TaxTMI Updates e-Newsletter
Mar 23,2024

Reasonable opportunity of hearing - reverse charge liability - correction in subsequent GST returns - remand for reconsideration - appropriation pending outcome

Reasonable opportunity of hearing - reverse charge liability - correction in subsequent GST returns - Impugned order quashed on ground that the petitioner was not afforded a reasonable opportunity before the order was passed. - HELD THAT: - The Court found that proceedings arose from the petitioner's GSTR 1 for October 2019, wherein the petitioner inadvertently failed to indicate that GST was leviable on a reverse charge basis and subsequently corrected this mistake in GSTR 3B and annual GSTR 9. The petitioner stated it was unaware of the proceedings and therefore could not participate. Having regard to the absence of a reasonable opportunity and the petitioner's explanation supported by corrected returns and annexed documents, the Court concluded that the impugned order cannot stand and must be quashed to enable fresh consideration after providing the petitioner an opportunity to be heard. [Paras 2, 3, 4, 6, 7]

Impugned order quashed for failure to afford a reasonable opportunity; matter set aside for fresh consideration.

Remand for reconsideration - appropriation pending outcome - Matter remanded to the assessing authority for reconsideration with directions to afford a personal hearing and to pass a fresh order within a specified time; amounts appropriated to abide by the outcome. - HELD THAT: - The Court remitted the matter to the respondent for fresh consideration because the petitioner had not been heard and had filed corrected returns and supporting documents. The respondent is directed to provide a reasonable opportunity, including personal hearing, and to issue a fresh order within two months from receipt of the Court's order. The Court additionally clarified that sums appropriated from the petitioner's bank account pursuant to the impugned order shall remain subject to the result of the remanded proceedings. [Paras 5, 7]

Remanded for reconsideration with a direction to afford personal hearing and decide afresh within two months; appropriated amounts to abide the outcome.

Final Conclusion: Writ petition allowed by quashing the impugned order; matter remanded to the respondent for reconsideration after affording a reasonable opportunity including personal hearing and for passing a fresh order within two months; amounts appropriated pursuant to the impugned order shall abide the outcome; no order as to costs.

Input Tax Credit - refund under Section 54 of the Central Goods and Services Tax Act, 2017 - limitation period exclusion - Notification No. 13/2022 dated 05.07.2022 - adjudication by the Proper Officer

Refund under Section 54 of the Central Goods and Services Tax Act, 2017 - Input Tax Credit - Petitioner permitted to file an appropriate refund application under Section 54 claiming refund of tax paid on invoices for which the supplier also claimed Input Tax Credit. - HELD THAT: - The Court noted that the Respondent declined to consider the claim on the ground that the Petitioner had not filed the requisite refund application under Section 54. In response, Petitioner undertook to file the appropriate application within one week. Having accepted that undertaking, the Court disposed of the petition by permitting the Petitioner to file the refund application as mandated by Section 54, without expressing any view on the merits of the underlying claim. The direction is procedural and enables the statutory remedy to be invoked and adjudicated by the competent authority. [Paras 4, 6]

Petitioner allowed to file the refund application under Section 54; petition disposed accordingly.

Limitation period exclusion - Notification No. 13/2022 dated 05.07.2022 - adjudication by the Proper Officer - Period from 19.01.2024 until the date of the order excluded for the purposes of limitation; Proper Officer to consider Petitioner's entitlement under Notification No.13/2022 while entertaining the refund application. - HELD THAT: - Petitioner relied on Notification No.13/2022 (05.07.2022) which provides exclusion of the period 01.03.2020 to 28.02.2023 for computation of limitation for filing refund applications under Sections 54 and 55. The Court directed that the period between the filing of the petition (19.01.2024) and the date of the order shall be excluded for limitation purposes, and expressly recorded that the Proper Officer shall consider whether the Petitioner is covered by Notification No.13/2022 in accordance with law when adjudicating the refund application. The Court did not decide the substantive applicability of the Notification or the merits of the refund claim, leaving these questions for fresh consideration and adjudication by the Proper Officer. [Paras 5, 6, 7]

Limitation period from 19.01.2024 to date excluded; Proper Officer to consider the Notification No.13/2022 claim and adjudicate the refund application in accordance with law.

Final Conclusion: Petition disposed of by permitting the Petitioner to file the statutory refund application under Section 54; the period from 19.01.2024 until the date of the order is excluded for limitation, and the Proper Officer is directed to consider the Petitioner's claim, including coverage under Notification No.13/2022, and adjudicate the refund application on merits in accordance with law; the Court has not adjudicated the substantive merits.

GST registration cancellation - revocation of cancellation under Section 30 of the Uttarakhand Goods and Services Tax Act, 2017 - furnishing pending GST returns and deposit of outstanding tax - judicial liberty to apply for administrative revocation - consideration by the Proper Officer within a specified time-frame

GST registration cancellation - revocation of cancellation under Section 30 of the Uttarakhand Goods and Services Tax Act, 2017 - furnishing pending GST returns and deposit of outstanding tax - consideration by the Proper Officer within a specified time-frame - Petition challenging cancellation of GST registration disposed with liberty to apply for revocation and directions as to compliance and consideration. - HELD THAT: - The petitioner challenged the order dated 15.06.2023 cancelling his GST registration for failure to file periodic returns. The Court noted a coordinate-bench decision dated 28.02.2023 which had granted liberty to seek revocation under Section 30 of the Act of 2017. The State did not dispute the similarity of issues. In view of the parity, the Court granted the petitioner liberty to move an application for revocation of the cancellation order under Section 30 within two weeks, conditioned on the petitioner furnishing all outstanding GST returns and depositing all outstanding tax and dues. The Court further directed that if such an application is filed within the stipulated two-week period, the Proper Officer/Competent Authority shall consider the application in accordance with law within four weeks.

Writ petition disposed granting liberty to apply for revocation under Section 30 within two weeks on fulfilment of filing pending returns and deposit of outstanding tax, and directing the Proper Officer to consider the application within four weeks.

Final Conclusion: The writ petition was disposed of by granting the petitioner liberty to seek revocation of the GST registration cancellation under Section 30 of the Uttarakhand GST Act, 2017 within two weeks subject to filing pending returns and depositing outstanding tax; the competent officer was directed to consider any such application within four weeks.

Res judicata - issue estoppel - withdrawal of petition without liberty - public policy against bench hunting - binding nature of court's recording of withdrawal

Res judicata - issue estoppel - withdrawal of petition without liberty - Whether the present writ petition seeking reversal of input tax credit and refund is maintainable in view of an earlier writ petition which was unconditionally withdrawn and in which no liberty to refile was granted. - HELD THAT: - The Court recorded that in WP (C) 10647/2021 the petitioner had unconditionally withdrawn the earlier writ petition and the order explicitly stated that no liberty was granted. The petitioner's present prayers are identical to the prayers withdrawn earlier for declaration and refund of reversed input tax credit. The Court held that an unconditional withdrawal, when recorded by the Court and with liberty specifically declined, precludes the petitioner from seeking the same relief again. The Court rejected the petitioner's attempt to distinguish the earlier withdrawal on the ground that it would not press for refund until completion of investigation, observing that such a qualification would have been relevant only if the investigation had exonerated the petitioner. The Court relied on the public policy underlying the doctrine preventing bench hunting and the established principles in the cited authorities to conclude that the present petition is barred by issue estoppel/res judicata. The Court also noted that the investigation has found the petitioner culpable and a show cause notice has been issued, which is pending adjudication, reinforcing that the present petition cannot be maintained in the circumstances. [Paras 5, 8, 15, 16]

Petition dismissed as not maintainable being barred by issue estoppel/res judicata consequent to the earlier unconditional withdrawal where no liberty to refile was granted.

Final Conclusion: The writ petition seeking declaration and refund of reversed input tax credit is dismissed as barred by the petitioner's earlier unconditional withdrawal of an identical petition in which liberty to refile was specifically denied; no fresh adjudication on the merits was permitted.

Speaking order - opportunity of personal hearing - re-adjudication - duty to consider reply on merits - remand for fresh consideration - ex-parte demand - requirement to seek specific details when reply is unsatisfactory - pass a fresh speaking order within the period prescribed under Section 75(3) of the Act

Duty to consider reply on merits - ex-parte demand - remand for fresh consideration - Validity of impugned order which recorded the taxpayer's reply as 'not satisfactory' without considering the detailed reply on merits and proceeded to create an ex-parte demand. - HELD THAT: - The Court found that the Proper Officer had merely recorded that the taxpayer's detailed reply was 'not found to be satisfactory' without demonstrating any application of mind to the contents of that reply. Where a detailed reply was filed, the Proper Officer was obliged to consider it on merits and only thereafter form an opinion about its sufficiency. In the absence of any specific shortcomings identified in the order or any requirement to the taxpayer to furnish further particulars before creating an ex parte demand, the impugned order is cryptic and unsustainable. For these reasons the Court set aside the impugned order and remitted the matter for fresh adjudication by the Proper Officer. [Paras 5, 6, 7]

Impugned order dated 29.12.2023 set aside; matter remitted to the Proper Officer for re-adjudication.

Requirement to seek specific details when reply is unsatisfactory - opportunity of personal hearing - speaking order - pass a fresh speaking order within the period prescribed under Section 75(3) of the Act - Procedural obligations to be followed on remand including intimating required details, affording personal hearing and passing a fresh speaking order within the statutory timeframe. - HELD THAT: - The Court directed that if the Proper Officer considers the taxpayer's reply to be inadequate, the officer must specifically intimate what additional details or documents are required and afford the taxpayer an opportunity to furnish them. Following such intimation and receipt of explanations/documents, the Proper Officer must re-adjudicate the show cause notice after giving an opportunity of personal hearing and pass a fresh speaking order in accordance with law. The fresh adjudication is to be completed within the period prescribed under Section 75(3) of the Act. The Court expressly refrained from commenting on the merits of the case. [Paras 8, 9]

Proper Officer to intimate required details, receive explanations/documents, afford personal hearing and pass a fresh speaking order within the period under Section 75(3); merits left open.

Final Conclusion: The impugned order is set aside and the matter is remitted for re-adjudication; the Proper Officer must intimate any specific deficiencies, permit the taxpayer to respond, afford a personal hearing and pass a fresh speaking order within the period prescribed under Section 75(3) of the Act; the Court has not decided the merits and has left challenge to Notification No. 9 of 2023 open.

Section 28 of the CGST Act - Amendment of registration - Amendment of registration - Right to opportunity of being heard - Requirement of reasons in quasi judicial orders - Suspension and cancellation of GST registration - Blocking of Input Tax Credit - Interim adjudication pending outcome of amendment application

Section 28 of the CGST Act - Amendment of registration - Right to opportunity of being heard - Requirement of reasons in quasi judicial orders - Validity of the order dated 3 November, 2023 rejecting the petitioner's application for amendment of registration. - HELD THAT: - The Court held that sub section (2) of Section 28 read with its second proviso entitles a person seeking amendment of registration to an opportunity of being heard before any rejection. The impugned order was passed without granting such opportunity and without assigning any reasons; absence of reasons in a quasi judicial order demonstrates failure to apply mind and renders the order arbitrary. For these twin defects - denial of hearing and lack of reasons - the rejection could not be sustained. The Court therefore quashed the impugned order and directed the concerned officer to decide the amendment application afresh after hearing the petitioner and in accordance with law within two weeks of supply of the order copy to the officer. [Paras 10, 11, 12]

Impugned order dated 3 November, 2023 quashed; respondent no. 3 to hear the petitioner and pass a fresh order in accordance with law within two weeks.

Suspension and cancellation of GST registration - Blocking of Input Tax Credit - Interim adjudication pending outcome of amendment application - Consequences of the show cause notice dated 20 December, 2023 (suspension of registration, show cause for cancellation, and system generated blocking of ITC) in light of the pending amendment application. - HELD THAT: - The Court observed that the grounds for suspension and blocking of ITC were founded on the same issue of place of business which was the subject of the amendment application. Given that the rejection of that amendment application has been set aside and must be re decided after hearing, the Court held that further action on suspension/cancellation/blocking should await the outcome of the fresh decision on the amendment application. The petitioner was permitted to file a reply to the show cause notice and respondent no. 3 was directed to consider that reply and the order on the amendment application before taking any consequential action. All contentions were kept open and the petitioner granted liberty to challenge any adverse orders as may be permissible in law. [Paras 18, 19, 20, 21]

Petitioner permitted to file reply; respondent no. 3 to decide the amendment application and thereafter consider the show cause/relevant measures; contentions kept open and liberty granted to challenge adverse orders.

Final Conclusion: The rejection order of 3 November 2023 is quashed for denial of hearing and absence of reasons and the officer is directed to decide the amendment application afresh after hearing within two weeks; consequential measures including suspension, cancellation proceedings and blocking of ITC are to be considered only after that decision, petitioner allowed to respond to the show cause notice and all contentions are kept open.

Imposition of GST on royalty - challenge to show cause notice/assessment order - followance of earlier Division Bench precedents

Imposition of GST on royalty - challenge to show cause notice/assessment order - Validity of show cause notice/assessment orders raising demand of GST on royalty paid to the Mining Department under the mining lease - HELD THAT: - The petition challenged the assessment notices and demands of GST levied on royalty payable to the Mining Department. Learned counsel for the petitioner conceded that identical controversy has been previously considered by this Court in Shree Basant Bhandar Int Udyog v. Union of India and in Sudershan Lal Gupta v. Union of India, the Division Bench having held that the respondents' action in imposing GST on royalty is not liable to be interfered with. Applying those precedents, the Court declined to entertain the challenge and dismissed the writ petition. The stay application was also dismissed. [Paras 4, 5]

Writ petition dismissed and stay petition dismissed, in view of earlier orders holding that imposition of GST on royalty is not liable to be interfered with.

Final Conclusion: The writ petition challenging demand of GST on royalty paid under the mining lease is dismissed and the interim stay is refused, following the Division Bench precedents which upheld the impugned imposition of GST on royalty.

Privilege of bail - Grant of bail on furnishing bail bond and sureties - Cooperation with trial as condition of bail - Custody period as factor in grant of bail - Allegations of fraud and forgery not determinative for bail

Privilege of bail - Grant of bail on furnishing bail bond and sureties - Cooperation with trial as condition of bail - Custody period as factor in grant of bail - Petitioner admitted to regular bail in Chutia P.S. Case No.125 of 2018 (G.R. No. 3390 of 2018) on specified conditions. - HELD THAT: - The Court, after hearing counsel and noting the allegations against the petitioner relating to alleged GST registration obtained by forged documents and alleged evasion, observed that the petitioner has been in custody since 29.08.2023 and has undertaken to cooperate with trial. The prosecution opposed bail, but the Court was inclined to enlarge the petitioner on bail. The grant is conditional: furnishing a bail bond and two sureties of the specified amount to the satisfaction of the trial magistrate, and cooperation with the trial. The order does not decide the merits of the allegations of fraud or forgery, which remain for trial. [Paras 5]

Petitioner released on bail on furnishing a bail bond of Rs. 25,000 with two like sureties to the satisfaction of learned J.M.F.C. VIII, Ranchi, and subject to cooperating with the trial.

Final Conclusion: Bail granted to the petitioner in the stated criminal case subject to furnishing the specified bond and sureties and the condition of cooperation with the trial; allegations of fraud remain to be adjudicated at trial.

Claim of long-term capital gains exemption under Section 10(38) - right to rectify omission / file revised return to claim exemption - principles of natural justice - right to cross-examine adverse witnesses - inadmissibility of survey-obtained admissions - reliance on statements of third-party entry providers for additions under Sections 68 and 69 - Delay filling SLP

High Court [2023 (2) TMI 392 - ORISSA HIGH COURT] dismissed the Revenue's appeals, holding that the ITAT correctly affirmed the CIT(A)'s findings on the assessee's entitlement to the Section 10(38) exemption and on the invalidity of additions founded on untested statements of third parties; no substantial question of law arose requiring interference.

HELD THAT:- Application seeking condonation of delay is dismissed.

Consequently, the special leave petition is also dismissed, keeping open the question of law, if any.

Depreciation u/s 32(1)(ii) in respect of intangible assets - Goodwill - Acquisition of business -net assets taken over and the particulars of liability, loans etc - Only contention which has been raised by revenue is that the assessee has not disclosed the particulars of intangible assets, which have been acquired by it and therefore, it is not entitled for the benefit of depreciation under Section 32(1) - as decided by HC [2020 (12) TMI 672 - KARNATAKA HIGH COURT] perusal of the order passed by the Assessing Officer itself it is axiomatic that he has found that the goodwill has been calculated and has been allotted to intangibles - HELD THAT:- We are not inclined to interfere with the impugned judgment and order passed by the High Court. Hence, the Special Leave Petition is dismissed.

