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The primary legal issue considered was whether the absence of physical or digital signatures on show-cause notices and final orders issued under the GST Act and Rules invalidates these documents. The court examined the necessity of signatures for authentication of such documents and the implications of unsigned notices/orders under the GST legal framework.
ISSUE-WISE DETAILED ANALYSIS
1. Requirement of Signature on Notices/Orders
Relevant Legal Framework and Precedents: The court examined the provisions of the GST Act, particularly Sections 73 and 74 concerning 'Demands and Recovery', and the GST Rules, including Rule 142 and statutory Forms DRC-01 and DRC-07, which require the signature of the Proper Officer. The court also considered precedents from other High Courts and the Supreme Court, including judgments in M/s. M.M. Rubber and Company and Kailasho Devi Burman, which emphasized the necessity of signatures for the validity of legal documents.
Court's Interpretation and Reasoning: The court concluded that the absence of a signature renders the notices/orders invalid. It reasoned that statutory forms under the GST Rules explicitly require signatures, and this requirement is a statutory mandate, not a mere procedural formality. The court rejected the argument that unsigned documents could be considered valid under Section 160 of the GST Act, which protects proceedings from being invalidated due to technical defects, as the absence of a signature was deemed a substantive defect.
Key Evidence and Findings: The court noted that statutory Forms DRC-01 and DRC-07 require the signature, name, designation, jurisdiction, and address of the Proper Officer, indicating a clear statutory requirement for authentication.
Application of Law to Facts: The court applied the statutory requirements to the facts, determining that the unsigned notices/orders did not meet the legal standards for validity under the GST framework.
Treatment of Competing Arguments: The court addressed the respondents' reliance on Section 160 and the advisory from the GST Network, dismissing these arguments by emphasizing the statutory nature of the signature requirement and the lack of statutory backing for the advisory.
Conclusions: The court concluded that the unsigned notices/orders were invalid and could not withstand judicial scrutiny.
2. Impact of Section 160 of the GST Act
Relevant Legal Framework and Precedents: Section 160 was analyzed to determine whether it could validate unsigned notices/orders. The court referenced the statutory requirement for signatures and the Supreme Court's emphasis on strict adherence to statutory mandates in fiscal statutes.
Court's Interpretation and Reasoning: The court interpreted Section 160 as not applicable to substantive defects like the absence of a signature, which affects the validity of the notices/orders fundamentally.
Key Evidence and Findings: The court found that the statutory requirement for signatures in the GST Rules and Forms could not be overridden by Section 160.
Application of Law to Facts: The court determined that Section 160 did not protect the unsigned notices/orders from invalidation.
Treatment of Competing Arguments: The court dismissed the argument that Section 160 could validate the documents, emphasizing the distinction between technical and substantive defects.
Conclusions: The court held that Section 160 did not apply to the substantive defect of unsigned notices/orders, affirming their invalidity.
SIGNIFICANT HOLDINGS
The court established that the absence of a signature on show-cause notices and final orders under the GST framework constitutes a substantive defect, rendering such documents invalid. The court emphasized the statutory requirement for signatures in the relevant GST Rules and Forms, and concluded that unsigned documents lack the necessary legal authenticity.
Verbatim Quotes of Crucial Legal Reasoning:
"A notice or final order can become legal or bear authenticity on its forehead only when it is physically/digitally signed by the Proper Officer."
"In absence of signature, notice/order cannot be held to be a valid notice/order."
The court's final determination was to set aside the impugned notices and orders, allowing the respondents to issue fresh notices/orders in compliance with the statutory requirements, without expressing any opinion on the merits of the case. The court also clarified that the limitation period would not be a barrier for reissuing the notices/orders.
Legality, validity and propriety of the show-cause notices and final orders which admittedly do not contain physical or digital signatures of the Proper Officer - HELD THAT:- There is no ‘head on’ between Sections 73/74 of the GST Act and DRC-01 and DRC-07 and hence we find no merit in the contention of Sri Swaroop Oorilla that since Sections 73/74 of the GST Act are silent about the requirement of digital/physical signature any such requirement in DRC-01 and DRC-07 can be ignored. This is trite that Rules are introduced to translate the scheme of the Act into reality. When there is no difference or ‘head on’ between the Sections and the Rules/Forms, the Rules supplement the Sections and do not supplant it. In this view of the matter, it is constrained to hold that once there exists a specific column earmarked for the signature, the said requirement becomes a statutory requirement. For this reason, the argument that taxation statute must be strictly interpreted based on the judgment of Supreme Court in Dilip Kumar & Co [2018 (7) TMI 1826 - SUPREME COURT (LB)] is of no assistance to the respondents. Instead it supports the contention of the petitioners.
A careful reading of sub-section (1) of Section 160 of the GST Act makes it clear that the assessment, re-assessment, adjudication, review, revision, appeal, rectification, notice, summons and other proceedings will not become invalid for any mistake, defect or omission if in substance and same is in conformity with and according to the intent, purpose and requirement of this Act or any existing law. As noticed above, the requirement of the GST Rules read with Forms is to put the signature on DRC-01 and DRC-07 at specified place. Thus, sub-section (1) does not help the respondents in any way.
A minute reading of this Rule makes it clear like noonday that the Rule mandates and makes it imperative for the Proper Officer to serve the notice/order in the prescribed Forms. At the cost of repetition, the requirement of the Form is to provide signature, name, designation, jurisdiction and address - in every sub-rule of Rule 142 of the GST Rules, the law makers have used the word ‘shall’ for issuance of Statutory Forms which makes the issuance of Forms in prescribed form as mandatory. Since prescribed Forms as per Rule 142 need signature, such requirement must be held to be mandatory. In absence of signature, notice/order cannot be held to be a valid notice/order.
As analyzed, in view of judgment of Supreme Court in M/s. M.M. Rubber and Company [1991 (9) TMI 71 - SUPREME COURT] and Kailasho Devi Burman [1996 (2) TMI 2 - SUPREME COURT], such notices/orders issued without signatures are held to be invalid, the same will not get immunity in the teeth of sub-sections (1) and (2) of Section 160 of the GST Act.
Chapter-II of the IT Act deals with digital signature and electronic signature. The authentification of electronic records is based on fulfillment of requirement of Sections 3 and 5 and we find substance in the argument of Sri Karan Talwar that apart from GST Act, GST Rules and Statutory Forms prescribed thereunder and Sections 3 of the IT Act, make it obligatory for the Proper Officer to put his signature. Section 3A of the IT Act on which Sri Swaroop Oorilla placed reliance does not insulate the notice/order if it does not contain signature of Proper Officer.
From the view point of comity also, it is inclined to interpret the provisions of the GST Act, GST Rules and Statutory Forms prescribed thereunder in the same manner different High Courts have considered it. More-so, when Revenue could not make out any exception based on aspects of per incuriam, sub silentio, obiter dicta or concession, etc. The scheme of the GST Act, Rules and Statutory Forms prescribed thereunder considred and, judgment, the impugned show cause notices and the orders which are not pregnant with the signature of the Proper Officer cannot sustain judicial scrutiny.
Conclusion - The absence of a signature renders the notices/orders invalid.
Petition allowed.
Legality, validity and propriety of the show-cause notices and final orders which admittedly do not contain physical or digital signatures of the Proper Officer - HELD THAT:- There is no ‘head on’ between Sections 73/74 of the GST Act and DRC-01 and DRC-07 and hence we find no merit in the contention of Sri Swaroop Oorilla that since Sections 73/74 of the GST Act are silent about the requirement of digital/physical signature any such requirement in DRC-01 and DRC-07 can be ignored. This is trite that Rules are introduced to translate the scheme of the Act into reality. When there is no difference or ‘head on’ between the Sections and the Rules/Forms, the Rules supplement the Sections and do not supplant it. In this view of the matter, it is constrained to hold that once there exists a specific column earmarked for the signature, the said requirement becomes a statutory requirement. For this reason, the argument that taxation statute must be strictly interpreted based on the judgment of Supreme Court in Dilip Kumar & Co [2018 (7) TMI 1826 - SUPREME COURT (LB)] is of no assistance to the respondents. Instead it supports the contention of the petitioners.
A careful reading of sub-section (1) of Section 160 of the GST Act makes it clear that the assessment, re-assessment, adjudication, review, revision, appeal, rectification, notice, summons and other proceedings will not become invalid for any mistake, defect or omission if in substance and same is in conformity with and according to the intent, purpose and requirement of this Act or any existing law. As noticed above, the requirement of the GST Rules read with Forms is to put the signature on DRC-01 and DRC-07 at specified place. Thus, sub-section (1) does not help the respondents in any way.
A minute reading of this Rule makes it clear like noonday that the Rule mandates and makes it imperative for the Proper Officer to serve the notice/order in the prescribed Forms. At the cost of repetition, the requirement of the Form is to provide signature, name, designation, jurisdiction and address - in every sub-rule of Rule 142 of the GST Rules, the law makers have used the word ‘shall’ for issuance of Statutory Forms which makes the issuance of Forms in prescribed form as mandatory. Since prescribed Forms as per Rule 142 need signature, such requirement must be held to be mandatory. In absence of signature, notice/order cannot be held to be a valid notice/order.
As analyzed, in view of judgment of Supreme Court in M/s. M.M. Rubber and Company [1991 (9) TMI 71 - SUPREME COURT] and Kailasho Devi Burman [1996 (2) TMI 2 - SUPREME COURT], such notices/orders issued without signatures are held to be invalid, the same will not get immunity in the teeth of sub-sections (1) and (2) of Section 160 of the GST Act.
Chapter-II of the IT Act deals with digital signature and electronic signature. The authentification of electronic records is based on fulfillment of requirement of Sections 3 and 5 and we find substance in the argument of Sri Karan Talwar that apart from GST Act, GST Rules and Statutory Forms prescribed thereunder and Sections 3 of the IT Act, make it obligatory for the Proper Officer to put his signature. Section 3A of the IT Act on which Sri Swaroop Oorilla placed reliance does not insulate the notice/order if it does not contain signature of Proper Officer.
From the view point of comity also, it is inclined to interpret the provisions of the GST Act, GST Rules and Statutory Forms prescribed thereunder in the same manner different High Courts have considered it. More-so, when Revenue could not make out any exception based on aspects of per incuriam, sub silentio, obiter dicta or concession, etc. The scheme of the GST Act, Rules and Statutory Forms prescribed thereunder considred and, judgment, the impugned show cause notices and the orders which are not pregnant with the signature of the Proper Officer cannot sustain judicial scrutiny.
Conclusion - The absence of a signature renders the notices/orders invalid.
Petition allowed.
Challenge to order passed by the respondent under Section 74 of the State Goods and Services Tax Act, 2017 - HELD THAT:- A bare look at the show cause notice dated 12.10.2022 reveals that only indication made is that for the period in question, the difference between GST DRC-01 and GST-3B was Rs. 13,55,943.00/- and that no response to notice under Section 61 of the Act was given and, therefore, the petitioner must deposit a sum of Rs. 13,55,943.00/- as tax along with interest and penalty. The petitioner deposited the tax, whereafter the order impugned under Section 74 of the Act has been passed demanding interest and penalty.
For invoking Section 74 of the Act, the allegations pertaining to suppression etc. are sine qua non in absence thereof, the jurisdiction under Section 74 of the Act itself cannot be invoked by the authorities.
The order impugned dated 16.03.2024 passed by respondent no. 2 demanding interest and penalty from the petitioner invoking provisions of Section 74 of the Act cannot be invoked - Petition allowed.
Challenge to order passed by the respondent under Section 74 of the State Goods and Services Tax Act, 2017 - HELD THAT:- A bare look at the show cause notice dated 12.10.2022 reveals that only indication made is that for the period in question, the difference between GST DRC-01 and GST-3B was Rs. 13,55,943.00/- and that no response to notice under Section 61 of the Act was given and, therefore, the petitioner must deposit a sum of Rs. 13,55,943.00/- as tax along with interest and penalty. The petitioner deposited the tax, whereafter the order impugned under Section 74 of the Act has been passed demanding interest and penalty.
For invoking Section 74 of the Act, the allegations pertaining to suppression etc. are sine qua non in absence thereof, the jurisdiction under Section 74 of the Act itself cannot be invoked by the authorities.
The order impugned dated 16.03.2024 passed by respondent no. 2 demanding interest and penalty from the petitioner invoking provisions of Section 74 of the Act cannot be invoked - Petition allowed.
Challenge to order whereby the respondents have passed order in original and raised demand - an interim order was granted by this Court - HELD THAT:- The Court, until further orders, has stayed payment of GST for grant of mining lease/royalty by the petitioner.
In view of the above, it cannot be said that the respondents were not justified in passing the order of assessment and raising the demand as otherwise they are bound to follow the direction, i.e. not to enforce the demand.
The petitioner was not required to question the validity of the assessment order and the demand notice by filing a separate writ petition - petition disposed off.
Challenge to order whereby the respondents have passed order in original and raised demand - an interim order was granted by this Court - HELD THAT:- The Court, until further orders, has stayed payment of GST for grant of mining lease/royalty by the petitioner.
In view of the above, it cannot be said that the respondents were not justified in passing the order of assessment and raising the demand as otherwise they are bound to follow the direction, i.e. not to enforce the demand.
The petitioner was not required to question the validity of the assessment order and the demand notice by filing a separate writ petition - petition disposed off.
Provisional attachment of the bank account of the petitioner - reasoned order or not - violation of principles of natural justice - HELD THAT:- In the present case, subsequent to the provisional attachment, the petitioner had approached this Court and the coordinate Bench of this Court had directed the respondent authorities to consider the objection filed by the petitioner and grant an opportunity of hearing. The petitioner availed of the said opportunity and filed his objections and was heard by the respondents authorities, which culminated subsequently in the order dated October 30, 2024 wherein the objections of the petitioner were rejected by the respondent authorities. Furthermore, in the present the case show cause notice issued under Section 74 of the Act has also been adjudicated upon and a final order passed under Section 74 of the Act.
The objections of the petitioner were dealt with by the respondent authorities and the provisional attachment was justified under Section 83 of the Act for a period of one year. The said period would only come to an end on July 7, 2025.
Conclusion - Since show cause notice has already been adjudicated upon and order was passed under Section 74 of the Act, the petitioner has the statutory alternative remedy under the law to file an appeal against the same.
This writ petition is dismissed with liberty granted to the petitioner to approach the appellate authority in accordance with law.
Provisional attachment of the bank account of the petitioner - reasoned order or not - violation of principles of natural justice - HELD THAT:- In the present case, subsequent to the provisional attachment, the petitioner had approached this Court and the coordinate Bench of this Court had directed the respondent authorities to consider the objection filed by the petitioner and grant an opportunity of hearing. The petitioner availed of the said opportunity and filed his objections and was heard by the respondents authorities, which culminated subsequently in the order dated October 30, 2024 wherein the objections of the petitioner were rejected by the respondent authorities. Furthermore, in the present the case show cause notice issued under Section 74 of the Act has also been adjudicated upon and a final order passed under Section 74 of the Act.
The objections of the petitioner were dealt with by the respondent authorities and the provisional attachment was justified under Section 83 of the Act for a period of one year. The said period would only come to an end on July 7, 2025.
Conclusion - Since show cause notice has already been adjudicated upon and order was passed under Section 74 of the Act, the petitioner has the statutory alternative remedy under the law to file an appeal against the same.
This writ petition is dismissed with liberty granted to the petitioner to approach the appellate authority in accordance with law.
Detention and seizure of goods due to the expiration of the e-way bill during intra-state stock transfer - HELD THAT:- Admittedly, the goods were in transit when the same was intercepted on the ground that validity of e-way bill accompanying with the goods, was expired. The petitioner at the time of detention / seizure has filed a letter dated 16.3.2021 stating therein that due to mistake of the driver of the vehicle, e-way bill was expired without knowledge of the petitioner. In the letter it is specifically stated that the goods in question was despatched to Aligarh as intra-state stock transfer from one unit to another unit. Since the goods in transit were not sold goods but intra-state stock transfer, therefore, no adverse view should be drawn.
Further, the mistake of the driver has been disbelieved only on the ground that at the time of making statement, the driver did not make statement that he visited his village due to illness of his child and stayed there for three days but on the very first instance, letter dated 16.3.2021 was filed before the respondent authority stating therein that due to mistake of the driver, the validity of e-way bill was expired and without there being any intimation to the petitioner, the driver of the vehicle has started his onward journey after expiry of e-way bill. The said fact has not been disbelieved at any stage.
Hon’ble the Apex Court in the case of Assistant Commissioner (ST) & others Vs. M/s Satyam Shivam Papers Private Limited [2022 (1) TMI 954 - SC ORDER] has held that 'it has precisely been found that there was no intent on the part of the writ petitioners to evade tax and rather, the goods in question could not be taken to the destination within time for the reasons beyond the control of the writ petitioners.'.
Conclusion - The detention and seizure of goods, as well as the penalty imposed, were not justified in the absence of evidence of tax evasion and compliance with intra-state transfer regulations.
Petition allowed.
Detention and seizure of goods due to the expiration of the e-way bill during intra-state stock transfer - HELD THAT:- Admittedly, the goods were in transit when the same was intercepted on the ground that validity of e-way bill accompanying with the goods, was expired. The petitioner at the time of detention / seizure has filed a letter dated 16.3.2021 stating therein that due to mistake of the driver of the vehicle, e-way bill was expired without knowledge of the petitioner. In the letter it is specifically stated that the goods in question was despatched to Aligarh as intra-state stock transfer from one unit to another unit. Since the goods in transit were not sold goods but intra-state stock transfer, therefore, no adverse view should be drawn.
Further, the mistake of the driver has been disbelieved only on the ground that at the time of making statement, the driver did not make statement that he visited his village due to illness of his child and stayed there for three days but on the very first instance, letter dated 16.3.2021 was filed before the respondent authority stating therein that due to mistake of the driver, the validity of e-way bill was expired and without there being any intimation to the petitioner, the driver of the vehicle has started his onward journey after expiry of e-way bill. The said fact has not been disbelieved at any stage.
Hon’ble the Apex Court in the case of Assistant Commissioner (ST) & others Vs. M/s Satyam Shivam Papers Private Limited [2022 (1) TMI 954 - SC ORDER] has held that 'it has precisely been found that there was no intent on the part of the writ petitioners to evade tax and rather, the goods in question could not be taken to the destination within time for the reasons beyond the control of the writ petitioners.'.
Conclusion - The detention and seizure of goods, as well as the penalty imposed, were not justified in the absence of evidence of tax evasion and compliance with intra-state transfer regulations.
Petition allowed.
1. Whether the respondents are obligated to grant a refund of Rs. 10,79,696/- to the petitioner by passing a fresh FORM GST RFD-06Rs.
2. Whether the mismatch of invoices in GSTR-2A justifies the denial of the refund claimed by the petitionerRs.
ISSUE-WISE DETAILED ANALYSIS:
Issue 1: Refund of Rs. 10,79,696/-
- Relevant legal framework and precedents:
The petitioner sought a writ of mandamus or similar direction to compel the respondents to grant the refund. The respondents contested the claim citing discrepancies in the GSTR-2A.
- Court's interpretation and reasoning:
The Court noted the respondents' argument regarding discrepancies in the GSTR-2A and the petitioner's failure to file a rejoinder affidavit despite previous opportunities.
- Key evidence and findings:
The respondents provided a detailed breakdown of admitted demand amounts per month, highlighting discrepancies in the petitioner's claims.
- Application of law to facts:
The Court acknowledged the respondents' position but allowed the petitioner an opportunity to respond to the counter affidavit within three weeks.
- Treatment of competing arguments:
The Court considered both parties' submissions but emphasized the need for the petitioner to address the discrepancies raised by the respondents.
- Conclusions:
The Court disposed of the petition, granting the petitioner three weeks to respond to the respondents' contentions. The competent authority was directed to examine the response and issue a reasoned order within four weeks.
Issue 2: Mismatch of Invoices in GSTR-2A
- Relevant legal framework and precedents:
The respondents relied on the CGST Act, 2017, and the importance of GSTR-2A in verifying input invoices for refund claims.
- Court's interpretation and reasoning:
The Court considered the statutory provisions and the significance of GSTR-2A in validating refund claims based on input tax credit.
- Key evidence and findings:
The respondents argued that the mismatch of invoices in GSTR-2A justified the denial of refund claims by the petitioner.
- Application of law to facts:
The Court acknowledged the reliance on GSTR-2A for verifying refund claims and emphasized the need for alignment between claimed invoices and GSTR-2A data.
- Treatment of competing arguments:
The Court highlighted the importance of addressing discrepancies in GSTR-2A to support refund claims and noted the petitioner's failure to challenge the mismatch during hearings.
- Conclusions:
The Court kept all rights and contentions open for both parties, pending the petitioner's response to the discrepancies raised by the respondents.
SIGNIFICANT HOLDINGS:
- The Court directed the petitioner to respond to the respondents' contentions within three weeks and mandated the competent authority to issue a reasoned order within four weeks thereafter.
- The importance of aligning claimed invoices with GSTR-2A data was emphasized in verifying refund claims, highlighting the significance of addressing discrepancies.
Rejection of refund claim - mismatch of invoices in GSTR-2A - HELD THAT:- Despite time having been granted on earlier occasions, the petitioner has failed to file a rejoinder affidavit.
There are no justification to continue the writ petition on our board and dispose of the same by permitting the writ petitioner to file its response to the stand as taken by the respondents and which stands reflected in Paragraphs 15 and 16 of the counter affidavit as reproduced. The said response may be filed within a period of three weeks from today.
Petition disposed off.
Rejection of refund claim - mismatch of invoices in GSTR-2A - HELD THAT:- Despite time having been granted on earlier occasions, the petitioner has failed to file a rejoinder affidavit.
There are no justification to continue the writ petition on our board and dispose of the same by permitting the writ petitioner to file its response to the stand as taken by the respondents and which stands reflected in Paragraphs 15 and 16 of the counter affidavit as reproduced. The said response may be filed within a period of three weeks from today.
Petition disposed off.
Challenge to refund rejection order issued in Form GST RFD-06 - mismatch between the data furnished by the exporter of goods in shipping bill and those furnished in the statement of outward supply in Form GSTR – 1 - lack of opportunity to respond to the SCN - violation of principles of natural justice - HELD THAT:- It is an admitted position that the petitioners are engaged in the business of manufacture and exports, and in usual course had exported certain goods. The petitioners claim to have exported the goods with payment of integrated goods and service tax under two several invoices dated 17th April, 2023 and 3rd June, 2023 along with two corresponding shipping bills dated 18th April, 2023 and 5th June, 2023. According to the petitioners, it had exported the goods in compliance with the provisions for making zero rated supply as prescribed in Section 16 of the IGST Act, 2017.
Since the petitioners claim to have exported the goods along with duty, the petitioners were expecting that upon furnishing of the return filed by the petitioners in Form GSTR-3B, the petitioners’ bank account would be credited with the integrated goods and service tax already paid in respect of the shipping bill to the petitioners’ bank account. In the instant case, records would reveal that the petitioners refund was not effected and the same was withheld in terms of Rule 96 (4) of the said Rules.
The benefit of doubt should be given to the petitioners, especially when the petitioners may not have got appropriate opportunity to respond to the show cause - Accordingly, on the ground of violation of principle of natural justice the refund rejection order dated 25th September, 2024 is set aside.
Conclusion - The petitioners should be given the benefit of doubt, especially considering the lack of opportunity to respond to the show cause.
Petition disposed off.
Challenge to refund rejection order issued in Form GST RFD-06 - mismatch between the data furnished by the exporter of goods in shipping bill and those furnished in the statement of outward supply in Form GSTR – 1 - lack of opportunity to respond to the SCN - violation of principles of natural justice - HELD THAT:- It is an admitted position that the petitioners are engaged in the business of manufacture and exports, and in usual course had exported certain goods. The petitioners claim to have exported the goods with payment of integrated goods and service tax under two several invoices dated 17th April, 2023 and 3rd June, 2023 along with two corresponding shipping bills dated 18th April, 2023 and 5th June, 2023. According to the petitioners, it had exported the goods in compliance with the provisions for making zero rated supply as prescribed in Section 16 of the IGST Act, 2017.
Since the petitioners claim to have exported the goods along with duty, the petitioners were expecting that upon furnishing of the return filed by the petitioners in Form GSTR-3B, the petitioners’ bank account would be credited with the integrated goods and service tax already paid in respect of the shipping bill to the petitioners’ bank account. In the instant case, records would reveal that the petitioners refund was not effected and the same was withheld in terms of Rule 96 (4) of the said Rules.
The benefit of doubt should be given to the petitioners, especially when the petitioners may not have got appropriate opportunity to respond to the show cause - Accordingly, on the ground of violation of principle of natural justice the refund rejection order dated 25th September, 2024 is set aside.
Conclusion - The petitioners should be given the benefit of doubt, especially considering the lack of opportunity to respond to the show cause.
Petition disposed off.
1. Whether the second respondent erred in dismissing the appeal solely on the ground of a two-day delay in filing the appealRs.
2. Whether the second respondent failed to exercise its power under Section 107 of the CGST/SGST Act, 2017 judiciously by not entertaining the appeal and passing an order on meritsRs.
ISSUE-WISE DETAILED ANALYSIS:
Issue 1: The dismissal of the appeal based on a two-day delay
- Relevant legal framework and precedents: The petitioner filed an appeal under Section 107 of the CGST/SGST Act, 2017 within 90 days of receiving the impugned order, as allowed by the Act.
- Court's interpretation and reasoning: The Court found that the second respondent dismissed the appeal solely due to a two-day delay in filing, without considering the appeal's timeliness or providing an opportunity for a hearing.
- Key evidence and findings: The impugned order was communicated to the petitioner via email on 22.12.2023, and the appeal was filed on the 90th day, well within the statutory time limit.
- Application of law to facts: The Court held that the dismissal based on a minor delay was unjustified, especially considering the appeal was filed within the prescribed period.
- Treatment of competing arguments: The respondent argued that the order was uploaded on the portal on the same day, but the Court did not find this argument compelling in justifying the dismissal of the appeal.
- Conclusions: The Court set aside the dismissal of the appeal and directed the second respondent to hear the appeal on its merits.
Issue 2: Failure to exercise power under Section 107 of the CGST/SGST Act, 2017
- Relevant legal framework and precedents: Section 107 of the Act provides for a three-month period to file an appeal from the date of the order or communication.
- Court's interpretation and reasoning: The Court held that the second respondent failed to exercise its power judiciously under Section 107(1) and (2) by not entertaining the appeal and passing an order on merits.
- Key evidence and findings: The petitioner also filed a rectification application along with an affidavit seeking to condone any delay in filing the appeal, which the second respondent did not consider.
- Application of law to facts: The Court found that the second respondent's failure to consider the rectification application and the condonable delay was a failure to apply the law judiciously.
- Treatment of competing arguments: The respondent's argument that the appeal was beyond the prescribed period was not accepted by the Court, which emphasized the need for a fair hearing before rejecting an appeal.
- Conclusions: The Court set aside the orders and directed the second respondent to hear the appeal filed by the petitioner on its merits.
SIGNIFICANT HOLDINGS:
- The Court held that the dismissal of the appeal based on a minor delay was unjustified and directed the second respondent to hear the appeal on its merits.
- The Court emphasized the need for the second respondent to exercise its powers judiciously under Section 107 of the CGST/SGST Act, 2017 and consider all relevant factors before rejecting an appeal.
- The orders bearing Appeal No. KGST/AP. No. 209/2023-24 and the consequential rectification order dated 13.01.2025 were set aside, and the second respondent was directed to hear the appeal filed by the petitioner on its merits.
Dismissal of appeal solely on the ground of a two-day delay in filing the appeal - HELD THAT:- Admittedly, order under appeal was passed on 20.12.2023 which was communicated to the petitioner through e-mail on 22.12.2023. In terms of Section 169 of 2017 Act, one of the mode of communication is by e-mail. From the date of communication, appeal is filed on 90th day. Section 107 of KGST Act, 2017 provides three months time to file appeal from the date of order or from the date of communication.
Even otherwise, the petitioner had filed rectification application and along with rectification application, petitioner had also filed application along with affidavit, praying to condone the delay, if any in preferring the appeal. If such rectification application along with application for condonation of delay is filed, second respondent ought to have exercised its power under Section 107 (2) of 2017 Act, judiciously since the appeal was presented within the condonable period. The respondent No. 2 failed to apply its mind judiciously and failed to take a decision in terms of Section 107 (2) of 2017 Act.
