TaxTMI Updates e-Newsletter
Mar 16,2022

Summons under Section 70 of the Central Goods and Services Tax Act, 2017 - jurisdiction to issue summons in the course of GST investigation - prima facie material for exercise of investigative powers - apprehension of arrest as a ground for interim protection - investigative action following search and seizure

Summons under Section 70 of the Central Goods and Services Tax Act, 2017 - jurisdiction to issue summons in the course of GST investigation - prima facie material for exercise of investigative powers - Validity of the summons issued to the petitioners under Section 70 of the CGST Act - HELD THAT: - On prima facie consideration the Court found that summons were issued in the course of an ongoing investigation arising from searches and seizure operations into alleged large-scale GST evasion. The Court noted that material had been seized during searches and that the authorities were entitled to record statements of persons whose involvement emerged from the investigation. There was no satisfaction on the limited record before the Court that the issuance of summons was without jurisdiction, that it lacked any material basis, or that it was actuated by mala fide intention. The Court declined to treat the mere issuance of summons at the investigation stage as unlawful when connected to incriminating material discovered during searches.

Issuance of summons was within the authority of the respondents and not shown to be without jurisdiction; challenge to jurisdiction rejected on prima facie basis.

Apprehension of arrest as a ground for interim protection - investigative action following search and seizure - Whether the petitioners' apprehension of arrest justified grant of interim protection against arrest - HELD THAT: - The petitioners sought interim protection against an apprehended arrest relying on asserted absence of any connection with the alleged evasion. The Court observed that multiple persons had been summoned and only some had been arrested, and that arrest of one director did not preclude further action against others. Given that investigation was at an early stage and the authorities proffered the need to record statements based on material recovered, the Court was not persuaded on prima facie grounds that every person called would be arrested or that the apprehension warranted interim relief. The Court emphasised that whether the petitioners are involved will depend on the outcome of the investigation.

Application for interim protection against arrest rejected.

Summons under Section 70 of the Central Goods and Services Tax Act, 2017 - jurisdiction to issue summons in the course of GST investigation - Submission that proceedings under Section 70 could be initiated only after final assessment - HELD THAT: - The contention that Section 70 proceedings may be invoked only after completion of a final assessment was considered on prima facie basis and found not to be borne out by the statutory scheme. The Court observed that investigatory steps, including issuance of summons to record statements, can legitimately precede final assessment where searches and seizures have disclosed material necessitating further inquiry.

Submission that Section 70 proceedings are permissible only post-assessment rejected on prima facie consideration.

Final Conclusion: On prima facie consideration the interim stay applications are rejected; the respondents are granted two weeks to file their replies and the writ petitions are listed for final disposal immediately after two weeks.

Repeal and saving clause - preservation of rights, privileges, obligations and liabilities on repeal - appeal remedy under the repealed enactment - continuance of proceedings as if Act not repealed - forum for challenge to tax demand after statutory change

Repeal and saving clause - preservation of rights, privileges, obligations and liabilities on repeal - appeal remedy under the repealed enactment - Whether repeal of the Finance Act, 1994 by the CGST Act, 2017 affected the assessee's right to prefer an appeal under the Finance Act, 1994 against the ex parte demand order dated 31.12.2015, and which appellate forum is available. - HELD THAT: - The Court examined Section 174 of the CGST Act, 2017 and observed that the saving provisions in sub-section (2), particularly clause (c), protect rights, privileges, obligations and liabilities acquired, accrued or incurred under the amended or repealed Acts. The Court further noted the saving in sub-section (2)(f) which preserves proceedings including appeals instituted before, on or after the appointed day and provides for their continuance as if the repealing Act had not come into force. Applying these provisions, the Court held that the tax liability and attendant rights of the assessee that arose under the Finance Act, 1994 are saved by Section 174(2), and consequently the right to prefer an appeal under Section 84 of the Finance Act, 1994 is preserved. The Court also observed that, insofar as the alternative position is concerned, the impugned order would in any event be amenable to challenge under the appellate provisions of the CGST Act, 2017. On this basis the Court declined to entertain the writ remedy at this stage and directed that the available appellate remedies be availed. [Paras 11, 12, 13]

The repeal did not extinguish the assessee's right of appeal under Section 84 of the Finance Act, 1994; the order is appellable and the petition is dismissed with liberty to pursue appellate remedies in accordance with law.

Final Conclusion: Writ petition dismissed; the saving provisions of Section 174(2) of the CGST Act, 2017 preserve the rights and liabilities arising under the Finance Act, 1994, and the petitioner is relegated to the appropriate appellate remedy (including appeal under Section 84 of the Finance Act, 1994 or the appellate forum under the CGST Act, 2017) in accordance with law.

Voluntary payment under Section 74(5) of the CGST Act - involuntary recovery and coercion during investigation - wrongful availment of input tax credit - refund claim under Section 54 of the CGST Act - power of inspection, search and seizure and power to summon under the CGST Act - constitutional protection against tax collected without authority of law (Article 265 and Article 300A)

Voluntary payment under Section 74(5) of the CGST Act - refund claim under Section 54 of the CGST Act - Whether the amounts deposited by the assessee during the investigation were voluntary payments under Section 74(5) of the CGST Act. - HELD THAT: - Section 74(5) permits a person to pay tax, interest and a fifteen per cent penalty on his own ascertainment and to inform the proper officer in writing. The material on record contains no written communication from the company admitting liability or demonstrating a self-ascertainment under Section 74(5). The company contemporaneously communicated that the deposit was made without prejudice and expressly reserved its right to claim a refund; the DRC-03 entry and the communication of 30.11.2019 reiterate that the payment was not an admission of liability. The Gujarat High Court guidelines referred to for search/inspection conduct were not shown to have been followed. On these facts the Court found no basis to treat the payments as voluntary under Section 74(5). [Paras 19, 20, 21]

Payments were not voluntary under Section 74(5) and therefore not barred from refund on that ground.

Involuntary recovery and coercion during investigation - power of inspection, search and seizure and power to summon under the CGST Act - Whether the amounts were recovered from the company under coercion and threat of arrest during the investigation. - HELD THAT: - The officers acted under statutory powers of inspection (s.67) and summons (s.70). The deposits were made at odd hours during the investigation and there is no material to show any pre-existing liability due on those dates. Precedents establish that amounts collected during investigation without adjudication are liable to be refunded. While factual findings about specific threats or coercion are essentially questions of fact beyond the scope of a summary writ proceeding, on the material before the Court it is inferred that the deposits were made involuntarily and not as admissions of liability. [Paras 22, 24, 25]

Amounts were paid involuntarily during the course of investigation and not as voluntary admissions of liability.

Wrongful availment of input tax credit - constitutional protection against tax collected without authority of law (Article 265 and Article 300A) - Whether the conduct of DGGI officers in the investigation was high-handed and arbitrary and whether such conduct has been finally determined in this writ proceeding. - HELD THAT: - The company alleged high-handed conduct, locking of premises and threats to the directors. The Department disputed these allegations. Such contentions involve specific factual inquiries and identification of officer-wise conduct which have not been pleaded against individual officers or established on the record; accordingly they cannot be adjudicated finally in summary writ jurisdiction under Article 226. The Court reiterated that statutory powers must be exercised reasonably and in good faith and that recovery without authority of law engages Articles 265 and 300A; nonetheless the question of individual officer misconduct was left open for appropriate proceedings. [Paras 26, 27, 31]

Allegations of high-handed and arbitrary conduct by DGGI officers are not finally adjudicated in this writ; the issue is left open to be agitated in an appropriate forum.

Refund claim under Section 54 of the CGST Act - Whether the writ petition suffers from delay or laches and whether the refund claim was time-barred. - HELD THAT: - Section 54 requires refund applications to be made within two years of the relevant date. The company made refund applications within the statutory two-year period and filed the writ petition thereafter when administrative relief was not forthcoming. The Court applied the principle that delay is evaluated on facts and found no laches or prejudice to the department arising from the timeline of the company's actions. Therefore the claim and the writ were held to be timely. [Paras 28, 29, 30]

No delay or laches in filing the refund claim or the writ petition; the claim falls within the statutory period.

Final Conclusion: The Division Bench agreed with the Single Judge that the sums deposited by the company during the DGGI investigation were not voluntary payments under Section 74(5) and were made involuntarily; the deposits cannot be treated as made under authority of law and are liable to be refunded. Allegations of high-handed conduct by investigating officers were left open for appropriate proceedings. The appeal is dismissed.

Classification under Customs Tariff headings (2008 vs 2106) - residuary entry versus specific heading rule - application of General Rules for the Interpretation of the Import Tariff (Rule 1, Rule 2(a), Rule 3(a)) - role of Supplementary Note No.6 of Chapter 21 in classification of 'namkeens' and 'sweetmeats' - common parlance test for 'namkeen' and 'sweetmeat'

Classification under Customs Tariff headings (2008 vs 2106) - application of General Rules for the Interpretation of the Import Tariff (Rule 1, Rule 2(a), Rule 3(a)) - residuary entry versus specific heading rule - Classification and GST rate applicable to chips made from jackfruit, banana (raw and ripe), potato, tapioca, chembu and pavakka - HELD THAT: - The Appellate Authority examined whether the fried/salted/masala fruit and vegetable chips fall under the residuary heading 2106 (miscellaneous edible preparations) or under the more specific heading 2008 (prepared or preserved fruits, nuts and other edible parts of plants). The Authority applied the Explanation to the GST rate notification making the Customs Tariff rules and notes applicable, and proceeded through Rules 1, 2(a) and 3(a) of the General Rules for interpretation. Rule 2(a) contemplates that an article presented in an incomplete or processed form is included if it retains the essential character of the complete article; Rule 3(a) prefers the most specific description over a general/residuary heading. The Authority found that frying and salting did not alter the essential character of the fruits or vegetables and that chapter 20/heading 2008 contains specific entries (including 2008.19.40) covering roasted and fried vegetable/fruit products. Since a specific heading applies, the residuary heading 2106 cannot be invoked. The Authority therefore held that the chips are classifiable under tariff heading 2008.19.40 and not under heading 2106, and are to be taxed as per the entry applicable to heading 2008. [Paras 6]

Jackfruit, banana (raw and ripe), potato, tapioca, chembu and pavakka chips are classifiable under Customs Tariff Heading 2008.19.40 and attract the rate specified for that heading in the GST rate schedule.

Classification under Customs Tariff headings (2008 vs 2106) - residuary entry versus specific heading rule - Classification and GST rate applicable to roasted/salted/roasted-and-salted groundnuts, cashew nuts and other seeds - HELD THAT: - The Authority considered whether roasted/salted nuts and seeds fall within the specific subheadings of chapter 20 or under the residuary heading 2106. Having regard to the chapter and explanatory notes, and the specific tariff items enumerated under heading 2008, the Authority held that roasted/salted cashew nuts and other roasted/salted groundnuts and seeds are covered by specific tariff items in chapter 20 (notably 2008.19.10 and 2008.19.20). The principle that a residuary entry cannot be invoked where a specific heading applies was applied in reaching this conclusion. [Paras 6]

Roasted/salted/roasted-and-salted cashew nuts and roasted/salted/roasted-and-salted groundnuts and other nuts/seeds are classifiable under the specific tariff items in chapter 20 (2008.19.10 / 2008.19.20) and attract the rate applicable to heading 2008.

Final Conclusion: The appeal is dismissed. The Advance Ruling under challenge is upheld with modification: the chips made from jackfruit, banana, potato, tapioca, chembu and pavakka are classifiable under Customs Tariff Heading 2008.19.40 and the roasted/salted nuts under the specific 2008 subheadings, and are taxable at the rate provided for those entries in the GST rate schedule.

Tax deduction at source u/s 194A - notification dated 22 October 1970 - exemption for statutory undertakings and bodies financed wholly by Government - penalty under Section 271C

TDS u/s 194A on payments of interest made to the Agra Development Authority. Agra Development Authority is a statutory body constituted under the provisions of the UP Urban Planning and Development Act 1973 - HELD THAT:- The issue which is raised in the present appeals is covered in Commissioner of Income Tax (TDS) Kanpur and Another vs Canara Bank [2018 (7) TMI 664 - SUPREME COURT] wherein the issue pertained to the applicability of the notification dated 22 October 1970 in relation to payments made by Canara Bank to the New Okhla Industrial Development Authority (“NOIDA”), an authority constituted under Section 3 of the Uttar Pradesh Industrial Area Development Act 1976. The Bank had not deducted tax at source under Section 194-A which led to notices being issued, resulting in consequential action. This Court, after considering the terms of the notification held that NOIDA which has been established under the Act of 1976 is covered by the notification dated 22 October 1970. Though the statute under which the Agra Development Authority has been constituted is the UP Urban Planning and Development Act 1973, the same principle which has been laid down in the judgment of this Court in Canara Bank (supra), would govern the present case.

We accordingly allow the appeals and set aside the impugned judgment and order of the Division Bench of the High Court of Judicature at Allahabad in Income. The orders imposing penalty under Section 271C of the Income Tax Act 1961, shall in the circumstances be set aside.

Faceless assessment - principles of natural justice - personal hearing under Section 144B(7)(vii) - show cause notice-cum-draft assessment order - Standard Operating Procedure for personal hearing through video conference

Personal hearing under Section 144B(7)(vii) - principles of natural justice - show cause notice-cum-draft assessment order - Failure to grant the petitioner a personal hearing on a specific request made in response to the draft assessment order, and whether that omission complied with the requirements of Section 144B and principles of natural justice. - HELD THAT: - The petitioner was served with a show cause notice-cum-draft assessment order and filed written submissions in response, specifically requesting an opportunity for personal hearing. Despite this, the Assessing Officer completed the final assessment without granting any personal hearing. Section 144B(7)(vii) envisages that where a variation is proposed in a draft assessment order and the assessee is called upon to show cause, the assessee may request a personal hearing to make oral submissions; the faceless assessment SOP contemplates personal hearings through video conference where a written response disputes the facts underlying the proposed modification. The court relied on earlier observations recognizing that the statutory provision and the SOP require that a request for personal hearing be considered and that the revenue cannot ignore the mandate for personal hearings in appropriate cases. Given the undisputed request by the petitioner and the absence of any recorded exercise of discretion refusing a hearing, the failure to afford the requested personal hearing resulted in a breach of the principles of natural justice and non-compliance with the procedure prescribed under Section 144B and the SOP. The court therefore set aside the final assessment order and consequential notices, while leaving the Assessing Officer free to proceed afresh in accordance with law and after considering any request for personal hearing as per the statutory scheme and SOP. [Paras 3, 4, 5]

The assessment order dated 07.06.2021 and the consequential notice of demand and notice for initiation of penalty proceedings are set aside for non-compliance with Section 144B and the principles of natural justice; the Assessing Officer may proceed further in accordance with law.

Final Conclusion: Writ petition allowed; impugned assessment order dated 07.06.2021 and consequential notices quashed for failure to grant the requested personal hearing under the faceless assessment scheme; liberty granted to the Assessing Officer to proceed afresh in accordance with law and the SOP.