Reassessment under Section 148 - Reasons for belief / recording reasons - Supply of reasons to assessee must correspond with reasons on record - Client Code Modification (CCM) as tool for tax evasion - Information received from Investigation Directorate as basis for action - Minor linguistic variations do not vitiate jurisdiction to initiate reassessment

Reassessment under Section 148 - Reasons for belief / recording reasons - Supply of reasons to assessee must correspond with reasons on record - Information received from Investigation Directorate as basis for action - Minor linguistic variations do not vitiate jurisdiction to initiate reassessment - Validity of the notice issued under Section 148 and whether the reasons supplied to the petitioner materially differed from the reasons on the respondent's record so as to vitiate the reassessment. - HELD THAT: - The court found that the initiation of reassessment was triggered by information received by the Assessing Officer from the Ahmedabad Investigation Directorate indicating prima facie misuse of Client Code Modification (CCM) and quantifying shifts in profits and losses for F.Y. 2008-09. The reasons supplied to the petitioner and the proforma maintained on the respondent's record referred to the same foundational material and conclusions drawn from the Directorate's report. Minor discrepancies in language between the version provided to the assessee and the proforma on file did not amount to two distinct sets of reasons; such linguistic variation was held immaterial and insufficient to invalidate the Section 148 proceedings. The court distinguished earlier decisions relied upon by the petitioner on the ground that those cases involved substantial differences in the reasons or failure to disclose the core allegation that income had escaped assessment. The court therefore declined to interfere with the impugned notices, while keeping open the petitioner's substantive defenses in the assessment proceedings. [Paras 9, 10, 11, 12, 15]

The challenge to the Section 148 notice and related orders was rejected; minor variations in wording did not vitiate the reassessment proceedings.

Final Conclusion: Writ petition dismissed; the Section 148 notice dated 31 March 2016, the order dated 25 July 2016 and the notices under Sections 143(2) and 142(1) are not set aside; petitioner's merits contentions are left open for the assessment proceedings.

Substantial question of law - appeal under Section 260A of the Income Tax Act, 1961 - concurrent findings of fact - perversity in findings - final fact-finding authority of the Tribunal - taxation under Section 115BBE of the Income Tax Act, 1961 - undisclosed income falling under Section 69A - search and seizure under Section 132

Substantial question of law - appeal under Section 260A of the Income Tax Act, 1961 - concurrent findings of fact - perversity in findings - final fact-finding authority of the Tribunal - taxation under Section 115BBE of the Income Tax Act, 1961 - undisclosed income falling under Section 69A - Whether the appeal involves any substantial question of law warranting admission under Section 260A of the Income Tax Act, 1961. - HELD THAT: - The High Court applied the statutory test under Section 260A and relevant precedents to determine whether any debatable legal question of general public importance or one that directly and substantially affects the parties arises from the Tribunal's order. The court observed that the matters raised by the Revenue were essentially disputes as to findings of fact - namely, the characterisation and taxation of surrendered undisclosed receipts - and that the Tribunal, as final fact-finding authority, had given a reasoned and speaking order accepting the assessee's explanation. Relying on authorities explaining that only findings of fact infected by perversity or based on no evidence give rise to a substantial question of law, the court found no such perversity or legal error in the Tribunal's conclusions and held that the issues were factual in character and not suitable for admission under Section 260A. Consequently, the court declined to entertain the appeal. [Paras 18, 19, 20]

No substantial question of law arises from the Tribunal's order; the appeal is dismissed in limine.

Final Conclusion: The appeal is dismissed in limine for want of any substantial question of law warranting admission under Section 260A of the Income Tax Act, 1961.

Computation of full value of consideration for capital gains - Effect of escrow/contingent liability on taxable capital gains - Revisional jurisdiction under Section 264 - Intimation under Section 143(1) amenable to revision

Revisional jurisdiction under Section 264 - Intimation under Section 143(1) amenable to revision - Whether an intimation passed under Section 143(1) of the Income Tax Act, 1961 is amenable to revision under Section 264 of the Act. - HELD THAT: - The Court held that the intimation under Section 143(1) is amenable to revisional jurisdiction under Section 264. Relying on the precedent in Diwaker Tripathi v. Principal Commissioner of Income Tax - 17 & Ors., the Court found the respondent's rejection of the Section 264 application on the sole ground that a Section 143(1) intimation is not an order revisable under Section 264 to be unsustainable. Consequently, the impugned order dated 23rd March 2016, insofar as it rejected the Section 264 application for that reason, was quashed and set aside.

Intimation under Section 143(1) is amenable to revision under Section 264; the impugned order rejecting the Section 264 application on this ground is quashed.

Computation of full value of consideration for capital gains - Effect of escrow/contingent liability on taxable capital gains - Whether the proportionate amount withdrawn from the escrow account on account of liabilities should be reduced from the full value of consideration in computing long-term capital gains. - HELD THAT: - The Court adopted the reasoning in the companion judgment (Writ Petition No. 2475 of 2015) that the full value of consideration for calculating capital gains must reflect the amount actually received by the promoters after adjustments for liabilities provided for in the SPA. The escrow deduction was neither received nor accrued to the promoters because it was withdrawn to meet liabilities contemplated by the SPA; therefore it cannot be treated as part of the full value of consideration. The respondent's view that only cost of acquisition, improvement or transfer can be deducted was held to be erroneous, and reliance on the proviso to Section 240 to deny relief was rejected. In consequence, the Court directed that capital gains be computed after reducing the proportionate amount withdrawn from the escrow account and that any excess tax paid be refunded with interest, subject to legally permissible adjustments by Revenue. The matter was remanded to Respondent No. 1 to pass a fresh order implementing this computation after giving personal hearing to the petitioner and within the time limits specified by the Court.

Capital gains to be computed after reducing the proportionate escrow amount withdrawn to meet liabilities; excess tax to be refunded with interest. Matter remanded for fresh order implementing this direction with specified timelines and opportunity for personal hearing.

Final Conclusion: The impugned order dated 23rd March 2016 is quashed. The matter is remitted to Respondent No. 1 to recompute capital gains by reducing the proportionate amount withdrawn from the escrow account, to allow refund of any excess tax with interest (subject to lawful adjustments), and to pass the fresh order after personal hearing within the timelines directed; no order as to costs.

Treatment of notional sales tax as revenue receipt - disallowance under Section 14A - allocation of guarantee commission - imputation of interest on interest-free loans - computation of depreciation by reference to opening WDV - valuation for deduction under Section 80IA

Treatment of notional sales tax as revenue receipt - No substantial question of law arises in respect of the deletion of the addition on account of notional sales tax treated as revenue receipt. - HELD THAT: - The Court held that the issue is covered by precedent, including the Apex Court's decision in Commissioner of Income Tax-I v. Gujarat Alkalies & Chemicals Ltd. and earlier decisions of this Court and the Tribunal in the assessee's own matters. On that basis the proposed substantial question of law challenging the ITAT's deletion of the addition does not arise for consideration. [Paras 2]

The proposed question is answered against the Revenue; no substantial question of law arises (para 2).

Disallowance under Section 14A - The Tribunal's restriction of expenses under Section 14A is sustainable because the Assessing Officer did not record reasons to justify a larger disallowance. - HELD THAT: - The Court noted that the AO failed to articulate reasons for rejecting the assessee's own computation of disallowance. In the absence of such reasons, the Tribunal's decision to restrict the disallowance was not open to being faulted and therefore the AO's higher disallowance could not be sustained on the material before the authorities. [Paras 3]

The Tribunal's restriction of the Section 14A disallowance is upheld (para 3).

Allocation of guarantee commission - The Tribunal's restriction of the guarantee commission is sustainable because the Transfer Pricing Officer did not give reasons for the higher rate. - HELD THAT: - The Court observed that the TPO did not explain why the higher rate was appropriate; lacking such reasoning, the ITAT's finding limiting the guarantee commission cannot be faulted. Consequently, no error was found in the Tribunal's determination. [Paras 4]

The Tribunal's restriction of the guarantee commission is upheld (para 4).

Imputation of interest on interest-free loans - The question whether interest referable to interest-free loans and advances should be restricted to LIBOR + 1.50% (rather than the rate applied by the AO) is admitted for hearing. - HELD THAT: - Counsel for the parties agreed that this question merits admission. The Court accordingly admitted the appeal on this specific legal question and listed the appeal for further hearing so that the contested legal issue may be finally adjudicated. [Paras 5, 8]

The appeal is admitted on the question of the appropriate imputed interest rate for interest-free loans and advances; the matter is listed for hearing (paras 5, 8).

Computation of depreciation by reference to opening WDV - No substantial question of law arises in respect of the challenge to the Tribunal/CIT(A) allowing depreciation based on opening WDV; the matter is consequential to prior years' final determinations. - HELD THAT: - The Court found that the Revenue's ground did not arise from the CIT(A)'s order for the year under appeal and that the contention was consequential on earlier years' decisions. Since the opening WDV must follow the closing WDV as finally determined for earlier years, and the challenge merely sought reduction on the basis of positions taken in earlier assessments, no question of law arises for this year. [Paras 6]

The proposed question does not arise as a substantial question of law; it is consequential to earlier years (para 6).

Valuation for deduction under Section 80IA - No substantial question of law arises in respect of the rate to be adopted for valuing electricity supplied by a captive power unit for deduction under Section 80IA, the matter being covered by earlier decisions favouring the assessee. - HELD THAT: - The Court relied on its earlier orders and appellate authority which held that valuation should reflect the rate at which electricity would be supplied to consumers (and not the purchase rate by suppliers), and noted that higher judicial authority had approved the Tribunal's approach in the assessee's prior matters. In view of these precedents and the absence of any change in law affecting the position, the Revenue's contention did not raise a substantial question of law. [Paras 7]

The Tribunal's approach to valuation for Section 80IA purposes is supported by precedent; no substantial question of law arises (para 7).

Final Conclusion: The Court held that questions (a), (b), (c), (e) and (f) do not raise substantial questions of law and are not admitted; the appeal is admitted only on the question whether imputed interest on interest-free loans should be limited to LIBOR + 1.50% (question (d)), which is listed for full hearing.

Undisclosed cash credit under Section 68 - identity, creditworthiness and genuineness of share applicants - appreciation of factual findings by the Commissioner (Appeals) and the Tribunal - appellate interference on findings of fact versus substantial question of law

Undisclosed cash credit under Section 68 - identity, creditworthiness and genuineness of share applicants - appreciation of factual findings by the Commissioner (Appeals) and the Tribunal - Whether the Tribunal and the Commissioner (Appeals) were justified in deleting additions made under Section 68 in assessment year 2012-13 by finding that the identity, creditworthiness and genuineness of the share applicants were established. - HELD THAT: - The Court examined the concurrent factual findings of the Commissioner (Appeals) and the Tribunal. The CIT(A) undertook an elaborate factual inquiry into the transactions involving two investor companies and noted that for one investor (M/s. Honesty Dealers Pvt. Ltd.) the share capital received in an earlier year (assessment year 2009-10) had been added back in that company's hands, and that there was a clear link between the raising of that capital and its investment in the assessee. The CIT(A) and the Tribunal further examined records relating to the other investor (M/s. Seaview Agencies Pvt. Ltd.), including investigation wing inputs and earlier assessments, and concluded that there was nothing on record to negative the genuineness of the share capital raised in the relevant earlier year. On re appreciation the Tribunal affirmed the CIT(A)'s factual conclusion that the three ingredients required under Section 68 - identity of the investors, their creditworthiness, and the genuineness of the transactions - were established. The Tribunal also relied on precedent and the assessee's turnover and declared income facts in concluding that there was no infirmity in the factual findings. The High Court found these concurrent factual findings unimpeached on any substantial question of law and therefore not amenable to interference. [Paras 6, 9, 11, 12, 13]

The Tribunal's and CIT(A)'s deletion of additions under Section 68 was upheld on the facts; no substantial question of law arises and the revenue's appeal is dismissed.

Final Conclusion: Delay in filing the appeal was condoned; on merits the High Court found no substantial question of law in respect of the Tribunal's factual conclusion that identity, creditworthiness and genuineness under Section 68 were established for AY 2012-13, dismissed the revenue's appeal and also dismissed the stay application.

Reopening of assessment under Section 147 of the Income Tax Act, 1961 - reason to believe - approval of competent authority for reopening - disposal of objections prior to reassessment - principles of natural justice - substantial question of law

Reopening of assessment under Section 147 of the Income Tax Act, 1961 - disposal of objections prior to reassessment - approval of competent authority for reopening - principles of natural justice - Validity of the Tribunal's quashing of the reassessment proceedings and consequential deletions on the ground that the Assessing Officer had not disposed of the objections prior to reopening. - HELD THAT: - The Tribunal recorded that the objections submitted by the assessee against initiation of reassessment were not disposed of by the Assessing Officer before proceeding under Section 147. The High Court, after hearing counsel and perusing the record, agreed with the Tribunal's factual finding and note of the law on the subject. The Court held that the question was essentially factual - whether objections were disposed of - and that the Tribunal had rightly considered that omission in quashing the reopening and deleting consequential additions. Given the factual character of the matter and the Tribunal's application of the law to those facts, no substantial question of law arose warranting interference by this Court.

The Tribunal's order quashing the reopening and deleting resulting additions is upheld; the revenue's appeal is dismissed.

Final Conclusion: The revenue appeal under Section 260A is dismissed; the High Court finds no substantial question of law for consideration and declines to interfere with the Tribunal's factual conclusion that the Assessing Officer had not disposed of the objections prior to reopening. The stay application is also dismissed.

Direct Tax Vivad Se Vishwas Act, 2020 - Section 7 Explanation (no interest on excess amount) - Interest under Section 244-A of the Income-tax Act, 1961 - Set off of refunds against tax remaining payable under Section 245 of the Income-tax Act, 1961 - Form-3, Form-4 and Form-5 under the DTVSV Act and Rules - Definition of "disputed tax" and "tax arrear" under DTVSV Act, 2020

Direct Tax Vivad Se Vishwas Act, 2020 - Section 7 Explanation (no interest on excess amount) - Interest under Section 244-A of the Income-tax Act, 1961 - Validity of Designated Authority's refusal to grant interest under Section 244-A on amounts quantified in Form-3 for Assessment Years 1999-2000 to 2002-2003. - HELD THAT: - The Court held that Section 7 of the DTVSV Act, 2020 is a complete code: while a declarant who had paid any amount under the Income-tax Act in respect of his tax arrear exceeding the amount payable under Section 3 is entitled to refund of such excess amount, the Explanation to Section 7 expressly disclaims entitlement to interest under Section 244-A on such excess. Consequently, where a case is settled under the DTVSV Act no interest under Section 244-A is available to the declarant on excess amounts recovered or refunded under that scheme. The Designated Authority's omission to grant interest in Form-3 is in accordance with the Explanation to Section 7 and therefore valid. [Paras 36, 38, 42, 44]

Designated Authority correctly declined to order interest under Section 244-A for amounts settled under the DTVSV Act; the petitioner is not entitled to such interest for the relevant assessment years as per the Explanation to Section 7.

Set off of refunds against tax remaining payable under Section 245 of the Income-tax Act, 1961 - Form-3, Form-5 under the DTVSV Act and Rules - Whether adjustments/appropriations of refunds due for Assessment Years 2004-2005 and 2005-2006 towards tax liabilities for Assessment Years 1999-2000 and 2000-2001 are to be treated as payments under the DTVSV Act and whether excesses are refundable with interest. - HELD THAT: - The Court treated the amounts adjusted and appropriated from refunds due for AY 2004-05 and AY 2005-06 as amounts paid by the petitioner for AY 1999-2000 and AY 2000-2001 under the DTVSV Act. Consequently the Designated Authority (or successor authority) was directed to issue Form-5 and close the pending DTVSV cases for AY 1999-2000 and AY 2000-2001. The Income Tax Department was directed to process the excess amounts quantified as refundable in the Section 154 orders dated 29.01.2021 for AY 1999-2000 and AY 2000-2001 together with interest under Section 244-A, but such processing of interest is to be done in relation to the refunds for AY 2004-2005 and AY 2005-2006 (i.e., excess after adjustment) and is subject to the limits imposed by Section 7 of the DTVSV Act (notably that no declaration was filed for AY 2004-05 and AY 2005-06). The Court confined this relief to the specific circumstances where offsets from later-year refunds operated as payment for earlier assessment years. [Paras 41, 43, 45]

Offsets from refunds for AY 2004-05 and AY 2005-06 shall be treated as payments under the DTVSV Act for AY 1999-2000 and AY 2000-2001; Form-5 shall be issued and excess refunds quantified in the Section 154 orders shall be processed with interest relating to AY 2004-05 and AY 2005-06, subject to Section 7.

Definition of "disputed tax" and "tax arrear" under DTVSV Act, 2020 - Amount payable under Table to Section 3 of DTVSV Act, 2020 - Correctness of the amounts quantified by the Designated Authority in Form-3 for Assessment Years 2001-2002 and 2002-2003 and the petitioner's entitlement to interest for those years. - HELD THAT: - Because the petitioner had pending appeals and the dispute related to taxability issues, the amount payable under the DTVSV Act was to be computed as the disputed tax (excluding penalty and interest) in accordance with the Table to Section 3 and the definitions in Section 2. The Court found that the amounts determined by the Designated Authority in Form-3 for AY 2001-02 and AY 2002-03 were correct. Further, by application of the Explanation to Section 7, the petitioner is not entitled to interest under Section 244-A for these two assessment years when settled under the DTVSV Act. [Paras 33, 34, 44]

Amounts in Form-3 for AY 2001-2002 and AY 2002-2003 are correct; petitioner not entitled to interest under Section 244-A for these years under the Explanation to Section 7.

Form-5 issuance and closure of DTVSV proceedings - Administration of refunds and timelines - Administrative directions to finalize DTVSV proceedings and processing of refunds/interest and timelines for completion. - HELD THAT: - The Court directed the Designated Authority or its successor to issue Form-5 and close the pending DTVSV cases for AY 1999-2000, 2000-2001, 2001-2002, 2002-2003 and for AY 2003-04 to 2006-07 (in view of amounts paid pursuant to earlier court order). The Income Tax Department was directed to process the refunds and interest specified (as qualified elsewhere in the order) within three months from receipt of the judgment. The Court recorded that the petitioner had paid sums for AY 2003-04 to 2006-07 and directed closure of those cases as well. No costs were awarded. [Paras 45]

Designated Authority to issue Form-5 and close the pending cases for the specified assessment years; refunds and applicable interest to be processed within three months; connected petitions closed.

