TaxTMI Updates e-Newsletter
Feb 11,2021

Provisional attachment to protect government revenue under Section 83 - Duration limit of provisional attachment under Section 83(2) - Fresh provisional attachment after expiry of one year - Statutory objections under Rule 159(5) of the CGST Rules - Release of third party/beneficial share from attached joint/escrow account

Provisional attachment to protect government revenue under Section 83 - Release of third party/beneficial share from attached joint/escrow account - Statutory objections under Rule 159(5) of the CGST Rules - Whether the provisional attachment of the joint escrow account could be continued so as to withhold petitioner No.1's 97% share, and what interim relief was permissible pending disposal of statutory objections. - HELD THAT: - The court found that the provisional attachment was effected in proceedings initiated against respondent No.3, whereas petitioner No.1 is not the taxable person and no proceedings under the specified provisions of the CGST Act have been initiated or contemplated against petitioner No.1. The contractual arrangement and standing instructions showed that receipts in the escrow account were apportioned 3% to respondent No.3 and 97% to petitioner No.1, and petitioners were adversely affected by the attachment made in the course of action against respondent No.3. Petitioners had filed objections under Rule 159(5) to the fresh provisional attachment order dated 22.09.2020. In these circumstances the court directed interim relief: it lifted the provisional attachment insofar as it affected petitioner No.1's share and allowed respondent No.4 bank to remit the proportionate amount to petitioner No.1 subject to petitioner No.1 maintaining a credit balance of Rs. 5,00,000 in the escrow account. The court further directed respondent No.2 to treat the objections as validly filed under Rule 159(5) and to hear and decide them in accordance with law; the interim release was made subject to the outcome of that decision. The continuing attachment over respondent No.3's 3% share was left intact. [Paras 15, 18, 20, 21]

Provisional attachment lifted as to petitioner No.1's 97% share subject to maintaining Rs. 5,00,000 in the escrow account; respondent No.2 to hear and decide the Rule 159(5) objections; respondent No.3's 3% share to remain attached.

Duration limit of provisional attachment under Section 83(2) - Fresh provisional attachment after expiry of one year - Whether the authority could issue a fresh provisional attachment after expiry of one year from the earlier order under Section 83(2). - HELD THAT: - The court noted that every provisional attachment under Section 83(1) ceases after one year under Section 83(2). It observed that there is no provision prohibiting the authority from issuing a fresh provisional attachment upon expiry of the one year period if the appropriate officer is of the opinion such further attachment is necessary to protect government revenue and subject to compliance with statutory requirements. The fresh provisional attachment dated 22.09.2020 was therefore recognised as having been issued following expiry of the earlier order. [Paras 5, 16]

A fresh provisional attachment after expiry of the initial one year period is permissible if the authority, in terms of the statute, is satisfied of the need to protect government revenue and complies with the statutory procedure.

Final Conclusion: Writ petition disposed: interim release ordered of petitioner No.1's 97% share from the joint escrow account subject to maintaining a Rs. 5,00,000 balance and subject to the result of objections filed under Rule 159(5); the 3% share of respondent No.3 to remain attached; respondent No.2 directed to hear and decide the objections; no order as to costs.

Transfer of Input Tax Credit - cooperation and technical assistance by GSTN - alternative remedy under Section 54 - administrative discretion to process time-barred requests

Transfer of Input Tax Credit - administrative discretion to process time-barred requests - Respondents to consider and process petitioner's request for transfer of Input Tax Credit under Section 18 read with Rules 41 and 41A despite lapse of statutory time-limit, and to complete the exercise at the earliest. - HELD THAT: - The Court directed that when the writ-applicant approaches the concerned authorities with a request for transfer of Input Tax Credit in accordance with Section 18 of the Gujarat GST Act, 2017 read with Rules 41 and 41A of the Rules, the request shall be immediately looked into and necessary action taken. The Court recognised that transfer to the existing GSTIN may consume time and that authorities may require technical assistance; accordingly, the authorities are to process the petitioner's request promptly and complete the transfer exercise at the earliest. This direction operates as an instruction to take administrative steps to examine and, if appropriate, implement the transfer notwithstanding any procedural or timing difficulties noted in the affidavit-in-reply. [Paras 7, 9]

Petitioner's request for transfer of Input Tax Credit shall be immediately considered and the transfer exercise completed at the earliest.

Cooperation and technical assistance by GSTN - GSTN directed to cooperate and provide necessary technical assistance to the revenue authorities to facilitate the transfer of Input Tax Credit. - HELD THAT: - The Court recorded that the transfer process may require technical assistance from respondent no.4 (GSTN) and expressly directed the GSTN to cooperate and assist the respondent authorities so that the problem is solved. The GSTN's cooperation is made an obligation to enable completion of the transfer process without undue delay. [Paras 8, 9]

GSTN shall cooperate and provide necessary technical assistance to facilitate the transfer of Input Tax Credit.

Alternative remedy under Section 54 - Petitioner permitted to pursue the alternative remedy under Section 54 of the Gujarat GST Act, 2017 if so advised. - HELD THAT: - The Court noted that the petitioner may, if deemed fit, approach the authorities alternatively under Section 54 of the Act. This observation leaves open the statutory alternative for the petitioner to seek relief under Section 54 in lieu of or in addition to an application under Section 18 and the relevant rules. [Paras 7]

Petitioner may approach the authorities alternatively under Section 54 of the Act.

Final Conclusion: Writ petition disposed with directions that the petitioner may apply for transfer of Input Tax Credit under Section 18 read with Rules 41 and 41A, the authorities shall immediately consider and complete the transfer exercise at the earliest, GSTN shall cooperate by providing necessary technical assistance, and the petitioner may alternatively pursue remedy under Section 54.

Cognizable and non-bailable offence - non-cognizable and bailable offence - power to arrest under Section 69 of the CGST Act - input tax credit wrongly availed exceeding Rs. 5 crores - definition of "person" under the CGST Act - Article 21 - procedure established by law

Power to arrest under Section 69 of the CGST Act - input tax credit wrongly availed exceeding Rs. 5 crores - definition of "person" under the CGST Act - cognizable and non-bailable offence - Article 21 - procedure established by law - Lawfulness of the petitioner's arrest under the CGST Act in view of whether alleged wrongful input tax credit from multiple registered entities could be aggregated to attract the threshold for a cognizable and non-bailable offence, and whether the Commissioner had "reasons to believe" justifying authorization to arrest. - HELD THAT: - The Court examined whether the requirement that wrongful input tax credit exceed Rs. 5 crores, so as to render the offence cognizable and non-bailable, could be satisfied by aggregating amounts attributable to multiple registered entities. The material on record prima facie showed that the petitioner effectively operated and controlled the four entities under investigation, being proprietor and Karta for two entities and, on investigative material, exercising control over the other two. Statements, KYC and registration data, e Way bill registrations and affidavits from landlords indicating forged lease documents collectively furnished sufficient material to establish "reasons to believe" that the petitioner was the person responsible for the wrongful availment of input tax credit. Section 137(3) was noted insofar as a Karta is deemed guilty for offences committed by a HUF, and the Court observed that where a single individual runs multiple entities and control is established on the material, aggregation for the purpose of determining the threshold in Section 132(1)(i) is permissible at the stage of satisfying the "reasons to believe" test under Section 69. Applying the parameters from authority relied upon by the petitioner, the Court found that the writ did not disclose that the instrumentality of the State was being weaponized or that the arrest was wholly without legal foundation; consequently the petitioner failed to demonstrate that his detention violated Article 21 or that the Magistrate's remand was unauthorised. The Court emphasised that these findings are prima facie and limited to the scope of the writ petition, leaving open remedies such as applying for bail before the competent court. [Paras 21, 22, 23, 24, 26]

The petitioner's arrest under Section 69 was not shown to be illegal on the material before the Court; the writ petition is dismissed.

Final Conclusion: Writ petition dismissed; the Court found sufficient prima facie material to justify authorization to arrest and did not find a violation of Article 21, while noting that the petitioner remains free to seek bail before the competent court.

Clerical mistake in E-way bill - Section 68 and Rule 138-A compliance - proceedings under Section 129 of the GST Act - imposition of tax and penalty for procedural/documentary error - minor penalty in light of Circular dated 14-9-2018 - invoice and bill of entry accompanying consignment

Section 68 and Rule 138-A compliance - proceedings under Section 129 of the GST Act - invoice and bill of entry accompanying consignment - Validity of the demand of tax and penalty under Section 129 where consignment was accompanied by invoice, bill of entry and an E way bill albeit with an erroneous consignee name. - HELD THAT: - The Court found that the petitioner had imported the goods, had the bill of entry for home consumption and had paid IGST at the time of import, and that all related documents accompanied the consignment. Although the E way bill contained the clearing agent's name as consignee by mistake, the consignments were accompanied by the requisite documents as required under Section 68 read with Rule 138 A. Having regard to these facts, initiation and confirmation of proceedings under Section 129 to levy tax and penalty on the petitioner for the documentation error was not justified. The Court therefore quashed the impugned orders that confirmed the tax and penalty imposed by the State Tax Officer and the Appellate Authority. [Paras 13]

The orders confirming tax and penalty under Section 129 were quashed as unjustified where the consignment was accompanied by invoice and bill of entry and IGST had been paid.

Clerical mistake in E-way bill - minor penalty in light of Circular dated 14-9-2018 - imposition of tax and penalty for procedural/documentary error - Treatment of the erroneous entry in the E way bill and consequent direction to consider imposition of a minor penalty under the Ministry of Finance Circular dated 14-9-2018. - HELD THAT: - The Court held that the error in the E way bill-entering the clearing agent's name as consignee instead of the petitioner-was a procedural/clerical mistake not made with fraudulent intent or gross negligence. The Court accepted the petitioner's evidence and the affidavit from the clearing agent that the mistake was inadvertent and noted the Circular dated 14 9 2018 which advises that where specified documents accompany the consignment along with an E way bill, proceedings under Section 129 may not be initiated and minor/best judgement treatment may be appropriate. Consequently, instead of upholding the heavy tax and penalty, the Court quashed the impugned orders and directed the respondents to consider the petitioner's case for imposition of a minor penalty treating the mistake as clerical in accordance with the Circular. [Paras 13]

The case is remitted to the respondents to consider imposition of a minor penalty, treating the erroneous E way bill entry as a clerical mistake in accordance with the Circular dated 14 9 2018.

Final Conclusion: Writ petition allowed; impugned orders confirming tax and penalty quashed; respondents directed to consider imposition of a minor penalty treating the E way bill error as a clerical mistake in accordance with the Ministry of Finance Circular dated 14 9 2018; no order as to costs.

Detention for transport without a valid e-way bill - lawfulness of detention of goods in transit - provisional release of detained goods on bank guarantee - final order under Section 129(3)

Detention for transport without a valid e-way bill - lawfulness of detention of goods in transit - Detention of the goods and vehicle was justified because the transport was not accompanied by a valid e-way bill. - HELD THAT: - The detention order in FORM GST MOV-6 was examined and the court found that the transportation was not accompanied by a valid e-way bill. On that factual and legal basis the detention effected by the respondents cannot be characterized as unjustified, and the court upheld the lawfulness of the detention.

Detention sustained as justified for lack of a valid e-way bill.

Provisional release of detained goods on bank guarantee - final order under Section 129(3) - The petitioner is permitted to clear the goods and vehicle upon furnishing a bank guarantee for the amount found due; the respondent is directed to proceed to pass the final order under Section 129(3) in FORM GST MOV-9 thereafter. - HELD THAT: - On the respondents' stated calculation of the amount found due and payable in FORM GST MOV-7, the court directed that if the petitioner furnishes a bank guarantee for that amount, the respondents shall allow clearance of the goods and vehicle. The court further directed the respondents to proceed to pass the final order under the statutory procedure in Section 129(3) by issuing FORM GST MOV-9. The learned Government Pleader was directed to communicate the order's gist to facilitate early clearance, and the petitioner was to produce a copy of the writ petition and this judgment before the respondent for further action.

Conditional provisional release granted on furnishing a bank guarantee; respondent to complete statutory final order under Section 129(3).

Final Conclusion: The detention was upheld for want of a valid e-way bill; subject to the petitioner furnishing a bank guarantee for the amount stated in FORM GST MOV-7, the respondents are directed to permit clearance of the goods and vehicle and thereafter to pass the final order under Section 129(3) in FORM GST MOV-9.

Revocation of cancellation of registration - Failure to furnish returns - Payment of tax, interest, penalty and late fee as condition precedent - Compliance with Rule 23 of the CGST Rules, 2017 - Verification of payment particulars and returns by the proper officer - Application of Circular No.99/18/2019-GST

Revocation of cancellation of registration - Failure to furnish returns - Payment of tax, interest, penalty and late fee as condition precedent - Application of Circular No.99/18/2019-GST - Whether revocation of the appellant's cancelled GST registration could be considered after compliance with the conditions in rule 23(1) of the CGST Rules, 2017. - HELD THAT: - The adjudicating authority had rejected the appellant's application for revocation on the ground that interest liability on late payment of taxes had not been discharged. The appellant produced evidence of payment (Form GST DRC-03 and challan) and asserted that returns had been filed and interest paid. Rule 23(1) of the CGST Rules, 2017 and the first proviso thereto make furnishing of outstanding returns and payment of amounts due (including interest, penalty and late fee) a pre condition for filing an application for revocation where cancellation arose from non furnishing of returns. Circular No.99/18/2019 GST was noted as clarifying that returns due up to date of cancellation must be furnished and amounts paid before revocation can be considered. The Commissioner (Appeals) found that the appellant had complied with these requirements and that revocation may therefore be considered by the proper officer. [Paras 6, 7, 9, 10]

The appellant's compliance with the conditions in rule 23(1) having been demonstrated, the registration may be considered for revocation.

