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Issues: Whether the petitioner was entitled to the benefit of the amended Section 16(5) of the Goods and Services Tax law so as to avail input tax credit despite filing GSTR-3B returns beyond the original due date, and whether the petitioner could be permitted to seek rectification before the appropriate authority.
Analysis: The disallowance of input tax credit had been made only on the ground that the returns in Form GSTR-3B were filed beyond the due date under the earlier regime. In view of the insertion of Section 16(5), the returns relating to the relevant tax period stood regularised by the extended cut-off date, and the petitioner could not be denied the benefit of the amendment. The proper course was to allow the petitioner to move the competent authority by filing an appropriate rectification application.
Conclusion: The petitioner was entitled to the benefit of the amended provision and was permitted to apply for rectification before the appropriate authority.
Input tax credit - disallowance of ITC under Section 16(4) of the West Bengal GST Act - cut-off date for filing returns under Section 16(5) of the West Bengal GST Act - retrospective withdrawal of penal effect for specified financial years - regularization of returns filed beyond original due date - rectification application for availing benefit of amendment
Input tax credit - disallowance of ITC under Section 16(4) of the West Bengal GST Act - cut-off date for filing returns under Section 16(5) of the West Bengal GST Act - regularization of returns filed beyond original due date - rectification application for availing benefit of amendment - Petitioner entitled to seek benefit of the amendment inserting subsection (5) to Section 16 and to apply for rectification so that ITC disallowed for returns filed beyond the original due date may be reconsidered. - HELD THAT: - The West Bengal Goods and Services Tax (Amendment) Act, 2024 inserted subsection (5) to Section 16, with effect from 1 July 2017, withdrawing the penal effect of subsection (4) in respect of invoices/debit notes for specified financial years and extending the cutoff date for filing returns. The returns filed by the petitioner for the tax period July, 2018 to March 2020 fall within the extended cutoff date provided by Section 16(5) and are thereby regularized under the amended provision. Since the ITC was disallowed solely because the relevant Form GSTR3B returns were filed beyond the original due date, the petitioner cannot be denied the benefit of the amendment. The Court therefore permitted the petitioner to make an appropriate electronic rectification application before the competent authority (in accordance with the procedure prescribed, including the relevant circular and proforma) so that the claim for ITC can be considered afresh. [Paras 6, 7]
Writ petition disposed with direction permitting the petitioner to file an appropriate rectification application to avail the benefit of Section 16(5) for the tax period July, 2018 to March 2020.
Final Conclusion: The petition is disposed of by permitting the petitioner to file an electronic rectification application to seek reconsideration of the disallowance of input tax credit for the tax period July, 2018 to March 2020 in light of the amendment (Section 16(5)) which regularizes returns filed within the extended cutoff date.
Pre-deposit requirement under the scheme dated 2nd November, 2023 - eligibility for filing time-barred appeal under the notified scheme - effect of prior realization/recovery of tax on pre-deposit obligation - remand for adjudication on merits
Pre-deposit requirement under the scheme dated 2nd November, 2023 - effect of prior realization/recovery of tax on pre-deposit obligation - Whether the petitioner was obliged to make the prescribed 2.5% pre-deposit by debiting the electronic cash ledger when the entire WBGST demand had already been realized - HELD THAT: - The appellate authority found the petitioner otherwise eligible under the notification dated 2nd November, 2023 but rejected the appeal as timebarred because the petitioner did not make the required pre-deposit of 2.5% of the disputed WBGST by debiting the electronic cash ledger. The petitioner produced the impugned order and the State acknowledged that the entire WBGST amount in DRC-7 had been realized from the petitioner. The Court held that where the entire amount of tax on account of WBGST has already been recovered, there is no question of requiring further deposit of 2.5% in respect of that component. The Court treated the recovered WBGST as constituting the relevant portion of the demand for the purposes of the pre-deposit condition under the scheme, noting also a separate recovery on account of CGST recorded in the order impugned. [Paras 3, 5, 6]
The petitioner was not obliged to make the 2.5% pre-deposit in respect of WBGST which had already been realized; therefore the appellate authority's rejection on that ground was unsustainable.
Eligibility for filing time-barred appeal under the notified scheme - remand for adjudication on merits - Appropriate remedy following finding that the pre-deposit requirement in respect of recovered WBGST was inapplicable - HELD THAT: - The Court observed that the appellate authority had addressed eligibility under the scheme except for the pre-deposit issue. In the absence of the Appellate Tribunal and having regard to the factual finding that the WBGST demand had been recovered, the Court considered it appropriate in the interest of justice to set aside the appellate order and remit the matter to the appellate authority for adjudication on merits. The remand is directed for a fresh decision on merits by the appellate authority. [Paras 7, 8]
Order dated 28th June, 2024 set aside and the matter remanded to the appellate authority for decision on merits.
Final Conclusion: The appellate order dated 28th June, 2024 is set aside; since the WBGST demand challenged in the appeal was already realized, the petitioner was not required to make the 2.5% pre-deposit in respect of that component, and the matter is remanded to the appellate authority for adjudication on merits.
Issues: Whether the appellate order treating the case as one falling under the regular tax-levy provision instead of the fraud-based provision required reconsideration, and whether the applicability of the extended time limit for availing input tax credit had to be examined in the light of the returns and GSTR-2A.
Analysis: The appellate authority had found wrongful availment of input tax credit but had also recorded that fraud, wilful misstatement, suppression, or intent to evade tax was not established. The order, however, was passed without proper consideration of the statutory requirements governing input tax credit and without due regard to the returns filed for the relevant period and the extended cutoff date. The material placed before the Court warranted fresh examination by the appellate authority on the record, including GSTR-2A and the statutory time prescription.
Conclusion: The matter was remanded to the appellate authority for fresh consideration and a new order after examining the relevant statutory provisions and materials.
Availability of input tax credit - classification of proceedings as assessment under Section 74 or demand under Section 73 - applicability of extended cut-off date for claiming input tax credit under Section 16(5) - reliance on GSTR-2A as documentary evidence - fraud, wilful misstatement or suppression with intent to evade tax - interim non-operation of impugned appellate order pending reconsideration
Classification of proceedings as assessment under Section 74 or demand under Section 73 - fraud, wilful misstatement or suppression with intent to evade tax - availability of input tax credit - Appellate authority's treatment of the case as falling under Section 73 rather than Section 74 and the consequent conclusion that fraud, wilful misstatement or suppression with intent to evade tax was not established. - HELD THAT: - The appellate authority concluded that although the petitioner had wrongly availed input tax credit, the necessary factual threshold for treating the case as one under Section 74-namely that the availment was by reason of fraud, wilful misstatement or suppression with intent to evade tax-was not established. The High Court observed that the appellate authority considered the provisions of both Section 74 and Section 73 in reaching its view but found that the appellate decision did not appropriately take into account certain material aspects relevant to the availability of input tax credit. Having noted these deficiencies, the Court did not finally adjudicate the correctness of the appellate classification on merits but directed reconsideration in light of additional material directed to be taken into account. [Paras 2]
Direction for the appellate authority to reconsider the classification and findings regarding fraud or intentional suppression, having regard to the matters identified by the Court.
Applicability of extended cut-off date for claiming input tax credit under Section 16(5) - reliance on GSTR-2A as documentary evidence - interim non-operation of impugned appellate order pending reconsideration - Remand of the matter to the appellate authority to decide the applicability of Section 16(5) in light of returns filed within the extended cut-off date and GSTR-2A, and interim non-operation of the impugned order. - HELD THAT: - The High Court found that the appellate authority had failed to appropriately take note of Section 16(2) and Section 16(5) and of the returns filed by the petitioner within the extended period provided under Section 16(5). The Court therefore remanded the appeal to the appellate authority with directions to reconsider the appeal having regard to the GSTR-2A placed before the Court and to determine the applicability of Section 16(5) on the basis of the returns filed within the extended cut-off date. Pending such fresh decision, the Court ordered that the impugned appellate order shall not be given effect to, and that the fresh order when passed shall incorporate and supersede the impugned order. [Paras 3, 4]
Matter remanded for fresh decision on Section 16(5) and GSTR-2A; impugned order kept inoperative until fresh order is passed.
Final Conclusion: Writ petition disposed by remitting the appeal to the appellate authority for fresh consideration of the applicability of Section 16(5) in light of GSTR-2A and returns filed within the extended cut-off date; the impugned appellate order is directed to remain unenforced until a fresh order is passed.
Issues: Whether the order passed under Section 73(9) of the Central Goods and Services Tax Act, 2017 could be sustained when the petitioner was not afforded a proper opportunity of personal hearing, and whether the writ court should interfere despite the availability of an alternate remedy.
Analysis: The impugned adjudication order was found to be materially similar to an earlier decision of the Court where denial of a meaningful personal hearing before passing an adverse order was treated as contrary to the fundamental principles of natural justice. The record showed that the petitioner had not been granted a proper opportunity to file a fresh reply and be heard before the order was passed. In these circumstances, the bar of alternate remedy was held inapplicable because insisting on it would not cure the procedural defect and the appellate authority was not an adequate forum for remand in such a case.
Conclusion: The impugned order was unsustainable and was quashed. The matter was sent back to the adjudicating authority to permit a fresh reply, grant a hearing, and pass a reasoned order.
Final Conclusion: The petitioner succeeded in obtaining setting aside of the adverse GST adjudication order, with the controversy restored to the adjudicating authority for fresh decision after observance of due process.
Ratio Decidendi: An adjudication order under the GST law cannot be sustained where it is passed in violation of the mandatory requirement of affording a meaningful personal hearing, and the availability of an alternate remedy does not bar writ interference in such a case.
Challenge to order passed by the respondent no.2 under Section 73(9) of the Central Goods and Services Tax Act, 2017 - HELD THAT:- The factual matrix is such that the matter is squarely covered by a coordinate Bench judgment of this Court in MAHAVEER TRADING COMPANY VERSUS DEPUTY COMMISSIONER STATE TAX AND ANOTHER [2024 (3) TMI 334 - ALLAHABAD HIGH COURT] where it was held that 'the impugned order cannot be sustained in the eyes of law. It has been passed in gross violation of fundamental principles of natural justice. The self imposed bar of alternative remedy cannot be applied in such facts. If applied, it would be of no real use. In fact, it would be counter productive to the interest of justice.'
Upon a perusal of record, it appears that the factual matrix is very similar to one in Mahaveer Trading Company's case. There are no reason to take a different stand.
The impugned order dated 20.04.2024 is quashed and set-aside with a direction given to the officer concerned to grant the petitioner another opportunity of filing a fresh reply and thereafter fix a date of hearing and pass a reasoned order - Appeal allowed.
Issues: Whether the petitioner was entitled to the benefit of the amended provision inserting section 16(5) so as to regularise the input tax credit claim and seek rectification of the disallowance order.
Analysis: The disallowance of input tax credit had been made solely on the ground that the GSTR-3B returns were filed beyond the due date. The amended provision inserting section 16(5) was noticed as extending the cut-off date and withdrawing the adverse effect for the relevant financial years. In view of that amendment, the petitioner's returns for the relevant tax period were treated as capable of regularisation, and the petitioner was held entitled to seek rectification before the appropriate authority.
Conclusion: The petitioner was held entitled to apply for rectification and to avail the benefit of the amended provision.
Input Tax Credit - Claim of ITC disallowed for late filing of returns - Section 16(5) cut-off date for filing returns - Retrospective regularization by amendment - Rectification application to avail amended benefit - Assessment under Section 73
Input Tax Credit - Claim of ITC disallowed for late filing of returns - Section 16(5) cut-off date for filing returns - Retrospective regularization by amendment - Rectification application to avail amended benefit - Whether the petitioner is entitled to benefit of the amendment by insertion of Section 16(5) so as to regularize returns for the period November 2018 to March 2019 and to seek availment of ITC by making a rectification application. - HELD THAT: - The High Court noted that the West Bengal Goods and Services Tax (Amendment) Act, 2024 inserted subsection (5) to Section 16 with effect from 1 July 2017, withdrawing the penal effect of the earlier provision and extending the cutoff date for filing returns up to 30 November 2021 for invoices/debit notes pertaining to specified financial years. The Court observed that the Central Board's GST Policy Wing issued guidance permitting registered taxpayers to file electronic rectification applications in terms of the amendment and related notifications. Since the petitioner's returns for November 2018 to March 2019 are regularized by operation of the newly inserted Section 16(5), the petitioner cannot be denied the benefit of the amendment on account of earlier late filing. The Court therefore allowed the petitioner to approach the appropriate authority by filing the requisite rectification application for consideration under the amended provision. [Paras 5, 6]
Petitioner entitled to the benefit of Section 16(5) for the tax period November 2018 to March 2019 and permitted to file an appropriate rectification application to seek availment of ITC; writ petition disposed of.
Final Conclusion: Writ petition disposed of; petitioner granted leave to file the prescribed electronic rectification application so that the claim for Input Tax Credit for November 2018 to March 2019 may be considered in light of Section 16(5) of the amended Act.
ISSUES PRESENTED AND CONSIDERED
1. Whether Rule 31A(3) of the Central Goods and Services Tax Rules, 2017, the corresponding State rule and Circular No.27/01/2018-GST are constitutionally invalid under Article 14 and contrary to Sections 2(52), 7 and 15 of the C.G.S.T. Act, 2017 (and corresponding State Act).
2. Whether the show-cause notice issued under Section 74 of the C.G.S.T. Act is illegal, bad in law, without jurisdiction, arbitrary and unreasonable.
3. Whether an intra-Court appeal against a limited interim order may be entertained on the basis of a subsequent order of the Supreme Court (filed/issued after the interim order), and what reliefs are appropriate where a higher court subsequently stays show-cause notices.
4. Whether the adjudicating authority named in the show-cause notice had territorial/subject-matter jurisdiction to adjudicate, given alleged change of the registered place of business across States, and the effect of a subsequent corrigendum altering the adjudicating authority.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of Rule 31A(3) / Circular vis-à-vis Article 14 and statutory provisions
Legal framework: Constitutional guarantee of equality under Article 14 and the statutory regime governing levy, determination and adjudication of GST as set out in the C.G.S.T. Act and Rules; administrative circulars interpret/operationalise rules.
Precedent treatment: The Single Bench had admitted petitions with identical challenges and granted limited interim relief in a coordinate decision; no final adjudication on constitutional validity was undertaken in the impugned order before this Court.
Interpretation and reasoning: The Court did not adjudicate the constitutional challenge on its merits. The impugned intra-Court appeal sought to overturn a limited interim order; the Court declined to decide the substantive constitutional question at this stage because the appellants relied primarily on a subsequent Supreme Court order issued after the interim order.
Ratio vs. Obiter: It is obiter that the constitutional challenge remains open for adjudication before the Single Bench - the Court expressly refrained from any ruling on the validity of Rule 31A(3) or the Circular and left the matter to be decided on merits.
Conclusions: No determination on constitutional validity; plaintiffs permitted to seek modification of the interim order before the Single Bench and to press the constitutional challenge there. Final decision on this issue must await full hearing and merits adjudication.
Issue 2 - Legality of the show-cause notice under Section 74
Legal framework: Section 74 confers power to issue show-cause notices for tax-related demand, interest, penalty arising from suppression, fraud or similar allegations; natural justice and adjudicatory jurisdiction principles apply.
Precedent treatment: A coordinate Single Bench's limited interim order in like matters and a later Supreme Court order staying show-cause notices were noted by the Court; no precedential overruling occurred.
Interpretation and reasoning: The Court evaluated only the propriety of entertaining the intra-Court appeal in light of the subsequent Supreme Court order and did not decide the legal validity of the impugned show-cause notice. The Court observed that the Single Bench had permitted response to the show-cause notice and restrained the respondents from uploading/communicating final orders without leave.
Ratio vs. Obiter: The statement that the validity of the show-cause notice is not adjudicated is ratio to the disposition (the Court refused to decide the issue); any remarks on the notice's legality are obiter.
Conclusions: The legality of the show-cause notice remains undecided; the appellants may pursue appropriate modification of interim relief before the Single Bench in light of the Supreme Court's stay.
Issue 3 - Entertaining intra-Court appeal based on subsequent Supreme Court order: scope and permissible relief
Legal framework: Appellate/comparative-review principles - an appellate court examines the correctness of the impugned order on the record before it; subsequent developments in higher courts may bear on relief but do not automatically vitiate earlier interlocutory orders.
Precedent treatment: The Court referred to a coordinate Single Bench order that had granted similar interim protection and to the Supreme Court order that post-dated the impugned interim order and stayed show-cause notices in related matters.
Interpretation and reasoning: The Court held that it would not be justified in entertaining an intra-Court appeal to test the correctness of an interim order solely on the basis of a Supreme Court order that was rendered after the interim order was passed. The Court reasoned that subsequent higher-court orders, while relevant to relief, do not permit collateral attack on an interlocutory order rendered earlier in time; instead, the correct course is to seek modification of the existing interim order before the Single Bench so that it may be aligned with the subsequent Supreme Court direction.
Ratio vs. Obiter: Ratio - an appellate bench will decline to entertain an appeal that seeks to re-open an interlocutory order based exclusively on a later higher-court order; relief should be sought before the original court by way of modification. Obiter - procedural suggestions regarding filing of fresh application and the discretion of the Single Bench.
Conclusions: The appeal was dismissed without adjudicating merits; appellants granted liberty to apply to the Single Bench for modification of the interim order to make it consistent with the Supreme Court's stay. The proper remedy for reliance on a subsequent higher-court order is to seek modification before the forum that passed the original order.
Issue 4 - Jurisdiction of the adjudicating authority and effect of corrigendum altering the authority
Legal framework: Territorial jurisdiction of GST adjudicating authorities is determined by rules and statutory provisions governing registration and place of business; corrigenda can alter designated authorities where appropriate procedural steps are taken.
Precedent treatment: The respondents produced a corrigendum amending the show-cause notice to make it answerable to a different Commissionerate; the Single Bench's interim directions permitted participation in adjudication while restraining communication/uploading of final orders without leave.
Interpretation and reasoning: The Court observed competing contentions - appellants contended lack of territorial jurisdiction because of prior registration in a different State and later shift of place of business; respondents pointed to corrigendum and participation in adjudication. The Court declined to decide jurisdictional questions at this interlocutory stage and left the issue open for determination on merits by the Single Bench when the writ petition is heard.
Ratio vs. Obiter: Ratio - jurisdictional objections not resolved in interlocutory proceedings where corrigendum and participation complicate the position; such factual and legal disputes must be decided on merits by the original forum. Obiter - guidance that the Single Bench is at liberty to decide the jurisdictional issue on merits.
Conclusions: Jurisdictional challenge remains open. The appellants may raise the corrigendum and jurisdictional objections before the Single Bench, which is empowered to adjudicate them on merits in accordance with law.
Disposition and Procedural Directions (Court's Conclusions on Relief and Process)
The appeal was disposed of without adjudication of merits or determination of the substantive legal submissions. Liberty was granted to the appellants to file an application before the Single Bench to seek modification of the interim order in light of the subsequent Supreme Court stay; the Single Bench may decide such applications and the pending writ petition on merits and in accordance with law. No costs were awarded.
Interim order - stay of show-cause notice - jurisdiction of adjudicating authority - liberty to seek modification of interim order - no adjudication on merits
Interim order - stay of show-cause notice - liberty to seek modification of interim order - no adjudication on merits - Whether the intra-Court appeal may be entertained to test the correctness of the limited interim order dated 8th January, 2025 in light of a subsequent order of the Supreme Court - HELD THAT: - The Court declined to entertain the appeal for the purpose of revisiting the limited interim order which pre-dated the subsequent order passed by the Hon'ble Supreme Court granting stay of show-cause notices. While noting that the appellants relied upon the later Supreme Court order, the High Court held that it would not be justified to test the correctness of the earlier interim order on that basis. Instead the Court granted liberty to the appellants to file a fresh application before the learned Single Bench seeking modification of the interim order to align it with the Supreme Court's order. The Court expressly recorded that it has not adjudicated the merits of the underlying writ petition or the correctness of the appellants' legal submissions and left those matters to the Single Bench to decide on merits and in accordance with law. [Paras 5, 6, 9, 10]
Appeal disposed; appellants given liberty to move the Single Bench for modification of the interim order in light of the Supreme Court's order; merits not adjudicated.
Jurisdiction of adjudicating authority - Jurisdiction of the adjudicating authority named in the show-cause notice and corrigendum - HELD THAT: - The Court noted competing contentions on jurisdiction: appellants challenged the adjudicating authority's competence, alleging their registered place of business lay outside that authority's jurisdiction, whereas respondents relied upon a corrigendum amending the authority to which the show-cause notice was made answerable and pointed to participation in adjudication. The High Court refrained from adjudicating the jurisdictional question at this stage and left the issue open for determination by the learned Single Bench when the writ petition is taken up on merits. [Paras 7, 8]
Jurisdictional challenge kept open for the Single Bench to decide on merits.
Final Conclusion: The appeal is disposed without adjudication on merits; appellants are granted liberty to seek modification of the interim order before the Single Bench in light of the Supreme Court's stay order, and contested issues including jurisdiction are left open for decision by the Single Bench.
The core legal question in this case revolves around whether the impugned orders under the U.P. GST Act, 2017 for the year 2017-18 are time-barred, as argued by the petitioner, and whether the extension of the time limit provided by a notification is applicable retrospectively. The Court must determine the jurisdiction of the impugned orders based on the time limit prescribed in the relevant provisions.
Issue-Wise Detailed Analysis:
1. Relevant Legal Framework and Precedents:
The Court refers to Section 73(10) of the U.P. GST Act, 2017, which mandates that the proper officer must issue an order within three years from the due date for furnishing the annual return for the relevant financial year. Additionally, Section 44(1) outlines the requirement for filing annual returns within the specified time frame.
2. Court's Interpretation and Reasoning:
The Court analyzed the timelines provided in the Act and the notifications issued for extending the time limit for filing annual returns. It noted that the impugned orders were dated beyond the prescribed time limit, even with the extension granted by a notification. The Court emphasized that the retrospective effect of the notification was limited to a specific date, and if the time limit had expired before that date, the extension would not apply.
3. Key Evidence and Findings:
The Court considered the dates of the impugned orders, the notifications extending the time limit, and the provisions of the U.P. GST Act, 2017. It found that the impugned orders were indeed beyond the time limit prescribed under Section 73(10) for the financial year 2017-18.
