment and related proceedings are quashed. The appeal is allowed in favour of the assessee.
Validity of reopening of assessment u/s 147 - prior approval from the specified authority u/s 151 when more than three years have elapsed - specified authority under the new regime - approval has to be obtained from PCCIT or PDGIT - HELD THAT:- We observe that the instant case is covered on the jurisdictional aspect i.e., no notice under section 148 of the Act can be issued for AY 2014-15 as the same is issued without prior approval of the specified authority under the new regime in view of the judgement rendered by Hon’ble Supreme Court in the case of ‘Union of India and Others vs. Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)].
Notice issued by the AO under section 148 of the Act is illegal, bad in law, and without jurisdiction as the same has been issued without taking the valid approval/satisfaction from the prescribed authority mentioned under Section 151 of the Act.
Since more than 3 years have elapsed while issuing notice for the year under consideration, i.e., AY 2014-15, hence, the alleged approval has to be obtained from PCCIT or PDGIT, and if there is no PCCIT or PDGIT, then from CCIT or DGIT under the provisions of Section 151(b) of the Act. Further, as is evident from the aforesaid provisions of Section 151 of the Act, the procedures prescribed thereunder are mandatory in nature and Assessing Officers are bound to follow the procedure in letter and spirit.
t is well settled that the failure of an assessing officer to obtain the previous sanction of the specified authority vitiates the entire proceedings and the notice cannot be regarded as valid. A Power which is conferred upon a particular authority has to be exercised by that authority only and the satisfaction which the statute mandates of a distinct authority cannot be substituted by the satisfaction of another.
As in the present case, as approval is not from the 'specified authority' in terms of section 151(ii) of the Act, the impugned notice is without jurisdiction, invalid, unlawful, and is liable to be quashed.
Thus, we observe that in the present case the relevant Assessment Year is AY 2014-15, and notice is issued beyond 3 years, hence, the approval from PCIT, Bareilly is illegal and bad in law. Decided in favour of assessee.
Issues: (i) Whether the receipts of the assessee (lease rent, hire charges and maintenance charges) are to be treated as income from business or profession or as income from house property/income from other sources for the assessment years 2016-17 to 2018-19.
Analysis: The issue is examined by reference to the assessee's memorandum of association, the nature and arrangement of lease, hire and maintenance agreements, the scale and recurrence of services provided (including engagement of regular and contractual staff and provision of comprehensive amenities), relevant judicial precedents distinguishing letting as business when activities are systematic and organized, and the scope and intent of CBDT Circular No.16/2017. The assessee's objects specifically include developing, operating and maintaining IT/Software Parks and providing infrastructure and services to occupants; contemporaneous agreements and factual matrix show provision of extensive operational, maintenance and support services (furniture, utilities, power backup, HVAC, security, common facilities and a dedicated workforce). Judicial authorities cited establish that where letting out is part of a systematic, recurrent and organized commercial activity and the objects and operations demonstrate that letting is the business, the receipts are business income; CBDT Circular No.16/2017 confirms that notified industrial/IT parks' lease receipts are business income but does not exclude non-notified projects from being taxed as business income where facts demonstrate business character. Consistency of treatment in earlier assessments also supports classification as business receipts.
Conclusion: The receipts comprising lease rent, hire charges and maintenance charges are to be treated as income from business or profession; the appeals filed by Revenue are dismissed and the CIT(A)'s orders confirming business character of income are upheld in favour of the assessee.
Correct head of income - characterization of income receipts - nature of income of the assessee - treating the total income declared by the assessee as "Income from House Property" and "Income from Other Sources" as against "business income" - principal of consistency - main allegation of the AO is that predominant income of assessee is rental income from leased out space constructed in terms of lease agreements executed. Besides this, assessee is having hire agreements and maintenance agreements.
HELD THAT:- CIT(A) has observed that the nature of income of the assessee has to be analyzed by looking into the MOU, business activities carried out, the complexity involved in the business and whether the income from leasing out of the properties also includes income from other systematic and organized activity provided to the tenants by the assessee.
As observed above in this case, the main object of the assessee is to build, set up, develop, maintain and/ or operate Software Technology Park, IT Park, Industrial Parks, special Economic Zone (SEZ).
The Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd. [2015 (5) TMI 46 - SUPREME COURT] has followed the judgement of the Apex court in the case of Karanpura Development Co. Ltd [1961 (8) TMI 7 - SUPREME COURT] wherein as held that “deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them”.
It was stressed upon by the Hon’ble Court that the object of the company also kept in view in judge the nature of activities. The Hon’ble Supreme Court after considering the judgment of Sultan Brothers (P.) Ltd. [1963 (12) TMI 4 - SUPREME COURT] relied upon by the revenue in the present case held the rental income as income from Business or profession.
As assessee is having income not only from letting out the premises but also providing the amenities and facilities which are basic requirements for occupation of the space provided to the tenants and the facilities provided are essential for to become the space operational.
We are of the view that the income declared by the assessee should be considered as income from business or profession. One more aspect which requires consideration is that for Assessment Years starting from 2012-13 to 2014-15 and 2020-21 and 2023-24, the assessments were completed u/s 143(3)/148 of the Act and the income of the assessee was accepted as Income from Business or Profession, thus, as a principal of consistency also as held in the case of Radhasoami Satsang [1991 (11) TMI 2 - SUPREME COURT] the income of the assessee should be treated as “Income from Business and Profession” and as income from house property. Decided against revenue.
Issues: (i) Whether unlocking/activation of mobile phones constitutes "taken into use" for the purposes of duty drawback under the Duty Drawback Rules and related CBIC Clarifications; (ii) Whether the Petitioners are entitled to release of duty drawback amounts and payment of interest (including for the previous period) in terms of the judgment dated 13 February 2025 and subsequent events.
Issue (i): Whether unlocking/activation of mobile phones is "taken into use" under the proviso to Rule 3 of the Duty Drawback Rules.
Analysis: The procedures adopted for unlocking/activating mobile phones were examined in relation to the Duty Drawback Rules and the Clarifications issued by the Board. The Clarifications treated unlocking/activation as "taken into use"; this interpretation was assessed against the statutory scheme and the scope of Rule 3. The court analysed whether the functional steps of unlocking/activation alter the character of the goods so as to constitute use within the meaning of the proviso to Rule 3.
Conclusion: Unlocking/activation of mobile phones constitutes mere configuration to make the product usable and does not amount to "taken into use" under the proviso to Rule 3. The CBIC Clarifications treating unlocking/activation as "taken into use" are quashed.
Issue (ii): Whether the Petitioners are entitled to release of duty drawback amounts and payment of interest, including for the previous period, in light of the High Court judgment, dismissal of the SLP, and subsequent conduct of the Customs Department.
Analysis: The court considered the operative directions of the judgment dated 13 February 2025, the dismissal of the Department's SLP by the Supreme Court on 18 July 2025, and subsequent steps taken by the Department including an unlisted review petition and delay in implementation. The court examined entitlement to payment of drawback amounts and the applicability of interest under Section 75A where the Department failed to give effect to the judgment within prescribed time frames.
Conclusion: The Petitioners are entitled to release of the duty drawback amounts in accordance with the earlier judgment. The Customs Department was directed to finalise computations with the Petitioners and release the amounts by 28 February 2026. The court held that interest would be payable in accordance with law where the statutory time for payment had elapsed; the court granted relief including consideration of interest for the previous period given the Department's failure to comply after dismissal of the SLP.
Final Conclusion: The petitions are allowed in the terms set out: the administrative Clarifications are quashed, the impugned SCNs and Orders-in-Original relying on those Clarifications are quashed, and the Customs Department is directed to compute and release the duty drawback amounts (and applicable interest as provided by law) to the Petitioners by the specified date; non-compliance permits revival of the petitions and further action.
Ratio Decidendi: Unlocking/activation that only configures goods for use does not amount to "taken into use" under Rule 3 of the Duty Drawback Rules; administrative clarifications contrary to that statutory interpretation are liable to be quashed, and consequential payment of duty drawback and statutory interest must follow once higher court remedies are exhausted or dismissed.
"Configuration" as distinct from "taken into use" under proviso to Rule 3 of the Duty Drawback Rules - quashing of CBIC Clarifications - quashing of show cause notices and Orders-in-Original - enforcement of High Court judgment after dismissal of Special Leave Petition - effect of filing a review petition on operation of an order - payment of statutory interest u/s 75A - HELD THAT:- In the opinion of this Court, the main judgment passed by this Court in the writ petition is dated 13th February, 2025. SLP filed against the said judgment, has been dismissed on 18th July, 2025.
No review has been listed by the Department before the Supreme Court till date in respect of the order of the Supreme Court dated 18th July, 2025.
Petitioners may, accordingly, appear before the Department on 9th February, 2026, and the amounts may be finalised between the parties on the basis of computation filed by both parties before this Court. The amount determined shall then be released to the Petitioners by 28th February, 2026.
The petitions, along with pending applications, are disposed of in the aforesaid terms.
Issues: Whether crude palm oil consignments declared as "edible grade" are entitled to benefit under Notification No.21/2002-Cus. (Sl. No.30(II)(A)) where laboratory test reports show acid value greater than 10, given that the notification specifies "acid value of 4 or more" without an upper limit.
Analysis: Notification No.21/2002 as amended (Sl. No.30(II)(A)) grants exemption to crude palm oil of edible grade described as having an acid value of "4 or more" and specified carotenoid range; the text of the notification contains no express upper limit on acid value. Conflicting laboratory reports were placed before the authorities; some reports recorded acid values above 10 while others recorded lower values. The authorities also permitted reprocessing of the imported goods and clearance after Port Health Officer (PHO) certification. Relevant precedents interpreting the notification (including High Court and Supreme Court decisions) confirm that where the exemption notification unambiguously specifies "4 or more" an upper limit cannot be read into the notification, and that such exemptions must be given effect unless the notification itself is ambiguous. The Revenue's reliance on external standards or circulars imposing a maximum acid value does not alter the clear wording of the exemption entry in the notification.
Conclusion: The benefit of Notification No.21/2002-Cus. is available to the consignments declared as crude palm oil (edible grade) despite laboratory reports showing acid value above 10; the impugned orders denying the exemption are set aside and the appeals are allowed (in favour of the assessee).
Interpretation of exemption notification - Strict interpretation of exemption notifications - Reliance on laboratory test reports for classification - Provisional assessment and finalization based on test reports - Inapplicability of external standards to amend notification criteria - Effect of reprocessing and Port Health Officer clearance on eligibility
Interpretation of exemption notification - Strict interpretation of exemption notifications - Denial of benefit under Notification No.21/2002-Cus. on the ground that acid value exceeded 10 was not permissible where the notification expressly provides 'acid value of 4 or more' without any upper limit. - HELD THAT: - The Tribunal examined Sl. No.30(II)(A) of Notification No.21/2002 as amended which grants exemption to crude palm oil falling under heading 1511 having an acid value of '4 or more' and specified carotenoid range. Because the notification sets out '4 or more' and contains no upper limit, the Revenue could not read an upper threshold (such as 'not more than 10') into the notification. The Tribunal relied on binding and persuasive precedent (Gujarat High Court decision in Cargill and the subsequent Supreme Court dismissal of the Revenue's appeal) holding that where an exemption notification expressly covers a description, that description must be followed and extraneous standards (such as PFA-derived upper limits) cannot be imported to curtail the notification. Consequently, denial of exemption solely because chemical analysis showed acid value above 10 was not justified. [Paras 5]
Appellant entitled to benefit of Notification No.21/2002-Cus. despite acid value exceeding 10; upper limit cannot be read into the notification.
Reliance on laboratory test reports for classification - Provisional assessment and finalization based on test reports - Finalization of provisional assessments solely on the basis of laboratory reports showing acid value above 10 could not defeat the entitlement under the notification when the notification's criteria were satisfied as interpreted. - HELD THAT: - The appeals arose from provisional assessments finalized after receipt of various laboratory reports (CFL, CRL, CRCL). The Tribunal recognised that provisional assessments may be finalised after test reports, but held that where the legal entitlement under the exemption notification is satisfied as a matter of interpretation (i.e., acid value '4 or more'), adverse laboratory reports indicating higher acid value do not, by themselves, justify denial of the notification's benefit. The Tribunal therefore set aside the finalization orders which denied exemption on that ground. [Paras 5]
Provisional assessments finalized by denying the notification benefit on the basis of test reports were set aside.
Effect of reprocessing and Port Health Officer clearance on eligibility - Reprocessing of the imported goods and subsequent Port Health Officer clearance negated the rationale for denying exemption on standards grounds and supported allowing the notification benefit. - HELD THAT: - The Tribunal noted the Original Authority's finding that certain consignments were permitted to be reprocessed in the importer's premises subject to customs and central excise conditions, and that reprocessed cargo was cleared after obtaining PHO clearance. Given that the notification does not impose an upper acid-value limit, and the goods were reprocessed and cleared by PHO, the denial of exemption on the ground of non-conformity was rendered untenable. The Tribunal accordingly concluded that reprocessing with PHO clearance undercuts the basis for refusing the notification benefit. [Paras 5]
Reprocessing and PHO clearance nullify the justification for denying the notification benefit; exemption allowed.
Final Conclusion: Impugned orders denying benefit of Notification No.21/2002-Cus. were set aside; appeals allowed and the appellants held eligible for the exemption under the notification with consequential relief, having regard to the notification's wording and reprocessing/PHO clearance.
Issues: Whether the imported uninterrupted power supply units were eligible for exemption from basic customs duty under Serial No. 4 of Notification No. 25/2005-Cus. dated 01.03.2005.
Analysis: The exemption entry covered static converters for automatic data processing machines and units thereof, and telecommunication apparatus other than static converters for cellular mobile phones. The Tribunal had already decided in the assessee's own case that the imported UPS fell within that description and were entitled to full exemption. Another Division Bench had taken the same view in a connected line of decisions, which had been accepted by the department. In a taxing exemption, the language of the notification must be applied as written, but on the facts the goods were covered by the exemption entry.
Conclusion: The denial of exemption was unsustainable and the assessee was entitled to the benefit of the notification.
Exemption from Basic Customs Duty - Interpretation of exemption notification by plain language - Eligibility of static converters / Uninterrupted Power Supply (UPS) under exemption - Notification No. 25/2005-Cus dated 01.03.2005 - Whether the appellant could have been denied exemption from payment of basic customs duty on the Uninterrupted Power Supply [UPS] imported by the appellant in terms of the Exemption Notification. - HELD THAT:- This issue was examined by a Division Bench of the Tribunal in the own case of the appellant [2025 (2) TMI 1296 - CESTAT MUMBAI], which arose from the passing of the speaking order. The Tribunal held that the appellant is entitled to seek exemption from payment of basic customs duty on the goods under the Exemption Notification.
