TaxTMI Updates e-Newsletter
Feb 08,2023

Summary of show-cause notice in Form GST DRC-01 is not a substitute for a show-cause notice under Section 74(1) - Violation of principles of natural justice by vague or non specific show cause notice - Requirement under Rule 142(1)(a) that summary be issued "along with" the show cause notice - Quashing of consequential orders passed pursuant to defective show cause notice - Remand for fresh proceedings from the stage of issuance of proper show cause notice

Summary of show cause notice in Form GST DRC 01 is not a substitute for a show cause notice under Section 74(1) - Requirement of specificity in allegations of fraud, willful misstatement or suppression - Principles of natural justice in show cause proceedings - Impugned summary of show cause notice in Form GST DRC 01 does not satisfy the statutory requirements of a proper show cause notice under Section 74(1) and thereby violates principles of natural justice. - HELD THAT: - The Court examined Rule 142(1)(a) and concluded that the summary in Form GST DRC 01 must be issued "along with" a show cause notice, but cannot replace the substantive show cause notice mandated by Section 74(1). A proper notice under Section 74 must clearly plead the foundational ingredients - in particular specific allegations where fraud, willful misstatement or suppression are invoked - so that the noticee can know the charges and mount an effective defence. A document in summary form that omits those foundational allegations and instead presents conclusions or vague grounds denies a reasonable opportunity of defence, amounting to breach of natural justice. The Court relied on prior reasoning in M/s NKAS Services Pvt. Ltd. and authorities emphasising that vague or unintelligible notices are invalid. Participation by the petitioner and filing of a concise reply does not cure the foundational defect of the defective notice. [Paras 9, 14, 15, 16, 17]

Summary show cause notices dated 12.09.2018 in Form GST DRC 01 (Annexure 4) for both tax periods are quashed for failing to meet the requirements of Section 74(1) and violating principles of natural justice.

Quashing of orders passed under Section 74(9) and subsequent rectified orders founded on defective notice - Inability of subsequent proceedings to validate a defective foundational notice - Orders passed under Section 74(9) and the rectified final orders founded upon the defective summary notice are invalid and liable to be set aside. - HELD THAT: - Having held that the Form GST DRC 01 summaries did not constitute proper show cause notices under Section 74(1), the Court concluded that the consequent adjudication orders (GST DRC 07 dated 14.05.2019) and the later rectified orders cannot cure the foundational irregularity. The State's contention that the petitioner's participation and exchange of documents cured the defect was rejected because substantive notice requirements and specificity of allegations are prerequisites to a fair adjudicatory process; procedural participation does not validate a notice that fails to state the statutory ingredients. [Paras 9, 10]

Orders dated 14.05.2019 issued under Section 74(9) and the rectified final orders dated 18.10.2021 (Annexure 09) in both matters are quashed and set aside.

Remand for fresh proceedings from stage of issuance of proper show cause notice - Liberty to initiate fresh proceedings in accordance with law - Proceedings remanded to the adjudicating authority to permit fresh initiation from the stage of issuing a proper show cause notice under Section 74(1). - HELD THAT: - The Court did not adjudicate the merits of the underlying tax liability or the factual allegations; instead, having quashed the defective notices and consequential orders, it permitted the respondents to initiate fresh proceedings in accordance with law. The scope of remand is limited to re commencing the process from issuance of a proper show cause notice so that the noticee may receive a clear statement of allegations and a fair opportunity to answer. The respondents are therefore at liberty to proceed afresh within the bounds of statutory requirements. [Paras 8, 10, 11]

Matters remanded to the adjudicating authority to pass fresh orders in accordance with law starting from issuance of a proper show cause notice under Section 74(1).

Final Conclusion: Both writ petitions are allowed: the summaries of show cause notice in Form GST DRC 01 dated 12.09.2018, the orders dated 14.05.2019 under Section 74(9), and the rectified final orders dated 18.10.2021 are quashed and set aside; respondents may initiate fresh proceedings from the stage of issuance of a proper show cause notice under Section 74(1) in accordance with law.

Power to de-freeze bank accounts during investigation - scope of revision jurisdiction - appropriate forum for de-freezing application - non-application of mind - remand for fresh decision

Scope of revision jurisdiction - appropriate forum for de-freezing application - non-application of mind - remand for fresh decision - Validity of the order of the Additional Sessions Judge which rejected the revision by holding that the petitioner should have approached the GST Appellate Authority for de-freezing the bank account instead of the trial court. - HELD THAT: - The Additional Sessions Judge rejected the revision solely on the ground that the petitioner ought to have sought de-freezing of its bank account before the GST Appellate Authority and not before the trial Court. The High Court found that this was not a ground taken by the prosecution nor relied upon by the learned Magistrate when the application was earlier considered; the learned Magistrate had found the application maintainable and refused relief on other grounds, namely that the investigation was at a nascent stage and the offences alleged were serious. By deciding the revision on the forum-ground without addressing the merits of the revision or applying the relevant legal provisions, the Additional Sessions Judge failed to apply his mind to the real issue raised in the revision. For these reasons the impugned order was held to be vitiated by non-application of mind and not sustainable, requiring setting aside and remand for fresh consideration on merits. [Paras 5, 6]

Order of the Additional Sessions Judge dated 04.06.2022 set aside and the revision restored for fresh decision in accordance with law.

Final Conclusion: Writ petition allowed; impugned order of the Additional Sessions Judge set aside and the revision restored for fresh adjudication on merits, to be disposed of within one month from receipt of this order.

Jurisdiction of Assessing Officer to decide refund claims - supersession of earlier circulars by a later CBDT circular - pecuniary limits for authority to condone delay and decide refund claims - remand to competent authority for fresh adjudication

Jurisdiction of Assessing Officer to decide refund claims - pecuniary limits for authority to condone delay and decide refund claims - The Assistant Commissioner of Income Tax (TDS), who rejected the refund application, lacked pecuniary jurisdiction to decide the claim. - HELD THAT: - The Court examined Circular No.9/2015 which prescribes monetary limits for authorities competent to accept or reject condonation/refund claims and expressly supersedes earlier instructions. Clause 2 of the Circular vests powers to accept/reject claims not exceeding Rs.10 lakhs in Principal Commissioners/Commissioners, claims exceeding Rs.10 lakhs but not more than Rs.50 lakhs in Principal Chief Commissioners/Chief Commissioners, and claims exceeding Rs.50 lakhs with the Board. Applying these pecuniary limits to the present refund claim, the Court concluded that the ACIT (TDS) who passed the impugned rejection did not have jurisdiction to decide the claim. [Paras 7, 8]

The impugned order of rejection by the ACIT (TDS) is quashed for lack of jurisdiction.

Supersession of earlier circulars by a later CBDT circular - Circular No.9/2015 supersedes earlier Circular No.2/2011 and other earlier instructions on condonation of delay and refund claims. - HELD THAT: - The Court noted that Circular No.9/2015 expressly states it is in supersession of all earlier instructions/circulars/guidelines dealing with condonation of delay in filing returns claiming refund. On that basis the Court held that reliance on Circular No.2/2011 by the revenue lost force after issuance of Circular No.9/2015. [Paras 7]

Circular No.9/2015 governs the matter and supersedes Circular No.2/2011 for purposes of competence and procedure in refund/condonation claims.

Remand to competent authority for fresh adjudication - The refund claim is remitted to the Central Board of Direct Taxes for fresh adjudication in accordance with law. - HELD THAT: - Having quashed the impugned order for want of jurisdiction, the Court directed that the entire file and relevant documents, including the unadjudicated show-cause notice dated 15.04.2009, be forwarded to the competent authority at the Board. The Board was directed to pass a fresh order on the refund claim after examination of the records and in accordance with Circular No.9/2015 and applicable law, completing the exercise within a stipulated timeline and, if allowed, to refund the admissible amount with statutory interest. [Paras 8]

The matter is remitted to the CBDT to decide the refund claim afresh and in accordance with law.

Final Conclusion: The order of rejection dated 09.12.2020 by the ACIT (TDS) is quashed for lack of pecuniary jurisdiction under Circular No.9/2015 (which supersedes earlier circulars); the petition is allowed and the claim is remitted to the Central Board of Direct Taxes for fresh decision in accordance with law within the timelines specified by the Court.

Unexplained cash credit under section 68 - burden of proof under section 68 - identity, creditworthiness and genuineness of creditor - shifting of onus - discretion of assessing officer in drawing adverse inference

Unexplained cash credit under section 68 - identity, creditworthiness and genuineness of creditor - shifting of onus - Deletion of addition of Rs.1,48,25,000 made by the Assessing Officer treating certain capital introductions as unexplained cash credit under section 68 - HELD THAT: - The Tribunal upheld the conclusion of the Ld. CIT(A) that the assessee had discharged the initial onus under section 68 by furnishing particulars of creditors (names, addresses, PANs), confirmations, copies of income-tax returns, balance-sheets/computations and bank statements showing movement of funds through banking channels. Once identity, capacity/creditworthiness and genuineness were prima facie established, the burden shifted to the Assessing Officer to bring material to discredit the documentary evidence. The Assessing Officer doubted portions of capital introduced (Rs.94,75,000 and Rs.53,50,000) but did not produce cogent contrary material nor conduct further enquiries sufficient to rebut the documents produced. The Tribunal applied the well-settled principle that assessment authority has discretion before drawing adverse inference and cannot rest on suspicion; therefore, in absence of controverting material the addition could not be sustained and deletion by the CIT(A) was justified. [Paras 8, 9, 10, 11]

The deletion of the addition of Rs.1,48,25,000 under section 68 was upheld and the Revenue's appeal dismissed.

Final Conclusion: The appeal filed by the Revenue against the deletion of additions treated as unexplained cash credit under section 68 for assessment year 2017-18 is dismissed; the Tribunal upholds the CIT(A)'s deletion on finding that the assessee discharged the initial onus and the Assessing Officer failed to bring material to disprove the genuineness and creditworthiness of the creditors.