Final Conclusion: Writ petitions disposed: Form-3 determinations for AY 2001-02 and AY 2002-03 upheld and no interest under Section 244-A allowed by reason of the Explanation to Section 7 of the DTVSV Act, 2020; adjustments from refunds of AY 2004-05 and AY 2005-06 treated as payments under the DTVSV Act for AY 1999-2000 and AY 2000-2001, with Form-5 to be issued and excess refunds (and interest relating to the later-year refunds) to be processed subject to Section 7; administrative closure and timelines directed; no costs.

Disallowance of bogus purchases - proof of genuineness of purchases - reassessment under section 147 - rule of consistency - reasonable quantum of addition

Disallowance of bogus purchases - proof of genuineness of purchases - reasonable quantum of addition - rule of consistency - Quantum of disallowance in respect of alleged bogus purchases from entities controlled by the same group - HELD THAT: - The Assessing Officer disallowed 100% of purchases after holding that the assessee failed to prove genuineness of the purchases from suppliers allegedly supplying accommodation entries. The CIT(A) reduced the addition to 12.5% following a High Court decision. The Tribunal found on the record that the assessee could not satisfactorily establish genuineness of the purchases, but the Revenue did not dispute that sales of diamonds actually occurred, making it likely that diamonds were sourced elsewhere and bills from the accused group were accommodation entries. The Tribunal accepted that a reasonable partial disallowance would guard against revenue leakage. Having regard to the assessee's own earlier assessment orders where the AO had consistently made additions at 5% of non-genuine purchases for other years and those orders remained unaltered, the Tribunal applied the rule of consistency in the peculiar facts of the case and restricted the disallowance to 5% of the disputed purchases for the years under appeal. [Paras 5, 6, 9]

Disallowance in respect of disputed purchases restricted to 5% for A.Y. 2007-08, 2009-10 and 2012-13.

Reassessment under section 147 - dismissal as not pressed - Challenge to the initiation of reassessment proceedings under section 147 - HELD THAT: - The assessee raised a ground challenging invocation of proceedings under section 147 but did not argue this ground before the Tribunal. The Tribunal recorded that the ground was not pressed and therefore declined to entertain it. [Paras 7, 9]

Ground challenging initiation of proceedings under section 147 dismissed as not pressed.

Final Conclusion: All appeals partly allowed: additions for alleged bogus purchases reduced to 5% of disputed purchases for the assessment years in question; the challenge to initiation of reassessment proceedings under section 147 was dismissed as not pressed.

Penalty under section 271(1)(c) - Estimated additions - Genuineness of purchases - Deletion of penalty levied on estimated additions - Application of coordinate-bench precedent

Penalty under section 271(1)(c) - Estimated additions - Genuineness of purchases - Application of coordinate-bench precedent - Whether the penalty imposed under section 271(1)(c) for furnishing inaccurate particulars of income is sustainable when it is levied solely on estimated additions made in respect of alleged bogus purchases. - HELD THAT: - The Assessing Officer, in the assessment for AY 2011-12, made an estimated addition (12.5% of total purchases) in respect of purchases whose genuineness was doubted and separately levied penalty under section 271(1)(c). The learned CIT(A) deleted the penalty by following a coordinate-bench ITAT decision which held that penalty cannot be sustained where it is levied only on estimated additions, particularly when sales against such purchases were not disputed. The Tribunal noted that several authorities have held that where sales are not contested, disallowing entire alleged purchases is inappropriate and only the gross profit on such purchases may be liable to be disallowed; in that view, imposing penalty on an estimated addition is not warranted. As the learned CIT(A)'s conclusion was founded on the coordinate-bench precedent and relevant authorities, the Tribunal found no infirmity in deleting the penalty and upheld the CIT(A)'s order. [Paras 4, 5, 6]

The deletion of the penalty under section 271(1)(c) levied on the estimated addition is upheld; the Revenue's grounds are dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s deletion of the penalty imposed under section 271(1)(c) insofar as it was levied on estimated additions for AY 2011-12.

Revision under section 263 of the Income tax Act - Erroneous and prejudicial to the interests of revenue - Verification of books and balance sheet during scrutiny assessment - Acceptance of revised balance sheet during assessment proceedings - Assessment framed under section 143(3) of the Income tax Act

Revision under section 263 of the Income tax Act - Erroneous and prejudicial to the interests of revenue - Verification of books and balance sheet during scrutiny assessment - Acceptance of revised balance sheet during assessment proceedings - Validity of revision order under section 263 impugning the assessment on the ground that the AO failed to verify increase in proprietor's capital - HELD THAT: - The Tribunal found on the material on record that the assessing officer had received, examined and accepted a revised/corrected balance sheet and supporting computations during the course of scrutiny proceedings and that the assessee had furnished the necessary details and explanations for the apparent increase in capital. The Principal Commissioner relied upon figures from the original balance sheet which, however, the AO had not acted upon because he had accepted the rectified statements filed by the assessee and had framed assessment after examining the corrected papers. In these circumstances the order of assessment could not be characterised as either erroneous or prejudicial to the interests of revenue for want of verification. The PCIT's revision proceeded on the basis of a selective reading of the original balance sheet without taking into account that the AO had carried out enquiry on the corrected documents; accordingly there was no jurisdictional error justifying exercise of power under section 263. [Paras 6, 7]

Revision order passed by the PCIT under section 263 quashed and the assessment upheld as not erroneous or prejudicial to the revenue.

Final Conclusion: The appeal is allowed: the revision under section 263 was unsustainable because the AO had examined and accepted the corrected balance sheet and related details during scrutiny, and therefore the assessment order was neither erroneous nor prejudicial to the revenue; the PCIT's order is quashed.

Deduction of expenses wholly and exclusively in connection with transfer of capital asset under section 48(1) - treatment of expenses crystallized after the transfer but related to a slump sale - slump sale - computation of net worth of undertaking under Explanation 2 to section 50B

Deduction of expenses wholly and exclusively in connection with transfer of capital asset under section 48(1) - treatment of expenses crystallized after the transfer but related to a slump sale - Deductibility of differential upfront lease rental (and related payments) paid to TIDCO as expenditure in computing capital gains on slump sale for AY 2016-17. - HELD THAT: - The Tribunal accepted the assessee's case that the differential upfront lease rental and related payments were incurred to complete the transfer effected by the scheme of arrangement whose appointed date was 31.03.2016 and which transferred leasehold rights as part of the port undertaking. Section 48(i) permits deduction of expenditure incurred wholly and exclusively in connection with transfer of capital assets. The Tribunal held that where an amount is essential to effect the transfer - even if crystallized and paid after the return was filed - it is connected with the transfer and admissible in computing capital gains arising on the slump sale. The Revenue's contention that the liability should be treated as belonging to the undertaking in computing net worth (Explanation 2 to section 50B) was examined and the Tribunal found the assessee's evidence and scheme provisions sufficient to establish that the expenses related to and were necessary for the transfer; accordingly the CIT(A)'s allowance was upheld. [Paras 6, 11, 12, 13, 15]

The differential upfront lease rental and related payments are allowable as deduction in computing capital gains under section 48(1) for the slump sale; the CIT(A)'s decision in favour of the assessee is upheld.

Deduction of expenses wholly and exclusively in connection with transfer of capital asset under section 48(1) - Deductibility of stamp duty and registration charges paid in relation to the transfer. - HELD THAT: - Following the conclusion that the lease rental and related expenses are deductible as transfer-related expenditure, the Tribunal held that stamp duty and registration charges, being part of the costs incurred to complete the transfer, are likewise admissible. Although the CIT(A) had declined the claim on procedural grounds relating to admission of additional evidence, the Tribunal found the facts and crystallization of the amounts to be on record and not disputed, and therefore directed the AO to allow the stamp duty and registration charges after due verification. [Paras 16, 17]

Stamp duty and registration charges are allowable for computation of capital gains; AO directed to allow them after verification.

Computation of net worth of undertaking under Explanation 2 to section 50B - Whether the differential lease rental liability should increase the net worth of the undertaking for computing capital gains under Explanation 2 to section 50B. - HELD THAT: - The Revenue contended that the differential lease rental should enhance the net worth of the undertaking for purposes of Explanation 2 to section 50B. The Tribunal examined this contention in light of the assessee's assertion that the liability crystallized pursuant to the scheme of arrangement and was necessary to effect the transfer. The Tribunal found the Revenue's objection not sustainable on the facts and upheld the CIT(A)'s approach of allowing the expenditure as related to the transfer rather than treating it as an addition to net worth. [Paras 8, 12]

The contention that the liability must be added to the net worth under Explanation 2 to section 50B is not accepted; the expenditure is to be treated as related to the transfer and allowed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection: differential upfront lease rental, and attendant stamp duty and registration charges incurred in relation to the slump sale are deductible in computing capital gains for AY 2016-17; the AO is directed to allow the stamp duty and registration charges after verification.

Transfer pricing adjustment - Most Appropriate Method (MAM) - Comparable Uncontrolled Price (CUP) method - Transactional Net Margin Method (TNMM) - Profit Level Indicator (OP/Sales) - Comparability analysis and selection/exclusion of comparables

Comparability analysis and selection/exclusion of comparables - Profit Level Indicator (OP/Sales) - Exclusion of Golden Chemicals Pvt. Ltd. from the comparability set - HELD THAT: - Golden Chemicals Pvt. Ltd. was included by the authorities as a comparable with a reported PLI of 8.88%. The assessee produced the annual report showing that the comparable's reporting period for the relevant year covered only nine months (1 April 2011 to 31 December 2011), and financial data for the remaining period (1 January 2012 to 31 March 2012) was not available. Given the mismatch in accounting periods and the absence of full-year financial data for the private comparable, the Tribunal directed that Golden Chemicals Pvt. Ltd. be excluded from the comparability analysis. The Tribunal thereby found that the comparable was not suitable for benchmarking against the assessee's 12 month accounting period and ordered its exclusion by the TPO. [Paras 15]

Golden Chemicals Pvt. Ltd. excluded from the comparability analysis; TPO directed to remove it.

Comparability analysis and selection/exclusion of comparables - Profit Level Indicator (OP/Sales) - Inclusion of Nilchem Industries Ltd. as a comparable company - HELD THAT: - Nilchem Industries Ltd. had been accepted by the TPO and assigned a corrected PLI by the assessee and TPO in the remand proceedings. The learned CIT(A) excluded this comparable despite there being no objection by the parties below to its inclusion; the assessee had not sought exclusion before the CIT(A) but rather contested other aspects. The Tribunal observed that Nilchem was not in dispute between the parties and that the TPO had included it after recomputing its margin. The CIT(A)'s exclusion of a comparable that neither party contested was therefore incorrect. The Tribunal directed the TPO/Assessing Officer to include Nilchem Industries Ltd. as a good comparable in the benchmarking exercise. [Paras 16]

Nilchem Industries Ltd. to be included as a comparable; TPO/Assessing Officer directed to include it.

Transfer pricing adjustment - Most Appropriate Method (MAM) - Transactional Net Margin Method (TNMM) - Confirmation of TNMM and the transfer pricing adjustment subject to modification on comparables - HELD THAT: - The assessee had originally advocated the CUP method and tested its foreign AEs, but those grounds were not pressed before the Tribunal and therefore not contested on appeal. The lower authorities (TPO and CIT(A)) had adopted TNMM using OP/Sales as the PLI and prepared a comparables set; the CIT(A) confirmed an adjustment of Rs.1,66,15,022/-. The Tribunal declined to reopen the unpressed challenges to MAM and the rejection of CUP, dismissed grounds 1 to 3, but modified the comparability set by excluding Golden Chemicals and including Nilchem Industries Ltd., thereby directing the TPO to revise the benchmarking and resulting adjustment accordingly. [Paras 13, 14, 17]

TNMM affirmed as the MAM for the assessment; transfer pricing adjustment confirmed subject to recalculation after directed inclusion/exclusion of specified comparables.

Final Conclusion: The appeal is partly allowed: the Tribunal directed exclusion of Golden Chemicals Pvt. Ltd. and inclusion of Nilchem Industries Ltd. in the comparability analysis and upheld the use of TNMM/OP to sales for benchmarking; the TPO/Assessing Officer is to recompute the transfer pricing adjustment accordingly. The remaining grounds challenging choice of MAM/CUP and tested party were not pressed and are dismissed.

Defective/vague show cause notice - penalty under section 270A - distinction between "under reporting" and "mis reporting" - penalty under section 271AAB - necessity to specify applicable clause (a)/(b)/(c) - separate penalty and assessment proceedings - strict interpretation of penal provisions and requirement of particulars in notice

Defective/vague show cause notice - penalty under section 270A - distinction between "under reporting" and "mis reporting" - separate penalty and assessment proceedings - Validity of penalty proceedings for A.Y. 2017-18 where show cause notice referred only to "under reported income" but penalty was levied for "mis reporting of income" under section 270A. - HELD THAT: - The notice dated 02/06/2021 framed the charge as "under reported income" and did not specify how the case fell within the instances enumerated for "mis reporting" under section 270A(9). Penalty proceedings are distinct from assessment proceedings and cannot be cured by the assessment order; different penal consequences attach to under reporting and to under reporting consequent to mis reporting. The Tribunal applied the settled line of authority that an omnibus or vague show cause notice which fails to inform the assessee of the precise limb of the penalty provision amounts to non application of mind and violates principles of natural justice. In the absence of any show cause on "mis reporting", imposition of penalty under section 270A(9) could not be sustained and was therefore deleted, leaving merits open as academic. [Paras 7, 16]

Penalty under section 270A for A.Y. 2017-18 deleted as the show cause notice was vague and did not disclose the limb of mis reporting for which higher penalty was imposed.

Defective/vague show cause notice - penalty under section 271AAB - necessity to specify applicable clause (a)/(b)/(c) - strict interpretation of penal provisions and requirement of particulars in notice - Validity of penalty proceedings under section 271AAB for A.Y. 2018-19 and A.Y. 2019-20 where the show cause notices did not specify which clause of section 271AAB(1) / 271AAB(1A) was invoked. - HELD THAT: - Identical show cause notices for both years merely stated that undisclosed income was found after search but did not indicate whether penalty was sought under clause (a), (b) or (c) of section 271AAB(1) or clause (a) or (b) of section 271AAB(1A). The Tribunal followed authoritative decisions of various Benches and High Courts holding that the notice under section 274 must be specific enough to convey the exact charge and the limb of the penal provision relied upon. A generic or proforma notice that fails to spell out the precise statutory limb renders the penalty proceedings defective. Applying these principles, the Tribunal held the notices invalid and deleted the penalties for both assessment years, leaving merits undecided as academic. [Paras 19, 21, 25]

Penalties under section 271AAB for A.Y. 2018-19 and 2019-20 deleted because the show cause notices were vague and did not specify the applicable clause under section 271AAB.

Final Conclusion: Appeals allowed: penalty under section 270A for A.Y. 2017 18 deleted for defective/vague notice (no show cause on mis reporting); penalties under section 271AAB for A.Y. 2018 19 and 2019 20 deleted for failure to specify the applicable clause in the show cause notices; merits of the penalties left open as academic.

Summary order. Delay of 624 days in filing the special leave petition condoned; the Special Leave Petition dismissed as covered by the three-Judge Bench decision in Union of India & Anr. Vs. Ganpati Dealcom Pvt. Ltd. dated 23.08.2022; pending applications, if any, disposed of.

Treatment of warehoused goods found outside notified bonded area but within factory premises - owner's right under Section 64(d) to deal with warehoused goods with sanction of proper officer - applicability of Section 71 / Section 72 to alleged improper removal of warehoused goods - date for determination of rate of duty - Section 15(1)(b) v. Section 15(1)(c) - interest on delayed payment of duty under Section 28AB - confiscation under Section 111(j) and penalty under Section 112 for unauthorised removal

Treatment of warehoused goods found outside notified bonded area but within factory premises - applicability of Section 71 / Section 72 to alleged improper removal of warehoused goods - date for determination of rate of duty - Section 15(1)(b) v. Section 15(1)(c) - Validity of customs duty, interest and confiscation demands in respect of 264 cases found outside the notified bonded warehouse but within the factory premises - HELD THAT: - The Court found that the 264 packages had been unloaded outside the notified open bonded area but remained within the factory premises pursuant to specific permission granted by the Superintendent and that the permission was neither cancelled nor revoked. The warehousing arrangement for the notified bonded area continued (as evidenced by the Central Warehousing Corporation's deposits for 1992-1993 to 2007-2008 and by the Department's treatment of the 304 cases found inside the notified area). Consequently, the provisions treating goods as improperly removed from a warehouse (Sections 71/72) did not apply to those 264 cases. The Court held that Section 15(1)(b) was inapplicable and that the residuary provision Section 15(1)(c) would govern determination of duty for those packages. The demand of duty, interest under Section 28AB, and confiscation/related consequences insofar as they were imposed on the 264 cases were therefore unsustainable and were set aside. The Court directed the parties to work out remedies under Section 15(1)(c) within eight weeks. [Paras 52, 53, 55, 56, 58]

Demand of customs duty, interest and confiscation as imposed on the 264 cases set aside; liability to be reconsidered and worked out under Section 15(1)(c) within eight weeks.