Section 44AB audit requirement - gross receipts from profession - partners' remuneration - carrying on profession versus carrying on business - invalid return under Section 139(9) - revision under Section 264

Section 44AB audit requirement - gross receipts from profession - partners' remuneration - carrying on profession versus carrying on business - Whether the assessee was required to get her accounts audited under Section 44AB for A.Y.-2017-2018 - HELD THAT: - The Court examined clause (b) of Section 44AB which mandates audit where a person "carrying on profession" has gross receipts in profession exceeding the specified threshold. The Court accepted the petitioner's submission that the remuneration received as a working partner from partnership firms cannot be treated as the petitioner's "gross receipts in profession" or as turnover of the petitioner carrying on business. The Court observed that the clauses of Section 44AB dealing with business and profession are mutually exclusive and do not envisage treating a partner's share or partner's remuneration as the individual assessee's professional gross receipts. Relying on reasoning consistent with the Madras High Court's view in Anandkumar (as discussed in the judgment), the Court held that where the individual is not independently carrying on the business, receipts such as remuneration or interest from a firm cannot be equated to the individual's gross receipts for the purpose of Section 44AB. Applying this principle to the material facts, the Court concluded that the petitioner was not obliged to obtain an audit under Section 44AB for the assessment year in question.

Petitioner was not required to get her accounts audited under Section 44AB for A.Y.-2017-2018.

Invalid return under Section 139(9) - revision under Section 264 - Whether the orders treating the return as invalid under Section 139(9) and rejecting revision under Section 264 were legally sustainable - HELD THAT: - Because the foundational conclusion that Section 44AB did not apply to the petitioner was reached, the Court addressed the legality of respondent no.2's order treating the return as invalid and respondent no.1's order under Section 264 rejecting the revision application. The Court found that respondent no.2's treatment of the return as invalid was predicated on an incorrect application of Section 44AB by treating partner's remuneration as the petitioner's gross receipts from profession. Consequently, respondent no.1 erred in upholding that view and rejecting the revision application. The Court noted respondents' reliance on ITAT decision in Amal Ganguli and the attempt to distinguish the subsequent High Court decision in Sagar Dutta, but concluded that those authorities did not alter the incorrect application of Section 44AB to the petitioner's facts. In view of the legal error on the applicability of the audit provision, the impugned orders were quashed and the petitioner's return was directed to be treated as valid.

Impugned orders dated 25th February 2020 and 25th March 2021 were quashed and the return for A.Y.-2017-2018 was to be treated as a valid return.

Final Conclusion: The writ petition is allowed: the Court held that Section 44AB did not apply to the petitioner's remuneration as a partner and accordingly quashed the orders treating the return as invalid and rejecting revision, directing that the return for A.Y.-2017-2018 be treated as valid.

Transfer of capital asset without consideration - capital gains taxable event requires consideration - revaluation in books is not receipt of consideration - deemed consideration under Section 50D not retrospective

Transfer of capital asset without consideration - capital gains taxable event requires consideration - Whether the demerger (transfer of the telecom undertaking to the holding company without consideration) gave rise to capital gains tax in the hands of the assessee. - HELD THAT: - The Court upheld the Tribunal's conclusion that capital gains tax cannot be levied where there is no consideration for the transfer of a capital asset. The determinative principle applied is that taxation of capital gains under the Act is confined to the real or actual gain that accrues to the transferor as a result of the transfer; absent any sale consideration, no notional gain may be imputed and taxed. The Tribunal's application of this principle to the facts - that the assessee transferred the telecom undertaking to its holding company without consideration - was not found to be perverse or legally incorrect. The Court therefore found no substantial question of law arising from the challenge to that conclusion. [Paras 5, 6, 9]

No capital gains tax arises on the demerger where no consideration was received; the Tribunal's finding in favour of the assessee is sustained.

Revaluation in books is not receipt of consideration - deemed consideration under Section 50D not retrospective - Whether the revaluation entry in the assessee's books or the subsequent insertion of Section 50D could be treated as constituting consideration or valuing the transfer for assessment year 2010-11. - HELD THAT: - The Court held that the Assessing Officer erred in treating the revaluation of assets in the books as consideration for the transfer; an internal accounting revaluation does not represent any receipt of consideration from the transferee. Further, the statutory deeming provision introduced by Section 50D (by Finance Act, 2012) operates only prospectively and is not applicable to assessment year 2010-11. Accordingly, neither the revaluation nor Section 50D could be invoked to tax the transfer in the subject year. [Paras 7, 8]

Revaluation does not amount to consideration and Section 50D is not applicable to AY 2010-11; the Assessing Officer's contrary treatment is unsustainable.

Final Conclusion: Appeal dismissed; the Tribunal's decision that no capital gains tax was leviable on the demerger (absent consideration) is affirmed and the Assessing Officer's valuation/reliance on later-introduced Section 50D is rejected.

Unexplained investment u/s 69 - protective assessment - veracity of unregistered sale agreement versus registered sale deed - burden of proof on the assessing officer to establish excess consideration - maintainability of revenue appeal in view of CBDT Circular No.17/2019

Unexplained investment u/s 69 - protective assessment - veracity of unregistered sale agreement versus registered sale deed - burden of proof on the assessing officer to establish excess consideration - Sustainability of addition treated as unexplained investment under section 69 on a protective basis in respect of alleged 'on money' paid for purchase of lands. - HELD THAT: - The Tribunal held that the AO and the CIT(A) relied on photocopies of unregistered agreements and oral statements without satisfactory documentary proof linking the assessee to the alleged cash payments to Shri Punna Rao. The registered sale deeds, as produced, showed a lower consideration and there were no recitals in the agreements or deeds establishing that Shri Punna Rao was the seller to the assessee. The purported unregistered agreements were between Shri Kalyan Babu and Shri Masthan Rao (an employee), and there was no authorization from the company to Masthan Rao to enter into agreements on its behalf; signature verification was inconclusive. The Tribunal observed that an unregistered agreement loses its relevance once a registered deed is executed and that where the alleged purchase price is higher than the registered consideration the burden lies heavily on the revenue to prove payment of excess consideration. On the materials before it - photocopies of agreements, inconclusive signature comparison and absence of direct evidence of cash payment by the assessee to Shri Punna Rao - the Tribunal concluded the AO and CIT(A) engaged in conjecture and that the protective assessment in the assessee's hands was unsustainable. Consequently the addition sustained by the CIT(A) was deleted and the assessee's appeal on this point was allowed. [Paras 10]

Addition made on protective basis as unexplained investment under section 69 in the hands of the assessee is not sustainable and is deleted; assessee's appeal on this ground is allowed.

Maintainability of revenue appeal in view of CBDT Circular No.17/2019 - Maintainability of the revenue's appeal against the CIT(A)'s order in view of CBDT Circular No.17/2019. - HELD THAT: - The Tribunal noted that the tax effect involved was below the threshold and that CBDT Circular No.17/2019 (superseding Circular No.3/2018) governs filing of appeals by the Department. In light of the circular and the undisputed tax effect, the Tribunal held the revenue's appeal was not maintainable. The Department did not raise objection to the procedure, and accordingly the appeal filed by the revenue was dismissed. [Paras 11]

Revenue's appeal is not maintainable and is dismissed.

Final Conclusion: The assessee's appeal is allowed insofar as the addition under section 69 sustained on a protective basis is deleted; the revenue's appeal is dismissed as not maintainable under CBDT Circular No.17/2019 and the cross objections filed by the assessee are rendered infructuous.

Reassessment u/s 147/148 - audit objection as fresh tangible information - first proviso to section 147 - disclosure of material facts - set off of interest expenditure against interest income - nexus between borrowed funds and application of funds - classification of interest as Income from Other Sources - Seth R. Dalmia principle on borrowing and purpose

Reassessment u/s 147/148 - audit objection as fresh tangible information - first proviso to section 147 - disclosure of material facts - Validity of reopening assessment by issue of notice under section 148 read with section 147. - HELD THAT: - The Tribunal upheld the reassessment. The Assessing Officer reopened the assessment only after an audit party raised an objection pointing out that certain interest income had not been assessed; such audit objection amounted to fresh information enabling formation of opinion that income had escaped assessment, in line with P.V.S. Beedies (supra). Further, the Tribunal found that the assessee had claimed set off in the original return despite knowing there was no nexus between the borrowed HUDCO funds and the loans/advances to sister concerns; that amounted to failure to disclose truly and fully all material facts for assessment within the meaning of the first proviso to section 147. The reliance on Acron Developers (P.) Ltd. was not persuasive because tangible material existed here in the form of the audit objection. Consequently, reassessment was validly initiated and sustained. [Paras 12]

Reassessment proceedings under section 147/148 were valid and the ground challenging reopening is dismissed.

Set off of interest expenditure against interest income - nexus between borrowed funds and application of funds - classification of interest as Income from Other Sources - Seth R. Dalmia principle on borrowing and purpose - Whether interest income on loans/advances to sister concerns could be assessed net of interest expenditure claimed against housing project borrowings, or must be taxed under the head 'Income from Other Sources'. - HELD THAT: - On facts the Tribunal accepted that the HUDCO borrowings were for the housing project and that no evidence was furnished by the assessee to prove business expediency or that the borrowed funds were used to advance loans to sister concerns. Applying the settled principle that interest expenditure can be allowed against interest income only where the borrowings were for the purpose of earning that income (Seth R. Dalmia), the Tribunal found absence of requisite nexus between the HUDCO funds and the advances. In those circumstances the claim to set off the HUDCO interest against the interest received could not be sustained and the interest income was correctly brought to tax under the head 'Income from Other Sources'. [Paras 13]

The interest income was rightly taxed under 'Income from Other Sources' and the claim to set off the interest expenditure against that income is rejected.

Final Conclusion: The appeal is dismissed: the reassessment under sections 147/148 was validly initiated on the basis of an audit objection and failure to disclose material facts, and on merits the interest income from advances to sister concerns was properly assessed as income from other sources without allowing set off of interest incurred on HUDCO borrowings.

Deduction under section 36(1)(va) for employees' contribution to PF/ESI - operation of the non-obstante provision in section 43B - deposit before due date for filing return under section 139(1) - retrospective application of Finance Act, 2021 amendment - binding precedents of the jurisdictional High Court

Deduction under section 36(1)(va) for employees' contribution to PF/ESI - operation of the non-obstante provision in section 43B - deposit before due date for filing return under section 139(1) - retrospective application of Finance Act, 2021 amendment - binding precedents of the jurisdictional High Court - Whether employees' contribution to PF and ESI, paid after the statutory due date but before filing the return under section 139(1), is disallowable under section 36(1)(va) read with section 43B for assessment year 2018-19. - HELD THAT: - The Tribunal examined pre Finance Act, 2021 case law, including binding decisions of the jurisdictional High Court, holding that amounts collected from employees and deposited with the appropriate authorities before the due date for filing the return under section 139(1) are allowable and not to be disallowed under section 43B or section 36(1)(va). The limited controversy was whether the amendments introduced by Finance Act, 2021 apply retrospectively. The Tribunal noted the explanatory memorandum to the Finance Bill, 2021 expressly states the amendments take effect from 1 April 2021 and apply to A.Y. 2021 22 onwards. Absent express retrospective language, the amendments, which impose a liability on assessees, cannot be construed to apply to earlier years. The Tribunal followed Coordinate Bench decisions and the line of High Court authority favourable to the assessee and concluded that for the impugned assessment year the amended provisions are not applicable; consequently the addition made in processing the return under section 143(1) on account of delayed deposit (but deposited before filing the return) cannot be sustained. [Paras 8, 9, 10]

Addition under section 36(1)(va) read with section 43B in respect of employees' contribution to PF/ESI deposited before filing the return is deleted; the assessee's appeal is allowed.

Final Conclusion: The Tribunal held that the Finance Act, 2021 amendments apply prospectively from 1 April 2021 (A.Y. 2021 22 onward) and, following binding jurisdictional authority and Coordinate Bench decisions, deleted the disallowance under section 36(1)(va)/43B for employees' contributions to PF and ESI deposited before filing the return for assessment year 2018 19; appeal allowed.

Deduction u/s 80IC of the Act - manufacturing activity - job work - consistency with earlier Tribunal orders in assessee's own case

Deduction u/s 80IC of the Act - manufacturing activity - job work - consistency with earlier Tribunal orders in assessee's own case - Allowability of deduction claimed under section 80IC for Assessment Year 2013-14 on the ground that the assessee was engaged in manufacturing activity and not merely job work. - HELD THAT: - The Assessing Officer denied the claim on the basis that the assessee performed only drilling, turning and boring and therefore carried out job work rather than manufacture of a new product. The Commissioner (Appeals) allowed the claim by following his predecessor's order for the immediately earlier year. The Tribunal noted that identical issues in the assessee's own cases for AY 2009-10 and AY 2010-11 had earlier been decided in favour of the assessee by a Co-ordinate Bench of the Tribunal. The Revenue did not produce any material to show that the facts for AY 2013-14 were different from those in the earlier years, nor did it demonstrate that the Tribunal's earlier decisions had been stayed, set aside or overruled by a higher forum. In the absence of any distinguishing material or adverse higher authority, the Tribunal found no reason to interfere with the appellate authority's conclusion that the assessee was eligible for deduction under section 80IC. [Paras 10, 11]

The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s allowance of the deduction under section 80IC for AY 2013-14.

Final Conclusion: Revenue's appeal dismissed; deduction claimed under section 80IC for Assessment Year 2013-14 upheld by the Tribunal as the assessee was held to be engaged in manufacturing and earlier Tribunal decisions in the assessee's favour were not dislodged.

Fees for technical services - "make available" test - tax deduction at source under section 195 - disallowance under section 40(a)(ia)

Fees for technical services - "make available" test - tax deduction at source under section 195 - disallowance under section 40(a)(ia) - Whether payments made to CGTM France for on-site flight testing services constitute "fees for technical services" that "make available" technical knowledge, thereby attracting obligation of tax deduction at source and disallowance under section 40(a)(ia). - HELD THAT: - The Tribunal examined the nature of services rendered by CGTM France to the assessee in relation to co-developed ALH Shakti Engines. The payments were for diagnostic and flight-testing activities (air intake survey, engine bay and accessories checks, vibration measurements, gas concentration measurement and hot fuel tests) performed by CGTM's technicians/engineers who brought their equipment to the assessee's premises. The Tribunal held that the testing services and the assessee's subsequent improvements based on test results are independent activities; the tests did not transmit or leave enduring technical knowledge, skill or know how with the assessee. Reliance was placed on the established principle that to "make available" technical services must enable the recipient to apply the knowledge independently in future without recourse to the provider. Applying that test to the facts, the Tribunal found that the assessee could not have conducted the tests independently and did not receive enduring technical capability from CGTM; therefore the payments did not amount to "fees for technical services" taxable as such nor did they attract the statutory obligation to deduct tax at source under section 195. Consequentially, the addition/disallowance under section 40(a)(ia) was not sustainable. [Paras 11]

Fees paid to CGTM France are not "fees for technical services" that "make available" technical knowledge; no obligation to deduct tax under section 195 arises and the disallowance under section 40(a)(ia) is reversed.

Final Conclusion: The appeal is allowed: the Tribunal reversed the disallowance under section 40(a)(ia) holding that the payments to CGTM France were not fees for technical services that "make available" technical knowledge and therefore no tax was required to be deducted at source.

