TaxTMI Updates e-Newsletter
Mar 08,2019

Maintainability of writ petition in presence of alternative remedy - availability of appeal under Section 107 of the U.P. GST Act, 2017 - exercise of writ jurisdiction where appellate forum exists - pure legal question insufficient to bypass statutory appeal

Maintainability of writ petition in presence of alternative remedy - availability of appeal under Section 107 of the U.P. GST Act, 2017 - pure legal question insufficient to bypass statutory appeal - Writ petition dismissed as not maintainable because an appellate remedy under Section 107 of the U.P. GST Act, 2017 is available and the petitioner cannot bypass that remedy even on a plea of a pure legal question. - HELD THAT: - The court held that the order under Section 73(9) of the U.P. GST Act, 2017 is appellable under Section 107 of the Act and, in view of the statutory provision for an appeal, the High Court would not entertain the writ petition. The court further reasoned that an appeal forum can consider both questions of fact and law; consequently, the mere assertion that a pure legal question arises does not justify avoidance of the statutory appellate remedy. On that basis the petition was refused relief and not admitted for adjudication on merits.

Writ petition dismissed on the ground of availability of an alternate statutory remedy (appeal under Section 107).

Final Conclusion: The petition was dismissed as the Court declined to exercise writ jurisdiction because an appeal lay under Section 107 of the U.P. GST Act, 2017; the existence of a purported pure legal question did not permit bypassing the statutory appellate remedy.

Anticipatory bail - non-cognizable offence - cognizable and non-bailable offences - compoundable offence - input tax credit fraud / issuance of fake invoices - balancing test in anticipatory bail (Siddharam Mhetre parameters) - tampering with prosecution evidence

Non-cognizable offence - cognizable and non-bailable offences - compoundable offence - Classification of the alleged offences under the GST Act as non-cognizable and compoundable. - HELD THAT: - The court examined Sections 132, 137 and 138 of the GST Act and applied the principle laid down in Om Prakash & Anr. v. Union of India & Anr. regarding the consequences of deeming offences under a fiscal statute to be non-cognizable. Noting that the maximum prescribed punishment for the offences in question is imprisonment up to five years and that such offences are amenable to compounding by the Commissioner on payment, the court concluded that the alleged offences fall within the category of non-cognizable and compoundable offences. The court further observed that no material was placed on record to demonstrate the magnitude of revenue loss or the manner in which the economy would be affected such as to warrant treating the matter otherwise; those concerns, it held, are to be considered at the stage of completion of investigation and filing of charge-sheet. [Paras 10, 11]

The alleged offences under the GST Act are non-cognizable and compoundable; seriousness must be assessed in light of maximum punishment and compounding provisions, and alleged cumulative economic effect is a matter for completed investigation.

Anticipatory bail - balancing test in anticipatory bail (Siddharam Mhetre parameters) - tampering with prosecution evidence - Whether the petitioners are entitled to anticipatory bail and on what conditions. - HELD THAT: - Applying the parameters laid down by the Supreme Court in Siddharam Satlingappa Mhetre-requiring evaluation of nature and gravity of accusation, role of the accused, possibility of tampering with evidence, prejudice to investigation, and magnitude of the offence-the court found that the limited scope of the petitions (anticipatory bail only) and the statutory classification of the offences justified granting anticipatory bail subject to stringent conditions. The court observed that the accused had offered cooperation and that there was no material before it demonstrating that release would thwart investigation or cause irremediable harm to the public interest. To balance personal liberty with protection of the investigation, the court imposed conditions including furnishing of personal bond with sureties, surrender to the investigating officer within a stipulated period, prohibition on tampering with evidence, obligation to cooperate in investigation and restriction on leaving the country without prior permission, and a prohibition against repeating similar offences. [Paras 12, 13]

Petitions allowed; petitioners are granted anticipatory bail in the event of arrest subject to enumerated conditions (personal bond with sureties, surrender, non-tampering, cooperation, permission to leave country, and non-repetition).

Final Conclusion: Petitions allowed. The High Court granted anticipatory bail to the petitioners in respect of O.R. No.40/2018-19 for offences under Section 137 of the GST Act, 2017, observing that the alleged offences are non-cognizable and compoundable and imposing specific conditions to protect the integrity of the investigation.

Summary order. Writ petition dismissed as withdrawn with liberty to the petitioner to file a fresh petition on the same cause of action.

Reduction in the rate of tax and passing on benefit under Section 171 of the CGST Act, 2017 - Comparison of effective tax incidence pre GST and post GST - Profiteering by increasing base price / failure to pass on tax reduction - Obligation to deposit profiteered amount with interest and refund mechanism / Consumer Welfare Fund - Offence of issuing incorrect tax invoices and penalty under Section 122(1)(i) of the CGST Act, 2017 - Remand for further investigation of quantum of profiteering on all products supplied

Reduction in the rate of tax and passing on benefit under Section 171 of the CGST Act, 2017 - Comparison of effective tax incidence pre GST and post GST - Scope of Section 171 includes comparison of pre GST tax incidence with post GST rates to determine whether benefit of reduction in the rate of tax has been passed on. - HELD THAT: - The Authority held that Section 171(1) is not confined to a reduction in the rate of GST alone; where the net tax incidence applicable prior to implementation of GST is higher than the tax incidence after introduction of GST, that net reduction falls within Section 171(1) and must be passed on by way of commensurate price reduction. The CGST/SGST charging and supply provisions do not prevent comparison of pre GST taxes (such as CED, CST, VAT) with post GST rates because those pre GST levies were subsumed by GST and formed part of the price on which VAT was leviable; the legislative scheme and repeal provisions demonstrate that rates fixed on introduction of GST were set having regard to prior tax incidence. The Authority therefore rejected the Respondent's contention that Section 171 applies only to a change in a GST rate and not to a reduction in overall tax incidence occasioned by GST's introduction or subsequent rate changes, and concluded that comparing pre and post GST tax incidence is permissible for invoking Section 171(1). [Paras 36, 37, 38]

Section 171(1) applies to a reduction in overall tax incidence arising on or after 01.07.2017 and the pre GST and post GST rates/incidences can be compared to determine applicability of anti profiteering obligations.

Comparison of effective tax incidence pre GST and post GST - Profiteering by increasing base price / failure to pass on tax reduction - The DGAP's computation that the effective tax incidence on the product reduced from 30.06% (pre GST) to 28% (post GST) and that the Respondent increased the base price, thereby denying the benefit to consumers, is correct and can be relied upon. - HELD THAT: - After examining submissions and materials, the Authority found the methodology and computations in the DGAP report reliable. The DGAP compared the relevant tax incidence applicable up to the stage when the Respondent fixed his selling price in the pre GST period with the post GST incidence and concluded a reduction from 30.06% to 28%. The Authority rejected the Respondent's alternate method of including VAT collected in subsequent distribution stages for the pre GST effective rate calculation on the ground that only the taxes up to the stage of the Respondent's supply were relevant for comparing pre and post GST incidence for the purpose of Section 171. Evidence showed the Respondent's average base price rose from Rs. 202.06 to Rs. 230.90 w.e.f. 01.07.2017, which, combined with the reduced tax incidence, meant the benefit of tax reduction was not passed on. The DGAP's annexed computation of the profiteered amount was accepted as correct. [Paras 13, 14, 42, 43, 47]

DGAP's computation of reduction in tax incidence and resultant profiteering is upheld; the increase in base price by the Respondent resulted in denial of benefit and the DGAP's profiteering amount calculation is accepted.

Profiteering by increasing base price / failure to pass on tax reduction - Respondent No. 1 increased the base price and thereby committed profiteering by contravening Section 171(1). - HELD THAT: - The Authority found from the sales data and supporting documents that Respondent No. 1 alone increased the base price of the product after 01.07.2017 and thus was primarily responsible for not passing the tax reduction benefit to recipients. The Respondent's explanations (withdrawal of discounts, prior non pass through of CED, competitors' pricing, payments to trade partners) were not supported by evidence sufficient to rebut the inference that the base price rise coinciding with tax reduction was intended to appropriate the benefit. The Respondent subsequently admitted profiteering and offered to deposit the computed amount. [Paras 13, 14, 43, 45, 46]

Respondent No. 1 is held to have profiteered by increasing base price post GST and thereby contravened Section 171(1).

Obligation to deposit profiteered amount with interest and refund mechanism / Consumer Welfare Fund - Directive for deposit of the computed profiteered amount with interest and mechanism for disbursal where recipients are not identifiable. - HELD THAT: - The Authority directed Respondent No. 1 to deposit the profiteered amount as computed by the DGAP for the period 01.07.2017 to 31.07.2018. Interest is to be calculated at 18% from the date of collection till deposit. As many recipients are not identifiable, the Authority ordered the amount (with interest) to be deposited in the Central and concerned State Consumer Welfare Funds in a 50:50 ratio and specified timelines for deposit and recovery if not complied with, with supervision by the DGAP and reporting by Commissioners. [Paras 47, 48, 49]

Respondent No. 1 to deposit the profiteered amount of Rs. 96,59,716.26 with interest @18% and, where recipients are not identifiable, to deposit the amount into Central and State Consumer Welfare Funds in the prescribed ratio within three months; recovery provision and reporting directions issued.

Offence of issuing incorrect tax invoices and penalty under Section 122(1)(i) of the CGST Act, 2017 - Respondent No. 1 issued incorrect invoices and is liable to be proceeded against for penalty under Section 122(1)(i); hearing on penalty to be afforded. - HELD THAT: - The Authority found that Respondent No. 1 did not correctly show the basic price in his tax invoices and thereby caused customers to pay additional GST on inflated prices; such conduct falls within the offence described under Section 122(1)(i). In the interest of natural justice, the Authority directed issuance of a show cause notice to the Respondent to explain why penalty should not be imposed under the provision read with Rule 133(3)(d) of the CGST Rules, 2017. [Paras 51]

Notice to be issued to Respondent No. 1 to show cause why penalty under Section 122(1)(i) should not be imposed; material establishes incorrect invoicing.

Remand for further investigation of quantum of profiteering on all products supplied - DGAP directed to further investigate and quantify profiteering on all products supplied by Respondent No. 1 where required. - HELD THAT: - Because the Respondent did not provide details of MRP changes at every stage in the value chain for all products as requested, the Authority directed the DGAP to continue investigation into the quantum of profiteering on all products supplied by Respondent No. 1 and submit a further report. This is a directed remand for additional fact finding and quantification rather than a final adjudication on those additional products. [Paras 50]

DGAP to further investigate and report the quantum of profiteering on all products supplied by Respondent No.1 and submit revised report.

Final Conclusion: The Authority held that Section 171(1) permits comparison of pre GST and post GST tax incidence to determine whether the benefit of reduction in the rate of tax has been passed on; accepted the DGAP's computation that tax incidence on the product fell from 30.06% to 28% and that Respondent No.1 increased his base price thereby profiteering. Respondent No.1 is directed to deposit the computed profiteered amount with interest into the Central and State Consumer Welfare Funds (where recipients are not identifiable), to reduce prices as mandated, and to face a show cause notice for penalty under Section 122(1)(i); DGAP is remanded to further investigate profiteering on all products supplied by Respondent No.1 and submit report.

Obligation under Section 171 to pass on benefit of tax reduction - profiteering - commensurate reduction in prices - acceptance of DGAP report on price comparison

Obligation under Section 171 to pass on benefit of tax reduction - profiteering - commensurate reduction in prices - acceptance of DGAP report on price comparison - Whether the respondent passed on the benefit of reduction in the rate of tax w.e.f. 15.11.2017 in respect of the specified vitrified tiles and thereby committed profiteering under Section 171 of the CGST Act, 2017. - HELD THAT: - The Authority considered the DGAP's investigation comparing pre- and post-rate-reduction invoices for the product. The DGAP found that the per unit taxable amount (base price per box excluding GST) remained unchanged in the post-reduction period as compared to the pre-reduction period. The Authority noted that the initial report did not address the wholesaler's price but after directing further inquiry the DGAP examined the relevant purchase invoices (which were the respondent's sale invoices) obtained from the wholesaler and reported no increase in the taxable base price per unit after the rate cut. Applying the statutory obligation that any reduction in rate of tax must be passed on to the recipient by way of a commensurate reduction in prices, the Authority accepted the DGAP's conclusion that the benefit of the rate reduction was passed on because the base price per unit did not increase post-revision. [Paras 5, 11]

The allegation of profiteering is not sustained; the provisions of Section 171 of the CGST Act, 2017, have not been contravened and the application is dismissed.