4. Application of Law to Facts:
Applying the relevant legal provisions to the facts of the case, the Court concluded that the impugned orders were issued beyond the jurisdiction conferred by the Act due to being time-barred. The Court highlighted the significance of adhering to statutory time limits in such matters.
5. Treatment of Competing Arguments:
The Court considered the arguments presented by both parties, particularly regarding the applicability of the notification extending the time limit. It scrutinized the provisions of the Act and the notifications to determine the validity of the impugned orders in light of the prescribed timelines.
6. Conclusions:
The Court ultimately held that the impugned orders dated 05.10.2024 and 02.12.2023, issued by the Deputy Commissioner, State Tax, Sector 05, Lucknow, were beyond the time limit prescribed under Section 73(10) of the U.P. GST Act, 2017 for the financial year 2017-18. As a result, the Court allowed the writ petition, quashed the impugned orders, and directed the de-freezing of the petitioner's accounts.
Significant Holdings:
The core principle established in this judgment is the importance of adhering to statutory time limits in the context of issuing orders under the U.P. GST Act, 2017. The Court's final determination was to quash the impugned orders as they were found to be beyond the jurisdiction conferred by the Act due to being time-barred.
Impugned order are time barred or not - extension of the time limit provided by a notification is applicable retrospectively or not - HELD THAT:- In this case, proceedings under Section 73 of the U.P. GST Act, 2017 were initiated on 02.03.2023 by issuance of a show cause notice and final order has been passed on 06.12.2023 whereas in view of the above quoted judgment, such an order could have been passed only till 31.12.2023 even after extension of the time limit. The facts aforesaid being undisputed in the sense that they are mentioned in the impugned order and the records itself, apparently, the proceedings culminating in the impugned order are time barred, therefore, there are no reason to call for a counter affidavit.
Petition allowed.
Cancellation of registration under the Central/West Bengal Goods and Services Tax Act - Revocation of cancellation of registration - Requirement of reasoned orders; prohibition of cryptic/nonspeaking orders - Physical verification of place of business in accordance with the Rules - Right to produce documents to establish lawful occupancy - Remand for fresh decision
Requirement of reasoned orders; prohibition of cryptic/nonspeaking orders - Cancellation of registration under the Central/West Bengal Goods and Services Tax Act - Appellate authority's cryptic order rejecting the petitioner's appeal against rejection of revocation of cancellation set aside for absence of reasons. - HELD THAT: - The appellate order impugned failed to address the issues raised in the appeal and is cryptic and devoid of reasons. Where an appellate authority is required to decide an appeal against rejection of an application for revocation of cancellation of registration, it must consider and record reasons on the contentions raised. In the present case the appellate authority did not take note of the issues urged by the petitioner and therefore the order cannot be sustained and is liable to be set aside. [Paras 7]
Impugned appellate order set aside for want of reasons.
Physical verification of place of business in accordance with the Rules - Right to produce documents to establish lawful occupancy - Remand for fresh decision - Revocation of cancellation of registration - Matter remanded to the appellate authority for fresh decision, with directions to carry out physical verification in accordance with the Rules and to permit production of documents proving lawful occupancy. - HELD THAT: - The Court directed that on remand the appellate authority must verify and carry out physical verification of the petitioner's place of business in accordance with the Rules after giving due notice to the petitioner. The appellate authority is to permit the petitioner to produce all documents in support of his claim of lawful occupancy. The remand contemplates fresh consideration of the appeal on merits following compliance with the procedural requirement of physical verification and opportunity to produce evidence; the Court also directed expedition and fixed a preferred timeline for disposal. [Paras 8, 9, 10]
Appeal remanded for fresh decision; appellate authority to undertake Rulecompliant physical verification, allow documents, and dispose of the appeal expeditiously.
Final Conclusion: The appellate order rejecting the appeal was set aside for being cryptic and without reasons; the matter is remanded to the appellate authority to decide afresh after carrying out physical verification of the place of business in accordance with the Rules, permitting the petitioner to produce documents in support of lawful occupancy, and preferably disposing of the appeal within six weeks.
The primary issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Validity of Continued Retention of Goods under Section 67(7) of the CGST Act:
Service and Timing of the Show Cause Notice:
3. SIGNIFICANT HOLDINGS
Power of inspection, search and seizure - Return of seized goods on expiry of statutory period - Extension of seizure period on showing of sufficient cause - Right to notice and limited hearing before extension of detention - Pari materia between Section 67 of CGST Act and Section 110 of Customs Act - Provisional release of seized goods
Pari materia between Section 67 of CGST Act and Section 110 of Customs Act - The provisions of Section 67(7) of the CGST Act are pari materia with Section 110(2) of the Customs Act and the decisions interpreting the latter apply to the former. - HELD THAT: - The Court compared the wording and scheme of the two provisions and found them similarly worded and operating in comparable fiscal contexts where seizure is based on a "reasonable belief" and has serious consequences for the person affected. Reliance placed by the respondents on a supposed difference in scheme was rejected. The Court held that the logic and reasoning of I.J. Rao (and the earlier decisions it follows) are applicable to Section 67 of the CGST Act and therefore principles developed under Section 110 of the Customs Act govern the right to restoration and extension of detention under Section 67(7). [Paras 9, 10, 13, 15]
Section 67(7) of the CGST Act is pari materia with Section 110(2) of the Customs Act and the jurisprudence under the Customs Act applies to the CGST provision.
Right to notice and limited hearing before extension of detention - Extension of seizure period on showing of sufficient cause - A person from whose possession goods are seized is entitled to notice of a proposal to extend the original six-month detention period and to a limited hearing, subject to necessary confidentiality restrictions; "sufficient cause" requires objective consideration and cannot be a unilateral administrative act. - HELD THAT: - Adopting the reasoning in I.J. Rao and Charan Das Malhotra, the Court held that the proviso permitting extension for a further six months is quasijudicial in character and demands that the officer objectively consider whether sufficient cause exists to extend detention. Because extension defeats the statutory right to restoration upon expiry of six months, the affected person must be given notice of the proposal to extend and an opportunity to be heard, although without entitlement to the investigation's confidential details. The Court rejected the respondents' contention that Section 67(7) requires no hearing and emphasised that "sufficient cause" cannot mean reasons known only to officials and withheld from the affected person. [Paras 14, 16, 17]
Notice of the proposal to extend the seizure period and a limited opportunity to be heard must be given before any extension under Section 67(7) is valid; the extension cannot be ordered as a unilateral administrative act without objective consideration of sufficient cause.
Sufficient cause for continued seizure - Provisional release of seized goods - The note-sheet relied upon by the respondents did not constitute compliance with the requirement of showing "sufficient cause" to continue detention without prior notice to the petitioner; the purported unilateral extension was inadequate. - HELD THAT: - The Court examined the material placed on record and found the note-sheet to be neither in the public domain nor available for the petitioner to contest; it contained internal deficiencies, inconsistencies in description and valuation of goods, and recorded missing or incomplete documents. The respondents' reliance on such file-notes, and on post-facto justifications (including COVID19 related reasoning not present in the note-sheet), was held insufficient to satisfy the statutory mandate. Consequently, the continuation of seizure without notice could not be sustained. [Paras 22, 23, 25, 27, 28]
The note-sheet did not establish "sufficient cause" for continued retention without notice and therefore did not validate the extension of the seizure period.
Return of seized goods on expiry of statutory period - Provisional release of seized goods - Relief directing release of seized goods subject to deposit of valuation amount, provision of copies of seized documents and electronic data, and a timeline for conclusion of proceedings was appropriate. - HELD THAT: - Having found the extension and continued detention unsustainable in the absence of proper notice and adequate justification, the Court exercised its writ jurisdiction to protect the petitioner's statutory entitlement. The Court ordered release of the seized goods listed in the stock summary upon deposit of the valuation amount indicated in the petitioner's correspondence, permitted the petitioner to take photocopies of documents, directed the respondents to provide copies of electronic data and to make copies and release electronic devices, and directed that any proceedings on the alleged violations be concluded within six weeks. [Paras 33, 34, 35, 36]
Seized goods to be released upon deposit as per valuation; copies of seized documents and data to be provided; electronic devices to be released after copying; proceedings to be completed within six weeks.
Final Conclusion: Writ petition allowed: the Court held Section 67(7) CGST Act pari materia with Section 110(2) Customs Act; affirmed the entitlement to notice and a limited hearing before any extension of the sixmonth seizure period upon objective "sufficient cause"; found the respondents' filenotes inadequate to justify unilateral extension; and directed release of the seized goods on deposit, provision of copies and return of electronic devices, with proceedings to be completed within six weeks.
Outcome: The writ petition was disposed of with a direction that, on deposit of the outstanding tax, interest and penalty, if any, and filing of an application with a certified copy of the order within two weeks, the competent authority shall consider and decide the application in accordance with law within two weeks thereafter. No opinion was expressed on the merits.
Cancellation of GST Registration order - petitioner is ready to pay all the balance tax, interest on it and late fee if any - HELD THAT:- Admittedly, the present matter is covered by the Order, passed by the Co-ordinate Bench of this High Court in SHIVAM BISHT VERSUS ASSISTANT COMMISSIONER SECTOR 4 HALDWANI, COMMISSIONER STATE GOODS AND SERVICE TAX COMMISSIONERATE DEHRADUN UTTARAKHAND [2024 (4) TMI 1237 - UTTARAKHAND HIGH COURT]
With the consent of learned counsel for both the parties, the present writ petition is disposed of with a direction that in case, the petitioner deposits entire outstanding dues of tax, interest and penalty, if any and submits his application along with a certified copy of this order within two weeks from today, the Competent Authority shall consider and decide the said application as per law within a period of two weeks thereafter.
Petition disposed off.
Issues: Whether the petitioner was entitled to transitional credit under Section 140(3) of the Kerala State Goods and Services Tax Act, 2017 in respect of computers and laptops used for rendering services, and whether those items were excluded as capital goods for the purposes of Chapter XX.
Analysis: The claim was specifically under Section 140(3), not Section 140(2). Under Section 140(3), a registered person who was not liable to register under the existing law is entitled to take credit of VAT or entry tax on inputs held in stock on the appointed day, subject to the stated conditions. Although Section 2(59) of the Kerala State Goods and Services Tax Act, 2017 excludes capital goods from the definition of input, Chapter XX contains an Explanation that gives the expression "capital goods" the same meaning as in the Kerala Value Added Tax Act, 2003. Under Section 2(x) of the Kerala Value Added Tax Act, 2003, goods used for rendering services are excluded from capital goods. Since the computers and laptops were used by the petitioner for rendering services, they did not fall within capital goods for Chapter XX purposes, and the reliance on Section 140(2) was misplaced.
Conclusion: The petitioner was entitled to transitional credit under Section 140(3) in respect of the computers and laptops.
Transitional input tax credit - Section 140(3) of Chapter XX - input - capital goods - Explanation to Chapter XX adopting KVAT definition of capital goods - entitlement where not liable under the existing law
Transitional input tax credit - Section 140(3) of Chapter XX - input - entitlement where not liable under the existing law - Entitlement of the petitioner to transitional credit under Section 140(3) of Chapter XX of the KSGST Act in respect of computers/laptops held in stock and used for rendering services. - HELD THAT: - The petitioner, a service provider not required to be registered under the KVAT regime, sought credit under the first limb of Section 140(3) as a person who 'was not liable to be registered under the existing law'. Section 140(3) permits a registered person to take credit of VAT in respect of 'inputs held in stock' on the appointed day subject to conditions including that such inputs are used or intended to be used for making taxable supplies and the person is eligible for input tax credit under the Act. The Authority and Appellate Authority had applied Section 140(2) and the definition of 'input' alone to deny credit, but the petitioner's claim was specifically under Section 140(3). Applying the conditions of Section 140(3) to the undisputed facts - that the computers/laptops were held in stock on the appointed day, used for rendering taxable services under GST, and the petitioner is eligible for input tax credit under the KSGST Act - the Court held the petitioner entitled to transitional credit under Section 140(3). [Paras 12, 13, 18, 20]
The petitioner is entitled to transitional credit under Section 140(3) of Chapter XX of the KSGST Act in respect of the computers/laptops.
Capital goods - Explanation to Chapter XX adopting KVAT definition of capital goods - input - Applicability of the Explanation in Chapter XX (adopting the KVAT definition of 'capital goods') when construing 'input' for claims made under Chapter XX, including Section 140(3). - HELD THAT: - Chapter XX contains an Explanation that for the purposes of the Chapter the expression 'capital goods' shall have the same meaning as in the KVAT Act. The KVAT definition expressly excludes capital goods used for rendering of services from the category of 'capital goods'. The Appellate Authority's approach - that computers/laptops treated as capital assets in the petitioner's books necessarily fell outside 'input' because of the KSGST definitions - failed to account for the Explanation which imports the KVAT meaning into Chapter XX. The Court held that even though Section 140(3) does not expressly mention 'capital goods', the Explanation applies wherever the term 'capital goods' arises in Chapter XX and must inform the construction of 'input' under the transitional provisions; to treat the Explanation as inapplicable would render it inoperative. [Paras 15, 16, 17]
The Explanation to Chapter XX adopting the KVAT definition of 'capital goods' applies in construing 'input' for transitional claims under Chapter XX, and computers/laptops used for rendering services are not 'capital goods' under that definition.
Transitional input tax credit - procedural error in advance ruling - Validity of the Advance Ruling Authority and Appellate Authority decisions (Ext.P2 and Ext.P4) insofar as they applied Section 140(2) and definitions incorrectly to deny the petitioner's Section 140(3) claim. - HELD THAT: - The Advance Ruling Authority and the Appellate Authority considered and applied Section 140(2) and the general definition of 'input'/'capital goods' to reject the petitioner's claim, despite the petitioner's application being expressly under Section 140(3). The Court found those references and conclusions to be without basis in the facts and law as the claim fell under the first limb of Section 140(3) and had to be considered in light of the Chapter XX Explanation and the conditions in Section 140(3). Consequently, Exts.P2 and P4 were set aside and the respondents directed to consider the petitioner's claim in light of the Court's declaration. [Paras 12, 21]
Ext.P2 and Ext.P4 are set aside and the respondents are directed to reconsider the petitioner's claim in light of the judgment.
Final Conclusion: The writ petition is allowed: the petitioner is entitled to transitional input tax credit under Section 140(3) of Chapter XX of the KSGST Act in respect of computers/laptops used for rendering services; the Explanation adopting the KVAT definition of 'capital goods' applies to Chapter XX and excludes such goods used for services from 'capital goods'; Exts.P2 and P4 are set aside and the respondents are directed to reconsider the claim accordingly.
Issues: Whether the petitioner's claim for reimbursement of GST and royalty was to be finally adjudicated in the writ proceedings, or whether the matter should be sent for consideration by the Corporation on a complete claim being filed.
Analysis: The reliefs sought concerned reimbursement of GST and royalty under the contractual framework. The Corporation stated that the claim as filed was incomplete and that further particulars had been sought. The Court recorded that the Corporation was willing to consider the claim in accordance with Clause 35 of the Standard Bidding Document once the petitioner furnished the required information. It also made clear that no opinion was being expressed on the interpretation of Clause 35 or on the merits of the claim at that stage.
Conclusion: The petitioner was granted liberty to submit a complete claim, and the competent authority was directed to consider it afresh and pass a speaking order in accordance with law.
Final Conclusion: The writ petition was disposed of with a direction for administrative reconsideration of the petitioner's claim, leaving the merits open for determination by the competent authority and any subsequent appropriate forum.
Reimbursement of taxes levied after receipt of tenders - Standard Bidding Document Clause 35 - consideration of claim on production of complete documents - prima-facie opinion not to prejudice consideration - direction to pass a speaking order - liberty to challenge administrative decision
Standard Bidding Document Clause 35 - reimbursement of taxes levied after receipt of tenders - consideration of claim on production of complete documents - prima-facie opinion not to prejudice consideration - direction to pass a speaking order - Claim for reimbursement of GST and royalty under SBD Clause 35 remitted for fresh consideration on production of a complete claim - HELD THAT: - The Court found that the Corporation is obliged to consider the petitioner's claim in accordance with SBD Clause 35 but that the petitioner's submitted claim was incomplete. The Superintending Engineer's preliminary view recorded in Annexure R/B is an opinion at the interlocutory stage and shall not preclude fair consideration. The petitioner was granted liberty to submit the complete claim fulfilling the requirements set out in Annexure R/B within two months. On receipt of the complete claim the competent authority of the Corporation is directed to consider it in accordance with law and SBD Clause 35 and to pass a speaking order within two months of receipt. Any part of the claim found to be admissible shall be paid within one month of that speaking order. The Court expressly refrained from expressing any opinion on the interpretation of Clause 35 at this stage and preserved the petitioner's right to challenge the Corporation's decision before an appropriate forum. [Paras 11, 12, 13, 14, 15]
Petitioner permitted to file a complete claim within two months; Corporation to consider the claim per SBD Clause 35 and pass a speaking order within two months of receipt; admitted amounts to be paid within one month; petition stands disposed.
Final Conclusion: Writ disposed by remitting the petitioner's claim to the Corporation for fresh and fair consideration in accordance with SBD Clause 35 on production of complete documents, with specified timelines for filing, decision and payment, and without the Court expressing any interpretative view on Clause 35.
Issues: Whether the petitioner, claimed to be a notified area authority, is liable to GST on collection of tax and whether interim protection was warranted against passing of a final order during pendency of the petition.
Analysis: The submissions addressed the petitioner's claim of exemption from GST on the basis of its statutory status, the relevant exemption notifications, reverse charge provisions, and the contention that it falls within the definition of local authority. The Court issued notice and permitted the respondent to continue with the hearing of the show cause notice, while restraining the passing of any final order without permission of the Court during the pendency of the petition.
Outcome: Notice issued. The respondent may continue with the proceedings, but no final order shall be passed without permission of the Court during pendency of the petition.
Levy of GST - collection of the tax being a notified area as established under the provisions of Gujarat Industrial Development Corporation Act, 1962 by Notification dated 20.01.2011 - HELD THAT:- Issue Notice returnable on 20.11.2024.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
Delay in Filing the Appeal
SIGNIFICANT HOLDINGS
Condonation of delay in filing appeal - discretionary power to condone limited to a further period not exceeding thirty days under the proviso to Section 100(2) of the CGST Act, 2017 - exclusion of Section 5 of the Limitation Act for extending statutory condonable period (binding precedent) - date of communication as commencement of limitation - manual filing permitted notwithstanding references to electronic filing (Rule 107A) - Doctrine of Merger
Condonation of delay in filing appeal - discretionary power to condone limited to a further period not exceeding thirty days under the proviso to Section 100(2) of the CGST Act, 2017 - date of communication as commencement of limitation - exclusion of Section 5 of the Limitation Act for extending statutory condonable period (binding precedent) - manual filing permitted notwithstanding references to electronic filing (Rule 107A) - Whether the Appellate Authority can condone the delay in filing the appeal beyond the extended statutory period and admit the appeal filed by the appellant. - HELD THAT: - The Appellate Authority found that the rectification order was communicated to the appellant by e-mail on 31.07.2024, and that date governs commencement of the limitation period. Under Section 100(2) an appeal must be filed within 30 days from communication, and the proviso permits the Appellate Authority, in its discretion, to allow presentation within a further period not exceeding 30 days upon satisfaction of sufficient cause. The appeal was filed on 26.11.2024, resulting in an actual delay of 88 days from the last date for filing (30.08.2024), which exceeds the maximum 30-day condonable period prescribed by the proviso. The appellant did not establish sufficient cause for the delay within the statutorily prescribed window; the late assertion of technical difficulties and inability to file physically was not pleaded earlier and was immaterial because Rule 107A specifically permits manual filing despite references to electronic filing. Reliance on High Court orders and on the Doctrine of Merger did not alter the statutory computation of limitation. The Authority applied the principle in the precedent that creatures of statute have only the statutorily provided power to condone delay and that Section 5 of the Limitation Act cannot be invoked to extend the condonable period beyond the statutory maximum. Consequently, the discretionary power to condone could not be exercised to admit this appeal.
The application for condonation of delay is rejected and the appeal is dismissed on grounds of time limitation; the merits are not considered.
Final Conclusion: The Appellate Authority held that the appeal was time-barred, the appellant failed to show sufficient cause within the statutorily permitted condonable period, and the Authority lacks power to condone delay beyond the further period not exceeding thirty days; accordingly the appeal is dismissed on limitation grounds without adjudication on merits.
The core legal questions considered in the judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Printing of Pre-Examination Items
Issue 2: Printing of Post-Examination Items
Issue 3: Scanning and Processing of Examination Results
3. SIGNIFICANT HOLDINGS
Exemption for services relating to admission to or conduct of examination under Serial No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) - composite supply with printing as the principal supply - classification of printing services under Heading 9989 - Circular No. 151/07/2021-GST clarifying scope of Sl. No. 66 of Notification No. 12/2017
Exemption for services relating to admission to or conduct of examination under Serial No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) - pre-examination materials (hall tickets, question papers, OMR sheets, answer booklets) - Services of printing pre-examination items supplied to Educational Institutions for conduct of examinations are exempt under Sl. No. 66(b)(iv) of Notification No.12/2017-Central Tax (Rate). - HELD THAT: - The Authority examined whether printing of pre-examination items supplied to educational institutions falls within services exempted by Sl. No. 66(b)(iv). Applying the definition of "educational institution" in the notification and the Board's clarification in Circular No. 151/07/2021-GST that input services relating to admission to or conduct of examination (including printing of question papers, admit cards etc.) are exempt when provided to such institutions, the Authority found that where the applicant supplies printing services to educational institutions for conducting examinations, those services qualify for exemption under Sl. No. 66(b)(iv). The decision rests on the characterisation of the supply as a service connected to conduct of examination and the scope of the notification as clarified by the circular. [Paras 9, 16]
Printing of pre-examination items for Educational Institutions is an exempt supply under Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate).