Delayed deposit of employees' contribution to PF/ESIC - allowability of expenditure deposited before filing return of income - prospective application of amendment introduced by Finance Act, 2021 - precedent favourable to the assessee where conflicting judgments exist

Delayed deposit of employees' contribution to PF/ESIC - allowability of expenditure deposited before filing return of income - Addition under section 36(1)(va) for delayed deposit of employees' share of PF/ESIC where amounts were deposited before filing of return of income for the assessment year 2018-19. - HELD THAT: - The Tribunal considered whether contributions of employees to PF/ESIC, though deposited after the statutory due date under the PF/ESIC Acts but before filing the return of income under section 139(1), can be claimed as allowable expenditure. The bench noted consistent decisions of coordinate Benches of the Tribunal and the Delhi High Court (AIMIL Ltd.) holding that such delayed deposits, if paid before filing the return, are allowable. The Tribunal observed that when conflicting judgments exist, the view favourable to the assessee should be applied, following the principle in Vegetable Products Ltd. Consequently, applying these authorities to the facts that all disputed contributions were deposited with appropriate authorities before the filing of the return, the Tribunal found no justification for disallowance under section 36(1)(va) and directed deletion of the addition. [Paras 3]

Addition of Rs. 39,14,490/- made under section 36(1)(va) is deleted and the assessee's ground is allowed.

Prospective application of amendment introduced by Finance Act, 2021 - Whether the Explanation (inserted by Finance Act, 2021) altering application of the provision applies to Assessment Year 2018-19. - HELD THAT: - The Tribunal examined the Finance Act, 2021 amendment and the accompanying note on clauses which stated that the amendment would take effect from 1st April 2021 and apply to the assessment year 2021-22 and subsequent assessment years. Since the year under consideration is A.Y. 2018-19, the Tribunal held that the Explanation is not applicable to the assessment year in issue and therefore could not be relied upon to sustain the disallowance for 2018-19. [Paras 3]

The Finance Act, 2021 amendment/Explanation does not apply to Assessment Year 2018-19.

Final Conclusion: Following Tribunal precedents and applicable law, the addition for delayed deposit of employees' PF/ESIC contributions was deleted for A.Y. 2018-19 as the amounts were deposited before filing the return; the Finance Act, 2021 amendment was held prospective and inapplicable to A.Y. 2018-19; the appeal is allowed.

Statement recorded u/s 133A has no evidentiary value and cannot be the basis for additions - deletion of additions for unexplained purchases where supplier invoices are genuine and not disproved by AO - acceptance of 6A purchases reported in VAT returns as satisfactory explanation for stock differences

Deletion of additions for unexplained purchases where supplier invoices are genuine and not disproved by AO - Deletion of additions made by AO in respect of purchases from M/s. Giriraj Jewellers and M/s. UV Jewellers. - HELD THAT: - The Tribunal concurred with the CIT(A)'s finding that the assessee produced tax invoices and confirmations from the suppliers and that the Assessing Officer did not disprove the genuineness of those bills nor point out defects in them. The CIT(A) observed that the suppliers were registered dealers who had raised tax invoices charging VAT and that, absent any enquiry by the AO into the genuineness of the invoices, rejection of that evidence was unjustified. On that basis the additions made by the AO in respect of purchases from M/s. Giriraj Jewellers and M/s. UV Jewellers were deleted. [Paras 9]

Additions in respect of purchases from M/s. Giriraj Jewellers and M/s. UV Jewellers deleted; no interference with CIT(A)'s order.

Statement recorded u/s 133A has no evidentiary value and cannot be the basis for additions - Evidentiary value of statements recorded during survey proceedings and their use as basis for making additions. - HELD THAT: - Following the authority relied upon by the parties, the Tribunal accepted the CIT(A)'s conclusion that a statement recorded under survey provisions (noted as u/s 133A in the order) has no evidentiary value and cannot be taken as the basis for making additions to the assessee's income. Consequently, admissions recorded during the survey were not relied upon to sustain additions. [Paras 10]

Statement recorded during survey not used as basis for additions; CIT(A)'s approach upheld.

Acceptance of 6A purchases reported in VAT returns as satisfactory explanation for stock differences - Sustainability of addition on account of 6A purchases (exchange of old gold) where such purchases were disclosed in VAT returns. - HELD THAT: - The Tribunal noted that the assessee had reported 6A purchases in its VAT returns and furnished corresponding VAT records. The CIT(A) found these disclosures satisfactory. In the absence of a concrete disproof by the Department that the 6A purchases were fabricated, the Tribunal agreed that the assessee had satisfactorily explained the 6A purchases and therefore there was no warrant to sustain the addition made by the AO on this account. [Paras 13]

Addition on account of 6A purchases deleted; CIT(A)'s order affirmed.

Final Conclusion: The Revenue's appeal is dismissed in entirety; the assessee's cross-objection is partly allowed. The Tribunal affirmed the CIT(A)'s deletions of additions relating to the supplier invoices and 6A purchases and upheld that survey statements cannot be the sole basis for additions.

Revisional jurisdiction under section 263 - erroneous order prejudicial to the interest of revenue - twin conditions in Malabar Industries (error and prejudice) - mercantile system of accounting - accrual basis taxation of subsidies

Revisional jurisdiction under section 263 - erroneous order prejudicial to the interest of revenue - mercantile system of accounting - accrual basis taxation of subsidies - Whether the Principal Commissioner of Income Tax was justified in invoking revisional jurisdiction under section 263 by holding the assessment order erroneous and prejudicial to the interests of revenue for not bringing to tax the power subsidy and TUF subsidy receivable for A.Y. 2014-15. - HELD THAT: - The Tribunal examined whether the twin conditions for exercise of revisional jurisdiction under section 263 - that the Assessing Officer's order is erroneous and is prejudicial to the revenue - were satisfied. The AO's assessment recorded that, after verification of material evidence and discussion with the assessee's representative, total income was computed and the returns were accepted. The assessee maintained books on mercantile system and accounted subsidy amounts as income in the profit and loss account in the year they accrued, while the balance sheet showed receivables from the Ministry. The PCIT relied on balance-sheet 'claims receivable' figures to contend short admission, but the Tribunal found that the AO applied the mercantile basis of accounting and accepted the subsidies to the extent accounted as income in the relevant years. Applying the principle in Malabar Industries - that where two views are possible and the AO adopts one view permissible in law, a differing view of the Commissioner does not by itself render the order erroneous unless the AO's view is unsustainable in law - the Tribunal held there was no escapement of income prejudicial to revenue. Accordingly, the requirement that the AO's order be both erroneous and prejudicial was not met, and the PCIT's invocation of section 263 was not justified. [Paras 12, 13]

The order passed by the Principal Commissioner under section 263 is quashed and the appeal is allowed.

Final Conclusion: The Tribunal held that the AO had applied the mercantile system and taxed subsidy income on an accrual basis; since the AO's view was a permissible view in law and there was no escapement of income prejudicial to the revenue, the PCIT's revisional order under section 263 was unsustainable and is set aside.

Revisionary jurisdiction under section 263 of the Income Tax Act - Explanation 2 to section 263 - lack of inquiry versus inadequate inquiry - duty of the Commissioner to conduct or cause an inquiry before cancelling an assessment - acceptance of returned income after verification by the Assessing Officer

Revisionary jurisdiction under section 263 of the Income Tax Act - lack of inquiry versus inadequate inquiry - duty of the Commissioner to conduct or cause an inquiry before cancelling an assessment - Explanation 2 to section 263 - acceptance of returned income after verification by the Assessing Officer - Validity of the Principal Commissioner of Income Tax's order cancelling the assessment under section 263 for assessment year 2011-12. - HELD THAT: - The Tribunal examined whether the PCIT was justified in holding the assessment order to be erroneous and prejudicial to the interests of Revenue and in invoking Explanation 2 to section 263. The record showed that the Assessing Officer had examined bank statements, cash withdrawal and deposit entries and had recorded the explanation (through the assessee's daughter) that the time deposits were made from renewal of earlier FDRs sourced from retirement benefits. While the PCIT criticized the extent of enquiries and relied upon perceived gaps between withdrawals and deposits, he did not himself undertake or cause any independent verification or inquiry to establish that the AO's enquiries were absent or wholly inadequate. The Tribunal applied the distinction between 'lack of inquiry' and 'inadequate inquiry' and noted that mere differences of opinion as to the sufficiency or elaboration of the AO's order do not render it erroneous under section 263 without the Commissioner conducting his own verification. The Tribunal further observed that Explanation 2 to section 263 does not confer an unfettered power to cancel every order and that the Commissioner must demonstrate that the AO's enquiry was not in accordance with that of a prudent officer - a showing which required the PCIT to make independent inquiry before cancelling the assessment. Relying on the record and precedents cited in the impugned order [CIT Vs. Sunbeam Auto Ltd.], [ITO Vs. DG Housing Projects Ltd.], [Amira Pure Foods Pvt. Ltd. Vs. Principal CIT], [PCIT Vs. Delhi Airport Metro Express Pvt. Ltd.], and [Narayan Tatu Rane], the Tribunal concluded that the AO had conducted enquiries sufficient on the facts and that the PCIT merely sought to reappraise evidence without performing the statutory duty to inquire, and did not point to specific further enquiries necessary to establish error prejudicial to Revenue. [Paras 8, 9]

The PCIT's order under section 263 is set aside for want of requisite inquiry; the reassessment cancellation is quashed and the assessee's appeal is allowed.

Final Conclusion: The Tribunal held that the Principal Commissioner erred in exercising revisional jurisdiction under section 263 without conducting or causing requisite inquiry and by reappraising evidence already verified by the Assessing Officer; the order under section 263 cancelling the assessment for AY 2011-12 was set aside and the appeal of the assessee allowed.

Deduction under Section 36(1)(va) for employees' contribution deposited before filing of return - Prospective operation of Explanation to Section 36(1)(va) introduced by Finance Act, 2021 - Disallowance under Section 43B read with Section 36(1)(va) where statutory contributions paid before due date of filing return - Binding effect of coordinate Bench and jurisdictional High Court decisions

Deduction under Section 36(1)(va) for employees' contribution deposited before filing of return - Prospective operation of Explanation to Section 36(1)(va) introduced by Finance Act, 2021 - Disallowance under Section 43B read with Section 36(1)(va) where statutory contributions paid before due date of filing return - Sustenance of disallowance made under the Act for delayed deposit of employees' ESI and EPF contributions where such deposits were made before filing return of income under section 139(1). - HELD THAT: - The Tribunal examined that the assessee had deposited employees' contributions to ESI and PF prior to the due date for filing the return under section 139(1). Having regard to earlier decisions of coordinate Benches of the Tribunal and to the line of High Court authority relied upon therein, the Tribunal held that where the employees' contribution, though deposited after the statutory due date under the relevant enactments, is paid before filing the return under section 139(1), the amount cannot be disallowed under section 36(1)(va) read with section 43B for assessment years prior to the insertion of Explanation 5 by Finance Act, 2021 (which was held to have prospective effect w.e.f. 01.04.2021). The Tribunal therefore followed earlier consistent orders of the Tribunal and deleted the impugned additions sustained by the CIT(A). [Paras 7]

Impugned disallowances sustained by the CIT(A) on account of delayed deposit of employees' contribution to ESI and PF (although deposited before filing return under section 139(1)) are deleted and the appeals are allowed.

Final Conclusion: Following coordinate Benches and applicable High Court authority on the question whether amounts of employees' contribution to ESI/PF paid before filing the return are allowable, the Tribunal deleted the additions made under section 36(1)(va)/43B for AY 2018-19 and allowed the assessee's appeals.

Deductibility of employees' provident fund and ESI contributions - due date for filing return under section 139(1) - interaction between section 36(1)(va) and section 43B - effect of Finance Act, 2021 explanations to section 36(1)(va) and 43B - prospective operation of clarificatory tax amendments

Deductibility of employees' provident fund and ESI contributions - due date for filing return under section 139(1) - interaction between section 36(1)(va) and section 43B - Employee's share of contribution to PF/ESI paid before the due date for furnishing return under section 139(1) is allowable as deduction. - HELD THAT: - The Tribunal followed the coordinate bench decision and the binding view of the jurisdictional High Court in Essae Teraoka that where the assessee remits employees' contribution to ESI/EPF before the due date for filing the return under section 139(1), such payment entitles the assessee to deduction. The Tribunal accepted the reasoning that the payments in question were made prior to the return filing due date and therefore fall within the permissible deduction even though remitted belatedly under the statutory schemes; consequently the Assessing Officer's disallowance was deleted. [Paras 13]

Addition for belated remittance of employees' PF/ESI deleted and deduction allowed.

Effect of Finance Act, 2021 explanations to section 36(1)(va) and 43B - prospective operation of clarificatory tax amendments - Amendments by Finance Act, 2021 to section 36(1)(va) and section 43B do not apply to the relevant assessment years and are to be treated as prospective. - HELD THAT: - Relying on the Tribunal's earlier decision in M/s. Shakuntala Agarbathi Company and the High Court precedent, the Tribunal held that the Finance Act, 2021 amendments (explanations to section 36(1)(va) and 43B) alter the position of law as it earlier stood and therefore cannot be applied retrospectively to the assessment years before their effective date. In view of the cited authorities and the effective date of the amendments, the Tribunal concluded the amendments do not affect the assessee's entitlement for the relevant years. [Paras 12]

Finance Act, 2021 amendments to section 36(1)(va) and section 43B not applied to the assessment years in question.

Final Conclusion: Appeals allowed: disallowance for employees' PF/ESI contributions deleted as payments were made before the due date for filing returns for AYs 2018-19 and 2019-20; amendments effected by Finance Act, 2021 held not applicable to these assessment years.

Deposit pending appeal - Pre-deposit requirement under Section 129E - Deposit of a fixed percentage of disputed duty or penalty before entertaining appeal - Repeal by substitution and prospective application of amended provision - Discretion to dispense with pre-deposit as undue hardship - Limitation on pre-deposit by statutory cap

Repeal by substitution and prospective application of amended provision - Pre-deposit requirement under Section 129E - Applicability of the substituted Section 129E to the appellant's appeal where the triggering incident occurred before substitution. - HELD THAT: - The Court held that substitution of Section 129E by the Finance (No.2) Act, 2014 operated as a repeal of the earlier provision and re-enactment of the new regime. The order impugned was passed after substitution and the appeal was filed thereafter; consequently the pre-deposit obligation is governed by the substituted provision which prescribes deposit in terms of the fixed percentage scheme rather than the prior requirement to deposit the entire disputed amount. The Court rejected the contention that the appellant should be governed by the earlier provision merely because the incident occurred before substitution, noting that accepting such a contention would produce a dichotomy contrary to the legislative scheme and that the substituted provision applied to the present appeal proceedings which arose after enactment and after the impugned order was passed. [Paras 5, 6, 10]

Substituted Section 129E applies to the appeal; the appellant is governed by the pre-deposit regime as enacted by substitution.

Discretion to dispense with pre-deposit as undue hardship - Deposit pending appeal - Whether the discretionary power in the earlier proviso to dispense with pre-deposit (on grounds of undue hardship) remains available to the appellant under the substituted provision. - HELD THAT: - The Court observed that the substituted provision, while reducing the quantum required to be deposited by fixing a percentage, removed the earlier unfettered discretion granted to the appellate authority to dispense with pre-deposit on grounds of undue hardship. The legislative intent was to curtail that discretion and to introduce a uniform percentage-based requirement subject only to the statutory cap and specified savings for pending appeals and stay applications. Given that the appellant is required to deposit the lesser percentage amount under the substituted provision, the Court found no merit in the submission that the appellant should nonetheless invoke the erstwhile discretionary proviso to avoid the pre-deposit obligation. [Paras 6, 7, 8, 10]

The discretionary power under the earlier proviso to waive deposit for undue hardship is not available in respect of appeals governed by the substituted Section 129E.

Final Conclusion: The appeal was dismissed for non-compliance with Section 129E as substituted, but the Court granted two months' time from today for compliance; no order as to costs and pending applications disposed of.