Verification of payment particulars and returns by the proper officer - Compliance with Rule 23 of the CGST Rules, 2017 - What further action the adjudicating authority must take on the application for revocation. - HELD THAT: - The Commissioner (Appeals) directed the appellant to file the revocation application in the prescribed form through the common portal. The proper officer was directed to consider the revocation application after due verification of the payment particulars, the filing of returns and compliance with the provisions of the CGST Act and the rules thereunder. This amounts to remitting the matter to the proper officer for fresh consideration on verification of compliance rather than deciding revocation on merits at the appellate stage. [Paras 10, 11]

The appeal is disposed by directing the appellant to file FORM GST REG 21 and the proper officer to decide the revocation application after verification of payments, returns and statutory compliance.

Final Conclusion: The Commissioner (Appeals) allowed the appeal in the limited sense that the appellant, having produced evidence of compliance with the preconditions in rule 23(1), was permitted to file the prescribed revocation application and the proper officer was directed to consider and decide the revocation after due verification of payment particulars, filing of returns and compliance with statutory provisions.

Deduction for amortization of expenditure under Section 35D - Estimation-based disallowance of general expenses - Interest deduction and TDS compliance under Section 40(a)(i) - Allowability of information and processing charges as revenue expenditure

Deduction for amortization of expenditure under Section 35D - Assessee entitled to further deduction of Rs. 14,65,000/- towards amortization under Section 35D. - HELD THAT: - The Appellate Authorities applied the limit in Section 35D(3), using the definition of "capital employed in the business of the Company" and derived 21/2% of the capital as the relevant ceiling. From the company's balance sheet the capital employed was taken at Rs. 6614.96 lakhs giving an admissible deduction of 10% (Rs.16.5 lakhs). After accounting for amounts already allowed, the Tribunal correctly held that an additional deduction of Rs.14,65,000/- was admissible to the assessee. [Paras 5]

Deduction allowed; Tribunal rightly granted additional amortization.

Estimation-based disallowance of general expenses - Estimated disallowance of general expenses deleted by the Tribunal was justified. - HELD THAT: - The disallowance was founded on estimation without supporting evidence or material and the Assessing Officer did not reject the accounts. The Tribunal and CIT(A) recorded that the Department failed to prove the estimation wrong or to bring materials justifying the disallowance, and therefore deletion of the estimated addition was warranted. [Paras 6]

Estimated disallowance deleted; no basis for the Assessing Officer's estimate.

Interest deduction and TDS compliance under Section 40(a)(i) - Disallowance of interest was rightly deleted; assessee substantiated purpose and TDS position. - HELD THAT: - The Assessing Officer objected to lack of details regarding compliance with Section 40(a)(i). On appeal the assessee explained clerical rounding mistakes and furnished particulars establishing that interest related to loans for aircraft purchase and that requisite clearances/non-deduction permissions were obtained. The CIT(A) and Tribunal accepted these explanations and documents, and the Tribunal correctly granted relief. [Paras 7]

Interest disallowance deleted; interest allowable on facts proved before the Appellate Authority.

Allowability of information and processing charges as revenue expenditure - Addition for information and processing charges was rightly deleted; expenditure held to be revenue in nature. - HELD THAT: - The assessee established that payments to SITA were for services relating to airline booking and day-to-day business activities and that membership payments did not result in acquisition of capital assets. The Tribunal agreed with the factual findings of the CIT(A) that the expenditure was revenue in nature and not capital, and therefore the addition was not sustainable. [Paras 8]

Addition deleted; information and processing charges held to be allowable revenue expenditure.

Final Conclusion: All substantial questions of law raised by the Revenue were answered against it on factual findings recorded by the CIT(A) and the Tribunal; there is no substantial question of law warranting interference and the appeal is dismissed.

Deduction under Section 10A of the Income tax Act - export turnover-treatment of foreign expenditure and telecommunication charges - distinction between software development and technical services - application of precedent of a Division Bench - remand for fresh consideration

Remand for fresh consideration - application of precedent of a Division Bench - deduction under Section 10A of the Income tax Act - export turnover-treatment of foreign expenditure and telecommunication charges - distinction between software development and technical services - The appeal was remitted to the Assessing Officer for fresh consideration of the claim for deduction under Section 10A, including the question whether foreign expenditures and telecommunication charges must be excluded from export turnover, in light of the Division Bench judgment dated 23.10.2018. - HELD THAT: - Both parties invited remand in view of the Division Bench decision in T.C.A.Nos.961 & 962 of 2008 dated 23.10.2018 addressing the legal distinction between software development and rendering of technical services and the treatment of related expenditures for computing export turnover. The High Court, while expressly leaving the admitted substantial questions of law open, directed that the Assessing Officer shall reconsider the matter on merits and in accordance with law after taking that Division Bench judgment into account. The assessee was granted liberty to produce all relevant records to establish its case before the Assessing Officer. No adjudication on the correctness of the Tribunal's or lower authorities' findings on exclusion of specified foreign expenditures or telecommunication charges from export turnover was undertaken by this Court. [Paras 7, 8]

The matter is remitted to the Assessing Officer for fresh consideration on merits in accordance with the Division Bench judgment dated 23.10.2018; substantial questions of law are left open and the assessee may produce relevant records.

Final Conclusion: The Tax Case Appeal is disposed of by way of remand to the Assessing Officer for fresh adjudication on merits in accordance with the Division Bench judgment dated 23.10.2018; the Court has left the substantial questions of law open and awarded no costs.

Stay of demand - conditional stay subject to payment of percentage of demand - prima facie case - reliance on uncorroborated and untested statement - failure to permit cross-examination - balance of convenience and financial hardship - keeping demand in abeyance pending appeal

Stay of demand - conditional stay subject to payment of percentage of demand - prima facie case - reliance on uncorroborated and untested statement - failure to permit cross-examination - balance of convenience and financial hardship - keeping demand in abeyance pending appeal - Whether the impugned orders granting conditional stay of demand subject to payment of 20% should be interfered with and the demand kept in abeyance until disposal of the appeal. - HELD THAT: - The Court found strong factual and legal similarity with the earlier decision in Mayur Kanjibhai Shah, where additions were primarily based on entries in a diary and on the statement of Shri Nilesh Bharani. In the present case the assessing officer made additions largely on the basis of Shri Nilesh Bharani's statement and telephone diary entries; summons had been issued for cross-examination but Bharani did not appear and thus his statement remained untested. Noting that Bharani had retracted a prior statement in the earlier assessment year, the Court held that reliance on such uncorroborated and untested evidence made the additions prima facie questionable. The Court emphasised that respondents ought not to adopt a merely mechanical application of CBDT instructions by insisting on payment of 20% without considering the prima facie case, balance of convenience and any financial hardship of the petitioner. Applying these principles, and to maintain parity with the prior order, the Court directed that the demand be kept in abeyance pending disposal of the appeal, while directing the appellate authority to endeavour to decide the appeal within four months. The Court clarified that these observations were confined to the stay application and were not to be treated as final findings on merits. [Paras 14, 15, 16]

Demand pursuant to assessment order dated 21.12.2019 for AY 2012-13 is to be kept in abeyance till disposal of the appeal by the Commissioner of Income Tax (Appeals); appellate authority to endeavour to decide the appeal within four months.

Final Conclusion: Writ petition disposed by directing that the notice of demand for AY 2012-13 stand kept in abeyance until the Commissioner of Income Tax (Appeals) disposes of the appeal, with a direction to the appellate authority to endeavour to decide the appeal within four months; observations confined to the stay application and not final on merits.

Selection of tested party and least complexity principle in transfer pricing - application of Transactional Net Margin Method (TNMM) and choice of tested party - admissibility of a change of factual/valuation stance after transfer pricing documentation - obligation to adjudicate all grounds raised in appeal and principles of fair hearing - remand for fresh consideration by adjudicatory authority

Obligation to adjudicate all grounds raised in appeal and principles of fair hearing - remand for fresh consideration by adjudicatory authority - Whether the Tribunal erred in confining its decision to selection of tested party and in not adjudicating other grounds raised by the assessee. - HELD THAT: - The High Court found that the assessee had not abandoned the other grounds of appeal and that the Tribunal erroneously treated alleged oral concession as a waiver of those grounds. The Court held that the Tribunal should have considered and decided the specific transfer pricing and corporate tax grounds set out in the appeal and the detailed miscellaneous application rather than foreclosing them on the ground of purported concession. In view of the omissions, the Court set aside the orders of the Tribunal, DRP and TPO to the extent they foreclosed consideration of those grounds and remanded the listed grounds to the Tribunal for fresh adjudication on merits. [Paras 18, 19, 23, 28]

Order of the Tribunal insofar as it confined itself to the tested party issue is set aside; the Tribunal is directed to adjudicate the specified transfer pricing and corporate tax grounds afresh.

Selection of tested party and least complexity principle in transfer pricing - application of Transactional Net Margin Method (TNMM) and choice of tested party - Whether the question of treating the foreign Associated Enterprises as the tested party or treating the Indian assessee as the tested party is to be finally decided by the Tribunal or remitted for fresh consideration. - HELD THAT: - The Court held that the legal position does not preclude selection of a foreign AE as the tested party where on facts it is the least complex entity and comparability is thereby better achieved. The Court found that material regarding functional profile, risks and operations of the overseas AEs was on record and that the TPO, DRP and Tribunal erred in foreclosing the assessee from advancing the tested party contention merely because the TP documentation did not originally identify the foreign AEs as tested parties. Consequently, the Court remanded the specific issue of whether the foreign AEs should be treated as tested party to the Transfer Pricing Officer for fresh decision on merits and in accordance with law, with regard to the assessee's subsequent years' orders. [Paras 20, 21, 22, 29]

The question of tested party selection is remitted to the TPO for fresh decision on merits; prior orders of the TPO/DRP/Tribunal rejecting the plea are set aside.

Admissibility of a change of factual/valuation stance after transfer pricing documentation - form 3CED/auditor certification and its relevance to tested party selection - Whether the TPO/DRP/Tribunal were justified in rejecting the assessee's tested party contention on the basis that the plea was not part of the original TP documentation or that Form 3CED precluded the change of stand. - HELD THAT: - The Court examined the role of the statutory certification in Form 3CED and concluded that the auditor's certification in Form 3CED relates to transactional claims and does not operate as a bar to the assessee advancing the tested party contention during TP proceedings. The Court accepted that a party may advance a different stance before the TPO/DRP/Tribunal and that mere absence of the tested party identification in the initial TP study does not automatically disentitle the assessee to have the contention considered, especially where material to support the contention was available on record. On this basis the Court held that the authorities erred in foreclosing the plea solely on procedural grounds. [Paras 26, 27]

The TPO/DRP/Tribunal erred in rejecting the tested party plea on the ground that it was not part of the original TP documentation or barred by Form 3CED; that objection is set aside.

Final Conclusion: Tax case appeal allowed. Orders of the Tribunal, DRP and TPO set aside insofar as they foreclosed the assessee from advancing and proving that foreign Associated Enterprises are the least complex tested parties and insofar as they failed to adjudicate the other specified transfer pricing and corporate tax grounds. The listed grounds are remanded to the Tribunal for fresh decision; the specific question of tested party selection is remitted to the Transfer Pricing Officer for fresh consideration on merits and in accordance with law, having regard to the assessee's subsequent years' orders.

Validity of notice under Section 153C of the Income tax Act - Requirement of 'satisfaction' by Assessing Officer under Section 153C - Distinction between 'belongs to' and 'pertains to/relates to' under Section 153C - Availability of alternate statutory remedy and maintainability of writ at show cause stage - Evidentiary value of statement recorded under Section 132(4)

Availability of alternate statutory remedy and maintainability of writ at show cause stage - Maintainability of writ petition filed at the stage of notice under Section 153C - HELD THAT: - The Court considered the revenue's contention that an alternative efficacious remedy exists in the form of filing replies to the notices and subsequent appellate remedies, relying on Vijaybhai N. Chandrani. The Court noted that the writ applicant had in fact filed objections which were considered and rejected by the Assessing Officer. While observing that ordinarily a writ at the show cause stage may be declined in favour of statutory remedies, the Court proceeded to consider the merits and did not decline jurisdiction. The Court therefore treated the maintainability objection but disposed it on the merits rather than by relegation to alternate remedies. [Paras 22, 23, 31]

Writ entertained and disposed on merits; maintainability objection not accepted as a ground for dismissal at this stage.

Validity of notice under Section 153C of the Income tax Act - Requirement of 'satisfaction' by Assessing Officer under Section 153C - Distinction between 'belongs to' and 'pertains to/relates to' under Section 153C - Evidentiary value of statement recorded under Section 132(4) - Whether the satisfaction recorded and issuance of notices under Section 153C for the specified assessment years was valid - HELD THAT: - The Court analysed Section 153C as amended and explained the difference before and after 01.06.2015 between assets 'belonging to' and documents/information 'pertaining to' or 'relating to' another person. It examined the satisfaction note, the statements recorded during search including under Section 132(4), and the documentary material (parcel and courier receipts) found during the search. The Court accepted the department's position that the seized articles and the documents/receipts contained information relating to the writ applicant and that the Assessing Officer had recorded a prima facie satisfaction to that effect (paras reproduced from the satisfaction note). The Court observed that the requirements of Section 153C(1)(a) and (b) were complied with on the material before the AO, noting also the failure to produce statutory forms (402/403) and the evidentiary value of statements under Section 132(4). The Court further noted that assessment for A.Y.2018 19 had been framed and that notices for A.Y.2012 13 to A.Y.2017 18 were mandatorily required under the statutory scheme where search dated 27.10.2017 is the triggering event. [Paras 24, 26, 27, 28, 29]

Satisfaction recorded by the Assessing Officer was sufficient and notices under Section 153C for the relevant assessment years were valid; writ petitions challenging those notices are rejected.

