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Issues: Whether the challenge to the notifications issued under Section 168A of the Central Goods and Services Tax Act, 2017 raised arguable questions warranting a rule and interim protection; and whether coercive steps pursuant to the impugned order should be restrained pending final hearing.
Analysis: The writ petition questioned the validity of the notifications extending time limits under the CGST regime on the ground that the later notifications were not issued on the recommendation of the GST Council. The Court found that arguable questions were raised and noted that similar issues were pending before the Supreme Court. For interim relief, the Court also considered that another bench had granted protection in a comparable matter and that a strong prima facie case existed because the impugned order was stated to have been passed beyond the extended period if the later notifications were to fail.
Outcome: Rule was issued, and interim relief was granted restraining the respondents from acting upon or taking further steps pursuant to the impugned order pending final disposal of the petition.
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.
Issues: Whether refund of Integrated Goods and Services Tax paid on zero-rated exports could be denied on the strength of Circular No. 37/2018 despite the refund mechanism under the Integrated Goods and Services Tax Act, the Central Goods and Services Tax Act and the Central Goods and Services Tax Rules.
Analysis: The refund claim arose from zero-rated exports and was founded on Section 16(3) of the Integrated Goods and Services Tax Act, 2017, Section 54 of the Central Goods and Services Tax Act, 2017 and Rule 96 of the Central Goods and Services Tax Rules, 2017. The rejection rested only on Circular No. 37/2018. The Court treated the issue as already settled and held that a circular cannot prevail over Rule 96, and therefore cannot sustain denial of the refund.
Conclusion: The rejection of refund was unsustainable and the petitioner was entitled to refund of the IGST paid together with applicable interest.
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.
Issues: Whether the denial of input tax credit on the ground of limitation could be sustained after the insertion of Section 16(5) of the Central Goods and Services Tax Act, 2017 with retrospective effect, and whether the consequential impugned order could stand.
Analysis: The claim of input tax credit was earlier treated as time-barred under Section 16(4) of the Central Goods and Services Tax Act, 2017. The subsequent statutory amendment inserted Section 16(5), which entitled registered persons to take input tax credit in respect of invoices or debit notes pertaining to the specified financial years where the return under Section 39 was filed up to 30.11.2021. In light of the retrospective effect given to the amendment from 01.07.2017 and the connected notification and circular, the limitation-based denial of input tax credit could not be sustained.
Conclusion: The impugned order was quashed insofar as it rejected the input tax credit claim on limitation grounds, and the Department was restrained from proceeding further on that basis. Consequential directions were also issued for de-freezing the bank account, dropping recovery action, and refund or adjustment of amounts already collected.
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.
ISSUES PRESENTED AND CONSIDERED
1. Whether input tax credit (ITC) claims barred by time-limitation under Section 16(4) of the Central Goods and Services Tax Act, 2017 can be restored by virtue of the amendment inserting Section 16(5) with retrospective effect.
2. Whether impugned departmental orders reversing ITC and directing recovery (tax, interest, penalty) are sustainable where the amended Section 16(5) permits belated availment of ITC for specified financial years.
3. Whether ancillary reliefs - restraint on initiating recovery, de-freezing of bank accounts, refund/adjustment of amounts in ledgers and permission to proceed in cases involving non-limitation issues (e.g., fraud, excess or fake ITC) - should follow from quashing of orders limited to the limitation issue.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Effect of retrospective insertion of Section 16(5) on time-barred ITC claims under Section 16(4)
Legal framework: Section 16(4) barred entitlement to take ITC after the thirtieth day of November following the end of the financial year to which the invoice pertains or furnishing of the relevant annual return, whichever is earlier. Section 16(5) (inserted retrospectively as of 01.07.2017) provided that, notwithstanding subsection (4), for invoices/debit notes pertaining to FYs 2017-18 to 2020-21 registered persons shall be entitled to take ITC in any return under Section 39 filed up to 30.11.2021. The amendment was effected by Finance Act (No.2) of 2024 and operationalised by CBIC Notification and Circular.
Precedent treatment: The Court expressly followed a common earlier order of the same Court (dated 17.10.2024 in a batch of writ petitions) which construed the amendment and applied it to quash impugned orders that had reversed ITC on limitation grounds. That earlier order was applied here without distinguishing or overruling it.
Interpretation and reasoning: The Court construed Section 16(5) as a clear legislative exception to the limitation in Section 16(4), operative retrospectively and applicable to the specified financial years. The legislative history (GST Council recommendation, Presidential assent, Finance Act amendment, and administrative Circular/Notification) was held to demonstrate Parliament's and the executive's intent to extend the deadline and render previously time-barred ITC claims permissible if filed in returns under Section 39 on or before 30.11.2021. Given that the petitioner's dispute solely concerned limitation under Section 16(4), the amendment supersedes the departmental orders premised on the old limitation rule.
Ratio vs. Obiter: Ratio - The retrospective insertion of Section 16(5) removes the bar of Section 16(4) for FYs 2017-18 to 2020-21 and entitles registered persons to claim ITC in returns under Section 39 filed up to 30.11.2021; therefore, departmental orders reversing ITC on the ground of limitation are quashed insofar as they relate to that period. The discussion of the legislative events and administrative circulars forms part of the operative reasoning (ratio). No part of this construction was treated as obiter.
Conclusions: Section 16(5) applies retrospectively and entitles eligible registered persons to avail ITC for the specified FYs if return under Section 39 was filed up to 30.11.2021; accordingly, orders reversing ITC solely on limitation under Section 16(4) are not sustainable and are quashed.
Issue 2: Consequences of quashing limitation-based ITC reversal orders - restraint on recovery and de-freezing of bank accounts
Legal framework: Writ jurisdiction permits quashing of administrative orders that are inconsistent with statutory amendments and appropriate relief attaching to such quashing (injunctive directions, restoration, de-freezing, refund/adjustment). Administrative directions (CBIC Circular/Notification) inform implementation.
Precedent treatment: The Court followed its prior batch order in granting ancillary reliefs (restraint on proceedings, de-freezing, refund/adjustment) as incident to quashing the limitation-based part of assessment orders.
Interpretation and reasoning: Since the impugned orders were quashed only insofar as they relied on limitation under Section 16(4) and the law (Section 16(5)) now permits the affected ITC claims, continuation of recovery measures or maintenance of bank account freezes would be unjustified pending compliance with the statutory entitlement. The Court therefore ordered restraint on further proceedings based on limitation, immediate steps to de-freeze bank accounts, dropping recovery steps taken during pendency on production of the quashing order, and refund or permission to adjust amounts collected in cash/credit ledgers.
Ratio vs. Obiter: Ratio - Incidental reliefs (injunction on recovery, de-freezing, refund/adjustment) are warranted where administrative action has been invalidated insofar as it relies on a limitation now removed by statute; such reliefs are proper measures to give effect to the statutory entitlement. The administrative implementation instructions cited support the operative directions.
Conclusions: The Department is restrained from initiating or continuing recovery actions based on the limitation issue; bank accounts frozen pursuant to the quashed orders must be de-frozen; amounts collected may be refunded or adjusted; recovery steps during pendency are to be dropped on production of the court order.
Issue 3: Scope of quashing - preservation of Departmental rights to proceed where substantive irregularity, fraud, or excess/fake ITC is alleged
Legal framework: Statutory entitlement to ITC is subject to compliance with substantive conditions (valid invoices, actual receipt of goods/services, matching requirements, absence of fraudulent or erroneous claims). Quashing of orders on one ground does not preclude fresh lawful proceedings on distinct grounds.
Precedent treatment: The Court, following its earlier order, expressly preserved the Department's liberty to proceed in accordance with law where issues other than limitation (discrepancies, wrong/ excess/fake ITC) are involved.
Interpretation and reasoning: The Court confined relief to the limitation dimension. It recognized that allegations of fraudulent or incorrect availment of ITC implicate distinct factual and legal inquiries. Accordingly, the Department was granted liberty to pursue proceedings on those non-limitation grounds notwithstanding the quashing of the limitation-based component.
Ratio vs. Obiter: Ratio - Quashing relief limited to the ground(s) that have been invalidated by subsequent statutory change; liberty to proceed on independent substantive allegations is permissible and not barred by the relief granted. This is an integral part of the Court's operative order, not mere obiter.
Conclusions: The Department may lawfully proceed against assessees on issues of discrepancies, wrong/excess/fake ITC or other substantive infractions; the quashing applies only to orders insofar as they were predicated on limitation under Section 16(4).
Overall Conclusion
The Court applied the retrospective amendment inserting Section 16(5), followed its prior batch decision, quashed departmental orders insofar as they reversed ITC on the ground of limitation for FYs 2017-18 to 2020-21 where returns under Section 39 were filed up to 30.11.2021, directed consequential reliefs (restraint on recovery, de-freezing, refund/adjustment), and preserved the Department's right to pursue proceedings on independent substantive allegations of irregularity or fraud. These holdings constitute the operative ratio of the decision.
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.
Issues: Whether the cancellation of the petitioner's GST registration for non-filing of returns was liable to be set aside and the registration restored, subject to payment of dues.
Analysis: The writ petition was disposed of after taking note that the petitioner had paid the revenue due and undertook to clear any remaining outstanding dues. The impugned cancellation orders of the authorities were set aside, and the CGST/WBGST authority was directed to restore the registration and keep the portal open for 45 days from communication of the order so that the petitioner could make payment of the dues and penalty to be indicated within 15 working days. It was also directed that if the petitioner failed to pay the indicated amount, the authority would be at liberty to block the portal again and cancel the registration.