Refund of SAD - unjust enrichment - Chartered Accountant certificate - opportunity of personal hearing - remand for fresh consideration - interest on delayed refund

Refund of SAD - Chartered Accountant certificate - unjust enrichment - opportunity of personal hearing - remand for fresh consideration - Whether the adjudicating authority validly rejected the refund claim for SAD without considering documents submitted by the appellant and without affording an opportunity of personal hearing, and whether the matter should be remanded for fresh consideration. - HELD THAT: - The Tribunal found that the appellant had submitted additional documents, including a Chartered Accountant certificate, by letter dated 14.05.2010 which was acknowledged by the department on 18.05.2010. Notwithstanding receipt, the adjudicating authority rejected the refund claim on the ground that the Chartered Accountant certificate had not been produced, and the Commissioner (Appeals) upheld the rejection in a brief order without addressing the appellant's contention that the documents had in fact been submitted. The Tribunal observed that the orders below were cryptic and showed no evidence of perusal of the documents produced by the appellant. Given that delayed refunds attract interest payable from public funds, the authorities are obliged to process refund claims after perusing the documents on record and, if necessary, afford a further personal hearing to enable the claimant to produce any outstanding material. In these circumstances the Tribunal held that the appropriate remedy was to set aside the impugned order and remand the matter to the adjudicating authority to process the refund claim on the basis of the documents already produced and after granting the appellant an opportunity of personal hearing and to furnish any further documents if required. [Paras 5, 6]

Impugned order set aside; appeal allowed by remanding the matter to the adjudicating authority to process the refund claim on the basis of documents produced, grant personal hearing and permit submission of further documents if necessary.

Final Conclusion: The Tribunal allowed the appeal by setting aside the impugned order and remanding the refund claim to the adjudicating authority for fresh consideration on the documents already filed, with a direction to afford the appellant a personal hearing and an opportunity to furnish any additional documents; the appeal is disposed of accordingly.

Moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - essential supplies under regulation 32 of the CIRP Regulations, 2016 - continuation of supply to preserve value and manage the corporate debtor as a going concern (section 14(2 A)) - jurisdiction of adjudicating authority to direct restoration of essential services during CIRP - treatment of pre CIRP dues in the resolution process - reconnection and security deposit obligations under state electricity supply regulations

Essential supplies under regulation 32 of the CIRP Regulations, 2016 - moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 - Whether the Adjudicating Authority was entitled to direct reconnection of electricity to the corporate debtor during the moratorium as an essential supply under section 14(2) read with regulation 32 - HELD THAT: - The Tribunal held that section 14(2) prohibits termination, suspension or interruption of supply of essential goods or services during the moratorium and that regulation 32 specifies that electricity is an essential supply only to the extent it is not a direct input to the output produced by the corporate debtor. Section 14(2 A) permits the IRP/RP to require continuation of supplies critical to protect and preserve the value of the corporate debtor and to manage operations as a going concern. In the present case the disconnection occurred before initiation of CIRP but deemed termination of the Power Supply Agreement could only occur after 180 days from disconnection and thus had not taken effect by the date of CIRP initiation; accordingly the agreement had not terminated and protection under section 14 applied. The IRP sought reconnection to obtain a better resolution plan and to operate the Durgapur unit as a going concern; the Tribunal found these considerations fall within the protective scope of section 14 and regulation 32, so the Adjudicating Authority was justified in directing reconnection during moratorium. [Paras 22, 23]

The direction to reconnect electricity during the moratorium as an essential supply was within the scope of section 14 read with regulation 32 and 14(2 A).

Jurisdiction of adjudicating authority to direct restoration of essential services during CIRP - exclusive domain of electricity regulator and Electricity Act - Whether the Adjudicating Authority exceeded its jurisdiction by directing reconnection of power supply which arguably falls under the Electricity Act and state regulations - HELD THAT: - The Tribunal considered the submission that matters of disconnection/reconnection fall exclusively within the Electricity Act and the state regulator's domain and the reliance on the Embassy Property Developments judgment. It distinguished those authorities on facts and context. Given that CIRP and moratorium under IBC operate to protect the corporate debtor and its agreements which had not been deemed terminated, the Adjudicating Authority did not exceed its jurisdiction in passing interim directions for reconnection to facilitate the insolvency resolution process. The Tribunal therefore declined to interfere with the Adjudicating Authority's exercise of powers under the IBC in the facts of this case. [Paras 24, 29]

Adjudicating Authority did not exceed jurisdiction in directing reconnection during CIRP; no interference is warranted.

Treatment of pre CIRP dues in the resolution process - reconnection and security deposit obligations under state electricity supply regulations - Whether the Adjudicating Authority erred in directing reconnection without insisting on payment of pre CIRP dues or security deposit by the corporate debtor - HELD THAT: - The Tribunal noted that the licensee (DVC) had submitted its claim for pre CIRP dues to the IRP and that such claims are to be considered by the Committee of Creditors and dealt with in the resolution plan or, if applicable, in liquidation. In that context payment of pre CIRP dues need not be required upfront for reconnection during CIRP. The Tribunal also accepted that dues for electricity supplied during the CIRP period are to be paid by the corporate debtor (and may form part of CIRP costs), while settlement of pre CIRP claims follows the resolution process. On security deposit the Adjudicating Authority's direction to continue existing security deposit and not insist on fresh deposit for reconnection was held permissible in the interim. [Paras 27, 29]

The Adjudicating Authority rightly directed reconnection without requiring payment of pre CIRP dues or fresh security deposit upfront; pre CIRP claims are to be addressed in the resolution plan and CIRP period dues are payable by the corporate debtor.

Final Conclusion: The appeal is dismissed. The Tribunal upheld the Adjudicating Authority's order directing reconnection of electricity to the corporate debtor during the moratorium as being within the scope of section 14 read with regulation 32 and 14(2 A) of the IBC; the Adjudicating Authority did not exceed its jurisdiction in doing so and was correct in not requiring upfront payment of pre CIRP dues or insistence on fresh security deposit, those pre CIRP claims being amenable to settlement under the resolution plan. No order as to costs.

Insolvency Resolution Process Costs - Moratorium under Section 14(1)(d) of the I & B Code, 2016 - Resolution Professional's duty to run the corporate debtor as a going concern - Rights of landlord prejudicially affected by moratorium - Regulation 31 of the IBBI (insolvency resolution process costs)

Insolvency Resolution Process Costs - Resolution Professional's duty to run the corporate debtor as a going concern - Whether the adjudicating authority was right in directing the resolution professional to pay accumulated rent dues from Insolvency Resolution Process (IRP) costs. - HELD THAT: - The Tribunal found on facts that the leased premises belong to the respondents and that the corporate debtor, during CIRP, is liable to pay rent. It held that costs incurred by the resolution professional in running the business as a going concern fall within the definition of Insolvency Resolution Process Costs and are payable. The adjudicating authority's direction that the sum be paid from IRP costs was upheld because the RP, who manages the corporate debtor during moratorium, must meet such costs to preserve the business and maintain it as a going concern. The Tribunal rejected the appellant's contention that implementation would improperly multiply claims by other landlords, noting that the Code and Regulations prescribe payment of IRP costs and no deviation is permissible. [Paras 19, 20, 21, 22, 23]

The direction to pay the accumulated rent dues as Insolvency Resolution Process Costs is sustained and does not call for interference.

Moratorium under Section 14(1)(d) of the I & B Code, 2016 - Rights of landlord prejudicially affected by moratorium - Whether the respondents were entitled to a direction for handing over vacant and peaceful possession of the leased premises during CIRP. - HELD THAT: - The Tribunal noted that after admission of the insolvency application a moratorium is declared under Section 14, and clause (d) of sub section (1) bars a lessor or owner from recovering possession during the moratorium. Applying this principle, the adjudicating authority rightly rejected the respondents' prayer for vacant possession and rightly maintained the status quo so that the corporate debtor could continue operations from the leased premises during CIRP. [Paras 16, 17]

Prayer for handing over vacant possession was correctly rejected; status quo regarding occupation is to be maintained.

Regulation 31 of the IBBI (insolvency resolution process costs) - Rights of landlord prejudicially affected by moratorium - Whether the legal and regulatory scheme (including Regulation 31) supports inclusion of rent payable to lessors within CIRP/IRP costs. - HELD THAT: - The Tribunal referred to Regulation 31 and earlier appellate observations that amounts due to persons whose rights are prejudicially affected by the moratorium (including lessors unable to recover possession) fall within IRP costs. On that basis the Tribunal concluded that rent falling in that category is includible as CIRP costs. The adjudicating authority's reliance on the Code and Regulation 31 to direct payment was affirmed as consistent with statutory scheme. [Paras 18, 19, 20, 21, 22]

Regulation 31 and the statutory scheme permit inclusion of rent payable to lessors in IRP/CIRP costs; the adjudicating authority was correct in treating such dues as payable.

Final Conclusion: The appeal is dismissed; the Adjudicating Authority's order of 07.01.2022 directing payment of specified rent dues from Insolvency Resolution Process Costs and requiring monthly rent during CIRP is upheld. The appellant is directed to implement the order within two weeks and report compliance; no costs awarded.

Excluded securities - Enforceability of security interests post-approval of resolution plan - Effect of conversion of unpaid debt into preference shares on enforcement rights - Treatment of dissenting financial creditor's vote - Reliefs, concessions and dispensations under a resolution plan

Excluded securities - Enforceability of security interests post-approval of resolution plan - Reliefs, concessions and dispensations under a resolution plan - Whether the Adjudicating Authority correctly held that the 'Excluded Securities' defined in the approved Resolution Plan are no longer enforceable upon approval of the plan. - HELD THAT: - The Resolution Plan expressly defined 'Excluded Securities' and contained multiple provisions (including Clause 3.3(iii)(g) and Clause 3.3(v)) stating that the Excluded Securities "shall not be extinguished or waived under this Resolution Plan" and "shall continue to survive". The Adjudicating Authority's direction under the heading 'Reliefs, Concessions and Dispensations' that "the excluded securities are no longer enforceable as defined under the resolution plan" and its parallel observation in the Clarification Order were inconsistent with these express terms of the Resolution Plan. The Tribunal held that the conversion of unpaid debt into preference shares (as provided in other clauses of the plan) did not negate or override the specific provisions preserving the Excluded Securities. Consequently, the impugned portion of Direction No. 1 and the observation in paragraph 29 of the Clarification Order were deleted, without affecting other aspects of the plan approval. [Paras 16]

The Adjudicating Authority's conclusion that Excluded Securities are no longer enforceable is set aside and the contrary observations are deleted from the impugned orders.

Effect of conversion of unpaid debt into preference shares on enforcement rights - Excluded securities - Whether conversion of the balance financial debt into non-convertible redeemable preference shares, as provided in the Resolution Plan, operates to discharge or subsume the Excluded Securities. - HELD THAT: - Although the plan contained a provision for conversion of unpaid debt into preference shares (Clause 3.3(e)(h) and related schedules), the Tribunal emphasised that such general conversion provision cannot be read to override specific clauses which preserve Excluded Securities. The plan, read as a whole, manifests an intention that Excluded Securities continue to subsist and remain available to Financial Creditors in accordance with their terms. Therefore, the Adjudicating Authority's reliance on the conversion clause to conclude that excluded securities are subsumed was erroneous and has been removed. [Paras 18]

The conversion of unpaid debt into preference shares does not, by itself, extinguish or discharge the Excluded Securities preserved by the Resolution Plan; the Adjudicating Authority's contrary observation is deleted.

Treatment of dissenting financial creditor's vote - Committee of Creditors' consent - Whether the dissenting vote of ICICI Bank to the Resolution Plan could be treated as an assenting vote. - HELD THAT: - ICICI Bank had sought, as part of its application, that its dissenting vote be treated as an assenting vote if the Tribunal held that conversion into preference shares would not affect enforceability of Excluded Securities. The CoC expressly stated no objection to treating ICICI Bank's dissenting vote as assenting. Given the CoC's lack of objection and that such treatment does not affect the overall approval (the plan was already approved by 91.06% of votes), the Tribunal allowed the limited prayer to treat ICICI Bank's dissenting vote as an assenting vote, while noting that this direction is accepted only because of the CoC's no-objection and should not be treated as a precedent. [Paras 19]

ICICI Bank's dissenting vote is treated as an assenting vote to the Resolution Plan, subject to the CoC's expressed no-objection and without creating precedent.

Final Conclusion: The appeals are allowed to the extent that the Adjudicating Authority's findings that the Excluded Securities are no longer enforceable (direction in the Plan Approval Order and paragraph 29 of the Clarification Order) are deleted; the approval of the Resolution Plan otherwise remains intact; and ICICI Bank's dissenting vote is directed to be treated as an assenting vote by reason of the CoC's no-objection. Parties to bear their own costs.

Approval of resolution plan - compliance of resolution plan with other statutory obligations - prohibition on using provident fund sums for the liquidation estate - liability of transferee for provident fund dues on transfer of establishment - limited judicial review of the commercial wisdom of the Committee of Creditors - non-application of overriding provision where no conflict exists

Compliance of resolution plan with other statutory obligations - approval of resolution plan - The Resolution Plan approved by the Adjudicating Authority failed to provide for full provident fund dues as determined by the Assistant Provident Fund Commissioner and therefore did not fully comply with statutory obligations. - HELD THAT: - The Tribunal examined Section 30(2)(e) and Section 31(1) of the Code which require that a resolution plan must not contravene any law for the time being in force and must provide for effective implementation. The Assistant Provident Fund Commissioner had computed provident fund dues for the corporate debtor up to March 2018 which exceeded the amount provisioned in the approved plan. The Tribunal held that compliance with the PF Act is a matter of law and not a matter of commercial wisdom of the Committee of Creditors; accordingly the Adjudicating Authority must ensure that the resolution plan does not contravene statutory provisions. In view of Section 17B of the PF Act and the statutory duty to pay contributions, the Tribunal directed the Successful Resolution Applicant to pay the balance of the provident fund dues as determined by the EPF authority, thus modifying the impugned order approving the resolution plan to that limited extent (paras 13(a), 13(c), 13(f)). [Paras 13]

The Resolution Applicant is directed to pay the balance provident fund dues as computed by the Assistant Provident Fund Commissioner; the impugned approval is modified to that extent.

Prohibition on using provident fund sums for the liquidation estate - non-application of overriding provision where no conflict exists - Sums due to employees from provident fund and gratuity are not assets of the corporate debtor and the overriding effect of the Code (Section 238) does not displace obligations under the EPF Act where there is no conflict. - HELD THAT: - Relying on the Code's carve-out in Section 36(4)(a)(iii) that provident fund and gratuity sums are not liquidation estate assets, and on the PF Act (including Section 17B), the Tribunal concluded that there is no inconsistency between the IBC and the PF Act which would attract the overriding provision. Consequently, the Resolution Applicant remains liable to discharge provident fund dues in accordance with the PF Act. The Tribunal cited earlier precedents applying the same principle and affirmed that statutory liabilities in respect of PF cannot be ignored while approving a resolution plan (paras 13(d), 13(e)). [Paras 13]

The PF and gratuity dues are not assets of the corporate debtor; statutory obligations under the PF Act continue to apply and must be complied with.

