TaxTMI Updates e-Newsletter
Feb 11,2025

Alternative remedy of appeal - proper officer under Section 73 - court's refusal to interfere in presence of alternative remedy - waiver of limitation for filing appeal

Alternative remedy of appeal - court's refusal to interfere in presence of alternative remedy - Availability of an alternative remedy in the form of an appeal and consequent refusal of the Court to entertain the Special Leave Petition. - HELD THAT: - The Supreme Court recorded that the High Court had observed the petitioner had an alternative remedy by way of appeal. Having heard counsel, the Court was not inclined to interfere and disposed of the Special Leave Petition by permitting the petitioner to pursue the statutory appellate remedy instead of seeking extraordinary relief in this Court. The respondent produced a Government Notification identifying the Assistant Commissioner as the proper officer under Section 73, which supported the position that the contested order was amenable to the appellate route.

SLP disposed by permitting the petitioner to file the appeal and declining to entertain the petition in view of the available alternative remedy.

Waiver of limitation for filing appeal - Whether limitation would be a bar to the appellate remedy permitted by the Court. - HELD THAT: - The Court granted the petitioner one month from the date of the order to file the appeal and directed that the respondent shall not raise the plea of limitation in respect of that appeal. This direction was given as a condition of permitting the petitioner to avail the alternative remedy and constitutes the Court's resolution of the procedural impediment of limitation for the limited period specified.

Petitioner permitted to file the appeal within one month and the respondents shall not raise limitation as a bar to that appeal.

Final Conclusion: The Special Leave Petition is disposed of by permitting the petitioner to pursue the alternative statutory remedy of appeal (with limitation not to be urged if filed within one month); pending applications are disposed of.

Summary order. Special Leave Petition dismissed as withdrawn with liberty to raise all pleas and contentions before the authority adjudicating the show cause notice; observations in the impugned judgment clarified not to be treated as final or binding.

Dismissal of appeals on the ground of limitation as per Section 107 of the Central and Goods Services Tax Act, 2017 - power of Appellate Authority under Section 107 (4) of the CGST Act to condone the delay in filing an appeal beyond one month after the expiration of the three-month period specified in Sub-section (1) of Section 107 for filing an appeal against a decision or order issued by an adjudicating authority under the CGST Act - HELD THAT:- An assessee aggrieved by an order passed by the Adjudicating Authority may appeal to the Appellate Authority within three months from the date on which the said decision or order is communicated to such person. Sub-Section (4) of Section 107 of the CGST Act provides discretion to the Appellate Authority to entertain an appeal if it is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the prescribed three-month period, provided the appeal is presented within an additional period of one month.

It is well settled that once a statute prescribes a specific period of limitation, the Appellate Authority does not inherently hold any power to condone the delay in filing the appeal by invoking the provisions of Section 5 or 29 of the Limitation Act, 1963.

Reference can be invited to the decision of the Chhattisgarh High Court in Nandan Steels & Power Ltd. v. State of Chhattisgarh [2022 (8) TMI 631 - CHHATTISGARH HIGH COURT] wherein it was held that the statutory timeline for filing an appeal under Section 107 (1) of the CGST Act is three months from the date the decision or order is communicated to the appellant. However, Section 107 (4) provides a limited extension of one additional month, at the discretion of the appellate authority, if sufficient cause is demonstrated. The Court observed that the Legislature, while allowing an extension in specific instances, did not intend for the Limitation Act to apply to proceedings under the CGST Act.

Conclusion - The power to condone delay caused in pursuing a statutory remedy would always be dependent upon the statutory provision that governs. The right to seek condonation of delay and invoke the discretionary power inhering in an appellate authority would depend upon whether the statute creates a special and independent regime with respect to limitation or leaves an avenue open for the appellant to invoke the general provisions of the Limitation Act to seek condonation of delay. The facility to seek condonation can be resorted provided the legislation does not construct an independent regime with respect to an appeal being preferred. Once it is found that the legislation incorporates a provision which creates a special period of limitation and proscribes the same being entertained after a terminal date, the general provisions of the Limitation Act would cease to apply.

Each of the appeals was filed beyond the prescribed period of limitation provided by Sections 107 (1) and 107 (4) of the CGST Act, the aforesaid writ petitions lack merit and are accordingly dismissed.

Challenge to SCN issued under Section 74 of the Central Goods and Services Tax Act, 2017/State Goods and Services Tax Act, 2017 - HELD THAT:- Section 74 (1) of the CGST Act/SGST Act authorises the proper officer to issue a notice to show cause. Sub-Section (2) of Section 74 envisages that such notice shall be issued six months prior to the time limit specified under sub-Section (10) of Section 74 - It is also the mandate of the statute that the proper officer shall issue the order under sub-Section (9) of Section 74 within a period of five years from the due date of submission of the annual return.

The power of the High Court under Article 226 of the Constitution of India cannot be invoked by the assessee, who is faced with a notice under Section 74 seeking a part adjudication of the lis, which is pending before the proper officer. Of course, in a given situation, when it is alleged that there is a total lack of jurisdiction in issuance of the show cause notice, the High Court may exercise its discretion in entertaining the writ petition. But, as a general rule, the writ petition against the issuance of a show cause notice under Section 74 of the CGST Act/SGST Act cannot be entertained.

In D.P. Maheswari v. Delhi Administration & Ors [1983 (9) TMI 317 - SUPREME COURT] the Supreme Court has clearly delineated the jurisdiction of the High Court in entertaining the writ petition against preliminary issues. Though the Supreme Court was considering the power of the labour courts and the industrial tribunals under the Industrial Disputes Act, 1947 on deciding the preliminary issues raised before it, we find that the principle laid down by the Supreme Court can very well be applied to taxation laws as well. We thus hold that the jurisdiction of the High Court under Article 226 of the Constitution of India cannot be allowed to be exploited by those who can afford to wait to the detriment to those who cannot afford to wait by dragging the latter to the court for adjudication on peripheral issues, avoiding decision on the issues more vital to them.

Conclusion - Going by the time limit prescribed under sub-Section (10) of Section 74 of the CGST Act/SGST Act, the adjudication has to be completed by 8.2.2025. However, in view of the interim order passed in the writ petition staying further proceedings under Section 74, which was in operation for a period of seven days, the Revenue will get the benefit of the stay and the period of adjudication will expire only on 15.2.2025.

Appeal allowed.

Pre-deposit - Form GST DRC-03 - Form GST DRC-03A - adjustment of payment as pre-deposit - Circular No.224/18/2024-GST - restoration of appeal - opportunity to be heard and decision on merits - pre-deposit under Section 107 or Section 112 of the CGST Act - recovery under section 78 and section 79 of the CGST Act

Pre-deposit - Form GST DRC-03 - Form GST DRC-03A - adjustment of payment as pre-deposit - Circular No.224/18/2024-GST - Payment made through Form GST DRC-03 is to be regarded as the required pre-deposit for filing the appeal, in light of the departmental circular and the subsequent introduction of Form GST DRC-03A. - HELD THAT: - The Court found that the petitioner, owing to non-availability of online facility, voluntarily paid the pre-deposit by using Form GST DRC-03 on 19.03.2024 and filed the appeal on 20.03.2024. Notification introducing FORM GST DRC-03A was issued subsequently. Circular No.224/18/2024-GST clarifies that amounts paid via FORM GST DRC-03 may be adjusted as if paid towards the demand on the date of intimation through FORM GST DRC-03, and until the DRC-03A functionality is available taxpayers may intimate the proper officer and not be required to pay the remaining amount. Applying that clarification, the Court held that the voluntary payment through FORM GST DRC-03 must be treated as the pre-deposit required for filing the appeal and thus the respondent's conclusion that no pre-deposit was made was unsustainable. [Paras 9, 10, 11]

The amount paid through Form GST DRC-03 shall be considered as the pre-deposit for filing the appeal.

Restoration of appeal - opportunity to be heard and decision on merits - recovery under section 78 and section 79 of the CGST Act - The rejection order is set aside, the appeal is restored, and the respondent is directed to take the appeal on record and decide it on merits after providing opportunity to the petitioner; any verification of discrepancies in payment is to be carried out by the respondent. - HELD THAT: - Noting that no verification of the payment was undertaken by the respondent despite multiple adjournments and that the payment is shown to be lying in FORM GST DRC-03, the Court set aside the impugned rejection order and restored the appeal. The respondent is directed to take the appeal on record, verify any alleged discrepancies in the payment if necessary, afford the petitioner sufficient opportunity, and pass appropriate orders on merits in accordance with law expeditiously. The Circular contemplates that failure to regularise by filing DRC-03A when functionality is available may lead to recovery under statutory provisions, but that procedural clarification does not justify rejecting the appeal where the payment was made and the DRC-03A mechanism was not yet available. [Paras 12, 13]

Rejection order dated 26.07.2024 is set aside; the appeal is restored and the respondent shall take it on record, verify payment if necessary, provide opportunity, and decide on merits.

Final Conclusion: The writ petition is allowed: the rejection of the appeal for alleged non-payment of pre-deposit is set aside; the amount paid through Form GST DRC-03 is to be treated as the pre-deposit and the appeal is restored, with the respondent directed to take the appeal on record, verify any discrepancies, afford opportunity to the petitioner and decide the matter on merits expeditiously.

Violation of principles of natural justice - failure to consider reply/evidence uploaded by assessee - inadequate notice and opportunity of personal hearing - opportunity of hearing before passing adverse order - remand for fresh consideration

Failure to consider reply/evidence uploaded by assessee - violation of principles of natural justice - Validity of the impugned order dated 25.04.2024 in view of the respondent's failure to take into account the petitioner's reply uploaded on 15.02.2024 and proceeding to pass the order as if no reply was filed. - HELD THAT: - The Court found as an undisputed fact that the petitioner had filed a reply in Form DRC-06 dated 15.02.2024 to the show cause notice. The respondent contended that the uploaded reply was not clearly visible and therefore issued a reminder (Notice No.3 dated 22.04.2024) calling for a manual filing and fixing an imminent personal hearing. The reminder was not noticed by the petitioner in time, and the respondent proceeded to confirm the proposals in the show cause notice and passed the impugned order on 25.04.2024 without waiting for the manual reply or hearing the petitioner. The Court held that the respondent did not properly appreciate the reply already on record and that passing the adverse order in those circumstances amounted to a breach of the principles of natural justice. The Court observed that, had the reply been considered, the proceedings may have been dropped or reasons given for rejection. For these reasons the impugned order was set aside. [Paras 6]

Impugned order dated 25.04.2024 set aside on ground of failure to consider the filed reply and violation of natural justice.

Inadequate notice and opportunity of personal hearing - opportunity of hearing before passing adverse order - remand for fresh consideration - Relief and directions to be granted in view of the procedural infirmity, including remand for reconsideration and provision of opportunity to file reply and be heard. - HELD THAT: - Having set aside the impugned order for procedural unfairness, the Court remanded the matter to the respondent for fresh consideration. The petitioner was permitted to file the manual reply within two weeks from receipt of the order. The respondent was directed to issue a clear notice of 14 days for personal hearing and to hear the petitioner in full before deciding the matter in accordance with law. The Court emphasised that notices uploaded electronically should be supplemented by practicable means of communication to ensure assessees are aware of hearing dates, and that nominal or unreasonably short timeframes are inadequate to satisfy the requirement of a fair opportunity to be heard. [Paras 6, 7]

Matter remanded for reconsideration; petitioner permitted to file reply within two weeks and respondent directed to issue a clear 14 days notice and hear the petitioner before deciding afresh.

Final Conclusion: The writ petition is allowed: the order dated 25.04.2024 is set aside; the matter is remanded for fresh consideration after the petitioner is permitted to file a manual reply within two weeks and after the respondent issues a clear 14-day personal hearing notice and hears the petitioner before passing a fresh decision in accordance with law.

SCN issued within time limitation or not - requirement to carry out assessment in relation to short payment of tax etc - HELD THAT:- The Hon’ble Supreme Court in the case of Himachal Pradesh and Another vs. Himachal Techno Engineers and Another [2010 (7) TMI 875 - SUPREME COURT] were considering the time limit of three months set out in Section 34 of the Arbitration and Conciliation Act, 1996. In that case, the award had been passed, on 05.11.2007, and a petition under Section 34 was filed, on 11.03.2008. The said application was rejected on the ground that the period within which the application should have been filed was three months which would be 90 days reckoned from 11.11.2007 and ending on 10.11.2007 and a further grace period of 30 days which would end on 10.03.2008 whereas the application was filed on 11.03.2008 - the Hon’ble Supreme Court held that the petition filed, on 11.03.2008, was well in time and was not barred by limitation.

