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Issues: (i) Whether the cess collected by the market authorities under the Assam Agricultural Produce Market Act, 1972 post GST regime was constitutionally valid and within the framework of the CGST and AGST regimes; (ii) whether the petitioners were entitled to refund of the cess already collected.
Issue (i): Whether the cess collected by the market authorities under the Assam Agricultural Produce Market Act, 1972 post GST regime was constitutionally valid and within the framework of the CGST and AGST regimes.
Analysis: The levy was examined in the light of the exemptions flowing from Notification No. 12/2017-Central Government (Rate) dated 28.06.2017 and Notification No. FTX.56/2017/25 dated 29.06.2017, and the earlier coordinate Bench ruling holding that, after those notifications came into force, the cess stood subsumed and the continued levy by the Board and Market Committees was not sustainable. The same reasoning was applied to the present facts.
Conclusion: The levy and collection of cess post GST regime were held to be unconstitutional and ultra vires the CGST and AGST framework.
Issue (ii): Whether the petitioners were entitled to refund of the cess already collected.
Analysis: Refund was declined on the basis that the pleadings did not establish that the burden of cess had not been passed on to consumers, and the principles of restitution and unjust enrichment were treated as controlling. The financial condition of the respondent Board was also noted, and the Court declined to direct restitution of the collected amount.
Conclusion: No refund relief was granted.
Final Conclusion: The writ petition succeeded only to the extent of obtaining a declaration that the cess collection was unlawful, but failed on the consequential monetary relief.
Ratio Decidendi: Where a cess levy has become unsustainable after the applicable GST notifications, the levy is ultra vires, but refund will not be ordered unless the claimant establishes that the burden was not passed on and restitution is not barred by unjust enrichment.
Levy and collection of cess by the respondent authorities under the provisions of the Assam Agricultural Produce Market Act, 1972, post GST regime - prayer for a direction to the respondent authorities to refund the cess amount, which has been wrongfully and illegally collected from the petitioner - HELD THAT:- Having considered the submissions of learned counsel for the parties and perusal of the above judgment in M/s. Bhatter Traders and order [2023 (12) TMI 727 - GAUHATI HIGH COURT] the issue involved in the present case is pari materia with the facts and issue in the above cases and the same squarely covers the present case, where it was held that 'this Court therefore disposes of the instant writ petitions holding that the collection of the cess from the petitioners by the respondent Board or the Market Committees was unconstitutional as well as ultra vires to the provisions CGST Act, 2017 and the AGST Act, 2017.'
The present writ petition is disposed of, with an observation that collection of cess from the petitioner by the respondent authorities is unconstitutional as well as ultra virus to the provisions of the CGST Act, 2017 and the AGCST, 2017.
The core legal issues considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Blocking ECL without Pre-decisional Hearing
- Relevant legal framework and precedents: Rule 86A of the CGST Rules allows blocking of the ECL if there are reasons to believe that the Input Tax Credit (ITC) was fraudulently availed. The Division Bench in K-9-ENTERPRISES vs. STATE OF KARNATAKA emphasized the necessity of a pre-decisional hearing.
- Court's interpretation and reasoning: The Court noted that the petitioner was not provided a pre-decisional hearing before the ECL was blocked, which was a procedural lapse. The Division Bench's precedent mandates such a hearing as a prerequisite.
- Key evidence and findings: The impugned order lacked any indication of a pre-decisional hearing, thus violating procedural fairness.
- Application of law to facts: The absence of a pre-decisional hearing rendered the order procedurally defective.
- Treatment of competing arguments: The respondents argued the order was valid; however, the Court found this unconvincing due to the procedural lapse.
- Conclusions: The lack of a pre-decisional hearing invalidated the order.
Issue 2: Basis of Blocking ECL - Independent Reasons or Borrowed Satisfaction
- Relevant legal framework and precedents: Rule 86A requires "reasons to believe" based on independent inquiry, not borrowed satisfaction. The K-9-ENTERPRISES case highlighted the need for an independent assessment.
- Court's interpretation and reasoning: The Court found the impugned order was based on reports from other officers, lacking independent analysis or evidence.
- Key evidence and findings: The order relied on a report from the Asst. State Tax Officer, Vasco-D-Gama, without independent verification.
- Application of law to facts: The Court determined that the order was based on borrowed satisfaction, which is impermissible under the law.
- Treatment of competing arguments: The respondents' reliance on external reports was deemed insufficient to meet the legal standard of "reasons to believe."
- Conclusions: The order was invalid due to reliance on borrowed satisfaction without independent inquiry.
Issue 3: Fulfillment of Procedural Requirements under Rule 86A
- Relevant legal framework and precedents: Rule 86A and the CBIC Circular dated 02.11.2021 outline the conditions for blocking ECL, emphasizing independent assessment and tangible evidence.
- Court's interpretation and reasoning: The Court found that the procedural requirements, such as independent assessment and recording of reasons, were not fulfilled.
- Key evidence and findings: The order lacked detailed reasoning and was based on external reports without independent verification.
- Application of law to facts: The procedural lapses and lack of independent reasoning led to the conclusion that the order was not legally sustainable.
- Treatment of competing arguments: The respondents' actions were found to be mechanical and lacking the necessary independent analysis.
- Conclusions: The procedural deficiencies invalidated the order under Rule 86A.
3. SIGNIFICANT HOLDINGS
- Preserve verbatim quotes of crucial legal reasoning: "The impugned order discloses that the same has been passed mechanically and is based on borrowed satisfaction and does not meet the test of formation of an opinion of the Assessing Officer."
- Core principles established: The necessity of a pre-decisional hearing, independent assessment, and tangible reasons for blocking ECL under Rule 86A.
- Final determinations on each issue: The Court quashed the impugned order due to the lack of a pre-decisional hearing, reliance on borrowed satisfaction, and failure to meet procedural requirements under Rule 86A.
ORDER
(i) The petition is allowed.
(ii) The impugned order dated 14.10.2024 is quashed.
(iii) Respondents are directed to unblock the petitioner's ECL immediately.
(iv) Liberty is reserved for respondents to proceed against the petitioner in accordance with law and the Division Bench's judgment in K-9-ENTERPRISES.
Negative blocking of the Electronic credit ledger of the petitioner - pre-decisional hearing was not provided to the petitioner nor does the impugned order contain any reason to believe as to why it was necessary to block the Electronic credit ledger - HELD THAT:- In K-9-ENTERPRISES [2024 (10) TMI 491 - KARNATAKA HIGH COURT], the following points were answered in favour of the petitioner- assessee by holding that 'in the absence of valid nor sufficient material which constituted ‘reasons to believe’ which was available with respondents, the mandatory requirements/pre-requisites/ingredients/ parameters contained in Rule 86A had not been fulfilled/satisfied by the respondents-revenue who were clearly not entitled to place reliance upon borrowed satisfaction of another officer and pass the impugned orders illegally and arbitrarily blocking the ECL of the appellant by invoking Rule 86A which is not only contrary to law but also the material on record and consequently, the impugned orders deserve to be quashed.'
Thus, in the instant case since no pre-decisional hearing was provided/granted by the respondents before passing the impugned order, coupled with the fact that the impugned order invoking 86A of the KGST/CGST Rules by blocking of the Electronic credit ledger of the petitioner does not contain independent or cogent reasons to believe/accept by placing reliance upon reports of enforcement authority which is impermissible in law, since the same is on borrowed satisfaction as held by the Division Bench, the impugned order deserves to be quashed.
It is also pertinent note that in the impugned order the respondent No.3 except stating that the petitioner has availed the credit of input tax fraudulently by receiving the tax invoices without physical receipt of goods, no other reasons are forthcoming. On this ground also, the impugned order dated 14.10.2024 passed by the respondent No.3 deserves to be quashed.
Conclusion - The Court quashed the impugned order due to the lack of a pre-decisional hearing, reliance on borrowed satisfaction, and failure to meet procedural requirements under Rule 86A.
The concerned respondents are directed to unblock the Electronic credit ledger of the petitioner immediately upon the receipt of copy of this order, so as to enable the petitioner to file returns forthwith - petition allowed.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Condonation of Delay in Filing Appeal
2. Violation of the Principle of Natural Justice
SIGNIFICANT HOLDINGS
Condonation of delay in filing appeal - principle of natural justice / absence of physical notice - pre-deposit requirement for preferring statutory appeal - enhanced pre-deposit as condition for condonation - limitation not to bar admission of appeal where delay is condoned - right to be heard / audi alteram partem - appellate authority to decide on merits expeditiously
Condonation of delay in filing appeal - principle of natural justice / absence of physical notice - enhanced pre-deposit as condition for condonation - Delay of nearly 210 days in filing appeal against the assessment order was condoned subject to additional pre-deposit - HELD THAT: - The court accepted the petitioner's plea that the show cause notice and the impugned order were uploaded only on the GST portal and no physical intimation was furnished, which deprived the petitioner of knowledge of the proceedings and occasioned the delay. Having regard to this explanation and the fact that the petitioner had already paid the statutory 10% pre-deposit, the court found the reason for delay to be genuine and, in exercise of its jurisdiction, condoned the delay. As a condition for condonation the court required payment of an additional 15% of the disputed tax demand (making total pre-deposit 25%). [Paras 8]
Delay of nearly 210 days condoned on payment of an additional 15% pre-deposit (total 25%)
Pre-deposit requirement for preferring statutory appeal - limitation not to bar admission of appeal where delay is condoned - appellate authority to decide on merits expeditiously - right to be heard / audi alteram partem - Appellate Authority directed to admit the appeal despite limitation after compliance with enhanced pre-deposit and to decide the appeal on merits after hearing the petitioner - HELD THAT: - The court directed the Appellate Authority to take the appeal on record without insisting on limitation once the enhanced pre-deposit is made. The petitioner was directed to file reply/objections with supporting documents before the Appellate Authority. The Appellate Authority was further directed to hear the petitioner and pass appropriate orders on merits and in accordance with law as expeditiously as possible, thereby preserving the petitioner's right to a hearing and merit adjudication. [Paras 8]
Appellate Authority to admit appeal on compliance with total 25% pre-deposit, permit filing of reply, and decide on merits expeditiously
Final Conclusion: The writ petition is allowed: delay of approximately 210 days in filing the appeal is condoned on payment of an additional 15% pre-deposit (total 25%); the Appellate Authority shall admit the appeal notwithstanding limitation on compliance, permit the petitioner to file reply/documents, and decide the appeal on merits expeditiously. No order as to costs.
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Assignment of Leasehold Rights as "Supply"
Issue 2: Limitation Period for Issuing Show Cause Notice
3. SIGNIFICANT HOLDINGS
Seeking to quash and set aside the impugned SCN - seeking declaration that the Respondents are not entitled to charge Goods and Service Tax on the transaction entered into by the petitioner of relinquishment/assignment of the long-term leasehold rights under the provisions of the Goods and Service Tax, 2017 - HELD THAT:-Deed of Assignment is nothing but a sale/transfer of the leasehold rights in favour of the assignee by the petitioner -original lessee /assignor for valuable consideration. In the case of Gujarat Chamber of Commerce [2025 (1) TMI 516 - GUJARAT HIGH COURT], this Court had categorically held that 'assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/ transfer of benefits arising out of “immovable property” by the lessee-assignor in favour of third party-assignee who would become lessee of GIDC in place of original allottee-lessee. In such circumstances, provisions of section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5 (b) of Schedule II and Clause 5 of Schedule III would not be applicable to such transaction of assignment of leasehold rights of land and building and same would not be subject to levy of GST as provided under section 9 of the GST Act.'
Conclusion - The assignment of leasehold rights constitutes a transfer of immovable property benefits, not a "supply" under the CGST Act, thereby exempting it from GST.
The petition succeeds and the SCN issued by the respondent No. 2 being ex-facie illegal and without jurisdiction, is hereby quashed and set aside.
The core legal issue considered in this judgment is whether the proceedings under Section 73 of the U.P. GST Act, 2017, for the financial year 2017-18, were time-barred. Specifically, the court examined whether the orders issued were beyond the statutory time limits prescribed by the Act, considering the extensions provided by notifications.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The primary legal framework involves Section 73 of the U.P. GST Act, 2017. Section 73(10) mandates that the proper officer must issue the order within three years from the due date for furnishing the annual return for the financial year in question. The due date for filing annual returns, as per Section 44(1), is ordinarily the 31st of December following the end of the financial year. However, the Commissioner has the authority to extend this deadline through notifications.
In the referenced case of M/s A.V. Pharma vs. State of U.P. & Ors., the court had previously decided on the issue of time limits under similar circumstances, establishing a precedent that the orders passed beyond the prescribed time limits are without jurisdiction.
Court's Interpretation and Reasoning
The court interpreted Section 73(10) in conjunction with Section 44(1) to determine the applicable time limits. The due date for filing the annual return for the financial year 2017-18 was extended to 5th February 2020. Consequently, the three-year period for issuing orders under Section 73(9) ended on 5th February 2023. The court noted that a notification dated 24th April 2023 attempted to extend this deadline to 31st December 2023, but this notification was only given retrospective effect from 31st March 2023. Therefore, any orders issued after 5th February 2023 and before 31st March 2023 were considered time-barred.
Key Evidence and Findings
The court relied on the undisputed facts that the show cause notice was issued on 20th September 2023, and the final order was passed on 15th December 2023. These dates fell beyond the three-year period ending on 5th February 2023, as calculated from the extended due date for filing the annual return.
Application of Law to Facts
The court applied the provisions of Section 73(10) and Section 44(1) to the facts of the case, determining that the orders issued were indeed beyond the permissible time frame. The court emphasized that the notification dated 24th April 2023 could not retroactively validate the orders because it was not applicable to periods before 31st March 2023.
Treatment of Competing Arguments
The court acknowledged the argument from the opposite party that the notification dated 24th April 2023 extended the time limit for issuing orders. However, it rejected this argument by highlighting the limited retrospective effect of the notification, which did not cover the period when the orders were issued.
Conclusions
The court concluded that the proceedings and orders under Section 73 of the U.P. GST Act, 2017, were time-barred and without jurisdiction. Consequently, the impugned orders were quashed, and the petition was allowed.
SIGNIFICANT HOLDINGS
The court reiterated the principle that statutory time limits must be strictly adhered to, and any orders issued beyond such limits are without jurisdiction. The court stated, "Apparently the impugned orders are beyond the time limit prescribed under sub Section 10 of Section 73 as applicable for the financial year 2017-18 and therefore the impugned orders are beyond jurisdiction being barred by the time provided in the said provision."
The court also established that notifications extending time limits must be interpreted with regard to their retrospective application, and any orders issued outside the permissible period cannot be validated retroactively unless explicitly covered by such notifications.
The final determination was that the impugned orders were quashed, and the petitioner's bank accounts, which had been frozen, were ordered to be de-frozen.
Time barred proceedings or not - whether the orders issued were beyond the statutory time limits prescribed by the Act? - HELD THAT:- In this case, proceedings under Section 73 of the U.P. GST Act, 2017 were initiated on 20.09.2023 by issuance of a show cause notice and final order has been passed on 15.12.2023 whereas in view of the decision in M/s A.V. Pharma vs. State of U.P. & Ors. [2024 (11) TMI 911 - ALLAHABAD HIGH COURT], such an order could have been passed only till 31.12.2023 even after extension of the time limit. The facts aforesaid being undisputed in the sense that they are mentioned in the impugned order and the records itself, apparently, the proceedings culminating in the impugned order are time barred, therefore, there are no reason to call for a counter affidavit.
The impugned orders and proceedings quashed - petition allowed.
Outcome: The writ petition was dismissed as infructuous after the proceedings challenged therein had been dropped and assessment orders had already been passed.
Simultaneous assessment by State and Central GST authorities - Infructuousness of writ petition
Simultaneous assessment by State and Central GST authorities - Infructuousness of writ petition - Challenge to simultaneous service of assessment notices by State GST Authorities and Central GST Authorities (DGGI) and consequent writ petition - HELD THAT: - The petitioner challenged the simultaneous service of assessment notices for the period 2017-2021 by both State and Central GST authorities and assailed the show cause notice dated 27.07.2023 issued by the 2nd respondent. On instructions, the Government Pleader stated that the 2nd respondent had dropped the proceedings and that the 3rd respondent had already passed assessment orders. Given this change in position, the Court treated the writ petition as having become infructuous and did not proceed to decide the substantive contention on whether simultaneous assessments may be sustained. The dismissal follows from the respondents' discontinuance of the contested proceedings rather than an adjudication on the merits of the legal issue raised by the petitioner. [Paras 5, 6]
Writ petition dismissed as infructuous; no order as to costs; pending miscellaneous petitions, if any, closed.
Final Conclusion: The Court dismissed the writ petition as infructuous because the Central authority dropped its proceedings while the State authority had passed assessment orders for 2017-2021; the substantive question regarding simultaneous assessments was not determined.
Issues: Whether the assessment order and consequential proceedings were liable to be set aside for want of valid service of notice under the prescribed modes.
Analysis: The impugned assessment related to assessment year 2019-2020 was challenged along with the consequential GST DRC-07 proceedings. The order applied the earlier batch decision holding that service of notice must be effected in the modes contemplated under clauses (a), (b) and (c) of Section 169(1) of the Central Goods and Services Tax Act, 2017. Since that decision governed the present case, the assessment and consequential proceedings could not be sustained. The petitioner was directed to file a reply to the show cause notice, and the respondent was required to afford a hearing and pass a fresh order on merits.
Conclusion: The assessment order and consequential proceedings were set aside, the matter was left for fresh consideration after notice and hearing, and the bank attachment, if any, stood raised.
Challenge to assessment order - HELD THAT:- In view of the order passed by this Court in a batch of writ petitions in MR. SAHULHAMEED VERSUS THE COMMERCIAL TAX OFFICER, TUTICORIN-II, THIRUNELVELI, TAMILNADU [2025 (1) TMI 1021 - MADRAS HIGH COURT] wherein it has been held that the assessee is entitled to service of notice in the modes described under clauses (a), (b), and (c) of Section 169(1) of the Central Goods and Services Tax Act, 2017 and since the said order applies to the present case, the impugned order dated 28.08.2024 for the assessment year 2019-2020 and the consequential proceedings dated 28.08.2024 are set aside. The petitioner shall submit its reply to the show cause notice within a period of two weeks from today. Thereafter, the respondent shall provide an opportunity of hearing to the petitioner, as envisaged, and pass orders on merits and in accordance with law. In view of this order, the bank attachment, if any, made shall also stand raised.
Petition allowed.
Outcome: Special leave petition dismissed. The challenge to the reassessment notice was not entertained, while the question whether the undertaking furnished by the assessee amounted to a corporate guarantee or an international transaction was left open for consideration before the assessing officer.
Reopening of assessment - initiation of reassessment action in the second round - reason to believe - whether the undertaking by the petitioner constituted a "corporate guarantee" or a "mere obligation,"?
The subject-matter of challenge before the High Court [2025 (3) TMI 813 - DELHI HIGH COURT] was the notice for re-assessment for the assessment years 2008-2009.
Short question that fell for the consideration of the High Court while deciding the petition was whether the undertaking furnished by the petitioner – herein would amount to a corporate guarantee or a mere obligation and which could be viewed as an international transaction. This issue is kept open for assessee to be canvassed before the assessing officer in accordance with law.
No reason to interfere with the impugned order passed by the High Court.
Special Leave Petition is, accordingly, dismissed.
All other contentions available to the petitioner are also kept open to be canvassed before the AO.
Issues: Whether the Commissioner could invoke revisionary jurisdiction under Section 263 of the Income-tax Act, 1961 on the ground of lack of inquiry and verification in reassessment proceedings.
Analysis: The reassessment under Section 148 read with Section 143(3) of the Income-tax Act, 1961 had already considered the reasons relating to the bank account and the claim under Section 10AA of the Income-tax Act, 1961. The record indicated that inquiry and verification were in fact made in relation to the bank account, and the grievance was at best about the conclusion reached in reassessment, not absence of inquiry. In such a situation, exercise of Section 263 jurisdiction required a finding that the reassessment order was both erroneous and prejudicial to the interests of the Revenue on merits, and not merely a substitution of opinion.
Conclusion: The revisionary interference was not justified on the pleaded basis of no inquiry and verification, and the dismissal of the Revenue's appeal was upheld.
Validity of Revision u/s 263 - notice u/s 148 referred to non-declaration of the account in ING Vysya Bank with a credit and with regard to the claim of deduction u/s 10AA
HELD THAT:- It is accepted that a reassessment order under Section 148 r/w Section 143(3) of the 1961 Act was passed. Addition was not made for the first reason.
In the given facts, the assertion by the Revenue that inquiry and verification in re the bank account was not made is ex-facie incorrect. This being the position, this is not a case of failure to investigate, but as no addition was made, the Revenue can argue that it is a case of wrong conclusion and decision in the reassessment proceedings. Therefore, to exercise jurisdiction u/s 263 the Commissioner of Income Tax should have examined the merits and only on reaching a finding that the re-assessment order was erroneous and prejudicial to the interest of the Revenue made an addition.
This is not a case of ‘no inquiry and verification’, but as made out by the Revenue, a case of wrong conclusion. The difference between the two situations is clear and has different consequences.
This being the position, the High Court [2023 (9) TMI 1343 - GUJARAT HIGH COURT] was right in dismissing the appeal preferred by the Revenue.
Issues: (i) Whether credits appearing in the assessee's disclosed and undisclosed bank accounts could be assessed as unexplained cash credits when the assessee failed to furnish verifiable details of the creditors or beneficiaries. (ii) Whether the Tribunal was justified in restricting the addition to commission income at 0.15% instead of restoring the CIT(A)'s direction on unexplained credits and identified beneficiaries.
Issue (i): Whether credits appearing in the assessee's disclosed and undisclosed bank accounts could be assessed as unexplained cash credits when the assessee failed to furnish verifiable details of the creditors or beneficiaries.
Analysis: Section 68 requires the assessee to explain the nature and source of credits by establishing identity, creditworthiness and genuineness. The assessee admitted that it was engaged in accommodation entry business, but it did not furnish the details of the customers or beneficiaries from whom the deposits were received. The Court held that a bare assertion that the deposits belonged to customers could not discharge the statutory burden. It further held that the assessee could not avoid the operation of Section 68 by contending that no books were maintained, since the material extracted from the assessee's computer and CDs constituted books of account for the purpose of the provision, and the assessee had in any event maintained accounts and prepared a profit and loss account and tax audit report.