Limited judicial review of the commercial wisdom of the Committee of Creditors - The commercial decision of the Committee of Creditors regarding distribution between classes of creditors is generally non-justiciable, subject to limited judicial review to ensure compliance with statutory parameters and that the interests of stakeholders are considered. - HELD THAT: - The Tribunal reiterated that the Committee of Creditors exercises commercial wisdom in selecting and approving a resolution plan and that adjudicating authorities cannot ordinarily interfere with that business decision. However, judicial review is available to ensure that the Committee has taken into account statutory requirements under the Code (such as maximising value, keeping the corporate debtor as a going concern, and protection of stakeholders) and that the approved plan does not contravene any law. In the present case the Tribunal did not substitute the CoC's commercial decision on relative percentages of payment, except insofar as the plan failed to meet statutory obligations under the PF Act (para 13(c)). [Paras 13]

While the CoC's commercial wisdom is generally not amenable to interference, limited judicial review is permissible to ensure statutory compliance; the Tribunal modified the plan only to secure compliance with PF law and did not otherwise upset the CoC's commercial decision.

Final Conclusion: The appeal is partially allowed by modifying the impugned approval of the resolution plan to direct the Successful Resolution Applicant to pay the balance provident fund dues as determined by the Assistant Provident Fund Commissioner; otherwise the CoC's commercial decision is left undisturbed. Pending applications are disposed of and there is no order as to costs.

Development rights as proprietary interest under the Insolvency and Bankruptcy Code - protection under Section 14(1)(d) of the Insolvency and Bankruptcy Code - duty of landowner/lessor to lodge claim and participate in CIRP through the Resolution Professional - estoppel by acceptance and implied waiver through approvals and conduct of the lessor - distinction between leasehold rights and ownership - limited jurisdiction of appellate authority and protection of CIRP timelines against post approval modifications or re negotiations

Development rights as proprietary interest under the Insolvency and Bankruptcy Code - protection under Section 14(1)(d) of the Insolvency and Bankruptcy Code - Whether the Joint Development Agreement conferred proprietary development rights on the corporate debtor which fall within the definition of 'property' under the Code and attract the protection of Section 14(1)(d). - HELD THAT: - The Tribunal held that the JDA created development rights in favour of the corporate debtor which constitute a proprietary interest falling within the definition of 'property' under the Code. The JDA and accompanying instruments authorised the corporate debtor as Joint Developer to carry out construction, marketing and sale of flats and apportioned FSI to it; payments and obligations in the JDA contemplated discharge of lease premiums by the joint developer. Reliance on Rajendra K. Bhutta established that development rights, where vested, are property of the corporate debtor and cannot be interfered with during CIRP under Section 14(1)(d). Consequently the Resolution Professional was right in treating those rights as assets of the corporate debtor and taking custody/control as required by the Code. [Paras 12, 17, 18, 24]

The development rights under the JDA are proprietary rights of the corporate debtor and attract protection under the Code; the RP lawfully treated them as assets of the corporate debtor.

Estoppel by acceptance and implied waiver through approvals and conduct of the lessor - distinction between leasehold rights and ownership - Whether NOIDA was unaware of the JDA / construction and therefore entitled to contend that the JDA/GPA/Agreement to sell are non-est and must be excluded from the corporate debtor's asset pool. - HELD THAT: - The Tribunal found on the record that NOIDA had granted approvals, accepted payments under the lease deed, and had extended permissions for the project; the project was registered under UPRERA and related documentation was not denied by NOIDA. The conduct of NOIDA over several years-approving building plans, accepting lease premium/lease rentals and not invoking cancellation clause-amounted to implied acceptance and estoppel against belated denial of the JDA's efficacy. The Lease Deed itself allowed subdivision and sub leasing subject to approval; the JDA created development rights but not a transfer of ownership, and the JDA expressly recognised NOIDA as owner. NOIDA offered no substantive explanation for failing to invoke contractual cancellation remedies earlier. [Paras 10, 11, 14, 20, 21]

NOIDA cannot successfully contend that it was unaware or that the JDA is non est given its prior approvals and conduct; the challenge to the JDA on that basis is unsustainable.

Duty of landowner/lessor to lodge claim and participate in CIRP through the Resolution Professional - protection under Section 14(1)(d) of the Insolvency and Bankruptcy Code - Whether NOIDA should be directed to lodge its claim with the Resolution Professional and participate in the CIRP/CoC process and whether the Adjudicating Authority's direction to that effect was appropriate. - HELD THAT: - Balancing the statutory objective of protecting homebuyers and the time bound nature of CIRP, the Tribunal upheld the Adjudicating Authority's direction that NOIDA should lodge its dues as a claim with the RP and participate in CIRP through an authorised representative, so that its rights may be protected in the claim process and in CoC deliberations. The Tribunal noted that NOIDA had, instead of filing a claim, raised the present challenge belatedly; an earlier order of this Tribunal closing the right to file a claim had attained finality and the CoC thereafter approved a resolution plan. The Tribunal also observed that the RP had allocated an amount in the plan towards the lessor's dues while leaving open recovery from the lessee. [Paras 20, 26]

NOIDA was properly directed to lodge its claim and participate in the CIRP; its failure to do so and belated challenge cannot be allowed to impede the CIRP and rights of homebuyers.

Limited jurisdiction of appellate authority and protection of CIRP timelines against post approval modifications or re negotiations - Whether this Appellate Tribunal could exercise equity to reopen or interfere with the CIRP process after the CoC had approved a resolution plan and in the light of CIRP timelines and settled precedents on limited jurisdiction. - HELD THAT: - The Tribunal reiterated that it lacks an independent equity jurisdiction to re fashion CIRP outcomes; it must act within the statutory confines and protect CIRP timelines. Relying on Ebix Singapore and related Supreme Court precedents, the Tribunal observed that permitting post approval negotiations, withdrawals or modifications by invoking equitable powers would undermine the statutory time limits and the integrity of the resolution process. Given that an order earlier in the proceedings had closed NOIDA's right to file a claim (unappealed and final), and the CoC had by then approved a resolution plan, the Tribunal declined to exercise equitable intervention to obstruct the CIRP. [Paras 25, 26, 27]

The Appellate Tribunal will not, as a matter of equity, reopen or modify the CIRP process in a manner inconsistent with statutory timelines; the appeal is therefore unsustainable on that ground.

Final Conclusion: The appeal is dismissed. The Tribunal held that the JDA conferred proprietary development rights on the corporate debtor which fall within the Code and were properly treated as assets in the CIRP; NOIDA, having approved plans, accepted payments and failed to exercise contractual remedies, cannot now deny the JDA's efficacy and was correctly directed to lodge its claim and participate in the CIRP; the Appellate Tribunal declined to exercise equity to reopen the time bound CIRP process after CoC approval.

Limited notice to personal guarantor - Interim moratorium commences on filing - appointment of Resolution Professional as the next step - role of Resolution Professional under Section 99 - adjudication of merits at Section 100 stage - prematurity of raising objections prior to RP's report

Limited notice to personal guarantor - Interim moratorium commences on filing - appointment of Resolution Professional as the next step - Whether limited notice effected by service of Form C (and advance copy by the financial creditor) satisfies the requirement of notice prior to appointment of a Resolution Professional and whether a hearing on merits is required before appointment of the Resolution Professional. - HELD THAT: - The Tribunal accepted the NCLAT's reasoning in Mr. Ravi Ajit Kulkarni v. State Bank of India that service of the application in Form C on the personal guarantor acts as a notice and that only a "limited notice" is required to secure the presence of the personal guarantor in relation to the Interim Moratorium which commences on filing. The adjudicatory scheme contemplates that after filing the Adjudicating Authority proceeds to appoint a Resolution Professional; the Resolution Professional then examines the application and collects material under Section 99 and files a report. A substantive adjudication on the merits is to take place at the stage specified under Section 100 after receipt of the Resolution Professional's report. Consequently, no full hearing on merits is mandated prior to appointment of the Resolution Professional and limited notice suffices for the interim stages. [Paras 5, 6, 7]

Service of the application in Form C (as effected) constituted the limited notice required; no adjudication on merits is required before appointment of the Resolution Professional.

Prematurity of raising objections prior to RP's report - adjudication of merits at Section 100 stage - Whether the personal guarantor's application to recall/set aside the Tribunal's order reserving proceedings dated 10.08.2021, and to be permitted to present preliminary objections to maintainability at this stage, should be allowed. - HELD THAT: - The Tribunal found that the personal guarantor's attempt to set aside the order and raise preliminary objections before the Resolution Professional has been appointed and prior to the filing of the report under Section 99 was premature. Allowing such objections at this stage would produce double hearings and defeat the procedural scheme of the Code, which envisages collection of evidence by the Resolution Professional followed by adjudication at Section 100. The Tribunal therefore characterized the present application as an attempt to circumvent and delay the insolvency process by raising disputes before the appropriate stage. [Paras 8, 9]

The application to recall/set aside the order dated 10.08.2021 is dismissed as premature; the personal guarantor may raise preliminary objections after the Resolution Professional files the report under Section 99, at the Section 100 adjudication stage.

Final Conclusion: The application by the personal guarantor to recall/set aside the Tribunal's reserved order dated 10.08.2021 is dismissed as premature; service of the application in Form C effected limited notice and the personal guarantor may press preliminary objections after the Resolution Professional submits the report under Section 99, when the matter is adjudicated under Section 100.

Obligation of ex-management to cooperate with the liquidator - failure to produce books, papers or data and false statements constituting misconduct under Section 70 of the Insolvency and Bankruptcy Code - Section 34(3) duty to extend assistance to the liquidator - Regulation 9 of the IBBI (Liquidation Process) Regulations, 2016 - personnel to extend cooperation to liquidator - power to impose monetary penalty for non-cooperation in liquidation proceedings

Obligation of ex-management to cooperate with the liquidator - Section 34(3) duty to extend assistance to the liquidator - Regulation 9 of the IBBI (Liquidation Process) Regulations, 2016 - personnel to extend cooperation to liquidator - Whether the ex-management failed to comply with the duty to cooperate with the Liquidator by not producing tally data and related books and papers. - HELD THAT: - The Tribunal examined the affidavit filed by the ex-directors claiming that the macbook containing the Corporate Debtor's tally data was stolen on 04.01.2019 and that police complaint was lodged. The balance-sheet for the year ending 2018-19, however, bears the ex-director's signature dated 15.05.2019. The Tribunal found this to be inherently inconsistent with the contention that tally data was unavailable from January 2019, and concluded that the affidavit's statement was false and unreliable. The conduct of withholding or not producing relevant electronic data and making misleading statements was held to fall within the statutory framework obligating personnel of the corporate debtor to extend assistance to the liquidator, as reflected in Section 34(3) of the Code and Regulation 9 of the IBBI (Liquidation Process) Regulations, 2016. The Tribunal therefore treated the non-production and contradictory affidavit as a failure to cooperate and non-compliance with the duties imposed on ex-management. [Paras 3, 4, 5]

The Tribunal held that the ex-management did not comply with the obligation to cooperate with the Liquidator and that their conduct amounted to non-cooperation under Section 34(3) and Regulation 9.

Failure to produce books, papers or data and false statements constituting misconduct under Section 70 of the Insolvency and Bankruptcy Code - power to impose monetary penalty for non-cooperation in liquidation proceedings - Whether the conduct of the ex-management warranted action under Section 70 of the IBC and what penalty should follow. - HELD THAT: - Applying Section 70, which penalises officers of the corporate debtor for not disclosing details, not delivering books and papers, or preventing production of documents, the Tribunal found that the ex-management's contradictory claim of theft and contemporaneous signing of the balance-sheet supported a finding of misconduct. In view of this misconduct and the statutory mandate to penalise such behaviour, the Tribunal exercised its powers to impose a monetary sanction and directed payment to the Central Government account, together with requirement of a compliance affidavit proving payment. The Tribunal also directed the Resolution Professional to file outstanding responses as previously ordered. [Paras 6, 7, 8]

The Tribunal concluded that the ex-management's conduct attracted action under Section 70 and imposed a fine, directing payment to the Central Government and filing of proof of compliance; further directions were given for the Resolution Professional's response.

Final Conclusion: The Tribunal found the ex-management's claim of missing tally data to be false and a failure to cooperate with the Liquidator under Section 34(3) and Regulation 9, treated the conduct as misconduct under Section 70 of the IBC, imposed a monetary penalty with directions for payment and compliance, and directed the Resolution Professional to file the outstanding response.

Initiation of Corporate Insolvency Resolution Process - Operational debt and default under the Insolvency and Bankruptcy Code, 2016 - Compliance with Section 8 requisites of the IBC - Appointment and eligibility of Interim Resolution Professional - Imposition of moratorium under Section 14 of the IBC - Duties and powers of Interim Resolution Professional

Operational debt and default under the Insolvency and Bankruptcy Code, 2016 - Compliance with Section 8 requisites of the IBC - Whether the Operational Creditor proved existence of operational debt, default and compliance with statutory pre requisites to admit a Section 9 application - HELD THAT: - The Adjudicating Authority found that the Operational Creditor placed evidence demonstrating an operational debt exceeding the pecuniary threshold and that default had occurred. The Authority recorded that no reply to the statutory demand notice under Section 8 was filed by the Corporate Debtor and that the contentions in the application were not denied by affidavit. On this basis and having regard to the materials filed, the Authority was satisfied that the statutory conditions for initiating CIRP under Section 9 (read with the relevant rules) were met and inclined to admit the application. [Paras 6]

Application under Section 9 admitted and Corporate Insolvency Resolution Process ordered to commence.

Initiation of Corporate Insolvency Resolution Process - Imposition of moratorium under Section 14 of the IBC - Commencement of CIRP and invocation of moratorium consequent to admission - HELD THAT: - Following admission of the Section 9 application, the Adjudicating Authority ordered commencement of CIRP and declared the moratorium with immediate effect until completion of the process. The order specified the prohibitions ordinarily arising under Section 14, including stay of suits or proceedings, restraint on disposition of assets, and restriction on enforcement of security interests, as well as exceptions concerning supply of essential goods or services. [Paras 7, 12, 13]

CIRP to commence and statutory moratorium imposed from date of the order.

Appointment and eligibility of Interim Resolution Professional - Duties and powers of Interim Resolution Professional - Appointment of an Interim Resolution Professional and rejection of the proposed IRP due to existing engagements - HELD THAT: - Although an Insolvency Professional filed consent as proposed IRP, the Authority observed that he was already acting as Resolution Professional/Liquidator in five matters and therefore considered it inappropriate to appoint him. The Authority appointed another Insolvency Professional from the IBBI list as IRP and directed the IRP to file consent in prescribed form, take charge of the corporate debtor's management, make the public announcement, and call for claims in accordance with the Code. The directors, promoters and others associated with management were directed to extend cooperation to the IRP. [Paras 8, 9, 10, 14]

Named Insolvency Professional appointed as IRP; proposed IRP not appointed due to prior engagements; IRP directed to assume charge and perform statutory functions.

Operational debt and default under the Insolvency and Bankruptcy Code, 2016 - Effect of the Corporate Debtor's non appearance and failure to file a counter on adjudication - HELD THAT: - The record shows repeated opportunities granted to the Corporate Debtor to file a counter and appear; ultimately the Corporate Debtor failed to file any reply and was set ex parte. The Authority observed that, in absence of any assistance from the Corporate Debtor and no denial by way of affidavit, it was constrained to decide the application on the material placed by the Operational Creditor and dispose of the application notwithstanding the Corporate Debtor's non participation. [Paras 3, 4, 5]

Corporate Debtor set ex parte for non appearance and non filing of counter; application decided on merits based on the Operational Creditor's material.

