TaxTMI Updates e-Newsletter
Feb 14,2025

Summary order. Special Leave Petition dismissed; delay condoned; pending applications disposed of.

Show Cause Notice - cancellation of GST registration - Principles of Natural Justice - right to personal hearing - cryptic show cause notice - physical verification report under Rule 25 of the CGST Rules, 2017 - furnishing of relied upon documents - quashing of cancellation order

Cryptic show cause notice - physical verification report under Rule 25 of the CGST Rules, 2017 - Validity of the first ground in the impugned SCN that the firm does not conduct business from the declared place of business. - HELD THAT: - The Court found the first ground to be contrary to the earlier physical verification report dated 22nd August, 2023 prepared under Rule 25 of the CGST Rules, 2017, which recorded that the proprietor was present and the firm was found functioning and dealing in scrap material. The impugned SCN is therefore held to be not sustainable on that ground unless credible information is produced to dislodge the findings contained in the earlier inspection report. The Court described the SCN as cryptic insofar as it raises this ground despite the existing verification report. [Paras 11]

First ground of the SCN that the firm does not conduct business from the declared place is unsustainable in the absence of credible material rebutting the earlier physical verification report.

Furnishing of relied upon documents - Show Cause Notice - right to personal hearing - Principles of Natural Justice - quashing of cancellation order - Whether the petitioner was denied natural justice by not being furnished the departmental letter relied upon in the SCN and by not being afforded a personal hearing, and the appropriate relief. - HELD THAT: - The Court noted that the departmental letter dated 22nd November, 2023, upon which the allegation of passing inadmissible ITC was based, was not furnished to the petitioner and no personal hearing was afforded. Given the serious consequences of cancellation of GST registration for the petitioner's ability to conduct business, the omission to furnish the material relied upon and to grant a hearing violated the Principles of Natural Justice. The Court exercised its supervisory jurisdiction to set aside the cancellation order and directed the department to furnish the said letter to the petitioner, permit filing of a detailed reply within four weeks thereafter, and grant a personal hearing before passing a fresh order in accordance with law. [Paras 12, 13, 14]

Cancellation order quashed; matter remitted to the department with directions to furnish the relied-upon letter, allow a detailed reply and grant a personal hearing before passing a fresh order.

Final Conclusion: The writ petition is allowed: the cancellation order dated 7th December, 2023 is quashed; the departmental letter relied upon in the SCN is to be furnished to the petitioner, the petitioner shall be permitted to file a detailed reply and be granted a personal hearing, and the department shall thereafter pass an order in accordance with law; all rights and remedies reserved.

Writ jurisdiction - statutory appellate remedy - exceptional circumstances - natural justice - opportunity of hearing and cross-examination - appeal under Section 107A of the GST Act - condonation of delay for filing appeal

Writ jurisdiction - statutory appellate remedy - exceptional circumstances - appeal under Section 107A of the GST Act - natural justice - opportunity of hearing and cross-examination - condonation of delay for filing appeal - Maintainability of the writ petition challenging the adjudication order dated 19.07.2024 and related pleas of denial of hearing, opportunity to file written reply and cross-examination - HELD THAT: - The Court held that an order passed under Section 74 of the GST Act is subject to an appeal mechanism under Section 107A of the Act and that the existence of this specific statutory remedy ordinarily precludes invocation of the High Court's writ jurisdiction except in exceptional circumstances. Applying this principle, the petitioner failed to demonstrate any exceptional circumstance warranting exercise of writ jurisdiction. Although the petitioner raised contentions about absence of opportunity of hearing, refusal to permit filing of written notes of reply and a prayer for cross-examination of certain witnesses, the Court treated those contentions as matters that can be agitated before the appellate authority. The Court noted the factual material recorded in the adjudication order relating to hearings, recording of statements and documentary verifications, and did not adjudicate those contentions on merit but concluded that the statutory appellate forum is the appropriate remedy. Consequently the writ petition was dismissed without deciding the substantive merits of the natural justice complaints. The Court nonetheless directed that, since the writ petition was filed on 29.01.2025, the appellate authority should permit the petitioner to file its appeal within 30 days from date and decide the appeal in accordance with law. [Paras 12, 13, 14, 15]

Writ petition dismissed as not maintainable in view of available statutory appellate remedy; petitioner permitted to file appeal within 30 days and appellate authority to decide in accordance with law.

Final Conclusion: The High Court dismissed the writ petition challenging the adjudication order dated 19.07.2024 for the financial year 2017-18 on the ground that an adequate statutory remedy by way of appeal under Section 107A of the GST Act is available; the petitioner is permitted to file the appeal within 30 days and the appellate authority is directed to proceed in accordance with law. No order as to costs.

Seeking quashing of the second adjudication order - appeal was preferred by the petitioner and the appellate authority rejected the appeal on the ground of limitation - HELD THAT:- On perusal of the report it is clearly seen that the second adjudication order passed on 30th of March, 2023 has been inadvertently passed by the concerned authorities and this Court quashes the concerned adjudication order dated 30th of March, 2023.

The appellate authority is directed to hear and dispose of the appeal, on merit, upon giving an opportunity of hearing to the petitioner, within a period of twelve weeks from the date of communication of this order.

Petition disposed off.

Refusal of registration under APGST Act - Absence of statutory ground for denying registration based on residence - Right to carry on trade and business under Article 19 of the Constitution - Administrative monitoring and verification to prevent tax evasion

Refusal of registration under APGST Act - Absence of statutory ground for denying registration based on residence - Right to carry on trade and business under Article 19 of the Constitution - Administrative monitoring and verification to prevent tax evasion - Validity of the order rejecting the petitioner's application for registration under the APGST Act on the ground that the petitioner and its authorised representative are not residents of Andhra Pradesh, and the consequent relief. - HELD THAT: - The Court held that rejection of the registration application solely because the petitioner and its authorised representative do not belong to the State of Andhra Pradesh is not supported by any provision of the Act or the Rules. While the respondents' apprehension of possible tax evasion is noted, mere apprehension cannot justify denial of the statutory right to registration. The right to establish and carry on business across India under Article 19 safeguards the petitioner's entitlement to seek registration in the State. Accordingly, the impugned order of rejection is without lawful basis. The Court directed registration of the petitioner under the APGST Act, while permitting the respondents to undertake monitoring of returns and verification of the petitioner's business activities to guard against tax evasion. [Paras 4, 5, 6]

Order of rejection dated 04.11.2024 set aside; respondents directed to register the petitioner under the APGST Act, subject to monitoring and verification measures to prevent tax evasion; no order as to costs.

Final Conclusion: Writ petition allowed; registration refusal on the ground of non-residence quashed and the petitioner directed to be registered under the APGST Act, with liberty to authorities to monitor and verify compliance.

Legality and jurisdiction of the provisional attachment orders issued under Section 83 of the Gujarat Goods and Services Tax Act, 2017 - period of one year from attachment was completed, without renewal - HELD THAT:- On perusal of the statement of the petitioner recorded on 21.10.2023 which is recorded pursuant to the summons issued under section 70 of the GST Act and placed on record, it clearly shows the admission on the part of the petitioner that the petitioner has indulged into the fraudulent activity of issuance of the bogus bills as well as availing the input tax credit which shows the prima facie case against the petitioner. Moreover, on perusal of the intimation of the tax ascertained as being payable under section 74 (5) of the GST Act issued by the respondent on 04.12.2024, it clearly shows the modus operandi of the petitioner for financial year 2022-23 for which the estimated total liability of tax, penalty and interest comes to Rs.12,33,58,313/-.

Considering the record which is available for perusal before us, it is prima facie apparent that the petitioner has indulged into fraudulent activity which requires the exercise of powers conferred under section 83 of the Act for provisional attachment which was made by the respondent on the date of search on 17.10.2023. Therefore, the question now paused before this Court is whether on completion of one year from the date of the provisional attachment on 17.10.2023 of the bank account of the petitioner, the respondent could have renewed the provisional attachment by the impugned order dated 13.11.2024 so far as the bank account of ICICI Bank is concerned and other three bank accounts on 18.12.2024 or not.

In the facts of the case, therefore, reliance placed by the petitioner in the case of RHC Global Exports Private Limited [2024 (9) TMI 1544 - SC ORDER] would be no avail as the respondent has applied its mind for the provisional attachment of the bank accounts after recording the satisfaction and after issuance of the intimation in Form DRC 01A. Therefore, only on that ground that the orders are for renewal of provisional attachment, the same cannot be quashed and set aside by adopting the modus operandi to defraud the revenue along with others is not tenable.

This Court in the case of M/s. Dhanlaxmi Metal Industries [2024 (7) TMI 371 - GUJARAT HIGH COURT] in similar facts, has held that 'Considering the facts of the case, it cannot be said that the respondents have committed breach of provision of Section 83 of the Act which is intended to safeguard the interest of the revenue which cannot be said to any harassment to the petitioner as tried to be demonstrated. In the facts of the case, it cannot be said that the respondents have issued provisional attachment order over the movable properties with a view to harass the petitioner.'

The same analogy in the facts of the case is applied as the petitioner has prima facie found to be indulged in the modus operandi of the issuance of bogus bills and availing ITC on the basis of such bills, whereas in the facts of the case in M/s. Radha Krishan Industries [2021 (4) TMI 837 - SUPREME COURT], the appellant before the Hon’ble Apex Court was the person who has received the bogus invoice along with the goods, whreas it is found in the present case that the petitioner has sold the goods of higher value without invoice and has availed ITC on the goods which were of lower value as stated in the modus operandi.

Conclusion - It cannot be said that the respondent has committed breach of provision of section 83 of the GST Act which is intended to safeguard the interest of the revenue which cannot be said to any harassment to the petitioner as tried to be demonstrated. In the facts of the case, therefore, the issuance of the impugned orders for provisional attachment over the bank accounts are not required to be interfered with as the petitioner appears to have indulged in the transaction of the fraudulent invoices resulting into loss of revenue by utilizing the ITC of more than Rs. 18.97 crore.

