Just a moment...
By creating an account you can:
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
Note
Bookmark
Share
Vires of extension of time limits specified under the CGST Act - Chellenge to N/N. 9/2023-Central Tax dated 31st March, 2023, N/N. 56/2023 – Central Tax dated 28th December, 2023, N/N. 9/2023-State Tax dated 24th May, 2023 and N/N. 56/2023 dated 16th January, 2024 - HELD THAT:- In a similar matter, in the case of Aspect Integrated IT Pvt. Ltd Vs. Union of India [2024 (7) TMI 1601 - BOMBAY HIGH COURT], the Nagpur Bench of this Court has directed the Respondents in the said matter not to take any coercive action against the Petitioner. Here also, since the issue is whether the Notifications are valid and whether the impugned order could have been passed (especially, if Notifications dated 28th December, 2023 and 16th January, 2024 are set aside), a strong prima facie case is made out for granting interim relief to the Petitioner.
Liberty granted to the parties to apply in the event the matter before the Hon’ble Supreme Court is disposed of one way or the other.
Vires of extension of time limits specified under the CGST Act - Chellenge to N/N. 9/2023-Central Tax dated 31st March, 2023, N/N. 56/2023 – Central Tax dated 28th December, 2023, N/N. 9/2023-State Tax dated 24th May, 2023 and N/N. 56/2023 dated 16th January, 2024 - HELD THAT:- In a similar matter, in the case of Aspect Integrated IT Pvt. Ltd Vs. Union of India [2024 (7) TMI 1601 - BOMBAY HIGH COURT], the Nagpur Bench of this Court has directed the Respondents in the said matter not to take any coercive action against the Petitioner. Here also, since the issue is whether the Notifications are valid and whether the impugned order could have been passed (especially, if Notifications dated 28th December, 2023 and 16th January, 2024 are set aside), a strong prima facie case is made out for granting interim relief to the Petitioner.
Liberty granted to the parties to apply in the event the matter before the Hon’ble Supreme Court is disposed of one way or the other.
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Seizure of Goods under Section 129(3) of IGST/CGST Act
Relevant Legal Framework and Precedents: Section 129(3) of the GST Act allows for the detention or seizure of goods in transit if they contravene the provisions of the Act or rules made thereunder. The petitioner argued that under-valuation is not a valid ground for seizure, citing various judgments, including those from the Chhattisgarh and Kerala High Courts. However, the Court referred to precedents like M/s Radha Fragrance and M/s Shiv Shakti Trading Company, which upheld seizures on grounds of under-valuation when it was deliberate to avoid tax.
Court's Interpretation and Reasoning: The Court emphasized that the statutory framework requires true and correct valuation of goods on tax invoices. It found that the petitioner failed to demonstrate the actual movement of goods from West Bengal/Assam to Delhi, which was crucial to establishing the genuineness of the transaction.
Key Evidence and Findings: The authorities noted discrepancies between the truck driver's statement and the accompanying documents, which suggested that the goods were loaded from Kanpur, not West Bengal/Assam. The petitioner failed to provide truck numbers, toll receipts, or other evidence to substantiate the claimed route of transport.
Application of Law to Facts: The Court applied the principles from previous judgments, asserting that the burden of proof lies on the petitioner to establish the actual movement and valuation of goods. The petitioner's inability to provide evidence justified the seizure under Section 129(3).
Treatment of Competing Arguments: The petitioner argued against the legality of the seizure based on under-valuation, while the respondent emphasized the non-genuine nature of the documents and the driver's statement. The Court sided with the respondent, noting the petitioner's failure to rebut the driver's statement or provide supporting evidence.
Conclusions: The Court concluded that the seizure was justified due to the petitioner's failure to prove the actual movement of goods and the deliberate under-valuation aimed at evading tax.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court highlighted, "The petitioner has utterly failed to bring on record any cogent material for transporting the goods from West Bengal / Assam to Delhi via Kanpur. Once the petitioner has failed to prove the true/actual movement of the goods, the seizure proceedings cannot be said to be unjustified."
Core Principles Established: The judgment reaffirmed that under-valuation with intent to evade tax justifies seizure under the GST Act. It also emphasized the importance of genuine documentation and the burden of proof on the taxpayer to substantiate claims of goods movement.
Final Determinations on Each Issue: The Court dismissed the writ petitions, holding that the seizures were lawful and the petitioner failed to provide necessary evidence to challenge the findings of the respondent authorities.
Seizure of goods on the ground of under valuation - sufficient evidence to prove the actual movement of goods from West Bengal/Assam to Delhi via Kanpur or not - burden to prove - power to seize goods - HELD THAT:- Under the taxing statute, in the original proceeding or in the summary proceeding, the primary burden is to be discharged by the assessee by bringing on record the cogent material. The burden of proof is shifting to the department only in the re-assessment proceeding or subsequent proceeding not being the original proceeding. In other words, the assessee in the original proceeding is duty bound to bring the material on record in support of its claim but in the subsequent proceeding i.e. re-assessment proceedings, the burden shifts on the revenue - Under the taxing statute, in the original proceeding or in the summary proceeding, the primary burden is to be discharged by the assessee by bringing on record the cogent material. The burden of proof is shifting to the department only in the re-assessment proceeding or subsequent proceeding not being the original proceeding. In other words, the assessee in the original proceeding is duty bound to bring the material on record in support of its claim but in the subsequent proceeding i.e. re-assessment proceedings, the burden shifts on the revenue.
The Hon’ble Apex Court in the case of State of Karnataka Vs. M/s Ecom Gill Coffee Trading Pvt. Ltd. [2023 (3) TMI 533 - SUPREME COURT] has held that burden was upon the dealer to prove beyond doubt its claim. Further, the Apex Court has emphasised in the said judgement that if the dealer is claiming any exemption, then burden to prove the genuineness of the transaction is upon the person claiming the benefit. On that background, the Hon’ble Apex Court has held that dealer has to prove the actual physical movement of the goods.
Following the said judgement, this Court in the case of M/s Shiv Trading Vs. State of UP and Others [2023 (11) TMI 1157 - ALLAHABAD HIGH COURT] has held that onus to prove and establish beyond doubt the actual transaction, physical movement of the goods as well as genuineness of transaction is required.
In the case in hand, the petitioner was duty bound to establish beyond doubt the actual physical movement of the goods from West Bengal / Assam to Delhi via Kanpur but the petitioner has failed to do so, therefore, accompanying tax invoices and other documents cannot said to be genuine. In other words, it is a clear case of contravention of Act as well as the Rules - The petitioner has failed to bring on record any material to show actual movement of the goods from West Bengal / Assam. The details of truck number or toll receipt crossed during its journey from West Bengal / Assam to Kanpur have not been filed at any stage.
The petitioner even failed to bring on record any cogent material to show actual movement of the goods. Once the actual journey as claimed by the petitioner was not proved, the proceedings cannot be said to be illegal or arbitrary - Section 129 of the GST Act refers that any person transports any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, the said goods shall be liable to be detained or seized.
A Division Bench of this Court in the case of M/s Shiv Shakti Trading Company Vs. State of UP and Others [2011 (5) TMI 874 - ALLAHABAD HIGH COURT], has an occasion to upheld the seizure of the goods being made on the ground of under valuation. The Division Bench has held that it is incumbent on a person, who is transporting goods, to declare the true value of the goods and failure to declare the same, would result non proper document in the context of the valuation, therefore, the power of seizure of goods has correctly been exercised against the petitioner.
Conclusion - i) Under-valuation with intent to evade tax justifies seizure under the GST Act. ii) The seizures were lawful and the petitioner failed to provide necessary evidence to challenge the findings of the respondent authorities.
Thus, no interference is called for by this Court in the impugned order - petition dismissed.
Seizure of goods on the ground of under valuation - sufficient evidence to prove the actual movement of goods from West Bengal/Assam to Delhi via Kanpur or not - burden to prove - power to seize goods - HELD THAT:- Under the taxing statute, in the original proceeding or in the summary proceeding, the primary burden is to be discharged by the assessee by bringing on record the cogent material. The burden of proof is shifting to the department only in the re-assessment proceeding or subsequent proceeding not being the original proceeding. In other words, the assessee in the original proceeding is duty bound to bring the material on record in support of its claim but in the subsequent proceeding i.e. re-assessment proceedings, the burden shifts on the revenue - Under the taxing statute, in the original proceeding or in the summary proceeding, the primary burden is to be discharged by the assessee by bringing on record the cogent material. The burden of proof is shifting to the department only in the re-assessment proceeding or subsequent proceeding not being the original proceeding. In other words, the assessee in the original proceeding is duty bound to bring the material on record in support of its claim but in the subsequent proceeding i.e. re-assessment proceedings, the burden shifts on the revenue.
The Hon’ble Apex Court in the case of State of Karnataka Vs. M/s Ecom Gill Coffee Trading Pvt. Ltd. [2023 (3) TMI 533 - SUPREME COURT] has held that burden was upon the dealer to prove beyond doubt its claim. Further, the Apex Court has emphasised in the said judgement that if the dealer is claiming any exemption, then burden to prove the genuineness of the transaction is upon the person claiming the benefit. On that background, the Hon’ble Apex Court has held that dealer has to prove the actual physical movement of the goods.
Following the said judgement, this Court in the case of M/s Shiv Trading Vs. State of UP and Others [2023 (11) TMI 1157 - ALLAHABAD HIGH COURT] has held that onus to prove and establish beyond doubt the actual transaction, physical movement of the goods as well as genuineness of transaction is required.
In the case in hand, the petitioner was duty bound to establish beyond doubt the actual physical movement of the goods from West Bengal / Assam to Delhi via Kanpur but the petitioner has failed to do so, therefore, accompanying tax invoices and other documents cannot said to be genuine. In other words, it is a clear case of contravention of Act as well as the Rules - The petitioner has failed to bring on record any material to show actual movement of the goods from West Bengal / Assam. The details of truck number or toll receipt crossed during its journey from West Bengal / Assam to Kanpur have not been filed at any stage.
The petitioner even failed to bring on record any cogent material to show actual movement of the goods. Once the actual journey as claimed by the petitioner was not proved, the proceedings cannot be said to be illegal or arbitrary - Section 129 of the GST Act refers that any person transports any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, the said goods shall be liable to be detained or seized.
A Division Bench of this Court in the case of M/s Shiv Shakti Trading Company Vs. State of UP and Others [2011 (5) TMI 874 - ALLAHABAD HIGH COURT], has an occasion to upheld the seizure of the goods being made on the ground of under valuation. The Division Bench has held that it is incumbent on a person, who is transporting goods, to declare the true value of the goods and failure to declare the same, would result non proper document in the context of the valuation, therefore, the power of seizure of goods has correctly been exercised against the petitioner.
Conclusion - i) Under-valuation with intent to evade tax justifies seizure under the GST Act. ii) The seizures were lawful and the petitioner failed to provide necessary evidence to challenge the findings of the respondent authorities.
Thus, no interference is called for by this Court in the impugned order - petition dismissed.
Refund of IGST - zero rated supply - HELD THAT:- The issue raised in the writ petition is no longer res integra. The Hon'ble Division Bench of Gujarat High Court in the decision reported in M/s.Amit Cotton Industries Through Partner, Veljibhai Virjibhai Ranipa Vs Principal Commissioner of Customs [2019 (7) TMI 472 - GUJARAT HIGH COURT] had categorically held that the aforesaid circular cannot prevail over Rule 96. The Hon'ble Division Bench observed that the circular will not save the situation for the Department.
The impugned order dated 24.11.2020 is set aside and the respondent is directed to refund a sum of Rs. 25,84,277/- together with applicable interest to the petitioner within a period of eight weeks from the date of receipt of a copy of this order - Petition allowed.
Refund of IGST - zero rated supply - HELD THAT:- The issue raised in the writ petition is no longer res integra. The Hon'ble Division Bench of Gujarat High Court in the decision reported in M/s.Amit Cotton Industries Through Partner, Veljibhai Virjibhai Ranipa Vs Principal Commissioner of Customs [2019 (7) TMI 472 - GUJARAT HIGH COURT] had categorically held that the aforesaid circular cannot prevail over Rule 96. The Hon'ble Division Bench observed that the circular will not save the situation for the Department.
The impugned order dated 24.11.2020 is set aside and the respondent is directed to refund a sum of Rs. 25,84,277/- together with applicable interest to the petitioner within a period of eight weeks from the date of receipt of a copy of this order - Petition allowed.
Challenge to assessment order - reversal of ITC claim - HELD THAT:- The issue involved in the present Writ Petition, has been squarely covered by the common order of this Court, in SRI GANAPATHI PANDI INDUSTRIES, REP. BY ITS PROPRIETOR VERSUS THE ASSISTANT COMMISSIONER (STATE TAX) (FAC) TONDIARPET ASSESSMENT CIRCLE, CHENNAI [2024 (10) TMI 1631 - MADRAS HIGH COURT], wherein, this Court has categorically held that 'The orders impugned in all Writ Petitions are quashed insofar as it relates to the claim made by the petitioners for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act'.
The order impugned in all Writ Petition is quashed insofar as it relates to the claim made by the petitioner for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act - petition allowed.
Challenge to assessment order - reversal of ITC claim - HELD THAT:- The issue involved in the present Writ Petition, has been squarely covered by the common order of this Court, in SRI GANAPATHI PANDI INDUSTRIES, REP. BY ITS PROPRIETOR VERSUS THE ASSISTANT COMMISSIONER (STATE TAX) (FAC) TONDIARPET ASSESSMENT CIRCLE, CHENNAI [2024 (10) TMI 1631 - MADRAS HIGH COURT], wherein, this Court has categorically held that 'The orders impugned in all Writ Petitions are quashed insofar as it relates to the claim made by the petitioners for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act'.
The order impugned in all Writ Petition is quashed insofar as it relates to the claim made by the petitioner for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act - petition allowed.
Reversal of ITC claim - imposition of tax, penalty and interest - HELD THAT:- The issue involved in the present Writ Petition, has been squarely covered by the common order of this Court, in SRI GANAPATHI PANDI INDUSTRIES, REP. BY ITS PROPRIETOR VERSUS THE ASSISTANT COMMISSIONER (STATE TAX) (FAC) TONDIARPET ASSESSMENT CIRCLE, CHENNAI [2024 (10) TMI 1631 - MADRAS HIGH COURT], wherein, this Court has categorically held that 'The orders impugned in all Writ Petitions are quashed insofar as it relates to the claim made by the petitioners for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act'.
The order impugned in all Writ Petition is quashed insofar as it relates to the claim made by the petitioner for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act - petition allowed.
Reversal of ITC claim - imposition of tax, penalty and interest - HELD THAT:- The issue involved in the present Writ Petition, has been squarely covered by the common order of this Court, in SRI GANAPATHI PANDI INDUSTRIES, REP. BY ITS PROPRIETOR VERSUS THE ASSISTANT COMMISSIONER (STATE TAX) (FAC) TONDIARPET ASSESSMENT CIRCLE, CHENNAI [2024 (10) TMI 1631 - MADRAS HIGH COURT], wherein, this Court has categorically held that 'The orders impugned in all Writ Petitions are quashed insofar as it relates to the claim made by the petitioners for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act'.
The order impugned in all Writ Petition is quashed insofar as it relates to the claim made by the petitioner for ITC which is barred by limitation in terms of Section 16 (4) of the CGST Act, 2017 but, within the period prescribed in terms of Section 16 (5) of the said Act - petition allowed.
Cancellation of petitioner’s registration on the ground of non-filing of return - petitioner has paid all the revenue due and further agrees to pay any outstanding revenue for restoring its registration - HELD THAT:- This petition is disposed of by setting aside the impugned order of both the concerned authorities and by directing the respondent CGST/WBGST authority to restore the petitioner’s registration and open the portal for a period of 45 days from date of communication of this order by the counsel of the respondent authority to enable the petitioner to make the payment of revenue due as well as any other due including penalty to be indicated by the respondent authority concerned within a period of 15 working days.
Cancellation of petitioner’s registration on the ground of non-filing of return - petitioner has paid all the revenue due and further agrees to pay any outstanding revenue for restoring its registration - HELD THAT:- This petition is disposed of by setting aside the impugned order of both the concerned authorities and by directing the respondent CGST/WBGST authority to restore the petitioner’s registration and open the portal for a period of 45 days from date of communication of this order by the counsel of the respondent authority to enable the petitioner to make the payment of revenue due as well as any other due including penalty to be indicated by the respondent authority concerned within a period of 15 working days.
The core legal question in this case is whether the respondent violated principles of natural justice by failing to provide the petitioner with a proper opportunity of personal hearing before passing the impugned order dated 22.04.2024.
**Issue-wise Detailed Analysis:**
**Relevant Legal Framework and Precedents:**
The petitioner argued that the impugned order contravened Section 75(4) of the GST Act, 2017, which requires providing sufficient opportunity to the party before passing an adverse order. The court emphasized the importance of natural justice principles in administrative proceedings.
**Court's Interpretation and Reasoning:**
The court noted that the respondent fixed the date of personal hearing before the deadline for filing the reply, which rendered the hearing merely a formality. The court criticized the respondent for not following established procedures and emphasized the need for proper adherence to principles of natural justice.
**Key Evidence and Findings:**
The court considered the timeline of notices, replies, and the absence of a meaningful opportunity for personal hearing in its assessment of the case. It highlighted the importance of allowing parties to present their case effectively before making a decision.
**Application of Law to Facts:**
The court applied the legal framework of natural justice and procedural fairness to the facts of the case, finding that the respondent's actions fell short of the required standards. It emphasized the need for a fair and transparent process in administrative proceedings.
**Treatment of Competing Arguments:**
While the respondent argued that a personal hearing was scheduled before the reply was filed, the court found this practice to be inadequate and merely for compliance purposes. The court sided with the petitioner's contention that a genuine opportunity for personal hearing was not provided.
**Conclusions:**
The court concluded that the impugned order was passed in violation of principles of natural justice due to the lack of a proper opportunity for the petitioner to be heard. As a result, the court set aside the order and remanded the matter to the respondent for fresh consideration, emphasizing the importance of following established procedures and ensuring a fair process for all parties involved.
**Significant Holdings:**
The court's decision to set aside the impugned order and remand the matter for fresh consideration establishes the core principle that administrative proceedings must adhere to principles of natural justice, including providing parties with a genuine opportunity to be heard before making adverse decisions.
Violation of principles of natural justice - failure on the part of the respondent to provide an opportunity of personal hearing to the petitioner prior to the passing of impugned order - HELD THAT:- Initially, the notice in Form GST DRC-01 was issued on 26.12.2023, wherein the time limit was fixed for filing the reply on or before 25.01.2024. Accordingly, the reply was filed on 25.01.2024. Further, in the said notice, the date of personal hearing was fixed on 03.01.2024, which is 3 weeks prior to the expiry of time limit, provided by the respondent, for filing the reply.
Though a detailed reply dated 25.01.2024 was already filed by the petitioner, without considering the same, a reminder notice dated 07.03.2024 has been issued by the respondent, whereby once again the time limit for filing the reply was fixed as on or before 14.03.2024 and the date of personal hearing was fixed on 11.03.2024. Subsequently, the petitioner had filed his 2nd reply dated 14.03.2024 along with a copy of the 1st reply dated 25.01.2024. Thereafter, without providing any opportunity of personal hearing, the respondent had passed the impugned order dated 22.04.2024, which is contrary to the provisions of Section 75(4) of the GST Act, 2017.
Conclusion - The impugned order was passed in violation of principles of natural justice without providing any proper opportunity to the petitioner. In such view of the matter, this Court is inclined to set aside the impugned order dated 22.04.2024 passed by the respondent.
Petition disposed off by way of remand.
Violation of principles of natural justice - failure on the part of the respondent to provide an opportunity of personal hearing to the petitioner prior to the passing of impugned order - HELD THAT:- Initially, the notice in Form GST DRC-01 was issued on 26.12.2023, wherein the time limit was fixed for filing the reply on or before 25.01.2024. Accordingly, the reply was filed on 25.01.2024. Further, in the said notice, the date of personal hearing was fixed on 03.01.2024, which is 3 weeks prior to the expiry of time limit, provided by the respondent, for filing the reply.
Though a detailed reply dated 25.01.2024 was already filed by the petitioner, without considering the same, a reminder notice dated 07.03.2024 has been issued by the respondent, whereby once again the time limit for filing the reply was fixed as on or before 14.03.2024 and the date of personal hearing was fixed on 11.03.2024. Subsequently, the petitioner had filed his 2nd reply dated 14.03.2024 along with a copy of the 1st reply dated 25.01.2024. Thereafter, without providing any opportunity of personal hearing, the respondent had passed the impugned order dated 22.04.2024, which is contrary to the provisions of Section 75(4) of the GST Act, 2017.
Conclusion - The impugned order was passed in violation of principles of natural justice without providing any proper opportunity to the petitioner. In such view of the matter, this Court is inclined to set aside the impugned order dated 22.04.2024 passed by the respondent.
Petition disposed off by way of remand.
Challenge to impugned cancellation of GST Registration Order - HELD THAT:- The issue stands covered by a series of judgments, commencing with the decision in Tvl. Suguna Cutpiece Center Vs. Appellate Deputy Commissioner (ST) (GST) and others [2022 (2) TMI 933 - MADRAS HIGH COURT], wherein, under identical circumstances, this Court has directed the revocation of registration subject to conditions.
The benefit extended by this Court vide its earlier order in Suguna Cutpiece Centre's case, may be extended to the petitioner.
Petition disposed off.
Challenge to impugned cancellation of GST Registration Order - HELD THAT:- The issue stands covered by a series of judgments, commencing with the decision in Tvl. Suguna Cutpiece Center Vs. Appellate Deputy Commissioner (ST) (GST) and others [2022 (2) TMI 933 - MADRAS HIGH COURT], wherein, under identical circumstances, this Court has directed the revocation of registration subject to conditions.
The benefit extended by this Court vide its earlier order in Suguna Cutpiece Centre's case, may be extended to the petitioner.
Petition disposed off.
Direction for compliance of the Order Passed by the Hon'ble High Court of Haryana and Punjab - refund the amount deposited by the Petitioner - HELD THAT:- There are no justification to entertain this instant writ petition which shall stand disposed of with liberty reserved to the writ petitioner to initiate such proceedings as may be permissible in law, if it be its case that the judgment of that High Court has not been complied with.
Direction for compliance of the Order Passed by the Hon'ble High Court of Haryana and Punjab - refund the amount deposited by the Petitioner - HELD THAT:- There are no justification to entertain this instant writ petition which shall stand disposed of with liberty reserved to the writ petitioner to initiate such proceedings as may be permissible in law, if it be its case that the judgment of that High Court has not been complied with.
Cancellation of GST registration of the petitioner - non filing of the GST return for a continuous period of six months - petitioner is ready to make the payment towards GST return for a period of six months as well as the penalty, if any, imposed by the respondent-department - HELD THAT:- In view of the consensus between the parties, the matter is covered by the order passed in SUNIL SAH VERSUS UNION OF INDIA [2024 (9) TMI 904 - UTTARAKHAND HIGH COURT], the present writ petition is also decided in terms of the said order. The petitioner shall be at liberty to move an application for revocation or cancellation of the order under Section 30(2) of the CGST Act, 2017, within two weeks.
Petition disposed off.
Cancellation of GST registration of the petitioner - non filing of the GST return for a continuous period of six months - petitioner is ready to make the payment towards GST return for a period of six months as well as the penalty, if any, imposed by the respondent-department - HELD THAT:- In view of the consensus between the parties, the matter is covered by the order passed in SUNIL SAH VERSUS UNION OF INDIA [2024 (9) TMI 904 - UTTARAKHAND HIGH COURT], the present writ petition is also decided in terms of the said order. The petitioner shall be at liberty to move an application for revocation or cancellation of the order under Section 30(2) of the CGST Act, 2017, within two weeks.
Petition disposed off.
The core legal questions considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS
Classification of PVC Raincoats
Relevant Legal Framework and Precedents
The classification issue hinges on the interpretative provisions of the Customs Tariff Act, 1975, and the explanatory notes under CGST Notification 01/2017 - Central Tax (Rate). The applicant relied on the Customs Authority for Advance Rulings (CAAR) decision in NZ Seasonal Wear Pvt. Ltd., which classified similar PVC raincoats under HSN Code 6201 as textile garments.
Court's Interpretation and Reasoning
The Authority examined the definitions and characteristics of textiles and plastics. It noted that PVC is a synthetic polymer known for its durability and water resistance, often used in raincoats. The Authority considered the manufacturing process of PVC raincoats, which involves thermal or chemical bonding rather than traditional stitching, to maintain waterproof integrity.
Key Evidence and Findings
The applicant argued that PVC raincoats, although made from synthetic materials, should be classified as textile garments due to their function as apparel. They cited the CAAR ruling and judicial precedents supporting the classification of such garments under HSN Code 6201.
Application of Law to Facts
The Authority analyzed the manufacturing process of PVC raincoats and the characteristics of PVC sheets. It found that PVC sheets are not considered woven fabrics and thus do not qualify as textile materials under Chapter 62. The Authority also noted the exclusionary provisions in Chapter 39, which exclude textile articles from being classified as plastics.
Treatment of Competing Arguments
The applicant's argument for classification under HSN Code 6201 was based on the functional characteristics of raincoats as apparel. However, the Authority emphasized the material composition and manufacturing process, which align more closely with the definition of plastics under Chapter 39.
Conclusions
The Authority concluded that PVC raincoats should be classified under HSN Code 3926 as articles of plastic, given their material composition and manufacturing process.
Applicable GST Rate
Relevant Legal Framework
The GST rate for PVC raincoats is determined by the classification under the HSN Code. The applicant argued for a 5% GST rate if classified under HSN Code 6201 and priced below Rs. 1000.
Court's Interpretation and Reasoning
Since the Authority classified PVC raincoats under HSN Code 3926, it referred to the applicable GST rate for plastic articles, which is 18% as per entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate).
Conclusions
The Authority ruled that PVC raincoats attract a GST rate of 18% under HSN Code 3926.
SIGNIFICANT HOLDINGS
Core Principles Established
Final Determinations on Each Issue
The Authority determined that PVC raincoats are classified under HSN Code 3926 as articles of plastic and attract a GST rate of 18%.
Classification of goods - PVC raincoats - to be classified as plastic (HSN Code 3926) or textile (HSN Code 6201) items under GST? - GST rate of PVC raincoat - If the price of PVC raincoat comes under Rs. 1000/- then does it attract 5% tax on it? - HELD THAT:- Hon’ble Supreme Court in case of Commercial Tax Officer v Binani Cement Ltd [2014 (3) TMI 905 - SUPREME COURT] emphasized on latin maxim of generalia specialibus non derogant i.e, general law yields to special law when operate in the same field on same subject. In the case in hand, there can be no denying that the only function of using raincoat is to take shield from rain and therefore, it is used as garment/apparel in common parlance.
PVC sheet cannot be regarded as a woven fabric. Even in common parlance, the item PVC sheet is not considered as textile materials. The contention of the applicant canot be accepted that the item PVC raincoat would be classified under HSN 6201 40 10 since to qualify to be an item under chapter 62, it must be an article of textile fabric. It is not disputed that the item PVC raincoat, in common parlance, is known as apparel. The item being an apparel, which is primarily composed of polyvinyl chloride (PVC), would be classified under HSN 3926 20 as Articles of apparel and clothing accessories (including gloves, mittens and mitts).
Conclusion - Supply of PVC raincoat as manufactured by the applicant would be covered under Heading 3926 and would attract tax @ 18% vide entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 [corresponding West Bengal State Notification No.1125 F.T. dated 28.06.2017], as amended.
Classification of goods - PVC raincoats - to be classified as plastic (HSN Code 3926) or textile (HSN Code 6201) items under GST? - GST rate of PVC raincoat - If the price of PVC raincoat comes under Rs. 1000/- then does it attract 5% tax on it? - HELD THAT:- Hon’ble Supreme Court in case of Commercial Tax Officer v Binani Cement Ltd [2014 (3) TMI 905 - SUPREME COURT] emphasized on latin maxim of generalia specialibus non derogant i.e, general law yields to special law when operate in the same field on same subject. In the case in hand, there can be no denying that the only function of using raincoat is to take shield from rain and therefore, it is used as garment/apparel in common parlance.
PVC sheet cannot be regarded as a woven fabric. Even in common parlance, the item PVC sheet is not considered as textile materials. The contention of the applicant canot be accepted that the item PVC raincoat would be classified under HSN 6201 40 10 since to qualify to be an item under chapter 62, it must be an article of textile fabric. It is not disputed that the item PVC raincoat, in common parlance, is known as apparel. The item being an apparel, which is primarily composed of polyvinyl chloride (PVC), would be classified under HSN 3926 20 as Articles of apparel and clothing accessories (including gloves, mittens and mitts).
Conclusion - Supply of PVC raincoat as manufactured by the applicant would be covered under Heading 3926 and would attract tax @ 18% vide entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 [corresponding West Bengal State Notification No.1125 F.T. dated 28.06.2017], as amended.
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Classification of PVC Raincoats
Relevant legal framework and precedents:
The classification of goods under GST is guided by the Customs Tariff Act, 1975, and the corresponding GST notifications. The interpretative rules and chapter notes of the Customs Tariff Act are crucial in determining the classification. The applicant relies on the Customs Authority for Advance Rulings (CAAR) decision in NZ Seasonal Wear Pvt. Ltd., which classified similar PVC raincoats under HSN Code 6201 as textile articles.
Court's interpretation and reasoning:
The Authority analyzed the manufacturing process of PVC raincoats, which involves using polyvinyl chloride (PVC), a synthetic polymer, to create a non-woven, seamless garment through thermal or chemical bonding. The Authority considered the applicant's argument that PVC raincoats should be classified as textile articles due to their function as garments and the precedent set by CAAR.
Key evidence and findings:
The Authority examined the definition of "textiles" and "plastics" as per the Customs Tariff Act and GST notifications. It noted that PVC, being a synthetic polymer, is generally classified under plastics. The manufacturing process and the nature of PVC as a material were crucial in the Authority's analysis.
Application of law to facts:
The Authority applied the legal definitions and chapter notes to the facts of the case, focusing on the nature of PVC as a material and its typical classification under plastics. The Authority also considered the exclusionary provisions in Chapter 39, which exclude textile articles from being classified as plastics.
Treatment of competing arguments:
The applicant argued for classification under HSN Code 6201 based on the function and commercial understanding of raincoats as garments. The Revenue contended that PVC, being a synthetic polymer, should be classified under plastics, HSN Code 3926. The Authority evaluated both positions, considering the material composition and the function of the raincoats.
Conclusions:
The Authority concluded that PVC raincoats should be classified as plastic articles under HSN Code 3926. It emphasized that the primary material, PVC, is a synthetic polymer classified under plastics, and the manufacturing process does not align with traditional textile production.
Determination of GST Rate
Relevant legal framework and precedents:
The GST rate is determined based on the classification of goods. The applicant argued for a 5% GST rate under HSN Code 6201, while the Revenue suggested an 18% rate under HSN Code 3926.
Court's interpretation and reasoning:
Given the classification under HSN Code 3926, the Authority referred to the relevant GST notifications and schedules to determine the applicable tax rate.
Key evidence and findings:
The Authority examined the GST schedules and notifications, particularly Entry No. 111 of Schedule III of Notification No. 01/2017-Central Tax (Rate), which specifies the tax rate for plastic articles.
Application of law to facts:
Based on the classification under HSN Code 3926, the Authority applied the GST rate specified for plastic articles in the relevant notification.
Treatment of competing arguments:
The Authority considered the applicant's argument for a lower tax rate based on classification as a textile article but ultimately found the classification under plastics more appropriate.
Conclusions:
The Authority ruled that PVC raincoats, classified under HSN Code 3926, attract an 18% GST rate as per the relevant notification.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
The Authority emphasized, "Supply of PVC raincoat as manufactured by the applicant would be covered under Heading 3926 and would attract tax @ 18% vide entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017."
Core principles established:
The classification of goods under GST should adhere to the material composition and manufacturing process as guided by the Customs Tariff Act and GST notifications. The specific classification of synthetic polymers like PVC under plastics takes precedence over functional arguments for classification as textile articles.