Conclusion: The cancellation of registration was set aside and the registration was directed to be restored, but the relief was conditional upon payment of the dues indicated by the GST authority.
Cancellation of registration for non-filing of return - restoration of registration upon payment of dues - direction to open portal for compliance - power to block portal and re-cancel registration for non-payment
Cancellation of registration for non-filing of return - restoration of registration upon payment of dues - direction to open portal for compliance - power to block portal and re-cancel registration for non-payment - Impugned orders cancelling the petitioner's registration for non-filing of return were set aside and the petitioner's registration ordered to be restored subject to payment of dues and penalties within the timelines directed by the Court. - HELD THAT: - The Court accepted the appellant's submission that after cancellation of registration the petitioner had paid all revenue due and was prepared to pay any outstanding dues necessary for restoration. The writ petition was disposed by setting aside the impugned orders of the concerned authorities and directing the respondent CGST/WBGST authority to restore the petitioner's registration. The authority was ordered to re-open its portal for a period of 45 days from the date the counsel for the respondent authority communicates the order, to enable the petitioner to make payment of revenue due and any other dues including penalty. The authority is to indicate the amount payable within 15 working days, following which the petitioner must make payment within the period the portal remains open. The Court preserved the authority's statutory discretion by specifying that if the petitioner fails to make the payment after indication of the amount, the respondent authority shall be free to block the portal again and cancel the registration.
Impugned cancellation orders set aside; registration restored and portal to be opened for 45 days to permit payment of dues (amount to be indicated within 15 working days); failure to pay authorises re-blocking and cancellation.
Final Conclusion: Writ petition disposed by setting aside the impugned cancellation orders; registration is to be restored subject to payment of indicated dues and penalties within the timelines directed, with liberty to the authority to block the portal and cancel registration if payment is not made.
ISSUES PRESENTED AND CONSIDERED
1. Whether the impugned adjudication order was passed in violation of Section 75(4) of the GST Act, 2017 by failing to provide an effective opportunity of personal hearing prior to passing an adverse order.
2. Whether fixation of a date for personal hearing prior to the expiry of the time allowed for filing a reply renders the hearing meaningless and violates principles of natural justice.
3. Appropriate remedial relief where an adjudicating authority proceeds to pass an adverse order after issuing a reminder and after the taxpayer filed a substantive reply but without affording a fresh, effective personal hearing.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Violation of Section 75(4) of the GST Act by failure to provide effective personal hearing
Legal framework: Section 75(4) (GST Act, 2017) contemplates that when an authority intends to pass an adverse order, sufficient opportunity must be afforded to the assessee, including opportunity to be heard; principles of natural justice apply to adjudicatory proceedings under the GST regime.
Precedent Treatment: The Court refers to its own practice and prior directions (general observation) condemning procedural practices that render hearings ineffective; earlier decisions of this Court are applied by analogy to require meaningful hearings.
Interpretation and reasoning: The Court examined the sequence of communications: initial show cause notice with deadline for reply and a personal hearing date set prior to the reply deadline; subsequent reminder fixing another hearing date again prior to, or without regard to, the filed reply; and passage of the impugned order without affording any subsequent effective personal hearing after the petitioner filed substantive replies. The Court reasoned that where a substantive reply is on record, an effective opportunity to be heard must be provided before passing an adverse order; absence of such opportunity constitutes a breach of statutory obligation and natural justice.
Ratio vs. Obiter: Ratio - an adverse adjudication under the GST Act is invalidated if passed without affording an effective personal hearing after a substantive reply is filed; Obiter - broader administrative training suggestions made by the Court to the Department to conduct refresher courses for officers.
Conclusion: The impugned order was passed contrary to Section 75(4) and in violation of principles of natural justice; it was set aside and remitted for fresh consideration with directions to afford an effective hearing.
Issue 2 - Effectiveness of a personal hearing fixed before expiry of the reply period
Legal framework: Procedural fairness requires that dates of personal hearing should be fixed so as to allow the party a real opportunity to file and have their reply considered; administrative procedures under the GST regime must not render statutory safeguards illusory.
Precedent Treatment: The Court relied on its own established view that fixation of hearings prior to the date allowed for filing a reply has been repeatedly held to be an "eye-wash" and achieves no useful purpose; such practice is unacceptable.
Interpretation and reasoning: The Court observed that fixing a personal hearing three weeks before the expiry of the reply period (and before receipt of the substantive reply) defeats the purpose of allowing a reply; where an authority nevertheless fixes such a hearing and then proceeds to ignore subsequent replies, the hearing is ineffective. The Court noted recurring non-compliance by departmental officers with these principles.
Ratio vs. Obiter: Ratio - personal hearings fixed prior to the expiry of the reply period are likely to be ineffective and cannot substitute for a hearing held after consideration of the reply; Obiter - admonition to the Department to educate officers and hold refresher courses.
Conclusion: Personal hearings should ordinarily be fixed only after the filing of the reply; hearings fixed prior to reply filing will generally be ineffective and cannot cure a breach of natural justice where a reply is later filed and not considered.
Issue 3 - Appropriate relief and directions where procedural infirmity is found
Legal framework: Judicial power to quash administrative orders suffering from procedural illegality and to remit for fresh consideration with directions to cure defects; principles of expeditious adjudication consistent with law.
Precedent Treatment: The Court applied established remedial principles - setting aside the impugned order, remanding for fresh consideration, and prescribing time-bound and procedural steps to ensure fairness.
Interpretation and reasoning: Given the admitted facts (substantive replies on record, hearings fixed before replies, and no effective hearing thereafter), the Court concluded that quashing and remand with clear procedural directions was the appropriate remedy to vindicate statutory and constitutional fairness without deciding merits. The Court directed the taxpayer to file replies within 15 days of the order and directed the authority to issue a clear 14-days notice fixing a personal hearing thereafter and to pass orders on merits expeditiously and in accordance with law.
Ratio vs. Obiter: Ratio - where an adjudicatory order is tainted by denial of effective hearing, the proper relief is to set aside the order and remit with directions to afford a clear, time-bound opportunity to be heard and then decide on merits; Obiter - expectations about departmental compliance and training.
Conclusion: The impugned order was set aside; the matter remitted with directions to permit filing of reply within 15 days and to issue a 14-days clear notice for personal hearing before deciding afresh on merits and in accordance with law.
Cross-references and Observations
1. The issues are interrelated: the invalidity under Section 75(4) stems from the ineffectiveness of personal hearings fixed before filing of replies (see Issue 1 and Issue 2).
2. Remedy directed is procedural and prospective - the Court did not adjudicate the substantive allegations but required fresh consideration after compliance with mandated hearing procedure (see Issue 3).
3. Administrative guidance: The Court suggested departmental refresher training to ensure officers follow statutory procedure and prior judicial directions regarding timing and utility of personal hearings (obiter observation intended to prevent recurrence).
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.
Issues: Whether the cancellation of GST registration should be interfered with and the registration restored, following the precedent granting revocation subject to compliance conditions.
Analysis: The petitioner stated that returns had been filed and taxes paid, and was willing to clear any further liability with late fee and interest. The parties accepted that the controversy was covered by the earlier line of decisions directing revocation of cancellation in similar cases subject to specified conditions. Following that approach, relief was considered appropriate on the same terms, with compliance obligations regarding filing of returns, payment of tax, interest, penalty and restrictions on utilisation of input tax credit.
Conclusion: The cancellation was not sustained as an absolute bar to restoration, and the petitioner was granted the benefit of revocation of GST registration on the terms adopted from the earlier precedent.
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.
Outcome: The writ petition was disposed of with liberty to the petitioner to take such proceedings as may be permissible in law.
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.
Issues: Whether the petitioner, whose GST registration had been cancelled for non-filing of returns, was entitled to move an application for revocation of cancellation and have it considered in accordance with law.
Analysis: The petition was disposed of in terms of the earlier order noticed by the Court. Liberty was granted to the petitioner to file an application for revocation under Section 30(2) of the Central Goods and Services Tax Act, 2017 within the stipulated time, along with the pending GST returns and the outstanding tax, dues and interest. The competent authority was directed to consider the application and pass an appropriate order within the time fixed by the Court.
Conclusion: The petitioner was permitted to seek revocation of the cancellation order, and the authority was required to decide the application as per law.
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.
Issues: (i) Whether PVC raincoats are classifiable under HSN 6201 as textile articles or under HSN 3926 as plastic articles; (ii) Whether PVC raincoats attract GST at the rate applicable to Heading 3926.
Issue (i): Whether PVC raincoats are classifiable under HSN 6201 as textile articles or under HSN 3926 as plastic articles
Analysis: The product was found to be made from PVC sheets assembled by fusion, resulting in a non-woven article. Chapter 62 applies to made-up articles of textile fabric, whereas the PVC sheet used for the raincoat was not regarded as a woven or textile fabric. The exclusions in Chapter 39 and Section XI did not assist the applicant on the facts. The Authority also applied the principle that the product's material composition and tariff description, rather than commercial apparel use alone, determine classification in this case.
Conclusion: PVC raincoats are classifiable under HSN 3926 and not under HSN 6201.
Issue (ii): Whether PVC raincoats attract GST at the rate applicable to Heading 3926
Analysis: Once the goods were held to fall under Heading 3926, the applicable rate followed the entry in Schedule III of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017, as amended, which covers plastic raincoats under the said heading.
Conclusion: PVC raincoats attract GST at the rate applicable to Heading 3926, namely 18% under the relevant entry.
Final Conclusion: The advance ruling confirms classification of the applicant's PVC raincoats as plastic articles under Heading 3926, with the corresponding GST rate applicable under the notified schedule entry.
