TaxTMI Updates e-Newsletter
Jan 30,2020

Services by State Government or Governmental Authority exempt from GST - Services relating to functions entrusted to a municipality under Article 243W - Advance Ruling-requirement of specific facts and description of activities for adjudication

Services by State Government or Governmental Authority exempt from GST - Services relating to functions entrusted to a municipality under Article 243W - Advance Ruling-requirement of specific facts and description of activities for adjudication - Whether Awas Bandhu, Uttar Pradesh can be held exempt from GST on the basis of the activities described in its application for an advance ruling - HELD THAT: - The Authority examined the applicant's submission that it assists the U.P. Housing Ministry in implementing policy to provide affordable housing and its reliance on the exemption under the Notification classifying "services by Central Government, State Government, Union Territory, local authority or Governmental Authority by way of any activity in relation to any function entrusted to a municipality under Article 243W." The Authority found the applicant's description to be general and observed that specific activities performed by the applicant-necessary to determine whether those services fall within the functions listed in the 12th Schedule (such as urban planning, regulation of land-use and construction, safeguarding weaker sections, urban poverty alleviation)-were not enumerated. In the absence of particulars mapping the applicant's actual services to the constitutional/notification-based exemption, the Authority held it would be premature to decide the question of exemption and that no positive ruling could be given on the merits. [Paras 11, 12]

In the absence of information about the specific activities performed by the applicant, no ruling on exemption can be given and the application for advance ruling is rejected.

Final Conclusion: The application for an advance ruling by M/s. Awas Bandhu is rejected for want of necessary particulars describing the specific services performed; no determination on entitlement to GST exemption is made.

Supply of services versus sale of goods - Classification under Chapter Heading 9963 (Accommodation, Food and Beverage Services) - GST rate 5% without Input Tax Credit for supplies by Indian Railways or their licensees - Ineligibility of Input Tax Credit where rate is subject to non-availability of credit - Mandate of Advance Ruling under Section 95(a)

Supply of services versus sale of goods - Classification under Chapter Heading 9963 (Accommodation, Food and Beverage Services) - Supply of food items at GMUs (General Minor Units) on railway platforms is a supply of services. - HELD THAT: - The Authority examined the Notifications (No. 11/2017 as amended and No. 13/2018) and observed that the activity carried out by the applicant falls under Chapter Heading 9963 (Accommodation, Food and Beverage Services) and is described at Sl. No. 7(ia) as "Supply of goods, being food or any other article for human consumption or any drink, by the Indian Railways or Indian Railways Catering and Tourism Corporation Ltd., or their licensees, whether in trains or at platforms." On that statutory classification the Authority concluded that the applicant's counter sale at GMUs is to be treated as supply of services. [Paras 12]

Supply at GMUs is supply of services.

GST rate 5% without Input Tax Credit for supplies by Indian Railways or their licensees - Option to pay 18% with ITC - The services (as above) are taxable at 5% without Input Tax Credit; the option to treat them at 18% with ITC is not available. - HELD THAT: - The Authority relied on the clarification in Letter F. No. 354/03/2018-TRU dated 31-3-2018 which, to ensure uniformity, states that GST on supply of food and/or drinks by Indian Railways or IRCTC or their licensees, whether in trains or at platforms (static units), will be 5% without ITC. Applying that clarification to the classified service, the Authority held that the applicable rate is 5% without ITC rather than permitting an option to pay 18% with ITC. [Paras 13]

Taxable at 5% without ITC; option to pay 18% with ITC is not available.

Ineligibility of Input Tax Credit where rate is subject to non-availability of credit - The applicant cannot claim Input Tax Credit of GST paid on license fees to Indian Railways or IRCTC when the service is taxed at 5% without ITC under the notification. - HELD THAT: - The Authority noted that the Notification prescribing the concessional rate is subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, as explained in Explanation No. (iv). That Explanation precludes claim of credit of input tax charged on goods or services used exclusively, and requires reversal where inputs are used partly for taxable and partly for other supplies. Consequently, Input Tax Credit of GST paid on license fees is not admissible when the concessional rate attracting non-availability of credit applies. [Paras 14]

Applicant cannot claim ITC on license fees when paying tax at 5% without ITC.

Limit of Advance Ruling jurisdiction - Mandate of Advance Ruling under Section 95(a) - The question on consequences of wrong availing of ITC is outside the jurisdiction of the Advance Ruling Authority under Section 95(a). - HELD THAT: - The Authority observed that the mandate of advance rulings under Section 95(a) confines the Authority to decide matters specified in the relevant provisions and that consequential or enforcement questions regarding wrong availing of ITC do not fall within that mandate. Hence the fourth question cannot be adjudicated by the Authority in the advance ruling proceedings. [Paras 15]

Question on consequences of wrong availing of ITC is out of the Advance Ruling Authority's mandate.

Final Conclusion: The Authority ruled that the applicant's sales at GMUs are services classified under Chapter Heading 9963, taxable at 5% without entitlement to Input Tax Credit under the applicable notification and clarifications; and that questions on consequences of incorrect availing of ITC fall outside the Advance Ruling Authority's jurisdiction under Section 95(a).

Detention, seizure and release of goods and conveyances in transit - payment of tax and penalty under Section 129 of the CGST Act, 2017 - owner of the goods coming forward to pay - transporter liability under Section 129(1)(b) - lapse/expiry of e-way bill - extension of e-way bill validity under Rule 138(10) of the E-way Rules - benefit of administrative circular reducing penalty

Owner of the goods coming forward to pay - payment of tax and penalty under Section 129 of the CGST Act, 2017 - Whether an offer or undertaking by the consignor suffices as the owner 'coming forward' to pay, or actual remittance is required under Section 129(1)(a)/(b). - HELD THAT: - The court held that clauses (a) and (b) of Section 129(1) commence with the phrase 'on payment', and therefore an offer or undertaking by the consignor to remit tax and penalty is not sufficient. Actual payment is required to qualify as the owner having 'come forward' to pay; mere willingness or an offer does not satisfy the statutory condition for release under clause (a), and consequently the situation falls to be dealt with under clause (b) if the owner has not actually paid. [Paras 7]

Actual remittance is required; an offer or undertaking to pay does not suffice.

Detention, seizure and release of goods and conveyances in transit - transporter liability under Section 129(1)(b) - lapse/expiry of e-way bill - extension of e-way bill validity under Rule 138(10) of the E-way Rules - Whether Section 129 provides the complete code for dealing with contraventions in transit (including expiry of an e-way bill) and how such lapses are to be treated for release of goods. - HELD THAT: - The court observed that Section 129 is a self-contained code addressing detention, seizure and release for all contraventions committed in transit, irrespective of the gravity of the violation. The lapse of an e-way bill (even if for bonafide reasons, as in the present case) falls within the sweep of Section 129. The court also noted that the E-way Rules (Rule 138(10)) permit extension of validity by updating the relevant form, a provision that is available in appropriate cases but does not displace the applicability of Section 129 when goods are detained for contravention. [Paras 6, 8]

Section 129 governs release of goods detained for transit contraventions including expiry of e-way bills; Rule 138(10) may afford relief in suitable cases but does not negate the operation of Section 129.

Payment of tax and penalty under Section 129 of the CGST Act, 2017 - benefit of administrative circular reducing penalty - Quantification of the remittance necessary for release of the detained consignment and applicability of the departmental circular reducing penalty. - HELD THAT: - Applying Section 129(1)(b) (since the owner had not actually come forward to pay), the court quantified the taxes and directed remittance accordingly. The court accepted the respondent's concession that the petitioner is entitled to the benefit of the Commissioner's Circular No.10 of 2019 (31.05.2019) which reduces the penalty payable in specified circumstances. On that basis, the court ordered release of the consignment upon payment of the determined central and state tax amounts and the reduced penalty in terms of the circular. [Paras 9]

Release directed on remittance of the specified central and state tax amounts and payment of the reduced penalty as per the administrative circular.

Final Conclusion: Writ petition disposed: the detained consignment is ordered released forthwith upon payment of the taxes computed under Section 129(1)(b) and payment of the reduced penalty in terms of the Commissioner's circular; connected petitions closed, no costs.

Refund of IGST for exports to Bhutan - section 54 of the CGST Act - representation to authority for administrative decision - opportunity of hearing - reasoned order - remand for fresh consideration

Refund of IGST for exports to Bhutan - section 54 of the CGST Act - representation to authority for administrative decision - opportunity of hearing - reasoned order - remand for fresh consideration - Direction to petitioner to file a representation and to the concerned authority to consider and decide the claim for refund of IGST for exports to Bhutan after hearing, within fixed timeframes; merits not adjudicated. - HELD THAT: - The writ petition alleging inaction in granting refund of IGST for exports to Bhutan under section 54 of the CGST Act was not decided on merits. The Court directed the petitioner to make a representation to the Assistant Commissioner (Preventive), Dinhata and to serve a copy of the writ petition within ten days. On receipt, the concerned authority must grant the petitioner an opportunity of hearing, pass a reasoned order on the representation within four weeks from receipt, and communicate that order to the petitioner within one week of passing it. The Court expressly declined to examine the merits and kept all points open for the administrative authority to decide on fresh consideration.

Petitioner to file representation and serve the authority within ten days; authority to hear and pass a reasoned order within four weeks and communicate it within one week; merits reserved and writ petition disposed.

Final Conclusion: Writ petition disposed by directing the petitioner to make a representation and the Assistant Commissioner (Preventive), Dinhata to decide the refund claim for IGST on exports to Bhutan after hearing and by passing a reasoned order within the prescribed time; merits expressly left open.

Verification of input tax credit - certificate of verification taken on record - prohibition against imposition of late fee, interest and penalty pending availability of transition credit - disposal of petition where the relief sought is not pressed

Verification of input tax credit - certificate of verification taken on record - The verification of credit availed by the writ applicant was completed and the certificate of verification was taken on record. - HELD THAT: - The Court recorded that pursuant to its earlier order the Gujarat Commissionerate carried out verification of the credit claimed by the petitioner and issued a certificate confirming the verification. That certificate was placed on record and accepted by the Court, completing that part of the prescribed procedure. [Paras 1, 2]

Verification and issuance of the certificate were completed and the certificate was taken on record.

Prohibition against imposition of late fee, interest and penalty pending availability of transition credit - disposal of petition where the relief sought is not pressed - The petitioner was not pressing the prayer for prohibition against imposition or waiver of late fee, interest and penalty (paragraph 14(d)), and accordingly no adjudication on that relief was required. - HELD THAT: - The Court noted that the only surviving prayer in the petition was paragraph 14(d) seeking a prohibition on imposition or a waiver of late fees, interest and penalties in respect of delayed filing until transition credit is made available. Counsel for the petitioner informed the Court that the petitioner was not pressing that relief and that there had been no proceedings initiated to date. In view of the petitioner not pressing the relief and other aspects having been dealt with, the Court found that further adjudication on the said prayer was unnecessary. [Paras 3, 4, 5]

No adjudication on paragraph 14(d) as the petitioner did not press that relief; petition disposed of.

Final Conclusion: The certificate verifying the input tax credit was accepted and recorded; since the petitioner declined to press the remaining prayer for prohibition/waiver of late fees, interest and penalties, the Court declined further adjudication and disposed of the petition.