Final determinations on each issue:
Classification of goods - PVC raincoats - to be classified as plastic (HSN Code 3926) or textile (HSN Code 6201) items under GST? - GST rate of PVC raincoat - If the price of PVC raincoat comes under Rs. 1000/- then does it attract 5% tax on it? - HELD THAT:- Hon’ble Supreme Court in case of Commercial Tax Officer v Binani Cement Ltd [2014 (3) TMI 905 - SUPREME COURT] emphasized on latin maxim of generalia specialibus non derogant i.e, general law yields to special law when operate in the same field on same subject. In the case in hand, there can be no denying that the only function of using raincoat is to take shield from rain and therefore, it is used as garment/apparel in common parlance.
PVC sheet cannot be regarded as a woven fabric. Even in common parlance, the item PVC sheet is not considered as textile materials. The contention of the applicant canot be accepted that the item PVC raincoat would be classified under HSN 6201 40 10 since to qualify to be an item under chapter 62, it must be an article of textile fabric. It is not disputed that the item PVC raincoat, in common parlance, is known as apparel. The item being an apparel, which is primarily composed of polyvinyl chloride (PVC), would be classified under HSN 3926 20 as Articles of apparel and clothing accessories (including gloves, mittens and mitts).
Conclusion - Supply of PVC raincoat as manufactured by the applicant would be covered under Heading 3926 and would attract tax @ 18% vide entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 [corresponding West Bengal State Notification No.1125 F.T. dated 28.06.2017], as amended.
Classification of goods - PVC raincoats - to be classified as plastic (HSN Code 3926) or textile (HSN Code 6201) items under GST? - GST rate of PVC raincoat - If the price of PVC raincoat comes under Rs. 1000/- then does it attract 5% tax on it? - HELD THAT:- Hon’ble Supreme Court in case of Commercial Tax Officer v Binani Cement Ltd [2014 (3) TMI 905 - SUPREME COURT] emphasized on latin maxim of generalia specialibus non derogant i.e, general law yields to special law when operate in the same field on same subject. In the case in hand, there can be no denying that the only function of using raincoat is to take shield from rain and therefore, it is used as garment/apparel in common parlance.
PVC sheet cannot be regarded as a woven fabric. Even in common parlance, the item PVC sheet is not considered as textile materials. The contention of the applicant canot be accepted that the item PVC raincoat would be classified under HSN 6201 40 10 since to qualify to be an item under chapter 62, it must be an article of textile fabric. It is not disputed that the item PVC raincoat, in common parlance, is known as apparel. The item being an apparel, which is primarily composed of polyvinyl chloride (PVC), would be classified under HSN 3926 20 as Articles of apparel and clothing accessories (including gloves, mittens and mitts).
Conclusion - Supply of PVC raincoat as manufactured by the applicant would be covered under Heading 3926 and would attract tax @ 18% vide entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 [corresponding West Bengal State Notification No.1125 F.T. dated 28.06.2017], as amended.
The core legal questions presented and considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Classification of PVC Raincoats
Relevant Legal Framework and Precedents:
The classification of goods under the GST regime is guided by the Customs Tariff Act, 1975, and the CGST Notification 01/2017 - Central Tax (Rate). The interpretative provisions of the Customs Tariff Act, including section notes and chapter notes, are binding for determining GST classifications. The applicant relied on a ruling by the Customs Authority for Advance Rulings (CAAR) in the case of NZ Seasonal Wear Pvt. Ltd., which classified similar PVC raincoats under HSN Code 6201.
Court's Interpretation and Reasoning:
The Authority analyzed the manufacturing process and material composition of PVC raincoats, emphasizing that PVC is a synthetic polymer. The Authority considered the definition of textiles and plastics, examining whether PVC raincoats could be classified as textile articles. The Authority referred to previous judicial precedents, including the Supreme Court's decisions in Porritts & Spencer (Asia) Ltd. and Bengal Waterproof Ltd., which addressed the classification of textile and non-textile materials.
Key Evidence and Findings:
The applicant argued that PVC raincoats, despite being made from synthetic polymer, should be classified as textile articles based on their function and the precedent set by the CAAR ruling. The applicant provided a detailed manufacturing process, highlighting the use of thermal or chemical bonding to create a seamless, non-woven structure.
Application of Law to Facts:
The Authority examined the manufacturing process of PVC sheets and concluded that PVC sheets cannot be regarded as woven fabric. The Authority noted that, in common parlance, PVC sheets are not considered textile materials. Therefore, the Authority determined that PVC raincoats should be classified under HSN Code 3926 as articles of plastic.
Treatment of Competing Arguments:
The applicant's argument for classification under HSN Code 6201 was based on the functional characteristics and commercial practices of PVC raincoats. However, the Authority emphasized the material composition of PVC as a synthetic polymer and the explicit exclusions in Chapter 39 of the Customs Tariff.
Conclusions:
The Authority concluded that PVC raincoats, being primarily composed of polyvinyl chloride, should be classified under HSN Code 3926 as articles of plastic. This classification aligns with the material composition and the statutory framework provided by the Customs Tariff Act.
Applicable GST Rate for PVC Raincoats
Relevant Legal Framework and Precedents:
The applicable GST rate is determined by the Schedule provided in CGST Notification 01/2017 - Central Tax (Rate). The notification specifies the GST rates for different goods, with classifications guided by the Customs Tariff Act.
Court's Interpretation and Reasoning:
The Authority referred to entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate), which specifies the GST rate for plastic articles under heading 3926.
Key Evidence and Findings:
The Authority found that PVC raincoats, classified under HSN Code 3926, fall under the category of "Other articles of plastics and articles of other materials of heading 3901 to 3904," attracting a GST rate of 18%.
Application of Law to Facts:
Based on the classification of PVC raincoats under HSN Code 3926, the Authority determined that the applicable GST rate is 18%, as specified in the notification.
Conclusions:
The Authority concluded that the supply of PVC raincoats, as manufactured by the applicant, would attract a GST rate of 18% under entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate).
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
"Supply of PVC raincoat as manufactured by the applicant would be covered under Heading 3926 and would attract tax @ 18% vide entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017."
Core Principles Established:
The classification of goods under the GST regime is guided by the material composition and statutory framework provided by the Customs Tariff Act. The explicit exclusions in the chapter notes of the Customs Tariff are crucial in determining the appropriate classification.
Final Determinations on Each Issue:
PVC raincoats are classified as articles of plastic under HSN Code 3926, attracting a GST rate of 18% as per the relevant notification.
Classification of goods - PVC raincoats - to be classified as plastic (HSN Code 3926) or textile (HSN Code 6201) items under GST? - GST rate of PVC raincoat - If the price of PVC raincoat comes under Rs. 1000/- then does it attract 5% tax on it? - HELD THAT:- Hon’ble Supreme Court in case of Commercial Tax Officer v Binani Cement Ltd [2014 (3) TMI 905 - SUPREME COURT] emphasized on latin maxim of generalia specialibus non derogant i.e, general law yields to special law when operate in the same field on same subject. In the case in hand, there can be no denying that the only function of using raincoat is to take shield from rain and therefore, it is used as garment/apparel in common parlance.
PVC sheet cannot be regarded as a woven fabric. Even in common parlance, the item PVC sheet is not considered as textile materials. The contention of the applicant canot be accepted that the item PVC raincoat would be classified under HSN 6201 40 10 since to qualify to be an item under chapter 62, it must be an article of textile fabric. It is not disputed that the item PVC raincoat, in common parlance, is known as apparel. The item being an apparel, which is primarily composed of polyvinyl chloride (PVC), would be classified under HSN 3926 20 as Articles of apparel and clothing accessories (including gloves, mittens and mitts).
Conclusion - Supply of PVC raincoat as manufactured by the applicant would be covered under Heading 3926 and would attract tax @ 18% vide entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 [corresponding West Bengal State Notification No.1125 F.T. dated 28.06.2017], as amended.
Classification of goods - PVC raincoats - to be classified as plastic (HSN Code 3926) or textile (HSN Code 6201) items under GST? - GST rate of PVC raincoat - If the price of PVC raincoat comes under Rs. 1000/- then does it attract 5% tax on it? - HELD THAT:- Hon’ble Supreme Court in case of Commercial Tax Officer v Binani Cement Ltd [2014 (3) TMI 905 - SUPREME COURT] emphasized on latin maxim of generalia specialibus non derogant i.e, general law yields to special law when operate in the same field on same subject. In the case in hand, there can be no denying that the only function of using raincoat is to take shield from rain and therefore, it is used as garment/apparel in common parlance.
PVC sheet cannot be regarded as a woven fabric. Even in common parlance, the item PVC sheet is not considered as textile materials. The contention of the applicant canot be accepted that the item PVC raincoat would be classified under HSN 6201 40 10 since to qualify to be an item under chapter 62, it must be an article of textile fabric. It is not disputed that the item PVC raincoat, in common parlance, is known as apparel. The item being an apparel, which is primarily composed of polyvinyl chloride (PVC), would be classified under HSN 3926 20 as Articles of apparel and clothing accessories (including gloves, mittens and mitts).
Conclusion - Supply of PVC raincoat as manufactured by the applicant would be covered under Heading 3926 and would attract tax @ 18% vide entry no. 111 of Schedule-III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 [corresponding West Bengal State Notification No.1125 F.T. dated 28.06.2017], as amended.
Supply of goods/services - sale of assets by the Liquidator - whether the Liquidator must obtain GST registration? - HELD THAT:- Notification nos. 11/2020-Central Tax dated 21.03.2020 & 39/2020-Central Tax dated 05.05.2020 were issued, which seeks to provide special procedure for corporate debtors undergoing the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.
As per the said Notification, the Government, has notified those registered persons, who are corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), undergoing the corporate insolvency resolution process and the management of whose affairs are being undertaken by interim resolution professionals (IRP) or resolution professionals (RP), as the class of persons who shall follow special procedure as prescribed therein, from the date of the appointment of the IRP/RP till the period they undergo the corporate insolvency resolution process.
The West Bengal Authority for Advance Ruling has given a ruling vide in the case of Mansi Oils and Grains Pvt. Ltd. [2020 (7) TMI 141 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL] that the sale of the assets of the applicant by NCLT appointed liquidator is a supply of goods by the liquidator, who is required to take registration under section 24 of the GST Act.
Conclusion - i) Any sale of assets of the company Maheshwary Ispat Limited which is in liquidation, done by the Liquidator of the company results in a supply of goods and/or services or both within the meaning of “supply” as defined under section 7 of the CGST Act 2017. ii) The Liquidator who is an insolvency professional being appointed by the Hon’ble NCLT Kolkata Bench as a liquidator, is required to obtain GST registration in terms of Section 24 of the CGST Act, 2017 and WBGST Act 2017 read together with the Notification no. 11/2020-Central Tax dated 21-March-2020 and Notification no. 439-F.Tdated 03-April 2020, issued under the WBGST Act, 2017.
Supply of goods/services - sale of assets by the Liquidator - whether the Liquidator must obtain GST registration? - HELD THAT:- Notification nos. 11/2020-Central Tax dated 21.03.2020 & 39/2020-Central Tax dated 05.05.2020 were issued, which seeks to provide special procedure for corporate debtors undergoing the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.
As per the said Notification, the Government, has notified those registered persons, who are corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), undergoing the corporate insolvency resolution process and the management of whose affairs are being undertaken by interim resolution professionals (IRP) or resolution professionals (RP), as the class of persons who shall follow special procedure as prescribed therein, from the date of the appointment of the IRP/RP till the period they undergo the corporate insolvency resolution process.
The West Bengal Authority for Advance Ruling has given a ruling vide in the case of Mansi Oils and Grains Pvt. Ltd. [2020 (7) TMI 141 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL] that the sale of the assets of the applicant by NCLT appointed liquidator is a supply of goods by the liquidator, who is required to take registration under section 24 of the GST Act.
Conclusion - i) Any sale of assets of the company Maheshwary Ispat Limited which is in liquidation, done by the Liquidator of the company results in a supply of goods and/or services or both within the meaning of “supply” as defined under section 7 of the CGST Act 2017. ii) The Liquidator who is an insolvency professional being appointed by the Hon’ble NCLT Kolkata Bench as a liquidator, is required to obtain GST registration in terms of Section 24 of the CGST Act, 2017 and WBGST Act 2017 read together with the Notification no. 11/2020-Central Tax dated 21-March-2020 and Notification no. 439-F.Tdated 03-April 2020, issued under the WBGST Act, 2017.
1. Issues Presented and Considered
The primary issues considered were:
2. Issue-Wise Detailed Analysis
Issue 1: Invocation of Section 263 by PCIT
The PCIT invoked Section 263, arguing that the assessment order was erroneous and prejudicial to the revenue because the AO failed to verify the sources of additional income disclosed during the survey. The PCIT contended that the income should have been taxed under Sections 69 and 69A, leading to a higher tax rate under Section 115BBE.
Relevant Legal Framework and Precedents:
Court's Interpretation and Reasoning:
Key Evidence and Findings:
Application of Law to Facts:
Issue 2: Taxability of Additional Income
The PCIT argued that the additional income should be taxed under Sections 69 and 69A, leading to a higher tax rate under Section 115BBE. The assessee contended that the income was from business activities and should be taxed as business income.
Relevant Legal Framework and Precedents:
Court's Interpretation and Reasoning:
Key Evidence and Findings:
Application of Law to Facts:
3. Significant Holdings
The Tribunal held that the PCIT's invocation of Section 263 was not justified as the AO conducted adequate inquiries and applied a plausible view. The Tribunal emphasized that:
The Tribunal quashed the PCIT's order under Section 263, upholding the AO's assessment order. The decision underscores the importance of adequate inquiries and the AO's discretion in adopting a plausible view when assessing income.
Revision u/s 263 - assessee was surveyed and he surrendered a sum comprising of undisclosed debtors, excess cash found and unaccounted construction - HELD THAT:- PCIT has to be satisfied the twin conditions, namely the order of the AO sought to be revised is erroneous; and it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked.
While filling the return of income assessee has admitted the additional income disclosed in the survey proceedings. While conducting the assessment proceeding the AO initiated a specific enquiry to the assessee and a show cause notice was issued proposing the variation in the assessment asking the assessee-appellant as to why the provision of section 115BBE should not be applied vide notice dated 24.09.2021.
There is not the case of the revenue that the assessing officer has not raised the issue and has not conducted any enquiry, but while doing so he has applied his mind and taken a plausible view on the matter. That view so taken being not erroneous and prejudicial ld. PCIT merely cannot impose her view that the ld. AO should have considered that income so offered u/s 69 as Unexplained Investment for Rs. 66,50,000 (45,50,000+21,00,000) and Rs. 9,50,000/- (Unexplained Money) u/s 69A of the Act.
It is noted that even the amendment [i.e.Expl. 2(a)] does not confer blind powers and it is held that despite there being an amendment, enlarging the scope of the revisionary power of the ld. PCIT u/s 263 to some extent, it cannot justify the invoking of the Expl. 2(a) in the facts of the present case.
Thus, it is not at all a case where the subjected assessment should be alleged to be erroneous in so far as prejudicial to the interests of the revenue. There is neither error of law nor of facts. There is no erroneous assumption by the AO of either the facts or of law, as alleged by the ld. PCIT. Decided in favour of assessee.
Revision u/s 263 - assessee was surveyed and he surrendered a sum comprising of undisclosed debtors, excess cash found and unaccounted construction - HELD THAT:- PCIT has to be satisfied the twin conditions, namely the order of the AO sought to be revised is erroneous; and it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked.
While filling the return of income assessee has admitted the additional income disclosed in the survey proceedings. While conducting the assessment proceeding the AO initiated a specific enquiry to the assessee and a show cause notice was issued proposing the variation in the assessment asking the assessee-appellant as to why the provision of section 115BBE should not be applied vide notice dated 24.09.2021.
There is not the case of the revenue that the assessing officer has not raised the issue and has not conducted any enquiry, but while doing so he has applied his mind and taken a plausible view on the matter. That view so taken being not erroneous and prejudicial ld. PCIT merely cannot impose her view that the ld. AO should have considered that income so offered u/s 69 as Unexplained Investment for Rs. 66,50,000 (45,50,000+21,00,000) and Rs. 9,50,000/- (Unexplained Money) u/s 69A of the Act.
It is noted that even the amendment [i.e.Expl. 2(a)] does not confer blind powers and it is held that despite there being an amendment, enlarging the scope of the revisionary power of the ld. PCIT u/s 263 to some extent, it cannot justify the invoking of the Expl. 2(a) in the facts of the present case.
Thus, it is not at all a case where the subjected assessment should be alleged to be erroneous in so far as prejudicial to the interests of the revenue. There is neither error of law nor of facts. There is no erroneous assumption by the AO of either the facts or of law, as alleged by the ld. PCIT. Decided in favour of assessee.
The primary issues considered in this legal judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Unexplained Money under Section 69A
Issue 2: Addition on Account of Excess Stock
Issue 3: Applicability of Section 115BBE
Issue 4: Procedural Adherence to Section 144B
Issue 5: Imposition of Interest under Sections 234A, 234B, and 234C
3. SIGNIFICANT HOLDINGS
Unexplained money u/s 69A - additions made on account of the cash found from the possession of employee - HELD THAT:-Considering the facts and circumstances of the case and also the retraction made by the assessee from his earlier statement recorded u/s 131 the version of the assessee was not found acceptable and therefore, it is considered that the amount found from the possession of Shri Shyam Singh Rathore and belongs to Shri Turab Ali Bohra was considered as unexplained money of Shri Turab Ali Bohra for which he has not been able to satisfactorily prove the sources thereof. Accordingly, an addition was made to the total income of the assessee on substantive basis by considering the same as his unexplained money u/s 69A r.w.s. 115BBE of the I.T. Act, 1961 and brought to tax accordingly.
Assessee though retracted from the statement, and he has filed the details relating to the claim and substantiated his case to support the cash found in possession of the employee of the assessee - DR objected that since these records are not discussed or verified the relief cannot be granted to the assessee without being confronted to the assessee on the material placed on the record - In light of this set of facts before us, we deem it fit to restore the matter to verify the contention that has been made by the assessee with that of the statement recorded at the time of survey.
AO will verify the contentions of the cash sales made by the assessee and consequential collection of cash from that collection centre is requires in depth verification. Therefore, we deem it fit in the interest of justice to restore the matter to the file of ld. AO who will verify the contentions raised at the time of assessment which though contrary to the statement recorded at the time of survey. Ground allowed for statistical purposes.
Addition being the amount of excess stock found at the premises of the assessee, during survey proceedings - During hearing of the present appeal when the details of difference of stock and the inventory prepared at the time of survey was requested to be placed on record. But both the parties did not consider it fit to place on record that as to how the difference is arrived whether it is on account of quantity difference or on account of valuation difference. Considering that peculiar facts being not available before us we deem it fit to restore the matter before ld. AO who will justify the addition after discussing the reasons of difference and after affording due to opportunity to the assessee to explain the difference. Based on these observations, ground No. 3 raised by the assessee is allowed for statistical purposes.
Charging a special rate of tax on account of provisions of section 115BBE - Since we restore the matter of dispute to the file of ld. Assessing Officer on merits, so obviously the levy of tax being consequential in nature will depend upon the finding of the ld. AO.
Unexplained money u/s 69A - additions made on account of the cash found from the possession of employee - HELD THAT:-Considering the facts and circumstances of the case and also the retraction made by the assessee from his earlier statement recorded u/s 131 the version of the assessee was not found acceptable and therefore, it is considered that the amount found from the possession of Shri Shyam Singh Rathore and belongs to Shri Turab Ali Bohra was considered as unexplained money of Shri Turab Ali Bohra for which he has not been able to satisfactorily prove the sources thereof. Accordingly, an addition was made to the total income of the assessee on substantive basis by considering the same as his unexplained money u/s 69A r.w.s. 115BBE of the I.T. Act, 1961 and brought to tax accordingly.
Assessee though retracted from the statement, and he has filed the details relating to the claim and substantiated his case to support the cash found in possession of the employee of the assessee - DR objected that since these records are not discussed or verified the relief cannot be granted to the assessee without being confronted to the assessee on the material placed on the record - In light of this set of facts before us, we deem it fit to restore the matter to verify the contention that has been made by the assessee with that of the statement recorded at the time of survey.
AO will verify the contentions of the cash sales made by the assessee and consequential collection of cash from that collection centre is requires in depth verification. Therefore, we deem it fit in the interest of justice to restore the matter to the file of ld. AO who will verify the contentions raised at the time of assessment which though contrary to the statement recorded at the time of survey. Ground allowed for statistical purposes.
Addition being the amount of excess stock found at the premises of the assessee, during survey proceedings - During hearing of the present appeal when the details of difference of stock and the inventory prepared at the time of survey was requested to be placed on record. But both the parties did not consider it fit to place on record that as to how the difference is arrived whether it is on account of quantity difference or on account of valuation difference. Considering that peculiar facts being not available before us we deem it fit to restore the matter before ld. AO who will justify the addition after discussing the reasons of difference and after affording due to opportunity to the assessee to explain the difference. Based on these observations, ground No. 3 raised by the assessee is allowed for statistical purposes.
Charging a special rate of tax on account of provisions of section 115BBE - Since we restore the matter of dispute to the file of ld. Assessing Officer on merits, so obviously the levy of tax being consequential in nature will depend upon the finding of the ld. AO.
Maintainability of appeal before Supreme court on low tax effect - TP Adjustment - MAM for Royalty payment - TNMM or CUP - as decided by HC [2023 (8) TMI 458 - BOMBAY HIGH COURT] wherein as concur with Appellant that having accepted the TNMM method as the most appropriate, it was not open to the TPO to subject only one element, i.e, payment of royalty, to an entirely different CUP method.
HELD THAT:- It is stated that the tax effect is less than ₹5 crores; hence, the Revenue would not press the present special leave petition.
In view of the statement made, the special leave petition is dismissed as not pressed, leaving the question(s) of law open.
In view of the aforesaid order, we are not examining the application for condonation of the delay.
Maintainability of appeal before Supreme court on low tax effect - TP Adjustment - MAM for Royalty payment - TNMM or CUP - as decided by HC [2023 (8) TMI 458 - BOMBAY HIGH COURT] wherein as concur with Appellant that having accepted the TNMM method as the most appropriate, it was not open to the TPO to subject only one element, i.e, payment of royalty, to an entirely different CUP method.
HELD THAT:- It is stated that the tax effect is less than ₹5 crores; hence, the Revenue would not press the present special leave petition.
In view of the statement made, the special leave petition is dismissed as not pressed, leaving the question(s) of law open.
In view of the aforesaid order, we are not examining the application for condonation of the delay.
Refusal to condone the delay in filing income tax returns - no reply to notice of defective return promptly - as submitted financial position of the Petitioner company is not quite strong, and the business activities suffered considerably due to the Covid pandemic and submitted that the Petitioner had candidly disclosed that a part-time accountant received the intimation of the notice of defective return, but the same was not brought to the notice of the directors for a considerable time
HELD THAT:- The records show that this is a case where the Petitioner had filed the returns within the prescribed period. However, the returns were found to be defective, and the Petitioner was informed of the defective return. However, for reasons the Petitioner attributes to the part-time account, such intimation was not addressed, resulting in the delay. The explanation offered does not smack of any mala fides. Mr Jose Pulikkoden pointed out that earlier there used to be delays in granting refunds. Therefore, the Petitioner bona fide believed that the refund issue was pending with the department. Only at the later stage, when enquiries were made, it was realised that the matter was pending due to non-clearance of the defects in the returns as may have been pointed out to the Petitioner.
Considering the explanation and the statement that no interest would be claimed if a refund is allowed, the delay deserves to be condoned. Mr Jose Pulikoden pointed out that, according to the Petitioner, the refunds would be in the range of Rs. 5,65,000/-. He submitted that this refund means much to the Petitioner company, which is presently in reduced financial circumstances.
Accordingly, we are inclined to allow condonation. As submited that the Petitioners do not have a copy of the defect notice. Accordingly, we direct the Respondents to furnish a copy of the defect notice to the Petitioner within two weeks of uploading this order. The return so filed after clearing the defects pointed out should be scrutinised by issuing notice u/s 143 (2) and making an assessment u/s 143 of the Income Tax.
Refusal to condone the delay in filing income tax returns - no reply to notice of defective return promptly - as submitted financial position of the Petitioner company is not quite strong, and the business activities suffered considerably due to the Covid pandemic and submitted that the Petitioner had candidly disclosed that a part-time accountant received the intimation of the notice of defective return, but the same was not brought to the notice of the directors for a considerable time
HELD THAT:- The records show that this is a case where the Petitioner had filed the returns within the prescribed period. However, the returns were found to be defective, and the Petitioner was informed of the defective return. However, for reasons the Petitioner attributes to the part-time account, such intimation was not addressed, resulting in the delay. The explanation offered does not smack of any mala fides. Mr Jose Pulikkoden pointed out that earlier there used to be delays in granting refunds. Therefore, the Petitioner bona fide believed that the refund issue was pending with the department. Only at the later stage, when enquiries were made, it was realised that the matter was pending due to non-clearance of the defects in the returns as may have been pointed out to the Petitioner.
Considering the explanation and the statement that no interest would be claimed if a refund is allowed, the delay deserves to be condoned. Mr Jose Pulikoden pointed out that, according to the Petitioner, the refunds would be in the range of Rs. 5,65,000/-. He submitted that this refund means much to the Petitioner company, which is presently in reduced financial circumstances.
Accordingly, we are inclined to allow condonation. As submited that the Petitioners do not have a copy of the defect notice. Accordingly, we direct the Respondents to furnish a copy of the defect notice to the Petitioner within two weeks of uploading this order. The return so filed after clearing the defects pointed out should be scrutinised by issuing notice u/s 143 (2) and making an assessment u/s 143 of the Income Tax.
Final assessment order u/s 143 (3) r.w.s. 144C (3) along with consequential notices of demand - Petitioner lodged objections to the draft order but failed to inform the assessing officer about the objections being filed before the DRP. Consequently, the final assessment order was made - HELD THAT:- We are inclined to set aside the impugned order and remit the matter to the DRP. The facts, in this case, are comparable in Sulzer Pumps India Private Limited [2021 (12) TMI 891 - BOMBAY HIGH COURT] where, a Coordinate Bench of this Court, after recording that the assessing officer was not at fault still, granted the assessee in the same matter an additional opportunity since factually, objections had been filed with DRP, and such objections were pending. The relief in Sulzer Pumps (supra) was granted based on facts like those in the present case. Therefore, it is not as if the Sulzer Pumps (supra) or this order is a precedent for exercising discretion in every matter of this nature, irrespective of the factual position.
At the same time, we also agree that the assessing officer who made the impugned assessment order in this case was not at fault because there was no intimation by the Petitioner about the pendency of objections before the DRP. Though, in the peculiar facts of the present case, which are quite similar to those in Sulzer Pumps (supra) we are indulging the Petitioner, it is only appropriate that the Petitioner, for her lapse, she pays costs of Rs. 10,000/- favouring the High Court employees medical welfare fund at Mumbai.
Final assessment order u/s 143 (3) r.w.s. 144C (3) along with consequential notices of demand - Petitioner lodged objections to the draft order but failed to inform the assessing officer about the objections being filed before the DRP. Consequently, the final assessment order was made - HELD THAT:- We are inclined to set aside the impugned order and remit the matter to the DRP. The facts, in this case, are comparable in Sulzer Pumps India Private Limited [2021 (12) TMI 891 - BOMBAY HIGH COURT] where, a Coordinate Bench of this Court, after recording that the assessing officer was not at fault still, granted the assessee in the same matter an additional opportunity since factually, objections had been filed with DRP, and such objections were pending. The relief in Sulzer Pumps (supra) was granted based on facts like those in the present case. Therefore, it is not as if the Sulzer Pumps (supra) or this order is a precedent for exercising discretion in every matter of this nature, irrespective of the factual position.
At the same time, we also agree that the assessing officer who made the impugned assessment order in this case was not at fault because there was no intimation by the Petitioner about the pendency of objections before the DRP. Though, in the peculiar facts of the present case, which are quite similar to those in Sulzer Pumps (supra) we are indulging the Petitioner, it is only appropriate that the Petitioner, for her lapse, she pays costs of Rs. 10,000/- favouring the High Court employees medical welfare fund at Mumbai.
Rejection of refund application - department’s website indicates that some of the Petitioner’s applications seeking refund have been rejected based on the remarks indicated in the last column - as argued such rejection is arbitrary since there was no compliance with natural justice and the Petitioner was denied the opportunity to show how the Petitioner was entitled to a refund - HELD THAT:- Respondent should have heard the Petitioner before rejecting the refund applications. The rejection of refund applications involves civil consequences, and typically, the principles of natural justice must be complied with. At the hearing, the Petitioner could possibly have been able to explain why the refunds were due, and such refund applications could not have been rejected based upon objections like alleged non-submission of Form-26B etc.
On the above grounds, we set aside the rejection of the Petitioner’s applications seeking a refund.
The matters are remitted to the Respondents for fresh consideration. We also direct the Respondents to decide the Petitioner’s applications for refund after giving the Petitioner and their representative an opportunity to be heard.
Rejection of refund application - department’s website indicates that some of the Petitioner’s applications seeking refund have been rejected based on the remarks indicated in the last column - as argued such rejection is arbitrary since there was no compliance with natural justice and the Petitioner was denied the opportunity to show how the Petitioner was entitled to a refund - HELD THAT:- Respondent should have heard the Petitioner before rejecting the refund applications. The rejection of refund applications involves civil consequences, and typically, the principles of natural justice must be complied with. At the hearing, the Petitioner could possibly have been able to explain why the refunds were due, and such refund applications could not have been rejected based upon objections like alleged non-submission of Form-26B etc.
On the above grounds, we set aside the rejection of the Petitioner’s applications seeking a refund.
The matters are remitted to the Respondents for fresh consideration. We also direct the Respondents to decide the Petitioner’s applications for refund after giving the Petitioner and their representative an opportunity to be heard.
Adjustment of the refund for the assessment year 2024-2025 against the outstanding demand for the assessment year 2011-2012 - alternative submission made by the Petitioner to pay an additional 5 percent of the demand - HELD THAT:- This Court is of the opinion that the alternative submission made by Mr Jain is required to be accepted. The alternative submission being that the Petitioner is ready to pay additional 5 percent of demand for assessment year 2011-2012 so that the total payment would be 20 percent of the demand and since same would be in accordance with the instructions of the CBDT dated 31 July 2017, the balance demand would be stayed.
In our view, this submission is fair, and the same is required to be accepted.
Adjustment of the refund for the assessment year 2024-2025 against the outstanding demand for the assessment year 2011-2012 - alternative submission made by the Petitioner to pay an additional 5 percent of the demand - HELD THAT:- This Court is of the opinion that the alternative submission made by Mr Jain is required to be accepted. The alternative submission being that the Petitioner is ready to pay additional 5 percent of demand for assessment year 2011-2012 so that the total payment would be 20 percent of the demand and since same would be in accordance with the instructions of the CBDT dated 31 July 2017, the balance demand would be stayed.
In our view, this submission is fair, and the same is required to be accepted.
The core legal issue considered in this judgment is whether cross-objections are maintainable in an appeal under Section 260A of the Income Tax Act, 1961. This involves examining the statutory framework of Section 260A, the applicability of the Civil Procedure Code (CPC) provisions, and the legislative intent behind the absence of a specific provision for cross-objections in Section 260A.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
Section 260A of the Income Tax Act provides for appeals to the High Court from orders passed by the Income Tax Appellate Tribunal (ITAT), contingent upon the involvement of a substantial question of law. The provision does not explicitly mention the right to file cross-objections, unlike Section 253(4), which allows for cross-objections at the ITAT stage. The legal question revolves around whether the procedural rules of the CPC, particularly Order XLI Rule 22, which allows cross-objections in appeals, apply to Section 260A appeals.
Court's Interpretation and Reasoning:
The Court analyzed the language of Section 260A and compared it with the CPC provisions. It emphasized that an appeal is a statutory right and must be expressly provided by the statute. The absence of a specific provision for cross-objections in Section 260A, despite its inclusion in Section 253(4), indicates a deliberate legislative choice to exclude cross-objections at the High Court appeal stage. The Court also noted that Section 260A(7) makes CPC provisions applicable only "as far as may be," suggesting limited applicability.
Key Evidence and Findings:
The Court found that Section 260A restricts appeals to substantial questions of law and does not incorporate a provision for cross-objections akin to Order XLI Rule 22 of the CPC. The legislative intent, as discerned from the statutory language and the absence of a cross-objection provision, is to narrow the scope of appeals under Section 260A.
Application of Law to Facts:
The Court applied its interpretation of Section 260A to the facts of the case, where the respondent had filed cross-objections in an appeal under Section 260A. The Court concluded that such cross-objections are not maintainable, as the statutory framework does not support their inclusion at this stage of the appeal process.