Ratio Decidendi: A PVC raincoat made from non-woven PVC sheets is not a textile article merely because it is worn as apparel; where the material and tariff notes place it outside Chapter 62, classification follows the specific heading covering plastic articles.
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.
Issues: Whether PVC raincoats are classifiable as textile articles under HSN 6201 or as plastic articles under HSN 3926, and the consequent GST rate applicable thereto.
Analysis: The product was found to be manufactured from PVC sheets by cutting and fusion bonding, resulting in a non-woven article. Chapter 62 applies to made-up articles of textile fabric, while Chapter 39 excludes goods of Section XI and materials regarded as textile materials only where the statutory conditions for textile classification are met. The Authority held that a PVC sheet is not a woven fabric and is not regarded in common parlance as textile material. The raincoat, though an apparel item in ordinary usage, remained primarily an article of PVC and therefore did not satisfy the requirements of Chapter 62. The Authority relied on the tariff scheme and the relevant GST notification, including the entry specifically covering plastic raincoats under heading 3926.
Conclusion: PVC raincoats are classifiable under HSN 3926 and attract GST at the rate prescribed for entry 111 of Schedule III to Notification No. 01/2017-Central Tax (Rate), namely 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.
Issues: (i) Whether the sale of assets of a company in liquidation by the liquidator amounts to a supply of goods and/or services within the meaning of supply under the GST law. (ii) Whether the liquidator is required to obtain GST registration for conducting such sale.
Issue (i): Whether the sale of assets of a company in liquidation by the liquidator amounts to a supply of goods and/or services within the meaning of supply under the GST law.
Analysis: The sale of assets during liquidation was treated as a taxable transaction falling within the ambit of supply under the GST law. The Authority proceeded on the basis that the liquidator, acting for the company in liquidation, effects the sale of assets and that such activity is covered by the statutory concept of supply.
Conclusion: Yes. The sale of assets of the company in liquidation by the liquidator constitutes a supply of goods and/or services or both within the meaning of supply.
Issue (ii): Whether the liquidator is required to obtain GST registration for conducting such sale.
Analysis: The Authority relied on the special registration framework applicable to corporate debtors under the GST notifications and held that the liquidator, as an insolvency professional appointed by the NCLT, must obtain registration to discharge GST obligations arising from the liquidation sales. The statutory scheme was read with the relevant notifications issued for corporate insolvency proceedings.
Conclusion: Yes. The liquidator is required to obtain GST registration in terms of the GST provisions and the applicable notifications.
Final Conclusion: The ruling answers both referred questions against the applicant and confirms GST liability and registration requirements for liquidation sales effected by the NCLT-appointed liquidator.
Ratio Decidendi: Sale of assets by a liquidator of a corporate debtor in liquidation is a taxable supply, and the liquidator must obtain GST registration to carry out such taxable supplies.
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 under section 263 - Erroneous and prejudicial to the interests of revenue - Explanation 2 to section 263 - order passed without making inquiries or verification which should have been made - Section 115BBE - taxability of income referred to in sections 68/69/69A/69C - Classification of income under heads - business income versus income from other sources - Requirement of enquiry/verification by the Assessing Officer and application of mind - Prohibition on substitution of opinion by revisional authority
Revision under section 263 - Erroneous and prejudicial to the interests of revenue - Explanation 2 to section 263 - order passed without making inquiries or verification which should have been made - Requirement of enquiry/verification by the Assessing Officer and application of mind - Prohibition on substitution of opinion by revisional authority - Classification of income under heads - business income versus income from other sources - Section 115BBE - taxability of income referred to in sections 68/69/69A/69C - Validity of the Principal Commissioner's order under section 263 setting aside the assessment dated 29.09.2021 for AY 2019-20 - HELD THAT: - The Tribunal examined whether the twin conditions for exercise of revisional jurisdiction under section 263 - that the assessing officer's order is erroneous and prejudicial to the interests of revenue - were satisfied. The records show that the assessing officer/NFAC initiated specific enquiries and issued a show-cause/draft assessment on the applicability of section 115BBE, and the assessee filed detailed written submissions explaining the source and classification of the surrendered amount as business income. The Principal Commissioner recorded that the AO had accepted the surrendered sums as business income but opined that parts thereof were required to be treated under sections 69/69A/69C and taxed under section 115BBE, and therefore invoked Explanation 2 to section 263. The Tribunal applied settled principles (including that section 263 cannot be used to substitute the Commissioner's view for a plausible view taken by the AO and that Explanation 2(a) does not confer unfettered power to revisit every assessment where an alternative view is possible). On the facts, the AO had made enquiries, confronted the issue, and taken a plausible view supported by judicial authorities relied upon by the assessee; the Principal Commissioner did not point to a specific perversity or that the AO's view was wholly unsustainable in law. The Tribunal held that mere disagreement or possibility of applying section 115BBE, without showing inadequacy of inquiry or that the AO's view was unsustainable, does not satisfy the requirements of section 263. Reliance was placed on precedents and on the assessment record showing that the matter was considered by the AO, hence the revisional order substituted the Commissioner's opinion for the AO's plausible conclusion without proper foundation. [Paras 7, 8, 9]
Impugned order passed by the Principal Commissioner under section 263 is quashed and the assessment dated 29.09.2021 is not interfered with.
Final Conclusion: The Tribunal quashed the PCIT's order under section 263 (dated 26.03.2024) holding that the twin conditions for revision were not satisfied; the AO's assessment order dated 29.09.2021 for AY 2019-20 is upheld and the revisionary proceedings are cancelled.
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.
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.
Issues: Whether the delay in filing the income tax returns for the assessment years 2017-18 and 2018-19 deserved to be condoned under Section 119(2)(b) of the Income-tax Act, 1961.
Analysis: The returns had been filed within time but were treated as defective, and the resulting non-compliance was attributed to an intimation that was not effectively brought to the notice of the directors. The explanation disclosed no mala fides. The Court also noted the statement that no interest would be claimed on any refund if condonation were granted, and accepted the explanation as sufficient in the circumstances.
Conclusion: The delay was condoned in favour of the petitioner.
Final Conclusion: The impugned order refusing condonation was set aside, and the petitioner was permitted to cure the defects and proceed with filing and processing of the returns, with consequential assessment to follow.
Ratio Decidendi: Delay in filing a return may be condoned where the explanation is bona fide, shows no mala fides, and constitutes sufficient cause warranting a liberal approach under the condonation power.
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.
Issues: Whether the final assessment order passed under section 143(3) read with section 144C(3) of the Income-tax Act, 1961 was liable to be set aside and the matter remitted to the Dispute Resolution Panel because the assessee had filed objections but did not intimate their pendency to the assessing officer.
Analysis: The objections were in fact pending before the Dispute Resolution Panel when the final assessment order was passed. The omission to intimate the assessing officer was attributed to a communication lapse. In these peculiar facts, and on a comparison with the cited precedent on similar facts, the assessment order was considered liable to be interfered with. The assessing officer was, however, found not to be at fault. Costs were imposed for the lapse, and the matter was directed to go back to the Dispute Resolution Panel for consideration according to law.
Conclusion: The final assessment order was set aside and the matter was remitted to the Dispute Resolution Panel, subject to payment of costs, in favour of the assessee.
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.
Issues: Whether the rejection of the refund applications was liable to be set aside for want of opportunity of hearing and whether the applications required fresh consideration after hearing the assessee.
Analysis: The rejection of refund applications entails civil consequences, and the assessee was entitled to be heard before any adverse decision was taken. The rejection could not be sustained on the basis of objections without affording an opportunity to explain entitlement to refund and address the stated deficiencies.
Conclusion: The rejection of the refund applications was set aside and the matters were remitted for fresh consideration after granting an opportunity of hearing to the assessee.
Final Conclusion: The assessee succeeded in obtaining judicial interference against the impugned rejection, and the refund claims were restored for reconsideration in accordance with natural justice.
Ratio Decidendi: An order rejecting refund claims having civil consequences cannot be sustained unless the affected party is given a fair opportunity of hearing before the decision is taken.
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.
Issues: Whether a cross-objection is maintainable in an appeal under section 260A of the Income-tax Act, 1961, and whether a respondent can invoke section 260A(6) and section 260A(7) to raise an independent challenge disconnected from the substantial question of law on which the appeal is admitted.
Analysis: The appeal under section 260A is a statutory remedy confined to substantial questions of law. Unlike section 253(4) of the Act, which expressly permits a memorandum of cross-objections before the Tribunal, section 260A contains no equivalent provision. The statutory text of section 260A(4) limits the respondent to arguing that the case does not involve the formulated substantial question of law, while section 260A(6) only enables the High Court to determine an issue not determined or wrongly determined by the Tribunal by reason of the question of law admitted in the appeal. The absence of an express legislative conferral of a right to file cross-objections, coupled with the limited scope of section 260A(6) and the qualified application of the Code under section 260A(7), indicates that a cross-objection cannot be treated as an independent substantive right in such proceedings.
Conclusion: A cross-objection is not maintainable in an appeal under section 260A of the Income-tax Act, 1961, save to the extent a respondent may defend the impugned order on grounds intrinsically connected with the substantial question of law already admitted.
Ratio Decidendi: In an appeal under section 260A of the Income-tax Act, 1961, the respondent has no independent statutory right to file a cross-objection unless the statute expressly provides for it; the respondent's challenge is confined to matters inseparably linked to the substantial question of law admitted in the appeal.