Final Conclusion: All writ applications challenging the notices issued under Section 153C (and related orders) were dismissed on merits: the High Court held that the Assessing Officer had recorded requisite satisfaction (both as to seized assets and as to documents/information relating to the petitioner) and that the statutory conditions for issuing notices for the stated assessment years were met; the interim stay was vacated and the notices discharged.

Rectification under section 254(2) of the Income Tax Act - mistake apparent from record - scope of rectification versus review - disallowance of expenses (20% confirmed by Tribunal)

Rectification under section 254(2) of the Income Tax Act - mistake apparent from record - scope of rectification versus review - disallowance of expenses (20% confirmed by Tribunal) - Miscellaneous Application by the Revenue under section 254(2) seeking modification of the Tribunal's order to make the disallowance 100% instead of 20% was dismissed for lack of any mistake apparent from the record. - HELD THAT: - The Tribunal examined its order dated 03.01.2019 and the authorities relied upon including decisions of the Hon'ble Bombay High Court and other precedents and had confirmed 20% of the disallowance on the total expenses. The Revenue's Miscellaneous Application essentially sought a review to enhance the disallowance to 100%, which would require re adjudication on merits. The power under section 254(2) is confined to rectifying an obvious and patent mistake apparent from the record and cannot be employed to re-open contested questions of fact or law that admit of more than one view. Reliance on jurisdictional High Court precedents was noted to reinforce that rectification cannot be used to correct an error of judgment. As no apparent or manifest error identifiable on the face of the Tribunal's order was pointed out, the application amounted to a review beyond the statutory scope and was therefore not maintainable. [Paras 5, 6, 7, 8]

Miscellaneous Application dismissed for want of merit; no rectification under section 254(2) warranted as there is no mistake apparent from the record and the Tribunal rightly confirmed 20% disallowance.

Final Conclusion: The Revenue's Miscellaneous Application under section 254(2) seeking enhancement of the disallowance from 20% to 100% is dismissed; rectification was not permissible as no mistake apparent from record was shown.

Penalty for non-compliance with departmental notices under 271(1)(b) of the Income Tax Act, 1961 - principles of natural justice - remand for fresh adjudication after affording opportunity to be heard - non-compliance and adjournment requests in penalty proceedings

Penalty for non-compliance with departmental notices under 271(1)(b) of the Income Tax Act, 1961 - principles of natural justice - non-compliance and adjournment requests in penalty proceedings - remand for fresh adjudication after affording opportunity to be heard - Validity of penalty imposed under 271(1)(b) in circumstances where the assessee alleged having sought an adjournment but the Assessing Officer's order records non-attendance and no response. - HELD THAT: - The Tribunal noted that the Assessing Officer imposed penalty under 271(1)(b) on the basis that the assessee neither attended the hearing nor filed any reply to the show-cause notice. The assessee's counsel contended before the Tribunal, and placed on record, that an adjournment had been sought for the hearing fixed on 14.09.2015. The penalty order, however, contains no reference to that submission or any response from the assessee. In the interest of justice and in order to secure compliance with the principles of natural justice, the Tribunal considered it appropriate to afford the assessee an opportunity to place the asserted adjournment request and any explanations before the Assessing Officer. Consequently, the Tribunal set aside the appellate order confirming the penalty and restored the matter to the file of the Assessing Officer for fresh consideration and decision after bringing on record all submissions of the assessee and deciding the issue in accordance with law. [Paras 4, 5]

Order of the CIT(A) confirming penalty set aside and matters remanded to the Assessing Officer for fresh adjudication after affording the assessee an opportunity to be heard; appeals allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the CIT(A)'s confirmation of penalties for AYs 2008-09 to 2013-14 and remanded the matters to the Assessing Officer to decide the levy of penalty afresh after giving the assessee a proper opportunity to place on record its submissions; appeals allowed for statistical purposes.

Protective addition - assessment consequent to search and seizure - incriminating material and statements recorded during search - presumption under section 292C - retraction of statement and evidentiary sufficiency - single entry or one sided ledger entries and corresponding books of the assessee - burden to prove source of bank deposits - apportionment of unaccounted stock and receivables among assessment years

Protective addition - incriminating material and statements recorded during search - presumption under section 292C - Deletion of protective additions in the hands of the assessee towards unaccounted closing stock and unaccounted receivables of M/s. Vikas Bearing and Wires for AYs 2001-02 to 2005-06. - HELD THAT: - The Tribunal found on the material on record that the computer data and other incriminating documents seized from the premises of Mr. Dinesh R. Mehta showed that unaccounted transactions maintained in the name of M/s. A&N Engineering Company were operated and controlled by Mr. Dinesh R. Mehta. Statements recorded under section 132(4) and other seized documents supported that the unaccounted stock and receivables related to DRM's operations and not to the assessee. The Assessing Officer had originally made substantive additions in DRM's hands and protective additions in the assessee's hands; later readjudication in DRM's case resulted in exclusion of those items from DRM's assessment without any material change of facts. The Tribunal held that the AO, on readjudication, exceeded directions of the Tribunal by treating those items as assessable to the assessee without fresh evidence; retraction by DRM was general, unsubstantiated and insufficient to negate his earlier admissions. On these findings the protective additions in the assessee's hands were held not sustainable. [Paras 8, 9, 10, 11]

Protective additions towards unaccounted stock and receivables of M/s. Vikas Bearing and Wires in the hands of the assessee for AYs 2001-02 to 2005-06 are deleted.

Single entry or one sided ledger entries and corresponding books of the assessee - protective addition - Deletion of additions made on account of balance with M/s. A&N Engineering Company (debit balance titled 'RPM') for AYs 2002-03 to 2004-05. - HELD THAT: - The Tribunal examined the ledger of M/s. A&N Engineering Company and found the entity to be a paper concern operated by DRM. There was no corresponding credit entry in the books of the assessee to justify the debit balance titled 'RPM', and the assessee had no control over the entries in A&N's books. The AO's inference that 'RPM' referred to the assessee was held to be unsupported by materials. In absence of corroborative entries in the assessee's books or other evidence linking the debit balance to the assessee, the protective addition based on that single sided entry could not be sustained. [Paras 12, 15]

Addition of Rs.20,06,686 (aggregate) in respect of balance with M/s. A&N Engineering Company for AYs 2002-03 to 2004-05 is deleted.

Burden to prove source of bank deposits - Sustaining of addition in respect of unexplained cash deposits in Union Bank SB account for AY 1999-2000 to the extent not explained by the assessee. - HELD THAT: - The assessee failed to produce evidence to substantiate the claimed source (realisation of debtors) for certain cash deposits. The AO had accepted part of the deposits on remand but the remaining amount continued to be unsupported. The Tribunal found no error in the CIT(A)'s conclusion to sustain the unexplained portion where no documentary evidence was furnished to meet the requisite burden. [Paras 16, 18]

Addition of the unexplained cash deposit (remaining portion) for AY 1999-2000 upheld; appeal rejected on this ground.

Burden to prove source of bank deposits - Deletion of additions in respect of cash deposits of Rs.65,000 in Union Bank SB account for AY 2001-02 and confirmation of addition of Rs.1,10,000 as unexplained credit in capital account for AY 2001-02. - HELD THAT: - On remand the AO accepted the source for the bank deposits of Rs.65,000 and the CIT(A) deleted that addition; the Tribunal upheld deletion as the remand report accepted the source. However, the assessee did not furnish evidence to substantiate the source of the credit appearing in the capital account; the AO's finding in that regard was sustained by the CIT(A) and the Tribunal found no infirmity since no supporting evidence was produced by the assessee. [Paras 19, 20]

Addition in respect of bank deposits of Rs.65,000 for AY 2001-02 deleted; addition of Rs.1,10,000 as unexplained capital credit for AY 2001-02 upheld.

Burden to prove source of bank deposits - Confirmation of addition of Rs.5,00,000 (remaining unexplained) on account of cash deposits in Union Bank for AY 2002-03. - HELD THAT: - Assessee submitted explanations and additional documents, but on remand the AO accepted source for only Rs.1,50,000 and reaffirmed that the remaining Rs.5,00,000 had no satisfactory explanation or corroborative evidence. The Tribunal found the CIT(A)'s confirmation appropriate in absence of proof of source by the assessee. [Paras 21, 23]

Addition of Rs.5,00,000 for unexplained cash deposits in AY 2002-03 confirmed; appeal on this ground rejected.

Protective addition - apportionment of unaccounted stock and receivables among assessment years - Deletion of protective additions for depreciation on car and finance charges on car loan for AYs 2003-04 and 2004-05. - HELD THAT: - Since the Tribunal held that unaccounted transactions recorded in the books of the fictitious entity A&N Engineering (relating to stock and receivables) were not attributable to the assessee, the consequential protective disallowance of depreciation and car loan finance charges could not be sustained. The Tribunal observed that once the protective additions relating to stock and receivables are deleted, the ancillary protective disallowances must fall as they were contingent on the viability of the principal protective additions. [Paras 26, 28]

Protective additions towards depreciation and finance charges on car loan for AYs 2003-04 and 2004-05 are deleted.

Protective addition - burden to prove source of bank deposits - Mixed outcome on other additions for AYs 2003-04, 2004-05 and 2005-06: several additions upheld where assessee failed to prove sources; protective additions dependent on deleted principal additions were deleted; certain bank credit additions and interest income upheld. - HELD THAT: - For AY 2003-04 the Tribunal upheld various additions (compounding fee, unexplained bank credits, credits in personal books, difference in remuneration) because the assessee did not produce adequate evidence to explain the entries. For AY 2004-05 the AO's additions towards certain cash credits and unpaid creditors were largely sustained where the assessee failed to substantiate sources, though some amounts were allowed on remand. For AY 2005-06 the Tribunal held that protective additions tied to the deleted protective stock/receivable additions (cash found at search, profit from VBW, new sundry creditors and sundry creditors with transactions) must be deleted. However, unexplained bank credits (aggregate noted) and interest income not offered to tax were sustained because the assessee did not discharge the evidentiary burden. [Paras 24, 30, 32, 34]

Where the assessee failed to prove sources, additions for various heads in AYs 2003-04 and 2004-05 sustained; protective additions contingent on the deleted stock/receivable items for AY 2005-06 deleted; unexplained bank credits and interest income for AY 2005-06 upheld.

Final Conclusion: The Tribunal allowed the appeals in part. Protective additions in respect of unaccounted stock and receivables of M/s. Vikas Bearing and Wires (AYs 2001-02 to 2005-06), the A&N Engineering balance (AYs 2002-03 to 2004-05) and protective disallowance of car depreciation/finance (AYs 2003-04 & 2004-05) are set aside; several additions for unexplained bank credits, capital credits and other items were upheld where the assessee failed to discharge the evidentiary burden. Appeals accordingly partly allowed.

Principle of mutuality - Exemption of transfer fee under principle of mutuality - Interest income from third parties and exclusion from mutuality - Judicial consistency and following of co-ordinate bench/High Court precedents - Condonation of delay

Condonation of delay - Condonation of delay in filing appeal for A.Y. 2014-15 - HELD THAT: - The tribunal examined the assessee's condonation petition and affidavit explaining the 78-day delay, found the delay to be neither intentional nor willful and attributable to circumstances beyond the assessee's control, and therefore exercised its discretion to condone the delay. [Paras 2]

Delay of 78 days in ITA 648/Hyd/2018 (A.Y. 2014-15) is condoned.

Interest income from third parties and exclusion from mutuality - Principle of mutuality - Judicial consistency and following of co-ordinate bench/High Court precedents - Whether interest earned on deposits placed with nationalised banks is exempt under the principle of mutuality - HELD THAT: - The tribunal found no factual distinction in the appeals from the matters previously decided by a co-ordinate bench and by the jurisdictional High Court. Applying the settled ratio that interest received from third parties (banks) does not fall within the principle of mutuality, and following the decision in Secunderabad Club and the co-ordinate bench's application of that precedent, the tribunal held that interest earned on surplus funds deposited with banks is not eligible for exemption as mutual income. [Paras 4]

Assessee's claim of exemption under mutuality for interest on bank investments is rejected; disallowance/ additions in respect of such interest are confirmed (partly confirmed across the appeals).

Exemption of transfer fee under principle of mutuality - Principle of mutuality - Judicial consistency and following of co-ordinate bench/High Court precedents - Whether transfer fees received by the co-operative housing society are exempt under the principle of mutuality - HELD THAT: - Relying on the co-ordinate bench's decision which followed the Bombay High Court in Sind Co-operative Housing Society and reasoning that the class of members as contributors and participators remains the same despite members coming and going, the tribunal concluded that transfer fees collected under the society's bye-laws for common purposes retain the character of mutual receipts and are exempt. The tribunal adopted judicial consistency with the earlier common order and found no reason to distinguish the facts in these assessment years. [Paras 4]

Exemption claimed in respect of transfer fees is allowed; additions made by lower authorities on this account are deleted.

Final Conclusion: The tribunal condoned the delay in filing the appeal for A.Y. 2014-15; allowed the assessee's mutuality claim in respect of transfer fees; and dismissed the mutuality claim in respect of interest earned on bank investments, following jurisdictional precedent and co-ordinate bench decisions. Consequently, the first three appeals were partly allowed and the latter three dismissed in terms of this order.