Treatment of Competing Arguments:
The respondent argued for the applicability of CPC provisions and the necessity of cross-objections to challenge adverse findings by the Tribunal. However, the Court rejected this argument, emphasizing the statutory silence on cross-objections in Section 260A and the distinct legislative framework compared to the CPC.
Conclusions:
The Court concluded that cross-objections are not maintainable in appeals under Section 260A of the Income Tax Act. The statutory framework and legislative intent do not support the inclusion of cross-objections at this stage, and the procedural rules of the CPC do not override the specific provisions of the Income Tax Act.
3. SIGNIFICANT HOLDINGS
The Court held that:
"Absent a specific adoption of a right to prefer cross-objections and the same being statutorily acknowledged to be part of the appeal procedure laid out in Section 260A of the Act, a cross-objection would not be maintainable."
The Court established the principle that the statutory framework of Section 260A, coupled with the absence of a provision for cross-objections, precludes their maintainability in appeals under this section. The final determination was that the cross-objections filed in the present case were not maintainable, and the appeals would proceed without considering these cross-objections.
Right to prefer cross-objections in an appeal referable to Section 260A - Appeals to the High Court on substantial questions of law - HELD THAT:- The various judgments that were cited and noticed above, have principally focused on the provisions of the Code and had interpreted the phrase “as far as may be” as being sufficient to hold that a cross-objection would lie even in an appeal from an appellate decree. However, here we are not only faced with the restrictive stipulation enshrined in Section 260A (6) of the Act but also by the prominent absence of a right to prefer cross-objections having been incorporated in Section 260A despite that avenue having been accorded statutory recognition in Section 253 (4) of the Act.
In our considered opinion and bearing in mind the language of Section 260A (6)(b), the right of a respondent can at best stretch to advancing a contention in relation to any finding returned by the Tribunal adverse to that party and which has an indelible connect with the question of law on which the appeal may be admitted.
We thus find ourselves unable to countenance sub-sections (6) and (7) of Section 260A as conferring an independent right in a respondent to maintain or continue an apparent challenge in respect of a finding rendered by the Tribunal de hors or disconnected with the substantial question of law on which such an appeal may be entertained.
In summation, we would hold that absent a specific adoption of a right to prefer cross-objections and the same being statutorily acknowledged to be part of the appeal procedure laid out in Section 260A of the Act, a cross-objection would not be maintainable.
Section 260A (6) is merely an enabling provision and which empowers a respondent to agitate an issue that may have been decided against it by the Tribunal subject to the condition that the same is indelibly connected with the decision which gives rise to the question of law on which we admit an appeal. The said provision cannot be construed as conferring an independent right upon a respondent to raise a challenge divorced or isolated from the question on which the appeal comes to be admitted.
This would also be in line with the decisions rendered in the context of the Code and the maintainability of cross-objections in a second appeal and where it was held that in case the objection be indelibly coupled to the main question, there would be no legal requirement of preferring cross-objections separately. This since the same would merely entail the respondent seeking to press an issue though decided against it, in support of the ultimate decision rendered.
Considering indisputable fact that the present applicants had preferred cross-objections before the Tribunal which came to be partly allowed. For instance, while Ground Nos. 1 and 2 thereof came to be rejected, Ground No. 3 came to be partly allowed alongside Ground No. 6 of the Revenue. The cross-objections thus came to be partly allowed. It was the stand of the respondent itself that a cross-objection is akin to an appeal. If that were so, the applicant could have possibly taken appropriate steps to assail the order of the Tribunal to the extent that it was so aggrieved. However, and for reasons assigned above, the remedy was clearly not that of a cross-objection.
Right to prefer cross-objections in an appeal referable to Section 260A - Appeals to the High Court on substantial questions of law - HELD THAT:- The various judgments that were cited and noticed above, have principally focused on the provisions of the Code and had interpreted the phrase “as far as may be” as being sufficient to hold that a cross-objection would lie even in an appeal from an appellate decree. However, here we are not only faced with the restrictive stipulation enshrined in Section 260A (6) of the Act but also by the prominent absence of a right to prefer cross-objections having been incorporated in Section 260A despite that avenue having been accorded statutory recognition in Section 253 (4) of the Act.
In our considered opinion and bearing in mind the language of Section 260A (6)(b), the right of a respondent can at best stretch to advancing a contention in relation to any finding returned by the Tribunal adverse to that party and which has an indelible connect with the question of law on which the appeal may be admitted.
We thus find ourselves unable to countenance sub-sections (6) and (7) of Section 260A as conferring an independent right in a respondent to maintain or continue an apparent challenge in respect of a finding rendered by the Tribunal de hors or disconnected with the substantial question of law on which such an appeal may be entertained.
In summation, we would hold that absent a specific adoption of a right to prefer cross-objections and the same being statutorily acknowledged to be part of the appeal procedure laid out in Section 260A of the Act, a cross-objection would not be maintainable.
Section 260A (6) is merely an enabling provision and which empowers a respondent to agitate an issue that may have been decided against it by the Tribunal subject to the condition that the same is indelibly connected with the decision which gives rise to the question of law on which we admit an appeal. The said provision cannot be construed as conferring an independent right upon a respondent to raise a challenge divorced or isolated from the question on which the appeal comes to be admitted.
This would also be in line with the decisions rendered in the context of the Code and the maintainability of cross-objections in a second appeal and where it was held that in case the objection be indelibly coupled to the main question, there would be no legal requirement of preferring cross-objections separately. This since the same would merely entail the respondent seeking to press an issue though decided against it, in support of the ultimate decision rendered.
Considering indisputable fact that the present applicants had preferred cross-objections before the Tribunal which came to be partly allowed. For instance, while Ground Nos. 1 and 2 thereof came to be rejected, Ground No. 3 came to be partly allowed alongside Ground No. 6 of the Revenue. The cross-objections thus came to be partly allowed. It was the stand of the respondent itself that a cross-objection is akin to an appeal. If that were so, the applicant could have possibly taken appropriate steps to assail the order of the Tribunal to the extent that it was so aggrieved. However, and for reasons assigned above, the remedy was clearly not that of a cross-objection.
The Court considered two substantial legal questions under Section 260A of the Income Tax Act:
(i) Whether the Tribunal, having accepted the case of bogus purchases, could proceed to determine a profit rate without confirming the disallowance of purchases, without considering Section 69C of the Income Tax Act, 1961, and without regard to the Gujarat High Court decision in N.K. Industries Ltd. v. Deputy Commissioner of Income Tax, which was upheld by the Supreme Court.
(ii) Whether the Tribunal erred in restricting the disallowance to the profit margin on unproven purchases instead of upholding a 100% disallowance on bogus purchases as established by the Supreme Court in N.K. Protiens Ltd.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the Tribunal's approach in estimating profit rate without confirming disallowance of purchases and ignoring Section 69C
Relevant legal framework and precedents: Section 69C of the Income Tax Act empowers the Assessing Officer (AO) to deem unexplained expenditure as income if the assessee fails to explain the source of such expenditure satisfactorily. The Gujarat High Court in N.K. Industries Ltd. held that estimating a percentage of bogus claims is contrary to the principles of Sections 68 and 69C, and 100% disallowance should be made if purchases are bogus. This decision was affirmed by the Supreme Court.
Court's interpretation and reasoning: The Court explained the concept of accommodation entries, where unaccounted cash is routed through bogus purchases to enter books of account. The onus lies on the assessee to prove the genuineness of purchases, including the source of payment. The respondent-assessee failed to appear before the AO during reassessment proceedings and did not discharge this burden.
The Court found that the CIT (A) acknowledged the involvement of the respondent-assessee in bogus purchases but nonetheless restricted the addition to 12.5% of the purchases, relying on a Gujarat High Court decision concerning other assesses. The Court held this approach to be a misdirection, as the issue was not low profit but failure to prove purchases. Similarly, the Tribunal erred by relying on a decision involving estimation of profits where the assessee had participated in proceedings and discharged the onus, which was not the case here.
Key evidence and findings: The AO added Rs. 20,06,80,150/- for bogus purchases after the respondent-assessee failed to prove genuineness. Notices were validly served by multiple modes, including email and affixture, and the respondent-assessee deliberately avoided participation. The CIT (A) and Tribunal's orders restricting additions to a fraction of the purchases ignored Section 69C and the failure to explain the source of expenditure.
Application of law to facts: The Court emphasized that Section 69C is an enabling provision to treat unexplained expenditure as income and disallow it as a deduction. Allowing estimation of profit and thereby implicitly permitting deduction of a portion of bogus purchases would render Section 69C redundant and encourage illegality. The Court held that since the respondent-assessee failed to explain the source of expenditure, the entire amount must be added back as income.
Treatment of competing arguments: The respondent-assessee argued that details of sundry debtors and creditors were filed during original assessment and that estimating profit was justified to avoid exorbitant additions. The Court rejected these contentions, noting that the original assessment was completed before reopening on the basis of new information about bogus purchases, and that the respondent-assessee did not participate in reassessment proceedings to discharge the burden. The argument that additions should be deleted due to high profit rate was dismissed as irrelevant since the addition was made for failure to prove purchases, not due to low profit.
Conclusions: The Court held that the Tribunal and CIT (A) erred in estimating profit instead of confirming full disallowance under Section 69C. The AO's addition of the entire amount was justified and must be restored.
Issue 2: Whether the disallowance should be 100% or restricted to profit margin on bogus purchases
Relevant legal framework and precedents: The Supreme Court in N.K. Protiens Ltd. upheld 100% disallowance of bogus purchases. The Calcutta High Court in Principal Commissioner of Income Tax v. Mrs. Premlata Tekriwal held that where the assessee admits the bogus nature of purchases or fails to explain, the entire expenses must be disallowed. The Allahabad High Court in Assistant Commissioner of Income Tax v. Shanti Jain took a similar view. The Bombay High Court in Shoreline Hotel (P.) Ltd. v. Commissioner of Income Tax confirmed that partial additions are improper where purchases are not proved.
Court's interpretation and reasoning: The Court reiterated that the onus is on the assessee to prove purchases and source of payments. Failure to do so attracts 100% disallowance. The CIT (A) and Tribunal's approach of restricting addition to 12.5% or estimating profit margin was contrary to settled law and the provisions of Section 69C.
Key evidence and findings: The respondent-assessee failed to attend reassessment proceedings and did not provide any explanation or documents to prove purchases. The CIT (A) found involvement in bogus bills, a finding not challenged before the Tribunal. The Tribunal's reliance on a decision where the assessee had discharged the burden was misplaced.
Application of law to facts: The Court applied the principle that unexplained expenditure must be added fully as income under Section 69C. Partial disallowance or estimation of profit margin effectively grants deduction for unexplained expenditure, which is impermissible.
Treatment of competing arguments: The respondent-assessee's reliance on decisions where the assessee participated and discharged onus was rejected as distinguishable. The Court also rejected the argument that the respondent-assessee's submission of sundry debtor and creditor details during original assessment absolved them from proving purchases during reassessment.
Conclusions: The Court concluded that the entire amount of Rs. 20,06,80,150/- must be disallowed as bogus purchases and the AO's addition restored. The orders of CIT (A) and Tribunal restricting additions were reversed.
3. SIGNIFICANT HOLDINGS
"The onus is on the assessee to prove the genuineness of the expenditure claimed as deduction, including the source of the expenditure."
"Section 69C provides that where an assessee has incurred any expenditure and offers no explanation about the source of expenditure or the explanation offered is not satisfactory, then the amount of expenditure may be deemed to be the income of the assessee and such unexplained expenditure shall not be allowed as a deduction."
"Estimating a certain percentage of the bogus claim is against the principles of Sections 68 and 69C of the Act, and if the purchases are bogus, then it is not incumbent upon the Tribunal to restrict the disallowance only to confirm certain percentage of such purchases."
"Allowing estimation of profit and thereby impliedly granting deduction of unexplained expenditure is contrary to the express provisions of Section 69C of the Act."
"The respondent-assessee having failed to discharge the initial onus of proving the purchases and source of expenditure during reassessment proceedings, the additions made by the AO are justified and must be restored."
"The approach of the CIT (A) and the Tribunal in restricting additions to 12.5% of the purchases was a misdirection and contrary to settled law."
"The failure of the respondent-assessee to participate in reassessment proceedings and to prove the purchases justifies the entire addition of Rs. 20,06,80,150/- on account of bogus purchases."
Final determinations:
- The appeal of the appellant-revenue is allowed.
- The order of the AO dated 19 March 2015, making addition of Rs. 20,06,80,150/- on account of bogus purchases, is restored.
- The orders of the CIT (A) and the Tribunal restricting the disallowance to 12.5% of the purchases are reversed.
- The aggregate addition should not exceed Rs. 20,06,80,150/-.
Bogus purchases - estimation of income - CIT (A) findings that only 12.5% of the bogus purchases should be added - HELD THAT:- As in the instant case, the respondent-assessee has offered no explanation of the source of the expenditure incurred on account of purchases and, therefore, AO was justified in making an addition of the said amount and the Appellate Authorities were not justified in estimating the profit rate and thereby impliedly grant deduction of such unexplained expenditure which is contrary to the express provision of Section 69C.
In the instant case before us, assessee has not appeared in the re-assessment proceedings to discharge its onus on proving purchase transactions under consideration.
Before the CIT (A) for the first time, scanty details of sundry debtors, creditors and stocks were given. CIT(A) gave a finding of the respondent-assessee’s involvement in bogus transaction. Therefore, the finding of the AO on the genuineness of the purchases was confirmed by the CIT (A).
Before the Tribunal, assessee has not canvassed any submission on the genuineness of the purchases but only pleaded for an estimation of a certain percentage of such bogus purchases to be added.
Therefore, assessee has not proved the genuineness of the purchases, which inter alia include the source of making the payment for such purchases. Today before this Court assessee’s submissions that they have discharged the onus cast upon them to prove the genuineness of the purchases, including the source cannot be accepted.
Appeal of the appellant-revenue is allowed by answering the question in favour of the appellant-revenue and against the respondent-assessee.
Bogus purchases - estimation of income - CIT (A) findings that only 12.5% of the bogus purchases should be added - HELD THAT:- As in the instant case, the respondent-assessee has offered no explanation of the source of the expenditure incurred on account of purchases and, therefore, AO was justified in making an addition of the said amount and the Appellate Authorities were not justified in estimating the profit rate and thereby impliedly grant deduction of such unexplained expenditure which is contrary to the express provision of Section 69C.
In the instant case before us, assessee has not appeared in the re-assessment proceedings to discharge its onus on proving purchase transactions under consideration.
Before the CIT (A) for the first time, scanty details of sundry debtors, creditors and stocks were given. CIT(A) gave a finding of the respondent-assessee’s involvement in bogus transaction. Therefore, the finding of the AO on the genuineness of the purchases was confirmed by the CIT (A).
Before the Tribunal, assessee has not canvassed any submission on the genuineness of the purchases but only pleaded for an estimation of a certain percentage of such bogus purchases to be added.
Therefore, assessee has not proved the genuineness of the purchases, which inter alia include the source of making the payment for such purchases. Today before this Court assessee’s submissions that they have discharged the onus cast upon them to prove the genuineness of the purchases, including the source cannot be accepted.
Appeal of the appellant-revenue is allowed by answering the question in favour of the appellant-revenue and against the respondent-assessee.
Penalty imposed u/s 271(1)(c) - non specification of clear charge - defective notice - HELD THAT:- In this case, the notice issued to the Assessee did not clarify whether the penalty was proposed to be imposed on the grounds of concealment or furnishing inaccurate particulars. The necessary box containing the two options was not ticked. Thus, the Assessee had no clear notice about the case it was required to meet.
Thus, we are satisfied that the questions now proposed, stand answered against the Revenue, inter alia by Mohd. Farhan [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] - Revenue Appeal is dismissed.
Penalty imposed u/s 271(1)(c) - non specification of clear charge - defective notice - HELD THAT:- In this case, the notice issued to the Assessee did not clarify whether the penalty was proposed to be imposed on the grounds of concealment or furnishing inaccurate particulars. The necessary box containing the two options was not ticked. Thus, the Assessee had no clear notice about the case it was required to meet.
Thus, we are satisfied that the questions now proposed, stand answered against the Revenue, inter alia by Mohd. Farhan [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] - Revenue Appeal is dismissed.
Reopening of assessment u/s 147 - time limit for notice - computation of the “relevant assessment year” - HELD THAT:- The record would reflect that pursuant to a search and seizure operation conducted in respect of a third person on 02 March 2022, the petitioner was served a notice under Section 148 on 06 October 2023. Undisputedly and for the purposes of reopening, bearing in mind the proviso to Section 149 (1), action could have been initiated only up to AY 2015-16.
It is ex facie evident that AY 2014-15 falls beyond the ten-year block period as set out u/s 153C r.w.s. 153A of the Act. Consequently, the impugned notice is rendered unsustainable. Decided in favour of assessee.
Reopening of assessment u/s 147 - time limit for notice - computation of the “relevant assessment year” - HELD THAT:- The record would reflect that pursuant to a search and seizure operation conducted in respect of a third person on 02 March 2022, the petitioner was served a notice under Section 148 on 06 October 2023. Undisputedly and for the purposes of reopening, bearing in mind the proviso to Section 149 (1), action could have been initiated only up to AY 2015-16.
It is ex facie evident that AY 2014-15 falls beyond the ten-year block period as set out u/s 153C r.w.s. 153A of the Act. Consequently, the impugned notice is rendered unsustainable. Decided in favour of assessee.
1. Whether the Tribunal was justified in confirming the penalty under Section 271 (1) (c) of the Income Tax Act for the Assessment Year 2008-2009Rs.
ISSUE-WISE DETAILED ANALYSIS:
Relevant legal framework and precedents:
Section 271(1)(c) of the Income Tax Act allows for the imposition of penalty for concealment of income or furnishing inaccurate particulars of income. The decision in CIT Vs. Reliance Petroproducts [2010] 3 Taxmann.com 47 is relevant in determining the applicability of this provision.
Court's interpretation and reasoning:
The Court considered the timeline of events where the Appellant filed an application for registration under Section 12A on 5 September 2008, but the certificate was issued on 31 March 2009 with retroactive effect from 1 April 2008. The Court noted that the Appellant acted in good faith based on the belief that the registration would be granted from the date of its establishment.
Key evidence and findings:
The Appellant, a Charitable Trust, filed the necessary application for registration under Section 12A and submitted audited accounts before the due date. The delay in processing the application by the authorities resulted in the registration being effective from a later date than anticipated by the Appellant.
Application of law to facts:
The Court applied the principle that for a penalty under Section 271(1)(c) to be imposed, there must be a case of concealment of income or furnishing inaccurate particulars of income. In this case, the Court found that the Appellant's actions were based on a genuine belief and there was no intent to conceal income or provide inaccurate information.
Conclusions:
The Court concluded that no justification existed for imposing a penalty under Section 271(1)(c) as the Appellant's conduct did not amount to concealment or furnishing inaccurate particulars of income. The Court ruled in favor of the Appellant and overturned the Tribunal's decision, restoring the order of the CIT (A).
SIGNIFICANT HOLDINGS:
The Court's core principle established was that penalties under Section 271(1)(c) require a finding of concealment or furnishing inaccurate particulars of income, which was not present in the Appellant's case. The final determination was in favor of the Appellant, reversing the Tribunal's decision and reinstating the CIT (A) order.
Penalty u/s 271 (1) (c) - denial of benefit of Section 11 as they did not have a registration certificate u/s 12A - HELD THAT:- Trust has came into existence on 17 October 2007 and the first accounting year of the Trust is from 25 October 2007 to 31 March 2008. Assessee also undertook to file the audited accounts before 30 September 2008, which was duly done. However, the application dated 5 September 2008 came to be disposed of by the CIT (E) only on 31 March 2009. The delay in disposing of the application and making it applicable from AY 2009-2010 only cannot be attributed to the Appellant-Assessee. There is no reason given as to why the registration could not have been granted with effect from the date when the firm came into existence.
In any case, the Appellant-Assessee is a Charitable Trust and was under a bona fide belief that the registration certificate would be granted from the date of its existence and it was on the basis of that bona fide belief that the claim was made. It was first year of the Appellant-Assessee.
In our view, no case is made out for concealment of income or furnishing of inaccurate particulars of income since the application for registration u/s 12A was filed with the Respondent-Revenue and the same was on record at the time of filing the return of income while making the claim.
No justification for imposing the penalty of concealment or furnishing of inaccurate particulars of income u/s 271 (1) (c) of the Income Tax Act, 1961. Decided in favour of assessee.
Penalty u/s 271 (1) (c) - denial of benefit of Section 11 as they did not have a registration certificate u/s 12A - HELD THAT:- Trust has came into existence on 17 October 2007 and the first accounting year of the Trust is from 25 October 2007 to 31 March 2008. Assessee also undertook to file the audited accounts before 30 September 2008, which was duly done. However, the application dated 5 September 2008 came to be disposed of by the CIT (E) only on 31 March 2009. The delay in disposing of the application and making it applicable from AY 2009-2010 only cannot be attributed to the Appellant-Assessee. There is no reason given as to why the registration could not have been granted with effect from the date when the firm came into existence.
In any case, the Appellant-Assessee is a Charitable Trust and was under a bona fide belief that the registration certificate would be granted from the date of its existence and it was on the basis of that bona fide belief that the claim was made. It was first year of the Appellant-Assessee.
In our view, no case is made out for concealment of income or furnishing of inaccurate particulars of income since the application for registration u/s 12A was filed with the Respondent-Revenue and the same was on record at the time of filing the return of income while making the claim.
No justification for imposing the penalty of concealment or furnishing of inaccurate particulars of income u/s 271 (1) (c) of the Income Tax Act, 1961. Decided in favour of assessee.
The core legal questions considered in this judgment were:
A. Whether the Income Tax Appellate Tribunal (ITAT) erred in allowing the discharge of guarantee obligation as a business loss when the Assessee company did not recognize guarantee commission as business income.
B. Whether the amount of Rs. 27,76,92,000/- claimed as a business loss is allowable under Section 36 (2) (i) of the Income Tax Act.
C. Whether the ITAT's order is perverse for considering the transaction as a prudent act instead of a colorable device, despite evidence suggesting that the third party (IBFSL) vanished after the guarantee obligation was discharged by the Assessee.
2. ISSUE-WISE DETAILED ANALYSIS
Issue A: Recognition of Guarantee Commission as Business Income
- Legal Framework and Precedents: The claim of business loss must be substantiated by recognition of corresponding income, as per Section 36 of the Income Tax Act.
- Court's Interpretation and Reasoning: The Court noted that the ITAT accepted the Assessee's explanation that it could not recover the guarantee commission due to the financial condition of CIPL. The ITAT found that the Assessee was engaged in the business of financing, which included standing as a guarantor.
- Key Evidence and Findings: The Assessee did not record the commission as income due to the default by CIPL. The ITAT found no evidence of the transaction being a colorable device.
- Application of Law to Facts: The Court found no infirmity in the ITAT's decision regarding the commission not being recorded as income.
- Conclusions: The Court concluded that the non-recording of commission income was not a substantial question of law in this case.
Issue B: Allowability of Bad Debt under Section 36 (2) (i)
- Legal Framework and Precedents: Section 36 (2) (i) requires that a debt must be accounted for in computing income or represent money lent in the ordinary course of business.
- Court's Interpretation and Reasoning: The Court concluded that the Assessee's furnishing of a guarantee was not in its ordinary course of business, as standing as a guarantor was not one of the main objects of the Assessee company.
- Key Evidence and Findings: The Assessee had not engaged in similar transactions, and the transaction was isolated. The CIT(A) noted that the Assessee and Borrowers were part of the same group, indicating control over financial decisions.
- Application of Law to Facts: The Court found that the Assessee's claim did not satisfy the conditions of Section 36 (2) (i), as the debt was not part of its ordinary business.
- Conclusions: The Court ruled in favor of the Revenue, stating that the transaction was not a business loss under Section 36 (2) (i).
Issue C: Transaction as a Colorable Device
- Legal Framework and Precedents: A transaction is considered a colorable device if it is designed to evade tax without genuine business purpose.
- Court's Interpretation and Reasoning: The Court disagreed with the ITAT's finding that the transaction was not a colorable device. The Court noted the Assessee's lack of efforts to recover the debt and the financial activities of CIPL, such as making a significant donation.
- Key Evidence and Findings: The Court highlighted the relationship between the Assessee and CIPL, suggesting an arrangement to transfer losses within the group.
- Application of Law to Facts: The Court found that the transaction was structured to create a tax advantage, supporting the Revenue's contention.
- Conclusions: The Court concluded that the transaction was a colorable device and ruled in favor of the Revenue.
3. SIGNIFICANT HOLDINGS
- Core Principles Established: The Court emphasized that for a bad debt to be allowable, it must be part of the ordinary course of business or have been accounted for in computing income.
- Final Determinations on Each Issue: The Court allowed the Revenue's appeal, setting aside the ITAT's order regarding the bad debt claim. The Court found that the Assessee's claim did not meet the requirements under Section 36 (2) (i) and was a colorable device to reduce tax liability.
Disallowance of bad debts - Borrowers defaulted in the repayment obligations to the Lender - It is the Assessee’s case that CIPL had become financially sick on account of heavy losses and therefore, it was not feasible to recover any further amount from the said company
ITAT set aside the deletion of bad debts as it found that the Assessee was engaged in the business of lending and advancing money and therefore, furnishing a guarantee to the Lender fell within the scope of its business and accepted the Assessee’s explanation that it was unable to recover the guarantee commission as CIPL was not in the financial condition to pay the same - HELD THAT:- In terms of the Commitment Agreement the income by way of commission would accrue after the expiry of three years of the agreement. Thus, the Assessee could not account for the income by way of commission prior to the expiry of three years from the date of the Commitment Agreement. However, by that time, the Borrowers had defaulted in payment of the amounts due to the Lender and therefore, it is clearly doubtful whether the commission could be recovered.
In the given circumstances, non-recording of income by way of commission on bank guarantees could not be a ground for rejecting the expense of bad debts suffered if the same was during the course of its business. We find no infirmity with the decision of the learned ITAT in not accepting the AO’s decision that the bad debts were not allowable as expense as the Assessee had not recognized the commission receivable in respect of guarantees as income in the given facts.
The first question projected by the Revenue is not a substantial question of law in the given facts of this case.
Whether the amount of bad debts as claimed by the Assessee is allowable as an expense under Section 36 (1) (vii) read with Section 36 (2) (i) of the Act and whether the Assessee’s claim for this allowance is a colorable device to reduce the tax liability - ITAT has misdirected itself. The issue flagged by the AO and learned CIT(A) was that the Assessee had deliberately refrained from taking any steps for recovering the dues from CIPL as it was a group company. Further, the facts indicated that CIPL had the wherewithal to pay at least part of the funds. This was established by the fact that it had made a donation of Rs. 10 crores during the said financial year. The AO and the learned CIT(A) had found that the Assessee had arranged the affairs in a manner whereby it had reflected a loss on account of bad debts, which could be set off against its income. On the other hand, CIPL, which had suffered losses, would in any event not be liable to pay tax on account of writing off its liability. Thus, the arrangement in effect transfers the loss within the same group from a loss-making entity to a profit making entity and conversely profits resulting from remission of liability to a loss making entity.
The allowance in respect of bad debts [Under Section 36(1)(vii) of the Act] is allowable only if:
(a) the debt was taken into account for computing the income of the assessee in the previous year in which the amount is written of or prior previous years; or
(b) represents money lent in the ordinary course of business of banking or money lending.
In the present case, we concur with the decision of the learned CIT (A) that none of the two conditions are satisfied.
Substantial questions are answered in favour of the Revenue and against the Assessee.
Disallowance of bad debts - Borrowers defaulted in the repayment obligations to the Lender - It is the Assessee’s case that CIPL had become financially sick on account of heavy losses and therefore, it was not feasible to recover any further amount from the said company
ITAT set aside the deletion of bad debts as it found that the Assessee was engaged in the business of lending and advancing money and therefore, furnishing a guarantee to the Lender fell within the scope of its business and accepted the Assessee’s explanation that it was unable to recover the guarantee commission as CIPL was not in the financial condition to pay the same - HELD THAT:- In terms of the Commitment Agreement the income by way of commission would accrue after the expiry of three years of the agreement. Thus, the Assessee could not account for the income by way of commission prior to the expiry of three years from the date of the Commitment Agreement. However, by that time, the Borrowers had defaulted in payment of the amounts due to the Lender and therefore, it is clearly doubtful whether the commission could be recovered.
In the given circumstances, non-recording of income by way of commission on bank guarantees could not be a ground for rejecting the expense of bad debts suffered if the same was during the course of its business. We find no infirmity with the decision of the learned ITAT in not accepting the AO’s decision that the bad debts were not allowable as expense as the Assessee had not recognized the commission receivable in respect of guarantees as income in the given facts.
The first question projected by the Revenue is not a substantial question of law in the given facts of this case.
Whether the amount of bad debts as claimed by the Assessee is allowable as an expense under Section 36 (1) (vii) read with Section 36 (2) (i) of the Act and whether the Assessee’s claim for this allowance is a colorable device to reduce the tax liability - ITAT has misdirected itself. The issue flagged by the AO and learned CIT(A) was that the Assessee had deliberately refrained from taking any steps for recovering the dues from CIPL as it was a group company. Further, the facts indicated that CIPL had the wherewithal to pay at least part of the funds. This was established by the fact that it had made a donation of Rs. 10 crores during the said financial year. The AO and the learned CIT(A) had found that the Assessee had arranged the affairs in a manner whereby it had reflected a loss on account of bad debts, which could be set off against its income. On the other hand, CIPL, which had suffered losses, would in any event not be liable to pay tax on account of writing off its liability. Thus, the arrangement in effect transfers the loss within the same group from a loss-making entity to a profit making entity and conversely profits resulting from remission of liability to a loss making entity.
The allowance in respect of bad debts [Under Section 36(1)(vii) of the Act] is allowable only if:
(a) the debt was taken into account for computing the income of the assessee in the previous year in which the amount is written of or prior previous years; or
(b) represents money lent in the ordinary course of business of banking or money lending.
In the present case, we concur with the decision of the learned CIT (A) that none of the two conditions are satisfied.
Substantial questions are answered in favour of the Revenue and against the Assessee.
Appeal pending adjudication for more than 2 years before the CIT(A) - HELD THAT:- This court is cognizant of the large number of statutory appeals pending for disposal before the NFAC and express concern over the delay in disposal of such appeals, for which the NFAC was envisaged. We expect that the NFAC would endeavour to implement the said remedial measures in all earnest.
So far as the present petition is concerned, we note with some concern that the appeal filed on 14.10.2022, is still pending adjudication for more than 2 years before the CIT(A).
We, therefore direct the said appeal filed on 14.10.2022 under e-filing acknowledgment be taken up for consideration and disposed of with expedition not beyond a period of eight weeks from date.
Appeal pending adjudication for more than 2 years before the CIT(A) - HELD THAT:- This court is cognizant of the large number of statutory appeals pending for disposal before the NFAC and express concern over the delay in disposal of such appeals, for which the NFAC was envisaged. We expect that the NFAC would endeavour to implement the said remedial measures in all earnest.
So far as the present petition is concerned, we note with some concern that the appeal filed on 14.10.2022, is still pending adjudication for more than 2 years before the CIT(A).
We, therefore direct the said appeal filed on 14.10.2022 under e-filing acknowledgment be taken up for consideration and disposed of with expedition not beyond a period of eight weeks from date.
The appeal raised several substantial questions of law concerning the deletion of various additions made by the Assessing Officer (AO) under Section 260A of the Income Tax Act, 1961. The core issues presented were:
1. Whether the ITAT was justified in deleting the addition of Rs. 4,70,88,927/- related to the disallowance of deduction under Section 80IA of the IT Act, on the basis that no incriminating material was found during the search.
2. Whether the ITAT erred in deleting the addition of Rs. 4,70,88,927/- by ignoring that the assessee was not engaged in "Development work" but was rather a "works contractor," thus not eligible for deduction under Section 80IA(4).
3. Whether the ITAT was correct in deleting the addition of Rs. 50,000/- made for illegal payments to government functionaries.
4. Whether the ITAT rightly deleted additions of Rs. 1,37,00,000/- and Rs. 70,00,000/- for AY 2011-12 and AY 2012-13 under Section 40A(3) based on seized documents and statements.
5. Whether the ITAT was justified in deleting the addition for unrecorded cash transactions, despite the assessee's admission of undisclosed income.