Exemption for services relating to admission to or conduct of examination under Serial No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) - post-examination materials (mark sheets, degree certificates, grade sheets, rank cards) supplied after scanning/processing - Services of printing post-examination items supplied to Educational Institutions after scanning and processing are exempt under Sl. No. 66(b)(iv) of Notification No.12/2017-Central Tax (Rate). - HELD THAT: - Following the same statutory entry and the CBIC circular, the Authority held that services rendered to educational institutions relating to conduct of examination include printing of post-examination documents and related activities when provided to institutions defined under the notification. The exemption in Sl. No. 66(b)(iv) applies to such services provided to qualifying educational institutions, and the applicant's supplies to universities thus fall within the exempt category. [Paras 9, 16]
Printing of post-examination items provided to Educational Institutions in relation to conduct of examination is exempt under Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate).
Exemption for services relating to admission to or conduct of examination under Serial No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate) - scanning and processing of examination results - Services of scanning and processing of examination results provided to Educational Institutions are exempt under Sl. No. 66(b)(iv) of Notification No.12/2017-Central Tax (Rate). - HELD THAT: - The Authority relied on Circular No. 151/07/2021-GST which explicitly lists result publication and allied services as input services exempt under Sl. No. 66(b)(iv) when supplied to educational institutions. Applying that clarification to the facts, the Authority concluded that scanning and processing of results supplied to qualifying educational institutions fall within the exempted services. [Paras 9, 14, 16]
Scanning and processing of examination results for Educational Institutions is an exempt supply under Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate).
Composite supply with printing as the principal supply - classification of printing services under Heading 9989 - Circular No. 11/11/2017-GST on principal supply - The applicant's supplies (printing on paper owned by the printer) constitute a composite supply whose principal element is printing services; such supplies are classifiable as printing services under Heading 9989 and not as sale of goods. - HELD THAT: - The Authority considered whether the outputs should be treated as sale of goods or as services. Noting that the content is supplied by the educational institutions and the applicant performs printing on paper and ink (goods) owned by it, the Authority held this to be a composite supply where the printing (service) is the principal element because the recipient contracts for the printing service and not for purchase of paper. The Authority relied on the principal supply concept (Section 2(90) and Circular No. 11/11/2017-GST) and determined that HSN/classification must follow printing services (Heading 9989), which in turn affects rate and exemption applicability under the notifications relied upon. [Paras 9, 15]
The supplies are composite with printing as the principal supply and are to be classified as printing services under Heading 9989; therefore the service character supports applicability of the exemption when supplied to educational institutions.
Final Conclusion: The Authority ruled that where the applicant supplies printing of pre- and post-examination materials and scanning/processing of results to qualifying Educational Institutions as defined in Notification No. 12/2017, those supplies are services (a composite supply with printing as principal) and are exempt from GST under Sl. No. 66(b)(iv) of Notification No. 12/2017-Central Tax (Rate), as clarified by Circular No. 151/07/2021-GST.
The primary issues considered in this judgment were:
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework revolves around Section 92B and Section 92F of the Income Tax Act, which define "international transaction" and "transaction," respectively. The judgment also considers the retrospective Explanation inserted in Section 92B by the Finance Act, 2012, which includes AMP expenses within the ambit of international transactions. Key precedents include the decisions in Maruti Suzuki India Ltd. v. Commissioner of Income Tax and Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT, which discuss the applicability of the Bright Line Test (BLT) and the necessity of proving an international transaction.
Court's Interpretation and Reasoning
The Court emphasized that the existence of an international transaction is a prerequisite for invoking transfer pricing provisions. It noted that the mere incurrence of AMP expenses does not automatically imply an international transaction unless there is a discernible transaction between the associated enterprises. The Court also highlighted that the Revenue must establish the existence of a transaction through tangible evidence rather than assumptions or inferences based on excessive AMP expenditure.
Key Evidence and Findings
The TPO's orders for the relevant assessment years were based on the premise that the AMP expenses incurred by the assessee were significantly higher than those of comparable entities, suggesting a benefit to the AE. However, the Tribunal found that the Revenue failed to demonstrate any agreement or arrangement constituting an international transaction. The Tribunal relied on precedents that rejected the BLT as a legitimate means of determining the arm's length price of an international transaction involving AMP expenses.
Application of Law to Facts
The Court applied the principles from Maruti Suzuki and Sony Ericsson, emphasizing that the Revenue must first establish the existence of an international transaction before proceeding with a benchmarking analysis. The Court found that the TPO's reliance on the BLT and the assumption of excessive AMP expenses as indicative of an international transaction was unfounded without tangible evidence of an agreement or understanding between the assessee and its AE.
Treatment of Competing Arguments
The Revenue argued that the high level of AMP expenses indicated a service provided to the AE, thus constituting an international transaction. However, the Court rejected this argument, reiterating that the existence of an international transaction cannot be presumed merely from the quantum of expenditure. The Court emphasized that the Revenue's approach, which presumed every instance of AMP spend by an Indian entity using a foreign brand as an international transaction, was untenable.
Conclusions
The Court concluded that the Tribunal was correct in setting aside the TPO's orders due to the lack of evidence demonstrating an international transaction. It affirmed that the Revenue must establish the existence of such a transaction through tangible evidence before undertaking a benchmarking analysis.
3. SIGNIFICANT HOLDINGS
Verbatim Quotes of Crucial Legal Reasoning
"The existence of an international transaction cannot rest or be founded upon a mere surmise or conjecture."
"The Revenue clearly does not stand absolved of proving or establishing the existence of a transaction itself in the first instance."
Core Principles Established
Final Determinations on Each Issue
The Court dismissed the appeals, affirming the Tribunal's decision and holding that the Revenue's approach was contrary to established legal principles.
TP Adjustment - international transaction - Advertisement, Marketing and Promotion [AMP]expenditure incurred would constitute an “international transaction” as contemplated u/s 92B r.w.s. 92F or not? - ITAT justification in deleting addition on account of expenses incurred by the assessee for advertisement, marketing and promotion [“AMP”] for brand-building for brand owned by the associated enterprise
HELD THAT:- Section 92B defines an “international transaction”, and which is an expression which appears in Sections 92, 92C, 92D and 92E, to mean a transaction between two or more AEs in the nature of purchase, sale or lease of tangible or intangible property, provision of services, lending or borrowing of money or any other transaction having a bearing on the profits, income, losses or assets of such AEs.
By virtue of Finance Act 2012, an Explanation came to be inserted in Section 92B, and which now postulates that the expression “international transaction” would include the purchase, sale, transfer, lease or “use” of, amongst others, intangible property also. The Explanation thus brings within the fold of an international transaction the “use” of intangible property and which would necessarily include trademarks, patents, brand names or logos in addition to the words purchase, sale or lease and which formed part of the provision originally. The said Explanation itself came to be inserted by Finance Act, 2012 with retrospective effect from 01 April 2002.
The insertion of the Explanation was merely aimed at lending clarity to the use of intangible property and thus sought to allay all doubts that may have existed on account of conflicting judicial interpretation. However, and notwithstanding the insertion of the said Explanation, the Revenue clearly does not stand absolved of proving or establishing the existence of a transaction itself in the first instance.
As is manifest from the line adopted by the TPO and which came to be affirmed by the DRP, the Revenue had abjectly failed to analyse or examine the issue in the aforesaid light.
The benchmarking analysis was commenced solely on the basis of a perceived excessive expenditure incurred by the respondent assessee with respect to AMP and the consequential invocation of the Bright Line Test. It is this procedure which had fallen for adverse comment of the Court in Maruti Suzuki[2015 (12) TMI 634 - DELHI HIGH COURT]
Regard must also be had to the fact that the deeming fiction which came to be introduced in Section 92B(2) would undisputedly have no impact or implication since sub-section (2) also speaks of the existence of a prior agreement in relation to the relevant transaction. This quite apart from the fact that the said amendment came to be introduced by virtue of Finance (No. 2) Act, 2014 and with effect from 01 April 2015. The said amendment would thus have no application to the AYs’ with which we are concerned in these two appeals.
We are thus of the firm opinion that the Tribunal was justified in setting aside the orders of assessment for reasons assigned therein and consequently merits no interference. Decided against revenue.
2. Issue-Wise Detailed Analysis:
Relevant Legal Framework and Precedents: The amendment in question was introduced by the Finance Act, 2023, following a judgment of the Hon'ble Supreme Court of India in the cases of Association of Old Settlers of Sikkim and Rapden Lepcha. The Supreme Court directed the Union of India to amend the Explanation to Section 10(26AAA) of the IT Act, 1961, to include all Indian citizens domiciled in Sikkim before 26-4-1975 to avoid unconstitutionality and ensure parity.
Court's Interpretation and Reasoning: The High Court considered the objective standpoint of the matter raised in the Public Interest Litigation. It noted the Supreme Court's judgment and the subsequent amendment made by the Union of India. The Court also analyzed a Press Release clarifying that the term "Sikkimese" in the Income Tax Act is solely for income tax purposes and does not affect the rights of genuine indigenous Sikkimese under Article 371F (k).
Key Evidence and Findings: The key evidence included the Supreme Court's judgment directing the amendment to include all Indian citizens domiciled in Sikkim before 26-4-1975 for income tax exemption. The Press Release clarified the limited scope of the term "Sikkimese" in the Income Tax Act.
Application of Law to Facts: The Court applied the legal principles established by the Supreme Court's judgment and the subsequent Finance Act amendment. It interpreted the term "Sikkimese" in the context of income tax exemption and its alignment with constitutional provisions.
Treatment of Competing Arguments: The writ petitioner argued that the amendment undermined the rights of genuine indigenous Sikkimese, while the Respondents relied on the Supreme Court's directive and the subsequent Finance Act amendment to justify the definition of "Sikkimese" for income tax purposes only.
Conclusions: The High Court concluded that the clarification provided in the Press Release adequately addressed the scope of the term "Sikkimese" in the Income Tax Act, emphasizing its limited applicability to income tax matters. As such, the Court dismissed the writ petition challenging the vires of Explanation (v) under clause (26AAA) of section 10 of the Income Tax Act, 1961.
3. Significant Holdings: The core principles established include the interpretation of the term "Sikkimese" for income tax purposes as per the Finance Act amendment and the clarification that it does not affect the rights of genuine indigenous Sikkimese under Article 371F (k). The final determination was the dismissal of the writ petition challenging the vires of the amendment.
Vires of Explanation (v) to clause (26AAA) of section 10 of the Income Tax Act, 1961 - definition of "Sikkimese" for purposes of the Income-tax Act - income tax exemption under Section 10(26AAA) - Article 371F(k) - protection of Sikkim laws and indigenous rights - scope and effect of executive clarification (press release) vis-a-vis statutory rights
Vires of Explanation (v) to clause (26AAA) of section 10 of the Income Tax Act, 1961 - definition of "Sikkimese" for purposes of the Income-tax Act - Article 371F(k) - protection of Sikkim laws and indigenous rights - scope and effect of executive clarification (press release) vis-a-vis statutory rights - Validity of the amendment (Explanation (v) to clause (26AAA)) introduced by the Finance Act, 2023, insofar as it defines "Sikkimese" and its consistency with Article 371F(k) of the Constitution - HELD THAT: - The amendment to clause (26AAA) of section 10 enacted by the Finance Act, 2023, followed the directions in the Supreme Court's judgment disposing of related writ petitions. The executive press release dated 4 April 2023 clarified that the term "Sikkimese" as defined in the amended Explanation is solely for the purposes of the Income-tax Act, 1961, and not for other purposes. The Court accepted that this statutory definition and the clarificatory press release do not impinge upon or alter the sanctity of rights and privileges reserved for indigenous Sikkimese under Article 371F(k). Having regard to the limited purpose of the definition within the Income-tax Act and the clarification, the petitioner's challenge that the amendment undermines protections under Article 371F(k) is unfounded. In consequence, there is no justifiable reason to entertain the public interest petition and the challenge to the impugned Explanation is dismissed. [Paras 9, 10, 11]
The writ petition challenging Explanation (v) to clause (26AAA) as violative of Article 371F(k) is dismissed; the amendment and the press release restricting the definition to Income-tax purposes do not affect Article 371F(k) protections.
Final Conclusion: The petition is dismissed; the Court holds that the Finance Act, 2023 amendment defining "Sikkimese" for the Income-tax Act is confined to taxation purposes and does not impinge upon the rights protected by Article 371F(k).
The legal questions considered in this judgment were:
(1) Whether the Income Tax Appellate Tribunal (ITAT) was correct in law in upholding the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to treat the excise duty exemption as a capital receipt, despite the assessee having treated it as a revenue receipt in its financial records and tax returns.
(2) Whether the ITAT was correct in law in allowing the adjustment of the excise duty exemption in the computation of Minimum Alternative Tax (MAT) under Section 115-JB of the Income Tax Act, 1961.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Treatment of Excise Duty Exemption as Capital Receipt
- Relevant legal framework and precedents: The Court considered the purpose test established by the Supreme Court in Sahney Steel & Press Works Ltd. v. CIT and Ponni Sugars & Chemicals Ltd., which determines the nature of a subsidy based on the purpose for which it is granted. If the subsidy is intended to aid in setting up or expanding business operations, it is deemed a capital receipt.
- Court's interpretation and reasoning: The Court noted that the excise duty exemption was granted under a policy aimed at industrializing backward areas and generating employment. This aligns with the purpose test, indicating that the exemption serves as a capital receipt.
- Key evidence and findings: The policy memorandum from the Ministry of Commerce and Industry outlined the objectives of the exemption, supporting the classification as a capital receipt.
- Application of law to facts: The Court applied the purpose test, concluding that the excise duty exemption was intended to encourage industrial development and employment, thus qualifying as a capital receipt.
- Treatment of competing arguments: The Revenue argued that the exemption should be treated as a revenue receipt since it was initially recorded as such by the assessee. However, the Court emphasized the purpose of the exemption over its initial classification.
- Conclusions: The Court held that the excise duty exemption should be treated as a capital receipt, aligning with the purpose of the policy under which it was granted.
Issue 2: Adjustment of Excise Duty Exemption in MAT Computation
- Relevant legal framework and precedents: Section 115-JB of the Income Tax Act governs the computation of book profits for MAT purposes. The Court referenced the Bombay High Court decision in CIT v. Harinagar Sugar Mills Ltd., which held that capital receipts should not be included in book profit calculations.
- Court's interpretation and reasoning: The Court reasoned that since the excise duty exemption was a capital receipt, it should not be included in the book profits for MAT computation under Section 115-JB.
- Key evidence and findings: The ITAT had previously allowed the exclusion of the excise duty exemption from book profits, considering it a capital receipt.
- Application of law to facts: The Court applied the legal principles from relevant precedents, determining that the excise duty exemption, being a capital receipt, should not be factored into MAT calculations.
- Treatment of competing arguments: The Revenue's argument for including the exemption in book profits was countered by the Court's reliance on established legal principles that exclude capital receipts from such calculations.
- Conclusions: The Court upheld the ITAT's decision, confirming that the excise duty exemption should be excluded from book profit computations under Section 115-JB.
3. SIGNIFICANT HOLDINGS
- Core principles established: The judgment reaffirmed the application of the purpose test in determining the nature of subsidies and emphasized that capital receipts should not be included in MAT computations.
- Final determinations on each issue: The Court concluded that the excise duty exemption was a capital receipt and should not be included in book profits for MAT purposes, dismissing the Revenue's appeals.
Nature of receipt - excise duty exemption - revenue or capital receipt - HELD THAT:- The purpose test as formulated in the case of Sahney Steel & Press Works Ltd. [1997 (9) TMI 3 - SUPREME COURT] it is seen that the excise duty exemption was so granted for the purpose of industrializing the States of Uttaranchal and Himachal Pradesh and for generation of employment in the States. Therefore, the said excise duty exemption granted to the assessee for its Rudrapur Plywood Unit and Rudrapur MDF Unit, would necessarily be a capital receipt in the hands of the assessee. Decided in favour of the assessee, herein.
Excise duty exemption adjustment in computation of MAT u/s 115JB - In view of the conclusions reached by us with regard to the substantial question of law No. 1, we are of the considered view that the substantial question of law No. 2 being a consequential one; the excise duty exemption being purely a capital receipt, not chargeable to tax under the normal provisions of the Income Tax Act, 1961, it would also not be permissible to reckon the same for computation of book profit under the provisions of Section 115-JB of the Act of 1961.
The core legal question considered by the Court was whether the decision to reject the petitioner's request for relaxation of conditions under Rule 9C of the Income Tax Rules, 1962, was arbitrary, unreasonable, and contrary to law. Specifically, the issue was whether the Central Government's refusal to relax the conditions for carrying forward accumulated losses and unabsorbed depreciation, as prescribed under Section 72A of the Income Tax Act, 1962, was justified.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
Section 72A of the Income Tax Act, 1962, allows the set-off and carry forward of losses of an amalgamating company subject to certain conditions. Rule 9C of the Income Tax Rules prescribes additional conditions, including achieving a production level of at least 50% of the installed capacity of the amalgamating company within four years of amalgamation. The Central Government has the discretion to relax these conditions under certain circumstances.
Court's interpretation and reasoning:
The Court examined whether the Central Government's decision to deny the petitioner's request for relaxation was arbitrary or unreasonable. The Court emphasized that the power to relax conditions under Rule 9C is discretionary and should be exercised in line with the objectives of Section 72A, which aims to facilitate the revival of industrial undertakings.
Key evidence and findings:
The petitioner argued that it made genuine efforts to achieve the required production levels but was hindered by external factors such as increased costs and market conditions. Despite these efforts, the petitioner failed to meet the 50% production threshold even after an extended period.
Application of law to facts:
The Court noted that while the petitioner made substantial investments and faced genuine constraints, these factors alone did not justify a relaxation of the prescribed conditions. The petitioner's inability to achieve the required production levels within the extended timeframe was a critical factor in the decision to deny the request for relaxation.
Treatment of competing arguments:
While the petitioner cited efforts and external constraints, the Court found that the Central Government's decision was not in disregard of these factors. The decision was based on the failure to meet the production threshold, which is a key condition for granting the benefit under Section 72A.
Conclusions:
The Court concluded that the decision to reject the petitioner's request for relaxation was neither arbitrary nor unreasonable. The decision was made in consideration of the petitioner's failure to meet the prescribed production levels, even after an extended period.
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
The Court emphasized that "the power to relax a rule or a condition is by way of an exception and the scope of such power cannot be construed in an expansive manner."
Core principles established:
The discretionary power to relax conditions under Rule 9C should be exercised in line with the objectives of Section 72A, which is to ensure the revival of industrial undertakings. The power to relax is not to be exercised liberally but only in exceptional cases.
Final determinations on each issue:
The Court determined that the Central Government's decision to deny the petitioner's request for relaxation of conditions under Rule 9C was justified. The petitioner's failure to achieve the required production levels, even after an extended period, was a valid basis for the decision.
Rejecting the petitioner’s request for relaxation of the conditions under Rule 9C of the Rules read with Section 72A seeking permission to carry forward all losses of the companies that had amalgamated with the petitioner, for an extended period of three years
Petitioner’s request for relaxation of the conditions under Rule 9C of the Rules has been declined on the ground that the petitioner had failed to achieve the requisite level of production capacity even during the extended period of three years as was sought by the petitioner.
HELD THAT:- The objective of Section 72A of the Act is not to extend the benefit of carry-forward of unabsorbed losses to the amalgamated company for the purposes of encouraging simplification of corporate structure; it is to extend the benefit to encourage scheme for genuine business purpose and only in cases where the industrial undertakings of the amalgamating company are revived and/or continued.
In the present case, the petitioner had not sought any relaxation of the said conditions either at the time of amalgamation or immediately thereafter.
The petitioner had made its first application seeking relaxation of the conditions under proviso to Rule 9C of the Rules, one day prior to the expiry of period of four years from the date of amalgamation, that is, on 30.03.2011. It is material to note that on that date, the petitioner had sought an extension of three years to achieve the installed capacity of 50% production.
Admittedly, the threshold capacity was not achieved within the extended period, that is within 31.03.2014. However, the petitioner’s application for relaxation continued to be pending and was not disposed of.
The petitioner once again sent a communication modifying its request to relax the condition regarding achieving the level of production to 40% instead of 50% as required and sought extension of further one year, that is, till 31.03.2012. It is material to note that the said request was made by a separate application in response to proceedings/communications in relation to the petitioner’s earlier application for extension of time for achieving the threshold production level of 50% of the installed capacity.
The petitioner subsequently modified the said request by a letter dated 21.06.2018 which was sent in continuation of its application dated 31.03.2011, inter alia, praying that the condition regarding the level of production be reduced from 50% to 36% or in the alterative, relax the production level from 50% to 42% with extension of time from March, 2011 to March, 2012.
We are unable to accept that the decision to reject the petitioner’s request is perverse or based on extraneous considerations. The petition is unmerited and is, accordingly, dismissed.
Penalty u/s 271(1)(c) - addition on account of unaccounted investments on account of unexplained cash credits on account of unaccounted income - HELD THAT:- AO levied penalty holding that ‘the assessee has committed default u/s 271(1)(c) of the Act by way of furnishing inaccurate particulars of income and committed default within the meaning of Section 271(1)(c) of the Income-tax Act, 1961’. On this issue, we straight away find that the AO vide penalty order u/s 271(1)(c) imposed penalty on additions made alleging ‘furnishing of inaccurate particulars of income’. Apparently, the basis and foundation for imposition of penalty has been altered by the AO. It is thus ostensible that findings recorded by the Assessing Officer show that penalty has been levied on a different premise and the original satisfaction for imposition of penalty has been altered or modified.
Where the original basis of imposition of penalty has been altered in a significant way by the Assessing Officer, the very basis for sustaining the penalty is rendered non-existent. Needless to say, the imposition of penalty is solely dependent upon the ‘satisfaction’ of the Assessing Officer and non-else. The ground for action by Assessing Officer was allegation of ‘concealment’ initially but finally ended up in levy of penalty for ‘furnishing inaccurate particulars of income’. Thus, in the absence of continuity in the findings of the Assessing Officer, the order of the penalty passed by the Assessing Officer is liable to be struct down on this ground alone
Reliance is being placed to the decision of New Sorathia Engineering Company [2006 (1) TMI 71 - GUJARAT HIGH COURT] and Manu Engineering Works[1978 (9) TMI 18 - GUJARAT HIGH COURT]. Similar view has been taken in Gian Chand Batia [1996 (11) TMI 97 - ITAT ALLAHABAD-B]. Therefore, where Assessing Authority itself is not sure about nature of default, the penal action u/s 271(1)(c) of the Act is not sustainable in law. Appeal of the assessee is allowed.
