TaxTMI Login
Just a moment...
By creating an account you can:
of 45
Press 'Enter' after typing page number.
of 45Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of 45Press 'Enter' after typing page number.
of 45Press 'Enter' after typing page number.
All Daily Newsletter
of 45Press 'Enter' after typing page number.
All Daily Newsletter
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
Summary order. Special Leave Petition dismissed; delay condoned; pending applications, if any, disposed of.
Issues Presented and Considered:
The core legal issues considered by the Court were:
Issue-wise Detailed Analysis:
1. Invocation of Section 74:
The petitioner argued that Section 74 could not be invoked as the GST and interest were paid before the issuance of the show cause notice. The Court examined the legal framework under Section 74, which allows for penalties in cases of fraud, wilful misstatement, or suppression of facts to evade tax. The Court referenced precedents, including judgments from the Supreme Court and High Courts, to interpret the scope of Section 74. The Court concluded that non-payment of tax due to insufficient funds does not automatically imply fraud or wilful suppression. However, since the petitioner did not pay the interest before the notice and failed to pay the 15% penalty as required under Section 74(5), the invocation of Section 74 was deemed appropriate.
2. Suppression of Facts:
The Court analyzed whether the failure to file monthly returns and pay GST constituted "suppression of facts." Section 74 requires that suppression be wilful and aimed at evading tax. The Court noted that the petitioner had not filed monthly returns or paid GST, which could amount to suppression. However, the Court emphasized that suppression must be wilful, requiring intent. The appellate authority found that the petitioner had received some payments from its client, which could have been used to pay GST, indicating wilful suppression. The Court upheld this finding, concluding that the petitioner's actions met the criteria for wilful suppression under Section 74.
3. Timing of Annual Returns:
The petitioner contended that the deadline for filing annual returns had not passed, implying that penalties were premature. The Court rejected this argument, highlighting the statutory requirement to file monthly returns and pay GST under Sections 37 to 39 of the CGST Act. The Court clarified that non-compliance with monthly obligations could lead to penalties under Section 74, irrespective of the annual return deadline.
Significant Holdings:
The Court upheld the penalties imposed under Section 74, emphasizing the following principles:
The Court dismissed the writ petition, affirming the penalties imposed by the appellate authority, and ruled that the petitioner's failure to meet the conditions under Section 74(5) justified the issuance of the show cause notice and subsequent penalties.
Applicability of Section 74 of the CGST Act - fraud, wilful misstatement or suppression of facts - Interpretation of "suppression" as requiring wilful intent / mens rea - Effect of voluntary payment before notice under Section 74(5) and bar on issuance of notice under Section 74(6) - Obligation to file monthly GSTR-3B returns and payment under Sections 37-39 and Rule 61
Applicability of Section 74 of the CGST Act - fraud, wilful misstatement or suppression of facts - Interpretation of "suppression" as requiring wilful intent / mens rea - Penalty under Section 74(1) of the CGST Act could be validly invoked only if non-payment arises from fraud, wilful misstatement or wilful suppression of facts to evade tax, and mere non-payment does not suffice. - HELD THAT: - The Court examined the language of Section 74(1) and Explanation2 and held that the term "suppression of facts" must be read in the context of the preceding terms (fraud and wilful misstatement) and therefore requires wilful or deliberate nondeclaration with the purpose of evading tax. Every case of nonpayment must be assessed for material showing fraud, wilful misstatement or wilful suppression; mere default in payment is insufficient to invoke Section 74. Applying this principle to the facts, the petitioner had not filed monthly returns and had not paid taxes; the appellate authority found that amounts received by the petitioner from its principal were sufficient to remit taxes and therefore concluded wilful suppression. On that factual finding the Court was unable to accept the petitioner's defence of unavoidable nonpayment and upheld the conclusion that wilful suppression existed in the present case. [Paras 22, 24, 29, 30]
Section 74 applies only where nonpayment is by reason of fraud, wilful misstatement or wilful suppression to evade tax; on the facts found by the authority the petitioner's conduct amounted to wilful suppression and Section 74 was properly invoked.
Effect of voluntary payment before notice under Section 74(5) and bar on issuance of notice under Section 74(6) - Payment of the tax alone before issuance of a Section 74 notice does not preclude issuance of a Section 74 notice unless the conditions of Section 74(5) (tax, interest under Section 50 and 15% penalty) are satisfied before service of the notice. - HELD THAT: - Section 74(5) permits the person chargeable to avoid issuance of a notice under subsection (1) only if, before service of the notice, he pays the tax along with interest under Section 50 and a penalty equivalent to 15% and informs the proper officer in writing. Section 74(6) then precludes serving the notice in respect of tax so paid. In the present case, although the petitioner paid the outstanding tax prior to issuance of the Section 74 notice, the interest under Section 50 was paid only after the notice was issued and the 15% penalty under Section 74(5) was not paid. Consequently the statutory bar in Section 74(6) did not apply and the officer was entitled to issue the notice. [Paras 26, 27]
The notice under Section 74 was valid because the petitioner had not complied with the prenotice payment requirements of Section 74(5).
Obligation to file monthly GSTR-3B returns and payment under Sections 37-39 and Rule 61 - The statutory right to file an annual return by a later date does not relieve a registered person of the statutory obligation to file monthly returns and pay tax by the monthly due dates; nonfiling of monthly returns and nonpayment of tax can constitute 'suppression' for purposes of Section 74 where wilful. - HELD THAT: - Section 44 provides for filing annual returns within a prescribed time, but Sections 37-39 read with Rule 61(1) and (2) require monthly furnishing of GSTR3B and payment of taxes by the twentieth day of the succeeding month. The petitioner's reliance on the annual return due date to justify nonfiling and nonpayment of monthly returns was rejected. While nonfiling of monthly returns amounts to nondeclaration (suppression) under Explanation2, Section 74 requires that such suppression be wilful to attract the heavier penal consequences; on the facts the authority found wilfulness. [Paras 6, 28, 29]
Annual return timelines do not eclipse monthly filing/payment obligations; nonfiling of monthly returns can amount to wilful suppression under Section 74 where the facts demonstrate intent.
Final Conclusion: Writ petition dismissed. The appellate order upholding penalties under Section 74 and related provisions is sustained on the findings that (a) Section 74 requires fraud, wilful misstatement or wilful suppression to evade tax and such mens rea was found on the facts, (b) the petitioner did not satisfy the prenotice payment condition of Section 74(5), and (c) the petitioner's reliance on the annual return deadline did not excuse nonfiling of monthly returns; no costs ordered.
The primary issue considered by the Court was whether the petitioner was entitled to a refund of the amount paid as tax under the Central Goods and Services Tax (CGST) Act, 2017, following the insertion of Section 128A into the Act. This provision stipulated that if the tax amount for a specified period was paid in full, no interest or penalty would be payable, and related proceedings would be deemed concluded. The Court also considered the implications of the petitioner's entitlement to a refund under Section 11B of the Central Excise Act, 1944, and whether the principle of revenue neutrality could be applied to adjust the amount paid by the petitioner.
ISSUE-WISE DETAILED ANALYSIS
1. Entitlement to Refund under Section 128A of the CGST Act, 2017
Relevant legal framework and precedents: Section 128A of the CGST Act, 2017, was a statutory development that allowed for the waiver of interest and penalties if the tax amount was paid in full for the period from July 1, 2017, to March 31, 2020. The provision aimed to conclude proceedings related to such payments, subject to prescribed conditions.
Court's interpretation and reasoning: The Court noted that the petitioner had already deposited the entire tax amount, which aligned with the requirements of Section 128A. The Court queried whether the principle of revenue neutrality could be applied, allowing the amount paid by the petitioner to be adjusted against returns filed under the CGST Act, 2017, and subsequently refunded.
Key evidence and findings: The petitioner had deposited the principal tax amount of Rs. 33,69,271/- following a court order. The Assistant Commissioner, CGST, acknowledged this in an affidavit, indicating the department's willingness to adjust the amount using the petitioner's credit in the PLA account and refund the amount deposited.
Application of law to facts: The Court applied Section 128A of the CGST Act, 2017, to the petitioner's case, recognizing that the tax amount had been paid in full, thus waiving any interest and penalty. The Court also considered the petitioner's potential refund under Section 11B of the Central Excise Act, 1944.
Treatment of competing arguments: The Court addressed the potential conflict between the petitioner's entitlement to a refund and the department's obligation to pay interest if a refund application was filed. The Court's inquiry led to the department's agreement to adjust and refund the amount, resolving the issue amicably.
Conclusions: The Court concluded that the petitioner was entitled to file an application for a refund of the deposited amount, which the department should process within four weeks of the application.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning: The Court highlighted, "The insertion of Section 128A and the fact that the Petitioner has already deposited the entire tax amount, a question therefore arises in view of the admitted position that the Petitioner is otherwise entitled to the said amount Rs.33,69,271/-..."
Core principles established: The judgment reinforced the principle that statutory amendments, such as Section 128A of the CGST Act, 2017, could retroactively affect ongoing proceedings, allowing for the waiver of interest and penalties if the tax amount was fully paid. It also underscored the importance of revenue neutrality in tax adjustments and refunds.
Final determinations on each issue: The Court determined that the petitioner could seek a refund of the tax amount paid, and the department was obliged to refund the amount within a specified timeframe. The petitioner's rights under Section 128A of the CGST Act, 2017, were affirmed, and the writ petition was disposed of, granting the petitioner liberty to file the refund application.
Applicability of Section 128A of the CGST Act, 2017 - Waiver of interest and penalty where tax for period 01.07.2017 to 31.03.2020 is paid in full - Revenue neutrality and adjustment of amounts paid by using PLA credit - Refund under Section 11B of the Central Excise Act, 1944 - Liberty to file application for refund and direction for refund within a fixed time
Applicability of Section 128A of the CGST Act, 2017 - Waiver of interest and penalty where tax for period 01.07.2017 to 31.03.2020 is paid in full - Section 128A applies and the petitioner is entitled to the benefits thereof, including waiver of interest and penalty, in view of deposit of the tax amount. - HELD THAT: - The Court noted the statutory insertion of Section 128A into the CGST Act, 2017 and the admitted fact that the petitioner has deposited the full tax amount. In light of Section 128A and the admitted deposit, the Court observed that the petitioner would be entitled to the reliefs under that provision, namely waiver of interest under Section 50 and levy of penalty, subject to the conditions prescribed. The Court recorded this conclusion while considering the petition and prior orders and thereby held that the petitioner may claim benefits under Section 128A. [Paras 3, 8]
The petitioner is entitled to claim the benefits under Section 128A of the CGST Act, 2017.
Revenue neutrality and adjustment of amounts paid by using PLA credit - Refund under Section 11B of the Central Excise Act, 1944 - Liberty to file application for refund and direction for refund within a fixed time - The respondents will adjust the amount paid by the petitioner by utilising PLA credit towards the returns filed on 31.10.2017 and refund the deposited amount upon application; the petitioner is granted liberty to file such application and the respondents are directed to refund within four weeks of filing. - HELD THAT: - The Court recorded that, following its query in the earlier order, the department in an affidavit accepted the proposition of adjusting the amount paid by the petitioner by using PLA credit towards the returns filed on 31.10.2017 under the CGST Act, 2017 and agreed to refund the amount deposited pursuant to earlier orders. Taking this stand into account, the Court closed the writ petition while granting the petitioner liberty to file an appropriate refund application and directed the respondents to refund the deposited amount within four weeks from the date of such application. The order implements the department's stated position and provides the procedural step for the petitioner to secure the refund. [Paras 5, 6, 7]
Liberty granted to petitioner to file refund application; respondents to adjust via PLA credit and refund the deposited amount within four weeks of the application.
Final Conclusion: Writ petition disposed of: petitioner may file application for refund of the amount deposited pursuant to earlier orders; respondents will adjust the amount by utilising PLA credit towards the returns filed on 31.10.2017 and shall refund the deposited amount within four weeks of such application; petitioner entitled to benefits under Section 128A of the CGST Act, 2017.
Outcome: The writ appeal was disposed of after the respondents acknowledged that the petitioner's grievance stood redressed by the insertion of Section 16(5) of the Central Goods and Services Tax Act, 2017, and the authorities were directed to consider the matter accordingly, with no coercive action to be taken meanwhile.
Input tax credit - amendment of the Central Goods and Services Tax (CGST) Act, 2017, particularly by insertion of sub-section (5) in Section 16 - HELD THAT:- Admittedly, the petitioner submitted its invoice/debit note pertaining to the financial year 2018-2019 and, that too, prior to 30.11.2021 and, therefore, the case of the petitioner very well comes under the provisions of sub-section (5) of Section 16.
The respondent authorities are directed to consider the matter and pass an appropriate order taking into consideration the provision of Sub-Section (5) of Section 16 of the Central Goods and Services Tax Act, 2017, vide Amendment (Finance Act, 2024) dated 16.08.2024.
Appeal disposed off.
The petitioner argues that under Rule 138(4) of the CGST Rules, 2017, an e-way bill is not required if goods are transported for exhibition purposes. Rule 55 allows goods to be transported with a delivery challan without an e-way bill when no sale is involved. The petitioner contends that the goods were seized by local police while being transported back to Chennai, and the confiscation notice was issued on several grounds, including unauthorized movement by the agent, lack of valid insurance, and suspicion of tax evasion.
The petitioner further argues that the confiscation notice under Section 130 was issued without prima facie evidence of sale or supply, which is required to invoke this section. They assert that the goods were solely for display and not for sale, and thus the notice was wrongly issued. The petitioner relies on precedents from the Gujarat High Court to support their contention that the authorities must have strong evidence before invoking Section 130.
The respondent, represented by the Additional Government Pleader, argues that the goods were transported with the intention to evade tax. They admit that no e-way bill is needed for non-sale purposes but point out discrepancies in the delivery challans, such as missing item-wise details and receiver's signatures. The respondent suspects that the goods were intended for sale under the guise of showcasing for an exhibition.
The respondent highlights several suspicious activities and inconsistencies found during inspections at the petitioner's premises, such as missing stock, empty lockers, contradictory statements from staff, and issues with CCTV footage. These findings led the authorities to conclude that the goods were transported for sale, justifying the issuance of the confiscation notice under Section 130.
The Court, after considering the submissions, finds no merit in the petitioner's arguments. It concludes that the authorities had sufficient prima facie evidence to issue the confiscation notice and that the petitioner failed to provide adequate documentation to refute the allegations. The Court clarifies that Section 129 and Section 130 of the TNGST Act operate independently, with Section 129 dealing with seizure and Section 130 with confiscation.
The Court dismisses the writ petition, granting the petitioner the liberty to file a detailed reply to the confiscation notice within 15 days. The respondent is directed to consider the reply and make a decision independently, ensuring a personal hearing is provided to the petitioner. The Court emphasizes that its observations should not influence the respondent's decision-making process.
Challenge to confiscation notice issued by the respondent dated 02.08.2024 under Section 130 of the Tamil Nadu Goods and Service Tax Act, 2017 - HELD THAT:- After considering all the reasons and material evidences, the Officials have come to the conclusion that the goods were transported only with the intention of evading the payment of tax under the pretext that the gold jewelleries were carried to showcase the same to its customers, by misusing the provisions of Rules 138 and Rule 55 of the CGST Rules. In the impugned notice also, the Officials have clearly stated all the aforesaid aspects - Under these circumstances, it is a bounded duty of the petitioner to file an appropriate reply and satisfy the respondent on the aspects of the various opinion formed against the petitioner as indicated in the impugned confiscation notice.
As far as the over-riding effect of Section 129 of TNGST Act over Section 130 of the of TNGST Act due to the non-obstante clause is concerned, it would be applicable with regard to the detention and seizure of goods and not for the confiscation, i.e., the non-obstante clause available in Section 129 would be applicable only for the seizure. In other words, if there is any provision contained in the Act with regard to the seizure in any other manner, Section 129 will supersede over the same. Therefore, as far as confiscation is concerned, the said non- obstante clause available in Section 129 will not supersede the provisions of Section 130, since Section 129 only talks about the seizure of the goods and not about confiscation. Thus, both these Sections are independent in nature.
In the judgment of Synergy Fertichem [2019 (12) TMI 1213 - GUJARAT HIGH COURT], it has been held that any opinion of the authority to be formed is not subject to objective test. The purpose of invoking Section 130 of the Act at the very threshold, the authorities need to make out a very strong case. Merely on suspicion, the authorities may not be justified in invoking Section 130 of the Act straightway. In this case, the officials had formed clear cut prima facie opinion to make out a very strong case in their favour for issuing notice under Section 130 of the TNGST Act.
Conclusion - The authorities had sufficient prima facie evidence to issue the confiscation notice and that the petitioner failed to provide adequate documentation to refute the allegations. The Court clarifies that Section 129 and Section 130 of the TNGST Act operate independently, with Section 129 dealing with seizure and Section 130 with confiscation.
Petition dismissed.
The primary issue considered in this legal judgment is the challenge against the appellate order dated 18th June 2024, which the petitioners contend is unjust. The core legal questions include:
ISSUE-WISE DETAILED ANALYSIS
Legal Framework and Precedents
The legal framework primarily involves the Central Goods and Services Tax (CGST) Act, specifically Section 112, which deals with the appeals process and the conditions for stay of recovery. The Circular No. 224/18/2024-GST issued by the Ministry of Finance provides guidelines on how taxpayers can handle outstanding dues when the Appellate Tribunal is not operational.
Court's Interpretation and Reasoning
The Court acknowledges the absence of the Appellate Tribunal and recognizes the petitioners' right to challenge the appellate order. It interprets the Ministry of Finance's circular as providing a mechanism for taxpayers to obtain a stay on recovery by making a pre-deposit and filing an undertaking to appeal once the Tribunal is operational.
Key Evidence and Findings
The Court considers the circular's provisions, which allow taxpayers to make a pre-deposit payment and file an undertaking to stay the recovery of the confirmed demand. The petitioners have shown a prima facie case for relief based on these provisions, as the Tribunal is yet to be constituted.
Application of Law to Facts
The Court applies the provisions of Section 112 of the CGST Act and the circular to the petitioners' case. It finds that the petitioners have complied with the requirements to file an appeal and make a pre-deposit, thus warranting a stay of the demand until the Tribunal is operational or until further orders.
Treatment of Competing Arguments
The State, represented by the Learned Additional Government Pleader, argues for the writ petition to be heard under the usual terms of Section 112(8). However, the Court grants an unconditional stay of the demand, recognizing the petitioners' compliance with the circular's provisions and the absence of the Tribunal.
Conclusions
The Court concludes that the petitioners have established a prima facie case for relief and grants an unconditional stay of the appellate order's demand for two weeks. The stay will continue if the petitioners pay 10% of the disputed tax balance within two weeks, in addition to the amount already deposited under Section 107(6).
SIGNIFICANT HOLDINGS
The Court establishes the principle that in the absence of the Appellate Tribunal, taxpayers can rely on the Ministry of Finance's circular to obtain a stay on recovery proceedings by making a pre-deposit and filing an undertaking. This ensures that taxpayers are not unduly burdened while awaiting the Tribunal's constitution.
Core Principles Established
Final Determinations on Each Issue
The Court determines that the petitioners are entitled to an unconditional stay of the appellate order's demand for a specified period, with conditions for extending the stay based on compliance with pre-deposit requirements. The case is set for further proceedings, with timelines for filing affidavits and replies.
Interim stay - pre-deposit and stay under Section 112(8)-(9) of the CGST Act - stay of recovery - prima facie case - conditional continuance of interim order on payment - status of constitution of Appellate Tribunal
Interim stay - prima facie case - stay of recovery - conditional continuance of interim order on payment - Grant of interim relief against recovery pursuant to the appellate order dated 18th June, 2024 and the conditions for its continuance - HELD THAT: - The Court, noting that the Appellate Tribunal is not yet constituted and that the petitioners have made out a prima facie case, granted an unconditional stay of recovery arising from the impugned appellate order dated 18th June, 2024 for a period of two weeks from date. The Court further provided that if the petitioners, within that two week period, make a payment equal to 10% of the balance amount of tax in dispute (in addition to the amount already deposited under Section 107(6) of the Act), the interim order shall continue until disposal of the writ petition or until further order. The Court directed filing of affidavit-in-opposition within six weeks and permitted a reply within one week thereafter. The stay and its continuance were therefore regulated by the limited equitable satisfaction of payment and by the pending constitutional status of the appellate forum.
Unconditional stay of recovery for two weeks; stay to continue until disposal if petitioners pay 10% of the balance tax in dispute within two weeks (in addition to earlier deposit under Section 107(6)); procedural directions for exchange of affidavits.
Final Conclusion: Writ petition admitted for hearing; interim stay of recovery granted for two weeks and made conditionally continuing upon payment of 10% of the balance tax in dispute (over existing deposit), with directions for exchange of affidavits and further proceedings.
Issues: Whether a common show-cause notice and order under Section 73 of the Karnataka Goods and Services Tax Act, 2017 could validly club multiple financial years and whether the impugned action was liable to be quashed.
Analysis: Section 73 prescribes action relatable to the relevant financial year, with limitation running from the due date for furnishing the annual return for that year. A composite notice and order covering several financial years from 2019-20 to 2023-24 was therefore contrary to the statutory scheme. The proper course was to issue separate notices for each financial year and proceed year-wise in accordance with law.
Conclusion: The impugned common notice and order were invalid insofar as they clubbed multiple financial years, and the relief was in favour of the assessee.
Final Conclusion: The proceedings were set aside, while liberty was preserved for the authorities to initiate fresh year-wise action under the statute.
Ratio Decidendi: Where Section 73 action is time-linked to a specific financial year, a composite proceeding clubbing multiple financial years is impermissible and separate year-wise notices are required.
Challenge to order passed un/s 73 of Karnataka Goods and Services Tax Act, 2017 clubbing the financial years from 2019-20 to 2023-24 - whether the impugned order requires interference at the hands of this Court? - HELD THAT:- Admittedly, Annexure-C order passed under Section 73 of 2017 Act is in respect of the financial years 2019-20 to 2023-24. By clubbing more than one financial year, the petitioner was issued with show-cause notice and the order is passed under Section 73 of 2017 Act which is impermissible. In terms of Section 73 of KGST Act, specific action must be completed within the relevant year since the limitation is prescribed. Hence, clubbing multiple assessment years is impermissible.
This Court, in an identical fact situation in M/S. VEREMAX TECHNOLOGIE SERVICES LIMITED VERSUS THE ASSISTANT COMMISSIONER OF CENTRAL TAX BENGALURU. [2024 (9) TMI 1347 - KARNATAKA HIGH COURT] allowed the writ petition and set aside the impugned show-cause notice, with liberty to the Authorities to issue separate show-cause notices for each assessment year in compliance of Section 73 of KGST Act and proceed further in the matter.
Petition allowed.
Issues: Whether the petitioner was entitled to anticipatory bail in connection with the offences alleged under the Indian Penal Code and the Jharkhand Goods and Services Tax law.
Analysis: The prayer for anticipatory bail was considered on the basis of the allegations, the petitioner's role as a tax practitioner, and the assurance that he would cooperate with the investigation. The Court found it appropriate to grant protection from arrest, subject to the statutory conditions and additional terms imposed to secure cooperation and appearance before the investigating agency.
Conclusion: Anticipatory bail was granted, subject to deposit of cash security, furnishing of bail bond and sureties, and compliance with the conditions imposed.
Ratio Decidendi: Anticipatory bail may be granted where the circumstances justify interim protection from arrest, provided the accused is required to cooperate with investigation and comply with conditions ensuring availability and participation in the proceedings.
Anticipatory bail under Section 438 Cr.P.C. - conditions of bail including cash security and sureties - cooperation with investigation and furnishing contact particulars - facilitation of registration on allegedly forged or vague documents and tax evasion - absence of allegation of benefit from Input Tax Credit against the petitioner
Anticipatory bail under Section 438 Cr.P.C. - conditions of bail including cash security and sureties - cooperation with investigation and furnishing contact particulars - Petitioner granted anticipatory bail in connection with Telco P.S. Case No.104 of 2018 subject to specified conditions. - HELD THAT: - The Court considered the allegation that the petitioner, a tax practitioner, facilitated GST registration of a proprietary concern on the basis of documents now alleged to be fake, but observed that the petitioner admitted only to facilitating registration and not to any receipt of Input Tax Credit or personal benefit therefrom. The petitioner contended that verification of client-supplied documents was not his duty, that the representative of the registrant took away the documents after registration, and that he would cooperate with the investigation and furnish security. On these facts and the submissions made, the Court found it a fit case to grant the privilege of anticipatory bail, while imposing conditions to secure the investigatory process. The Court therefore directed release on bail if arrested or on surrender within six weeks, subject to deposit of cash security, execution of bail bonds with sureties, cooperation with the investigation, appearance as and when required by the Investigating Officer, and provision of contact particulars and an identity document in the court below, together with an undertaking not to change his mobile number during the pendency of the case. The order is made subject to the conditions laid down under Section 438(2) Cr.P.C.
Grant anticipatory bail to the petitioner in the specified FIR subject to deposit of cash security of Rs. 50,000, furnishing bail bond of Rs. 25,000 with two sureties of like amount, cooperation with investigation, appearing as required by the Investigating Officer, furnishing mobile number and a copy of Aadhaar in the court below, and undertaking not to change the mobile number during the pendency of the case, in terms of Section 438(2) Cr.P.C., if arrested or on surrender within six weeks.
Final Conclusion: Anticipatory bail granted to the petitioner in Telco P.S. Case No.104 of 2018 on the territorial Court's terms and subject to the enumerated conditions, including specified security, cooperation with investigation and provision of contact and identity particulars.
The primary issue considered by the Court was whether the Show Cause Notice (SCN) dated 25 April 2024 issued by the State GST authorities, which led to the suspension of the petitioner's GST registration, was valid given the parallel proceedings initiated by the Directorate General of GST Intelligence (DGGI) under a separate SCN dated 01 July 2024. The Court also examined whether such parallel proceedings violated Section 6(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act).
ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents: The legal framework centers around Section 6(2)(b) of the CGST Act, which prohibits parallel proceedings by State and Central GST authorities on the same issue. The Court referenced its previous decision in the case of DLF Home Developers Limited, which established that simultaneous proceedings by different GST authorities on the same matter are not permissible.
Court's interpretation and reasoning: The Court reiterated its interpretation from the DLF Home Developers Limited case, emphasizing that parallel inquiries by State and Central authorities are not allowed. The Court noted that the State GST authorities were aware of the ongoing proceedings by the DGGI, as evidenced by their counter affidavit, which acknowledged the pendency of the DGGI's investigation.
Key evidence and findings: The Court considered the SCN dated 01 July 2024 issued by the DGGI and the counter affidavit from the State GST authorities, which confirmed the ongoing DGGI proceedings. The Court found that the issues addressed in the SCN from the State GST authorities overlapped with those being investigated by the DGGI.
Application of law to facts: Applying Section 6(2)(b) of the CGST Act, the Court determined that the State GST authorities could not proceed with their SCN dated 25 April 2024 because the same issues were already under investigation by the DGGI. The Court emphasized the need to avoid duplicative proceedings and upheld the principle established in the DLF Home Developers Limited case.
Treatment of competing arguments: The Court considered the arguments from both parties. The State GST authorities, through their counsel, conceded that the demand related to Input Tax Credit (ITC) reversal on non-business transactions and exempt supplies should be set aside, acknowledging the DGGI's jurisdiction over the matter. The petitioner argued against the validity of the SCN issued by the State GST authorities, citing the ongoing DGGI investigation.
Conclusions: The Court concluded that the SCN dated 25 April 2024 issued by the State GST authorities was invalid due to the ongoing DGGI proceedings on the same issues. The Court quashed the SCN, allowing the DGGI to continue and conclude its investigation.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning: The Court reiterated its stance from the DLF Home Developers Limited case, stating: "We find merit in the contention that respondent no. 1 cannot adjudicate a demand, which is also the subject matter of other proceedings. Since, the period covered under the impugned order is also subsumed in the show cause notice issued by the DGGI, both the proceedings cannot be carried on simultaneously."
Core principles established: The judgment reinforced the principle that parallel proceedings by State and Central GST authorities on the same issue are not permissible under Section 6(2)(b) of the CGST Act. The Court emphasized the need to prevent duplicative investigations and uphold the integrity of the adjudication process.
Final determinations on each issue: The Court quashed the SCN dated 25 April 2024 issued by the State GST authorities, allowing the DGGI to continue its investigation as per the SCN dated 01 July 2024. The Court granted the State GST authorities the liberty to share relevant information with the DGGI and kept all contentions on merits open for future consideration.
Show Cause Notice - parallel proceedings - Section 6(2)(b) of the Central Goods and Services Tax Act, 2017 - DGGI investigation - quashing of Show Cause Notice
Parallel proceedings - Section 6(2)(b) of the Central Goods and Services Tax Act, 2017 - Show Cause Notice - DGGI investigation - quashing of Show Cause Notice - Validity of the State GST Show Cause Notice dated 25 April 2024 in view of pending DGGI proceedings - HELD THAT: - The Court applied the principle, as articulated in the earlier DLF Home Developers decisions, that two authorities cannot proceed simultaneously in respect of the same issue in light of the mandate contained in Section 6(2)(b) of the CGST Act, 2017. The State GST authorities conceded the pendency of proceedings before the DGGI arising from a show cause notice dated 01 July 2024. In those circumstances the Court found itself unable to sustain the impugned Show Cause Notice dated 25 April 2024 issued by the State GST authority and set it aside. The order preserves the DGGI's right to continue and conclude its investigation, and affords the State authority liberty to transmit any material in its possession relevant to the DGGI inquiry. All substantive contentions on merits have been kept open. [Paras 5, 6, 7]
Impugned Show Cause Notice dated 25 April 2024 quashed; DGGI may continue and conclude its investigation; State may transmit relevant material; merits kept open.
Final Conclusion: Writ petition allowed; the State GST Show Cause Notice dated 25 April 2024 is quashed insofar as it conflicts with pending DGGI proceedings, without prejudice to the DGGI's right to proceed and subject to transmission of relevant material by the State authorities.
Issues: Whether a writ petition challenging an intimation of tax issued under section 73(5) of the Karnataka Goods and Services Tax Act, 2017 was premature and liable to be rejected at the threshold.
Analysis: The intimation under section 73(5) was only an ascertainment of tax and granted liberty either to pay the amount with interest or to file a submission against the intimation. No show cause notice under section 73(1) had been issued and no final order under section 73(9) had been passed. In that situation, the statutory process had not culminated in any final demand or adjudication.
Conclusion: The writ petition was premature and was not maintainable at that stage.
Ratio Decidendi: A writ petition challenging only an intimation of ascertained tax, before issuance of a show cause notice and before final adjudication under the GST recovery framework, is premature.
Liability to pay tax on royalty - intimation of tax issued u/s 73(5) of the KGST/CGST Act, 2017 - HELD THAT:- The writ petition of the petitioner is too premature and the same is liable to be rejected at this stage.
A perusal of Annexure-D, intimation of tax ascertained under Section 73(5) of KGST Act, 2017 would reveal that it is only an intimation of ascertained tax with liberty to the petitioner to pay along with interest or to file his submission. Failing to pay the ascertained tax, petitioner would be issued further notice under Section 73(1) and thereafter the Competent Authority shall have to pass order under Section 73(9) of KGST Act. Further, intimation of tax ascertained at Annexure-D also provides an opportunity to file any submission of the petitioner against the said intimation itself.
Since no show cause notice under Section 73(1) of KGST Act is issued and no order in terms of Section 73(9) of KGST Act is passed, the present writ petition would be premature. Hence, writ petition stands rejected.
Issues: Whether the dismissal of the petitioner's appeal for non-payment of mandatory pre-deposit under the GST law was liable to be set aside, and whether the appeal should be restored for disposal on merits upon deposit.
Analysis: The petitioner's appeal had been dismissed solely for non-payment of the statutory pre-deposit. The order was also a common order passed in respect of different appellants without identity of cause of action or parties. As the petitioner expressed willingness to pay the pre-deposit immediately, the technical objection was treated as not warranting denial of a merits adjudication, provided the deposit was made within the stipulated time.
Conclusion: The dismissal of the petitioner's appeal for non-payment of pre-deposit was set aside conditionally. Upon payment of the entire deposit within two weeks, the appeal is to be restored and decided on merits.
Final Conclusion: The writ petition succeeded to the limited extent of securing conditional restoration of the petitioner's statutory appeal and continuation of interim protection for a short period.
Ratio Decidendi: A statutory appeal dismissed only for non-payment of mandatory pre-deposit may be restored when the assessee promptly undertakes to make the deposit, so that the matter can be adjudicated on merits rather than defeated on a technical default.