6. Whether the ITAT erred in deleting the addition of Rs. 1,23,62,077/- related to bogus sub-contract payments.
7. Whether the ITAT was right in deleting the addition of Rs. 12,02,643/- for unaccounted sale of GITI based on seized documents and statements.
8. Whether the ITAT's findings were perverse, failing to consider relevant facts and legal positions.
ISSUE-WISE DETAILED ANALYSIS
1. Deletion of Addition under Section 80IA
The legal framework under Section 80IA of the IT Act allows deductions for profits derived from eligible businesses. The Court examined whether the ITAT was justified in deleting the addition of Rs. 4,70,88,927/- on the grounds that no incriminating material was found during the search. The Revenue argued that incriminating documents, such as seized Tally accounts, indicated non-maintenance of separate books for eligible business, which was a requirement as per the Supreme Court's judgment in Arisudana Spinning Mills Ltd.
The Court noted that the ITAT relied on the Supreme Court's decision in Abhisar Buildwell (P.) Ltd., which held that in the absence of incriminating material, the AO could not reassess completed assessments. The ITAT found no substantial evidence to support the AO's addition, leading to its deletion.
2. Nature of Business under Section 80IA(4)
The Revenue contended that the assessee was a "works contractor" and not engaged in "Development work," thus ineligible for deductions under Section 80IA(4). The ITAT, however, found that the AO's assessment lacked concrete evidence, as the assessee's activities did not fit the legislative exclusion of "works contracts." The ITAT's decision was supported by the Gujarat High Court's judgment in Katira Construction Ltd., which upheld the constitutional validity of the section's explanation.
3. Illegal Payments to Government Functionaries
The deletion of Rs. 50,000/- for illegal payments was challenged by the Revenue, citing evidence of cash payments and admissions by a senior employee. The ITAT found the evidence insufficiently corroborated, applying the Supreme Court's "Human Probability" test from Sumati Dayal, which assesses whether the apparent is real. The ITAT concluded that the AO's findings were speculative and unsupported by substantial evidence.
4. Additions under Section 40A(3)
The ITAT deleted additions for cash payments, citing a lack of corroborative verification by the AO. The Revenue argued that the ITAT failed to conduct a proper inquiry, as outlined in Jansampark advertising & Marketing (P.) Ltd. The ITAT noted that the retraction of statements by key individuals and the absence of supporting evidence rendered the AO's additions unsustainable.
5. Unrecorded Cash Transactions
The Revenue challenged the deletion of additions for unrecorded transactions, despite the assessee's admission of undisclosed income. The ITAT found that the AO's reliance on the assessee's statement was insufficient without corroborative evidence, leading to the deletion of the additions.
6. Bogus Sub-Contract Payments
The ITAT deleted additions related to payments to Shri Sushil Kumar Singhal, finding no evidence of subcontract work. The Revenue argued that the ITAT ignored material evidence and the "Human Probability" test. The ITAT concluded that the AO's findings were unsubstantiated and speculative.
7. Unaccounted Sale of GITI
The ITAT deleted the addition for unaccounted sales, citing a lack of corroborative evidence from seized documents and statements. The Revenue's arguments were found unpersuasive, as the ITAT determined that the AO's findings lacked evidentiary support.
8. Alleged Perversity in ITAT's Findings
The Revenue claimed that the ITAT's findings were perverse, failing to consider relevant facts and legal principles. The Court found no merit in these arguments, noting that the ITAT's decision was well-reasoned and based on a comprehensive evaluation of the evidence.
SIGNIFICANT HOLDINGS
The Court held that no substantial question of law arose from the ITAT's order, as the issues raised were factual and lacked legal significance. The ITAT, as the final fact-finding authority, had not erred in its conclusions. The Court emphasized that the appeal was based on factual disputes, not permissible under Section 260A.
The Court reiterated that an appeal under Section 260A requires a substantial question of law, not merely a disagreement with factual findings. The principles established in Sir Chunilal V. Mehta & Sons, Ltd. and Santosh Hazari were applied to determine the absence of substantial questions of law.
In conclusion, the appeal was dismissed, affirming the ITAT's order and reinforcing the requirement for substantial questions of law in appeals under Section 260A.
Assessment u/s 153A - disallowance of deduction u/s 80IA - Sunstantial question of law or fact - ITAT deleted addition as no incriminating material was found during the course of search - HELD THAT:- An appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the said order, it is mandatory that such question(s) must be formulated. The expression "substantial question of law" is not defined in the Act. Nevertheless, it has acquired a definite connotation through various judicial pronouncements.
A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread.
The Tribunal being a final fact finding authority, in the absence of demonstrated perversity in its finding, interference with the concurrent findings of the CIT (A) as well as the ITAT therewith by this Court is not warranted.
For the aforesaid reasons, we have no hesitation in holding that no question of law, much less any substantial question of law arises from the order of the Tribunal requiring consideration of this court. Revenue appeal dismissed.
Assessment u/s 153A - disallowance of deduction u/s 80IA - Sunstantial question of law or fact - ITAT deleted addition as no incriminating material was found during the course of search - HELD THAT:- An appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the said order, it is mandatory that such question(s) must be formulated. The expression "substantial question of law" is not defined in the Act. Nevertheless, it has acquired a definite connotation through various judicial pronouncements.
A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread.
The Tribunal being a final fact finding authority, in the absence of demonstrated perversity in its finding, interference with the concurrent findings of the CIT (A) as well as the ITAT therewith by this Court is not warranted.
For the aforesaid reasons, we have no hesitation in holding that no question of law, much less any substantial question of law arises from the order of the Tribunal requiring consideration of this court. Revenue appeal dismissed.
Record for the purposes of Section 154 - Whether entire records of the assessee for all the assessment years and not pertaining to only the year under consideration? - HELD THAT:- Tribunal states that if at all the assessee was of the opinion that the contractual liability had been settled in the previous year relevant to AY 1998-99, it ought to have been made the claim in the return itself. This conclusion does not appeal to us as the petition u/s 154 has been filed solely for the reason that the claim was not made in the return of income.
The application of Section 154 would extend to situations such as the present where legitimate claims have been omitted to have been made, for a variety of reasons. Hence, the observations of the Tribunal rejecting the claim of the assessee on this ground are completely misconceived.
Directions of the Tribunal in order in the appeal filed for AY 1992-93, was not so unequivocal that the assessee could claim relief solely based on such directions - We agree. However, the appellant has not rested its claim solely on those observations but has been proactive in moving an application seeking rectification of Return for AY 1997-98. It was hence incumbent upon the assessing officer, while disposing the application u/s 154, to have looked into the plea for rectification on the merits thereof. If at all the AO wished to test the claim of the assessee and verify whether the amounts had actually been paid, necessary documentary evidence could well have been sought.
Tribunal states that the Assessing Authority has not tested whether the amounts were actually paid at the time of original assessment proceedings - This statement is again misconceived for the reason that there could be no verification of a claim that was never made by the assessee in the return of income. In fact, this is the very reason why the assessee has filed a petition for rectification. The object of Section 154 cannot be defeated by reason of such mechanical and technical objections.
As to what constitutes 'record' for the purposes of Section 154, undoubtedly the records of assessment would include the financials for the years in question and the books of accounts including ledgers. Hence, it cannot be said that the payment of surcharge in Financial Year 1996-97 was not a matter of record. If at all any break-up/details of payments were required, nothing prevented the authority concerned to have called for the same.
Since the records in question are more than two decades old, we are loathe to remit the matter to the authority for verification. In order to satisfy ourselves that the amount of surcharge had, in fact, been paid as claimed, we had called for supporting documents, and the assessee has produced ledger accounts that establish payment of a sum of Rs. 95,36,264/- that includes a sum of Rs. 65,22,000/-, being the subject payment on 20.11.1997. The documents have been made available to the learned standing counsel as well who has also been afforded opportunity to verify the same.
There is no dispute that the amount of surcharge was paid in the financial year relevant to the year in question, and for the detailed reasons set out herein above, we find that the order of the Tribunal impugned before us calls for intervention.
Record for the purposes of Section 154 - Whether entire records of the assessee for all the assessment years and not pertaining to only the year under consideration? - HELD THAT:- Tribunal states that if at all the assessee was of the opinion that the contractual liability had been settled in the previous year relevant to AY 1998-99, it ought to have been made the claim in the return itself. This conclusion does not appeal to us as the petition u/s 154 has been filed solely for the reason that the claim was not made in the return of income.
The application of Section 154 would extend to situations such as the present where legitimate claims have been omitted to have been made, for a variety of reasons. Hence, the observations of the Tribunal rejecting the claim of the assessee on this ground are completely misconceived.
Directions of the Tribunal in order in the appeal filed for AY 1992-93, was not so unequivocal that the assessee could claim relief solely based on such directions - We agree. However, the appellant has not rested its claim solely on those observations but has been proactive in moving an application seeking rectification of Return for AY 1997-98. It was hence incumbent upon the assessing officer, while disposing the application u/s 154, to have looked into the plea for rectification on the merits thereof. If at all the AO wished to test the claim of the assessee and verify whether the amounts had actually been paid, necessary documentary evidence could well have been sought.
Tribunal states that the Assessing Authority has not tested whether the amounts were actually paid at the time of original assessment proceedings - This statement is again misconceived for the reason that there could be no verification of a claim that was never made by the assessee in the return of income. In fact, this is the very reason why the assessee has filed a petition for rectification. The object of Section 154 cannot be defeated by reason of such mechanical and technical objections.
As to what constitutes 'record' for the purposes of Section 154, undoubtedly the records of assessment would include the financials for the years in question and the books of accounts including ledgers. Hence, it cannot be said that the payment of surcharge in Financial Year 1996-97 was not a matter of record. If at all any break-up/details of payments were required, nothing prevented the authority concerned to have called for the same.
Since the records in question are more than two decades old, we are loathe to remit the matter to the authority for verification. In order to satisfy ourselves that the amount of surcharge had, in fact, been paid as claimed, we had called for supporting documents, and the assessee has produced ledger accounts that establish payment of a sum of Rs. 95,36,264/- that includes a sum of Rs. 65,22,000/-, being the subject payment on 20.11.1997. The documents have been made available to the learned standing counsel as well who has also been afforded opportunity to verify the same.
There is no dispute that the amount of surcharge was paid in the financial year relevant to the year in question, and for the detailed reasons set out herein above, we find that the order of the Tribunal impugned before us calls for intervention.
Reopening of assessment u/s 147 - Notice issues beyond the period of limitation prescribed under statute - HELD THAT:- It emerges that the Revenue has relied upon the information which was already available on record. Therefore, the reasons so recorded is not based on any new or tangible material. Revenue has merely re-verified its record pertaining to the case of the assessee.
If we perused the reply of the assessee which was filed at the time of framing of assessment u/s 143(3) of the act, the entire details with regard to deduction claimed under Chapter VI-A were produced. Thus, we believe that it is not failure on the part of the assessee to fully and truly disclose all material facts before the AO. The impugned notice u/s 148 of the Act, therefore, is clearly barred by limitation as prescribed under the statute.
Change of opinion - AO has sought to reopen the assessment from the material already produced on record, meaning thereby, while issuing and recording of reasons, the AO was not having any new and / or tangible material in his possession. Thus, according to us, the assessment sought to be reopened on the material which was already available can be said to be change of opinion and the same is impermissible in the eye of law. Decided in favour of assessee.
Reopening of assessment u/s 147 - Notice issues beyond the period of limitation prescribed under statute - HELD THAT:- It emerges that the Revenue has relied upon the information which was already available on record. Therefore, the reasons so recorded is not based on any new or tangible material. Revenue has merely re-verified its record pertaining to the case of the assessee.
If we perused the reply of the assessee which was filed at the time of framing of assessment u/s 143(3) of the act, the entire details with regard to deduction claimed under Chapter VI-A were produced. Thus, we believe that it is not failure on the part of the assessee to fully and truly disclose all material facts before the AO. The impugned notice u/s 148 of the Act, therefore, is clearly barred by limitation as prescribed under the statute.
Change of opinion - AO has sought to reopen the assessment from the material already produced on record, meaning thereby, while issuing and recording of reasons, the AO was not having any new and / or tangible material in his possession. Thus, according to us, the assessment sought to be reopened on the material which was already available can be said to be change of opinion and the same is impermissible in the eye of law. Decided in favour of assessee.
The core legal questions considered in this judgment revolve around the jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The issues include:
1. Whether the order passed by the Assessing Officer (AO) allowing deductions under Section 10AA was erroneous and prejudicial to the interest of the Revenue, thereby justifying revision under Section 263.
2. The appropriateness of the AO's decision to allow deductions under Section 10AA on disallowance made under Section 14A, in light of existing legal precedents.
3. Whether the PCIT's invocation of Section 263 was justified given the Tribunal's previous rulings in favor of the assessee for earlier assessment years and the pending appeal before the High Court.
4. The adequacy of the AO's inquiry and verification process regarding the deductions claimed under Section 10AA.
ISSUE-WISE DETAILED ANALYSIS
1. Deduction under Section 10AA
- Relevant Legal Framework and Precedents: Section 10AA provides deductions for units in Special Economic Zones. The PCIT referenced Section 263, which allows revision of orders that are erroneous and prejudicial to the Revenue. The precedents cited include Malabar Industrial Co. Ltd. vs. CIT, which clarifies when an order is considered erroneous.
- Court's Interpretation and Reasoning: The Tribunal noted that the AO had allowed the deduction under Section 10AA based on the Tribunal's previous decisions in the assessee's favor for earlier years. The Tribunal found that the AO's order was not erroneous as it aligned with existing legal precedents.
- Key Evidence and Findings: The AO had accepted the deduction under Section 10AA after considering the Tribunal's rulings for earlier years. The PCIT argued that the AO failed to verify the deduction properly, but the Tribunal noted that the AO's decision was consistent with legal precedents.
- Application of Law to Facts: The Tribunal applied the principle that for Section 263 to be invoked, both conditions of error and prejudice must be met. Since the AO's order was consistent with Tribunal decisions, it was not erroneous.
- Treatment of Competing Arguments: The Tribunal considered the PCIT's argument that the AO's order was prejudicial due to pending appeals. However, it held that mere pendency of an appeal does not render an order erroneous.
- Conclusions: The Tribunal concluded that the AO's order was not erroneous and thus, the PCIT's invocation of Section 263 was unjustified.
2. Deduction under Section 10AA on Disallowance under Section 14A
- Relevant Legal Framework and Precedents: The AO allowed deductions under Section 10AA on disallowance made under Section 14A, based on the decision in CIT vs. Gem Plus Jewellery India Ltd.
- Court's Interpretation and Reasoning: The Tribunal found that the AO's decision was consistent with the jurisdictional High Court's ruling in the Gem Plus case, which allowed such deductions.
- Key Evidence and Findings: The AO did not make any addition on this count due to the High Court's decision, which the Tribunal found to be a correct application of the law.
- Application of Law to Facts: The Tribunal held that since the AO's decision was in line with a binding High Court precedent, it was not erroneous.
- Treatment of Competing Arguments: The Tribunal rejected the PCIT's argument that the AO's lack of detailed inquiry rendered the order erroneous, emphasizing that the AO's reliance on a binding precedent was sufficient.
- Conclusions: The Tribunal concluded that the AO's decision to allow the deduction was not erroneous, as it was based on established legal precedent.
SIGNIFICANT HOLDINGS
- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "The order is certainly not erroneous since the Tribunal in assessee's own case has consistently allowed the deduction u/s. 10AA from A.Y. 2013-14 to A.Y. 2016-17."
- Core Principles Established: For Section 263 to be invoked, both the conditions of the order being erroneous and prejudicial to the Revenue must be satisfied. Reliance on binding judicial precedents cannot be considered erroneous.
- Final Determinations on Each Issue: The Tribunal set aside the PCIT's order, holding that the AO's order was not erroneous and thus, the PCIT's invocation of Section 263 was not justified.
Revision u/s 263 - Allowability of deduction u/s. 10AA challenged - AO's decision to allow deductions under Section 10AA on disallowance made u/s 14A - HELD THAT:- PCIT himself has given a finding in the notice that disallowance u/s. 10AA of the Act was made in the earlier years for A.Y. 2013-14 to A.Y. 2016-17 which was allowed by the ITAT, however, the Department has not accepted the decision and filed appeal before the Hon’ble Bombay High Court which is currently sub-judice before the Hon’ble Court.
Therefore, once the Tribunal has taken a view in favour of the assessee on the issue of deduction u/s. 10AA, merely because the Revenue has filed an appeal before the Hon’ble Bombay High Court against the order of the Tribunal which is pending for decision, the order of the AO cannot be held to be erroneous although it may be prejudicial to the interest of the Revenue.
Disallowance made by the AO u/s. 14A was allowed by him as deduction u/s. 10AA in light of the decision of Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] Therefore, once the AO has allowed the claim of deduction u/s. 10AA on the enhanced disallowance u/s. 14A which is in consonance with the decision of the Hon’ble Jurisdictional High Court, the order cannot be held to be erroneous although it may be prejudicial to the interest of the Revenue.
Thus PCIT in our opinion is not justified in assuming jurisdiction u/s. 263 as order is certainly not erroneous lthough it may be prejudicial to the interest of the Revenue. Since the twin conditions are not satisfied in the instant case, set aside the order of ld. PCIT and the grounds raised by the assessee are allowed.
Revision u/s 263 - Allowability of deduction u/s. 10AA challenged - AO's decision to allow deductions under Section 10AA on disallowance made u/s 14A - HELD THAT:- PCIT himself has given a finding in the notice that disallowance u/s. 10AA of the Act was made in the earlier years for A.Y. 2013-14 to A.Y. 2016-17 which was allowed by the ITAT, however, the Department has not accepted the decision and filed appeal before the Hon’ble Bombay High Court which is currently sub-judice before the Hon’ble Court.
Therefore, once the Tribunal has taken a view in favour of the assessee on the issue of deduction u/s. 10AA, merely because the Revenue has filed an appeal before the Hon’ble Bombay High Court against the order of the Tribunal which is pending for decision, the order of the AO cannot be held to be erroneous although it may be prejudicial to the interest of the Revenue.
Disallowance made by the AO u/s. 14A was allowed by him as deduction u/s. 10AA in light of the decision of Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] Therefore, once the AO has allowed the claim of deduction u/s. 10AA on the enhanced disallowance u/s. 14A which is in consonance with the decision of the Hon’ble Jurisdictional High Court, the order cannot be held to be erroneous although it may be prejudicial to the interest of the Revenue.
Thus PCIT in our opinion is not justified in assuming jurisdiction u/s. 263 as order is certainly not erroneous lthough it may be prejudicial to the interest of the Revenue. Since the twin conditions are not satisfied in the instant case, set aside the order of ld. PCIT and the grounds raised by the assessee are allowed.
The primary legal issue considered in this case was whether the income derived from the cultivation of mushrooms by the assessee should be classified as agricultural income, which is exempt under Section 10(1) of the Income Tax Act, 1961, or as business income, which is taxable. This determination hinges on whether mushroom cultivation constitutes an agricultural activity under the Act.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The Income Tax Act, 1961, under Section 10(1), exempts agricultural income from taxation. The definition of agricultural income and the conditions under which income can be classified as agricultural are crucial to this case. The court considered precedents, including the Supreme Court's interpretations in cases like CIT Vs. Raja Benoy Kumar Sahas Roy and CIT Vs. Kokine Dairy, which provide guidance on what constitutes agricultural income.
Court's Interpretation and Reasoning:
The Tribunal examined whether the cultivation of mushrooms involves basic agricultural operations and whether the income derived from such cultivation falls under the definition of agricultural income. The court analyzed the nature of mushroom cultivation, which involves growing mushrooms in controlled environments using compost and other materials, rather than traditional soil-based farming.
Key Evidence and Findings:
The assessee argued that mushroom cultivation is recognized as an agricultural activity by various government bodies, including the Agricultural and Processed Food Products Export Development Authority (APEDA) and the Indian Council of Agricultural Research (ICAR). The assessee also maintained separate books for mushroom farming and business activities, claiming expenses only against the revenue from mushroom farming.
Application of Law to Facts:
The Tribunal considered the decision of the Special Bench of the ITAT, Hyderabad, in DCIT v/s Inventaa Industries Pvt. Ltd., which held that mushroom cultivation is an agricultural activity because it involves basic operations performed on land with human skill and labor. The Tribunal found that the facts of the present case were similar to those in the Inventaa Industries case, supporting the classification of mushroom income as agricultural.
Treatment of Competing Arguments:
The Department argued that mushroom cultivation is a business activity, citing the use of factory buildings, controlled environments, and the absence of traditional land-based farming operations. The Department relied on the ITAT Chandigarh's decision in Chander Mohan Vs ITO. However, the Tribunal found the Hyderabad Special Bench decision more persuasive, as it directly addressed the agricultural nature of mushroom cultivation.
Conclusions:
The Tribunal concluded that the income from mushroom cultivation by the assessee qualifies as agricultural income, exempt under Section 10(1) of the Act. The Tribunal relied on the Special Bench decision, which provided a comprehensive analysis of the agricultural nature of mushroom cultivation.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
The Tribunal noted, "Mushroom, like vegetables and other crops or plants, are grown on soil/land and are always attached to the soil until harvested. They draw their nourishment from the soil only. The product mushroom does not arise from any secondary agricultural operation."
Core Principles Established:
The Tribunal established that mushroom cultivation involves basic agricultural operations performed on land and, therefore, the income derived from such activities should be classified as agricultural income. The Tribunal emphasized the importance of human skill and labor in the cultivation process, aligning with the definition of agricultural income under the Act.
Final Determinations on Each Issue:
The Tribunal upheld the decision of the CIT(A), which classified the income from mushroom cultivation as agricultural income. The Tribunal dismissed the Department's appeal, affirming that the income is exempt under Section 10(1) of the Income Tax Act, 1961.
In conclusion, the Tribunal's decision reinforces the classification of mushroom cultivation as an agricultural activity, exempting the income derived from such cultivation from taxation under the Income Tax Act. This decision aligns with the precedent set by the Special Bench of the ITAT, Hyderabad, and emphasizes the agricultural nature of mushroom farming despite the use of modern cultivation techniques.
Classification as agricultural income - cultivation of mushroom falls within the purview of agriculture or not? - HELD THAT:- As decided in M/S. INVENTAA INDUSTRIES PRIVATE LIMITED [2018 (8) TMI 69 - ITAT HYDERABAD] held that “Hence as basic operations are performed by expenditure of human skill and labour on land by the assessee, which results in the raising of the “product” called “Edible white button mushroom” on the land and as this product has utility for consumption, trade and commerce, the income arising from the sale of this product is agricultural income and hence exempt u/s 10(1) of the Act”.
Thus, consistent with the view taken therein, we decline to interfere with the order passed by the first appellate authority and dismiss the grounds raised by the Revenue.
Classification as agricultural income - cultivation of mushroom falls within the purview of agriculture or not? - HELD THAT:- As decided in M/S. INVENTAA INDUSTRIES PRIVATE LIMITED [2018 (8) TMI 69 - ITAT HYDERABAD] held that “Hence as basic operations are performed by expenditure of human skill and labour on land by the assessee, which results in the raising of the “product” called “Edible white button mushroom” on the land and as this product has utility for consumption, trade and commerce, the income arising from the sale of this product is agricultural income and hence exempt u/s 10(1) of the Act”.
Thus, consistent with the view taken therein, we decline to interfere with the order passed by the first appellate authority and dismiss the grounds raised by the Revenue.
Rectification u/s 154 - denial of deduction u/s 80JJAA as all the conditions laid down u/s 80JJAA - HELD THAT:- The claim of deduction u/s 80JJAA of the Act being a controversial issue is beyond the ambit of provisions of section 154. It is pertinent to note that the scope of rectification of mistake u/s 154 of the Act is very limited and circumvented only to rectify the mistake apparent from record and cannot be extend ed to the issues which requires a long drawn reasoning and decisions.
The claim of deduction u/s 80JJAA cannot be disallowed without examining the relevant facts as well as law on the point. Accordingly disallowance of deduction u/s 80JJAA of the Act by the CPC u/s 154 of the Act is not valid as the said issue is beyond the scope of provisions of section 154 - Appeal of the assessee is allowed.
Rectification u/s 154 - denial of deduction u/s 80JJAA as all the conditions laid down u/s 80JJAA - HELD THAT:- The claim of deduction u/s 80JJAA of the Act being a controversial issue is beyond the ambit of provisions of section 154. It is pertinent to note that the scope of rectification of mistake u/s 154 of the Act is very limited and circumvented only to rectify the mistake apparent from record and cannot be extend ed to the issues which requires a long drawn reasoning and decisions.
The claim of deduction u/s 80JJAA cannot be disallowed without examining the relevant facts as well as law on the point. Accordingly disallowance of deduction u/s 80JJAA of the Act by the CPC u/s 154 of the Act is not valid as the said issue is beyond the scope of provisions of section 154 - Appeal of the assessee is allowed.
Violation of principles of natural justice - Seeking to forbear the second respondent from conducting adjudication pursuant to the SCN without acceding to the request made by the petitioners for cross examination of the persons and officers of the Directorate of Revenue Intelligence - HELD THAT:- No prejudice would be caused to the respondents in the light of the fact that as on date, the petitioner is having the benefit of interim stay of all further proceedings pursuant to the issuance of the Show Cause Notices to the respective petitioners to consider the petitioners' representation through their interim replies seeking for right of cross examination of the persons mentioned therein, on merits and in accordance with law within a time frame to be fixed by this Court, after affording one personal hearing to the petitioners. If the respondents come to the conclusion that the petitioners are not entitled to cross examine the witnesses and if they decide to reject the petitioners' request, by passing a speaking order in respect of the request made by the petitioners that the petitioners are not entitled to cross examine the persons, they have a right to pass a final adjudication order pursuant to the issuance of the Show Cause Notices, on merits and in accordance with law.
The order passed on the petitioners' request seeking for cross examination has to be communicated to the petitioners within a period of one week from the date of passing of such an order.
Petition disposed off.
Violation of principles of natural justice - Seeking to forbear the second respondent from conducting adjudication pursuant to the SCN without acceding to the request made by the petitioners for cross examination of the persons and officers of the Directorate of Revenue Intelligence - HELD THAT:- No prejudice would be caused to the respondents in the light of the fact that as on date, the petitioner is having the benefit of interim stay of all further proceedings pursuant to the issuance of the Show Cause Notices to the respective petitioners to consider the petitioners' representation through their interim replies seeking for right of cross examination of the persons mentioned therein, on merits and in accordance with law within a time frame to be fixed by this Court, after affording one personal hearing to the petitioners. If the respondents come to the conclusion that the petitioners are not entitled to cross examine the witnesses and if they decide to reject the petitioners' request, by passing a speaking order in respect of the request made by the petitioners that the petitioners are not entitled to cross examine the persons, they have a right to pass a final adjudication order pursuant to the issuance of the Show Cause Notices, on merits and in accordance with law.
The order passed on the petitioners' request seeking for cross examination has to be communicated to the petitioners within a period of one week from the date of passing of such an order.
Petition disposed off.
(A) Whether or not the present petition is barred by delay and laches.
(B) Whether or not the present petitioners are guilty of suppression of material facts and continuance of the present petition would tantamount to an abuse of process of law.
(C) Whether the issues raised in the present petition are barred by Res Judicata.
ISSUE-WISE DETAILED ANALYSIS
(A) WHETHER OR NOT THE PRESENT PETITION IS BARRED BY DELAY AND LACHES.
The petitioners filed the present Writ Petition on 22.01.2020 seeking to quash Annexure-26 dated 16.01.2018. The petition was filed more than two years after the impugned order, which stated that similar complaints had been previously inspected under Section 209 of the Companies Act, 2013. The petitioners' claim is based on alleged fraud regarding share transfers dating back to 1970, making the claim barred by delay and laches. The Court found that the petitioners' claim was hopelessly barred by delay, as the alleged fraud occurred several decades ago.
The Court also noted that the writ petition raised private law questions, making it unsuitable for a writ court. However, the Court chose to address other issues rather than dismiss the petition solely on maintainability grounds.
(B) WHETHER OR NOT THE PRESENT PETITIONERS ARE GUILTY OF SUPPRESSION OF MATERIAL FACTS AND CONTINUANCE OF THE PRESENT PETITION WOULD TANTAMOUNT TO AN ABUSE OF PROCESS OF LAW.
The Court examined the backdrop of other proceedings involving similar issues and parties. It found that the petitioners failed to disclose material facts, including previous civil suits and writ petitions that had been dismissed. The petitioners were involved in Civil Suit No. 18 of 2015, which was dismissed for being barred by law and limitation. The suit was dismissed under Order 7 Rule 11 of the CPC, and the decision was upheld on appeal.
The Court noted that the petitioners had filed multiple petitions on the same subject matter, which were dismissed at various judicial levels, including the Supreme Court. The Court concluded that the petitioners were guilty of suppressing material facts and abusing the process of law by attempting to re-litigate issues that had already been decided.
(C) WHETHER THE ISSUES RAISED IN THE PRESENT PETITION ARE BARRED BY RES JUDICATA.
The Court applied the principle of Res Judicata, including the "Henderson Principle," which bars re-litigation of issues that could and should have been raised in previous proceedings. The Court found that the petitioners' claims were barred by Res Judicata, as the issues had been previously adjudicated in multiple proceedings.
The Court cited several judgments, including Devilal Modi v. Sales Tax Officer and Shankara Coop. Housing Society Ltd. v. M. Prabhakar, to support its conclusion that the petitioners were barred from raising issues that were or could have been addressed in earlier proceedings.
The Court emphasized that the petitioners' conduct amounted to an abuse of the judicial process, as they sought to re-litigate matters already decided by competent courts. The petitioners' actions were seen as a deliberate attempt to fragment disputes and prolong litigation.
SIGNIFICANT HOLDINGS
The Court dismissed the writ petition, finding that the petitioners were guilty of delay, suppression of material facts, and abuse of the judicial process. The petitioners were ordered to pay costs of Rs. 20,000 to the Orissa High Court Bar Association Welfare Funds within four weeks.
The Court held that the petitioners' claims were barred by Res Judicata, as they had been previously adjudicated in multiple proceedings. The Court emphasized the importance of finality in litigation and the need to prevent re-litigation of issues that could have been raised earlier.
The Court expressed hope that the petitioners would refrain from abusing the legal process in the future and advised them to avoid engaging in vexatious litigation.
Illegal share transfer - Maintainability of petition - present petition is barred by delay and latches or not - suppression of material facts and continuance of the present petition would tantamount to an abuse of process of law or not - issues raised in the present petition are barred by Res Judicata or not.
Whether or not the present petition is barred by delay and latches? - HELD THAT:- The substratum of the dispute relates to illegal share transfer and the same has been litigated and reagitated time and again and no useful purpose will be served in oppressing the opposite parties herein. The only addition in the present petition is to create a “cause of action” seems to be that certain RTI applications have been made by various parties and no suitable response has been received with regard to them which seems to be more like an afterthought which has been introduced to create a fresh cause of action in order to make the present petition maintainable.
Even otherwise the present petition raises disputed question of facts thus a Writ Court not the appropriate remedy, especially given the fact that the Companies Act is a self-contained Code and in relation to matters therein, there is a specific bar from other Courts entertaining pleas which are the subject matter of the said Act. However, in the present scenario this Court deems it fit to go into other issues as well and does not incline to reject the present petition on the ground of maintainability alone.
Whether or not the present petitioners are guilty of suppression of material facts and continuance of the present petition would tantamount to an abuse of process of law? - HELD THAT:- This Court cannot ignore the fact the Petitioners might be in cahoots with other setup unscrupulous persons who have earlier agitated the self-same issue guised as “public interest petitions”. Although a party is never precluded from raising genuine claims in collusion with others are indulging in blatant forum-shopping and are taking recourse to multiple parallel proceedings for the same subject matter. It is well-settled that re-litigation of the same matter itself amounts to an abuse of the process of law and ought to be nipped at the bud.
This Court in the given factual backdrop is constrained to hold that not only has there been a suppression of material facts but, in fact, there are persons who seem to be relentless in their pursuit to oppress Opposite Party No. 8 company for reasons best known to them. Such a fact cannot be lost sight of and is a matter of grave concern and needs to be dealt with sternly.
In the case of Prestige Lights Ltd. v. SBI [2007 (8) TMI 446 - SUPREME COURT] it was held that in exercising power under Article 226 of the Constitution of India the High Court is not just a court of law, but is also a court of equity and a person who invokes the High Court's jurisdiction under Article 226 of the Constitution is duty-bound to place all the facts before the Court without any reservation. If there is suppression of material facts or twisted facts have been placed before the High Court then it will be fully justified in refusing to entertain a petition filed under Article 226 of the Constitution.