Constitutional validity of tax provision - Prospective application of tax enactments - Locus standi - Advance Ruling Authority and Appellate Authority for Advance Ruling - Liberty to file fresh petition

Constitutional validity of tax provision - Validity of paragraph 2 of Schedule II to the Central Goods and Services Tax Act, 2017 and the Goa Goods and Services Tax Act, 2017 read with Sections 7 and 9 - HELD THAT: - The Division Bench declined to entertain the constitutional challenge raised by the petitioner because the issue had been conclusively addressed against the petitioner by the earlier Division Bench decision in Retailers Association of India v. Union of India in the context of Service Tax; the court found the principle there to be applicable to GST and accepted learned counsel's concession that the precedent governs the present challenge. On that basis the petition insofar as the constitutional validity plea was concerned was dismissed. [Paras 4]

Petition dismissed insofar as the challenge to constitutional validity; the precedent in RAI applied to GST.

Prospective application of tax enactments - Advance Ruling Authority and Appellate Authority for Advance Ruling - Locus standi - Liberty to file fresh petition - Whether the orders of the Appellate Authority for Advance Rulings quashing the petitioner's position in respect of a transaction entered into prior to GST enactments should be quashed in this petition - HELD THAT: - The Court declined to adjudicate the challenge to the orders of the Advanced Ruling Authority and the Appellate Authority for Advance Rulings because the party who obtained the Advance Ruling (respondent no.5) has initiated proceedings under Section 102 of the Central Goods and Services Tax Act, 2017 which are pending. The court observed that if respondent no.5 obtains a favourable order in those proceedings, the present petition may become otiose; if respondent no.5 fails, the petitioner was granted liberty to institute a fresh petition. The Court further left open for future adjudication the question of the petitioner's locus standi and any other issues that may arise. [Paras 6, 7]

Petition not entertained on merits in respect of the challenge to Advance Ruling orders; petitioner granted liberty to file fresh proceedings if necessary, with locus standi and other issues left open.

Final Conclusion: The petition is disposed: the constitutional challenge to the specified GST provisions is dismissed on authority of earlier Division Bench precedent; the challenge to the Advance Ruling orders is not decided on merits because proceedings under Section 102 are pending, and the petitioner is granted liberty to initiate fresh proceedings if required, with locus standi and other issues left open.

Service of adjudicatory order - person aggrieved - invalid service on agent/driver - limitation for filing appeal under section 107 of the Uttar Pradesh Goods and Service Tax Act, 2017

Service of adjudicatory order - person aggrieved - invalid service on agent/driver - limitation for filing appeal under section 107 of the Uttar Pradesh Goods and Service Tax Act, 2017 - Effect of service of the adjudicating order on the vehicle driver (agent) on commencement of limitation for filing an appeal under section 107 of the Act. - HELD THAT: - The Court found that the order demanding deposit and fixing tax and penalty was served on the driver of the transport agency and not on the consignor or consignee who were persons likely to be aggrieved by the order. Relying on the principle that an adjudicatory order must be communicated to a person who is likely to be aggrieved, service on the driver - who was not such a person - did not constitute valid service. Because service was invalid, the limitation period for preferring an appeal under section 107 of the Act did not commence from the date the driver was served. The consequence is that the appeal filed by the petitioner on 6.3.2019 could not be treated as time-barred by reason of the defective service on the driver.

Service on the driver was not valid service on a person aggrieved; the appeal filed on 6.3.2019 is within limitation and the order dismissing it as barred by limitation is quashed.

Final Conclusion: Writ petition allowed; impugned order dismissing the appeal as time-barred quashed and the appeal directed to be entertained as having been filed within the limitation prescribed under section 107 of the Act.

Interim release of seized goods and vehicle - compliance with Rule 140(1) of the CGST Rules, 2017 - quashing of detention and demand orders - writ petition seeking certiorari and mandamus against seizure

Interim release of seized goods and vehicle - compliance with Rule 140(1) of the CGST Rules, 2017 - Interim direction for release of the seized goods and vehicle upon compliance with Rule 140(1) of the CGST Rules, 2017. - HELD THAT: - The Court, while not adjudicating the merits of the challenge to the detention and demand orders, granted an interim remedy: if the petitioner complies with the provisions of Rule 140(1) of the GST and CGST Rules, 2017, the seized goods and the vehicle shall be released. This order does not quash or decide the validity of the impugned detention or demand orders on merits, but conditions immediate release on the statutory compliance specified in Rule 140(1).

Seized goods and vehicle to be released on petitioner's compliance with Rule 140(1) of the CGST Rules, 2017.

Writ petition seeking certiorari and mandamus against seizure - Procedural directions concerning conduct of the petition. - HELD THAT: - The Court took on record the counter affidavit filed by respondent no.3 and the petitioner's rejoinder affidavit. The petition has been listed for final hearing on 19.02.2020 before the appropriate Court. The Bench clarified that the matter shall not be treated as tied up or part-heard. No substantive adjudication on the challenge to the detention and demand orders was made at this stage.

Pleadings taken on record; matter listed for final hearing on 19.02.2020; not to be treated as part-heard.

Final Conclusion: Interim relief granted: upon compliance with Rule 140(1) of the CGST Rules, 2017 the seized goods and vehicle are to be released; pleadings are taken on record and the petition is listed for final hearing on 19.02.2020, with the matter not to be treated as part-heard.

Release of detained goods accompanied by valid Invoice and E-way Bill - release of perishable goods in the interest of justice - interim release on furnishing security - consideration of reply under Section 129(3) of the Central Goods & Services Tax Act, 2017 - opportunity of hearing under Section 129(4) of the Central Goods & Services Tax Act, 2017

Release of detained goods accompanied by valid Invoice and E-way Bill - release of perishable goods in the interest of justice - interim release on furnishing security - Whether the conveyance and goods accompanied by valid Invoice and E-way Bill were liable to be released and whether the remaining detained goods have been released. - HELD THAT: - The Court recorded the earlier order directing release of the conveyance together with those goods which were accompanied by valid Invoice and E-way Bill, having regard to the perishable nature of the medicines (reproduced in the Court's order). The petitioner informed the Court that the remaining boxes (in respect of which Part-B of the E-way Bill was allegedly not available) have been released by the Authority upon furnishing the security required by the Authority. The factual position of release of the remaining boxes was accepted and noted by the Court. [Paras 2, 3]

The conveyance and those goods accompanied by valid Invoice and E-way Bill were to be released; the remaining boxes have been released on furnishing security and this fact is recorded.

Consideration of reply under Section 129(3) of the Central Goods & Services Tax Act, 2017 - opportunity of hearing under Section 129(4) of the Central Goods & Services Tax Act, 2017 - Duty of the Authority to consider any reply filed under Section 129(3) and to afford an opportunity of hearing under Section 129(4) before passing an order under Section 129 of the Act. - HELD THAT: - The Court observed that after issuance of the notice under Section 129, the petitioner had not filed any reply and, consequently, no order under Section 129(3) had been passed by the Authority. In these circumstances the Court directed that if the petitioner files a reply to the notice under Section 129(3), the Authority must consider that reply after giving the petitioner an opportunity of hearing in consonance with Sub Section (4) of Section 129 and thereafter pass an appropriate order under the provisions of the Act. The direction is prospective and procedural, requiring compliance with the statutory mandate of hearing and consideration before final adjudication. [Paras 4, 5]

If the petitioner files a reply under Section 129(3), the Authority shall consider it after affording an opportunity of hearing under Section 129(4) and pass an appropriate order under the Act.

Final Conclusion: The petition is disposed of. The Court recorded the prior interim release of goods accompanied by valid documentation and noted that the remaining boxes were released on furnishing security. The Authority is directed that upon receipt of any reply under Section 129(3) it must give the petitioner a hearing in accordance with Section 129(4) and pass an appropriate order; notice is discharged.

Communication to person aggrieved - service on person who is not aggrieved - appeal filed by a person aggrieved - limitation for filing appeal under section 107 of the Goods and Services Tax Act, 2017

Communication to person aggrieved - service on person who is not aggrieved - limitation for filing appeal under section 107 of the Goods and Services Tax Act, 2017 - Validity of dismissal of an appeal as time-barred when the impugned order was served on a person who was not the aggrieved party. - HELD THAT: - The Court found on the material on record and the counter-affidavit that the order sought to be appealed against had been served on the driver of the transport agency (Narendra Singh), who was not the person aggrieved by the order. Applying the statutory intendment as explained in the cited authority S/S. Patel Hardware Vs. Commissioner of State GST, the Court held that an order required to be appealed under section 107(4) must be communicated to the person who is aggrieved. Service on the driver, who was merely effecting transportation of goods, did not amount to service on a person aggrieved. Consequently, the Appellate Court's dismissal of the appeal as barred by limitation could not be sustained. The appellate remedy was thereby restored for adjudication on merits rather than being defeated by defective service which deprived the aggrieved party of effective notice.

Order of the Appellate Court dated 3.10.2019 dismissing the appeal as barred by limitation is quashed; the appeal shall be treated as filed within the limitation under section 107 and shall be decided on merits in accordance with law.

Final Conclusion: Writ petition allowed; appellate order dated 3.10.2019 set aside for defective service on a person who was not aggrieved, and the appeal restored for decision on merits as within the statutory limitation.

Deduction under section 24 - 30% standard deduction for income from house property - Income of a trust to be computed in commercial sense - Accumulation of income under section 11(2) and deemed income under section 11(3) - Modification of purpose and application under section 11(3A) - Remand for fresh consideration after opportunity of hearing

Deduction under section 24 - 30% standard deduction for income from house property - Income of a trust to be computed in commercial sense - Entitlement of the assessee-trust to claim the standard deduction under section 24 in computing income from house property for the assessment years in dispute. - HELD THAT: - The Tribunal held that the statutory scheme for computing income from house property expressly provides a deduction equal to 30% of the annual value and contains no restriction excluding any class of taxpayer. The Tribunal rejected the CIT(A)'s view that a trust is barred from claiming section 24 deductions by reading the word "income" in section 11(1) as requiring computation in the commercial sense. Relying on the express provisions of the Act and precedent favouring the availability of section 24 to trusts (including the ITAT decision in ADIT v. Sri Sathya Sai Trust and the Bombay High Court decision in CIT v. Institute of Banking Personnel Selection), the Tribunal concluded that the assessee is entitled to the deduction under section 24 and that the CIT(A)'s extrapolation excluding trusts is unsustainable in law. [Paras 6]

Deduction under section 24 @ 30% of annual value in respect of income from house property is allowable to the assessee-trust; appeal allowed on this issue.

Accumulation of income under section 11(2) and deemed income under section 11(3) - Modification of purpose and application under section 11(3A) - Remand for fresh consideration after opportunity of hearing - Taxability of the unutilized accumulation of Rs. 18,50,000 (relating to A.Y. 2008-09) alleged to be deemed income under section 11(3). - HELD THAT: - The Assessing Officer held, and the CIT(A) upheld, that the unutilized accumulation constituted deemed income under section 11(3) and was taxable, rejecting the assessee's claim to accumulate or to apply the amount under section 11(2) or to re-purpose it under section 11(3A) on the ground that no unavoidable circumstances or requisite documentation were shown. The Tribunal observed that it is not clear whether the CIT(A) adequately confronted the material relied on by the assessee and, in the interests of justice, directed that the issue be remitted to the Assessing Officer for fresh consideration after affording the assessee an opportunity of being heard. [Paras 7]

Issue remitted to the Assessing Officer for fresh consideration and decision after giving the assessee an opportunity of hearing; no final adjudication on merits by this Tribunal.

Final Conclusion: Appeal partly allowed: the assessee-trust is entitled to the standard deduction under section 24 for income from house property (appeal allowed on that point); the question of taxability of the unutilized accumulation of Rs. 18,50,000 (A.Y. 2008-09) is remitted to the Assessing Officer for fresh consideration after giving the assessee an opportunity of being heard.