In view of the aforesaid decision of the Tribunal in the matter of the appellant and in the matter of Prostarm Info Systems Ltd [2025 (6) TMI 1020 - CESTAT MUMBAI] which decision has been accepted by the department, the impugned order dated 31st October 2023 passed by the Commissioner of Customs (Appeals), Nhava Sheva in respect of the subsequent 36 Bills of Entry would have to set aside and is set aside. All the 36 appeals are, accordingly, allowed.
Issues: Whether the Customs Act, 1962 empowered customs authorities to confiscate foreign currency and impose penalties under section 113(d) and section 114 in respect of cross-border currency dealings governed by the Foreign Exchange Management Act, 1999 (FEMA), or whether such proceedings were beyond the competence of customs authorities absent statutory deeming or valid delegation under FEMA.
Analysis: The Tribunal analysed the historical and statutory evolution of foreign exchange regulation and customs law, including prior deeming provisions in earlier foreign exchange statutes that had enabled customs enforcement. The Court examined the text and scheme of Customs Act, 1962 (including section 2(22) and section 113(d)), the repeal of earlier deeming provisions when FEMA, 1999 was enacted, and the absence of any provision in the Customs Act that now deems prohibitions under FEMA to be prohibitions under the Customs Act. The Tribunal considered administrative instruments and standing orders purporting to delegate FEMA powers to customs officers, the government's archival correspondence about authorising customs officers under FEMA, and precedents relied upon by the parties. Applying principles of statutory interpretation on the relationship between later special legislation (FEMA) and earlier general legislation (Customs Act), the Tribunal concluded that in the absence of express statutory deeming or proper delegation under FEMA, customs authorities lack competence to invoke Customs Act confiscatory and penalty provisions based on RBI/FEMA prohibitions; proceedings purporting to do so amount to extra-legal exercise beyond the Customs Act's empowerment.
Conclusion: The confiscation of foreign currency and the imposition of penalties under the Customs Act, 1962 insofar as they rested on prohibitions or instructions under FEMA, 1999 were beyond the competence of the customs authorities. The confiscation and penalties affirmed in the impugned order were set aside and the appeals were allowed in favour of the appellants.
Ratio Decidendi: Absent an express deeming provision in the Customs Act or valid statutory delegation under FEMA, customs authorities cannot invoke confiscation or penalty provisions of the Customs Act on the basis of prohibitions created by FEMA; the later, special statutory scheme (FEMA) governs foreign-exchange regulation and displaces the earlier general enforcement route through customs for such prohibitions.
Jurisdiction of customs over export and carriage of foreign currency -cross-border movement of currency, export of goods without prescribed declaration of value to be repatriated and cross-border movement of securities -scope of baggage exception - confiscation of ‘foreign currency’ embedded in ‘travel cards’ by recourse to section 113(d) - penalties u/s 114 and fine in lieu u/s 125 - appellate jurisdiction of the Appellate Tribunal / CESTAT and section 129A - deeming/prohibitory provisions under foreign exchange law and effect of omission in FEMA, 1999 - delegation/authorization - HELD THAT:- As ‘currency’ finds definition only in statutes regulating ‘foreign exchange’, it is in that direction that our minds must traverse. By renumbering the existing section 19A and 19B and with further incorporation [section 15 of FERA (Amendment) Act, 1964 of those, and alongside, 19A to section 19J, the proposed Enforcement Directorate acquired teeth. Taking note of enactment of Customs Act, 1962 and repeal of Sea Customs Act, 1878, the erstwhile arrangement for deeming prohibition [section 18 of FERA (Amendment) Act, 1964 of certain ‘foreign exchange transactions’ save for compliance with conditions prescribed was continued by suitable substitutions in section 23A of Foreign Exchange Regulation Act, 1947. The Appellate Board was subordinated to jurisdictional High Court by incorporating section 23EE [section 20 of FERA (Amendment) Act, 1964 in Foreign Exchange Regulation Act (FERA), 1947.
As far as the dual jurisdiction of customs officers and enforcement officials are concerned, it is the thus revised Foreign Exchange Regulation Act (FERA), 1947 that, by and large, was transposed in the corresponding sections of Foreign Exchange Regulation Act (FERA), 1973 and which came up for judicial resolution before the Tribunal in re Meghraj Gordhandas Gehi [1984 (5) TMI 252 - CEGAT BOMBAY]. That decision, as well as that in re Agrawal Trading Corporation [1972 (1) TMI 45 - SUPREME COURT] of the Hon’ble Supreme Court on the applicability under Foreign Exchange Regulation Act (FERA), 1973 are at one, setting out the legal position that it is only by the deeming prohibition in the Foreign Exchange Regulation Act (FERA) [section 67 of FERA, 1947] 1973 and Foreign Exchange Regulation Act (FERA) [section 23A of FERA, 1947] 1947 respectively that customs authorities may invoke their powers under Customs Act, 1962 for contravention of the specified provisions in those statutes for any consequence whatsoever.
It is clear that the empowerment flowed, and floated, only upon such cross-statute prohibition and, thereby, rendering ‘prohibition’ in ‘other law for the time being in force’ acknowledged for the purpose of section 113(d) of Customs Act, 1962; conversely, without it, there was no provision or prohibition in Customs Act, 1962 that afforded primary empowerment to proceed in the three circumstances of regulation by the Reserve Bank of India, viz., cross-border movement of currency, export of goods without prescribed declaration of value to be repatriated and cross-border movement of securities. That further explains the reference to prosecution by recourse to Foreign Exchange Regulation Act (FERA), 1947 in re Agrawal Trading Corporation and, in accordance with procedure set out in Foreign Exchange Regulation Act (FERA), 1947 and without being empowered as Director of Enforcement, by issue of notice for adjudication that could, instead of conclusion thereto, be substituted as complaint to initiate criminal prosecution.
Thus, without exception, any action against contravention leading to confiscation and penalty or offence leading to conviction and imprisonment, provisioned in Customs Act, 1962 in relation to prohibitions under Foreign Exchange Regulation Act (FERA) of either vintage rested, wholly and solely, on the deeming provision therein; in its absence, such authority ceases.
It is anything but clear that not one of the prohibitions in Foreign Exchange Management Act (FEMA), 1999, such as they are, have been deemed to have been prohibited under section 11 of Customs Act, 1962. The empowerment, and not taken refuge under by the lower authorities expressly, is delegation by subordinate legislation and prompted, by all appearances, from administrative conveniencing; it was to be taken recourse to for invoking provisions of Foreign Exchange Management Act (FEMA), 1999 and, in the strictest sense, independent of Customs Act, 1962 in its entirety, whether it be for procedure or substantive consequences – under section 111, section 112, section 113, section 114 or section 135 of Customs Act, 1962.
There is no competence under Customs Act, 1962 to consider any of the instructions, circulars or orders of the Reserve Bank of India for ascertainment of compliance thereto by the travelling public. That lack of competence extends throughout the several silos within with which lie administrative, enforcing and appellate authorities created and empowered by Customs Act, 1962. We, too, are not competent to test the facts; no more competent were the lower authorities unless in exercise as a delegate by competent authority under Foreign Exchange Management Act, 1999.
The impugned proceedings, leading to confiscation of foreign currency and liability to confiscation of amounts embedded in ‘travel cards’ with attendant penalties under section 114 of Customs Act, 1962, commenced and concluded with recourse to which is vastly at variance with empowerment under section 113 (d) of Customs Act, 1962 to only confiscate and it is incontrovertibly clear from the proposals in the notice, and findings in the order, that carriage of ‘foreign currency’ or ‘travel card’ is not subject to any prohibition imposed by or under Customs Act, 1962; ‘read with’ is to be invoked when such prohibition in ‘any other law for the time being in force’ is deemed as ‘prohibition imposed by or under Customs Act, 1962’ which is not in conformity with the present factual matrix.
No significance attaches to the continued retention of ‘currency’ as ‘deemed goods’ in section 2 of Customs Act, 1962 in the absence of overt or deemed reference to that expression in the provisions of Customs Act, 1962. The deliberate discard of delegated authority to exercise empowerment under Foreign Exchange Management Act (FEMA), 1999 is perverse defiance of law by the lower authorities.
The present proceedings, by relying on provisions of Customs Act, 1962 that do not proffer valid empowerment to do so are not proceedings under Foreign Exchange Management Act (FEMA), 1991. The confiscation of ‘foreign currency’ and liability to confiscation of ‘foreign currency’ embedded in ‘travel cards’ by recourse to section 113(d) of Customs Act, 1962 and imposition of consequential penalty under section 114 of Customs Act, 1962 is extra-legal and egregious exercise of power. The confiscation and penalties affirmed in the impugned order are set aside to allow the appeals.
Issues: (i) Whether statements recorded under section 108 of the Customs Act could be relied upon by the adjudicating authority for rejecting declared transaction value without complying with section 138B; (ii) Whether emails and computer-retrieved invoices relied upon by the adjudicating authority were admissible without compliance with section 138C.
Issue (i): Whether the adjudicating authority could rely upon statements recorded under section 108 of the Customs Act to re-determine transaction value without following the procedure in section 138B.
Analysis: Section 138B makes statements recorded before gazetted officers relevant in proceedings only in specified circumstances. Where clause (a) does not apply, clause (b) requires that the person who made the statement be examined as a witness before the adjudicating authority and the adjudicating authority form an opinion, for reasons recorded, that the statement should be admitted in the interests of justice. Only after admission can cross-examination be afforded. The impugned order relied on section 108 statements that were retracted and were not admitted in evidence by following the statutory procedure in section 138B. Prior decisions applying identical provisions in analogous statutes establish that the procedure is mandatory and failure to comply precludes reliance on such statements.
Conclusion: Statements recorded under section 108 could not be relied upon for re-determining transaction value because the mandatory procedure in section 138B was not complied with; this conclusion is in favour of the assessee.
Issue (ii): Whether emails and invoices retrieved from a supplier's email (computer printouts) could be admitted without compliance with section 138C.
Analysis: Section 138C permits computer printouts as evidence only if the conditions in subsection (2) and the certification requirements in subsection (4) are satisfied. The record did not show compliance with section 138C, no certificate as contemplated was produced, and no panchnama for email printouts was made. The differential duty calculation relied primarily on unadmitted section 108 statements rather than on properly certified electronic records.
Conclusion: Emails and computer-retrieved invoices were not admissible in the absence of compliance with section 138C; this conclusion is in favour of the assessee.
Final Conclusion: The impugned order demanding differential duty, confiscating goods with option to redeem, and imposing penalties could not be sustained because mandatory statutory safeguards for admitting investigational statements and electronic records under sections 138B and 138C were not followed; the appeals are allowed.
Ratio Decidendi: Where statements recorded during inquiry are relied upon in adjudication, the adjudicating authority must first examine the maker of the statement and form a recorded opinion under section 138B before admitting the statement in evidence, and computer printouts are admissible only upon satisfying section 138C's conditions and certification; failure to follow these mandatory procedures precludes reliance on such material.
Relevancy and admissibility of statements recorded u/s 108 - Admissibility of statements in adjudication u/s 138B - Admissibility of computer printouts, emails and certificates u/s 138C - Proof by electronic records - Right to cross-examination after admission of statement - rejection of declared transaction value and redetermination of value under rule 12 and section 14 - Customs adjudication and appellate review (CESTAT) - HELD THAT:- Section 108 of the Customs Act deals with power to summon persons to give evidence and produce documents. It provides that any Gazetted Officer of customs shall have the power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making under the Customs Act.
In view of the provisions of subsection (2) of section 138B of the Customs Act, the provisions of subsection (1) of the Customs Act shall apply to any proceedings under the Customs Act as they apply in relation to proceedings before a Court. What, therefore, follows is that a person who makes a statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence, in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority, the statement will be admitted as an evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made. It is only when this procedure is followed that the statements of the persons making them would be of relevance for the purpose of proving the facts which they contain.
In Drolia Electrosteel [2023 (11) TMI 10 - CESTAT NEW DELHI], a Division Bench of the Tribunal examined the provisions of section 9D of the Central Excise Act and after placing reliance upon the decision of the Punjab and Haryana High Court in Jindal Drugs [2016 (6) TMI 956 - PUNJAB & HARYANA HIGH COURT], observed that if the mandatory provisions of section 9D(1)(b) of the Central Excise Act are not followed, the statements cannot be used as evidence in proceedings under Central Excise Act.
Thus, it has to be held that the statements of persons recorded under section 108 of the Customs Act could not have been relied upon by the Principal Commissioner for rejecting the transaction value and re-determining the same.
There is nothing on the record to show that Panchnama was drawn regarding the printouts of the email. The statements made under section 108 of the Customs Act were also retracted by the appellants. Thus, the compliance of section 138C of the Customs Act had not been satisfied.
In this view of the matter, it is not possible to sustain the order dated April 23, 2020 passed by the Principal Commissioner demanding differential duty, confiscating the goods with option to redeem them, and imposing penalties upon the appellants.
The impugned order dated April 23, 2020, insofar as it concerns these five appeals, is, accordingly, set aside and all the five appeals are allowed.
Issues: Whether the imported goods described as "Mukhwas (Mouth Freshener)" consisting of raw betel nuts, sugar-coated fennel seeds, crystal sugar, dry coconut pieces, and sunflower and pumpkin seeds were classifiable under CTI 2106 90 99 of the First Schedule to the Customs Tariff Act, 1975.
Analysis: The goods were found to be a mixed food preparation commonly known in trade as Mukhwas and not as pan masala or supari. The composition showed that betel nut was not the predominant constituent and did not provide the essential character of the product, as sugar-coated fennel seeds formed the major component. The goods also did not satisfy the ingredients required for pan masala under Supplementary Note 1 to Chapter 21 or for betel nut product known as supari under Supplementary Note 2 to Chapter 21. In the absence of a specific tariff entry for Mukhwas, the product fell within the residual heading for food preparations not elsewhere specified or included, applying Rule 1 of the General Rules for the Interpretation of the First Schedule to the Customs Tariff Act, 1975, read with the chapter notes and the common parlance principle.
Conclusion: The goods are classifiable under CTH 2106 and more specifically under CTI 2106 90 99 as "Other", in favour of the assessee.