Final Conclusion: The Authority accepted the DGAP's findings that the base price per unit remained the same before and after the GST rate reduction, concluded that the benefit of the tax rate reduction was passed on, found no contravention of Section 171 and dismissed the application.

Benefit of input tax credit - commensurate reduction in prices - profiteering - violation of Section 171 of the CGST Act, 2017 (failure to pass on ITC) - imposition of penalty under Section 122 of the CGST Act, 2017 - return of amount not passed on with interest at 18%

Reduction in tax rate for construction services (effective 12% and subsequently 8%) - There was a reduction in the effective rate of tax on the construction service: 12% (effective) from 01.07.2017 and reduction to 8% effective from 25.01.2018. - HELD THAT: - The Authority noted the Central Government notifications which fixed the effective GST on construction service at 12% from 01.07.2017 (accounting for the 1/3rd abatement) and the subsequent reduction to an effective rate of 8% for affordable housing with effect from 25.01.2018. The profiteering calculations were therefore separated into two periods-01.07.2017 to 24.01.2018 (12% rate) and 25.01.2018 to 31.08.2018 (8% rate)-for correct computation of the benefit to be passed on to recipients. The Authority accepted the DGAP's treatment and calculations applying these effective rates. [Paras 22]

Reduction in the effective tax rate was recognised as 12% (from 01.07.2017) and 8% (from 25.01.2018) and the profiteering calculation was framed in two parts accordingly.

Net additional benefit of input tax credit - ratio of input tax credit to taxable turnover - The Respondent obtained a net additional benefit of input tax credit post-GST amounting to 2.84% of taxable turnover (increase from 3.65% pre-GST to 6.49% post-GST). - HELD THAT: - On the basis of the Respondent's pre-GST and post-GST returns and supporting documents, the DGAP computed the ratio of CENVAT/ITC to taxable turnover as 3.65% for April 2016-June 2017 (pre-GST) and 6.49% for 01.07.2017-31.08.2018 (post-GST). The Authority found these computations to be correctly derived from the submitted data and accepted the DGAP's conclusion that the Respondent enjoyed an incremental ITC benefit of 2.84% of taxable turnover which ought to have been passed on to recipients by way of commensurate price reduction. [Paras 21, 22]

Net additional ITC benefit of 2.84% of taxable turnover was held to have accrued to the Respondent and required passing on to buyers.

Violation of Section 171 of the CGST Act, 2017 (failure to pass on ITC) - return of amount not passed on with interest at 18% - imposition of penalty under Section 122 of the CGST Act, 2017 - The Respondent contravened Section 171 by not fully passing on the ITC benefit; the Authority computed the total profiteered amount for 01.07.2017 to 31.08.2018 and ordered refund/adjustment with interest and initiation of penalty proceedings. - HELD THAT: - The DGAP calculated the total profiteered amount for the period 01.07.2017-31.08.2018 as arising from the 2.84% incremental ITC and the applicable GST rates in the two sub-periods. The Authority accepted the DGAP's computations and verification of payments already made by the Respondent, concluding that: (a) for 651 residential units and 13 commercial units identified the profiteered amount aggregated to the figures computed by DGAP; (b) portions already paid by the Respondent were recorded and the balance (identified and quantified by the DGAP and accepted by the Respondent) remained payable to identifiable recipients; and (c) the Respondent issued incorrect tax invoices and realised higher amounts than entitled to collect. Accordingly, under Rule 133(3)(a) the Respondent was directed to reduce prices/return the balance amounts to identified buyers with interest at 18% from the date of collection, and a show-cause notice was ordered for imposition of penalty under Section 122 read with the Rules. [Paras 23, 24, 25, 26]

The Authority held that Section 171 was contravened; directed refund/adjustment of the identified balance profiteered amount to the buyers with interest @18% and ordered issuance of a show-cause notice for penalty; Commissioners of CGST/SGST Haryana to monitor compliance.

Final Conclusion: The Authority found that (i) effective GST on the construction service was 12% from 01.07.2017 and reduced to 8% from 25.01.2018; (ii) the Respondent obtained a net additional ITC benefit of 2.84% of taxable turnover post-GST which was not fully passed on; and (iii) the Respondent had profiteered during 01.07.2017-31.08.2018 as computed by the DGAP. The Authority ordered return/adjustment of the identified balance profiteered amounts to the eligible buyers with interest at 18%, directed initiation of penalty proceedings by issuing a show-cause notice under Section 122, and entrusted Commissioners CGST/SGST Haryana (under DGAP supervision) to monitor and report compliance.

Summary order. Leave granted and Civil Appeal allowed; pending applications, if any, disposed of.

Unexplained cash credit under section 68 - Presumptive taxation and non-maintenance of books under section 44AD/44AA - Passbook versus books of account - Proof of identity and creditworthiness of donors

Unexplained cash credit under section 68 - Presumptive taxation and non-maintenance of books under section 44AD/44AA - Passbook versus books of account - Proof of identity and creditworthiness of donors - Whether the addition of Rs. 8,68,000 as unexplained cash credit under section 68 can be sustained when the assessee was assessed under the presumptive scheme, was not required to maintain books, and the donors' identity/creditworthiness were furnished and examined. - HELD THAT: - The Tribunal held that the invocation of section 68 presupposes that a sum is "found credited in the books of the assessee"; in the absence of books of account maintained by the assessee the provisions of section 68 are not attracted. The decision relied on prior tribunal and High Court reasoning that bank passbooks are not books of account of the assessee and that maintenance of books in which a credit entry is found is a condition precedent for invoking section 68. The assessee had filed return under the presumptive scheme offering profit at eight per cent and was not required to maintain books under section 44AA(2)(iv); the Assessing Officer accepted that position. Further, the assessee had furnished details of the cash gifts and the Assessing Officer examined the donors on oath and accepted a portion of the gift; rejection by the Assessing Officer of the donors' asserted source of funds did not, by itself, establish that the gifts were fictitious. Having regard to the non-maintenance of books, the acceptance of presumptive taxation, and the material placed on record identifying and establishing the creditworthiness of the donors (with the Assessing Officer examining them), the addition under section 68 stood deleted. [Paras 10, 11, 12, 13]

Addition under section 68 deleted and appeal allowed.

Final Conclusion: The Tribunal deleted the addition of Rs. 8,68,000 made under section 68 for Assessment Year 200910, holding that section 68 is not attracted where the assessee is under the presumptive scheme and does not maintain books, and that the assessee had furnished the identity and creditworthiness of the donors which had been examined by the Assessing Officer.

Deemed to be let out - self-occupied property - substitution of self-occupied property under section 23(4) - annual letting value (ALV) - assessment officer's determination of ALV - holding period for capital gains - date of acquisition/transfer for computing holding period - long-term versus short-term capital gain - transfer as defined in section 2(47) - use of builder's/allotment confirmation to fix acquisition date

Deemed to be let out - self-occupied property - substitution of self-occupied property under section 23(4) - annual letting value (ALV) - assessment officer's determination of ALV - Whether the Arlington (USA) property could be treated as self-occupied or should be treated as deemed to be let out and whether the substitution of self-occupied property under section 23(4) could be allowed in assessment proceedings - HELD THAT: - The Tribunal held that where the assessing officer changes the method of computing annual letting value, the assessee is entitled to seek substitution of the house treated as self-occupied under section 23(4) so as to adopt the alternative house which is more beneficial; the Commissioner (Appeals) ought to have considered substitution once he concluded that the USA property was not self-occupied. Relying on coordinate Tribunal decisions, the matter of ALV for the USA property was restored to the assessing officer for fresh determination. The assessing officer is directed to determine the ALV of the USA property as deemed to be let out and to provide the assessee an opportunity of hearing before passing the order in accordance with law. [Paras 7, 8, 9, 10, 11]

Grounds relating to treatment of USA and Mumbai properties allowed in part; matter remitted to the assessing officer to treat the USA property as deemed to be let out and to determine its ALV after affording hearing.

Holding period for capital gains - date of acquisition/transfer for computing holding period - long-term versus short-term capital gain - transfer as defined in section 2(47) - use of builder's/allotment confirmation to fix acquisition date - Whether the assessee's right in the Gurgaon property was held for more than 36 months so as to attract long-term capital gain (loss) treatment - HELD THAT: - On the facts, the Tribunal affirmed the Commissioner (Appeals) finding that the assessee's right crystallised on the basis of builder's confirmation dated 19 March 2007 together with evidence of payment, and that such confirmation constituted transfer for the purposes of section 2(47). Relying on precedent that the date of allotment/confirmation and de facto possession/rights can fix the holding period, the Tribunal found the holding period exceeded 36 months and therefore the loss on transfer is to be treated as long-term. The assessing officer's contrary view, which treated the date of a later buyer's agreement as the date of acquisition, was held to be incorrect. [Paras 16, 19, 21]

The Commissioner (Appeals) order holding the asset as long-term for capital gains purposes is affirmed; the revenue's appeals on this point are dismissed.

Final Conclusion: The assessee's appeal is partly allowed: the question of ALV for the USA property is remitted to the assessing officer to treat that property as deemed to be let out and determine its ALV after hearing the assessee. The revenue's appeal regarding the nature of capital gain on the Gurgaon property is dismissed and the Commissioner (Appeals) finding of long-term treatment is upheld; overall the assessee's appeal is partly allowed and the revenue's appeal is dismissed.

Summary order. Special Leave Petition dismissed; delay condoned.

Summary order. Special Leave Petitions under Article 136 of the Constitution of India not entertained and accordingly dismissed; pending applications, if any, disposed of.

Liquidated damages treated as interest under the statutory definition - exemption under Section 10(23G) of the Income Tax Act - definition of interest in Section 2(28A) - deduction for provisions for bad and doubtful debts under Section 36(1)(viia)(c) - special reserve deduction under Section 36(1)(viii) for providers of long term finance

Liquidated damages treated as interest under the statutory definition - definition of interest in Section 2(28A) - exemption under Section 10(23G) of the Income Tax Act - Whether liquidated damages received by the assessee fall within the statutory definition of 'interest' and thereby qualify for exemption under Section 10(23G). - HELD THAT: - The Court examined the exhaustive statutory definition of 'interest' in Section 2(28A), which includes any service fee or other charge in respect of moneys borrowed or debt incurred and in respect of credit facilities not utilised. The loan agreement proforma showed that amounts described as 'liquidated damages' were payable on default at specified per annum rates and that arrears of such liquidated damages themselves carried additional interest, demonstrating that the contractual 'liquidated damages' function as interest/charge in respect of borrowings. The Court followed the Coordinate Bench decisions in the appellant's own earlier matters and in Viswapriya Financial Services to conclude that labels adopted by parties (such as 'liquidated damages') do not exclude such receipts from the statutory concept of 'interest' when their contractual character is that of a charge for default or non utilisation of credit. The authorities below erred in excluding the liquidated damages from the scope of 'interest' and hence from the benefit of Section 10(23G). [Paras 12, 15, 16, 17, 18]

Liquidated damages received by the assessee are to be treated as 'interest' within the meaning of Section 2(28A) and, accordingly, the assessee is entitled to the exemption under Section 10(23G).