Maintainability of cross-objections in appeals under Section 260A - Scope of appeal under Section 260A limited to substantial question of law - Interpretation of Section 260A(6) as confined to issues indelibly connected with the admitted question of law - Non-incorporation of Order XLI Rule 22 rights into Section 260A by legislative silence - 'As far as may be' in Section 260A(7) does not create substantive rights beyond the Act
Maintainability of cross-objections in appeals under Section 260A - Scope of appeal under Section 260A limited to substantial question of law - Cross-objections are not maintainable in an appeal under Section 260A except to the limited extent permitted by that provision. - HELD THAT: - The Court held that Section 260A creates a narrowly circumscribed remedy: an appeal to the High Court lies only if the Court is satisfied that a substantial question of law arises, the question must be formulated and the appeal heard on that question. Absent an express statutory provision conferring a right to prefer cross-objections at the Section 260A stage, a substantive right akin to a cross-objection cannot be read into the provision. Legislative recognition of cross-objections at the Tribunal stage (Section 253(4)) but not in Section 260A, and the restrictive language of subsections (3)-(5) of Section 260A, demonstrate a legislative intent to limit the scope of appeals under Section 260A and to preclude a free-standing right of cross-objection. Accordingly, cross-objections filed in the present proceedings were held not maintainable and dismissed. [Paras 33, 46, 47, 71, 74]
Cross-objections are not maintainable in appeals under Section 260A and the cross-objections in these proceedings are dismissed.
Interpretation of Section 260A(6) as confined to issues indelibly connected with the admitted question of law - 'As far as may be' in Section 260A(7) does not create substantive rights beyond the Act - Non-incorporation of Order XLI Rule 22 rights into Section 260A by legislative silence - Section 260A(6) and (7) permit the High Court to determine issues tied to the substantial question of law on which the appeal is admitted, but do not confer an independent right on respondents to file cross-objections disconnected from that question. - HELD THAT: - The Court interpreted subsection (6) as permitting the High Court to determine any issue which has not been determined by the Tribunal or which has been wrongly determined, only insofar as such issue is tied to the decision on the substantial question of law referred to in subsection (1). Subsection (7)'s saving that the Code's provisions apply 'as far as may be' cannot be read to import the full substantive right of cross-objection under Order XLI Rule 22 into Section 260A; the Legislature's omission to provide for cross-objections in Section 260A (in contrast with Section 253(4)) and the restrictive, question-focused procedure of Section 260A indicate that procedural provisions of the Code apply only to the extent consistent with Section 260A's limited scope. Thus a respondent may urge points connected to the formulated substantial question of law, but cannot maintain independent cross-objections outside that nexus. [Paras 49, 51, 52, 70, 71]
Section 260A(6) and (7) do not create an independent right to prefer cross-objections; respondents may only press issues indelibly connected to the substantial question of law on which the appeal is admitted.
Final Conclusion: The High Court held that cross-objections are not maintainable in appeals under Section 260A except to the limited extent that a respondent may urge issues which are indelibly connected with the substantial question of law on which the appeal is admitted; consequently the cross-objections in these proceedings are dismissed and the appeals are listed for further consideration.
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 - onus of proof on the assessee to establish genuineness and source of expenditure - deeming of unexplained expenditure as income under Section 69C - disallowance of purchases versus estimation of gross profit - reopening of assessment and validity of reassessment proceedings
Onus of proof on the assessee to establish genuineness and source of expenditure - bogus purchases - Whether the respondent-assessee discharged the onus to prove genuineness of purchases and their source. - HELD THAT: - The Court applied the settled principle that the primary onus to prove the genuineness of claimed purchases and the source of payment lies on the assessee. The respondent-assessee did not appear in the reassessment proceedings and failed to produce evidence during those proceedings to establish the purchases or their source. The CIT(A) recorded a finding that the assessee had not proved the purchases and was involved in the modus operandi of accommodation entries; that finding stood unchallenged before the Tribunal. Given non-participation in reassessment and absence of satisfactory explanation of source of expenditure, the assessee failed to discharge the onus and the additions made by the Assessing Officer were justified on this basis. [Paras 16, 17, 21, 39]
The assessee failed to discharge the onus to prove the genuineness and source of the purchases and therefore the Assessing Officer's addition was justified.
Deeming of unexplained expenditure as income under Section 69C - disallowance of purchases versus estimation of gross profit - Whether the Appellate Authorities were justified in estimating and allowing a percentage of alleged bogus purchases instead of disallowing the entire expenditure under Section 69C. - HELD THAT: - Section 69C permits deeming unexplained expenditure to be income and bars allowability of such unexplained expenditure as deduction. The Court held that where an assessee offers no explanation or an explanation is unsatisfactory in the opinion of the Assessing Officer, the amount may be deemed income and cannot be allowed as a deduction. Estimating a percentage of bogus purchases to be permitted as deductible effectively grants a deduction contrary to Section 69C. In the present case, because the assessee did not explain the source of purchases in reassessment proceedings, the approach of the CIT(A) and the Tribunal in estimating a profit percentage (thereby implicitly allowing part of the purchases) was contrary to Section 69C and thus unsustainable. [Paras 23, 24, 36, 38]
The Appellate Authorities erred in estimating a percentage of the purchases; Section 69C is attracted and the entire unexplained purchases were liable to be disallowed.
Disallowance of purchases versus estimation of gross profit - bogus purchases - Whether the CIT(A) and the Tribunal were justified in restricting the addition to an estimated gross profit rate instead of confirming the entire addition of alleged bogus purchases made by the AO. - HELD THAT: - The Court found that both the CIT(A) and the Tribunal misdirected themselves by treating the matter as one of estimating profit rather than as a question whether the purchases had been proved. Having held that the purchases were not proved and that the assessee had failed to explain source of expenditure, the correct course was to confirm the Assessing Officer's addition of the purchases. Allowing an estimated profit rate would amount to implicitly permitting a deduction contrary to the finding of non-genuineness and to the operation of Section 69C. Decisions relied upon by the Appellate Authorities were distinguishable on facts, since in those cases the assessee had participated in proceedings and discharged the initial onus. [Paras 18, 20, 21, 35]
CIT(A) and the Tribunal were not justified in restricting the disallowance to an estimated profit rate; the Assessing Officer's disallowance of the purchases ought to be restored.
Reopening of assessment and validity of reassessment proceedings - bogus purchases - Whether the reassessment proceedings and the additions made under Section 144 read with Section 147 were validly initiated and sustained. - HELD THAT: - The Court accepted the findings of the Appellate Authority that notices were validly issued and served (including by email and affixture) and that the assessee deliberately avoided participation. The reassessment was prompted by information from the DGIT(Inv.)/Sales Tax Department regarding alleged accommodation entries. In light of the valid initiation and the assessee's failure to participate or to explain the source of purchases in reassessment proceedings, the addition made in the reassessment order was held to be valid. [Paras 6, 17, 29, 30]
Reassessment proceedings were validly initiated and the addition made by the AO in the reassessment order was sustainable.
Final Conclusion: The appeal is allowed. The Assessing Officer's order disallowing the alleged bogus purchases is restored and the orders of the CIT(A) and the Tribunal that limited the disallowance by estimating a profit rate are reversed; the aggregate addition shall not exceed the original addition made in the assessment order.
Issues: Whether a penalty notice under section 274 read with section 271(1)(c) of the Income-tax Act, 1961 is vitiated when it does not specify whether the penalty is proposed for concealment of income or for furnishing inaccurate particulars, and whether such defect can be cured by reference to section 292B of the Act.
Analysis: The notice did not strike off the inapplicable limb and therefore failed to inform the assessee of the precise charge to be met. The defect was treated as substantive because the statutory notice is the vehicle through which the grounds of penalty must be conveyed. An omnibus and vague notice was held to be impermissible. The principle of strict construction of penal provisions was applied, and ambiguity was held to operate in favour of the assessee. Section 292B could not cure the defect where the notice itself did not conform in substance to the statutory requirement.
Conclusion: The defective penalty notice was invalid, and the penalty proceedings could not be sustained. The issue was decided in favour of the assessee and against the Revenue.
Ratio Decidendi: A penalty notice under section 274 read with section 271(1)(c) must clearly specify the exact limb of default; an omnibus or vague notice vitiates the penalty proceedings and the defect is not cured by section 292B.
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.
Issues: Whether the notice issued under Section 148 for Assessment Year 2014-15 was barred by limitation under the amended reassessment regime applicable from 01 April 2021, read with the limitation structure under Section 149 and the search-related provisions under Sections 153A and 153C.
Analysis: The notice dated 06 February 2024 was subject to the amended regime of reassessment. For an assessment year preceding 01 April 2021, reopening could be sustained only if it satisfied the applicable time limits under Section 149(1)(b) or the special regime under Sections 153A and 153C. On the facts noted, the relevant reckoning placed Assessment Year 2014-15 beyond the ten-year block period, and the search-related computation did not extend the permissible period so as to validate reopening for that year.
Conclusion: The notice under Section 148 for Assessment Year 2014-15 was unsustainable and liable to be quashed.
Ratio Decidendi: A reassessment notice for a pre-01 April 2021 assessment year cannot be sustained unless it falls within the statutorily permitted limitation under the amended Section 149 regime or the applicable search-based provisions, and a year lying beyond the ten-year block is time-barred.
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.
Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was justified where the assessee, a charitable trust, claimed exemption under section 11 on the basis of a pending application for registration under section 12A.
Analysis: The application for registration was filed before the return of income and was on record with the Revenue when the claim for exemption was made. The subsequent effective date of registration was fixed by the authority only upon disposal of the application, and the delay in granting registration could not be attributed to the assessee. The claim was made on a bona fide understanding that registration would relate back to the date of commencement, and there was no material to establish concealment of income or furnishing of inaccurate particulars.
Conclusion: Penalty under section 271(1)(c) was not sustainable and was rightly deleted.