Conclusion: The credits were liable to be treated as unexplained cash credits and the addition under Section 68 was upheld in favour of Revenue.
Issue (ii): Whether the Tribunal was justified in restricting the addition to commission income at 0.15% instead of restoring the CIT(A)'s direction on unexplained credits and identified beneficiaries.
Analysis: The Court distinguished between taxation of commission income and taxation of unexplained credits. It held that the Tribunal gave no reasons for reducing the addition to 0.15% across all deposits and failed to address the CIT(A)'s conditional approach, under which unexplained credits would stand confirmed where beneficiaries were not identified. At the same time, for identified beneficiaries, the rate of commission was treated as a factual estimation and the Tribunal's figure of 0.15% was accepted for that limited component.
Conclusion: The Tribunal's reduction was set aside, the CIT(A)'s order was restored, and the commission rate of 0.15% was retained only for identified beneficiaries, resulting in partial relief to the assessee on this aspect.
Final Conclusion: The appeal succeeded in part: the addition under Section 68 was restored, while the commission rate was maintained at 0.15% for identified beneficiaries, with the Tribunal's order reversed to that extent.
Ratio Decidendi: An assessee engaged in accommodation entries cannot escape Section 68 merely by failing to maintain or produce books, and unexplained bank credits may be assessed as income where the assessee does not furnish verifiable details of the source and beneficiaries.
Unexplained cash credits - cash credits under Section 68 - books of account to include computer data/CDs - burden on assessee to explain identity, source and genuineness of credits - assessee cannot take advantage of not maintaining books - estimate of commission as assessable income
Unexplained cash credits - cash credits under Section 68 - burden on assessee to explain identity, source and genuineness of credits - Validity of addition under Section 68 on credits appearing in the assessee's bank accounts where details of sources/beneficiaries were not furnished - HELD THAT: - The Court held that where sums are found credited in an assessee's books and the assessee fails to furnish satisfactory explanation regarding identity, creditworthiness and genuineness of such credits, additions under Section 68 are justified. The respondent admitted operation of accommodation-entry transactions yet failed to provide particulars of customers; the data extracted from the respondent's computer and copied on CDs constituted its books of account. The Court rejected the contention that absence of traditional books or maintenance of illegal transactions absolved the assessee from explaining credits, observing that a person required to maintain books cannot benefit from non-maintenance. The assessee's oral assertion that amounts were taxed in the hands of beneficiaries was not shown to have been placed before the Assessing Officer or supported by records; such fresh factual claim in third appeal was infirm. Consequently, the Assessing Officer's addition on unexplained credits was sustainable where beneficiaries were not identified. [Paras 32, 33, 35, 37, 38]
Addition under Section 68 upheld in respect of credits not explained or where beneficiaries are not identified; Assessing Officer's addition sustained.
Books of account to include computer data/CDs - assessee cannot take advantage of not maintaining books - Whether bank entries/data extracted on CDs constitute 'books of an assessee' for the purposes of Section 68 and whether nonmaintenance of books can be relied upon by the assessee - HELD THAT: - The Court construed 'books of an assessee' to include data stored in computers and extracted on CDs, relying on the statutory definition of 'books' and prior authority. The director's statement admitted that data in CDs were extracted from books of account and that profit & loss account and tax audit report were prepared. The Court rejected the submission that absence of conventional books precludes application of Section 68, observing that a person obliged to maintain books cannot take advantage of his own default; accepting such a contention would render Section 68 otiose. [Paras 31, 32, 33, 34, 35]
Data extracted from the assessee's computer on CDs constitute 'books of account' for Section 68; nonmaintenance of books cannot be invoked to avoid assessment under Section 68.
Estimate of commission as assessable income - cash credits under Section 68 - Proper treatment where some credits are explained (identified beneficiaries) and others remain unexplained; appropriate rate to be applied as commission for identified beneficiaries - HELD THAT: - The CIT(A) directed that if the assessee identifies beneficiaries, commission should be applied to such identified receipts (in CIT(A) para 4.3), and unexplained balances would be confirmed under Section 68. The Tribunal reduced a blanket adoption of commission on all deposits to 0.15% without addressing the CIT(A)'s condition that only identified beneficiaries attract commission estimates. The Court held that the question of commission rate for identified credits is essentially factual; while restoring CIT(A)'s approach, the Court retained the Tribunal's factual finding on the appropriate commission rate for identified beneficiaries at 0.15%. [Paras 8, 20, 48, 49, 50]
CIT(A)'s direction restored: identified beneficiaries' receipts to be assessed by adopting a commission approach; for those identified receipts, commission rate applied at 0.15% as directed to be retained.
Burden on assessee to explain identity, source and genuineness of credits - Whether the assessee's reliance on coordinate bench decisions of earlier years (group decisions) absolves it when no evidence shows that credits were assessed in beneficiaries' hands for the relevant year - HELD THAT: - The Court found the Coordinate Bench's finding in the group matter (Alag Securities) - that amounts were assessed in beneficiaries' hands - absent in the present record. No material was produced to show the sums added were assessed in beneficiaries' assessments for AY 200910. Hence, those precedents were distinguishable on facts and could not aid the respondent who had failed to identify beneficiaries. [Paras 25, 26, 27, 28]
Decisions in related/group cases were held distinguishable; absence of proof that credits were assessed in beneficiaries' hands for AY 200910 meant those precedents did not defeat the addition under Section 68 in this case.
Final Conclusion: Appeal allowed in part: Tribunal's order is reversed insofar as it applied a blanket 0.15% to all deposits; para 4.3 of the CIT(A)'s order is restored so that identified beneficiaries' receipts are taxed on a commission basis while unexplained credits are confirmed under Section 68, with the commission rate for identified receipts retained at 0.15% as a factual finding.
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Absence of DIN in the Assessment Order
Limitation of the Assessment Order
Non-compliance with Section 144C
Exercise of Jurisdiction under Article 226
3. SIGNIFICANT HOLDINGS
The judgment concludes with the dismissal of the writ petition, directing the petitioner to seek redress through the appropriate statutory channels. The Court also denied the petitioner's request for a stay on the order, as no interim relief had been granted earlier.
Validity of assessment order being invalid and bad-in-law as it was passed beyond the period of limitation as provided u/s 153 - HELD THAT:- According to the learned advocate since limitation is a question of jurisdiction, the petitioner is entitled to invoke the powers vested in the High Court under Article 226 of the Constitution of India without approaching the statutory authorities. As have considered such submissions on the issue relating to limitation and is of the view that the question of limitation involves mixed question of facts and law. As such, summarily considering the same only on affidavits may not be appropriate in the background of the facts and circumstances of the case. See Charminar Cooperative Urban Bank Ltd.[2003 (8) TMI 551 - SUPREME COURT] and TOPLINE SHOES LIMITED [2022 (7) TMI 1584 - SUPREME COURT]
DIN being absent in the assessment order which has rendered the order bad-in-law - To that effect a series of judgments have been placed by the learned advocate appearing for the petitioner, however the issue is too technical and the judgment delivered in Tata Medical Center Trust [2023 (9) TMI 1324 - CALCUTTA HIGH COURT] has been interfered by the Hon’ble Supreme Court and there has been stay of the order wherein the proceedings were quashed by the High Court because of absence of DIN. Needless to state that in Tata Medical Center Trust[2023 (9) TMI 1324 - CALCUTTA HIGH COURT] the order was passed by the appellate authority and the Hon’ble High Court exercised its power under Section 260A of the Income Tax Act and not under Article 226 of the Constitution of India vested in the High Court.
As alternative and efficacious remedy is available whether the High Court should exercise its jurisdiction under Article 226 of the Constitution of India - Needless to say that very recently in Bank of Baroda v/s Farooq Ali Khan [2025 (2) TMI 1021 - SUPREME COURT] it has been observed that the statutory Tribunals are constituted to adjudicate and determine certain questions of law and fact, the High Court should not substitute themselves as the decision-making authority while exercising their powers of judicial review.
Having considered that the petitioner has directly approached the jurisdiction of this Court under Article 226 of the Constitution of India and called upon this Court to adjudicate issues relating to facts and the application of law on the said set of facts, it is of the opinion that the present writ petition is not maintainable as an alternative and efficacious remedy is available to the petitioner.
The primary issues considered by the Court in this judgment include:
a) Whether the absence of a Document Identification Number (DIN) in the Assessment Order dated August 12, 2022, renders it invalid in light of the CBDT Circular No. 19/2019.
b) Whether the Assessment Order is barred by limitation, given the timeline for assessment under the Income Tax Act and the extensions provided by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).
c) Whether the assessment order is invalid due to non-compliance with the mandatory procedure under Section 144C of the Income Tax Act.
d) Whether the High Court should exercise its jurisdiction under Article 226 of the Constitution when an alternative remedy is available under the Income Tax Act.
2. ISSUE-WISE DETAILED ANALYSIS
a) Absence of Document Identification Number (DIN)
- Relevant legal framework and precedents: The CBDT Circular No. 19/2019 mandates the generation and quoting of DIN in all notices, orders, summons, letters, and other correspondence issued by the Income Tax Department. The petitioner cited several cases, including PCIT vs. Tata Medical Centre Trust, to argue that the absence of DIN renders the order invalid.
- Court's interpretation and reasoning: The Court acknowledged the petitioner's argument but noted that the judgment in PCIT vs. Tata Medical Centre Trust had been stayed by the Supreme Court. The issue of DIN was deemed too technical, and the absence of DIN was considered an irregularity rather than an illegality.
- Conclusions: The Court did not find the absence of DIN sufficient to invalidate the assessment order.
b) Limitation of the Assessment Order
- Relevant legal framework and precedents: Section 153 of the Income Tax Act specifies the time limits for making an assessment order. The petitioner argued that the order was barred by limitation as it was uploaded on January 23, 2023, beyond the extended deadline of September 30, 2022.
- Court's interpretation and reasoning: The Court considered the extensions provided by TOLA and the Supreme Court's directions during the COVID-19 pandemic, which extended the limitation period. The Court noted that the order was passed within the extended time frame and that the technical glitch in uploading did not affect its validity.
- Conclusions: The Court concluded that the assessment order was not barred by limitation.
c) Compliance with Section 144C
- Relevant legal framework and precedents: Section 144C of the Income Tax Act outlines the procedure for issuing a draft assessment order to eligible assessees. The petitioner argued that the order was final and not a draft, violating the procedure.
- Court's interpretation and reasoning: The Court did not specifically address this issue in detail but implied that the procedural requirements were not sufficiently violated to render the order invalid.
- Conclusions: The Court did not find sufficient grounds to invalidate the order on this basis.
d) Exercise of Jurisdiction under Article 226
- Relevant legal framework and precedents: The Court considered the principle that writ petitions should not be entertained when an effective alternative remedy is available, as established in several Supreme Court judgments.
- Court's interpretation and reasoning: The Court emphasized the availability of alternative remedies under the Income Tax Act and noted that the issues involved mixed questions of fact and law, which are better suited for statutory forums.
- Conclusions: The Court declined to exercise its jurisdiction under Article 226, emphasizing the availability of alternative remedies.
3. SIGNIFICANT HOLDINGS
- The Court held that the absence of a DIN in the assessment order was an irregularity, not an illegality, and did not invalidate the order.
- The Court concluded that the assessment order was not barred by limitation, considering the extensions provided by TOLA and the Supreme Court's directions during the COVID-19 pandemic.
- The Court emphasized the importance of exhausting alternative remedies before invoking the High Court's jurisdiction under Article 226, particularly in tax matters.
- The writ petition was dismissed, and the Court declined to stay the operation of its order, as no interim order had been in place from the inception.
Validity of Assessment Order as barred by limitation - HELD THAT:- Question of limitation involves mixed question of facts and law. As such, summarily considering the same only on affidavits may not be appropriate in the background of the facts and circumstances of the case.See Charminar Cooperative Urban Bank Ltd.[2003 (8) TMI 551 - SUPREME COURT] and TOPLINE SHOES LIMITED [2022 (7) TMI 1584 - SUPREME COURT]
DIN being absent in the assessment order which has rendered the order bad-in-law - To that effect a series of judgments have been placed by the learned advocate appearing for the petitioner, however the issue is too technical and the judgment delivered in Tata Medical Center Trust [2023 (9) TMI 1324 - CALCUTTA HIGH COURT] has been interfered by the Hon’ble Supreme Court and there has been stay of the order wherein the proceedings were quashed by the High Court because of absence of DIN. Needless to state that in Tata Medical Center Trust [2023 (9) TMI 1324 - CALCUTTA HIGH COURT] the order was passed by the appellate authority and the Hon’ble High Court exercised its power under Section 260A of the Income Tax Act and not under Article 226 of the Constitution of India vested in the High Court.
As alternative and efficacious remedy is available whether the High Court should exercise its jurisdiction under Article 226 of the Constitution of India - Needless to say that very recently in Bank of Baroda v/s Farooq Ali Khan [2025 (2) TMI 1021 - SUPREME COURT] it has been observed that the statutory Tribunals are constituted to adjudicate and determine certain questions of law and fact, the High Court should not substitute themselves as the decision-making authority while exercising their powers of judicial review.
Having considered that the petitioner has directly approached the jurisdiction of this Court under Article 226 of the Constitution of India and called upon this Court to adjudicate issues relating to facts and the application of law on the said set of facts, it is of the opinion that the present writ petition is not maintainable as an alternative and efficacious remedy is available to the petitioner.
Issues: (i) whether any substantial question of law arose from the Tribunal's concurrent factual findings in relation to reassessment under section 147 of the Income-tax Act, 1961; (ii) whether disallowance of expenditure under Explanation 1 to section 37(1) of the Income-tax Act, 1961 was warranted on the alleged illegality of the mining activity.
Issue (i): whether any substantial question of law arose from the Tribunal's concurrent factual findings in relation to reassessment under section 147 of the Income-tax Act, 1961.
Analysis: The assessment was reopened on the basis of alleged suppression of production particulars and illegal mining activity. The Tribunal, affirming the first appellate authority, found on facts that the figures in the assessee's statutory filings and audit report matched, and that there was no perversity in the factual conclusions. A substantial question of law does not arise from concurrent findings of fact unless they are shown to be perverse or unsupported by material on record.
Conclusion: No substantial question of law arose on the reopening issue, and the finding stood in favour of the assessee.
Issue (ii): whether disallowance of expenditure under Explanation 1 to section 37(1) of the Income-tax Act, 1961 was warranted on the alleged illegality of the mining activity.
Analysis: The Tribunal held that the assessee had not claimed deduction of any penalty expenditure, and the record did not establish that the activity had been declared illegal so as to attract Explanation 1. The materials referred to did not show that the expenditure claimed was in respect of any penalty actually imposed and paid for an illegal act. In the absence of such foundational facts, the disallowance could not be sustained.
Conclusion: The disallowance under Explanation 1 to section 37(1) was not justified, and the finding stood in favour of the assessee.
Final Conclusion: The appeal failed because the record did not disclose any substantial question of law and the Tribunal's deletion of the addition was upheld.
Ratio Decidendi: Concurrent findings of fact do not give rise to a substantial question of law unless shown to be perverse, and Explanation 1 to section 37(1) applies only where the claimed expenditure is in respect of an actually illegal act or penalty founded on such illegality.
Reopening of assessment u/s 147 -illegal activity attracting rigor of explanation (1) u/s 37 (1) - HELD THAT:- Appellate authority had examined Form H-1 submitted to Indian Bureau of Mines in regard to production of iron ore to find that very same figure had been reported by the assessee in its audit report in Form 3CD. The Tribunal thus concurrently found. There is no perversity in the concurrent finding of fact. No question of law, let alone a substantial question can arise from such concurrent finding on fact.
It appears, the AO relied on report of Justice M.B. Shah Commission, which said, leases operated under deemed extension without statutory clearance under EIA notification dated 27th January, 1994 and amendments therein for environmental clearance is considered as illegal. Action should be initiated to recover value equivalent to market value. The assessee when show caused, came up with its explanation that Central Empowered Committee (CEC).
We have not been able to find there arises a substantial question of law on the concurrent finding of fact. So far as disallowing the expenditure in terms of explanation (1) under section 37 (1) is concerned, the Tribunal said that the assessee had not claimed any expenditure on account of penalty imposed and paid.
Reliance by the assessee was on report filed by the CEC pursuant to Justice M.B. Shah Commission. It was on page 29 in the report containing opinion that, inter alia, mining operations without clearance does not constitute illegal mining.
Revenue will be able to apply explanation (1) under section 37 (1) if, in future, the activity is declared to be illegal, penalty imposed and claimed by assessee as an expenditure in its relevant return. Presently, there is nothing to show the activity stood declared as illegal for the explanation to be invoked.
No substantial question of law arises from impugned order of the Tribunal. Decided against revenue.
The core legal issues considered in this judgment include:
- Whether the issuance of a notice under section 148A(b) of the Income Tax Act, 1961, and the order under section 148A(d) in the name of a dissolved partnership firm was valid.
- Whether the petitioner, having taken over the business as a sole proprietor, was correctly assessed for the transactions under the PAN of the erstwhile partnership firm.
- The applicability of legal precedents regarding the issuance of notices to non-existent entities.
2. ISSUE-WISE DETAILED ANALYSIS
Issuance of Notice to a Dissolved Partnership Firm
- Relevant legal framework and precedents: The case primarily revolves around the provisions of sections 148A(b) and 148A(d) of the Income Tax Act, 1961, which deal with the issuance of notices for reassessment. The precedent set by the Supreme Court in the case of Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Limited was crucial, as it addressed the validity of notices issued to non-existent entities.
- Court's interpretation and reasoning: The Court noted that the partnership firm, M/s. AMC Corporation, was dissolved effective 01.04.2017, and the business was continued by the petitioner as a sole proprietor. The Court interpreted that issuing a notice to a non-existent entity was not tenable, especially when the petitioner had provided all necessary information regarding the dissolution.
- Key evidence and findings: The petitioner had submitted evidence including the dissolution deed, audited financial statements, and tax audit reports, which demonstrated that the business was carried out under the petitioner's proprietorship after the dissolution of the partnership firm.
- Application of law to facts: The Court applied the legal principle that notices cannot be validly issued to non-existent entities, as established in the Maruti Suzuki case. The Court found that the notice and order under section 148A were incorrectly issued in the name of the dissolved firm.
- Treatment of competing arguments: The respondents argued that the petitioner failed to disclose the dissolution before the notice was issued and that the PAN of the partnership firm was not surrendered. However, the Court found that the petitioner had indeed provided sufficient information regarding the dissolution and that the issuance of notice was still improper.
- Conclusions: The Court concluded that the notice and order were invalid as they were issued to a non-existent entity, and thus, the reassessment proceedings were not tenable.
3. SIGNIFICANT HOLDINGS
- Preserve verbatim quotes of crucial legal reasoning: The Court stated, "In view of such undisputed fact about the dissolution of the partnership firm and issuance of the notice for reassessment in name of dissolved firm, the impugned notice and order would not be tenable more particularly, when the petitioner in the reply to the show cause notice issued under section 148A (b) of the Act has provided all the information including dissolution deed before the respondent Assessing Officer."
- Core principles established: The judgment reinforces the principle that tax notices cannot be validly issued to entities that no longer exist, and that proper procedural steps must be taken to ensure that notices are issued to the correct legal entity.
- Final determinations on each issue: The Court quashed and set aside the notice and order dated 31.03.2022, allowing for the possibility of initiating proceedings against the petitioner under the correct legal framework if necessary. The rule was made absolute to the extent of quashing the impugned notice and order, with no orders as to costs.
Validity of reassessment proceedings against dissolved partnership firm - HELD THAT:- AO has issued the impugned notice u/s 148A (b) in the name of partnership firm as well as passed the order u/s 148A (d) in the name of the said firm which has already been dissolved with effect from 01.04.2017.
In view of such undisputed fact about the dissolution of the partnership firm and issuance of the notice for reassessment in name of dissolved firm, the impugned notice and order would not be tenable more particularly, when the petitioner in the reply to the show cause notice issued u/s 148A (b) has provided all the information including dissolution deed before the respondent AO.
In view of the settled legal position as held in case of Maruti Suzuki Limited [2019 (7) TMI 1449 - SUPREME COURT] the impugned notice and the order are required to be quashed and set aside. Decided in favour of assessee.
The core issue in this case was whether the Income Tax Appellate Tribunal (ITAT) erred in applying the principles of criminal jurisprudence, specifically the standard of "proof beyond reasonable doubt," to the interpretation of "reason to believe" under Section 148 of the Income Tax Act. The Court considered whether the ITAT's reliance on a Supreme Court decision from a criminal case was appropriate in the context of reopening assessments under the Income Tax Act.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The legal framework revolves around Section 148 of the Income Tax Act, which allows for the reopening of assessments if the Assessing Officer (AO) has "reason to believe" that income has escaped assessment. The Court referenced the Supreme Court's decision in ITO v. Lakhmani Mewal Das, which clarified that the "reason to believe" must be based on objective materials and not merely on suspicion.
The ITAT had relied on the Supreme Court's decision in a criminal case (Raja Naykar vs. State of Chhattisgarh), which emphasized the need for proof beyond reasonable doubt in criminal matters. The Court found this reliance misplaced in the context of tax law.
Court's Interpretation and Reasoning:
The Court held that the ITAT's application of criminal law principles to a tax matter was erroneous. The standard of "proof beyond reasonable doubt" is applicable to criminal cases, not to tax assessments. In tax law, the AO must have objective reasons to believe that income has escaped assessment, which is a lower threshold than the criminal standard.
Key Evidence and Findings:
The ITAT had concluded that the AO's notice under Section 148 was based on "reason to suspect" rather than "reason to believe," citing the movement of funds in the assessee's bank account as suspicious. However, the Court found that this conclusion was based on an incorrect application of legal principles, as the ITAT used a criminal law standard to assess a tax matter.
Application of Law to Facts:
The Court determined that the ITAT's reliance on criminal jurisprudence was inappropriate for interpreting "reason to believe" under the Income Tax Act. The Court emphasized that the AO's belief must be based on tangible material and objective reasons, not merely suspicion, but this does not equate to the criminal standard of proof.