The Petitioners have dishonestly not disclosed the above material facts in the present writ petition. The Petitioners have abused the process of law by suppressing the aforesaid litigations. It is well-settled that writ remedy is an equitable remedy and since the Petitioners have not approached the court with clean hands it is appropriate that their challenge deserves to be rejected.
Whether the issues raised in the present petition are barred by Res Judicata? - HELD THAT:- . The Hon’ble Supreme Court recently in the case of Celir LLP Vs Sumati Prasad Bafna & Ors. [2024 (12) TMI 879 - SUPREME COURT] has exhaustively dealt with the principle of Res Judciata/ Constructive Res Judicata and has propounded the “Henderson principle” as a corollary of Constructive Res-Judicata. It is therein been recognized that the is intrinsically tied to “issue estoppel” and “cause of action estoppel”.
The Supreme Court in the case of Devilal Modi v. Sales Tax Officer, Ratlam [1964 (10) TMI 43 - SUPREME COURT], clarified and highlighted the need to extend rule of constructive res judicata to writ proceedings. It was held that it would not be open to the party to take one proceeding after another and urge new grounds every time, and would be inconsistent with considerations of public policy.
The Petitioner No. 2 herein who had petitioned this Court earlier could have and ought to have relied upon the grounds with relation to the applications made to the registrar of companies (between 2013 to 2015) at the time of filing of that Writ Petition. After having not being done it would be impermissible to allow the same petitioners to urge the said facts which were otherwise had occurred at that point in time when that prior Writ Petition had been filed. That being the case, the instant case is squarely covered by the discussion here in above. The subsequent/ successive petition i.e. the present petition would be barred by the principles of constructive res judicata by applying the “Hendersen principle”.
Conclusion - This Court arrives at a clear and unequivocal conclusion that the present Writ Petition is not only liable to be dismissed at the very threshold on account of the principles discussed and issues framed hereinabove. But also, on account of the fact that the Petitioners have approached this court with unclean hands and the conduct of the petitioners herein leaves much to be desired. This Court can only express hope that the petitioners will be well advised not to indulge in such unbecoming practice of abusing the process of law in the future.
Petition dismissed.
Illegal share transfer - Maintainability of petition - present petition is barred by delay and latches or not - suppression of material facts and continuance of the present petition would tantamount to an abuse of process of law or not - issues raised in the present petition are barred by Res Judicata or not.
Whether or not the present petition is barred by delay and latches? - HELD THAT:- The substratum of the dispute relates to illegal share transfer and the same has been litigated and reagitated time and again and no useful purpose will be served in oppressing the opposite parties herein. The only addition in the present petition is to create a “cause of action” seems to be that certain RTI applications have been made by various parties and no suitable response has been received with regard to them which seems to be more like an afterthought which has been introduced to create a fresh cause of action in order to make the present petition maintainable.
Even otherwise the present petition raises disputed question of facts thus a Writ Court not the appropriate remedy, especially given the fact that the Companies Act is a self-contained Code and in relation to matters therein, there is a specific bar from other Courts entertaining pleas which are the subject matter of the said Act. However, in the present scenario this Court deems it fit to go into other issues as well and does not incline to reject the present petition on the ground of maintainability alone.
Whether or not the present petitioners are guilty of suppression of material facts and continuance of the present petition would tantamount to an abuse of process of law? - HELD THAT:- This Court cannot ignore the fact the Petitioners might be in cahoots with other setup unscrupulous persons who have earlier agitated the self-same issue guised as “public interest petitions”. Although a party is never precluded from raising genuine claims in collusion with others are indulging in blatant forum-shopping and are taking recourse to multiple parallel proceedings for the same subject matter. It is well-settled that re-litigation of the same matter itself amounts to an abuse of the process of law and ought to be nipped at the bud.
This Court in the given factual backdrop is constrained to hold that not only has there been a suppression of material facts but, in fact, there are persons who seem to be relentless in their pursuit to oppress Opposite Party No. 8 company for reasons best known to them. Such a fact cannot be lost sight of and is a matter of grave concern and needs to be dealt with sternly.
In the case of Prestige Lights Ltd. v. SBI [2007 (8) TMI 446 - SUPREME COURT] it was held that in exercising power under Article 226 of the Constitution of India the High Court is not just a court of law, but is also a court of equity and a person who invokes the High Court's jurisdiction under Article 226 of the Constitution is duty-bound to place all the facts before the Court without any reservation. If there is suppression of material facts or twisted facts have been placed before the High Court then it will be fully justified in refusing to entertain a petition filed under Article 226 of the Constitution.
The Petitioners have dishonestly not disclosed the above material facts in the present writ petition. The Petitioners have abused the process of law by suppressing the aforesaid litigations. It is well-settled that writ remedy is an equitable remedy and since the Petitioners have not approached the court with clean hands it is appropriate that their challenge deserves to be rejected.
Whether the issues raised in the present petition are barred by Res Judicata? - HELD THAT:- . The Hon’ble Supreme Court recently in the case of Celir LLP Vs Sumati Prasad Bafna & Ors. [2024 (12) TMI 879 - SUPREME COURT] has exhaustively dealt with the principle of Res Judciata/ Constructive Res Judicata and has propounded the “Henderson principle” as a corollary of Constructive Res-Judicata. It is therein been recognized that the is intrinsically tied to “issue estoppel” and “cause of action estoppel”.
The Supreme Court in the case of Devilal Modi v. Sales Tax Officer, Ratlam [1964 (10) TMI 43 - SUPREME COURT], clarified and highlighted the need to extend rule of constructive res judicata to writ proceedings. It was held that it would not be open to the party to take one proceeding after another and urge new grounds every time, and would be inconsistent with considerations of public policy.
The Petitioner No. 2 herein who had petitioned this Court earlier could have and ought to have relied upon the grounds with relation to the applications made to the registrar of companies (between 2013 to 2015) at the time of filing of that Writ Petition. After having not being done it would be impermissible to allow the same petitioners to urge the said facts which were otherwise had occurred at that point in time when that prior Writ Petition had been filed. That being the case, the instant case is squarely covered by the discussion here in above. The subsequent/ successive petition i.e. the present petition would be barred by the principles of constructive res judicata by applying the “Hendersen principle”.
Conclusion - This Court arrives at a clear and unequivocal conclusion that the present Writ Petition is not only liable to be dismissed at the very threshold on account of the principles discussed and issues framed hereinabove. But also, on account of the fact that the Petitioners have approached this court with unclean hands and the conduct of the petitioners herein leaves much to be desired. This Court can only express hope that the petitioners will be well advised not to indulge in such unbecoming practice of abusing the process of law in the future.
Petition dismissed.
Public offer date - Determination of date on which a public announcement of an open offer, in terms of clause (1) to Regulation 20, has been made - It is the case of the appellants that the date on which the public announcement was made would be 18.01.2025 - case of the private respondents that the public offer date must be taken as 03.10.2023 and, therefore, the application filed by the appellants is belated and beyond time.
HELD THAT:- Clause (9) of Regulation 20 states that, upon the public announcement of a competing offer, an acquirer who had made the preceding offer shall be entitled to revise the terms of his open offer provided the revised terms are more favourable to the shareholders of the target company.
The acquirers making the competing offers shall be entitled to make upward revisions of the offer price at any time up to one working day prior to the commencement of the tendering period.
The tendering period, we are informed, has come to an end today, that is, on 07.02.2025. During the course of arguments, it was noted that there have been several attempts to stall the public offer, but without success.
We have noted the said aspect, but at the same time, we have also taken into account the fact that the application filed by the appellants is still pending consideration by the SEBI and has not been disposed of. SEBI would be more concerned about public investors and their rights and interests.
The main question that arises and has to be decided by the SEBI relates to the date of public announcement of the open offer, as contemplated in Regulation 20(1) of the 2011 SEBI Regulations. The second question would be whether or not to grant exemption, if the situation requires it. Third issue relates to the public offer price.
It is pointed out by the private respondents that they deposited a sum of ₹330 crores way back on 26.09.2023 in an escrow account.
Keeping all the aforesaid facts in mind, we are inclined to pass the following order: -
1. The appellant, Digvijay Laxhamsinh Gaekwad (Danny Gaekwad) or their nominee/applicant before SEBI, as suggested by his counsel, shall deposit a sum of ₹600 crores in terms of the 2011 SEBI Regulations, in the form of cash and/or bank guarantee, on or before 12.02.2025. In case the amount is not deposited by the said date, the directions in the present order shall be automatically vacated without further reference to the Court.
2. The public offer, which is to close today, will be continued till 12.02.2025. In case the appellant, Digvijay Laxhamsinh Gaekwad (Danny Gaekwad) or their nominee/applicant before SEBI, deposits ₹600 crores in terms of the 2011 SEBI Regulations, the offer will continue till the end of third day post the date of the order to be passed by SEBI on the application of the appellants.
3. A party aggrieved by the order passed by SEBI would be entitled to take recourse to an appropriate remedy.
Present directions are in the nature of an interim order.
Public offer date - Determination of date on which a public announcement of an open offer, in terms of clause (1) to Regulation 20, has been made - It is the case of the appellants that the date on which the public announcement was made would be 18.01.2025 - case of the private respondents that the public offer date must be taken as 03.10.2023 and, therefore, the application filed by the appellants is belated and beyond time.
HELD THAT:- Clause (9) of Regulation 20 states that, upon the public announcement of a competing offer, an acquirer who had made the preceding offer shall be entitled to revise the terms of his open offer provided the revised terms are more favourable to the shareholders of the target company.
The acquirers making the competing offers shall be entitled to make upward revisions of the offer price at any time up to one working day prior to the commencement of the tendering period.
The tendering period, we are informed, has come to an end today, that is, on 07.02.2025. During the course of arguments, it was noted that there have been several attempts to stall the public offer, but without success.
We have noted the said aspect, but at the same time, we have also taken into account the fact that the application filed by the appellants is still pending consideration by the SEBI and has not been disposed of. SEBI would be more concerned about public investors and their rights and interests.
The main question that arises and has to be decided by the SEBI relates to the date of public announcement of the open offer, as contemplated in Regulation 20(1) of the 2011 SEBI Regulations. The second question would be whether or not to grant exemption, if the situation requires it. Third issue relates to the public offer price.
It is pointed out by the private respondents that they deposited a sum of ₹330 crores way back on 26.09.2023 in an escrow account.
Keeping all the aforesaid facts in mind, we are inclined to pass the following order: -
1. The appellant, Digvijay Laxhamsinh Gaekwad (Danny Gaekwad) or their nominee/applicant before SEBI, as suggested by his counsel, shall deposit a sum of ₹600 crores in terms of the 2011 SEBI Regulations, in the form of cash and/or bank guarantee, on or before 12.02.2025. In case the amount is not deposited by the said date, the directions in the present order shall be automatically vacated without further reference to the Court.
2. The public offer, which is to close today, will be continued till 12.02.2025. In case the appellant, Digvijay Laxhamsinh Gaekwad (Danny Gaekwad) or their nominee/applicant before SEBI, deposits ₹600 crores in terms of the 2011 SEBI Regulations, the offer will continue till the end of third day post the date of the order to be passed by SEBI on the application of the appellants.
3. A party aggrieved by the order passed by SEBI would be entitled to take recourse to an appropriate remedy.
Present directions are in the nature of an interim order.
The core legal issues considered by the Court in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Exclusion of Moratorium Period under IBC
Issue 2: Justification for Dismissal by Trial Court
3. SIGNIFICANT HOLDINGS
Seeking restoration of the suit - Exclusion of period of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) for filing an application under Order IX Rule 9 of the Code of Civil Procedure, 1908 (CPC) for restoration of suits dismissed for non-prosecution - HELD THAT:- The proceedings under the IBC were initiated by the appellant/plaintiff, i.e., the erstwhile Corporate Debtor on 29.01.2018. Thus, there is no merit in the plea that the application under Order IX Rule 9 of the CPC was filed by the same set of counsels, for the simple reason that the moratorium that crept in on filing of the proceedings under the IBC left no legal right or power in the Ex-Directors/Management to continue with the civil suit. The plea by the learned counsel for the respondent that the order dated 14.05.2018 applied moratorium only to suits or legal proceedings instituted against the Corporate Debtor, and not to those initiated by the Corporate Debtor, is only recorded to be rejected.
This Court finds merit in the plea advanced by the learned counsel for the appellant/plaintiff that the period of moratorium, i.e., from 14.05.2018 to 28.11.2019, must be excluded. It is during such period that the two suits were dismissed for non-prosecution on 04.06.2018. The fact that the application was filed on 06.12.2018, despite instructions from the IRP on 05.10.2018, does not carry significant weight, especially considering that the appellant/plaintiff was entangled in the Corporate Insolvency Resolution Process, which was eventually successful and resulted in the revival of the company. The said delay, if any, ought to be condoned.
Conclusion - The period of moratorium under Section 14 of the IBC must be excluded when computing the limitation period for filing restoration applications under Order IX Rule 9 of the CPC.
The impugned order set aside - matter is remanded back to the learned Trial Court for further trial of the matter in accordance with law - appeal allowed.
Seeking restoration of the suit - Exclusion of period of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) for filing an application under Order IX Rule 9 of the Code of Civil Procedure, 1908 (CPC) for restoration of suits dismissed for non-prosecution - HELD THAT:- The proceedings under the IBC were initiated by the appellant/plaintiff, i.e., the erstwhile Corporate Debtor on 29.01.2018. Thus, there is no merit in the plea that the application under Order IX Rule 9 of the CPC was filed by the same set of counsels, for the simple reason that the moratorium that crept in on filing of the proceedings under the IBC left no legal right or power in the Ex-Directors/Management to continue with the civil suit. The plea by the learned counsel for the respondent that the order dated 14.05.2018 applied moratorium only to suits or legal proceedings instituted against the Corporate Debtor, and not to those initiated by the Corporate Debtor, is only recorded to be rejected.
This Court finds merit in the plea advanced by the learned counsel for the appellant/plaintiff that the period of moratorium, i.e., from 14.05.2018 to 28.11.2019, must be excluded. It is during such period that the two suits were dismissed for non-prosecution on 04.06.2018. The fact that the application was filed on 06.12.2018, despite instructions from the IRP on 05.10.2018, does not carry significant weight, especially considering that the appellant/plaintiff was entangled in the Corporate Insolvency Resolution Process, which was eventually successful and resulted in the revival of the company. The said delay, if any, ought to be condoned.
Conclusion - The period of moratorium under Section 14 of the IBC must be excluded when computing the limitation period for filing restoration applications under Order IX Rule 9 of the CPC.
The impugned order set aside - matter is remanded back to the learned Trial Court for further trial of the matter in accordance with law - appeal allowed.
Scope of SCN - Appellant was registered under the category of ‘Manpower Recruitment and Supply Agency Services’ but was simultaneously providing certain other services without intimating the Department - difference in figures of amounts reflected in ST-3 Returns vis-à-vis those disclosed in P & L A/c and Balance Sheet - Invocation of Extended period of limitation.
Scope of SCN - HELD THAT:- The SCN nowhere specified the nature of services on which service tax was sought to be recovered. Since the period covered by the SCN was prior to 01.07.2012 and the charge of service tax under Section 66 during that period was only on services defined under various clauses of clause (105) of Section 65, hence the SCN was clearly vague and not sustainable in law. While it is correct that the nature of ‘other services’ were described in the adjudication order, but the SCN being completely silent on the nature of services, the deficiency in SCN cannot be removed by the adjudication order, as SCN is the foundation of the case set up by the revenue and revenue cannot be permitted to travel beyond the scope of SCN, as held in CCE vs. Shital International [2010 (10) TMI 19 - SUPREME COURT].
Invocation of Extended period of limitation - HELD THAT:- The demand is barred by limitation having been raised by invoking extended period of limitation. A perusal of the appeal records shows that the demand is worked out on the figures disclosed by the Appellant in its Balance Sheet and Profit & Loss A/c. This Tribunal in catena of cases held that demand based on figures of Balance Sheet, which is a public document, cannot be made by invoking extended period of limitation.
Since the SCN was issued on 20.09.2013, the demand of service tax beyond the period of eighteen months from 20.09.2013 i.e. till 20.03.2012 is in any case barred by limitation. However, since the SCN lacks material particulars for raising the demand, the demand for the period 20.03.2012 to 20.09.2013 cannot be sustained. Accordingly, the demand of service tax of Rs.5,11,989/- along with interest and equal penalty under Section 78 are set-aside.
Conclusion - The demand for service tax and penalties set aside due to limitations in the SCN and the lack of specificity regarding the nature of services.
Appeal allowed.
Scope of SCN - Appellant was registered under the category of ‘Manpower Recruitment and Supply Agency Services’ but was simultaneously providing certain other services without intimating the Department - difference in figures of amounts reflected in ST-3 Returns vis-à-vis those disclosed in P & L A/c and Balance Sheet - Invocation of Extended period of limitation.
Scope of SCN - HELD THAT:- The SCN nowhere specified the nature of services on which service tax was sought to be recovered. Since the period covered by the SCN was prior to 01.07.2012 and the charge of service tax under Section 66 during that period was only on services defined under various clauses of clause (105) of Section 65, hence the SCN was clearly vague and not sustainable in law. While it is correct that the nature of ‘other services’ were described in the adjudication order, but the SCN being completely silent on the nature of services, the deficiency in SCN cannot be removed by the adjudication order, as SCN is the foundation of the case set up by the revenue and revenue cannot be permitted to travel beyond the scope of SCN, as held in CCE vs. Shital International [2010 (10) TMI 19 - SUPREME COURT].
Invocation of Extended period of limitation - HELD THAT:- The demand is barred by limitation having been raised by invoking extended period of limitation. A perusal of the appeal records shows that the demand is worked out on the figures disclosed by the Appellant in its Balance Sheet and Profit & Loss A/c. This Tribunal in catena of cases held that demand based on figures of Balance Sheet, which is a public document, cannot be made by invoking extended period of limitation.
Since the SCN was issued on 20.09.2013, the demand of service tax beyond the period of eighteen months from 20.09.2013 i.e. till 20.03.2012 is in any case barred by limitation. However, since the SCN lacks material particulars for raising the demand, the demand for the period 20.03.2012 to 20.09.2013 cannot be sustained. Accordingly, the demand of service tax of Rs.5,11,989/- along with interest and equal penalty under Section 78 are set-aside.
Conclusion - The demand for service tax and penalties set aside due to limitations in the SCN and the lack of specificity regarding the nature of services.
Appeal allowed.
Short payment of service tax - classification of service - preparing the advertising material - advertising service or not - extended period of limitation.
Classification of service - preparing the advertising material - advertising service or not - HELD THAT:- The appellants are engaged only in writing and/or printing banners which were given to them by the clients. They had no role in the design and conceptualization of the advertisement. It has been held in the cases cited above, that mere preparing the advertising material does not come under the ambit of advertising and therefore, the activity undertaken by the appellants cannot be held to be “advertisement agency service”.
Extended period of limitation - HELD THAT:- The show cause notice has been issued invoking the extended period. However, no positive act of suppression, mis-statement etc. on the part of the appellants has been brought on record. Further, the show cause notice has been issued on the basis of the data available with the Income Tax Department in the form of TDS details and 26AS statements. Revenue has not conducted any enquiry so as to ascertain what was the service rendered? When it was rendered? To whom it was rendered? What was the consideration received by the appellants? etc. The burden of proving the same was with the Department for alleging non-payment of service tax by the appellants. Such a confirmation of duty cannot be sustained. Extended period cannot be invoked under such circumstances.
Conclusion - i) Mere preparing the advertising material does not come under the ambit of advertising and therefore, the activity undertaken by the appellants cannot be held to be “advertisement agency service”. ii) Extended period cannot be invoked.
Appeal allowed.
Short payment of service tax - classification of service - preparing the advertising material - advertising service or not - extended period of limitation.
Classification of service - preparing the advertising material - advertising service or not - HELD THAT:- The appellants are engaged only in writing and/or printing banners which were given to them by the clients. They had no role in the design and conceptualization of the advertisement. It has been held in the cases cited above, that mere preparing the advertising material does not come under the ambit of advertising and therefore, the activity undertaken by the appellants cannot be held to be “advertisement agency service”.
Extended period of limitation - HELD THAT:- The show cause notice has been issued invoking the extended period. However, no positive act of suppression, mis-statement etc. on the part of the appellants has been brought on record. Further, the show cause notice has been issued on the basis of the data available with the Income Tax Department in the form of TDS details and 26AS statements. Revenue has not conducted any enquiry so as to ascertain what was the service rendered? When it was rendered? To whom it was rendered? What was the consideration received by the appellants? etc. The burden of proving the same was with the Department for alleging non-payment of service tax by the appellants. Such a confirmation of duty cannot be sustained. Extended period cannot be invoked under such circumstances.
Conclusion - i) Mere preparing the advertising material does not come under the ambit of advertising and therefore, the activity undertaken by the appellants cannot be held to be “advertisement agency service”. ii) Extended period cannot be invoked.
Appeal allowed.
The primary issue considered by the Appellate Tribunal was whether the Promotional and Marketing Support Services provided by the appellant, M/s Airbnb India Pvt. Ltd., to its overseas entity, M/s Airbnb Ireland, qualify as exports or whether they are classified as Intermediary Services. This determination impacts the eligibility for a refund claim of unutilized CENVAT credit.
2. ISSUE-WISE DETAILED ANALYSIS
Issue: Classification of Services as Export or Intermediary Services
- Relevant Legal Framework and Precedents: The core legal framework involves the definition of "Intermediary" under Section 2(f) of the Place of Provision of Services Rules, 2012, which describes an intermediary as a broker, agent, or any person who arranges or facilitates a provision of a service between two or more persons but does not include a person who provides the main service on his account. The Tribunal also considered CBIC Circular No. 159/15/2021 and relevant case law, including Genpact India Pvt. Ltd. and Black Rock Services India Pvt. Ltd.
- Court's Interpretation and Reasoning: The Tribunal found that the appellant provided promotional and marketing services on a principal-to-principal basis, as evidenced by the Master Service Agreement. The agreement specified that the appellant acted as an independent contractor, not as an agent or intermediary. The Tribunal emphasized that the appellant's activities did not involve facilitating services between Airbnb Ireland and third parties, but rather providing services directly to Airbnb Ireland.
- Key Evidence and Findings: The Tribunal noted that the appellant's remuneration was on a cost-plus markup basis, indicating an arm's length transaction. The Tribunal also considered the absence of a tripartite agreement and the lack of authority for the appellant to bind Airbnb Ireland or its users to any third party.
- Application of Law to Facts: The Tribunal applied the legal definition of "Intermediary" and concluded that the appellant did not meet the criteria, as the services were provided on its own account and not as a facilitator between Airbnb Ireland and its clients. The Tribunal also referenced CBIC Circulars and previous judicial decisions to support this conclusion.
- Treatment of Competing Arguments: The Tribunal addressed the Revenue's argument that the appellant acted as an intermediary due to its interaction with Airbnb Ireland's clients. The Tribunal found this argument unsubstantiated, as the appellant did not have any contractual relationship with the clients and the services were provided to Airbnb Ireland directly.
- Conclusions: The Tribunal concluded that the services provided by the appellant were not intermediary services but rather qualified as exports, entitling the appellant to a refund of the unutilized CENVAT credit.
3. SIGNIFICANT HOLDINGS
- Core Principles Established: The Tribunal established that for a service to be classified as intermediary, there must be a principal-agent relationship, involvement in arranging or facilitating services between two parties, and the service provider must not perform the main service on its own account. The Tribunal reiterated that the mere outsourcing or subcontracting of services does not automatically classify a service provider as an intermediary.
- Final Determinations on Each Issue: The Tribunal determined that the appellant's services were not intermediary in nature and thus qualified as export services. Consequently, the appellant was entitled to the refund of the unutilized CENVAT credit.
- Verbatim Quotes of Crucial Legal Reasoning: The Tribunal emphasized that "the terms of the agreements give an unmissable understanding that only the main service i.e., promotional and marketing services is being provided by the Appellant and there is no auxiliary service involved; the compensation to the appellant is on a cost-plus markup basis; appellant is an independent contractor of Airbnb Ireland; there is no agent-principal relationship."
In conclusion, the Tribunal allowed the appeal, granting the appellant the refund of the unutilized CENVAT credit, with consequential relief as per law.
Refund of the unutilized CENVAT credit - rejection on the grounds that the services rendered by the appellants are Intermediary Services in nature and therefore, cannot be treated as Export of Services - whether the appellants are appellants are intermediaries as far as the services rendered to M/s Air BNB Ireland are concerned? - HELD THAT:- The authorities below have not interpreted the clauses of the agreements and the facts of the case correctly. The terms of the agreements give an unmissable understanding that Only the main service i.e. promotional and marketing services is being provided by the Appellant and there is no auxiliary service is involved; the compensation to the appellant is on cost plus markup basis; appellant is an independent contractor of Airbnb Ireland; there is no agent-principal relationship; appellant may have entered in to subcontracts for the provision of service, agreement will be between subcontractor and the Appellant and the responsibility will be on the Appellant; the Appellant raises bills on Air BNB Ireland and not on their Customers. The appellant has no contract with the customers of Airbnb Ireland. The fact that the appellant has subcontracted does not make them an intermediary as per CBIC Circular dated 20.09.2021.
It was held in M/s Blackrock Services India Pvt Ltd [2022 (8) TMI 874 - CESTAT CHANDIGARH] following the decision in JFE Steel India Pvt Ltd [2020 (3) TMI 1342 - CESTAT CHANDIGARH] that if the case of Revenue is that the activities undertaken by the appellants in present case is not amounting to Export of Service then the proceedings need to be initiated against the appellant for demanding the service tax in respect of the taxable services provided by the appellant. In the present case no such proceedings demanding the Service Tax on these taxable services provided by the appellant have been initiated in terms of Section 73 of the Finance Act, 1994. By not initiating any such proceedings Revenue itself has allowed these taxable services provided as Export of Services. Having done so they cannot in a proceeding under Rule 5 for refund of accumulated credit take the contrary stand and deny refund treating the services provided not to be export of services.
Conclusion - The appellant's services were not intermediary in nature and thus qualified as export services. Consequently, the appellant was entitled to the refund of the unutilized CENVAT credit.
Appeal allowed.
Refund of the unutilized CENVAT credit - rejection on the grounds that the services rendered by the appellants are Intermediary Services in nature and therefore, cannot be treated as Export of Services - whether the appellants are appellants are intermediaries as far as the services rendered to M/s Air BNB Ireland are concerned? - HELD THAT:- The authorities below have not interpreted the clauses of the agreements and the facts of the case correctly. The terms of the agreements give an unmissable understanding that Only the main service i.e. promotional and marketing services is being provided by the Appellant and there is no auxiliary service is involved; the compensation to the appellant is on cost plus markup basis; appellant is an independent contractor of Airbnb Ireland; there is no agent-principal relationship; appellant may have entered in to subcontracts for the provision of service, agreement will be between subcontractor and the Appellant and the responsibility will be on the Appellant; the Appellant raises bills on Air BNB Ireland and not on their Customers. The appellant has no contract with the customers of Airbnb Ireland. The fact that the appellant has subcontracted does not make them an intermediary as per CBIC Circular dated 20.09.2021.
It was held in M/s Blackrock Services India Pvt Ltd [2022 (8) TMI 874 - CESTAT CHANDIGARH] following the decision in JFE Steel India Pvt Ltd [2020 (3) TMI 1342 - CESTAT CHANDIGARH] that if the case of Revenue is that the activities undertaken by the appellants in present case is not amounting to Export of Service then the proceedings need to be initiated against the appellant for demanding the service tax in respect of the taxable services provided by the appellant. In the present case no such proceedings demanding the Service Tax on these taxable services provided by the appellant have been initiated in terms of Section 73 of the Finance Act, 1994. By not initiating any such proceedings Revenue itself has allowed these taxable services provided as Export of Services. Having done so they cannot in a proceeding under Rule 5 for refund of accumulated credit take the contrary stand and deny refund treating the services provided not to be export of services.
Conclusion - The appellant's services were not intermediary in nature and thus qualified as export services. Consequently, the appellant was entitled to the refund of the unutilized CENVAT credit.
Appeal allowed.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Taxability of Construction Services to IIM, CEAI, and DDA
- Relevant Legal Framework and Precedents: The court referred to Circular No. 80/10/2004-S.T. and Circular No. 86/4/2006-S.T., which clarify that institutions primarily engaged in non-profit activities are not considered commercial concerns. Precedents such as Banna Ram Choudhary vs. Commissioner of Central Excise and Manisha Projects Pvt. Ltd. vs. Commissioner of Central Excise & S.T. were also considered.
- Court's Interpretation and Reasoning: The court found that IIM and CEAI are non-profit organizations, as evidenced by their incorporation documents and tax exemptions. DDA's construction was for public use, not commercial purposes.
- Application of Law to Facts: The construction services for these entities were deemed non-commercial and thus not taxable under the relevant service categories.
- Conclusions: The services provided to IIM, CEAI, and DDA were not taxable as they were for non-commercial purposes.
2. Construction Services for Private Residences
- Legal Framework and Precedents: Section 65(91a) of the Act defines a residential complex, and the court referenced Macro Marvel Projects Ltd. vs. Commissioner of Service Tax, Chennai.
- Court's Interpretation: The court concluded that single residential units do not qualify as residential complexes under the Act.
- Application of Law to Facts: The construction of single residences for Mr. Manish Arora and Mr. Anuj Dandone was not taxable.
- Conclusions: The construction services for private residences were outside the ambit of service tax.
3. Inclusion of FOC Materials in Taxable Value
- Legal Framework and Precedents: The court referenced Bhayana Builders (P) Ltd. vs. CCE, Delhi, which established that FOC materials are not includible in the taxable value.
- Court's Interpretation: The value of FOC materials provided by Sweta Estates Private Limited was not part of the consideration for service tax purposes.
- Conclusions: The demand for including FOC materials in the taxable value was not sustainable.
4. Advances and Miscellaneous Income
- Court's Interpretation: Advances related to non-taxable construction activities were not subject to service tax. Miscellaneous income was not linked to taxable activities.
- Conclusions: The service tax demand on advances and miscellaneous income was not upheld.
5. Freight and Cartage Expenses
- Court's Interpretation: The expenses were not directly related to transportation services paid to a transporter, thus not covered under GTA services.
- Conclusions: No service tax liability was found on freight and cartage expenses.
6. Alleged Tax Evasion and Suppression of Facts
- Court's Interpretation: The court found no suppression of facts as the respondent maintained transparency in its records.
- Conclusions: The department's appeal on these grounds was dismissed.
SIGNIFICANT HOLDINGS
- The court upheld that IIM, CEAI, and DDA are not commercial concerns, and their construction services are not taxable.
- Single residential unit constructions are not taxable under the relevant service categories.
- FOC materials are not includible in the taxable value for service tax.
- Advances related to non-taxable activities and miscellaneous income not linked to taxable services are not subject to service tax.
- The court dismissed the department's appeal, finding no suppression of facts or intent of tax evasion by the respondent.
Non-payment of service tax on taxable service relating to ‘Construction of Commercial or Industrial building and civil structure and ‘Works Contract' - Non-payment of Service tax on construction services provided to IIM, DDA, CEAI, Mr. Manoj Arora and Mr. Anuj Dandone - Short payment of Service tax on construction services provided to Sweta Estates Private Limited, AVA Builders Pvt. Ltd. and Birla EduTech Limited - Non-payment of Service tax on ‘Advances’ and ‘Miscellaneous Income’ shown in balance sheet - Non-payment of Service tax on ‘Freight and Cartage Expenses’ shown in balance sheet.
Non-payment of Service tax on construction services provided to IIM, DDA, CEAI, Mr. Manoj Arora and Mr. Anuj Dandone - HELD THAT:- IIMs are not-for-profit educational bodies and not in the nature of commercial concerns. It is submitted that services in relation to the construction of Noida campus for IIM, Lucknow were carried out for not-for-profit organization and constructed buildings were not primarily used for commerce or industry. Hence, the impugned services are not covered under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’ - reliance placed in the decision in the case of Banna Ram Choudhary Vs. Commissioner of Central Excise, Jaipur, [2017 (9) TMI 86 - CESTAT NEW DELHI], wherein it was held that buildings used for educational purpose by recognized educational institutions cannot be categorized as ‘commercial buildings’, and the construction thereof is not leviable to Service tax under ‘commercial or industrial construction service’.