Deduction for provisions for bad and doubtful debts under Section 36(1)(viia)(c) - special reserve deduction under Section 36(1)(viii) for providers of long term finance - Whether the deduction under Section 36(1)(viia)(c) (provisions for bad and doubtful debts) must be computed after reducing income by the deduction allowable under Section 36(1)(viii), or whether both deductions are to be computed independently. - HELD THAT: - The Court analysed the scheme and history of Section 36(1). Each clause (including (viia)(c) and (viii)) specifies independent grounds for deductions. The Finance Act 1995 amendment altered the basis of computation for clause (viii) but did not convert the nature of the deduction into one that conditions other sub clauses. The Memorandum to the Finance Bill 1995 shows the change was confined to the method of computing clause (viii) (limiting it to income derived from eligible long term finance activities) and did not imply dependence between the clauses. Consequently, the tribunal and authorities below were wrong to require reduction of total income by the clause (viii) deduction before allowing the clause (viia)(c) deduction; the two computations must be made independently. [Paras 21, 24, 25, 28, 29]

Deduction under Section 36(1)(viia)(c) is to be computed independently and is not required to be granted only after reducing income by the deduction under Section 36(1)(viii).

Final Conclusion: Both substantial questions are answered in favour of the assessee: (i) liquidated damages are taxable as 'interest' within Section 2(28A) and qualify for exemption under Section 10(23G); and (ii) deductions under Section 36(1)(viia)(c) and Section 36(1)(viii) are to be computed independently. The tax case appeal is allowed.

Stay of demand on payment of 20% of the disputed demand - grant of stay by Assessing Officer under Section 220(3) and Section 220(6) of the Income Tax Act - administrative referral to Pr.CIT/CIT to determine higher or lower lump sum payment where warranted

Stay of demand on payment of 20% of the disputed demand - grant of stay by Assessing Officer under Section 220(3) and Section 220(6) of the Income Tax Act - Petitioner entitled to seek stay of the demand dated 27.12.2018 by paying 20% of the disputed demand and filing an application under Section 220(3) or 220(6). - HELD THAT: - The Court noted the Office Memorandum dated 31.07.2017 which revised the standard rate for grant of stay in contested demands to 20% of the disputed demand where the demand is contested before the first appellate authority. The OM operates subject to the exception in paragraph (B) of the earlier OM dated 29.02.2016 which permits the assessing officer, after reference to Pr.CIT/CIT, to require a higher or lower lump sum payment in specified circumstances. In view of these administrative instructions, the petitioner's apprehension that onerous conditions would necessarily apply was dispelled. The petitioner was therefore permitted to approach the Assessing Officer, pay 20% of the disputed demand and seek stay by filing the appropriate application under Section 220(3) or Section 220(6) of the Income Tax Act. [Paras 5, 6, 8]

Liberty granted to the petitioner to approach the Assessing Officer and seek stay of the impugned demand dated 27.12.2018 by paying 20% of the disputed demand and filing an application under Section 220(3) or 220(6).

Final Conclusion: Writ petition disposed of by granting liberty to the petitioner to seek stay of the demand for Assessment Year 2016-17 in accordance with the Office Memorandum dated 31.07.2017 read with paragraph (B) of the OM dated 29.02.2016; no order as to costs.

Admission of appeal - Substantial question of law - Allowability of interest on Deep Discount Bonds - Deduction under section 80IA for captive power plant - Carry forward of unabsorbed depreciation of demerged entities - Explanation (3) to sub-section (1) of section 43 - pre-requirements for invocation

Admission of appeal - Substantial question of law - Allowability of interest on Deep Discount Bonds - Admission of the appeal insofar as the question relating to allowability of interest on Deep Discount Bonds (DDBs) was concerned and framing of a substantial question of law for consideration - HELD THAT: - The court examined earlier decisions relied upon by the respondent and found merit in the appellant's submission that those decisions did not clearly deal with the controversy in the present case. On that basis the court concluded the matter required consideration and admitted the appeal by framing the substantial question of law whether the Tribunal was justified in confirming allowance of interest expenses on DDBs.

Appeal admitted and substantial question framed for decision on allowability of interest on DDBs.

Admission of appeal - Substantial question of law - Deduction under section 80IA for captive power plant - Admission of the appeal insofar as the question relating to deduction under section 80IA for the wind farm division's captive power plant was concerned and framing of a substantial question of law for consideration - HELD THAT: - In view of the court's conclusion that the referenced authorities did not conclusively cover the present controversy and that the matter required consideration, the appeal was admitted and a substantial question of law was framed asking whether the Tribunal was justified in confirming the allowance of deduction under section 80IA in respect of the captive power plant.

Appeal admitted and substantial question framed for decision on the section 80IA deduction claim.

Admission of appeal - Substantial question of law - Carry forward of unabsorbed depreciation of demerged entities - Admission of the appeal insofar as the question relating to carry forward of unabsorbed depreciation of demerged entities was concerned and framing of a substantial question of law for consideration - HELD THAT: - The court found that the controversy over whether the Tribunal was justified in allowing carry forward of unabsorbed depreciation of the demerged entities warranted adjudication, and therefore admitted the appeal and framed the substantial question of law on that point.

Appeal admitted and substantial question framed for decision on carry forward of unabsorbed depreciation of demerged entities.

Admission of appeal - Substantial question of law - Explanation (3) to sub-section (1) of section 43 - pre-requirements for invocation - Admission of the appeal insofar as the question relating to invocation of Explanation (3) to sub-section (1) of section 43 and allowance of depreciation on full WDV of certain intangible assets was concerned and framing of a substantial question of law for consideration - HELD THAT: - The court observed that earlier decisions relied upon did not clearly resolve the specific controversy in the present case and therefore concluded that the question whether the Tribunal was justified in holding that the Assessing Officer had not fulfilled pre-requirements for invoking Explanation (3) to sub-section (1) of section 43 - thereby permitting depreciation on the full written down value of the intangible assets - required consideration. Accordingly the appeal was admitted and the question was framed.

Appeal admitted and substantial question framed for decision on the applicability of Explanation (3) to s.43 and allowance of depreciation on full WDV of the intangible assets.

Final Conclusion: The High Court admitted the tax appeal and framed four substantial questions of law for determination concerning (i) allowability of interest on Deep Discount Bonds, (ii) deduction under section 80IA for the wind-farm division's captive power plant, (iii) carry forward of unabsorbed depreciation of demerged entities, and (iv) the pre-requirements for invocation of Explanation (3) to sub-section (1) of section 43 and related depreciation claim.

Section 80HHC - profit for export profit deduction - netting of interest income - remand for fresh consideration

Section 80HHC - netting of interest income - profit for export profit deduction - Whether the Tribunal failed to consider the appellant's claim that only net interest income (gross interest less borrowing expenditure incurred to earn that interest) should be included for computing deduction under Section 80HHC, and whether the matter requires fresh consideration. - HELD THAT: - The Tribunal's order recorded a concession as to the scope of the word 'profit' in Section 80HHC in light of the Supreme Court decision in Ipca Laboratories, but did not address the specific ground raised by the assessee that interest should be netted (gross interest minus expenditure on borrowals) before inclusion in the computation under Section 80HHC. The High Court observed that this contention appears not to have been considered by the Tribunal and that the matter therefore merits reconsideration. The Court allowed the appeals and directed the Tribunal to reconsider the appeals afresh on that ground in accordance with law, providing a timetable for appearance and decision. [Paras 3, 4, 5]

Appeals allowed; matter remanded to the Tribunal for fresh consideration of the claim that only net interest income should be included for computation under Section 80HHC, to be decided in accordance with law within six months.

Final Conclusion: The High Court allowed the tax appeals and remanded the issue to the Tribunal to reconsider afresh whether only net interest income (gross interest less borrowing expenditure) is to be included in the computation under Section 80HHC for Assessment Years 2000-2001 and 2001-2002; the Tribunal was directed to decide the issue within six months.

Disallowance of interest on borrowed funds - advancing interest-free loans to sister concerns - commercial expediency - business expediency - application of S.A. Builders principle

Disallowance of interest on borrowed funds - advancing interest-free loans to sister concerns - commercial expediency - business expediency - application of S.A. Builders principle - Whether the Tribunal was right in confirming the CIT(A)'s deletion of the disallowance of interest on borrowed funds diverted for advancing interest-free loans to sister concerns except to the admitted extent. - HELD THAT: - The Tribunal and CIT(A) examined the assessee's factual evidence - bank accounts, deposits and withdrawals, and inter-company accounting - which showed that substantial part of the investment in the wholly owned subsidiary was out of the assessee's own funds (sale proceeds and internal accruals) and not from borrowed funds. The assessee also substantiated specific loans and sundry balances and admitted that a portion (admitted amount) was from borrowed funds for which interest could be disallowed. Applying the principle in S.A. Builders, the authorities concluded that on the facts the loans to sister concerns qualified as business/commercial expediency. The High Court noted that the correctness of S.A. Builders was not determinative here; the authorities had recorded factual findings that the transactions amounted to business expediency. As those findings are factual in nature and supported by documents placed before the authorities, the Court declined to interfere with the Tribunal's conclusion that the disallowance, except in respect of the admitted portion, was rightly deleted. [Paras 6, 7, 8, 9, 11]

The Tribunal was right to confirm deletion of the disallowance except as admitted by the assessee; the substantial question of law is answered in favour of the assessee and the appeal is dismissed.

Final Conclusion: The High Court dismissed the Revenue's appeal, upholding the Tribunal's and CIT(A)'s factual finding that the loans advanced to sister concerns amounted to business/commercial expediency and thereby confirming deletion of the interest disallowance except in respect of the admitted portion; the substantial question of law was answered in favour of the assessee.

Levy of penalty under section 271(1)(c) in consequence of assessment additions - Extended limitation under section 275(1)(a) where assessment order is the subject matter of appeal - Re-examination and remand for reconsideration after appellate order in quantum proceedings - Principle of natural justice requiring opportunity to be heard before finalising penalty

Levy of penalty under section 271(1)(c) in consequence of assessment additions - Extended limitation under section 275(1)(a) where assessment order is the subject matter of appeal - Re-examination and remand for reconsideration after appellate order in quantum proceedings - Principle of natural justice requiring opportunity to be heard before finalising penalty - Whether the penalty order passed by the Assessing Officer requires fresh consideration in view of the appellate order passed in the quantum assessment proceedings and whether the matter should be remanded to the AO for re-examination. - HELD THAT: - The Assessing Officer passed the penalty order prior to disposal of the assessee's appeal against quantum by the Commissioner (Appeals). The assessee produced the appellate order in the quantum proceedings by which the appeal was partly allowed. Given that the penalty stems from additions made in the assessment and that the appellate order affecting those additions was rendered after the impugned penalty order, principles of natural justice and proper adjudication require the AO to re-examine the penalty after duly considering the appellate decision in the quantum proceedings. Accordingly, the Tribunal concluded that the issues raised require fresh examination by the AO with an opportunity to the assessee to be heard; the appellate order under challenge is set aside and the matters are restored to the file of the AO for fresh adjudication. [Paras 6]

Order of the Commissioner (Appeals) is set aside and all issues are restored to the file of the Assessing Officer for fresh examination and decision after affording the assessee adequate opportunity of being heard; appeal of the assessee treated as allowed for statistical purposes.

Final Conclusion: The Tribunal set aside the appellate order and remitted the matter to the Assessing Officer to re-examine the penalty in the light of the appellate quantum order, after affording the assessee an opportunity of being heard; the appeal is disposed of as allowed for statistical purposes.

Reasonable opportunity of being heard - principles of natural justice - remand for fresh adjudication - deduction under section 80P(2)(c) - attendance at appellate hearing

Reasonable opportunity of being heard - principles of natural justice - remand for fresh adjudication - attendance at appellate hearing - Remand of the question whether deduction under section 80P(2)(c) is available in respect of rental receipts, because the assessee was not afforded a proper opportunity of hearing before the CIT(A). - HELD THAT: - The assessee, a co-operative society, claimed deduction under section 80P in respect of rental income from a hall. Written submissions were placed before the CIT(A) but the assessee did not appear in person. The CIT(A) dismissed the appeal, relying on earlier decisions. The Tribunal found that denying a personal hearing was not proper and that written submissions alone did not suffice; the CIT(A) ought to have ensured attendance by issuing further notices for meaningful adjudication. Accordingly the matter is remanded to the CIT(A) for fresh adjudication on merits after supplying the case law relied upon to the assessee, obtaining the assessee's comments and granting a reasonable opportunity of being heard in accordance with the principles of natural justice. The Tribunal recorded that, in view of this remand, adjudication of the remaining grounds would be academic. [Paras 6, 7, 8, 9]

Ground no.1 is remanded to the file of the CIT(A) for fresh adjudication after granting a reasonable opportunity of being heard; other grounds are dismissed as academic.