Allowability of bad debt deduction where amount written off in books - interpretation of Section 36(1)(vii) regarding requirement for bad debt deduction - treatment of disputed receipts as bad debts - accrual versus cash basis recognition of disputed rent

Allowability of bad debt deduction where amount written off in books - interpretation of Section 36(1)(vii) regarding requirement for bad debt deduction - accrual versus cash basis recognition of disputed rent - Whether the addition of disputed rent treated as unrealized income should be sustained where the assessee had written off the amount in its books and the claim was sub judice. - HELD THAT: - The Tribunal examined the facts that the assessee had leased its premises and shown part of the license fees as received while treating the balance as disputed and taken on cash basis in the accounts. The assessee had instituted a civil suit for recovery and obtained a decree after the relevant year, and there was no evidence before the Department that the amount had been recovered during the relevant year. Applying the principle laid down by the jurisdictional High Court on the interpretation of Section 36(1)(vii), the Tribunal held that the statutory provision does not require the assessee to produce independent proof that a debt was irrecoverable beyond the fact that it has been written off in the books. Following that reasoning and the consistent view of the Tribunal that the determination whether a debt is bad is for the assessee, the addition by the Assessing Officer was not sustainable. The Department also failed to demonstrate recovery of the disputed amount. For these reasons the addition treated as unrealized disputed rent was deleted and held allowable as a write-off in the assessee's hands for the year under consideration. [Paras 7, 8]

Addition of the disputed amount of Rs. 64,80,000/- treated as unrealized rent is deleted; the assessee's treatment of the amount as written off in the books is accepted and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, directing deletion of the addition of the disputed rent of Rs. 64,80,000/- and accepting the assessee's treatment of the amount as written off in the accounts for the assessment year 2013-14.

Permanent establishment - Fixed place permanent establishment - Dependent agent permanent establishment - Attribution of profits to permanent establishment - Royalty versus business income - Source of income under the DTAA - Article 7 (Business Profits) and Article 13 (Royalties) of the India Spain DTAA - Section 9(1)(vi) of the Income tax Act, 1961 (definition of royalty) - Interest under section 234B

Permanent establishment - Fixed place permanent establishment - Dependent agent permanent establishment - Article 5 of the India Spain DTAA - Whether the taxpayer had a permanent establishment in India (fixed place and dependent agent) liable to tax in India - HELD THAT: - The Tribunal affirmed the conclusion reached by the Assessing Officer and the DRP that the taxpayer had a permanent establishment in India. The assessee conceded that the jurisdictional High Court has earlier held, in the taxpayer's own case, that computers at subscribers' premises constitute a fixed place PE and that the local entity is functionally dependent and constitutes an agency PE. No distinguishing facts were shown for the years under appeal and the Tribunal declined to interfere with the findings recorded by the AO/DRP confirming those conclusions. [Paras 13, 14]

Findings of fixed place PE and dependent agent PE in India confirmed; issue decided against the taxpayer.

Attribution of profits to permanent establishment - Article 7 (Business Profits) - Extent of profits attributable to the taxpayer's permanent establishment in India - HELD THAT: - Although the AO/DRP had attributed 75% of Indian revenues to the PE, the Tribunal followed its coordinate bench precedents (affirmed by the High Court) holding that, on the identical facts and unchanged business model, 15% of revenues relating to bookings from India are attributable to the PE. The Tribunal observed that the nature and extent of activities, assets employed and risks assumed remained the same as in the earlier years and that the distribution fee paid (approximately 33%) already compensated the Indian activities; consequently no further addition was warranted. [Paras 15, 16, 19]

Profit attribution to PE restricted to the rate applied in earlier years (15% of revenues); grounds for higher attribution rejected and relief granted to the taxpayer.

Deductibility of distribution, development and marketing expenses - Attribution of profits to permanent establishment - Whether amounts claimed as distribution fee, development fees and marketing/central operating costs attributable to Indian activities were allowable in computing PE profits - HELD THAT: - The Tribunal held that the Assessing Officer had erred in treating the description of services as 'distribution fee' and in disallowing development and marketing costs. Relying on the coordinate bench decisions in the taxpayer's own case for earlier years, where such expenditures were allowed and facts remained unchanged, the Tribunal allowed these expenses for the years under appeal. [Paras 20, 23, 24]

Disallowances of distribution, development and marketing expenses set aside; taxpayer's claims allowed.

Royalty versus business income - Section 9(1)(vi) of the Income tax Act, 1961 - Article 13 (Royalties) of the India Spain DTAA - Whether booking fees received by the taxpayer are taxable as 'royalty' or as business income - HELD THAT: - The Tribunal followed its earlier decisions (affirmed by the High Court) and concluded that the booking fees are business income and not royalty. The tribunal reasoned that the taxpayer did not transfer any secret process or equipment for use by the payers and the booking fee did not fall within the definition of 'royalty' under Article 13 or section 9(1)(vi). In light of identical facts and absence of material change, the booking fee was held to be business income. [Paras 25, 27, 28]

Booking fees treated as business income and not taxable as royalty; grounds in favour of the taxpayer.

Royalty versus business income - Source of income under the DTAA - Altea system - Whether payments received for the Altea system (inventory/operations system provided to an airline) are taxable as royalty in India - HELD THAT: - Applying the same reasoning as in the taxpayer's earlier years, the Tribunal found that the Altea system was installed at airport counters and accessed only by the airline (British Airways) and not by the taxpayer's agents in India. The Tribunal held that such receipts could not be characterized as 'royalty' under domestic law or the DTAA, noting that the activity amounted to provision of services and that the payments were not for the use or right to use equipment/process in the sense contemplated by Article 13. [Paras 29, 30, 31]

Payments relating to the Altea system are not 'royalty' and are not taxable as such in India; taxpayer favoured.

Interest under section 234B - Advance tax liability where tax is deductible at source - Whether interest under section 234B is leviable on the taxpayer - HELD THAT: - The Tribunal noted that provisions introduced by the Finance Act, 2012 regarding liability for interest apply where tax was not deducted at source by the payer. In the present case the income had been received after deduction of tax at source and coordinate bench authority held that section 234B would not apply where no addition sustains. On these facts the Tribunal held that levy of interest under section 234B was not warranted. [Paras 32, 33, 34]

Levy of interest under section 234B set aside; ground decided in favour of the taxpayer.

Final Conclusion: The Tribunal partly allowed the appeals for AYs 2013 14 to 2016 17: it confirmed the existence of a permanent establishment in India but restricted profit attribution to the PE to the rate applied in earlier years (15%), allowed distribution, development and marketing expenses, held booking fees and payments for the Altea system to be business income (not royalty), and set aside interest under section 234B.

Arm's Length Price - Specified Domestic Transaction - Comparable Uncontrolled Price method - internal comparables - comparability - experience and period of service - transfer pricing adjustment

Arm's Length Price - Comparable Uncontrolled Price method - internal comparables - comparability - experience and period of service - transfer pricing adjustment - Validity of the TPO/DRP's benchmarking of salaries paid to related persons and quantum of transfer pricing adjustment - HELD THAT: - The Tribunal examined whether the TPO's selection of internal comparables for applying the CUP method to salary payments to the assessee's related persons was appropriate. The Tribunal found that both the related persons and the employees selected by the TPO performed non-teaching, administrative and supervisory functions, but that comparability must take into account not only qualifications and job profile but also the period of service/experience. The Tribunal noted that the related persons uniformly had three years' service as on 01.04.2014 and that the TPO's comparables displayed a wide range of service durations (seven months to five years). For a more rational benchmark the Tribunal held it was appropriate to restrict comparables to employees with at least three years' service. Applying this filter, only two employees (Prashant Varma and Yashwant Sharma) qualified as comparables; their average salary (Rs. 6,18,500) was taken as the ALP for the related persons, reducing the proposed adjustment. On this basis the Tribunal reduced the transfer pricing adjustment to Rs. 5,46,700 and directed the AO/TPO to restrict the TP adjustment accordingly, thereby partly allowing the assessee's appeal. [Paras 15]

TP adjustment upheld only to the extent of Rs. 546,700 by treating as comparables only those employees with minimum three years' service; the remainder of the TPO/DRP adjustment set aside.

Procedural non-prosecution - not pressed - Treatment of disallowance of director's travelling expenses - HELD THAT: - The assessee did not press the ground challenging disallowance of Rs. 16,100 during hearing. The Tribunal therefore declined to adjudicate the substantive merit and dismissed the ground as not pressed. [Paras 16]

Ground dismissed as not pressed.

Final Conclusion: The appeal is partly allowed: the transfer pricing adjustment is restricted to Rs. 546,700 by accepting only two internal comparables with minimum three years' service; the challenge to travelling expenses was dismissed as not pressed.

Disallowance on account of non-genuine purchases - reopening of assessment under section 147 of the Income-tax Act - profit element embedded in non-genuine purchases - restriction of disallowance to industry profit norms

Disallowance on account of non-genuine purchases - profit element embedded in non-genuine purchases - restriction of disallowance to industry profit norms - Extent of disallowance to be made where purchases are held non-genuine but goods were purchased and gross profit and industry norms are available. - HELD THAT: - The Assessing Officer, relying on precedent, had restricted the disallowance to 12.5% of the purchases held non-genuine. The assessee produced its declared gross profit rates of 6.79% (AY 2010-11) and 9.68% (AY 2011-12) and the representative urged that industry profit rates for such trading are between 2% and 4%, that VAT on the goods was 4% and that, in the worst case, disallowance could be limited to around 2%. The Tribunal found that while the assessee failed to conclusively prove the source of purchases, the material showed purchases were made though from unverified sources rather than no purchases at all. Applying the principle of restricting disallowance to the profit element embedded in non-genuine purchases and having regard to the declared gross profits and prevailing industry norms, the Tribunal concluded that a 4% disallowance of the non-genuine purchases in each assessment year is fair and reasonable and directed the Assessing Officer to compute the disallowance accordingly. [Paras 7]

Disallowance restricted to 4% of the purchases held non-genuine for both assessment years.

Reopening of assessment under section 147 of the Income-tax Act - Challenge to the validity of reopening the assessments not pressed before the Tribunal. - HELD THAT: - The ground contesting the reopening of assessment was not pressed at the hearing. The Tribunal therefore declined to entertain that challenge and dismissed the ground. [Paras 8]

Ground challenging reopening of assessment dismissed as not pressed.

Interest consequential on assessment - Challenge to levy of interest consequential upon the additions. - HELD THAT: - The ground attacking the levy of interest was consequential upon the additions and, following the Tribunal's disposal of the primary addition issue, the challenge to interest was dismissed. [Paras 9]

Ground challenging levy of interest dismissed.

Final Conclusion: Appeals partly allowed: disallowance for purchases held non-genuine reduced to 4% of such purchases for AY 2010-11 and AY 2011-12; challenge to re-opening and to interest dismissed.

Addition for non-genuine purchases - disallowance as a percentage of disputed purchases - evidentiary weight of information received from Sales Tax authorities - assessee's burden to prove genuineness by production of supporting documents

Addition for non-genuine purchases - disallowance as a percentage of disputed purchases - assessee's burden to prove genuineness by production of supporting documents - Validity of restricting the addition to 12.5% of alleged non-genuine purchases instead of 15% made by the Assessing Officer - HELD THAT: - The Assessing Officer reopened assessment on information from the Sales Tax Department that certain purchases were non-genuine and called for evidence; notices were issued to suppliers but no replies were received. The Assessing Officer accepted that the assessee produced some supporting evidence but, in absence of transportation or weighment bills and non-appearance of the suppliers, treated the purchases as not entirely genuine and disallowed 15% as the profit element. The Commissioner (Appeals) reduced the disallowance to 12.5%. The Tribunal noted that the Assessing Officer's partial disallowance itself indicates acceptance that goods were purchased though possibly not from the declared source. Having regard to the nature of the assessee's trading business, the material on record and the Tribunal's practice in similar cases, the restriction of the disallowance to 12.5% by the Commissioner (Appeals) is fair and reasonable and does not warrant interference. [Paras 6]

Order of the Commissioner (Appeals) upholding disallowance at 12.5% is sustained and the Revenue's appeal is dismissed.

Final Conclusion: The Tribunal dismissed the Revenue appeal for Assessment Year 2009-10, upholding the Commissioner (Appeals)'s reduction of the addition in respect of alleged non-genuine purchases to 12.5% as fair and reasonable.

Reopening of assessment - reason to believe - change of opinion - tangible material - deduction under section 80IB(10) - reassessment jurisdiction

Reopening of assessment - reason to believe - change of opinion - tangible material - reassessment jurisdiction - Reopening of the assessment under section 147 was invalid as it was based on a mere change of opinion and lacked fresh tangible material to form a reason to believe that income had escaped assessment. - HELD THAT: - The Tribunal upheld the view of the CIT(A) that the Assessing Officer reopened the concluded assessment on the same set of facts which had been examined during the original assessment. The record shows that the AO had earlier queried the issues and, after considering the assessee's detailed replies and supporting documents, had accepted the claim. In the absence of any fresh or tangible material demonstrating escapement of income, the AO's reasons amounted to a change of opinion which cannot found jurisdiction under s.147. The Tribunal relied on the settled principle that post-amendment reopening requires tangible material linked to the belief of escapement and that mere change of opinion is not a permissible basis for reassessment. [Paras 5, 7, 8, 9]

The reassessment was quashed for want of jurisdiction as the reopening was founded on a mere change of opinion without fresh tangible material.

Deduction under section 80IB(10) - The assessee's claim for deduction under section 80IB(10) had been examined and accepted in the original assessment after specific queries and therefore could not be disturbed by reassessment on the same material. - HELD THAT: - The Tribunal noted that during the original proceedings the AO had specifically queried the inclusion of certain 'other incomes' and disallowances in the computation, and the assessee furnished detailed explanations and documentary support showing those amounts formed part of eligible profits for 80IB(10). The original AO, after considering those submissions (including letters dated 26/12/2011 and 28/12/2011), allowed the deduction. Since the reassessment proceeded on the identical material and the AO offered no new tangible material to justify a contrary prima facie belief, the claim accepted earlier could not be reopened merely by a change of opinion. [Paras 5, 7, 8]

The earlier acceptance of the 80IB(10) deduction in the original assessment stands and could not be undone by reopening founded on the same material.