Addition under Section 68 of the Income-tax Act relating to unexplained cash deposits - explanation of source of cash and onus on the assessee - probability test for genuineness of gift and donor's discretion - acceptance of remand report / findings of the Assessing Officer - requirement (or otherwise) of cash flow statement for agricultural savings

Addition under Section 68 of the Income-tax Act relating to unexplained cash deposits - explanation of source of cash and onus on the assessee - probability test for genuineness of gift and donor's discretion - requirement (or otherwise) of cash flow statement for agricultural savings - acceptance of remand report / findings of the Assessing Officer - Addition of Rs. 19,17,000 treated as unexplained cash deposits under Section 68 is not sustainable. - HELD THAT: - The assessee produced documentary evidence (sale deeds, pronote) and affidavits explaining that the cash deposited in his bank account was gifted by his father and comprised sale proceeds of agricultural land, a loan (pronote) and savings from agriculture. The Assessing Officer examined the additional evidence on remand and reported satisfaction. The CIT(A) accepted part of that material but rejected amounts totalling Rs. 19,17,000 on the ground that two sale deeds related to an earlier year and that it was improbable the donor would retain sale proceeds for over eight months before gifting them; the CIT(A) also faulted the absence of a cash flow statement for the agricultural savings. The Tribunal held that the CIT(A)'s reasoning was unsustainable. Retention of funds by a donor for eight months is not inherently improbable and does not, by itself, undermine the veracity of documentary proof of source where the documents themselves are not doubted and no evidence is shown of prior use of the funds. Further, insisting on a cash flow statement from an illiterate agriculturist was unnecessary where the existence of substantial landholdings and sale deeds provided a reasonable basis to accept that modest savings could have accumulated from agriculture. The Tribunal therefore accepted the explanation and the AO's remand finding insofar as the disputed amounts were concerned and found the addition unsupported. [Paras 8, 9, 10]

The addition of Rs. 19,17,000 treated as unexplained deposits is deleted and the explanation of source is accepted.

Final Conclusion: The assessee's appeal is allowed; the addition of Rs. 19,17,000 confirmed by the CIT(A) is set aside and deleted.

TPA - Application of +/-5% range under proviso to Section 92C for determining arm's length price - RBI reference rate as benchmark in transfer pricing for foreign exchange trading - Maintainability of appeals under Section 260-A where Tribunal's factual findings are not ex facie perverse - permission to withdraw this Special Leave Petition along with pending applications therein due to low tax effect -

High Court [2018 (7) TMI 485 - KARNATAKA HIGH COURT] dismissed the Revenue's appeal for Assessment Year 2010-11, holding that the challenge did not raise any substantial question of law under Section 260-A and that the Tribunal's factual findings-including its application of the +/-5% proviso to RBI reference rates-did not warrant interference

HELD THAT:- Permission granted, subject to just exceptions.

The special leave petition and pending applications are dismissed as withdrawn, leaving question of law open.

Registration under Section 12AA for charitable status - charitable purpose under Section 2(15) - dominant or predominant purpose test - activity for profit exclusion - ancillary or incidental object doctrine - general public utility / public benefit - incidental benefit to members not fatal to charity

Registration under Section 12AA for charitable status - charitable purpose under Section 2(15) - dominant or predominant purpose test - ancillary or incidental object doctrine - activity for profit exclusion - general public utility / public benefit - incidental benefit to members not fatal to charity - Whether the Association of Third Party Administrators (ATPA) is entitled to registration under Section 12AA as an institution established for charitable purpose. - HELD THAT: - The Court examined the aims and objects of the Trust and applied the dominant/predominant purpose test as expounded by the Constitution Bench in Surat Art Silk Cloth Manufacturers Association and followed in Bharat Diamond Bourse. The Court accepted the ITAT's finding that the primary objects of the Trust relate to providing services in the field of insurance and health facilities which confer benefit to the general public, and that ancillary or incidental non-charitable objects do not deprive the Trust of charitable character. The Court further applied the test for 'activity for profit' and held that mere possibility of profit or incidental benefit to members does not establish profit-making as the predominant object; what matters is whether activities are propelled by a dominant profit motive. Having regard to the objects as a whole and the ITAT's reasoning, the Court found no error in treating the Trust's predominant purpose as charitable and therefore upheld the ITAT's direction to grant registration under Section 12AA. The Court concluded that no substantial question of law arose for its consideration. [Paras 5, 6, 8, 9, 10]

Appeal dismissed; ITAT's order allowing registration under Section 12AA is upheld and no substantial question of law is made out.

Final Conclusion: The High Court affirmed the ITAT's conclusion that the Trust's predominant objects are charitable within the meaning of Section 2(15) and that incidental or member beneficial activities do not preclude registration under Section 12AA; the appeal is dismissed.

Liability of directors under Section 179 - Condition precedent of non-recoverability from company - Requirement of recording subjective satisfaction with cogent materials - Quashing for failure to disclose recovery steps in show-cause notice - Power to issue fresh show-cause and conduct reconsideration - Notice for attachment under Section 226(3)

Liability of directors under Section 179 - Condition precedent of non-recoverability from company - Quashing for failure to disclose recovery steps in show-cause notice - Validity of order under Section 179 where show-cause notice and final order do not record steps taken to recover tax from the company - HELD THAT: - The Court held that sub section (1) of Section 179 creates a pre requisite condition that tax dues "cannot be recovered" from the private company before directors can be made jointly and severally liable. The show cause notice and the impugned order are silent as to any steps taken by the revenue to recover the demand from the company; consequently the condition precedent is not reflected in the records. The absence of cogent material and recorded subjective satisfaction in the two documents renders the exercise of power under Section 179 unsustainable. An affidavit filed later cannot cure the void in the original notice and order; the authority's satisfaction must appear from the order based on materials before it. [Paras 20, 21, 22]

Impugned show cause notice and order under Section 179 quashed for failure to record steps evidencing non recoverability from the company.

Power to issue fresh show-cause and conduct reconsideration - Requirement of recording subjective satisfaction with cogent materials - Whether Department may be permitted to initiate fresh proceedings under Section 179 and under what conditions - HELD THAT: - In view of the Department's claimed but unrecorded recovery efforts, the Court exercised discretion to allow the revenue one opportunity to initiate fresh proceedings. The fresh show cause notice must contain all necessary details and materials so that the director can effectively meet the case; the authority's subjective satisfaction must be reflected in the renewed order. A time bound programme is imposed to prevent indefinite proceedings. [Paras 22, 23]

Department permitted to issue fresh show cause notice and pass orders in accordance with law within two months from receipt of the writ; fresh proceedings must record the requisite satisfaction on cogent materials.

Notice for attachment under Section 226(3) - Validity of notices under Section 226(3) issued to banks consequential to the impugned order - HELD THAT: - Since the principal order under Section 179 has been quashed, consequential notices issued under Section 226(3) to the banks cannot stand. The Court therefore set aside those notices. The Court noted the interim practical measure that the writ applicant would not operate the bank account until fresh proceedings are completed, and directed a time frame for fresh action. [Paras 24]

Notices under Section 226(3) to the banks quashed and set aside.

Final Conclusion: The writ petition is partly allowed: the show cause notice and order under Section 179 are quashed for failure to record that recovery from the company was impossible; the revenue may initiate fresh proceedings with full particulars and cogent materials within two months; consequential bank notices under Section 226(3) are quashed.

Reopening of assessment under Section 147/148 - reason to believe for reassessment - requirement of specific, relevant and reliable information to record belief - recording of reasons without due application of mind - application of Section 56(2)(vii)(a) to alleged sum received without consideration - impact of return processed under Section 143(1) on reassessment

Reopening of assessment under Section 147/148 - reason to believe for reassessment - recording of reasons without due application of mind - requirement of specific, relevant and reliable information to record belief - Validity of the notice under Section 148 / assumption of jurisdiction under Section 147 on the ground that the Assessing Officer had reasons to believe that income had escaped assessment. - HELD THAT: - The Court examined the recorded reasons and the material relied upon by the Assessing Officer and concluded that the reasons were vitiated by a failure to apply mind. The reasons reproduced the investigation report verbatim, misrecorded that no return had been filed and invoked explanation 2(a) to Section 147 (which pertains to cases where no return is furnished) despite the existence of an original return. The AO accepted the genuineness of the loan transaction and there was no independent reasoning showing why the information established escapement of income. The Court held that while reopening after a Section 143(1) processing is permissible if there is subsequent relevant information, the material on record must have a rational nexus to a bona fide reason to believe; mere reproduction of an investigation note and mechanical computation without explaining how that material leads to a belief of escapement is insufficient. Applying the prima facie test, the Court found no basis to sustain the reopening and held the proceedings to be invalid for want of due application of mind. [Paras 7, 8, 9, 11, 13]

The notice under Section 148 and proceedings under Section 147 were quashed as the recorded reasons did not show a bona fide reason to believe and were vitiated by lack of independent application of mind.

Application of Section 56(2)(vii)(a) to alleged sum received without consideration - impact of return processed under Section 143(1) on reassessment - Whether outstanding loan liability could be treated as 'sum of money received without consideration' and taxed under Section 56 so as to justify reassessment. - HELD THAT: - The Court analysed the AO's reliance on Section 56(2)(vii)(a) to treat the unpaid portion of an admitted interest bearing loan as notional income. It observed that both lender and borrower had consistently treated the transaction as a loan and that the AO accepted its genuineness. The reasons did not explain how an outstanding admitted loan obligation amounted to a sum 'without consideration' or otherwise constituted income chargeable under Section 56. The Court emphasised that characterization depends on the nature and intention of the parties and that, absent any foundation for treating the transaction as gratuitous, mere outstanding liability cannot ipso facto be converted into taxable income. For these reasons the AO's application of Section 56 in the recorded reasons lacked any rational basis and did not demonstrate escapement of income. [Paras 6, 11, 12, 13]

The AO could not, on the basis of the material before him, treat the outstanding loan amount as income under Section 56; the invocation of Section 56 in the reasons was unsustainable.

Final Conclusion: Writ petition allowed; the notice under Section 148 and all proceedings consequent thereto quashed for want of valid reasons to believe and failure to apply mind; parties to bear their own costs.

Accrual of liability - mercantile system of accounting - genuineness of book entries - joint development agreement - association of persons - remand for fresh consideration - opportunity of hearing

Mercantile system of accounting - accrual of liability - genuineness of book entries - remand for fresh consideration - Claim for demurrages of Rs. 54,00,000/- and whether the liability accrued in the financial year relevant to Assessment Year 1997-98 - HELD THAT: - The Tribunal had restored the Assessing Officer's addition after expressing doubts about the genuineness of the book entry and because the appellant had not produced the original deed of arbitration; the Tribunal did not take into account the remand report of the Additional Commissioner of Income Tax nor the joint venture agreement dated 19.09.1992. The High Court noted that the Assessing Officer had not disputed origin of the liability or the book entry but that the revenue contested genuineness. Given these competing factual findings and the Tribunal's failure to consider material documentary evidence and the remand report, the Court declined to decide the merits itself and set aside the Tribunal's order, directing the Tribunal to afford hearing to the parties and decide the matter in accordance with law. [Paras 7, 8]

Set aside and remitted to the Tribunal for fresh adjudication after affording opportunity of hearing; Court expressed no opinion on merits.