Conclusion - The dismissal of the appeal based on a minor delay was unjustified and it is directed that the second respondent shall hear the appeal on its merits.
Petition disposed off.
Dismissal of appeal solely on the ground of a two-day delay in filing the appeal - HELD THAT:- Admittedly, order under appeal was passed on 20.12.2023 which was communicated to the petitioner through e-mail on 22.12.2023. In terms of Section 169 of 2017 Act, one of the mode of communication is by e-mail. From the date of communication, appeal is filed on 90th day. Section 107 of KGST Act, 2017 provides three months time to file appeal from the date of order or from the date of communication.
Even otherwise, the petitioner had filed rectification application and along with rectification application, petitioner had also filed application along with affidavit, praying to condone the delay, if any in preferring the appeal. If such rectification application along with application for condonation of delay is filed, second respondent ought to have exercised its power under Section 107 (2) of 2017 Act, judiciously since the appeal was presented within the condonable period. The respondent No. 2 failed to apply its mind judiciously and failed to take a decision in terms of Section 107 (2) of 2017 Act.
Conclusion - The dismissal of the appeal based on a minor delay was unjustified and it is directed that the second respondent shall hear the appeal on its merits.
Petition disposed off.
Challenge to order made by the First Appellate Authority - non-constitution of Tribunal - HELD THAT:- The submission made on behalf of petitioner is accepted regarding corresponding notification reducing requirement of the deposit to 10% of disputed tax for impugned first appellate order to remain stayed. The deposit be made accordingly.
Petition disposed off.
Challenge to order made by the First Appellate Authority - non-constitution of Tribunal - HELD THAT:- The submission made on behalf of petitioner is accepted regarding corresponding notification reducing requirement of the deposit to 10% of disputed tax for impugned first appellate order to remain stayed. The deposit be made accordingly.
Petition disposed off.
Failure on the part of the respondents to provide a copy of the various documents as well as electronic articles which had been seized from the petitioner and are detailed in the panchnama which has been placed on the record - HELD THAT:- It is informed that some of the documents which had been seized were provided to the petitioner only as late as 20 January 2025 and that the personal hearing itself has been concluded yesterday. In view of the above, it is alleged that the petitioner was unable to furnish an effective response to the allegations leveled.
It is inclined to direct the respondents to provide copies of all material which had been seized and is noticed in the panchnama, in light of the closure of proceedings by the respondents no purpose would be served today by issuance of such a direction.
Petition disposed off.
Failure on the part of the respondents to provide a copy of the various documents as well as electronic articles which had been seized from the petitioner and are detailed in the panchnama which has been placed on the record - HELD THAT:- It is informed that some of the documents which had been seized were provided to the petitioner only as late as 20 January 2025 and that the personal hearing itself has been concluded yesterday. In view of the above, it is alleged that the petitioner was unable to furnish an effective response to the allegations leveled.
It is inclined to direct the respondents to provide copies of all material which had been seized and is noticed in the panchnama, in light of the closure of proceedings by the respondents no purpose would be served today by issuance of such a direction.
Petition disposed off.
Challenge to show notice issued under the provisions of Section 74 of the CGST/SGST Acts - no cause of action to issue a show cause notice under Section 74 of the CGST/SGST Acts - HELD THAT:- There is considerable merit in the contention taken by the learned Government Pleader that all contentions taken by the petitioner before this Court, in challenge to Ext.P4 show cause notice, are matters that can be taken up before the Adjudicating Authority. The contention of the petitioner that the Audit Report was finalized without considering the contentions taken by the petitioner is also a matter that can be raised before the Adjudicating Authority and I have no reason to believe that if such contention is taken, the Adjudicating Authority will not consider such objections and will proceed to finalize the demand solely on the basis of the findings in the Audit Report. Further, the question as to whether the petitioner is liable to be proceeded against under Section 74 of the CGST/SGST Acts is also a matter that can be considered by the Adjudicating Authority.
Petition disposed off.
Challenge to show notice issued under the provisions of Section 74 of the CGST/SGST Acts - no cause of action to issue a show cause notice under Section 74 of the CGST/SGST Acts - HELD THAT:- There is considerable merit in the contention taken by the learned Government Pleader that all contentions taken by the petitioner before this Court, in challenge to Ext.P4 show cause notice, are matters that can be taken up before the Adjudicating Authority. The contention of the petitioner that the Audit Report was finalized without considering the contentions taken by the petitioner is also a matter that can be raised before the Adjudicating Authority and I have no reason to believe that if such contention is taken, the Adjudicating Authority will not consider such objections and will proceed to finalize the demand solely on the basis of the findings in the Audit Report. Further, the question as to whether the petitioner is liable to be proceeded against under Section 74 of the CGST/SGST Acts is also a matter that can be considered by the Adjudicating Authority.
Petition disposed off.
The core issue before the Court was whether the assessment order dated 29 March 2022, read with the notice under Section 148 of the Income Tax Act, 1961, reopening the assessment of the petitioner for the Assessment Year 2014-2015, was illegal, without jurisdiction, and non-est.
ISSUE-WISE DETAILED ANALYSIS
Reopening of Assessment Beyond Four Years
The legal framework under Section 147 of the IT Act stipulates that no action shall be taken after four years from the end of the relevant assessment year unless there is a failure by the assessee to disclose fully and truly all material facts necessary for assessment. The petitioner argued that the reopening was beyond this period and without any failure on their part to disclose necessary facts.
The Court noted that the original assessment was completed after considering all relevant details, and the reopening was based on the same material, indicating a change of opinion, which is not permissible under the law. The Court emphasized that the reopening did not meet the jurisdictional requirements as no new tangible material was presented to justify it.
Failure to Dispose of Objections
The petitioner contended that their objections to the reopening were not disposed of by a separate order, contrary to the Supreme Court's decision in GKN Driveshafts (India) Ltd v. Income Tax Officer. The Court found that the respondents failed to address the objections, which is a jurisdictional issue affecting the validity of the assessment order. The Court reiterated the necessity for the assessing officer to dispose of objections by a speaking order.
Change of Opinion
The petitioner argued that the reopening was based on a change of opinion, which is impermissible. The Court agreed, noting that the reasons for reopening did not indicate any failure by the petitioner to disclose material facts. The reasons were based on the same material already available during the original assessment, highlighting a change of opinion rather than new information.
Application of Legal Precedents
The Court applied the principles from the Supreme Court's decision in Commissioner of Income-Tax v. Kelvinator of India Ltd, which prohibits reopening based on a mere change of opinion. The Court also referred to its previous decisions, reinforcing that reopening requires new tangible material and cannot be based on the same facts considered in the original assessment.
Principles of Natural Justice
The Court found that the respondents failed to adhere to the principles of natural justice by not providing an opportunity for the petitioner to be heard before finalizing the assessment order. The lack of a separate order disposing of objections further violated these principles.
SIGNIFICANT HOLDINGS
The Court held that the reopening of the assessment was without jurisdiction and illegal, as it was based on a change of opinion without new tangible material. The failure to dispose of objections separately and the violation of natural justice principles rendered the impugned assessment order invalid.
The Court quoted the Supreme Court's decision in GKN Driveshafts, emphasizing the need for a speaking order to dispose of objections. The Court also reiterated the principle from Kelvinator of India Ltd that reopening requires tangible material beyond a mere change of opinion.
The final determination was that the impugned notice and assessment order were quashed and set aside, with the rule made absolute in terms of the petitioner's prayer clauses.
Reopening of assessment u/s 147 - Notice beyond the mandatory period of four years - eligibility of reasons to believe - HELD THAT:- A perusal of the reasons for the reopening for the petitioner’s case, reveals that the assessing officer has not made out any case to the effect that the petitioner failed to disclose fully and truly all material facts necessary for assessment. The impugned order does not in any manner attribute such reasoning stipulated under proviso to Section 147 to the petitioner in any manner whatsoever. In fact, the reasons for reopening of the assessment are itself based on the records provided, by the petitioner like the books of account, documents, loan confirmation details from various parties which were furnished by the petitioner during the course of the assessment proceedings.
The fact of complete disclosure by the petitioner of all details necessary for assessment were duly disclosed by the petitioner in its letter dated 19 December 2016 (supra) along with all details, annexures in specific response to the final show cause notice dated 13 December 2016 issued by the respondents for the A.Y. 2014-15. It is such material which formed the basis of reopening of the assessment as is evident from the impugned assessment order dated 29 March 2022. There appears to be no fresh tangible material before the respondents to form its own/independent opinion in regard to reopening of the petitioner assessment for the A.Y. 2014-15, under Section 147 of the IT Act.
Denial of natural justice - We may observe that the mandatory procedure postulated u/s 144B is also not followed by the respondents. This is in as much as the petitioner’s objection dated 18 February 2022 to the reasons recorded for reopening of the assessment by the respondent dated 9 December 2021 were neither considered, dealt with, much less disposed of by the respondents. Further the reply of the petitioner to the draft assessment order dated 24 March 2022 was filed by the petitioner on 28 March 2022, mainly pointing out that the reassessment proceedings were contrary to the provisions of section 147 read with the decision of GKN Driveshaft [2002 (11) TMI 7 - SUPREME COURT] The respondent failed to even consider these vital aspects which embrace the requirement of reasonable opportunity to be given to the petitioner, rushed to pass the impugned assessment order on 29 March 2022 i.e., just within a day after receiving a reply dated 28 March 2022 from the petitioner to the draft assessment order. No opportunity of being heard/hearing was given to the petitioner despite the variations prejudicial to the petitioner were unilaterally proposed by the respondents, nor were the objections raised by the petitioner separately disposed of by the respondents.
Thus, the impugned assessment order runs contrary to the intrinsic principles of natural justice inbuilt and ingrained under Section 144B of the IT Act rendering the impugned order patently illegal.
Thus, there is no fresh tangible material on the basis of which the assessing officer decided to reopen the petitioner’s assessment for the impugned A.Y. 2014-15 - The impugned assessment order fails to consider that the assessment cannot be reopened beyond a period of four years from the relevant assessment year A.Y. 2014-15 in terms of the first proviso to section 147. Such action would stare in non compliance of jurisdictional requirements, and is therefore, non-est in law. Decided in favour of assessee.
Reopening of assessment u/s 147 - Notice beyond the mandatory period of four years - eligibility of reasons to believe - HELD THAT:- A perusal of the reasons for the reopening for the petitioner’s case, reveals that the assessing officer has not made out any case to the effect that the petitioner failed to disclose fully and truly all material facts necessary for assessment. The impugned order does not in any manner attribute such reasoning stipulated under proviso to Section 147 to the petitioner in any manner whatsoever. In fact, the reasons for reopening of the assessment are itself based on the records provided, by the petitioner like the books of account, documents, loan confirmation details from various parties which were furnished by the petitioner during the course of the assessment proceedings.
The fact of complete disclosure by the petitioner of all details necessary for assessment were duly disclosed by the petitioner in its letter dated 19 December 2016 (supra) along with all details, annexures in specific response to the final show cause notice dated 13 December 2016 issued by the respondents for the A.Y. 2014-15. It is such material which formed the basis of reopening of the assessment as is evident from the impugned assessment order dated 29 March 2022. There appears to be no fresh tangible material before the respondents to form its own/independent opinion in regard to reopening of the petitioner assessment for the A.Y. 2014-15, under Section 147 of the IT Act.
Denial of natural justice - We may observe that the mandatory procedure postulated u/s 144B is also not followed by the respondents. This is in as much as the petitioner’s objection dated 18 February 2022 to the reasons recorded for reopening of the assessment by the respondent dated 9 December 2021 were neither considered, dealt with, much less disposed of by the respondents. Further the reply of the petitioner to the draft assessment order dated 24 March 2022 was filed by the petitioner on 28 March 2022, mainly pointing out that the reassessment proceedings were contrary to the provisions of section 147 read with the decision of GKN Driveshaft [2002 (11) TMI 7 - SUPREME COURT] The respondent failed to even consider these vital aspects which embrace the requirement of reasonable opportunity to be given to the petitioner, rushed to pass the impugned assessment order on 29 March 2022 i.e., just within a day after receiving a reply dated 28 March 2022 from the petitioner to the draft assessment order. No opportunity of being heard/hearing was given to the petitioner despite the variations prejudicial to the petitioner were unilaterally proposed by the respondents, nor were the objections raised by the petitioner separately disposed of by the respondents.
Thus, the impugned assessment order runs contrary to the intrinsic principles of natural justice inbuilt and ingrained under Section 144B of the IT Act rendering the impugned order patently illegal.
Thus, there is no fresh tangible material on the basis of which the assessing officer decided to reopen the petitioner’s assessment for the impugned A.Y. 2014-15 - The impugned assessment order fails to consider that the assessment cannot be reopened beyond a period of four years from the relevant assessment year A.Y. 2014-15 in terms of the first proviso to section 147. Such action would stare in non compliance of jurisdictional requirements, and is therefore, non-est in law. Decided in favour of assessee.
The primary issue considered was whether the reassessment actions initiated by the respondents under Section 148 of the Income Tax Act, 1961, for Assessment Years 2013-14 to 2017-18, were valid. This involved examining whether the Assessing Officer (AO) had sufficient grounds and evidence to form a belief that income had escaped assessment, justifying the reopening of assessments for those years.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework involved Section 148 of the Income Tax Act, which allows for the reopening of assessments if the AO has reason to believe that income has escaped assessment. The judgment also referenced the India-Switzerland Double Taxation Avoidance Agreement (DTAA) concerning the existence of a Permanent Establishment (PE) in India.
Precedents considered included the Court's previous judgment in Grid Solutions OY v. Assistant Commissioner of Income Tax International Taxation, where similar issues of reassessment based on survey findings were examined. The Court also referred to principles established in cases such as Raymond Woollen Mills Ltd. v. ITO and National Petroleum Construction Co. v. Dy. CIT, emphasizing that each assessment year is distinct and requires independent evaluation.
Court's Interpretation and Reasoning
The Court scrutinized whether the AO's reasons for reopening the assessments were based on independent inquiry or merely on the findings of a survey conducted in June 2019. The Court emphasized that for a reassessment to be valid, the AO must demonstrate a clear application of mind to the specific facts of each assessment year in question, rather than relying solely on past survey findings.
Key Evidence and Findings
The AO's reasons for reopening the assessments were primarily based on the survey conducted on June 6-7, 2019, which allegedly revealed that the petitioner, a Swiss company, had a Dependent Agent PE and Fixed Place PE in India. However, the Court found that the AO's reasoning lacked specific evidence or inquiry related to the assessment years in question. The AO had not demonstrated that the facts from the survey were applicable to the years under reassessment.
Application of Law to Facts
The Court applied the principle that each assessment year is distinct and requires independent evaluation of facts. It found that the AO failed to provide specific evidence or conduct an independent inquiry for each assessment year to justify the belief that income had escaped assessment. The reliance on past survey findings without further investigation was deemed insufficient.
Treatment of Competing Arguments
The respondents argued that the AO was justified in assuming that the business model and facts had remained unchanged since the survey. However, the Court rejected this argument, emphasizing the need for independent examination of each assessment year. The Court reiterated that assumptions based on past findings without specific evidence for the years in question could not justify reassessment.
Conclusions
The Court concluded that the reassessment actions were not sustainable as they were based solely on the survey findings without independent inquiry or specific evidence for the assessment years in question. The AO's failure to demonstrate a clear application of mind to the facts of each year rendered the reassessment actions invalid.
SIGNIFICANT HOLDINGS
The Court held that the reassessment actions initiated under Section 148 for the years 2013-14 to 2017-18 were invalid due to the lack of specific evidence or independent inquiry by the AO. The reliance on past survey findings without further investigation was insufficient to justify the belief that income had escaped assessment.
Core Principles Established
The judgment reinforced the principle that each assessment year is distinct and requires independent evaluation. It emphasized that reassessment actions must be based on specific evidence or inquiry related to the year in question, rather than assumptions based on past findings.
Final Determinations on Each Issue
The Court quashed the impugned orders for the reassessment of Assessment Years 2013-14 to 2017-18, allowing the writ petitions. The reliance on the survey conducted in June 2019 without further evidence or inquiry for each year was deemed insufficient to justify the reassessment actions.
Validity of reassessment proceedings - although the petitioner was deriving profits from the supply of equipment and spares to Indian companies and entities, it had failed to acknowledge the said income asserting that it had no Permanent Establishment [PE] in India - HELD THAT:- Respondents have woefully failed to establish, that the formation of opinion was based on any independent inquiry or material that the AO may have collated for the purposes of forming an opinion as to whether income in AYs 2013-14 to 2017-18 had escaped assessment. As is ex facie evident from a reading of the reasons which stood assigned for invoking Section 148, the solitary basis was the survey conducted on 06-07 June 2019.
Accordingly, and for all the reasons assigned by us in our judgment rendered on Grid Solutions OY [2025 (1) TMI 911 - DELHI HIGH COURT] we find ourselves unable to sustain the impugned action. Decided in favour of assessee.
Validity of reassessment proceedings - although the petitioner was deriving profits from the supply of equipment and spares to Indian companies and entities, it had failed to acknowledge the said income asserting that it had no Permanent Establishment [PE] in India - HELD THAT:- Respondents have woefully failed to establish, that the formation of opinion was based on any independent inquiry or material that the AO may have collated for the purposes of forming an opinion as to whether income in AYs 2013-14 to 2017-18 had escaped assessment. As is ex facie evident from a reading of the reasons which stood assigned for invoking Section 148, the solitary basis was the survey conducted on 06-07 June 2019.
Accordingly, and for all the reasons assigned by us in our judgment rendered on Grid Solutions OY [2025 (1) TMI 911 - DELHI HIGH COURT] we find ourselves unable to sustain the impugned action. Decided in favour of assessee.
The core legal questions considered in this judgment are:
1. Whether the prohibitory order issued by the Income Tax Department, restraining the release of helicopters, should be quashed in favor of the secured creditor's rights.
2. Whether the rights of a secured creditor, under a hypothecation agreement, take precedence over the claims of the Income Tax Department for outstanding tax dues.
3. Whether the auction conducted by the secured creditor, despite the prohibitory order, was valid and legally enforceable.
4. Whether the Income Tax Department's failure to object to the auction proceedings constitutes acquiescence to the sale.
ISSUE-WISE DETAILED ANALYSIS
1. Priority of Secured Creditor's Rights over Tax Dues
Relevant Legal Framework and Precedents: The legal framework hinges on the principles established in cases such as Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Bombay Stock Exchange v. V.S. Kandalgaokar, which affirm that secured creditors' rights take precedence over government tax dues unless explicitly stated otherwise by statute.
Court's Interpretation and Reasoning: The Court emphasized that the hypothecation agreement between Summit Aviation Pvt. Ltd. and the secured creditor was executed before the issuance of the prohibitory order. This established the secured creditor's rights over the helicopters, predating any actions by the Income Tax Authorities.
Key Evidence and Findings: The hypothecation agreement dated 12.05.2008, and the subsequent actions taken by the secured creditor to enforce its rights, were pivotal. The Court noted that the Income Tax Act does not provide for the paramountcy of tax dues over secured creditors.
Application of Law to Facts: The Court applied the legal principles from the cited precedents to conclude that the secured creditor's rights were superior to the tax claims, given the absence of statutory provisions to the contrary.
Treatment of Competing Arguments: The Income Tax Department's argument that the prohibitory order should take precedence was dismissed, as the Court found no statutory basis for such a claim.
Conclusions: The Court concluded that the secured creditor's rights were valid and enforceable, taking precedence over the tax dues.
2. Validity of the Auction Conducted by the Secured Creditor
Relevant Legal Framework and Precedents: The Court referred to the rights of secured creditors to enforce their security interests, as established in the hypothecation agreement and supported by relevant case law.
Court's Interpretation and Reasoning: The Court found that the auction was conducted in accordance with the legal rights of the secured creditor under the hypothecation agreement, and the Income Tax Department's failure to object constituted tacit approval.
Key Evidence and Findings: The communications between the secured creditor and the Income Tax Department, along with the public notices of the auction, demonstrated the transparency and legality of the auction process.
Application of Law to Facts: The Court applied the principle that the secured creditor's rights, once established, allow for the sale of hypothecated assets to recover dues, irrespective of subsequent prohibitory orders.
Treatment of Competing Arguments: The Income Tax Department's claim of illegality due to the prohibitory order was dismissed, as the Court found that their lack of timely objection indicated acquiescence.
Conclusions: The auction was deemed valid and enforceable, with the secured creditor's actions upheld.
3. Acquiescence by the Income Tax Department
Relevant Legal Framework and Precedents: The Court relied on the principles of estoppel and acquiescence, as established in precedents like Union of India v. N Murugesan and State Bank of India v. M J James.
Court's Interpretation and Reasoning: The Court interpreted the Income Tax Department's failure to object to the auction, despite being informed, as acquiescence to the sale process.
Key Evidence and Findings: The documented communications and public notices served as evidence that the Income Tax Department was aware of the auction and chose not to intervene.
Application of Law to Facts: The Court applied the principles of estoppel to conclude that the Income Tax Department could not contest the auction after failing to act upon receiving notice.
Treatment of Competing Arguments: The Income Tax Department's argument that they were not adequately informed was rejected, given the evidence of multiple communications.
Conclusions: The Court concluded that the Income Tax Department's inaction constituted acquiescence, validating the auction.
SIGNIFICANT HOLDINGS
The Court held that the rights of the secured creditor, as established by the hypothecation agreement, took precedence over the Income Tax Department's claims. The Court reiterated the principle that secured creditors have priority over government dues unless explicitly stated otherwise by statute.
Core Principles Established:
"The Crown's preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor."
"The Income Tax Act does not provide for any paramountcy of dues by way of income tax. This is why the Court in Dena Bank case held that Government dues only have priority over unsecured debts."
Final Determinations on Each Issue:
The Court quashed the prohibitory order, allowing the secured creditor to enforce its rights and confirming the validity of the auction sale. All pending applications were disposed of in favor of the petitioner, affirming the precedence of secured creditors over tax claims.
Priority of Secured Creditor's Rights over Tax Dues - sequence of events - auction the two helicopters on account of it being classified as NPA and also stating that its charge over the assets had priority over the income tax dues - petitioner submits that the continued existence of the prohibitory order has prevented the DGCA, M/s Yathi Air Services and SAR Aviation Services from releasing the helicopters to the petitioner - petitioner submits that that the hypothecation of the helicopters by respondent no. 3 and the default by M/s Summit Aviation Pvt. Ltd. were established and well-documented before the issuance of the prohibitory order
HELD THAT:- This Court finds no merit in the objections raised by respondent no. 2. It is a well-settled principle of law that, unless specifically stipulated by statute, the dues of a secured creditor take precedence over government debts. In this regard, the respondent no. 3, as a secured creditor, had priority over the revenue’s claims and, accordingly, was entitled to exercise its rights over the secured assets and subsequently sell the concerned helicopters.
In the present case, the hypothecation agreement was executed well before the issuance of the prohibitory order. This establishes the legal foundation for the respondent no. 3’s rights over the helicopters, which predate any action taken by the Income Tax Authorities.
Objection raised by the Income Tax Department regarding inadequate prior notice of the auction is without merit. It is well-documented that, on 06.09.2023, the respondent no. 3 formally communicated its intention to auction the helicopters to the Income Tax Department. However, despite receiving this communication, respondent no. 2 failed to respond.
Section 222(1)(a) explicitly states “attachment and sale,” signifying a sequential process where the property, once attached, must subsequently be sold to recover the arrears. Despite this, respondent no. 2 failed to take any action beyond the issuance of the prohibitory order.
This Court finds merit in the petitioner’s contention that the absence of any objection or legal challenge from the tax authorities regarding the auction conducted by respondent no. 3, despite their prior knowledge of it, signifies their acquiescence to the sale. In this regard, reliance has been rightly placed on the judgments of N Murugesan [2021 (10) TMI 1375 - SUPREME COURT] and State Bank of India v. M J James [2021 (11) TMI 1078 - SUPREME COURT]
Respondent no. 2 was clearly informed about respondent no. 3’s intention to auction the petitioner’s two helicopters through a communication dated 06.09.2023. However, respondent no. 2 did not raise any objection at that time.
It was only after duly informing respondent no. 2 the intention of the respondent no. 3, a notice regarding the auction of the two helicopters was published in the Financial Express and Jansatta newspapers on 20.09.2023.Further, on 22.09.2023, respondent no. 3 issued a corrigendum to furnish additional information to bidders regarding applicable hangar charges on the helicopters and the existence of a prohibitory order.
Even after the successful auction and the subsequent sale of the two helicopters, respondent no. 2 was informed about the same. Despite being duly informed at every step, respondent No. 2 failed to raise any objection/s to the auction. In any event, in view of the legal position that the dues of Respondent no. 3/ secured creditor takes precedence over the dues of respondent no. 2, the attachment order issued by respondent no. 2 cannot be construed to be an impediment to the auction sale in favour of the petitioner.
Accordingly, the present petitions are allowed.
Priority of Secured Creditor's Rights over Tax Dues - sequence of events - auction the two helicopters on account of it being classified as NPA and also stating that its charge over the assets had priority over the income tax dues - petitioner submits that the continued existence of the prohibitory order has prevented the DGCA, M/s Yathi Air Services and SAR Aviation Services from releasing the helicopters to the petitioner - petitioner submits that that the hypothecation of the helicopters by respondent no. 3 and the default by M/s Summit Aviation Pvt. Ltd. were established and well-documented before the issuance of the prohibitory order
HELD THAT:- This Court finds no merit in the objections raised by respondent no. 2. It is a well-settled principle of law that, unless specifically stipulated by statute, the dues of a secured creditor take precedence over government debts. In this regard, the respondent no. 3, as a secured creditor, had priority over the revenue’s claims and, accordingly, was entitled to exercise its rights over the secured assets and subsequently sell the concerned helicopters.
In the present case, the hypothecation agreement was executed well before the issuance of the prohibitory order. This establishes the legal foundation for the respondent no. 3’s rights over the helicopters, which predate any action taken by the Income Tax Authorities.
Objection raised by the Income Tax Department regarding inadequate prior notice of the auction is without merit. It is well-documented that, on 06.09.2023, the respondent no. 3 formally communicated its intention to auction the helicopters to the Income Tax Department. However, despite receiving this communication, respondent no. 2 failed to respond.
Section 222(1)(a) explicitly states “attachment and sale,” signifying a sequential process where the property, once attached, must subsequently be sold to recover the arrears. Despite this, respondent no. 2 failed to take any action beyond the issuance of the prohibitory order.
This Court finds merit in the petitioner’s contention that the absence of any objection or legal challenge from the tax authorities regarding the auction conducted by respondent no. 3, despite their prior knowledge of it, signifies their acquiescence to the sale. In this regard, reliance has been rightly placed on the judgments of N Murugesan [2021 (10) TMI 1375 - SUPREME COURT] and State Bank of India v. M J James [2021 (11) TMI 1078 - SUPREME COURT]
Respondent no. 2 was clearly informed about respondent no. 3’s intention to auction the petitioner’s two helicopters through a communication dated 06.09.2023. However, respondent no. 2 did not raise any objection at that time.
It was only after duly informing respondent no. 2 the intention of the respondent no. 3, a notice regarding the auction of the two helicopters was published in the Financial Express and Jansatta newspapers on 20.09.2023.Further, on 22.09.2023, respondent no. 3 issued a corrigendum to furnish additional information to bidders regarding applicable hangar charges on the helicopters and the existence of a prohibitory order.
Even after the successful auction and the subsequent sale of the two helicopters, respondent no. 2 was informed about the same. Despite being duly informed at every step, respondent No. 2 failed to raise any objection/s to the auction. In any event, in view of the legal position that the dues of Respondent no. 3/ secured creditor takes precedence over the dues of respondent no. 2, the attachment order issued by respondent no. 2 cannot be construed to be an impediment to the auction sale in favour of the petitioner.
Accordingly, the present petitions are allowed.
The core legal questions considered in this judgment include:
1. Whether the payments made by the Assessee-Company to Walmart Inc. qualify as reimbursement of salaries for seconded employees or as fees for technical services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961.
2. Whether the Assessee-Company was required to deduct tax at source under Section 195 of the Income Tax Act on such payments.
3. Whether the Single Judge's decision to set aside the Assessing Officer's order and direct the issuance of a 'Nil Tax Deduction at Source' certificate was correct.
ISSUE-WISE DETAILED ANALYSIS
1. Nature of Payments: Reimbursement vs. Fees for Technical Services
Relevant legal framework and precedents: The determination of whether payments constitute fees for technical services is guided by Section 9(1)(vii) of the Income Tax Act and the India-US Double Taxation Avoidance Agreement (DTAA), particularly Article 12.