Duties and powers of Interim Resolution Professional - Interim directions as to fees, notifications and statutory compliances by the IRP - HELD THAT: - The Authority directed the Operational Creditor to pay an advance fee to the IRP to be ratified and reimbursed by the Committee of Creditors later. The IRP was directed to file written consent and authorization, to cause public announcement within the prescribed timeframe, to take charge of management, and to comply with specified sections of the Code in performing his functions. [Paras 9, 10, 11, 15]

Advance fee payable by Operational Creditor; IRP given specific statutory and administrative directives to implement the CIRP.

Final Conclusion: The Section 9 application was admitted after the Adjudicating Authority was satisfied about existence of operational debt and default and compliance with Section 8; CIRP was ordered to commence, moratorium imposed, an Insolvency Professional from the IBBI list was appointed as IRP (the proposed IRP was not appointed due to prior engagements), and related directions were issued to the IRP, the parties and the Registry.

Liquidation under Insolvency and Bankruptcy Code - Corporate Insolvency Resolution Process - Committee of Creditors' resolution to liquidate - Timelines under IBC and value preservation - Appointment of Liquidator and vesting of management powers - Moratorium cessation upon liquidation - Duties of Liquidator under IBC and IBBI (Liquidation Process) Regulations - Notice of discharge to officers, employees and workmen

Liquidation under Insolvency and Bankruptcy Code - Committee of Creditors' resolution to liquidate - Timelines under IBC and value preservation - Application under Section 33(2) of the Code for liquidation of M/s. MBS Impex Private Limited was allowed. - HELD THAT: - The Tribunal found that the Corporate Insolvency Resolution Process had not produced an approved resolution plan within the timelines prescribed by the Code. The Committee of Creditors had, by 100% votes through e-voting, resolved to liquidate the Corporate Debtor. The Adjudicating Authority recognised that while resolution is the primary object of the IBC, adherence to prescribed timelines is essential to prevent value deterioration of assets; in view of failed resolution efforts and absence of a concrete proposal even when extension was sought, liquidation was the only option. The petition under Section 33(2) was therefore allowed and liquidation directed. [Paras 5]

Petition for liquidation allowed and Corporate Debtor directed to be liquidated.

Appointment of Liquidator and vesting of management powers - Duties of Liquidator under IBC and IBBI (Liquidation Process) Regulations - The Resolution Professional, Mr. Santosh Bhatia, was appointed as Liquidator and vested with the powers and duties of the office to conduct liquidation under the Code and relevant Regulations. - HELD THAT: - In exercise of the power to appoint a liquidator on initiation of liquidation, the Tribunal appointed the Applicant (then Resolution Professional) as Liquidator. The Liquidator is to exercise powers and perform duties as envisaged under the Code, specifically the provisions relating to the conduct of liquidation, and in consonance with the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations. All powers of the Board of Directors and Key Managerial Personnel of the Corporate Debtor cease and stand vested in the Liquidator for the liquidation process. [Paras 8]

Applicant appointed as Liquidator; powers and duties vested in and to be exercised by him under the Code and IBBI Regulations.

Moratorium cessation upon liquidation - Public announcement of liquidation - Notice of discharge to officers, employees and workmen - Consequential directions issued on conduct of liquidation: public announcement, cessation of moratorium, bar on suits subject to provisions, cooperation by personnel, entitlement to fees, discharge notice, and service of order copies to statutory authorities. - HELD THAT: - The Tribunal directed the Liquidator to issue a public announcement that the Corporate Debtor is in liquidation and held that the moratorium declared under the Code shall cease to operate consequent to liquidation. Subject to the Code's provisions, no suits or proceedings are to be instituted by or against the Corporate Debtor, with exceptions as statutorily notified. Personnel connected with the Corporate Debtor are directed to cooperate with the Liquidator. The Liquidator is entitled to fees as may be specified by the Board under the Code. The order shall be deemed notice of discharge to officers, employees and workmen except where business is continued by the Liquidator. Copies of the order are to be furnished to IBBI, Regional Director (MCA), ROC & Official Liquidator, the Registered Office and the Liquidator. [Paras 8]

Specified consequential directions for conducting liquidation were issued and are to be complied with by the Liquidator and concerned authorities/personnel.

Final Conclusion: The Tribunal allowed the Section 33(2) application and ordered liquidation of M/s. MBS Impex Private Limited, appointed the then Resolution Professional as Liquidator, and issued consequential directions governing the liquidation process including public announcement, cessation of moratorium, vesting of management powers in the Liquidator, cooperation by personnel, entitlement to fees, deemed discharge of staff, and service of the order on statutory authorities.

Authorization and ratification of corporate action - demand notice under Section 8 of the Insolvency and Bankruptcy Code - service of notice at registered office or corporate office - proof of operational debt and requirement to annex invoices - curable defect in authorization by subsequent ratification - default and initiation of Corporate Insolvency Resolution Process

Authorization and ratification of corporate action - curable defect in authorization by subsequent ratification - Validity of the authorization for filing the Section 9 application and effect of subsequent ratification - HELD THAT: - The Tribunal examined the scope of the corporate authorization relied upon by the Operational Creditor and the subsequent board resolution dated 24.01.2022 which ratified prior acts, including filing of the Company Petition. Although the original authorization did not expressly state power to initiate CIRP under Section 9, it was broadly worded to permit applications, communications and submissions under the insolvency regulations. The subsequent resolution expressly ratified the filing of the petition. The Tribunal held that absence of specific authorization at the time of filing is a curable defect and that subsequent ratification validates the filing and the prior giving of the Section 8 notice. [Paras 5, 6, 7]

The authorization defect is cured by ratification; the Section 8 notice and the Section 9 application are treated as given and filed with proper authorization.

Demand notice under Section 8 of the Insolvency and Bankruptcy Code - service of notice at registered office or corporate office - Validity of service of the Section 8 demand notice on the Corporate Debtor - HELD THAT: - The Corporate Debtor challenged service, alleging lack of proof of delivery. The Operational Creditor produced postal consignment evidence stating delivery at the registered and administrative offices. The Tribunal relied on precedents indicating that service of a Section 8 notice at either the registered office or the corporate/administrative office of the Corporate Debtor is valid. The plea on service was not pursued at length and the rejoinder averred that delivery occurred and proof was filed. [Paras 3, 4, 7]

The demand notice under Section 8 is validly served and the challenge to service does not vitiate the petition.

Proof of operational debt and requirement to annex invoices - default and initiation of Corporate Insolvency Resolution Process - Whether failure to annex invoices or documentary proof with the Section 8 notice defeats the Operational Creditor's claim - HELD THAT: - The Corporate Debtor argued that invoices, bills of lading and delivery orders were not annexed and relied on NCLAT decisions requiring strict proof of debt. The Tribunal considered contemporaneous correspondence between the parties, including admissions by the Corporate Debtor acknowledging the outstanding balance and proposing repayment instalments, and letters confirming the ledger balance. In light of the Corporate Debtor's clear admission of the debt and the exchange of communications, the Tribunal found no pre existing dispute and held that rejecting the petition solely for non annexure of invoices would be unjust. The Tribunal distinguished authorities relied upon by the Corporate Debtor on the facts, observing that where there is a clear admission and ledger entries substantiating the claim, the petition can be entertained. [Paras 3, 4, 6, 8]

The absence of annexed invoices does not bar the petition given the Corporate Debtor's admissions and documentary exchanges; default is established.

Default and initiation of Corporate Insolvency Resolution Process - Whether the facts establish default and warrant initiation of CIRP under Section 9 - HELD THAT: - Having found the Section 8 notice valid, authorization ratified, and the existence of the operational debt evidenced by admissions and correspondence, the Tribunal concluded that the Corporate Debtor committed default in payment of the claimed dues. The Operational Creditor did not propose an IRP and the Tribunal appointed an Interim Resolution Professional and declared moratorium, directing compliance with the Code and related rules. [Paras 8, 9]

Company Petition admitted; CIRP initiated, IRP appointed and moratorium declared.

Final Conclusion: The Tribunal admitted the Company Petition under Section 9, holding that (i) subsequent ratification cured any defect in authorization to file, (ii) the Section 8 demand notice was validly served, (iii) the Corporate Debtor's admissions and correspondence established the operational debt and default despite non annexure of certain invoices, and accordingly ordered initiation of CIRP, appointment of an IRP and declaration of moratorium.

Grant of bail under Section 439 Cr.P.C. read with Section 45 PMLA - twin conditions under Section 45(1) PMLA - burden of showing reasonable grounds for believing accused is not guilty and will not commit offence while on bail - flight risk in bail jurisprudence - parity with co-accused in bail matters - issue estoppel and res judicata in criminal proceedings - doctrine of specialty and extradition treaties (Article 17 of India-UAE Treaty) - opinion of UNHRC Working Group on Arbitrary Detention non binding on domestic courts

Issue estoppel and res judicata in criminal proceedings - Whether proceedings in India are precluded by the applicant's reliance on prior Italian proceedings or constitute double jeopardy or issue estoppel. - HELD THAT: - The Court found that the applicant was not a party to the criminal trial in Italy; the Italian appellate order related to other accused and did not amount to an adjudication in favour of the applicant. The Italian Court had tried and dismissed proceedings against different persons and the Ministry of Defence participated only as a civil party. The Dubai Supreme Court and the record indicate that the Italian proceedings did not determine issues in a manner that would preclude Indian prosecution of the applicant. Accordingly, the contention of bar by Article 15 of the UN Convention, double jeopardy under Article 20(2) or issue estoppel/res judicata does not, on a prima facie view, prevent trial in India; the contention can be tested at trial or at the stage of framing of charge if needed. [Paras 10, 13]

The plea based on prior Italian proceedings and doctrines of double jeopardy/issue estoppel/res judicata is without merit on the record and does not preclude trial in India.

Doctrine of specialty and extradition treaties (Article 17 of India-UAE Treaty) - Whether the applicant's extradition prevents trial in India for offences under Sections 3/4 PMLA by operation of the Doctrine of Specialty or the applicable extradition treaty. - HELD THAT: - The Court considered the Dubai Supreme Court's reasoning, the English translation of that judgment, and Article 17 of the India-UAE Extradition Treaty which permits trial for the offence for which extradition is sought and for offences connected therewith. The extradition request and the Treaty language were prima facie found to permit prosecution for offences connected to those for which extradition was sought; hence the submission that Section 21 of the Extradition Act bars trial was not accepted on the present record. The Court observed that the issue remains open for testing at framing of charge or trial. [Paras 14, 15, 16, 17]

On a prima facie view, the Doctrine of Specialty does not bar prosecution for the PMLA offences alleged against the applicant; the submission is not accepted at this stage.

Opinion of UNHRC Working Group on Arbitrary Detention non binding on domestic courts - Whether the UNHRC WGAD opinion that the applicant was arbitrarily detained precludes custodial proceedings or entitles the applicant to bail. - HELD THAT: - The Court noted that the UNHRC WGAD's opinion was based largely on limited and unverified material from an unidentified source, and that the Government of India filed a detailed response denying procedural deficiencies. The Special Court had considered the WGAD opinion and found it not to have binding or persuasive value in preference to the judicial record and charge sheet on file. Given that the Special Court and other domestic courts entertained the matter with full material, the WGAD opinion did not weigh in favour of bail. [Paras 18, 19]

The WGAD opinion does not provide a basis for bail; it is not binding on Indian courts and is of no consequence to the present bail application.

Twin conditions under Section 45(1) PMLA - burden of showing reasonable grounds for believing accused is not guilty and will not commit offence while on bail - Whether the amended twin conditions in Section 45(1) PMLA apply and, if so, whether the applicant has satisfied them to obtain bail. - HELD THAT: - The Court acknowledged the statutory twin conditions: opportunity to public prosecutor to oppose and, if opposed, court must be satisfied on reasonable grounds that accused is not guilty and is not likely to commit offence while on bail. The Court noted that constitutional challenge to earlier formulation of Section 45 had led to amendment and that Supreme Court decisions have left open the question of their present applicability; however, following recent Supreme Court guidance (Parkash Gurbaxani and Dr. V.C. Mohan), the twin conditions must be considered. Applying the standard for PMLA bail applications, the Court examined the material and concluded that it was not reasonably satisfied that there are reasonable grounds to believe the applicant is not guilty or that he would not commit an offence if released. The Court observed that it need not record a conclusive finding of guilt but must form a view on broad probabilities, including mens rea and likelihood of reoffending. [Paras 42, 43, 44, 45, 46]

The twin conditions of Section 45(1) PMLA apply to the bail application and, on the material before the Court, the applicant has not discharged the burden to show reasonable grounds that he is not guilty and would not commit an offence while on bail.

Flight risk in bail jurisprudence - parity with co-accused in bail matters - Whether the applicant is entitled to bail on parity with other accused or whether he is a flight risk sufficient to refuse bail. - HELD THAT: - The Court considered the applicant's conduct: failure to join proceedings, issuance of European non bailable warrants, INTERPOL Red Corner Notice, departure from India on the day of arrests in Italy, and eventual extradition from UAE. The Court noted earlier observations by a Coordinate Bench that the applicant was a flight risk. Given these facts and the applicant's absence of roots in India, the Court found on broad probabilities that the applicant remains a flight risk. Consequently, parity with other foreign co-accused who obtained bail was not appropriate in view of differing individual circumstances and the applicant's history of evasion. [Paras 23, 38, 39, 45, 46]

The applicant is a flight risk and cannot claim parity with other co-accused; this militates against grant of bail.

Apprehension of tampering with witnesses - Whether there is material to support apprehension that the applicant will tamper with witnesses or evidence if released on bail. - HELD THAT: - The Court observed that the prosecution failed to point to any credible material showing direct or indirect influence over witnesses by the applicant. Statements under Section 50 PMLA and documentary material are on record and have been seized and filed. Mere apprehension without supporting material cannot justify continued pre trial incarceration. The Court accepted that absence of specific material weakens the prosecution's claim of likely tampering, but this factor alone was outweighed by other considerations (notably flight risk and Section 45(1) requirements). [Paras 37]

No credible material was shown to establish a real likelihood of the applicant tampering with witnesses or evidence; however, this alone does not entitle the applicant to bail in the circumstances.

Final Conclusion: The application for regular bail is dismissed. The Court, applying the twin conditions of Section 45(1) PMLA and weighing the applicant's extradition history, conduct evincing flight risk, and the material on record, finds no reasonable grounds to believe the applicant is not guilty or that he would not commit an offence while on bail; other preliminary contentions (Italian proceedings, doctrine of specialty, UNHRC opinion) were not accepted on the present record and may be tested at trial.

Interim/temporary bail - extension of bail - medical grounds for bail - surrender requirement - finality of prior court order prohibiting extensions

Interim/temporary bail - extension of bail - medical grounds for bail - finality of prior court order prohibiting extensions - surrender requirement - Application for extension of interim/temporary bail on medical grounds refused. - HELD THAT: - The Court recalled that by its order dated 28.09.2021 interim/temporary bail had been extended for four months and it was expressly stated that no application for extension of bail shall be entertained. Although the petitioner produced a medical certificate alleging serious cardiac illness and counsel sought a further short extension and relaxation of the surrender requirement, the Respondent contested the application as frivolous and pointed out that the petitioner had admitted himself to hospital without prior reference and had been discharged. Having considered the competing contentions and the earlier clear prohibition on entertaining applications for extension, the Court declined to entertain the present application for further extension of interim/temporary bail.

Miscellaneous application for extension of interim/temporary bail dismissed; pending applications, if any, disposed of.