Classification of commission payable to whole-time directors as salary attracting TDS under section 192 - timing of deduction of tax at source under section 192 - deductible at time of payment - disallowance under section 40(a)(ia) for non-deduction of TDS on commission paid to whole-time directors - exclusion of section 194J/section 194H where payments are remuneration forming part of salary - precedential effect of binding decision of jurisdictional High Court upholding ITAT on treatment of such commission

Classification of commission payable to whole-time directors as salary attracting TDS under section 192 - timing of deduction of tax at source under section 192 - deductible at time of payment - Commission payable to whole-time directors is salary and TDS liability arises under section 192, deductible at the time of payment. - HELD THAT: - The Tribunal held that the commission payments to the assessee's whole-time directors form part of their salary and therefore attract TDS under section 192. The Tribunal relied on earlier ITAT findings for AY 2009-10 that such commission was shown as part of overall compensation in Form-16 and that section 192 requires deduction of tax under the head 'Salary' only at the time of payment and not at the time of provision. The High Court of Bombay has upheld the ITAT's conclusion, confirming that where commission is part of salary, TDS is governed by section 192 and is deductible on actual payment. The CIT(A)'s reference to section 194J (and to payments liable under section 194H) was found to be inapposite as those provisions do not cover commission payments which are remuneration properly includible in salary under section 192. [Paras 6, 7, 8]

Commission to whole-time directors treated as salary; TDS payable under section 192 and deductible at the time of payment.

Disallowance under section 40(a)(ia) for non-deduction of TDS on commission paid to whole-time directors - precedential effect of binding decision of jurisdictional High Court upholding ITAT on treatment of such commission - Disallowance under section 40(a)(ia) for non-deduction of TDS on the commission expenses in the assessment years is not sustainable and is to be deleted. - HELD THAT: - The Tribunal found that the Assessing Officer's disallowance under section 40(a)(ia) was based on the premise that TDS should have been deducted under provisions applicable to commission at the time of provision. However, given the classification of the payments as salary and the settled position in the earlier ITAT order (upheld by the Bombay High Court), the TDS obligation arose only on payment under section 192 and was in fact complied with when payment was made in the succeeding year. Consequently, the disallowance for non-deduction at the time of provision cannot be sustained. [Paras 6, 7, 8]

Disallowance under section 40(a)(ia) deleted in respect of the commission expenses for the years under appeal.

Final Conclusion: Following the ITAT/High Court precedents and the classification of the commission as salary with TDS liability under section 192 at the time of payment, the Tribunal deleted the section 40(a)(ia) disallowances for AY 2014-15 to 2016-17 and allowed all three appeals.

Unexplained cash credit under section 68 - identity and creditworthiness of shareholders - onus of proof and evidentiary sufficiency in share subscription cases - reliance on non production of witnesses/summons for making addition - estimation of disallowance of expenses on conjecture

Unexplained cash credit under section 68 - identity and creditworthiness of shareholders - onus of proof and evidentiary sufficiency in share subscription cases - reliance on non production of witnesses/summons for making addition - Addition of share capital and share premium of Rs. 2,10,00,000 treated as unexplained cash credit was not justified and was to be deleted. - HELD THAT: - The assessee produced documentary evidence including names, addresses and PANs of investors, share application forms, allotment advice, bank statements showing payment through banking channels, Form No. 2 and Form 5, audited financial statements and ITR acknowledgements. Independent verification by notices under section 133(6) to the investors elicited responses and assessment orders of the investors were placed on record. The Assessing Officer primarily relied on non compliance with summons issued to directors under section 131 and made the addition without pointing out defects in the material supplied. The Tribunal accepted the view of the learned CIT(A) that the assessee had discharged the onus of proving identity, genuineness and creditworthiness of the subscribers and that non production of managing directors of the investor companies, when other documentary proof and cross verifications existed, could not sustain an addition under section 68. The Tribunal also relied on precedents where non attendance pursuant to summons did not outweigh documentary proof and cross verification. In these circumstances the addition based on surmise and conjecture was unsustainable and deletion by the CIT(A) was upheld.

The addition of Rs. 2,10,00,000 as unexplained cash credit under section 68 is deleted and the order of the CIT(A) is upheld.

Estimation of disallowance of expenses on conjecture - Disallowance of 20% of employee benefit and other expenses by the AO was excessive; CIT(A)'s restriction of disallowance to 10% was sustained. - HELD THAT: - The assessee had placed before the AO audited profit and loss accounts. The AO made an ad hoc disallowance of 20% without assigning cogent reasons or pointing to specific defects in the accounts. The CIT(A) moderated the disallowance to 10% after considering the material on record. The Tribunal found that an estimated disallowance unsupported by reasoned basis is unlawful and prejudicial to the assessee; accordingly the lower appellate restriction to 10% was proper and required no interference.

Disallowance reduced to 10% is sustained and the revenue's ground challenging the same is rejected.

Final Conclusion: Revenue's appeal is dismissed; the order of the CIT(A) deleting the addition under section 68 and restricting the disallowance of expenses to 10% is upheld.

Arm's length price adjustment - finality of assessment positions across years - res judicata and estoppel by conduct in tax proceedings

Arm's length price adjustment - finality of assessment positions across years - res judicata and estoppel by conduct in tax proceedings - Whether the ALP adjustment of Rs. 1,46,71,277 made in assessment order for AY 2005-06 in respect of technical assistance fee should be sustained or deleted. - HELD THAT: - The Tribunal accepted the assessee's contention that identical payments under the same agreement had been treated as at arm's length (no ALP adjustment) in assessment years 2001-02, 2002-03 and 2003-04 and that an ALP adjustment made in AY 2004-05 had been deleted by the CIT(A) and not challenged further. Relying on the principle that where a factual position permeating different assessment years has been accepted and allowed to attain finality by non-challenge, it is not appropriate to change that position in a subsequent year, the Tribunal found it inappropriate to sustain the ALP adjustment in AY 2005-06. The Tribunal observed that the revenue's factual objections could be addressed by available remedial measures but, on the material before it and in absence of cogent reason to doubt the assessee's representations, the consistency and finality of treatment in earlier years warranted deletion of the impugned adjustment. Since the Tribunal's decision to delete was founded on this doctrine of finality/consistency, it did not find it necessary to adjudicate the merits of the transfer pricing/associated enterprise contentions. [Paras 13, 15]

The ALP adjustment of Rs. 1,46,71,277 for AY 2005-06 is deleted and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal for Assessment Year 2005-06 and deleted the ALP adjustment of Rs. 1,46,71,277 on the basis that the identical payments had been treated as at arm's length in prior assessment years and a similar adjustment in a subsequent year had been deleted and left unchallenged, rendering the revenue's change of position inappropriate; merits of transfer pricing were held to be academic in view of this conclusion.

Rectification under Section 254(2) of the Income Tax Act - limitation for filing rectification/ miscellaneous application - law prevailing on date of filing governs admissibility of rectification application - mistake apparent from the record - entertainment of rectification application on merits where filed within prescribed period

Rectification under Section 254(2) of the Income Tax Act - limitation for filing rectification/ miscellaneous application - law prevailing on date of filing governs admissibility of rectification application - Validity of dismissal of the miscellaneous application under Section 254(2) on the ground of limitation when the application was filed within four years as per law prevailing on the date of filing. - HELD THAT: - The tribunal's original order (23.12.2009) was communicated to the appellant on 02.08.2010 and the miscellaneous application under Section 254(2) was filed on 03.06.2014, i.e., within four years from date of communication and therefore within the period permitted by Section 254(2) as it stood prior to its amendment w.e.f. 01.06.2016. The tribunal dismissed the application on limitation by treating the amended six-month period (post 01.06.2016) as applicable at the date of hearing; that approach misapplied the law because the applicable period is the law existing on the date of filing. Binding judicial precedent establishes that where an application for rectification is filed within the period then prescribed, the tribunal must decide it on merits and cannot reject it as barred merely because the tribunal's disposal occurs after expiry of that period. The impugned reliance on the Mumbai ITAT order was misplaced and contrary to the authorities cited which hold that an application filed within four years must be entertained on merits even if decided later. [Paras 9, 10, 11, 12, 13]

The tribunal erred in dismissing the miscellaneous application as barred by limitation; the application was filed within the four-year period applicable at the time of filing and must be entertained and decided on merits.

Entertainment of rectification application on merits where filed within prescribed period - mistake apparent from the record - Remedial direction whether the miscellaneous application should be remitted to the ITAT for adjudication on merits. - HELD THAT: - Given the tribunal's failure to apply the law as it stood at the date of filing and its dismissal on the basis of a subsequently amended limitation provision, the High Court quashed the impugned order and remitted the matter to the ITAT with a direction to entertain the miscellaneous application filed by the assessee and decide it on its merits in accordance with law after hearing both parties. The High Court has not expressed any view on the merits of the rectification grounds themselves. [Paras 12, 13]

Impugned order quashed; matter remitted to the ITAT to entertain and decide the miscellaneous application on merits in accordance with law.

Final Conclusion: The appeal is allowed: the ITAT's order dismissing the miscellaneous application as time barred is quashed and set aside; the MA filed within four years as per pre amendment Section 254(2) is to be entertained and decided on merits by the ITAT after hearing the parties.

Reopening of assessment - information suggesting that income chargeable to tax has escaped assessment - audit objection as information - procedure under Section 148A - enquiry and opportunity of hearing - abatement of pending proceedings under Section 153A - scope of second proviso - prima facie material suffices for reopening - change of opinion

Information suggesting that income chargeable to tax has escaped assessment - audit objection as information - reopening of assessment - An audit objection can constitute the "information" on the basis of which proceedings under Sections 147/148 can be initiated after the amendments. - HELD THAT: - The Court held that Explanation 1 to Section 148, as amended, includes "any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act" within the meaning of information suggesting escapement of income. In the present case the show-cause and reasons specifically relied upon an audit objection detailing unexplained cash transactions and text-message material indicating hawala/accommodation entries; such information was therefore sufficient to trigger the reopening process. The Court emphasised that existence of information is open to litigation but sufficiency of the material is not to be examined at the initiation stage. [Paras 23, 31, 32]

Proceedings under Sections 147/148 were lawfully initiated on the basis of the audit objection treated as "information".

Abatement of pending proceedings under Section 153A - scope of second proviso - reopening of assessment - Framing of assessment earlier under Section 153A did not preclude initiation of proceedings under Section 148 in the present facts where no re-assessment proceedings were pending on the date of search. - HELD THAT: - The Court noted that the second proviso to Section 153A provides for abatement of pending proceedings as on the date of initiation of search or requisition; it does not bar initiation of proceedings subsequently. In this case the search was on August 31, 2015, whereas the impugned notice to reopen was issued on April 24, 2022; no reassessment proceedings had been pending on the date of the search. Moreover, the earlier assessment under Section 153A was set aside by the Tribunal and this Court on the ground that the approval under Section 153D had been given mechanically without application of mind, and therefore the issues raised by audit had not been duly examined in the earlier proceedings. [Paras 29, 30, 33]

The second proviso to Section 153A does not bar the reopening in the present case; initiation under Section 148 was not precluded by the earlier Section 153A assessment.