Confiscation under Section 111(j) and penalty under Section 112 for unauthorised removal - interest on delayed payment of duty under Section 28AB - Liability for customs duty and interest in respect of 27 cases not found in the warehouse or on the factory premises - HELD THAT: - The Court recorded that there was no satisfactory explanation from the appellant for the 27 missing cases which were neither found inside the notified bonded warehouse nor located elsewhere within the factory premises. On this factual finding the Court upheld the view of the adjudicating authority and CESTAT that those 27 cases had been improperly or unauthorisedly removed and that duty and interest as determined by the authorities in respect of those 27 cases were maintainable. [Paras 7, 10, 54, 58]

Demand of customs duty and interest in respect of the 27 missing cases is sustained.

Confiscation under Section 111(j) and penalty under Section 112 for unauthorised removal - owner's right under Section 64(d) to deal with warehoused goods with sanction of proper officer - Validity of penalty of Rs.1,00,000 imposed under Section 112 on the appellant - HELD THAT: - The Court distinguished between the 264 packages (for which relief was granted) and the 27 missing packages (for which there was no explanation). In view of the appellant's conduct in relation to the 27 missing cases - namely unauthorised removal from the notified bonded warehouse and from the factory premises - the imposition of penalty under Section 112 on the appellant was held to be justified and was not disturbed. [Paras 54, 58]

Penalty of Rs.1,00,000 imposed under Section 112 is upheld.

Final Conclusion: Appeal allowed in part: demands, confiscation and interest directed against the 264 cases set aside and to be reworked under Section 15(1)(c) within eight weeks; demands in respect of the 27 missing cases and the penalty of Rs.1,00,000 under Section 112 upheld; impugned order of CESTAT modified accordingly.

Summary order. The Civil Appeals are dismissed and the Tribunal's judgment is not interfered with.

Prohibition on import of obscene articles - obscene as defined in Section 292 of the Indian Penal Code - ejusdem generis in construing notification entries - confiscation for prohibited goods - perverse adjudicatory finding based on imagination or potential use

Prohibition on import of obscene articles - obscene as defined in Section 292 of the Indian Penal Code - ejusdem generis in construing notification entries - perverse adjudicatory finding based on imagination or potential use - Whether the adjudicating officer was justified in holding that the imported "Caresmith Wave Body Massager" were "Adult Sex Toys" and thus prohibited under Clause (ii) of Notification No. 1/1964-Customs read with the concept of obscenity in Section 292 IPC, warranting confiscation. - HELD THAT: - The court held that Clause (ii) of Notification No.1/1964 must be read ejusdem generis and the items listed therein (books, pamphlets, papers, drawings, paintings, representations, figures or articles) are of a kind not directly analogous to mechanical devices such as body massagers. The Commissioner's conclusion rested on speculative reasoning about potential or alternative use and on his personal perception, which the tribunal and this court found to be a figment of imagination rather than a legal categorisation supported by material. Expert opinions obtained by the department themselves described the imported items as body massagers while noting possible alternative uses; that possibility, however, could not be the sole test to treat otherwise permissible goods as prohibited. Adoption of a test based on conceivable or probable use would permit arbitrary prohibition of imports and exceed lawful adjudicatory limits. Consequently there was no material to classify the goods as obscene within the meaning invoked or to bring them under Clause (ii) so as to justify confiscation under the Customs Act; the Commissioner's construction was perverse and unsustainable. [Paras 11, 12, 13, 14]

The tribunal's setting aside of the confiscation order was upheld; the goods could not be categorised as prohibited obscene articles on the basis relied upon by the Commissioner.

Confiscation for prohibited goods - perverse adjudicatory finding based on imagination or potential use - Whether the penalty orders against the partners of the importing firm survive in view of the firm's successful challenge to confiscation. - HELD THAT: - The court observed that the adjudicating authority's orders imposing penalties on the partners were founded on the same impugned characterisation of the goods and the same reasoning which the tribunal and this court have held to be untenable. Given that the substantive finding of prohibition and confiscation against the firm was set aside, the penalties imposed on the partners could not be sustained for the reasons articulated in the decision on the firm's appeal. [Paras 16, 17]

The appeals by the partners were dismissed; the penalty orders did not survive in light of the firm's successful challenge to the confiscation order.

Final Conclusion: The Tribunal was correct in setting aside the Commissioner's Order in Original: the goods could not be treated as prohibited obscene articles under the impugned notification on the basis of speculative or imaginative use, and consequent confiscation and penalties were unsustainable; the revenue's appeals are dismissed and the connected penalty appeals by the partners are accordingly rejected.

Composite penalty under Section 112(a) and 112(b) of the Customs Act, 1962 - Strict liability under Section 112(a) - Mens rea/knowledge requirement under Section 112(b) - Concealment and non-declaration as evidence of knowledge - Confiscation for import of prohibited goods

Composite penalty under Section 112(a) and 112(b) of the Customs Act, 1962 - Strict liability under Section 112(a) - Mens rea/knowledge requirement under Section 112(b) - Concealment and non-declaration as evidence of knowledge - Liability of the petitioner to penalties under Section 112(a) and Section 112(b) and the permissibility of imposing both penalties concurrently. - HELD THAT: - The Court held that Section 112(a) operates on strict liability and does not require mens rea, whereas Section 112(b) requires proof of knowledge or reason to believe that the goods are liable to confiscation. The goods in question were prohibited gold, concealed within medicine sachets and not declared in the Indian Customs Declaration Form, conduct which rendered the goods liable to confiscation. The manner of concealment, repeated international trips carrying goods for others, and the admissions in the statement under Section 108 established that the petitioner carried and concealed the gold knowing or having reason to believe it was liable to confiscation. On these concurrent bases the Adjudicating Authority was entitled to impose penalty under Section 112(a) (strict liability) and under Section 112(b) (knowledge-based liability); imposing penalty upto the value of the goods was permissible and the quantum fixed was not disproportionate. [Paras 18, 20, 23, 24, 27]

Penalty under both Section 112(a) and Section 112(b) was sustainable on the facts; petitioner was liable under both provisions and the imposed penalty was not disproportionate.

Concealment and non-declaration as evidence of knowledge - Admissibility and probative value of the petitioner's statement under Section 108 and whether the statement was voluntary or retracted. - HELD THAT: - The petitioner contended the statement was recorded under duress, but he did not retract the statement before the authorities. The statement recorded on 07.01.2015 contained admissions about frequent travel, carrying goods for others for consideration, and that on the trip in question he accepted the packet for payment and later realised it contained gold; he also accepted his mistake and confessed. In the absence of any retraction, the adjudicating authority was justified in relying upon the statement as voluntary and probative of knowledge and involvement in concealment. [Paras 5, 21, 22, 23]

The statement under Section 108 was not shown to be retracted and was rightly relied upon; there was no infirmity in treating it as voluntary and admissible.

Final Conclusion: The writ petition is dismissed; the order imposing confiscation and concurrent penalties under Section 112(a) and 112(b) is upheld and the penalty imposed is not disproportionate.

Statutory entitlement to interest on refund - Section 27A of Customs Act - remand for adjudication of interest claim - opportunity of hearing on quantum

Section 27A of Customs Act - statutory entitlement to interest on refund - Entitlement of the petitioner to interest on allowed refund claims under Section 27A of the Customs Act. - HELD THAT: - The Court held that Section 27A provides for payment of interest on delayed payment of refund amounts and thereby creates a statutory entitlement in favour of the petitioner which the adjudicating officer was required to consider. Although the adjudicating authority allowed the refund claims on remand, it failed to decide the claim for interest despite the petitioner's specific prayer before the Commissioner of Appeals and the remand. The Court further observed that even if a specific prayer for interest had not been made, the statutory entitlement under Section 27A would nonetheless require consideration of interest when refund applications are allowed. Accordingly, the adjudicating officer must adjudicate the claim for interest in accordance with law. [Paras 5]

The petitioner is entitled to have the claim for interest under Section 27A considered and decided by the adjudicating officer.

Remand for adjudication of interest claim - opportunity of hearing on quantum - Direction to the adjudicating officer to decide the interest claim and procedure/timetable for doing so. - HELD THAT: - The Court remanded the matter to the adjudicating officer with directions to decide the petitioner's interest claim after granting an opportunity of hearing on the quantum. The adjudicating officer was directed to issue seven days' notice to the petitioner so that necessary documents may be produced, and to decide the interest claim and grant appropriate interest in accordance with law within four weeks from the date of the order. All other contentions were kept open. [Paras 6, 7]

Proceedings remanded and adjudicating officer directed to grant hearing (seven days' notice) and decide the interest claim within four weeks, granting appropriate interest as per law.

Final Conclusion: The High Court directed the adjudicating officer to consider and decide the petitioner's claim for interest under Section 27A of the Customs Act (relating to refund claims for the period 2nd April, 2013 to 30th April, 2015), after affording the petitioner a hearing on quantum by seven days' notice, and to pass an appropriate order within four weeks; all other contentions left open.

Limitation for refund under Notification No.102/2007-Cus - interpretation of exemption notification strictly - Section 28 of the Customs Act - recovery and pre-notice payment/deposit - characterisation of payment as deposit versus payment/appropriation of duty - Article 265 - levy or collection only by authority of law

Limitation for refund under Notification No.102/2007-Cus - interpretation of exemption notification strictly - Whether the refund claim filed by the appellant in 2021 was barred by the time limit prescribed in the Notification and therefore liable to be rejected as time barred. - HELD THAT: - The Tribunal (following the Commissioner (Appeals)) held that the fresh refund claim submitted on 11.10.2021 was a complete claim for refund and was therefore subject to the time limit prescribed by the exemption Notification No.102/2007 Cus. The appellate authority applied the principle of strict interpretation of exemption notifications (as endorsed by higher authority and consistent with the Constitutional Bench approach) and relied on precedents treating conditional exemptions and their prescribed time limits as binding. The fact that the appellant had earlier obtained a refund and then returned the amount did not extend the period for filing a new claim beyond the statutory time limit; accordingly the resubmitted claim after about 41/2 years was held to be time barred and inadmissible under the Notification.

The refund claim filed in 2021 was time barred under the Notification and was correctly rejected.

Section 28 of the Customs Act - recovery and pre-notice payment/deposit - characterisation of payment as deposit versus payment/appropriation of duty - Whether the amount returned by the appellant (demand draft depositing the refunded amount with interest) retained the character of a 'deposit' so that limitation or other bars would not apply, or whether it amounted to payment under Section 28 and self appropriation by the Department. - HELD THAT: - The Tribunal accepted the reasoning of the Commissioner (Appeals) that the appellant, having paid back the erroneously refunded amount along with interest before any show cause notice was served, fell within the ambit of Section 28(1)(b) and (2) insofar as pre notice payment is concerned. However, the authority found that the payment was voluntary in response to audit observations and amounted to acceptance of self appropriation by the Department; it did not preserve the appellant's position so as to permit a fresh refund claim outside the time limit. The appellate reasoning distinguished a bona fide, contested payment made 'under protest' from the facts at hand, concluding that the payment here did not negate the applicability of the Notification's limitation for a subsequent refund claim.

The payment made by the appellant was treated as voluntary payment accepted by the Department (self appropriation) under the framework of Section 28 and did not operate to avoid the statutory limitation for filing a fresh refund claim.

Section 28 of the Customs Act - recovery and pre-notice payment/deposit - characterisation of payment as deposit versus payment/appropriation of duty - Whether a show cause notice was required to be issued after the appellant returned the erroneously refunded amount prior to any notice. - HELD THAT: - Relying on the provisions of Section 28, the appellate authority and the Tribunal observed that where the duty (or erroneously refunded amount) is paid by the person before service of notice and such payment is intimated in writing, the proper officer is not required to issue a show cause notice in respect of that amount. The record showed the appellant had paid back the refund and interest before any SCN; therefore issuance of SCN was not legally necessary in respect of the amount so returned. Nevertheless, separate from the question of issuance of SCN, the Tribunal held that the appellant's subsequent attempt to claim refund was time barred.

No show cause notice was required in respect of the amount voluntarily refunded prior to service of notice; that procedural position, however, did not entitle the appellant to maintain the delayed refund claim.

Final Conclusion: The Tribunal upheld the concurrent findings of the lower authorities: the appellant's resubmitted refund claim of 2021 is barred by the time limit prescribed in the exemption Notification and rightly rejected; the amount paid back by the appellant before issuance of any notice was treated as voluntary payment/appropriation under Section 28 and did not preserve a right to a belated refund.

Exemption under Notification No. 52/2003-Cus - clause (3) - waste, scrap and by products arising in course of manufacture covered for DTA sale on payment of applicable duty - non obstante clause - application of norms fixed by Norms Committee for consumption/ waste - demand of duty on excess consumption of imported inputs computed by applying norms - clearing of waste/scrap in Domestic Tariff Area (DTA) with permission of Development Commissioner - duty demand under Section 72 read with Section 28 of the Customs Act (as invoked by Revenue) - interpretation of Chapter 6 of the Foreign Trade Policy on DTA sale/destruction of waste - limited circumstances for recovery of duty on bonded goods under Customs Manual

Clause (3) - waste, scrap and by products arising in course of manufacture covered for DTA sale on payment of applicable duty - application of norms fixed by Norms Committee for consumption/ waste - demand of duty on excess consumption of imported inputs computed by applying norms - clearing of waste/scrap in Domestic Tariff Area (DTA) with permission of Development Commissioner - Whether demand of customs duty on excess imported scrap calculated by applying norms is sustainable where segregated waste/scrap arising in manufacture was cleared in DTA on payment of applicable duty with Development Commissioner's permission - HELD THAT: - The Tribunal applied clause (3) of Notification No. 52/2003 Cus, which, by way of a non obstante provision, treats goods used in manufacture and the resulting finished goods (including by products, rejects, waste and scrap arising in the course of production) as covered for exemption and permits their sale in DTA on payment of appropriate excise/duty subject to Development Commissioner's permission. Following the Tribunal's decision in Meridian Impex and the Gujarat High Court's decision in Monarch Overseas, the activity of segregation/manufacture resulting in segregated scrap was held to amount to manufacture and the scrap cleared in DTA after permission and on payment of applicable duty falls within clause (3) and cannot be treated as clearance of 'inputs as such' to justify a further demand of customs duty measured by norms. The Tribunal also noted the FTP provisions and Customs Manual showing that DTA clearance of waste/scrap on payment of duty (or destruction with permission) is contemplated and that recovery of duty on bonded goods is limited to specified circumstances. On these grounds and consistent precedent, the demand based on excess consumption as computed by applying norms was held unsustainable. [Paras 4, 5, 6, 10, 11]

Demand of customs duty on alleged excess use of imported scrap (computed by applying norms) is not sustainable where segregated waste/scrap was cleared in DTA with Development Commissioner's permission on payment of applicable duty; appeal allowed.

Final Conclusion: Appeal allowed; demand of customs duty on excess imported scrap set aside, following the Tribunal's and High Court's precedents and on the view that segregated waste/scrap cleared in DTA upon permission and payment of duty is covered by clause (3) of Notification No. 52/2003 Cus.

Importer - countervailing duty - extended period of limitation - intention to evade duty / suppression of facts - interpretational issue - CENVAT credit - penalty - interest on duty - precedential decision of the Tribunal

Extended period of limitation - intention to evade duty / suppression of facts - interpretational issue - CENVAT credit - penalty - interest on duty - Invocation of the extended period and sustainment of the demand of CVD, interest and penalties. - HELD THAT: - The Tribunal found that, although the substantive question whether the appellant was the importer had been decided against the appellant by earlier Tribunal authority, the only ground pressed before this Bench was limitation. The appellant had acted under a bona fide belief, the question of importership was contentious and interpretational in nature, and payment of the CVD would enable the appellant to claim CENVAT credit, rendering the situation revenue neutral. The Department failed to establish any positive act of suppression by the appellant with intent to evade duty. In these circumstances the extended period of limitation could not be validly invoked, and consequently the demand of CVD along with interest and the imposition of penalties could not be sustained on the ground of limitation. The Tribunal therefore set aside the impugned order on limitation grounds and allowed the appeal with consequential relief as per law. [Paras 5]

The invocation of the extended period is not justified; the demand of CVD, interest and penalties is set aside on limitation grounds and the appeal is allowed.

Final Conclusion: Appeal allowed; impugned order set aside on the ground that the extended period of limitation could not be invoked in the facts of the case, with consequential relief as per law.

Refund of 4% SAD - doctrine of unjust enrichment - certification by Chartered Accountant/statutory auditor as proof of non passing of burden - compliance with Notification No.102/2007 Cus (condition regarding unjust enrichment and CA certificate) - acceptance of CA certificate in lieu of audited balance sheet - rebuttable presumption under Section 28D regarding passing on of duty

Doctrine of unjust enrichment - certification by Chartered Accountant/statutory auditor as proof of non passing of burden - compliance with Notification No.102/2007 Cus (condition regarding unjust enrichment and CA certificate) - Chartered Accountant/statutory auditor certificate furnished by the importer is sufficient to discharge the requirement of proving that the incidence of 4% SAD was not passed on to customers and thereby satisfies the unjust enrichment condition of the Notification. - HELD THAT: - The Tribunal held that, in light of Board Circulars and consistent precedent, a certificate from the statutory auditor/Chartered Accountant explaining that the burden of the 4% levy has not been passed on is adequate to rebut the presumption of passing on of duty and to meet the Notification's unjust enrichment requirement. The decision notes that Circulars 6/2008, 16/2008 and 18/2010 accept CA certification for this purpose and relieve field formations from insisting on production of audited balance sheet and profit and loss accounts. The Tribunal further relied on earlier decisions, including the line of authorities culminating in the Supreme Court dismissal of the Revenue's appeal in the Apple India matter, to conclude that the CA/auditor certificate produced by the appellant satisfies the statutory condition and negates unjust enrichment in the absence of any contrary departmental contention. [Paras 10]

Certificate of the statutory auditor/Chartered Accountant produced by the appellant suffices to meet the unjust enrichment condition and entitles the appellant to refund.