Final Conclusion: The Supreme Court refused to extend the interim/temporary bail previously granted and dismissed the application for further extension sought on medical grounds, observing the prior order's prohibition against entertaining extension requests.

Service tax liability on fixed facility charges - Business Support Service - infrastructural support services - outsourcing principle for business support services - transaction value/assessable value of goods - inclusion of fixed facility charges - backward computation where gross amount is inclusive of tax - extended period of limitation under Section 73(1) - suppression/intent to evade - penalty under Section 78 - connection with extended limitation

Service tax liability on fixed facility charges - Business Support Service - infrastructural support services - outsourcing principle for business support services - Fixed facility charges received by the assessee for installation and maintenance of facilities used by the assessee to ensure continuous supply of gas do not fall within the ambit of Business Support Services/infrastructural support services and therefore are outside the levy under the Finance Act, 1994. - HELD THAT: - The Tribunal examined the statutory definition of "support services of business or commerce" and the Explanation regarding "infrastructural support services", and applied CBEC clarifications which the head to services that are outsourced to support the principal activity of the service receiver. The Tribunal found that in the contract the appellant manufactures and supplies oxygen and the fixed facilities were installed and used by the appellant to effectuate its own supply obligation rather than to provide a supportive or outsourced activity to the buyer. Reliance was placed on board circulars and precedents which treat an activity undertaken on one's own account (not outsourced to assist the client's principal activity) as not falling under Business Support Service. On these grounds the demand of service tax on fixed facility charges was held unsustainable. [Paras 15, 16, 17, 21, 27]

Demand of service tax on fixed facility charges under the category of Business Support Service/infrastructural support services is set aside.

Transaction value/assessable value of goods - inclusion of fixed facility charges - backward computation where gross amount is inclusive of tax - Fixed facility charges were part of transaction value for excise in earlier treatment and where gross receipts are inclusive of tax, service tax must be computed by back-calculation; amounts already discharged by the assessee for the period from 01.04.2012 are to be treated accordingly and demands for that period are unsustainable. - HELD THAT: - The Tribunal noted the CBEC clarification that fixed facility charges (FFC) are to be added to the assessable value of gas for excise purposes and recorded that the appellant had paid excise duty on FFC until mid 2009. The Tribunal further observed that the appellant had, to avoid dispute after widening of levy, discharged service tax from 01.04.2012 and specifically for invoices covering 01.04.2012 to 30.06.2012. Applying the statutory rule that where gross amount charged is inclusive of tax the taxable value is to be back-calculated, and consistent precedents on computing tax where consideration is not shown separately, the Tribunal concluded that the confirmed demand for periods after 01.04.2012 is not sustainable to the extent tax has been paid. [Paras 28, 30, 31, 32, 33]

Demand of service tax for periods on which service tax has been discharged by the assessee (including 01.04.2012 to 30.06.2012) is unsustainable; assessable value principles require backward computation where gross receipts are inclusive of tax.

Extended period of limitation under Section 73(1) - suppression/intent to evade - penalty under Section 78 - connection with extended limitation - Extended period of limitation under Section 73(1) cannot be invoked and consequently penalty under Section 78 cannot be sustained where there is no deliberate suppression of facts or intent to evade and the relevant facts were within the knowledge of the Department. - HELD THAT: - The Tribunal applied the proviso to Section 73(1) and established authorities which require proof of fraud, collusion, wilful mis-statement or suppression to invoke extended limitation. It found that the appellant had earlier paid excise on FFC and that the department was aware of the transactions (including by issuing a show cause to the client), so there was no concealment by the assessee. The Tribunal also noted that the ingredients for invoking extended limitation and imposing penalty under Section 78 are identical; hence inability to invoke extended limitation dispositively negates the basis for Section 78 penalty. [Paras 37, 38, 39, 40, 41]

Extended period of limitation cannot be invoked and penalty under Section 78 cannot be imposed.

Penalty under Section 78 - connection with extended limitation - transaction records and disclosure - relevance to suppression - The Department's appeal against reduction of penalty under Section 78 (to 50%) is dismissed because the alleged suppression is not established when the demand is based on entries in the assessee's financial records and the Department has not identified other specified records not maintained. - HELD THAT: - The Tribunal observed that the assessee had maintained financial records and recorded transactions; the Department did not point to any specific documents absent from the records or show non disclosure of material facts. Citing precedents that suppression cannot be alleged where the information is evident from balance sheets/financial statements, the Tribunal held that the adjudicating authority correctly applied the principles and reduced/did not impose the enhanced penalty. Consequently, the Department's challenge to that exercise of discretion failed. [Paras 42, 43, 44, 45]

Department's appeal against reduction of penalty is dismissed.

Final Conclusion: The Tribunal set aside the service tax demand insofar as fixed facility charges were held not to be taxable as Business Support Services, held that demands for periods where service tax was discharged are not sustainable, declined to invoke extended limitation or sustain penalty under Section 78, dismissed the Department's appeal against penalty reduction and allowed the assessee's appeal with consequential relief.

Refund of service tax - retrospective amendment to Rule 2A of Service Tax Valuation Rules - determination of value of taxable service under Rule 2A - construction of complex is distinct from works contract - service tax not leviable on value of undivided share of land and goods in a composite contract - burden of service tax borne by the buyer - builder's acknowledgement and no-objection to refund

Refund of service tax - retrospective amendment to Rule 2A of Service Tax Valuation Rules - construction of complex is distinct from works contract - service tax not leviable on value of undivided share of land and goods in a composite contract - burden of service tax borne by the buyer - builder's acknowledgement and no-objection to refund - Whether the retrospective amendment to Rule 2A applies so as to deny refund of service tax paid by purchasers of units in a residential complex and whether the appellants are entitled to refund. - HELD THAT: - The Tribunal found that Rule 2A provides a mechanism to segregate the service portion in a works contract but is directed to works contracts and does not furnish machinery for excluding non-service elements from composite contracts for construction of complex. The contract for purchase of defined floors in the residential building was a simplicitor construction-of-complex transaction distinct from a works contract; therefore the retrospective amendment cannot be read to convert such composite contracts into taxable works contracts for the purpose of denying refund. The judgment notes the binding direction in earlier decisions that service tax could not be levied on the value of undivided share of land or value of goods incorporated in the project under the construction-of-complex head, and that subsequent rulings clarified the limited ambit of Rule 2A to works contracts. On facts, the record contained a Chartered Accountant certificate and a letter from the builder acknowledging that the element of service tax was borne by the appellants and that the builder had paid service tax, together with the builder's no-objection to the refund claim. In view of the legal position and the documentary evidence showing tax borne and paid, the impugned denial of refund was held unsustainable. The Tribunal also relied on a prior Single Member Bench decision on identical facts sanctioning refund, and accordingly set aside the orders rejecting the refund claims. [Paras 5, 6, 7, 8, 10]

The orders rejecting the refund claims are set aside and the appeals are allowed; the appellants are entitled to refund of the service tax paid (as acknowledged and evidenced), in accordance with the reasoning above.

Final Conclusion: On the facts and law the retrospective amendment to Rule 2A does not operate to deny refund in respect of the construction-of-complex transactions before the Tribunal; given the builder's payment and acknowledgment and precedent on identical facts, the orders denying refund are set aside and the appeals are allowed.

Audi Alteram Partem - service of notice - service on wrong address - ex parte order - limitation for appeal under Section 84(2) of the Finance Act - remand for fresh adjudication

Limitation for appeal under Section 84(2) of the Finance Act - service of notice - service on wrong address - Appeal before the Commissioner (Appeals) was filed within the prescribed limitation period. - HELD THAT: - Section 84(2) prescribes that the period for filing an appeal before the Commissioner (Appeals) runs from the date of communication of the adjudicating authority's order. Although the Order-in-Original is dated 16.10.2019, the record shows the appellant received the certified copy of the ex parte Order-in-Original only on 25.9.2020. The department failed to produce proof of service of the show cause notice or the order at the appellant's registered address, and the show cause notice and order were sent to an address which was not shown to be the appellant's registered address. Reliance on authorities establishes that service on an incorrect address or on an agent not properly authorized does not constitute valid communication for computing limitation. The appeal lodged on 9.11.2020 was therefore within three months from the date of communication and is not time-barred. [Paras 6, 7, 9]

The Commissioner (Appeals) erred in holding the appeal barred by limitation; the appeal was filed within the prescribed period and that finding is set aside.

Audi Alteram Partem - ex parte order - remand for fresh adjudication - Whether the appellant was afforded sufficient opportunity of hearing. - HELD THAT: - The adjudicating authority passed the Order-in-Original ex parte and there is no evidence that the appellant was served with the show cause notice or given an opportunity to be heard at the correct address. The appellant made a representation on 04.09.2020 after receiving the demand notice and received certified copies of the show cause notice and order on 25.9.2020; that representation was not considered. The absence of service at the appellant's registered address and the failure to afford a hearing amount to a breach of the principle of natural justice (Audi Alteram Partem). Given that the impugned appellate order was decided on a technical ground of limitation without addressing merits, the appropriate course is to remand the matter for fresh consideration on merits after affording the appellant adequate opportunity to be heard. [Paras 7, 8, 9]

There was a violation of natural justice; the matter is remanded to the Commissioner (Appeals) for fresh adjudication on merits with opportunity of hearing.

Final Conclusion: The order of the Commissioner (Appeals) holding the appeal time barred is set aside. The appeal is allowed by way of remand; the Commissioner (Appeals) is directed to decide the matter on merits after affording the appellant sufficient opportunity of hearing and to conclude the adjudication within three months from receipt of the impugned order.

Availment and reversal of CENVAT credit - Debit entry as equivalent to non-availment of credit (Chandrapur Magnet Wires ratio) - Rule 6(2) maintenance of separate accounts and entitlement to credit on common inputs/input services - Rule 6(3) options are alternatives for the assessee and not departmental obligations - Rule 6(5) non-obstante clause overriding Rules 6(1), 6(2) and 6(3) - Recovery under Rule 14 limited to wrongly availed CENVAT credit - Penalty under Rule 15 confined to wrongly availed CENVAT credit and not to amounts computed under Rule 6(3)(i)

Availment and reversal of CENVAT credit - Debit entry as equivalent to non-availment of credit (Chandrapur Magnet Wires ratio) - Recovery under Rule 14 limited to wrongly availed CENVAT credit - Reversal (debit) of CENVAT credit already taken - whether such reversal is equivalent to not having taken the credit and bars recovery under Rule 14. - HELD THAT: - The Tribunal applied the binding ratio in Chandrapur Magnet Wires that a debit entry reversing credit is as good as not taking the credit at all. The appellant had reversed the portion of contested credit (leaving only amounts covered by Rule 6(5) and credits taken when exclusively manufacturing dutiable goods). Once the reversal was made, there remained no wrongly availed CENVAT credit collectible under Rule 14. The Commissioner's contrary view that reversal still permitted recovery would render the reversal mechanism ineffective and is contrary to the Chandrapur ratio. [Paras 12, 13]

Reversal by way of debit entry is equivalent to not taking the credit; no recovery under Rule 14 when the disputed credit has been reversed.

Rule 6(2) maintenance of separate accounts and entitlement to credit on common inputs/input services - Rule 6(3) options are alternatives for the assessee and not departmental obligations - Whether opting to maintain separate accounts under Rule 6(2) precludes an assessee from availing proportionate CENVAT credit on common inputs or input services. - HELD THAT: - The Tribunal held there is no provision in Rule 6 that prohibits an assessee who maintains separate accounts under Rule 6(2) from availing proportionate credit on common inputs or input services. Rule 6(2) requires maintenance of accounts for receipt, consumption and inventory; it does not mandate separate procurement or bar apportionment or reversal methods. Practical examples (telephone, bulk inputs, utilities) demonstrate that strict exclusion would be impractical and contrary to the purpose of CENVAT rules. Thus maintaining separate accounts is compatible with taking proportionate credit or reversing credit to the extent used for exempted goods. [Paras 14, 15]

Maintaining separate accounts under Rule 6(2) does not, by itself, preclude availing proportionate CENVAT credit on common inputs or input services.

Rule 6(5) non-obstante clause overriding Rules 6(1), 6(2) and 6(3) - Scope of applicability of Rules 6(1), 6(2) and 6(3) - Whether Rules 6(1), 6(2) and 6(3) apply to services specified in Rule 6(5). - HELD THAT: - A plain reading shows Rule 6(5) is a non-obstante clause which permits credit of the whole of service tax on the services specified therein unless such service is used exclusively for exempted goods or services. Accordingly, for services falling within Rule 6(5), the limitations and procedures of Rules 6(1), 6(2) and 6(3) do not apply and credit is allowable subject to the exclusivity exception. [Paras 16]

Services covered by Rule 6(5) are excluded from the operation of Rules 6(1), 6(2) and 6(3); credit is allowable for those services unless used exclusively for exempted outputs.

Rule 6(3) options are alternatives for the assessee and not departmental obligations - Recovery under Rule 14 limited to wrongly availed CENVAT credit - Penalty under Rule 15 confined to wrongly availed CENVAT credit - Whether the Revenue can impose an amount calculated under Rule 6(3)(i) on the assessee by invoking Rule 14 and whether a penalty equal to such an amount can be levied under Rule 15. - HELD THAT: - The Tribunal concluded that the alternatives in Rule 6(3) are options available to the assessee for securing entitlement to CENVAT credit; they are not obligations that the Department can compulsorily impose. The statutory scheme contains no provision empowering authorities to choose an option under Rule 6(3) for the assessee. Recovery under Rule 14 is confined to CENVAT credit that has been wrongly taken or utilised; it cannot be used to enforce an option under Rule 6(3). Similarly, Rule 15 permits penalty relating to wrongly taken credit (and in specified cases penalties under Section 11AC), but does not authorize imposing a penalty equal to a hypothetical amount determined under Rule 6(3)(i). Reliance was placed on analogous High Court authority rejecting departmental selection of Rule 6(3) options on behalf of the assessee. [Paras 17, 18, 20]

Department cannot force-choice an option under Rule 6(3) and cannot recover an amount computed under Rule 6(3)(i) via Rule 14 nor impose a penalty equal to such amount under Rule 15; such demands and penalties are without authority of law.

Final Conclusion: The Tribunal allowed the appeal, set aside the impugned order, held that reversal of the disputed credit amounted to non-availment, that Rule 6(5) excludes specified services from Rules 6(1)-(3), and that the Department cannot impose an option under Rule 6(3) or recover/penalise on the basis of an amount computed under Rule 6(3)(i); consequential relief was granted to the appellant.

Penalty under Rule 26(2) of Central Excise Rules, 2002 - genuineness of transactions for cenvat credit - onus on credit claimant under the scheme of the Act read with Cenvat Credit Rules - disallowance of cenvat credit for alleged non receipt of inputs - binding effect of earlier tribunal and higher court decisions on identical facts

Penalty under Rule 26(2) of Central Excise Rules, 2002 - genuineness of transactions for cenvat credit - Validity of imposition of penalty on the input supplier under Rule 26(2) where the input receiver's credit was disallowed for alleged non receipt of inputs. - HELD THAT: - The Tribunal examined whether the penalty imposed on the appellant (input supplier) was sustainable in light of findings on the substantive question of receipt and utilisation of inputs. The Tribunal noted that in the appeal of the input receiver the Tribunal had allowed the receiver's appeal after recording that the inputs were used in manufacture of dutiable goods, cleared on payment of duty, no alternate source of raw material was identified, and therefore the receiver had discharged its onus in respect of credit under the statutory scheme. The Tribunal also took cognisance of earlier orders in which penalty imposed in similar circumstances was set aside by the Tribunal (Ahmedabad Bench), and that order was upheld by the High Court and leave proceedings before the Supreme Court were disposed. Applying those concurrent and binding conclusions on facts identical or squarely covering the present case, the Tribunal held that the allegation of non receipt was not substantiated by cogent evidence and, consequently, the basis for imposing penalty on the supplier fell away. For these reasons the impugned penalty order was set aside and consequential benefits granted to the appellant in accordance with law. [Paras 5, 6, 7]

Penalty imposed under Rule 26(2) set aside; appeal allowed and appellant entitled to consequential benefits.