Prima facie material suffices for reopening - change of opinion - reopening of assessment - At the stage of issuance of notice, the Court will not examine the sufficiency or correctness of material; the present case does not amount to an impermissible change of opinion. - HELD THAT: - Relying on settled precedents, the Court reiterated that prima facie material is sufficient for reopening and that the correctness or sufficiency of the material is to be examined during assessment proceedings. The Court found that this was not a mere change of opinion because the prior Section 153A assessment was set aside on the limited ground of lack of application of mind in granting approval; there was no earlier adjudicated finding on the audit issue which would estop reopening. Hence, the assessment could be lawfully reopened where relevant information exists. [Paras 37, 38, 39]

The initiation of reassessment proceedings is not vitiated as a change of opinion; prima facie material suffices at the initiation stage.

Final Conclusion: Writ petition dismissed; the High Court upheld the legality of the order under Section 148A(d) and the notice under Section 148 issued for AY 2015-16, finding that the audit objection constituted permissible "information" for reopening and that the abatement provision of Section 153A did not bar initiation of fresh proceedings in the facts of the case.

Principles of natural justice - opportunity of personal hearing - adjournment/request for extension of time - quashing of assessment for breach of natural justice - procedure under Section 148A of the Act

Principles of natural justice - adjournment/request for extension of time - procedure under Section 148A of the Act - Whether the respondent's failure to adequately consider the petitioner's requests for adjournment and sudden insistence on a 24-hour reply violated principles of natural justice. - HELD THAT: - The Court found that the petitioner sought an initial extension (15 days) and thereafter a short adjournment (three days) to prepare objections to the notice issued under Section 148A. The revenue did not respond to the initial request and, without prior communication, required a reply within 24 hours, despite there being no imminent time-bar or urgency shown by the respondent. The Court held that where a request for time is made, the adjudicating authority must either approve or reject it; prolonged silence followed by a surprise insistence on an abridged timeline is inconsistent with the obligation to afford a fair opportunity. Acting as a quasi-judicial authority, the respondent was required to follow settled procedural norms and give a reasonable opportunity to the assessee to be heard. The conduct in this case amounted to a denial of adequate opportunity and thus contravened the principles of natural justice. [Paras 5]

The respondent's conduct in abruptly insisting on a 24-hour reply after remaining silent on the request for adjournment violated principles of natural justice and cannot be sustained.

Opportunity of personal hearing - quashing of assessment for breach of natural justice - Whether the assessment process conducted thereafter should be quashed and the matter remanded for fresh consideration with an opportunity of personal hearing. - HELD THAT: - Having concluded that there was a procedural deprivation of opportunity, the Court ordered that the assessment proceedings initiated pursuant to the impugned action be quashed to the extent they flowed from that defect. The Court directed that the process be recommenced from the stage where it was left and that the petitioner be granted an opportunity of personal hearing or be otherwise intimated so that the objections may be filed and the matter disposed of in accordance with law. The Court emphasised that the officer could have granted the short adjournment sought and that failure to do so warranted interference. [Paras 5, 6]

The assessment action is quashed for violation of natural justice and the matter is remitted for fresh consideration after granting the petitioner an opportunity of personal hearing.

Final Conclusion: The petition is allowed: the proceedings under Section 148A and consequential notice/assessment are quashed to the extent they proceeded after denial of a fair opportunity; the matter is remanded to the respondent to recommence the process from the stage it was left and to grant the petitioner an opportunity of personal hearing; no order as to costs.

Unexplained cash credit u/s 68 - genuineness of advance receipts as consideration for immovable property - burden of proof on revenue to disprove genuineness of transactions - treatment of tax exempt dividend credited to inventory / reduction of carrying amount of inventory - prohibition on taking double benefit for tax exempt income

Unexplained cash credit u/s 68 - genuineness of advance receipts as consideration for immovable property - burden of proof on revenue to disprove genuineness of transactions - Deletion of addition made as unexplained cash credit under section 68 in respect of advances received from two companies - HELD THAT: - The Tribunal examined documentary evidence produced by the assessee, including ledgers, flat buyers agreements and an order of the Real Estate Regulatory Authority, and was satisfied that the amounts received from M/s Array Export and Investment Pvt. Ltd. and M/s MMB Steel India Pvt. Ltd. were payments of advance sale consideration for flats. The Tribunal held that these documents conclusively established the genuineness of the transactions and the receipt of amounts in instalments linked to construction stages. On this basis the Tribunal found the Assessing Officer and the CIT(A) were not justified in characterising the receipts as unexplained cash credits and deleted the addition under section 68. [Paras 8]

Addition of Rs.1,11,81,536/- made u/s 68 deleted; Ground No. 1 allowed.

Treatment of tax exempt dividend credited to inventory / reduction of carrying amount of inventory - prohibition on taking double benefit for tax exempt income - Disallowance of deduction claimed by reducing taxable income by making tax exempt dividend part of cost of sales / inventory - HELD THAT: - The Assessing Officer observed, and the CIT(A) agreed, that dividend income which is exempt cannot be given a further tax benefit by reducing the carrying amount of inventory and thereby reducing taxable income again. The assessee had credited earlier exempt dividend to inventory (reducing carrying amount) and during the year under consideration increased cost of sales to claim a proportionate tax benefit. The Tribunal found no infirmity in the reasoning of the lower authorities that tax exempt income cannot be claimed as an additional deduction under cost of goods sold, and sustained the addition. [Paras 11]

Addition of Rs.15,24,221/- upheld; Ground No. 2 dismissed.

Final Conclusion: Appeal partly allowed: the addition under section 68 of the Act (Rs.1,11,81,536/-) deleted; the claim reducing taxable income by treating exempt dividend as part of cost of sales disallowed and addition of Rs.15,24,221/- upheld.

Taxability of sum received by a partner on retirement - treatment of receipt on retirement under capital gains - exemption under section 10(2A) of the Act - deletion of addition made by Assessing Officer

Taxability of sum received by a partner on retirement - treatment of receipt on retirement under capital gains - exemption under section 10(2A) of the Act - Whether the sum received by the assessee on retirement from the partnership firm gave rise to taxable short-term capital gain - HELD THAT: - The Tribunal considered the contention that the amount received by the assessee on retirement from the partnership firm did not constitute a capital gain. The co-ordinate bench in ITA Nos. 8214 & 8215/DEL/2018 (order dated 11.06.2019) was relied upon, where it was held that a partner is not liable to capital gains tax on sums received on retirement from a partnership firm. Although the Assessing Officer treated the partnership share as a capital asset and the CIT(A) had restricted but partly sustained the addition, the Tribunal followed the co-ordinate bench authority and held that no capital gain arises to the partner on the retirement receipt. Consequently, the addition sustained by the CIT(A) was set aside and the Assessing Officer was directed to delete the impugned addition relating to capital gains. [Paras 15, 16]

Addition on account of alleged short-term capital gain arising from sum received on retirement from partnership firm deleted; Assessing Officer directed to delete the impugned addition.

Final Conclusion: Revenue appeals dismissed; impugned addition for short-term capital gain deleted in respect of Assessment Year 2008-09 and Assessing Officer directed to give effect to the order.

Arm's Length Price - Benchmarking of interest on outbound foreign currency loans to LIBOR - Comparables under Rule 10B for foreign currency loans - Comparability and risk allocation in transfer pricing - Business expediency versus intention to earn interest

Arm's Length Price - Benchmarking of interest on outbound foreign currency loans to LIBOR - Comparables under Rule 10B for foreign currency loans - Comparability and risk allocation in transfer pricing - Business expediency versus intention to earn interest - Interest on outbound foreign currency loans advanced to associated enterprises to be benchmarked by reference to prevailing LIBOR for determination of ALP - HELD THAT: - The Tribunal found that the ALP must be determined in relation to the international transaction - the outbound foreign currency loans - and that comparables must reflect conditions prevailing in the market of the currency in which repayment is to be made. Noting authorities and earlier decisions in the assessee's own cases which adopted LIBOR for benchmarking outbound loans, and having regard to the nature and purpose of the advances (granted for sourcing raw material and for business expediency rather than primarily to earn interest), the Tribunal held that LIBOR, being the market-determined rate for the relevant currency, is the appropriate benchmark. The Tribunal considered the TPO's and DRP's reliance on PLR and the non-availability of back-to-back EXIM Bank funding for the year, and while recording the assessee's average cost of funds, concluded that the determinative factor is the international market rate applicable to the currency of the loan. The Tribunal therefore directed the TPO to compute the interest adjustment using prevailing LIBOR rates and allowed the ground raised by the assessee. [Paras 7, 8, 9, 11]

Ground allowed; TPO directed to calculate interest on the outbound foreign currency loans as per prevailing LIBOR rates.

Final Conclusion: The appeal is allowed: the Arm's Length Price for interest on outbound foreign currency loans shall be determined with reference to prevailing LIBOR rates and the TPO is directed to compute the interest accordingly; the other grounds were consequential and not adjudicated.

Deduction under section 80IA(4) - developer versus works contractor - explanation to section 80IA(4) - exclusion of works contracts - nature of works contract - interest on fixed deposits as business income - section 40(a)(ia) - TDS deposit before filing return - claim not pressed

Deduction under section 80IA(4) - developer versus works contractor - explanation to section 80IA(4) - exclusion of works contracts - nature of works contract - Whether the assessee carrying out government awarded civil/irrigation projects was a developer entitled to deduction under section 80IA(4) or merely a works contractor and therefore excluded by the Explanation. - HELD THAT: - The Tribunal examined tender terms, financials and contracts and applied the principles in Radhe Developers and other authorities to distinguish a developer from a mere works contractor. It analysed the contractual obligations and risk profile - requirement to arrange finance, procure materials, deploy plant & machinery and manpower, design/drawings subject to approval, mobilization/security deposits, retention monies, defect liability/maintenance obligations and phased payments certified on completion. On the totality of these factors the Tribunal held that the assessee had undertaken substantial entrepreneurial risk, financial involvement and responsibility for execution of projects as a whole and thereby satisfied the statutory concept of "developing" an infrastructure facility. The Tribunal declined Revenue's narrow construction that the Explanation ipso facto excludes the assessee, noting that factual inquiry of the contract terms is determinative. Applying this analysis to the appeals, deduction under section 80IA(4) was allowed. [Paras 41, 44, 45, 51]

Claim for deduction under section 80IA(4) allowed - assessee held to be a developer, not a mere works contractor; additions on this ground deleted.