No interference is called for in the impugned orders of provisional attachment of the bank accounts of the petitioner during the pendency of the investigation as respondent is rightly found an information as required under section 83 of the GST Act so as to protect the interest of revenue, and hence the provisional attachment of the bank accounts of the petitioner is required to be continue - Petition dismissed.

Input tax credit - entitlement and burden of proof - Section 16(2) conditions for availing input tax credit - Requirement of documentary proof and e-Way Bill for movement of goods - Rule 138 / Rule 138A / Rule 55A - generation and carriage of e-way bill and tax invoice - Reversal of input tax credit under Rule 37 on non-payment of consideration - Effect of supplier's non-payment or cancellation of registration on recipient's ITC - Cross-examination of witnesses and principles of natural justice in quasijudicial tax proceedings - Standard of proof in tax adjudication - preponderance of probabilities - Reliance on Supreme Court ratio in State of Karnataka vs. Ecom Gill Coffee Trading Pvt. Ltd.

Cross-examination of witnesses and principles of natural justice in quasijudicial tax proceedings - Standard of proof in tax adjudication - preponderance of probabilities - Whether nonfacilitation of crossexamination of the suppliers (Charles and Shanthi) vitiates the assessment orders - HELD THAT: - The Court held that nonfacilitation of crossexamination is not necessarily fatal where the statements relied upon were recorded in the presence of the petitioners and the petitioners were signatories to those statements. The Court noted that adjudication under the GST enactments by a quasijudicial authority is governed by the preponderance of probabilities and not by strict rules of evidence; therefore reliance on records and documents may suffice. The Court distinguished cases where statements are used without notice to the affected party and observed that the earlier direction to afford crossexamination did not create an absolute bar to reliance on statements recorded in the petitioners' presence. Having regard to these facts the absence of crossexamination in the present proceedings did not render the impugned orders indefensible. [Paras 63, 64, 65, 66]

Nonallowance of crossexamination of Charles and Shanthi was not fatal to the assessments where their statements were recorded in the petitioners' presence and the adjudication could proceed on the material on record.

Input tax credit - entitlement and burden of proof - Section 16(2) conditions for availing input tax credit - Reversal of input tax credit under Rule 37 on non-payment of consideration - Reliance on Supreme Court ratio in State of Karnataka vs. Ecom Gill Coffee Trading Pvt. Ltd. - Whether the recipients were entitled to retain input tax credit in absence of documentary proof of supply, receipt of goods and payment of tax by the supplier - HELD THAT: - The Court applied Section 16(2) of the GST enactments and related rules, holding that entitlement to input tax credit is contingent upon satisfaction of the statutory conditions, including possession of invoice and proof of receipt of goods. The burden to prove genuineness and physical receipt of goods lies on the recipient; mere filing of GSTR1/GSTR2A or production of invoices is not conclusive. The Court referred to the Supreme Court authority in State of Karnataka v. Ecom Gill Coffee to underscore that the purchasing dealer must discharge the burden of proof of actual transaction and physical movement; failing which provisional credit may be reversed. Rule 37's mechanism for reversal where consideration is not paid was noted as reinforcing the obligation on the recipient to establish payment/receipt within statutory timelines. [Paras 35, 36, 37, 38, 68]

In absence of requisite documents proving supply, movement and payment, the input tax credit availed by the petitioners could be treated as provisional and denied/reversed; burden of proof rests on the recipients.

Requirement of documentary proof and e-Way Bill for movement of goods - Rule 138 / Rule 138A / Rule 55A - generation and carriage of e-way bill and tax invoice - Maintenance of records under Rule 56 - Whether eWay Bill and related documentary requirements were mandatory in the facts and whether absence of eWay Bills undermined the petitioners' claim of receipt of goods - HELD THAT: - The Court examined Rule 138 and allied provisions (including Notification No.9/2018) and concluded that for consignments exceeding the prescribed value eWay Bills must be generated and the personincharge must carry invoices or the eWay Bill as mandated by Rule 138A and Rule 55A. The exemption notification is confined to specified goods and value thresholds and does not include 'rubber' or 'rubber sheets' in the annexure; hence the suppliers could not claim the exemption. Rule 56's recordkeeping requirement also obliges both supplier and recipient to maintain eWay Bills and other documents. The petitioners admitted nonpossession of eWay Bills; the Court held that absence of such documentary proof supported the view that the recipients failed to discharge their statutory obligations to substantiate physical receipt of goods. [Paras 49, 51, 53, 56, 59]

EWay Bill and documentary requirements applied; petitioners' inability to produce eWay Bills and prescribed documents justified denial/reversal of claimed input tax credit.

Final Conclusion: The Writ Petitions are dismissed. The Court found no merit in the challenges to the impugned assessment orders: (i) absence of crossexamination was not fatal where statements were recorded in petitioners' presence; (ii) petitioners failed to discharge the statutory burden to prove supply, movement and payment required for valid input tax credit; and (iii) eWay Bill and recordkeeping obligations were not complied with. Liberty granted to the petitioners to prefer statutory appeals under Section 107 within 30 days.

Non-application of mind - refund claim - rejection of refund for non-submission of documents - remand for fresh consideration - opportunity of hearing

Non-application of mind - rejection of refund for non-submission of documents - refund claim - Whether the impugned refund order suffers from non-application of mind by treating the claim as unsupported despite the petitioner having furnished the requested details. - HELD THAT: - The Court noted that the department had emailed specific documents and details to the petitioner and that the petitioner responded by furnishing the requested information by emails dated 29.10.2024, 04.11.2024 and 08.11.2024 and by reply dated 26.11.2024. The impugned order proceeded to reject the refund claim on the premise that the petitioner had not filed the details, thereby treating the claim as unsupported. The Court observed that this treatment indicated gross non-application of mind. The respondent conceded that fresh orders would be passed. In these circumstances the Court set aside the impugned order and remitted the matter to the respondents to pass orders afresh in accordance with law after affording the petitioner a reasonable opportunity of hearing. [Paras 3, 4, 5]

Impugned order set aside; matter remitted for fresh decision after affording petitioner a reasonable opportunity of hearing.

Final Conclusion: The writ petition is disposed of by setting aside the impugned refund order for non-application of mind and remitting the matter to the respondents to decide afresh in accordance with law after giving the petitioner a reasonable opportunity of hearing; connected miscellaneous petition closed.

Initaition of proceedings u/s 73 of the CGST Act - wrongful availment of Input tax credit - contravention of Section 16(2)(c) of the GST Act - HELD THAT:- It needs to be mentioned that the electronic credit ledger has to be treated as a pool of funds, designated for different types of taxes such as IGST, CGST and SGST. The credit ledger represents a wallet with different compartments of funds. Since the petitioner had availed credit under the CGST and SGST instead of IGST and utilised the same for payment of GST, the benefit of the decision in Rejimon Padickapparambil’s case [2024 (12) TMI 399 - KERALA HIGH COURT] is applicable to the petitioner. The impugned orders having not considered the aforesaid legal proposition, are required to be set aside and a reconsideration be directed.

Conclusion - There was no wrong availing of input tax credit in this scenario.

Ext.P6 and Ext.P10 orders set aside - the first respondent is directed to reconsider Ext.P6, afresh - petition allowed.

Refund claims for GST paid on notice pay recovery were time-barred under Section 54 of the Central Goods and Services Tax (CGST) Act - HELD THAT:- From Circular No. 178/10/2022-GST dated 03.08.2022, it is clear that the Government of India has clarified that the forfeiture of salary or payment of bond amount in the event of an employee leaving the employment before the minimum agreed period, was not taxable, inasmuch as, there was no supply of service by the employer in this situation and therefore, the recovery of notice pay by the employer was not taxable under the CGST Act. Since the aforesaid Circular came out on 03.08.2022, it has to be said that the petitioners could not have had the opportunity of filing of the refund claims in respect of the GST deposited by the Petitioner-Company, till such date. Therefore, the period of two years, for filing a claim, within the meaning of Section 54 of the CGST Act has to be computed from the date of the Circular i.e. from 03.08.2022. In that view of the matter, the refund claims dated 05.11.2022 and 07.11.2022, for whatever period of tax deposited, cannot be said to be time barred.

This Court in the case of M/S Gujarat State Police Housing Corporation Ltd. Versus Union of India & Anr [2024 (1) TMI 1409 - GUJARAT HIGH COURT] where it was held that 'Considering the above dictum of law, the amount of GST paid by the petitioner is admittedly paid as a self-assessment, which the petitioner was not required to pay as per the Notification No. 32/2017. Accordingly, in the facts of the case, the amount paid by the petitioner from electronic cash ledger is required to be refunded by the respondent authority and could not have been rejected on the ground of limitation under Section 54 (1) of the CGST Act.'

Conclusion - The State is not entitled to unjustly enrich itself with amounts collected from citizens which are not sanctioned as 'Tax' within the meaning of Article 265 of the Constitution of India. The taxes collected without legal authority must be refunded.

Petition allowed.

Reopening of assessment u/s 147 - depreciation on the Written Down value of the goodwill - addition made on account of the recommendation of the Dispute Resolution Panel

HELD THAT:- It is clear that AO has failed to take into consideration the order passed by the ITAT which is placed on record by the petitioner at Annexure “D” which clearly shows that the addition made on account of the recommendation of the Dispute Resolution Panel which was deleted as per the provision of Section 92BA of the Act were not applicable for the year under consideration and only because the Tribunal has not dealt with the merits of the matter, the same cannot be considered as an information, so as to assume the jurisdiction to issue the notice u/s 148 of the Act more particularly when the AO has failed to point out the effect of deletion of the addition made in the year 2014-15 and therefore, there is no question of escapement of income for the AY 2018-19 for claim of the depreciation on the Written Down value of the goodwill for the year under consideration.

The impugned order as well as the notice issued u/s 148 of the Act are hereby quashed and set aside. Decided in favour of assessee.