The core legal questions considered in this judgment are:
1. Whether the assessee is entitled to interest under Section 244A(1)(b) of the Income Tax Act on the refund of excess Dividend Distribution Tax (DDT) paid.
2. Whether the Assessing Officer was correct in withdrawing the interest granted to the assessee on the refund of excess DDT, based on the proviso to Section 244A(1)(a) and (aa).
ISSUE-WISE DETAILED ANALYSIS
1. Entitlement to Interest under Section 244A(1)(b)
Relevant legal framework and precedents: Section 244A of the Income Tax Act provides for interest on refunds due to the assessee. Sub-section (1)(b) specifically deals with cases other than those covered under sub-section (1)(a) and (aa), which pertain to refunds from TDS, TCS, advance tax, or self-assessment tax.
Court's interpretation and reasoning: The Tribunal interpreted that DDT does not fall under the categories outlined in Section 244A(1)(a) or (aa) as it is not advance tax or self-assessment tax. Instead, DDT is a separate tax paid at the time of dividend declaration or distribution, which qualifies it under the residual clause of Section 244A(1)(b).
Key evidence and findings: The Tribunal found that the excess DDT was indeed paid by the assessee and that the refund was determined based on the provisions of Section 115-O read with Section 237 of the Income Tax Act. The refund was due to the incorrect accounting of deemed dividends from wholly-owned subsidiaries.
Application of law to facts: The Tribunal applied Section 244A(1)(b) to conclude that the assessee was entitled to interest on the excess DDT refund, as it was not covered by the specific provisions of Section 244A(1)(a) or (aa).
Treatment of competing arguments: The Tribunal considered the Revenue's argument that the refund was less than 10% of the tax amount and thus not eligible for interest under the proviso to Section 244A(1)(a) and (aa). However, it rejected this argument by classifying the refund under Section 244A(1)(b), which does not have such a proviso.
Conclusions: The Tribunal concluded that the assessee is entitled to interest on the refund of excess DDT under Section 244A(1)(b) from October 1, 2010, to the date the refund was granted.
2. Withdrawal of Interest by Assessing Officer
Relevant legal framework and precedents: The Assessing Officer relied on the proviso to Section 244A(1)(a) and (aa), which states that no interest is payable if the refund amount is less than 10% of the tax determined.
Court's interpretation and reasoning: The Tribunal found that the Assessing Officer's application of the proviso was incorrect because the refund of excess DDT does not fall under the specific categories mentioned in Section 244A(1)(a) or (aa).
Key evidence and findings: The Tribunal noted that the refund was processed based on the order of the CIT(A), which recognized the excess DDT paid by the assessee and granted the refund accordingly.
Application of law to facts: By classifying the refund under Section 244A(1)(b), the Tribunal determined that the proviso to Section 244A(1)(a) and (aa) was not applicable, and therefore, the withdrawal of interest by the Assessing Officer was unjustified.
Treatment of competing arguments: The Tribunal considered the Revenue's reliance on the proviso but found it misplaced due to the nature of DDT and its classification under Section 244A(1)(b).
Conclusions: The Tribunal concluded that the interest withdrawal by the Assessing Officer was incorrect, and the assessee was rightfully entitled to interest on the excess DDT refund.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning: "DDT is payable at the time of declaration/distribution or payment of any dividend whichever date is earlier. It cannot be termed as an advance tax as envisaged u/s 207 or a self-assessment tax as per Section 140A of the Act. Hence, the interest on refund related to DDT paid in excess is covered under the residual clause as envisaged u/s 244A(1)(b) of the Act."
Core principles established: The judgment establishes that excess DDT refunds fall under the residual category of Section 244A(1)(b), thus entitling the assessee to interest on such refunds, irrespective of the 10% threshold applicable to other tax refunds.
Final determinations on each issue: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to grant interest on the excess DDT refund under Section 244A(1)(b).
Entitlement to interest u/s. 244A(1)(b) on the amount of excess DDT refunded from 01.10.2010 to the date the refund was granted - HELD THAT:- AO has treated DDT as being covered under the provision of sec.244A(1)(a)/(aa) and hence applied the proviso to these clauses. It is known that the accounting of DDT is done separately from advance tax or self-assessment tax. DDT is payable at the time of declaration/distribution or payment of any dividend whichever date is earlier.
It cannot be termed as an advance tax as envisaged u/s 207 or a self-assessment tax as per Section 140A. Hence, the interest on refund related to DDT paid in excess is covered under the residual clause as envisaged u/s 244A(1)(b) of the Act and is therefore eligible for interest u/s 244A(1)(b) of the Act on the amount of excess DDT refunded from 01.10.2020 to the date the refund was granted. Ergo, the decision of the Ld. CIT(A) is affirmed. Appeal of the Revenue is dismissed.
Rectification of mistake u/s 154 - protective addition in the hands of assessee when substantive addition made in the hands of Orient Craft Limited - HELD THAT:- Rendering of services on job work basis by M/s Orient Craft Limited was held to be genuine and the addition made substantively in the case of M/s Orient Craft Limited has been deleted by the Tribunal.
The miscellaneous application filed by the Revenue against the order of the Tribunal in the case of Orient Craft Limited was also dismissed.
The protective addition made in the hands of the assessee was originally deleted by the CIT(A) except for the commission on estimate basis of 5% which was sustained by the Ld. CIT(A) and the Revenue did not prefer any appeal.
This order of the Ld. CIT(Appeals) was challenged by the Assessee before the Tribunal and the Tribunal allowed the appeals of the assessee deleting even the commission expenses which was sustained by the CIT(Appeals).
Meanwhile the Revenue filed miscellaneous application before the Ld. CIT(Appeals) stating that the Tribunal deleted the substantive addition made in the hands of Orient Craft Limited and, therefore, the protective addition made in the hands of the assessee be revised.
CIT(Appeals) based on the rectification application filed by the Assessing Officer modified his order reviving the protective addition along with the disallowance of 5% towards commission as was done by the Assessing Officer in the assessment originally. In our view this is beyond the scope of provision of section 154 and also beyond the jurisdiction of Ld. CIT(Appeals). Thus, we quash the orders of the Ld. CIT(Appeals) passed u/s 154 r.w.s. 250(6) of the Act dated 28/03/2024 for the assessment years. Appeals of the assessee are allowed.
Issues: Whether the receipts from intra-group services and advisory services constituted fees for technical services under Article 13 of the India-UK Double Taxation Avoidance Agreement and were taxable in India in the absence of transfer of technical knowledge, skill, know-how or processes to the recipient.
Analysis: The receipts arising from the intra-group service agreement were held to fall outside the definition of fees for technical services because the services were essentially in the nature of assistance and support in managerial, compliance, finance, planning and marketing functions, and did not satisfy the make available requirement. The advisory services were also found not to transfer technical knowledge, know-how, skill or processes to the recipient; they consisted of identifying potential buyers, preparing presentation material, coordinating marketing activity, and advising on transaction options. As the make available condition under Article 13(4)(c) was not met, the services could not be taxed as fees for technical services under the treaty.
Conclusion: The receipts from both categories of services were not taxable as fees for technical services in India and the addition was deleted in favour of the assessee.
Accrual of income in India - fee received towards services rendered under group service agreement - FTS as provided under Article 13(4) of India UK DTAA - HELD THAT:- As facts being identical respectfully following the order of the Tribunal for the assessment years 2018-19 and 2019-20 we hold that the receipts towards services rendered under Intra Group Service Agreement would not fall within the definition of FTS as provided under Article 13(4) of India UK DTAA and hence not taxable at the hands of the assessee in India.
Coming to fee received towards advisory services rendered by the assessee to RCIPL it is observed that the assessee has rendered the following services of Identifying potential buyer for the client, Provided support in preparation of management presentation and other material for distribution to potential buyers, all of which was based on the inputs received from the client and supported in coordination of marketing exercise and Supported RCIPL in advising on potential transaction options and evaluation of pros and cons of such options.
On a reading of the assessment order and the DRP directions, we found that none of the authorities have given any reasoning as to how the advisory services rendered by the assessee to RCIPL during the year under consideration satisfies make available clause and is taxable as FTS under Article 13 of the India UK DTAA.
In our considered view none of the above services rendered by the assessee to RCIPL suggest that such services provided by the assessee resulted in transfer of technical knowledge, knowhow, skill etc. and fulfills the make available clause under Article 13(4)(c) of India UK DTAA.
Therefore, the reasoning and the findings given by the Tribunal for the assessment years 2018-19 and 2019-20 applies even for the fees for advisory services and, therefore, we hold that such receipts also would not fall within the definition of FTS as provided under Article 13(4) of India UK DTAA. Ground nos. 2 & 3 are allowed.
Issues: Whether the addition made on account of unexplained cash deposit was sustainable when the assessee explained the deposits as arising from cash gifts received from his father.
Analysis: The explanation was that the father had made monetary gifts to the assessee, partly by cheque and partly in cash at different intervals, and that the cash deposits in the bank account were out of such receipts and cash in hand. In the absence of any negative evidence showing that the gift arrangement was improbable or false, the Revenue could not reject the explanation merely because the father did not make a lump sum gift or because part of the gift was made in cash.
Conclusion: The addition sustained by the appellate authority was not sustainable and was deleted.
Final Conclusion: The assessee's explanation for the cash deposits was accepted and the impugned addition was quashed, resulting in allowance of the appeal.
Ratio Decidendi: A plausible explanation for cash deposits, supported by surrounding circumstances and not rebutted by adverse evidence, cannot be rejected merely on conjecture as to how a family member ought to have made the gift.
Unexplained cash deposit - assessee failed to justify the source of such cash deposits made by him - assessee explained that the cash deposits were from cash in hand and gifts received from the father, including a substantial amount received through cheque
HELD THAT:- As the father has gifted the assessee Rs.5 lac by way of cheque and rest amount by cash at different intervals such cash gift was questioned by Revenue which is not found to be acceptable as the desire of a father how he would support his son either gifting him lump sum amount or at intervals is his prerogative and cannot be doubted by Revenue in the absence of any negative evidence in support of such finding made.
Thus, keeping in view this particular aspect of the matter, without any cogent reason assigned by the Revenue, the addition confirmed by the CIT(A) is found to be not sustainable and thus, liable to be quashed. Appeal of the assessee is allowed.
Addition u/s 69A - unexplained jewellery out of the total gold jewellery and silver article found from the locker - HELD THAT:- It is a matter of fact that the said Sh. S. S. Lal had already filed affidavit before the AO on his behalf stating that he along with his spouse have for jointly gifted 300 gram jewellery to the Assessee which has been accepted. There is no such bar on late Vimla Devi gift additional 350 grams jewelery on her behalf apart from gifting 300 grams of jewellery jointly along with husband.
On keeping the relationship between the donor and the Assessee in mind and we are of the opinion that the CIT(A) committed error in rejecting the claim of the Assessee regarding 350 grams jewellery without appreciating the facts narrated in the affidavit.
In respect of the gold jewellery of 27.9 grams are concerned, the same has been valued at Rs. 82,703/-.
Considering the statues of the family, which is admittedly been searched, the authorities below have committed error in doubting the same. In any case, the said 27.900 grams could have been accepted as ‘Stridhana’. Regarding the silver jewelry of 85.5 grams are concerned, as per the valuation the same is valued at Rs. 3,420/-, however, the AO committed error in valuing the said silver item at gold rates. Considering the smallness of the amount which is valued we are of the opinion that the Lower Authorities have committed error in doubting the same. Appeal of the Assessee is allowed.
Disallowance u/s. 14A r.w.r. 8D while computing income under the normal provisions of the Act, as also, while computing book profit u/s. 115JB - HELD THAT:- Disallowance u/s. 14A r/w Rule 8D in a particular assessment year cannot exceed the quantum of exempt income earned in the said year. Therefore, the disallowance made by the A.O. u/s. 14A read with Rule 8D could not have exceeded the quantum of income earned by the assessee.
No infirmity in the decision of the first appellate authority in deleting the disallowance made u/s. 14A read with Rule 8D, while computing income under the normal provisions of the Act. Insofar as, similar disallowance made while computing book profit u/s. 115JB of the Act, we concur with the decision of first appellate authority that since the provisions contained u/s. 115JB do not provide for any disallowance with reference to section 14A read with Rule 8D, no such disallowance could have been made. In view of the afore-said, grounds are dismissed.
Disallowance made u/s. 69A - FAA held that assessee had not received any cash compensation as alleged by the A.O., deleted the addition - HELD THAT:- The email communication cannot be considered as an evidence, demonstrating cash compensation transaction between the assessee and another Indian company. We have further observed, the first appellate authority has recorded a factual finding that in course of assessment proceeding, the A.O. had not made any independent enquiry either with Biacon Textile Ltd. or its parent company in Italy. When the assessee has denied of receiving any cash compensation, the logical thing to do for the A.O. was to make enquiry and bring enough corroborative evidence on record to prove receipt of cash compensation by taking up enquiry with the other party, who, allegedly paid cash compensation.
Admittedly, no such enquiry has been taken up by the AO, to elicit the actual facts. Thus, in absence of any corroborative evidence on record to back his finding that the assessee has actually received the cash compensation no addition can be made merely on conjectures and surmises. Therefore, we uphold the decision of the first appellate authority on the issue. Ground raised is dismissed.
Disallowance made u/s. 80IA - undertaking /unit was acquired by the assessee through a slump sale - CIT(A) deleted addition - HELD THAT:- As far as the claim of deduction u/s. 80IA for the unit at Vapi is concerned, the finding of the A.O. is factually incorrect. Hence, unacceptable. Therefore, the claim of deduction u/s. 80IA of the Act in respect of Captive Power Plant at Vapi land is clearly allowable. Insofar as, Captive Power Plant at Anjar is concerned, acquired through slum sale, the facts on record clearly reveals that the undertaking was eligible for deduction u/s. 80IA due to fulfillment of the conditions mentioned in the said provision.
Merely because of change of the ownership of the undertaking it would not get disentitled from availing deductions u/s. 80IA of the Act for remaining years for which deduction has not been claimed. As rightly observed by the first appellate authority, deduction u/s. 80IA of the Act is qua undertaking and not qua the assessee. Since, the Revenue has not brought on record any cogent material to controvert the factual findings of the first appellate authority, while deciding the issue, we are inclined to uphold the decision of first appellate authority by dismissing the ground raised.
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Validity of Reopening under Section 148
The relevant legal framework involves Sections 147 and 148 of the Income Tax Act, which govern the reopening of assessments. The Finance Act 2021 introduced changes affecting the issuance of notice under Section 148. The Court examined whether the notice dated 31.03.2021 was issued in compliance with the new legal provisions.
The Court found that the notice was purportedly dated 31.03.2021 but effectively issued on 01.04.2021, rendering it invalid under the new legal regime. The Court emphasized the importance of adhering to the statutory framework, highlighting that the notice was issued under the old law despite the enactment of the Finance Act 2021.
Adequacy of Reasons for Reopening
The Court scrutinized the reasons provided for reopening the assessment, which were based on alleged bogus long-term capital gains (LTCG) transactions. The Court noted discrepancies between the reasons recorded for reopening and the detailed reasons provided in the show cause notice dated 26.03.2022. The Court observed that the initial reasons lacked specificity regarding the nature of the income allegedly escaping assessment and did not mention the specific scrip involved.
The Court found that the reasons for reopening were based on "borrowed satisfaction" from the Directorate of Income-tax (Systems) and the Investigation Wing, without independent application of mind by the Assessing Officer (AO). The Court concluded that the AO failed to examine the details of the transactions reported by the assessee, which were already part of the computation filed.
Jurisdictional Requirements under Sections 147 and 148
The Court analyzed whether the jurisdictional requirements for reopening were met. It was established that the AO did not independently verify the information received from external sources before initiating the reopening. The Court emphasized that the AO must form an independent belief based on tangible material before invoking Section 147.
The Court also noted that the approval for reopening under Section 151 mentioned "0" income escaping assessment, indicating a lack of proper appreciation of the case facts at the time of granting approval.
Applicability of Section 153C
The Court considered whether the assessment should have been conducted under Section 153C, given the involvement of search and seizure operations on the Kundu Group. The Court referenced precedents from higher courts, establishing that when information for reopening arises from search operations, the provisions of Section 153C should be invoked instead of Section 147/148.
The Court concluded that the AO erred in proceeding under Section 147/148 when the foundation for reopening was based on search and seizure operations.
Principles of Natural Justice
The Court examined allegations of procedural lapses, including the failure to provide complete reasons and relevant annexures to the assessee. The Court found that the lack of proper notice and failure to confront the assessee with the material relied upon constituted a violation of the principles of natural justice.
3. SIGNIFICANT HOLDINGS
The Court held that the reopening of assessment under Section 148 was invalid due to non-compliance with the statutory framework and lack of independent application of mind by the AO. The Court emphasized that:
"The challenge of assumption of jurisdiction in the case of the assessee u/s 147/148 of the Act raised by the assessee vide jurisdictional grounds No.10.1 to 10.6 deserve to be sustained."
The Court established the principle that reopening based on search and seizure operations should be conducted under Section 153C, not Section 147/148. The Court quashed the reassessment order, allowing the appeal in favor of the assessee.
Reopening of assessment - reason to believe -non independent application of mind - HELD THAT:- AO had proceeded to reopen the case of the assessee by merely relying that the information, either received from Directorate of Income-tax (Systems) wherein the case of the assessee was considered to be a potential case for escapement or the Investigation Wing report arising out of search and seizure operations in case of Kundu group of Rohtak on 25.02.2021.
There was no application of independent mind on the details of transaction which were reported by assessee and which allegedly escaped the reporting. AO was completely unmindful of the fact that some of these transactions were very much part of the computation filed by the assessee and mentioned that there was complete un-reporting of these transactions.
We are also convinced that if the reopening was on the basis of the search and seizure operations carried out in the case of Kundu group of Rohtak and which was the foundation for issuing notice u/s 148 of the Act, then, in that case, the provisions of section 153C would have come into effect and the case of the assessee could not have been on the basis of the provisions of section 147/148 of the Act. Challenge of assumption of jurisdiction in the case of the assessee u/s 147/148 raised by the assessee vide jurisdictional grounds deserve to be sustained.
The core legal issues considered in this judgment include:
1. Whether the return of income filed by the assessee in response to the notice under section 148 of the Income Tax Act, 1961, beyond the stipulated time, should be considered valid.
2. The validity of the assessment proceedings in the absence of a notice issued under section 143(2) of the Act.
3. Whether the addition of Rs. 93,37,000/- as unexplained investment under section 69 of the Act was justified.
ISSUE-WISE DETAILED ANALYSIS
1. Validity of the Return Filed Beyond the Stipulated Time
- Relevant Legal Framework and Precedents: The legal framework involves sections 139, 142(1), 143(2), and 148 of the Income Tax Act, 1961. The precedents cited include the decisions in Chirakkal Service Cooperative Bank Ltd. vs. Commissioner of Income Tax and Smt. Amina Ismil Rangari vs. ITO.
- Court's Interpretation and Reasoning: The Tribunal referred to the precedent set in Smt. Amina Ismil Rangari vs. ITO, which held that a return filed beyond the stipulated time in response to a notice under section 148 does not render it invalid or non-est.
- Key Evidence and Findings: The assessee filed the return of income after the stipulated 30 days. The Tribunal noted that the Assessing Officer did not take cognizance of this return due to the delay.
- Application of Law to Facts: The Tribunal applied the reasoning from previous cases, concluding that the return filed, although delayed, should still be considered valid.
- Treatment of Competing Arguments: The Department argued that the return was non-est due to the delay, while the assessee contended that the delay should not invalidate the return.
- Conclusions: The Tribunal concluded that the return should be considered valid despite the delay.
2. Validity of Assessment Proceedings Without Notice Under Section 143(2)
- Relevant Legal Framework and Precedents: The primary legal provisions are sections 143(2) and 292BB of the Income Tax Act, 1961. The case of CIT vs. Laxman Das Khandelwal was pivotal.
- Court's Interpretation and Reasoning: The Tribunal emphasized that the issuance of a notice under section 143(2) is a mandatory requirement for a valid assessment proceeding.
- Key Evidence and Findings: The Tribunal found that no notice under section 143(2) was issued to the assessee.
- Application of Law to Facts: The Tribunal applied the legal principle that the absence of a notice under section 143(2) renders the assessment proceedings invalid.
- Treatment of Competing Arguments: The Department argued that the absence of notice could be cured under section 292BB. However, the Tribunal noted that section 292BB does not apply to the complete absence of notice.
- Conclusions: The Tribunal concluded that the assessment proceedings were invalid due to the absence of a notice under section 143(2).
3. Addition of Rs. 93,37,000/- as Unexplained Investment
- Relevant Legal Framework and Precedents: The relevant section is 69 of the Income Tax Act, 1961.
- Court's Interpretation and Reasoning: The Tribunal did not delve into the merits of this issue due to the quashing of the assessment order.
- Key Evidence and Findings: The Tribunal did not consider the evidence related to this issue as the assessment order was quashed.
- Application of Law to Facts: The Tribunal did not apply the law to the facts concerning this issue due to the prior determination of the invalidity of the assessment proceedings.
- Treatment of Competing Arguments: The Tribunal did not address competing arguments on this issue.
- Conclusions: The issue became infructuous as the assessment order was quashed.
SIGNIFICANT HOLDINGS
- The Tribunal held that a return of income filed in response to a notice under section 148, even if filed beyond the stipulated time, should be considered valid.
- The Tribunal emphasized that the issuance of a notice under section 143(2) is mandatory for valid assessment proceedings, and its absence renders the proceedings void.
- The Tribunal quashed the assessment order due to the absence of a notice under section 143(2), rendering the addition of Rs. 93,37,000/- as unexplained investment under section 69 infructuous.
- Verbatim Quote: "The failure of the Ld. AO to issue notice u/s. 143(2) of the Act, prior to finalizing the re-assessment order, cannot be curable by the provisions of section 292BB of the Act."
- Core principles established include the necessity of notice under section 143(2) for valid assessment proceedings and the acceptance of delayed returns in response to section 148 notices as valid.
- The Tribunal allowed the appeal, quashing the assessment order and rendering the addition under section 69 infructuous.