Interest on fixed deposits as business income - deduction under section 80IA(4) - Whether interest earned on mandatory fixed deposits (for bank guarantees/security) is business income eligible for deduction under section 80IA(4). - HELD THAT: - Relying on coordinate bench precedent and jurisdictional authority, the Tribunal held that interest on fixed deposits made as a pre condition to obtain bank guarantees/security is incidental to and derives from the business of undertaking infrastructure projects. Such interest arises in the regular course and has direct nexus with the assessee's business; therefore it falls within profits of the business of the undertaking and is eligible for deduction under section 80IA(4). The Tribunal applied the same approach and allowed the interest component claimed. [Paras 53, 55, 56]

Interest on fixed deposits/bank guarantees allowed as business income deductible under section 80IA(4).

Section 40(a)(ia) - TDS deposit before filing return - Whether amounts were to be disallowed under section 40(a)(ia) where TDS was deducted in the previous year but deposited after the statutory due date, yet before filing of the return. - HELD THAT: - The Tribunal followed the Supreme Court's reasoning in Calcutta Export Company (and related authorities) that the rigours of section 40(a)(ia) have been ameliorated by subsequent legislative and curative interpretation and that where TDS so deducted is deposited before the due date of filing the return, disallowance is not warranted. Applying that principle to the facts (TDS deposited before filing), the Tribunal set aside the additions made under section 40(a)(ia). [Paras 59, 60]

Addition under section 40(a)(ia) deleted - TDS having been paid before filing the return, disallowance not sustainable.

Claim not pressed - Assessee's challenge to disallowance under section 36(1)(va) for A.Y. 2011 12. - HELD THAT: - The Tribunal recorded that the assessee did not press the ground relating to section 36(1)(va) at hearing. [Paras 61]

Ground as to section 36(1)(va) dismissed as not pressed.

Final Conclusion: The Tribunal allowed the assessee's appeals on the core issue, holding the assessee to be a developer (not a mere works contractor) and entitled to deduction under section 80IA(4) for the stated assessment years; interest on fixed deposits for bank guarantees/security was held to be business income deductible under section 80IA(4); the addition under section 40(a)(ia) was deleted as TDS was deposited before filing the return; the challenge under section 36(1)(va) was not pressed and dismissed.

Deduction under 80P for cooperative societies - protective disallowance - apportionment of depreciation between exempt and taxable activities - block of buildings and godowns for depreciation - remand for verification of allocation of block assets

Deduction under 80P for cooperative societies - protective disallowance - apportionment of depreciation between exempt and taxable activities - block of buildings and godowns for depreciation - Protective disallowance of deduction claimed under 80P equal to depreciation attributable to the block of buildings and godowns remanded for verification and fresh decision. - HELD THAT: - The Tribunal found that it could not verify from the record the extent to which the buildings/godowns were used for activities eligible for deduction under 80P as distinct from other activities (such as storage of the assessee's own goods and administrative use). The claim rests on depreciation computed for a single block of "Buildings and Godowns", and the Tribunal observed that allocation between exempt (80P) and non-exempt activities could not be ascertained from the materials before it. The Tribunal also noted it lacked information on the treatment accorded to this issue in preceding and subsequent assessment years. In consequence, rather than deciding the matter on merits, the Tribunal remitted the issue to the Assessing Officer for verification of (i) the extent of use of the buildings/godowns for 80P-eligible activities as opposed to other uses and (ii) the consistent treatment in other assessment years; and directed the AO to decide the issue afresh in accordance with the provisions of the Income-tax Act, 1961 and relevant judicial precedents, after giving the assessee adequate opportunity to explain its case. [Paras 7]

The matter is remanded to the Assessing Officer for verification and fresh adjudication on the protective disallowance claimed to be attributable to depreciation of the buildings and godowns block.

Final Conclusion: The appeal is allowed for statistical purposes by remanding the protective-disallowance issue to the Assessing Officer for verification and fresh decision; other grounds earlier disposed remain unaffected.

Deduction under section 80-ID - revenue sharing agreement - assessment as business income versus income from other sources - principle of consistency - allowability of expenses - sham transaction / disbelief of agreement

Revenue sharing agreement - assessment as business income versus income from other sources - sham transaction / disbelief of agreement - Receipts of Rs.1,74,00,000 received under the Revenue Sharing Agreement are assessable as income from business and profession and not as income from other sources. - HELD THAT: - The Tribunal accepted the view of the Ld. CIT(A) that the Revenue Sharing Agreement envisaged coordinated operation of the hotel business by the parties and provided for sharing of gross revenue from hotel and allied services (see the observations reproduced from the CIT(A) at paras 6.2-6.3). The Assessing Officer's conclusion that the agreement was a device to disguise subletting was rejected because the contractual terms reflect joint operation and sharing of total revenue rather than mere letting of property. The assessee also produced a Chartered Accountant's certification in Form-10CCBBA confirming fulfilment of conditions for claiming the statutory incentive and there was no adverse finding by the AO on that certification. Having regard to the contractual scope and the absence of any material change in facts (the Revenue had earlier accepted the receipts as business income in preceding years), the Tribunal upheld the CIT(A)'s finding that the receipts are business income. [Paras 6, 8]

Upheld the CIT(A)'s conclusion that the receipts under the Revenue Sharing Agreement are assessable as business income.

Deduction under section 80-ID - principle of consistency - The assessee is entitled to deduction under section 80-ID for AY 2015-16. - HELD THAT: - The CIT(A) found, and the Tribunal agreed, that the assessee satisfied the statutory pre conditions for claiming deduction under section 80 ID as evidenced by the Form 10CCBBA certified by a Chartered Accountant (paras 6.5-6.7). The AO made no specific finding of non compliance with the conditions. Further, the Revenue had treated identical receipts as business income in earlier assessment years, and no material change in facts justified a different view for the year under consideration; the principle of consistency therefore supported allowance of the claim. On these bases the Tribunal upheld the allowance of deduction under section 80 ID and directed computation accordingly. [Paras 6, 8]

Allowed the claim for deduction under section 80 ID and upheld the CIT(A)'s direction to compute and allow the same.

Allowability of expenses - assessment as business income versus income from other sources - Expenses incurred by the assessee in relation to the hotel receipts are allowable deductions. - HELD THAT: - The CIT(A) noted that the expenses debited to the Profit & Loss account were incurred for conduct of the business and were inextricably linked to the revenue (para 7.1). Because the receipts were held to be business income, the Tribunal agreed that the claimed expenses are allowable against that income. The AO had not recorded specific reasons for disallowance of those expenses, and their nature justified deduction when assessed under the head business and profession. [Paras 7, 8]

Allowed the deduction of expenses claimed by the assessee as allowable against the business income.

Final Conclusion: The Tribunal dismissed the Revenue's appeal for AY 2015-16, upholding the CIT(A)'s findings that the receipts under the Revenue Sharing Agreement are business income, that the assessee is entitled to deduction under section 80 ID, and that the expenses claimed are allowable.

Allowability of expenditure for improvement of land - deduction under Section 54F - apportionment of deduction for part-residential property - remand to Assessing Officer for verification of expenditure

Allowability of expenditure for improvement of land - Expenditure claimed towards development/improvement of land sold in AY 2015-2016 and AY 2016-2017 is allowable. - HELD THAT: - The assessee produced ledger extracts and details of payments for sand, labour, dozer and roller charges in the paper book. The Tribunal found that the Assessing Officer rejected the claim merely for want of what was described as "more concrete evidence" without specifying the nature of evidence required. Having considered the particulars of expenditure furnished by the assessee, the Tribunal held that the claim could not be blindly rejected and directed the AO to allow the expenditure of Rs.30,10,320 for AY 2015-2016 and Rs.18,67,682 for AY 2016-2017 as cost of improvement of the land sold by the assessee. [Paras 5]

Expenditure of Rs.30,10,320 for AY 2015-2016 and Rs.18,67,682 for AY 2016-2017 to be allowed as cost of improvement of the land.

Deduction under Section 54F - apportionment of deduction for part-residential property - Deduction under Section 54F is allowable only in respect of the portion of the purchased commercial-cum-residential building actually used by the assessee as his residential house, and must be apportioned accordingly. - HELD THAT: - The Tribunal examined municipal records, tax receipts and the remand report of the AO, which showed that the property, though earlier assessed as commercial, was being used by the assessee for residential purpose on one floor while the balance was leased for hotel use. Applying an apportionment based on area, the Tribunal treated the first floor (1626 sq.ft. of total 6704 sq.ft.) as residential and computed the deductible portion as 26.75% of the total investment. The Tribunal therefore directed the AO to grant Section 54F benefit in respect of the first floor and the land apportioned thereto. [Paras 8]

Grant Section 54F deduction to the assessee proportionate to the first floor (26.75% of the total investment) of the purchased commercial-cum-residential building for AY 2015-2016.

Remand to Assessing Officer for verification of expenditure - The question of verification of the nature and quantum of expenditure claimed for development of the house property for AY 2015-2016 and AY 2016-2017 is remanded to the Assessing Officer for verification. - HELD THAT: - While the Tribunal applied the 26.75% apportionment for allowance under Section 54F, it observed that the claimed development/construction expenditure for the relevant years had not been verified by the AO. For that reason, the Tribunal restored the issue to the file of the AO for verification of the nature and admissibility of the expenditure claimed in both assessment years before giving effect to the directions on deduction. [Paras 9]

Issue of verification of development/construction expenditure for AY 2015-2016 and AY 2016-2017 remanded to the AO for verification.

Final Conclusion: Appeals partly allowed: expenditure on land improvement for AY 2015-2016 and AY 2016-2017 is allowed; Section 54F deduction allowed pro tanto (26.75%) in respect of the first floor of the purchased property for AY 2015-2016; verification of development expenditure for both years is remanded to the Assessing Officer.

Benami transaction - presumption under Section 3(2) of the Benami Transactions (Prohibition) Act, 1988 - rebuttal of statutory presumption - source of purchase money - possession and custody of title deeds - motive for benami colouring - illegality (tax evasion) as impermissible motive - Order 41 Rule 27 CPC - admission of additional evidence

Source of purchase money - possession and custody of title deeds - Whether the respondent proved that the suit properties were purchased from his funds and not from funds of the appellant's father. - HELD THAT: - The Court examined documentary and oral evidence produced by the respondent, including income tax returns, account books, agricultural income details, house tax and water charge receipts, kist receipts, approved plan and evidence of vendors and builder, to establish that the respondent had the means and had paid for acquisition and construction. The appellant's plea that her father furnished the purchase monies was found improbable: neither she nor her father produced corroborative documents, and their evidence failed to specify details of payments and expenses. The record also showed that title documents and management of the properties were with the respondent. Applying these facts, the Court concluded that the respondent had established that he funded the purchases and constructions and had purchased the properties in the appellant's name. [Paras 12]

Point No.1 answered in favour of the respondent; the respondent proved that the properties were purchased from his funds.