Whether the delay of two days in issuing the said notice can be condoned or whether the issue is not relevant as the provision is only directory? - HELD THAT:- Section 75 of the GST Act, stipulates that the tax payer is not only entitled to a notice before any assessment is carried out but also the right of personal hearing, irrespective of whether such personal hearing is requested. When there is a possibility of an adverse order being passed against tax payer, the facility of obtaining at least three adjournments for personal hearing etc. The said provisions, protecting the interest of the tax payer, would be rendered otiose if notice should permitted to be sent without a minimum waiting period. The said protections can then be bypassed by the authorities issuing show cause notice with a week’s time or 10 days and calling upon tax payer to put forth his objections in that shortened time. That does not appear to be intent of the provisions of Section 75 (2) or Section 73 (10) of the GST Act - the time permit set out under 73 (2) of the Act is mandatory and any violation of that time period cannot be condoned, and would render the show cause notice otiose.

Conclusion - The time limit set out in Section 73 (2) is mandatory and any violation of this period renders the show cause notice void.

Petition allowed.

Stay of recovery - pre-deposit under Section 112(8) and stay under Section 112(9) of the CGST Act - undertaking to file appeal before the Appellate Tribunal - conditional continuation of interim relief upon payment - deposit under Section 107(6) of the CGST Act

Stay of recovery - appellate order dated 31st May, 2024 - Interim stay of recovery of the demand in the appellate order dated 31st May, 2024 was granted for a limited period. - HELD THAT: - The High Court, noting that the Appellate Tribunal is yet to be constituted and that the petitioners had made out a prima facie case, issued an unconditional interim stay of the recovery arising from the appellate order dated 31st May, 2024 for a period of two weeks from date. The Court heard counsel for the parties and took note of the materials on record before passing the interim relief.

Unconditional stay of recovery of the appellate order dated 31st May, 2024 for two weeks.

Conditional continuation of interim relief upon payment - pre-deposit under Section 112(8) and stay under Section 112(9) of the CGST Act - deposit under Section 107(6) of the CGST Act - Continuation of the interim stay beyond the initial two-week period was made conditional on payment of 10% of the balance tax in dispute in addition to amounts already deposited under statutory provisions. - HELD THAT: - The Court ordered that if the petitioners pay 10% of the balance amount of tax in dispute, in addition to the amount already deposited in terms of Section 107(6) of the CGST Act, within two weeks from date, the interim order will continue until disposal of the writ petition or further order. This condition implements a limited pre-deposit-based safeguard to maintain the stay pending final adjudication of the writ petition.

Interim stay to continue until disposal of the writ petition if petitioners deposit 10% of the balance tax in dispute (over amounts already deposited under Section 107(6)) within two weeks; otherwise no extension specified.

Final Conclusion: The High Court granted a two-week unconditional stay of recovery of the appellate order dated 31st May, 2024 and provided that the interim stay shall continue until final disposal of the writ petition if the petitioners deposit 10% of the balance tax in dispute (in addition to amounts already deposited under Section 107(6)) within two weeks; directions were given for exchange of affidavits and liberty to mention thereafter.

Challenge to Summary of SCN - extension of time limit for recovery of tax not paid or what paid or short paid or of input tax credit wrongly availed or utilized - HELD THAT:- Issue notice, returnable in 4 [four] weeks.

As all the respondents have appeared and accepted notices through the learned counsel, issuance of formal notices to the respondents stands dispensed with. However, the learned counsel for the petitioner shall furnish requisite nos. of extra copies of the writ petition along with annexures to the learned counsel for the respondents within 2 [two] working day from today.

As an ad-interim measure, that there shall not be any coercive action against the petitioner pursuant to the impugned Order dated 30.08.2024 [Annexure-1 to the writ petition] till the returnable date.

List the case after 4 [four] weeks.

Principles of natural justice - no proper and prior SCN prescribed under sub-section [1] of Section 73 of the Assam Goods and Services Tax Act, 2017 - HELD THAT:- Non-issuance of a proper and prior Show Cause Notice, as contemplated under sub-section [1] of Section 73 of AGST Act, 2017 and issuance of only Summary of Show Cause Notice and Attachment to Determination of Tax cannot be said to be in compliance with sub-section [1] of Section 73 and sub-rule [1] and Rule 142 of the AGST Rules, 2017. A Summary of Show Cause Notice is held to be not a substitute of a Show Cause Notice, contemplated by the provisions of sub-section [1] of Section 73 to set the proceeding in motion.

From the provisions of Section 73, it emerges that the Show Cause Notice is required to be issued by the proper officer, the statement under Section 73 [3] is to be issued by the proper officer as well as the Order under Section 73 [9] is required to be issued by the proper officer. Compliance of the provisions contained in sub-section [1] to sub-section [8] and sub-section [10] to sub-section [11] of Section 73 and sub-rule [1] of Rule 142 are conditions precedent to term an Order passed under sub-section [9] of Section 73 as a valid one.

Having regard to the fact that a proper and prior Show Cause Notice under sub-section [1] of Section 73 of the AGST Act, 2017 was not issued along with the Summary of Show Cause Notice in Form GST DRC-01 [Annexure-B to the writ petition] and the Attachment to Determination of Tax [Annexure-B to the writ petition], and in terms of the observations made in the common Judgment and Order in CONSTRUCTION CATALYSERS PRIVATE LIMITED [2024 (10) TMI 279 - GAUHATI HIGH COURT], the impugned Order is found not sustainable in law and the same deserves to be set aside and quashed.

Petition disposed off.

Seeking to call for the records relating to the impugned order - goods detained on the ground of non-generation of e-invoice - HELD THAT:- Snce the impugned order has been passed without taking into consideration of the Circular No.10/2019 dated 31.05.2019, whereby, according to the petitioner the benefit available under the said Circular has not been given effect to by the respondent in entirety, this Court is inclined to set aside the impugned order and remand the matter back to the respondent for re-consideration.

Petition disposed off by way of remand.

Seizure of vehicle and the goods of the petitioner - E-way Bill was not present with the goods - HELD THAT:- It is admitted to the State-respondents that during the period from 01.02.2018 to 31.03.2018, the goods which were being transported by the petitioner were not covered with the requirement of the E-way bill.

This view was taken by the Division Bench of this Court in M/S Godrej and Boyce Manufacturing Co. Ltd. Vs. State of U.P. & Others [2018 (9) TMI 1261 - ALLAHABAD HIGH COURT], wherein it has been held that the goods were not covered with the requirement of E-way bill during 12.02.2018 to 13.02.2018.

The impugned demand made against the petitioner is bad and, therefore, set aside by this Court - Petition allowed.

Violation of principles of natural justice - Ex parte orders - Service of statutory notices via GST portal and requirement of effective service/clear notice - Remand for fresh consideration with conditional interim relief - Deposit as condition for interim relief in tax proceedings - De-freezing of bank account on production of proof of deposit - Opportunity of personal hearing before deciding GST assessment/recovery orders - Rectification under GST proceedings

Violation of principles of natural justice - Ex parte orders - Service of statutory notices via GST portal and requirement of effective service/clear notice - Impugned GST orders passed without direct/physical service and without affording opportunity of hearing were ex parte and in violation of principles of natural justice and are set aside. - HELD THAT: - The Court found on the record that notices and communications which culminated in the impugned orders were uploaded on the GST portal under 'View of additional notices and orders' and were not served by physical or other direct means on the petitioner, who had no occasion to view them. As a result, the petitioner was not afforded an opportunity to file replies or appear for personal hearing before the orders were passed. The impugned orders therefore amounted to ex parte decisions in breach of natural justice; consequently they were set aside. [Paras 7]

Impugned orders set aside as ex parte for breach of natural justice.

Remand for fresh consideration with conditional interim relief - Deposit as condition for interim relief in tax proceedings - Rectification under GST proceedings - Opportunity of personal hearing before deciding GST assessment/recovery orders - Matters remanded to the assessing/collecting authority for fresh consideration after permitting the petitioner to file reply and be heard, subject to condition of deposit of 10% of disputed tax for specified petitions. - HELD THAT: - Having set aside the impugned orders, the Court remanded the matters to the first respondent for fresh consideration. The petitioner was directed to deposit 10% of the disputed tax in respect of the matters in W.P.Nos.3993 and 4000 of 2025 within two weeks of receipt of the order, after which the petitioner may file reply with supporting documents within two weeks. The first respondent must issue a clear 14-day notice for personal hearing and decide the matter in accordance with law after hearing the petitioner. The remand therefore contemplates fresh adjudication on merits following compliance with the conditional deposit and opportunity to be heard. [Paras 8]

Matters remanded for fresh consideration subject to the petitioner depositing 10% of disputed tax and being afforded personal hearing; rectification/order dated 11.12.2024 also set aside and remanded.

De-freezing of bank account on production of proof of deposit - Deposit as condition for interim relief in tax proceedings - Direction to de-freeze petitioner's bank account and permit operation upon production of order copy and proof of payment of the conditional deposit. - HELD THAT: - Because the petitioner is a cooperative society required to disburse salaries, the Court ordered that the first respondent shall, on production of the copy of this order and proof of payment of the 10% deposit as directed, issue appropriate orders to de-freeze the petitioner's bank account forthwith and permit its operation. This relief is conditional upon compliance with the deposit direction. [Paras 8]

Bank account to be de-frozen and account operation permitted on production of order copy and proof of deposit of the directed amount.

Final Conclusion: Writ petitions allowed: impugned GST orders for FY 2018-19 set aside as ex parte for breach of natural justice; matters remanded to the first respondent for fresh adjudication after the petitioner deposits 10% of disputed tax (in specified petitions), files reply and is afforded personal hearing; bank account to be de-frozen on production of proof of deposit. No costs.

Input tax credit (ITC) - exempt supply - composite supply - principal supply - ancillary supply - adjudicating authority - right to hearing - remand for fresh consideration - extension of time for adjudication

Input tax credit (ITC) - exempt supply - composite supply - adjudicating authority - right to hearing - remand for fresh consideration - Adjudicating authority to consider petitioner's contentions regarding non availment/reversal of ITC and to decide entitlement if tax liability is sustained - HELD THAT: - The Court directed that Respondent No. 3, while adjudicating the Show Cause Notice, must take into account the Petitioner's case that sales of text books were treated as exempt supplies and that ITC was reversed/not availed in respect thereof. The adjudicating authority is required to decide, as part of the adjudication, whether the Petitioner is entitled to ITC if it is held liable to pay tax as alleged in the Show Cause Notice. The authority must give the Petitioner a hearing on this limited aspect and permit filing of necessary documents before concluding the adjudication. All other contentions on merits remain open for consideration by the adjudicating authority. [Paras 7, 8, 9]

The Show Cause Notice shall be adjudicated by Respondent No. 3 after considering the Petitioner's submissions on non availment/reversal of ITC, giving the Petitioner a hearing and opportunity to file documents; merits left open.

Extension of time for adjudication - Extension of time for passing order on the Show Cause Notice - HELD THAT: - Noting the statutory time for passing the order would expire on 5th February, 2025, the Court extended the period for adjudication by a further period of eight weeks from the date of the order to enable Respondent No. 3 to complete adjudication in accordance with the directions given, including affording hearing and considering ITC contentions. [Paras 8]

Time for passing the order on the Show Cause Notice is extended by eight weeks from today.

Final Conclusion: Writ petition disposed by directing the adjudicating authority to consider the Petitioner's ITC related contentions with a hearing and opportunity to file documents, extending the adjudication period by eight weeks; merits otherwise left open; no order as to costs.

Provisional attachment - Rule 159(5) of the CGST/MGST Rules, 2017 - power to recover tax dues subject to procedural compliance - interim relief by way of partial unfreezing of bank accounts - hearing and disposal of attachment challenge by assessing authority

Power to recover tax dues subject to procedural compliance - provisional attachment - Whether the Court should restrain Respondent No. 3 from seeking recovery of the alleged tax dues. - HELD THAT: - The Court declined to grant any injunction restraining the tax authorities from seeking recovery so long as the authorities act in accordance with the procedure of law. The order records that no blanket relief under prayer (a) can be granted at this stage and that there is no question of restraining Respondent No. 3 from pursuing recovery provided lawful procedure is followed. The Court expressly refrained from expressing any view on the merits of the underlying tax liability. [Paras 3, 12, 14]

Refusal to grant restraint; recovery proceedings may continue if authorities follow due procedure.

Refund claim abandoned - Whether the petitioner is entitled to immediate refund of amounts deposited. - HELD THAT: - The petitioner, on instructions, disclaimed pressing the claim for refund of the deposited amount at this stage and stated it would pursue refund after adjudication if no or lesser liability is established. The Court accepted this statement and held that relief in terms of the refund prayer does not survive at present. [Paras 4, 14]

Refund prayer (prayer (b)) not pressed and therefore not granted.