Ratio Decidendi: Where the assessee's claim is made on a bona fide basis and all primary facts supporting the claim are disclosed on record, a mistaken claim for exemption does not by itself amount to concealment of income or furnishing of inaccurate particulars warranting penalty under section 271(1)(c) of the Income-tax Act, 1961.
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.
Issues: Whether directions should be issued for expeditious disposal of the petitioner's pending income-tax appeal before the faceless appellate authority.
Analysis: The petition was based on prolonged pendency of the appeal filed on 14.10.2022. The Court took note of the large backlog of appeals before the National Faceless Appeal Centre and expressed concern over delay in disposal. It also took on record the roadmap placed by the Revenue for time-bound disposal of pending appeals and expected the authority to implement remedial measures earnestly.
Conclusion: The Court directed that the petitioner's appeal be taken up and disposed of expeditiously, within eight weeks from the date of the order.
Delay in disposal of statutory appeals - time-bound disposal of pending appeals - mandamus for disposal of pending appeal - judicial oversight of administrative backlog - implementation of remedial measures/roadmap
Mandamus for disposal of pending appeal - time-bound disposal of pending appeals - Direction that the petitioner's appeal filed on 14.10.2022 before the CIT(A) be taken up and disposed of within eight weeks - HELD THAT: - The Court noted that the petitioner's appeal filed on 14.10.2022 has been pending for more than two years before the CIT(A) and, having regard to the delay and the remedial purpose of the National Faceless Appeal Centre, directed that the appeal (e-filing acknowledgment no. 723125090141022) be taken up for consideration and disposed of with expedition not beyond a period of eight weeks from the date of the order. The Court thereby issued a timebound mandamus aimed at curing the institutional delay in adjudication of the specific appeal before it. [Paras 4, 5]
The appeal filed on 14.10.2022 shall be taken up and disposed of within eight weeks from the date of this order.
Implementation of remedial measures/roadmap - judicial oversight of administrative backlog - Roadmap of the National Faceless Appeal Centre (NFAC) for timebound disposal of pending appeals taken on record and the Court's expectation of its implementation - HELD THAT: - The Court took on record the roadmap placed by the NFAC under the Central Action Plan 202425 aimed at disposing of pending appeals in a timebound manner and, expressing concern over the large backlog, recorded an expectation that the NFAC would endeavour to implement the remedial measures earnestly. The recording of the roadmap and the expressed expectation form part of the Court's supervisory response to systemic delay, but did not convert into further specific directions in this petition. [Paras 2, 3]
The NFAC's roadmap is taken on record and the Court expects the NFAC to earnestly implement the remedial measures for timebound disposal of pending appeals.
Final Conclusion: Petition disposed of: the NFAC roadmap placed on record and the Court has directed that the petitioner's appeal dated 14.10.2022 be taken up and disposed of within eight weeks from the date of this order.
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.
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.
Issues: Whether interim directions were warranted in relation to the competing open offer under Regulation 20 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, including continuation of the offer period and deposit of security.
Analysis: The order notes the dispute on the date of public announcement, the pending consideration before SEBI, the impending end of the tendering period, and the need to protect public investors' interests. It also records that the directions are passed in the peculiar facts of the case and are expressly interim and without prejudice to the parties' rights and contentions.
Outcome: The Court directed deposit of Rs.600 crores by the appellant or the nominated applicant by 12.02.2025, extended the open offer till that date, and provided that the offer would continue further if the deposit is made and SEBI passes an order on the application.
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.
Issues: Whether the service tax demand and equal penalty were sustainable when the show cause notice did not specify the nature of the alleged taxable services and the demand was raised by invoking the extended period of limitation on the basis of figures reflected in the Balance Sheet and Profit & Loss Account.
Analysis: The demand was founded on a comparison between the assessee's ST-3 returns and figures shown in the Balance Sheet and Profit & Loss Account, but the notice itself did not identify the particular services on which tax was sought to be recovered. For the period involved, service tax liability under the pre-01.07.2012 regime arose only in respect of services covered by Section 65(105) of the Finance Act, 1994, and a notice that omits the very nature of the alleged taxable service is legally vague. The deficiency in the notice could not be cured by the adjudication order, since the notice is the foundation of the revenue's case and the department cannot travel beyond its scope. The demand was also time-barred, because the extended period could not be invoked merely on the basis of information appearing in public documents such as the Balance Sheet.
Conclusion: The demand of service tax, interest, and equal penalty under Section 78 of the Finance Act, 1994 was unsustainable and was set aside in favour of the assessee.
Final Conclusion: The appeal succeeded and the assessee obtained full relief against the confirmed service tax demand and the connected penalty.
Ratio Decidendi: A show cause notice that does not specify the taxable service alleged to have been rendered is vague and cannot sustain a demand, and the extended period of limitation cannot be invoked merely from figures disclosed in public financial documents absent suppression of facts with intent to evade tax.
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.
Issues: (i) Whether the activity of preparing and printing banners without involvement in designing, conceptualising, or visualising advertisements falls within advertising agency service; (ii) Whether the demand could be sustained and the extended period invoked on the basis of TDS and 26AS data without corroborative enquiry or proof of suppression.
Issue (i): Whether the activity of preparing and printing banners without involvement in designing, conceptualising, or visualising advertisements falls within advertising agency service.
Analysis: The appellants were found to be engaged only in writing and printing banners supplied by clients, with no role in the design or conceptualisation of the advertisement. The service was examined in light of the settled position that mere preparation of advertising material, without creative or conceptual involvement, does not amount to advertising agency service.
Conclusion: The activity was held not to be taxable as advertising agency service.
Issue (ii): Whether the demand could be sustained and the extended period invoked on the basis of TDS and 26AS data without corroborative enquiry or proof of suppression.
Analysis: The demand was founded on information from the Income Tax Department, but no enquiry was conducted to establish the actual service rendered, the recipients, the timing, or the consideration received. No positive act of suppression or misstatement was brought on record, and the extended limitation period was therefore not justified. The demand was also held unsustainable on the evidentiary record relied upon by the department.
Conclusion: The demand and the invocation of the extended period were rejected.
Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.
Ratio Decidendi: Mere preparation or printing of banners, without designing or conceptualising advertisements, does not constitute advertising agency service; further, the extended period cannot be invoked absent proof of suppression or other positive conduct, and a demand must rest on proper corroborative enquiry and evidence.
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.
Issues: (i) Whether the appellant's promotional and marketing support services to the overseas entity were intermediary services or services rendered on its own account, so as to qualify as export of services; (ii) Whether refund of accumulated credit under Rule 5 could be denied in the absence of separate proceedings for recovery or demand.
Issue (i): Whether the appellant's promotional and marketing support services to the overseas entity were intermediary services or services rendered on its own account, so as to qualify as export of services.
Analysis: The service agreement showed two contracting parties, with the appellant acting as an independent contractor on a principal-to-principal basis. The appellant was engaged to perform promotional and marketing support services for the overseas entity and had no authority to bind it, accept orders in its own name, or act as its agent. The absence of a tripartite arrangement, the contractual stipulation that the appellant was not an agent, and the fact that subcontracting was undertaken under the appellant's responsibility all pointed away from intermediary status. The definition of intermediary under the place of provision rules contemplates a person who merely arranges or facilitates a main service between two or more persons, not a person who performs the main service on its own account. The CBIC circulars and the cited precedents were treated as supporting the view that such promotional services to a foreign company do not, by themselves, become intermediary services merely because they involve interaction with third parties or follow guidelines of the foreign recipient.
Conclusion: The services were held not to be intermediary services and were treated as export of services.
Issue (ii): Whether refund of accumulated credit under Rule 5 could be denied in the absence of separate proceedings for recovery or demand.
Analysis: The refund claim was made under Rule 5 with the prescribed notification, which governs refund of accumulated credit subject to conditions and procedure. If the department's case was that the underlying services were not export of services or that credit had been wrongly taken, the proper course was to initiate proceedings for demand or recovery under the applicable recovery provision. In the absence of any such proceedings, the department could not reject the refund by taking a contrary stand in the refund proceedings alone. The burden to substantiate allegations against the assessee remained on the department.
Conclusion: The refund could not be denied on that basis and the denial was unsustainable.
Final Conclusion: The impugned order was set aside and the assessee's refund claim was restored with consequential relief in accordance with law.
Ratio Decidendi: A person performing promotional or support services on a principal-to-principal basis for a foreign recipient is not an intermediary merely because the services assist the foreign recipient's business, and a refund under the accumulated credit scheme cannot be denied in isolation without the department first pursuing the proper recovery mechanism where it disputes the tax character of the services.
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.
Issues: Whether the appeal could be adjourned beyond the statutory limit and whether repeated absence of the appellant justified dismissal for non-prosecution.
Analysis: Section 35C(1A) of the Central Excise Act, 1944 permits adjournment of an appeal only up to three times on sufficient cause being shown. Rule 20 of the CESTAT Procedure Rules, 1982 also empowers the Tribunal, where the appellant does not appear, to dismiss the appeal for default or decide it on merits. In the present matter, the appellant remained absent on several consecutive dates and no adjournment request was made. The Tribunal held that there was no justification to extend the matter beyond the statutorily permitted limit.
Conclusion: The appeal was liable to be dismissed for non-prosecution, and the dismissal was warranted.
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.
Issues: Whether penalty under Section 78 of the Finance Act, 1994 was imposable in the facts of the case.
Analysis: The period in dispute was January 2014 to March 2015. The earlier show cause notice and the subsequent payments made towards service tax and interest showed that the department was aware of the activity and that the matter primarily concerned quantum of tax rather than deliberate suppression with intent to evade. In these circumstances, the basis for invoking penalty under Section 78 was not established.