Acceptance of CA certificate in lieu of audited balance sheet - compliance with Notification No.102/2007 Cus (condition regarding unjust enrichment and CA certificate) - Non production of the amount as receivable in the audited books (balance sheet/profit & loss) is not fatal where Board circulars permit acceptance of a Chartered Accountant's certificate and a self declaration to satisfy the Notification's conditions. - HELD THAT: - The Tribunal observed that the sole objection recorded by the adjudicating authority - that the appellant did not show the refundable amount as receivable in its books - is untenable in view of Board Circular No.18/2010 which states that field formations shall accept a CA certificate and need not insist on audited balance sheet and profit & loss account for satisfying the unjust enrichment condition. In absence of any other substantive objection (such as sale without payment of VAT/Sales Tax), the rejection on this ground was held unsustainable. [Paras 8, 10]

Failure to show the refund amount as receivable in the audited accounts does not warrant rejection where a proper CA/auditor certificate and self declaration, as contemplated by Board circulars, are produced.

Final Conclusion: The appeals are allowed; following the Board circulars and relevant precedents the Chartered Accountant/statutory auditor certificate furnished by the appellant satisfies the unjust enrichment requirement under Notification No.102/2007 Cus and the refund claim is to be allowed with consequential relief in accordance with law.

Refund claim maintainability under Section 27 - self-assessment and requirement of modification or challenge before refund - rectification/amendment of bill of entry under Sections 144 and 149 - price variation clause versus provisional assessment - binding effect of Supreme Court decision in ITC Limited on refund claims

Refund claim maintainability under Section 27 - self-assessment and requirement of modification or challenge before refund - binding effect of Supreme Court decision in ITC Limited on refund claims - Refund claims filed after self-assessment of Bills of Entry without modification or challenge are not maintainable. - HELD THAT: - The Tribunal applied the ratio of the Supreme Court in ITC Limited, which holds that Section 27 refund proceedings cannot be used to re open or modify a self assessment; a refund cannot be entertained unless the order of assessment or self assessment has been modified in accordance with law. Processing a refund is in the nature of execution and not re assessment; adjudication of eligibility for exemption or re assessment is not permissible in refund proceedings absent prior modification or challenge of the assessment. Since the appellants did not seek or obtain modification of the self assessed Bills of Entry nor challenge the assessments, their refund claims could not be entertained. [Paras 8]

Refund claims are not maintainable as the self assessments were not modified or challenged.

Price variation clause versus provisional assessment - self-assessment and requirement of modification or challenge before refund - Existence of a contractual price variation clause does not convert a concluded self assessment into a provisional assessment for the purpose of claiming refund under Section 27. - HELD THAT: - The appellants relied on Chaudhary Ship Breakers to contend that a price variation clause rendered the assessments provisional. The Tribunal distinguished that authority because, in Chaudhary, the Bills of Entry had been assessed provisionally. In the present case the Bills of Entry were self assessed and unmodified; a contractual price variation clause alone does not permit treating such self assessment as provisional so as to bypass the requirement of modification or challenge before claiming refund. [Paras 7]

The price variation clause relied on by the appellants does not render the self assessments provisional; Chaudhary Ship Breakers is inapplicable.

Rectification/amendment of bill of entry under Sections 144 and 149 - self-assessment and requirement of modification or challenge before refund - Absence of applications for rectification or amendment under Sections 144 and 149 precludes reliance on authorities permitting amendment of self assessed Bills of Entry to sustain refund claims. - HELD THAT: - The appellants cited decisions permitting amendment or rectification of self assessed Bills of Entry. The Tribunal observed that those precedents are inapposite because the appellants had not actually filed any application under Sections 144 or 149 for rectification/amendment. In the absence of such proceedings effecting modification of the self assessment, the case law on amendment does not assist the appellants and cannot render the refund claims maintainable. [Paras 9]

The appellants' reliance on amendment/rectification authorities fails because no applications under Sections 144 and 149 were filed to modify the Bills of Entry.

Final Conclusion: Applying the Supreme Court's ruling in ITC Limited, the Tribunal dismissed the appeals and upheld the impugned order rejecting the refund claims because the self assessed Bills of Entry were neither modified nor challenged and no rectification/amendment proceedings had been instituted; consequentially the refund claims were not maintainable.

Non-obstante clause - exemption under Notification No.52/2003-Cus - waste and scrap arising in the course of production or manufacture - clearance to Domestic Tariff Area on payment of applicable excise duty with Development Commissioner's permission - EOU manufacture in bonded warehouse - decisions per incuriam

Non-obstante clause - exemption under Notification No.52/2003-Cus - waste and scrap arising in the course of production or manufacture - clearance to Domestic Tariff Area on payment of applicable excise duty with Development Commissioner's permission - Whether customs duty can be demanded on imported inputs consumed in an EOU on the ground that wastage exceeded SION norms where the segregated waste/scrap was cleared into DTA with permission and on payment of applicable excise duty. - HELD THAT: - The Tribunal held that clause (3) of Notification No.52/2003-Cus, which begins with a non-obstante clause, extends the exemption to goods imported and used for manufacture and to by-products, rejects, waste and scrap arising in the course of production even if such items are sold in the DTA, provided relevant conditions (including clearance with permission and payment of applicable duty) are satisfied. The material facts showed that imported mixed brass scrap was used for manufacture in the EOU, segregated waste arose in the manufacturing process, and the segregated waste was cleared to DTA with the Development Commissioner's permission and on payment of applicable excise duty. The Tribunal found no allegation or evidence of diversion of inputs to DTA without permission. Earlier authorities cited by the Revenue were treated as per incuriam for not addressing the scope of the non-obstante clause. Applying the legal principle in clause (3), the Tribunal concluded that denial of exemption or demand of customs duty on the excess wastage (calculated over SION norms) was not sustainable where the segregated waste was duly cleared to DTA on payment of duty and not shown to have been removed without permission. [Paras 10, 11, 12]

Demand of customs duty on the imported inputs for excess wastage over SION norms was not sustainable; appeals allowed.

Final Conclusion: The Tribunal allowed the appeals, holding that clause (3) of Notification No.52/2003-Cus. covers waste and scrap arising in manufacture even if in excess of SION norms provided such waste was cleared to DTA with the Development Commissioner's permission and on payment of applicable excise duty; contrary decisions were treated as per incuriam.

Validity of show-cause notice at interlocutory stage - Effect of NPA classification vis-a -vis wilful defaulter proceeding - Moratorium under Section 96 of the Insolvency and Bankruptcy Code - Liability and assets of guarantors vis-a -vis principal debtor - Requirement of service of Forensic Audit Report to enable reply - Role of Wilful Defaulter Identification Committee in adjudication

Validity of show-cause notice at interlocutory stage - Effect of NPA classification vis-a -vis wilful defaulter proceeding - Whether the interim/injunctive order in the writ challenging NPA classification vitiates the bank's Show-cause Notice or prevents initiation of wilful defaulter proceedings - HELD THAT: - The court held that an interlocutory finding in an interim order is tentative and does not amount to a final setting aside of the NPA classification. The injunction in the earlier writ restrained the bank only from proceeding on or giving effect to a specific proposal for sale of NPAs and did not stay the NPA classification itself. More fundamentally, the event of default precedes classification as an NPA and a borrower may be a defaulter for purposes of wilful defaulter proceedings irrespective of any dispute over the subsequent NPA classification. Even applying pandemic-related RBI circulars, the petitioner-Company was a defaulter as from November 30, 2020, and no repayment had been made; accordingly the bank was not precluded from issuing a Show-cause Notice on the premise of default notwithstanding ongoing litigation about NPA classification. The court also noted that documents produced during hearing but not referred to in the Show-cause Notice could not be relied upon to furnish new grounds at this stage. [Paras 24, 25, 26, 27, 28]

The interlocutory order does not vitiate the Show-cause Notice and the bank may proceed with wilful defaulter proceedings despite pending challenge to NPA classification; documentary material not referenced in the Notice cannot be relied on at this stage.

Liability and assets of guarantors vis-a -vis principal debtor - Role of Wilful Defaulter Identification Committee in adjudication - Whether reference in the Show-cause Notice to assets of directors/guarantors renders the Notice invalid because such assets are not assets of the borrower-Company - HELD THAT: - The court observed that the Master Circular contemplates declaration of both the borrower-unit and, separately, guarantors as wilful defaulters. Clause 2.6 recognises that a guarantor's liability is co-extensive with the principal debtor under Section 128 of the Indian Contract Act, 1872, and a banker may proceed against a guarantor without exhausting remedies against the principal debtor. While the Master Circular requires that declaration of wilful default of the unit focus on the unit's assets, mentioning guarantor assets in the Show-cause Notice is not wholly irrelevant. A Show-cause Notice need only outline the broad spectrum of allegations sufficient to inform the noticee; detailed compliance with Clause 2.6 and full consideration of guarantor-specific elements are matters for the Wilful Defaulter Identification Committee and the Review Committee at the adjudicatory stage, not for testing at the show-cause stage. [Paras 29, 30, 31, 32]

Reference to guarantors' assets in the Show-cause Notice does not invalidate it; merits regarding guarantor liability and related particulars are to be considered by the Wilful Defaulter Identification Committee.

Moratorium under Section 96 of the Insolvency and Bankruptcy Code - Effect of moratorium on wilful defaulter proceedings - Whether pendency of proceedings under Sections 95/96 of the IBC creates a moratorium that bars initiation or continuation of wilful defaulter proceedings - HELD THAT: - Relying on the court's earlier decision in Gouri Prasad Goenka and the Supreme Court's analysis in P. Mohanraj, the court held that moratoria under the IBC (notably Section 14 and, by extension, Section 96) are directed at proceedings which foreclose, recover or enforce security or are directly relatable to recovery of the debt or property. Wilful defaulter proceedings, whose object is to disseminate credit information and warn financial institutions so as to prevent further lending, do not constitute recovery or enforcement proceedings and are not 'relatable' to such recovery in the sense contemplated by the IBC moratorium. Therefore pendency of a Section 95 proceeding and the moratorium under Section 96 does not automatically bar wilful defaulter proceedings. [Paras 37, 38, 39, 40, 41]

Pendency of IBC proceedings does not attract a moratorium that bars initiation or continuation of wilful defaulter proceedings.

Requirement of service of Forensic Audit Report to enable reply - Fair opportunity to reply to Show-cause Notice - Whether non-service of the Forensic Audit Report and other documents relied upon in the Show-cause Notice renders the Notice unsustainable and what remedy should be granted - HELD THAT: - The court recognised that the Show-cause Notice repeatedly relied upon the Forensic Audit Report (FAR) and that absence of the FAR would make the petitioners' right to reply illusory. However, non-service of the FAR, by itself, did not render a Notice otherwise valid in law void. Instead, the appropriate remedy was to direct the bank to furnish copies of the FAR and any other documents it intends to rely upon so that the petitioners can meaningfully reply. The court directed service of such documents within a week and an extension of a further fortnight to file replies; the petitioners may also indicate within their reply whether they seek a personal hearing, and if so the bank must grant one promptly. The court emphasised that service on the petitioners' advocates would suffice and, once served, petitioners cannot later complain of lack of individual service. [Paras 42, 43, 44, 45]

Bank directed to serve the Forensic Audit Report and other relied-upon documents within one week and to grant a further fortnight to file replies; opportunity for personal hearing to be provided if sought in the reply.

Role of Wilful Defaulter Identification Committee in adjudication - Adjudication of the merits of allegations in the Show-cause Notice - HELD THAT: - The court held that the merits of the allegations forming the basis of the Show-cause Notice cannot be examined at the interlocutory stage. A Show-cause Notice is intended to set out sufficient ingredients so as to inform the noticee; detailed adjudication is reserved for the Wilful Defaulter Identification Committee and thereafter the Review Committee. Consequently, the court declined to adopt a fault-finding approach at the show-cause stage and refrained from deciding on the substantive merits of allegations which remain for the statutory Committee to consider after service of documents and receipt of replies. [Paras 33, 34, 35, 36, 46]

Merits of the wilful defaulter allegations are not decided by the court and are left to be adjudicated by the Wilful Defaulter Identification Committee and the Review Committee after due process.

Final Conclusion: Writ petition dismissed insofar as it seeks quashing of the Show-cause Notice; the bank is directed to serve the Forensic Audit Report and other relied-upon documents within one week and to grant a further fortnight to the petitioners to file replies (and a personal hearing if sought). The wilful defaulter proceeding may thereafter continue before the statutory Committees in accordance with the Master Circular and law; no costs.

Wilful defaulter declaration - capacity to pay - diversion of funds - disposal of secured assets - one time settlement (OTS) and its effect on prior default - effect of Corporate Insolvency Resolution Process on director's liability - administrative nature of in house bank committees - judicial review for patent perversity/no evidence

Wilful defaulter declaration - administrative nature of in house bank committees - judicial review for patent perversity/no evidence - Validity of the Review Committee's affirmation of the petitioner's declaration as a wilful defaulter and adequacy of reasons in the RC order. - HELD THAT: - The Court held that both the First Committee and the Review Committee considered the material on record and rendered findings; the RC did give independent findings in addition to confirming earlier conclusions. As the committees are administrative (not quasi judicial), elaborate reasons are not required; interference under Article 226 is warranted only for patent perversity or absence of evidence. The impugned decisions were not found to be totally without evidence or perverse, and no procedural irregularity was shown to warrant quashing the declaration. [Paras 44, 45, 46]

The Review Committee's affirmation of the wilful defaulter declaration is sustainable and will not be interfered with.

One time settlement (OTS) and its effect on prior default - Whether the existence of an OTS or partial payments under it obliterate or erase a prior wilful default. - HELD THAT: - The Court held that an OTS represents partial payment with waiver of part of the debt by the bank and does not obliterate a prior default. The default committed at the relevant juncture is not effaced merely by entering into an OTS; therefore, a wilful default finding may still be valid despite an OTS having been agreed. [Paras 34]

An OTS does not automatically negate a prior wilful default for the purposes of the Master Circular.

Capacity to pay - Whether the borrower's reported losses preclude a finding of wilful default where revenue was earned but not routed to repay the loan. - HELD THAT: - The Court observed that profit is not an essential criterion; if revenue/sales realization was earned but not routed to reduce outstanding debt, such conduct can amount to wilful default under the Master Circular. The Bank relied on the company's balance sheets and credit summation showing a large gap between revenue from operations and credit summation in the cash credit account, supporting the inference that proceeds were not routed to repay the loan. [Paras 3, 5, 35, 36]

Despite accounting losses, evidence of revenue not being used to repay the loan supports a finding of wilful default for lack of capacity use to pay.

Diversion of funds - Whether opening and using an account with another bank (ICICI, Darjeeling) and not routing sales proceeds through the sanctioned account amounts to diversion of funds under the Master Circular. - HELD THAT: - The Court found that diversion of funds as contemplated includes non utilization of finance for the purpose for which it was availed and can include siphoning. The petitioner admittedly parked some sale proceeds in an ICICI Bank account instead of routing them through the cash credit account as required by the cash credit facility. That conduct, particularly where the cash credit facility required channeling of funds through the respondent bank, falls within the Master Circular's concept of diversion of funds. [Paras 6, 8, 31, 37, 38]

Routing sales proceeds to another bank account and failing to channelize funds through the sanctioned account constitutes diversion of funds under the Master Circular.

Disposal of secured assets - Whether assignment/transfer of entitlement to sale proceeds of the tea gardens amounted to disposal of secured assets without the bank's knowledge. - HELD THAT: - The Court held that the borrower Company had pledged the gardens and their produce as security; revenue from the gardens comprises the corpus of the secured assets. By assigning entitlement to realization of sale proceeds in favour of third parties, the borrower effectively disposed of the secured assets without informing or obtaining consent of the lender. The explanation based on prior agreements or governmental directions did not absolve the company from requirement to notify or obtain the bank's consent. [Paras 11, 12, 13, 40, 41]

Assignment of rights to sale proceeds of hypothecated gardens without the bank's knowledge amounts to disposal of secured assets, supporting wilful default finding.

Effect of Corporate Insolvency Resolution Process on director's liability - Whether commencement of CIRP absolves the director/promoter of the borrower Company from a wilful defaulter declaration. - HELD THAT: - The Court rejected the submission that CIRP extinguishes liability of directors for wilful default. Directors are living hands of the company and can be held responsible for acts of the company. A corporate insolvency resolution process does not automatically absolve directors of wilful default; the purpose and operation of the Master Circular and authorities cited support continuing proceedings against directors where wilfulness is established. [Paras 2, 19, 42, 43]

The pendency of CIRP does not absolve the petitioner director from a wilful defaulter declaration.

Final Conclusion: The writ petition challenging the declaration of the petitioner as a wilful defaulter is dismissed; the Review Committee's affirmation is sustained as supported by evidence of revenue not routed to repay the loan, diversion of funds, and disposal of secured assets, and the petitioner as director cannot be absolved by the occurrence of CIRP or by entering into an OTS.