Treatment of Competing Arguments:
The Court acknowledged the arguments from both sides but focused on the legal misapplication by the ITAT. While the respondent (assessee) argued in favor of the ITAT's reasoning, the Court was not persuaded, given the fundamental error in applying criminal law principles to a tax assessment issue.
Conclusions:
The Court concluded that the ITAT's judgment was unsustainable in law due to the misapplication of the principle of "proof beyond reasonable doubt" to the concept of "reason to believe" under the Income Tax Act. The matter was remitted back to the ITAT for reconsideration on the merits, without the erroneous legal premise.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
The Court quoted the Supreme Court's decision in ITO v. Lakhmani Mewal Das, emphasizing that the "reason to believe" must have a material bearing on the question of income escapement and must be based on objective grounds.
Core Principles Established:
The Court reinforced that the standard of "proof beyond reasonable doubt" is not applicable to tax matters under Section 148 of the Income Tax Act. Instead, the AO must have objective and tangible material to form a "reason to believe" that income has escaped assessment.
Final Determinations on Each Issue:
The Court quashed the ITAT's judgment and remitted the matter for de novo consideration, emphasizing that the ITAT must apply the correct legal standards when assessing the AO's reasons for reopening assessments.
Reopening of assessment u/s 147 - “reason to suspect” OR “reason to believe” - Whether the ITAT was not wrong in applying the principles enunciated by the SC in a criminal case where the discharge of burden of proof is beyond reasonable doubt, to the principle of “reason to believe” as provided in section 148 of the Act?
HELD THAT:- It is trite that the concept of “proving beyond reasonable doubt” applies “strictu senso” to penal provisions/statutes. It is also trite that in taxing statutes, in particular, section 148 of the Act, the “reason to believe”, must be based on objective materials, and on a reasonable view.
The Hon’ble Supreme Court in ITO v. Lakhmani Mewal Das [1976 (3) TMI 1 - SUPREME COURT] has upheld the aforesaid principle.
The aforesaid principle has been followed in M.R. Shah Logistics [2022 (4) TMI 46 - SUPREME COURT] stating that the basis for a valid reopening of assessment should be availability of tangible material, which can lead the AO to scrutinise the returns for the previous assessment year in question, to determine, whether a notice under section 147 is called for. Predicated on the aforesaid judgments it can be safely inferred that the concept of burden of proof beyond reasonable doubt is not to be applied in cases such as the present one.
We are not persuaded to consider the same. This is for the reason that the learned ITAT misdirected itself in predicating its entire reasoning on an incorrect and inapplicable principle of law, which are confined to purely penal provisions, which is not the case here. Thus, on this error alone the impugned judgement is found to be unsustainable in law. Once the edifice of differentiating “reason to suspect” and “reason to believe” itself is on incorrect application of the principle as explained above, the consequential appreciation on merits too would suffer the same fate.
Ergo, we have no hesitation in quashing and setting aside the impugned judgement passed by the learned ITAT, and we do so. Appeal allowed.
Issues: Whether the transfer of the petitioner's income-tax case under Section 127 of the Income-tax Act, 1961 to the Central Circle at Kochi was liable to be set aside for want of reasons and alleged arbitrariness.
Analysis: The challenge centred on the absence of reasons in the transfer order and the plea that the assessment could continue at Theni in a faceless regime. The opposing case was that a search had been conducted, cash had been seized in Kerala, and the matter fell within the CBDT guidelines requiring assessment in the Central Circle for coordinated investigation. The Court found that the petitioner had not shown any compelling ground to interfere with the transfer and accepted that the search-related circumstances and applicable guidelines justified moving the case to the Central Circle.
Conclusion: The transfer order was upheld and the writ petition was dismissed.
Final Conclusion: The impugned transfer of the case for coordinated investigation was sustained, and the petitioner obtained no relief.
Ratio Decidendi: A transfer of assessment under Section 127 of the Income-tax Act, 1961 will not be interfered with where the search-related circumstances and applicable CBDT guidelines support coordinated investigation and no compelling ground to annul the transfer is shown.
Validity of transfer order u/s 127 - as argued order impugned was issued without assigning any reasons for transferring the assessment from the Income Tax Officer, Theni, to the Deputy Commissioner of the Income Tax, Central Circle, Kochi - HELD THAT:- There are no sufficient grounds to interfere with the impugned order. The petitioner has not demonstrated any compelling reason for the Court to set aside the transfer of the case, particularly in the light of the search conducted u/s 132/132A of the Act and as per the relevant CBDT guidelines, which necessitated the transfer to Central Circle – 2, Kochi, for the purpose of the coordinated investigation.
This Court is of the opinion that the impugned order does not warrant interference.
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Condonation of Delay in Filing Form No.10B
SIGNIFICANT HOLDINGS
Denial of exemption u/s 11 - delay in filing Form No.10B - HELD THAT:- The reason assigned by the petitioner citing Covid-19 Pandemic would come under genuine hardship. However, the 1st respondent had failed to consider the same and passed order rejecting the application of the petitioner for condonation of delay in filing the audit report.
As far as the Assessment Year 2022-2023 is concerned, the audit report in Form No.10B is filed within the time on 30.09.2022 and the same was e-verified on 19.11.2022 and since there was an inadvertent error in the audit report, the revised audit report was filed on 19.11.2022, which shows that the delay is not intentional and the same would be the case under genuine hardship. It is obligatory to permit the assessee’s to avail the benefits of exemption prescribed under the provision of law. Refusing to condone the delay could result into a meritorious matter being thrown out at the very threshold defeating the cause of justice.
Therefore, this Court is of the view that it would be appropriate to condone the delay in filing the audit report for the Assessment Years 2020-2021 and 2022-2023.
The primary issue considered by the Court was whether the Shri Guru Hargobind Sahib Charitable Trust was entitled to an exemption under Section 10(23C)(vi) of the Income Tax Act, 1961, for the assessment year 2012-13. This required determining if the trust existed solely for educational purposes and not for profit, as stipulated by the relevant legal provisions.
ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
Section 10(23C)(vi) of the Income Tax Act, 1961, provides for exemptions to any university or educational institution existing solely for educational purposes and not for profit. The Court referenced several precedents, including the Supreme Court's decision in New Noble Educational Society, which clarified the interpretation of "solely" in the context of educational purposes.
Court's interpretation and reasoning:
The Court emphasized the importance of the term "solely" in determining eligibility for the exemption. It referred to the Supreme Court's ruling that institutions must have all their objectives aimed at imparting or facilitating education to qualify for the exemption. The Court found that the trust's objectives, as stated in its memorandum of association, included multiple non-educational purposes, thereby failing to meet the "solely" criterion.
Key evidence and findings:
The memorandum of association of the trust listed various objectives, including social, moral, intellectual, spiritual, and economic upliftment, setting up hospitals and dispensaries, organizing medical camps, providing economic assistance, and conducting meditation centers. The Court noted that these diverse objectives indicated that the trust was not solely focused on education.
Application of law to facts:
The Court applied the legal framework to the trust's stated objectives and found that the trust's activities were not exclusively educational. It highlighted that the trust's engagement in activities beyond education disqualified it from receiving the exemption under Section 10(23C)(vi).
Treatment of competing arguments:
The petitioner argued that the trust was entitled to the exemption based on its registration under Section 12AA and its charitable objectives. However, the Court, referencing the New Noble Educational Society case, concluded that the trust's broader objectives did not align with the statutory requirement of existing solely for educational purposes. The respondents' argument, supported by recent judgments, that the trust did not qualify for the exemption was upheld.
Conclusions:
The Court concluded that the trust did not meet the criteria for exemption under Section 10(23C)(vi) as it was not solely focused on educational purposes. Consequently, the petition challenging the denial of exemption was dismissed.
SIGNIFICANT HOLDINGS
The Court reiterated the principle that for an institution to qualify for exemption under Section 10(23C)(vi), it must exist solely for educational purposes. The judgment emphasized the Supreme Court's interpretation in the New Noble Educational Society case, which overruled previous judgments that allowed for incidental non-educational activities.
Key legal reasoning included the necessity for institutions to maintain objectives solely related to education to qualify for the exemption. The Court's final determination was that the trust's diverse objectives disqualified it from receiving the exemption, leading to the dismissal of the writ petition.
Exemption/approval u/s 10(23C) (vi) - determining if the trust existed solely for educational purposes and not for profit - petitioner submits that the trust was entitled for exemption u/s 10 (23C)(vi) with respect to the income of the educational institution and as per the plain reading of the said Section the income received was required to be exempted only if it was solely for the purpose of education.
HELD THAT:- Having noticed the law, the aims and objects of the petitioner-trust, we find that the findings arrived at by the Chief Commissioner of Income Tax in its impugned order do not warrant any interference. The exemption was claimed by the trust itself and not by an individual educational institute namely, GHG academy.
Thus, it cannot be conclusively said that the trust was found and existed solely for advancing education purposes, hence, it was rightly not granted exemption. Accordingly, the present writ petition is hereby dismissed.
The primary issue considered in this case was whether the addition of 14,06,250/- to the income of the assessee by the Commissioner of Income Tax (Appeals) [CIT(A)], following the initial addition of 1.50 crore by the Assessing Officer (AO), was justified. This issue arose from the allegation that the assessee's bank account was used for depositing substantial cash amounts, purportedly belonging to another individual, Shri Devesh Upadhyaya, and used to provide accommodation entries.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework primarily involved sections 147, 148, 131, 133(6), and 143(3) of the Income Tax Act. Section 147 pertains to the reopening of assessments if income has escaped assessment. Section 148 involves the issuance of notice for reassessment. Section 131 provides the authorities with powers akin to a civil court for discovery and inspection, while section 133(6) allows for requisitioning information. Section 143(3) pertains to the assessment of income.
Court's Interpretation and Reasoning
The Tribunal examined whether the cash deposits in the assessee's bank account, which were admitted by Shri Devesh Upadhyaya to belong to him, should be taxed in the hands of the assessee. The Tribunal noted that the CIT(A) had reduced the addition from 1.50 crore to 14,06,250/- based on the percentage of accommodation entries provided. However, the Tribunal found that since the income had already been assessed in the hands of Shri Devesh Upadhyaya, the addition in the hands of the assessee was not warranted.
Key Evidence and Findings
The key evidence included the statement recorded under section 131 of the Act, where Shri Devesh Upadhyaya admitted that the cash deposits in the assessee's bank account were his and were used for providing accommodation entries. Additionally, the assessment order of Shri Devesh Upadhyaya under section 143(3) confirmed the assessment of income at 0.10% of the total cash deposits.
Application of Law to Facts
The Tribunal applied the law by considering the admission of Shri Devesh Upadhyaya regarding the ownership of the cash deposits. Given that the income from these deposits had already been assessed in his hands, the Tribunal concluded that there was no basis for sustaining the addition in the hands of the assessee.
Treatment of Competing Arguments
The Tribunal considered the argument of the Revenue that the addition should be sustained due to the deposits in the assessee's account. However, it found the assessee's argument more compelling, supported by the admission of Shri Devesh Upadhyaya and the fact that the income had already been assessed in his hands.
Conclusions
The Tribunal concluded that the addition of 14,06,250/- in the hands of the assessee was unjustified and directed the AO to delete this addition.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
"Considering these facts and circumstances, we are of the view that the addition is partly confirmed by the ld. CIT (A) in the hands of the assessee to the tune of 1,06,250, is uncalled for and unwarranted and cannot be sustained as this income has been assessed in the hands of Shri Devesh Upadhyaya."
Core Principles Established
The Tribunal established the principle that income should not be doubly assessed in the hands of different individuals when there is clear evidence of ownership and prior assessment.
Final Determinations on Each Issue
The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of 14,06,250/- in the hands of the assessee, thereby allowing the appeal of the assessee.
Reopening of assessment - assessee deposited huge cash into the bank account - assessee's bank account was used for depositing substantial cash amounts, purportedly belonging to another individual - HELD THAT:- Cash was deposited in the assessee’s bank account in ICICI bank account which belonged to Shri Devesh Upadhyaya, who opened the bank account in assessee’s name by using his PAN and operated the same for providing accommodation entries. Mr. Devesh Upadhyaya, deposited cash in the said bank account and the same was given to various parties as accommodation entries.
We have also examined the statement recoded u/s 131 of the Act by the ld. AO of the said person and while answering to question no.11 to 18, Shri Devesh Upadhyaya admitted that the cash deposited in the assessee’s bank account belonged to him and he used the bank account for giving accommodation entries.
We even note that in his (Shri Devesh Upadhyaya) assessment framed u/s 143(3), his income was assessed by the ld. AO at the rate of 0.10% of the total cash deposits in the order dated 16.03.2016, passed u/s 143(3) read with section 147 of the Act.
Thus, we are of the view that the addition is partly confirmed by CIT (A) in the hands of the assessee is uncalled for and unwarranted and cannot be sustained as this income has been assessed in the hands of Shri Devesh Upadhyaya. Appeal of the assessee is allowed.
The core legal question considered in this judgment was whether the disallowance of director remuneration paid in cash, amounting to 31,35,000/-, could be rectified under Section 154 of the Income-tax Act, 1961. The issue centered on whether this constituted an "apparent mistake" that could be corrected through rectification proceedings.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework involved Section 154 of the Income-tax Act, 1961, which allows for rectification of mistakes apparent from the record. The Tribunal referenced precedents, notably the Supreme Court's decision in CIT vs. Hero Cycles (P). Ltd., which established that rectification under Section 154 is permissible only when a glaring mistake of fact or law is apparent from the record. The Calcutta High Court's decision in Md. Serajuddin & Bros. vs. CIT further clarified that debatable issues cannot be rectified under Section 154.
Court's Interpretation and Reasoning
The Tribunal interpreted Section 154 as applicable only to non-debatable, clear mistakes. It reasoned that the disallowance of director remuneration in this case involved interpretation of the law, making it a debatable issue. Consequently, it could not be rectified under Section 154. The Tribunal emphasized that the jurisdiction exercised under Section 154 was inappropriate in this context.
Key Evidence and Findings
The Tribunal noted that the Assessing Officer (AO) initiated rectification proceedings and disallowed the director remuneration paid in cash. However, the Tribunal found that such disallowance was not an apparent mistake on the record. The Tribunal highlighted inconsistencies in the age of Mr. Sajid Mowjee as noted by the CIT(A), but these were not central to the legal issue at hand.
Application of Law to Facts
The Tribunal applied the legal principles from the cited precedents to the facts of the case. It determined that the disallowance of director remuneration involved interpretation of the provisions of the Income-tax Act, thus constituting a debatable issue. As a result, the Tribunal concluded that the AO's rectification order under Section 154 was invalid.
Treatment of Competing Arguments
The Tribunal considered the arguments presented by both the assessee and the revenue. The assessee contended that the issue was debatable and not subject to rectification under Section 154. The revenue argued for the validity of the rectification proceedings. The Tribunal sided with the assessee, finding the issue to be debatable and beyond the scope of Section 154.
Conclusions
The Tribunal concluded that the rectification proceedings initiated by the AO were invalid due to the debatable nature of the issue. It set aside the order of the CIT(A) and directed the AO to delete the addition related to director remuneration.
SIGNIFICANT HOLDINGS
The Tribunal held that rectification under Section 154 is limited to non-debatable, clear mistakes apparent from the record. It reinforced the principle that debatable issues, involving interpretation of law, cannot be rectified under this provision. The Tribunal's final determination was to allow the appeal of the assessee, setting aside the CIT(A)'s order and directing the AO to delete the addition.
Core Principles Established
The judgment reaffirmed the principle that Section 154 cannot be used to rectify debatable issues. It emphasized the need for clear, non-debatable mistakes for rectification under this provision, aligning with precedents set by higher courts.
Final Determinations on Each Issue
The Tribunal's final determination was that the rectification proceedings under Section 154 were invalid, leading to the allowance of the assessee's appeal and the deletion of the addition made by the AO.
Rectification u/s 154 - director’s remuneration paid in cash - HELD THAT:- We find that the AO has initiated the proceedings u/s 154 by passing an order by making disallowance in respect of director’s remuneration paid in cash, which is not an apparent mistake in the records and cannot be rectified by resorting to the provisions of Section 154 of the Act.
In our opinion, the said issue is debatable issue and cannot be rectified u/s 154 of the Act.
We note that the correct appreciation of this issue involves the interpretation of provision of the Act and therefore, the jurisdiction exercise u/s 154 of the Act is bad in law.
The case of the assessee find force from the decision of Hero Cycles (P). Ltd[1997 (8) TMI 6 - SUPREME COURT] held that rectification u/s 154 of the Act can only be made when glaring mistake of fact or law has been committed by the officer passing the order and it becomes apparent from the record. Rectification is not possible if the question is debatable. Moreover, the point which is not examined on fact or in law cannot be dealt with as mistake apparent on the record.
We are set aside the order of the CIT (A) and direct the ld. AO to delete the addition. Appeal of the assessee is allowed.
The core legal issue presented in this case revolves around the validity of the assessment proceedings initiated by the Assessing Officer (AO) due to the delayed issuance of notice under Section 143(2) of the Income Tax Act. Specifically, the question is whether the notice, issued beyond the statutory time limit, invalidates the assessment proceedings or if such a defect can be cured under Section 292BB of the Act.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The primary legal provisions under consideration are Sections 143(2) and 292BB of the Income Tax Act. Section 143(2) mandates the issuance of a notice within a specific time frame after the filing of a return, which is crucial for initiating scrutiny assessments. The Finance Act, 2021 amended this time frame to three months from the end of the financial year in which the return was filed. Section 292BB, on the other hand, addresses procedural defects in the service of notice, provided the assessee has participated in the proceedings.
Precedents considered include the Supreme Court's judgments in Hotel Blue Moon and CIT vs. Laxman Das Khandelwal, which elucidate the mandatory nature of notice issuance under Section 143(2) and the scope of Section 292BB in curing procedural defects.
Court's Interpretation and Reasoning
The Tribunal analyzed the facts and legal precedents to determine the applicability of Section 292BB in cases where the notice under Section 143(2) was issued beyond the prescribed time limit. The Tribunal noted that while Section 292BB can cure defects related to the manner of notice service, it does not extend to curing the complete absence or untimely issuance of a notice.
Key Evidence and Findings
The Tribunal found that the notice under Section 143(2) was indeed issued after the statutory deadline, a fact undisputed by both parties. The assessee's participation in the proceedings was acknowledged, but the Tribunal emphasized that such participation does not rectify the fundamental defect of delayed notice issuance.
Application of Law to Facts
The Tribunal applied the legal principles established in the cited precedents to the facts of the case. It concluded that the delayed issuance of the notice under Section 143(2) rendered the assessment proceedings invalid, as Section 292BB could not cure this defect. The Tribunal distinguished the present case from those where no notice was issued, emphasizing that the defect in timing was equally fatal.
Treatment of Competing Arguments
The Tribunal considered the arguments of both the assessee and the Revenue. The assessee argued that the delayed notice invalidated the proceedings, supported by the Supreme Court's interpretation in Laxman Das Khandelwal. The Revenue contended that Section 292BB cured the defect due to the assessee's participation. The Tribunal sided with the assessee, finding the Revenue's reliance on Section 292BB misplaced in the context of delayed notice issuance.
Conclusions
The Tribunal concluded that the notice under Section 143(2) was barred by limitation, and therefore, the subsequent assessment proceedings were invalid. The Tribunal quashed the assessment order, allowing the appeal in favor of the assessee.
SIGNIFICANT HOLDINGS
The Tribunal's significant holding is that the issuance of notice under Section 143(2) within the prescribed time frame is mandatory for the validity of assessment proceedings. Section 292BB does not cure defects related to the timing of notice issuance, only defects in the manner of service.
Core Principles Established
The Tribunal reaffirmed the principle that statutory timelines for notice issuance under Section 143(2) are mandatory and non-compliance renders the proceedings invalid. Participation by the assessee does not cure such defects.
Final Determinations on Each Issue
The Tribunal determined that the notice under Section 143(2) was issued beyond the permissible time limit, rendering the assessment proceedings invalid. Consequently, the Tribunal allowed the appeal, setting aside the assessment order.
Validity of the assessment proceedings on delayed issuance of notice u/s 143(2) - notice u/s 143(2) was issued after the time line as mentioned in the first proviso to section 143(2) - HELD THAT:- The notice u/s 143(2) has to mandatorily issued with the period of three months from the end of financial year in which the return was filed but it was issued late. Therefore in our considered view the same is barred by limitation.
The mere participation of the assessee in the proceedings before AO would not cure the defect or the provisions of section 292BB would not come to the rescue of the revenue. Even the decision relied by the CIT(A) is in favour of the assessee.
As in the decision CIT Vs Laxman Das Khandelwal [2019 (8) TMI 660 - SUPREME COURT] has categorical observation that section 292BB cures the infirmities in the issuance of notice u/s 143(2) and not the absence of notice.
Hon’ble Apex Court in Hotel Blue Moon [2010 (2) TMI 1 - SUPREME COURT] held that issuance of notice u/s 143(2) is mandatory for scrutiny assessment even if the assessments are after search u/s 132(1) of the Act
Accordingly we set aside the order of CIT(A) on this issue by holding that the notice issued u/s 143(2) is barred by limitation and therefore the consequent assessment framed is also invalid and is quashed. Appeal of the assessee is allowed.
The core legal question addressed in this judgment was whether the addition of 2,50,00,000/- to the assessee's income, made by the Assessing Officer (AO) and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)], was justified under Section 68 of the Income Tax Act concerning unexplained share capital/share premium.
ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents: The primary legal provision in question was Section 68 of the Income Tax Act, which deals with unexplained cash credits. The CIT(A) relied on several precedents, including Govindarajulu Mudaliar vs. CIT, CIT vs. Durga Prasad More, and PCIT vs. NRA Iron & Steel (P.) Ltd., to support the addition. However, the Tribunal found these precedents distinguishable based on the facts of the present case.
Court's interpretation and reasoning: The Tribunal observed that the assessee had provided comprehensive documentation to substantiate the identity, creditworthiness, and genuineness of the transactions related to the share capital and premium. This included names, addresses, PANs, income tax returns, audited accounts, bank statements, and investor confirmations. The Tribunal noted that the AO did not dispute these documents nor identified any deficiencies in them.