Court's interpretation and reasoning: The Court found that the payments made by the Assessee-Company were reimbursements for salaries of seconded employees, not fees for technical services. The Court noted the presence of an employer-employee relationship between the Assessee-Company and the seconded employees, as evidenced by the terms of the Master Service Agreement (MSA) and employment letters.
Key evidence and findings: The MSA outlined that the Assessee-Company had control over the seconded employees, including the ability to terminate their services in India. The seconded employees were subject to the same rules and regulations as domestic employees, and their salaries were subject to tax deductions under Section 192 of the Income Tax Act.
Application of law to facts: The Court applied the principles from the ABBEY BUSINESS SERVICES INDIA (P) LTD. case, reinforcing the view that the secondment agreement constituted an independent contract of service with the Assessee-Company.
Treatment of competing arguments: The Revenue's argument that there was no employer-employee relationship and that the payments were for technical services was rejected. The Court emphasized the indicia of employment and the absence of a "make available" clause under the DTAA, which is necessary for the classification as FTS.
Conclusions: The Court concluded that the payments were reimbursements, not FTS, and thus not subject to tax deduction under Section 195.
2. Requirement to Deduct Tax Under Section 195
Relevant legal framework and precedents: Section 195 of the Income Tax Act requires tax deduction at source for payments to non-residents if such payments are chargeable to tax in India.
Court's interpretation and reasoning: The Court held that the Assessee-Company was not required to deduct tax at source on reimbursements of salaries, as these were not chargeable to tax under the DTAA.
Key evidence and findings: The Court referenced the GE INDIA TECHNOLOGY CENTRE PVT. LTD. case, which clarified that Section 195(2) applications are maintainable even if the entire sum is not taxable.
Application of law to facts: The Court found that the Assessee-Company's application under Section 195(2) was valid, as the payments were not chargeable to tax due to the DTAA provisions.
Treatment of competing arguments: The Revenue's contention that the payments were FTS and thus taxable was dismissed. The Court noted that the payments did not meet the "make available" criteria under the DTAA.
Conclusions: The Court determined that the Assessee-Company was not obligated to deduct tax under Section 195 for these payments.
3. Validity of the Single Judge's Decision
Relevant legal framework and precedents: The Single Judge's decision was based on the interpretation of the DTAA and the Income Tax Act, supported by precedents like ABBEY BUSINESS SERVICES INDIA (P) LTD.
Court's interpretation and reasoning: The Court upheld the Single Judge's decision, finding it consistent with established legal principles and precedents.
Key evidence and findings: The Court noted the legal reasoning in the ABBEY case, which supported the view that the secondment constituted an independent contract of service.
Application of law to facts: The Court applied the reasoning from previous cases to affirm the Single Judge's order for a 'Nil Tax Deduction at Source' certificate.
Treatment of competing arguments: The Revenue's arguments against the Single Judge's reliance on ABBEY were rejected, as the review of that decision had been denied, affirming its legal standing.
Conclusions: The Court concluded that the Single Judge's decision was correct and sustainable.
SIGNIFICANT HOLDINGS
The Court established that:
- Payments made for the reimbursement of salaries to seconded employees do not qualify as fees for technical services under Section 9(1)(vii) of the Income Tax Act or the India-US DTAA.
- The application of Section 195(2) by the Assessee-Company was valid and consistent with the law, as the payments were not chargeable to tax.
- The Single Judge's decision to direct the issuance of a 'Nil Tax Deduction at Source' certificate was upheld, aligning with the ABBEY BUSINESS SERVICES INDIA (P) LTD. precedent.
In conclusion, the appeal was dismissed, affirming the Single Judge's order and clarifying the application of tax laws to the specific facts of the case.
Deduction u/s 195 - Payments made for the reimbursement of salaries to seconded employees - Assessee, an Indian Company is a subsidiary of a foreign entity in Singapore, said foreign entity had entered into Inter Company Master Service Agreement with Holding Company Walmart Inc, Delaware, which is a USA entity.
US entity provides services to various affiliates across the globe pursuant to Master Service Agreement and accordingly the Walmart seconded its employees to the Assessee Company. For the seconded service, the Assessee – company having deducted the TDS remitted the salary amount to the US entity by way of reimbursement.
HELD THAT:- Contention of the Revenue that the Assessee had failed to place all the material to demonstrate the kind of services rendered by the seconded employees were not made available and that they were not requisitioned for the purpose of training the regular employees of the Assessee, is too farfetched to gain acceptance. So is the submission that in the course of training, there would be transmission of technical knowledge, experience, skill, know-how and that would satisfy the requirement of “make available”. If that idea was lurking in the mind of the Assessing Officer, he could have called for such information from the sources that be.
We have to keep in mind that arrangements of the kind do obtain in a shrunk globe and that all indicia of employer-employee relationship, which ordinarily obtain in the native Service/Industrial Jurisprudence cannot be expected in the realm of international business of the kind.
If Triple Test namely (i) Direct Control, (ii) Supervision & (iii) Direction, is satisfied vide ABBEY BUSINESS [2020 (12) TMI 570 - KARNATAKA HIGH COURT] a strong case is made out as to the existence of employer employee relationship, the absence of a few indicia notwithstanding. An argument to the contrary would offend the stark truths of business world. Added, the assertion of the Assessee-Company that the amount is reimbursed to the Walmart after deducting the TDS from the salaries earned by the seconded employees in India, is not disputed by the Revenue. We hasten to clarify that in saying this, we are not invoking the doctrine of estoppel. Decided in favour of assessee.
Deduction u/s 195 - Payments made for the reimbursement of salaries to seconded employees - Assessee, an Indian Company is a subsidiary of a foreign entity in Singapore, said foreign entity had entered into Inter Company Master Service Agreement with Holding Company Walmart Inc, Delaware, which is a USA entity.
US entity provides services to various affiliates across the globe pursuant to Master Service Agreement and accordingly the Walmart seconded its employees to the Assessee Company. For the seconded service, the Assessee – company having deducted the TDS remitted the salary amount to the US entity by way of reimbursement.
HELD THAT:- Contention of the Revenue that the Assessee had failed to place all the material to demonstrate the kind of services rendered by the seconded employees were not made available and that they were not requisitioned for the purpose of training the regular employees of the Assessee, is too farfetched to gain acceptance. So is the submission that in the course of training, there would be transmission of technical knowledge, experience, skill, know-how and that would satisfy the requirement of “make available”. If that idea was lurking in the mind of the Assessing Officer, he could have called for such information from the sources that be.
We have to keep in mind that arrangements of the kind do obtain in a shrunk globe and that all indicia of employer-employee relationship, which ordinarily obtain in the native Service/Industrial Jurisprudence cannot be expected in the realm of international business of the kind.
If Triple Test namely (i) Direct Control, (ii) Supervision & (iii) Direction, is satisfied vide ABBEY BUSINESS [2020 (12) TMI 570 - KARNATAKA HIGH COURT] a strong case is made out as to the existence of employer employee relationship, the absence of a few indicia notwithstanding. An argument to the contrary would offend the stark truths of business world. Added, the assertion of the Assessee-Company that the amount is reimbursed to the Walmart after deducting the TDS from the salaries earned by the seconded employees in India, is not disputed by the Revenue. We hasten to clarify that in saying this, we are not invoking the doctrine of estoppel. Decided in favour of assessee.
Reopening of assessment - unexplained cash deposit made by the petitioner in any of the bank accounts - HELD THAT:- As reasons recorded in both the notices issued u/s 148A (a) and Section 148A (b) of the Act that there is no cash deposit made by the petitioner in any of the bank accounts and there is no information of any escaped income with AO so as to initiate the reopening proceedings.
Explanation given by the petitioner in reply to the notice u/s 148A (a) of the Act and the documents annexed therewith, prima facie, shows that there is no income earned by the petitioner but there is excess of expenditure over income for the year under consideration and as such the petitioner was not liable to file the return of income if there is no taxable income or exemption claimed by the petitioner.
Petition succeeds and is accordingly allowed.
Reopening of assessment - unexplained cash deposit made by the petitioner in any of the bank accounts - HELD THAT:- As reasons recorded in both the notices issued u/s 148A (a) and Section 148A (b) of the Act that there is no cash deposit made by the petitioner in any of the bank accounts and there is no information of any escaped income with AO so as to initiate the reopening proceedings.
Explanation given by the petitioner in reply to the notice u/s 148A (a) of the Act and the documents annexed therewith, prima facie, shows that there is no income earned by the petitioner but there is excess of expenditure over income for the year under consideration and as such the petitioner was not liable to file the return of income if there is no taxable income or exemption claimed by the petitioner.
Petition succeeds and is accordingly allowed.
The primary issues considered in this judgment include:
1) Whether the rejection of the petitioner's application under Section 119(1) of the Income Tax Act by the CBDT was justified.
2) Whether the relief sought by the petitioner could be granted by invoking the extraordinary writ jurisdiction under Article 226 of the Constitution of India.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of Rejection under Section 119(1)
Relevant Legal Framework and Precedents: Section 119 of the Income Tax Act empowers the CBDT to issue orders, instructions, or directions for the proper administration of the Act. The provision allows for relaxation of certain provisions to avoid genuine hardship. The court referenced several precedents, including judgments from the Supreme Court and High Courts, emphasizing the power of the CBDT to grant administrative relief and address genuine hardship.
Court's Interpretation and Reasoning: The court found that the CBDT's rejection of the petitioner's application was arbitrary and not in alignment with the powers vested in it under Section 119. The court noted that the CBDT failed to consider the genuine hardship faced by the petitioner due to the fraudulent actions of its former management.
Key Evidence and Findings: The court highlighted the fraudulent activities of the petitioner's former management, which led to inflated income figures and excess tax payments. It was established that the petitioner company was a victim of fraud, and the Board was unaware of the true financial status.
Application of Law to Facts: The court applied the principles of real income and genuine hardship, determining that the petitioner was entitled to relief under Section 119 due to the fraudulent circumstances that led to incorrect tax assessments.
Treatment of Competing Arguments: The respondents argued that the CBDT's decision was justified due to ongoing criminal proceedings and the finality of assessments. However, the court found these arguments unpersuasive, emphasizing the need for a fair reassessment based on actual income.
Conclusions: The court concluded that the rejection of the application under Section 119 was unjustified and that the petitioner was entitled to a reassessment of its income based on revised financial statements.
Issue 2: Relief under Article 226
Relevant Legal Framework and Precedents: Article 226 of the Constitution empowers High Courts to issue directions, orders, or writs to enforce fundamental rights and for any other purpose. The court referenced precedents where writ jurisdiction was invoked to correct injustices and provide relief when statutory authorities failed to act justly.
Court's Interpretation and Reasoning: The court reasoned that the extraordinary jurisdiction under Article 226 was appropriate to address the injustice faced by the petitioner due to the fraudulent assessment of income.
Key Evidence and Findings: The court relied on the comprehensive evidence of fraud and the subsequent financial adjustments made by the petitioner to correct its financial statements.
Application of Law to Facts: The court applied the principles of justice and equity, finding that the petitioner was entitled to relief under Article 226 to ensure a fair reassessment of its tax liabilities.
Treatment of Competing Arguments: The respondents contended that the relief sought was beyond the scope of the Income Tax Act and that reopening settled assessments was impermissible. The court rejected these arguments, emphasizing the need to address the genuine hardship caused by the fraud.
Conclusions: The court concluded that the relief sought by the petitioner could be granted under Article 226, allowing for a reassessment of its income based on revised financial statements.
3. SIGNIFICANT HOLDINGS
The court held that the rejection of the petitioner's application under Section 119 was arbitrary and illegal, and that the petitioner was entitled to a reassessment of its income for the relevant assessment years.
Verbatim Quotes of Crucial Legal Reasoning: "The order dated 11.07.2011 passed by respondent No.1 as a consequence is set aside / quashed being arbitrary, illegal and violative of Section 119 of the Income Tax Act."
Core Principles Established: The court established that the CBDT has the power to provide relief in cases of genuine hardship and that assessments based on fraudulent income figures can be reassessed to reflect actual income.
Final Determinations on Each Issue: The court determined that the petitioner's application under Section 119 should have been granted and that the relief sought under Article 226 was justified. The court ordered a reassessment of the petitioner's income based on revised financial statements, excluding fictitious sales and interest income.
Rejecting the application seeking permission for assessment of real and actual income after condoning the delay u/s 119 - ‘genuine hardship’ - HELD THAT:- Division Bench of the Bombay High Court in the case of CG Power and Industrial Solutions Ltd. [2024 (5) TMI 502 - BOMBAY HIGH COURT] had allowed the writ petition and had granted the relief similar to the relief sought for in the present batch of writ petitions.
Reading of the facts in the said judgment passed by the Division Bench of the Bombay High Court, what is clearly reflected is that the officers of the Income Tax Department were in agreement with the petitioners to their request for condoning the delay and also going in for reassessment so as to compute the correct taxable income.
In view of the fact that this Bench finding the action on the part of CBDT in rejecting the petition under Section 119 of the Income Tax Act, 1961 to be bad in law in the given factual matrix of the case, the two questions of law framed as is enunciated stands answered accordingly:-
a) So far as the question whether the respondents were justified in rejecting the application u/s 119(1) of the Income Tax Act is answered in the negative holding that the rejection of the said application was bad in law and also was not sustainable factually.
b) So far as the relief which has been sought for whether can be granted invoking Article 226 of the Constitution of India, the same is answered in the affirmative in the view of the findings given by this Bench in the preceding paragraphs based on the judicial precedents.
This Court is conscious of the fact that post re-assessment; there is a likelihood of inflated values emerging which could possibly show surplus tax having been paid potentially burdening the Revenue. However, the petitioner Company has voluntarily agreed not to make any claim for refund. The petitioner Company has filed a memo in this regard dated 15.02.2024 undertaking to waive any such surplus tax having been paid which may arise after assessment. This proactive step by the petitioner Company provides additional compelling ground for allowing this petition, particularly in light of there being no financial implication falling on the Revenue. This gesture on the part of the petitioner to mitigate potential financial implications also shows their commitment only with an intention of getting a fair and genuine assessment so far as the income and the expenditure of the petitioner Company for the relevant period is redone by way of reassessment.
This Court finds that the petitioner-Company through its Assistant Chief Corporate Counsel (Legal) and Authorized Signatory has unequivocally agreed to waive its rights to claim any refund that may arise after adjusting any tax liability arising from the de novo assessments for Assessment Years 2002-03 to 2008-09. This waiver is comprehensive and applies to any residual refunds that may arise after setting off aggregate demands across the relevant Assessment Years u/s 245. This Court finds that this decision of the Assistant Chief Corporate Counsel (Legal) has been duly authorized by the Managing Director of the petitioner Company supported by a valid Power of Attorney dated 22.11.2013. This waiver effectively ensures that there will be no additional financial burden on the Revenue following the completion of the reassessment process.
Rejecting the application seeking permission for assessment of real and actual income after condoning the delay u/s 119 - ‘genuine hardship’ - HELD THAT:- Division Bench of the Bombay High Court in the case of CG Power and Industrial Solutions Ltd. [2024 (5) TMI 502 - BOMBAY HIGH COURT] had allowed the writ petition and had granted the relief similar to the relief sought for in the present batch of writ petitions.
Reading of the facts in the said judgment passed by the Division Bench of the Bombay High Court, what is clearly reflected is that the officers of the Income Tax Department were in agreement with the petitioners to their request for condoning the delay and also going in for reassessment so as to compute the correct taxable income.
In view of the fact that this Bench finding the action on the part of CBDT in rejecting the petition under Section 119 of the Income Tax Act, 1961 to be bad in law in the given factual matrix of the case, the two questions of law framed as is enunciated stands answered accordingly:-
a) So far as the question whether the respondents were justified in rejecting the application u/s 119(1) of the Income Tax Act is answered in the negative holding that the rejection of the said application was bad in law and also was not sustainable factually.
b) So far as the relief which has been sought for whether can be granted invoking Article 226 of the Constitution of India, the same is answered in the affirmative in the view of the findings given by this Bench in the preceding paragraphs based on the judicial precedents.
This Court is conscious of the fact that post re-assessment; there is a likelihood of inflated values emerging which could possibly show surplus tax having been paid potentially burdening the Revenue. However, the petitioner Company has voluntarily agreed not to make any claim for refund. The petitioner Company has filed a memo in this regard dated 15.02.2024 undertaking to waive any such surplus tax having been paid which may arise after assessment. This proactive step by the petitioner Company provides additional compelling ground for allowing this petition, particularly in light of there being no financial implication falling on the Revenue. This gesture on the part of the petitioner to mitigate potential financial implications also shows their commitment only with an intention of getting a fair and genuine assessment so far as the income and the expenditure of the petitioner Company for the relevant period is redone by way of reassessment.
This Court finds that the petitioner-Company through its Assistant Chief Corporate Counsel (Legal) and Authorized Signatory has unequivocally agreed to waive its rights to claim any refund that may arise after adjusting any tax liability arising from the de novo assessments for Assessment Years 2002-03 to 2008-09. This waiver is comprehensive and applies to any residual refunds that may arise after setting off aggregate demands across the relevant Assessment Years u/s 245. This Court finds that this decision of the Assistant Chief Corporate Counsel (Legal) has been duly authorized by the Managing Director of the petitioner Company supported by a valid Power of Attorney dated 22.11.2013. This waiver effectively ensures that there will be no additional financial burden on the Revenue following the completion of the reassessment process.
The core legal issues considered in this judgment are:
(a) Whether the reopening of the assessment for the Assessment Year 2014-15 under Section 148 of the Income Tax Act, 1961, is justified.
(b) Whether the reasons provided for reopening the assessment satisfy the legal requirements for such action, particularly in light of the petitioner's claim of full and true disclosure of all material facts during the original assessment.
(c) Whether the reopening of the assessment is based on a "change of opinion," which is not permissible under the law.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Justification for Reopening the Assessment
- Relevant Legal Framework and Precedents: The reopening of an assessment is governed by Section 147 of the Income Tax Act, 1961, which allows for reopening if the Assessing Officer has reason to believe that income has escaped assessment. This must be based on tangible material and not merely on a change of opinion.
- Court's Interpretation and Reasoning: The Court found that the reopening was not justified as it was based on information from the insight portal without independent verification or assessment by the Assessing Officer. The Court emphasized the need for tangible material and independent satisfaction of the Assessing Officer to justify reopening.
- Key Evidence and Findings: The Court noted that the petitioner had disclosed the loss from Futures & Options (F&O) transactions in its return, which was accepted in the original assessment. The reopening was based on information from another agency, which the Court found insufficient for reopening.
- Application of Law to Facts: The Court applied the principles from previous judgments, such as the decision in Harikishan Sunderlal Virmani vs. Deputy Commissioner of Income Tax, to conclude that mere information from another source without independent assessment does not justify reopening.
- Treatment of Competing Arguments: The respondent argued that the reopening was based on new information indicating non-genuine losses. However, the Court found that this information was not independently verified and did not constitute new tangible material.
- Conclusions: The Court concluded that the reopening of the assessment was not justified as it was based on borrowed satisfaction and lacked independent verification.
Issue (b): Adequacy of Reasons for Reopening
- Relevant Legal Framework and Precedents: The reasons for reopening must be specific, clear, and based on tangible material. A mechanical reopening without independent application of mind is not permissible.
- Court's Interpretation and Reasoning: The Court found the reasons provided for reopening to be vague and lacking in specificity. The reasons were based on assumptions and borrowed satisfaction rather than independent assessment by the Assessing Officer.
- Key Evidence and Findings: The Court noted discrepancies in the amounts cited in the reopening notice and the petitioner's actual reported losses, indicating a lack of clarity and independent verification.
- Application of Law to Facts: The Court applied the principle that reasons for reopening must be based on independent assessment and tangible material, which was not the case here.
- Treatment of Competing Arguments: The respondent's argument that the reopening was based on new information was rejected due to the lack of independent verification and clarity in the reasons provided.
- Conclusions: The Court concluded that the reasons for reopening were inadequate and did not meet the legal requirements for such action.
Issue (c): Reopening Based on Change of Opinion
- Relevant Legal Framework and Precedents: Reopening an assessment based on a change of opinion is not permissible under the law. This principle is well-established in tax jurisprudence.
- Court's Interpretation and Reasoning: The Court found that the reopening was effectively based on a change of opinion, as the original assessment had accepted the petitioner's disclosures, and no new tangible material was presented to justify reopening.
- Key Evidence and Findings: The Court noted that the petitioner had fully disclosed the F&O losses in its return, which were accepted in the original assessment. The reopening was based on the same information, indicating a change of opinion.
- Application of Law to Facts: The Court applied the principle that reopening based on a change of opinion is not permissible, as established in previous cases such as CIT Vs. The Kelvinator of India Ltd.
- Treatment of Competing Arguments: The respondent's argument that the reopening was based on new information was rejected, as the Court found no new tangible material or independent assessment.
- Conclusions: The Court concluded that the reopening was based on a change of opinion and was therefore invalid.
3. SIGNIFICANT HOLDINGS
- Preserve Verbatim Quotes of Crucial Legal Reasoning: "The reopening of assessment on the basis of such newly disclosed material is fully justified." However, the Court found that the material was not independently verified, rendering the reopening invalid.
- Core Principles Established: Reopening of assessment must be based on tangible material and independent assessment by the Assessing Officer. Mere information from another source without independent verification does not justify reopening.
- Final Determinations on Each Issue: The Court quashed the notice for reopening the assessment, holding that it was based on borrowed satisfaction, lacked independent verification, and constituted a change of opinion.
Reopening of assessment u/s 147 - reasons to believe -information made available on the insight portal relied upon - Petitioner has entered into transactions with ASE capital Markets Ltd - HELD THAT:- We find that at no point of time, was there any failure on the part of the petitioner:
“(i) to make a return u/s. 139 or in response to the notice issued under sub-section (1) of section 142 or section 148;
(ii) to disclose fully and truly all material facts necessary for his assessment for that Assessment Year”
It cannot be held that the department was justified in reopening the assessment for Assessment Year 2014-15, which, we may add, has been done mechanically without application of mind, in the absence of any tangible material.
It also appears from the reasons recorded that no verification of the material on record is made by the respondent and there is no independent opinion that any income has escaped assessment due to any failure on the part of the assessee in not disclosing fully and truly all material facts necessary for assessment.
Moreover, from the reasons recorded it appears that the initiation of reopening proceedings are on borrowed satisfaction as no independent opinion is formed and on bare perusal of the reasons recorded, it emerges that the AO, considering the information received from the insight portal, has issued the impugned notice forming his reason to believe that the income has escaped assessment on the presumption that the petitioner has been involved in creating the non-genuine losses which is already reflected in the return of income which is accepted in the regular course of assessment by passing the order under section 143(3) of the Act. Besides, there is no clarity in the reasons whether the transaction value in question or the loss that resulted from such transaction, amounts to Rs. 27,61,650/-. Further, the petitioner had reported a total loss of Rs. 41,56,218/- in F&O Trade in its return. Why only a portion thereof, namely Rs. 27,61,650/- is considered to be non-genuine loss and the rest of the loss is considered to be genuine, is also baffling.
There is no basis to form reasonable belief for escapement of income except the information made available on the insight portal. The respondent-Assessing Officer has not considered the material on record to come to the conclusion that there is failure on the part of the petitioner to disclose truly and fully all material facts to have reason to believe for escapement of income.
Therefore, on the basis of the information received from another agency on insight portal or from the SEBI report, there cannot be any reassessment proceedings unless the respondent, after considering such information/material received from other sources, consider the same with the material on record in the case of the petitioner assessee and thereafter, is required to form independent opinion that income has escaped assessment. Without forming such opinion, solely and mechanically relying upon the information received from the other sources, AO could not have assumed the jurisdiction to reopen the assessment based on such information. This view is fortified by the decision of this Court in case of Harikishan Sunderlal Virmani [2016 (12) TMI 1558 - GUJARAT HIGH COURT]
AO could not have assumed the jurisdiction merely and solely relying upon the information made available on the insight portal without forming any independent opinion on the basis of the material on record vis-a-vis the petitioner is concerned.
This Court is of the opinion that the petitioner had disclosed in its return for the Assessment Year 2014-15 the particulars of the loss under the head of “future and options” which was subsequently accepted by the Department. Therefore, the notice for re-opening the assessment on the exact entry under the head of “future and options” is based on change of opinion. The assessee cannot be said to have failed to have fully and truly disclosed all materials facts which would warrant the re- opening after a period of four years, anyways. Decided in favour of assessee.
Reopening of assessment u/s 147 - reasons to believe -information made available on the insight portal relied upon - Petitioner has entered into transactions with ASE capital Markets Ltd - HELD THAT:- We find that at no point of time, was there any failure on the part of the petitioner:
“(i) to make a return u/s. 139 or in response to the notice issued under sub-section (1) of section 142 or section 148;
(ii) to disclose fully and truly all material facts necessary for his assessment for that Assessment Year”
It cannot be held that the department was justified in reopening the assessment for Assessment Year 2014-15, which, we may add, has been done mechanically without application of mind, in the absence of any tangible material.
It also appears from the reasons recorded that no verification of the material on record is made by the respondent and there is no independent opinion that any income has escaped assessment due to any failure on the part of the assessee in not disclosing fully and truly all material facts necessary for assessment.
Moreover, from the reasons recorded it appears that the initiation of reopening proceedings are on borrowed satisfaction as no independent opinion is formed and on bare perusal of the reasons recorded, it emerges that the AO, considering the information received from the insight portal, has issued the impugned notice forming his reason to believe that the income has escaped assessment on the presumption that the petitioner has been involved in creating the non-genuine losses which is already reflected in the return of income which is accepted in the regular course of assessment by passing the order under section 143(3) of the Act. Besides, there is no clarity in the reasons whether the transaction value in question or the loss that resulted from such transaction, amounts to Rs. 27,61,650/-. Further, the petitioner had reported a total loss of Rs. 41,56,218/- in F&O Trade in its return. Why only a portion thereof, namely Rs. 27,61,650/- is considered to be non-genuine loss and the rest of the loss is considered to be genuine, is also baffling.
There is no basis to form reasonable belief for escapement of income except the information made available on the insight portal. The respondent-Assessing Officer has not considered the material on record to come to the conclusion that there is failure on the part of the petitioner to disclose truly and fully all material facts to have reason to believe for escapement of income.
Therefore, on the basis of the information received from another agency on insight portal or from the SEBI report, there cannot be any reassessment proceedings unless the respondent, after considering such information/material received from other sources, consider the same with the material on record in the case of the petitioner assessee and thereafter, is required to form independent opinion that income has escaped assessment. Without forming such opinion, solely and mechanically relying upon the information received from the other sources, AO could not have assumed the jurisdiction to reopen the assessment based on such information. This view is fortified by the decision of this Court in case of Harikishan Sunderlal Virmani [2016 (12) TMI 1558 - GUJARAT HIGH COURT]
AO could not have assumed the jurisdiction merely and solely relying upon the information made available on the insight portal without forming any independent opinion on the basis of the material on record vis-a-vis the petitioner is concerned.
This Court is of the opinion that the petitioner had disclosed in its return for the Assessment Year 2014-15 the particulars of the loss under the head of “future and options” which was subsequently accepted by the Department. Therefore, the notice for re-opening the assessment on the exact entry under the head of “future and options” is based on change of opinion. The assessee cannot be said to have failed to have fully and truly disclosed all materials facts which would warrant the re- opening after a period of four years, anyways. Decided in favour of assessee.
Levy of penalty u/s 271(1) beyond period of limitation - assessee has not discharge of initial onus of filing voluntary return u/s 139(1) of the Act, thus, he concealed his income - HELD THAT:- In the instant case, the assessment was completed u/s 147/143(3) of the Act on 28/11/2019 and as per the provisions of section 275(1) (c) the time limit for passing the penalty order would be up to 30th Sept. 2020. Due to Covid-19, the time limits for levy of penalty under any provision of the Act falling during the period of continuation of Covid-19 were extended by various Circulars and finally in terms of Notification No.113/2021/f.No.370142/35/2020-TPL-Part-1], it was extended till 31st March, 2022 which is the end date up to which the limit for completion of order imposing penalty chargeable under the Act was extended. As penalty order was passed as on 1st April, 2022, the same is beyond the time limit extended by the CBDT. Appeal of the assessee is allowed.