Mandatory pre-deposit - dismissal of appeal for non-payment of pre-deposit - restoration of appeal upon compliance - abeyance of coercive proceedings - common order for multiple appellants without identity of cause of action - adjudication on merits
Common order for multiple appellants without identity of cause of action - A common appellate order passed in respect of different appellants without any identity of cause of action or parties is not a proper procedure. - HELD THAT: - The High Court observed that the impugned order was issued as a common order covering different appellants despite absence of any disclosed identity of cause of action or commonality of parties. Although some appellants referred to in that common order obtained different outcomes and those orders were not challenged, the court recorded that issuing a common order in such circumstances does not represent proper procedure and is open to criticism.
The court held that passing a common order in respect of different appellants without identity of cause of action is not proper procedure.
Mandatory pre-deposit - dismissal of appeal for non-payment of pre-deposit - restoration of appeal upon compliance - abeyance of coercive proceedings - adjudication on merits - The dismissal of the petitioner's appeal for non-payment of the mandatory pre-deposit was set aside on condition that the petitioner pays the required deposit within a directed period; upon compliance the appeal is to be restored and adjudicated on merits and coercive proceedings kept in abeyance for the limited period. - HELD THAT: - The court found that the petitioner's appeal had been dismissed solely on the ground of non-payment of the mandatory pre-deposit. Given the petitioner's expressed willingness to make the pre-deposit, the court exercised its supervisory jurisdiction to prevent a technical forfeiture of the right to appellate adjudication. The impugned order was set aside insofar as it dismissed the petitioner's appeal for that reason, on condition that the petitioner pays the entire deposit within two weeks. If the deposit is made within that period, the appellate authority is directed to restore the appeal to file and dispose of it on merits without undue delay. In view of the petitioner's undertaking to pay the pre-deposit, any coercive proceedings consequent to the impugned order are to be kept in abeyance for two weeks from the date of the order.
Order dismissing the petitioner's appeal for non-payment of the mandatory pre-deposit set aside conditionally; petitioner to pay deposit within two weeks, on which the appeal shall be restored and decided on merits, and coercive proceedings kept in abeyance for that period.
Final Conclusion: Writ petition allowed in part: the impugned order is set aside insofar as it dismisses the petitioner's appeal for non-payment of the mandatory pre-deposit, subject to the petitioner making the deposit within two weeks; upon payment the appeal shall be restored and decided on merits without undue delay and coercive proceedings are kept in abeyance for the said period.
Issues: Challenge to the constitutional validity of section 174(2) of the State Goods and Services Tax enactments and continuation of interim protection pending the final outcome before the Supreme Court.
Outcome: The writ petition was disposed of subject to the final decision of the Supreme Court, and the interim orders were directed to continue in the meantime.
Challenge to section 174(2) of the GST Act, 2017 - HELD THAT:- The issue involved in the present petition stands finally adjudicated by this Court in Tecnimont Spa India Project Office vs. State of Punjab and another [2024 (12) TMI 1223 - PUNJAB AND HARYANA HIGH COURT], wherein, it is held that 'Challenge to vires of the said section was laid before the High Court of Kerala in bunch of cases which were decided in favour of the Revenue holding the provisions as within the framework of the Constitution of India, and also the action was held to be within the competence of the department.'
Petition disposed off.
The core legal question considered was whether the petitioner was denied a fair opportunity to respond to a Show Cause Notice due to the manner in which it was communicated, specifically being uploaded under the "Additional Notices" tab on the GST portal, and whether this justified setting aside the subsequent demand and penalty order issued under Section 73 of the Central Goods and Services Tax Act, 2017.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The case revolves around the compliance with procedural requirements under the Central Goods and Services Tax Act, 2017, particularly Section 73, which deals with the determination of tax not paid or short paid. The procedural fairness in serving notices is central to this issue. The legal framework also involves the interpretation of how notices are communicated via the GST portal.
Precedents from the Madras High Court were heavily relied upon, where similar issues of notices being uploaded under inappropriate categories on the GST portal were highlighted. The judgments in W.P. No. 26457/2023 and W.P. No. 22369/2023 emphasized the confusion caused by the complex architecture of the GST web portal, affecting the taxpayers' ability to respond to notices.
Court's Interpretation and Reasoning
The Court interpreted the procedural requirement of notice under the Act as necessitating clear and accessible communication to the taxpayer. It acknowledged the petitioner's argument that the notice was not effectively communicated due to its placement under the "Additional Notices" tab, which was not the expected or appropriate location for such significant communications.
The Court found merit in the petitioner's reliance on the Madras High Court's observations regarding the confusion caused by the portal's design. It recognized that the petitioner's failure to respond was not due to negligence but rather due to the systemic issue of notice placement on the portal.
Key Evidence and Findings
The petitioner provided evidence of the notice being uploaded under "Additional Notices" and argued that this categorization was misleading and not in line with standard expectations. The Court accepted this as a valid explanation for the petitioner's lack of response, noting that similar issues had been identified in other cases.
Application of Law to Facts
The Court applied the principles of procedural fairness and the need for clear communication of notices under the GST framework. It determined that the placement of the notice under "Additional Notices" was a procedural irregularity that justified setting aside the impugned order. The Court emphasized the need for taxpayers to be given a fair opportunity to respond to notices, which was not afforded in this instance due to the portal's design.
Treatment of Competing Arguments
The respondent's argument that the notice was duly uploaded and accessible was considered but ultimately found insufficient. The Court prioritized the taxpayer's right to be adequately informed and the practical difficulties posed by the portal's design, as highlighted in similar cases. The systemic issue of notice placement was deemed significant enough to warrant a fresh opportunity for the petitioner to respond.
Conclusions
The Court concluded that the petitioner was denied a fair opportunity to respond due to the improper categorization of the notice on the GST portal. It set aside the impugned order and directed the respondent to allow the petitioner to file a response and participate in a re-adjudication process.
SIGNIFICANT HOLDINGS
The Court held that procedural fairness requires that notices be communicated in a manner that is clear and accessible to the taxpayer. The placement of important notices under inappropriate categories on the GST portal can constitute a denial of the right to respond, justifying the setting aside of resultant orders.
Core Principles Established
1. The importance of clear and accessible communication of notices under the GST framework.
2. Recognition of systemic issues in the GST portal's design that can affect taxpayer rights.
3. The necessity of providing taxpayers a fair opportunity to respond to notices, with procedural irregularities being grounds for setting aside orders.
Final Determinations on Each Issue
The Court set aside the impugned order dated 14-3-2024, directing the respondent to reopen the portal for the petitioner to file a response to the Show Cause Notice. It mandated a re-adjudication process, ensuring the petitioner is granted a personal hearing and a fresh order is passed in accordance with law.
Service of notice through GST portal and placement under 'Additional Notices and Orders' - Portal design and notice visibility affecting principles of natural justice - Adjudication under Section 73 of the Central Goods and Services Tax Act, 2017 - Right to be heard and opportunity of personal hearing - Re-adjudication and issuance of a fresh speaking order
Service of notice through GST portal and placement under 'Additional Notices and Orders' - Portal design and notice visibility affecting principles of natural justice - Right to be heard and opportunity of personal hearing - Impugned order passed under Section 73 was vitiated because the Show Cause Notice was uploaded under the portal category of 'Additional Notices' and was not effectively brought to the petitioner's notice, resulting in denial of opportunity to respond. - HELD THAT: - The Court found that the Show Cause Notice was merely uploaded on the GST portal under the 'Additional Notices' tab and was not otherwise communicated to the petitioner, which caused the petitioner to remain unaware of the proceedings and unable to file a reply. Relying on precedents addressing the confusion created by separate dashboard headings and the redesign of the portal, the Court concluded that the petitioner had established that non-visibility of the notice on the portal led to failure to participate in the proceedings. For this reason the impugned order, which was passed because no reply was on record, could not stand. [Paras 7, 8]
Impugned order dated 14-3-2024 is set aside for denial of effective notice and resultant failure to afford opportunity to be heard.
Re-adjudication and issuance of a fresh speaking order - Right to be heard and opportunity of personal hearing - Adjudication under Section 73 of the Central Goods and Services Tax Act, 2017 - Proceedings were remanded for fresh response and re-adjudication with directions to afford personal hearing and to pass a fresh speaking order in accordance with law. - HELD THAT: - Having set aside the impugned order on grounds of non-communication, the Court directed that the portal be opened to enable the petitioner to file a response to the Show Cause Notice within four weeks. Thereafter the Proper Officer is to re-adjudicate the Show Cause Notice after giving an opportunity of personal hearing and to pass a fresh speaking order within the period prescribed under Section 75(3) of the Act. The Court expressly refrained from expressing any opinion on the merits and reserved all rights and contentions of the parties. [Paras 9, 10]
Matter remitted for filing of response, personal hearing and fresh adjudication; parties' substantive contentions left open.
Final Conclusion: Impugned order under Section 73 is set aside for failure of effective communication of the Show Cause Notice via the GST portal; petitioner granted four weeks to file response and the matter is remitted for re-adjudication after personal hearing with a fresh speaking order, merits not considered.
Outcome: The special leave petitions were disposed of in terms of the earlier decision relied upon by the Court, and the connected petition was dismissed.
Exemption u/s 11 - exemption disallowed on the ground that registration u/s 12AA granted to the assessee stood cancelled - what's the charitable nature of activities carried out by assessee in terms of Section 2(15)? - as decided by HC [2022 (8) TMI 1400 - ALLAHABAD HIGH COURT] for the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on noncommercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature.
Learned counsel invites our attention to the order passed in M/s. Ghaziabad Development Authority Vikas Path [2023 (7) TMI 1551 - SC ORDER] wherein In the light of the decision in the case of Ahmedabad Urban Development Authority [2022 (10) TMI 948 - SUPREME COURT] and as corrected by the order [2022 (11) TMI 255 - SUPREME COURT]the present Special Leave Petition stands disposed of in terms of the said decision. Pending application also stands disposed of.”
As such, as jointly prayed for, the present special leave petitions are disposed of in terms of the order extracted supra.
Exemption u/s 11 - exemption disallowed on the ground that registration u/s 12AA granted to the assessee stood cancelled - what's the charitable nature of activities carried out by assessee in terms of Section 2(15)? - It is not in dispute that the issue in question stands squarely covered and the similar petition preferred by the petitioner stands dismissed in terms of order passed by the Coordinate Bench of this Court M/s. Ghaziabad Development Authority Vikas Path” [2022 (11) TMI 255 - SUPREME COURT] - Ordered accordingly.
The core legal questions considered in this judgment include:
1. Whether the issuance of the show cause notice and subsequent transfer order under Section 127 of the Income Tax Act, 1961, violated the principles of natural justice.
2. Whether the procedural requirements for transferring jurisdiction under Section 127 were adhered to, including the necessity of documented concurrence between jurisdictional Principal Commissioners.
3. Whether the allegations of unaccounted cash payments and other irregularities were substantiated by credible evidence.
4. Whether the petitioner was provided a reasonable opportunity to respond to the allegations and participate in the proceedings.
5. The relevance and applicability of precedents cited by both parties in determining the validity of the transfer order.
ISSUE-WISE DETAILED ANALYSIS
1. Violation of Principles of Natural Justice
The relevant legal framework involves the principles of natural justice, which require that parties be given a fair opportunity to present their case. The Court found that the petitioner was not afforded this opportunity as the hearing was scheduled without adequate notice, coinciding with the Durga Puja holidays. Despite a request for rescheduling, Respondent No. 1 did not accommodate this, depriving the petitioner of a fair chance to be heard. This omission violated procedural safeguards under Section 127 of the Act.
2. Procedural Requirements under Section 127
The Court examined whether the transfer order adhered to procedural requirements, particularly the need for documented concurrence between jurisdictional Principal Commissioners. The impugned order was found to lack such documentation, rendering it procedurally flawed. The Court emphasized that procedural safeguards must be observed, as highlighted in precedents such as Pradeep Kumar Kajaria v. Union of India.
3. Substantiation of Allegations
The Court scrutinized the evidence supporting the allegations of unaccounted cash payments. It found that the allegations were vague and unsupported by credible evidence. The respondent's reliance on vague references to "incriminating material" without disclosing specifics was deemed speculative and unsustainable. The Court concluded that the allegations could not justify the jurisdictional transfer.
4. Opportunity to Respond and Participate
The petitioner argued that it was denied a reasonable opportunity to respond due to insufficient notice. The Court agreed, noting that the notice for the hearing was inadequate and coincided with a major holiday, and the request for rescheduling was ignored. This constituted a gross violation of natural justice principles, as the petitioner was effectively deprived of a fair opportunity to present its case.
5. Relevance of Precedents
Both parties cited various precedents to support their arguments. The respondent relied on cases such as Pannalal Binjraj and Kashiram Aggarwalla, which upheld the administrative nature of Section 127 transfers. However, the Court distinguished these cases, emphasizing that procedural safeguards and natural justice principles must still be adhered to. The Court found the reliance on Pradeep Kumar Kajaria more pertinent, as it involved similar procedural lapses.
SIGNIFICANT HOLDINGS
The Court held that the transfer order issued under Section 127 (2) of the Income Tax Act, 1961, was procedurally flawed and violated the principles of natural justice. The order lacked documented concurrence between jurisdictional Principal Commissioners and failed to provide the petitioner with a fair opportunity to be heard. The allegations were vague and unsupported by credible evidence, rendering the transfer order speculative and unsustainable.
Core Principles Established
The judgment reinforced the necessity of adhering to procedural safeguards and principles of natural justice in administrative actions, such as jurisdictional transfers under Section 127. It emphasized that vague allegations without credible evidence cannot form the basis for such transfers.
Final Determinations on Each Issue
The Court concluded that the impugned transfer order was legally unsustainable and set it aside. All subsequent notices and actions based on this invalid transfer were deemed to lack jurisdiction. The writ petition was allowed, and the transfer order was quashed.
Transfer order issued u/s 127 (2) is found to be procedurally flawed, arbitrary, and violative of the principles of natural justice - absence of documented concurrence between the jurisdictional Principal Commissioners as mandated u/s 127 - HELD THAT:- The respondent no. 1 failed to adhere to the principles of natural justice. Despite the Petitioner’s detailed objections to the proposed transfer and a request for the disclosure of incriminating material, no opportunity of being heard was provided and the requested material was not furnished.
Petitioner was not provided with a reasonable opportunity to respond to the allegations due to inadequate notice for the hearing scheduled on October 14, 2024, coinciding with the Durga Puja holidays. Despite a valid request for rescheduling, Respondent No. 1 failed to accommodate the petitioner’s concerns, effectively depriving the petitioner of a fair chance to present its case. Such omissions violate the procedural safeguards enshrined u/s 127 (2), rendering the transfer order invalid.
The impugned order also lacked cogent reasoning and failed to address the specific objections raised by the petitioner. The allegations of unaccounted cash payments and irregularities in the transaction were vague and unsupported by any credible evidence. The respondent’s reliance on vague references to "incriminating material" without disclosing the basis or specifics of the evidence rendered the transfer order speculative and unsustainable.
The Respondents’ argument that the transfer was necessitated for coordinated investigation and meaningful assessment holds merit only when supported by valid reasons and material evidence. In the present case, the purported need for coordination is not substantiated by specific or credible evidence linking the Petitioner’s assessment to the alleged concealment of income by the partnership firm.
Thus the impugned transfer order is legally unsustainable.
The primary issue considered was whether the issuance of notices under Section 148 of the Income Tax Act, 1961, to a non-existent entity post-merger constituted a substantive illegality. The court also examined whether such notices could be validated by procedural provisions like Section 292B of the IT Act, which allows for the correction of procedural errors.
ISSUE-WISE DETAILED ANALYSIS
1. Issuance of Notices to a Non-Existent Entity:
The core legal framework involved Section 148 of the Income Tax Act, which pertains to the reassessment of income. The court's interpretation relied on precedents such as Maruti Suzuki India Ltd., where the Supreme Court held that issuing a notice to a non-existent company is a substantive illegality. The court found that the merger of City Corporation Limited (CCL) with Amanora Future Towers Private Limited (AFTPL) was effective from April 1, 2018, and was duly communicated to the Income Tax Department by August 27, 2020. Despite this, the impugned notices dated March 31, 2023, were issued in the name of AFTPL, a non-existent entity post-merger.
The court emphasized that under Section 2(31) of the IT Act, a noticee must be a 'person,' which AFTPL was not, as it had ceased to exist. The court rejected the respondents' argument that the issuance of notices was a mere procedural error due to a technical glitch, noting that the error was substantive and could not be rectified under Section 292B.
2. Treatment of Competing Arguments:
The respondents argued that the notices were issued in the name of AFTPL due to technical glitches and that the Principal Commissioner of Income Tax had approved the notices. They relied on the Skylight Hospitality LLP case, where a notice issued to a merged entity was upheld due to peculiar facts. However, the court distinguished the present case from Skylight Hospitality LLP, noting that in Maruti Suzuki, the Supreme Court had clarified that issuing notices to a non-existent entity is a substantive illegality, irrespective of procedural errors or technical glitches.
The court also referred to other judgments, such as Uber India Systems and Alok Knit Exports Ltd., which reinforced the principle that notices issued to non-existent entities post-merger are invalid.
3. Conclusions:
The court concluded that the impugned notices were invalid as they were issued to a non-existent entity. The court underscored that such a fundamental error could not be condoned as a mere technical glitch. The court quashed the notices, emphasizing that the respondents were aware of the merger and the non-existence of AFTPL.
SIGNIFICANT HOLDINGS
The court held that issuing notices under Section 148 to a non-existent entity post-merger is a substantive illegality, not a procedural error. The court stated, "In Maruti Suzuki, the Hon'ble Supreme Court has held that issuing notice in the name of a non-existent company is a substantive illegality and not a mere procedural violation of the nature adverted to in Section 292B of the IT Act."
The court also clarified that its decision does not preclude the respondents from issuing fresh notices to CCL for reassessment, provided the law permits and circumstances justify such action.
In conclusion, the court made the rule absolute in these petitions, quashing the impugned notices without any order as to costs, and allowed for possible future actions in compliance with the law. The decision reaffirmed the principle that jurisdictional errors involving non-existent entities cannot be salvaged by procedural provisions.
Reassessment notice against non-existent entity post-merger - HELD THAT:- We cannot condone the fundamental error in issuing the impugned notices against a non-existing company despite full knowledge of the merger. The impugned notices, which are non-est cannot be treated as “good” as urged on behalf of the Respondents.
In Maruti Suzuki [2019 (7) TMI 1449 - SUPREME COURT] has held that issuing notice in the name of a non-existing company is a substantive illegality and not a mere procedural violation of the nature adverted to in Section 292B of the IT Act. Decided in favour of assessee.
The relevant legal framework revolves around Section 245 of the Income Tax Act, which allows for the adjustment of refunds against outstanding tax demands. The Court emphasized the necessity of adhering to the principles of natural justice, which require that the affected party be given a fair hearing before any adjustment is made. This is supported by precedents such as the decision in Hindustan Unilever Ltd. vs. Deputy Commissioner of Income-tax, where it was held that natural justice principles must be observed before making adjustments under Section 245.
The Court found that the Respondents failed to provide the Petitioner with an opportunity to be heard, despite the Petitioner's objections communicated through letters dated 5, 6, and 7 December 2023. No formal order was issued addressing these objections, which the Court deemed a gross violation of natural justice principles. The Court referenced its previous decision in Sulzer Pumps India Private Limited, where similar procedural lapses led to the quashing of an adjustment under Section 245.
In its reasoning, the Court highlighted the importance of procedural fairness and the right to be heard before any adverse financial adjustments are made. The lack of a formal order and the absence of a hearing were critical factors in the Court's decision to quash the adjustment.
The Court directed the Respondents to deposit the adjusted amount of Rs. 4,91,45,369/- with the Court within two weeks. This amount is to be invested in a nationalized bank and will be subject to future orders under Section 245, provided the Petitioner is given a reasonable opportunity to be heard. The Respondents are required to consider the Petitioner's objections and issue a reasoned order within two months. If no order is made within this period, the Petitioner may apply for the withdrawal of the deposited amount with any accrued interest.
Additionally, the Court noted that the Petitioner's stay application for the assessment year 2018-2019 remains pending and directed that it be disposed of in accordance with the law within four weeks.
Significant holdings include the reiteration of the necessity for adherence to natural justice principles in tax adjustments and the requirement for a reasoned order following a hearing. The Court's final determination was to quash the adjustment and mandate procedural compliance by the Respondents, ensuring the Petitioner's right to a fair hearing is upheld.
Adjustment of refund against the outstanding demand in the purported exercise of powers u/s 245 - Violation of principle of natural justice - HELD THAT:- An intimation proposing an adjustment was sent to the petitioner. However, after that, the petitioner was not granted a hearing, and no formal order was made under Section 245 of the IT Act. Instead, by communication dated 16 March 2024, the Petitioner was informed of the adjustment against the outstanding demand for assessment year 2018-2019. In our judgment, the procedure followed by the Respondents grossly violates the principles of natural justice and fair play.
The record shows that the Petitioner addressed communications dated 5 December 2023, 6 December 2023 and 7 December 2023 to the Respondents regarding objections to the proposed adjustments. There was no consideration of these objections. The petitioner was granted no opportunity of a hearing. No formal order was also made dealing with the petitioner’s objections. All this violates the principles of natural justice.
We quash the adjustments made in the purported exercise of powers under Section 245 and direct the Respondents to deposit an amount of Rs. 4,91,45,369/- in this Court within two weeks from today.
Issues: Whether the reassessment order and subsequent notices could be sustained when the notices were not duly served, and what consequential relief should follow.
Analysis: The notices were issued to the address available with the Income-tax Department. The Petitioner had changed her address but had not informed the Department or updated the PAN details. In these circumstances, non-service could not be attributed to the Respondents. At the same time, the Court granted limited relief by quashing the order under Section 148A(d) and the consequential notices under Sections 148 and 142(1), while preserving the opportunity for the Petitioner to file objections to the Section 148A(b) notice after service at the updated address and email-id furnished before the Court.
Conclusion: The challenge succeeded in part, and the impugned order and consequential notices were quashed, with directions for fresh service and consideration of objections.
Validity of reassessment proceedings - notice u/s 148A (b), 148A (d) and 148 were not served either on email-id or by postal and, therefore, the proceedings are bad in law - HELD THAT:- As Petitioner submitted that the Petitioner has changed her address, but same was not informed to the Income-Tax Department and, therefore, the postal authorities may have returned the notices with the remark left. In our view, it was the duty of the Petitioner to inform change about her address to the Income-Tax Department and make necessary changes in the PAN card details. Having not done so, no fault can be attributed to the Respondents on account of non-service of the notices.
Petitioner being an individual lady, and her husband being on transferable job by way of giving an opportunity, order u/s 148A(d) and notice u/s 148 and consequent notice u/s 142(1) are quashed.
At the directions of the Court, Petitioner has given postal address and email-id on which the subsequent notices can be served.
The core issues considered by the Court were:
A) Whether the respondents were justified in modifying their utility, thereby preventing an assessee from making a rebate claim under Section 87A while filing an income tax return online.
B) Whether the claim proposed under Section 87A by an assessee is ex facie frivolous, justifying the respondents in modifying their utility to prevent such a claim at the threshold.
C) The interpretation of the interplay between Section 87A and Section 115BAC, specifically whether a rebate under Section 87A can be claimed from the tax computed under Section 115BAC and other provisions of Chapter XII.
2. ISSUE-WISE DETAILED ANALYSIS
A) Relevant Legal Framework and Precedents
The legal framework revolves around Section 87A, which provides a rebate of income tax for certain individuals, and Section 115BAC, which introduces a new tax regime with specific tax rates. The Court examined the constitutional provisions, particularly Articles 265 and 300A, which mandate that taxes must be levied and collected by the authority of law. The Court also referenced precedents, such as the case of Samir Narain Bhojwani vs. DCIT, which emphasized the right of an assessee to make claims in their tax returns.
B) Court's Interpretation and Reasoning
The Court reasoned that the utility's modification, which prevents assessees from making claims under Section 87A, is contrary to the scheme of the Income-tax Act and unconstitutional. The Court emphasized that the Act allows an assessee to compute their income and make claims based on their understanding, which should be adjudicated later by the authorities. The utility should not preemptively deny such claims.
C) Key Evidence and Findings
The Court found that the utility's modification was not based on any explicit prohibition in the Income-tax Act. It noted that the legislative intent, as seen in the absence of explicit prohibitions like those in Section 112A(6), suggests that assessees should be allowed to make claims under Section 87A.
D) Application of Law to Facts
The Court applied the constitutional mandate and the scheme of the Income-tax Act to conclude that the utility's modification was unjustified. It held that the revenue's interpretation, which led to the modification, was debatable and should not prevent an assessee from making claims at the filing stage.
E) Treatment of Competing Arguments
The Court considered the arguments of the petitioners, who contended that the rebate under Section 87A should apply to the total tax computed, including under other provisions of Chapter XII. The respondents argued that the rebate should only apply to tax under Section 115BAC. The Court found the issue debatable and concluded that the utility should not prevent claims based on one interpretation.
F) Conclusions
The Court concluded that the utility should allow assessees to make claims under Section 87A. It held that the revenue's interpretation was not so clear-cut as to justify preventing claims at the threshold.
3. SIGNIFICANT HOLDINGS
The Court's significant holdings include:
- The utility modification preventing claims under Section 87A is contrary to the Income-tax Act and unconstitutional.
- Assessees should be allowed to make claims based on their interpretation, which should be adjudicated by the authorities.
- The issue of whether Section 87A rebates apply to taxes computed under other provisions of Chapter XII is debatable and should not be preemptively denied by the utility.
ORDER
(i) The Court issued a writ of mandamus directing the respondents to modify the utility for filing returns under Section 139, allowing claims under Section 87A.
(ii) The Court did not adjudicate on the broader issue of filing returns based on personal belief, leaving it open for future consideration.
(iii) The Court left the adjudication of eligibility for claims under Section 87A to the authorities under the Act.
(iv) The Court rejected the prayer for a writ of prohibition, allowing the assessee to pursue remedies under the Act.
(v) Interim orders were made absolute, and the rule was made absolute with no order as to costs.
PIL - online utility provided by the respondents denied the assessees benefit of claiming a rebate u/s 87A of the Income-tax Act for the assessment year 2024-25 while filing online return against tax computed under various sections of Chapter XII of the Act - seeking direction or order directing the Respondents to allow assesses to file a manual return of income for claiming rebate
Whether respondents are justified in modifying their utility, whereby an assessee is debarred at the threshold from making a rebate claim under Section 87A while uploading his return of income online? - HELD THAT:- As in the course of the hearing, our attention was drawn to the subject matter of Writ Petition in the case of Lupin Ltd. [2024 (3) TMI 1406 - BOMBAY HIGH COURT] wherein the assessee was prevented from making the claim of deduction based on the Supreme Court decision since electronic mode of filing the return was not permitting the assessee to do so. On a writ petition being filed and on a direction by this Court, a manual return was permitted to be filed for making the said claim. We were informed that while processing the manual return, the claim of the assessee was accepted. We are referring to this decision for the limited purpose to bring our point in support of our analysis that certainly the utility cannot be designed to prevent an assessee from making a claim which subsequently by adjudication and appeal process may be found to be correct.
As in the case of Tata Sons Pvt. Ltd. [2024 (3) TMI 1405 - BOMBAY HIGH COURT] also permitted the assessee to file paper return which came to be processed and thereafter an appeal against such processing was filed by the assessee. This decision is also relied upon to the limited extent that the online system did not provide to make a claim which was permitted by paper return and processed accordingly.
Therefore, it is not that an assessee can be debarred from making a claim in the return of income whether online or manual.
If any such claim is made, the revenue would certainly be free to examine the same as per the provisions of the Act. Both the revenue and the assessee have remedies under the Act for testing the validity of such a claim. We, however, refrain from expressing any views on whether the submissions made by the learned senior counsel for the petitioners or the learned ASG are correct since that would be something which has to be examined by the quasi-judicial authorities under the Act in the first instance and not by a writ court in its exercise of extraordinary jurisdiction.
We agree with the learned ASG that unless there is a demand for justice which has been rejected or a failure on the part of the revenue to exercise its duty under the Act, such a writ as prayed for in prayer clause (c) cannot be granted. We also agree with the learned ASG that unless there is some concrete instance, the Court should grant no relief in such broad and general terms. Such reliefs, in general terms, are typically not to be granted because the ramifications would be unclear. For the present, we do not propose to consider relief in terms of the prayer clause (c) of the petition by leaving the question open.
Order:- Hon'ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, direction or order directing the Respondents to modify the utilities for filing of the return of income u/s 139 of the Act immediately, thereby allowing assessees to make a claim of rebate u/s 87A of the Act read with the proviso to section 87A, in their return of income for the AY 2024-25 and subsequent years including revised returns to be filed under section 139 (5) of the Act.
The issue of adjudication of eligibility of a claim under Section 87A is left to the authorities under the Act while processing the returns filed by the assessees.
Issues: (i) Whether a revision application under section 264 of the Income-tax Act, 1961 could be rejected merely because the assessee had not amended its return of income after discovering that the amount was not chargeable to tax. (ii) Whether the impugned order could be sustained when it treated the remittance as chargeable to tax under section 9(1)(vii) without examining the claim under Article 12 of the India-Australia Double Taxation Avoidance Agreement.
Issue (i): Whether a revision application under section 264 of the Income-tax Act, 1961 could be rejected merely because the assessee had not amended its return of income after discovering that the amount was not chargeable to tax.
Analysis: The revisional power under section 264 is wide and is not confined to correcting mistakes of the revenue authorities. It extends to rectifying mistakes committed by an assessee, including a mistaken stand taken in the return, where income or expenditure was offered or disallowed under an erroneous belief that tax was payable. A prior amendment of the return is not an indispensable condition if the assessee establishes that the item was not chargeable to tax in law.
Conclusion: The rejection of the revision application on the ground that the return had not been revised was unsustainable and was against the assessee.
Issue (ii): Whether the impugned order could be sustained when it treated the remittance as chargeable to tax under section 9(1)(vii) without examining the claim under Article 12 of the India-Australia Double Taxation Avoidance Agreement.
Analysis: The impugned order proceeded on domestic law provisions and did not examine the assessee's case under Article 12 of the DTAA or the contention that the "make available" condition was not satisfied. A determination of taxability had to address the treaty position before concluding that tax was deductible or that the payment was chargeable to tax in India.
Conclusion: The finding that the remittance was chargeable to tax could not be sustained and was against the assessee.
Final Conclusion: The writ petition was allowed, the impugned order was quashed, and the revision application was directed to be reconsidered afresh in accordance with law, with all substantive contentions left open.
Ratio Decidendi: Section 264 permits correction of an assessee's own mistaken tax position without requiring a prior revised return, and taxability must be determined after considering the applicable treaty provisions where they are invoked.
Revision u/s 264 - Necessity of amendment of the RoI before the application u/s 264 - TDS liability u/s 195 - payment made by the petitioner, which was initially disallowed u/s 40(a)(i) due to non-deduction of tax at source - Applicability of Article 12 of the DTAA
HELD THAT:- The scope of the power which the Commissioner could have exercised under Section 264 it was clearly not imperative for the petitioner to have amended its RoI. As was pertinently observed both in Vijay Gupta [2016 (3) TMI 977 - DELHI HIGH COURT] and Interglobe Enterprises [2023 (2) TMI 34 - DELHI HIGH COURT] an assessee could be taxed only in respect of such part of its total income as was exigible under the Act.
The judgments noted supra, further hold that an assessee could invoke the power conferred by Section 264 in order to rectify a mistaken stand taken earlier and where it may have offered income to tax even though the law placed no such liability. It was pertinently observed that an assessee is liable to pay tax only on such income which is otherwise chargeable under the Act.
Our Court thus held that merely because certain income or receipt may have been mistakenly offered to tax, the same would not be conclusive if it were found and established that the same was not chargeable at all. The said principles would equally apply to the suo moto disallowance which the petitioner had made under the bona fide and yet mistaken belief that the same was liable to be offered for taxation.
The said stand, in our considered opinion, could not have been negated merely because the RoI had not been amended. The conclusion so reached by the Commissioner in this regard clearly fails to bear in consideration the salutary power that Section 264 creates and confers. The power that the statute vests in the Commissioner could have been validly invoked if the assessee were to assert that it had erred or proceeded on the mistaken assumption that the said item of income or expenditure was liable to be taxed under the Act.
Findings rendered in the context of Section 9 are concerned, as noted hereinabove, the Commissioner has failed to either advert to or examine the aspect on the anvil of the DTAA and the stand of the petitioner that the “make available” condition was not satisfied and the expenditure thus not liable to be viewed as royalty on which tax could have been validly imposed.
Allow the instant writ petition and quash the order. The revision application shall consequently be taken up for consideration afresh, bearing in mind the observations appearing hereinabove.