Nature of land sold - LTCG on the sale of agriculture land not being capital asset within meaning of section 2(14)(iii) - HELD THAT:- As per clause (iii) of sub-section (14) of section 2, ‘capital asset’ means agricultural land in India, not being land situated more than 8 kilometres from the local limits of any municipality or cantonment board. AR has given a certificate from the Dy. EE (R & B), Surat, according to which the distance was 8.5 kilometres.

CBDT in its Circular No.17/2015 has made it clear that the shortest road distance has to be measured to decide whether the agricultural land is a capital asset or not.

In the present case distance between the municipal limit and the agricultural land is to measured having regard to the shortest road distance and not arial distance. The assessment year involved is AY.2012-13 and as per the certificated issued by the Dy. EE (R & B), Surat, the distance was 8.5 kilometres. Thus, agricultural land was situated beyond 8 kilometres of the municipal limit. Hence, it was not a capital asset within the meaning of section 2(14)(iii)(b) of the Act.

Thus addition towards LTCG is deleted and the grounds are allowed.

Application of the provisions of section 50C - Since, we have held that the subject land was not a capital asset u/s 2(14) of the Act, application of the provisions of section 50C are not applicable. Therefore, the AO is directed to delete the addition.

Addition being cash deposited in the bank account during financial year - HELD THAT:- As found by AO that assessee had withdrawn cash from bank account on regular interval. In the return filed u/s 148 of the Act, she has shown income of Rs. 1,62,947/- and agricultural income of Rs. 90,000/-.

CIT(A) has repeated the finding of AO and upheld the addition. No supporting evidence was filed by the assessee before us to substantiate availability of cash of Rs. 12,01,000/- as on 01.04.2011. The cash book submitted by the lower authorities was only a feeble attempt to justify deposit of cash by the assessee.

Assessee has withdrawn various amounts from her bank account. She has also shown agricultural income of Rs. 90,000/- during the year. Considering the totality of facts, it would be reasonable if cash of Rs. 4,00,000/- is treated as explained and addition of remaining amount Rs. 8,89,500/- is upheld. The AO is, accordingly, directed to restrict the addition.

Appeal of the assessee is partly allowed.

Validity of Assessment u/s 153C - limitation date for passing the assessment order - HELD THAT:- The period of limitation referred to in clause (a) or clause (b) of section 153(B)(1) of the Act available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. In this regard, the case was put up for clarification on 08.07.2024 directing the DR to furnish a report as to whether any valuation report in pursuance to the impugned reference on 23.12.2016 was received by the AO in this case or not and the date on which it was received so as to compute the period of limitation as per the provisions of clause (iii) of the Explanation below section 153B(3) of the Act and as per proviso to this section of the period available to the AO was less than 60 days.

Despite giving opportunities, no such report was furnished by the DR. In absence of the same, it is held that no valuation report was received in this case by the AO in pursuance of the impugned reference u/s 142A of the Act on 23.12.2016.

Therefore, in this case as no valuation report was received by the AO, the AO was not entitled for any extension of limitation period as claimed by him. Limitation date for passing the assessment order expired on 31.12.2016 and consequently, the assessment order passed by the AO u/s 153C r.w.s. 143(3) of the Act dated 28.08.2017 is barred by limitation and the same is quashed. Decided in favour of assessee.

Validity of Reopening of assessment - reasons for reopening were examined at the time of original assessment - notice issued after expiry of more than four years - HC decided that [2024 (2) TMI 469 - BOMBAY HIGH COURT] reasons recorded would show that there has been no failure on the part of Petitioner to truly and fully disclose material facts. Though the words ‘failure on the part of assessee to disclose fully and truly all material facts necessary for assessment' have been used in the reasons recorded, those have been used only to get over the fetters placed by the proviso to Section 147 of the Act.

HELD THAT:- We are not inclined to interfere with the impugned judgment; hence, the present special leave petition is dismissed.

Pending application(s), if any, shall stand disposed of.

Interpretation of Section 144C (13) - period of limitation - whether the time limit provided under this sub-section for completing the assessment as per the directions of the DRP is mandatory or directory and consequences thereto? - HELD THAT:- Section 144C (13) of the Act overrides the time limit provided u/s 153 which means that on receipt of the directions from the DRP and by adding one month from the end of the month in which such directions are received, the AO has to pass an order on or before expiry of end of the month in which directions are received. This is in consonance with the objective for which the dispute resolution mechanism was inserted by virtue of Section 144C of the Act.

Section 144C (13) is reincarnation of Section 153 which provides for time limit for completion of the assessments. If the provisions of Section 153 are to be construed mandatorily, then, we fail to understand as to how the provisions of Section 144C (13) cannot be construed mandatorily moreso looking at the object of insertion of Section 144C and the consequences and the effect of completion of the assessment proceedings.

The law of limitation is intended to give certainty and finality of tax proceedings and to avoid exposure to risk of litigation for indefinite period on future unforeseen events.

Application of Section 144C (13) to Present Case - Provisions of Sections 144C (6) and 144C (7) requires the DRP to carry out enquiry before any directions under Section 144C (5) are issued to the AO. This clearly shows post Section 144C (5) directions, no authority other than AO intervenes. Therefore, looked from any angle, in our view, the final assessment order made on 27 February 2015 is beyond the limitation period provided under Section 144C (13) of the Act.

Period of Section 144C (13) cannot be counted from the end of the month in which the transfer pricing officer gives effect of the direction of the DRP under Section 144C (5) of the Act. This is so because Section 153 (5A) provides that the assessment pursuant to the TPO giving effect of the order or direction under Section 263 should be completed within two months from the end of the month in which such an order of the TPO received.

If the intention of the legislature was to calculate the time limit provided under Section 144C (13) to start from the TPO’s order giving effect to the direction under Section 144C (5) then there would have been a similar provision like Section 153 (5A) of the Act. Therefore, even on this count post direction of the DRP, the AO has to complete the assessment within one month from the end of the month in which the direction of the DRP are received which would include any intervening exercise if at all required to be done.

As in the case of Vodafone Idea Limited [2023 (11) TMI 449 - BOMBAY HIGH COURT] held that Section 144C (13) of the Act time limit is mandatory.

Court concluded the importance of time and it be strictly adhered/respected. Decided in favour of assessee.

Arm's length price - transfer pricing officer's jurisdiction - transactional net margin method (TNMM) - Comparable Uncontrolled Price (CUP) method - commercial expediency - burden of proof in transfer pricing - double deduction

Arm's length price - transfer pricing officer's jurisdiction - burden of proof in transfer pricing - transactional net margin method (TNMM) - Deletion of the TP adjustment in respect of reimbursement of expatriate salaries was correctly upheld. - HELD THAT: - The TPO erred in treating the ALP of reimbursements for expatriate salaries as nil on the premise that the assessee did not derive any benefit; that factual determination as to whether expenditure was incurred for earning revenue lies with the Assessing Officer, whereas the TPO's remit is confined to determining the arm's length price. The Tribunal and CIT(A) found the assessee had discharged its onus by producing contemporaneous evidence of secondment, presence in India and functional role of expatriates, and the sourcing commission for which TNMM was applied already subsumed such costs as elements of cost. The TPO's reliance on the assessee's loss or on questioning the commercial wisdom in engaging expatriates is impermissible for fixing ALP. Although the assessee should have maintained and produced detailed breakup documentation, the factual record and accepted benchmarking for sourcing activities justified deletion of the TPO's adjustment. [Paras 41, 43, 44, 45, 47]

The ITAT correctly sustained the CIT(A)'s deletion of the addition relating to reimbursement of expatriate salaries; the TPO's ALP determination at nil and its factual reasoning are unsustainable.

Arm's length price - Comparable Uncontrolled Price (CUP) method - commercial expediency - burden of proof in transfer pricing - Deletion of the TP adjustment in respect of royalty payments was correctly upheld. - HELD THAT: - The TPO's conclusion that ALP of royalty was nil because the assessee incurred losses was flawed: losses do not establish that the arm's length rate for technical know-how is nil and the question of commercial prudence is not to be tested by the TPO in determining ALP. The assessee produced CUP comparables and documentary material showing receipt of technical knowhow and the economic rationale for paying royalty; the CIT(A) and Tribunal found the TPO's rejection of CUP on vague geographic-difference grounds to be unsatisfactory and that the rate charged fell within comparable norms. Applying established principles (including OECD guidance and precedent), the Tribunal properly set aside the TPO's adjustment. [Paras 54, 56, 60, 62, 64]

The ITAT correctly sustained the CIT(A)'s deletion of the royaltyrelated ALP adjustment; the TPO's reasoning for treating royalty as nil is unsound.

Double deduction - Allegation of double deduction was not established and did not form a basis for overturning the deletions. - HELD THAT: - The court invited the Revenue to specify any element of double deduction but was not shown any distinct contention or material demonstrating that the assessee had secured a double deduction. Apart from re-arguing the merits of the deleted ALP adjustments, no separate ground of double deduction was pressed; accordingly the point was not made out. [Paras 65, 66]

No double deduction was found and the plea did not succeed.

Final Conclusion: The appeals are dismissed; the orders of the CIT(A) and the ITAT deleting the TP adjustments in respect of reimbursement of expatriate salaries and royalty (for the impugned assessment years) are upheld and the Revenue's contention of double deduction is unsubstantiated.

Adjustment of a refund against old income tax dues approved in the resolution process - HELD THAT:- Adjustment of the refund pertaining to assessment year 2010-11, an assessment within the period giving rise to old tax dues in balance sheet of the corporate debtor, considered in the resolution process and approved, thus has effect of reducing said dues by the adjustment made.

Even otherwise we reject petitioner’s claim to have the refund because petitioner can only claim to step into and manage affairs of the corporate debtor from date of approval of the resolution plan. Petitioner cannot claim to have paid tax on assessment made for assessment year 2010-11.

Refund in respect of that assessment year cannot be due to petitioners, who stepped into shoes of management of the corporate debtors on and from 7th November, 2017 and proceeded to revive it per the approved resolution plan. Petitioners having assailed the adjustment made by filing the writ petition, cannot still rely on alleged omission to notice them on the adjustment.