Provisional attachment - interim relief by way of partial unfreezing of bank accounts - Rule 159(5) of the CGST/MGST Rules, 2017 - hearing and disposal of attachment challenge by assessing authority - Validity of the provisional attachments challenged in the interim application and interim relief to unfreeze specified bank accounts. - HELD THAT: - The Court considered the petitioner's challenge to four attachment orders and, without expressing any view on the merits, directed specific interim reliefs: the HDFC account at serial No. 2 is to be unfrozen; the SBI account at serial No. 3 is to be unfrozen only to the extent of Rs. 70 lakhs for day-to-day business purposes (debit freeze to continue above that amount); no relief was granted in respect of the other attached accounts. The Court recorded the GST authorities' concession to these limited unfreezing measures and accepted the petitioner's agreement to the conditions attached to use of funds. The Court made clear that it has not opined on merits and that the authorities must decide the applications under Rule 159(5) on their merits. [Paras 9, 10, 11, 12, 13]

Account No. 02402560000407 (HDFC) unfrozen; Account No. 10072848146 (SBI) unfrozen up to Rs. 70 lakhs for business use; other accounts remain subject to decision in Rule 159(5) applications.

Rule 159(5) of the CGST/MGST Rules, 2017 - hearing and disposal of attachment challenge by assessing authority - Direction for adjudicatory authority to hear and dispose of applications filed under Rule 159(5). - HELD THAT: - The Court directed the Joint Commissioner of State Tax, Investigation-A to personally hear the petitioner's applications under Rule 159(5) seeking to lift the attachments and to dispose of those applications within two weeks from the date of the order. The Court emphasised that these applications must be decided on merits and in accordance with law, and that the Court has not expressed any opinion on the substantive issues. [Paras 11, 12]

Joint Commissioner to give personal hearing and decide the Rule 159(5) applications within two weeks.

Final Conclusion: The petition for a blanket stay on recovery of alleged tax dues is refused; the refund claim is not pressed and therefore not granted; limited interim relief granted by partially unfreezing two specified bank accounts (one fully, one up to Rs. 70 lakhs) while other accounts remain subject to the petitioner's pending Rule 159(5) applications, which the Joint Commissioner is directed to decide after personal hearing within two weeks; no opinion expressed on merits.

Compounding of the offence u/s 276CC - belated filing of the return of income for AY 2013-14 within the due date as contemplated u/s 139(1) - Meaning of the expression “first offence” appearing in Clause 8 of the 2014 guidelines - voluntary disclosure for the purpose of Clause 8 of the 2014 guidelines

Whether an offence u/s 276CC could be said to have been committed on the actual date of filing of return of income or on the day immediately after the due date for filing of returns as per Section 139(1) of the Act? - HELD THAT:- Appellant is right in his contention that the point in time when the offence u/s 276CC could be said to be committed is the day immediately following the due date prescribed for filing of return of income u/s 139(1) of the Act, and the actual date of filing of the return of income at a belated stage would not affect in any manner the determination of the date on which the offence u/s 276CC of the Act was committed.

The due-date for filing the return of income for the AY 2011-12 was 30.09.2011. The appellant filed his return with delay on 04.03.2013. Hence, as the return was filed beyond the due date for filing the return, an offence under Section 276CC could be said to have been committed by the appellant prima facie.

Similarly, the due date for filing the return of income for the AY 2013- 14 was 31.10.2013, whereas the appellant filed the return for the said year on 29.11.2014. Hence, the appellant once again breached the requirement of Section 276CC and thus committed an offence as defined under the said provision.

Even otherwise, it has not been disputed by the appellant that an offence under Section 276CC was committed by him for AYs 2011-12 and 2013-14 respectively, and he had preferred compounding applications for both the assessment years. While his compounding application for the AY 2011-12 came to be allowed, his compounding application for the AY 2013-14 was rejected by Respondent no. 1 and the rejection was upheld by the High Court vide the impugned order.

In view of the dictum laid in Prakash Nath Khanna [2004 (2) TMI 3 - SUPREME COURT] the date for commission of both of these offences would be the day falling immediately next to the due date for filing of return, that is 01.10.2011 for AY 2011-12 and 01.11.2013 for the AY 2013-14.

Whether the offence u/s 276CC for the AY 2013-14 could be said to have been committed before the show cause notice for initiation of prosecution for the AY 2011-12 was issued by the Department? - As the show cause notice for the AY 2011-12 was issued to the appellant on 27.10.2014. However, the offence under Section 276CC of the Act could be said to have been committed on the dates immediately following the due date for furnishing the return of income for both these assessment years respectively. Thus, the offence for the AY 2011-12 could be said to have been committed on 01.10.2011 and the offence for the AY 2013-14 could be said to have been committed on 01.11.2013.

Therefore, it can be said without a cavil of doubt that both the offences under Section 276CC of the Act were committed prior to the date of issue of any show cause notice for prosecution.

We find it difficult to agree with the contention advanced by the respondents that even if the appellant is not covered by the first part of the definition of the expression “first offence”, he will still be covered by the latter half which is reproduced in the preceding paragraph.

A plain reading of the 2014 guidelines reveals that while it is mandatory that the eligibility conditions prescribed under Paragraph 7 are to be satisfied, the restrictions laid down in Paragraph 8 have to be read along with Paragraph 4 of the Act which provides that the exercise of discretion by the competent authority is to be guided by the facts and circumstances of each case, the conduct of the appellant and nature and magnitude of offence. Seen thus, it becomes clear that the restrictions laid down in Paragraph 8 of the guidelines are although required to be generally followed, the guidelines do not exclude the possibility that in a peculiar case where the facts and circumstances so require, the competent authority cannot make an exception and allow the compounding application.

We have also had the benefit of looking at the Guidelines for Compounding of Offences under Direct Tax Laws, 2019 and the Guidelines for Compounding of Offences under Direct Tax Laws, 2022 issued by the CBDT. In both the said Guidelines, the offence under Section 276CC has been made a Category A offence instead of a Category B offence and is compoundable up to three occasions. Although this would not have any direct implication on the case at hand since the same is governed by the 2014 guidelines, yet what this indicates is that there is a clear shift in the policy of the Department when it comes to the compounding of offences under Section 276CC in particular and in making the compounding regime more flexible and liberal in particular.

Order:- We have reached the conclusion that the High Court fell in error in rejecting the writ petition filed by the appellant against the order passed by the Chief Commissioner of Income Tax, Vadodara rejecting the application for compounding. The offence as alleged to have been committed by the appellant under Section 276CC of the Act for the AY 2013-14 is, without a doubt, covered by the expression “first offence” as defined under the 2014 guidelines and thus the compounding application preferred by the appellant could not have been rejected by Respondent no. 1 on this ground alone.

The impugned order passed by the High Court as well as the order passed by the Chief Commissioner of Income Tax, Vadodara rejecting the compounding application of the appellant are hereby set aside.

Appellant shall prefer a fresh application for compounding before the competent authority within two weeks from the date of this judgment.

Allowability of interest expenditure - to substantiate his claim, the assessee has not furnished any evidence on the basis of which it can be proved that the liability as regards to such interest expenses is being crystallized in the concerned assessment year - allowability of the expenditure is restricted to the assessment year for which the Assessing Officer has the jurisdiction and he rejected the submissions of the assessee that negotiated interest was only crystallized during the year

HELD THAT:- Even the assessee may have claimed the above interest loss would have been increased and assessee would have carried forward the loss. From the financial positions and profitability declared in the financial statement, it shows that it has no tax effect. The lower authorities argued that assessee has followed the mercantile system and assessee should have booked the relevant information in the relevant financial year, however there would not be any tax impact even assessee could have claimed the relevant expenditure in the relevant assessment year.

In this regard, we rely on the decision of Dinesh Kumar Goel [2010 (10) TMI 287 - DELHI HIGH COURT] wherein it was held that if there is no loss to the Revenue, it cannot make much outcry for nothing. In this case, the above finding applies considering the factual matrix discussed above. Therefore, we are inclined to allow the claim of the assessee even though the assessee has sought for full waiver of interest even though it is not possible. However, the relevant liability was communicated to the assessee by the lender rejecting the proposals mooted by the assessee. Considering the peculiar facts in this case, we are inclined to allow the grounds raised by the assessee considering the fact that there is no loss to the Revenue. Accordingly, the appeal filed by the assessee is allowed.

Unexplained credits in the books of accounts - Prospective addition - assessee had failed to discharge it's onus w.r.t. the source of credits in books of accounts and could not explain & substantiate the same during the course of assessment proceedings -As argued income has already been taxed in the hands of M/s Surya Food &Agro Ltd. - HELD THAT:- Considering the fact that the substantial addition made in the hands of Surya Agro-tech Infrastructure Ltd. has been deleted by the Tribunal on the ground that the income has already been taxed in the hands of Surya Food & Agro Ltd., we find no error or infirmity in the order of the Ld. CIT(A) in deleting the protective addition made in the hands of the Assessee. Accordingly, finding no merits in the Grounds of Appeal of the Revenue, we dismiss the same.

Addition u/s 37 - unexplained expenditure on commission -CIT(A) confirmed the above addition treating the Assessee as an entry operator and imposed the commission @ of 2.5% - HELD THAT:- In the absence of any contrary material or facts on record, we find no reason to interfere with the findings and conclusion of the Ld. CIT(A) in confirming the addition made on account of commission income. Findings no merits in the grounds of Appeal of the Assessee, we dismiss the same.

Disallowance of deduction claimed of head office expenses allocated to the Indian branches - Scope of amended Article 7(3) - assessee is a non-resident banking company incorporated in United Arab Emirates (UAE) and operates in India through its branches in Mumbai and New Delhi - whether head office expenses allocated to the PE in India is allowable u/Article 7(3) of the treaty without any limit or subject to the restrictions imposed under section 44C of the Act ?

HELD THAT:- On a careful reading of Article 7(3) of the Treaty, as it existed prior to its amendment, it becomes very much clear that while determining the profit of a PE, all deductions and expenses attributable to the PE have to be allowed. There are no restrictions/conditions imposed in Article 7(3) of the Treaty to limit the expenditure to a particular percentage. Therefore, in absence of any restrictions/conditions expressly provided in Article 7(3), no such restrictions/conditions can either be imported or read between the lines.

As in the amended Article 7(3) of the Treaty, specific restriction/condition was imposed providing that the deduction of expenses relating to the PE has to be allowed in accordance with the provisions of and subject to limitations of the tax laws of the particular State where the PE is situated. A reading of the amended Article 7(3) would make it clear that there were no restrictions/conditions imposed with regard to the limit of deduction of expenses earlier to the Protocol. If Revenue’s contention that even without the Protocol amending Article 7(3), Article 25(1) provided for computation of deduction under Article 7(3) as per the provisions of domestic law is accepted, then there was no need for amending Article 7(3) by the Protocol.

The language used in Article 7(3) of the treaty prior to and post amendment demonstrates that at the time of entering into the DTAA, the treaty partners, initially, never intended to put any restriction of the domestic laws on allowability of expenses in computing the business profits of the PE. Subsequently, the treaty partners having felt that the benefits provided under Article 7(3) needs to be withdrawn or restricted, agreed to amend the provision. Thus, in our view, prior to amendment of Article 7(3), the understanding between treaty partners is to allow all expenses attributable to the PE, without applying the limitation/restriction imposed under the domestic laws.

Thus, we hold that Article 7(3) of the Treaty, being an express provision contrary to the domestic law will, override the domestic law. As per the language of pre-amended Article 7(3) of the Treaty, the disallowance of expenditure attributable to the PE has to be allowed in full without applying the restriction imposed under section 44C of the Act.

Thus, we agree with the view expressed in case of Dalma Energy LLC [2012 (5) TMI 10 - ITAT, AHMEDABAD] Abu Dhabi Commercial Bank [2012 (7) TMI 703 - ITAT MUMBAI] State Bank of Mauritius Ltd [2012 (10) TMI 134 - ITAT, MUMBAI] . Having gone through the decision we are of the view that it was decided upon different set of facts, hence, not applicable.

Firstly, in the case before us, there is no allegation by the Departmental Authorities that the non-resident assessee is getting a more favorable treatment than the resident assessee’s. Secondly, while computing profit of business and profession, business expenses are allowed to a resident assessee under the Indian Income Tax Act. Accordingly, ground no.1 is decided in favour of the assessee.

Disallowance of deduction claimed being expenses specifically incurred outside India for the Indian branches - whether the provisions of section 44C would apply to such expenditure
? - HELD THAT:- Looking at the nature of expenditure incurred, there cannot be any doubt that they are exclusively related to the operations of Indian branches.

The expenditure covered under section 44C is of common nature, which is incurred for various branches or which is incurred for the head office and branches. In case of DIT Vs Credit Agricole Indosuez [2015 (6) TMI 974 - BOMBAY HIGH COURT] as held that expenses incurred by head office on behalf of Indian branch are deductible u/s 37(1) of the Act without applying the restrictions of section 44C of the Act.