Reopening of assessment - absence of issuance of notice u/s. 143(2) - HELD THAT:- AO has not issued notice u/s. 143(2) of the Act and has not considered the return of income filed in response to notice u/s. 142(1) of the Act. The above provisions of section 143(2) clearly stipulate the legal necessity of issuance of notice u/s. 143(2) of the Act to complete the assessment. It is an accepted legal proposition that where the return of income has been filed in response to notice u/s. 148 the provisions of the Act shall apply as if such return was a return required to be furnished u/s.139 of the Act.
In the instant case, AO did not consider the return of income filed by the assessee on 23/09/2021 stating that the return filed by the assessee is beyond the stipulated time frame of 30 days as specified in the notice u/s. 148 for filing the return of income.
In our opinion, the return of income even though filed belatedly would still qualify as return furnished u/s.139 and should be taken on record by the Ld. AO. In the instant case, AO in his order has stated that since the assessee did not furnish the return of income within the time limit specified in the notice u/s 148 no notice u/s. 143(2) of the Act was issued to the assessee. The failure of the AO to issue notice u/s. 143(2) of the Act, prior to finalizing the re-assessment order, cannot be curable by the provisions of section 292BB of the Act.
Thus notice u/s.143(2) of the Act presupposes the assessment order, we are of the considered view that the assessment order passed by the Ld. AO u/s. 147 r.w.s 144 r.w.s 144B in the case of the assessee is bad in the eyes of law and cannot be sustained. Decided in favour of assessee.
ISSUES PRESENTED AND CONSIDERED
1. Whether penalty under section 271(1)(c) can be levied where an assessee, confronted during a survey under section 133A, admits additional income and thereafter files a return disclosing and offering that income to tax.
2. Whether a belated return filed in response to a notice under section 148 (after more than the prescribed 30 days) but within two years of survey/notice precludes treating the disclosure as voluntary for the purposes of section 271(1)(c), having regard to Explanation 3 to section 271(1)(c).
3. Whether penalty proceedings under section 271(1)(c) can be sustained solely on the basis of survey admissions without corroborative evidence or when the assessing officer does not specify the particular limb of section 271(1)(c) being invoked in the initiating notice.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Levy of penalty under section 271(1)(c) where additional income is admitted during survey and subsequently disclosed in return
Legal framework: Section 271(1)(c) penalises concealment of income or furnishing of inaccurate particulars; penal provisions are to be strictly construed. Explanations 5 and 5A operate as exceptions where income is ultimately brought to tax by declaration in the return.
Precedent Treatment: Coordinate-bench and High Court authorities (e.g., decisions relied upon by the assessee) have held that complete disclosure in the return of income and offering surrendered amount to tax negates imposition of penalty under section 271(1)(c) where there is actual disclosure; the Supreme Court authority considered the sufficiency/particularity of notice under section 274 when invoking penalty proceedings.
Interpretation and reasoning: The Tribunal examined whether the mere fact that the additional income was admitted during survey permits imposition of penalty after that income has been declared and accepted in the return. The Court emphasised that penalty cannot rest on surmise or conjecture; actual concealment or furnishing of inaccurate particulars must be established. Where the assessee made complete disclosure in the return and the assessing officer accepted and brought the amount to tax, the foundational element of concealment for section 271(1)(c) is absent. The assessing officer's reliance purely on the survey admission without independent corroborative evidence was held insufficient to establish willful concealment.
Ratio vs. Obiter: Ratio - Where surrendered income discovered in survey is subsequently declared in the return and assessed, penalty under section 271(1)(c) cannot be imposed absent evidence establishing actual concealment or inaccurate particulars beyond the survey admission. Obiter - Observations on motives such as "to buy peace" or avoid litigation were noted but not treated as decisive of the legal test.
Conclusion: Penalty under section 271(1)(c) cannot be levied merely because additional income was admitted during survey if the amount is fully disclosed in the return and assessed; absence of corroborative evidence of concealment defeats the penalty.
Issue 2 - Effect of delayed filing in response to section 148 and applicability of Explanation 3 to section 271(1)(c)
Legal framework: Explanation 3 to section 271(1)(c) draws in disclosures made in response to notices under sections 142(1) or 148 issued within two years; if an assessee files a return within two years in response to section 148, Explanation 3 may apply to treat the disclosure as non-voluntary for penalty purposes.
Precedent Treatment: Authorities have differentiated cases where disclosure followed survey without impounded documents from those where documentation seized during survey establishes non-voluntariness; Supreme Court authority (Mak Data) recognises that voluntary disclosure does not automatically absolve penalty but depends on surrounding facts.
Interpretation and reasoning: The Tribunal analysed the timing of the belated return (filed more than the immediate 30-day window but after issuance of section 148 notice) and the statutory text of Explanation 3. It noted Explanation 3's operation where a notice under section 142(1) or 148 is issued within two years and the return is filed within two years in response; however, in the present facts the assessing officer did not produce impounded documents or other material to demonstrate that the surrender was not voluntary. The mere fact of delay in filing was insufficient, in the absence of other evidence, to convert a disclosure into concealment for penal purposes.
Ratio vs. Obiter: Ratio - Where a return filed in response to section 148 (even belatedly) discloses the surrendered income and there is no corroborative material showing non-voluntariness or concealment, Explanation 3 and timing alone are insufficient to sustain penalty. Obiter - Distinctions drawn with cases in which impounded documents during survey evidenced non-voluntary surrender.
Conclusion: Delay in filing the return in response to section 148 does not by itself justify penalty under section 271(1)(c) where the surrendered income is declared and assessed and no further corroborative evidence of concealment is placed on record; Explanation 3's application depends on factual matrix and supporting evidence.
Issue 3 - Sufficiency of initiating notice and requirement to specify limb of section 271(1)(c) and reliance on survey admissions without corroboration
Legal framework: Procedural safeguards require that notices initiating penalty proceedings adequately state the basis and limb of the penal provision invoked; penalties must be founded on clear material establishing statutory ingredients rather than conjecture.
Precedent Treatment: The Supreme Court has held that notices under section 274 must specify the limb of section 271(1)(c) relied upon; cases have invalidated or criticised penalty triggers that lack specificity. Tribunal decisions distinguish facts where notices were defective versus where substantive evidence established concealment.
Interpretation and reasoning: The Tribunal considered whether the assessing officer specified the precise ground under section 271(1)(c) in the initiating notice and whether reliance solely on survey admissions sufficed. It observed that in the present case the assessing officer proceeded on the basis of survey admission without producing impounded documents or other corroboration. The Court reiterated that penalty cannot be founded on assumptions; the absence of independent evidence and reliance on conjecture undermines the imposition of penalty. While the decision noted earlier authorities invalidating non-specific notices, the Tribunal found the primary failing in the lack of corroborative material rather than formal notice defect in this record.
Ratio vs. Obiter: Ratio - Initiation and imposition of penalty cannot rest solely on survey admission absent corroborative evidence and specification of the basis for penalty; factual insufficiency to prove concealment defeats penalty even if procedural notices were issued. Obiter - Discussion of legislative and judicial emphasis on strict construction of penal provisions and notice particularity.
Conclusion: Penalty proceedings predicated only on survey admissions without corroborative evidence of concealment and without clear specification of the limb of section 271(1)(c) are unsustainable; in the present facts the imposition of penalty cannot be sustained.
Overall Disposition
The Court concluded that the surrendered/additional income admitted during survey was declared in the return and assessed; the assessing officer did not bring corroborative evidence to establish actual concealment or inaccurate particulars; principles of strict construction of penal provisions and the factual matrix established that penalty under section 271(1)(c) could not be sustained. The appeal against imposition of penalty was allowed.
Penalty u/s. 271(1)(c) - income admitted by the assessee during the survey proceedings - HELD THAT:- Assessee has declared the additional income which was accepted by the AO and brought to tax. AO cannot impose penalty u/s. 271(1)(c) of the Act based on the voluntary disclosure by the assessee.
AO has also not brought on record any corroborative evidence but has purely proceeded to levy the penalty based on assumptions that the assessee has concealed the income or furnished the inaccurate particulars of income while filing the original return of income wherein if the survey was not conducted on the assessee, this income would not have been admitted by the assessee.
There cannot be any penalty based on surmises, conjectures and possibilities. While invoking the penalty provisions of section 271(1)(c) of the Act it has to be construed strictly.
Unless it is found that there is an actual concealment or non-disclosure of the particulars of income, penalty cannot be imposed. In the instant case, there is no such concealment or non-disclosure as the assessee has made a complete disclosure in the return of income offered, surrendered the amount for the purpose of tax.
The Explanation-5 and 5A to section 271(1) of the Act are also an exception to the Rule that the income is ultimately brought to tax is declared in a return of income, there can be no question of treating the assessee as having concealed particulars of income or furnished inaccurate particulars of income. Decided in favour of assessee.
The core issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Validity of the Notice under Section 148
2. Jurisdictional Challenge to Reassessment Proceedings
3. Revenue's Challenge on Merits
SIGNIFICANT HOLDINGS
Reopening of assessment u/s 147 as barred by limitation - scope of extended period prescribed under the TOLA - assessee is a beneficiary of bogus capital gains from transaction in penny stocks - HELD THAT:- From the plain reading of Section 149 of the Act, prior to its amendment by the Finance Act, 2021, it is evident that the same provides period of 4 years, up to 6 years, and up to 16 years for issuance of notice u/s 148 of the Act, provided the conditions laid down therein are satisfied.
In the present case, it cannot be disputed that the time limit of 4 years from the end of the relevant assessment year, i.e., assessment year 2015-16, expired on 31.03.2020, and the period of 6 years from the end of the relevant assessment year expired on 31.03.2022. Therefore, even if the submissions of the learned DR that the extended time period provided under the TOLA is applicable to the present case is accepted, it is pertinent to note that in the present case, the time period covered under the provisions of the TOLA only includes 30.03.2020, i.e., 4 years from the end of the relevant assessment year, as the period of 6 year from the end of the relevant assessment year expired on 30.03.2022, which is beyond the period from 20.03.2020 to 31.03.2021.
We find that while examining the validity of notices issued from 01.04.2021 to 30.06.2021 under the old regime, the Hon’ble Supreme Court in Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)], analysing the interplay of Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] with the TOLA held that the surviving time under the Act read with the TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notice, including issuance of re-assessment notice under section 148 of the Act under the new regime.
We find that the Revenue had only 15 days (i.e., between 16.06.2021 to 30.06.2021) to issue notice under section 148 of the Act of the new regime in the present case, i.e. till 25.06.2022, after receipt of the response from the assessee to the show cause notice under section 148A(b) of the Act on 10.06.2022. However, undisputedly, in the present case, the notice under section 148 of the Act was issued on 29.07.2022, i.e., 34 days after the surviving/balance time period as per the directions of the Hon’ble Supreme Court in Rajeev Bansal (supra).
Notice u/s 148 of the Act in the present case was issued beyond the time period provided under the Act. Decided in favour of assessee.
Issues: (i) Whether the order of preventive detention was vitiated because the detaining authority did not consider the bail conditions imposed by the jurisdictional court in the same smuggling case. (ii) Whether the detention order was vitiated by alleged non-application of mind arising from reference to the NDPS case and the grounds under Section 3(1) of the COFEPOSA Act.
Issue (i): Whether the order of preventive detention was vitiated because the detaining authority did not consider the bail conditions imposed by the jurisdictional court in the same smuggling case.
Analysis: The detention and the criminal prosecution arose out of the same organized smuggling activity and the detenu had been enlarged on bail on conditions intended to prevent further involvement in similar acts. The detaining authority was required to apply its own subjective satisfaction to the question whether those safeguards were sufficient to obviate preventive detention. The order was silent on the efficacy of the bail conditions and did not record any consideration as to why they were inadequate to restrain further smuggling activity.
Conclusion: The detention order was vitiated on this ground and could not be sustained.
Issue (ii): Whether the detention order was vitiated by alleged non-application of mind arising from reference to the NDPS case and the grounds under Section 3(1) of the COFEPOSA Act.
Analysis: The references to the NDPS matter were treated only as background to show propensity and change of identity, and not as an operative ground of detention. The material also disclosed a continuing chain of smuggling activity falling within the several clauses of Section 3(1) of the COFEPOSA Act, and the challenge based on omnibus invocation of those clauses did not succeed. The Court, however, found that this did not cure the failure to examine the effect of the bail conditions.
Conclusion: The challenge on these grounds did not independently invalidate the detention order.
Final Conclusion: The preventive detention could not be sustained because the detaining authority failed to address the significance of the conditions imposed by the criminal court while granting bail in the same case.
Ratio Decidendi: Where preventive detention is founded on the same allegations as a pending criminal prosecution, the detaining authority must consider whether existing bail conditions are sufficient to prevent further prejudicial conduct, and failure to do so vitiates the detention.
Challenge to detention order - smuggling of contraband - non-application of mind by the detaining authority due to the overlapping charges under clauses (i) to (iv) of Section 3(1) of the COFEPOSA Act - HELD THAT:- The contentions raised by the DRI regarding the all-pervasive role of the detenu and his propensity to indulge in such smuggling activities, detrimental to the interest of the nation was considered in juxtaposition with the contention raised by the accused; on the basis of the investigation carried out thus far. The specific ground raised by the prosecution of apprehension of involvement in similar type of smuggling activity was reckoned by the jurisdictional Magistrate while granting bail and imposing conditions to prevent the detenu from engaging in such smuggling activities.
In Ameena Begum v. State of Telangana and others [2024 (1) TMI 4 - SUPREME COURT] it was held held that the observations in Rekha v. State of T.N. [2011 (4) TMI 1217 - SUPREME COURT] held that preventive detention is impermissible when the ordinary law of the land is sufficient to deal with the situation was per incuriam to the Constitution Bench decision in Haradhan Saha v. State of W.B. [1974 (8) TMI 104 - SUPREME COURT], in the limited judicial review available to constitutional courts in preventive detention matters. The Courts would be incapable of interference by substituting their own reasoning to upset the subjective satisfaction arrived at by the detaining authority, especially since preventive detention law is not punitive but preventive and precautionary.
Likewise, in the present case, it is not concerned as to whether the conditions imposed by the Magistrate would have taken care of the apprehension expressed by the detaining authority; of the detenu indulging in further smuggling activities. It is more concerned with the aspect that the detaining authority did not consider the efficacy of the conditions and enter any satisfaction, however subjective it is, as to the conditions not being sufficient to restrain the detenu from indulging in such activities.
The criminal prosecution launched and the preventive detention ordered are on the very same allegations of organised smuggling activities, through a network set up, revealed on successive raids carried on at various locations, on specific information received, leading to recovery of huge cache of contraband. When bail was granted by the jurisdictional Court, that too on conditions, the detaining authority ought to have examined whether they were sufficient to curb the evil of further indulgence in identical activities; which is the very basis of the preventive detention ordered. The detention order being silent on that aspect, we interfere with the detention order only on the ground of the detaining authority having not looked into the conditions imposed by the Magistrate while granting bail for the very same offence; the allegations in which also have led to the preventive detention, assailed herein, to enter a satisfaction as to whether those conditions are sufficient or not to restrain the detenu from indulging in further like activities of smuggling.
Conclusion - The detention order was invalid due to the detaining authority's failure to consider whether the bail conditions were adequate to prevent further smuggling activities.
The order of detention is set aside - appeal allowed.
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Territorial Jurisdiction and Forum Conveniens
Relevant legal framework and precedents: The Court examined Article 226(2) of the Constitution of India, which allows High Courts to exercise jurisdiction if a part of the cause of action arises within their territorial limits. The Court also considered the doctrine of forum conveniens, which suggests that even if a part of the cause of action arises within a court's jurisdiction, the court may refuse to entertain the case if another forum is more appropriate.
Court's interpretation and reasoning: The Court emphasized that the doctrine of forum conveniens is applicable in determining whether to exercise jurisdiction. It referenced the Supreme Court's decision in Kusum Ingots & Alloys Ltd. v. Union of India, which supports the application of this doctrine.
Key evidence and findings: The Court found that the petitioner's registered office is in Hyderabad, and the relevant actions, including the rejection of the application and the issuance of the DGFT Notification, primarily affect the petitioner in Hyderabad.
Application of law to facts: The Court determined that the mere issuance of a rejection letter from Delhi does not constitute a sufficient cause of action to confer jurisdiction on the Delhi High Court. The substantive actions and effects of the rejection and notification are centered in Hyderabad.
Treatment of competing arguments: The petitioner argued that the issuance of the rejection letter from Delhi and the DGFT Notification provided sufficient grounds for jurisdiction in Delhi. The respondents countered that the primary actions and consequences occurred in Hyderabad, making it the more appropriate forum.
Conclusions: The Court concluded that the Delhi High Court does not have the requisite territorial jurisdiction to entertain the writ petition, as the primary cause of action and its effects are centered in Hyderabad. The doctrine of forum conveniens further supports this conclusion.
3. SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
"Forum conveniens
30. We must, however, remind ourselves that even if a small part of cause of action arises within the territorial jurisdiction of the High Court, the same by itself may not be considered to be a determinative factor compelling the High Court to decide the matter on merit. In appropriate cases, the Court may refuse to exercise its discretionary jurisdiction by invoking the doctrine of forum conveniens."
Core principles established:
Final determinations on each issue:
Territorial jurisdiction of Delhi High Court to entertain the writ petition filed by the petitioner under Article 226 of the Constitution of India - Arising a part of cause of action, and in his submission, material cause of action - Doctrine of forum non-conveniens - Rejection of an application seeking Advance Authorisation for those entities which would fall within the jurisdiction of DGFT Office, Hyderabad - HELD THAT:- It is relevant to note that the doctrine of forum non-conveniens had its origins in Scotland where the Court applied this doctrine as an extension to the plea of forum non-competens, as the parties were not residents of Scotland as held in the case of Vernor vs. Elvies; 6 Disct. Of Dec. 4788 (1610). Thereafter, it appears to have been adopted by the American Courts which developed it further and which was also applied by the Courts in England.
Coming closer to home, the Hon’ble Supreme Court in the case of Kusum Ingots [2004 (4) TMI 342 - SUPREME COURT] recognised this doctrine and had in fact referred to some judgements rendered by the High Court of Calcutta to opine that even if a small part of cause of action arises within the territorial jurisdiction of the High Court, the same by itself may not be considered to be a determinative factor compelling the High Court to decide the matter on merits. In appropriate cases, the Court may refuse to exercise its discretionary jurisdiction by invoking the doctrine of forum conveniens. Therefore, the argument that this Court can entertain the writ petition since some part of cause of action has arisen in Delhi, would not, ipso facto, confer jurisdiction on this Court, if one were to apply the authoritative ratio above.
Whether this Court would be compelled to exercise its discretionary jurisdiction to entertain the present writ petition? - HELD THAT:- The Hon’ble Supreme Court in State of Goa [2023 (3) TMI 683 - SUPREME COURT] was examining a case where the State of Goa had levied a tax in respect of lottery business being run by the respondent before it in Goa. However, the respondent company was located in the State of Sikkim. Aggrieved by such levy, the respondent company had filed a writ petition before the High Court at Sikkim. The Apex Court opined that the immediate civil consequence arising from the notification impugned therein was that tax @ 14% which was to be paid by the respondent company at Goa. No consequence or effect was felt in Sikkim. In fact it was noticed by the Hon’ble Supreme Court that pleadings did not reflect any adverse consequence within the local limits of the territorial jurisdiction of the High Court at Sikkim.
Conclusion - This Court would not have the requisite territorial jurisdiction to entertain the present writ petition nor would it be the “forum conveniens” to decide the lis.
Petition dismissed.
Issues: Whether the Customs Broker violated Regulation 10(n) of the Customs Broker Licensing Regulations, 2018 by not properly verifying the IEC, GSTIN, identity of the client and its functioning at the declared address, and whether revocation of licence, forfeiture of security deposit and penalty were sustainable.
Analysis: Regulation 10(n) requires verification of the correctness of IEC and GSTIN, identification of the client through reliable, independent and authentic documents, data or information, and verification that the client functions at the declared address. The obligation is to ensure that the documents relied upon are genuine and issued by the competent authority, not to sit in appeal over the correctness of the Government officers who issued them. Officially issued registrations and certificates carry a presumption of genuineness, and the Customs Broker is not required to physically inspect the premises or maintain continuous surveillance to ensure that the client remains at the same address thereafter. On the facts, the documents obtained were not shown to be forged or fake, and the adverse finding rested substantially on subsequent non-traceability of one exporter and a general allegation concerning other exporters without verification.
Conclusion: The alleged breach of Regulation 10(n) was not made out, and the order revoking the licence, forfeiting the security deposit and imposing penalty could not be sustained.
Final Conclusion: The appeal succeeded and the impugned order was set aside with consequential relief.
Ratio Decidendi: A Customs Broker discharges its obligation under Regulation 10(n) when it verifies the authenticity of government-issued IEC and GSTIN and uses reliable, independent and authentic material to identify the client and its declared place of business; it is not required to or guarantee the correctness of official issuances or maintain continuous surveillance on the client.
Revocation of customs broker licence - forefeiture of entire amount of security deposit - levy of penalty - violation of Regulation 10(n) of CBLR 2018 - misuse of the export promotion schemes - Does the Customs Broker have to satisfy himself that the documents or their copies given by the client were indeed, issued by the concerned government officers or does the Customs Broker have to ensure that the officers had correctly issued the documents? - HELD THAT:- Regulation 10(n) does not place an obligation on the Customs Broker to oversee and ensure the correctness of the actions by Government officers. Therefore, the verification of documents part of the obligation under Regulation 10(n) on the Customs Broker is fully satisfied as long as the Customs Broker satisfies itself that the IEC and the GSTIN were, indeed issued by the concerned officers. This can be done through online verification, comparing with the original documents, etc. and does not require an investigation into the documents by the Customs Broker. Therefore, the appellant was correct in verifying the GSTIN issued by the department on the GST portal. The presumption is that a certificate or registration issued by an officer or purported to be issued by an officer is correctly issued. Section 79 of the Evidence Act, 1872 requires even Courts to presume that every certificate which is purported to be issued by the Government officer to be genuine.
The onus on the Customs Broker cannot, therefore, extend to verifying that the officers had correctly issued the certificate or registration. Of course, if the Customs Broker comes to know that its client has obtained these certificates through fraud or misrepresentation, nothing prevents it from bringing such details to the notice of Customs officers for their consideration and action as they deem fit. However, the Customs Broker cannot sit in judgment over the certificate or registration issued by a Government officer so long as it is valid. In this case, there is no doubt or evidence that the IEC, the GSTIN and other documents were issued by the officers. So, there is no violation as far as the documents are concerned.