The core legal question considered in this judgment is whether the Appellate Tribunal's order dated 31 March 2017 was passed in breach of the principles of natural justice. This issue is central to the appeal and is the basis for the court's decision to set aside the impugned order.
ISSUE-WISE DETAILED ANALYSIS
Violation of Principles of Natural Justice
Relevant Legal Framework and Precedents
The principles of natural justice are fundamental to the legal system and require that parties be given a fair opportunity to present their case. This includes the right to a fair hearing and the right to be heard. The breach of these principles can result in the setting aside of decisions made by judicial or quasi-judicial bodies.
Court's Interpretation and Reasoning
The Court identified that there was a substantial question of law regarding whether the Appellate Tribunal's order was issued in violation of natural justice. The Court noted that the facts of the present appeal were identical to those in the connected appeals, which had been disposed of on the same day. The Court's reasoning was based on the need to ensure that the principles of natural justice were upheld, and it found that the Tribunal's order did not meet these standards.
Key Evidence and Findings
The Court observed that there was confusion regarding the status of the Income Tax Appeal No. 911 of 2018, which was wrongly shown as disposed of. The Court clarified that no such dismissal order existed and that the appeal was still pending. This confusion contributed to the Court's decision to set aside the Tribunal's order.
Application of Law to Facts
The Court applied the principles of natural justice to the facts of the case, determining that the Tribunal's order was issued without providing a fair opportunity for the parties to present their case. As a result, the Court set aside the impugned order and remanded the matter to the Tribunal for fresh consideration in accordance with the law.
Treatment of Competing Arguments
The Court did not delve into the merits of the case or the parties' contentions, as the decision was based solely on the procedural issue of natural justice. The parties' substantive arguments were left open for consideration by the Tribunal upon remand.
Conclusions
The Court concluded that the Tribunal's order was passed in breach of natural justice and therefore set it aside. The matter was remanded for fresh consideration, with the parties' contentions on the merits left open for future determination.
SIGNIFICANT HOLDINGS
Core Principles Established
The judgment reinforces the importance of the principles of natural justice in judicial and quasi-judicial proceedings. It underscores the requirement that parties must be given a fair opportunity to present their case before a decision is made.
Final Determinations on Each Issue
The Court set aside the Tribunal's order dated 31 March 2017 due to a breach of natural justice and remanded the matter for fresh consideration. The Court ordered the Appellant to pay Rs. 50,000 to the Government KEM Hospital within two weeks and to file proof of payment in the Court and before the Tribunal. If the payment was not made within the specified time, the appeal would be deemed dismissed with costs. The parties were instructed to act on an authenticated copy of the order, and the substantive issues were left open for future determination by the Tribunal.
Validity of Tribunal order in breach of principles of natural justice - HELD THAT:- There is no dispute that the facts in the present appeal and those in the connected appeals are identical.
Therefore, for the reasons we have recorded in our order disposing of the three connected appeals, we allow this appeal by passing the following order as order is dated 31 March 2017 [2017 (3) TMI 1959 - ITAT MUMBAI]set aside and the matter is remanded to the tribunal for fresh consideration in accordance with law and on its own merits.
Outcome: The departmental appeal was disposed of in view of the revised monetary limit prescribed by the applicable income-tax appeal circular, as the tax effect was below the threshold for filing an appeal before the High Court.
Monetary limits for filing Income Tax Appeals by the department before the High Court - Maintainability of appeal on low tax effect - HELD THAT:- As per submission of appellant where monetary limit (tax liability) in the present case is less than Rs. 2 Crores, therefore, in light of aforesaid circular (Para-5) dated 17/09/2024, the instant Tax Case stands disposed of.
Outcome: The writ petition was disposed of with liberty to file a statutory appeal under Section 246A of the Income-tax Act, 1961 and to seek stay of recovery under Section 220(6) of the Income-tax Act, 1961.
Communication Letter of the 1st respondent wherein the petitioner has been reminded by the arrears of income tax of various Assessment Year 2010-2011 to the Assessment Year 2020-2021 - petitioner has also challenged the Impugned Assessment Order passed by the 2nd respondent u/s 143(3) r.w.s.143(3A) and Section 143(3B) - contention of the petitioner that the Impugned Assessment Order was not communicated to the petitioner by the respondents -
HELD THAT:- The challenge to the Impugned Assessment Order only on the ground that the same was not communicated to the petitioner cannot be countenanced, as the petitioner has not only participated in the proceedings but also was communicated with the Impugned Assessment Order dated 07.04.2021 through web portal. The petitioner has altered the E-mail ID and therefore, the petitioner has not received communication of passing of the Impugned Assessment Order dated 07.04.2021 through E-mail ID.
Demand in the Impugned Communication Letter for the Assessment Year 2018-2019 demanding a sum of Rs. 7,07,61,360/- from the petitioner would be in line with the computation u/s 156 which would have accompanied with the Impugned Assessment Order dated 07.04.2021. The petitioner, has, however not kept a copy of the same along with typed set of papers.
It is, therefore, open to the petitioner to file an appeal before the Appellate Commissioner under Section 246A of the Income Tax Act, 1961 against the Impugned Assessment Order dated 07.04.2021, since the present Writ Petition was filed on 09.09.2022.
Liberty is granted to the petitioner to file a statutory appeal under Section 246A within a period 30 days from the date of receipt of a copy of this order.
Stay of recovery of tax - As it is open to the petitioner to workout his remedy u/s 220(6) of the Income Tax Act, 1961 before the AO.
The primary issue considered in this judgment is whether the impugned order imposing a penalty under Section 271DA of the Income Tax Act, 1961, is beyond the period of limitation as prescribed under Section 275(1)(c) of the Act. The court also examines whether the initiation of penalty proceedings was timely and if the date of initiation should be considered as the date of the assessment order or the date when the reference for initiation was made.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework revolves around Section 269ST, which restricts cash transactions above a certain threshold, and Section 271DA, which provides for penalties for violations of Section 269ST. Section 275(1)(c) prescribes the limitation period for imposing penalties, stating that no order imposing a penalty shall be passed after the expiry of the financial year in which the proceedings were completed or six months from the end of the month in which the penalty action was initiated, whichever is later.
The court referenced several precedents, including Principal Commissioner of Income Tax v. JKD Capital & Finlease Ltd. and Commissioner of Income Tax (TDS)-2 Delhi v. Turner General Entertainment Networks India Pvt. Ltd., which interpret the initiation of penalty proceedings as the first step taken towards such action.
Court's Interpretation and Reasoning
The court interpreted the term "initiation of penalty proceedings" as the commencement of action for imposing a penalty. It emphasized that the initiation refers to the first step, such as making a reference for penalty, rather than the date of the assessment order. The court found that the reference made on 08.04.2024 marked the initiation of penalty proceedings, not the date of the assessment order on 28.03.2024.
Key Evidence and Findings
The court noted that the assessment order dated 28.03.2024 mentioned the initiation of penalty proceedings but specified that a separate reference would be sent for this purpose. The actual reference was made on 08.04.2024, and the show cause notices were subsequently issued on 09.09.2024 and 27.09.2024.
Application of Law to Facts
The court applied the legal principles to the facts, determining that the limitation period should be calculated from the date of the reference for penalty initiation (08.04.2024) rather than the assessment order date. This interpretation aligns with the statutory language and ensures that the limitation period is not arbitrarily extended.
Treatment of Competing Arguments
The petitioner argued that the initiation should be considered as the date of the assessment order, citing potential for arbitrary extension of the limitation period. The court acknowledged this concern but found that the eleven-day gap between the assessment order and the reference was reasonable and did not constitute an arbitrary extension.
SIGNIFICANT HOLDINGS
The court held that the initiation of penalty proceedings is marked by the first action taken towards imposing a penalty, which in this case was the reference made on 08.04.2024. It concluded that the limitation period should be calculated from this date, not the assessment order date.
The court also emphasized that while the limitation period cannot be extended arbitrarily, the eleven-day period between the assessment order and the reference was reasonable and did not warrant a finding that the penalty was imposed beyond the limitation period.
The petition was dismissed, with the court clarifying that the petitioner could pursue other grounds in appellate proceedings, except for the claim that the order was passed beyond the limitation period.
Penalty proceedings 271DA beyond the period of limitation - whether the impugned order is beyond the period of limitation as prescribed in 275 (1) (c)? - HELD THAT:- Undoubtedly in the present case, the proceedings during the course of which decision for that proceedings for levy of penalty u/s 269ST should be initiated, had taken place during the financial year 2023-24 as it is reflected in the assessment order dated 28.03.2024.
The assessment order clearly reflects that the penalty proceedings are being initiated separately. The order records that “separate reference is being sent to the office of Addl. CIT-Central Range-04, Delhi for initiation of penalty proceedings U/s 269ST.
AO has done so by making a reference on 08.04.2024. Thus, clearly the period of six months is required to be reckoned from the date of the reference, that is, from 08.04.2024 as that is the period which expires later than the end of the financial year in which the proceedings, during the course of which the decision was taken to initiate the penalty proceedings, were completed.
There is merit in the petitioner’s contention that the date of initiation of the penalty proceedings cannot be extended arbitrarily and indefinitely.
Clearly in cases where there is an inordinate delay in initiation of the proceedings, it would be necessary to examine whether the period of limitation would stand extended on account of such delay.
As settled law that in cases where no limitation period is mentioned for acts to be done, the same are required to be done within a reasonable period. See State of Punjab & Ors. vs. Bhatinda District Cooperative Milk Producers Union Ltd. [2007 (10) TMI 300 - SUPREME COURT]
Thus, in cases where the initiation of the penalty proceedings are inordinately and inexplicably delayed beyond a reasonable period, the said issue may rise for consideration.
In the present case no such issue arises for consideration of this court as the penalty proceedings were initiated within a period of eleven days of the culmination of the assessment proceedings whereas the decision to make a reference for initiation of the penalty proceedings was taken. We are unable to accept that this period can be termed as unreasonable.
No merit in the present petition. The same is accordingly dismissed.
The core legal question considered in this judgment is whether the reopening of the assessment for the Assessment Year 2016-2017 under Section 148 of the Income Tax Act, 1961, based on the notice dated 26.03.2021, was justified or if it was merely a change of opinion by the tax authorities. The issue revolves around the treatment of Foreign Exchange Loss and Premium on Forward Contracts and Options as disclosed in the petitioner's financial statements.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework involves the provisions of the Income Tax Act, 1961, particularly Section 148, which deals with the reopening of assessments. The reopening of an assessment is permissible if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. However, it must not be based on a mere change of opinion.
Court's Interpretation and Reasoning
The Court examined whether the notice for reopening the assessment was based on any new material or merely a change of opinion. It noted that the petitioner had already furnished all necessary details regarding Foreign Exchange Loss and Premium on Forward Contracts and Options during the original assessment proceedings. The petitioner argued that the reopening was inspired by a change of opinion since these issues were already addressed and considered in the original assessment completed on 17.12.2018.
The Court emphasized that an assessment cannot be reopened merely because the Assessing Officer wants to review the same material again. If no opinion was formed initially, the appropriate remedy would be a revision under Section 263 of the Income Tax Act, 1961, rather than reopening the assessment.
Key Evidence and Findings
The key evidence included the petitioner's financial statements and the notes forming part of the Balance Sheet and Statement of Profit and Loss Account. Specifically, Note 19 disclosed expenses related to Foreign Exchange Loss and Premium on Forward Contracts and Options. The petitioner had responded to specific notices issued under Section 143(2) during the original assessment, providing detailed explanations and breakdowns of these expenses.
Application of Law to Facts
The Court applied the principle that reopening of an assessment must be based on tangible new material and not on a reconsideration of the same facts that were already scrutinized. The petitioner had adequately disclosed and explained the relevant expenses during the original assessment proceedings, and the Assessing Officer had the opportunity to form an opinion based on the information provided.
Treatment of Competing Arguments
The petitioner contended that the reopening was a result of a change of opinion, as all relevant information had been provided during the original assessment. The respondents argued that no opinion was formed on the other expenses during the original assessment, justifying the reopening. However, the Court sided with the petitioner, emphasizing that the absence of explicit mention of an opinion in the assessment order does not imply that no opinion was formed.
Conclusions
The Court concluded that the reopening of the assessment was unjustified as it was based on a change of opinion rather than new material. The impugned order and notice for reopening were set aside.
SIGNIFICANT HOLDINGS
The Court held that:
"Merely because, no opinion is expressed in the Assessment Order would not mean that the Assessment was completed without forming any opinion on the queries raised by the Department before the Assessment was completed."
This establishes the principle that the absence of explicit mention of an opinion in an assessment order does not imply that no opinion was formed. If the tax authorities believe that an assessment was completed without forming an opinion, the correct remedy is a revision under Section 263, not reopening under Section 148.
The final determination was that the impugned notice and order for reopening the assessment were invalid, and the writ petition was allowed.
Reopening of assessment u/s 147 - reason to believe - treatment of Foreign Exchange Loss and Premium on Forward Contracts - HELD THAT:- A reading of the documents that have been filed before this Court which have been referred to supra indicates that all the informations that were required for completing the Assessments were furnished by the petitioner in response to specific notices issued to the petitioner u/s 143(2).
Specifically, information relating to Foreign Currency transactions and the loss based on which the expenses was claimed as the deduction under Section 37 of the Act was claimed was subject matter of the query by the Department pursuant to which Assessment Order came to be passed on 17.12.2018.
Merely because, no opinion is expressed in the Assessment Order would not mean that the Assessment was completed without forming any opinion on the queries raised by the Department before the Assessment was completed. The Courts have taken a categorical stand that it cannot be assumed that Assessments were completed without forming an opinion.
Merely because, opinion is not reflected in the Assessment that was completed earlier will not mean no opinion was formed earlier.
If indeed no opinion was formed, as has been stated the remedy to correct such order lies by way of revision u/s 263 of the Income Tax Act, 1961. Therefore, impugned order has to go as the issue was considered before the Assessment Order dated was passed. Therefore, the impugned order is liable to be set aside. WP allowed.
The primary issues considered in this appeal were:
1. Whether the addition of Rs. 711,000 as unexplained money under Section 69A of the Income Tax Act, 1961, was justified, given that the cash deposits during the demonetization period were not considered explained.
2. Whether the order passed by the Commissioner of Income Tax (Appeals) was legally valid, particularly in terms of adherence to the principles of natural justice and the clarity of the decision-making process.
3. Whether the application of an 8% net profit rate on the cash deposits for the rest of the financial year should also apply to the deposits made during the demonetization period.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Addition of Rs. 711,000 as Unexplained Money
Relevant Legal Framework and Precedents: The relevant provision is Section 69A of the Income Tax Act, which deals with unexplained money. If an assessee is found to be in possession of money that is not recorded in the books of account and for which no satisfactory explanation is provided, such money can be deemed to be the income of the assessee.
Court's Interpretation and Reasoning: The Tribunal noted that merely because the money was deposited during the demonetization period, it could not be treated as unexplained in the absence of contrary evidence. The Tribunal emphasized the principle of consistency, highlighting that if the deposits for the rest of the year were treated as business income, the same treatment should apply to the demonetization period deposits.
Key Evidence and Findings: The assessee claimed that his business was entirely cash-based, and all bank transactions were business-related. The Tribunal found no specific reasons provided by the Assessing Officer (AO) or the CIT(A) for treating the demonetization period deposits differently.
Application of Law to Facts: The Tribunal applied the principle of consistency, finding that the deposits during the demonetization period should not be excluded from the business income calculation. The AO was directed to apply the 8% net profit rate to the entire bank deposits.
Treatment of Competing Arguments: The Tribunal considered the Department's stance but found no objection from the Department's Representative to applying the 8% net profit rate uniformly.
Conclusions: The Tribunal concluded that the addition of Rs. 711,000 under Section 69A was not justified, and the amount should be treated as part of the business income.
Issue 2: Validity of the CIT(A)'s Order
Relevant Legal Framework and Precedents: The principles of natural justice require that parties be given a fair opportunity to present their case. A cryptic order lacking detailed reasoning may violate these principles.
Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A)'s order was cryptic and lacked detailed reasoning. The order did not adequately address the assessee's claims or provide sufficient justification for upholding the AO's decision.
Key Evidence and Findings: The Tribunal found that the CIT(A) did not provide a clear rationale for distinguishing the demonetization period deposits from other business transactions.
Application of Law to Facts: The Tribunal determined that the CIT(A)'s failure to provide a detailed explanation constituted a breach of the principles of natural justice.
Treatment of Competing Arguments: The Tribunal acknowledged the assessee's claim of not being heard adequately and found merit in this argument.
Conclusions: The Tribunal found the CIT(A)'s order to be lacking in clarity and adherence to natural justice principles, warranting a partial allowance of the appeal.
Issue 3: Application of 8% Net Profit Rate
Relevant Legal Framework and Precedents: Section 44AD of the Income Tax Act allows for presumptive taxation at a specified rate for small businesses.
Court's Interpretation and Reasoning: The Tribunal reasoned that the 8% net profit rate should be applied consistently across all deposits, including those during the demonetization period.
Key Evidence and Findings: The Tribunal found that the business was cash-based, and the entire bank deposit was part of the business turnover.
Application of Law to Facts: The Tribunal directed the AO to apply the 8% net profit rate to the entire bank deposits, resulting in a revised total income assessment.
Treatment of Competing Arguments: The Tribunal noted the Department's lack of objection to applying the 8% rate uniformly.
Conclusions: The Tribunal concluded that the AO should apply the 8% net profit rate to the entire deposits, reducing the addition under Section 69A and revising the total assessed income.
SIGNIFICANT HOLDINGS
The Tribunal held that the addition of Rs. 711,000 as unexplained money under Section 69A was not justified and directed the AO to apply the 8% net profit rate to the entire bank deposits. The Tribunal emphasized the importance of consistency in treating similar transactions and highlighted the need for detailed reasoning in appellate orders to adhere to the principles of natural justice.
Core Principles Established:
- The principle of consistency must be applied in assessing similar transactions.
- Orders must provide clear reasoning to comply with natural justice principles.
Final Determinations on Each Issue:
- The addition under Section 69A was unjustified and reduced.
- The 8% net profit rate was to be applied to the entire bank deposits.
- The appeal was partly allowed, providing relief to the assessee.
Unexplained money u/s 69A - cash deposits during the demonetization period - HELD THAT:- AO had applied the net profit rate of 8% for the rest of the year and only the cash deposited during the demonetization period was treated as unexplained, which is not correct. Merely because the money was deposited during the demonetization period, the same, in the absence of any evidence to the contrary, cannot be treated as unexplained deposit; more so when the deposits during the rest of the financial year are being treated as the business income of the assessee.
Assessee had stated that the business was based on 100% cash transactions and total transactions in the bank account were due to business transactions, therefore, on the principle of consistency and without giving reasons why the specific amount was held to be not pertaining to the business, once the deposits for the rest of the year were being treated as part of the business income, the deposit during the demonetization period could not be excluded and added u/s 69A of the Act merely because they pertained to the demonetization period.
Assessee filed the written submission claiming that his entire business was in cash - Instead of adding a sum u/s 69A and the addition on account of business income AO is directed to apply the net profit rate of 8% on the entire bank deposits.
Appeal filed by the assessee is partly allowed.
The primary issue in this appeal was whether the Commissioner of Income Tax (Appeals) was justified in confirming the addition made by the Assessing Officer on account of unverifiable purchases made by the assessee. The secondary issue, initially raised but later withdrawn, was whether the assessment was time-barred.
ISSUE-WISE DETAILED ANALYSIS
Unverifiable Purchases
Relevant Legal Framework and Precedents
The assessment was conducted under Section 143(3) of the Income-tax Act, 1961. The Assessing Officer issued notices under Section 133(6) to verify the purchases made by the assessee. The legal question revolved around the verification of purchases and the subsequent disallowance when suppliers fail to respond to such notices.
Court's Interpretation and Reasoning
The Tribunal noted that the Assessing Officer had issued notices to 58 suppliers, out of which 22 did not respond. The purchases from these non-responding suppliers amounted to Rs. 244,00,28,880/-. The Tribunal emphasized that while the non-response from suppliers raised questions, the corresponding sales from these purchases were not doubted by the revenue.
Key Evidence and Findings
The assessee provided detailed records of purchases and corresponding sales, which were not challenged by the revenue. The stock registers reflected the purchases and sales accurately, and the books of accounts were accepted by the Assessing Officer without rejection.
Application of Law to Facts
The Tribunal applied the principle that without purchases, there cannot be sales. Given that the sales were not disputed, the Tribunal inferred that the purchases were indeed made, albeit potentially from the grey market to benefit from indirect tax savings or cash discounts.
Treatment of Competing Arguments
The Department's argument focused on the lack of response from the suppliers, suggesting unverifiable purchases. The assessee countered by highlighting the acceptance of their books and the undoubted sales. The Tribunal balanced these arguments by considering the practical aspects of business operations and the likelihood of grey market purchases.
Conclusions
The Tribunal concluded that the purchases were unverifiable but not necessarily fictitious. It determined that a profit estimation approach was appropriate, estimating a profit margin of 2.5% on the disputed purchases to be added to the assessee's income.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
The Tribunal noted, "without effecting purchases, there cannot be any sales," highlighting the logical inference that sales validate the occurrence of purchases, even if the latter are unverifiable.
Core Principles Established
The Tribunal established that when purchases are unverifiable but sales are not in question, a reasonable profit estimation on such purchases should be made rather than a complete disallowance.
Final Determinations on Each Issue
The Tribunal directed the Assessing Officer to add 2.5% of the disputed purchase value to the assessee's income, thereby partially allowing the appeal. The issue of time-barred assessment was dismissed as it was withdrawn by the assessee.
Bogus purchases - Estimation of income - HELD THAT:- The entire books of accounts have been placed before the Learned AO and the book results were accepted by the Learned AO and the same were not rejected by him. At the same time, the assessee also from its side could not prove the purchases made from 22 parties beyond reasonable doubt. Hence, it becomes a case of unverifiable purchases.
We find that the average of last 3 years gross profit rate worked out to 1.55 percent and during the year under consideration, the assessee had earned gross profit of 1.6 percent.
AR also submitted that in most of the earlier years, the assessments were completed u/s 143(3) of the Act in the case of the assessee and no adverse inference was drawn thereon.
But the case involved herein is a case of unverifiable purchases where the profit margin would be slightly higher as purchases had been made in the grey market. Accordingly, we deem it fit and appropriate to estimate the profit margin embedded in the value of such disputed purchases at 2.5%, which in our considered opinion, would meet the ends of justice. Appeal of the assessee is partly allowed.
The core legal issues considered in this judgment are:
1. Whether the disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962, was correctly applied by the Commissioner of Income Tax (Appeals) [CIT(A)] in relation to the expenditure incurred for earning exempt dividend income.
2. Whether the CIT(A) erred in determining that investments in unquoted shares were made substantially from borrowed funds, and the implications of this finding on the disallowance under Section 14A.
3. The applicability of the Insolvency and Bankruptcy Code (IBC) provisions, particularly Section 14, in relation to the tax liability and the pending resolution plan before the National Company Law Tribunal (NCLT).
ISSUE-WISE DETAILED ANALYSIS
1. Disallowance under Section 14A and Rule 8D
- Legal Framework and Precedents: Section 14A of the Income Tax Act, 1961, provides for the disallowance of expenditure incurred in relation to income that does not form part of the total income. Rule 8D of the Income Tax Rules, 1962, prescribes the method for determining the amount of expenditure to be disallowed.
- Court's Interpretation and Reasoning: The Tribunal examined whether the CIT(A) correctly applied the provisions of Section 14A and Rule 8D. The Tribunal noted the assessee's argument that the investments were made from internal accruals and equity, not borrowed funds, and that the CIT(A) failed to appreciate this distinction.
- Key Evidence and Findings: The assessee contended that no expenditure was incurred for earning the exempt income and that the CIT(A) incorrectly computed the interest expenses and average value of total assets.
- Application of Law to Facts: The Tribunal found that the CIT(A) did not adequately consider the assessee's claims regarding the source of funds for the investments and the nature of the expenses incurred.
- Treatment of Competing Arguments: The Tribunal acknowledged the assessee's argument that the onus to prove the expenditure was incurred for taxable business operations, and not for earning exempt income, lies with the Revenue.
- Conclusions: The Tribunal concluded that the CIT(A) erred in confirming the disallowance under Section 14A and Rule 8D without proper consideration of the facts and evidence presented by the assessee.
2. Application of IBC Provisions
- Legal Framework and Precedents: Section 14 of the Insolvency and Bankruptcy Code (IBC) imposes a moratorium on the initiation or continuation of legal proceedings against a corporate debtor once an insolvency resolution process is initiated.
- Court's Interpretation and Reasoning: The Tribunal referred to the Supreme Court's decision in Ghanshyam Manz Retails Pvt. Ltd. Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., which held that once a resolution plan is approved, claims are frozen and binding on all stakeholders.
- Key Evidence and Findings: The Tribunal noted that the resolution plan for the assessee's case was yet to be finalized, and the moratorium under Section 14 of the IBC was in effect.
- Application of Law to Facts: The Tribunal determined that, given the ongoing insolvency proceedings, it was necessary to remand the appeal to the Assessing Officer to take appropriate actions under the newly inserted provisions of Section 156A of the Income Tax Act.
- Treatment of Competing Arguments: The Tribunal considered the Departmental Representative's submission that the Assessing Officer should be involved as a secured creditor in the NCLT proceedings.
- Conclusions: The Tribunal decided to remand the appeal to the Assessing Officer to address the tax liability in accordance with the IBC provisions and Section 156A of the Income Tax Act.
SIGNIFICANT HOLDINGS
- The Tribunal held that the CIT(A) erred in confirming the disallowance under Section 14A without adequately considering the assessee's evidence regarding the source of investment funds and the nature of expenses.
- The Tribunal emphasized the importance of the IBC's moratorium provisions and the need for the Assessing Officer to take necessary steps in light of the pending resolution plan.
- The appeal was allowed for statistical purposes, with the matter remanded to the Assessing Officer for further action as per Section 156A of the Income Tax Act.
Income tax liability against company dissolved - Disallowance u/s 14A r.w.r.8D - HELD THAT:- Section 14 of IBC Code is very clear on the aspect that once moratorium is drawn and the insolvency commencement date is declared any institution of suits or definition of pending suits or proceedings against the creditor, debtor (in the present facts of the case of assessee before us) including the execution of any judgment, decree, or order in any Court of law, Tribunal, Arbitration Resolution Plan/Process has been accepted by the NCLT.
We refer to the decision of Ghanshyam Manz Retails Pvt. Ltd. Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd. [2021 (4) TMI 613 - SUPREME COURT] wherein as considered a situation wherein, the resolution plan was approved by the adjudicating authority under Section 31(1) of the IBC Code - once the resolution plan was drawn, the claim as provided in the resolution plan stood frozen, and will be binding on the corporate debtor, its employee, its members, creditors, Central Government and any State Government or legal authority, guarantor and other stakeholders.
We also note that in the present facts of the case, the resolution plan is yet to be finalized. When, we read the newly inserted provisions of Section 156A of the Act, it is necessary to remand the appeal to the Ld. AO to take necessary steps/action as per Rules.
Hence, we deem it fit and proper to remand this appeal back to the file of Ld. Assessing Officer to take necessary steps as per Section 156A of the Act. Accordingly, we allowed the appeal filed by the assessee.
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Jewellery vis-`a-vis personal effects under the Baggage Rules, 2016
The Baggage Rules, 2016, exclude jewellery from the definition of "personal effects," which are items required for satisfying daily necessities. However, the Court noted that the Baggage Rules permit a tourist of foreign origin to carry personal effects and travel souvenirs duty-free, provided they do not exceed a value of fifteen thousand rupees. Jewellery is specifically mentioned under Rule 5, allowing duty-free clearance for passengers residing abroad for over a year, with specific weight and value caps.
The Court interpreted these provisions in light of precedents, including the Supreme Court's decision in Pushpa Lekhumal Tolani, which held that jewellery intended for personal use should not be excluded from personal effects. The Court emphasized the need for a distinction between "jewellery" and "personal jewellery" in the context of personal effects.
Application of the Baggage Rules to tourists of foreign origin
The Court referenced prior judgments, such as Nathan Narayansamy and Farida Aliyeva, which clarified that the Baggage Rules do not apply to foreign nationals in the same manner as they do to Indian residents. The Court concluded that the Petitioner, being a foreign national, was not required to declare her personal jewellery, as it was part of her personal effects.
Procedural propriety of the Customs Department
The Court noted the absence of a show cause notice following the seizure of the Petitioner's jewellery, highlighting procedural lapses by the Customs Department. The lack of contact details on the detention receipt further complicated the issuance of a show cause notice, suggesting procedural impropriety.
Reconsideration of the Baggage Rules
The Court acknowledged the need for the Central Board of Indirect Taxes and Customs (CBIC) to revisit the Baggage Rules, considering the current market value of gold and the potential for genuine tourists to face unnecessary hurdles. The Court emphasized that the rules should balance preventing illegal smuggling and avoiding harassment of bona fide tourists.
3. SIGNIFICANT HOLDINGS
The Court held that the Petitioner's jewellery, being part of her personal effects, should not have been seized and directed its release. The judgment emphasized the necessity for the Customs Department to distinguish between "jewellery" and "personal jewellery" and to ensure procedural fairness in seizures.
Key conclusions included:
In conclusion, the Court allowed the petition, directing the release of the seized jewellery and mandating procedural improvements for future cases. The judgment underscores the importance of balancing regulatory enforcement with the rights and convenience of travelers.
Seeking issuance of an appropriate writ for directing the Respondents to release and return the seized gold ornaments belonging to the Petitioner - Smuggling of Gold - prohibited goods or not - HELD THAT:- The Supreme Court in Pushpa Lekhumal Tolani [2017 (8) TMI 684 - SUPREME COURT] has considered whether jewellery being carried by a tourist as part of her baggage would qualify as smuggling under the Act read with the Baggage Rules, 1998, that was in force during the relevant period. The Supreme Court clearly holds that it is not permissible to completely exclude jewellery from the ambit of ‘personal effects’. Accordingly, the Court declared that the seized jewellery items therein were the bona fide jewellery of the tourist for her personal use and was intended to be taken out of India.
In Saba Simran v. Union of India & Ors. [2024 (12) TMI 19 - DELHI HIGH COURT] this Court was seized with the issue of deciding the validity of the seizure of gold jewellery by the Customs Department from an Indian tourist. The Court considered the ambit of ‘personal effects’ vis-à-vis jewellery under the Baggage Rules, in effect from time to time.
A conspectus of the above decisions and provisions would lead to the conclusion that jewellery that is bona fide in personal use by the tourist would not be excluded from the ambit of personal effects as defined under the Baggage Rules. Further, the Department is required to make a distinction between ‘jewellery’ and ‘personal jewellery’ while considering seizure of items for being in violation of the Baggage Rules.
The Baggage Rules have to be interpreted in a manner that does not lead to unnecessary burden upon the tourist, being either of Indian or foreign origin. Accordingly, the term “personal effects” cannot exclude personal jewellery or ornaments, as is clear from a harmonious reading of the Baggage Rules.
Conclusion - i) The jewellery of the Petitioner which has been seized deserves to be released. Let the same be released within a period of two weeks from today to the Petitioner.
Petition allowed.
Issues: (i) Whether the alleged non-compliance with the prescribed sampling procedure under the NDPS regime justified denial of bail at the pre-trial stage. (ii) Whether prolonged incarceration and delay in trial could override the rigours of Section 37 of the NDPS Act and justify grant of bail.
Issue (i): Whether the alleged non-compliance with the prescribed sampling procedure under the NDPS regime justified denial of bail at the pre-trial stage.
Analysis: The challenge to the recovery and sampling process raised questions about adherence to the statutory scheme governing seizure, inventory, sampling and disposal of narcotic substances, including the procedure under Section 52A of the Narcotic Drugs and Psychotropic Substances Act, 1985 and the sampling guidelines contained in Standing Order No. 1/88. The Court noted that precedent treats compliance with the prescribed sampling procedure as legally significant, and that improper sampling may affect the evidentiary value of the recovery. However, the Court held that conclusive findings on such alleged procedural defects, and the prejudice caused by them, require evidence and detailed examination at trial rather than determination in bail proceedings.
Conclusion: The alleged sampling irregularities were not ative of bail and were left to be examined during trial.
Issue (ii): Whether prolonged incarceration and delay in trial could override the rigours of Section 37 of the NDPS Act and justify grant of bail.
Analysis: Although the case involved commercial quantity and therefore attracted the stringent bail conditions under Section 37 of the Narcotic Drugs and Psychotropic Substances Act, 1985, the Court balanced those requirements against the accused's right to a speedy trial under Article 21 of the Constitution of India. The applicant had remained in custody for more than three years and eight months, the trial was still at the stage of prosecution evidence, only two witnesses had been examined, and the delay was not attributable to the applicant. The Court held that prolonged, unjustified incarceration cannot be allowed to become punitive detention merely because the offence falls within the commercial quantity regime.