Same view was expressed in case of American Express Bank Ltd. [2015 (4) TMI 1041 - BOMBAY HIGH COURT] The ratio that can be deduced from these decisions are, the expenditure specifically incurred for the branches has to be allowed without the restrictions of section 44C.

Thus, keeping in view the definition of head office expenditure under section 44C and the ratio laid down in the judicial precedents, discussed above, we hold that the expenditure incurred outside India exclusively for the Indian branches does not fall within the ambit of section 44C. Hence, would be allowable in full. This ground is allowed.

Denial of interest on refund u/s. 244A for a part of the statutorily eligible period - interest payable between the date of payment of self-assessment tax till the date on which the assessee filed rectification application - Whether the interest for the period in question could have been denied to the assessee viz., from the date of payment of self-assessment tax till the date on which the assessee filed a rectification application?

HELD THAT:- If the AO is successful in establishing that the delay in claiming the refund was attributable to the act/omission on the part of assessee, then the AO can deny the claim of under subsection (2) of section 244A of the Act.

CIT(A) has accepted the fact that the assessee on entering into the JDA dated 29.11.2013, had offered tax on LTCG and paid self-assessment tax; and thereafter, JDA got cancelled on 22.12.2017 and thereafter has claimed refund which means according to CIT(A), the delay in claiming the refund was due to reasons attributable to the assessee and justified the action of AO. We do not subscribe to such reasoning since it is a narrow or pedantic view in the facts of the case.

In this case, it is to be noticed that the event which triggered capital gain was caused due to the assessee entering into JDA to develop its property on 29.11.2013 with the developer/builder.

Since, the JDA/ agreement was not acted upon; and developer backed out and since, the JDA in question was not registered as per law as held by Balbir Singh Maini [2017 (10) TMI 323 - SUPREME COURT] i.e. un-registered JDA is not enforceable in law. And when we juxtapose this case law with the JDA in question, then there is no JDA in the eyes of law and therefore, is un-enforceable in law.

Thus, it is noted that the assessee offered capital gain upon mistake of fact or misconception of fact or law, which should be used against the assessee for denying the interest from the date of remittance of Taxes to the exchequer, because State should not be unjustly enriched on an event which didn’t exist in the eyes of law.

And it is no longer res-integra that CBDT Circular are binding on the Income Tax Authorities as held in the case of UCO Bank [1999 (5) TMI 3 - SUPREME COURT]

Therefore, as land in question was sold to different party in July, 2018 for a total consideration of Rs. 16 crores and the capital gains arising from that event was offered to tax in AY 2019-20, the assessee succeeds and the AO is directed to grant interest u/s. 244A from the date of payment of self-assessment tax. Appeal filed by the assessee is allowed.

Long-term capital gains on transfer of unlisted shares of the companies which was claimed exempt u/s. 13(3)/(4) of India Mauritius DTAA - Long-term capital loss carry forward without setting off against the Long-term capital gain - whether assessee can be allowed to carry forward the loss without being set off against the capital gains in circumstances where both the situation aroses out of shares acquired prior to 01/04/2017 in the Indian Mauritius DTAA? - whether each transaction can be considered as a separate source of income?

HELD THAT:- There is no basis in grouping long term/short term capital assets. It can also be inferred that, long term and short term are different sources of income. Even the different short term assets and long term assets involved in the respective transactions are again different sources of income. In the present facts of the case, losss earned from sale of shares of Maharana and the gain earned from sale of shares of Maharana are therefore different sources of income

Income does not form part of the total income do not enter the computation of the total income at all applying the above principle above ratio to the present facts of the case the capital gains that are already exempt under the DTAA which are binding on the parties being exempt in India, cannot enter the computation of total income of assessee in India. Therefore, setting off the loss suffered by the assessee from sale of shares of Maharana, against the gains earned from sale of shares of Maharana would tantamount to taxing the gain in India which is in violation of Article 13(3)(4) of DTAA as it stood prior to amendment.

Provision relating to carry forward of the loss suffered from sale of shares of Maharana the assessee in the present case as carry forwarded long-term capital loss as per section 74 of the Act - Reference is made to the CBDT Circular No. 22 of 1944 dated 29/07/1944 that states that: “If the total income is a loss it has to be carry forwarded subject to the provisions us. 24(2) of the Indian income tax act 1922 and cannot be set off against any income which does not form part of the total income.” The circular also stated that, “the non resident otherwise would not get any relief in the Indian Taxation on account of loss incurred by in India.” Accordingly the AO is directed to grant the carry forward of the loss as claimed by the assessee.

Decided in favour of assessee.

Unexplained cash credit u/s. 69A - application of Section 115BBE - AR has strongly argued against separate addition of the cash deposit during demonetization period - HELD THAT:- The assessee is engaged in the business of travel agent and tour operator but he has deposited the SBN on different dates from 10.11.2016 to 12.11.2016 as tabulated of the assessment order. If the assessee had the old SBN before demonetization period, he would have deposited the same on a single day and not on different dates.

It is an undisputed fact that the assessee has not given details of the depositors of the impugned cash during demonetization period. He has not correlated the deposit with bookings of tickets/hotels etc. There is no one-to-one nexus between the depositors and the services provided by the assessee. Therefore, the argument of the ld. AR cannot be totally accepted.

In the case of Amrita Gems Pvt. Ltd. [2023 (8) TMI 1491 - ITAT SURAT] has held that to avoid possibility of revenue leakage, disallowance of 10% of cash generated during demonetization period would meet the ends of justice.

In the present case, there are cash deposits during demonetization period as well as remaining period of the year. Hence, we direct the AO to restrict the addition to 20% of the cash deposit to avoid possibility of revenue leakage and delete the remaining amount. Accordingly, this ground is partly allowed.

Levy of tax u/s 115BBE - AR has relied on various decisions which are placed in the paper book. We find that the Division Bench of this Tribunal in cases of Samir Shantilal Mehta [2023 (5) TMI 1279 - ITAT SURAT] Arjunsinh Harisinih Thakor [2023 (6) TMI 770 - ITAT SURAT], Jitendra Nemichand Gupta [2023 (6) TMI 1338 - ITAT SURAT] and Sanjaybhai Mansukhbhai Patel [2024 (8) TMI 1524 - ITAT SURAT] held that applicability of amended provision of Section 115BBE of the Act is not retrospective. There is no reason not to follow above decisions. Thus, the AO is directed to tax the addition at normal rate of tax and applicable surcharges and cess, if any. The the assessee is, accordingly, allowed relief against taxing the addition at higher rate u/s 115BE of the Act.

Quantum of deduction to be allowed u/s. 36(1)(viii) - HELD THAT:- CIT(A) has noted that deduction u/s. 36(1)(viii) is permitted on infrastructure loan also and has allowed the claim. Also, it is an admitted position that Revenue has not contested this allowance by ld. CIT(A). Accordingly, we allow the claim of the assessee on this aspect for Assessment Year 2008-09 in order to rectify an inadvertent conclusion drawn of disallowing the claim, though referring to the reasoning of the predecessor as the basis.

Grant of deduction u/s. 36(1)(viii) in respect of interest arising from securitization of debt or such income earned - It is a fact on record that assessee is engaged in eligible business and its receivables are in respect of loans granted for housing purposes, part of which has undergone securitisation arrangement. In this respect, risk continues to remain with the assessee since in the event of default by the borrowers, it is assessee who is responsible to make good the default to banks.

Securitisation amount represents nothing but interest on housing loans which is discounted to the present net value. Hence, this surplus of securitisation amount is the income of the assessee from long term housing loans disbursed by it for which it has received its discounted present value. Income earned by the assessee through PTC-B securitisation also represents loans originating from other housing finance companies, who also have their underlying assets in the form of long-term housing finance. We allow the claim of deduction u/s. 36(1)(viii) on the aspect.

Disallowance u/s. 14A r.w.r.8D - HELD THAT:- In the given set of undisputed and verifiable facts, whereby owned funds i.e., share capital and reserves and surplus available with the assessee far exceeded the amounts invested in securities yielding tax free income and in view of the decision of Co-ordinate Bench in assessee’s own case for Assessment Year 1998-99 and 1999-2000, no interest cost needs to be disallowed against the exempt income.

Disallowance of other expenses/administrative expenses - No suo moto disallowance is made by the assessee u/s. 14A while computing its total income and the period being dealt is prior to rule 8D brought on the statute. In absence of any prescribed methodology for computing the disallowance u/s. 14A, the approach had been to resort to reasonableness of expenditure incurred for earning the exempt income. Such approach of reasonableness has been the bone of contention between the Revenue and the assessee for the purpose of disallowance u/s. 14A. We direct AO to allocate other expenses based on the stated ratio (directed to be re-computed) for all the years prior to introduction of Rule 8D, i.e., Assessment Year 2002-03 to 2007-08. Accordingly, grounds raised by both assessee and revenue are partly allowed.

Period relating to post introduction of Rule 8D, i.e., for Assessment Year 2008-09 to 2020-21 - suo moto disallowance computed by the assessee - allocation of interest which does not relate to any specific activity but is forming part of common borrowing needs for the purpose of disallowance u/s. 14A - it is evident that assessee had sufficient owned funds from which investments were made, yielding tax-free income. By following consistency on this aspect of the issue, we hold that no disallowance is warranted towards interest allocation which does not relate to any specific activity but forms part of common borrowing since assessee had sufficient owned funds. We also place our reliance on the decision of South Indian Bank [2021 (9) TMI 566 - SUPREME COURT]

Disallowance of administrative expenses - recording of satisfaction Mandation - We hold that ld. Assessing Officer has erred in invoking the provisions of Rule 8D for making disallowance of administrative expenses in absence of recording of objective satisfaction “having regard to the accounts of the assessee” and therefore, the disallowance u/s. 14A is to be restricted to the amount of suo moto disallowance made by the assessee. It is important to note that the finding arrived here for these Assessment Years is not on the same footing of “reasonableness” applied in Assessment Years prior to introduction of Rule 8D but for non-recording of objective satisfaction “having regard to the accounts of the assessee” for rejecting the suo moto disallowance made by the assessee.

AO is directed to take into account investments which have actually yielded exempt income during the year for the purpose of making disallowance u/s. 14A. For this purpose, we draw our force from the decision of Vireet Investments Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI]

Increasing the book profits computed u/s. 115JB by the amount disallowed u/s. 14A - CIT(A) correctly held that amount disallowed u/s. 14A r.w.r. 8D cannot be added to the book profit computed u/s. 115JB. Facts relating to the issue under consideration are undisputed. We note that grounds raised by the Revenue are no longer res integra as held in plethora of decisions that disallowance made u/s. 14A r.w.r.8D under the normal provisions of the Act cannot be read into the provisions of Section 115JB for computing book profit since there is no express provision in clause (f) of Explanation 1 to Section 115JB to this effect.

Discount on grant of stock options to employees - HELD THAT:- The issue is covered by the order of Co-ordinate Bench of ITAT Mumbai in assessee’s own case for Assessment Years 2000-01 and 2001-02 [2024 (7) TMI 832 - ITAT MUMBAI] wherein claim of the assessee has been allowed.

Computation of amount eligible for deduction u/s. 80M - dividend income received from shares - HELD THAT:- For an action of pro-rata allocation, we refer to the provisions of Section 57(iii) and find that ld. Under the said section, Assessing Officer has no power to bifurcate on pro-rata basis and deduct a part of it from the gross dividend income. There is no scope for any estimation of expenditure and hence no scope for allocation of notional expenditure.

The deductions contemplated are the expenditure laid out or expended wholly and exclusively for the purpose of making or earning the said dividend income, thereby referring to actual expenditure. Further, from reading of section 80AB, we note that it is not open for the Assessing Officer to deduct expenditure attributable to income under one head from the income under another head.

Before us, nothing has been brought on record by the Revenue to demonstrate identifiable expenditure actually incurred for the purpose of making or earning the said dividend income. Accordingly, keeping the aforesaid provisions of the Act in juxtaposition, authorities below are not justified in reducing the qualifying amount of income eligible u/s. 80M by making pro-rata allocation towards administrative expenditure. Thus, grounds taken by the Revenue are dismissed and those by the assessee are allowed.

Deduction of income by the amount credited to lease equalization account - HELD THAT:- In the year under appeal before us, i.e., Assessment Year 2003-04, ld. CIT(A) has relied upon the first 2002-03 Year 2002-03 but denied the claim of assessee of reducing the taxable income by the amount credited to lease equalisation account. Considering the facts as stated above, for the purpose of consistency, we find it appropriate to remand this issue back to the file of ld. Assessing Officer for reconsideration as directed by ld. CIT(A).