Key evidence and findings: The Tribunal highlighted the evidence provided by the assessee, which was not adequately contested by the AO. The AO's primary contention was the non-compliance with summons under Section 131 by the directors of the assessee and the share subscriber companies. However, the Tribunal found that mere non-compliance with summons, without more, could not justify the addition under Section 68.
Application of law to facts: The Tribunal applied the principles from the cited precedents, particularly focusing on the requirement to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal found that the assessee had sufficiently discharged its burden of proof, and the AO's reliance on the non-compliance with summons was insufficient to override the documentary evidence provided.
Treatment of competing arguments: The Tribunal considered the CIT(A)'s reliance on precedents that supported the addition but found them factually distinguishable. The Tribunal emphasized the sufficiency of the documentary evidence provided by the assessee and noted that the AO had not effectively countered this evidence.
Conclusions: The Tribunal concluded that the addition of 2,50,00,000/- was not justified, as the assessee had adequately demonstrated the legitimacy of the share capital and premium through documentary evidence. The Tribunal directed the AO to delete the addition.
SIGNIFICANT HOLDINGS
The Tribunal held that:
"The assessee has filed all the evidences before the authorities below and mere non-compliance to the summons u/s 131 of the Act cannot be ground for making an addition."
Core principles established: The Tribunal reaffirmed the principle that adequate documentary evidence of identity, creditworthiness, and genuineness of transactions is crucial in cases involving unexplained cash credits under Section 68. Non-compliance with procedural summons cannot, by itself, justify an addition if substantial evidence is provided.
Final determinations on each issue: The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition of 2,50,00,000/-, thereby allowing the appeal of the assessee.
Unexplained share capital/ share premium u/s 68 - identity and creditworthiness of the investors and genuineness of the transactions could not be established - HELD THAT:- AO has not commented on the evidences furnished by the assessee and also has not pointing out any defect or deficiency and simply made the addition by treating the share capital/ share premium as unexplained expenditure u/s 68 on the ground that there was no compliance to the summons u/s 131, as neither the directors of the assessee company nor the directors of the share subscribers company appeared before the AO and therefore, the identity, creditworthiness of the investors and genuineness of the transactions could not be examined.
CIT (A) after discussing the credentials of each of the investors affirmed the order of AO.
We note from the analysis and discussion made by CIT(A) about the subscribing companies of the appellate order that these company have sufficient available source of funds in their respective hands and even filed the proof of identity, creditworthiness before the AO as well as before the CIT(A).
CIT (A) has relied on the decision of Govindarajulu Mudaliar [1958 (9) TMI 3 - SUPREME COURT], Durga Prasad More [1971 (8) TMI 17 - SUPREME COURT], NRA Iron & Steel (P.) Ltd. [2019 (3) TMI 323 - SUPREME COURT]. In our opinion these decisions are distinguishable on facts. We find that the assessee has filed all the evidences before the authorities below and mere non-compliance to the summons u/s 131 cannot be ground for making an addition.
We are inclined to set aside the order of CIT(A) by directing the AO to delete the addition. Appeal of the assessee is allowed.
The primary issues considered in this appeal were:
ISSUE-WISE DETAILED ANALYSIS
1. Liability of Customs Authorities for Compensation
The relevant legal framework is governed by the Customs Act, 1962, particularly Section 124 which deals with confiscation and penalties. The Court examined whether the Customs authorities were justified in destroying the goods and if they were liable to compensate the respondent for the loss.
The Court found that the Customs authorities admitted the value of the goods at 88 lakhs at the time of seizure. The goods were in their custody for over a year and a half, during which they became unfit for consumption. The Court determined that the Customs authorities had the onus to explain the deterioration of the goods while in their custody, which they failed to do. This failure established their liability to compensate the respondent.
2. Valuation and Compensation
The valuation of the goods at 88 lakhs was not contested by the Customs authorities, and the respondent agreed to accept 60 lakhs as compensation. The Court noted that there was no evidence of a grave error or miscarriage of justice regarding the valuation. The respondent's agreement to accept 60 lakhs was considered reasonable, and the Court upheld this compensation amount.
3. Duty to Inform Before Destruction
The Court emphasized that the Customs authorities had a duty to inform the respondent before destroying the goods. The respondent was not given an opportunity to be present during the testing of the goods or to contest the findings of unfitness for consumption. The failure to notify the respondent before destruction was a breach of duty, further supporting the respondent's claim for compensation.
SIGNIFICANT HOLDINGS
The Court upheld the decision of the learned single judge, affirming the order for the Customs authorities to pay 60 lakhs to the respondent. The Court found no infirmity in the judgment and emphasized the following principles:
The appeal was dismissed, and the Customs authorities were directed to comply with the order to pay the respondent within four weeks.
Compensation of respondent for the seized betel nuts that were destroyed while in their custody - illegal importation of betel nuts - onus of proof - HELD THAT:- First of all, there is clear admission by the appellant that as on the date of seizure the value of the goods was ₹88 lakhs. From the date of seizure up to the date of dumping of the goods in the pit about one and a half years had elapsed. These goods were in the custody of the Customs. They had an obligation to explain how the goods were or became unfit for human consumption. If the goods at the time of seizure were unfit for human consumption, they could not have been valued at ₹88 lakhs at that point of time. Therefore, this condition was reached in the custody of the Customs. Whether such deterioration was natural or due to some action or inaction on the part of the Customs had to be explained by the Customs authorities. The onus of proof was upon them. They have not been able to discharge it.
Even if the reports of the expert agencies like food analyst and the specialised laboratory made between December, 2017 and March, 2018 suggested that the goods were unfit for human consumption, still the respondent ought to have been given a chance to be present when the test was carried out or to be provided with a copy of the report to seek second opinion or to take some steps with regard to it.
Conclusion - i) The Customs authorities are liable for the deterioration of goods in their custody if they fail to provide a satisfactory explanation for the condition of the goods. ii) Valuation of goods at the time of seizure is binding unless there is evidence of a grave error or miscarriage of justice. iii) Authorities have a duty to inform the owners of goods before taking irreversible actions such as destruction, especially when the ownership and legality of the goods are contested.
The Customs authorities were directed to comply with the order to pay the respondent within four weeks - Appeal dismissed.
Issues: Whether, on a prima facie view, customs duty could be levied on fibre-optic cables imported for installation in the exclusive economic zone and international waters, and whether adjudication of the show cause notice should be stayed pending final decision in the writ petition.
Analysis: India under the Customs Act, 1962 includes territorial waters. The Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 empowers the Central Government to extend Indian enactments to the continental shelf and exclusive economic zone by notification. The notifications relied upon extended the Customs Act, 1962 and the Customs Tariff Act, 1975 to designated areas generally, and separately extended them to the continental shelf and exclusive economic zone only for prospecting, extraction or production of mineral oils and connected supplies. The import in question was not shown to fall within that limited purpose. On that basis, the Court found a strong prima facie case on the applicability of customs law to the goods imported for the stated purpose.
Conclusion: Prima facie, the petitioners' challenge was accepted and the adjudication of the show cause notice was stayed pending final decision in the writ petition.
Liability of Customs Duty - import of Fibre-optic Cables to be laid not only within the territorial waters of India but also in the Exclusive Economic Zone - HELD THAT:- The Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (for short the “Territorial Waters Act”) gives power to the Central Government to extend the enactments of India to the Continental Shelf, EEZ and other Maritime Zones by issuing Notifications in that regard as more particularly set out in Section 6 and Section 7 of the said Act. It is exercising powers under this Act that two Notifications have been issued by the Central Government. The first Notification is dated 14th January 1987 issued under Clause (a) of sub-Section (6) of Section 6 and Clause (a) of sub Section (7) of Section 7 [of the Territorial Waters Act] extending the Customs Act, 1962 and the Customs Tariff Act, 1975 to the designated areas in the Continental Shelf and the EEZ of India, with effect from 15th January 1987.
Since there is no dispute in the present case that the Fibre-optic Cables imported by the Petitioner are not for the purposes as mentioned in the Notification dated 7th February 2002, we find that a strong prima facie case is made by the Petitioner and which really goes to the root of the matter, namely, whether the Customs Act, 1962 and the Customs Tariff Act, 1975, at all apply to the Continental Shelf and to the EEZ with reference to the goods imported by the Petitioner.
Since the 3rd Respondent has issued a show cause notice to the Petitioner demanding an additional amount of duty on the goods imported and since the issue considered whether the Customs Act, 1962 and the Customs Tariff Act, 1975, at all apply to the goods imported by the Petitioner, as and by way of interim relief, it is directed that pending the final decision in the above Writ Petition, the adjudication of the SCN dated 2nd December 2024 shall remain stayed.
Conclusion - A strong prima facie case is made by the Petitioner and which really goes to the root of the matter, namely, whether the Customs Act, 1962 and the Customs Tariff Act, 1975, at all apply to the Continental Shelf and to the EEZ with reference to the goods imported by the Petitioner.
Petition disposed off.
The core legal issue considered in this judgment is whether the respondent-Department was justified in attempting to negate the permission under Section 65 of the Customs Act, 1962, after having permitted the establishment of a bonded warehouse and the import of equipment by the petitioner. This issue revolves around the applicability of Section 65 of the Act in conjunction with the Manufacture and Other Operations in Warehouse Regulations (MOOWR Regulations) and the implications of prior judicial decisions on similar matters.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework primarily involves Section 58 and Section 65 of the Customs Act, 1962, which deal with the licensing of private bonded warehouses and the permissions related to manufacturing and other operations in such warehouses. The MOOWR Regulations are also relevant, as they govern the operations within these warehouses. A significant precedent is the decision by the Delhi High Court in ACME Heergarh Powertech Private Limited v. CBIC, which addressed similar issues regarding the applicability of Section 65 and the MOOWR Regulations.
Court's Interpretation and Reasoning
The Court examined the context of the permissions granted under Section 58 and the subsequent attempt to negate permissions under Section 65. It considered the arguments presented by both parties, particularly focusing on the reasoning provided by the Delhi High Court in a similar case. The Court noted that the Delhi High Court's judgment had not been stayed or suspended by the Supreme Court, thus providing a persuasive precedent.
Key Evidence and Findings
The Court noted the undisputed facts regarding the value of the equipment, the customs duty involved, and the installation of goods in the bonded warehouses. It also acknowledged the bonds provided by the petitioner to secure the Department's interests. The Court found that the petitioner's case was similar to the one decided by the Delhi High Court, where the Department's instructions were quashed.
Application of Law to Facts
The Court applied the legal principles from the Delhi High Court's decision to the facts of the current case. It determined that the Department's attempt to negate the permissions under Section 65 was not justified, especially in light of the precedent that had quashed similar departmental instructions and show-cause notices.
Treatment of Competing Arguments
The Court considered the Department's argument that the Delhi High Court's decision provided limited relief and did not apply broadly. However, the Court found this argument unconvincing, as the Delhi High Court had addressed the broader applicability of Section 65 and the MOOWR Regulations. The Court also considered the petitioner's argument that the Delhi High Court's decision should guide the current case, which it found persuasive.
Conclusions
The Court concluded that the petitioner had made a prima facie case for interim relief. It stayed the operation of the impugned proceedings, subject to conditions related to financial security and pending further orders from the Supreme Court.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
The Court referenced the Delhi High Court's judgment, particularly noting that the impugned instructions and show-cause notices were quashed because they exceeded the advisory and clarificatory functions of the Board under Section 151A of the Act.
Core Principles Established
The judgment reinforced the principle that departmental instructions must not exceed the statutory framework and should not negate permissions already granted under the Act without just cause. It also highlighted the importance of adhering to judicial precedents unless overturned by a higher court.
Final Determinations on Each Issue
The Court determined that the petitioner was entitled to interim relief, allowing the installation and operation of the equipment for power generation and supply for home consumption. It imposed conditions to secure the Department's interests, such as retaining a portion of payments received under power purchase agreements in a fixed deposit. The interim order was made subject to the outcome of pending proceedings in the Supreme Court.
Correctness in attempting to negate the permission under Section 65 of the Customs Act, after having permitted not only the establishment of the warehouse but also the import of the equipment - HELD THAT:- It is apparent that the applicability of Section 65 of the Act and the prohibition contained under the MOOWR Regulations has been the subject matter of the decision. Hence, prima facie the contention of the learned Senior Standing Counsel for the Department does not appeal here.
It is appropriate to stay the operation of the impugned proceedings dated 24.06.2024 produced as Annexure-P1, subject to the condition that this interim order shall remain in operation till any orders that may be passed by the Hon’ble Apex Court in the pending SLP (C) No. 20274-20281 of 2024 preferred by the Central Board of Indirect Taxes and Customs. There shall be a direction to the State Bank of India, Jubilee Hills Branch, Hyderabad, to deduct a sum equivalent to 15% of the payment received under the PPAs dated 02.02.2022 and 07.07.2022 and retain the said sum in a fixed deposit until further orders from this Court.
Conclusion - The petitioner was entitled to interim relief, allowing the installation and operation of the equipment for power generation and supply for home consumption. It imposed conditions to secure the Department's interests, such as retaining a portion of payments received under power purchase agreements in a fixed deposit.
Petition allowed.
The primary issue considered in this judgment was whether the refund amount of Rs. 1,67,79,311/- should be credited to the Consumer Welfare Fund or refunded to the appellant. This involved examining if the appellant had passed the burden of the countervailing duty (CVD) to the buyers, thus invoking the doctrine of unjust enrichment. The secondary issue was whether the refund claim was filed within the prescribed time limit under Section 27 of the Customs Act, 1962.
ISSUE-WISE DETAILED ANALYSIS
1. Unjust Enrichment and Refund to Consumer Welfare Fund
Relevant Legal Framework and Precedents: The legal framework revolves around Section 28D of the Customs Act, which presumes that the incidence of duty has been passed on to the buyer unless proven otherwise. The appellant must rebut this presumption to claim a refund directly instead of the amount being credited to the Consumer Welfare Fund. Precedents such as the Delhi High Court's decision in Principal Commissioner of Customs vs. Telecare Network (India) Pvt. Ltd., and the Madras High Court's decision in Virudhunagar Textile Mills Ltd. were considered, emphasizing the role of Chartered Accountant certificates and financial statements in rebutting the presumption of unjust enrichment.
Court's Interpretation and Reasoning: The Tribunal scrutinized the Chartered Accountant's certificate and the financial statements provided by the appellant. The Tribunal noted that the appellant had shown the excess duty as "Customs Duty Receivable" in their financial statements, indicating that the burden of duty was not passed on to the consumers. The Tribunal also considered the additional certificate dated 31.01.2024, which provided a detailed breakdown of the customs duty receivable, including the disputed refund amount.
Key Evidence and Findings: The evidence included the appellant's financial statements for the year ending 31.03.2016, which showed customs duty receivable as Rs. 17,38,94,156/-. The Chartered Accountant's certificates dated 09.04.2018 and 31.01.2024 corroborated that the excess duty was not passed on to the buyers and was accounted for as receivable. The Tribunal found that the Commissioner (Appeals) erred in dismissing these documents without seeking further clarification from the appellant.
Application of Law to Facts: The Tribunal applied the principles of unjust enrichment, noting that the presumption under Section 28D was effectively rebutted by the appellant through credible evidence, including the Chartered Accountant's certificate and financial statements. The Tribunal emphasized that the burden of proof shifted to the Revenue to demonstrate that the duty was passed on to consumers, which the Revenue failed to do.
Treatment of Competing Arguments: The appellant argued that the Commissioner (Appeals) did not follow the mandatory procedure under Section 128A(3) of the Customs Act and that the findings were contrary to settled law. The department contended that the Chartered Accountant's certificate was insufficient and lacked explicitness. The Tribunal favored the appellant's arguments, highlighting the absence of contrary evidence from the department.
Conclusions: The Tribunal concluded that the appellant successfully rebutted the presumption of unjust enrichment. Therefore, the refund amount should not be credited to the Consumer Welfare Fund but refunded to the appellant.
2. Timeliness of the Refund Claim
Relevant Legal Framework and Precedents: Section 27 of the Customs Act prescribes the time limit for filing refund claims, generally within one year from the date of payment or re-assessment.
Court's Interpretation and Reasoning: The Tribunal agreed with the Assistant Commissioner (Refund) that the refund claim was filed within the prescribed time limit, as the Bills of Entry were re-assessed on 09.02.2018, and the refund application was submitted on 13.03.2018.
Conclusions: The Tribunal upheld the finding that the refund claim was timely and not barred by limitation.
SIGNIFICANT HOLDINGS
The Tribunal's significant holding was that the appellant had successfully rebutted the presumption of unjust enrichment. The Tribunal emphasized that:
"A Certificate issued by a Chartered Accountant, therefore, cannot be lightly brushed aside without there being any cogent evidence to the contrary."
The Tribunal set aside the Commissioner (Appeals)'s order directing the refund amount to be credited to the Consumer Welfare Fund. The appellant was entitled to a refund of the amount with interest, reinforcing the principle that a Chartered Accountant's certificate, consistent with financial statements, can effectively rebut the presumption of duty incidence being passed to buyers. The appeal was allowed, and the order was pronounced on 17.03.2025.
Refund claim is hit by limitation of time and is therefore liable to rejection or not - principles of unjust enrichment - applicant has proved beyond doubt that the incidence of CVD has not been passed on to the buyers or not.
HELD THAT:- It is transpired from various decision that when a Certificate of a Chartered Accountant is submitted by an assessee to substantiate that the assessee would not be unjustly enriched, then it is for Revenue to establish by evidence that either the Certificate issued by the Chartered Accountant is incorrect or that the duty was actually passed on to the buyers. The decisions also hold that there is no requirement in law that the Certificate should be issued only by statutory auditors, for so long as the Certificate is issued by a Chartered Accountant and it is consistent with the accounts such as the Financial Statement, the Certificate issued by a Chartered Accountant should be accepted. The decisions also hold that when the differential customs duty is shown as “receivables” in the Balance Sheet/Financial Statement, it would follow that duty has not been passed on to the customers. The decisions also hold that in such a case the legal presumption under section 28 of the Customs Act stands rebutted.
A Certificate issued by a Chartered Accountant, therefore, cannot be lightly brushed aside without there being any cogent evidence to the contrary. In the present case the Commissioner (Appeals) only doubted that the amount of Rs. 1,67,88,778/- was not included in the amount of Rs. 17,38,94,156/- shown in the Books of Account of the appellant. This doubt could have been clarified from the appellant but that was not done.
The decision of the Tribunal in Kohinoor India [2014 (11) TMI 192 - CESTAT NEW DELHI], on which reliance has been placed by the learned authorized representative appearing for the department, holds that mere production of a Certificate of the Chartered Accountant does not ipso facto grant refund to the respondent until material is produced by the assessee to show that burden of duty has not been passed on to the buyers. This decision would, therefore, not help the department.
Conclusion - The appellant had not passed the burden of duty to the customers in respect of the duty paid on the 4 Bills of Entry and was shown as recoverable from the customs department.
The impugned order dated 05.07.2021, to the extent it holds that refund amount should be credited in the Consumer Welfare Fund, therefore, deserves to be set aside and is set aside. The appellant would be entitled to refund of the amount with interest. The appeal is, accordingly, allowed.
The primary issue considered in this judgment was whether the Indian currency amounting to Rs.1.29 crores seized from four individuals on a train was the sale proceeds of smuggled gold and thus liable for confiscation under Section 121 of the Customs Act, 1962. The related question was whether penalties imposed on the individuals and an alleged accomplice, Shri K.V. Kunhimohammed, were justified.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
The legal framework primarily involved Section 121 of the Customs Act, 1962, which allows for the confiscation of sale proceeds from smuggled goods. The burden of proof lies with the Revenue to establish a connection between the seized currency and smuggled goods. Several precedents were cited by both parties, emphasizing the necessity for the Revenue to provide substantial evidence to support claims of smuggling and illicit proceeds.
Court's interpretation and reasoning:
The Tribunal noted that the Commissioner had acknowledged the lack of direct evidence linking the seized currency to smuggled gold. The Tribunal emphasized the necessity for the Revenue to prove the connection between the currency and smuggled goods, which was not sufficiently demonstrated in this case. The Tribunal referred to the principle of "preponderance of probability" but found that the evidence presented did not meet even this standard.
Key evidence and findings:
The evidence included the seizure of Rs.1.29 crores in Indian currency from four individuals, statements recorded under Section 108 of the Customs Act, and paper slips with writings in Tamil. The individuals initially admitted the currency was from smuggled gold but later retracted their statements, claiming duress. The Tribunal found that the Revenue failed to trace or present the person who allegedly handed over the currency, nor did it establish the smuggling of gold into India.
Application of law to facts:
The Tribunal applied Section 121 of the Customs Act, emphasizing the need for the Revenue to establish a clear link between the seized currency and smuggled goods. The Tribunal found that the Revenue did not meet this burden of proof, as the evidence was insufficient to establish the currency as proceeds from smuggled gold.
Treatment of competing arguments:
The Tribunal considered the arguments from both sides. The appellants argued that the Revenue did not provide sufficient evidence, and the initial statements were retracted. The Revenue argued that the circumstantial evidence and the modus operandi suggested the currency was from smuggled gold. The Tribunal sided with the appellants, finding the evidence inadequate to support the Revenue's claims.
Conclusions:
The Tribunal concluded that the Revenue failed to establish that the seized currency was the sale proceeds of smuggled gold. Consequently, the confiscation of the currency and the penalties imposed were not justified.
3. SIGNIFICANT HOLDINGS
Core principles established:
The Tribunal reaffirmed the principle that the burden of proof lies with the Revenue to establish a connection between seized currency and smuggled goods. The requirement for substantial evidence was emphasized, and mere suspicion or circumstantial evidence was deemed insufficient.
Final determinations on each issue:
The Tribunal set aside the impugned order, allowing the appeals and ordering the release of the seized currency to Shri K.V. Kunhimohammed. The penalties imposed on the appellants were also annulled.