Final Conclusion: Both appeals are partly allowed: the preliminary grievance regarding denial of a proper hearing is remanded to the CIT(A) for fresh adjudication in accordance with natural justice, and the remaining grounds are dismissed as academic.

Disallowance of deduction for provision for interest - deduction under section 80P(2)(a)(i) of the Income-tax Act - scope of exclusion under section 80P(4) for co-operative banks - onus on assessee to prove nature of income and entitlement to deduction

Disallowance of deduction for provision for interest - deduction under section 80P(2)(a)(i) of the Income-tax Act - onus on assessee to prove nature of income and entitlement to deduction - Deletion of addition made by the AO of the provision for interest of Rs.7,02,495 and allowance of the appeal - HELD THAT: - The AO disallowed the provision for interest and the CIT(A) confirmed the addition after observing that the assessee had not produced documentary evidence to establish that it was a primary co-operative credit society providing credit exclusively to members and therefore eligible under section 80P(2)(a)(i), and further queried applicability of the exclusion in section 80P(4) to co-operative banks. The Tribunal examined the assessment record and asked the assessee whether any deduction under section 80P had been claimed. The assessee's return, computation and acknowledgement for the year did not claim any deduction under section 80P. In these circumstances the Tribunal held that the lower authorities erred in disallowing the interest provision by reference to section 80P issues when no claim for 80P relief had been made; accordingly the addition was directed to be deleted. The Tribunal therefore allowed the appeal and set aside the impugned addition. [Paras 4, 5]

Addition of the provision for interest deleted; appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal for Assessment Year 2012-13, directing deletion of the addition of the interest provision and setting aside the disallowance made by the lower authorities.

Validity of reopening of assessment where original assessment was completed after verification of materials and without failure to disclose - applicability of the amended Section 80-IB(10)(e) to allotments made before the amendment's notified cutoff date - prospective operation of tax amendments linked to date of transaction/allotment

Validity of reopening of assessment where original assessment was completed after verification of materials and without failure to disclose - Reopening of assessment under Section 147/148 was invalid in the absence of fresh tangible material or any failure by the assessee to disclose material facts at the original assessment. - HELD THAT: - The assessment for AY 2010-11 had been completed under Section 143(3) after the Assessing Officer considered and verified plan approval, permit, completion certificate, books of account and bills, and retained documents. There was no allegation that the assessee failed to disclose fully and truly all material facts at the time of the original assessment nor was any fresh tangible material placed on record to justify reopening. In these circumstances the reopening of assessment on the ground that the amended Section 80-IB(10) might render the earlier allowance incorrect was held to be unsustainable and bad in law.

Reopening of the assessment quashed; original assessment cannot be reopened on the basis stated.

Applicability of the amended Section 80-IB(10)(e) to allotments made before the amendment's notified cutoff date - prospective operation of tax amendments linked to date of transaction/allotment - The amendment to Section 80-IB(10)(e) (restricting allotment of more than one residential unit to the same non-individual) does not apply to allotments made before 19.08.2009 and therefore is not applicable to the assessee whose allotments/sale deeds were executed on 04.06.2009. - HELD THAT: - The Board's Explanatory Notes (referenced in Circular No.5/2010 and paragraph 33.8) clarify that the amendments are effective from 01.04.2010 for AY 2010-11 but restrictions regarding allotment of residential units do not apply to allotments made before 19.08.2009 (the date the Finance (No.2) Act, 2009 became law). The assessee's allotments/sale deeds dated 04.06.2009 fall before that cutoff and were considered by the Assessing Officer at the time of the original assessment. Applying the principle that amendments restricting specific transactions operate prospectively and are tied to the transaction date, the amended provision could not be invoked for the subject assessment year in respect of those allotments.

Amendment to Section 80-IB(10)(e) not applicable to the assessee's allotments dated 04.06.2009; the benefit cannot be denied on that basis.

Final Conclusion: The Tribunal's order rejecting the assessee's appeal is set aside: the reopening of the AY 2010-11 assessment is quashed for lack of fresh tangible material or concealment, and the amended Section 80-IB(10)(e) does not apply to the assessee's allotments executed on 04.06.2009; appeal allowed in favour of the assessee.

Reopening of assessment - formation of belief under section 147 - deemed dividend under section 2(22)(e) - examination of issue in original scrutiny assessment - reopening at behest of audit party and independence of AO's belief

Examination of issue in original scrutiny assessment - deemed dividend under section 2(22)(e) - Whether the notice to reopen the assessment could be sustained when the loan transaction and relevant shareholding details relevant to applicability of section 2(22)(e) were placed before and examined in the original scrutiny assessment. - HELD THAT: - The Court examined the contemporaneous communications between the assessee and the Assessing Officer during the scrutiny assessment which specifically disclosed the loan from Rupani Spinning Mills Pvt. Ltd. and furnished shareholding patterns, ledger copies and related particulars. The Assessing Officer had raised queries requiring the very information necessary to test applicability of section 2(22)(e), and the assessee supplied those details on multiple occasions. The Court also noted that in the immediately preceding assessment year the Assessing Officer had considered the identical loan transaction with focus on section 2(22)(e). On these facts the Court concluded that the question of applicability of section 2(22)(e) had been duly placed before and scrutinized by the Assessing Officer in the original assessment, and therefore the reason for reopening did not constitute a valid fresh basis for invoking the reassessment jurisdiction. [Paras 6, 7, 8, 9, 10]

Impugned notice quashed insofar as it sought to reopen on the ground that section 2(22)(e) had not been examined in the original scrutiny assessment.

Reopening of assessment - formation of belief under section 147 - reopening at behest of audit party and independence of AO's belief - Whether the reopening is vitiated because it was issued at the insistence of the audit party despite the Assessing Officer having earlier recorded reasons rejecting invocation of section 2(22)(e). - HELD THAT: - On inspection of the departmental file the Court found that the audit party had specifically brought the possibility of invoking section 2(22)(e) to the Assessing Officer's attention. The Assessing Officer had earlier responded in detail on 9th June, 2015, giving reasons why section 2(22)(e) did not apply. Notwithstanding that response, the impugned notice was issued upon further insistence by the audit party. The Court reiterated the settled principle that reassessment must proceed from the Assessing Officer's independent belief that income has escaped assessment; an audit party may only draw attention to matters but cannot substitute its view for the AO's independent satisfaction. Since the reopening resulted from insistence by the audit party contrary to the AO's earlier view, the action to reopen was held to be impermissible. [Paras 11, 12]

Impugned notice quashed as having been issued under the influence of the audit party rather than on the Assessing Officer's independent formation of belief.

Final Conclusion: The High Court quashed the notice of reopening of assessment for AY 2013-14, holding that the question under section 2(22)(e) had been examined in the original scrutiny assessment and that the reopening was impermissibly prompted by the audit party rather than the Assessing Officer's independent belief.

Rejection of plaint under Order VII Rule 11(d) CPC on demurrer - application of the Benami Transactions (Prohibition) Act to transactions held in a fiduciary capacity - recognition and proof of a fiduciary relationship between employer and employee - restoration of suit for trial where pleadings allege fiduciary relation

Rejection of plaint under Order VII Rule 11(d) CPC on demurrer - application of the Benami Transactions (Prohibition) Act to transactions held in a fiduciary capacity - Whether the plaint was correctly rejected under Order VII Rule 11(d) CPC on the ground that the suit was barred by the Benami Transactions (Prohibition) Act, 1988. - HELD THAT: - The Court examined the plaint on the basis of demurrer principles and held that dismissal under Order VII Rule 11(d) is permissible only where the plaint, read as a whole, discloses no cause of action or is barred by law on its face. The plaint contains factual averments (notably in paragraphs 5, 7, 9, 10, 11 and 12) that, if proved, would establish that the suit property was purchased from funds of the proprietary concern and that the property was held and agreed to be transferred for the plaintiff - i.e., the defendant was alleged to be holding the property in a fiduciary capacity for the plaintiff. The Court observed that whether such a fiduciary relationship is ultimately proved is a trial question and that the Benami prohibition does not automatically apply where the property is alleged to be held in fiduciary capacity. Reliance was placed on authority construing "fiduciary capacity" broadly (analogous to trustee-beneficiary relationships) and recognizing that employer-employee relations may, on particular facts, impose fiduciary obligations. Given these averments, the plaint could not be non suited at the demurrer stage for being hit by the Benami Act. [Paras 15, 16, 17, 18]

The plaint was wrongly rejected under Order VII Rule 11(d) on the ground of being barred by the Benami Transactions (Prohibition) Act; the question of fiduciary relationship must be tried.

Restoration of suit for trial where pleadings allege fiduciary relation - recognition and proof of a fiduciary relationship between employer and employee - Disposition of the suit following the finding that the plaint should not have been rejected. - HELD THAT: - Having concluded that the plaint averred facts sufficient to raise a triable issue of fiduciary relationship and that the Benami Act defence could not be sustained on demurrer, the Court directed that the impugned order be set aside and the suit restored to the trial court for adjudication on merits. The Court made clear that the plaintiff must prove the pleaded fiduciary relationship at trial, failing which the Benami bar may operate to defeat the claim. The appeal was allowed and no order as to costs was made. [Paras 19]

Impugned order set aside; Suit No. 929 of 2016 restored to the trial court to be decided on merits and in accordance with law; no order as to costs.

Final Conclusion: Appeal allowed; the Single Judge's order of 8th February 2017 rejecting the plaint under Order VII Rule 11(d) as barred by the Benami Transactions (Prohibition) Act is set aside and the suit is restored to the trial court for decision on merits; no order as to costs.

Release of bank guarantee/security for fiscal loss - security furnished as condition for interim relief - availability of stolen goods with third party as ground for retention of security - permissibility of returning security subject to initiation of future proceedings - regulatory enforcement under Handling of Cargo in Customs Areas Regulations (HCCAR), 2009

Release of bank guarantee/security for fiscal loss - security furnished as condition for interim relief - availability of stolen goods with third party as ground for retention of security - Lawfulness of the respondents' refusal to release the bank guarantee furnished by the petitioner where the adjudicating authority found that the stolen goods were seized by the Forest Department and are available. - HELD THAT: - The petitioner furnished a bank guarantee as a condition for maintaining interim relief against suspension of its CFS licence; the guarantee was intended to secure compensation for the lost/stolen goods. The adjudicating authority expressly found (paragraph 29.3 reproduced at paragraph 10 of the judgment) that the red sanders stolen from the petitioner's premises were subsequently seized by the Forest Department and are available. The respondents contended that release was improper because the Forest Department had not yet returned the goods to respondents and had not formally confirmed identity; and further that the adjudicating order only dealt with regulatory breaches under HCCAR, 2009. The High Court accepted that the primary purpose of the bank guarantee was to secure the fiscal interest in respect of the stolen goods and that the availability of the seized goods with the Forest Department, as found by the adjudicating authority, removed the principal justification for retaining the security. Balancing the commercial impact on a long standing licensed CFS and the respondents' right to pursue enforcement, the Court held that continuing to retain the guarantee served no useful purpose and directed its release, while preserving the respondents' liberty to initiate appropriate proceedings under statutory regulations if violations are subsequently established. [Paras 10, 11, 13, 14]

Order rejecting the petitioner's request for release of the bank guarantee is quashed and the respondents are directed to release the bank guarantee within two weeks; respondents remain free to initiate proceedings under HCCAR, 2009 if violations are found.