The responsibility of the Customs Broker under Regulation 10(n) does not include keeping a continuous surveillance on the client to ensure that he continues to operate from that address and has not changed his operations. Therefore, once verification of the address is complete, if the client moves to a new premises and does not inform the authorities or does not get his documents amended, such act or omission of the client cannot be held against the Customs Broker.
Conclusion - The appellant Customs Broker did not fail in discharging its responsibilities under Regulation 10(n). The impugned order is not correct in concluding that the Customs Broker has violated Regulation 10(n) because the exporter was found to not exist during subsequent verification by the officers.
The impugned order cannot be sustained - Appeal allowed.
Issues: Whether, for penalty under Section 114A of the Customs Act, 1962, the amount of interest could be added to the duty short-paid so as to make the penalty equal to duty and interest.
Analysis: The provision uses the expression "or" between duty and interest and is followed by the words "as the case may be", indicating two distinct situations. The language is plain and unambiguous, and the statutory text does not permit reading "or" as "and". A departmental circular cannot override the clear words of the enactment.
Conclusion: The penalty under Section 114A cannot include interest in addition to duty. The revenue's challenge failed, and the assessee's position was upheld.
Ratio Decidendi: Where a penalty provision employs the disjunctive expression "or" in a clear statutory setting, it must be given its ordinary meaning and cannot be construed as "and" unless the statute itself compels such a reading.
Interpretation of Section 114A of the Customs Act, 1962 - whether the amount of penalty under this section should be equal to the sum of custom duty and interest on this duty? - short payment of Customs Duty - HELD THAT:- The issue in the present appeal is squarely covered by the decision of this Tribunal in the case of M/s Khanna Traders & Engineers [2024 (11) TMI 1433 - CESTAT ALLAHABAD].
There are no merits in the appeal filed by the revenue to the extent that interest amount should have been added to the duty short paid while imposition of penalty under Section 114A of the Act. Tribunal and even High Court has repeatedly emphasized that the word used in the section is “or” and not “and”. In case of Sony sales Corporation [2021 (3) TMI 174 - KARNATAKA HIGH COURT] Hon’ble Karnataka high Court has held that 'From perusal of the relevant extract of Section 114A, it is evident that the language employed by the Legislature is plain and unambiguous and the provision contains a positive condition with regard to levy of penalty equal to duty or interest and does not contain any negative condition.'
Conclusion - The penalty should be equal to the duty or interest as determined, and the word "or" in the provision cannot be interpreted as "and."
There are no merits in the appeal filed by the revenue - Appeal filed by the revenue is dismissed.
The primary issues considered in this judgment were:
2. ISSUE-WISE DETAILED ANALYSIS
Material Irregularities and Procedural Compliance:
The appellant contended that the resolution plan was approved beyond the statutory 330-day timeline for CIRP, as stipulated under Section 12 of the IBC. The Court examined whether the extensions granted were justified. It was noted that the Committee of Creditors (CoC) had approved the extension due to the advanced stage of resolution plan consideration, and the Adjudicating Authority had granted the extension before the plan was approved. The Court referenced the Supreme Court judgment in Committee of Creditors of Essar Steel India Vs Satish Kumar Gupta, which allows for extensions beyond 330 days under certain circumstances. Thus, the extension was deemed justified.
The appellant also argued that the RP failed to comply with Regulation 36-A(2) of the CIRP Regulations by not publishing Form-G on the IBBI website. The Court found this argument unpersuasive, noting the appellant's delayed challenge and lack of prejudice to their interests.
Valuation Reports and Commercial Wisdom:
The appellant claimed that the RP did not circulate detailed valuation reports, only sharing fair and liquidation values. The Court reviewed the minutes of the 17th CoC meeting, which recorded the RP's explanation that confidentiality requirements under Regulation 35(2) of the CIRP Regulations limited the sharing of detailed reports. The Court emphasized that the appellant, as an Operational Creditor without voting rights, could not claim prejudice from this decision, as the CoC members were responsible for exercising commercial wisdom.
Operational Creditors' Claims and Section 30(2)(b) Compliance:
The appellant argued that the resolution plan did not comply with Section 30(2)(b) of the IBC, which mandates that Operational Creditors receive at least the amount they would in a liquidation scenario. The Court noted that the plan provided Rs. 60 lakhs to Operational Creditors, exceeding the nil liquidation value specified for them. Thus, the plan was compliant with Section 30(2)(b).
Approval of the Resolution Plan:
The resolution plan was approved by the CoC with a 97.36% vote share. The Court reiterated that the Adjudicating Authority's scope for reviewing a resolution plan is limited to ensuring compliance with Section 30(2) of the IBC. The Court found no material irregularity or legal contravention in the CoC's decision, emphasizing the supremacy of the CoC's commercial wisdom.
3. SIGNIFICANT HOLDINGS
The Court held that:
The appeal was dismissed, affirming the Adjudicating Authority's approval of the resolution plan. The Court underscored that judicial review should not interfere with the CoC's business decisions unless they contravene explicit legal provisions or public interest.
Approval of resolution plan of the Corporate Debtor as submitted by the Resolution Professional - claims of the Operational Creditors did not receive their dues or not - material irregularities in the exercise of powers by the RP in the CIRP proceedings or not - Appellant has assailed the impugned order approving the resolution plan on the ground that the plan was approved by the Adjudicating Authority after expiry of 330 days of CIRP period - HELD THAT:- There is no doubt that in terms of Section 24(3)(c) of the IBC, it is the duty of the RP to give notice to the Operational Creditors or their representatives regarding the CoC meetings if the amount of their aggregate due is not less than 10% of the debt. It is also well settled that such Operational Creditors whose aggregate due is not less than 10% of the debt have a right to watch the proceedings of the CoC and express their views in the meetings without however any right to vote. In the present case, there is no denial of the fact that the Appellant received notice of the CoC meetings from the RP. As the Appellant was kept informed of the CoC meetings and records show their regular participation in such meetings, they had full knowledge of the CIRP proceedings. They were therefore equally aware of the extensions of CIRP time-lines approved by the CoC but these extensions by the CoC were not questioned by them at the appropriate time. The issue was neither agitated before the Adjudicating Authority at the right point of time and is now being raked up belatedly.
In the present case, the 23rd CoC meeting on 04.12.2023 had taken note of the fact that it was in an advanced stage of considering the resolution plans before it and since the extended CIRP period was getting expired on 10.12.2023, the CoC approved seeking further extension of CIRP period. Clearly enough, CoC having taken a considered decision in this regard, this constituted sufficient grounds for the Adjudicating Authority to extend further time beyond 330 days for completion of the CIRP process.
The entitlement of an Operational Creditor is to receive the amount as provided under Section 30(2)(b) of IBC which is not less than the amount which the Appellant would have been entitled to receive in the event of a liquidation of the Corporate Debtor under Section 53 of the IBC - the resolution plan cannot be said to be in dissonance with the provisions of Section 30(2)(b) of IBC.
The resolution plan has been approved with a majority of 97.36% of vote share. The plan having been approved by majority of votes, the Operational Creditor is clearly bound by the approved resolution plan. The Adjudicating Authority did not commit any error while approving the resolution plan after noting its satisfaction at para 26 of the impugned order about the plan being in compliance of the provisions of the IBC in terms of Section 30(2) of the IBC.
Law is now well settled that the jurisdiction of the Adjudicating and Appellate Authorities to interfere with approval of the resolution plan is limited. The scope of judicial review is confined to the provisions contained in Section 30(2) of the IBC for the Adjudicating Authority and Section 30(2) read with Section 61(3) for the Appellate Authority. There is only limited review which can be exercised by the Adjudicating Authority or the Appellate Authority. There can be no fetters on the commercial wisdom of CoC.
Conclusion - There is neither any material irregularity nor contravention of any provisions of law by the CoC which has been justifiably substantiated by the Appellant. In the present case when no valid grounds have been made out to challenge the approval of the resolution plan, the legislative fiat of the IBC that the Adjudicating Authority cannot trespass upon the business decision of the CoC holds ground. There are no doubts in our mind that the plan has been rightly approved by the Adjudicating Authority.
There are no good ground to interfere with the impugned order approving the resolution plan. There is no merit in the appeal. The Appeal is dismissed.
Issues: Whether claims filed by homebuyers after inordinate delay and after approval of the resolution plan could be directed to be entertained, and whether rejection of such belated claims warranted interference.
Analysis: The claims were filed more than two years after approval of the resolution plan by the Adjudicating Authority and long after the last date fixed for submission of claims. The record showed that the resolution plan itself provided only limited windows for entertaining delayed claims, and the appellants approached the process far beyond those limits. The Information Memorandum could not be faulted for not reflecting claims that were not lodged within time. Once a resolution plan is approved, claims not forming part of the plan stand frozen and claims outside the plan are extinguished, and the process cannot be reopened to accommodate stale demands. The cited precedent on inclusion of omitted homebuyer claims was held distinguishable on facts because the delay there was much shorter and the plan had not yet been approved when the claim was pursued.
Conclusion: The belated claims were not entitled to be admitted, and the order refusing to entertain them was upheld in favour of the respondent.
Refusal to entertain the belated claims of the Appellants - HELD THAT:- When the plan has already been approved by both the CoC and the Adjudicating Authority, it cannot be reopened now on the basis of claims being belatedly agitated by the Appellant who for no justifiable reasons had clearly dropped the guard of being vigilant in pursuing his claims within the time-lines laid down by IBC. Any indulgence shown by way of belated admittance of claim after the resolution plan is approved by the Adjudicating Authority, is also likely to jeopardise the CIRP since the resolution plan is already under implementation. The Adjudicating Authority has not committed any error in the given facts and circumstances in not acceding to the request of the Appellant for admission of their claims.
Conclusion - Reopening the approved resolution plan based on belated claims would jeopardize the CIRP's effectiveness.
There are no cogent grounds which warrants any interference in the impugned order - The impugned order passed by the Adjudicating Authority, not suffering from any infirmities, is hereby affirmed - appeal dismissed.
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Fraudulent Initiation of CIRP:
Imposition of Penalty under Section 65 of IBC:
Applicability of Rule 59 of the NCLT Rules, 2016:
3. SIGNIFICANT HOLDINGS
Fraudulent or malicious initiation of insolvency proceedings - penalty under Section 65 of the IBC - initiation by financial creditor, operational creditor or corporate applicant - strict construction of penal statute - procedure for imposition of penalty under Rule 59 of the NCLT Rules (Companies Act context)
Fraudulent or malicious initiation of insolvency proceedings - penalty under Section 65 of the IBC - initiation by financial creditor, operational creditor or corporate applicant - strict construction of penal statute - Whether penalty under Section 65 of the IBC can be imposed on promoters or other persons alleged to have colluded in initiation of CIRP, in addition to the person who formally initiated the proceedings. - HELD THAT: - Section 65 penalises the person who "initiates" the insolvency resolution or liquidation proceedings fraudulently or with malicious intent. "Initiation date" as defined in Section 5(11) identifies initiation as an act by a financial creditor, corporate applicant or operational creditor. Penal provisions must be strictly construed and cannot be extended by judicial gloss to create vicarious liability unless the statute so provides. Consequently, Section 65 is confined to imposing penalty upon the person who initiated the insolvency proceedings; it does not, by its language, extend to impose penalty on promoters or other persons alleged to have colluded unless they themselves are the initiators within the statutory scheme. [Paras 6, 7, 8, 9, 10]
Penalty under Section 65 can be imposed only on the person who has initiated the insolvency resolution process (i.e., financial creditor, operational creditor or corporate applicant as defined); promoters alleged to have colluded cannot be penalised under Section 65 in the absence of statutory provision making them initiators.
Penalty under Section 65 of the IBC - procedure for imposition of penalty under Rule 59 of the NCLT Rules (Companies Act context) - Whether the Adjudicating Authority's issuance of a show-cause notice (referring to Rule 59) to financial creditors was impermissible and whether this Tribunal could itself impose the penalty in appeal. - HELD THAT: - Rule 59 of the NCLT Rules, 2016, by its definition of "Act" in Rule 2(1), applies to penalties under the Companies Act, 2013 and therefore strictly governs procedure for imposition of penalties under that Act; it does not prescribe procedure for imposition of penalty under Section 65 of the IBC. Nevertheless, issuance of a show-cause notice by the Adjudicating Authority pursuant to its order does not offend any statutory prohibition; the Adjudicating Authority could have imposed penalty directly on the basis of materials, but having chosen to issue notice, that procedural course is not objectionable. Further, this Tribunal in the appeal is not empowered to impose the penalty itself; determination as to imposition and quantum of penalty under Section 65 must be made by the Adjudicating Authority in continuation of its order and in accordance with law. [Paras 11, 12, 13, 14, 15]
Rule 59 (as framed) is not the procedure for Section 65 penalties, but issuance of a show-cause notice by the Adjudicating Authority was permissible; this Tribunal will not impose the penalty in appeal and the Adjudicating Authority is directed to decide on imposition of penalty under Section 65 in continuation of its order and in accordance with law.
Final Conclusion: The Tribunal held that Section 65 penalises only the person who formally initiates insolvency proceedings (financial creditor, operational creditor or corporate applicant) and does not extend to penalise promoters alleged to have colluded; Rule 59 of the NCLT Rules pertains to procedure under the Companies Act and is not the procedural code for Section 65, but the Adjudicating Authority's issuance of a showcause notice was not impermissible. The Tribunal declined to impose penalty itself and directed the Adjudicating Authority to decide on penalty under Section 65 in continuation of its order and in accordance with law.
Issues: Whether the identified transactions were preferential transactions under Section 43 of the Insolvency and Bankruptcy Code, 2016 and whether the appellants had rebutted the forensic audit findings by showing that the transactions were in the ordinary course of business or within the statutory exceptions.
Analysis: The appeal challenged the adjudicating authority's finding that the impugned payments conferred an advantage on related parties and were not made in the ordinary course of business. The decision rested on the forensic audit reports, the materials considered by the adjudicating authority, and the absence of rebuttal evidence from the appellants. Once the respondents relied on the audit material to show a preferential transfer, the appellants bore the burden of establishing that the transactions fell outside Section 43, including the exceptions under sub-section (3), but they produced no supporting documents to prove ordinary-course dealings. The finding was also that the adjudicating authority had considered the relevant objections and evidence, and no perversity or misappreciation of material was shown.
Conclusion: The transactions were correctly treated as preferential transactions under Section 43, and the challenge to the impugned order failed.
Ratio Decidendi: A transaction may be upheld as preferential where forensic and record-based material shows preferential effect, and the party resisting the finding fails to prove that the transfer was in the ordinary course of business or within the statutory exceptions.
Preferential transaction within the ambit of Section 43 of the I & B Code, 2016 - HELD THAT:- Once the Appellants took a stand that the two transactions identified to be preferential transactions, were actually carried during the ordinary course of business of the Corporate Debtor, the burden of proof under Section 101 of Evidence Act, to prove to the contrary, had shifted upon the Appellants to show that the transactions identified in the Forensic Audit Report, were not the transaction, which will be falling under Section 43 of the I & B Code. They having failed to do so, the conclusion, which has been arrived at by the learned Adjudicating Authority, declaring the transactions, as to be the preferential transactions and the consequentially directing Respondent No.1, Respondent No.2 and Respondent No.3 to the Company Petition to restore the amount of Rs.24,29,874/- Rs.25,53,233/-and Rs.11,50,000 respectively correct in law, is contrary, to what has been attempted to be argued by the learned counsel for the Appellant based upon the grounds taken by them in the Memorandum of Appeal, to the effect that the findings which had been recorded are perverse and contrary to the record and based upon wrong appreciation of the statement and evidence, which was place by the Respondent and particularly the Forensic Audit Report of 09.11.2020 and the additional Forensic Audit Report of 03.11.2021.
The question of law which the learned counsel for the Appellants has attempted to argue before this Appellate Tribunal was from a very limited perspective, that, whether the learned Adjudicating Authority could have at all allowed the application under Section 43, without considering the objections filed by the Appellant and secondly, whether in the absence of the material particulars being placed before the learned Adjudicating Authority, it should have gone ahead to hold conclusively that the transactions were preferential transactions under Section 43 of the I & B Code. In fact, both the substantial questions, which have been pressed upon by the Appellant runs contrary to the finding, recorded by the learned Adjudicating Authority, who did consider the inferences drawn from the Forensic - In fact, in accordance with the findings recorded, it is seen that the Appellants have utterly failed to discharge their responsibility to establish their defence that the said two transactions were conducted during the ordinary course of business. Having failed to do so, they cannot take advantage of their own inaction that too, particularly when the findings have been recorded by the learned Adjudicating Authority was based upon the unrebutted Forensic Audit Reports and the additional Forensic Audit Report.
The second contention which has been raised by way of a substantial question was that, certain materials were not considered by the Ld. Adjudicating Authority while ruling the said transactions to be a preferential transaction, is contrary to the recording in the Impugned Order, wherein the learned Adjudicating Authority while extracting the relevant portion from the Audit Reports, has dealt in its Para 7 of the Order as to how the inferences on the preferential transactions have been drawn, which have been detailed based on the contents in the Forensic Audit Reports - This, read in consonance to the statements, recorded by the learned Adjudicating Authority as extracted in the concluding paragraphs of the Impugned Order will show that the Ld. Adjudicating Authority has considered all material placed before it. Thus the second question too is answered against the Appellant.
Conclusion - i) The transactions, which have been detailed and determined by the Forensic Auditors in their report do not fall to be nor it was established to be falling under the exceptions as contemplated under Section 43(3) of I & B Code, 2016, and even on bare perusal of the observations, made in Para 7 of the Impugned Order under challenge, it can be seen that the Appellant has not even endeavoured to establish the defence he has mounted that it was a transaction made in normal course of business and that it would be falling under the exceptions contemplated under Section 43(3) of the I & B Code, 2016. ii) The Appellant cannot take the advantage of his own wrong by his failure to discharge his responsibilities as statutorily envisaged under Section 101 of the Evidence Act. iii) Since the Impugned Order is based upon a sound logical reasoning upon considering the statement and evidences on record, the observations made therein does not suffer from any perversity or misappreciation of evidence by the learned Adjudicating Authority which would call for any interference.
Appeal dismissed.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Invocation of the Performance Bank Guarantee (PBG)
The legal framework involves the provisions under the Insolvency and Bankruptcy Code, 2016, particularly Regulation 36B(4A) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The regulation allows for the forfeiture of a performance security if the resolution applicant fails to implement the approved resolution plan.
The Court interpreted that the invocation of the PBG was justified as the SRA failed to implement the resolution plan. The evidence showed that despite the approval of the plan, the SRA did not make the required payments within the stipulated timeline. The invocation of the PBG was a decision taken by the majority of the lenders, indicating a collective agreement on the SRA's failure.
The appellant's argument that the PBG was not properly invoked was rejected. The Court noted that the SRA had not taken any substantial steps towards implementing the plan even after the dismissal of appeals by the National Company Law Appellate Tribunal (NCLAT).
2. Failure to Implement the Resolution Plan
The resolution plan required the SRA to infuse Rs.100 crore within 90 days from the effective date. The evidence presented showed that the SRA did not adhere to this timeline. The Court found that the SRA's failure to make the upfront payment and take real steps towards implementation justified the invocation of the PBG.
The Court dismissed the appellant's claim that ongoing litigation caused uncertainty, preventing the implementation of the plan. It was noted that there was no interim order restraining the SRA from implementing the plan, and the appellant's failure to act was unjustifiable.
3. Rejection of the Appellant's Application and Re-initiation of CIRP
The Court upheld the Adjudicating Authority's decision to reject the appellant's application challenging the invocation of the PBG and to allow the re-initiation of CIRP. The Court emphasized the importance of adhering to timelines in the CIRP process, as delays could lead to the depreciation of the corporate debtor's assets.
The appellant's request for an extension of time was also rejected. The Court noted that the appellant had not provided a specific timeframe for making the required payments and had only made a conditional offer to implement the plan.
4. Restoration of CIRP
The Court concluded that the restoration of CIRP was appropriate given the SRA's failure to implement the plan. The decision to restore CIRP was supported by the need to adhere to the timelines and ensure the corporate debtor's assets were not further diminished.
SIGNIFICANT HOLDINGS
The Court held that the invocation of the PBG was justified due to the SRA's failure to implement the resolution plan. It emphasized the importance of adhering to timelines in the CIRP process and rejected the appellant's request for an extension of time. The restoration of CIRP was deemed appropriate, aligning with the statutory framework and objectives of the Insolvency and Bankruptcy Code, 2016.
Verbatim Quotes of Crucial Legal Reasoning:
"SRA not only failed to make the Upfront payment as required under the approved Resolution Plan but also failed to take any real steps even after the dismissal of appeals by Hon'ble NCLAT."
"The CIRP process has to be completed in a timeline and timeline of the CIRP process has to be adhered by all, including the SRA."
"Timely implementation of the resolution plan is also one of the underlying objectives of the IBC."
The Court concluded that no grounds were present to interfere with the impugned order, leading to the dismissal of the appeals. The decision underscores the necessity of timely action and compliance with statutory requirements in insolvency proceedings.
Invocation of the Performance Bank Guarantee (PBG) - failure to implement the plan within the timeline as allowed - HELD THAT:- In the Monitoring Committee meeting held on 19.03.2024, it was noticed that SRA was obliged to make the payment within 90 days of the effective date - SRA was obliged to pay Rs.100 crore within 90 days. Adjudicating Authority in the impugned order has also noticed that SRA has failed to deposit the amount within 90 days as per the resolution plan. The invocation of Bank Guarantee with the UBI on 08.04.2024 was taken, which was noticed and Adjudicating Authority has observed that with consent of majority lenders of the corporate debtor, the Bank Guarantee was invoked. Letter dated 08.04.2024 invoking the Bank Guarantee itself clearly mentions that SRA failed to implement the approved resolution plan.