Assessment of amount withdrawn from reserve created u/s. 36(1)(viii) - HELD THAT:- From the audited financial statements of the assessee as extracted above, it is an admitted fact that assessee has bifurcated the creation of special reserve required u/s. 36(1)(viii) owing to the amendment brought in the said section along with corresponding amendment u/s. 41(1A) which are effective from AY 1998-99. Assessee had explained this aspect before the ld. AO by clarifying that special reserve had been created over the years out of the profits and “Special Reserve No. I Account” relates to amount which had been transferred up to financial year 1997-98. Thus, it is not as though assessee has surreptitiously transferred any amount nor it is a case of Revenue that transfer of such fund from the special reserve was in any manner contrary to any law. No infirmity in the conclusion drawn by the ld. CIT(A) granting relief to the assessee.

Disallowance of entrance fees and subscription paid to clubs -Assessee has claimed deduction u/s. 37(1) towards club entrance fees and subscription to enable the benefit of such facility to its employees - HELD THAT:- We note that though entrance fee is a one-time payment, regular payment of annual subscription is an essential condition for continuance of such club membership. Thus, unless such annual subscription is paid, there is no enduring benefit to the assessee. Accordingly, it cannot be treated as capital expenditure. Decision of Otis Elevators [1991 (4) TMI 53 - BOMBAY HIGH COURT] was considered and followed in the case of CIT v. Groz Beckert Asia Ltd. [2013 (2) TMI 375 - PUNJAB & HARYANA HIGH COURT] wherein it allowed the deduction of expenditure by holding it as not capital in nature. Claim made by the assessee is thus, allowed.

Exemption u/s 54EC in respect of capital gains arising on depreciable assets - HELD THAT:- Assessee is entitled to exemption u/s. 54E in respect of capital gains arising on transfer of a capital asset on which depreciation has been allowed. It may be noted that deduction u/s. 54E is pari-materia to the one u/s. 54EC, both requiring the assessee to make investment in specified asset/certain bonds within a period of six months after the date of transfer of the asset on which capital gain arises. In the present case, it is a claim made by assessee u/s. 54EC and thus, the aforesaid decision of V.S. Dempo Company Ltd. [2016 (10) TMI 62 - SUPREME COURT] covers the case of the assessee in its favour. Respectfully following the same, ground raised by the Revenue is dismissed.

Disallowance of FCCB issue expenses - HELD THAT:- Time of issue of the security i.e., FCCB was in the nature of a bond and not an equity share. Accordingly, expenditure incurred should be allowed as revenue expenditure on the basis of factual position existing at the time of issue of the impugned security. Reliance was placed on decision of Reliance Natural Resource Ltd. [2019 (8) TMI 1615 - BOMBAY HIGH COURT] wherein it was held that expense for issuing FCCB is an expense for raising loan hence, revenue expenditure.

Set-off of short-term capital loss - HELD THAT:- We are of the view that assessee has the choice about setting off of short-term capital loss from one set of transaction against any other short-term capital gain irrespective of higher benefit accruing to the assessee on account of chargeability at a lower rate of tax. Accordingly, we uphold the stance of the assessee that short-term capital loss is to be set off against the short-term capital gains which was chargeable to tax at 33.66%. Ground taken by the assessee is allowed and the one by Revenue is dismissed.

Income from India Value Fund - According to AO assessee has not discharged its onus of explaining the said difference, which according to him was on account of cost incurred by the fund in relation to such income and the relevant investments in respect of which assessee had not passed entries in the books of account - HELD THAT:- According to the assessee, the difference is on account of cost incurred by India Value Fund for which assessee had not passed certain entries in its books of account. Assessee has reported the income as certified by India Value Fund in terms of Form 64 which is not in dispute. However, for the difference, assessee has expressed its inability to explain the same owing to passage of time. In the given set of facts and circumstances, what the assessee has returned is the correct amount of income as communicated by India Value Fund and nothing contrary has been placed on record to dis-prove the same except for the entry in the books of account. Income really accruing or arising to or received by the assessee as contained in section 115U(1) as long-term capital gain duly substantiated by communication received from India Value Fund as prescribed in Form 64.Thus we delete the addition.

Addition on account of receipts as per the ITS details not found recorded in the books of account of assessee - HELD THAT:- We note that assessee had discharged its onus by reconciling substantial amount of ITS/AIR data with its books of account. No addition can be made solely on the basis of ITS/AIR information, more particularly when assessee denies receipt of such income and for which the onus lies on the AO to prove that assessee in fact received such income. Accordingly, we hold that addition made by AO on the basis of ITS/AIR information is not sustainable. The same is deleted. Ground taken by the assessee is allowed.

Capital gains in respect of sale of property - HELD THAT:- We note that in the third proviso to Section 50C, comparison has to be made between the value adopted or assessed by the stamp valuation authority and 110% of the consideration received or accruing as per sub-section (2) of the said section. However, once the matter is referred to ld. DVO and valuation is arrived at, the value as determined by the ld. DVO would be relevant for the purposes of the said section. Accordingly, consideration as received by assessee falls within the range as permitted by the third proviso to section 50C. Consideration of Rs. 47,14,67,550/- as received by it is deemed to be the full value of consideration. Long term capital gain computed by the assessee, as tabulated above, is thus, accepted and ground raised by the assessee on this issue is allowed.

Additional claim of the Assessee with regard to inadvertent suo moto disallowance made during the course of the assessment proceedings - HELD THAT:- Dispute is only in respect of allowability of the claim made by assessee when made before the Assessing Officer without filing the revised return. We are in agreement with the view arrived at by ld. CIT(A), since Hon’ble Supreme Court in the case of Goetze India Ltd. [2006 (3) TMI 75 - SUPREME COURT] has stated that “nothing impinges on the power of the appellate authorities to entertain such a claim of the assessee”. Accordingly, ground raised by the Revenue is dismissed.

Refund of excess dividend distribution tax - HELD THAT:- We refer to the provisions of section 115-O(1A) which provides that the amount referred to in sub-section (1) shall be reduced by amount of dividend received by the domestic company during the year, if such dividend is received from its subsidiary and the subsidiary has paid the applicable DDT.

Receipt of dividend from the subsidiaries is not in dispute as to fulfilment of conditions prescribed u/s. 115-O(1A). Drawing force from the decision of Torrent India Pvt. Ltd. [2013 (2) TMI 149 - GUJARAT HIGH COURT] we do not find any infirmity in the findings arrived at by ld. CIT(A) of directing AO to grant refund of the excess DDT paid by the assessee. Accordingly, ground raised the Revenue is dismissed.

Transfer pricing adjustment in respect of specified domestic transactions covered by section 40A(2)(b) - HELD THAT:- We note that there is no dispute in respect of impugned transactions falling within the definition of SDT under clause (i) of section 92BA, prior to its omission. Since the said provision has been omitted by the Finance Act, 2017, it has to be treated as if it never existed on the statute. This position stands accepted in the case of Texport Overseas Pvt. Ltd. [2019 (12) TMI 1312 - KARNATAKA HIGH COURT]. Accordingly, grounds taken by the Revenue are dismissed.

Disallowance of year-end provisions - HELD THAT:- As correctly helf by CIT(A) none of the provisions made represents ad-hoc provisions or are in respect of any unascertained liability. According to him, assessee is regularly following the practice of year end provision for various expenses, which is reversed on 1st April of next year and that expenses are considered on the basis of actual payment in the subsequent year placing reliance on HDFC Sales Pvt. Ltd. [2020 (9) TMI 868 - ITAT MUMBAI]

Increasing the book profits computed u/s. 115JB by the amount disallowed as year-end provisions - CIT(A) had allowed the claim of the assessee by holding that these are ascertained liabilities which are paid on actual basis in subsequent year and therefore no addition is warranted while computing book profit u/s. 115JB - HELD THAT:- In the present case, provision for expenses made by the assessee at the year-end are on a reasonable estimate basis having regard to past trends for which consistent accounting practice has been adopted by way of creating a provision at the year end and reversing the same on the first day of the next financial year so as to reflect true and fair state of affairs since assessee follows mercantile system of accounting. Such a practice has been followed by the assessee, year on year basis in terms of generally accepted accounting practices. This issue has already been dealt with above whereby provision for expenses has been allowed negating the stance taken by ld. Assessing Officer of treating it as contingent liability. No infirmity in the findings arrived at by ld. CIT(A).

Deduction in respect of expenditure incurred on Employee Stock Option Scheme (‘ESOS’) - HELD THAT:- This issue is no longer res integra as has been dealt by Co-ordinate Bench in the case of HDFC Bank Ltd. [2015 (9) TMI 1303 - ITAT MUMBAI] with similar view taken in the case of Biocon Ltd. [2013 (8) TMI 629 - ITAT BANGALORE] the same having been approved in CIT vs. Biocon Ltd. [2020 (11) TMI 779 - KARNATAKA HIGH COURT]

Thus, on the claim of expenditure towards ESOS expenditure, assessee gets a relief in its appeal against the original assessment made u/s. 143(3) by way of additional ground and at the same time its claim made in the assessment pursuant to giving effect to the appellate order is rejected, while allowing the appeal of the Revenue. For other years as tabulated above, grounds raised by the Revenue are dismissed and those by assessee are allowed.

AO disputed the claim of bad debts written off u/s 36(1)(vii) for Assessment Year 2018-19 on the basis that no ledger accounts of the concerned parties have been placed on record which otherwise could have been examined for ascertaining the genuineness of the claim - HELD THAT:- CIT(A) correctly after going through the provisions of the Act relating to this issue and documents provided by the assessee in respect of sample parties, since volume being large with 624 parties/individuals having bad loans, directed the ld. Assessing Officer to verify the claim and allow bad debts written off to the extent same could be linked to the provisions created up to 31.03.2016. For assessee failing to do so in enabling the said examination, ld. Assessing Officer was further directed to adjust the bad debts written off against section 36(1)(viia)(d) account. While giving the said direction, ld. CIT(A) arrived at a view that bad debts written off during Assessment Year 2018-19 should be allowed if the same is out of provisions created upto 31.03.2016 as well as if the same was never claimed as a deduction. In absence of fulfilment of this requirements, bad debts written off should be adjusted against credit balance in the account relating to section 36(1)(viia)(d) and claim of bad debt should be allowed when the bad debts exceed the credit balance in the account created in respect of deduction u/s. 36(1)(viia)(d).

Penalty imposed u/s. 271(1)(c) on disallowance on deduction u/s. 36(1)(viii) - HELD THAT:- In the given set of facts and elaborate discussions already made in respect of deduction made u/s. 36(1)(viii) whereby certain components relating to the said deduction have been allowed and certain others disallowed, respectfully, following the decision of Reliance Petroproducts (P) Ltd. [2010 (3) TMI 80 - SUPREME COURT] penalty imposed by ld. Assessing Officer u/s. 271(1)(c) on account of furnishing inaccurate particulars of income, is deleted. Grounds raised by the assessee are thus, allowed.

Validity of order of AO passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B to give effect to the order of DRP u/s 144C(5) - Final assessment order is against the principles of natural justice - denial of Deduction on Income from Other Sources and Capital Gains u/s 80IAB - HELD THAT:- We hold that Dispute Resolution Panel has no jurisdiction to consider any other issue where there is no variation proposed in the Draft Assessment Order. In this case, since there was no proposed variation in the Draft Assessment Order regarding deduction u/s 80IAB claimed by Assessee, the Dispute Resolution Panel was right in rejecting the objection raised by the Assessee on the ground that DRP do not have any jurisdiction since there was no proposed variation. Accordingly, the order of Dispute Resolution Panel is upheld on this issue. Accordingly, Ground No.7 of the Assessee is dismissed.

Deduction for income from other sources and capital gains u/s 80-IAB, which was not claimed in the return of income or during assessment proceedings - Without prejudice, even otherwise, as per Section 80A(5), assessee has to claim deduction under section 80IAB of the Act in the Return of Income. As per section 80AC no deduction under Chapter-VIA shall be allowed, unless assessee furnished Return of Income within the due date mentioned under section 139(1) of the Act.

In this case, admittedly, assessee had not claimed deduction u/sec.80IAB for Income from Other Sources and Short-Term Capital Gain. We have already mentioned that assessee had not made any such claim in the Form No.10CCB. In these facts and circumstances of the case, assessee was not eligible to make a claim for deduction under section 80IAB for Income from Other Sources and Short Term Capital Gain. Therefore, on this ground also, the assessee’s claim for deduction under section 80IAB for Income from Other Sources and Short Term Capital Gain is not maintainable.

TP Adjustment - Embassy Office Parks REIT holds 100% shares of Assessee company. Embassy Office Parks REIT is a Trust. It is claimed that income of Embassy Office Parks REIT is exempt - assessee has bench marked the impugned transaction by using “other method” - HELD THAT:- As observed that the details of the loan compared by the assessee are not available completely. Also, the assessee has selected comparables where tenure is from one year to five years only. Therefore, these comparables selected by assessee are not appropriate. Also, the method adopted is not appropriate. Therefore, we agree with the TPO in rejection of the method adopted by the assessee.