Classification of goods under Customs Tariff - Food preparations not elsewhere specified or included - General Interpretative Rules for tariff classification (Rule 1, Rule 3(b), Rule 3(c)) - Essential character of a composite good - Trade or commercial parlance for classification - Supplementary Notes to Chapter 21 (Pan masala and Supari)
Classification of goods under Customs Tariff - Food preparations not elsewhere specified or included - General Interpretative Rules for tariff classification (Rule 1, Rule 3(b), Rule 3(c)) - Essential character of a composite good - Trade or commercial parlance for classification - Supplementary Notes to Chapter 21 (Pan masala and Supari) - Classification of the imported product 'Mukhwas (Mouth Freshener)' containing betel nut, sugarcoated fennel seeds, crystal sugar, dry coconut and mixed seeds under the First Schedule to the Customs Tariff Act, 1975. - HELD THAT: - The Authority examined the product composition and the applicable tariff framework including Chapter/Section notes and the General Interpretative Rules. The product is a mixture of five edible ingredients imported in 50 kg bags and is not described by a specific heading in the Tariff. Supplementary Note 1 (pan masala) requires presence of lime, katha or tobacco, which are absent here; accordingly 2106 90 20 does not apply. Supplementary Note 2 (Supari) contemplates preparations containing betel nuts, but the Authority found that betel nut is not the predominant constituent of the subject mixture (approximately 24%), whereas sugarcoated fennel seeds constitute the largest proportion (approximately 50%). Applying Rule 3(b) on essential character and the trade/commercial parlance test, the Authority held that betel nut does not impart the essential character to the mixture and the product is not known in trade as 'Supari' but as 'Mukhwas'. Where a mixed food preparation is not specifically covered by other subheadings of Chapter 21, Note 6 and the residual description of CTH 2106 apply. Consequently, having excluded 2106 90 20 and 2106 90 30 on the facts and applying GRI 1 and Rule 3, the Authority concluded the product falls within the residual provision for "Other" food preparations under CTH 2106 and specifically under CTI 2106 90 99. [Paras 13, 15, 17, 18, 19]
The product 'Mukhwas (Mouth Freshener)' as described is classifiable under CTH 2106 and specifically under Tariff Item 2106 90 99 (other).
Final Conclusion: Advance ruling: the imported Mukhwas (mouth freshener) composed of the specified ingredients is not classifiable as Pan masala (2106 90 20) or Supari (2106 90 30) and is held classifiable under CTH 2106 - Tariff Item 2106 90 99 (other). The applicant's request for confidentiality of commercially sensitive information is allowed.
Issues: Whether the imported "Window Glass" merits classification under Tariff item 8529 90 90 of the First Schedule to the Customs Tariff Act, 1975.
Analysis: The question falls within the scope of advance rulings under Section 28H(2)(a) of the Customs Act, 1962. Classification must be determined by the terms of the headings and relevant Section/Chapter Notes (GIR 1), aided by HSN Explanatory Notes. Two competing headings arise: 7007 (safety glass) and 8529 (parts suitable for use solely or principally with apparatus of headings 85248528). Note 2 to Section XVI directs that parts suitable for use solely or principally with goods of heading 8524 are to be classified under heading 8529. The product is chemically toughened glass but is engineered, tailored and imported for permanent bonding into flat panel display modules (display assemblies) and has no separate end-use outside that assembly. Given that the glass is an integral, essential component of a display assembly classifiable under heading 8524 and is suitable solely or principally for that use, it meets Note 2(b) criteria and is classifiable as a part under heading 8529. Further, if equal classification under 7007 and 8529 were arguable, Rule 3(c) of the GIRs directs classification under the heading occurring last in numerical order, which supports heading 8529.
Conclusion: The product is classifiable under Tariff item 8529 90 90 (parts suitable for use solely or principally with the apparatus of headings 8524 to 8528). The advance ruling is in favour of the Applicant (assessee).
Classification of goods under the Customs Tariff - imported "Window Glass" - parts suitable for use solely or principally with the apparatus of heading 8524 - interpretation of 'safety glass' under Heading 7007 - scope of advance rulings under Section 28H(2)(a) - General Rules for the Interpretation (GIR) (including Rule 1 and Rule 3(c)) - Note 2 to Section XVI of the First Schedule to the Tariff Act - Whether the Window Glass imported by the Applicant merits classification under CTH 8529 90 90 of the First Schedule of the Tariff Act? - HELD THAT:- Having examined both headings i.e. 7007 and 8529, the Window Glass as being imported by the applicant is designed for use solely and principally in the Display Assembly, it satisfies the criteria laid down in Note 2(b) of Section XVI and, therefore, merits classification under CTH 8529.
Even if it is considered that the Window Glass could be covered within the scope of “safety glass” under CTH 7007, the final classification would still fall under CTH 8529 by application of Rule 3(c) of the General Rules for the Interpretation (GRI). Rule 3(c) stipulates that when classification cannot be determined under Rules 3(a) or 3(b), the product shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. Hence, even if the product could arguably fit both under CTH 7007 and CTH 8529, it would still merit classification under CTH 8529, as this heading occurs later in numerical order. Thus, 'Window Glass' merits classification under Heading 8529.
It is observed that the product, ‘Window Glass’ is not in the nature of Aerials and Aerial reflectors, hence it would not be classifiable under CTSH 8529 10 which covers “Aerials and aerial reflectors of all kinds; parts suitable for use therewith”. Accordingly, it will merit classification under the residuary entry at CTSH 8529 90 as “Other”. On further perusal of the entries under CTSH 8529 90 at eight-digit level, it is observed that the product is not a part used in communication jamming equipment or amateur radio communication equipment, hence ‘Window Glass’ will merit classification under the residuary entry, i.e., CTH 8529 90 90 which reads as “Parts suitable for use solely or principally with the apparatus of headings 8524 to 8528-Other --- Other”.
The Commissionerate has also agreed upon the 'Window Glass' primarily merit classification under heading 8529.
Thus, the ‘Window Glass’ are classifiable under Tariff item 8529 90 90 of the First Schedule to the Customs Tariff Act, 19757.
Issues: (i) Whether the Impugned Judgment directing a forensic audit by SEBI and constitution of a SEBI Special Cell to take over winding up of the Scheme was legally sustainable; (ii) Whether the interim order dated 25.01.1999 merged into or was superseded by the final order dated 29.05.2013 (applicability of the doctrine of merger); (iii) Whether the Special Committee, its composition, decisions (including reconstitution on 12.09.2023) and actions (including certain orders passed during pendency) were within its jurisdiction and whether adverse directions against the Committee/members were warranted; (iv) Whether invocation of Rule 9 of the Companies (Court) Rules and exercise of courts inherent/supervisory powers was impermissible vis-e0-vis remedies under the 1996 Regulations.
Issue (i): Legality of directing a forensic audit by SEBI and constituting a Special Cell of SEBI to complete winding up of the Scheme.
Analysis: The Court examined the factual matrix, inconsistencies in interim reports, the historic failure to complete winding up within the timelines envisaged by the 29.05.2013 order, and the statutory powers under Sections 11 and 11B of the SEBI Act. It considered the supervisory role of the Company Court and the need to protect unitholders, noting that the Special Committee functioned in a fiduciary capacity and that material existed justifying verification of payments and records.
Conclusion: The direction for a forensic audit by SEBI and constitution of a Special Cell of SEBI to complete the winding up was upheld and found to be sustainable.
Issue (ii): Applicability of the doctrine of merger between the interim order dated 25.01.1999 and the final order dated 29.05.2013.
Analysis: The Court analysed the nature and terms of the 29.05.2013 order, its open-ended supervisory provisions, express liberty for clarification and modification, and the continuing judicial oversight and reporting requirements. It applied settled principles on construction of judicial orders and merger, noting that the 29.05.2013 order was not final and co-terminus so as to attract merger in the strict sense.
Conclusion: The doctrine of merger did not apply; the interim order of 25.01.1999 continued to have operative significance and could not be treated as absorbed into the 29.05.2013 order.
Issue (iii): Validity of the Special Committees composition, specific actions (including reconstitution on 12.09.2023) and whether adverse findings were conclusively recorded against the Committee or CRB Group.
Analysis: The Court held that the Special Committee was vested with trustee-like, fiduciary duties under the 29.05.2013 order and was required to seek court clarification where ambiguity arose. It found that the Impugned Judgment did not record conclusive findings of mala fides or manipulation against the Committee members or CRB Group but identified deficiencies and inconsistencies warranting further enquiry by forensic audit. The Court also held that certain orders passed by the Committee beyond its subsisting mandate could not be sustained.
Conclusion: No conclusive adverse finding was imputed against the Committee members or CRB Group in the Impugned Judgment; however, actions of the Committee were subject to supervisory control, some acts beyond mandate were liable to be set aside, and further enquiries (forensic audit) were justified. The reconstitution did not operate as an unqualified extension of mandate.
Issue (iv): Permissibility of invoking Rule 9 of the Companies (Court) Rules and the Courts inherent/supervisory powers instead of only Regulation 68 remedies.
Analysis: The Court compared the scope of Regulation 68 of the 1996 Regulations with the inherent and supervisory powers of the Company Court, observing that the two operate in distinct spheres and that the Court retains power to pass orders necessary to meet the ends of justice where circumstances so require.
Conclusion: Invocation of Rule 9 and exercise of the Courts inherent/supervisory jurisdiction in the facts of the case was permissible and not impermissible as contended by the Appellants.
Final Conclusion: The appeals lack merit and are dismissed; the Impugned Judgment directing a forensic audit, constituting a SEBI Special Cell to complete winding up within the stipulated framework, restraining certain payments pending audit, and dealing with unclaimed amounts and related directions is upheld in substance, while matters requiring further factual determination are left to the forensic process and supervisory proceedings of the Court.
Ratio Decidendi: Where a court-appointed committee functions in a fiduciary/trustee-like capacity under a court order that contemplates ongoing supervision and leaves liberty for clarification, the court retains inherent and supervisory jurisdiction to order enquiries (including forensic audits) and to reallocate statutory winding-up responsibilities to statutory authorities (such as SEBI under Sections 11/11B) to protect investor interests; an open-ended supervisory order is not necessarily merged into earlier interim orders.
Doctrine of merger - fiduciary duty - forensic audit - trustee-like powers - maintainability and locus - Companies Court's inherent powers- Character and legal effect of the order constituting the Special Committee and whether the interim order dated 25.01.1999 merged into the final order dated 29.05.2013.
Contestations on maintainability of the appeals by the Special Committee, Rommels locus, and the permissibility of invoking Rule 9 of the Companies (Court) Rules instead of Regulation 68 of the 1996 Regulations. - HELD THAT:- The learned Single Judge appointed a three-member Committee comprising an expert member from SEBI, a representative from the Ex-Management, and a neutral individual in the form of a retired Judge of the District Court, and vested it with full trustee-like powers. It is noteworthy that, by the same order, the role of CRB Asset Management Company Ltd. was terminated, and therefore, the inclusion of a member from the Ex-Management was considered necessary for the smooth discharge of the Committee’s functions.
In the said Order, the learned Single Judge issued several directions and clarifications, inter alia, that the termination of CRB Asset Management Company Ltd., as the Asset Management Company does not absolve it, or its directors or officers, from any liability arising out of acts of commission or omission during their tenure, in terms of Regulation 25(6) of the 1996 Regulations. The learned Single Judge further clarified that although no penalties or sanctions were to be imposed on the Ex-Management for statutory non-compliance during the pendency of the proceedings, liabilities pertaining to the period prior to the appointment of the PA were not extinguished, and statutory authorities were at liberty to proceed in accordance with law.
This demonstrates that the learned Single Judge remained conscious of the prior conduct of the management and trustees and ensured that no party could take advantage of its own wrongs, which had culminated in a complete breakdown necessitating SEBI’s intervention to protect bona fide unitholders.
Trustee-like powers - HELD THAT:- It is undisputed that the Order dated 29.05.2013 was passed with the consent of the parties present before the Court. The Trust Petition filed by SEBI was intended to safeguard the interests of the unitholders; however, the situation might have been better addressed had SEBI not allowed the earlier Order dated 25.01.1999 to go unnoticed while the Order dated 29.05.2013 was being passed by the learned Single Judge, and had SEBI sought appropriate clarification at that stage or at least soon thereafter. SEBI, being the regulator as well as the Petitioner, was further expected to act with greater promptitude and vigilance, particularly when extensions were being granted repeatedly from 2014 till 2022 without any objection.
So far as the applicability of the doctrine of merger is concerned, as discussed hereinabove, having regard to the nature of the Order dated 29.05.2013, it cannot be said that the said order was final or co-terminus in nature. The order was clearly open-ended and itself contemplated multiple contingencies and further proceedings, thereby leaving the matter alive for continuation. Consequently, the doctrine of merger, in stricto sensu, could not be attracted in the present case.
It is pertinent to note that when the PA was functioning for more than one and a half decades, he acted as a sole member. Having regard to the nature and object of the petition and the extraordinary situation prevailing, namely, the protection of the interests of the unitholders, and considering that the Special Committee envisaged by the Order dated 29.05.2013 was unable to complete the task assigned, we find no error in the learned Single Judge proceeding to constitute a Special Cell of SEBI to bring the long-pending winding-up process of the scheme to its logical conclusion. In any event, all actions of the Special Cell remain under the supervision of the Court and are always open to judicial scrutiny.
We find no merit in this contention either. The Company Court is vested with ample authority to exercise its inherent powers, having regard to the facts and circumstances of each case. The comparison sought to be drawn between Regulation 68 of the 1996 Regulations and Rule 9 of the Companies (Court) Rules is misconceived. Regulation 68 of the 1996 Regulations empowers SEBI to initiate action upon satisfaction of the conditions stipulated therein, whereas Rule 9 of the Companies (Court) Rules preserves the inherent powers of the Court to pass such orders as may be necessary to meet the ends of justice. The two provisions operate in distinct and independent spheres and are not in conflict with each other. Accordingly, this argument of the Appellants also stands rejected.
We find no merit in the present appeals. Accordingly, both appeals are dismissed.
The present Appeals, along with pending application(s), if any, stand disposed of in the above terms.
Issues: Whether the attachment of the petitioners' bank accounts and the imposition of liability on the petitioners, who were directors of a company in liquidation, under Section 88(3) of the GST enactment was justified and whether the petitioners could be permitted to seek relief from such liability and attachment.
Analysis: Section 88(3) of the GST enactment imposes joint and several liability on persons who were directors of a private company during the relevant period for recovery of tax, interest or penalty where such amounts cannot be recovered from the company, subject to proof that non-recovery is not attributable to gross neglect, misfeasance or breach of duty by the director. The record shows that tax has been recovered from the company's credit ledger and that liquidation proceedings were in effect with an appointed liquidator. The available material does not establish that the petitioners, as individual directors, cannot seek to displace liability by making an application under the statutory framework; procedural opportunity to investigate and determine whether non-recovery is attributable to gross neglect, misfeasance or breach of duty remains available to the assessing authority. The impugned attachment was executed without final adjudication of the directors' personal liability under the statutory test and without affording the procedural opportunity contemplated by the statute.