Although, the appellant has referred to filing of the application by the UBI to recall of the approval order and filing of the appeal by the SBI, it is relevant to notice that even after dismissal of the appeal on 13.02.2024 and rejection of IA filed by the UBI on 10.11.2023, no amount was infused by the SRA. The litigation which was initiated with respect to approval of the resolution plan could not be a reason to appellant to not adhere to the timelines as provided in the resolution plan regarding the infusion of fund upfront payment of Rs.100 crore, which was required to be paid within 90 days admittedly has not been paid by the SRA. Effective date having been achieved on 25.07.2023, it is not even contested - Invocation of PBG was on the reason that SRA failed to implement the plan. Adjudicating Authority has rightly rejected the submission of the appellant that invocation was not in accordance with the law. When the plan is not implemented by SRA, PBG can be statutorily invoked, which is the statutory scheme as delineated by Regulation 36B(4A) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
It is noticed that appellant before the Adjudicating Authority as well as before this Tribunal has submitted that appellant is still ready to deposit amount, when the appellant has failed to deposit the amount within the timeline, it is not open for the appellant to deposit the amount at the stage when the application was filed or in the hearing of the appeal. Consequences of non-adhering to the timelines in the resolution plan, cannot be reversed after considerable lapse of time, and specially, when not even first tranche of payment has been made by the SRA.
Conclusion - i) SRA not only failed to make the Upfront payment as required under the approved Resolution Plan but also failed to take any real steps even after the dismissal of appeals by Hon'ble NCLAT. ii) The CIRP process has to be completed in a timeline and timeline of the CIRP process has to be adhered by all, including the SRA. iii) Timely implementation of the resolution plan is also one of the underlying objectives of the IBC.
Thus, no grounds have been made out to interfere with the order impugned in these appeals - Appeals dismissed.
Issues: Whether the order admitting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 deserved to be set aside and the matter remanded for determination of the appellant's status as a non-banking financial company and the maintainability of the Section 7 proceedings.
Analysis: The appellant relied on its registration as an NBFC and the dispute turned on whether that status brought it within the statutory position governing financial service providers. The record showed conflicting material on the appellant's registration status, and the appellate record had not been tested with evidence before the adjudicating authority on the effect of NBFC status on the Section 7 proceeding. In these circumstances, the issue was considered appropriate for determination by the adjudicating authority after evidence, rather than being finally decided in appeal.
Conclusion: The impugned order was set aside and the matter was remanded to the adjudicating authority, leaving open the question whether the Section 7 application is maintainable against the appellant if it is an NBFC.
Admission of application filed under Section 7 of IBC - whether the Appellant being a NBFC, as certified by the regulator, namely, RBI is saved from the proceedings of the Code? - HELD THAT:- As a matter of fact, the issue regarding the appellant being NBFC and it’s effect has never been before the Ld. NCLT for the purpose of seeking dismissal of the application filed under Section 7 by the Respondent. There is no dispute that the appeal is a continuation of the original proceedings but since the Appellant has to prove, by leading evidence, if already not led, that it had been engaged in providing financial services, for challenging the application filed under Section 7, therefore, it is just and expedient to set aside the impugned order and remand the matter back to the Ld. NCLT, keeping the issue open as to whether the application under Section 7 filed by the Respondent is maintainable against the present appellant in case the Appellant is a NBFC?
Conclusion - The initial dismissal of the appeal set aside and the case remanded to the NCLT for a determination of whether the appellant, as a registered NBFC, was engaged in providing financial services, thus affecting the applicability of Section 7 proceedings.
Appeal allowed by way of remand.
Issues: (i) Whether the order admitting the Section 7 application and commencing insolvency proceedings required interference in view of the settlement proposals and objections raised by the corporate debtor and supporting stakeholders. (ii) Whether the period during which interim protection operated in the appeal should be excluded from the CIRP timeline.
Issue (i): Whether the order admitting the Section 7 application and commencing insolvency proceedings required interference in view of the settlement proposals and objections raised by the corporate debtor and supporting stakeholders.
Analysis: The disbursement of loan, the declaration of default, and the existence of debt stood established on the record. The corporate debtor's settlement proposals were considered by the lenders and were unanimously rejected. The project stakeholders, including the registered homebuyers' association and YEIDA, also opposed acceptance of the proposals. In these circumstances, the matter did not justify interference with the admission order, and the corporate insolvency resolution process had to proceed in accordance with law.
Conclusion: The challenge to the admission of the Section 7 application failed and the decision was against the appellant.
Issue (ii): Whether the period during which interim protection operated in the appeal should be excluded from the CIRP timeline.
Analysis: Since the appeal remained under interim protection for a period during which the resolution process could not progress beyond claim collation, that interval was directed to be excluded from the CIRP period.
Conclusion: The intervening period was excluded from the CIRP timeline in favour of the appellant only to that limited extent.
Final Conclusion: The appeal did not succeed against the admission of insolvency proceedings, and the CIRP was permitted to continue in accordance with law, with the interim period excluded from computation of the resolution timeline.
Ratio Decidendi: Where debt and default are established and settlement proposals are unanimously rejected by the lenders and opposed by key stakeholders, the appellate forum will ordinarily not interfere with an order admitting a Section 7 application; any period during which the resolution process was stayed in appeal may be excluded from the CIRP timeline.
Admission of Section 7 application filed by Punjab & Sind Bank - application was filed by a person duly authorized to initiate such proceedings or not - HELD THAT:- The Hon’ble Supreme Court in Anand Murti vs. Soni Infratech Pvt. Ltd. & Anr. [2022 (4) TMI 1304 - SUPREME COURT] clearly provides that in appropriate case, promoters can be permitted to complete the project. However, for passing appropriate order, the facts on each case need to be noticed and considered.
The present is a case where Appellant has submitted three different settlement plans backed by three different investors. Last investor- Apex Heights Pvt. Ltd. has been out of insolvency only on 24.07.2024. Punjab & Sind Bank who has initiated Section 7 proceeding and other two lenders Bank of Maharashtra and Punjab National Bank has out rightly rejected the settlement proposals. YEIDA who has claimed of Rs.751 Crores has also expressed its reservation to the proposal and in its affidavit has submitted that the proposals deserve to be rejected. When there are huge liabilities on the corporate debtor and lenders are not expressing their agreement with the proposal and having unanimously rejected the settlement proposal and further, the registered association of homebuyers and another set of homebuyers who had earlier initiated Section 7 proceedings against the corporate debtor in the year 2020 are opposed to any settlement plan.
Looking to the huge liabilities against the corporate debtor, it is satisfied that present is not a case where this Tribunal may interfere with the order passed by the Adjudicating Authority admitting Section 7 application. Present is a case where resolution of the corporate debtor is required to be found in accordance with statutory scheme under the IBC and the CIRP Regulations. In view of the interim order dated 29.07.2024, no further steps could be taken by the IRP except collation of the claims. The period from 29.07.2024 till today need to be excluded in the CIRP period.
Conclusion - i) The Section 7 application was filed within the limitation period and by a duly authorized person. ii) The settlement proposals submitted by the appellant were not viable and were unanimously rejected by the financial creditors and other stakeholders.
There are no merit in the appeal - appeal dismissed.
Issues: Whether the refund claim of service tax paid on one-time upfront amount for long-term lease to an industrial development corporation could be finally allowed or required remand for verification of non-availment of CENVAT credit by the recipient.
Analysis: Section 104 of the Finance Act, 1994, as introduced by section 128 of the Finance Act, 2017, exempted service tax on the specified long-term lease transactions and provided for refund of tax collected during the stated period. The refund claim was rejected only on the ground that there was no evidence to show that the recipient had not availed CENVAT credit on the tax paid. The record showed that the appellants were willing to produce a certificate and supporting documents from the recipient to establish non-availment of credit, and the issue was capable of reconsideration on the basis of such verification.
Conclusion: The matter was remanded to the adjudicating authority for de novo consideration and verification of the documents relating to non-availment of CENVAT credit, with directions to grant refund with consequential relief in accordance with law if the claim is established.
Refund of Service Tax paid - refund is denied only on the ground that there is no evidence to show whether Cenvat credit is availed by the KINFRA against the service tax paid by the appellant - HELD THAT:- It is appropriate for this Tribunal to remand the matter to adjudication authority to reconsider the issue on de-novo adjudication by verifying the documents produced by the appellants regarding non-availment of Cenvat credit by KINFRA against the service tax paid by the appellants. Appellants are directed to produce certificate regarding non availment of Cenvat credit by KINFRA from authorized Chartered Accountant of KINFRA and on verification of the same, adjudication Authority shall refund due amount with consequential relief if any in accordance with law.
Appeals are allowed by way of remand - Adjudication Authority is directed to consider the claim within 3 months from the date of receipt of the document from the appellants regarding non availment of the CENVAT credit by the KINFRA.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
Exemption under Notification No. 25/2012-S.T.
The relevant legal framework is Notification No. 25/2012-S.T. dated 20.06.2012, which exempts services provided to the Government, a local authority, or a governmental authority by way of activities ordinarily entrusted to a municipality, such as public health and sanitation conservancy.
The Tribunal observed that the appellant rendered services such as platform cleaning and garbage disposal to Indian Railways, a government entity. These services align with functions typically managed by a municipality, thus qualifying for exemption under the notification. The Tribunal rejected the adjudicating authority's view that services must be in a 'public area' to qualify for exemption, noting that railway platforms and coaches are accessible to the public.
Classification as "Cleaning Service"
Under Section 65(105)(zzzd) of the Finance Act, 1994, 'cleaning activity' is taxable if performed on commercial or industrial premises. The Tribunal found that Indian Railways, being a government entity, does not constitute a commercial concern. Citing precedents like R.K. Refreshment & Enterprises (P) Ltd., the Tribunal concluded that the services provided do not fall under the taxable category of 'cleaning service' as defined.
Service Tax Liability Post 01.07.2012
For the period after 01.07.2012, the Tribunal noted that the adjudicating authority failed to establish liability under Section 66B of the Finance Act, 1994. The demand was incorrectly confirmed under provisions applicable only until 30.06.2012. Thus, the Tribunal found no basis for the service tax demand post-01.07.2012.
Limitation Period
The Tribunal examined whether the extended period of limitation was applicable. The demand was based on disclosed records, with no evidence of suppression or intent to evade tax. Citing the case of Munna Construction, the Tribunal held that the extended period was not invocable, rendering the demand time-barred.
Penalties
Given the conclusion that the service tax demand was unsustainable, the Tribunal found no grounds for imposing penalties on the appellant or its partner.
SIGNIFICANT HOLDINGS
The Tribunal's significant holdings include:
In conclusion, the Tribunal set aside the impugned order, allowing the appeal filed by the appellant, and determined that the services rendered were exempt from Service Tax, with no penalties applicable.
Classification of services - Cleaning service or not - services in the nature of ‘upkeep/maintenance of platforms’, ‘dry sweeping of empty rakes and mechanized yard cleaning’, ‘railway platform cleaning’, ‘disposal of accumulated garbage to designated placed’, ‘on-board housekeeping service in reserved coaches of Poorva Express’ and ‘cleaning of Sonpur Railway Station platform and its surrounding area’, to the South Eastern Railways - exemption from Service Tax under Sl. No. 25 of N/N. 25/2012-S.T. dated 20.06.2012 - extended period of limitation - penalty.
Demand of Service Tax for the period up to 30.06.2012 - HELD THAT:- The 'cleaning activity' rendered is liable to Service Tax only if the same are rendered in respect of “commercial or industrial buildings and premises” or “factory, plant or machinery, tank or reservoir of such commercial or industrial buildings and premises” which are all commercial in nature. However, we find that in this case, the services were rendered by the appellant to the Indian Railways, which is a Government of India Organisation. The Department of Railways cannot be called as a 'commercial concern' as its operations of passenger transportation of passengers in trains is meant for the welfare of the general public and it cannot be considered as an activity done with a profit motive. In these circumstances, the cleaning services rendered by the appellant cannot be held liable to Service Tax for the period up to 30.06.2012.
Tribunal in the case of R.K. Refreshment & Enterprises (P) Ltd. v. Commissioner of C.Ex., Raipur [2018 (2) TMI 1412 - CESTAT NEW DELHI], wherein it was held that 'The original authority gave a reason that railway coaches are either standing on platform or running on the track and the same are to be considered as object on the premises for Indian railway holding railway coaches and contracts constituents of capital assets and machinery of Indian railway, the original authority held cleaning of such railway coaches will be considered as cleaning of commercial premises. The coaches are rolling stock of railways. They are for transport mode and cannot fall under the commercial object of industrial building, factory, plant or machinery, etc. The interpretation of the original authority is far fetched and not sustainable in view of the plain meaning of the statutory definition for tax entry.'
The demand of Service Tax confirmed in the impugned order for the period up to 30.06.2012 under the category of “cleaning service” is not sustainable
Demand of Service Tax for the period after 01.07.2012 - HELD THAT:- The appellant has been rendering the said services to the Indian Railways and it is on record that they were in correspondence with the Indian Railways regarding their Service Tax liability. The Indian Railways had instructed that the services rendered to them are not liable to Service Tax, vide Circular dated 03.05.2013 and a letter dated 03.06.2013. Further, it is observed that when the Indian Railways asked the appellant to obtain registration under ‘works contract service’, they immediately took registration on 01.10.2013. Subsequently, when they came to know that Service Tax is not being paid by others who were undertaking similar businesses, they stopped paying Service Tax and filed ‘nil’ Return for the period from October 2014 to March 2015, by availing the benefit of Entry No.25 of Notification No. 25/2012-S.T. dated 20.06.2012. Thus, the appellant has always acted as per the direction of Indian Railways.
Eligibility of the exemption as provided under Entry No. 25 of N/N. 25/2012-S.T. dated 20.06.2012 - HELD THAT:- There is no dispute that the appellant has rendered the services namely, ‘upkeep/maintenance of platforms’, ‘dry sweeping of empty rakes and mechanized yard cleaning’, ‘railway platform cleaning’, ‘disposal of accumulated garbage to designated placed’, ‘on-board housekeeping service in reserved coaches of Poorva Express’ and ‘cleaning of Sonpur Railway Station platform and its surrounding area’ to a Government body viz. the Indian Railways. The services rendered by the appellant are in the nature of “public health, sanitation conservancy and solid waste management”. Entry No.25 of the Notification 25/2012-ST exempts all such services which are rendered to Government, as the same are otherwise exempted from service tax when rendered by a Municipality. Accordingly, we find that the services rendered by the appellant are squarely covered within the ambit of Sl. No. 25 of Notification No. 25/2012-S.T. dated 20.06.2012. The appellant has rightly claimed exempted under the above Notification for the services rendered to the Indian Railways.
Time limitation - Penalty - HELD THAT:- The appellant, being a contractor engaged by the Indian Railways, took registration and paid Service Tax upon being advised by the Indian Railways. Thus, it is not a case where the appellant has collected and not paid the Service Tax to the Department. It is a case where the appellant had entertained a doubt as to their Service Tax liability and were firmly of the view that the services rendered were exempt as per Sl. No. 25 of Notification No. 25/2012-S.T. Therefore, there is no suppression of facts with intention to evade the tax on the part of the appellant existing in this case. Hence, the demand of Service Tax by invocation of the extended period of limitation is not sustainable. For the same reason no penalty imposable on the appellant.
Conclusion - The services rendered by the appellant are eligible for the exemption as provided under Sl. No. 25 of N/N. 25/2012-S.T. dated 20.06.2012 as claimed by the appellant since the said services are in the nature of public health, sanitation conservancy and solid waste management which are otherwise provided by the municipality to the general public. Accordingly, the demand of Service Tax confirmed in the impugned order is not sustainable. Since the demand itself is not sustainable, the question of demanding interest and imposing penalty on the appellant company does not arise.
The impugned order is set aside - appeal allowed.
Issues: Whether the demand of service tax, interest and penalties on sale of spares, accessories, oils, labour income and target incentive was sustainable.
Analysis: The dispute was held to be covered by the Tribunal's earlier decision in the assessee's own case. The value of spare parts used during repair and billed separately was not to be added to the value of services, and incentives received for achieving target sales were not liable to service tax under the business auxiliary service category. In view of the earlier binding decision, the impugned order could not be sustained.
Conclusion: The demand, interest and penalties were set aside and the appeal was allowed.
Levy of service tax on labour income and target incentive - HELD THAT:- The issue in the present case is squarely covered by the decision of this Tribunal in appellant’s own case 2024 (4) TMI 1232 - CESTAT ALLAHABAD wherein it is held that the service tax demands on incentives, sale of goods, and services were not legally sustainable.
The impugned order is set aside - appeal allowed.
Issues: (i) Whether clandestine manufacture and clearance could be sustained merely on the basis of a discrepancy between Form 3CD and ER-1 returns without corroborative evidence; (ii) whether invocation of the extended period of limitation and consequential penalty were sustainable; (iii) whether the adjudication order was vitiated for violation of natural justice.
Issue (i): Whether clandestine manufacture and clearance could be sustained merely on the basis of a discrepancy between Form 3CD and ER-1 returns without corroborative evidence.
Analysis: The allegation of clandestine removal was founded only on a comparison of quantities reflected in the tax audit report and the excise returns. No independent investigation, third-party material, statement-based support, excess raw material consumption, transport evidence, sale proceeds trail, or other tangible corroboration was brought on record. A discrepancy between two statutory records, by itself, was treated as insufficient to discharge the burden resting on the department in a serious allegation of clandestine clearance.
Conclusion: The charge of clandestine manufacture and clearance was not sustainable and the finding went in favour of the assessee.
Issue (ii): Whether invocation of the extended period of limitation and consequential penalty were sustainable.
Analysis: The demand was raised on the basis of records that were already available to the department during the relevant period. In the absence of proved suppression, fraud, wilful misstatement, or intent to evade duty, the extended period could not be invoked. Once the foundational allegation itself failed, the related demand and penalty could not survive on limitation alone.
Conclusion: The extended period of limitation was not invocable and the consequential penalty was unsustainable, in favour of the assessee.
Issue (iii): Whether the adjudication order was vitiated for violation of natural justice.
Analysis: The personal hearing had been concluded before one Commissioner, but the order was later passed by another Commissioner without granting an effective further opportunity. That course was treated as a breach of the right to be heard and a serious procedural infirmity affecting the validity of the adjudication.
Conclusion: The order was vitiated for violation of natural justice, in favour of the assessee.
Final Conclusion: The demand, interest, and penalties could not be sustained, and the appeals succeeded with consequential relief.
Ratio Decidendi: A demand of clandestine removal cannot be sustained merely on a mismatch between statutory returns in the absence of corroborative evidence, and the extended period of limitation cannot be invoked without proof of suppression or intent to evade duty.
Clandestine manufacture and removal - liquid medicaments - allegation on the basis of comparison of quantity clearance details as reflected in Tax Audit Report (Form 3CD) and ER-1 Returns for the period 2010-11 and 2011-12 - principles of natural justice - Extended period of limitation.
Can on the basis of difference between figures of Form 3CD and ER-1 Returns, it be alleged that the appellants are engaged in the activity of clandestine clearance of the goods? - HELD THAT:- The said issue has been examined by this Tribunal in the case of Micky Metals Ltd. vs. CCE, Bolpur [2023 (7) TMI 357 - CESTAT KOLKATA], wherein this Tribunal has observed 'time and again it is held by the judicial pronouncements as discussed hereinabove that merely on the basis of difference in the figures of audit report and ER-1 return without establishing the parameters of clandestine manufacture and removal of goods, the charge of clandestine removal is not sustainable.'
It is found that in this case the show cause notice has been issued on 29.04.2015 for the period 2010-11 and 2011-12 on the basis of difference between Form 3CD and ER-1 Returns. As all these documents were in public domain during the impugned period, therefore, as the documents are available with the department and if there any allegations required to be made that to be made during the normal period of limitation, which the Revenue has failed to do so.
Extended period of limitation - HELD THAT:- The demand pertaining to extended period of limitation is not sustainable and whole of the demand is beyond the normal period of limitation.
Conclusion - Clandestine removal is a serious charge against the manufacturer, which is required to be discharged by the Revenue by production of sufficient and tangible evidence. The charge set aside concluding that the demand for excise duty, interest, and penalties was unsustainable due to lack of evidence, violation of natural justice, and inapplicability of the extended limitation period.
There are no merit in the impugned order - appeal allowed.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Applicability of Rule 6 and Rule 16 to the Interface:
2. Invocation of the extended period for show cause notices:
SIGNIFICANT HOLDINGS
Reversal of CENVAT Credit - Inclusion of CENVAT credit availed on the "Interface", while calculating the proportionate credit to be reversed under Rule 6(3A) of the CENVAT Credit Rules, 2004 - applicability of Rule 16 of the Central Excise Rules or Rule 6 of CENVAT Credit Rules? - Invocation of extended period of limitation - penalties - HELD THAT:- If Rule 16 of the CENVAT Credit Rules 2004 provides for availing credit on goods brought into the factory for whatever purpose, it should be interpreted in a constricting manner without expanding the purposes for which a deeming fiction has been brought in. It is found that wherever legislature intended to make the deeming fiction applicable to the entirety of Rules, the same is provided by the Rule itself. The submissions of the learned Counsel for the appellants agreed upon that such an inclusive deeming fiction has been incorporated under Section 66A of the Finance Act, 1994.
It is found that in the impugned case, Rule 16 does not provide such applicability to the other Rules of CENVAT Credit Rules. It can be seen that Rule 16 brings in one such deeming fiction to cater the exigencies of the manufacturers who are likely to receive back final products for repair, re-conditioning etc. As the duty on the same has been discharged, legislature in their wisdom has permitted availment of CENVAT credit on the same. For this reason, the goods cannot be equated to be inputs for the purpose of Rule 3 of CENVAT Credit Rules as they were never been inputs - the findings of the impugned order are not sustainable on this count. The appellant has correctly not included the amount of CENVAT credit in the value of inputs for the purpose of reversal of CENVAT credit in terms of Rule 6(3A) in respect of exempted and dutiable goods manufactured by them.
Invocation of extended period of limitation - penalties - HELD THAT:- Department has not made out any case for invocation of extended period. Moreover, it is seen that extended period have been invoked in the subsequent show cause notices also in contravention of the Hon’ble Supreme Court’s decision in the case of Nizam Sugar Factory Ltd. [2006 (4) TMI 127 - SUPREME COURT], it is found that extended period cannot be invoked in the subsequent show cause notices. Further, as the appellants being subjected to audits from time to time and keeping in view that the appellants are a Public Sector Undertaking, it is found that invocation of extended period is neither warranted not substantiated. In the result, the impugned orders cannot be sustained both on merits and limitation. Therefore, they are liable to be set aside.