Levy of penalty u/s 271(1) beyond period of limitation - assessee has not discharge of initial onus of filing voluntary return u/s 139(1) of the Act, thus, he concealed his income - HELD THAT:- In the instant case, the assessment was completed u/s 147/143(3) of the Act on 28/11/2019 and as per the provisions of section 275(1) (c) the time limit for passing the penalty order would be up to 30th Sept. 2020. Due to Covid-19, the time limits for levy of penalty under any provision of the Act falling during the period of continuation of Covid-19 were extended by various Circulars and finally in terms of Notification No.113/2021/f.No.370142/35/2020-TPL-Part-1], it was extended till 31st March, 2022 which is the end date up to which the limit for completion of order imposing penalty chargeable under the Act was extended. As penalty order was passed as on 1st April, 2022, the same is beyond the time limit extended by the CBDT. Appeal of the assessee is allowed.
Penalty levied u/s 271(1)(b) - failure of compliance to notice issued u/s. 142(1) - HELD THAT:- It is seen from the list of Dates and Events, the assessee sought for details for reasons for reopening of assessment, however the same was not provided to the assessee in spite of reminders sent by the assessee.
Assessee placed on record its rectification application filed u/s. 154 of the Act dated 06-02-2023 before the AO on the very same reopening of assessment and sanctioning obtained u/s.151 of the Act, itself is bad in law. It is not on record, any order is being passed against the rectification application.
Regarding the hearing on 10-05-2023, the assessee sought for an adjournment for 10 days. Thus it is not the case of the assessee has not replied to the notices issued by the AO and failed to comply with the notices. Therefore A.O. was not correct in levying penalty u/s. 271(1)(b) - Appeal filed by the Assessee is allowed.
Penalty levied u/s 271(1)(b) - failure of compliance to notice issued u/s. 142(1) - HELD THAT:- It is seen from the list of Dates and Events, the assessee sought for details for reasons for reopening of assessment, however the same was not provided to the assessee in spite of reminders sent by the assessee.
Assessee placed on record its rectification application filed u/s. 154 of the Act dated 06-02-2023 before the AO on the very same reopening of assessment and sanctioning obtained u/s.151 of the Act, itself is bad in law. It is not on record, any order is being passed against the rectification application.
Regarding the hearing on 10-05-2023, the assessee sought for an adjournment for 10 days. Thus it is not the case of the assessee has not replied to the notices issued by the AO and failed to comply with the notices. Therefore A.O. was not correct in levying penalty u/s. 271(1)(b) - Appeal filed by the Assessee is allowed.
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The case revolves around the interpretation of Sections 10(38) and 68 of the Income Tax Act, 1961. Section 10(38) provides for exemption of income arising from the transfer of long-term capital assets, being equity shares, if the transaction is chargeable to securities transaction tax (STT). Section 68 deals with unexplained cash credits, allowing the addition of unexplained income to the total income of the assessee.
Precedents considered include judgments from various High Courts and the Supreme Court, which have consistently held that transactions supported by documentary evidence, conducted through recognized stock exchanges, and involving payment of STT, are genuine and eligible for exemption under Section 10(38).
Court's Interpretation and Reasoning
The Tribunal analyzed the evidence presented by the assessee, including contract notes, demat account statements, and bank transaction records. It noted that the assessee had provided sufficient documentation to prove the genuineness of the transactions. The Tribunal emphasized that the mere matching of transaction patterns with those of fraudulent activities by third parties does not suffice to classify the assessee's transactions as bogus.
The Tribunal also highlighted that the Assessing Officer (AO) had relied heavily on an investigation report without verifying the specific details of the assessee's case. The AO's conclusion that the assessee was not a regular investor was found to be erroneous, as the assessee had been involved in share trading since 2006.
Key Evidence and Findings
The key evidence included the demat account details, contract notes, and bank statements showing the purchase and sale of KPL shares. The Tribunal found that the transactions were conducted through a recognized stock exchange, and the payment was received through banking channels, satisfying the conditions for exemption under Section 10(38).
The Tribunal also referred to the Jurisdictional High Court's decision in the case of Affluence Commodities Pvt Ltd., which held that transactions of KPL shares were genuine and not part of a penny stock scheme.
Application of Law to Facts
The Tribunal applied the principles established in previous judgments, noting that the assessee's transactions met the criteria for exemption under Section 10(38). The Tribunal found that the AO's reliance on the investigation report was misplaced, as there was no direct evidence linking the assessee to any fraudulent activities.
Treatment of Competing Arguments
The Tribunal considered the arguments presented by both the assessee and the Revenue. It found the assessee's evidence and reliance on judicial precedents more compelling. The Tribunal dismissed the Revenue's arguments that relied on generalized patterns of fraud without specific evidence against the assessee.
Conclusions
The Tribunal concluded that the addition made by the AO under Section 68 was not justified. The assessee's transactions were genuine, and the exemption under Section 10(38) was rightly claimed. The Tribunal allowed the appeal filed by the assessee.
3. SIGNIFICANT HOLDINGS
The Tribunal's significant holdings include the following:
The appeal filed by the assessee was allowed, and the order of the lower authorities was set aside, with the Tribunal directing the deletion of the addition made by the AO.
Addition u/s 68 - Bogus LTCG - Denial of exemption exemption u/s 10(38) - purchase of shares of some penny stock companies controlled at very nominal price and thereafter sale of the same at very high price by rigging the price of these shares - HELD THAT:- The Jurisdictional High Court in the case of Affluence Commodities Pvt Ltd. [2024 (4) TMI 199 - GUJARAT HIGH COURT] held that where assessee purchased and sold KPL shares and incurred loss, since assessee had proved genuineness of transactions and moreover assessee had no control whatsoever on share prices, addition made by Assessing Officer on account of disallowance of losses booked in penny stocks was liable to be deleted.
Similarly in the case of PCIT vs. Sandipkumar Parsottambhai Patel [2023 (3) TMI 926 - GUJARAT HIGH COURT] held that since payments were received through account payee cheques and transactions were done through recognized stock exchange, and there was no evidence that assessee had paid cash in return of receipt through cheque, therefore the Tribunal rightly deleted addition holding that transactions were genuine.
We hereby hold the addition made by AO is not legally correct in making addition on account of LTCG earned from sale of KPL shares done through stock exchange as alleged unexplained cash credit u/s. 68 of the Act and the same liable to be deleted. Thus the Grounds raised by the assessee is allowed.
Addition u/s 68 - Bogus LTCG - Denial of exemption exemption u/s 10(38) - purchase of shares of some penny stock companies controlled at very nominal price and thereafter sale of the same at very high price by rigging the price of these shares - HELD THAT:- The Jurisdictional High Court in the case of Affluence Commodities Pvt Ltd. [2024 (4) TMI 199 - GUJARAT HIGH COURT] held that where assessee purchased and sold KPL shares and incurred loss, since assessee had proved genuineness of transactions and moreover assessee had no control whatsoever on share prices, addition made by Assessing Officer on account of disallowance of losses booked in penny stocks was liable to be deleted.
Similarly in the case of PCIT vs. Sandipkumar Parsottambhai Patel [2023 (3) TMI 926 - GUJARAT HIGH COURT] held that since payments were received through account payee cheques and transactions were done through recognized stock exchange, and there was no evidence that assessee had paid cash in return of receipt through cheque, therefore the Tribunal rightly deleted addition holding that transactions were genuine.
We hereby hold the addition made by AO is not legally correct in making addition on account of LTCG earned from sale of KPL shares done through stock exchange as alleged unexplained cash credit u/s. 68 of the Act and the same liable to be deleted. Thus the Grounds raised by the assessee is allowed.
Disallowance of exemption u/s 54B - non submission of any details before the Ld. CIT(A) / NFAC - HELD THAT:- We find due to non submission of any details before the Ld. CIT(A) / NFAC despite number of opportunities granted, the Ld. CIT(A) / NFAC dismissed the appeal for want of prosecution.
It is the submission of assessee that the notices sent by the office of the Ld. CIT(A) / NFAC were delivered in the e-mail of the Chartered Accountant who did not inform the assessee for which all these unfortunate events happened.
Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(A) / NFAC with a direction to grant one final opportunity to the assessee to substantiate his case by filing the requisite details and decide the issue as per fact and law. The assessee is also hereby directed to make his submission, if any, before the Ld. CIT(A) / NFAC on the appointed date. Appeals filed by the assessee are allowed for statistical purposes
Disallowance of exemption u/s 54B - non submission of any details before the Ld. CIT(A) / NFAC - HELD THAT:- We find due to non submission of any details before the Ld. CIT(A) / NFAC despite number of opportunities granted, the Ld. CIT(A) / NFAC dismissed the appeal for want of prosecution.
It is the submission of assessee that the notices sent by the office of the Ld. CIT(A) / NFAC were delivered in the e-mail of the Chartered Accountant who did not inform the assessee for which all these unfortunate events happened.
Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(A) / NFAC with a direction to grant one final opportunity to the assessee to substantiate his case by filing the requisite details and decide the issue as per fact and law. The assessee is also hereby directed to make his submission, if any, before the Ld. CIT(A) / NFAC on the appointed date. Appeals filed by the assessee are allowed for statistical purposes
Reopening of assessment u/s 147 - notice after four years - based on some information received from the Investigation Wing, AO framed an opinion that the assessee has received accommodation entry - HELD THAT:- We find that assessee has disclosed all the material facts necessary for the purpose of assessment. In the original assessment proceedings, the AO after considering all the material has framed an opinion. There was nothing more to disclose and a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge.
Not only material facts were disclosed by the assessee but also they were fully scrutinized by the AO in the original assessment proceedings and figure of income as well as the deductions were worked out by the AO.
The sale was duly disclosed in the Profit & Loss account which was available with the AO while framing the assessment. Now based on some information received from Investigation wing AO has tried to reopen the assessment without in any manner verifying the said information with the material available on record. This is clearly an effort of the AO to review the completed proceedings.
Reopening in the instant case is not by proper application of mind and the reasons recorded by the AO are vague and not supported by independent verification done from the material already available on record. Further assessee has been able to rebut the allegation made in the reasons recorded of receiving the accommodation entry which remained uncontroverted. Thus the reassessment proceedings as initiated vide notice issued u/s 148 are hereby quashed. Decided in favour of assessee.
Reopening of assessment u/s 147 - notice after four years - based on some information received from the Investigation Wing, AO framed an opinion that the assessee has received accommodation entry - HELD THAT:- We find that assessee has disclosed all the material facts necessary for the purpose of assessment. In the original assessment proceedings, the AO after considering all the material has framed an opinion. There was nothing more to disclose and a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge.
Not only material facts were disclosed by the assessee but also they were fully scrutinized by the AO in the original assessment proceedings and figure of income as well as the deductions were worked out by the AO.
The sale was duly disclosed in the Profit & Loss account which was available with the AO while framing the assessment. Now based on some information received from Investigation wing AO has tried to reopen the assessment without in any manner verifying the said information with the material available on record. This is clearly an effort of the AO to review the completed proceedings.
Reopening in the instant case is not by proper application of mind and the reasons recorded by the AO are vague and not supported by independent verification done from the material already available on record. Further assessee has been able to rebut the allegation made in the reasons recorded of receiving the accommodation entry which remained uncontroverted. Thus the reassessment proceedings as initiated vide notice issued u/s 148 are hereby quashed. Decided in favour of assessee.
The Tribunal considered several core legal issues in this judgment:
1. Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act for AY 2011-12 were valid, given the alleged non-application of mind by the Assessing Officer (AO) and the Principal Commissioner of Income Tax (PCIT) in granting approval.
2. Whether the additions made under Section 69A of the Income Tax Act for unexplained cash loans and interest for AY 2011-12 were justified.
3. For AYs 2012-13 to 2018-19, whether the additions made in the absence of incriminating material found during the search were valid.
4. Whether the absence of a mandatory Document Identification Number (DIN) on the assessment orders for AYs 2012-13 to 2018-19 rendered the orders invalid.
5. Whether the approval granted under Section 153D of the Income Tax Act by the Additional Commissioner was competent and not mechanical.
ISSUE-WISE DETAILED ANALYSIS
1. Validity of Reassessment Proceedings for AY 2011-12
The Tribunal examined the legal framework under Section 147, which allows for reassessment if income has escaped assessment. The Tribunal noted several discrepancies in the reasons recorded by the AO for reopening the assessment, including incorrect facts about the original return filing date and declared income. The Court emphasized that these errors indicated a lack of due diligence and non-application of mind by the AO and PCIT. The Tribunal referenced precedents that require a thorough and independent application of mind for reopening assessments.
The Tribunal concluded that the reassessment proceedings were void ab initio due to incorrect assumptions and lack of proper approval, as the reasons for reopening did not pertain to the relevant assessment year.
2. Additions under Section 69A for AY 2011-12
The Tribunal considered the evidence related to alleged unexplained cash loans and interest. The AO's reliance on information from a search on a third party (Evergreen Enterprises) was deemed inappropriate, as the alleged transactions did not pertain to the assessee for the relevant assessment year. The Tribunal highlighted that the incriminating material did not directly implicate the assessee, and the AO failed to establish a direct nexus between the seized documents and the assessee.
The Tribunal found that the additions under Section 69A were unsustainable as they were based on incorrect assumptions and unrelated evidence.
3. Additions for AYs 2012-13 to 2018-19
The Tribunal assessed whether the additions made in these years were based on valid incriminating material. The AO had relied on seized documents from a search on another entity, which did not directly name the assessee. The Tribunal emphasized that for additions under Section 153A, there must be clear and specific incriminating evidence against the assessee. The Tribunal found that the evidence presented did not directly implicate the assessee, and thus, the additions were unjustified.
The Tribunal concluded that the absence of direct incriminating material against the assessee rendered the additions for these years invalid.
4. Absence of Mandatory DIN on Assessment Orders
The Tribunal noted the absence of a mandatory Document Identification Number (DIN) on the assessment orders for AYs 2012-13 to 2018-19. While this issue was raised, the Tribunal did not provide a detailed analysis as the appeals were decided on other grounds. However, the absence of DIN could potentially render the orders procedurally defective.
5. Competency of Approval under Section 153D
The Tribunal considered the allegation of mechanical approval by the Additional Commissioner under Section 153D. The Tribunal found that the approval process lacked the necessary scrutiny and independent application of mind, as evidenced by the reliance on incorrect and unrelated information. This further supported the Tribunal's decision to invalidate the additions.
SIGNIFICANT HOLDINGS
The Tribunal held that the reassessment proceedings for AY 2011-12 were void ab initio due to the incorrect assumptions and lack of proper approval. The Tribunal emphasized the necessity of a thorough application of mind in reassessment proceedings, as established in prior case law.
The Tribunal found that the additions under Section 69A for AY 2011-12 and the additions for AYs 2012-13 to 2018-19 were unsustainable due to the absence of direct incriminating material against the assessee. The Tribunal concluded that the reliance on evidence from a search on a third party was inappropriate without a direct nexus to the assessee.
The Tribunal's decision underscores the importance of proper procedural compliance and the need for clear and direct evidence when making additions based on incriminating material found during searches.
In conclusion, the appeals filed by the assessee were allowed, and the additions made by the AO were deleted.
Reopening of assessment u/s 147 - granting invalid approval u/s 151- Addition of unexplained cash loans and interest received - HELD THAT:- There is non-application of mind on the facts and material coming on record. Apart from many errors one particular fact that the entire premise of which reopening has been done is that amount which has been alleged to have been paid by the assessee to Mr Nilesh Bharani / Evergreen Enterprises did not even pertain to A.Y. 2011-12.
On perusal of the said seized documents placed in the paper book, it is seen that the said amount falls in the period relevant to preceding A.Y.2010-11 because the date of alleged transaction was 20/01/2010 and this has also been mentioned in assessment order and also is relevant from the documents placed.
This addition itself could not have been made in A.Y.2011-12. This itself shows that there is no application of mind.
Invalid approval u/s.151 - We are also in agreement that the contention raised by the ld. Counsel that even the ld. PCIT while granting the approval u/s.151 has not seen these facts and particularly if the amount has been alleged to have been received or given to the firm Evergreen Enterprises in the impugned assessment years when the firm Evergreen Enterprises did not even exist at that time and how ld. AO could send reopening proposals in the assessment folders of a non-existing assessee. Thus, we hold that the reasons recorded u/s.147 is based on incorrect assumption of facts and therefore, the entire proceedings initiated vide notice u/s.148 is void ab initio and is hereby quashed.
For A.Y.2012-13 to 2018-19, it has been pointed out that the entire basis for the addition made by the ld. AO is documents seized during the course of search - addition of interest earned and received in cash to be taxed as unexplained money in the hands of the assessee - From the bare perusal of the seized documents it is seen that the name mentioned as ‘S.M. Joglekar‟ with and with contact number. Nowhere this name or contact number pertain to the assessee because assessee is Mahesh N Joglekar and nowhere it has been brought on record whether S.M. Joglekar is the same as Mahesh N Joglekar. Further, there is a reference of some name Ramesh Gala, which also has no connection with the assessee.
If the ld. AO is drawing some adverse inference based on these seized documents, at least he should have verified whether it actually pertains to the assessee or not? Because neither assessee’s name is Ramesh Gala nor S.M. Joglekar. Even in para 5.19 of the AO, telephone diary seized also show alphabet “J”“J/ 71/SJ” where the name of assessee is not there. Once there is no name mentioned of the assessee in the seized documents then, it cannot be said that it is an incriminating material to rope in any addition in the name of the assessee.
Since the amounts assessed in the hands of the assessee did not pertain to him at all, the additions made for the alleged amount of loan lent in cash and estimated interest earned thereon cannot be sustained and otherwise also for all the assessment years there is no other incriminating material in respect of the assessee is there or referred by the AO. Decided in favour of assessee.
Reopening of assessment u/s 147 - granting invalid approval u/s 151- Addition of unexplained cash loans and interest received - HELD THAT:- There is non-application of mind on the facts and material coming on record. Apart from many errors one particular fact that the entire premise of which reopening has been done is that amount which has been alleged to have been paid by the assessee to Mr Nilesh Bharani / Evergreen Enterprises did not even pertain to A.Y. 2011-12.
On perusal of the said seized documents placed in the paper book, it is seen that the said amount falls in the period relevant to preceding A.Y.2010-11 because the date of alleged transaction was 20/01/2010 and this has also been mentioned in assessment order and also is relevant from the documents placed.
This addition itself could not have been made in A.Y.2011-12. This itself shows that there is no application of mind.
Invalid approval u/s.151 - We are also in agreement that the contention raised by the ld. Counsel that even the ld. PCIT while granting the approval u/s.151 has not seen these facts and particularly if the amount has been alleged to have been received or given to the firm Evergreen Enterprises in the impugned assessment years when the firm Evergreen Enterprises did not even exist at that time and how ld. AO could send reopening proposals in the assessment folders of a non-existing assessee. Thus, we hold that the reasons recorded u/s.147 is based on incorrect assumption of facts and therefore, the entire proceedings initiated vide notice u/s.148 is void ab initio and is hereby quashed.
For A.Y.2012-13 to 2018-19, it has been pointed out that the entire basis for the addition made by the ld. AO is documents seized during the course of search - addition of interest earned and received in cash to be taxed as unexplained money in the hands of the assessee - From the bare perusal of the seized documents it is seen that the name mentioned as ‘S.M. Joglekar‟ with and with contact number. Nowhere this name or contact number pertain to the assessee because assessee is Mahesh N Joglekar and nowhere it has been brought on record whether S.M. Joglekar is the same as Mahesh N Joglekar. Further, there is a reference of some name Ramesh Gala, which also has no connection with the assessee.
If the ld. AO is drawing some adverse inference based on these seized documents, at least he should have verified whether it actually pertains to the assessee or not? Because neither assessee’s name is Ramesh Gala nor S.M. Joglekar. Even in para 5.19 of the AO, telephone diary seized also show alphabet “J”“J/ 71/SJ” where the name of assessee is not there. Once there is no name mentioned of the assessee in the seized documents then, it cannot be said that it is an incriminating material to rope in any addition in the name of the assessee.
Since the amounts assessed in the hands of the assessee did not pertain to him at all, the additions made for the alleged amount of loan lent in cash and estimated interest earned thereon cannot be sustained and otherwise also for all the assessment years there is no other incriminating material in respect of the assessee is there or referred by the AO. Decided in favour of assessee.
The core legal questions considered in this judgment revolve around the validity of the assessment order passed under section 153A read with section 143(3) of the Income Tax Act, particularly focusing on the approval granted under section 153D. The issues include:
ISSUE-WISE DETAILED ANALYSIS
Approval under Section 153D
Other Grounds of Appeal
SIGNIFICANT HOLDINGS
The Tribunal's decision underscores the importance of adherence to statutory requirements in tax assessments, particularly the need for a considered and deliberate approval process under section 153D. This judgment aligns with established judicial precedents, reinforcing the principle that procedural lapses, especially those indicating a lack of due diligence, can invalidate an assessment order. The appeal was allowed, and the assessment order was annulled based on the invalid approval process.
Validity of assessment order passed u/s 153A w/o valid approval granted u/s 153D - HELD THAT:- As relying on Shiv Kumar Nayyar [2024 (6) TMI 29 - DELHI HIGH COURT] and also in the case of Serajjudin & Co. [2023 (3) TMI 785 - ORISSA HIGH COURT] the approval granted in this case is without application of mind and consequently the assessment order is annulled. The ground of appeal .of the assessee is allowed.
Validity of assessment order passed u/s 153A w/o valid approval granted u/s 153D - HELD THAT:- As relying on Shiv Kumar Nayyar [2024 (6) TMI 29 - DELHI HIGH COURT] and also in the case of Serajjudin & Co. [2023 (3) TMI 785 - ORISSA HIGH COURT] the approval granted in this case is without application of mind and consequently the assessment order is annulled. The ground of appeal .of the assessee is allowed.
The core legal issues considered in this case are:
1. Whether the addition of Rs. 27,21,110/- made by the Assessing Officer (AO) on account of cash deposits during the demonetization period, treating them as unexplained under Section 68 read with Section 115BBE of the Income Tax Act, was justified.
2. Whether the Ld. CIT(A) erred in confirming the addition despite the assessee's explanation and evidence that the cash deposits were from cash sales.
3. Whether the Ld. CIT(A) relied on assumptions and presumptions without direct evidence against the assessee.
4. Whether the addition resulted in double taxation, given that the cash sales were already recorded by the assessee.
ISSUE-WISE DETAILED ANALYSIS
1. Addition of Rs. 27,21,110/- as Unexplained Cash Deposits
Relevant Legal Framework and Precedents: The addition was made under Section 68 of the Income Tax Act, which pertains to unexplained cash credits. Section 115BBE provides for tax on income referred to in Section 68.
Court's Interpretation and Reasoning: The Tribunal noted that the Ld. CIT(A) confirmed the addition based on assumptions about the nature of cash deposits during the demonetization period. The Tribunal focused on whether the cash deposits were genuinely unexplained or if the assessee's explanation was credible.
Key Evidence and Findings: The assessee provided detailed submissions, including audited financial statements, tax audit reports, bank statements, sales invoices, and stock summaries. The Ld. CIT(A) accepted part of the assessee's explanation, deleting Rs. 58,78,890/- of the addition but confirmed Rs. 27,21,110/-.
Application of Law to Facts: The Tribunal examined the evidence provided by the assessee, which included cash sales records and stock details. The Tribunal found that the assessee had maintained proper books of account and that the Ld. AO had not pointed out any defects in these records.
Treatment of Competing Arguments: The Tribunal considered the Ld. AR's argument that the cash deposits were from legitimate cash sales and that the Ld. CIT(A) had accepted this explanation for part of the deposits. The Revenue relied on the AO's findings, but the Tribunal found the assessee's evidence compelling.
Conclusions: The Tribunal concluded that the addition of Rs. 27,21,110/- was not justified. The Tribunal found that the cash deposits were explained by the cash sales and that the Ld. CIT(A) erred in confirming the addition without sufficient basis.
2. Double Taxation of Cash Sales
Relevant Legal Framework and Precedents: The principle against double taxation is implicit in tax law, ensuring that the same income is not taxed twice.
Court's Interpretation and Reasoning: The Tribunal considered whether the addition resulted in double taxation, given that the cash sales were already recorded and taxed.
Key Evidence and Findings: The assessee provided evidence of cash sales and corresponding cash deposits. The Tribunal noted that the Ld. AO did not find discrepancies in the assessee's books of account.
Application of Law to Facts: The Tribunal found that the cash sales were duly recorded and taxed, and the addition of the same amount as unexplained cash deposits would result in double taxation.
Treatment of Competing Arguments: The Tribunal considered the Ld. AR's argument that the cash sales were already taxed and that the addition was unwarranted. The Tribunal agreed with this position.
Conclusions: The Tribunal concluded that the addition resulted in double taxation and was therefore unjustified.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Tribunal found material substance in the submissions on behalf of the assessee and grounds of the appeal are deserve to be allowed and the addition in question is deleted."
Core Principles Established: The Tribunal reinforced the principle that additions under Section 68 must be based on concrete evidence and not on assumptions. It also highlighted the importance of not taxing the same income twice.
Final Determinations on Each Issue: The Tribunal allowed the appeal, deleting the addition of Rs. 27,21,110/-. It found that the cash deposits were explained by the cash sales and that the Ld. CIT(A) had erred in confirming the addition.
Addition u/s 68 r.w.s.115BBE - cash deposited in the bank account treating the same as unexplained during the demonetization period - CIT(A) deleted part addition - HELD THAT:- There is material substance in the submissions advanced on behalf of the assessee that the addition was made without pointing out any defect in the books of account of the assessee and it cannot be ignored that the CIT(A) duly accepted the contentions of the assessee along with the evidences filed by the assessee, as mentioned hereinbefore and deleted the amount to some extent which is sales made from July 2016 – September 2016, confirmed the balance sales and Ld. AR submitted in this regard it was without any basis.
It is relevant to mention here that while made addition, the Ld. AO is not rejected the book of accounts and not found any discrepancies in the stock, sales and purchases.
As decided in Bawa Jewellers Pvt. Ltd. [2023 (7) TMI 494 - ITAT DELHI] wherein it was held that whereas the AO did not point out any defects in the books of account, no discrepancies were found in the stocks, sales and purchases and simply the AO concluded that there are huge deposits in the bank account during demonetization period and assessee amply demonstrated with the evidences that the cash sales and the cash deposits during relevant FYs were almost same and there was only a minimal increase in cash deposits during the FY 2016-17 relevant to A.Y. 2017-18. The addition could not be made.
Appeal of the assessee is allowed.
Addition u/s 68 r.w.s.115BBE - cash deposited in the bank account treating the same as unexplained during the demonetization period - CIT(A) deleted part addition - HELD THAT:- There is material substance in the submissions advanced on behalf of the assessee that the addition was made without pointing out any defect in the books of account of the assessee and it cannot be ignored that the CIT(A) duly accepted the contentions of the assessee along with the evidences filed by the assessee, as mentioned hereinbefore and deleted the amount to some extent which is sales made from July 2016 – September 2016, confirmed the balance sales and Ld. AR submitted in this regard it was without any basis.
It is relevant to mention here that while made addition, the Ld. AO is not rejected the book of accounts and not found any discrepancies in the stock, sales and purchases.
As decided in Bawa Jewellers Pvt. Ltd. [2023 (7) TMI 494 - ITAT DELHI] wherein it was held that whereas the AO did not point out any defects in the books of account, no discrepancies were found in the stocks, sales and purchases and simply the AO concluded that there are huge deposits in the bank account during demonetization period and assessee amply demonstrated with the evidences that the cash sales and the cash deposits during relevant FYs were almost same and there was only a minimal increase in cash deposits during the FY 2016-17 relevant to A.Y. 2017-18. The addition could not be made.
Appeal of the assessee is allowed.
The core legal questions considered in the judgment are:
1. Whether the assessment order passed under Section 153A read with Section 143(3) of the Income Tax Act, 1961, was erroneous and prejudicial to the interests of the revenue, justifying the invocation of revisionary powers under Section 263.
2. Whether the Assessing Officer (AO) was required to inquire into the source of investment in immovable property by the assessee, which was not disclosed in the return of income or books of accounts, in the absence of incriminating material found during the search.
3. Whether the provisions of Section 56(2)(vii)(b) regarding taxation of the difference between stamp duty value and actual consideration paid for property purchase were applicable for the assessment year 2013-14.
4. Whether the Principal Commissioner of Income Tax (Pr.CIT) was justified in directing further inquiry and verification beyond the scope of powers under Section 153A read with Section 143(3) and consequently under Section 263.