TPO has compared the State Bank of India overdraft’s interest rates which is also inappropriate. The overdraft is always secured, whereas assessee’s loan is unsecured. Assessee’s loan is for a period of 15 years, whereas the Overdraft was for a short period. Therefore, TPO has erred in considering the SBI Overdraft Interest Rate. In these facts and circumstances of the case, since neither assessee, nor TPO has done a proper benchmarking analysis. We are of the opinion that a proper benchmarking analysis is required in this case, qua interest paid by assessee. Therefore, we set-aside the order of the TPO, to TPO/AO qua interest paid by assessee to its parent for denovo adjudication. The TPO/AO shall carryout a proper benchmarking analysis qua interest paid by assessee to its parents. We direct the TPO/AO to provide an opportunity of hearing to Assessee.

TP Adjustment - arm’s-length price adjustment with respect to the trading segment - assessee has selected foreign AE i.e. AR took us to the trading segment adjustment with respect to TPSR and the approach of the ld. TPO - whether a foreign associated Enterprises can be taken as a tested party or not? - HELD THAT:-Both the parties have placed before us judicial precedent that foreign AE can be taken as a tested party, but all the decisions have held the tested party only could be the party on which the transfer pricing methods can be applied in the most reliable manner and for which most reliable comparables can be found.

Therefore, in view of above discussion, we restore ground back to the file of the learned transfer pricing officer with a direction to the assessee to substantiate the arm’s-length price of the transaction of trading segment by showing with sufficient data about the foreign AE as a tested party.

TPO may examine that the tested party selected by the assessee gives a reliable method and computation of arm’s-length price or not. Thereafter, after giving assessee an opportunity of hearing, determine the arm’s-length price of the international transaction of trading segment.

Transaction of intragroup services - arm’s-length price of which is determined by the learned TPO at rupees Nil, because assessee has failed to substantiate that services were rendered by AE which resulted into benefit to the assessee and are not shareholder services - HELD THAT:- Arm’s-length price of an intragroup services could be determined considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity in-house for itself. If the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily cannot be considered as an intra-group service under the arm’s length principle.

Therefore, the process to be adopted by the assessee or by the TPO is on the principle of need, rendition, benefit economic or commercial. If the services are performed by somebody else for their own benefit, naturally the assessee would not have paid it to an independent party.

As it is a case of non-furnishing of the information by the assessee before the learned that lower authorities, we restore the issue of determination of arm’s-length price of intragroup services before the learned transfer pricing officer with a direction to the assessee to substantiate that the services were required, they were rendered, it resulted into some commercial or economic benefit to the assessee and those services are not to be performed as a shareholder services or duplicative services by the service provider.

Assessee is also directed to produce the cost allocation statement along with the appropriate allocation key and the share of the assessee. TPO may examine the same and if it is found to be a license fees paid for various software or platforms, and if the allocation key with respect to the number of users is found to be appropriate, determine the arm’s-length price of the international transaction of intragroup services in accordance with the law after granting assessee an opportunity of hearing. Accordingly ground number 12 – 20 are restored back to the file of the learned TPO with above direction.

Adjustment on account of interest on delayed receivable - HELD THAT:- Transaction of the overdue receivable from associated enterprises is neither an interlinked transaction nor closely linked with the transaction of the provision of services etc. Even the transfer pricing document also does not give any reason for the same. In view of this this is a separate international transaction which needs to be benchmarked separately. With respect to the argument of the learned authorised representative that the circular of the reserve bank of India dated 1/4/2020 should be made applicable wherein due to Covid 19 the time limit for recovery of the dues have been extended, we find that the impugned assessment year before us is 2020 – 21 and therefore the above circular does not apply even otherwise for the impugned assessment year.

TPO has not given any evidence or source where from the same has been adopted. However, we find that when the assessee objected before the learned transfer pricing officer the assessee did not object to the period of 30 days given by the learned transfer pricing officer as appropriate rate credit period. The assessee’s only objection was that it cannot be a separate international transaction and further even if it is to be considered as an international transaction the use of LIBOR to be made as the invoices are made in foreign currency. In view of this ground number 21 – 24 of the appeal are dismissed.

Disallowance of store closure expenses - HELD THAT:- When the nature of the expenditure based on the examination of the simple details and the Ledger accounts clearly shows that the expenses are incurred wholly and exclusively for the purposes of the business during the business, no disallowance should have been made. The assessee himself states that it is a voluminous detail and looking at the operation and the nature of the expenditure, assessee submitted sample details before the learned AO and further additional details before the learned dispute resolution panel. None of the authorities asked the assessee to produce the complete details. None of the authorities have held that any of the expenditure which is incurred by the assessee for which details are produced before them are not wholly and exclusively incurred by the assessee for the purposes of the business.

Therefore, we are of the view that when the assessee has demonstrated that nature of the expenditure incurred by the assessee supported by the evidence clearly shows that those are incurred wholly and exclusively for the purposes of the business, no disallowance could have been made.

Disallowance of set off the available brought forward business losses and unabsorbed depreciation shown by the assessee in income tax return and the tax audit report - HELD THAT:- We direct the learned assessing officer to allow the set off brought forward business losses and unabsorbed depreciation of the above sum is found in accordance with the law. Accordingly ground number 29 of the appeal is allowed.

Deduction u/s 11(1) - method of determining the eligible income - computation of the 15% accumulation u/s 11(1)(a) should be based on gross receipts or net income - main activities and purpose of establishing the institution is to serve the disabled persons with affordable prices of various artificial limbs - HELD THAT:- Relevant sale of artificial limbs in the concessional rates has to be treated as income derived from the property held under the trust. It is settled facts on the record that the assessee has manufactured the artificial limbs from the property held in the trust. One cannot deny the above facts on record. It is relevant to point out that the main purpose of existence of the institution is to serve the disabled persons by providing the limbs at affordable purpose. Without this purpose, there is no existence of this institution and also it operates as nodal agency on behalf of the GOI. Therefore in our considered view, the revenue generated out of the manufacturing activities has to be treated as eligible income for the purpose of accumulation u/s 11(1) of the Act. It cannot be considered as gross income.

Further, what is relevant is the income available for the purpose of applying the same for the purpose of charitable purpose. We intend to explain the above aspect by an example: Let’s say the institution has earned Rs.1000 from the property in the trust and also undertakes certain additional services to generate income for the trust, wherein it generate gross sales of Rs.2000 and incurs expenditures of Rs.1500.

Assessee has actually utilized the income of trust more than the 85% of the income earned by the assessee during the year. The stand of the lower authorities on this issue is not as per the various judicial precedents.

Respectfully following the decision of the co-ordinate bench in the case of Mary Immaculate Society [2015 (6) TMI 1149 - ITAT BANGALORE] we hold and direct the AO that the accumulation u/s. 11(1)(a) of the Act is to be allowed at 15% of gross receipts, as claimed by the assessee. Ground no 2 and 3 raised by the assessee are allowed.

Treatment of loans received under the ADIP and ADIP-SSA schemes as part of the income for the purposes of Section 11(1)(a) - Assessee has included the loan granted thru ADIP funds and ADIP-SSP schemes cannot be included for the purpose of income u/s 11(1) of the Act. This loan may be utilized by the assessee for the charitable purpose and it can be considered as application of income during the year of utilization and the assessee has to claim them as excess utilization and can adjust the same in the year of generation of income. It cannot be claimed as application of income for the purpose of section 11(1) for the year under consideration. In the result, we are inclined to accept the findings of CIT(A) and AO. Accordingly, the ground no 4 raised by the assessee is dismissed.

TP adjustment on account of advertisement, marketing and promotion (AMP) expenses - constitute an international transaction under Section 92B or not? HELD THAT:- This recurring issue raised in this appeal has been decided in favour of the assessee wherein it was held that there was no arrangement between the assessee and the AE pertaining to AMP expenses.

Tribunal in the earlier years has held that the onus of proof lies on the Revenue to prove that there was an international transaction in existence. The proposition laid down in the case of Maruti Suzuki India Ltd. [2010 (7) TMI 84 - DELHI HIGH COURT] is that the absence of a machinery provision qua AMP expenses, the A.O. is not at liberty to levy tax on an imagined transaction. In such case, the provisions of Chapter X cannot be invoked for making a TP adjustment.

Tribunal has also relied on the decision of Bausch and Lomb (India) Pvt. Ltd. [2015 (12) TMI 1332 - DELHI HIGH COURT] and held that the impugned transaction is not an international transaction for which the TPO was not entitled to invoke the provision of Chapter X of the Act.

This issue is no longer resintegra and has been decided by the Tribunal in its earlier decision in favour of the assessee by holding that the impugned transaction is not an international transaction as per the provisions of the law - Decided in favour of assessee.

Excess claim of refund - AR has fairly conceded that the issue has already been decided against it as in the case of DCIT vs Total Oil India P. Ltd [2023 (4) TMI 988 - ITAT MUMBAI (SB)] has decided the issue in favour of the Revenue holding that DTAA does not get triggered at all when a domestic company pays DDT u/s 115-O of the Act. Thus, the above grounds stand dismissed.

Benami transaction - Provisional Attachment Order - Beneficial Owner - HELD THAT:- We observe that the alleged Benami Property has been attached by the Enforcement Directorate under provisions of the Prevention of Money Laundering Act, 2002.

However, we note that in the criminal prosecutions undertaken, no action has been initiated against Shri Ravindra Kumar, Proprietor, M/s R K Emporium. Respondent No. 2 has also not been prosecuted as an accused under PMLA.

We find that the parameters of classifying a transaction as either Benami or Money Laundering are separate, as is evident from the definition clauses of PBPTA and PMLA. Moreover, the investigation has itself revealed that the funds were transferred from M/s Yashawini Exports, which is owned and controlled by Shri Yogesh Mittal and not By Shri Ravindra Kumar, the alleged Beneficial Owner. Appeal dismissed.

Levy of penalties u/s 112 and 114 A of the Customs Act, 1962 - cross-examination of person, whose statement was relied upon by the Customs authorities - principles of natural justice - whether an opportunity ought to be given to both the Appellants before CESTAT to cross examine Mr. Bhalla in terms of Section 138(B) of the Act?

HELD THAT:- Reliance is placed upon the decision in Shri Krishan Kishor Aggarwal vs Additional Commissioner of Customs, [2019 (5) TMI 167 - DELHI HIGH COURT] wherein a coordinate bench of this Court observed that if a statement of the co-accused becomes the basis of an impugned order, then denial of cross examination of such witnesses will violate the principles of natural justice. The right of cross examination was thereafter granted after discussing the decision in Kanungo & Co. Vs. Collector of Customs, Calcutta and Others [1972 (2) TMI 35 - SUPREME COURT] wherein the Coordinate bench of this Court after analysing the said judgment observed that if any information is received from a statutory authority and an adjudicating process is initiated, there is nothing in law which compels the information provider to be involved in the judicial proceedings or warrant him/her for cross examination.

In the above decision, it was also observed as to why the matters cannot be also relegated to CESTAT for cross examination, as the parties would be deprived of their right in the Appellant forum if the findings of the Additional Commissioner are affirmed.

In this case,the CESTAT has followed a curious course where in respect of one of the Appellants, despite the right of cross examination having not been given, the penalty has been upheld and the appeal has been dismissed by CESTAT. However, in case of the other party i.e., Sunil Aidasani, the exact opposite approach has been adopted by CESTAT in the same case. Such discrimination between two similarly placed persons would not be possible.

Conclusion - This Court is of the opinion that in order to ensure that there is compliance of Section 138(B) of the Act, though the same cannot be claimed as an unfettered right in all cases, in the facts of the present case, both Mr. Sushil Aggarwal and Mr. Aidasani are afforded an opportunity to cross examine Mr. Bhalla. The said cross examination shall be fixed on one particular date and the cross examination shall be concluded on the same date or one more date. No further adjournments or opportunities for cross examination shall be given. Upon the right to cross examination being afforded, the authority shall proceed to adjudicate the matter in accordance with law only qua these two Appellants.

Appeal disposed off.

Seeking release of gold ornaments inappropriately seized by the respondents - Smuggling of Gold - seizure and detention of gold jewelry from the petitioner and her family members - Baggage Rules - Confiscation order passed without issuance of SCN - No proper opportunity of personal hearing was provided to the petitioner - scope of Section 79 of the Customs Act, 1962 - no specific denial of averments or allegations raised against any party - HELD THAT:- The Customs Act, 1962, enables the Central Government to make Rules to the extent of the articles carried in the baggage of a passenger and not for the articles, which were carried on the person and hence, the inclusion of the word “carried on the person” is beyond the scope of the provisions of Section 79 of the Customs Act.