Final Conclusion: The Tribunal dismissed the revenue's appeal, upheld the CIT(A)'s order quashing the notice under section 148 and the reassessment order under section 143(3) read with section 147 for want of jurisdiction, and thereby restored the position determined in the original assessment.

Judicial discipline and compliance with appellate orders - Effect of filing an appeal on the operation of orders - Provisional release of seized goods - Amendment of bills of entry

Judicial discipline and compliance with appellate orders - Effect of filing an appeal on the operation of orders - Non-compliance by the original authority with the order-in-appeal of the Commissioner of Customs (Appeals) is impermissible and must be remedied. - HELD THAT: - The Court applied established principles that subordinate authorities must follow without reservation the orders of higher appellate authorities. The fact that the department is dissatisfied and has preferred an appeal does not justify non-implementation of the appellate order unless its operation has been stayed by a competent forum. The judgment relied on earlier precedents cited in the order (Union of India Vs. Kamlakshi Finance Corporation Limited; Collector of Customs Vs. Krishna Sales (P) Ltd.; and Ganesh Benzoplast Limited) which hold that mere filing of an appeal does not operate as a stay and that the proper course, if non-release is considered necessary, is to obtain an express stay from the Tribunal or a Court. The respondent affidavit failed to give particulars of dates or steps taken to seek such a stay, and thus offered no justification for continuing non-compliance. The Court, therefore, concluded that the appellate order must be implemented forthwith and directed compliance within a short, specified period. [Paras 16, 17, 18, 20, 21]

Respondent Nos.4 and 5 directed to comply with the order-in-appeal dated 18.09.2020 within seven days of receipt of a copy of this order.

Provisional release of seized goods - Amendment of bills of entry - The appellate direction permitting amendment of the bills of entry and directing the original authority to decide on provisional release within a stipulated period must be acted upon by the original authority. - HELD THAT: - The Commissioner (Appeals) had allowed amendment of the impugned bills of entry and directed the original authority to decide on the petitioner's request for provisional release/conditions of provisional release in consultation with the investigating authority and after hearing the appellants, to be completed within six weeks from receipt of the appellate order. That direction remained unimplemented for over four months. The High Court found no valid or particularised reason in the respondents' affidavit for failing to comply with the appellate instruction to amend the bills and decide the provisional release application and accordingly ordered implementation, permitting a hearing of the petitioner's authorised representative if necessary. [Paras 14, 19, 21]

Original Authority directed to amend the bills of entry as ordered by the Commissioner (Appeals) and to take a decision on provisional release, completing the process within seven days of receipt of a copy of this order, with opportunity of hearing if necessary.

Final Conclusion: Writ petitions allowed to the extent of directing respondents to implement the Commissioner (Appeals)' order dated 18.09.2020 (amendment of bills of entry and decision on provisional release) within seven days; no order as to costs.

Bail under Section 104 read with Section 135 of the Customs Act, 1962 - value and duty thresholds for bailability - continued investigation and non-filing of charge-sheet - seriousness of offence and non-compoundability - risk of prejudice to prosecution where co-accused at large - recovery of unaccounted currency as material to investigation - habituality and prior registration as factor in bail consideration

Bail under Section 104 read with Section 135 of the Customs Act, 1962 - value and duty thresholds for bailability - Entitlement of the applicants to grant of bail under the Customs Act in view of the departmental claim on value of goods and customs duty involved - HELD THAT: - The Court considered the departmental averment that the actual invoiced value and undervaluation amounted to substantially higher figures and that customs duty involved exceeded the thresholds relied upon by the applicants. As the charge-sheet has not yet been filed and the investigation is stated to be ongoing, the Court held that the question of valuation and duty is not fit for final adjudication at the bail stage. The decisions cited by applicants were held distinguishable on facts. Given the department's claim of large-scale undervaluation and duty evasion, the Court found no sufficient ground to treat the offence as bailable at this stage and declined to grant bail. [Paras 11, 12]

No bail granted at this stage on merits of departmental claim regarding value and duty; applicants may renew their prayer after filing of the charge-sheet.

Continued investigation and non-filing of charge-sheet - risk of prejudice to prosecution where co-accused at large - seriousness of offence and non-compoundability - recovery of unaccounted currency as material to investigation - habituality and prior registration as factor in bail consideration - Whether ancillary factors-ongoing investigation, presence of an absconding co-accused, recovery of currency, prior registrations and non-cooperation-precluded bail - HELD THAT: - The Court took into account that one accused (Uttam) was at large and that, according to the respondent, he had facilitated Hawala transactions; that a substantial sum of unaccounted currency had been recovered; and that there was an allegation of prior similar registration by the Directorate. The offences under the IPC were noted to be non-compoundable. In this factual matrix the Court held that releasing the applicants during the pendency of investigation could prejudice the prosecution and therefore constituted a valid ground for refusing bail. The Court observed that the applicants remained at liberty to seek bail again once the charge-sheet was filed. [Paras 5, 6, 11, 12]

Bail refused in view of ongoing investigation, absconding co-accused, recovery of currency, alleged habituality and non-compoundability of offences; applicants may apply afresh after charge-sheet.

Final Conclusion: Application for bail dismissed; applicants directed that they are at liberty to renew the bail application after the charge-sheet is filed.

Writ jurisdiction under Article 226 - Prematurity of challenge to final findings of the Designated Authority - Alternative statutory remedy of appeal to the CESTAT - Final findings under Rule 17 and consequential notification under Rule 18 of the Anti Dumping Rules, 1995

Prematurity of challenge to final findings of the Designated Authority - Final findings under Rule 17 and consequential notification under Rule 18 of the Anti Dumping Rules, 1995 - Writ jurisdiction under Article 226 - The writ petition challenging the Designated Authority's final findings is premature and not maintainable at this stage. - HELD THAT: - The Court held that final findings issued by the Designated Authority under Rule 17 are submitted to the Central Government which may, by a notification under Rule 18, impose anti dumping duty. In the absence of any such notification, the duty does not take effect and challenges to the final findings are premature. The Court followed the Supreme Court's and this Court's precedents which emphasise that, although the High Court has jurisdiction under Article 226, it should ordinarily refrain from entertaining a writ petition against the Designated Authority's final findings when an efficacious alternate statutory remedy - namely an appeal to the CESTAT against the consequential notification - is available. The petitioners' grievance that substantive material was ignored on technical grounds does not justify bypassing the statutory route; the petitioners are entitled to raise those grounds when and if a notification under Rule 18 is issued. [Paras 10, 11]

Writ petition dismissed as premature, with liberty to the petitioners to challenge any notification under Rule 18 and to urge the grounds raised in the petition before the appropriate forum.

Final Conclusion: The petition is dismissed as premature; the petitioners remain free to challenge any Rule 18 notification and to urge the grounds raised before the prescribed statutory appellate forum.

Confiscation and sale of imported goods - restitution of value of illegally confiscated goods - appellate power under Section 129B of the Customs Act, 1962 - non-application of mind / cryptic order - remand for fresh consideration

Non-application of mind / cryptic order - appellate power under Section 129B of the Customs Act, 1962 - Validity of the Tribunal's order dated 05.10.2016 inasmuch as it failed to consider rival submissions on the confiscation and sale and thereby suffered from non-application of mind. - HELD THAT: - The High Court examined paragraph 4 of the Tribunal's order and found that the Tribunal did not advert to the contentions raised by the appellant concerning invalidity of the confiscation proceedings and the subsequent sale. The order was held to be cryptic and lacking application of mind because the Tribunal failed to consider the rival submissions made by the parties and did not address whether the appellate powers (including those under Section 129B) permitted relief in the circumstances. For these reasons the Tribunal's order was quashed and set aside and the appeal was remitted for fresh disposal. [Paras 5]

The Tribunal's order dated 05.10.2016 is quashed for non-application of mind and set aside; the matter is remitted to the Tribunal for fresh consideration.

Confiscation and sale of imported goods - restitution of value of illegally confiscated goods - remand for fresh consideration - Whether the Tribunal should reconsider the validity of the confiscation proceedings, the consequent sale, and the question of restitution of the value of the goods to the appellant. - HELD THAT: - The High Court directed that on remand the Tribunal must specifically advert to and decide the validity of the confiscation proceedings and the consequent sale carried out by the respondent, and thereafter determine whether restitution of the value of the goods (or other relief) is appropriate. The Court noted authorities relied upon by the appellant concerning restitution and powers on appeal, and required the Tribunal to decide the appeal afresh after considering those submissions. The Tribunal was directed to conclude the rehearing within two months from receipt of the certified copy of the High Court's order. [Paras 5, 6]

The issue of validity of confiscation and sale and the claim for restitution is remitted to the Tribunal for fresh adjudication within two months.

Final Conclusion: The Tribunal's order dated 05.10.2016 is quashed for want of application of mind and the appeal stands remitted to the Tribunal to decide afresh the validity of the confiscation and sale and the question of restitution of value; the Tribunal to decide the matter within two months of receipt of certified copy.

Refund of excess benefit under MEIS - prematurity of refund claim pending investigation - abeyance of adjudicatory action pending conclusion of related investigation - adjudication of eligibility for benefit under export incentive scheme

Refund of excess benefit under MEIS - prematurity of refund claim pending investigation - Validity of show cause notice proposing rejection of the refund application as incomplete and premature while respondent No.4's investigation on eligibility remained pending. - HELD THAT: - The Court found that the question whether the petitioner was entitled to the higher MEIS benefit as 'Handicrafts' had not attained finality because respondent No.4's investigation was pending. In those circumstances respondent No.3 was not justified in issuing a show cause notice proposing to reject the refund application as incomplete and premature; respondent No.3 ought to have awaited the outcome of the ongoing adjudication by respondent No.4 before taking adverse action on the refund claim. The petitioner's deposit and subsequent application for refund could not be summarily rejected while the foundational eligibility dispute remained undecided. [Paras 9, 10]

Impugned show cause notice set aside for the limited purpose that it shall be kept in abeyance until conclusion of respondent No.4's investigation; respondent No.3 directed not to proceed to reject the refund claim pending that outcome.

Abeyance of adjudicatory action pending conclusion of related investigation - adjudication of eligibility for benefit under export incentive scheme - Direction to conclude the pending investigation by respondent No.4 and the procedural consequence thereof. - HELD THAT: - The Court requested respondent No.4 to conclude the proceedings at the earliest and, as a consequential and interlocutory measure, directed respondent No.3 to keep both the impugned show cause notice and the petitioner's refund application in abeyance until the investigation before respondent No.4 is finalised. The Court thereby preserved the petitioner's claim for adjudication by the competent authority and prevented premature rejection by the refund-processing authority. [Paras 10, 11]

Proceedings before respondent No.4 to be concluded expeditiously; respondent No.3 to keep its show cause notice and the refund application in abeyance until that conclusion.

Final Conclusion: Writ petition disposed of by directing respondent No.3 to keep the impugned show cause notice and the petitioner's refund application in abeyance pending conclusion of respondent No.4's investigation; respondent No.4 requested to conclude the pending proceedings at the earliest.

Quasi-judicial power - principles of natural justice - extension of period under the first proviso to Section 110(2) of the Customs Act, 1962 - recording reasons for extension - informing the person from whom goods were seized before expiry

Quasi-judicial power - principles of natural justice - extension of period under the first proviso to Section 110(2) of the Customs Act, 1962 - Whether the amended first proviso to Section 110(2) of the Customs Act, 1962 removes the quasi-judicial character of the power to extend the six month period or dispenses with the requirement to adhere to principles of natural justice. - HELD THAT: - The Court held that the amendment (which requires recording reasons in writing and informing the person from whom goods were seized before the expiry of the specified period) imposes additional procedural burdens but does not negate the quasi-judicial character of the power under the proviso. Consequently, the requirement to adopt a judicial approach and to adhere to principles of natural justice remains applicable when exercising the extension power. The amendment therefore supplements procedural safeguards (reasons and communication) but does not authorise denial of hearing where the nature of the exercise is quasi judicial. [Paras 12, 13]

The amended proviso does not oust the quasi judicial character of the extension power and the authorities are required to adopt a judicial approach and respect principles of natural justice when extending the period.

Principles of natural justice - informing the person from whom goods were seized before expiry - recording reasons for extension - Whether the impugned extension order dated June 24, 2020 complied with the requirements of natural justice and the amended proviso, and what relief follows from any breach. - HELD THAT: - Although the authorities complied with the formal requirements of the amended proviso by recording reasons and informing before expiry, the Court found that they overlooked the need to act in a quasi judicial manner and failed to afford the person from whom goods were seized an opportunity of hearing prior to exercising the extension power. For that reason the extension order was vitiated by breach of natural justice. The Court made clear that its decision on this procedural defect is without prejudice to merits of rival claims and that the authorities remain free to proceed afresh in accordance with law. [Paras 13, 14, 15]

Impugned order set aside for breach of principles of natural justice; authorities may take further steps in accordance with law and, if issuing notice, service on the electronic mail identity of the petitioner's counsel (as provided to the High Court) will be treated as sufficient.

Final Conclusion: The challenge to the extension order succeeds on grounds of breach of natural justice: the amended proviso to Section 110(2) continues to attract a quasi judicial approach and the impugned order dated June 24, 2020 is set aside; the authorities are free to reconsider and proceed afresh in accordance with law, and service by email to the petitioner's counsel (as provided to the High Court) is permitted as sufficient notice.