Final Conclusion: The writ petition succeeds: the High Court quashed the order refusing release of the bank guarantee and directed its return within two weeks, while leaving open the respondents' right to take statutory action under HCCAR, 2009 if future breaches are established.

Entertaining parallel proceedings - judicial propriety in presence of a superior forum - avoidance of piecemeal and fractured adjudication - stay or restraint on disposal of goods pending higher court adjudication

Entertaining parallel proceedings - judicial propriety in presence of a superior forum - avoidance of piecemeal and fractured adjudication - Maintainability of the writ petition in view of pending proceedings before the Supreme Court and propriety of granting relief sought in this Court. - HELD THAT: - The High Court declined to entertain the writ petition because the substantive controversy was already before a superior judicial forum. The court held that when a competent forum (here the Supreme Court) has an issue under consideration, collateral or incidental matters arising out of the same controversy ought to be placed before that forum rather than pursued in parallel. Allowing separate, simultaneous adjudications would result in piecemeal and fractured decisions, which is contrary to judicial propriety. Consequently, relief seeking restraint on disposal or release of imported goods was not to be granted by this Court in the presence of the pending higher court proceedings; any such relief would be appropriately considered by the Supreme Court exercising its jurisdiction. [Paras 6, 7]

Writ petition closed for want of propriety to entertain parallel proceedings; petitioner left free to seek appropriate relief before the Supreme Court.

Final Conclusion: The High Court dismissed the writ petition without adjudicating the merits, holding that the existence of pending proceedings before the Supreme Court precluded parallel adjudication in this Court and leaving the petitioner free to pursue remedies before the superior forum.

Right of an appellant to have merits of the appeal heard - requirement of a speaking and reasoned order - invalidity of summary dismissal without reasons - remand for fresh consideration and hearing - appeal against order under Section 130 of the Customs Act, 1962

Invalidity of summary dismissal without reasons - right of an appellant to have merits of the appeal heard - The CESTAT's summary disposal of multiple first appeals by a brief, unreasoned order was improper and liable to be set aside. - HELD THAT: - The High Court found that although the CESTAT noted the appeals and the arguments addressed in each, it disposed of all appeals in two paragraphs on an assumed culpability of the assessees without dealing with the merits or giving reasons for dismissing the appeals. An appellant is entitled to have the factual and legal contentions addressed in appeal. Where a tribunal's conclusion is recorded without reasoning on the merits, the order is unreasoned and cannot stand. For these reasons the impugned orders were set aside. [Paras 5, 6]

Impugned CESTAT orders set aside for being unreasoned; summary dismissal held improper.

Remand for fresh consideration and hearing - requirement of a speaking and reasoned order - The appeals were remitted to the CESTAT for fresh hearing and consideration, with directions to address the appellants' arguments on merits and pass speaking and reasoned orders. - HELD THAT: - Having set aside the unreasoned dismissals, the High Court remitted the matters to the CESTAT for fresh adjudication. The CESTAT was directed to hear the appellants on the merits, consider all contentions, and render a reasoned decision. The Court fixed a date for appearance before the CESTAT and directed transmission of this order to the tribunal for compliance and notice to parties. [Paras 6, 8, 9]

Matters remitted to CESTAT for fresh hearing and decision; CESTAT directed to pass speaking and reasoned orders and to list the parties as directed.

Final Conclusion: The High Court partly allowed the appeals by setting aside the CESTAT's unreasoned summary dismissals and remitting the matters to the CESTAT for fresh hearing and speaking, reasoned adjudication of the merits.

Export obligation - discharge certificate - EPCG licence entitlement - detention notice - quash and remit - verification of documentary proof

Export obligation - discharge certificate - detention notice - verification of documentary proof - Validity of the detention notices in view of the petitioner's claim of discharge of the export obligation and consequent entitlement under the EPCG authorization. - HELD THAT: - The Court noted that the petitioner was issued a discharge certificate for fulfillment of the export obligation against the EPCG Licence and had forwarded a copy to the Assistant Commissioner of Customs. The petitioner also filed representations bringing the discharge certificate to the respondent's notice. In these circumstances the Court held that the factual claim of discharge of the export obligation must be verified by the respondent before enforcing the duty quantified in the impugned Orders-in-Original. Rather than adjudicating the factual dispute on the papers, the Court quashed the detention notices and remitted the matter to the respondent to take note of the petitioner's representations and the discharge certificate and to pass appropriate orders on merits and in accordance with law. The petitioner was directed to supply copies of the discharge certificate and representations along with this order to the respondent to facilitate compliance and verification. [Paras 4, 5]

Detention notices quashed; matter remanded to respondent to verify the discharge certificate and decide the petitioner's representations on merits.

Final Conclusion: The writ petition is allowed: the detention notices are quashed and the matter is remanded to the respondent to consider the petitioner's representations and the discharge certificate and to pass fresh orders on merits and in accordance with law; petitioner to furnish copies to the respondent; no costs.

Arbitral Award - challenge under Section 34 of the Arbitration and Conciliation Act, 1996 - deeming fiction of commencement of winding up - effect of winding up order on pending proceedings and requirement of leave of the Company Court - duty to disclose pendency of winding up petition in arbitral and court proceedings - finality and upholding of arbitral awards

Deeming fiction of commencement of winding up - effect of winding up order on pending proceedings and requirement of leave of the Company Court - Whether the pendency or subsequent making of a winding up order for a co-borrower rendered the arbitral award dated 24 March 2014 invalid for non-compliance with the leave requirement under Section 446 of the Companies Act, 1956 - HELD THAT: - The Court observed that Section 441(2) creates a deeming fiction as to commencement of winding up from presentation of the petition, while Section 446 operates when an order of winding up is actually made and then restrains prosecution of suits and proceedings without leave of the Tribunal. The appellants' expansive contention that Section 446 would retrospectively invalidate orders and decrees passed between presentation and the winding up order was rejected as impracticable and unduly wide. More importantly, at the time the Award was passed (24 March 2014) and when the Arbitration Petition was filed (24 June 2014), no winding up order had been made; the winding up order was passed only on 28 August 2014. The Court further emphasised that the consequences of a subsequently made winding up order involve factual aspects which ought to have been brought to the attention of the Arbitrator and the Single Judge when the matter was before them. Failure to disclose the pendency of the winding up petition or the subsequent order deprived the courts below of the opportunity to consider the question with full material. In those circumstances the appellants could not, by remaining silent and not filing a reply in the arbitration, thereafter seek to invalidate the Award on the basis of non-compliance with Section 446. [Paras 9, 10, 11, 12]

The challenge that the Award was vitiated for want of compliance with Section 446 was rejected; the pendency and later making of the winding up order did not invalidate the Award in the circumstances where the winding up order was not in existence at the relevant times and the appellants failed to disclose or press the point.

Arbitral Award - challenge under Section 34 of the Arbitration and Conciliation Act, 1996 - finality and upholding of arbitral awards - duty to disclose pendency of winding up petition in arbitral and court proceedings - Whether the learned Single Judge erred in dismissing the Arbitration Petition under Section 34 and in confirming the Award directing the appellants to pay the debt - HELD THAT: - The Court noted that the appellants had appeared in arbitration, were repeatedly afforded opportunity to file a reply but did not do so, and that the arbitrator found that the loan was availed and remained unpaid, passing the Award accordingly. The Arbitration Petition before the Single Judge did not raise the pendency of the winding up petition or its consequences; instead it relied on other grounds such as insufficiency of stamp, novation and mortgage, which the Single Judge considered and rejected. The Division Bench's earlier disposal of a related appeal and dismissal by the Apex Court of the Special Leave Petition were taken into account. The Court observed the statutory and judicial policy favouring upholding arbitral awards and treated the present case as one where admitted liability and failure to defend the arbitration led to a sustainable Award. Given the appellants' failure to disclose material facts and the prior adjudications, there was no basis to interfere with the Single Judge's order confirming the Award. [Paras 3, 4, 13, 14, 15]

No error in dismissing the Arbitration Petition; the Award was rightly confirmed and the appeal is dismissed.

Final Conclusion: The appellants' contention that the subsequent winding up of a co-borrower invalidated the arbitral award for non-compliance with Section 446 of the Companies Act was rejected; having not disclosed the pendency or applied for leave when appropriate, and having failed to contest the arbitration on the merits, there is no ground to disturb the Single Judge's order confirming the Award, and the appeal is dismissed.

Professional misconduct - statutory auditor's duty under Section 143 - collusion and issuance of false audit certificate - inspecting officer powers under Section 207(3) - disqualification under second proviso to Section 140(5) - liability for fraud under Section 447 - refund of remuneration under Section 147(3)(i)

Statutory auditor's duty under Section 143 - inspecting officer powers under Section 207(3) - collusion and issuance of false audit certificate - professional misconduct - Whether Respondent No.1, the statutory auditor, colluded with the directors and certified the company's financial statements without auditing the books, amounting to professional misconduct. - HELD THAT: - The Tribunal accepted the findings of the Inspecting Officer and the admissions recorded under the inspection proceedings that Respondent No.1 signed the auditor's reports for the relevant periods without examining or calling for the company's books, statutory registers or working papers, and that documents essential for audit were not produced to him. The auditor himself admitted before the inspecting authority that he had not audited the books of account, did not attend AGMs, did not call for records, and followed procedures of previous auditors despite lack of records. Those facts satisfied the Tribunal that the auditor had failed in the statutorily prescribed duties of an auditor under the Act and had colluded with the company's directors in issuing a false audit certificate. The conduct was held to constitute professional misconduct and to have undermined the credibility of the auditing profession.

Findings of collusion and issuance of a false audit certificate without audit established; conduct amounts to professional misconduct and breach of auditor's duties.

Disqualification under second proviso to Section 140(5) - liability for fraud under Section 447 - refund of remuneration under Section 147(3)(i) - What consequences should follow from the established misconduct of the statutory auditor. - HELD THAT: - Applying the statutory framework and exercising the Tribunal's powers, it was held that the nature of the misconduct and the auditor's admitted failure to perform audit duties warranted disqualification from appointment as an auditor under the second proviso to Section 140(5). The Tribunal also concluded that the auditor is liable for action under the provision dealing with fraud and that, by the exercise of powers under Section 147(3)(i), the auditor must refund the remuneration received for the period he acted as auditor. The Tribunal further directed that the order be communicated to regulatory bodies for appropriate action.

Respondent No.1 is disqualified from appointment as auditor for five years from the date of the order, is liable for action under the fraud provision, and is directed to refund the remuneration received; a copy of the order to be sent to regulatory authorities.

Final Conclusion: The petition is allowed: the statutory auditor was found to have colluded in issuing false audit certificates without auditing the books, amounting to professional misconduct; he is disqualified from being appointed as auditor for five years, liable for action under the fraud provision, directed to refund remuneration, and the order is to be forwarded to regulatory authorities for further action.

First charge and priority of provident fund dues - overriding effect of the Insolvency and Bankruptcy Code over inconsistent enactments - adjustment for loss due to missing attached movable property - verification and admission of claims under Section 39 - classification of claims under the waterfall mechanism (Section 53(1)(f)) - limitation for appeals against liquidator's decision under Section 42

First charge and priority of provident fund dues - overriding effect of the Insolvency and Bankruptcy Code over inconsistent enactments - non-obstante clause - Whether the statutory first charge claimed by EPFO under the EPF & MP Act overrides the Insolvency and Bankruptcy Code and entitles EPFO to priority over other creditors in liquidation. - HELD THAT: - The Tribunal examined the contention that Section 11(2) (and Section 11A) of the EPF & MP Act creates a paramount first charge on establishment assets for provident fund dues and that such charge cannot be affected by the IBC. Relying on the principle that a later parliamentary enactment containing an overriding clause governs inconsistent earlier provisions, and on the cited Supreme Court authorities, the Tribunal held that Section 238 of the IBC gives the Code overriding effect over inconsistent provisions of other enactments. Consequently, the plea that EPFO's statutory charge displaces the Code's waterfall and priority scheme was rejected as untenable in the face of the IBC's overriding operation. The Tribunal therefore did not give EPFO a superior priority outside the Code's distribution mechanism. (See reasoning and conclusion in paragraph 38.) [Paras 38]

The claim of a statutory first charge under the EPF & MP Act cannot override the priority and distribution regime under the IBC; the contention for paramount priority is rejected.