Conclusion: In favour of the Assessee. The petitioners are entitled to file a suitable application to the respondents to seek exclusion from liability under Section 88(3); the attachment of the petitioners' bank accounts is to stand vacated subject to the outcome of the application, and the respondents are to decide the application on merits after hearing the petitioners within the directed timeframe.
Liability of directors for tax of company in liquidation - Liability in case of company in liquidation - Liquidators appointment and control of company affairs - Writ jurisdiction of High Court - Attachment of bank accounts in recovery proceedings - Section 88(3) of the respective GST enactments - HELD THAT:- According to the petitioner, they are no longer associated with the said Company under liquidation, as, the said Company is in charge of the fourth respondent, who was initially appointed as Interim Resolution Professional by order dated 08.09.2017 and later on, appointed as a Liquidator of the said Company by order dated 06.02.2019.
The facts on records also reveal that tax amount has also been recovered from the credit ledger maintained by the said Company and that the said Company is in arrears of interest and penalty as confirmed by orders passed by the Assessing Officer. There is no justification on the part of the respondent-Income Tax Department to attach the respective petitioner's Bank account, who are the individual Directors of the said Company under liquidation for the mandate of Section 88(3) of the respective GST Enactments.
Therefore it is open for the petitioner to move suitable application before the respondents Nos.1 and 2 to extricate themselves from the liability in the impugned order. The petitioners are therefore given liberty to file suitable application within 15 days from the date of receipt of a copy of this order.
The attachment of the petitioner’s bank account(s) shall also stand vacated subject to the order to be passed.
Writ Petition is disposed of.
Issues: (i) Whether Respondent Nos.1 to 6 are speculative investors and therefore not financial creditors entitled to file a Section 7 application; (ii) Whether a Section 7 application can be filed on breach of earlier Consent Terms/settlement; (iii) Whether the Section 7(1) 2nd proviso threshold (100 allottees or 10% of allottees) is fulfilled by the applicants.
Issue (i): Whether Respondent Nos.1 to 6 are speculative investors and thus not financial creditors for the purpose of Section 7.
Analysis: The applicants pleaded registered sale agreements and full payment of consideration; the Corporate Debtor did not dispute applicant status in its reply; entries of leave and license were at instance of Corporate Debtor and arose from inability to deliver possession; the Tribunal relied on factual material showing registered agreements and payments and the earlier Consent Terms referring to the applicants as Financial Creditors.
Conclusion: The Court held that Respondent Nos.1 to 6 are not speculative investors and are Financial Creditors; this submission of the Appellant is rejected (decision in favour of Respondent Nos.1 to 6).
Issue (ii): Whether a Section 7 application can be instituted on account of breach of earlier Consent Terms/settlement.
Analysis: The admitted nature of the underlying debt, the entry into Consent Terms in earlier proceedings, and subsequent breach leading to non-payment were examined; precedents and Tribunal decisions were applied to distinguish cases where a settlement cannot be used to defeat a true debt/default; it was observed that where debt and default were original and settlement was later breached, a fresh Section 7 petition may be maintainable.
Conclusion: The Court held that breach of the Consent Terms does not bar filing a Section 7 application and that the Appellants contention to that effect is without merit (decision in favour of Respondent Nos.1 to 6).
Issue (iii): Whether the applicants satisfy the threshold under Section 7(1) 2nd proviso (jointly not less than 100 allottees or not less than 10% of total allottees) such that the Section 7 petition was maintainable.
Analysis: The statutory threshold is mandatory and requires a positive finding; the Adjudicating Authority concluded threshold met on basis that Corporate Debtor failed to produce proof of other allotments, but both parties produced additional materials on appeal (including RERA information and competing lists of allotments) which were not before the Adjudicating Authority; in view of conflicting and additional material, the Tribunal found that the Adjudicating Authority should determine the threshold afresh after considering all relevant evidence and hearing the parties.
Conclusion: The Court remanded the matter to the Adjudicating Authority to decide, after permitting additional evidence and hearing, whether the Section 7(1) 2nd proviso threshold is fulfilled by the applicants; no other issue was to be remitted (decision: remand for fresh consideration).
Final Conclusion: The appeal is allowed, the impugned admission order is set aside and the matter is remitted to the Adjudicating Authority for expeditious fresh determination solely on whether the applicants meet the statutory threshold under Section 7(1) 2nd proviso; other issues already decided in favour of the applicants need not be reconsidered.
Ratio Decidendi: A Section 7 petition by allottees under the 2nd proviso to Section 7(1) requires a positive finding that the applicants meet the statutory numerical threshold (100 allottees or 10% of total allottees); where material relevant to that determination was not before the Adjudicating Authority or conflicting evidence exists, the proper course is to remit for fresh consideration after permitting parties to place relevant evidence and be heard.
Maintainability of Section 7 application by allottees under the real estate project - Speculative investor doctrine in real estate allotment - Effect of breach of settlement / consent terms on right to initiate CIRP - Burden of proof on corporate debtor for allotments - Statutory compliance with amendment - HELD THAT:-When we look into the facts of the present case, present is a case where allottees i.e. Respondent Nos.1 to 6 have paid the entire consideration, leave and license for offering license fee to the Respondents was entered at the instance of the Corporate Debtor since Corporate Debtor was unable to deliver the possession of the flats. Corporate Debtor also defaulted in making the payment of license fee due to which first Section 7 application was filed by the Respondent Nos.1 to 6 which was decided in view of the Consent Terms. In the Consent Terms which was entered between the parties where the Corporate Debtor agreed that the Financial Creditor shall be paid the amount of Rs.1,96,92,000/-. In the Consent Terms, the Respondent Nos.1 to 6 have been referred to as Financial Creditors, thus, it is not now open for the Corporate Debtor/ Appellant to contend that Respondent Nos. 1 to 6 are speculative investors. We, thus, do not find any substance in the submission of the Appellant that application under Section 7 was not maintainable by Respondent Nos.1 to 6 as they being speculative investors.
It is a nature of transaction which determines the maintainability of the application. When Respondent Nos.1 to 6 have filed Section 7 application claiming to be an allottee of the Corporate Debtor, the mere fact that in earlier Company Petition, a settlement was entered by Corporate Debtor which settlement has been breached by the Corporate Debtor. Corporate Debtor cannot contend that application under Section 7 is not maintainable. We, thus, do not find any substance in the submission of the Appellant that the Company Petition which was filed subsequent to the breach of Settlement Terms by the Corporate Debtor was not maintainable.
It appears that that record was not before Adjudicating Authority. Counsel for the Respondent submitted that even as per the record, which was brought by the Appellant, of Maharashtra RERA, in the information pertaining to number of allotment, the number of booked allotment figure has been mentioned as zero. The submission of the Respondent that information as available in Maharashtra RERA, the booked allotment is mentioned as zero is not even as per the case of the Appellant who claims 6 allottees of the project. Respondent further submits that at best there are 54 units only.
In the facts of the present case especially the fact that certain materials which have been brought by both the parties in the record of this Appeal which were not available before the Adjudicating Authority, ends of justice be served in remanding the matter to the Adjudicating Authority for fresh consideration of the question as to whether application filed by Respondent Nos.1 to 6 meet the threshold as required by Section 7(1) 2nd proviso.
We grant liberty to the Corporate Debtor to file an additional affidavit bringing on record all relevant materials which it relies with respect to number of units allotted in the project within three weeks from today. Respondent Nos. 1 to 6 are also allowed three weeks’ time to file reply to the additional affidavit. Adjudicating Authority after considering the materials brought on record and after hearing the parties may determine the issue “as to whether the application filed by Respondent Nos. 1 to 6 being CP (IB) No.88 of 2021 fulfils the threshold as provided under Section 7(1) 2nd proviso. No other issue need to be decided by the Adjudicating Authority consequent to this remand order. Other issues have already been decided in favour of the Respondent Nos.1 to 6/ applicants of Section 7 application. In event the Adjudicating Authority finds the threshold to be fulfilled consequential orders be passed. We request the Adjudicating Authority to expeditiously dispose of the matter.
In result, the Appeal is allowed. The order impugned is set aside.
Issues: Whether the appellant, as promoter/director of the corporate debtor, is liable under Section 66 of the Insolvency and Bankruptcy Code, 2016 to contribute Rs. 6,56,25,806/- to the assets of the corporate debtor for alleged writing off of inventory as a fraudulent transaction.
Analysis: The application before the Adjudicating Authority alleged that inventory amounting to Rs. 6,56,25,806/- was written off in the books of the corporate debtor without corresponding physical stock, that the write-off constituted an extraordinary item not properly disclosed, and that the amount represented an inflation/misreporting of closing stock benefiting related parties and management. Transaction auditor reports, unit visit reports and stock audit reports recorded discrepancies between book records and physical verification, absence of supporting stock documentation, and material reduction in reported stock without explanatory notes in the financial statements. Financial data showed large inventory carried forward despite classification as NPA and limited purchases, undermining the defence that stock perished due to inability to execute exports. The Adjudicating Authority applied Section 66 and concluded the business was carried on with intent to defraud creditors, directing contribution. The Tribunal reviewed statutory distinctions between Section 66(1) (fraudulent trading) and Section 66(2) (wrongful trading), considered precedents on elements required to establish fraudulent purpose, and evaluated the documentary evidence and absence of acceptable explanation from the appellant. On the record and on the balance of probabilities, the facts supported the inference that the write-off served to wash non-existent inventory and was undertaken with a fraudulent purpose.
Conclusion: The appellant is liable under Section 66 of the Insolvency and Bankruptcy Code, 2016 to contribute Rs. 6,56,25,806/- to the corporate debtor. The appeal is dismissed and the order of the Adjudicating Authority directing contribution is upheld.
Fraudulent trading / Wrongful trading - Intent to defraud creditors - Write-off of inventory as extraordinary item and misstatement of closing stock - Transaction audit and unit visit/stock audit reports - Adjudicating Authority's power to order contribution to corporate debtor's assets - Resolution Professional's application under Chapter VI - National Company Law Appellate Tribunal (NCLAT) / National Company Law Tribunal (NCLT) - Whether the writing off of inventory in the books of the corporate debtor amounted to carrying on business with an intent to defraud creditors and justified an order under Section 66 directing the promoter-director to contribute to the corporate debtor's assets - HELD THAT:- To qualify under Section 66(1) of IBC, 2016, the transaction should be knowingly transacted with a dishonest intention to defraud the creditors of the CD, while under Section 66(2) of IBC, 2016, which deals with ‘Wrongful Trading’, Liability can only be fixed upon only ‘Director’ or ‘Partner’ and for a transaction to qualify under this Sub Section it must be shown that the parties to such transaction knew, or ought to have concluded that there was no reasonable prospect of avoiding insolvency proceedings and they did not take due diligence with a view to minimizing the potential loss to the creditors of the company.
The facts alleged and evidence produced must satisfy the ingredients of this section and the facts from which the intention to defraud may be deduced must be proved to satisfy the conscience of the ‘Tribunal’ on the scale of ‘preponderance of probability’. However, it will depend on the facts and evidence of each case to asses as to whether the particular transaction may be treated as fraudulent or not.
It is to be recalled that the CIRP of the CD was initiated vide order of Ld. Tribunal dated 10.06.2022. The transaction auditor has also noticed in its report that there was difference between sales reported in financial statement and sales reported in GST Returns and without approval of the board the appellant has paid the liabilities of the company and so far as the impugned transaction is concerned it was categorically reported by the transaction auditor that as per the audited financial statements for financial year 2019-2020 there was a reduction in stock in trade and there is no separate note regarding the reason for reduction of such stock in the financial statements and also that the same was not matching with the stock records maintained in tally.
The defense which has been taken by the appellant is that to fulfill an export order, huge procurement of huge amount of cashew seed was done and as the funds were not given by the banks, the export assignment could not be fulfilled and also that the processed and non- processes cashew seeds were kept lying in the stock for a long time and keeping in view the low shelf life of these seeds and of no maintenance during the covid period and lockdown imposed, the seeds become useless and was written off.
Keeping in view the documentary evidence available on record and lack of any acceptable explanation from the appellant with regard to the writing off of the inventory amount, we do not want to take any other view then taken by Ld. Adjudicating authority which appears to be legally and factually sound and it is established that the writing off of the inventory in the books of account of the CD was only for the purpose of cleaning of the books of accounts of the CD to wash a non-existent inventory meaning thereby no cashew seed or cashew was purchased and it was only a paper work which is also substantiated by the evidence mentioned by the transaction auditor to the effect that during the unit visit of the bank officials no such inventory was ever found at the plant of the CD.
In view of above the appeal is devoid of merits and is dismissed as such there is no order with regard to the costs.
Issues: (i) Whether the appellant's claim was only a contingent liability bound by the rehabilitation scheme, or whether the corporate debtor was obliged to make payment in terms of the scheme and the appellant remained entitled to invoke section 9 of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the Adjudicating Authority was required to examine existence of debt, default, and pre-existing dispute and admit the section 9 petition instead of directing payment under the scheme.
Issue (i): Whether the appellant's claim was only a contingent liability bound by the rehabilitation scheme, or whether the corporate debtor was obliged to make payment in terms of the scheme and the appellant remained entitled to invoke section 9 of the Insolvency and Bankruptcy Code, 2016.
Analysis: The claim of the appellant was shown in the rehabilitation scheme and in the financial records as contingent liability, not as an unsecured creditor's admitted dues. The scheme itself contemplated payment to unsecured creditors in five instalments where the creditor was treated as such, but the appellant was not shown in the unsecured creditor list. The corporate debtor's own treatment of the claim as contingent did not justify treating the appellant as finally bound by the scheme in the manner directed by the Adjudicating Authority.
Conclusion: The appellant was not bound to accept the belated payment direction as a substitute for its insolvency remedy, and the claim could not be finally treated as concluded merely by reference to the rehabilitation scheme.
Issue (ii): Whether the Adjudicating Authority was required to examine existence of debt, default, and pre-existing dispute and admit the section 9 petition instead of directing payment under the scheme.
Analysis: The appellate tribunal held that the Adjudicating Authority was duty bound to determine whether operational debt existed, whether default had occurred, and whether any pre-existing dispute survived. Instead of conducting that statutory inquiry, it directed payment of a quantified sum on equitable considerations linked to the scheme. The proper course, if debt and default were established and no pre-existing dispute existed, was admission of the section 9 petition.
Conclusion: The impugned order could not stand, and the section 9 petition ought to be considered afresh in accordance with law.
Final Conclusion: The appeal was allowed, the impugned order was set aside, and the original insolvency petition was restored to the Adjudicating Authority for fresh decision on merits.