Conclusion: The prolonged delay in trial justified bail notwithstanding the rigours of Section 37.
Final Conclusion: The application for regular bail was allowed, with conditions designed to secure the applicant's presence and participation in the trial while protecting the integrity of the proceedings.
Ratio Decidendi: In cases under the NDPS Act involving commercial quantity, Section 37 does not bar bail where pre-trial incarceration has become unduly prolonged for reasons not attributable to the accused and continued detention would infringe the constitutional right to a speedy trial.
Seeking grant of regular bail - smuggling of Heroin - seizure and sampling done by the prosecution suffers from substantial irregularities and non-adherence to Standing Order or not - substantial delay of two months in filing the application under Section 52A of the NDPS Act for the drawing of samples before the Magistrate - right to speedy trial - HELD THAT:- While Section 37 of the NDPS Act is undoubtedly applicable, the Applicant’s fundamental right to a speedy and expeditious trial must also be given due consideration. This right serves as a safeguard against undue and oppressive incarceration, ensuring that the judicial process does not inflict punishment prior to a finding of guilt. In the present case, the Applicant has been in judicial custody for over 3 years and 8 months, while the trial before the Special Judge (NDPS) remains at the stage of prosecution evidence. Acknowledging these delays, the Court called for an updated Nominal Roll of the Applicant and a Status Report from the Trial Court detailing the reasons for the protracted trial proceedings. The updated Nominal Roll, dated 07th January, 2025, confirms that the Applicant has been in custody for 3 years, 8 months, and 18 days. This prolonged detention raises significant concerns about the balance between the rigours of Section 37 and the constitutional guarantee of a fair and timely trial.
The report of the Trial Court indicates that the delay in the trial proceedings cannot be attributed to any fault of the Applicant. Instead, the matter has been adjourned on multiple occasions due to the non-appearance of prosecution witnesses. The Special Judge has observed in the report that the Special Public Prosecutor for Customs, appointed in this case, is available only on Wednesdays, Fridays, and Saturdays, and hearing dates are being scheduled to accommodate this limitation. Thus, it cannot be said that the delay in Trial in the present case can, in any way, be attributed to the Applicant who has been in incarceration for a period of almost 4 years. The next date of hearing is scheduled for 19th February, 2025, making it evident that the trial’s conclusion is not foreseeable in the near future.
The Court must strike a balance between the fundamental right to a speedy trial, an integral aspect of the right to life and liberty under Article 21 of the Constitution of India, and the stringent requirements of Section 37 of the NDPS Act. While the rigours of Section 37 must be meticulously applied, they cannot override the constitutional mandate for timely justice. The right to life and personal liberty cannot be undermined by unwarranted delays in the judicial process, particularly when such delays are neither attributable to the accused nor adequately justified by the prosecution with compelling reasons. In a recent decision of KULWINDER VERSUS STATE OF PUNJAB [2025 (1) TMI 1314 - PUNJAB AND HARYANA HIGH COURT], the High Court of Punjab and Haryana held that the rigours of Section 37 of the NDPS Act must be meticulously scrutinised against the backdrop of the accused’s fundamental right to a speedy trial.
In the present case, even though the prosecution has argued that if the Applicant is released on bail, she may avoid the course of justice, however, this Court is empowered to put the conditions of bail in such a manner, so as to ensure her presence during Trial.
Conclusion - The Court granted bail to the applicant, considering the prolonged detention and the constitutional guarantee of a fair and timely trial.
The Applicant is directed to be released on bail subject to fulfilment of conditions imposed - bail application allowed.
The primary legal issue considered in this judgment is whether the petitioners, who imported gold jewelry without declaring it under the Baggage Rules, 1998 and Section 77 of the Customs Act, 1962, are entitled to redeem the gold jewelry that was attempted to be smuggled. The judgment also considers whether the absolute confiscation of the gold by the customs authorities was justified and if the petitioners were eligible for any exemptions under the relevant customs notifications.
Issue-Wise Detailed Analysis
1. Relevant Legal Framework and Precedents
The legal framework involves the Customs Act, 1962, particularly Sections 77, 111, 112, 114, and 125, and the Baggage Rules, 1998. The case also references Notification No.12/2012-Customs and various precedents from Indian courts, including judgments from the Supreme Court and High Courts, which interpret the conditions under which goods are considered prohibited or restricted.
2. Court's Interpretation and Reasoning
The Court analyzed whether the petitioners' actions constituted smuggling under the Customs Act and whether the gold jewelry could be classified as bona fide baggage. The Court examined the applicability of exemptions under Notification No.12/2012-Customs and whether the petitioners qualified as "eligible passengers" under the notification's criteria.
3. Key Evidence and Findings
The evidence included statements from the petitioners and the trip organizer, Mr. P.S. Ranganathan, detailing the arrangements for the gold's acquisition and transport. The Court noted that the petitioners attempted to smuggle gold by wearing it and not declaring it to customs authorities upon arrival.
4. Application of Law to Facts
The Court applied the Customs Act and Baggage Rules to determine that the petitioners were not entitled to duty exemptions and had violated customs regulations by not declaring the gold. The Court found that the gold was not bona fide baggage and was subject to confiscation.
5. Treatment of Competing Arguments
The petitioners argued that the gold was not prohibited and should be redeemable under Section 125 of the Customs Act. They contended that the customs notification was inapplicable to their situation. The respondents, however, maintained that the gold was liable for confiscation due to non-compliance with customs regulations.
6. Conclusions
The Court concluded that while the petitioners violated customs regulations, the gold was not absolutely confiscable. The petitioners should have been given an option to redeem the gold under Section 125 of the Customs Act.
Significant Holdings
1. Core Principles Established
The judgment established that goods not declared under customs regulations are liable for confiscation, but absolute confiscation is not mandatory if the goods are not inherently prohibited. The Court emphasized the importance of offering redemption options under Section 125 of the Customs Act.
2. Final Determinations on Each Issue
The Court quashed the impugned order affirming the absolute confiscation of the gold and remitted the case to the Joint Commissioner of Customs to impose a redemption fine under Section 125 of the Customs Act. The petitioners are to be given an opportunity to be heard before final orders are passed.
Smuggling of Gold - Absolute Confiscation - whether the absolute confiscation without objection for redemption of the golds carried in person are in violation of Baggage Rules, 1998? - HELD THAT:- The import of gold is not prohibited. Rather, it is restricted and regulated. Therefore, any person carrying gold ornament ought to have paid appropriate customs duty if whether such gold jewellery/ornament was worn in person or kept in the “baggage” - Absolute confiscation of the imported quantity of gold in the hands of each of these petitioners cannot be ordered to be absolutely confiscated under Section 125 of the Customs Act, 1962.
The option ought to have been given to the owner of such gold to redeem in lieu of confiscation under Section 125 of the Customs Act, 1962. Therefore, the Order rejecting the request for redemption or reexport cannot be sustained - Considering the fact that the goods are not absolutely confiscable, the Court is of the view that the Impugned Order dated 25.10.2021 passed by the 4th respondent, holding the goods are not redeemable and is not liable to be confiscated is to be interfered with.
Conclusion - The goods not declared under customs regulations are liable for confiscation, but absolute confiscation is not mandatory if the goods are not inherently prohibited. The impugned order affirming the absolute confiscation of the gold set aside. The case remitted to the Joint Commissioner of Customs to impose a redemption fine under Section 125 of the Customs Act.
Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this case were:
2. ISSUE-WISE DETAILED ANALYSIS
Confiscation of Gold Bars
Imposition of Penalties
3. SIGNIFICANT HOLDINGS
The Tribunal's decision underscores the importance of adhering to principles of natural justice and the need for concrete evidence in adjudicating cases of alleged smuggling under the Customs Act. The judgment highlights the necessity of providing opportunities for cross-examination and the reliance on documentary evidence in determining the legitimacy of goods in question.
Confiscation of allegedly smuggled goods - weight and purity of seized gold - place of seizure and foreign-origin marking - primacy of documentary evidence over retracted or inculpatory statements - penalty liability under the Customs Act for confiscation-linked offences
Primacy of documentary evidence over retracted or inculpatory statements - Documentary GST invoices, tax payment evidence and GSTR entries produced by the appellants prevail over inculpatory statements recorded during investigation. - HELD THAT: - The Tribunal found that appellants produced GST-paid invoices, certificates evidencing payment of tax, Form GSTR-2A and Form GSTR-1 entries showing the transactions. On that factual matrix, the oral statements recorded during investigation were held not to be admissible evidence capable of overriding the documentary record. The Tribunal applied the principle that where documentary evidence establishes claimed ownership and transaction, oral inculpatory statements (especially those retracted) cannot prevail over such documentary proof. [Paras 11]
The appellants' documentary evidence establishing ownership and taxable transactions is accepted and investigative statements are not allowed to override those documents.
Confiscation of allegedly smuggled goods - weight and purity of seized gold - place of seizure and foreign-origin marking - The gold seized cannot be confiscated as smuggled foreign-origin goods on the material before the adjudicating authority. - HELD THAT: - The Tribunal noted that the seized two gold bars weighed 1999.000 grams and the purity was recorded at 99.6% by weight. Importantly, the seizure did not occur at a Port, Airport or International Border and the bars lacked any marking indicating foreign origin. Coupled with the accepted documentary chain of sale and tax payment between M/s H.K. Jewellers and M/s Maa Durga Jewellery, the Tribunal concluded that the ingredients for confiscation as smuggled foreign-origin gold were not established on the record. [Paras 11, 12, 13]
Confiscation of the gold is set aside.
Penalty liability under the Customs Act for confiscation-linked offences - No penalty is imposable on the appellants in the facts and circumstances of the case. - HELD THAT: - Having set aside the confiscation of the gold on the basis of documentary proof and absence of material establishing foreign-origin smuggling, the Tribunal held that the concomitant penalties levied by the adjudicating authority and upheld on appeal could not be sustained. The absence of requisite findings to support confiscation removed the legal foundation for imposing the penalties. [Paras 13]
Penalties imposed on the appellants are set aside.
Final Conclusion: Appeals allowed; confiscation of the seized gold set aside and penalties imposed on both appellants quashed, with consequential reliefs.
1. Issues Presented and Considered
The core issues considered by the Tribunal were:
(i) Whether the confiscation of the imported 'servers' under CTH 84714190 was warranted, based on the allegation that they were restricted goods under the Foreign Trade Policy (FTP) and DGFT Notification No.05/2015-20.
(ii) Whether the imposition of a penalty of Rs.20,00,000/- under Section 112(a)(i) of the Customs Act, 1962 for violation of Section 111(d), 111(l), and 111(m) was justified.
(iii) Whether the imposition of a penalty of Rs.30,00,000/- under Section 114AA of the Customs Act, 1962 for alleged mis-declaration was justified.
2. Issue-Wise Detailed Analysis
(i) Confiscation of Imported 'Servers'
The Tribunal examined whether the imported goods were correctly classified as 'servers' or if they were mis-declared as "Automatic Data Processing Machines" (ADP), which are restricted under the FTP. The appellant argued that servers are distinct from ADP machines and are not restricted under the cited DGFT notification. The Tribunal agreed, noting that servers function differently from standalone computers and are meant for network applications, not automatic data processing. The Tribunal referenced previous decisions, such as the cases involving Microsoft Corp. and Dell India, to support the classification of servers under CTH 84714190 and their exemption under Notification No.24/2005-Customs.
(ii) Imposition of Penalty under Section 112(a)(i)
The Tribunal addressed the penalty imposed under Section 112(a)(i) for alleged violations leading to confiscation. It found that the confiscation was based on an erroneous interpretation of the DGFT notification, which did not apply to servers. Since the goods were not restricted, the penalty was deemed unjustified.
(iii) Imposition of Penalty under Section 114AA
The Tribunal examined the penalty under Section 114AA, which pertains to mis-declaration. It found that the appellant had correctly declared the goods as servers, and the classification dispute did not constitute a violation warranting this penalty. The Tribunal cited the decision in the case of Sri Krishna Sounds and Lightings, which clarified that Section 114AA is primarily for fraudulent exports, not classification disputes.
3. Significant Holdings
The Tribunal held that the confiscation of the imported servers was not warranted, as they were not restricted goods and there was no violation of the DGFT notification. It set aside the penalties under Sections 112(a)(i) and 114AA, finding no mis-declaration or justification for the penalties. The Tribunal's decision was grounded in the distinction between servers and ADP machines and supported by relevant precedents.
The final determinations were:
(i) The confiscation of the imported 'servers' was not justified.
(ii) The penalty of Rs.20,00,000/- under Section 112(a)(i) was set aside.
(iii) The penalty of Rs.30,00,000/- under Section 114AA was set aside.
The Tribunal allowed the appeal, providing consequential relief to the appellant as per law.
Classification of imported goods - Data Processing Server with all standard parts and accessories (second hand) - exemption under N/N. 24/2005-Customs, dated 01.03.2005, under entry No. 8 - misdeclaration of goods - confiscation of goods - import of restricted goods in violation of DGFT Notification No.05/2015-2020 dated 07.05.2019 read with Electronics And Information Technology Goods (Requirement for Compulsory Registration) order 2012 - penalty u/s 112(a) (i) of the Customs Act, 1962 for violation of Section 111(d), 111(l) and 111(m) of the Act - penalty u/s 114AA of the Customs Act, 1962 for violation of Section 111(d), 111(l) and 111(m) of the Act.
Classification of imported servers - HELD THAT:- 'Servers’ are entirely different from “Automatic Data Processing Machines”. The function of a server is to receive and share data to other computer on its network. A server is an apparatus for the transmission or reception of information, image or data. The server may work in conjunction with the automatic data processing machine but a server itself never processes any data automatically like desktop, personal computer or laptop. The servers imported by the appellant are meant for specific application in a network, are entirely different from the “Automatic Data Processing Machine” including personal computers and laptop computers, which are actually stand-alone equipment. It is observed that 'servers' imported by the appellant don’t have the keyboard and monitors. Thus, the restrictions in the Exim Policy as per Para 2.31 of the Foreign Trade Policy (FTP) as notified by the DGFT Notification No.05/2015-20, dated 07.05.2019 are applicable only to computers including personal computer and laptop computer and not to 'servers' imported by the appellant.
'Servers' are classifiable under the CTH 8417. This view is supported by the decision in the case of COMMR. OF CUS., BANGALORE VERSUS MICROSOFT CORPN. INDIA PVT. LTD. [2007 (11) TMI 203 - CESTAT, BANGALORE], wherein at paragraph 3, it has been held that 'normally the servers will be the larger machines having very high memory. The processing speed also will be very high and there are various types of servers for various applications. There is no reason to exclude them from the scope of ‘Capital Goods’. So, they are not stand-alone computer. In any case, the Commissioner (Appeals) has upheld the confiscation on some other ground and he has also imposed redemption fine and penalty which is the final penalty imposed or only reduced.'
The appellant has rightly classified the goods imported by them under the Customs Tariff Item No.84714190 and rightly claimed exemption under Notification No.24/2005-Customs, dated 01.03.2005, under entry No.8.
Mis-declaration of goods - HELD THAT:- The goods not declared are items such as Output Power Supply, Switching Power Supply, AC-DC converter & Delta Energy system and Switches. These items are parts and accessories of the 'servers' imported by the appellant without which the 'servers' cannot function. The value of the same has already been included in the value of the 'servers' and no separate value has been paid for the parts and accessories. Thus, the findings of the lower authorities not agreed upon that the appellant has mis-declared these items. Thus, the allegation of mis declaration in the impugned order is not sustained. Accordingly, the confiscation of the goods on account of mis-declaration is not warranted.
Undervaluation of goods - HELD THAT:- The value addition is mainly on account of inclusion of value of undeclared goods such as Output Power Supply, Switching Power Supply, AC-DC converter & Delta Energy system. However, these undeclared items are parts and accessories of 'Server' and their value has already been included in the value of 'servers' and hence no additional value need to be added for the undeclared items. Accordingly, the assessable value declared by the appellant is correct as there is no under valuation established. Hence, the value enhancement by the lower authorities rejected.
Penalty imposed under Section 114AA of the Customs Act, 1962 - HELD THAT:- The appellant has filed the Bill of Entry with correct information and the allegation of mis declaration is not sustained. The classification of the goods as 'servers' under the CTH 8471 4190 is found to be in order - classification dispute cannot be considered as violation Section 114AA of the Act and accordingly, penalty imposed under section 114AA of the Act on the appellant is not sustainable.
Penalty imposed under Section 112(a) of the Customs Act - HELD THAT:- Penalty under Section 112(a) relates to violations in regard to situation where goods are liable for confiscation under Section 111. In the instant case, the imported goods are not ‘restricted goods’. These goods are duty free goods and can be imported freely. In the instant case, confiscation of the goods is made on erroneous premises of law, by mis-interpreting the DGFT Notification No.05/2015-20, dated 07.05.2019, as the authority below has mixed up the ‘server’ with Desktops Computer and Personal Computers / Laptop and considered the same as “Automatic Data Processing Machine” and erroneously confiscated the server. Thus, the confiscation in the impugned order is not sustainable. For the same reason, the penalty imposed on the appellant under Section 112(a) of the Act is not sustainable.
Conclusion - i) The confiscation of the imported ‘server’ falling under CTH 84714190 is not warranted, as the goods imported by the appellant are not ‘restricted goods’ and there is no violation of DGFT Notification No.05/2015-2020 dated 07.05.2019 read with the Electronics And Information Technology Goods (Requirement for Compulsory Registration) Order, 2012. ii) Imposition of penalty of Rs.20,00,000/- under Section 112(a)(i) of the Customs Act, 1962 is set aside. iii) Imposition of penalty of Rs.30,00,000/- under Section 114AA of the Customs Act, 1962 is set aside.
The impugned order set aside - appeal allowed.
The primary legal questions considered were:
Regarding Regulation 10(d), the Tribunal analyzed the obligation of a customs broker to advise clients on compliance with customs statutes. The Tribunal noted that the licensing authority failed to demonstrate that incorrect advice was rendered by the broker. The customs broker, being a private limited company, had a structure that was not adequately considered by the licensing authority. The Tribunal emphasized that the regulation does not impose a broad educational duty on brokers but is limited to advice related to specific consignments. The lack of evidence linking the broker's conduct to a breach of this regulation led the Tribunal to conclude that the charge was unsubstantiated.
Under Regulation 10(n), the Tribunal examined the requirement for customs brokers to verify the authenticity of client details using reliable documents. The licensing authority's reliance on the non-response to summons at the importer's address was pivotal in concluding the importer was non-functional. The Tribunal found that the customs broker failed to verify the existence and operational status of the client before handling the consignment, as required by the regulation. The inability to produce evidence of such verification constituted a breach of Regulation 10(n).
The Tribunal considered the proportionality of the penalties imposed. While acknowledging the breach of Regulation 10(n), it deemed the revocation of the license and imposition of the penalty as disproportionate given the specific circumstances. The Tribunal decided to set aside the license revocation and penalty imposition but upheld the forfeiture of the security deposit. It allowed for the restoration of the license upon the appellant making a fresh security deposit as per the regulations.
The Tribunal's significant holdings included:
The appeal was disposed of on these terms, providing a nuanced interpretation of the obligations under the Customs Brokers Licensing Regulations, 2018, and emphasizing the need for proportionality in regulatory penalties.
Revocation of their customs broker licence - forfeiture of entire amount of security deposit - Levy of penalty - importation of ‘black pepper’ and ‘cigarettes’ - breach of regulation 10(d) and 10(n) of Customs Brokers Licensing Regulations, 2018.
Breach of regulation 10(d) of Customs Brokers Licensing Regulations, 2018 - HELD THAT:- Regulation 10(d) of Customs Brokers Licensing Regulations, 2018 prescribes that a customs broker is required to advice his client to comply with the provisions of statute and, in the event of non-compliance, to bring the matter to the notice of the designated official. This charge has been established on the finding that the appellant had never met the proprietor of the importing entity and had not contacted the holder of the Importer-Exporter Code (IEC) thus precluding rendering of advice - The licensing regulations are also bereft of any definition of ‘client’ and, it would appear that there is no bar on the importer/exporter approaching the customs broker through an employee/agent. The essence of this obligation is restricted to the advice given specifically in relation to a particular consignment and is not broad enough to place the onus of educating the importer/exporter on the letter and spirit of customs statute on the customs broker. The factual circumstances in which this charge came to be laid at the door of the ‘customs broker’ is not evident in the records. Imputations are inadequate, the findings based on facts which have nothing to do with the framework of the obligations and externalities have been grafted to conclude that the regulation has been breached.
Breach of regulation 10(n) of Customs Brokers Licensing Regulations, 2018 - HELD THAT:- It is necessary for customs broker, to be particularly careful about credibility of clients before undertaking to handle customs procedures. The mandate of the obligation is for ascertaining the existence of the client, the operation of the premises at which the client is reported to be functioning and the documents that are required for imports and exports. It is apparent that the customs broker had not carried out the mandate of the obligation inasmuch as the importer was reported as not existing at the stated address and the customs broker has been unable to produce evidence not only of such existence but also of having verified the antecedent before securing the authorization for handling the consignment. In these circumstances, breach of regulation 10(n) of Customs Brokers Licensing Regulations, 2018 cannot but to be held as proved. As it is only this breach which may be held as proved, the imposition of all the detriments offered by Customs Brokers Licensing Regulations, 2018 appears to be disproportionate.
Penalty - HELD THAT:- Considering the specific breach and the gravity of the consequence of such breach, ends of justice would be met by setting aside the revocation under regulation 14 of Customs Brokers Licensing Regulations, 2018 and imposition of penalty under regulation 18 of Customs Brokers Licensing Regulations, 2018.
Conclusion - i) The breach of Regulation 10(n) was proven due to the customs broker's failure to verify client details adequately. ii) The penalties of license revocation and monetary penalty were disproportionate to the breach established. iii) The forfeiture of the security deposit was upheld, with provisions for license restoration contingent on a new security deposit.
Appeal disposed off.
Issues Presented and Considered:
The core legal issues considered in this judgment include:
Issue-wise Detailed Analysis:
Legal Framework and Precedents:
The relevant legal provisions are Sections 28(4), 28AA, 114A, and 114AA of the Customs Act. Section 28(4) addresses the recovery of duties not levied or short-levied, while Section 28AA deals with interest on such duties. Section 114A imposes penalties for short-levy or non-levy of duty due to collusion or willful mis-statements, and Section 114AA penalizes the use of false or incorrect material.
Court's Interpretation and Reasoning:
The Tribunal examined the circumstances under which the appellant engaged Raj Kumar Pal as their Clearing and Forwarding Agent. It was noted that Raj Kumar Pal admitted to forging documents and mis-declaring import values without the appellant's knowledge. The Tribunal found no evidence of collusion or willful mis-statement by the appellant, which is a requisite for penalties under Section 114A.
Key Evidence and Findings:
The Tribunal considered the statements of Raj Kumar Pal, who admitted to the fraud, and the appellant's actions, including filing a police complaint and depositing the differential duty with interest. The evidence did not support the Commissioner's finding of collusion between the appellant and Raj Kumar Pal.
Application of Law to Facts:
The Tribunal applied Sections 114A and 114AA to the facts, concluding that the appellant neither colluded with Raj Kumar Pal nor had knowledge of the fraudulent actions. Therefore, the penalties under these sections were not applicable.
Treatment of Competing Arguments:
The appellant argued that they were victims of Raj Kumar Pal's fraud and had taken reasonable steps to address the issue, including making duty payments. The Department contended that the appellant's actions indicated complicity. The Tribunal found the appellant's arguments more compelling, given the lack of evidence for collusion.
Conclusions:
The Tribunal concluded that the penalties under Sections 114A and 114AA were unjustified and should be set aside. The appellant's deposit should be appropriated towards the confirmed duty demand.
Significant Holdings:
Core Principles Established:
Final Determinations on Each Issue:
The appeal was allowed to the extent that the penalties were set aside, and the appellant's deposits were to be appropriated towards the confirmed duty demand.
Penalty under Section 114A of the Customs Act - Penalty under Section 114AA of the Customs Act - Requirement of collusion or willful mis-statement for imposition of penalty - Knowledge or causation for penalty under Section 114AA - Liability for duty despite agent's fraud - Appropriation of deposits towards confirmed duty
Penalty under Section 114A of the Customs Act - Requirement of collusion or willful mis-statement for imposition of penalty - Validity of imposition of penalty upon the appellant under section 114A of the Customs Act - HELD THAT: - Section 114A imposes penalty where duty was short-levied by reason of collusion or any willful mis-statement or suppression of facts. The adjudicating authority's finding of deliberate evasion by the appellant rested on conjectures and inferences (including questions about lodging of FIR, institution of civil suit and appearance of the CHA). There is no material on record to establish collusion or that the appellant wilfully mis-stated or suppressed facts; the record shows the Clearing and Forwarding Agent admitted forging documents and stated he retained part of the duty charged while collecting the correct amount from the importer. The appellant paid the differential duty with interest and filed a police complaint. In the absence of evidence of collusion or wilful concealment by the appellant, penalty under section 114A could not be sustained against the appellant. [Paras 19, 20]
Penalty imposed on the appellant under section 114A is set aside for want of evidence of collusion or willful mis-statement or suppression of facts.
Penalty under Section 114AA of the Customs Act - Knowledge or causation for penalty under Section 114AA - Validity of imposition of penalty upon the appellant under section 114AA of the Customs Act - HELD THAT: - Section 114AA penalises a person who knowingly or intentionally makes, signs, uses or causes to be made, signed or used any declaration or document which is false or incorrect in any material particular. The record shows Bills of Entry were filed by the CHA (Raj Kumar Pal) and not by the appellant; there is no material that the appellant knew of or caused the making or use of false documents. The adjudicator's conclusion that the appellant masterminded the forgery is not supported by evidence beyond suspicion and conjecture. In these circumstances, penalty under section 114AA could not be imposed on the appellant. [Paras 21, 22]
Penalty imposed on the appellant under section 114AA is set aside for lack of evidence that the appellant knowingly made, signed, used or caused to be used false or incorrect documents.
Liability for duty despite agent's fraud - Appropriation of deposits towards confirmed duty - Appropriation of amounts deposited by the appellant towards confirmed duty demand - HELD THAT: - It is not disputed that the appellant deposited amounts towards duty and interest during investigation and after issuance of the show cause notice. The Commissioner confirmed the duty demand but had not appropriated the deposits. Having set aside the penalties, the tribunal directs that the amounts already deposited by the appellant be appropriated against the duty demand that has been confirmed. [Paras 23, 24]
Amounts deposited by the appellant shall be appropriated towards the confirmed duty demand.
Final Conclusion: The impugned order of 29.08.2018 is set aside insofar as it imposes penalties on the appellant under sections 114A and 114AA of the Customs Act; there is insufficient evidence of collusion, willful mis-statement or knowledge of forged documents by the appellant. The deposits already made by the appellant shall be appropriated towards the duty demand confirmed by the Commissioner.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Penalty on Mr. Musarraf Hossain (Appellant No. 1)
2. Penalty on Mr. Mizanur Mondal (Appellant No. 2)
SIGNIFICANT HOLDINGS
In conclusion, the Tribunal allowed the appeals filed by Mr. Musarraf Hossain and Mr. Mizanur Mondal, setting aside the penalties imposed under Section 114(i) of the Customs Act, 1962, and granting consequential reliefs as per law.
Penalties u/s 114(i) of the Customs Act, 1962 - alleged involvement in the mis-declaration and attempted export of prohibited goods (beef) as "Frozen Boneless Buffalo Meat" - HELD THAT:- The appellant no. 1 was mainly engaged for the purpose of loading and unloading of export cargo of M/s. Global Foods International and he got a remuneration of Rs.22,000/- per month. We find that although the business under the name of M/s. A.M. Enterprise was registered in the name of appellant no. 1, the entire activities of the said Firm has been controlled and managed by Mr. Ankit Kapoor of M/s. Global Foods International. From the documents available on record, it is observed that Mr. Ankit Kapoor used to make contact and finalize the dealings with all the persons concerned who used to supply cattle meat to the said firm; those meat products purchased for export from NS Dock, Kolkata, were exported in the name of M/s. A.M. Enterprise and not in the name of M/s. Global Foods International. The goods were being shown as sold by M/s. A.M. Enterprise in favour of M/s. Global Foods International and accordingly, online fund transactions were made by M/s. Global Foods International in favour of M/s. A.M. Enterprise and the money was being paid to all such suppliers in the name of M/s. A.M. Enterprise. The money transactions done through M/s. A.M. Enterprises has been mainly used by Mr. Ankit Kapoor for the purpose of renovation of the cold storage.
Penalty under Section 114 - HELD THAT:- Penalty under Section 114 is imposable only when the person abets an offence which leads to confiscation of the goods. It must be established that he has abetted the offence knowingly. In this case, the appellant no. 1 had to carry out the packing, loading and unloading of the goods, as directed by his employer. Thus, the appellant no. 1 has not contravened any of the provisions under the Customs Act, 1962 warranting imposition of penalty under Section 114(i) of the Customs Act, 1962. Thus, the penalty under Section 114(i) is not imposable on the appellant no. 1 in this case. Accordingly, the penalty imposed on appellant no.1 in the impugned order is set aside.
Penalty imposed on appellant no. 2 - HELD THAT:- The rent agreement specifically mentioned that the cold storage is meant only for the purpose of storage of the goods, i.e., meat as agreed upon in the agreement. Thus, appellant no. 2 is in no way concerned with the alleged export of beef and hence the penalty imposed on him for abetting the offence under Section 114(i) of the Customs Act, 1962 is not sustainable and accordingly, the penalty imposed on him set aside.
Appeal allowed.
The Tribunal considered the following core legal issues in the appeal:
A) The correct classification of the imported 'Epoxidised Soya Bean Oil' (ESBO) under the Customs Tariff Heading (CTH) 3812 or CTH 1518.
B) Whether the Show Cause Notice (SCN) dated 26.06.2022 was time-barred, given the dates of supplying all Relied Upon Documents (RUDs) and the corrigendum to the SCN.
C) The propriety of an abrupt change in classification without any change in facts or law, given the finality of assessment of one Bill of Entry (BoE).
D) Whether the classification adopted by the Appellant was a bona fide belief and thus not a misdeclaration.
E) The liability for confiscation and penalties, considering the absence of collusion, willful misstatement, or suppression of facts.
2. ISSUE-WISE DETAILED ANALYSIS
Classification of imported 'Epoxidised Soya Bean Oil'
The Tribunal analyzed the classification issue by examining the relevant tariff headings and the Harmonized System of Nomenclature (HSN) Explanatory Notes. The appellant classified ESBO under CTH 3812, arguing it to be an industrial product, while the revenue classified it under CTH 1518, which covers chemically modified vegetable oils. The Tribunal found that ESBO, being a chemically modified vegetable oil, fits under CTH 1518 based on the HSN Explanatory Notes, which specifically mention epoxidized oils like ESBO. The Tribunal upheld the classification under CTH 1518 as it provides a more specific description than CTH 3812.
The proper date for calculating time bar of SCN / demand
The appellant contended that the SCN was time-barred, arguing that the date should be considered from when all RUDs were provided. The Tribunal agreed with the appellant, noting that the complete set of RUDs was essential for the appellant to prepare a defense. The Tribunal held that the time limit for calculating the time bar should be reckoned from 04.01.2023, the date when the RUDs were made available.
Abrupt change in classification
The Tribunal examined whether the change in classification was justified. It noted that self-assessment under the Customs Act, 1962, is subject to verification and reassessment by customs officers. The Tribunal found that the department's change in classification was based on a comprehensive investigation by the Directorate of Revenue Intelligence (DRI), which revealed facts not apparent during initial assessments. The Tribunal held that the change was justified and in public interest, rejecting the appellant's plea.
Classification based on appellant's belief
The Tribunal considered whether the appellant's classification was a bona fide belief and not a misdeclaration. It found no evidence of dishonesty or willful misstatement by the appellant. The Tribunal noted that the appellant had provided all necessary documents during assessments and that the classification under CTH 3812 was not entirely implausible. The Tribunal concluded that the department failed to establish suppression or misdeclaration, thus favoring the appellant on this issue.
Confiscation and penalties
Given the absence of suppression or misdeclaration, the Tribunal set aside the confiscation and penalties imposed. It noted that while the duty demand was limited to the normal period, interest on delayed payment was still applicable as per law.
3. SIGNIFICANT HOLDINGS
The Tribunal upheld the classification of ESBO under CTH 1518, agreeing with the revenue's interpretation based on the HSN Explanatory Notes. It concluded that the SCN was not time-barred, considering the date of providing all RUDs as the starting point for the time limit. The Tribunal rejected the appellant's arguments regarding the abrupt change in classification and found no evidence of misdeclaration. Consequently, confiscation and penalties were set aside, but interest on the duty was upheld. The appeal was partly allowed, granting the appellant consequential relief as per law.