Conclusion: Penalty under Section 78 of the Finance Act, 1994 was not imposable and the department's challenge to its deletion failed.
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.
Issues: (i) Whether Rule 11(3)(i) of the Cenvat Credit Rules, 2004, read with the punctuation and structure of Rule 11(3), caused the assessee's CENVAT credit to lapse when the final products were cleared under the exemption route covered by sub-rule (i); (ii) whether the monetary-limit instruction issued by the Central Board of Indirect Taxes and Customs barred consideration of the revenue's writ appeals on merits.
Issue (i): Whether Rule 11(3)(i) of the Cenvat Credit Rules, 2004, read with the punctuation and structure of Rule 11(3), caused the assessee's CENVAT credit to lapse when the final products were cleared under the exemption route covered by sub-rule (i).
Analysis: Rule 11(3) contains two distinct sub-clauses separated by a semicolon and the disjunctive "or". The first sub-clause deals with a manufacturer opting for exemption under a notification issued under section 5A of the Central Excise Act, 1944, while the second sub-clause alone speaks of absolute exemption and lapse of balance credit. On a plain and grammatical reading, the lapse consequence is confined to sub-clause (ii) and cannot be extended to sub-clause (i). The assessee's case fell only within sub-clause (i).
Conclusion: The CENVAT credit did not lapse, and the assessee was entitled to relief on this issue.
Issue (ii): Whether the monetary-limit instruction issued by the Central Board of Indirect Taxes and Customs barred consideration of the revenue's writ appeals on merits.
Analysis: The instruction stated that appeals shall not be filed beyond the prescribed monetary limit. Once the appeals had already been filed, the Court held that it was not open to decline adjudication merely by invoking the instruction, and the merits had to be examined.
Conclusion: The appeals were maintainable and were decided on merits.
Final Conclusion: The Court upheld the assessee's entitlement to retain the CENVAT credit and declined to interfere with the order in its favour, resulting in dismissal of the revenue's writ appeals.
Ratio Decidendi: Where a statutory rule uses a semicolon and the disjunctive "or" to separate two sub-clauses, each sub-clause must be read distinctly, and a consequence expressly attached only to one sub-clause cannot be extended to the other.
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.
Issues: Whether non-availment of CENVAT credit on capital goods procured under the EPCG scheme disentitled the appellant from refund under Notification No. 56/2002-C.E. when the supplier was entitled to terminal excise duty refund under the Export-Import Policy, 2004-2009.
Analysis: The appellant procured capital goods from domestic suppliers under the EPCG scheme and did not avail CENVAT credit, consistent with the condition in Paragraph 8.5 of the Export-Import Policy, 2004-2009. The condition in the notification was understood to require exhaustion of credit actually available and taken by the appellant, not a notional credit that was never availed. The supplier-side refund arrangement under the policy did not create a violation by the recipient so long as the recipient did not take credit. The earlier decision in the appellant's own case, on similar facts, also supported the view that non-availment of credit did not amount to excess or inadmissible refund.
Conclusion: The appellant was not disentitled from refund merely because CENVAT credit on the capital goods was not availed, and the impugned orders could not be sustained.
Ratio Decidendi: Where the governing exemption framework requires non-availment or exhaustion of credit, the condition is satisfied by the assessee's actual non-availment of CENVAT credit; a notional credit that could have been taken does not defeat the refund claim.
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.
Issues: (i) Whether CENVAT credit on outward transportation of goods was admissible on the facts of the supply being on FOR/total cost basis and where transit risk remained with the seller; (ii) Whether invocation of the extended period of limitation and consequential penalty was sustainable in a matter involving interpretation of law.
Issue (i): Whether CENVAT credit on outward transportation of goods was admissible on the facts of the supply being on FOR/total cost basis and where transit risk remained with the seller.
Analysis: The purchase orders indicated supply on total cost basis, with rejection possible for defects noticed after delivery, supporting the conclusion that ownership and transit risk did not pass at the factory gate. On that footing, the supply was treated as FOR basis and the outward transportation formed part of the admissible credit chain. The denial of credit was inconsistent with the Board circular and the legal position applied to transport up to the place of removal.
Conclusion: The credit was admissible and the demand on this count was not sustainable.
Issue (ii): Whether invocation of the extended period of limitation and consequential penalty was sustainable in a matter involving interpretation of law.
Analysis: The dispute turned on classification of the transaction and admissibility of credit on the basis of the contractual terms. In such an interpretational setting, the Board circular itself indicated that new show cause notices should not invoke the extended period. The penalty, being consequential to the same demand, could not survive once the demand was not sustainable on merits and limitation.
Conclusion: Invocation of the extended period and the penalty were not sustainable.
Final Conclusion: The impugned order was set aside and the appeal succeeded in full, with the assessee obtaining relief against the credit demand, interest, and penalty.
Ratio Decidendi: Where the contractual terms show FOR/total cost supply with transit risk remaining with the seller, outward transportation credit up to the place of removal cannot be denied; in an interpretational dispute, extended limitation and consequential penalty are not sustainable.
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.
Issues: Whether the demand could be sustained by invoking the extended period of limitation and whether the penalty imposed for alleged suppression of facts was liable to be upheld.
Analysis: The appellant had followed the procedure under Rule 173C(11) of the Central Excise Rules, 1944 and cleared the goods on the basis of Sectional Debit Advices filed along with RT-12 returns. The record showed that the departmental officers had access to those documents, and the dispute had earlier been examined on that basis. In these circumstances, the Tribunal found that suppression, fraud, collusion, wilful misstatement or intent to evade duty was not made out so as to justify the extended period. At the same time, the Tribunal held that any duty liability for the normal period could still be examined and confirmed according to law.
Conclusion: Invocation of the extended period of limitation was unsustainable and the penalty could not be sustained. The demand was confined to the normal period only.
Final Conclusion: The appeal succeeded to the extent of setting aside the demand beyond the normal period and the penalty, while leaving open confirmation of duty, if any, for the normal period in accordance with law.
Ratio Decidendi: Where the assessee discloses the relevant clearance documents to the department, suppression and intent to evade duty cannot be presumed to justify the extended period of limitation or penalty.
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.
Issues: Whether welded wire mesh manufactured for poultry use was correctly classifiable under Tariff Item 8436 91 00 of the Central Excise Tariff Act, 1985, or under Chapter Heading 73.14 of the Central Excise Tariff Act, 1985, and whether the demand of central excise duty, interest, and penalty could stand.
Analysis: The classification dispute was treated as covered by the appellant's own earlier case, where similar welded wire mesh used in poultry farms had been held classifiable under Tariff Item 8436 91 00. The prior view was reinforced by the absence of any contrary binding higher court decision on merits, and the later dismissal of the Revenue's challenge on monetary grounds did not disturb the Tribunal's reasoning. The goods were accepted as specially designed parts of poultry keeping machinery rather than mere iron and steel articles falling under Chapter Heading 73.14.
Conclusion: The classification under Chapter Heading 73.14 was rejected, and the goods were held to fall under Tariff Item 8436 91 00, in favour of the assessee.
Final Conclusion: The duty demand, interest, and penalty could not survive, and the appeal succeeded with consequential relief.
Ratio Decidendi: Welded wire mesh specifically made for poultry keeping is classifiable as a part of poultry keeping machinery under Tariff Item 8436 91 00, not as iron and steel goods under Chapter Heading 73.14, when the goods function as integral components of such machinery.
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.
Issues: (i) Whether Cenvat credit on outdoor catering service was admissible after 01.04.2011; (ii) Whether interest was payable on reversal of the ineligible credit when sufficient unutilised credit balance was available; (iii) Whether penalty under Rule 15(1) was sustainable in a dispute involving interpretation of the credit rule.
Issue (i): Whether Cenvat credit on outdoor catering service was admissible after 01.04.2011
Analysis: The definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 stood amended with effect from 01.04.2011. The larger bench decision on the subject had already settled that outdoor catering service, after the amendment, fell within the exclusion clause and was not eligible for Cenvat credit. The statutory obligation to maintain a canteen under Section 46 of the Factories Act, 1948 did not alter the applicability of the exclusion once the amended definition governed the field.
Conclusion: The credit on outdoor catering service for the post-amendment period was not admissible and the demand on that count was rightly sustained.
Issue (ii): Whether interest was payable on reversal of the ineligible credit when sufficient unutilised credit balance was available
Analysis: The disputed credit had been reversed, and the appellant relied on the existence of a substantial unutilised Cenvat credit balance at the relevant time. On that factual basis, and following the governing principle that interest is not attracted where the assessee had enough credit balance and no actual utilisation of the disputed credit could be said to have caused loss to the exchequer, the interest demand could not be sustained.
Conclusion: The demand of interest was set aside.
Issue (iii): Whether penalty under Rule 15(1) was sustainable in a dispute involving interpretation of the credit rule
Analysis: The dispute turned on the interpretation of Rule 2(l) of the Cenvat Credit Rules, 2004. The record showed that in the appellant's own case penalty had already been set aside for an earlier period on the ground that the issue was interpretational, and in later adjudications penalty had also not been imposed. In these circumstances, the imposition of penalty was not justified.
Conclusion: The penalty under Rule 15(1) was unsustainable and was set aside.
Final Conclusion: The service tax demand on outdoor catering service was maintained, but the ancillary liabilities towards interest and penalty did not survive, resulting in partial relief to the assessee.
Ratio Decidendi: Where ineligible Cenvat credit is reversed but the assessee has sufficient unutilised credit balance and the dispute is purely interpretational, interest and penalty are not warranted, though the credit itself may still be denied under the amended input service definition.