Ratio Decidendi: Where a claim is treated as contingent rather than as admitted unsecured debt, the Adjudicating Authority cannot bypass the statutory insolvency inquiry under sections 8 and 9 of the Code by issuing an equitable payment direction under a rehabilitation scheme; it must first determine debt, default, and pre-existing dispute in accordance with the Code.
Treatment of creditor claims as contingent liability versus unsecured creditor - obligation of Adjudicating Authority to determine existence of debt, default and pre-existing dispute under the Code - binding effect of a BIFR-sanctioned rehabilitation scheme and options available to unsecured creditors - doctrine of crystallisation of contingent liabilities - estoppel by election / approbate and reprobate - HELD THAT:- We note that the Appellant’s argument is that BIFR order failed w.r.t. his payments as he was not paid on the basis of five equally annual instalments as per clause 11.11 of the BIFR sanctioned scheme dated 04.12.2015. As such, he cannot be compelled to accept the same. When he filed his petition u/s 9 of the code and the Adjudicating Authority has no jurisdiction to order the Appellant to accept BIFR payment as such belated time. The Appellant argued that the Adjudicating Authority is not empowered the equity jurisdiction. The Adjudicating Authority is only to determine existence of debt, default, absence of existence of pre-existing dispute and should have admitted the petition of the Appellant under section 9 of the Code.
It is undisputed fact that the Respondent did not make any payment to the Appellant till the Impugned Order was pronounced by the Adjudicating Authority. The argument of the Respondent that in any case the Appellant would have been entitled maximum 25% of his claims does not hold any logic. If, Respondent treated the Appellant as Unsecured Creditor, he should have paid on annual basis which Respondent failed to do so. As such, the Appellant was not bound by the same and he was within his right to file Section 9 petition under the Code.
We hold that the Adjudicating Authority was duty bound to adjudicate on existence of debt, default and existence of pre-existing dispute if any, and if debt and default and no pre-existing dispute were confirmed then the Adjudicating Authority ought to have admitted Section 9 petition of the Appellant.
Forthwith, on the treatment of Appellant as contingent liability in the books of Corporate Debtor, we put a direct and pointed query to the Respondent as to how and under what circumstances the dues payable towards Appellant was shown under contingent. The Respondent merely answered that the same is reflected in the financial statement. The Respondent could not satisfy us as how the claims of the Appellant was contingent liability.
Since debt of the Appellant was contingent, the same was required to be crystallised before debt could have become due and such crystallisation could have been done by competent court of law. The Respondent, however, could not satisfy us, if this is the case, then why the due amount has been paid to the Appellant after the Impugned Order. As such, we do not accept the logic of the Respondent on the same issue.
The Respondent has also brought to our notice that the Hon’ble Supreme Court in case of Modi Rubber [2023 (3) TMI 828 - SUPREME COURT] has already settled the principals of law regarding validity of the order passed by BIFR in regard to the option being provided in the sanctioned scheme by it, which makes binding for unsecured creditors to accept the provision in relation of payment of the restructured or and to wait for a period of 7 years, till the scheme works itself out. On this issue we note that the facts of both the cases are different in the case of Modi Rubber (Supra) where Operational Creditor was clearly treated as Unsecured Creditors and there was no issue of contingent liability. In that sense, the Appellant, herein, was not treated as unsecured creditors at all but only as contingent liabilities under clause 11.11 of sanctioned BIFR scheme dated 04.12.2015.
Appeal allowed. The impugned NCLT order is set aside and the original petition is restored for fresh adjudication by the Adjudicating Authority on the questions of existence of debt, default and pre-existing dispute; parties directed to appear before the Adjudicating Authority on the date directed.
Issues: (i) Whether approval of the resolution plan and subsequent modification/alteration effected on 01.04.2025 violated the time-limit under Section 12(1) of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the approved resolution plan contravenes Section 30(2)(b) of the IBC and Section 53 by providing an inadequate payout to operational creditors (including employees) and failing to protect statutory dues.
Issue (i): Whether the approval of the resolution plan and the modification of the acquisition structure on 01.04.2025 violated the 180-day time-limit under Section 12(1) of the IBC.
Analysis: The CIRP commenced on 30.09.2024, making the 180-day period expire on 28.03.2025. The CoC approved the resolution plan in the 10th CoC meetings held on 19.02.2025 and 21.02.2025, a Letter of Intent was issued on 24.02.2025, accepted on 24.02.2025, and performance security was submitted on 27.02.2025. The approved resolution plan expressly reserved under Clause 3.7.1 the right of the SRA to alter the acquisition structure without changing amounts payable to stakeholders, subject to CoC approval. The revised acquisition structure approved by the CoC on 01.04.2025 did not alter amounts receivable by stakeholders and was within the contractual power retained under the approved plan; the RP had already filed the application for approval before expiry of 180 days.
Conclusion: The Court concluded that there was no violation of Section 12(1); the resolution plan was approved by the CoC within 180 days and the modification under Clause 3.7.1 did not contravene the statutory timeline.
Issue (ii): Whether the resolution plan violated Section 30(2)(b) of the IBC and Section 53 by providing only Rs. 1 crore to operational creditors including employees and by not protecting provident fund and gratuity dues.
Analysis: Section 30(2)(b) requires that operational creditors receive not less than what they would obtain under liquidation as per Section 53. The liquidation value of the corporate debtor was shown to be insufficient to satisfy financial creditors and left operational creditors effectively with nil liquidation recovery. The plan provided Rs. 1 crore to operational creditors (0.18% of admitted operational claims) which is not less than their liquidation entitlement in the factual matrix. The adjudicating authority expressly directed payment in full of Employees Provident Fund and gratuity dues (paragraph 12.12), excluding those statutory dues from the Rs. 1 crore outer limit.
Conclusion: The Court held that the resolution plan did not violate Section 30(2)(b) or Section 53; payment to operational creditors was not less than liquidation value and statutory PF and gratuity dues are to be paid in full as directed by the adjudicating authority.
Final Conclusion: The appeals do not disclose any valid ground to interfere with the adjudicating authority's approval of the resolution plan; the challenges on timeline and inadequate payment to operational creditors fail and the impugned order approving the resolution plan is upheld.
Ratio Decidendi: Where a resolution plan is approved by the Committee of Creditors within the 180-day CIRP period and the approved plan expressly reserves a contractual right to modify acquisition structure without altering amounts payable to stakeholders, such post-approval modifications (with CoC approval) do not constitute a breach of Section 12(1); and under Section 30(2)(b) operational creditors must receive not less than their liquidation entitlement, so a plan providing amounts not less than liquidation value (with statutory dues protected) complies with the Code.
Approval of resolution plan within the corporate insolvency resolution process timeline - Violation of timelines u/s 12(1) of the IBC - pay out to the operational creditors which include the employees -Modification of acquisition structure under an approved resolution plan (Clause 3.7.1) - Fair and equitable treatment of operational creditors including employees - Committee of Creditors' commercial wisdom - Role of the Resolution Professional in examining resolution plans -
Violation of timelines under Section 12(1) - Section 12(1) of the IBC provides for time limit for completion of insolvency resolution process - HELD THAT:- When resolution applicant was entitled to alter the acquisition structure with the approval of the CoC or with the approval of the implementation in Monitoring Committee, the said alteration was clearly permissible even after the approval of the resolution plan. Thus, exercise of right by SRA under Clause 3.7.1 which was part of the approved resolution plan of the CoC in no manner be said to be beyond the timelines as fixed in Section 12(1) of the IBC. Approved resolution plan having already been submitted before the adjudicating authority on 11.03.2025 by the application of RP, no violation of timelines can be contended and the modification in the acquisition structure undertaken on 01.04.2025 and approved by the CoC on 01.04.2025 and placed before the adjudicating authority on 02.04.2025 cannot be said to be violating any timeline as prescribed under Section 12(1) of the IBC and the resolution plan stood approved in 10th CoC Meeting on 19.02.2025 and 21.02.2025 well within 180 days period of commencement of CIRP. We thus do not find any substance in the submission advanced by the counsel for the appellant in Comp. App. (AT) (Ins.) No. 1281/2025.
Operational creditors - HELD THAT:- Operational creditors are statutorily entitled to receive the amount as provided under Section 30(2)(b) of the IBC. No case has been pleaded or proved by the appellant that amount paid in the plan to the operational creditors including employees is in violation of Section 30(2)(b) of the IBC i.e., and the appellants were entitled for some monitory statutory payment under Section 30(2)(b) of the IBC which is more than the amount as provided in the resolution plan.
As per the impugned order of the adjudicating authority, the employees are entitled for provident fund dues and the gratuity dues which is required to be paid in full and same shall not be subject to the outer limit of Rs. 1 crore/- earmarked by the SRA in the resolution plan. Thus, entitlement of the employees to receive full provident fund and gratuity is fully protected by above clause. Thus, the submission of the appellant that employees are not being paid their full provident fund and gratuity cannot be accepted.
Thus, we are of the view that the pay outs to the operational creditor including the employees cannot be said to be violating the provisions of Section 30(2)(b) of the IBC. Appellants have not been able to prove any other violation in the approval of the resolution plan.
Thus, we are of the view that no grounds have been made out to interfere with the order impugned approving the resolution plan submitted by respondent No. 2.
In result, both the appeals are dismissed.
Issues: Whether the Adjudicating Authority was justified in allowing I.A. No. 2234/2024 and condoning the delay to admit the belated claim of Punjab Small Industries & Export Corporation Ltd., and directing its admission for consequential action in the ongoing CIRP.
Analysis: The Information Memorandum expressly recorded that PSIEC had claims regarding enhancement of land rates and that the Resolution Professional had requested PSIEC to submit claims by specified emails; despite this, no claim was filed within the prescribed period. The Adjudicating Authority examined the position of the leasehold title over the industrial plot, observed that the Corporate Debtor never had absolute ownership and that any defect in title would pass to the SRA, and noted that curing the defect (payment of statutory dues) is necessary to perfect title. Given that the Information Memorandum disclosed the potential claim and prospective resolution applicants were warned to make independent inquiries, the Adjudicating Authority exercised its discretion to condone delay and admit the belated claim, enabling the RP and SRA to submit any necessary addendum to the Resolution Plan for consideration.
Conclusion: The Adjudicating Authority's order allowing the application, condoning the delay, and directing admission of the belated claim is upheld; the appeal is dismissed (in favour of Respondent).
Ratio Decidendi: Where an Information Memorandum discloses a creditor's claim and prospective resolution applicants are put on notice, the Adjudicating Authority may, in the exercise of its discretion, condone delay and admit a belated claim so that the RP and SRA can take consequential steps to address the claim in the resolution process, subject to the legal position that a SRA cannot obtain a better title than the Corporate Debtor possessed.
Admission of belated claim - Condonation of delay - Effect of information memorandum on prospective resolution applicants - Title of successful resolution applicant subject to defects of corporate debtor - Protective umbrella of IBC not to override statutory dues of public authorities - Adjudicating Authority's discretion - Role of Resolution Professional and Successful Resolution Applicant -NCLAT precedent - HELD THAT:-The information memorandum itself captures that there are dues of the Corporation but in spite of the communication, no claim was filed. The note itself, indicate that prospective resolution applicants are advised to make their own enquiries in respect of claim of PSIEC as described.
Thus the Information Memorandum was a clear indication regarding claim of the Corporation and the Adjudicating Authority, by Impugned Order had directed for admitting the claim which was belatedly filed. The Plan is still under consideration. Adjudicating Authority has issued direction to the Respondent No 2 & 3 to accept the claim filed on 19/07/2024 and to take all necessary consequential actions. The order of the Adjudicating Authority thus clearly entitles the RP and the SRA to submit an Addendum to the Adjudicating Authority for consideration after admitting the claim.
In the facts of the present case, where claims of the Appellant were duly noticed and reflected in the Information Memorandum, admission of the claim by the Adjudicating Authority, although filed belatedly cannot be faulted and that cannot be a ground for this Appellate Tribunal to interfere with the discretion exercised by the Adjudicating Authority in allowing the application filed by the Corporation for accepting this claim.
The Appeal is Dismissed.
Issues: (i) Whether Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016 prevails over Section 53 of the Insolvency and Bankruptcy Code, 2016 in liquidation; (ii) Whether amounts determined as interest under Section 7Q and damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 form part of the sums due to workmen or employees from provident fund, pension fund and gratuity fund under Section 36(4)(a)(iii); (iii) Whether such sums must be kept in a dedicated fund to be treated as outside the liquidation estate.
Issue (i): Whether Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016 prevails over Section 53 of the Insolvency and Bankruptcy Code, 2016 in liquidation.
Analysis: The exclusion in Section 36(4) operates at the stage of identifying the liquidation estate itself. Amounts falling within Section 36(4)(a)(iii) are not available for distribution under the waterfall in Section 53. The distribution mechanism under Section 53 therefore applies only after excluding such protected sums from the liquidation estate.
Conclusion: Yes. Section 36(4)(a)(iii) prevails to the extent of exclusion from the liquidation estate, and Section 53 operates subject to that exclusion.
Issue (ii): Whether amounts determined as interest under Section 7Q and damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 form part of the sums due to workmen or employees from provident fund, pension fund and gratuity fund under Section 36(4)(a)(iii).
Analysis: The expression covering sums due from provident fund is not confined to the principal contribution alone. It also takes in the statutory consequences of default, namely interest and damages, because they are part of the employer's liability in relation to provident fund dues. Those amounts are therefore not to be isolated and treated as ordinary liquidation claims under Section 53.
Conclusion: Yes. Interest under Section 7Q and damages under Section 14B are included within the protected provident fund dues.
Issue (iii): Whether such sums must be kept in a dedicated fund to be treated as outside the liquidation estate.
Analysis: The protection under Section 36(4)(a)(iii) depends on the character of the sums as provident fund, pension fund or gratuity fund dues, not on the existence of a separately earmarked account. Where the corporate debtor was statutorily bound to remit such dues but failed to do so, the amount is still treated as part of the protected class and cannot be absorbed into the liquidation estate merely because no dedicated fund was maintained.
Conclusion: No. A separate dedicated fund is not a condition for exclusion from the liquidation estate.
Final Conclusion: The claim of the provident fund authority could not be relegated to the waterfall under Section 53, and the protected dues had to be satisfied outside the liquidation distribution mechanism. The appeal succeeded to that extent, and the amount was directed to be paid from the liquidation distribution already made.
Ratio Decidendi: Dues falling within Section 36(4)(a)(iii) of the Insolvency and Bankruptcy Code, 2016, including statutory interest and damages attached to provident fund liability, are excluded from the liquidation estate and cannot be subjected to distribution under Section 53, irrespective of whether the debtor maintained a separate dedicated fund.