Presumption under Section 3(2) of the Benami Transactions (Prohibition) Act, 1988 - rebuttal of statutory presumption - motive for benami colouring - illegality (tax evasion) as impermissible motive - Whether the respondent rebutted the statutory presumption under Section 3(2) that a purchase in the name of the wife is presumed to be for her benefit. - HELD THAT: - The Court recognised the statutory presumption under Section 3(2) and the established principles for determining benami transactions (source of funds; nature and possession; motive; relationship; custody of title deeds; conduct after sale). It held that the appellant did not maintain her pleaded case that her father supplied the funds and that her version was inherently improbable. While the Court accepted that ordinary management of a wife's property by the husband does not alone prove benami ownership, it rejected the respondent's stated motive of avoiding wealth tax as impermissible and unlawful. On the totality of evidence - including source of funds, possession of title documents by the respondent, vendor and builder testimony, and the improbability of the appellant's account - the Court found the statutory presumption effectively rebutted in favour of the respondent and that the properties were purchased for his benefit in the appellant's name. [Paras 14, 15, 16, 17, 18]

Point No.2 answered in favour of the respondent; the statutory presumption under Section 3(2) is rebutted and the properties are held to be benami in the respondent's interest.

Final Conclusion: The appellate Court found the respondent proved purchase from his funds and rebutted the statutory presumption of beneficial ownership in favour of the wife; the Family Court's Judgment and Decree are affirmed and the appeal is dismissed.

Interference by High Court in seizure of import consignment - stay of operation of impugned order - remand to appellate authority for fresh consideration - non prejudicial effect of interim observations

Interference by High Court in seizure of import consignment - stay of operation of impugned order - Whether the High Court was justified in interfering with and setting aside the seizure of the import consignment. - HELD THAT: - The Court observed that, prima facie, the High Court did not appear justified in interfering with the matter and setting aside the seizure. It noted earlier orders of this Court which had stayed the operation of the impugned order and had, tentatively, expressed the view that the impugned order could not be sustained in law. However, having regard to subsequent developments including the passing of an Order in Original and the filing of an appeal against it, the Court refrained from adjudicating the merits itself and directed that the appellate process be allowed to proceed. [Paras 1, 2, 3]

The observations indicate that the High Court's interference was not prima facie justified; the prior stay is noted, but the matter is to be left for adjudication by the appellate authority.

Remand to appellate authority for fresh consideration - non prejudicial effect of interim observations - Disposition of the proceedings after the Order in Original was passed and the appropriate forum to decide the appeal. - HELD THAT: - The Court held that since an Order in Original has been passed and an appeal against it has been filed before the Commissioner of Customs (Appeals), the appeal should be considered by that appellate authority in accordance with law. All observations made in the impugned order and in the orders of this Court shall not operate prejudicially against either party; the appellate authority must decide the appeal on its own merits, uninfluenced by earlier observations. Consequently, the impugned order dated 26th August, 2021 is set aside subject to these observations. [Paras 3, 4]

The matter is remitted to the appellate authority to be decided on merits; the impugned order dated 26th August, 2021 is set aside, and prior observations are declared non prejudicial.

Final Conclusion: Special leave petition disposed of; impugned order dated 26th August, 2021 set aside, and the appeal filed before the Commissioner of Customs (Appeals) is to be considered afresh on its merits without prejudice from prior observations; pending applications disposed of.

Summary order. Appeals against the Customs, Excise & Service Tax Appellate Tribunal order are dismissed; pending application, if any, disposed of.

Summary order. Special Leave Petitions dismissed; delay condoned; application for substitution allowed subject to just exceptions; amended cause title to be filed; pending applications disposed of.

Judicial review of administrative action - cancellation of Customs House Agent licence - writ remedy under Article 226 - exercise of power under Article 136 of the Constitution - interference with High Court's order

Judicial review of administrative action - cancellation of Customs House Agent licence - interference with High Court's order - exercise of power under Article 136 of the Constitution - Whether this Court should intervene under Article 136 against the High Court's order allowing the writ petition setting aside the Commissioner of Customs' cancellation of the Customs House Agent licence. - HELD THAT: - The Special Leave Petition challenged the High Court's judgment which had allowed the writ petition and set aside the Commissioner of Customs' decision cancelling the CHA licence. Upon consideration of the impugned judgment and the reasoning given by the High Court, this Court found no reason to interfere with that exercise of judicial review. Exercising its discretionary jurisdiction under Article 136, the Court declined to disturb the High Court's conclusion that warranted setting aside the administrative cancellation. [Paras 3, 4]

Special Leave Petition dismissed; no interference with the High Court's order setting aside the cancellation of the CHA licence.

Final Conclusion: The Supreme Court, after considering the High Court's reasoning, declined to exercise its powers under Article 136 to interfere and dismissed the Special Leave Petition, thereby leaving intact the High Court's order setting aside the cancellation of the Customs House Agent licence.

Classification of vitamin premixes versus animal feed premixes - HSN explanatory notes on premixes and vitamins - Specific heading prevails over general/residuary heading - Application of General Rules of Interpretation (Rule 1; Rule 3(a); Rule 3A)

Classification of vitamin premixes versus animal feed premixes - HSN explanatory notes on premixes and vitamins - Specific heading prevails over general/residuary heading - Application of General Rules of Interpretation (Rule 1; Rule 3(a); Rule 3A) - Classification of the imported products LUTA.CALPA N 98%, LUTA.E 50, LUTA.0A/D3 1000/200 PLUS, LUTAVIT A 1000 PLUS and CHOLINC.LSG under the Customs Tariff. - HELD THAT: - The Authority examined whether the products, though intended for use in preparation of animal feed, are classifiable under the specific heading for vitamins and provitamins or under the residuary heading for animal feed premixes. Reliance was placed on the HSN explanatory notes which describe premixes (heading 2309) as compound compositions generally containing additives with carriers to ensure homogeneous dispersion, and which exclude from that heading vitamins that retain their character and are suitable for general use. Explanatory notes to chapter 29 and heading 2936 include provitamins and vitamins (including concentrates and intermixtures) even when stabilised, adsorbed or coated provided such processing does not alter their character or render them specifically suitable rather than for general use. Applying the General Rules of Interpretation, the classification must be determined first by the terms of the headings and notes (Rule 1); where a specific heading is in issue, Rule 3(a) requires that the specific heading prevail over a more general/residuary heading. The Authority observed that the products before it have high concentrations of vitamins (ranging significantly) and fall within the scope of chapter 29 as items that are chemically defined or are concentrates/intermixtures contemplated by heading 2936. Prior decisions and distinctions in the case-law were noted to show that factual differences (such as whether a product is already in final feed supplement form with carriers versus a concentrated vitamin) are determinative. For these reasons the products were held to be classifiable under the specific heading for vitamins and provitamins rather than under the residuary feed premix heading. [Paras 6, 7]

The listed products are classifiable under Heading 2936 of the First Schedule to the Customs Tariff Act, 1975.

Final Conclusion: The Advance Ruling Authority ruled that the specified vitamin products imported by the applicant merit classification under Heading 2936 (provitamins and vitamins) of the Customs Tariff, and not under Heading 2309 for animal feed premixes.

Option of a secured creditor to realise or relinquish his security - interaction between the SARFAESI Act and the Companies Act (Sections 529 and 529A) - exclusive jurisdiction of DRT/authorities under special recovery statutes in relation to secured asset enforcement - duty of the Official Liquidator to take possession of assets of a company in liquidation

Option of a secured creditor to realise or relinquish his security - exclusive jurisdiction of DRT/authorities under special recovery statutes in relation to secured asset enforcement - Whether respondent No.3 (Union Bank of India) had stood outside the winding-up proceedings and validly enforced its security under proceedings other than the liquidation process. - HELD THAT: - The Court held that a secured creditor may either relinquish its security and participate in the liquidation or exercise the option to realise the security in proceedings other than winding up, subject to payment obligations to the liquidator for preservation costs and the statutory protection of workmen's dues under Sections 529 and 529A. The facts - prior symbolic possession under SARFAESI, institution of recovery proceedings before DRT, physical possession obtained with District Magistrate's intervention, and subsequent sale - demonstrate that the Bank took effective steps to enforce its security and thereby stood outside the winding-up process. Mere filing of an affidavit of proof of debt did not establish relinquishment; relinquishment requires a conscious positive act to submit to the liquidation framework. The Court applied the principles in Jitendra Nath Singh and related precedents to conclude that the Bank had elected to realise its security outside the liquidation. [Paras 12, 23]

The Bank had stood outside the winding-up proceedings and validly pursued enforcement of its security by steps taken under SARFAESI and other fora.

Interaction between the SARFAESI Act and the Companies Act (Sections 529 and 529A) - duty of the Official Liquidator to take possession of assets of a company in liquidation - Whether the Bank's taking possession of the subject assets and subsequent sale without obtaining leave of the Company Court or prior physical possession by the Official Liquidator was void and liable to be quashed. - HELD THAT: - Relying on the Supreme Court's exposition in Pegasus and the statutory scheme, the Court noted that the SARFAESI Act vests powers in a secured creditor to enforce its security without court intervention and contains procedural safeguards (including notice requirements) that ensure the Official Liquidator can participate where necessary to protect workmen's dues under Sections 529/529A. Where a secured creditor elects to stand outside liquidation and enforces security in accordance with SARFAESI, the Company Court's permission for taking possession or sale is not a precondition. The Official Liquidator's alleged dereliction or alleged lack of notice did not render the Bank's acts void where the Bank had validly pursued remedies under SARFAESI and related fora and complied with the statutory scheme that protects the interests recognised by Sections 529 and 529A. [Paras 24, 25, 28]

The possession and sale effected by the secured creditor under SARFAESI did not require prior leave of the Company Court and were not void for want of the Official Liquidator's prior physical possession.

Final Conclusion: Both interim applications seeking declaration of illegality of the Bank's possession and sale and a direction to the Official Liquidator to take possession were dismissed; the secured creditor's enforcement under SARFAESI was held to be lawful in the circumstances where it had elected to stand outside the liquidation.