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.
Issues: (i) whether the six-month limitation introduced for availing cenvat credit by Notification No. 21/2014-CE (N.T.) dated 11.07.2014 applied to invoices issued before 01.09.2014; and (ii) whether the denial of cenvat credit on construction-related input services and the consequential penalty were sustainable.
Issue (i): whether the six-month limitation introduced for availing cenvat credit by Notification No. 21/2014-CE (N.T.) dated 11.07.2014 applied to invoices issued before 01.09.2014.
Analysis: The amendment to Rule 4(7) of the Cenvat Credit Rules, 2004 was brought into force only from 01.09.2014. The limitation could not be applied to credit relatable to invoices issued before that date. The issue was treated as settled and the amendment was held to operate prospectively.
Conclusion: The disallowance of cenvat credit of Rs. 1,04,80,736/- on the ground of delay was unsustainable and was set aside in favour of the assessee.
Issue (ii): whether the denial of cenvat credit on construction-related input services and the consequential penalty were sustainable.
Analysis: The assessee did not press the balance credit dispute after reversal of a substantial amount, but contended that penalty could not survive because the credit had been taken under a bona fide interpretation of the rule. The penalty was examined separately from the credit demand.
Conclusion: The demand relating to Rs. 1,75,320/- was upheld, but the penalty was set aside in favour of the assessee.
Final Conclusion: The appeal succeeded only in part, with the time-bar-based denial of credit and the penalty being set aside, while the balance credit disallowance was maintained.
Ratio Decidendi: A procedural restriction on availing cenvat credit introduced by amendment applies prospectively from its effective date and cannot be used to deny credit on invoices issued before that date; penalty is not justified where the dispute turns on bona fide interpretation of the credit provisions.
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.
Penalty under Section 11AC of the Central Excise Act, 1944 - Proviso to Section 11AC - reduction of penalty on payment of duty and interest within 30 days - Interest on delayed refund of pre-deposit under Section 35FF of the Central Excise Act, 1944
Penalty under Section 11AC of the Central Excise Act, 1944 - Proviso to Section 11AC - reduction of penalty on payment of duty and interest within 30 days - Whether the appellant was entitled to reduction of penalty to 25% under the proviso to Section 11AC. - HELD THAT: - The proviso to Section 11AC permits reduction of penalty to 25% only where the duty determined by the Central Excise officer together with interest under Section 11AB is paid within 30 days from the date of communication of the order of the Central Excise officer. There is no reference in the proviso to payments made to appellate authorities or to stays granted by such authorities. The appellant conceded that neither duty nor interest was paid within 30 days of communication of the adjudicating officer's order; the appellant's defence that the amount was not paid because the liability was being contested on appeal does not satisfy the condition in the proviso. Consequently, the Assistant Commissioner correctly applied penalty equal to 100% of duty under Section 11AC and reduced the refund correspondingly. [Paras 2, 4]
Benefit of reduction to 25% under the proviso to Section 11AC denied; penalty rightly computed at 100% of duty.
Interest on delayed refund of pre-deposit under Section 35FF of the Central Excise Act, 1944 - Whether the appellant was entitled to interest under Section 35FF for delayed refund of the pre-deposit. - HELD THAT: - Section 35FF provides interest where an amount deposited under the proviso to Section 35F is required to be refunded pursuant to an appellate authority's order and such refund is not made within three months from communication of that appellate order to the adjudicating authority, subject to stay by a superior court or tribunal. The Tribunal's final order is dated 29.01.2019 but the appellant communicated that order to the adjudicating officer only on 01.07.2022. There is no evidence that the Tribunal's order was otherwise communicated earlier. The Assistant Commissioner passed the refund order on 05.08.2022, within two months of the appellant's application; therefore the statutory threemonth period for triggering interest had not elapsed after communication of the appellate order to the adjudicating authority. Accordingly, no interest under Section 35FF was payable. [Paras 5, 6]
No interest under Section 35FF payable as refund was not delayed beyond three months from communication of the appellate order to the adjudicating authority.
Final Conclusion: The Tribunal upheld the Commissioner (Appeals) order: the Assistant Commissioner correctly computed penalty at 100% under Section 11AC (denying the 25% proviso benefit) and correctly declined to award interest under Section 35FF; the appeal is rejected and the impugned order is affirmed.
Issues: Whether, on rejection of renewal of the eligibility certificate, the dealer could adjust the carried forward input tax credit against the output tax demand for the relevant period, and whether the liability for that period was payable within the prescribed time.
Analysis: The dispute concerned the period during which the eligibility certificate stood rejected or was not renewed. The authorities and the Tribunal held that once the dealer became ineligible for the benefit, the output tax liability for that period had to be discharged under the West Bengal Value Added Tax framework. The Court found that the statute did not contain any provision permitting input tax credit already carried forward to a subsequent period to be brought back and adjusted against output tax. The Court also accepted that the liability for the rejected period was required to be paid within the time specified in the rules.
Conclusion: The dealer was not entitled to adjust carried forward input tax credit against the output tax demand for the rejected period, and the demand raised by the authorities was justified.
Final Conclusion: The writ petition was devoid of merit and the challenge to the tax demand failed.
Ratio Decidendi: In the absence of an express provision, carried forward input tax credit cannot be retrospectively adjusted against output tax liability after rejection of the eligibility certificate, and the tax due for the relevant period remains payable in terms of the governing rules.
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.
Issues: Whether the High Court was justified in refusing leave to appeal against acquittal in a cheque dishonour prosecution without considering the statutory presumptions under the Negotiable Instruments Act.
Analysis: The complaint arose from dishonour of a cheque alleged to have been issued towards an existing liability under a del credere arrangement. The Trial Court acquitted the accused, and the High Court declined leave to appeal. In examining the refusal of leave, the Court noted that the High Court ought to have considered the effect of the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881 on the evidence led by the parties. Since the High Court had not examined that aspect, and the matter required a merits-based consideration by the appellate court, the refusal to grant leave could not be sustained.
Conclusion: The refusal of leave to appeal was set aside and leave to appeal was granted, with the matter remitted to the High Court for decision on merits.
Final Conclusion: The acquittal challenge was restored before the High Court for a fresh merits-based consideration, with priority directed in view of the long pendency.
Ratio Decidendi: In a cheque dishonour acquittal appeal, the court considering leave must evaluate the matter in light of the statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act, 1881 and cannot refuse leave without addressing their effect on the evidence.
Section 138 of the Negotiable Instruments Act - Presumption under Section 139 of the Negotiable Instruments Act - Primary evidence requirement under Section 118 of the Negotiable Instruments Act - Leave to appeal against acquittal under Section 378(4) CrPC - Remand for fresh consideration on merits
Leave to appeal against acquittal under Section 378(4) CrPC - Whether leave to appeal against the trial court's acquittal ought to have been refused by the High Court - HELD THAT: - The Supreme Court found that the High Court declined leave without considering material legal provisions and evidence sufficiently. The High Court's conclusion that the complainant's witness (the Power of Attorney) lacked personal knowledge was treated as inadequate in the circumstances because the High Court did not apply or examine the statutory presumptions and evidentiary rules under the Negotiable Instruments Act vis-a-vis the oral and documentary record. Given that the Trial Court itself did not deal with the applicability of Sections 118 and 139 of the NI Act to the evidence on record, the High Court should have considered whether the statutory presumptions and primary-evidence rules warranted granting leave. In these circumstances the Supreme Court held that the High Court's order refusing leave could not stand and set it aside, granting leave to file the acquittal appeal and directing the High Court to decide the appeal on merits. [Paras 10, 11, 12]
High Court order refusing leave set aside; leave granted to file acquittal appeal and High Court to hear the appeal on merits.
Presumption under Section 139 of the Negotiable Instruments Act - Primary evidence requirement under Section 118 of the Negotiable Instruments Act - Remand for fresh consideration on merits - Scope of reconsideration to be undertaken by the High Court on remand - HELD THAT: - The Supreme Court directed that on remand the High Court must apply and consider the legal effect of Section 139 (the statutory presumption of consideration and of the holder's entitlement) together with Section 118 (the evidentiary value of negotiable instruments) in relation to the oral and documentary evidence placed on record. The Court emphasised that these provisions were not examined either by the Trial Court or by the High Court and that the High Court should weigh the complainant's case applying those statutory provisions to the evidence before deciding the acquittal appeal. The matter was remitted for fresh consideration on merits, and the High Court was requested to give priority to disposal within the timeline indicated by this Court. [Paras 10, 12, 13]
Matter remanded to the High Court to hear the acquittal appeal on merits with specific direction to consider Sections 139 and 118 of the NI Act and to dispose the matter with priority.
Final Conclusion: The Supreme Court set aside the High Court's refusal of leave, granted leave to the complainant to file an appeal against acquittal, and remitted the matter to the High Court to decide the appeal on merits after considering Sections 118 and 139 of the Negotiable Instruments Act; the High Court was requested to dispose of the appeal with priority within the timeframe indicated.
Issues: Whether a limited liability partnership, though not a signatory to the LLP agreement, can be brought into arbitration arising out of disputes between a partner and the LLP.
Analysis: The arbitration clause in the LLP agreement was wide enough to cover disputes relating to the construction or application of the agreement, the business or affairs of the LLP, and the rights, duties and liabilities of the parties under it. The LLP was not a stranger to the agreement governing its own affairs. Under the statutory scheme of the Limited Liability Partnership Act, 2008, the LLP agreement regulates the mutual rights and duties of the partners and of the LLP with its partners. The First Schedule also contemplates arbitration of disputes arising out of the LLP agreement, reinforcing that the LLP may be a necessary participant in such disputes. Questions as to joinder, maintainability, and the scope of claims were held to be matters for the arbitral tribunal under its jurisdictional competence.