Conclusion - The appellants correctly excluded the "Interface" from the reversal calculation under Rule 6(3A). ii) The extended period for show cause notices was unjustified.
Appeal allowed.
The core issue considered in this judgment is whether the CENVAT credit availed by the respondent, which has been distributed by the Input Service Distributor (ISD), is admissible when the availment of CENVAT credit at the end of the ISD has not been disputed by the Revenue. Specifically, the legal question is whether the CENVAT credit availed by the respondent can be denied when the ISD has distributed the credit in compliance with the rules, and the distribution itself has not been challenged.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework involves the CENVAT Credit Rules, particularly Rule 7, which governs the manner of distribution of credit by an ISD. The relevant precedents include cases such as Tata Steel Limited and Nalco Water India Ltd., where the Tribunal held that CENVAT credit cannot be denied if the distribution by the ISD complies with the rules and is not disputed by the Revenue.
Court's Interpretation and Reasoning
The Tribunal interpreted that the ISD is an integral part of the manufacturing entity and that the distribution of credit by the ISD is valid as long as it adheres to Rule 7 of the CENVAT Credit Rules. The Tribunal emphasized that the ISD acts as an office of the manufacturer and is responsible for distributing the credit of service tax paid on input services to the manufacturing units.
Key Evidence and Findings
The Tribunal noted that there was no allegation or evidence that the ISD had taken inadmissible CENVAT credit. The distribution of credit was done in accordance with Rule 7, and there were no violations of the conditions stipulated under the rule. The Tribunal found that the services in question were availed at the head office, which is part of the appellant as a manufacturer, thereby justifying the credit distribution.
Application of Law to Facts
The Tribunal applied the law by confirming that the ISD's distribution of credit was compliant with the legal requirements, and since the Revenue did not dispute the distribution at the ISD's end, the credit availed by the respondent could not be challenged. The Tribunal referenced the Tata Steel Limited case, which dealt with a similar issue, to support its decision.
Treatment of Competing Arguments
The Tribunal considered the arguments from both the respondent and the Revenue. The respondent argued that the issue had been settled in previous cases, while the Revenue supported the impugned order. The Tribunal found the respondent's arguments more persuasive, given the consistency with established precedents and the lack of dispute at the ISD level.
Conclusions
The Tribunal concluded that the CENVAT credit availed by the respondent was admissible, as the distribution by the ISD was in compliance with the rules and not disputed. Therefore, the appeals filed by the Revenue were dismissed.
SIGNIFICANT HOLDINGS
The Tribunal held that the distribution of CENVAT credit by an ISD cannot be challenged at the recipient's end if it complies with Rule 7 and is not disputed at the ISD's end. The core principle established is that the ISD is an extension of the manufacturing entity, and its compliance with the rules ensures the validity of the credit distribution. The final determination was that the respondent's availed CENVAT credit was legitimate, and the Revenue's appeals were dismissed.
CENVAT Credit - cenvat credit availed by the respondent, has been distributed by the input service distributor as an ISD and the availment of cenvat credit by the respondent, which has been disputed at the end of ISD - HELD THAT:- The identical issue has been dealt with by this Tribunal in the case of Tata Steel Limited [2024 (10) TMI 50 - CESTAT KOLKATA], wherein this Tribunal has observed that 'As it is an admitted fact that the availment of CENVAT Credit on intellectual property service was not disputed at the end of the ISD/TSL, Kolkata, the CENVAT Credit cannot be declared as inadmissible CENVAT Credit to the appellant who has taken the CENVAT Credit on the strength of the invoices issued by the ISD. In these circumstances, we hold that the appellant is entitled to take CENVAT Credit and accordingly, there is no requirement of reversal of CENVAT Credit by the appellant.'
Conclusion - A the distribution of cenvat credit to the respondent has not been disputed by the Revenue at the end of the Input Service Distributor, in that circumstances, it cannot be disputed at the end of the availment of cenvat credit by the respondent.
There are no infirmity with the impugned orders - appeal of Revenue dismissed.
Issues: Whether the impugned orders should be set aside and the matter remanded for fresh consideration on merits after verification of the documents claimed to have been produced, along with the other grounds raised in revision.
Analysis: The assessment had proceeded ex parte, and the assessee asserted that original tax invoices, payment registers and party ledgers had been furnished before the revisional authority. The record also showed that partial relief had already been granted at the revisional stage, while the tribunal had not addressed the factual dispute and the other grounds, including limitation and alleged non-service of notices, in a manner warranting finality. Since the controversy required factual verification of documents said to be in the assessee's possession, a fresh adjudication by the authority having jurisdiction was considered appropriate.
Conclusion: The matter was remanded for fresh decision on merits after affording an opportunity of personal hearing and considering the submissions and documents to be placed by the assessee.
Confirmation of best of judgment assessment made on the writ petitioner by the assessing authority - dismissal of application filed by the writ petitioner primarily on the ground that the order passed by the Fast Track Revisional Authority, impugned before it, is a well reasoned order and does not appear to have infringed any provision of law and any said principle of law - HELD THAT:- Since the matter involves verification of the documents, which the petitioner asserts to have produced along with its reply to the verification report, we are of the view that one more opportunity can be granted to the writ petitioner to go before the 4th respondent, which authority presently has jurisdiction viz., West Bengal Commercial Taxes Appellate and Revisional Board so that a factual verification can be done.
In any event, as the matter requires verification of the documents, which are stated to be in possession of the writ petitioner, therefore, it will be justified in remanding the matter back to the 4th respondent for a fresh consideration of all issues, which were raised by the writ petitioner in the grounds of revision initially filed before the Revisional Board, which stood transferred to the Fast Track Revisional Authority as well as the issues, which were canvassed in the rebuttal/reply to the verification report dated September 17, 2019.
Conclusion - The Court emphasized the need for factual verification of the documents claimed to have been submitted by the petitioner. The petitioner expressed readiness to produce the documents before the Court.
Petition allowed by way of remand.
Issues: Whether the assessee should be granted one last opportunity to produce declaration Form C and whether the matter should be remanded to the Assessing Authority for verification and fresh decision.
Analysis: The appeal arose from rejection of the assessee's claim for concessional treatment under the Central Sales Tax regime on the ground that declaration Form C had not been produced despite earlier opportunities. The record indicated that repeated chances had already been afforded, but the assessee stated before the Court that the relevant Form C declarations were in its possession and could be produced before the Assessing Authority. In the interest of justice, the Court accepted that statement and found it to permit a final opportunity, while also making clear that no further opportunity would be granted.
Conclusion: The assessee was granted one last opportunity to produce Form C before the Assessing Authority, and the matter was remanded for verification and passing of a fresh order.
Final Conclusion: The earlier orders did not attain finality on the merits of the Form C claim, and the tax demand issue was sent back for reconsideration after verification of the declarations.
Ratio Decidendi: Where a party asserts possession of declaration forms material to tax liability, the appellate forum may, in the interest of justice, grant a final opportunity and remand the matter for verification, even after earlier defaults, but without extending indefinite indulgence.
Sales under concessional rate of tax against declaration in Form ‘C’ i.e. exemption from tax in sale in transit and regarding Camp sales - whether the appellant is entitled to further time to produce the declaration forms in Form 'C' under the Central Sales Tax Act, 1956, to support their claim for a concessional rate of tax? - HELD THAT:- Though perusal of the record shows that the appellant was granted a number of opportunities to produce declaration Form ‘C’ but it was not able to produce the same before the Assessing Authority, still in the interest of justice and as per the statement of the learned counsel for the appellant, since the appellant is in possession of declaration Form ‘C’, one last opportunity is granted to the appellant to produce the declaration in Form ‘C’ before the Assessing Authority.
The case is remanded to the Assessing Authority to consider and verify the declaration Form ‘C’ produced by the appellant and after considering the same, pass a fresh order - one last opportunity is granted to the appellant to produce the declaration Form ‘C’ before the Assessing Authority within a period of two weeks from the date of passing of this order and the Assessing Authority is directed to consider and verify the same and pass a fresh order.
Conclusion - The appellant should be granted one final opportunity to produce the Form 'C' declarations before the Assessing Authority within two weeks.
Appeal disposed off.
Issues: Whether the penalty imposed under the Kerala Value Added Tax regime was justified when the goods were being taken by an employee only for hallmarking and there was no material to show that the goods were meant for sale or that there was any tax evasion; and whether the Tribunal was right in limiting the penalty to the statutory minimum.
Analysis: The goods were found in the possession of an employee who was carrying them to a hallmarking centre on behalf of the assessee and it was not in dispute that they were intended to be returned to the assessee's store after hallmarking. The revenue did not establish that the goods were meant for sale within the State or in interstate trade, nor was there material to show a possible evasion of tax. The assessee was also paying tax on compounded basis, so any alleged suppression of turnover in the year in question had no bearing on the tax liability for that year. In these circumstances, the Tribunal found no justification for a penalty calculated on alleged suppressed sales and restricted the penalty to the amount mandated under the statutory provision.
Conclusion: The penalty based on alleged suppressed turnover was not sustainable on the facts, and the Tribunal was justified in confining the liability to the statutory minimum.
Cancellation of penalty imposed u/s 47 (6) of the KVAT Act - documents accompanied has no connection with the gold detained and said documents are not valid documents because of variation of quantity, non declaration of the said delivery chalan before the assessing authority and non mentioning the date of transport - HELD THAT:- The appellate tribunal took note of the factual position obtaining with regard to the seizure of the gold ornaments from the employee of the respondent/assessee. As is apparent from a reading of the proceedings of the intelligence officer, the jewellery that was seized was found in the possession of one Sumesh who was standing at the hallmarking centre where he had been entrusted to take the gold ornaments by the respondent/assessee. It was not in dispute that the jewellery in his possession was being taken for the sole purpose of hallmarking and thereafter returning to the store of the respondent/assessee. The revenue also did not have a case that the goods were meant for sale and that therefore there was a possible evasion of tax.
It is also significant that the respondent/assessee was paying tax on compounded basis, based on the tax paid in the immediately preceding assessment year. In the absence of any material to suggest that the gold ornaments that were seized from the employee of the assessee were meant for sale either within the State or inter-state, and finding that the assessee was paying tax on compounded basis in which event any suppression of turnover in the present year would have no bearing on his tax liability for the said year, the appellate tribunal was of the view that there was no justification for the imposition of any penalty based on the turn over computed of alleged suppressed sales. The tribunal accordingly confirmed the penalty only to an extent of Rs.10,000/- as mandated under Section 67 (1) (j) of the Kerala Value Added Tax Act.
Conclusion - No evidence of tax evasion or suppression of turnover that would impact the assessee's tax liability for the year. Therefore, the appellate tribunal's decision to confirm a reduced penalty of Rs. 10,000 under Section 67 (1) (j) of the Kerala Value Added Tax Act was upheld.
The O.T. Revision dismissed.
Issues: Whether prior permission granted by the Commissioner for reassessment under Section 29(7) of the Punjab VAT Act, 2005 was invalid for want of a prior hearing to the assessee.
Analysis: The challenged sanction was held to be only a prior administrative approval and not a quasi-judicial determination. The statutory scheme contemplated that the designated officer, after obtaining permission from the Commissioner, would proceed with amendment of the assessment and provide the dealer an opportunity of hearing at that stage. In view of the statutory language and the earlier decision upholding the provision, no prior personal hearing was required before the Commissioner granted approval. The Tribunal had therefore correctly confined itself to the validity of the permission order and rightly rejected the challenge.
Conclusion: The prior permission for reassessment was valid, and the challenge based on absence of pre-decisional hearing failed.
Validity/correctness of order granting permission/sanction for re-assessment - Commissioner is entitled to grant such permission for reassessment without affording opportunity of hearing to the Assessee or not - violation of principles of natural justice - HELD THAT:- It is to be noted that vide order dated 08.07.2014 in CWP-12839- 2014 [2015 (3) TMI 479 - PUNJAB & HARYANA HIGH COURT] and other connected writ petitions, vires of Section 29 (7) of PV Act were upheld, approval given by Commissioner and notices issued by concerned authority for amending assessment order were held to be in order and without any fault.
Reference was thereafter made to Rule 49 of Punjab VAT Rules in regard to amendment of assessment and procedure to be followed therein. In respect to question of grant of opportunity of hearing at the stage of grant of approval, while referring to judgment of Hon’ble the Supreme Court in Assistant Commissioner Assessment-II, Bangalore and others versus Velliappa Textiles Limited and another [2003 (9) TMI 3 - SUPREME COURT], it was held that grant of sanction is a purely administrative act with no opportunity of hearing required to be provided to the affected person before it.
The learned Tribunal has correctly proceeded to dismiss the appeals filed by present appellant - appeal dismissed.
Issues: (i) whether the auction purchaser acquired ownership or leasehold rights in the plot when the original lease was never executed; (ii) whether any direction could be issued for appropriation of sale proceeds towards unearned income payable to the appellant.
Issue (i): whether the auction purchaser acquired ownership or leasehold rights in the plot when the original lease was never executed.
Analysis: The agreement dated 17 July 1957 was only an agreement to lease and, by its own terms, created no right, title or interest until a lease was executed and registered. The admitted position was that no lease deed was ever executed. M/s Mehta Constructions could therefore pass only such rights, if any, as it had under the agreement, and the purchaser in liquidation could not acquire ownership or independent leasehold rights in the land. The auction was also on an as-is basis and could not enlarge the transferor's interest.
Conclusion: The auction purchaser was not entitled to ownership or leasehold rights in the plot.
Issue (ii): whether any direction could be issued for appropriation of sale proceeds towards unearned income payable to the appellant.
Analysis: The amount realised in the liquidation proceedings was subject to claims of multiple creditors, and the liquidation process was still pending before the Company Court. In that situation, no direction could be issued to divert part of the funds towards unearned income. The appellant was left free to pursue appropriate remedies in accordance with law, and any request for regularisation or acceptance of unearned income was to be considered by the appellant on its own merits.
Conclusion: No direction for payment or appropriation towards unearned income was issued.
Final Conclusion: The appeal was dismissed after clarifying that the respondent could not claim ownership or leasehold rights, while the appellant's remedies against the parties concerned and any request for regularisation remained open in accordance with law.
Ratio Decidendi: An agreement to lease does not confer transferable rights in the land until the lease is executed and registered, and a transferee cannot acquire a better title than that held by the transferor; liquidation proceeds also cannot be diverted for unearned income where they remain subject to competing claims in pending insolvency proceedings.
Sale of plot in the auction - acquisition of leasehold rights in the plot through the agreement to lease executed by the Delhi Development Authority (DDA) - entitlement of the appellant to claim unearned income from the transactions involving the plot - HELD THAT:- It is an accepted position that the lease was never executed by the appellant in favour of M/s Mehta Constructions, and no rights, title, and interest were created in favour of M/s Mehta Constructions in respect of the said plot. Therefore, at the highest, the second respondent, by virtue of the sale deed dated 15th February 1985, executed by M/s Mehta Constructions, can claim benefits under the lease agreement, provided in law, the second respondent is entitled to it in accordance with law.
The first respondent will get only those rights which M/s Mehta Constructions had under the lease agreement, provided the rights can be claimed at this stage. In fact, in the impugned judgment, the Division Bench of the High Court had observed that the auction would not amount to sale of the said plot. The impugned judgment leaves the remedy of the appellant open to proceed against the concerned parties. These findings have been accepted by the first respondent.
As regards the unearned income, the Division Bench was right in not passing any order on that behalf. We cannot direct the funds available in liquidation proceedings for payment of the unearned income as large number of claims have been submitted.
Conclusion - The first respondent cannot claim to be a lessee as the lease in terms of the lease agreement was never executed. At the same time, if according to the case of the appellant, M/s Mehta Constructions had committed breach of the lease agreement, notwithstanding the impugned orders, it will be always open for the appellant to adopt appropriate remedy for recovery of possession and/or recovery of unearned income against the first respondent.
Appeal dismissed.
Issues: Whether the petitioner had made out a prima facie case that the arbitral award was induced or affected by fraud or corruption so as to justify unconditional stay under Section 36 of the Arbitration and Conciliation Act, 1996.
Analysis: The application was considered under Section 36(2) and Section 36(3) of the Arbitration and Conciliation Act, 1996, with the second proviso requiring the Court to be prima facie satisfied that the making of the award was induced or affected by fraud or corruption. The challenge was directed not to the arbitration agreement itself, but to the manner in which the award was made and the conduct of the arbitrator. The Court found that both sides had been given opportunity to place documents, that the arbitral record did not support a denial of fair hearing, and that the petitioner had not established deliberate suppression, concealment, or unethical conduct amounting to fraud or corruption. Mere criticism of the arbitral findings, or an alleged erroneous interpretation of the contract and GST component, was held insufficient to satisfy the higher threshold required for unconditional stay.
Conclusion: The petitioner failed to establish prima facie fraud or corruption, and unconditional stay of the award was refused. A conditional stay was granted on furnishing security for the awarded sum.
Ratio Decidendi: Unconditional stay of an arbitral award under the second proviso to Section 36(3) of the Arbitration and Conciliation Act, 1996 can be granted only on a prima facie showing that the making of the award was induced or affected by fraud or corruption, and mere allegations of erroneous appreciation of evidence or contract terms do not meet that threshold.
Application under Section 36 (2) of the Arbitration and Conciliation Act, 1996 - prayer for unconditional stay of the award - agreements between the parties specifically provided for the treatment of the GST component included in the lease rentals tendered by the claimant's lessee to the respondent or not - entitlement to adjust all the money deposited into the designated account against the universal dues of the respondent against the claimant - alleged obligation of the respondent to make over the GST component of the lease rentals was subject to the claimant furnishing proof of deposit of the GST with the appropriate authorities - HELD THAT:- This court holds that the petitioner has failed to discharge the onerous duty to, prima facie, satisfy from the records that, the making of the award was vitiated by fraud and corruption. The threshold to prove fraud and corruption on the part of the learned Arbitrator in the making of the award would be much higher than a criticism of the findings of the learned Arbitrator. The petitioner would have to demonstrate unethical behaviour of the Arbitrator, which surpassed all moral standards.
An honest mistake or the incorrect appreciation of the terms of the contract cannot be either fraud or corruption. Moreover, the petitioner has also failed to substantiate that the respondent had intentionally withheld documents in order to mislead the learned Arbitrator and had obtained the award by unfair means. The petitioner was permitted to produce documents and calculations including the sanction letter and the RBI circular, which the petitioner failed to do. After closure of arguments, a unilateral statement of account was sought to be produced, which the learned Arbitrator held could not be looked into.
The petitioner had failed to show, prima facie, that the respondent had deliberately, in a premeditated way and with an intention to gain undue advantage, had suppressed and concealed documents from the learned Arbitrator or had misled the learned Arbitrator into the making of the award. The calculation has been provided by the award holder.
The law is well settled. An award debtor will have to secure the entire amount awarded, which includes the principal as also interest. This court does not find any reason to grant unconditional stay of the award - The petitioner must secure the sum of Rs. 8,40,52,832/- by furnishing a bank guarantee to the satisfaction of the learned Registrar Original Side, Calcutta. The bank guarantee shall be kept renewed from time to time. There shall be unconditional stay of the award for a period of four weeks from date and the stay shall continue till disposal of the application under Section 34 of the Arbitration Conciliation Act, 1996, upon compliance of this order. In case of default, the stay shall be vacated.
Conclusion - The petitioner was not entitled to an unconditional stay of the arbitration award. The petitioner was required to secure the awarded amount by furnishing a bank guarantee. The allegations of fraud and corruption were not substantiated, and the arbitration award was upheld as valid.
Petition disposed off.
Issues: Whether leave to appeal against acquittal under Section 138 of the Negotiable Instruments Act, 1881 was warranted in view of the presumption under Section 139 and the accused's defence that rebutted the complainant's case.
Analysis: The complainant's evidence and documents were scrutinised against the settled law that once execution of the cheque is admitted, Section 139 raises a rebuttable presumption of debt or liability. That presumption operates as a reverse onus clause, but the accused need only establish a probable defence on the standard of preponderance of probabilities. The record showed that the complainant could not satisfactorily prove the underlying transaction, the receipt of goods by the accused, or the supporting account records and stock documents. The defence that the cheque book had been lost and that the cheque was not issued towards a legally enforceable debt was accepted as a probable defence, and the complainant failed to dislodge it with cogent material.
Conclusion: Leave to appeal was rightly refused because the acquittal was supported by the evidence and no interference was called for.
Seeking leave to file an appeal against the judgment and order - Dishonour of cheque - acquittal of accused - rebuttal of presumption - HELD THAT:- On perusal of the evidence produced by the applicant before the learned Trial Court the applicant has filed his examination in chief at Exh.4 and has narrated all the facts of the complaint on oath. The applicant has been cross examined at length and during the cross-examination the applicant has stated that he maintains books of accounts and pays income tax and files his Income Tax Returns. That he has not produced the extract of the entry to show that the amount is due from the accused. That he has not produced the Balance Sheet of the financial year 01.04.2015 to 31.03.2016 and the bill produced at Exh.14 does not bear the signature of the customer. The accused has sent a reply to the notice but the same is not produced on record and he has not declared the date and the quantity of goods taken by the accused.
The learned Trial Court has concluded that the applicant has not proved that the accused is doing the business of gold and silver, and the applicant has not proved that the goods mentioned in the bill produced at Exh.14 were received by the accused - The accused had sent a reply to the notice and had denied all the facts stated by the applicant and had also raised the issue that his cheque book was lost before the competent authority and has raised raised a probable defence and successfully rebutted the presumption.
Moreover, the learned Trial Court has considered all the documents produced by the applicant and has also considered that the defence of accused is believable and applicant had not produced any cogent evidence to disbelieve the defence of accused and has not produced any evidence in support of written arguments submitted by the applicant. The applicant has failed to prove his recoverable debt and the applicant has failed to prove beyond reasonable doubt that the cheque in question was given as repayment of a legal debt as the cheque book with series number of the cheque was lost and a publication was also given to the competent authority.
Conclusion - The appellant's failure to prove the debt and the respondent's successful defense warranted the acquittal.
The present application seeking leave to present an appeal under Section 378(4) of the Code of Criminal Procedure fails and is hereby dismissed.
TaxTMI 