Winding up and dissolution when affairs completely wound up - Power to dissolve company when liquidator cannot proceed for want of funds or assets - Permission to Official Liquidator to disburse funds and pay professional fees - Transfer of unpaid dividend into Public Account of India - Disposal and weeding out of company records after statutory period

Winding up and dissolution when affairs completely wound up - Power to dissolve company when liquidator cannot proceed for want of funds or assets - Order for dissolution of the company in liquidation under Section 481 of the Companies Act, 1956 and Rule 282 of the Companies (Court) Rules, 1959 - HELD THAT: - The Court found on the Official Liquidator's report and record review that all realizable assets of the company had been sold (including realization by the Bank), there were no secured creditors available, and no other assets remained for realization for creditors. The Official Liquidator and ex-directors confirmed no assets were available and the affairs appeared completely wound up. In view of these facts and in exercise of the power under Section 481 read with Rule 282, the Court concluded it was just and reasonable to dissolve the company and ordered dissolution from the date of the order. [Paras 6, 7]

Company in liquidation M/s. STI Phoenix Wear Private Limited stands dissolved from the date of the order.

Permission to Official Liquidator to disburse funds and pay professional fees - Transfer of unpaid dividend into Public Account of India - Permission to pay professional fees, retain funds for winding up expenses and to transfer remaining unpaid dividend to the Public Account of India - HELD THAT: - The Official Liquidator reported receipts into the liquidation account and sought authority to pay audit and professional fees, to retain a sum for future winding up expenses, and to transfer any unpaid dividend (if remaining beyond statutory period) into the Public Account of India as contemplated by the statutory scheme. The Court perused the report, noted the amounts in the liquidation account and the absence of further assets, and granted the requested permissions including payment of approved professional fees and authority to transfer sums to the Public Account in accordance with the statutory provision cited by the Official Liquidator. [Paras 3, 5, 8, 9]

Reliefs sought by the Official Liquidator to pay professional fees, retain funds for winding up expenses, and to transfer appropriate unpaid dividend amounts into the Public Account of India are allowed.

Disposal and weeding out of company records after statutory period - Permission to the Official Liquidator to weed out the records of the company in liquidation after five years from the date of dissolution - HELD THAT: - The Official Liquidator sought leave to destroy or weed out the company's records after expiry of five years from the date of dissolution. Having ordered dissolution and found no further proceedings necessary, the Court permitted the Official Liquidator to weed out the records after five years, subject to law. [Paras 9]

Official Liquidator permitted to weed out the records of the company in liquidation after five years from the date of dissolution.

Final Conclusion: The Court allowed the Official Liquidator's report and prayers, directed dissolution of M/s. STI Phoenix Wear Private Limited under Section 481 and Rule 282, permitted payment of approved professional and audit fees and transfer of funds as contemplated into the Public Account of India, authorised weeding out of records after five years, directed transmission of the order to the Registrar of Companies, and ordered deposit of litigation costs by the petitioner.

Settlement application - condonation of delay - Settlement Regulations, 2018 - opportunity to be heard / fresh consideration - Writ jurisdiction under Article 226 - non precedential order in peculiar facts

Settlement application - condonation of delay - Settlement Regulations, 2018 - opportunity to be heard / fresh consideration - Whether the rejection of the petitioner's settlement applications on the ground of delay in submission of documents should be set aside and the applications restored for fresh consideration. - HELD THAT: - The Court found that there was a delay of 15 days in submission of documents required for the settlement applications and that the Respondent was obliged to follow the Settlement Regulations, 2018. Having considered the reasons offered by the petitioner for the delay and the peculiar facts of the case, the Court held that the petitioner would suffer prejudice if the settlement applications were permitted to become inconsequential solely on account of the short delay. In light of this, the Court set aside the impugned rejection and restored the settlement proceedings so that the Respondent may decide the applications afresh and in accordance with law. The Court directed that the reconsideration be completed expeditiously within eight weeks and expressly left all contentions on adjudication open for determination by the Respondent. The Court also clarified that the order is confined to the peculiar facts and is not to be treated as a precedent. [Paras 6, 8, 10]

Impugned rejection set aside; settlement applications restored for fresh consideration in accordance with law within eight weeks; order not to be treated as precedent; all adjudicatory contentions kept open.

Final Conclusion: The High Court allowed the petition in part by setting aside SEBI's order rejecting the settlement applications for a 15 day delay, restored the settlement proceedings for fresh consideration in accordance with law within eight weeks, kept all substantive contentions open, and specified that the order is confined to the case's peculiar facts and is not precedent.

Related party - constitution of Committee of Creditors - verification and admission of claims and voting share - duty and conduct of Resolution Professional - Town Planning reservation and effect on bidding - finality of approved resolution plan - drag along / sail along principle

Related party - constitution of Committee of Creditors - Whether the Financial Creditor was a 'related party' of the Corporate Debtor and whether its inclusion vitiated constitution of the CoC. - HELD THAT: - The Tribunal examined the contention that the Debenture Trust Deeds established that the Financial Creditor exercised control over board decisions, appointments and business of the Corporate Debtor such as to attract Section 5(24)(h) and (m). It held that mere contractual clauses in DTDs or the presence of protections for a lender (such as appointment of a monitoring agent) do not, without concrete evidence, establish that directors or managers were accustomed to act on the creditor's directions or that the creditor participated in policy making, interchanged managerial personnel, or provided essential technical information. The appellant failed to place categorical material proving advice, direction or participation by the Financial Creditor, and the related party contention was not substantiated in pleadings or raised before the CoC. In absence of tangible proof, the RP was not irregular in admitting the Financial Creditor as a member of the CoC and the CoC's constitution was not vitiated on this ground. [Paras 16, 17, 18, 19, 20]

Related party status of the Financial Creditor was not established; inclusion of the Financial Creditor in the CoC did not invalidate the CoC.

Verification and admission of claims and voting share - constitution of Committee of Creditors - Whether the Financial Creditor was assigned an inflated vote share by admission of an excessive claim and whether that affected validity of CoC decisions. - HELD THAT: - The Tribunal accepted the Adjudicating Authority's finding that the RP had obtained and placed detailed workings of the creditor's claim on record and that any dispute over components (such as penal interest) was considered; further, even if certain amounts were excluded the Financial Creditor's vote share would remain above the threshold. The CoC minutes show iterative verification and adjustment of admitted claims with the Financial Creditor's vote share decreasing from initial meetings to the 12th meeting while the homebuyers' share rose correspondingly. No contemporaneous objections were raised by the authorised representative in CoC meetings to the RP's verification process. In light of these factors and the Adjudicating Authority's separate adjudication in IA 3327/2023, there was no ground to hold the admission of the claim or assigned voting share to be improper. [Paras 21, 22]

Admission and verification of the Financial Creditor's claim and consequent vote share were valid; CoC decisions are not tainted on this ground.

Duty and conduct of Resolution Professional - Town Planning reservation and effect on bidding - Whether the Resolution Professional acted improperly in handling the alleged Thane Municipal Corporation reservation and whether that conduct caused withdrawal of prospective bidders leaving a sole bidder. - HELD THAT: - The Tribunal reviewed CoC minutes and found the RP repeatedly apprised the CoC of the TMC reservation from the 6th meeting onward, conducted follow up including visits, RTI, obtaining legal opinion and engaging counsel to seek remedies, and facilitated meetings between homebuyers and prospective applicant(s). The Adjudicating Authority had considered the reservation to be at proposal stage with no binding notification and noted that withdrawal of PRAs on account of perceived reservation did not establish bias or collusion, as all PRAs had the same information and could make independent commercial decisions. The RP also acted on the AR's suggestions, uploaded homebuyer choices in the data room and communicated options to PRAs. On these facts, the RP's conduct was bona fide and did not cause a taint requiring interference. [Paras 26, 27, 28, 29, 30]

No dereliction or collusion by the RP in relation to the TMC reservation; RP's conduct did not vitiate the resolution process.

Finality of approved resolution plan - drag along / sail along principle - Whether the CoC approved and Adjudicating Authority approved resolution plan should be set aside or re bidded at the instance of the dissatisfied minority homebuyer(s). - HELD THAT: - The Tribunal observed that the resolution plan had been approved by the requisite CoC majority and further approved by the Adjudicating Authority; the SRA had also enhanced its offer by agreeing to pay 100% of principal to homebuyers, which was accepted by the 77 homebuyers represented by the appellant. There was no evidence of contravention of law or material irregularity in the CIRP or the RP's conduct. Citing the settled principle embodied in the Jaypee decision, the Tribunal emphasised that a constituent of a class dissenting from a collective commercial decision approved by the requisite majority cannot obstruct a plan once lawfully approved. Allowing the appellant to reopen or derail an implemented plan would frustrate the time bound scheme of the Code. [Paras 31, 32, 33, 34, 35]

No interference with the approved resolution plan; minority homebuyer cannot set aside the collectively approved and implemented plan.

Final Conclusion: The appeal is dismissed for lack of merit; the Tribunal found no material to establish related party status, no infirmity in verification of claims or RP's conduct regarding TMC reservation, and no basis to upset the CoC and Adjudicating Authority approved resolution plan, applying the principle that a minority within a creditor class cannot frustrate a duly approved plan.

Service tax liability - show cause notice and adjudication - finality of adjudication in absence of statutory appeal - provisional attachment of bank account for recovery - grant of instalment facility for tax recovery - lifting of bank freeze on payment of instalment

Finality of adjudication in absence of statutory appeal - show cause notice and adjudication - Challenge to Ext. P6 order and related Ext. P8 notice in writ jurisdiction where no statutory appeal was preferred - HELD THAT: - The court held that Ext. P6, the adjudication confirming service tax, interest and penalties, had become final because the appellant did not prefer the statutory appeal. Ext. P6 was passed after complying with statutory formalities and affording opportunity of hearing; there was no lack of jurisdiction or breach of principles of natural justice. Consequently, the appellant cannot re-agitate the correctness of Ext. P6 or the enforcement steps taken thereunder (Ext. P8) by way of writ petition where a statutory remedy was available and not availed. [Paras 3]

The challenge to Exts. P6 and P8 in writ jurisdiction fails; Ext. P6 is final for want of statutory appeal.

Grant of instalment facility for tax recovery - lifting of bank freeze on payment of instalment - provisional attachment of bank account for recovery - Whether the appellant may be permitted to clear the confirmed service tax liability by instalments and have the bank freeze lifted on payment of the first instalment - HELD THAT: - Having found Ext. P6 final, the court nevertheless exercised discretion to permit recovery by instalments in view of the appellant's financial condition. The court recorded that the Commissioner has power to grant instalments (up to 24) and ordered a specific scheme: payment of a specified first instalment by a fixed date, lifting of the bank-account freeze on receipt of that payment, and repayment of the balance in 24 equal monthly instalments commencing on a stated date. The court also made clear that any default would entitle the respondents to resume recovery of the entire outstanding amount in accordance with law. [Paras 4, 5]

Instalment facility granted with conditions: first payment by specified date to lift bank freeze; balance in 24 monthly instalments; default permits respondents to recover the entire due.

Final Conclusion: Writ appeal dismissed on merits of adjudication; Ext. P6 held final for want of statutory appeal. Relief of instalment payments granted as a compassionate recovery measure, subject to conditions including upfront payment to lift the bank freeze and 24 monthly instalments for the balance, with liberty to respondents to recover the whole amount on default.

Exercise of option under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 - payment under the Composition Scheme and filing of returns as sufficient compliance with Rule 3(3) - requirement of prior formal/intimation in writing for availing composition rate - distinction from Nagarjuna Construction on facts and applicability - invocation of extended period of limitation

Exercise of option under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 - payment under the Composition Scheme and filing of returns as sufficient compliance with Rule 3(3) - requirement of prior formal/intimation in writing for availing composition rate - distinction from Nagarjuna Construction on facts and applicability - Whether payment of service tax at the composition rate and filing of returns constitutes sufficient exercise of the option under rule 3(3) of the Composition Scheme so as to dispense with a separate prior formal intimation in writing to the department. - HELD THAT: - The Tribunal examined rule 3(3) in light of rule 3(1) and the absence of any prescribed format or procedure for exercising the option. Having considered prior decisions of this Tribunal and the Calcutta High Court in Larsen & Toubro, the Court held that the substantive provision in rule 3(1) - allowing discharge of liability by payment at the composition rate - must be given effect and the machinery provision in rule 3(3) construed to give life to that substantive right. In the absence of any statutory form or requirement as to the manner and address of the option, the conduct of paying service tax at the composition rate and reflecting that rate in returns amounts to exercising the option. The Court distinguished Nagarjuna Construction on factual grounds where the taxpayer had already paid tax under the ordinary rate and later sought composition relief; thus Nagarjuna's ratio was held inapplicable to the present facts. Applying the consistent view of the Tribunal and the Calcutta High Court, the Court concluded that payment and return-filing sufficed as compliance with rule 3(3), rendering the demand unsustainable. [Paras 8, 16, 17]

Payment of service tax at the composition rate and filing returns is sufficient compliance with rule 3(3); no separate prior written intimation was required, and the demand confirmed by the Commissioner is set aside.

Final Conclusion: The appeal is allowed: the order dated 29.03.2017 confirming demand is quashed on the ground that payment at the composition rate and filing of returns amount to exercise of the option under the Composition Scheme, so no separate prior written intimation was required.

Confirmation of tax on a ground beyond the scope of the show cause notice - scope of Business Auxiliary Service in relation to arranging transportation - distinction between sale transaction and taxable service

Confirmation of tax on a ground beyond the scope of the show cause notice - Whether the confirmation of service tax on a ground different from that pleaded in the show cause notice is sustainable. - HELD THAT: - The Tribunal held that the show cause notice alleged the amounts retained as consideration for rendering a Business Auxiliary Service, whereas the Commissioner (Appeals) confirmed the demand on the distinct basis that the amounts were brokerage or commission. Confirming tax on a different category not raised in the notice amounts to travelling beyond the scope of the show cause notice and is legally impermissible. Reliance was placed on earlier authorities to the effect that a demand cannot be sustained on a basis other than that which was communicated to the assessee, and where the appellate authority proceeds on a different legal classification the order must be set aside to enable the Revenue to prosecute the correct case after giving proper notice. [Paras 5]

Findings of Commissioner (Appeals) confirming tax on a ground not pleaded in the show cause notice are unsustainable and set aside.

Scope of Business Auxiliary Service in relation to arranging transportation - service recipient in a sale transaction - Whether the appellant's activity of arranging transportation and retaining excess freight falls within the definition of Business Auxiliary Service. - HELD THAT: - The Tribunal examined the contractual matrix and observed that the relationship between the appellant and its buyers was a sale contract (purchase order) on FOR basis with freight payable separately. There was no contract between the appellant and the transporters nor any contract establishing that the buyer was a service recipient. The activities of engaging transporters to deliver goods under the sale contract did not fall within the enumerated clauses of Business Auxiliary Service. The Tribunal concluded that the element of a taxable service, as contemplated by the statutory scheme, was absent. [Paras 5]

The activity of arranging transport in the facts of the case does not constitute Business Auxiliary Service.

Distinction between sale transaction and taxable service - Whether the surplus retained by the appellant from freight collections constitutes taxable brokerage/commission or is merely profit incidental to a sale transaction. - HELD THAT: - The Tribunal held that the mere earning of a surplus from freight charged in the course of a sale cannot be treated as receipt for a taxable service where no service contract exists between the parties. The transaction was between principal manufacturer and principal buyer; freight was an adjunct to the sale price. Since the appellant did not act as a service provider to either the transporter or the buyer, the surplus could not be treated as consideration for a service liable to service tax. The finding of brokerage/commission by the Commissioner (Appeals) was therefore unsustainable on merits in addition to being beyond the scope of the notice. [Paras 5]

The surplus retained from freight collections is not taxable as brokerage/commission under the facts of this case.

Final Conclusion: The orders confirming service tax are set aside on the ground that the appellate findings travelled beyond the show cause notice and, on merits, the activity did not amount to a taxable Business Auxiliary Service or brokerage; consequence: appeal allowed.

Remand for fresh consideration - classification of taxable service - composition scheme in works contract service - burden of production of documents in departmental audit - time-bar under Section 73(1) - interest and penalties under Sections 73(2), 75, 77 and 78

Burden of production of documents in departmental audit - earlier audit report (IAR) and its temporal scope - IAR No.07/2010 did not cover the period October-December, 2009 as contended by the appellant. - HELD THAT: - The Tribunal accepted the Adjudicating Authority's finding that IAR No.07/2010 expressly specified the audit period as April, 2006 to September, 2009 and that there is no material to show the period was extended by the proper officer. The assessee's reliance on IAR No.07/2010 to contend prior knowledge of the alleged non-inclusion of material value for October-December, 2009 was rejected because the short payment in that IAR was calculated only for the specified audit period. The appellant failed to demonstrate that the earlier audit covered the disputed months or that the audit period had been validly extended.

Contention that the earlier IAR covered October-December, 2009 is rejected.

Classification of taxable service - composition scheme in works contract service - remand for fresh consideration - Whether the appellant's services qualify for the composition scheme applicable to Works Contract Service was not finally adjudicated and is remanded for fresh consideration upon production of documents. - HELD THAT: - The Adjudicating Authority found that the appellant did not produce bills/invoices or other evidence during audit to show that VAT/Sales Tax had been charged on materials and that the cost of materials was included in the gross amount declared as Works Contract Service; consequently it held the composition scheme unavailable and classified the services as Erection, Commissioning and Installation Services. The Tribunal, while noting these adverse findings, directed that in the interests of justice the appellant be given an opportunity to place the requisite documentary evidence before the Adjudicating Authority. The matter is remanded so that the Adjudicating Authority may re-examine classification and availability of the composition scheme on merits after considering any documents the appellant and the Department may produce.