Reopening of the assessment - interest free loans and advances to sister/related concerns and claimed interest on borrowed funds in the profit and loss account - HELD THAT:- This Court is of the view that the exercise in the impugned notice dated 28.03.2021 issued under Section 143 of the Income Tax Act and the consequential speaking order dated 29.07.2021 which is impugned in the present are unsustainable primarily because the petitioner has made adequate declarations not only in the returns filed by the petitioner on 29.09.2013 which accompanied the balance sheet, profit and loss account.

Even though the assessment order dated 29.06.2015 has not discussed all the points that were raised before the assessment was completed, the information obtained by the petitioner under RTI which was narrated above and indicates that the assessing officer formed an opinion regarding the interest free loans to group company. Thus, was true and full disclosure of all intimation by the petitioner along with the return filed by the petitioner on 29.07.2021.

The information available on file particularly the information secured by the petitioner under RTI clearly indicates that the invocation of Section 148 r/w Section 147 was unwarranted.

The officer has also justified the conclusion arrived in the assessment order dated 29.06.2015 in his response to audit objection. Unless there was a failure on the part of the petitioner to fully and truly disclosure all material facts necessary for completing the assessment, the invocation of the machinery u/s 148 r.w.s.147 was not available. Thus, the impugned notice and speaking order are liable to be quashed. Decided in favour of assessee.

Validity of assessment u/s 147 - valid sanction/approval accorded u/s 151 or not? - Sanctioning Authority u/s 151(ii) when order is passed beyond three years from the end of assessment year.

HELD THAT:- As per section 151 of the Act, approval of Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General is required for an order under section 148A(d) of the Act, when the order is passed beyond three years from the end of assessment year.

In this case, the order under section 148A(d) of the Act, was passed 06.04.2022 for A.Y.2018-19 which is beyond a period of three years from the end of the Assessment Year, with the approval of Principal Commissioner of Income Tax.

As decided in Holiday Developers (P.) Ltd, [2024 (8) TMI 286 - BOMBAY HIGH COURT] since more than three years have expired from the end of the assessment year, Sanctioning Authority u/s 151(ii) of the Act should be the Principal Chief Commissioner of Income Tax ("PCCIT") and not the PCIT.

Thus, order under Section 148A(d) of the Act, and notice under section 148 are quashed. Decided in favour of assessee.

Disallowance of “prior period” expenditure claim - HELD THAT:-Assessee in fact is a company getting assessed at the maximum marginal rate all along. That being the case and in light of the fact that disallowance herein is that of “prior period” expenditure wherein the corresponding claim pertaining to the earlier assessment year has been recognized on the basis of its alleged crystalization in the relevant previous year.

Case law PCIT v. Adani Enterprises [2016 (7) TMI 1250 - GUJARAT HIGH COURT] holds such an issue as an instance of revenue neutral expenditure which could not have been disallowed for it’s both the year of accrual as well as on crystallization, as the case may be. The same is directed to be deleted in very terms therefore. Assessee’s appeal is allowed.

Disallowance of deduction u/s. 80JJAA - assessee has claimed deduction in revised return of income filed u/s. 139(5) of the Act filed beyond time - HELD THAT:- The assessee for the first time made claim of deduction u/s. 80JJAA in revised return of income filed u/s. 139(5) of the Act on 18.09.2018. The assessment in the case of assessee was completed based on revised return of income.

Thus, at the time of making assessment, the mandatory Form 10DA for claiming deduction u/s. 80JJAA was available with the AO. Assessee’s claim was rejected at threshold by the AO as he was of the view that claim of deduction u/s. 80JJAA was not made in the time.

AO completed the assessment based on assessee’s revised return of income. Once, the AO accepts revised return of income, the AO is bound to consider deductions claimed therein. Assessee’s claim of deduction cannot be rejected at threshold on the ground that revised return of income was beyond time.

Hon’ble Apex Court in the case of CIT vs. G.M Knitting Industries (P.) Ltd. and AKS Alloys (P.) Ltd. [2015 (11) TMI 397 - SC ORDER]has held that even if the prescribed form for claiming deduction is filed during assessment proceedings, before passing of assessment order, it would be sufficient compliance of the provisions of the Act.

We find merit in the case of assessee. The deduction claimed u/s. 80JJAA of the Act is allowable to the assessee subject to the other conditions being satisfied as prescribed under said section for claiming deduction. Since, claim of the assessee was rejected at the brink, we deem it appropriate to restore the matter back to AO for limited purpose to examine as to whether assessee qualifies the other conditions set out in the section and quantify assessee’s claim of deduction u/s. 80JJAA - appeal of the assessee is allowed for statistical purposes.

Addition u/s 68 - cash deposit made by the assessee during the demonetization period - onus to prove - HELD THAT:- DR failed to draw our attention to any document which is contrary to the case made by the assessee or in support of the revenue to substantiate addition with cogent reason.

We further find that the assessee has been able to submit the bank statement the details of purchase and sales made during the assessment year 2017-18 the VAT return filed in each quarter in the year under consideration, the cash book and sale register maintained by the assessee particularly for the period commencing from 01.10.2016 to 31.12.2016 and also the details of closing stock.

Thus, the onus upon the assessee has duly been discharged in order to substantiate the sales made by the assessee and furthermore the ld. AO has practically not rejected the books of account prepared by the assessee, the addition is found to be not sustainable neither supported by any cogent reason rather found to have been made only on surmises and conjectures.

Evidence and explanation so rendered by the assessee cannot be rejected in the absence of any corroborative material on record in the hands of the revenue as is the settle position of law in view of the order passed in the case of Lal Chand Bhagat Ambica Ram [1959 (5) TMI 12 - SUPREME COURT] and CIT Vs. Dinesh Jain HUF[2012 (10) TMI 158 - DELHI HIGH COURT] - Decided in favour of assessee.

Addition on account of unaccounted brokerage income - AO observed that assessee being a broker must have received commission @ 1% - HELD THAT:- Apart from referring the word seized material, no other corroborative evidence or statement has been brought on record either by AO or CIT(A) to rebut the explanation offered by assessee by way of any enquiry. Rejection of the explanation of the assessee by the lower authorities without bringing any material on record to controvert the claim of the appellant is not justified and therefore, the additions made by the AO and confirmed by CIT(A) based on presumption, surmises and conjectures would be liable to be deleted.

Decision of the CIT(A) in confirming the addition made by the AO on account of unaccounted brokerage income from E-Homes Infrastructure Private Limited rejecting the detailed submissions and explanations duly supported with the evidences brought on record including the confirmation of the brokerage payments can not be approved - addition confirmed by the Ld. CIT(A) is deleted. Decided in favour of assessee.

Addition of undisclosed income based on unaccounted cash receipts found in seized documents - addition on account of absence of certificate u/sec.65B(4) of the Indian Evidence Act and the digital evidence - addition was based on the basis of data retrieved from the pen drive in the form of print out of excel sheets and subsequent statement of Shri S S Dalwi - as argued that the contents of the pen drive being electronic evidence have to be certified in terms of section 65B of the Indian Evidence Act but which was not done - HELD THAT:- In the instant case there was a certificate drawn u/sec.65B(4) of the Indian Evidence Act for the pen-drive seized from the cabin of Shri Shrikant S. Dalvi which was relied upon by the Assessing Officer while making the impugned addition and since such a copy of the certificate was provided to the assessee for its comments and the assessee could not make any counter-comments to the certificate so issued by the Assessing Officer u/sec.65B(4) of the Indian Evidence Act, therefore, in absence of any contrary material brought to our notice, in our opinion the Ld. CIT(A) is justified in rejecting the above grounds.

Assessing Officer in the instant case has obtained a certificate u/sec.65B(4) of the Indian Evidence Act and copy of which was also forwarded to the assessee and the assessee had no answer to the same - Decided against assessee.

Undisclosed cash receipts - CIT(A) in treating 85% of the total cash receipts as income of the assessee - CIT(A) restricted the addition to 85% of unrecorded cash receipts on account of sale of scrap on the ground that the seized documents also contain certain expenditure - HELD THAT:- It is an admitted fact that during the course of search, excel sheets which were retrieved from the pen drive seized from the cabin of head cashier Shri S S Dalvi, contain both unaccounted cash receipts as well as unaccounted cash expenditure.

While the AO taxed the entire unaccounted cash receipts as income of the assessee, however, he ignored such unaccounted cash expenditure on the ground that the assessee could not correlate such expenditure as relatable to such unaccounted cash receipts and the said expenditure also contains certain expenditure not allowable as per provisions of Explanation to section 37. It is the settled position of law that the seized documents are to be considered as a whole and the department cannot consider a part of the seized documents which suits it and ignore the other part that does not suit it.

So far as the allegation of the Assessing Officer as well as the Ld. CIT(A) that such unaccounted expenditure contains certain illegal payments is concerned, there is no dispute to the fact that it contains certain payments to government officers. However, the same has not been quantified either by the assessee or by the Assessing Officer or by the Ld. CIT(A). We find the Ld. CIT(A) while analyzing the seized documents for assessment year 2018-19 has given the details of several cash expenses on test check basis which according to him are allowable expenses

Considering the totality of the facts of the case only the net profit embedded in such receipts should be taxed when both unaccounted receipts and unaccounted expenses are found during the course of search, we are of the considered opinion that the profit on account of such unaccounted cash receipts should be determined at the same rate or nearby rate of net profit that has been declared by the assessee and accepted by the Revenue for the respective assessment years.

The order of the Ld. CIT(A) is accordingly modified and the Assessing Officer is directed to re-compute the income from unaccounted cash receipts in the above percentage and make necessary additions.

Denial of deduction u/sec.35(2AB) - capital and revenue expenditure incurred for in house R&D activities - HELD THAT:- Only the existence of approval and incurring of the expenditure were relevant considerations in the pre-amended period and not the amount quantified by the prescribed authority. The new stipulations came to be introduced w.e.f. 01-07-2016.