Joint development agreement - association of persons - remand for fresh consideration - opportunity of hearing - Whether the joint development agreement constitutes an Association of Persons and the consequent tax status - HELD THAT: - The question was raised as one of the substantial questions of law before this Court but was not decided on merits. The Court remitted the matter, observing that in view of the remand it would be open to the Tribunal to deal with the issues involved in the substantial questions of law framed by the Bench, after hearing the parties and in accordance with law. [Paras 9]

Remitted to the Tribunal for determination; Court has not expressed any view on the question.

Final Conclusion: The order of the Income Tax Appellate Tribunal is set aside and the matters-claim of demurrages and the question whether the joint development agreement amounts to an Association of Persons-are remitted to the Tribunal for fresh consideration after affording opportunity of hearing; the High Court expressed no opinion on the merits and directed the Tribunal to decide the appeal in accordance with law, preferably within three months.

Deduction under Section 80IA(2)(iv)(c) - industrial backward district specified by notification - strict compliance with eligibility criteria for exemption notification - independent operation of Section 80HH and Section 80-IA - retrospective operation of notification

Deduction under Section 80IA(2)(iv)(c) - industrial backward district specified by notification - strict compliance with eligibility criteria for exemption notification - Entitlement of the assessee to claim deduction under Section 80IA(2)(iv)(c) for the stated assessment years - HELD THAT: - Section 80-IA(2)(iv)(c) grants deduction only where two conditions are satisfied: (a) the industrial undertaking is located in an industrially backward district specified by the Central Government by notification in the Official Gazette, and (b) production begins within the prescribed period. Admittedly the assessee's undertaking is not situated in any district specified as industrially backward in the Notifications relied upon; the Notifications of 03.09.1997 and 07.10.1997 do not include the district where the assessee's unit is located, and the unit was set up before those Notifications. The Tribunal erred in allowing the deduction because the statutory eligibility condition of location within a notified industrially backward district is not fulfilled. Established principles require that exemption notifications be read strictly as to eligibility criteria, and a taxpayer cannot claim benefit unless the plain terms of the notification are satisfied. Applying these principles, the claim under Section 80IA(2)(iv)(c) fails on the admitted facts. [Paras 11, 12, 13]

Assessee is not entitled to deduction under Section 80IA(2)(iv)(c) for the stated assessment years as the location condition in the notification is not satisfied.

Independent operation of Section 80HH and Section 80-IA - retrospective operation of notification - Whether a notification or declaration under Section 80HH(2) can be treated as fulfilling the requirement of an industrially backward district for Section 80IA(2)(iv)(c) - HELD THAT: - Section 80HH and Section 80-IA(2)(iv)(c) are separate and independent statutory provisions with distinct eligibility regimes. The Court rejected the contention (and the reliance on a Rajasthan High Court concession in Trinity Hospital) that a declaration under Section 80HH(2) automatically qualifies an area as an industrially backward district for the purposes of Section 80-IA. The decision turned on statutory independence of the provisions and the absence of any legal basis to import a Section 80HH(2) declaration into the eligibility requirement of Section 80-IA(2)(iv)(c). The Court therefore declined to accept parity or equitable construction that would override the clear statutory conditions. [Paras 14]

A notification or declaration under Section 80HH(2) does not, as a matter of law, satisfy the distinct statutory requirement of an industrially backward district under Section 80IA(2)(iv)(c).

Final Conclusion: The Income Tax Appellate Tribunal's order allowing the deductions is set aside; the appeals are allowed and the assessee is not entitled to the claimed deduction under Section 80IA(2)(iv)(c) for Assessment Year 2004-2005 and Assessment Year 2005-2006.

Valuation for the purpose of capital gains - acceptance of valuation in scrutiny assessment - remand for fresh consideration of valuation

Valuation for the purpose of capital gains - acceptance of valuation in scrutiny assessment - Whether, where the revenue has accepted a valuer's valuation for computing capital gains in returns processed under scrutiny in earlier years, it can refuse to accept the same valuation for subsequent years. - HELD THAT: - The Court found that the authorities under the Act had not adverted to the specific question whether a valuation accepted in scrutiny assessments for earlier years could be rejected for subsequent years. The substantial question of law framed was answered in favour of the assessee on the limited basis that the valuation report must have been accepted in scrutiny assessment at the instance of the assessee. The Court therefore set aside the appellate order and remitted the matter to the Assessing Officer to decide the valuation issue afresh in light of the Court's observations, permitting reliance on previously accepted scrutiny valuation where that acceptance is shown to have occurred at the assessee's instance. [Paras 6, 7, 8]

Answered in favour of the assessee subject to the condition that the valuation report was accepted in scrutiny assessment at the instance of the assessee; impugned order quashed and matter remitted to the Assessing Officer for reconsideration.

Final Conclusion: The appeal is allowed in part: the order dated 20.04.2010 is quashed and the matter is remitted to the Assessing Officer to reconsider valuation for capital gains in light of the Court's observations, provided the valuation had earlier been accepted in scrutiny assessment at the assessee's instance.

Advance ruling procedure - requirement of production of documents before Authority for Advance Rulings - burden to satisfy the Authority of impossibility of production - refusal to pronounce a ruling for lack of essential documents - judicial review under Article 226/227 of the Constitution - threshold for interference with administrative fact finding

Advance ruling procedure - requirement of production of documents before Authority for Advance Rulings - refusal to pronounce a ruling for lack of essential documents - Validity of the Authority for Advance Rulings' decision to decline ruling because the assessee did not produce the basic consortium contract. - HELD THAT: - The Authority refused to decide the application after repeated opportunities because the applicant failed to produce the basic contract dated 27.3.2004, a document which the Authority considered essential to comprehend the rights of the grantor (SLT) and thereby determine what rights passed to the applicant. The High Court examined whether the Authority's action was justified and held that, given the centrality of the consortium agreement to the questions framed, it was reasonable for the Authority to decline to pronounce a ruling in its absence. The court observed that the assessee could have procured the document from the counterparty (SLT) or otherwise satisfied the Authority that production was impossible, but made no such effort. In those circumstances the Authority's insistence on production and its consequent refusal to rule were not shown to be arbitrary or untenable. [Paras 4, 5]

Authority for Advance Rulings rightly declined to rule for want of the essential consortium agreement; its order refusing to decide the application is sustained.

Burden to satisfy the Authority of impossibility of production - judicial review under Article 226/227 of the Constitution - threshold for interference with administrative fact finding - Whether the High Court should exercise writ jurisdiction to interfere with the Authority's refusal where the assessee failed to produce or demonstrate impossibility of producing essential documents. - HELD THAT: - The Court considered the scope of extraordinary writ jurisdiction where the administrative authority has declined to rule due to non-production of material documents. It held that the assessee cannot invoke Articles 226/227 to upset the Authority's order when it failed to satisfy the Authority's condition of production or to establish that production was impossible. The Court found no cogent reason for non-production and noted that the assessee could have requested the counterparty to furnish the contract. Absent a showing of arbitrariness or breach of natural justice by the Authority, interference with the Authority's discretionary procedural requirement was unwarranted. [Paras 6, 7, 8]

Writ jurisdiction not to be exercised; failure to produce or to justify non production disentitles the assessee from relief under Article 226/227.

Final Conclusion: The writ petition is dismissed for lack of merit; the Authority for Advance Rulings' order declining to rule for non production of the essential consortium agreement is upheld and the connected miscellaneous petition is dismissed. No costs.

Compounding of offences under the Direct Tax Laws - compounding fees under section 276C(1) - 100% of the tax sought to be evaded - 100% of the amount sought to be evaded - CBDT guidelines for compounding of offences - wilful attempt to evade tax

Compounding fees under section 276C(1) - 100% of the tax sought to be evaded - 100% of the amount sought to be evaded - CBDT guidelines for compounding of offences - wilful attempt to evade tax - Compounding under section 276C(1) is to be effected by payment of 100% of the tax sought to be evaded and not 100% of the amount of income sought to be evaded. - HELD THAT: - The CBDT guideline (Para 12.2) prescribes compounding fees for offences under section 276C(1) at "100% of the amount sought to be evaded." Interpreting that phrase in light of section 276C(1), which penalises a willful attempt to evade "tax, penalty or interest chargeable," the Court held that the expression "amount sought to be evaded" must be understood with reference to the tax sought to be evaded. The statutory scheme of section 276C(1) links the severity of punishment to the amount sought to be evaded; accordingly the compounding fee fixed by the CBDT must be computed on 100% of the tax sought to be evaded. The Court applied its prior decision in Supernova System (P.) Ltd. which reached the same construction and directed re-computation where the department had computed compounding on the quantum of income sought to be evaded. [Paras 13, 14, 15]

The petitions are allowed and compounding under section 276C(1) is to be completed on payment of 100% of the tax sought to be evaded; the rule is made absolute to that extent.

Final Conclusion: Writ petitions allowed; compounding of offence under section 276C(1) of the Income-tax Act, 1961 shall be effected on payment of 100% of the tax sought to be evaded (not 100% of the income sought to be evaded); no order as to costs.

Agreed assessment - rejection of appeal against an agreed assessment - addition to income on estimate basis - acceptance of addition by the assessee - comparative gross profit benchmark

Agreed assessment - rejection of appeal against an agreed assessment - Appeal against an assessment concluded by mutual agreement is not maintainable where the assessee does not allege mistake of fact or law or coercion. - HELD THAT: - The Court agreed with the first appellate authority and the tribunal that the assessment was concluded on the basis of an agreement between the assessing officer and the assessee, the latter having expressly stated that he had no objection to the addition. The CIT(A) noted that no ground was taken alleging that any statement was made under a mistaken belief of fact or law, and the tribunal recorded that there was no contention of pressure or coercion by the department. In the absence of any challenge to the voluntariness or correctness of the agreed statement, an appeal against such an agreed assessment cannot be entertained. [Paras 3, 4]

Appeal dismissed on the ground that no appeal lies against an agreed assessment in the circumstances shown.

Addition to income on estimate basis - acceptance of addition by the assessee - comparative gross profit benchmark - Addition of 2% to gross profit on estimate basis upheld where the assessing officer found declared gross profit to be considerably low compared to similar traders and the assessee accepted the addition. - HELD THAT: - The assessing officer observed that the assessee's declared gross profit of 5.33% was considerably lower than that of other traders in the same business and made an addition of 2% on sales turnover on an estimated basis. The assessee agreed to the addition and expressly indicated no objection, and there was no contention before the authorities that the profit and loss account contradicted the addition. The tribunal correctly found no merit in the appeal since the factual basis of comparison and the assessee's acceptance supported the assessing officer's estimate. [Paras 3, 4, 5]

Addition of 2% on sales turnover upheld and the appeal against it rejected.

Final Conclusion: The appeal is dismissed; the High Court upholds the ITAT and CIT(A) findings that (i) an agreed assessment, not challenged on grounds of mistake or coercion, is not open to appeal, and (ii) the estimating addition of 2% gross profit was justified on comparison and by the assessee's acceptance.