Issue remanded to the Adjudicating Authority for fresh consideration on merits upon production and verification of documents.

Time-bar under Section 73(1) - remand for fresh consideration - The appellant's limitation defence was not accepted on the record before the Tribunal and is to be reconsidered by the Adjudicating Authority on remand with any supporting evidence. - HELD THAT: - The appellant asserted that the departmental action for October, 2009 to January, 2010 was time-barred because the earlier audit purportedly disclosed the non-inclusion of material value within the 18-month period under Section 73(1). The Tribunal noted that Audit Report No.1192/2010 was dispatched on 03.05.2011 and that the show cause notice was issued on 03.06.2013; however, the appellant failed to substantiate the limitation plea with corroborative documentary evidence before the appellate fora. Given the Tribunal's direction to permit production of documents and re-examination of classification and valuation matters, the question of limitation is to be re-examined by the Adjudicating Authority in light of any documents and submissions placed on record by either party.

Limitation plea is not accepted on present record; matter of time-bar to be reconsidered by the Adjudicating Authority on remand with available evidence.

Final Conclusion: The appeal is allowed by way of remand: the matter is directed to be re-opened before the Adjudicating Authority with liberty to both parties to produce documents and submissions; the Adjudicating Authority shall re-consider classification, availability of the composition scheme, any limitation defence and consequent demand, interest and penalties on merits after verification of the documents produced.

Extended period of limitation - use of balance sheet/Form-26AS to determine service tax liability without corroboratory evidence - requirement of positive/corroboratory evidence to treat reported income as consideration for taxable services - penalty under Section 78 for fraud or suppression

Use of balance sheet/Form-26AS to determine service tax liability without corroboratory evidence - requirement of positive/corroboratory evidence to treat reported income as consideration for taxable services - Amounts reflected in the assessee's Balance Sheet or Form-26AS cannot, by themselves, be used to determine service tax liability in absence of corroboratory evidence that such amounts represent consideration for taxable services. - HELD THAT: - The Tribunal applied the established principle that figures reported for Income Tax purposes (including amounts in the Profit & Loss account, Balance Sheet and Form-26AS) are not conclusive for determining service tax liability unless the Department adduces evidence showing that those receipts pertain to taxable services. The appellants' ST-3 returns and the records relied upon by the Department did not furnish independent proof that the amounts in the Balance Sheet represented consideration for taxable services. In these circumstances, the assessment founded solely on mismatch between ST-3 returns and Balance Sheets/26AS was held to be erroneous and unsustainable. [Paras 7, 8]

Demand confirmed solely on the basis of Balance Sheet/26AS is not sustainable; such figures cannot be used to determine service tax liability without corroboratory evidence.

Extended period of limitation - extended period invocation based on audit objections and appellant's own records - Extended period of limitation could not be invoked where the show-cause notice was issued solely on the basis of audit objections and the assessee's own records, and where there was no proof of fraud or suppression with intent to evade tax. - HELD THAT: - The Tribunal held that where the assessee had been regularly filing ST-3 returns and the Department's case proceeded only on audit observations and comparison with the assessee's own records, the invocation of the extended period was impermissible. The CBEC circulars require assessing officers to scrutinize returns at the preliminary stage; the Department's contention that correct facts could be examined only after perusal of Balance Sheets was rejected. In absence of any positive evidence of mala fide intention, evasion, fraud or suppression aimed at evading tax, the extended period of limitation could not be sustained and the demand was time-barred. [Paras 10, 11, 12]

Invocation of the extended period of limitation was erroneous; the demand is barred by limitation.

Penalty under Section 78 for fraud or suppression - absence of fraud or suppression as a basis for penalty - Penalty under Section 78, which presupposes fraud or suppression, is not sustainable where no ingredient of fraud or suppression with intent to evade tax is found. - HELD THAT: - Having held that the Department failed to prove any fraud, suppression or mala fide intent, the Tribunal concluded that the statutory prerequisite for levying penalty under Section 78 was absent. Where the demand itself is based only on data from Income Tax/Balances without positive evidence of deliberate suppression, penalty cannot be imposed. Consequently, the penalty under Section 78 was set aside. [Paras 12]

Penalty under Section 78 set aside for lack of any fraud or suppression.

Final Conclusion: The appeal is allowed: the demand confirmed solely on the basis of Balance Sheet/Form-26AS is set aside for want of corroboratory evidence; the invocation of the extended period of limitation is erroneous and the demand is time-barred; and the penalty under Section 78 is deleted for lack of fraud or suppression, with consequential relief as per law.

Pre-deposit requirement under Section 35F of the Central Excise Act, 1944 - maintainability of appeal where statutory pre-deposit condition is not complied with - jurisdiction of first appellate authority to entertain appeal in absence of prescribed pre-deposit - remand for de-novo adjudication where appeal dismissed for procedural non-compliance and no decision on merits

Pre-deposit requirement under Section 35F of the Central Excise Act, 1944 - maintainability of appeal - remand for de-novo consideration - Whether the appeal, dismissed by Commissioner (Appeals) for non-compliance with the pre-deposit requirement, should be remanded for de-novo consideration after the appellant has made the requisite pre-deposit before the Tribunal. - HELD THAT: - The Tribunal noted that the Commissioner (Appeals) dismissed the appeal for failure to comply with the conditions of Section 35F and thus did not decide the matter on merits. The Tribunal recorded that the appellant has now made a pre-deposit of 10%, which exceeds the 7.5% pre-deposit that was required for the first appellate authority to entertain the appeal. Because no adjudication on merits was carried out by the Commissioner (Appeals) and the dismissal was solely for procedural non-compliance with the pre-deposit requirement, the matter is fit for remand. The Tribunal directed that the Commissioner (Appeals) shall decide the appeal afresh (de-novo) on merits, within the specified time, thus restoring the appellant's opportunity for substantive adjudication once the pre-deposit condition is satisfied. [Paras 3, 4]

Appeal remanded to Commissioner (Appeals) for de-novo consideration on merits; Commissioner (Appeals) to decide the appeal within 90 days of receipt of this order.

Final Conclusion: The Tribunal allowed the appeal by remanding the matter to the Commissioner (Appeals) for fresh adjudication on merits because the appeal had been dismissed solely for non-compliance with the pre-deposit requirement and the appellant has since made the required pre-deposit; the Commissioner (Appeals) is directed to decide the appeal de-novo within 90 days.

Delay and laches - condonation of delay - dismissal for delay - effect of prior withdrawal and liberty to file fresh appeal - preservation of substantive questions for other proceedings

Delay and laches - condonation of delay - dismissal for delay - effect of prior withdrawal and liberty to file fresh appeal - Whether the appeal should be entertained despite a gross delay of 1191 days or dismissed on the ground of delay and laches. - HELD THAT: - The Court noted that the impugned order was dated 16.11.2015 and the present appeal was filed only on 11.3.2019, resulting in a delay of 1191 days. Although an earlier Civil Appeal Dy. No. 34413/2018 had been filed and subsequently withdrawn with liberty to file a fresh appeal, that earlier attempt was itself belated and did not constitute an appeal against the impugned order; the liberty granted related to an appeal against a different order. The appellants filed an additional affidavit seeking condonation of delay on grounds described as bona fide and unintentional, but the Court accepted the respondent's submissions that no timely appeal had been prosecuted against the impugned order and that the prior withdrawal and the liberty granted in C.A. Dy. No. 34413/2018 did not inure to the benefit of the appellants in respect of the 16.11.2015 order. In view of these facts and submissions, the Court found force in the respondent's contention and declined to condone the delay, dismissing the appeal on the ground of delay and laches while leaving open any substantive legal questions for resolution in an appropriate forum.

Appeal dismissed on the ground of delay and laches; condonation refused and appeal not entertained.

Final Conclusion: The appeal was dismissed for gross, unexplained delay (1191 days); the Court declined to condone the delay, holding that the earlier withdrawn appeal and the liberty granted did not validate the present belated filing, while leaving open any substantive legal questions to be raised in other appropriate proceedings.

Manufacture - process amounting to manufacture - activated bleaching earth - classification under Central Excise Tariff - extended period of limitation under Section 11A (proviso) - penalty under Section 11AB and interest under Section 11AC - confiscation of plant and machinery

Manufacture - process amounting to manufacture - activated bleaching earth - Whether the process carried out by the appellant on fuller's earth amounts to manufacture producing 'Activated Bleaching Earth' - HELD THAT: - The Court accepted the concurrent factual findings of the adjudicating authority, Commissioner (Appeals) and the Tribunal that fuller's earth lumps were crushed, pulverised, thermally treated (200 C-300 C) and chemically treated (pH adjustment with sulphuric acid) to produce various grades of a product sold as 'Activated Bleaching Earth'. The authorities found that the combined mechanical and chemical treatment altered the superficial structure and adsorption/bleaching properties of the raw mineral, produced goods with distinct end uses tailored to customers and that the raw fuller's earth could not be used for those purposes without the process. Applying the two tests extracted from the Supreme Court (a different product comes into existence and the original product would have no use but for the process), the Court held that the process amounts to manufacture and results in Activated Bleaching Earth. [Paras 19, 20, 21, 22, 23]

The process on fuller's earth amounts to manufacture producing Activated Bleaching Earth and is exigible to excise duty.

Classification under Central Excise Tariff - activated bleaching earth - Whether the finished product is classifiable under the Central Excise Tariff as an excisable product (held by authorities under chapter heading relating to 3802) - HELD THAT: - The Tribunal and lower authorities concluded that the modified product performs functions (decolouring, adsorption, filtration) characteristic of activated mineral substances and is marketed and invoiced as 'Activated Bleaching Earth'. The authorities relied on expert opinion, change of superficial structure by thermal/chemical treatment and market use to treat the product as falling under the relevant excise tariff heading rather than the exempted raw mineral classification. The High Court found no reason to disturb the concurrent classification on these factual findings. [Paras 6, 7, 22]

The finished product is properly classified as an excisable product (Activated Bleaching Earth) under the Central Excise Tariff as held by the Tribunal and appellate authorities.

Extended period of limitation under Section 11A (proviso) - penalty under Section 11AB and interest under Section 11AC - Whether invocation of the extended period of limitation and imposition of penalty and interest were justified - HELD THAT: - The Tribunal agreed with the appellate authorities that the appellants had contravened Central Excise Rules with intent to evade duty by describing and clearing the manufactured product as fuller's earth. Based on the finding of intent to evade, the authorities invoked extended limitation and imposed penalty and interest. The High Court declined to interfere with these concurrent findings of fact and the consequent application of the extended limitation and imposition of penalty and interest for clearances effective after the specified date. [Paras 7, 11, 21, 23]

Invocation of the extended period of limitation and demand of penalty and interest were upheld on the concurrent finding of intent to evade duty.

Confiscation of plant and machinery - Whether confiscation of plant and machinery and penalty on a director under Rule 209A were justified - HELD THAT: - While affirming demand, penalty and interest, the Tribunal, on review of the facts, held that confiscation of plant and machinery was not called for in this case and set aside the confiscation. The Tribunal also set aside the penalty imposed on the director under Rule 209A. The High Court accepted these aspects of the Tribunal's order and did not disturb the setting aside of confiscation and director's penalty. [Paras 7, 23]

Confiscation of plant and machinery and the penalty on the director under Rule 209A were set aside.

Final Conclusion: The High Court dismissed the appeal; concurrent factual findings that the appellant's process amounted to manufacture of Activated Bleaching Earth, the consequential classification and the invocation of extended limitation with penalty and interest were upheld, while confiscation of plant and machinery and the penalty on the director were set aside; no order as to costs.

Deemed operation of packing machines under Rule 18(2) of the CTPM Rules, 2010 - requirement of independent corroborative evidence to establish manufacture and clandestine clearance - mere presence of packing machinery not sufficient to infer manufacture - penalty under Section 11AC of the Central Excise Act, 1944 - assessment on deemed basis contingent upon proof to the contrary

Mere presence of packing machinery not sufficient to infer manufacture - requirement of independent corroborative evidence to establish manufacture and clandestine clearance - Whether the evidence shows that the FFS packing machine found in the unregistered premises was in working condition and used for manufacturing chewing tobacco. - HELD THAT: - The Tribunal found on the record that the machine was not operational at the time of verification and that the Department produced no corroborative evidence (such as purchase of raw materials or packing material, excess power consumption, buyer records, transport statements or expert technical examination) to establish manufacture or clandestine clearance. The Revenue did not demonstrate that the vital parts alleged to be missing were in fact present or that the machine had been used; photographs and mere presence were held insufficient. Applying these factual findings, the Tribunal concluded that the investigation failed to establish that the machine was in working condition or used for manufacture. [Paras 7, 10]

The evidence does not indicate that the FFS packing machine found in the unregistered premises was in working condition or used for manufacturing chewing tobacco.

Deemed operation of packing machines under Rule 18(2) of the CTPM Rules, 2010 - assessment on deemed basis contingent upon proof to the contrary - Whether Rule 18(2) of the CTPM Rules, 2010 can be invoked to demand duty from 08th March, 2010 in respect of the FFS packing machine found in the unregistered premises. - HELD THAT: - Rule 18(2) creates a deeming provision that machines found in unregistered units shall be treated as having been in operation unless evidence to the contrary is provided to the satisfaction of the Central Excise Officer. The Tribunal held that where the machine is shown to be non-functional or lacking vital parts, the Department must obtain corroborative evidence or carry out further technical/forensic inquiry rather than rely solely on presence. Citing and following the decision in Goyal Tobacco Co. (Tri.-Del), the Tribunal concluded that absent adequate evidence disproving the appellant's claim of non-operation, the deemed operation provision could not be invoked to demand duty for the period 08.03.2010 to 31.01.2012. [Paras 8, 10]

Rule 18(2) of the CTPM Rules, 2010 is not applicable to demand duty in this case for the period 08th March, 2010 to 31st January, 2012.

Penalty under Section 11AC of the Central Excise Act, 1944 - requirement of proof of manufacture and clandestine clearance - Whether penalty under Section 11AC of the Central Excise Act, 1944 is imposable on the appellant. - HELD THAT: - Penalty under Section 11AC (read with the CTPM Rules) is contingent upon establishment of production and clandestine removal of excisable goods. Having held that the Department failed to prove manufacture and clandestine clearance of chewing tobacco from the unregistered premises, the Tribunal found that the statutory precondition for imposing penalty did not exist. Consequently, the penalty confirmed in the impugned order could not be sustained. [Paras 9, 10]

Penalty under Section 11AC cannot be imposed in this case.

Final Conclusion: The impugned Order-in-Original confirming demand of central excise duty, interest and penalty is set aside; the appeal is allowed and the demand, interest and penalty are held unsustainable.

Classification under Chapter sub-heading 9018 3100 - parts and accessories - concessional rate of duty - exemption Notification No. 12/2012-CE dated 17.03.2012 - Cenvat credit entitlement

Classification under Chapter sub-heading 9018 3100 - parts and accessories - concessional rate of duty - Cenvat credit entitlement - exemption Notification No. 12/2012-CE dated 17.03.2012 - Whether the product 'All Star' Reusable Insulin Delivery Device (syringe without needle) falls under Serial No. 309 as parts and accessories of heading 9018 or under Serial No. 310 as 'all goods (other than parts and accessories thereof)' and whether Cenvat credit availed on inputs and input services is allowable. - HELD THAT: - The Tribunal accepted that the product is classifiable under Chapter sub-heading 9018 3100 as 'syringes with or without needles'. The Court examined the entries in Notification No. 12/2012-CE and noted that Serial No. 309 grants exemption only to 'parts and accessories' of goods of headings 9018 and 9019, whereas Serial No. 310 specifically covers 'All goods (other than parts and accessories thereof)' under heading 9018 at the concessional rate of duty. On inspection of the finished product, the Tribunal found it to be an independent, reusable syringe (syringe without needle) used for administering insulin and not a part or accessory of another good. Applying the specific wording of the notification, the Tribunal concluded that the product falls within Serial No. 310 and not within Serial No. 309. Consequently, payment of excise duty at the concessional rate of 6% under Serial No. 310 was held correct and the Cenvat credit on inputs and input services used in manufacture was held to be allowable.

The product is classifiable under Serial No. 310 of Notification No. 12/2012-CE and the appellants are entitled to the concessional rate and to the Cenvat credit claimed.

Final Conclusion: The appeals are allowed; the impugned orders are set aside. The Reusable Insulin Delivery Device is entitled to concessional duty under Serial No. 310 of Notification No. 12/2012-CE and the appellants' Cenvat credit on inputs and input services is upheld.

Admissibility of witness statements without examination in chief and cross examination - Binding effect of Settlement Commission findings on departmental adjudication - Admissibility of transporter statements and proof of clandestine removal - Limitation for issuance of show cause notice and time bar - Confiscation and redemption fine unsustainable where goods are not available for confiscation - Right to Cenvat credit where duty on final product has been paid and supply chain established

Binding effect of Settlement Commission findings on departmental adjudication - Admissibility of witness statements without examination in chief and cross examination - Right to Cenvat credit where duty on final product has been paid and supply chain established - Admissibility of transporter statements and proof of clandestine removal - Denial of Cenvat credit on aluminium ingots and allegation of clandestine removal of ingots - HELD THAT: - The Tribunal held that the departmental case that the appellants clandestinely removed aluminium ingots and did not use them in manufacture rested primarily on statements of transporters which were not subjected to the mandatory procedure of examination in chief followed by allowing cross examination as required under the statutory scheme; consequently those statements could not be relied upon. The Settlement Commission, after considering the same investigation material, found that the ingots were procured from NALCO on payment of duty, were processed through the parties' units into stranded wires and conductors, and that duty on the final product was paid; having been so decided by the Settlement Commission there was no scope for the Adjudicating Authority to take a contrary view on the same evidence. In view of these findings, the department had no material to sustain denial of Cenvat credit on the ingots. [Paras 5]

Demand for denial of Cenvat credit on the aluminium ingots held unsustainable and set aside.