Classification of imported goods - Epoxidised Soya Bean Oil (ESBO) - to be classified under CTH 3812 3990 or under CTH 1518 0039? - benefit of availment of BCD @7.5%vide Sl. No. 262 of N/N. 50/2017 dated 30.6.2017 - SCN issued beyond two years of date of clearance of BoE for home consumption - Abrupt change in classification - mis-declaration of goods - Confiscation and penalties.
Classification of imported ‘Epoxidised Soya Bean Oil” - HELD THAT:- ESBO is a chemically modified vegetable oil. As per the product declaration given by the supplier, the composition of the product is 99.8% epoxidized Soyabean oil and 0.2% water. It is not disputed that the production process undertaken to convert the raw material soyabean oil to epoxidised Soya Bean oil include epoxidation, vacuum distillation, centrifugation and filtration and that it is a secondary plasticiser. As stated in the OIO the product is a bio-based product from the epoxidation of soya bean oil with hydrogen peroxide and either acetic or formic acid obtained by converting the double bonds into epoxy group which is non-toxic and of higher chemically reactivity. As per the Explanatory Notes heading 1518 covers epoxidized oils obtained by treating, for example soya bean oil with per acetic acid pre-formed or formed in situ by reaction between hydrogen peroxide and acetic acid in the presence of a catalyst. They are used as plasticisers or stabilisers for e.g. vinyl resins - note 6(c) fits the impugned goods squarely and the impugned goods hence are covered under CTH 1518. While plasticisers, are also covered by heading 3812 it pertains to the category of compound plasticisers. The HSN notes makes it clear that ESBO fall under CTH 1518 which is the more specific heading hence as per Rule 3 (a) of RIT the goods have been classified correctly. The classification of goods as per the impugned order is hence upheld.
Proper date for calculating time bar of SCN / demand - HELD THAT:- As regards the date of supplying all RUDs, the appellant has stated that although the SCN mentioned that the relied upon documents were enclosed as Annexure A along with a detailed worksheet as Annexure B, these documents were not enclosed as stated. Repeated requests were made for service of the complete show cause notice vide their letters dated 09.08.2022, 07.09.2022, 03.11.2022 and 24.11.2022. It was only on 04.01.2023 that the missing annexures were mailed to the them by the department. The said documents were quintessential to submit a reply showing cause to the claims made in the notice - the principles of natural justice and procedural fairness require that the time limit for the purpose of calculating time bar, be reckoned from the date when the documents and worksheet was made available to the appellant, enabling him to commence making a proper defence of his case, which was on 04.01.2023.
Abrupt change in classification as held in the impugned order without any change in facts or law is improper - HELD THAT:- A healthy balance needs to be maintained between the need for uniformity in assessment of similar goods belonging to different assessee, correcting any deviation when necessary and the need to maintain certainty and predictability of taxes over a long period of time against frivolous allegations as per the doctrine of consistency or the precedential value of the earlier pronouncement. No blanket principle is possible and the judgements cited by the appellant are peculiar to the facts of the individual cases - In this case the department had investigated the matter by a specialized investigative agency (DRI). Such an enquiry is generally able to unearth facts and obtain statements of those involved which gives a more complete picture of the goods involved and the declaratory practices adopted, which is not possible to be obtained by the normal assessing officer.
In WARNER HINDUSTAN LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, HYDERABAD [1999 (8) TMI 75 - SUPREME COURT], the Hon’ble Supreme Court opinioned that the correct course for making a change of an approved classification was to issue a fresh show cause notice to the appellant on the basis of the fresh details gathered. This would have given the appellant the opportunity to place on record such material as was available to it to establish the contrary. This requirement has been met in the present case. Hence there are no infirmity and their plea is rejected.
Classification based on appellants belief, cannot be said to be a misdeclaration - HELD THAT:- The non-adoption of the classification as stated in the COO certificate was evident to the departmental officers in the two cases examined by them. The appellant had provided the product literature, letter describing the captive use of the product and the material safety data sheet when called for by the department officer. This was followed by the department accepting the classification in one case. Further the impugned goods which are plasticisers, are also covered by heading 3812, although it may not have been the more specific heading and had to yield to heading 1518. The importer cannot be held responsible for taking an alternate view when he has submitted all the necessary documents that have helped the department to now come to a different view. The plea of the appellant hence succeeds on this issue. The department has failed to make out a case of suppression or misdeclaration etc.
Confiscation and penalties are liable to be set aside since there is no suppression of facts etc. - HELD THAT:- No case of suppression, mis-decleration etc., has been made out. This being so the demand has to be limited to the normal period and the question of confiscation and penalties does not arise. However it is seen that interest is necessarily linked to the duty payable, such liability arises automatically by operation of law and is payable on any demand due. As per the Hon’ble Supreme Court's judgment in COMMISSIONER OF CENTRAL EXCISE, PUNE VERSUS M/S SKF INDIA LTD. [2009 (7) TMI 6 - SUPREME COURT] interest is leviable on delayed or deferred payment of duty for whatever reasons.
Conclusion - i) The classification of ESBO under CTH 1518 upheld. ii) SCN was not time-barred, considering the date of providing all RUDs as the starting point for the time limit. iii) Confiscation and penalties were set aside, but interest on the duty was upheld.
Appeal allowed in part.
The core legal question considered in this judgment is whether the appellant, M/s Siddhachalam Exports Pvt. Ltd., is entitled to interest on the drawback amount from 14.04.2003, which is one month after the "let export order" was issued, or from one month after 31.05.2012, the date when the proceedings initiated against the appellant were dropped for the second time.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The legal framework revolves around Sections 75 and 75A of the Customs Act, 1962. Section 75 provides for the drawback on imported materials used in the manufacture of goods that are exported, while Section 75A deals with the interest on such drawback if not paid within a specified period. The Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, particularly Rule 13, are also relevant as they define the submission of shipping bills as a claim for drawback.
Court's Interpretation and Reasoning:
The Tribunal interpreted that the "let export order" issued on 13.03.2003 should be considered the date for filing the drawback claim. The Tribunal reasoned that the appellant should not be penalized for the prolonged litigation initiated by the department, which delayed the finalization of the drawback claim.
Key Evidence and Findings:
The appellant filed seven shipping bills on 24.02.2003, and the "let export order" was issued on 13.03.2003. A show cause notice was issued on 11.09.2003, which was eventually dropped twice, with the final order being upheld by the Tribunal on 07.10.2021. Despite these proceedings, the Tribunal found that the appellant's declared value was correct, and the drawback should have been sanctioned within one month from the "let export order" date.
Application of Law to Facts:
The Tribunal applied Section 75A of the Customs Act, which mandates interest payment if the drawback is not paid within one month from the claim filing date. The Tribunal found that the shipping bills, deemed filed on the "let export order" date, constituted the claim for drawback, and thus interest should accrue from one month after this date.
Treatment of Competing Arguments:
The appellant argued for interest from 14.04.2003 based on the "let export order" date, while the department contended that interest should only accrue from 31.05.2012, when the valuation was finalized. The Tribunal rejected the department's argument, emphasizing that the appellant should not suffer due to departmental delays.
Conclusions:
The Tribunal concluded that the appellant was entitled to interest from 14.04.2003, as the drawback claim was effectively filed on the "let export order" date, and the delay was due to the department's actions.
3. SIGNIFICANT HOLDINGS
Core Principles Established:
The Tribunal established that the date of the "let export order" is critical for determining the start of the interest period on drawback claims. It emphasized that claimants should not be penalized for departmental delays in finalizing claims.
Final Determinations on Each Issue:
The Tribunal modified the order of the Commissioner (Appeals) to grant interest from 14.04.2003, rather than from 01.07.2012. It directed the department to pay this interest within one month, failing which additional interest would accrue.
Verbatim Quotes of Crucial Legal Reasoning:
The Tribunal stated: "In terms of section 75A of the Customs Act, the appellant is entitled to get interest from a date after the expiry of one month from 13.03.2003 up to the date of payment of the drawback amount."
The appeal was allowed to the extent of modifying the interest payment period, highlighting the importance of timely processing of drawback claims and the responsibility of the department to avoid unnecessary delays.
Grant of interest - relevant date for calculation of interest - whether the appellant should be granted interest from 14.04.2003, which date is one month after the issuance of the “let export order” on 13.03.2003, or from one month after 31.05.2012 on which date the proceedings initiated against the appellant by issuance of show cause notice were dropped for the second time? - HELD THAT:- Section 75 of the Customs Act deals with drawback on imported materials used in the manufacture of goods which are exported. Sub-section (1) provides that drawback should be allowed of the duties of customs chargeable under the Customs Act on any imported material of a class or description used in the manufacture or processing of such goods or carrying out any operation of such goods. It also provides that the Central Government may make rules for the purpose of carrying out the provisions of sub-section (1).
In the present case, the appellant had filed seven shipping bills on 24.02.2003 and the “let export order” was given on 13.03.2003. Under rule 13 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 that have been framed under section 75(2) of the Customs Act, the submission of the shipping bills is deemed to be a claim for drawback filed on the date on which the proper officer of customs makes an order permitting clearance and loading of goods - The amount of drawback should have been sanctioned within a period of one month from the date the “let export order” was issued on 13.03.2003 but it was actually sanctioned on 24.04.2022. Interest has been paid to the appellant by the Commissioner (Appeals) from a date after a period of one month from 31.05.2012 when the show cause notice was dropped by the adjudicating authority for the second time pursuant to the order passed by the Supreme Court and not from 13.03.2003 when the “let export order” was issued.
It is on the instance of the department that proceedings were initiated and ultimately the claim of the appellant was found to be correct and the drawback was sanctioned. In such circumstances the issue that would require consideration is whether 31.05.2012 should be the date relevant for the purposes of determining interest payable to the appellant. This date cannot be the relevant date. The appellant cannot be blamed or penalized for the prolonged litigation undertaken by the department. Rule 13 of the Drawback Rules, which has been referred to by the Commissioner (Appeals) in the impugned order, clearly provides that the shipping bills shall be treated as a claim for drawback filed on a date on which the proper officer of customs makes an order permitting clearance.
In terms of section 75A of the Customs Act, the appellant is entitled to get interest from a date after the expiry of one month from 13.03.2003 upto the date of payment of the drawback amount. The appellant had, accordingly, claimed interest from 14.04.2003 but the Commissioner (Appeals) allowed interest only from 01.07.2012, which date is after the expiry of a period of one month from 31.05.2012. 26. The Commissioner (Appeals) has relied upon the decision of a learned member of this Tribunal in Web Knit Exports [2014 (1) TMI 1118 - CESTAT CHENNAI] to hold that the relevant date would be 31.05.2012 because the value of the export goods stood finalized when the adjudicating authority passed the order. The said decision of a learned Member the Tribunal would not be applicable to the facts of the present case.
In the present case, it is not the case of the department that the documents, as contemplated under rule 13 of the Drawback Rules, had not been filed by the appellant. On the other hand, the show cause notice that was issued to the appellant raising a doubt about the value of the export goods was dropped by order dated 31.01.2005. Thus, the value of the export goods declared by the appellant was found to be correct and the Deputy Commissioner after remand of the matter by the Supreme Court also dropped the show cause notice.
Conclusion - Where drawback should have been given to the appellant within a period of one month from 13.03.2003 when the “let export order” was issued and since it was not given, the appellant would be entitled to interest from a period after month at the rate provided for in section 27A of the Customs Act upto the date of payment of drawback.
Appeal allowed.
The core legal issues considered in this judgment are:
1. Whether the extended period of limitation under Section 28(4) of the Customs Act, 1962, was correctly invoked by the adjudicating authority.
2. Whether the Commissioner (Appeals) was justified in remanding the matter to the adjudicating authority for a fresh determination of the classification of imported goods for the normal period of limitation.
ISSUE-WISE DETAILED ANALYSIS
1. Invocation of the Extended Period of Limitation
Relevant Legal Framework and Precedents: The extended period of limitation under Section 28(4) of the Customs Act, 1962, allows the department to demand duty not levied or short-levied due to collusion, willful misstatement, or suppression of facts by the importer. The Commissioner (Appeals) relied on precedents such as Sachin Kshirsagar vs. Commissioner of Customs and others, which emphasize that classification disputes do not automatically imply suppression or misstatement.
Court's Interpretation and Reasoning: The Commissioner (Appeals) found that the extended period could not be invoked as the requisite details were declared in the Bills of Entry, and the department had the opportunity for scrutiny. The classification of goods is a technical function, and a wrong classification does not equate to suppression or willful misstatement.
Key Evidence and Findings: The Commissioner (Appeals) noted that the goods were cleared after scrutiny and audit. There was no evidence of fraud or collusion to justify the invocation of the extended period.
Application of Law to Facts: The Court found that the respondent had not suppressed facts with intent to evade duty. The goods were declared under a particular Tariff Item, and verification was done by the department, which later believed a different classification was appropriate.
Treatment of Competing Arguments: The department argued that the respondent deliberately misclassified the goods. However, the Court upheld the Commissioner (Appeals)'s finding that the classification dispute did not warrant the extended period's invocation.
Conclusions: The extended period of limitation was not applicable as the respondent did not suppress facts with the intent to evade duty.
2. Remand for Determination of Classification for the Normal Period
Relevant Legal Framework and Precedents: The remand was justified based on procedural fairness, allowing the respondent an opportunity to respond to the show cause notice and participate in the hearing.
Court's Interpretation and Reasoning: The Commissioner (Appeals) remanded the matter because the respondent could not respond to the show cause notice due to a change of address. The Court found this decision to be procedurally fair.
Key Evidence and Findings: Notices were not served due to the respondent's change of address, preventing them from filing a reply or appearing for a hearing.
Application of Law to Facts: The remand allows the respondent to file a reply and participate in the hearing, ensuring due process. The Court agreed that the Commissioner (Appeals) could not determine the classification without the respondent's input.
Treatment of Competing Arguments: The department contended that the respondent had sufficient opportunity to respond, while the respondent argued for a determination of classification without remand. The Court sided with the procedural fairness approach.
Conclusions: The remand was appropriate to ensure the respondent's right to a fair hearing and proper determination of classification for the normal period.
SIGNIFICANT HOLDINGS
Core Principles Established:
- The invocation of the extended period of limitation requires evidence of suppression, willful misstatement, or collusion with intent to evade duty. Classification disputes alone do not satisfy this requirement.
- Procedural fairness necessitates allowing parties an opportunity to respond to notices and participate in hearings, especially when service of notices is impeded by factors such as a change of address.
Final Determinations on Each Issue:
- The appeal by the department was dismissed, upholding the Commissioner (Appeals)'s decision that the extended period of limitation was not applicable.
- The remand for determining the classification of goods for the normal period was justified, ensuring the respondent's right to due process.
Invocation of extended period of limitation under section 28(4) of the Customs Act, 1962 - classiication of imported goods - benefit of reduced Basic Customs Duty under N/N. 24/20058 dated 01.03.2005 and N/N. 12/2012 dated 17.03.2012.
Whether the Commissioner (Appeals) is justified in holding that the extended period of limitation could not have been invoked in the facts and circumstance of the case? - HELD THAT:- On record is the examination report dated 03.01.2019 which shows that the medical equipment was as per the invoice and the Bills of Entry. Once, the respondent had declared the goods in the Bills of Entry under a particular Tariff Item, nothing prevented the officers from verifying the same and in the present case, as noted above, the verification was also done after which the goods were cleared. It is subsequently that the department believed that the goods deserved classification under a different Tariff Item declared by the respondent. The invocation of the extended period of limitation was, therefore, for goods reasons set-aside by the Commissioner (Appeals) as the respondent had not suppressed facts, and in any case it cannot be said that the facts were suppressed with an intent to avoid payment of duty.
Whether the Commissioner (Appeals) was justified in remanding the matter to the adjudicating authority for a fresh determination of classification of the imported goods for the normal period? - HELD THAT:- In view of the findings recorded by the Commissioner (Appeals) that the notices could not be served because of change of address, the respondent was prevented from filing a reply to the show cause notice or appearing before the Commissioner (Appeals). The Commissioner (Appeals) has granted an opportunity to the respondent to file a reply to the show cause notice and also appear before final hearing - It is also not possible to accept the contention advanced by the learned counsel for the respondent that the Commissioner (Appeals) should have himself determined the correct classification of the imported goods instead of remanding the matter. The matter can only be examined after the respondent files a reply to the show cause notice and this is precisely what has been done by the Commissioner (Appeals). There is, therefore, no infirmity in this part of the order of the Commissioner (Appeals).
The appeal filed by the department deserves to be dismissed and is dismissed.
The core legal issue considered in this judgment was the appropriate classification of imported multimedia speakers under the Customs Tariff. Specifically, whether these speakers should be classified under Customs Tariff Heading (CTH) 8518, as claimed by the appellant, or under CTH 8519/8527, as proposed by the Revenue. This classification would determine the applicable customs duty and whether the appellant had evaded a significant amount of duty.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The Customs Tariff Act, 1975, and the General Rules for the Interpretation (GRIs) of the First Schedule to the Customs Tariff Act were central to resolving the classification issue. The Tribunal also referenced previous decisions, notably Logic India Trading Company vs. Commissioner of Customs, Cochin, which dealt with similar facts and concluded that such products should be classified under CTH 8518.
Court's Interpretation and Reasoning
The Tribunal examined the technical features of the imported goods, noting that they are primarily speaker systems with additional functionalities like USB ports and FM radio. The Tribunal emphasized the principal function of the goods, which is sound amplification, aligning with CTH 8518. The Tribunal referred to Section Note 3 to Section XVI, which states that composite machines are classified based on their principal function.
Key Evidence and Findings
The Tribunal considered the goods' technical descriptions, sales brochures, and affidavits from dealers, all indicating that the primary function of the goods was as speakers. The Tribunal also noted that the goods were marketed and sold as multimedia speakers, not as FM radios or sound reproduction systems.
Application of Law to Facts
Applying the GRIs and Section Note 3 to Section XVI, the Tribunal concluded that the principal function of the imported goods was sound amplification, thus classifying them under CTH 8518. The Tribunal rejected the Revenue's reliance on a circular that suggested classification under CTH 8519/8527, noting that circulars are not binding on judicial or quasi-judicial bodies.
Treatment of Competing Arguments
The Tribunal addressed the Revenue's argument that the additional functionalities warranted classification under CTH 8519/8527. It countered this by emphasizing the principal function test and the goods' market perception as multimedia speakers. The Tribunal also highlighted inconsistencies in the Revenue's interpretation across different circulars.
Conclusions
The Tribunal concluded that the goods should be classified under CTH 8518, as their principal function was sound amplification. The Tribunal set aside the lower authority's order and allowed the appeal with consequential relief.
SIGNIFICANT HOLDINGS
The Tribunal reaffirmed the principle that the classification of composite machines should be based on their principal function, as per Section Note 3 to Section XVI. It emphasized that additional functionalities do not alter the primary classification if the principal function remains unchanged. The Tribunal's decision aligned with previous judgments, reinforcing the classification of similar goods under CTH 8518.
Core Principles Established
The judgment reinforced the principle that classification should focus on the principal function of the goods, irrespective of additional features. It also underscored the non-binding nature of departmental circulars on judicial bodies when they conflict with statutory provisions.
Final Determinations on Each Issue
The Tribunal determined that the imported multimedia speakers were correctly classifiable under CTH 8518, rejecting the Revenue's proposed classification under CTH 8519/8527. The appeal was allowed, and the lower authority's order was set aside.
Classification of imported goods - Multimedia Speakers/Computer Speakers - to be classified under Customs Tariff Heading (CTH) 8518 or under CTH 8519/8527? - HELD THAT:- The subject issue is no more res integra. There are a catena of decisions holding the classification of the impugned goods under heading under CTH –8518. In the case of LOGIC INDIA TRADING CO VERSUS COMMISSIONER OF CUSTOMS [2016 (3) TMI 5 - CESTAT BANGALORE], while dealing with similar set of facts, the courts have held the classification of the said goods under CTH 8518.
The aforesaid decision has been subsequently followed in a series of cases of similar nature. Thus, in the case of Global Enterprises vs Commissioner of Central Excise, Delhi-II [2017 (8) TMI 1267 - CESTAT NEW DELHI], identical question of law was considered. The Tribunal held the classification of the said goods under CTH 8518.
Conclusion - The imported multimedia speakers were correctly classifiable under CTH 8518.
Appeal allowed.
The core legal questions considered in this judgment were:
1. Whether the Petitioners were entitled to a refund of the additional fees charged for the late filing of financial statements, based on the Circular issued by the Respondent extending the filing deadline.
2. Whether the Circular dated 29.10.2019 effectively extended the statutory period for filing financial statements beyond the 30-day period following the Annual General Meeting (AGM) as mandated by Section 137 of the Companies Act, 2013.
3. Whether the imposition of additional fees from the original due date of 29.10.2019, despite the Circular, was justified.
ISSUE-WISE DETAILED ANALYSIS
1. Entitlement to Refund of Additional Fees
- Relevant Legal Framework and Precedents: The Petitioners relied on the Circular issued by the Respondent which extended the deadline for filing financial statements without additional fees. The Petitioners argued that they were entitled to a refund of fees charged beyond this extended deadline.
- Court's Interpretation and Reasoning: The Court examined the Circular and the statutory provisions under the Companies Act, particularly Section 137, which mandates filing within 30 days of the AGM. The Court found that the Circular did not amend the statutory requirement but merely provided a grace period for those who had not filed within the original timeframe.
- Key Evidence and Findings: The Petitioners filed their financial statements between 19.12.2019 and 22.12.2019, beyond both the original and extended deadlines. The Respondent's portal calculated additional fees from the original due date, leading to the Petitioners' claim for a refund.
- Application of Law to Facts: The Court applied the statutory provisions, emphasizing that the Circular did not alter the requirement to file within 30 days of the AGM. As the Petitioners filed after the extended deadline, the additional fees were deemed justified.
- Treatment of Competing Arguments: The Petitioners argued that the Circular extended the filing deadline for all companies, irrespective of their AGM date. The Respondents contended that the Circular did not alter statutory deadlines but provided a grace period for certain companies.
- Conclusions: The Court concluded that the Petitioners were not entitled to a refund as the additional fees were correctly imposed from the original due date.
2. Interpretation of the Circular and Statutory Provisions
- Relevant Legal Framework and Precedents: Section 137 of the Companies Act mandates filing within 30 days of the AGM. The Circular provided an extension for filing without additional fees until 30.11.2019.
- Court's Interpretation and Reasoning: The Court interpreted the Circular as a temporary relief measure, not an amendment to the statutory filing requirement. The Circular did not extend the AGM date or the statutory filing period.
- Key Evidence and Findings: The Circular explicitly stated the extended deadline for filing without additional fees, but did not alter the statutory requirement linked to the AGM date.
- Application of Law to Facts: The Court emphasized that statutory provisions cannot be overridden by an administrative Circular. The Petitioners' interpretation of the Circular as extending the statutory deadline was rejected.
- Treatment of Competing Arguments: The Petitioners claimed the Circular extended the filing period for all companies. The Respondents maintained that it offered a grace period for specific circumstances without altering statutory deadlines.
- Conclusions: The Court held that the Circular did not extend the statutory filing period beyond the 30-day requirement from the AGM.
3. Justification of Additional Fees Imposition
- Relevant Legal Framework and Precedents: Section 403 of the Companies Act prescribes additional fees for late filings. The Respondent's portal calculated fees from the original due date.
- Court's Interpretation and Reasoning: The Court found that the imposition of additional fees from the original due date was consistent with statutory requirements and the Circular's intent.
- Key Evidence and Findings: The Petitioners filed after both the original and extended deadlines, justifying the additional fees.
- Application of Law to Facts: The Court applied Sections 137 and 403, affirming the additional fees for late filing from the original due date.
- Treatment of Competing Arguments: The Petitioners argued for fee calculation from the extended deadline. The Respondents justified the calculation from the original due date based on statutory provisions.
- Conclusions: The Court upheld the imposition of additional fees from the original due date, dismissing the Petitioners' claims.
SIGNIFICANT HOLDINGS
- Preserve Verbatim Quotes of Crucial Legal Reasoning: "To interpret the Circular as extending the time of filing the Financial Statements beyond 30 days of AGM, would tantamount to amendment of the Provisions of the Act, which no Administrative Circular can do."
- Core Principles Established: Administrative Circulars cannot amend statutory provisions. The statutory requirement for filing within 30 days of the AGM remains unaltered by the Circular.
- Final Determinations on Each Issue: The Court dismissed the Writ Petitions, upholding the imposition of additional fees from the original due date and rejecting the Petitioners' claims for a refund.
Refund of excess amount of Additional Fees charged from the Petitioner Companies on account of delay in filing Financial Statements along with interest - HELD THAT:- It emerges that the AGM of a Company has to be held by the 30th September of the given year which can be extended maximum by three months by the ROC. It is a Statutory Provision and the date of holding of AGM cannot be modified or changed by any Office Order.
In the present case, the Petitioners in consonance with the provisions of the Companies Act, held their AGM on 29.10.2019 i.e. within the statutory period. Having so done and the financial statements having been approved in the AGM, they were bound to submit the said statements to the ROC within thirty days of the AGM as has been provided in Section 137 of the Companies Act. There is no circumstance in which Section 137 can be modified or the period of submitting the Financial Statements extended beyond the 30 days from the date of holding the AGM.
From this Section 403 also, it is evident that whatever are the timeframes provided under the Act for filing of the documents, statement etc., if not done within the given time, then the same shall be accepted on payment of the penalty as described therein i.e. not less than Rs.100/- per day. This Section also does not give any discretion to extend the time of taking the Statements u/s 92 or 137 of the Companies Act or of reducing/waiving the fines - From the bare perusal of Circular dated 29.10.2019, it is abundantly clear that it provided a window for filing the Financial Statements by the Companies latest by 30.11.2019. It was only to deal with the situation where any Company had failed to submit their Financial Statements within the prescribed time period, they permitted to be filed within the relaxation period extended vide Circular dated 29.10.2017, i.e. by 30.11.2019. This situation would have arisen for Companies which may have sought extension of time from ROC to conduct their AGM beyond 30th of September.
This Circular cannot be interpreted to read that the date of holding the AGM as provided under S. 97 or of consequent submission of Financial Statements within 30 days thereafter as provided under S. 137 of Companies Act, was modified or extended. To interpret the Circular as extending the time of filing the Financial Statements beyond 30 days of AGM, would tantamount to amendment of the Provisions of the Act, which no Administrative Circular can do - the Petitioners are not correct in their Claim that the Financial Statements could have been filed by 30.11.2019.
Conclusion - The Petitioners were liable to submit their Financial Statements by 29.10.2019 which they have failed to do in accordance with Section 137 of the Companies Act. Therefore, the penalty has been rightly imposed by the Respondents w.e.f. 30.10.2019.
Petition dismissed.
The core legal questions considered in this judgment were:
1. Whether the appellant, as the Non-Executive Chairman of PFS, failed in his duties by not acceding to the requests of Independent Directors for legal advice and not providing necessary documentation regarding the appointment of Mr. Ratnesh.
2. Whether the appellant failed to provide adequate information to the Board, leading to incomplete or limited information being shared.
3. Whether the reconstitution of the Audit Committee prior to the submission of the Forensic Audit Report (FAR) 2022 was in violation of SEBI's directions.
4. Whether the appellant impeded the proper functioning of the Audit Committee by allowing meetings to be held at short notice and not ensuring accurate minutes of the meetings.
ISSUE-WISE DETAILED ANALYSIS
Issue No. 1: Failure to Accede to Requests for Legal Advice and Documentation
The relevant legal framework includes the SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015, and the Companies Act, particularly Section 149 regarding the duties of directors. The appellant argued that the management was preparing a comprehensive report, making separate legal advice premature. The Independent Directors engaged a law firm independently, which the company did not oppose. The Registrar of Companies had previously examined this issue and exonerated the appellant. The appellant was not responsible for the withdrawal of Ms. Renu Narang from the board, which rendered the NRC dysfunctional, as this was a decision by NTPC.
The Court found that the appellant was not responsible for the alleged failures. The Independent Directors had proceeded with obtaining legal advice independently, and the appellant had instructed the HR department to provide the necessary information. The Court concluded that the charges in Issue No. 1 were not substantiated.
Issue No. 2: Providing Incomplete Information to the Board
The allegations included not placing information regarding Mr. Ratnesh's appointment and not providing notice of a Board meeting. The Court noted that Mr. Ratnesh had rejoined NTPC, making the allegation of not inviting him to a meeting untenable. The duty to ensure proper conduct of meetings lies with the Company Secretary, and the Independent Directors had previously graded the information flow as excellent. The Court found no substance in the allegations.
Issue No. 3: Reconstitution of Audit Committee
The appellant contended that SEBI's direction not to change the Board's composition did not apply to the Audit Committee. The Board reconstituted the Audit Committee to finalize financial statements. The Court noted that SEBI's direction was limited to the Board and did not extend to the Audit Committee. Therefore, the charge was deemed baseless.
Issue No. 4: Functioning of the Audit Committee
The charge was that meetings were held at short notice, and agenda items were added last minute. The appellant argued that the Companies Act permits meetings at short notice. The Court noted that the Chairman of the Audit Committee had raised issues with Noticee No. 1, not the appellant. The Court found that the appellant was not responsible for the alleged impediments in the Audit Committee's functioning.
SIGNIFICANT HOLDINGS
The Court held that:
1. The appellant was not responsible for any statutory violations or failures in corporate governance as alleged by SEBI.
2. The appellant had acted within his role as a Non-Executive Chairman and was not involved in day-to-day management, nor did he impede the functioning of the Board or its committees.
3. The charges against the appellant were baseless, and the directions in the impugned order were unsustainable.
The appeal was allowed, and the order dated June 12, 2024, by the WTM, SEBI, was quashed with no costs awarded.
SEBI orders againstnon-executive Chairman and Managing Director & Chief Executive Officer- Appellant as the Non-Executive Chairman failed in his duties by not acceding to the requests of Independent Directors for legal advice and not providing necessary documentation regarding the appointment of Mr. Ratnesh -
Non acceding to request for legal advice in relation to appointment of Mr. Ratnesh etc. - HELD THAT:- Appellant was appointed as the Non-Executive Chairman of PFC on November 8, 2021. The allegation is, not acceding to the request made by the independent directors for obtaining external legal advice and not providing information about appointment and joining of Mr. Ratnesh, which was the most contentious issue leading to differences between the Management and the independent directors. The first email from the independent directors to the Noticee No. 1 seeking independent legal advice from a lawyer of their choice is dated December 7, 2021. The appellant had informed the Independent Directors that the management was in the process of submitting a comprehensive report and therefore a separate legal consultation was pre-mature. On December 15, 2021 the independent directors conveyed to Noticee No. 1 that they were going ahead with the appointment of an Advocate and did so. The expenses incurred in that behalf were also informed to Noticee No. 1 on April 5, 2022.
With regard to not calling meeting of NRC, it was urged that the Appellant was not a member of NRC and had no role to play. The RoC had addressed this issue and did not hold the Appellant responsible. It was also urged that the Management attempted to reconstitute the NRC through a resolution dated December 31, 2021, however the independent directors did not approve the same.
It is relevant to record that firstly the independent directors had made their request to the Noticee No. 1 and not to the Appellant. Secondly, the independent directors went ahead and decided to appoint an Advocate themselves and obtain legal advice. The gap between their initial request and their decision to appoint an Advocate is about 8 days which cannot be considered as undue delay. Thirdly, the appellant had instructed the HR department of PTC to give the information sought by the independent directors. Fourthly, Ms. Renu Narang was withdrawn by NTPC. Fifthly, RoC had addressed the issue with regard to conducting meeting of NRC and not held the appellant responsible. In view of the undisputed facts recorded hereinabove, we find that the above three charges in Issue No.1 made against the Appellant are not substantiated.
Providing no information or limited / incomplete information to the Board - Appellant submitted that the WTM has noted in the impugned order that Mr. Ratnesh had rejoined NTPC on December 6, 2021. Therefore, he could not have been invited for the Board meeting scheduled on January 22, 2022. He is right in his contention. Therefore, the allegation of not inviting Mr. Ratnesh and the meeting becoming invalid is untenable
It is the duty of the Company Secretary to provide guidance with regard to proper conduct of meetings. Independent Directors while raising certain issues in their emails sent during 2021 never sought for those issues to be discussed in the board meetings. Thus, there is no doubt that there was lack of clear communication between the Independent Directors and the management, however, we may note that the Independent Directors themselves had graded the flow of information between the management and the board as excellent in the meeting held on October 5, 2021. No substance in the allegation contained in Issue No. 2.