ISSUE-WISE DETAILED ANALYSIS
1. Erroneous and Prejudicial Assessment Order:
The legal framework under Section 263 allows the Pr.CIT to revise an assessment order if it is erroneous and prejudicial to the revenue. The Court analyzed whether the AO's failure to investigate the investment in immovable property constituted an error. The Court referenced the Supreme Court's decision in Abhisar Buildwell P.Ltd., which clarified that for unabated assessments under Section 153A, additions can only be based on incriminating material found during a search. Since no such material was found, the AO's lack of inquiry was not erroneous.
2. Inquiry into Source of Investment:
The Court examined whether the AO should have inquired into the source of investment in the absence of incriminating material. The Pr.CIT argued that the AO's failure to do so was an error. However, the Court, relying on the Supreme Court's interpretation, concluded that such an inquiry was beyond the AO's scope for unabated assessments under Section 153A, as no incriminating material was found during the search.
3. Applicability of Section 56(2)(vii)(b):
The Pr.CIT suggested that the difference between the stamp duty value and the actual consideration paid should have been taxed under Section 56(2)(vii)(b). However, the assessee contended that this provision was not applicable for the assessment year 2013-14, as it was effective from 1.04.2014. The Court did not need to address this issue directly, as the primary concern was the AO's failure to inquire into the investment source, not the application of Section 56(2)(vii)(b).
4. Scope of Inquiry and Verification:
The Court evaluated whether the Pr.CIT's direction for further inquiry exceeded the scope of powers under Section 153A and Section 263. The Court concluded that, based on the Supreme Court's decision, the AO's inquiry should have been limited to incriminating material found during the search. Since no such material was found, the Pr.CIT's directive for further inquiry was unwarranted.
SIGNIFICANT HOLDINGS
The Court held that the order passed under Section 263 by the Pr.CIT was not sustainable in law, as there was no error in the AO's order. The Supreme Court's decision in Abhisar Buildwell P.Ltd. established that search assessments under Section 153A must be based on incriminating material found during the search for unabated years. The Court found that the AO's lack of inquiry into the investment did not constitute an error, as it was beyond the scope of permissible inquiry under the legal framework.
Core Principles Established:
The Court reinforced the principle that for unabated assessments under Section 153A, any additions or inquiries must be based solely on incriminating material found during the search. The decision emphasized adherence to the legal framework as interpreted by the Supreme Court, ensuring that the AO's actions align with established legal precedents.
Final Determinations:
The appeal of the assessee was allowed, and the order of the Pr.CIT was set aside. The Court concluded that the AO's assessment order was not erroneous, as it complied with the legal standards set by the Supreme Court for search assessments under Section 153A.
Revision u/s 263 - validity of Assessment u/s 153A - HELD THAT:-Hon’ble Apex Court in Abhisar Buildwell P. Ltd. [2023 (4) TMI 1056 - SUPREME COURT] has settled the proposition of law that search assessment framed under section 153A are to be restricted to incriminating material found during the search for those years (out of the block of six years prior to the year in which search was conducted) where the assessments are unabated. In the present case, it’s a fact on record that search action took place on the case on 31.1.2018.
The impugned assessment before us is Asst. Year 2013- 14. There is no dispute with regard to the fact that the assessment for the impugned year was unabated. The issue, with regards to which the ld.Pr.CIT has found the assessment order erroneous, with regard to the source of investment in the immovable property not having been inquired into by the AO, admittedly has not arisen from any evidences or documents found during the search.
There is no such contention or fact put-forth either by the ld.Pr.CIT or even ld. DR before us. Therefore, it is clear that applying the ratio laid down by the Hon’ble Apex Court in Abhisar Buildwell P. Ltd. (supra) this issue could not have been considered by the AO during the assessment proceedings.
We have no hesitation in setting aside the order of the ld.Pr.CIT finding the error noted by him, to be not an error at all. Decided in favour of assessee.
Revision u/s 263 - validity of Assessment u/s 153A - HELD THAT:-Hon’ble Apex Court in Abhisar Buildwell P. Ltd. [2023 (4) TMI 1056 - SUPREME COURT] has settled the proposition of law that search assessment framed under section 153A are to be restricted to incriminating material found during the search for those years (out of the block of six years prior to the year in which search was conducted) where the assessments are unabated. In the present case, it’s a fact on record that search action took place on the case on 31.1.2018.
The impugned assessment before us is Asst. Year 2013- 14. There is no dispute with regard to the fact that the assessment for the impugned year was unabated. The issue, with regards to which the ld.Pr.CIT has found the assessment order erroneous, with regard to the source of investment in the immovable property not having been inquired into by the AO, admittedly has not arisen from any evidences or documents found during the search.
There is no such contention or fact put-forth either by the ld.Pr.CIT or even ld. DR before us. Therefore, it is clear that applying the ratio laid down by the Hon’ble Apex Court in Abhisar Buildwell P. Ltd. (supra) this issue could not have been considered by the AO during the assessment proceedings.
We have no hesitation in setting aside the order of the ld.Pr.CIT finding the error noted by him, to be not an error at all. Decided in favour of assessee.
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Liability of TDS on Interest Payments to Co-operative Societies
Relevant Legal Framework and Precedents: The relevant provisions are found in Section 194A of the Income Tax Act, particularly subsections (3)(i)(b), (3)(viia), and (3)(v). The Finance Act, 2015, amended these provisions, affecting the applicability of TDS exemptions.
Court's Interpretation and Reasoning: The Tribunal examined whether the interest paid by the co-operative bank to other co-operative societies is subject to TDS. The Tribunal noted that Section 194A(3)(v) provides an exemption for interest payments from a co-operative society to another co-operative society, which remains intact even after the amendment.
Key Evidence and Findings: The Tribunal relied on previous decisions from the ITAT Chandigarh Bench, which held that co-operative societies are not required to deduct TDS from interest payments to other co-operative societies.
Application of Law to Facts: The Tribunal found that the assessee co-operative bank's payments to other co-operative societies fall under the exemption provided by Section 194A(3)(v).
Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the exemption does not apply post-amendment, citing consistent interpretations in previous cases.
Conclusions: The Tribunal concluded that the assessee co-operative bank is not liable to deduct TDS on interest payments to other co-operative societies.
2. Exemption of TDS on Interest Paid to Government-Run Temple
Relevant Legal Framework and Precedents: Section 194A(3)(iii)(f) exempts TDS on interest payments to any undertaking or body wholly financed by the government.
Court's Interpretation and Reasoning: The Tribunal considered whether the temple, being run by the state government, qualifies for the exemption.
Key Evidence and Findings: The Tribunal noted the notification SO 3489 dated 22/10/1970, which supports the exemption for government-financed bodies.
Application of Law to Facts: The Tribunal found that the interest paid to Jagan Nath Temple Nahan falls under the exemption due to its government management.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's assertion that the exemption was not applicable, emphasizing the temple's government-run status.
Conclusions: The Tribunal concluded that the interest payments to the temple are exempt from TDS under the relevant notification.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning: "The exemption provided under section 194A(3)(v) of the Act with regard to deduction of tax at source from interest payment by a cooperative society to another cooperative society existed before the amendment, and continue to apply to the cooperative bank even after the amendment."
Core Principles Established: The Tribunal reaffirmed that the exemption under Section 194A(3)(v) applies to interest payments between co-operative societies, irrespective of the Finance Act, 2015 amendments. It also established that interest payments to government-run entities are exempt under Section 194A(3)(iii)(f).
Final Determinations on Each Issue: The Tribunal allowed the appeal, deleting the additions made in the impugned order concerning TDS on interest payments to co-operative societies and the government-run temple.
TDS u/s 194A - interest paid by the assessee co-operative bank to its members & other co-operative societies - HELD THAT:- By virtue of section 194A(3)(v) of the Act (whether pre amended and/or post amendment assessee bank is not liable to deduct TDS on any payment made to a cooperative society and contentions canvassed by the assessee bank is meritorious in nature. The Assessee bank has rightly not deducted TDS on payment made to “SMR Coop Bank Emp Society Nahan”& “The SBI Emp Non-Agri/CR/SEV Coop Society”. The addition made on this count is liable to be deleted.
Section 194A(3)(v) of the Act was express and clear with regard to cooperative society. We hold that it is not mandatory requirement in law that such societies (depositors) should be “Members” of Cooperative Bank.
Section 194A(3)(v) expressly say that “Income is credited or paid by a cooperative society to any other cooperative society” then such income payment or credit need not be made subject matter of TDS. The other cooperative societies to whom payment is made or amount credited need not be a member of cooperative society so making payment.
We gainfully refer to the order of Punjab State Co-operative Bank Ltd. Chandigarh [2016 (7) TMI 205 - ITAT CHANDIGARH]. The Ludhiana Central Co-operative Bank ltd. Ludhiana [2016 (11) TMI 1766 - ITAT CHANDIGARH] wherein it has been that when assessee being a Cooperative Society paid interest without deducting tax at source to other cooperative societies then such assessee would enjoy immunity from deduction of tax at source by virtue of section 194A(3)(v) of the Act. The said decisions would squarely apply in the present case. We thus hold that by virtue of the provisions of Section 194(A)(3)(v) the assessee is not required to deduct from payment of interest on time deposit of other being a cooperative society and that any demand raised to the contrary view (Supra) needs to be deleted.
Assessee was required to deduct “TDS” on interest paid to “Jagan Nath Temple Nahan” we hold that said temple is being run by state Government that interest payable to Temple is not liable to TDS/or subject to TDS by virtue of notification so 3489 dt. 22/10/1970 under section 194A(3)(iii)(f) which includes “any undertaking or body, including a society registered under the Societies registration Act, 1860 (21 of 1860) financed wholly by the Government.”
We hold that Assessee’s action in not deducting TDS is justifiable. Assessee appeal allowed.
TDS u/s 194A - interest paid by the assessee co-operative bank to its members & other co-operative societies - HELD THAT:- By virtue of section 194A(3)(v) of the Act (whether pre amended and/or post amendment assessee bank is not liable to deduct TDS on any payment made to a cooperative society and contentions canvassed by the assessee bank is meritorious in nature. The Assessee bank has rightly not deducted TDS on payment made to “SMR Coop Bank Emp Society Nahan”& “The SBI Emp Non-Agri/CR/SEV Coop Society”. The addition made on this count is liable to be deleted.
Section 194A(3)(v) of the Act was express and clear with regard to cooperative society. We hold that it is not mandatory requirement in law that such societies (depositors) should be “Members” of Cooperative Bank.
Section 194A(3)(v) expressly say that “Income is credited or paid by a cooperative society to any other cooperative society” then such income payment or credit need not be made subject matter of TDS. The other cooperative societies to whom payment is made or amount credited need not be a member of cooperative society so making payment.
We gainfully refer to the order of Punjab State Co-operative Bank Ltd. Chandigarh [2016 (7) TMI 205 - ITAT CHANDIGARH]. The Ludhiana Central Co-operative Bank ltd. Ludhiana [2016 (11) TMI 1766 - ITAT CHANDIGARH] wherein it has been that when assessee being a Cooperative Society paid interest without deducting tax at source to other cooperative societies then such assessee would enjoy immunity from deduction of tax at source by virtue of section 194A(3)(v) of the Act. The said decisions would squarely apply in the present case. We thus hold that by virtue of the provisions of Section 194(A)(3)(v) the assessee is not required to deduct from payment of interest on time deposit of other being a cooperative society and that any demand raised to the contrary view (Supra) needs to be deleted.
Assessee was required to deduct “TDS” on interest paid to “Jagan Nath Temple Nahan” we hold that said temple is being run by state Government that interest payable to Temple is not liable to TDS/or subject to TDS by virtue of notification so 3489 dt. 22/10/1970 under section 194A(3)(iii)(f) which includes “any undertaking or body, including a society registered under the Societies registration Act, 1860 (21 of 1860) financed wholly by the Government.”
We hold that Assessee’s action in not deducting TDS is justifiable. Assessee appeal allowed.
The core legal questions considered in this judgment revolve around the validity of the reopening of assessment under Sections 147 and 148 of the Income Tax Act, 1961, and the consequent assessment order for the Assessment Year 2007-08. The issues include:
2. ISSUE-WISE DETAILED ANALYSIS
Validity of Reopening under Sections 147/148:
Transfer of Land and Addition of Rs. 15.25 Crore:
3. SIGNIFICANT HOLDINGS
Validity of the reopening of assessment - mandation to get approval for reopening - Addition on account of sale consideration - HELD THAT:- The impugned approval which was mandatory before the initiating reassessment was quite mechanical in nature and without proper application of mind and appears to be accord before receiving the reasons to believe by the AO or based same date and specially not mentioned that which material or the relevant para of the material was perused to grant impugned approval.
We find material substance in the submissions made by AR and we are of the opinion that reopening action made u/s 147/148 of the Act, without jurisdiction and consequent assessment order was also invalid and legally unsustainable and grounds raised by the assessee allowed accordingly.
Addition on account of sale consideration - as per CIT(A) land was not transferred during the year under consideration within the meaning of section 2(47) - CIT(A) while passing the impugned order clearly observed that the Ld. AO has not brought anything on record to show that the land in question was transferred in the AY under consideration. Hence, no any substance in the appeal preferred by revenue and this ground is liable to be dismissed.
Revenue appeal dismissed.
Validity of the reopening of assessment - mandation to get approval for reopening - Addition on account of sale consideration - HELD THAT:- The impugned approval which was mandatory before the initiating reassessment was quite mechanical in nature and without proper application of mind and appears to be accord before receiving the reasons to believe by the AO or based same date and specially not mentioned that which material or the relevant para of the material was perused to grant impugned approval.
We find material substance in the submissions made by AR and we are of the opinion that reopening action made u/s 147/148 of the Act, without jurisdiction and consequent assessment order was also invalid and legally unsustainable and grounds raised by the assessee allowed accordingly.
Addition on account of sale consideration - as per CIT(A) land was not transferred during the year under consideration within the meaning of section 2(47) - CIT(A) while passing the impugned order clearly observed that the Ld. AO has not brought anything on record to show that the land in question was transferred in the AY under consideration. Hence, no any substance in the appeal preferred by revenue and this ground is liable to be dismissed.
Revenue appeal dismissed.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Validity of Additions under Section 68 and Disallowance under Section 37(1)
2. Validity of Assessment Order and Approval under Section 153D
3. Condonation of Delay in Filing Cross-Objection
SIGNIFICANT HOLDINGS
Validity of additions made u/s 153A in the absence of incriminating material found during the search - addition u/s 68 for unsecured loans, and u/s 37(1) for disallowance of interest expenses - HELD THAT:- As decided in PCIT v/s Abhisar Buildwell (P.) Ltd. [2023 (4) TMI 1056 - SUPREME COURT] wherein held that in case no incriminating material is found during the search conducted under section 132 of the Act, the AO has no jurisdiction to make an assessment in respect of completed/unabated assessments.
We find that in PCIT v/s Pavitra Realcon (P) Ltd. [2024 (5) TMI 1408 - DELHI HIGH COURT] held that statement under section 132(4) of the Act alone, without any other material discovered during the search which would corroborate search statement, do not grant the AO authority to make an assessment.
Since, in the present case, it is undisputed that the assessment year under consideration is an unabated/concluded year, therefore, we find no basis in upholding the additions made by the AO u/s 68 and disallowance made u/s 37(1) of the Act in the absence of incriminating evidence found during the search. Decided in favour of assessee.
Validity of additions made u/s 153A in the absence of incriminating material found during the search - addition u/s 68 for unsecured loans, and u/s 37(1) for disallowance of interest expenses - HELD THAT:- As decided in PCIT v/s Abhisar Buildwell (P.) Ltd. [2023 (4) TMI 1056 - SUPREME COURT] wherein held that in case no incriminating material is found during the search conducted under section 132 of the Act, the AO has no jurisdiction to make an assessment in respect of completed/unabated assessments.
We find that in PCIT v/s Pavitra Realcon (P) Ltd. [2024 (5) TMI 1408 - DELHI HIGH COURT] held that statement under section 132(4) of the Act alone, without any other material discovered during the search which would corroborate search statement, do not grant the AO authority to make an assessment.
Since, in the present case, it is undisputed that the assessment year under consideration is an unabated/concluded year, therefore, we find no basis in upholding the additions made by the AO u/s 68 and disallowance made u/s 37(1) of the Act in the absence of incriminating evidence found during the search. Decided in favour of assessee.
Applications filed by the assessee for renewal of registration u/s 12A(1)(ac)(iii) and approval u/s 80G(5)(iii) - non-compliance by the assessee - HELD THAT:- It is evident from the record that the assessee filed its response on 21.08.2024, within the due date mentioned in the CIT(E)'s notice. CIT(E) ignored this submission and erroneously rejected the application citing non- compliance.
Such an approach violates natural justice, as the assessee's submission should have been duly considered before passing an adverse order. In case of approval u/s 80G(5)(iii) also the assessee filed a detailed submission on 21.08.2024, complying with the notice dated 09.08.2024.
CIT(E), however, did not examine the documents submitted and rejected the application on incorrect factual grounds. Given that the documents were submitted, the rejection was without proper verification. Appeals of the assessee are allowed for statistical purposes.
Applications filed by the assessee for renewal of registration u/s 12A(1)(ac)(iii) and approval u/s 80G(5)(iii) - non-compliance by the assessee - HELD THAT:- It is evident from the record that the assessee filed its response on 21.08.2024, within the due date mentioned in the CIT(E)'s notice. CIT(E) ignored this submission and erroneously rejected the application citing non- compliance.
Such an approach violates natural justice, as the assessee's submission should have been duly considered before passing an adverse order. In case of approval u/s 80G(5)(iii) also the assessee filed a detailed submission on 21.08.2024, complying with the notice dated 09.08.2024.
CIT(E), however, did not examine the documents submitted and rejected the application on incorrect factual grounds. Given that the documents were submitted, the rejection was without proper verification. Appeals of the assessee are allowed for statistical purposes.
The core legal questions considered in this judgment include:
1. Whether the CESTAT was correct in allowing the benefit of a concessional rate of Countervailing Duty (CVD) on imports where the importers failed to fulfill the conditions stipulated in Notification No. 4/2006-CE as amended.
2. Whether the import of cement by M/s A-1, Hollow Bricks and Construction violated the terms of the Notification No. 4/2006-CE, given the misdeclaration of the Retail Sale Price (RSP) and the nature of the import as being from a trader rather than directly from a manufacturer.
3. Whether the CESTAT erred in setting aside the Order-in-Original which had imposed penalties and demanded differential duty based on alleged misdeclaration and misuse of concessional duty provisions.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Compliance with Notification No. 4/2006-CE
- Relevant legal framework and precedents: Notification No. 4/2006-CE provides concessional rates of duty under specific conditions, including the requirement that the cement must be purchased directly from the manufacturer and used for institutional or industrial purposes.
- Court's interpretation and reasoning: The Court emphasized that the conditions for concessional duty are strict and must be adhered to. The importer's admission that the cement was purchased through High Sea Sales from a trader, rather than directly from a manufacturer, disqualified them from the concessional rate.
- Key evidence and findings: The Bills of Entry and the importer's own admission were critical in establishing that the cement was not purchased directly from a manufacturer. The RSP was also found to be misdeclared, exceeding the stipulated Rs. 190/- per 50 kg bag.
- Application of law to facts: The Court applied the conditions of the notification to the facts, noting that the importer's actions did not meet the criteria for concessional duty. The purchase from a trader and the use of cement for manufacturing hollow bricks further violated the conditions.
- Treatment of competing arguments: The importer's argument that the CESTAT's decision was justified due to the lack of provisional assessment and the absence of evidence of misuse was rejected. The Court noted that the CESTAT failed to consider the factual admissions and the clear terms of the notification.
- Conclusions: The Court concluded that the CESTAT erred in allowing the concessional rate of duty, given the clear violations of the notification's conditions.
Issue 2: Misdeclaration and Penalties
- Relevant legal framework and precedents: Sections 111(m), 111(o), 114A, and 125 of the Customs Act relate to misdeclaration, confiscation, penalties, and fines.
- Court's interpretation and reasoning: The Court found that the importer's misdeclaration of the RSP and the nature of the import justified the penalties and the demand for differential duty as imposed in the Order-in-Original.
- Key evidence and findings: The admission of the importer regarding the use of cement for manufacturing hollow bricks, rather than for institutional or industrial purposes, was pivotal. The lack of direct purchase from a manufacturer was also significant.
- Application of law to facts: The Court applied the relevant sections of the Customs Act to uphold the penalties and fines, emphasizing that the importer's actions constituted a clear case of misdeclaration and misuse of concessional duty provisions.
- Treatment of competing arguments: The argument that the CESTAT's decision was based on a lack of evidence of misuse was countered by the Court's reliance on the importer's admissions and the documentary evidence.
- Conclusions: The Court upheld the Order-in-Original, confirming the penalties and the demand for differential duty.
SIGNIFICANT HOLDINGS
- Preserve verbatim quotes of crucial legal reasoning: "The CESTAT failed to understand that cement is manufactured by one or other factory. The condition imposed in the Notification is threefold. First, the purchase must be directly from the manufacturer. Secondly, the said manufacturer/factory must use only the rotary kiln with installing capacity of not more than 900 Tonnes per day. Thirdly, the cement produced by the Factory must not exceed 3,00,000 Tonnes per financial year."
- Core principles established: The judgment reinforces the principle that compliance with the specific conditions of a notification is mandatory to avail concessional rates of duty. Misdeclaration and failure to adhere to these conditions justify penalties and the withdrawal of concessions.
- Final determinations on each issue: The Court determined that the CESTAT erred in allowing the concessional rate of duty and set aside its order. The Order-in-Original was upheld, confirming the penalties and the demand for differential duty based on the importer's violations.
Concessional rate of duty - import of Cement - import of cement in bags of 50 kgs retail packing and not in bulk - failure to fulfill the conditions stipulated in the N/N. 4/2006-CE - HELD THAT:- Based on the Bills of Entry and admission of the importer, the Adjudication Authority in his Order in Original dated 16.01.2015 held that the importer is not eligible for concessional rate of duty. The violation of the concession condition amounts to misdeclaration to evade duty. Whereas, the CESTAT by a common final order had set aside the order in original without adverting to the factual aspects of the individual case. The reasoning given by CESTAT to interefere the well considered order of the Adjudicating Authority of the face of it suffers patent infirmity.
In the instant case, it is an admitted fact by the importer that he did not purchase the cement from the manufacturer directly. It was a high sea purchase from a non-manufacturer/trader. No doubt, the Bill of Entry contains details of the manufacturer, but that is not sufficient to claim concessional rate of duty. The concessional rule not only specifically mandates that the purchase must be from the manufacturer directly, it also specifies the mode of manufacturing and the capacity of the manufacturer. If the reasoning given by the CESTAT to be accepted, then the condition in Clause IB in the Notification which imposes condition about the mode of manufacturing and capacity of the manufacturer will become redundant.
In this case, the records reveals that, by way of show cause notice the department had sought for explanation about the Post- Importation actual user confirmation. The importer has admitted that the cement imported was used for manufacturing Hollow bricks and sold to its customers. Therefore, it is evident that the cement was not used for institutional/industrial purposes. Hence, the CESTAT order which is apparently against the terms of the notification and the evidence by way of Bills of Entry and Statement of importer, is liable to be set aside.
Conclusion - The CESTAT erred in allowing the benefit of concessional rate of counter veiling Duty (CVD) to the respondent M/s A-1, Hallow Bricks and Manufacturer despite gross violation of the concession condition. Hence, the question of law is answered in negative favouring the Department.
Appeal allowed.
Concessional rate of duty - import of Cement - import of cement in bags of 50 kgs retail packing and not in bulk - failure to fulfill the conditions stipulated in the N/N. 4/2006-CE - HELD THAT:- Based on the Bills of Entry and admission of the importer, the Adjudication Authority in his Order in Original dated 16.01.2015 held that the importer is not eligible for concessional rate of duty. The violation of the concession condition amounts to misdeclaration to evade duty. Whereas, the CESTAT by a common final order had set aside the order in original without adverting to the factual aspects of the individual case. The reasoning given by CESTAT to interefere the well considered order of the Adjudicating Authority of the face of it suffers patent infirmity.
In the instant case, it is an admitted fact by the importer that he did not purchase the cement from the manufacturer directly. It was a high sea purchase from a non-manufacturer/trader. No doubt, the Bill of Entry contains details of the manufacturer, but that is not sufficient to claim concessional rate of duty. The concessional rule not only specifically mandates that the purchase must be from the manufacturer directly, it also specifies the mode of manufacturing and the capacity of the manufacturer. If the reasoning given by the CESTAT to be accepted, then the condition in Clause IB in the Notification which imposes condition about the mode of manufacturing and capacity of the manufacturer will become redundant.
In this case, the records reveals that, by way of show cause notice the department had sought for explanation about the Post- Importation actual user confirmation. The importer has admitted that the cement imported was used for manufacturing Hollow bricks and sold to its customers. Therefore, it is evident that the cement was not used for institutional/industrial purposes. Hence, the CESTAT order which is apparently against the terms of the notification and the evidence by way of Bills of Entry and Statement of importer, is liable to be set aside.
Conclusion - The CESTAT erred in allowing the benefit of concessional rate of counter veiling Duty (CVD) to the respondent M/s A-1, Hallow Bricks and Manufacturer despite gross violation of the concession condition. Hence, the question of law is answered in negative favouring the Department.
Appeal allowed.
Regarding the first issue, the relevant legal framework involves the interpretation of Section 27 of the Customs Act, 1962, which deals with the refund of customs duties. The court also considered Circular No. 5/2016-Customs, which clarifies that EDD is a form of security deposit rather than a customs duty. Precedents from various High Courts, including the Madras and Karnataka High Courts, were examined to determine the nature of EDD and its treatment under the law.
The court's interpretation focused on the distinction between EDD and customs duty. It found that EDD, collected during provisional assessments, is intended as a security deposit to cover potential customs duty liabilities. This distinction is crucial because Section 27 applies specifically to customs duties, not security deposits like EDD. The court noted that once the final assessment revealed no undervaluation, the basis for retaining the EDD ceased to exist.
Key evidence included the investigation report and SVB order, which concluded that the relationship between the importer and exporter did not lead to undervaluation. The court also considered the petitioner's repeated requests for a refund and the respondent's refusal based on the limitation period under Section 27.
The court applied the law to the facts by emphasizing that EDD is not customs duty, as supported by the Circular and judicial precedents. It rejected the respondent's argument that the refund claim was time-barred, noting that the limitation period under Section 27 does not apply to EDD. The court also dismissed the argument for relegating the petitioner to the appellate remedy, as EDD does not fall within the scope of Section 27.
In addressing competing arguments, the court acknowledged the respondent's position that the petitioner had previously pursued an appellate remedy in similar circumstances. However, it found this argument unpersuasive, given the distinct nature of EDD and the inapplicability of Section 27's limitation period.
The court concluded that the petitioner's claim for a refund of EDD is valid and not subject to the limitation period under Section 27. It directed the Customs Department to refund the EDD within two weeks, with interest as per the law. The court also provided the petitioner with the option to seek further relief if the refund is not processed within the stipulated time.
Significant holdings include the court's determination that EDD is not equivalent to customs duty and thus not subject to the limitation period under Section 27. The court emphasized that the Customs Department's refusal to refund EDD based on this limitation was untenable. The judgment reinforces the principle that security deposits like EDD, collected during provisional assessments, must be refunded when the basis for their retention no longer exists.
The final determination on the issue is that the Customs Department must refund the EDD to the petitioner, along with applicable interest, as EDD does not constitute customs duty and is not subject to the limitation period under Section 27 of the Customs Act, 1962.
Refund of Extra Duty Deposit (EDD) - rejection on the ground being filed beyond the period of limitation prescribed under the provision i.e., beyond one year - related party under Rule 2 (g) (2) (iv) & (v) of the Customs Valuation (Determination of Value of Imported Goods), Rules, 2007 - relationship has led to undervaluation of the imported goods or not.
Whether EDD constitutes a payment in the nature of customs duty under the scope of Section 27 of the Customs Act, 1962? - HELD THAT:- This issue is no longer res integra. Firstly, Circular No.5/2016-Customs dated 9th February, 2016, as submitted by the Petitioner, expressly clarifies that payment collected after provisional assessment for the release of goods shall be in the form of ‘security deposit’.