Sale proceeds of gold smuggled into India - Seizure of Currency - Confiscation under Section 121 of the Customs Act, 1962 - penalties imposed on the individuals - HELD THAT:- The learned Commissioner in the impugned order though acknowledged at para 34 of the order that the investigation has not been able to produce evidences regarding smuggling of gold or linking the seized currency directly to smuggled gold; however making a generalized remark held that smuggling of goods including the gold is primarily an offence that takes place at the border / frontier and it is almost impossible to distinguish or identify smuggled goods from licitly imported ones, once they move into the domestic tariff area. Further he observed that the currency must have been the sale proceeds of smuggled gold.
The said finding of the learned Commissioner is devoid of merit inasmuch as no evidence has been placed on record by the Revenue in discharging the onus which squarely rests on the department to establish that there has been smuggling of gold into the country and the recovered/seized currency of Rs.1.29 crores from the possession of these four passengers were sale proceeds of the smuggled gold. Needless to mention that burden lies heavily on the Revenue to establish that the currency seized was the sale proceeds of the smuggled gold. Similar view has been expressed by the Tribunal in the cases of Wall Street Finance Ltd. Vs. CC [2006 (9) TMI 437 - CESTAT, MUMBAI] and CC (Preventive), Mumbai Vs. Sadashiv R. Lele [2005 (5) TMI 176 - CESTAT, MUMBAI]. The case records reveal that the Revenue even could not able to trace or bring on record the statements of the person who handed over the currency to these four persons at Chennai, as mentioned in the notice.
The statements furnished by the four persons on 05.09.2013 were retracted on the next day i.e. on 06.09.2013. Therefore, in the said circumstances, it is necessary to establish through the corroborative and independent evidence about the smuggling of the gold and the currency seized from the four persons is the sale proceeds of the smuggled gold. The loose slips recovered from the four persons indicating the quantity of gold and the rate itself do not reveal that the seized currency has got any connection with proceeds of the smuggled gold. No doubt, it leads to some doubt/suspicion in the circumstances when recovery of huge cash concealed by the said four persons was made, but that itself is not sufficient. Therefore, it is difficult to accept the conclusion of the learned Commissioner following principle of preponderance of probability, that the currency seized form these four persons are sale proceeds of the smuggled gold and liable for confiscation under Section 121 of Custom Act, 1962.
Since the currency seized from the four persons could not be proved to be the sale proceeds of the smuggled gold, the same are required to be released to the owner i.e. Shri K.V. Kunhimohammed. Consequently, penalty imposed on all the appellants cannot be sustained.
The impugned order is set aside and the appeals are allowed.
The core legal issues considered in this judgment include:
(A) Departmental Appeals:
i. The legality and propriety of the Order-in-Appeal no. CC(A)Cus/D-I/ACC-Import/Refund/NCH/664/2018-19 dated 11.02.2019, which held that the appellants are entitled to a refund of Rs.18.38 crores and remanded the case for a fresh order based on a CA certificate and other documents.
ii. The legality and propriety of the Order-in-Appeal no. CC(A)Cus/D-I/ACC-Import/Refund/NCH/666/2018-19 dated 11.02.2019, which similarly held that the appellants are entitled to a refund of Rs.35.89 crores and remanded the case for a fresh order based on a CA certificate and other documents.
(B) Party Appeals:
i. The legality and propriety of the Order-in-Appeal no CC(A)Cus/D-I/Import/NCH/5130/2023-24 dated 01.03.2024, which allowed the Departmental appeal and set aside the impugned Order-in-Original No. 101/VP/2019 dt. 24.06.2019.
ii. The legality and propriety of the Order-in-Appeal no CC(A)Cus/D-I/Import/NCH/5129/2023-24 dated 01.03.2024, which allowed the Departmental appeal and set aside the impugned Order-in-Original No. 102/VP/2019 dated 27.06.2019.
2. ISSUE-WISE DETAILED ANALYSIS
A. Requirement of Re-assessment before Refund
- Relevant Legal Framework and Precedents: The judgment in ITC Ltd. v. CCE Kolkata [2019 (368) ELT 216] emphasizes that a refund application cannot be processed without reassessment. Self-assessment is considered an assessment, and any aggrieved party must file an appeal for reassessment under Section 128 of the Customs Act.
- Court's Interpretation and Reasoning: The Court held that the self-assessment done by Micromax amounts to an assessment. Without reassessment of the Bills of Entry, the benefit under the relevant notifications cannot be availed.
- Key Evidence and Findings: The Court noted that Micromax did not file an appeal for reassessment of the Bills of Entry, which is a prerequisite for claiming a refund.
- Application of Law to Facts: The Court applied the ITC judgment to conclude that the refund claim filed by Micromax without reassessment is not legal.
- Treatment of Competing Arguments: The Court rejected the argument that the refund was not subject to reassessment, emphasizing the need for reassessment as per the ITC judgment.
- Conclusions: The refund claims are not sustainable without reassessment, and the appeals based on such claims are dismissed.
B. Unjust Enrichment
- Relevant Legal Framework and Precedents: The doctrine of unjust enrichment prevents a party from retaining a benefit unjustly. The burden is on the claimant to prove that the duty has not been passed on to the consumer.
- Court's Interpretation and Reasoning: The Court found that Micromax failed to demonstrate that the duty was not passed on to consumers, thus attracting the doctrine of unjust enrichment.
- Key Evidence and Findings: The adjudicating authority's examination of balance sheets and CA certificates indicated that the duty had been passed on.
- Application of Law to Facts: The Court concluded that the incidence of duty was passed on to the buyers, making the refund claim unsustainable.
- Treatment of Competing Arguments: The Court rejected the argument that the refund was not subject to unjust enrichment, citing the lack of evidence to support the claim.
- Conclusions: The refund claims are barred by unjust enrichment, and the appeals based on such claims are dismissed.
3. SIGNIFICANT HOLDINGS
- The Court emphasized the necessity of reassessment before processing refund claims, as established in the ITC judgment.
- The doctrine of unjust enrichment applies, barring refunds when the duty incidence is passed on to consumers.
- The Court upheld the Departmental appeals, setting aside the Orders-in-Appeal that granted refunds without reassessment.
- The Court dismissed the party appeals, affirming the Orders-in-Appeal that set aside the Orders-in-Original granting refunds.
- The Court reinforced the principle that claims based on another party's judgment are not sustainable without independent reassessment.
- Final Determinations:
(A) In Departmental appeals:
i) Order-in-Appeal no. CC(A)Cus/D-I/ACC-Import/Refund/ NCH/664/2018-19 dated 11.02.2019 is set aside, and departmental appeal C/51109/2019 is allowed.
ii) Order-in-Appeal no. CC(A)Cus/D-I/ACC-Import/Refund/NCH/ 666/2018-19 dated 11.02.2019 is set aside, and departmental appeal C/51110/2019 is allowed.
(B) In Party Appeals:
i) Order-in-Appeal no CC(A)Cus/D-I/Import/NCH/5130/2023-24 dated 01.03.2024 is upheld, and party's appeal C/50824/2024 is rejected.
ii) Order-in-Appeal no. CC(A)Cus/D-I/Import/NCH/ 5129/2023-24 dated 01.03.2024 is upheld, and party's appeal C/50825/2024 is rejected.
Refund of Additional Duty of Customs - Requirement of Re-assessment before refund - principles of Unjust enrichment.
Requirement of Re-assessment before refund - HELD THAT:- The self-assessment done by Micromax while filing Bills of Entry would also amount to assessment. Micromax imported mobile phone handsets of CTH 8517, self assessed the Bills of Entry on payment of Additional Duty of Customs @ 6%/ 10%/ 12.5%. Thereafter, they sought to claim the benefit of S. No. 263A of Notification No.12/2012 dated 17.03.2012 read with amendments and S. No. 132 of Notification no. 01/2011 CE dated 01.03.2011 as amended, which would amount to re-assessment. Re-assessment is done under Sec 17 of Customs Act, 1962, and without re-assessment of the said Bills of Entry, the said benefit under Notification cannot be availed.
The Refund Application is filled with the proper officer for refund i.e. Assistant Commissioner (Refund), who can only process the refund claim. The ITC judgement [2019 (9) TMI 802 - SUPREME COURT (LB)] clearly says that “It will virtually amount to an order of assessment or re-assessment in case the Assistant Commissioner or Deputy Commissioner of Customs while dealing with refund application is permitted to adjudicate upon the entire issue which cannot be done in the ken of the refund provisions under Section 27”. As per Law of Comity, only the proper officer who has done the assessment or verification of Assessment (in case of self-assessed Bills of Entry) can only do the re-assessment.
Micromax should have first opted for re assessment of the Bills of Entries, and only then they should have filed refund application. Having missed the prescribed time lines, it is held that Micromax is not eligible for the refund of Rs18.38 Cr & Rs 35.89 Cr as claimed by them.
The Hon’ble Supreme Court in Mafatlal Industries Ltd. Versus Union of India [1996 (12) TMI 50 - SUPREME COURT]] has held that 'While the jurisdiction of the High Courts under Article 226 - and of this Court under Article 32 - cannot be circumscribed by the provisions of the said enactments, they will certainly have due regard to the legislative intent evidenced by the provisions of the said Acts and would exercise their jurisdiction consistent with the provisions of the Act. The writ petition will be considered and disposed of in the light of and in accordance with the provisions of Section 11B. This is for the reason that the power under Article 226 has to be exercised to effectuate the rule of law and not for abrogating it.'
Hon’ble Supreme Court has time and again held in Priya Blue Industries Ltd. v. Commissioner [2004 (9) TMI 105 - SUPREME COURT] and Collector v. Flock (India) Pvt. Ltd. [2000 (8) TMI 88 - SUPREME COURT]that re-assessment of Bill of Entry is mandatory before filing refund. The Revenue was permitted to implead these additional ground on the basis of Supreme court decision in the case of ITC, which was permitted vide Misc Order 50175-176/2023 dated 03.07.2023. Therefore, it is not the case that Micromax was not aware that re-assessment of Bill of Entry was mandatory before filing the refund claims.
The said benefit was not availed by the appellant at the time of filing of Bills of Entry under the belief that they do not fulfill the condition as the goods were imported and not manufactured in India and filed the self-assessed Bills of Entry claiming 6% ad valorem. This is evident from the fact that they had not paid duty under protest. However, without seeking re-assessment or filing an appeal, mere filing of refund claim cannot be entertained, as laid down by the Hon’ble Supreme Court in ITC judgment.
Principles of unjust enrichment - HELD THAT:- The concept of unjust enrichment, is the retention of a benefit, which is considered contrary to justice or equity. Further, the assessment of Mobile phone was based on MRP and the goods are sold in the market accordingly, on the basis of declared MRP which include duty components. Once the goods are assessed on declared MRP having duty component, the incidence of duty is deemed to have been passed on to the buyer on sale of the same. Thus the incidence of Additional Duty of Customs @ 6% had already been passed and thus, attracting the clause of unjust enrichment.
The application was for amendment under Section 149 of Customs Act, 1962 and not for re-assessment under Section 17. We are of the view that under Section 149, only amendment of factual details of Bs/E can be done but not the assessment or re-assessment which includes extending the benefit of Notification, which is a quasi-judicial function. As per Section 17(5), re-assessment is possible for extending benefit of Notification but, the time limit for such re-assessment is 60 days from the date of Out of Charge - Section 149 is for amendment of details on the basis of document evidence which was in existence at the time the goods were cleared. In the instant case, it was extending of benefit of S. No. 263A of Notification No. 12/2012 dated 17.03.2012 read with amendments and S. No. 132 of N/N. 01/2011 CE dated 01.03.2011 as amended. The fact that importers are eligible for such benefit of Notification has come to light only after Hon’ble Supreme Court judgment in the matter of SRF Ltd. [2015 (4) TMI 561 - SUPREME COURT] which was delivered on 26.03.2015. This fact was not available at the time of filing/ OOC of Bs/E in June-July 2014.
Conclusion - i) There is a necessity of reassessment before processing refund claims. ii) The doctrine of unjust enrichment applies, barring refunds when the duty incidence is passed on to consumers.
Appeal of Revenue dismissed.
Issues: (i) Whether work rolls imported for rolling mills are capital goods by themselves and eligible for full utilisation of SHIS scrip under Notification No. 104/2009-Customs dated 14.09.2009; (ii) whether the demand for the extended period was barred by limitation.
Issue (i): Whether work rolls imported for rolling mills are capital goods by themselves and eligible for full utilisation of SHIS scrip under Notification No. 104/2009-Customs dated 14.09.2009.
Analysis: The tariff classification specifically places rolls for rolling mills under CTH 8455 30 00, distinct from other parts under CTH 8455 90 00. On the facts, the rolls were integral to the functioning of the rolling mill and were not mere spare parts. The definition of capital goods in the notification was treated as wide enough to cover such goods. The Tribunal also relied on the consistent view that where the same goods are accepted as capital goods under EPCG, a different stand cannot be taken under SHIS when the policy definition is identical.
Conclusion: The issue is answered in favour of the assessee. Work rolls are capital goods and not spare parts, and the benefit of the SHIS scrip was allowable in full.
Issue (ii): Whether the demand for the extended period was barred by limitation.
Analysis: The controversy was one of interpretation and had already been the subject of adverse and favourable tribunal decisions on the same legal question. In that setting, the assessee's claim was held to be bona fide, and suppression was not established for invoking the extended period.
Conclusion: The issue is answered in favour of the assessee. The extended-period demand was unsustainable on limitation grounds.
Final Conclusion: The order confirming demand was set aside and the appeal succeeded with consequential relief as per law.
Ratio Decidendi: Where the tariff classification and policy definition show that imported rolls for rolling mills are capital goods, the customs authorities cannot recharacterize them as mere spare parts to restrict SHIS entitlement, and a bona fide interpretational dispute will not justify invocation of the extended period.
Classification of imported goods - whether, the Works Rolls imported by the appellant can be treated as Capital Goods as is being claimed by the appellant or the same is to be treated as spare parts of the Capital goods, as is being claimed by the Revenue? - eligibility to utilize on 10% of the scrip amount to discharge the Customs Duty and the balance 90% is required to be paid by way of cash [TR 6 / GAR7 Challan] - Time Limitation - HELD THAT:- From the picture produced, it can be seen that the Works Rolls are attached to the machinery and are being used, in the factory of the appellant without the Works Rolls. There is no possibility for the Rolling Machine to become functional.
It can be seen the under the main heading “Metal-Rolling Mills and Rolls therefor, the “Rolls for rolling mills” are specifically classified under CTH 8455 30 00. The “Other parts” are classifiable under CTH 8455 90 00, which goes on to show that the “Other parts” ,whether in respect of “Metal-Rolling Mills” or in respect of “Rolls for the Metal Rolls” would get classified therein. Thus it is clear that “Rolls for rolling mills” are independent goods are in the nature of “Capital Goods” and are not in the nature of “Spare Parts”. In the present litigation, it is not the case of the Revenue that the imported goods are classifiable under CTH 8455 90 00. The appellant has adopted CTH 8455 30 00 in their Bills of Entry [sample verified by the Bench] and the Revenue has cleared the same. Even in the present proceedings, the classification is not disputed by the Revenue.
An identical issue was before this Bench in the case of Comm. of Customs (Port), Kolkata vs. M/s. Cosmic Ferro Alloys Limited, [2024 (8) TMI 674 - CESTAT KOLKATA]. In that case, the goods in question were “Roller Sets”, “Blades for Slitting Machines”, “Spacers” & “Spares for Cold Rolling Mills” and the issue was whether the import of such goods would be be covered by the definition of “Capital Goods” under Notification No. 104/2009-Customs dated 14.09.2009. This Bench has held that 'the goods imported are squarely fitting within the definition of 'Capital Goods' as defined in the FTP (2009-14) and Notification104/2009-Customs dated 14-09-2009, as amended. We observe that the definition of 'Capital Goods' is wide enough to cover the imported 'spares/parts of capital goods'.'
In the present case, after going the factual matrix, it is found that the above decision of this Bench is squarely applicable. As a matter of fact, the present appellants are in a better footing. While in that case, the issue was as to whether the “spare parts” can be considered as Capital Goods for the eligibility to use the SHIS scrip, in the present case, it is already held the goods in question are Capital Goods and are not mere “spare parts”. Hence, there are no hesitation in applying the decision of this Bench to hold that the impugned order is not legally sustainable. Accordingly, the same set aside and allow the appeal allowed on merits.
Time Limitation - HELD THAT:- The Tribunals have held that the importer would be eligible to use the SHIS scrip. Thus the bonafide belief of the appellant gets fortified by the Tribunal's decisions. Hence, the issue being that of interpretation, the Revenue is not justified in fastening the suppression clause on the appellant. Accordingly, the confirmed demand in respect of the extended period set aside even on account of limitation.
Conclusion - i) The Works Rolls are by themselves Capital Goods and not Spare Parts. Hence, they are eligible to be imported against full utilization of SHIS Scrip. Therefore, on this count the Appeal succeeds on merits. ii) The Dept. is precluded from taken different stand in respect of EPCG License and SHIS Scrip, when the FTP has a common definition of Capital Goods. Hence, when the goods have been treated as Capital Goods under EPCG License, the same cannot be treated as spare parts to deny the SHIS scrip benefit. Hence, even on this count the appeal succeeds on merits. iii) The issue is that of interpretation and has consistently been settled by the Tribunals in favour of the importer. Hence, the confirmed demand for the extended period is hit by time bar. Therefore, such demand is being set aside on account of time bar also.
Appeal allowed.
The core legal questions considered in this judgment are:
1. Whether the service of the order upon the counsel of the appellant can be considered as valid service in the eyes of law.
2. Whether the High Court can entertain a writ petition under Articles 226 and 227 of the Constitution of India when an alternate statutory remedy is available under Section 15Z of the Securities and Exchange Board of India Act, 1992 (SEBI Act).
3. Whether the Securities Appellate Tribunal's refusal to condone the delay in filing the appeal was justified and if such a decision can be challenged under the writ jurisdiction of the High Court.
ISSUE-WISE DETAILED ANALYSIS
1. Validity of Service upon Counsel
Relevant Legal Framework and Precedents: The legal framework involves the interpretation of what constitutes valid service of an order. The Tribunal considered the service of the order via email to the appellant's counsel as valid, based on the details provided by the appellant himself.
Court's Interpretation and Reasoning: The Court noted that the question of whether service upon counsel is valid constitutes a question of law. Therefore, the appellant could have filed an appeal to the Supreme Court under Section 15Z of the SEBI Act, which allows for appeals on questions of law.
Application of Law to Facts: The Court found that the appellant's contention regarding the invalidity of service could itself be a question of law, thus making the case eligible for appeal under the SEBI Act.
2. Availability of Alternate Remedy
Relevant Legal Framework and Precedents: Article 226 of the Constitution provides the High Court with the power to issue certain writs. However, the Court referenced the precedent set in M/s Radha Krishan Industries Vs. State of HP & Ors., which limits the High Court's jurisdiction when an alternate statutory remedy is available, except in exceptional circumstances.
Court's Interpretation and Reasoning: The Court emphasized that when a statute prescribes a specific remedy, it should be pursued unless exceptional situations arise, such as violation of fundamental rights or principles of natural justice, or when an order is wholly without jurisdiction.
Conclusions: The Court concluded that no exceptional situation existed to justify bypassing the statutory remedy available under Section 15Z of the SEBI Act.
3. Condonation of Delay
Relevant Legal Framework and Precedents: The Tribunal's decision to refuse condonation of delay was based on its discretionary power. The Court referred to the principles laid out in Puri Investments Versus Young Friends and Co. and Others regarding the limited scope of interference by a supervisory court under Article 227.
Court's Interpretation and Reasoning: The Court determined that the Tribunal's decision did not exhibit any illegality or perversity that would warrant interference. The exercise of discretion by the Tribunal was found to be within legal bounds.
Conclusions: The Court held that the refusal to condone the delay was justified and did not constitute grounds for interference under the writ jurisdiction.
SIGNIFICANT HOLDINGS
The Court established several core principles in its judgment:
1. The validity of service upon counsel can constitute a question of law, making the case eligible for appeal under Section 15Z of the SEBI Act.
2. The High Court's jurisdiction under Articles 226 and 227 is limited when an alternate statutory remedy is available, and no exceptional circumstances exist to justify bypassing such remedies.
3. The discretionary power exercised by the Tribunal in refusing to condone the delay does not warrant interference unless it is shown to be perverse or illegal.
Final Determinations:
The Court dismissed the writ petition, emphasizing that the petitioner should have pursued the statutory remedy available under Section 15Z of the SEBI Act, particularly when a question of law was involved. The Court found no merit or substance in the petition to justify its intervention under the writ jurisdiction.
Service of the order upon the counsel of the appellant - Tribunal had refused to condone the delay of 188 days in filing the appeal for the reason that the impugned order i.e. the order passed by the learned Adjudicating Authority had been duly served upon the appellant through his counsel, on his email - whether the service upon the counsel can be said to be a valid service in the eyes of law or not?
HELD THAT:- Assuming for a moment that the present writ is maintainable, this Court is fully cognizant of the limited scope of appreciation in a writ of present nature. While entertaining any such writ, this Court cannot sit as an ‘Appellate Court’ and can evaluate the correctness of the abovesaid order.
The aspect related to condonation of delay has direct correlation with existence of sufficiency of cause. The Tribunal has refused to condone the delay and exercise of such discretionary power does not indicate any illegality or perversity either. Supervisory court, in such a situation, need not interfere where there is mere exercise of discretionary power, without there being any perversity.
Nothing to indicate or suggest violation of principles of natural justice or non-compliance of statutory requirements in any manner.
The reliance upon statutory provisions of CPC, in the present context, seems completely misplaced.
SEBI relies upon Glaxo Smith Kline Consumer Health Care Limited Case [2020 (5) TMI 149 - SUPREME COURT] and argues that High Court ought not entertain a challenge under Article 226 when the aggrieved person can avail an effective alternate remedy in the manner prescribed by law.
Undeniably, remedy of appeal is creature of statute.
Ideally, the petitioner should have filed an appeal under Section 15Z of SEBI Act, 1992, particularly, when even as per him, a question of law is, evidently, involved.