Waiver of interest under Section 234B - bonafide belief based on Tribunal or High Court decisions - liberal construction of a beneficial circular issued under Section 119(2)(a) - binding effect of Circular F-No.400/129/2002-IT(B) - precedential value of Tribunal and High Court decisions - compensatory nature of interest under Section 234B

Waiver of interest under Section 234B - bonafide belief based on Tribunal or High Court decisions - liberal construction of a beneficial circular issued under Section 119(2)(a) - binding effect of Circular F-No.400/129/2002-IT(B) - Whether the Chief Commissioner was justified in refusing waiver of interest and whether the petitions should be remitted for reconsideration in light of contemporaneous Tribunal/High Court decisions relied upon by the assessee. - HELD THAT: - The Circular issued under the power of Section 119(2)(a) (F No.400/129/2002 IT(B)) prescribes specific instances in which waiver of interest may be granted and must be read strictly by the authority; the respondent was therefore justified in initially refusing waiver where no decisions of the jurisdictional High Court were shown. However, the Circular is a beneficial instruction and may be construed liberally in appropriate cases where an assessee entertained a bona fide belief not to pay tax by reason of contemporaneous decisions of Tribunals or High Courts (even if not of the jurisdictional forum) which were published and followed by taxpayers and practitioners. The Court recognised that Tribunal and High Court decisions under the Central enactment have persuasive and precedential value and that an assessee could legitimately claim to have acted on a bona fide view if such decisions existed at the time of filing the return. Consequently, although the original denial was in accordance with the Circular, the impugned orders must be set aside and remitted to the respondent to re examine the applications: if the petitioner can demonstrate the existence of relevant Tribunal/High Court judgments at the time of filing the return, the respondent is to grant waiver by liberally construing the Circular; if no such judgments existed, the denial may be sustained.

Impugned orders set aside; matters remitted to the respondent to re examine the waiver applications afresh and to grant waiver if the petitioner proves the existence of relevant Tribunal/High Court decisions at the time of filing the returns.

Final Conclusion: The writ petitions are allowed by way of remand: the impugned orders refusing waiver of interest are set aside and the cases are remitted to the Chief Commissioner for fresh consideration; if the assessee establishes that relevant Tribunal or High Court decisions existed when returns were filed, waiver may be granted by liberally construing the Circular.

Reopening of assessment - notice under Section 148 of the Income Tax Act, 1961 - change of opinion - limitation for reopening - objections to reasons for reopening - reasoned order by the Assessing Officer - GKN Driveshafts principle

Notice under Section 148 of the Income Tax Act, 1961 - prematurity of challenge - GKN Driveshafts principle - Maintainability of writ petitions challenging the issuance of notices under Section 148 at the stage prior to filing and consideration of objections to the reasons for reopening. - HELD THAT: - The Court held that the petitioner's substantive contentions (including those as to limitation and change of opinion) could not be adjudicated at the present stage because the established course requires the taxpayer to file objections to the reasons for reopening and permit the Assessing Officer to pass a reasoned order thereon. Relying on the approach adopted in the Apex Court's decision in GKN Driveshafts (India) Ltd., the High Court found that a pre-emptive judicial review of the notice before the objections are lodged and considered is premature and therefore the writ petitions cannot be maintained at this stage. The court expressly declined to express any view on the merits of the contentions raised against the notices. [Paras 7]

Writ petitions are premature and not maintainable at this stage; merits of the reopening were not decided.

Objections to reasons for reopening - reasoned order by the Assessing Officer - remand for fresh consideration - Procedure to be followed henceforward and remand for consideration of objections and passing of a reasoned order by the Assessing Officer. - HELD THAT: - The Court disposed of the petitions without adjudicating the merits and granted the petitioner liberty to file objections to the reasons for reopening within a stipulated period. The Assessing Officer was directed to consider those objections and pass a reasoned order within a further stipulated period. The disposal thus leaves the substantive issues to be considered afresh by the Assessing Officer after receipt of objections, and preserves the parties' rights to pursue remedies thereafter in accordance with law. [Paras 7]

Petitioner granted liberty to file objections within four weeks; Assessing Officer to consider objections and pass a reasoned order within four weeks thereafter; matters to proceed thereafter according to law.

Final Conclusion: The writ petitions challenging issuance of notices under Section 148 were dismissed as premature; the petitioner was permitted to file objections to the reasons for reopening and the Assessing Officer was directed to consider those objections and pass a reasoned order within the time prescribed, after which the parties may pursue their remedies in accordance with law.

Condonation of delay and preference for substantial justice over technicality - Addition as unexplained cash credit under section 69A - Reopening and completion of assessment by best judgement on reassessment proceedings - Remand for verification of evidentiary claims and opportunity to produce corroborative sale documents - Obligation on assessing authority to verify affidavit statements by examining deponents

Condonation of delay and preference for substantial justice over technicality - Delay in filing the appeal before the Tribunal was condoned and the appeal admitted for adjudication on merits. - HELD THAT: - The assessee, an illiterate agriculturist from a rural area, filed an affidavit explaining the belated filing and inability to obtain timely legal assistance. The Tribunal found the delay to be non-deliberate, not occasioned by negligence, and arising from genuine disability and lack of timely notice; where substantial justice and technical considerations conflict, substantial justice is to be preferred. Having accepted the explanation as a reasonable cause, the Tribunal exercised its discretion to condone the delay and admit the appeal for adjudication on merits. [Paras 4]

Delay of 268 days condoned; appeal admitted.

Addition as unexplained cash credit under section 69A - Reopening and completion of assessment by best judgement on reassessment proceedings - Remand for verification of evidentiary claims and opportunity to produce corroborative sale documents - Obligation on assessing authority to verify affidavit statements by examining deponents - Addition of cash deposits treated as unexplained income was not finally sustained by the Tribunal but remitted to the Assessing Officer for fresh consideration after verification of claimed sources. - HELD THAT: - The Assessing Officer reopened the assessment and completed it under best judgment, treating total cash deposits of Rs.45,00,000 as unexplained income. The CIT(A) sustained the addition on the ground that corroborative evidence was not furnished and affidavits appeared to be afterthoughts. The Tribunal observed that the affidavits of the assessee's sons, alleging transfers and earlier sale proceeds, were not verified by the Department and that the AO failed to examine the affirmants or seek the sale documentation which the assessee's representative offered to produce. In the interest of justice, the Tribunal concluded that the matter requires verification: the assessee should be given an opportunity to produce relevant sale documents and other corroborative evidence, and the AO must examine the parties and re-consider the claim of sources. Accordingly the Tribunal remitted the entire issue to the file of the Assessing Officer for fresh consideration and directed cooperation by the assessee. [Paras 9, 10]

Addition under section 69A remitted to the Assessing Officer for fresh consideration after verification of affidavits and production of corroborative documents; appeal partly allowed for statistical purposes.

Final Conclusion: The Tribunal condoned the delay and admitted the appeal; the addition treating the cash deposits as unexplained income was not upheld on merits but remitted to the Assessing Officer for fresh consideration and verification of the asserted sources, with directions to afford the assessee an opportunity to produce relevant documents.

Separate juristic personality of a limited company - personal liability of directors in absence of separate contract or personal guarantee - lifting the corporate veil only upon established fraud with reasons - effect of board resolution vis-a -vis personal liability of directors - remand for fresh adjudication where tribunal ignored corporate distinction and evidentiary basis

Separate juristic personality of a limited company - personal liability of directors in absence of separate contract or personal guarantee - effect of board resolution vis-a -vis personal liability of directors - Whether the petitioner-director can be held personally liable for the corporate borrower's debt in the absence of a separate personal guarantee or contractual undertaking. - HELD THAT: - The High Court emphasised the well settled principle that a limited company is a separate juristic person and that its directors, in their individual capacity, are not liable for company debts unless there is a distinct contract or personal guarantee creating such liability. The courts below treated the signing of loan documents and a board resolution as sufficient to fasten personal liability on the petitioner, but failed to demonstrate any separate contractual undertaking by the petitioner in his personal capacity. The Court rejected the Bank's submission to lift the corporate veil in the absence of any established fraud and recorded reasons, observing that lifting the veil is an exceptional remedy requiring proof of fraud or similar mischief. Consequently, the findings of personal and joint and several liability against the petitioner, based solely on his signature as director and the board resolution, were held to be legally unsustainable. [Paras 6, 8, 10, 11]

Directors cannot be held personally liable for the company's debt merely because they signed loan documents or board resolutions; personal liability requires a separate contract or guarantee and the corporate veil cannot be lifted absent proven fraud.

Remand for fresh adjudication where tribunal ignored corporate distinction and evidentiary basis - Whether the impugned orders of the Debts Recovery Tribunal and the Appellate Tribunal should be sustained or require reassessment. - HELD THAT: - The High Court found that both Tribunals overlooked the legal distinction between a company and its directors and failed to appraise the evidentiary basis before fixing personal liability. The Court noted that tribunals constituted under special enactments must examine relevant documents and assign reasons when fixing such liability. Without entering into the merits of the underlying claim, the Court set aside the impugned orders for these legal infirmities and remitted the Original Application to the Debts Recovery Tribunal I, Chennai for fresh decision in accordance with law, directing that the Tribunal consider relevant documents, validity and the legal distinction between the company and its directors while adjudicating the claim. [Paras 7, 12, 13]

Impugned orders set aside and matter remitted to the Debts Recovery Tribunal I for fresh adjudication in accordance with law.

Final Conclusion: Writ petition allowed; the orders of the Debts Recovery Tribunal I dated 31.8.2017 and the Debt Recovery Appellate Tribunal dated 26.8.2019 are set aside and the Original Application is remitted to the Debts Recovery Tribunal I, Chennai for fresh decision in accordance with law; no costs.

Operational debt - existence of default - pre-existing dispute - service of demand notice - admission of application under Section 9 - appointment of interim resolution professional - declaration of moratorium

Operational debt - existence of default - Operational debt was due and payable and there was occurrence of default by the corporate debtor. - HELD THAT: - The Tribunal examined the invoices, purchase order, list of cheques and related documents appended to the Section 9 application and found that the applicant furnished documentary evidence of debt and defaults. The respondent's contention of a pre-existing dispute was rejected because the civil suit relied upon by the respondent was instituted after issuance of the demand notice and therefore cannot constitute a prior dispute. The respondent also failed to produce documentary proof of rejection of goods, debit notes or other evidence to substantiate its objections, and its defences were treated as unsupported. On the material on record the adjudicating authority concluded that the applicant established existence of an operational debt and occurrence of default. [Paras 12, 14, 15, 18, 21]

Operational debt exists and default has occurred; the respondent's plea of dispute is held untenable.

Service of demand notice - admission of application under Section 9 - Demand notice under Section 8 was duly served and the Section 9 application was complete and maintainable for admission. - HELD THAT: - The record shows issuance of the demand notice dated 06.12.2018 and service at the registered office on 14.12.2018, and the respondent's reply dated 03.01.2019 did not discharge the liability. The Tribunal noted the applicant produced board resolution authorising filing and Form No.5 was filed. Having found no valid pre-existing dispute and that requisite documents accompanied the petition, the application was held to be complete and fit for admission under Section 9. [Paras 7, 18, 19]

Service of the demand notice is valid and the Section 9 petition is complete and admitted.

Appointment of interim resolution professional - An Interim Resolution Professional (IRP) was appointed. - HELD THAT: - The applicant had not proposed a name for interim resolution professional. On the material before it, the Tribunal exercised its power under the Code to appoint an IRP and specified the named professional along with registration details for carrying out interim functions. [Paras 20]

Shri Manish Kumar Bhagat is appointed as Interim Resolution Professional.

Declaration of moratorium - Moratorium under Section 14 was declared consequent to admission of the Section 9 application. - HELD THAT: - Upon admitting the petition under Section 9(5)(i), the Tribunal declared the moratorium prohibiting institution or continuation of suits, transfer or disposal of assets by the corporate debtor, enforcement of security interests and recovery of property by lessors, and directed continuation of supply of essential goods and services during the moratorium subject to statutory exceptions. The order specifies that the moratorium operates from receipt of the authenticated copy of the order till completion of the corporate insolvency resolution process or until further order. [Paras 22, 24]

Moratorium under Section 14 is imposed with effect from receipt of authenticated copy of the order.