Verification and admission of claims under Section 39 - adjustment for loss due to missing attached property - classification of claims under the waterfall mechanism - custody of attached movable property - Whether the liquidator was justified in rejecting part of EPFO's claim for the ESIC receivership period, classifying EPFO's admitted claim under Section 53(1)(f), and deducting/adjusting loss on account of missing machinery from the EPFO claim. - HELD THAT: - The Tribunal upheld the liquidator's verification process under Section 39 and the Liquidation Regulations, noting that the liquidator rejected the portion of the EPFO claim attributable to the period when ESIC and its receiver were in control and responsibility for the assets. The record shows EPFO had permitted ESIC's use of attached machinery subject to conditions; the liquidator found certain machineries missing and held that loss caused while under EPFO's attachment/use must be adjusted against EPFO's claim once quantified. The Tribunal observed the obligations on an attaching officer to custody and account for attached movable property and that EPFO's conditional permission and subsequent lack of custody/monitoring justified the liquidator's deduction/adjustment. The liquidator's classification of the admitted claim within the Code's waterfall as other remaining debts (Section 53(1)(f)) and deduction for missing machinery was held to be correctly recorded in the statement of verification, admission, rejection and determination dated 23.04.2018. (See findings in paragraphs 11, 31-35 and conclusion in paragraph 39.) [Paras 31, 33, 34, 35, 39]

The liquidator's verification, partial rejection for the ESIC period, classification under Section 53(1)(f), and adjustment/deduction for loss of missing machinery from EPFO's claim are proper and are upheld.

Limitation for appeals against liquidator's decision under Section 42 - Whether EPFO's application challenging the liquidator's rejection of part of its claim was time-barred under Section 42 of the IBC. - HELD THAT: - The Tribunal recorded that an appeal against a liquidator's decision to reject a claim must be filed before the Adjudicating Authority within 14 days of receipt of that decision as prescribed by Section 42. EPFO filed its application on 18.05.2018, after 21 days, and the liquidator therefore contended that the application was time-barred. The Tribunal noted this delay as a point raised by the liquidator. (See paragraph 14.) [Paras 14]

The application challenging the liquidator's rejection was noted to be filed beyond the 14-day period prescribed by Section 42 and thus time-barred as recorded by the Tribunal.

Final Conclusion: The Tribunal rejected the EPFO's application. It held that the IBC prevails over inconsistent provisions of the EPF & MP Act and upheld the liquidator's verification and determination of EPFO's claim, including partial rejection, classification under the Code's waterfall, and adjustment for loss of missing machinery; the application was also recorded as time-barred.

Maintainability of Section 7 application despite parallel DRT proceedings - effect of Section 238 of the I&B Code overriding other laws - application of Section 4 default threshold for initiating CIRP - time-bar / limitation and acknowledgement by balance confirmation - secured creditor filing for CIRP without abandoning security-distinction from winding up - initiation of CIRP and moratorium under Section 14 - appointment of Interim Resolution Professional

Maintainability of Section 7 application despite parallel DRT proceedings - effect of Section 238 of the I&B Code overriding other laws - Proceeding under Section 7 of the I&B Code is maintainable despite concurrent recovery proceedings in the DRT. - HELD THAT: - The Tribunal held that proceedings under the Insolvency & Bankruptcy Code for initiation of Corporate Insolvency Resolution Process serve a different object and operate in a different field from recovery proceedings before the Debt Recovery Tribunal. Section 238 of the I&B Code gives the Code overriding effect over inconsistent provisions of other laws when dealing with resolution of a corporate debtor. Consequently, the existence of recovery proceedings in the DRT does not oust jurisdiction to admit a Section 7 application seeking CIRP. [Paras 10]

Section 7 application is maintainable notwithstanding pending DRT recovery proceedings.

Time-bar / limitation and acknowledgement by balance confirmation - The Section 7 application was not barred by limitation in view of the corporate debtor's balance confirmation and subsequent acknowledgements. - HELD THAT: - The Tribunal noted the bank's pleadings before the DRT and the production of a balance confirmation letter dated 16.06.2017 in which the corporate debtor admitted debt. The Section 7 application filed on 07.03.2018 was therefore within the limitation period applicable to the recovery and not time-barred. The Tribunal relied on the admitted balance confirmation as crystallising the debt for limitation purposes. [Paras 12]

The petition is within limitation; the debt acknowledged by balance confirmation is due and payable.

Application of Section 4 default threshold for initiating CIRP - Default sufficient to invoke jurisdiction under Section 4 of the I&B Code was established. - HELD THAT: - The Tribunal observed that the corporate debtor had committed default exceeding the statutory threshold (sum greater than Rs. 1 lakh) and had offered a one-time settlement, evidencing inability to pay. On the material on record, including correspondence and the balance confirmation, the financial creditor proved existence of default entitling it to seek initiation of CIRP. [Paras 13]

Default as required under Section 4 was proved; jurisdiction to initiate CIRP exists.

Secured creditor filing for CIRP without abandoning security-distinction from winding up - A secured creditor need not abandon its security to file a Section 7 application for CIRP; winding up precedents relied upon are inapplicable to CIRP facts. - HELD THAT: - The Tribunal distinguished earlier authorities concerning winding up, which hold that a secured creditor is generally outside winding up unless it abandons its security. It held those decisions inapposite because the present proceedings seek insolvency resolution (CIRP), not winding up. Further, the properties relied upon by the corporate debtor as security were collateral of promoters (not assets of the corporate debtor) and the bank's valuation showed the collateral value to be less than the debt. On these factual and legal bases, the requirement to abandon security in winding up cases does not prevent the bank from filing Section 7. [Paras 15, 16]

Rulings on secured creditors in winding up do not preclude a secured creditor from initiating CIRP under Section 7 on the facts of this case.

Initiation of CIRP and moratorium under Section 14 - appointment of Interim Resolution Professional - CIRP is to be initiated; moratorium is to operate and an Interim Resolution Professional is appointed. - HELD THAT: - Having found the Section 7 application valid, the Tribunal admitted the application and ordered initiation of the Corporate Insolvency Resolution Process. It declared the moratorium specified under Section 14, directed public announcement and claims submission as per Section 15, and appointed the proposed Interim Resolution Professional to ascertain creditors' particulars and convene the Committee of Creditors. Directions were given for communication of the order and issuance of the certified copy. [Paras 18]

Application admitted; moratorium imposed; public announcement ordered; IRP appointed.

Final Conclusion: The Section 7 petition filed by the financial creditor is admitted: the Tribunal found the debt and default proved, held the petition maintainable despite parallel DRT proceedings and not barred by limitation, rejected the argument that the secured creditor must abandon security (distinguishing winding up precedents), directed initiation of CIRP with moratorium, public announcement and appointment of the Interim Resolution Professional.

Maintainability of appeal by corporate debtor after appointment of insolvency professional - entrenched management and loss of locus to prosecute appeals post-appointment of insolvency professional - substitution of appellant by shareholder following loss of management control

Maintainability of appeal by corporate debtor after appointment of insolvency professional - entrenched management and loss of locus to prosecute appeals post-appointment of insolvency professional - substitution of appellant by shareholder following loss of management control - Whether the appeal filed by the Corporate Debtor was maintainable after initiation of insolvency proceedings and appointment of an Interim Resolution Professional, and whether substitution by a shareholder could cure maintainability. - HELD THAT: - The Tribunal applied the principle laid down in Innoventive Industries Ltd. v. ICICI Bank and Ors. that once an insolvency professional is appointed to manage the company, the erstwhile directors (and by extension the corporate debtor represented by them) lose the locus to maintain an appeal on behalf of the company. The appellant was given successive opportunities to have a shareholder seek substitution as appellant and to file an affidavit to challenge the existence of debt/default, but no substitution application or affidavit was filed within the extended time. In the absence of substitution by a shareholder or any competent person representing the company, the appeal could not be entertained and was liable to be dismissed as not maintainable under the cited principle. [Paras 2, 3, 6]

Appeal dismissed as not maintainable for want of locus of the Corporate Debtor to prosecute the appeal after appointment of an insolvency professional; shareholder substitution remained open but was not availed.

Final Conclusion: The appeal was dismissed as not maintainable in view of the Supreme Court's decision in Innoventive Industries Ltd.; the order does not preclude a shareholder or director from filing an appeal in accordance with law, subject to limitation.

Interest on delayed refund under Section 11BB - refund of CENVAT credit on export of services - adjudication of refund claims and issuance of show cause notice - sanction of refund pursuant to departmental circular

Interest on delayed refund under Section 11BB - refund of CENVAT credit on export of services - sanction of refund pursuant to departmental circular - Entitlement to interest on delayed sanction of refund of CENVAT credit claimed for exported services for the period July, 2012 to June, 2015. - HELD THAT: - The petitioner filed seven refund applications under Rule 5 of the CENVAT Credit Rules for the period July, 2012 to June, 2015. Although the Revenue issued show cause notices and adjudication took place, the refund claims were ultimately sanctioned pursuant to the departmental circular. Having regard to the statutory provision for interest on delayed refunds under Section 11BB and the consistent approach in earlier decisions of this Court, the petitioner was held entitled to interest on the delayed refunds. The Court directed that the amount of interest, calculated in accordance with the legal provisions, be released expeditiously and in any event by 30th April, 2019. The Court noted that prior judgments do not mean the petitioner's computed figures are automatically accepted as gospel, but on the facts before it the entitlement was established and relief was granted.

Writ petition allowed; interest on the sanctioned refunds to be released in terms of the legal provisions, expeditiously and by 30th April, 2019.

Final Conclusion: The High Court allowed the writ petition and directed payment of interest on the delayed refund of CENVAT credit granted for the period July, 2012 to June, 2015, to be released in accordance with law and by 30th April, 2019.

Definition of "franchise service" - representational right to sell or manufacture goods - reading contract as a whole - perversity and error of law apparent on the face of the record

Definition of "franchise service" - representational right to sell or manufacture goods - reading contract as a whole - Whether the demand of service tax on the assessee as for rendering a franchise service was rightly dropped by the Commissioner and upheld by the CESTAT. - HELD THAT: - The tribunal applied the statutory definition of franchise service and examined the dealer agreement holistically rather than isolating clause (10). The Revenue's conclusion was based on reading clause (10) in isolation and treating the licence and use of the assessee's name and logo as necessarily amounting to a grant of representational rights constituting a franchise. The High Court agreed with the tribunal that the agreement must be read as a whole; picking out clause (10) alone to characterise the arrangement as a franchise service was unjustified. Having considered the tribunal's reasoning (notably para 4 of the impugned order), the Court found no perversity or error of law apparent on the face of the record in the tribunal's conclusion to drop the demand.

The CESTAT's order upholding the dropping of the service-tax demand was affirmed; there is no error of law or perversity in the impugned order.

Final Conclusion: Revenue's appeal is dismissed; the tribunal's conclusion that the arrangement does not amount to a taxable franchise service stands affirmed and there is no order as to costs.

Interest on delayed payment of service tax - rate applicable for every month or part of a month versus actual period of delay (days) - interest leviable only on delayed portion of tax - remittance to another government department treated as payment for statutory purpose - statutory construction of Section 75 (Finance Act, 1994 and subsequent amendments)

Rate applicable for every month or part of a month versus actual period of delay (days) - interest on delayed payment of service tax - Levy of interest must be computed with reference to the actual period of delay and not by treating the whole month as the period of delay. - HELD THAT: - The Court examined Section 75 as originally enacted and as amended, noting the language referring to interest 'for every month or part of a month' and later to interest 'for the period' by which crediting was delayed. That language requires computation for the actual period in which the delay occurred - i.e., on the number of days of delay and, where delay exceeds a month, in months plus the additional days - and does not permit an automatic levy for an entire calendar month whenever any delay falls within that month. A departmental Circular and the practice of levying interest for the whole month where delay was only for days was held to be inconsistent with the statutory prescription and therefore improper. [Paras 10, 11, 13]

Interest must be levied only for the actual days of delay (and for full months where applicable), not for the entire calendar month merely because some delay falls within it.