This Court has already noted above the limited scope of appreciation it possesses, while considering any such petition filed under Article 226 and Article 227 of the Constitution of India and, therefore, the irresistible conclusion is that the present petition lacks any substance or merit.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Validity of the Forensic Audit Report dated 9th August 2023
2. Quashing of the Show-Cause Notice dated 17th August 2023
SIGNIFICANT HOLDINGS
Challenge to forensic report prepared by the Respondent No. 2-BDO India LLP, a Chartered Accountant’s Firm - petitioner was not aware of any such final Forensic Audit Report (FAR) nor was a copy provided to him - principles of natural justice - HELD THAT:- It is deemed fair and proper to permit the Respondent No.1-Bank of India to withdraw the show-cause notice based on the FAR dated 9th August 2023 with liberty to initiate fresh proceedings against the Petitioner. The Respondent No.1-Bank of India is at liberty to issue fresh show-cause notice to the Petitioner and the Petitioner is at liberty to raise all objections and contentions including an objection to the partiality of the FAR dated 15th September 2023 in his reply to the show-cause notice.
Conclusion - The show-cause notice dated 17th August 2023 is quashed and set aside and stands withdrawn by the Respondent No.1-Bank of India. All consequential proceedings/action pursuant to the show-cause notice taken by the Bank also stand withdrawn and cancelled. The same shall be communicated by the Bank to the Petitioner within 72 hours from the date of uploading of this order.
Petition disposed off.
Issues: (i) Whether the mortgages created in favour of the later lender were contrary to the earlier mortgage and therefore prima facie voidable at the instance of the prior mortgagee. (ii) Whether the applicant established a case for interim relief, including restraint against reliance on the later mortgages and deposit of the mortgage deeds. (iii) Whether the presence of insolvency proceedings or Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ousted this Court's jurisdiction to grant the reliefs sought.
Issue (i): Whether the mortgages created in favour of the later lender were contrary to the earlier mortgage and therefore prima facie voidable at the instance of the prior mortgagee.
Analysis: The earlier mortgage contained express covenants prohibiting creation of any further encumbrance without prior written consent, and the terms requiring consent were read together with the clauses preserving the first charge and priority of the mortgagee. The later mortgages were executed before the conditional no-objection certificate was issued, and the record showed that the later lender had already sanctioned finance on the same day the no-objection request was made. On that basis, the subsequent mortgages were found to have been created in breach of the earlier mortgage, and the rule of priority under Section 48 of the Transfer of Property Act, 1882 did not assist the later lender because that provision presupposes a valid later transfer. The breach also supported the view that the later mortgages could not be treated as valid against the prior mortgagee and were, at the least, prima facie voidable at the instance of the applicant.
Conclusion: The later mortgages were held to be in breach of the earlier mortgage and prima facie voidable against the applicant.
Issue (ii): Whether the applicant established a case for interim relief, including restraint against reliance on the later mortgages and deposit of the mortgage deeds.
Analysis: The Court held that the applicant had shown the necessary ingredients for relief under Section 31 of the Specific Relief Act, 1963, namely that the instruments were void or voidable and that their continued existence created a reasonable apprehension of serious injury. The later mortgages were recorded as asserting that the properties were free from prior charges, which reinforced the apprehension that they might be used to defeat the applicant's exclusive first charge in SARFAESI and insolvency proceedings. The Court also accepted that the applicant's contractual and statutory enforcement rights could be materially prejudiced if the later mortgages were allowed to remain operative. The prayer for protective interim relief was therefore justified.
Conclusion: Interim protection was granted in favour of the applicant, including deposit of the impugned mortgage deeds and restraint on reliance upon them without consent.
Issue (iii): Whether the presence of insolvency proceedings or Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ousted this Court's jurisdiction to grant the reliefs sought.
Analysis: The Court held that the controversy in the suit concerned the legality and enforceability of the impugned mortgages themselves, not merely the inter se priority of secured claims in insolvency. In the absence of pending insolvency proceedings against the relevant parties, Section 60(5) of the Insolvency and Bankruptcy Code, 2016 did not displace the Court's jurisdiction to adjudicate the validity of the mortgages or to grant interim relief in aid of the suit. Questions of priority in insolvency were distinguished from the antecedent issue whether the impugned mortgages were legally effective at all.
Conclusion: The Court retained jurisdiction to grant the requested reliefs and rejected the objection based on Section 60(5) of the Insolvency and Bankruptcy Code, 2016.
Final Conclusion: The applicant succeeded in obtaining interim protection because the impugned mortgages were treated as having been created in breach of the earlier mortgage and were not permitted to be acted upon pending trial.
Ratio Decidendi: A subsequent mortgage created in breach of an earlier mortgage's express no-encumbrance covenant and before the required consent or no-objection is issued is prima facie voidable at the instance of the prior mortgagee, and such a challenge can attract protective relief under Section 31 of the Specific Relief Act, 1963 without being displaced by insolvency jurisdiction where the dispute is about the legality of the mortgage itself.
Seeking a declaration that the Plaintiff is the exclusive first charge holder / mortgagee in respect of two properties - Seeking declaration that the Deeds of Simple Mortgage are void and illegal to the extent of the mortgage created by Defendant Nos. 2 and 3.
HELD THAT:- Firstly, it is not in dispute that the Plaintiff’s Mortgage is prior in point of time to the Impugned Mortgages. Also, a plain reading of clause 13(d) of the Plaintiff’s Mortgage and clause 10(B) of Schedule I of the Plaintiff’s Mortgage make it abundantly clear that the Mortgagor i.e. Defendant Nos. 2 & 3 would not be entitled to not create any mortgages, charges and encumbrances over the Mortgaged Properties i.e. the Suit Properties or any part thereof except with specific written approval/permission (NOC) from Mortgagee i.e. the Plaintiff. Thus for any subsequent valid mortgage to have come into existence, the grant of an NOC by the Plaintiff was a mandatory prerequisite - the Impugned Mortgages have been created in the teeth of the Plaintiff’s Mortgage and thus, the judgement of the Hon’ble Supreme Court in the case of Bikram Chatterjee [2019 (7) TMI 1233 - SUPREME COURT] would squarely apply. Reliance placed upon by Defendant Nos.1 and 5 on Section 48 of TPA would therefore be of no assistance, since the application of Section 48 of TPA presupposes that the subsequent transfer is valid. However, in present case the Impugned Mortgages are ex-facie in violation of Plaintiff’s Mortgage and are hence prima facie voidable at the instance of the Plaintiff.
The Plaintiff having established that the Impugned Mortgages have been created contrary to the terms of the Plaintiff’s Mortgage as also given the assertion of Defendant Nos.1 and 5 that the Suit properties are free from any prior charge, is entirely justified in apprehending that Defendant No.1 and/or Defendant No.5 would misuse and/or make use of the Impugned Mortgages to defeat the exclusive rights of the Plaintiff in any proceedings adopted under the IBC or under the of SARFAESI Act. Hence, the Plaintiff has made out a case under Section 31 of the Specific Relief Act demonstrating the serious injury that is likely to be caused to the Plaintiff if interim reliefs are not granted. It is found that in the facts of the present case, the judgement of the Hon’ble Supreme Court in the case of Deccan Paper Mills Company Limited [2020 (8) TMI 533 - SUPREME COURT] would squarely apply.
There was no denial by Defendant Nos. 1 and 5 save and except to state that these rights would be lost by virtue of the law. However, it would not be open to Defendant Nos. 1 and 5 to urge this, since the Impugned Mortgages has been created contrary to the Plaintiff’s Mortgage and are thus invalid in the eyes of law. Hence, to permit Defendant No. 1 and/or Defendant No.5 to assert any right under the Impugned Mortgages which would in any manner impinge upon the Plaintiff’s exclusive first charge would be akin to putting a premium on dishonesty.
Conclusion - i) A mortgage created in violation of the terms of a prior mortgage is voidable at the instance of the prior mortgagee. ii) The Court has jurisdiction to decide the validity of the Impugned Mortgages.
Interim application allowed.
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Consideration of a Late-Submitted Resolution Plan
Relevant Legal Framework and Precedents: The relevant legal framework includes Regulation 36B(6) and Regulation 39(1B) of the CIRP Regulations, 2016. Regulation 36B(6) allows the resolution professional (RP), with the CoC's approval, to extend the timeline for submission of resolution plans. Regulation 39(1B) prohibits the CoC from considering any resolution plan received after the specified timeline.
Court's Interpretation and Reasoning: The Tribunal noted that the CoC had extended the deadline for submission of resolution plans from 05.02.2024 to 14.02.2024. The Respondent No. 1 submitted the plan on 15.02.2024, which was after the extended deadline. The CoC, exercising its commercial wisdom, decided not to accept the late-submitted plan.
Key Evidence and Findings: The CoC's decision was based on the fact that the plan was submitted after the deadline, and the Earnest Money Deposit (EMD) was also received late. The Tribunal found that the CoC had deliberated on the issue and decided against accepting the late submission.
Application of Law to Facts: The Tribunal applied Regulation 39(1B), which prohibits consideration of plans received after the deadline, to uphold the CoC's decision. The Tribunal found that the CoC's decision was in compliance with the statutory regulation.
Treatment of Competing Arguments: The Respondent No. 1 argued that the delay was due to not receiving necessary documents in time, and that maximizing the value of the corporate debtor should allow for consideration of the plan. However, the Tribunal emphasized the CoC's commercial wisdom and the statutory prohibition against considering late submissions.
Conclusions: The Tribunal concluded that the CoC acted within its rights and commercial wisdom in deciding not to accept the late-submitted plan. The Adjudicating Authority's direction to consider the plan was set aside.
Issue 2: Interference with CoC's Commercial Wisdom
Relevant Legal Framework and Precedents: The Tribunal referenced the Supreme Court's decision in 'Kalparaj Dharamshi' and other relevant cases, which emphasize the limited scope of interference with the CoC's commercial decisions.
Court's Interpretation and Reasoning: The Tribunal reiterated that the CoC's commercial decisions should not be interfered with unless there is a clear violation of statutory provisions or arbitrariness.
Key Evidence and Findings: The CoC had considered the late submission and decided not to accept it, which was a decision based on its commercial wisdom. The Tribunal found no arbitrariness or statutory violation in the CoC's decision.
Application of Law to Facts: The Tribunal applied the principle of non-interference with the CoC's commercial decisions, as established in precedent, to uphold the CoC's decision.
Treatment of Competing Arguments: The Respondent No. 1's argument for considering the plan for value maximization was weighed against the statutory framework and the CoC's decision. The Tribunal sided with the statutory framework and the CoC's wisdom.
Conclusions: The Tribunal concluded that the Adjudicating Authority erred in interfering with the CoC's decision, which was within its commercial discretion and aligned with statutory regulations.
3. SIGNIFICANT HOLDINGS
Verbatim Quotes of Crucial Legal Reasoning: "The commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I&B Code."
Core Principles Established: The Tribunal reinforced the principle that the CoC's commercial decisions, particularly regarding the acceptance of resolution plans, should not be interfered with by the Adjudicating Authority unless there is a clear statutory violation or arbitrariness.
Final Determinations on Each Issue: The Tribunal set aside the Adjudicating Authority's order directing the consideration of the late-submitted resolution plan by the CoC. The appeal was allowed, and the CoC's decision was upheld as compliant with the CIRP Regulations, 2016.
Consideration of resolution plan submitted by respondent, by the Committee of Creditors (CoC) - applicability and interpretation of Regulation 36B(6) and Regulation 39(1B) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - HELD THAT:- Sub-Regulation 6 provides the RP with the approval of the committee extend the timeline for submission of the plan, which pre-suppose that the CoC has to agree for extension of timeline. The present is a case where timeline was extended from 05.02.2024 to 14.02.2024, and all PRAs were informed that 14.02.2024 is the last date for last extension. In the present case, after plan was sent by Respondent No. 1, the RP placed the resolution plan of the receipt from the appellant before the CoC in its meeting dated 16.02.2024.
There is one more relevant fact which need to be noticed subsequent to the decision of the CoC on 16.02.2024 and 17.02.2024, CoC decided to conduct a challenge process on 23.04.2024, which was completed on 29.04.2024, in which the appellant was declared as H–1 bidder. The Respondent No. 1 had not been invited to participate in the challenge process nor he could have been invited, it was already decided for not to accept the plan. Application filed by Respondent No. 1 was allowed subsequent to completion of challenge process on 29.04.2024, in which the appellant has declared as H–1 bidder.
There was no sufficient ground on basis of which the Adjudicating Authority could have allowed the application filed by Respondent No. 1 and issued direction to the CoC.
Conclusion - The CoC did not commit an error in considering the late receipt plan of Respondent No. 1 and deciding not to consider the plan which was in accordance with the statutory regulation. The Adjudicating Authority could not have interfered with the decision of the CoC, which was taken in the commercial wisdom, after considering all the relevant facts and circumstances.
Sufficient ground has been made out to allow the appeal. Appeal is allowed.
Issues: Whether the proceedings under the Prevention of Money Laundering Act, 2002 could be sustained on the ground that the alleged laundering was a continuing offence despite the predicate acts having originated before the Act or before certain scheduled offences were inserted in the Schedule; and whether the rejection of discharge could be interfered with when the material disclosed a prima facie case and the alleged proceeds of crime exceeded the statutory threshold.
Analysis: The Court held that the offence of money laundering is independent and continuing in nature so long as the proceeds of crime are concealed, possessed, used, or projected as untainted property. The relevant date is not confined to the date of the predicate offence, but to the continued dealing with proceeds of crime. The Court further noted that the record disclosed substantial material indicating that the alleged financial trail, including land allotment transactions, alleged gratification, and related layering of funds, prima facie exceeded the monetary threshold then applicable and warranted trial. At the stage of discharge or charge framing, the Court emphasized that only a prima facie assessment is required and the probative value of evidence is not to be finally adjudicated.
Conclusion: The challenge to the PMLA proceedings failed. The Court found that the allegation of money laundering was maintainable as a continuing offence and that the material justified refusal of discharge.
Final Conclusion: The appellant was required to face trial, and the revisional interference sought against the refusal of discharge was unwarranted.
Ratio Decidendi: Money laundering under Section 3 of the Prevention of Money Laundering Act, 2002 is a continuing offence that persists so long as proceeds of crime are retained, concealed, used, or projected as untainted, and at the discharge stage the court need only determine whether the record discloses a prima facie case.
Money Laundering - proceeds of crime - scheduled offences - primary allegation was that the appellant was involved in financial transactions related to proceeds of crime, generated through fraudulent activities causing significant financial losses to the State of Gujarat - HELD THAT:- A significant ground raised by the appellant pertains to the nature of the alleged offence under the PMLA. The appellant has contended that the alleged acts do not constitute an offence under the PMLA as the same was not in force during the relevant period, or the predicate offences as alleged were not included in the schedule to the PMLA at the relevant time and, therefore, cannot be subject to proceedings under the PMLA. It has also been argued that these instances do not constitute continuing offences. This contention, however, is untenable. It is well established that offences under the PMLA are of a continuing nature, and the act of money laundering does not conclude with a single instance but extends so long as the proceeds of crime are concealed, used, or projected as untainted property. The legislative intent behind the PMLA is to combat the menace of money laundering, which by its very nature involves transactions spanning over time.
The concept of a continuing offence under PMLA has been well-settled by judicial precedents. An offence is deemed continuing when the illicit act or its consequences persist over time, thereby extending the liability of the offender. Section 3 of the PMLA defines the offence of money laundering to include direct or indirect attempts to indulge in, knowingly assist, or knowingly be a party to, or actually be involved in any process or activity connected with the proceeds of crime. Such involvement, if prolonged, constitutes a continuing offence.
The law recognizes that money laundering is not a static event but an ongoing activity, as long as illicit gains are possessed, projected as legitimate, or reintroduced into the economy - The material on record indicates the continued and repeated misuse of power and position by the appellant, resulting in the generation and utilization of proceeds of crime over an extended period. The respondent has successfully demonstrated prima facie that the appellant remained involved in financial transactions linked to proceeds of crime beyond the initial point of commission. The utilization of such proceeds, the alleged layering and integration, and the efforts to project such funds as untainted all constitute elements of a continuing offence under the PMLA. Thus, the proceedings initiated against the appellant are well within the legal framework and cannot be assailed on this ground.
Furthermore, it is settled law that the determination of the amount involved in a money laundering offence is not to be viewed in isolation but in the context of the overall financial trail and associated transactions - The appellant has failed to substantiate his claim with any material that contradicts the respondent’s submissions in this regard. Therefore, this ground also does not aid the appellant in any manner.
The illegal diversion and layering of funds have a cascading effect, leading to revenue losses for the state and depriving legitimate sectors of investment and financial resources. It is settled law that in cases involving serious economic offences, judicial intervention at a preliminary stage must be exercised with caution, and proceedings should not be quashed in the absence of compelling legal grounds. The respondent has rightly argued that in cases involving allegations of such magnitude, a trial is imperative to establish the full extent of wrongdoing and to ensure accountability - Given the severe and grave nature of the allegations against the appellant, it is imperative that he must undergo thorough judicial scrutiny during trial. A proper trial is necessary to unearth the full extent of the offence, to evaluate the evidence produced by the appellant, to analyze the complete chain of final transactions, and find out the veracity of the severe allegations and the amount of proceeds of crime. The legal framework under the PMLA serves as a crucial mechanism to ensure that individuals involved in laundering proceeds of crime are brought to justice and that economic offences do not go unpunished.
Conclusion - It is evident that the appellant has failed to establish any legally sustainable ground warranting interference by this Court at a pre-trial stage. The submissions made in support of the appeal are neither legally untenable nor in the best interest of justice. The offence alleged against the appellant is clearly a continuing offence under the PMLA, and the quantum of proceeds of crime involved far exceeds the statutory threshold and requires proper investigation and judicial scrutiny. The findings of the Courts below are wellreasoned and do not call for interference.
Appeal dismissed.
Issues: (i) Whether the existence of an arbitration clause barred invocation of writ jurisdiction in the facts of the case. (ii) Whether the respondent railway was liable to reimburse the service tax component arising from the post-contract change in the service tax regime, notwithstanding the tender and contract terms.
Issue (i): Whether the existence of an arbitration clause barred invocation of writ jurisdiction in the facts of the case.
Analysis: The arbitration clause was held not to operate as an absolute bar. The dispute was treated not as a pure contractual liability contest but as one concerning the shifting incidence of tax after a change in the legal regime. The Court also treated the clause as ineffective in the circumstances and held that the availability of arbitration did not preclude writ relief where the respondent was an Article 12 entity and the material facts were discernible from the record.
Conclusion: The arbitration clause did not bar the writ remedy.
Issue (ii): Whether the respondent railway was liable to reimburse the service tax component arising from the post-contract change in the service tax regime, notwithstanding the tender and contract terms.
Analysis: The contracts were concluded before the service tax regime shifted on 1 July 2012. The Court treated service tax as an indirect tax whose incidence could be passed on, and relied on the statutory presumption under the Finance Act, 1994 and the Central Excise Act, 1944. The tender clauses requiring the contractor to pay service tax were construed as protecting the railway from default by the contractor, not as shifting the ultimate burden of a later-imposed tax to the contractor. The Court also used the principle embodied in Section 64A of the Sale of Goods Act, 1930 by analogy to hold that a post-contract statutory levy should not unjustly burden the contracting party that had not contemplated the new tax at the time of contract.
Conclusion: The railway was liable to reimburse the service tax component with interest.
Final Conclusion: The impugned order was set aside and the appellants were granted reimbursement of the service tax burden arising from the post-contract change in law.
Ratio Decidendi: Where a post-contract statutory change creates a new tax burden, contractual clauses must be construed in light of the legal shift so that the incidence of an indirect tax is borne by the party on whom the law places it, and the existence of an arbitration clause does not by itself oust writ jurisdiction in a fit case.
Reimbursement of service tax component in terms of tender documents followed by contract in the light of subsequent amendment of law relating to Service Tax Regime w.e.f. 1.7.2012 - arbitration clause barring the invocation of writ jurisdiction for the resolution of disputes concerning the reimbursement of the service tax component.
Arbitration clause barring invocation of writ jurisdiction - HELD THAT:- The arbitration clause is hit by the Apex Court decision in CENTRAL ORGANISATION FOR RAILWAY ELECTRIFICATION vs. ECI SPIC SMO MCML (JV) [2024 (11) TMI 542 - SUPREME COURT (LB)]. Therefore, the subject arbitration clause is liable to be ignored for all practice purposes.
Secondly, the question is not as to the liability to pay the service tax in respect of services in question; it is essentially as to who should pay this in the light of change of legal regime of taxation post conclusion of contracts - there being no repudiation of liability for discharging the service tax, it cannot be argued that there is an arbitrable dispute merely because a question as to who should pay, eventually arises.
An arbitration clause of the kind even otherwise does not constitute a China Wall against exercising writ jurisdiction. In appropriate cases, Writ Court can grant relief when the answering respondent happens to be Article 12-Entity - It is not that the Writ Courts should invariably deny relief merely because the other side disputes the fact matrix, provided that the disputed facts can be ascertained from the pleadings & record.
Liability of Railways to Reimburse Service Tax - HELD THAT:- On the principle of reimbursement as such, there is no dispute at all. The dispute is the extent of reimbursement in the sense that what is payable by way of service tax because of paradigm shift in the Legal Regime, with effect from 1.7.2012 i.e. post-contract period.
Interpretation of Tender/Contract Clauses - HELD THAT:- Section 83 of Finance Act, 1994 read with Sections 12A & 12B of Central Excise Act, 1944 raises a presumption that the incidence of duty can be passed on to the buyer unless contrary is proved and therefore, being an indirect tax, has to be borne by the service recipient vide Satya Developers Pvt. Ltd. vs. Pearey Lal Bhawan Association [2015 (10) TMI 2667 - DELHI HIGH COURT] and Meattles Pvt. Ltd. Vs. HDFC Bank Ltd. [2012 (10) TMI 685 - DELHI HIGH COURT] - When the contracts in question were entered into in the year 2011, both the parties had not contemplated change of legal regime with effect from 1.7.2012 from Positive List to Negative List eventually giving rise to new tax liability. It is not just change of rates of tax, but, very taxability.
Analogous Application of Section 64A of the Sale of Goods Act, 1930 - HELD THAT:- Section 64A as such cannot be invoked because the case does not relate to tax on goods; however that does not mean that the wisdom of its underlying principle cannot be made use of by analogy - The recipient of services like the buyer of goods has to bear the new levy of service tax occasioned by State action namely the amendment to Finance Act, 1994 w.e.f. 01.07.2012, which obviously is post conclusion of contracts in question. Any other answer or view would strike at reason, at law and at logic.