Final Conclusion: The Section 9 application was admitted: the Tribunal held that an operational debt and default were established, the demand notice was duly served and the petition was complete; an Interim Resolution Professional was appointed and moratorium under the Code was declared. The petition is disposed of with no order as to costs.

Priority of lien over hypothecation - binding effect of an unchallenged arbitral award - right to realise security interest under Section 52 of the Insolvency and Bankruptcy Code, 2016 - assets falling under Section 52 versus Section 53 of the Code

Binding effect of an unchallenged arbitral award - Arbitral award declaring BHEL's lien on machinery and erected facilities is binding on the corporate debtor and precludes the liquidator from treating those assets as unencumbered for sale. - HELD THAT: - The Tribunal recorded that an arbitral award dated 24.01.2018 declared BHEL to be an unpaid seller with a lien and charge over equipment at the site. That award has not been assailed by the corporate debtor and therefore operates as a binding order on the corporate debtor. Consequently, the Liquidator cannot ignore the award when seeking liberty to sell the subject assets under the liquidation process regulations. [Paras 5, 7]

The arbitral award is binding on the corporate debtor and establishes BHEL's lien over the machinery and erected facilities.

Priority of lien over hypothecation - Character and priority of a lien vis-a -vis a hypothecation created in favour of bankers and its consequence for enforcement. - HELD THAT: - The Tribunal explained the legal distinction between a lien and a hypothecation: a lien presumes possession with the lien-holder enabling direct realisation and restraint on dealing with the asset, whereas hypothecation presumes possession with the borrower and requires the creditor to take steps to obtain possession and realise. On that legal footing, a lien-holder has the right to enforce the lien in preference to a charge by way of hypothecation. The Bench noted, however, that the Liquidator did not contend that the hypothecation in favour of the bankers was superior to BHEL's right, and the Tribunal therefore did not decide any contest as between BHEL and the bankers on priority. [Paras 6, 8, 10]

A lien in favour of BHEL has superior enforcement characteristics to a general hypothecation; no determination was made as to whether bankers' hypothecation is superior because that contention was not advanced by the Liquidator.

Right to realise security interest under Section 52 of the Insolvency and Bankruptcy Code, 2016 - assets falling under Section 52 versus Section 53 of the Code - Whether the Liquidator may sell assets subject to BHEL's security interest under the sale process applicable to assets under Section 53 of the Code. - HELD THAT: - The Tribunal held that where a creditor is secured, it retains the statutory right to proceed under Section 52 of the Code to realise its security interest during liquidation. That statutory right cannot be undermined by the Liquidator treating such secured assets as assets distributable under Section 53 and selling them pursuant to the liquidation sale process, unless the secured creditor relinquishes its security interest. Applying that principle to the facts, the Tribunal concluded that the Liquidator cannot cause sale of the assets over which BHEL holds security by invoking the Section 53 sale mechanism. [Paras 11, 12]

BHEL, as a secured creditor, is entitled to proceed under Section 52 to realise its security; the Liquidator cannot sell those assets under the Section 53 procedure unless the secured creditor relinquishes its security interest.

Final Conclusion: MA No.1052 of 2019 is dismissed: the arbitral award establishing BHEL's lien is binding, a lien enjoys enforcement priority over general hypothecation (subject to any contest not raised), and the Liquidator cannot sell the assets as falling under Section 53 while BHEL retains its Section 52 security rights.

Existence of operational debt and default - service and non-response to demand notice under section 8 of the IBC - admission of petition under section 9 of the Insolvency & Bankruptcy Code, 2016 - initiation of Corporate Insolvency Resolution Process (CIRP) - moratorium under section 14 of the IBC - appointment of Interim Resolution Professional by the Adjudicating Authority

Existence of operational debt and default - acknowledged invoices and ledger entries - There was supply of services to the Corporate Debtor and a sum was due and payable, constituting a default. - HELD THAT: - The Tribunal examined invoices (Exhibit 'F') and an acknowledged ledger account (pp.44-48) which demonstrated supply of services and an outstanding balance. The invoices bore purchase order numbers and were acknowledged with seal and signature by the Corporate Debtor. On the material before it, the Tribunal found that the debt claimed by the Operational Creditor was due and payable and that default existed as of the stated date. [Paras 5, 10, 11, 12]

The Tribunal held that the Operational Creditor had furnished sufficient evidence of supply and of an outstanding debt, and that default was established.

Service and non-response to demand notice under section 8 of the IBC - The Demand Notice was duly served on the Corporate Debtor and the Corporate Debtor did not reply. - HELD THAT: - The Demand Notice dated 12.03.2019 (Exhibit 'H') was shown to have been served on 08.04.2019 per tracking information (Exhibit I). The Corporate Debtor received the petition and subsequent notices but did not file any reply or appear at hearings despite multiple opportunities. The Tribunal accordingly proceeded on the basis of the materials on record. [Paras 6, 9]

The Tribunal found service of the demand notice to be valid and noted the Corporate Debtor's failure to respond.

Admission of petition under section 9 of the Insolvency & Bankruptcy Code, 2016 - statutory minimum default threshold - The petition under section 9 was complete and admitted, and the default exceeded the statutory minimum threshold. - HELD THAT: - Having found that the application complied with the statutory requirements and that the default exceeded the minimum amount stipulated under section 4(1) of the IBC, the Tribunal concluded there was no reason to deny admission. The Tribunal therefore exercised its power to admit the petition and direct initiation of CIRP against the Corporate Debtor. [Paras 13]

The Tribunal admitted the petition under section 9 and ordered initiation of CIRP against the Corporate Debtor.

Moratorium under section 14 of the IBC - A moratorium as provided under section 14 of the IBC was imposed from the date of the order until completion of the CIRP or other specified events. - HELD THAT: - On admission of the petition and initiation of CIRP, the Tribunal directed the statutory moratorium to operate, restraining institution or continuation of suits, transfer or disposal of assets, enforcement of security interests, and recovery of property from the Corporate Debtor, subject to the exceptions specified in the order (including supply of essential goods or services). The moratorium's duration was tied to completion of CIRP, approval of a resolution plan, or order for liquidation.

The statutory moratorium was imposed in the terms set out in the order.

Appointment of Interim Resolution Professional by the Adjudicating Authority - operational creditor's deposit for CIRP expenses - The Interim Resolution Professional (IRP) was to be appointed by the Adjudicating Authority and the Operational Creditor was directed to deposit funds for initial CIRP expenses. - HELD THAT: - The Operational Creditor had not proposed an IRP; accordingly the Tribunal directed that the IRP be appointed by a separate order of the Adjudicating Authority. The Tribunal also directed the Operational Creditor to deposit a sum to meet expenses of public notice and inviting claims, stating those expenses would be subject to Committee of Creditors' approval and that the IRP would perform statutory functions under the IBC and relevant regulations. [Paras 14]

IRP to be appointed by the Adjudicating Authority; Operational Creditor to deposit the directed amount to meet initial CIRP expenses.

Final Conclusion: The Tribunal admitted the section 9 petition, having found debt and default supported by acknowledged invoices and ledger entries and a duly served demand notice with no reply; it ordered initiation of CIRP, imposed the statutory moratorium, directed appointment of an IRP by the Adjudicating Authority and required the Operational Creditor to deposit funds for initial CIRP expenses.

Initiation of CIRP under Section 9 of the Insolvency and Bankruptcy Code, 2016 - limitation under the Limitation Act, 1963 - pre-existing dispute - admission of debt by part payment - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - appointment of Interim Resolution Professional

Limitation under the Limitation Act, 1963 - admission of debt by part payment - Whether the Section 9 application was time-barred. - HELD THAT: - The Tribunal noted that the Operational Creditor maintained books and ledger showing the outstanding balance and that a part payment of the claimed debt of Rs. 1,00,000 was made by the Corporate Debtor on 12.02.2018 which reduced the balance payable to the amount presently claimed. The Corporate Debtor did not dispute the payment made on 12.02.2018 or the continuing balance as claimed in the ledger, and its contention that the application is time-barred was rejected on the basis that the part payment constituted an acknowledgment affecting limitation. On these facts the Tribunal concluded that the application could not be treated as barred by limitation.

Application is not time-barred; limitation objection overruled.

Pre-existing dispute - Operational Creditor - Whether there existed a pre-existing dispute between the parties which would bar initiation of CIRP under Section 9. - HELD THAT: - The Tribunal observed that the Corporate Debtor in its reply did not aver any specific dispute concerning the quality of work, nor did it deny the receipt of the part payment on 12.02.2018. Although the Corporate Debtor asserted incomplete work and alleged unsatisfactory performance, it did not raise a contemporaneous pre-existing dispute in its pleadings to rebut the Operational Creditor's claim. In view of the absence of a substantiated pre-existing dispute in the record, the Tribunal rejected the plea that a dispute pre-existed which would preclude admission of the Section 9 application.

No pre-existing dispute found; plea of disputed claim rejected.

Initiation of CIRP under Section 9 of the Insolvency and Bankruptcy Code, 2016 - appointment of Interim Resolution Professional - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - Relief to be granted consequent to admission of the Section 9 application. - HELD THAT: - Having admitted the Section 9 petition, the Tribunal directed initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor. The Tribunal named an Interim Resolution Professional proposed by the Applicant subject to the IRP making required disclosures and no disciplinary proceedings being pending against him, to be verified within one week. The order further applied the moratorium provisions as set out in Section 14, restraining institution or continuation of suits, transfer or disposal of assets, enforcement of security, and recovery of property, with the temporal effect specified by the Code until completion of the CIRP or earlier approval of a resolution plan or liquidation order.

Section 9 application admitted; CIRP initiated; IRP appointed subject to conditions; moratorium imposed.

Final Conclusion: The Tribunal admitted the Section 9 petition, held the application not time barred and that no pre existing dispute barred the claim, directed initiation of CIRP against the Corporate Debtor, appointed an Interim Resolution Professional subject to specified conditions, and declared the moratorium under the Code effective from the date of the order.

Cognizance of offence - offence of money laundering under Section 3 and punishment under Section 4 of PMLA, 2002 - proceeds of crime / projection as untainted property - clarificatory explanation to a penal provision and retrospective operation - scope of High Court's revisional jurisdiction under Sections 397 & 401 Cr.P.C. - exercise of inherent jurisdiction under Section 482 Cr.P.C. and limits on reappreciation of evidence - power to issue and to convert non bailable warrants into bailable warrants (Section 70(2) Cr.P.C. and Section 204 Cr.P.C.) - balancing personal liberty and public interest in issuance of non bailable warrants - economic offences as a class apart in bail/warrant jurisprudence

Cognizance of offence - offence of money laundering under Section 3 and punishment under Section 4 of PMLA, 2002 - proceeds of crime / projection as untainted property - scope of High Court's revisional jurisdiction under Sections 397 & 401 Cr.P.C. - Validity of the Special Court's order taking cognizance under Section 4 of the PMLA, 2002 and issuance of arrest warrants. - HELD THAT: - The High Court held that its revisional power under Sections 397 and 401 Cr.P.C. is to be exercised sparingly and it cannot reappreciate evidence unless the order below is perverse. The trial court considered the prosecution complaint, statements and documents and recorded satisfaction that sufficient grounds existed to take cognizance and issue process. Allegations and material placed before the trial court, including that seized money was attempted to be layered/integrated and projected as untainted property, were adequate at the cognizance stage. Questions on the ultimate fulfillment of ingredients of Section 3 (such as placement, layering and integration) involve merits inappropriate for determination in revision; the accused have remedies at trial. The court therefore found no perversity, illegality or irregularity in the cognizance order. [Paras 34, 35, 36, 47, 48]

Order of cognizance dated 21.01.2019 was valid and did not call for interference; revision petitions dismissed.