Interest leviable only on delayed portion of tax - interest on delayed payment of service tax - Interest under Section 75 can be imposed only on the portion of tax that remained unpaid beyond the due date and not on amounts that were paid on or before the due date. - HELD THAT: - The Court held that where part payments were made within the prescribed time, those portions are deemed deposited in time and cannot attract interest. Consequently, interest liability must be computed only on the balance which was actually delayed, rejecting the practice of computing interest on the entire amount due for a month despite partial timely remittance. [Paras 14]

Interest is chargeable only on the delayed amounts; sums paid within the due date are not subject to interest under Section 75.

Remittance to another government department treated as payment for statutory purpose - statutory construction of Section 75 (Finance Act, 1994 and subsequent amendments) - Where the assessee remitted amounts to the Department of Telecommunications (a government department) before the due date and adjustments were later made between DOT and the Central Excise Department, such remittance is to be treated as payment within the statutory period for the purposes of Section 75. - HELD THAT: - The Court accepted the appellant's contention that payments made to DOT prior to the due date must be regarded as timely remittances since DOT is a government department and book adjustments to the Central Excise Department were effected thereafter. Therefore no interest can be levied where the appellant's remittance to DOT was made within the statutory time; where delay arose in subsequent book adjustments, the period of delay is to be measured up to the date of remittance to DOT or to the Excise Department, whichever was earlier. [Paras 15, 16]

Remittances made by the assessee to DOT before the due date shall be treated as payment within time; computation of delay runs only from due date to date of remittance to DOT or Excise Department, whichever is earlier.

Interest on delayed payment of service tax - Recomputation of interest and consequential levy remitted to the Commissioner for recalculation in accordance with the Court's directions. - HELD THAT: - The Court set aside the orders of the Commissioner and the Tribunal insofar as interest was concerned and directed recomputation of interest: (a) interest to be calculated for actual days of delay; (b) interest to be applied only on amounts actually delayed; and (c) period of delay to be measured until remittance to DOT or Excise Department, whichever earlier. The Commissioner was directed to rework the levy with proper notice to the assessee. The Tribunal's deletion of penalty was left undisturbed. [Paras 16]

Matter remitted to the Commissioner for recomputation of interest in accordance with the Court's directions; Tribunal's deletion of penalty retained.

Final Conclusion: The questions of law are answered in favour of the assessee: interest must be computed for the actual period of delay (in days and months as applicable), charged only on the amounts actually delayed, and remittances made to DOT before the due date are to be treated as timely payments; the Commissioner is directed to recompute the interest accordingly and give notice to the appellant. The appeal is allowed.

Anticipatory bail - offence punishable under Section 89(1)(a) of the Finance Act, 1994 - non-bailable warrant - conditions for grant of anticipatory bail - bail cancellation on non-compliance - tax default and attendance risk

Anticipatory bail - conditions for grant of anticipatory bail - tax default and attendance risk - bail cancellation on non-compliance - Grant of anticipatory bail to the petitioner-accused No.2 in proceedings under Section 89(1)(a) of the Finance Act, 1994 and the terms on which it is to be granted. - HELD THAT: - The Court examined the prosecution's case that a complaint under Section 89(1)(a) of the Finance Act, 1994 alleged evasion of service tax and that a non-bailable warrant had been issued after the petitioner failed to appear. The prosecution emphasised the amount due and contended the petitioner had been absconding and was a chronic defaulter, creating a risk of absconding if released. The petitioner explained non-appearance as inadvertence and undertook to deposit an initial sum and to appear and cooperate thereafter. Applying these facts, the Court concluded that anticipatory bail would meet the ends of justice if stringent conditions were imposed to secure attendance and payment. The Court therefore granted anticipatory bail while imposing pre-conditions and ongoing obligations, including an initial deposit within a specified time, furnishing of a personal bond with sureties, regular appearance, continuing payment of tax dues, and restraint on leaving the jurisdiction without permission. The Court also made non-compliance with the deposit condition a ground for automatic cancellation of the order. [Paras 7, 8]

Petitioner released on anticipatory bail in C.C.No.426/2014 subject to executing a personal bond with two sureties, depositing Rs. 20,00,000 with the service tax authorities within two weeks (production of receipt on appearance), regular attendance, continued payment of tax dues, and not leaving the jurisdiction without prior permission; failure to deposit the specified amount within two weeks will automatically cancel the order.

Final Conclusion: Anticipatory bail granted to the petitioner-accused No.2 in the proceedings under Section 89(1)(a) of the Finance Act, 1994, subject to specified conditions including an initial deposit, personal bond with sureties, regular court attendance, continued payment of tax dues and restriction on leaving the court's jurisdiction; non-compliance with the deposit condition results in automatic cancellation of the bail order.

Eligibility of input service credit for output service providers - Nexus between input service and output service - Insurance premiums as input service - Transit insurance and insurance of fixed assets

Eligibility of input service credit for output service providers - Insurance premiums as input service - Nexus between input service and output service - Credit of service tax on premium paid for Errors & Omissions insurance policy is allowable to the appellant - HELD THAT: - The errors and omissions policy covers liability arising from failure to perform or mistakes in services/products, thereby protecting the appellant against loss flowing from provision of its output services. The Tribunal in the appellant's earlier decision had considered and allowed input credit on such policies. Applying that reasoning and recognising the direct nexus between the liability cover and the appellant's provision of output services, the disallowance of credit on the errors and omissions policy was held to be unjustified and set aside.

Credit of service tax paid on premium for Errors & Omissions insurance policy is allowed and the disallowance is set aside.

Transit insurance and insurance of fixed assets - Nexus between input service and output service - Eligibility of input service credit for output service providers - Credit of service tax on premium paid for transit insurance is allowable to the appellant - HELD THAT: - The appellant explained that transit insurance covers damage to goods (routers, computers, etc.) transported to customers' premises for provision of services. As an output service provider (not a manufacturer), any input service having nexus with the provision of its output service is eligible for credit. The departmental contention based on place of removal was not applicable to an output service provider. Accordingly, the disallowance of credit on transit insurance was found unjustified and was set aside.

Credit of service tax paid on premium for transit insurance is allowed and the disallowance is set aside.

Transit insurance and insurance of fixed assets - Eligibility of input service credit for output service providers - Nexus between input service and output service - Credit of service tax on premium paid for umbrella fixed asset insurance policy is allowable to the appellant - HELD THAT: - The umbrella policy covers the appellant's fixed assets, including equipment (routers, etc.) installed at customers' premises for rendering output services. These assets remain the company's property and the insurance of such assets serves the business of providing output services. The appellant had earlier obtained allowance for such credit in an earlier appeal for a prior period. On this basis the disallowance of credit for the umbrella fixed asset policy was held to be unjustified and was set aside.

Credit of service tax paid on premium for umbrella fixed asset insurance policy is allowed and the disallowance is set aside.

Final Conclusion: The appeals are allowed; the impugned order disallowing input service credit on errors and omissions insurance, transit insurance and umbrella fixed asset insurance for the period April 2016 to June 2017 is set aside with consequential relief as per law.

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

Interim stay - assessment order passed during interim - set aside of administrative order - remand for fresh consideration - non-compliance with court-imposed conditions - duty to seek vacation of interim order

Interim stay - assessment order passed during interim - set aside of administrative order - Whether the assessment orders (Exts.P2 and P2(a)) passed while the interim stay was in force should be upheld or set aside. - HELD THAT: - The Court found that its order dated 10.12.2018 had granted an interim stay of further proceedings under the impugned notice, subject to limited obligations on the petitioner to produce records or appear. The assessment orders Exts.P2 and P2(a) were rendered while the interim order remained in force. Although the petitioner failed to comply with the condition to appear and produce records, the respondent authorities were directed by the interim order to put further steps under the KVAT Act on hold. The authorities, instead of applying to the Court to have the interim order vacated in view of the petitioner's non-compliance, proceeded to pass the assessment orders. Having proceeded despite the continuing interim directive, the assessment orders could not be permitted to stand. [Paras 10, 11]

Exts.P2 and P2(a) are set aside.

Remand for fresh consideration - non-compliance with court-imposed conditions - duty to seek vacation of interim order - What is the appropriate remedial course after setting aside the assessment orders and what steps the parties must take on remand. - HELD THAT: - The Court concluded that the proper remedy is to remit the matter to the Assessing Authority for fresh consideration because the assessment orders were passed during the period when the interim order was in force. The Court observed that the authorities should have brought the petitioner's non-compliance to the Court's notice and sought vacation of the interim order before proceeding. To avoid further delay and ensure an effective hearing on remand, the Court directed the petitioner's representative to appear before the Assessing Authority on 15.03.2019, after which the Authority may proceed with fresh consideration of the matter. [Paras 8, 9, 11]

Matter remitted to the Assessing Authority for fresh consideration; petitioner to appear on 15.03.2019 and the Authority to proceed thereafter.

Final Conclusion: The assessment orders passed during the subsistence of the interim order are set aside and the matter is remitted to the Assessing Authority for fresh consideration; the petitioner must appear before the Authority on 15.03.2019 and the Authority may proceed thereafter.

Input Tax Credit (I.T.C.) - liability of purchaser for non-reporting by seller - revision of assessment under Section 27 of the TNVAT Act, 2006 - right to personal hearing - remand for fresh consideration

Input Tax Credit (I.T.C.) - liability of purchaser for non-reporting by seller - Whether a purchaser can be held liable and have I.T.C. reversed where the seller has not reported the sale or remitted tax to the department. - HELD THAT: - The Court applied the Division Bench precedent cited by the petitioner and held that where a seller has not disclosed the sales in its returns or has not remitted the tax collected, the corrective action lies against the defaulting seller and not against the purchaser who has claimed I.T.C. based upon invoices. The genuineness of the purchase in the present case was not disputed by the respondent, and therefore the error was not attributable to the petitioner. On these facts, the impugned revision proposing reversal of I.T.C. against the purchaser lacked a sustainable basis and was quashed. [Paras 9]

The purchaser cannot be held liable for non-reporting by the seller; the impugned revision to reverse I.T.C. on that basis is unsustainable and is quashed.

Revision of assessment under Section 27 of the TNVAT Act, 2006 - right to personal hearing - remand for fresh consideration - Whether the impugned order under Section 27 should be quashed and the matter remanded for fresh consideration with opportunity to be heard. - HELD THAT: - The Court found the impugned order defective inasmuch as the purchaser's position, supported by invoices and objections, required fresh consideration. Rather than finally adjudicating the matter on the present record, the Court quashed the impugned order and remanded the case to the assessing officer for de novo consideration on merits. The respondent was directed to afford the petitioner sufficient opportunity, including the right of personal hearing, and to pass a final order under Section 27 in accordance with law within a specified short period. [Paras 13]

Impugned order dated 08.10.2015 quashed; matter remanded to the respondent to afford opportunity including personal hearing and to pass final order under Section 27 on merits within four weeks.

Final Conclusion: The Writ Petition is allowed to the extent that the impugned order dated 08.10.2015 is quashed; the matter is remanded to the assessing authority for fresh consideration and disposal under Section 27 of the TNVAT Act, 2006 after affording the petitioner adequate opportunity including personal hearing, within four weeks; petition disposed of with no costs.