Cause of action distinctness between summary suit and action for damages - maintainability of suit in absence of the issuer following insolvency moratorium - Order II Rule 2 CPC - requirement to include whole claim (bar by prior suit) - duty of care of credit rating agencies to registered debenture holders - statutory and common law duty of statutory auditors to debenture holders and investors - liability of a debenture trustee to protect debenture holders - grant of interim injunction/security in suits for unliquidated damages - prima facie liability test at interlocutory stage - apportionment of security among multiple defendants where assets/jurisdictional constraints exist

Cause of action distinctness between summary suit and action for damages - Order II Rule 2 CPC - requirement to include whole claim (bar by prior suit) - Whether the present suit is barred by reason of a prior summary suit in the Bombay High Court and whether the causes of action are identical - HELD THAT: - The Court examined the plaint in the Bombay summary suit and concluded that that suit was a contract-based summary action under Order XXXVII to recover a subsisting debt due from DHFL for repayment of debentures. By contrast, the present suit is an action for unliquidated damages and compensation for alleged misstatements in the prospectus and breaches of statutory and common law duties by various persons. In an action for damages no debt is subsisting at institution; the plaintiff's right is to make a claim which must be proved and only then results in a decree creating a debt. The Division Bench's earlier analysis in the related batch was noted to hold that a suit under Section 35 of the Companies Act is maintainable against persons other than the company and that insolvency moratorium rendered impleadment of DHFL impracticable. Applying Order II Rule 2(1) CPC, the Court held that to attract that bar both suits must be founded on the same cause of action; since the causes here are distinct, the bar does not apply. [Paras 10, 11, 12, 13]

Applications to reject or return the plaint on the ground of bar under Order II Rule 2 CPC are dismissed.

Maintainability of suit in absence of the issuer following insolvency moratorium - cause of action distinctness between summary suit and action for damages - Whether DHFL was a necessary party and whether defendants who resigned before issuance of the prospectus or thereafter could be struck off the array of parties - HELD THAT: - The Court applied the test of whether an enforceable decree could be issued in the absence of the party. Given the money decree claimed against all defendants jointly and severally, and the plaintiff's pleading that various defendants had statutory or common law duties breached in relation to the prospectus and debentures, each defendant is a necessary party at this interlocutory stage. The prior insolvency moratorium and the Division Bench's reasoning that Section 35 liabilities are joint and several reduced the significance of non-joinder of DHFL. Resignation from positions does not automatically absolve persons who played central roles; pleadings alleging reliance on audited statements and rating reports suffice to retain them as defendants for the present. [Paras 13]

Applications to delete defendants from the array of parties are dismissed.

Duty of care of credit rating agencies to registered debenture holders - prima facie liability test at interlocutory stage - Whether the credit rating agencies (sixth and seventh defendants) owed a duty of care to the plaintiff and whether there is a prima facie case to continue the interim injunction and require security from them - HELD THAT: - The Court analysed the CRA statutory framework imposing monitoring and periodic review obligations (Regulations 15 and 16 of the CRA Regulations) and the role of CRAs in holding out ratings to investors. Applying principles from authorities addressing duty of care of rating agencies and experts, the Court held that registered debenture holders constitute a determinate class and that the CRAs, who knew ratings would be relied upon, prima facie owed a duty of care to such holders. A review of the rating histories and the timing/content of downgrades showed that liquidity deterioration was not adequately reflected in periodic reviews and that downgrades were delayed until collapse became imminent. On this prima facie record the CRAs were held potentially liable and the interim order ought to continue unless they furnish security. [Paras 35, 36, 37, 38, 39]

The CRAs are prima facie liable; the interim injunction continues against them and they are directed to provide security (apportioned in the final directions).

Statutory and common law duty of statutory auditors to debenture holders and investors - prima facie liability test at interlocutory stage - Whether the statutory auditors (eighth to tenth defendants) owed a duty of care to the plaintiff and whether prima facie liability is made out to continue injunction and require security - HELD THAT: - The Court reviewed statutory provisions governing auditors' reports and rights of debenture holders to financial statements, and considered common law principles (including proximity and foreseeability) from Caparo and related authorities. It concluded that auditors owe duties to the company and to registered shareholders and debenture holders when it is reasonably foreseeable their reports will be relied upon. The ninth and tenth defendants, having resigned before the prospectus, prima facie did not owe a duty to the plaintiff absent evidence they knew their reports would be relied upon for the debenture issue. By contrast, the eighth defendant was the statutory auditor at the time the prospectus was issued and for subsequent years; the prospectus expressly treated the auditor as an expert and reformatted statements were examined/approved by that auditor. Consideration of sanction letters, unusually high LTVs, large project loan disbursements and the Grant Thornton forensic report led to a strong prima facie conclusion that the eighth defendant failed to exercise reasonable care. Thus, the eighth defendant cannot be absolved at interlocutory stage. [Paras 46, 47, 48, 49, 50]

Prima facie liability established against the eighth auditor (and not prima facie established against the ninth and tenth auditors); interim injunction continues against the eighth defendant and is vacated as against the ninth and tenth defendants.

Liability of a debenture trustee to protect debenture holders - grant of interim injunction/security in suits for unliquidated damages - Whether the Debenture Trustee owed duties to debenture holders and whether a prima facie case exists to continue injunction and require security from the Debenture Trustee - HELD THAT: - The Court noted the prospectus statement and the Debenture Trust Deed which undertook to protect NCD holders and create specified security. Statutory requirements (Section 71 and relevant SEBI regulations) and the trust deed created enforceable obligations. Record showed DRR was not created and the trustee did not act to protect holders. Therefore the Debenture Trustee owed a statutory and common law duty to debenture holders and there is a strong prima facie case of negligence. [Paras 51]

The Debenture Trustee is prima facie liable; the interim injunction continues against it and it is directed to provide security as apportioned.

Grant of interim injunction/security in suits for unliquidated damages - apportionment of security among multiple defendants where assets/jurisdictional constraints exist - prima facie liability test at interlocutory stage - Whether interlocutory equitable relief in the form of continued injunctions and requirement to furnish security is permissible in an action for unliquidated damages and how security should be apportioned among defendants found prima facie liable - HELD THAT: - The Court reaffirmed that equitable interim relief, including injunctions and orders to provide security, can be granted in suits for damages in appropriate cases. The loss suffered by the plaintiff (the investment in debentures) was admitted and self-evident, and what remained was attribution of responsibility. Having found prima facie liability against various categories of defendants (promoters, key managerial personnel, CRAs, statutory auditor in office at prospectus, debenture trustee) and having regard to the practicalities that some defendants face attachments, criminal proceedings or lack assets within the Court's jurisdiction, the Court determined that equitable apportionment of security for interlocutory purposes was justified. Exact apportionment could not be made with precision at this stage; the Court apportioned security percentages for interlocutory compliance taking into account roles, likely recoverability and jurisdictional realities. Procedures were prescribed for testing securities and discharging injunctions upon satisfactory security being furnished. [Paras 29, 30, 31, 52, 53]

Interim injunctions shall continue against the first to eighth and eleventh defendants subject to provision of security apportioned as ordered; injunctions against the ninth and tenth defendants are vacated.

Final Conclusion: The Court held that the present suit for damages is distinct from the prior Bombay summary suit and is not barred; applications to reject the plaint or strike parties were dismissed. On a prima facie assessment, promoters, key managerial personnel, the two CRAs, the statutory auditor in office at the time of the prospectus and the Debenture Trustee were found potentially liable and the interim injunctions continue against them subject to furnishing security apportioned by the Court; the interim injunctions were vacated as against the ninth and tenth auditors.

Claim as at the liquidation commencement date - proof of claim in Form D - right to realize security interest - surplus under Section 52(7) - liquidation commencement date

Claim as at the liquidation commencement date - proof of claim in Form D - liquidation commencement date - right to realize security interest - surplus under Section 52(7) - Whether a secured creditor who realises secured assets can retain interest accrued after the liquidation commencement date in excess of the amount stated in the Form D claim, or whether its entitlement is confined to the principal and interest shown in Form D "as at the liquidation commencement date". - HELD THAT: - The Tribunal examined the statutory scheme of the Insolvency and Bankruptcy Code and the Liquidation Process Regulations. Regulation 16(1)-(2) and Regulation 18 require stakeholders to submit and prove their claims, including interest, "as on the liquidation commencement date", and Form D expressly records the total amount of claim including interest "As At The Liquidation Commencement Date." Section 52 permits a secured creditor to realise its security interest and, under Section 52(7), to account to the liquidator for any surplus proceeds. The appellant's contention that the term "debt" (defined separately) permits recovery of interest accruing after the liquidation commencement date was held incompatible with the liquidation scheme which fixes claims as at the liquidation commencement date. Allowing secured creditors to increase claims post that date would defeat the statutory liquidation process. Accordingly, interest in excess of that stated in Form D (i.e., interest accrued after the liquidation commencement date up to actual realisation) could not be retained by the secured creditor and had to be accounted for to the liquidator as surplus under the statutory regime. [Paras 18, 19, 20]

The secured creditor's entitlement is confined to the principal and interest as claimed in Form D "as at the liquidation commencement date"; interest accrued after that date in excess of the Form D claim must be accounted for to the liquidator as surplus under Section 52(7).

Final Conclusion: The appeal is dismissed and the Adjudicating Authority's order directing the bank to pay the excess amount (retained as interest beyond the Form D claim) to the liquidation estate, with interest as ordered, is upheld.

Admission of Section 7 application under the Insolvency and Bankruptcy Code - existence of debt and default as determinative threshold for Section 7 - irrelevance of creditor's contributory negligence for rejecting Section 7 application - effect of Master Restructuring Agreement clause making borrower's obligation direct and unconditional - pending civil suit does not preclude admission under Section 7 - set-off and counterclaim to be adjudicated at proof-of-claims stage during CIRP

Existence of debt and default as determinative threshold for Section 7 - admission of Section 7 application under the Insolvency and Bankruptcy Code - Whether, once debt and default are established on the record, the Adjudicating Authority must admit a Section 7 application. - HELD THAT: - Applying the scheme of Section 7 as expounded by the Hon'ble Supreme Court in Innoventive Industries Ltd., the Tribunal held that the adjudicating authority's role at the admission stage is confined to ascertaining existence of debt and default from the information utility records or evidence furnished. If satisfied that default has occurred, the application must be admitted unless incomplete. The Tribunal found on the record that sanction of facilities and subsequent defaults by the corporate debtors were not denied and that acknowledgements and NPA classification supported the financial creditors' claim. Therefore the Adjudicating Authority erred in rejecting Section 7 applications where debt and default stood proved. [Paras 15, 16, 21, 31]

Where debt and default are established on the record, the Section 7 applications must be admitted; Adjudicating Authority's rejections were erroneous.