The question, therefore, is as to whether EDD constitutes customs duty. This issue has been settled by various High Courts. Madras High Court in Nithin India Tech Ltd v. The Deputy Commissioner of Customs (Refund) [2024 (9) TMI 1502 - MADRAS HIGH COURT] has observed that 'The amount that was collected by the Assessing Officer in view of the Special Valuation Branch (SVB) proceedings are nothing to [‘to’ here is to be read as ‘but’] deposit and not a customs duty as is contemplated under Section 12 of the Customs Act, 1962, although such deposit were eligible to be appropriated towards the duty liability of the petitioner after final assessment of the Bill of Entry.'
A perusal of Section 27 would show that the same deals with refund of customs duty. It is abundantly clear that EDD is not in the nature of customs duty. The deposit of the EDD was itself to secure any customs duty which may have been later on found to be payable, due to the allegation of under-declaration - The impugned order holding that the refund application is beyond the limitation is, thus, untenable. Moreover, the impugned order itself acknowledges that the said amount is over and above with duty which was determined by the SVB. The Customs Department could not have rejected the prayer for EDD refund.
Conclusion - The period of limitation for seeking refund of customs duty under Section 27 of the Customs Act, 1962, would not apply qua EDD. EDD is not equivalent to customs duty and thus not subject to the limitation period under Section 27.
Petition allowed.
Refund of Extra Duty Deposit (EDD) - rejection on the ground being filed beyond the period of limitation prescribed under the provision i.e., beyond one year - related party under Rule 2 (g) (2) (iv) & (v) of the Customs Valuation (Determination of Value of Imported Goods), Rules, 2007 - relationship has led to undervaluation of the imported goods or not.
Whether EDD constitutes a payment in the nature of customs duty under the scope of Section 27 of the Customs Act, 1962? - HELD THAT:- This issue is no longer res integra. Firstly, Circular No.5/2016-Customs dated 9th February, 2016, as submitted by the Petitioner, expressly clarifies that payment collected after provisional assessment for the release of goods shall be in the form of ‘security deposit’.
The question, therefore, is as to whether EDD constitutes customs duty. This issue has been settled by various High Courts. Madras High Court in Nithin India Tech Ltd v. The Deputy Commissioner of Customs (Refund) [2024 (9) TMI 1502 - MADRAS HIGH COURT] has observed that 'The amount that was collected by the Assessing Officer in view of the Special Valuation Branch (SVB) proceedings are nothing to [‘to’ here is to be read as ‘but’] deposit and not a customs duty as is contemplated under Section 12 of the Customs Act, 1962, although such deposit were eligible to be appropriated towards the duty liability of the petitioner after final assessment of the Bill of Entry.'
A perusal of Section 27 would show that the same deals with refund of customs duty. It is abundantly clear that EDD is not in the nature of customs duty. The deposit of the EDD was itself to secure any customs duty which may have been later on found to be payable, due to the allegation of under-declaration - The impugned order holding that the refund application is beyond the limitation is, thus, untenable. Moreover, the impugned order itself acknowledges that the said amount is over and above with duty which was determined by the SVB. The Customs Department could not have rejected the prayer for EDD refund.
Conclusion - The period of limitation for seeking refund of customs duty under Section 27 of the Customs Act, 1962, would not apply qua EDD. EDD is not equivalent to customs duty and thus not subject to the limitation period under Section 27.
Petition allowed.
1. Whether there is evidence that the imported goods are other than license stickers or licensesRs.
2. Whether the CESTAT correctly interpreted the judgment of the Hon'ble Supreme Court in a specific caseRs.
3. Whether motive is necessary for the demand of duty under Section 28 of the Customs Act, 1962Rs.
4. Whether the CESTAT passed a reasoned order considering the materials on record and findings of the Adjudicating AuthorityRs.
ISSUE-WISE DETAILED ANALYSIS:
Issue 1: Evidence of Imported Goods
- The Tribunal's order and the Order-in-Original questioned whether the goods "Windows XPE Embedded" software and stickers were correctly classified under specific headings.
- The appellant-revenue argued that the goods were initially classified under one heading but later reclassified under a different heading post a notification.
- The Court determined that the classification and rate of duty issue fall under the determination of customs duty rate, making the appeal not maintainable before the High Court but rather before the Supreme Court.
Issue 2: Interpretation of Supreme Court Judgment
- The CESTAT's interpretation of a Supreme Court judgment was questioned in this appeal.
- The Court did not delve into this issue in detail as it deemed the appeal not maintainable due to the nature of the primary issue.
Issue 3: Necessity of Motive for Duty Demand
- The question of whether motive is necessary for the demand of duty under Section 28 of the Customs Act, 1962 was raised.
- The Court did not provide a detailed analysis of this issue due to the primary issue of classification and the rate of duty.
Issue 4: Reasoned Order by CESTAT
- The appellant raised concerns about the CESTAT's order being reasoned and based on the materials on record.
- The Court did not extensively address this issue as the primary issue of classification and duty rate determination rendered the appeal not maintainable before the High Court.
SIGNIFICANT HOLDINGS:
- The Court dismissed the appeal as not maintainable due to the primary issue relating to the classification and rate of duty, which falls under the determination of customs duty rate.
- The appellant was granted the liberty to proceed in accordance with the law, indicating that the matter could be pursued before the Supreme Court.
Maintainability of appeal - appropriate forum - Classification of imported goods - Windows XPE Embedded software and Windows XPE Embedded stickers - no evidence of the imported goods being nothing other than license stickers or licenses - CESTAT, being last fact finding authority, has passed reasoned and speaking order or not - violaton of principles of natural justice - HELD THAT:- Since the basic issue which arises from the Tribunal’s order deals with the classification and rate of duty, appeal under Section 130E read with Section 130 of the Customs Act would not lie before this Court since it is an order relating to determination of question having relation to rate of customs duty. Whether the goods imported fall under one particular tariff entry or another would have the effect of determination of the rate of duty and therefore, the present appeal would not be maintainable before this Court but would lie before the Supreme Court as contended by respondent-importer.
Appeal dismissed as not maintainable.
Maintainability of appeal - appropriate forum - Classification of imported goods - Windows XPE Embedded software and Windows XPE Embedded stickers - no evidence of the imported goods being nothing other than license stickers or licenses - CESTAT, being last fact finding authority, has passed reasoned and speaking order or not - violaton of principles of natural justice - HELD THAT:- Since the basic issue which arises from the Tribunal’s order deals with the classification and rate of duty, appeal under Section 130E read with Section 130 of the Customs Act would not lie before this Court since it is an order relating to determination of question having relation to rate of customs duty. Whether the goods imported fall under one particular tariff entry or another would have the effect of determination of the rate of duty and therefore, the present appeal would not be maintainable before this Court but would lie before the Supreme Court as contended by respondent-importer.
Appeal dismissed as not maintainable.
The core issue in these appeals is whether the imported product "Coke Breeze" qualifies as "Metallurgical Coke" under the Customs Tariff Heading (CTH) 2704 0090 and is eligible for exemption under Notification No.12/2012-Cus dated 17.03.2012. The Tribunal considered whether Coke Breeze and Metallurgical Coke are distinct products and if the exemption notification, which specifically mentions Metallurgical Coke, can be extended to include Coke Breeze.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework centers around Notification No.12/2012-Cus, which provides an exemption for Metallurgical Coke under Sl.No.125. The Customs Tariff Act, 1975, classifies both Coke Breeze and Metallurgical Coke under CTH 2704 0090. The appellants argue that the lack of technical definitions in the Act or the notification implies that Coke Breeze should be considered Metallurgical Coke. They cite several precedents to support their claim that the exemption should apply based on the plain language of the notification.
Court's Interpretation and Reasoning
The Tribunal analyzed the distinction between Coke Breeze and Metallurgical Coke, referencing the Kolkata Bench's decision in Jindal Steel & Power Ltd., which concluded that the two are distinct products. The Tribunal emphasized that the exemption notification's language is clear and unambiguous, and it should be interpreted strictly. The Tribunal noted that the legislative intent and the plain words of the notification do not support extending the exemption to Coke Breeze.
Key Evidence and Findings
The Tribunal referenced various technical documents and industry standards that differentiate Coke Breeze from Metallurgical Coke. It highlighted that Coke Breeze is a byproduct of coke production, with different characteristics and uses compared to Metallurgical Coke. The Tribunal also pointed out the significant price difference between the two products, which further supports their distinct commercial identities.
Application of Law to Facts
The Tribunal applied the principle of strict interpretation to the exemption notification, concluding that the plain language of the notification does not encompass Coke Breeze. It reiterated that the notification clearly specifies Metallurgical Coke, and there is no basis for assuming that Coke Breeze falls under this category.
Treatment of Competing Arguments
The appellants argued that both Coke Breeze and Metallurgical Coke are used in the metallurgical industry and should be treated similarly for exemption purposes. They contended that the absence of specific technical parameters in the notification supports their interpretation. However, the Tribunal dismissed these arguments, relying on established legal principles that require strict interpretation of exemption notifications and the clear distinction between the two products.
Conclusions
The Tribunal concluded that Coke Breeze does not qualify for the exemption under Notification No.12/2012-Cus, as it is not the same as Metallurgical Coke. The Tribunal upheld the orders of the Commissioner of Customs (Appeals) and dismissed the appeals.
SIGNIFICANT HOLDINGS
The Tribunal held that "metallurgical coke and coke breeze are two distinct and different products having their own separate characteristics and uses." It emphasized that "an exemption notification calls for a strict interpretation and no liberal constriction can be placed to extend the scope of the notification." The Tribunal affirmed that "when an expression in an exemption notification is clear and when there is no scope for assuming any ambiguity, nothing shall be interpreted beyond the plain words of the notification."
The final determination was that the benefit of Notification No.12/2012-Cus. dated 17.03.2012 (Sl.No.125) cannot be extended to Coke Breeze, and the appeals were dismissed.
Benefit of Notification No.12/2012-Cus. dated 17.03.2012 (Sl.No.125) - imported Coke Breeze - admissibility of exemption notification to Coke Breeze has been denied by the Department on the ground that Metallurgical Coke and Coke Breeze are two different products, the exemption notification since mentions only Metallurgical Coke; therefore, Coke Breeze imported by the appellants are not eligible to the benefit of the said notification.
HELD THAT:- The issue has been considered at length by the co-ordinate Bench of this Tribunal in the case of Jindal Steel & Power Ltd. [2024 (1) TMI 1335 - CESTAT KOLKATA], wherein the Tribunal held 'metallurgical coke and coke breeze are two distinct and different products having their own separate characteristics and uses. The two in no way can be considered as one and the same and thus at par. Coke Breeze being a byproduct of the process of coke manufacture and not utilizable as such in a blast furnace, where met coke alone fits the bill. As the two products are clearly distinct with wide variation in their sales price, we are of the view that the question of interpretation of an exemption notification and the case law analysis on this aspect of the matter does not actually arise.'
Conclusion - The benefit of Notification No.12/2012-Cus. dated 17.03.2012 (Sl.No.125) cannot be extended to Coke Breeze imported by the appellants, as it is not the same as Metallurgical Coke.
Appeal dismissed.
Benefit of Notification No.12/2012-Cus. dated 17.03.2012 (Sl.No.125) - imported Coke Breeze - admissibility of exemption notification to Coke Breeze has been denied by the Department on the ground that Metallurgical Coke and Coke Breeze are two different products, the exemption notification since mentions only Metallurgical Coke; therefore, Coke Breeze imported by the appellants are not eligible to the benefit of the said notification.
HELD THAT:- The issue has been considered at length by the co-ordinate Bench of this Tribunal in the case of Jindal Steel & Power Ltd. [2024 (1) TMI 1335 - CESTAT KOLKATA], wherein the Tribunal held 'metallurgical coke and coke breeze are two distinct and different products having their own separate characteristics and uses. The two in no way can be considered as one and the same and thus at par. Coke Breeze being a byproduct of the process of coke manufacture and not utilizable as such in a blast furnace, where met coke alone fits the bill. As the two products are clearly distinct with wide variation in their sales price, we are of the view that the question of interpretation of an exemption notification and the case law analysis on this aspect of the matter does not actually arise.'
Conclusion - The benefit of Notification No.12/2012-Cus. dated 17.03.2012 (Sl.No.125) cannot be extended to Coke Breeze imported by the appellants, as it is not the same as Metallurgical Coke.
Appeal dismissed.
Alleged contravention of Condition (iii) of Notification No. 32/1997-Cus dated 01.04.1997 - import of Shell on Shrimps - goods were found contaminated with Nitrofuran Metabolite AHD, rendering them unsuitable for export or consumption - HELD THAT:- In the present case, the Appellant sought permission for destruction of the goods and had not proceeded for disposal of the goods to demand customs duty. The Hon’ble Supreme Court in the matter of M/s BPL Display Devices Ltd. [2004 (10) TMI 92 - SUPREME COURT], held 'object of grant of exemption was only to debar those importer/manufacturers from the benefit of the Notifications who had diverted the products imported for other purposes and had no intention to use the same for manufacture of the specified items at any stage.'
Similarly, as evidenced from the facts of the case, after import, the goods were used for job work and thereby the appellant made best efforts to comply with the Rule 8 of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. Facts being so, there is no reason or justification to demand duty from the Appellant for the goods, since the goods were subjected to job work and appellant was ready to export. However, since the sample of imported goods were held to be contaminated with the presence of ‘Nitro furan Metabolite AHD’, export obligation could not be fulfilled.
Conclusion - The duty cannot be demanded when goods were intended for use but became unfit due to unforeseen circumstances.
Appeal allowed.
Alleged contravention of Condition (iii) of Notification No. 32/1997-Cus dated 01.04.1997 - import of Shell on Shrimps - goods were found contaminated with Nitrofuran Metabolite AHD, rendering them unsuitable for export or consumption - HELD THAT:- In the present case, the Appellant sought permission for destruction of the goods and had not proceeded for disposal of the goods to demand customs duty. The Hon’ble Supreme Court in the matter of M/s BPL Display Devices Ltd. [2004 (10) TMI 92 - SUPREME COURT], held 'object of grant of exemption was only to debar those importer/manufacturers from the benefit of the Notifications who had diverted the products imported for other purposes and had no intention to use the same for manufacture of the specified items at any stage.'
Similarly, as evidenced from the facts of the case, after import, the goods were used for job work and thereby the appellant made best efforts to comply with the Rule 8 of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. Facts being so, there is no reason or justification to demand duty from the Appellant for the goods, since the goods were subjected to job work and appellant was ready to export. However, since the sample of imported goods were held to be contaminated with the presence of ‘Nitro furan Metabolite AHD’, export obligation could not be fulfilled.
Conclusion - The duty cannot be demanded when goods were intended for use but became unfit due to unforeseen circumstances.
Appeal allowed.
The core legal questions considered in this judgment include:
1. Whether the refund claim filed by the appellant was barred by limitation as per Section 27 of the Customs Act, 1962.
2. Whether the doctrine of unjust enrichment applied to the refund claim, thus preventing the refund from being granted to the appellant.
ISSUE-WISE DETAILED ANALYSIS
1. Limitation on Filing Refund Claim
Relevant Legal Framework and Precedents: The case involves the interpretation of Sections 18 and 27 of the Customs Act, 1962. Section 18 pertains to provisional assessment, and Section 27 deals with the claim for refund of duty. The appellant relied on the precedent set in Rayban Sun Optics India Pvt Ltd, which clarified that the limitation period for filing a refund claim should be calculated from the date of the final judgment determining the entitlement to the refund.
Court's Interpretation and Reasoning: The Tribunal agreed with the appellant's argument that the limitation period should be counted from the date of the final order by the CESTAT on 13.10.2015, rather than the earlier order by the Commissioner (Appeals) dated 03.06.2008. The Tribunal reasoned that the entitlement to the refund was only finalized with the CESTAT's dismissal of the department's appeal on 13.10.2015.
Key Evidence and Findings: The Tribunal noted that the refund application was filed on 30.11.2015, which was within the limitation period when counted from the CESTAT's final order date.
Application of Law to Facts: The Tribunal applied the legal principle that the limitation period should start from the date of the final adjudication of the entitlement to the refund, which was the CESTAT's order in this case.
Conclusions: The Tribunal concluded that the refund claim was not barred by limitation, as it was filed within the appropriate timeframe from the date of the final judgment.
2. Unjust Enrichment
Relevant Legal Framework and Precedents: The doctrine of unjust enrichment is applied to ensure that a refund is not granted if the incidence of duty has been passed on to another party, as per Section 27(2) of the Customs Act.
Court's Interpretation and Reasoning: The Tribunal examined the Chartered Accountant's certificate provided by the appellant, which confirmed that the duty incidence had not been passed on to the customers. The Tribunal found that this certificate should not be dismissed without substantial reasons.
Key Evidence and Findings: The Tribunal considered the appellant's accounting practices and the Chartered Accountant's certificate, which indicated that the refund amount was shown as receivable and not included in the cost of production.
Application of Law to Facts: The Tribunal accepted the appellant's argument that the prices of their products were controlled by the government and not influenced by the duty paid, thus supporting the claim that the duty incidence was not passed on.
Conclusions: The Tribunal concluded that the doctrine of unjust enrichment did not apply in this case, as the appellant had not passed on the duty incidence to the customers.
SIGNIFICANT HOLDINGS
The Tribunal made several significant holdings in this judgment:
Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "The period of limitation shall be counted from the date of final order passed by the CESTAT i.e. 13.10.2015 and not from the date of order passed by the Commissioner (Appeals) dated 03.06.2008."
Core Principles Established: The judgment reinforced the principle that the limitation period for a refund claim should be calculated from the date of the final adjudication of entitlement, and not from an earlier provisional or intermediate order.
Final Determinations on Each Issue: The Tribunal determined that the refund claim was not barred by limitation and that the doctrine of unjust enrichment did not prevent the refund from being granted. Consequently, the Tribunal set aside the orders of the lower authorities and directed the Assistant Commissioner, Customs Division, Jamnagar, to process the refund claim expeditiously.
Time limitation of refund claim filed - appellants have failed to prove that incidence of duty has not been passed on as they have not booked/ accounted for the refund claim amount in the relevant financial year - principles of unjust enrichment.
Delay in filing the refund claim - HELD THAT:- In case of Provisional Assessment under Section 18 of the Customs Act, the party become entitled for refund only after final assessment, because the provision of Section 18(2) of the Customs Act starts with words “When the duty leviable on such goods is assessed finally”. Further in Sub Section 18 (a) and (b), it has been provided that the amount paid shall be adjusted against the duty finally assessed. In the present case, Bill of Entry was finalized on 15.03.2007 and final assessment was done for the first time on 15.03.2007 after the cut-off date 13.07.2006, after which the doctrine of Unjust Enrichment became applicable.
The appellant did not become entitled for a refund on their filing of the Bill of Entry for warehousing but only after it was finalized. After the first final assessment order, the appellant filed an appeal before Commissioner (Appeals) which was allowed vide order dated 03.06.2008. Therefore, assessee became entitled for refund as a result of the order of Commissioner (Appeals) dated 03.06.2008. Therefore, the appellant was bound to get the refund application processed under Section 27 of the Customs Act.
Whether the refund application was barred by limitation as it was not filed within the prescribed period mentioned in Section 27 of Customs Act? - HELD THAT:- No doubt the duty paid by the appellant was made refundable by the Commissioner (Appeals) vide order dated 03.06.2008 but the department opted for continuation of the said litigation by filing an appeal before the CESTAT. Once that option got exercised, the final judgment about entitlement of appellant to have the refund of the said duty paid, is the judgement pronounced by CESTAT on 13.10.2015 in the said appeal. Since the appeal of the department was dismissed by CESTAT on 13.10.2015, the entitlement of the appellant to refund of duty paid got finalized only on 13.10.2015. Hence, the relevant date for counting the period of limitation is 13.10.2015. Refund application was filed on 30.11.2015 which is within the limitation period. Hence, learned Commissioner (Appeals) and the first Adjudicating Authority have wrongly held that the refund application was barred by time. Therefore, the refund application filed by the appellant is not barred by limitation.
Unjust Enrichment - HELD THAT:- When the Chartered Accountant has given a certificate after verification of accounts and corroborative evidences that the duty incidence has not been passed on to the customers then this certificate should not be brushed aside without any cogent reason and the lower Adjudicating Authority and the learned Commissioner (Appeals) has brushed aside the Chartered Accountant certificate without any cogent reason - it cannot be said that the appellant had added the excess payment of duty paid provisionally on raw material in the cost of final products and burden of duty has been shifted to the end user of the final products manufactured by the appellant.
Conclusion - The limitation period for a refund claim should be calculated from the date of the final adjudication of entitlement, and not from an earlier provisional or intermediate order. The refund claim was not barred by limitation and that the doctrine of unjust enrichment did not prevent the refund from being granted.
Appeal allowed.
Time limitation of refund claim filed - appellants have failed to prove that incidence of duty has not been passed on as they have not booked/ accounted for the refund claim amount in the relevant financial year - principles of unjust enrichment.
Delay in filing the refund claim - HELD THAT:- In case of Provisional Assessment under Section 18 of the Customs Act, the party become entitled for refund only after final assessment, because the provision of Section 18(2) of the Customs Act starts with words “When the duty leviable on such goods is assessed finally”. Further in Sub Section 18 (a) and (b), it has been provided that the amount paid shall be adjusted against the duty finally assessed. In the present case, Bill of Entry was finalized on 15.03.2007 and final assessment was done for the first time on 15.03.2007 after the cut-off date 13.07.2006, after which the doctrine of Unjust Enrichment became applicable.
The appellant did not become entitled for a refund on their filing of the Bill of Entry for warehousing but only after it was finalized. After the first final assessment order, the appellant filed an appeal before Commissioner (Appeals) which was allowed vide order dated 03.06.2008. Therefore, assessee became entitled for refund as a result of the order of Commissioner (Appeals) dated 03.06.2008. Therefore, the appellant was bound to get the refund application processed under Section 27 of the Customs Act.
Whether the refund application was barred by limitation as it was not filed within the prescribed period mentioned in Section 27 of Customs Act? - HELD THAT:- No doubt the duty paid by the appellant was made refundable by the Commissioner (Appeals) vide order dated 03.06.2008 but the department opted for continuation of the said litigation by filing an appeal before the CESTAT. Once that option got exercised, the final judgment about entitlement of appellant to have the refund of the said duty paid, is the judgement pronounced by CESTAT on 13.10.2015 in the said appeal. Since the appeal of the department was dismissed by CESTAT on 13.10.2015, the entitlement of the appellant to refund of duty paid got finalized only on 13.10.2015. Hence, the relevant date for counting the period of limitation is 13.10.2015. Refund application was filed on 30.11.2015 which is within the limitation period. Hence, learned Commissioner (Appeals) and the first Adjudicating Authority have wrongly held that the refund application was barred by time. Therefore, the refund application filed by the appellant is not barred by limitation.
Unjust Enrichment - HELD THAT:- When the Chartered Accountant has given a certificate after verification of accounts and corroborative evidences that the duty incidence has not been passed on to the customers then this certificate should not be brushed aside without any cogent reason and the lower Adjudicating Authority and the learned Commissioner (Appeals) has brushed aside the Chartered Accountant certificate without any cogent reason - it cannot be said that the appellant had added the excess payment of duty paid provisionally on raw material in the cost of final products and burden of duty has been shifted to the end user of the final products manufactured by the appellant.
Conclusion - The limitation period for a refund claim should be calculated from the date of the final adjudication of entitlement, and not from an earlier provisional or intermediate order. The refund claim was not barred by limitation and that the doctrine of unjust enrichment did not prevent the refund from being granted.
Appeal allowed.
Waiver of interest on the goods which were initially in warehouse and were cleared later - CBIC Circular No. 10/2006 - HELD THAT:- This Court has considered the materials placed before it, along with CBIC Circular and finds that the order has conveyed of the Chief Commissioner, is totally unreasoned and has denied natural justice, as even the party was not heard in the matter. The discretion has been exercised in most arbitrary manner without exhibiting any reasons, whatsoever. It is a trite law that even the administrative orders which seek to deny party any of it is entitlement need to be reasoned so the courts can exercise a mind as so whether they were correctly arrived at or not.
In the instant matter, this court finds that it has been completely denied of looking into the reasons of the Chief Commissioner. Further this court finds that while the CBIC Circular is well-reasoned and gives out as to why certain kind of projects, which include, interalia, the power projects deserve to be considered sympathetically for waiver of interest, no such application of mind or reasoning is appearing from the order of the Chief Commissioner conveyed to the party vide the aforesaid letters. In view of the foregoing, the matter is remitted back to Chief Commissioner with direction to give reasoned order, after hearing the party as it affects their interest and also unnecessarily raises project cost of the power project.
Appeal allowed by way of remand.
Waiver of interest on the goods which were initially in warehouse and were cleared later - CBIC Circular No. 10/2006 - HELD THAT:- This Court has considered the materials placed before it, along with CBIC Circular and finds that the order has conveyed of the Chief Commissioner, is totally unreasoned and has denied natural justice, as even the party was not heard in the matter. The discretion has been exercised in most arbitrary manner without exhibiting any reasons, whatsoever. It is a trite law that even the administrative orders which seek to deny party any of it is entitlement need to be reasoned so the courts can exercise a mind as so whether they were correctly arrived at or not.
In the instant matter, this court finds that it has been completely denied of looking into the reasons of the Chief Commissioner. Further this court finds that while the CBIC Circular is well-reasoned and gives out as to why certain kind of projects, which include, interalia, the power projects deserve to be considered sympathetically for waiver of interest, no such application of mind or reasoning is appearing from the order of the Chief Commissioner conveyed to the party vide the aforesaid letters. In view of the foregoing, the matter is remitted back to Chief Commissioner with direction to give reasoned order, after hearing the party as it affects their interest and also unnecessarily raises project cost of the power project.
Appeal allowed by way of remand.
The core legal issue in this case revolves around the reclassification of imported polyester fabrics and the subsequent demand for additional customs duty based on a re-test report from the Central Revenue Control Laboratory (CRCL). The primary question is whether the demand for duty arising from the reclassification of goods, based on a re-test report that was not furnished to the appellants, is legally sustainable.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework is primarily governed by Section 28 of the Customs Act, 1962, which outlines the procedure for demanding differential duty. The case also references several precedents where similar issues of reclassification and reliance on test reports were adjudicated, including decisions in the cases of Shri Lakshmi Cotsyn Limited, Atlas Mercantile Pvt. Ltd., Smart Designer, and Ramchand Jashanmal Narwani.
Court's Interpretation and Reasoning
The Tribunal examined whether the reclassification and subsequent demand for higher customs duty were justified. The court noted that the initial classification and duty assessment were based on the Textile Committee's test report, a specialized agency in textile matters. The reclassification was based on a CRCL report, which was not provided to the appellants, violating principles of natural justice.
Key Evidence and Findings
The original classification was based on a test by the Textile Committee, which identified the goods as non-texturized polyester yarn. The CRCL's re-test suggested a different classification, but the report was not furnished to the appellants. The Tribunal found no legible copy of the CRCL report in the records, and the appellants were not given an opportunity to contest the findings.
Application of Law to Facts
The Tribunal applied Section 28 of the Customs Act, emphasizing the need for due process, including providing the basis for the demand and allowing the appellants to present their case. The Tribunal found that the procedural requirements were not met, as the appellants were not informed of the re-test findings or given a chance to respond.
Treatment of Competing Arguments
The appellants argued that the initial test by the Textile Committee should prevail, as it was conducted by a specialized agency. They cited previous cases where similar reclassifications based on CRCL reports were dismissed. The department contended that the CRCL report justified the reclassification and higher duty. However, the Tribunal favored the appellants' argument, emphasizing the lack of procedural fairness and transparency in the reclassification process.
Conclusions
The Tribunal concluded that the reclassification and demand for additional duty were not legally sustainable due to procedural lapses, including the failure to provide the re-test report to the appellants and the lack of a fair opportunity to contest the findings.
SIGNIFICANT HOLDINGS
The Tribunal held that the procedural requirements under Section 28 of the Customs Act were not met, rendering the demand for additional duty unsustainable. It emphasized the importance of transparency and fairness in customs assessments, particularly when reclassification is based on new evidence not shared with the importer.
Preserve verbatim quotes of crucial legal reasoning
The Tribunal cited the case of Ramchand Jashanmal Narwani, emphasizing the lack of records to sustain the variation in test reports and the necessity for the importer to be notified of specific remnant samples needing re-testing.
Core Principles Established
The Tribunal reinforced the principle that procedural fairness and transparency are essential in customs assessments. It highlighted the need for importers to be informed of the basis for any reclassification and given an opportunity to contest such findings.