Settlement of claims during liquidation -Exclusion of sums due to workmen or employees from the liquidation estate - Priority of distribution under the liquidation waterfall - Third-party assets - National Company Law Appellate Tribunal adjudication on IBC provisions - Liquidator's duties and final report - Finality of NCLT dissolution vis-à-vis corrective directions - Non-obstante clause effect - HELD THAT:- The first issue has already been conclusively decided by a series of judgements pronounced by Supreme Court and NCLAT. Supreme Court in its judgement dated 02.05.2023 in the matter of Moser Baer Karamchari union versus Union of India and Others [2023 (5) TMI 143 - SUPREME COURT] categorically has held that in case of liquidation of a company under the I & B Code, 2016, the distribution of the assets shall have to be done as per Section 53 of the I & B Code, 2016, subject to Section 36(4) of the I & B Code, 2016.
The implications of the above ratio as propounded are very clear; that is, Section 36(4) of the I & B Code, 2016, will take precedence over Section 53, as far as the distribution of assets of the liquidation estate is concerned. Intuitively too it also, this makes eminent sense. First, the Liquidator will identify the assets of the CD and take charge of them, then he will exclude assets that falls under Section 36(4) of the I & B Code, 2016, including third-party assets falling under Section 36(4)(a) and thereafter, form the liquidation estate which he then proceeds to realise and distribute among the stakeholders as per the formula prescribed under Section 53 of the code. Thus, it is clear that distribution under Section 53 of the I & B Code, 2016, will have to be done subject to Section 36(4) of the code.
Whether amount determined under Section 7Q and 14B of the EPF Act, will come within the meaning of ‘all sums due to workmen/employee from Provident fund’ has also been settled by a series of judgements of this Appellate Tribunal. - HELD THAT:- The findings recorded in the judgment of the Honourable Supreme Court in the matter of Maharashtra State Cooperative Bank versus Assistant Provident Fund Commissioner [2009 (10) TMI 825 - SUPREME COURT] In view of the above ratios, it has to be accepted that the issue is no more Res Integra and that all sums due from provident fund will include within it the amounts determined under Section 7Q and 14B as well.
Whether the sums due to workmen/employee from provident fund, pension fund, and the gratuity fund are to be held in a dedicated fund so as to qualify for being treated as a third party asset, to be kept outside the liquidation estate? - HELD THAT:- If the entire judgement is taken into consideration, it will be apparently clear that the provident fund, gratuity fund and the pension fund will have to be kept outside the liquidation estate by treating it as third party asset. It is not material whether this funds are maintained in a dedicated account as long as such amounts are held by the CD. Even if they are not classified in a dedicated account, then too it has to be presumed that, the CD is holding these amounts and will have to pay the said amount to the workmen/employee at an appropriate time. It needs to be mentioned here that certain enterprises have been given the latitude to open their own provident funds/pension funds/gratuity funds by giving exemption under EPF Act, and these enterprises maintain separate funds.
Thus, we come to the conclusion that the Liquidator has erroneously placed the claim of the Appellant EPFO under Section 53(1)(e) of the code instead of treating it as a third-party asset under Section 36(4)(a), that the amount Rs. 6,34,816/-ought to have paid to the Appellant before the distribution under Section 53 was resorted to by the Liquidator and therefore, the said amount should be recovered from the financial creditor City Union Bank Respondent-2 herein under Regulation 43 of IBBI liquidation process regulations 2016 and paid to the Appellant.
We find that NCLT has already passed the order of dissolution. The right course would have been to set aside the order of dissolution, and to direct the Liquidator. to rectify this error and then to apply for dissolution of the CD. However, in the interest of cutting short the litigation, we are of the view that the interest of justice will be served, in case the financial creditor, Respondent-2, is directed to remit the amount Rs. 6,34,816/-to the Appellant herein within 30 days and report the same to NCLT, which will then direct for making the necessary entries in the liquidation records to the effect.
Issues: Whether mortgaged properties attached under the Prevention of Money Laundering Act, 2002 could be permitted to be auctioned by the secured creditor for recovery of its dues before conclusion of the trial, and whether the secured creditor's rights under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 could be given effect to in the facts of the case.
Analysis: The attachment was treated as attachment of value property, and it was recognised that property in possession of the accused or connected persons may be attached even if direct proceeds of crime are not traced. At the same time, the properties were mortgaged to the appellant bank long before the relevant offence period, and no useful purpose would be served by requiring the bank to await the end of trial before enforcing its security. The secured creditor was therefore permitted to proceed under the SARFAESI mechanism, with the safeguard that any surplus remaining after satisfaction of its dues would be deposited with the enforcement authority by way of fixed deposit receipt, and prior notice would be given to the co-mortgagee.
Conclusion: The mortgaged properties were allowed to be auctioned by the appellant bank in accordance with SARFAESI, subject to deposit of the surplus with the enforcement authority and notice to the co-mortgagee.
Ratio Decidendi: A mortgaged property attached as value property under the prevention of money laundering regime may, in appropriate facts, be permitted to be enforced by the secured creditor under SARFAESI where the bank's security predates the offence period and the interests of justice are protected by preserving the surplus for the enforcement authority.
Provisional attachment - letters of credit through fraudulent transactions and by furnishing fake invoices - Attachment of properties as value thereof under PMLA - Permission to auction mortgaged properties prior to conclusion of trial - Rights of secured creditor u/s 26E of the SARFAESI Act - Priority of PMLA proceedings and Section 71 of the PMLA - Appellate jurisdiction u/s 26 of the PMLA - Vijay Madanlal Chaudhary v. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] - HELD THAT:- We are of the considered view that in absence of direct proceeds of crime, any property in possession of the accused persons, their relatives, associates & employees can be attached as value thereof, seeing their role for helping in layering/ siphoning of the proceeds of crime. We fortify our view in this regard in the light of judgment of Hon’ble Supreme Court of India in case Vijay Madanlal Chaudhary v. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] However, we cannot ignore the fact that in case of mortgaged properties, no useful purpose will be served by directing the bank to wait for conclusion of the trial and thereafter, obtain permission from the trial court for auction of the said properties. There is no bar that this Appellate Tribunal cannot exercise the said power to grant permission to the Appellant Bank even prior to the conclusion of the trial, otherwise, this may result in financial constraint to the Appellant Bank. Accordingly, seeing the fact that the said four properties are attached as value thereof, the present Appeal needs to be allowed, subject to the condition that the Appellant Bank will auction the said property as per the procedure laid down in SARFAESI Act, and after the discharge of its outstanding liabilities, it will deposit the excess amount with the Respondent Directorate by way of FDR. Before proceeding for auction sale, appellant bank will also give prior notice to the co-mortgagee, Syndicate Bank (now merged with Canara Bank).
The present Appeal is hereby disposed of with direction as mentioned in the preceding para qua the property at serial no. 1 to 4. It is made clear that nothing reflected herein will affect the merits of the trial in any manner.
Appeal disposed of with Direction.
Issues: (i) Whether sale/registration of domain names and provision of hosting (including hosting space renewal, hosting backup) are taxable as Information Technology / software services attracting service tax; (ii) Whether extended period of limitation (extended period) is invokable against the appellant for the assessed period.
Issue (i): Whether domain registration, sale of domain, web hosting, hosting-space renewal and related activities are taxable as Information Technology (software) services.
Analysis: The Tribunal examined the nature of services rendered by the appellant against the statutory classification of taxable services. It considered earlier Tribunal decisions, notably Dimakh Consultants Pvt. Limited v. CCE, Pune (CESTAT Mumbai) which treated web hosting, server co-location and domain registration as taxable under Information Technology software services brought into the statute effective 16.05.2008. The Tribunal rejected reliance on authorities addressing franchise services or distinct issues (e.g., Directi/Jet Airways) as inapplicable to the present factual and legal context. The adjudicating authority had quantified taxable value excluding certain amounts but the Commissioner (Appeals) set aside that exclusion and confirmed demand based on the view that such activities are taxable.
Conclusion: The Tribunal holds that domain registration, sale of domain, web hosting and related hosting services are taxable as Information Technology (software) services and that the impugned order confirming demand in respect of these activities is sustainable. Conclusion is against the appellant and in favour of Revenue.
Issue (ii): Whether the department could invoke the extended period of limitation for the assessed years against the appellant.
Analysis: The Tribunal considered facts that the appellant obtained service tax registration only on 20.12.2011, had not filed returns or paid service tax prior to registration, and that the matter came to light following departmental investigation. Relying on authorities addressing non-registration and suppression (including Dharampal Satyapal and subsequent High Court/Tribunal decisions), the Tribunal concluded that non-registration and failure to file returns amounted to circumstances permitting invocation of the extended period.
Conclusion: The Tribunal holds that the extended period of limitation was rightly invoked by the adjudicating authority for the confirmed demand. Conclusion is against the appellant and in favour of Revenue.
Final Conclusion: The appeal is dismissed; the Tribunal upholds the Commissioner (Appeals) order confirming service tax liability on domain registration and hosting-related activities and upholds the invocation of extended limitation, while remanding the matter to the Original Adjudicating Authority for quantification of demand, interest and penalty by a reasoned order.
Ratio Decidendi: Web hosting and domain registration activities constitute taxable Information Technology (software) services for the relevant period, and failure to register and not file returns permits invocation of the extended period of limitation for assessment under the Finance Act, 1994.
Taxability of domain registration and web hosting services - classification under Information Technology Software Service - Online Information and Data base access or Retrieval service (OIADR) - invocation of extended period of limitation- suppression/non-registration - penalty u/s 78 of the Finance Act, 1994 - appeal to Appellate Tribunal (CESTAT Ahmedabad) - HELD THAT:- After considering various aspects, the Adjudicating Authority in para 29.2 of his order, determined the value of taxable services as Rs. 1,42,86,737/- which escaped payment of service tax of Rs. 15,81,805/- which he accordingly confirmed under Section 73(1) of the Finance Act, 1994. He found that value of Rs. 1,63,13,929/- relating to sale of domain registration/ renewal, hosting space renewal, hosting space, hosting backup space, hosting space registration and Rs. 42,00,257/- on export of service are not leviable to service tax. In appeal against this order, the Commissioner (Appeals) set-aside the order of the Adjudicating Authority to the extent of dropping of service tax demand.
Due to non-registration and not filing of returns, department had no means for scrutinizing the correctness of payment of service tax by the appellant. We also find that the Adjudicating Authority has justified invocation of extended period while confirming service tax demand of Rs. 15,81,805/- for the period 2008-09 to 2012-13, which has not been challenged by the appellant. If extended period has been accepted by the appellant for a part of the demand, their argument now for the remaining portion of the demand has no merit and hence, does not survive.
We therefore, do not find any merit in the appeal filed by the appellant. Agreeing with the decision of Mumbai Tribunal in the case of Dimakh Consultants Pvt. Limited I [2019 (2) TMI 411 - CESTAT MUMBAI], we uphold the impugned order of learned Commissioner (Appeals). Accordingly, we hold that they are liable to pay service tax on the activity of sale of domain registration/ renewal, hosting space renewal, hosting space, hosting backup space, hosting space registration etc. For quantification of demand, interest and penalty the matter is remanded to the Original Adjudicating Authority to pass a reasoned order.
Appeal is disposed of in the terms.
Issues: (i) Whether imposition of penalty under Section 78 of the Finance Act, 1994 on account of alleged short payment of service tax for 2014-15 and 2015-16 is sustainable where the service tax and interest were voluntarily paid by the assessee prior to issuance of the show cause notice.
Analysis: The admitted facts show that the disputed service tax of Rs.23,39,421/- together with interest was paid by the assessee by challans dated in 2015 and 2016, well before the show cause notice dated 29.09.2020 was issued. The Commissioner (Appeals) had dropped the demand on merits but sustained penalty under Section 78 on the basis of the SVLDRS disclosure. The statutory scheme under Section 73(3) permits a person to discharge service tax and interest on own ascertainment or on the basis of tax ascertained by an officer and to notify the officer, and upon such payment the officer shall not serve a notice under Section 73(1) in respect of the amount so paid, except as provided in Section 73(4) where fraud, collusion, wilful misstatement or suppression of facts is established. The record contains no independent evidence of fraud, collusion, wilful misstatement or suppression of facts to bring the case within Section 73(4). The payments were made voluntarily prior to initiation of proceedings and the SVLDRS scrutiny gave relief from interest and penalty subject to payment of tax; there is no substratum to sustain mandatory penalty under Section 78 when tax and interest were already paid prior to issuance of the show cause notice.
Conclusion: Imposition of penalty under Section 78 is not sustainable; penalty confirmed by the lower authorities is set aside and the appeal is allowed in favour of the assessee.
Ratio Decidendi: Voluntary payment of service tax with interest prior to issuance of a show cause notice bars initiation of notice under Section 73(1) in respect of the amount so paid under Section 73(3), and absent findings of fraud, collusion, wilful misstatement or suppression of facts under Section 73(4), penalty under Section 78 cannot be imposed.
Imposition of penalty for short payment of service tax despite voluntary payment - Operation of Section 73(3) bar on issuance of show cause notice where tax and interest paid voluntarily - demand based on ST-3/ITR mismatch -Limitation under the proviso to Section 73(1) - HELD THAT:- The appellants have voluntarily paid service tax along with interest, find that the appellant has fulfilled all the requirements for discharge of service tax liability as determined in the adjudication proceedings. In the above circumstances where the Hon’ble Supreme Court [2018 (6) TMI 1436 - SC ORDER] have already settled the issue in favour of the appellants and on the basis of the discussions, there are no strong grounds to hold that the appellants did not pay service tax in respect of the differential amount identified by the Department for the period 2014-2015 & 2015-2016. Therefore, no merits in the impugned order of the learned Commissioner (Appeals) in upholding the order of the original authority for confirmation penalties on the appellants and in rejecting their appeal to such extent.
In the result, the impugned order dated 23.06.2022, to the extent it had confirmed the penalties on the appellants, is set aside, on the basis of their voluntary payment of differential service tax amount into the account of Government exchequer, as per law, and the appeal filed by the appellants is allowed in their favour.
Issues: (i) Whether rent-a-cab service availed by the appellant during 01.04.2016 to 30.06.2017 is an admissible "input service" under Rule 2(1) of the Cenvat Credit Rules, 2004 after the amendment excluding renting of motor vehicles; (ii) Whether the show cause notice dated 26.03.2019 for the period 01.04.2016 to 30.06.2017 is barred by limitation or requires enquiry on facts regarding suppression of information.
Issue (i): Whether rent-a-cab service is admissible as input service post-amendment excluding services by way of renting of a motor vehicle which is not capital goods.