Limitation for issuance of show cause notice and time bar - Whether the demand is time barred - HELD THAT: - The Tribunal found that information regarding the transactions was available to the department by October 2008 yet the show cause notice to the appellants was issued only after a lapse of about five years; on these facts the demand was held to be clearly time barred. [Paras 6]

Demand held time barred.

Confiscation and redemption fine unsustainable where goods are not available for confiscation - Sustainability of confiscation and consequential redemption fine - HELD THAT: - Two independent grounds led to rejection of the confiscation and redemption fine: firstly, the primary charge of clandestine removal failed and thus there could be no confiscation; secondly, even without prejudice the goods were not available for confiscation and, following the Tribunal's Larger Bench precedents, redemption fine cannot be imposed where goods are not available for confiscation. On both counts the redemption fine was held unsustainable. [Paras 7]

Confiscation and redemption fine quashed.

Final Conclusion: The impugned order confirming denial of Cenvat credit, interest, penalty and redemption fine is set aside; appeals allowed with consequential relief in accordance with law.

Strict construction of an exemption notification - area-based exemption - cut-off date for commencement of commercial production - addition or modification of plant and machinery after cut-off date - CBEC circulars as authoritative clarification of exemption schemes - internal TRU communications not equivalent to Board circulars - benefit of exemption to goods manufactured using subsequently installed machinery

Strict construction of an exemption notification - cut-off date for commencement of commercial production - addition or modification of plant and machinery after cut-off date - benefit of exemption to goods manufactured using subsequently installed machinery - Addition of plant and machinery after the cut-off date does not, by itself, disentitle a unit from claiming the area-based exemption for goods manufactured using such machinery where the unit satisfied the cut-off condition of commencement of commercial production on or before 31.12.2005. - HELD THAT: - The Tribunal held that the amended notification merely provides an entry-point stipulation - that civil construction and installation must commence after publication and commercial production must commence not later than 31.12.2005 - and does not contain any prohibition on additions/modifications to plant and machinery thereafter. It is impermissible to read additional conditions into a benevolent exemption notification; the word 'ALL' imported by the adjudicating authority had no basis in the notification. The Court relied on earlier decisions and Board circulars clarifying that post cut-off additions do not oust entitlement, subject to the residual period of exemption, and that the certificates issued by the designated committee, once validly granted and not revoked, are not negated merely by subsequent additions to machinery. Applying these principles, the Tribunal set aside the denial of exemption.

The denial of exemption on the ground of installation of additional machinery after the cut-off date was unsustainable; exemption cannot be withheld for goods manufactured using such machinery where the unit met the cut-off requirement.

CBEC circulars as authoritative clarification of exemption schemes - internal TRU communications not equivalent to Board circulars - CBEC circulars clarifying that addition/modification of plant and machinery after the cut-off date does not defeat entitlement to area-based exemption are applicable and the adjudicating authority erred in ignoring them in favour of internal TRU communications. - HELD THAT: - The Tribunal observed that the Board's circulars (including Circular Nos. 939/29/2010, 960/03/2012 and 968/02/2013) consistently clarified that mere addition or modification of plant and machinery after the cut-off date would not deprive an eligible unit of the exemption, though the exemption period would not be extended. The adjudicating authority's reliance on internal TRU letters - which are not circulars issued under Section 37B and have no equivalent sanctity - was misplaced. The Tribunal held that the CBEC clarifications correctly interpret the notification in light of its object to promote industrialisation and may be applied to the Kutch notification.

The adjudicating authority should have applied the Board's clarifications; internal TRU communications cannot override Board circulars and do not justify denial of exemption.

Benefit of exemption to goods manufactured using subsequently installed machinery - addition or modification of plant and machinery after cut-off date - On the facts, the second Splitting column was installed to improve the quality (degree of split) of the product and not to increase production capacity; accordingly goods produced using it remain eligible for exemption. - HELD THAT: - Having examined the technical process and production data, the Tribunal found no material increase in production after installation of the second Splitting column; monthly and annual production figures showed that pre-installation production levels could have been achieved without the second column. The plant had been conceived with two splitters and some related infrastructure pre-dated the cut-off; the purpose of the additional splitter, as evidenced by production trends and technical considerations, was quality enhancement (higher degree of split) rather than augmenting capacity. Therefore the TRU clarification applying to additions for quality/efficiency gains applies and bars denial of exemption for goods made on the second splitter.

The second Splitting column was installed to improve quality and does not disentitle the appellant from exemption for goods manufactured using it.

Penalty on director - benefit of exemption - Imposition of personal penalty on the Managing Director was not sustainable. - HELD THAT: - In view of the Tribunal's conclusions that the demands and denial of exemption were unsustainable both on law and facts, the concomitant personal penalty imposed on the director lacked justification. The Tribunal found no basis to sustain the penalty in the absence of lawful demand.

The penalty on the Managing Director is set aside.

Final Conclusion: The impugned order denying exemption, raising demands and imposing penalties was set aside; the appeals are allowed and consequential relief, if any, shall follow in accordance with law.

Interpretation of "total CENVAT credit" under Rule 6(3A) - Classification of eligible, ineligible and common credit under substituted Rule 6(3A) - Retrospective effect of a clarificatory substitution of a statutory sub rule - Treatment of by products (LPG and SKO) for reversal under Rule 6

Interpretation of "total CENVAT credit" under Rule 6(3A) - Classification of eligible, ineligible and common credit under substituted Rule 6(3A) - Meaning of "total Cenvat credit" in the formula of Rule 6(3A)(b)(ii) and whether it includes credits exclusively attributable to dutiable goods. - HELD THAT: - A conjoint reading of Rule 6(1), (2) and (3) shows that credit is not to be denied for inputs and input services used exclusively in relation to dutiable goods. The Tribunal held that for the purpose of the formula in Rule 6(3A) the "total CENVAT credit" to be apportioned is the total credit in the month (T) but, after classification, only the common credit (C) is to be further apportioned for reversal; credits exclusively attributable to dutiable goods (eligible credit) are not to be treated as part of the amount liable for reversal. Accepting the Revenue's interpretation would operate to disallow credit on inputs exclusively used for dutiable goods, which is not mandated by the Cenvat Credit Rules. The substituted sub rule (3A) further clarifies the sequential attribution (A, B, C, D, G) and confirms that only common credit is subject to proportional reversal under the formula. [Paras 4]

Total CENVAT credit for the purpose of apportionment under Rule 6(3A) must be classified to exclude credits exclusively used for dutiable goods; only the common credit is to be proportionately reversed.

Retrospective effect of a clarificatory substitution of a statutory sub rule - Whether the substitution of sub rule (3A) by Notification No.13/2016 is clarificatory and applicable retrospectively. - HELD THAT: - The Tribunal accepted that the substitution was intended to remove an anomaly and clarify the manner of attribution and apportionment under Rule 6(3A). Relying on the principle that a substitution which corrects an obvious mistake and does not take away substantive rights operates clarificatorily, the Tribunal held the substituted sub rule to have retrospective effect. Accordingly, the clarified procedure and sequential steps of attribution apply to amounts determined under Rule 6(3A) for the relevant period. [Paras 4]

The substituted sub rule (3A) is clarificatory and has retrospective effect; it governs the method of attribution and apportionment for earlier periods.

Treatment of by products (LPG and SKO) for reversal under Rule 6 - Whether Cenvat credit reversal is required in respect of LPG and SKO produced as by products. - HELD THAT: - Having regard to decisions of the Hon'ble High Court of Gujarat and other orders cited, the Tribunal found the issue in the present matter identical and decided in favour of the assessee. The Tribunal accepted that LPG (and similarly SKO) produced as a by product in refining does not attract reversal of Cenvat credit as if it were an intentionally manufactured exempted product requiring proportional reversal under Rule 6. [Paras 4]

No reversal of Cenvat credit is required in respect of LPG and SKO treated as by products.

Limitation and extended period of limitation - Limitation for periods alleged to be time barred (2008 09, 2009 10 and 2011 12). - HELD THAT: - The Tribunal expressly declined to decide the limitation plea after deciding the matter on merits. The question of whether the demands for specified earlier years are barred by limitation or whether extended period is invokable was left open for consideration. [Paras 4]

Limitation issues are kept open and not decided by the Tribunal.

Final Conclusion: The impugned order confirming demand and imposing penalty is set aside; appeal allowed and the matter disposed in favour of the appellant on the decided points, with consequential relief as per law; questions of limitation were left open for consideration.

Classification of tobacco as manufactured or unmanufactured - no estoppel against law - onus of proof and requirement of positive evidence for reclassification - HSN Explanatory Notes - casing/flavouring of tobacco does not necessarily amount to manufacture

Classification of tobacco as manufactured or unmanufactured - no estoppel against law - onus of proof and requirement of positive evidence for reclassification - HSN Explanatory Notes - casing/flavouring of tobacco does not necessarily amount to manufacture - Whether the demand of differential duty and penalty premised on classification of the appellant's product as manufactured tobacco is sustainable - HELD THAT: - The Tribunal examined the Commissioner (Appeals) order which sustained demand for the period 09.02.2012 to 31.08.2012 on two bases: (i) an alleged admission by the appellant that the product was classifiable under CETH 2403, and (ii) purchase records showing procurement of flavouring materials. The Tribunal held that an asserted admission cannot operate as estoppel against law in matters of classification; classification must be determined on legal and evidentiary foundations and not by purported concessions. Further, the revenue did not place any positive material on record to show that the finished goods underwent such processes as would render them manufactured tobacco. Reliance on settled precedents and HSN Explanatory Notes led to the conclusion that addition of flavouring or casing to raw tobacco for aroma or preservation does not necessarily convert unmanufactured tobacco into manufactured tobacco. In absence of test reports or other decisive evidence demonstrating irreversible change or marketability to ultimate consumers as a finished chewing/ manufactured product, the appellate finding sustaining demand lacked merit. Applying these principles, the Tribunal found no lawful basis to uphold the differential duty and penalty, set aside the impugned findings and allowed the appeal. [Paras 4, 5]

Impugned demand and penalty sustained by Commissioner (Appeals) lack merit and are set aside; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that classification could not be sustained on the basis of an alleged admission or purchase records alone, that there was no positive evidence to show the product was manufactured tobacco, and that casing/flavouring did not per se amount to manufacture; the impugned demand and penalty were set aside.

Deduction under Rule 9(1)(e) of the U.P. Value Added Tax Rules, 2008 - inter-state movement/import of goods for execution of pre-existing works contract - deemed sale in the course of inter-state trade - application of goods solely to works contract - strict approach to claims of exemption or deduction in taxing statutes

Deduction under Rule 9(1)(e) of the U.P. Value Added Tax Rules, 2008 - inter-state movement/import of goods for execution of pre-existing works contract - application of goods solely to works contract - Whether the assessee was entitled to reduction of turnover under Rule 9(1)(e) where cement was brought into U.P. from outside for use in a works contract - HELD THAT: - The Tribunal recorded unchallenged findings that the goods were imported from outside the State of U.P., that such movement was occasioned by pre-existing works contracts, and that the goods were applied solely for execution of those contracts. There was no finding that the goods were held in stock prior to the contract, or that two separate sales arose. Accordingly, on the facts found by the Tribunal there is no perversity in the factual conclusion and the statutory deduction under Rule 9(1)(e) applies. Although claims of exemption or deduction require careful scrutiny, where the factual prerequisites are established - inter-state import caused by and applied to a pre-existing works contract - the assessee is entitled to the benefit contemplated by Rule 9(1)(e). [Paras 7, 8]

Assessee entitled to deduction under Rule 9(1)(e) on the stated facts; question of law answered in favour of the assessee.

Final Conclusion: Revision allowed; the question of law is answered in favour of the assessee and against the Department, and the revision application is disposed of.

Application of mind to taxpayer's reply - right to opportunity to be heard/personal hearing - requirement of speaking order/reasoned order - remand for re-adjudication - order under Section 73 of the Central Goods and Services Tax Act, 2017 - time prescribed under Section 75(3) of the Act

Application of mind to taxpayer's reply - requirement of speaking order/reasoned order - order under Section 73 of the Central Goods and Services Tax Act, 2017 - Validity of the impugned order dated 23.12.2023 raising demand under Section 73 where the Proper Officer recorded the taxpayer's detailed reply as 'unsatisfactory' without considering it on merits. - HELD THAT: - The Court found that the impugned order merely records that the taxpayer's reply was 'not acceptable' and 'unsatisfactory' without any evidence of an application of mind to the detailed reply furnished by the petitioner. The Proper Officer was required to consider the reply on merits and either accept it or specify deficiencies with reasons; merely branding the reply as incomplete and unsupported shows failure to apply mind. Where further particulars were required, the officer ought to have specifically called for them before concluding the show-cause proceedings. For these reasons the order passed under Section 73 cannot be sustained. [Paras 4, 5, 6, 7]

Impugned order set aside for failure to consider the taxpayer's reply on merits and for not passing a reasoned order.

Remand for re-adjudication - right to opportunity to be heard/personal hearing - time prescribed under Section 75(3) of the Act - Relief and directions following setting aside: scope of re-adjudication and procedural steps to be followed by the Proper Officer. - HELD THAT: - The matter was remitted to the Proper Officer for de novo re-adjudication. The Proper Officer is directed to intimate to the petitioner the specific details/documents required, allow the petitioner to furnish explanations and supporting documents, give an opportunity of personal hearing, and thereafter pass a fresh speaking order in accordance with law. The re-adjudication is to be completed within the period prescribed under Section 75(3) of the Act. The Court expressly refrained from expressing any view on the merits of the contentions of the parties. [Paras 7, 8, 9]

Matter remitted for re-adjudication with directions to seek specific documents, grant personal hearing and pass a fresh speaking order within the period under Section 75(3).

Final Conclusion: The impugned demand order dated 23.12.2023 passed under Section 73 is set aside for want of application of mind and absence of a reasoned adjudication; the matter is remitted to the Proper Officer for re-adjudication after furnishing required particulars, providing personal hearing and passing a fresh speaking order within the timeframe prescribed by Section 75(3), with all substantive rights reserved.

Liability of directors under Section 141 of the Negotiable Instruments Act - vicarious/criminal liability for offences under Section 138 of the Negotiable Instruments Act - requirement of specific averments to fasten vicarious liability - effect of resignation/Form DIR-12 as evidence of cessation of directorship - quashing of criminal proceedings under Section 482 Cr.P.C.

Effect of resignation/Form DIR-12 as evidence of cessation of directorship - liability of directors under Section 141 of the Negotiable Instruments Act - Whether the petitioners who had resigned as directors prior to issuance and dishonour of the cheque can be prosecuted under Sections 138/141 of the Negotiable Instruments Act - HELD THAT: - The Court examined resignation letters, Forms DIR-12, board resolution and MCA master data which were undisputed by the complainant and showed that both petitioners ceased to be directors in July/August 2017 while the cheque was issued and dishonoured in 2018. Applying the principle in Rajesh Viren Shah v. Redington (and consistent decisions), a director who has resigned prior to issuance of the cheque cannot be held liable under Sections 138 and 141. The cheque bore the signature of the continuing director (accused no. 3) and the petitioners did not sign it. On these facts the petitioners, having resigned over a year before issuance, cannot be roped in as accused for the later dishonour of the cheque. [Paras 8, 9, 13, 20, 21]

Petitions allowed insofar as petitioners had resigned prior to issuance of the cheque; they cannot be prosecuted under Sections 138/141 for the dishonour of that cheque.

Requirement of specific averments to fasten vicarious liability - vicarious/criminal liability for offences under Section 138 of the Negotiable Instruments Act - Whether the complaint contained sufficient averments to show that the petitioners were in charge of and responsible for conduct of the company's business at the relevant time so as to attract vicarious liability under Section 141 - HELD THAT: - The complaint contained only a one line averment that "accused no. 2 to 4 are responsible of day to day affairs of accused no. 1" and did not reproduce or particularise how the petitioners were in charge of or responsible for conduct of the business at the time the cheque was issued/dishonoured. The Court applied settled precedents requiring clear factual averments to enable a prima facie conclusion of vicarious liability and noted that mere status as a director or verbatim recital of Section 141 is insufficient. In the absence of specific allegations or disputed evidence challenging the resignations, the complaint failed to make out the requisite prima facie case against the petitioners. [Paras 15, 16, 17, 19, 20]

Proceedings quashed against the petitioners on the ground that the complaint lacked specific averments to fasten vicarious liability under Section 141 and did not rebut the documentary proof of resignation.

Final Conclusion: On the undisputed documentary record showing resignation of the petitioners well before issuance and dishonour of the cheque, and in view of the absence of specific averments showing they were in charge of and responsible for the company's business at the relevant time, the High Court quashed the criminal proceedings against the petitioners under Sections 138/141 of the Negotiable Instruments Act and allowed the petitions under Section 482 Cr.P.C.