Similarly Delhi Development Authority (DDA) is observed to be a statutory body established under Delhi Development Act, 1957 (DDA Act) with the primary objective to promote and secure the development of Delhi as stated in Section 6 of the DDA Act. It is an autonomous body which reports directly to the Ministry of Urban Development, Government of India. Hence, construction of Indoor Stadium at Siri Fort Sport Complex was for being used by the Government for holding Commonwealth Games and not for generating any profit from the same. It was a non-commercial project, and the construction was undertaken for national interest. Above all, it is submitted that the stadium is a public used for the recreation of the public. Thus, it cannot be said that construction services were used by DDA primarily for commerce or industry.
Further consulting Engineering Association of India Limited (CEAI) is incorporated under Section 25 of the Companies Act, 1956 as a ‘not-for-profit’ company as stated in Preamble of Memorandum of Association (MOA) of CEAI. Clause 5.0 of MOA of CEAI stipulates that “all the income, earnings, movable, immovable properties of the Association shall be solely utilized and applied towards the promotion of its aims and objectives only as set forth in the Memorandum of Association. No profit thereof shall be paid or transferred directly or indirectly by way of dividends, bonus, profits or in any manner whatsoever to the present or past members of the Association who shall have no personal claim on any moveable or immoveable properties of the Association or make any profits whatsoever by virtue of his membership.” - it is clear that CEAI also is a ‘not-for-profit’ organization and not in the nature of commercial concerns. It is submitted that construction services of Secretariat Building for CEAI were carried out for a not-for-profit organization and constructed buildings were not primarily used for commerce or industry. Hence, the impugned services are not covered under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’.
All onus is on department to establish that the building was being used for such purposes by which the organization using the same was making profit. We draw our support from the decision in the case of Manisha Projects Pvt. Ltd. Vs. Commissioner of Central Excise & S.T., Ghaziabad [2019 (3) TMI 448 - CESTAT ALLAHABAD]. In view of above discussions, it is held that construction services provided to IIM, DDA and CEAI are not taxable under ‘Commercial or Industrial Construction Service’, ‘Construction of Complex Service’ or ‘Works Contract Service’. Thus, the impugned demand is not sustainable.
Construction activities pertaining to private residence of Shri Manish Arora and Shri Anuj Dandone - HELD THAT:- The construction activities pertaining to private residence of Shri Manish Arora and Shri Anuj Dandone were outside the ambit of Service Tax, it is held that the impugned services are not covered under sub-clause (a) to Section 65(25b) and sub-clause (ii)(b) of the Explanation to Section 65(zzzza) of the Act, therefore, not taxable under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’ - In the present case, the respondent had undertaken the construction of single residential unit for Shri Manish Arora and Shri Anuj Dandone, which cannot qualify as ‘residential complex’ as defined under Section 65(91a) for the purpose of sub-clause (a) of Section 65(30a) and sub-clause (ii) (c) of the Explanation to Section 65(zzzza) of the Act. Thus, impugned services are not covered under ‘Construction of Complex Service’ or ‘Works Contract Service’.
Construction services provided to Sweta Estates Private Limited, AVA Builders Pvt. Ltd. and Birla Edutech Limited - HELD THAT:- The issue is no longer res integra as the value of free of cost material is not includible in the value of gross amount charged for payment of service tax. The value of free of cost material supplied by M/s. Sweta Estates Private Limited (service recipient) to the Respondent (service provider) was not required to be included in the assessable value for determination of service tax liability as it does not form part of the value charged by the service provider for rendering the services. The value of free of cost material is neither an amount ‘charged’ by the service provider, nor a ‘consideration’ paid by the service recipient.
Service tax demand on ‘advances’ and ‘miscellaneous income’ shown in the balance sheet is with respect to the advances received during relevant period includes the amount is respect of the construction services provided to IIM, DDA, CEAI, Shri manish Arora and Shri Anuj Dandone - HELD THAT:- Said advances were also not liable to service tax. Also the amount declared as ‘miscellaneous income’ in the balance sheet during 2009-10 to 2011-12 was not pertaining to any taxable services. The said amount pertained to the unclaimed amount by the creditors and security deposits received by the respondent. The said facts are not in dispute in the present appeal. Thus, the impugned demand of service tax on ‘miscellaneous income’ is not sustainable.
Service tax demand on ‘freight and cartage expenses’ that amount shown as ‘Freight and Cartage Expenses’ - HELD THAT:- The amount shown as a ‘cartage’ is related to payments made to the supplier of the goods which included the transportation cost. Transportation and pumping charges are in respect of pumping of ready-mix concrete (RMC) material for construction activity. The aforesaid expenses also include expenses towards insurance and car policy and site expenses (payment made to cab supplier). The said amount/expenses/charges were not paid by the respondent directly to the transporter for transportation of any goods. Thus, the said activity cannot be covered under GTA Services, hence, no service tax liability can be levied on the aforesaid amount/expenses/charges under GTA services.
Interest and penalties - invocation of extended period of limitation - HELD THAT:- The respondent followed a reasonable and correct interpretation of law. Therefore, the respondent cannot be alleged to have suppressed fact with the malafide intention - subsequent SCN for the same period could not be issued invoking extended period of limitation. In this regard, reliance is place on J.K. Enterprises Vs. Principal Commissioner of Central Excise, Alwar [2023 (1) TMI 936 - CESTAT NEW DELHI]. Resultantly, no interest is recoverable and no penalties are imposable.
Conclusion - i) IIM, CEAI, and DDA are not commercial concerns, and their construction services are not taxable. ii) Single residential unit constructions are not taxable under the relevant service categories. iii) FOC materials are not includible in the taxable value for service tax. iv) Advances related to non-taxable activities and miscellaneous income not linked to taxable services are not subject to service tax. v) There are no suppression of facts or intent of tax evasion by the respondent. Interest, penalt and extended period cannot be invoked.
Appeal of Revenue dismissed.
Non-payment of service tax on taxable service relating to ‘Construction of Commercial or Industrial building and civil structure and ‘Works Contract' - Non-payment of Service tax on construction services provided to IIM, DDA, CEAI, Mr. Manoj Arora and Mr. Anuj Dandone - Short payment of Service tax on construction services provided to Sweta Estates Private Limited, AVA Builders Pvt. Ltd. and Birla EduTech Limited - Non-payment of Service tax on ‘Advances’ and ‘Miscellaneous Income’ shown in balance sheet - Non-payment of Service tax on ‘Freight and Cartage Expenses’ shown in balance sheet.
Non-payment of Service tax on construction services provided to IIM, DDA, CEAI, Mr. Manoj Arora and Mr. Anuj Dandone - HELD THAT:- IIMs are not-for-profit educational bodies and not in the nature of commercial concerns. It is submitted that services in relation to the construction of Noida campus for IIM, Lucknow were carried out for not-for-profit organization and constructed buildings were not primarily used for commerce or industry. Hence, the impugned services are not covered under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’ - reliance placed in the decision in the case of Banna Ram Choudhary Vs. Commissioner of Central Excise, Jaipur, [2017 (9) TMI 86 - CESTAT NEW DELHI], wherein it was held that buildings used for educational purpose by recognized educational institutions cannot be categorized as ‘commercial buildings’, and the construction thereof is not leviable to Service tax under ‘commercial or industrial construction service’.
Similarly Delhi Development Authority (DDA) is observed to be a statutory body established under Delhi Development Act, 1957 (DDA Act) with the primary objective to promote and secure the development of Delhi as stated in Section 6 of the DDA Act. It is an autonomous body which reports directly to the Ministry of Urban Development, Government of India. Hence, construction of Indoor Stadium at Siri Fort Sport Complex was for being used by the Government for holding Commonwealth Games and not for generating any profit from the same. It was a non-commercial project, and the construction was undertaken for national interest. Above all, it is submitted that the stadium is a public used for the recreation of the public. Thus, it cannot be said that construction services were used by DDA primarily for commerce or industry.
Further consulting Engineering Association of India Limited (CEAI) is incorporated under Section 25 of the Companies Act, 1956 as a ‘not-for-profit’ company as stated in Preamble of Memorandum of Association (MOA) of CEAI. Clause 5.0 of MOA of CEAI stipulates that “all the income, earnings, movable, immovable properties of the Association shall be solely utilized and applied towards the promotion of its aims and objectives only as set forth in the Memorandum of Association. No profit thereof shall be paid or transferred directly or indirectly by way of dividends, bonus, profits or in any manner whatsoever to the present or past members of the Association who shall have no personal claim on any moveable or immoveable properties of the Association or make any profits whatsoever by virtue of his membership.” - it is clear that CEAI also is a ‘not-for-profit’ organization and not in the nature of commercial concerns. It is submitted that construction services of Secretariat Building for CEAI were carried out for a not-for-profit organization and constructed buildings were not primarily used for commerce or industry. Hence, the impugned services are not covered under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’.
All onus is on department to establish that the building was being used for such purposes by which the organization using the same was making profit. We draw our support from the decision in the case of Manisha Projects Pvt. Ltd. Vs. Commissioner of Central Excise & S.T., Ghaziabad [2019 (3) TMI 448 - CESTAT ALLAHABAD]. In view of above discussions, it is held that construction services provided to IIM, DDA and CEAI are not taxable under ‘Commercial or Industrial Construction Service’, ‘Construction of Complex Service’ or ‘Works Contract Service’. Thus, the impugned demand is not sustainable.
Construction activities pertaining to private residence of Shri Manish Arora and Shri Anuj Dandone - HELD THAT:- The construction activities pertaining to private residence of Shri Manish Arora and Shri Anuj Dandone were outside the ambit of Service Tax, it is held that the impugned services are not covered under sub-clause (a) to Section 65(25b) and sub-clause (ii)(b) of the Explanation to Section 65(zzzza) of the Act, therefore, not taxable under ‘Commercial or Industrial Construction Service’ or ‘Works Contract Service’ - In the present case, the respondent had undertaken the construction of single residential unit for Shri Manish Arora and Shri Anuj Dandone, which cannot qualify as ‘residential complex’ as defined under Section 65(91a) for the purpose of sub-clause (a) of Section 65(30a) and sub-clause (ii) (c) of the Explanation to Section 65(zzzza) of the Act. Thus, impugned services are not covered under ‘Construction of Complex Service’ or ‘Works Contract Service’.
Construction services provided to Sweta Estates Private Limited, AVA Builders Pvt. Ltd. and Birla Edutech Limited - HELD THAT:- The issue is no longer res integra as the value of free of cost material is not includible in the value of gross amount charged for payment of service tax. The value of free of cost material supplied by M/s. Sweta Estates Private Limited (service recipient) to the Respondent (service provider) was not required to be included in the assessable value for determination of service tax liability as it does not form part of the value charged by the service provider for rendering the services. The value of free of cost material is neither an amount ‘charged’ by the service provider, nor a ‘consideration’ paid by the service recipient.
Service tax demand on ‘advances’ and ‘miscellaneous income’ shown in the balance sheet is with respect to the advances received during relevant period includes the amount is respect of the construction services provided to IIM, DDA, CEAI, Shri manish Arora and Shri Anuj Dandone - HELD THAT:- Said advances were also not liable to service tax. Also the amount declared as ‘miscellaneous income’ in the balance sheet during 2009-10 to 2011-12 was not pertaining to any taxable services. The said amount pertained to the unclaimed amount by the creditors and security deposits received by the respondent. The said facts are not in dispute in the present appeal. Thus, the impugned demand of service tax on ‘miscellaneous income’ is not sustainable.
Service tax demand on ‘freight and cartage expenses’ that amount shown as ‘Freight and Cartage Expenses’ - HELD THAT:- The amount shown as a ‘cartage’ is related to payments made to the supplier of the goods which included the transportation cost. Transportation and pumping charges are in respect of pumping of ready-mix concrete (RMC) material for construction activity. The aforesaid expenses also include expenses towards insurance and car policy and site expenses (payment made to cab supplier). The said amount/expenses/charges were not paid by the respondent directly to the transporter for transportation of any goods. Thus, the said activity cannot be covered under GTA Services, hence, no service tax liability can be levied on the aforesaid amount/expenses/charges under GTA services.
Interest and penalties - invocation of extended period of limitation - HELD THAT:- The respondent followed a reasonable and correct interpretation of law. Therefore, the respondent cannot be alleged to have suppressed fact with the malafide intention - subsequent SCN for the same period could not be issued invoking extended period of limitation. In this regard, reliance is place on J.K. Enterprises Vs. Principal Commissioner of Central Excise, Alwar [2023 (1) TMI 936 - CESTAT NEW DELHI]. Resultantly, no interest is recoverable and no penalties are imposable.
Conclusion - i) IIM, CEAI, and DDA are not commercial concerns, and their construction services are not taxable. ii) Single residential unit constructions are not taxable under the relevant service categories. iii) FOC materials are not includible in the taxable value for service tax. iv) Advances related to non-taxable activities and miscellaneous income not linked to taxable services are not subject to service tax. v) There are no suppression of facts or intent of tax evasion by the respondent. Interest, penalt and extended period cannot be invoked.
Appeal of Revenue dismissed.
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Adjournment Beyond Statutory Limit
Issue 2: Dismissal for Non-Prosecution
3. SIGNIFICANT HOLDINGS
Adjournments beyond the statutory limit of three times as per Section 35C(1A) of the Central Excise Act, 1944 - non prosecution od appeal in terms of Rule 20 of CESTAT Procedure Rules, 1982 - HELD THAT:- In case of Ishwar lal Mali Rathod [2021 (9) TMI 1301 - SUPREME COURT] condemning the practice of adjournments sought mechanically and allowed by the Courts/Tribunal’s Hon’ble Supreme Court has observed 'Considering the fact that in the present case ten times adjournments were given between 2015 to 2019 and twice the orders were passed granting time for cross examination as a last chance and that too at one point of time even a cost was also imposed and even thereafter also when lastly the High Court passed an order with extending the time it was specifically mentioned that no further time shall be extended and/or granted still the petitioner – defendant never availed of the liberty and the grace shown.'
Conclusion - There are no justification for adjourning the matter beyond three times which is the maximum number statutorily provided.
The Appeal is dismissed for non prosecution in terms of Rule 20 of CESTAT Procedure Rules, 1982.
Adjournments beyond the statutory limit of three times as per Section 35C(1A) of the Central Excise Act, 1944 - non prosecution od appeal in terms of Rule 20 of CESTAT Procedure Rules, 1982 - HELD THAT:- In case of Ishwar lal Mali Rathod [2021 (9) TMI 1301 - SUPREME COURT] condemning the practice of adjournments sought mechanically and allowed by the Courts/Tribunal’s Hon’ble Supreme Court has observed 'Considering the fact that in the present case ten times adjournments were given between 2015 to 2019 and twice the orders were passed granting time for cross examination as a last chance and that too at one point of time even a cost was also imposed and even thereafter also when lastly the High Court passed an order with extending the time it was specifically mentioned that no further time shall be extended and/or granted still the petitioner – defendant never availed of the liberty and the grace shown.'
Conclusion - There are no justification for adjourning the matter beyond three times which is the maximum number statutorily provided.
The Appeal is dismissed for non prosecution in terms of Rule 20 of CESTAT Procedure Rules, 1982.
Levy of penalty - whether penalty has been properly imposed or the matter should have been remanded on this aspect also for penalty under Section 78 required to be imposed? - HELD THAT:- The period involved in this case is January- 2014 to March-2015. It is found that the order setting aside penalty under Section 78, imposed penalty under Section 76 and remanded matter on various points. Same has been correctly passed by the learned Commissioner (Appeals).The fact is also noted that there was an earlier show cause notice issued to the party and that was done after thorough scrutiny of its functioning. Therefore, the matter was well within the knowledge of the department. Any provision relating to non-filing of return or not paying tax dues does not bring the concept of ‘intent to evade payment of Tax’ as the same could be outcome of contentious issues on taxability, at times. As found by the Learned Commissioner (Appeals), only quantum of service tax was disputed and not the liability itself. In view of various payments made by the appellant as mentioned above, the order taking note has set aside the penalty under Section 78 of Finance Act, 1994.
Conclusion - There is no error in the impugned order which set aside penalty under Section 78. Even otherwise imposition of simultaneous penalties under Section 76 and Section 78 is debatable in various High Courts.
Appeal of the department is therefore liable to be rejected.
Levy of penalty - whether penalty has been properly imposed or the matter should have been remanded on this aspect also for penalty under Section 78 required to be imposed? - HELD THAT:- The period involved in this case is January- 2014 to March-2015. It is found that the order setting aside penalty under Section 78, imposed penalty under Section 76 and remanded matter on various points. Same has been correctly passed by the learned Commissioner (Appeals).The fact is also noted that there was an earlier show cause notice issued to the party and that was done after thorough scrutiny of its functioning. Therefore, the matter was well within the knowledge of the department. Any provision relating to non-filing of return or not paying tax dues does not bring the concept of ‘intent to evade payment of Tax’ as the same could be outcome of contentious issues on taxability, at times. As found by the Learned Commissioner (Appeals), only quantum of service tax was disputed and not the liability itself. In view of various payments made by the appellant as mentioned above, the order taking note has set aside the penalty under Section 78 of Finance Act, 1994.
Conclusion - There is no error in the impugned order which set aside penalty under Section 78. Even otherwise imposition of simultaneous penalties under Section 76 and Section 78 is debatable in various High Courts.
Appeal of the department is therefore liable to be rejected.
The core legal questions considered in this judgment include:
1. Whether the appellants, as cable operators, were liable to pay service tax under the Finance Act, 1994, for the period between 2013-14 and 2017-18.
2. Whether the appellants were entitled to the benefit of exemption under Notification No. 33/2012-ST dated 20.06.2012, and whether they were providing a "branded service" that would exclude them from this exemption.
3. Whether the extended period of limitation for demanding service tax was justifiably invoked.
4. Whether the appellants were entitled to Cenvat credit for service tax paid by the Multi-System Operator (MSO).
5. Whether penalties imposed under various sections of the Finance Act, 1994, were justified.
ISSUE-WISE DETAILED ANALYSIS
1. Liability to Pay Service Tax
The relevant legal framework includes the Finance Act, 1994, which imposes service tax on cable operators. The Court interpreted the definitions under the Cable Television Networks (Regulation) Act, 1995, to determine that the appellants, as local cable operators (LCOs), were liable to pay service tax despite the MSO also paying service tax. The Court held that the service provided by LCOs to their subscribers constituted a taxable service under the Finance Act, 1994.
The Court rejected the appellants' argument of double taxation, referencing the Punjab & Haryana High Court's decision in M/s Aameet Puri Vs Union of India, which clarified that service tax is payable by both MSOs and LCOs, with Cenvat credit available to prevent double taxation.
2. Exemption under Notification No. 33/2012-ST
The Court examined whether the appellants were providing a "branded service" that would exclude them from the exemption under Notification No. 33/2012-ST. The Court found that the appellants were not providing a branded service, as the transmission of signals from the MSO did not involve any brand name being conveyed to the subscribers. Therefore, the appellants were entitled to the exemption.
3. Extended Period of Limitation
The Court considered whether the extended period of limitation was applicable. The Tribunal referred to its decision in M/s Blue Star Communication & others, which concluded that the extended period should not be invoked due to the appellants' bona fide belief that they were not liable for service tax. The Court agreed, finding that there was industry-wide confusion regarding the liability of LCOs versus MSOs, thus restricting the demand to the normal period of limitation.
4. Cenvat Credit Entitlement
The Court addressed the appellants' entitlement to Cenvat credit for service tax paid by the MSO. The Tribunal's decision in M/s Blue Star Communication supported the appellants' claim, allowing Cenvat credit for service tax paid on input services from the MSO. However, the Court emphasized compliance with the Cenvat Credit Rules, 2004, requiring credit to be taken within one year of the invoice date.
5. Imposition of Penalties
The penalties under Sections 77 and 78 of the Finance Act, 1994, were scrutinized. The Court found the imposition of penalties under Section 78 unjustified due to the lack of willful suppression of facts by the appellants, aligning with the Tribunal's stance in the Blue Star case. However, penalties for procedural lapses, such as failure to register and file returns, were upheld.
SIGNIFICANT HOLDINGS
The Court preserved the following significant holdings:
1. "The appellants are not providing any branded service to the subscribers and are entitled to avail the benefit of exemption Notification No. 33/2012-ST dated 20.06.2012."
2. "Extended period of limitation could not have been invoked in this matter, therefore, penalties imposed under Section 78 are also set aside."
3. "The appellants are entitled to avail Cenvat credit of the service tax paid by the MSO, subject to compliance with the Cenvat Credit Rules, 2004."
4. "The demand should be restricted to the normal period of limitation."
5. "Matters are remanded back to the Original Authority for re-quantification of demand within the normal period of limitation."
The Tribunal's decision reinforces the principles of tax liability for cable operators, the applicability of exemptions, and the procedural requirements for claiming Cenvat credit. The judgment provides clarity on the interplay between MSOs and LCOs concerning service tax obligations and highlights the importance of adhering to procedural rules to avoid penalties.
Recovery of service tax with interest and penalty - benefit of threshold exemption and cum tax benefit - branded service to the subscribers or not - extended period of limitation - Admissibility of Cenvat credit.
Recovery of service tax with interest and penalty - benefit of threshold exemption and cum tax benefit - extended period of limitation - HELD THAT:- It is settled principal in law that a subsequent judgment cannot be a basis for making the demand by invoking extended period. In this decision Tribunal has concluded that extended period of limitation would not be available for making this demand. Accordingly, the extended period of limitation would not be available for making this demand and the demand should be restricted to normal period of limitation.
Admissibility of Cenvat credit - HELD THAT:- There are no reason to disagree with the findings recorded in the impugned order. The credit have to be allowed strictly as per the provisions of the Cenvat Credit Rules and appellant should have taken the credit within one year from the date of submission of document against which credit has been taken. In the case of Kusum Ingots & Alloys Ltd. [2000 (7) TMI 108 - CEGAT, NEW DELHI] referred by Authorised Representative appearing for revenue, Tribunal have upheld the denial of credit taken beyond the period prescribed by Central Excise Rules, 1944 - it is not inclined to allow the benefit of Cenvat credit availed in respect of the documents which admissibly are more than one year beyond one year from the date of issuance of show cause notice which goes contrary to Rule 4 of Cenvat Credit Rules.
Extended period of limitation - HELD THAT:- The extended period of limitation could not have been invoked in this matter, therefore, penalties imposed under Section 78 is also set aside.
Conclusion - i) The appellants are not providing any branded service to the subscribers and are entitled to avail the benefit of exemption Notification No. 33/2012-ST dated 20.06.2012. ii) Extended period of limitation could not have been invoked in this matter, therefore, penalties imposed under Section 78 are also set aside. iii) The appellants are entitled to avail Cenvat credit of the service tax paid by the MSO, subject to compliance with the Cenvat Credit Rules, 2004. iv) The demand should be restricted to the normal period of limitation.
Matters are remanded back to the Original Authority for re-quantification - Appeals are partly allowed and matter remanded to original authority for re-quantification of demand.
Recovery of service tax with interest and penalty - benefit of threshold exemption and cum tax benefit - branded service to the subscribers or not - extended period of limitation - Admissibility of Cenvat credit.
Recovery of service tax with interest and penalty - benefit of threshold exemption and cum tax benefit - extended period of limitation - HELD THAT:- It is settled principal in law that a subsequent judgment cannot be a basis for making the demand by invoking extended period. In this decision Tribunal has concluded that extended period of limitation would not be available for making this demand. Accordingly, the extended period of limitation would not be available for making this demand and the demand should be restricted to normal period of limitation.
Admissibility of Cenvat credit - HELD THAT:- There are no reason to disagree with the findings recorded in the impugned order. The credit have to be allowed strictly as per the provisions of the Cenvat Credit Rules and appellant should have taken the credit within one year from the date of submission of document against which credit has been taken. In the case of Kusum Ingots & Alloys Ltd. [2000 (7) TMI 108 - CEGAT, NEW DELHI] referred by Authorised Representative appearing for revenue, Tribunal have upheld the denial of credit taken beyond the period prescribed by Central Excise Rules, 1944 - it is not inclined to allow the benefit of Cenvat credit availed in respect of the documents which admissibly are more than one year beyond one year from the date of issuance of show cause notice which goes contrary to Rule 4 of Cenvat Credit Rules.
Extended period of limitation - HELD THAT:- The extended period of limitation could not have been invoked in this matter, therefore, penalties imposed under Section 78 is also set aside.
Conclusion - i) The appellants are not providing any branded service to the subscribers and are entitled to avail the benefit of exemption Notification No. 33/2012-ST dated 20.06.2012. ii) Extended period of limitation could not have been invoked in this matter, therefore, penalties imposed under Section 78 are also set aside. iii) The appellants are entitled to avail Cenvat credit of the service tax paid by the MSO, subject to compliance with the Cenvat Credit Rules, 2004. iv) The demand should be restricted to the normal period of limitation.
Matters are remanded back to the Original Authority for re-quantification - Appeals are partly allowed and matter remanded to original authority for re-quantification of demand.
Lapse of cenvat credit under Rule 11(3) of the Cenvat Credit Rules, 2004 - rebate claim of duty paid on exported goods - HELD THAT:- Sub-clause (i) of sub-rule 3 of Rule 11 will have to be treated as distinct and separate from sub-clause (ii). Sub-clause (ii) alone provides for lapse of cenvat credit. Sub-clause (i) does not provide for lapse. The appellants have conceded that the case on hand falls only sub-clause (i) of sub-rule 3 of Rule 11 of CCR, 2004. The logical consequence is that the subject cenvat credit cannot be treated as having lapsed. The argument of the learned standing counsel that sub-clause (ii) should be read integrally with sub-clause (i) stands rejected. The provision for lapse set out in sub-clause (ii) cannot be applied in respect of the situation covered by sub-clause(i).
Whether these writ appeals are competent? - HELD THAT:- The latest Instruction dated 06.08.2024 reads that appeal shall not be filed in the CESTAT, High Court and Supreme Court if the case fell within the prescribed monetary limits. Exceptions have also been carved out. It is noticed that the direction is “appeal shall not be filed”. If in contravention of the instruction, an appeal is filed, the assessee can bring it to the notice of the concerned authority and seek withdrawal of the appeal. It may not be open to the tribunal or the High Court to dismiss the appeal filed by the revenue by citing the said Instruction. Once the appeal has been filed, it is required to necessarily deal with the issue on merits.
Conclusion - i) The cenvat credit of the company did not lapse under Rule 11(3)(i). ii) Once an appeal is filed, it must be heard on its merits, even if it falls within the prescribed monetary limits set by the Central Board of Indirect Taxes and Customs.
Appeal dismissed.
Lapse of cenvat credit under Rule 11(3) of the Cenvat Credit Rules, 2004 - rebate claim of duty paid on exported goods - HELD THAT:- Sub-clause (i) of sub-rule 3 of Rule 11 will have to be treated as distinct and separate from sub-clause (ii). Sub-clause (ii) alone provides for lapse of cenvat credit. Sub-clause (i) does not provide for lapse. The appellants have conceded that the case on hand falls only sub-clause (i) of sub-rule 3 of Rule 11 of CCR, 2004. The logical consequence is that the subject cenvat credit cannot be treated as having lapsed. The argument of the learned standing counsel that sub-clause (ii) should be read integrally with sub-clause (i) stands rejected. The provision for lapse set out in sub-clause (ii) cannot be applied in respect of the situation covered by sub-clause(i).
Whether these writ appeals are competent? - HELD THAT:- The latest Instruction dated 06.08.2024 reads that appeal shall not be filed in the CESTAT, High Court and Supreme Court if the case fell within the prescribed monetary limits. Exceptions have also been carved out. It is noticed that the direction is “appeal shall not be filed”. If in contravention of the instruction, an appeal is filed, the assessee can bring it to the notice of the concerned authority and seek withdrawal of the appeal. It may not be open to the tribunal or the High Court to dismiss the appeal filed by the revenue by citing the said Instruction. Once the appeal has been filed, it is required to necessarily deal with the issue on merits.
Conclusion - i) The cenvat credit of the company did not lapse under Rule 11(3)(i). ii) Once an appeal is filed, it must be heard on its merits, even if it falls within the prescribed monetary limits set by the Central Board of Indirect Taxes and Customs.
Appeal dismissed.
Rrefund of the duty paid in cash - appellants have procured capital goods under EPCG Scheme and have not availed CENVAT credit of the same - HELD THAT:- In the instant case, the procurement of capital goods being from a domestic manufacturer, wherein policy provides that such domestic manufacturer can avail the refund of excise duty paid by them under the condition that the recipient, the appellant in this case, does not avail CENVAT credit.
In the instant case, the appellants are in a better position inasmuch as CENVAT credit was not available to them in case the supplier availed the refund. In fact, the condition in Para 8.5 of the Exim Policy needs to be looked at from the supplier’s angle and not from the recipient’s angle, in this case, the appellant’s angle. As long as the appellant has not availed the credit, the appellant has not violated any condition of the Notification regarding the exhaustion of the available credit. As submitted by the appellants, exhausting the credit necessarily means the credit they have taken and not certainly the credit which they have not taken. If the appellant had more credit, they would have paid less in cash and if the credit was on the lower side, they would have paid more in cash. The appellants contend that either way, the situation is revenue neutral or the credit available at the hands of the buyers will not be altered by the manner in which the appellants pay duty on the products they cleared.
Conclusion - The condition in the Exim Policy regarding the exhaustion of available credit should be viewed from the supplier's perspective, not the recipient's. The appellants had not violated any conditions by not availing CENVAT credit.
The impugned order set aside - appeal allowed.
Rrefund of the duty paid in cash - appellants have procured capital goods under EPCG Scheme and have not availed CENVAT credit of the same - HELD THAT:- In the instant case, the procurement of capital goods being from a domestic manufacturer, wherein policy provides that such domestic manufacturer can avail the refund of excise duty paid by them under the condition that the recipient, the appellant in this case, does not avail CENVAT credit.
In the instant case, the appellants are in a better position inasmuch as CENVAT credit was not available to them in case the supplier availed the refund. In fact, the condition in Para 8.5 of the Exim Policy needs to be looked at from the supplier’s angle and not from the recipient’s angle, in this case, the appellant’s angle. As long as the appellant has not availed the credit, the appellant has not violated any condition of the Notification regarding the exhaustion of the available credit. As submitted by the appellants, exhausting the credit necessarily means the credit they have taken and not certainly the credit which they have not taken. If the appellant had more credit, they would have paid less in cash and if the credit was on the lower side, they would have paid more in cash. The appellants contend that either way, the situation is revenue neutral or the credit available at the hands of the buyers will not be altered by the manner in which the appellants pay duty on the products they cleared.
Conclusion - The condition in the Exim Policy regarding the exhaustion of available credit should be viewed from the supplier's perspective, not the recipient's. The appellants had not violated any conditions by not availing CENVAT credit.
The impugned order set aside - appeal allowed.
CENVAT Credit - input service of transportation of goods upto the place of removal - extended period of limitation - HELD THAT:- The issue to determine is the admissibility of Cenvat credit in respect of outward transportation whether the supply of goods on FOR basis or at the factory gate. If Board has clarified through the circular on FOR basis the credit should have been admissible in the present case, it is found from the purchase order reproduced bellow that the supply of total cost basis at the premises of the appellant and in case of any defect entire sale was to be rejected.
From the perusal of the above purchase order the condition, it is found that the entire supply is made on total cost basis, and could have been rejected by the buyer for any defects noticed subsequent to delivery. The above condition of purchase order is enough to hold that transit risk was with the appellant and supply was made on FOR basis. That being so, on the basis of Board Circular the credit could not have been denied.
Extended period of limitation - HELD THAT:- The Board has specifically directed against invocation of extended period of limitation, as the issue involved is interpretational in nature. The demand made by invoking extended period of limitation goes contrary to the spirit of the circular. Thus there are no merits in the same and also the penalties imposed under Rule 15 read with section 11AC of the Central Excise Act, 1944.
There are no merits in the impugned order and the same is set aside - appeal allowed.
CENVAT Credit - input service of transportation of goods upto the place of removal - extended period of limitation - HELD THAT:- The issue to determine is the admissibility of Cenvat credit in respect of outward transportation whether the supply of goods on FOR basis or at the factory gate. If Board has clarified through the circular on FOR basis the credit should have been admissible in the present case, it is found from the purchase order reproduced bellow that the supply of total cost basis at the premises of the appellant and in case of any defect entire sale was to be rejected.