Appeal under Section 128 of the Customs Act, 1962 - substantive remedy of appeal - invocation/encashment of bank guarantee - interim relief by status quo - final assessment and recovery of duty

Invocation/encashment of bank guarantee - interim relief by status quo - Whether interim relief in the form of status quo on encashment of the bank guarantees should be granted pending exercise of appellate remedy - HELD THAT: - The Court observed that the respondents were contemplating invocation of the Bank Guarantees despite availability of an alternative substantive remedy by way of appeal. In the exercise of its discretionary writ jurisdiction the High Court granted limited interim protection to preserve the subject matter of the dispute: for a period of three weeks from the date of the order the encashment/adjustment of the Bank Guarantees shall be restrained, subject to the condition that the petitioner renew the Bank Guarantees during that period. The Court made clear that any failure by the petitioner to renew the guarantees would disentitle it to the benefit of this interim protection. [Paras 4]

Status quo as to encashment of the Bank Guarantees is directed to be maintained for three weeks, subject to renewal by the petitioner.

Appeal under Section 128 of the Customs Act, 1962 - substantive remedy of appeal - final assessment and recovery of duty - Whether the petitioner should be permitted additional time to prefer an appeal and whether the appellate authority should consider the appeal expeditiously - HELD THAT: - Recognising that the remedy of appeal under Section 128 is a substantive remedy, the Court declined to adjudicate the merits of the assessment or recovery order and instead afforded the petitioner a limited procedural indulgence. The writ petition was disposed of by permitting the petitioner to file an appeal before the Principal Commissioner of Customs within two weeks from receipt of the order. The Court directed the Principal Commissioner to consider any such appeal and pass appropriate orders in accordance with law as expeditiously as possible. This effectively leaves the substantive issues for adjudication by the statutory appellate forum while ensuring time-bound access to that forum. [Paras 3, 4]

Petitioner permitted to prefer appeal within two weeks; Principal Commissioner directed to consider and decide the appeal expeditiously.

Final Conclusion: Writ petition disposed of by granting limited interim protection restraining encashment of bank guarantees for three weeks (subject to renewal) and by permitting the petitioner to prefer an appeal under Section 128 within two weeks, with a direction to the Principal Commissioner to consider the appeal expeditiously; no adjudication on merits.

Retrospective application of Section 10A of the Insolvency and Bankruptcy Code, 2016 - bar on filing of applications for initiation of CIRP in respect of defaults on or after 25 March 2020 - non-obstante provision overriding Sections 7, 9 and 10 - distinction between initiation date and insolvency commencement date - purposive construction in light of the Covid-19 pandemic

Bar on filing of applications for initiation of CIRP in respect of defaults on or after 25 March 2020 - non-obstante provision overriding Sections 7, 9 and 10 - Whether Section 10A applies to an application under Section 9 filed before 5 June 2020 in respect of a default occurring on or after 25 March 2020. - HELD THAT: - Section 10A, inserted with retrospective effect from 5 June 2020, is prefaced by a non-obstante clause which overrides Sections 7, 9 and 10 and fixes 25 March 2020 as the cut-off date. Read together with its proviso and explanation, Section 10A imposes a legislative embargo on the filing of any application for initiation of the CIRP in respect of defaults occurring on or after 25 March 2020 for the stipulated period (six months, extendable up to one year). A purposive construction is required in view of the extraordinary economic disruption caused by the Covid-19 pandemic and the recitals to the Ordinance; construing the provision as prospective to exclude applications filed before 5 June 2020 would defeat Parliament's object of protecting corporate debtors who defaulted on or after 25 March 2020. The bar does not extinguish underlying debts or creditors' rights to recover them, and Section 10A contains no requirement that the Adjudicating Authority enquire into whether a specific default was caused by the pandemic. [Paras 16, 20, 23, 26]

Section 10A applies and bars the institution of an application under Section 9 in respect of a default occurring on or after 25 March 2020 even though the Section 9 application was filed before 5 June 2020.

Distinction between initiation date and insolvency commencement date - retrospective application of Section 10A of the Insolvency and Bankruptcy Code, 2016 - Whether the 'initiation date' (date of filing) or the 'insolvency commencement date' (date of admission) governs the applicability of Section 10A. - HELD THAT: - Section 5(11) defines 'initiation date' as the date on which an applicant files for initiation of CIRP, while Section 5(12) defines 'insolvency commencement date' as the date of admission by the Adjudicating Authority. Section 10A speaks to the filing of applications for initiation of CIRP; by fixing a cut-off of 25 March 2020 for defaults and by barring filing for defaults on or after that date, the provision reaches the act of filing itself. The legislative scheme and recitals indicate that the embargo was intended to be retrospective to the specified cut-off date so as to prevent initiation of CIRP in respect of defaults arising on or after the lockdown date, regardless of whether the application had been filed prior to insertion of Section 10A. [Paras 18, 19, 26]

The 'initiation date' (date of filing) is the operative concept for Section 10A; the provision bars filing of applications in respect of defaults on or after 25 March 2020 despite a later admission date, and the bar operates retrospectively to the cut-off fixed by Parliament.

Final Conclusion: The judgment affirms the NCLAT and NCLT: Section 10A of the IBC operates to bar the filing of a Section 9 application in respect of a default occurring on or after 25 March 2020 for the statutory period, even where the application was filed before Section 10A was notified; the appeal is dismissed.

Status quo - interim suspension of action by resolution professional - power to receive but not open resolution plans - maintenance of rights to participate in Corporate Insolvency Resolution Process - direction to adjudicating authority to decide pending interlocutory applications expeditiously - prejudice from premature disposal of resolution process steps

Status quo - interim suspension of action by resolution professional - power to receive but not open resolution plans - Whether the Resolution Professional should be restrained from opening or taking any decision on Resolution Plans and the prevailing status quo maintained until one week after the third Member of the Adjudicating Authority decides the pending interlocutory applications. - HELD THAT: - The Tribunal, after hearing parties and noting that interlocutory applications I.A. No. 1628 of 2020 and I.A. No. 1746 of 2020 were reserved for orders and pending before a third Member, directed that the Resolution Professional may receive Resolution Plans but shall not open them or take any decision thereon. The Tribunal observed that continuance of the CIRP and ongoing invitation for Resolution Plans could prejudice the Appellant if its claim and related pleas are not adjudicated before any action is taken on the plans. Accordingly, to preserve parties' rights and avoid prejudice pending adjudication by the third Member, the status quo as on the date of the order was to be maintained until one week after the third Member decides the matters. This interlocutory restraint is procedural and limited in duration and effect to preserving the position of parties pending final disposal by the Adjudicating Authority. [Paras 23]

Resolution Professional permitted to receive Resolution Plans but not to open them or take any decision; status quo maintained until one week after the third Member decides the pending applications.

Direction to adjudicating authority to decide pending interlocutory applications expeditiously - maintenance of rights to participate in Corporate Insolvency Resolution Process - prejudice from premature disposal of resolution process steps - Whether the Adjudicating Authority (third Member) should be directed to hear and decide I.A. No. 1628 of 2020 and I.A. No. 1746 of 2020 expeditiously. - HELD THAT: - The Tribunal found that both interlocutory applications, raising disputed questions regarding admission of the Appellant's claim and avoidance proceedings, were reserved for order and required final determination by the third Member. In view of the potential prejudice to the Appellant's right to participate in the CIRP and the fact that Resolution Plans were being invited, the Tribunal directed the third Member to hear and decide the pending I.As as expeditiously as possible. The direction is procedural, aimed at ensuring timely adjudication of the contested pleas before any substantive action on Resolution Plans is taken. [Paras 23]

Third Member of the Adjudicating Authority directed to hear and decide I.A. No. 1628 of 2020 and I.A. No. 1746 of 2020 expeditiously.

Final Conclusion: The appeal is disposed by directing that Resolution Plans may be received but shall not be opened or acted upon and that the pending interlocutory applications shall be heard and decided expeditiously by the third Member; status quo to be maintained until one week after such decision, and the Tribunal's order be forwarded to the Adjudicating Authority for compliance.

Priority of distribution under Section 53(1)(e) of the Insolvency and Bankruptcy Code - Tax deduction at source under Section 194-IA of the Income-tax Act - Overriding effect of the Insolvency and Bankruptcy Code under Section 238 - TDS as advance payment of capital-gains treated as tax paid under Section 199 and charging under Section 45 - Liquidator's obligation to file income-tax return and attendant refund mechanism - Non-obstante clause and legislative priority in insolvency distribution

Tax deduction at source under Section 194-IA of the Income-tax Act - Priority of distribution under Section 53(1)(e) of the Insolvency and Bankruptcy Code - Overriding effect of the Insolvency and Bankruptcy Code under Section 238 - TDS as advance payment of capital-gains treated as tax paid under Section 199 and charging under Section 45 - Non-obstante clause and legislative priority in insolvency distribution - Whether provisions of Section 194-IA of the Income-tax Act are inconsistent with the priority of distribution under Section 53(1)(e) of the Insolvency and Bankruptcy Code and, if so, which provision prevails. - HELD THAT: - The Tribunal held that TDS under Section 194-IA is advance capital-gains tax recovered by the transferee on behalf of the transferor and, by operation of Section 199 read with Section 45, constitutes a payment of tax. Section 53(1)(e) of the Code prescribes the statutory waterfall and ranks government dues (including income-tax) at the fifth position. Both Section 178(6) of the IT Act (as amended) and Section 53 of the Code employ non obstante language; having enacted the Code the legislature modified the applicability of Section 178 to liquidation under the Code. Because Section 194-IA operates to effect an immediate deduction in priority to other creditors it is inconsistent with the distribution regime envisaged by Section 53(1)(e). By virtue of the Code's overriding provision the Code's priority governed distribution in liquidation and Section 53(1)(e) prevails over Section 194-IA to the extent of inconsistency. [Paras 16, 18, 20, 21]

Section 194-IA is inconsistent with the waterfall under Section 53(1)(e) of the Code; Section 53(1)(e), by virtue of the Code's overriding effect, governs priority in liquidation.

Liquidator's obligation to file income-tax return and attendant refund mechanism - Refund procedure under the Income-tax Act - Non-obstante clause and legislative priority in insolvency distribution - Whether the liquidator of a company in liquidation under the Code is required to file an income-tax return so as to seek refund of TDS deducted under Section 194-IA, and the consequential remedy. - HELD THAT: - The Tribunal observed that neither the Code nor the IBBI Liquidation Process Regulations cast a duty on the liquidator to prepare statutory financial statements or to file income-tax returns for the liquidation estate; Regulation obligations relate to limited reporting and maintenance of certain books and records. Though certain provisions of the IT Act address verification of returns by a liquidator or insolvency professional in specified situations, there is no statutory duty under the Code regime for the liquidator to file returns to obtain refund of TDS. The statutory refund machinery under the IT Act is lengthy and may be impracticable within the time-bound liquidation process. Given the court's finding that TDS could not be allowed to operate contrary to the Code's priority, the adjudicatory outcome obliges the tax authority to refund the TDS amount deposited by the transferee. [Paras 23, 24, 25, 26, 27]

The liquidator is not required by the Code or the Liquidation Regulations to file income-tax returns for the purpose of claiming TDS refunds in liquidation; accordingly the Income-tax authority is directed to refund the TDS deposited by the transferee.

Final Conclusion: The appeal is allowed. The order of the Adjudicating Authority is set aside: the Tribunal held Section 194-IA to be inconsistent with the priority prescribed by Section 53(1)(e) of the Insolvency and Bankruptcy Code and that the Code's priority prevails; the Income-tax authority is directed to refund the TDS deposited by the transferee. No order as to costs.

Provisional attachment under Prevention of Money Laundering Act - Section 32A of the Insolvency and Bankruptcy Code - effect of attachment on Corporate Insolvency Resolution Process (CIRP) - stay of enforcement proceedings - jurisdiction to entertain writ petitions

Section 32A of the Insolvency and Bankruptcy Code - provisional attachment under Prevention of Money Laundering Act - effect of attachment on Corporate Insolvency Resolution Process (CIRP) - stay of enforcement proceedings - Whether the provisional attachment dated 15th October 2020 by the ED of properties of the corporate debtor, after approval of a resolution plan, is prima facie contrary to the protection afforded under Section 32A of the IBC and whether enforcement proceedings arising therefrom should be stayed. - HELD THAT: - The Court, having regard to the fact that the resolution plan in respect of the corporate debtor had been approved by the Adjudicating Authority prior to the ED's provisional attachment, observed that such attachment would prima facie be contrary to the protection conferred by Section 32A of the IBC. The judgment of the Supreme Court in Manish Kumar v. Union of India was cited and followed for the proposition that once conditions of Section 32A are satisfied (approved resolution plan, change of management not being a disguised avatar of old management, etc.), actions against the property of the corporate debtor are barred and the policy considerations underlying Section 32A justify protection of the assets to preserve the CIRP and the value of the corporate debtor's assets. Applying this reasoning to the admitted chronology in the present case, the Court concluded that a prima facie case existed that the provisional attachment was contrary to Section 32A and granted an interlocutory stay of the proceedings in ECIR No. ECIR/HYZO/02/2018 pending further consideration, subject to conditions directed by the Court. [Paras 9, 10]

Interim stay granted on the ED proceedings arising from the provisional attachment dated 15th October 2020, on the basis that the attachment was prima facie contrary to Section 32A of the IBC; stay subject to condition that the petitioner bank place on record steps taken to monetize the assets and recoveries, if any.