Reconstitution of Audit Committee prior to submission of FAR 2022 - As noted in the Impugned Order, Section 177 of the Companies Act, 2013 provides that the Audit Committee shall be constituted by the Board. The Board had constituted the Audit Committee. SEBI’s direction was not to change the composition of the Board. Therefore, SEBI contention that SEBI’s instructions also included not making any change in the audit committee also, is without any merit and liable to be rejected. Hence, we hold that the charge in Issue No.3 is also baseless.
Functioning of the Audit Committee - It is true that the Chairman of the Audit Committee had flagged the issues in functioning of the Audit Committee with respect to Noticee No. 1. The Respondent’s charge is not that the Appellant was responsible but that he was aware of the shortcomings pointed out and yet, did not take remedial steps. In our view, once the respondent holds that appellant is not responsible, nothing further survives for consideration. Hence charge in issue No.4 is also baseless.
On a careful perusal of the allegations leveled against the appellant and the contentions urged on both sides, for reasons recorded hereinabove, we are of the view that all the allegations against the appellant in Issues Nos. 1 to 4 are baseless. Therefore, the directions contained in paragraph No: 253 of the impugned order qua the appellant are unsustainable and liable to be quashed. The appellant, has suffered the order for about 6 months for no fault.
Appeal allowed. Orde passed by the WTM, SEBI qua the appellant is quashed.
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Distribution of Liquidation Proceeds
Impact of Interim Orders and Undertakings
3. SIGNIFICANT HOLDINGS
The Tribunal's decision underscores the importance of adhering to statutory provisions and binding judicial precedents in insolvency proceedings, ensuring equitable treatment of creditors based on their admitted claims.
Distribution of liquidation proceeds - waterfall mechanism - distribution to be made based on the security interest of secured creditors or in proportion to their admitted claims as per Section 53(1) of the Insolvency and Bankruptcy Code, 2016? - No Resolution Plan having been approved in the CIRP - HELD THAT:- This Tribunal in the matter of Oriental Bank of Commerce Vs. Anil Anchalia & Anr. [2022 (5) TMI 1367 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] had occasion to consider distribution of sale proceeds in the Liquidation as per Section 53 of the Code, in which proceeding, an IA was filed by Oriental Bank of Commerce seeking a direction to distribute the entire sale proceeds to the Punjab National Bank who has exclusive charge over the property of the Corporate Debtor. The Application was rejected by the Adjudicating Authority against which the Appeal was filed. The Appeal was heard and by the Judgment of this Tribunal dated 26.05.2022, the Appeal was dismissed.
Coming to the undertaking which is relied by the Appellant, the undertaking submitted before the Adjudicating Authority was to the effect that excess money received as per distribution shall be returned, when Order is passed by Tribunal or Hon’ble Supreme Court the undertaking given by stakeholders was in terms of Regulation 43 of the Insolvency and Bankruptcy Board of India, Liquidation Process Regulations 2016, which undertaking has to be given while accepting any distribution of the sale proceeds in the Liquidation, which undertaking was for the benefit of the Secured Creditors, who is ultimately found to have larger share of sale proceeds in the Liquidation. Thus, undertaking given by the Parties in no manner can come in the way of Adjudicating Authority in issuing direction for re-distribution in accordance with law.
Conclusion - The Adjudicating Authority has not committed any error in directing distribution of sale proceeds as per the admitted claim of the Financial Creditor pro-rata basis.
Appeal dismissed.
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Appointment of the Resolution Professional
2. Jurisdiction of the NCLT
SIGNIFICANT HOLDINGS
Appointment of the Resolution Professional (RP) in accordance with Section 97, sub-section (3) of the Insolvency and Bankruptcy Code, 2016 (IBC) - submission of the Appellant is that the Adjudicating Authority ought to have directed the IBBI to nominate the RP for the insolvency resolution process, which was not done and the Adjudicating Authority relied on a Circular issued by the IBBI - HELD THAT:- There is no dispute with regard to interpretation of Section 60, sub-section (2), which provides that where a CIRP or liquidation proceedings of a Corporate Debtor is pending before a NCLT, an application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, shall be filed before such NCLT. The question to be answered is as to whether when no CIRP or liquidation proceedings of a Corporate Debtor is pending before the NCLT, whether an Application for personal insolvency against a Personal Guarantor has to be filed before the NCLT. Sub-section (2) of Section 60 begins with the expression “Without prejudice to sub-section (1)”. Thus, the provision of sub-section (2) are without prejudice to provisions of sub-section (1) of Section 60. The expression “without prejudice”, came for consideration before the Hon’ble Supreme Court in large number of cases.
Reference made to judgment of the Hon’ble Supreme Court in Shri Shiv Kripal Singh vs. Shri V.V. Giri [1970 (9) TMI 127 - SUPREME COURT], where the Hon’ble Supreme Court held that the expression “without prejudice is to the generality of the provisions of sub-section (i)”. It is well settled that when this expression is used anything contained in the provisions following this expression is not intended to cut down the generality of the meaning of provision.
Two judgments have been relied by learned Counsel for the Respondent, which need to be noticed. The first judgment, which has been relied by learned Counsel for Respondent is State Bank of India vs. Mahendra Kumar Jajodia [2022 (1) TMI 1294 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI], in which case, an Application under Section 95 was filed by the State Bank of India before NCLT, Kolkata Bench, seeking initiation of CIRP against Personal Guarantor, which Application came to be rejected by the Adjudicating Authority as premature relying on Section 60, sub-section (2) and holding that for an insolvency resolution process to be initiated against the guarantor there must be CIRP or liquidation process pending against the principal borrower/ Corporate Debtor.
The above Notification dated 15.11.2019 came to be challenged before the Hon’ble Supreme Court in Lalit Kumar Jain vs. Union of India & Ors. [2021 (5) TMI 743 - SUPREME COURT]. One of the grounds to challenge the notification was whether provisions of IBC against Personal Guarantors have been enforced, which is discriminatory and is violative of Article 14 of the Constitution of India. In reference to challenge to the aforesaid Notification, the Hon’ble Supreme Court had occasion to consider the Scheme of IBC. The Hon’ble Supreme Court noticed the 2018 amendment and the Report of the Insolvency Law Committee - The above judgment of the Hon’ble Supreme Court also clearly emphasized that Personal Guarantor of the Corporate Debtor has been treated as a separate species of individuals. Hence, provision regarding Personal Guarantor of the Corporate Debtor have been enforced and when we read Section 60, sub-sections (1) and (2), the conclusion is inescapable that for insolvency resolution process of personal guarantor, the jurisdiction is with the NCLT.
This Tribunal in its judgment in Mahendra Kumar Agarwal has noticed the judgment of the Delhi High Court in Axis Trustee Services Ltd. vs. Brij Bhushan Singal [2022 (11) TMI 297 - DELHI HIGH COURT], where the Delhi High Court had occasion to consider Section 60 of the IBC. After considering Section 60 and 179 of the IBC, the Delhi High Court held that NCLT will be the Adjudicating Authority in respect of insolvency proceedings against Personal Guarantors.
Conclusion - The NCLT is the appropriate adjudicating authority for insolvency proceedings against personal guarantors of corporate debtors, as per Section 60(1) of the IBC. Section 60(2) does not restrict the filing of applications against personal guarantors to situations where proceedings against the corporate debtor are pending.
It is not required to accept the submissions of the Appellant that NCLT Delhi has no jurisdiction to entertain Section 95 Application filed by the Financial Creditor against the Personal Guarantor for initiating insolvency resolution process - there is no merit in the appeal - appeal dismissed.
The relevant legal framework included Sections 7 and 8 of FEMA, 1999, and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, specifically Regulations 3, 9, and 13. The Directorate of Enforcement alleged that the respondents failed to declare the correct value of exported goods, thereby violating these provisions. The case was initiated based on a Show Cause Notice (SCN) from the Directorate of Revenue Intelligence (DRI) under the Customs Act, 1962, alleging undervaluation and mis-declaration of the Fe content in export transactions.
The Tribunal's analysis focused on the procedural and evidential aspects of the case. The respondents argued that the Fe content was determined by independent, government-accredited laboratories, and any discrepancies were within commercial limits due to the nature of iron ore and its moisture content. They contended that the Customs authorities had not found any fault with their declarations, and the DRI's SCN, which formed the basis of the FEMA proceedings, had been quashed by the Commissioner of Customs.
The Tribunal examined the adjudicating authority's reasoning, which had accepted the respondents' arguments that variations in Fe content were minor and within acceptable limits. The adjudicating authority had also noted the lack of independent inquiry by the Directorate of Enforcement and the reliance on the DRI's findings, which were subsequently nullified.
Significant holdings of the Tribunal included the recognition that the Customs authorities' findings, based on independent lab reports and the absence of mis-declaration, were crucial. The Tribunal emphasized that the Customs Act's provisions and the Customs Valuation Rules provided a comprehensive framework for assessing export goods' value, which was not breached in this case.
The Tribunal upheld the adjudicating authority's decision to drop the charges, finding no evidence of FEMA violations. It noted that the Customs authorities' assessments, which were based on government lab reports, were not challenged and, therefore, should be accepted as correct. The Tribunal also acknowledged that the DRI's SCN, which was the basis for the FEMA proceedings, had been set aside, further weakening the appellant's case.
In conclusion, the Tribunal dismissed the appeal, affirming the adjudicating authority's order and reiterating the importance of adhering to established legal procedures and evidentiary standards in enforcement actions under FEMA. The Tribunal's decision underscored the necessity of independent investigation and the reliance on credible evidence, particularly when allegations are based on transactions involving related parties. The Tribunal also highlighted the role of the Customs authorities and the importance of their findings in determining compliance with export regulations.
Validity of order of the Additional Director of Enforcement dropping charges under the Foreign Exchange Management Act, 1999 (FEMA) - case against the appellants under FEMA, 1999 was initiated based on a Show-Cause Notice issued by the DRI under the Customs Act, 1962 - in SCN, it was alleged that both the respondent companies had evaded Customs Duty by suppressing and mis-stating the actual transaction value of the export goods -
HELD THAT:- We find force in the argument of the respondents that the allegations against the appellants in this case drew sustenance primarily from the allegations contained in the SCN issued by the DRI under the Customs Act, 1962 which now stands entirely nullified.
Also find considerable substance in the contention of the appellant that the Fe content declared was based on the report of the government accredited lab (GAL). Indeed, it is acknowledged by the appellant Directorate itself in the appeal memo, that the price of the iron ore exported was raised by the appellants based on the certificate of Quality Services and Solutions, Goa, a government-accredited lab. Further, the detailed procedure for valuation has been explained in para- 61 of the order of the Ld. Commissioner of Customs.
Once the prescribed procedure for independent certification by Govt. Lab and samples being drawn in the presence of Customs and being sent to Govt. lab for sample testing has been followed, do not see how the charge of manipulation of Fe content can be sustained unless the findings of the labs are challenged as perverse.
In this regard, we have also taken note of the judgment of Reliance Cellulose Products Ltd. [1997 (7) TMI 652 - SUPREME COURT] cited by the appellants wherein it was held that unless a government lab report is challenged and demonstrated as being palpably wrong, the same cannot be brushed aside.
Even from the Income-tax point of view, the variation in price at which export was made by the appellants and the arm's length price assessed was found to be within the tolerance range.
It is not considered necessary to go into other issues such as cherry picking of few transactions out of many (2 out of 7 in case of Appellant No.1 and 5 out of 42 in case of Respondent No.2); existence of instances where Fe content declared by the Indian companies was more than that declared by the foreign entity on further sale; day to day fluctuations in international iron ore prices, the difference arising out the transactions being expressed in wet or dry metric tons; difference in of method of drawal of samples, testing technology and methodology; the legal tenability of challenging the impugned order before this Appellate Tribunal when the customs's Case, which formed the sole basis of the case under FEMA stands quashed etc, are not gone into on the merits.
We do not find any reason to interfere with the order of the learned adjudicating authority which has been impugned in the present appeals filed by the Directorate. Accordingly, all the three appeals are hereby dismissed.
Issues: (i) whether the applicant's arrest complied with Section 19 of the Prevention of Money Laundering Act, 2002; (ii) whether statements recorded under Section 50 of the Prevention of Money Laundering Act, 2002 could be relied upon along with other material to justify the prosecution case; (iii) whether the applicant was entitled to bail under Section 45 of the Prevention of Money Laundering Act, 2002, including the benefit of the proviso and satisfaction of the twin conditions.
Issue (i): whether the applicant's arrest complied with Section 19 of the Prevention of Money Laundering Act, 2002.
Analysis: The statutory scheme requires material in possession of the authorised officer, formation of reason to believe, recording of reasons in writing, and communication of grounds of arrest. The record showed that the arrest was founded on financial records, digital material, admissions, and the investigative trail connecting the applicant with the proceeds of crime. The Court held that the arresting authority had not acted mechanically and that the statutory safeguards were satisfied.
Conclusion: The arrest was held to be lawful and in compliance with Section 19, against the applicant.
Issue (ii): whether statements recorded under Section 50 of the Prevention of Money Laundering Act, 2002 could be relied upon along with other material to justify the prosecution case.
Analysis: Section 50 empowers the authorities to summon persons, record statements, and require production of records, and such proceedings are treated as judicial proceedings. The Court treated the statements as admissible and held that they were not relied upon in isolation, but were corroborated by bank trails, WhatsApp chats, financial records, and the applicant's own admissions. The prosecution case was therefore supported by independent material and not by co-accused statements alone.
Conclusion: The statements under Section 50 were held admissible and capable of being relied upon, along with corroborative evidence, against the applicant.
Issue (iii): whether the applicant was entitled to bail under Section 45 of the Prevention of Money Laundering Act, 2002, including the benefit of the proviso and satisfaction of the twin conditions.
Analysis: The Court held that the monetary threshold in the proviso could not be viewed in isolation where the allegations disclosed a larger coordinated laundering operation. Applying the settled interpretation of Section 45, the Court found that the applicant had not shown reasonable grounds for believing that he was not guilty, nor had he shown that he was unlikely to commit any offence while on bail. The Court also applied general bail principles and found that the gravity of the offence, the organised nature of the syndicate, and the risk of interference with evidence and witnesses weighed against release.
Conclusion: The applicant was held not entitled to bail and the application was rejected against the applicant.
Final Conclusion: The prosecution material was found sufficient to justify the arrest and to sustain the statutory presumption under the money-laundering regime, while the applicant failed to satisfy the bail thresholds under the special statute and general bail considerations.
Ratio Decidendi: In a money-laundering case, arrest under Section 19 is valid when supported by recorded reasons based on material in possession, statements under Section 50 are admissible when corroborated by independent evidence, and bail under Section 45 cannot be granted unless the accused satisfies the statutory twin conditions and rebuts the presumption arising from the established foundational facts.
Seeking grant of regular bail - Money Laundering - reasons to believe - compliance with the statutory requirements under Section 19 of the PMLA - whether the applicant’s arrest was carried out in adherence to the statutory requirements under Section 19 of the PMLA which mandates that the authorized officer must have ‘reason to believe’ based on material evidence before arresting an individual accused of money laundering? - HELD THAT:- This Court is satisfied that the investigating authority followed due process and substantiated the 'reason to believe' with concrete evidence rather than mere suspicion. Accordingly, the challenge to the legality of the arrest is without merit, and no relief is warranted to the applicant on this ground.
The investigating authority did not rely solely on the statement of any one co-accused, rather it relied upon the statement of the applicant as well as other co-accused persons namely Neeraj Chauhan, Tushar Chauhan and Viphil Jain along with the documentary evidence including the Whatsapp chats etc. which shows the financial trail of the proceeds of crime in the instant matter. The same goes to show that the respondent ED has corroborating evidence on its record to justify the implication of the applicant herein - This Court is satisfied that the respondent ED has considered independent material, including financial records, digital evidence, and the applicant’s own communications, which substantiate the applicant’s involvement in the alleged offence.
Whether the statements recorded under this provision are admissible as evidence and to what extent they can be relied upon to justify the applicant’s arrest and continued detention? - HELD THAT:- The statements recorded under Section 50 of the PMLA hold evidentiary value and are admissible in legal proceedings. The Hon’ble Supreme Court in Rohit Tandon v. Directorate of Enforcement [2017 (11) TMI 779 - SUPREME COURT], while emphasizing the legal sanctity of such statements, observed that they constitute valid material upon which reliance can be placed to sustain allegations under the PMLA - this Court is of the considered view that statements recorded under Section 50 of the PMLA are admissible in evidence and can be relied upon to establish culpability in money laundering cases.
It is observed by this Court that the respondent had sufficient material in its possession, including financial records, digital evidence, and the applicant’s communications, to establish a valid 'reason to believe' that the applicant was guilty of the offence of money laundering. The procedural safeguards under the Act were duly followed, and the challenge to the legality of the arrest is without any merit - the contention that the applicant’s arrest was solely based on the statement of co-accused persons under Section 50 of the PMLA is unfounded.
Compliance with the twin conditions of bail under Section 45 of the PMLA or not - HELD HAT:- Having considered the legislative intent behind Section 45 of the PMLA and the judicial precedents interpreting its application, this Court shall now proceed to apply the established principles to the facts of the present case to assess whether the applicant has successfully satisfied this Court that he falls under the proviso to Section 45 of the PMLA and if not, whether he has discharged the burden of proving that he is not guilty of the alleged offence and is unlikely to commit any offence while on bail - The material on record demonstrates that the accused persons operated in a highly coordinated and systematic manner, with clear understanding and collaboration among them to facilitate the offence.
The applicant has failed to discharge the burden placed upon him under Section 45(1)(ii) of the PMLA which requires him to that there are reasonable grounds for believing that he is not guilty of the offence. The material produced by the respondent, including financial transactions linked to the proceeds of crime and the applicant’s own admissions, points to his direct and active involvement in the offence. Mere assertions that the applicant was a passive investor and was unaware of the illegality of the transactions do not satisfy the threshold required to overcome the presumption under the PMLA - Further, the second limb of Section 45(1)(ii) of the PMLA, which mandates that the applicant must satisfy the Court that he is not likely to commit any offence while on bail, is also not met.
This Court finds that the twin conditions prescribed under Section 45 of the PMLA have not been satisfied. The evidence on record, the ongoing nature of the investigation, and the applicant’s alleged role in the broader financial and selling of spurious medicines syndicate indicate that the rigors of Section 45 of the PMLA continue to apply.
This Court is of the view that considering the filing of the first supplementary prosecution complaint and the ongoing nature of the investigation, it is not satisfied that the applicant has fulfilled the twin conditions under Section 45 of the PMLA. The respondent has presented sufficient material to warrant further investigation, including financial records, electronic evidence, and statements of co-accused implicating the applicant. These materials suggest an active involvement in laundering proceeds of crime and a pattern of financial transactions that need further investigation.
Conclusion - i) The applicant's arrest complied with the statutory requirements under Section 19 of the PMLA, supported by concrete evidence rather than mere suspicion. ii) Statements recorded under Section 50 of the PMLA are admissible as evidence and can be relied upon to establish culpability in money laundering cases. iii) The applicant was not exempt from the twin conditions of bail under Section 45 of the PMLA, given the organized nature of the offence and the broader context of the criminal conspiracy. iv) The applicant failed to satisfy the twin conditions for bail under Section 45 of the PMLA, as well as the general considerations for bail under Section 439 of the CrPC. v) The Court emphasized the importance of maintaining the integrity of the ongoing investigation and preventing potential misuse of the judicial process.
This Court is not inclined to release the applicant on bail and the instant application, is, hereby, dismissed.
Issues: (i) Whether the arrest of the applicant complied with the mandatory requirements of Section 19 of the Prevention of Money Laundering Act, 2002; (ii) whether statements recorded under Section 50 of the Prevention of Money Laundering Act, 2002 could be relied upon along with other material to sustain the allegations; (iii) whether the applicant was entitled to bail on the basis of the proviso to Section 45 and the twin conditions under Section 45 of the Prevention of Money Laundering Act, 2002.
Issue (i): Whether the arrest of the applicant complied with the mandatory requirements of Section 19 of the Prevention of Money Laundering Act, 2002.
Analysis: The arresting authority is required to possess material in its custody, form a reason to believe that the person is guilty of an offence under the Act, record the reasons in writing, and inform the arrestee of the grounds of arrest. These safeguards are mandatory. On the material placed on record, including the grounds of arrest and the financial and electronic material referred to therein, the arrest was found to be supported by specific facts and not by a bare mechanical recital.
Conclusion: The arrest was held to be in compliance with Section 19, and the challenge on this ground failed.
Issue (ii): Whether statements recorded under Section 50 of the Prevention of Money Laundering Act, 2002 could be relied upon along with other material to sustain the allegations.
Analysis: Statements recorded under Section 50 are admissible in evidence and form part of the material that may be considered in PMLA proceedings. The Court treated them as corroborative material, along with financial records, digital communications, and transactional data, rather than as the sole basis of the case. The statutory presumption under Section 24 was also applied against the applicant once foundational facts were found on record.
Conclusion: The statements under Section 50 were held to be admissible and capable of being relied upon with other corroborative material, and this ground failed.
Issue (iii): Whether the applicant was entitled to bail on the basis of the proviso to Section 45 and the twin conditions under Section 45 of the Prevention of Money Laundering Act, 2002.
Analysis: The Court held that the monetary threshold proviso was not attracted because the alleged laundering activity had to be viewed in the context of the entire syndicate and the overall proceeds of crime, which exceeded the threshold. The Court further held that the applicant failed to satisfy the twin conditions under Section 45, as the material on record disclosed reasonable grounds to believe that he was involved in money laundering and also indicated the risk of further offence, interference, or tampering. The general bail principles and the triple test did not outweigh the special statutory rigour of Section 45 on the facts of the case.
Conclusion: The applicant was held not entitled to bail.
Final Conclusion: The application for regular bail was rejected, and the applicant was directed to surrender if on interim bail.
Ratio Decidendi: In a PMLA bail application, where the arrest is supported by recorded material and the grounds of arrest disclose specific incriminating facts, Section 50 statements may be relied upon as admissible evidence along with corroborative material, and bail cannot be granted unless the accused satisfies the twin conditions under Section 45, including rebuttal of the statutory presumption under Section 24.
Seeking grant of regular bail - Money Laundering - proceeds of crime - reasons to believe - illegal procurement of empty vials and raw materials of anti-cancer drugs such as Keytruda and Opdyta - reasons to believe - whether the applicant’s arrest was carried out in adherence to the statutory requirements under Section 19 of the PMLA which mandates that the authorized officer must have ‘reason to believe’ based on material evidence before arresting an individual accused of money laundering?
HELD THAT:- After thorough examination of the grounds of arrest, it becomes evident that the investigating agency has outlined specific details highlighting the applicant’s involvement in the alleged offence. It is observed that the applicant was duly informed about his firm’s involvement and that the applicant was a partner is M/s Delhi Medicine Hub along with co-accused Akshay Kumar and both mutually took financial and business decisions regarding the procurement and sale of spurious anti-cancer medicines, which is clearly evident from the grounds of arrest - The investigating authority has also relied on statements recorded under Section 50 of the PMLA, which reveal that the applicant was directly involved in sourcing counterfeit medicines without invoices, demanding sealed and unsealed Keytruda injections, and receiving payments through both formal banking channels and illegal hawala transactions.
The financial records cited hereinabove indicate substantial money transfers from M/s Delhi Medicine Hub to the accounts of known associates involved in the counterfeit medicine syndicate. These transactions, along with the applicant’s control over the business operations, substantiate the claim that he was engaged in money laundering activities - This Court is satisfied that the investigating authority followed due process and substantiated the 'reason to believe' with concrete evidence rather than mere suspicion. Accordingly, the challenge to the legality of the arrest is without merit, and no relief is warranted to the applicant on this ground.
A careful reading of the provision reveals that the authorities empowered under Section 50 of the PMLA possess the authority to enforce discovery and inspection, compel the attendance of individuals, examine them on oath, require the production of records, receive evidence through affidavits, and issue commissions for the examination of witnesses and documents - The provision further clarifies that any person summoned under sub-section (2) is legally bound to comply, state the truth regarding matters under inquiry, and produce the requisite documents as directed by the authorities. It is pertinent to note that such proceedings are deemed to be judicial proceedings under Sections 193 and 228 of the IPC.
Whether the statements recorded under this provision are admissible as evidence and to what extent they can be relied upon to justify the applicant’s arrest and continued detention? - HELD THAT:- The Hon’ble Supreme Court in Rohit Tandon v. Directorate of Enforcement, [2017 (11) TMI 779 - SUPREME COURT] made the following observations regarding the admissibility of statements recorded under Section 50 of the PMLA - it is evident that statements recorded under Section 50 of the PMLA hold evidentiary value and are admissible in legal proceedings. The Hon’ble Supreme Court, while emphasizing the legal sanctity of such statements, observed that they constitute valid material upon which reliance can be placed to sustain allegations under the PMLA.
Hon’ble Supreme Court also reaffirmed the admissibility of Section 50 of the PMLA distinguishing them from statements recorded under the CrPC. The Court underscored that such statements, being recorded during an inquiry rather than an investigation, are not subject to the restrictions under Article 20(3) and Article 21 of the Constitution. Instead, they are deemed to be judicial proceedings under Section 50 (4) of the PMLA and, therefore, admissible as evidence in proceedings under the PMLA. The Hon’ble Court further clarified that the provisions of Section 50 of the PMLA having an overriding effect by virtue of Sections 65 and 71 of the PMLA prevail over the procedural safeguards under the CrPC. - this Court is of the considered view that statements recorded under Section 50 of the PMLA are admissible in evidence and can be relied upon to establish culpability in money laundering cases.
In the present case, the investigating agency has relied not only on the statement of co-accused under Section 50 of the PMLA but also on financial records, WhatsApp communications, and transactional data, which indicate the applicant's active role in the alleged money laundering activities - By virtue of Section 24 of the PMLA, the respondent is not required to conclusively establish the applicant's guilt at the pre-trial stage, rather, the applicant must demonstrate that the proceeds of crime attributed to him are not linked to money laundering. In the absence of any rebuttal by the applicant, the presumption under Section 24 of the PMLA stands in favor of the respondent, thereby, justifying his continued detention.
In light of the principles enunciated by the Hon’ble Supreme Court in Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT (LB)] and reiterated in Prem Prakash [2024 (8) TMI 1412 - SUPREME COURT] this Court must determine whether the foundational facts necessary to invoke the presumption under Section 24 of the PMLA have been established by the respondent. The Hon’ble Supreme Court has categorically held that the prosecution must satisfy three essential ingredients. First, the commission of a scheduled offence must be established. Second, the property in question must be shown to have been derived or obtained, directly or indirectly, as a result of such criminal activity and third, the accused must be linked, directly or indirectly, to any process or activity connected with the proceeds of crime.
It is observed by this Court that the respondent has presented corroborative material, including financial transactions and records, linking the applicant to the proceeds of crime. Considering the presumption under Section 24 of the PMLA, the burden shifted to the applicant to disprove his involvement in the alleged offence. However, the applicant has failed to provide any credible evidence to rebut the statutory presumption - this Court finds that the applicant’s arrest was conducted in compliance with the statutory mandate of Section 19 of the PMLA.
It is pertinent to mention here that the word used in the proviso to Section 45 of the PMLA is ‘may’ which indicates that it is the discretion of the Court concerned and it is not a mandate. As observed by the Hon’ble Supreme Court in a catena of judgments, it is the discretion of the Court and all the other relevant factors are needed to be weighed in while adjudicating the bail application. The relevant factors include the gravity of the offence, likelihood of reoccurrence, criminal antecedents etc. - this Court holds that the applicant cannot claim the benefit of the monetary threshold exemption under the proviso to Section 45 of the PMLA.
Conclusion - This Court is of the view that considering the filing of the first supplementary prosecution complaint and the ongoing nature of the investigation, this Court is not satisfied that the applicant has fulfilled the twin conditions under Section 45 of PMLA. The respondent has presented sufficient material to warrant further investigation, including financial records, electronic evidence, and statements of co-accused implicating the applicant. These materials suggest an active involvement in laundering proceeds of crime and a pattern of financial transactions that need further investigation.
The applicant has been unable to put forth any propositions before this Court that are sufficient for grant of bail and thus, the same are rejected. In view of the same, this Court is not inclined to release the applicant on bail and the instant application, is, hereby, dismissed along with the pending applications, if any - Bail application dismissed.
Issues Presented and Considered:
The core issue considered by the Court was whether the applicant fulfilled the twin conditions under Section 45 of the PMLA, 2002, for the grant of bail. This involved assessing whether there were reasonable grounds to believe that the applicant was not guilty of the offense and whether the applicant was unlikely to commit any offense while on bail.
Issue-wise Detailed Analysis:
Relevant Legal Framework and Precedents:
Section 45 of the PMLA, 2002, establishes stringent conditions for granting bail, requiring the court to be satisfied that the accused is not guilty and is unlikely to commit further offenses. The Court referred to various precedents, including the Supreme Court's judgments, which emphasize the seriousness of economic offenses and the need for thorough investigation in money laundering cases.
Court's Interpretation and Reasoning:
The Court analyzed the applicant's role in the alleged conspiracy involving illegal extortion related to coal transportation. It noted the applicant's alleged involvement in a syndicate that extorted significant sums of money and laundered proceeds through various transactions. The Court found that the evidence prima facie indicated the applicant's key role in the offense.
Key Evidence and Findings:
The Court referred to evidence collected by the Enforcement Directorate, including incriminating documents and statements from various individuals. The evidence suggested that the applicant coordinated the illegal activities and managed the proceeds of crime, which were used for political funding and other purposes.
Application of Law to Facts:
The Court applied the twin conditions of Section 45 of the PMLA, 2002, to the facts of the case. It concluded that the applicant had not demonstrated reasonable grounds for believing that he was not guilty of the offense. Additionally, the Court was not convinced that the applicant would not commit further offenses if released on bail.
Treatment of Competing Arguments:
The applicant's counsel argued that the applicant's prolonged incarceration and the delay in trial proceedings warranted bail. However, the Court found that the delay was not attributable to the prosecution and that the applicant's role as the alleged kingpin of the offense weighed against granting bail. The Court also rejected the argument that the applicant's medical condition justified bail, noting the applicant's refusal to undergo recommended medical tests.
Conclusions:
The Court concluded that the applicant failed to fulfill the twin conditions for bail under Section 45 of the PMLA, 2002. The evidence indicated the applicant's significant involvement in the offense, and there was a risk of influencing witnesses or tampering with evidence if bail were granted.
Significant Holdings:
The Court emphasized the rigorous requirements of Section 45 of the PMLA, 2002, for granting bail in money laundering cases. It reiterated that economic offenses constitute a separate class of offenses, and bail should not be granted lightly in such cases. The Court also highlighted the importance of considering the gravity of the offense and the role of the accused when assessing bail applications.
The final determination was that the bail application was rejected, and the applicant was not entitled to be released on bail. The Court's observations were not intended to influence the trial proceedings, which would be decided based on the evidence and material presented in court.
Seeking grant of bail - Money laundering - alleged illegal extortion on Coal Transportation, payments collected by the applicant and his associates - twin conditions of Section 45 of the PMLA, 2002 fulfilled or not - HELD THAT:- It is quite vivid that the applicant is unable to fulfill twin conditions for grant of bail as per Section 45 of the PMLA, 2002 and also considering the submission that the applicant has not prima facie reversed the burden of proof and dislodged the prosecution case which is mandatory requirement to get bail.
Hon'ble the Supreme Court in case of DIRECTORATE OF ENFORCEMENT VERSUS ADITYA TRIPATHI [2023 (5) TMI 527 - SUPREME COURT] has held that 'the High Court has neither considered the rigour of Section 45 of the PML Act, 2002 nor has considered the seriousness of the offences alleged against accused for the scheduled offences under the PML Act, 2002 and the High Court has not at all considered the fact that the investigation by the Enforcement Directorate for the scheduled offences under the PML Act, 2002 is still going on and therefore, the impugned orders passed by the High Court enlarging respective respondent No. 1 on bail are unsustainable and the matters are required to be remitted back to the High Court for afresh decision on the bail applications after taking into consideration the observations made hereinabove.'
Considering the ECIR and other material placed on record, which prima facie shows involvement of the applicant in crime in question and also considering the law laid down by Hon’ble the Supreme Court, it is quite vivid that the applicant is unable to fulfill the twin conditions for grant of bail as provided under Section 45 of the PMLA, 2002. Thus, the Point is answered against the applicant.
Conclusion - Applicant is unable to fulfill twin conditions for grant of bail as per Section 45 of the PMLA, 2002. The bail application filed under Section 483 of the Bhartiya Nagrik Suraksha Sanhita, 2023 is liable to be and is hereby rejected.
Bail application rejected.
Issues: Whether the applicant was entitled to regular bail in a prosecution under the Prevention of Money Laundering Act, 2002, having regard to the statutory twin conditions, the material collected during investigation, and the plea of prolonged incarceration and medical hardship.