From the perusal of the above purchase order the condition, it is found that the entire supply is made on total cost basis, and could have been rejected by the buyer for any defects noticed subsequent to delivery. The above condition of purchase order is enough to hold that transit risk was with the appellant and supply was made on FOR basis. That being so, on the basis of Board Circular the credit could not have been denied.
Extended period of limitation - HELD THAT:- The Board has specifically directed against invocation of extended period of limitation, as the issue involved is interpretational in nature. The demand made by invoking extended period of limitation goes contrary to the spirit of the circular. Thus there are no merits in the same and also the penalties imposed under Rule 15 read with section 11AC of the Central Excise Act, 1944.
There are no merits in the impugned order and the same is set aside - appeal allowed.
Valuation of goods manufactured by the appellant during the period from 28.08.1986 to 31.03.1989 - HELD THAT:- It is an admitted fact that the dispute pertains to the period from 28.08.1986 to 31.03.1989 and the issue is coming up for hearing for the third time. The appellant was following the procedure laid down in Rule 173C (11) of Central Excise Rules, 1944 and duty payment was based on value shown in the SDAs. It was further sold by the sister concern of the appellant at higher rate by adding additional items as optional items, including battery etc., which are manufactured by other manufactures. Even as per the statement of the Senior Manager dated 30.10.1990, the purchase order was received from sister concern M/s. Keltron controls and transactions were regulated through Sectional Debit Advices (SDAs). He also stated that the appellant was not aware of the original orders of M/s. Keltron controls and has also not verified the invoices of M/s. Keltron controls regarding sale of UPS system including optional items and the excise duty remittance was not based on the realization of the amount by their sister concern M/s. Keltron controls.
The original Adjudicating Authority, only after considering the above facts, held that since the appellant had filed SDAs along with RT-12 Returns and when it is made available to the concerned officer, there is a failure on the part of department to probe the matter further and due to that reason, the demand invoking the extended period of limitation and penalty proposed in the show cause notice were dropped.
Thus, in the facts and circumstances of the case, invoking extended period of limitation is unsustainable. Considering the above, demand, if any for the normal period is confirmed in accordance with law. The demand by invoking the extended period of limitation and penalty imposed as per the impugned order on the appellant are set aside.
Conclusion - The penalty imposed were not justified due to the lack of evidence of undervaluation or suppression of facts by the appellant.
Appeal allowed in part.
Valuation of goods manufactured by the appellant during the period from 28.08.1986 to 31.03.1989 - HELD THAT:- It is an admitted fact that the dispute pertains to the period from 28.08.1986 to 31.03.1989 and the issue is coming up for hearing for the third time. The appellant was following the procedure laid down in Rule 173C (11) of Central Excise Rules, 1944 and duty payment was based on value shown in the SDAs. It was further sold by the sister concern of the appellant at higher rate by adding additional items as optional items, including battery etc., which are manufactured by other manufactures. Even as per the statement of the Senior Manager dated 30.10.1990, the purchase order was received from sister concern M/s. Keltron controls and transactions were regulated through Sectional Debit Advices (SDAs). He also stated that the appellant was not aware of the original orders of M/s. Keltron controls and has also not verified the invoices of M/s. Keltron controls regarding sale of UPS system including optional items and the excise duty remittance was not based on the realization of the amount by their sister concern M/s. Keltron controls.
The original Adjudicating Authority, only after considering the above facts, held that since the appellant had filed SDAs along with RT-12 Returns and when it is made available to the concerned officer, there is a failure on the part of department to probe the matter further and due to that reason, the demand invoking the extended period of limitation and penalty proposed in the show cause notice were dropped.
Thus, in the facts and circumstances of the case, invoking extended period of limitation is unsustainable. Considering the above, demand, if any for the normal period is confirmed in accordance with law. The demand by invoking the extended period of limitation and penalty imposed as per the impugned order on the appellant are set aside.
Conclusion - The penalty imposed were not justified due to the lack of evidence of undervaluation or suppression of facts by the appellant.
Appeal allowed in part.
Classification of goods manufactured by the appellant - classifiable under Tariff Item 84369100 of CETA, 1985 or under 73.14 - HELD THAT:- The Division Bench of this Tribunal in the appellant’s own case [2016 (9) TMI 572 - CESTAT CHANDIGARH] where the identical issue was in dispute, has held that Welded Wire Mesh is classifiable under Tariff Item 84369100 of CETA, 1985. The said decision of the Tribunal was appealed against by the Revenue before the Hon’ble Apex Court but the Hon’ble Apex Court vide its order dated 20.09.2024 has dismissed the same on monetary ground.
Conclusion - The goods are classified under Tariff Item 84369100.
The impugned order set aside - appeal allowed.
Classification of goods manufactured by the appellant - classifiable under Tariff Item 84369100 of CETA, 1985 or under 73.14 - HELD THAT:- The Division Bench of this Tribunal in the appellant’s own case [2016 (9) TMI 572 - CESTAT CHANDIGARH] where the identical issue was in dispute, has held that Welded Wire Mesh is classifiable under Tariff Item 84369100 of CETA, 1985. The said decision of the Tribunal was appealed against by the Revenue before the Hon’ble Apex Court but the Hon’ble Apex Court vide its order dated 20.09.2024 has dismissed the same on monetary ground.
Conclusion - The goods are classified under Tariff Item 84369100.
The impugned order set aside - appeal allowed.
CENVAT Credit - input services - outdoor catering services - period post amendment w.e.f. 01.04.2011 - interest - penalty - HELD THAT:- The issue of availment of Cenvat credit of service tax paid on 'outdoor catering services', it is no more res integra and it is decided by the Larger Bench in Wipro Limited, [2018 (4) TMI 149 - CESTAT BANGALORE - LB] that cenvat Credit of service tax paid on 'outdoor catering services' cannot be availed, post 01.04.2011 in view of the exclusion clause C(ii) to the definition of input service 2(l) of Cenvat Credit Rules, 2004. Therefore, service tax paid on 'outdoor catering services' is not eligible for availment of Cenvat credit.
Demand of interest - HELD THAT:- The confirmation of demand of interest on the cenvat credit demand is not sustainable following the decision of the Hon'ble High Court of Karnataka in case of M/s. Bill Forge.
Penalty - HELD THAT:- It is found for the earlier period this Tribunal has set aside the penalty proceedings under Rule 15(1) of the Cenvat Credit Rules, 2004 and also in the adjudications for the subsequent periods the penalty has been dropped by the adjudicating authority, hence, it is found that penalty imposed in this appeal is unsustainable. Consequently, the confirmation of demand of interest and the imposition of penalty in the impugned order is unsustainable and needs to be set aside.
Conclusion - The appellant was not entitled to avail Cenvat credit on 'outdoor catering services' post the amendment. However, the demand of interest and penalty imposed on the appellant set aside, deeming them unsustainable based on legal precedents and the specific circumstances of the case.
Appeal allowed in part.
CENVAT Credit - input services - outdoor catering services - period post amendment w.e.f. 01.04.2011 - interest - penalty - HELD THAT:- The issue of availment of Cenvat credit of service tax paid on 'outdoor catering services', it is no more res integra and it is decided by the Larger Bench in Wipro Limited, [2018 (4) TMI 149 - CESTAT BANGALORE - LB] that cenvat Credit of service tax paid on 'outdoor catering services' cannot be availed, post 01.04.2011 in view of the exclusion clause C(ii) to the definition of input service 2(l) of Cenvat Credit Rules, 2004. Therefore, service tax paid on 'outdoor catering services' is not eligible for availment of Cenvat credit.
Demand of interest - HELD THAT:- The confirmation of demand of interest on the cenvat credit demand is not sustainable following the decision of the Hon'ble High Court of Karnataka in case of M/s. Bill Forge.
Penalty - HELD THAT:- It is found for the earlier period this Tribunal has set aside the penalty proceedings under Rule 15(1) of the Cenvat Credit Rules, 2004 and also in the adjudications for the subsequent periods the penalty has been dropped by the adjudicating authority, hence, it is found that penalty imposed in this appeal is unsustainable. Consequently, the confirmation of demand of interest and the imposition of penalty in the impugned order is unsustainable and needs to be set aside.
Conclusion - The appellant was not entitled to avail Cenvat credit on 'outdoor catering services' post the amendment. However, the demand of interest and penalty imposed on the appellant set aside, deeming them unsustainable based on legal precedents and the specific circumstances of the case.
Appeal allowed in part.
Benefit of N/N. 63/1995-CE dated 16.03.1995 to the vendors, who supply goods to the enlisted companies/organisations in the Notification - HELD THAT:- The Tribunal in the case of Vulcan Gears Vs. Commissioner of C. Ex. [2010 (5) TMI 781 - CESTAT AHMEDABAD] held that 'the Tribunal while deciding in favour of the appellant, took note of the Circular issued by the Board in respect of Notification No. 184/86, which is the precedent Notification to Notification No. 63/95-CE. In Circular vide F. No. 213/18/91-C.Ex.6, Circular No. 5/92, dated 19-5-1992 and another letter from Ministry of Finance F. No. IV/16/4/2003, dated 7-11-2003, it has been clarified that the exemption will be extended to all job workers and vendors supplying inputs required by BEML for manufacture of finished goods supplied to Ministry of Defence.'
The appellant has relied on the case laws mentioned, wherein it is held that the beneficial Notification should be given effect retrospectively and oppressing Notification should be given effect, prospectively. The appellant has paid duty on the goods supplied to BEML from November 2009, after the issue of clarification by the Board Vide Circular F. No. 110/32/2009-CX-32 dated 27.10.2009. The appellant contended that the period involved in this case is from June 2009 to October, 2009 i.e., before the issue of the clarification by the Board, hence they have contended that they are eligible for the benefit of Notification No. 63/1995-CE, in view of their above submissions and the decisions of the Hon’ble Apex Court and the Tribunals.
Appeal allowed.
Benefit of N/N. 63/1995-CE dated 16.03.1995 to the vendors, who supply goods to the enlisted companies/organisations in the Notification - HELD THAT:- The Tribunal in the case of Vulcan Gears Vs. Commissioner of C. Ex. [2010 (5) TMI 781 - CESTAT AHMEDABAD] held that 'the Tribunal while deciding in favour of the appellant, took note of the Circular issued by the Board in respect of Notification No. 184/86, which is the precedent Notification to Notification No. 63/95-CE. In Circular vide F. No. 213/18/91-C.Ex.6, Circular No. 5/92, dated 19-5-1992 and another letter from Ministry of Finance F. No. IV/16/4/2003, dated 7-11-2003, it has been clarified that the exemption will be extended to all job workers and vendors supplying inputs required by BEML for manufacture of finished goods supplied to Ministry of Defence.'
The appellant has relied on the case laws mentioned, wherein it is held that the beneficial Notification should be given effect retrospectively and oppressing Notification should be given effect, prospectively. The appellant has paid duty on the goods supplied to BEML from November 2009, after the issue of clarification by the Board Vide Circular F. No. 110/32/2009-CX-32 dated 27.10.2009. The appellant contended that the period involved in this case is from June 2009 to October, 2009 i.e., before the issue of the clarification by the Board, hence they have contended that they are eligible for the benefit of Notification No. 63/1995-CE, in view of their above submissions and the decisions of the Hon’ble Apex Court and the Tribunals.
Appeal allowed.
CENVAT Credit - input invoices which were received more than 6 months before availing credit in the factory - Civil charges - Electrical License - Pest Control - Testing charges for Civil works - RCM-Repairs - contravention of Rule 2(l) of CCR, 2004 - cenvat credit on input service invoices issued prior to 01.09.2014 and credit availed in October 2014 - applicability of 6 months pursuant to issuance of Notification No. 21/2014-CE (NT) dated 11.07.2014 which has been brought into effect from 01.09.2014 for invoices issued prior to 01.09.2014 - HELD THAT:- The issue is no more res integra and covered by the judgment of this Tribunal in the case of Roquette Riddhi Siddhi Pvt. Ltd. V. CCE, Customs and Service Tax, Belgaum [2024 (1) TMI 1210 - CESTAT AHMEDABAD], wherein it is held that 'appellants have correctly taken the cenvat credit on 18/09/2014 for the invoices issued prior to 01/09/2014.'
The confirmation of demand of cenvat credit of Rs. 1,04,80,736/- on this count is unsustainable in law, accordingly, set aside. Since the appellant had submitted not to pursue the confirmation of cenvat credit of Rs. 1,75,320/- as they have already reversed a major portion of Rs. 1,11,999/- and the balance amount is negligible, the order confirming the demand on this count is upheld. However, the imposition of penalty for availing the said credit being interpretation of law cannot be sustained, accordingly set aside.
Appeal is partly allowed.
CENVAT Credit - input invoices which were received more than 6 months before availing credit in the factory - Civil charges - Electrical License - Pest Control - Testing charges for Civil works - RCM-Repairs - contravention of Rule 2(l) of CCR, 2004 - cenvat credit on input service invoices issued prior to 01.09.2014 and credit availed in October 2014 - applicability of 6 months pursuant to issuance of Notification No. 21/2014-CE (NT) dated 11.07.2014 which has been brought into effect from 01.09.2014 for invoices issued prior to 01.09.2014 - HELD THAT:- The issue is no more res integra and covered by the judgment of this Tribunal in the case of Roquette Riddhi Siddhi Pvt. Ltd. V. CCE, Customs and Service Tax, Belgaum [2024 (1) TMI 1210 - CESTAT AHMEDABAD], wherein it is held that 'appellants have correctly taken the cenvat credit on 18/09/2014 for the invoices issued prior to 01/09/2014.'
The confirmation of demand of cenvat credit of Rs. 1,04,80,736/- on this count is unsustainable in law, accordingly, set aside. Since the appellant had submitted not to pursue the confirmation of cenvat credit of Rs. 1,75,320/- as they have already reversed a major portion of Rs. 1,11,999/- and the balance amount is negligible, the order confirming the demand on this count is upheld. However, the imposition of penalty for availing the said credit being interpretation of law cannot be sustained, accordingly set aside.
Appeal is partly allowed.
Reduction of penalty under Section 11AC of CEA - duty and interest not paid within 30 days from the date of communication of the order of the Central Excise officer - interest under Section 35FF of the Act for delayed refund of the amount deposited - HELD THAT:- The proviso to Section 11AC of the Act is clear. The reduction of penalty to 25% will apply only in those cases where the amount of duty determined by the Central Excise officer along with interest is deposited within 30 days from the date of communication of the order of the Central Excise officer. There is no reference to order of an appellate authority such as Commissioner (Appeals), Tribunal or High Court or Supreme Court. As the appellant had not fulfilled the conditions of this proviso, he was not entitled to the benefit of reduced penalty. Therefore, the Assistant Commissioner was correct in calculating the penalty as equal to 100% of the duty under Section 11AC of the Act and consequently, reducing the amount of refund.
Interest as applicable under Section 35FF of the Act - HELD THAT:- It is clear from section 35FF that where an amount of duty deposited by the appellant under section 35F is required to be refunded consequent upon the order of the appellate authority or tribunal and such amount is not refunded within three months from the date of communication of such order, interest has to be paid. In this case, the order of the Tribunal is dated 29.01.2019 but the appellant had communicated the copy of this order to the officer and sought refund only on 01.07.2022. There is nothing on record to show that the Final Order of this Tribunal was communicated to the Assistant Commissioner through any other means. The Assistant Commissioner passed the order on 05.08.2022 i.e., within less than two months of the application.
Conclusion - i) Assistant Commissioner was correct in calculating the penalty as equal to 100% of the duty under Section 11AC of the Act. ii) The appellant was not entitled to interest under Section 35FF due to the delay in seeking the refund.
The appeal is rejected and the impugned order is upheld.
Reduction of penalty under Section 11AC of CEA - duty and interest not paid within 30 days from the date of communication of the order of the Central Excise officer - interest under Section 35FF of the Act for delayed refund of the amount deposited - HELD THAT:- The proviso to Section 11AC of the Act is clear. The reduction of penalty to 25% will apply only in those cases where the amount of duty determined by the Central Excise officer along with interest is deposited within 30 days from the date of communication of the order of the Central Excise officer. There is no reference to order of an appellate authority such as Commissioner (Appeals), Tribunal or High Court or Supreme Court. As the appellant had not fulfilled the conditions of this proviso, he was not entitled to the benefit of reduced penalty. Therefore, the Assistant Commissioner was correct in calculating the penalty as equal to 100% of the duty under Section 11AC of the Act and consequently, reducing the amount of refund.
Interest as applicable under Section 35FF of the Act - HELD THAT:- It is clear from section 35FF that where an amount of duty deposited by the appellant under section 35F is required to be refunded consequent upon the order of the appellate authority or tribunal and such amount is not refunded within three months from the date of communication of such order, interest has to be paid. In this case, the order of the Tribunal is dated 29.01.2019 but the appellant had communicated the copy of this order to the officer and sought refund only on 01.07.2022. There is nothing on record to show that the Final Order of this Tribunal was communicated to the Assistant Commissioner through any other means. The Assistant Commissioner passed the order on 05.08.2022 i.e., within less than two months of the application.
Conclusion - i) Assistant Commissioner was correct in calculating the penalty as equal to 100% of the duty under Section 11AC of the Act. ii) The appellant was not entitled to interest under Section 35FF due to the delay in seeking the refund.
The appeal is rejected and the impugned order is upheld.
Challenge to appellate order by which assessment order was confirmed - whether the petitioner was right in his contention that the output tax demand for the period during which the eligibility certificate was not renewed or rejected, namely, 4.3.2015 to 31.3.2015 could be adjusted with the forwarded accumulated input tax credit? - HELD THAT:- The learned tribunal had rightly took into consideration the provisions of the West Bengal Value Added Tax Act and found that the rejection of the renewal of the eligibility certificate will render the petitioner/dealer ineligibility for output tax for discharging the liability the dealer will have to pay the taxes.
However, the claim of the petitioner/dealer to adjust the carry forward input tax which was carried forward to the subsequent quarter is not feasible as there is no such provision under the Act.
Conclusion - The learned tribunal was perfectly right in holding that the output liability for the rejected period, namely, from 4.3.2015 to 31.3.2015 was to be paid by the writ petitioner within 30 days of such rejection in terms of Rule 180 of the said Rules and having not done so, the authorities were justified in demanding the same by passing the impugned order.
The petitioner has not made out any case for interference with the order passed by the learned tribunal - Petition dismissed.
Challenge to appellate order by which assessment order was confirmed - whether the petitioner was right in his contention that the output tax demand for the period during which the eligibility certificate was not renewed or rejected, namely, 4.3.2015 to 31.3.2015 could be adjusted with the forwarded accumulated input tax credit? - HELD THAT:- The learned tribunal had rightly took into consideration the provisions of the West Bengal Value Added Tax Act and found that the rejection of the renewal of the eligibility certificate will render the petitioner/dealer ineligibility for output tax for discharging the liability the dealer will have to pay the taxes.
However, the claim of the petitioner/dealer to adjust the carry forward input tax which was carried forward to the subsequent quarter is not feasible as there is no such provision under the Act.
Conclusion - The learned tribunal was perfectly right in holding that the output liability for the rejected period, namely, from 4.3.2015 to 31.3.2015 was to be paid by the writ petitioner within 30 days of such rejection in terms of Rule 180 of the said Rules and having not done so, the authorities were justified in demanding the same by passing the impugned order.
The petitioner has not made out any case for interference with the order passed by the learned tribunal - Petition dismissed.
The core issue presented in this case was whether the respondents were guilty of the offense under Section 138 of the Negotiable Instruments Act (NI Act) for issuing a dishonored cheque. The specific legal questions considered included:
ISSUE-WISE DETAILED ANALYSIS
1. Statutory Requirements under Section 138 of the NI Act
- Legal Framework and Precedents: Section 138 of the NI Act mandates that a cheque must be presented within its validity period, and upon dishonor, a notice must be served to the drawer demanding payment within 15 days. Failure to pay within this period constitutes an offense.
- Court's Interpretation and Reasoning: The Trial Court found deficiencies in the complainant's statutory notice, such as the absence of reference to a crucial letter dated 23.09.2008.
- Key Evidence and Findings: The dishonored cheque and the statutory notice were central to the case. The complainant argued that the notice was appropriately served, but the Trial Court disagreed.
- Application of Law to Facts: The Trial Court concluded that the statutory notice did not comply with the requirements of Section 138, thus weakening the complainant's case.
- Conclusions: The Trial Court's decision was influenced by procedural lapses in the statutory notice, leading to the respondents' acquittal.
2. Competency of the Power of Attorney as a Witness
- Legal Framework and Precedents: A witness must have personal knowledge of the facts to testify competently.
- Court's Interpretation and Reasoning: The High Court noted that the Power of Attorney lacked personal knowledge of the transactions, undermining the complainant's case.
- Key Evidence and Findings: The Power of Attorney's inability to withstand cross-examination was a critical factor in the High Court's decision.
- Application of Law to Facts: The High Court emphasized the need for a competent witness to substantiate the claim under Section 138.
- Conclusions: The lack of a competent witness with personal knowledge was a significant reason for denying leave to appeal.
3. Arbitration Clause in the Agreement
- Legal Framework and Precedents: The presence of an arbitration clause typically requires disputes to be resolved through arbitration before resorting to litigation.
- Court's Interpretation and Reasoning: The Trial Court suggested that the complainant should have invoked arbitration first, although this was not a decisive factor.
- Key Evidence and Findings: The agreement containing the arbitration clause was part of the documentary evidence.
- Application of Law to Facts: The Trial Court's reference to the arbitration clause indicated a procedural expectation that was not met.
- Conclusions: While not central to the decision, the arbitration clause was noted as a procedural consideration.
4. Sufficiency of Evidence Provided by the Complainant
- Legal Framework and Precedents: The burden of proof lies on the complainant to establish the facts constituting the offense under Section 138.
- Court's Interpretation and Reasoning: The Trial Court found the complainant's evidence insufficient, particularly the lack of a statement of accounts and details of goods and commissions.
- Key Evidence and Findings: The absence of detailed financial records and transaction specifics weakened the complainant's case.
- Application of Law to Facts: The Trial Court concluded that the evidence did not substantiate the alleged debt, leading to acquittal.
- Conclusions: The insufficiency of evidence was a critical factor in the respondents' acquittal.
5. High Court's Denial of Special Leave to Appeal
- Legal Framework and Precedents: Under Section 378(4) of the Criminal Procedure Code, special leave is required to appeal an acquittal.
- Court's Interpretation and Reasoning: The High Court denied leave, focusing on the Power of Attorney's lack of personal knowledge and the overall insufficiency of evidence.
- Key Evidence and Findings: The High Court's decision was based on the same evidentiary deficiencies noted by the Trial Court.
- Application of Law to Facts: The High Court applied the standard for granting leave, finding the complainant's case lacking.
- Conclusions: The denial of leave was based on procedural and evidentiary shortcomings.
SIGNIFICANT HOLDINGS
- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court emphasized the importance of applying Section 139 and Section 118 of the NI Act, which presume the validity of the cheque and the debt unless proven otherwise.
- Core Principles Established: The presumption of liability under Section 138 can be rebutted by demonstrating procedural deficiencies and lack of evidence.
- Final Determinations on Each Issue: The Supreme Court set aside the High Court's order, granting leave to appeal and remanding the case for reconsideration, emphasizing the need for a detailed examination of the evidence in light of Sections 139 and 118 of the NI Act.
The Supreme Court directed the High Court to prioritize the appeal, given the extensive time elapsed since the original proceedings, and to dispose of the matter within three months.
Rejection of application filed by the appellant herein, seeking leave to appeal against the judgment and order - acquittal of the offence punishable under Section 138 of the Negotiable Instruments Act - issuance of statutory notice - HELD THAT:- It is inclined to remand the matter to the High Court, it is not proposed to say anything further. However, all that we want to say at this stage is that the High Court while declining to grant leave, should have kept in mind Section 139 of the NI Act as well as Section 118 of the NI Act. The High Court should have tried to consider the case of the complainant applying the two provisions to the facts of the case, more particularly, having regard to the evidence on record oral as well as documentary. This aspect has not been touched even by the Trial Court and therefore, it was necessary for the High Court to look into it closely.
The impugned order passed by the High Court is set aside - Appeal disposed off.
Rejection of application filed by the appellant herein, seeking leave to appeal against the judgment and order - acquittal of the offence punishable under Section 138 of the Negotiable Instruments Act - issuance of statutory notice - HELD THAT:- It is inclined to remand the matter to the High Court, it is not proposed to say anything further. However, all that we want to say at this stage is that the High Court while declining to grant leave, should have kept in mind Section 139 of the NI Act as well as Section 118 of the NI Act. The High Court should have tried to consider the case of the complainant applying the two provisions to the facts of the case, more particularly, having regard to the evidence on record oral as well as documentary. This aspect has not been touched even by the Trial Court and therefore, it was necessary for the High Court to look into it closely.
The impugned order passed by the High Court is set aside - Appeal disposed off.
The Applicant, a former partner of BDO India LLP, seeks to initiate arbitration due to grievances related to his expulsion from the LLP and alleged misconduct by the Managing Partner. The Respondents object, arguing that the LLP is not a signatory to the LLP Agreement, and thus disputes with the LLP cannot be arbitrated under the agreement.
The Court examines Clause 23 of the LLP Agreement, which contains the arbitration agreement. The clause covers disputes between partners or their representatives, and matters relating to the business or affairs of the LLP. The Court interprets that the subject matter of arbitration includes any construction or application of the LLP Agreement, and any matter relating to the business and affairs of the LLP, thus making the LLP a necessary party in such disputes.
The Court refers to the statutory scheme under the LLP Act, noting that the law on privity of non-signatories to arbitration agreements is well developed. The LLP is not a "third party" to the LLP Agreement, as the running of the LLP is the subject matter of the agreement. The LLP Agreement is a mandatory statutory charter document governing the LLP, similar to a company's Articles of Association. The Court concludes that the LLP is not extraneous to the LLP Agreement.
The Court addresses the Respondents' reliance on Section 23 of the LLP Act, which governs the relationship of partners and the LLP. The Court finds the argument that the LLP is excluded from arbitration due to not being a signatory to be invalid. The LLP Agreement, the LLP Act, and the First Schedule provide that disputes among partners arising out of the LLP Agreement shall be referred to arbitration. This indicates that the LLP is a necessary party to arbitration proceedings despite not being a signatory.
The Court rejects the Respondents' objections, including the argument that the dispute is only with the Managing Partner and not the LLP, and that defamation claims are not arbitrable. The Court emphasizes that the Arbitral Tribunal has the power to rule on its own jurisdiction under Section 16 of the Arbitration Act, and such objections should not delay arbitration proceedings.
The Court appoints Justice (Retd.) Manoj Sanklecha as the nominee arbitrator for the Respondents, with Justice (Retd.) Gautam Patel as an alternative in case of conflict. The Presiding Arbitrator will be appointed by the two nominated arbitrators. The Court directs the parties to proceed with the arbitration process as outlined in the order.
Interpretation of statute - Section 11 of the Arbitration and Conciliation Act, 1996 - Whether disputes between partners of a limited liability partnership (LLP) and the LLP can at all be covered by the arbitration agreement contained in a limited liability partnership agreement (LLP Agreement) to which the LLP is not a signatory? - HELD THAT:- Under Item 1 of the First Schedule the mutual rights and duties of the LLP and its partners, subject to the LLP Agreement, is governed by the provisions of the First Schedule. Item 14 of the First Schedule provides that all disputes among partners arising out of the LLP Agreement that cannot be resolved in terms of the LLP Agreement, shall be referred to arbitration under the Arbitration Act. This is another statutory indication that the subject matter of the LLP Agreement includes duties owed by partners to the LLP and also duties owed to the partners by the LLP. This would necessarily render the LLP a necessary party to the arbitration proceedings relating to the LLP’s operations and governance, despite the LLP not being a signatory to the LLP Agreement. Therefore, even if there had been no arbitration clause at all in the LLP Agreement, the First Schedule would lead to an arbitration agreement being in existence in the eyes of law, for disputes among the partners.
The dispute at hand relates to the expulsion of a partner from the LLP. Whether the Managing Partner alone was responsible for it and other partners acquiesced in or approved of that decision is a subject matter of merits of the dispute. Whether the expelled partner’s conduct warranted expulsion, is a question that would necessarily require examination of the injury, if any, occasioned to the LLP’s interests by such partner’s conduct for the drastic step of expulsion to be taken. Therefore, it would be simply impossible for this Court to reject this Application under Section 11.
The upshot of this contention is that the LLP is not a necessary party to the dispute. Even a plain reading of the invocation notice addressed to Kothari would show that it was issued to him in his capacity as the Managing Partner. Therefore, to read it as a personal dispute of Radia with Kothari in his individual capacity is a misconceived contention. This argument has to be stated to be rejected. The dispute inter alia relates to expulsion of Radia. The expulsion is from the LLP. The cause for expulsion would necessarily have to relate to the injury allegedly occasioned to the LLP and to its partners, by the alleged conduct of Radia that led to the expulsion.
Conclusion - The objections raised by the Respondents to allowing this Section 11 Application are totally devoid of merit. Despite the existence of an arbitration clause in the LLP Agreement and in Item 14 of the First Schedule, the contention that the LLP itself is extraneous to the very LLP Agreement governing the LLP, in my opinion, is untenable and frivolous. Such objections have been raised evidently to delay and frustrate the commencement of arbitration proceedings.
Applocation disposed off.
Interpretation of statute - Section 11 of the Arbitration and Conciliation Act, 1996 - Whether disputes between partners of a limited liability partnership (LLP) and the LLP can at all be covered by the arbitration agreement contained in a limited liability partnership agreement (LLP Agreement) to which the LLP is not a signatory? - HELD THAT:- Under Item 1 of the First Schedule the mutual rights and duties of the LLP and its partners, subject to the LLP Agreement, is governed by the provisions of the First Schedule. Item 14 of the First Schedule provides that all disputes among partners arising out of the LLP Agreement that cannot be resolved in terms of the LLP Agreement, shall be referred to arbitration under the Arbitration Act. This is another statutory indication that the subject matter of the LLP Agreement includes duties owed by partners to the LLP and also duties owed to the partners by the LLP. This would necessarily render the LLP a necessary party to the arbitration proceedings relating to the LLP’s operations and governance, despite the LLP not being a signatory to the LLP Agreement. Therefore, even if there had been no arbitration clause at all in the LLP Agreement, the First Schedule would lead to an arbitration agreement being in existence in the eyes of law, for disputes among the partners.
The dispute at hand relates to the expulsion of a partner from the LLP. Whether the Managing Partner alone was responsible for it and other partners acquiesced in or approved of that decision is a subject matter of merits of the dispute. Whether the expelled partner’s conduct warranted expulsion, is a question that would necessarily require examination of the injury, if any, occasioned to the LLP’s interests by such partner’s conduct for the drastic step of expulsion to be taken. Therefore, it would be simply impossible for this Court to reject this Application under Section 11.
The upshot of this contention is that the LLP is not a necessary party to the dispute. Even a plain reading of the invocation notice addressed to Kothari would show that it was issued to him in his capacity as the Managing Partner. Therefore, to read it as a personal dispute of Radia with Kothari in his individual capacity is a misconceived contention. This argument has to be stated to be rejected. The dispute inter alia relates to expulsion of Radia. The expulsion is from the LLP. The cause for expulsion would necessarily have to relate to the injury allegedly occasioned to the LLP and to its partners, by the alleged conduct of Radia that led to the expulsion.
Conclusion - The objections raised by the Respondents to allowing this Section 11 Application are totally devoid of merit. Despite the existence of an arbitration clause in the LLP Agreement and in Item 14 of the First Schedule, the contention that the LLP itself is extraneous to the very LLP Agreement governing the LLP, in my opinion, is untenable and frivolous. Such objections have been raised evidently to delay and frustrate the commencement of arbitration proceedings.
Applocation disposed off.
The core legal issues considered in this judgment are:
1. Whether the order dated 12.10.2018 by the learned JMFC, Kamrup, rejecting the petition filed under Section 210 Cr.PC, was justified.
2. Whether the proceedings in Complaint Case No. 4683C/2017 under Section 138 of the N.I. Act should be stayed or quashed in light of the CID (Assam) P.S. Case No. 03/2017.
3. Whether the petitioners can seek conversion of their petition to one for quashing the entire criminal proceeding by invoking Section 482 Cr.PC.