Jurisdiction to entertain writ petitions - provisional attachment under Prevention of Money Laundering Act - Whether this Court has jurisdiction to entertain the writ petition and related interlocutory reliefs, and whether further factual and legal material should be placed on record for adjudication of contested preliminary objections. - HELD THAT: - The Court did not finally decide the question of its jurisdiction. The ED had contended that the matter ought to be filed in the High Court of Andhra Pradesh; that objection was directed to be taken in the ED's counter-affidavit and to be heard as a preliminary objection. The Court required the ED to file a detailed counter-affidavit and permitted the ED to raise jurisdictional objections therein. The Ministry of Finance, Union of India, was directed to place on record its stand concerning attachment of assets post approval of a resolution plan, and the petitioner bank was directed to place the approved resolution plan on the record. These directions leave the jurisdictional issue and related factual questions to be considered after filing of the pleadings and on the next date of hearing. [Paras 8, 11, 12]

Jurisdictional objection and related factual questions deferred for determination after filing of counter-affidavit(s) and rejoinder; ED permitted to raise jurisdictional objection as a preliminary issue in its affidavit.

Final Conclusion: Interim relief granted: proceedings in ECIR No. ECIR/HYZO/02/2018 arising from the provisional attachment dated 15th October 2020 are stayed until the next listed date, subject to the petitioner bank placing on record monetization/recovery details; ED and Union of India directed to file affidavits and the question of jurisdiction and other contested matters reserved for further consideration.

Eligibility under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - investigation, enquiry or audit - quantified - written communication - admission of liability - remand for fresh consideration - opportunity of hearing - speaking order

Quantified - written communication - admission of liability - investigation, enquiry or audit - Meaning of 'quantified' for eligibility under the scheme and whether a written admission before 30.06.2019 satisfies 'quantified'. - HELD THAT: - The Court held that the word 'quantified' in the scheme means a written communication of the amount of duty payable. The Board's circular dated 27.08.2019 and the department's FAQs clarify that such written communication includes a letter intimating duty demand, an audit report, or a duty liability admitted by the person during enquiry, investigation or audit. The Court followed earlier decisions of this Court applying the same interpretation and concluded that quantification does not require adjudication; an admission or departmental written communication before the cut-off date suffices to render a declarant eligible under the 'investigation, enquiry or audit' category. [Paras 13, 14, 15, 16, 17]

A written communication including an admission of liability before 30.06.2019 constitutes 'quantified' tax dues for purposes of eligibility under the scheme.

Eligibility under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - remand for fresh consideration - opportunity of hearing - speaking order - Application of the above legal principle to the petitioner's declaration and the consequent remedy. - HELD THAT: - On facts, the petitioner had, by letter dated 10.05.2019, admitted service tax dues of Rs. 64,72,543.00 for the period under enquiry - an admission made before the 30.06.2019 cut-off. Although the final audit report was dated after 30.06.2019, the petitioner's written admission constituted quantification prior to the cut-off. Consequently the designated committee's rejection of the petitioner's declaration dated 02.12.2019 on the ground of non-quantification was not justified. The Court set aside the rejection and remanded the matter to respondent No.3 to reconsider the declaration afresh under the scheme, directing that the petitioner be given an opportunity of hearing and that a speaking order be passed with due communication. The exercise was directed to be completed within eight weeks from receipt of the order. [Paras 18, 19]

The rejection dated 12.02.2020 is set aside; the declaration is to be reconsidered afresh with hearing and a speaking order within eight weeks.

Final Conclusion: The writ petition is allowed to the extent of setting aside the designated committee's rejection of the declaration dated 02.12.2019; the matter is remitted to respondent No.3 for fresh consideration of the declaration under the 'investigation, enquiry or audit' category of the scheme, with an opportunity of hearing and a speaking order to be passed within eight weeks; no order as to costs.

Notice under Section 87 of the Finance Act, 1994 - appeal against adjudication order - pre-deposit for obtaining stay in terms of amended Section 35F of the Central Excise Act - recall or abeyance of statutory attachment/withholding notice - consideration of administrative request for login credentials

Appeal against adjudication order - pre-deposit for obtaining stay in terms of amended Section 35F of the Central Excise Act - Right and obligation of the petitioner to pursue statutory appellate remedy by filing an appeal against the adjudication order and making the prescribed pre-deposit to seek a stay of the confirmed demand. - HELD THAT: - The Court observed that an adjudication order has been passed confirming the service tax demand and imposing penalties. In view of the statutory remedy, the petitioner is directed to file an appeal under the relevant provision and make the requisite pre-deposit (7.5% of the tax amount) so as to obtain the benefit of stay of the demand in accordance with the amended provision applicable to pre-deposit and interim relief. The Court declined to enter into the merits of the adjudication and treated the appellate route with pre-deposit as the appropriate remedy.

Petitioner shall file an appeal and make the prescribed pre-deposit to obtain stay of the impugned demand; the Court did not decide the merits of the adjudication.

Notice under Section 87 of the Finance Act, 1994 - recall or abeyance of statutory attachment/withholding notice - Whether the notices issued under Section 87 directing the petitioner's dues to be withheld would continue to operate during the pendency of appeal and whether they can be recalled or kept in abeyance. - HELD THAT: - The Court noted the petitioner's concern that the Section 87 notices would cause continued withholding of amounts due from the service recipient even if an appeal is filed and stay obtained. The Court granted the petitioner liberty, after filing the appeal and making the necessary pre-deposit, to approach the adjudicating authority (respondent no.2) with a request to recall or keep the Section 87 notices in abeyance. Such request was directed to be considered by the competent authority in accordance with law and expeditiously. The Court did not adjudicate the propriety of the notices on merits but provided a procedural route for their review post-appeal and pre-deposit.

Petitioner granted liberty to request recall or abeyance of the Section 87 notices from the adjudicating authority after filing appeal and making pre-deposit; such requests to be considered expeditiously in accordance with law.

Consideration of administrative request for login credentials - Obligation of the authority to consider petitioner's request for supply of login ID and password to enable compliance with pre-deposit and filing of appeal. - HELD THAT: - The petitioner stated he had lost his login credentials and had emailed a request for reactivation or supply of the ID to enable him to make the pre-deposit and file the appeal. The Court directed that if such a request has been made, the concerned authority shall consider it without delay and in accordance with law. This direction is administrative and aimed at enabling the petitioner to avail the statutory appellate remedy within the prescribed period.

If the petitioner's request for supply of login credentials was made, the competent authority shall consider it without delay and in accordance with law so the petitioner may file the appeal and make the pre-deposit.

Final Conclusion: Writ petition disposed of without adjudication on merits; petitioner directed to pursue the statutory appellate remedy by filing appeal and making the prescribed pre-deposit, after which he may seek recall or abeyance of the Section 87 notices and the authority is directed to consider any request for restoration of login credentials expeditiously and in accordance with law.

Refund under special provision - time limit for refund under section 102(3) Finance Act - application of section 11B of the Central Excise Act via section 83 of the Finance Act - online filing validity and evidentiary requirements under ACES - no provision for condonation of delay

Time limit for refund under section 102(3) Finance Act - application of section 11B of the Central Excise Act via section 83 of the Finance Act - refund under special provision - Whether the limitation in sub section (3) of section 102 of the Finance Act governs the time for filing the refund claim and whether section 11B of the Central Excise Act (as made applicable by section 83) overrides that period. - HELD THAT: - Section 102 is a special provision prescribing refund of service tax for the specified period and explicitly requires that an application for claim of refund be made within six months from the date the Finance Bill, 2016 received the President's assent. Section 83 makes certain Excise Act provisions applicable to service tax "so far as may be", but that does not permit invocation of section 11B where a specific, inconsistent time limit is provided in the Finance Act itself. The Tribunal held that there cannot be two different time limits for the same refund claim and that the specific six month limit in section 102(3) must be strictly adhered to; therefore the one year period under section 11B is not applicable to claims governed by section 102(3). The decision of a Member in Roop Automotive was considered but not accepted to the extent it held section 11B applicable in face of the special provision. The Tribunal accordingly concluded that the refund application must comply with section 102(3)'s time bar. [Paras 30, 31, 32, 33, 34]

The time limit prescribed in section 102(3) of the Finance Act applies and section 11B of the Excise Act is not applicable to extend the period for the refund claim.

Online filing validity and evidentiary requirements under ACES - no provision for condonation of delay - Whether the appellant proved that the refund application was validly filed online on October 13, 2016 so as to be within the six month period, or whether the hard copy filed on December 20, 2016 was the operative filing date and therefore time barred. - HELD THAT: - The Trade Notice and Circular governing ACES set out registration and validation procedures, require a registration number for transacting business, and show uploaded returns acquire statuses such as "uploaded" or "filed" after validation. The appellant did not provide a registration number, did not show that the online submission was accepted or filed on the portal, and the ACES portal and helpline records did not corroborate a pending/accepted online request. The online printout submitted by the appellant indicated "off line" for supporting documents, and there was no evidence of use of the service desk to remedy any difficulty. Given the absence of corroborative portal evidence and the failure to follow mandated registration/filing steps, the Tribunal found the appellant had not established that a valid online filing occurred on October 13, 2016. The hard copy filed on December 20, 2016 was therefore outside the six month period in section 102(3), and there being no provision to condone such delay, the claim was rightly rejected. [Paras 37, 38, 39, 40, 41]

The appellant failed to prove timely online filing under ACES; the hard copy filed on December 20, 2016 is time barred and the delay cannot be condoned.

Final Conclusion: The appeal is dismissed. The Tribunal held that refund claims for the period specified in section 102 must comply with the six month limit in section 102(3), the one year period under section 11B is not applicable to such claims, and the appellant did not prove a valid ACES filing within time so the refund application was rightly rejected as time barred.

Principles of natural justice - Section 14AA - special audit in cases of abnormal credit availed or fraud - right to be heard before use of audit material in proceedings - pre-decisional hearing versus post-decisional hearing - civil consequences of a special audit

Principles of natural justice - Section 14AA - special audit in cases of abnormal credit availed or fraud - right to be heard before use of audit material in proceedings - Whether the impugned proceedings under Section 14A/14AA were initiated without affording the petitioner an opportunity of hearing and whether such omission vitiates the notices and consequential actions. - HELD THAT: - Section 14AA empowers the Commissioner to direct a cost audit where he has reason to believe credit availed or utilised is abnormal or obtained by reason of fraud, collusion or wilful misstatement or suppression of facts, and mandates that the manufacturer be given an opportunity of being heard in respect of any material gathered on the basis of the audit and proposed to be utilised in any proceeding. The legislative scheme contemplates the Commissioner as the central decision-maker who forms the opinion to trigger a special audit; the audit report may produce material which could have civil consequences for the assessee. Judicial authorities have recognised that a special audit may be investigative and stigmatic and that civil consequences flow from such an order, thereby engaging the protection of principles of natural justice. Ordinarily a post-decisional hearing does not substitute for a pre-decisional hearing where civil consequences are likely to follow. Applying these principles, the Court found that the respondent authorities initiated the impugned actions without affording the petitioner the requisite opportunity of hearing and without recording the requisite subjective satisfaction in the notices; therefore the principles of natural justice were not observed. The observations in Mohinder Singh Gill and later decisions interpreting Section 14AA were treated as supporting the requirement of hearing before any order under Section 14AA is acted upon. [Paras 5, 6, 7, 8]

Impugned notices and all steps and proceedings taken thereunder are set aside and quashed for failure to comply with the principles of natural justice; respondent authorities are, however, at liberty to proceed afresh in accordance with law.

Final Conclusion: Writ petition allowed: proceedings initiated under Section 14A/14AA were quashed for non-observance of the petitioner's right to be heard; the revenue may initiate fresh proceedings in conformity with Section 14AA and the requirements of natural justice.

Rule 9(1)(b) of CENVAT Credit Rules, 2004 - cenvat credit admissibility on stock transfer versus sale - intention to evade duty and its effect on recipient's entitlement to credit - penalty under Section 11AC of the Central Excise Act, 1944

Rule 9(1)(b) of CENVAT Credit Rules, 2004 - cenvat credit admissibility on stock transfer versus sale - intention to evade duty and its effect on recipient's entitlement to credit - Whether Rule 9(1)(b) bars the appellant from availing cenvat credit where the supplier paid duty subsequently and penalty was imposed on the supplier, but the goods were not sold to the appellant (stock transfer/loan) and receipts and use at the appellant's factory are established. - HELD THAT: - The Tribunal found that goods were cleared by the supplier to the appellant on a loan/stock-transfer basis and the appellant produced evidence, including a Chartered Accountant's certificate, to establish receipt and use within its factory. Rule 9(1)(b) disallows credit where additional duty became recoverable due to non-levy or short-levy on account of fraud, collusion, wilful misstatement or suppression of facts with intent to evade duty. However, where goods were not sold to the recipient but only transferred/stocked and the recipient has established receipt and use, the embargo in Rule 9(1)(b) does not operate to deny credit to the recipient. The Tribunal relied on precedents treating transfers (not sales) as a circumstance in which recipients' credit cannot be denied even if differential duty was paid by the supplier on account of intent to evade duty. Although the Gujarat High Court imposed penalty on the supplier under Section 11AC, that finding does not by itself negate the appellant's entitlement to credit when there is no finding that the goods were sold to the appellant and the appellant has demonstrated receipt and use.

Impugned order denying cenvat credit under Rule 9(1)(b) is set aside and the appeal is allowed; credit claimed by the appellant is permitted.

Final Conclusion: The appeal is allowed; the order refusing cenvat credit under Rule 9(1)(b) is set aside and credit is permitted to the appellant where goods were transferred/loaned and receipt and use by the appellant are established despite penalty having been imposed on the supplier.