Analysis: The application was considered under Section 45 of the Prevention of Money Laundering Act, 2002, which requires the Court to be satisfied that there are reasonable grounds for believing that the accused is not guilty and that he is not likely to commit any offence while on bail. The record was assessed on the basis of the investigation, the prosecution complaint, the statements recorded during investigation, and the material showing the alleged extortion-linked money trail. The Court found prima facie material indicating the applicant's role in the alleged laundering activity and held that the money trail and nexus with the alleged proceeds of crime were sufficiently disclosed at this stage. The plea based on health and long incarceration was not found sufficient to override the statutory rigour of the bail provision on the facts of the case.
Conclusion: The applicant did not satisfy the requirements for grant of bail under Section 45 of the Prevention of Money Laundering Act, 2002, and regular bail was declined.
Maintainability of proceedings under the Prevention of Money Laundering Act, 2002 (PMLA) in the absence of a scheduled offence - applicant's arrest and subsequent detention - lack of necessary sanction and procedural irregularities - Sufficiency of statements under Section 50 of the PMLA to establish a prima facie case of money laundering against the applicant - HELD THAT:- The crux of the allegation against the applicant is that he was involved in running an extortion racket by way of Rs. 20+20=Rs. 40/- per quintal of custom milled rice out of the special incentive price of Rs. 120/- payable by the State of Chhattisgarh to the custom rice millers. Hence the offence under Section 383/384 of the IPC has been levelled against the applicant. Similarly, the allegation of cheating under Section 420 IPC has been made against the applicant. Though it has been submitted by the counsel for the applicant that there is no direct or specific evidence against the applicant to suggest that he was involved in any of the offence as alleged in the subject ECIR or the prosecution complaint.
From the investigation of the ED, it has been revealed that the applicant was one of the key conspirator and main beneficiary of the POC extorted from the rice millers. It has also been revealed that the rice milers were forced for payment of the same under threat that their incentive bills would not be cleared from the MARKFED. As per Section 50(4) of the PML Act, the statements recorded under Section 50 of the PMLA has evidentiary value as the proceedings under Section 50(2) and (3) are deemed to be a judicial proceeding within the meaning of Section 193 and 228 of the IPC, 1860.
The applicant is closely connected with POC as he had deputed some persons at certain place and the cash was not physically taken by him but it was initially demanded by the applicant and payment, he conveyed it to the rice millers over phone. It has come in the statements of some of the rice millers who have personally handed over the extortion amount as demanded by the applicant - the application for bail of the Appellant should be seen at this stage while the Appellant is involved in the economic offence, in general, and for the offence punishable Under Section 4 of the PMLA, in particular.
In the present case, it is not acceptable that the applicant was not involved in the offence of money laundering. In fact, the applicant was assisting the co-accused Roshan Chandrakar in running an alleged extortion racket wherein an amount of Rs. 40/- (Rs. 20+20/-) per quintal was extorted from the custom milled rice out of the special incentive price of Rs. 120/- payable by the State Government to the custom rice millers Denial by the applicant itself is not sufficient to consider prima facie that there is no mens rea of the applicant in the said offences. Although the statements of the witnesses are required to be tested at the time of trial, but for the purpose of consideration of bail application, the statements of the witnesses are relevant for consideration of bail application of the applicant.
It cannot be said that there is no involvement of the applicant in the offence in question. The Court after examining the entire documents found substantial material indicating a strong nexus between the applicant and the other accused persons in the commission of the crime. There were documents and evidences that reflected the involvement of the applicant and he is the key conspirator and beneficiary from the said scam. The investigation have revealed that the applicant was involved in the extortion of money from the rice millers which was allegedly used for constituting proceeds of crime.
The applicant’s medical record indicates manageable conditions and it has been found that there is no compelling medical reason for granting bail to the applicant. The Court has found substantial material indicating a strong nexus between the applicant and the crime, thereby failing to satisfy the conditions of bail under Section 45 of the PMLA.
The guilt of the accused in the offence of money laundering has been gathered and since, the allegations against the applicant were extremely serious and taking into account, the nature and gravity of the offence and from perusal of the record and in view of the fact that looking to the special and stringent provision under Section 45(1) of the PMLA for grant of bail, in the considered opinion of this Court, prima facie the money trail has been established by the prosecution and therefore, it is not proper to order release of present applicant on regular bail for the reasons.
Conclusion - Considering the role of the applicant in obtaining the money through illegal source, which is the proceeds of crime and that there is sufficient evidence collected by the ED to prima facie show the involvement of the applicant in the alleged offences. It is an organized crime having various facets of its complexion, therefore, further considering the nature of offence and material collected during the investigation, this Court is satisfied that there is prima facie evidence for believing that the applicant is involved in the offence, therefore, it is not required to release the applicant on bail.
The prayer for bail made by the applicant under Section 483 of the Bhartiya Nagrik Suraksha Sanhita, 2023 (BNSS) read with Section 45 of the PMLA, 2002 for the offences under Section 3 & 4 of the PMLA, 2002, deserves to be and is hereby rejected.
Issues: (i) Whether service tax was payable on Construction of Complex Service for the period prior to 01.07.2010. (ii) Whether the demand under Management, Maintenance or Repair Service relating to defence establishments and electricity transmission or distribution activities was sustainable in view of the exemption notifications and section 98 of the Finance Act, 2012.
Issue (i): Whether service tax was payable on Construction of Complex Service for the period prior to 01.07.2010.
Analysis: The demand pertained to a period before 01.07.2010, and the issue stood covered by the settled legal position that such levy was not sustainable for that period. The demand under this category therefore did not survive.
Conclusion: The demand under Construction of Complex Service was not sustainable and was decided in favour of the assessee.
Issue (ii): Whether the demand under Management, Maintenance or Repair Service relating to defence establishments and electricity transmission or distribution activities was sustainable in view of the exemption notifications and section 98 of the Finance Act, 2012.
Analysis: Services relating to non-commercial government buildings stood covered by section 98 of the Finance Act, 2012 for the relevant period, so no demand survived on that aspect. For the remaining Management, Maintenance or Repair Service, the Tribunal held that Notification No. 45/2010-ST, read with the earlier notifications concerning transmission and distribution of electricity, extended exemption to services rendered in relation to transmission and distribution of electricity. The services in question were found to fall within that scope.
Conclusion: The demand under Management, Maintenance or Repair Service was not sustainable and was decided in favour of the assessee.
Final Conclusion: The assessee succeeded on the substantive tax disputes, while the Revenue's challenge to the exemption granted for the electricity-related services failed.
Ratio Decidendi: Where the relevant period is covered by a statutory exemption or by an exemption notification extending to services in relation to transmission and distribution of electricity, no service tax demand can be sustained on those services.
Applicability of Service Tax on certain services provided by the appellant - classification and exemption of services under the categories of Construction of Complex Service (CCS) and Management, Maintenance or Repair Service (MMRS) - HELD THAT:- It is obvious that in the course of adjudication, they were able to exclude certain activities not covered within the MMRS to building, etc., for which the feasibility under the exemption notification 45/2010-ST was also examined. It is also obvious that while examining the same, the Adjudicating Authority felt that they will fall either in the category of transmission or distribution of electricity and by considering that ‘in relation to’ is an expression which includes varied nature of activities and therefore, granted them the benefit of exemption notification in relation to such activities, which were not covered by virtue of section 98 of the Finance Act, 2012.
In respect of non-commercial MMRS to buildings, after the amendment in Finance Act, 2012, vide section 98, no demand will survive. For the MMRS to others, the exemption notification 45/2010-ST needs to be examined and we have examined the same. It is found that there was Notification No. 11/2010-ST dt.27.02.2010, which exempted the services provided for transmission of electricity. Similarly, in terms of Notification No. 32/2010-ST dt.22.06.2010, the services provided for distribution of electricity were exempt - the Adjudicating Authority has considered this notification 45/2010-ST to cover that entire activity of MMRS as falling in the category of transmission and distribution of electricity.
N/N. 45/2010-ST does not provide for such expression and it merely covers services in relation to transmission and distribution of electricity. The Adjudicating Authority has clearly brought out these facts in the impugned order and has categorically held that these activities are squarely covered within the ambit of transmission or distribution of electricity. In view of the same, we find that there is nothing wrong in the order of the Commissioner extending the benefit of notification 45/2010-ST for MMRS provided in relation to transmission and distribution of electricity to defence establishments.
Conclusion - i) The demand for Service Tax under CCS for the period prior to 01.07.2010 is unsustainable. ii) The MMRS provided to non-commercial government buildings, specifically defense establishments, are exempt from Service Tax for the period covered by the SCN, as per the amendment in the Finance Act, 2012, section 98. iii) The application of Notification No. 45/2010-ST to MMRS related to transmission and distribution of electricity is appropriate, and the exemption is applicable to the appellant's services.
Appeal allowed.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Classification under Management Consultancy Services
2. Export of Services
3. Service Tax on Out-of-Pocket Expenses
4. Extended Period, Penalties, and Cum-Duty Benefits
SIGNIFICANT HOLDINGS
Leviability of tax on actual performance of management activities - Management Consultancy Services - services rendered by the appellants to clients located outside India qualify as "Export of Services" - exemption from service tax - service tax on out-of-pocket expenses (OPE) - extended period of limitation.
Leviability of tax on actual performance of management activities - HELD THAT:- The Tribunal in the case of appellant’s themselves [2014 (8) TMI 227 - CESTAT NEW DELHI] finds that 'Though the definition at Section 65(65) includes any service in connection with management of any organization, the scope of the definition gets restricted to services in relation to consultancy as is evident from the name given to the service and commercial understanding of the expression “Management or Business Consultancy.” - CESTAT has been consistently holding that actual performance of the activities do not fall under Management Consultancy Service. Therefore, the issue stands decided in favour of the appellants.
Export of services - HELD THAT:- Tribunal Ahmedabad Bench in the case of B A Research India Ltd. [2009 (11) TMI 213 - CESTAT, AHMEDABAD] held that 'The performance of testing and analysing has no value unless and until it is delivered to its client and the service is to be complete when such report is delivered to its client. Thus, delivery of report to its client is an essential part of the service report was delivered outside India and same was used outside India. This is not the disputed fact. We hold that the respondent satisfied the conditions of Rule 3(2) and accordingly the respondents are eligible for the exemption under Notification No. 11/2007-S.T. dated 1-3-2007.' - thus the Export of Services claimed by the appellants is in order and the impugned order cannot be sustained on this count.
Levy of service tax on the Out-of-Pocket Expenses - HELD THAT:- The dispute has been laid to rest by the decision in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. [2012 (12) TMI 150 - DELHI HIGH COURT]. The learned Commissioner did not have the benefit of the said judgment while passing the impugned order. This Bench in the case of Smt. Ritu Arora [2023 (11) TMI 1130 - CESTAT CHANDIGARH] has followed the above decision. In view of the same, this issue also stands settled in favour of the appellants.
Appeal allowed.
The core legal issue in this judgment revolves around whether the reimbursement of fixed costs by the appellant to refrain from utilizing their plant and machinery for other parties constitutes a "service" under Section 66E(e) of the Finance Act, 1994, thereby attracting service tax liability. The Tribunal had to consider if the activities under the "Loan License Agreement" could be classified as a declared service or if they were integral to the job work manufacturing process, exempt from service tax.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The primary legal framework involves the interpretation of Section 66E(e) of the Finance Act, 1994, which deals with declared services. The Tribunal also considered Section 66F, which provides guidelines for determining the taxability of bundled services. Relevant precedents include prior Tribunal decisions such as the case of Commissioner of Central Excise & Service Tax, Anand vs. Standard Pesticides Pvt. Limited and others like Brindavan Bottlers Pvt. Limited vs. CCE&ST, Lucknow, which dealt with similar issues of job work and service tax liability.
Court's Interpretation and Reasoning
The Tribunal found that the Learned Commissioner (Appeal) had erred by not considering established legal pronouncements and precedents. The Tribunal emphasized that the agreement between the appellant and their principal manufacturer primarily constituted a job work manufacturing agreement. The fixed cost reimbursement was seen as an integral part of the job work charges, aimed at maintaining confidentiality and exclusive use of plant and machinery for the principal manufacturer, rather than a separate service.
Key Evidence and Findings
The Tribunal reviewed the manufacturing agreement clauses, which highlighted the non-exclusive nature of the arrangement and the confidentiality obligations. It was noted that the fixed charges were essential for maintaining the proprietary interest and confidentiality of the principal manufacturer, and were not independent of the manufacturing activity.
Application of Law to Facts
The Tribunal applied the legal principles from Section 66F to determine that the fixed charges were not a declared service under Section 66E(e). The charges were directly related to the job work and manufacturing process, and thus, did not warrant separate service tax liability. The Tribunal also referenced previous decisions to support the view that manufacturing agreements with fixed and variable cost components should not be split for service tax purposes.
Treatment of Competing Arguments
The Tribunal dismissed the department's argument that the fixed cost reimbursement constituted a separate service. It highlighted that the department failed to establish that the fixed charges were independent of the manufacturing activity. The Tribunal also refuted the applicability of Section 66F in this context, as there was no dispute regarding service classification or bundling.
Conclusions
The Tribunal concluded that the fixed cost reimbursement was part of the job work manufacturing agreement and not a declared service. Therefore, the service tax demand was not sustainable under the Finance Act, 1994.
SIGNIFICANT HOLDINGS
The Tribunal's significant holding was that the fixed cost reimbursement did not fall under the declared service category as per Section 66E(e) of the Finance Act, 1994. The Tribunal emphasized the importance of considering the agreement in its entirety and recognized that the fixed and variable cost components were integral to the job work manufacturing process.
Core Principles Established
The judgment reinforced the principle that job work manufacturing agreements involving fixed and variable costs should be viewed in their entirety for service tax purposes. It established that confidentiality and exclusive use obligations within such agreements do not constitute separate services under declared service provisions.
Final Determinations on Each Issue
The Tribunal set aside the impugned order-in-appeal, thereby allowing the appeal and dismissing the cross-objection. The decision underscored that the fixed cost reimbursement was not subject to service tax as a declared service, aligning with previous Tribunal decisions on similar matters.
Service or not - reimbursement of fixed costs by the appellant to refrain from utilizing their plant and machinery for other parties - levy of service tax - HELD THAT:- Learned Commissioner (Appeal) while adjudicating the matter has not considered various legal pronouncements on this issue.
The matter is no longer res-integra, as the matter has already been decided by this Tribunal in case of the appellant in case of Commissioner of Central Excise & Service Tax, Anand Vs. Standard Pesticides Pvt. Limited [2024 (3) TMI 1043 - CESTAT AHMEDABAD] where it was held that 'The fact that appellant (earlier known as PMSL) was charging two components towards job-charges separated as fixed cost and variable cost cannot alter this situation so long as goods were manufactured. In a situation where goods were not manufactured but charges were collected under the fixed component it could have been considered as a service. While working out cost of any manufactured product costing is done by splitting cost elements into fixed cost and variable cost and that cannot change the nature of the activity. What could have changed the nature of the activity is a situation where no manufacturing activity took place and still the appellant collected their charges.'
There is no merit in the impugned order-in-appeal - Appeal allowed.
Issues: (i) whether TDS could be added again to the gross contract amount for arriving at the taxable value; (ii) whether the disputed construction, electrical and road-related works were exempt or eligible for abatement, including denial of benefit under the relevant notification; (iii) whether service tax was payable by sub-contractors where the main contractors had discharged tax, and whether extended period and penalty were sustainable.
Issue (i): whether TDS could be added again to the gross contract amount for arriving at the taxable value.
Analysis: The taxable value had been computed by adding TDS to the gross amount shown in the contract documents. The record showed that TDS was already deducted from the amount payable to the appellant, so the amount paid itself represented the gross amount for service tax computation. Re-adding TDS inflated the assessable value and did not reflect any additional consideration.
Conclusion: The addition of TDS to the gross amount was impermissible and the demand on this count was set aside in favour of the assessee.
Issue (ii): whether the disputed construction, electrical and road-related works were exempt or eligible for abatement, including denial of benefit under the relevant notification.
Analysis: The works relating to storm water drains, small culverts, toilets, security walls, underground cable laying, wiring and rewiring of quarters, and road or path works were examined against the applicable Board clarifications, circulars and exemption entries. The construction of civic amenities and works relating to roads, dams and similar infrastructure were treated as outside the taxable net or otherwise covered by the relevant clarifications. For the shopping complex contract, the denial of abatement on the premise that free supplies were not proved could not be sustained because the value of free supplies was not to be included in the gross amount charged for the service. The legal framework applied the relevant exemption guidance, the notification granting abatement, and the principle that free supply material is excluded from taxable value.
Conclusion: The service tax demand on these exempt or abated works was unsustainable and was set aside in favour of the assessee.
Issue (iii): whether service tax was payable by sub-contractors where the main contractors had discharged tax, and whether extended period and penalty were sustainable.
Analysis: The appellant produced letters from the main contractors indicating discharge of tax on the contracts. The Larger Bench ruling on sub-contractor liability was followed to hold that a sub-contractor remains liable to service tax on taxable services rendered to a main contractor, and the existence of tax payment by the main contractor did not by itself negate the liability. At the same time, the existence of contrary views during the material period showed that the issue was debatable, so suppression could not be alleged. Consequently, extended limitation and penalty were not justified, and the demand survived only for the normal period, to be worked out afresh with interest.
Conclusion: The sub-contractor demand was sustained only for the normal period, while extended-period demand and penalty were set aside, resulting in partial relief to the assessee.
Final Conclusion: The demand was substantially reduced, with major components set aside, the sub-contractor liability confined to the normal period, and the matter remanded only for quantification of tax and interest for that surviving portion.
Ratio Decidendi: For service tax computation, TDS already deducted from the payment cannot be added again to the gross amount; free-supply material is excluded from the taxable value for abatement purposes; and a sub-contractor's liability survives notwithstanding tax payment by the main contractor, though a debatable legal position may preclude extended limitation and penalty.
Addition of TDS on the gross amount to arrive at the taxable value - Service Tax demand on exempted services - denial of Abatement under N/N.1/2006 - liability of sub-contractors to pay service tax.
Addition of TDS on the gross amount to arrive at the taxable value - HELD THAT:- It is found from Annexure-II attached to the show cause notice that in order to arrive at the taxable value, TDS amount is added to the Gross amount of the contract value, whereas in the Form 16A enclosed with the appeal, it is found that the TDS amount is deducted from the amount paid to the appellant and hence, the amount paid is itself the gross amount. Therefore, adding TDS amount once again has resulted in arriving at the inflated taxable value. TDS is always deducted from the amount payable and it is not any other consideration. Therefore, the demand on this score cannot sustain and hence, the impugned order to this extent is set aside.
Service Tax demand on exempted services - denial of Abatement under N/N.1/2006 - HELD THAT:- Construction of (a) Toilets at TNEB office (b) Construction of Security Protection wall (i) in and around LMHEP Barrage unit (ii) right side of Dam Power House, (iii) in and around of central stores and raising of compound wall of the central stores are exempt in terms of Letter F. No. B2/8/2004 TRU dt.10.09.2004 - Similarly, Laying of underground power cable at Lower Mettur Hydro Electric Projects at Chekkanur Barrage, Nerinjipettai Barrage, and Kuthiraikkalmedu Barrage are exempt from tax in terms of Board’s Clarification in C. No. 123/5/2010-TRU dt. 24.05.2010 (F. No. 332/5/2010 - TRU) and Circular No. 62/11/2003 – ST - dated 21.8.2003 (F. No. B3/7/2003-TRU) - Wiring and rewiring at quarters/town quarters and LMHEP quarters at Kuthiraikkalmedu is also exempt from service tax vide Board’s Circular No. 62/11/2003-S.T., dated 21-8-2003 F. No. B3/7/2003-TRU - Providing WBM and Black topping over existing path in Thokkanampatti camp area and inside barrage -II at Nerinjipettai is exempt from service tax as per Section 65(25b) of the Finance Act, 1994, in terms of Para 2(i) of Board’s Circular No.123/5/2010 TRU dated 24.05.2010 in F.No.332/5/2010-TRU.
The demand made in the impugned order on this score also cannot sustain and hence, the impugned order to this extent stands set aside.
Liability of sub-contractors to pay service tax - HELD THAT:- The Larger Bench in the case of COMMR. OF S.T., NEW DELHI vs MELANGE DEVELOPERS PRIVATE LIMITED [2019 (6) TMI 518 - CESTAT NEW DELHI-LB] held that 'in the scheme of Service Tax, the concept of Cenvat credit enables every service provider in a supply chain to take input credit of the tax paid by him which can be utilized for the purpose of discharge of taxes on his output service. The conditions for allowing Cenvat credit have been provided for in Rule 4. The mechanism under the Cenvat Credit Rules also ensures that there is no scope for double taxation‘.'
Suppression of facts - penalty - HELD THAT:- The suppression cannot be alleged and hence, consequent penalty is not imposable.
Conclusion - i) The demand of service tax confirmed in the impugned order except sub-contractors, are set aside. ii) The demand of service tax on sub-contractors is sustained only for normal period and the other demand confirmed in the OIO by invoking extended period is set-aside. iii) The matter is remanded for the limited purpose of determining of tax liability for the normal period, along with applicable interest, but however, there shall be no penalty on such determination of tax and interest.
Appeal allowed by way of remand.
1. Whether the amount of Rs.16,14,167/- deposited by the appellant on 19.12.2013 should be treated as a service tax liability or as a pre-deposit in terms of Section 35F of the Central Excise Act, 1944.
2. Whether the refund claim of the pre-deposit amount was time-barred under Section 11B of the Central Excise Act, 1944.
3. Whether the appellant was entitled to interest on the refund amount from the date of deposit.
In addressing the first issue, the Tribunal examined the legal framework and precedents related to Section 35F of the Central Excise Act. The Tribunal's order dated 11.11.2013 required the appellant to remit Rs.9,66,000/- plus interest as a condition for staying further proceedings. The Tribunal noted that the amount was deposited to avail the remedy of statutory appeal and was not a payment of duty. The Tribunal referred to several decisions, including Barmer Lignite Mining Company Ltd. and Chambal Fertilizers and Chemicals Ltd., which established that amounts deposited during adjudication or investigation are considered revenue deposits, not duty payments.
The Tribunal found that the amount deposited by the appellant was a pre-deposit under Section 35F, not a service tax liability. The Tribunal emphasized that the statutory appeal process requires compliance with conditions laid down in the statute, and the appellant's deposit was in compliance with such conditions.
Regarding the second issue, the Tribunal analyzed whether the refund claim was time-barred under Section 11B. The Tribunal noted that Section 11B's limitation period does not apply to pre-deposits made under Section 35F, as clarified by departmental circulars. These circulars, dated 12.01.2002, 08.12.2004, and 16.09.2014, clarified that pre-deposits are not equivalent to duty payments, and thus, the limitation period for duty refunds does not apply. The Tribunal concluded that the appellant's refund claim was not time-barred.
On the third issue, the Tribunal considered the appellant's entitlement to interest on the refund amount. The Tribunal cited the case of Executive Engineer (Workshop) M. P. Power Transmission Co. Ltd., which held that interest on delayed refunds is payable from the date of deposit. The Tribunal also referenced the Supreme Court's decision in Sandvik Asia Ltd., which recognized the liability of the Department to pay interest on amounts wrongfully withheld. Consistent with its practice, the Tribunal granted interest at the rate of 12% per annum on the refund amount.
The Tribunal's significant holdings included:
- The amount deposited by the appellant was a pre-deposit under Section 35F and not a service tax liability.
- Section 11B's limitation period does not apply to refunds of pre-deposits made under Section 35F.
- The appellant is entitled to a refund of the pre-deposit amount along with interest at 12% per annum from the date of deposit.
The Tribunal set aside the impugned order and directed the Department to refund the amount deposited by the appellant on 19.12.2013, along with interest at the rate of 12% per annum. The appeal was allowed with consequential benefits.
Refund of amount which the appellant had deposited in compliance to the Stay Order dated 11.11.2013 by the Tribunal - rejection of refund claim on the ground of time limitation - non-submission of the re-conciliation statement of the service tax paid on “Renting of Immovable Property Services”.
Whether the amount of Rs.16,14,167/- deposited by the appellant on 19.12.2013 has to be treated towards the service tax liability or as pre-deposit in terms of Section 35F? - HELD THAT:- The Tribunal has granted waiver of pre-deposit and stayed the proceedings in terms of the impugned order, subject to the condition that the appellant shall remit the requisite amount along with interest within a period of 6 weeks. The order passed is simple and clear that the appellant was required to make the pre-deposit for consideration or appeal and also to avail the benefit of the Stay Order as otherwise, they would have suffered the dismissal of appeal. The amount in the form of pre-deposit is also towards the liability of tax to avail the remedy of statutory appeal. Learned counsel for the appellant submitted that Section 35F before substitution by the Act 25 of 2014 (w.e.f. 06.08.2014) required the assessee to deposit the duty demanded or the penalty levied for challenging the impugned order and the appellant was required to make an application for dispensing with the pre-deposit of duty demanded or penalty levied.
The appeal under the provisions of Section 35F is a statutory appeal and it is a settled principle of law that a statutory appeal is maintainable subject to the compliance of the conditions laid down in the statue providing the remedy of appeal. Section 35F, in unequivocal terms says person desirous of appealing the order demanding the duty is required to deposit the duty/ penalty demanded, pending the appeal. in terms thereof, the Tribunal directed the appellant to deposit part of the duty amount involved and appellant paid the same in compliance thereof.
The interest on delayed refund has been held to be payable to the assessee from the date of deposit in the case ofExecutive Engineer (Workshop) M. P. Power Transmission Co. Ltd., vs. Commissioner (Appeals) Central Excise Customs & CGST [2025 (1) TMI 1254 - CESTAT NEW DELHI] till the date of its refund. In similar circumstances where refund was directed to be paid to the assessee, we had also granted interest @ 12% per annum.
Conclusion - i) The amount deposited by the appellant was a pre-deposit under Section 35F and not a service tax liability. ii) Section 11B's limitation period does not apply to refunds of pre-deposits made under Section 35F. iii) The appellant is entitled to a refund of the pre-deposit amount along with interest at 12% per annum from the date of deposit.
The impugned order is unsustainable and is hereby set aside - Appeal allowed.
The core legal issues considered in this judgment include:
1. Whether the invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, was justified in the case of the appellant for the alleged short payment of service tax.
2. Whether the demand for service tax for the period from April 2011 to September 2011 was barred by limitation.
3. Whether the appellant had suppressed material facts with the intent to evade the payment of service tax, thereby justifying the invocation of the extended period of limitation for the period from October 2011 to March 2012.
ISSUE-WISE DETAILED ANALYSIS
1. Invocation of Extended Period of Limitation
Relevant Legal Framework and Precedents: The invocation of the extended period of limitation is governed by the proviso to Section 73(1) of the Finance Act, 1994, which allows for a five-year period in cases of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax. The Supreme Court in cases like Pushpam Pharmaceuticals Co. and Anand Nishikawa Co. Ltd. has clarified that "suppression of facts" must be deliberate and with intent to evade tax.
Court's Interpretation and Reasoning: The Tribunal examined whether the appellant had suppressed facts with intent to evade tax. It considered the appellant's argument that an audit had been conducted, and no objections were raised at that time. The Tribunal found that the mere omission to declare certain income does not constitute willful suppression unless it is deliberate and intended to evade tax.
Key Evidence and Findings: The appellant had undergone an audit for the financial year 2011-12, where records were examined, including the balance sheet and trial balance, which mentioned bus charges receipts. No objections were raised in the audit report dated 16.04.2013.
Application of Law to Facts: The Tribunal applied the legal principles established in precedent cases, emphasizing that suppression must be willful and with intent to evade tax. The Tribunal found no evidence of such intent on the part of the appellant.
Treatment of Competing Arguments: The Tribunal considered the department's argument that the appellant failed to disclose bus charges in the ST-3 Returns. However, it found that the department was aware of these charges during the audit, and the delay in issuing the show cause notice undermined the department's position.
Conclusions: The Tribunal concluded that the extended period of limitation was not justified as there was no willful suppression of facts with intent to evade tax.
2. Limitation for Demand from April 2011 to September 2011
Relevant Legal Framework: Section 73(1) of the Finance Act, 1994, prescribes a one-year limitation period for service tax demands, extendable to five years in cases of fraud or suppression.
Court's Interpretation and Reasoning: The Tribunal noted that the demand for the period from April 2011 to September 2011 was issued beyond the five-year period allowed under the extended limitation.
Key Evidence and Findings: The Tribunal considered the relevant dates for filing returns and the issuance of the show cause notice, confirming that the demand was time-barred.
Application of Law to Facts: The Tribunal applied the statutory limitation period and found the demand for this period to be barred by time.
Conclusions: The Tribunal held that the demand for the period from April 2011 to September 2011 was barred by limitation.
SIGNIFICANT HOLDINGS
Core Principles Established: The Tribunal reaffirmed that for the extended period of limitation to apply, there must be willful suppression of facts with intent to evade tax. Mere omission or failure to declare does not suffice.
Final Determinations on Each Issue: The Tribunal set aside the order of the Commissioner (Appeals), holding that the service tax demand for the period from April 2011 to September 2011 was time-barred and that the extended period of limitation for the period from October 2011 to March 2012 was not applicable due to the absence of willful suppression or intent to evade tax.
Recovery of service tax with interest and penalty - it is alleged that for the period 2011-2012, it had shown less income, thereby, made short payment of service tax - invocation of extended period of limitation.
Invocation of Extended period of limitation - HELD THAT:- It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within one year from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay amount specified in the notice.
The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word “one year”, the word “five years” has been substituted - the demand for the period from April, 2011 to September, 2011 is hit by limitation as it is even beyond the period of five years.
Whether the extended period of limitation could have been invoked in the facts and circumstances of the case for the period from October, 2011 to March, 2012? - HELD THAT:- It is correct that section 73 (1) of the Finance Act does not mention that suppression of facts has to be “wilful‟ since “wilful‟ precedes only misstatement. It has, therefore, to be seen whether even in the absence of the expression “wilful” before “suppression of facts” under section 73(1) of the Finance Act, suppression of facts has still to be willful and with an intent to evade payment of service tax. The Supreme Court and the Delhi High Court have held that suppression of facts has to be “wilful‟ and there should also be an intent to evade payment of service tax.
In PUSHPAM PHARMACEUTICALS COMPANY VERSUS COLLECTOR OF C. EX., BOMBAY [1995 (3) TMI 100 - SUPREME COURT], the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since “suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty.
The extended period of limitation could have been invoked only if there was suppression of facts with intent to evade payment of service tax.
Conclusion - The service tax demand for the period from April, 2011 to September, 2011 is beyond the period of five years and the service tax demand from October, 2011 to March, 2012 could not have been confirmed and the extended period of limitation could not have been invoked.
Appeal allowed.
The core legal issues addressed in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Storage & Warehousing Services (SWS):
Goods Transport Agency (GTA) Services:
Section 73A - Collection and Non-payment of Service Tax:
Penalties under Sections 76, 77, and 78:
Limitation:
Penalty Rate under Section 76:
3. SIGNIFICANT HOLDINGS
The Tribunal held that:
The Tribunal remanded the appeals for redetermination of demand and penalty in light of its observations and directions.
Failure to discharge proper service tax - Storage and Warehousing Services (SWS) - Goods Transport Agency service (GTA) - Renting of Immovable Property Service (RIS) - whether in the facts of the case, the demand levied on the appellant under section 73 under different categories viz., SWS, GTA and RIS as also under section 73A are sustainable or otherwise?
Storage and Warehousing Services (SWS) - HELD THAT:- The rates have been prescribed for various activities covered within the ambit of rake handling contract and it was agreed that the appellant will pay wharfage and demurrage charges, if any, in time to Railways and inform the company for reimbursement. Therefore, the perusal of these documents, which clearly show that it was agreed upon that initially the appellants would pay to railways the wharfage and demurrage charges and thereafter, claim the same on actual basis from cement companies. These documents support the submission of the appellant that they were merely paying on behalf of the cement companies and it was on reimbursement basis. The Adjudicating Authority has denied the exclusion of these charges primarily on the grounds that there is no evidence to suggest that this was being reimbursed on actual basis by the cement companies to the appellant, which, however, is not correct, in view of the representative documents submitted by the appellant. In any case, the department’s stand is that in terms of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, any amount received as reimbursement needs to be included in the gross value. However, in view of the judgment of Hon’ble High Court of Delhi, subsequently, upheld by Hon’ble Supreme Court, in the case of Intercontinental Consultants & Technocrats Pvt Ltd [2018 (3) TMI 357 - SUPREME COURT], Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 was held ultravires. It was only after amendment in Section 67 by the Finance Act, 2015, the reimbursement expenditure or costs were required to be included for determination of gross value. Therefore, in view of this decision, any amount proposed to be included in the gross value on SWS, which has been received on reimbursement basis would not sustain and on this ground also, demand to the extent of non-inclusion of income on account of reimbursable wharfage and demurrage charges would not sustain.