When the provision of the Rule is beyond the scope of the provisions of the Act, only the provision of the Act will prevail over the Rules. Thus, the word “carried on the person up to Rs. 50,000/-” is clearly beyond the scope of the Act and it cannot be given any effect since it is contrary to the provisions of the Statute. Thus, it has to be construed only for the articles, which have not been mentioned in Annexure-1 and carried in the accompanied baggage of a passenger. In such case, the application of Baggage Rules, 2016, would not arise. Thus, the jewelery worn by the passenger will not fall within the provisions of the Baggage Rules, 2016.

While enacting the provisions of the Customs Act, the Parliament has consciously excluded the jewels worn by the passengers. If there is any intention to put all the passengers into hassle, disrespecting their proprietorial rights, dignity, forgoing the customs, against the fundamental rights, let the Parliament take a decision and amend the provisions of the Act. Till then, the Officers have to apply their minds with regard to detaining the passenger and the gold worn by them as the same would not fall within the purview of the Baggage Rules, 2016.

The Doctrine of ultra vires states that the Rule making body must function within the purview of the Rule making authority conferred on it by the parent Act. As the body of making rules or regulations, there is no inherent power of its own to make rules, but such power arise only from the Statute and hence, it must necessarily function within the purview of the Statute - In the present case, the Rule making body had made the Baggage Rules as if they are having inherent power of its own to make rules beyond the scope of the Statutes, and they have incorporated the word “carried on the person”.

In the present case, admittedly, the Rule making Authorities made the Rules by traveling beyond the scope of the Act, which would amount to ultra vires. In such case, the Statute would prevails over the Rules. When such being the case, the Statute referred only with regard to the baggage and therefore, the Rule has to be confined and read only with regard to the baggage and not with regard to the articles “carried on the person”.

Since this Court has held that the provision “as carried on the person” of the Baggage Rules, 2016 is ultra vires, the detention of gold under the Baggage Rules, 2016, in the present case would not apply, unless and otherwise if it is secreted in person, for which, the proceedings shall be initiated under Section 101 of the Customs Act, 1962, however, that is not the present case, except to the extent of false charges framed by the 2nd respondent against the petitioner - Further, in this case, no show cause notice was issued prior to the passing of confiscation order, however it was mentioned in the order that receipt of show cause notice was waived.

Though 3 opportunities of personal hearing were provided to the petitioner on 04.04.2024, 08.04.2024 and 12.04.2024, no one has appeared before the respondents and under these circumstances, the confiscation order came to be passed on 24.04.2024. However, this Court is of the view that since the petitioner is a SriLankan citizen, the shorter time provided by the respondent is not sufficient. In such case, it is clear that the confiscation order was passed purely in violation of principles of natural justice and hence, the same is liable to be quashed.

Conclusion - i) The confiscation order was passed without issuing the show cause notice; ii) No proper opportunity of personal hearing was provided to the petitioner prior to the passing of confiscation order; iii) Since the Mahazar was prepared with false information to foist a false case against the petitioner, the confiscation order was also passed, as an ex parte order, based on the false information available in the said Mahazar. iv) The manner, in which the jewellery was brought by the petitioner, as stated in the Mahazar is that it was brought under the sleeve, however, in the affidavit and counter, it was clearly stated that the petitioner worn the jewellery at the time of arrival. Due to the said contradiction of the respondents, it is clear that there was a change in the stand of the respondents with regard to the manner, in which the gold was carried by the petitioner, from proceedings to proceedings. v) As per the counter, in this case, the seizure was made due to the violation of Baggage Rules, 2016. However, this Court found that the question of violation of the Baggage Rules, 2016, would not arise since the Baggage Rule contains a provision as “carried on the person”, which this Court declared that the said provision in the Baggage Rule is ultra vires the provisions of Section 79 of the Customs Act, 1962.

The respondents are directed to release the goods of the petitioner within a period of 7 days from the date of receipt of copy of this order - petition allowed.

Effect of N/N. 36/2021-Customs dated 19.07.2021 [the Amendment Notification] issued u/s 25(1) of the Customs Act, 1962 amending N/N. 45/2017-Customs dated 30.06.2017 - retrospective effect from the date the Exemption Notification was issued on 30.06.2017 or not - HELD THAT:- The main body of the Amendment Notification mentions that the Central Government ‘hereby makes the following amendments’ in the Exemption Notification dated 30.06.2017. It does not state that the amendment would apply retrospectively from the date the Exemption Notification was issued on 30.06.2017 nor does Explanation (d) state that it has been inserted with retrospective effect.

Section 25(4) of the Customs Act provides that every notification issued under sub-section (1) shall, unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette. In the absence of any specific stipulation in the Amendment Notification providing otherwise, the said Amendment Notification shall come into force on the date of its issue by the Central Government i.e. 19.07.2021. The Amendment Notification dated 19.07.2021 cannot, therefore, have retrospective effect.

The issues that have been raised in these appeals were also raised before the Division Bench of this Tribunal in InterGlobe Aviation Limited vs. Commissioner of Customs, New Delhi [2024 (8) TMI 1523 - CESTAT NEW DELHI] and it was held that the Amendment Notification dated 19.07.2021 cannot have a retrospective effect.

Conclusion - The Amendment Notification dated 19.07.2021 cannot be said to be retrospective in nature. Findings to the contrary recorded by the Commissioner (Appeals) in the impugned orders on the basis of the Circular dated 19.07.2021 issued by CBIC basis the minutes of the meeting of the GST Council cannot, therefore, be sustained.

The impugned order set aside - appeal allowed.

Intangible goods - electronic import/download not liable to customs duty for want of machinery for levy and collection - classification as documents of title under Heading 49.07 - no statutory mandate to import in physical form

Intangible goods - electronic import/download not liable to customs duty for want of machinery for levy and collection - I-RECs downloaded in electronic form are intangible goods but are not classifiable under the Customs Tariff Act, 1975 and therefore not subject to customs duties when imported electronically. - HELD THAT: - Applying the Supreme Court test in Tata Consultancy Services (utility; capable of being bought and sold; capable of being transmitted, transferred, delivered, stored and possessed), the Authority finds I-RECs to possess the attributes of goods and thus to be intangible goods (determinative reasoning recorded). However, following CESTAT and higher court reasoning on electronic downloads, and having regard to the procedural and machinery provisions of the Customs Act (which provide for physical ports, entry/manifest rules, bill of entry timing and supervision for levy and collection), the Authority holds that the Customs Act in its present form lacks an operable mechanism to levy and collect customs duty on electronic downloads. In consequence, electronically downloaded I-RECs cannot practically attract customs duty and are not classifiable under the Customs Tariff Act, 1975 for levy purposes. [Paras 7, 8, 11, 12]

I-RECs downloaded in the electronic form are intangible goods and will not be classifiable as goods under the Customs Tariff Act, 1975; consequently they will not be subject to customs duties.

No statutory mandate to import in physical form - The Customs Act, 1962 and the Customs Tariff Act, 1975 do not mandate that I-RECs must be imported in physical form. - HELD THAT: - The Authority considers the statutory framework and submissions that I-RECs are issued and traded electronically; there is no provision in the Customs Act or Customs Tariff Act requiring import of such certificates in physical form. The finding addresses the mode of import and concludes that physical import is not mandated by the customs statutes. [Paras 12]

The Customs Act, 1962 or the Customs Tariff Act, 1975 do not necessarily mandate the import of I-RECs in physical form.

Classification as documents of title under Heading 49.07 - If I-RECs are imported in physical form, they qualify as documents of title and are classifiable under Heading 49.07 (specifically Tariff Item 4907 00 90) of the First Schedule to the Customs Tariff Act, 1975. - HELD THAT: - On examining the nature of I-RECs and the HSN Explanatory Notes to Heading 49.07 (which cover stock, share or bond certificates and similar documents of title), the Authority finds I-RECs to confer ownership or entitlement to renewable energy benefits and therefore to fall within the scope of documents of title. Subheading 4907 0030 (documents conveying right to use IT software) does not apply; accordingly the residuary entry 4907 00 90 is the appropriate classification for I-RECs imported in physical form. [Paras 11, 12]

I-RECs when imported in physical form qualify as documents of title and are classifiable under Heading 49.07, specifically Tariff Item 4907 00 90.

Final Conclusion: Advance ruling: electronically imported/downloaded I-RECs are intangible goods but, due to the absence of machinery in the Customs Act for levy and collection, are not classifiable under the Customs Tariff Act, 1975 and are not liable to customs duty; there is no statutory requirement to import I-RECs physically; however, if imported in physical form they would be classifiable as documents of title under Heading 49.07 (4907 00 90).

Classification of import goods - Roasted Areca nuts (betel nuts)- whole and roasted Areca nuts (betel nuts)- Cut/Split - to be classified under Customs Tariff Sub-heading 2008 19 20 or under CTH 080280? - HELD THAT:- As per HSN Explanatory Notes, Heading 2008 covers fruit, nuts and other edible parts of plants, whether whole, in pieces or crushed, including mixtures thereof, prepared or preserved otherwise than by any of the processes specified in other Chapters or in the preceding headings of this Chapter. Specifying what is included in this heading, the explanatory note stales that almonds, ground nuts, areca for betel) nuts and other nuts, dry-roasted, oil-roasted or fat-roasted, whether or not containing or coated with vegetable oil, salt, flavours, spices or other additives. Dry- roasting, oil-roasting & fat-roasting, as a process, are very much a part of chapter heading 2008 by virtue of HSN Explanatory Notes and none of these processes are mentioned in the Chapter Note 3 to Chapter 8 of the Customs Tariff Act, 1975 as well as HSN Explanatory Notes to Chapter Heading 0802.

Classification as far as possible must be in conformity and in consonance with the HSN Explanatory Notes. It is trite law that whenever there is specific entry, the same would prevail over general entry. The said general principle is statutorily incorporated in General Rules of Interpretation, in particular, under Rule 3(a) of the General Rules of Interpretation. CTH 2008 19 20 is a special entry covering nuts subject to the process of roasting, when contrasted with CTH 08 02 90 which covers dried nuts.

In the decision of Tribunal in respect of the case S.T. Enterprises [2021 (3) TMI 27 - CESTAT CHENNAI], the question that arose for consideration was as to whether the goods involved therein viz., boiled betel nuts would merit classification under CTH 21069030 or CTH 08028010. It was not concerned with CTI 2008 19 20. The process that was examined by the Tribunal in the case of S.T. Enterprise was confined to boiling and drying. Importantly, roasting was not one of the processes that was examined. The competing entries that were examined in the above case were CTH 21069030 vis-a-vis CTH 08028010 - The Court’s attention was never drawn to CTI 20081920 which covers roasted nuts including areca/betel nuts inasmuch as the facts as set out by the tribunal in its order was not concerned with the process of roasting. Where a question passes sub-silentio, then, it may have no precedential value.

It is an established fact that in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Tariff Act. The case of Commissioner of Customs & Central Excise v. Phil Corporation Ltd. [2008 (2) TMI 3 - SUPREME COURT], is directly relevant and applicable in the instant case of the applicant. In the judgment of the said case Hon’ble Supreme Court has held “a number of cases, this Court has clearly enunciated that HSN is a safe guide for the purpose of deciding issues of classification. In the present case, the HSN Explanatory Notes to Chapter 20 categorically state that the products in question are so included in Chapter 20. The HSN Explanatory Notes to Chapter 20 also categorically state that its products are excluded from Chapter 8 as they fall in Chapter 20. In this view of the matter, the classification of the products in question has to he made under Chapter 20.”

From the apex court’s foregoing judgments, it is observed that the roasted nuts find specific mention in the then chapter 20 of the then Central Excise Tariff Act and the chapter 20 of the schedule I of the Customs Tariff Act, 1975, as well as corresponding HSN Explanatory Note.

Now as far as judicial discipline and law is concerned the Hon’ble Supreme Court has held in the case of UOI v. Kamalakshi Finance Corporation Ltd., [1991 (9) TMI 72 - SUPREME COURT], that “order of higher appellate authorities should he unreservedly followed by subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the department in itself and objectionable phrase- and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws”.

Conclusion - The subject goods i.e. “Roasted areca nuts (betel nuts)- whole and roasted areca nuts (betel nuts)- Cut/Split” merit classification under Custom Tariff Heading 2008, specifically under CTI 2008 19 20 of Chapter 20 of the First Schedule to the Customs Tariff Act, 1975.

Seizure order made under FEMA - remitting foreign exchange within a short span of few months, no import took place against those outward remittances - Commissioner set aside seizure order - HELD THAT:- We find that an elaborate order has been passed by the Commissioner/Competent Authority after considering all the issues. It not only considered legal but factual issues raised by the parties.