Final Conclusion: The appeal is allowed; the penalty imposed on the appellant under Rule 26(2) is set aside in view of findings upholding the genuineness of the transactions and relevant precedents, and the appellant is entitled to consequential relief in accordance with law.

Refund claim arising from appellate order as relevant date under section 11B(1) - calculation of duty on the basis of actual working days of packing machines - compliance with remand directions of appellate tribunal - time bar and relevant date under Explanation (ec) to section 11B - validity of subsequent show cause notice issued after appellate directions

Time bar and relevant date under Explanation (ec) to section 11B - refund claim arising from appellate order as relevant date under section 11B(1) - The refund claim was not barred by limitation. - HELD THAT: - The Tribunal held that the applicable limitation period for the refund claim is one year from the relevant date under section 11B(1). In the facts of the case the relevant date falls under Explanation (ec) to section 11B - namely the date of the judgment, decree, order or direction of an appellate authority, Appellate Tribunal or any court. The refund application was filed pursuant to this Tribunal's orders dated 11.10.2017 and 03.11.2017 and therefore the claim filed thereafter was within one year of the relevant date. The finding of the original authority that the claim was time barred was factually incorrect and contrary to the statutory scheme of section 11B. Accordingly the rejection of the refund on limitation grounds was set aside. [Paras 10, 11]

Refund claim held to be within limitation and not barred by section 11B; rejection on limitation grounds set aside.

Calculation of duty on the basis of actual working days of packing machines - compliance with remand directions of appellate tribunal - The adjudicating authorities failed to comply with the Tribunal's remand directions to compute duty only for days when each packing machine was working, and the orders passed in purported compliance were held to be in violation of those directions. - HELD THAT: - The Tribunal's earlier orders expressly directed that duty be computed only for the periods when the sealed/second machine was working and that any excess duty already paid be refunded after deducting the demand. The Order in Original dated 31.01.2019 and the subsequent OIO dated 30.04.2020, however, treated the machines as involved for the entire impugned period and did not carry out the directed day wise computation or appropriately deduct amounts for non working days. The Tribunal found this to be a breach of the remand directions and judicial discipline, observed that departmental authorities ignored binding appellate directions, and directed the department to re calculate duty strictly in accordance with the earlier remand orders and to verify the appellant's refund computation for the closure period. [Paras 7, 8, 11]

Orders remanding and confirming demand held to be in violation of remand directions; department directed to recompute duty for actual working days and to verify and refund excess duty accordingly.

Validity of subsequent show cause notice issued after appellate directions - refund claim arising from appellate order as relevant date under section 11B(1) - The fresh show cause notice dated 19.06.2019 proposing rejection of the refund on limitation grounds was held to be without cogent basis and set aside. - HELD THAT: - Having held that the relevant date for limitation was the Tribunal's earlier orders and that the refund claim was within one year, the Tribunal concluded that the SCN of 19.06.2019, which sought to treat the refund as time barred, lacked a valid foundation. The appellate order under challenge which upheld that SCN was therefore set aside and declared unsustainable. [Paras 11]

SCN dated 19.06.2019 held to have no cogent basis and set aside; impugned appellate order overturned.

Final Conclusion: The appeal is allowed. The impugned order upholding rejection of the refund is set aside; the department is directed within fifteen days to compute duty strictly for the days each packing machine worked for the period March, 2012 to July, 2012, to verify the appellant's refund calculation for the closure period, to sanction any refundable differential amount forthwith and to file a compliance report within the subsequent fifteen days.

Cenvat credit - supplementary invoice - Rule 9 of Cenvat Credit Rules disabling credit where fraud or suppression is involved - fraud or suppression - chargeability of excise on royalty and cess - extended period of limitation

Cenvat credit - supplementary invoice - Rule 9 of Cenvat Credit Rules disabling credit where fraud or suppression is involved - fraud or suppression - chargeability of excise on royalty and cess - Validity of taking cenvat credit by the appellant on supplementary invoices raised by SECL charging excise duty on royalty, cess and similar levies - HELD THAT: - The Tribunal examined whether the credits taken on supplementary invoices were barred under Rule 9 as involving fraud or suppression. It was found that historically SECL did not charge excise on items such as royalty and cess, these levies being treated as separate and not subject to excise. SECL raised supplementary invoices and charged excise on those items only after the Central Excise Department insisted that such levies form part of coal cost; the question of chargeability itself is sub-judice before higher courts. There is no finding of mala fide, suppression or fraud in issuance of the supplementary invoices; the supplementary demands arose from a bona fide change in position by the coal company following a dispute with Revenue. In these circumstances the condition in Rule 9 disallowing credit for transactions tainted by fraud or suppression is not attracted and cenvat credit taken on the basis of the supplementary invoices is permissible. [Paras 6, 7]

Impugned order disallowing cenvat credit is set aside and the appellant is entitled to take cenvat credit on the basis of the supplementary invoices.

Final Conclusion: Appeal allowed; cenvat credit taken on supplementary invoices raised by SECL charging excise on royalty, cess and similar levies is upheld as not barred by Rule 9, in view of absence of fraud or suppression and the bona fide nature of the supplementary invoices.

Regular bail under Section 439 CrPC - exercise of judicial discretion for bail - misuse of login ID and password - requirement to verify VATis entries with IFMS treasury data - criminal conspiracy and question of fact for trial - conditions of bail

Regular bail under Section 439 CrPC - exercise of judicial discretion for bail - criminal conspiracy and question of fact for trial - misuse of login ID and password - requirement to verify VATis entries with IFMS treasury data - conditions of bail - Application for regular bail allowed and applicant released on bail subject to specified conditions. - HELD THAT: - The Court examined the allegations that the applicant's login credentials were used to effect fraudulent entries in the VATis system and that the applicant, as a State Tax Officer, was obliged to verify challan payments against IFMS (treasury) data while conducting assessments. The Court noted the prosecution's case that discrepancies between VATis entries and IFMS data prima facie indicated illegalities in respect of multiple traders and that a charge-sheet has been filed. The Court also observed the defence case that the login ID and password were misused by others, that VATis/IFMS interconnection and notification mechanisms limit an officer's ability to detect misuse, and that some entries predated the applicant's tenure. Whether there was criminal conspiracy, negligence, or receipt of gratification are questions of fact requiring trial and evidence. Balancing these considerations and the fact that investigation/charge-sheet stage has been reached, the Court exercised its discretion under Section 439 CrPC in favour of bail while imposing conditions to secure attendance and prevent prejudice to the prosecution. [Paras 6, 7]

The applicant is admitted to regular bail on furnishing personal bond and surety and subject to enumerated conditions including surrender of passport, residence disclosure, and restrictions on travel and conduct.

Final Conclusion: The High Court allowed the bail application, concluding that disputed factual questions about alleged misuse of credentials and verification of VATis entries against IFMS are matters for trial; bail granted on conditions and subject to compliance with procedural formalities.

Entertainment of writ petition where statutory appellate forum unavailable - exercise of judicial discretion in granting release of detained goods and vehicle subject to conditions - protection of revenue by security, bond and undertaking as condition for release - interpretation and application of Section 112(8)(a) and Section 112(8)(b)

Entertainment of writ petition where statutory appellate forum unavailable - Writ petition was maintainable because no Appellate Tribunal was available to entertain the alternative remedy under the CGST Act, 2017. - HELD THAT: - The Court held that since there was no Appellate Tribunal in existence on the date the writ was filed, the learned Single Bench rightly entertained the writ petition challenging the Appellate Authority's order dated 15th September, 2021. The absence of the statutory forum rendered the writ remedy available and maintainable, and the High Court proceeded to exercise its jurisdiction accordingly. [Paras 6]

Writ petition entertained due to non-availability of the Appellate Tribunal.

Exercise of judicial discretion in granting release of detained goods and vehicle subject to conditions - protection of revenue by security, bond and undertaking as condition for release - The Single Bench's exercise of discretion to direct release of the goods and vehicle on conditions (deposit already made, further security by bond and undertaking, and return of goods to consignor) was not interfered with. - HELD THAT: - The Division Bench reviewed the factual matrix and the learned Single Bench's discretionary order. Noting that the respondents denied tax liability and that the goods (pan masala) and vehicle had been detained for nearly a year making the goods unfit for consumption, the Court found the discretion exercised was neither arbitrary nor unreasonable. The Court accepted the writ Court's protective approach: revenue interest was safeguarded by collection of 30% of the disputed tax (10% earlier; 20% directed by the writ Court), by requiring execution of a bond in a form approved by the revenue to secure the balance, and by an undertaking from the transporter to produce the vehicle when required. Additionally, to prevent market sale, the respondent agreed to send the goods back to the consignor in Uttar Pradesh. Given these conditions, the appellate court declined to disturb the Single Bench order and directed release within three days upon compliance. [Paras 11, 13, 14, 16, 17]

Order directing conditional release of goods and vehicle upheld; respondents to execute bond and undertaking and return goods to consignor; release on compliance within three days.

Interpretation and application of Section 112(8)(a) and Section 112(8)(b) - Clause (a) of Section 112(8) was not attracted because the respondents did not admit tax liability; compliance with Clause (b) was secured by the deposit and further security directed by the writ Court. - HELD THAT: - The Court observed that invocation of Section 112(8)(a), which would require admission of liability, was inapplicable as the respondents consistently denied any tax liability. Accordingly, the focus was on whether the requirements of Clause (b) were satisfied. The writ Court had addressed this by directing payment of an additional 20% of the disputed tax (over the earlier 10% deposited), and the Division Bench required execution of a bond and an undertaking to protect the revenue, thereby treating Clause (b)'s protective purpose as fulfilled for release. [Paras 9, 10, 13]

Section 112(8)(a) not attracted; protection under Section 112(8)(b) achieved by deposit and security conditions imposed.

Final Conclusion: The appeal is dismissed; the Single Bench's order releasing the detained goods and vehicle on specified conditions is upheld. The respondents shall execute the bond in the form approved by the revenue and an undertaking to produce the vehicle, return the goods to the consignor in Uttar Pradesh, and upon compliance the goods and vehicle shall be released within three days. The order is confined to the peculiar facts and is not to be treated as a precedent.

Non-submission of Form C - waiver of tax liability - BIFR rehabilitation scheme - concessions subject to State Government concurrence - exercise of writ jurisdiction

Exercise of writ jurisdiction - waiver of tax liability - Validity of the High Court direction setting aside the recovery notice and granting liberty to the respondent to make a representation for waiver of the amount claimed for non-submission of Form C. - HELD THAT: - The High Court set aside the recovery notice dated 22.04.2015 and granted the respondent liberty to make a representation to the Commercial Taxes Department seeking waiver of the amount claimed for non-submission of Form C, directing the Department to consider the same in accordance with the BIFR order, preferably within twelve weeks. On appeal, the Division Bench found no positive direction compelling the Department to waive the tax liability; rather, the Judge directed consideration of a waiver application. The Court held that such a direction of consideration in writ jurisdiction did not warrant interference. The Bench observed that any adverse order resulting from that process could be challenged by the respondent by appropriate remedies, and therefore declined to set aside the High Court order. [Paras 7]

The High Court order setting aside the recovery notice and granting liberty to make a representation for waiver stands; the writ appeal is dismissed.

Non-submission of Form C - BIFR rehabilitation scheme - concessions subject to State Government concurrence - Whether the Department was obliged to concede or waive the tax liability arising from non-filing of Form C as part of the BIFR scheme or otherwise. - HELD THAT: - The Division Bench recorded the departmental contention that concessions under the BIFR scheme are subject to concurrence of the State Government and that the BIFR scheme's clauses relating to condoning delay or concession did not extinguish the tax liability arising from non-production of Form C. The Court did not adjudicate the substantive entitlement to waiver on the merits; instead it left the matter for administrative consideration in accordance with the BIFR order and applicable law. Thus the question of whether the tax component for non-submission of Form C is liable to be waived was not finally decided on merits but was remitted to the Department for consideration in the exercise of its statutory and executive powers, keeping intact the possibility of departmental determination and subsequent legal challenge. [Paras 7]

The substantive issue of waiver of tax for non-submission of Form C is left to the Department to consider in accordance with the BIFR order and law; no final adjudication on the merits was made by the Court.

Final Conclusion: The Division Bench dismissed the intra-court appeal and upheld the High Court order which set aside the recovery notice and granted liberty to the respondent to seek waiver of the amounts relating to non-submission of Form C; the Department is to consider such representation in accordance with the BIFR order and law, and any adverse departmental action may be challenged by the respondent.

Requirement of specific averment that a person was "in charge of, and responsible for, the conduct of business of the company" - vicarious/criminal liability of company officers under Section 141 of the Negotiable Instruments Act - liability for offence under Section 138 of the Negotiable Instruments Act - summoning order and its requirement to be a speaking order - quashing of proceedings under Section 482 Cr.P.C. - status of nominee/non executive director and its relevance to criminal liability

Requirement of specific averment that a person was "in charge of, and responsible for, the conduct of business of the company" - vicarious/criminal liability of company officers under Section 141 of the Negotiable Instruments Act - summoning order and its requirement to be a speaking order - status of nominee/non executive director and its relevance to criminal liability - Validity of the summoning order against the applicant director in proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act where the complaint contains only general averments of directorship and no specific allegation that the applicant was in charge of or responsible for conduct of the company's business. - HELD THAT: - The Court applied the principle that Section 141 extends criminal liability to persons who, at the time of the offence, were "in charge of, and responsible for, the conduct of business of the company," and that this requirement must be specifically averred in the complaint. The Court noted the exposition of this rule in S.M.S. Pharmaceuticals Ltd. Vs. Neta Bhalla , where the larger Bench held that mere designation as a director is not sufficient and that the complaint must contain averments satisfying the statutory conditions before officers can be proceeded against. The judgment in Srikanth Singh Vs. North East Securities Limited was also applied to the same effect that vicarious liability of a director must be pleaded and shown. On the material before it the complaint contained only a general allegation that the applicant was a director and did not specify any role or that he was in charge of and responsible for the company's business at the relevant time. The applicant's documentary evidence that he was a nominee director and his subsequent resignation were noted. In these circumstances the learned Magistrate's summoning order was held to be non sustaining as it failed to consider the necessity of specific averments required by Section 141 and proceeded on general allegations alone. Consequently, the exercise of summoning the applicant could not be upheld.

Summoning order against the applicant director set aside; proceedings insofar as they pertain to the applicant quashed.

Final Conclusion: The application under Section 482 Cr.P.C. is allowed; the revisional order dated 2.1.2021 and the summoning order dated 7.1.2014 insofar as they relate to the applicant Jatinder Pal Singh are quashed because the complaint lacked the necessary specific averments that he was in charge of and responsible for the conduct of the company's business as required for liability under Section 141 of the Negotiable Instruments Act.