Principles of natural justice - opportunity of personal hearing - adequacy of pre-revision notice - alternate remedy / exhaustion of statutory remedy - exercise of writ jurisdiction under Article 226 - direction for remand subject to compliance - refund claim as an independent adjudicable claim

Principles of natural justice - opportunity of personal hearing - adequacy of pre-revision notice - Whether the pre-revision notice and procedure followed satisfied the principles of natural justice and entitled the assessee to quash the revisionary assessment. - HELD THAT: - The Court held that a pre-revision notice which merely informs the assessee that an opportunity of personal hearing is available within the initial 15-day period does not satisfy the requirements of natural justice. The court followed earlier decisions recognizing that a meaningful hearing must be afforded after the Assessing Officer has seen and considered the objections and documents, and where the Assessing Officer remains prima facie unconvinced, the assessee must be given an effective opportunity to be heard in person and to place documents and explanations. Applying that principle to the facts, the Court found that although the assessee had filed objections and documents, no effective personal hearing was granted before passing the revisionary assessment; consequently the impugned orders could not stand without giving the assessee an opportunity to be heard afresh. [Paras 6, 7, 9]

Pre-revision notice held inadequate; assessments set aside for reconsideration after affording an effective personal hearing, subject to the conditions directed by the Court.

Alternate remedy / exhaustion of statutory remedy - exercise of writ jurisdiction under Article 226 - Whether the existence of an alternate statutory appeal remedy precluded exercise of writ jurisdiction in view of the alleged denial of natural justice. - HELD THAT: - The Court acknowledged that ordinarily the existence of an alternative statutory remedy operates as a constraint on the exercise of writ jurisdiction and that tax matters are to be treated with particular rigour in this respect. However, the Court reiterated established exceptions permitting writ relief where there is a violation of fundamental principles of natural justice or where proceedings are wholly without jurisdiction. Applying those principles, the Court agreed with the Single Judge on the general rule of alternate remedy but found the exception for breach of natural justice applicable on the facts, justifying interference under Article 226 and directing remedial measures rather than absolute dismissal. [Paras 4, 5, 6, 8]

Although alternative statutory remedy exists, writ jurisdiction was exercised under the exception for breach of natural justice; the writ appeals were allowed to secure a fresh effective hearing.

Direction for remand subject to compliance - refund claim as an independent adjudicable claim - What remedial directions should be given and whether the pending refund claim must be decided independently. - HELD THAT: - The Court directed that the assessments be reconsidered after affording a personal hearing, contingent upon the assessee complying with a condition imposed by the Court (remittance of a proportion of the disputed tax by a specified date) and then filing objections treating the assessment orders as show cause notices; the Assessing Officer must thereafter grant a personal hearing and pass a speaking order on merits. Separately, the Court recognised that the refund claim for input tax credit on export sales is an independent claim and cannot be subsumed into the assessment proceedings; noting representations on file, the Court directed the Joint Commissioner to consider and decide the refund representation expeditiously, preferably within three months of receipt of the judgment copy. [Paras 9, 10, 11]

Assessments remitted for fresh consideration after effective hearing subject to court-imposed compliance; Joint Commissioner directed to decide pending refund representation expeditiously.

Final Conclusion: Writ appeals allowed: revisionary assessments set aside for fresh consideration because the pre-revision notice did not afford an effective personal hearing; remand made subject to compliance with the Court's directed condition and filing of objections, and the departmental authorities directed to decide the pending refund representation expeditiously.

Statutory lien of Port Trust on goods - interim release of goods subject to payment of port dues - binding precedents recognising port lien - interpretation of Ministry of Shipping circulars on waiver or deferment of port charges

Statutory lien of Port Trust on goods - interim release of goods subject to payment of port dues - binding precedents recognising port lien - Validity of the Division Bench order permitting release of the entire consignment on deposit of a lesser amount and requirement to protect the Port Trust's lien - HELD THAT: - The Court held that the Port Trust possesses a statutory lien on goods stored within port premises for recovery of unpaid charges, a principle authoritatively recognised by this Court's precedents. The Division Bench's direction to permit removal of the entire consignment against payment of a lesser amount placed the Port Trust in a worse position than the Single Judge's interim order and ignored the statutory lien and binding decisions. The appellate order therefore offended the statute and settled law and could not stand. To secure the Port Trust's interest and lien, the Court directed that release of the goods must be made conditional upon payment of the dues claimed by the Port Trust, subject to lawful formalities and customs clearance. Consequential refund, with interest, was left open if the High Court ultimately finds entitlement to remission. [Paras 7, 9, 11, 12]

Division Bench order set aside; release of goods only upon payment of dues claimed by the Port Trust as condition precedent, with liberty for refund if High Court so directs

Interpretation of Ministry of Shipping circulars on waiver or deferment of port charges - interim release of goods subject to payment of port dues - Whether importers are entitled to waiver or remission of port charges under the Ministry of Shipping circulars and related entitlement to refund - HELD THAT: - The Court did not decide the legal correctness of the contentions about waiver or remission under the Ministry's circulars; instead it directed that the High Court should determine the interpretation and applicability of the circulars in the pending writ petition. The Supreme Court requested expeditious disposal of the writ petition by the Single Judge and permitted the High Court to grant consequential relief, including refund with interest, if the petitioners succeed on merits. Meanwhile, to protect the Port Trust's statutory lien, the Court conditioned interim release on deposit of the dues claimed by the Port Trust. [Paras 8, 9, 12]

Matter remanded to the High Court for expeditious adjudication of the circulars' interpretation; interim payment to the Port Trust without prejudice to final decision and entitlement to refund if allowed

Final Conclusion: Appeals allowed; impugned Division Bench order set aside. Release of the goods permitted only upon payment of the Port Trust's claimed dues as a condition precedent, subject to customs and other formalities; the High Court to expeditiously decide the writ petition on the merits of the Ministry of Shipping circulars, with liberty to order refund with interest if appropriate.

Summoning under Section 138 of the Negotiable Instruments Act - Liability of company directors under Section 141 of the Negotiable Instruments Act - Limitation under Section 138 read with Section 142 of the Negotiable Instruments Act - Role of Magistrate at the cognizance/summoning stage - Extra ordinary jurisdiction under Section 482 Cr.P.C. and quashing of criminal complaints

Limitation under Section 138 read with Section 142 of the Negotiable Instruments Act - Complaints under Section 138 were filed within the period of limitation. - HELD THAT: - The Court considered the dates of return of the cheques, service of the statutory demand notice and institution of the complaints. The trial court had recorded that the company was served on 30.05.2016 and the complaints were instituted on 14.07.2016. Applying the statutory timeline under Section 138 read with Section 142, the High Court held that the complaints fell within the limitation period and that there was no requirement for a condonation application. [Paras 31]

Complaints are not barred by limitation; they were filed within the statutory period.

Summoning under Section 138 of the Negotiable Instruments Act - Liability of company directors under Section 141 of the Negotiable Instruments Act - Role of Magistrate at the cognizance/summoning stage - Magistrate rightly summoned the petitioner and framed notices as a prima facie case under Sections 138/141 was made out; merits to be tested at trial. - HELD THAT: - The Court reviewed that the petitioner was a director and signatory to two of the post dated cheques issued under the Buy Back Option and that the complaint averred he induced investment and authorised financial transactions of the company. Applying precedent (including S.M.S. Pharmaceuticals and N. Rangachari), the Court reiterated that at the stage of cognizance/summoning the Magistrate need only assess whether a prima facie case exists and is not required to probe merits or resolve disputed factual contentions about authority or conduct. The High Court found that the contentions urged by the petitioner (resignation, lack of charge, appointment of Official Liquidator, signature authority) raised triable issues peculiarly within the knowledge of the accused and appropriate for trial, and therefore the Magistrate did not err in rejecting discharge and issuing summons and notices under Section 251 Cr.P.C. [Paras 33, 34, 41]

Summoning and framing of notices were proper; prima facie case exists and factual disputes to be adjudicated at trial.

Extra ordinary jurisdiction under Section 482 Cr.P.C. and quashing of criminal complaints - Claims regarding resignation, liquidation and sufficiency of funds cannot be decided in exercise of Section 482 Cr.P.C. at the summoning stage and must be tested at trial. - HELD THAT: - Although the petitioner sought quashing of the complaints and discharge under Section 482 Cr.P.C., the High Court held that issues such as whether the petitioner had resigned before presentation of the cheques, whether the company was in liquidation when the cheques were presented, and whether there were sufficient funds are matters of fact and law requiring trial. The Court observed that the extraordinary jurisdiction to quash is not to be exercised where triable issues remain; accordingly, it declined to adjudicate these merits and left them open for determination in the trial court. [Paras 34, 38]

Petition for quashing under Section 482 Cr.P.C. refused as the contested factual and legal questions are remitted for trial.

Final Conclusion: The petitions challenging the Metropolitan Magistrate's orders dated 16.03.2017, 25.06.2018 and 25.06.2020 are dismissed. The High Court held the complaints to be within limitation, found that a prima facie case against the petitioner and others was made out for summons under Sections 138/141 NI Act, and declined to quash the complaints under Section 482 Cr.P.C., leaving contested factual and legal issues to be decided at trial.

Cancellation of bail under Section 439(2) Cr.P.C. - Liability for dealing in spurious drugs under Section 19 of the Drugs and Cosmetics Act, 1940 - Relevance of documentary evidence (purchase bills, E-way bills, GST records) in bail determination - Interference with grant of bail where the order is vitiated by serious infirmity or misreading of law - Consideration of irrelevant or incomplete material by the trial court when granting bail

Cancellation of bail under Section 439(2) Cr.P.C. - Liability for dealing in spurious drugs under Section 19 of the Drugs and Cosmetics Act, 1940 - Relevance of documentary evidence (purchase bills, E-way bills, GST records) in bail determination - Interference with grant of bail where the order is vitiated by serious infirmity or misreading of law - Bail granted to the accused-respondent, Vinay Mangal, was liable to be cancelled. - HELD THAT: - The High Court found that the trial court granted bail after placing undue reliance on the existence of some purchase invoices, E-way bills and GST payments, without properly considering the statutory scheme embodied in Section 19 of the Drugs and Cosmetics Act, 1940. Section 19 makes a person dealing in spurious drugs equally liable as the manufacturer unless statutory safeguards are established; the record showed that the accused did not possess complete purchase documents and had not procured the product from a duly licensed manufacturer/distributor/dealer. Further, seized strips were found to be spurious (identical codes where codes ought to differ) and the main accused/manufacturer remained at large, with the charge-sheet alleging the respondent's involvement in a distribution racket. Because the trial court misread and ignored the relevance of Section 19 and material shortcomings in documentary proof, its grant of bail was vitiated by a serious infirmity warranting interference under Section 439(2) Cr.P.C.

Bail of the accused-respondent is cancelled; the trial court is directed to take the accused into custody forthwith.

Final Conclusion: The High Court allowed the bail cancellation application, holding that the trial court erred in law and fact by overlooking Section 19 of the Drugs and Cosmetics Act and relevant missing documentary evidence; bail granted to the accused-respondent is cancelled and he is to be taken into custody immediately.

Statutory lien - deposit as security for disputed port dues - custody of fixed deposit receipt with advocate as receiver subject to court leave for encashment - equitable balancing of interests between port and importer in light of force majeure - adjudication of entitlement to waiver of ground-rent - interest on excess appropriation where claim is found exaggerated

Statutory lien - deposit as security for disputed port dues - custody of fixed deposit receipt with advocate as receiver subject to court leave for encashment - equitable balancing of interests between port and importer in light of force majeure - Interim mechanism for removal of goods from Port premises pending final adjudication of dues. - HELD THAT: - The Court directed the writ petitioners to immediately deposit a security sum of Rs. 50 lakh in a nationalised bank and to remove the entirety of the imported goods within 30 days, balancing the Port's right to protect its dues under its statutory lien and the writ petitioners' difficulty caused by the lockdown. The fixed deposit receipt of the deposit is to be handed to the Advocate for the Port, who will hold it as receiver without remuneration and shall not encash it without prior leave of the writ court. The arrangement preserves the Port's right to apply to appropriate up to 75% of the deposit subject to the final order, and preserves all rights and contentions of both parties for determination at final hearing. The Court reasoned that unconditional removal without security would prejudice the Port's ability to realise its dues, while insisting on a balance given delay resulted from circumstances beyond the writ petitioners' control. (paras 5, 8, 10) [Paras 5, 8, 10]

Writ petitioners to deposit Rs. 50 lakh as specified, remove goods within 30 days, and hand the fixed deposit receipt to the Port's Advocate as receiver; interim rights of the Port to seek appropriation reserved.

Adjudication of entitlement to waiver of ground-rent - interest on excess appropriation where claim is found exaggerated - Final determination of the Port's claimed dues and the writ petitioners' entitlement to waiver of ground-rent is left for adjudication at the final hearing; consequences if the Port's claimed amount is found exaggerated. - HELD THAT: - The Court expressly left open for the writ court to examine whether the writ petitioners were entitled to complete or partial waiver of ground-rent and to determine the exact quantum of the Port's claim. The order provides that if the writ court concludes the Port's claim (as reflected in its bills) was exaggerated, the Port must pay interest at 10% per annum on the balance portion of the deposit from the date of billing until repayment of that balance to the writ petitioners. Conversely, if the Port's charges exceed the deposit, the writ petitioners remain liable to make good the shortfall; for that purpose an unconditional letter of undertaking by the first writ petitioner is to be furnished within a week, though removal of goods may proceed upon deposit. These matters are remitted for final adjudication on merits. (paras 9, 10) [Paras 9, 10]

Questions of waiver of ground-rent, the exact claim of the Port and any interest or appropriation are reserved for final adjudication; directions given for consequences if the Port's claim is found exaggerated or in excess of the deposit.

Final Conclusion: Interim application disposed by directing a security deposit of Rs. 50 lakh and immediate removal of goods within 30 days under the specified custodial arrangement for the fixed deposit receipt; substantive issues concerning waiver of ground-rent and the precise quantum of the Port's dues are left open for final adjudication, with specified consequences if the Port's claim is found exaggerated.