ISSUE-WISE DETAILED ANALYSIS
1. Justification of the Order dated 12.10.2018 by the JMFC, Kamrup
- Relevant legal framework and precedents: The petition under Section 210 Cr.PC was filed to call for a police report from the CID regarding the status of CID (Assam) P.S. Case No. 03/2017 and to stay the proceedings of the criminal complaint. Section 210 Cr.PC deals with the procedure to be followed when there is a complaint case and a police investigation in respect of the same offense.
- Court's interpretation and reasoning: The Court noted that the nature, cause of action, procedures, and objectives of the two cases were different. The learned Trial Court concluded that the offenses under Section 138 of the N.I. Act and Sections 406/408/420 IPC were not the same, and thus, Section 210 Cr.PC did not apply.
- Key evidence and findings: The Court found that the CID case involved allegations of misappropriation of Rs. 1,36,97,352/-, while the complaint case involved the dishonor of a cheque amounting to Rs. 81 lacs.
- Application of law to facts: The Court applied the principles of Section 210 Cr.PC and found no overlap in the offenses or the nature of the cases to warrant a stay or report from the CID.
- Treatment of competing arguments: The petitioners argued that the cases were interconnected, but the Court found no merit in this argument, as the CID case had already been quashed.
- Conclusions: The rejection of the petition under Section 210 Cr.PC was upheld as the Court found no irregularity or mistake in the Trial Court's order.
2. Stay or Quashing of Proceedings in Complaint Case No. 4683C/2017
- Relevant legal framework and precedents: Section 138 of the N.I. Act deals with the dishonor of cheques, and Section 482 Cr.PC provides inherent powers to the High Court to prevent abuse of the process of any court or to secure the ends of justice.
- Court's interpretation and reasoning: The Court noted that the CID case had been quashed, and there was no basis for staying or quashing the complaint case under Section 138 of the N.I. Act.
- Key evidence and findings: The Court observed that the alleged coercion in obtaining signatures on cheques was a matter to be decided during the trial of the complaint case.
- Application of law to facts: The Court found no grounds to interfere with the proceedings under Section 138 of the N.I. Act, as the CID case's quashing rendered the petitioners' arguments moot.
- Treatment of competing arguments: The petitioners' request for conversion of their petition to one for quashing the entire proceeding was rejected as it was not the subject of the original petition.
- Conclusions: The proceedings in Complaint Case No. 4683C/2017 were not stayed or quashed, as there was no legal basis for such an action.
3. Conversion of Petition to Quash Entire Criminal Proceeding
- Relevant legal framework and precedents: Section 482 Cr.PC allows the High Court to exercise its inherent powers to quash proceedings in the interest of justice.
- Court's interpretation and reasoning: The Court determined that the request for conversion was not appropriate, as the original petition was solely against the order of the learned Trial Court rejecting the Section 210 Cr.PC application.
- Key evidence and findings: The Court found that the petitioners' request for conversion was not supported by the procedural context of the case.
- Application of law to facts: The Court applied the principles of procedural law and found no basis for converting the petition at this stage.
- Treatment of competing arguments: The respondent's argument that conversion was not permissible was upheld by the Court.
- Conclusions: The Court refused to convert the petition into one for quashing the entire proceeding, as it was not procedurally appropriate.
SIGNIFICANT HOLDINGS
- The Court upheld the Trial Court's decision that the offenses under Section 138 of the N.I. Act and Sections 406/408/420 IPC were different, and thus, Section 210 Cr.PC did not apply.
- The Court emphasized that the inherent powers under Section 482 Cr.PC should not be invoked to convert a petition when it was not procedurally appropriate.
- The Court concluded that there was no need to interfere with the order of the learned JMFC dated 12.10.2018, as no irregularity or mistake was found.
The petition was dismissed and disposed of, affirming the Trial Court's order and maintaining the proceedings in Complaint Case No. 4683C/2017 under Section 138 of the N.I. Act.
Challenge to impugned order, rejecting the petition filed u/s 210 Cr.PC. - proceedings under Section 138 of the N.I. Act should be stayed or quashed - HELD THAT:- From the record it is seen that a petition for quashing was also filed by the petitioners praying for quashing of the CID (Assam) P.S. Case No. 03/2017 and accordingly the further proceeding was also stayed by this Court vide order dated 14.11.2018 and which was registered as Criminal Petition No. 828/2017 was subsequently allowed by quashing the CID Case No. 03/2017. During pendency of the CID case, the complaint case u/s 138 of the N.I. Act was filed alleging the dishonour of cheque amounting to Rs. 81 lacs. But, from the perusal of the records and the annexures filed along with the petition, it is seen that the subject matter of both the cases cannot be considered as same or similar one to pass any order to stay the proceedings by calling any police report in connection with CID P.S. Case No. 03/2017. In CID P.S. Case No. 03/2017 the allegation of misappropriation of money was amounting to Rs. 1,36,97,352/- whereas the Criminal Case No. 3204/2017 is only in connection with the dishonour of cheque amounting to Rs. 81 lacs which is alleged to have been issued by the present petitioners.
From the entire facts and circumstances of the case, it is seen that the subject matter of both the proceedings cannot be considered as same or similar to stay the proceedings of the criminal complaint case. More so, it is also seen that the CID (Assam) Case No. 03/2017 has already been quashed by this Court and hence the question of stay of the present proceeding also does not arise at this stage.
Further, the alternative prayer of the petitioners to convert the prayer of the present case for setting aside and quashing of the entire criminal proceeding also cannot be entertained at present for quashing of the entire case by invoking power u/s 482 Cr.PC.
Conclusion - The learned Trial Court below committed no irregularity or mistake by passing the order dated 12.10.2018 by rejecting the prayer of the petitioners filed u/s 210 Cr.PC and hence there is no reason for setting aside and quashing the said order by invoking the power u/s 482 Cr.PC and hence this Court is of the opinion that there is no need of any interference in the order passed by the learned JMFC dated 12.10.2018 in C.R. Case No. 3204 of 2017.
Petition dismissed.
Challenge to impugned order, rejecting the petition filed u/s 210 Cr.PC. - proceedings under Section 138 of the N.I. Act should be stayed or quashed - HELD THAT:- From the record it is seen that a petition for quashing was also filed by the petitioners praying for quashing of the CID (Assam) P.S. Case No. 03/2017 and accordingly the further proceeding was also stayed by this Court vide order dated 14.11.2018 and which was registered as Criminal Petition No. 828/2017 was subsequently allowed by quashing the CID Case No. 03/2017. During pendency of the CID case, the complaint case u/s 138 of the N.I. Act was filed alleging the dishonour of cheque amounting to Rs. 81 lacs. But, from the perusal of the records and the annexures filed along with the petition, it is seen that the subject matter of both the cases cannot be considered as same or similar one to pass any order to stay the proceedings by calling any police report in connection with CID P.S. Case No. 03/2017. In CID P.S. Case No. 03/2017 the allegation of misappropriation of money was amounting to Rs. 1,36,97,352/- whereas the Criminal Case No. 3204/2017 is only in connection with the dishonour of cheque amounting to Rs. 81 lacs which is alleged to have been issued by the present petitioners.
From the entire facts and circumstances of the case, it is seen that the subject matter of both the proceedings cannot be considered as same or similar to stay the proceedings of the criminal complaint case. More so, it is also seen that the CID (Assam) Case No. 03/2017 has already been quashed by this Court and hence the question of stay of the present proceeding also does not arise at this stage.
Further, the alternative prayer of the petitioners to convert the prayer of the present case for setting aside and quashing of the entire criminal proceeding also cannot be entertained at present for quashing of the entire case by invoking power u/s 482 Cr.PC.
Conclusion - The learned Trial Court below committed no irregularity or mistake by passing the order dated 12.10.2018 by rejecting the prayer of the petitioners filed u/s 210 Cr.PC and hence there is no reason for setting aside and quashing the said order by invoking the power u/s 482 Cr.PC and hence this Court is of the opinion that there is no need of any interference in the order passed by the learned JMFC dated 12.10.2018 in C.R. Case No. 3204 of 2017.
Petition dismissed.
The primary issues considered in this judgment are:
1. Whether the petitioners, as former directors of the accused company, can be held vicariously liable under Section 138 of the Negotiable Instruments Act, 1881, for the dishonour of cheques issued by the company.
2. Whether the summoning orders issued by the Trial Court against the petitioners were justified, given their resignation from the company prior to the issuance and dishonour of the cheques.
3. The applicability of Section 141 of the NI Act concerning vicarious liability and the necessary conditions for quashing proceedings under Section 482 of the CrPC.
ISSUE-WISE DETAILED ANALYSIS
1. Vicarious Liability of Directors under Section 138 and 141 of the NI Act
Relevant legal framework and precedents: The case revolves around the application of Sections 138 and 141 of the NI Act, which deal with the offence of cheque dishonour and the vicarious liability of company directors, respectively. The Court referred to precedents such as S.P. Mani & Mohan Dairy v. Snehalatha Elangovan, emphasizing the requirement for specific averments in the complaint to establish vicarious liability.
Court's interpretation and reasoning: The Court highlighted that the primary responsibility of the complainant is to make specific averments in the complaint regarding the accused's role in the company. It is not necessary for the complainant to prove the accused's awareness of every transaction. The burden shifts to the accused to demonstrate their lack of involvement at the trial stage.
Key evidence and findings: The petitioners provided resignation documents (FORM NO. DIR-12) to support their claim of non-involvement. However, the Court noted the absence of unimpeachable evidence, such as FORM 32, to conclusively establish the timing and acceptance of their resignations.
Application of law to facts: The Court applied the legal principles to determine that the petitioners' resignations and their claimed non-involvement in the company's affairs were factual disputes to be resolved at trial. The Court found that the basic averments in the complaint were sufficient to proceed against the petitioners.
Treatment of competing arguments: The respondent argued that the petitioners were actively involved in the company's affairs at the relevant time. The Court recognized these as factual defenses that could not be adjudicated at this stage.
Conclusions: The Court concluded that the petitioners could not be absolved of liability at this stage, as the factual disputes regarding their involvement and resignation were matters for trial.
2. Justification of Summoning Orders and Quashing Proceedings
Relevant legal framework and precedents: The Court considered the scope of its inherent jurisdiction under Section 482 of the CrPC, referencing decisions like Malwa Cotton and Spinning Mills Ltd. v. Visra Singh Sidhu & Ors., which outline the limited circumstances under which proceedings can be quashed.
Court's interpretation and reasoning: The Court emphasized that quashing proceedings is a serious matter and requires unimpeachable evidence showing that no offence is made out against the accused. The Court reiterated that the presence of basic averments in the complaint suffices to issue process, and any factual disputes should be resolved at trial.
Key evidence and findings: The petitioners failed to provide incontrovertible evidence to demonstrate that their resignations absolved them of liability. The Court noted that the timing and acceptance of their resignations were not clearly established.
Application of law to facts: The Court applied the legal principles to determine that the petitioners' arguments did not meet the threshold for quashing the proceedings. The factual disputes regarding their involvement were deemed inappropriate for resolution under Section 482 of the CrPC.
Treatment of competing arguments: The Court acknowledged the petitioners' arguments regarding their resignations but found them insufficient to warrant quashing the proceedings. The Court emphasized that these issues should be addressed during the trial.
Conclusions: The Court concluded that the summoning orders were justified, and the petitions for quashing the proceedings were dismissed.
SIGNIFICANT HOLDINGS
The Court's significant holdings include:
- The primary responsibility of the complainant is to make specific averments in the complaint to establish vicarious liability. The burden then shifts to the accused to demonstrate their lack of involvement at trial.
- The presence of basic averments in the complaint suffices to issue process against directors under Sections 138 and 141 of the NI Act. Factual disputes regarding the accused's role and resignation are to be resolved at trial.
- Quashing proceedings under Section 482 of the CrPC requires unimpeachable evidence that no offence is made out. The petitioners failed to provide such evidence, and their petitions were dismissed.
The Court emphasized the importance of trial for resolving factual disputes and reiterated the limited scope of interference under Section 482 of the CrPC. The petitions were dismissed, and the proceedings were allowed to continue.
Dishonour of Cheque - vicarious liability of directors - it is alleged that Trial Court has mechanically passed the summoning orders without appreciating that the petitioners were not involved in the day-to-day affairs of the accused company - violation of principles of natural justice - HELD THAT:- It is well settled that under Section 138/ 141 of NI Act, the complainant is to make the particular averment in the complaint, to the effect that the accused person was the director of the accused company at the relevant time and is responsible for its day-to-day affairs, and therefore is vicariously liable for the offence. Thereafter, the onus of proving that at the relevant time, the accused persons were not the directors of the accused company and were not responsible for its day-to-day affairs, lies upon the accused persons and the same is matter of trial.
It must be borne in mind that Section 141 of the NI Act is a penal provision that creates vicarious liability for the accused. The petitioners have been implicated on the premise that they were responsible for the day-to-day affairs of the company. It is also settled that every person, regardless of whether they are in charge of the company during each series of act necessary to constitute the offence under Section 138 read with Section 141 of the NI Act or not, could be proceeded against if they are in charge of the affairs of the company even during one of the omissions’ that is necessary to constitute an offence under Section 138 read with Section 141 of the NI Act.
The Court can exercise its jurisdiction only upon unimpeachable and uncontroverted evidence being placed on record, however, in the absence of such evidence, the fact whether the accused person is responsible for the affairs of the accused company becomes a factual dispute, which is to be seen during trial - In a situation where the accused moves the Court for quashing even before the trial has commenced, the Court’s approach should be careful not to prematurely extinguish the case by disregarding the legal presumption supporting the complaint.
The factual issues that serve as defences in the case are not appropriate for determination under the powers conferred by Section 482 of the CrPC at this stage. It is well-established that this Court should refrain from expressing any views on disputed questions of fact in proceedings under Section 482 of the CrPC, as doing so could pre-empt the findings of the trial court.
Conclusion - Considering the contradicting material on record, the documents adduced by the petitioners cannot be said to be of such sterling and unimpeachable quality that it merits the quashing of the summons and consequential proceedings thereof. It cannot be said that the petitioners are not responsible for the functioning of the accused company or that the complaint is bereft of the requisite ingredients so as to proceed against the petitioners.
This Court finds no reason to interfere with the impugned orders - petition dismissed.
Dishonour of Cheque - vicarious liability of directors - it is alleged that Trial Court has mechanically passed the summoning orders without appreciating that the petitioners were not involved in the day-to-day affairs of the accused company - violation of principles of natural justice - HELD THAT:- It is well settled that under Section 138/ 141 of NI Act, the complainant is to make the particular averment in the complaint, to the effect that the accused person was the director of the accused company at the relevant time and is responsible for its day-to-day affairs, and therefore is vicariously liable for the offence. Thereafter, the onus of proving that at the relevant time, the accused persons were not the directors of the accused company and were not responsible for its day-to-day affairs, lies upon the accused persons and the same is matter of trial.
It must be borne in mind that Section 141 of the NI Act is a penal provision that creates vicarious liability for the accused. The petitioners have been implicated on the premise that they were responsible for the day-to-day affairs of the company. It is also settled that every person, regardless of whether they are in charge of the company during each series of act necessary to constitute the offence under Section 138 read with Section 141 of the NI Act or not, could be proceeded against if they are in charge of the affairs of the company even during one of the omissions’ that is necessary to constitute an offence under Section 138 read with Section 141 of the NI Act.
The Court can exercise its jurisdiction only upon unimpeachable and uncontroverted evidence being placed on record, however, in the absence of such evidence, the fact whether the accused person is responsible for the affairs of the accused company becomes a factual dispute, which is to be seen during trial - In a situation where the accused moves the Court for quashing even before the trial has commenced, the Court’s approach should be careful not to prematurely extinguish the case by disregarding the legal presumption supporting the complaint.
The factual issues that serve as defences in the case are not appropriate for determination under the powers conferred by Section 482 of the CrPC at this stage. It is well-established that this Court should refrain from expressing any views on disputed questions of fact in proceedings under Section 482 of the CrPC, as doing so could pre-empt the findings of the trial court.
Conclusion - Considering the contradicting material on record, the documents adduced by the petitioners cannot be said to be of such sterling and unimpeachable quality that it merits the quashing of the summons and consequential proceedings thereof. It cannot be said that the petitioners are not responsible for the functioning of the accused company or that the complaint is bereft of the requisite ingredients so as to proceed against the petitioners.
This Court finds no reason to interfere with the impugned orders - petition dismissed.
The petitioner argued that the cheque was misused by the complainant, alleging that a blank signed cheque was filled with different ink to fabricate a liability. The petitioner relied on precedents from higher courts, asserting the right to rebut the presumption of liability under Section 139 of the N.I. Act by examining the cheque through a handwriting expert. The petitioner cited cases like Kalyani Baskar v. M.S. Mampoornam and Gavisiddeshwara Hiremath v. Sanjeev Basavarajappa Karadakal to support the argument that denying expert examination could result in an unfair trial.
The complainant opposed this, arguing that the petitioner's admission of the signature on the cheque suffices to presume liability under Section 139 of the N.I. Act. The complainant relied on precedents such as S. Gopal v. D. Balachandran and Rajendran v. Usharani, which support the view that once the signature is admitted, the cheque is presumed to be issued for discharging a liability, even if filled by another person.
The court analyzed the arguments and noted that the petitioner had not disputed the signature on the cheque during the trial. The trial court had rejected the application to send the cheque for expert examination, considering the delay and the stage of the proceedings. The court emphasized the statutory requirement under Section 143 of the N.I. Act for expeditious disposal of such cases and noted that more than three years had elapsed since the complaint was filed.
The court acknowledged conflicting judicial views on the necessity of expert examination in such cases but highlighted the importance of concluding trials within the statutory timeframe. The court recognized the petitioner's right to defend against the presumption of liability but stressed that this should not unduly delay the proceedings. The court allowed the petitioner to obtain a private expert report and present it as evidence, provided it does not cause inordinate delay.
The court concluded that while it would not interfere with the trial court's order, it would allow the petitioner an opportunity to present defense evidence, including expert reports, to rebut the complainant's case. The trial court was directed to provide the petitioner at least one opportunity to present such evidence.
Significant holdings include the reaffirmation of the presumption under Section 139 of the N.I. Act and the acknowledgment of the accused's right to rebut this presumption. The court balanced the need for a fair trial with the statutory mandate for timely resolution of cases under the N.I. Act.
Dishonour of Cheque - invocation of jurisdiction of this Court under Section 482 Cr.P.C - application for sending the alleged cheque to handwriting expert for determination of the age of the contents and the signature has been turned down - HELD THAT:- The petitioner has indeed not disputed his signature contained in the cheque. Therefore, the trial court has rightly rejected the prayer for sending the cheque and other exhibits to handwriting experts. The trial court has also taken into consideration the delayed motion of the petitioner to send the exhibits to the handwriting experts. Although the judgments in subject cited by both the parties at the Bar are conflicting views on the subject but the fact remains that under the statutory command every case under Section 138 of the N.I. Act needs to be concluded within a stipulated time framed as prescribed under Section 143 of the N.I. Act.
In the instant case, the complaint was filed on 24.02.2020 and about five years have gone by. However, the matter is still pending for conclusion of the trial. In that scenario, the trial court’s order rejecting the application of the petitioner appears to be unquestionable. At the same time, right of an accused to defend in the criminal case is indefeasible. In the case of present nature when presumption is operating against the petitioner, which is rebuttable in nature, the right of the petitioner-accused to lead evidence in his rebuttal is also inalienable right. Therefore, the petitioner being accused has right to adduce all evidence under his command to disprove the case of the complainant-opposite party.
The petitioner should get at least an opportunity to lead his evidence in rebuttal. Therefore, it is open for the petitioneraccused to obtain report from a private handwriting expert and place it on record, if so advised. It is also open for the petitioner to lead any other evidence to prove his case on his defence, but that should not be at the cost of delaying the proceeding inordinately.
Conclusion - The petitioner is allwoed an opportunity to present defense evidence, including expert reports, to rebut the complainant's case.
The CRLMC is disposed of.
Dishonour of Cheque - invocation of jurisdiction of this Court under Section 482 Cr.P.C - application for sending the alleged cheque to handwriting expert for determination of the age of the contents and the signature has been turned down - HELD THAT:- The petitioner has indeed not disputed his signature contained in the cheque. Therefore, the trial court has rightly rejected the prayer for sending the cheque and other exhibits to handwriting experts. The trial court has also taken into consideration the delayed motion of the petitioner to send the exhibits to the handwriting experts. Although the judgments in subject cited by both the parties at the Bar are conflicting views on the subject but the fact remains that under the statutory command every case under Section 138 of the N.I. Act needs to be concluded within a stipulated time framed as prescribed under Section 143 of the N.I. Act.
In the instant case, the complaint was filed on 24.02.2020 and about five years have gone by. However, the matter is still pending for conclusion of the trial. In that scenario, the trial court’s order rejecting the application of the petitioner appears to be unquestionable. At the same time, right of an accused to defend in the criminal case is indefeasible. In the case of present nature when presumption is operating against the petitioner, which is rebuttable in nature, the right of the petitioner-accused to lead evidence in his rebuttal is also inalienable right. Therefore, the petitioner being accused has right to adduce all evidence under his command to disprove the case of the complainant-opposite party.
The petitioner should get at least an opportunity to lead his evidence in rebuttal. Therefore, it is open for the petitioneraccused to obtain report from a private handwriting expert and place it on record, if so advised. It is also open for the petitioner to lead any other evidence to prove his case on his defence, but that should not be at the cost of delaying the proceeding inordinately.
Conclusion - The petitioner is allwoed an opportunity to present defense evidence, including expert reports, to rebut the complainant's case.
The CRLMC is disposed of.
The following core legal questions were considered in the judgment:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Proof of Transaction Leading to Execution of Ext.A1
Issue 2: Trial Court's Findings on Ext.A1
Issue 3: Necessity for Interference with the Verdict
Issue 4: Reliefs and Costs
3. SIGNIFICANT HOLDINGS
Dishonour of cheque - insufficient funds - discharge of legal liability or not - plaintiff proved the transaction led to execution of Ext.A1, so as to get the suit amount, as claimed or not - trial court went wrong in holding that the plaintiff proved Ext.A1 and the defendant’s case is contrary, to be acted upon - HELD THAT:- On reappreciation of the available evidence, the case of the plaintiff as to borrowing of Rs.3,00,000/- during the month of January, 2005, by the defendant and consequential issuance of Ext.A1 cheque dated 31.05.2005, were proved by the evidence of PW1, since the substantive evidence given by PW1 in this regard was not shaken. The defendant, in fact, had inconsistent contentions. That is to say, before filing the written statement, when Exts.A6 and A8 notices were issued, the case of the defendant was that the plaintiff was attempting to misuse the blank signed papers and blank signed cheques of the defendant, stolen away by Sri.Vijayakumar. But, thereafter in the the written statement even the signature in the cheque was also denied.
It is the well settled law that, when a fact is disputed, the evidence to prove the same is substantive evidence, though corroborative evidence also can be adduced to support the substantive evidence. Indubitably, corroborative evidence will not stand unless there is no substantive evidence. In the instant case, the substantive evidence as that of the plaintiff in the matter of transaction, which led to execution of Ext.A1 cheque was not shaken during cross-examination. Therefore, presumptions under Section 118 (a) to (g) of the NI Act is to be adjudged in favour of the plaintiff. The inconsistent case put up by the defendant is not supported by even remote piece of evidence and therefore the said case not at all established, inturn the presumptions in favour of the plaintiff not rebutted. In such view of the matter, the trial court rightly granted decree. In fact, the said verdict does not require any interference.
In view of the above, remand cannot be made merely for the purpose of enabling a party to fill up the lacuna in the evidence. Accordingly, the remand plea at the instance of the learned counsel for the defendant also is liable to fail.
Conclusion - The presumption under Section 118 of the NI Act in favor of the holder of a negotiable instrument and the necessity for defendants to provide credible evidence to rebut such presumptions.
The appeal stands dismissed and the verdict under challenge stands confirmed. Considering the nature of the case, there is no reason to disallow the cost of this proceedings to the plaintiff/respondent.
Dishonour of cheque - insufficient funds - discharge of legal liability or not - plaintiff proved the transaction led to execution of Ext.A1, so as to get the suit amount, as claimed or not - trial court went wrong in holding that the plaintiff proved Ext.A1 and the defendant’s case is contrary, to be acted upon - HELD THAT:- On reappreciation of the available evidence, the case of the plaintiff as to borrowing of Rs.3,00,000/- during the month of January, 2005, by the defendant and consequential issuance of Ext.A1 cheque dated 31.05.2005, were proved by the evidence of PW1, since the substantive evidence given by PW1 in this regard was not shaken. The defendant, in fact, had inconsistent contentions. That is to say, before filing the written statement, when Exts.A6 and A8 notices were issued, the case of the defendant was that the plaintiff was attempting to misuse the blank signed papers and blank signed cheques of the defendant, stolen away by Sri.Vijayakumar. But, thereafter in the the written statement even the signature in the cheque was also denied.
It is the well settled law that, when a fact is disputed, the evidence to prove the same is substantive evidence, though corroborative evidence also can be adduced to support the substantive evidence. Indubitably, corroborative evidence will not stand unless there is no substantive evidence. In the instant case, the substantive evidence as that of the plaintiff in the matter of transaction, which led to execution of Ext.A1 cheque was not shaken during cross-examination. Therefore, presumptions under Section 118 (a) to (g) of the NI Act is to be adjudged in favour of the plaintiff. The inconsistent case put up by the defendant is not supported by even remote piece of evidence and therefore the said case not at all established, inturn the presumptions in favour of the plaintiff not rebutted. In such view of the matter, the trial court rightly granted decree. In fact, the said verdict does not require any interference.
In view of the above, remand cannot be made merely for the purpose of enabling a party to fill up the lacuna in the evidence. Accordingly, the remand plea at the instance of the learned counsel for the defendant also is liable to fail.
Conclusion - The presumption under Section 118 of the NI Act in favor of the holder of a negotiable instrument and the necessity for defendants to provide credible evidence to rebut such presumptions.
The appeal stands dismissed and the verdict under challenge stands confirmed. Considering the nature of the case, there is no reason to disallow the cost of this proceedings to the plaintiff/respondent.
Issues Presented and Considered:
The core issues considered by the Court were:
Issue-wise Detailed Analysis:
1. Maintainability of the Writ Petition:
The respondents argued that the petitioners had an alternative remedy through an appeal under Section 43(5) of the RERA Act. The Court noted that the availability of an alternative remedy does not automatically bar the exercise of writ jurisdiction, especially in cases involving jurisdictional errors. However, the Court emphasized that the petitioners should have pursued the statutory remedy first.
2. Jurisdiction of the RERA Authority:
The petitioners contended that the RERA Authority lacked jurisdiction due to non-registration of the project under Section 3 of the RERA Act. The Court examined Section 3, which mandates prior registration of real estate projects with the RERA Authority. The Court also considered Section 31, which allows any aggrieved person to file a complaint with the Authority for violations of the Act.
The Court found that the jurisdiction of the RERA Authority is not solely dependent on the registration status of the project. The statutory framework under Section 31 provides a mechanism for aggrieved parties to seek redress for violations, irrespective of registration compliance. The Court held that the RERA Authority had jurisdiction to adjudicate the complaints filed by the respondents.
3. Non-registration and Jurisdictional Defects:
The petitioners argued that the lack of project registration under Section 3 rendered the RERA Authority's actions coram non judice. The Court rejected this argument, stating that the statutory provisions must be read harmoniously. The Court emphasized that the RERA Act's purpose is to protect homebuyers and ensure accountability in the real estate sector. The non-registration of the project did not negate the RERA Authority's jurisdiction to hear complaints.
Significant Holdings:
The Court dismissed the writ petition, directing the petitioners to pursue the alternative remedy of appeal. If the appeal is time-barred, the appellate body is instructed to consider an application under Section 14 of the Limitation Act and proceed accordingly.
Maintainability of petition - availability of alternative remdy of appeal - jurisdiction of RERA - non-compliance with certain provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA Act) - HELD THAT:- There is a bestowment of a statutory right in any aggrieved person to file a complaint with the authority or before the adjudicating officer, thus relating to any violations or contraventions qua any provisions of the Act or of the rules and regulations made thereunder, and, the said statutory endowment is stated therein to be ably raisable against any promoter, allottee or Real Estate Agent, as the case may be. Resultantly, therebys, the issue relating to the exercising of able jurisdiction, upon, the apposite complaint rather becomes more pointedly underpinned, on the supra provisions relating to the adjudicatory capacity of the RERA, than visa-vis respective omissions being made to either sub-Section 1 to Section 3 of RERA Act or to the second proviso to sub-Section 1 of Section 3 of RERA Act.
The vesting of jurisdictional competence, in the RERA authority, is pinpointedly grooved upon the bestowment of a remedy to the aggrieved, thus through the statutory mandate enclosed in Section 31 of RERA Act, than upon, the necessity of compliances being made by the promoter, vis-a-vis the mandate which occurs in sub-Section 1 of the Section 3 of RERA Act. Moreover therebys wants if any of compliances rather even by the competent authority, vis-à-vis, the mandate enclosed in the second proviso to sub-Section 1 of Section 3 of RERA Act, thus is not the apposite statutory precursor rather for vesting the competent adjudicatory jurisdiction in the RERA Authorities.
Since the gamut of the apposite jurisdictional provisions, relating to the conferment of competent adjudicatory jurisdiction, upon the RERA vis-a-vis the instant controversy, when but also naturally covers promoter(s), who irrefutably also is the present petitioner, as he has evidently in terms of the definition of ‘promoter’, offered through Annexure P-3 rather the subject project for sale to the prospective buyers. Resultantly, when on makings of plain and literal interpretation of the supra provisions, but manifests that therebys the competent adjudicatory jurisdiction vis-a-vis complaints, as received from any ill act of even a promoter, as the present petitioner, thus is, hence becomes conferred upon the RERA authorities.
Conclusion - i) The writ petition was not maintainable due to the availability of an alternative appellate remedy under the RERA Act. ii) The jurisdiction of the RERA Authority to adjudicate complaints, even in the absence of project registration under Section 3, confirmed. iii) The non-registration of the project did not invalidate the RERA Authority's jurisdiction or render its actions coram non judice.
Petition dismissed.
Maintainability of petition - availability of alternative remdy of appeal - jurisdiction of RERA - non-compliance with certain provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA Act) - HELD THAT:- There is a bestowment of a statutory right in any aggrieved person to file a complaint with the authority or before the adjudicating officer, thus relating to any violations or contraventions qua any provisions of the Act or of the rules and regulations made thereunder, and, the said statutory endowment is stated therein to be ably raisable against any promoter, allottee or Real Estate Agent, as the case may be. Resultantly, therebys, the issue relating to the exercising of able jurisdiction, upon, the apposite complaint rather becomes more pointedly underpinned, on the supra provisions relating to the adjudicatory capacity of the RERA, than visa-vis respective omissions being made to either sub-Section 1 to Section 3 of RERA Act or to the second proviso to sub-Section 1 of Section 3 of RERA Act.
The vesting of jurisdictional competence, in the RERA authority, is pinpointedly grooved upon the bestowment of a remedy to the aggrieved, thus through the statutory mandate enclosed in Section 31 of RERA Act, than upon, the necessity of compliances being made by the promoter, vis-a-vis the mandate which occurs in sub-Section 1 of the Section 3 of RERA Act. Moreover therebys wants if any of compliances rather even by the competent authority, vis-à-vis, the mandate enclosed in the second proviso to sub-Section 1 of Section 3 of RERA Act, thus is not the apposite statutory precursor rather for vesting the competent adjudicatory jurisdiction in the RERA Authorities.
Since the gamut of the apposite jurisdictional provisions, relating to the conferment of competent adjudicatory jurisdiction, upon the RERA vis-a-vis the instant controversy, when but also naturally covers promoter(s), who irrefutably also is the present petitioner, as he has evidently in terms of the definition of ‘promoter’, offered through Annexure P-3 rather the subject project for sale to the prospective buyers. Resultantly, when on makings of plain and literal interpretation of the supra provisions, but manifests that therebys the competent adjudicatory jurisdiction vis-a-vis complaints, as received from any ill act of even a promoter, as the present petitioner, thus is, hence becomes conferred upon the RERA authorities.
Conclusion - i) The writ petition was not maintainable due to the availability of an alternative appellate remedy under the RERA Act. ii) The jurisdiction of the RERA Authority to adjudicate complaints, even in the absence of project registration under Section 3, confirmed. iii) The non-registration of the project did not invalidate the RERA Authority's jurisdiction or render its actions coram non judice.
Petition dismissed.
Don't have an account? Register Here