As the assessment year under consideration is 2018-19, the amended sub-clause (b) of Rule 6 (7A) is applicable. We, therefore, hold that the ld. CIT(A) was justified in restricting the amount of weighted deduction to the quantification done by the prescribed authority.

Assessee is not eligible for deduction of the entire revenue expenditure claimed by it u/s 35(2AB) for the assessment years 2017-18, 2018-19 and 2019-20 but only to the extent quantified by the DSIR. However, as held above, since the stipulation came to be introduced w.e.f. 01.07.2016 the section of quantification by the DSIR is not applicable for assessment year 2016-17 and therefore, the Ld. CIT(A) is not justified in restricting the deduction to the extent determined by the DSIR for assessment year 2016-17. We therefore, set aside the order of the Ld. CIT(A) on this issue for assessment year 2016-17 and direct the Assessing Officer to allow the claim of deduction u/s 35(2AB) of the entire revenue expenditure.

Cash expenditure during the year exceeds the unaccounted cash receipts - HELD THAT:- After considering the opening cash balances as on 01.04.2012 as per the seized documents, there is no cash deficit for the impugned assessment year. The Revenue is not in appeal for assessment year 2015-16 for the availability of opening cash balance determined by CIT(A) as per the seized document. Therefore, no infirmity in the order of the Ld. CIT(A) deleting the addition made by the Assessing Officer on account of unexplained expenditure u/s 69C.

Ex-parte order u/s.250 - Unexplained capital gain u/s. 45 - long term capital gain on sale of land by applying sec.50C(1) without referring the matter to DVO for valuation of such land u/s.50C(2) when 'actual sale consideration' is less than the 'stamp duty value' - HELD THAT:-Although we concur with the CIT(Appeals) that the appellate proceedings could not have been jeopardized for want of prosecution but at the same time, are unable to persuade ourselves to subscribe to the manner in which the appeal had been disposed off by him.

It transpires, on a perusal of the statement of facts that were filed by the assessee before the CIT(A) that he had assailed the impugned addition of undisclosed capital gain u/s. 45 for the reason that the AO had grossly erred in treating the entire amount of sale consideration as his undisclosed capital gain u/s. 45 of the Act.

We are of the view that though the assessee had not participated in the appellate proceedings, but the CIT(Appeals) ought to have adverted to the facts involved in the case before him in the backdrop of the grounds based on which the impugned addition was assailed before him and adjudicated the said respective issues vide a speaking order instead of dismissing the same for want of prosecution.

CIT(Appeals) had disposed off the appeal for non-prosecution and had failed to apply his mind to the issues which did arise from the impugned order and was assailed by the assessee before him. We are unable to persuade ourselves to accept the manner in which the appeal of the assessee had been disposed off by the CIT(Appeals). In our considered view, once an appeal is preferred before the CIT(Appeals), it becomes obligatory on his part to dispose off the same on merit and it is not open for him to summarily dismiss the appeal on account of non-prosecution of the same by the assessee.

In fact, a perusal of Sec.251(1)(a) and (b), as well as the “Explanation” to Sec.251(2) of the Act reveals that the CIT(Appeals) remains under a statutory obligation to apply his mind to all the issues which arises from the impugned order before him. As per the mandate of law the CIT(Appeals) is not vested with any power to summarily dismiss the appeal for non-prosecution.

We, thus, not being able to persuade ourselves to subscribe to the dismissal of the appeal by the CIT(A) for non-prosecution, therefore, set-aside his order with a direction to dispose off the same on merits. Appeal filed by the assessee is allowed for statistical purposes

Doctrine of ultra vires - gold bangles worn by the petitioner upon returning to India fall under the definition of "baggage" as per the Customs Act, 1962, and the Baggage Rules, 2016 or not - interpretation of the provision “as carried on the person” of the Baggage Rules, 2016 - HELD THAT:- 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”.

In the judgment of the Hon'ble Apex Court rendered in Naresh Chandra Agarwal vs. Institute of Chartered Accountants of India and others [2024 (2) TMI 493 - SUPREME COURT], it has been held that '(a) The doctrine of ultra vires envisages that a Rule making body must function within the purview of the Rule making authority, conferred on it by the parent Act. As the body making Rules or Regulations has no inherent power of its own to make rules, but derives such power only from the statute, it must necessarily function within the purview of the statute. Delegated legislation should not travel beyond the purview of the parent Act. (b) Ultra vires may arise in several ways; there may be simple excess of power over what is conferred by the parent Act; delegated legislation may be inconsistent with the provisions of the parent Act; there may be noncompliance with the procedural requirement as laid down in the parent Act. It is the function of the courts to keep all authorities within the confines of the law by supplying the doctrine of ultra vires.'

In the above cases, the Court had held that a Rule Making Authority has to make the Rules within the scope of the parent Act and no Rules shall exceed beyond the scope of the parent Act since it would amount to ultra vires. Thus, in the present case, the Baggage Rule, 2016 will apply only to the baggage and the Rule made to the extent that the article “carried on the person” will not include baggage, which was in excess of powers conferred by the Rule making Authority and would amount to ultra vires. Therefore, the jewellery worn in person will not come under the purview of baggage - In the case on hand, the 10 nos. of bangles were admittedly worn by the petitioner and on the request of respondents it was handed over to them. Normally, in our country any person will worn this quantity of gold for a marriage and hence, in such case, it appears to be just and reasonable. All these aspects have to be taken into consideration by the respondents. However, since the Baggage Rule, 2016, includes the articles carried on the person, the Officials had treated the same as baggage and hence, this Court does find any fault on the Officials also.

Conclusion - 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 case of the respondent. The petitioner worn the 10 nos. of bangles in her hands and thus, there is no secrecy or concealment. Thus, the detention of petitioner's 10 nos. of bangles is neither proper nor in accordance with law.

The respondents are directed to dispose of the petitioner's representation dated 08.02.2024 and release the goods within a period of 7 days from the date of receipt of copy of this order - petition allowed.

Classification of imported goods - Worn clothing and other worn articles - Rejection of classification of goods declared as CTH 62099090/62044990/62114990 and re-classification under 63090000 - restricted goods or not - Rejection of the declared assessable value of the goods - redetermination of value under Rule 5 of the Customs Valuation (Determination of value of imported goods) Rules, 2007 - Absolute confiscation - penalty u/s 112(a)(i) and/ or 114(A) and 114AA of the Customs Act, 1962.

HELD THAT:- The appellant was never in direct contact with the importer. The G-card holder of the appellant was contacted by one Shri Nikhil Kumar. Admittedly no authorization of importer in favour of Shri Nikhil Kumar nor in favour of the present appellant is on record. The impugned consignment is a high value consignment. Much more due diligence was required on part of the Custom Broker in which the appellant has miserably failed. His statement rather reveals that the appellant per se was unaware about the true nature of the import.

Since the importer was not found at the given address and the appellant was acting without any proper consultation and authorization, it can readily be held that the appellant was intentionally shirking his liability.

The goods in question were restricted under Indian law requiring authorization from DGFT. Admittedly, the said authorization was not obtained and the appellant did not bother to check for that authorization.

Time limitation - HELD THAT:- Though appellant has taken the plea that the show cause notice vide Corrigendum dated 16.11.2023 was much beyond the show cause notice dated 28.11.2022 as was served upon the importer, the show cause notice is alleged to be barred by time. However, it is apparent on record that the delay had occurred due to the time taken for securing the presence of the importer and their representative/key person by the appellant himself. One of them had never joined the investigation. The appellant himself was maid to serve the summons to the importers.

Penalty under Section 112(a)(i) of Customs Act, 1962 - HELD THAT:- The appellant had admitted the goods to be torn old clothes as against the declaration about new women garments. The appellant did not exercise any diligence despite the consignment under suspension was diverted to warehousing and was put on alert. The appellant rather submitted a false report. All such acts and that the goods became liable for confiscation. Resultantly, appellant has committed such acts which have rendered the impugned goods liable for confiscation. Resultantly, the penalty under Section 112(a)(i) of the Customs Act, 1962 has rightly been imposed upon the appellant. There are no infirmity in the order under challenge.

Conclusion - The appellant's lack of due diligence and reliance on unauthorized representatives contributed to the import of misdeclared and overvalued goods, justifying the penalties imposed.

Appeal dismissed.

Seeking grant of regular bail under section 483 of the Bhartiya Nagrik Surksha Sanhita, 2023 read with Section 45 of the PMLA 2002 - Money Laundering - proceeds of crime - scheduled offence/predicate offence - no material to corroborate the false statements of the individuals who have been arraigned as co-accused persons in the instant case - HELD THAT:- There is prima facie involvement of the applicant in the crime in question and the charge sheet has been filed. Since, the allegations against the applicant are serious in nature and there was material to infer his involvement in serious crimes. However, the Apex Court has held that the power of ED to arrest must be based on objective and fair consideration of material against a person. Under the PMLA, ED officers can arrest a person if they have reasons to believe based on the material in their possession that the individual is guilty. It has been held by the Apex Court that PMLA allowed arrests on the subjective opinion of ED officer, the court said an officer’s “reasons to believe” that a person was guilty an deserved arrest should not be based on mere suspicion.

The Apex Court in the matter of Directorate of Enforcement Vs. Aditya Tripathi [2023 (5) TMI 527 - SUPREME COURT] has held that the power to arrest under the Prevention of Money-laundering Act (PMLA) cannot be exercised on the “whims and fancies” of Directorate of Enforcement (ED) officers. The court wondered if the ED even had a consistent, uniform and ”one-rule-for-all” policy on when they should arrest people. It said the ED’s power to arrest must be based on objective and fair consideration of material against the accused.

It is prima facie clear that on the one hand, it is claimed that the matter is of a huge economic loss to the State Exchequer and the offence is of highly serious nature and on the other hand, the distillers who are allegedly supplying illegal liquor causing huge financial loss to the State exchequer, have not been made accused despite the fact that their names have been mentioned in the complaint made by the ED as member of the syndicate. Prima facie it appears that the prosecution has adopted an inconsistent stance being both hot and cold in its approach and has acted in a pick and choose manner in investigation.