Final Determinations on Each Issue
The Tribunal set aside the impugned order dated 22.12.2022, ruling in favor of the appellants. It concluded that the reclassification and demand for additional duty were not legally sustainable due to the procedural deficiencies identified in the case.
Reclassification of goods on the basis of re-testing report of the imported remnant samples - no such re-test report is furnished to the appellants-importer - principles of natural justice - HELD THAT:- The customs authorities had send remnant samples of imported goods subsequent to the clearance of such goods, for retesting by CRCL, which is a in-house laboratory of New Custom House. It is fact on record that the Less Charge- Cum-demand notice dated 23.12.2003 gives a reference to such test report as “the samples is cut piece of dyed (Navy Blue) woven fabric made of non- textured polyester filament yarn (58.4%), Textured Polyester filament yarn (balance)” , and on this basis the department had gone ahead for re- classification of goods under CTI 5407 7200 for demanding higher customs duty.
It is fact, that there is no legible copy of CRCL re-test report is available on record and no such copy was furnished to the appellants- importer. Inasmuch as the imported goods have been examined by the jurisdictional customs authorities and after subjecting the imported goods for examination on first-check basis, that too after testing by the Textiles Committee Laboratory and on the basis of such test report, the imported goods had been cleared, there appears no ground or evidence for re-testing the same goods under the pretext of alleged mis-declaration of goods by some other person.
The essential requirements of legal provisions of Section 28 of the Customs Act, 1962 such as service of notice of the basis on which the appellants-importer is being asked to pay the differential duty, reasonable opportunity to be given for enabling them to present their representation for due consideration before passing of the order, have not been carried out by the authorities below. This is evident from the fact that the original order does not even provide the re-test report; but it has gone in detail about the visit of Joint Director of CRCL to the Textiles Committee Laboratory to state that they did not follow the standard testing requirements, to doubt the test report given by them earlier in confirmation of the imported goods as Non-texturized polyester yarn. Therefore, the confirmation of the duty demand under Section 28 ibid does not stand the scrutiny of law.
In the case of Ramchand Jashanmal Narwani [2019 (5) TMI 1577 - CESTAT MUMBAI] involving similar set of facts, the Co-ordinate Bench of the Tribunal has held that there is lack of any record to sustain the variation in test reports and dismissed the appeal filed by the department.
Conclusion - The essential requirements of legal provisions of Section 28 of the Customs Act, 1962 such as service of notice of the basis on which the appellants-importer is being asked to pay the differential duty, reasonable opportunity to be given for enabling them to present their representation for due consideration before passing of the order, have not been carried out by the authorities below. Demand of duty do not sustain.
Appeal allowed.
Reclassification of goods on the basis of re-testing report of the imported remnant samples - no such re-test report is furnished to the appellants-importer - principles of natural justice - HELD THAT:- The customs authorities had send remnant samples of imported goods subsequent to the clearance of such goods, for retesting by CRCL, which is a in-house laboratory of New Custom House. It is fact on record that the Less Charge- Cum-demand notice dated 23.12.2003 gives a reference to such test report as “the samples is cut piece of dyed (Navy Blue) woven fabric made of non- textured polyester filament yarn (58.4%), Textured Polyester filament yarn (balance)” , and on this basis the department had gone ahead for re- classification of goods under CTI 5407 7200 for demanding higher customs duty.
It is fact, that there is no legible copy of CRCL re-test report is available on record and no such copy was furnished to the appellants- importer. Inasmuch as the imported goods have been examined by the jurisdictional customs authorities and after subjecting the imported goods for examination on first-check basis, that too after testing by the Textiles Committee Laboratory and on the basis of such test report, the imported goods had been cleared, there appears no ground or evidence for re-testing the same goods under the pretext of alleged mis-declaration of goods by some other person.
The essential requirements of legal provisions of Section 28 of the Customs Act, 1962 such as service of notice of the basis on which the appellants-importer is being asked to pay the differential duty, reasonable opportunity to be given for enabling them to present their representation for due consideration before passing of the order, have not been carried out by the authorities below. This is evident from the fact that the original order does not even provide the re-test report; but it has gone in detail about the visit of Joint Director of CRCL to the Textiles Committee Laboratory to state that they did not follow the standard testing requirements, to doubt the test report given by them earlier in confirmation of the imported goods as Non-texturized polyester yarn. Therefore, the confirmation of the duty demand under Section 28 ibid does not stand the scrutiny of law.
In the case of Ramchand Jashanmal Narwani [2019 (5) TMI 1577 - CESTAT MUMBAI] involving similar set of facts, the Co-ordinate Bench of the Tribunal has held that there is lack of any record to sustain the variation in test reports and dismissed the appeal filed by the department.
Conclusion - The essential requirements of legal provisions of Section 28 of the Customs Act, 1962 such as service of notice of the basis on which the appellants-importer is being asked to pay the differential duty, reasonable opportunity to be given for enabling them to present their representation for due consideration before passing of the order, have not been carried out by the authorities below. Demand of duty do not sustain.
Appeal allowed.
The core legal issues considered in this judgment were:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Approval of the Resolution Plan Post CIRP Period
Issue 2: Compliance with Section 30(2)(b) of the IBC
Issue 3: Fair and Equitable Treatment of Unsecured Financial Creditors vs. Homebuyers
3. SIGNIFICANT HOLDINGS
The Tribunal emphasized that the jurisdiction to interfere with the approval of a resolution plan is limited to instances of non-compliance with Section 30(2) of the IBC. The appeals were dismissed, affirming that the resolution plan was appropriately approved and binding on all creditors, including dissenting ones.
Approval of the resolution plan - approval of resolution plan after expiry of CIRP period - compliance with Section 30(2)(b) of the IBC, specifically regarding the allocation of payments to dissenting financial creditors or not.
Compliance with Section 30(2)(b) of the IBC or not - HELD THAT:- From the materials on the record, it is clear that only pay out under the plan is to the unsecured financial creditor which is Rs.1.5 Crore against the 13.81% vote shares. The appellant sought to raise a grievance that homebuyers are being provided unit and they are not sharing any haircut in their entitlement. It is true that the SRA is spending certain amount in completing the construction for delivering the unit to the homebuyer. Unsecured financial creditor who are dissenting financial creditor in the present case are entitled to the amount not less than the amount as contemplated by Section 30(2)(b) - The claim of unsecured financial creditor who are dissenting financial creditor which is admitted of not related parties is Rs.10.94 Crore. Vote share of dissenting financial creditor is 13.44, hence the payout of Rs.1.5 Crore to the dissenting financial creditor in no manner violates Section 30(2)(b).
Law is well settled that jurisdiction of Adjudicating Authority and this Appellate Tribunal to interfere with approval of resolution plan is too limited. Adjudicating Authority can interfere with the approval of the resolution plan only in the case where there is a non-compliance of Section 30(2) of the IBC.
Approval of resolution plan after expiry of CIRP period - HELD THAT:- According to own case of appellant, 330 days period expiring on 03.05.2023. Resolution plan has been approved by the CoC on 31.01.2023, and the application was filed for approval of the plan before the aforesaid expiry of 330 days period. The fact that Adjudicating Authority approved the resolution plan on 14.05.2024 cannot be a ground to say that the order was passed after expiry of 330 days. When the resolution plan has been approved within 330 days and the application was also filed by the RP for approval, the date of the passing of the order by Adjudicating Authority cannot be relied for contending that the said date is beyond 330 days. The resolution plan having been approved by votes of 86.67% vote shares, at the instance of dissenting financial creditor whose payments under the plan is not less than the payment which they are entitled under Section 30(2)(b), no interference is called.
Conclusion - The plan complied with the statutory requirements under the IBC. Adjudicating Authority by the impugned order has not committed any error in approving the resolution plan submitted by SRA.
Appeal dismissed.
Approval of the resolution plan - approval of resolution plan after expiry of CIRP period - compliance with Section 30(2)(b) of the IBC, specifically regarding the allocation of payments to dissenting financial creditors or not.
Compliance with Section 30(2)(b) of the IBC or not - HELD THAT:- From the materials on the record, it is clear that only pay out under the plan is to the unsecured financial creditor which is Rs.1.5 Crore against the 13.81% vote shares. The appellant sought to raise a grievance that homebuyers are being provided unit and they are not sharing any haircut in their entitlement. It is true that the SRA is spending certain amount in completing the construction for delivering the unit to the homebuyer. Unsecured financial creditor who are dissenting financial creditor in the present case are entitled to the amount not less than the amount as contemplated by Section 30(2)(b) - The claim of unsecured financial creditor who are dissenting financial creditor which is admitted of not related parties is Rs.10.94 Crore. Vote share of dissenting financial creditor is 13.44, hence the payout of Rs.1.5 Crore to the dissenting financial creditor in no manner violates Section 30(2)(b).
Law is well settled that jurisdiction of Adjudicating Authority and this Appellate Tribunal to interfere with approval of resolution plan is too limited. Adjudicating Authority can interfere with the approval of the resolution plan only in the case where there is a non-compliance of Section 30(2) of the IBC.
Approval of resolution plan after expiry of CIRP period - HELD THAT:- According to own case of appellant, 330 days period expiring on 03.05.2023. Resolution plan has been approved by the CoC on 31.01.2023, and the application was filed for approval of the plan before the aforesaid expiry of 330 days period. The fact that Adjudicating Authority approved the resolution plan on 14.05.2024 cannot be a ground to say that the order was passed after expiry of 330 days. When the resolution plan has been approved within 330 days and the application was also filed by the RP for approval, the date of the passing of the order by Adjudicating Authority cannot be relied for contending that the said date is beyond 330 days. The resolution plan having been approved by votes of 86.67% vote shares, at the instance of dissenting financial creditor whose payments under the plan is not less than the payment which they are entitled under Section 30(2)(b), no interference is called.
Conclusion - The plan complied with the statutory requirements under the IBC. Adjudicating Authority by the impugned order has not committed any error in approving the resolution plan submitted by SRA.
Appeal dismissed.
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Perjury Allegation Related to Form No. 18
Relevant Legal Framework and Precedents: The allegation of perjury was based on the incorrect declaration in Form No. 18 submitted to the Registrar of Companies (ROC), where it was stated that no proceedings were pending against the company. The relevant legal provisions include Section 199 of the Indian Penal Code (IPC) concerning perjury and Section 68 of the IBC regarding offenses related to insolvency proceedings.
Court's Interpretation and Reasoning: The Tribunal found that the incorrect declaration in Form No. 18 was not material to the conversion process from a company to an LLP. The conversion did not affect the pending insolvency proceedings, as per Section 58(4)(b) of the LLP Act, 2008, which ensures the continuity of liabilities and obligations post-conversion.
Key Evidence and Findings: The Tribunal noted that the declaration in Form No. 18 was incorrect, as an insolvency application was pending at the time of filing. However, this incorrect statement was deemed immaterial to the conversion process.
Application of Law to Facts: The Tribunal held that the incorrect declaration did not constitute perjury under Section 199 IPC, as it did not materially affect the legal status change from a company to an LLP.
Treatment of Competing Arguments: The appellants argued that the incorrect declaration was inadvertent and immaterial. The Tribunal agreed, noting that the conversion process did not impact the pending insolvency proceedings.
Conclusions: The Tribunal concluded that the perjury charge based on the Form No. 18 declaration was unfounded, and the related orders were set aside.
2. Jurisdiction of NCLT to Convict for Perjury
Relevant Legal Framework and Precedents: The jurisdiction of the NCLT under Section 68 of the IBC was questioned, with reference to Section 236 of the IBC and the Companies Act, 2013, which designate Special Courts for such matters.
Court's Interpretation and Reasoning: The Tribunal emphasized that the NCLT lacks jurisdiction to convict individuals for offenses under Chapter VII of Part II of the IBC, which are to be tried by Special Courts.
Key Evidence and Findings: The Tribunal referenced the notification designating Special Courts and the absence of jurisdictional authority for the NCLT to impose fines for perjury.
Application of Law to Facts: The Tribunal found that the NCLT's actions exceeded its jurisdiction, as the power to convict and impose fines lies with the Special Courts.
Treatment of Competing Arguments: The appellants' argument that the NCLT lacked jurisdiction was upheld, leading to the setting aside of the conviction and fines.
Conclusions: The Tribunal set aside the NCLT's orders convicting the appellants and imposing fines, citing lack of jurisdiction.
3. Intent to Evade Insolvency Proceedings
Relevant Legal Framework and Precedents: The NCLT had alleged that the conversion to an LLP was intended to evade insolvency proceedings, referencing the IBC and the LLP Act.
Court's Interpretation and Reasoning: The Tribunal found no evidence that the conversion was intended to evade insolvency proceedings, as liabilities and obligations continued post-conversion under the LLP Act.
Key Evidence and Findings: The Tribunal noted that the conversion did not affect the insolvency proceedings, as per statutory provisions ensuring continuity of obligations.
Application of Law to Facts: The Tribunal determined that the conversion process did not constitute an attempt to evade insolvency proceedings.
Treatment of Competing Arguments: The Tribunal rejected the NCLT's view that the conversion was an attempt to evade insolvency obligations.
Conclusions: The Tribunal concluded that the conversion was not intended to evade insolvency proceedings, and the related findings were set aside.
4. Discrepancies in Affidavit and Statements
Relevant Legal Framework and Precedents: The alleged discrepancies in statements were examined under the context of perjury laws.
Court's Interpretation and Reasoning: The Tribunal found no material conflict between the statements in the affidavit and those made in court, noting that the expressions used did not constitute perjury.
Key Evidence and Findings: The Tribunal highlighted that the expressions "already vacated" and "will be handed over" were not contradictory in the context presented.
Application of Law to Facts: The Tribunal determined that the statements did not amount to perjury, as they were not materially conflicting.
Treatment of Competing Arguments: The Tribunal sided with the appellants, finding no basis for perjury charges based on the statements.
Conclusions: The Tribunal set aside the findings of perjury related to the affidavit and statements.
SIGNIFICANT HOLDINGS
The Tribunal's significant holdings include:
The Tribunal set aside the NCLT's orders convicting the appellants of perjury and imposing fines, citing lack of jurisdiction and immateriality of the alleged false statements.
Challenge to impugned order by which appellant was held guilty of perjury and have been imposed a fine - appellants have given wrong information to the ROC in Form No.18 required for converting a company into LLP - appellants had filed an affidavit wherein the appellants had deposed the units were handed over to the parties way back in December, 2016 but whereas their learned counsel stated the units will be handed over to the parties - HELD THAT:- Admittedly the impugned order dated 17.05.2021 has held the appellants guilty of act of perjury only on account of a declaration in Form 18 filed before the ROC (see Page 194 of the Appeal Paper Book). In the said declaration, against point No.15 viz whether any proceedings by or against the company is pending in any court or tribunal or any authority, the answer given by one Mr Ajay Vij, i.e. the appellant No.1 was NO. It is fairly conceded by the learned counsel for the appellant that declaration/Form 18 dated 03.11.2018 was incorrect since by that time i.e. on 25.04.2018 an application under Section 9 IBC stood filed against Corporate Debtor. Further CIRP commenced later on 14.3.2019.
A wrong declaration in Form 18 allegedly made inadvertently before the ROC cannot be said to be material in the context of conversion from a Company into LLP so as to fall within the definition of perjury u/s 199 IPC. Thus holding the Appellants guilty of an act of perjury deserves to be set aside on this ground alone; and consequential impugned order dated 04.08.2021 permitting the Liquidator to file complaint u/s 340 Cr.P.C also deserves to be set aside - Admittedly such declaration in Form 18 was never made/filed before the Ld. NCLT but before the ROC; therefore, it was not for the Ld. NCLT/Liquidator to move u/s 195 Cr.P.C for initiating action on such account.
Thus, no act of perjury has been committed by the Appellants. But even if it is presumed just for the arguments’ sake that an offence of perjury stands committed, then also the impugned order dated 04.08.2021 r/w impugned order dated 17.05.2021 permitting the Liquidator to file complaint u/s 340 Cr.P.C is not sustainable there being admittedly no finding recoded to the effect “that it is expedient in the interest of justice a complaint should be filed. In the absence of a finding to the above effect which is a sine qua non under S. 340(1)(a) Cr.P.C, the impugned order dated 04.08.2021 is not sustainable in law.
Ld. NCLT has no jurisdiction to convict a person for an offence under Section 68 under Chapter VII of Part II IBC in view of the express provision contained in S. 236(1) IBC.
Conclusion - There exists a Special Court per Section 236 of the Companies Act, 2013, hence the Ld. NCLT has no power to convict the appellants and impose a fine and as such the conviction and the fine imposed by Ld. Adjudicating Authority is hereby set aside.
Appeal allowed.
Challenge to impugned order by which appellant was held guilty of perjury and have been imposed a fine - appellants have given wrong information to the ROC in Form No.18 required for converting a company into LLP - appellants had filed an affidavit wherein the appellants had deposed the units were handed over to the parties way back in December, 2016 but whereas their learned counsel stated the units will be handed over to the parties - HELD THAT:- Admittedly the impugned order dated 17.05.2021 has held the appellants guilty of act of perjury only on account of a declaration in Form 18 filed before the ROC (see Page 194 of the Appeal Paper Book). In the said declaration, against point No.15 viz whether any proceedings by or against the company is pending in any court or tribunal or any authority, the answer given by one Mr Ajay Vij, i.e. the appellant No.1 was NO. It is fairly conceded by the learned counsel for the appellant that declaration/Form 18 dated 03.11.2018 was incorrect since by that time i.e. on 25.04.2018 an application under Section 9 IBC stood filed against Corporate Debtor. Further CIRP commenced later on 14.3.2019.
A wrong declaration in Form 18 allegedly made inadvertently before the ROC cannot be said to be material in the context of conversion from a Company into LLP so as to fall within the definition of perjury u/s 199 IPC. Thus holding the Appellants guilty of an act of perjury deserves to be set aside on this ground alone; and consequential impugned order dated 04.08.2021 permitting the Liquidator to file complaint u/s 340 Cr.P.C also deserves to be set aside - Admittedly such declaration in Form 18 was never made/filed before the Ld. NCLT but before the ROC; therefore, it was not for the Ld. NCLT/Liquidator to move u/s 195 Cr.P.C for initiating action on such account.
Thus, no act of perjury has been committed by the Appellants. But even if it is presumed just for the arguments’ sake that an offence of perjury stands committed, then also the impugned order dated 04.08.2021 r/w impugned order dated 17.05.2021 permitting the Liquidator to file complaint u/s 340 Cr.P.C is not sustainable there being admittedly no finding recoded to the effect “that it is expedient in the interest of justice a complaint should be filed. In the absence of a finding to the above effect which is a sine qua non under S. 340(1)(a) Cr.P.C, the impugned order dated 04.08.2021 is not sustainable in law.
Ld. NCLT has no jurisdiction to convict a person for an offence under Section 68 under Chapter VII of Part II IBC in view of the express provision contained in S. 236(1) IBC.
Conclusion - There exists a Special Court per Section 236 of the Companies Act, 2013, hence the Ld. NCLT has no power to convict the appellants and impose a fine and as such the conviction and the fine imposed by Ld. Adjudicating Authority is hereby set aside.
Appeal allowed.
Penalty imposed for contraventions u/s 8(3) and 8(4) of FERA -person “guilty” of offences under the FERA Act - HELD THAT:- Proceedings under the FERA Act are not criminal proceedings but are adjudicatory in nature. Appellant Tribunal for Foreign Exchange is an adjudicatory body, which performs quasi-judicial functions and act as administrators and adjudicators. They are not ‘courts’. While it is very much within their powers, to impose penalties for non-compliance of provisions of FERA, however, it does not lie within their domain to pronounce a person “guilty” of offences under the FERA Act.
Pronouncing a person “guilty” has serious consequences and to adjudicate and give a finding of ‘guilty’ lies within the exclusive domain of the competent courts of jurisdiction.
In this view of the matter, the penalty imposed by the Appellant Tribunal for Foreign Exchange on the appellants is upheld, however, the word “guilty” used in the entire order 02.06.2016 against the appellants is to be considered as “redacted”.
Penalty imposed for contraventions u/s 8(3) and 8(4) of FERA -person “guilty” of offences under the FERA Act - HELD THAT:- Proceedings under the FERA Act are not criminal proceedings but are adjudicatory in nature. Appellant Tribunal for Foreign Exchange is an adjudicatory body, which performs quasi-judicial functions and act as administrators and adjudicators. They are not ‘courts’. While it is very much within their powers, to impose penalties for non-compliance of provisions of FERA, however, it does not lie within their domain to pronounce a person “guilty” of offences under the FERA Act.
Pronouncing a person “guilty” has serious consequences and to adjudicate and give a finding of ‘guilty’ lies within the exclusive domain of the competent courts of jurisdiction.
In this view of the matter, the penalty imposed by the Appellant Tribunal for Foreign Exchange on the appellants is upheld, however, the word “guilty” used in the entire order 02.06.2016 against the appellants is to be considered as “redacted”.
The core legal issues considered in this judgment revolve around the disallowance of wrongly availed and utilized input service credit by the appellants, the consequent demand for recovery of such credit along with interest, and the imposition of penalties. Specifically, the issues include:
ISSUE-WISE DETAILED ANALYSIS
1. Input Service Tax Credit and Trading Activities
The relevant legal framework involves the Cenvat Credit Rules, 2004, particularly Rule 2(l) defining 'input service' and Rule 6 addressing the obligation of manufacturers and service providers. The Department contended that the appellants wrongly availed credit on services used in trading activities, which were not taxable during the relevant period. The Court referenced prior decisions, including those from the High Courts of Madras and Delhi, which consistently held that trading activities are to be treated as exempted services, thus not eligible for input service credit.
The Court noted that the explanation to Rule 2(e) of the Cenvat Credit Rules, 2004, which clarified that 'exempted services' include trading, was only clarificatory. Consequently, the appellants' claim that trading was not explicitly covered as exempted during the relevant period was rejected.
2. Applicability of Rule 6(5) of the Cenvat Credit Rules, 2004
The appellants argued for the applicability of Rule 6(5), which allowed full credit on certain specified services unless used exclusively for exempted goods/services. The Court examined the omission of Rule 6(5) effective from April 1, 2011, and its implications. Citing the Supreme Court's interpretation of statutory omissions as repeals, the Court held that the omission did not affect rights or liabilities accrued under the rule before its repeal. Therefore, the appellants could claim the benefit of Rule 6(5) for the relevant period.
3. Imposition of Penalties
The penalties were imposed based on the appellants' continued availing of credits despite prior adjudications. However, the Court acknowledged the interpretational ambiguities and the evolving legal landscape, which could lead to a bona fide belief regarding the entitlement to credits. Citing the Madras High Court's decision in Shriram Value Services Pvt Ltd, the Court found that penalties were unwarranted and set them aside.
SIGNIFICANT HOLDINGS
The Court held that:
The Court remanded the case for a de novo adjudication to determine the extent of credit eligible under Rule 6(5) and directed that penalties be set aside. The adjudicating authority is instructed to conduct proceedings expeditiously, adhering to principles of natural justice, and allow the appellants to present evidence supporting their claims.
Disallowance of wrongly availed and utilized input service credit - input service or not - Packaging Service - Department was of the view that such input services were availed by the appellant not only for rendering the services to BPCL but also for the sale of their own LPG on which no excise duty or service tax was paid - HELD THAT:- The issue whether the input service tax credit taken on taxable services availed while providing taxable output services as well as engaging in the activity of trading is no more res-integra as it has now been consistently held by High Courts of different jurisdictions that credit cannot be taken of entire service tax paid on taxable services availed while providing taxable output services or manufacturing taxable goods as well as simultaneously engaging in the activity of trading.
It is seen that the Honourable High Court of Madras in its decision in M/s. Ruchika Global Interlinks v The CESTAT, Chennai, [2017 (6) TMI 635 - MADRAS HIGH COURT] has held that 'learly, both before and after amendment, “exempted services” meant those taxable services, which were exempt from whole of Service Tax and, included those services on which Service Tax was not leviable, under Section 66 of the Finance Act. The inclusion in Explanation to Rule 2(e) “trading” was, without doubt, only clarificatory. As accepted by Mr. Jayachandran, the appellant had not been paying Service Tax on trading activity during the relevant period.'
Again, in CCE Thane II v. Milton Polyplas (I) Pvt Ltd, [2019 (4) TMI 240 - BOMBAY HIGH COURT], the Honourable High Court of Bombay was deciding whether the notice issued invoking the erstwhile Rule 57 I of the MODVAT rules demanding fraudulently availed credit during the period 1995 to 1999 would abate as contended by the Respondent-assessee therein, since the MODVAT rules were omitted and/or substituted by CENVAT Rules w.e.f 1st April 2000.
The effect of Section 38A, namely that it will not affect the previous operation of the rules and the right, privilege, obligation or liability acquired, accrued or incurred or incurred under the said repealed rules is subject to the caveat “unless a different intention appears”, stipulated therein. However, while the Cenvat Credit Amendment Rules, 2011, notified by Notification No.3/2011-CE (NT) dated 01-03-2011, which came into effect from 01.04.2011, effected sweeping changes, we could not glean or discern a different intention to curb any right, privilege, obligation or liability acquired, accrued or incurred under any rule, notification or order so amended, repealed, superseded or rescinded, so as to deny the benefit under Rule 6(5) of the CCR that is being claimed by the appellant.
If the appellants were availing any of the aforementioned specified taxable services and had taken credit of service tax paid on the same and have not used such specified taxable services exclusively in or in relation to providing exempted services, then irrespective of the stipulations in sub-rules (1), (2) and (3) of Rule 6 of the Cenvat Credit Rules, 2004, credit of the whole of service tax paid on such specified taxable services shall be allowed and such taking of credit is correct and legal. The jurisdictional High Court in the case of M/s. Ruchika Global Interlinks has held that the explanation to Rule 2(e) stipulating that “exempted services” includes trading is clarificatory. Thus, for the relevant period, trading is to be treated as “exempted services”.
Conclusion - i) Input service tax credit on services used in trading activities cannot be availed as trading is treated as an exempted service. ii) The benefit of Rule 6(5) of the Cenvat Credit Rules, 2004, applies to the relevant period, allowing credit on specified services unless used exclusively for exempted services. iii) Penalties imposed on the appellants are unsustainable due to the interpretational ambiguities and the appellants' bona fide belief in their entitlement to credits.
The matter needs to be remanded to the jurisdictional adjudicating authority in order to determine the extent to which the cenvat credit has been taken on the services which the appellants have claimed would be taxable services as specified in the sub-clauses of clause (105) of Section 65 of the Finance Act as listed in Rule 6(5), and credit of whole of service tax of which shall be allowed unless such service is used exclusively in or in relation to manufacture of exempted goods or providing exempted services - Appeal disposed off by way of remand.
Disallowance of wrongly availed and utilized input service credit - input service or not - Packaging Service - Department was of the view that such input services were availed by the appellant not only for rendering the services to BPCL but also for the sale of their own LPG on which no excise duty or service tax was paid - HELD THAT:- The issue whether the input service tax credit taken on taxable services availed while providing taxable output services as well as engaging in the activity of trading is no more res-integra as it has now been consistently held by High Courts of different jurisdictions that credit cannot be taken of entire service tax paid on taxable services availed while providing taxable output services or manufacturing taxable goods as well as simultaneously engaging in the activity of trading.
It is seen that the Honourable High Court of Madras in its decision in M/s. Ruchika Global Interlinks v The CESTAT, Chennai, [2017 (6) TMI 635 - MADRAS HIGH COURT] has held that 'learly, both before and after amendment, “exempted services” meant those taxable services, which were exempt from whole of Service Tax and, included those services on which Service Tax was not leviable, under Section 66 of the Finance Act. The inclusion in Explanation to Rule 2(e) “trading” was, without doubt, only clarificatory. As accepted by Mr. Jayachandran, the appellant had not been paying Service Tax on trading activity during the relevant period.'
Again, in CCE Thane II v. Milton Polyplas (I) Pvt Ltd, [2019 (4) TMI 240 - BOMBAY HIGH COURT], the Honourable High Court of Bombay was deciding whether the notice issued invoking the erstwhile Rule 57 I of the MODVAT rules demanding fraudulently availed credit during the period 1995 to 1999 would abate as contended by the Respondent-assessee therein, since the MODVAT rules were omitted and/or substituted by CENVAT Rules w.e.f 1st April 2000.