If the case in hand is taken in chronological order, it started at the instance of M/s Sunshine Global Importers said to have been managed by one Ramash Babu Srinivasan. The bank account in the name of the company was opened along with the Certificate of Importer Exporter Code, Service Tax Registration Certificate, Pan Card, E-tax Payment, etc. It was with 'Yes Bank' and even before the Indusind Bank where the account opening form application along with Pan Card was submitted for registration of MSME by the Govt. of Tamil Nadu. The amount of Rs.112.27 Crores was remitted from the account of M/s Sunshine Global Importers.

The starting point of the investigation should have been the bank accounts of the aforesaid company to find out as to from where a sum of Rs.112.27 Crores was deposited. It has to find out the source behind the deposit. However, instead of finding out the source to deposit Rs.112.27 Cores in the account of M/s Sunshine Global Importers, the appellant had tried to collect the evidence from the company from where the money was transmitted leaving the first point of investigation.

Appellant even failed to make serious investigation to find out the person holding five companies in Hong Kong in whose accounts the remittance of Rs.112.27 Crores was made.

It is despite expiry of long period and, in fact, this Tribunal had provided additional time to the appellant to complete the investigation. They could not complete the investigation though period for it was got curtailed on account of the order passed by the Division Bench of Delhi High Court preponing the date of hearing of the appeal with a direction that the appeal should be heard without adjournment on 04.11.2024 though 5th December, 2024 was the date fixed by the Tribunal.

What we find is that the appellant failed to collect the material to make out a case for contravention of Section 4 of the Act of 1999. The case could not have been taken against the respondents based on the statements of few persons without corroborative evidence and that too relying on the statement of Sawan Bohra who retracted his statement. The statement of Bharat Kumar has also been recorded but without any corroboratory evidence. In fact, M/s J.G. Group have been referred without showing it to be a legal entity in that name. Thus, we find that till date, the appellant has failed to collect the evidence to the extent required for making out a case against the appellant for the contravention of Section 4 of the Act of 1999. Thus, we find no reason to cause interference in the order. The appeal is accordingly dismissed.

Violation of the principles of natural justice - inordinate and unexplained delay of more than 14 to 20 years in adjudicating the SCN - HELD THAT:- When the department decided to transfer these Show Cause Notices to the call book, the same was not even intimated to the Petitioner and that they were kept pending because the issue involved in the Show Cause Notices was pending for a decision before this Court. In these facts and circumstances, it is found that the explanation given for this inordinate delay does not hold any merit.

What is also interesting to note is that the decision in the case of Homa Engineering Works [2007 (5) TMI 52 - CESTAT,MUMBAI] was rendered by the CESTAT sometime in the year 2007 and the decision in the case of M/s Mazgaon Dock Ltd [2008 (4) TMI 121 - CESTAT MUMBAI] was rendered on 26th April 2008. Despite this, atleast as far as the first two Show Cause Notices were concerned, there was no impediment in adjudicating the same on the so called ground that the issue in the said Show Cause Notices was already decided against the department and from which an Appeal was pending before this Court. The facts of this case clearly show that the department has done nothing to adjudicate the six show causes notices issued to the Petitioner ranging from 14 to 20 years after the issuance of the said Show Cause Notices.

The Show Cause Notices deserve to be quashed and set aside solely on the ground that there has been an inordinate delay [without any proper explanation] in adjudicating the said Show Cause Notices.

There are several judgments passed by this Court that have quashed Show Cause Notices when there has been an inordinate delay (without justification) in adjudicating the same and taken to its logical conclusion. As mentioned earlier, in the facts of the present case, the Show Cause Notices were issued as far back as ranging from 14 to 20 years and thereafter nothing was done other than transferring them to the call book and that too without intimating the Petitioner. In these circumstances, the SCN allowed to stand.

Conclusion - The Show Cause Notices issued between 2004 and 2011 were to be quashed due to the unjustifiable delay in adjudication and the failure to inform the Petitioner about the transfer to the call book.

SCN quashed - petition allowed.

Levy of service tax - Steamer Agency Service - income earned from freight forwarding activity pertaining to the ocean freight related to the ocean cargo - margin earned on sale of space on the shipping lines to the exporters/importers - HELD THAT:- The issue decided in M/S. FREIGHTLINKS INTERNATIONAL (INDIA) PVT. LTD. [2024 (10) TMI 1629 - CESTAT BANGALORE] where it was held that 'In the appellant‘s case, if the space on the ships which it bought cannot be sold to its customers fully, or due to market conditions, or is compelled to sell at lower than purchase price, the appellant incurs loss. In a contrary situation, it gains profits. This activity is a business in itself on account of the appellant and cannot be called a service at all. Neither can the profit earned from such business be termed consideration for service.'

Conclusion - The appellant is not liable to pay service tax on the income from the freight forwarding activities in question.

The impugned order is set aside - appeal allowed.

CENVAT Credit - input services under Rule 2(l) of the Cenvat Credit Rules, 2004 - call centre services - extended period of limitation - levy of interest and penalty as well - HELD THAT:- There is no provision in the format of the ER-1 Returns to mention the amount of Cenvat credit availed under each service category or transaction-wise. Only the total availment of Cenvat credit is required to be reflected in the return. Therefore, the finding that the Appellant did not inform the Department of such availment of Cenvat credit on the said services is unsustainable.

The issue of Cenvat Credit on invoices of Authorized Service Station for the services provided during the warranty period has already been dealt by the Tribunal in the Appellant’s case M/S L.G. ELECTRONICS (INDIA) PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE & CGST, GHAZIABAD [2024 (8) TMI 787 - CESTAT ALLAHABAD] where it was held that 'CESTAT has constantly been taking view in respect of admissibility of CENVAT credit in on warranty services provided through third party – authorized service centres.'

Extended period of limitation - HELD THAT:- The present case involves interpretational issues involving complex legal provisions to determine the correct admissibility of Cenvat credit. It is a settled position that a case involving interpretation of the statutory provisions cannot be construed to be a case of wilful misstatement or suppression of facts, with intent to evade payment of tax or avail Cenvat credit in a fraudulent manner.

Levy of penalty - HELD THAT:- As per Section 11AC of the Act read with Rule 15 of Cenvat Credit Rules, 2004 the penalty can be imposed only in cases of fraud, collusion, wilful misstatement or suppression of facts or contravention of provisions of Excise Act with an intention to evade payment of duty. The Appellant has already stated that they have not contravened any provisions of law as they did not avail any credit in contravention of any provisions of law.

Levy of interest - HELD THAT:- According to Rule 14 read with Section 11AA, interest is chargeable only when any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded or Cenvat credit has been erroneously taken and utilized. The situations contemplated under Rule 14 as well as under Section 11AA are absent in this case. Therefore, where the demand of Cenvat credit is itself liable to be set aside, as a necessary consequence, interest is also not payable. Therefore, the impugned order confirming recovery thereof, is liable to be set aside.

Conclusion - i) The services related to sales promotion and brand building have a direct nexus with manufacturing and are eligible for Cenvat credit. The demand, interest, and penalties imposed on the Appellant set aside. ii) The order of Learned Member (Judicial) is agreed by order of Learned Member (Technical).

Appeal allowed.

Refusal of the assessing authorities to receive ‘H’ Forms that were sought to be produce after the assessment proceedings had been completed - time limit for receipt of ‘H’ Forms - HELD THAT:- Rule 12 (7) states that ‘C’ forms or ‘F’ forms would have to be filed, before the prescribed authority, within three months after the end of the period to which the declaration or the certificate relates. However, the proviso to Rule 12 (7) states that the prescribed authority could permit processing or filing of such declaration or certificate beyond the time set out in Rule 12 (7), if sufficient cause is made out as to why the forms could not be filed within time.

Under Rule 12 (10) the declaration in Form ‘H’ can be furnished to the prescribed authority only up to the time of assessment by the first assessing authority. There is no proviso to this provision, akin to Rule 12 (7) of the Rules. This would mean that the time frame set out under Rule 12 (10) is absolute and there is no leeway for grant of any further time by the authority - a closer look at Rule 12 (10) (b) shows that the said view may not be correct. Rule 12 (10) (b) states that if any rules are made by the respective State Governments, relating to the filing of Form ‘H’, then the rules as they applied to the declaration in Form ‘C’, prescribed under the CST (R&T) Rules, would mutatis mutandia apply to filing of a certificate in Form ‘H’.

Thus, filing of Form ‘H’ would not be mutatis mutandia with the filing of Form ’C’ and ‘F’.

Conclusion - In the absence of specific state rules, 'H' Forms cannot be accepted post-assessment.

It would only be appropriate that the matter is placed before the Hon’ble The Chief Justice for reference to a Full Bench to resolve this issue.

Challenge to assessment order - movement of goods from the manufacturing unit of the appellant in Rajasthan to its depots in Bihar - inter-state supply of goods or inter-state stock transfers? - HELD THAT:- A perusal of the order dated 28.12.2015 passed by the Rajasthan Tax Board shows that it has reproduced the observations of the Rajasthan Tax Board in Appeal No’s. 1229-1233 decided on 24.11.2014. It is these five appeals which were assailed by M/s United Breweries Ltd. in Central Sales Tax No’s. 16/2014, 17/2014, 18/2014, 19/2014 and 20/2014 that to were allowed by this Tribunal by order dated 21.10.2024 [2024 (10) TMI 1124 - CESTAT NEW DELHI].

Conclusion - The movement of goods was a stock transfer, not an inter-state sale, and thus not subject to central sales tax.

The order dated 28.12.2015 passed by the Rajasthan Tax Board in Appeal No. 2210 of 2014 which has been assailed in this appeal deserves to be set aside and is set aside. The appeal is, accordingly, allowed.

Reduction in the forfeiture price - Direction to Appellant to deduct only 10% of the Basic Sale Price (BSP) towards cancellation of the Complainants’ Apartment - refund of balance amount with interest - unfair trade practice - HELD THAT:- This Court in the case of Satish Batra v. Sudhir Rawal [2012 (10) TMI 595 - SUPREME COURT] has held that to justify the forfeiture of advance money being part of “earnest money” the terms of the contract should be clear and explicit. It has been observed that the earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance by the depositor to be forfeited in case of nonperformance by the depositor. However, this Court clarified that if the payment is made only towards part-payment of consideration and not intended as earnest money then the forfeiture clause will not apply.

On considering the obligations of the Developer in the event it does not comply with the timelines, a very meagre compensation is provided to the Apartment purchaser. Not only that clause 4.2 of the Agreement, which provides that the Apartment shall be ready for occupation within 42 months from the date of issuance of Allotment Letter, also provides that the Developer would be entitled for a grace period of 6 months over and above this 42 months’ period. The said clause 4.2 further provides for various eventualities in case of which the Developer would be entitled to further extension of period for handing over the possession - In any case, clause 4.3 of the Agreement provides that, subject to the provisions of clause 4.2 of the Agreement, if the Developer fails or neglects to issue the Possession Notice on or before the Tentative Completion Date and/or on such date as may be extended by mutual consent of the Parties, the Developer shall be liable to pay to the Buyer a meagre compensation for such a delay at the rate of Rs.5/- per month per square feet of the Super Built Up Area of the Apartment.

It can thus be seen that the Agreement is one-sided and totally tilted in favour of the Developer.

In the case of CENTRAL INLAND WATER TRANSPORT CORPN. LTD. VERSUS BROJO NATH GANGULY [1986 (4) TMI 271 - SUPREME COURT], this Court, by taking recourse to Article 14 of the Constitution of India, has held that the courts will not enforce an unfair and unreasonable contract or an unfair and unreasonable clause in a contract, entered into between Parties who are not equal in bargaining power.

In the case of Desh Raj and others [2022 (12) TMI 1556 - SUPREME COURT], this Court was considering an Agreement to Sell with respect to the landed property. A perusal of the judgment would reveal that it was a case of an Agreement between two equal Parties and there are no terms in the Agreement which could be said to be one-sided and tilted totally in favour of one of the Parties - the present case would not be governed by the law laid down by this Court in the case of Desh Raj and others.

It can be seen that this Court has held that if the forfeiture of earnest money under a contract is reasonable, then it does not fall within Section 74 of the Indian Contract Act, 1872, inasmuch as, such a forfeiture does not amount to imposing a penalty. It has further been held that, however, if the forfeiture is of the nature of penalty, then Section 74 would be applicable. This Court has further held that under the terms of the contract, if the party in breach undertook to pay a sum of money or to forfeit a sum of money which he had already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty.

The NCDRC, in a series of cases right from the year 2015, has held that 10% of the BSP is a reasonable amount which is liable to be forfeited as earnest money - Though it is not inclined to interfere with the direction of the NCDRC for refund of the amount in excess of 10% of the BSP, however it is found that the NCDRC was not justified in awarding interest on the amount to be refunded.

Conclusion - i) The forfeiture clauses must be reasonable and not one-sided to be enforceable. ii) The NCDRC's reduction of the forfeiture to 10% of the BSP was upheld. iii) The award of interest on the refunded amount was overturned.

Appeal allowed in part.