Conclusion - It has been revealed that in the investigation conducted by the police during the predicate office, the applicant was part of the liquor syndicate and was involved in money-laundering and proceeds of crime along with other co-accused therefore, even if it is presumed that no predicate offence has been levelled against him, therefore, the applicant is entitled to get bail under PMLA, 2002, is not acceptable and deserves to be rejected and also considering the material placed on record, which prima facie shows involvement of the applicant in the crime in question, therefore, considering entirety of the matter, this Court is of the opinion that the applicant is unable to satisfy twin conditions for grant of bail under Section 45 of the PMLA, 2002, as such, it is not a fit case for grant of bail to the applicant for the reasons.

The prayer for bail made by the applicant under Section 483 of the Bhartiya Nagrik Suraksha Sanhita, 2023 (‘BNSS’) read with Section 45 of the PMLA, for the alleged offence punishable under Sections 3 & 4 of the PMLA, 2002 is hereby rejected.

Levy of service tax - various charges and receipts by a Customs House Agent (CHA) - taxability of reimbursable expenses - categorization of certain receipts under Business Auxiliary Services - invocation of extended period of limitation.

Taxability of reimbursable expenses - HELD THAT:- The issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, [2018 (3) TMI 357 - SUPREME COURT] which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client, apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, [2012 (12) TMI 150 - DELHI HIGH COURT], wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was struck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections - the findings and confirmation of demand under the nomenclature reimbursable expenses as made in the impugned order in original cannot sustain.

Levy of service tax with respect to freight/rebate/brokerage/operational surplus as CHA service - HELD THAT:- The learned adjudicating authority has rendered a specific finding in the OIO that rebate and brokerage amount received by the appellants are not liable under CHA service. However, that does not translate into a sanction for the learned adjudicating authority to unilaterally confirm the demand on these services under business auxiliary service for the aforementioned period, without putting the appellants to notice about the adjudicating authority’s said intention to do so - in any event, the finding of the adjudicating authority that rebate and brokerage received by the appellants are liable to be taxed under Business Auxiliary Service for the period 2006-07, 2007-08 and 2008-09, and the consequent confirmation of demand, is liable to be set aside as such a finding travel beyond the proposals in the SCN.

Extended period of limitation - penalties - HELD THAT:- The ingredients to invoke the extended period was absent. There is no evidence let in of any positive act of suppression or wilful misstatement with intent to evade payment of service tax on the part of the appellant, and thus the ingredients required to invoke extended period of limitation has not been established by the Department. There are force in the contentions of the learned counsel for the appellant that the issues involved were of interpretational nature and therefore the allegation of malafides made to invoke the extended period of limitation and impose penalties are untenable.

Conclusion - i) The reimbursable expenses are not part of the taxable value. ii) The profits from the sale and purchase of cargo space are not taxable under Business Auxiliary Services, as these are principal-to-principal transactions. iii) There are no grounds for invoking the extended period of limitation, as the Department failed to establish any fraudulent intent or suppression of facts by the appellant.

The impugned order in original is set aside and the appeal is allowed.

Levy of service tax upon the sale of lottery tickets - Constitutional validity of clause (zzzzn) to sub-section (105) of Section 65 of Finance Act, 1994 as introduced vide Finance Act, 2010 - contravention of Article 248 of the Constitution of India read with Entry 97-List I to the Seventh Schedule thereto - principal-to-principal transaction - scope of "betting and gambling" - HELD THAT:- The parliamentary amendments made to the Finance Act, 1994, for the purpose of imposing service tax on the respondents assessees herein as ‘business auxiliary service’ under sub-section 19 of Section 65 of the said Act effective from 01.07.2003 and by way of the insertion of the Explanation to Section 65(19)(ii) of the Finance Act, 1994 culminated in the judgment of this Court in K. Arumugam [2024 (9) TMI 182 - SUPREME COURT]. In the said case, this Court held that the relationship between the Government of Sikkim and the assessees therein was not that of principal and agent but one of principal and principal. Therefore, up to the year 2010, the lis between the parties ended with the judgment in K. Arumugam.

For the period from 01.07.2010 till 30.06.2012, amendment was made to Section 65(105) by insertion of clause (zzzzn) which defined promotion, marketing, organizing or in any other manner assisting in organizing games of chance, including lottery, bingo or lotto in whatever form or by whatever name called, whether or not conducted through internet or other electronic networks as a “taxable service”. The Sikkim High Court observed that the said clause essentially means the conducting of lotteries within the scope and ambit of betting and gambling as per Entry 62 - List II of the Seventh Schedule of the Constitution and therefore, on the very same activity of betting and gambling, service tax cannot be levied.

The expression “lottery distributor or selling agent” was defined by inserting clause (31A) to Section 65B to mean a person appointed or authorized by a State for the purposes of promoting, marketing, selling or facilitating in organizing lottery of any kind, in any manner, organized by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998. Since “betting, gambling or lottery” was included in the Negative List, an Explanation was inserted to Section 66D(i) to say that the said expression “betting, gambling or lottery” shall not include the activity specified in Explanation 2 to clause (44) of Section 65B. Thus, the intent of the Parliament was that any transaction in an actionable claim (lottery being an actionable claim) would not include an activity carried out for the distribution of lottery by the distributor. In other words, such activity of the distributor would not amount to the activity of betting, gambling or lottery.

The expression “betting, gambling or lottery” in the Explanation to Section 66D(i) has to be given its true intent and meaning as conducting a lottery is nothing but an activity coming within the scope of betting and gambling. This is by the application of the principle of noscitur a sociis where the expression “lottery” takes its meaning from “betting and gambling”. Although a lottery ticket is nothing but an actionable claim, the conduct of a lottery scheme is nothing but a betting and gambling activity. Therefore, it is only Entry 62 – List II which enables the imposition of tax by the State Government. The activity of betting and gambling which includes conducting of a lottery is regulated under Entry 34 – List II, with Entry 62 – List II being the taxation entry.

By way of Finance Act, 2015, clause (a) of the Explanation to Section 67 containing the definition “consideration” was amended to include, inter alia, any amount retained by the lottery distributor or selling agent from gross sale of lottery tickets in addition to the fee or commission, if any, or, as the case may be, the discount received, i.e., the difference in the face value of the lottery ticket and the price at which the distributor or selling agent gets that ticket. The said amendment would have no consequence and bearing on the substantive provisions for the reasons that we have stated above. This is because the distributor buys at wholesale price from the State Government and sells it at a higher price to the retailer - the amendment made to clause [ii(a)] of the Explanation 2 to Section 65B(44) in the year 2016 that the expression “transaction in money or actionable claim” would not include any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out, inter alia, by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, etc. in accordance with the provisions of the Lotteries (Regulation) Act, 1998 is only an innocuous amendment which is only cosmetic in nature.

It is found that at each stage, the amendments made to the Finance Act, 1994, in order to impose service tax on the sole distributor/purchaser of the lottery tickets (respondents-assessees herein) have been unsuccessful. The amendment to the said definition would in no way detract from the substance of the relationship between the State Government and the sole distributor or purchaser of the lottery tickets which is one of principal to principal and not of principal-agent. There being no agency and no service rendered by the respondents-assessees herein as an agent to the Government of Sikkim, service tax is not leviable on the transactions between the purchaser of the lottery tickets (respondents-assessees herein) and the Government of Sikkim.

Conclusion - The sale of lottery tickets by the Government of Sikkim to the respondents-assessees is a principal-to-principal transaction, and the activity of conducting lotteries falls within the scope of "betting and gambling," which is under the State's jurisdiction.

There are no merit in the appeals filed by the Union of India and others. Hence these appeals are dismissed.

Valuation of service tax - inclusion of certain charges collected by the appellants - logistics income constituted taxable service or not.

Inclusion of certain charges collected by the appellants - HELD THAT:- The issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, [2018 (3) TMI 357 - SUPREME COURT] which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client, apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax.

The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, [2012 (12) TMI 150 - DELHI HIGH COURT], wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections.

The findings in the impugned order in appeal confirming the demand on port congestion charges, port storage charges, seal amendment charges and detention charges cannot sustain and are liable to be set aside.

Levy of service tax on differential income representing logistics income - HELD THAT:- This Tribunal in its decision in Tiger Logistics India Ltd v. Commissioner of Central Tax GST, New Delhi, [2023 (7) TMI 546 - CESTAT NEW DELHI] has also, after noticing a number of earlier decisions, held that the demand of service tax on mark up on ocean freight is not tenable in law. In the light of the aforesaid Tribunal decisions, the finding of the appellate authority holding the logistics income of the appellants as exigible to service tax, and demand upheld thereon, is unsustainable and liable to be set aside.

Conclusion - i) The findings in the impugned order in appeal confirming the demand on port congestion charges, port storage charges, seal amendment charges and detention charges cannot sustain and are liable to be set aside. ii) The finding of the appellate authority holding the logistics income of the appellants as exigible to service tax, and demand upheld thereon is unsustainable.

Appeal allowed.

Valuation of service tax - inclusion of expenses incurred by the appellants, which were reimbursed by their clients in the assessable value - "Pure Agent" under Rule 5(2) of the Valuation Rules - invocation of the extended period of limitation - Penalties - HELD THAT:- The issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, [2018 (3) TMI 357 - SUPREME COURT] which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client, apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, [2012 (12) TMI 150 - DELHI HIGH COURT], wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections.

Extended period of limitation - Penalties - HELD THAT:- There are force in the contentions of the learned counsel for the appellants that the issue involved was of interpretational nature and no evidence of malafides has been adduced that would attract the extended period of limitation or warrant imposition of penalties.

Conclusion - i) The reimbursable expenses, not forming part of the consideration for services rendered, should not be included in the taxable value. ii) The invocation of the extended period of limitation was unjustified. iii) Penalties set aside.

The impugned order in appeal is set aside and the appeals are allowed.