Clarificatory explanation to a penal provision and retrospective operation - offence of money laundering under Section 3 and punishment under Section 4 of PMLA, 2002 - Effect of the Explanation added to Section 3 of the PMLA, 2002 (Finance Act, 2019) - whether it is punitive and prospective or clarificatory/retrospective for the purpose of considering cognizance. - HELD THAT: - The court examined the original text of Section 3 and the Explanation added by amendment. It held that the Explanation was inserted to remove doubts and to clarify the scope of acts (concealment, possession, acquisition, use, projecting or claiming as untainted property) that fall within the ambit of money laundering; the basic ingredients of the offence were not altered. As the amendment is clarificatory, it does not constitute a new punitive provision necessitating purely prospective application, and thus cannot be read to invalidate allegations framed prior to the amendment where the prosecution asserts the clarified activities. [Paras 36, 40, 41, 42]

The Explanation to Section 3 is clarificatory; it does not render prior allegations invalid or require prospective application only.

Power to issue and to convert non bailable warrants into bailable warrants (Section 70(2) Cr.P.C. and Section 204 Cr.P.C.) - exercise of inherent jurisdiction under Section 482 Cr.P.C. and limits on reappreciation of evidence - balancing personal liberty and public interest in issuance of non bailable warrants - economic offences as a class apart in bail/warrant jurisprudence - Whether the Trial Court erred in refusing to convert non bailable (arrest) warrants into bailable warrants and whether the High Court should exercise Section 482 Cr.P.C. or revisional power to convert them. - HELD THAT: - The High Court reviewed the trial court's orders declining conversion and found the trial court had applied its mind, considered the nature of allegations, seriousness and societal impact, and the established parameters for issuance of non bailable warrants. The court reiterated principles from Inder Mohan Goswami regarding caution in issuing non bailable warrants and balancing liberty with public interest, but observed that economic offences may require a stricter approach given their impact. The High Court will not substitute its view where the trial court has given cogent reasons; post rejection remedies (regular bail applications) remain available. Accordingly, interference under Section 482 was not warranted. [Paras 56, 58, 59, 62, 63]

Orders refusing conversion of non bailable warrants were not shown to be unlawful or improper; misc. petitions under Section 482 Cr.P.C. dismissed and trial court's refusal upheld.

Final Conclusion: The High Court dismissed the revision petitions challenging cognizance under the PMLA, 2002 and the criminal miscellaneous petitions seeking conversion of arrest warrants into bailable warrants. The court held that the trial court validly took cognizance on the material before it, the Explanation to Section 3 is clarificatory rather than a new punitive provision, and the refusal to convert non bailable warrants was a lawful exercise of judicial discretion in view of the nature and seriousness of the economic offence allegations.

Res judicata - constructive res judicata - finality of tribunal order on dismissal by the Supreme Court - appeal under Section 35L of the Central Excise Act for rate of duty or valuation - appeal under Section 35G of the Central Excise Act to the High Court for other questions of law - Supreme Court's power under Section 35L(2) to determine questions related to duty, including issues beyond rate or valuation

Res judicata - constructive res judicata - finality of tribunal order on dismissal by the Supreme Court - maintainability of appeal under Section 35G after dismissal under Section 35L - Appeal under Section 35G of the Central Excise Act before the High Court is not maintainable after the same order of the CESTAT has been the subject matter of an appeal to the Supreme Court under Section 35L which has been dismissed. - HELD THAT: - The Court noted that the Assessee had earlier preferred appeals to the Supreme Court under Section 35L against the same CESTAT order, and those appeals as well as the review petitions were dismissed by the Supreme Court. Given that the Supreme Court, on dismissal of the appeals, rendered the CESTAT order final, the Assessee cannot reopen the same controversy in the High Court by invoking Section 35G. Allowing an appeal under Section 35G in these circumstances would circumvent the finality of the Supreme Court's decision. The Court therefore held that the Assessee is estopped from maintaining a fresh appeal before the High Court by operation of res judicata and constructive res judicata, and declined to permit submissions on the merits for that reason. [Paras 5, 7, 8]

Appeals dismissed as not maintainable; the Assessee is estopped by res judicata and constructive res judicata from assailing the same CESTAT order in the High Court after dismissal of appeals before the Supreme Court.

Appeal under Section 35L of the Central Excise Act for rate of duty or valuation - Supreme Court's power under Section 35L(2) to determine questions related to duty, including issues beyond rate or valuation - appeal under Section 35G of the Central Excise Act to the High Court for other questions of law - An appeal under Section 35L (filed in the Supreme Court) can include determination of questions relating to duty beyond merely rate or valuation under sub-section (2), and once the Supreme Court has dismissed such an appeal the tribunal order attains finality for all issues so determined. - HELD THAT: - The Court observed that although Section 35L is the provision for appeals to the Supreme Court on questions of rate of duty or valuation, sub-section (2) contemplates determination of any question having relation to the question of duty. Consequently, the Supreme Court may examine issues other than strictly rate or valuation for purposes of assessment when an appeal is brought under Section 35L. Because the Assessee had invoked Section 35L and the Supreme Court dismissed the appeals (and review petitions), those determinations operate to render the CESTAT order final and preclude re-litigation before the High Court under Section 35G. [Paras 5, 6]

The scope of an appeal under Section 35L includes questions related to duty beyond rate or valuation; dismissal by the Supreme Court of such appeal renders the tribunal's order final for those issues.

Final Conclusion: The High Court dismissed the appeals as not maintainable because the same CESTAT order had been subject to appeal to the Supreme Court under Section 35L (and review), which was dismissed; the Assessee is precluded by res judicata and constructive res judicata from re agitating those issues before the High Court, and the Court declined to consider the merits.

Pre-deposit under Section 35F is not a payment of duty but a deposit to enable exercise of appellate remedy - refund of pre-deposit is not governed by limitation under Section 11B - obligation to refund pre-deposit within three months of appellate order and payment of interest for delayed refund - administrative instructions and Board circulars directing return of pre-deposits - binding effect of judicial precedents upholding treatment of pre-deposits as refundable outside Section 11B

Pre-deposit under Section 35F is not a payment of duty but a deposit to enable exercise of appellate remedy - refund of pre-deposit is not governed by limitation under Section 11B - Whether the amounts deposited in terms of Section 35F at the time of filing appeal are to be treated as pre-deposit (and not as duty) and therefore are not subject to limitation under Section 11B for refund claims. - HELD THAT: - The Tribunal found that the appellant had paid duty, interest and 25% penalty in terms of Section 35F while preferring the appeal and the Commissioner (A) allowed the appeal. The Department treated the deposited amount as duty and denied refund as time-barred under Section 11B. The Tribunal relied on Board Circulars directing return of deposits made under Section 35F and judicial pronouncements, in particular the decision of the Bombay High Court in Nelco Ltd. which was not interfered with by the Supreme Court, and subsequent High Court decisions following the same view. In that light the deposits made under Section 35F are to be treated as pre-deposits made to enable the appellate remedy and not as final duty payments governed by the limitation in Section 11B; consequently the denial of refund on the ground of limitation under Section 11B was held unsustainable. [Paras 6, 7]

Refund claim cannot be rejected as time-barred under Section 11B where the amount was deposited as mandatory pre-deposit under Section 35F; the impugned order rejecting the refund on limitation grounds is set aside.

Obligation to refund pre-deposit within three months of appellate order and payment of interest for delayed refund - administrative instructions and Board circulars directing return of pre-deposits - Whether the appellant is entitled to interest for delayed refund and the timeframe within which the pre-deposit must be returned. - HELD THAT: - The Tribunal noted Board Circulars which reiterate that pre-deposits made under Section 35F must be returned within three months from the date of the appellate authority's order in favour of the depositor unless stayed by a superior Court, and that delay beyond three months attracts adverse action and interest liability. Applying these administrative instructions and the judicial line of authority endorsing return of pre-deposits, the Tribunal held that the appellant is entitled to interest on the delayed refund from the expiry of three months after the Order-in-Appeal dated 22.10.2013 until the date of actual payment. [Paras 6, 7]

Appellant entitled to refund of the pre-deposit and interest from the expiry of three months from the appellate order until actual payment; department directed to refund accordingly.

Final Conclusion: The appeal is allowed: the amounts deposited in terms of Section 35F are refundable as pre-deposits and cannot be refused on limitation grounds under Section 11B; the Department is directed to refund the deposit and to pay interest accruing from the expiry of three months from the appellate order dated 22.10.2013 until actual payment.

Liability to pay interest on excess CENVAT credit - reversal of CENVAT credit before utilization - availability of excess credit in the next financial year - effect of non-utilisation of availed credit on interest liability - scope of show-cause notice to invoke interest and penalty where credit reversed prior to its issue

Liability to pay interest on excess CENVAT credit - availability of excess credit in the next financial year - effect of non-utilisation of availed credit on interest liability - Whether the appellant is liable to pay interest on excess CENVAT credit of Rs. 72,100/- availed in March 2014 - HELD THAT: - The Tribunal found that the excess CENVAT credit availed in March 2014 remained available to the appellant in the next financial year and was not utilized. Relying on the authorities cited by the appellant and applying the principle that interest does not arise where excess credit is neither utilized nor remains unadjusted, the Tribunal held that no interest was payable in respect of the excess credit of March 2014. The Tribunal noted contrary authority relied upon by the Revenue had been distinguished by the Karnataka High Court and therefore respectfully followed the High Court's ratio. [Paras 6]

No interest is payable on the excess CENVAT credit availed in March 2014; the demand for interest in respect thereof is set aside.

Reversal of CENVAT credit before utilization - scope of show-cause notice to invoke interest and penalty where credit reversed prior to its issue - effect of non-utilisation of availed credit on interest liability - Whether the appellant is liable to pay interest on other excess CENVAT credits which were reversed on being pointed out by audit before issuance of the show-cause notice and were not utilized - HELD THAT: - The Tribunal recorded that the appellant reversed the disputed credits on being pointed out by audit well before the show-cause notice dated 31/01/2018 and had sufficient balance in the CENVAT account so that the reversed entries were not utilized. Applying the decisions of the Karnataka High Court in Bill Forge and the Larger Bench in JK Tyre, which hold that interest is not leviable where credit is reversed before utilization, the Tribunal concluded that interest could not be demanded. The Tribunal also observed that the Ind-Swift decision relied upon by the Commissioner(Appeals) had been distinguished by the Karnataka High Court. [Paras 6]

No interest is payable on the other excess credits reversed before utilization; the demand for interest in respect of those credits is set aside.

Final Conclusion: The appeal is allowed. The impugned order insofar as it confirms demand of interest on excess CENVAT credits (including the March 2014 credit and other credits reversed before utilization) is set aside and consequential relief, if any, shall follow.