Analysis: The exclusion of services by way of renting of a motor vehicle from the definition of "input service" as introduced in Rule 2(1)(B) of the Cenvat Credit Rules, 2004 is applicable to the period in question. Supreme Court authority and tribunal precedent dealing with transportation of employees and too-and-fro conveyance have been applied to conclude that provision of transportation to employees is not an "input service" for credit purposes. The factual character of the service as employee conveyance does not convert it into an admissible input service where the statutory exclusion applies.
Conclusion: The claim for Cenvat credit in respect of rent-a-cab service during the stated period is not admissible and is against the assessee's claim.
Issue (ii): Whether the demand for denied credit and related penalties/interest is time-barred or requires further examination on limitation and factual suppression.
Analysis: Section 73 of the Finance Act, 1994 prescribes the period for issuance of notice and Rule 7(1) of the Service Tax Rules, 1994 prescribes return-filing periodicity relevant to computing limitation. The record shows prior adjudications and earlier notices on related issues; however, factual questions remain regarding disclosure in returns and whether facts were suppressed so as to invoke extended limitation. The appellate court found that limitation and factual aspects warrant re-examination by the Commissioner (Appeals).
Conclusion: Limitation and the question of suppression are remitted for fresh examination by the Commissioner (Appeals).
Final Conclusion: The appeal is decided partly on merits (denial of credit under the exclusion in Rule 2(1)(B)) and partly by remand (limitation and suppression to be re-examined), leaving the merits-based bar on rent-a-cab credit intact while directing further factual and legal scrutiny on limitation issues.
Ratio Decidendi: Where statutory amendment expressly excludes renting of motor vehicles from the definition of "input service", transportation of employees by rent-a-cab is not an admissible Cenvat credit; questions of limitation and suppression of facts must be remitted for factual and legal determination where material facts concerning disclosure in returns are disputed.
Admissibility of Cenvat Credit on rent-a-cab services - Exclusion of services provided by way of renting of a motor vehicle from "input service" - Penalty for wrongful availment of Cenvat Credit - Limitation and extended period for service tax recovery -Too-and-fro transportation - HELD THAT:- It is found that the issue of the too and fro transportation of employees is covered by the case of Solar Industries India Limited [2022 (9) TMI 1155 - SC ORDER].
It is clear from the order that both the statutory provision as well as clarification given by the Circular and also the decision of Apex Court in Solar Industries India Ltd. (cited supra) and similarly the decision of B.M.S. Industries Ltd. vs Commissioner, CGST Thane Rural,[2023 (9) TMI 65 - CESTAT MUMBAI] has been correctly relied upon by the A.R. on merits and all had made position clear that cenvat credit was no more available in the facts and circumstances of the case. The observation of the lower authorities in this regard that assessee had availed cenvat credit and utilized it wrongly by suppressing the facts and not intimating to the department while filing ST-3 returns from time to time with intent to evade has been correctly pointed out and extended.
The fact pointed out is that but for the detection by the audit the duty is paid would have remained undetected by the department. The decisions quoted by the appellants were not in context of clear cut statutory provisions and clarifications being available by the executive authorities. This court observes that SCN in this particular case was, as pointed out by the AR issued as the information was never disclosed in filed S.T.-3 returns.
Party has relied on Nizam Sugar Factory case [2006 (4) TMI 127 - SUPREME COURT] without placing any earlier SCN on record on same facts. However, it is seen that there were earlier SCNs also issued on these points. Learned A.R. submits that the present one is within normal period of demand (as same was also extended through amendment). If so, this court while being with the department on merits, remands the matter to Commissioner (Appeals) to examine on the aspect of limitation both on facts and legal position.
Appeal partly allowed in above terms.
Issues: (i) Whether service tax is payable by the builder/appellant for construction of residential complexes for the period 01.10.2009 to 30.06.2010.
Analysis: The statutory definition of Construction of Residential Complex Service under Section 65(105)(zzzh) was amended by the insertion of an Explanation effective 01.07.2010. Prior to that amendment, agreements for construction that constituted works contracts were not intended by the statute to be taxed as builders' service simplicitor; the Explanation extended chargeability prospectively to include transfer-related contracts by builders. Administrative clarifications in Board Circular Nos.108/02/2009-ST and 151/2/2012-ST support non-chargeability of builder/developer services prior to 01.07.2010; relevant Tribunal precedents applying the Explanation prospectively were followed.
Conclusion: Service tax is not payable by the appellant for the period 01.10.2009 to 30.06.2010; liability arises only from 01.07.2010.
Construction of Residential Complex Service - Works Contract - prospective operation of a tax levy - Explanation to Section 65(105)(zzzh) - Section 65(105)(zzzh) - CBEC Circular No.108/02/2009-ST - Board Circular No.151/2/2012-ST -HELD THAT:- The period of dispute is from October 2009 to June 2010 and it is not in dispute that the appellant was undertaking Construction of Residential Complex Service during the disputed period. It is also a fact that the definition of Construction of Residential Complex Service which was introduced w.e.f. 01.06.2005 was amended w.e.f. 01.07.2010 by introducing an Explanation to the definition of taxable services of Construction of Residential Complex Service under Section 65(105)(zzzh).
Thus, the appellant was liable to pay service tax only w.e.f. 01.07.2010. This fact is also emphasized by Board Circular No.151/2/2012-ST wherein it is stated that ‘for the period prior to 01.07.2010: Construction service provided by the builder/developer will not be taxable in terms of Board Circular No.108/02/2009-ST dated 29.01.2009’. Accordingly, the impugned order is set aside and the Appeal is allowed.
Issues: (i) Whether a refund claim of service tax/CENVAT credit can be rejected solely because figures in ST-3 returns do not tally or on account of procedural or technical lapses; (ii) Whether the Adjudication Authority ought to follow the earlier Commissioner (Appeals) finding and properly examine eligibility under Rule 6A of the Service Tax Rules, 1994 and Notification No.27/2012-CE in relation to the refund claims for the period AprilJune 2016.
Issue (i): Whether mismatch in ST-3 returns or procedural/technical non-compliance can justify rejection of a refund claim for export of services.
Analysis: The Tribunal reviewed precedent and the record, noting that refund claims are based on substantive documents establishing credit taken, nature and nexus of services, and utilisation for output services rather than on ST-3 return figures alone. Prior Tribunal authorities have held that non-observance of procedural conditions or errors in ST-3 returns are technical in nature and cannot be the sole basis to deny substantive refund rights. The impugned orders rejected claims primarily on ST-3 mismatches or procedural lapses without addressing substantive eligibility, which the earlier Commissioner (Appeals) had found unsustainable.
Conclusion: The rejection of refund claims solely for mismatch in ST-3 returns or procedural lapses is not sustainable; such grounds do not justify denial of substantive refund entitlement. Conclusion is in favour of the assessee on this issue.
Issue (ii): Whether the Adjudication Authority erred in not following the Commissioner (Appeals) finding and in failing to examine eligibility conditions under Rule 6A and Notification No.27/2012-CE for the AprilJune 2016 period.
Analysis: The Tribunal found that for the AprilJune 2016 claim the Original Authority did not consider several substantive conditions including compliance with Rule 6A, the requirements of Notification No.27/2012-CE, and verification of export turnover before rejecting the claim. The matter required de novo consideration of these eligibility conditions and an opportunity for personal hearing, rather than outright rejection on procedural grounds.
Conclusion: The impugned order for AprilJune 2016 is set aside and remanded for fresh adjudication on merits including examination of Rule 6A compliance, Notification No.27/2012-CE conditions and verification of export turnover; conclusion provides relief to the assessee by directing reconsideration.
Final Conclusion: The Tribunal partially allows the consolidated proceedings: it upholds the refund entitlement except for an admitted ineligible amount of Rs.11,802, and directs remand for de novo adjudication of the AprilJune 2016 claim so that substantive eligibility requirements are examined and a personal hearing is afforded.
Ratio Decidendi: A refund claim for export of services cannot be denied solely due to discrepancies in ST-3 returns or procedural/technical lapses; authorities must examine substantive eligibility using supporting documents, Rule 6A and relevant notification requirements, and afford an opportunity of hearing before rejecting a refund.
Refund of service tax on export of services - non-observance of procedural conditions / technical lapses not to deny substantive concession - denovo adjudication and remand for fresh consideration - Commissioner (Appeals) and Original Adjudication Authority - Rule 5 of the CENVAT Credit Rules, 2005 - Rule 6A of the Service Tax Rules, 1994 - Notification No. 27/2012-CE - HELD THAT:- We find that merely if ST-3 returns does not tally with the amount claimed in the refund claim, is not a reason to reject the refund claim, since the refund claim is not based on the ST-3 returns. The purpose of considering the refund claim, the relevant documents on the basis of which credit was taken, nature of service and its nexus and utilization of the services for rendering output services are relevant. Moreover all these issues were considered in the first round of litigation by the Original Authority and considering the same, there is no reason or justification to deny the refund on procedural lapse. However, as regarding the denial of CENVAT Credit taken during the period from July 2012 to September 2012 of Rs.11,802/- against Hotel Inn Club and Guest House service and supply of Tangible goods which was held as ineligible CENVAT Credit, Learned Counsel has fairly admitted that they are not disputing the said finding. Considering the decision of the Tribunals in similar issue, rejection of the refund claim as done by the Lower Authority is not in accordance with law.
Thus Appeal No. ST/20602/2021 is partially allowed by upholding claim except the claim of Rs.11,802/- against Hotel Inn Club and Guest House service and supply of Tangible goods CENVAT Credit taken during the period from July 2012 to September 2012. As regarding appeal No.ST/20635/2022 for the period from April 2016 to June 2016, since the Original Authority has not considered other issues including compliance of the conditions stipulated under Rule 6A of the Service Tax Rules, 1994, the condition specified in Notification No. 27/2012-CE and verification the export turn over as claimed while rejecting the claim for Rs 90,09,133/-, impugned order is set aside and matter is remanded to Adjudication authority for reconsidering the said issues as per the above directions and to pass appropriate order in accordance with law. The Adjudication Authority is directed to extended an opportunity for personal hearing to the Appellant.
Accordingly, Appeal No.ST/20602/2021 is partially allowed with consequential benefits if any in accordance with law. Appeal No.ST/20635/2022 is remanded for Denovo Adjudication.
Issues: Whether the Appellant is entitled to Cenvat Credit on transport insurance where sales are made on FOR (free on road/destination) basis.
Analysis: The Tribunal noted that its earlier Final Order dated 02.12.2015 (not challenged by the Appellant) had denied Cenvat Credit on insurance for the period April 2006 to February 2011 and remanded for re-computation; that order therefore remains final for that period. Subsequently the Board issued Circular No. 1065/4/2018-CX and the Hon'ble High Court of Himachal Pradesh in Inox Air Products held that Cenvat Credit on insurance for goods transported to the customer's premises on FOR basis is allowable; following that authority and the Circular the Tribunal held that Cenvat Credit is allowable for the later period August 2014 to July 2015. On limitation, the Tribunal found no evidence of suppression, fraud or wilful mis-statement by the Appellant and, following a recent decision of this Bench, set aside the demand raised by invocation of the extended period for April 2006 to March 2010 while confirming the remaining normal period demand with interest. The Tribunal also held that penalty is not sustainable because the issue involved interpretation and there was no mens rea on the part of the Appellant.
Conclusion: The appeal is allowed in part: Cenvat Credit on transport insurance is denied for April 2006 to February 2011 (as per the Tribunal's earlier unchallenged order) but allowed for August 2014 to July 2015; demand raised by invocation of extended period for April 2006 to March 2010 is set aside; the remaining normal-period demand is confirmed with interest; penalty is set aside.
Entitlement to Cenvat credit on transport insurance where sales were on FOR destination basis - place of removal - extended period of limitation - absence of mens rea and penalty - remand for re-computation - Rule 2(qa) of the Cenvat Credit Rules, 2004 - Board's Circular No. 1065/4/2018-CX dated 08.06.2018 - HELD THAT:- We find that this Tribunal vide its Final Order No. 28/2015-CHD dated 02.12.2015 confirmed the demand by denying the Cenvat Credit on insurance service relating to insurance of goods beyond the place of removal and remanded the matter back to the Adjudicating Authority for re-computation of demand relating to insurance service. The said order of the Tribunal has not been challenged by the Appellant, so it becomes final as for as the denial of the Cenvat Credit on insurance service for the period from April 2006 to February 2011. Further, we also find that the impugned OIO has been passed keeping in view the direction by the Tribunal vide its order dated 02.12.2015, therefore, this Tribunal does not have power to review the order dated 02.12.2015 whereby the demand has been confirmed by denying the Cenvat Credit on insurance service.
By considering the Circular No. 1065/4/2018-CX dated 08.06.2018 and various judgments of the Courts, the Hon’ble High Court of Himachal Pradesh in the case of Inox Air Products Pvt Ltd. [2024 (4) TMI 32 - HIMACHAL PRADESH HIGH COURT], has held that the Assessee are entitled to avail the Cenvat Credit on insurance of goods while transporting the same to the customers’ premises on FOR basis. Therefore, by following the said judgment of the Hon’ble High Court of Himachal Pradesh, we hold that the Appellant are entitled to Cenvat Credit on insurance service for the subsequent period from August 2014 to July 2015.
Further, we hold that for prior period from April 2006 to February 2011, the Appellant are not entitled to Cenvat Credit on insurance service in view of the Tribunal’s Final Order dated 02.12.2015 and therefore, the Appellant are liable to pay the duty for the normal period along with interest.
Limitation - HELD THAT:- This issue of limitation has been considered by this bench of the Tribunal in the case of Pepsico India Holdings Pvt Ltd vs. Commr of CGST, Panchkula – [2025 (4) TMI 1185 - CESTAT CHANDIGARH], wherein the Tribunal has set aside the demand raised by invocation of extended period on the basis that the issue of credit reversal involves interpretation and the department failed to establish that the Assessee suppressed the facts with intention to evade tax. Therefore, by following the ratio of the said decision, we set aside the demand for extended period from April 2006 to March 2010 in respect of Cenvat Credit; however, the remaining demand for normal period is confirmed along with interest.
As regards penalty, we hold that since the issue relates to interpretation and there was no mens rea on part of the Appellant, therefore, penalty imposed on the Appellant is not sustainable.
Issues: (i) Whether Mixed Xylene was classifiable under Chapter sub-heading 2902 44 00 or Chapter sub-heading 2707 30 00 of the Central Excise Tariff Act, 1985. (ii) Whether the extended period of limitation and penalty were sustainable.
Issue (i): Whether Mixed Xylene was classifiable under Chapter sub-heading 2902 44 00 or Chapter sub-heading 2707 30 00 of the Central Excise Tariff Act, 1985.