Levy of service tax - whether the activities of the appellant developer is exigible to service tax under construction of complex service for the period from January 2009 to March 2010? - HELD THAT:- The issue stands decided in the appellant’s favour by the decision of this Tribunal in the appellant’s own case in M/S. SMS GARDENS PVT. LTD. AND M/S. V.R. NACHIMUTHU (CBE) VERSUS COMMISSIONER OF GST & CENTRAL EXCISE, SALEM [2021 (1) TMI 1213 - CESTAT CHENNAI]. In the said decision in para 4.1, the activities of the appellant have been discussed and it was held that 'The show cause notices in all these cases prior to 1.6.2007 and subsequent to that date for the periods in dispute, proposing service tax liability on the impugned services involving composite works contract, under ‘Commercial or Industrial Construction Service’ or ‘ Construction of Complex’ Service, cannot therefore sustain.'

Conclusion - For composite contracts involving transfer of property in goods, service tax liability would fall under Works Contract Service.

The impugned order in appeal upholding the impugned order in original of the adjudicating authority confirming the demand under construction of complex service together with demand of appropriate interest and penalties imposed, is unsustainable and is liable to be set aside - Appeal allowed.

Levy of service tax - whether the activities of the appellant while engaged for transportation of petroleum products by road by the consignor HPCL can be subjected to levy of service tax as supply of tangible goods service? - HELD THAT:- The issue stands decided in the appellants’ favour by the decision of this Tribunal by the Final Order No.40368/2019 dated 21.02.2019 in M/s. Erode Lorry Owners Association Vs. The Commissioner of GST & Central Excise, Salem Commissionerate [2019 (3) TMI 43 - CESTAT CHENNAI] where it was held that 'Coming to the tax liability on Supply of Tangible Goods, from the agreement and other facts on record it is evident that the contract was for transportation of petroleum products on which service tax under GTA has been discharged by M/s. HPCL themselves. The nature and type of agreement between the two parties also service to indicate that there is no Supply of Tangible Goods involved in this matter. This being so, the demand made under this category also cannot be sustained and requires to be set aside.'

It is found from the annexure to the statement of demand No.34/2014 dated 16-10-2014 that for the year 2013-14, the amount received by the appellants on lorry stand parking rent and the amount received on building rent put together and sought to be taxed under renting of immovable property services is very much under the threshold limit for the said year as specified under the Notification 33/2012-ST dated 20-06-2012.

Conclusion - The transportation services provided did not fall under the category of supply of tangible goods service and that the amounts received under renting of immovable property service were within the exemption limit.

The impugned Order in Appeal is set aside. The appeal is allowed in toto.

Valuation of Excise duty - inclusion of notional cost of the drawings and designs provided by Maruti to the appellant in the assessable value - additional consideration for sale or not - HELD THAT:- It is undisputed that if they form ‘additional consideration for sale‘, then their value must be included in the assessable value as per section 4(1) (b) of the Central Excise Act,1944 [Excise Act] and Rule 6 of the Central Excise Valuation (Determinationof Price of Excisable Goods) Rules, 2000 [Valuation Rules] and if they do not form ‘additional consideration for sale‘, then they cannot be included and the assessable value will be the transaction value itself as per section 4(1) (a) of the Excise Act.

For something to be ‘consideration‘, it must be ‘something done‘ or ‘something abstained from doing‘ at the desire of the promisor. This something could be done or abstained from doing either by the promisee himself or by someone else but it must be at the desire of the promisor - the consideration could be in cash or some other valuable or simply something done or abstained from doing under the Contract Act but under Sale of Goods Act, only price can be the consideration. Under the Central Excise Act,consideration has to be for ‘cash, deferred payment or some other valuable consideration”. Thus, the scope of the consideration under the three Acts varies somewhat, but what does not vary is that it has to be at the desire of the promisor done either by the promisee or by someone else.

The question, however, is whether these specifications, drawings and designs of value are ‘consideration‘ in the transactions between Maruti and the appellant. As discussed, for something to be a consideration, it must be at provided at the desire of the promisor by either ‘the promisee‘ or someone else - For a promise to come into existence, there must be a proposal (or offer) from the seller and its acceptance by the buyer. Until the proposal is made and accepted, there is no promise. Once the offer is made and accepted, the promise makes the seller the promisor and the buyer the promisee. Before the offer and its acceptance, there is neither any promise nor any promisor-promisee relationship between them as they were only prospective seller and prospective buyer. When the appellant submitted its quotations and Maruti accepted them, Maruti became the promisee and the appellant the promisor.

In a batch of appeals decided by this Tribunal in Denso India Private Limited vs. Additional Director General (Adjudication) [2024 (3) TMI 686 - CESTAT NEW DELHI], appeals in respect of other vendors of Maruti were decided in favour of the appellants on an identical issue.

Conclusion - The specifications and designs provided by Maruti were not to be included in the assessable value for excise duty purposes.

The impugned order cannot be sustained - Appeal allowed.

Clandestine manufacture and clearance - input-output ratio - estimated production based on theoretical norms - cogent and corroborative evidence requirement - time bar and extended period of limitation - revenue neutrality of inter-unit transfers - reliance on expert opinion without independent corroboration

Input-output ratio - estimated production based on theoretical norms - cogent and corroborative evidence requirement - reliance on expert opinion without independent corroboration - Whether the Revenue proved clandestine manufacture by applying an input/output ratio of 1:1.67 instead of the appellant's declared ratio of about 1:1.89-1:1.90. - HELD THAT: - The Tribunal examined the material placed on record including the appellant's declared annual returns, purchase particulars showing lower grade iron ore and coal, and unit-wise input/output figures which yielded ratios of 1:1.92 and 1:1.87 (averaging about 1:1.89). The Revenue's demand rested on an expert-derived theoretical ratio of 1:1.67 but there was no evidence that the Department conducted any independent plant-specific verification or sample testing of the appellant's production process. The Bench noted that output depends on multiple factors (Fe content, coal grade, dolomite, kiln capacity, power consumption) and that thirdparty expert opinion, without cogent corroborative material (such as out-of-account raw material receipts, transportation/sales records, buyers' statements, or electricity records demonstrating excess usage), cannot by itself establish clandestine manufacture. Applying the cited precedents and the factual matrix, the Tribunal held that Revenue failed to discharge the twin tests required to infer clandestine manufacture.

Demand based on the Revenue's input/output ratio rejected; clandestine manufacture not proved and demand on this count set aside.

Clandestine manufacture and clearance - cogent and corroborative evidence requirement - Whether the Revenue proved clandestine clearance of the alleged quantity of sponge iron. - HELD THAT: - The Tribunal found no evidence of actual removals: there were no seized records of buyers, no transport or cash receipt records, no statements from purchasers or transporters, and no material showing movement of the alleged quantities. Removal of the claimed quantity would have entailed extensive logistics and corresponding documentary trails which the Revenue did not produce. In light of the absence of the fundamental indicia of clandestine clearance recognized in earlier decisions, the Revenue's allegation of clandestine removal could not be sustained.

Clandestine clearance not established; demand on account of alleged removals set aside.

Estimated production based on theoretical norms - cogent and corroborative evidence requirement - Whether the shortage of 12.165 MT (found on search by eye-estimate) could sustain a demand. - HELD THAT: - The shortage noted at the time of search was based on eye-estimate without physical weighment. The Tribunal observed that the purported shortage was negligible relative to recorded production (about 0.025% of production for 2009-10), and that an estimate without weighment is not a permissible basis for a duty demand where quantity is determinative. Given the absence of reliable measurement and the trivial percentage shortfall, no adverse inference could be drawn.

Demand founded on the 12.165 MT shortage set aside.

Revenue neutrality of inter-unit transfers - Whether undervaluation on clearances to the company's other unit (DivisionII) sustaining a duty demand is established. - HELD THAT: - The Tribunal noted that both units share a common balance sheet and any excise duty paid by the transferor would be available as Cenvat credit to the receiving unit, rendering the transaction revenue-neutral. The Revenue did not demonstrate any commercial benefit or tax leakage arising from the interunit pricing that would justify the confirmed demand.

Demand for alleged undervaluation on interunit clearance set aside.

Time bar and extended period of limitation - cogent and corroborative evidence requirement - Whether invocation of the extended period of limitation was permissible and whether the demand was timebarred. - HELD THAT: - The Tribunal found that the key facts concerning input/output ratios, production and consumption were disclosed in statutory returns (ER1/ER4/ER5) and in communications to the jurisdictional Range/Division, and thus the department had constructive knowledge of the material facts. The Revenue's demand principally relied on expert opinion applied retrospectively rather than on proof of suppression or concealment. In absence of evidence to show suppression with intent to evade, the requirements for invoking the extended period were not satisfied.

Extended period invocation not sustainable; demand (to the extent based on extended period) is timebarred and set aside.

Penalty - clandestine manufacture and clearance - Whether the penalty imposed on the Managing Director could be sustained when the demand itself fails. - HELD THAT: - Since the Tribunal set aside the confirmed demands on merits and limitation grounds, the consequential penalty imposed on the Managing Director lacked sustenance. The Tribunal therefore found no basis to uphold the personal penalty in the absence of a valid confirmed demand.

Penalty on the Managing Director set aside.

Final Conclusion: The Tribunal allowed the appeals: demands confirmed by the Adjudicating Authority for alleged clandestine manufacture and clearance, for the minor searchday shortage, and for undervaluation on interunit transfers were set aside on merits; the extended period invocation was held inapplicable and the demand held timebarred to that extent; consequential penalties were quashed and the appellants granted consequential relief as per law.

Invocation of Extended period of limitation - wrongful availment of CENVAT Credit - HELD THAT:- The fact that the alleged wrong availment was discovered during audit only means that the officer responsible to scrutinise the returns had not done his job. Otherwise, what was discovered by the audit could have as well been discovered by the officer. Thus the sole ground on which the extended period of limitation has been invoked is effectively that the assessing officer had not done his job. If the assessing officer did not do his job, it does not mean that the assessee has suppressed anything willfully or mis-stated.

The demand and penalty cannot be sustained on the ground of limitation itself. There is no need to examine the merits of the case as the entire demand is time barred.