Irrelevance of creditor's contributory negligence for rejecting Section 7 application - effect of Master Restructuring Agreement clause making borrower's obligation direct and unconditional - Whether contributory negligence or omission by financial creditors (non-disbursement) can be a ground to reject Section 7 application. - HELD THAT: - The Adjudicating Authority had declined admission on the view that the financial creditors' failure to disburse certain sanctioned amounts contributed to the corporate debtor's default. The Tribunal held that this approach conflicts with the precedent in Innoventive Industries Ltd., which, after examining an identical clause in an MRA, concluded that obligations of the borrower are direct and unconditional and do not depend on creditors' infusions. The MRA in the present cases contains an identical clause declaring the borrower's obligations direct and unconditional. Consequently, alleged non-disbursement by lenders cannot be a ground at the admission stage to deny a Section 7 application. [Paras 12, 14, 20, 21, 24]

Contributory negligence or non-disbursement by creditors is not a valid ground to reject admission under Section 7 where the borrower's obligation and default are otherwise established; Adjudicating Authority's reliance on such ground is unsustainable.

Pending civil suit does not preclude admission under Section 7 - admission stage not to decide counterclaims or separate civil remedies - Whether pendency of a civil suit by the corporate debtor against the financial creditors bars admission of a Section 7 application. - HELD THAT: - The Adjudicating Authority relied on the pendency of a suit in the Calcutta High Court and the possibility of its adjudication determining default. The Tribunal held that proceedings in a separate civil forum, and the existence of counterclaims or disputed reliefs therein, do not ipso facto defeat a financial creditor's statutory right to seek initiation of CIRP where debt and default are established. Civil claims and set-offs are matters to be adjudicated during the resolution process or in their respective fora; mere pendency of suit is not a ground to refuse admission under Section 7. [Paras 12, 13, 28, 29]

Pendency of a civil suit by the corporate debtor against creditors is not a bar to admission of a Section 7 application where debt and default are proved.

Set-off and counterclaim to be adjudicated at proof-of-claims stage during CIRP - Whether set-off or counterclaims raised by the corporate debtor must be adjudicated at the admission stage of a Section 7 application. - HELD THAT: - Relying on the law in Swiss Ribbons and related precedent, the Tribunal reiterated that legitimate set-offs and counterclaims are not extinguished by the Code but are to be considered at the stage when claims are filed in the insolvency process. The resolution professional and the adjudicating authority in the CIRP framework are the appropriate forums to admit and adjudicate such claims; they do not justify rejection at the admission stage. [Paras 22, 23]

Set-off and counterclaims should be dealt with during admission of claims in the CIRP and do not justify rejection of a Section 7 application at the admission stage.

Final Conclusion: The appeals are allowed. The Tribunal set aside the Adjudicating Authority's orders dated 28.06.2022 and 29.06.2022, directed admission of the respective Section 7 applications and consequential orders to be passed within 30 days from placement of this order before the Adjudicating Authority; parties to bear their own costs.

Eligibility under Sabka Vishwas (Legacy Dispute Resolution) Scheme (SVLDRS) 2019 - tax dues relatable to show cause notice pending as on 30th June, 2019 - effect of remand by appellate authority on pendency of adjudication - exclusion under Section 125(1)(a) of the Scheme (appeal heard finally) - exclusion under Section 125(1)(c) of the Scheme (final hearing taken place) - definition of tax dues under Section 123(b) - reconsideration of rejected declarations and grant of relief after opportunity of hearing

Eligibility under Sabka Vishwas (Legacy Dispute Resolution) Scheme (SVLDRS) 2019 - filing before expiry of the Scheme - Applications filed on 15th January, 2020 were within time and validly filed under SVLDRS-2019. - HELD THAT: - The Court found that the declarations were filed on 15.01.2020 while the Scheme was in force (extended to 15.01.2020 by notification) and therefore were filed before expiry of the Scheme. The fact of timely filing entitled the petitioner to have the declarations considered on merits rather than being rejected on the ground that the Scheme had expired.

Applications treated as filed within time and not barred by expiry of the Scheme.

Tax dues relatable to show cause notice pending as on 30th June, 2019 - definition of tax dues under Section 123(b) - effect of remand by appellate authority on pendency of adjudication - Show cause notices received before 30th June, 2019 and, after setting aside of the original orders and remand by CESTAT, the matters remained pending for adjudication as on 30th June, 2019 and thus fell within the Scheme. - HELD THAT: - Relying on Section 123(b) and Section 124(1)(a) the Court held that where a show cause notice was received on or before 30th June, 2019 the amount stated therein is tax dues. The CESTAT had set aside the order-in-original and remanded the matters for de novo adjudication and there was no final adjudication thereafter. In that factual matrix the adjudication was pending as on 30th June, 2019 and the petitions were accordingly eligible under the Scheme.

The show cause notices were relatable to tax dues pending as on 30th June, 2019 and eligible under the Scheme.

Exclusion under Section 125(1)(a) of the Scheme (appeal heard finally) - The petitioner was not excluded under Section 125(1)(a) on the ground that the appeal had been heard finally before 30th June, 2019. - HELD THAT: - The Court examined the sequence of proceedings and found that although an earlier appeal had been dismissed for non-compliance of a conditional pre-deposit order, the appeal was later restored on compliance and ultimately the CESTAT heard the appeal on merits and remanded the matters. There was no final adjudication of the show cause notices after remand prior to 30th June, 2019. Consequently, the exclusion in Section 125(1)(a) (appeal heard finally on or before 30th June, 2019) did not apply to disqualify the petitioner from making a declaration under the Scheme.

Section 125(1)(a) exclusion is not attracted; petitioner remains eligible.

Exclusion under Section 125(1)(c) of the Scheme (final hearing taken place) - Section 125(1)(c) did not bar the petitioner because no final hearing had been conducted on the remanded show cause notices on or before 30th June, 2019. - HELD THAT: - The Court noted the admitted factual position that after the CESTAT's order setting aside the order-in-original and remanding the matter, no final hearing or fresh adjudication had taken place before the adjudicating authority on or before 30th June, 2019, and no evidence was produced to show otherwise. Therefore the exclusion for cases where a final hearing has taken place was not applicable.

Section 125(1)(c) exclusion not attracted; petitioner eligible.

Impact of prior writ dismissal on pendency of adjudication - effect of earlier judicial proceedings on eligibility under the Scheme - Dismissal of the earlier writ petition (filed against the interim conditional stay order) did not affect the pendency of the show cause notices after the CESTAT restored the appeal and remanded for re-adjudication. - HELD THAT: - The Court distinguished the limited scope of the earlier writ (which challenged only the interim conditional order requiring pre-deposit) from the substantive status of the show cause notices after restoration and remand by the CESTAT. The High Court's dismissal for default did not amount to a final adjudication of the remanded show cause notices; accordingly the writ dismissal did not disentitle the petitioner from the Scheme.

Earlier writ dismissal did not render the show cause notices non-pending for purposes of the Scheme.

Section 127(7) requirement for withdrawal of proceedings before High Court or Supreme Court - Section 127(7) (withdrawal requirement where a declarant has filed a writ petition or appeal before High Court/Supreme Court) did not apply because no related proceeding was pending before the High Court on the date of filing the declarations under the Scheme. - HELD THAT: - The Court observed that on the date of filing the declarations there was no continuing proceeding before the High Court in relation to the tax dues; therefore the procedural requirement to withdraw such proceedings under Section 127(7) did not arise.

Section 127(7) not applicable in the facts of this case.

Reconsideration of rejected declarations and grant of relief after opportunity of hearing - Impugned orders rejecting the declarations were set aside and the matter was remitted to the authority to reconsider the applications, give the petitioner an opportunity of hearing and grant appropriate relief under the Scheme. - HELD THAT: - Finding the rejection arbitrary and perverse in law, the Court set aside the rejection orders dated 12.02.2020 and directed reassessment of the declarations in light of its findings on eligibility and pendency. The Court mandated that reconsideration and any grant of relief be preceded by an opportunity of hearing to the petitioner and be completed within 12 weeks from communication of the order.

Rejections set aside; authority directed to reconsider, hear the petitioner and grant appropriate relief within 12 weeks.

Precedential value of unreported Supreme Court order relied upon by respondents - The unreported Supreme Court order relied upon by respondents (M/s. Yashi Constructions) was held inapplicable to the facts of this case. - HELD THAT: - The Court considered the respondents' reliance on the unreported Supreme Court order and concluded that it did not apply to the present factual matrix; accordingly that reliance did not sustain the rejection of the declarations.

Reliance on the cited unreported Supreme Court order is misplaced and has no application here.

Final Conclusion: Writ petition allowed; the orders dated 12.02.2020 rejecting the petitioner's SVLDRS-2019 declarations are set aside. The designated authority is directed to reconsider the declarations, afford the petitioner an opportunity of hearing and, in light of the Court's findings on eligibility and pendency as on 30th June, 2019, grant appropriate relief under the Scheme; the reconsideration to be completed within twelve weeks of communication of this order.

Manpower recruitment or supply agency - reverse charge mechanism - service recipient liability - extended period of limitation - interest on delayed payment of service tax - wilful suppression / extended limitation proviso

Manpower recruitment or supply agency - reverse charge mechanism - service recipient liability - Liability to service tax on amounts reimbursed for salaries of seconded/deputed employees and whether the appellant is the service recipient under the reverse charge mechanism. - HELD THAT: - The Tribunal applied and followed the reasoning of the Supreme Court in Commissioner of Customs, Central Excise & Service Tax-Bangalore v. M/s Northern Operating System Pvt. Ltd., noting that where overseas group companies second employees to the Indian entity, the secondees perform work under the control and supervision of the Indian entity while remaining on the payroll and employment terms of the overseas employer. Those features establish that the overseas entity provided 'manpower supply' services and that the Indian entity is the service recipient obliged to discharge service tax under the reverse charge mechanism. The arrangement in the seven appeals was held to be materially similar to that considered by the Supreme Court, and therefore the appellant is liable to pay service tax for the normal periods covered by the show cause notices. [Paras 8, 11, 23]

The appellant is the service recipient and liable to discharge service tax under the reverse charge mechanism for the normal periods specified in the show cause notices; the appeals are dismissed to that extent.

Extended period of limitation - wilful suppression / extended limitation proviso - Whether invocation of the extended period of limitation to recover service tax in respect of certain periods was justified. - HELD THAT: - Relying on the Supreme Court's analysis in Northern Operating System, the Tribunal held that invocation of the extended period requires proof of wilful misstatement, suppression or fraud. The facts and prior adjudications relied upon by the Department did not establish wilful suppression. Consequently, the Tribunal found the Revenue not justified in invoking the extended period of limitation in the two appeals where it had been applied and set aside the demands confirmed for the extended period. [Paras 13, 14, 23, 24]

Demands confirmed for the extended period of limitation in Service Tax Appeal No. 26058 of 2013 and the portion confirmed for the extended period in Service Tax Appeal No. 3195 of 2011 are set aside.