Analysis: The classification turned on whether Ethylbenzene could be treated as an isomer of Xylene for the purpose of applying the HSN note to Heading 2902. The HSN explanation to Heading 2902 states that Xylene comprises only o-xylene, m-xylene and p-xylene, and that Xylene must contain 95% or more by weight of xylene isomers, all isomers being taken together. The Tribunal applied the settled view that Ethylbenzene is a different organic compound and cannot be included among xylene isomers. On the admitted composition, the product did not satisfy the 95% threshold for Heading 2902.
Conclusion: Mixed Xylene was correctly classifiable under Chapter sub-heading 2707 30 00, not under Chapter sub-heading 2902 44 00.
Issue (ii): Whether the extended period of limitation and penalty were sustainable.
Analysis: The assessee had informed the Department about the product, filed returns declaring the classification adopted, and its records had been regularly audited. The Department was aware of the product composition and no case of suppression with intent to evade duty was made out. In these circumstances, invocation of the extended period was not justified. Since the dispute was one of classification on the facts available on record and the extended period failed, penalty was also unwarranted.
Conclusion: The extended period of limitation was not sustainable and the penalty was not leviable.
Final Conclusion: The classification adopted by the Revenue was upheld, but the demand was confined to the normal period of limitation and the penalty was set aside, resulting in only partial relief to the assessee.
Ratio Decidendi: For classification under Heading 2902, only the xylene isomers specified in the HSN can be counted toward the 95% purity threshold, and where the Department had prior knowledge of the declared classification and product composition, suppression with intent to evade duty cannot be inferred for invoking the extended period.
Classification of goods - Mixed Xylene - Interpretation of HSN Explanatory Notes - Mixtures and isomers Ethylbenzene versus dimethylbenzene (xylene) - Extended period of limitation and suppression - Bona fide belief - Imposition of penalty u/s 11AC - Central Excise Tariff Act, 1985 Heading 29.02 and Heading 27.07 - HELD THAT:- Reading the HSN Note of Chapter 29.02, we find that under the category “Aromatic Hydrocarbons” while explaining the meaning and scope of ‘Xylene’ at clause (I)(c), it is clearly mentioned that Ortho Xylene, Meta Xylene and Para Xylene are the isomers of Xylene and under clause (d), Ethylbenzene has been mentioned as a colourless inflammable, mobile liquid, contained in coal tar, normally manufactured from benzene and ethylene. Therefore, we are of the opinion that the view expressed by this Tribunal in Addisons Paints & chemicals Ltd.’s case is in consonance with the HSN notes and accordingly Ethylbenzene cannot be considered as an isomer of Xylene and accordingly its weight cannot be added to other constituents to arrive at the total weight of Xylene which ought to be 95% or more to classify the same under Chapter 2902 of CETA, 1985.
Therefore, in our opinion, the correct classification of the product would be under Tariff entry 2707 30 00 as held in the impugned order.
Limitation - HELD THAT:- Since the appellant chose to classify the product ‘Xylene’ under Chapter sub-heading 29024400 instead of 2707 30 00 of the Central Excise Tariff Act, 1985, it cannot be construed that they had suppressed the correct classification and thereby intended to evade payment of duty; on the other hand, the plea of bona fide belief about the classification claimed by the appellant cannot be ruled out. In these circumstances, invocation of extended period of limitation cannot be sustained. However, the demand is sustainable for the normal period of limitation. Since we have opined that the issue relates to determination of correct classification on the basis of facts available on record, which is purely a question of law, imposition of penalty is unwarranted. In the result, the impugned order is modified to the extent of setting aside the penalty and confirmation of demand for the extended period of limitation. Confirmation of demand for the normal period with interest is upheld.
Accordingly, appeal is partly allowed to the extent mentioned as above.
Issues: (i) Whether reduction in value of inputs/work-in-progress by making a provision in the financial books (book write-down) amounts to writing off of inputs/capital goods so as to attract reversal of Cenvat credit under Rule 3(5B) of the Cenvat Credit Rules, 2004 and related demand, interest and penalty.
Analysis: The Court examined whether the accounting provision reducing inventory value constituted a physical write-off of inputs or capital goods on which Cenvat credit had been availed and whether the extended period of limitation could be invoked. The Tribunal relied on prior decisions holding that a book entry or write-down made for accounting or income-tax purposes, without evidence of removal or physical unavailability of inputs, does not amount to writing off for the purposes of Rule 3(5B). The admitted factual position that no physical verification showed removal of inputs and that the write-down was made to normalise inflated financial figures were considered. The Tribunal noted authorities where reduction in book value, absent evidence of physical depletion or utilization of credit, did not require reversal of credit and where demands and penalties were set aside. The Tribunal also addressed the contention on extended limitation, observing that invocation for extended period requires specific allegations of fraud/collusion or suppression, which were not substantiated on record.
Conclusion: The impugned order confirming demand, interest and penalty under Rule 3(5B) read with Rule 14 and Sections 11A(4) and 11A(5) is set aside. The reduction in inventory value by way of accounting provision, without evidence of physical write-off or removal of inputs, does not compel reversal of Cenvat credit; appeal is allowed with consequential relief as per law (in favour of the assessee).
Demand / recovery of CENVAT credit availed on inputs allegedly written of - Availment and reversal of CENVAT credit - Invocation of extended period under the proviso to Section 11A - Requirement of evidence of physical removal of inputs - HELD THAT:- We find the issue is no more res integra and covered by the decision of this Tribunal in the matter of M/s. Oswal HI-Tech Pvt. Ltd. [2008 (6) TMI 447 - CESTAT, BANGALORE] and M/s Solvay Specialities India Pvt. Ltd. Vs. Commr. of C. Ex. & S.T., Surat-II [2018 (3) TMI 12 - CESTAT AHMEDABAD].
Following the decisions, wherein it is held that, we find that there is no evidence to the effect that the inputs whose value had been written down had been removed from the factory. Reducing the value of the raw materials keeping in view the accounting principles and for Income-tax benefit, if any, cannot be construed that the value of the inputs is written off from the books of account and are not usable resulting in invoking of Rule 3(5B) of Cenvat Credit Rules, 2004. Therefore, the impugned order is not sustainable and is liable to be set aside.
Issues: (i) Whether the impugned order-in-original dated 3rd April, 2024 (passed on ground of non-prosecution) is vitiated by non-service of the show cause notice and reminders where the notices were uploaded under the "Additional Notices" tab on the GST portal, resulting in denial of opportunity of hearing to the petitioner.
Analysis: The petition challenges the mode of service consisting of uploading the show cause notice and reminders under the "Additional Notices" tab which, on the material before the Court, was not open or accessible to the petitioner and therefore did not impart knowledge of the proceedings. The matter is considered in the context of interlocutory rulings of this Court (Neelgiri Machinery) and subsequent authorities which treat non-communication by such upload as affecting the entitlement to a hearing. Having regard to those decisions and the absence of effective service here, the petitioner was deprived of an opportunity to file a reply and to seek personal hearing before adjudication; the impugned order was passed on the sole ground of non-prosecution without affording that opportunity. The Court therefore considered remand to permit filing of reply, grant of personal hearing, and fresh reasoned adjudication by the authority.
Conclusion: The impugned order-in-original dated 3rd April, 2024 is quashed and set aside; the petitioner is permitted to file a reply within four weeks and to seek personal hearing on the fixed date, and the adjudicating authority is directed to pass a reasoned order after personal hearing within three months.
Service of statutory notices by upload on portal and effect on service - deprivation of opportunity of hearing / audi alteram partem - quashing of order passed for non-prosecution where notice not served - remand for fresh adjudication with personal hearing - High Court judicial review of quasi-judicial orders - HELD THAT:- It is urged that on the additional tab, the show cause notice and the reminder were sent and as such there was no substantial service of notice on the petitioner which resulted in denial of opportunity of hearing.
Having gone through the set of documents and the pleadings in the writ petition and upon appreciating the findings recorded in the matter of Neelgiri Machinery [2025 (12) TMI 1787 - DELHI HIGH COURT], we are of the view that the petitioner has made out a case for remand.
Rightly so has been claimed by counsel for the petitioner that the issue is covered by the Division Bench judgment in the matter of Neelgiri Machinery which is further followed in Etemad Cargo [2025 (5) TMI 1682 - DELHI HIGH COURT].
That being so, we deem it appropriate to allow the present writ petition. Accordingly, we quash and set aside the impugned order-in-original dated 3rd April, 2024.
We permit the petitioner to submit its reply to the aforesaid show cause notice within a period of four weeks from today along with the written submissions.
Accordingly, the petition stands partly allowed and stands disposed of along with pending applications, if any.
Issues: (i) whether recovery proceedings and freezing of the bank account could be sustained for tax dues assessed in the name of a company that had already amalgamated and ceased to exist; (ii) whether Section 44(6) of the Maharashtra Value Added Tax Act, 2002 could be invoked to fasten liability on a former director in such circumstances.
Issue (i): Whether recovery proceedings and freezing of the bank account could be sustained for tax dues assessed in the name of a company that had already amalgamated and ceased to exist.
Analysis: The assessment order and the consequential recovery action were directed against an entity that had ceased to exist upon amalgamation. Once the amalgamation took effect, the tax liability, if any, had to be pursued against the amalgamated entity and not against the defunct company. Recovery by attachment or freezing of the petitioner's bank account on the basis of an order passed against a non-existent entity was therefore legally unsustainable.
Conclusion: The action of freezing the bank account and the underlying recovery proceedings were invalid and could not be sustained, in favour of the assessee.
Issue (ii): Whether Section 44(6) of the Maharashtra Value Added Tax Act, 2002 could be invoked to fasten liability on a former director in such circumstances.
Analysis: Section 44(6) contemplates liability of directors of a private company where tax dues of that company cannot be recovered, subject to the statutory conditions. The provision was held inapplicable to a case where the company had already amalgamated with another entity and the authorities were required to proceed against the successor company. On that footing, no liability could be fastened on the petitioner as a former director for the dues of the erstwhile company.
Conclusion: Section 44(6) could not be used to recover the dues from the petitioner, in favour of the assessee.
Final Conclusion: The petition succeeded and the impugned recovery action was quashed, leaving the authorities free only to proceed in law against the legally liable successor entity, if otherwise permissible.
Ratio Decidendi: A recovery or assessment action initiated against a non-existent amalgamating company is a jurisdictional nullity, and director-liability provisions cannot be used to recover such dues from a former director where the statute requires pursuit of the successor amalgamated entity.
Assessment and recovery against a non-existing amalgamating company - Effect of a scheme of amalgamation on identity and liabilities of transferor and transferee - Attachment of bank account for tax recovery -Liability of directors under Section 44(6) of the Maharashtra Value Added Tax Act, 2002 - Freezing of bank account to recover tax dues - Writ jurisdiction under Article 226 of the Constitution of India - HELD THAT:- Admittedly the impugned action of freezing of the petitioner’s bank account was resorted to enforce an order passed against Urdhwa Chemicals, a non-existing company. Also, the petitioner had resigned as a Director on 2 May, 2017, hence qua the assessment order, which is for the period 2016-17 and 2017-18, the petitioner in any event could not be held liable for discharging the tax debt of the said company, as by virtue of the amalgamation order, such liability itself could not have been attributed to Urdhwa Chemicals.
On the basic premise as noted by us above, the freezing of the bank account of the petitioner cannot be sustained. This apart, this is a case where the respondent has clearly erred in taking recourse to provisions of sub-section (6) of Section 44, inasmuch as sub-section (6) would be applicable in regard to the liability to pay taxes only in respect of a private company, whether existing or not or under liquidation. It would certainly not cover a situation as in the present case where the company has stood amalgamated with another entity and when it is available for the tax authorities to proceed against the new amalgamated entity. Thus, even taking recourse to sub-section (6) of Section 44, no action could have been taken.
In the light of the above discussion, the petition needs to succeed.
Issues: (i) Whether the petitioner is entitled to interest on the refund of VAT of Rs.2,87,538/- for the quarter ending 31.03.2009 under Section 38(3)(a)(ii) read with Section 42 of the DVAT Act, 2004, and if so, from which date and at what rate.
Analysis: The statutory framework under Section 38(3)(a)(ii) prescribes refund timelines for quarterly filers and Section 42 provides for entitlement to interest on refunds at the rate prescribed by notification, to be computed daily. Rule 34 prescribes the procedural steps for sanctioning refunds and recording calculations. The assessment order dated 01.09.2011 rejecting the refund was not shown to have been served or uploaded on the portal; the appellate authority remanded the matter for fresh adjudication and the assessing authority subsequently allowed the refund, which was credited on 15.01.2025. The petitioner filed the return on 26.04.2009, making 25.06.2009 the date when the refund became due after the statutory 60-day period. The factual record does not establish that delay in processing the refund was attributable to the petitioner, and prior orders preserved the question of limitation and service/upload for adjudication by the appellate authority. Precedent on entitlement to interest for delayed refunds supports the claim.
Conclusion: The petitioner is entitled to simple interest on the refunded amount of Rs.2,87,538/- at the rate of 6% per annum from 25.06.2009 until the date the refund was credited (15.01.2025); the respondent is directed to calculate and pay the accrued interest within 12 weeks.
Entitlement to interest on delayed refund - refund of tax under the statutory scheme - duty to issue notice and upload assessment orders - remand for fresh adjudication by assessing authority - Computation of interest from date refund became due - appellate scrutiny of limitation and service - High Court writ jurisdiction - Section 38(3)(a)(ii) of the Delhi Value Added Tax Act, 2004 - HELD THAT:- The interest shall be calculated till the tax was refunded to the petitioner which in this case is 15th January 2025.
In support of the aforesaid finding recorded by this Court qua the entitlement of the petitioner for interest on the refunded amount of Value Added Tax, reliance is rightly placed on the judgment in the matter of the Commissioner of Trade and Taxes vs. Corsan Corviam Construction S.A. Sadbhav Engineering Ltd.[2023 (4) TMI 4 - DELHI HIGH COURT] and also in the matter of Sandvik Asia Ltd. vs. Commissioner of Income-tax, Pune [2006 (1) TMI 55 - SUPREME COURT]. In our opinion, the issue is covered by the law interpreted and led down by the respective Courts in both these judgments.
Since it is not in dispute that, the petitioner in view of the statutory mandate under Section 38(3)(a)(ii) of DVAT Act, 2004 is entitled for refund post 60 days from the date of submission of the return, and since in the present case the return was filed on 26th April 2009, it is held that the petitioner shall be entitled for the interest pursuant to the statutory mandate under the aforesaid provision as well as under Section 42 of the DVAT Act, 2004 with effect from 25th June 2009 at the rate of 6% per annum.
We direct the respondent to calculate the interest on the Value Added Tax which was refunded to the petitioner i.e. an amount of ₹2,87,538/- at the rate of 6% per annum.
The petitions are allowed in above terms.
TaxTMI 