The effect of Section 38A, namely that it will not affect the previous operation of the rules and the right, privilege, obligation or liability acquired, accrued or incurred or incurred under the said repealed rules is subject to the caveat “unless a different intention appears”, stipulated therein. However, while the Cenvat Credit Amendment Rules, 2011, notified by Notification No.3/2011-CE (NT) dated 01-03-2011, which came into effect from 01.04.2011, effected sweeping changes, we could not glean or discern a different intention to curb any right, privilege, obligation or liability acquired, accrued or incurred under any rule, notification or order so amended, repealed, superseded or rescinded, so as to deny the benefit under Rule 6(5) of the CCR that is being claimed by the appellant.
If the appellants were availing any of the aforementioned specified taxable services and had taken credit of service tax paid on the same and have not used such specified taxable services exclusively in or in relation to providing exempted services, then irrespective of the stipulations in sub-rules (1), (2) and (3) of Rule 6 of the Cenvat Credit Rules, 2004, credit of the whole of service tax paid on such specified taxable services shall be allowed and such taking of credit is correct and legal. The jurisdictional High Court in the case of M/s. Ruchika Global Interlinks has held that the explanation to Rule 2(e) stipulating that “exempted services” includes trading is clarificatory. Thus, for the relevant period, trading is to be treated as “exempted services”.
Conclusion - i) Input service tax credit on services used in trading activities cannot be availed as trading is treated as an exempted service. ii) The benefit of Rule 6(5) of the Cenvat Credit Rules, 2004, applies to the relevant period, allowing credit on specified services unless used exclusively for exempted services. iii) Penalties imposed on the appellants are unsustainable due to the interpretational ambiguities and the appellants' bona fide belief in their entitlement to credits.
The matter needs to be remanded to the jurisdictional adjudicating authority in order to determine the extent to which the cenvat credit has been taken on the services which the appellants have claimed would be taxable services as specified in the sub-clauses of clause (105) of Section 65 of the Finance Act as listed in Rule 6(5), and credit of whole of service tax of which shall be allowed unless such service is used exclusively in or in relation to manufacture of exempted goods or providing exempted services - Appeal disposed off by way of remand.
Levy of servie tax - insurance auxiliary services - incentives received from insurance companies - reverse charge mechanism - HELD THAT:- In respect of the same Appellant, the Tribunal for the earlier periods has set aside the demands and penalties vide SREE SARADAMBAL AUTOMOBILES (P) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, COIMBATORE [2018 (3) TMI 195 - CESTAT CHENNAI] where it was held that appellants were not liable for service tax under Insurance Auxiliary Service due to their lack of qualifications as actuaries and the nature of their operations as explained during the proceedings.
The impugned Order-in-Appeal cannot be sustained - appeal allowed.
Levy of servie tax - insurance auxiliary services - incentives received from insurance companies - reverse charge mechanism - HELD THAT:- In respect of the same Appellant, the Tribunal for the earlier periods has set aside the demands and penalties vide SREE SARADAMBAL AUTOMOBILES (P) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, COIMBATORE [2018 (3) TMI 195 - CESTAT CHENNAI] where it was held that appellants were not liable for service tax under Insurance Auxiliary Service due to their lack of qualifications as actuaries and the nature of their operations as explained during the proceedings.
The impugned Order-in-Appeal cannot be sustained - appeal allowed.
Abatement of appeal, on the death of the appellant - short payment of service tax - suppression of value - recovery alongwith penalty - HELD THAT:- The Appellant who was a sole proprietor has died on 31.05.2022 during the pendency of the present appeals. We also find that in terms of Rule 22 of Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982, on the death of the appellant, the proceedings will be abated unless an application is made for continuance of such proceedings by the legal Heirs of the Appellant. In this case, no such application has been received. As the Death has occurred on 31.05.2022, nearly three years passed already.
In view of the judgement of the Hon’ble Supreme Court in the case of Shabina Abraham & Ors. Vs. Collector of Central Excise & Customs [2015 (7) TMI 1036 - SUPREME COURT] wherein it has been held that no proceedings can be initiated or continued against a dead person as it amounts to violation of natural justice in as much as the dead person, who is proceeded against is not alive to defend himself.
Conclusion - On the death of the appellant, the appeal stands abated and disposed of in terms of Rule 22 of the CESTAT procedure Rules, 1982.
Appeal is abted and disposed off.
Abatement of appeal, on the death of the appellant - short payment of service tax - suppression of value - recovery alongwith penalty - HELD THAT:- The Appellant who was a sole proprietor has died on 31.05.2022 during the pendency of the present appeals. We also find that in terms of Rule 22 of Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982, on the death of the appellant, the proceedings will be abated unless an application is made for continuance of such proceedings by the legal Heirs of the Appellant. In this case, no such application has been received. As the Death has occurred on 31.05.2022, nearly three years passed already.
In view of the judgement of the Hon’ble Supreme Court in the case of Shabina Abraham & Ors. Vs. Collector of Central Excise & Customs [2015 (7) TMI 1036 - SUPREME COURT] wherein it has been held that no proceedings can be initiated or continued against a dead person as it amounts to violation of natural justice in as much as the dead person, who is proceeded against is not alive to defend himself.
Conclusion - On the death of the appellant, the appeal stands abated and disposed of in terms of Rule 22 of the CESTAT procedure Rules, 1982.
Appeal is abted and disposed off.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
Eligibility of Disputed Services as Input Services
Relevant Legal Framework and Precedents: Rule 2(l) of the CENVAT Credit Rules, 2004 defines 'input service' and categorizes services into 'means', 'inclusion', and 'exclusion' parts. The eligibility for CENVAT credit depends on whether the service falls under the 'means' or 'inclusion' parts and is not listed in the 'exclusion' part.
Court's Interpretation and Reasoning: The Tribunal emphasized examining the nature and purpose of the service in the provision of output services. It noted that the definition of 'input service' underwent amendments, particularly post-01.04.2011, which excluded certain services primarily used for personal consumption.
Key Evidence and Findings: The Tribunal analyzed various services such as catering, health & fitness, interior decoration, and packaging services, among others, to determine their eligibility as input services. It relied on representative invoices, previous Tribunal decisions, and CBIC circulars.
Application of Law to Facts: For services like catering and health & fitness, the Tribunal found them eligible as they were necessary for the operation of the appellants' business, especially given the 24x7 nature of their IT services. However, services like interior decoration and packaging were deemed ineligible due to lack of evidence linking them to the provision of output services.
Treatment of Competing Arguments: The Tribunal considered arguments from both the appellants and the Revenue, weighing the evidence and precedents provided by each side. For instance, it accepted the appellants' reliance on CBIC circulars and previous Tribunal rulings for certain services, while upholding the Revenue's stance on others.
Conclusions: The Tribunal concluded that certain services qualified as input services, allowing the appellants to claim CENVAT credit, while others did not meet the criteria.
Eligibility of CENVAT Credit for Services Availed Pre-01.04.2011
Relevant Legal Framework and Precedents: The Tribunal referred to the CBIC Circular No.943/4/2011-CX and the Larger Bench decision in TATA Teleservices, which clarified that services availed before 01.04.2011 could be considered for credit if the provision was completed before the amendment.
Court's Interpretation and Reasoning: The Tribunal found that services like Rent-a-Cab, availed before the amendment date, were eligible for credit based on the CBIC circular and Tribunal precedents.
Key Evidence and Findings: Evidence showed that the services in question were availed and completed before the amendment, supporting the appellants' claim for credit.
Application of Law to Facts: The Tribunal applied the legal framework to confirm that services availed before 01.04.2011 were eligible for credit, aligning with the CBIC circular and Tribunal's Larger Bench decision.
Treatment of Competing Arguments: The Tribunal addressed the Revenue's argument against the eligibility of pre-amendment services by emphasizing the legal clarity provided by the CBIC circular and the Tribunal's own precedents.
Conclusions: The Tribunal allowed CENVAT credit for services availed before 01.04.2011, as they met the criteria set out in the relevant legal framework.
Procedural Lapses and Denial of CENVAT Credit
Relevant Legal Framework and Precedents: The Tribunal considered the procedural requirements under the Service Tax Rules, 1994, and the implications of non-compliance.
Court's Interpretation and Reasoning: The Tribunal noted that procedural lapses, such as failing to update the registration certificate with branch addresses, should not automatically result in the denial of credit if the appellants had made efforts to comply.
Key Evidence and Findings: The appellants had submitted applications to update their registration certificate, which the Tribunal found sufficient to demonstrate compliance efforts.
Application of Law to Facts: The Tribunal applied the principle that procedural lapses should not lead to substantive denials of credit, especially when the appellants had attempted to rectify the issue.
Treatment of Competing Arguments: The Tribunal balanced the procedural requirements against the appellants' compliance efforts, ultimately siding with the appellants due to the lack of significant non-compliance.
Conclusions: The Tribunal concluded that procedural lapses did not justify the denial of CENVAT credit in this case.
SIGNIFICANT HOLDINGS
The Tribunal's significant holdings include:
The Tribunal established core principles regarding the eligibility of services as input services, the impact of procedural lapses, and the application of pre-amendment rules for availing CENVAT credit.
The final determination was to partly set aside the impugned order, allowing the appeal in favor of the appellants for the eligible input services while upholding the denial for ineligible services.
CENVAT Credit - input services - whether or not, the disputed services on which the CENVAT credit is taken by the appellants is duly covered under the scope and definition of Rule 2(l) of the CENVAT Credit Rules, 2004 as ‘input service’?
Catering, food and outdoor catering services - HELD THAT:- Under the unamended provisions (effective up to 31.03.2011), the phrase ‘activities relating to business’ was specifically finding place in the inclusive part of the definition of ‘input service’. The inclusive definition in a fiscal statute is a well-recognized device to enlarge the meaning of the word defined and it expands the meaning of the basic definition - such an yardstick cannot be applied for the period w.e.f. 01.04.2011,as by way of amendment of the definition of input service, certain services like general insurance services, Health Insurance, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees etc., were excluded from the purview of definition of input service, and in the eventuality, when the said excluded category of service(s) are used primarily for personal use or consumption of any employee. In other words, CENVAT credit of service tax paid on such service(s) should not be considered as input service, entitling an assessee to avail CENVAT credit thereon.
Health & fitness service - HELD THAT:- The records placed in file and sample invoices indicate that these services have been used to keep a check over the wellness or health of a person, before taking up the assignment in the appellants company and for taking up job assignments/projects from time to time. Further, the invoices have been billed to the company and not for the individuals for their personal consumption. Hence, these services are eligible to be considered as ‘input service’. Further, it is also found that the Tribunal in the case of SITEL India Limited [2016 (3) TMI 203 - CESTAT MUMBAI] have held that health and fitness service as eligible input service, where the output service is being provided on 24X7 basis, which is also the situation in the present case.
Interior decorator service - HELD THAT:- In the representative sample invoice submitted by the appellants, it is shown as the renovation works under taken for the guest house at Vikhroli. No other details are available to relate such renovation or interior decoration work having a relation to the provision of output service, either directly or indirectly. Therefore, it is unable to agree with the view that in the present case, there is sufficient evidence to consider the interior decorator service as an eligible input service. Therefore, CENVAT credit to the extent of Rs.6,93,107/- relatable to the ‘interior decorator service’ is not admissible as eligible input service.
Packaging services - HELD THAT:- The nature of services are mentioned as packing, unpacking, loading, unloading and transportation of household goods for transportation from one location to another with respect to few employees. Though it is claimed by the appellants that such services were used for packaging and movement of various goods procured for use in the provision of output services, there are no evidence to such claim in the documents placed in the appeal records or in any of the written submissions given by the appellants. In such a factual position, it is unable to find any basis for allowing such services used for personal consumption of employees under the category of eligible input service and therefore consider these services as ineligible input service.
Public relations service - People relationship management service - HELD THAT:- The Co-ordinate Bench of the Tribunal in the case of Orient Bell Limited [2017 (1) TMI 840 - CESTAT ALLAHABAD] have examined the public relations service and have held that these are having an objective of enhancing Brand Value, support to Marketing & Promotional Initiatives, Building Corporate image, Creating Awareness etc. to enable the company in providing enhanced output services. In view of the above, these services could be considered as eligible input service.
Photography service - video tape service - HELD THAT:- The adjudicating authority on examination of the invoices submitted before him had given a finding that he is unable find any information other than the name of service provider, in order to relate to the output service provided by the appellants. It is unable to examine the factual aspect as no invoices or supporting documents have been produced by the appellants. Therefore, these services are not eligible to be considered as eligible input service.
Rent-a-Cab service - HELD THAT:- The adjudicating authority had given a finding that even though the services have been availed prior to 01.04.2011, that may not be the ground to allow these services as eligible input service. In this regard, it is found that it is an undisputed fact that such services have been availed by the appellants for the period upto 31.03.2011 for claiming as eligible input credit and not thereafter. The CBIC in its Circular No.943/4/2011-CX dated 29.04.2011 had clarified that the credit available on rent-a-cab service received before 01.04.2011 should be available as input credit if its provision had been completed before 01.04.2011even though the invoices could have been received subsequently i.e., after 01.04.2011 - Rent-a-Cab services received prior to 01.04.2011 in the present case is eligible input service, for taking CENVAT Credit.
Ship management services - transport services through waterways - sound recording service - HELD THAT:- The adjudicating authority had found that no invoice have been produced by the appellants before him to substantiate the nature of such service and its usage in provision of output service. Further, in respect of ‘short term accommodation service’, the adjudicating authority had found that such stays by the employees traveling for work are more in the nature of personal consumption. It is not required to examine the factual aspect as no invoices or supporting documents have been produced by the appellants for such services - these services are not eligible to be considered as eligible input service.
Denial of input credit on the ground that the address of the premises are not included in the registration certificate - HELD THAT:- The appellants had submitted a letter for inclusion of unregistered premises in the Service Tax Registration certificate by submission of their application for addition of such addresses to the jurisdictional authority on 17.10.2008. Inasmuch as the process of revising or updation of registered certificate with additional/new addresses for new branches/ office is a deemed approval procedure on intimation basis as priced under Service Tax Rules, 1944. Further, as the appellants is a regular assessee/ registrant with the Service Tax authorities, the input credit cannot be denied on such procedural lapses and that too for the failure to approving such amendments by the department within the prescribed time.
Conclusion - i) The impugned order is set aside, to the extent it has confirmed the Cenvat demand on the taxable services namely, Event Management & Mandap Keeper Service, General Insurance & Insurance Auxiliary Service and GTA Service and the appeal is allowed in favour of the appellant. ii) The Rent-a-Cab services received prior to 01.04.2011 in the present case is eligible input service, for taking CENVAT Credit. iii) The input credit cannot be denied on such procedural lapses and that too for the failure to approving such amendments by the department within the prescribed time.
Appeal allowed in part.
CENVAT Credit - input services - whether or not, the disputed services on which the CENVAT credit is taken by the appellants is duly covered under the scope and definition of Rule 2(l) of the CENVAT Credit Rules, 2004 as ‘input service’?
Catering, food and outdoor catering services - HELD THAT:- Under the unamended provisions (effective up to 31.03.2011), the phrase ‘activities relating to business’ was specifically finding place in the inclusive part of the definition of ‘input service’. The inclusive definition in a fiscal statute is a well-recognized device to enlarge the meaning of the word defined and it expands the meaning of the basic definition - such an yardstick cannot be applied for the period w.e.f. 01.04.2011,as by way of amendment of the definition of input service, certain services like general insurance services, Health Insurance, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees etc., were excluded from the purview of definition of input service, and in the eventuality, when the said excluded category of service(s) are used primarily for personal use or consumption of any employee. In other words, CENVAT credit of service tax paid on such service(s) should not be considered as input service, entitling an assessee to avail CENVAT credit thereon.
Health & fitness service - HELD THAT:- The records placed in file and sample invoices indicate that these services have been used to keep a check over the wellness or health of a person, before taking up the assignment in the appellants company and for taking up job assignments/projects from time to time. Further, the invoices have been billed to the company and not for the individuals for their personal consumption. Hence, these services are eligible to be considered as ‘input service’. Further, it is also found that the Tribunal in the case of SITEL India Limited [2016 (3) TMI 203 - CESTAT MUMBAI] have held that health and fitness service as eligible input service, where the output service is being provided on 24X7 basis, which is also the situation in the present case.
Interior decorator service - HELD THAT:- In the representative sample invoice submitted by the appellants, it is shown as the renovation works under taken for the guest house at Vikhroli. No other details are available to relate such renovation or interior decoration work having a relation to the provision of output service, either directly or indirectly. Therefore, it is unable to agree with the view that in the present case, there is sufficient evidence to consider the interior decorator service as an eligible input service. Therefore, CENVAT credit to the extent of Rs.6,93,107/- relatable to the ‘interior decorator service’ is not admissible as eligible input service.
Packaging services - HELD THAT:- The nature of services are mentioned as packing, unpacking, loading, unloading and transportation of household goods for transportation from one location to another with respect to few employees. Though it is claimed by the appellants that such services were used for packaging and movement of various goods procured for use in the provision of output services, there are no evidence to such claim in the documents placed in the appeal records or in any of the written submissions given by the appellants. In such a factual position, it is unable to find any basis for allowing such services used for personal consumption of employees under the category of eligible input service and therefore consider these services as ineligible input service.
Public relations service - People relationship management service - HELD THAT:- The Co-ordinate Bench of the Tribunal in the case of Orient Bell Limited [2017 (1) TMI 840 - CESTAT ALLAHABAD] have examined the public relations service and have held that these are having an objective of enhancing Brand Value, support to Marketing & Promotional Initiatives, Building Corporate image, Creating Awareness etc. to enable the company in providing enhanced output services. In view of the above, these services could be considered as eligible input service.
Photography service - video tape service - HELD THAT:- The adjudicating authority on examination of the invoices submitted before him had given a finding that he is unable find any information other than the name of service provider, in order to relate to the output service provided by the appellants. It is unable to examine the factual aspect as no invoices or supporting documents have been produced by the appellants. Therefore, these services are not eligible to be considered as eligible input service.
Rent-a-Cab service - HELD THAT:- The adjudicating authority had given a finding that even though the services have been availed prior to 01.04.2011, that may not be the ground to allow these services as eligible input service. In this regard, it is found that it is an undisputed fact that such services have been availed by the appellants for the period upto 31.03.2011 for claiming as eligible input credit and not thereafter. The CBIC in its Circular No.943/4/2011-CX dated 29.04.2011 had clarified that the credit available on rent-a-cab service received before 01.04.2011 should be available as input credit if its provision had been completed before 01.04.2011even though the invoices could have been received subsequently i.e., after 01.04.2011 - Rent-a-Cab services received prior to 01.04.2011 in the present case is eligible input service, for taking CENVAT Credit.
Ship management services - transport services through waterways - sound recording service - HELD THAT:- The adjudicating authority had found that no invoice have been produced by the appellants before him to substantiate the nature of such service and its usage in provision of output service. Further, in respect of ‘short term accommodation service’, the adjudicating authority had found that such stays by the employees traveling for work are more in the nature of personal consumption. It is not required to examine the factual aspect as no invoices or supporting documents have been produced by the appellants for such services - these services are not eligible to be considered as eligible input service.
Denial of input credit on the ground that the address of the premises are not included in the registration certificate - HELD THAT:- The appellants had submitted a letter for inclusion of unregistered premises in the Service Tax Registration certificate by submission of their application for addition of such addresses to the jurisdictional authority on 17.10.2008. Inasmuch as the process of revising or updation of registered certificate with additional/new addresses for new branches/ office is a deemed approval procedure on intimation basis as priced under Service Tax Rules, 1944. Further, as the appellants is a regular assessee/ registrant with the Service Tax authorities, the input credit cannot be denied on such procedural lapses and that too for the failure to approving such amendments by the department within the prescribed time.
Conclusion - i) The impugned order is set aside, to the extent it has confirmed the Cenvat demand on the taxable services namely, Event Management & Mandap Keeper Service, General Insurance & Insurance Auxiliary Service and GTA Service and the appeal is allowed in favour of the appellant. ii) The Rent-a-Cab services received prior to 01.04.2011 in the present case is eligible input service, for taking CENVAT Credit. iii) The input credit cannot be denied on such procedural lapses and that too for the failure to approving such amendments by the department within the prescribed time.
Appeal allowed in part.
Entitlement to concessional rate of tax - inter-state sale - Rejection of application filed by the writ petitioner on the ground that the tribunal cannot issue the direction sought for - HELD THAT:- It is required to be seen as to what remedy the petitioner is entitled to. Form-C declaration have been held to be documents when produce by the dealer, they will be entitled to benefit of the concessional rate of tax or reduced rate of tax. There are several decisions which have been pointed out and even if there is a defect in Form-C declaration issued in respect of an inter-State sale the same can be rectified and if there is a delay in issuance of Form-C declaration by the assessing officer of the purchasing dealer and if the Form-C declaration is issued belatedly, such declaration can be produced before the jurisdictional assessing officer of the selling dealer and the assessment for the relevant period can be revised.
In the instant case, the factual position is much better as the respondent/department does not dispute the fact that the transaction done by the writ petitioner with the 7th respondent is a case of inter- State sale. There may be cases where the purchasing dealer might have faced action by the department including that of cancellation of registration and there are decisions which have held that if the registration of the selling dealer is valid during the period when the inter-State sale took place, then the selling dealer would be entitled to the concessional rate of tax.
More or less an identical issue was decided by the Division Bench of this court in the case of Commissioner of Commercial Taxes and Another v. Tata Steel Limited and Others [2022 (11) TMI 1274 - CALCUTTA HIGH COURT] - It is informed the said decision though the appeal was filed against the said order before the Hon’ble Supreme Court, subsequently, the State Government accepted the decision and the concessional rate of tax was extended to the assessee therein, namely, Tata Steel Limited. Though this writ petition arises out of a challenge to an order passed by the learned tribunal yet this court is not denude of jurisdiction to do substantial justice in the instant matter in exercise of its powers under Article 226 of the Constitution of India, particularly when facts are not in dispute, that the transaction between the writ petitioner and the 7th respondent is a case of inter-State sale.
Conclusion - The petitioner was entitled to the concessional tax rate of 2% for the inter-State sale based on the admitted facts and the 6th respondent's acknowledgment.
The writ petition is disposed of by directing the 6th respondent to address a letter to the writ petitioner to the effect that the subject sale transaction is admittedly an inter-State sale, and Form-C declaration is not being able to be issued as the 7th respondent has not filed any application for issuance of Form-C declaration.
Entitlement to concessional rate of tax - inter-state sale - Rejection of application filed by the writ petitioner on the ground that the tribunal cannot issue the direction sought for - HELD THAT:- It is required to be seen as to what remedy the petitioner is entitled to. Form-C declaration have been held to be documents when produce by the dealer, they will be entitled to benefit of the concessional rate of tax or reduced rate of tax. There are several decisions which have been pointed out and even if there is a defect in Form-C declaration issued in respect of an inter-State sale the same can be rectified and if there is a delay in issuance of Form-C declaration by the assessing officer of the purchasing dealer and if the Form-C declaration is issued belatedly, such declaration can be produced before the jurisdictional assessing officer of the selling dealer and the assessment for the relevant period can be revised.
In the instant case, the factual position is much better as the respondent/department does not dispute the fact that the transaction done by the writ petitioner with the 7th respondent is a case of inter- State sale. There may be cases where the purchasing dealer might have faced action by the department including that of cancellation of registration and there are decisions which have held that if the registration of the selling dealer is valid during the period when the inter-State sale took place, then the selling dealer would be entitled to the concessional rate of tax.
More or less an identical issue was decided by the Division Bench of this court in the case of Commissioner of Commercial Taxes and Another v. Tata Steel Limited and Others [2022 (11) TMI 1274 - CALCUTTA HIGH COURT] - It is informed the said decision though the appeal was filed against the said order before the Hon’ble Supreme Court, subsequently, the State Government accepted the decision and the concessional rate of tax was extended to the assessee therein, namely, Tata Steel Limited. Though this writ petition arises out of a challenge to an order passed by the learned tribunal yet this court is not denude of jurisdiction to do substantial justice in the instant matter in exercise of its powers under Article 226 of the Constitution of India, particularly when facts are not in dispute, that the transaction between the writ petitioner and the 7th respondent is a case of inter-State sale.
Conclusion - The petitioner was entitled to the concessional tax rate of 2% for the inter-State sale based on the admitted facts and the 6th respondent's acknowledgment.
The writ petition is disposed of by directing the 6th respondent to address a letter to the writ petitioner to the effect that the subject sale transaction is admittedly an inter-State sale, and Form-C declaration is not being able to be issued as the 7th respondent has not filed any application for issuance of Form-C declaration.
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Refund of Stamp Duty on Lost E-Stamp Paper
Entitlement to Interest on Refunded Amount
3. SIGNIFICANT HOLDINGS
Interest on Refund of the stamp duty paid on a lost e-stamp paper - whether the court should fold its hands and deny relief to a person, who has lost the e-stamp paper, only because the draftsman has omitted the use of such expression explicitly in the Statute? - HELD THAT:- When a person is deprived of the use of his money to which he is legitimately entitled, he has a right to be compensated for the deprivation which may be called interest or compensation. Interest is paid for the deprivation of the use of money in general terms which has returned or compensation for the use or retention by a person of a sum of money belonging to other.
In the case of Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, [1991 (12) TMI 268 - SUPREME COURT], a Constitution Bench of this Court opined that a person deprived of use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This is also the principle of Section 34 of the Civil Procedure Code.
Interest of normal accretion on capital - HELD THAT:- If on facts of a case, the doctrine of restitution is attracted, interest should follow. Restitution in its etymological sense means restoring to a party on the modification, variation or reversal of a decree or order what has been lost to him in execution of decree or order of the Court or in direct consequence of a decree or order. The term “restitution” is used in three senses, firstly, return or restoration of some specific thing to its rightful owner or status, secondly, the compensation for benefits derived from wrong done to another and, thirdly, compensation or reparation for the loss caused to another.
In Hari Chand v. State of U.P. [2011 (2) TMI 1638 - ALLAHABAD HIGH COURT], the Allahabad High Court dealing with similar controversy in a stamp matter held that the payment of interest is a necessary corollary to the retention of the money to be returned under order of the appellate or revisional authority. The High Court directed the State to pay interest @ 8% for the period, the money was so retained i.e. from the date of deposit till the date of actual repayment/refund.
Considering the reasons assigned by the learned Single Judge while taking the view that the respondents could not have declined to refund the amount and the fact that the retention of the said amount was for a long time and further the appellants were left with no other option but to approach the High Court, it is opined that the appellants are entitled to have interest on Rs. 28,10,000/-.
Conclusion - Interest is not a penalty or punishment at all, but it is the normal accretion on capital. The appellants are entitled to hae interest.
Appeal disposed off.
Interest on Refund of the stamp duty paid on a lost e-stamp paper - whether the court should fold its hands and deny relief to a person, who has lost the e-stamp paper, only because the draftsman has omitted the use of such expression explicitly in the Statute? - HELD THAT:- When a person is deprived of the use of his money to which he is legitimately entitled, he has a right to be compensated for the deprivation which may be called interest or compensation. Interest is paid for the deprivation of the use of money in general terms which has returned or compensation for the use or retention by a person of a sum of money belonging to other.
In the case of Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, [1991 (12) TMI 268 - SUPREME COURT], a Constitution Bench of this Court opined that a person deprived of use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This is also the principle of Section 34 of the Civil Procedure Code.
Interest of normal accretion on capital - HELD THAT:- If on facts of a case, the doctrine of restitution is attracted, interest should follow. Restitution in its etymological sense means restoring to a party on the modification, variation or reversal of a decree or order what has been lost to him in execution of decree or order of the Court or in direct consequence of a decree or order. The term “restitution” is used in three senses, firstly, return or restoration of some specific thing to its rightful owner or status, secondly, the compensation for benefits derived from wrong done to another and, thirdly, compensation or reparation for the loss caused to another.
In Hari Chand v. State of U.P. [2011 (2) TMI 1638 - ALLAHABAD HIGH COURT], the Allahabad High Court dealing with similar controversy in a stamp matter held that the payment of interest is a necessary corollary to the retention of the money to be returned under order of the appellate or revisional authority. The High Court directed the State to pay interest @ 8% for the period, the money was so retained i.e. from the date of deposit till the date of actual repayment/refund.
Considering the reasons assigned by the learned Single Judge while taking the view that the respondents could not have declined to refund the amount and the fact that the retention of the said amount was for a long time and further the appellants were left with no other option but to approach the High Court, it is opined that the appellants are entitled to have interest on Rs. 28,10,000/-.
Conclusion - Interest is not a penalty or punishment at all, but it is the normal accretion on capital. The appellants are entitled to hae interest.
Appeal disposed off.
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