Interest on delayed payment of service tax - section 75 - Whether interest under section 75 is payable on the service tax liability for the normal period. - HELD THAT: - The Tribunal noted that section 75 mandates payment of simple interest on delayed crediting of service tax and that interest is compensatory and distinct from penalty. The Supreme Court in Northern Operating System had confirmed imposition of interest under section 75 while setting aside extended period demands. The Tribunal rejected the appellant's reliance on Merino Panel Products to avoid interest, observing that interest under section 75 is mandatory irrespective of innocence or mala fides. Accordingly, interest under section 75 was upheld for amounts remaining payable for the normal period; no interest is payable in respect of amounts for the extended period which have been set aside. [Paras 19, 20, 21, 23, 24]

Interest under section 75 is payable on the service tax liability for the normal period; no interest is payable on amounts in relation to the extended period which have been set aside.

Final Conclusion: Applying the Supreme Court's decision in Northern Operating System, the Tribunal held that the appellant is the service recipient liable under the reverse charge mechanism to discharge service tax for the normal periods; demands based on the extended period of limitation in two appeals are set aside; interest under section 75 is payable on the remaining normal-period liability, and no interest is payable on amounts relating to the set aside extended period demands. The adjudicating authority is directed to verify payments and recover any further amounts due for the normal period.

Recovery of interest under Rule 14 of the Cenvat Credit Rules - Interpretation of 'taken OR utilized' in Rule 14 - Liability for interest where Cenvat credit was availed but reversed before utilization - Validity of departmental notice as show-cause for recovery of interest - Limitation for recovery of quantified interest - Recovery mechanism under Section 87 of the Finance Act, 1994

Recovery of interest under Rule 14 of the Cenvat Credit Rules - Interpretation of 'taken OR utilized' in Rule 14 - Liability for interest where Cenvat credit was availed but reversed before utilization - Whether interest is payable under Rule 14 (as applicable during the relevant period) where CENVAT credit was availed wrongly but reversed prior to utilization. - HELD THAT: - The Tribunal applied the Supreme Court's decision in UOI v. Ind-Swift Laboratories Ltd and held that Rule 14, as then worded, used the disjunctive 'taken or utilized wrongly' and could not be read down to 'and'. Consequently, on the statutory language and settled precedent, interest is payable where CENVAT credit has been wrongly availed even if it is reversed prior to utilization. The Tribunal rejected the appellant's reliance on decisions (including Bill Forge) which were factually distinguishable where no availment had in fact occurred. The Tribunal therefore sustained the demand for interest on merits. [Paras 10, 11]

Demand for interest under Rule 14/Section 11AB is sustainable even though the CENVAT credit was reversed before utilization.

Validity of departmental notice as show-cause for recovery of interest - Recovery mechanism under Section 87 of the Finance Act, 1994 - Whether the letter dated 31.03.2012 along with calculation sheet sufficed as a notice or show-cause for recovery of interest, in absence of a specific statutory provision prescribing such notice. - HELD THAT: - The Tribunal observed there is no specific provision in the Finance Act requiring a separate form of notice for recovery of interest. It held that Section 75 provides for interest liability and where the department quantifies interest and issues a communication with calculations, that communication can serve the purpose of a notice enabling the assessee to contest the demand. The appellant had responded to the letter with detailed submissions, thus availing the opportunity of defence. The Tribunal found no procedural infirmity in issuing the demand and in proceeding under Section 87 for recovery. [Paras 13]

The departmental letter dated 31.03.2012 together with the calculation sheet met the requirement of notice and there was no procedural infirmity in proceeding with recovery under Section 87.

Limitation for recovery of quantified interest - Liability for interest where Cenvat credit was availed but reversed before utilization - Whether the demand for recovery of interest was barred by limitation. - HELD THAT: - The Tribunal held that quantification of interest could be made only after the date of reversal of the CENVAT credit (here 06.12.2011). The departmental demand in the form of the letter seeking payment of interest was issued within four months of that reversal. Since the interest had to be computed from the availment and reversal dates and the departmental notice was issued after reversal and within the relevant limitation window, the demand was not time-barred. [Paras 8, 13]

The demand for interest was not barred by limitation; notice seeking payment of quantified interest was issued within the permissible period after reversal.

Final Conclusion: The Commissioner (Appeals) order upholding recovery of interest under Rule 14/Section 11AB and proceedings under Section 87 is correct; the appeals are dismissed. The departmental notice was adequate and the demand was within limitation.

Appeal from Appellate Tribunal - substantial question of law - appeal to Supreme Court where dispute relates to rate of duty or valuation - appeal to High Court under Section 35(G) where dispute concerns liability to pay duty - remand for fresh consideration on merits

Appeal to High Court under Section 35(G) where dispute concerns liability to pay duty - appeal to Supreme Court where dispute relates to rate of duty or valuation - substantial question of law - Whether the appeals against the Appellate Tribunal were maintainable before the High Court under Section 35(G) of the Central Excise Act or whether they were required to be filed before the Supreme Court under Section 35L because they related to rate of duty or valuation. - HELD THAT: - The Court held that the dispute in these appeals concerned the liability of the respondents to pay central excise duty - specifically whether the respondents could be said to be manufacturers of stators - and did not relate to the rate of duty or to valuation. Applying the principle that appeals relating to rate of duty or valuation lie to this Court, whereas other disputes involving liability and not touching rate/valuation are entertainable by the High Court if a substantial question of law is involved, the appeals in the present matters were maintainable before the High Court under Section 35(G). The High Court erred in treating these appeals as falling within the exception requiring appeals to the Supreme Court and in directing the Revenue to prefer appeals before this Court. [Paras 6, 7, 8]

Appeals were maintainable before the High Court under Section 35(G) because the disputes concerned liability to pay duty and did not relate to rate of duty or valuation.

Remand for fresh consideration - appeal from Appellate Tribunal - Whether the High Court's order non entertaining the appeals should be set aside and the matters remanded for decision on merits. - HELD THAT: - Because the High Court declined to entertain the appeals on the incorrect ground that they required filing before this Court, it did not consider the appeals on their merits. The Supreme Court quashed and set aside the impugned common judgment and remanded the matters to the High Court with a direction to admit and decide the appeals under Section 35(G) in accordance with law and on their own merits. A time limit of six months was fixed for completion of the exercise. [Paras 9, 10]

Impugned judgment set aside; matters remanded to the High Court to entertain and decide the appeals under Section 35(G) on merits within six months.

Final Conclusion: The High Court's refusal to entertain the appeals was quashed and set aside; the disputes, being about liability to pay central excise duty and not about rate or valuation, are maintainable before the High Court under Section 35(G) and the matters are remanded to the High Court to be decided on merits within six months. All appeals are partly allowed to this extent.

Timing for payment of duty and interest under provisional assessment and final assessment - provisional assessment and liability for differential duty from due date of provisional payment - retrospective operation of escalation clause determining value at time of removal - interpretation of Rule 8 and Sections 11A/11AB for fixing duty and interest

Provisional assessment and liability for differential duty from due date of provisional payment - timing for payment of duty and interest under provisional assessment and final assessment - Whether interest on differential duty is payable from the date of clearance of goods (or the due date of provisional duty for removal) where provisional duty was paid prior to final assessment. - HELD THAT: - The Court followed the reasoning in Steel Authority of India Limited v. Commissioner of Central Excise, Raipur and held that where duty is assessed provisionally and provisional duty is required to be paid for removal of goods, any differential duty determined on final assessment attracts interest dating back to the month for which the duty is determined. The Court explained that when the contract price is provisional and subsequently varied retrospectively (for example under an escalation clause), the finally determined price operates retrospectively and is to be treated as the value for the time of removal. Consequently, interest is not to be computed with reference to the month in which the final assessment order is passed, but from the due date applicable for payment of provisional duty attendant on removal until the date of payment of the differential duty on final assessment. This construction accords with the plain language and object of the provisions and the rules (including Rule 8) read with Sections 11A/11AB as interpreted in the cited three-Judge Bench decision. [Paras 2, 6]

Interest on the differential duty is payable from the due date of payment of provisional duty for the purpose of removal until payment of the balance/differential duty upon final assessment.

Final Conclusion: The special leave petition is disposed of; the assessee is liable to pay interest on the differential duty from the due date of provisional duty for removal until the date of payment of the differential duty upon final assessment, following the three-Judge Bench ruling in Steel Authority of India Limited.

Place of removal - assessable value - cost of transportation excluded from assessable value - interpretation of Section 4 of the Central Excise Act - transaction value concept - Free on Road (FOR) delivery

Place of removal - cost of transportation excluded from assessable value - Free on Road (FOR) delivery - Whether freight charged for transportation from factory/depots to buyer's premises is includable in the assessable value for central excise when goods are delivered on FOR basis - HELD THAT: - The Tribunal applied the ratio of the Hon'ble Supreme Court in CCE v. Ispat Industries Ltd., holding that the statutory concept of "place of removal" refers to premises from which the manufacturer sells goods (factory gate, warehouse, depot, consignment agent premises or other premises referable to the manufacturer) and not to the buyer's premises. The Apex Court's construction of Section 4 and the substituted Rule 5 of the Valuation Rules establishes the principle that transaction value excludes the cost of transportation from the place of removal to the place of delivery. Where the place of removal is the manufacturer's premises, freight incurred to deliver goods to the buyer's premises is excluded from the assessable value. The Tribunal rejected Revenue's reliance on a literal reading that would treat the buyer's premises as place of removal because the statutory wording is "are to be sold" (referable to the manufacturer) and not "have been sold". The Tribunal also noted consistency with its earlier decision in the appellant's related matter and with the Board's clarificatory circular applying Ispat Industries, and observed that Roofit (distinguished by Ispat) does not sustain Revenue's contention on these facts. Applying this reasoning to the present facts, the freight excluded by the appellant was correctly kept out of the assessable value. [Paras 6, 7, 8, 11]

Freight charged for delivery to buyers' premises is not includable in the assessable value for excise duty; the differential duty confirmed by the impugned orders is erroneous and the appeals are allowed.

Final Conclusion: Following the Apex Court's decision in Ispat Industries and consistent Tribunal precedent, the value of freight for delivery to buyers' premises is excluded from assessable value where the place of removal is the manufacturer's premises; the impugned orders confirming duty on such freight are set aside and the appeals are allowed.