Pre-deposit requirement - power to waive pre-deposit in deserving and appropriate cases - appellate tribunal's discretion to condition relief - substantial question of law - judicial interference only for illegality or perversity

Pre-deposit requirement - appellate tribunal's discretion to condition relief - Validity of the Tribunal's direction that the appellant make a pre-deposit (in lump sum) as a condition for adjudication of the appeals. - HELD THAT: - The Tribunal directed lump-sum pre-deposits of specified amounts in each appeal based on the offer made by the appellant and provided that upon deposit the First Appellate Authority would hear and decide the appeals on merits, failing which the assessment order would remain intact. The High Court, upon hearing and perusal of the record, found no illegality or perversity in the Tribunal's findings or in its imposition of the pre-deposit condition. The Court held that no substantial question of law arises from the Tribunal's order that would justify interference with the Tribunal's exercise of discretion in conditioning the grant of appellate relief. [Paras 4, 5]

Tribunal's direction to make pre-deposit upheld; no interference with the Tribunal's exercise of discretion.

Power to waive pre-deposit in deserving and appropriate cases - substantial question of law - judicial interference only for illegality or perversity - Whether the Tribunal erred in not following the appellant's reliance on precedents and in not discussing all grounds raised in the memorandum of appeal. - HELD THAT: - The appellant contended that the Tribunal ought to have followed earlier decisions permitting waiver of pre-deposit in deserving cases and that the Tribunal failed to address all grounds of appeal. The High Court reviewed the impugned order and concluded that the Tribunal's treatment did not exhibit legal error or perversity warranting interference. Accordingly, the Court found that the matters raised did not give rise to any substantial question of law and that the Tribunal's approach required no reversal or remand. [Paras 2, 5]

Contentions about failure to follow precedents or to discuss all grounds rejected; no substantial question of law proven.

Final Conclusion: The appeals are dismissed on merits for lack of substance; the Tribunal's order directing pre-deposit is sustained and no separate order on applications for condonation of delay is required.

Detention of goods - penalty for offence - best judgment assessment - books of account declaration - reasonableness of addition - transporter's default

Detention of goods - penalty for offence - books of account declaration - best judgment assessment - reasonableness of addition - Whether deletion of the addition by the Tribunal was justified where goods were detained, penalty was imposed and the assessee had the consignment reflected in its books of account - HELD THAT: - The Court held that mere reflection of the transaction in the books of account, even if made after detection of an offence, does not by itself absolve the assessee from liability to penalty or preclude the Assessing Officer from invoking best judgment assessment powers. The Tribunal's deletion of the addition relied on the fact that the consignment was accounted for, but the facts showed no explanation for the offence that resulted in penalty and no satisfactory account of non-service of the penalty order. Where an offence is detected the Assessing Officer is entitled to make a best judgment addition, subject only to the requirement that the addition be reasonable. In the present case the A.O. had made an addition equal to the value of the detained goods (later reduced to 50% on first appeal), and the Tribunal erred in deleting the addition entirely without dealing with the absence of explanation for the offence or the reasonableness of the addition. The Court distinguished the earlier authority relied upon by the assessee on its facts (where goods were declared in accounts before transport and detention arose from transporter's default) and found those facts not comparable. [Paras 3, 4]

The Tribunal's order deleting the addition is set aside; the First Appellate Authority's order reducing the addition to 50% is restored and the revision is allowed.

Final Conclusion: The High Court answered the question of law against the assessee and in favour of the revenue, set aside the Tribunal's deletion of the addition, restored the First Appellate Authority's order (reduction to 50%), allowed the revision and directed parties to bear their own costs.

Additional sales tax liability - taxable turnover for entire year - application of statutory amendment from date of publication - prohibition on splitting an assessment year for levy - remand for computation in accordance with precedent

Additional sales tax liability - taxable turnover for entire year - prohibition on splitting an assessment year for levy - Liability of the dealer to pay additional sales tax for the assessment year 1999-2000 and the correct method of reckoning taxable turnover for that purpose. - HELD THAT: - The Court held that liability to pay additional sales tax is to be determined by reference to the dealer's taxable turnover for the entire financial year and not by artificially splitting the year into pre-amendment and post-amendment periods for the purpose of escaping the levy. The Court followed the earlier Division Bench decisions in Philips India Limited and Commissioner of Commercial Taxes v. S.S.D. Oil Mills Co. Ltd., which establish that where the annual taxable turnover for the assessment year attracts the charge, the turnover for the whole year must be taken into account; the applicable rate for the period up to the amendment and the rate for the post-amendment period are then applied to compute the liability. The tribunal's view that there cannot be a vacuum for the interim period and that the earlier substituted provision continued to have field was upheld. The Court declined the appellant's contention that the assessment year should be split so as to consider only turnover after the date when the later amendment became effective, observing that such a splitting would impermissibly add words to clear statutory provisions. [Paras 9, 10, 12]

Substantial questions answered against the petitioner: the taxable turnover of the whole year 1999-2000 must be reckoned for determining additional sales tax liability; the matter is remitted to the Assessing Officer to compute the liability in accordance with the cited precedents and applicable rates for pre- and post-amendment periods.

Remand for computation in accordance with precedent - Whether the matter should be remitted for fresh computation of additional sales tax in accordance with the legal position laid down in precedent. - HELD THAT: - Having answered the legal question against the petitioner, the Court directed that the Assessing Officer apply the principles laid down in Philips India Limited and S.S.D. Oil Mills Co. Ltd. and take a fresh decision on merits and in accordance with law. The remand is for calculation of the additional sales tax liability (including accounting for rates applicable up to the amendment and thereafter) and not for re-litigation of the legal principle decided by the Court. The Court noted the learned counsel's submission that any amount paid under protest has been remitted and left computation to the Assessing Officer. [Paras 12]

The revision is disposed by remitting the matter to the Assessing Officer for fresh computation of additional sales tax for 1999-2000 in accordance with the Court's ruling and the precedents relied upon.

Final Conclusion: The substantial questions of law are answered against the petitioner: additional sales tax liability for assessment year 1999-2000 is to be determined by reference to the dealer's taxable turnover for the entire year; the matter is remitted to the Assessing Officer to compute the liability in accordance with the cited precedents and applicable rates.

Job work versus sale - deemed sale under Section 3B of the Tamil Nadu General Sales Tax Act, 1959 - admissibility of delivery challans and unaudited copies as evidence of job work - requirement of value in delivery challans for establishing job work - remand for fresh adjudication and opportunity of hearing

Job work versus sale - admissibility of delivery challans and unaudited copies as evidence of job work - Whether the materials supplied to the petitioner constituted job work and whether the delivery challans and other documents produced by the petitioner ought to have been rejected solely because they did not disclose the value of the materials. - HELD THAT: - The Court found that the Tribunal proceeded on an independent footing and rejected the documents produced by the petitioner on the ground that the value of the material was not mentioned, without properly analysing whether those documents supported the petitioner's case of job work (paras. 7-8). The Court observed that where the revenue accepts that the dealer undertakes job work, delivery challans for materials delivered for job work ordinarily record quantity and not price; absence of price does not of itself indicate a sale (para. 8). Accordingly, the documents should have been examined from the perspective that no sale is involved in bona fide job work, and rejection solely for want of value was not justified (paras. 8-9). [Paras 7, 8, 9]

Documents including delivery challans and other papers produced by the petitioner could not be rejected merely because they did not state the value; the question whether the transactions were job work and not sales requires fresh examination by the Assessing Officer.

Deemed sale under Section 3B of the Tamil Nadu General Sales Tax Act, 1959 - remand for fresh adjudication and opportunity of hearing - Whether the levy of tax under the deeming provision was sustainable in the facts and what direction should follow from the Tribunal's and lower authorities' orders. - HELD THAT: - The Assessing Officer had completed assessment by treating the transactions as deemed sales under Section 3B and determined turnover on that basis; the First Appellate Authority had set aside the assessment after accepting that material was supplied for job work and noting departmental verification before the Appellate Authority (para. 5-6). The Tribunal allowed the Revenue's appeal without proper consideration of the petitioner's documents (para. 7). In view of these defects, the High Court concluded that the matter must be remanded to the Assessing Officer to re-examine the documents in proper perspective, afford the petitioner an opportunity of hearing, and not insist on the value of materials handed over for job work; the petitioner is permitted to adduce oral and other evidence (paras. 9-10). [Paras 5, 6, 7, 9, 10]

The assessment, the First Appellate Authority's order and the Tribunal's order are set aside and the matter is remanded to the Assessing Officer for fresh decision on merits and in accordance with law after affording opportunity of hearing and re-examining the documents without insisting upon the value of the material.

Final Conclusion: The Tribunal's confirmation of tax was set aside; the assessment and appellate orders are quashed and the matter is remanded to the Assessing Officer for fresh adjudication on merits, with liberty to the petitioner to produce oral and other evidence and with directions not to reject job-work documents merely for absence of material value.

Other misconduct - brings disrepute to the profession - jurisdiction of the Board of Discipline - scope of disciplinary proceedings under Chapter V - standard of proof in disciplinary proceedings (preponderance of probabilities) - discretion to defer disciplinary consideration pending criminal trial

Other misconduct - brings disrepute to the profession - scope of disciplinary proceedings under Chapter V - Board of Discipline has jurisdiction to entertain complaints of conduct not connected with professional practice if such conduct, in the opinion of the Council/Board, brings disrepute to the profession under Part IV(2) of the First Schedule. - HELD THAT: - Part IV(2) of the First Schedule to the Act covers conduct which "in the opinion of the Council, brings disrepute to the profession or the Institute as a result of his action whether or not related to his professional work." The Court construed the provision as wide enough to include non professional acts that tend to lower the image of the profession. Prior authorities, including the Supreme Court's analysis in B. Mukherjea and the decision in Gurvinder Singh, support that the Schedule is not exhaustive and that the disciplinary fora may inquire into acts outside the practice of accountancy when they tend to render a member unfit to continue as a member. Applying this construction, allegations that a member has committed acts involving moral turpitude or outraging the modesty of a woman can fall within the Board's jurisdiction under Part IV(2) because such conduct may bring disrepute to the profession. [Paras 18, 19, 20, 21, 22]

The Court held that the Board of Discipline has jurisdiction to examine whether the petitioner's alleged non professional conduct amounts to "other misconduct" under Part IV(2) of the First Schedule.

Jurisdiction of the Board of Discipline - standard of proof in disciplinary proceedings (preponderance of probabilities) - discretion to defer disciplinary consideration pending criminal trial - The Board may inquire into allegations even if related criminal proceedings are pending; differing standards of proof govern the two fora and the existence of a criminal trial does not strip the Board of jurisdiction, though the Board may in its discretion defer consideration. - HELD THAT: - The Court observed that criminal proceedings require proof beyond reasonable doubt while disciplinary proceedings require proof on the preponderance of probabilities. Consequently, the Board is not precluded from examining the allegations merely because criminal trials are pending. The Board cannot impose criminal sentences, but it can determine whether conduct amounts to "other misconduct" under the Act. There may, however, be cases where it is appropriate for the Board to await the outcome of criminal proceedings; that is an exercise of the Board's discretion and does not amount to a lack of jurisdiction. [Paras 23]

The Court held that pending criminal proceedings do not oust the Board's jurisdiction to examine the complaint; the Board may, as a discretionary measure, defer consideration but retains jurisdiction to proceed.

Scope of disciplinary proceedings under Chapter V - jurisdiction of the Board of Discipline - Merits of the complaint were not decided by the High Court and are to be considered afresh by the Board of Discipline; the Court refrained from expressing any opinion on the substantive guilt or innocence of the petitioner. - HELD THAT: - While upholding the Board's jurisdiction, the Court explicitly declined to adjudicate the substantive merits of the allegations. The Court noted that the question whether the petitioner is guilty of "other misconduct" is to be determined by the Board of Discipline and that the petitioner retains statutory appellate remedies under the Act if aggrieved by the Board's decision. The matter was therefore left to the disciplinary process for determination on merits. [Paras 24]

The question of whether the petitioner is guilty of other misconduct was left to be decided by the Board of Discipline; the High Court did not adjudicate the merits and the complaint is to be considered by the Board.

Final Conclusion: The petition challenging the Board of Discipline's decision to proceed was dismissed: the Court held that the Board has jurisdiction to consider non professional conduct that may bring disrepute to the profession and that pending criminal trials do not oust that jurisdiction (subject to the Board's discretion to defer); the merits of the complaint are to be decided by the Board of Discipline.