Conclusion - i) The arbitration clause did not preclude the exercise of writ jurisdiction in this case, given the nature of the dispute and the status of the respondent as an Article 12-Entity. ii) The Railways are liable to reimburse the service tax component to the appellant, with interest, due to the change in the legal regime post-contract. iii) New tax liabilities arising from state action should be borne by the service recipient, drawing an analogy to Section 64A of the Sale of Goods Act, 1930. iv) A Writ of Mandamus issues directing the respondent-South Western Railway to reimburse to the appellant all that amount which it has paid by way of service tax, with 9% interest p.a. from the date the amount became payable, within eight weeks.
The impugned order of the learned Single Judge is set aside - appeal allowed.
The core legal issue considered in this judgment is whether the activity of chilling milk falls under the definition of 'services' as per Section 65B(44) of the Finance Act, 1994, and is thus subject to service tax, or whether it falls under the negative list as per Section 66D(d)(iii), thereby exempting it from service tax.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents:
The relevant legal provisions are Sections 65B(44) and 66D(d)(iii) of the Finance Act, 1994. Section 65B(44) defines 'service' as any activity carried out by a person for another for consideration, excluding certain specified activities. Section 66D(d)(iii) lists services related to agriculture or agricultural produce, including processes like cooling, that do not alter the essential characteristics of agricultural produce but make it marketable for the primary market, as part of the negative list.
Court's Interpretation and Reasoning:
The Tribunal examined whether the chilling of milk could be classified under the negative list as an agricultural activity. It noted that the definition of 'agriculture' and 'agricultural produce' under the Finance Act does not explicitly include chilling of milk. The Tribunal found that the activities listed in the negative list pertain specifically to agricultural operations and do not encompass the chilling of milk.
Key Evidence and Findings:
The appellant argued that the chilling of milk should be exempt from service tax based on the negative list and relied on Notification No. 11/2017 and a decision by the Gujarat High Court. However, the Tribunal found that the Gujarat High Court's decision and the notification pertained to the Central Goods and Services Tax Act, 2017, and were not applicable to the Finance Act, 1994.
Application of Law to Facts:
The Tribunal applied the definitions and provisions of the Finance Act to the facts, concluding that the appellant's activity of chilling milk does not qualify as an agricultural service under the negative list. The Tribunal emphasized that the chilling of milk, while related to the dairy industry, does not fall under the specific agricultural processes listed in Section 66D(d)(iii).
Treatment of Competing Arguments:
The Tribunal considered the appellant's reliance on the Gujarat High Court's decision and the Notification No. 11/2017. It distinguished the context and applicability of these references, noting that they pertain to the Central Goods and Services Tax Act, which includes 'animal husbandry' as a broader category than the Finance Act's provisions.
Conclusions:
The Tribunal concluded that the chilling of milk is a taxable service under Section 65B(44) of the Finance Act, 1994, and does not fall within the negative list under Section 66D(d)(iii). Consequently, the appellant is liable to pay service tax on the chilling of milk for the period in question.
3. SIGNIFICANT HOLDINGS
Verbatim Quotes of Crucial Legal Reasoning:
"The activities enshrined in the negative list are only related to agricultural activities and cannot embrace within it the activity of chilling milk."
Core Principles Established:
The Tribunal established that activities related to the dairy industry, such as chilling milk, do not automatically qualify as agricultural services under the negative list unless explicitly covered by the definitions in the Finance Act. The distinction between the Finance Act and the Central Goods and Services Tax Act was emphasized, particularly regarding the scope of 'animal husbandry'.
Final Determinations on Each Issue:
The Tribunal affirmed the Commissioner (Appeals)'s decision that the activity of chilling milk is a taxable service post-01.07.2012 and dismissed the appeal, upholding the service tax demand on the appellant.
Process amounting to manufacture - activity of chilling of milk would fall under ‘services’ as defined under Section 65B(44) or would fall under the negative list as per Section 66D(d)(iii) as claimed by the appellant? - HELD THAT:- Clause (d) of section 66D provides for services relating to ‘agriculture’ or ‘agricultural produce’. The appellant is therefore required to satisfy that the activity of chilling of milk falls within the category of ‘agriculture’ or ‘agriculture produce’, which has not been substantiated with reference to the provisions of the Finance Act. In terms of the definition of ‘agriculture’ and ‘agricultural produce’, chilling of milk is not covered. The conjoint reading of the aforesaid provisions clearly shows that the activities enshrined in the negative list are only related to agricultural activities and cannot embrace within it the activity of chilling milk.
The term ‘animal husbandry’ as per the meaning ascribed to it in the Cambridge Dictionary is, “farming of animal to produce foods such as meat, eggs and milk.” The term ‘animal husbandry’ being of wider import would include chilling of milk and therefore, the Gujarat High Court has rightly held the activity of chilling of milk to be exempted. However, there is no such provision in the Finance Act either in the negative list under section 66D(d)(iii) or under the definition of ‘agriculture’ and ‘agricultural produce’.
Conclusion - The activity of chilling of milk during the post negative period amounts to rendering ‘services’ as defined in section 65B (44) and is therefore, leviable to service tax.
There are no error in the impugned order and hence the same is affirmed. The appeal is, accordingly dismissed.
The core legal issue under consideration is whether the services provided by the appellant, classified as 'Cargo Handling Services' (CHS), should instead be classified as 'Goods Transport Agency Services' (GTA) under the Finance Act, 1994. This classification determines the applicability of service tax for the period from March 2013 to March 2016.
ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
Under Section 65(23) of the Finance Act, 1994, 'cargo handling service' is defined to include loading, unloading, packing, or unpacking of cargo, but excludes mere transportation of goods. Section 65B(26) defines 'goods transport agency' as any person providing service related to the transport of goods by road and issuing a consignment note.
The appellant argued that their services were primarily transportation, thus falling under GTA and not CHS. They relied on several Tribunal decisions, including Dalveer Singh, Hira Industries Ltd., and Bhadoria Transport Co., which emphasized that transportation services should be classified under GTA if loading and unloading are merely incidental to transportation.
Court's interpretation and reasoning:
The Tribunal examined the nature of the services provided by the appellant, focusing on whether the primary activity was transportation or if it included substantial cargo handling. The Tribunal considered the definitions and prior decisions, emphasizing the main activity's nature to determine the appropriate classification.
Key evidence and findings:
The appellant presented sample invoices and a letter from FTCPL, which referred to the services as 'Transportation Services.' The agreement between the appellant and FTCPL detailed the transportation terms, including rates and conditions, which primarily focused on transportation, with loading and unloading as ancillary activities.
Application of law to facts:
The Tribunal applied the definitions from the Finance Act and the principles from prior decisions to the facts, determining that the appellant's primary service was transportation. The ancillary nature of loading and unloading supported classification under GTA.
Treatment of competing arguments:
The Department argued that the appellant's services included substantial cargo handling, thus classifying them under CHS. However, the Tribunal found that the primary intent and execution of the services were transportation, with loading and unloading as incidental activities, aligning with the GTA classification.
Conclusions:
The Tribunal concluded that the appellant's services were primarily transportation, classifiable under GTA, with loading and unloading as ancillary activities. Therefore, the service tax demand under CHS was not applicable.
SIGNIFICANT HOLDINGS
The Tribunal held that the main activity performed by the appellant was transportation of goods, classifiable under GTA as defined under Section 65B(26) of the Finance Act, 1994. The Tribunal emphasized that loading and unloading were ancillary to transportation, not constituting CHS.
Verbatim quote: "The main activity which the appellant performed was of transportation of goods which is classifiable under the GTA as defined under Section 65B(26) and the activity of loading and unloading the goods is only ancillary."
The Tribunal set aside the impugned order, allowing the appeal and confirming that the appellant's services were not subject to service tax under CHS.
Classification of services - Cargo Handling Services or Goods Transport Agency Service? - HELD THAT:- It appears that loading, unloading and packing or unpacking of cargo including freight special container. The main emphasis is on the ‘cargo’ and not ‘transportation’. The decisions cited by the learned counsel for the appellant also lays stress on the main activity to classify the service under CHS or under GTA, however if the loading or unloading in the truck is a part and parcel of the Transportation of Goods Services it is an incidental/ancillary activity and the same is classifiable under GTA. In the case Dalveer Singh (supra), the Tribunal was concerned with the issue whether the activity undertaken by the appellant, i.e. transportation of material from railway station to the warehouse is covered under CHS or not. Relying on the Board’s Circular dated 01.08.2002 clarifying that mere transportation of goods is excluded from the purview of CHS, allowed the appeal in favour of the assessee.
In the case of Hira Industries Ltd. [2012 (4) TMI 430 - CESTAT, NEW DELHI], the learned Members observed that when there is composite service which has elements fitting into the definition of both the services, recourse should be taken to Section 65A(2)(v) providing the test of most specific description to be adopted. In light thereof, it was held that transportation is not for the purpose of loading and unloading but the contrary is true i.e. loading and unloading is for transportation and therefore any person dealing with the situation perceives the services as one for transport and not for loading and unloading. Later in the case of Bhadoria Transport Co. [2014 (3) TMI 304 - CESTAT KOLKATA], the Tribunal considered the Board’s Circular dated 06.08.2008 clarifying that transportation is not the essential character of CHS but only incidental to the CHS and in that even the services shall be treated as GTA services and not CHS.
Conclusion - The main activity which the appellant performed was of transportation of goods which is classifiable under the GTA as defined under Section 65B(26) and the activity of loading and unloading the goods is only ancillary.
The impugned order is therefore set aside. The appeal is accordingly allowed.
The primary issue in this appeal is whether the respondent is eligible to claim the benefit of Notification No.41/2016 dated 22.09.2016, which exempts certain taxable services from service tax. Specifically, the question is whether the lease of land to Smart City (Kochi) Infrastructure Pvt. Ltd. qualifies for this exemption under the category of industrial plots, given that the land is part of a Special Economic Zone (SEZ).
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework revolves around Notification No.41/2016, which provides an exemption from service tax for taxable services related to the long-term lease of industrial plots. The exemption is contingent on the land being used for industrial purposes. The case also references the judgment in CCE vs. Dileep Kumar & Co., which establishes that exemptions should be strictly construed and only available to those who meet all specified conditions.
Court's Interpretation and Reasoning
The Tribunal considered whether the lease agreement for land within the SEZ qualifies as an industrial plot under the notification. The Tribunal noted that the adjudicating authority had previously determined the exemption was applicable, considering the broader interpretation that the exemption should extend to State Government actions, not just State Industrial Development Corporations.
Key Evidence and Findings
The Tribunal acknowledged that the land in question was declared as an SEZ, and the lease was part of a Special Purpose Vehicle agreement with Smart City (Kochi) Infrastructure Pvt. Ltd. The respondents provided evidence that the land was acquired and allocated for SEZ purposes, and prior agreements had been canceled and re-entered due to technical reasons, with no service tax applicable at the time of the original agreements.
Application of Law to Facts
The Tribunal applied the legal framework to the facts, determining that the lease agreement fell within the scope of the exemption provided by Notification No.41/2016. The Tribunal agreed with the adjudicating authority's broader interpretation that the exemption applies to the State Government's leasing activities for SEZ development.
Treatment of Competing Arguments
The Tribunal considered the Revenue's argument that the exemption should not apply because the land was not exclusively used for industrial purposes. However, the Tribunal found the respondent's evidence and reasoning persuasive, particularly the broader interpretation of the exemption's applicability to State Government actions and the historical context of the lease agreements.
Conclusions
The Tribunal concluded that the lease agreement qualified for the exemption under Notification No.41/2016. The Tribunal upheld the adjudicating authority's decision to drop the service tax demand, finding no reason to disagree with the respondent's arguments and evidence.
SIGNIFICANT HOLDINGS
The Tribunal's significant holding is the affirmation of the adjudicating authority's decision that the lease agreement falls within the exemption provided by Notification No.41/2016. The Tribunal emphasized the broader interpretation of the exemption's applicability to State Government actions, supporting the respondent's position.
The Tribunal quoted the principle from the CCE vs. Dileep Kumar & Co. case, emphasizing that exemptions must be strictly construed and only available to those who meet all specified conditions. However, in this case, the Tribunal found that the conditions for exemption were met.
The final determination was to uphold the adjudicating authority's decision and dismiss the Revenue's appeal, confirming that the lease agreement was exempt from service tax under the relevant notification.
Eligibility of benefit of N/N. 41/2016 dated 22.09.2016 - whether the respondent is eligible for claiming the benefit of N/N. 41/2016 dated 22.09.2016. Government of Kerala had entered into an agreement dated 23.02.2011 with Smart City (Kochi) Infrastructure Pvt. Ltd. to lease-out two pieces of land for consideration of Rs.104 Crores? - HELD THAT:- It is an admitted fact that the lease deed was executed for entering into a Special Purpose Vehicle under Smart City (Kochi) Infrastructure Pvt. Ltd. and it is also an accepted fact that the said area is declared as SEZ. The fact being so, the service tax demand for the above said lease deed considering it as not covered under the Notification No.41/2016 dated 22.9.2016 is unsustainable.
It was also brought to the notice of the appellant that the levy of tax was not in force at the time of entering in to lease agreements as the old lease agreements were entered on November 17, 2007 and July 29, 2008 and the total lease premium was paid by SCIPL at that time but due to certain technical reasons these two lease deeds were cancelled on February 23, 2011 and the lease premium received for the old lease agreements were adjusted in the new lease agreements and that at the time of the old lease agreement, there was no levy of service tax on renting of vacant land. It was also stated that as service tax was payable only on receipt of payment, the payment that was received at the time of the two old lease agreements could not be taxed at the time of entering of the two new lease agreements.
Conclusion - The lease agreement falls within the exemption provided by Notification No.41/2016.
The impugned order is upheld and the appeal filed by the Revenue is dismissed.
The primary issue considered in this appeal was whether the construction services provided by the appellant, which involved both the supply of materials and labor under various work orders, were liable for service tax during the period from January 2005 to March 2008. Specifically, the court examined whether these services fell under the category of 'Works Contract Service' and whether they were taxable prior to June 1, 2007.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework centered around the classification of the services provided by the appellant as 'Works Contract Service.' The appellant argued that these services were not taxable prior to June 1, 2007, based on the precedent set by the Supreme Court in the case of Commissioner of C.EX. and CUS., Kerala Vs. Larsen and Toubro Ltd. The Tribunal also referenced the decision in Total Environment Building Systems (P) Ltd. Vs. Deputy Commissioner of Commercial Taxes, which reaffirmed the principles established in the Larsen and Toubro case.
Court's Interpretation and Reasoning
The Tribunal interpreted the services rendered by the appellant as 'Works Contract Service' since they involved both the supply of materials and labor. This classification was crucial because, according to the Supreme Court's decision in Larsen and Toubro, such services could not be subjected to service tax by dissecting the composite service contract prior to June 1, 2007. The Tribunal emphasized that the principle of stare decisis bound them to follow the precedent set by the Supreme Court.
Key Evidence and Findings
The Tribunal examined the sample agreement with the Indian Oil Corporation (IOC) annexed to the appeal paper book. This agreement demonstrated that the construction works undertaken by the appellant involved both materials and labor, supporting the classification as 'Works Contract Service.' Additionally, the appellant's registration under the Kerala Value Added Tax Act, 2003, for discharging VAT on works contract service further corroborated this classification.
Application of Law to Facts
The Tribunal applied the legal principles from the Larsen and Toubro case to the facts of the present case. Since the services in question were rendered before June 1, 2007, the Tribunal concluded that they could not be subject to service tax. The Tribunal found that the appellant's activities fell squarely within the definition of 'Works Contract Service' and thus were non-taxable for the period in question.
Treatment of Competing Arguments
The Tribunal considered the arguments from both the appellant and the Revenue. The appellant's argument, supported by the Supreme Court's decision in Larsen and Toubro, was that the services were not taxable prior to June 1, 2007. The Revenue's position, as reiterated by the Authorized Representative, was based on the findings of the Commissioner. However, the Tribunal favored the appellant's argument, emphasizing the binding nature of the Supreme Court's precedent.
Conclusions
The Tribunal concluded that the services rendered by the appellant were indeed 'Works Contract Service' and, as such, were not liable for service tax for the period from January 2005 to March 2008. The Tribunal set aside the impugned order and allowed the appeal with consequential relief, if any, as per law.
SIGNIFICANT HOLDINGS
The Tribunal's decision reaffirmed the principle established by the Supreme Court in Larsen and Toubro that works contract services involving both goods and services cannot be taxed by dissecting the composite contract prior to June 1, 2007. The Tribunal held that:
"The judgment of this Court in the case of Larsen and Toubro Limited has stood the test of time and has never been doubted earlier. Therefore, on the principle of stare decisis, we are of the firm view that the judgment of this Court in the case of Larsen and Toubro Limited, neither needs to be revisited, nor referred to a Larger Bench of this Court as prayed."
The Tribunal's final determination was to set aside the impugned order and allow the appeal, providing relief to the appellant in accordance with the law.
Liability of service tax - construction services rendered under various work orders, which involved supply of materials as well as labour by appellant - HELD THAT:- The construction works undertaken was in the nature of ‘Works Contract Service’, since it involves both supply of material as well as labour. Also, it is found that the appellant are registered with Kerala VAT Act, 2003 for discharging VAT on works contract service annexed to appeal paper book.
The Works Contract Service became taxable w.e.f. 01.06.2007 as held by the Hon'ble Supreme Court in the case of Larsen & Toubro Ltd. [2015 (8) TMI 749 - SUPREME COURT] and in the said case, it has been held that prior to 01.06.2007, works contract service cannot be subjected to service tax levy by vivisecting the composite service contract, which includes both goods and service.
Conclusion - The works contract services involving both goods and services cannot be taxed by dissecting the composite contract prior to June 1, 2007.
The impugned order is set aside and the appeal is allowed.
The primary issue in this appeal was whether the cenvat credit amounting to Rs.14,06,03,251/- availed by the appellant from April 2007 to May 2008 was recoverable under the Cenvat Credit Rules, 2004. The core legal question revolved around the eligibility of the appellant to claim cenvat credit for services that were not taxable during the relevant period but were later sanctioned for refund by the Department.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The appellant, a 100% Software Export Oriented Unit (EOU), was registered under the Software Technology Park scheme. During the period in question, they discharged service tax under the reverse charge mechanism as per Section 66A of the Finance Act, 1994, and availed cenvat credit for input services. The dispute arose from the interpretation of the Cenvat Credit Rules, 2004, particularly Rule 5, which pertains to the refund of accumulated credit in cases where goods or services are exported.
Legal precedents cited included the Karnataka High Court's decision in mPortal India Wireless Solutions Vs. CST, Bangalore, which was pivotal in determining the eligibility of credit for services considered non-taxable during the relevant period.
Court's Interpretation and Reasoning
The Tribunal examined whether the appellant's claim for cenvat credit was legitimate given that the services were not taxable prior to 16.05.2008. The Tribunal relied on its previous order and the Karnataka High Court's ruling in mPortal India Wireless Solutions, which established that the rejection of refund claims on the basis that the output services were not taxable was unsustainable. The Tribunal noted that the adjudicating authority, in a de novo proceeding, had sanctioned the refund claims, effectively settling the issue in the appellant's favor.
Key Evidence and Findings
The appellant had filed refund claims on a quarterly basis for the period April 2007 to May 2008. Initially, these claims were rejected by the Department on the grounds that the output services were not taxable. However, the Tribunal had previously remanded the matter for reconsideration, and the adjudicating authority subsequently allowed the cash refund claims, acknowledging the legitimacy of the appellant's credit claims.
Application of Law to Facts
The Tribunal applied the legal principles established in the mPortal India Wireless Solutions case to the facts of the appellant's situation. It concluded that since the refund claims had been sanctioned and the issue of credit eligibility had been resolved in favor of the appellant, the demand for recovery of the cenvat credit was unsustainable.
Treatment of Competing Arguments
The Tribunal considered the Department's initial stance that the credit was inadmissible due to the non-taxable status of the services during the relevant period. However, it found that this argument was outweighed by the subsequent sanctioning of the refund claims and the legal precedent set by the Karnataka High Court. The Tribunal also addressed the issue of the extended period of limitation, noting that the appellant had consistently filed refund claims, thereby keeping the Department informed of all relevant facts.
Conclusions
The Tribunal concluded that the demand for recovery of the cenvat credit was not sustainable given the sanctioning of the refund claims and the legal precedent supporting the appellant's position. The appeal was allowed, and the impugned order was set aside with consequential relief as per law.
SIGNIFICANT HOLDINGS
The Tribunal's decision reinforced the principle that the rejection of refund claims on the basis of non-taxability of output services is unsustainable when subsequent legal and administrative actions have sanctioned such claims. The ruling emphasized the importance of adhering to established legal precedents and the necessity of consistent administrative actions.
"In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law."
The Tribunal's decision underscored the importance of consistency in the application of tax laws and the recognition of legitimate claims for cenvat credit, even when services were not initially taxable.
100% Software EOU - CENVAT Credit of the accumulated crredit - Management of Business Consultancy Service - Management, Maintenance and Repair Service - Information Technology Software Service (ITSS) (June 2008 onwards) - Management Consultancy Service (June 2008 onwards) - reverse charge mechanism in terms of Section 66A of the Finance Act, 1994 in respect of the services received from M/s. Texas Instruments Inc., USA - Extended period of limitation - HELD THAT:- Undisputed facts are that the appellant is a 100% EOU registered under the STPI scheme and during the relevant period, pursuant to the agreement entered into with the overseas companies viz. M/s. Texas Instruments Inc., USA and M/s. Texas Instruments, Singapore, they have exported software services and rendered services to the overseas companies. Since there was no clearance to the domestic market and entire services were exported, the appellant had filed cash refund claims of accumulated cenvat credit of Rs.14,06,03,251/- on quarterly basis during the period April 2007 to May 2008. Under Rule 5 of Cenvat Credit Rules, 2004 Initially the said refund claims were rejected on the ground that the output services provided by them became taxable only w.e.f. 16.05.2008; hence the cenvat credit availed itself is inadmissible.