Goods Transport Agency service (GTA) - HELD THAT:- In the facts of the case, the Service Tax liability has to be made good by the cement companies on RCM basis and not by them, whereas, the department is also admitting that this amount of transportation charges from the railway station to their godown is not taken into account for the purpose of calculating gross value and short payment and only ex-godown has been taken into consideration. The other issue is whether department has relied on the income shown as local transportation charges, which has been subsequently reimbursed at agreed rate, as also any other charges, which could be on account of their having paid initially for transportation of goods from railway station or godown directly to the distributor premises and later recovered by them. Since these aspects are not clear from the facts of the case, this needs to be ascertained.
Applicaility of Section 73A - HELD THAT:- There is enough evidence to suggest that certain amount collected has already been paid and therefore, entire amount cannot be considered as recoverable. There is some dispute about actual amount of Service Tax paid from the amount collected, which has to be corroborated with the evidence. Therefore, this also needs to be ascertained.
Imposition of penalty on RIS - HELD THAT:- The penalty under Section 76, 77 & 78 would not survive if the payment including interest has already been made prior to 2012 itself. This also needs to be re-ascertained and reconciled before imposing penalty for balance amount of Service Tax collected but not paid before 2012.
Time limitation - HELD THAT:- The demand is based on P&L account and ST3 returns and it is an admitted position that this P&L account breakup and other things were not reflected in ST3 returns and in fact, they have taken various grounds in defence of denying leviability of Service Tax on income reflected in P&L account including their being pure agent, etc. In the facts of the case, we find that ground of limitation has been rightly invoked. However, it is subject to demand getting sustained on merit itself in the denovo proceedings.
Conclusion - i) The demand for including wharfage and demurrage charges in the gross value for SWS is unsustainable, and this portion of the demand is set aside. ii) The issue of GTA service liability is remanded for determination of who is liable to pay the Service Tax and whether the cement companies have discharged the liability. iii) The amount of Service Tax collected and paid under Section 73A needs to be redetermined, and penalties should be reassessed accordingly. iv) Penalties under Sections 76 and 78 cannot be imposed simultaneously, and reassessment is required based on the sustainable demand. v) The issue of the correct penalty rate under Section 76 is remanded for determination based on the actual cut-off date and statutory provisions.
Appeal allowed in part by way of remand.
Issues: Whether the Tribunal had decided the substantive dispute as to admissibility of credit on fuel used to generate electricity that was allegedly cleared to the electricity board instead of being used within the factory, and whether the matter required remand for decision on that issue.
Analysis: The adjudicating authority had proceeded on the basis that credit on fuel used for generation of electricity injected into the grid and adjusted in the electricity bill was inadmissible because the electricity was not used within the factory for manufacture of final products. The Tribunal, however, proceeded on the footing that the same quantity of electricity was received back under the wheeling arrangement and therefore held the demand unsustainable. The High Court found that the core controversy was not actually determined by the Tribunal, since the Tribunal did not examine the department's case that the electricity generated in the captive plant was sold or cleared to the electricity board and, on that basis, the credit had been wrongly availed.
Conclusion: The matter was required to be remanded to the Tribunal for decision on the substantive dispute.
CENVAT Credit - electricity generated by the respondent's captive power plant and subsequently cleared to the Haryana State Electricity Board (HSEB) was used in the manufacture of final products within the factory - suppression of facts or not - extended period of limitation - HELD THAT:- The dispute in the present case is that the electricity generated in captive plant was not used in or relation to manufacture of final products within the factory of production but was sold to HSEB whereas learned Tribunal did not decide this dispute and held that there is no dispute with regard to the appellant receiving same quantity of electricity which was cleared to the Electricity Board, therefore, the issue in dispute was never decided by the learned Tribunal.
The matter was remanded for reconsideration of whether the electricity was used in manufacturing within the factory, as required for credit eligibility.
The primary issue considered in this judgment is whether the appellant is entitled to the benefit of CENVAT Credit under the CENVAT Credit Rules, 2004, despite having claimed depreciation on the same capital goods under Section 32 of the Income Tax Act, 1961. This involves examining whether the appellant's actions constituted a violation of Rule 4(4) of the CENVAT Credit Rules, 2004, and whether the subsequent reversal of depreciation claims through revised income tax returns rectifies the initial violation.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework centers around Rule 4(4) of the CENVAT Credit Rules, 2004, which stipulates that CENVAT Credit on capital goods is not allowed for the portion of the value of capital goods that represents the amount of duty claimed as depreciation under the Income Tax Act, 1961. This rule is designed to prevent the double benefit of both CENVAT Credit and depreciation on the same capital goods.
Court's Interpretation and Reasoning
The Court interpreted Rule 4(4) as prohibiting the simultaneous claiming of CENVAT Credit and depreciation on the same capital goods. The appellant admitted to availing both benefits, which the Court found to be a clear violation of the rule. The Court emphasized that the appellant's subsequent action of filing revised income tax returns did not retroactively correct the initial breach of the rule.
Key Evidence and Findings
The appellant initially availed CENVAT Credit amounting to Rs. 2,78,012/- on capital goods and simultaneously claimed depreciation on these goods in their income tax returns. The audit conducted by the Central Excise team revealed this dual benefit, prompting the appellant to file a revised income tax return. However, the revised return was for a later assessment year, and no revised returns were filed for the years in which the dual benefit was claimed.
Application of Law to Facts
The Court applied Rule 4(4) to the facts, concluding that the appellant's actions constituted a violation of the rule. The appellant's failure to file revised income tax returns for the relevant years meant that the dual benefit was not effectively reversed. Consequently, the CENVAT Credit availed was deemed inadmissible, and the appellant was liable for recovery of the credit under Rule 14 of the CENVAT Credit Rules, 2004.
Treatment of Competing Arguments
The appellant argued that the reversal of depreciation claims through revised income tax returns should entitle them to retain the CENVAT Credit. However, the Court rejected this argument, noting that the revised returns did not cover the assessment years in which the dual benefit was initially claimed. The respondent's position, that the dual benefit was rightly disallowed, was upheld by the Court.
Conclusions
The Court concluded that the appellant was not entitled to the CENVAT Credit due to the violation of Rule 4(4) and affirmed the decision of the Customs, Excise and Service Tax Appellate Tribunal to disallow the credit and impose penalties.
SIGNIFICANT HOLDINGS
The Court held that the simultaneous claiming of CENVAT Credit and depreciation on the same capital goods is a violation of Rule 4(4) of the CENVAT Credit Rules, 2004. The filing of revised income tax returns does not rectify the initial violation if the returns do not cover the relevant assessment years. The Court affirmed the Tribunal's decision to disallow the CENVAT Credit and impose penalties, emphasizing the importance of adhering to the conditions set forth in the CENVAT Credit Rules.
The appeal was dismissed, and the Tribunal's order was affirmed, with the Court finding no infirmity in the Tribunal's decision. All pending applications related to the case were also disposed of.
CENVAT Credit - whether the appellant is entitled to the benefit of CENVAT Credit under the CENVAT Credit Rules, 2004, despite having claimed depreciation on the same capital goods under Section 32 of the Income Tax Act, 1961? - violation of Rule 4(4) of the CENVAT Credit Rules, 2004 - HELD THAT:- The admitted fact on record is that the appellant availed CENVAT Credit on capital goods to the tune of Rs. 6,36,381 in the year 2001-02 and Rs. 2,25,141/- during the year 2002-03. During the course of audit of the financial and excise records of the appellant conducted by Central Excise audit team, it was observed by the audit party that the assessee had simultaneously claimed the benefit of depreciation on the capital goods in their financial accounts as well as Income Tax returns for the relevant years. And admittedly, it was only when it was pointed out to the appellant that they had availed two benefits, the appellant revised their Income Tax return for the year 2003-04 on 31.05.2005 whereas the period in dispute was 2001-02 and 2002-03.The net result is that during the financial years 2001-02 and 2002-03, the appellant had availed and utilized CENVAT Credit on the capital goods and simultaneously claimed benefit of depreciation on these capital goods under Section 32 of the Income Tax Act, 1961 in their Income Tax returns for the assessment years 2002-03 and 2003-04 and the benefit of said depreciation was never surrendered by them as they had neither filed the revised Income Tax returns for the assessment years 2002-03 and 2003-04 nor they had discharged the liability of additional income tax, which would have accrued on account of surrender of benefit of depreciation, so claimed, during the above assessment years.
As per the legal provisions, the CENVAT Credit was not allowable to the appellant on the capital goods since they claimed depreciation on these goods in their books of accounts and Income Tax returns for the year 2001-02 and 2002-03 and as per Rule 4 (4) of CENVAT Credit Rules, 2002/2004, the appellant did not fulfil the condition for allowing the CENVAT Credit, therefore, became liable for recovery of CENVAT Credit wrongly taken or erroneously refunded under Rule 14 of the CENVAT Credit Rules, 2004.
There are no infirmity in the impugned order dated 25.01.2011 passed by the learned Customs, Excise and Service Tax Appellate Tribunal - appeal dismissed.
Issues: Whether Ammonium Sulphate, being a by-product arising during manufacture of the final product, was liable to payment of any amount under Rule 6(3) of the Cenvat Credit Rules, 2004.
Analysis: The dispute was treated as no longer res integra. The Tribunal relied on its earlier decisions in the same assessee's case holding that Ammonium Sulphate, as a by-product generated in the course of manufacture, was not liable to payment under Rule 6(3) of the Cenvat Credit Rules, 2004. In view of the settled position and the earlier consistent orders, the demand was not sustainable.
Conclusion: The issue was decided in favour of the assessee, and no amount was payable under Rule 6(3) of the Cenvat Credit Rules, 2004 on the impugned by-product.
CENVAT Credit - Ammonium Sulphate used in urea under Rule 6(3) of CENVAT Credit Rules was or was not required to discharge any duty during the impugned period during May 2015 to March 2016 - HELD THAT:- It finds that issue is no more res-integra and has been recently decided based on various other case laws in HINDUSTAN CHEMICALS COMPANY VERSUS COMMISSIONER OF C.E. & S.T. -SURAT-II [2024 (5) TMI 459 - CESTAT AHMEDABAD] in which inter alia, it was held by Division Bench of CESTAT Ahmedabad that the Ammonium Sulphate being a by-product arising out of manufacture of final product, namely Potassium Cyanides and Sodium Cyanides, will not be liable for payment of any amount in terms of Rule 6(3) of the Cenvat Credit Rules, 2004.
Conclusion - Ammonium Sulphate, as a by-product from manufacturing Potassium Cyanides and Sodium Cyanides, was not liable for payment under Rule 6(3) of the CENVAT Credit Rules.
Appeal allowed.
Issues: Whether the notional cost of design, drawings and specifications supplied free of cost by the buyer to the vendors was includible in the assessable value of parts and components manufactured and cleared under the Central Excise valuation scheme.
Analysis: The valuation provisions were considered to determine whether the free supply of design and drawing material amounted to additional consideration for the sale of goods. The reasoning adopted was that only consideration flowing from the buyer to the manufacturer in connection with the sale can be added to the assessable value, and that drawings and designs supplied as specifications for manufacture, before or in the course of vendor selection, do not by themselves constitute such additional consideration. The distinction between mere specifications and detailed engineering drawings was also recognised, and the supplied material was treated as layout or dimensional requirements necessary for the desired parts rather than a separately chargeable input forming part of the sale price.
Conclusion: The notional value of the free design and drawings was not includible in the assessable value, and the demand based on such inclusion could not stand.
Final Conclusion: The impugned valuation order was set aside and the appeals succeeded.
Ratio Decidendi: Free-of-cost specifications, drawings and designs supplied by the buyer do not constitute additional consideration for sale unless they are shown to form part of the price or to be expenses incurred on behalf of the manufacturer in the legally relevant sense for excise valuation.
Re-determination of valuation of the goods i.e. parts/components manufactured by the appellant in terms of Section 4(1)(b) of the Central Excise Act, 1944 read with Rules 6 and 11 of the Central Excise Valuation Rules, 2002 along with penalty - whether the notional cost of design and drawings provided free of cost by MSIL to the appellant should be included in the assessable value for excise duty purposes? - HELD THAT:- The issue raised was whether the notional cost of specifications in the form of drawings and designs supplied free of cost by Maruti to the potential vendors should be included in the assessable value of the parts or components manufactured by the vendors and cleared to Maruti for their motor vehicles. To appreciate the issue the Principal Bench considered the provisions of Section 4 of the Central Excise Act and Rule 6 of the Central Excise Valuation Rules, 2000 and also distinguished the decision of the Tribunal in the case of COMMISSIONER OF CENTRAL EXCISE JAMSHEDPUR VERSUS TATA MOTORS [2008 (12) TMI 129 - CESTAT KOLKATA]and concluded that the notional cost of drawings and designs supplied free of cost by Maruti to the vendors cannot be included in the assessable value of the parts and components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty.
It is also pertinent to take note of the fact that the Principal Bench had noted the distinction between the mere specification and detailed engineering drawing as considered by the Tribunal in the earlier decision in M/S. MANGALORE REFINERY & PETROCHEMICALS LIMITED. VERSUS THE COMMISSIONER OF CUSTOMS MANGALORE. [2012 (9) TMI 712 - CESTAT, BANGALORE], where the Tribunal has held that there is a distinction between mere specifications and detailed engineering drawing. It is only the latter which is covered under rule 9(1)(b)(iv) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (which is now rule 10(1)(b)(iv) of the 2007 Customs Valuation Rules).
Conclusion - The specifications in the nature of design/drawings provided by MSIL were merely layout or dimensions of the desired parts and components as they have to be necessarily manufactured as per the requisite dimensions so that they can be fitted in the vehicle manufactured by the Maruti.
Appeal allowed.
Issues: Whether the penalty imposed under Section 51(7)(c) of the Punjab Value Added Tax Act, 2005 was justified on the facts of the case.
Analysis: The statutory scheme governing information collection centres and check posts requires the person in charge of the goods vehicle to carry and produce the prescribed transport documents and to furnish the relevant declaration at the nearest check post or information collection centre. The record showed that the vehicles were detained after weighment revealed excess goods and that the drivers did not produce the requisite documents for the excess goods at the time of interception. The explanation that the consignor's TIN was blocked and the documents were later produced was not accepted, since the documents ought to have accompanied the goods at the relevant time and the later production of invoices was treated as an afterthought. The absence of supporting account books and the circumstances of detention led to the finding of an intention to evade tax.
Conclusion: The penalty under Section 51(7)(c) was rightly sustained and the appeal failed.
Levy of penalty - evasion of tax under the Punjab VAT Act by not submitting the bills at ICC despite the fact that the details of bills are duly mentioned in the Statutory Form of Rajasthan (VAT 47) and was produced at the time of generation of information for other transactions - jurisdiction to check and detain the vehicles at the ICC premises - HELD THAT:- The undisputed fact is that the goods i.e. iron goods being transported in two vehicles were detained by the Excise and Taxation Officer (MW), Bathinda for verification on the grounds that the goods in transit were in excess by weight as was detected after weighment, and requisite information in respect of excess goods was not furnished at any ICC. After issuance of show cause notice, Shri Neeraj Kumar Manager of the firm M/s Shree Shiva Steels, Mandi Gobindgarh, appeared before the Detaining Officer who claimed himself to be the owner of the excess goods loaded in both the vehicles.
A perusal of the record further shows that the drivers of both the trucks did not produce any document in respect of excess goods and categorically stated that they have no other document relating to the goods in question. The explanation given by owner of the goods that since the TIN of the consignor firm was blocked, therefore, the drivers could not generate the information in respect of excess goods, cannot be believed since perusal of the record shows that GR No.980 and 981 alongwith retail invoices No.39 and 40 dated 19.08.2009 were produced by Sh. Neeraj Kumar stated to be Manager of the appellant-firm, after the show cause notice was issued to the owner of the goods. Further these documents should have been with the drivers at the time of furnishing information at ICC as per the requirement of Section 51 (2) of the Act as referred to above. This proves the intention of the appellant to evade tax.
A perusal of the record shows that the Ld. AETC (MW) Bathinda after conducting proper inquiry and after giving full opportunity of being heard to the appellant, has passed the penalty order under Section 51 (7) (c) of the Act.
There are no infirmity in the order dated 30.07.2010 passed by the Ld. VAT Tribunal, Punjab, Chandigarh, the same is upheld - appeal dismissed.
Issues: Whether the petitioner's application for rectification under Section 84 of the TNVAT Act, 2006 was maintainable and in time despite the absence of a statutory appeal and the earlier dismissal of writ proceedings, and whether the rejection of that application required interference.
Analysis: Section 84 of the TNVAT Act, 2006 is pari materia to Section 55 of the TNGST Act, 1959 and is confined to rectifying errors apparent on the face of the record. The application was filed within time. The fact that earlier writ petitions were dismissed on the ground of laches or withdrawn, and that no appeal had been filed under Section 51 of the TNVAT Act, 2006, did not bar invocation of the rectification power. Once the legal position had been settled in favour of the assessee, the rectification remedy could not be denied merely because the assessee had not pursued the appellate route earlier.
Conclusion: The rectification application was maintainable and the rejection order could not stand. The impugned order was liable to be quashed and the matter remitted for fresh consideration on merits in favour of the assessee.
Ratio Decidendi: A timely rectification application may be entertained for an error apparent on the face of the record even where an appeal was not filed and earlier writ proceedings failed on laches, if the statutory remedy is otherwise available and the legal position has since been settled.
Denial of input tax credit in terms of Section 19(5)(c) and 19(2)(V) of the TNVAT Act, 2006 - whether the petitioner was entitled to file a petition under Section 84 of the TNVAT Act, 2006 which is pari materia to Section 55 of the TNGST Act, 1959? - HELD THAT:- The application that was filed by the petitioner under Section 84 of the TNVAT Act, 2006 is in time. Even if the writ petition that were filed by the petitioner earlier challenging the Recovery Notice and the Assessment order dated 24.06.2016 were to be dismissed on account of latches, it cannot be construed that the application under Section 84 of the TNVAT Act, 2006 were barred. Even if the Appellate remedy is not available under Section 51 of the TNVAT Act, 2006, the remedy under Section 84 of the Act cannot be denied particularly when the law has been settled in favour of the assessee.
The impugned order dated 11.05.2022 stands quashed and the case stands remitted back to the respondent to pass a fresh order on merits - Petition allowed by way of remand.
Issues: Whether the FIR and chargesheet should be quashed on the ground of inordinate delay in trial and alleged absence of offences.
Analysis: The petition invoked the constitutional guarantee of a speedy trial under Article 21 and relied on delay as the principal ground for quashing. The Court noted the long pendency of the case, but also observed that the allegations were serious, involving forgery, cheating, use of forged documents, and conspiracy. The record showed that the charges had been framed and prosecution evidence had begun, and the delay pleaded was not of the kind found in the cited precedents so as to justify quashing the proceedings.
Conclusion: The petition for quashing was not allowed; the FIR and chargesheet were sustained.
Final Conclusion: The criminal proceedings were permitted to continue, with a direction for expeditious completion of the trial.
Ratio Decidendi: Quashing on the ground of delay is not warranted where the allegations are serious and the trial has substantially progressed, unless the delay is shown to make the proceedings unfair in the constitutional sense.
Seeking quashing of FIR - prolonged trial - right to speedy trial - Petitioner has asserted that she was never involved in any illegal activity and cooperated during the investigations and had also provided all the documents to the Investigating Officer, but the facts were not presented in a correct manner before the Court - HELD THAT:- It is not in dispute that the FIR had been registered in the year 1999 for the offences, punishable under Sections 406/420/468/471/120B of IPC, 1860 and Section 50 (1) of the DST Act and Section 9 of the CST Act along with the allegations of Forgery, Breach of Trust and use of False Documents. From the FIR, the Chargesheet and the Charges which have been framed, it is evident that the allegations made against the Petitioner are serious in nature.
In Hussainara Khatoon (I) vs. Home Secretary, State of Bihar [1979 (2) TMI 194 - SUPREME COURT], the Apex Court observed that Article 21 of the Constitution of India confers constitutional right on every person not to be deprived of his life or liberty, except in accordance with the requirement of that Article that some semblance of a procedure should be prescribed by law which should be reasonable, fair and just. If a person is deprived of his liberty under a procedure which is not fair, reasonable or just, such deprivation would be violative of Fundamental Right. It was further observed that deprivation of liberty of a person cannot be termed as reasonable, fair or just unless such procedure ensures a speedy trial for the determination of guilt of such person. Therefore, reasonably expeditious trial is an integral and essential part of the Fundamental Right and Liberty enshrined under Article 21 of the Constitution. It was further observed that peculiar facts and circumstances of the individual cases may be considered for quashing of the proceedings.
The Apex Court in the matter of Santosh Dev [1994 (2) TMI 330 - SUPREME COURT], it was observed that Article 21 of the Constitution of India recognises the constitutional right of speedy trial. It was also noted that the trial was not concluded within four years but in terms of Section 245 (3) of Code of Criminal Procedure, 1973 which was inserted in 1998, mandated that the trial be completed in four years.
In the present case, it cannot be denied that the FIR got filed in the year 1999, in which the Chargesheet came to be filed on 10.11.2003 and the Charges were framed in 2021. However, since then, testimony of 5 witnesses, out of 17 prosecution witnesses, has been recorded. None of the grounds as stated in the aforesaid judgments has been pleaded in the present case, aside from the fact that the Petitioner has appeared umpteen times before the Court and is now 71 years old and is ailing.
There is no case made out for quashing of the Chargesheet as well as of the FIR.
Conclusion - There was no basis for quashing the FIR or Chargesheet. The trial court is directed to expedite proceedings to ensure a timely conclusion.
Petition disposed off.
Issues: Whether a director who had resigned before the cheque was issued and against whom the complaint contained no specific averments of responsibility could be proceeded against under sections 138 and 141 of the Negotiable Instruments Act, 1881.
Analysis: The resignation letter and DIR-12 showed that the petitioner had ceased to be associated with the company before the cheque was drawn, and there was no material to show any role of the petitioner in the company's affairs thereafter. For fastening vicarious criminal liability under section 141, the complaint must contain specific averments showing how and in what manner the accused was in charge of and responsible for the conduct of the business at the relevant time. A bald recital of statutory language is insufficient. The Court also treated the date of resignation as effective from 13 March 2020, and held that the later uploading of DIR-12 and the company's internal acceptance could not create liability for an offence allegedly committed after the resignation.
Conclusion: The petitioner could not be vicariously liable for the dishonour complaint, and the criminal proceeding was unsustainable qua the petitioner.
Final Conclusion: Continuation of the proceeding against the petitioner would amount to abuse of process, so the complaint was quashed as against him.
Ratio Decidendi: To prosecute a director under section 141 of the Negotiable Instruments Act, 1881, the complaint must plead and support with material that the person was in charge of and responsible for the company's business at the time of the offence; where resignation predates the cheque and no specific role is pleaded, vicarious liability does not arise.
Dishonour of cheque - petitioner arraigned as an accused in a proceeding initiated u/s 138 read with section 141 of the Negotiable Instrument Act - petitioner resigned from the company before the issuance of the cheque - complaint lacked specific allegations - HELD THAT:- In NARENDER KUMAR SURI AND OTHERS VERSUS M/S NARENDRA POLYMERS PVT. LTD. [2014 (10) TMI 1084 - PUNJAB AND HARYANA HIGH COURT], a Single Bench of Punjab and Haryana High Court held that the Director of Public Limited Company or Private Ltd. Company can tender his resignation unilaterally and without filing in Form 32 and without sending a notice to Registrar of Companies. Filing in of said Form and giving of due intimation and information to Registrar of Companies is duty of company secretary and not of an individual director. it is for the company secretary to fill in forms as prescribed and to give due information and intimation to the ROC, as the law requires and thereafter, to be so mentioned in all the prescribed registers of company, accounts and balance sheet of company and thereafter the said fact is to be brought to the notice of the members of the company as early as possible and at the latest in annual general meeting.
Section 168 (2) of the Companies Act, 2013 also provides that the resignation of a director shall take effect from the date on which the notice is received by the company or the date if any specified by the director in the notice, whichever is later. In the present case from the supplementary affidavit filed by the petitioner it further discloses that the letter of resignation was sent through speed post on 14.03.2020 and it was delivered to the accused company on 16.03.2020 - Proviso to section 168 (1) states that a director may also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within 30 days of resignation but this proviso is not mandatory. A resignation cannot be treated as not accepted by the Company simply because Director had not sent the copy of resignation to the Registrar within 30 days. Similarly, even after tendering resignation and the company even after receiving the same, if does not call meeting for its acceptance that also beyond the control of the petitioner and the petitioner cannot be held responsible for the same.
It is settled law that putting the criminal law into motion is not a matter of course or to settle the scores between the parties. Courts cannot be a mere spectator to it. Before a magistrate taking cognizance of an offence under section 138/141 of the N.I. Act, making a person vicariously liable has to ensure strict compliance with the statutory requirement. In the aforesaid factual backdrop and the legal position as stated above, continuation of the proceeding quo the petitioner will clearly be an abuse of process of the court.
Conclusion - The petitioner was not liable under Section 138/141 of the N.I. Act due to his resignation prior to the cheque issuance and the lack of specific allegations in the complaint.
Application allowed.
Issues: Whether criminal proceedings under sections 138 and 141 of the Negotiable Instruments Act, 1881 could continue against a director who had tendered resignation before issuance of the cheque and whose complaint lacked specific averments showing his role in the company's affairs after resignation.
Analysis: The resignation letter and DIR-12 showed that the petitioner had resigned with effect from 13 March 2020, while the cheque was issued on 1 January 2021. The complaint did not contain material particulars showing that the petitioner was in charge of or responsible for the company's business at the relevant time, nor any statement suggesting consent, connivance, or negligence on his part. The requirement of fastening vicarious liability on a director under section 141 is not satisfied by a bare or mechanical recital that directors were responsible for the business of the company. The Court also noted that the proviso relating to forwarding a copy of resignation to the Registrar does not negate the effectiveness of resignation as between the director and the company.
Conclusion: The proceedings could not be sustained against the petitioner and were liable to be quashed.
Final Conclusion: Continuation of the prosecution against the petitioner amounted to an abuse of the process of law, and the complaint was set aside insofar as it concerned him.
Ratio Decidendi: To prosecute a director under section 141 of the Negotiable Instruments Act, 1881, the complaint must contain specific averments showing that the director was in charge of and responsible for the conduct of the company's business at the time of the offence; a person who had already resigned before issuance of the cheque cannot be fastened with vicarious liability in the absence of such material.
Dishonour of cheque - petitioner resigned as a director prior to the issuance of the dishonored cheque - Section 138 read with Section 141 of the Negotiable Instruments Act - HELD THAT:- In NARENDER KUMAR SURI AND OTHERS VERSUS M/S NARENDRA POLYMERS PVT. LTD. [2014 (10) TMI 1084 - PUNJAB AND HARYANA HIGH COURT], a Single Bench of Punjab and Haryana High Court held that the Director of Public Limited Company or Private Ltd. Company can tender his resignation unilaterally and without filing in Form 32 and without sending a notice to Registrar of Companies. Filing in of said Form and giving of due intimation and information to Registrar of Companies is duty of company secretary and not of an individual director. it is for the company secretary to fill in forms as prescribed and to give due information and intimation to the ROC, as the law requires and thereafter, to be so mentioned in all the prescribed registers of company, accounts and balance sheet of company and thereafter the said fact is to be brought to the notice of the members of the company as early as possible and at the latest in annual general meeting.
Section 168 (2) of the Companies Act, 2013 also provides that the resignation of a director shall take effect from the date on which the notice is received by the company or the date if any specified by the director in the notice, whichever is later. In the present case from the supplementary affidavit filed by the petitioner it further discloses that the letter of resignation was sent through speed post on 14.03.2020 and it was delivered to the accused company on 16.03.2020 - Proviso to section 168 (1) states that a director may also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within 30 days of resignation but this proviso is not mandatory. A resignation cannot be treated as not accepted by the Company simply because Director had not sent the copy of resignation to the Registrar within 30 days. Similarly, even after tendering resignation and the company even after receiving the same, if does not call meeting for its acceptance that also beyond the control of the petitioner and the petitioner cannot be held responsible for the same.
It is settled law that putting the criminal law into motion is not a matter of course or to settle the scores between the parties. Courts cannot be a mere spectator to it. Before a magistrate taking cognizance of an offence under section 138/141 of the N.I. Act, making a person vicariously liable has to ensure strict compliance with the statutory requirement. In the aforesaid factual backdrop and the legal position as stated above, continuation of the proceeding quo the petitioner will clearly be an abuse of process of the court.
Conclusion - The petitioner was not liable under Section 138/141 of the N.I. Act due to his resignation prior to the cheque issuance and the lack of specific allegations in the complaint.
Application allowed.
Issues: Whether Section 143A of the Negotiable Instruments Act, 1881 applies retrospectively to complaints under Section 138 filed before 01.09.2018.
Analysis: The complaints were filed in 2017, before Section 143A came into force on 01.09.2018. The provision authorises the trial court to direct payment of interim compensation up to 20% of the cheque amount during trial, and also creates a liability to repay the amount if the accused is acquitted. Applying the general rule that legislation affecting substantive rights is presumed to be prospective unless a contrary intention appears, and following the Supreme Court's ruling that Section 143A creates a new disability and obligation, the provision cannot be applied to offences or complaints that arose before its introduction. The retrospective principle recognised for Section 148 does not govern Section 143A, as the two provisions operate at different stages and have different legal consequences.
Conclusion: Section 143A is prospective in operation and cannot be invoked in respect of complaints filed before its commencement; the interim compensation orders were unsustainable.
Ratio Decidendi: A provision that imposes a new pre-conviction monetary liability on an accused is substantive in nature and, absent express or necessary retrospective intent, applies only prospectively.
Dishonour of Cheque - whether the amended provision contained under Section 143A of the Negotiable Instruments Act, 1881 would apply on the complaint filed prior to enactment and enforcement of this provision? - HELD THAT:- Bare perusal of Section 143A of the Act of 1881 indicates that the Court trying an offence under Section 138 of the Act of 1881, may direct the drawer of the cheque to pay interim compensation to the complainant i.e. amount not exceeding 20% of the cheque amount. The sub-section (4) of Section 143A of the Act of 1881 provides that in case the drawer of the cheque is acquitted, the Court shall direct the complainant to repay the same amount to the drawer - This Court cannot lose sight of the fact that, prior to insertion of the new provision, i.e., Section 143A in the Act of 1881, there was no provision in the Act for issuing directions to the drawer of cheque to pay interim compensation of 20% of the cheque amount to the complainant prior to the commission of the offence under Section 138 of the Act of 1881.
Hon’ble Apex Court in the case of Surinder Singh Deswal [2019 (5) TMI 1626 - SUPREME COURT] has held that the new provisions contained under Section 148 of the Act of 1881 as amended on 01.09.2018 shall be applicable to the appeals against the order of conviction and sentence for the offence under Section 138 of the Act of 1881, even in the cases where the criminal complaints for the offence under Section 138 of the Act of 1881 were filed prior to the amending Act No. 20/2018 i.e. prior to 01.09.2018.
It is not worthy to mention here that the Hon’ble Apex Court dealt with the applicability of Section 148 of the Act of 1881, even on the complaints filed prior to 01.09.2018 but the issue of applicability of Section 143A of the Act of 1881 was not under challenge in the case of Surinder Singh Deswal @ Col. S.S. Deswal [2019 (5) TMI 1626 - SUPREME COURT] before the Hon’ble Apex Court.
The issue of applicability of the new provision of Section 143A of the Act of 1881 on the complaints filed prior to 01.09.2018 came up before the Hon’ble Apex Court in the case of G.J. Raja vs. Tejraj Surana [2019 (8) TMI 91 - SUPREME COURT] and it was held by the Hon’ble Apex Court that prior to insertion of Section 143A of the Act of 1881, there was no provision under the Act of 1881 to direct the accused to pay interim compensation to the complainant prior to his conviction for the offence under Section 138 of the Act of 1881. It was held that provisions of Section 143A of the Act of 1881 would apply with its prospective effect and the provisions of Section 148 of the Act of 1881 would not apply with its prospective effect after conviction of the accused for the offence under Section 138 of the Act of 1881.
Conclusion - Section 143A of the Act of 1881 has its prospective effect and the same is applicable upon the complaints filed under Section 138 of the Act of 1881 after introduction/insertion of Section 143A of the Act of 1881 i.e. after 01.09.2018. This provision cannot have its retrospective effect upon the complaints filed prior to 01.09.2018.
Petition allowed.
TaxTMI 