Conclusion: The objection that the LLP could never be proceeded against because it was not a signatory to the LLP agreement was rejected, and the request for reference to arbitration was allowed.
Final Conclusion: The dispute was held to be arbitrable notwithstanding the LLP's non-signatory status, and an arbitral tribunal was constituted to decide the merits and ancillary issues.
Ratio Decidendi: In disputes governed by an LLP agreement and the statutory scheme of the LLP Act, a non-signatory LLP may still be a proper and necessary party to arbitration where the controversy concerns the LLP's business, affairs, rights, duties, or liabilities under the agreement.
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.
Issues: (i) Whether the complaint proceedings under Section 138 of the Negotiable Instruments Act, 1881 were liable to be stayed under Section 210 of the Code of Criminal Procedure, 1973 on account of the pending police case; (ii) whether the impugned order rejecting the application under Section 210 of the Code of Criminal Procedure, 1973 called for interference under Section 482 of the Code of Criminal Procedure, 1973.
Issue (i): Whether the complaint proceedings under Section 138 of the Negotiable Instruments Act, 1881 were liable to be stayed under Section 210 of the Code of Criminal Procedure, 1973 on account of the pending police case.
Analysis: The two proceedings were found to rest on different factual foundations and different legal ingredients. The police case concerned allegations of misappropriation and related offences under Sections 406, 408 and 420 of the Indian Penal Code, 1860, while the complaint case arose from dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881. The Court held that the nature of offences, cause of action, procedure and objects of the two proceedings were different, and the disputed question relating to the circumstances in which the cheque was signed was a matter for trial in the complaint case. Since the proceedings were not in respect of the same offence, Section 210 was not attracted.
Conclusion: The prayer for stay under Section 210 of the Code of Criminal Procedure, 1973 was not maintainable and was rightly rejected.
Issue (ii): Whether the impugned order rejecting the application under Section 210 of the Code of Criminal Procedure, 1973 called for interference under Section 482 of the Code of Criminal Procedure, 1973.
Analysis: The Court found no illegality, irregularity or jurisdictional error in the order of the Magistrate. The Magistrate had examined the statutory requirements and correctly concluded that the complaint case and the police case were distinct. The alternative plea to convert the petition into one seeking quashing of the entire proceeding was also declined, as such relief was not available on the facts and could not be entertained in the manner sought.
Conclusion: No interference was warranted under Section 482 of the Code of Criminal Procedure, 1973.
Final Conclusion: The challenge to the order refusing to call for a police report and stay the complaint proceedings failed, and the complaint case was permitted to continue.
Ratio Decidendi: Section 210 of the Code of Criminal Procedure, 1973 applies only where the complaint case and the police investigation relate to the same offence, and distinct offences with different ingredients, causes of action and objects do not justify a stay of complaint proceedings or interference in inherent jurisdiction.
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.
Issues: Whether the summoning order and criminal proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881 could be quashed under Section 482 of the Code of Criminal Procedure, 1973 on the basis that the petitioners had resigned as directors before the cheque was presented and were not unable for the company's day-to-day affairs.
Analysis: In a prosecution under Sections 138 and 141 of the Negotiable Instruments Act, 1881, the complaint must contain the basic averment that the accused directors were in charge of and responsible for the conduct of the company's business at the relevant time. Once such averments are made, the matter ordinarily proceeds to trial, and the accused bears the burden of producing unimpeachable and uncontroverted material to show that they were not in charge of the affairs of the company or that the prosecution would be an abuse of process. Mere reliance on resignation forms or disputed factual assertions, without sterling evidence showing that the resignation had taken effect and that the accused were not concerned with the transaction, is insufficient for quashing at the threshold. The Court also noted that the material relied upon by the petitioners did not conclusively establish their non-involvement, and the question of resignation, responsibility, and liability required trial.
Conclusion: The challenge to the summoning orders was not made out, and the petitions for quashing were rejected.
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.
Issues: (i) Whether the petitioner's request to send the cheque and related exhibits for handwriting and scientific examination should be allowed at the stage when the accused had admitted his signature and the proceeding had already been delayed; (ii) Whether, notwithstanding refusal of such expert examination, the accused was entitled to lead defence evidence to rebut the statutory presumption.
Issue (i): Whether the petitioner's request to send the cheque and related exhibits for handwriting and scientific examination should be allowed at the stage when the accused had admitted his signature and the proceeding had already been delayed.
Analysis: The signature on the cheque was not disputed and was admitted even in the accused's statement. The application for expert examination was moved at a belated stage in a prosecution under Section 138 of the Negotiable Instruments Act, 1881, where expeditious disposal is statutorily expected. In those circumstances, the refusal to send the cheque or other exhibits for expert opinion was justified, particularly when the accused had not yet led defence evidence to show fabrication or falsity of the documents.
Conclusion: The refusal to send the cheque and exhibits for expert examination was upheld and no interference was made on that aspect.
Issue (ii): Whether, notwithstanding refusal of such expert examination, the accused was entitled to lead defence evidence to rebut the statutory presumption.
Analysis: Even where the presumption under the negotiable instruments law operates against the accused, it remains rebuttable, and the right to present defence evidence is an essential facet of fair trial. The accused was therefore entitled to place rebuttal material on record, including any private handwriting expert report or other scientific evidence, so long as the trial was not further derailed. The trial court was required to afford at least one opportunity to adduce such evidence.
Conclusion: The accused was held entitled to lead defence evidence and to place rebuttal scientific material on record, subject to no inordinate delay.
Final Conclusion: The challenge to the rejection of the expert-examination request failed, but the accused's opportunity to adduce defence evidence was preserved, and the proceeding was disposed of with directions to the trial court to grant that opportunity.
Ratio Decidendi: A belated request for handwriting or scientific examination of a cheque may be refused where the drawer has admitted the signature and the move would unduly delay a prosecution under Section 138 of the Negotiable Instruments Act, 1881, but the accused's right to rebut the statutory presumption by leading defence evidence must still be protected.
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.
Issues: (i) Whether the plaintiff proved the transaction and execution of the cheque so as to sustain the money decree; (ii) Whether the appellate court should remand the matter for additional evidence.
Issue (i): Whether the plaintiff proved the transaction and execution of the cheque so as to sustain the money decree.
Analysis: The plaintiff's evidence regarding the loan transaction and the issuance of the cheque remained unshaken in cross-examination. The defendant did not enter the witness box, and the documentary materials relied on by the defendant did not displace the plaintiff's version. Once execution of the cheque was proved, the statutory presumptions operated in favour of the plaintiff, and the defendant failed to rebut them by acceptable evidence.
Conclusion: The issue was decided in favour of the plaintiff, and the decree based on the cheque was upheld.
Issue (ii): Whether the appellate court should remand the matter for additional evidence.
Analysis: Remand is warranted only within the recognised limits of appellate power and not merely to enable a party to fill gaps in evidence. The record already contained sufficient material for adjudication, and the defendant had been afforded opportunity to contest the claim. No compelling ground existed for a retrial or for a remand to cure evidentiary deficiencies.
Conclusion: The request for remand was rejected.
Final Conclusion: The trial court's decree was sustained, and the appeal failed on merits without any basis for remand.
Ratio Decidendi: In a cheque-based money suit, once the plaintiff proves the transaction and execution of the instrument, statutory presumptions arise in the plaintiff's favour and can be displaced only by credible rebuttal evidence; remand cannot be ordered merely to permit a party to fill lacunae in its case.
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: (i) Whether the writ petition was maintainable in view of the statutory appeal under the Real Estate (Regulation and Development) Act, 2016. (ii) Whether the Real Estate Regulatory Authority lacked jurisdiction to entertain the complaints because the project was not registered and the complainants were said not to be allottees.
Issue (i): Whether the writ petition was maintainable in view of the statutory appeal under the Real Estate (Regulation and Development) Act, 2016.
Analysis: The statutory scheme provides an appeal against any direction, decision or order of the Authority. The availability of that appellate remedy weighs against writ interference, particularly where the challenge is to an order passed by the Authority in exercise of statutory powers. The Court also noted that if the appeal is delayed, the appellate forum may consider the limitation issue on an appropriate application.
Conclusion: The writ petition was not maintainable and the petitioners were required to pursue the statutory appeal.
Issue (ii): Whether the Real Estate Regulatory Authority lacked jurisdiction to entertain the complaints because the project was not registered and the complainants were said not to be allottees.
Analysis: The right of an aggrieved person to complain under the Act is not defeated merely because the promoter failed to obtain registration. Section 3 imposes obligations on the promoter and empowers the Authority to act in the interest of allottees, while Section 31 independently enables any aggrieved person to file a complaint for violation of the Act or the rules. The definitions of promoter and allottee were applied broadly, and the complainants were treated as falling within the statutory protection. The Court further held that the Authority's power to issue directions under Section 37 supported its jurisdiction over such disputes.
Conclusion: The Authority had jurisdiction to entertain and decide the complaints, and the challenge based on alleged absence of registration or locus of the complainants failed.
Final Conclusion: The impugned order was not shown to suffer from jurisdictional error, the alternative appellate remedy remained available, and the writ challenge was therefore rejected.
Ratio Decidendi: Jurisdiction under the Real Estate (Regulation and Development) Act, 2016 to entertain a complaint by an aggrieved person is founded on the complaint mechanism and the broad statutory definitions of promoter and allottee, and is not negated by the promoter's failure to secure registration under Section 3.
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.
TaxTMI 