The matter has reached this Tribunal and this Tribunal following the ratio laid down in the case of mPortal India Wireless Solutions [2011 (9) TMI 450 - KARNATAKA HIGH COURT], remanded the matter to the adjudicating authority for de novo consideration. In the de novo proceeding, the adjudicating authority allowed the cash refund claims for the period April 2007 to May 2008.
Conclusion - The rejection of refund claims on the basis of non-taxability of output services is unsustainable when subsequent legal and administrative actions have sanctioned such claims.
The impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law.
The core legal issues considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS
Time-Barred Refund Claim
Unjust Enrichment
Lack of Evidence Due to Absence of ST-3 Returns
SIGNIFICANT HOLDINGS
The Tribunal's decision emphasized the importance of adhering to statutory definitions of "relevant date" for refund claims and underscored the necessity of consistency in judicial decisions concerning similar factual scenarios, as highlighted in the Vishnu Traders case. The appeal was allowed, and the order rejecting the refund claim was set aside.
Rejection of refund claim on the ground of being time barred - refund being filed beyond a period of one year from the date of payment of service tax - appellant has not filed any ST-3 returns nor even with the impugned claim - principles of unjust enrichment.
Principles of unjust enrichment - HELD THAT:- It becomes clear that the amount in question does not relates to service tax liability of the appellant but got collected erroneously as representing service tax. Such amount should be refunded even without application of the provisions relating to unjust enrichment. Support drawn from the decision of the principal bench of this tribunal in the case of Hexacom Vs. Commissioner of Central Excise, Jaipur [2003 (6) TMI 2 - CESTAT, NEW DELHI]. It is also observed that the amount in question since was deposited on 31.03.2009 towards the sale of SIM cards of financial year 2008-09, the tax was paid after the said activity of sale hence the issue of unjust enrichment of appellant does not otherwise arise.
Rejection of refund claim on the ground of being time barred - HELD THAT:- Section 11B of Central Excise Act, 1944 read with section 83 of Finance Act, 1994 makes it abundantly clear that if the refund claim is filed pursuant to a judgement / order, the period of one year to file refund claim shall start from the date of said judgement / order. As already observed above that the Order-in-Original dated 22-07.2021 has dropped the service tax demand holding no service tax liability of the appellant, the refund claim filed on 24.09.2021 is therefore well within one year of the period of limitation as prescribed under section 11B of Central Excise Act, 1944, explanation B(ec), read with section 84 of Finance Act 1994. In the light of this discussion, it is held that the adjudicating authority below has erred in ignoring the earlier order passed by the department in favor of the present appellant.
Lack of evidence as a ground of rejection of present refund claim - HELD THAT:- The authorities below have opined that due to non-availability of ST-3 returns, it cannot be confirmed that the amount as deposited by the appellant was meant for providing the services for which the demand was dropped vide order dated 22.07.2021. However, it has been settled that the activity of sale of SIM cards does not invite any service tax liability on the amount of commission / incentive received for rendering such activity. The question of any service tax liability and filing of ST-3 returns become redundant. The appellant apparently was not registered earlier with the service tax department. It was only when department asked the appellant to get registration and to deposit service tax that the appellant took registration at the end of financial year 2008-09 and deposited the proposed amount for the said financial year. The impugned show cause notice proposed the demand for the period including 2008-09 to financial year 2011-12. Hence, this ground of rejection of impunged refund claimed is factually incorrect.
Conclusion - i) The refund claim is not time-barred as it is filed within one year of the Order-in-Original that nullified the service tax demand. ii) The appellant is not unjustly enriched, and the refund should be granted. iii) The lack of ST-3 returns does not invalidate the refund claim, as the service tax demand for the relevant period was already dropped.
Appeal allowed.
The core legal questions considered in the judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Service Tax on Central Rights Income, CLT20 Participation Fees, and Prize Money
Issue 2: Service Tax on Support Services Provided by Overseas Players
Issue 3: Service Tax on Player Release Fees
Issue 4: Service Tax on Player Transfer Fees
Issue 5: Limitation
3. SIGNIFICANT HOLDINGS
Levy of Service Tax on the appellant share in the Central Rights Income, CLT20 Participation Fees and prize money received from BCCI-IPL in organizing the IPL tournament under 'Business Support Services (BSS) - Levy of Service Tax on Support Services of Business provided by overseas cricket professionals under reverse change mechanism for wearing apparel, taking part in endorsements and other activities under Business Support Services (BSS) - Levy of Service Tax on player release fees paid to Cricket Australia under reverse charge mechanism under manpower Recruitment or Supply Agency Services - Levy of Service Tax on player transfer fee received from other franchisees under Manpower Recruitment or Supply Agency Services - time limitation
Levy of Service Tax on the appellant share in the Central Rights Income, CLT20 Participation Fees and prize money received from BCCI-IPL in organizing the IPL tournament under 'Business Support Services (BSS) - HELD THAT:- This Tribunal in the case of KNIGHT RIDERS SPORTS PVT. LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE – 4 (2) MUMBAI, CHIEF COMMISSIONER OF INCOME-TAX (CENTRAL) – 2 MUMBAI, THE UNION OF INDIA [2023 (6) TMI 1161 - CESTAT MUMBAI]held that 'In the present case, since the demand of Rs. 16,71,71,797/- in respect of Central Rights Income arising out of the franchise agreement cannot be considered as provision of any service between the members to the franchise agreement, we are of the view that such demand cannot be confirmed on the assessee-appellants.' - The demand for service tax on this income was set aside.
Levy of Service Tax on Support Services of Business provided by overseas cricket professionals under reverse change mechanism for wearing apparel, taking part in endorsements and other activities under Business Support Services (BSS) - HELD THAT:- The Tribunal in Kinight Rider Sports Private Limited [2023 (6) TMI 1161 - CESTAT MUMBAI] held 'the said issue has already been dealt with by the Co-ordinate Bench of this Tribunal, in the case of Sourav Ganguly v. Commissioner of Service Tax, Kolkata (Now Commissioner of Central Goods & Service Tax & Central Excise, Kolkata South), [2020 (12) TMI 534 - CESTAT KOLKATA], wherein it was held that the view taken by the commissioner is not correct as the players had received the fees for the purpose of playing cricket only and even otherwise, it is a settled principle of law that if no machinery provision exists to exclude non-taxable service (playing cricket) from a composite contract, the same is not taxable since law must provide a measure or value of the rate to be applied and any vagueness in the legislative scheme makes the levy fatal. Thus, the Tribunal held in this case that the confirmation of demand could not be sustained.' - the demand is set aside.
Levy of Service Tax on player release fees paid to Cricket Australia under reverse charge mechanism under manpower Recruitment or Supply Agency Services - HELD THAT:- The core requirement that the service which is provided or to be provided, must be by a manpower recruitment or supply agency has been missed. Moreover, such a service has to be in relation to the supply of manpower. The appellant paid player release fees to CrKPH DREAM CRICKET PVT. LTD. VERSUS CCE & ST, CHANDIGARH-I (VICE-VERSA) [2019 (5) TMI 1171 - CESTAT CHANDIGARH] held that 'neither cricket board nor the appellant-assessee are engaged in providing Manpower Recruitment or Supply Agency Service of employees. Therefore, no service tax is payable by the appellant-assessee.' - the demand is set aside.
Levy of Service Tax on player transfer fee received from other franchisees under Manpower Recruitment or Supply Agency Services - HELD THAT:- The issue is no more res-integra as the Tribunal in KPH Dream Cricket held that 'As the main activity of the appellant-assessee to play cricket, therefore, no service tax is payable by the appellant-assessee under the category of 'Manpower Recruitment or Supply Agency service' for transfer of player fee.'
Time limitation - HELD THAT:- A Perusal of the facts reveal that the appellant had disclosed all relevant facts and Department was well aware of the receipts, on which the appellant was not paying service tax and reasons for the same. Therefore, the averments and findings that department became aware because of audit or that the Appellant suppressed any facts is incorrect. Consequently, we hold that the demand is also barred by limitation.
Conclusion - i) The income from Central Rights under a franchise agreement does not constitute Business Support Services. ii) Payments to players for promotional activities, when primarily engaged for playing cricket, are not taxable under Business Support Services. iii) Player release fees to cricket boards and player transfer fees are not taxable under Manpower Recruitment or Supply Agency Services. iv) The demand for service tax was barred by limitation due to the department's prior knowledge of the appellant's transactions.
Appeal allowed.
The primary issue considered in this appeal is whether the CENVAT credit taken on certain goods by the appellant, used in their factory, qualifies as capital goods under the CENVAT Credit Rules, 2004. Specifically, the question is whether goods such as MS Angles, MS Plates, MS Channels, MS Sheets, and HR Bars, which are used as components and spares for machinery, fall within the definition of capital goods as per Rule 2(a)(A)(iii) of the CENVAT Credit Rules, 2004.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework revolves around Rule 2(a)(A) of the CENVAT Credit Rules, 2004, which defines "capital goods." According to this rule, capital goods include components, spares, and accessories of goods falling under Chapter 82, 84, 85, and 90 of the Central Excise Tariff Act, 1985. The appellant relied on this rule to justify the credit availed on the disputed goods.
The appellant also cited several precedents, including decisions from various High Courts and Tribunals, such as Mangalam Cement Ltd. vs. CC, Jaipur and CCE & ST Vs. India Cements Ltd., to support their position that components and spares do not need to fall under specific chapter headings to qualify as capital goods.
Court's Interpretation and Reasoning
The Tribunal interpreted the definition of capital goods under Rule 2(a)(A)(iii) as inclusive of components, spares, and accessories without requiring them to fall under specific chapter headings. The Tribunal emphasized that the rule does not stipulate any chapter-specific requirements for components, spares, and accessories, thereby supporting the appellant's claim.
Key Evidence and Findings
The Tribunal found that the adjudicating authority and the appellate authority failed to provide sufficient reasoning for denying the CENVAT credit. The authorities did not verify the appellant's claims regarding the use of the goods as components and spares in machinery installed at their factory. The Tribunal noted that the appellant had explained the usage of the goods, and it was incumbent upon the authorities to verify these claims.
Application of Law to Facts
The Tribunal applied the definition of capital goods as per Rule 2(a)(A)(iii) to the facts of the case, concluding that the goods in question qualify as capital goods. The Tribunal determined that the appellant's interpretation of the rule was correct and supported by relevant case law.
Treatment of Competing Arguments
The Tribunal addressed the respondent's argument that the goods do not fall under the definition of inputs as per Rule 2(k) of the CENVAT Credit Rules. The Tribunal found this argument irrelevant to the determination of whether the goods qualify as capital goods, as the appellant's claim was based on the definition of capital goods, not inputs.
Conclusions
The Tribunal concluded that the goods in question qualify as capital goods under Rule 2(a)(A)(iii) of the CENVAT Credit Rules, 2004. The Tribunal found that the adjudicating authority and the appellate authority erred in denying the CENVAT credit and imposing a penalty on the appellant.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
The Tribunal held: "On reading of the above definition, it reveals that no Chapter of the Central Excise Tariff Act, 1985 (CETA) has been prescribed for the components, spares and accessories for consideration as capital goods. Thus, it is evident that irrespective of the classification of components, spares and accessories, when those are fitted to the machines/machineries of the above eligible Chapters, the same should also be considered as capital goods for availment of Cenvat credit of Central Excise duty paid thereon."
Core Principles Established
The Tribunal established that the definition of capital goods under Rule 2(a)(A)(iii) is not restricted by chapter headings for components, spares, and accessories. This interpretation aligns with the broader understanding that such goods qualify as capital goods if they are used in machinery falling under the specified chapters.
Final Determinations on Each Issue
The Tribunal set aside the impugned order in appeal, which upheld the demand of the adjudicating authority and imposed a penalty. The appeal was allowed, granting the appellant the consequential benefits in law.
Wrongful availment of CENVAT credit on ineligible capital goods taken during the period May 2013 to March 2014 - capital goods or not - MS Angles, MS Plates, MS Channels, MS Sheets, and HR Bars, which are used as components and spares for machinery - HELD THAT:- Rule 2 (a) (A) (iii) merely stipulates that capital goods means components, spares and accessories of the goods specified at (i) and (ii). It does not contain any stipulation as to the chapter headings to which such components, spares and accessories should pertain. Thus, the definition of capital goods squarely covers components, spares and accessories of the goods falling under chapter 82, 84, 85, 90, heading number 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First schedule to the Excise Tariff Act and pollution control equipment. It is evident that in the absence of any prescribed headings to which such components, spares and accessories should pertain, the claim of the appellant that the impugned goods are covered under the definition of capital goods merits acceptance.
This tribunal finds that the adjudicating authority has erred in rendering a finding that the appellants had raised contradictory claims. The adjudicating authority has failed to appreciate that the appellants had only claimed that the components, spares and accessories of the goods specified at (i) & (ii) of the definition of capital goods as given at Rule 2 (a) (A), are chapter agnostic and are thus covered under the definition. It was never a contradictory claim as found by the adjudicating authority and such a finding as upheld by the appellate authority, is wholly untenable.
This Tribunal also finds that it is settled law that the scope of entry “components, spares and accessories” in the definition of capital goods is not restricted to the components, spares and accessories falling under Chapter 82, 84, 85 or 90 of CETA, 1985 alone but covers all spares, components and accessories of specified goods irrespective of their classification under any chapter and is thus not chapter specific. The reliance placed by the Appellant on the decision in CCE &ST Vs. India Cements Ltd., [2014 (7) TMI 881 - MADRAS HIGH COURT] and India Cements Vs CESTAT, Chennai [2015 (3) TMI 661 - MADRAS HIGH COURT] and Mangalam cement limited versus CC, Jaipur (1), [2018 (3) TMI 1547 - CESTAT NEW DELHI - LB] is apposite.
The impugned order in appeal upholding the demand of the adjudicating authority and imposing penalty cannot sustain and is liable to be set aside.
Conclusion - Irrespective of the classification of components, spares and accessories, when those are fitted to the machines/machineries of the above eligible Chapters, the same should also be considered as capital goods for availment of Cenvat credit of Central Excise duty paid thereon.
The impugned order set aside - appeal allowed.
Issues: Whether the petitioner's ruled and unruled student exercise notebooks were covered by the exemption granted under G.O.Ms. No. 79 dated 23.03.2007 and the relevant schedule entries under the Tamil Nadu Value Added Tax Act, 2007.
Analysis: The exemption and schedule entries distinguished between graph books, exercise books, laboratory notebooks, student notebooks and copy books. The petitioner clarified in its objections that it manufactured only standard ruled and unruled exercise notebooks. No material was produced to dislodge that clarification. On the plain wording of the Government Order and the schedule entries, notebooks used by students for academic exercises fell within the exempted category of exercise notebooks. A taxing entry must be applied according to its language, and a restrictive construction excluding such notebooks was not justified on the facts found.
Conclusion: The denial of exemption was unsustainable and the petitioner was entitled to the benefit of G.O.Ms. No. 79 dated 23.03.2007.
Ratio Decidendi: Where the assessee establishes that its goods squarely answer the exempted commodity description in the notification or schedule entry, the exemption must be given effect according to the plain wording of the provision.
Challenge to assessments made under the provisions of the Tamil Nadu Value Added Tax Act, 2007 - denial of exemption claimed by the petitioner to which a detailed reply was filed by petitioner, overruling which orders of assessment have come to be passed - HELD THAT:- In the present case, the GO clearly uses the term 'exercise notebooks' and there can be no two views on the position that the notebooks manufactured by petitioners, used by students for the purposes of academic exercises, would satisfy that definition.
In Maharaja Book Depot v State of Gujarat, [1978 (10) TMI 148 - SUPREME COURT], the Supreme Court considered the interpretation of the term 'paper' in juxtaposition with the term 'exercise book' holding that an exercise book was nothing but a collection of sheets of paper stitched together by a piece of string or pinned together and a substance used for writing. It would therefore, clearly fall within ambit of the term 'paper'. It does not, the Bench holds, lose the identity of 'paper' merely because it is stitched together as a notebook.
The notebooks manufactured by the Petitioner being only notebooks (ruled and unruled) used for the purposes of student exercises, are entitled to the exemption sought. In light of discussion as aforesaid, the findings and conclusions of the assessing officer in the impugned assessment orders to the effect that notebooks manufactured by petitioners do not satisfy the requirement of 'student exercise book' is erroneous, as is the denial of exemption.
Conclusion - The notebooks manufactured by the Petitioner being only notebooks (ruled and unruled) used for the purposes of student exercises, are entitled to the exemption sought.
The impugned assessment orders are set aside and these writ petitions are allowed.
Issues: (i) Whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 could continue against the director of a corporate debtor when the insolvency moratorium had commenced before the cause of action under Section 138 accrued. (ii) Whether the complaint and summoning order were liable to be quashed in exercise of powers under Section 482 of the Code of Criminal Procedure, 1973.
Issue (i): Whether proceedings under Section 138 of the Negotiable Instruments Act, 1881 could continue against the director of a corporate debtor when the insolvency moratorium had commenced before the cause of action under Section 138 accrued.
Analysis: The liability under Section 138 is completed only when the cheque is dishonoured, a demand notice is served, and the drawer fails to pay within fifteen days. On the facts, the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 had already commenced before the expiry of the statutory period for payment under the notice. Once the interim resolution professional took over management under Section 17 of the Insolvency and Bankruptcy Code, 2016, the appellant ceased to have control over the corporate debtor's affairs and bank accounts. In that situation, the appellant could not have complied with the demand notice in the manner contemplated by Section 138.
Conclusion: Proceedings under Section 138 could not be sustained against the appellant in the peculiar facts of the case.
Issue (ii): Whether the complaint and summoning order were liable to be quashed in exercise of powers under Section 482 of the Code of Criminal Procedure, 1973.
Analysis: The facts were distinguished from the earlier precedent relied upon by the High Court because, here, the cause of action under Section 138 arose after commencement of insolvency proceedings and after the management of the corporate debtor had vested in the interim resolution professional. In these circumstances, continuation of the criminal complaint against the appellant was unwarranted, and interference was justified to prevent abuse of process.
Conclusion: The complaint and summoning order were liable to be quashed under Section 482 of the Code of Criminal Procedure, 1973.
Final Conclusion: The appeal succeeded, and the criminal proceedings against the appellant were set aside because the statutory ingredients for continuing the prosecution could not be made out after the moratorium and takeover of management by the interim resolution professional.
Ratio Decidendi: Where the moratorium under the Insolvency and Bankruptcy Code commences before the Section 138 cause of action matures, and the corporate debtor's management has vested in the interim resolution professional, prosecution based on non-payment after notice cannot be maintained against the director who no longer controls the debtor's affairs.
Dishonour of Cheque - case of the appellant is that the corporate debtor is presently facing insolvency proceedings before the National Company Law Tribunal (NCLT) and a moratorium order was issued u/s 14 of the IBC - HELD THAT:- Clause (c) of the proviso to Section 138 of NI Act makes it clear that cause of action arises only when demand notice is served and payment is not made pursuant to such demand notice within the stipulated fifteen-day period. This Court in Jugesh Sehgal v. Shamsher Singh Gogi [2009 (7) TMI 1143 - SUPREME COURT] has explained the ingredients of Section 138 of NI Act offence has held that the cause of action arises only when the amount remains unpaid even after the expiry of fifteen days from the date of receipt of the demand notice.
The bare reading of the provision shows that the appellant did not have the capacity to fulfil the demand raised by the respondent by way of the notice issued under clause (c) of the proviso to Section 138 NI Act. When the notice was issued to the appellant, he was not in charge of the corporate debtor as he was suspended from his position as the director of the corporate debtor as soon as IRP was appointed on 25.07.2018. Therefore, the powers vested with the board of directors were to be exercised by the IRP in accordance with the provisions of IBC. All the bank accounts of the corporate debtor were operating under the instructions of the IRP, hence, it was not possible for the appellant to repay the amount in light of section 17 of the IBC.
Conclusion - The High Court should have exercised its power under Section 482 of the CrPC to quash the proceedings against the appellant, as the cause of action arose after the moratorium, and the appellant was not in charge of the corporate debtor's affairs.
The impugned order dated 21.12.2021 and the summoning order dated 07.09.2018 set aside - appeal allowed.
The core legal issues considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Liability under Section 138 of the N.I. Act
Issue 2: Absence of the Partnership Firm as a Party
3. SIGNIFICANT HOLDINGS
Dishonour of Cheque - post dated cheque as an advance payment or cheque was given as security for completing the work - absence of the partnership firm as a party to the proceedings affects the liability of the accused/respondent under Section 138 of the N.I. Act - HELD THAT:- In the present case though the respondent has taken a specific plea that the other partner of Kishan Construction namely Ganesh had handed over the cheque to the complainant but in the complaint neither Ganesh has been made an accused nor any specific role has been attributed against the present respondent Kishan Bouri.
Accordingly it is apparent that the company who have committed offence under section 138 of N.I. Act, if any, has not been made a party and the respondent/partner only has been made as an accused. In Sarad Kumar Sanghi Vs. Sangita Raney [2015 (2) TMI 1117 - SUPREME COURT] the supreme Court has specifically held relying upon Aneeta Hada Vs. Godfather Travels and Tours (p) Ltd [2012 (5) TMI 83 - SUPREME COURT] that, when a company has not been arraigned as a party, no proceeding can be initiated against it, even where vicarious liability is fastened under certain statute.
In Aneeta Hada’s Case [2012 (5) TMI 83 - SUPREME COURT] the Court held that the words ‘ as well as the company’ appearing in the section make it absolutely un mistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof.
Needles to say that in terms of explanation to section 141, “company” means any body corporate and includes a firm or other association of individuals and “director” in relation to a firm means a partner of a firm and as such the present case clearly attracts the rigour of section 141 of the N.I. Act.
The question of remanding the case back to the trial court giving opportunity to the complainant to amend the complaint and to continue the proceeding after adding the partnership firm as an accused, also does not arise in the present context as the defect made in the complaint is an incurable defect, in view of the fact that no notice under section 138 of N.I. Act was served upon the partnership firm within the statutory period of 30 days.
Conclusion - The requirement under Section 141 of the N.I. Act that a company or firm must be made a party to proceedings when an offense is committed by such an entity. The absence of the firm as a party is a fatal procedural defect. The absence of the firm as a party rendered the proceedings invalid.
Application dismissed.
TaxTMI 