Jurisdiction to adjudicate refund claims - travel beyond the show cause notice - remand for verification - application of Board Circular No.74/2001 - retrospective application of beneficial circulars - principles of natural justice

Jurisdiction to adjudicate refund claims - travel beyond the show cause notice - principles of natural justice - Validity of rejection of refund on ground of lack of jurisdiction and the appropriate remedial course where corrigenda were not uniformly issued after appellant exited LTU. - HELD THAT: - The Tribunal found that the refunds were originally filed with LTU when LTU had jurisdiction and that lack of jurisdiction was not alleged in the original show cause notice. After the appellant exited LTU, the department issued corrigenda in respect of some refunds but not others, and the respective jurisdictional authorities failed to entertain claims. Rejection of the refund of Rs.21,54,016/- solely on the ground of lack of jurisdiction was therefore not sustainable. The Tribunal directed that where corrigendum was issued the concerned authorities must accept copies of refund applications as filed before LTU and decide them after following due process including the principles of natural justice; and where no corrigendum was issued the GST South Commissionerate, Bangalore must accept the LTU filed refund applications and dispose of them after following due process and natural justice. The relief is procedural and remedial, not a substantive reversal of findings on merits, and is justified because the department did not raise jurisdiction in the original show cause notice and did not provide uniform opportunity to the appellant after exit from LTU. [Paras 6]

Rejection of refund on ground of lack of jurisdiction is set aside; authorities directed to accept LTU filed refund applications and decide them after affording due process and principles of natural justice.

Remand for verification - application of Board Circular No.74/2001 - retrospective application of beneficial circulars - Sustainability of Commissioner(A)'s remand of the allowed refund portion and applicability of the 2017 amendment to Circular No.74/2001. - HELD THAT: - The Tribunal held that the original authority had allowed part of the refund (Rs.9,90,652/-) after detailed consideration, expressly applying the requirements of Board Circular No.74/2001 and concluding that the goods were used for intended purposes, that STPI certification satisfied circular requirements, and that depreciation could not be disallowed as sought by the department. In these circumstances the Commissioner(A)'s order remanding that allowed portion for verification was not sustainable. The Tribunal further found that the 2017 amendment to the Circular expanded conditions and therefore could not be applied retrospectively to defeat the refund allowed on earlier law; the amendment was held inapplicable to the present case. [Paras 6]

Remand of the allowed refund portion is set aside; original allowance sustained and the 2017 amendment to the Circular held not retrospectively applicable to deny the refund.

Final Conclusion: Both appeals disposed: rejection of refund on jurisdictional grounds set aside with directions for fresh adjudication by appropriate authorities after affording natural justice; remand of the partly allowed refund quashed and the allowance sustained, the 2017 amendment to the Circular held inapplicable retrospectively.

Non-reversal of Cenvat credit under Rule 6(6)(i) of the Cenvat Credit Rules, 2004 - supplies to a Special Economic Zone developer treated as export - substitution by amendment construed as clarificatory and retrospective - effect of SEZ Act overriding inconsistent laws - retrospective operation of substituted statutory provision

Non-reversal of Cenvat credit under Rule 6(6)(i) of the Cenvat Credit Rules, 2004 - supplies to a Special Economic Zone developer treated as export - Whether the assessee was liable to reverse 10% under Rule 6 in respect of goods cleared to a SEZ developer during the stated periods. - HELD THAT: - The Tribunal found that the assessee made clearances to a SEZ developer and claimed those clearances as exports under applicable SEZ provisions and by filing ARE1 forms. The determinative question was whether such supplies fell within the exclusion in Rule 6(6) so as to exempt the assessee from the obligation to reverse Cenvat credit. Applying the reasoning in the Karnataka High Court decision in Fosroc Chemicals, the Tribunal held that supplies to a SEZ developer are to be treated as exports for the purposes of Cenvat credit and, consequently, the non-reversal/maintenance exception in Rule 6(6) applies to such supplies once the substituted wording is read into the Rule. On that basis the demand of 10% under Rule 6 in respect of supplies to the SEZ developer during the cited periods was not sustainable. [Paras 6, 7]

Demand of 10% under Rule 6 in respect of goods cleared to the SEZ developer set aside.

Substitution by amendment construed as clarificatory and retrospective - retrospective operation of substituted statutory provision - effect of SEZ Act overriding inconsistent laws - Whether the amendment by Notification No.50/2008-C.E.(N.T.) dated 31-12-2008 (substituting Rule 6(6)(i)) operates retrospectively and thus covers supplies made prior to the notification date. - HELD THAT: - The Tribunal accepted the legal principle, as expounded by the Karnataka High Court in Fosroc Chemicals and supported by higher authority, that a substituted provision effected by way of amendment by substitution is to be read into the original rule and, absent repugnancy or absurdity, the amended words are deemed part of the original provision from inception. The Tribunal also noted the SEZ Act's scheme (including the deeming of SEZ territory and the definition of export) and the administrative circular which treated DTA supplies to SEZ units and developers as exports. In light of these considerations the substitution in Rule 6(6)(i) was held clarificatory and retrospective; accordingly the benefit extended by the substituted clause applies to the periods in dispute. [Paras 6, 7]

Notification No.50/2008 substituting Rule 6(6)(i) is to be construed as retrospective and applies to the supplies in question.

Final Conclusion: Following the ratio of the Karnataka High Court in Fosroc Chemicals, the Tribunal held that the substitution in Rule 6(6)(i) is clarificatory and retrospective and that supplies to a SEZ developer are to be treated as exports for Cenvat purposes; the impugned demand and penalty were therefore set aside and the appeal allowed with consequential relief.

Appropriation of sanctioned refund against disputed customs arrears - attraction of Section 142 of the Customs Act, 1962 only upon finality of demand - effect of stay/orders setting aside adjudication on right to adjust refunds

Appropriation of sanctioned refund against disputed customs arrears - attraction of Section 142 of the Customs Act, 1962 only upon finality of demand - Whether the sanctioning authority could appropriate the refund amount against redemption fine and penalty confirmed in adjudication orders which had not attained finality - HELD THAT: - The Tribunal found that the redemption fine and penalty imposed by the adjudication orders relied upon by the original authority had been set aside by this Tribunal by final orders annexed to the appeal. Applying the settled principle that Section 142 is attracted only when the demand has attained finality, the Tribunal held that appropriation of a sanctioned refund towards demands that were disputed and not finalised was not permissible. The Tribunal noted consistent precedents of its own supporting the proposition that refund amounts cannot be adjusted against pending disputed demands which have not reached finality, and applied those authorities to set aside the impugned appropriation and refund adjustment.

Impugned order approving appropriation of the refund against the disputed fines and penalties set aside; appeal allowed with consequential relief, if any.

Final Conclusion: The Tribunal allowed the appeal, holding that refund sanctioned in cash could not be appropriated against redemption fine and penalty so long as the underlying demands had not attained finality; the impugned order was set aside and consequential relief was granted.

Regular bail under the bar in Section 37 of the NDPS Act - Default bail under Section 167 CrPC read with Section 36A of the NDPS Act - Reasonable possibility of acquittal as a basis for bail - Admissibility of statement under Section 67 of the NDPS Act

Default bail under Section 167 CrPC read with Section 36A of the NDPS Act - Whether the appellant was entitled to default bail under Section 167 CrPC read with Section 36A of the NDPS Act - HELD THAT: - The Court considered the appellant's claim for default bail on the ground that investigation had not been completed within the statutory period. The respondents drew attention to the fact that a complaint had been filed within time, and on that basis the appellant could not be allowed the benefit of default bail. The Court accepted that position and did not grant default bail to the appellant, treating the pendency of investigation as not attracting the protection of Section 167 CrPC read with Section 36A of the NDPS Act where a complaint had been filed within time. [Paras 7, 8]

Claim for default bail under Section 167 CrPC read with Section 36A of the NDPS Act rejected as complaint was filed within time.

Regular bail under the bar in Section 37 of the NDPS Act - Reasonable possibility of acquittal as a basis for bail - Whether the appellant should be released on regular bail despite the general prohibition on bail under Section 37 of the NDPS Act - HELD THAT: - The Court noted the twin limitations imposed by Section 37 of the NDPS Act - prima facie satisfaction that the accused is not guilty and that he is not likely to commit an offence while on bail. Having examined the material, including the appellant's statement under Section 67 (which the Court provisionally considered though its admissibility is not finally decided), the Court found that the appellant's case materially differed from that of other accused. The record contained only limited material linking the appellant to the substantive conspiracy beyond some WhatsApp messages and a statement the appellant had later resiled from. The prosecution's own account suggested uncertainty as to knowledge of the entire conspiracy even by the ship's master. Given the appellant's young age, prolonged incarceration since arrest, educational background and the reasonable possibility of acquittal, the Court held that the statutory bar did not preclude granting bail in the particular facts of this case. The Court therefore exercised its jurisdiction to grant bail but imposed stringent conditions to protect the investigation and trial process. [Paras 8, 10, 11, 13]

Appellant granted regular bail on stringent conditions despite the general prohibition under Section 37 of the NDPS Act, as reasonable possibility of acquittal existed and risk of interference was mitigated by conditions.

Admissibility of statement under Section 67 of the NDPS Act - Whether the admissibility of the appellant's statement under Section 67 of the NDPS Act was to be decided in this bail hearing - HELD THAT: - The Court recorded that it would not decide the admissibility of the appellant's statement under Section 67 for the purpose of this bail application because the question had been referred to a larger bench. Nevertheless, for the limited purpose of deciding bail, the Court took the statement into consideration without expressing any conclusive view on its admissibility. The ultimate question of admissibility therefore remains pending for authoritative determination. [Paras 9]

Admissibility of the Section 67 statement not decided and left for determination by the larger bench; statement taken into account for the limited purpose of this bail order.

Final Conclusion: The appeal is allowed in part: the appellant Sujit Tiwari is released on bail on furnishing bonds and sureties and subject to specified restrictive conditions; the claim for default bail is rejected and the admissibility of the Section 67 statement is left to the larger bench; pending applications disposed of.

Prospective operation of Section 143A - Applicability of Section 143A to offences under Section 138 of the N.I. Act - Completion of offence in cheque bounce cases - Direction to deposit 20% of cheque amount under Section 143A

Prospective operation of Section 143A - Applicability of Section 143A to offences under Section 138 of the N.I. Act - Completion of offence in cheque bounce cases - Direction to deposit 20% of cheque amount under Section 143A - Section 143A does not apply to an offence under Section 138 of the N.I. Act which was completed before insertion of Section 143A on 01.9.2018; hence the direction to deposit 20% under Section 143A cannot be sustained. - HELD THAT: - The Court applied the principle established by the Hon'ble Apex Court in G. J. Raja v. Tejraj Surana that Section 143A is prospective in operation and can be invoked only where the offence under Section 138 was committed after insertion of Section 143A (with effect from 01.9.2018). On the facts found by the Court below and recorded in this petition, the cheques were issued between 27.4.2018 and 12.6.2018, the return memo is dated 06.7.2018, statutory notice was issued on 26.7.2018 (received 27.7.2018) and the period allowed for payment under the notice expired on 11.8.2018. The Court held that the offence was completed on 11.8.2018, which is before 01.9.2018 when Section 143A came into force. Consequently the learned Magistrate erred in allowing the application under Section 143A and directing deposit of 20% of the cheque amount; that order had to be quashed and the application rejected. The Court further directed expeditious conduct of the trial below. [Paras 6, 7, 8, 9]

The order directing deposit under Section 143A is quashed; the application under Section 143A is rejected and the matter is remitted for expeditious trial without the deposit direction.

Final Conclusion: Writ petition allowed; impugned order dated 05.07.2019 is quashed and the application under Section 143A is rejected because the offence was completed before Section 143A came into force on 01.09.2018; trial below to proceed expeditiously.