Conclusion - The assessing officer's failure to scrutinize the returns properly did not constitute willful suppression by the appellant.

Appeal allowed.

Revision of assessments of the assessee-respondent made for the assessment years 2002-2003 to 2004-2005 - refund the exempted portion of the tax as per the provision of Package Scheme of Incentives 1993 on the sale of goods effected in the course of inter-State trade or commerce - HELD THAT:- The State Government though continues to have the power in public interest to grant exemption/partial exemption of tax on inter- State sale, trade or commerce but the same is subject to fulfilment of the requirements laid down under Sub-Section (4) of Section 8 of the CST Act which means that henceforth the exemption so granted would be admissible only if Form ‘C’ and ‘D’ are supplied by the dealer in context with the aforesaid interstate sale, trade and commerce.

The absolute power initially conferred under Section 8(5) upon the State Government to grant exemption/partial exemption of tax in connection with inter-State sale, trade or commerce with the amendment was circumscribed and restricted to the fulfilment of the requirement of Section 8(4) of the CST Act which prescribes for the submission of Form ‘C’ and ‘D’ only w.e.f. 11.05.2002. However, such restrictions are prospective in nature and would not apply retrospectively to cases where absolute exemption was permitted much prior to the amendment.

In the instant case, the assessee-respondent was granted tax benefits under the PSI 1993 issued in exercise of power under Section 8(5) of the CST Act as per the eligibility and entitlement certificates dated 20.02.1998 and 24.03.1998 respectively and that said benefit was available to the assessee-respondent up to the period of 2012 or to the extent of Rs.273.54 crore, whichever was earlier. The said benefit granted to the assessee-respondent was not with any restriction, much less the condition of submission of Form ‘C’ and ‘D’. Thus, on the basis of such exemption granted by the petitioner vide Eligibility Certificate dated 20.02.1998 and Entitlement Certificate dated 24.03.1998, a substantive right had accrued to the respondent to claim the said benefit up to the year 2012 or to the extent of Rs.273.54 crore - in view of the amendment of Section 8(5) by the Finance Act, 2002, the State Government ceases to have power to grant exemption in respect of sale of goods covered under Section 8(2) but that is not the issue herein. The precise issue in the present case is whether the aforesaid amendment would take away the right which had accrued to the assessee-respondent under the Eligibility/Entitlement certificates wherein absolute exemptions were granted without any condition of submission of Form ‘C’ and ‘D’.

In the case at hand, the assessee-respondent was held eligible for absolute exemption under the PSI 1993 issued in exercise of power under Section 8(5) of the CST Act as per Eligibility certificate dated 20.02.1998 and Entitlement certificate dated 24.03.1998 granting exemption to it from payment of tax under the BST Act and CST Act to the extent of Rs. 273.54 crore or up till 2012, whichever is earlier. The said exemption granted to the assessee-respondent was much prior to the enforcement of the Finance Act, 2002 with effect from 11.05.2002. Therefore, by virtue of the unamended Section 8(5) and the Notification issued thereunder as well as under the aforesaid Eligibility and Entitlement certificates, a substantive right of exemption from payment of tax had accrued to the assessee-respondent - The requirement for fulfilling the condition of Section 8(4) of the CST Act for getting the benefit of tax exemption came subsequently after the amendment of Section 8(5) with effect from 11.05.2002 and would apply prospectively to transactions in respect of which eligibility and entitlement certificates are issued subsequently.

Conclusion - The State Government was not competent to issue the impugned notices for revising the assessment of the assessee-respondent and to demand the exempted tax only for the reason that the assessee-respondent has not submitted Form ‘C’ and ‘D’ in support of inter-State sale, trade & commerce. The requirement of submission of Form ‘C’ and ‘D’ would apply prospectively after 11.05.2002 i.e., after the Finance Act of 2002.

The appeal lacks merit and hence dismissed.

Dismissal of second appeal - Denial of entire input tax credit and special rebate claimed - absence of any separate account, for raw materials traceable to products transferred outside the state, maintained by the assessee - HELD THAT:- It is found that inasmuch as the Tribunal has merely accepted the findings of the First Appellate Authority on facts that were not disputed by the State in the appeals before the Tribunal, there is no substantial question of law that arises for consideration in these OT. Revision petitions. The subjective satisfaction arrived at by the First Appellate Authority, based on records and data produced before him, would suffice to hold that the revenue has not made out a case warranting interference with the impugned order of the Tribunal.

Conclusion - The revenue did not establish a case warranting interference with the Tribunal's order, leading to the dismissal of the OT.

These OT. Revisions are dismissed.

Addition of sale turnover by relying on the income disclosed under the head 'Income from Other Sources'/ 'Other Income’ in the trading profit and loss account for the relevant assessment year - estimating the sales turnover for the purpose of assessment under the Kerala Value Added Tax Act - estimating the sales turnover from the income disclosed under the head 'Income from Other Source' in the trading profit and loss account, without any independent finding - estimating the sale turnover by adopting the turnover at 8% as gross profit as the benchmark without any comparable data - benefit of the sub clause (3) of Section 25AA of the KVAT Act - HELD THAT:- Section 25 (1) of the Kerala Value Added Tax Act, 2003 prescribes the power of the assessing authority to complete the assessment on best judgment basis, if it is found that any income has escaped the assessment. It is now trite law that even when an intelligence officer initiates proceedings for penalty under Section 67 of the KVAT Act and finalises a report, the said report cannot form the basis of reopening of the assessment. The above principle equally applies to the proceedings initiated under Section 25. The assessing officer is bound to conduct an independent enquiry as regards the materials available, which according to him requires reopening of the assessment or completing the assessment on a best judgment basis.

The assessing officer proceeded clearly on an assumption, which is impermissible under the scheme of the Act. The infirmity which had crept into the assessment order was not considered in proper perspective by the first appellate authority as well as by the appellate tribunal.

Conclusion - None of the authorities have considered the case in hand in its true perspective and applied the law correctly. Thus, the order of assessment as confirmed by the first appellate authority and the tribunal cannot be sustained.

The O.T. Revision is allowed by setting aside the order of assessment dated 17.10.2017 as confirmed by the first appellate authority as well as by the tribunal and answering the questions of law in favour of the assessee and against the Revenue.

Disallowance of input tax credit claimed by the Respondent on purchases effected from dealers who had failed to discharge their tax liability on such sales - disallowance of input tax credit claimed by the Respondent, despite the fact that the Respondent had utterly failed to discharge his burden of proving the correctness and genuineness of such claim - levy of penalty under Section 70(2)(a) of the KVAT Act - HELD THAT:- The Revenue officials have power to investigate and for that, they can summon any person as witness or otherwise cannot be gainfully disputed. The Assessment Officer having undertaken the investigation has formed an opinion as to there being a clandestine case of Bill Trading with the connivance. Once such an opinion is available in the very Assessment Order, it was open to the Assessee to dispel/dilute the same by producing evidentiary material. In fact, he had undertaken in writing to bring the representative of dealers to depose in his favour - No explanation is offered why he did not avail that facility. To this needs to be added one militant fact that the selling dealers enumerated in the Reassessment Order have not deposited the tax component claimed to have been paid by the Respondent Assessee on its purchase of goods.

The goods in question were copper/GI strips, sheets, patties, plates & wires. How such heavy things could have been transported in two-wheelers & three wheelers, remains to be a mystery wrapped in enigma. The reasoning of the Tribunal that in only one instance of transports, Kinetic Honda two-wheeler was used and other vehicles were autos/trucks, does not make much sense. If a dealer does not offer explanation as to why he militantly lied even in respect of one single vehicle, that would cast shadow on the truthfulness of his other statements. We hasten to add that we are not invoking the maxim falses in uno, falses omnibus i.e., proof of falsity in one thing raises a strong presumption of falsity in everything - There is force in the submission of learned AGA that the version of officials of the Tax Department, founded on evidentiary material as to the unscrupulous transactions cannot be lightly interfered for askance. Therefore, the Tribunal is not justified in upsetting the findings recorded by the Assessing Authority. Even the First Appellate Authority committed an error in upsetting the levy of penalty inasmuch as, there was absolutely no material warranting the same.

Penalty - HELD THAT:- The Tribunal was swayed away by the documents such as purchase –sale invoices, statement of accounts, purchase & sale register extract coupled with copies of cheques, it missed a very two important factors i.e., the requirement of proof of movement of goods, especially when the Revenue had pleaded that the tax component had not reached the Public Exchequer. Lastly, it needs to be stated that there are no basis on which the First Appellate Authority could quash the Penalty Order u/s.70 (2) of the Act.

Conclusion - i) The burden of proof lies with the dealer claiming input tax credit and that mere production of invoices or payment by cheques is not sufficient to discharge this burden. ii) The Tribunal is not justified in upsetting the findings recorded by the Assessing Authority. Even the First Appellate Authority committed an error in upsetting the levy of penalty inasmuch as, there was absolutely no material warranting the same.

The impugned order of the Tribunal is set at naught in its entirety - appeal of revenue allowed.

Challenge to Assessment Order revised by the Additional Commissioner of Commercial Taxes - HELD THAT:- It is not inclined to grant interference in the matter inasmuch as the question as to revisability of Assessment Order of the kind is no longer res integra. In KIRLOSKAR POWER SUPPLY CO. LTD. VERSUS STATE OF KARNATAKA [2006 (6) TMI 490 - KARNATAKA HIGH COURT], it is observed 'Jurisdiction is clearly defined under section 15 of the Act. In the case on hand, it is seen that the Additional Commissioner has rightly invoked his power under section 15 of the Act for the purpose of revising the order passed by the Joint Commissioner. However, while passing the final order he has chosen to set aside the subsequent assessment order passed by the assessing authority. This could not have been done by him in terms of section 15 of the Act.'

It is difficult to countenance the contention of learned AGA that the expression ‘any proceedings’ employed in Section 15 would include the order of the Commercial Tax officer and therefore, the impugned order is sustainable.

Appeal allowed.